SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(Mark One)
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1998 or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 333-36253
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PRICE COMMUNICATIONS WIRELESS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3956941
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
45 Rockefeller Plaza, New York, New York 10020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 757-5600
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 the
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to the Form 10-K. |X|
AGGREGATE MARKET VALUE OF THE VOTING STOCK
HELD BY NONAFFILIATES OF THE COMPANY
No shares of the Company's Common Stock were held by nonaffiliates of the
Company on February 28, 1999.
The number of shares outstanding of the Company's Common Stock as of
February 28, 1999 was 100.
DOCUMENTS INCORPORATED
BY REFERENCE
None
OMISSION OF CERTAIN INFORMATION BY
CERTAIN WHOLLY-OWNED SUBSIDIARIES
The registrant meets the conditions set forth in General Instruction I
1(a) and (b) of Form 10-K and is therefore filing this form with a reduced
disclosure format.
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PART I
Item 1. BUSINESS
General
Unless otherwise indicated, all references herein to "PCW" refer to Price
Communications Wireless, Inc. and all references herein to the "Company" refer
to PCW and its subsidiaries and their respective predecessors. References herein
to the "Acquisition" refer to the acquisition during 1997 by PCW, which is a
wholly-owned direct subsidiary of Price Communications Cellular Holdings, Inc.
("Holdings") and a wholly-owned indirect subsidiary of Price Communications
Corporation ("PCC"), of Palmer Wireless, Inc. ("Palmer") and the related sales
of the Fort Myers and Georgia-1 systems of Palmer, as described below under "The
Acquisition." As used herein, the term "Palmer" includes its subsidiaries and
predecessors. PCW's principal executive offices are located at 45 Rockefeller
Plaza, New York, New York 10020, and its telephone number is (212) 757-5600.
Except for historical financial information and unless otherwise indicated, all
information presented below relating to the Company, including Pops, Net Pops
and the systems, gives effect to the consummation of the Acquisition (including
the sales of the Fort Myers and Georgia-1 systems). See "Certain Terms" for
definitions of certain terms used herein.
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. At
December 31, 1998, the Company provided cellular telephone service to 381,977
subscribers in Georgia, Alabama, South Carolina and Florida in a total of 16
licensed service areas composed of eight Metropolitan Statistical 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.
The Company has developed its business through the acquisition and
integration of cellular telephone systems, clustering multiple systems in order
to provide broad areas of uninterrupted service and achieve certain economies of
scale, including centralized marketing and administrative functions as well as
multi-system capital expenditures. The Company devotes considerable attention to
engineering, maintenance and improvement of its cellular telephone systems in an
effort to deliver high-quality service to its subscribers and to implement new
technologies as soon as economically practicable. Through its participation in
the North American Cellular Network ("NACN"), the Company is able to offer
ten-digit dialing access to its subscribers when they travel outside the
Company's service areas, providing them with convenient roaming access
throughout large areas of the United States, Canada, Mexico and Puerto Rico
served by other NACN participants. By marketing its products and services under
the CELLULAR ONE name, the Company also enjoys the benefits of association with
a nationally recognized service mark.
<PAGE>
Markets and Systems
The Company's cellular telephone systems serve contiguous licensed service
areas in Georgia, Alabama and South Carolina. The Company also has a cellular
service area in Panama City, Florida. The following table sets forth as of
December 31, 1998 and 1997 with respect to each service area in which the
Company owns a cellular telephone system, the estimated population, the
Company's beneficial ownership percentage and the Net Pops owned by the Company.
Estimated
Service Area Population(1) Percentage Net Pops
- ------------ ------------- ---------- ---------
Albany, GA .................. 117,984 86.5% 102,056
Augusta, GA ................. 440,864 100.0 440,864
Columbus, GA ................ 250,845 85.2 213,720
Macon, GA ................... 318,227 99.2 315,681
Savannah, GA ................ 288,736 98.5 284,405
Georgia-6 RSA ............... 203,899 96.3 196,355
Georgia-7 RSA ............... 135,121 100.0 135,121
Georgia-8 RSA ............... 157,912 100.0 157,912
Georgia-9 RSA ............... 118,111 100.0 118,111
Georgia-10 RSA .............. 151,827 100.0 151,827
Georgia-12 RSA .............. 215,935 100.0 215,935
Georgia-13 RSA .............. 148,361 86.5 128,332
Dothan, AL .................. 133,618 94.6 126,403
Montgomery, AL .............. 320,687 92.8 297,598
Alabama-8, RSA .............. 173,677 100.0 173,677
--------- ----- ---------
Subtotal ............... 3,175,804 3,057,997
--------- ---------
Panama City, FL ............. 149,953 78.4 117,563
--------- ---------
Total .................. 3,325,757 3,175,560
========= =========
(1) Based on population estimates for 1998 from the DLJ 1998 Winter Book.
Georgia/Alabama
In 1988, the Company acquired controlling interests in the licenses to
operate cellular telephone systems in the four MSAs (Montgomery and Dothan,
Alabama and Columbus and Albany, Georgia) that make up the core of its
Georgia/Alabama cluster. The Company continued to increase its presence in this
market by acquiring additional cellular service areas in 1989 (Macon, Georgia
MSA), 1992 (Georgia-9 RSA), 1993 (Alabama-8 RSA), 1994 (Georgia-7 RSA, Georgia-
8 RSA, Georgia-10 RSA and Georgia-12 RSA), 1995 (Savannah, Georgia MSA and
Augusta, Georgia MSA) and 1996 (Georgia-1 RSA and Georgia-6 RSA). The Augusta,
Georgia MSA includes Aiken County in South Carolina. In the aggregate, these
markets now cover a contiguous service area of approximately 38,000 square miles
that includes Montgomery, the state capital of Alabama, prominent resort
destinations in Jekyll Island, St. Simons Island and Sea Island, Georgia, and
over 710 miles of interstate highway, including most of 1-95 from Savannah,
Georgia to Jacksonville, Florida. The Company collects substantial roaming
revenue from cellular telephone subscribers from other systems traveling in
these markets from nearby population centers such as Atlanta and Birmingham, as
well as from vacation and business traffic in the southeastern United States.
Due in part to the favorable labor environment, moderate weather and relatively
low cost of land, during the last several years there has been an influx of new
manufacturing plants in this market. As of December 31, 1998 the Company
utilized 223 cell sites in this cluster.
Panama City
The Company acquired control of the non-wireline cellular license for the
Panama City, Florida market in 1991. The Company collects substantial roaming
revenue in this market from subscribers from other systems who visit Panama
City, a popular spring and summer vacation destination. As of December 31, 1998,
the Company utilized 13 cell sites in this market.
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Company Strategy
The Company's four strategic objectives are to: (1) expand its revenue
base by increasing penetration in existing service areas and encouraging greater
usage among its existing customers; (2) provide high-quality customer service to
create and maintain customer loyalty; (3) enhance performance by aggressively
pursuing opportunities to increase operating efficiencies and (4) expand its
regional wireless communications presence by selectively acquiring additional
interests in cellular telephone systems (including minority interests).
Specifically, the Company strives to achieve these objectives through
implementation of the following:
Aggressive, Direct Marketing. The Company employs a two-tier direct sales
force. A retail sales force handles walk-in traffic at the Company's 37 retail
outlets, and a targeted sales staff solicits certain industries and government
subscribers. The Company's management believes that its internal sales force is
more likely than independent agents to successfully select and screen new
subscribers and select pricing plans that realistically match subscriber means
and needs.
Flexible, Value-Oriented Pricing Plans. The Company provides a range of
pricing plans, each of which includes a monthly access fee and a bundle of
"free" minutes. Additional home rate minutes are charged at rates dependent on
the customer's usage plan and the time of day. In addition, the Company offers
wide area home rate roaming in the Company's systems and low flat rate roaming
in a six state region in the Southeastern United States.
The Company believes that its bundled minute offerings will encourage
greater customer usage. By increasing the number of minutes a customer can use
for one flat rate, subscribers perceive greater value in their cellular service
and become less usage sensitive, i.e., they can increase their cellular phone
usage without seeing large corresponding increases in their cellular bill.
Continually Adopting State of the Art System Design. The Company's network
allows the delivery of full personal communication services ("PCS")
functionality to its digital cellular customers, including primarily caller ID,
short message paging and extended battery life. The Company's network provides
for "seamless handoff" between digital cellular and PCS operators that, like the
Company, employ TDMA (Time Division Multiple Access) technology, one of three
industry standards and the one employed by AT&T, SBC and others; i.e. the
Company's customers may leave the Company's service area and enter an area
serviced by a PCS provider using TDMA technology without noticing the
difference, and vice versa. The Company has a favorable agreement with AT&T with
respect to PCS roaming and expects that other PCS operators may choose, like
AT&T, to concentrate PCS buildout in urban centers rather than the more rural
areas in which the Company concentrates.
Focusing on Customer Service. Customer service is an essential element of
the Company's marketing and operating philosophy. The Company is committed to
attracting new subscribers and retaining existing subscribers by providing
consistently high-quality customer service. In each of its cellular service
areas, the Company maintains a local staff, including a market manager, customer
service representatives, technical and engineering staff, sales representatives
and installation and repair facilities. Each cellular service area handles its
own customer-related functions such as credit evaluations, customer evaluations,
account adjustments and rate plan changes. To ensure high-quality service,
Cellular One Group authorizes a third-party marketing research firm to perform
customer satisfaction surveys of each of its licensees. Licensees must achieve a
minimum satisfaction level in order to continue using the Cellular One service
mark. The Company has repeatedly ranked number one in customer satisfaction
among all Cellular One operators (#l MSA in its category in 1998, 1997, 1996,
1995, 1993, and 1992; #1 RSA in its category in 1995).
The Acquisition
Prior to the Merger described below, the Company did not have any assets,
liabilities or operations other than the proceeds from the issuance of the 11
3/4% PCW Notes (as such term is described below) and liabilities with respect
thereto.
On May 23, 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"). On October 6, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc." Pursuant to the
Merger Agreement, PCC acquired each issued and outstanding share of common stock
of Palmer for a purchase price of $17.50 per share in cash and purchased
outstanding options and rights under employee and direct stock purchase plans
for an aggregate price of $486.4 million. In addition, as a result of the
Merger, the Company assumed all outstanding indebtedness of Palmer of
approximately $378.0 million ("Palmer Existing Indebtedness"), making the
aggregate purchase price for Palmer (including transaction fees and expenses)
approximately $880.0 million. The Company refinanced all of the Palmer Existing
Indebtedness concurrently with the consummation of the Merger.
3
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PCW entered into an agreement (the "Fort Myers Sale Agreement") to sell
Palmer's Fort Myers, Florida MSA covering approximately 382,000 Pops for $168.0
million (the "Fort Myers Sale"). On October 6, 1997, the Fort Myers Sale was
consummated, and generated proceeds to the Company of approximately $166.0
million. The proceeds of the Fort Myers Sale were used to fund a portion of the
acquisition of Palmer.
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, for $25.0 million, of substantially all of the assets 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 and generated proceeds to the Company of $24.2 million. A portion of
the proceeds from the Georgia Sale was used to retire a portion of the debt used
to fund the acquisition of Palmer. The Merger, the Fort Myers Sale and the
Georgia-1 Sale are collectively referred to as the "Acquisition."
In order to fund the Acquisition and pay related fees and expenses, PCW
issued $175.0 million aggregate principal amount of 11 3/4% Senior Subordinated
Notes due 2007 (the "11 3/4% Notes") and entered into a syndicated senior loan
facility providing for term loan borrowings in the aggregate principal amount of
$325.0 million and revolving loan borrowings of $200.0 million (the "Credit
Facility"). On October 6, 1997, PCW borrowed all term loans available thereunder
and approximately $120.0 million of revolving loans
The Acquisition was also funded in part through a $44.0 million equity
contribution from PCC (the "PCC Equity Contribution") which was in the form of
cash and common stock of PCC. An additional amount of the purchase price for the
Acquisition was raised out of the proceeds from the issuance and sale for $80.0
million (the "Holdings Offering") by Holdings, the direct parent of the Company,
of units consisting of $153.4 million principal amount of 13 1/2% Senior Secured
Discount Notes due 2007 of Holdings (the "13 1/2% Holdings Notes") and warrants
(the "Warrants") to purchase shares of PCC Common Stock, par value $.01 per
share (the "PCC Shares").
Refinancing
In June 1998, the Company issued $525.0 million of 9 1/8% Senior Secured
Notes (the "9 1/8% Notes") due December 15, 2006 with interest payable
semi-annually commencing December 15, 1998. The 9 1/8% Notes contain covenants
that restrict the payment of dividends, incurrence of debt and sale of assets.
The proceeds of these notes were used principally to replace the then existing
credit facility, which approximated $425.1 million as of the redemption date.
In August 1998, Holdings redeemed all of its outstanding 13 1/2% Holdings
Notes. The notes were redeemed at the redemption price per $1000 aggregate
principal amount of $711.61. The accreted value of the notes approximated $91.0
million. In addition, a premium of 20% of the outstanding indebtedness or
approximately $18.2 million was also paid. The redemption was financed out of
the net proceeds of a new $200.0 million Holdings offering of 11 1/4% Senior
Exchangeable Payable-in-Kind notes due 2008.
Certain Considerations
Competition. Although current policies of the FCC authorize only two
licensees to operate cellular telephone systems in each cellular market, there
is, and the Company expects there will continue to be, competition from various
wireless technology licensees authorized to serve each market in which the
Company operates, as well as from resellers of cellular service. Competition for
subscribers between the two cellular licensees in each market is based
principally upon the services and enhancements offered, the technical quality of
the cellular telephone system, customer service, system coverage and capacity
and price. The Company competes with a wireline licensee in each of its cellular
markets, some of which are larger and have access to more substantial capital
resources than the Company.
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, specialized mobile
radio ("SMR") and enhanced specialized mobile radio ("ESMR") systems and paging
services and to a limited extent, satellite systems for mobile communications.
The Company also faces limited competition from and may in the future face
increased competition from PCS. Broadband PCS involves a network of small,
low-powered transceivers placed throughout a neighborhood, business complex,
community or metropolitan area to provide customers with mobile and portable
voice and data communications. PCS may be capable of offering, and PCS operators
claim they will offer, additional services not offered by cellular providers.
There can be no assurances that the Company will be able to provide nor that it
will choose to pursue, depending on the economics thereof, such services and
features. The FCC has also completed or
4
<PAGE>
announced plans for auctions in wireless services such as narrowband PCS, local
multipoint multichannel distribution service ("LMDS"), interactive video
distribution service ("IVDS"), wireless communication service ("WCS") and
general wireless communications service ("GWCS") spectrum. Some of this spectrum
might be used for services competitive in some manner with cellular service. The
Company cannot predict the effect of these proceedings and auctions on the
Company's business. However the Company currently believes that traditional
tested cellular is economically proven unlike many of these other technologies
and therefore does not intend to pursue such other technologies.
Although the Company believes that the technology, financing and
engineering of these other technologies is not as advanced as their publicity
would suggest, there can be no assurance that one or more of the technologies
currently utilized by the Company in its business will not become obsolete at
some time in the future. See "Business of the Company--Competition."
Potential for Regulatory Changes and Need for Regulatory Approvals. The
FCC regulates the licensing, construction, operation, acquisition, assignment
and transfer of cellular telephone systems, as well as the number of licensees
permitted in each market. Changes in the regulation of cellular activities could
have a material adverse effect on the Company's operations. In addition, all
cellular licenses in the United States are granted for an initial term of up to
10 years and are subject to renewal. The Company's cellular licenses expire in
the following years with respect to the following number of service areas: 2000
(two); 2001 (four); 2002 (two); 2006 (one); 2007 (four) and 2008 (three). While
the Company believes that each of these licenses will be renewed based upon FCC
rules establishing a renewal expectancy in favor of licensees that have complied
with their regulatory obligations during the relevant license period, there can
be no assurance that all of the Company's licenses will be renewed in due
course. In the event that a license is not renewed, the Company would no longer
have the right to operate in the relevant service area. The non-renewal of
licenses could have a material adverse effect on the Company's results of
operations. See "Business of the Company--Regulation."
Fluctuations in Market Value of License. A substantial portion of the
Company's assets consists of its interests in cellular licenses. The assignment
of interests in such licenses is subject to prior FCC approval and may also be
subject to contractual restrictions, future competition and the relative supply
and demand for radio spectrum. The future value of the Company's interests in
its cellular licenses will depend significantly upon the success of the
Company's business. While there is a current market for the Company's licenses,
such market may not exist in the future or the values obtainable may be
significantly lower than at present. As a consequence, in the event of the
liquidation or sale of the Company's assets, there can be no assurance that the
proceeds would be sufficient to pay the Company's obligations, and a significant
reduction in the value of the licenses could require a charge to the Company's
results of operations.
Reliance on Use of Third Party Service Mark. The Company currently uses
the registered service mark CELLULARONE to market its services. The Company's
use of this is and has historically been, governed by five-year contracts
between the Company and Cellular One Group, the owner of the service mark, for
each of the markets in which the Company operates. See "Description of
Cellular One Agreements." Such contracts currently in effect are expiring at
different times through December 1, 2001. If for some reason beyond the
Company's control, the name CELLULARONE were to suffer diminished marketing
appeal, the Company's ability both to attract new subscribers and retain
existing subscribers could be materially affected. AT&T Wireless Services, Inc.,
which has been the single largest user of the CELLULARONE service mark, has
significantly reduced its use of the service mark as a primary service mark, as
has Centennial Cellular. There can be no assurance that such reduction in use by
any of such parties will not have an adverse effect on the marketing appeal of
the brand name.
Dependence on Key Personnel. The Company's affairs are managed by a small
number of key management and operating personnel, the loss of whom could have an
adverse impact on the Company. The success of the Company's operations and
expansion strategy depends on its ability to retain and to expand its staff of
qualified personnel in the future.
Radio Frequency Emission Concerns. Media reports have suggested that
certain radio frequency ("RF") emissions from portable cellular telephones may
be linked to certain types of cancer. In addition, recently a limited number of
lawsuits have been brought, not involving the Company, alleging a connection
between cellular telephone use and certain types of cancer. Concerns over RF
emissions and interference may have the effect of discouraging the use of
cellular telephones, which could have an adverse effect upon the Company's
business. As required by the Telecom Act, in August 1996, the FCC adopted new
guidelines and methods for evaluating RF emissions from radio equipment,
including cellular telephones. While the new guidelines impose more restrictive
standards on RF emissions from low power devices such as portable cellular
telephones, the Company believes that all cellular telephones currently marketed
and in use comply with the new standards.
The Company carries $2.0 million in General Liability insurance and $25.0
million in umbrella liability coverage. This insurance would cover (subject to
coverage limits) any liability suits with respect to human exposure to radio
frequency emissions.
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Equipment Failure, Natural Disaster. Although the Company carries
"business interruption" insurance, a major equipment failure or a natural
disaster affecting any one of the Company's central switching offices or certain
of its cell sites could have a significant adverse effect on the Company's
operations.
Operations
General
The Company is currently engaged in the construction, development,
management and operation of cellular telephone systems in the southeastern
United States. At December 31, 1998, the Company provided cellular telephone
service to 381,977 subscribers in Georgia, Alabama, Florida and South Carolina
in a total of 16 licensed service areas composed of eight MSAs and eight 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, including pagers, principally through its network of retail stores.
The Company markets all of its products and services under the nationally
recognized service mark CELLULARONE.
The following table sets forth information, at the dates indicated after
giving effect to the Acquisition, regarding the Company's subscribers,
penetration rate, cost to add a net subscriber, average monthly churn rate and
average monthly service revenue per subscriber.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Subscribers at end of period(1) .... 381,977 309,606 243,204 187,870 99,626
Penetration at end of period(2) .... 11.57% 9.40% 7.73% 6.41% 4.54%
Cost to add a net subscriber(3) .... $ 448 $ 461 $ 436 $ 275 $ 247
Average monthly churn(4) ........... 1.91% 1.88% 1.89% 1.51% 1.54%
Average monthly service revenue per
Subscriber(5) ................... $ 51.67 $ 52.06 $ 52.20 $ 56.68 $ 60.02
</TABLE>
(1) Each billable telephone number in service represents one subscriber.
(2) Determined by dividing the aggregate number of subscribers by the
estimated population.
(3) Determined for the periods, by dividing (i) all costs of sales and
marketing, including salaries, commissions and employee benefits and all
expenses incurred by sales and marketing personnel, agent commissions,
credit reference expenses, losses on cellular telephone sales, rental
expenses allocated to retail operations, net installation expenses and
other miscellaneous sales and marketing charges for such period by (ii)
the net subscribers added during such period.
(4) Determined for the periods by dividing total subscribers discontinuing
service by the average number of subscribers for such period, and divided
by the number of months in the relevant period.
(5) Determined for the periods by dividing the (i) sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for
such period, divided by the number of months in the relevant period.
Subscribers and System Usage
The Company's subscribers have increased to 381,977 at December 31, 1998.
Reductions in the cost of cellular telephone services and equipment at the
retail level have led to an increase in cellular telephone usage by general
consumers for non-business purposes. As a result, the Company believes that
there is an opportunity for significant growth in each of its existing service
areas. The Company will continue to broaden its subscriber base for basic
cellular telephone services as well as increase its offering of customized
services. The sale of custom calling features typically results in increased
usage of cellular telephones by subscribers thereby further enhancing revenues.
In 1998, cellular telephone service revenues represented 93.6% of the Company's
total revenues, with equipment sales and installation representing the balance.
Marketing
The Company's marketing strategy is designed to generate continued net
subscriber growth by focusing on subscribers who are likely to generate lower
than average deactivations and delinquent accounts, while simultaneously
maintaining a low cost of adding net subscribers. Management has implemented its
marketing strategy by training and compensating its sales force in a manner
designed to stress the importance of high penetration levels and minimum costs
per net subscriber addition. The
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Company's sales staff has a two-tier structure. A retail sales force handles
walk-in traffic, and a targeted sales staff solicits certain industries and
government subscribers.
The Company believes its use of an internal sales force keeps marketing
costs low, both because commissions are lower and because subscriber retention
is higher than if it used independent agents. The Company believes its cost to
add a net subscriber will continue to be among the lowest in the cellular
telephone industry, principally because of its in-house direct sales and
marketing staff.
The Company's sales force works principally out of retail stores in which
the Company offers its cellular products and services. As of December 31, 1998,
the Company maintained 37 retail stores and 3 offices. Retail stores, which
range in size up to 11,000 square feet, are fully equipped to handle customer
service and the sale of cellular services, telephones and accessories. Eight of
the newer and larger stores are promoted by the Company as "Superstores," seven
of which are located in the Company's Georgia/Alabama service areas, and one in
the Panama City, Florida service area. Each Superstore has an authorized
warranty repair center and provides cellular telephone installation and
maintenance services. Most of the Company's larger markets currently have at
least one Superstore. In addition, to enhance convenience for its customers, the
Company has begun to open smaller stores in locations such as shopping malls.
The Company's stores provide subscriber-friendly retail environments, extended
hours, a large selection of phones and accessories, an expert sales staff, and
convenient locations-which make the sales process quick and easy for the
subscriber.
The Company markets all of its products and services under the name
CELLULARONE. The national advertising campaign conducted by Cellular One Group
enhances the Company's advertising exposure at a fraction of what could be
achieved by the Company alone. The Company also obtains substantial marketing
benefits from the name recognition associated with this widely used service
mark, both with existing subscribers traveling outside the Company's service
areas and with potential new subscribers moving into the Company's service
areas. In addition, travelers who subscribe to CELLULARONE service in other
markets may be more likely to use the Company's service when they travel in the
Company's service areas. Cellular telephones of non-wireline subscribers are
either programmed to select the non-wireline carrier (such as the Company) when
roaming, unless the non-wireline carrier in the roaming area is not yet
operational, or the subscriber dials a special code or has a cellular telephone
equipped with an "A/B" (wireline/non-wireline) switch and selects the wireline
carrier.
Through its membership in NACN and other special networking arrangements,
the Company provides extended regional and national service to its subscribers,
thereby allowing them to make and receive calls while in other cellular service
areas without dialing special access codes. This service distinguishes the
Company's call delivery features from those of many of its competitors.
Products and Services
In addition to providing high-quality cellular telephone service in each
of its markets, the Company also offers various custom-calling features such as
voicemail, call forwarding, call waiting, three-way conference calling and no
answer and busy transfer. Several rate plans are presented to prospective
subscribers so that they may choose the plan that will best fit their expected
calling needs. Generally, these rate plans include a high user plan, a medium
user plan, a basic plan and an economy plan. Most rate plans combine a fixed
monthly access fee, per minute usage charges and additional charges for
custom-calling features in a package that offers value to the subscriber while
enhancing airtime use and revenues for the Company. In general, rate plans that
include a higher monthly access fee typically include a lower usage rate per
minute. An ongoing review of equipment and service pricing is maintained to
ensure the Company's competitiveness. As appropriate, revisions to pricing of
service plans and equipment are made to meet the demands of the local
marketplace. In addition, the Company has recently added Paging as an accessory
to its offered services.
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The following table sets forth a breakdown of the Company's revenues after
giving effect to the Fort Myers and Georgia Sales from the sale of its services
and equipment for the periods indicated.
<TABLE>
<CAPTION>
Company Predecessor
------------------------------ -------------------------------------------------------
For the Year October 1, 1997 Nine Months
Ended Through Ended
December 31, December 31, September 30, For The Year Ended December 31,
------------ ------------ ------------- -------------------------------
1998 1997 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service Revenue:
Access and usage (1) $140,024 $ 31,786 $ 89,339 $105,006 61,607 $ 37,063
Roaming (2) 27,029 5,69 14,447 13,099 11,157 5,844
Long distance (3) 13,045 2,014 5,949 6,632 3,634 2,218
Other (4) 4,554 891 2,061 2,596 2,585 2,745
-------- -------- -------- -------- -------- --------
Total service revenue 184,652 40,382 111,796 127,333 78,983 47,870
Equipment sales and
installation (5) 12,677 2,308 6,242 7,027 6,830 6,381
-------- -------- -------- -------- -------- --------
Total $197,329 $ 42,690 $118,038 $134,360 $ 85,813 $ 54,251
======== ======== ======== ======== ======== ========
</TABLE>
(1) Access and usage revenues include monthly access fees for providing
service and usage fees based on per minute usage rates.
(2) Roaming revenues are fees charged for providing services to subscribers of
other systems when such subscribers or "roamers" place or receive a
telephone call within one of the Company's service areas.
(3) Long distance revenue is derived from long distance telephone calls placed
by the Company's subscribers.
(4) Other revenue includes, among other things, connect fees charged to
subscribers for initial activation on the cellular telephone system,
paging revenue and fees for feature services such as voicemail, call
forwarding and call waiting.
(5) Equipment sales and installation revenue includes revenue derived from the
sale of cellular telephones and fees for the installation of such
telephones.
Reciprocal roaming agreements between each of the Company's cellular
telephone systems and the cellular telephone systems of other operators allow
their respective subscribers to place calls in most cellular service areas
throughout the country. Roamers are charged usage fees that are generally higher
than a given cellular telephone system's regular usage fees, thereby resulting
in a higher profit margin on roaming revenue. Roaming revenue is a substantial
source of incremental revenue for the Company. For 1998, roaming revenues
accounted for 14.6% of the Company's service revenues and 13.7% of the Company's
total revenue. This level of roaming revenue is due in part to the fact that the
Company's market in Panama City, Florida is a regional shopping and vacation
destination and a number of the Company's cellular telephone systems in the
Georgia and Alabama market are located along major interstate travel corridors.
In order to develop the market for cellular telephone service, the Company
provides retail distribution of cellular telephones and maintains inventories of
cellular telephones. The Company negotiates volume discounts for the purchase of
cellular telephones and, in many cases, passes such discounts on to its
customers. The Company believes that earning an operating profit on the sale of
cellular telephones is of secondary importance to offering cellular telephones
at competitive prices to potential subscribers. To respond to competition and to
enhance subscriber growth, the Company has historically sold cellular telephones
below cost.
The Company is currently developing several new services, which it
believes will provide additional revenue sources. Packet-switching technology
will allow data to be transmitted much more quickly and efficiently than the
current circuit-switching technology. Packet-switching uses the intervals
between voice traffic on cellular channels to send packets of data instead of
tying up dedicated cellular channels. The packets of information, which may be
transmitted using several different channels, are subsequently reassembled and
directed to the correct party at the receiving end. It is expected that the
development of this technology will make it possible for cellular carriers to
offer a broad range of cost-effective wireless data services, including
facsimile and electronic mail transmissions, point-of-sale credit
authorizations, package tracking, remote meter reading, alarm monitoring and
communications between laptop computer units and local area computer networks or
other computer databases. During 1997 the Company began to implement the use of
microcells. Microcells are low powered transmitters, typically constructed on a
pole or the roof of a building, which provide reduced radius service within a
specific area, such as large office buildings, underground facilities or areas
shielded by topographical obstructions. Microcell service could be used, for
instance, to provide wireless service within an office environment that was also
integrated with wireless service to the home.
Customer Service
8
<PAGE>
The Company is committed to attracting new subscribers and retaining
existing subscribers by providing consistently high-quality customer service. In
each of its cellular service areas, the Company maintains a local staff,
including a store manager, customer service representatives, technical and
engineering staff, sales representatives and installation and repair facilities.
Each cellular service area handles its own customer-related functions such as
customer activations, account adjustments and rate plan changes. Local offices
and installation and repair facilities enable the Company to better service
customers, schedule installations and repairs and monitor the technical quality
of the cellular service areas.
To ensure high-quality customer service, the Cellular One Group authorizes
a third-party marketing research firm to perform customer satisfaction surveys
of each of its licensees. Licensees must achieve a minimum customer satisfaction
level in order to be permitted to continue using the CELLULARONE service mark.
In 1998, the Company was awarded the #1 MSA in CELLULARONE's National Customer
Satisfaction Survey. The Company has held number one rankings in six out of the
last seven years. The Company believes it has achieved this first place ranking
through effective implementation of its direct sales and customer service
support strategy.
The Company has implemented a software package to combat cellular
telephone service fraud. This software system can detect counterfeit cellular
telephones while they are being operated and enables the Company to terminate
service to the fraudulent user of the counterfeit cellular telephone. The
Company also helps protect itself from fraud with pre-call customer validation
and subscriber profiles specifically designed to combat the fraudulent use of
subscriber accounts.
Networks
The Company strives to provide its subscribers with virtually seamless
coverage throughout its cellular service market areas, thereby permitting
subscribers to travel freely within this region and have their calls and custom
calling features, such as voicemail, call waiting and call forwarding, follow
them automatically without having to notify callers of their location or to rely
on special access codes. The Company has been able to offer virtually seamless
coverage by implementing a switch interconnection plan to mobile telephone
switching offices ("MTSO") located in adjoining markets. The Company's equipment
is built by NORTEL, formerly Northern Telecom, Inc. ("NTI"), and interconnection
between MTSOs has been achieved using NTI's internal software and hardware.
Through its participation in NACN since 1992 and other special networking
arrangements, the Company has pursued its goal of offering seamless regional and
national cellular service to its subscribers. NACN is the largest wireless
telephone network system in the world-linking non-wireline cellular operators
throughout the United States and Canada. Membership in NACN has aided the
Company in integrating its cellular telephone systems within its region and has
permitted the Company to offer cellular telephone service to its subscribers
throughout a large portion of the United States, Canada, Mexico and Puerto Rico.
NACN has provided the Company with a number of distinct advantages: (i) lower
costs for roaming verification, (ii) increased roaming revenue, (iii) more
efficient roaming service and (iv) integration of the Company's markets with
over 4,600 cities in more than 40 states in the United States, Canada, Mexico
and Puerto Rico.
System Development and Expansion
The Company develops its service areas by adding channels to existing cell
sites and by building new cell sites. Such development is done for the purpose
of increasing capacity and improving coverage in direct response to projected
subscriber demand. Projected subscriber demand is calculated for each cellular
service area on a cell by cell basis. These projections involve a traffic
analysis of usage by existing subscribers and an estimation of the number of
additional subscribers in each such area. In calculating projected subscriber
demand, the Company builds into its design assumptions a maximum call "blockage"
rate of 2.0% (percentage of calls that are not connected on first attempt at
peak usage time during the day).
The following table sets forth, by market, at the dates indicated, the
number of the Company's operational cell sites.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Georgia/Alabama ... 223 207 181 121 70
Panama City, FL ... 13 12 11 9 7
---- ---- ---- ---- ----
Total ........ 236 219 192 130 77
==== ==== ==== ==== ====
The Company constructed 17 cell sites in 1998 and plans to construct 30
additional cell sites with respect to its existing cellular systems during 1999
to meet projected subscriber demand and improve the quality of service. Cell
site expansion is
9
<PAGE>
expected to enable the Company to continue to add subscribers, enhance use of
its cellular telephone systems by existing subscribers, increase services used
by subscribers of other cellular telephone systems due to the larger geographic
area covered by the cellular telephone network and further enhance the overall
efficiency of the network. The Company believes that the increased cellular
telephone coverage will have a positive effect on market penetration and
subscriber usage.
Microwave networks enable the Company to connect switching equipment and
cell sites without making use of local landline telephone carriers, thereby
reducing or eliminating fees paid to landline carriers. During 1996, the Company
spent $1.0 million to build additional microwave connections. In addition, in
1996 the Company spent $2.6 million to build a fiber optic network between
Dothan, Alabama and Panama City, Florida. The installation of this network
resulted in savings to the Company from a reduction in fees paid to telephone
companies for landline charges, as well as giving the Company the ability to
lease out a significant portion of capacity.
Digital Cellular Technology
Over the next decade, it is expected that cellular telephones will
gradually convert from analog to digital technology. This conversion is due in
part to capacity constraints in many of the largest cellular markets, such as
Los Angeles, New York and Chicago. As carriers reach limited capacity levels,
certain calls may be unable to be completed, especially during peak hours.
Digital technology increases system capacity and offers other advantages over
analog technology, including improved overall average signal quality, improved
call security, potentially lower incremental costs for additional subscribers
and the ability to provide data transmission services. The conversion from
analog to digital technology is expected to be an industry-wide process that
will take a number of years. The exact timing and overall costs of such
conversion are not yet known.
The Company began offering Time Division Multiple Access ("TDMA") standard
digital service, one of three standards for digital service, during 1997. This
digital network allows the Company to offer advanced cellular features and
services such as caller-ID, short message paging and extended battery life.
Where cell sites are not yet at their maximum capacity of radio channels, the
Company is adding digital channels to the network incrementally based on the
relative demand for digital and analog channels. Where cell sites are at full
capacity, analog channels are being removed and redeployed to expand capacity
elsewhere within the network and replaced in such cell sites by digital
channels. The implementation of digital cellular technology over a period of
several years will involve modest incremental expenditures for switch software
and possible significant cost reductions as a result of reduced purchases of
radio channels and a reduced requirement to split existing cells. However, as
indicated above, the extent of any implementation of digital radio channels and
the amount of any cost savings ultimately to be derived therefrom will depend
primarily on subscriber demand. In the ordinary course of business, equipment
upgrades at the cell sites have involved purchasing dual mode radios capable of
using both analog and digital technology.
The benefits of digital radio channels can only be achieved if subscribers
purchase cellular telephones that are capable of transmitting and receiving
digital signals. Currently, such telephones are more costly than analog
telephones. The widespread use of digital cellular telephones is likely to occur
only over a substantial period of time and there can be no assurance that this
technology will replace analog cellular telephones. In addition, since most of
the Company's existing subscribers currently have cellular telephones that
exclusively utilize analog technology, it will be necessary to continue to
support, and if necessary increase, the number of analog radio channels within
the network for many years.
Acquisitions
The Company will continue to evaluate expansion through acquisitions of
both (i) contiguous cellular properties and other strategically located RSAs and
small to mid-sized MSAs and (ii) minority interests in its existing cellular
properties. In evaluating acquisition targets, the Company considers, among
other things, demographic factors, including population size and density,
geographic proximity to existing service areas, traffic patterns, cell site
coverage and required capital expenditures.
On June 20, 1996, the Company acquired the cellular telephone system of
USCOC of Georgia RSA #1, Inc. ("USCOC") for an aggregate purchase price of $31.6
million including the cellular telephone system in the Georgia-1 RSA. The
cellular telephone system in the acquired RSA serves a geographic territory of
northwest Georgia between Chattanooga and Atlanta.
On July 5, 1996, two of the Company's majority-owned subsidiaries acquired
the cellular telephone system of Horizon Cellular Telephone Company of Spalding,
L.P. ("Horizon") for an aggregate purchase price of $36.0 million including the
cellular telephone system in the Georgia-6 RSA. The cellular telephone system in
the acquired RSA serves a geographic territory of west central Georgia adjacent
to the Macon and Columbus, Georgia MSAs.
10
<PAGE>
On January 31, 1997, a majority-owned subsidiary of the Company acquired
the cellular telephone system serving the Georgia-13 RSA from Mobile
Communications Systems L.P. for a total purchase price of $31.5 million, which
serves a geographic territory of southwest Georgia adjacent to the Albany,
Georgia and Dothan, Alabama MSAs.
Competition
The cellular telephone service industry in the United States is highly
competitive. Cellular telephone systems compete principally on the basis of
services and enhancements offered, the technical quality of the cellular system,
customer service, coverage capacity and price of service and equipment.
Currently, the Company's primary competition in each of its service areas is the
other cellular licensee-the wireline carrier. The table below lists the wireline
competitor in each of the Company's existing service areas:
Market Wireline Competitor
------ -------------------
Albany, GA......................... ALLTEL
Augusta, GA........................ ALLTEL
Columbus, GA....................... Public Service Cellular
Macon, GA.......................... BellSouth
Savannah, GA....................... ALLTEL
Georgia-6 RSA...................... BellSouth and Intercel(1)
Georgia-7 RSA...................... ALLTEL and BellSouth(1)
Georgia-8 RSA...................... ALLTEL
Georgia-9 RSA...................... ALLTEL and Public Service Cellular(1)
Georgia-10 RSA..................... ALLTEL
Georgia-12 RSA..................... ALLTEL
Georgia-13 RSA..................... ALLTEL
Dothan, AL......................... BellSouth
Montgomery, AL..................... ALLTEL
Alabama-8 RSA...................... ALLTEL
Panama City, FL.................... ALLTEL
(1) The purchasers of the authorization have subdivided the wireline service
area into two service areas for the RSA.
The Company also faces limited competition from and may in the future face
increased competition from broadband PCS. Broadband PCS involves a network of
small, low-powered transceivers placed throughout a neighborhood, business
complex, community or metropolitan area to provide customers with mobile and
portable voice and data communications. PCS subscribers communicate using
digital radio handsets.
The FCC allocated 120 MHz of spectrum for licensed broadband PCS. The
allocations for licensed PCS services are split into six blocks of frequencies-
blocks "A" and "B" being two 30 MHz allocations for each of the 51 Major Trading
Areas ("MTAs") throughout the United States; block "C" being one 30 MHz
allocation in each of 493 Basic Trading Areas ("BTAs") in the United States; and
blocks "D," "E" and "F" being three 10 MHz allocations in each of the BTAs. The
FCC has concluded the initial auction of all broadband PCS frequency blocks,
although a limited number of PCS licenses are from time to time reauctioned due
to a failure of the initial auction winner to complete the required payments for
the licenses.
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, SMR and ESMR systems
and paging services.
In addition, the FCC has licensed operators to provide mobile satellite
service in which transmissions from mobile units to satellites would augment or
replace transmissions to land-based stations. Although such a system is designed
primarily to serve remote areas and is subject to transmission delays inherent
in satellite communications, a mobile satellite system could augment or replace
communications with segments of land-based cellular systems. Based on current
technologies, however, satellite transmission services are not expected to be
competitively priced with cellular telephone services.
In order to grow and compete effectively in the wireless market, the
Company plans to follow a strategy of increasing its bundled minute offerings.
By increasing the number of minutes a customer can use for one flat rate,
subscribers perceive greater value in their cellular service and become less
usage sensitive, i.e., they can increase their cellular phone usage without
seeing large corresponding increases in their cellular bill. These factors
translate into more satisfied customers, greater customer usage
11
<PAGE>
and lower churn among existing subscribers. The perceived greater value also
increases the number of potential customers in the marketplace. The Company
believes that this strategy will enable it to increase its share of the wireless
market.
Service Marks
CELLULARONE is a registered service mark with the U.S. Patent and
Trademark Office. The service mark is owned by Cellular One Group, a Delaware
general partnership of Cellular One Marketing, Inc., a subsidiary of
Southwestern Bell Mobile Systems, Inc., together with Cellular One Development,
Inc., a subsidiary of AT&T and Vanguard Cellular Systems, Inc. The Company uses
the CELLULARONE service mark to identify and promote its cellular telephone
service pursuant to licensing agreements with Cellular One Group. In 1998, the
Company paid $290,000 in licensing and advertising fees under these agreements.
See "Risk Factors--Reliance on Use of Third-Party Service Mark."
Description of Cellular One Agreements
The Company is currently party to sixteen license agreements with Cellular
One Group, which cover separate cellular telephone system areas. The terms of
each agreement (each, a "Cellular One Agreement") are substantially identical.
Pursuant to each Cellular One Agreement, Cellular One Group has granted a
license to use the "CELLULARONE" mark (the "Mark") in its FCC- licensed
territory (the "Licensed Territory") to promote its cellular telephone service.
Cellular One Group has agreed not to license such mark to any other cellular
telephone service provider in such territory during the term of the agreement.
Each Cellular One Agreement has a term of five years and is renewable,
subject to the conditions described herein, at the option of the Company for
three additional five-year terms subject to provision of advanced written notice
by the Company. In connection with any renewal, the Company must execute
Cellular One Group's then-current form of license renewal agreement, which form
may contain provisions materially different than those in the Cellular One
Agreement.
Cellular One Group may terminate the Cellular One Agreements at any time
without written notice to the Company upon certain events, including bankruptcy,
insolvency and dissolution of the Company.
Cellular One Group may terminate the Cellular One Agreements if the
Company (i) fails to pay any amounts thereunder when due or fails to submit
information required to be provided pursuant to the Cellular One Agreement when
due or makes a false statement in connection therewith, (ii) fails to operate
its business in conformity with FCC directives, technical industry standards and
other standards specified from time to time by Cellular One Group, (iii)
misuses, makes unauthorized use of or materially impairs the goodwill of the
Mark, (iv) engages in any business under a name that is confusingly similar to
the Mark, or (v) permits a continued violation of any law or regulation
applicable to it, in each case subject to a thirty-day cure period.
The Cellular One Agreements are terminable by the Company at any time
subject to 120 days' written notice.
The Company has agreed to indemnify Cellular One Group and its employees
and affiliates, including its constituent partners, against all claims arising
from the operation of its cellular phone business and the costs, including
attorneys fees, of defending against them.
Regulation
As a provider of cellular telephone services, the Company is subject to
extensive regulation by the federal government.
The licensing, construction, operation, acquisition and transfer of
cellular telephone systems in the United States are regulated by the FCC
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The FCC has promulgated rules governing the construction and operation of
cellular telephone systems and licensing and technical standards for the
provision of cellular telephone service ("FCC Rules"). For cellular licensing
purposes, the United States is divided into MSAs and RSAs. In each market, the
frequencies allocated for cellular telephone use are divided into two equal
blocks designated as Block A and Block B. Block A licenses were initially
reserved for non-wireline companies, such as Palmer, while Block B licenses were
initially reserved for entities affiliated with a local wireline telephone
company. Under current FCC Rules, a Block A or Block B license may be
transferred with FCC approval without restriction as to wireline affiliation,
but generally, no entity may own any substantial interest in both systems in any
one MSA or RSA. The FCC may prohibit or impose conditions on sales or transfers
of licenses.
12
<PAGE>
Initial operating licenses are generally granted for terms of up to 10
years, renewable upon application to the FCC. Licenses may be revoked and
license renewal applications denied for cause after appropriate notice and
hearing. The Company's cellular licenses expire in the following years with
respect to the following number of service areas: 2000 (two); 2001 (four); 2002
(two); 2006 (one); 2007 (four), and 2008 (three). The FCC has issued a decision
confirming that current licensees will be granted a renewal expectancy if they
have complied with their obligations under the Communications Act during their
license terms and provided substantial public service. A potential challenger
will bear a heavy burden to demonstrate that a license should not be renewed if
the licensee's performance merits renewal expectancy. The Company believes that
the licenses it controls will continue to be renewed in a timely manner.
However, in the event that a license is not renewed, the Company would no longer
have the right to operate in the relevant service area. A non-renewal of all
licenses that are currently pending would have a material adverse effect on the
Company's results of operations.
Under FCC rules, each cellular licensee was given the exclusive right to
construct one of two cellular telephone systems within the licensee's MSA or RSA
during the initial five-year period of its authorization. At the end of such
five-year period, other persons are permitted to apply to serve areas within the
licensed market that are not served by the licensee and current FCC Rules
provide that competing applications for these "unserved areas" are to be
resolved through the auction process. The Company has no material unserved areas
in any of its cellular telephone systems that have been licensed for more than
five years.
The Company also regularly applies for FCC authority to use additional
frequencies, to modify the technical parameters of existing licenses, to expand
its service territory and to provide new services. The Communications Act
requires prior FCC approval for acquisitions by the Company of other cellular
telephone systems licensed by the FCC and transfers by the Company of a
controlling interest in any of its licenses or construction permits, or any
rights thereunder. Although there can be no assurance that any future requests
for approval or applications filed by the Company will be approved or acted upon
in a timely manner by the FCC, based upon its experience to date, the Company
has no reason to believe such requests or applications would not be approved or
granted in due course.
The Communications Act prohibits the holding of a common carrier license
(such as the Company's cellular licenses) by a corporation of which more than
20% of the capital stock is owned directly or beneficially by aliens. Where a
corporation such as the Company controls another entity that holds an FCC
license, such corporation may not have more than 25% of its capital stock owned
directly or beneficially by aliens, in each case, if the FCC finds that the
public interest would be served by such prohibitions. These limitations have
been relaxed with regard to certain foreign investors pursuant to a World Trade
Organization treaty and FCC actions implementing the treaty. Failure to comply
with these requirements may result in the FCC issuing an order to the Company
requiring divestiture of alien ownership to bring the Company into compliance
with the Communications Act. In addition, fines or a denial of renewal, or
revocation of the license are possible.
From time to time, legislation that could potentially affect the Company,
either beneficially or adversely, may be proposed by federal and state
legislators. On February 8, 1996, the Telecommunications Act of 1996 (the
"Telecom Act") was signed into law, revising the Communications Act to eliminate
unnecessary regulation and to increase competition among providers of
communications services. The Company cannot predict the future impact of this or
other legislation on its operations.
The major provisions of the Telecom Act potentially affecting the Company
are as follows:
Interconnection. The Telecom Act required state public utilities
commissions and the FCC to implement policies that mandate cost-based reciprocal
compensation between cellular carriers and local exchange carriers ("LEC") for
interconnection services.
On August 8, 1996, the FCC released its First Report and Order in the
matter of Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996 ("FCC Order") establishing the rules for the
costing and provisioning of interconnection services and the offering of
unbundled network elements by incumbent local exchange carriers. The FCC Order
established procedures for Palmer's renegotiations of interconnection agreements
with the incumbent local exchange carrier in each of Palmer's markets. LECs and
state regulators filed appeals of the FCC Order, which were consolidated in the
US Court of Appeals for the Eighth Circuit. The Court rejected most of the rules
promulgated in the FCC Order. However, on further appeal, the United States
Supreme Court revised most of the court's actions and remanded the case to the
courts and the FCC for further consideration. Pending further court action, much
of the FCC Order will take effect.
13
<PAGE>
The Company has renegotiated certain interconnection agreements with
incumbent LECs in most of the Company's markets. These negotiations have
resulted in a substantial decrease in interconnection expenses incurred by the
Company.
Facilities siting for personal wireless services. The siting and
construction of cellular transmitter towers, antennas and equipment shelters are
often subject to state or local zoning, land use and other regulation. Such
regulation may require zoning, environmental and building permit approvals or
other state or local certification.
The Telecom Act provides that state and local authority over the
placement, construction and modification of personal wireless services
(including cellular and other commercial mobile radio services and unlicensed
wireless services) shall not prohibit or have the effect of prohibiting personal
wireless services or unreasonably discriminate among providers of functionally
equivalent services. In addition, local authorities must act on requests made
for siting in a reasonable period of time and any decision to deny must be in
writing and supported by substantial evidence. Appeals of zoning decisions that
fail to comply with the provisions of the Telecom Act can be made on an
expedited basis to a court of competent jurisdiction, which can be either
federal district or state court. The Company anticipates that, as a result of
the Telecom Act, it will more readily receive local zoning approval for proposed
cellular base stations. In addition, the Telecom Act codified the Presidential
memorandum on the use of federal lands for siting wireless facilities by
requiring the President or his designee to establish procedures whereby federal
agencies will make available their properties, rights of ways and other
easements at a fair and reasonable price for service dependent upon federal
spectrum.
Environmental effect of radio frequency emissions. The Telecom Act
provides that state and local authorities cannot regulate personal wireless
facilities based on the environmental effects of radio frequency emissions if
those facilities comply with the federal standard.
Universal service. The Telecom Act also provides that all communications
carriers providing interstate communications services, including cellular
carriers, must contribute to the federal universal service support mechanisms
established by the FCC. . The FCC also provided that any cellular carrier is
potentially eligible to receive universal service support. The universal service
support fund will support telephone service in high-cost and low-income areas
and support access to telecommunications facilities by schools, libraries and
rural health care facilities. States will also be implementing requirements that
carriers contribute universal service funding from intrastate telecommunications
revenues. The Company has revised its customer billing to reflect additional
costs related to this universal service fund requirements. There can be no
guarantee that the Company will be able to continue to pass the costs of the
fund requirements on to its subscribers in the future.
The FCC has implemented its cellular-PCS cross ownership rule, but has
retained a spectrum cap on aggregation of CMRS spectrum. A cellular licensee and
its affiliates may not hold an attributable interest in more than 45 MHz of
licensed cellular, broadband PCS and SMRS in a particular geographic area.
The Communications Act preempts state and local regulation of the entry
of, or the rates charged by, any provider of cellular service.
Certain Terms
Interests in cellular markets that are licensed by the FCC are commonly
measured on the basis of the population of the market served, with each person
in the market area referred to as a "Pop." The number of Pops or Net Pops owned
is not necessarily indicative of the number of subscribers or potential
subscribers. As used herein, unless otherwise indicated, the term "Pops" means
the estimate of the 1998 population of an MSA or RSA, as derived from the 1998
Donaldson, Lufkin, & Jenrette Market Information Service. The term "Net Pops"
means the estimated population with respect to a given service area multiplied
by the percentage interest that the Company owns in the entity licensed in such
service area. MSAs and RSAs are also referred to as "markets." The term
"wireline" license refers to the license for any market initially awarded to a
company or group that was affiliated with a local landline telephone carrier in
the market, and the term "non-wireline" license refers to the license for any
market that was initially awarded to a company, individual or group not
affiliated with any landline carrier. The term "System" means an FCC-licensed
cellular telephone system. The term "CTIA" means the Cellular Telecommunications
Industry Association.
Employees
At December 31, 1998, the Company had 569 full-time employees, none of
whom is represented by a labor organization. Management considers its relations
with employees to be good.
14
<PAGE>
Item 2. PROPERTIES
For each market served by the Company's operations, the Company maintains
at least one sales or administrative office and operates a number of cell
transmitter and antenna sites. As of December 31, 1998, the Company had
approximately 35 leases for retail stores used in conjunction with its
operations and 3 leases for administrative offices. The Company also had
approximately 142 leases to accommodate cell transmitters and antennas as of
December 31, 1998.
Item 3. LEGAL PROCEEDINGS
The Company is not currently involved in any pending legal proceedings
likely to have a material adverse impact on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
a) Market for Common Stock
Not Applicable
b) Holders
All of the issued and outstanding capital stock of PCW is held
beneficially and of record by Holdings.
c) Dividends
PCW, to date, has paid no cash dividends on its Common Stock. The Senior
Secured Note Indenture imposes substantial restrictions on PCW's ability to pay
dividends to Holdings. It is not anticipated that dividends will be paid on
PCW's capital stock in the foreseeable future.
15
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain consolidated financial data with
respect to the Company for the period ended December 31, 1998, May 29, 1997
through December 31, 1997 and for Palmer ("Predecessor") for the periods and
dates set forth below. This information has been derived from the audited
consolidated financial statements of the Company and Palmer.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto, included elsewhere
herein.
<TABLE>
<CAPTION>
Company Predecessor
------------------------ -----------------------------------------------
For the
Period
May 29, 1997 For the Nine
Through Months Ended
December 31, September 30,
1998 1997 1997 1996(3) 1995(2) 1994(1)
---- ---- ---- ------- ------- -------
(In Thousands, Except Percentage And Per Subscriber Data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement Of Operations Data:
Revenue:
Service ............................................. $ 184,652 $ 41,365 $ 134,123 $ 151,119 $ 96,686 $ 61,021
Equipment sales and installation 12,677 2,348 7,613 8,624 8,220 7,958
----------- ----------- --------- --------- --------- ---------
Total revenue ..................................... 197,329 43,713 141,736 159,743 104,906 68,979
----------- ----------- --------- --------- --------- ---------
Engineering, technical and other direct expenses .... 30,022 5,978 23,301 28,717 18,184 12,776
Cost of equipment ................................... 23,710 5,259 16,112 17,944 14,146 11,546
Selling, general and administrative expenses ........ 55,002 12,805 41,014 46,892 30,990 19,757
Depreciation and amortization ....................... 43,569 11,055 25,498 25,013 15,004 9,817
----------- ----------- --------- --------- --------- ---------
Operating income .................................... 45,026 8,616 35,811 41,177 26,582 15,083
----------- ----------- --------- --------- --------- ---------
Other income (expense):
Interest, net ..................................... (77,510) (22,198) (24,467) (31,462) (21,213) (12,715)
Other, net ........................................ (19) 15 208 (429) (687) (70)
----------- ----------- --------- --------- --------- ---------
Total other expenses .......................... (77,529) (22,183) (24.259) (31,891) (21,900) (12,785)
----------- ----------- --------- --------- --------- ---------
Minority interest share of (income) losses .......... (2,178) (414) (1,310) (1,880) (1,078) (636)
Income tax benefit (expense) ........................ 12,831 5,129 (4,153) (2,724) (2,650) 0
----------- ----------- --------- --------- --------- ---------
Income (loss) before extraordinary item ....... (21,850) (8,852) 6,089 4,682 954 1,662
Extraordinary item - Loss on early extinguishment
of debt (net of tax benefit of $ 14,885) .......... (25,344) -- -- -- -- --
----------- ----------- --------- --------- --------- ---------
Net income (loss) ............................. $ (47,194) $ (8,852) $ 6,089 $ 4,682 $ 954 1,662
=========== =========== ========= ========= ========= =========
Other Data:
Capital expenditures .................................. $ 14,725 $ 14,499 $ 40,757 $ 41,445 $ 36,564 $ 22,541
Operating income before depreciation and amortization
("EBITDA")(4) ....................................... $ 88,595 $ 19,671 $ 61,309 $ 66,190 $ 41,586 $ 24,900
EBITDA margin on service revenue ...................... 48.0% 47.6% 45.7% 43.8% 43.0% 40.8%
Net cash provided by (used in):
Operating activities ................................ $ 15,571 $ 11,313 $ 38,791 $ 30,130 $ 27,660 $ 7,238
Investing activities ................................ (12,725) (321,030) (73,759) (110,610) (196,610) (116,850)
Financing activities ................................ 78,365 337,643 36,851 78,742 169,554 110,940
Penetration(5) ........................................ 11.6% 9.40% 8.60% 7.45% 6.41% 4.58%
Subscribers at end of period(6) ....................... 381,977 309,606 337,345 279,816 211,985 117,224
Cost to add a net subscriber(7) ....................... $ 448 $ 370 $ 514 $ 407 $ 276 $ 247
Average monthly service revenue per subscriber(8) ..... $ 51.67 $ 50.59 $ 53.99 $ 52.20 $ 56.68 $ 60.02
Average monthly churn(9) ............................ 1.91% 1.84% 1.89% 1.84% 1.55% 1.55%
Ratio of earnings to fixed charges(10) .............. N/A N/A 1.45x 1.28x 1.21x 1. 17x
Consolidated Balance Sheet Data:
Cash ................................................ $ 109,137 $ 27,926 $ 3,581 $ 1,698 $ 3,436 $ 2,998
Restricted cash(11) ................................. 79,081 -- -- -- -- --
Working capital (deficit) ........................... 172,976 3,080 7,011 296 (1,435) 2,490
Property and equipment, net ......................... 144,828 151,141 161,351 132,438 100,936 51,884
Licenses and other intangibles, net ................. 876,952 937,986 406,828 387,067 332,850 199,265
Total assets ...................................... 1,263,734 1,144,479 599,815 549,942 462,871 273,020
Long-term debt ...................................... 700,000 610,188 378,000 343,662 350,441 245,609
Obligation of parent company(11) .................... 209,432 80,112 -- -- -- --
Stockholder's equity (deficit) .................... (12,031) 35,163 172,018 164,930 74,553 4,915
</TABLE>
16
<PAGE>
(1) Includes the Georgia Acquisition (as defined herein), that occurred on
October 31, 1994. For the two months ended December 31, 1994, the Georgia
Acquisition resulted in revenues to Palmer of $1.8 million and operating
loss of $645,000.
(2) Includes the GTE Acquisition (as defined herein), that occurred on
December 1, 1995. For the one month ended December 31, 1995, the GTE
Acquisition resulted in revenues, to Palmer of $2.2 million and operating
income of $208,000.
(3) Includes the acquisition of the cellular telephone systems of USCOC (as
defined herein) (Georgia-1 RSA), which occurred on June 20, 1996, and
Horizon (as defined herein) (Georgia-6 RSA), which occurred on July 5,
1996. The acquisitions of USCOC and Horizon resulted in revenues to Palmer
of $1.2 million and $2.7 million respectively, and operating (loss) income
of $(278,000) and $743,000 respectively, during such year.
(4) EBITDA should not be considered in isolation or as an alternative to net
income (loss), operating income (loss) or any other measure of performance
under GAAP. The Company believes that EBITDA is viewed as a relevant
supplemental measure of performance in the cellular telephone industry.
(5) Determined by dividing the aggregate number of subscribers by the
estimated population.
(6) Each billable telephone number in service represents one subscriber.
(7) Determined for a period by dividing (i) costs of sales and marketing,
including salaries, commissions and employee benefits and all expenses
incurred by sales and marketing personnel, agent commissions, credit
reference expenses, losses on cellular telephone sales, rental expenses
allocated to retail operations, net installation expenses and other
miscellaneous sales and marketing charges for such period, by (ii) the net
subscribers added during such period.
(8) Determined for a period by dividing (i) the sum of the access, airtime,
roaming (including incollect), long distance, features, connection,
disconnection and other revenues for such period by (ii) the average
number of subscribers for such period divided by the number of months in
such period.
(9) Determined for a period by dividing total subscribers discontinuing
service by the average number of subscribers for such period, and dividing
that result by the number of months in such period.
(10) The ratio of earnings to fixed charges is determined by dividing the sum
of earnings before interest expense, taxes and a portion of rent expense
representative of interest by the sum of interest expense and a portion of
rent expense representative of interest. The ratio of earnings to fixed
charges is not meaningful for periods that result in a deficit. For the
year ended December 31, 1998 and for the period May 29, 1997 through
December 31, 1997 such deficits for the Company were $47,194 and $8,852,
respectively.
(11) Restricted cash and Parent company obligations represent cash belonging to
Holdings and debt owed by Holdings that are reflected on the balance sheet
pursuant to "push down" accounting rules. The Company has neither rights
with respect to such cash nor liability with respect to such debt
obligation.
Item 7. 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 Consolidated Financial Statements and related
Notes thereto. References to the Company also include its predecessor, Palmer.
Results for the Predecessor for the year ended December 31, 1996 are based
solely on the historical operations of the Predecessor prior to the Merger. The
discussion for the year ended December 31, 1997 is based upon the results of the
Predecessor through September 30, 1997 and the results of the Company from
October 1, 1997 to December 31, 1997 (except for a minimal amount of net
interest expense from May 29, 1997 to December 31, 1997). The comparison for the
year ended December 31, 1998 versus December 31, 1997 is for the full
twelve-month period and combines the results of the predecessor with the results
for the Company. The audited financial statements of the Company do not include
such combined financial statements, as this would not be in conformity with
GAAP.
Overview
PCW, a wholly owned subsidiary of Holdings, a wholly-owned subsidiary of
Price Communications Cellular, Inc., a wholly-owned subsidiary of PCC, was
incorporated on May 29, 1997 in connection with the purchase of 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." Pursuant to the
Merger Agreement, PCC acquired each issued and outstanding share of common
17
<PAGE>
stock of Palmer for a purchase price of $17.50 per share in cash and purchased
outstanding options and rights under employee and direct stock purchase plans
for an aggregate price of $486.4 million. In addition, as a result of the
Merger, PCW assumed all outstanding indebtedness of Palmer of approximately
$378.0 million. As a result, the aggregate purchase price for Palmer (including
transaction fees and expenses) was approximately $880.0 million. PCW refinanced
all of the Palmer Existing Indebtedness concurrently with the consummation of
the Merger.
PCW entered into an agreement to sell Palmer's Fort Myers, Florida MSA
covering approximately 382,000 Pops for $168.0 million (the "Fort Myers Sale").
In October 1997, the Fort Myers Sale was consummated, and generated proceeds to
the Company of approximately $166.0 million. 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.
On October 21, 1997, PCC and PCW entered into an Asset Purchase Agreement
with MJ Cellular Company, L.L.C. which provided for the sale by PCW, for $25.0
million, of substantially all of the assets of the non- wireline cellular
telephone system serving the Georgia-1RSA ("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 $24.2 million. The proceeds
from the Georgia Sale were used to retire a portion of the debt used to fund the
acquisition of Palmer. Accordingly, no gain or loss was recognized on the
Georgia Sale.
In order to fund the Acquisition and pay related fees and expenses, in
July, 1997, PCW issued $175.0 million aggregate principal amount of 11 3/4%
Senior Subordinated Notes due 2007 and entered into a syndicated senior loan
facility providing for term loan borrowings in the aggregate principal amount of
approximately $325.0 million and revolving loan borrowings of $200.0 million. In
October 1997, PCW borrowed all term loans available thereunder and approximately
$120.0 million of revolving loans.
The acquisition of Palmer was also funded through an equity contribution
of PCC and borrowings of Holdings.
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
December 31, 1998, the Company provided cellular telephone service to 381,977
subscribers in Alabama, Florida and Georgia in a total of 16 licensed service
areas, composed of eight MSA's and eight RSA's, 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.
Acquisitions
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 the Georgia-13 RSA, for a total purchase price of $31.5
million, subject to certain adjustments.
On October 6, 1997, as part of the Acquisition of Palmer by the Company,
the Fort Myers MSA was sold for approximately $168.0 million.
On December 30, 1997, the Company sold the assets of and license to
operate the non-wireline cellular telephone system serving Georgia Rural Service
Area Market No. 371, otherwise known as Georgia-1 RSA for a total price of $24.2
million, subject to certain adjustments.
As stated above, the Fort Myers and GA-1 markets were sold during the
latter part of 1997 making the operating results for the year ended December 31,
1998 versus the year ended December 31, 1997 not comparable. The following
highlights compare the operations for the years ended December 31, 1998 and 1997
after adjusting 1997 for such sales:
18
<PAGE>
Years Ended December 31,
------------------------
1998 1997
---- ----
Service revenue $184,652 $152,178
Operating cash flow ("EBITDA") 88,595 70,033
EBITDA % (% of service revenue) 48.0% 46.0%
Subscriber growth 72,385 55,632
Average monthly revenue per sub $ 51.67 $ 52.06
Average monthly operating costs per sub $ 23.17 $ 24.67
Local minutes of use (in thousands) 768,707 506,097
Results of Operations
The following table sets forth for the Company, for the periods indicated,
the percentage which certain amounts bear to total revenue.
<TABLE>
<CAPTION>
Company Predecessor
------------------------------ ------------------------------
For the Period For the
For the May 29, 1997 Nine Months For the
Year Ended Through Ended Year Ended
December 31, December 31, September 30, December 31,
1998 1997 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Service ....................................... 93.6% 94.6% 94.6% 94.6%
Installation .................................. 6.4 5.4 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) ............... 7.3 7.2 8.0 7.9
Other direct costs of services(2) .......... 8.0 6.5 8.4 10.1
Cost of equipment(3) .......................... 12.0 12.0 11.4 11.2
Selling, general and administrative:
Selling and Marketing(4) ................... 9.9 8.9 8.4 8.6
Customer Service(5) ........................ 6.3 6.2 6.3 5.9
General and administrative(6) .............. 11.6 14.2 14.2 14.9
Depreciation and amortization ................. 22.1 25.3 18.0 15.7
------ ------ ------ ------
Total Operating Expenses ........................... 77.2 80.3 74.7 74.3
------ ------ ------ ------
Operating Income ................................... 22.8% 19.7% 25.3% 25.7%
Operating Income Before Depreciation And
Amortization(7).................................. 44.9% 45.0% 43.3% 41.4%
</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 incollect 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, advertising and promotional expenses, and employee and agent
commissions.
(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.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Revenue. Service revenues totaled $184.7 million for 1998, an increase of
5.2% over $175.5 million for 1997. The increase is primarily attributable to a
24.5% increase in the average number of subscribers to 345,490 for 1998 versus
277,487 for 1997 after adjusting for the sale of the Fort Myers and GA-1
markets. Substantially offsetting this increase is the loss of service revenue
of the cellular telephone systems resulting from the sale of Fort Myers and
GA-1, which approximated $21.1 million. The increase in subscribers is the
result of internal growth, which the Company attributes primarily to its strong
sales and marketing efforts. In addition to the subscriber base growth, service
revenues also increased because of a significant increase in the minutes of use
for the Company's subscribers.
19
<PAGE>
Average monthly revenue per subscriber (which excludes incollect revenue)
decreased 2.5% to $44.54 for 1998 from $45.70 for 1997. The decrease is below
the industry average. Revenue includes service revenue and incollect revenue,
which is offset against cost of service for financial reporting purposes. This
modest decrease 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 $12.7 million for 1998 from
$10.0 million for 1997. As a percentage of total cellular revenue, equipment
sales and installation revenue increased to 6.4% of service revenue from 5.4%
for 1997 reflecting the increased recurring revenue base as well as the ability
to obtain increased prices for our cellular equipment sold to customers.
Operating Expenses. Engineering and technical expenses decreased slightly
by 2.1% to $14.3 million for 1998 from $14.6 million in 1997. As a percentage of
revenue, engineering and technical expenses decreased to 7.3 % of total revenue
from 7.9% for 1997. This reflects the increased costs associated with increased
minutes of usage by our subscribers offset by the expenses associated with the
markets sold which approximated $1.3 million.
Other direct costs of services increased to $15.7 million in 1998 from
$14.7 million in 1997. As a percentage of revenue, other direct costs of service
was basically flat increasing from 7.9% in 1997 to 8.0% in 1998, reflecting the
increase in minutes of usage by our customers as they roam in other markets.
Other direct costs of service related to the Fort Myers and GA-1 markets
approximated $3.0 million.
The cost of equipment increased 10.7% to $23.7 million for 1998 from $21.4
million for 1997, due primarily to the increase in gross subscriber activations.
Equipment sales resulted in losses of $11.0 million in 1998 versus $11.4 million
in 1997. The Company sells equipment below its costs in an effort to address
market competition and improve market share. The Company was able to reduce its
losses by obtaining better prices from its customers as well as obtaining better
prices from its suppliers.
Selling, general and administrative expenses increased a modest 2.2% to
$55.0 million in 1998 from $53.8 million in 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 23.4% to $19.5 million for 1998 from
$15.8 million for 1997. This increase is primarily due to an 8.0% increase in
gross subscriber activations (excluding prepaids) and the costs to acquire them
and higher advertising costs in response to market competition. As the level of
penetration increases, the sales and marketing costs associated with acquiring
additional subscribers increases. As a percentage of total revenue, sales and
marketing costs increased to 9.9% for 1998 compared to 8.5% for 1997. The
Company's cost to add a net subscriber, including loss on telephone sales,
decreased to $448 for 1998 from $469 for 1997. Sales and marketing expenses
associated with the Fort Myers and GA-1 markets approximated $1.2 million.
Customer service costs increased 6.8% to $12.5 million for 1998 from $11.7
million for 1997. As a percentage of revenue, customer service costs amounted to
6.3% for 1998 and for 1997. The increase in the absolute amount was due
primarily to an increase in fees for billing services, partially offset by the
expenses incurred for the Fort Myers and GA-1 markets which approximated $1.1
million in 1997.
General and administrative expenditures decreased 12.5% to $23.0 million
for 1998 from $26.3 million for 1997. General and administrative expenses
decreased as a percentage of total revenue to 10.5% in 1998 from 14.2% in 1997.
Payroll and its related fringe benefits were the largest line items that
reflected a decrease. General and administrative expenses attributable to the
cellular telephone systems sold in Fort Myers and GA-1 amounted to $1.8 million
in 1997. The Company continues to add subscribers which generate revenue.
Accordingly, general and administrative expenses should continue to 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 19.1% to $43.6 million for 1998
from $36.6 million for 1997. This increase was primarily due to the additional
depreciation and amortization on higher fixed asset and intangible values from
the purchase of the Company in October 1997. As a percentage of revenue,
depreciation and amortization increased to 22.1% for 1998 from 19.7% for 1997
compared to 1997.
20
<PAGE>
Operating income increased 1.4% to $45.0 million in 1998, from $44.4
million for 1997. This improvement in operating results is primarily due to
increases in revenue and on cost containment. The improvement in operating
income was caused by a $7.0 million increase in the non-cash charges for
depreciation and amortization.
Net interest expense increased to $77.5 million in 1998 from $46.7 million
in 1997 primarily because of the additional borrowings incurred as a result of
the acquisition and the push down of interest on Holdings indebtedness.
The income tax benefit for 1998 amounted to $12.8 million representing the
reduction of the accrued tax liability associated with the sale of the Ft.
Meyers and GA-1 properties which was established as the result of purchase
accounting. The income tax benefit for 1997 approximated $1.0 million based on
the loss for the year.
The net loss for the year ended December 31, 1998 was $47.2 million
compared to $2.8 million for the year ended December 31, 1997. The increased net
loss is a result of the additional interest expense, increased depreciation and
amortization expense and $25.3 million of extraordinary items (net of tax
benefit). These items are comprised of the write-off of deferred finance charges
and the premium associated with the early retirement of the Holdings notes and
interest paid for the early termination of the interest rate swap contracts.
Year Ended December 31, 1997 Compared To Year Ended December 31, 1996
Revenue. Service revenues totaled $175.5 million for 1997, an increase of
16.1% over $151.1 million for 1996. This increase was due to a 29.8% increase in
the average number of subscribers to 313,042 for 1997 versus 241,255 for 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. In addition to the subscriber base growth, service revenues also
increased because of a 35.3% increase in outcollect roaming revenues.
Average monthly revenue per subscriber decreased 10.5% to $46.72 for 1997
from $52.20 for 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 $10.0 million for 1997 from
$8.6 million for 1996. As a percentage of total cellular revenue, equipment
sales and installation revenue remained flat at 5.4% for both 1997 and 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 16.0%
to $14.6 million for 1997 from $12.6 million in 1996, due primarily to the
increase in subscribers and in cell site locations. As a percentage of revenue,
engineering and technical expenses remained flat at 7.9% for both 1997 and 1996.
This reflects the increased fixed costs associated with additional cell sites
constructed. As revenue grows 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 declined to $14.7 million for 1997 from
$16.1 million in 1996. As a percentage of revenue, other direct costs of service
decreased to 7.9% in 1997 from 10.1% in 1996, reflecting the decrease in
interconnection costs as a result of the Company's renegotiations of
interconnection agreements with the local exchange carriers ("LECs") in most of
the Company's markets, offset somewhat by more competitive roaming rates for
Company's customer roaming in adjacent areas.
The cost of equipment increased 19.1% to $21.4 million for 1997 from $17.9
million for 1996, due primarily to the increase in gross subscriber activations.
Equipment sales resulted in losses of $11.4 million in 1997 versus $9.3 million
in 1996. The Company sells equipment below its costs in an effort to address
market competition and improve market share. The Company sold more telephones
below cost in 1997 than in 1996.
Selling, general and administrative expenses increased 14.8% to $53.8
million in 1997 from $46.9 million in 1996. 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 15.5% to $15.8 million for 1997 from
$13.7 million for 1996. This increase is primarily due to a 13.5% increase in
gross subscriber activations and the costs to acquire them and higher
advertising costs in response to market competition. As a percentage of total
revenue, sales and marketing costs decreased to 8.5% for 1997 compared to 8.6%
21
<PAGE>
for 1996. The Company's cost to add a net subscriber, including loss on
telephone sales, increased to $469 for 1997 from $407 for 1996 due primarily to
increased losses from the Company's sales of cellular telephones and an increase
in commissions.
Customer service costs increased 23.6% to $11.7 million for 1997 from $9.4
million for 1996. As a percentage of revenue, customer service costs increased
to 6.3% for 1997 from 5.9% for 1996. The increase was due primarily to an
increase in license and maintenance costs for the Company's billing systems.
General and administrative expenditures increased 10.8% to $26.3 million
for 1997 from $23.8 million for 1996. General and administrative expenses
decreased as a percentage of total revenue to 14.2% in 1997 from 14.9% in 1996.
As the Company continues to add more subscribers, and generates associated
revenue, general and administrative expenses should continue to 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 46.1% to $36.6 million for 1997
from $25.0 million for 1996. 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, recent acquisitions and
additional capital expenditures. As a percentage of revenue, depreciation and
amortization increased to 19.7% from 15.7% for 1997 compared to 1996.
Operating income increased 7.9% to $44.4 million in 1997, from $41.2
million for 1996. This improvement in operating results is attributable
primarily to increases in revenue, which exceeded increases in operating
expenses.
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 the issuance of debt, equity
contributions, and, to a lesser extent, operating cash flow.
In 1998 the Company spent approximately $14.7 million for capital
expenditures. The Company expects to spend approximately $16 million for capital
expenditures for the year ended December 31, 1999. The Company expects to use
net cash provided by operating activities to fund such capital expenditures.
In July 1997, the Company issued $175 million of $11.75% Senior
Subordinated Notes due July 15, 2007 with interest payable semi-annually
commencing January 15, 1998. Such Notes contain covenants that restrict the
payment of dividends, incurrence of debt and sale of assets.
In June 1998, the Company issued $525.0 million of 9.125% Senior Secured
Notes due December 15, 2006 with interest payable semi-annually commencing
December 15, 1998. These notes contain covenants that restrict the payment of
dividends, incurrence of debt and the sale of assets. The net proceeds from
these notes were used to pay-off the credit facility that approximated $425.1
million as of the redemption date.
In August 1997, in connection with the acquisition of the Predecessor (see
Note 1 to the Company's Consolidated Financial Statements) Holdings issued
153,400 units, consisting of Holdings' Notes and Warrants of PCC, 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. In August 1998, the notes were redeemed at the redemption price per $1000
aggregate principal amount of $711.61. The accreted value of the notes
approximated $91.0 million. In addition, a premium of 20% of the outstanding
indebtedness or approximately $18.2 million was also paid. The redemption was
financed out of the net proceeds of a new Holdings offering of 11.25% Senior
Payable-in-Kind notes due 2008. Interest is payable semi-annually in arrears on
each February 15 and August 15. Cash interest will begin to accrue on the notes
on February 15, 2003 whereupon the interest rate will be reduced by 0.5%.
Commencing February 15, 1999, the Company may elect to pay cash interest
whereupon all future interest becomes cash pay and the interest rate will be
reduced by 0.5%
Accounting Policies
For financial reporting purposes, the Company reports 100% of revenues and
expenses for the markets for which its provides cellular telephone service.
However, in several of its markets, the Company holds less than 100% of the
equity
22
<PAGE>
ownership. The minority stockholders' and partners' share of income or losses in
those markets are reflected in the consolidated financial statements as
"minority interest share of (income) losses", except for losses in excess of
their capital accounts and cash call provisions which are not eliminated in
consolidation. For financial reporting purposes, the Company consolidates all
subsidiaries and partnerships since it has a controlling interest (greater than
50%) in each.
Year 2000 Impact
The Company is in the process of reviewing the full impact that the Year
2000 could have on its operational and financial systems. The Company has chosen
its current billing provider to coordinate the testing of all of the operating
and financial systems that could affect the Company's operations. Several of
these systems such as the point of sale system, the prepaid calling system, wide
area network and local area network, and the general ledger system are currently
integrated into the billing system.
The Company's current billing vendor has committed to test the compliance
of the above systems with the Year 2000 requirements by reviewing the system's
upgrade releases which these third party providers maintain will be Year 2000
compliant. Most of these system providers deal with other cellular companies,
which enables the Company to leverage the knowledge obtained from servicing
other cellular and telecommunications companies. The Company anticipates that
this will reduce the testing and validation time necessary for a comprehensive
review.
In addition to the testing of third party provided systems, the current
billing provider will review its own internal operating systems to verify Year
2000 compliance. They will then test the integration of the updated Year 2000
versions with their upgraded version to ensure compliance.
The Company, with the billing provider's guidance, has formulated its
strategy after analyzing all systems that could have an effect on operations and
prioritizing the impact into high, medium, and low risk. The Company estimates
that the total costs of these testing and upgrading procedures will be less than
$2 million. However, the Company is unable to predict all of the implications of
the Year 2000 issue as it relates to its suppliers and other entities. It is
anticipated that the substantial portion of these costs will be incurred during
1999 and will be expensed when incurred.
The Company has investigated the possibility of establishing a contingency
plan in the event the above is not successful. Its dependence on a few key third
party providers in the industry and the lack of accessibility of alternative
systems make a contingency plan impractical.
Inflation
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk - Wireless
The Company utilizes fixed rate debt instruments to fund its acquisitions.
Management believes that the use of fixed rate debt minimizes the Company's
exposure to market conditions and the ensuing increases and decreases that could
arise with variable rate financing. See notes to consolidated financial
statements for description and terms of long term debt.
23
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Price Communications Wireless, Inc. and Subsidiaries Consolidated
Financial Statements are set forth on the following pages of this Part II.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Price Communications Wireless, Inc. and Subsidiaries
Auditors' Reports....................................................................................................... F-1
Consolidated Balance Sheets at December 31, 1998 and 1997............................................................... F-3
Consolidated Statements of Operations for Years ended December 31, 1998, 1997 and 1996.................................. F-4
Consolidated Statements of Cash Flows for Years ended December 31, 1998, 1997 and 1996.................................. F-5
Consolidated Statements of Stockholder's Equity (Deficit) for Years ended December 31, 1998, 1997 and 1996.............. F-7
Notes to Consolidated Financial Statements.............................................................................. F-8
Palmer Wireless Holdings
Auditors' Reports ...................................................................................................... F-21
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-22
Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended .................. F-23
December 31, 1998, 1997, and 1996 ...................................................................................... F-24
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-25
Consolidated Statements of Stockholder's Equity (Deficit) for the Years ended December 31, 1998, 1997 and 1996 ......... F-25
Notes to Consolidated Financial Statements ............................................................................. F-26
Cellular Systems of Southeast Alabama, Inc.
Auditors' Reports ...................................................................................................... F-37
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-39
Consolidated Statements of Operations and Retained Earnings for the Years ended December 31, 1998, 1997, and 1996 ...... F-40
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-41
Notes to Consolidated Financial Statements ............................................................................. F-42
Albany Cellular Partners
Auditors' Reports ...................................................................................................... F-47
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-49
Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-50
Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-51
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-51
Notes to Consolidated Financial Statements ............................................................................. F-52
Cellular Dynamics Telephone Company of Georgia
Auditors' Reports ...................................................................................................... F-57
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-59
Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended
December 31, 1998, 1997, and 1996 ...................................................................................... F-60
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-61
Notes to Consolidated Financial Statements ............................................................................. F-62
Columbus Cellular Telephone Company
Auditors' Reports ...................................................................................................... F-68
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-70
Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-71
Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-71
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-72
Notes to Consolidated Financial Statements ............................................................................. F-73
Dothan Cellular Telephone Company, Inc.
Auditors' Reports ...................................................................................................... F-78
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-80
Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended
December 31, 1998, 1997, and 1996 ...................................................................................... F-81
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-82
Notes to Consolidated Financial Statements ............................................................................. F-83
Macon Cellular Telephone Systems, Limited Partnership
Auditors' Reports ...................................................................................................... F-88
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-90
Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-91
Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-91
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-92
Notes to Consolidated Financial Statements ............................................................................. F-93
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
Montgomery Cellular Holding, Co., Inc.
Auditors' Reports ...................................................................................................... F-98
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-100
Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended
December 31, 1998, 1997, and 1996 ...................................................................................... F-101
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-102
Notes to Consolidated Financial Statements ............................................................................. F-103
Montgomery Cellular Telephone Company, Inc.
Auditors' Reports ...................................................................................................... F-110
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-111
Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended
December 31, 1998, 1997, and 1996 ...................................................................................... F-112
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-113
Notes to Consolidated Financial Statements ............................................................................. F-114
Panama City Cellular Telephone Company, Ltd.
Auditors' Reports ...................................................................................................... F-121
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-122
Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-123
Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-123
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-124
Notes to Consolidated Financial Statements ............................................................................. F-125
Panhandle Cellular Partnership
Auditors' Reports ...................................................................................................... F-130
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-132
Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-133
Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-133
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-134
Notes to Consolidated Financial Statements ............................................................................. F-135
Savannah Cellular Limited Partnership
Auditors' Reports ...................................................................................................... F-140
Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-142
Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-142
Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-143
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-144
Notes to Consolidated Financial Statements ............................................................................. F-145
CEI Communications, Inc.
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-150
Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ......................................... F-151
Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 .......................................... F-152
Notes to Financial Statements .......................................................................................... F-153
Panama City Communications, Inc.
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-154
Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ......................................... F-155
Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 .......................................... F-156
Notes to Financial Statements .......................................................................................... F-156
Price Communications Wireless II
Auditor's Report ....................................................................................................... F-157
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-158
Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-159
Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-160
Notes to Financial Statements .......................................................................................... F-161
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
Price Communications Wireless III
Auditor's Report ....................................................................................................... F-162
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-163
Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-164
Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-165
Notes to Financial Statements .......................................................................................... F-166
Price Communications Wireless IV
Auditor's Report ....................................................................................................... F-167
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-168
Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-169
Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-170
Notes to Financial Statements .......................................................................................... F-171
Price Communications Wireless V
Auditor's Report ....................................................................................................... F-172
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-173
Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-174
Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-175
Notes to Financial Statements .......................................................................................... F-176
Price Communications Wireless VI
Auditor's Report ....................................................................................................... F-177
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-178
Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-179
Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-180
Notes to Financial Statements .......................................................................................... F-181
Price Communications Wireless VII
Auditor's Report ....................................................................................................... F-182
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-183
Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-184
Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-185
Notes to Financial Statements .......................................................................................... F-186
Price Communications Wireless VIII
Auditor's Report ....................................................................................................... F-187
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-188
Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-189
Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-190
Notes to Financial Statements .......................................................................................... F-191
Price Communications Wireless IX
Auditor's Report ....................................................................................................... F-192
Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-193
Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-194
Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-195
Notes to Financial Statements .......................................................................................... F-196
</TABLE>
(Schedules other than those listed are omitted for the reason that they
are not required or are not applicable or the required information is shown in
the financial statements or notes thereto.)
I. Supplement Schedule of Noncash Investing and Financing Activities.
II. Supplement Disclosure of Cash Flow Information.
(3) Exhibits
See Exhibit Index at page E-1, which is incorporated herein by reference.
(b) Reports on Form 8-K.
None.
26
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Omitted pursuant to Instruction I 1 (a) and (b).
Item 11. EXECUTIVE COMPENSATION
Omitted pursuant to Instruction I 1 (a) and (b).
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to Instruction I 1 (a) and (b).
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to Instruction I 1 (a) and (b).
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) List of financial statements and financial statement
schedules:
Index to Financial Statements
Price Communications Wireless, Inc. and Subsidiaries
Auditors' Reports
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations for the Years ended December 31,
1998, 1997, and 1996.
Consolidated Statements of Cash Flows for the Years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Stockholder's Equity (Deficit) for the Years
ended December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Price Communications Wireless, Inc.:
We have audited the accompanying consolidated balance sheets of Price
Communications Wireless, Inc. (a Delaware corporation, formerly Palmer Wireless,
Inc.) and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the year ended December 31, 1998 and the period May 29, 1997 through December
31, 1997 (post acquisition basis). We have also audited the accompanying
consolidated statements of operations, stockholder's equity, and cash flows for
the nine-month period ended September 30, 1997 (pre-acquisition basis). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Price Communications
Wireless, Inc. and subsidiaries as of December 31, 1998 and 1997 and the results
of their operations and their cash flows for the year ended December 31, 1998
and for the periods May 29, 1997 to December 31, 1997 (post-acquisition basis)
and January 1, 1997 to September 30, 1997 (pre-acquisition basis) in conformity
with generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
New York, New York
February 10, 1999
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Price Communications Wireless, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows of Price Communications Wireless, Inc. and
subsidiaries (formerly Palmer Wireless, Inc.) for the year ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Price Communications Wireless, Inc. and subsidiaries for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-2
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 109,137 $ 27,926
Restricted cash ......................................................... 79,081 --
Trade accounts receivable, net of allowance for doubtful accounts
of $1,596 in 1998 and $818 in 1997 .................................... 20,508 15,940
Receivable from other cellular carriers ................................. 2,282 3,902
Prepaid expenses and deposits ........................................... 303 902
Inventory ............................................................... 3,940 1,280
Deferred income taxes ................................................... 5,402 1,383
----------- -----------
Total current assets .................................................. 216,634 55,352
Property and equipment:
Land and improvements ................................................... 6,767 6,438
Buildings and improvements .............................................. 8,831 8,561
Equipment, communication systems, and furnishings ....................... 140,381 153,550
----------- -----------
169,148 155,380
Less accumulated depreciation and amortization .......................... 24,320 4,239
----------- -----------
Net property and equipment ............................................ 144,828 151,141
Licenses and goodwill, net of accumulated amortization of $29,117
in 1998 and $6,016 in 1997 ............................................ 876,952 918,488
Other intangible assets and other assets, at cost less accumulated
amortization of $1,671 in 1998 and $818 in 1997 ....................... 25,320 19,498
----------- -----------
Total assets .......................................................... $ 1,263,734 $ 1,144,479
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt .................................. $ -- $ 2,812
Payable to Price Communications Corporation ............................. 1,151 2,328
Accounts payable ........................................................ 13,168 13,059
Accrued interest payable ................................................ 11,779 11,361
Accrued salaries and employee benefits .................................. 2,656 2,324
Other accrued liabilities ............................................... 8,448 16,031
Deferred revenue ........................................................ 5,535 3,755
Customer deposits ....................................................... 921 602
----------- -----------
Total current liabilities ............................................. 43,658 52,272
Long-term debt, excluding current installments ............................ 700,000 610,188
Obligation of parent company .............................................. 209,432 80,112
Accrued income taxes--long term ........................................... 22,775 50,491
Deferred income taxes ..................................................... 290,370 308,901
Minority interests ........................................................ 9,530 7,352
Stockholder's equity (deficit)
Preferred stock par value $.01 per share; 10,000,000 shares
authorized; none issued ............................................... -- --
Class A Common Stock par value $.01 per share; 3,000 shares
authorized, 1,500 shares issued ....................................... -- --
Additional paid-in capital .............................................. 44,015 44,015
Retained earnings (accumulated deficit) ................................. (56,046) (8,852)
----------- -----------
Total stockholder's equity (deficit) .................................. (12,031) 35,163
----------- -----------
Total liabilities and stockholder's equity (deficit) .................. $ 1,263,734 $ 1,144,479
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands)
<TABLE>
<CAPTION>
Company Predecessor
------- -----------
For the Period
For the Year May 29, 1997 For the Nine For the Year
Ended through Months Ended Ended
December 31, December 31, September 30, December 31,
1998 1997(a) 1997 1996
---- ------- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Service ....................................... $ 184,652 $ 41,365 $ 134,123 $ 151,119
Equipment sales and installation .............. 12,677 2,348 7,613 8,624
--------- -------- --------- ---------
Total revenue ............................ 197,329 43,713 141,736 159,743
--------- -------- --------- ---------
Operating expenses:
Engineering, technical and other direct ....... 30,022 5,978 23,301 28,717
Cost of equipment ............................. 23,710 5,259 16,112 17,944
Selling, general and administrative ........... 55,002 12,805 41,014 46,892
Depreciation and amortization ................. 43,569 11,055 25,498 25,013
--------- -------- --------- ---------
Total operating expenses ................. 152,303 35,097 105,925 118,566
Operating income ......................... 45,026 8,616 35,811 41,177
--------- -------- --------- ---------
Other income (expense):
Interest income ............................... 5,435 2,195 30 62
Interest expense .............................. (82,945) (24,393) (24,497) (31,524)
--------- -------- --------- ---------
Interest expense, net .................... (77,510) (22,198) (24,467) (31,462)
Other (expense) income, net ................... (19) 15 208 (429)
--------- -------- --------- ---------
Total other expense ...................... (77,529) (22,183) (24,259) (31,891)
--------- -------- --------- ---------
Income (loss) before minority interest
share of income and income taxes ...... (32,503) (13,567) 11,552 9,286
Minority interest share of income .................. (2,178) (414) (1,310) (1,880)
--------- -------- --------- ---------
Income (loss) before income tax expense
(benefit) ............................. (34,681) (13,981) 10,242 7,406
Income tax benefit (expense) ....................... 12,831 5,129 (4,153) (2,724)
--------- -------- --------- ---------
Income (loss) before extraordinary item .. (21,850) (8,852) 6,089 4,682
Extraordinary item - Loss on early extinguishment of
debt (net of income tax benefit of $14,885) ..... (25,344) -- -- --
--------- -------- --------- ---------
Net income (loss) ........................ $ (47,194) $ (8,852) $ 6,089 $ 4,682
========= ======== ========= =========
</TABLE>
(a) Includes results of cellular operations only for the period October 1,
1997 through December 31, 1997
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Company Predecessor
------- -----------
For the Period
For the May 29, 1997 For the Nine For the
Year Ended through Months Ended Year Ended
December 31, December 31, September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................... $ (47,194) $ (8,852) $ 6,089 $ 4,682
--------- --------- -------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by Operating activities:
Depreciation and amortization ......................... 43,569 11,055 25,498 25,013
Minority interest share of income ..................... 2,178 414 1,310 1,880
Deferred income taxes ................................. (373) (2,454) 3,939 1,855
Extraordinary item .................................... 40,229 -- -- --
Interest deferred and added to long-term debt ......... -- -- -- 355
Interest deferred and added to obligation of parent
company ............................................. 9,432 4,400 -- --
Payment of deferred interest .......................... -- -- (1,514) (1,080)
Amortization of deferred finance costs ................ 2,030 -- -- --
Changes in current assets and liabilities:
(Increase) decrease in trade and other accounts
receivable ........................................ (2,948) 124 473 (1,561)
(Increase) decrease in inventory .................... (2,660) 458 2,800 (2,595)
Increase (decrease) in accounts payable ............. 109 3,598 (1,390) (841)
Increase (decrease) in accrued interest payable ..... 418 9,394 (374) (167)
Increase (decrease) in accrued salaries and employee
benefits .......................................... 332 (341) 251 165
(Decrease) increase in other accrued liabilities .... (4,605) (4,529) 2,049 (507)
Increase (decrease) in deferred revenue ............. 1,780 (1,046) 4 912
Increase (decrease) in customer deposits ............ 319 15 (94) 134
(Decrease) in accrued income tax long term .......... (27,716) (2,675) -- --
Other ............................................... 671 175 (250) 1,885
--------- --------- -------- ---------
Total adjustments ................................... 62,765 20,165 32,702 25,448
--------- --------- -------- ---------
Net cash provided by operating activities ......... 15,571 11,313 38,791 30,130
--------- --------- -------- ---------
Cash flows from investing activities:
Capital expenditures .................................... (14,725) (14,499) (40,757) (41,445)
Increase in other asset ................................. -- -- (778) (2,180)
Proceeds from sales of property and equipment ........... -- -- 201 5
Acquisition of Predecessor net assets ................... -- (497,856) -- --
Purchase of cellular systems ............................ -- -- (31,469) (67,588)
Proceeds from sales of cellular systems ................. -- 193,799 -- --
Collection of purchase price adjustment ................. -- -- -- 2,452
Purchases of minority interests ......................... -- (794) (956) (1,854)
Distributions to minority interest ...................... -- (1,680) -- --
Cash return of escrow ................................... 2,000 -- -- --
--------- --------- -------- ---------
Net cash used in investing activities ............. (12,725) (321,030) (73,759) (110,610)
Cash flows from financing activities:
(Repayments to) advances from Price Communications
Corporation ............................................... (1,177) 2,328 -- --
Increase (decrease) in short term notes payable ......... -- -- (1,366) 1,366
Repayment of long-term debt ............................. (518,112) (385,000) (3,782) (108,319)
Proceeds from long-term debt ............................ 725,000 695,712 41,000 100,000
Segregation of restricted cash from proceeds of
long-term debt ........................................ (79,081) -- -- --
Costs associated with early extinguishment of debt ...... (28,080) -- -- --
Payment of debt issuance costs .......................... (20,185) (19,412) -- --
Public offering proceeds, net ........................... -- -- -- 95,000
Issuance of common stock ................................ -- 44,015 -- --
Proceeds from stock options exercised ................... -- -- 999 95
Payment of deferred offering costs ...................... -- -- -- (826)
Purchase of treasury stock .............................. -- -- -- (8,864)
Proceeds from sales under stock purchase plans .......... -- -- -- 290
--------- --------- -------- ---------
Net cash provided by financing activities ......... 78,365 337,643 36,851 78,742
--------- --------- -------- ---------
Net increase (decrease) in cash and cash
equivalents ..................................... 81,211 27,926 1,883 (1,738)
Cash and cash equivalents at the beginning of period ...... 27,926 -- 1,698 3,436
--------- --------- -------- ---------
Cash and cash equivalents at the end of period ............ $ 109,137 $ 27,926 $ 3,581 $ 1,698
========= ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
($ in thousands)
Supplemental Schedule of Noncash Investing and Financing Activities
During 1996, the Predecessor increased the purchase obligations related to
the final purchase price adjustment for the controlling interest in a
non-wireline cellular telephone system purchased in 1991. This increase amounted
to $899 and resulted in an increase in licenses.
Acquisitions of non-wireline cellular telephone systems in 1996 and 1997:
($ in thousands)
Predecessor
-----------
For the Nine For the Year
Months Ended Ended
September 30, December 31,
1997 1996
---- ----
Cash payment ............................... $31,469 $67,588
======= =======
Allocated to:
Fixed assets .......................... 3,197 5,678
Licenses and goodwill ................. 27,738 61,433
Deferred income taxes ................. -- --
Current assets and liabilities, net ... 534 477
------- -------
$31,469 $67,588
======= =======
Supplemental disclosure of cash flow information
<TABLE>
<CAPTION>
($ in thousands)
Company Predecessor
------- -----------
For the
For period
the Year May 29, For the Nine For the
Ended 1997 through Months Ended Year Ended
December 31, December 31, September 30, December 31,
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income taxes paid (received), net $ 728 $ (40) (736) $ 1,591
======== ======== ======== ========
Interest paid ................... $ 81,379 $ 9,924 25,102 $ 29,733
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
($ in thousands)
Predecessor
<TABLE>
<CAPTION>
Common Stock Class A Common Stock Class B Additional
-------------------- -------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 ........... 6,095,772 $ 61 17,293,578 $173 $ 72,466 $ 1,853
Public offering, net of issuance costs of
$5,826 ............................... 5,000,000 50 -- -- 94,124 --
Exercise of stock options ............... 6,666 -- -- -- 95 --
Employee and non-employee director
stock purchase plans ................. 17,243 -- -- -- 290 --
Treasury shares purchased ............... -- -- -- -- -- --
Net income .............................. -- -- -- -- -- 4,682
---------- ---- ---------- ---- -------- -------
Balances at December 31, 1996 ........... 11,119,681 111 17,293,578 173 166,975 6,535
Exercise of stock options ............... 70,000 1 -- -- 998 --
Net income .............................. -- -- -- -- -- 6,089
---------- ---- ---------- ---- -------- -------
Balances at September 30, 1997 .......... 11,189,681 $112 17,293,578 $173 $167,973 $12,624
========== ==== ========== ==== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock Total
-------------- Stockholders'
Shares Amount Equity
------ ------ ------
<S> <C> <C> <C>
Balances at December 31, 1995 ............................ -- -- $ 74,553
Public offering, net of issuance costs of $5,826 ......... -- -- 94,174
Exercise of stock options ................................ -- -- 95
Employee and non-employee director stock purchase plans .. -- -- 290
Treasury shares purchased ................................ 600,000 (8,864) (8,864)
Net income ............................................... -- -- 4,682
------- ------- ---------
Balances at December 31, 1996 ............................ 600,000 (8,864) 164,930
Exercise of stock options ................................ -- -- 999
Net income ............................................... -- -- 6,089
------- ------- ---------
Balances at September 30, 1997 ........................... 600,000 $(8,864) $ 172,018
======= ======= =========
</TABLE>
COMPANY
<TABLE>
<CAPTION>
Common Stock
Class A Additional Total
------- Paid-in Accumulated Stockholder's
Shares Amount Capital Deficit Equity (Deficit)
------ ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at May 29, 1997 .... -- $ -- $ -- $ -- $ --
Capital contribution ........ 1,500 -- 44,015 -- 44,015
Net loss .................... -- (8,852) (8,852)
-------- -------- -------- -------- --------
Balances at December 31, 1997 1,500 -- 44,015 (8,852) 35,163
Net Loss .................... -- -- -- (47,194) (47,194)
-------- -------- -------- -------- --------
Balances at December 31, 1998 1,500 $ -- $ 44,015 $(56,046) $(12,031)
-------- -------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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." Pursuant to the
Merger Agreement, PCC acquired each issued and outstanding share of common stock
of Palmer for a purchase price of $17.50 per share in cash and purchased
outstanding options and rights under employee and direct stock purchase plans
for an aggregate price of approximately $486.4 million. In addition, as a result
of the Merger, PCW assumed all outstanding indebtedness of Palmer of
approximately $378.0 million. Therefore, the aggregate purchase price for Palmer
(including transaction fees and expenses) was approximately $880.0 million. PCW
refinanced all of the Palmer Existing Indebtedness concurrently with the
consummation of the Merger.
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 $166.0 million. 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. 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 $24.2 million. 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.
In order to fund the Merger and pay related fees and expenses, in July,
1997, PCW issued $175.0 million aggregate principal amount of 11 3/4% Senior
Subordinated Notes due 2007 and entered into a syndicated senior loan facility
providing for term loan borrowings in the aggregate principal amount of
approximately $325.0 million and revolving loan borrowings of $200.0 million. In
October 1997, PCW borrowed all term loans available thereunder and approximately
$120.0 million of revolving loans. DLJ Capital Funding, Inc. provided and
syndicated the New Credit Facility.
The remaining acquisition price of Palmer was funded through a $44.0
million equity contribution of PCC and $75.7 million of borrowings of Holdings.
Basis of Presentation
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" the accounting. As
of December 31, 1997 the consolidated financial statements reflect an allocation
of the purchase price to the assets acquired and liabilities assumed including
$12.5 million of purchase reserves .The allocation of the purchase price
resulted in licenses of approximately $924.5 million on the balance sheet, which
are being amortized on a straight-line basis over a period of 40 years. During
1998, approximately $2.3 million of unused purchase reserves were reversed
against the value of the licenses established at the end of 1997.
F-8
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements through September 30, 1997 reflect
the historical cost of Palmer's assets and liabilities and results of operations
and are referred to as the "Predecessor" 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 financial position, results of operations, and cash flows of
these two separate entities.
Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after the elimination of significant
intercompany accounts and transactions. The financial statements also include
the cash (Restricted cash) and debt of Holdings, (Obligation of parent company)
which funded a portion of the acquisition of Palmer and is indirectly guaranteed
by the assets of the Company.
The Predecessor was a Delaware corporation and was incorporated on
December 15, 1993 to effect an initial public offering of its Class A Common
Stock. At December 31, 1996, Palmer Communications Incorporated ("PCI") owned 61
percent of the Predecessor's outstanding stock and had 75 percent of its voting
rights and therefore the Predecessor was a subsidiary of PCI.
Losses in subsidiaries, attributable to minority stockholders and
partners, in excess of their capital accounts and cash capital call provisions
are not eliminated in consolidation.
Operations
The Company has majority ownership in corporations and partnerships which
operate the non-wireline cellular telephone systems in eight Metropolitan
Statistical Areas ("MSA") in three states: Florida (one), Georgia (five) and
Alabama (two). The Company's ownership percentages in these entities range from
approximately 78 percent to 100 percent. The Company owns directly and operates
eight non-wireline cellular telephone systems in Rural Service Areas in Georgia
(seven) and Alabama (one).
The Predecessor had majority ownership in corporations and partnerships, which
operated the non-wireline cellular telephone systems in nine MSAs in three
states: Florida (two), Georgia (five) and Alabama (two). The Predecessor's
ownership percentages in these entities ranged from approximately 78 percent to
100 percent. The Predecessor owned directly and operated eight non-whirling
cellular telephone systems in RSAs in Georgia (seven) and Alabama (one).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company and the Predecessor consider cash and repurchase agreements
with a maturity of three months or less to be cash equivalents.
Inventory
Inventory consisting primarily of cellular telephones and telephone parts
is stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
F-9
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are stated at cost. The cost of additions and
improvements are capitalized while maintenance and repairs are charged to
expense when incurred. Depreciation is provided principally by the straight-line
method over the estimated useful lives, ranging from 5 to 20 years for buildings
and improvements and 5 to 10 years for equipment, communications systems and
furnishings.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the identifiable
assets, including licenses, based on the fair market value of such assets at the
date of acquisition (as determined by independent appraisers or management). The
excess of the total consideration over the amounts assigned to identifiable
assets is record as goodwill. Licenses and goodwill are being amortized on a
straight-line basis over a 40-year period.
Subsequent to the acquisition of the licenses, the Company continually
evaluates whether later events and circumstances have occurred that indicate the
remaining estimated useful life of licenses might warrant revision or that the
remaining balance of the license rights may not be recoverable. The Company
utilizes projected undiscounted cash flows over the remaining life of the
licenses and sales of comparable businesses to evaluate the recorded value of
licenses. The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Other Intangible Assets
Other intangibles consist principally of deferred financing costs and
other items. These costs are being amortized by the interest or straight-line
method over their respective useful lives, which range from 5 to 10 years.
Income Taxes
The Company and the Predecessor account for income taxes under the asset
and liability method of accounting for deferred income taxes. Under the asset
and liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Rate Swap Agreements
The differential to be paid or received in connection with interest rate
swap agreements is accrued as interest rates change and is recognized over the
life of the agreements.
Revenue Recognition
Service revenue includes local subscriber revenue and outcollect roaming
revenue.
F-10
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Local subscriber revenue is earned by providing access to the cellular
network ("access revenue") or, as applicable, for usage of the cellular network
("airtime revenue"). Access revenue is billed one month in advance and is
recognized when earned. Airtime revenue is recognized when the service is
rendered.
Outcollect roaming revenue represents revenue earned for usage of its
cellular network by subscribers of other cellular carriers. Outcollect roaming
revenue is recognized when the services are rendered.
Equipment sales and installation revenues are recognized upon delivery to
the customer or installation of the equipment.
Operating Expenses--Engineering, Technical and Other Direct
Engineering, technical and other direct operating expenses represent
certain costs of providing cellular telephone service to customers. These costs
include incollect roaming expense. Incollect roaming expense is the result of
subscribers using cellular networks of other cellular carriers. Incollect
roaming revenue is netted against the incollect roaming expense to determine net
incollect roaming expense.
Fair Value of Financial Instruments
Fair value estimates, methods and assumptions used to estimate the fair
value of financial instruments are set forth below:
For cash and cash equivalents, trade accounts receivable, receivable from
other cellular carriers, notes payable, accounts payable and accrued expenses,
the carrying amount approximates the estimated fair value due to the short-term
nature of those instruments.
Rates currently available for long-term debt with similar terms and
remaining maturities are used to discount the future cash flows to estimate the
fair value for long-term debt. Note 5 presents the fair value for long-term debt
and the related interest rate cap and swap agreements.
Fair value estimates are made as of a specific point in time, based upon
the relevant market information about the financial instruments. Because no
market exists for a majority of the financial instruments, fair value estimates
are based on judgments regarding current economic conditions and other factors.
These estimates are subjective in nature and involve uncertainties and matters
of judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Impact of new accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("Accounting for Derivative Instruments
and Hedging Activities"). This statement establishes accounting and reporting
standards requiring than all derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded on the balance
sheet as an asset or a liability and measured at its fair value. This statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. This statement is
effective for fiscal years beginning after June 15, 1999, but can be adopted
earlier. Management has not yet determined the timing of or method to be used in
adopting this statement. Management does not believe at this time that such
adoption would have a material impact on its consolidated financial statements.
Stock Option Plans
The Predecessor accounted for its stock option plans in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Predecessor adopted Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Predecessor elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(2) Trade Accounts Receivable
The Company and the Predecessor grant credit to its customers.
Substantially all of the customers are residents of the local areas served.
Generally, service is discontinued to customers whose accounts are 60 days past
due.
F-11
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The activity in the Predecessor's and the Company's allowance for doubtful
accounts for the years ended December 31, 1996, the nine months ended September
30, 1997 the period from May 29, 1997 through December 31, 1997 and for the year
ended December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
Allowances at
Balance at Charged Dates of Deductions,
Beginning To Acquisitions Net of Balance at
of Period Expenses (Dispositions) Recoveries End of Period
--------- -------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Predecessor
Year ended December 31, 1996 .......... $ 1,880 $ 3,946 $ 1,270 $ (5,305) $ 1,791
======== ======== ======== ======== ========
Predecessor
Nine months ended September 30, 1997 .. $ 1,791 $ 3,614 $ 147 $ (4,212) $ 1,340
======== ======== ======== ======== ========
Company
Period from May 29, 1997 through
through December 31, 1997 .......... $ 1,340 $ 1,202 $ (206) $ (1,518) $ 818
======== ======== ======== ======== ========
Year Ended December 31, 1998 .......... $ 818 $ 5,716 $ -- $ (4,938) $ 1,596
======== ======== ======== ======== ========
</TABLE>
(3) Other Accrued Liabilities
Other accrued liabilities at December 31, 1998 and 1997 consisted of the
following:
1998 1997
---- ----
Accrued telecommunications expenses ........ $ 1,861 $ 2,176
Accrued local taxes ........................ 1,368 888
Accrued severance payments ................. -- 6,155
Accrued shutdown costs of
certain facilities ......................... -- 3,818
Other ...................................... 5,219 2,994
------- -------
$ 8,448 $16,031
======= =======
(4) Acquisitions and Purchase of Licenses
On June 20, 1996, the Predecessor acquired the assets of and the license
to operate the non-wireline cellular telephone system serving the Georgia-1 RSA
for an aggregate purchase price of $31.6 million. The acquisition was accounted
for by the purchase method of accounting. In connection with the acquisition,
$27.9 million of the purchase price was allocated to licenses.
On July 5, 1996, two of the Predecessor's majority-owned subsidiaries
acquired the assets of and the license to operate the non-wireline cellular
telephone system serving the Georgia-6 RSA for an aggregate purchase price of
$36.0 million. The acquisition was accounted for by the purchase method of
accounting. In connection with the acquisition, $33.5 million of the purchase
price was allocated to licenses.
F-12
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 1997, a majority-owned subsidiary of the Predecessor
acquired the assets of and the license to operate the non-wireline cellular
telephone system serving the Georgia-13 RSA for an aggregate purchase price of
$31.5. The acquisition was accounted for by the purchase method of accounting.
In connection with the acquisition, $27.7 of the purchase price was allocated to
licenses.
(5) Pro Forma Information
The following unaudited pro forma condensed consolidated financial
information was prepared assuming (i) the Predecessor was acquired on January 1,
1996, (ii) the acquisitions of the licenses had occurred on January 1, 1996 (See
Note 4) and (iii) the Ft. Myers Sale and Georgia Sale occurred on January 1,
1996.
Proforma information is presented for comparative purposes only and does
not purport to be indicative of the results which would have been achieved had
this acquisition occurred as of January 1, 1996, nor does it purport to be
indicative of results that may be achieved in the future.
Year Ended December 31
1997 1996
---- ----
($ in thousands)
Unaudited
Total Revenue .......................... $ 161,468 $ 145,643
========= =========
Loss Before Income Taxes ............... $ (51,532) $ (54,529)
========= =========
Net Loss ............................... $ (43,911) $ (48,895)
========= =========
(6) Notes Payable and Long-Term Debt
Long-term debt consists of the following:
December 31
($ in thousands)
1998 1997
---- ----
Credit agreement ................................ $ -- $438,000(a)
11.75% Senior Subordinated Notes ................ 175,000(b) 175,000(b)
9.125% Senior Secured Notes ..................... 525,000(c) --
-------- --------
613,000
Less current installments ....................... -- 2,812
--------
Long-term debt, excluding current installments... $700,000 $610,188
======== ========
(a) In October 1997, the Company entered into a credit agreement ("Credit
Agreement") with a syndicate of banks, financial institutions and other
"accredited investors" providing for loans of up to $525.0 million. The
Credit Agreement included a $325.0 million term loan facility and a $200.0
million revolving credit facility. The term loan facility was comprised of
tranche A loans of up to $100.0 million, which were to mature on September
30, 2005, and tranche B term loans of up to $225.0 million, which were to
mature on September 30, 2006. The Credit Agreement bears interest at the
alternate base rate, as defined in the Credit Agreement, as 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 Company entered into interest rate swap and cap agreements to reduce
the impact of changes in interest rates on its floating rate debt. At
December 31, 1997, the Company had outstanding seven interest rate swap
agreements and one interest rate cap agreement having a total notional
value of $370.0 million. All interest rate swap contracts were liquidated
as of December 31, 1998. Included as an extraordinary item is
approximately $3.7 million (net of taxes) of additional expense relating
to the liquidation of these contracts.
F-13
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) In July 1997, the Company issued $175.0 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. The fair market value of the 11.75% Notes
approximated $166.3 million as of December 31, 1998.
(c) In June 1998, the Company issued $525.0 million of 9.125% Senior Secured
Notes due December 15, 2006 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 of the notes were used to retire the outstanding indebtedness
under the credit facility. The fair market value of the notes approximated
$535.5 million as of December 31, 1998.
(7) Obligation of Parent Company
In August 1997, Holdings issued 153,400 units, consisting of Notes
and warrants of PCC (the "Warrants"), in exchange for $80.0 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 Holdings, in whole or in part,
at any time after August 1, 1998 in cash at the redemption price as
defined, plus accrued and unpaid interest, if any, thereon to the
redemption date; provided that the trading price of the common stock of
PCC shall equal or exceed certain levels.
In August 1998, Holdings redeemed all its outstanding 13.5% Senior
Secured Discount Notes due 2007 (the "13.5% Notes"). The notes were
redeemed at the redemption price per $1,000 aggregate principal amount of
$711.61. The accreted value of the notes approximated $91.0 million. In
addition, Holdings 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 proceeds of a new $200.0 million
Holdings offering of 11.25% Senior Exchangeable Payable-in-Kind Notes
("the Payable-in-Kind Notes") due 2008. Cash interest will begin to accrue
on the Payable-in-Kind Notes on February 15, 2003 whereupon the interest
rate will be reduced by 0.5%. Commencing February 15, 1999 Holdings may
elect to pay cash interest whereupon all future interest becomes cash pay
and the interest rate would be reduced by 0.5%. In the event the daily
high price of PCC's common stock equals or exceeds 115.0% of the Exchange
Price for 10 out of 15 consecutive trading days, each outstanding note
will be mandatorily exchanged for shares of PCC common stock, par value
$.01 per share on the fifth trading day immediately succeeding such 10th
trading day (unless Holdings elects on or prior to the second trading day
immediately succeeding such 10th trading day to permanently terminate this
mandatory provision). The current exchange price is $16 per share after
giving effect to the 2 for 1 stock split in September 1998 and the 5 for 4
stock split in January 1999. The accompanying Balance Sheet includes $79.1
million of restricted cash which is reflected on the Company's balance
sheet. The Company has no rights with respect to such cash.
The accompanying Balance Sheets includes $209.4 million and $80.1
million at December 31, 1998 and 1997 respectively (including accrued
interest) of the 11.25% notes and the 13.5% notes which are obligations of
Holdings and are included in the Balance Sheets solely pursuant to "push
down" accounting rules. The carrying value approximates fair value as of
December 31, 1998.
(8) Extraordinary Item
In June and August 1998, the Company and Holdings retired the
outstanding indebtedness under its Credit Facility and the 13 1/2% Notes.
The additional costs incurred to retire the Credit Facility and the 13
1/2% Notes, as well as the write off of deferred financing costs
associated with these financings resulted in an extraordinary loss of
$25.3 million net of a tax benefit of $14.9 million.
F-14
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Income Taxes
Components of income tax expense (benefit) consist of the following:
($ in thousands)
Federal State Total
------- ----- -----
Predecessor:
Year ended December 31, 1996:
Current .................. $ -- $ 869 $ 869
Deferred ................. 1,795 60 1,855
-------- -------- --------
$ 1,795 $ 929 $ 2,724
======== ======== ========
Predecessor:
Period ended September 30, 1997
Current .................. $ -- $ 214 $ 214
Deferred ................. 3,553 386 3,939
-------- -------- --------
$ 3,553 $ 600 $ 4,153
======== ======== ========
Company:
Year ended December 31, 1997
Current .................. $ (2,244) $ (432) $ (2,676)
Deferred ................. (2,116) (337) (2,453)
-------- -------- --------
$ (4,360) $ (769) $ (5,129)
======== ======== ========
Company:
Year ended December 31, 1998
Current .................. $ (3,355) $ (531) $ (3,886)
Deferred ................. (7,713) (1,232) (8,945)
-------- -------- --------
$(11,068) $ (1,763) $(12,831)
======== ======== ========
The consolidated effective tax rate differs from the statutory United
States federal tax rate for the following reasons and by the following
percentages:
<TABLE>
<CAPTION>
Company Predecessor
------- -----------
Period Nine Months
Year Ended Ended Ended Year Ended
December 31, December 31, September 30, December 31,
1998 1997 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Statutory United States federal tax rate ....... (34.0)% (34.0)% 34.0% 34.0%
License amortization not deductible for tax .... -- -- -- 32.5
Net operating loss carryforwards ............... -- -- -- (42.8)
State taxes .................................... (3.6) (3.6) 6.0 8.3
Non deductible interest expense ................ -- 1.1 -- --
Other .......................................... .6 (0.2) 1.0 4.8
------ ------ ------ ------
Consolidated effective tax rate ........... (37.0)% (36.7)% 41.0% 36.8%
====== ====== ====== ======
</TABLE>
F-15
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1997, the Predecessor recorded additional deferred tax liability and a
corresponding increase in licenses for timing differences attributable to
pre-1997 acquisitions. The components of the deferred income tax assets and
liabilities are as follows:
($ in thousands)
1998 1997
---- ----
Deferred tax assets:
Allowance for doubtful accounts ....... $ 591 $ 327
Inventory reserve ..................... 133 144
Deferred revenue ...................... -- 400
Nondeductible accruals ................ 4,149 6.495
Net operating loss carryforwards ...... 29,320 3,560
Valuation allowance ................... (29,320) (3,560)
--------- ---------
Total deferred tax assets ........ 4,873 7,366
--------- ---------
Deferred tax liabilities:
Accumulated depreciation .............. (12,808) (8,559)
Licenses .............................. (281,052) (302,306)
--------- ---------
Total deferred tax liabilities ... (293,860) (310,865)
--------- ---------
Deferred tax liability, net ...... $(288,987) $(303,499)
========= =========
The net operating loss carryforwards totaled approximately $79.0 million
at December 31, 1998 and expire in amounts ranging from approximately $300,000
to $70.0 million through 2013. For these carryforwards utilization is limited to
the subsidiary that generated the carryforwards, unless the Company utilizes
alternative tax planning strategies.
(10) Common Stock and Stock Plans
During 1994, the Predecessor amended its certificate of incorporation to
increase the number of authorized shares of common stock from 60,000,000 to
91,000,000 and to provide for Class A Common and Class B Common Stock. The Class
A Common Stock has one vote per share. The Class B Common Stock, which may be
owned only by PCI or certain successors of PCI and of which no shares may be
issued subsequent to the Offering, has five votes per share, provided, however,
that, so long as any Class A Common Stock is issued and outstanding, at no time
will the total outstanding Class B Common Stock have the right to cast votes
having more than 75 percent of the total voting power of the common stock in the
aggregate. Shares of Class B Common Stock shall be converted into Class A Common
Stock on a share-for share basis: (i) at any time at the option of the holder;
(ii) immediately upon the transfer of shares of Class B Common Stock to any
holder other than a successor of PCI; (iii) immediately if the shares of Class B
Common Stock held by PCI or its successors constitute 33 percent or less of the
outstanding shares of the Predecessor; (iv) at the end of 20 years from original
issuance of those shares of Class B Common Stock; or (v) if more than 50 percent
of the equity interests in PCI become beneficially owned by persons other than:
(i) beneficial owners of PCI as of December 29, 1994 ("Current PCI Beneficial
Owners"); (ii) affiliates of Current PCI Beneficial Owners; (iii) heirs or
devisees of any individual Current PCI Beneficial Owners, successors of any
corporation or partnership which is a Current PCI Beneficial Owner and
beneficiaries of any trust which is a Current PCI Beneficial Owner; and (iv) any
relative, spouse or relative of a spouse of any Current PCI Beneficial Owner.
The Predecessor adopted a Stock Option Plan in connection with the
Offering, under which options for an aggregate of 1,600,000 shares of Class A
Common Stock are available for grants to key employees. The Predecessor also
adopted a Director's Stock Option Plan in connection with the Offering, under
which options for an aggregate of 300,000 shares of Class A Common Stock are
available for grants to directors who are not officers or employees of the
Predecessor. Stock options under both plans are granted with an exercise price
equal to the stock's fair value at the date of grant. The stock options granted
under the Stock Option Plan have 10-year terms and vest and become exercisable
ratably over three years from the date of grant. The stock options granted under
the Director's Stock Option Plan are vested and become fully exercisable upon
the date of the grant. At December 31, 1996, there were options with respect to
693,334 and 45,000 shares of Class A Common Stock outstanding under the Stock
Option Plan and the Director's Stock Option Plan, respectively. At December 31,
1996, there were 880,000 and 255,000 additional shares available for grant under
the Stock Option Plan and the Director's Stock Option Plan, respectively.
F-16
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Predecessor applies APB Opinion No. 25 in accounting for its Stock
Option Plan and Director's Stock Option Plan ("the Plans") and accordingly, no
compensation cost has been recognized for its stock options in the consolidated
financial statements. Had the Predecessor determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Predecessor's net income would have been reduced to the pro forma amounts
indicated below:
($ in thousands)
Nine Months
Ended Year Ended
September 30, December 31,
1997 1996
------ ------
Net income-as reported ................... $6,089 $4,682
Net income-pro forma ..................... $4,753 $2,850
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the weighted-average
assumptions as follows: dividend yield of 0.0%; expected volatility of 101%;
risk-free interest rate of 5.5%; and expected lives of five years.
Stock option activity during the periods indicated is as follows:
($'s Actual)
Number Weighted Average
Of Shares Exercise Price
--------- --------------
Balance December 31, 1995 ....................... 672,500 $ 14.25
Granted .................................... 72,500 17.25
Exercised .................................. (6,666) 14.25
--------
Balance December 31, 1996 ....................... 738,334 14.54
Exercised .................................. (70,000) 14.25
--------
Balance September 30, 1997 ...................... 668,334 14.60
========
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $14.25--$17.25 ($'s not in
thousands) and 8.3 years, respectively.
At December 31, 1996, the number of options exercisable was 250,000, and
the weighted average exercise price of those options was $14.34 ($'s not in
thousands).
The Predecessor adopted a stock purchase plan for employees (the "Employee
Stock Purchase Plan") and a stock purchase plan for non-employee directors (the
"Non-Employee Director Stock Purchase Plan"). Under the Employee Stock Purchase
Plan, 160,000 shares of Class A Common Stock are available for purchase by
eligible employees of the Predecessor or any of its subsidiaries. Under the
Non-Employee Director Stock Purchase Plan, 25,000 shares of Class A Common Stock
are available for purchase by non-employee directors of the Predecessor. The
purchase price of each share of Class A Common Stock purchased under the
Employee Stock Purchase Plan or the Non-Employee Director Stock Purchase Plan
will be the lesser of 90 percent of the fair market value of the Class A Common
Stock on the first trading day of the plan year or on the last day of such plan
year; provided, however, that in no event shall the purchase price be less than
the par value of the stock. Both plans will terminate in 2005, unless terminated
at an earlier date by the board of directors. During the year ended December 31,
1996, 15,541 shares were issued under the Employee Stock Purchase Plan and 1,702
shares were issued under the Non-Employee Director Stock Purchase Plan at a
purchase price of $16.85 ($'s not in thousands). Compensation cost computed
under the provisions of SFAS No. 123 related to the shares issued under the
Employee Stock Purchase Plan and the Non-Employee Director Stock Purchase Plan
is immaterial to the consolidated financial statements.
In connection with the acquisition of Palmer, the Company retired all of
the options of Palmer that were outstanding.
F-17
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Related Party Transactions
On January 1, 1997 the Predecessor purchased a building and certain towers
from PCI for $6.2 million. These assets were previously leased from PCI.
Concurrently with the Offering and the Exchange, the Predecessor and PCI
entered into both a transitional management and administrative services
agreement and a computer services agreement that extended each December 31 for
additional one-year periods unless and until either party notified the other.
The fees from these arrangements amounted to a total of $534,000 and $88,000 for
the years ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, and are included as a reduction of selling, general and
administrative expenses.
Concurrently with the Offering and the Exchange, the Predecessor and PCI
entered into a tax consulting agreement that extended each December 31 for
additional one-year periods unless and until either party notified the other.
The fees for tax consulting services amounted to a total of $120,000 and $97,000
for the years ended December 31, 1996 and the nine months ended September 30,
1997, respectively, and are included in selling, general and administrative
expenses.
PCI has a 401(k) plan with a noncontributory retirement feature and a
matching provision for employees who meet length of service and other
requirements. The Predecessor participated in this plan and was allocated 401(k)
retirement and matching expense of $696,000 and $544,000 for the years ended
December 31, 1996, and the nine months ended September 30, 1997, respectively.
(12) Commitments and Contingencies
Leases
The Company occupies certain buildings and uses certain tower sites, cell
sites and equipment under noncancelable operating leases which expire through
2013.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998 are as follows:
($ in thousands)
Year ending December 31:
1999 .................................................. $2,807
2000 .................................................. 2,244
2001 .................................................. 1,764
2002 .................................................. 1,233
2003 .................................................. 710
Later years through 2013 ............................... 1,120
------
Total minimum lease payments ...................... $9,878
======
Rent expense for the Company was $2,928 for the year ended December 31,
1998 and $806 for the period from May 29, 1997 to December 31, 1997 and for the
Predecessor was $3,123, and $3,551 for the nine months ended September 30, 1997
and the year ended December 31, 1996, respectively, of which $278 was paid to
related parties for 1996.
Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
F-18
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
($ in thousands)
Predecessor Company
----------- -------
For the Period
May 29, 1997
Through
First Second Third December 31,
Year Ended December 31, 1997 Quarter Quarter Quarter 1997 (b)
------- ------- ------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 44,683 $ 48,545 $ 48,508 $ 43,713
=========== =========== =========== ===========
Operating Income $ 9,805(a) $ 13,022(a) $ 12,984(a) $ 8,616
=========== =========== =========== ===========
Net Income (Loss) $ 1,177 $ 2,523 $ 2,389 $ (8,852)
=========== =========== =========== ===========
<CAPTION>
First Second Third Fourth
Year Ended December 31, 1998 Quarter Quarter Quarter(c) Quarter
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Total Revenue $ 43,275 $ 48,918 $ 51,920 $ 53,216
=========== =========== =========== ===========
Operating Income $ 7,923 $ 11,035 $ 12,065 $ 14,003
=========== =========== =========== ===========
Net Income (Loss) (6,571) $ (10,810) $ (21,777) $ (8,036)
=========== =========== =========== ===========
</TABLE>
(a) Certain reclassifications were made to conform to the fourth quarter
presentation.
(b) The decrease in operating income in the fourth quarter is a result of
customer acquisition costs, including advertising, commissions and phone
discounts, related to Holiday sales (consistent with prior years), the
Fort Myers Sale, and amortization of the additional license recorded in
the merger. The net loss is due to these reasons as well as the interest
expense on debt incurred to fund the Acquisition
(c) The increase in net loss is principally a result of the extraordinary loss
associated with the early extinguishment of debt.
F-19
<PAGE>
REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS
To the Shareholder of Palmer Wireless Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Palmer
Wireless Holdings Inc. and Subsidiaries (A Delaware Corporation) as of December
31, 1998 and 1997 and the related statements of operations, retained earnings
(accumulated deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Palmer Wireless
Holdings Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Palmer Wireless Holdings, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholder's equity (accumulated deficit) and cash flows for the year ended
December 31, 1996 of Palmer Wireless Holdings, Inc. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Palmer Wireless Holdings, Inc. for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
---------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-21
<PAGE>
PALMER WIRELESS HOLDINGS, INC.
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 109,137 $ 27,926
Restricted cash ........................................... 79,081 --
Trade accounts receivable, net of allowance for doubtful
accounts of $1,596 in 1998 and $818 in 1997 ............. 20,508 15,940
Receivable from other cellular carriers ................... 2,282 3,902
Prepaid expenses and deposits ............................. 303 902
Inventory ................................................. 3,940 1,280
Deferred income taxes ..................................... 1,383 5,402
----------- -----------
Total current assets .................................... 216,634 55,352
Property and equipment:
Land and improvements ..................................... 6,767 6,438
Buildings and improvements ................................ 8,831 8,561
Equipment, communication systems, and furnishings ......... 153,550 140,381
----------- -----------
169,148 155,380
Less accumulated depreciation and amortization ............ 24,320 4,239
----------- -----------
Net property and equipment .............................. 144,828 151,141
Licenses and goodwill, net of accumulated amortization of
$29,117 in 1998 and $6,016 in 1997 ........................ 876,952 918,488
Other intangible assets and other assets, at cost less
accumulated amortization of $1,671 in 1998 and
$818 in 1997 .............................................. 25,320 19,498
----------- -----------
Total assets ........................................... $ 1,263,734 $ 1,144,479
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt .................... $ -- $ 2,812
Payable to Price Communications Corporation ............... 1,151 2,328
Accounts payable .......................................... 13,168 13,059
Accrued interest payable .................................. 11,779 11,361
Accrued salaries and employee benefits .................... 2,656 2,324
Other accrued liabilities ................................. 8,448 16,031
Deferred revenue .......................................... 5,535 3,755
Customer deposits ......................................... 921 602
----------- -----------
Total current liabilities ............................... 43,658 52,272
Obligation of Parent ....................................... 700,000 610,188
Obligation of Price Communications, Cellular Holdings, Inc. . 209,432 80,112
Accrued income taxes--long term ............................. 22,775 50,491
Deferred income taxes ....................................... 290,370 308,901
Minority interests .......................................... 9,530 7,352
Stockholder's equity (deficit)
Class A Common Stock par value $.01 per share; 1,000 shares -- --
authorized, and issued
Additional paid-in capital ................................ 31,391 31,391
Retained earnings (accumulated deficit) ................... (43,422) 3,772
----------- -----------
Total stockholder's equity (deficit) .................... (12,031) 35,163
----------- -----------
Total liabilities and stockholder's equity (deficit) .... $ 1,263,734 $ 1,144,479
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
PALMER WIRELESS HOLDINGS, INC.
Consolidated Statements of Operations
($ in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service .......................................... $ 184,652 $ 175,488 $ 151,119
Equipment sales and installation ................. 12,677 9,961 8,624
--------- --------- ---------
Total revenue .................................. 197,329 185,449 159,743
--------- --------- ---------
Operating expenses:
Engineering, technical and other direct .......... 30,022 29,279 28,717
Cost of equipment ................................ 23,710 21,371 17,944
Selling, general and administrative .............. 55,002 53,819 46,892
Depreciation and amortization .................... 43,569 36,553 25,013
--------- --------- ---------
Total operating expenses ....................... 152,303 141,022 118,566
Operating income ............................... 45,026 44,427 41,177
--------- --------- ---------
Other income (expense):
Interest income .................................. 5,435 2,225 62
Interest expense ................................. (82,945) (48,890) (31,524)
--------- --------- ---------
Interest expense, net .......................... (77,510) (46.665) (31,462)
Other (expense) income, net ...................... (19) 223 (429)
--------- --------- ---------
Total other expense ............................ (77,529) (46.442) (31,891)
--------- --------- ---------
Income (loss) before minority interest
share of income and income taxes ............. (32,503) (2,015) 9,286
Minority interest share of income .................. (2,178) 1,724 (1,880)
--------- --------- ---------
Income (loss) before income tax expense
(benefit) .................................... (34,681) (3,739) 7,406
Income tax benefit (expense) ....................... 12,831 976 (2,724)
--------- --------- ---------
Income (loss) before extraordinary item ........ (21,850) (2,763) 4,682
Extraordinary item - Loss on early extinguishment of
debt (net of income tax benefit of $14,885) ........ (25,344) -- --
--------- --------- ---------
Net income (loss) ........................ $ (47,194) (2,763) $ 4,682
--------- --------- ---------
Retained earnings at beginning of year ............. $ 3,772 $ 6,535 $ 1,853
--------- --------- ---------
Retained earnings (accumlated deficit) at end
of year ............................................ $ (43,422) $ 3,772 $ 6,535
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
PALMER WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For The Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................... $ (47,194) $ (2,763) $ 4,682
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by
Operating activities:
Depreciation and amortization ........................ 43,569 36,553 25,013
Minority interest share of income .................... 2,178 1,724 1,880
Deferred income taxes ................................ (373) 1,485 1,855
Extraordinary item ................................ 40,229 -- --
Interest deferred and added to long-term debt ........ -- -- 355
Interest deferred and added to obligation of parent .. 9,432 4,400 --
company
Payment of deferred interest ......................... -- (1,514) (1,080)
Amortization of deferred finance costs ............... 2,030 -- --
Changes in current assets and liabilities:
(Increase) decrease in trade and other accounts .... (2,948) 597 (1,561)
receivable
(Increase) decrease in inventory ................... (2,660) 3,258 (2,595)
Increase (decrease) in accounts payable ............ 109 2,208 (841)
Increase (decrease) in accrued interest payable .... 418 9,020 (167)
Increase (decrease) in accrued salaries and employee 332 (90) 165
benefits
(Decrease) increase in other accrued liabilities ... (4,605) (2,480) (507)
Increase (decrease) in deferred revenue ............ 1,780 (1,042) 912
Increase (decrease) in customer deposits ........... 319 (79) 134
(Decrease) in accrued income tax long term ......... (27,716) (2,675) --
Other .............................................. 671 1,502 1,885
--------- --------- ---------
Total adjustments .................................. 62,765 52,867 25,448
--------- --------- ---------
Net cash provided by operating activities ........ 15,571 50,104 30,130
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ................................... (14,725) (55,256) (41,445)
Increase in other asset ................................ -- (778) (2,180)
Proceeds from sales of property and equipment .......... -- 201 5
Acquisition of Predecessor net assets .................. -- (497,856) --
Purchase of cellular systems ........................... -- (31,469) (67,588)
Proceeds from sales of cellular systems ................ -- 193,799 2,452
Collection of purchase price adjustment ................ -- -- --
Purchases of minority interests ........................ -- (1,750) (1,854)
Distributions to minority interest ................... -- (1,680) --
Cash return of escrow ................................ 2,000 -- --
--------- --------- ---------
Net cash used in investing activities ............ (12,725) 394,789 (110,610)
--------- --------- ---------
Cash flows from financing activities:
(Repayments to) advances from Price Communications ..... (1,177) 2,328 --
Corporation
Increase (decrease) in short term notes payable ........ -- (1,366) 1,366
Repayment of long-term debt ............................ (518,112) (388,782) (108,319)
Proceeds from long-term debt ........................... 725,000 736,712 100,000
Segregation of restricted cash from proceeds of ...... (79,081) -- --
long-term debt
Costs associated with early extinguishment of debt ..... (28,080) -- --
Payment of debt issuance costs ......................... (20,185) (19,412) --
Cash received from parent for equity transactions -- 45,014 85,695
Net cash provided by financing activities ........ 78,365 374,494 78,742
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents .................................... 81,211 29,809 (1,738)
Cash and cash equivalents at the beginning of period ..... 27,926 1,698 3,436
--------- --------- ---------
Cash and cash equivalents at the end of period ........... $ 109,137 $ 31,507 $ 1,698
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
PALMER WIRELESS HOLDINGS, INC.
Consolidated Statements of Cash Flows--(Continued)
($ in thousands)
Supplemental Schedule of Noncash Investing and Financing Activities
During 1996, the Company increased the purchase obligations related to the
final purchase price adjustment for the controlling interest in a non-wireline
cellular telephone system purchased in 1991. This increase amounted to $899 and
resulted in an increase in licenses.
Acquisitions of non-wireline cellular telephone systems in 1996 and 1997:
For the Years Ended December 31,
1997 1996
---- ----
Cash payment ..................................... $31,469 $67,588
======= =======
Allocated to:
Fixed assets ................................ 3,197 5,678
Licenses and goodwill ....................... 27,738 61,433
Deferred income taxes ....................... -- --
Current assets and liabilities, net ......... 534 477
------- -------
$31,469 $67,588
======= =======
Supplemental disclosure of cash flow information
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Income taxes paid (received), net ..... $ 728 $ (776) $ 1,591
======== ======== ========
Interest paid ......................... $ 81,379 $ 35,026 $ 29,733
======== ======== ========
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
PALMER WIRELESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Organization and Acquisition
Palmer Wireless Holdings, Inc. (the "Company") was incorporated in March
1995. It was the wholly-owned subsidiary of Palmer Wireless, Inc.
Price Communications Wireless, Inc. ("PCW"), 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 "Company").
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." Pursuant to the
Merger Agreement, PCC acquired each issued and outstanding share of common stock
of Palmer for a purchase price of $17.50 per share in cash and purchased
outstanding options and rights under employee and direct stock purchase plans
for an aggregate price of approximately $486.4 million. In addition, as a result
of the Merger, PCW assumed all outstanding indebtedness of Palmer of
approximately $378.0 million. Therefore, the aggregate purchase price for Palmer
(including transaction fees and expenses) was approximately $880.0 million. PCW
refinanced all of the Palmer Existing Indebtedness concurrently with the
consummation of the Merger.
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 $166.0 million. 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. 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 $24.2 million. 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.
In order to fund the Merger and pay related fees and expenses, in
July, 1997, PCW issued $175.0 million aggregate principal amount of 11 3/4%
Senior Subordinated Notes due 2007 and entered into a syndicated senior loan
facility providing for term loan borrowings in the aggregate principal amount of
approximately $325.0 million and revolving loan borrowings of $200.0 million. In
October 1997, PCW borrowed all term loans available thereunder and approximately
$120.0 million of revolving loans. DLJ Capital Funding, Inc. provided and
syndicated the New Credit Facility.
The remaining acquisition price of Palmer was funded through a $44.0
million equity contribution of PCC and $75.7 million of borrowings of Holdings.
Basis of Presentation
For financial reporting purposes, the Company revalued its assets and
liabilities as of October 1, 1997 to reflect the price paid by PCC to acquire
100% of Palmer's Common Stock, a process generally referred to as "push down"
the accounting. As of December 31, 1997 the consolidated financial statements
reflect an allocation of the purchase price to the assets acquired and
liabilities assumed including $12.5 million of purchase reserves. The
preliminary allocation of the purchase price resulted in licenses of
approximately $924.5 million on the balance sheet, which are being amortized on
a straight-line basis over a period of 40 years. During 1998, approximately $2.3
million of unused purchase reserves were reversed against the value of the
licenses established at the end of 1997. In addition, during 1998, the
allocation was finanized resulting in an allocation of approximately $906.0
million to licenses, with an adjustment also made to deferred tax liability and
paid in capital to finalize "push down" accounting.
F-26
<PAGE>
PALMER WIRELESS HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries after the elimination of
significant intercompany accounts and transactions. The financial statements
also include the cash (Restricted cash) and debt of Holdings, (Obligation of
PCW's parent company) which funded a portion of the acquisition of Palmer and is
indirectly guaranteed by the assets of the Company.
The Company is a Delaware corporation and was incorporated in March,
1995. At December 31, 1996, Palmer Communications Incorporated ("PCI") owned 61
percent of the Company's outstanding stock and had 75 percent of its voting
rights and therefore the Company was a subsidiary of PCI.
Losses in subsidiaries, attributable to minority stockholders and
partners, in excess of their capital accounts and cash capital call provisions
are not eliminated in consolidation.
Operations
The Company has majority ownership in corporations and partnerships
which operate the non-wireline cellular telephone systems in eight Metropolitan
Statistical Areas ("MSA") in three states: Florida (one), Georgia (five) and
Alabama (two). The Company's ownership percentages in these entities range from
approximately 78 percent to 100 percent. The Company owns directly and operates
eight non-wireline cellular telephone systems in Rural Service Areas in Georgia
(seven) and Alabama (one).
The Company is owned 100% by its Parent, Price Communications
Wireless, Inc. The Company is the direct oener of all of the operating
subsidiaries.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers cash and repurchase agreements with a maturity
of three months or less to be cash equivalents.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.
F-27
<PAGE>
PALMER WIRELESS HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are stated at cost. The cost of additions and
improvements are capitalized while maintenance and repairs are charged to
expense when incurred. Depreciation is provided principally by the straight-line
method over the estimated useful lives, ranging from 5 to 20 years for buildings
and improvements and 5 to 10 years for equipment, communications systems and
furnishings.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses, based on the fair market value of such
assets at the date of acquisition (as determined by independent appraisers or
management). The excess of the total consideration over the amounts assigned to
identifiable assets is record as goodwill. Licenses and goodwill are being
amortized on a straight-line basis over a 40-year period.
Subsequent to the acquisition of the licenses, the Company
continually evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of licenses might warrant revision
or that the remaining balance of the license rights may not be recoverable. The
Company utilizes projected undiscounted cash flows over the remaining life of
the licenses and sales of comparable businesses to evaluate the recorded value
of licenses. The assessment of the recoverability of the remaining balance of
the license rights will be impacted if projected cash flows are not achieved.
Other Intangible Assets
Other intangibles consist principally of deferred financing costs
and other items. These costs are being amortized by the interest or
straight-line method over their respective useful lives, which range from 5 to
10 years.
Income Taxes
The Company accounts for income taxes under the asset and liability
method of accounting for deferred income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Interest Rate Swap Agreements
The differential to be paid or received in connection with interest
rate swap agreements is accrued as interest rates change and is recognized over
the life of the agreements.
Revenue Recognition
Service revenue includes local subscriber revenue and outcollect
roaming revenue.
F-28
<PAGE>
PALMER WIRELESS HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Local subscriber revenue is earned by providing access to the
cellular network ("access revenue") or, as applicable, for usage of the cellular
network ("airtime revenue"). Access revenue is billed one month in advance and
is recognized when earned. Airtime revenue is recognized when the service is
rendered.
Outcollect roaming revenue represents revenue earned for usage of
its cellular network by subscribers of other cellular carriers. Outcollect
roaming revenue is recognized when the services are rendered.
Equipment sales and installation revenues are recognized upon
delivery to the customer or installation of the equipment.
Operating Expenses--Engineering, Technical and Other Direct
Engineering, technical and other direct operating expenses represent
certain costs of providing cellular telephone service to customers. These costs
include incollect roaming expense. Incollect roaming expense is the result of
subscribers using cellular networks of other cellular carriers. Incollect
roaming revenue is netted against the incollect roaming expense to determine net
incollect roaming expense.
Fair Value of Financial Instruments
Fair value estimates, methods and assumptions used to estimate the
fair value of financial instruments are set forth below:
For cash and cash equivalents, trade accounts receivable, receivable
from other cellular carriers, notes payable, accounts payable and accrued
expenses, the carrying amount approximates the estimated fair value due to the
short-term nature of those instruments.
Rates currently available for long-term debt with similar terms and
remaining maturities are used to discount the future cash flows to estimate the
fair value for long-term debt. Note 5 presents the fair value for long-term debt
and the related interest rate cap and swap agreements.
Fair value estimates are made as of a specific point in time, based
upon the relevant market information about the financial instruments. Because no
market exists for a majority of the financial instruments, fair value estimates
are based on judgments regarding current economic conditions and other factors.
These estimates are subjective in nature and involve uncertainties and matters
of judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Impact of new accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("Accounting for Derivative Instruments
and Hedging Activities"). This statement establishes accounting and reporting
standards requiring that all derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded on the balance
sheet as an asset or a liability and measured at its fair value. This statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. This statement is
effective for fiscal years beginning after June 15, 1999, but can be adopted
earlier. Management has not yet determined the timing of or method to be used in
adopting this statement. Management does not believe at this time that such
adoption would have a material impact on its consolidated financial statements.
(2) Trade Accounts Receivable
The Company grants credit to its customers. Substantially all of the
customers are residents of the local areas served. Generally, service is
discontinued to customers whose accounts are 60 days past due.
F-29
<PAGE>
PALMER WIRELESS HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The activity in the Company's allowance for doubtful accounts for the
years ended December 31, 1996, December 31, 1997 and December 31, 1998 consisted
of the following ($ in thousands):
<TABLE>
<CAPTION>
Allowances at
Balance at Charged Dates of
Beginning To Acquisitions Deductions, Net Balance at
of Period Expenses (Dispositions) of Recoveries End of Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996 ....... $ 1,880 $ 3,946 $ 1,270 $(5,305) $ 1,791
======= ======= ======= ======= =======
Year ended December 31, 1997 ....... $ 1,791 $ 4,816 $ (59) $(5,730) $ 818
======= ======= ======= ======= =======
Year Ended December 31, 1998 ....... $ 818 $ 5,716 $ --- $(4,938) $ 1,596
======= ======= ======= ======= =======
</TABLE>
(3) Other Accrued Liabilities
Other accrued liabilities at December 31, 1998 and 1997 consisted of the
following:
1998 1997
---- ----
($ in thousands)
Accrued telecommunications expenses .......... $ 1,861 $ 2,176
Accrued local taxes .......................... 1,368 888
Accrued severance payments ................... -- 6,155
Accrued shutdown costs of
certain facilities ........................... -- 3,818
Other ........................................ 5,219 2,994
------- -------
$ 8,448 $16,031
======= =======
(4) Acquisitions and Purchase of Licenses
On June 20, 1996, the Company acquired the assets of and the license to
operate the non-wireline cellular telephone system serving the Georgia-1 RSA for
an aggregate purchase price of $31.6 million. The acquisition was accounted for
by the purchase method of accounting. In connection with the acquisition, $27.9
million of the purchase price was allocated to licenses.
On July 5, 1996, two of the Company's majority-owned subsidiaries acquired
the assets of and the license to operate the non-wireline cellular telephone
system serving the Georgia-6 RSA for an aggregate purchase price of $36.0
million. The acquisition was accounted for by the purchase method of accounting.
In connection with the acquisition, $33.5 million of the purchase price was
allocated to licenses.
F-30
<PAGE>
PALMER WIRELESS HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 1997, a majority-owned subsidiary of the Company acquired
the assets of and the license to operate the non-wireline cellular telephone
system serving the Georgia-13 RSA for an aggregate purchase price of $31.5. The
acquisition was accounted for by the purchase method of accounting. In
connection with the acquisition, $27.7 of the purchase price was allocated to
licenses.
(5) Pro Forma Information
The following unaudited pro forma condensed consolidated financial
information was prepared assuming (i) the purchase by PCC occurred on January 1,
1996, (ii) the acquisitions of the licenses had occurred on January 1, 1996 (See
Note 4) and (iii) the Ft. Myers Sale and Georgia Sale occurred on January 1,
1996.
Proforma information is presented for comparative purposes only and does
not purport to be indicative of the results which would have been achieved had
this acquisition occurred as of January 1, 1996, nor does it purport to be
indicative of results that may be achieved in the future.
Years Ended December 31,
------------------------
1997 1996
---- ----
($ in thousands)
Unaudited
Total Revenue ........................ $ 161,468 $ 145,643
========= =========
Loss Before Income Taxes ............. $ (51,532) $ (54,529)
========= =========
Net Loss ............................. $ (43,911) $ (48,895)
========= =========
(6) Obligation of Parent and Price Communications Holdings, Inc.
Obligation of parent consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
($ in thousands)
----------------
1998 1997
---- ----
<S> <C> <C>
Credit agreement ............................. $ -- $438,000
11.75% Senior Subordinated Notes ............. 175,000(b) 175,000(b)
9.125% Senior Secured Notes .................. 525,000(c) --
-------- --------
613,000
Less current installments .................... -- 2,812
-------- --------
Obligation of Parent ......................... $700,000 $610,188
======== ========
Obligation of Price Communications Holdings,
Inc. ....................................... $209,432(d) $ 80,112(d)
======== ========
</TABLE>
(a) 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 $525.0 million. The Credit
Agreement included a $325.0 million term loan facility and a $200.0
million revolving credit facility. The term loan facility was comprised of
tranche A loans of up to $100.0 million which were to mature on September
30, 2005, and tranche B term loans of up to $225.0 million, which were to
mature on September 30, 2006. The Credit Agreement bears interest at the
alternate base rate, as defined in the Credit Agreement, as 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.
F-31
<PAGE>
PALMER WIRELESS HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company entered into interest rate swap and cap agreements to reduce
the impact of changes in interest rates on its floating rate debt. At
December 31, 1997, the Company had outstanding seven interest rate swap
agreements and one interest rate cap agreement having a total notional
value of $370.0 million. All interest rate swap contracts were liquidated
as of December 31, 1998. Included in the extraordinary item is
approximately $3.7 million (net of taxes) of additional expense relating
to the liquidation of these contracts.
(b) In July 1997, PCW issued $175.0 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. The fair market value of the 11.75% Notes approximated
$166.3 million as of December 31, 1998.
(c) In June 1998, PCW issued $525.0 million of 9.125% Senior Secured Notes due
December 15, 2006 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 of the
notes were used to retire the outstanding indebtedness under the credit
facility. The fair market value of the notes approximated $535.5 million
as of December 31, 1998.
(d) In August 1997, Holdings issued 153,400 units, consisting of Notes and
warrants of PCC (the "Warrants"), in exchange for $80.0 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 Holdings, in whole or in part, at any time
after August 1, 1998 in cash at the redemption price as defined, plus
accrued and unpaid interest, if any, thereon to the redemption date;
provided that the trading price of the common stock of PCC shall equal or
exceed certain levels.
In August 1998, Holdings redeemed all its outstanding 13.5% Senior
Secured Discount Notes due 2007 (the "13.5% Notes"). The notes were
redeemed at the redemption price per $1,000 aggregate principal amount of
$711.61. The accreted value of the notes approximated $91.0 million. In
addition, Holdings was required to pay a premium of approximately 20% of
the outstanding balance or approximately $18.2 million. The Company's
Parent financed the redemption out of the proceeds of a new $200.0 million
Holdings offering of 11.25% Senior Exchangeable Payable-in-Kind Notes
("the Payable-in-Kind Notes") due 2008. Cash interest will begin to accrue
on the Payable-in-Kind Notes on February 15, 2003 whereupon the interest
rate will be reduced by 0.5%. Commencing February 15, 1999 Holdings may
elect to pay cash interest whereupon all future interest becomes cash pay
and the interest rate would be reduced by 0.5%. In the event the daily
high price of PCC's common stock equals or exceeds 115.0% of the Exchange
Price for 10 out of 15 consecutive trading days, each outstanding note
will be mandatorily exchanged for shares of PCC common stock, par value
$.01 per share on the fifth trading day immediately succeeding such 10th
trading day (unless Holdings elects on or prior to the second trading day
immediately succeeding such 10th trading day to permanently terminate this
mandatory provision). The current exchange price is $16 per share after
giving effect to the 2 for 1 stock split in September 1998 and the 5 for 4
stock split in January 1999. The accompanying Balance Sheet includes $79.1
million of restricted cash which is reflected on the Company's balance
sheet. The Company cannot use cash to fund its operations.
The accompanying Balance Sheets includes $209.4 million and $80.1
million at December 31, 1998 and 1997 respectively (including accrued
interest) of the 11.25% notes and the 13.5% notes which are obligations of
Holdings and are included in the Balance Sheets solely pursuant to "push
down" accounting rules. The carrying value approximates fair value as of
December 31, 1998.
(7) Extraordinary Item
In June and August 1998, the Company and Holdings retired the
outstanding indebtedness under its Credit Facility and the 13 1/2% Notes.
The additional costs incurred to retire the Credit Facility and the 13
1/2% Notes, as well as the write off of deferred financing costs
associated with these financings resulted in an extraordinary loss of
$25.3 million net of a tax benefit of $14.9 million.
F-32
<PAGE>
PALMER WIRELESS HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Income Taxes
Components of income tax expense (benefit) consist of the following:
<TABLE>
<CAPTION>
($ in thousands)
Federal State Total
------- ----- -----
<S> <C> <C> <C>
Year ended December 31, 1996:
Current .................. $ -- $ 869 $ 869
Deferred ................. 1,795 60 1,855
-------- -------- --------
$ 1,795 $ 929 $ 2,724
======== ======== ========
Year ended December 31, 1997
Current .................. $ (2,244) $ (218) $ (2,462)
Deferred ................. (1,437 29 1,486
-------- -------- --------
$ (807) $ (189) $ (976)
Year ended December 31, 1998
Current .................. $ (3,355) $ (531) $ (3,886)
Deferred ................. (7,713) (1,232) (8,945)
-------- -------- --------
$(11,068) $ (1,763) $(12,831)
======== ======== ========
</TABLE>
The consolidated effective tax rate differs from the statutory United
States federal tax rate for the following reasons and by the following
percentages:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
------------ ------------ ------------
December 31, December 31, December 31,
------------ ------------ ------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory United States federal tax rate .. (34.0)% (34.0)% 34.0%
License amortization not deductible for tax -- -- 32.5
Net operating loss carryforwards .......... -- -- (42.8)
State taxes ............................... (3.6) (3.6) 8.3
Non deductible interest expense ........... -- 10.2 --
Other ..................................... .6 1.3 4.8
----- ----- ----
Consolidated effective tax rate ...... (37.0)% (26.1)% 36.8%
===== ===== ====
</TABLE>
F-33
<PAGE>
PALMER WIRELESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1997, the Company recorded an additional deferred tax liability and a
corresponding increase in licenses for timing differences attributable to
pre-1997 acquisitions. The components of the deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
($ in thousands)
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts ..... $ 591 $ 327
Inventory reserve ................... 133 144
Deferred revenue .................... -- 400
Nondeductible accruals .............. 4,149 6.495
Net operating loss carryforwards .... 29,320 3,560
Valuation allowance ................. (29,320) (3,560)
--------- ---------
Total deferred tax assets ...... 4,873 7,366
--------- ---------
Deferred tax liabilities:
Accumulated depreciation ............ (12,808) (8,559)
Licenses ............................ (281,052) (302,306)
--------- ---------
Total deferred tax liabilities.. (293,860) (310,865)
--------- ---------
Deferred tax liability, net .... $(288,987) $(303,499)
========= =========
</TABLE>
The net operating loss carryforwards totaled approximately $79.0 million
at December 31, 1998 and expire in amounts ranging from approximately $300,000
to $70.0 million through 2013. For these carryforwards utilization is limited to
the subsidiary that generated the carryforwards, unless the Company utilizes
alternative tax planning strategies.
F-34
<PAGE>
PALMER WIRELESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Related Party Transactions
On January 1, 1997 the Company purchased a building and certain towers
from PCI for $6.2 million. These assets were previously leased from PCI.
Concurrently with the Offering and the Exchange, the Company and PCI
entered into both a transitional management and administrative services
agreement and a computer services agreement that extended each December 31 for
additional one-year periods unless and until either party notified the other.
The fees from these arrangements amounted to a total of $534,000 and $88,000 for
the year ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, and are included as a reduction of selling, general and
administrative expenses.
Concurrently with the Offering and the Exchange, the Company and PCI
entered into a tax consulting agreement that extended each December 31 for
additional one-year periods unless and until either party notified the other.
The fees for tax consulting services amounted to a total of $120,000 and $97,000
for the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively, and are included in selling, general and administrative
expenses.
PCI has a 401(k) plan with a noncontributory retirement feature and a
matching provision for employees who meet length of service and other
requirements. The Company participated in this plan and was allocated 401(k)
retirement and matching expense of $696,000 and $544,000 for the year ended
December 31, 1996, and the nine months ended September 30, 1997, respectively.
(10) Commitments and Contingencies
Leases
The Company occupies certain buildings and uses certain tower sites,
cell sites and equipment under noncancelable operating leases which expire
through 2013.
Future minimum lease payments under noncancelable operating leases
as of December 31, 1998 are as follows:
($ in thousands)
Year ending December 31:
1999 .................................................. $2,807
2000 .................................................. 2,244
2001 .................................................. 1,764
2002 .................................................. 1,233
2003 .................................................. 710
Later years through 2013............................... 1,120
------
Total minimum lease payments......................... $9,878
======
Rent expense for the Company was $2,928 for the year ended December
31, 1998 and $806 for the period from May 29, 1997 to December 31, 1997 and for
the Company was $3,123, and $3,551 for the nine months ended September 30, 1997
and the year ended December 31, 1996, respectively, of which $278 was paid to
related parties for 1996.
Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are
also listed as guarantors.
The Company is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
F-35
<PAGE>
PALMER WIRELESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
($ in thousands)
First Second Third Fourth
Year Ended December 31, 1997 Quarter Quarter Quarter(c) Quarter
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Total Revenue ................................ $ 44,683 $ 48,545 $ 48,508 $ 43,713
======== ======== ======== ========
Operating Income ............................. $ 9,805(a) $ 13,022(a) $ 12,984(a) $ 8,616
======== ======== ======== ========
Net Income (Loss) ............................ $ 1,177 $ 2,523 $ 2,389 $ (8,852)
======== ======== ======== ========
First Second Third Fourth
Year Ended December 31, 1998 Quarter Quarter Quarter(c) Quarter
------- ------- ---------- -------
Total Revenue ................................ $ 43,275 $ 48,918 $ 51,920 $ 53,216
======== ======== ======== ========
Operating Income ............................. $ 7,923 $ 11,035 $ 12,065 $ 14,003
======== ======== ======== ========
Net Income (Loss) ............................ $ (6,571) $(10,810) $(21,777) $ (8,036)
======== ======== ======== ========
</TABLE>
(a) Certain reclassifications were made to conform to the fourth quarter
presentation.
(b) The decrease in operating income in the fourth quarter is a result of
customer acquisition costs, including advertising, commissions and phone
discounts, related to Holiday sales (consistent with prior years), the
Fort Myers Sale, and amortization of the additional license recorded in
connection with the Merger. The net loss is due to these reasons as well
as the interest expense on debt incurred to fund the Acquisition
(c) The increase in net loss is principally a result of the extraordinary loss
associated with the early extinguishment of debt.
F-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Cellular Systems of Southeast Alabama, Inc.:
We have audited the accompanying balance sheets of Cellular Systems
of Southeast Alabama, Inc. (A Delaware Corporation) and Subsidiary as of
December 31, 1998 and 1997 and the related statements of operations and retained
earnings (accumulated deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Cellular Systems of
Southeast Alabama, Inc and Subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cellular Systems of Southeast Alabama, Inc.:
We have audited the accompanying consolidated statements of
operations and retained earnings (accumulated deficit) and cash flows for the
year ended December 31, 1996 of Cellular Systems of Southeast Alabama, Inc. and
subsidiary. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provideS a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations and
the cash flows OF Cellular Systems of Southeast Alabama, Inc. and subsidiary for
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
---------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-38
<PAGE>
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 57 $ 88
Trade accounts receivable, less allowance for doubtful
accounts of $30 in 1998 and $28 in 1997 1,618 1,025
Inventory 120 37
Other current assets 8 20
-------------------
Total current assets 1,803 1,170
-------------------
Property and equipment:
Land and land improvements 356 355
Buildings and leasehold improvements 196 187
Equipment and furnishings 324 324
Cellular equipment 5,456 4,451
-------------------
6,332 5,317
Less accumulated depreciation and amortization 776 65
-------------------
Net property and equipment 5,556 5,252
Licenses and other intangibles, less accumulated
amortization of $1,576 in 1998 and $330 in 1997 47,368 50,109
===================
$54,727 $56,531
===================
Liabilities and Stockholder's Equity
Current liabilities:
Accrued salaries and benefits $ 23 $ 66
Other accrued expenses 125 90
Deferred revenue 427 176
Customer deposits 53 23
-------------------
Total current liabilities 628 355
Deferred income taxes 17,895 16,944
Advances from affiliates 4,717 6,222
-------------------
Total liabilities 23,240 23,521
-------------------
Commitments and contingencies
Stockholder's equity:
Common stock, par value $.01 per share
Class A, authorized and issued 5,001 shares -- --
Class B, authorized and issued 4,999 shares -- --
Class C, authorized 90,000 shares, none issued -- --
Additional paid-in capital 30,343 32,788
Retained earnings 1,144 222
-------------------
Total stockholder's equity 31,487 33,010
-------- -------
$ 54,727 $56,531
===================
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Operations and
Retained Earnings (Accumulated Deficit)
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $ 12,398 $ 10,113 $ 9,337
Equipment sales and installation 1,093 608 452
------------------------------------
Total revenue 13,491 10,721 9,789
------------------------------------
Operating expenses:
Engineering, technical and other direct service 4,638 2,976 2,675
Cost of equipment 1,654 1,035 774
Sales and marketing 820 605 444
General and administrative 2,502 2,245 2,169
Depreciation and amortization 1,975 930 445
------------------------------------
Total operating expenses 11,589 7,791 6,507
------------------------------------
Operating income 1,902 2,930 3,282
Other expense -- 2 --
Interest expense 438 657 787
------------------------------------
Net income before taxes 1,464 2,271 2,495
Provision for taxes 542 68 --
------------------------------------
Net income 922 2,203 2,495
Retained earnings (accumulated deficit) at
beginning of year 222 (1,981) (4,476)
------------------------------------
Retained earnings (accumulated deficit) at
end of year $ 1,144 $ 222 $ (1,981)
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 922 $ 2,203 $ 2,495
-----------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,975 930 445
Deferred taxes (386) (107) --
(Increase) decrease in trade accounts receivable (593) 143 (46)
(Increase) decrease in inventory (83) 118 34
Decrease (increase) in other current assets 12 (9) (2)
Decrease in accrued expenses (8) (17) (40)
Decrease in accrued interest due to affiliates -- -- (1,900)
Increase (decrease) in deferred revenue 251 (86) 20
Increase (decrease) in customer deposits 30 (4) 11
-----------------------------------
Total adjustments 1,198 968 (1,478)
-----------------------------------
Net cash provided by operating activities 2,120 3,171 1,017
Cash flows from investing activities:
Purchases of intangibles -- (589) --
Purchases of property and equipment (1,015) (1,832) (1,059)
-----------------------------------
Net cash used in investing activities (1,015) (2,421) (1,059)
Cash flows from financing activities:
Decrease in advances from affiliates, net (1,136) (688) --
-----------------------------------
Net (decrease) increase in cash (31) 62 (42)
Cash at beginning of year 88 26 68
-----------------------------------
Cash at end of year $ 57 $ 88 $ 26
===================================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 438 $ 657 $ 2,687
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Corporate Information
Cellular Systems of Southeast Alabama (the "Company") was formed on
October 7, 1987, and its wholly owned subsidiary, Dothan Cellular
Telephone Company, Inc., was formed on June 7, 1988, to operate the
non-wireline cellular telephone system in the Dothan, Alabama,
Metropolitan Statistical Area. Palmer Communications Incorporated (Palmer)
acquired an interest in the outstanding stock of Cellular Systems of
Southeast Alabama, Inc. on December 20, 1988.
Effective August 4, 1989, Palmer transferred its investment in and
advances to the Cellular Systems of Southeast Alabama, Inc. and subsidiary
(the Company) to Palmer Cellular Partnership (PCP). Palmer owned a
majority interest in PCP. When Palmer's interest in the Company was
transferred to PCP, it had no effect on the carrying value of the assets
of the Company.
In March of 1995, Palmer Wireless, Inc. (PWI) issued common stock
for 100 percent of the Partnership interest of PCP. Palmer owned a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying consolidated financial statements
and notes to consolidated financial statements include the activity of PWI
and its predecessor, PCP.
On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and
PWI entered into a plan of merger whereby PCW merged into PWI with PWI as
the surviving corporation. On October 6, 1997 the merger was completed and
PWI changed its name to PCW. The direct owner of the Company is Palmer
Wireless Holdings, Inc.("Holdings"), which was formed in January, 1994.
PCW is the 100% owner of Holdings.
The Company's subsidiary is the 100% owner of Price Communications
Wireless III, Inc., the license holder for the Dothan MSA.
Basis of Presentation
PWI owned approximately 92.3% of the Company at December 31, 1996.
The accompanying 1996 Consolidated Financial Statements have been prepared
on the basis of historical cost. The assets of the Company were not
revalued in connection with the acquisition by Palmer or the subsequent
transfers to PCP or PWI.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the Company revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $50.4 million. During 1998, the allocation was
finalized resulting in an allocation of approximately $48.9 million to
licenses, with an adjustment also made to deferred tax liability and paid
in capital to finalize "push down" accounting. The license is being
amortized over a period of 40 years.
F-42
<PAGE>
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
The consolidated financial statements include the accounts of the
Company and its subsidiary. All significant inter-company balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Property and
equipment are stated at cost. Depreciation is provided principally using
the straight-line method over the estimated useful lives ranging from 5 to
20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the licenses, the Company
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Company utilizes projected undiscounted
cash flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Company earns local subscriber revenue by providing access to
the cellular network (access revenue) or, as applicable, for usage of the
cellular network (airtime revenue). Access revenue is billed one month in
advance and is recognized when earned. Airtime revenue is recognized when
the service is rendered.
F-43
<PAGE>
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Roamer revenue represents revenue earned by the Company for usage of
the cellular network by subscribers of other cellular carriers. Roamer
revenue is recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
Operating Expenses - Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
Since March of 1995 through September 30, 1997 the Company was
included in the consolidated income tax return of PWI, and for the period
October 1, 1997 through December 31, 1997 and for the year ended December
31, 1998, the tax return of PCC. Through the Company's tax sharing
arrangement with its parent, the Company computes its current and deferred
income taxes based on the separate return method for financial statement
purposes. During 1998, the available carryforward loss of $1.4 million was
fully utilized.
2) Related Party Transactions
The Company has various agreements with its parent whereby the
Company is charged or can charge other related entities various items.
Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Company. The agreement provides for a monthly
management fee based upon 5 percent of revenues or a construction fee
based upon 10 percent of the construction costs. The agreement also
provides for reimbursement of certain out-of-pocket costs. Certain
property and equipment acquisitions and expenses related to the operations
of the system have been allocated to the Company as out-of-pocket costs.
Property and equipment acquisitions are allocated based on specific
identification. Operating expenses are allocated to the Company based on
the parent's estimate of its time spent managing the Company.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
F-44
<PAGE>
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
2) Related Party Transactions (Continued)
Reciprocal roaming revenue and cost: The Company enjoys favorable
reciprocal roaming arrangements with its affiliates. The revenue is
included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
Consolidated Statements of Operations.
401(k) Matching Provision: The Company's parent has a 401(k) plan
with a noncontributory retirement feature and a matching provision for
employees who meet length of service and other requirements. The Company
participates in this plan and was allocated 401(k) retirement and matching
expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Company's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
--------------------------
Management Fee $674 $536 $489
Construction Fee 0 0 96
Operating Expenses 938 896 895
Switching Service 255 205 175
Billing Service 509 409 350
Roaming Revenue 550 378 245
Roaming Cost 2,020 1,298 755
401(k) Match 14 8 15
Interest expense 438 656 787
3) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes," under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective
tax bases.
F-45
<PAGE>
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
3) Income Taxes (Continued)
There were no deferred tax assets as of December 31, 1998 and
December 31, 1997. Income tax expense for the years ended December 31,
1998, 1997 and 1996 differs from the "expected" income tax expense
computed by applying the United States federal income tax rate of 34
percent for these respective periods due to the utilization of net
operating loss carryforwards. For the years ended December 31,1998 and
December 31, 1997 the current provision amounted to $928 and $2,253,
respectively, and the deferred benefit amounted to $(386) and $(777),
respectively. The Company recognizes a deferred tax benefit for the
turnaround in the deferred tax liability attributable to the additional
amortization of the licenses and additional depreciation for tax purposes
on property and equipment.
4) Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors. The Company is involved in
various claims and legal action arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's
Consolidated Financial Statements.
5) Leases ($ in thousands)
The Company, as lessee, has various noncancelable leases for certain
cellular plant facilities, office facilities, and office equipment, all of
which are classified as operating leases. Rent expense under these
noncancelable leases amounted to $44, $42 and $40 for the years ended
December 31, 1998, 1997 and 1996, respectively, of which $11 was paid to a
related party in 1996. At December 31, 1998, the approximate minimum
rental commitments under noncancelable operating leases were as follows:
Year ending December 31:
1999 $ 49
2000 37
2001 37
2002 31
2003 and thereafter 50
----
$204
====
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Albany Cellular Partners:
We have audited the accompanying consolidated balance sheets of
Albany Cellular Partners (A Georgia Partnership) and Subsidiary as of December
31, 1998 and 1997 and the related consolidated statements of operations,
partners' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Albany Cellular
Partners and Subsidiary as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-47
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Albany Cellular Partners:
We have audited the accompanying consolidated statements of
operations, partners' equity and cash flows for the year ended December 31, 1996
of Albany Cellular Partners and subsidiary (a Georgia Partnership). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations and
the cash flows of Albany Cellular Partners and subsidiary (a Georgia
Partnership) for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
---------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-48
<PAGE>
ALBANY CELLULAR PARTNERS AND SUBSIDIARY
(A Georgia Partnership)
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 161 $ 111
Trade accounts receivable, less allowance for doubtful
accounts of $77 in 1998 and $70 in 1997 2,063 1,665
Inventory 280 144
Other current assets 14 17
--------------------
Total current assets 2,518 1,937
--------------------
Property and equipment:
Land and land improvements 123 97
Buildings and leasehold improvements 279 277
Equipment and furnishings 772 662
Cellular equipment 8,520 6,999
--------------------
9,694 8,035
Less accumulated depreciation and amortization 1,368 290
--------------------
Net property and equipment 8,326 7,745
--------------------
License and other intangibles, less accumulated amortization of
$2,444 in 1998 and $489 in 1997 74,209 77,828
--------------------
$85,053 $87,510
====================
Liabilities and Partners' Equity
Current liabilities:
Accrued salaries and benefits $ 53 $ 141
Other accrued expenses 231 121
Deferred revenue 651 329
Customer deposits 58 45
--------------------
Total current liabilities 993 636
Deferred income taxes 11,759 10,206
Advances from affiliates 32,023 32,250
--------------------
Total liabilities 44,775 43,092
Commitments and contingencies
Partners' equity 40,278 44,418
--------------------
$85,053 $87,510
====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
ALBANY CELLULAR PARTNERS AND SUBSIDIARY
(A Georgia Partnership)
Consolidated Statements of Operations
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $ 18,498 $ 14,737 $ 6,542
Equipment sales and installation 1,121 794 409
--------------------------------------
Total revenue 19,619 15,531 6,951
--------------------------------------
Operating expenses:
Engineering, technical and other direct 6,301 4,204 1,874
Cost of equipment 2,117 1,597 742
Sales and marketing 1,786 1,405 467
General and administrative 4,407 3,959 1,843
Depreciation and amortization 3,080 1,859 445
--------------------------------------
Total operating expenses 17,691 13,024 5,371
--------------------------------------
Operating income 1,928 2,507 1,580
Interest expense 3,215 3,022 8
--------------------------------------
Net income (loss) before income taxes (1,287) (515) 1,572
Income tax benefit 476 64 --
--------------------------------------
Net income (loss) $ (811) $ (451) $ 1,572
======================================
Consolidated Statements of Partners' Equity
Balance at December 31, 1996 6,269
Net (loss) (350)
"Push-down" of Price Communications
Wireless, Inc.'s acquisition price 38,600
--------
Balance at December 31, 1997 44,418
Adjustment for "push down" of Price Communications
Wireless, Inc.'s acquisition price (3,256)
Net (loss) (811)
--------
Balance at December 31, 1998 $ 40,351
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE>
ALBANY CELLULAR PARTNERS AND SUBSIDIARY
(A Georgia Partnership)
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (811) $ (451) $ 1,572
-------------------------------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 3,080 1,859 445
Deferred income taxes (506) (64) --
Loss on sale of property and equipment 2
(Increase) decrease in trade accounts receivable (398) 121 (4)
(Increase) decrease in inventory (137) 237 (84)
Decrease (increase) in other current assets 4 (9) --
Increase (decrease) in accrued expenses 22 (176) (85)
Increase (decrease) in deferred revenue 322 (170) 35
Increase in customer deposits 13 6 9
-------------------------------------
Total adjustments 2,402 1,804 318
-------------------------------------
Net cash provided by operating activities 1,591 1,353 1,890
-------------------------------------
Cash flows from investing activities:
Purchase of cellular system -- (31,260) --
Purchases of intangibles -- (138) --
Purchases of property and equipment (1,676) (1,987) (1,427)
-------------------------------------
Net cash used in investing activities (1,676) (33,385) (1,427)
-------------------------------------
Cash flows from financing activities:
Increase (decrease) in advances from affiliates, net 137 32,098 (451)
-------------------------------------
Net increase in cash 52 66 12
Cash at beginning of year 111 45 33
=====================================
Cash at end of year $ 163 $ 111 $ 45
=====================================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 3,215 $ 3,022 $ 8
=====================================
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1996, the Partnership transferred certain property and equipment
with an original cost of $8 and a depreciated cost of $4 to Palmer
Wireless, Inc. and affiliates by decreasing the advances from Palmer
Wireless, Inc. and affiliates. No gains or losses were recognized on the
transfers.
See accompanying notes to consolidated financial statements.
F-51
<PAGE>
ALBANY CELLULAR PARTNERS AND SUBSIDIARY
(A Georgia Partnership)
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Partnership Operations
Albany Cellular Partners (the "Partnership") was formed on December
21, 1987, and its wholly owned subsidiary, Cellular Dynamics Telephone
Company of Georgia, was formed on September 17, 1987, to operate the
non-wireline cellular telephone system in the Albany, Georgia,
Metropolitan Statistical Area. Palmer Communications Incorporated
("Palmer") acquired an interest in the outstanding Partnership interest in
the Partnership on December 2, 1988.
Effective August 4, 1989, Palmer transferred its investment in and
advances to the Partnership to Palmer Cellular Partnership ("PCP"). Palmer
owned a majority interest in PCP. When Palmer's interest in the
Partnership was transferred to PCP, it had no effect on the carrying value
of the assets of the Partnership.
In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock
for 100 percent of the Partnership interest of PCP. Palmer owned a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interest.
References to PWI in the accompanying consolidated financial statements
and notes to consolidated financial statements include the activity of PWI
and its predecessor, PCP.
On May 23, 1997, Price Communications Wireless, Inc. ("PCW") and PWI
entered into a plan of merger whereby PCW merged into PWI with PWI as the
surviving corporation. On October 6, 1997 the merger was completed and PWI
changed its name to PCW. The direct owner of the Partnership is Palmer
Wireless Holdings, Inc. ("Holdings"), which was formed in January, 1994.
PCW is the 100% owner of Holdings.
The partnership's subsidiary is the 100% owner of Price
Communications Wireless V, Inc., the license holder for the Albany MSA.
Basis of Presentation
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the partnership revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $78.3 million. During 1998 the allocation was
finalized resulting in an allocation of approximately $76.7 million to
licenses, with an adjustment also made to deferred tax liability and paid
in capital to finalize "push down" accounting. The license is being
amortized over a period of 40 years.
The consolidated financial statements include the accounts of the
Partnership and its subsidiary. All significant intercompany balances and
transactions have been eliminated.
The consolidated financial statements of the Partnership do not
include the assets and liabilities of the partners.
F-52
<PAGE>
ALBANY CELLULAR PARTNERS AND SUBSIDIARY
(A Georgia Partnership)
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Partnership to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Property and
equipment are stated at cost. Depreciation is provided principally using
the straight-line method over the estimated useful lives ranging from 5 to
20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Partnership
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Partnership utilizes projected
undiscounted cash flows over the remaining life of the license or licenses
and sales of comparable businesses to evaluate the recorded value of these
licenses. The assessment of the recoverability of the remaining balance of
the license rights will be impacted if projected cash flows are not
achieved.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Partnership earns local subscriber revenue by providing access
to the cellular network (access revenue) or, as applicable, for usage of
the cellular network (airtime revenue). Access revenue is billed one month
in advance and is recognized when earned. Airtime revenue is recognized
when the service is rendered.
Roamer revenue represents revenue earned by the Partnership for
usage of the cellular network by subscribers of other cellular carriers.
Airtime revenue is recognized when the services re rendered.
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
F-53
<PAGE>
ALBANY CELLULAR PARTNERS AND SUBSIDIARY
(A Georgia Partnership)
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Operating Expenses -Engineering, Technical and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
The Consolidated Financial Statements prior to the adjustment of the
value of the licenses made no provision for income taxes, as gains and
losses of the Partnership are included in the income tax returns of the
individual partners. At December 31, 1998, the Partnership's subsidiary
had approximately $5.9 million in net operating loss carryforwards for
federal income tax purposes. These net operating loss carry-forwards will
expire from 2005 through 2009.
The Partnership's subsidiary accounts for income taxes under
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," under which deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. At December 31, 1996 the Partnership's
subsidiary had approximately $.4 million of deferred tax assets, net,
which have been offset by a valuation allowance. The valuation allowance
decreased by approximately $.6 million in 1996. At December 31,1998 and
December 31, 1997 the Consolidated Balance Sheets include a net deferred
tax liability principally as a result of the difference between the tax
and book basis of the license as a result of the valuation on October 7,
1997. This difference is being amortized over a 40 year period and
accordingly the Consolidated Statements of Operations reflect a tax credit
for the years ended December 31, 1998 and 1997.
2) Pro-Forma Information
Acquisition of license
On February 1, 1997 the Partnership acquired the assets and license
to operate the non-wireline cellular system serving the Georgia Rural
Service Area Market No. 383, otherwise known as GA-13 RSA for a total cash
purchase price of approximately $31.3 million. This acquisition was
accounted for using the purchase method of accounting. In connection with
the acquisition, approximately $27.7 million was allocated to license.
The following unaudited pro-forma information condensed consolidated
financial information was prepared assuming the Partnership acquired the
GA-13 RSA as of January 1, 1996. The pro-forma information is presented
for comparative purposes only and does not purport to be indicative of the
results which would have been achieved had this acquisition occurred as of
January 1, 1996, nor does it purport to be indicative of results that may
be achieved in the future:
Unaudited ($ in thousands)
--------------------------
Years Ended
December 31,
1997 1996
---- ----
Total Revenue $ 16,271 $ 15,927
Net Income (loss) $ (497) $ 878
======== ========
F-54
<PAGE>
ALBANY CELLULAR PARTNERS AND SUBSIDIARY
(A Georgia Partnership)
Notes to Consolidated Financial Statements (Continued)
3) Partners' Equity
In accordance with the Partnership agreement, the partners'
proportionate share of cash distributions from current operations and net
income or loss is calculated by dividing the partner's capital
contribution by total partners' capital contributions.
The allocation to the partners of gain or loss arising from the sale
of property will be in the same proportion as they share net income or net
loss of the Partnership.
4) Related Party Transactions
The Partnership has various agreements with its parent whereby the
Partnership is charged or can charge other related entities for various
items. Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Partnership. The agreement provides for a
monthly management fee based upon 5 percent of revenues or a construction
fee based upon 10 percent of the construction costs. The agreement also
provides for the reimbursement of out-of-pocket costs. Certain property
and equipment acquisitions and expenses related to the operations of the
system have been allocated to the partnership as out-of-pocket costs
Property and equipment acquisitions are allocated based on specific
identification. Operating expenses are allocated to the Partnership based
on parent's estimate of its time spent managing the Partnership.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Partnership enjoys
favorable reciprocal roaming arrangements with its affiliates. The revenue
is included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
Consolidated Statements of Operations.
401(k) Matching Provision: The Partnership's parent has a 401(k)
plan with a noncontributory retirement feature and a matching provision
for employees who meet length of service and other requirements. The
Partnership participates in this plan and was allocated 401(k) retirement
and matching expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Partnership's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
F-55
<PAGE>
ALBANY CELLULAR PARTNERS AND SUBSIDIARY
(A Georgia Partnership)
Notes to Consolidated Financial Statements (Continued)
4) Related Party Transactions (Continued)
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
<TABLE>
<CAPTION>
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Management Fee $ 981 $ 777 $ 348
Construction Fee 0 0 130
Operating Expenses 1,459 1,327 690
Switching Service 393 326 129
Billing Service 786 620 257
Roaming Revenue 1,464 702 516
Roaming Cost 2,798 1,298 568
401(k) Match 20 16 17
Interest expense 3,215 3,022 8
</TABLE>
5) Commitments and Contingencies
The Partnership is listed as a guarantor for PCW's $525.0 million 9
1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors. The Partnership is involved in
various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Partnership's
Consolidated Financial Statements.
6) Leases ($ in thousands)
The Partnership, as lessee, has various noncancelable leases for
certain cellular plant facilities, office facilities, and office
equipment, all of which are classified as operating leases. Rent expense
under these noncancelable leases was $243, $230, and $66 for the years
ended December 31, in 1998,1997 and 1996, respectively. At December 31,
1998, the approximate minimum rental commitments under noncancelable
operating leases were as follows:
Year ending December 31:
1999 $ 235
2000 180
2001 127
2002 15
2003 4
-----
$ 561
=====
F-56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Cellular Dynamics Telephone Company of Georgia
We have audited the accompanying balance sheets of Cellular Dynamics
Telephone Company of Georgia (A Georgia Corporation) and Subsidiary as of
December 31, 1998 and 1997 and the related statements of operations and retained
earnings ( accumulated deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Cellular Dynamics
Telephone Company of Georgia and subsidiary as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-57
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cellular Dynamics Telephone Company of Georgia:
We have audited the accompanying consolidated statements of operations and
retained earnings (accumulated deficit) and cash flows for the year ended
December 31, 1996 of Cellular Dynamics Telephone Company of Georgia. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of Cellular Dynamics Telephone Company of Georgia for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-58
<PAGE>
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
-----------------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 161 $ 111
Trade accounts receivable, less allowance for doubtful
accounts of $77 1998 and $70 in 1997 2,063 1,665
Inventory 280 144
Other current assets 14 17
-----------------------
Total current assets 2,518 1,937
-----------------------
Property and equipment:
Land and land improvements 123 97
Buildings and leasehold improvements 279 277
Equipment and furnishings 772 662
Cellular equipment 8,567 6,999
-----------------------
9,741 8,035
Less accumulated depreciation and amortization 1,415 290
-----------------------
Net property and equipment 8,326 7,745
-----------------------
License and other intangibles, less accumulated amortization of
$2,444 in 1998 and $489 in 1997 74,209 77,828
-----------------------
$ 85,053 $ 87,510
=======================
Liabilities and Partners' Equity
Current liabilities:
Accrued salaries and benefits $ 53 $ 141
Other accrued expenses 231 121
Deferred revenue 651 329
Customer deposits 58 45
-----------------------
Total current liabilities 993 636
Deferred income taxes 11,759 10,206
Advances from affiliates 32,023 32,250
-----------------------
Total liabilities 44,775 43,092
Commitments and contingencies
Stockholder's equity
Common stock; no par value, 200 shares authorized; 100 shares issued 1 1
Paid-in capital 44,811 48,139
Retained earnings (deficit) (4,534) (3,722)
-----------------------
Total stockholder's equity 40,278 44,418
-----------------------
$ 85,053 $ 87,510
=======================
</TABLE>
See accompanying notes to consolidated financial statements.
F-59
<PAGE>
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
Consolidated Statements of Operations and
Retained Earnings (Accumulated Deficit)
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $ 18,498 $ 14,737 $ 6,542
Equipment sales and installation 1,121 794 409
--------------------------------------
Total revenue 19,619 15,531 6,951
--------------------------------------
Operating expenses:
Engineering, technical and other direct 6,301 4,204 1,874
Cost of equipment 2,117 1,597 742
Sales and marketing 1,786 1,405 467
General and administrative 4,407 3,959 1,843
Depreciation and amortization 3,080 1,859 445
--------------------------------------
Total operating expenses 17,691 13,024 5,371
--------------------------------------
Operating income 1,928 2,507 1,580
Interest expense 3,215 3,022 8
Net (loss) income before taxes (1,287) (515) 1,572
Tax benefit 476 64
--------------------------------------
Net income (loss) income (811) (451) 1,572
Retained earnings (accumulated deficit) at beginning of year (3,723) (3,271) (4,843)
--------------------------------------
Retained earnings (accumulated deficit) at end of year ($ 4,534) ($ 3,722) ($ 3,271)
======================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-60
<PAGE>
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (811) $ (451) $ 1,572
--------------------------------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 3,080 1,859 445
Deferred income taxes (506) (64) --
Loss on sale of property and equipment 2
(Increase) decrease in trade accounts receivable (398) 121 (4)
(Increase) decrease in inventory (137) 237 (84)
(Increase) decrease in other current assets 4 (9)
Increase (decrease) in accrued expenses 22 (176) (85)
Increase (decrease) in deferred revenue 322 (170) 35
Increase (decrease) in customer deposits 13 6 9
--------------------------------------
Total adjustments 2,402 1,804 318
--------------------------------------
Net cash provided by operating activities 1,591 1,353 1,890
--------------------------------------
Cash flows from investing activities:
Purchase of cellular system -- (31,260) --
Purchases of intangibles -- (138) --
Purchases of property and equipment (1,676) (1,987) (1,427)
--------------------------------------
Net cash used in investing activities (1,676) (33,385) (1,427)
--------------------------------------
Cash flows from financing activities -
Increase (decrease) in advances from affiliates, net 137 32,098 (451)
--------------------------------------
Net increase in cash 52 66 12
Cash at beginning of year 111 45 33
======================================
Cash at end of year $ 163 $ 111 $ 45
======================================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 3,215 $ 3,022 $ 8
======================================
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1996 the Company transferred certain property and equipment
with an original cost of $8 and a depreciated cost of $4 to Palmer
Wireless, Inc. and affiliated by decreasing the advances from Palmer
Wireless, Inc. and affiliates. No gains or losses were recognized on the
transfers.
See accompanying notes to consolidated financial statements.
F-61
<PAGE>
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Company Operations
Cellular Dynamics Telephone Company of Georgia (the "Company"), was
formed on September 17, 1987 to operate the non-wireline cellular
telephone system in the Albany, Georgia, Metropolitan Statistical Area.
Albany Cellular Partners was formed on December 21, 1987, and is the 100%
owner of the Company. The financial statements of Albany Cellular Partners
are included elsewhere in this document. Palmer Communications
Incorporated ("Palmer") acquired an interest in the outstanding
Partnership interest of the Partnership on December 2, 1988.
Effective August 4, 1989, Palmer transferred its investment in and
advances to the Partnership to Palmer Cellular Partnership ("PCP"). Palmer
owned a majority interest in PCP. When Palmer's interest in the
Partnership was transferred to PCP, it had no effect on the carrying value
of the assets of the Partnership.
In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock
for 100 percent of the Partnership interest of PCP. Palmer owned a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying consolidated financial statements
and notes to consolidated financial statements include the activity of PWI
and its predecessor, PCP.
On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and
PWI entered into a plan of merger whereby PCW merged into PWI with PWI as
the surviving corporation. On October 6, 1997 the merger was completed and
PWI changed its name to PCW. The direct owner of the Company is Palmer
Wireless Holdings, Inc. ("Holdings") which was formed in January 1994. PCW
is the 100% owner of Holdings.
The Company is the 100% owner of Price Communications Wireless V,
Inc., the license holder for the Albany MSA.
Basis of Presentation
PWI owned approximately 82.7% of the Company at December 31, 1996.
The accompanying 1996 Consolidated Financial Statements have been prepared
on the basis of historical cost. The assets of the Company were not
revalued in connection with the acquisition by Palmer or the subsequent
transfers to PCP or PWI.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the partnership revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $78.3 million. During 1998 the allocation was
finalized resulting in an allocation of approximately $76.7 million. The
license is being amortized over a period of 40 years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
F-62
<PAGE>
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
F-63
<PAGE>
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Property and
equipment are stated at cost. Depreciation is provided principally using
the straight-line method over the estimated useful lives ranging from 5 to
20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Company
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Company utilizes projected undiscounted
cash flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Company earns local subscriber revenue by providing access to
the cellular network (access revenue) or, as applicable, for usage of the
cellular network (airtime revenue). Access revenue is billed one month in
advance and is recognized when earned. Airtime revenue is recognized when
the service is rendered.
Roamer revenue represents revenue earned by the Company for usage of
the cellular network by subscribers of other cellular carriers. Airtime
revenue is recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
Operating Expenses - Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
F-64
<PAGE>
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company is owned by a partnership and accordingly is not
included in the consolidated tax return. At December 31, 1998, the Company
had approximately $5.9 million in net operating loss carryforwards for
federal income tax purposes. These net operating loss carryforwards will
expire from 2005 through 2009. The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," under which deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. At December 31, 1996, the Company had
approximately $.4 million of deferred tax assets, net, which have been
offset by a valuation allowance. The valuation allowance decreased by
approximately $.6 million 1996. At December 31, 1998, and 1997 the Company
has a net deferred tax liability principally as a result of the difference
between the tax and book basis of the license as a result of the valuation
on October 7, 1997. This difference is being amortized over a 40 year
period and accordingly the Consolidated Statements of Operations reflect a
tax credit for the years ended December 31, 1998 and 1997.
2) Pro-Forma Information
Acquisition of license
On February 1, 1997 the Partnership acquired the assets and license
to operate the non-wireline cellular system serving the Georgia Rural
Service Area Market No. 383, otherwise known as GA-13 RSA for a total cash
purchase price of approximately $31.3 million. This acquisition was
accounted for using the purchase method of accounting. In connection with
the acquisition, approximately $27.7 million was allocated to license.
The following unaudited pro-forma information condensed consolidated
financial information was prepared assuming the Partnership acquired the
GA-13 RSA as of January 1, 1996. Pro-forma information is presented for
comparative purposes only and does not purport to be indicative of the
results which would have been achieved had this acquisition occurred as of
January 1, 1996, nor does it purport to be indicative of results that may
be achieved in the future:
Unaudited ($ in thousands)
--------------------------
Years Ended
December 31,
1997 1996
---- ----
Total Revenue $16,271 $15,927
Net Income (Loss) $ (276) $ 3,533
======= =======
3) Related Party Transactions
The Company has various agreements with its parent whereby the
Company is charged or can charge other related entities various items.
Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Company. The agreement provides for a monthly
management fee based upon 5 percent of revenues or a construction fee
based upon 10 percent of the construction costs. The agreement also
provides for reimbursement of out-of-pocket costs. Certain property and
equipment acquisitions and expenses related to the operations of the
system have been allocated to the
F-65
<PAGE>
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
Notes to Consolidated Financial Statements (Continued)
3) Related Party Transactions (Continued)
company as out-of-pocket costs. Property and equipment acquisitions are
allocated based on specific identification. Operating expenses are
allocated to the Company based on parent's estimate of its time spent
managing the Company.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Company enjoys favorable
reciprocal roaming arrangements with its affiliates. The revenue is
included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
statements of operations.
401(k) Matching Provision: The Company's parent has a 401(k) plan
with a noncontributory retirement feature and a matching provision for
employees who meet length of service and other requirements. The Company
participates in this plan and was allocated 401(k) retirement and matching
expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Company's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the statements
of operations for the appropriate accounting periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
Management Fee $ 981 $ 777 $ 348
Construction Fee 0 0 130
Operating Expenses 1,459 1,327 690
Switching Service 393 326 129
Billing Service 786 620 257
Roaming Revenue 1,464 702 516
Roaming Cost 2,798 1,298 568
401(k) Match 20 16 17
Interest Expense 3,215 3,022 8
4) Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors. The Company is involved in
various claims and legal actions arising in the ordinary course of
F-66
<PAGE>
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
Notes to Consolidated Financial Statements (Continued)
4) Commitments and Contingencies (Continued)
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's
Consolidated Financial Statements.
5) Leases ($ in thousands)
The Company, as lessee, has various noncancelable leases for certain
cellular plant facilities, office facilities, and office equipment, all of
which are classified as operating leases. Rent expense under these
noncancelable leases was $243, $230 and $66 for the years ended December
31, 1998, 1997 and 1996, respectively. At December 31, 1998 the
approximate minimum rental commitments under noncancelable operating
leases were as follows:
Year ending December 31:
1999 $ 235
2000 180
2001 127
2002 15
2003 4
-------
$ 561
=======
F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Columbus Cellular Telephone Company:
We have audited the accompanying consolidated balance sheets of
Columbus Cellular Telephone Company (A Georgia Partnership) and subsidiary as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, partners' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Columbus Cellular
Telephone Company as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-68
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners:
Columbus Cellular Telephone Company:
We have audited the accompanying consolidated statements of operations,
partners' equity, and cash flows for the year ended December 31, 1996 of
Columbus Cellular Telephone Company (a Georgia Partnership). These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of Columbus Cellular Telephone Company (a Georgia Partnership) for the
year ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-69
<PAGE>
COLUMBUS CELLULAR TELEPHONE COMPANY
(A Georgia Partnership)
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---- ----
Assets
<S> <C> <C>
Current Assets:
Cash $ 41 $ 66
Trade accounts receivable, less allowance for doubtful
accounts of $213 in 1998 and $87 in 1997 1,847 1,603
Inventory 472 116
Other current assets 31 21
-------------------------
Total current assets 2,391 1,806
-------------------------
Property and equipment:
Land and land improvements 277 218
Buildings and leasehold improvements 287 211
Equipment and furnishings 378 351
Cellular equipment 10,030 8,563
-------------------------
10,972 9,343
Less accumulated depreciation and amortization 1,655 292
-------------------------
Net property and equipment 9,317 9,051
-------------------------
Licenses and other intangibles less accumulated amortization
of $2,860 in 1998 and $626 in 1997 86,841 90,933
-------------------------
$ 98,549 $ 101,790
=========================
Liabilities and Partners' Equity
Current liabilities:
Accrued salaries and benefits $ 39 $ 98
Other accrued expenses 318 83
Deferred revenue 545 283
Customer deposits 110 84
-------------------------
Total current liabilities 1,012 548
Deferred income taxes 28,505 30,740
Advances from affiliates (671) 4,352
-------------------------
Total liabilities 28,846 35,640
Commitments and contingencies
Partners' equity 69,703 66,150
-------------------------
$ 98,549 $ 101,790
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
F-70
<PAGE>
COLUMBUS CELLULAR TELEPHONE COMPANY
(A Georgia Partnership)
Consolidated Statements of Operations
Years Ended December 31
($ in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $ 17,866 $ 15,327 $ 13,031
Equipment sales and installation 1,285 930 894
------------------------------------
Total revenue 19,151 16,257 13,925
------------------------------------
Operating expenses:
Engineering, technical and other direct 3,962 2,934 2,287
Cost of equipment 2,138 1,605 1,344
Sales and marketing 1,896 1,335 1,369
General and administrative 4,304 3,924 3,517
Depreciation and amortization 3,597 2,129 1,250
------------------------------------
Total operating expenses 15,897 11,927 9,767
------------------------------------
Operating income 3,254 4,330 4,158
Interest expense, net 192 560 265
------------------------------------
Net income before taxes 3,062 3,770 3,893
Deferred tax benefit 773 193 --
------------------------------------
Net income $ 3,835 $ 3,963 $ 3,893
====================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Partners' Equity
<S> <C>
Balance at December 31, 1996 19,303
Net income 3,963
"Push-down" of Price Communications Wireless, Inc.'s
acquisition price 42,830
--------
Balance at December 31, 1997 66,096
Adjustment for finalization of "Push down" of Price Communications
Wireless, Inc.'s acquisition price (342)
Net income 3,835
--------
Balance at December 31, 1998 $ 69,589
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-71
<PAGE>
COLUMBUS CELLULAR TELEPHONE COMPANY
(A Georgia Partnership)
Consolidated Statements of Cash Flows
Years Ended December 31
($ in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,835 $ 3,963 $ 3,893
-------- ----------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,597 2,129 1,250
Deferred income taxes (773) (193) --
Loss on sale of property and equipment -- -- 27
(Increase) decrease in trade accounts receivable (244) 191 (275)
(Increase) decrease in inventory (356) 41 64
(Increase) decrease in other current assets (10) 1 (1)
Increase (decrease) in accrued expenses 178 (284) (251)
Increase (decrease) in deferred revenue 261 (188) 35
Increase (decrease) in customer deposits 25 (15) 17
-------- ----------------------
Total adjustments 2,678 1,682 866
-------- ----------------------
Net cash provided by operating activities 6,513 5,645 4,759
-------- ----------------------
Cash flows from investing activities:
Purchase of property and equipment (1,515) (2,532) (2,923)
Cash payment for purchase of nonwireline cellular
telephone system and license -- -- (10,727)
-------- ----------------------
Net cash used in investing activities (1,515) (2,532) (13,650)
-------- ----------------------
Cash flows from financing activities:
(Decrease) increase in advances from subsidiaries, net (5,023) (3,088) 8,795
-------- ----------------------
Net (decrease) increase in cash (25) 25 (96)
Cash at beginning of year 66 41 137
-------- ----------------------
Cash at end of year $ 41 $ 66 $ 41
======== ======================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 192 $ 560 $ 368
======== ======================
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
During 1996, the Partnership transferred certain property and equipment
with depreciated cost totaling $289 to Palmer Wireless, Inc. and
affiliates by decreasing the advances from Palmer Wireless, Inc. and
affiliates. No gain or loss was recognized on the transfer.
See accompanying notes to consolidated financial statements.
F-72
<PAGE>
COLUMBUS CELLULAR TELEPHONE COMPANY
(A Georgia Partnership)
Notes to Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Partnership Operations
The formal partnership agreement of Columbus Cellular Telephone
Company (the "Partnership") was entered into by the partners effective
March 1, 1988. The Partnership was inactive for the period March 1, 1988,
through June 9, 1988, at which date Palmer Communications Incorporated
("Palmer") acquired and transferred the FCC license to operate the
non-wireline cellular telephone system in the Columbus, Georgia,
Metropolitan Statistical Area to the Partnership. The non-wireline
cellular telephone system was constructed after June 9, 1988, and actual
operations of the system began on November 24, 1988.
Effective August 4, 1989, Palmer transferred its investment in and
advances to the Partnership to Palmer Cellular Partnership ("PCP"). Palmer
owned a majority interest in PCP. When Palmer's interest in the
Partnership was transferred to PCP, it had no effect on the carrying value
of the assets of the Partnership.
In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock
for 100 percent of the partnership interests of PCP. Palmer owned a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying financial statements and notes to
financial statements include the activity of PWI and its predecessor, PCP.
On May 23, 1997, Price Communications Wireless Inc. ("PCW") and PWI
entered into a plan of merger whereby PCW merged into PWI with PWI as the
surviving corporation. On October 6, 1997 the merger was completed and PWI
changed its name to PCW. The direct owner of the Partnership is Palmer
Wireless Holdings, Inc. ("Holdings") which was formed in January, 1994.
PCW is the 100% owner of Holdings.
The Partnership is the 100% owner of Price Communications Wireless
VI Inc., the license holder for the Columbus MSA.
Basis of Presentation
PWI owned approximately 84.9% of the Partnership at December 31,
1996. The accompanying 1996 Consolidated Financial Statements have been
prepared on the basis of historical cost. The assets of the Partnership
were not revalued in connection with the acquisition by Palmer or the
subsequent transfers to PCP or PWI.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the Partnership revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $91.5 million. During 1998 the allocation was
finalized resulting in an allocation of approximately $89.6 million to
licenses, with an adjustment also made to deferred tax liability and paid
in capital to finalize "push down" accounting. The license is being
amortized over a period of 40 years.
The financial statements of the Partnership do not include the
assets and liabilities of the partners.
F-73
<PAGE>
COLUMBUS CELLULAR TELEPHONE COMPANY
(A Georgia Partnership)
Notes to Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Partnership to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory, consisting primarily of cellular telephones and telephone
parts, is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Property and
equipment are stated at cost. Depreciation is provided principally using
the straight-line method over the estimated useful lives ranging from 5 to
20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Partnership
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Partnership utilizes projected
undiscounted cash flows over the remaining life of the license or licenses
and sales of comparable businesses to evaluate the recorded value of these
licenses. The assessment of the recoverability of the remaining balance of
the license rights will be impacted if projected cash flows are not
achieved.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Partnership earns local subscriber revenue by providing access
to the cellular network (access revenue) or, as applicable, for usage of
the cellular network (airtime revenue). Access revenue is billed one month
in advance and is recognized when earned. Airtime revenue is recognized
when the service is rendered.
Roamer revenue represents revenue earned by the Partnership for
usage of the cellular network by subscribers of other cellular carriers.
Roamer revenue is recognized when the services are rendered.
F-74
<PAGE>
COLUMBUS CELLULAR TELEPHONE COMPANY
(A Georgia Partnership)
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
Operating Expenses -Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
The Consolidated Financial Statements made no provision for income
taxes prior to the adjustment of the value of the licenses as income and
losses of the Partnership are included in the income tax returns of the
individual partners. Such income and losses are proportionately allocated
to the partners based upon their ownership interests. At December 31, 1998
and December 31, 1997 the Consolidated Balance Sheets include a net
deferred tax liability as a result of the difference between the tax and
book basis of the license as a result of the valuation on October 7, 1997
recorded by the Partnership's wholly owned subsidiary Price Communications
Wireless Inc., VI. This difference is being deferred over a 40 year period
and accordingly the Consolidated Statements of Operations reflect a tax
benefit for the years ended December 31, 1998 and December 31, 1997.
2) Acquisition and Purchase of License
On July 15, 1996, the Partnership acquired the assets of and the
license to operate the non-wireline cellular system serving the western
portion (including Harris, Talbot, Taylor and Meriweather Counties) of the
Georgia Rural Service Area Market No. 376, otherwise known as Georgia-6
RSA, for a purchase price of $10.7 million. The acquisition was accounted
for by the purchase method of accounting and was funded by an increase in
advances from Palmer Wireless, Inc. and affiliates. In connection with the
acquisition, $10.0 million of the purchase price was allocated to licenses
and goodwill.
3) Partners' Equity
In accordance with the Partnership agreement, the partners'
proportionate share in cash distributions from current operations and net
income or loss is calculated by dividing the partners' capital
contribution by total partners' capital contributions.
The allocation of gain or loss to the partners arising from the sale
of property will be in the same proportion as the share net income or net
loss of the Partnership.
F-75
<PAGE>
COLUMBUS CELLULAR TELEPHONE COMPANY
(A Georgia Partnership)
Notes to Consolidated Financial Statements (Continued)
4) Related Party Transactions
The Partnership has various agreements with its parent whereby the
Partnership is charged or can charge other related entities various items.
Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Partnership. The agreement provides for a
monthly management fee based upon 5 percent of revenues or a construction
fee based upon 10 percent of the construction costs. The agreement also
provides for reimbursement of out-of-pocket costs. Certain property and
equipment acquisitions and expenses related to the operations of the
system have been allocated to the Partnership as out-of-pocket costs
Property and equipment acquisitions are allocated based on specific
identification. Operating expenses are allocated to the Partnership based
on the parent's estimate of its time spent managing the Partnership.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Partnership enjoys
favorable reciprocal roaming arrangements with its affiliates. The revenue
is included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
statements of operations.
401(k) Matching Provision: The Partnership's parent has a 401(k)
plan with a noncontributory retirement feature and a matching provision
for employees who meet length of service and other requirements. The
Partnership participates in this plan and was allocated 401(k) retirement
and matching expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Partnership's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
Management Fee $ 957 $ 813 $ 696
Construction Fee 0 0 266
Operating Expenses 1,525 1,502 1,425
Switching Service 386 343 282
Billing Service 771 685 564
Roaming Revenue 1,627 887 538
Roaming Cost 1,613 844 513
401(k) Match 11 14 31
Interest expense 192 560 265
F-76
<PAGE>
5) Commitments and Contingencies
The Partnership is listed as a guarantor for PCW's $525.0 million
9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
The Partnership is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse
effect on the Partnership's Consolidated Financial Statements.
6) Leases ($ in thousands)
The Partnership occupies certain office facilities and uses certain
cellular plant facilities and office equipment under noncancelable
operating leases, which expire through 2003. Rent expense under these
noncancelable leases amounted to $229, $178, and $156 for the years ended
December 31, 1998, 1997 and 1996, respectively. At December 31, 1998, the
approximate minimum rental commitments under noncancelable operating
leases were as follows:
Year ending December 31,
1999 $ 214
2000 169
2001 99
2002 91
2003 and thereafter 124
-----
$ 697
=====
F-77
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Dothan Cellular Telephone Company, Inc.:
We have audited the accompanying consolidated balance sheets of
Dothan Cellular Telephone Company, Inc. (an Alabama Partnership) and Subsidiary
as of December 31, 1998 and 1997 and the related consolidated statements of
operations and retained earnings (accumulated deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Dothan Cellular
Telephone, Inc. as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-78
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Dothan Cellular Telephone Company, Inc.:
We have audited the accompanying consolidated statements of
operations and retained earnings and cash flows for the year ended December 31,
1996 of Dothan Cellular Telephone Company, Inc.. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provideS a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations and
the cash flows of Dothan Cellular Telephone Company, Inc. for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
----------------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-79
<PAGE>
DOTHAN CELLULAR TELEPHONE CO., INC.
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 57 $ 88
Trade accounts receivable, less allowance for doubtful
accounts of $30 in 1998 and $28 in 1997 1,618 1,025
Inventory 120 37
Other current assets 8 20
--------------------
Total current assets 1,803 1,170
--------------------
Property and equipment:
Land and land improvements 356 355
Buildings and leasehold improvements 196 187
Equipment and furnishings 324 324
Cellular equipment 5,474 4,451
--------------------
6,350 5,317
Less accumulated depreciation and amortization 794 65
--------------------
Net property and equipment 5,556 5,252
Licenses, less accumulated amortization
of $1,576 in 1998 and $330 in 1997 47,368 50,109
--------------------
$54,727 $56,531
====================
Liabilities and Stockholder's Equity
Current liabilities:
Accrued salaries and benefits $ 23 $ 66
Other accrued expenses 125 90
Deferred revenue 427 176
Customer deposits 53 23
--------------------
Total current liabilities 628 355
Deferred income taxes 17,895 16,944
Advances from affiliates 4,717 6,222
--------------------
Total liabilities 23,240 23,521
--------------------
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, par value $.01 per share; authorized 3,000 shares
issued and outstanding 200 shares -- --
Additional paid-in capital 30,343 32,788
Retained earnings 1,144 222
--------------------
Total stockholder's equity 31,487 33,010
------- -------
$54,727 $56,531
====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-80
<PAGE>
DOTHAN CELLULAR TELEPHONE CO., INC.
Consolidated Statements of Operations and
Retained Earnings (Accumulated Deficit)
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $ 12,398 $ 10,113 $ 9,337
Equipment sales and installation 1,093 608 452
------------------------------------
Total revenue 13,491 10,721 9,789
------------------------------------
Operating expenses:
Engineering, technical and other direct 4,638 2,976 2,675
Cost of equipment 1,653 1,035 774
Sales and marketing 821 605 444
General and administrative 2,502 2,245 2,169
Depreciation and amortization 1,975 930 445
------------------------------------
Total operating expenses 11,589 7,791 6,507
------------------------------------
Operating income 1,902 2,930 3,282
Other expense -- 2 --
Interest expense 438 657 787
------------------------------------
Net income before taxes 1,464 2,271 2,495
Provision for taxes 542 68 --
------------------------------------
Net income 922 2,203 2,495
Retained earnings (deficit) at beginning of year 222 (1,981) (4,476)
------------------------------------
Retained earnings (deficit) at end of year $ 1,144 $ 222 $ (1,981)
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-81
<PAGE>
DOTHAN CELLULAR TELEPHONE CO., INC.
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 922 $ 2,203 $ 2,495
-----------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,975 930 445
Deferred taxes (386) (107) --
(Increase) decrease in trade accounts receivable (593) 143 (46)
(Increase) decrease in inventory (83) 118 34
Decrease (increase) in other current assets 12 (9) (2)
Decrease in accrued expenses (8) (17) (40)
Decrease in accrued interest due to affiliates -- -- (1,900)
Increase (decrease) in deferred revenue 251 (86) 20
Increase (decrease) in customer deposits 30 (4) 11
-----------------------------------
Total adjustments 1,198 968 (1,478)
-----------------------------------
Net cash provided by operating activities 2,120 3,171 1,017
Cash flows from investing activities:
Purchases of intangibles -- (589) --
Purchases of property and equipment (1,015) (1,832) (1,059)
-----------------------------------
Net cash used in investing activities (1,015) (2,421) (1,059)
Cash flows from financing activities:
Decrease in advances from affiliates, net (1,136) (688) --
-----------------------------------
Net (decrease) increase in cash (31) 62 (42)
Cash at beginning of year 88 26 68
-----------------------------------
Cash at end of year $ 57 $ 88 $ 26
===================================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 438 $ 657 $ 2,687
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-82
<PAGE>
DOTHAN CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Corporate Information
Dothan Cellular Telephone Company, Inc. (the "Company") was formed
on June 7,1988 to operate the non-wireline cellular telephone system in
the Dothan, Alabama, Metropolitan Statistical Area. Cellular Systems of
Southeast Alabama, the 100% owner of the Company, was formed on October 7,
1987. On December 20, 1988 Palmer Communications Incorporated (Palmer)
acquired an interest in the outstanding stock of Cellular Systems of
Southeast Alabama, Inc. whose financial statements are included elsewhere
in this document.
Effective August 4, 1989, Palmer transferred its investment in and
advances to the Cellular Systems of Southeast Alabama, Inc. and the
Company to Palmer Cellular Partnership (PCP). Palmer owned a majority
interest in PCP. When Palmer's interest in the Company was transferred to
PCP, it had no effect on the carrying value of the assets of the Company.
In March of 1995, Palmer Wireless, Inc. (PWI) issued common stock
for 100 percent of the Partnership interest of PCP. Palmer owned a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying consolidated financial statements
and notes to consolidated financial statements include the activity of PWI
and its predecessor, PCP.
On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and
PWI entered into a plan of merger whereby PCW merged into PWI with PWI as
the surviving corporation. On October 6, 1997 the merger was completed and
PWI changed its name to PCW. The direct owner of the Company is Palmer
Wireless Holdings, Inc. ("Holdings") which was formed in January, 1994.
PCW is the 100% owner of Holdings.
The Company is the 100% owner of Piece Communications Wireless III
Inc., the license holder for the Dothan MSA.
Basis of Presentation
PWI owned approximately 92.3% of the Company at December 31, 1996.
The accompanying 1996 financial statements have been prepared on the basis
of historical cost. The assets of the Company were not revalued in
connection with the acquisition by Palmer or the subsequent transfer to
PCP or PWI.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the Company revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $50.4 million. During 1998, the allocation was
finalized resulting in an allocation of approximately $48.9 million to
licenses, with an adjustment also made to deferred tax liability and paid
in capital to finalize "push down" accounting. The license is being
amortized over a period of 40 years.
The consolidated financial statements include the accounts of the
Company and its subsidiary All significant inter-company balances and
transactions have been eliminated.
F-83
<PAGE>
DOTHAN CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts, is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Property and
equipment are stated at cost. Depreciation is provided principally using
the straight-line method over the estimated useful lives ranging from 5 to
20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the licenses, the Company
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Company utilizes projected undiscounted
cash flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Company earns local subscriber revenue by providing access to
the cellular network (access revenue) or, as applicable, for usage of the
cellular network (airtime revenue). Access revenue is billed one month in
advance and is recognized when earned. Airtime revenue is recognized when
the service is rendered.
Roamer revenue represents revenue earned by the Company for usage of
the cellular network by subscribers of other cellular carriers. Roamer
revenue is recognized when the services are rendered.
F-84
<PAGE>
DOTHAN CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
Operating Expenses - Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
Since March of 1995 through September 30, 1997 the Company was
included in the consolidated income tax return of PWI, and for the period
October 1, 1997 through December 31, 1997 and the year ended December 31,
1998 the tax return of PCC. Through the Company's tax sharing arrangement
with its parent, the Company computes its current and deferred income
taxes based on the separate return method for financial statement
purposes. During 1998, the available carryforward loss of $1.4 million was
fully utilized.
2) Related Party Transactions
The Company has various agreements with its parent whereby the
Company is charged or can charge other related entities various items.
Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Company. The agreement provides for a monthly
management fee based upon 5 percent of revenues or a construction fee
based upon 10 percent of the construction costs. The agreement also
provides for reimbursement of certain out-of-pocket costs. Certain
property and equipment acquisitions and expenses related to the operations
of the system have been allocated to the Company as out-of-pocket costs
Property and equipment acquisitions are allocated based on specific
identification. Operating expenses are allocated to the Company based on
the parent's estimate of its time spent managing the Company.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Company enjoys favorable
reciprocal roaming arrangements with its affiliates. The revenue is
included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
statements of operations.
F-85
<PAGE>
DOTHAN CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
2) Related Party Transactions (Continued)
401(k) Matching Provision: The Company's parent has a 401(k) plan
with a noncontributory retirement feature and a matching provision for
employees who meet length of service and other requirements. The Company
participates in this plan and was allocated 401(k) retirement and matching
expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Company's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
Management Fee $674 $536 $489
Construction Fee 0 0 96
Operating Expenses 938 896 895
Switching Service 255 205 175
Billing Service 509 409 350
Roaming Revenue 550 378 245
Roaming Cost 2,020 1,298 755
401(k) Match 14 8 15
Interest expense 438 656 787
3) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes," under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective
tax bases. There were no deferred tax assets as of December 31, 1998 and
December 31, 1997.
F-86
<PAGE>
DOTHAN CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
3) Income Taxes (Continued)
Income tax expense for the years ended December 31, 1997 and
December 31, 1996 differs from the "expected" income tax expense computed
by applying the United States federal income tax rate of 34 percent for
these respective periods due to the utilization of net operating loss
carry-forwards. For the years ended December 31, 1998 and December 31,
1997 the current provision amounted to $1,003 and $2,253, respectively,
and the deferred benefit amounted to $(386) and $(777), respectively. The
Company recognizes a deferred tax benefit for the turnaround in the
deferred tax liability attributable to the additional amortization of the
licenses.
4) Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
The Company is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect on
the Company's Consolidated Financial Statements.
5) Leases ($ in thousands)
The Company, as lessee, has various noncancelable leases for certain
cellular plant facilities, office facilities, and office equipment, all of
which are classified as operating leases. Rent expense under these
noncancelable leases amounted to $44, $42 and $40 for the years ended
December 31, 1998, 1997 and 1996, respectively, of which $11 was paid to a
related party in 1996. At December 31, 1998, the approximate minimum
rental commitments under noncancelable operating leases were as follows:
Year ending December 31:
1999 $ 49
2000 37
2001 37
2002 31
2003 and thereafter 50
-----
$ 204
=====
F-87
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Macon Cellular Telephone Systems Limited Partnership:
We have audited the accompanying consolidated balance sheets of
Macon Cellular Telephone Systems Limited Partnership (A New Hampshire Limited
Partnership) and Subsidiary as of December 31, 1998 and 1997 and the related
consolidated statements of income, shareholders' investment and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Macon Cellular
Telephone Systems Limited Partnership as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-88
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Macon Cellular Telephone Systems Limited Partnership:
We have audited the accompanying consolidated statements of
operations, partners' equity and cash flows for the year ended December 31, 1996
of Macon Cellular Telephone Systems Limited Partnership (a New Hampshire Limited
Partnership). These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations and
the cash flows of Macon Cellular Telephone Systems Limited Partnership (a New
Hampshire Limited Partnership) for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
--------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-89
<PAGE>
MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP
(A New Hampshire Limited Partnership)
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 145 $ 50
Trade accounts receivable, less allowance for doubtful
accounts of $142 in 1998 and $89 in 1997 2,921 2,258
Inventory 680 353
Other current assets 58 78
-------------------------
Total current assets 3,804 2,739
-------------------------
Property and equipment:
Land and leasehold improvements 203 126
Buildings & improvements 36
Equipment and furnishings 792 791
Cellular equipment 15,947 14,712
-------------------------
16,978 15,629
Less accumulated depreciation and amortization 2,569 516
-------------------------
Net property and equipment 14,409 15,113
Licenses and other intangibles less accumulated
amortization of $4,603 in 1998 and $953 in 1997 131,577 137,702
-------------------------
$ 149,790 $ 155,554
=========================
Liabilities and Partners' Equity
Current liabilities:
Accrued salaries and benefits $ 113 $ 140
Other accrued expenses 460 148
Deferred revenue 824 350
Customer deposits 158 103
-------------------------
Total current liabilities 1,555 741
Deferred income taxes 40,888 46,579
Advances from affiliates (119) 11,402
-------------------------
Total liabilities 42,324 58,722
Commitments and contingencies
Partners' equity 107,466 96,832
-------------------------
$ 149,790 $ 155,554
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
F-90
<PAGE>
MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP
(A New Hampshire Limited Partnership) Consolidated
Statements of Operations
( $ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $ 30,599 $ 26,335 $ 21,178
Equipment sales and installation 1,579 1,479 1,211
----------------------------------------
Total revenue 32,178 27,814 22,389
----------------------------------------
Operating expenses:
Engineering, technical and other direct 8,556 6,743 5,312
Cost of equipment 2,787 2,689 1,956
Sales and marketing 2,396 1,979 1,648
General and administrative 4,753 4,809 4,272
Depreciation and amortization 5,703 3,879 2,467
----------------------------------------
Total operating expenses 24,195 20,099 15,655
----------------------------------------
Operating income 7,983 7,715 6,734
Interest expense, net (564) (1,406) (486)
----------------------------------------
Net income before income taxes 7,419 6,309 6,248
Deferred tax benefit 1,172 293 --
----------------------------------------
Net income $ 8,591 $ 6,602 $ 6,248
========================================
</TABLE>
<TABLE>
<CAPTION>
Statements of Partners' Equity
<S> <C>
Balance at December 31, 1996 47,504
Net income 6,602
"Push-down" of Price Communications Wireless, Inc.'s
acquisition price 42,726
---------
Balance at December 31, 1997 96,832
Adjustment for finalization of "push down" of Price Communications
wireless, Inc.'s acquisition price 2,043
Net income 8,591
---------
Balance at December 31, 1998 $ 107,466
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-91
<PAGE>
MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP
(A New Hampshire Limited Partnership)
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,591 $ 6,602 $ 6,248
--------------------------------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,703 3,880 2,467
Deferred income taxes (1,172) (293) --
(Increase) decrease in trade accounts receivable (663) 380 (72)
(Increase) decrease in inventory (327) 336 (345)
Decrease in other current assets 20 14 11
Increase (decrease) in accrued expenses 285 (232) 29
Increase (decrease) in deferred revenue 474 (259) (84)
Increase in customer deposits 55 10 19
--------------------------------------
Total adjustments 4,375 3,836 2,025
--------------------------------------
Net cash provided by operating activities 12,966 10,438 8,273
--------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (1,350) (5,165) (4,561)
Cash payments for purchase of non-wireline cellular
telephone system and license -- -- (25,244)
--------------------------------------
Net cash used in investing activities (1,350) (5,165) (29,805)
--------------------------------------
Cash flows from financing activities:
(Decrease) increase in advances from affiliates, net (11,521) (5,306) 21,485
--------------------------------------
Net increase (decrease) in cash 95 (33) (47)
Cash at beginning of year 50 83 130
--------------------------------------
Cash at end of year $ 145 $ 50 $ 83
======================================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 564 $ 1,404 $ 821
======================================
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1996, the Partnership transferred certain property and equipment with
depreciated cost of $30 to Palmer Wireless Inc. and affiliates by decreasing
the advances from Palmer Wireless, Inc. and affiliates. No gain or loss was
recognized on the transfer.
The 1996 acquisition of the non-wireline cellular telephone
system was allocated as follows:
<TABLE>
<S> <C>
Property and equipment $ 1,546
License 23,444
Current assets and liabilities, net 254
---------
$ 25,244
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-92
<PAGE>
MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP
(A New Hampshire Limited Partnership)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Partnership Operations and Asset Exchange Agreement
Macon Cellular Telephone Systems Limited Partnership (the
"Partnership") was formed on November 11, 1986, to construct and operate
certain non-wireline cellular telephone systems. On October 24, 1989,
Palmer Cellular Partnership ("PCP"), a subsidiary of Palmer Communications
Incorporated ("Palmer"), directly or indirectly acquired the Partnership's
general partner (approximately 1 percent) and approximately 94 percent of
the limited partnership units. In conjunction with this acquisition, the
Partnership entered into an Asset Exchange Agreement with Macon Cellular
Telephone Corp. ("Macon"), whereby the assets consisted primarily of FCC
licenses and a nonwireline cellular telephone system serving the Macon,
Georgia, Metropolitan Statistical Area. The partnership operates the
non-wireline cellular telephone system serving the Georgia-6 RSA which was
acquired on July 5, 1996.
In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock
for 100 percent of the partnership interests of PCP. Palmer owns a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying financial statements and notes to
financial statements include the activity of PWI and its predecessor, PCP.
On May 23, 1997, Price Communications Wireless, Inc. ("PCW") and PWI
entered into a plan of merger whereby PCW merged into PWI with PWI as the
surviving corporation. On October 6, 1997 the merger was completed and PWI
changed its name to PCW. The direct owner of the Partnership is Palmer
Wireless Holdings, Inc. ("Holdings") which was formed in January, 1994.
PCW is the 100% owner of Holdings.
The Partnership is the 100% owner of Price Communications Wireless
VII Inc., the licenseholder for the Macon MSA.
Basis of Presentation
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the partnership revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $138.7 million. During 1998, the allocation was
finalized resulting in an allocation of approximately $136.2 million to
licenses, with an adjustment also made to deferred tax liability and paid
in capital to finalize "push down" accounting. The license is being
amortized over a period of 40 years. Prior to October 6, 1997, PWI also
utilized "push down accounting", as PWI owned approximately 99.1% of the
Partnership.
The accompanying financial statements do not include the assets and
liabilities of the partners.
F-93
<PAGE>
MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP
(A New Hampshire Limited Partnership)
Notes to Consolidated Financial Statements (continued)
1) Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Partnership to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Property and
equipment are stated at cost. Depreciation is provided principally using
the straight-line method over the estimated useful lives ranging from 5 to
20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Partnership
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Partnership utilizes projected
undiscounted cash flows over the remaining life of the license or licenses
and sales of comparable businesses to evaluate the recorded value of these
licenses. The assessment of the recoverability of the remaining balance of
the license rights will be impacted if projected cash flows are not
achieved.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Partnership earns local subscriber revenue by providing access
to the cellular network (access revenue) or, as applicable, for usage of
the cellular network (airtime revenue). Access revenue is billed on month
in advance and is recognized when earned. Airtime revenue is recognized
when the service is rendered.
F-94
<PAGE>
MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP
(A New Hampshire Limited Partnership)
Notes to Consolidated Financial Statements (continued)
1) Summary of Significant Accounting Policies (Continued)
Roamer revenue represents revenue earned by the Partnership for
usage of the cellular network by subscribers of other cellular carriers.
Roamer revenue is recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
Operating Expenses -Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
The Consolidated Financial Statements prior to the adjustment of the
value of the licenses made no provision for income taxes, as income and
losses of the Partnership are included in the income tax returns of the
individual partners. Such income and losses are proportionately allocated
to the partners based upon their ownership interests. At December 31, 1998
and 1997, the Consolidated Balance Sheets include a net deferred tax
liability as a result of the difference between the tax and book basis of
the license as a result of the valuation on October 7, 1997. This
difference is being deferred over a 40 year period and accordingly the
Consolidated Statements of Operations reflect a tax benefit for the years
ended December 31, 1998 and 1997.
2) Acquisition and Purchase of License
On July 5, 1996, the Partnership acquired the assets of and the
license to operate the non-wireline cellular system serving the eastern
portion (including Crawford, Lamar, Monroe, Spalding, Pike, and Upson
Counties) of the Georgia Rural Service Area Market No. 376, otherwise
known as Georgia-6 RSA, for a purchase price of $25.2 million. The
acquisition was accounted for by the purchase method of accounting and was
funded by an increase in the advances from Palmer Wireless, Inc. and
affiliates. In connection with the acquisition, $23.4 million of the
purchase price was allocated to the license and goodwill.
From the date of the acquisition to December 31, 1996, the effect of
this purchase on the operations of the Partnership cannot be
differentiated from the operations of the whole due to the interrelated
nature of the transactions.
3) Partners' Equity
In accordance with the Partnership agreement, the partners'
proportionate share of cash distributions from current operations and net
income or loss is calculated by dividing the partner's capital
contribution by total partners' capital contributions.
F-95
<PAGE>
MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP
(A New Hampshire Limited Partnership)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
3) Partners' Equity (continued)
The allocation to the partners of gain or loss arising from the sale
of property will be in the same proportion as they share net income or net
loss of the Partnership.
4) Related Party Transactions
The Partnership has various agreements with its parent whereby the
Partnership is charged or can charge other related entities various items.
Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Partnership. The agreement provides for a
monthly management fee of $2,000. The agreement also provides for
reimbursement of out-of-pocket costs. Certain property and equipment
acquisitions and expenses related to the operations of the system have
been allocated to the Partnership as out-of-pocket costs. Property and
equipment acquisitions are allocated based on specific identification.
Operating expenses are allocated to the Partnership based on the parent's
estimate of its time spent managing the Partnership.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Partnership enjoys
favorable reciprocal roaming arrangements with its affiliates. The revenue
is included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
Consolidated Statements of Operations.
401(k) Matching Provision: The Partnership's parent has a 401(k)
plan with a noncontributory retirement feature and a matching provision
for employees who meet length of service and other requirements. The
Partnership participates in this plan and was allocated 401(k) retirement
and matching expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Partnership's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
F-96
<PAGE>
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
Management Fee $ 24 $ 24 $ 24
Operating Expenses 2,326 2,354 2,113
Switching Service 589 512 379
Billing Service 1,178 1,022 759
Roaming Revenue 2,031 1,183 770
Roaming Cost 3,490 1,981 1,164
401(k) Match 23 27 45
Interest expense 564 1,404 486
5) Commitments and Contingencies
The Partnership is listed as a guarantor for PCW's $525.0 million 9
1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
The Partnership is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse
effect on the Partnership's Consolidated Financial Statements.
6) Leases ($ in thousands)
The Partnership, as lessee, has various noncancelable leases for
certain cellular plant facilities, office facilities, and office
equipment, all of which are classified as operating leases. Rent expense
under these noncancelable leases was $533, $389 and $311 for the years
ended December 31, 1998, 1997 and 1996, respectively. At December 31,
1998, the approximate minimum rental commitments under noncancelable
operating leases were as follows:
Year ending December 31:
1999 $ 345
2000 311
2001 281
2002 255
2003 35
-------
$ 1,227
=======
F-97
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Montgomery Cellular Holding Co., Inc.
We have audited the accompanying consolidated balance sheets of
Montgomery Cellular Holding Co., Inc. (a Delaware Corporation) and Subsidiary as
of December 31, 1998 and 1997 and the related consolidated statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Montgomery Cellular
Holding Co., Inc. as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-98
<PAGE>
The Board of Directors
Montgomery Cellular Holding Co., Inc.:
We have audited the accompanying consolidated statements of operations and
retained earnings and cash flows for the year ended December 31, 1996 of
Montgomery Cellular Holding Co., Inc. and subsidiary. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of Montgomery Cellular Holding Co., Inc and subsidiary for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-99
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC.
AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 36 $ 184
Trade accounts receivable, less allowance for doubtful
accounts of $98 in 1998 and $102 in 1997 2,365 1,968
Inventory 182 116
Other current assets 22 19
-------------------------
Total current assets 2,605 2,287
-------------------------
Property and equipment:
Land and leasehold improvements 136 --
Equipment and furnishings 418 392
Cellular equipment 12,000 9,892
-------------------------
12,554 10,284
Less accumulated depreciation and amortization 1,862 224
-------------------------
Net property and equipment 10,692 10,060
-------------------------
Advances to affiliates 1,242 --
Licenses and other intangibles, less accumulated amortization
of $3,507 in 1998 and $698 in 1997 107,444 112,677
-------------------------
121,983 125,024
=========================
Liabilities and Stockholder's Equity
Current liabilities:
Accrued salaries and benefits $ 51 $ 111
Other accrued expenses 296 100
Deferred revenue 525 333
Customer deposits 68 31
-------------------------
Total current liabilities 940 575
Deferred income taxes 40,624 38,086
Other notes payable 15 17
Advances from affiliates -- 3,894
-------------------------
Total liabilities 41,579 42,572
-------------------------
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.01 par value; authorized 50,000 shares
none issued -- --
Common stock, $.01 par value; authorized 100,000 shares,
issued 10,000 shares -- --
Additional paid in capital 69,031 74,043
Retained earnings 11,373 8,409
-------------------------
Total stockholder's equity 80,404 82,452
-------------------------
$ 121,983 $ 125,024
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
F-100
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC.
AND SUBSIDIARY
Consolidated Statements of Operations and
Retained Earnings
($ in thousands)
Years Ended
December 31,
---------------------------------
1998 1997 1996
---- ---- ----
Revenue:
Service revenue $22,225 $19,389 $19,174
Equipment sales and installation 1,491 903 987
---------------------------------
Total revenue 23,716 20,292 20,161
---------------------------------
Operating expenses:
Engineering, technical and other direct 4,935 3,607 4,175
Cost of equipment 2,719 1,918 1,958
Sales and marketing 1,838 1,234 1,054
General and administrative 5,037 4,637 4,589
Depreciation and amortization 4,447 2,169 1,239
---------------------------------
Total operating expenses 18,976 13,565 13,015
---------------------------------
Operating income 4,740 6,727 7,146
Interest expense 34 425 695
---------------------------------
Income before income tax expense 4,706 6,302 6,451
Income tax expense 1,742 2,332 2,405
---------------------------------
Net income 2,964 3,970 4,046
Retained earnings at beginning of year 8,409 4,439 393
---------------------------------
Retained earnings at end of year $11,373 $ 8,409 $ 4,439
=================================
See accompanying notes to consolidated financial statements.
F-101
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
($ In Thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,964 $ 3,970 $ 4,046
-----------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,447 2,169 1,239
Loss on disposal of property and equipment -- -- 15
Deferred taxes (958) (340) 100
(Increase) decrease in trade accounts receivable (397) 306 (295)
(Increase) decrease in inventory (66) 421 (385)
(Increase) decrease in other current assets (3) (2) (1)
Increase (decrease) in accrued expenses 136 (497) 193
Decrease in accrued interest due to affiliates -- -- (768)
Increase (decrease) in deferred revenue 192 (67) 94
Increase (decrease) in customer deposits 37 (39) 22
-----------------------------------
Total adjustments 3,388 1,951 214
-----------------------------------
Net cash provided by operating activities 6,352 5,921 4,260
-----------------------------------
Cash flows from investing activities:
Purchases of property and equipment (2,228) (2,413) (2,777)
Cash flows from financing activities:
Decrease in advances from affiliates, net (4,272) (3,400) (2,041)
-----------------------------------
Net (decrease) increase in cash (148) 108 (558)
Cash at beginning of year 184 76 634
-----------------------------------
Cash at end of year $ 36 $ 184 $ 76
-----------------------------------
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 34 $ 425 $ 1,463
===================================
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
During 1996, the Company received certain property and equipment totaling $279
from a related party by increasing the advances from Palmer Wireless, Inc.
and affiliates.
See accompanying notes to consolidated financial statements.
F-102
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Corporate Information
Montgomery Cellular Holding Co., Inc. and its wholly owned
subsidiary, Montgomery Cellular Telephone Company, Inc., (the "Company")
were formed in February 1988 to operate the non-wireline cellular
telephone system in the Montgomery, Alabama, Metropolitan Statistical
Area. Palmer Communications Incorporated ("Palmer") acquired an interest
in the outstanding stock of Montgomery Cellular Holding Co., Inc. on
December 31, 1988.
Effective August 4, 1989, Palmer transferred its investment in and
advances to the Company to Palmer Cellular Partnership ("PCP"). Palmer
owned a majority interest in PCP. When Palmer's interest in the Company
was transferred to PCP, it had no effect on the carrying value of the
assets of the Company.
In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock
for 100 percent of the partnership interests of PCP. Palmer owns a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying consolidated financial statements
and notes to financial statements include the activity of PWI and its
predecessor, PCP.
On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and
PWI entered into a plan of merger whereby PCW merged into PWI with PWI as
the surviving corporation. On October 6, 1997 the merger was completed and
PWI changed its name to PCW. The direct owner of the Company is Palmer
Wireless Holdings Inc. ("Holdings") which was formed in January 1994. PCW
is the 100% owner of Holdings.
The Company's subsidiary is the 100% owner of Price Communocations
Wireless IV, Inc. the license holder for the Montgomery MSA.
Basis of Presentation
PWI owned approximately 91.9% of the Company at December 31, 1996.
The accompanying 1996 Consolidated Financial Statements have been prepared
on the basis of historical cost. The assets of the Company were not
revalued in connection with the acquisition by Palmer or the subsequent
transfers to PCP or PWI.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the Company revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $113.4 million. During 1998, the allocation was
finalized resulting in an allocation of approximately $111.0 million to
licenses, with an adjustment also made to deferred tax liability and paid
in capital to finalize "push down" accounting. The license is being
amortized over a period of 40 years.
The Consolidated Financial Statements include the accounts of
Montgomery Cellular Holding Co., Inc. and its Subsidiary. All significant
inter-company balances and transactions have been eliminated.
F-103
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance aqnd repairs are charged to expense when incurred. Property
and equipment are stated at cost. Depreciation is provided principally
using the straight-line method over the estimated useful lives ranging
from 5 to 20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Company
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Company utilizes projected undiscounted
cash flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Company earns local subscriber revenue by providing access to
the cellular network (access revenue) or, as applicable, for usage of the
cellular network (airtime revenue). Access revenue is billed one month in
advance and is recognized when earned. Airtime revenue is recognized when
the service is rendered.
Roamer revenue represents revenue earned by the Company for usage of
the cellular network by subscribers of other cellular carriers. Roamer
revenue is recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
F-104
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Operating Expenses - Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
Since March of 1995 through September 30, 1997 the Company was
included in the consolidated income tax return of PWI and for the period
October 1, 1997 through December 31, 1997 the tax return of PCW. Through
the Company's tax sharing arrangement with PWI and PCW, the Company
computes its current and deferred income taxes based on the separate
return method for financial statement purposes. During 1998, the Company
fully utilized their net operating loss carryforwards of $.5 million.
2) Related Party Transactions
The Company has various agreements with its parent whereby the
Company is charged or can charge other related entities various items.
Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Company. The agreement provides for a monthly
management fee based upon 5 percent of revenues or a construction fee
based upon 10 percent of the construction costs. The agreement provides
for reimbursement of out-of-pocket costs. Certain property and equipment
acquisitions and expenses related to the operations of the system have
been allocated to the Company as out-of-pocket costs. Property and
equipment acquisitions are allocated based on specific identification.
Operating expenses are allocated to the Company based on the parent's
estimate of its time spent managing the Company.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Company enjoys favorable
reciprocal roaming arrangements with its affiliates. The revenue is
included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
Consolidated Statements of Operations.
401(k) Matching Provision: The Company's parent has a 401(k) plan
with a noncontributory retirement feature and a matching provision for
employees who meet length of service and other requirements. The Company
participates in this plan and was allocated 401(k) retirement and matching
expense.
F-105
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
2) Related Party Transactions (Continued)
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Company's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
Management Fee $ 1,186 $ 1,015 $ 1008
Construction Fee 0 0 252
Operating Expenses 2,008 1,888 1,910
Switching Service 506 444 392
Billing Service 1,011 886 784
Roaming Revenue 841 586 476
Roaming Cost 1,268 761 543
401(k) Match 22 14 32
Interest Expense 34 425 693
3) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes," under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective
tax bases. At December 31, 1998 and December 31, 1997 the Company has a
net deferred tax liability as a result of the difference between the tax
and book basis of the license as a result of the valuation on October 7,
1997. In addition at December 31, 1998 the deferred tax liability includes
an amount related to the difference between financial statement and income
tax basis of property and equipment. The difference attributable to the
license is being deferred over a 40 year period.
F-106
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
Components of income tax expense consisted of the following for the
years ended December 31 ($ in thousands):
Federal State Total
-----------------------------------
Year Ended December 31, 1998:
Current $ 2,504 $ 196 $ 2,700
Deferred (868) (90) (958)
-----------------------------------
$ 1,636 $ 106 $ 1,742
===================================
Year Ended December 31, 1997:
Current $ 2,441 $ 150 $ 2,591
Deferred (259) (259)
-----------------------------------
$ 2,182 $ 150 $ 2,332
===================================
Year Ended December 30, 1996:
Current $ 2,105 $ 200 $ 2,305
Deferred 90 10 100
-----------------------------------
$ 2,195 $ 210 $ 2,405
===================================
Income taxes differ from the "expected" income taxes computed by
applying the United States federal income tax rate of 34 percent to income
before income tax expense due to the utilization of deferred tax credits
for the years ended December 31, 1998 and December 31, 1997 and due to
state taxes for the year ended December 31, 1996.
F-107
<PAGE>
MONTGOMERY CELLULAR HOLDING CO., INC
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
4) Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
The Company is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect on
the Company's Consolidated Financial Statements.
5) Leases ($ in thousands)
The Company, as lessee, has various leases for an office building
and certain cellular plant facilities, all of which are classified as
operating leases. One is with a related party. Rent expense under
noncancelable leases amounted to $252 for the years ended December 31,
1998 and 1997 and $191 for the year ended December 31, 1996 of which $30
was paid to a related party in 1996. At December 31, 1998, the approximate
minimum rental commitments under noncancelable operating leases were as
follows:
Related
Party Other
----- -----
Year ending December 31:
1999 $ 29 $181
2000 29 168
2001 163
2002 -- 117
2003 and thereafter -- 86
---- ----
$ 58 $715
==== ====
F-108
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Montgomery Cellular Telephone Company, Inc.
We have audited the accompanying consolidated balance sheets of
Montgomery Cellular Telephone Company, Inc. (an Alabama Corporation) and
subsidiary as of December 31, 1998 and 1997 and the related consolidated
statements of operations and retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Montgomery Cellular
Telephone Company, Inc. as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-109
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Montgomery Cellular Telephone Company, Inc.:
We have audited the accompanying consolidated statements of
operations and retained earnings and cash flows for the year ended December 31,
1996 of Montgomery Cellular Telephone Company, Inc. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations and
the cash flows of Montgomery Cellular Telephone Company, Inc. for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
---------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-110
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Consolidated Balance Sheets
($ In thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 36 $ 184
Trade accounts receivable, less allowance for doubtful
accounts of $98 in 1998 and $102 in 1997 2,365 1,968
Inventory 182 116
Other current assets 22 19
-------------------------
Total current assets 2,605 2,287
-------------------------
Property and equipment:
Land and leasehold improvements 136 --
Equipment and furnishings 418 392
Cellular equipment 12,000 9,892
-------------------------
12,554 10,284
Less accumulated depreciation and amortization 1,862 224
-------------------------
Net property and equipment 10,692 10,060
-------------------------
Advances to affiliates 1,242 --
License and other intangibles, less accumulated amortization
of $3,507 in 1998 and $698 in 1997 107,444 112,677
-------------------------
121,983 125,024
=========================
Liabilities and Stockholder's Equity
Current liabilities:
Accrued salaries and benefits $ 51 $ 111
Other accrued expenses 296 100
Deferred revenue 525 333
Customer deposits 68 31
-------------------------
Total current liabilities 940 575
Deferred income taxes 40,624 38,086
Other notes payable 15 17
Advances from affiliates -- 3,894
-------------------------
Total liabilities 41,579 42,572
-------------------------
Commitments and contingencies
Stockholder's equity:
Common stock, $1.00 par value; authorized 5,000 shares,
100 shares, issued and outstanding -- --
Additional paid in capital 69,031 74,043
Retained earnings 11,373 8,409
-------------------------
Total stockholder's equity 80,404 82,452
-------------------------
$ 121,983 $ 125,024
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
F-111
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Consolidated Statements of Operations and
Retained Earnings
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $22,225 $19,389 $19,174
Equipment sales and installation 1,491 903 987
---------------------------------
Total revenue 23,716 20,292 20,161
---------------------------------
Operating expenses:
Engineering, technical and other direct 4,935 3,607 4,175
Cost of equipment 2,719 1,918 1,958
Sales and marketing 1,838 1,234 1,054
General and administrative 5,037 4,637 4,589
Depreciation and amortization 4,447 2,169 1,239
---------------------------------
Total operating expenses 18,976 13,565 13,015
---------------------------------
Operating income 4,740 6,727 7,146
Interest expense 34 425 695
---------------------------------
Income before income tax expense 4,706 6,302 6,451
Income tax expense 1,742 2,332 2,405
---------------------------------
Net income 2,964 3,970 4,046
Retained earnings at beginning of year 8,409 4,439 393
---------------------------------
Retained earnings at end of year $11,373 $ 8,409 $ 4,439
=================================
</TABLE>
See accompanying notes to consolidated financial statements
F-112
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Consolidated Statements of Cash Flows
($ In thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,964 $ 3,970 $ 4,046
-----------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,447 2,169 1,239
Loss on disposal of property and equipment -- -- 15
Deferred taxes (958) (340) 100
(Increase) decrease in trade accounts receivable (397) 306 (295)
(Increase) decrease in inventory (66) 421 (385)
Increase in other current assets (3) (2) (1)
Increase (decrease) in accrued expenses 136 (497) 193
Decrease in accrued interest due to affiliates -- -- (768)
Increase (decrease) in deferred revenue 192 (67) 94
Increase (decrease) in customer deposits 37 (39) 22
-----------------------------------
Total adjustments 3,388 1,951 214
-----------------------------------
Net cash provided by operating activities 6,352 5,921 4,260
-----------------------------------
Cash flows from investing activities:
Purchases of property and equipment (2,228) (2,413) (2,777)
-----------------------------------
Cash flows from financing activities:
Decrease in advances from affiliates, net (4,272) (3,400) (2,041)
-----------------------------------
Net cash used in financing activities (4,272) (3,400) (2,041)
Net (decrease) increase in cash (148) 108 (558)
Cash at beginning of year 184 76 634
-----------------------------------
Cash at end of year $ 36 $ 184 $ 76
===================================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 34 $ 425 $ 1,463
===================================
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
During 1996, the Company received certain property and equipment totaling $279
from a related party by increasing the advances from Palmer Wireless, Inc.
and affiliates.
See accompanying notes to consolidated financial statements.
F-113
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Corporate Information
Montgomery Cellular Telephone Co., Inc., (the "Company") and its
parent Montgomery Cellular Holding Co., Inc., whose financial statements
are included elsewhere in this document, were formed in February 1988 to
operate the non-wireline cellular telephone system in the Montgomery,
Alabama, Metropolitan Statistical Area. Palmer Communications Incorporated
("Palmer") acquired an interest in the outstanding stock of Montgomery
Cellular Holding Co., Inc. on December 31, 1988.
Effective August 4, 1989, Palmer transferred its investment in and
advances to the Company to Palmer Cellular Partnership ("PCP"). Palmer
owned a majority interest in PCP. When Palmer's interest in the Company
was transferred to PCP, it had no effect on the carrying value of the
assets of the Company.
In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock
for 100 percent of the partnership interests of PCP. Palmer owns a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying consolidated financial statements
and notes to financial statements include the activity of PWI and its
predecessor, PCP.
On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and
PWI entered into a plan of merger whereby PCW merged into PWI with PWI as
the surviving corporation. On October 6, 1997 the merger was completed and
PWI changed its name to PCW. The Company's direct owner Montgomery
Cellular Holding Co., Inc. ("Montgomery Holding"). Montgomery Holding in
turn is 100% owned by Palmer Wireless Holdings, Inc. which was formed in
January, 1994. PCW is the 100% owner of Holdings.
The Company is the 100% owner of Price Communications Wireless IV,
Inc., the license holder for the Montgomery MSA.
Basis of Presentation
PWI owned approximately 91.9% of the Company at December 31, 1996.
The accompanying 1996 Consolidated Financial Statements have been prepared
on the basis of historical cost. The assets of the Company were not
revalued in connection with the acquisition by Palmer or the subsequent
transfers to PCP or PWI.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the Company revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $113.4 million. During 1998 the allocation was
finalized resulting in an allocation of approximately $111.0 million to
licenses, with an adjustment also made to deferred tax liability and paid
in capital to finalize "push down" accounting. The license is being
amortized over a period of 40 years.
F-114
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance aqnd repairs are charged to expense when incurred. Property
and equipment are stated at cost. Depreciation is provided principally
using the straight-line method over the estimated useful lives ranging
from 5 to 20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Company
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Company utilizes projected undiscounted
cash flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Organization Expenses and Start-up Costs
Organization expenses and start-up costs are being amortized
primarily using the straight-line method over ten years.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Company earns local subscriber revenue by providing access to
the cellular network (access revenue) or, as applicable, for usage of the
cellular network (airtime revenue). Access revenue is billed one month in
advance and is recognized when earned. Airtime revenue is recognized when
the service is rendered.
F-115
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Roamer revenue represents revenue earned by the Company for usage of
the cellular network by subscribers of other cellular carriers. Roamer
revenue is recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
Operating Expenses - Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
Since March of 1995 through September 30, 1997 the Company was
included in the consolidated income tax return of PWI and for the period
October 1, 1997 through December 31, 1997 and for the year ended December
31, 1998, the tax return of PCC. Through the Company's tax sharing
arrangement with PWI and PCC, the Company computes its current and
deferred income taxes based on the separate return method for financial
statement purposes. During 1998, the Company fully utilized their net
operating loss carryforwards of $.5 million.
2) Related Party Transactions
The Company has various agreements with its parent whereby the
Company is charged or can charge other related entities various items.
Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Company. The agreement provides for a monthly
management fee based upon 5 percent of revenues or a construction fee
based upon 10 percent of the construction costs. The agreement provides
for reimbursement of out-of-pocket costs. Certain property and equipment
acquisitions and expenses related to the operations of the system have
been allocated to the Company as out-of-pocket costs. Property and
equipment acquisitions are allocated based on specific identification.
Operating expenses are allocated to the Company based on the parent's
estimate of its time spent managing the Company.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
F-116
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
2) Related Party Transactions (Continued)
Reciprocal roaming revenue and cost: The Company enjoys favorable
reciprocal roaming arrangements with its affiliates. The revenue is
included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
Consolidated Statements of Operations.
401(k) Matching Provision: The Company's parent has a 401(k) plan
with a noncontributory retirement feature and a matching provision for
employees who meet length of service and other requirements. The Company
participates in this plan and was allocated 401(k) retirement and matching
expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Company's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
Management Fee $1,186 $1,015 $1008
Construction Fee 0 0 252
Operating Expenses 2,008 1,888 1,910
Switching Service 506 444 392
Billing Service 1,011 886 784
Roaming Revenue 841 586 476
Roaming Cost 1,268 761 543
401(k) Match 22 14 32
Interest Expense 34 425 693
3) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes," under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective
tax bases. At December 31, 1998 and December 31, 1997 the Company has a
net deferred tax liability as a result of the difference between the tax
and book basis of the license as a result of the valuation on October 7,
1997 and the difference between financial statement and income tax basis
of property and equipment.
F-117
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
3) Income Taxes (Continued)
Components of income tax expense consisted of the following for the
years ended December 31 ($ in thousands):
Federal State Total
-----------------------------------
Year Ended December 31, 1998:
Current $ 2,504 $ 196 $ 2,700
Deferred (868) (90) (958)
-----------------------------------
$ 1,636 $ 106 $ 1,742
===================================
Year Ended December 31, 1997:
Current $ 2,441 $ 150 $ 2,591
Deferred (259) (259)
-----------------------------------
$ 2,182 $ 150 $ 2,332
===================================
Year Ended December 30, 1996:
Current $ 2,105 $ 200 $ 2,305
Deferred 90 10 100
-----------------------------------
$ 2,195 $ 210 $ 2,405
===================================
Income taxes differ from the "expected" income taxes computed by
applying the United States federal income tax rate of 34 percent to income
before income tax expense due to the utilization of deferred tax credits
for the years ended December 31, 1998 and December 31, 1997 and due to
state taxes for the year ended December 31, 1996.
4) Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
The Company is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect on
the Company's Consolidated Financial Statements.
F-118
<PAGE>
MONTGOMERY CELLULAR TELEPHONE CO., INC.
Notes to Consolidated Financial Statements (Continued)
5) Leases ($ in thousands)
The Company, as lessee, has various leases for an office building
and certain cellular plant facilities, all of which are classified as
operating leases. One is with a related party. Rent expense under
noncancelable leases amounted to $252 for the years ended December 31,
1998 and 1997 and $191 for the year ended December 31, 1996, of which $30
was paid to a related party in 1996. At December 31, 1998, the approximate
minimum rental commitments under noncancelable operating leases were as
follows ($ in thousands):
Related
Party Other
------- -----
Year ending December 31:
1999 $ 29 $181
2000 29 168
2001 163
2002 -- 117
2003 and thereafter -- 96
---- ----
$ 58 $715
==== ====
F-119
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Panama City Cellular Telephone Company, Ltd:
We have audited the accompanying consolidated balance sheets of Panama
City Cellular Telephone Company, Ltd. (A Florida Limited Partnership) and
subsidiary as of December 31, 1998 and 1997 and the related consolidated
statements of operations, partners' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Panama City Cellular
Telephone Company, Ltd. as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-120
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Panama City Cellular Telephone Company, Ltd.:
We have audited the accompanying consolidated statements of operations,
partners' equity and cash flows for the year ended December 31, 1996 of Panama
City Cellular Telephone Company, Ltd. (a Florida Limited Partnership). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of Panama City Cellular Telephone Company, Ltd. (a Florida Limited
Partnership) for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
---------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-121
<PAGE>
PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD.
(A Florida Limited Partnership)
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 18 $ 13
Trade accounts receivable, less allowance for doubtful
accounts of $29 in 1998 and $42 in 1997 961 842
Inventory 135 37
Other current assets 15 18
--------------------
Total current assets 1,129 910
--------------------
Property and equipment:
Land and land improvements 295 295
Buildings and leasehold improvements 109 106
Equipment and furnishings 239 252
Cellular equipment 4,810 5,008
--------------------
5,453 5,661
Less accumulated depreciation and amortization 692 184
--------------------
Net property and equipment 4,761 5,477
--------------------
Advances to affiliates 6,809 1,905
License and other intangibles, less accumulated amortization
of $1,381 in 1998 and $30 in 1997 41,929 44,212
--------------------
$54,628 $52,504
====================
Liabilities and Partners' Equity
Current liabilities:
Accrued salaries and benefits $ 20 $ 50
Other accrued expenses 98 60
Deferred revenue 225 152
Customer deposits 68 25
--------------------
Total current liabilities 411 287
Deferred income taxes 13,169 14,863
--------------------
Total liabilities 13,580 15,150
--------------------
Commitments and contingencies
Partners' equity 41,048 37,354
--------------------
$54,628 $52,504
====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-122
<PAGE>
PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD.
(A Florida Limited Partnership)
Consolidated Statements of Operations
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $ 9,435 $ 7,650 $ 6,770
Equipment sales and installation 780 403 441
--------------------------------
Total revenue 10,215 8,053 7,211
--------------------------------
Operating expenses:
Engineering, technical and other direct 1,527 1,258 1,392
Cost of equipment 1,198 807 916
Sales and marketing 796 543 425
General and administrative 2,099 2,100 2,052
Depreciation and amortization 1,859 994 607
--------------------------------
Total operating expenses 7,479 5,702 5,392
--------------------------------
Operating income 2,736 2,351 1,819
Interest income (expense) 435 97 (66)
--------------------------------
Income before taxes 3,171 2,448 1,753
Deferred tax benefit 374 93 --
--------------------------------
Net income $ 3,545 $ 2,541 $ 1,753
================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Partners' Equity
<S> <C>
Balance at December 31, 1996 5,527
Net income 2,541
"Push-down" of Price Communication Wireless Inc.'s
acquisition price 29,286
--------
Balance at December 31, 1997 37,354
Adjustment for finalization of "Push down" of Price Communications
Wireless, Inc.'s acquisition price 149
Net income 3,545
--------
Balance at December 31, 1998 $ 41,048
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-123
<PAGE>
PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD.
(A Florida Limited Partnership)
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,545 $ 2,541 $ 1,753
-----------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,859 994 607
Deferred taxes (374) (93) --
(Increase) decrease in trade accounts receivable (119) 131 (73)
(Increase) decrease in inventory (99) 106 (11)
Decrease in other current assets 3 2 16
Increase (decrease) in accrued expenses 8 (146) (189)
Decrease in accrued interest due to
affiliates -- -- (102)
Increase (decrease) in deferred revenue 72 (8) 13
Increase in customer deposits 43 -- 7
-----------------------------------
Total adjustments 1,393 986 268
-----------------------------------
Net cash provided by operating activities 4,938 3,527 2,021
-----------------------------------
Cash flows from investing activities:
Purchases of property and equipment (29) (1,182) (871)
Purchase of other intangibles -- (266) (3)
-----------------------------------
Net cash used in investing activities (29) (1,448) (874)
-----------------------------------
Cash flows from financing activities -
Decrease in advances from affiliates, net (4,904) (2,083) (1,176)
-----------------------------------
Net increase (decrease) in cash 5 (4) (29)
Cash at beginning of year 13 17 46
-----------------------------------
Cash at end of year $ 18 $ 13 $ 17
===================================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 435 $ 254 $ 169
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-124
<PAGE>
PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD.
(A Florida Limited Partnership)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Partnership Operations
Panama City Cellular Telephone Company Ltd. (the "Partnership") was
formed on April 1, 1988, to construct and operate non-wireline cellular
telephone systems in the Panama City, Florida, Metropolitan Statistical
Area. On July 25, 1991, Palmer Cellular Partnership ("PCP"), a subsidiary
of Palmer Communications Incorporated ("Palmer"), acquired 100 percent of
the general partners' interest and a portion of the limited partners'
interest.
In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock
for 100 percent of the partnership interests of PCP. Palmer owns a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying financial statements and notes to
financial statements include the activity of PWI and its predecessor, PCP.
On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and
PWI entered into a plan of merger whereby PCW merged into PWI with PWI as
the surviving corporation. On October 6, 1997, the merger was completed
and PWI changed its name to PCW. The Partnership's direct owner is
Panhandle Cellular Partnership ("Panhandle") Panhandle in turn is owned by
Palmer Wireless Holdings, Inc. ("Holdings"). PCW is the 100% owner of
Holdings.
The Partnership is the 100% owner of Price Communications Wireless
IX, Inc., the licenseholder for the Panama City MSA.
Basis of Presentation
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the Partnership revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $44.2 million. During 1998 the allocation was
finalized resulting in an allocation to licenses of approximately $43.3
million to licenses, with an adjustment also made to deferred tax
liability and paid in capital to finalize "push down" accounting. The
license is being amortized over a period of 40 years.
The accompanying financial statements do not include the assets and
liabilities of the partners.
F-125
<PAGE>
PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD.
(A Florida Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Partnership to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Property and
equipment are stated at cost. Depreciation is provided principally using
the straight-line method over the estimated useful lives ranging from 5 to
20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Partnership
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Partnership utilizes projected
undiscounted cash flows over the remaining life of the license or licenses
and sales of comparable businesses to evaluate the recorded value of these
licenses. The assessment of the recoverability of the remaining balance of
the license rights will be impacted if projected cash flows are not
achieved.
Other Intangible Assets
Other intangible assets consist primarily of subscriber lists, which
are being amortized using the straight-line method over 10 years.
Revenue Recognition
Service revenue includes local subscriber revenue.
F-126
<PAGE>
PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD.
(A Florida Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
The Partnership earns local subscriber revenue by providing
access to the cellular network (access revenue) or, as applicable, for
usage of the cellular network (airtime revenue). Access revenue is billed
one month in advance and is recognized when earned. Airtime revenue is
recognized when the service is rendered.
Roamer revenue represents revenue earned by the Partnership
for usage of the cellular network by subscribers of other cellular
carriers. Roamer revenue is recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon
delivery or installation of the equipment to the customer.
Operating Expenses - Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
The Consolidated Financial Statements prior to the adjustment
of the value of the licenses made no provision for income taxes, as income
or losses of the Partnership are to be included in the income tax returns
of the individual partners. Such income or losses are proportionately
allocated to the partners based upon their ownership interests. At
December 31, 1998 and 1997, the Consolidated Balance Sheets include a net
deferred tax liability as a result of the difference between the tax and
book basis of the license as a result of the revaluation in connection
with the acquisition of PWI on October 7, 1997. This difference is being
deferred over a 40 year period and accordingly the Consolidated Statements
of Operations reflect a tax benefit for the years ended December 31, 1998
and 1997.
2) Partners' Equity
In accordance with the Partnership agreement, the partners'
proportionate share in cash distributions from current operations and net
income or loss is calculated by dividing the partners' capital
contribution by total partners' capital contributions.
The allocation of gain or loss to the partners arising from
the sale of property will be in the same proportion as their share of net
income or net loss of the Partnership.
3) Related Party Transactions
The Partnership has various agreements with its parent whereby
the Partnership is charged or can charge other related entities various
items. Among these are the following arrangements:
F-127
<PAGE>
PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD.
(A Florida Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
3) Related Party Transactions
Consulting agreement with its parent for the management of the
day-to-day operations of the Partnership. The agreement provides for a
monthly management fee based upon 5 percent of revenues. The agreement
also provides for reimbursement of out-of-pocket costs. Certain property
and equipment acquisitions and expenses related to the operations of the
system have been allocated to the Partnership as out-of-pocket costs.
Property and equipment acquisitions are allocated based on specific
identification. Operating expenses are allocated to the Partnership based
on the parent's estimate of its time spent managing the Partnership.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Partnership enjoys
favorable reciprocal roaming arrangements with its affiliates. The revenue
is included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
Consolidated Statements of Operations.
401(k) Matching Provision: The Partnership's parent has a 401(k)
plan with a noncontributory retirement feature and a matching provision
for employees who meet length of service and other requirements. The
Partnership participates in this plan and was allocated 401(k) retirement
and matching expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Partnership's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
------------------------------------
Management Fee $511 $403 $361
Operating Expenses 766 761 853
Switching Service 168 151 133
Billing Service 335 301 265
Roaming Revenue 331 189 125
Roaming Cost 132 93 41
401(k) Match 11 11 18
Interest Income (Expense) 435 96 (67)
F-128
<PAGE>
PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD.
(A Florida Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
4) Commitments and Contingencies
The Partnership is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the
Company's Consolidated Financial Statements.
5) Leases ($ in thousands)
The Partnership, as lessee, has various noncancelable leases for
certain cellular plant facilities, office facilities, and office
equipment, all of which are classified as operating leases. One of these
leases is with a related party. Rent expense under these noncancelable
leases amounted to $142, $140 and $142 for the years ended December 31,
1998, 1997 and 1996, respectively, of which $14 in 1997 and 1996, were
paid to a related party.
At December 31, 1998, the approximate minimum rental commitments under
noncancelable operating leases were as follows:
Related
Party Other
----- -----
Year ending December 31:
1999 $ 15 $ 71
2000 -- 36
2001 -- 29
2002 -- 10
2003 -- 5
---- ----
$ 15 $151
==== ====
F-129
<PAGE>
REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS
To the Partners of Panhandle Cellular Partnership:
We have audited the accompanying balance sheets of Panhandle
Cellular Partnership (a Florida Limited Partnership) and subsidiary as of
December 31, 1998 and 1997 and the related statements of operations and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Panhandle Cellular
Partnership as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-130
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Panhandle Cellular Partnership:
We have audited the accompanying consolidated statements of
operations, partners' equity and cash flows for the year ended December 31, 1996
of Panhandle Cellular Partnership. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of Panhandle Cellular Partnership for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-131
<PAGE>
PANHANDLE CELLULAR PARTNERSHIP
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 18 $ 13
Trade accounts receivable, less allowance for doubtful
accounts of $29 in 1998 and $42 in 1997 961 842
Inventory 135 37
Other current assets 15 18
--------------------
Total current assets 1,129 910
--------------------
Property and equipment:
Land and land improvements 295 295
Buildings and leasehold improvements 109 106
Equipment and furnishings 239 252
Cellular equipment 4,810 5,008
--------------------
5,453 5,661
Less accumulated depreciation and amortization 692 184
--------------------
Net property and equipment 4,761 5,477
Advances to affiliates 6,809 1,905
Licenses and other intangibles, less accumulated amortization
of $1,381 in 1998 and $30 in 1997 41,929 44,212
--------------------
$54,628 $52,504
====================
Liabilities and Partners' Equity
Current liabilities:
Accrued salaries and benefits $ 20 $ 50
Other accrued expenses 98 60
Deferred revenue 225 152
Customer deposits 68 25
--------------------
Total current liabilities 411 287
Deferred income taxes 13,169 14,863
Minority interest 549 517
--------------------
Total liabilities 14,129 15,667
Commitments and contingencies
Partners' equity 40,499 36,837
--------------------
$54,628 $52,504
====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-132
<PAGE>
PANHANDLE CELLULAR PARTNERSHIP
Consolidated Statements of Operations
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $ 9,435 $ 7,650 $ 6,770
Equipment sales and installation 780 403 441
-------------------------------------
Total revenue 10,215 8,053 7,211
-------------------------------------
Operating expenses:
Engineering, technical and other direct 1,527 1,258 1,392
Cost of equipment 1,198 807 916
Sales and marketing 796 543 425
General and administrative 2,099 2,100 2,052
Depreciation and amortization 1,859 994 607
-------------------------------------
Total operating expenses 7,479 5,702 5,392
-------------------------------------
Operating income 2,736 2,351 1,819
-------------------------------------
Interest income (expense) 435 97 (66)
Minority interest (32) (24) (17)
-------------------------------------
Income before taxes 3,139 2,424 1,736
Deferred tax benefit 374 93 --
-------------------------------------
Net income $ 3,513 $ 2,517 $ 1,736
=====================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Partners' Equity
Total
--------
<S> <C>
Balance at December 31, 1996 5,472
Net income 2,517
"Push-down" of Price Communication Wireless Inc.'s
acquisition price 28,848
--------
Balance at December 31, 1997 36,837
Adjustment for finalization of "push down" of Price Communications
Wireless, Inc.'s acquisition price 149
Net income 3,513
--------
Balance at December 31, 1998 $ 40,499
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-133
<PAGE>
PANHANDLE CELLULAR PARTNERSHIP
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,513 $ 2,517 $ 1,736
-----------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,859 994 607
Deferred income taxes (374) (93) --
Minority interest share of income 32 24 17
(Increase) decrease in trade accounts receivable (119) 131 (73)
(Increase) decrease in inventory (99) 106 (11)
Decrease in other current assets 3 2 16
Increase (decrease) in accrued expenses 8 (146) (189)
Decrease in accrued interest due to
affiliates -- -- (102)
Increase (decrease) in deferred revenue 72 (8) 13
Increase in customer deposits 43 -- 7
-----------------------------------
Total adjustments 1,425 1,010 285
-----------------------------------
Net cash provided by operating activities 4,938 3,527 2,021
-----------------------------------
Cash flows from investing activities:
Purchases of property and equipment (29) (1,182) (871)
Purchase of other intangibles -- (266) (3)
-----------------------------------
Net cash used in investing activities (29) (1,448) (874)
-----------------------------------
Cash flows from financing activities:
Increase in advances to affiliates, net (4,904) (2,083) (1,176)
-----------------------------------
Net increase (decrease) in cash 5 (4) (29)
Cash at beginning of year 13 17 46
-----------------------------------
Cash at end of year $ 18 $ 13 $ 17
-----------------------------------
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 435 $ 254 $ 169
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-134
<PAGE>
PANHANDLE CELLULAR PARTNERSHIP
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Partnership Operations
Panhandle Cellular Partnership. (the "Partnership") was formed on
January 1, 1987, to construct and operate non-wireline cellular telephone
systems in the Panama City, Florida, Metropolitan Statistical Area. The
Partnership is the 99.01% partner of Panama City Cellular Telephone Co.,
Ltd. which was formed on April 1, 1988. On July 25, 1991, Palmer Cellular
Partnership ("PCP"), a subsidiary of Palmer Communications Incorporated
("Palmer"), acquired an interest in the Partnership.
In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock
for 100 percent of the partnership interests of PCP. Palmer owns a
majority interest in PWI. Since this exchange was between related parties,
it was accounted for in a manner similar to a pooling of interests.
References to PWI in the accompanying financial statements and notes to
financial statements include the activity of PWI and its predecessor, PCP.
On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and
PWI entered into a plan of merger whereby PCW merged into PWI with PWI as
the surviving corporation. On October 6, 1997, the merger was completed
and PWI changed its name to PCW. The direct owner of the Partnership is
Palmer Wireless Holdings, Inc. ("Holdings") which has a 78.41% ownership
interest. Holdings, which was formed in January, 1994, is 100% owned by
PCW.
The Partnership's subsidiary is the 100% owner of Price
Communications Wireless IX, Inc., the license holder for the Panama City
MSA.
Basis of Presentation
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the Partnership revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $44.2 million. During 1998, the allocation was
finalized resulting in an allocation to licenses of approximately $43.3
million to licenses, with an adjustment also made to deferred tax
liability and paid in capital to finalize "push down" accounting. The
license is being amortized over a period of 40 years.
The accompanying financial statements do not include the assets and
liabilities of the partners.
F-135
<PAGE>
PANHANDLE CELLULAR PARTNERSHIP
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Partnership to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Property and
equipment are stated at cost. Depreciation is provided principally using
the straight-line method over the estimated useful lives ranging from 5 to
20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Partnership
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Partnership utilizes projected
undiscounted cash flows over the remaining life of the license or licenses
and sales of comparable businesses to evaluate the recorded value of these
licenses. The assessment of the recoverability of the remaining balance of
the license rights will be impacted if projected cash flows are not
achieved.
Other Intangible Assets
Other intangible assets consist primarily of subscriber lists, which
are being amortized using the straight-line method over 10 years.
Revenue Recognition
Service revenue includes local subscriber revenue.
F-136
<PAGE>
PANHANDLE CELLULAR PARTNERSHIP
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies
The Partnership earns local subscriber revenue by providing access
to the cellular network (access revenue) or, as applicable, for usage of
the cellular network (airtime revenue). Access revenue is billed one month
in advance and is recognized when earned. Airtime revenue is recognized
when the service is rendered.
Roamer revenue represents revenue earned by the Partnership for
usage of the cellular network by subscribers of other cellular carriers.
Roamer revenue is recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
Operating Expenses - Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
Income Taxes
The Consolidated Financial Statements prior to the adjustment of the
value of the licenses made no provision for income taxes, as income or
losses of the Partnership are to be included in the income tax returns of
the individual partners. Such income or losses are proportionately
allocated to the partners based upon their ownership interests. At
December 31, 1998 and 1997, the Consolidated Balance Sheets include a net
deferred tax liability as a result of the difference between the tax and
book basis of the license as a result of the revaluation in connection
with the acquisition of PWI on October 7, 1997. This difference is being
deferred over a 40 year period and accordingly the Consolidated Statements
of Operations reflect a tax credit for the years ended December 31, 1998
and 1997.
2) Partners' Equity
In accordance with the Partnership agreement, the partners'
proportionate share in cash distributions from current operations and net
income or loss is calculated by dividing the partners' capital
contribution by total partners' capital contributions.
The allocation of gain or loss to the partners arising from the sale
of property will be in the same proportion as their share of net income or
net loss of the Partnership.
3) Related Party Transactions
The Partnership has various agreements with its parent whereby the
Partnership is charged or can charge other related entities various items.
Among these are the following arrangements:
F-137
<PAGE>
PANHANDLE CELLULAR PARTNERSHIP
Notes to Consolidated Financial Statements (Continued)
3) Related Party Transactions (Continued)
Consulting agreement with its parent for the management of the
day-to-day operations of the Partnership. The agreement provides for a
monthly management fee based upon 5 percent of revenues. The agreement
also provides for reimbursement of out-of-pocket costs. Certain property
and equipment acquisitions and expenses related to the operations of the
system have been allocated to the Partnership as out-of-pocket costs..
Property and equipment acquisitions are allocated based on specific
identification. Operating expenses are allocated to the Partnership based
on the parent's estimate of its time spent managing the Partnership.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Partnership enjoys
favorable reciprocal roaming arrangements with its affiliates. The revenue
is included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
Consolidated Statements of Operations.
401(k) Matching Provision: The Partnership's parent has a 401(k)
plan with a noncontributory retirement feature and a matching provision
for employees who meet length of service and other requirements. The
Partnership participates in this plan and was allocated 401(k) retirement
and matching expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Partnership's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
Management Fee $511 $403 $361
Operating Expenses 766 761 853
Switching Service 168 151 133
Billing Service 335 301 265
Roaming Revenue 332 189 125
Roaming Cost 132 93 41
401(k) Match 11 11 18
Interest income (Expense) 435 96 (67)
F-138
<PAGE>
PANHANDLE CELLULAR PARTNERSHIP
Notes to Consolidated Financial Statements (Continued)
4) Commitments and Contingencies
The Partnership is listed as a guarantor for PCW's $525.0 million 9
1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
The Partnership is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material effect
on the Partnership's Consolidated Financial Statements.
5) Leases ($ in thousands)
The Partnership, as lessee, has various noncancelable leases for
certain cellular plant facilities, office facilities, and office
equipment, all of which are classified as operating leases. One of these
leases is with a related party. Rent expense under these noncancelable
leases amounted to $142, $140 and $142 for the years ended December 31,
1998, 1997 and 1996, respectively, of which $14 in 1997 and 1996 were paid
to a related party.
At December 31, 1998, the approximate minimum rental commitments
under noncancelable operating leases were as follows:
Related
Party Other
----- -----
Year ending December 31:
1999 $ 15 $ 71
2000 -- 36
2001 -- 29
2002 10
2003 5
---- ----
$ 15 $151
==== ====
F-139
<PAGE>
REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS
To the Partners of Savannah Cellular Limited Partnership:
We have audited the accompanying consolidated balance sheets of
Savannah Cellular Limited Partnership (A Delaware Limited Partnership) and
subsidiary as of December 31, 1998 and 1997 and the related consolidated
statements of operations, partners' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Savannah Cellular
Limited Partnership as of December 31, 1997, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-140
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Savannah Cellular Limited Partnership:
We have audited the accompanying consolidated statements of
operations, partners' equity and cash flows for the year ended December 31, 1996
of Savannah Cellular Limited Partnership (a Delaware Limited Partnership). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of Savannah Cellular Limited Partnership (a Delaware Limited Partnership)
for the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
---------------------------------
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997
F-141
<PAGE>
SAVANNAH CELLULAR LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 14 $ 24
Trade accounts receivable, less allowance for doubtful
accounts of $108 in 1998 and $265 in 1997 1,751 950
Inventory 368 91
Other current assets 30 35
----------------------
Total current assets 2,163 1,100
----------------------
Property and equipment:
Land and land improvements 715 704
Buildings and leasehold improvements 975 812
Equipment and furnishings 278 240
Cellular equipment 10,457 10,265
----------------------
12,425 12,021
Less accumulated depreciation and amortization 2,469 1,036
----------------------
Net property and equipment 9,956 10,985
----------------------
Licenses and other intangibles, less accumulated amortization
of $2,583 in 1998 and $536 in 1997 74,690 78,416
----------------------
$ 86,809 $90,501
======================
Liabilities and Partners' Equity
Current liabilities:
Accrued salaries and benefits $ 43 $ 135
Other accrued expenses 190 95
Deferred revenue 390 184
Customer deposits 64 59
----------------------
Total current liabilities 687 473
Deferred income taxes 22,103 26,523
Advances from affiliates (3) 6,742
----------------------
Total liabilities 22,787 33,738
Commitments and contingencies
Partners' equity 64,022 56,763
----------------------
$ 86,809 $90,501
======================
</TABLE>
See accompanying notes to consolidated financial statements.
F-142
<PAGE>
SAVANNAH CELLULAR LIMITED PARTNERHIP
(A Delaware Limited Partnership)
Consolidated Statements of Operations and Partners' Equity
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Service revenue $17,987 $14,264 $13,309
Equipment sales and installation 1,145 611 501
---------------------------------
Total revenue 19,132 14,875 13,810
---------------------------------
Operating expenses:
Engineering, technical and other direct 3,492 2,854 2,909
Cost of equipment 2,134 1,623 1,211
Sales and marketing 2,123 1,238 1,118
General and administrative 3,032 2,570 2,421
Depreciation and amortization 3,480 2,104 2,439
---------------------------------
Total operating expenses 14,261 10,389 10,098
---------------------------------
Operating income 4,871 4,486 3,712
Loss on sale of assets -- 10 --
Interest expense 368 746 1,009
---------------------------------
Income before taxes 4,503 3,730 2,703
Deferred tax benefit 667 167 --
---------------------------------
Net income $ 5,170 $ 3,897 $ 2,703
=================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Partners' Equity
<S> <C>
Balance at December 31, 1996 51,826
Net income 3,897
"Push-down" of Price Communications Wireless,
Inc.'s acquisition price 1,040
-------
Balance at December 31, 1997 56,763
Adjustment for finalization of "push down" of Price Communications
Wireless, Inc.'s acquisition price 2,089
Net income 5,170
-------
Balance at December 31, 1998 $64,022
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-143
<PAGE>
SAVANNAH CELLULAR LIMITED PARTNERHSIP
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,170 $ 3,897 $ 2,703
-----------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,480 2,104 2,439
Deferred taxes (667) (167) --
(Increase) decrease in trade accounts receivable (801) (78) 1,429
(Increase) decrease in inventory (277) 161 (156)
Decrease (increase) in other current assets 5 (9) (2)
Increase (decrease) in accrued expenses 3 (145) (319)
Increase in deferred revenue 207 19 109
Increase (decrease) in customer deposits 5 (4) (13)
-----------------------------------
Total adjustments 1,955 1,881 3,487
-----------------------------------
Net cash provided by operating activities 7,125 5,778 6,190
Cash flows from investing activities:
Purchases of property and equipment (390) (4,288) (2,516)
Cash flows from financing activities:
Decrease in advances to affiliates, net (6,745) (1,514) (3,630)
-----------------------------------
Net (decrease) increase in cash (10) (24) 44
Cash at beginning of year 24 48 4
-----------------------------------
Cash at end of year $ 14 $ 24 $ 48
===================================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 368 $ 747 $ 1,009
===================================
</TABLE>
See accompanying notes to consolidated financial statements
F-144
<PAGE>
SAVANNAH CELLULAR LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
Partnership Operations
Savannah Cellular Limited Partnership (the "Partnership") was formed
on June 21, 1987, to construct and operate certain non-wireline cellular
telephone systems in Bryan, Chatham and Effingham counties, Georgia. On
December 1, 1995, Palmer Wireless Holdings, Inc. ("Holdings"), a
subsidiary of Palmer Wireless, Inc. ("PWI"), acquired Georgia Metronet,
Inc., which owned 47.6226 percent of the Partnership directly through its
100 percent ownership of the Savannah General Partnership, the general
partner of the Partnership. As such, Holdings purchased 97.8816 percent of
the Partnership's general and limited partnership interests on December 1,
1995.
On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and
PWI entered into a plan of merger whereby PCW merged into PWI with PWI as
the surviving corporation. On October 6, 1997 the merger was completed and
PWI changed its name to PCW. The direct owner of the Partnership is
Holdings which was formed in January, 1994. PCW is the 100% owner of
Holdings.
The Partnership is the 100% owner of Price Communications Wireless
VIII, Inc., the license holder for the Savannah MSA.
Basis of Presentation
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of PWI's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the partnership revalued its assets and liabilities to reflect this
allocation. The preliminary allocation of the purchase price resulted in
licenses of approximately $79.0 million during 1998, the allocation was
finalized resulting in an allocation to licenses of approximately $77.3
million to licenses, with an adjustment also made to deferred tax
liability and paid in capital to finalize "push down" accounting, which
are being amortized over a period of 40 years. Prior to October 6, 1997,
Holdings utilized "push down accounting."
The accompanying financial statements do not include the assets and
liabilities of the partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Partnership to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventory
Inventory consisting primarily of cellular telephones and telephone
parts is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
F-145
<PAGE>
SAVANNAH CELLULAR LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Property and Equipment
The cost of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred.
Property and equipment are stated at cost. Depreciation is provided
principally using the straight-line method over the estimated useful lives
ranging from 5 to 20 years.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the
identifiable assets, including licenses based on the fair market value of
such assets at the date of acquisition (as determined by independent
appraisers or management). The excess of the total consideration over the
amounts assigned to identifiable assets is recorded as goodwill. Licenses
and goodwill are being amortized on a straight-line basis over a 40-year
period. Subsequent to the acquisition of the license, the Partnership
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of the license or
licenses may warrant revision or that the remaining balance of the license
rights may not be recoverable. The Partnership utilizes projected
undiscounted cash flows over the remaining life of the license or licenses
and sales of comparable businesses to evaluate the recorded value of these
licenses. The assessment of the recoverability of the remaining balance of
the license rights will be impacted if projected cash flows are not
achieved.
Revenue Recognition
Service revenue includes local subscriber revenue and roamer
revenue.
The Partnership earns local subscriber revenue by providing access
to the cellular network (access revenue) or, as applicable, for usage of
the cellular network (airtime revenue). Access revenue is billed one month
in advance and is recognized when earned. Airtime revenue is recognized
when the service is rendered.
Roamer revenue represents revenue earned by the Partnership for
usage of the cellular network by subscribers of other cellular carriers.
Roamer revenue is recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery
or installation of the equipment to the customer.
Operating Expenses -Engineering, Technical, and Other Direct
Engineering, technical, and other direct operating expenses
represent certain costs of providing cellular telephone service to
customers. These costs include incollect roaming expense. Incollect
roaming expense is the result of subscribers using cellular networks of
other cellular carriers. Incollect roaming revenue is netted against the
incollect roaming expense to determine net incollect roaming expense.
F-146
<PAGE>
SAVANNAH CELLULAR LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
1) Summary of Significant Accounting Policies (Continued)
Income Tax
The Consolidated Financial Statements prior to the adjustment of the
value of the licenses made no provision for income taxes, as income and
losses of the Partnership are included in the income tax returns of the
individual partners. At December 31, 1998 and 1997, the Consolidated
Balance Sheets include a net deferred tax liability as a result of the
difference between the tax and book basis of the license as a result of
the revaluation in connection with the PWI acquisition on October 7, 1997.
The difference is being deferred over a 40 year period and accordingly the
Consolidated Statements of Operations reflect a tax benefit for the years
ended December 31, 1998 and 1997.
2) Partners' Equity
In accordance with the Partnership agreement, for financial and tax
reporting purposes, the income or loss from operations of the Partnership
will be allocated to the partners in accordance with their respective
ownership of outstanding partnership units. However, to the extent any
loss allocation exceeds a partner's financial or tax reporting capital
account, the loss will be allocated among the remaining partners having
the economic risk of loss. The burden of economic risk corresponds to
liabilities in which a partner has the economic risk of loss. Net income
will be allocated first to those partners that were previously allocated
losses.
The allocation of gain or loss to the partners arising from the sale
of property will be in the same proportion as they share net income or
note loss of the Partnership.
3) Related Party Transactions
The Partnership has various agreements with its parent whereby the
Partnership is charged or can charge other related entities various items.
Among these are the following arrangements:
Consulting agreement with its parent for the management of the
day-to-day operations of the Company. The agreement provides for
reimbursement of out-of-pocket costs. Certain property and equipment
acquisitions and expenses related to the operations of the system have
been allocated to the Partnership as out-of-pocket costs. Property and
equipment acquisitions are allocated based on specific identification.
Operating expenses are allocated to the Partnership based on the parent's
estimate of its time spent managing the Partnership.
Regionalized switching service: These monthly charges are based on
minutes of use.
Centralized billing service: The monthly charges are based on the
number of bills printed.
Reciprocal roaming revenue and cost: The Partnership enjoys
favorable reciprocal roaming arrangements with its affiliates. The revenue
is included in service revenue in the statements of operations. Cost of
incollect roaming related to these arrangements, is included in
engineering, technical and other direct operating expenses in the
Consolidated Statements of Operations.
F-147
<PAGE>
SAVANNAH CELLULAR LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
3) Related Party Transactions (Continued)
401(k) Matching Provision: The Partnership's parent has a 401(k)
plan with a noncontributory retirement feature and a matching provision
for employees who meet length of service and other requirements. The
Partnership participates in this plan and was allocated 401(k) retirement
and matching expense.
Interest on advances: The balance of the advances from PWI and PCW
and affiliates is a result of the allocation of property and equipment
acquisitions, operating expenses and accrued interest thereon. The
advances accrue interest at 2 percent above the prime rate.
The Partnership's accounts payable and disbursement function are
performed by its parent. Under this centralized system, all payments are
made by the parent and all accounts payable are recorded by the parent.
The following table indicates the amounts included in the
accompanying statements of operations for the appropriate accounting
periods ($ in thousands):
For the
Years Ended
December 31,
1998 1997 1996
-------------------------------------
Operating Expenses $1,418 $1,347 $1,346
Switching Service 315 249 173
Billing Service 633 497 345
Roaming Revenue 1,145 795 567
Roaming Cost 1,239 749 339
401(k) Match 16 14 25
Interest 368 747 1,009
4) Commitments and Contingencies
The Partnership is listed as a guarantor for PCW's $525.0 million 9
1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
The Partnership is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material effect
on the Partnership's Consolidated Financial Statements.
5) Leases ($ in thousands)
The Partnership, as lessee, has various noncancelable leases for
certain cellular plant facilities, office facilities, and office
equipment, all of which are classified as operating leases. Rent expenses
under these noncancelable leases was $ 258, $227, and $267 for the years
ended December 31, 1998, 1997, and 1996, respectively. At December 31,
1998, the approximate minimum rental commitments under noncancelable
operating leases were as follows:
F-148
<PAGE>
SAVANNAH CELLULAR LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
5) Leases ($ in thousands) (Continued)
Year ending December 31:
1999 $ 254
2000 206
2001 104
2002 29
2003 8
-----
$ 601
=====
F-149
<PAGE>
CEI COMMUNICATIONS, INC.
Balance Sheets
($ in thousands)
Ended December 31,
<TABLE>
<CAPTION>
1998 1997
--------------
<S> <C> <C>
Assets
Investment in Macon Cellular Telephone Systems Limited Partnership $564 $573
==============
Commitments and contingencies
Equity
Common stock, $1.00 par value, 150,000 shares authorized,
500 shares issued and outstanding $ -- $ --
Retained earnings 564 573
--------------
$564 $573
==============
</TABLE>
See accompanying notes to financial statements.
F-150
<PAGE>
CEI COMMUNICATIONS, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31 (Unaudited),
<TABLE>
<CAPTION>
1998 1997 1996
------------------------
<S> <C> <C> <C>
Partnership income from Macon Cellular Telephone Systems
Limited Partnership $ 91 $ 70 $ 66
Retained earnings beginning of year 573 503 437
------------------------
Retained earnings end of year $664 $573 $503
========================
</TABLE>
See accompanying notes to financial statements.
F-151
<PAGE>
CEI COMMUNICATIONS, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31 (Unaudited),
1998 1997 1996
--------------------------
Net income $ 91 $ 70 $ 66
Increase in investment account ($91) ($70) ($66)
--------------------------
Increase in cash $ 0 $ 0 $ 0
==========================
See accompanying notes to financial statements.
F-152
<PAGE>
CEI COMMUNICATIONS, INC.
Notes to Unaudited Financial Statements
Years Ended December 31, 1998, 1997 and 1996 (Unaudited),
1) Summary of Significant Accounting Policies
CEI Communications, Inc. (the "Company") has a 1.06% partnership
interest in Macon Cellular Telephone Systems Limited Partnership. The Company is
owned 100% by Palmer Wireless Holdings, Inc.
2) Commitments and Contingencies
The Company is listed as a guarantor for Price Communications
Wireless, Inc.'s $525.0 million 9 1/8 % Senior Secured Notes due 2006. Price
Communications Wireless, Inc. ("PCW") is the parent of Palmer Wireless Holdings,
Inc. All of PCW's direct and indirect subsidiaries are also listed as
guarantors.
F-153
<PAGE>
PANAMA CITY COMMUNICATIONS INC.
Balance Sheets
($ in thousands) (Unaudited)
December 31,
1998 1997 1996
---- ---- ----
Assets
Investment in Panama City Cellular
Telephone Co. Inc. $111 $79 $54
======================
Equity
Common stock, no par value: 100 shares authorized,
issued and outstanding $ -- $-- $--
Retained earnings 111 79 54
----------------------
$111 $79 $54
======================
F-154
<PAGE>
PANAMA CITY COMMUNICATIONS INC.
Statements of Operations
($ in thousands) (Unaudited)
Years Ended
December 31,
----------------------
1998 1997 1996
---- ---- ----
Partnership income from Panama
City Cellular Telephone Co. Ltd. $ 32 $25 $17
Retained earnings beginning of year 79 54 37
----------------------
Retained earnings end of period $111 $79 $54
======================
F-155
<PAGE>
PANAMA CITY COMMUNICATIONS INC.
Statements of Cash Flows
($ in thousands)
Years Ended
December 31 (Unaudited),
--------------------------
1998 1997 1996
---- ---- ----
Net income $ 32 $ 25 $ 17
Increase in investment account account (32) (25) (17)
--------------------------
Increase in cash $ 0 $ 0 $ 0
==========================
F-156
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Price Communications Wireless II, Inc.:
We have audited the accompanying balance sheets of Price
Communications Wireless II, Inc. (a Delaware corporation) as of December 31,
1998 and 1997 and the related statements of operations and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Price Communications
Wireless II, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-157
<PAGE>
PRICE COMMUNICATIONS WIRELESS II, INC.
Balance Sheets
($ in thousands except share data)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cellular license, net of accumulated amortization of $10,533 in 1998
and $2,060 in 1997 $ 312,733 $ 327,601
=========================
Liabilities and Stockholder's Equity
Deferred taxes $ 95,724 $ 110,745
Commitments and contingencies -- --
Stockholder's Equity
Common stock, par value $.01 per share; authorized, issued
and outstanding 1,000 shares -- --
Paid-in capital 224,058 218,219
(Accumulated Deficit) (7,049) (1,363)
-------------------------
Total stockholder's equity 217,009 216,856
-------------------------
Total liabilities and stockholder's equity $ 312,733 $ 327,601
=========================
</TABLE>
See accompanying notes to financial statements.
F-158
<PAGE>
PRICE COMMUNICATIONS WIRELESS II, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Amortization of cellular license $ 8,473 $ 2,060
Deferred tax benefit 2,787 697
-------------------------
Net (loss) $(5,686) ($1,363)
=========================
See accompanying notes to financial statements.
F-159
<PAGE>
PRICE COMMUNICATIONS WIRELESS II, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net (loss) $ (5,686) ($1,363)
Amortization of cellular license 8,473 2,060
Decrease in deferred tax liability (2,787) (697)
--------------------------
Net change in cash $ 0 $ 0
==========================
See accompanying notes to financial statements.
F-160
<PAGE>
PRICE COMMUNICATIONS WIRELESS II, INC.
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
1) Summary of Significant Accounting Policies
Corporation Operations
Price Communications Wireless II, Inc. ("Wireless II") (the
"Company") was incorporated in the state of Delaware on October 7, 1997.
The Company is 100% owned by its parent Palmer Wireless Holdings Inc.
which in turn is 100% owned by its parent Price Communications Wireless
Inc. ("PCW"), the Registrant. The Company owns the non-wireline licenses
of the AL-5 RSA, AL-8 RSA, GA-7 RSA, GA-8 RSA, GA-9 RSA, GA-10 RSA, GA-12
RSA, Augusta Georgia MSA and the interim operating authority for SC-7 RSA.
Financial Statement Basis
On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into
a plan of merger whereby PCW merged into PWI with PWI as the surviving
corporation. On October 6, 1997 the merger was completed and PWI changed
its name to PCW.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of Palmer's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the various operating entities revalued their assets and liabilities
to reflect this allocation. The preliminary allocation of the purchase
price resulted in licenses of approximately $330.0 million. During 1998,
the preliminary aloocation was finalized resulting in an allocation of
approximately $323.3 million to licenses, with an adjustment also made to
deferred tax liability and paid in capital to finalize "push down"
accounting. Palmer Wireless Holdings Inc. is 100% owned by PCW and
accordingly the value of the license allocated to it was contributed to
Wireless II.
Licenses
Subsequent to the initial license valuation, the Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of the license or licenses
may warrant revision or that the remaining balance of the license rights
may not be recoverable. The Company utilizes projected undiscounted cash
flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Deferred Tax Liability
For financial statement purposes, the Company, recognizes deferred
taxes as it relates to the difference between financial statement and
income tax basis of the licenses.
Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
F-161
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Price Communications Wireless III, Inc.:
We have audited the accompanying balance sheets of Price Communications
Wireless III (a Delaware corporation) as of December 31, 1998 and 1997 and the
related statements of operations and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Price Communications
Wireless III, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-162
<PAGE>
PRICE COMMUNICATIONS WIRELESS III, INC.
Balance Sheets
($ in thousands except share data)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cellular license, net of accumulated amortization of $1,576 in 1998
and $315 in 1997 $ 47,368 $ 50,124
=======================
Liabilities and Stockholder's Equity
Deferred taxes $ 17,526 $ 16,944
Commitments and contingencies -- --
Stockholder's Equity
Common stock, par value $.01 per share; authorized, issued
and outstanding 1,000 shares -- --
Paid-in capital 30,884 33,388
(Accumulated Deficit) (1,042) (208)
------------------------
Total stockholder's equity 29,842 33,180
------------------------
Total liabilities and stockholder's equity $ 47,368 $ 50,124
=======================
</TABLE>
See accompanying notes to financial statements.
F-163
<PAGE>
PRICE COMMUNICATIONS WIRELESS III, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Amortization of cellular license $ 1,261 $ 315
Tax credit 427 107
-----------------------
Net (loss) ($834) ($208)
=======================
See accompanying notes to financial statements.
F-164
<PAGE>
PRICE COMMUNICATIONS WIRELESS III, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net (loss) ($834) ($208)
Amortization of cellular license 1,261 315
Decrease in deferred tax liability (427) (107)
-----------------------
Net change in cash $ 0 $ 0
=======================
See accompanying notes to financial statements.
F-165
<PAGE>
PRICE COMMUNICATIONS WIRELESS III, INC.
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
1) Summary of Significant Accounting Policies
Corporation Operations
Price Communications Wireless III, Inc. ("Wireless III") (the
"Company") was incorporated in the state of Delaware on October 7, 1997.
The Company is 100% owned by its parent Dothan Cellular Telephone Co. Inc.
("Dothan") whose financial statements are included elsewhere in this
document. Dothan in turn is 100% owned by Cellular Systems of Southeast
Alabama, Inc. ("Cellular Systems"). Palmer Wireless Holdings,
Inc.("Holdings") has a 94.6% ownership interest in Cellular Systems.
Holdings is 100% owned by Price Communications Wireless, Inc. ("PCW"). The
Company owns the non-wireline license of Dothan (Dothan MSA), the
operating entity.
Financial Statement Basis
On May 23, 1997, PCW, and Palmer Wireless, Inc. ("PWI") entered into
a plan of merger whereby PCW merged into PWI with PWI as the surviving
corporation. On October 6, 1997, the merger was completed and PWI changed
its name to PCW.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of Palmer's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the various operating entities revalued their assets and liabilities
to reflect this allocation. The preliminary allocation of the purchase
price resulted in licenses of approximately $50.4 million. During 1998,
the preliminary allocation was finalized resulting in an allocation $48.9
million to licenses, with an adjustment also made to deferred tax
liability and paid in capital to finalize "push down" accounting. Palmer
Wireless Holdings Inc. contributed the value of the license allocated to
it by PCW to Wireless III. During the year ended December 31, 1998 the
allocation was finalized and accordingly the value of the license along
with the amount of deferred taxes associated with the license was
adjusted.
Licenses
Subsequent to the initial license valuation, the Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of the license or licenses
may warrant revision or that the remaining balance of the license rights
may not be recoverable. The Company utilizes projected undiscounted cash
flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Deferred Income Taxes
For financial statement purposes, the Company recognizes a deferred
tax liability as it relates to the difference between the financial
statement and income tax basis of the licenses. The Company recognizes a
deferred tax benefit for the turnaround in the deferred tax liability
attributable to the additional amortization of the licenses.
Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
F-166
<PAGE>
REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS
To the Shareholders of Price Communications Wireless IV, Inc.:
We have audited the accompanying balance sheets of Price Communications
Wireless IV (a Delaware corporation) as of December 31, 1998 and 1997 and the
related statements of operations and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Price Communications
Wireless IV as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-167
<PAGE>
PRICE COMMUNICATIONS WIRELESS IV, INC.
Balance Sheets
($ in thousands except share data)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cellular license, net of accumulated amortization of $3,544 in 1998
and $709 in 1997 $ 107,449 $ 112,666
=========================
Liabilities and Stockholder's Equity
Deferred taxes $ 39,756 $ 38,086
Commitments and contingencies -- --
Stockholder's Equity
Common stock, par value $.01 per share; authorized, issued
and outstanding 1,000 shares -- --
Paid-in capital 70,038 75,049
(Accumulated Deficit) (2,345) (469)
-------------------------
Total stockholder's equity 67,693 74,580
-------------------------
Total liabilities and stockholder's equity $ 107,449 $ 112,666
=========================
</TABLE>
See accompanying notes to financial statements.
F-168
<PAGE>
PRICE COMMUNICATIONS WIRELESS IV, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Amortization of cellular license $ 2,835 $ 709
Tax credit 959 240
------------------------
Net (loss) ($ 1,876) ($469)
========================
See accompanying notes to financial statements.
F-169
<PAGE>
PRICE COMMUNICATIONS WIRELESS IV, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net (loss) ($ 1,876) ($469)
Amortization of cellular license 2,835 709
Decrease in deferred tax liability (959) (240)
------------------------
Net change in cash $ 0 $ 0
========================
See accompanying notes to financial statements.
F-170
<PAGE>
PRICE COMMUNICATIONS WIRELESS IV, INC.
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
1) Summary of Significant Accounting Policies
Corporation Operations
Price Communications Wireless IV, Inc. ("Wireless IV") (the
"Company") was incorporated in the state of Delaware on October 7, 1997.
The Company is 100% owned by its parent Montgomery Cellular Telephone Co.
Inc. ("Montgomery"). Montgomery in turn is 100% owned by its parent,
Montgomery Cellular Holding Co. Inc. ("Montgomery Holdings"), the
operating entity. Palmer Wireless Holdings, Inc. has a 92.8% ownership
interest in Montgomery Holdings. Palmer Wireless Holdings, Inc. is 100%
owned by Price Communications Wireless, Inc.,("PCW"). The Company owns the
non-wireline license of Montgomery Holdings (Montgomery MSA).
Financial Statement Basis
On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into
a plan of merger whereby PCW merged into PWI with PWI as the surviving
corporation. On October 6, 1997, the merger was completed and PWI changed
its name to PCW.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of Palmer's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the various operating entities revalued their assets and liabilities
to reflect this allocation. The preliminary allocation of the purchase
price resulted in licenses of approximately $113.4 million. During 1998,
the preliminary allocation was finalized resulting in an allocation of
approximately $111.0 million to licenses, with an adjustment also made to
deferred tax liability and paid in capital to finalize "push down"
accounting. Palmer Wireless Holdings Inc. contributed the value of the
license allocated to it by PCW to Wireless IV. During the year ended
December 31, 1998 the allocation was finalized and accordingly the value
of the license along with the amount of deferred taxes associated with the
license was adjusted.
Licenses
Subsequent to the initial license valuation, the Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of the license or licenses
may warrant revision or that the remaining balance of the license rights
may not br recoverable. The Company utilizes projected undiscounted cash
flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Deferred Income Taxes
For financial statement purposes, the Company recognizes a deferred
tax liability as it relates to the difference between the financial
statement and income tax basis of the licenses. The Company recognizes a
deferred tax benefit for the turnaround in the deferred tax liability
attributable to the additional amortization of the licenses.
Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
F-171
<PAGE>
REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS
To the Shareholders of Price Communications V, Inc.:
We have audited the accompanying balance sheets of Price Communications
Wireless V, Inc. (a Delaware corporation) as of December 31, 1998 and 1997 and
the related statements of operations and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Price Communications
Wireless V as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-172
<PAGE>
PRICE COMMUNICATIONS WIRELESS V, INC.
Balance Sheets
($ in thousands except share data)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cellular license, net of accumulated amortization of $2,444 in 1998
and $489 in 1997 $ 74,209 $ 77,813
=======================
Liabilities and Stockholder's Equity
Deferred taxes $ 11,759 $ 26,305
Stockholder's Equity
Common stock, par value $.01 per share; authorized, issued
and outstanding 1,000 shares
Paid-in capital 64,069 51,832
(Accumulated Deficit) (1,619) (324)
------------------------
Total stockholder's equity 62,450 51,508
------------------------
Total liabilities and stockholder's equity $ 74,209 $ 77,813
=======================
</TABLE>
See accompanying notes to financial statements.
F-173
<PAGE>
PRICE COMMUNICATIONS WIRELESS V, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Amortization of cellular license $ 1,955 $ 489
Tax credit 662 165
-----------------------
Net (loss) ($1,293) ($324)
=======================
See accompanying notes to financial statements.
F-174
<PAGE>
PRICE COMMUNICATIONS WIRELESS V, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net (loss) ($1,293) ($324)
Amortization of cellular license 1,955 489
Decrease in deferred tax liability (662) (165)
-----------------------
Net change in cash $ 0 $ 0
=======================
See accompanying notes to financial statements.
F-175
<PAGE>
PRICE COMMUNICATIONS WIRELESS V, INC.
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
1) Summary of Significant Accounting Policies
Corporation Operations
Price Communications Wireless V, Inc. ("Wireless V") (the "Company")
was incorporated in the state of Delaware on October 7, 1997. The Company
is 100% owned by its parent Cellular Dynamics Telephone Company of Georgia
("Cellular Dynamics"). Cellular Dynamics in turn is 100% owned by its
parent Albany Cellular Partners ("Albany"), the operating entity. Palmer
Wireless Holdings, Inc.("Holdings"), has an 86.5% ownership interest in
Albany. Holdings is 100% owned by Price Communications Wireless,
Inc.("PCW"). The Company owns the non-wireline license of Albany (Albany
MSA and GA-13 RSA).
Financial Statement Basis
On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into
a plan of merger whereby PCW merged into PWI with PWI as the surviving
corporation. On October 6, 1997 the merger was completed and PWI changed
its name to PCW.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of Palmer's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the various operating entities revalued their assets and liabilities
to reflect this allocation. The preliminary allocation of the purchase
price resulted in licenses of approximately $78.3 million. During 1998,
the preliminary allocation was finalized resulting in an allocation of
approximately $76.7 million to licenses, with an adjustment also made to
deferred tax liability and paid in capital to finalize "push down"
accounting. Palmer Wireless Holdings Inc. contributed the value of the
license allocated to it by PCW to Wireless V. During the year ended
December 31, 1998 the allocation was finalized and accordingly the value
of the license along with the amount of deferred taxes associated with the
license was adjusted.
Licenses
Subsequent to the initial license valuation, the Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of the license or licenses
may warrant revision or that the remaining balance of the license rights
may not be recoverable. The Company utilizes projected undiscounted cash
flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Deferred Income Taxes
For financial statement purposes, the Company recognizes a deferred
tax liability as it relates to the difference between the financial
statement and income tax basis of the licenses. The Company recognizes a
deferred tax benefit for the turnaround in the deferred tax liability
attributable to the additional amortization of the licenses.
Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 91/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
F-176
<PAGE>
REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS
To the Shareholders of Price Communications Wireless VI, Inc.:
We have audited the accompanying balance sheets of Price Communications
Wireless VI, Inc. (a Delaware corporation) as of December 31, 1998 and 1997 and
the related statements of operations and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Price Communications
Wireless VI as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-177
<PAGE>
PRICE COMMUNICATIONS WIRELESS VI, INC.
Balance Sheets
($ in thousands except share data)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cellular license, net of accumulated amortization of $2,860 in 1998
and $572 in 1997 $ 86,841 $ 90,933
=======================
Liabilities and Stockholder's Equity
Deferred taxes $ 28,506 $ 30,740
Stockholder's Equity
Common stock, par value $.01 per share; authorized, issued
and outstanding 1,000 shares
Paid-in capital 60,229 60,372
(Accumulated Deficit) (1,894) (379)
-----------------------
Total stockholder's equity 58,335 60,193
-----------------------
Total liabilities and stockholder's equity $ 86,841 $ 90,933
=======================
</TABLE>
See accompanying notes to financial statements.
F-178
<PAGE>
PRICE COMMUNICATIONS WIRELESS VI, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Amortization of cellular license $ 2,288 $ 572
Tax credit 773 193
------------------------
Net (loss) ($1,515) ($379)
========================
See accompanying notes to financial statements.
F-179
<PAGE>
PRICE COMMUNICATIONS WIRELESS VI, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net (loss) ($1,515) ($379)
Amortization of cellular license 2,288 572
Decrease in deferred tax liability (773) (193)
------------------------
Net change in cash $ 0 $ 0
=======================
See accompanying notes to financial statements.
F-180
<PAGE>
PRICE COMMUNICATIONS WIRELESS VI, INC.
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
1) Summary of Significant Accounting Policies
Corporation Operations
Price Communications Wireless VI, Inc. ("Wireless VI") (the
"Company") was incorporated in the state of Delaware on October 7, 1997.
The Company is 100% owned by its parent Columbus Cellular Telephone
Company ("Columbus Cellular"). Palmer Wireless Holdings, Inc.("Holdings")
has an 85.2% ownership interest in Columbus Cellular Holdings and is 100%
owned by Price Communications Wireless, Inc. ("PCW"). The Company owns the
non-wireline licenses of Columbus Cellular (Columbus MSA and the GA-6 A2
RSA.
Financial Statement Basis
On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into
a plan of merger whereby PCW merged into PWI with PWI as the surviving
corporation. On October 6, 1997, the merger was completed and PWI changed
its name to PCW.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of Palmer's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the various operating entities revalued their assets and liabilities
to reflect this allocation. The preliminary allocation of the purchase
price resulted in licenses of approximately $91.5 million. During 1998,
the preliminary allocation was finalized resulting in an allocation of
approximately $89.7 million to licenses, with an adjustment also made to
deferred tax liability and paid in capital to finalize "push down"
accounting. Palmer Wireless Holdings Inc. contributed the value of the
license allocated to it by PCW to Wireless VI. During the year ended
December 31, 1998 the allocation was finalized and accordingly the value
of the license along with the amount of deferred taxes associated with the
license was adjusted.
Licenses
Subsequent to the initial license valuation, the Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of the license or licenses
may warrant revision or that the remaining balance of the license rights
may not be recoverable. The Company utilizes projected undiscounted cash
flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Deferred Income Taxes
For financial statement purposes, the Company recognizes a deferred
tax liability as it relates to the difference between the financial
statement and income tax basis of the licenses. The Company recognizes a
deferred tax benefit for the turnaround in the deferred tax liability
attributable to the additional amortization of the licenses.
Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
F-181
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Price Communications Wireless VII, Inc.:
We have audited the accompanying balance sheets of Price Communications
Wireless VII (a Delaware corporation) as of December 31, 1998 and 1997 and the
related statements of operations and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Price Communications
Wireless VII, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-182
<PAGE>
PRICE COMMUNICATIONS WIRELESS VII, INC.
Balance Sheets
($ in thousands except share data)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cellular license, net of accumulated amortization of $4,334 in 1998
and $867 in 1997 $ 131,577 $ 137,788
=========================
Liabilities and Stockholder's Equity
Deferred taxes $ 40,888 $ 46,579
Stockholder's Equity
Common stock, par value $.01 per share; authorized, issued
and outstanding 1,000 shares
Paid-in capital 93,558 91,783
(Accumulated Deficit) (2,869) (574)
-------------------------
Total stockholder's equity 90,689 91,209
-------------------------
Total liabilities and stockholder's equity $ 131,577 $ 137,788
=========================
</TABLE>
See accompanying notes to financial statements.
F-183
<PAGE>
PRICE COMMUNICATIONS WIRELESS VII, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Amortization of cellular license $ 3,467 $ 867
Tax credit 1,172 293
------------------------
Net (loss) ($2,295) ($574)
========================
See accompanying notes to financial statements.
F-184
<PAGE>
PRICE COMMUNICATIONS WIRELESS VII, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net (loss) ($2,295) ($574)
Amortization of cellular license 3,467 867
Decrease in deferred tax liability (1,172) (293)
------------------------
Net change in cash $ 0 $ 0
========================
See accompanying notes to financial statements.
F-185
<PAGE>
PRICE COMMUNICATIONS WIRELESS VII, INC.
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
1) Summary of Significant Accounting Policies
Corporation Operations
Price Communications Wireless VII, Inc. ("Wireless VII") (the
"Company") was incorporated in the state of Delaware on October 7, 1997.
The Company is 100% owned by its parent Macon Cellular Telephone Systems
Limited Partnership ("Macon"). C.E.I. Communications Inc. ("CEI") is the
general partner of Macon and holds a 1.06% ownership interest in Macon.
Palmer Wireless Holdings, Inc.("Holdings") is the 100% owner of CEI and
has a 99.2% ownership interest in Macon when combined with its ownership
of CEI. Holdings is 100% owned by Price Communications Wireless, Inc.
("PCW"). The Company owns the non-wireline licenses of Macon (Macon MSA
and the GA-6 A1 RSA.
Financial Statement Basis
On May 23, 1997, PCW, and Palmer Wireless, Inc. ("PWI") entered into
a plan of merger whereby PCW merged into PWI with PWI as the surviving
corporation. On October 6, 1997, the merger was completed and PWI changed
its name to PCW.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of Palmer's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the various operating entities revalued their assets and liabilities
to reflect this allocation. The preliminary allocation of the purchase
price resulted in licenses of approximately $138.7 million. During 1998,
the preliminary allocation was finalized resulting in an allocation of
approximately $135.9 million to licenses, with an adjustment also made to
deferred tax liability and paid in capital to finalize "push down"
accounting. Palmer Wireless Holdings Inc. contributed the value of the
license allocated to it by PCW to Wireless VII. During the year ended
December 31, 1998 the allocation was finalized and accordingly the value
of the license along with the amount of deferred taxes associated with the
license was adjusted.
Licenses
Subsequent to the initial license valuation, the Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of the license or licenses
may warrant revision or that the remaining balance of the license rights
may not be recoverable. The Company utilizes projected undiscounted cash
flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Deferred Income Taxes
For financial statement purposes, the Company recognizes a deferred
tax liability as it relates to the difference between the financial
statement and income tax basis of the licenses. The Company recognizes a
deferred tax benefit for the turnaround in the deferred tax liability
attributable to the additional amortization of the licenses.
Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
F-186
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Price Communications Wireless VIII, Inc.:
We have audited the accompanying balance sheet of Price Communications
Wireless VIII, Inc. (a Delaware corporation) as of December 31, 1998 and 1997
and the related statements of operations and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Price Communications
Wireless VIII, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended n conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-187
<PAGE>
PRICE COMMUNICATIONS WIRELESS VIII, INC.
Balance Sheets
($ in thousands except share data)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cellular license, net of accumulated amortization of $2,583 in 1998
and $493 in 1997 $ 74,690 $ 78,459
=======================
Liabilities and Stockholder's Equity
Deferred taxes $ 22,103 $ 26,523
Stockholder's Equity
Common stock, par value $.01 per share; authorized, issued
and outstanding 1,000 shares
Paid-in capital 54,336 52,262
(Accumulated Deficit) (1,749) (326)
-----------------------
Total stockholder's equity 52,587 51,936
-----------------------
Total liabilities and stockholder's equity $ 74,690 $ 78,459
=======================
</TABLE>
See accompanying notes to financial statements.
F-188
<PAGE>
PRICE COMMUNICATIONS WIRELESS VIII, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Amortization of cellular license $ 2,090 $ 493
Tax credit 667 167
------------------------
Net (loss) ($ 1,423) ($326)
========================
See accompanying notes to financial statements.
F-189
<PAGE>
PRICE COMMUNICATIONS WIRELESS VIII, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net (loss) ($ 1,423) ($326)
Amortization of cellular license 2,090 493
Decrease in deferred tax liability (667) (167)
------------------------
Net change in cash $ 0 $ 0
========================
See accompanying notes to financial statements.
F-190
<PAGE>
PRICE COMMUNICATIONS WIRELESS VIII, INC.
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
1) Summary of Significant Accounting Policies
Corporation Operations
Price Communications Wireless VIII, Inc. ("Wireless VIII") (the
"Company") was incorporated in the state of Delaware on October 7, 1997.
The Company is 100% owned by its parent Savannah Cellular Limited
Partnership ("Savannah"). Palmer Wireless Holdings, Inc.("Holdings") has a
98.5% ownership interest in Savannah. Holdings is 100% owned by Price
Communications Wireless, Inc. ("PCW"). The Company owns the non-wireline
license of Savannah (Savannah MSA).
Financial Statement Basis
On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into
a plan of merger whereby PCW merged into PWI with PWI as the surviving
corporation. On October 6, 1997, the merger was completed and PWI changed
its name to PCW.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of Palmer's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the various operating entities revalued their assets and liabilities
to reflect this allocation. The preliminary allocation of the purchase
price resulted in licenses of 79.0 million. During 1998, the preliminary
allocation was finalized resulting in an allocation of approximately $77.3
million to licenses, with an adjustment also made to deferred tax
liability and paid in capital to finalize "push down" accounting. Palmer
Wireless Holdings Inc. contributed the value of the license allocated to
it by PCW to Wireless VIII. During the year ended December 31, 1998 the
allocation was finalized and accordingly the value of the license along
with the amount of deferred taxes associated with the license was
adjusted.
Licenses
Subsequent to the initial license valuation, the Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of the license or licenses
may warrant revision or that the remaining balance of the license rights
may not be recoverable. The Company utilizes projected undiscounted cash
flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Deferred Income Taxes
For financial statement purposes, the Company recognizes a deferred
tax liability as it relates to the difference between the financial
statement and income tax basis of the licenses. The Company recognizes a
deferred tax benefit for the turnaround in the deferred tax liability
attributable to the additional amortization of the licenses.
Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
F-191
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Price Communications Wireless IX, Inc.:
We have audited the accompanying balance sheets of Price Communications
Wireless IX, Inc. (a Delaware corporation) as of December 31, 1998 and 1997 and
the related statements of operations and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Price Communications
Wireless IX as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
F-192
<PAGE>
PRICE COMMUNICATIONS WIRELESS IX, INC.
Balance Sheets
($ in thousands except share data)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cellular license, net of accumulated amortization of $1,381 in 1998
and $277 in 1997 $ 41,929 $ 43,965
=======================
Liabilities and Stockholder's Equity
Deferred taxes $ 13,170 $ 14,863
Stockholder's Equity
Common stock, par value $.01 per share; authorized, issued
and outstanding 1,000 shares
Paid-in capital 29,674 29,286
(Accumulated deficit) (915) (184)
-----------------------
Total stockholder's equity 28,759 29,102
-----------------------
Total liabilities and stockholder's equity $ 41,929 $ 43,965
=======================
</TABLE>
See accompanying notes to financial statements.
F-193
<PAGE>
PRICE COMMUNICATIONS WIRELESS IX, INC.
Statements of Operations
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Amortization of cellular license $ 1,104 $ 277
Tax benefit 373 93
------------------------
Net (loss) ($731) ($184)
========================
See accompanying notes to financial statements.
F-194
<PAGE>
PRICE COMMUNICATIONS WIRELESS IX, INC.
Statements of Cash Flows
($ in thousands)
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Net (loss) ($731) ($184)
Amortization of cellular license 1,104 277
Decrease in deferred tax liability (373) (93)
------------------------
Net change in cash $ 0 $ 0
========================
See accompanying notes to financial statements.
F-195
<PAGE>
PRICE COMMUNICATIONS WIRELESS IX, INC.
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
1) Summary of Significant Accounting Policies
Corporation Operations
Price Communications Wireless IX, Inc. ("Wireless IX") ("Company")
was incorporated in the state of Delaware on October 7, 1997. The Company
is 100% owned by its parent Panama Cellular Telephone Company, Ltd.
("Panama City"), the operating entity. Panama City in turn is owned by
Panhandle Cellular Partnership ("PCP") and by Panama City Communications,
Inc. ("PCCI"), which owns .99% of Panama City and which is 100% owned by
Palmer Wireless Holdings, Inc.("Holdings"). Through its ownership of PCP
and PCCI, Palmer Wireless Holdings, Inc. has a 78.4% ownership interest in
Panama City. Holdings is 100% owned by Price Communications Wireless, Inc.
("PCW"). The Company owns the non-wireline license of Panama City(Panama
City MSA).
Financial Statement Basis
On May 23, 1997, Price Communications Wireless, Inc. ("PCW"), the
parent of Palmer Wireless Holdings, Inc. and Palmer Wireless, Inc. ("PWI")
entered into a plan of merger whereby PCW merged into PWI with PWI as the
surviving corporation. On October 6, 1997, the merger was completed and
PWI changed its name to PCW.
For financial reporting purposes, PCW revalued its assets and
liabilities as of October 6, 1997 to reflect the price paid by Price
Communications Corporation to acquire 100% of Palmer's common stock, a
process generally referred to as "push down accounting". On October 6,
1997, PCW allocated the purchase price to each of the markets purchased
and the various operating entities revalued their assets and liabilities
to reflect this allocation. The preliminary allocation of the purchase
price resulted in licenses of approximately $44.2 million. During 1998,
the preliminary allocation was finalized resulting in an allocation of
approximately $43.3 million to licenses, with an adjustment also made to
deferred tax liability and paid in capital to finalize "push down"
accounting. Palmer Wireless Holdings Inc. contributed the value of the
license allocated to it by PCW to Wireless IX. During the year ended
December 31, 1998 the allocation was finalized and accordingly the value
of the license along with the amount of deferred taxes associated with the
license was adjusted.
Licenses
Subsequent to the initial license valuation, the Company continually
evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of the license or licenses
may warrant revision or that the remaining balance of the license rights
may not be recoverable. The Company utilizes projected undiscounted cash
flows over the remaining life of the license or licenses and sales of
comparable businesses to evaluate the recorded value of these licenses.
The assessment of the recoverability of the remaining balance of the
license rights will be impacted if projected cash flows are not achieved.
Deferred Income Taxes
For financial statement purposes, the Company recognizes a deferred
tax liability as it relates to the difference between the financial
statement and income tax basis of the licenses. The Company recognizes a
deferred tax benefit for the turnaround in the deferred tax liability
attributable to the additional amortization of the licenses.
Commitments and Contingencies
The Company is listed as a guarantor for PCW's $525.0 million 9 1/8%
Senior Secured Notes due 2006. All of PCW's direct or indirect
subsidiaries are also listed as guarantors.
F-196
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS, INC.
By: /S/ ROBERT PRICE
-------------------------------------------
Robert Price
Director, President and Treasurer
By: /S/ KIM I. PRESSMAN
-------------------------------------------
Kim I. Pressman
Vice President and Chief Financial Officer
By: /S/ MICHAEL WASSERMAN
-------------------------------------------
Michael Wasserman
Vice President and Chief Accounting Officer
Dated: February 26, 1999
F-197
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer
and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer, and
By: /s/ ROBERT PRICE Treasurer (Principal March 31, 1999
- ----------------------------- Executive Officer)
Robert Price
By: /s/ KIM I. PRESSMAN Chief Financial Officer March 31, 1999
- -----------------------------
Kim I. Pressman
By: /s/ MICHAEL WASSERMAN Chief Accounting Officer March 31, 1999
- -----------------------------
Michael Wasserman
F-198
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PANAMA CITY COMMUNICATIONS, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-199
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to
the Partnership's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PANAMA CITY CELLULAR TELEPHONE COMPANY LTD.
By: Panama City Communications, Inc.
its managing partner
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on
this Form 10K/A to be signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-200
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to
the Partnership's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PANHANDLE CELLULAR PARTNERSHIP
By: Palmer Wireless Holdings, Inc.
its managing partner
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on
this Form 10K/A to be signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-201
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to
the Partnership's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
SAVANNAH CELLULAR LIMITED PARTNERSHIP
By: Palmer Wireless Holdings, Inc.
its managing partner
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on
this Form 10K/A to be signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-202
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
CEI COMMUNICATIONS, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-203
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to
the Partnership's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
MACON CELLULAR TELEPHONE SYSTEMS, L.P.
By: CEI Communications, Inc.
its managing partner
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on
this Form 10K/A to be signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-204
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to
the Partnership's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
COLUMBUS CELLULAR TELEPHONE COMPANY
By: Palmer Wireless Holdings, Inc.
its managing partner
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on
this Form 10K/A to be signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-205
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to
the Partnership's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALBANY CELLULAR PARTNERS
By: Palmer Wireless Holdings, Inc.
its managing partner
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on
this Form 10K/A to be signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-206
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA
By: Palmer Wireless Holdings, Inc.
its managing partner
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-207
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
MONTGOMERY CELLULAR HOLDING CO., INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-208
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
MONTGOMERY CELLULAR TELEPHONE COMPANY, INC.
/s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-209
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-210
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOTHAN CELLULAR TELEPHONE COMPANY, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-211
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PALMER WIRELESS HOLDINGS, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-212
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS II, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-213
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS III, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-214
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS IV, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-215
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS V, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-216
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS VI, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-217
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS VII, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-218
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS VIII, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-219
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Company's Statement on this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS IX, INC.
By: /s/ ROBERT PRICE
----------------------------------------------
Robert Price
Director, President, Chief Executive Officer,
Assistant Secretary and Treasurer
Pursuant to the requirements of Section 13 and 15(d) of the Securities and
Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this
Form 10K/A to be signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Director, President, Chief
Executive Officer,
/s/ ROBERT PRICE Assistant Secretary and March 31, 1999
- ----------------------------- Treasurer (Principal
Robert Price Financial Officer and
Principal Executive
Officer)
/s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999
- ----------------------------- Assistant Treasurer
Kim I. Pressman (Accounting Officer)
F-220
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
2.1 The Merger Agreement, incorporated by reference to Registration Statement
on Form S-4 of the Company (File No. 333-36253)
3.1 Certificate of Incorporation of PCW, as amended, incorporated by reference
to Registration Statement on Form S-4 of the Company (File No. 333-36253)
3.2 By-laws of PCW, incorporated by reference to Registration Statement on
Form S-4 of the Company (File No. 333-36253)
4.1 Indenture to 11 3/4% Senior Subordinated Notes due 2007 between PCW and
Bank of Montreal Trust Company, as Trustee (including form of Senior
Subordinated Note), incorporated by reference to Registration Statement on
Form S-4 of the Company (File No. 333-36253)
10.1 Credit Agreement dated as of September 30, 1997 among Holdings, PCW, the
lenders listed therein, DLJ Capital Funding, Inc., as syndication agent
and Bank of Montreal, Chicago branch, as administrative agent,
incorporated by reference to Registration Statement on Form S-4 of the
Company (File No. 333-36253)
10.2 Fort Myers Sale Agreement, incorporated by reference to Registration
Statement on Form S-4 of the Company (File No. 333-36253)
10.3 Georgia Sale Agreement, incorporated by reference to Registration
Statement on Form S-4 of the Company (File No. 333-36253)
10.4 Ryan Agreement, incorporated by reference to Registration Statement on
Form S-4 of the Company (File No. 333-36253)
10.5 Wisehart Agreement, incorporated by reference to Registration Statement on
Form S-4 of the Company (File No. 333-36253)
10.6 Meehan Agreement, incorporated by reference to Registration Statement on
Form S-4 of the Company (File No. 333-36253)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 109,137
<SECURITIES> 0
<RECEIVABLES> 20,508
<ALLOWANCES> 0
<INVENTORY> 3,940
<CURRENT-ASSETS> 216,634
<PP&E> 169,148
<DEPRECIATION> 24,320
<TOTAL-ASSETS> 1,263,734
<CURRENT-LIABILITIES> 43,668
<BONDS> 700,000
0
0
<COMMON> 0
<OTHER-SE> (12,031)
<TOTAL-LIABILITY-AND-EQUITY> 1,263,734
<SALES> 12,677
<TOTAL-REVENUES> 197,329
<CGS> 23,710
<TOTAL-COSTS> 152,303
<OTHER-EXPENSES> (19)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,510
<INCOME-PRETAX> (34,681)
<INCOME-TAX> 12,831
<INCOME-CONTINUING> (21,850)
<DISCONTINUED> 0
<EXTRAORDINARY> (25,344)
<CHANGES> 0
<NET-INCOME> (47,194)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
