<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
( X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
-----------------------
Commission file number
333-36253
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 13-3956940
<S> <C>
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 Rockefeller Plaza, 10020
New York, New York (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number (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 such filing
requirements for the past 90 days. Yes X No _____
The number of shares outstanding of the issuer's common stock as of July 10,
1998 was 100.
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<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets- December 31, 1997 and June 30, 1998............I-1
Condensed Consolidated Statements of Operations - Three months ended
June 30, 1997 and 1998 and six months ended June 30, 1997 and 1998....................I-2
Condensed Consolidated Statements of Stockholder's Equity.............................I-3
Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 1997
and 1998..............................................................................I-4
Notes to Condensed Consolidated Financial Statements..................................I-5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................I-7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................................II-1
ITEM 2. Changes in Securities................................................................II-1
ITEM 3. Defaults Upon Senior Securities......................................................II-1
ITEM 4. Submission of Matters to a Vote of Security Holders................................. II-1
ITEM 5.Other Information.....................................................................II-1
ITEM 6. Exhibits and Reports on Form 8-K.....................................................II-1
SIGNATURES...................................................................................II-2
</TABLE>
<PAGE>
Item 1. Financial Statements
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,926 $ 92,681
Trade accounts receivable, net of
allowance for doubtful accounts 15,940 18,682
Receivable from other cellular carriers 3,902 2,231
Deferred income taxes 5,402 3,257
Prepaid expenses and deposits 902 8,054
Inventory 1,280 2,607
----- -----
Total current assets $ 55,352 $ 127,512
Net property and equipment 151,141 145,455
Licenses, net of amortization 918,488 905,912
Other intangible assets and other assets,
at cost less accumulated amortization 19,498 22,175
------ ------
$1,144,479 $1,201,054
---------- ----------
---------- ----------
Liabilities and Equity
Current liabilities:
Current installments of long-term debt $ 2,812 $ --
Payable to Price Communications Corporation 2,328 1,400
Accounts payable 13,059 7,912
Accrued interest payable 11,361 13,001
Accrued salaries and employee benefits 2,324 2,760
Other accrued liabilities 16,031 12,193
Deferred revenue 3,755 4,094
Customer deposits 602 810
--- ---
Total current liabilities $ 52,272 $ 42,170
Long-term debt, excluding current installments 690,300 785,989
Accrued income taxes - long- term 50,491 43,219
Deferred income taxes 308,901 303,539
Minority interests 7,352 8,355
Commitments and contingencies -- --
Stockholder's equity 35,163 17,782
------ ------
$1,144,479 $1,201,054
---------- ----------
---------- ----------
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived
from the audited financial statements at that date, but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
I - 1
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
----------- ------- ----------- -------
For the three months For the six months
ended June 30, ended June 30,
------------------------- ----------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Service $ 45,920 $ 45,737 $ 88,140 $ 86,421
Equipment sales and installation 2,625 3,181 5,088 5,772
-------- -------- -------- --------
Total revenue $ 48,545 $ 48,918 $ 93,228 $ 92,193
-------- -------- -------- --------
Operating expenses:
Engineering, technical and other direct 8,124 7,111 15,554 13,862
Cost of equipment 5,250 6,019 11,057 11,515
Selling, general and administrative 13,844 13,588 27,204 25,305
Depreciation and amortization 8,305 11,165 16,586 22,553
-------- -------- -------- --------
Total operating expenses $ 35,523 $ 37,883 $ 70,401 $ 73,235
-------- -------- -------- --------
Operating income $ 13,022 $ 11,035 $ 22,827 $ 18,958
-------- -------- -------- --------
Other income (expense):
Interest expense, net (8,241) (18,082) (16,113) (35,907)
Other income (expense), net 91 (6) 162 (43)
-------- -------- -------- --------
Total other expense $ (8,150) $(18,088) $(15,951) $(35,950)
-------- -------- -------- --------
Income (loss) before minority interest
share of income, income taxes
and extraordinary item $ 4,872 $ (7,053) $ 6,876 $(16,992)
Minority interest share of income (451) (542) (782) (1,002)
-------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item $ 4,421 $ (7,595) $ 6,094 $(17,994)
Income tax (expense) benefit (1,898) 2,687 (2,394) 6,515
-------- -------- -------- --------
Income (loss) before extraordinary item $ 2,523 $ (4,908) $ 3,700 $(11,479)
Extraordinary item - write off of deferred finance costs,
net of income tax benefit of $3,935 -- (5,902) -- (5,902)
------ -------- -------- -------- --------
Net income (loss) $ 2,523 $(10,810) $ 3,700 $(17,381)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I - 2
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholder's Equity
($ in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
Class A paid-in Retained stockholder's
Shares Amount capital earnings equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at May 29, 1997 -- $ -- $ -- $ -- $ --
Capital contribution 100 -- 44,015 -- 44,015
Net loss -- -- -- (8,852) (8,852)
------ ------
Balances at December 31, 1997 100 $ -- $ 44,015 $ (8,852) $ 35,163
Net loss -- -- -- (17,381) (17,381)
------- -------
Balances at June 30, 1998 100 $ -- $ 44,015 $(26,233) $ 17,782
--- -- -------- -------- --------
--- -- -------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I - 3
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor Company
For the six months
ended June 30,
1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,700 $ (17,381)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 16,586 22,553
Minority interest share of income 782 1,003
Deferred income taxes 2,219 (3,217)
(Gain) loss on disposal of property (9) 37
Interest deferred and added to long-term debt -- 5,876
Payment of deferred interest (1,514) --
Decrease (increase) in trade accounts receivable 500 (2,742)
Decrease (increase) in inventory 2,085 (1,327)
Increase (decrease) in accounts payable and accrued expenses 1,799 (8,549)
Decrease in accrued income taxes - long -term -- (7,272)
Increase in accrued interest payable -- 1,640
Write off of deferred finance costs -- 9,837
Change in other accounts (576) 2,893
---- -----
Total adjustments $ 21,872 $ 20,732
--------- ---------
Net cash provided by operating activities $ 25,572 $ 3,351
--------- ---------
Cash flows from investing activities:
Capital expenditures (31,700) (4,171)
Proceeds from sales of property and equipment 201 --
Purchase of cellular systems (31,260) --
Purchases of minority interests (794) --
Increase in other intangible assets and other assets (150) --
----
Net cash used in investing activities $ (63,703) $ (4,171)
--------- ---------
Cash flows from financing activities:
Increase in short-term notes payable 955 --
Repayment of long-term debt (3,782) (437,999)
Repayment of advances from Price Communications Corporation (928)
Proceeds from long-term debt 41,000 525,000
Cash pledged for outstanding interest rate swap contracts (6,738)
Payment of debt issuance costs (13,760)
--------- ---------
Net cash provided by financing activities $ 38,173 $ 65,575
--------- ---------
Net increase in cash and cash equivalents $ 42 $ 64,755
Cash and cash equivalents at the beginning of period 1,698 27,926
----- ------
Cash and cash equivalents at the end of period $ 1,740 $ 92,681
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Income taxes (received) paid, net $ (617) $ 134
--------- ---------
--------- ---------
Interest paid $ 16,328 $ 29,177
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I - 4
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
($ in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies
Organization and Acquisition
Price Communications Cellular Holdings, Inc. ("Holdings" or the "Company"),
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, Price Communications Wireless, Inc. ("PCW"), a wholly
owned subsidiary of Holdings and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). In October, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc."
In June, 1997, PCW entered into an agreement to sell Palmer's Fort Myers,
Florida MSA as part of the financing of the merger (the "Fort Myers Sale"). In
October, 1997, the Fort Myers Sale was consummated, and generated proceeds to
the Company of approximately $166,000. The proceeds of the Fort Myers Sale were
used to fund a portion of the acquisition of Palmer. Accordingly, no gain or
loss was recognized on the Fort Myers Sale.
Also in connection with the merger, on October 21, 1997, PCC and PCW
entered into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. (the
"Georgia Sale Agreement") which provided for the sale by PCW of substantially
all of the assets used in the operation of the non-wireline cellular telephone
system serving the Georgia-1-Whitfield Rural Service Area ("Georgia-1"),
including the FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale
of the assets of Georgia-1 was consummated on December 30, 1997 for $24,200. In
January, 1998 the proceeds from the Georgia Sale were used to retire a portion
of the debt used to fund the Palmer acquisition. Accordingly, no gain or loss
was recognized on the Georgia Sale.
I - 5
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - (Continued)
($ in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies - (Continued)
Basis of Presentation
The accompanying condensed consolidated financial statements of Price
Communications Cellular Holdings, Inc. and subsidiaries (the "Company") have
been prepared without audit pursuant to Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financials. In the opinion of management, all adjustments (none of
which were other than normal recurring items) considered necessary for a fair
presentation have been included. The results of operations for the interim
periods reported are not necessarily indicative of results to be expected for
the year.
For financial reporting purposes, PCW revalued its assets and liabilities
as of October 1, 1997 to reflect the price paid by PCC to acquire 100% of its
Common Stock, a process generally referred to as "push down" accounting.
The Company's condensed consolidated Statement of Operations for the
second quarter of 1997 and for the six months ended June 30, 1997 and Statement
of Cash Flows for the six months ended June 30, 1997 reflect its historical
results of operations and cash flows and are referred to as the "Predecessor"
condensed consolidated financial statements. Accordingly, the accompanying
financial statements of the Predecessor and the Company are not comparable in
all material respects since those financial statements report results of
operations and cash flows of these two separate entities.
Reclassifications
Certain reclassifications have been made to the 1997 Statement of
Operations and Statement of Cash Flows to conform to the 1998 presentation.
(2) Long-Term Debt
In June 1998, PCW issued $525 million of 9.125% Senior Secured Notes
("9.125% Notes") due June 15, 2002 with interest payable semi-annually
commencing December 15, 1998. The 9.125% Notes contain covenants that restrict
the payment of dividends, incurrence of debt and sale of assets. The net
proceeds from the issuance of the 9.125% Notes ($511.2 million) were used to
retire the outstanding indebtedness under the Credit Facility ($425.1 million),
including interest and fees ($2.1 million), with the balance being used for
working capital. In addition, the unamortized portion of the deferred finance
fees relating to the credit facility was written off and recorded as an
extraordinary item on the Statement of Operations.
I - 6
<PAGE>
(3) Subsequent Event
In July 1998, the Company called for redemption of all of its
outstanding 13 1/2% Senior Secured Discount Notes due 2007. The redemption date
for the notes is August 1, 1998 and the redemption price per $1000 aggregate
principal amount is $711.61. The accreted value of the notes at that date will
approximate $91.0 million In addition, the Company is required to pay a premium
of approximately 20% of the outstanding balance or approximately $18.2 million.
The Company intends to finance the redemption out of the net proceeds of a new
offering of Senior Exchangeable Payable-in-Kind notes. The Company has filed a
preliminary prospectus with the Securities and Exchange Commission.
I - 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to facilitate an understanding and
assessment of significant changes and trends related to the financial condition
and results of operations of the Company. This discussion should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
related notes thereto. References to the Company also include its predecessor,
Palmer Wireless, Inc.
Results for the Predecessor for the three months ended June 30, 1997
and for the six months ended June 30, 1997 are based solely on the historical
operations of the Predecessor prior to the merger. The discussions for the three
months ended June 30, 1998 and for the six months ended June 30, 1998 are based
upon the results of the Company.
OVERVIEW
Price Communications Cellular Holdings, Inc. ("Holdings" or the "Company"),
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. ("Palmer).
In May, 1997, PCC, Price Communications Wireless, Inc. ("PCW"), a
wholly owned subsidiary of Holdings and Palmer entered into an Agreement and
Plan of Merger (the "Merger Agreement"). The Merger Agreement provided, among
other things, for the merger of PCW with and into Palmer with Palmer as the
surviving corporation (the "Merger"). In October, 1997, the Merger was
consummated and Palmer changed its name to "Price Communications Wireless, Inc."
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
June 30, 1998, the Company provided cellular telephone service to 347,150
subscribers in Alabama, Florida, Georgia, and South Carolina in a total of 16
licensed service areas, composed of eight Metropolitan Service Areas ("MSAs")
and eight Rural Service Areas ("RSAs"), with an aggregate estimated population
of 3.3 million. The Company sells its cellular telephone service as well as a
full line of cellular products and accessories principally through its network
of retail stores. The Company markets all of its products and services under the
nationally-recognized service mark CELLULAR ONE.
I - 8
<PAGE>
Market Ownership
The following is a summary of the Company's ownership interest in the
cellular telephone system in each licensed service area to which the Company
provided service at December 31, 1997 and June 30, 1998.
<TABLE>
<CAPTION>
<S> <C>
Cellular Service Area
Dothan, Alabama................................................... 94.6%
Montgomery, Alabama............................................... 92.8
Albany, Georgia................................................... 86.5
Augusta, Georgia.................................................. 100.0
Columbus, Georgia...................................................85.2
Macon, Georgia......................................................99.2
Savannah, Georgia...................................................98.5
Panama City, Florida................................................78.4
Alabama 8 - RSA....................................................100.0
Georgia 6 - RSA.....................................................96.3
Georgia 7 - RSA....................................................100.0
Georgia 8 - RSA....................................................100.0
Georgia 9 - RSA....................................................100.0
Georgia 10 - RSA.................................................. 100.0
Georgia 12 - RSA.................................................. 100.0
Georgia 13 - RSA....................................................86.5
</TABLE>
I - 9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the Company and its predecessor, for
the periods indicated, the percentage which certain amounts bear to total
revenue.
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
----------- ------- ----------- -------
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Service 94.6% 93.5% 94.5% 93.8%
Equipment sales and installation 5.4 6.5 5.5 6.2
--- --- --- ---
Total revenue 100.0 100.0 100.0 100.0
Operating expenses:
Engineering, technical and other direct:
Engineering and technical (1) 8.5 7.2 8.2 7.7
Other direct costs of services (2) 8.2 7.3 8.5 7.3
Cost of equipment (3) 10.8 12.3 11.8 12.4
Selling, general and administrative:
Sales and marketing (4) 8.6 11.1 8.5 10.5
Customer service (5) 6.3 6.3 6.5 6.5
General and administrative (6) 13.7 10.4 14.2 10.5
Depreciation and amortization 17.1 22.8 17.8 24.5
---- ---- ---- ----
Total operating expenses 73.2 77.4 75.5 79.4
Operating income 26.8% 22.6% 24.5% 20.6%
Operating income before depreciation and
amortization (7) 43.9% 45.4% 42.3% 45.1%
</TABLE>
- --------------------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, employee and agent commissions and advertising and promotional
expenses.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing billings.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation or as an alternative to net income, operating
income or any other measure of performance under generally accepted
accounting principles. The Company believes that operating income before
depreciation and amortization is viewed as a relevant supplemental
measure of performance in the cellular telephone industry.
I - 10
<PAGE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenue. Service revenues totaled $45.7 million for the second quarter
of 1998, a decrease of 0.4% from $45.9 million for the second quarter of 1997.
The decrease is primarily attributable to service revenues of the cellular
telephone systems sold in the Ft. Myers Sale and the Georgia Sale which totaled
$7.3 million in the second quarter of 1997. This was substantially offset by an
increase in revenues as the average number of subscribers rose to 336,936 in the
second quarter of 1998 from 318,238 in 1997.
Average monthly revenue per subscriber decreased 6.5% to $45.30 for the
second quarter of 1998 from $48.41 for the second quarter of 1997. This is, in
part, due to the trend common in the cellular telephone industry where on
average, new subscribers are using less airtime than existing subscribers.
Therefore, service revenues generally do not increase proportionately with the
increase in subscribers. In addition, the decline reflects more competitive rate
plans introduced into the Company's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $3.2 million for the second
quarter of 1998 compared to $2.6 million for the second quarter of 1997. The
increase is primarily due to a 28.4% increase in gross subscriber activations in
the second quarter of 1998 compared to 1997. As a percentage of revenue,
equipment sales and installation revenue increased to 6.5% in the second quarter
of 1998 from 5.4% in the second quarter of 1997.
Operating Expenses. Engineering and technical expenses decreased by
15.2% to $3.5 million for the second quarter of 1998 from $4.1 million in the
second quarter of 1997. As a percentage of revenue, engineering and technical
expenses decreased to 7.2% from 8.5% for the second quarter of 1998 and 1997,
respectively. Engineering and technical expenses attributable to the cellular
telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.5
million for the second quarter of 1997.
Other direct costs of service decreased to $3.6 million for the second
quarter of 1998 from $4.0 million for the second quarter of 1997 reflecting the
decrease in interconnection costs as a result of the Company's renegotiation of
interconnection agreements with the local exchange carriers in most of the
Company's markets. As a percentage of revenue, these costs of service declined
to 7.3% from 8.2%, reflecting improved interconnection agreements ,as well as
efficiencies gained from the growing subscriber base. Other direct costs of
service attributable to the cellular telephone systems sold in the Ft. Myers
Sale and Georgia Sale totaled $1.0 million for the second quarter of 1997.
The cost of equipment increased 14.6% to $6.0 million for the second
quarter of 1998 from $5.3 million for the second quarter of 1997, primarily as a
result of an increase in gross subscriber activations for the same period.
Equipment sales resulted in losses of $2.8 million in 1998 versus $2.6 million
in 1997. The Company sells equipment below its costs in an effort to address
market competition and improve market share. Cost of equipment attributable to
the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale
totaled $.9 million for the second quarter of 1997.
Selling, general and administrative expenses decreased 1.8% to $13.6
million in the second quarter of 1998 from $13.8 million in the second quarter
of 1997. These expenses are comprised of (i) sales and marketing costs, (ii)
customer service costs and (iii) general and administrative expenses.
Sales and marketing costs increased 31.8% to $5.4 million for the
second quarter of 1998 from $4.1 million for the same period in 1997. This
increase is primarily due to the 28.4% increase in gross subscriber activations
and the costs to acquire them, including advertising and commissions. As a
percentage of total revenue, sales and marketing costs increased to 11.1% for
the second quarter of 1998 compared to 8.6% for the second quarter of 1997. The
Company's cost to add a net subscriber, including
I - 11
<PAGE>
loss on telephone sales, decreased to $220 for the second quarter of 1998 from
$233 for the second quarter of 1997. This decrease in cost to add a net
subscriber was caused primarily by decreased losses from the Company's sales of
cellular telephones. Sales and marketing expenses attributable to the cellular
telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.5
million for the second quarter of 1997.
Customer service costs remained flat at $3.1 million for the second
quarter of 1998 and the second quarter of 1997. As a percentage of revenue,
customer service costs remained at 6.3% for the second quarter of both 1998 and
1997. Customer service expenses attributable to the cellular telephone systems
sold in the Ft. Myers Sale and Georgia Sale totaled $.4 million for the second
quarter of 1997.
General and administrative expenditures decreased 23.4% to $5.1 million
for the second quarter of 1998 from $6.7 million for the second quarter of 1997,
due primarily to expense savings and reorganization efforts. General and
administrative expenses decreased as a percentage of revenue to 10.4% in the
second quarter of 1998 from 13.7% in the second quarter of 1997. As the Company
continues to add more subscribers, and generates associated revenue, general and
administrative expenses should decrease as a percentage of total revenues. There
can be no assurance, however, that this forward-looking statement will not
differ materially from actual results due to unforeseen general and
administrative expenses and other factors. General and administrative expenses
attributable to the cellular telephone systems sold in the Ft. Myers Sale and
Georgia Sale totaled $.5 million for the second quarter of 1997.
Depreciation and amortization increased 34.4% to $11.2 million for the
second quarter of 1998 from $8.3 million for the second quarter of 1997. This
increase was primarily due to the depreciation and amortization associated with
the new carrying value of assets as a result of the "push down" of the purchase
price to the Company. As a percentage of revenue, depreciation and amortization
increased to 22.8% for the second quarter of 1998 compared to 17.1% for the
second quarter of 1997. Depreciation and amortization attributable to the
cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled
$.8 million for the second quarter of 1997.
Operating income decreased 15.3% to $11.0 million in the second quarter
of 1998, from $13.0 million for the second quarter of 1997. This decrease in
operating results is attributable primarily to the increase in depreciation and
amortization expense.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 119.4% to $18.1 million for the second quarter of 1998 from $8.2
million in the second quarter of 1997 primarily due to rate increases on
variable interest debt, and additional borrowings incurred as a result of the
recent merger and the early write off of deferred financing fees totaling $9.8
million related to the credit agreement refinanced in June 1998.
Income tax benefit was $2.7 million in the second quarter of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $1.9 million in the second quarter of
1997 based on earnings.
Net loss for the second quarter of 1998 was $10.8 million compared to
net income of $2.5 million for the second quarter of 1997. The decrease in net
income is primarily attributable to increases in interest expense, depreciation
and amortization expense and the $5.9 million net write-off of deferred finance
costs recorded as an extraordinary item.
I - 12
<PAGE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenue. Service revenues totaled $86.4 million for the first half of
1998, a decrease of 2.0% from $88.1 million for the first half of 1997. The
decrease is primarily attributable to service revenues of the cellular telephone
systems sold in the Ft. Myers Sale and the Georgia Sale which totaled $14.9
million in the first half of 1997. This was substantially offset by an increase
in revenues as the average number of subscribers rose to 328,378 in the first
half 1998 from 302,734 in 1997.
Average monthly revenue per subscriber decreased 8.7% to $43.86 for the
first half of 1998 from $48.06 for the first half of 1997. This is in part due
to the trend, common in the cellular telephone industry, where, on average, new
subscribers are using less airtime than existing subscribers. Therefore, service
revenues generally do not increase proportionately with the increase in
subscribers. In addition, the decline reflects more competitive rate plans
introduced into the Company's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $5.8 million for the first
half of 1998 compared to $5.1 million for the first half of 1997. The increase
is primarily due to a 15.6% increase in gross subscriber activations in the
first half of 1998 compared to 1997. As a percentage of revenue, equipment sales
and installation revenue increased to 6.2% in the first half of 1998 from 5.5%
in the first half of 1997.
Operating Expenses. Engineering and technical expenses decreased by
6.8% to $7.1 million for the first half of 1998 from $7.7 million in the first
half of 1997. As a percentage of revenue, engineering and technical expenses
decreased to 7.7% from 8.2% for the first half of 1998 and 1997, respectively.
Engineering and technical expenses attributable to the cellular telephone
systems sold in the Ft. Myers Sale and Georgia Sale totaled $.9 million for the
first half of 1997.
Other direct costs of service decreased to $6.7 million for the first
half of 1998 from $7.9 million for the first half of 1997 reflecting the
decrease in interconnection costs as a result of the Company's renegotiation of
interconnection agreements with the local exchange carriers in most of the
Company's markets. As a percentage of revenue, these costs of service declined
to 7.3% from 8.5%, reflecting improved interconnection agreements as well as
efficiencies gained from the growing subscriber base. Other direct costs of
service attributable to the cellular telephone systems sold in the Ft. Myers
Sale and Georgia Sale totaled $2.2 million for the first half of 1997.
The cost of equipment increased 4.1% to $11.5 million for the first
half of 1998 from $11.1 million for the first half of 1997, primarily as a
result of gross subscriber activations for the same period. Equipment sales
resulted in losses of $5.7 million in 1998 versus $6.0 million in 1997. The
Company sells equipment below its costs in an effort to address market
competition and improve market share. Cost of equipment attributable to the
cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled
$1.8 million for the first half of 1997.
Selling, general and administrative expenses decreased 6.9% to $25.3
million in the first half of 1998 from $27.2 million in the first half of 1997.
These expenses are comprised of (i) sales and marketing costs, (ii) customer
service costs and (iii) general and administrative expenses.
Sales and marketing costs increased 21.5% to $9.7 million for the first
half of 1998 from $8.0 million for the same period in 1997. This increase is
primarily due to the 15.6% increase in gross subscriber activations and the
costs to acquire them, including advertising and commissions. As a percentage of
total revenue, sales and marketing costs increased to 10.5% for the first half
of 1998 compared to 8.5% for the first half of 1997. The Company's cost to add a
net subscriber, including loss on telephone sales, decreased to $221 for the
first half of 1998 from $234 for the first half of 1997. This decrease in cost
to add a net subscriber was caused primarily by decreased losses from the
Company's sales of cellular telephones. Sales and marketing expenses
attributable to the cellular telephone systems sold in the Ft. Myers Sale and
Georgia Sale totaled $.9 million for the first half of 1997.
I - 13
<PAGE>
Customer service costs remained flat at $6.0 million for the first half
of 1998 and the first half of 1997. As a percentage of revenue, customer service
costs remained at 6.5% for the first half of both 1998 and 1997. Customer
service expenses attributable to the cellular telephone systems sold in the Ft.
Myers Sale and Georgia Sale totaled $.7 million for the first half of 1997.
General and administrative expenditures decreased 26.8% to $9.7 million
for the first half of 1998 from $13.2 million for the first half of 1997, due
primarily to expense savings and reorganization efforts. General and
administrative expenses decreased as a percentage of revenue to 10.5% in the
first half of 1998 from 14.2% in the first half of 1997. As the Company
continues to add more subscribers, and generates associated revenue, general and
administrative expenses should decrease as a percentage of total revenues. There
can be no assurance, however, that this forward-looking statement will not
differ materially from actual results due to unforeseen general and
administrative expenses and other factors. General and administrative expenses
attributable to the cellular telephone systems sold in the Ft. Myers Sale and
Georgia Sale totaled $1.2 million for the first half of 1997.
Depreciation and amortization increased 35.9% to $22.6 million for the
first half of 1998 from $16.6 million for the first half of 1997. This increase
was primarily due to the depreciation and amortization associated with the new
carrying value of assets as a result of the "push down" of the purchase price to
the Company. As a percentage of revenue, depreciation and amortization increased
to 24.5% for the first half of 1998 compared to 17.8% for the first half of
1997. Depreciation and amortization attributable to the cellular telephone
systems sold in the Ft. Myers Sale and Georgia Sale totaled $1.5 million for the
first half of 1997.
Operating income decreased 16.9% to $19.0 million in the first half of
1998, from $22.8 million for the first half of 1997. This decrease in operating
results is attributable primarily to the increase in depreciation and
amortization expense.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 122.8% to $35.9 million for the first half of 1998 from $16.1 million
in the first half of 1997 primarily due to rate increases on variable interest
debt, additional borrowings incurred as a result of the recent merger and the
early write off of deferred financing fees totaling $9.8 million related to the
credit agreement refinanced in June 1998. .
Income tax benefit was $6.5 million in the first half of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $2.4 million in the first half of 1997
based on earnings.
Net loss for the first half of 1998 was $17.4 million compared to net
income of $3.7 million for the first half of 1997. The decrease in net income is
primarily attributable to increases in interest expense, depreciation and
amortization expense and the $5.9 million net write off of deferred finance
costs recorded as an extraordinary item.
I-14
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUN-30-1997 JAN-31-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
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0 0
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<INTEREST-EXPENSE> (8,241) (18,082)
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<INCOME-CONTINUING> 2,523 (4,908)
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