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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
333-36253
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PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 13-3956941
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 Rockefeller Plaza, 10020
New York, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number (212) 757-5600
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Securities registered pursuant to Section 12(b) or Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the issuer's common stock as of October 20,
1998 was 100.
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<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
September 30, 1998 and December 31,1997........................... I-1
Condensed Consolidated Statements of Operations -
Three months ended September 30, 1997 and 1998
and nine months ended September 30, 1997 and 1998 ................ I-2
Condensed Consolidated Statements of Stockholder's
Equity............................................................ I-3
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1998..................... I-4
Notes to Condensed Consolidated Financial
Statements........................................................ I-5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. I-8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... II-1
ITEM 2. Changes in Securities........................................... II-1
ITEM 3. Defaults Upon Senior Securities - None.......................... II-1
ITEM 4. Submission of Matters to a Vote of Security Holders............. II-1
ITEM 5. Other Information............................................... II-1
ITEM 6. Exhibits and Reports on Form 8-K................................ II-1
SIGNATURES................................................................ II-2
<PAGE>
Item 1. Financial Statements
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
(Audited)
September 30, December 31,
1998 1997
------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 189,737 $ 27,926
Trade accounts receivable, net of
allowance for doubtful accounts 21,036 15,940
Receivable from other cellular carriers 2,136 3,902
Deferred income taxes 3,257 5,402
Prepaid expenses and deposits 9,985 902
Inventory 3,350 1,280
----------- -----------
Total current assets $ 229,501 $ 55,352
Net property and equipment 141,566 151,141
Licenses, net of amortization 899,902 918,488
Other intangible assets and other assets,
at cost less accumulated amortization 23,835 19,498
----------- -----------
$ 1,294,804 $ 1,144,479
=========== ===========
Liabilities and Equity
Current liabilities:
Current installments of long-term debt $ -- $ 2,812
Payable to Price Communications Corporation 1,398 2,328
Accounts payable 11,332 13,059
Accrued interest payable 20,293 11,361
Accrued salaries and employee benefits 2,630 2,324
Other accrued liabilities 12,018 16,031
Deferred revenue 4,886 3,755
Customer deposits 868 602
----------- -----------
Total current liabilities $ 53,425 $ 52,272
Long-term debt, excluding current installments 901,911 690,300
Accrued income taxes - long term 30,857 50,491
Deferred income taxes (1) 303,539 308,901
Minority interests 9,067 7,352
----------- -----------
Total liabilities $ 1,298,799 $ 1,109,316
----------- -----------
Commitments and contingencies -- --
Stockholder's equity (3,995) 35,163
----------- -----------
$ 1,294,804 $ 1,144,479
=========== ===========
(1) This accounting line represents the future tax consequences, if any,
attributable to the currently reported differences between the financial
statement carrying amounts of existing assets and their tax basis. These assets
(largely intangibles) will be amortized by the Company and offset against this
deferred tax balance without any cash consequences. This amount less the
amortization would become due only if the assets are sold by the Company in a
taxable transaction.
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>
Company Predecessor Company Predecessor
---------- ------------- ----------- ------------
For the three months For the nine months
ended September 30, ended September 30,
------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service $ 48,517 $ 45,983 $ 134,938 $ 134,123
Equipment sales and installation 3,403 2,525 9,175 7,613
----------- ----------- ----------- -----------
Total revenue $ 51,920 $ 48,508 $ 144,113 $ 141,736
----------- ----------- ----------- -----------
Operating expenses:
Engineering, technical and other direct 8,118 7,745 21,980 23,301
Cost of equipment 5,886 5,055 17,401 16,111
Selling, general and administrative 14,683 13,811 39,988 41,014
Depreciation and amortization 11,168 8,912 33,721 25,498
----------- ----------- ----------- -----------
Total operating expenses $ 39,855 $ 35,523 $ 113,090 $ 105,924
----------- ----------- ----------- -----------
Operating income $ 12,065 $ 12,985 $ 31,023 $ 35,812
----------- ----------- ----------- -----------
Other income (expense):
Interest expense, net $ (24,879) $ (8,354) $ (60,786) $ (24,468)
Other income (expense), net (55) 46 (98) 208
----------- ----------- ----------- -----------
Total other expense $ (24,934) $ (8,308) $ (60,884) $ (24,260)
----------- ----------- ----------- -----------
Income (loss) before minority interest
share of income, income taxes
and extraordinary item $ (12,869) $ 4,677 $ (29,861) $ 11,552
Minority interest share of income (713) (528) (1,715) (1,310)
----------- ----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item $ (13,582) $ 4,149 $ (31,576) $ 10,242
Income tax (expense) benefit 5,051 (1,759) 11,566 (4,153)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item $ (8,531) $ 2,390 $ (20,010) $ 6,089
Extraordinary item - write-off of deferred finance
costs and premium on early extinguishment of debt
(net of income tax benefit of $7,311 and $11,246
respectively) (13,246) - (19,148) -
----------- ----------- ----------- -----------
Net income (loss) $ (21,777) $ 2,390 $ (39,158) $ 6,089
=========== =========== =========== ===========
</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
Class A Additional Total
--------------------- paid-in Retained stockholder's
Shares Amount capital earnings equity
-------- ------- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at May 29, 1997 -- $ -- $ -- $ -- $ --
Capital contribution 100 -- 44,015 -- 44,015
Net loss -- -- -- (8,852) (8,852)
-------- ------- ------- -------- --------
Balances at December 31, 1997 100 $ -- $44,015 $ (8,852) $ 35,163
Net loss -- -- -- (39,158) (39,158)
-------- ------- ------- -------- --------
Balances at September 30, 1998 100 $ -- $44,015 $(48,010) $ (3,995)
======== ======= ======= ======== ========
</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>
Company Predecessor
---------- -----------
For the nine months
ended September 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (39,158) $ 6,089
--------- ---------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 33,797 25,498
Minority interest share of income 1,715 1,310
Deferred income taxes (3,217) 3,943
(Gain) loss on disposal of property 151 7
Premium on early extinguishment of debt 18,194 --
Interest deferred and added to obligation of Parent Company 1,911 --
Payment of deferred interest -- (1,514)
Decrease (increase) in trade accounts receivable (5,096) 473
Decrease (increase) in inventory (2,070) 2,800
Increase (decrease) in accounts payable and accrued expenses (5,434) 536
Decrease in accrued income taxes - long term (19,634) --
Increase in accrued interest payable 8,932 --
Write-off of deferred finance costs 12,200 --
Change in other accounts 4,825 (351)
--------- ---------
Total adjustments $ 46,274 $ 32,702
--------- ---------
Net cash provided by operating activities $ 7,116 $ 38,791
--------- ---------
Cash flows from investing activities:
Capital expenditures (5,544) (40,757)
Proceeds from sales of property and equipment -- 201
Purchase of cellular systems -- (31,469)
Purchases of minority interests -- (956)
Increase in other intangible assets and other assets -- (778)
--------- ---------
Net cash used in investing activities $ (5,544) $ (73,759)
--------- ---------
Cash flows from financing activities:
Decrease in short-term notes payable -- (1,366)
Repayment of long-term debt (518,112) (3,782)
Repayment of advances from Price Communications Corporation (930) --
Proceeds from long-term debt 725,000 41,000
Premium on early extinguishment of debt (18,194) --
Cash pledged for outstanding interest rate swap contracts (9,302) --
Payment of debt issuance costs (18,223) --
Exercise of stock options -- 999
--------- ---------
Net cash provided by financing activities $ 160,239 $ 36,851
--------- ---------
Net increase in cash and cash equivalents $ 161,811 $ 1,883
Cash and cash equivalents at the beginning of period 27,926 1,698
--------- ---------
Cash and cash equivalents at the end of period $ 189,737 $ 3,581
========= =========
Supplemental disclosure of cash flow information:
Income taxes (received) paid, net $ 643 $ (736)
========= =========
Interest paid $ 82,620 $ 27,471
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-4
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
($ in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies
Organization and Acquisition
Price Communications Wireless, Inc. ("PCW" or the "Company"), a
wholly-owned subsidiary of Price Communications Cellular Holdings, Inc.
("Holdings"), a wholly-owned subsidiary of Price Communications Cellular, Inc.,
a wholly owned subsidiary of Price Communications Corporation ("PCC"), was
incorporated on May 29, 1997 in connection with the purchase of Palmer Wireless,
Inc. and subsidiaries ("Palmer" or the "Predecessor").
In May, 1997, PCC, PCW and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). In October, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc."
In June, 1997, PCW entered into an agreement to sell Palmer's Fort Myers,
Florida MSA as part of the financing of the merger (the "Fort Myers Sale"). In
October, 1997, the Fort Myers Sale was consummated, and generated proceeds to
the Company of approximately $166,000. The proceeds of the Fort Myers Sale were
used to fund a portion of the acquisition of Palmer. Accordingly, no gain or
loss was recognized on the Fort Myers Sale.
Also in connection with the merger, on October 21, 1997, PCC and PCW
entered into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. (the
"Georgia Sale Agreement") which provided for the sale by PCW of substantially
all of the assets used in the operation of the non-wireline cellular telephone
system serving the Georgia-1-Whitfield Rural Service Area ("Georgia-1"),
including the FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale
of the assets of Georgia-1 was consummated on December 30, 1997 for $24,200. In
January, 1998 the proceeds from the Georgia Sale were used to retire a portion
of the debt used to fund the Palmer acquisition. Accordingly, no gain or loss
was recognized on the Georgia Sale.
I-5
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
($ in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies - (Continued)
Basis of Presentation
The accompanying condensed consolidated financial statements of Price
Communications Wireless, Inc. and subsidiaries (the "Company") have been
prepared without audit pursuant to Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financials. In the opinion of management, all adjustments (none of
which were other than normal recurring items) considered necessary for a fair
presentation have been included. The results of operations for the interim
periods reported are not necessarily indicative of results to be expected for
the year.
For financial reporting purposes, PCW revalued its assets and liabilities
as of October 1, 1997 to reflect the price paid by PCC to acquire 100% of its
Common Stock, a process generally referred to as "push down" accounting.
The Condensed Consolidated Statement of Operations for the third quarter
of 1997 and for the nine months ended September 30, 1997 and Statement of Cash
Flows for the nine months ended September 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 were used to retire outstanding
indebtedness under the Credit Facility, including interest.
In August 1998, the Company redeemed all of its outstanding 13 1/2% Senior
Secured Discount Notes due 2007 ("13 1/2% 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, the Company
was required to pay a premium of approximately 20% of the outstanding balance or
I-6
<PAGE>
approximately $18.2 million. The Company financed the redemption out of the net
proceeds of a new $200,000 offering of 11 1/4% Senior Exchangeable
Payable-in-Kind notes due 2008 ("11 1/4% Notes"). 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
would be reduced by 0.5%.
The Company's Condensed Consolidated Balance Sheets include $201,911
(including accrued interest) at September 30, 1998 of the 11 1/4% Notes and
$80,112 at December 31, 1997 of the 13 1/2% Notes..
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.
Discussions of results for the Predecessor for the three and nine months
ended September 30, 1997 are derived solely from the historical operations of
the Predecessor prior to the merger and include the results of operations of the
Fort Myers and GA-1 markets sold in the fourth quarter of 1997. The discussions
for the three and nine months ended September 30, 1998 are based upon the
results of the Company which may not be comparable to the 1997 results of it
predecessor because of the sales of properties previously mentioned. Although
Management's Discussion and Analysis is done on a purely historical basis, the
following comparative pro forma data is presented excluding the Fort Myers and
GA-1 markets from the results for 1997:
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue $51,920 $40,916 $144,113 $118,321
Operating expenses 39,855 29,808 113,090 88,444
Operating income 12,065 11,108 31,023 29,877
EBITDA (1) 23,233 18,498 64,744 50,933
(1) Earnings before interest, taxes, depreciation, and amortization.
OVERVIEW
Price Communications Wireless, Inc. ("PCW" or the "Company"), a
wholly-owned subsidiary of Price Communications Cellular Holdings, Inc.
("Holdings"), a wholly-owned subsidiary of Price Communications Corporation
Cellular, Inc., a wholly owned subsidiary of Price Communications Corporation
("PCC"), was incorporated on May 29, 1997 in connection with the purchase of
Palmer Wireless, Inc. ("Palmer).
In May, 1997, PCC, PCW and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). In October, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc."
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
September 30, 1998, the Company provided cellular telephone service to 364,189
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 CELLULARONE.
During the course of the year, the Company has been engaged and continues
to be engaged in preliminary discussions and negotiations with respect to
potential acquisitions and exchanges, all with the object of being accretive in
the long term for shareholders and bondholders. There can be no assurances that
the Company will be successful in consummating any of such transactions or as to
the terms thereof.
I-8
<PAGE>
Market Ownership
The following is a summary of the Company's ownership interests in the
cellular telephone system in each licensed service area to which the Company
provided service at December 31, 1997 and September 30, 1998.
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
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>
Company Predecessor Company Predecessor
------- ----------- ------- -----------
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Service ................................... 93.4% 94.8% 93.6% 94.6%
Equipment sales and installation .......... 6.6 5.2 6.4 5.4
---- ---- ---- ----
Total revenue ..................... 100.0 100.0 100.0 100.0
Operating expenses:
Engineering, technical and other direct:
Engineering and technical(1) ......... 7.9 7.8 7.8 8.0
Other direct costs of services(2) .... 7.7 8.1 7.4 8.4
Cost of equipment(3) ...................... 11.3 10.4 12.1 11.4
Selling, general and administrative:
Sales and marketing(4) ............... 9.7 8.2 10.2 8.4
Customer service(5) .................. 6.5 6.0 6.5 6.3
General and administrative(6) ........ 12.1 14.3 11.1 14.2
Depreciation and amortization ............. 21.3 18.4 23.4 18.0
---- ---- ---- ----
Total operating expenses .......... 76.8 73.2 78.5 74.7
Operating income .......................... 23.2% 26.8% 21.5% 25.3%
Operating income before depreciation
and Amortization(7) ..................... 44.7% 45.2% 44.9% 43.3%
</TABLE>
- ----------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, employee and agent commissions and advertising and promotional
expenses.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing billings.
(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 September 30, 1998 Compared to Three Months Ended September
30, 1997
Revenue. Service revenues totaled $48.5 million for the third quarter of
1998, an increase of 5.5% from $46.0 million for the third quarter of 1997. The
increase is primarily attributable to the increase in the average number of
subscribers to 356,804 in the third quarter of 1998 from 284,829 in 1997
(excluding subscribers in the two markets sold in 1997). This was significantly
offset by the loss of service revenues of the cellular telephone systems sold in
the Ft. Myers Sale and the Georgia Sale which totaled $7.2 million in the third
quarter of 1997.
Average monthly revenue per subscriber decreased to $46.27 for the third
quarter of 1998 from $46.51 for the third quarter of 1997. This minimal decrease
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.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $3.4 million for the third
quarter of 1998 compared to $2.5 million for the third quarter of 1997. The
increase is primarily due to a 25.3% increase in gross subscriber activations in
the third quarter of 1998 compared to 1997. As a percentage of revenue,
equipment sales and installation revenue increased to 6.6% in the third quarter
of 1998 from 5.2% in the third quarter of 1997.
Operating Expenses. Engineering and technical expenses increased by 7.9%
to $4.1 million for the third quarter of 1998 from $3.8 million in the third
quarter of 1997. As a percentage of revenue, engineering and technical expenses
increased to 7.9% from 7.8% for the third 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 $.4
million for the third quarter of 1997.
Other direct costs of service amounted to $4.0 million for the third
quarter of 1998 and 1997. As a percentage of revenue, these costs of service
declined to 7.7% from 8.1%, 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 $.9 million for the third quarter of 1997.
The cost of equipment increased 15.7% to $5.9 million for the third
quarter of 1998 from $5.1 million for the third quarter of 1997, primarily as a
result of an increase in gross subscriber activations for the comparable period.
Equipment sales resulted in losses of $2.5 million in 1998 and 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 $1.1 million for the
third quarter of 1997.
Selling, general and administrative expenses increased 6.5% to $14.7
million in the third quarter of 1998 from $13.8 million in the third 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 25.0% to $5.0 million for the third
quarter of 1998 from $4.0 million for the same period in 1997. This increase is
primarily due to the 25.3% 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 9.7% for the third quarter
of 1998 compared to 8.2% for the third quarter of 1997. The Company's cost to
add a net subscriber, including loss on telephone sales, decreased to $440 for
the third quarter of 1998 from $597 for the third 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 $.3 million for the third quarter of 1997.
I-11
<PAGE>
Customer service costs increased 17.2% to $3.4 million for the third
quarter of 1998 from $2.9 million for the third quarter of 1997. As a percentage
of revenue, customer service costs increased to 6.5% for the third quarter of
1998 from 6.0% for the same period in 1997. Customer service expenses
attributable to the cellular telephone systems sold in the Ft. Myers Sale and
Georgia Sale totaled $.4 million for the third quarter of 1997.
General and administrative expenditures decreased 9.5% to $6.3 million
for the third quarter of 1998 from $6.9 million for the third quarter of 1997,
due primarily to expense savings and reorganization efforts. General and
administrative expenses decreased as a percentage of revenue to 12.1% in the
third quarter of 1998 from 14.3% in the third 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 third quarter of 1997.
Depreciation and amortization increased 25.8% to $11.2 million for the
third quarter of 1998 from $8.9 million for the third 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 21.5% for the third quarter of 1998 compared to 18.4% for the third
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 third quarter of 1997.
Operating income decreased 7.1% to $12.1 million in the third quarter of
1998, from $13.0 million for the third 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 to $24.9 million for the third quarter of 1998 from $8.4 million in
the third quarter of 1997 primarily due to additional borrowings and
refinancings incurred as a result of the recent merger and to a lesser extant
higher rates of interest.
Income tax benefit was $5.1 million in the third quarter of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $1.8 million in the third quarter of
1997 based on earnings.
Net loss for the third quarter of 1998 was $21.8 million compared to net
income of $2.4 million for the third quarter of 1997. The decrease in net income
is primarily attributable to increases in interest expense, depreciation and
amortization expense, the $13.2 million write-off of deferred finance costs and
the premium on early extinguishment of debt recorded as an extraordinary item.
I-12
<PAGE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Revenue. Service revenues totaled $135.0 million for the first nine months
of 1998, a slight increase from $134.1 million for the same period in 1997. The
increase is primarily attributable to an increase in the average number of
subscribers to 336,763 in the first nine months of 1998 from 270,335 in 1997
after adjusting for the sale of the Fort Myers and GA-1 markets. Offsetting this
increase is the loss of service revenues of the cellular telephone systems sold
in the Ft. Myers Sale and the Georgia Sale which totaled $22.1 million for the
first nine months of 1997.
Average monthly revenue per subscriber decreased 5.1% to $45.08 for the
first nine months of 1998 from $47.52 for the same period in 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 $9.2 million for the first
nine months of 1998 compared to $7.6 million for the first nine months of 1997.
The increase is primarily due to a 35.0% increase in gross subscriber
activations for the period in 1998 compared to 1997(adjusted for the sale of the
two markets). As a percentage of revenue, equipment sales and installation
revenue increased to 6.4% in the first nine months of 1998 from 5.4% for the
same period in 1997.
Operating Expenses. Engineering and technical expenses decreased slightly
to $11.3 million for the first nine months of 1998 from $11.5 million in the
first nine months of 1997. As a percentage of revenue, engineering and technical
expenses decreased to 7.8% from 8.0% for the comparable nine month periods in
1998 and 1997, respectively. Engineering and technical expenses attributable to
the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale
totaled $1.4 million for the first nine months of 1997.
Other direct costs of service decreased to $10.7 million for the first
nine months of 1998 from $11.8 million for the same period in 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 7.4% from 8.0%, 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 $3.1 million for the first nine months of 1997.
The cost of equipment increased 8.0% to $17.4 million for the nine moth
period ending September 30, 1998 from $16.1 million for the same period in 1997,
primarily as a result of an increase in gross subscriber activations for the
same period. Equipment sales resulted in losses of $8.2 million in 1998 versus
$8.5 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 $2.9 million for the comparable period in 1997.
Selling, general and administrative expenses decreased 2.4% to $40.0
million for the first nine months of 1998 from $41.0 million for the same period
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 23.5% to $14.7 million for the first
nine months of 1998 from $11.9 million for the same period in 1997. This
increase is primarily due to the 35.0% 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 10.2% for
the first nine months of 1998 compared to 8.4% for the same period in 1997. The
Company's cost to add a net subscriber, including loss on telephone sales,
decreased to $420 for the first nine months of 1998 from $510 for the first nine
months
I-13
<PAGE>
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 $1.2 million for the same period in
1997.
Customer service costs increased to $9.3 million for the first nine months
of 1998 compared to $8.9 million for the same period in 1997. The increase in
subscribers attributes to the increase in customer service costs. As a
percentage of revenue, customer service costs increased to 6.5% from 6.3%.
Customer service expenses attributable to the cellular telephone systems sold in
the Ft. Myers Sale and Georgia Sale totaled $1.1 million for the first nine
months of 1997.
General and administrative expenditures decreased 20.8% to $16.0 million
for the first nine months of 1998 from $20.2 million for the comparable period
in 1997, due primarily to expense savings and reorganization efforts. General
and administrative expenses decreased as a percentage of revenue to 11.1% in the
first nine months of 1998 from 14.2% for the same period in 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 nine month period in 1997.
Depreciation and amortization increased 32.2% to $33.7 million for the
first nine months of 1998 from $25.5 million for the same period in 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 23.4% for the first nine months of 1998 compared to 18.0% for the
first nine months of 1997. Depreciation and amortization attributable to the
cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled
$2.3 million for the period in 1997.
Operating income decreased 13.4% to $31.0 million for the first nine
months half of 1998, from $35.8 million for the same period in 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 to $60.8 million for the nine month period ending September 30, 1998
from $24.5 million for the first nine months of 1997 primarily due to additional
borrowings incurred as a result of the recent merger and some rate increases.
Income tax benefit was $11.6 million for the first nine months of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $4.2 million in the first nine months
of 1997 based on earnings.
Net loss for the first nine months of 1998 was $39.2 million compared to
net income of $6.1 million for the comparable period in 1997. The decrease in
net income is primarily attributable to increases in interest expense,
depreciation and amortization expense and the $19.1 million net write-off of
deferred finance costs and the premium associated with the early extinguishment
of debt (both net of taxes) recorded as an extraordinary item.
I-14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. Historically, the Company has met
its capital requirements primarily through equity contributions, bank debt, and,
to a lesser extent, operating cash flow.
In July 1998, the Company called for redemption of all its outstanding 13
1/2% Senior Secured Discount Notes due 2007. The notes were redeemed in August
1998 at the redemption price per $1000 aggregate principal amount of $711.61.
The accreted value of the notes approximated $91.0 million. In addition, the
Company was required to pay a premium of approximately 20% of the outstanding
balance or approximately $18.2 million. The Company financed the redemption out
of the net proceeds of a new offering of 11 1/4% Senior Exchangeable
Payable-in-Kind notes due 2008.
In June 1998, PCW issued $525 million of 9.125% Senior Secured Notes
("9.125% Notes") due June 15, 2002 with interest payable semi-annually
commencing December 15, 1998. The 9.125% Notes contain covenants that restrict
the payment of dividends, incurrence of debt and sale of assets. These Notes
replaced the existing credit facility which approximated $425.1 million as of
the redemption date.
In July 1997, PCW issued $175 million of 11.75% Senior Subordinated Notes
("11.75% Notes") due July 15, 2007 with interest payable semi-annually
commencing January 15, 1998. The 11.75% Notes contain covenants that restrict
the payment of dividends, incurrence of debt and sale of assets.
In August 1997 Holdings issued 153,400 units, consisting of Notes and
Warrants, in exchange for $80 million. The Notes accrete at a rate of 13.5%
compounded semi-annually, to an aggregate principal amount of approximately
$153.4 million by August 1, 2002. Cash interest will not commence to accrue on
the Notes prior to August 2, 2002.
YEAR 2000 IMPACT
The Company has studies the impact of the year 2000 on its operational and
financial systems and has developed estimates of costs of implementing changes
or upgrades where necessary. Preliminary estimates indicate that these costs
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 supplies and other
entities. It is anticipated that a substantial portion of the costs will be
incurred in the next two years and will be expenses as incurred.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
I-15
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRICE COMMUNICATIONS CELLULAR HOLDINGS INC, INC.
Date: October 23, 1998 By: /s/ Robert Price
-----------------------------
Robert Price
Director, President and Treasurer
II-2
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ----- -----------
27 Financial Data Schedule
II-3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 189,737
<SECURITIES> 0
<RECEIVABLES> 21,036
<ALLOWANCES> 0
<INVENTORY> 3,350
<CURRENT-ASSETS> 129,501
<PP&E> 141,566
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,294,804
<CURRENT-LIABILITIES> 53,425
<BONDS> 901,911
0
0
<COMMON> 0
<OTHER-SE> (3,995)
<TOTAL-LIABILITY-AND-EQUITY> 1,294,804
<SALES> 9,175
<TOTAL-REVENUES> 144,113
<CGS> 17,401
<TOTAL-COSTS> 113,090
<OTHER-EXPENSES> (98)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (60,786)
<INCOME-PRETAX> (31,576)
<INCOME-TAX> 11,566
<INCOME-CONTINUING> (20,010)
<DISCONTINUED> 0
<EXTRAORDINARY> (19,148)
<CHANGES> 0
<NET-INCOME> (39,158)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
