<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1997 or
[_] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from to .
Commission file number 1-8309.
PRICE COMMUNICATIONS CORPORATION
---------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-2991700
- ------------------------------------- -------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
45 ROCKEFELLER PLAZA, SUITE 3201
NEW YORK, NEW YORK 10020
- ------------------------------------- -------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(212) 757-5600
---------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by sections 12, 13 or 15 (d) of the Securities
Exchange Act subsequent to the distribution of securities under the plan
confirmed by the court. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
5,483,881 shares of Common Stock, par value $.01 per share, outstanding as of
October 29, 1997.
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 1997
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
ITEM. 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1997 and December 31, 1996... 3
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1997 and 1996................................. 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September, 1997 and 1996........................................... 6
Notes to Consolidated Financial Statements......................... . . .. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................ . . . . 9
PART II--OTHER INFORMATION.................................................. 14
SIGNATURES................................................................ 15
</TABLE>
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 294,126 $ 83,357
Investment securities:
Trading securities - 4,046
Available-for-sale securities 304 8,695
Securities fair value adjustment 89 -
Trade accounts receivables, net of
allowance for doubtful accounts 15,956 489
Receivables from other cellular carriers 3,102 -
Net proceeds due from sale of cellular properties 191,028 -
Prepaid expenses 2,776 18
Inventory 1,811 -
------------- ------------
Total Current Assets 509,192 96,605
Net property, plant and equipment 145,571 159
Long-term investments 20,774 18,204
Licenses, net of amortization 799,081 -
Deferred tax asset 1,280 350
Notes receivable 540 540
Other intangible assets and other assets,
at cost less accumulated amortization 11,077 30
------------- ------------
Total Assets $ 1,487,515 $ 115,888
============= ============
Current Liabilities
Accounts payable and accrued expenses $ 25,511 $ 2,755
Accrued acquisition costs 13,741 -
Purchase price payable * 458,791 -
Other liabilities 6,642 3,311
------------- ------------
Total current liabilities 504,685 6,066
Long-term debt 637,486 -
Deferred and other income taxes 247,989 1,043
Minority interests 7,445 -
------------- ------------
Total liabilities 1,397,605 7,109
Stockholders' equity 89,910 108,779
------------- ------------
$ 1,487,515 $ 115,888
============= ============
</TABLE>
* On October 6, 1997, $445,000 of this payable was funded through a syndicated
senior loan facility and will be reflected as long-term debt.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($ in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
--------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
Service $ - $ - $ - $ -
Equipment sales and installation - - - -
Net media revenue - - - 2,962
------------ ------------ ----------- ------------
Total revenue - - - 2,962
------------ ------------ ----------- ------------
Operating expenses:
Media operating expenses - - - 2,132
Engineering, technical and other direct - - - -
Cost of equipment - - - -
Selling, general and administrative 392 584 1,721 1,794
Depreciation and amortization 161 12 186 455
------------ ------------ ----------- ------------
Total operating expenses 553 596 1,907 4,381
Operating (loss) Income (553) (596) (1,907) (1,419)
------------ ------------ ----------- ------------
Other income (expense):
Gain on sale of media properties - - - 95,452
Interest expense, net (3,741) (2) (3,789) (214)
Other income (expense), net 1,037 1,361 3,501 1,853
------------ ------------ ----------- ------------
Total other income (expense) (2,704) 1,359 (288) 97,091
(Loss) income before minority interest
& taxes (3,257) 763 (2,195) 95,672
Minority interest - - - -
------------ ------------ ----------- ------------
(Loss) income before taxes (3,257) 763 (2,195) 95,672
Income tax (benefit) expense (925) 68 (473) 24,934
------------ ------------ ----------- ------------
Net (loss) income $ (2,332) $ 695 $ (1,722) $ 70,738
============ ============ =========== ============
Net (loss) income per share of common stock $ (0.42) $ 0.07 $ (0.24) $ 7.42
============ ============ =========== ============
Average shares outstanding 5,556,000 9,456,000 7,178,000 9,533,000
============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
(Palmer Wireless, Inc.)
For the three months For the nine months
ended September 30, ended September 30,
--------------------------- -----------------------------
1997 1996 1997 1996
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service $ 45,983 $ 39,062 $ 134,123 $ 107,664
Equipment sales and installation 2,525 2,110 7,613 6,349
Net media revenue - - -
---------- ----------- ------------ ------------
Total revenue 48,508 41,172 141,736 114,013
---------- ----------- ------------ ------------
Operating expenses:
Media operating expenses - - -
Engineering, technical and other direct 7,745 7,161 23,301 17,961
Cost of equipment 5,055 3,874 16,111 12,271
Selling, general and administrative 13,811 11,865 41,014 33,842
Depreciation and amortization 8,184 6,295 23,313 18,167
---------- ----------- ------------ ------------
Total operating expenses 34,795 29,195 103,739 82,241
Operating (loss) Income 13,713 11,977 37,997 31,772
---------- ----------- ------------ ------------
Other income (expense):
Gain on sale of media properties - - -
Interest expense, net (8,354) (7,649) (24,468) (23,654)
Other income (expense), net 46 (183) 208 (242)
---------- ----------- ------------ ------------
Total other income (expense) (8,308) (7,832) (24,260) (23,896)
(Loss) income before minority interest
& taxes 5,405 4,145 13,737 7,876
Minority interest (528) (539) (1,310) (1,562)
---------- ----------- ------------ ------------
(Loss) income before taxes 4,877 3,606 12,427 6,314
Income tax (benefit) expense - (630) - (1,578)
---------- ----------- ------------ ------------
Net (loss) income $ 4,877 $ 2,976 $ 12,427 $ 4,736
========== =========== ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($ in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
(Pro Forma)
<S> <C> <C> <C> <C>
Revenue:
Service $ 38,796 $ 33,090 $ 112,061 $ 90,369
Equipment sales and installation 2,120 1,727 6,260 5,182
Net media revenue - - - 2,962
----------- ---------- ----------- ----------
Total revenue 40,916 34,817 118,321 98,513
----------- ---------- ----------- ----------
Operating expenses:
Media operating expenses - - - 2,132
Engineering, technical and other direct 6,333 5,683 18,658 13,750
Cost of equipment 3,972 3,195 13,250 10,363
Selling, general and administrative 12,196 10,653 36,180 30,896
Depreciation and amortization 7,551 5,623 21,242 17,146
----------- ---------- ----------- ----------
Total operating expenses 30,052 25,154 89,330 74,287
----------- ---------- ----------- ----------
Operating Income 10,864 9,663 28,991 24,226
----------- ---------- ----------- ----------
Other income (expense):
Gain on sale of media properties - - - 95,452
Interest expense, net (8,153) (3,746) (16,357) (11,763)
Other income, net 1,083 1,178 3,709 1,674
----------- ---------- ----------- ----------
Total other income (expense) (7,070) (2,568) (12,648) 85,363
----------- ---------- ----------- ----------
Income before minority interest & taxes 3,794 7,096 16,343 109,589
Minority interest (528) (539) (1,310) (1,562)
----------- ---------- ----------- ----------
Income before taxes 3,266 6,557 15,033 108,027
Income tax (benefit) expense (925) (562) (473) 23,356
----------- ----------- ----------- ----------
Net income $ 4,191 $ 7,119 $ 15,506 $ 84,671
=========== =========== =========== ==========
Net income per share of common stock $ 0.75 $ 0.75 $ 2.16 $ 8.88
=========== =========== =========== ==========
Average shares outstanding 5,556,000 9,456,000 7,178,000 9,533,000
=========== =========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
PRICE COMMUNICATIONS CORPORATION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ (1,723) $ 70,738
----------- -----------
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 186 455
Gain on disposal of property - (95,452)
(Increase) in securities fair value adjustment - (2,248)
Decrease in accounts receivble 489 5,638
(Increase) Decrease in prepaid expenses and other
assets (414) 734
Decrease in film broadcast rights - 1,764
Decrease in accounts payable and accrued expenses (1,894) (648)
(Decrease) in accrued interest and other liabilities - (5,111)
Increase in income taxes and deferred taxes - 9,983
Gain on sale of trading securities (606) -
----------- -----------
Total adjustments (2,239) (84,885)
----------- -----------
Net cash used in operating activities (3,962) (14,147)
----------- -----------
Cash flow from investing activities:
Purchase of cellular property (445,512) -
Proceeds from sale of media properties - 156,007
Sale (purchase) of marketable securities, net 599 (15,031)
Long term investments - (2,500)
Sale of available-for-sale securities 29,276 -
Purchase of available-for-sale securities (50,037) -
Capital expenditures (9) (108)
----------- -----------
Net cash (used in) provided by investing
activities (465,683) 138,368
Cash flows from financing activities:
Proceeds from issuance of long term debt 695,712 -
Proceeds from issuance of warrants 4,287 -
Proceeds from issuance of preferred stock 45 -
Repayment of long-term debt - (28,000)
Repurchase of Company common stock (21,675) (3,043)
Exercise of stock options 2,045 368
----------- -----------
Net cash provided by (used in) financing
activities 680,414 (30,675)
----------- -----------
Net increase in cash and cash equivalents 210,769 93,546
Cash and cash equivalents at the beginning of the period 83,357 1,207
----------- -----------
Cash and cash equivalents at the end of the period $ 294,126 $ 94,753
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Price
Communications Corporation and its subsidiaries (the "Company" or "Price"). All
significant intercompany items and transactions have been eliminated. Effective
September 30, 1997, the Company acquired all the outstanding shares of Palmer
Wireless, Inc. ("Palmer"). The Company's balance sheet presentation for
September 30, 1997 reflects the acquisition. Due to the significant changes in
operations that have resulted from the acquisition of Palmer, the Company has
elected to show Palmer's results of operations, as well as the Company's results
of operations (see page 4). In addition, Pro-Forma Income Statements are
presented on page 5 which reflect the combined operations of the two entities.
The consolidated financial statements have been prepared by the Company
without audit, in accordance with rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the statements reflect all
adjustments necessary for a fair presentation of the results for the interim
periods. All such adjustments are of a normal, recurring nature. The results of
operations for any interim period are not necessarily indicative of the results
for a full year.
2. THE ACQUISITION
On May 23, 1997, the Company, Price Communications Wireless, Inc., a
wholly-owned indirect subsidiary of the Company ("PCW")and Palmer entered into
an Agreement and Plan of Merger (the "Palmer Merger Agreement") which provides,
among other things, for the merger of PCW with and into Palmer, with Palmer as
the surviving corporation (the "Palmer Merger"). The Palmer Merger was effective
as of September 30, 1997, at which time Palmer changed its name to "Price
Communications Wireless, Inc." Pursuant to the Palmer Merger Agreement, the
Company has agreed to acquire each issued and outstanding share of common stock
of Palmer for a purchase price of $17.50 per share in cash and to purchase
outstanding options and rights under Palmer's employee and director stock
purchase plans for an aggregate purchase price of $486 million. In addition, the
Company agreed to repay the outstanding indebtedness of Palmer which was $378
million at September 30, 1997. In connection with this transaction, PCW entered
into an agreement to sell at the effective time of the Palmer Merger, Palmer's
Fort Myers, Florida MSA for $168 million (which generated proceeds to the
Company of approximately $166 million) (the "Fort Myers Sale") and plans to sell
its Georgia-1 RSA for approximately $25 million (the "GA-1 Sale"). The Fort
Myers Sale and the GA-1 Sale, together with the Palmer Merger, collectively
shall be the "Acquisition". The proceeds of the Fort Myers Sale and the GA-1
Sale will be used to fund a portion of the Acquisition.
In order to fund the Acquisition and pay related fees and expenses, on July
10, 1997 PCW issued $175 million aggregate principal amount of 11 3/4% Senior
Subordinated Notes due 2007 (the "PCW Notes"). On September 30, 1997, PCW
7
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
entered into a credit facility (the "Credit Facility") provided by a syndicate
of banks, financial institutions and other accredited investors (as determined
by Regulation D of the Securities Act). The credit facility includes a $325
million term loan faciliy and a $200 million revolving credit facility. On
October 6, 1997, PCW borrowed $325 million under the term loan facility and $120
million under the revolving credit facility. The remaining revolving loans will,
subject to a borrowing base and certain other conditions, be available to fund
the working capital requirements of PCW. The credit facility bears interest at a
floating rate between .25% and 1.75% above the lenders' prime borrowing rate or
between 1.25% and 2.75% above the lenders' Euro-dollar base rate, depending on
the ratio of the consolidated total debt to consolidated total earnings before
interest, taxes depreciation and amortization of the Company and its
subsidiaries. The credit facility is secured by liens on substantially all of
the real and personal property of PCW.
An additional $47.5 million of the purchase price has been raised through an
offering by Price Communications Cellular Holdings, Inc., a wholly-owned
indirect subsidiary of the Company and the direct parent of PCW, of units
consisting of Senior Secured Discount Notes due 2007 and warrants to purchase
shares of Common Stock of the Company.
3. SHAREHOLDER'S EQUITY
During the quarter ended September 30, 1997, the Company repurchased
approximately 243,000 shares of its common stock at an average price of $7.98
per share.
In September 1997, the Company entered into a transaction with NatWest Capital
Markets Limited ("NatWest"), whereby the Company issued to NatWest 1,129 units
(the "PIK Units") of PIK Preferred Stock and warrants ("PIK Warrants"), in part,
in exchange for 2,291,953 shares of Common Stock held by NatWest and, in part,
in payment of $3 million of NatWest's fee in connection with its acting as
initial purchaser in connection with the Cellular Holdings Offering. Each PIK
Unit consists of 1,000 shares of PIK Preferred Stock, each with a liquidation
value of $25.00 per share, and PIK Warrants to purchase an aggregate of 582,112
shares of the Company's Common Stock, representing in the aggregate 10% of the
fully diluted shares of Common Stock of the Company at an exercise price of
$0.01 per share. The PIK Preferred Stock is callable, together with the PIK
Warrants, by the Company, at any time in whole or in part on or prior to 90 days
from issue date and at any time thereafter if NatWest or an affiliate is the
holder of all the PIK Preferred Stock, at a redemption price equal to 100% of
the liquidation preference of the PIK Preferred Stock, plus accrued dividends.
On October 6, 1997 the Company repurchased The PIK units.
4. PER SHARE DATA
Primary income per common share is based on income for the period divided by
the weighted average number of shares of common stock and common stock
equivalents outstanding, which was approximately 5,556,000 and 7,178,000 for the
three and nine months ended September 30, 1997, respectively, and 9,456,000 and
9,533,000 for the three and nine months ended September 30, 1996, respectively.
8
<PAGE>
This Quarterly Report contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Those statements appear in a number of places in this Quarterly Report and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers primarily with respect to the future
operating performance of the Company. Readers are cautioned that any such
forward looking statements are not guarantees of future performance and may
involve risks and uncertainties, and that actual results may differ from those
in the forward looking statements as a result of factors, many of which are
outside the control of the Company. The accompanying information contained in
this Quarterly Report, including without limitation the information set forth
under the heading, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", identifies important factors that could cause such
differences.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
References to the "Company" or "Price" in this report include Price
Communications Corporation and its subsidiaries, unless the context otherwise
indicates.
RESULTS OF OPERATIONS
The Company sold its television stations in February and March of 1996 and
consequently has no operating revenues for the three and nine months ended
September 30, 1997. Income earned in these periods is derived from the
investment of its funds. Future acquisitions could substantially increase the
Company's operating expenses, depreciation and amortization charges and interest
expense. For these reasons, the results of the Company's historical operations
may not be comparable from period to period or indicative of results in the
future.
Effective September 30, 1997, the Company, through an indirect subsidiary,
acquired all the outstanding stock of Palmer Wireless, Inc. ("Palmer"). Palmer
is engaged in the construction, development, management and operation of
cellular telephone systems in the Southeastern United States. The results of
Palmer's operations for the three and nine months ended September 30, 1997 are
shown in the financial statements. In addition, Palmer's results of operations
have been consolidated with those of the Company and are shown on a Pro Forma
basis. These financial statements have been included as supplemental information
to provide a basis for assessing the Company's future results of operation.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
The Company did not have any results from operations for the three months
ended September 30, 1997 or the three months ended September 30, 1996. Other
income for the three months ended September 30, 1997 principally includes
interest income of approximately $523,000 and realized gains on sale of
marketable securities of approximately $383,000. Other income for the three
months ended September 30, 1997 and the three months ended September 30, 1996
are not comparable as the Company was in a wind down period from its operating
television stations and not principally concentrating on investing its funds as
in the three months ended September 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
The Company's results of operations are not comparable for the nine months
ended September 30, 1997 to the nine months ended September 30, 1996 as the nine
months ended September 30, 1996 include revenue from television stations which
are not included in the nine month period ended September 30, 1997. Other income
for the nine months ended September 30, 1997 includes recoveries on accounts and
notes receivable of approximately $636,000, interest income of approximately
$2,119,000 and gain on sales of marketable securities of approximately $606,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $294 million and $83 million in cash and cash
equivalents at September 30, 1997 and December 31, 1996, respectively. The
Company had approximately $5 million of working capital deficit at September
30, 1997.
In May 1997, the Company's Board of Directors and Compensation Committee
authorized the issuance to Robert Price, President of the Company, 728,000
shares of the Company's newly authorized Series A Preferred Stock and 364,000
shares of newly authorized Series B Preferred Stock.
9
<PAGE>
On May 23, 1997, the Company, Price Communications Wireless, Inc., a
wholly-owned indirect subsidiary of the Company ("PCW"), and Palmer entered into
an Agreement and Plan of Merger (the "Palmer Merger Agreement") which provided,
among other things, for the merger of PCW with and into Palmer, with Palmer as
the surviving corporation (the "Palmer Merger"). Pursuant to the Palmer Merger
Agreement, the Company agreed to acquire each issued and outstanding share of
common stock of Palmer for a purchase price of $17.50 per share in cash and to
purchase outstanding options and rights under Palmer's employee and director
stock purchase plans for an aggregate purchase price of $486 million. In
addition, the Company agreed to repay the outstanding indebtedness of Palmer of
approximately $378 million ("Palmer Existing Indebtedness"). In connection with
this transaction, PCW entered into an agreement to sell at the effective time of
the Palmer Merger, Palmer's Fort Myers, Florida MSA for $168 million (which
generated proceeds to the Company of approximately $166 million) (the "Fort
Myers Sale") and plans to sell its Georgia-1 RSA for approximately $25 million
(the "GA-1 Sale"). The Fort Myers Sale and the GA-1 Sale together with the
Palmer Merger collectively shall be the "Aquisition". The proceeds of the Fort
Myers Sale and the GA-1 Sale will be used to fund a portion of the Acquisition.
In order to fund the Acquisition and pay related fees and expenses, PCW issued
(the "PCW Offering") $175 million aggregate principal amount of 11 3/4% Senior
Subordinated Notes due 2007 (the "PCW Notes") and will enter into a syndicated
senior loan facility providing for term loan borrowings in the aggregate
principal amount of approximately $325 million and revolving loan borrowings of
$200 million ("the New Credit Facility"). Interest on the PCW Notes is payable
semi-annually commencing on January 15, 1998. The PCW Notes are unsecured
obligations of PCW and are subordinate in right of payment to senior
indebtedness of PCW, including indebtedness under the New Credit Facility. The
indenture under which the PCW Notes were issued imposes certain limitations on,
among other things, the ability of PCW and its subsidiaries to incur
indebtedness and to pay dividends to the Company. Upon certain acquisitions of
more than 50% of the ownership of the Company's equity and upon a change in the
majority of the Company's Board of Directors over any 12 month period that was
not approved by a majority of the directors at the beginning of such 12 month
period, the holders of the PCW Notes will have the right to cause the PCW Notes
to be repurchased at 101% of the principal amount thereof, plus accrued and
unpaid interest thereon. PCW has granted certain registration rights with
respect to the PCW Notes.
At the effective time of the Palmer Merger, PCW borrowed all term loans
available under the New Credit Facility and approximately $120 million of
revolving loans. The remaining revolving loans will, subject to a borrowing base
and certain other conditions, be available to fund the working capital
requirements of PCW. On September 30, 1997, the Company executed the New Credit
Facility. Loans under the New Credit Facility bear interest at a floating rate
between .25% and 1.75% above the lenders' prime borrowing rate or between 1.25%
to 2.75% above the lenders' Euro-dollar base rate, depending on the ratio of the
consolidated total debt to consolidated earnings before interest, taxes,
depreciation and amortization of the Company and its subsidiaries. The New
Credit Facility is secured by liens on substantially all of the real and
personal property of the Company and its subsidiaries and contains limitations
on, among other things, the ability of the Company to pay dividends or incur
additional indebtedness and requires the Company to maintain compliance with
certain financial ratios.
As additional financing for the Acquisition and the redemption of the PIK
Preferred Stock and PIK Warrants, held by NatWest Capital Markets Limited, Price
Communication Cellular Holdings, Inc., a wholly-owned subsidiary of the Company
and the direct parent of PCW ("Cellular Holdings") issued (the "Cellular
Holdings Offering") units consisting of $153.4 million in aggregate principal
amount of its 13 1/2% Senior
10
<PAGE>
Secured Discount Notes due 2007 (the "Cellular Holdings Notes") together with
warrants to purchase 527,696 shares of Common Stock at an exercise price of $.01
per share. The issue price of the Cellular Holdings Notes (approximately $80
million in the aggregate) represents a yield to maturity of 13 1/2%; cash
interest will not begin to accrue on the Cellular Holdings Notes prior to August
2, 2002 and will be first payable on February 1, 2003. Approximately $47.5
million of the proceeds of the Cellular Holdings Offering was used to fund the
Acquisition, while the remainder was used to redeem the PIK Preferred Stock and
the PIK Warrants. The Cellular Holdings Notes are guaranteed by a subsidiary of
the Company (which in itself does not have any assets or operations) and secured
by a pledge of the stock of Cellular Holdings. The holders of the Cellular
Holdings Notes will have the right to cause Cellular Holdings to repurchase such
Notes at 101% of the accrued value thereof upon certain change of control events
parallel to those applicable to the PCW Notes. The indenture under which the
Cellular Holdings Notes were issued contains restrictions on, among other
things, the payment of dividends and the incurrence of indebtedness. The holders
of the Cellular Holdings Notes have certain registration rights.
The following table sets forth the estimated cash sources and uses of funds
for the Acquisition, the contemplated redemption of the PIK Preferred Stock and
the PIK Warrants and related fees and expenses.
TOTAL SOURCES (IN MILLIONS)
New Credit Facility
Term Loan.................................................... $325.0
Revolving Loan............................................... 120.0
11 3/4% Senior Subordinated Notes due 2007................... 175.0
13.5% Senior Secured Discount Notes due 2007................. 47.5
Equity contributions by the Company.......................... 80.7
Proceeds from Fort Myers Sale and GA-1 Sale.................. 191.0
------
Total cash sources........................................... $ 939.2
------
TOTAL USES:
Cash consideration for Palmer common stock................... $486.0
Palmer Existing Indebtedness (as of September 30, 1997)...... 378.0
Estimated transaction fees and expenses...................... 31.2
Cash for Redemption of PIK Preferred Stock and PIK Warrants.. 29.2
Excess Cash ................................................. 14.8
------
Total uses................................................. $939.2
======
The foregoing table does not reflect any provision for any taxes payable in
connection with the Fort Myers Sale and GA-1 Sale. The Company has a tax
planning strategy which it believes will avoid the payment of the $51 million
tax which would otherwise be payable in connection with the Fort Myers Sale and
GA-1 Sale. While there can be no assurances that the Company's position will
prevail if challenged, the Company has received a written opinion from a "big
six" accounting firm (other than Arthur Andersen LLP) that, under existing laws,
it is more likely than not that the Company's position will prevail if
challenged. This tax planning strategy (among others) would be eliminated,
however, if certain proposals by the Joint Committee on Taxation were to be
adopted by Congress. There can be no assurances that the Company will be able to
implement this tax planning strategy before any of such proposals are adopted or
that the Company's tax position would be "grandfathered" under any of such
proposals, if adopted.
11
<PAGE>
The foregoing table also does not reflect $1.4 million which will be
immediately payable to William J. Ryan, the Chief Executive Officer and
President of Palmer, as a severance payment pursuant to his existing employment
contract upon consummation of the Acquisition and approximately $2.6 million of
severance payments which would become payable over several years pursuant to
existing employment contracts between Palmer and its other executive officers.
The Company has entered into employment contracts with William J. Ryan, M. Wayne
Wisehart, the Chief Financial Officer of Palmer, and other key employees to
continue as officers after the consummation of the Acquisition. Except for the
$1.4 million payable to William J. Ryan, there can be no assurances as to the
amount of payments that may be made to such officers, in recognition of such
severance rights, whether or not they continue with the Company after the
consummation of the Acquisition.
Following the Acquisition, the Company's principal sources of liquidity are
expected to be cash flow from operations and borrowings under the New Credit
Facility. The Company's principal uses of cash will be debt service
requirements, capital expenditures and working capital.
The following table sets forth the Company's scheduled estimated payments of
principal and interest on a pro forma basis as if the Acquisition had occurred
on January 1, 1997, assuming (i) an interest rate of 8.5% for the New Credit
Facility and (ii) the redemption of the PIK Preferred Stock with a portion of
the proceeds of the Cellular Holdings Offering.
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
Principal . ........................... $ 0 $ 0 $38,070 $42,829 $44,970
Interest (excluding amortization of
original issue discount) ............. 52,922 52,922 49,686 46,046 36,823
------- ------- ------- ------- -------
$53,017 $53,017 $87,954 $89,076 $87,389
======= ======= ======= ======= =======
Palmer is engaged in the construction, development, management and operation
of cellular telephone systems in the southeastern United States. The information
that follows represents historical information about Palmer and has not been
adjusted to reflect the sale of Fort Myers or the pending sale of Georgia-1
properties.
As of September 30, 1997, Palmer provided cellular telephone service to
337,345 subscribers in Alabama, Florida, Georgia, and South Carolina in a total
of 18 licensed service areas, composed of nine Metropolitan Service Areas
("MSAs") and nine Rural Service Areas ("RSAs"), with an aggregate estimated
population of 3.9 million. Palmer sells its cellular telephone service as well
as a full line of cellular products and accessories principally through its
network of retail stores. Palmer markets all of its products and services under
the nationally recognized service mark CELLULAR ONE.
During the five years ended December 31, 1996, Palmer generated operating
(loss) income of $(4.3 million), $2.16 million, $15.1 million, $26.6 million and
$41.2 million.
In 1996, Palmer spent approximately $38.5 million for capital expenditures.
The Company expects to spend approximately $35 million and $20 million for
capital expenditures for the years ended December 31, 1997 and 1998,
respectively. The Company expects to use net cash provided by operating
activities and borrowings available under the New Credit Facility to fund such
capital expenditures.
12
<PAGE>
The following is a summary of Palmer's ownership interest in the cellular
telephone system in each licensed service area to which the Company provided
service at December 31, 1996 and September 30, 1997.
Cellular Service Area December 31, September 30,
- --------------------- 1996 1997
Albany, Georgia........................... 82.7% 86.5%
Augusta, Georgia.......................... 100.0 100.0
Columbus, Georgia......................... 84.9 85.2
Macon, Georgia............................ 99.1 99.2
Savannah, Georgia......................... 98.5 98.5
Dothan, Alabama........................... 92.3 94.6
Montgomery, Alabama....................... 91.9 92.8
Georgia 1 - RSA........................... 100.0 100.0
Georgia 6 - RSA........................... 94.8 95.0
Georgia 7 - RSA........................... 100.0 100.0
Georgia 8 - RSA........................... 100.0 100.0
Georgia 9 - RSA........................... 100.0 100.0
Georgia 10 - RSA.......................... 100.0 100.0
Georgia 12 - RSA.......................... 100.0 100.0
Georgia 13 - RSA.......................... N/A 86.5
Alabama 8 - RSA........................... 100.0 100.0
Fort Myers, Florida....................... 99.0 99.0
Panama City, Florida...................... 77.9 78.4
On February 1, 1997, one of Palmer's majority-owned subsidiaries acquired the
assets of and the license to operate the non-wireline cellular telephone system
serving Georgia Rural Service Area Market No. 383, otherwise known as Georgia-13
RSA, for a total purchase price of $31.5 million, subject to certain
adjustments.
In connection with the acquisition of Palmer, the Fort Myers
property was sold on October 6, 1997 and the Georgia-1 RSA is to be sold
shortly.
The following table sets forth for Palmer, for the periods indicated, the
percentage, which certain amounts bear to total revenue.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ------------------------
1996 1997 1996 1997
Revenue: ---- ---- ---- ----
<S> <C> <C> <C> <C>
Service...................................... 94.9% 94.8% 94.6% 94.6%
Equipment sales and installation ............ 5.1 5.2 5.4 5.4
---- ---- ---- -----
Total revenue.............................. 100.0 100.0 100.0 100.0
Operating expenses:
Engineering, technical and other direct:
Engineering and technical (1)............... 7.6 7.8 8.0 8.0
Other direct costs of services (2)........... 9.8 8.1 10.7 8.4
Cost of equipment (3)........................ 9.4 10.4 10.3 11.4
Selling, general and administrative:
Sales and marketing (4).............. 7.5 8.2 8.0 8.4
Customer service (5)......................... 6.1 6.0 5.7 6.3
General and administrative (6)............... 15.2 14.3 15.0 14.2
Depreciation and amortization................ 15.3 16.9 5.4 16.5
---- ---- ---- ----
Total operating expenses................ 70.9 71.7 73.1 73.2
Operating income............................. 29.1% 28.3% 26.9% 26.8%
Operating income before depreciation
and amortization (7).................... 44.4% 45.2% 42.3% 43.3%
</TABLE>
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and
accessories sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, employee and agent commissions and advertising and promotional
expenses.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing billings generated in-house.
(6) Includes salaries and benefits of general and administrative personnel
and other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation or as an alternative to net income, operating
income or any other measure of performance under generally accepted
accounting principles. The Company believes that operating income before
depreciation and amortization is viewed as a relevant supplemental
measure of performance in the cellular telephone industry.
13
<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
10.1 Fort Myers Sale Agreement. Incorporated by reference to Form S-4 filed on
November 14, 1997.
10.2 Asset Purchase Agreement dated October 21, 1997 by and between MJ Cellular
Company, L.L.C., Price Communications Wireless, Inc. and Price
Communications Corporation. Incorporated by Reference to Form S-4 filed on
November 14, 1997.
10.3 Employement Agreement with William J. Ryan. Incorporated by reference to
Form S-4 filed on November 14, 1997.
10.4 Employment Agreement with M. Wayne Wisehart. Incorporated by reference to
Form S-4 filed November 14, 1997
10.5 Employment Agreement with K. Patrick Meehan. Incorporated by reference to
Form S-4 filed on November 14, 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: November 19, 1997 Price Communications Corporation
By /s/ Robert Price
----------------------------------
Robert Price
President and Chief Financial
Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> APR-01-1997 APR-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 35,989,185 83,356,748
<SECURITIES> 19,378,126 12,740,594
<RECEIVABLES> 0 962,461
<ALLOWANCES> 0 473,579
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,159,861 18,672
<PP&E> 257,236 257,236
<DEPRECIATION> 123,292 98,236
<TOTAL-ASSETS> 95,960,554 115,887,825
<CURRENT-LIABILITIES> 5,607,537 7,109,133
<BONDS> 0 0
35,000 0
10,900 0
<COMMON> 72,938 90,388
<OTHER-SE> 90,234,179 108,688,304
<TOTAL-LIABILITY-AND-EQUITY> 95,960,554 115,887,825
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 420,406 483,810
<OTHER-EXPENSES> (1,352,754) (65,580)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 30,654 0
<INCOME-PRETAX> 889,166 (430,178)
<INCOME-TAX> 451,964 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 437,202 (275,186)
<EPS-PRIMARY> 0.06 (0.03)
<EPS-DILUTED> 0 0
</TABLE>
