- --------------------------------------------------------------------------------
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 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
1-8309
------
PRICE COMMUNICATIONS CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 13-2991700
(State or other jurisdiction (I.R.S.
of incorporation or organization) Identification Employer No.)
45 Rockefeller Plaza, 10020
New York, New York (Zip Code)
(Address of principal executive offices)
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 October 30,
1998 was 22,681,883
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<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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 Statement of
Operations - Three months ended September
30, 1998 and 1997 and nine months ended
September 30, 1998 and 1997 ....................................... I-3
Condensed Consolidated Statement of Cash
Flows - Nine months ended September 30,
1998 and 1998 ..................................................... I-4
Condensed Consolidated Statement of
Stockholders' Equity .............................................. I-5
Notes to Condensed Consolidated Financial
Statements ........................................................ I-6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................... I-10
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>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 220,944 $ 29,451
Accounts receivable, net of allowance for
doubtful accounts 21,037 15,951
Other receivables 2,136 3,902
Investment securities:
Available-for-sale securities 1,146 22,849
Inventory 3,350 1,280
Deferred income taxes 3,257 5,402
Prepaid expenses and other current assets 10,206 1,114
---------- ----------
Total current assets 262,076 79,949
---------- ----------
Net property and equipment 141,648 151,264
Licenses and goodwill, net of accumulated
amortization 899,902 918,488
Other intangible and other assets, at cost less
accumulated amortization 25,078 23,907
---------- ----------
Total assets $1,328,704 $1,173,608
========== ==========
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
Current liabilities:
Current installments of long-term debt $ -- $ 2,812
Accounts payable and accrued expenses 12,725 14,477
Accrued interest payable 20,293 11,361
Accrued salaries and employee benefits 2,630 2,977
Deferred revenue 4,886 3,755
Customer deposits 868 602
Deferred tax liability -- 1,156
Other current liabilities 15,103 18,463
---------- ----------
Total current liabilities 56,505 55,603
Long-term debt, excluding current installments 901,911 690,300
Accrued income taxes - long-term 34,557 50,491
Deferred income taxes(1) 303,539 308,901
Minority interests 9,067 7,352
Commitments and contingencies -- --
Redeemable preferred stock, Series A (1998),
Series A and B (1997) 10 35
Shareholders' equity 23,115 60,926
---------- ----------
Total liabilities and shareholders' equity $1,328,704 $1,173,608
========== ==========
(1) This accounting line represents the future tax consequences, if any,
attributable to the currently reported differences between the financial
statement carrying amounts of existing assets and their tax basis. These
assets (largely intangibles) will be amortized by the Company and offset
against this deferred tax balance without any cash consequences. This
amount less the amortization would become due only if the assets are sold
by the Company in a taxable transaction.
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Company (Palmer)
Three Months Ended September 30, Three Months Ended
1998 1997 September 30, 1997
----------- ----------- -------------------
<S> <C> <C> <C>
Revenue:
Cellular operations:
Service $ 48,517 $ -- $ 45,983
Equipment sales and installation 3,403 -- 2,525
----------- ----------- -----------
Total revenue 51,920 -- 48,508
----------- ----------- -----------
Operating expenses:
Engineering, technical and other direct 8,118 -- 7,745
Cost of equipment 5,886 -- 5,055
Selling, general and administrative 15,583 392 13,811
Depreciation and amortization 11,182 161 8,912
----------- ----------- -----------
Total operating expenses 40,769 553 35,523
----------- ----------- -----------
Operating income 11,151 (553) 12,985
----------- ----------- -----------
Other income (expense):
Interest (expense) income, net (24,522) (3,741) (8,354)
Other income 7,943 1,037 46
----------- ----------- -----------
Total other income (expense) (16,579) (2,704) (8,308)
----------- ----------- -----------
(Loss) income before minority interest share
of income, income taxes and extraordinary item (5,428) (3,257) 4,677
Minority interest share of income (713) -- (528)
----------- ----------- -----------
(Loss) income before income taxes and extraordinary
item (6,141) (3,257) 4,149
Income tax benefit (expense) 2,246 925 (1,759)
----------- ----------- -----------
Net (loss) income before extraordinary item (3,895) (2,332) 2390
Extraordinary item--write--off of deferred finance
costs and premium on early extiguishment of debt
(net of income tax benefit of $8,319 and $12,254
respectively) (14,963) --
----------- ----------- -----------
Net (loss) income $ (18,858) $ (2,332) $ 2,390
=========== =========== ===========
Per Share Data:
Basic and diluted (loss) earnings per share before
extraordinary item $ (0.17) $ (0.11) $ 0.09
Basic and diluted (loss) earnings per share $ (0.82) $ (0.11) $ 0.09
Weighted average shares outstanding 23,041,000 21,702,000 27,813,000
<CAPTION>
Predecessor
Company (Palmer)
Nine Months Ended September 30, Nine Months Ended
1998 1997 September 30, 1997
----------- ----------- ------------------
<S> <C> <C> <C>
Revenue:
Cellular operations:
Service $ 134,938 $ -- $ 134,123
Equipment sales and installation 9,175 -- 7,613
----------- ----------- -----------
Total revenue 144,113 -- 141,736
----------- ----------- -----------
Operating expenses:
Engineering, technical and other direct 21,980 -- 23,301
Cost of equipment 17,401 -- 16,111
Selling, general and administrative 42,323 1,721 41,014
Depreciation and amortization 33,763 186 25,498
----------- ----------- -----------
Total operating expenses 115,467 1,907 105,924
----------- ----------- -----------
Operating income 28,646 (1,907) 35,812
----------- ----------- -----------
Other income (expense):
Interest (expense) income, net (60,515) (3,789) (24,468)
Other income 14,724 3,501 208
----------- ----------- -----------
Total other income (expense) (45,791) (288) (24,260)
----------- ----------- -----------
(Loss) income before minority interest share
of income, income taxes and extraordinary item (17,145) (2,195) 11,552
Minority interest share of income (1,715) -- (1,310)
----------- ----------- -----------
(Loss) income before income taxes and extraordinary
item (18,860) (2,195) 10,242
Income tax benefit (expense) 6,858 473 (4,153)
----------- ----------- -----------
Net (loss) income before extraordinary item (12,002) (1,722) 6,089
Extraordinary item--write--off of deferred finance
costs and premium on early extiguishment of debt
(net of income tax benefit of $8,319 and $12,254
respectively) (20,865) -- --
----------- ----------- -----------
Net (loss) income $ (32,867) $ (1,722) $ 6,089
=========== =========== ===========
Per Share Data:
Basic and diluted (loss) earnings per share before
extraordinary item $ (0.54) $ (0.06) $ 0.22
Basic and diluted (loss) earnings per share $ (1.48) $ (0.06) $ 0.22
Weighted average shares outstanding 22,146,000 28,036,000 27,813,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
(Palmer)
Company Nine Months Ended
Nine Months Ended September 30, September 30,
1998 1997 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (32,867) $ (1,722) $ 6,089
--------- --------- ---------
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Deprecation and amortization 33,838 186 25,498
Minority interest share of income 1,715 -- 1,310
Deferred income taxes (19,151) -- 3,943
Gain on sale of marketable securities (15,596) (606) 7
Write-off of deferred finance costs 14,925 -- --
Premium on early extinguishment of debt 18,194 -- --
Interest deferred and added to long-term debt 1,911 -- --
Payment of deferred interest -- -- (1,514)
Amortization of deferred finance 1,912 -- --
(Increase) decrease in accounts receivable (5,086) 489 473
(Increase) decrease in inventory (2,070) -- 2,800
(Decrease) increase in accounts payable and accrued expenses (4,959) (1,894) 536
Increase in accrued interest payable 8,932 -- --
Increase in other current liabilities 1,397 -- --
Changes in other accounts (901) (413) (351)
--------- --------- ---------
Total adjustments 35,061 (2,238) 32,702
--------- --------- ---------
Net cash provided by (used in) operating activities 2,194 (3,960) 38,791
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,544) (9) (40,757)
Purchase of marketable securities -- 599 --
Proceeds from sale of marketable securities -- -- --
Proceeds from sale of property and equipment -- -- 201
Purchase of available-for-sale securities and long-term investments (6,557) (50,037) --
Sale of available-for-sale securities and long-term investments 40,702 29,276 --
Purchase of cellular systems -- (445,512) (31,469)
Purchase of minority intertests -- -- (956)
Long-term investments (434) -- (778)
--------- --------- ---------
Net cash provided by (used) in investing activities 28,166 (465,683) (73,759)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term notes payable -- -- (1,366)
Proceeds from issuance of warrants -- 4,287 --
Proceeds from issuance of preferred stock -- 45 --
Repayment of long-term debt (518,112) -- (3,782)
Repurchase of Company's common stock (3,747) (21,675) --
Proceeds from long-term debt 725,000 695,712 41,000
Premium on early extinguishment of debt (18,194) -- --
Cash pledged for outstanding interest rate contracts (6,718) -- --
Payment of debt issuance costs (17,523) -- --
Exercise of employee stock options 427 2,045 999
--------- --------- ---------
Net cash provided by financing activities 161,133 680,414 36,851
--------- --------- ---------
Net increase in cash and cash equivalents 191,493 210,771 42
CASH AND CASH EQUIVALENTS, beginning of period 29,451 83,356 1,698
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 220,944 $ 294,127 $ 1,740
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 82,620 $ -- $ 27,471
========= ========= =========
Income taxes paid, net $ 688 $ -- $ (736)
========= ========= =========
Non-cash transactions - employee bonus paid in stock $ 500 $ -- $ --
========= ========= =========
Non-cash transactions- reduction of unrealized gains on securities
held for sale $ 3,305 $ -- $ --
========= ========= =========
Non-cash transaction-reduction of deferred taxes related to unrealized
gains on securities held for sale $ (1,156) $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ in thousands, except per share data)
As of
---------------------------
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
Common Shareholders' Equity:
Class A Common Stock, par value $.01 per share;
authorized 60,000,000 shares; outstanding
23,166,158 in 1998 and 6,994,435 in 1997 $ 233 $ 70
Additional paid in Capital 6,971 9,930
Retained Earnings 15,911 48,778
Accumulated Other Comprehensive Income:
Unrealized Gains on Marketable Securities-net of
deferred taxes -- 2,148
------- -------
Total Shareholders' Equity $23,115 $60,926
======= =======
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
($ in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies
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. On October
6, 1997, the Company acquired all of the outstanding shares of Palmer Wireless,
Inc. ("Palmer").
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 of interim periods.
All such adjustments are of a normal and recurring nature. The results of
operations for any interim period are not necessarily indicative of the results
for a full year.
The combined consolidated statements of operations include for comparative
purposes only the results of Palmer Wireless, Inc. ("Predecessor") for the
quarter and nine months ended September 30, 1997.
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, Price Communications Wireless, Inc. ("Wireless"), a wholly
owned subsidiary of the Company 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 of $2.1 million), with the balance being used for
working capital. In addition, the unamortized portion of the deferred financing
fees relating to the credit facility were written off and recorded as an
extraordinary item in the Statement of Operations.
In August 1998, Price Communications Cellular Holdings, Inc. ("Holdings"),
a wholly owned subsidiary of the Company, redeemed all of its outstanding 13
1/2% Senior Secured Discount Notes due 2007 ("13 1/2% Notes") (see following for
the details of the replacement by the $200 million Payable-In-Kind 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, Holdings was required to pay a premium of approximately 20% of the
outstanding balance or approximately $18.2 million. The premium as well as the
amount of
I-6
<PAGE>
deferred finance charges written off are recorded as an extraordinary item in
the Consolidated Statement of Operations.
I-7
<PAGE>
Holdings financed the redemption out of the net proceeds of a new $200,000
Holdings 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%. On or after
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 11 1/4% Notes are subject to mandatory exchange when the daily high price of
the Company's common stock equals or exceeds 115% of the exchange price
(currently at $20.00 per share subject to adjustment) for 10 out of 15
consecutive trading days. The redemption currently equates to 50 shares of the
Company's Class A common stock per $1000 of notes, subject to adjustment. The
Company has the right to elect on or prior to the second trading day immediately
succeeding such 10th trading day to permanently terminate the mandatory
exchange.
(3) Shareholders' Equity
During the quarter ended June 30, 1998, the Company issued 411,423 shares
of its Class A common stock to satisfy its obligation for the redemption of its
Class B preferred stock which had been issued to an officer of the Company
during 1997.
On April 1 and April 30, 1998 the Company issued two five-for-four stock
splits and on August 31, 1998 the Company issued a two-for-one stock split. As a
result of these splits , the Company issued an additional 15.7 million shares of
its Class A common stock.
On July 31, 1998 the Company registered warrants which are convertible
into approximately 2.1 million shares (adjusted for stock splits) of the
Company's Class A common stock at a price less than $.01. The warrants were
originally issued as part of the $153.4 million 13 1/2% notes in 1997 to
partially fund the acquisition of Palmer. The notes were subsequently redeemed
(see Note 2).
In June 1998 the Company's Board of Directors authorized a stock
repurchase program of up to 1,000,000 shares (2,000,000 split effected) of the
Company's Class A Common Stock. During September the Company repurchased and
retired 496,400 shares at an average price of $7.54 per share.
(4) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income", which
is effective for fiscal years beginning after December 15, 1997. Comprehensive
income is the total of net income and all other nonowner changes in equity in a
given period. Reclassification of financial statements for earlier periods is
required. In the Company's case comprehensive income is computed a follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
-------------------- --------------------
1998 1997 1998 1997
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $(18,858) $(2,332) $(32,867) $(1,722)
Other comprehensive income, net of tax:
Unrealized gains (losses) on available for
Sale securities (592) (1,849)
Reclassification adjustment (5,083) (8,497)
-------- ------- -------- -------
Comprehensive income (loss) $(23,941) $(2,924) $(41,364) $(3,571)
======== ======= ======== =======
</TABLE>
I-8
<PAGE>
(5) Earnings (Loss) Per Share
All current and prior year earnings (loss) per common share have been
adjusted to reflect the five-for-four stock splits in December 1997, the two
five-for-four stock splits in April 1998, and the two-for-one stock split in
August 1998.
This quarterly report contains statements which constitute
forward-looking statement 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 officer 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.
I-9
<PAGE>
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.
OVERVIEW
In May 1997, Price and Price Communications Wireless, Inc. ("PCW"), a
wholly owned indirect subsidiary, 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 Wireless, Inc. ("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."
PCW 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 and eight Rural
Service Areas, with an aggregate estimated population of 3.3 million. PCW sells
its cellular telephone service, as well as a full line of cellular products and
accessories under the nationally-recognized service mark CELLULARONE.
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
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 written 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 as well as operating expenses for the
parent for all periods presented.
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Pro forma) (Pro forma)
<S> <C> <C> <C> <C>
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
</TABLE>
(1) Earnings before interest, taxes, depreciation, and amortization.
I-10
<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
RESULTS OF OPERATIONS
The Company sold its television stations in 1996 and consequently had no
operating revenues for the nine months ended September 30, 1997. Income earned
during this period was derived from the investment of its funds. On October 6,
1997, the Company, through PCW acquired all the outstanding stock of Palmer.
Palmer was engaged in the construction, development, management and operation of
cellular telephone systems in the southeastern United States For these reasons,
the results of the Company's operations are not comparable for the three and
nine month periods ended September 30, 1998
The following discussion refers to the results of operations of the
Company (1998 periods) compared to the results of operations of the Company
combined with Predecessor for the three and nine month periods ended September
30, 1997. It 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. The discussion should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto.
References to the Company where appropriate also include its subsidiaries, PCW,
Holdings and the Predecessor.
I-11
<PAGE>
The following table sets forth for the Company (excluding the parent) and
its predecessor, for the periods indicated, the percentage which certain amounts
bear to total revenue.
Company Predecessor Company Predecessor
------------------- -------------------
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
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) .... 11.1 14.3 10.7 14.2
Depreciation and amortization ..... 21.8 16.9 23.4 16.5
----- ----- ----- -----
Total operating expenses ....... 75.8 71.7 78.1 73.2
Operating income ................... 24.2% 28.3% 21.9% 26.8%
Operating income before depreciation
and amortization(7) ............... 45.7% 45.2% 45.3% 43.3%
- -----------------
(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.
I-12
<PAGE>
(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 all media and the cellular telephone industry.
I-13
<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.
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 and general and administrative expenses increased 9.9% to $15.6
million in the third quarter of 1998 from $14.2 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-14
<PAGE>
General and administrative expenditures (including Corporate) decreased
slightly to $7.2 million for the third quarter of 1998 from $7.3 million for the
third quarter of 1997. General and administrative expenses decreased as a
percentage of revenue to 13.9% in the third quarter of 1998 from 15.1% 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 36.6% to $11.2 million for the
third quarter of 1998 from $9.1 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 purchase price of the stock
of Palmer to the Company. As a percentage of revenue, depreciation and
amortization increased to 21.5% for the third quarter of 1998 compared to 18.7%
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 6.5% to $11.2 million in the third quarter of
1998 from $12.4 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, Other Income, and Net Income. Net
interest expense increased to $24.5 million for the third quarter of 1998 from
$12.1 million in the third quarter of 1997 primarily due to additional
borrowings incurred under refinancings, and to a lesser extent higher rates of
interest associated with the new fixed rate instruments as opposed to the
interest on the credit facility which was on a variable basis. Other income
consists primarily of the gain realized from the redemption of certain warrants.
Income tax benefit was $2.2 million in the third quarter of 1998
representing utilization of the net operating losses carried back against
previous earnings. The income tax benefit was $0.8 million in the third quarter
of 1997 based on earnings representing a combination of a provision for the
Predecessors earnings and a tax credit for the utilization of a carryback for
Price.
Net loss for the third quarter of 1998 was $18.9 million compared to a
break even for the third quarter of 1997. The decrease in net income is
primarily attributable to increases in interest expense, depreciation and
amortization expense, the $15.0 million write-off (net of taxes) of deferred
finance costs and the premium on early extinguishment of debt recorded as an
extraordinary item partially offset by other income.
I-15
<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.
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 1.0% to $42.3
million for the first nine months of 1998 from $42.7 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
I-16
<PAGE>
nine months of 1998 from $510 for the first nine months 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.
General and administrative expenditures decreased 30.3% to $18.3 million
for the first nine months of 1998 from $21.9 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 12.6% in the
first nine months of 1998 from 15.4% 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 31.5% to $33.8 million for the
first nine months of 1998 from $25.7 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 18.1% 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 15.6% to $28.6 million for the first nine
months half of 1998 from $33.9 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, Other Income and Net Income. Net
interest expense increased to $60.5 million for the nine month period ending
September 30, 1998 from $28.3 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. Other income consists principally of gains realized on
the sale of securities and the redemption of warrants.
Income tax benefit was $6.9 million for the first nine months of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $3.7 million in the first nine months
of 1997 principally based on earnings.
Net loss for the first nine months of 1998 was $32.9 million compared to
net income of $4.4 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 $20.9 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-17
<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. The Company has significant cash on
hand of approximately $221 million at September 30, 1998 primarily as a result
of the excess funds raised in August and June 1998 from the new borrowings.
Although this excess cash can be used for working capital needs, there are
certain covenants that restrict its use for acquisitions and capital
improvements.
In August 1998, the Company redeemed all of its outstanding 13 1/2% Senior
Secured Discount Notes due 2007 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. Cash interest begins to
accrue on the notes on February 15, 2003.
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 accreted at a rate of 13 1/2%
compounded semi-annually to an aggregate principal amount of approximately
$153.4 million by August 1, 2002. These notes were redeemed in August 1998 (see
above).
YEAR 2000 IMPACT
The Company has studied 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 suppliers and other
entities. It is anticipated that a substantial portion of the costs will be
incurred in the next two years and will be expensed as incurred.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
I-18
<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
I-19
<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 CORPORATION
Date: November 12, 1998 By: /s/ Robert Price
------------------------------------------
Robert Price
Director, President and Treasurer
Date: November 12, 1998 By: /s/ Kim Pressman
------------------------------------------
Kim I. Pressman
Executive Vice President & Chief
Financial Officer
I-20
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
I-21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 220,944
<SECURITIES> 2,146
<RECEIVABLES> 21,073
<ALLOWANCES> 0
<INVENTORY> 3,350
<CURRENT-ASSETS> 262,076
<PP&E> 141,648
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,328,704
<CURRENT-LIABILITIES> 56,505
<BONDS> 901,911
0
10
<COMMON> 0
<OTHER-SE> 23,115
<TOTAL-LIABILITY-AND-EQUITY> 1,328,704
<SALES> 9,475
<TOTAL-REVENUES> 144,113
<CGS> 17,401
<TOTAL-COSTS> 115,467
<OTHER-EXPENSES> 14,724
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,515
<INCOME-PRETAX> (18,880)
<INCOME-TAX> 6,858
<INCOME-CONTINUING> (12,002)
<DISCONTINUED> 0
<EXTRAORDINARY> (20,865)
<CHANGES> 0
<NET-INCOME> (32,867)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
