<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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 10020
NEW YORK, NEW YORK __________________________________
________________________________________ (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
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 $.01 per share, outstanding as
of October 29, 1997.
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q/A
September 30, 1997
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
ITEM. 1 FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets September 30, 1997 and December 31, 1996. 1
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1997 and 1996................................................ 2
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September, 1997 and 1996.......................................................... 3
Notes to Condensed Consolidated Financial Statements..................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................... 6
PART II--OTHER INFORMATION................................................................ 15
SIGNATURES................................................................................ 16
</TABLE>
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31
1997 1996
------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 290,640 $ 83,357
Investment securities 48,822 12,741
Other current assets 760 507
---------- ----------
Total current assets 340,222 96,605
Net property, plant and equipment 130 159
Long-term investments - 18,204
Deferred financing, net of amortization 10,125 -
Other assets 919 920
---------- ----------
Total assets $ 351,396 $ 115,888
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 9,782 $ 2,755
Deferred tax liability - 1,043
Other current liabilities - 3,311
---------- ----------
Total current liabilities 9,782 7,109
Long-term debt 252,327 -
---------- ----------
Total liabilities 262,109 7,109
Shareholder's Equity 89,287 108,779
---------- ----------
Total liabilities and shareholder's equity $ 351,396 $ 115,888
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
1
<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:
Net media revenue $ - $ - $ - $ 2,962
---------- ---------- ---------- ----------
Total revenue - - - 2,962
---------- ---------- ---------- ----------
Operating expenses:
Media operating expenses - - - 2,132
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 (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 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
========== ========== ========== ==========
<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
---------- ---------- ---------- ----------
Total revenue 48,508 41,172 141,736 114,013
---------- ---------- ---------- ----------
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 income 13,713 11,977 37,997 31,772
---------- ---------- ---------- ----------
Other income (expense):
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)
---------- ---------- ---------- ----------
Income before minority interest and taxes 5,405 4,145 13,737 7,876
Minority interest (528) (539) (1,310) (1,562)
---------- ---------- ---------- ----------
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
2
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------
1997 1996
---------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,722) $ 70,738
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 186 455
Accretion of interest 1,614 -
Gain on disposal of property - (95,452)
(increase) in securities fair value adjustment - (2,248)
Decrease in accounts receivable - 5,638
(increase) in deferred financing costs (10,273) -
(increase) decrease in other current assets (253) 734
Decrease in other assets 1 1,764
Increase (decrease) in accounts payable and accrued expenses 7,027 (648)
(Decrease) increase in deferred tax liability (1,043) 9,983
(Decrease) in other current liabilities (3,311) (5,111)
---------- --------
Net cash used in operating activities (7,774) (14,147)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of media properties - 156,007
Purchase of marketable securities, net (19,725) (15,031)
Long-term investments - (2,500)
Capital expenditures (9) (108)
---------- --------
Net cash used in investing activities (19,734) 138,368
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 250,713 -
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 (22,299) (3,043)
Exercise of stock options 2,045 368
---------- --------
Net cash provided by (used in) financing activities 234,791 (30,675)
---------- --------
Net increase in cash and cash equivalents 207,283 93,546
CASH AND CASH EQUIVALENTS, beginning of period 83,357 1,207
---------- --------
CASH AND CASH EQUIVALENTS, end of period $ 290,640 $ 94,753
========== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED 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. On October
6, 1997, the Company acquired all the outstanding shares of Palmer Wireless,
Inc. ("Palmer"). 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 2).
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 closed on
October 6, 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 planned 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
4
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED 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 facility 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.
5
<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 had no operating revenues for the three and nine months ended
September 30, 1997. Income earned in these periods was 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.
On October 6, 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. 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 $291 million and $83 million in cash and cash
equivalents at September 30, 1997 and December 31, 1996, respectively. The
Company had approximately $244 million of working capital 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.
6
<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 planned 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 were 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 entered 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 October 6, 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
7
<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................. 80.0
Equity contributions by the Company.......................... 77.4
Proceeds from Fort Myers Sale and GA-1 Sale.................. 191.0
------
Total cash sources........................................... $968.4
------
TOTAL USES:
Cash consideration for Palmer common stock................... $486.4
Palmer Existing Indebtedness (as of September 30, 1997)...... 378.0
Estimated transaction fees and expenses...................... 37.8
Cash for Redemption of PIK Preferred Stock and PIK Warrants.. 29.2
Excess Cash . . . . . . . . . . . . . . . . . . .. . . . . . . . 37.0
------
Total uses................................................... $968.4
======
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 may 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.
8
<PAGE>
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.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
----- ----- -------- ------- -------
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
</TABLE>
Palmer is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. 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.
MARKET OWNERSHIP
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% 82.7%
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 92.5
Montgomery, Alabama................. 91.9 92.8
Georgia 1 - RSA..................... 100.0 100.0
Georgia 6 - RSA..................... 94.8 95.1
Georgia 7 - RSA..................... 100.0 100.0
Georgia 8 - RSA..................... 100.0 100.0
Georgia 9 - RSA..................... 100.0 100.0
Georgia 10 - RSA.................... l00.0 100.0
Georgia 12 - RSA.................... 100.0 100.0
Georgia 13 - RSS.................... N/A 82.7
Alabama 8 - RSA.................... 100.0 100.0
Fort Myers, 99.0 99.0
Florida..........................
Panama City, 77.9 78.4
Florida.....................
9
<PAGE>
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 by the Company, the Fort Myers
property was sold on October 6, 1997 and the Georgia-1 RSA was sold in December,
1997.
RESULTS OF OPERATIONS
The following table sets forth for the Palmer, for the periods indicated,
the percentage, which certain amounts bear to total revenue.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1997 1996 1997
Revenue:
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 15.4 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%
- -----------------
(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.
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<PAGE>
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Revenue. Service revenues totaled $46.0 million for the third quarter of
1997, an increase of 17.7% over $39.0 million for the third quarter of 1996.
This increase was primarily due to a 31.2% increase in the average number of
subscribers to 329,556 for the third quarter of 1997 versus 251,117 for the
third quarter of 1996. The increase in subscribers is the result of internal
growth, which Palmer attributes primarily to its strong sales and marketing
efforts, and the recent acquisitions.
Average monthly revenue per subscriber decreased 6.4% to $46.51 for the
third quarter of 1997 from $49.70 for the third quarter of 1996. This is due to
a common trend in the cellular telephone industry, where, on average, new
customers use less airtime than existing subscribers. Therefore, service
revenues generally do not increase proportionately with the increase in
subscribers. In addition, the decline reflects more competitive rate plans
introduced into Palmer's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $2.5 million for the third
quarter of 1997 from $2.1 million for the third quarter of 1996. As a
percentage of total cellular revenue, equipment sales and installation revenue
increased to 5.2% for 1997 from 5.1% for 1996, reflecting the increased
recurring revenue base as well as lower cellular equipment prices charged to
customers.
Operating Expenses. Engineering and technical expenses increased by 20.9%
to $3.8 million for the third quarter of 1997 from $3.1 million in the third
quarter of 1996, due primarily to the increase in subscribers and the recent
acquisitions. As a percentage of revenue, engineering and technical expenses
increased to 7.8% from 7.6% for the third quarter of 1997 and 1996,
respectively. The increase from 1996 to 1997 relates to the fixed costs
associated with additional cell sites constructed and obtained in recent
acquisitions. Palmer expects engineering and technical expenses to decrease as
a percentage of revenue due to its large component of fixed costs. There can be
no assurance, however, that this forward-looking statement will not differ
materially from actual results due to unforeseen engineering and technical
expenses.
Other direct costs of services remained consistent at $4.0 million for the
third quarter of 1997 and 1996. As a percentage of revenue, other direct costs
of service decreased to 8.1% from 9.8%, reflecting the decrease in
interconnection costs as a result of Palmer's renegotiations of interconnection
agreements with the local exchange carriers ("LECs") in most of their markets.
The cost of equipment increased 30.5% to $5.1million for the third quarter
of 1997 from $3.9 million for the third quarter of 1996, due primarily to the
increase in gross subscriber activations for the same period. The equipment
sales margin increased to (100.0%) for the third quarter of 1997 from (83.6%)
for the third quarter of 1996. This increase in margin is a result of efforts to
address market competition and improve market share. Palmer sold more telephones
below cost in the third quarter of 1997 than in the same period of 1996.
Sales and marketing costs increased 28.0% to $4.0 million for the third
quarter of 1997 from $3.1 million for the same period in 1996. This increase is
primarily due to the 6.7% increase in gross subscriber activations and the
resulting increase in commissions and higher advertising costs. As a percentage
of total revenue, sales and marketing costs increased to 8.2% from 7.5% for the
third quarter of 1997 and 1996, respectively. The increase was due to increased
advertising costs in response to market competition. Palmer's cost to add a net
subscriber, including loss on telephone sales, increased to $597 for the third
quarter of 1997 from
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<PAGE>
$416 for the third quarter of 1996. This increase in cost to add a net
subscriber was caused primarily by increased losses from Palmer's sales of
cellular telephones and an increase in commissions
Customer service costs increased 15.8% to $2.9 million for the third
quarter of 1997 from $2.5 million for the third quarter of 1996. As a percentage
of revenue, customer service costs decreased to 6.0% from 6.1% for the third
quarter of 1997 and 1996, respectively. The decrease was due primarily to higher
revenue in the third quarter of 1997 than the same period in 1996, while costs
remained relatively the same.
General and administrative expenditures increased 10.8% to $6.9 million for
the third quarter of 1997 from $6.3 million for the third quarter of 1996, due
primarily to the increase cost associated with supporting recent acquisitions.
General and administrative expenses decreased as a percentage of total revenue
to 14.3% in the third quarter of 1997 from 15.2% in the third quarter of 1996.
As Palmer 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.
Depreciation and amortization increased 30.0% to $8.2 million for the third
quarter of 1997 from $6.3 million for the third quarter of 1996. This increase
was primarily due to the depreciation and amortization associated with recent
acquisitions and additional capital expenditures. As a percentage of revenue,
depreciation and amortization increased to 16.9% from 15.3% for the third
quarter of 1997 compared to the third quarter of 1996.
Operating income increased 14.5% to $13.7 million in the third quarter of
1997, from $12.0 million for the third quarter of 1996. This improvement in
operating results is attributable primarily to increases in revenue which
exceeded increases in operating expenses.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 9.2% to $8.4 million for the third quarter of 1997 versus $7.6 million
for the third quarter of 1996.
Income tax expense was $2.5 million in the third quarter of 1997 and $0.6
million in the third quarter of 1996 due to the increase in income before income
taxes in 1997 and the fact that all remaining net operating loss carry forwards
were recognized for financial statement purposes in 1996.
Net income for the third quarter of 1997 was $2.4 million, or $0.09 per
share, compared to net income of $3.0 million, or $0.10 per share, for the third
quarter of 1996. The decrease in net income is primarily attributable to
increases in income tax expense.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Revenue. Service revenues totaled $134.1 million for the nine months ended
September 30, 1997, an increase of 20.0% over $111.8 million for the nine months
ended September 30, 1996. This increase was primarily due to a 34.4% increase in
the average number of subscribers to 313,611 as of September 30, 1997 versus
233,261 as of September 30, 1996. The increase in subscribers is the result of
internal growth, which Palmer attributes primarily to its strong sales and
marketing efforts, and recent acquisitions.
Average monthly revenue per subscriber decreased 7.3% to $47.52 for the
nine months ended September 30, 1997 from $51.28 for the same period in 1996.
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 are. Therefore, service revenues generally do not increase
proportionately with the increase in subscribers. In addition, the decline
reflects more competitive rate plans introduced into Palmer's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased by 19.9% to $7.6 million for the
nine months ended September 30, 1997 compared to $6.3 million for the same
period in 1996. The increase is due to the 18.6% increase in gross subscriber
activations in the nine
12
<PAGE>
months ended September 30, 1997 compared to the same period in 1996. As a
percentage of revenue, equipment sales and installation revenue remained at 5.4%
for the nine month ended September 30, 1997 and for the same period in 1996.
Operating Expenses. Engineering and technical expenses increased by 21.2%
to $11.5 million for the nine month ended September 30, 1997 from $9.5 million
in the same period 1996, due primarily to the increase in subscribers and recent
acquisitions. As a percentage of revenue, engineering and technical expenses
remained constant at 8.0% for the nine-month ended September 30, 1997 and 1996,
respectively. Palmer expects engineering and technical expenses to decrease as
a percentage of revenue due to its large component of fixed costs. There can be
no assurance, however, that this forward-looking statement will not differ
materially from actual results due to unforeseen engineering and technical
expenses.
Other direct costs of services decreased 6.3% to $11.8 million for nine
months ended September 30, 1997 from $12.6 million for the same period in 1996
reflecting the decrease in interconnection costs as a result of Palmer's
renegotiations of interconnection agreements with the local exchange carriers
("LECs") in most of their markets. As a percentage of revenue, these costs of
service decreased to 8.4% from 10.7%, reflecting improved interconnection
agreements with LECs, as well as efficiencies gained from the growing subscriber
base.
The cost of equipment increased 31.3% to $16.1 million for the nine months
ended September 30, 1997 from $12.3 million for the same period in 1996, due
primarily to the increase in gross subscriber activations for the same period.
The equipment sales margin decreased to (111.6%) for the nine months ended
September 30, 1997 from (93.3%) for the same period in 1996. In an effort to
address market competition and improve market sharePalmer sold more telephones
below cost in the first half of 1997, on average, than in the same period of
1996.
Sales and marketing costs increased 26.9% to $11.9 million for the nine
months ended September 30, 1997 from $9.4 million for the same period in 1996.
This increase is primarily due to the 18.6% increase in gross subscriber
activations and the resulting increase in commissions. As a percentage of total
revenue, sales and marketing costs increased to 8.4% from 8.0% for the nine
months ended September 30, 1997 and 1996, respectively. Palmer's cost to add a
net subscriber, including loss on telephone sales, increased to $510 for the
nine months ended September 30, 1997 from $389 for the same period in 1996.
This increase in cost to add a net subscriber was caused primarily by increased
losses from Palmer's sales of cellular telephones and an increase in commissions
and advertising costs.
Customer service costs increased 31.9% to $8.9 million for the nine months
ended September 30, 1997 from $6.8 million for the same period in 1996. As a
percentage of revenue, customer service costs increased to 6.3% from 5.7% for
the nine months ended September 30, 1997 and 1996, respectively. The increase
was due primarily to higher costs for billing support services.
General and administrative expenditures increased 14.1% to $20.2 million
for the nine months ended September 30, 1997 from $17.7 million for the same
period in 1996, due primarily to the increase in the costs associated with
supporting recent acquisitions. General and administrative expenses decreased as
a percentage of revenue to 14.2% in the nine months ended September 30, 1997
from 15.0% for the same period in 1996. As Palmer 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.
Depreciation and amortization increased 28.3% to $23.3 million for the nine
months ended September 30, 1997 from $18.2 million for the same period in 1996.
This increase was primarily due to the depreciation and amortization associated
with recent acquisitions and additional capital expenditures. As a percentage
of revenue, depreciation and amortization increased to 16.5% from 15.4% for the
nine months ended September 30, 1997 and 1996, respectively.
13
<PAGE>
Operating income increased 19.6% to $38.0 million in the nine months ended
September 30, 1997, from $31.8 million for the same period in 1996. This
improvement in operating results is attributable primarily to increases in
revenue which exceeded increases in operating expenses.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 3.4% to $24.5 million from $23.7 million for the nine months ended
September 30, 1997 and 1996.
Income tax expense was not provided for the three and nine months ended
September 30, 1997 as Palmer expects to recognize sufficient interest expense as
a result of the acquisition to eliminate all income taxes. Palmer recognized
$0.6 million and $1.6 million for the same periods in 1996.
Net income for the nine months ended September 30, 1997 was $12.4 million,
or $0.45 per share, compared to net income of $4.7 million, or $0.19 per share,
for the same period in 1996. The increase in net income is primarily
attributable to increases in revenue which exceeded increases in operating
expenses and to the elimination of income tax expense.
14
<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
Pro Forma Financial Information previously reported
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.
15
<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: February 13, 1998 Price Communications Corporation
/s/ Robert Price
By __________________________________
Robert Price
President and Chief Financial
Officer
16
