<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
-------------------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------
Commission file number
1-8309
PRICE COMMUNICATIONS CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 13-2991700
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 Rockefeller Plaza 10020
New York, New York (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER (212) 757-5600
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, par value $.01
per share, as of July 31, 1998 was 11,534,403.
================================================================================
<PAGE>
PRICE COMMUNICATIONS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets- June 30, 1998
and December 31, 1997.................................. I-1
Condensed Consolidated Statements of Operations - Three
months ended June 30, 1998 and 1997 and six
months ended June 30, 1998 and 1997.................... I-3
Condensed Consolidated Statements of Cash Flows - Six
months ended June 30, 1998 and 1997.................... I-4
Condensed Consolidated Statements of Shareholders' Equity...... I-5
Notes to Condensed Consolidated Financial Statements........... I-6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... I-7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................. II-1
ITEM 2. Changes in Securities......................................... II-1
ITEM 3. Defaults Upon Senior Securities............................... II-1
ITEM 4. Submission of Matters to a Vote of Security Holders........... II-1
ITEM 5. Other Information............................................. II-1
ITEM 6. Exhibits and Reports on Form 8-K.............................. II-1
SIGNATURES............................................................... II-2
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
June 30, December 31,
1998 1997
------------- -------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 111,836 $ 29,451
Accounts receivable, net of allowance for
doubtful accounts 18,683 15,951
Other receivables 2,231 3,902
Investment securities:
Available-for-sale securities 16,932 22,849
Inventory 2,607 1,280
Deferred income taxes 3,257 5,402
Prepaid expenses and other current assets 8,278 1,114
------------- -------------
Total current assets 163,824 79,949
------------- -------------
Net property and equipment 145,551 151,264
Licenses and goodwill, net of accumulated
amortization 905,912 918,488
Other intangible and other assets, at cost less
accumulated amortization 26,526 23,907
------------- -------------
Total assets $ 1,241,813 $ 1,173,608
============= =============
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
June 30, December 31,
1998 1997
------------- -------------
(Unaudited) (Audited)
Current liabilities:
Current installments of long-term debt $ $ 2,812
Accounts payable and accrued expenses 10,109 14,477
Accrued interest payable 13,001 11,361
Accrued salaries and employee benefits 2,760 2,977
Deferred revenue 4,094 3,755
Customer deposits 810 602
Deferred tax liability 2,577 1,156
Other current liabilities 15,278 18,463
------------- -------------
Total current liabilities 48,629 55,603
Long-term debt, excluding current installments 785,989 690,300
Accrued income taxes - long-term 45,181 50,491
Deferred income taxes 303,539 308,901
Minority interests 8,355 7,352
Commitments and contingencies - -
Redeemable preferred stock, Series A (1998),
Series A and B (1997) 10 35
Shareholders' equity 50,110 60,926
------------- -------------
Total liabilities and shareholders' equity $ 1,241,813 $ 1,173,608
============= =============
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor Predecessor
Company Three Months Company Six Months
Three Months Ended June 30, Ended Six Months Ended June 30, Ended
1998 1997 June 30, 1997 1998 1997 June 30, 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Cellular operations:
Service $ 45,737 $ - $ 45,920 $ 86,421 $ - $ 88,140
Equipment sales and installation 3,181 - 2,625 5,772 - 5088
------------ ------------ ------------ ------------ ------------ ------------
Total revenue 48,918 - 48,545 92,193 - 93,228
------------ ------------ ------------ ------------ ------------ ------------
Operating expenses:
Engineering, technical and other direct 7,111 - 8,124 13,862 - 15,554
Cost of equipment 6,019 - 5,250 11,515 - 11,057
Selling, general and administrative 14,399 421 13,844 26,740 1,330 27,204
Depreciation and amortization 10,564 13 8,305 22,581 25 16,586
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses 38,093 434 35,523 74,698 1,355 70,401
------------ ------------ ------------ ------------ ------------ ------------
Operating income 10,825 (434) 13,022 17,495 (1,355) 22,827
------------ ------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest (expense) income, net (18,803) (31) (8,241) (36,057) (48) (16,113)
Other income 6,662 1,353 91 6,845 2,463 162
------------ ------------ ------------ ------------ ------------ ------------
Total other income (expense) (12,141) 1,322 (8,150) (29,212) 2,415 (15,951)
------------ ------------ ------------ ------------ ------------ ------------
(Loss) income before minority interest
share of income, income taxes and
extraordinary item (1,316) 889 4,872 (11,717) 1,061 6,876
Minority interest share of income (542) - (451) (1,002) - (782)
------------ ------------ ------------ ------------ ------------ ------------
(Loss) income before income taxes and
extraordinary item (1,858) 889 4,421 (12,719) 1,061 6,094
Income tax benefit (expense) 596 (452) (1,898) 4,612 (452) (2,394)
------------ ------------ ------------ ------------ ------------ ------------
Net (loss) income before extraordinary item (1,262) 437 2,523 (8,107) 609 3,700
Extraordinary item-write-off of deferred
finance costs, net of income tax
benefit of $3,935 (5,902) (5,902)
------------ ------------ ------------ ------------ ------------ ------------
Net (loss) income $ (7,164) $ 437 $ 2,523 $ (14,009) $ 609 $ 3,700
============ ============ ============ ============ ============ ============
Per share data:
Basic (loss) earnings per share before
extraordinary item $ (0.12) $ 0.03 $ 0.09 $ (0.74) $ 0.04 $ 0.13
Basic (loss) earnings per share $ (0.65) $ 0.03 $ 0.09 $ (1.27) $ 0.04 $ 0.13
Weighted average shares outstanding 10,969,000 13,697,000 27,813,000 11,010,000 14,394,000 27,813,000
Diluted (loss) earnings per share before
extraordinary item $ (0.12) $ 0.03 $ 0.09 $ (0.74) $ 0.04 $ 0.13
Diluted (loss) earnings per share $ (0.65) $ 0.03 $ 0.09 $ (1.27) $ 0.04 $ 0.13
Weighted average shares outstanding 10,969,000 13,963,000 27,813,000 11,010,000 14,659,000 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
Six Months
Company Ended
Six Months Ended June 30, June 30,
1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (14,009) $ 609 $ 3,700
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Deprecation and amortization 23,595 25 16,586
Minority interest share of income 1,002 - 782
Deferred income taxes (8,586) - 2,219
Gain on sale of marketable securities (8,093) (411)
Write-off of deferred finance costs 9,837
Interest deferred and added to long-term debt 5,876 -
Payment of deferred interest (1,514)
(Increase) decrease in accounts receivable (2,732) 489 500
(Decrease) increase in accounts payable and accrued expenses (4,368) (780) 1,799
Increase in accrued interest payable 1,640 -
Decrease in other current liabilities (3,063) (45)
Changes in other accounts 925 (156) 1,500
---------- ---------- ----------
Total adjustments 16,033 (878) 21,872
---------- ---------- ----------
Net cash provided by (used in) operating activities 2,024 (269) 25,572
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,171) - (31,700)
Purchase of marketable securities - (9,540)
Proceeds from sale of marketable securities - 10,138
Purchase of available-for-sale securities and long-term investments (6,686) (32,497)
Sale of available-for-sale securities and long-term investments 24,756 5,578
Purchase of cellular systems (31,260)
Purchase of minority intertests (794)
Other (575) - 51
---------- ---------- ----------
Net cash provided by (used) in investing activities 13,323 (26,321) (63,703)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term notes payable 955
Repayment of long-term debt (437,999) (3,782)
Repurchase of Company's common stock (20,877)
Proceeds from long-term debt 525,000 41,000
Cash pledged for outstanding interest rate contracts (6,738)
Payment of debt issuance costs (13,760) -
Other 535 100
---------- ---------- ----------
Net cash provided by (used in) financing activities 67,038 (20,777) 38,173
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 82,385 (47,367) 42
CASH AND CASH EQUIVALENTS, beginning of period 29,451 83,356 1,698
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 111,836 $ 35,989 $ 1,740
========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 20,577 $ 37 $ 16,328
========== ========== ==========
Income taxes paid, net $ 63 $ 53 $ (617)
========== ========== ==========
Non-cash transactions - stock bonus $ 500 $ $
========== ========== ==========
Non-cash transactions-unrealized gains on securities held for sale $ 4,060 $ $
========== ========== ==========
Non-cash transaction-increasr in deferred taxes due to increase in
unrealized gain $ (1,421) $ $
========== ========== ==========
</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
------------------------------
June 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
11,437,415 in 1998 and 6,994,435 in 1997 $ 114 $ 70
Additional paid in Capital 10,442 9,930
Retained Earnings 34,769 48,778
Accumulated Other Comprehensive Income:
Unrealized Gains on Marketable
Securities-net of deferred taxes 4,785 2,148
------------- -------------
Total Shareholders' Equity $ 50,110 $ 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.
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 six months ended June 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., 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 ($2.1 million), with the balance being
used for working capital. In addition, the unamortized portion of the
deferred finance fees relating to the credit facility was written off and
recorded as an extraordinary item on the Statement of Operations.
(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 Series 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 on its Class A Common Stock. As a result, the Company issued an
additional total of 4.1 million shares of its common stock.
I-6
<PAGE>
On July 31, 1998 the Company registered warrants which are
convertible into 1,030,656 shares of the Company's Class A Common Stock. The
warrants were issued as part of the $153.4 million 13.5% notes in 1997 to
partially fund the acquisition of Palmer (see subsequent event for redemption
of the outstanding notes).
In June 1998 the Company's Board of Directors authorized a stock
repurchase program of up to 1,000,000 shares of the Company's Class A Common
Stock. To date none have been repurchased.
(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 as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
--------- --------- --------- ---------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ (7,164) $ 437 $ (14,009) $ 437
Other comprehensive income, net of tax:
Unrealized gains (losses) on available for
sale securities (3,881) 1,107 2,639 (1,257)
Reclassification adjustment (1,065) (3,026)
Comprehensive income (loss) (12,110) 1,544 (13,625) (820)
</TABLE>
(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 split in December 1997 and the
two five-for-four stock splits in April 1998.
(6) PRO FORMA INFORMATION
The financial statements presented herein include the results of
operation of the predecessor which include the results of the Fort Myers and
Georgia-1 markets which were sold subsequent to the acquisition by the
Company. A more meaningful presentation, although not required by Generally
Accepted Accounting Principles, would be the pro forma results excluding the
results of the two markets and the results of the parent company as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 48,918 $ 38,402 $ 92,193 $ 73,267
Operating expenses 37,883 28,279 73,235 54,860
Operating income 11,035 10,123 18,958 18,407
Operating cash flow 22,200 17,268 41,511 33,493
</TABLE>
(7) SUBSEQUENT EVENT
In July 1998, Price Communications Cellular Holdings, Inc., a
wholly-owned subsidiary of the Company, called for redemption all of its
outstanding 13 1/2% Senior Secured Discount Notes due 2007.
I-7
<PAGE>
The notes were redeemed on August 3, 1998 and the redemption price per $1000
aggregate principal amount was $711.61. The accreted value of the notes at
that date 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 $200 million public offering of 11 1/4 Senior
Exchangeable Payable-in-Kind notes which was completed during July 1998.
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 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 the
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-8
<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 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 June 30, 1998, the Company provided cellular telephone service to 347,150
subscribers in Alabama, Florida, Georgia, and South Carolina in a total of 16
licensed service areas, composed of eight Metropolitan Service Areas ("MSAs")
and eight Rural Service Areas ("RSAs"), with an aggregate estimated
population of 3.3 million. PCW sells its cellular telephone service, as well
as a full line of cellular products and accessories principally through its
network of retail stores. PCW markets all of its products and services under
the nationally-recognized service mark CELLULARONE.
MARKET OWNERSHIP
The following is a summary of the Company's ownership interest in the
cellular telephone system in each licensed service area to which the Company
provided service at December 31, 1997 and June 30, 1998.
CELLULAR SERVICE AREA
Dothan, Alabama........................... 94.6%
Montgomery, Alabama....................... 92.8
Albany, Georgia........................... 86.5
Augusta, Georgia.......................... 100.0
Columbus, Georgia......................... 85.2
Macon, Georgia............................ 99.2
Savannah, Georgia......................... 98.5
Panama City, Florida...................... 78.4
Alabama 8 - RSA........................... 100.0
Georgia 6 - RSA........................... 96.3
Georgia 7 - RSA........................... 100.0
Georgia 8 - RSA........................... 100.0
Georgia 9 - RSA........................... 100.0
Georgia 10 - RSA.......................... 100.0
Georgia 12 - RSA.......................... 100.0
Georgia 13 - RSA.......................... 86.5
RESULTS OF OPERATIONS
The Company sold its television stations in 1996 and consequently had
no operating revenues for the six months ended June 30, 1997. Income earned
during this period was derived from the investment of
I-9
<PAGE>
its funds. 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. For these reasons, the results of
the Company's operations are not comparable for the quarter and six months
ended June 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 six and three month periods ended June 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. This 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.
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.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY PREDECESSOR COMPANY
----------- ------- ----------- -------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Service....................................... 94.6% 93.5% 94.5% 93.8%
Equipment sales and installation.............. 5.4 6.5 5.5 6.2
------ ------ ------ ------
TOTAL REVENUE........................... 100.0 100.0 100.0 100.0
OPERATING EXPENSES:
Engineering, technical and other direct:
Engineering and technical (1)............... 8.5 7.2 8.2 7.7
Other direct costs of services (2).......... 8.2 7.3 8.5 7.3
Cost of equipment (3)......................... 10.8 12.3 11.8 12.4
Selling, general and administrative:
Sales and marketing (4)..................... 8.6 11.1 8.5 10.5
Customer service (5)........................ 6.3 6.3 6.5 6.5
General and administrative (6).............. 13.7 10.4 14.2 10.5
Depreciation and amortization................. 17.1 22.8 17.8 24.5
------ ------ ------ ------
TOTAL OPERATING EXPENSES................ 73.2 77.4 75.5 79.4
Operating income.............................. 26.8% 22.6% 24.5% 20.6%
Operating income before depreciation and
amortization (7)............................ 43.9% 45.4% 42.3% 45.1%
</TABLE>
- -----------------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and
accessories sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, employee and agent commissions and advertising and promotional
expenses.
I-10
<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 the cellular telephone industry.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REVENUE. Service revenues totaled $45.7 million for the second
quarter of 1998, a decrease of 0.4% from $45.9 million for the second quarter
of 1997. The decrease is primarily attributable to service revenues of the
cellular telephone systems sold in the Ft. Myers Sale and the Georgia Sale
which totaled $7.3 million in the second quarter of 1997. This was
substantially offset by an increase in revenues as the average number of
subscribers rose to 336,936 in the second quarter of 1998 from 318,238 in
1997.
Average monthly revenue per subscriber decreased 6.5% to $45.30 for
the second quarter of 1998 from $48.41 for the second quarter of 1997. This
is, in part, due to the trend common in the cellular telephone industry where
on average, new subscribers are using less airtime than existing subscribers.
Therefore, service revenues generally do not increase proportionately with
the increase in subscribers. In addition, the decline reflects more
competitive rate plans introduced into the Company's markets.
Equipment sales and installation revenue, which consists primarily
of cellular subscriber equipment sales, increased to $3.2 million for the
second quarter of 1998 compared to $2.6 million for the second quarter of
1997. The increase is primarily due to a 28.4% increase in gross subscriber
activations in the second quarter of 1998 compared to 1997. As a percentage
of revenue, equipment sales and installation revenue increased to 6.5% in the
second quarter of 1998 from 5.4% in the second quarter of 1997.
OPERATING EXPENSES. Engineering and technical expenses decreased by
15.2% to $3.5 million for the second quarter of 1998 from $4.1 million in the
second quarter of 1997. As a percentage of revenue, engineering and technical
expenses decreased to 7.2% from 8.5% for the second quarter of 1998 and 1997,
respectively. Engineering and technical expenses attributable to the cellular
telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.5
million for the second quarter of 1997.
Other direct costs of service decreased to $3.6 million for the
second quarter of 1998 from $4.0 million for the second quarter of 1997
reflecting the decrease in interconnection costs as a result of the Company's
renegotiation of interconnection agreements with the local exchange carriers
("LECs") in most of the Company's markets. As a percentage of revenue, these
costs of service declined to 7.3% from 8.2%, reflecting improved
interconnection agreements , as well as efficiencies gained from the growing
subscriber base. Other direct costs of service attributable to the cellular
telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $1.0
million for the second quarter of 1997.
The cost of equipment increased 14.6% to $6.0 million for the second
quarter of 1998 from $5.3 million for the second quarter of 1997, primarily
as a result of an increase in gross subscriber activations for the same
period. Equipment sales resulted in losses of $2.8 million in 1998 versus
$2.6 million in 1997. The Company sells equipment below its costs in an
effort to address market competition and improve market share. Cost of
equipment attributable to the cellular telephone systems sold in the Ft.
Myers Sale and Georgia Sale totaled $.9 million for the second quarter of
1997.
Selling, general and administrative expenses increased .7% to $14.4
million in the second quarter of 1998 from $14.3 million in the second
quarter of 1997. These expenses are comprised of (i)
I-11
<PAGE>
sales and marketing costs, (ii) customer service costs and (iii) general and
administrative expenses.
Sales and marketing costs increased 31.8% to $5.4 million for the
second quarter of 1998 from $4.1 million for the same period in 1997. This
increase is primarily due to the 28.4% increase in gross subscriber
activations and the costs to acquire them, including advertising and
commissions. As a percentage of total revenue, sales and marketing costs
increased to 11.1% for the second quarter of 1998 compared to 8.6% for the
second quarter of 1997. The Company's cost to add a net subscriber, including
loss on telephone sales, decreased to $220 for the second quarter of 1998
from $233 for the second quarter of 1997. This decrease in cost to add a net
subscriber was caused primarily by decreased losses from the Company's sales
of cellular telephones. Sales and marketing expenses attributable to the
cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale
totaled $.5 million for the second quarter of 1997.
Customer service costs remained flat at $3.1 million for the second
quarter of 1998 and the second quarter of 1997. As a percentage of revenue,
customer service costs remained at 6.3% for the second quarter of both 1998
and 1997. Customer service expenses attributable to the cellular telephone
systems sold in the Ft. Myers Sale and Georgia Sale totaled $.4 million for
the second quarter of 1997.
General and administrative expenditures decreased 16.9% to $5.9
million for the second quarter of 1998 from $7.1million for the second quarter
of 1997, due primarily to expense savings and reorganization efforts. General
and administrative expenses decreased as a percentage of revenue to 12.1% in
the second quarter of 1998 from 14.6% in the second quarter of 1997. As the
Company continues to add more subscribers, and generates associated revenue,
general and administrative expenses should decrease as a percentage of total
revenues. There can be no assurance, however, that this forward-looking
statement will not differ materially from actual results due to unforeseen
general and administrative expenses and other factors. General and
administrative expenses attributable to the cellular telephone systems sold in
the Ft. Myers Sale and Georgia Sale totaled $.5 million for the second quarter
of 1997.
Depreciation and amortization increased 34.4% to $10.6 million for
the second quarter of 1998 from $8.3 million for the second quarter of 1997.
This increase was primarily due to the depreciation and amortization
associated with the new carrying value of assets as a result of the "push
down" of the purchase price to the Company. As a percentage of revenue,
depreciation and amortization increased to 21.7% for the second quarter of
1998 compared to 17.1% for the second quarter of 1997. Depreciation and
amortization attributable to the cellular telephone systems sold in the Ft.
Myers Sale and Georgia Sale totaled $.8 million for the second quarter of
1997.
Operating income decreased 14.3% to $10.8 million in the second
quarter of 1998, from $12.6 million for the second quarter of 1997. This
decrease in operating results is attributable primarily to the increase in
depreciation and amortization expense.
NET INTEREST EXPENSE, INCOME TAXES, OTHER INCOME AND NET INCOME. Net
interest expense increased 127.3% to $18.8 million for the second quarter of
1998 from $8.3 million in the second quarter of 1997 primarily due to rate
increases on variable interest debt, and additional borrowings incurred as a
result of the recent merger. Other income consists principally of the gain
realized on the sale of securities.
Income tax benefit was $0.6 million in the second quarter of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $2.3 million in the second quarter
of 1997 based on earnings.
Net loss after deducting the extraordinary item for the second
quarter of 1998 was $7.2 million compared to net income of $3.0 million for
the second quarter of 1997. The decrease in net income is
I-12
<PAGE>
primarily attributable to increases in interest expense, depreciation and
amortization expense and the $5.9 million net write-off of deferred finance
costs recorded as an extraordinary item.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REVENUE. Service revenues totaled $86.4 million for the first half
of 1998, a decrease of 2.0% from $88.1 million for the first half of 1997.
The decrease is primarily attributable to service revenues of the cellular
telephone systems sold in the Ft. Myers Sale and the Georgia Sale which
totaled $14.9 million in the first half of 1997. This was substantially
offset by an increase in revenues as the average number of subscribers rose
to 328,378 in the first half 1998 from 302,734 in 1997.
Average monthly revenue per subscriber decreased 8.7% to $43.86 for
the first half of 1998 from $48.06 for the first half of 1997. This is in
part due to the trend, common in the cellular telephone industry, where, on
average, new subscribers are using less airtime than existing subscribers.
Therefore, service revenues generally do not increase proportionately with
the increase in subscribers. In addition, the decline reflects more
competitive rate plans introduced into the Company's markets.
Equipment sales and installation revenue, which consists primarily
of cellular subscriber equipment sales, increased to $5.8 million for the
first half of 1998 compared to $5.1 million for the first half of 1997. The
increase is primarily due to a 15.6% increase in gross subscriber activations
in the first half of 1998 compared to 1997. As a percentage of revenue,
equipment sales and installation revenue increased to 6.2% in the first half
of 1998 from 5.5% in the first half of 1997.
OPERATING EXPENSES. Engineering and technical expenses decreased by
6.8% to $7.1 million for the first half of 1998 from $7.7 million in the
first half of 1997. As a percentage of revenue, engineering and technical
expenses decreased to 7.7% from 8.2% for the first half of 1998 and 1997,
respectively. Engineering and technical expenses attributable to the cellular
telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.9
million for the first half of 1997.
Other direct costs of service decreased to $6.7 million for the
first half of 1998 from $7.9 million for the first half of 1997. reflecting
the decrease in interconnection costs as a result of the Company's
renegotiation of interconnection agreements with the local exchange carriers
in most of the Company's markets. As a percentage of revenue, these costs of
service declined to 7.3% from 8.5%, reflecting improved interconnection
agreements as well as efficiencies gained from the growing subscriber base.
Other direct costs of service attributable to the cellular telephone systems
sold in the Ft. Myers Sale and Georgia Sale totaled $2.2 million for the
first half of 1997
The cost of equipment increased 4.1% to $11.5 million for the first
half of 1998 from $11.1 million for the first half of 1997, primarily as a
result of gross subscriber activations for the same period. Equipment sales
resulted in losses of $5.7 million in 1998 versus $6.0 million in 1997. The
Company sells equipment below its costs in an effort to address market
competition and improve market share. Cost of equipment attributable to the
cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale
totaled $1.8 million for the first half of 1997.
Selling, general and administrative expenses decreased 6.3% to $26.7
million in the first half of 1998 from $28.5 million in the first half of
1997. These expenses are comprised of (i) sales and marketing costs, (ii)
customer service costs and (iii) general and administrative expenses.
Sales and marketing costs increased 21.5% to $9.7 million for the
first half of 1998 from $8.0 million for the same period in 1997. This
increase is primarily due to the 15.6% increase in gross subscriber
activations and the costs to acquire them, including advertising and
commissions. As a percentage of total revenue, sales and marketing costs
increased to 10.5% for the first half of 1998 compared to 8.5% for the first
half of 1997. The Company's cost to add a net subscriber, including loss
I-13
<PAGE>
on telephone sales, decreased to $221 for the first half of 1998 from $234
for the first half of 1997. This decrease in cost to add a net subscriber
was caused primarily by decreased losses from the Company's sales of cellular
telephones. Sales and marketing expenses attributable to the cellular
telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.9
million for the first half of 1997.
Customer service costs remained flat at $6.0 million for the first
half of 1998 and the first half of 1997. As a percentage of revenue, customer
service costs remained at 6.5% for the first half of both 1998 and 1997.
Customer service expenses attributable to the cellular telephone systems sold
in the Ft. Myers Sale and Georgia Sale totaled $.7 million for the first half
of 1997.
General and administrative expenditures decreased 24.1% to $11.0
million for the first half of 1998 from $14.5 million for the first half of
1997, due primarily to expense savings and reorganization efforts. General
and administrative expenses decreased as a percentage of revenue to 12.0% in
the first half of 1998 from 14.2% in the first half of 1997. As the Company
continues to add more subscribers, and generates associated revenue, general
and administrative expenses should decrease as a percentage of total
revenues. There can be no assurance, however, that this forward-looking
statement will not differ materially from actual results due to unforeseen
general and administrative expenses and other factors. General and
administrative expenses attributable to the cellular telephone systems sold
in the Ft. Myers Sale and Georgia Sale totaled $1.2 million for the first
half of 1997.
Depreciation and amortization increased 35.9% to $22.6 million for
the first half of 1998 from $16.6 million for the first half of 1997. This
increase was primarily due to the depreciation and amortization associated
with the new carrying value of assets as a result of the "push down" of the
purchase price to the Company. As a percentage of revenue, depreciation and
amortization increased to 24.5% for the first half of 1998 compared to 17.8%
for the first half of 1997. Depreciation and amortization attributable to the
cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale
totaled $1.5 million for the first half of 1997.
Operating income decreased 18.6% to $17.5 million in the first half
of 1998, from $21.5 million for the first half of 1997. This decrease in
operating results is attributable primarily to the increase in depreciation
and amortization expense.
NET INTEREST EXPENSE, INCOME TAXES, OTHER INCOME AND NET INCOME. Net
interest expense increased 116.7% to $35.1 million for the first half of 1998
from $16.2 million in the first half of 1997 primarily due to rate increases
on variable interest debt and additional borrowings incurred as a result of
the recent merger. Other income consists principally of the gain realized on
the sale of securities.
Income tax benefit was $4.6 million in the first half of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $2.8 million in the first half of
1997 based on earnings.
Net loss for the first half of 1998 was $14.0 million compared to
net income of $4.3 million for the first half of 1997. The decrease in net
income is primarily attributable to increases in interest expense,
depreciation and amortization expense and the $5.9 million net write-off of
deferred finance costs recorded as an extraordinary item.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term capital requirements consist of funds for
capital expenditures, acquisitions and debt service. Historically, the
Company has met its capital requirements primarily through equity
contributions, bank debt, and, to a lesser extent, operating cash flow.
In June 1998, PCW issued $525 million of 9.125% Senior Secured
Notes ("9.125% Notes") due
I-14
<PAGE>
June 15, 2002 with interest payable semi-annually commencing
December 15, 1998. The 9.125% Notes contain covenants that restrict the
payment of dividends, incurrence of debt and sale of assets. These Notes
replaced the existing credit facility which approximated $425.1 million as of
the redemption date.
In July 1997, PCW issued $175 million of 11.75% Senior Subordinated
Notes ("11.75% Notes") due July 15, 2007 with interest payable semi-annually
commencing January 15, 1998. The 11.75% Notes contain covenants that restrict
the payment of dividends, incurrence of debt and sale of assets.
In August 1997 Holdings issued 153,400 units, consisting of Notes
and Warrants, in exchange for $80 million. The Notes accrete at a rate of
13.5% compounded semi-annually, to an aggregate principal amount of
approximately $153.4 million by August 1, 2002. Cash interest will not
commence to accrue on the Notes prior to August 2, 2002. Commencing on
February 1, 2003, cash interest on the Notes will be payable at a rate of
13.5% per annum, payable semi-annually. During July of this year, the Company
called for redemption of all of the outstanding notes. On August 3 1998, the
Company redeemed the notes at the accreted value of approximately $91.0
million. In addition the Company paid a premium of approximately $18.2
million because of the early extinguishment of the debt. The Company intends
to finance the redemption out of the net proceeds of a new offering of Senior
Payable-in-Kind notes.
INFLATION
The Company believes that inflation affects its business no more
than it generally affects other similar businesses.
I-15
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
<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: August 05, 1998 By: /s/ Robert Price
----------------------
Robert Price
Director, President and Treasurer
Date: August 05, 1998 By: /s/ Kim I. Pressman
----------------------
Kim I. Pressman
Executive Vice President & Chief
Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- -------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 111,386
<SECURITIES> 16,932
<RECEIVABLES> 18,683
<ALLOWANCES> 0
<INVENTORY> 2,607
<CURRENT-ASSETS> 163,824
<PP&E> 145,551
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,241,813
<CURRENT-LIABILITIES> 48,629
<BONDS> 785,989
0
10
<COMMON> 0
<OTHER-SE> 50,110
<TOTAL-LIABILITY-AND-EQUITY> 1,241,813
<SALES> 3,181
<TOTAL-REVENUES> 48,918
<CGS> 6,019
<TOTAL-COSTS> 38,093
<OTHER-EXPENSES> 6,662
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,803)
<INCOME-PRETAX> (1,858)
<INCOME-TAX> 596
<INCOME-CONTINUING> (1,262)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,902)
<CHANGES> 0
<NET-INCOME> (7,164)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
