<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDED AND RESTATED)
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
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 0-25588
------------------------
PALMER WIRELESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 65-0456627
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12800 UNIVERSITY DRIVE, STE. 500, 33907
FORT MYERS, FLORIDA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER (941) 433-4350
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
The number of shares outstanding of the issuer's common stock as of May 13,
1996 was 23,396,016.
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<PAGE> 2
PALMER WIRELESS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Independent Auditors' Review Report........................................ I-1
Condensed Consolidated Balance Sheets -- December 31, 1995 and March 31,
1996....................................................................... I-2
Condensed Consolidated Statements of Operations -- Three months ended March
31, 1995 and 1996.......................................................... I-3
Condensed Consolidated Statements of Stockholders' Equity.................. I-4
Condensed Consolidated Statements of Cash Flows -- Three Months ended March
31, 1995 and 1996.......................................................... 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
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Palmer Wireless, Inc.:
We have reviewed the condensed consolidated balance sheet of Palmer
Wireless, Inc. and subsidiaries as of March 31, 1996, and the related condensed
consolidated statements of operations, stockholders' equity and cash flows for
the three-month periods ended March 31, 1996 and 1995. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Palmer Wireless, Inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended; and in
our report dated January 31, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1995,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Des Moines, Iowa
May 14, 1996
I-1
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(SEE ACCOMPANYING INDEPENDENT AUDITORS' REVIEW REPORT)
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 3,436 $ 4,553
Trade accounts receivable, net of allowance for doubtful
accounts........................................................ 17,347 17,297
Receivable from other cellular carriers.......................... 3,936 2,267
Deferred income taxes............................................ 821 949
Prepaid expenses and deposits.................................... 1,111 1,750
Inventory........................................................ 2,434 2,056
---------- ---------
Total current assets........................................ 29,085 28,872
Net property, plant and equipment..................................... 100,936 103,885
Licenses, net of amortization......................................... 321,053 319,284
Other intangible assets, net of amortization.......................... 11,797 14,000
---------- ---------
$462,871 $ 466,041
========== =========
LIABILITIES AND EQUITY
Current liabilities:
Current installments of long-term debt........................... $ 7,441 $ 7,603
Accounts payable................................................. 10,795 9,522
Accrued expenses................................................. 8,833 10,837
Other liabilities................................................ 3,451 3,452
---------- ---------
Total current liabilities................................... 30,520 31,414
Long-term debt, excluding current installments........................ 343,000 345,000
Deferred income taxes................................................. 9,636 9,805
Minority interests.................................................... 5,162 5,193
---------- ---------
Total liabilities........................................... 388,318 391,412
---------- ---------
Stockholders' equity.................................................. 74,553 74,629
---------- ---------
$462,871 $ 466,041
========== =========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
I-2
<PAGE> 5
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(SEE ACCOMPANYING INDEPENDENT AUDITORS' REVIEW REPORT)
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Revenue:
Service......................................................... $ 20,408 $ 33,856
Equipment sales and installation................................ 1,966 2,035
---------- ----------
Total revenue.............................................. 22,374 35,891
---------- ----------
Operating expenses:
Engineering, technical and other direct......................... 3,860 6,624
Cost of equipment............................................... 3,144 3,931
Selling, general and administrative............................. 7,131 10,924
Depreciation and amortization................................... 3,367 5,898
---------- ----------
Total operating expenses................................... 17,502 27,377
---------- ----------
Operating income........................................... 4,872 8,514
---------- ----------
Other income (expense):
Interest expense, net........................................... (5,730) (7,945)
Other expense, net.............................................. (328) --
---------- ----------
Total other expense........................................ (6,058) (7,945)
---------- ----------
(Loss) income before minority interest share of income and
income tax expense....................................... (1,186) 569
Minority interest share of income.................................... (122) (452)
---------- ----------
(Loss) income before income taxes.......................... (1,308) 117
Income tax expense................................................... (2,650) (41)
---------- ----------
Net (loss) income.......................................... $ (3,958) $ 76
========= =========
Net (loss) income per share of common stock.......................... $ (0.21) $ 0.00
========= =========
Average shares outstanding........................................... 18,611,111 23,561,923
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE> 6
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(SEE ACCOMPANYING INDEPENDENT AUDITORS' REVIEW REPORT)
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK (ACCUMULATED
CLASS A CLASS B ADDITIONAL DEFICIT) TOTAL
------------------ ------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994...... 706,422 $ 7 17,293,578 $173 $ 4,902 $ (167) $ 4,915
Partnership loss before business
combination...................... -- -- -- -- (1,066) -- (1,066)
Public offering, net of issuance
costs of $8,114.................. 5,369,350 54 -- -- 68,345 -- 68,399
Exercise of stock options.......... 20,000 -- -- -- 285 -- 285
Net income......................... -- -- -- -- -- 2,020 2,020
--------- ----- ---------- ------ --------- --------- ----------
Balances at December 31, 1995...... 6,095,772 $ 61 17,293,578 $173 $ 72,466 $1,853 $ 74,553
Net income......................... -- -- -- -- -- 76 76
--------- ----- ---------- ------ --------- --------- ----------
Balances at March 31, 1996......... 6,095,772 $ 61 17,293,578 $173 $ 72,466 $1,929 $ 74,629
========= ===== ========== ====== ======== ========= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-4
<PAGE> 7
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(SEE ACCOMPANYING INDEPENDENT AUDITORS' REVIEW REPORT)
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1995 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................ $ (3,958) $ 76
-------- -------
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization............................... 3,367 5,898
Minority interest share of income........................... 122 452
Deferred income taxes....................................... 2,650 41
Loss on disposal of property................................ 325 --
Interest deferred and added to long-term debt............... 149 187
(Increase) decrease in trade accounts receivable............ (497) 50
Decrease in inventory....................................... 2,416 378
(Decrease) increase in accounts payable and accrued
expenses.................................................. (3,824) 40
Change in other accounts.................................... 547 (343)
-------- -------
Total adjustments........................................... $ 5,255 $ 6,703
-------- -------
Net cash provided by operating activities................... $ 1,297 $ 6,779
-------- -------
Cash flows from investing activities:
Capital expenditures............................................. (4,442) (6,618)
Purchases of minority interests.................................. -- (1,224)
Collection of purchase price adjustment.......................... -- 2,452
Increase in other intangible assets.............................. (614) (2,247)
-------- -------
Net cash used in investing activities....................... $ (5,056) $(7,637)
-------- -------
Cash flows from financing activities:
Advances to Palmer Communications Incorporated, net.............. (1,603) --
Repayment of long-term debt...................................... (60,025) (25)
Proceeds from long-term debt..................................... 5,000 2,000
Public offering proceeds, net.................................... 66,250 --
-------- -------
Net cash provided by financing activities................... $ 9,622 $ 1,975
-------- -------
Net increase in cash and cash equivalents................... $ 5,863 $ 1,117
Cash and cash equivalents at the beginning of period.................. 2,998 3,436
-------- -------
Cash and cash equivalents at the end of period........................ $ 8,861 $ 4,553
======== =======
Supplemental disclosure of cash flow information:
Cash paid for interest........................................... $ 5,483 $ 7,033
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-5
<PAGE> 8
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SEE ACCOMPANYING INDEPENDENT AUDITORS' REVIEW REPORT)
($ IN THOUSANDS)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Palmer
Wireless, Inc. and subsidiaries (the "Company") have been prepared without audit
pursuant to Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financials. In the opinion of management, all adjustments (none of which were
other than normal recurring items) considered necessary for a fair presentation
have been included. The results of operations for the interim periods reported
are not necessarily indicative of results to be expected for the year.
The computation of net (loss) income per share is based on the weighted
average number of common and dilutive common equivalent shares (common stock
options using the treasury stock method) outstanding during the periods
presented.
(2) ACQUISITIONS
On March 22, 1996, two of the Company's majority-owned subsidiaries entered
into a definitive agreement to purchase the non-wireline cellular telephone
system serving Georgia-6 RSA for a total purchase price of $35 million, subject
to certain adjustments.
On April 23, 1996, the Company entered into a definitive agreement to
purchase the non-wireline cellular telephone system serving Georgia-1 RSA for a
total purchase price of $31.5 million, subject to certain adjustments.
I-6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Palmer Wireless, Inc. ("Company") is engaged in the construction,
development, management and operation of cellular telephone systems in the
southeastern United States. As of March 31, 1996, the Company provided cellular
telephone service to 227,400 subscribers in Alabama, Florida, Georgia, and South
Carolina in a total of 15 licensed service areas, composed of nine Metropolitan
Service Areas ("MSAs") and six Rural Service Areas ("RSAs") with an aggregate
estimated population of 3.3 million. The Company sells its cellular telephone
service as well as cellular telephones and accessories principally through its
network of retail stores offering a full line of cellular products and services.
The Company markets all of its products and services under the
nationally-recognized service mark CELLULAR ONE.
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, 1995 and March 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
CELLULAR SERVICE AREA 1995 1996
------------------------------------------------------ ------------ ---------
<S> <C> <C>
Albany, Georgia....................................... 82.1% 82.7%
Augusta, Georgia...................................... 100.0 100.0
Columbus, Georgia..................................... 83.2 84.2
Macon, Georgia........................................ 98.4 98.7
Savannah, Georgia..................................... 97.9 98.2
Dothan, Alabama....................................... 92.1 92.1
Montgomery, Alabama................................... 91.9 91.9
Georgia 7 -- RSA...................................... 100.0 100.0
Georgia 8 -- RSA...................................... 100.0 100.0
Georgia 9 -- RSA...................................... 100.0 100.0
Georgia 10 -- RSA..................................... 100.0 100.0
Georgia 12 -- RSA..................................... 100.0 100.0
Alabama 8 -- RSA...................................... 100.0 100.0
Fort Myers, Florida................................... 99.0 99.0
Panama City, Florida.................................. 77.9 77.9
</TABLE>
On December 1, 1995, the Company acquired the cellular telephone systems
serving the Augusta and Savannah MSAs for an aggregate purchase price of $158.4
million ("the GTE Acquisition"). The cellular telephone systems in the
newly-acquired MSAs serve a geographic territory in eastern Georgia and a
portion of South Carolina that is adjacent to the Company's existing markets in
the Georgia-8 and Georgia-12 RSAs. In the GTE Acquisition, the Company also
acquired interim authority to provide cellular service to the southern portions
of South Carolina RSA Market Nos. 631 and 632, otherwise known as South
Carolina-7 RSA and South Carolina-8 RSA, respectively, which serve a geographic
territory that is adjacent to the Company's existing markets in Georgia-8 RSA as
well as the Augusta and Savannah, Georgia MSAs. The Company has no subscribers
and has not constructed any cell sites in South Carolina-7 RSA and South
Carolina-8 RSA, however it provides roaming access to its own subscribers and
others when they travel in these two service areas by utilizing its existing
cell sites in adjacent service areas.
On March 22, 1996, two of the Company's majority-owned subsidiaries entered
into a definitive agreement to purchase the non-wireline cellular telephone
system serving Georgia-6 RSA for a total purchase price of $35 million, subject
to certain adjustments.
On April 23, 1996, the Company entered into a definitive agreement to
purchase the non-wireline cellular telephone system serving Georgia-1 RSA for a
total purchase price of $31.5 million, subject to certain adjustments.
I-7
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth for the Company, for the periods indicated,
the percentage which certain amounts bear to total revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1996
----- -----
<S> <C> <C>
REVENUE:
Service................................................................. 91.2% 94.3%
Equipment sales and installation........................................ 8.8 5.7
----- -----
TOTAL REVENUE................................................. 100.0 100.0
OPERATING EXPENSES:
Engineering, technical and other direct:
Engineering and technical (1)...................................... 8.0 9.2
Other direct costs of services (2)................................. 9.3 9.2
Cost of equipment (3)................................................... 14.1 11.0
Selling, general and administrative:
Sales and marketing (4)............................................ 9.2 8.8
Customer service (5)............................................... 6.7 5.9
General and administrative (6)..................................... 15.9 15.8
Depreciation and amortization........................................... 15.0 16.4
----- -----
TOTAL OPERATING EXPENSE....................................... 78.2 76.3
Operating income........................................................ 21.8% 23.7%
Operating income before depreciation and amortization (7)............... 36.8% 40.1%
</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.
(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 (loss), 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 MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
REVENUE. Service revenues totaled $33.9 million for the first quarter of
1996, an increase of 65.9% over $20.4 million for the first quarter of 1995.
This increase was primarily due to a 76.7% increase in the number of subscribers
to 227,400 as of March 31, 1996 versus 128,661 as of March 31, 1995. The
increase in subscribers is the result of internal growth, which the Company
attributes primarily to its strong sales and marketing efforts, and the GTE
Acquisition. The GTE Acquisition accounted for 35,685 subscribers at March 31,
1996. Service revenue attributable to the cellular systems acquired in the GTE
Acquisition totaled $6.2 million for the three months ended March 31, 1996.
I-8
<PAGE> 11
Average monthly revenue per subscriber decreased 8.0% to $52.10 for the
first quarter of 1996 from $56.64 for the first quarter of 1995. 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.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, remained flat at $2.0 million for the first
quarter of 1996 and 1995. While equipment sales and installation revenue
remained flat for the first quarter of 1996 and 1995, it decreased as a
percentage of total cellular revenue to 5.7% for 1996 from 8.8% for 1995,
reflecting the increased recurring revenue base as well as lower cellular
equipment prices charged to customers. Equipment sales and installation revenue
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $0.2 million for the three months ended March 31, 1996.
OPERATING EXPENSES. Engineering and technical expenses increased by 85.5%
to $3.3 million for the first quarter of 1996 from $1.8 million in the first
quarter of 1995, due primarily to the increase in subscribers and the GTE
Acquisition. As a percentage of revenue, engineering and technical expenses
increased to 9.2% from 8.0% due to additional costs incurred for the GTE
Acquisition. The Company expects engineering and technical expenses to decrease
as a percentage of revenue due to its large component of fixed costs except for
extraordinary expenses incurred in cases of acquisitions. Engineering and
technical expenses attributable to the cellular telephone systems acquired in
the GTE Acquisition totaled $0.8 million for the three months ended March 31,
1996.
Other direct costs of services increased 59.7% to $3.3 million for the
first quarter of 1996 from $2.1 million in the first quarter of 1995. As a
percentage of revenue, however, these costs of service remained relatively flat
at 9.2% and 9.3% for the first quarter of 1996 and 1995 respectively. Other
direct costs of services attributable to the cellular telephone systems acquired
in the GTE Acquisition totaled $0.6 million for the three months ended March 31,
1996.
The cost of equipment sales increased 25.0% to $3.9 million for the first
quarter of 1996 from $3.1 million for the first quarter of 1995, due primarily
to the increase in gross subscriber activations for the same period. The
equipment sales margin decreased to (93.2%) for the first quarter of 1996 from
(59.9%) for the first quarter of 1995. In an effort to address market
competition and improve market share, the Company sold more telephones below
cost in the first quarter of 1996 than in the same period of 1995. The cost of
equipment attributable to the cellular telephone systems acquired in the GTE
Acquisition totaled $0.4 million for the three months ended March 31, 1996.
Sales and marketing costs increased 53.4% to $3.2 million for the first
quarter of 1996 from $2.1 million for the same period in 1995. This increase is
primarily due to the 49.1% increase in gross subscriber activations and the
resulting increase in salaries and commissions. As a percentage of total
revenue, sales and marketing costs decreased to 8.8% from 9.2% for the first
quarter of 1996 and 1995 respectively. The decrease is due to a significant
portion of sales and marketing costs being fixed. The Company's cost to add a
net subscriber, including loss on telephone sales, increased to $357 for the
first quarter of 1996 from $315 for the first quarter of 1995. This increase in
cost to add a net subscriber was caused primarily by increased losses from the
Company's sales of cellular telephones. The sales and marketing costs
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $0.6 million for the three months ended March 31, 1996.
Customer service costs increased 41.3% to $2.1 million for the first
quarter of 1996 from $1.5 million for the first quarter of 1995, but decreased
as a percentage of total revenue to 5.9% from 6.7% for the same period. This
decrease is due to a significant portion of customer service costs being fixed.
The customer service costs attributable to the cellular telephone systems
acquired in the GTE Acquisition totaled $0.5 million for the three months ended
March 31, 1996.
General and administrative expenditures increased 58.0% to $5.6 million for
the first quarter of 1996 from $3.6 million for the first quarter of 1995, due
primarily to the increase in the number of subscribers and the GTE Acquisition.
General and administrative expenses remained relatively flat as a percentage of
total revenue at 15.8% in the first quarter of 1996 and 15.9% for the first
quarter of 1995. As the Company continues
I-9
<PAGE> 12
to add more subscribers, and generates associated revenue, general and
administrative expenses should decrease as a percentage of total revenues. The
general and administrative costs attributable to the cellular telephone systems
acquired in the GTE Acquisition totaled $1.0 million for the three months ended
March 31, 1996.
Depreciation and amortization increased 75.2% to $5.9 million for the first
quarter of 1996 from $3.4 million for the first quarter of 1995. This increase
was primarily due to the depreciation and amortization associated with the GTE
Acquisition and additional capital expenditures. Depreciation and amortization
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $1.5 million for the three months ended March 31, 1996.
Operating income increased 74.8% to $8.5 million in the first quarter of
1996, from $4.9 million for the first quarter of 1995. This improvement in
operating results is attributable primarily to increases in revenue which
exceeded increases in operating expenses. Operating income attributable to the
cellular telephone systems acquired in the GTE Acquisition totaled $1.0 million
for the three months ended March 31, 1996.
NET INTEREST EXPENSE, OTHER EXPENSE, INCOME TAXES AND NET INCOME
(LOSS). Net interest expense increased 38.7% to $7.9 million for the first
quarter of 1996 versus $5.7 million for the first quarter of 1995. This increase
is due primarily to debt incurred for the GTE Acquisition and the amortization
of deferred financing fees related to the Credit Facility (as defined in
"Liquidity and Capital Resources").
Other expense was none in the first quarter of 1996 and $0.3 million for
the first quarter of 1995 which consists primarily of the disposal of certain
assets by the Company.
Income tax expense was immaterial in the first quarter of 1996 and $2.7
million in the first quarter of 1995. The $2.7 million is a non-recurring
deferred income tax charge related to the difference between the financial
statement and income tax return basis of certain assets and liabilities of
Palmer Cellular Partnership and Subsidiaries. In connection with the initial
public offering in March of 1995, all of the assets and liabilities of Palmer
Cellular Partnership and Subsidiaries were exchanged for stock in Palmer
Wireless, Inc. Due to the exchange, a corporate tax liability was recorded to
reflect the difference between the financial and income tax return basis in
these assets and liabilities.
Net income for the first quarter of 1996 was $0.1 million, or $0.00 per
share, compared to a net loss of $(4.0) million, or $(0.21) per share, for the
first quarter of 1995. The increase in net income is primarily attributable to
decreases in income tax expense and other expense and increases in revenue which
exceeded increases in operating expenses and interest expense.
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 and
intercompany debt, and to a lesser extent through operating cash flow.
The Company currently has a $500.0 million revolving credit facility with a
syndicate of 22 banks ("Credit Facility"). The Credit Facility is a revolving
line of credit with scheduled commitment reductions commencing September 30,
1998. Interest rates under the Credit Facility range from .25% over prime or
1.5% over the London Inter Bank Offered Rate ("LIBOR") to 1.25% over prime or
2.5% over LIBOR depending upon the Company's leverage ratio. The Company has
entered into five interest rate swap agreements and six interest rate cap
agreements for a total notional amount of $185.0 million. Under these
agreements, the maximum interest rate may range from 7.76% to 11.25%. As of
March 31, 1996, the effective interest rate under these agreements ranged from
7.39% to 10.23%.
The Credit Facility is secured by substantially all of the property and
assets of the Company and its subsidiaries. The subsidiaries of the Company also
guarantee all obligations of the Company under the Credit Facility.
As of March 31, 1996, $345.0 million was outstanding under the Credit
Facility and $155.0 million was available to be borrowed. The Company believes
that operating cash flow and borrowings available under the
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<PAGE> 13
Credit Facility will provide sufficient financial resources to satisfy the
Company's debt service requirements and to meet the Company's currently
anticipated capital and other expenditure requirements over at least the next
two to three years. However, there can be no assurance that the Company will not
require future financing or that, if so required, such financing will be
available, or, if available, that the terms thereof will be attractive to the
Company.
Any acquisitions by the Company of ownership interests in cellular
telephone systems may be for cash, securities or a combination of cash and
securities. To the extent that the Company uses cash for all or a part of any
such acquisitions, it expects to raise such cash from borrowings under the
Credit Facility or, if feasible and attractive, issuance of Class A Common
Stock.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
I-11
<PAGE> 14
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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ---------------------------------------------------------------------------
<S> <C>
15 Unaudited Interim Financial Information Letter of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On February 12, 1996, the Company filed an Amendment No. 1 to Form 8-K
Current Report (the "Amendment"), which amended Item 7(a) of a Current Report on
Form 8-K filed on December 14, 1995 (the "Form 8-K") to include financial
statements of two acquired companies, Augusta Metronet, Inc. ("AMI") and Georgia
Metronet, Inc. ("GMI"). Those financial statements included, for both AMI and
GMI, audited balance sheets as of December 31, 1993 and 1994, and the related
statements of operations, changes in stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1994. Also included for
both AMI and GMI were the unaudited condensed balance sheet as of September 30,
1995, and the unaudited condensed statements of operations and accumulated
deficit and the unaudited condensed statements of cash flows for the nine months
ended September 30, 1994 and 1995.
The Amendment also amended Item 7(b) of the Form 8-K to include pro forma
financial information for the Company reflecting the acquisition of AMI and GMI.
The information included the pro forma combined balance sheet as of September
30, 1995 and the pro forma combined summaries of operations for the year ended
December 31, 1994 and the nine months ended September 30, 1995.
II-1
<PAGE> 15
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.
PALMER WIRELESS, INC.
<TABLE>
<S> <C> <C>
Date: June 5, 1996 By: /s/ WILLIAM J. RYAN
---------------------------------
William J. Ryan
President and
Chief Executive Officer
Date: June 5, 1996 By: /s/ M. WAYNE WISEHART
---------------------------------
M. Wayne Wisehart
Vice President, Treasurer
and Chief Financial Officer
</TABLE>
II-2
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------------------------------------------------------------------- -------------
<C> <S> <C>
Unaudited Interim Financial Information Letter of KPMG Peat Marwick
15 LLP....................................................................
27 Financial Data Schedule................................................
</TABLE>
<PAGE> 1
EXHIBIT 15
Palmer Wireless, Inc.
Fort Myers, Florida
Ladies and Gentlemen:
Re: Registration Statements Nos. 33-99170 and 33-99172
With respect to the subject registration statements, we acknowledge our
awareness of the incorporation by reference of our report dated May 14, 1996
related to our review of interim financial information, which report appears in
the March 31, 1996 Form 10-Q of Palmer Wireless, Inc.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
Des Moines, Iowa
June 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,553
<SECURITIES> 0
<RECEIVABLES> 17,297
<ALLOWANCES> 0
<INVENTORY> 2,056
<CURRENT-ASSETS> 28,872
<PP&E> 103,885
<DEPRECIATION> 0
<TOTAL-ASSETS> 466,041
<CURRENT-LIABILITIES> 31,414
<BONDS> 345,000
0
0
<COMMON> 234
<OTHER-SE> 74,395
<TOTAL-LIABILITY-AND-EQUITY> 466,041
<SALES> 35,891
<TOTAL-REVENUES> 35,891
<CGS> 3,931
<TOTAL-COSTS> 10,555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,945
<INCOME-PRETAX> 117
<INCOME-TAX> 41
<INCOME-CONTINUING> 76
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
