<PAGE> 1
================================================================================
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, 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 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 June 30,
1997 was 27,813,259.
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<PAGE> 2
PALMER WIRELESS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 31, 1996 and June 30, 1997.................. I-1
Condensed Consolidated Statements of Operations - Three Months ended June 30, 1996
and 1997 and six months ended June 30, 1996 and 1997................................ I-2
Condensed Consolidated Statements of Stockholders' Equity................................... I-3
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 1996 and 1997............................................................... I-4
Notes to Condensed Consolidated Financial Statements........................................ I-5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... I-6
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
ITEM 1. FINANCIAL STATEMENTS
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
----------------- -----------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 1,698 $ 1,740
Trade accounts receivable, net of
allowance for doubtful accounts 18,784 19,049
Receivable from other cellular carriers 1,706 3,669
Deferred income taxes 830 980
Prepaid expenses and deposits 2,313 1,794
Inventory 5,106 3,181
----------------- -----------------
Total current assets $ 30,437 $ 30,413
Net property, plant and equipment 132,438 157,596
Licenses, net of amortization 375,808 398,845
Other intangible assets and other assets,
at cost less accumulated amortization 11,259 10,348
----------------- -----------------
$ 549,942 $ 597,202
================= =================
Liabilities and Equity
----------------------
Current liabilities:
Notes payable $ 1,366 $ 2,321
Current installments of long-term debt 5,296 -
Accounts payable 10,394 9,032
Accrued expenses 8,399 11,896
Other liabilities 4,686 4,874
----------------- -----------------
Total current liabilities $ 30,141 $ 28,123
Long-term debt, excluding current installments 337,000 378,000
Deferred income taxes 11,500 15,326
Minority interests 6,371 7,123
----------------- -----------------
Total liabilities $ 385,012 $ 428,572
----------------- -----------------
Stockholders' equity 164,930 168,630
----------------- -----------------
$ 549,942 $ 597,202
================= =================
</TABLE>
Note: The balance sheet at December 31, 1996 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-1
<PAGE> 4
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------------- ----------------------------------
1996 1997 1996 1997
---------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Service $ 37,826 $ 45,920 $ 72,741 $ 88,140
Equipment sales and installation 2,204 2,625 4,239 5,088
---------------- ------------- --------------- --------------
Total revenue $ 40,030 $ 48,545 $ 76,980 $ 93,228
---------------- ------------- --------------- --------------
Operating expenses:
Engineering, technical and other direct 7,256 8,124 14,939 15,554
Cost of equipment 4,466 5,250 8,397 11,057
Selling, general and administrative 11,053 13,844 21,977 27,204
Depreciation and amortization 5,974 7,576 11,872 15,129
---------------- ------------- --------------- --------------
Total operating expenses $ 28,749 $ 34,794 $ 57,185 $ 68,944
---------------- ------------- --------------- --------------
Operating income $ 11,281 $ 13,751 $ 19,795 $ 24,284
---------------- ------------- --------------- --------------
Other income (expense):
Interest expense, net (8,061) (8,241) (16,006) (16,113)
Other (expense) income, net (58) 91 (58) 162
---------------- ------------- --------------- --------------
Total other expense $ (8,119) $ (8,150) $ (16,064) $ (15,951)
---------------- ------------- --------------- --------------
Income before minority interest
share of income and income taxes $ 3,162 $ 5,601 $ 3,731 $ 8,333
Minority interest share of income (571) (451) (1,023) (782)
---------------- ------------- --------------- --------------
Income before income taxes $ 2,591 $ 5,150 $ 2,708 $ 7,551
Income taxes (907) (2,627) (948) (3,851)
---------------- ------------- --------------- --------------
Net income $ 1,684 $ 2,523 $ 1,760 $ 3,700
================ ============= =============== ==============
Net income per share of common stock $ 0.07 $ 0.09 $ 0.07 $ 0.13
================ ============= =============== ==============
Average shares outstanding 24,299,453 27,813,259 23,940,039 27,813,259
================ ============= =============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-2
<PAGE> 5
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Common Stock
Class A Class B Additional
------------------------ ------------------- paid-in Retained
Shares Amount Shares Amount capital earnings
----------- ------------ ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 6,095,772 $ 61 17,293,578 $ 173 $ 72,466 $ 1,853
Public offering, net of issuance
costs of $5,826 5,000,000 50 - - 94,124 -
Exercise of stock options 6,666 - - - 95 -
Employee and non-employee director
stock purchase plans 17,243 - - - 290 -
Treasury shares purchased
Net income - - - - - 4,682
----------- ------------ ---------- ------- ------------ -----------
Balances at December 31, 1996 11,119,681 $ 111 17,293,578 $ 173 $ 166,975 $ 6,535
Net income - - - - - 3,700
----------- ------------ ---------- ------- ------------ -----------
Balances at June 30, 1997 11,119,681 $ 111 17,293,578 $ 173 $ 166,975 $ 10,235
=========== ============ ========== ======== ============ ===========
Treasury stock Total
------------------- stockholders'
Shares Amount equity
------- ---------- --------------
<S> <C> <C> <C>
Balances at December 31, 1995 --- $ --- $ 74,553
Public offering, net of issuance
costs of $5,826 (Note 3) --- --- 94,174
Exercise of stock options --- --- 95
Employee and non-employee director
stock purchase plans --- --- 290
Treasury shares purchased 600,000 (8,864) (8,864)
Net income --- --- 4,682
------- ---------- --------------
Balances at December 31, 1996 600,000 $ (8,864) $ 164,930
Net income --- --- 3,700
------- ---------- --------------
Balances at June 30, 1997 600,000 $ (8,864) $ 168,630
======= ========== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE> 6
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------------------
1996 1997
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,760 $ 3,700
------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,872 15,129
Minority interest share of income 1,023 782
Deferred income taxes 498 3,676
Loss (gain) on disposal of property 59 (9)
Interest deferred and added to long-term debt 326 -
Payment of deferred interest - (1,514)
(Increase) decrease in trade accounts receivable (809) 500
(Decrease) in inventory 358 2,085
(Decrease) increase in accounts payable and
accrued expenses (1,629) 1,799
Change in other accounts 2,345 (576)
------------- --------------
Total adjustments $ 14,043 $ 21,872
------------- --------------
Net cash provided by operating activities $ 15,803 $ 25,572
------------- --------------
Cash flows from investing activities:
Capital expenditures (21,639) (31,700)
Proceeds from sales of property and equipment 4 201
Purchase of cellular systems (31,500) (31,260)
Collection of purchase price adjustment 2,452 -
Purchases of minority interests (1,254) (794)
Increase in other intangible assets and other assets (1,710) (150)
------------- --------------
Net cash used in investing activities $ (53,647) $ (63,703)
------------- --------------
Cash flows from financing activities:
Increase in short term notes payable 2,535 955
Repayment of long-term debt (100,050) (3,782)
Proceeds from long-term debt 39,000 41,000
Public offering proceeds, net 94,295 -
------------- --------------
Net cash provided by financing activities $ 35,780 $ 38,173
------------- --------------
Net (decrease) increase in cash and cash
equivalents $ (2,064) $ 42
Cash and cash equivalents at the beginning of period 3,436 1,698
------------- --------------
Cash and cash equivalents at the end of period $ 1,372 $ 1,740
============= ==============
Supplemental disclosure of cash flow information:
Income taxes paid (received), net $ 1,172 $ (617)
============= ==============
Interest paid $ 14,460 $ 16,328
============= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-4
<PAGE> 7
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 income per share is based on the weighted
average number of common and, as appropriate, dilutive common equivalent shares
(common stock options using the treasury stock method) outstanding during the
periods presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 Statement of
Operations to conform to the 1997 presentation.
(2) ACQUISITION AND PURCHASE OF LICENSE
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and license to operate the non-wireline cellular
telephone system serving the Georgia Rural Service Area Market No. 383,
otherwise known as Georgia-13 RSA, for a total purchase price of $31,260.
(3) AGREEMENT AND PLAN OF MERGER
Pursuant to an Agreement and Plan of Merger dated May 23, 1997 by and
among Price Communications Corporation ("Price"), Price Communications
Wireless, Inc. and the Company, Price intends to acquire all issued and
outstanding shares of common stock of the Company and outstanding options and
rights under employee and director stock purchase plans for a purchase price of
$17.50 per share in cash.
Following this merger, the common stock of the Company will cease to
be authorized to be quoted on the NASDAQ Stock Market and will become eligible
for termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934.
I-5
<PAGE> 8
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 June 30, 1997, the Company provided cellular
telephone service to 325,653 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. The Company sells its
cellular telephone service as well as a full line of cellular products and
accessories principally through its network of retail stores. 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, 1996 and June 30, 1997.
<TABLE>
<CAPTION>
Cellular Service Area December 31, June 30,
--------------------- 1996 1997
<S> <C> <C>
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................................................... 100.0 100.0
Georgia 12 - RSA................................................... 100.0 100.0
Georgia 13 - RSA................................................... N/A 82.7
Alabama 8 - RSA.................................................... 100.0 100.0
Fort Myers, Florida................................................ 99.0 99.0
Panama City, Florida............................................... 77.9 78.4
</TABLE>
On February 1, 1997, one of the Company'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 $31.2 million, subject to
certain adjustments.
I-6
<PAGE> 9
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------
1996 1997 1996 1997
------------------------------ -------------------------
<S> <C> <C> <C> <C>
REVENUE:
Service 94.5% 94.6% 94.5% 94.5%
Equipment sales and installation 5.5% 5.4% 5.5% 5.5%
---------- --------- ------- --------
TOTAL REVENUE 100.0% 100.0% 100.0% 100.0%
OPERATING EXPENSES:
Engineering, technical and other direct:
Engineering and technical (1) 7.5% 8.5% 8.2% 8.2%
Other direct costs of services (2) 10.6% 8.2% 11.2% 8.5%
Cost of equipment (3) 11.2% 10.8% 10.9% 11.9%
Selling, general and administrativeA (6)
Sales and marketing (4) 7.8% 8.5% 8.2% 8.5%
Customer service (5) 5.4% 6.3% 5.6% 6.5%
General and administrative (6): 14.4% 13.8% 14.8% 14.2%
Depreciation and amortization 14.9% 15.6% 15.4% 16.2%
---------- --------- ------- --------
TOTAL OPERATING EXPENSES 71.8% 71.7% 74.3% 74.0%
Operating income 28.2% 28.3% 25.7% 26.0%
Operating income before depreciation
and amortization (7) 43.1% 43.9% 41.1% 42.2%
</TABLE>
- --------------------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, employee and agent commissions and advertising and promotional
expenses.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing billings generated in-house.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation or as an alternative to net income, operating
income or any other measure of performance under generally accepted
accounting principles. The Company believes that operating income before
depreciation and amortization is viewed as a relevant supplemental measure
of performance in the cellular telephone industry.
I-7
<PAGE> 10
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
REVENUE. Service revenues totaled $45.9 million for the second
quarter of 1997, an increase of 21.4% over $37.8 million for the second quarter
of 1996. This increase was primarily due to a 36.3% increase in the average
number of subscribers to 316,255 for the second quarter of 1997 versus 232,053
for the second quarter of 1996. The increase in subscribers is the result of
internal growth, which the Company attributes primarily to its strong sales and
marketing efforts, and the recent acquisitions.
Average monthly revenue per subscriber decreased 10.9% to $48.41 for
the second quarter of 1997 from $54.35 for the second 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 the Company's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $2.6 million for the second
quarter of 1997 from $2.2 million for the second quarter of 1996. As a
percentage of total cellular revenue, equipment sales and installation revenue
decreased to 5.4% for 1997 from 5.5% 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
37.1% to $4.1 million for the second quarter of 1997 from $3.0 million in the
second 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 8.5% from 7.5% for the second quarter of 1997 and 1996,
respectively. The increase from 1996 to 1997 relates to the costs associated
with additional cell sites constructed and obtained in recent acquisitions.
The Company 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 5.8% to $4.0 million for the
second quarter of 1997 from $4.2 million in the second quarter of 1996. As a
percentage of revenue, however, these costs of service declined to 8.2% from
10.6%, 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.
The cost of equipment increased 17.6% to $5.2 million for the second
quarter of 1997 from $4.5 million for the second quarter of 1996, due primarily
to the increase in gross subscriber activations for the same period. The
equipment sales margin improved to (100.0%) for the second quarter of 1997 from
(102.6%) for the second quarter of 1996. This improvement in margin is a
result of the Company increasing the sales price of certain phones in the
second quarter of 1997.
I-8
<PAGE> 11
Sales and marketing costs increased 31.4% to $4.1 million for the
second quarter of 1997 from $3.1 million for the same period in 1996. This
increase is primarily due to the 13.3% 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 8.5% from
7.8% for the second quarter of 1997 and 1996, respectively. The increase was
due to increased advertising costs in response to market competition. The
Company's cost to add a net subscriber, including loss on telephone sales,
increased to $485 for the second quarter of 1997 from $395 for the second
quarter of 1996. This increase in cost to add a net subscriber was caused
primarily by increased losses from the Company's sales of cellular telephones
and an increase in commissions
Customer service costs increased 42.4% to $3.0 million for the second
quarter of 1997 from $2.1 million for the second quarter of 1996. As a
percentage of revenue, customer service costs increased to 6.3% from 5.4% in
the second quarter of 1997 and 1996, respectively. The increase was due
primarily to higher costs for billing support services.
General and administrative expenditures increased 15.5% to $6.7
million for the second quarter of 1997 from $5.8 million for the second 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 13.8% in the second quarter of 1997 from 14.4% in the second
quarter of 1996. 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.
Depreciation and amortization increased 26.8% to $7.6 million for the
second quarter of 1997 from $6.0 million for the second 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 15.6% from 14.9% for the
second quarter of 1997 compared to the second quarter of 1996.
Operating income increased 21.9% to $13.8 million in the second
quarter of 1997, from $11.3 million for the second 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 2.2% to $8.2 million for the second quarter of 1997 versus
$8.1 million for the second quarter of 1996.
Income tax expense was $2.6 million in the second quarter of 1997 and
$0.9 million in the second 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 second quarter of 1997 was $2.5 million, or $0.09
per share, compared to net income of $1.7 million, or $0.07 per share, for the
second quarter of 1996. The increase in net income is primarily attributable
to increases in revenue which exceeded increases in operating expenses and
income tax expense.
I-9
<PAGE> 12
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUE. Service revenues totaled $88.1 million for the first half
of 1997, an increase of 21.2% over $72.7 million for the first half of 1996.
This increase was primarily due to a 36.2% increase in the average number of
subscribers to 305,638 for the first half of 1997 versus 224,333 for the first
half of 1996. The increase in subscribers is the result of internal growth,
which the Company attributes primarily to its strong sales and marketing
efforts, and recent acquisitions.
Average monthly revenue per subscriber decreased 11.1% to $48.06 for
the first half of 1997 from $54.04 for the first half of 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. 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 by 20.0% to $5.1 million for the
first half of 1997 compared to $4.2 million for the first half of 1996. The
increase is due to the 20.7% increase in gross subscriber activations in the
first half of 1997 compared to 1996. As a percentage of revenue, equipment
sales and installation revenue remained flat at 5.5% for the first half of
1997 and 1996.
OPERATING EXPENSES. Engineering and technical expenses increased by
21.4% to $7.7 million for the first half of 1997 from $6.3 million in the first
half of 1996, due primarily to the increase in subscribers and recent
acquisitions. As a percentage of revenue, engineering and technical expenses
remained flat at 8.2% for the first half of 1997 and 1996, respectively. The
Company 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 to $7.9 million for the
first half of 1997 from $8.6 million for the first half of 1996 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 8.5% from 11.2%, reflecting improved interconnection agreements
with LECs, as well as efficiencies gained from the growing subscriber base.
The cost of equipment increased 31.7% to $11.0 million for the first
half of 1997 from $8.4 million for the first half of 1996, due primarily to the
increase in gross subscriber activations for the same period. The equipment
sales margin decreased to (117.3%) for the first half of 1997 from (98.1%) for
the first half of 1996. In an effort to address market competition and improve
market share, the Company 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 26.2% to $8.0 million for the
first half of 1997 from $6.3 million for the same period in 1996. This
increase is primarily due to the 20.7% increase in gross subscriber activations
and the resulting increase in commissions. As a percentage of total revenue,
sales and marketing costs increased to 8.5% from 8.2% for the first half of
1997 and 1996, respectively. The Company's cost to add a net subscriber,
including loss on telephone sales, increased to $480 for the first half of 1997
from $375 for the first half of 1996. This increase in cost to add a net
subscriber was caused primarily by increased losses from the Company's sales of
cellular telephones and an increase in commissions and advertising costs.
I-10
<PAGE> 13
Customer service costs increased 41.3% to $6.0 million for the first
half of 1997 from $4.2 million for the first half of 1996. As a percentage of
revenue, customer service costs increased to 6.5% from 5.6% for the first half
of 1997 and 1996, respectively. The increase was due primarily to higher costs
for billing support services.
General and administrative expenditures increased 15.8% to $13.2
million for the first half of 1997 from $11.4 million for the first half of
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 first half of 1997 from 14.8% in the
first half of 1996. 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.
Depreciation and amortization increased 27.4% to $15.1 million for
the first half of 1997 from $11.9 million for the first half 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 16.2% from 15.4% for the
first half of 1997 and 1996, respectively.
Operating income increased 22.7% to $24.3 million in the first half
of 1997, from $19.8 million for the first half 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 remained relatively flat at $16.1 million and $16.0 million for the
first half of 1997 and 1996.
Income tax expense was $3.9 million in the first half of 1997 and
$0.9 million in the first half of 1996. This increase is due primarily 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 first half of 1997 was $3.7 million, or $0.13 per
share, compared to net income of $1.8 million, or $0.07 per share, for the
first half of 1996. The increase in net income is primarily attributable to
increases in revenue which exceeded increases in operating expenses and income
tax 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
debt, and, to a lesser extent, operating cash flow.
The Company currently has a $500.0 million revolving credit facility
with a syndicate of 20 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 ten interest rate swap agreements and four interest
rate cap agreements for a total notional amount of $295.0 million. Under these
agreements, the maximum interest rate may range from 7.76% to 11.25%. As of
June 30, 1997, the effective interest rate under these agreements ranged from
7.14% to 9.98%.
I-11
<PAGE> 14
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 June 30, 1997, $378.0 million was outstanding under the Credit
Facility and $122.0 million was available to be borrowed. The Company believes
that operating cash flow and borrowings available under the 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.
OTHER
INFLATION
The Company believes that inflation affects its business no more than
it generally affects other similar businesses.
Pursuant to an Agreement and Plan of Merger dated May 23, 1997 by and
among Price Communications Corporation ("Price"), Price Communications
Wireless, Inc. and the Company, Price intends to acquire all issued and
outstanding shares of common stock of the Company and outstanding options and
rights under employee and director stock purchase plans for a purchase price of
$17.50 per share in cash.
Following this merger, the common stock of the Company will cease to
be authorized to be quoted on the NASDAQ Stock Market and will become eligible
for termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934.
I-12
<PAGE> 15
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
The following matters were submitted to a vote of security holders at
the 1996 Annual Meeting of Stockholders held on April 22, 1997:
1. Election of two Class I Directors to the Board of Directors of the
Company. The following votes were cast in the election of the
directors:
<TABLE>
<CAPTION>
WITHHOLDING
CLASS I DIRECTORS FOR AUTHORITY
----------------- --- ---------
<S> <C> <C>
Thomas D. McCloskey, Jr. 33,167,761 21,175
Vickie Palmer 33,173,964 14,972
</TABLE>
2. Proposed ratification of the appointment of KPMG Peat Marwick LLP
as the independent auditors of the Company for the fiscal year
ending December 31, 1997. There were 33,171,830 votes cast for
ratification, 15,875 votes cast against ratification, 0 votes
withheld and 1,231 abstentions. There were no broker non-votes
recorded.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <C>
11 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On June 2, 1997, the Company filed a Current Report on Form 8-K which
reported that the Company, Price Communications Corporation (the "Acquiror")
and a wholly owned subsidiary of Acquiror entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provides that the
Acquiror will acquire each issued and outstanding share of common stock of the
Company for a purchase price of $17.50 per share through the merger of a
wholly-owned subsidiary of Acquiror with and into the Company (the "Merger").
The Merger is subject to stockholder approval, approval by the Federal
Communications Commission and other regulatory approvals.
Concurrently with the execution of the Merger Agreement, Palmer
Communications Incorporated, a Delaware corporation which is the majority
stockholder of the Company ("PCI"), entered into a voting agreement with
Acquiror pursuant to which PCI agreed to vote its shares of common stock of the
Company in favor of the Merger.
II-I
<PAGE> 16
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.
Date: August 14, 1997 By: /s/ William J. Ryan
------------------------------
William J. Ryan
President and
Chief Executive Officer
Date: August 14, 1997 By: /s/ M. Wayne Wisehart
-----------------------------
M. Wayne Wisehart
Vice President, Treasurer
and Chief Financial Officer
II-2
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Numbered Page
- ------ ----------- -------------
<S> <C>
11 Computation of Earnings Per Share.......................
27 Financial Data Schedule ................................
</TABLE>
<PAGE> 1
EXHIBIT 11
PALMER WIRELESS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -----------------------------
1996 1997 1996 1997
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Number of shares of common stock
outstanding at beginning of the period 23,389 27,813 23,389 27,813
Weighted average number of shares of
common stock issued during the period 719 - 360 -
Weighted average number of shares of
common stock from stock options using the
treasury stock method 191 - 191 -
---------- ------------ ----------- ------------
Weighted average number of shares of
common stock outstanding during the period 24,299 27,813 23,940 27,813
========== ============ =========== ============
Net income $1,684 $2,523 $1,760 $3,700
========== ============ =========== ============
Earnings per common share $0.07 $0.09 $0.07 $0.13
========== ============ =========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,740
<SECURITIES> 0
<RECEIVABLES> 19,049
<ALLOWANCES> 0
<INVENTORY> 3,181
<CURRENT-ASSETS> 30,413
<PP&E> 157,596
<DEPRECIATION> 0
<TOTAL-ASSETS> 597,202
<CURRENT-LIABILITIES> 28,123
<BONDS> 378,000
0
0
<COMMON> 284
<OTHER-SE> 168,346
<TOTAL-LIABILITY-AND-EQUITY> 597,202
<SALES> 5,088
<TOTAL-REVENUES> 93,228
<CGS> 11,057
<TOTAL-COSTS> 26,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,113
<INCOME-PRETAX> 7,551
<INCOME-TAX> 3,851
<INCOME-CONTINUING> 3,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,700
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
