-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FKQyfp5wBlPUptkbF8EePSnDxfThalwNy9C1KNZTg8RBH4o8nBTMXfDkwSu97lAC 0lGCYz4/KSburuvvGZCxYQ== 0001005477-98-003098.txt : 19981113 0001005477-98-003098.hdr.sgml : 19981113 ACCESSION NUMBER: 0001005477-98-003098 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000355787 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 132991700 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08309 FILM NUMBER: 98745066 BUSINESS ADDRESS: STREET 1: 45 ROCKEFELLER PLZ STREET 2: STE 3201 CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2127575600 MAIL ADDRESS: STREET 1: 45 ROCKEFELLER PLAZA STREET 2: SUITE 3201 CITY: NEW YORK STATE: NY ZIP: 10020 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q ------------------- |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ------------------ OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- Commission file number 1-8309 ------ PRICE COMMUNICATIONS CORPORATION (Exact Name of Registrant as specified in its charter) Delaware 13-2991700 (State or other jurisdiction (I.R.S. of incorporation or organization) Identification Employer No.) 45 Rockefeller Plaza, 10020 New York, New York (Zip Code) (Address of principal executive offices) Registrant's telephone number (212) 757-5600 -------------------- Securities registered pursuant to Section 12(b) or Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The number of shares outstanding of the issuer's common stock as of October 30, 1998 was 22,681,883 - -------------------------------------------------------------------------------- PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 ........................ I-1 Condensed Consolidated Statement of Operations - Three months ended September 30, 1998 and 1997 and nine months ended September 30, 1998 and 1997 ....................................... I-3 Condensed Consolidated Statement of Cash Flows - Nine months ended September 30, 1998 and 1998 ..................................................... I-4 Condensed Consolidated Statement of Stockholders' Equity .............................................. I-5 Notes to Condensed Consolidated Financial Statements ........................................................ I-6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... I-10 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings ................................................ II-1 ITEM 2. Changes in Securities ............................................ II-1 ITEM 3. Defaults Upon Senior Securities - None ........................... II-1 ITEM 4. Submission of Matters to a Vote of Security Holders .............. II-1 ITEM 5. Other Information ................................................ II-1 ITEM 6. Exhibits and Reports on Form 8-K ................................. II-1 SIGNATURES ............................................................... II-2 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ in thousands) September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 220,944 $ 29,451 Accounts receivable, net of allowance for doubtful accounts 21,037 15,951 Other receivables 2,136 3,902 Investment securities: Available-for-sale securities 1,146 22,849 Inventory 3,350 1,280 Deferred income taxes 3,257 5,402 Prepaid expenses and other current assets 10,206 1,114 ---------- ---------- Total current assets 262,076 79,949 ---------- ---------- Net property and equipment 141,648 151,264 Licenses and goodwill, net of accumulated amortization 899,902 918,488 Other intangible and other assets, at cost less accumulated amortization 25,078 23,907 ---------- ---------- Total assets $1,328,704 $1,173,608 ========== ========== See accompanying notes to condensed consolidated financial statements. 1 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ in thousands) September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) (Audited) Current liabilities: Current installments of long-term debt $ -- $ 2,812 Accounts payable and accrued expenses 12,725 14,477 Accrued interest payable 20,293 11,361 Accrued salaries and employee benefits 2,630 2,977 Deferred revenue 4,886 3,755 Customer deposits 868 602 Deferred tax liability -- 1,156 Other current liabilities 15,103 18,463 ---------- ---------- Total current liabilities 56,505 55,603 Long-term debt, excluding current installments 901,911 690,300 Accrued income taxes - long-term 34,557 50,491 Deferred income taxes(1) 303,539 308,901 Minority interests 9,067 7,352 Commitments and contingencies -- -- Redeemable preferred stock, Series A (1998), Series A and B (1997) 10 35 Shareholders' equity 23,115 60,926 ---------- ---------- Total liabilities and shareholders' equity $1,328,704 $1,173,608 ========== ========== (1) This accounting line represents the future tax consequences, if any, attributable to the currently reported differences between the financial statement carrying amounts of existing assets and their tax basis. These assets (largely intangibles) will be amortized by the Company and offset against this deferred tax balance without any cash consequences. This amount less the amortization would become due only if the assets are sold by the Company in a taxable transaction. See accompanying notes to condensed consolidated financial statements. 2 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except per share data) (Unaudited)
Predecessor Company (Palmer) Three Months Ended September 30, Three Months Ended 1998 1997 September 30, 1997 ----------- ----------- ------------------- Revenue: Cellular operations: Service $ 48,517 $ -- $ 45,983 Equipment sales and installation 3,403 -- 2,525 ----------- ----------- ----------- Total revenue 51,920 -- 48,508 ----------- ----------- ----------- Operating expenses: Engineering, technical and other direct 8,118 -- 7,745 Cost of equipment 5,886 -- 5,055 Selling, general and administrative 15,583 392 13,811 Depreciation and amortization 11,182 161 8,912 ----------- ----------- ----------- Total operating expenses 40,769 553 35,523 ----------- ----------- ----------- Operating income 11,151 (553) 12,985 ----------- ----------- ----------- Other income (expense): Interest (expense) income, net (24,522) (3,741) (8,354) Other income 7,943 1,037 46 ----------- ----------- ----------- Total other income (expense) (16,579) (2,704) (8,308) ----------- ----------- ----------- (Loss) income before minority interest share of income, income taxes and extraordinary item (5,428) (3,257) 4,677 Minority interest share of income (713) -- (528) ----------- ----------- ----------- (Loss) income before income taxes and extraordinary item (6,141) (3,257) 4,149 Income tax benefit (expense) 2,246 925 (1,759) ----------- ----------- ----------- Net (loss) income before extraordinary item (3,895) (2,332) 2390 Extraordinary item--write--off of deferred finance costs and premium on early extiguishment of debt (net of income tax benefit of $8,319 and $12,254 respectively) (14,963) -- ----------- ----------- ----------- Net (loss) income $ (18,858) $ (2,332) $ 2,390 =========== =========== =========== Per Share Data: Basic and diluted (loss) earnings per share before extraordinary item $ (0.17) $ (0.11) $ 0.09 Basic and diluted (loss) earnings per share $ (0.82) $ (0.11) $ 0.09 Weighted average shares outstanding 23,041,000 21,702,000 27,813,000 Predecessor Company (Palmer) Nine Months Ended September 30, Nine Months Ended 1998 1997 September 30, 1997 ----------- ----------- ------------------ Revenue: Cellular operations: Service $ 134,938 $ -- $ 134,123 Equipment sales and installation 9,175 -- 7,613 ----------- ----------- ----------- Total revenue 144,113 -- 141,736 ----------- ----------- ----------- Operating expenses: Engineering, technical and other direct 21,980 -- 23,301 Cost of equipment 17,401 -- 16,111 Selling, general and administrative 42,323 1,721 41,014 Depreciation and amortization 33,763 186 25,498 ----------- ----------- ----------- Total operating expenses 115,467 1,907 105,924 ----------- ----------- ----------- Operating income 28,646 (1,907) 35,812 ----------- ----------- ----------- Other income (expense): Interest (expense) income, net (60,515) (3,789) (24,468) Other income 14,724 3,501 208 ----------- ----------- ----------- Total other income (expense) (45,791) (288) (24,260) ----------- ----------- ----------- (Loss) income before minority interest share of income, income taxes and extraordinary item (17,145) (2,195) 11,552 Minority interest share of income (1,715) -- (1,310) ----------- ----------- ----------- (Loss) income before income taxes and extraordinary item (18,860) (2,195) 10,242 Income tax benefit (expense) 6,858 473 (4,153) ----------- ----------- ----------- Net (loss) income before extraordinary item (12,002) (1,722) 6,089 Extraordinary item--write--off of deferred finance costs and premium on early extiguishment of debt (net of income tax benefit of $8,319 and $12,254 respectively) (20,865) -- -- ----------- ----------- ----------- Net (loss) income $ (32,867) $ (1,722) $ 6,089 =========== =========== =========== Per Share Data: Basic and diluted (loss) earnings per share before extraordinary item $ (0.54) $ (0.06) $ 0.22 Basic and diluted (loss) earnings per share $ (1.48) $ (0.06) $ 0.22 Weighted average shares outstanding 22,146,000 28,036,000 27,813,000
See accompanying notes to condensed consolidated financial statements. 3 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) (Unaudited)
Predecessor (Palmer) Company Nine Months Ended Nine Months Ended September 30, September 30, 1998 1997 1997 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (32,867) $ (1,722) $ 6,089 --------- --------- --------- Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Deprecation and amortization 33,838 186 25,498 Minority interest share of income 1,715 -- 1,310 Deferred income taxes (19,151) -- 3,943 Gain on sale of marketable securities (15,596) (606) 7 Write-off of deferred finance costs 14,925 -- -- Premium on early extinguishment of debt 18,194 -- -- Interest deferred and added to long-term debt 1,911 -- -- Payment of deferred interest -- -- (1,514) Amortization of deferred finance 1,912 -- -- (Increase) decrease in accounts receivable (5,086) 489 473 (Increase) decrease in inventory (2,070) -- 2,800 (Decrease) increase in accounts payable and accrued expenses (4,959) (1,894) 536 Increase in accrued interest payable 8,932 -- -- Increase in other current liabilities 1,397 -- -- Changes in other accounts (901) (413) (351) --------- --------- --------- Total adjustments 35,061 (2,238) 32,702 --------- --------- --------- Net cash provided by (used in) operating activities 2,194 (3,960) 38,791 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (5,544) (9) (40,757) Purchase of marketable securities -- 599 -- Proceeds from sale of marketable securities -- -- -- Proceeds from sale of property and equipment -- -- 201 Purchase of available-for-sale securities and long-term investments (6,557) (50,037) -- Sale of available-for-sale securities and long-term investments 40,702 29,276 -- Purchase of cellular systems -- (445,512) (31,469) Purchase of minority intertests -- -- (956) Long-term investments (434) -- (778) --------- --------- --------- Net cash provided by (used) in investing activities 28,166 (465,683) (73,759) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term notes payable -- -- (1,366) Proceeds from issuance of warrants -- 4,287 -- Proceeds from issuance of preferred stock -- 45 -- Repayment of long-term debt (518,112) -- (3,782) Repurchase of Company's common stock (3,747) (21,675) -- Proceeds from long-term debt 725,000 695,712 41,000 Premium on early extinguishment of debt (18,194) -- -- Cash pledged for outstanding interest rate contracts (6,718) -- -- Payment of debt issuance costs (17,523) -- -- Exercise of employee stock options 427 2,045 999 --------- --------- --------- Net cash provided by financing activities 161,133 680,414 36,851 --------- --------- --------- Net increase in cash and cash equivalents 191,493 210,771 42 CASH AND CASH EQUIVALENTS, beginning of period 29,451 83,356 1,698 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of period $ 220,944 $ 294,127 $ 1,740 ========= ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 82,620 $ -- $ 27,471 ========= ========= ========= Income taxes paid, net $ 688 $ -- $ (736) ========= ========= ========= Non-cash transactions - employee bonus paid in stock $ 500 $ -- $ -- ========= ========= ========= Non-cash transactions- reduction of unrealized gains on securities held for sale $ 3,305 $ -- $ -- ========= ========= ========= Non-cash transaction-reduction of deferred taxes related to unrealized gains on securities held for sale $ (1,156) $ -- $ -- ========= ========= =========
See accompanying notes to consolidated financial statements. 4 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($ in thousands, except per share data) As of --------------------------- September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) (Audited) Common Shareholders' Equity: Class A Common Stock, par value $.01 per share; authorized 60,000,000 shares; outstanding 23,166,158 in 1998 and 6,994,435 in 1997 $ 233 $ 70 Additional paid in Capital 6,971 9,930 Retained Earnings 15,911 48,778 Accumulated Other Comprehensive Income: Unrealized Gains on Marketable Securities-net of deferred taxes -- 2,148 ------- ------- Total Shareholders' Equity $23,115 $60,926 ======= ======= See accompanying notes to condensed consolidated financial statements. 5 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements ($ in thousands) (Unaudited) (1) Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements include the accounts of Price Communications Corporation and its subsidiaries (the "Company" or "Price"). All significant intercompany items and transactions have been eliminated. On October 6, 1997, the Company acquired all of the outstanding shares of Palmer Wireless, Inc. ("Palmer"). The Consolidated Financial Statements have been prepared by the Company without audit in accordance with rules and regulations of the Securities and Exchange Commission. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of the results for a full year. The combined consolidated statements of operations include for comparative purposes only the results of Palmer Wireless, Inc. ("Predecessor") for the quarter and nine months ended September 30, 1997. Reclassifications Certain reclassifications have been made to the 1997 Statement of Operations and Statement of Cash Flows to conform to the 1998 presentation. (2) Long-Term Debt In June 1998, Price Communications Wireless, Inc. ("Wireless"), a wholly owned subsidiary of the Company issued $525 million of 9.125% Senior Secured Notes ("9.125% Notes") due June 15, 2002 with interest payable semi-annually commencing December 15, 1998. The 9.125% Notes contain covenants that restrict the payment of dividends, incurrence of debt, and sale of assets. The net proceeds from the issuance of the 9.125% Notes ($511.2 million) were used to retire the outstanding indebtedness under the Credit Facility ($425.1 million including interest and fees of $2.1 million), with the balance being used for working capital. In addition, the unamortized portion of the deferred financing fees relating to the credit facility were written off and recorded as an extraordinary item in the Statement of Operations. In August 1998, Price Communications Cellular Holdings, Inc. ("Holdings"), a wholly owned subsidiary of the Company, redeemed all of its outstanding 13 1/2% Senior Secured Discount Notes due 2007 ("13 1/2% Notes") (see following for the details of the replacement by the $200 million Payable-In-Kind notes). The notes were redeemed at the redemption price per $1000 aggregate principal amount of $711.61. The accreted value of the notes approximated $91.0 million. In addition, Holdings was required to pay a premium of approximately 20% of the outstanding balance or approximately $18.2 million. The premium as well as the amount of I-6 deferred finance charges written off are recorded as an extraordinary item in the Consolidated Statement of Operations. I-7 Holdings financed the redemption out of the net proceeds of a new $200,000 Holdings offering of 11 1/4% Senior Exchangeable Payable-in-Kind notes due 2008 ("11 1/4% Notes"). Cash interest will begin to accrue on the notes on February 15, 2003 whereupon the interest rate will be reduced by 0.5%. On or after February 15, 1999, the Company may elect to pay cash interest, whereupon all future interest becomes cash pay and the interest rate would be reduced by 0.5%. The 11 1/4% Notes are subject to mandatory exchange when the daily high price of the Company's common stock equals or exceeds 115% of the exchange price (currently at $20.00 per share subject to adjustment) for 10 out of 15 consecutive trading days. The redemption currently equates to 50 shares of the Company's Class A common stock per $1000 of notes, subject to adjustment. The Company has the right to elect on or prior to the second trading day immediately succeeding such 10th trading day to permanently terminate the mandatory exchange. (3) Shareholders' Equity During the quarter ended June 30, 1998, the Company issued 411,423 shares of its Class A common stock to satisfy its obligation for the redemption of its Class B preferred stock which had been issued to an officer of the Company during 1997. On April 1 and April 30, 1998 the Company issued two five-for-four stock splits and on August 31, 1998 the Company issued a two-for-one stock split. As a result of these splits , the Company issued an additional 15.7 million shares of its Class A common stock. On July 31, 1998 the Company registered warrants which are convertible into approximately 2.1 million shares (adjusted for stock splits) of the Company's Class A common stock at a price less than $.01. The warrants were originally issued as part of the $153.4 million 13 1/2% notes in 1997 to partially fund the acquisition of Palmer. The notes were subsequently redeemed (see Note 2). In June 1998 the Company's Board of Directors authorized a stock repurchase program of up to 1,000,000 shares (2,000,000 split effected) of the Company's Class A Common Stock. During September the Company repurchased and retired 496,400 shares at an average price of $7.54 per share. (4) Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income", which is effective for fiscal years beginning after December 15, 1997. Comprehensive income is the total of net income and all other nonowner changes in equity in a given period. Reclassification of financial statements for earlier periods is required. In the Company's case comprehensive income is computed a follows:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, -------------------- -------------------- 1998 1997 1998 1997 -------- --------- -------- --------- Net income (loss) $(18,858) $(2,332) $(32,867) $(1,722) Other comprehensive income, net of tax: Unrealized gains (losses) on available for Sale securities (592) (1,849) Reclassification adjustment (5,083) (8,497) -------- ------- -------- ------- Comprehensive income (loss) $(23,941) $(2,924) $(41,364) $(3,571) ======== ======= ======== =======
I-8 (5) Earnings (Loss) Per Share All current and prior year earnings (loss) per common share have been adjusted to reflect the five-for-four stock splits in December 1997, the two five-for-four stock splits in April 1998, and the two-for-one stock split in August 1998. This quarterly report contains statements which constitute forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Quarterly Report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officer primarily with respect to the future operating performance of the Company. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties and that actual results may differ from those in the forward-looking statements as a result of factors, many of which are outside the control of the Company. The accompanying information contained in this Quarterly Report, including without limitation the information set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations", identifies important factors that could cause such differences. I-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations References to the "Company" or "Price" in this report include Price Communications Corporation and its subsidiaries unless the context otherwise indicates. OVERVIEW In May 1997, Price and Price Communications Wireless, Inc. ("PCW"), a wholly owned indirect subsidiary, entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provided, among other things, for the merger of PCW with and into Palmer Wireless, Inc. ("Palmer") with Palmer as the surviving corporation (the "Merger"). In October 1997, the Merger was consummated and Palmer changed its name to "Price Communications Wireless, Inc." PCW is engaged in the construction, development, management and operation of cellular telephone systems in the southeastern United States. As of September 30, 1998, the Company provided cellular telephone service to 364,189 subscribers in Alabama, Florida, Georgia and South Carolina in a total of 16 licensed service areas, composed of eight Metropolitan Service Areas and eight Rural Service Areas, with an aggregate estimated population of 3.3 million. PCW sells its cellular telephone service, as well as a full line of cellular products and accessories under the nationally-recognized service mark CELLULARONE. The following discussion is intended to facilitate an understanding and assessment of significant changes and trends related to the financial condition and results of operations of the Company. This discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and related notes thereto Discussions of results for the Predecessor for the three and nine months ended September 30, 1997 are derived solely from the historical operations of the Predecessor prior to the merger and include the results of operations of the Fort Myers and GA-1 markets sold in the fourth quarter of 1997. The discussions for the three and nine months ended September 30, 1998 are based upon the results of the Company which may not be comparable to the 1997 results of it predecessor because of the sales of properties previously mentioned. Although Management's Discussion and Analysis is written on a purely historical basis, the following comparative pro forma data is presented excluding the Fort Myers and GA-1 markets from the results for 1997 as well as operating expenses for the parent for all periods presented.
Three Months Ended September 30 Nine Months Ended September 30 ------------------------------- ------------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- (Pro forma) (Pro forma) Revenue $ 51,920 $ 40,916 $144,113 $118,321 Operating expenses $ 39,855 $ 29,808 $113,090 $ 88,444 Operating income $ 12,065 $ 11,108 $ 31,023 $ 29,877 EBITDA(1) $ 23,233 $ 18,498 $ 64,744 $ 50,933
(1) Earnings before interest, taxes, depreciation, and amortization. I-10 Market Ownership The following is a summary of the Company's ownership interests in the cellular telephone system in each licensed service area to which the Company provided service at December 31, 1997 and September 30, 1998. Dothan, Alabama ................................. 94.6% Montgomery, Alabama ............................. 92.8 Albany, Georgia ................................. 86.5 Augusta, Georgia ................................ 100.0 Columbus, Georgia ............................... 85.2 Macon, Georgia .................................. 99.2 Savannah, Georgia ............................... 98.5 Panama City, Florida ............................ 78.4 Alabama 8 - RSA ................................. 100.0 Georgia 6 - RSA ................................. 96.3 Georgia 7 - RSA ................................. 100.0 Georgia 8 - RSA ................................. 100.0 Georgia 9 - RSA ................................. 100.0 Georgia 10 - RSA ................................ 100.0 Georgia 12 - RSA ................................ 100.0 Georgia 13 - RSA ................................ 86.5 RESULTS OF OPERATIONS The Company sold its television stations in 1996 and consequently had no operating revenues for the nine months ended September 30, 1997. Income earned during this period was derived from the investment of its funds. On October 6, 1997, the Company, through PCW acquired all the outstanding stock of Palmer. Palmer was engaged in the construction, development, management and operation of cellular telephone systems in the southeastern United States For these reasons, the results of the Company's operations are not comparable for the three and nine month periods ended September 30, 1998 The following discussion refers to the results of operations of the Company (1998 periods) compared to the results of operations of the Company combined with Predecessor for the three and nine month periods ended September 30, 1997. It is intended to facilitate an understanding and assessment of significant changes and trends related to the financial condition and results of operations of the Company. The discussion should be read in conjunction with the Company's Consolidated Financial Statements and related Notes thereto. References to the Company where appropriate also include its subsidiaries, PCW, Holdings and the Predecessor. I-11 The following table sets forth for the Company (excluding the parent) and its predecessor, for the periods indicated, the percentage which certain amounts bear to total revenue. Company Predecessor Company Predecessor ------------------- ------------------- Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, ------------- ------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenue: Service ............................ 93.4% 94.8% 93.6% 94.6% Equipment sales and installation ...................... 6.6 5.2 6.4 5.4 ----- ----- ----- ----- Total revenue .................. 100.0 100.0 100.0 100.0 Operating expenses: Engineering, technical and other direct: Engineering and technical(1) ..... 7.9 7.8 7.8 8.0 Other direct costs of services(2) 7.7 8.1 7.4 8.4 Cost of equipment(3) ............. 11.3 10.4 12.1 11.4 Selling, general and administrative: Sales and marketing(4) ............ 9.7 8.2 10.2 8.4 Customer service(5) ............... 6.5 6.0 6.5 6.3 General and administrative (6) .... 11.1 14.3 10.7 14.2 Depreciation and amortization ..... 21.8 16.9 23.4 16.5 ----- ----- ----- ----- Total operating expenses ....... 75.8 71.7 78.1 73.2 Operating income ................... 24.2% 28.3% 21.9% 26.8% Operating income before depreciation and amortization(7) ............... 45.7% 45.2% 45.3% 43.3% - ----------------- (1) Consists of costs of cellular telephone network, including inter-trunk costs, span-line costs, cell site repairs and maintenance, cell site utilities, cell site rent, engineers' salaries and benefits and other operational costs. (2) Consists of net costs of roaming, costs of long distance, costs of interconnection with wireline telephone companies and other costs of services. (3) Consists primarily of the costs of the cellular telephones and accessories sold. (4) Consists primarily of salaries and benefits of sales and marketing personnel, employee and agent commissions and advertising and promotional expenses. I-12 (5) Consists primarily of salaries and benefits of customer service personnel and costs of printing and mailing billings. (6) Includes salaries and benefits of general and administrative personnel and other overhead expenses. (7) Operating income before depreciation and amortization should not be considered in isolation or as an alternative to net income, operating income or any other measure of performance under generally accepted accounting principles. The Company believes that operating income before depreciation and amortization is viewed as a relevant supplemental measure of performance in all media and the cellular telephone industry. I-13 Three Months Ended September 30, 1998 Compared to Three Months Ended September 30, 1997 Revenue. Service revenues totaled $48.5 million for the third quarter of 1998, an increase of 5.5% from $46.0 million for the third quarter of 1997. The increase is primarily attributable to the increase in the average number of subscribers to 356,804 in the third quarter of 1998 from 284,829 in 1997 (excluding subscribers in the two markets sold in 1997). This was significantly offset by the loss of service revenues of the cellular telephone systems sold in the Ft. Myers Sale and the Georgia Sale which totaled $7.2 million in the third quarter of 1997. Equipment sales and installation revenue, which consists primarily of cellular subscriber equipment sales, increased to $3.4 million for the third quarter of 1998 compared to $2.5 million for the third quarter of 1997. The increase is primarily due to a 25.3% increase in gross subscriber activations in the third quarter of 1998 compared to 1997. As a percentage of revenue, equipment sales and installation revenue increased to 6.6% in the third quarter of 1998 from 5.2% in the third quarter of 1997. Operating Expenses. Engineering and technical expenses increased by 7.9% to $4.1 million for the third quarter of 1998 from $3.8 million in the third quarter of 1997. As a percentage of revenue, engineering and technical expenses increased to 7.9% from 7.8% for the third quarter of 1998 and 1997, respectively. Engineering and technical expenses attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.4 million for the third quarter of 1997. Other direct costs of service amounted to $4.0 million for the third quarter of 1998 and 1997. As a percentage of revenue, these costs of service declined to 7.7% from 8.1%, reflecting improved interconnection agreements, as well as efficiencies gained from the growing subscriber base. Other direct costs of service attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.9 million for the third quarter of 1997. The cost of equipment increased 15.7% to $5.9 million for the third quarter of 1998 from $5.1 million for the third quarter of 1997 primarily as a result of an increase in gross subscriber activations for the comparable period. Equipment sales resulted in losses of $2.5 million in 1998 and 1997. The Company sells equipment below its costs in an effort to address market competition and improve market share. Cost of equipment attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $1.1 million for the third quarter of 1997. Selling and general and administrative expenses increased 9.9% to $15.6 million in the third quarter of 1998 from $14.2 million in the third quarter of 1997. These expenses are comprised of (i) sales and marketing costs, (ii) customer service costs and (iii) general and administrative expenses. Sales and marketing costs increased 25.0% to $5.0 million for the third quarter of 1998 from $4.0 million for the same period in 1997. This increase is primarily due to the 25.3% increase in gross subscriber activations and the costs to acquire them, including advertising and commissions. As a percentage of total revenue, sales and marketing costs increased to 9.7% for the third quarter of 1998 compared to 8.2% for the third quarter of 1997. The Company's cost to add a net subscriber, including loss on telephone sales, decreased to $440 for the third quarter of 1998 from $597 for the third quarter of 1997. This decrease in cost to add a net subscriber was caused primarily by decreased losses from the Company's sales of cellular telephones. Sales and marketing expenses attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.3 million for the third quarter of 1997. I-14 General and administrative expenditures (including Corporate) decreased slightly to $7.2 million for the third quarter of 1998 from $7.3 million for the third quarter of 1997. General and administrative expenses decreased as a percentage of revenue to 13.9% in the third quarter of 1998 from 15.1% in the third quarter of 1997. As the Company continues to add more subscribers, and generates associated revenue, general and administrative expenses should decrease as a percentage of total revenues. There can be no assurance, however, that this forward-looking statement will not differ materially from actual results due to unforeseen general and administrative expenses and other factors. General and administrative expenses attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.5 million for the third quarter of 1997. Depreciation and amortization increased 36.6% to $11.2 million for the third quarter of 1998 from $9.1 million for the third quarter of 1997. This increase was primarily due to the depreciation and amortization associated with the new carrying value of assets as a result of the purchase price of the stock of Palmer to the Company. As a percentage of revenue, depreciation and amortization increased to 21.5% for the third quarter of 1998 compared to 18.7% for the third quarter of 1997. Depreciation and amortization attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.8 million for the third quarter of 1997. Operating income decreased 6.5% to $11.2 million in the third quarter of 1998 from $12.4 million for the third quarter of 1997. This decrease in operating results is attributable primarily to the increase in depreciation and amortization expense. Net Interest Expense, Income Taxes, Other Income, and Net Income. Net interest expense increased to $24.5 million for the third quarter of 1998 from $12.1 million in the third quarter of 1997 primarily due to additional borrowings incurred under refinancings, and to a lesser extent higher rates of interest associated with the new fixed rate instruments as opposed to the interest on the credit facility which was on a variable basis. Other income consists primarily of the gain realized from the redemption of certain warrants. Income tax benefit was $2.2 million in the third quarter of 1998 representing utilization of the net operating losses carried back against previous earnings. The income tax benefit was $0.8 million in the third quarter of 1997 based on earnings representing a combination of a provision for the Predecessors earnings and a tax credit for the utilization of a carryback for Price. Net loss for the third quarter of 1998 was $18.9 million compared to a break even for the third quarter of 1997. The decrease in net income is primarily attributable to increases in interest expense, depreciation and amortization expense, the $15.0 million write-off (net of taxes) of deferred finance costs and the premium on early extinguishment of debt recorded as an extraordinary item partially offset by other income. I-15 Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30, 1997 Revenue. Service revenues totaled $135.0 million for the first nine months of 1998, a slight increase from $134.1 million for the same period in 1997. The increase is primarily attributable to an increase in the average number of subscribers to 336,763 in the first nine months of 1998 from 270,335 in 1997 after adjusting for the sale of the Fort Myers and GA-1 markets. Offsetting this increase is the loss of service revenues of the cellular telephone systems sold in the Ft. Myers Sale and the Georgia Sale which totaled $22.1 million for the first nine months of 1997. Equipment sales and installation revenue, which consists primarily of cellular subscriber equipment sales, increased to $9.2 million for the first nine months of 1998 compared to $7.6 million for the first nine months of 1997. The increase is primarily due to a 35.0% increase in gross subscriber activations for the period in 1998 compared to 1997(adjusted for the sale of the two markets). As a percentage of revenue, equipment sales and installation revenue increased to 6.4% in the first nine months of 1998 from 5.4% for the same period in 1997. Operating Expenses. Engineering and technical expenses decreased slightly to $11.3 million for the first nine months of 1998 from $11.5 million in the first nine months of 1997. As a percentage of revenue, engineering and technical expenses decreased to 7.8% from 8.0% for the comparable nine month periods in 1998 and 1997, respectively. Engineering and technical expenses attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $1.4 million for the first nine months of 1997. Other direct costs of service decreased to $10.7 million for the first nine months of 1998 from $11.8 million for the same period in 1997. reflecting the decrease in interconnection costs as a result of the Company's renegotiation of interconnection agreements with the local exchange carriers in most of the Company's markets. As a percentage of revenue, these costs of service declined to 7.4% from 8.0%, reflecting improved interconnection agreements , as well as efficiencies gained from the growing subscriber base. Other direct costs of service attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $3.1 million for the first nine months of 1997. The cost of equipment increased 8.0% to $17.4 million for the nine moth period ending September 30, 1998 from $16.1 million for the same period in 1997, primarily as a result of an increase in gross subscriber activations for the same period. Equipment sales resulted in losses of $8.2 million in 1998 versus $8.5 million in 1997. The Company sells equipment below its costs in an effort to address market competition and improve market share. Cost of equipment attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $2.9 million for the comparable period in 1997. Selling, general and administrative expenses decreased 1.0% to $42.3 million for the first nine months of 1998 from $42.7 million for the same period in 1997. These expenses are comprised of (i) sales and marketing costs, (ii) customer service costs and (iii) general and administrative expenses. Sales and marketing costs increased 23.5% to $14.7 million for the first nine months of 1998 from $11.9 million for the same period in 1997. This increase is primarily due to the 35.0% increase in gross subscriber activations and the costs to acquire them, including advertising and commissions. As a percentage of total revenue, sales and marketing costs increased to 10.2% for the first nine months of 1998 compared to 8.4% for the same period in 1997. The Company's cost to add a net subscriber, including loss on telephone sales, decreased to $420 for the first I-16 nine months of 1998 from $510 for the first nine months of 1997. This decrease in cost to add a net subscriber was caused primarily by decreased losses from the Company's sales of cellular telephones. Sales and marketing expenses attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $1.2 million for the same period in 1997. General and administrative expenditures decreased 30.3% to $18.3 million for the first nine months of 1998 from $21.9 million for the comparable period in 1997, due primarily to expense savings and reorganization efforts. General and administrative expenses decreased as a percentage of revenue to 12.6% in the first nine months of 1998 from 15.4% for the same period in 1997. As the Company continues to add more subscribers and generates associated revenue, general and administrative expenses should decrease as a percentage of total revenues. There can be no assurance, however, that this forward-looking statement will not differ materially from actual results due to unforeseen general and administrative expenses and other factors. General and administrative expenses attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $1.2 million for the nine month period in 1997. Depreciation and amortization increased 31.5% to $33.8 million for the first nine months of 1998 from $25.7 million for the same period in 1997. This increase was primarily due to the depreciation and amortization associated with the new carrying value of assets as a result of the "push down" of the purchase price to the Company. As a percentage of revenue, depreciation and amortization increased to 23.4% for the first nine months of 1998 compared to 18.1% for the first nine months of 1997. Depreciation and amortization attributable to the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $2.3 million for the period in 1997. Operating income decreased 15.6% to $28.6 million for the first nine months half of 1998 from $33.9 million for the same period in 1997. This decrease in operating results is attributable primarily to the increase in depreciation and amortization expense. Net Interest Expense, Income Taxes, Other Income and Net Income. Net interest expense increased to $60.5 million for the nine month period ending September 30, 1998 from $28.3 million for the first nine months of 1997 primarily due to additional borrowings incurred as a result of the recent merger and some rate increases. Other income consists principally of gains realized on the sale of securities and the redemption of warrants. Income tax benefit was $6.9 million for the first nine months of 1998 representing utilization of the net operating losses carried back against previous earnings. Income tax expense was $3.7 million in the first nine months of 1997 principally based on earnings. Net loss for the first nine months of 1998 was $32.9 million compared to net income of $4.4 million for the comparable period in 1997. The decrease in net income is primarily attributable to increases in interest expense, depreciation and amortization expense and the $20.9 million net write-off of deferred finance costs and the premium associated with the early extinguishment of debt (both net of taxes) recorded as an extraordinary item. I-17 LIQUIDITY AND CAPITAL RESOURCES The Company's long-term capital requirements consist of funds for capital expenditures, acquisitions, and debt service. Historically, the Company has met its capital requirements primarily through equity contributions, bank debt, and to a lesser extent, operating cash flow. The Company has significant cash on hand of approximately $221 million at September 30, 1998 primarily as a result of the excess funds raised in August and June 1998 from the new borrowings. Although this excess cash can be used for working capital needs, there are certain covenants that restrict its use for acquisitions and capital improvements. In August 1998, the Company redeemed all of its outstanding 13 1/2% Senior Secured Discount Notes due 2007 at the redemption price per $1000 aggregate principal amount of $711.61. The accreted value of the notes approximated $91.0 million. In addition, the Company was required to pay a premium of approximately 20% of the outstanding balance or approximately $18.2 million. The Company financed the redemption out of the net proceeds of a new offering of 11 1/4% Senior Exchangeable Payable-in-Kind notes due 2008. Cash interest begins to accrue on the notes on February 15, 2003. In June 1998, PCW issued $525 million of 9.125% Senior Secured Notes ("9.125% Notes") due June 15, 2002 with interest payable semi-annually commencing December 15, 1998. The 9.125% Notes contain covenants that restrict the payment of dividends, incurrence of debt and sale of assets. These Notes replaced the existing credit facility which approximated $425.1 million as of the redemption date. In July 1997, PCW issued $175 million of 11.75% Senior Subordinated Notes ("11.75% Notes") due July 15, 2007 with interest payable semi-annually commencing January 15, 1998. The 11.75% Notes contain covenants that restrict the payment of dividends, incurrence of debt and sale of assets. In August 1997, Holdings issued 153,400 units, consisting of Notes and Warrants, in exchange for $80 million. The Notes accreted at a rate of 13 1/2% compounded semi-annually to an aggregate principal amount of approximately $153.4 million by August 1, 2002. These notes were redeemed in August 1998 (see above). YEAR 2000 IMPACT The Company has studied the impact of the year 2000 on its operational and financial systems and has developed estimates of costs of implementing changes or upgrades where necessary. Preliminary estimates indicate that these costs will be less than $2 million. However, the Company is unable to predict all of the implications of the year 2000 issue as it relates to its suppliers and other entities. It is anticipated that a substantial portion of the costs will be incurred in the next two years and will be expensed as incurred. INFLATION The Company believes that inflation affects its business no more than it generally affects other similar businesses. I-18 PART II OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description ------ ----------- 27 Financial Data Schedule (b) Reports on Form 8-K None I-19 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRICE COMMUNICATIONS CORPORATION Date: November 12, 1998 By: /s/ Robert Price ------------------------------------------ Robert Price Director, President and Treasurer Date: November 12, 1998 By: /s/ Kim Pressman ------------------------------------------ Kim I. Pressman Executive Vice President & Chief Financial Officer I-20 INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 27 Financial Data Schedule I-21 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 220,944 2,146 21,073 0 3,350 262,076 141,648 0 1,328,704 56,505 901,911 0 10 0 23,115 1,328,704 9,475 144,113 17,401 115,467 14,724 0 60,515 (18,880) 6,858 (12,002) 0 (20,865) 0 (32,867) 0 0
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