-----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, WsDu6g3KsJL0ROzDf9jHySaiV0M+AIk9z54yIh9c9MIEVqIeYtXaKrKL+Kb6mWjj BrluEYd7bfsABCT8LfmLIQ== 0001005477-99-001571.txt : 19990402 0001005477-99-001571.hdr.sgml : 19990402 ACCESSION NUMBER: 0001005477-99-001571 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE COMMUNICATIONS WIRELESS INC CENTRAL INDEX KEY: 0001046202 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133956941 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-64773 FILM NUMBER: 99583080 BUSINESS ADDRESS: STREET 1: 45 ROCKEFELLER PLZ CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2127575600 MAIL ADDRESS: STREET 1: 45 ROCKEFELLER PLZ CITY: NEW YORK STATE: NY ZIP: 10020 10-K405/A 1 AMENDMENT TO FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------- (Mark One) |X| Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1998 or |_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to Commission file number 333-36253 -------------- PRICE COMMUNICATIONS WIRELESS, INC. (Exact name of registrant as specified in its charter) Delaware 13-3956941 (State or other jurisdiction of (IRS Employer Incorporation or organization) Identification Number) 45 Rockefeller Plaza, New York, New York 10020 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (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 the filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. |X| AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE COMPANY No shares of the Company's Common Stock were held by nonaffiliates of the Company on February 28, 1999. The number of shares outstanding of the Company's Common Stock as of February 28, 1999 was 100. DOCUMENTS INCORPORATED BY REFERENCE None OMISSION OF CERTAIN INFORMATION BY CERTAIN WHOLLY-OWNED SUBSIDIARIES The registrant meets the conditions set forth in General Instruction I 1(a) and (b) of Form 10-K and is therefore filing this form with a reduced disclosure format. ================================================================================ PART I Item 1. BUSINESS General Unless otherwise indicated, all references herein to "PCW" refer to Price Communications Wireless, Inc. and all references herein to the "Company" refer to PCW and its subsidiaries and their respective predecessors. References herein to the "Acquisition" refer to the acquisition during 1997 by PCW, which is a wholly-owned direct subsidiary of Price Communications Cellular Holdings, Inc. ("Holdings") and a wholly-owned indirect subsidiary of Price Communications Corporation ("PCC"), of Palmer Wireless, Inc. ("Palmer") and the related sales of the Fort Myers and Georgia-1 systems of Palmer, as described below under "The Acquisition." As used herein, the term "Palmer" includes its subsidiaries and predecessors. PCW's principal executive offices are located at 45 Rockefeller Plaza, New York, New York 10020, and its telephone number is (212) 757-5600. Except for historical financial information and unless otherwise indicated, all information presented below relating to the Company, including Pops, Net Pops and the systems, gives effect to the consummation of the Acquisition (including the sales of the Fort Myers and Georgia-1 systems). See "Certain Terms" for definitions of certain terms used herein. The Company is engaged in the construction, development, management and operation of cellular telephone systems in the southeastern United States. At December 31, 1998, the Company provided cellular telephone service to 381,977 subscribers in Georgia, Alabama, South Carolina and Florida in a total of 16 licensed service areas composed of eight Metropolitan Statistical Areas ("MSAs") and eight Rural Service Areas ("RSAs"), with an aggregate estimated population of 3.3 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. The Company has developed its business through the acquisition and integration of cellular telephone systems, clustering multiple systems in order to provide broad areas of uninterrupted service and achieve certain economies of scale, including centralized marketing and administrative functions as well as multi-system capital expenditures. The Company devotes considerable attention to engineering, maintenance and improvement of its cellular telephone systems in an effort to deliver high-quality service to its subscribers and to implement new technologies as soon as economically practicable. Through its participation in the North American Cellular Network ("NACN"), the Company is able to offer ten-digit dialing access to its subscribers when they travel outside the Company's service areas, providing them with convenient roaming access throughout large areas of the United States, Canada, Mexico and Puerto Rico served by other NACN participants. By marketing its products and services under the CELLULAR ONE name, the Company also enjoys the benefits of association with a nationally recognized service mark. Markets and Systems The Company's cellular telephone systems serve contiguous licensed service areas in Georgia, Alabama and South Carolina. The Company also has a cellular service area in Panama City, Florida. The following table sets forth as of December 31, 1998 and 1997 with respect to each service area in which the Company owns a cellular telephone system, the estimated population, the Company's beneficial ownership percentage and the Net Pops owned by the Company. Estimated Service Area Population(1) Percentage Net Pops - ------------ ------------- ---------- --------- Albany, GA .................. 117,984 86.5% 102,056 Augusta, GA ................. 440,864 100.0 440,864 Columbus, GA ................ 250,845 85.2 213,720 Macon, GA ................... 318,227 99.2 315,681 Savannah, GA ................ 288,736 98.5 284,405 Georgia-6 RSA ............... 203,899 96.3 196,355 Georgia-7 RSA ............... 135,121 100.0 135,121 Georgia-8 RSA ............... 157,912 100.0 157,912 Georgia-9 RSA ............... 118,111 100.0 118,111 Georgia-10 RSA .............. 151,827 100.0 151,827 Georgia-12 RSA .............. 215,935 100.0 215,935 Georgia-13 RSA .............. 148,361 86.5 128,332 Dothan, AL .................. 133,618 94.6 126,403 Montgomery, AL .............. 320,687 92.8 297,598 Alabama-8, RSA .............. 173,677 100.0 173,677 --------- ----- --------- Subtotal ............... 3,175,804 3,057,997 --------- --------- Panama City, FL ............. 149,953 78.4 117,563 --------- --------- Total .................. 3,325,757 3,175,560 ========= ========= (1) Based on population estimates for 1998 from the DLJ 1998 Winter Book. Georgia/Alabama In 1988, the Company acquired controlling interests in the licenses to operate cellular telephone systems in the four MSAs (Montgomery and Dothan, Alabama and Columbus and Albany, Georgia) that make up the core of its Georgia/Alabama cluster. The Company continued to increase its presence in this market by acquiring additional cellular service areas in 1989 (Macon, Georgia MSA), 1992 (Georgia-9 RSA), 1993 (Alabama-8 RSA), 1994 (Georgia-7 RSA, Georgia- 8 RSA, Georgia-10 RSA and Georgia-12 RSA), 1995 (Savannah, Georgia MSA and Augusta, Georgia MSA) and 1996 (Georgia-1 RSA and Georgia-6 RSA). The Augusta, Georgia MSA includes Aiken County in South Carolina. In the aggregate, these markets now cover a contiguous service area of approximately 38,000 square miles that includes Montgomery, the state capital of Alabama, prominent resort destinations in Jekyll Island, St. Simons Island and Sea Island, Georgia, and over 710 miles of interstate highway, including most of 1-95 from Savannah, Georgia to Jacksonville, Florida. The Company collects substantial roaming revenue from cellular telephone subscribers from other systems traveling in these markets from nearby population centers such as Atlanta and Birmingham, as well as from vacation and business traffic in the southeastern United States. Due in part to the favorable labor environment, moderate weather and relatively low cost of land, during the last several years there has been an influx of new manufacturing plants in this market. As of December 31, 1998 the Company utilized 223 cell sites in this cluster. Panama City The Company acquired control of the non-wireline cellular license for the Panama City, Florida market in 1991. The Company collects substantial roaming revenue in this market from subscribers from other systems who visit Panama City, a popular spring and summer vacation destination. As of December 31, 1998, the Company utilized 13 cell sites in this market. 2 Company Strategy The Company's four strategic objectives are to: (1) expand its revenue base by increasing penetration in existing service areas and encouraging greater usage among its existing customers; (2) provide high-quality customer service to create and maintain customer loyalty; (3) enhance performance by aggressively pursuing opportunities to increase operating efficiencies and (4) expand its regional wireless communications presence by selectively acquiring additional interests in cellular telephone systems (including minority interests). Specifically, the Company strives to achieve these objectives through implementation of the following: Aggressive, Direct Marketing. The Company employs a two-tier direct sales force. A retail sales force handles walk-in traffic at the Company's 37 retail outlets, and a targeted sales staff solicits certain industries and government subscribers. The Company's management believes that its internal sales force is more likely than independent agents to successfully select and screen new subscribers and select pricing plans that realistically match subscriber means and needs. Flexible, Value-Oriented Pricing Plans. The Company provides a range of pricing plans, each of which includes a monthly access fee and a bundle of "free" minutes. Additional home rate minutes are charged at rates dependent on the customer's usage plan and the time of day. In addition, the Company offers wide area home rate roaming in the Company's systems and low flat rate roaming in a six state region in the Southeastern United States. The Company believes that its bundled minute offerings will encourage greater customer usage. By increasing the number of minutes a customer can use for one flat rate, subscribers perceive greater value in their cellular service and become less usage sensitive, i.e., they can increase their cellular phone usage without seeing large corresponding increases in their cellular bill. Continually Adopting State of the Art System Design. The Company's network allows the delivery of full personal communication services ("PCS") functionality to its digital cellular customers, including primarily caller ID, short message paging and extended battery life. The Company's network provides for "seamless handoff" between digital cellular and PCS operators that, like the Company, employ TDMA (Time Division Multiple Access) technology, one of three industry standards and the one employed by AT&T, SBC and others; i.e. the Company's customers may leave the Company's service area and enter an area serviced by a PCS provider using TDMA technology without noticing the difference, and vice versa. The Company has a favorable agreement with AT&T with respect to PCS roaming and expects that other PCS operators may choose, like AT&T, to concentrate PCS buildout in urban centers rather than the more rural areas in which the Company concentrates. Focusing on Customer Service. Customer service is an essential element of the Company's marketing and operating philosophy. The Company is committed to attracting new subscribers and retaining existing subscribers by providing consistently high-quality customer service. In each of its cellular service areas, the Company maintains a local staff, including a market manager, customer service representatives, technical and engineering staff, sales representatives and installation and repair facilities. Each cellular service area handles its own customer-related functions such as credit evaluations, customer evaluations, account adjustments and rate plan changes. To ensure high-quality service, Cellular One Group authorizes a third-party marketing research firm to perform customer satisfaction surveys of each of its licensees. Licensees must achieve a minimum satisfaction level in order to continue using the Cellular One service mark. The Company has repeatedly ranked number one in customer satisfaction among all Cellular One operators (#l MSA in its category in 1998, 1997, 1996, 1995, 1993, and 1992; #1 RSA in its category in 1995). The Acquisition Prior to the Merger described below, the Company did not have any assets, liabilities or operations other than the proceeds from the issuance of the 11 3/4% PCW Notes (as such term is described below) and liabilities with respect thereto. On May 23, 1997, PCC, PCW and Palmer entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provided, among other things, for the merger of PCW with and into Palmer with Palmer as the surviving corporation (the "Merger"). On October 6, 1997, the Merger was consummated and Palmer changed its name to "Price Communications Wireless, Inc." Pursuant to the Merger Agreement, PCC acquired each issued and outstanding share of common stock of Palmer for a purchase price of $17.50 per share in cash and purchased outstanding options and rights under employee and direct stock purchase plans for an aggregate price of $486.4 million. In addition, as a result of the Merger, the Company assumed all outstanding indebtedness of Palmer of approximately $378.0 million ("Palmer Existing Indebtedness"), making the aggregate purchase price for Palmer (including transaction fees and expenses) approximately $880.0 million. The Company refinanced all of the Palmer Existing Indebtedness concurrently with the consummation of the Merger. 3 PCW entered into an agreement (the "Fort Myers Sale Agreement") to sell Palmer's Fort Myers, Florida MSA covering approximately 382,000 Pops for $168.0 million (the "Fort Myers Sale"). On October 6, 1997, the Fort Myers Sale was consummated, and generated proceeds to the Company of approximately $166.0 million. The proceeds of the Fort Myers Sale were used to fund a portion of the acquisition of Palmer. On October 21, 1997, PCC and PCW entered into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. (the "Georgia Sale Agreement") which provided for the sale by PCW, for $25.0 million, of substantially all of the assets of the non-wireline cellular telephone system serving the Georgia-1-Whitfield Rural Service Area ("Georgia-1"), including the FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale of the assets of Georgia-1 was consummated on December 30, 1997 and generated proceeds to the Company of $24.2 million. A portion of the proceeds from the Georgia Sale was used to retire a portion of the debt used to fund the acquisition of Palmer. The Merger, the Fort Myers Sale and the Georgia-1 Sale are collectively referred to as the "Acquisition." In order to fund the Acquisition and pay related fees and expenses, PCW issued $175.0 million aggregate principal amount of 11 3/4% Senior Subordinated Notes due 2007 (the "11 3/4% Notes") and entered into a syndicated senior loan facility providing for term loan borrowings in the aggregate principal amount of $325.0 million and revolving loan borrowings of $200.0 million (the "Credit Facility"). On October 6, 1997, PCW borrowed all term loans available thereunder and approximately $120.0 million of revolving loans The Acquisition was also funded in part through a $44.0 million equity contribution from PCC (the "PCC Equity Contribution") which was in the form of cash and common stock of PCC. An additional amount of the purchase price for the Acquisition was raised out of the proceeds from the issuance and sale for $80.0 million (the "Holdings Offering") by Holdings, the direct parent of the Company, of units consisting of $153.4 million principal amount of 13 1/2% Senior Secured Discount Notes due 2007 of Holdings (the "13 1/2% Holdings Notes") and warrants (the "Warrants") to purchase shares of PCC Common Stock, par value $.01 per share (the "PCC Shares"). Refinancing In June 1998, the Company issued $525.0 million of 9 1/8% Senior Secured Notes (the "9 1/8% Notes") due December 15, 2006 with interest payable semi-annually commencing December 15, 1998. The 9 1/8% Notes contain covenants that restrict the payment of dividends, incurrence of debt and sale of assets. The proceeds of these notes were used principally to replace the then existing credit facility, which approximated $425.1 million as of the redemption date. In August 1998, Holdings redeemed all of its outstanding 13 1/2% Holdings 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, a premium of 20% of the outstanding indebtedness or approximately $18.2 million was also paid. The redemption was financed out of the net proceeds of a new $200.0 million Holdings offering of 11 1/4% Senior Exchangeable Payable-in-Kind notes due 2008. Certain Considerations Competition. Although current policies of the FCC authorize only two licensees to operate cellular telephone systems in each cellular market, there is, and the Company expects there will continue to be, competition from various wireless technology licensees authorized to serve each market in which the Company operates, as well as from resellers of cellular service. Competition for subscribers between the two cellular licensees in each market is based principally upon the services and enhancements offered, the technical quality of the cellular telephone system, customer service, system coverage and capacity and price. The Company competes with a wireline licensee in each of its cellular markets, some of which are larger and have access to more substantial capital resources than the Company. The Company also faces competition from other existing communications technologies such as conventional mobile telephone service, specialized mobile radio ("SMR") and enhanced specialized mobile radio ("ESMR") systems and paging services and to a limited extent, satellite systems for mobile communications. The Company also faces limited competition from and may in the future face increased competition from PCS. Broadband PCS involves a network of small, low-powered transceivers placed throughout a neighborhood, business complex, community or metropolitan area to provide customers with mobile and portable voice and data communications. PCS may be capable of offering, and PCS operators claim they will offer, additional services not offered by cellular providers. There can be no assurances that the Company will be able to provide nor that it will choose to pursue, depending on the economics thereof, such services and features. The FCC has also completed or 4 announced plans for auctions in wireless services such as narrowband PCS, local multipoint multichannel distribution service ("LMDS"), interactive video distribution service ("IVDS"), wireless communication service ("WCS") and general wireless communications service ("GWCS") spectrum. Some of this spectrum might be used for services competitive in some manner with cellular service. The Company cannot predict the effect of these proceedings and auctions on the Company's business. However the Company currently believes that traditional tested cellular is economically proven unlike many of these other technologies and therefore does not intend to pursue such other technologies. Although the Company believes that the technology, financing and engineering of these other technologies is not as advanced as their publicity would suggest, there can be no assurance that one or more of the technologies currently utilized by the Company in its business will not become obsolete at some time in the future. See "Business of the Company--Competition." Potential for Regulatory Changes and Need for Regulatory Approvals. The FCC regulates the licensing, construction, operation, acquisition, assignment and transfer of cellular telephone systems, as well as the number of licensees permitted in each market. Changes in the regulation of cellular activities could have a material adverse effect on the Company's operations. In addition, all cellular licenses in the United States are granted for an initial term of up to 10 years and are subject to renewal. The Company's cellular licenses expire in the following years with respect to the following number of service areas: 2000 (two); 2001 (four); 2002 (two); 2006 (one); 2007 (four) and 2008 (three). While the Company believes that each of these licenses will be renewed based upon FCC rules establishing a renewal expectancy in favor of licensees that have complied with their regulatory obligations during the relevant license period, there can be no assurance that all of the Company's licenses will be renewed in due course. In the event that a license is not renewed, the Company would no longer have the right to operate in the relevant service area. The non-renewal of licenses could have a material adverse effect on the Company's results of operations. See "Business of the Company--Regulation." Fluctuations in Market Value of License. A substantial portion of the Company's assets consists of its interests in cellular licenses. The assignment of interests in such licenses is subject to prior FCC approval and may also be subject to contractual restrictions, future competition and the relative supply and demand for radio spectrum. The future value of the Company's interests in its cellular licenses will depend significantly upon the success of the Company's business. While there is a current market for the Company's licenses, such market may not exist in the future or the values obtainable may be significantly lower than at present. As a consequence, in the event of the liquidation or sale of the Company's assets, there can be no assurance that the proceeds would be sufficient to pay the Company's obligations, and a significant reduction in the value of the licenses could require a charge to the Company's results of operations. Reliance on Use of Third Party Service Mark. The Company currently uses the registered service mark CELLULARONE to market its services. The Company's use of this is and has historically been, governed by five-year contracts between the Company and Cellular One Group, the owner of the service mark, for each of the markets in which the Company operates. See "Description of Cellular One Agreements." Such contracts currently in effect are expiring at different times through December 1, 2001. If for some reason beyond the Company's control, the name CELLULARONE were to suffer diminished marketing appeal, the Company's ability both to attract new subscribers and retain existing subscribers could be materially affected. AT&T Wireless Services, Inc., which has been the single largest user of the CELLULARONE service mark, has significantly reduced its use of the service mark as a primary service mark, as has Centennial Cellular. There can be no assurance that such reduction in use by any of such parties will not have an adverse effect on the marketing appeal of the brand name. Dependence on Key Personnel. The Company's affairs are managed by a small number of key management and operating personnel, the loss of whom could have an adverse impact on the Company. The success of the Company's operations and expansion strategy depends on its ability to retain and to expand its staff of qualified personnel in the future. Radio Frequency Emission Concerns. Media reports have suggested that certain radio frequency ("RF") emissions from portable cellular telephones may be linked to certain types of cancer. In addition, recently a limited number of lawsuits have been brought, not involving the Company, alleging a connection between cellular telephone use and certain types of cancer. Concerns over RF emissions and interference may have the effect of discouraging the use of cellular telephones, which could have an adverse effect upon the Company's business. As required by the Telecom Act, in August 1996, the FCC adopted new guidelines and methods for evaluating RF emissions from radio equipment, including cellular telephones. While the new guidelines impose more restrictive standards on RF emissions from low power devices such as portable cellular telephones, the Company believes that all cellular telephones currently marketed and in use comply with the new standards. The Company carries $2.0 million in General Liability insurance and $25.0 million in umbrella liability coverage. This insurance would cover (subject to coverage limits) any liability suits with respect to human exposure to radio frequency emissions. 5 Equipment Failure, Natural Disaster. Although the Company carries "business interruption" insurance, a major equipment failure or a natural disaster affecting any one of the Company's central switching offices or certain of its cell sites could have a significant adverse effect on the Company's operations. Operations General The Company is currently engaged in the construction, development, management and operation of cellular telephone systems in the southeastern United States. At December 31, 1998, the Company provided cellular telephone service to 381,977 subscribers in Georgia, Alabama, Florida and South Carolina in a total of 16 licensed service areas composed of eight MSAs and eight RSAs, with an aggregate estimated population of 3.3 million. The Company sells its cellular telephone service as well as a full line of cellular products and accessories, including pagers, principally through its network of retail stores. The Company markets all of its products and services under the nationally recognized service mark CELLULARONE. The following table sets forth information, at the dates indicated after giving effect to the Acquisition, regarding the Company's subscribers, penetration rate, cost to add a net subscriber, average monthly churn rate and average monthly service revenue per subscriber.
Year Ended December 31, ----------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Subscribers at end of period(1) .... 381,977 309,606 243,204 187,870 99,626 Penetration at end of period(2) .... 11.57% 9.40% 7.73% 6.41% 4.54% Cost to add a net subscriber(3) .... $ 448 $ 461 $ 436 $ 275 $ 247 Average monthly churn(4) ........... 1.91% 1.88% 1.89% 1.51% 1.54% Average monthly service revenue per Subscriber(5) ................... $ 51.67 $ 52.06 $ 52.20 $ 56.68 $ 60.02
(1) Each billable telephone number in service represents one subscriber. (2) Determined by dividing the aggregate number of subscribers by the estimated population. (3) Determined for the periods, by dividing (i) all costs of sales and marketing, including salaries, commissions and employee benefits and all expenses incurred by sales and marketing personnel, agent commissions, credit reference expenses, losses on cellular telephone sales, rental expenses allocated to retail operations, net installation expenses and other miscellaneous sales and marketing charges for such period by (ii) the net subscribers added during such period. (4) Determined for the periods by dividing total subscribers discontinuing service by the average number of subscribers for such period, and divided by the number of months in the relevant period. (5) Determined for the periods by dividing the (i) sum of the access, airtime, roaming, long distance, features, connection, disconnection and other revenues for such period by (ii) the average number of subscribers for such period, divided by the number of months in the relevant period. Subscribers and System Usage The Company's subscribers have increased to 381,977 at December 31, 1998. Reductions in the cost of cellular telephone services and equipment at the retail level have led to an increase in cellular telephone usage by general consumers for non-business purposes. As a result, the Company believes that there is an opportunity for significant growth in each of its existing service areas. The Company will continue to broaden its subscriber base for basic cellular telephone services as well as increase its offering of customized services. The sale of custom calling features typically results in increased usage of cellular telephones by subscribers thereby further enhancing revenues. In 1998, cellular telephone service revenues represented 93.6% of the Company's total revenues, with equipment sales and installation representing the balance. Marketing The Company's marketing strategy is designed to generate continued net subscriber growth by focusing on subscribers who are likely to generate lower than average deactivations and delinquent accounts, while simultaneously maintaining a low cost of adding net subscribers. Management has implemented its marketing strategy by training and compensating its sales force in a manner designed to stress the importance of high penetration levels and minimum costs per net subscriber addition. The 6 Company's sales staff has a two-tier structure. A retail sales force handles walk-in traffic, and a targeted sales staff solicits certain industries and government subscribers. The Company believes its use of an internal sales force keeps marketing costs low, both because commissions are lower and because subscriber retention is higher than if it used independent agents. The Company believes its cost to add a net subscriber will continue to be among the lowest in the cellular telephone industry, principally because of its in-house direct sales and marketing staff. The Company's sales force works principally out of retail stores in which the Company offers its cellular products and services. As of December 31, 1998, the Company maintained 37 retail stores and 3 offices. Retail stores, which range in size up to 11,000 square feet, are fully equipped to handle customer service and the sale of cellular services, telephones and accessories. Eight of the newer and larger stores are promoted by the Company as "Superstores," seven of which are located in the Company's Georgia/Alabama service areas, and one in the Panama City, Florida service area. Each Superstore has an authorized warranty repair center and provides cellular telephone installation and maintenance services. Most of the Company's larger markets currently have at least one Superstore. In addition, to enhance convenience for its customers, the Company has begun to open smaller stores in locations such as shopping malls. The Company's stores provide subscriber-friendly retail environments, extended hours, a large selection of phones and accessories, an expert sales staff, and convenient locations-which make the sales process quick and easy for the subscriber. The Company markets all of its products and services under the name CELLULARONE. The national advertising campaign conducted by Cellular One Group enhances the Company's advertising exposure at a fraction of what could be achieved by the Company alone. The Company also obtains substantial marketing benefits from the name recognition associated with this widely used service mark, both with existing subscribers traveling outside the Company's service areas and with potential new subscribers moving into the Company's service areas. In addition, travelers who subscribe to CELLULARONE service in other markets may be more likely to use the Company's service when they travel in the Company's service areas. Cellular telephones of non-wireline subscribers are either programmed to select the non-wireline carrier (such as the Company) when roaming, unless the non-wireline carrier in the roaming area is not yet operational, or the subscriber dials a special code or has a cellular telephone equipped with an "A/B" (wireline/non-wireline) switch and selects the wireline carrier. Through its membership in NACN and other special networking arrangements, the Company provides extended regional and national service to its subscribers, thereby allowing them to make and receive calls while in other cellular service areas without dialing special access codes. This service distinguishes the Company's call delivery features from those of many of its competitors. Products and Services In addition to providing high-quality cellular telephone service in each of its markets, the Company also offers various custom-calling features such as voicemail, call forwarding, call waiting, three-way conference calling and no answer and busy transfer. Several rate plans are presented to prospective subscribers so that they may choose the plan that will best fit their expected calling needs. Generally, these rate plans include a high user plan, a medium user plan, a basic plan and an economy plan. Most rate plans combine a fixed monthly access fee, per minute usage charges and additional charges for custom-calling features in a package that offers value to the subscriber while enhancing airtime use and revenues for the Company. In general, rate plans that include a higher monthly access fee typically include a lower usage rate per minute. An ongoing review of equipment and service pricing is maintained to ensure the Company's competitiveness. As appropriate, revisions to pricing of service plans and equipment are made to meet the demands of the local marketplace. In addition, the Company has recently added Paging as an accessory to its offered services. 7 The following table sets forth a breakdown of the Company's revenues after giving effect to the Fort Myers and Georgia Sales from the sale of its services and equipment for the periods indicated.
Company Predecessor ------------------------------ ------------------------------------------------------- For the Year October 1, 1997 Nine Months Ended Through Ended December 31, December 31, September 30, For The Year Ended December 31, ------------ ------------ ------------- ------------------------------- 1998 1997 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- Service Revenue: Access and usage (1) $140,024 $ 31,786 $ 89,339 $105,006 61,607 $ 37,063 Roaming (2) 27,029 5,69 14,447 13,099 11,157 5,844 Long distance (3) 13,045 2,014 5,949 6,632 3,634 2,218 Other (4) 4,554 891 2,061 2,596 2,585 2,745 -------- -------- -------- -------- -------- -------- Total service revenue 184,652 40,382 111,796 127,333 78,983 47,870 Equipment sales and installation (5) 12,677 2,308 6,242 7,027 6,830 6,381 -------- -------- -------- -------- -------- -------- Total $197,329 $ 42,690 $118,038 $134,360 $ 85,813 $ 54,251 ======== ======== ======== ======== ======== ========
(1) Access and usage revenues include monthly access fees for providing service and usage fees based on per minute usage rates. (2) Roaming revenues are fees charged for providing services to subscribers of other systems when such subscribers or "roamers" place or receive a telephone call within one of the Company's service areas. (3) Long distance revenue is derived from long distance telephone calls placed by the Company's subscribers. (4) Other revenue includes, among other things, connect fees charged to subscribers for initial activation on the cellular telephone system, paging revenue and fees for feature services such as voicemail, call forwarding and call waiting. (5) Equipment sales and installation revenue includes revenue derived from the sale of cellular telephones and fees for the installation of such telephones. Reciprocal roaming agreements between each of the Company's cellular telephone systems and the cellular telephone systems of other operators allow their respective subscribers to place calls in most cellular service areas throughout the country. Roamers are charged usage fees that are generally higher than a given cellular telephone system's regular usage fees, thereby resulting in a higher profit margin on roaming revenue. Roaming revenue is a substantial source of incremental revenue for the Company. For 1998, roaming revenues accounted for 14.6% of the Company's service revenues and 13.7% of the Company's total revenue. This level of roaming revenue is due in part to the fact that the Company's market in Panama City, Florida is a regional shopping and vacation destination and a number of the Company's cellular telephone systems in the Georgia and Alabama market are located along major interstate travel corridors. In order to develop the market for cellular telephone service, the Company provides retail distribution of cellular telephones and maintains inventories of cellular telephones. The Company negotiates volume discounts for the purchase of cellular telephones and, in many cases, passes such discounts on to its customers. The Company believes that earning an operating profit on the sale of cellular telephones is of secondary importance to offering cellular telephones at competitive prices to potential subscribers. To respond to competition and to enhance subscriber growth, the Company has historically sold cellular telephones below cost. The Company is currently developing several new services, which it believes will provide additional revenue sources. Packet-switching technology will allow data to be transmitted much more quickly and efficiently than the current circuit-switching technology. Packet-switching uses the intervals between voice traffic on cellular channels to send packets of data instead of tying up dedicated cellular channels. The packets of information, which may be transmitted using several different channels, are subsequently reassembled and directed to the correct party at the receiving end. It is expected that the development of this technology will make it possible for cellular carriers to offer a broad range of cost-effective wireless data services, including facsimile and electronic mail transmissions, point-of-sale credit authorizations, package tracking, remote meter reading, alarm monitoring and communications between laptop computer units and local area computer networks or other computer databases. During 1997 the Company began to implement the use of microcells. Microcells are low powered transmitters, typically constructed on a pole or the roof of a building, which provide reduced radius service within a specific area, such as large office buildings, underground facilities or areas shielded by topographical obstructions. Microcell service could be used, for instance, to provide wireless service within an office environment that was also integrated with wireless service to the home. Customer Service 8 The Company is committed to attracting new subscribers and retaining existing subscribers by providing consistently high-quality customer service. In each of its cellular service areas, the Company maintains a local staff, including a store manager, customer service representatives, technical and engineering staff, sales representatives and installation and repair facilities. Each cellular service area handles its own customer-related functions such as customer activations, account adjustments and rate plan changes. Local offices and installation and repair facilities enable the Company to better service customers, schedule installations and repairs and monitor the technical quality of the cellular service areas. To ensure high-quality customer service, the Cellular One Group authorizes a third-party marketing research firm to perform customer satisfaction surveys of each of its licensees. Licensees must achieve a minimum customer satisfaction level in order to be permitted to continue using the CELLULARONE service mark. In 1998, the Company was awarded the #1 MSA in CELLULARONE's National Customer Satisfaction Survey. The Company has held number one rankings in six out of the last seven years. The Company believes it has achieved this first place ranking through effective implementation of its direct sales and customer service support strategy. The Company has implemented a software package to combat cellular telephone service fraud. This software system can detect counterfeit cellular telephones while they are being operated and enables the Company to terminate service to the fraudulent user of the counterfeit cellular telephone. The Company also helps protect itself from fraud with pre-call customer validation and subscriber profiles specifically designed to combat the fraudulent use of subscriber accounts. Networks The Company strives to provide its subscribers with virtually seamless coverage throughout its cellular service market areas, thereby permitting subscribers to travel freely within this region and have their calls and custom calling features, such as voicemail, call waiting and call forwarding, follow them automatically without having to notify callers of their location or to rely on special access codes. The Company has been able to offer virtually seamless coverage by implementing a switch interconnection plan to mobile telephone switching offices ("MTSO") located in adjoining markets. The Company's equipment is built by NORTEL, formerly Northern Telecom, Inc. ("NTI"), and interconnection between MTSOs has been achieved using NTI's internal software and hardware. Through its participation in NACN since 1992 and other special networking arrangements, the Company has pursued its goal of offering seamless regional and national cellular service to its subscribers. NACN is the largest wireless telephone network system in the world-linking non-wireline cellular operators throughout the United States and Canada. Membership in NACN has aided the Company in integrating its cellular telephone systems within its region and has permitted the Company to offer cellular telephone service to its subscribers throughout a large portion of the United States, Canada, Mexico and Puerto Rico. NACN has provided the Company with a number of distinct advantages: (i) lower costs for roaming verification, (ii) increased roaming revenue, (iii) more efficient roaming service and (iv) integration of the Company's markets with over 4,600 cities in more than 40 states in the United States, Canada, Mexico and Puerto Rico. System Development and Expansion The Company develops its service areas by adding channels to existing cell sites and by building new cell sites. Such development is done for the purpose of increasing capacity and improving coverage in direct response to projected subscriber demand. Projected subscriber demand is calculated for each cellular service area on a cell by cell basis. These projections involve a traffic analysis of usage by existing subscribers and an estimation of the number of additional subscribers in each such area. In calculating projected subscriber demand, the Company builds into its design assumptions a maximum call "blockage" rate of 2.0% (percentage of calls that are not connected on first attempt at peak usage time during the day). The following table sets forth, by market, at the dates indicated, the number of the Company's operational cell sites. 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Georgia/Alabama ... 223 207 181 121 70 Panama City, FL ... 13 12 11 9 7 ---- ---- ---- ---- ---- Total ........ 236 219 192 130 77 ==== ==== ==== ==== ==== The Company constructed 17 cell sites in 1998 and plans to construct 30 additional cell sites with respect to its existing cellular systems during 1999 to meet projected subscriber demand and improve the quality of service. Cell site expansion is 9 expected to enable the Company to continue to add subscribers, enhance use of its cellular telephone systems by existing subscribers, increase services used by subscribers of other cellular telephone systems due to the larger geographic area covered by the cellular telephone network and further enhance the overall efficiency of the network. The Company believes that the increased cellular telephone coverage will have a positive effect on market penetration and subscriber usage. Microwave networks enable the Company to connect switching equipment and cell sites without making use of local landline telephone carriers, thereby reducing or eliminating fees paid to landline carriers. During 1996, the Company spent $1.0 million to build additional microwave connections. In addition, in 1996 the Company spent $2.6 million to build a fiber optic network between Dothan, Alabama and Panama City, Florida. The installation of this network resulted in savings to the Company from a reduction in fees paid to telephone companies for landline charges, as well as giving the Company the ability to lease out a significant portion of capacity. Digital Cellular Technology Over the next decade, it is expected that cellular telephones will gradually convert from analog to digital technology. This conversion is due in part to capacity constraints in many of the largest cellular markets, such as Los Angeles, New York and Chicago. As carriers reach limited capacity levels, certain calls may be unable to be completed, especially during peak hours. Digital technology increases system capacity and offers other advantages over analog technology, including improved overall average signal quality, improved call security, potentially lower incremental costs for additional subscribers and the ability to provide data transmission services. The conversion from analog to digital technology is expected to be an industry-wide process that will take a number of years. The exact timing and overall costs of such conversion are not yet known. The Company began offering Time Division Multiple Access ("TDMA") standard digital service, one of three standards for digital service, during 1997. This digital network allows the Company to offer advanced cellular features and services such as caller-ID, short message paging and extended battery life. Where cell sites are not yet at their maximum capacity of radio channels, the Company is adding digital channels to the network incrementally based on the relative demand for digital and analog channels. Where cell sites are at full capacity, analog channels are being removed and redeployed to expand capacity elsewhere within the network and replaced in such cell sites by digital channels. The implementation of digital cellular technology over a period of several years will involve modest incremental expenditures for switch software and possible significant cost reductions as a result of reduced purchases of radio channels and a reduced requirement to split existing cells. However, as indicated above, the extent of any implementation of digital radio channels and the amount of any cost savings ultimately to be derived therefrom will depend primarily on subscriber demand. In the ordinary course of business, equipment upgrades at the cell sites have involved purchasing dual mode radios capable of using both analog and digital technology. The benefits of digital radio channels can only be achieved if subscribers purchase cellular telephones that are capable of transmitting and receiving digital signals. Currently, such telephones are more costly than analog telephones. The widespread use of digital cellular telephones is likely to occur only over a substantial period of time and there can be no assurance that this technology will replace analog cellular telephones. In addition, since most of the Company's existing subscribers currently have cellular telephones that exclusively utilize analog technology, it will be necessary to continue to support, and if necessary increase, the number of analog radio channels within the network for many years. Acquisitions The Company will continue to evaluate expansion through acquisitions of both (i) contiguous cellular properties and other strategically located RSAs and small to mid-sized MSAs and (ii) minority interests in its existing cellular properties. In evaluating acquisition targets, the Company considers, among other things, demographic factors, including population size and density, geographic proximity to existing service areas, traffic patterns, cell site coverage and required capital expenditures. On June 20, 1996, the Company acquired the cellular telephone system of USCOC of Georgia RSA #1, Inc. ("USCOC") for an aggregate purchase price of $31.6 million including the cellular telephone system in the Georgia-1 RSA. The cellular telephone system in the acquired RSA serves a geographic territory of northwest Georgia between Chattanooga and Atlanta. On July 5, 1996, two of the Company's majority-owned subsidiaries acquired the cellular telephone system of Horizon Cellular Telephone Company of Spalding, L.P. ("Horizon") for an aggregate purchase price of $36.0 million including the cellular telephone system in the Georgia-6 RSA. The cellular telephone system in the acquired RSA serves a geographic territory of west central Georgia adjacent to the Macon and Columbus, Georgia MSAs. 10 On January 31, 1997, a majority-owned subsidiary of the Company acquired the cellular telephone system serving the Georgia-13 RSA from Mobile Communications Systems L.P. for a total purchase price of $31.5 million, which serves a geographic territory of southwest Georgia adjacent to the Albany, Georgia and Dothan, Alabama MSAs. Competition The cellular telephone service industry in the United States is highly competitive. Cellular telephone systems compete principally on the basis of services and enhancements offered, the technical quality of the cellular system, customer service, coverage capacity and price of service and equipment. Currently, the Company's primary competition in each of its service areas is the other cellular licensee-the wireline carrier. The table below lists the wireline competitor in each of the Company's existing service areas: Market Wireline Competitor ------ ------------------- Albany, GA......................... ALLTEL Augusta, GA........................ ALLTEL Columbus, GA....................... Public Service Cellular Macon, GA.......................... BellSouth Savannah, GA....................... ALLTEL Georgia-6 RSA...................... BellSouth and Intercel(1) Georgia-7 RSA...................... ALLTEL and BellSouth(1) Georgia-8 RSA...................... ALLTEL Georgia-9 RSA...................... ALLTEL and Public Service Cellular(1) Georgia-10 RSA..................... ALLTEL Georgia-12 RSA..................... ALLTEL Georgia-13 RSA..................... ALLTEL Dothan, AL......................... BellSouth Montgomery, AL..................... ALLTEL Alabama-8 RSA...................... ALLTEL Panama City, FL.................... ALLTEL (1) The purchasers of the authorization have subdivided the wireline service area into two service areas for the RSA. The Company also faces limited competition from and may in the future face increased competition from broadband PCS. Broadband PCS involves a network of small, low-powered transceivers placed throughout a neighborhood, business complex, community or metropolitan area to provide customers with mobile and portable voice and data communications. PCS subscribers communicate using digital radio handsets. The FCC allocated 120 MHz of spectrum for licensed broadband PCS. The allocations for licensed PCS services are split into six blocks of frequencies- blocks "A" and "B" being two 30 MHz allocations for each of the 51 Major Trading Areas ("MTAs") throughout the United States; block "C" being one 30 MHz allocation in each of 493 Basic Trading Areas ("BTAs") in the United States; and blocks "D," "E" and "F" being three 10 MHz allocations in each of the BTAs. The FCC has concluded the initial auction of all broadband PCS frequency blocks, although a limited number of PCS licenses are from time to time reauctioned due to a failure of the initial auction winner to complete the required payments for the licenses. The Company also faces competition from other existing communications technologies such as conventional mobile telephone service, SMR and ESMR systems and paging services. In addition, the FCC has licensed operators to provide mobile satellite service in which transmissions from mobile units to satellites would augment or replace transmissions to land-based stations. Although such a system is designed primarily to serve remote areas and is subject to transmission delays inherent in satellite communications, a mobile satellite system could augment or replace communications with segments of land-based cellular systems. Based on current technologies, however, satellite transmission services are not expected to be competitively priced with cellular telephone services. In order to grow and compete effectively in the wireless market, the Company plans to follow a strategy of increasing its bundled minute offerings. By increasing the number of minutes a customer can use for one flat rate, subscribers perceive greater value in their cellular service and become less usage sensitive, i.e., they can increase their cellular phone usage without seeing large corresponding increases in their cellular bill. These factors translate into more satisfied customers, greater customer usage 11 and lower churn among existing subscribers. The perceived greater value also increases the number of potential customers in the marketplace. The Company believes that this strategy will enable it to increase its share of the wireless market. Service Marks CELLULARONE is a registered service mark with the U.S. Patent and Trademark Office. The service mark is owned by Cellular One Group, a Delaware general partnership of Cellular One Marketing, Inc., a subsidiary of Southwestern Bell Mobile Systems, Inc., together with Cellular One Development, Inc., a subsidiary of AT&T and Vanguard Cellular Systems, Inc. The Company uses the CELLULARONE service mark to identify and promote its cellular telephone service pursuant to licensing agreements with Cellular One Group. In 1998, the Company paid $290,000 in licensing and advertising fees under these agreements. See "Risk Factors--Reliance on Use of Third-Party Service Mark." Description of Cellular One Agreements The Company is currently party to sixteen license agreements with Cellular One Group, which cover separate cellular telephone system areas. The terms of each agreement (each, a "Cellular One Agreement") are substantially identical. Pursuant to each Cellular One Agreement, Cellular One Group has granted a license to use the "CELLULARONE" mark (the "Mark") in its FCC- licensed territory (the "Licensed Territory") to promote its cellular telephone service. Cellular One Group has agreed not to license such mark to any other cellular telephone service provider in such territory during the term of the agreement. Each Cellular One Agreement has a term of five years and is renewable, subject to the conditions described herein, at the option of the Company for three additional five-year terms subject to provision of advanced written notice by the Company. In connection with any renewal, the Company must execute Cellular One Group's then-current form of license renewal agreement, which form may contain provisions materially different than those in the Cellular One Agreement. Cellular One Group may terminate the Cellular One Agreements at any time without written notice to the Company upon certain events, including bankruptcy, insolvency and dissolution of the Company. Cellular One Group may terminate the Cellular One Agreements if the Company (i) fails to pay any amounts thereunder when due or fails to submit information required to be provided pursuant to the Cellular One Agreement when due or makes a false statement in connection therewith, (ii) fails to operate its business in conformity with FCC directives, technical industry standards and other standards specified from time to time by Cellular One Group, (iii) misuses, makes unauthorized use of or materially impairs the goodwill of the Mark, (iv) engages in any business under a name that is confusingly similar to the Mark, or (v) permits a continued violation of any law or regulation applicable to it, in each case subject to a thirty-day cure period. The Cellular One Agreements are terminable by the Company at any time subject to 120 days' written notice. The Company has agreed to indemnify Cellular One Group and its employees and affiliates, including its constituent partners, against all claims arising from the operation of its cellular phone business and the costs, including attorneys fees, of defending against them. Regulation As a provider of cellular telephone services, the Company is subject to extensive regulation by the federal government. The licensing, construction, operation, acquisition and transfer of cellular telephone systems in the United States are regulated by the FCC pursuant to the Communications Act of 1934, as amended (the "Communications Act"). The FCC has promulgated rules governing the construction and operation of cellular telephone systems and licensing and technical standards for the provision of cellular telephone service ("FCC Rules"). For cellular licensing purposes, the United States is divided into MSAs and RSAs. In each market, the frequencies allocated for cellular telephone use are divided into two equal blocks designated as Block A and Block B. Block A licenses were initially reserved for non-wireline companies, such as Palmer, while Block B licenses were initially reserved for entities affiliated with a local wireline telephone company. Under current FCC Rules, a Block A or Block B license may be transferred with FCC approval without restriction as to wireline affiliation, but generally, no entity may own any substantial interest in both systems in any one MSA or RSA. The FCC may prohibit or impose conditions on sales or transfers of licenses. 12 Initial operating licenses are generally granted for terms of up to 10 years, renewable upon application to the FCC. Licenses may be revoked and license renewal applications denied for cause after appropriate notice and hearing. The Company's cellular licenses expire in the following years with respect to the following number of service areas: 2000 (two); 2001 (four); 2002 (two); 2006 (one); 2007 (four), and 2008 (three). The FCC has issued a decision confirming that current licensees will be granted a renewal expectancy if they have complied with their obligations under the Communications Act during their license terms and provided substantial public service. A potential challenger will bear a heavy burden to demonstrate that a license should not be renewed if the licensee's performance merits renewal expectancy. The Company believes that the licenses it controls will continue to be renewed in a timely manner. However, in the event that a license is not renewed, the Company would no longer have the right to operate in the relevant service area. A non-renewal of all licenses that are currently pending would have a material adverse effect on the Company's results of operations. Under FCC rules, each cellular licensee was given the exclusive right to construct one of two cellular telephone systems within the licensee's MSA or RSA during the initial five-year period of its authorization. At the end of such five-year period, other persons are permitted to apply to serve areas within the licensed market that are not served by the licensee and current FCC Rules provide that competing applications for these "unserved areas" are to be resolved through the auction process. The Company has no material unserved areas in any of its cellular telephone systems that have been licensed for more than five years. The Company also regularly applies for FCC authority to use additional frequencies, to modify the technical parameters of existing licenses, to expand its service territory and to provide new services. The Communications Act requires prior FCC approval for acquisitions by the Company of other cellular telephone systems licensed by the FCC and transfers by the Company of a controlling interest in any of its licenses or construction permits, or any rights thereunder. Although there can be no assurance that any future requests for approval or applications filed by the Company will be approved or acted upon in a timely manner by the FCC, based upon its experience to date, the Company has no reason to believe such requests or applications would not be approved or granted in due course. The Communications Act prohibits the holding of a common carrier license (such as the Company's cellular licenses) by a corporation of which more than 20% of the capital stock is owned directly or beneficially by aliens. Where a corporation such as the Company controls another entity that holds an FCC license, such corporation may not have more than 25% of its capital stock owned directly or beneficially by aliens, in each case, if the FCC finds that the public interest would be served by such prohibitions. These limitations have been relaxed with regard to certain foreign investors pursuant to a World Trade Organization treaty and FCC actions implementing the treaty. Failure to comply with these requirements may result in the FCC issuing an order to the Company requiring divestiture of alien ownership to bring the Company into compliance with the Communications Act. In addition, fines or a denial of renewal, or revocation of the license are possible. From time to time, legislation that could potentially affect the Company, either beneficially or adversely, may be proposed by federal and state legislators. On February 8, 1996, the Telecommunications Act of 1996 (the "Telecom Act") was signed into law, revising the Communications Act to eliminate unnecessary regulation and to increase competition among providers of communications services. The Company cannot predict the future impact of this or other legislation on its operations. The major provisions of the Telecom Act potentially affecting the Company are as follows: Interconnection. The Telecom Act required state public utilities commissions and the FCC to implement policies that mandate cost-based reciprocal compensation between cellular carriers and local exchange carriers ("LEC") for interconnection services. On August 8, 1996, the FCC released its First Report and Order in the matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 ("FCC Order") establishing the rules for the costing and provisioning of interconnection services and the offering of unbundled network elements by incumbent local exchange carriers. The FCC Order established procedures for Palmer's renegotiations of interconnection agreements with the incumbent local exchange carrier in each of Palmer's markets. LECs and state regulators filed appeals of the FCC Order, which were consolidated in the US Court of Appeals for the Eighth Circuit. The Court rejected most of the rules promulgated in the FCC Order. However, on further appeal, the United States Supreme Court revised most of the court's actions and remanded the case to the courts and the FCC for further consideration. Pending further court action, much of the FCC Order will take effect. 13 The Company has renegotiated certain interconnection agreements with incumbent LECs in most of the Company's markets. These negotiations have resulted in a substantial decrease in interconnection expenses incurred by the Company. Facilities siting for personal wireless services. The siting and construction of cellular transmitter towers, antennas and equipment shelters are often subject to state or local zoning, land use and other regulation. Such regulation may require zoning, environmental and building permit approvals or other state or local certification. The Telecom Act provides that state and local authority over the placement, construction and modification of personal wireless services (including cellular and other commercial mobile radio services and unlicensed wireless services) shall not prohibit or have the effect of prohibiting personal wireless services or unreasonably discriminate among providers of functionally equivalent services. In addition, local authorities must act on requests made for siting in a reasonable period of time and any decision to deny must be in writing and supported by substantial evidence. Appeals of zoning decisions that fail to comply with the provisions of the Telecom Act can be made on an expedited basis to a court of competent jurisdiction, which can be either federal district or state court. The Company anticipates that, as a result of the Telecom Act, it will more readily receive local zoning approval for proposed cellular base stations. In addition, the Telecom Act codified the Presidential memorandum on the use of federal lands for siting wireless facilities by requiring the President or his designee to establish procedures whereby federal agencies will make available their properties, rights of ways and other easements at a fair and reasonable price for service dependent upon federal spectrum. Environmental effect of radio frequency emissions. The Telecom Act provides that state and local authorities cannot regulate personal wireless facilities based on the environmental effects of radio frequency emissions if those facilities comply with the federal standard. Universal service. The Telecom Act also provides that all communications carriers providing interstate communications services, including cellular carriers, must contribute to the federal universal service support mechanisms established by the FCC. . The FCC also provided that any cellular carrier is potentially eligible to receive universal service support. The universal service support fund will support telephone service in high-cost and low-income areas and support access to telecommunications facilities by schools, libraries and rural health care facilities. States will also be implementing requirements that carriers contribute universal service funding from intrastate telecommunications revenues. The Company has revised its customer billing to reflect additional costs related to this universal service fund requirements. There can be no guarantee that the Company will be able to continue to pass the costs of the fund requirements on to its subscribers in the future. The FCC has implemented its cellular-PCS cross ownership rule, but has retained a spectrum cap on aggregation of CMRS spectrum. A cellular licensee and its affiliates may not hold an attributable interest in more than 45 MHz of licensed cellular, broadband PCS and SMRS in a particular geographic area. The Communications Act preempts state and local regulation of the entry of, or the rates charged by, any provider of cellular service. Certain Terms Interests in cellular markets that are licensed by the FCC are commonly measured on the basis of the population of the market served, with each person in the market area referred to as a "Pop." The number of Pops or Net Pops owned is not necessarily indicative of the number of subscribers or potential subscribers. As used herein, unless otherwise indicated, the term "Pops" means the estimate of the 1998 population of an MSA or RSA, as derived from the 1998 Donaldson, Lufkin, & Jenrette Market Information Service. The term "Net Pops" means the estimated population with respect to a given service area multiplied by the percentage interest that the Company owns in the entity licensed in such service area. MSAs and RSAs are also referred to as "markets." The term "wireline" license refers to the license for any market initially awarded to a company or group that was affiliated with a local landline telephone carrier in the market, and the term "non-wireline" license refers to the license for any market that was initially awarded to a company, individual or group not affiliated with any landline carrier. The term "System" means an FCC-licensed cellular telephone system. The term "CTIA" means the Cellular Telecommunications Industry Association. Employees At December 31, 1998, the Company had 569 full-time employees, none of whom is represented by a labor organization. Management considers its relations with employees to be good. 14 Item 2. PROPERTIES For each market served by the Company's operations, the Company maintains at least one sales or administrative office and operates a number of cell transmitter and antenna sites. As of December 31, 1998, the Company had approximately 35 leases for retail stores used in conjunction with its operations and 3 leases for administrative offices. The Company also had approximately 142 leases to accommodate cell transmitters and antennas as of December 31, 1998. Item 3. LEGAL PROCEEDINGS The Company is not currently involved in any pending legal proceedings likely to have a material adverse impact on the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable Item 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS a) Market for Common Stock Not Applicable b) Holders All of the issued and outstanding capital stock of PCW is held beneficially and of record by Holdings. c) Dividends PCW, to date, has paid no cash dividends on its Common Stock. The Senior Secured Note Indenture imposes substantial restrictions on PCW's ability to pay dividends to Holdings. It is not anticipated that dividends will be paid on PCW's capital stock in the foreseeable future. 15 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table contains certain consolidated financial data with respect to the Company for the period ended December 31, 1998, May 29, 1997 through December 31, 1997 and for Palmer ("Predecessor") for the periods and dates set forth below. This information has been derived from the audited consolidated financial statements of the Company and Palmer. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto, included elsewhere herein.
Company Predecessor ------------------------ ----------------------------------------------- For the Period May 29, 1997 For the Nine Through Months Ended December 31, September 30, 1998 1997 1997 1996(3) 1995(2) 1994(1) ---- ---- ---- ------- ------- ------- (In Thousands, Except Percentage And Per Subscriber Data) Consolidated Statement Of Operations Data: Revenue: Service ............................................. $ 184,652 $ 41,365 $ 134,123 $ 151,119 $ 96,686 $ 61,021 Equipment sales and installation 12,677 2,348 7,613 8,624 8,220 7,958 ----------- ----------- --------- --------- --------- --------- Total revenue ..................................... 197,329 43,713 141,736 159,743 104,906 68,979 ----------- ----------- --------- --------- --------- --------- Engineering, technical and other direct expenses .... 30,022 5,978 23,301 28,717 18,184 12,776 Cost of equipment ................................... 23,710 5,259 16,112 17,944 14,146 11,546 Selling, general and administrative expenses ........ 55,002 12,805 41,014 46,892 30,990 19,757 Depreciation and amortization ....................... 43,569 11,055 25,498 25,013 15,004 9,817 ----------- ----------- --------- --------- --------- --------- Operating income .................................... 45,026 8,616 35,811 41,177 26,582 15,083 ----------- ----------- --------- --------- --------- --------- Other income (expense): Interest, net ..................................... (77,510) (22,198) (24,467) (31,462) (21,213) (12,715) Other, net ........................................ (19) 15 208 (429) (687) (70) ----------- ----------- --------- --------- --------- --------- Total other expenses .......................... (77,529) (22,183) (24.259) (31,891) (21,900) (12,785) ----------- ----------- --------- --------- --------- --------- Minority interest share of (income) losses .......... (2,178) (414) (1,310) (1,880) (1,078) (636) Income tax benefit (expense) ........................ 12,831 5,129 (4,153) (2,724) (2,650) 0 ----------- ----------- --------- --------- --------- --------- Income (loss) before extraordinary item ....... (21,850) (8,852) 6,089 4,682 954 1,662 Extraordinary item - Loss on early extinguishment of debt (net of tax benefit of $ 14,885) .......... (25,344) -- -- -- -- -- ----------- ----------- --------- --------- --------- --------- Net income (loss) ............................. $ (47,194) $ (8,852) $ 6,089 $ 4,682 $ 954 1,662 =========== =========== ========= ========= ========= ========= Other Data: Capital expenditures .................................. $ 14,725 $ 14,499 $ 40,757 $ 41,445 $ 36,564 $ 22,541 Operating income before depreciation and amortization ("EBITDA")(4) ....................................... $ 88,595 $ 19,671 $ 61,309 $ 66,190 $ 41,586 $ 24,900 EBITDA margin on service revenue ...................... 48.0% 47.6% 45.7% 43.8% 43.0% 40.8% Net cash provided by (used in): Operating activities ................................ $ 15,571 $ 11,313 $ 38,791 $ 30,130 $ 27,660 $ 7,238 Investing activities ................................ (12,725) (321,030) (73,759) (110,610) (196,610) (116,850) Financing activities ................................ 78,365 337,643 36,851 78,742 169,554 110,940 Penetration(5) ........................................ 11.6% 9.40% 8.60% 7.45% 6.41% 4.58% Subscribers at end of period(6) ....................... 381,977 309,606 337,345 279,816 211,985 117,224 Cost to add a net subscriber(7) ....................... $ 448 $ 370 $ 514 $ 407 $ 276 $ 247 Average monthly service revenue per subscriber(8) ..... $ 51.67 $ 50.59 $ 53.99 $ 52.20 $ 56.68 $ 60.02 Average monthly churn(9) ............................ 1.91% 1.84% 1.89% 1.84% 1.55% 1.55% Ratio of earnings to fixed charges(10) .............. N/A N/A 1.45x 1.28x 1.21x 1. 17x Consolidated Balance Sheet Data: Cash ................................................ $ 109,137 $ 27,926 $ 3,581 $ 1,698 $ 3,436 $ 2,998 Restricted cash(11) ................................. 79,081 -- -- -- -- -- Working capital (deficit) ........................... 172,976 3,080 7,011 296 (1,435) 2,490 Property and equipment, net ......................... 144,828 151,141 161,351 132,438 100,936 51,884 Licenses and other intangibles, net ................. 876,952 937,986 406,828 387,067 332,850 199,265 Total assets ...................................... 1,263,734 1,144,479 599,815 549,942 462,871 273,020 Long-term debt ...................................... 700,000 610,188 378,000 343,662 350,441 245,609 Obligation of parent company(11) .................... 209,432 80,112 -- -- -- -- Stockholder's equity (deficit) .................... (12,031) 35,163 172,018 164,930 74,553 4,915
16 (1) Includes the Georgia Acquisition (as defined herein), that occurred on October 31, 1994. For the two months ended December 31, 1994, the Georgia Acquisition resulted in revenues to Palmer of $1.8 million and operating loss of $645,000. (2) Includes the GTE Acquisition (as defined herein), that occurred on December 1, 1995. For the one month ended December 31, 1995, the GTE Acquisition resulted in revenues, to Palmer of $2.2 million and operating income of $208,000. (3) Includes the acquisition of the cellular telephone systems of USCOC (as defined herein) (Georgia-1 RSA), which occurred on June 20, 1996, and Horizon (as defined herein) (Georgia-6 RSA), which occurred on July 5, 1996. The acquisitions of USCOC and Horizon resulted in revenues to Palmer of $1.2 million and $2.7 million respectively, and operating (loss) income of $(278,000) and $743,000 respectively, during such year. (4) EBITDA should not be considered in isolation or as an alternative to net income (loss), operating income (loss) or any other measure of performance under GAAP. The Company believes that EBITDA is viewed as a relevant supplemental measure of performance in the cellular telephone industry. (5) Determined by dividing the aggregate number of subscribers by the estimated population. (6) Each billable telephone number in service represents one subscriber. (7) Determined for a period by dividing (i) costs of sales and marketing, including salaries, commissions and employee benefits and all expenses incurred by sales and marketing personnel, agent commissions, credit reference expenses, losses on cellular telephone sales, rental expenses allocated to retail operations, net installation expenses and other miscellaneous sales and marketing charges for such period, by (ii) the net subscribers added during such period. (8) Determined for a period by dividing (i) the sum of the access, airtime, roaming (including incollect), long distance, features, connection, disconnection and other revenues for such period by (ii) the average number of subscribers for such period divided by the number of months in such period. (9) Determined for a period by dividing total subscribers discontinuing service by the average number of subscribers for such period, and dividing that result by the number of months in such period. (10) The ratio of earnings to fixed charges is determined by dividing the sum of earnings before interest expense, taxes and a portion of rent expense representative of interest by the sum of interest expense and a portion of rent expense representative of interest. The ratio of earnings to fixed charges is not meaningful for periods that result in a deficit. For the year ended December 31, 1998 and for the period May 29, 1997 through December 31, 1997 such deficits for the Company were $47,194 and $8,852, respectively. (11) Restricted cash and Parent company obligations represent cash belonging to Holdings and debt owed by Holdings that are reflected on the balance sheet pursuant to "push down" accounting rules. The Company has neither rights with respect to such cash nor liability with respect to such debt obligation. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Consolidated Financial Statements and related Notes thereto. References to the Company also include its predecessor, Palmer. Results for the Predecessor for the year ended December 31, 1996 are based solely on the historical operations of the Predecessor prior to the Merger. The discussion for the year ended December 31, 1997 is based upon the results of the Predecessor through September 30, 1997 and the results of the Company from October 1, 1997 to December 31, 1997 (except for a minimal amount of net interest expense from May 29, 1997 to December 31, 1997). The comparison for the year ended December 31, 1998 versus December 31, 1997 is for the full twelve-month period and combines the results of the predecessor with the results for the Company. The audited financial statements of the Company do not include such combined financial statements, as this would not be in conformity with GAAP. Overview PCW, a wholly owned subsidiary of Holdings, a wholly-owned subsidiary of Price Communications Cellular, Inc., a wholly-owned subsidiary of PCC, was incorporated on May 29, 1997 in connection with the purchase of Palmer. In May 1997, PCC, PCW and Palmer entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provided, among other things, for the merger of PCW with and into Palmer with Palmer as the surviving corporation (the "Merger"). In October, 1997, the Merger was consummated and Palmer changed its name to "Price Communications Wireless, Inc." Pursuant to the Merger Agreement, PCC acquired each issued and outstanding share of common 17 stock of Palmer for a purchase price of $17.50 per share in cash and purchased outstanding options and rights under employee and direct stock purchase plans for an aggregate price of $486.4 million. In addition, as a result of the Merger, PCW assumed all outstanding indebtedness of Palmer of approximately $378.0 million. As a result, the aggregate purchase price for Palmer (including transaction fees and expenses) was approximately $880.0 million. PCW refinanced all of the Palmer Existing Indebtedness concurrently with the consummation of the Merger. PCW entered into an agreement to sell Palmer's Fort Myers, Florida MSA covering approximately 382,000 Pops for $168.0 million (the "Fort Myers Sale"). In October 1997, the Fort Myers Sale was consummated, and generated proceeds to the Company of approximately $166.0 million. The proceeds of the Fort Myers Sale were used to fund a portion of the acquisition of Palmer. Accordingly, no gain or loss was recognized on the Fort Myers Sale. On October 21, 1997, PCC and PCW entered into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. which provided for the sale by PCW, for $25.0 million, of substantially all of the assets of the non- wireline cellular telephone system serving the Georgia-1RSA ("Georgia-1"), including the FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale of the assets of Georgia-1 was consummated on December 30, 1997 for $24.2 million. The proceeds from the Georgia Sale were used to retire a portion of the debt used to fund the acquisition of Palmer. Accordingly, no gain or loss was recognized on the Georgia Sale. In order to fund the Acquisition and pay related fees and expenses, in July, 1997, PCW issued $175.0 million aggregate principal amount of 11 3/4% Senior Subordinated Notes due 2007 and entered into a syndicated senior loan facility providing for term loan borrowings in the aggregate principal amount of approximately $325.0 million and revolving loan borrowings of $200.0 million. In October 1997, PCW borrowed all term loans available thereunder and approximately $120.0 million of revolving loans. The acquisition of Palmer was also funded through an equity contribution of PCC and borrowings of Holdings. The Company is engaged in the construction, development, management and operation of cellular telephone systems in the southeastern United States. As of December 31, 1998, the Company provided cellular telephone service to 381,977 subscribers in Alabama, Florida and Georgia in a total of 16 licensed service areas, composed of eight MSA's and eight RSA's, with an aggregate estimated population of 3.3 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. Acquisitions 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 the Georgia-13 RSA, for a total purchase price of $31.5 million, subject to certain adjustments. On October 6, 1997, as part of the Acquisition of Palmer by the Company, the Fort Myers MSA was sold for approximately $168.0 million. On December 30, 1997, the Company sold the assets of and license to operate the non-wireline cellular telephone system serving Georgia Rural Service Area Market No. 371, otherwise known as Georgia-1 RSA for a total price of $24.2 million, subject to certain adjustments. As stated above, the Fort Myers and GA-1 markets were sold during the latter part of 1997 making the operating results for the year ended December 31, 1998 versus the year ended December 31, 1997 not comparable. The following highlights compare the operations for the years ended December 31, 1998 and 1997 after adjusting 1997 for such sales: 18 Years Ended December 31, ------------------------ 1998 1997 ---- ---- Service revenue $184,652 $152,178 Operating cash flow ("EBITDA") 88,595 70,033 EBITDA % (% of service revenue) 48.0% 46.0% Subscriber growth 72,385 55,632 Average monthly revenue per sub $ 51.67 $ 52.06 Average monthly operating costs per sub $ 23.17 $ 24.67 Local minutes of use (in thousands) 768,707 506,097 Results of Operations The following table sets forth for the Company, for the periods indicated, the percentage which certain amounts bear to total revenue.
Company Predecessor ------------------------------ ------------------------------ For the Period For the For the May 29, 1997 Nine Months For the Year Ended Through Ended Year Ended December 31, December 31, September 30, December 31, 1998 1997 1997 1996 ------ ------ ------ ------ Revenue: Service ....................................... 93.6% 94.6% 94.6% 94.6% Installation .................................. 6.4 5.4 5.4 5.4 ------ ------ ------ ------ Total Revenue ...................................... 100.0 100.0 100.0 100.0 ------ ------ ------ ------ Operating Expenses: Engineering, technical and other direct: Engineering and technical(1) ............... 7.3 7.2 8.0 7.9 Other direct costs of services(2) .......... 8.0 6.5 8.4 10.1 Cost of equipment(3) .......................... 12.0 12.0 11.4 11.2 Selling, general and administrative: Selling and Marketing(4) ................... 9.9 8.9 8.4 8.6 Customer Service(5) ........................ 6.3 6.2 6.3 5.9 General and administrative(6) .............. 11.6 14.2 14.2 14.9 Depreciation and amortization ................. 22.1 25.3 18.0 15.7 ------ ------ ------ ------ Total Operating Expenses ........................... 77.2 80.3 74.7 74.3 ------ ------ ------ ------ Operating Income ................................... 22.8% 19.7% 25.3% 25.7% Operating Income Before Depreciation And Amortization(7).................................. 44.9% 45.0% 43.3% 41.4%
(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 incollect 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, advertising and promotional expenses, and employee and agent commissions. (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. Year Ended December 31, 1998 Compared To Year Ended December 31, 1997 Revenue. Service revenues totaled $184.7 million for 1998, an increase of 5.2% over $175.5 million for 1997. The increase is primarily attributable to a 24.5% increase in the average number of subscribers to 345,490 for 1998 versus 277,487 for 1997 after adjusting for the sale of the Fort Myers and GA-1 markets. Substantially offsetting this increase is the loss of service revenue of the cellular telephone systems resulting from the sale of Fort Myers and GA-1, which approximated $21.1 million. The increase in subscribers is the result of internal growth, which the Company attributes primarily to its strong sales and marketing efforts. In addition to the subscriber base growth, service revenues also increased because of a significant increase in the minutes of use for the Company's subscribers. 19 Average monthly revenue per subscriber (which excludes incollect revenue) decreased 2.5% to $44.54 for 1998 from $45.70 for 1997. The decrease is below the industry average. Revenue includes service revenue and incollect revenue, which is offset against cost of service for financial reporting purposes. This modest decrease 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 $12.7 million for 1998 from $10.0 million for 1997. As a percentage of total cellular revenue, equipment sales and installation revenue increased to 6.4% of service revenue from 5.4% for 1997 reflecting the increased recurring revenue base as well as the ability to obtain increased prices for our cellular equipment sold to customers. Operating Expenses. Engineering and technical expenses decreased slightly by 2.1% to $14.3 million for 1998 from $14.6 million in 1997. As a percentage of revenue, engineering and technical expenses decreased to 7.3 % of total revenue from 7.9% for 1997. This reflects the increased costs associated with increased minutes of usage by our subscribers offset by the expenses associated with the markets sold which approximated $1.3 million. Other direct costs of services increased to $15.7 million in 1998 from $14.7 million in 1997. As a percentage of revenue, other direct costs of service was basically flat increasing from 7.9% in 1997 to 8.0% in 1998, reflecting the increase in minutes of usage by our customers as they roam in other markets. Other direct costs of service related to the Fort Myers and GA-1 markets approximated $3.0 million. The cost of equipment increased 10.7% to $23.7 million for 1998 from $21.4 million for 1997, due primarily to the increase in gross subscriber activations. Equipment sales resulted in losses of $11.0 million in 1998 versus $11.4 million in 1997. The Company sells equipment below its costs in an effort to address market competition and improve market share. The Company was able to reduce its losses by obtaining better prices from its customers as well as obtaining better prices from its suppliers. Selling, general and administrative expenses increased a modest 2.2% to $55.0 million in 1998 from $53.8 million 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 23.4% to $19.5 million for 1998 from $15.8 million for 1997. This increase is primarily due to an 8.0% increase in gross subscriber activations (excluding prepaids) and the costs to acquire them and higher advertising costs in response to market competition. As the level of penetration increases, the sales and marketing costs associated with acquiring additional subscribers increases. As a percentage of total revenue, sales and marketing costs increased to 9.9% for 1998 compared to 8.5% for 1997. The Company's cost to add a net subscriber, including loss on telephone sales, decreased to $448 for 1998 from $469 for 1997. Sales and marketing expenses associated with the Fort Myers and GA-1 markets approximated $1.2 million. Customer service costs increased 6.8% to $12.5 million for 1998 from $11.7 million for 1997. As a percentage of revenue, customer service costs amounted to 6.3% for 1998 and for 1997. The increase in the absolute amount was due primarily to an increase in fees for billing services, partially offset by the expenses incurred for the Fort Myers and GA-1 markets which approximated $1.1 million in 1997. General and administrative expenditures decreased 12.5% to $23.0 million for 1998 from $26.3 million for 1997. General and administrative expenses decreased as a percentage of total revenue to 10.5% in 1998 from 14.2% in 1997. Payroll and its related fringe benefits were the largest line items that reflected a decrease. General and administrative expenses attributable to the cellular telephone systems sold in Fort Myers and GA-1 amounted to $1.8 million in 1997. The Company continues to add subscribers which generate revenue. Accordingly, general and administrative expenses should continue to 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 19.1% to $43.6 million for 1998 from $36.6 million for 1997. This increase was primarily due to the additional depreciation and amortization on higher fixed asset and intangible values from the purchase of the Company in October 1997. As a percentage of revenue, depreciation and amortization increased to 22.1% for 1998 from 19.7% for 1997 compared to 1997. 20 Operating income increased 1.4% to $45.0 million in 1998, from $44.4 million for 1997. This improvement in operating results is primarily due to increases in revenue and on cost containment. The improvement in operating income was caused by a $7.0 million increase in the non-cash charges for depreciation and amortization. Net interest expense increased to $77.5 million in 1998 from $46.7 million in 1997 primarily because of the additional borrowings incurred as a result of the acquisition and the push down of interest on Holdings indebtedness. The income tax benefit for 1998 amounted to $12.8 million representing the reduction of the accrued tax liability associated with the sale of the Ft. Meyers and GA-1 properties which was established as the result of purchase accounting. The income tax benefit for 1997 approximated $1.0 million based on the loss for the year. The net loss for the year ended December 31, 1998 was $47.2 million compared to $2.8 million for the year ended December 31, 1997. The increased net loss is a result of the additional interest expense, increased depreciation and amortization expense and $25.3 million of extraordinary items (net of tax benefit). These items are comprised of the write-off of deferred finance charges and the premium associated with the early retirement of the Holdings notes and interest paid for the early termination of the interest rate swap contracts. Year Ended December 31, 1997 Compared To Year Ended December 31, 1996 Revenue. Service revenues totaled $175.5 million for 1997, an increase of 16.1% over $151.1 million for 1996. This increase was due to a 29.8% increase in the average number of subscribers to 313,042 for 1997 versus 241,255 for 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. In addition to the subscriber base growth, service revenues also increased because of a 35.3% increase in outcollect roaming revenues. Average monthly revenue per subscriber decreased 10.5% to $46.72 for 1997 from $52.20 for 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 $10.0 million for 1997 from $8.6 million for 1996. As a percentage of total cellular revenue, equipment sales and installation revenue remained flat at 5.4% for both 1997 and 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 16.0% to $14.6 million for 1997 from $12.6 million in 1996, due primarily to the increase in subscribers and in cell site locations. As a percentage of revenue, engineering and technical expenses remained flat at 7.9% for both 1997 and 1996. This reflects the increased fixed costs associated with additional cell sites constructed. As revenue grows 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 declined to $14.7 million for 1997 from $16.1 million in 1996. As a percentage of revenue, other direct costs of service decreased to 7.9% in 1997 from 10.1% in 1996, reflecting the decrease in interconnection costs as a result of the Company's renegotiations of interconnection agreements with the local exchange carriers ("LECs") in most of the Company's markets, offset somewhat by more competitive roaming rates for Company's customer roaming in adjacent areas. The cost of equipment increased 19.1% to $21.4 million for 1997 from $17.9 million for 1996, due primarily to the increase in gross subscriber activations. Equipment sales resulted in losses of $11.4 million in 1997 versus $9.3 million in 1996. The Company sells equipment below its costs in an effort to address market competition and improve market share. The Company sold more telephones below cost in 1997 than in 1996. Selling, general and administrative expenses increased 14.8% to $53.8 million in 1997 from $46.9 million in 1996. 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 15.5% to $15.8 million for 1997 from $13.7 million for 1996. This increase is primarily due to a 13.5% increase in gross subscriber activations and the costs to acquire them and higher advertising costs in response to market competition. As a percentage of total revenue, sales and marketing costs decreased to 8.5% for 1997 compared to 8.6% 21 for 1996. The Company's cost to add a net subscriber, including loss on telephone sales, increased to $469 for 1997 from $407 for 1996 due primarily to increased losses from the Company's sales of cellular telephones and an increase in commissions. Customer service costs increased 23.6% to $11.7 million for 1997 from $9.4 million for 1996. As a percentage of revenue, customer service costs increased to 6.3% for 1997 from 5.9% for 1996. The increase was due primarily to an increase in license and maintenance costs for the Company's billing systems. General and administrative expenditures increased 10.8% to $26.3 million for 1997 from $23.8 million for 1996. General and administrative expenses decreased as a percentage of total revenue to 14.2% in 1997 from 14.9% in 1996. As the Company continues to add more subscribers, and generates associated revenue, general and administrative expenses should continue to 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 46.1% to $36.6 million for 1997 from $25.0 million for 1996. 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, recent acquisitions and additional capital expenditures. As a percentage of revenue, depreciation and amortization increased to 19.7% from 15.7% for 1997 compared to 1996. Operating income increased 7.9% to $44.4 million in 1997, from $41.2 million for 1996. This improvement in operating results is attributable primarily to increases in revenue, which exceeded increases in operating expenses. 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 the issuance of debt, equity contributions, and, to a lesser extent, operating cash flow. In 1998 the Company spent approximately $14.7 million for capital expenditures. The Company expects to spend approximately $16 million for capital expenditures for the year ended December 31, 1999. The Company expects to use net cash provided by operating activities to fund such capital expenditures. In July 1997, the Company issued $175 million of $11.75% Senior Subordinated Notes due July 15, 2007 with interest payable semi-annually commencing January 15, 1998. Such Notes contain covenants that restrict the payment of dividends, incurrence of debt and sale of assets. In June 1998, the Company issued $525.0 million of 9.125% Senior Secured Notes due December 15, 2006 with interest payable semi-annually commencing December 15, 1998. These notes contain covenants that restrict the payment of dividends, incurrence of debt and the sale of assets. The net proceeds from these notes were used to pay-off the credit facility that approximated $425.1 million as of the redemption date. In August 1997, in connection with the acquisition of the Predecessor (see Note 1 to the Company's Consolidated Financial Statements) Holdings issued 153,400 units, consisting of Holdings' Notes and Warrants of PCC, in exchange for $80 million. The Notes accrete at a rate of 13.5% compounded semi-annually, to an aggregate principal amount of approximately $153.4 million by August 1, 2002. In August 1998, 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, a premium of 20% of the outstanding indebtedness or approximately $18.2 million was also paid. The redemption was financed out of the net proceeds of a new Holdings offering of 11.25% Senior Payable-in-Kind notes due 2008. Interest is payable semi-annually in arrears on each February 15 and August 15. Cash interest will begin to accrue on the notes on February 15, 2003 whereupon the interest rate will be reduced by 0.5%. Commencing February 15, 1999, the Company may elect to pay cash interest whereupon all future interest becomes cash pay and the interest rate will be reduced by 0.5% Accounting Policies For financial reporting purposes, the Company reports 100% of revenues and expenses for the markets for which its provides cellular telephone service. However, in several of its markets, the Company holds less than 100% of the equity 22 ownership. The minority stockholders' and partners' share of income or losses in those markets are reflected in the consolidated financial statements as "minority interest share of (income) losses", except for losses in excess of their capital accounts and cash call provisions which are not eliminated in consolidation. For financial reporting purposes, the Company consolidates all subsidiaries and partnerships since it has a controlling interest (greater than 50%) in each. Year 2000 Impact The Company is in the process of reviewing the full impact that the Year 2000 could have on its operational and financial systems. The Company has chosen its current billing provider to coordinate the testing of all of the operating and financial systems that could affect the Company's operations. Several of these systems such as the point of sale system, the prepaid calling system, wide area network and local area network, and the general ledger system are currently integrated into the billing system. The Company's current billing vendor has committed to test the compliance of the above systems with the Year 2000 requirements by reviewing the system's upgrade releases which these third party providers maintain will be Year 2000 compliant. Most of these system providers deal with other cellular companies, which enables the Company to leverage the knowledge obtained from servicing other cellular and telecommunications companies. The Company anticipates that this will reduce the testing and validation time necessary for a comprehensive review. In addition to the testing of third party provided systems, the current billing provider will review its own internal operating systems to verify Year 2000 compliance. They will then test the integration of the updated Year 2000 versions with their upgraded version to ensure compliance. The Company, with the billing provider's guidance, has formulated its strategy after analyzing all systems that could have an effect on operations and prioritizing the impact into high, medium, and low risk. The Company estimates that the total costs of these testing and upgrading procedures 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 the substantial portion of these costs will be incurred during 1999 and will be expensed when incurred. The Company has investigated the possibility of establishing a contingency plan in the event the above is not successful. Its dependence on a few key third party providers in the industry and the lack of accessibility of alternative systems make a contingency plan impractical. Inflation The Company believes that inflation affects its business no more than it generally affects other similar businesses. Item 7a. Quantitative and Qualitative Disclosures About Market Risk - Wireless The Company utilizes fixed rate debt instruments to fund its acquisitions. Management believes that the use of fixed rate debt minimizes the Company's exposure to market conditions and the ensuing increases and decreases that could arise with variable rate financing. See notes to consolidated financial statements for description and terms of long term debt. 23 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Price Communications Wireless, Inc. and Subsidiaries Consolidated Financial Statements are set forth on the following pages of this Part II. INDEX TO FINANCIAL STATEMENTS Price Communications Wireless, Inc. and Subsidiaries Auditors' Reports....................................................................................................... F-1 Consolidated Balance Sheets at December 31, 1998 and 1997............................................................... F-3 Consolidated Statements of Operations for Years ended December 31, 1998, 1997 and 1996.................................. F-4 Consolidated Statements of Cash Flows for Years ended December 31, 1998, 1997 and 1996.................................. F-5 Consolidated Statements of Stockholder's Equity (Deficit) for Years ended December 31, 1998, 1997 and 1996.............. F-7 Notes to Consolidated Financial Statements.............................................................................. F-8 Palmer Wireless Holdings Auditors' Reports ...................................................................................................... F-21 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-22 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended .................. F-23 December 31, 1998, 1997, and 1996 ...................................................................................... F-24 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-25 Consolidated Statements of Stockholder's Equity (Deficit) for the Years ended December 31, 1998, 1997 and 1996 ......... F-25 Notes to Consolidated Financial Statements ............................................................................. F-26 Cellular Systems of Southeast Alabama, Inc. Auditors' Reports ...................................................................................................... F-37 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-39 Consolidated Statements of Operations and Retained Earnings for the Years ended December 31, 1998, 1997, and 1996 ...... F-40 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-41 Notes to Consolidated Financial Statements ............................................................................. F-42 Albany Cellular Partners Auditors' Reports ...................................................................................................... F-47 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-49 Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-50 Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-51 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-51 Notes to Consolidated Financial Statements ............................................................................. F-52 Cellular Dynamics Telephone Company of Georgia Auditors' Reports ...................................................................................................... F-57 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-59 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended December 31, 1998, 1997, and 1996 ...................................................................................... F-60 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-61 Notes to Consolidated Financial Statements ............................................................................. F-62 Columbus Cellular Telephone Company Auditors' Reports ...................................................................................................... F-68 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-70 Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-71 Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-71 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-72 Notes to Consolidated Financial Statements ............................................................................. F-73 Dothan Cellular Telephone Company, Inc. Auditors' Reports ...................................................................................................... F-78 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-80 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended December 31, 1998, 1997, and 1996 ...................................................................................... F-81 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-82 Notes to Consolidated Financial Statements ............................................................................. F-83 Macon Cellular Telephone Systems, Limited Partnership Auditors' Reports ...................................................................................................... F-88 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-90 Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-91 Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-91 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-92 Notes to Consolidated Financial Statements ............................................................................. F-93
24 Montgomery Cellular Holding, Co., Inc. Auditors' Reports ...................................................................................................... F-98 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-100 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended December 31, 1998, 1997, and 1996 ...................................................................................... F-101 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-102 Notes to Consolidated Financial Statements ............................................................................. F-103 Montgomery Cellular Telephone Company, Inc. Auditors' Reports ...................................................................................................... F-110 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-111 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Years ended December 31, 1998, 1997, and 1996 ...................................................................................... F-112 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-113 Notes to Consolidated Financial Statements ............................................................................. F-114 Panama City Cellular Telephone Company, Ltd. Auditors' Reports ...................................................................................................... F-121 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-122 Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-123 Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-123 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-124 Notes to Consolidated Financial Statements ............................................................................. F-125 Panhandle Cellular Partnership Auditors' Reports ...................................................................................................... F-130 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-132 Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-133 Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-133 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-134 Notes to Consolidated Financial Statements ............................................................................. F-135 Savannah Cellular Limited Partnership Auditors' Reports ...................................................................................................... F-140 Consolidated Balance Sheets at December 31, 1998 and 1997 .............................................................. F-142 Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ............................ F-142 Consolidated Statements of Partners' Equity for the Years ended December 31, 1998, 1997 and 1996 ....................... F-143 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 ............................. F-144 Notes to Consolidated Financial Statements ............................................................................. F-145 CEI Communications, Inc. Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-150 Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ......................................... F-151 Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 .......................................... F-152 Notes to Financial Statements .......................................................................................... F-153 Panama City Communications, Inc. Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-154 Statements of Operations for the Years ended December 31, 1998, 1997, and 1996 ......................................... F-155 Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996 .......................................... F-156 Notes to Financial Statements .......................................................................................... F-156 Price Communications Wireless II Auditor's Report ....................................................................................................... F-157 Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-158 Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-159 Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-160 Notes to Financial Statements .......................................................................................... F-161
25 Price Communications Wireless III Auditor's Report ....................................................................................................... F-162 Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-163 Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-164 Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-165 Notes to Financial Statements .......................................................................................... F-166 Price Communications Wireless IV Auditor's Report ....................................................................................................... F-167 Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-168 Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-169 Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-170 Notes to Financial Statements .......................................................................................... F-171 Price Communications Wireless V Auditor's Report ....................................................................................................... F-172 Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-173 Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-174 Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-175 Notes to Financial Statements .......................................................................................... F-176 Price Communications Wireless VI Auditor's Report ....................................................................................................... F-177 Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-178 Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-179 Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-180 Notes to Financial Statements .......................................................................................... F-181 Price Communications Wireless VII Auditor's Report ....................................................................................................... F-182 Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-183 Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-184 Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-185 Notes to Financial Statements .......................................................................................... F-186 Price Communications Wireless VIII Auditor's Report ....................................................................................................... F-187 Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-188 Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-189 Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-190 Notes to Financial Statements .......................................................................................... F-191 Price Communications Wireless IX Auditor's Report ....................................................................................................... F-192 Balance Sheets at December 31, 1998 and 1997 ........................................................................... F-193 Statements of Operations for the Years ended December 31, 1998 and 1997 ................................................ F-194 Statements of Cash Flows for the Years ended December 31, 1998 and 1997 ................................................ F-195 Notes to Financial Statements .......................................................................................... F-196
(Schedules other than those listed are omitted for the reason that they are not required or are not applicable or the required information is shown in the financial statements or notes thereto.) I. Supplement Schedule of Noncash Investing and Financing Activities. II. Supplement Disclosure of Cash Flow Information. (3) Exhibits See Exhibit Index at page E-1, which is incorporated herein by reference. (b) Reports on Form 8-K. None. 26 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Omitted pursuant to Instruction I 1 (a) and (b). Item 11. EXECUTIVE COMPENSATION Omitted pursuant to Instruction I 1 (a) and (b). Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Omitted pursuant to Instruction I 1 (a) and (b). Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Omitted pursuant to Instruction I 1 (a) and (b). PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) and (2) List of financial statements and financial statement schedules: Index to Financial Statements Price Communications Wireless, Inc. and Subsidiaries Auditors' Reports Consolidated Balance Sheets at December 31, 1998 and 1997 Consolidated Statements of Operations for the Years ended December 31, 1998, 1997, and 1996. Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Stockholder's Equity (Deficit) for the Years ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Price Communications Wireless, Inc.: We have audited the accompanying consolidated balance sheets of Price Communications Wireless, Inc. (a Delaware corporation, formerly Palmer Wireless, Inc.) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholder's equity and cash flows for the year ended December 31, 1998 and the period May 29, 1997 through December 31, 1997 (post acquisition basis). We have also audited the accompanying consolidated statements of operations, stockholder's equity, and cash flows for the nine-month period ended September 30, 1997 (pre-acquisition basis). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Price Communications Wireless, Inc. and subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for the year ended December 31, 1998 and for the periods May 29, 1997 to December 31, 1997 (post-acquisition basis) and January 1, 1997 to September 30, 1997 (pre-acquisition basis) in conformity with generally accepted accounting principles. /S/ ARTHUR ANDERSEN LLP New York, New York February 10, 1999 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Price Communications Wireless, Inc.: We have audited the accompanying consolidated statements of operations, stockholder's equity and cash flows of Price Communications Wireless, Inc. and subsidiaries (formerly Palmer Wireless, Inc.) for the year ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Price Communications Wireless, Inc. and subsidiaries for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP ------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-2 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($ in thousands)
December 31, December 31, 1998 1997 ---- ---- ASSETS Current assets: Cash and cash equivalents ............................................... $ 109,137 $ 27,926 Restricted cash ......................................................... 79,081 -- Trade accounts receivable, net of allowance for doubtful accounts of $1,596 in 1998 and $818 in 1997 .................................... 20,508 15,940 Receivable from other cellular carriers ................................. 2,282 3,902 Prepaid expenses and deposits ........................................... 303 902 Inventory ............................................................... 3,940 1,280 Deferred income taxes ................................................... 5,402 1,383 ----------- ----------- Total current assets .................................................. 216,634 55,352 Property and equipment: Land and improvements ................................................... 6,767 6,438 Buildings and improvements .............................................. 8,831 8,561 Equipment, communication systems, and furnishings ....................... 140,381 153,550 ----------- ----------- 169,148 155,380 Less accumulated depreciation and amortization .......................... 24,320 4,239 ----------- ----------- Net property and equipment ............................................ 144,828 151,141 Licenses and goodwill, net of accumulated amortization of $29,117 in 1998 and $6,016 in 1997 ............................................ 876,952 918,488 Other intangible assets and other assets, at cost less accumulated amortization of $1,671 in 1998 and $818 in 1997 ....................... 25,320 19,498 ----------- ----------- Total assets .......................................................... $ 1,263,734 $ 1,144,479 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt .................................. $ -- $ 2,812 Payable to Price Communications Corporation ............................. 1,151 2,328 Accounts payable ........................................................ 13,168 13,059 Accrued interest payable ................................................ 11,779 11,361 Accrued salaries and employee benefits .................................. 2,656 2,324 Other accrued liabilities ............................................... 8,448 16,031 Deferred revenue ........................................................ 5,535 3,755 Customer deposits ....................................................... 921 602 ----------- ----------- Total current liabilities ............................................. 43,658 52,272 Long-term debt, excluding current installments ............................ 700,000 610,188 Obligation of parent company .............................................. 209,432 80,112 Accrued income taxes--long term ........................................... 22,775 50,491 Deferred income taxes ..................................................... 290,370 308,901 Minority interests ........................................................ 9,530 7,352 Stockholder's equity (deficit) Preferred stock par value $.01 per share; 10,000,000 shares authorized; none issued ............................................... -- -- Class A Common Stock par value $.01 per share; 3,000 shares authorized, 1,500 shares issued ....................................... -- -- Additional paid-in capital .............................................. 44,015 44,015 Retained earnings (accumulated deficit) ................................. (56,046) (8,852) ----------- ----------- Total stockholder's equity (deficit) .................................. (12,031) 35,163 ----------- ----------- Total liabilities and stockholder's equity (deficit) .................. $ 1,263,734 $ 1,144,479 =========== ===========
See accompanying notes to consolidated financial statements. F-3 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands)
Company Predecessor ------- ----------- For the Period For the Year May 29, 1997 For the Nine For the Year Ended through Months Ended Ended December 31, December 31, September 30, December 31, 1998 1997(a) 1997 1996 ---- ------- ---- ---- Revenue: Service ....................................... $ 184,652 $ 41,365 $ 134,123 $ 151,119 Equipment sales and installation .............. 12,677 2,348 7,613 8,624 --------- -------- --------- --------- Total revenue ............................ 197,329 43,713 141,736 159,743 --------- -------- --------- --------- Operating expenses: Engineering, technical and other direct ....... 30,022 5,978 23,301 28,717 Cost of equipment ............................. 23,710 5,259 16,112 17,944 Selling, general and administrative ........... 55,002 12,805 41,014 46,892 Depreciation and amortization ................. 43,569 11,055 25,498 25,013 --------- -------- --------- --------- Total operating expenses ................. 152,303 35,097 105,925 118,566 Operating income ......................... 45,026 8,616 35,811 41,177 --------- -------- --------- --------- Other income (expense): Interest income ............................... 5,435 2,195 30 62 Interest expense .............................. (82,945) (24,393) (24,497) (31,524) --------- -------- --------- --------- Interest expense, net .................... (77,510) (22,198) (24,467) (31,462) Other (expense) income, net ................... (19) 15 208 (429) --------- -------- --------- --------- Total other expense ...................... (77,529) (22,183) (24,259) (31,891) --------- -------- --------- --------- Income (loss) before minority interest share of income and income taxes ...... (32,503) (13,567) 11,552 9,286 Minority interest share of income .................. (2,178) (414) (1,310) (1,880) --------- -------- --------- --------- Income (loss) before income tax expense (benefit) ............................. (34,681) (13,981) 10,242 7,406 Income tax benefit (expense) ....................... 12,831 5,129 (4,153) (2,724) --------- -------- --------- --------- Income (loss) before extraordinary item .. (21,850) (8,852) 6,089 4,682 Extraordinary item - Loss on early extinguishment of debt (net of income tax benefit of $14,885) ..... (25,344) -- -- -- --------- -------- --------- --------- Net income (loss) ........................ $ (47,194) $ (8,852) $ 6,089 $ 4,682 ========= ======== ========= =========
(a) Includes results of cellular operations only for the period October 1, 1997 through December 31, 1997 See accompanying notes to consolidated financial statements. F-4 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands)
Company Predecessor ------- ----------- For the Period For the May 29, 1997 For the Nine For the Year Ended through Months Ended Year Ended December 31, December 31, September 30, December 31, 1998 1997 1997 1996 ---- ---- ---- ---- Cash flows from operating activities: Net income (loss) ....................................... $ (47,194) $ (8,852) $ 6,089 $ 4,682 --------- --------- -------- --------- Adjustments to reconcile net income (loss) to net cash provided by Operating activities: Depreciation and amortization ......................... 43,569 11,055 25,498 25,013 Minority interest share of income ..................... 2,178 414 1,310 1,880 Deferred income taxes ................................. (373) (2,454) 3,939 1,855 Extraordinary item .................................... 40,229 -- -- -- Interest deferred and added to long-term debt ......... -- -- -- 355 Interest deferred and added to obligation of parent company ............................................. 9,432 4,400 -- -- Payment of deferred interest .......................... -- -- (1,514) (1,080) Amortization of deferred finance costs ................ 2,030 -- -- -- Changes in current assets and liabilities: (Increase) decrease in trade and other accounts receivable ........................................ (2,948) 124 473 (1,561) (Increase) decrease in inventory .................... (2,660) 458 2,800 (2,595) Increase (decrease) in accounts payable ............. 109 3,598 (1,390) (841) Increase (decrease) in accrued interest payable ..... 418 9,394 (374) (167) Increase (decrease) in accrued salaries and employee benefits .......................................... 332 (341) 251 165 (Decrease) increase in other accrued liabilities .... (4,605) (4,529) 2,049 (507) Increase (decrease) in deferred revenue ............. 1,780 (1,046) 4 912 Increase (decrease) in customer deposits ............ 319 15 (94) 134 (Decrease) in accrued income tax long term .......... (27,716) (2,675) -- -- Other ............................................... 671 175 (250) 1,885 --------- --------- -------- --------- Total adjustments ................................... 62,765 20,165 32,702 25,448 --------- --------- -------- --------- Net cash provided by operating activities ......... 15,571 11,313 38,791 30,130 --------- --------- -------- --------- Cash flows from investing activities: Capital expenditures .................................... (14,725) (14,499) (40,757) (41,445) Increase in other asset ................................. -- -- (778) (2,180) Proceeds from sales of property and equipment ........... -- -- 201 5 Acquisition of Predecessor net assets ................... -- (497,856) -- -- Purchase of cellular systems ............................ -- -- (31,469) (67,588) Proceeds from sales of cellular systems ................. -- 193,799 -- -- Collection of purchase price adjustment ................. -- -- -- 2,452 Purchases of minority interests ......................... -- (794) (956) (1,854) Distributions to minority interest ...................... -- (1,680) -- -- Cash return of escrow ................................... 2,000 -- -- -- --------- --------- -------- --------- Net cash used in investing activities ............. (12,725) (321,030) (73,759) (110,610) Cash flows from financing activities: (Repayments to) advances from Price Communications Corporation ............................................... (1,177) 2,328 -- -- Increase (decrease) in short term notes payable ......... -- -- (1,366) 1,366 Repayment of long-term debt ............................. (518,112) (385,000) (3,782) (108,319) Proceeds from long-term debt ............................ 725,000 695,712 41,000 100,000 Segregation of restricted cash from proceeds of long-term debt ........................................ (79,081) -- -- -- Costs associated with early extinguishment of debt ...... (28,080) -- -- -- Payment of debt issuance costs .......................... (20,185) (19,412) -- -- Public offering proceeds, net ........................... -- -- -- 95,000 Issuance of common stock ................................ -- 44,015 -- -- Proceeds from stock options exercised ................... -- -- 999 95 Payment of deferred offering costs ...................... -- -- -- (826) Purchase of treasury stock .............................. -- -- -- (8,864) Proceeds from sales under stock purchase plans .......... -- -- -- 290 --------- --------- -------- --------- Net cash provided by financing activities ......... 78,365 337,643 36,851 78,742 --------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents ..................................... 81,211 27,926 1,883 (1,738) Cash and cash equivalents at the beginning of period ...... 27,926 -- 1,698 3,436 --------- --------- -------- --------- Cash and cash equivalents at the end of period ............ $ 109,137 $ 27,926 $ 3,581 $ 1,698 ========= ========= ======== =========
See accompanying notes to consolidated financial statements. F-5 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) ($ in thousands) Supplemental Schedule of Noncash Investing and Financing Activities During 1996, the Predecessor increased the purchase obligations related to the final purchase price adjustment for the controlling interest in a non-wireline cellular telephone system purchased in 1991. This increase amounted to $899 and resulted in an increase in licenses. Acquisitions of non-wireline cellular telephone systems in 1996 and 1997: ($ in thousands) Predecessor ----------- For the Nine For the Year Months Ended Ended September 30, December 31, 1997 1996 ---- ---- Cash payment ............................... $31,469 $67,588 ======= ======= Allocated to: Fixed assets .......................... 3,197 5,678 Licenses and goodwill ................. 27,738 61,433 Deferred income taxes ................. -- -- Current assets and liabilities, net ... 534 477 ------- ------- $31,469 $67,588 ======= ======= Supplemental disclosure of cash flow information
($ in thousands) Company Predecessor ------- ----------- For the For period the Year May 29, For the Nine For the Ended 1997 through Months Ended Year Ended December 31, December 31, September 30, December 31, 1998 1997 1997 1996 ---- ---- ---- ---- Income taxes paid (received), net $ 728 $ (40) (736) $ 1,591 ======== ======== ======== ======== Interest paid ................... $ 81,379 $ 9,924 25,102 $ 29,733 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. F-6 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY ($ in thousands) Predecessor
Common Stock Class A Common Stock Class B Additional -------------------- -------------------- Paid-in Retained Shares Amount Shares Amount Capital Earnings ------ ------ ------ ------ ------- -------- 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 Exercise of stock options ............... 70,000 1 -- -- 998 -- Net income .............................. -- -- -- -- -- 6,089 ---------- ---- ---------- ---- -------- ------- Balances at September 30, 1997 .......... 11,189,681 $112 17,293,578 $173 $167,973 $12,624 ========== ==== ========== ==== ======== =======
Treasury Stock Total -------------- Stockholders' Shares Amount Equity ------ ------ ------ Balances at December 31, 1995 ............................ -- -- $ 74,553 Public offering, net of issuance costs of $5,826 ......... -- -- 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 Exercise of stock options ................................ -- -- 999 Net income ............................................... -- -- 6,089 ------- ------- --------- Balances at September 30, 1997 ........................... 600,000 $(8,864) $ 172,018 ======= ======= =========
COMPANY
Common Stock Class A Additional Total ------- Paid-in Accumulated Stockholder's Shares Amount Capital Deficit Equity (Deficit) ------ ------ ------- ------- ---------------- Balances at May 29, 1997 .... -- $ -- $ -- $ -- $ -- Capital contribution ........ 1,500 -- 44,015 -- 44,015 Net loss .................... -- (8,852) (8,852) -------- -------- -------- -------- -------- Balances at December 31, 1997 1,500 -- 44,015 (8,852) 35,163 Net Loss .................... -- -- -- (47,194) (47,194) -------- -------- -------- -------- -------- Balances at December 31, 1998 1,500 $ -- $ 44,015 $(56,046) $(12,031) -------- -------- -------- -------- --------
See accompanying notes to consolidated financial statements. F-7 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Organization and Acquisition Price Communications Wireless, Inc. ("PCW" or the "Company"), a wholly-owned subsidiary of Price Communications Cellular Holdings, Inc. ("Holdings"), a wholly-owned subsidiary of Price Communications Cellular, Inc., a wholly-owned subsidiary of Price Communications Corporation ("PCC"), was incorporated on May 29, 1997 in connection with the purchase of Palmer Wireless, Inc. and subsidiaries ("Palmer" or the "Predecessor"). In May 1997, PCC, PCW and Palmer entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provided, among other things, for the merger of PCW with and into Palmer with Palmer as the surviving corporation (the "Merger"). In October, 1997, the Merger was consummated and Palmer changed its name to "Price Communications Wireless, Inc." Pursuant to the Merger Agreement, PCC acquired each issued and outstanding share of common stock of Palmer for a purchase price of $17.50 per share in cash and purchased outstanding options and rights under employee and direct stock purchase plans for an aggregate price of approximately $486.4 million. In addition, as a result of the Merger, PCW assumed all outstanding indebtedness of Palmer of approximately $378.0 million. Therefore, the aggregate purchase price for Palmer (including transaction fees and expenses) was approximately $880.0 million. PCW refinanced all of the Palmer Existing Indebtedness concurrently with the consummation of the Merger. In June 1997, PCW entered into an agreement to sell Palmer's Fort Myers, Florida MSA as part of the financing of the Merger (the "Fort Myers Sale"). In October 1997, the Fort Myers Sale was consummated, and generated proceeds to the Company of approximately $166.0 million. The proceeds of the Fort Myers Sale were used to fund a portion of the acquisition of Palmer. Accordingly, no gain or loss was recognized on the Fort Myers Sale. Also in connection with the Merger, on October 21, 1997, PCC and PCW entered into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. which provided for the sale by PCW of substantially all of the assets used in the operation of the non-wireline cellular telephone system serving the Georgia-1-Whitfield Rural Service Area ("Georgia-1"), including the FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale of the assets of Georgia-1 was consummated on December 30, 1997 for $24.2 million. In January 1998 the proceeds from the Georgia Sale were used to retire a portion of the debt used to fund the Palmer acquisition. Accordingly, no gain or loss was recognized on the Georgia Sale. In order to fund the Merger and pay related fees and expenses, in July, 1997, PCW issued $175.0 million aggregate principal amount of 11 3/4% Senior Subordinated Notes due 2007 and entered into a syndicated senior loan facility providing for term loan borrowings in the aggregate principal amount of approximately $325.0 million and revolving loan borrowings of $200.0 million. In October 1997, PCW borrowed all term loans available thereunder and approximately $120.0 million of revolving loans. DLJ Capital Funding, Inc. provided and syndicated the New Credit Facility. The remaining acquisition price of Palmer was funded through a $44.0 million equity contribution of PCC and $75.7 million of borrowings of Holdings. Basis of Presentation For financial reporting purposes, PCW revalued its assets and liabilities as of October 1, 1997 to reflect the price paid by PCC to acquire 100% of its Common Stock, a process generally referred to as "push down" the accounting. As of December 31, 1997 the consolidated financial statements reflect an allocation of the purchase price to the assets acquired and liabilities assumed including $12.5 million of purchase reserves .The allocation of the purchase price resulted in licenses of approximately $924.5 million on the balance sheet, which are being amortized on a straight-line basis over a period of 40 years. During 1998, approximately $2.3 million of unused purchase reserves were reversed against the value of the licenses established at the end of 1997. F-8 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements through September 30, 1997 reflect the historical cost of Palmer's assets and liabilities and results of operations and are referred to as the "Predecessor" consolidated financial statements. Accordingly, the accompanying financial statements of the Predecessor and the Company are not comparable in all material respects since those financial statements report financial position, results of operations, and cash flows of these two separate entities. Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries after the elimination of significant intercompany accounts and transactions. The financial statements also include the cash (Restricted cash) and debt of Holdings, (Obligation of parent company) which funded a portion of the acquisition of Palmer and is indirectly guaranteed by the assets of the Company. The Predecessor was a Delaware corporation and was incorporated on December 15, 1993 to effect an initial public offering of its Class A Common Stock. At December 31, 1996, Palmer Communications Incorporated ("PCI") owned 61 percent of the Predecessor's outstanding stock and had 75 percent of its voting rights and therefore the Predecessor was a subsidiary of PCI. Losses in subsidiaries, attributable to minority stockholders and partners, in excess of their capital accounts and cash capital call provisions are not eliminated in consolidation. Operations The Company has majority ownership in corporations and partnerships which operate the non-wireline cellular telephone systems in eight Metropolitan Statistical Areas ("MSA") in three states: Florida (one), Georgia (five) and Alabama (two). The Company's ownership percentages in these entities range from approximately 78 percent to 100 percent. The Company owns directly and operates eight non-wireline cellular telephone systems in Rural Service Areas in Georgia (seven) and Alabama (one). The Predecessor had majority ownership in corporations and partnerships, which operated the non-wireline cellular telephone systems in nine MSAs in three states: Florida (two), Georgia (five) and Alabama (two). The Predecessor's ownership percentages in these entities ranged from approximately 78 percent to 100 percent. The Predecessor owned directly and operated eight non-whirling cellular telephone systems in RSAs in Georgia (seven) and Alabama (one). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Cash and Cash Equivalents The Company and the Predecessor consider cash and repurchase agreements with a maturity of three months or less to be cash equivalents. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. F-9 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and Equipment Property and equipment are stated at cost. The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Depreciation is provided principally by the straight-line method over the estimated useful lives, ranging from 5 to 20 years for buildings and improvements and 5 to 10 years for equipment, communications systems and furnishings. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses, based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is record as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the licenses, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of licenses might warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the licenses and sales of comparable businesses to evaluate the recorded value of licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Other Intangible Assets Other intangibles consist principally of deferred financing costs and other items. These costs are being amortized by the interest or straight-line method over their respective useful lives, which range from 5 to 10 years. Income Taxes The Company and the Predecessor account for income taxes under the asset and liability method of accounting for deferred income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Interest Rate Swap Agreements The differential to be paid or received in connection with interest rate swap agreements is accrued as interest rates change and is recognized over the life of the agreements. Revenue Recognition Service revenue includes local subscriber revenue and outcollect roaming revenue. F-10 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Local subscriber revenue is earned by providing access to the cellular network ("access revenue") or, as applicable, for usage of the cellular network ("airtime revenue"). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Outcollect roaming revenue represents revenue earned for usage of its cellular network by subscribers of other cellular carriers. Outcollect roaming revenue is recognized when the services are rendered. Equipment sales and installation revenues are recognized upon delivery to the customer or installation of the equipment. Operating Expenses--Engineering, Technical and Other Direct Engineering, technical and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Fair Value of Financial Instruments Fair value estimates, methods and assumptions used to estimate the fair value of financial instruments are set forth below: For cash and cash equivalents, trade accounts receivable, receivable from other cellular carriers, notes payable, accounts payable and accrued expenses, the carrying amount approximates the estimated fair value due to the short-term nature of those instruments. Rates currently available for long-term debt with similar terms and remaining maturities are used to discount the future cash flows to estimate the fair value for long-term debt. Note 5 presents the fair value for long-term debt and the related interest rate cap and swap agreements. Fair value estimates are made as of a specific point in time, based upon the relevant market information about the financial instruments. Because no market exists for a majority of the financial instruments, fair value estimates are based on judgments regarding current economic conditions and other factors. These estimates are subjective in nature and involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Impact of new accounting pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("Accounting for Derivative Instruments and Hedging Activities"). This statement establishes accounting and reporting standards requiring than all derivative instruments (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as an asset or a liability and measured at its fair value. This statement requires that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. This statement is effective for fiscal years beginning after June 15, 1999, but can be adopted earlier. Management has not yet determined the timing of or method to be used in adopting this statement. Management does not believe at this time that such adoption would have a material impact on its consolidated financial statements. Stock Option Plans The Predecessor accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Predecessor adopted Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Predecessor elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (2) Trade Accounts Receivable The Company and the Predecessor grant credit to its customers. Substantially all of the customers are residents of the local areas served. Generally, service is discontinued to customers whose accounts are 60 days past due. F-11 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The activity in the Predecessor's and the Company's allowance for doubtful accounts for the years ended December 31, 1996, the nine months ended September 30, 1997 the period from May 29, 1997 through December 31, 1997 and for the year ended December 31, 1998 consisted of the following:
Allowances at Balance at Charged Dates of Deductions, Beginning To Acquisitions Net of Balance at of Period Expenses (Dispositions) Recoveries End of Period --------- -------- -------------- ---------- ------------- Predecessor Year ended December 31, 1996 .......... $ 1,880 $ 3,946 $ 1,270 $ (5,305) $ 1,791 ======== ======== ======== ======== ======== Predecessor Nine months ended September 30, 1997 .. $ 1,791 $ 3,614 $ 147 $ (4,212) $ 1,340 ======== ======== ======== ======== ======== Company Period from May 29, 1997 through through December 31, 1997 .......... $ 1,340 $ 1,202 $ (206) $ (1,518) $ 818 ======== ======== ======== ======== ======== Year Ended December 31, 1998 .......... $ 818 $ 5,716 $ -- $ (4,938) $ 1,596 ======== ======== ======== ======== ========
(3) Other Accrued Liabilities Other accrued liabilities at December 31, 1998 and 1997 consisted of the following: 1998 1997 ---- ---- Accrued telecommunications expenses ........ $ 1,861 $ 2,176 Accrued local taxes ........................ 1,368 888 Accrued severance payments ................. -- 6,155 Accrued shutdown costs of certain facilities ......................... -- 3,818 Other ...................................... 5,219 2,994 ------- ------- $ 8,448 $16,031 ======= ======= (4) Acquisitions and Purchase of Licenses On June 20, 1996, the Predecessor acquired the assets of and the license to operate the non-wireline cellular telephone system serving the Georgia-1 RSA for an aggregate purchase price of $31.6 million. The acquisition was accounted for by the purchase method of accounting. In connection with the acquisition, $27.9 million of the purchase price was allocated to licenses. On July 5, 1996, two of the Predecessor's majority-owned subsidiaries acquired the assets of and the license to operate the non-wireline cellular telephone system serving the Georgia-6 RSA for an aggregate purchase price of $36.0 million. The acquisition was accounted for by the purchase method of accounting. In connection with the acquisition, $33.5 million of the purchase price was allocated to licenses. F-12 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On January 31, 1997, a majority-owned subsidiary of the Predecessor acquired the assets of and the license to operate the non-wireline cellular telephone system serving the Georgia-13 RSA for an aggregate purchase price of $31.5. The acquisition was accounted for by the purchase method of accounting. In connection with the acquisition, $27.7 of the purchase price was allocated to licenses. (5) Pro Forma Information The following unaudited pro forma condensed consolidated financial information was prepared assuming (i) the Predecessor was acquired on January 1, 1996, (ii) the acquisitions of the licenses had occurred on January 1, 1996 (See Note 4) and (iii) the Ft. Myers Sale and Georgia Sale occurred on January 1, 1996. Proforma information is presented for comparative purposes only and does not purport to be indicative of the results which would have been achieved had this acquisition occurred as of January 1, 1996, nor does it purport to be indicative of results that may be achieved in the future. Year Ended December 31 1997 1996 ---- ---- ($ in thousands) Unaudited Total Revenue .......................... $ 161,468 $ 145,643 ========= ========= Loss Before Income Taxes ............... $ (51,532) $ (54,529) ========= ========= Net Loss ............................... $ (43,911) $ (48,895) ========= ========= (6) Notes Payable and Long-Term Debt Long-term debt consists of the following: December 31 ($ in thousands) 1998 1997 ---- ---- Credit agreement ................................ $ -- $438,000(a) 11.75% Senior Subordinated Notes ................ 175,000(b) 175,000(b) 9.125% Senior Secured Notes ..................... 525,000(c) -- -------- -------- 613,000 Less current installments ....................... -- 2,812 -------- Long-term debt, excluding current installments... $700,000 $610,188 ======== ======== (a) In October 1997, the Company entered into a credit agreement ("Credit Agreement") with a syndicate of banks, financial institutions and other "accredited investors" providing for loans of up to $525.0 million. The Credit Agreement included a $325.0 million term loan facility and a $200.0 million revolving credit facility. The term loan facility was comprised of tranche A loans of up to $100.0 million, which were to mature on September 30, 2005, and tranche B term loans of up to $225.0 million, which were to mature on September 30, 2006. The Credit Agreement bears interest at the alternate base rate, as defined in the Credit Agreement, as the reserve adjusted Euro-Dollar rate plus, in each case, applicable margins of (i) in the case of tranche A term loans and revolving loans (x) 2.5% for Euro-Dollar rate loans and (y) 1.5% for base rate loans and (ii) in the case of tranche B term loans (x) 2.75 for Euro-Dollar rate loans and (y) 1.75% for base rate loans. The Company entered into interest rate swap and cap agreements to reduce the impact of changes in interest rates on its floating rate debt. At December 31, 1997, the Company had outstanding seven interest rate swap agreements and one interest rate cap agreement having a total notional value of $370.0 million. All interest rate swap contracts were liquidated as of December 31, 1998. Included as an extraordinary item is approximately $3.7 million (net of taxes) of additional expense relating to the liquidation of these contracts. F-13 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (b) In July 1997, the Company issued $175.0 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. The fair market value of the 11.75% Notes approximated $166.3 million as of December 31, 1998. (c) In June 1998, the Company issued $525.0 million of 9.125% Senior Secured Notes due December 15, 2006 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 of the notes were used to retire the outstanding indebtedness under the credit facility. The fair market value of the notes approximated $535.5 million as of December 31, 1998. (7) Obligation of Parent Company In August 1997, Holdings issued 153,400 units, consisting of Notes and warrants of PCC (the "Warrants"), in exchange for $80.0 million. The Notes accrete at a rate of 13.5%, compounded semi-annually, to an aggregate principal amount of approximately $153.4 million by August 1, 2002. Cash interest will not commence to accrue on the Notes prior to August 2, 2002. Commencing on February 1, 2003, cash interest on the Notes will be payable at a rate of 13.5% per annum, payable semi-annually. The Notes will be redeemable at the option of Holdings, in whole or in part, at any time after August 1, 1998 in cash at the redemption price as defined, plus accrued and unpaid interest, if any, thereon to the redemption date; provided that the trading price of the common stock of PCC shall equal or exceed certain levels. In August 1998, Holdings redeemed all its outstanding 13.5% Senior Secured Discount Notes due 2007 (the "13.5% Notes"). The notes were redeemed at the redemption price per $1,000 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 Company financed the redemption out of the proceeds of a new $200.0 million Holdings offering of 11.25% Senior Exchangeable Payable-in-Kind Notes ("the Payable-in-Kind Notes") due 2008. Cash interest will begin to accrue on the Payable-in-Kind Notes on February 15, 2003 whereupon the interest rate will be reduced by 0.5%. Commencing February 15, 1999 Holdings may elect to pay cash interest whereupon all future interest becomes cash pay and the interest rate would be reduced by 0.5%. In the event the daily high price of PCC's common stock equals or exceeds 115.0% of the Exchange Price for 10 out of 15 consecutive trading days, each outstanding note will be mandatorily exchanged for shares of PCC common stock, par value $.01 per share on the fifth trading day immediately succeeding such 10th trading day (unless Holdings elects on or prior to the second trading day immediately succeeding such 10th trading day to permanently terminate this mandatory provision). The current exchange price is $16 per share after giving effect to the 2 for 1 stock split in September 1998 and the 5 for 4 stock split in January 1999. The accompanying Balance Sheet includes $79.1 million of restricted cash which is reflected on the Company's balance sheet. The Company has no rights with respect to such cash. The accompanying Balance Sheets includes $209.4 million and $80.1 million at December 31, 1998 and 1997 respectively (including accrued interest) of the 11.25% notes and the 13.5% notes which are obligations of Holdings and are included in the Balance Sheets solely pursuant to "push down" accounting rules. The carrying value approximates fair value as of December 31, 1998. (8) Extraordinary Item In June and August 1998, the Company and Holdings retired the outstanding indebtedness under its Credit Facility and the 13 1/2% Notes. The additional costs incurred to retire the Credit Facility and the 13 1/2% Notes, as well as the write off of deferred financing costs associated with these financings resulted in an extraordinary loss of $25.3 million net of a tax benefit of $14.9 million. F-14 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) Income Taxes Components of income tax expense (benefit) consist of the following: ($ in thousands) Federal State Total ------- ----- ----- Predecessor: Year ended December 31, 1996: Current .................. $ -- $ 869 $ 869 Deferred ................. 1,795 60 1,855 -------- -------- -------- $ 1,795 $ 929 $ 2,724 ======== ======== ======== Predecessor: Period ended September 30, 1997 Current .................. $ -- $ 214 $ 214 Deferred ................. 3,553 386 3,939 -------- -------- -------- $ 3,553 $ 600 $ 4,153 ======== ======== ======== Company: Year ended December 31, 1997 Current .................. $ (2,244) $ (432) $ (2,676) Deferred ................. (2,116) (337) (2,453) -------- -------- -------- $ (4,360) $ (769) $ (5,129) ======== ======== ======== Company: Year ended December 31, 1998 Current .................. $ (3,355) $ (531) $ (3,886) Deferred ................. (7,713) (1,232) (8,945) -------- -------- -------- $(11,068) $ (1,763) $(12,831) ======== ======== ======== The consolidated effective tax rate differs from the statutory United States federal tax rate for the following reasons and by the following percentages:
Company Predecessor ------- ----------- Period Nine Months Year Ended Ended Ended Year Ended December 31, December 31, September 30, December 31, 1998 1997 1997 1996 ------ ------ ------ ------ Statutory United States federal tax rate ....... (34.0)% (34.0)% 34.0% 34.0% License amortization not deductible for tax .... -- -- -- 32.5 Net operating loss carryforwards ............... -- -- -- (42.8) State taxes .................................... (3.6) (3.6) 6.0 8.3 Non deductible interest expense ................ -- 1.1 -- -- Other .......................................... .6 (0.2) 1.0 4.8 ------ ------ ------ ------ Consolidated effective tax rate ........... (37.0)% (36.7)% 41.0% 36.8% ====== ====== ====== ======
F-15 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 1997, the Predecessor recorded additional deferred tax liability and a corresponding increase in licenses for timing differences attributable to pre-1997 acquisitions. The components of the deferred income tax assets and liabilities are as follows: ($ in thousands) 1998 1997 ---- ---- Deferred tax assets: Allowance for doubtful accounts ....... $ 591 $ 327 Inventory reserve ..................... 133 144 Deferred revenue ...................... -- 400 Nondeductible accruals ................ 4,149 6.495 Net operating loss carryforwards ...... 29,320 3,560 Valuation allowance ................... (29,320) (3,560) --------- --------- Total deferred tax assets ........ 4,873 7,366 --------- --------- Deferred tax liabilities: Accumulated depreciation .............. (12,808) (8,559) Licenses .............................. (281,052) (302,306) --------- --------- Total deferred tax liabilities ... (293,860) (310,865) --------- --------- Deferred tax liability, net ...... $(288,987) $(303,499) ========= ========= The net operating loss carryforwards totaled approximately $79.0 million at December 31, 1998 and expire in amounts ranging from approximately $300,000 to $70.0 million through 2013. For these carryforwards utilization is limited to the subsidiary that generated the carryforwards, unless the Company utilizes alternative tax planning strategies. (10) Common Stock and Stock Plans During 1994, the Predecessor amended its certificate of incorporation to increase the number of authorized shares of common stock from 60,000,000 to 91,000,000 and to provide for Class A Common and Class B Common Stock. The Class A Common Stock has one vote per share. The Class B Common Stock, which may be owned only by PCI or certain successors of PCI and of which no shares may be issued subsequent to the Offering, has five votes per share, provided, however, that, so long as any Class A Common Stock is issued and outstanding, at no time will the total outstanding Class B Common Stock have the right to cast votes having more than 75 percent of the total voting power of the common stock in the aggregate. Shares of Class B Common Stock shall be converted into Class A Common Stock on a share-for share basis: (i) at any time at the option of the holder; (ii) immediately upon the transfer of shares of Class B Common Stock to any holder other than a successor of PCI; (iii) immediately if the shares of Class B Common Stock held by PCI or its successors constitute 33 percent or less of the outstanding shares of the Predecessor; (iv) at the end of 20 years from original issuance of those shares of Class B Common Stock; or (v) if more than 50 percent of the equity interests in PCI become beneficially owned by persons other than: (i) beneficial owners of PCI as of December 29, 1994 ("Current PCI Beneficial Owners"); (ii) affiliates of Current PCI Beneficial Owners; (iii) heirs or devisees of any individual Current PCI Beneficial Owners, successors of any corporation or partnership which is a Current PCI Beneficial Owner and beneficiaries of any trust which is a Current PCI Beneficial Owner; and (iv) any relative, spouse or relative of a spouse of any Current PCI Beneficial Owner. The Predecessor adopted a Stock Option Plan in connection with the Offering, under which options for an aggregate of 1,600,000 shares of Class A Common Stock are available for grants to key employees. The Predecessor also adopted a Director's Stock Option Plan in connection with the Offering, under which options for an aggregate of 300,000 shares of Class A Common Stock are available for grants to directors who are not officers or employees of the Predecessor. Stock options under both plans are granted with an exercise price equal to the stock's fair value at the date of grant. The stock options granted under the Stock Option Plan have 10-year terms and vest and become exercisable ratably over three years from the date of grant. The stock options granted under the Director's Stock Option Plan are vested and become fully exercisable upon the date of the grant. At December 31, 1996, there were options with respect to 693,334 and 45,000 shares of Class A Common Stock outstanding under the Stock Option Plan and the Director's Stock Option Plan, respectively. At December 31, 1996, there were 880,000 and 255,000 additional shares available for grant under the Stock Option Plan and the Director's Stock Option Plan, respectively. F-16 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Predecessor applies APB Opinion No. 25 in accounting for its Stock Option Plan and Director's Stock Option Plan ("the Plans") and accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Predecessor determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Predecessor's net income would have been reduced to the pro forma amounts indicated below: ($ in thousands) Nine Months Ended Year Ended September 30, December 31, 1997 1996 ------ ------ Net income-as reported ................... $6,089 $4,682 Net income-pro forma ..................... $4,753 $2,850 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions as follows: dividend yield of 0.0%; expected volatility of 101%; risk-free interest rate of 5.5%; and expected lives of five years. Stock option activity during the periods indicated is as follows: ($'s Actual) Number Weighted Average Of Shares Exercise Price --------- -------------- Balance December 31, 1995 ....................... 672,500 $ 14.25 Granted .................................... 72,500 17.25 Exercised .................................. (6,666) 14.25 -------- Balance December 31, 1996 ....................... 738,334 14.54 Exercised .................................. (70,000) 14.25 -------- Balance September 30, 1997 ...................... 668,334 14.60 ======== At December 31, 1996, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $14.25--$17.25 ($'s not in thousands) and 8.3 years, respectively. At December 31, 1996, the number of options exercisable was 250,000, and the weighted average exercise price of those options was $14.34 ($'s not in thousands). The Predecessor adopted a stock purchase plan for employees (the "Employee Stock Purchase Plan") and a stock purchase plan for non-employee directors (the "Non-Employee Director Stock Purchase Plan"). Under the Employee Stock Purchase Plan, 160,000 shares of Class A Common Stock are available for purchase by eligible employees of the Predecessor or any of its subsidiaries. Under the Non-Employee Director Stock Purchase Plan, 25,000 shares of Class A Common Stock are available for purchase by non-employee directors of the Predecessor. The purchase price of each share of Class A Common Stock purchased under the Employee Stock Purchase Plan or the Non-Employee Director Stock Purchase Plan will be the lesser of 90 percent of the fair market value of the Class A Common Stock on the first trading day of the plan year or on the last day of such plan year; provided, however, that in no event shall the purchase price be less than the par value of the stock. Both plans will terminate in 2005, unless terminated at an earlier date by the board of directors. During the year ended December 31, 1996, 15,541 shares were issued under the Employee Stock Purchase Plan and 1,702 shares were issued under the Non-Employee Director Stock Purchase Plan at a purchase price of $16.85 ($'s not in thousands). Compensation cost computed under the provisions of SFAS No. 123 related to the shares issued under the Employee Stock Purchase Plan and the Non-Employee Director Stock Purchase Plan is immaterial to the consolidated financial statements. In connection with the acquisition of Palmer, the Company retired all of the options of Palmer that were outstanding. F-17 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) Related Party Transactions On January 1, 1997 the Predecessor purchased a building and certain towers from PCI for $6.2 million. These assets were previously leased from PCI. Concurrently with the Offering and the Exchange, the Predecessor and PCI entered into both a transitional management and administrative services agreement and a computer services agreement that extended each December 31 for additional one-year periods unless and until either party notified the other. The fees from these arrangements amounted to a total of $534,000 and $88,000 for the years ended December 31, 1996 and the nine months ended September 30, 1997, respectively, and are included as a reduction of selling, general and administrative expenses. Concurrently with the Offering and the Exchange, the Predecessor and PCI entered into a tax consulting agreement that extended each December 31 for additional one-year periods unless and until either party notified the other. The fees for tax consulting services amounted to a total of $120,000 and $97,000 for the years ended December 31, 1996 and the nine months ended September 30, 1997, respectively, and are included in selling, general and administrative expenses. PCI has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Predecessor participated in this plan and was allocated 401(k) retirement and matching expense of $696,000 and $544,000 for the years ended December 31, 1996, and the nine months ended September 30, 1997, respectively. (12) Commitments and Contingencies Leases The Company occupies certain buildings and uses certain tower sites, cell sites and equipment under noncancelable operating leases which expire through 2013. Future minimum lease payments under noncancelable operating leases as of December 31, 1998 are as follows: ($ in thousands) Year ending December 31: 1999 .................................................. $2,807 2000 .................................................. 2,244 2001 .................................................. 1,764 2002 .................................................. 1,233 2003 .................................................. 710 Later years through 2013 ............................... 1,120 ------ Total minimum lease payments ...................... $9,878 ====== Rent expense for the Company was $2,928 for the year ended December 31, 1998 and $806 for the period from May 29, 1997 to December 31, 1997 and for the Predecessor was $3,123, and $3,551 for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively, of which $278 was paid to related parties for 1996. Contingencies The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial statements. F-18 PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) Selected Quarterly Financial Data (Unaudited)
($ in thousands) Predecessor Company ----------- ------- For the Period May 29, 1997 Through First Second Third December 31, Year Ended December 31, 1997 Quarter Quarter Quarter 1997 (b) ------- ------- ------- -------- Total Revenue $ 44,683 $ 48,545 $ 48,508 $ 43,713 =========== =========== =========== =========== Operating Income $ 9,805(a) $ 13,022(a) $ 12,984(a) $ 8,616 =========== =========== =========== =========== Net Income (Loss) $ 1,177 $ 2,523 $ 2,389 $ (8,852) =========== =========== =========== =========== First Second Third Fourth Year Ended December 31, 1998 Quarter Quarter Quarter(c) Quarter ------- ------- ---------- ------- Total Revenue $ 43,275 $ 48,918 $ 51,920 $ 53,216 =========== =========== =========== =========== Operating Income $ 7,923 $ 11,035 $ 12,065 $ 14,003 =========== =========== =========== =========== Net Income (Loss) (6,571) $ (10,810) $ (21,777) $ (8,036) =========== =========== =========== ===========
(a) Certain reclassifications were made to conform to the fourth quarter presentation. (b) The decrease in operating income in the fourth quarter is a result of customer acquisition costs, including advertising, commissions and phone discounts, related to Holiday sales (consistent with prior years), the Fort Myers Sale, and amortization of the additional license recorded in the merger. The net loss is due to these reasons as well as the interest expense on debt incurred to fund the Acquisition (c) The increase in net loss is principally a result of the extraordinary loss associated with the early extinguishment of debt. F-19 REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS To the Shareholder of Palmer Wireless Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Palmer Wireless Holdings Inc. and Subsidiaries (A Delaware Corporation) as of December 31, 1998 and 1997 and the related statements of operations, retained earnings (accumulated deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Palmer Wireless Holdings Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-20 INDEPENDENT AUDITORS' REPORT The Board of Directors Palmer Wireless Holdings, Inc.: We have audited the accompanying consolidated statements of operations, stockholder's equity (accumulated deficit) and cash flows for the year ended December 31, 1996 of Palmer Wireless Holdings, Inc. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Palmer Wireless Holdings, Inc. for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP --------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-21 PALMER WIRELESS HOLDINGS, INC. Consolidated Balance Sheets ($ in thousands)
December 31, December 31, 1998 1997 ---- ---- ASSETS Current assets: Cash and cash equivalents ................................. $ 109,137 $ 27,926 Restricted cash ........................................... 79,081 -- Trade accounts receivable, net of allowance for doubtful accounts of $1,596 in 1998 and $818 in 1997 ............. 20,508 15,940 Receivable from other cellular carriers ................... 2,282 3,902 Prepaid expenses and deposits ............................. 303 902 Inventory ................................................. 3,940 1,280 Deferred income taxes ..................................... 1,383 5,402 ----------- ----------- Total current assets .................................... 216,634 55,352 Property and equipment: Land and improvements ..................................... 6,767 6,438 Buildings and improvements ................................ 8,831 8,561 Equipment, communication systems, and furnishings ......... 153,550 140,381 ----------- ----------- 169,148 155,380 Less accumulated depreciation and amortization ............ 24,320 4,239 ----------- ----------- Net property and equipment .............................. 144,828 151,141 Licenses and goodwill, net of accumulated amortization of $29,117 in 1998 and $6,016 in 1997 ........................ 876,952 918,488 Other intangible assets and other assets, at cost less accumulated amortization of $1,671 in 1998 and $818 in 1997 .............................................. 25,320 19,498 ----------- ----------- Total assets ........................................... $ 1,263,734 $ 1,144,479 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt .................... $ -- $ 2,812 Payable to Price Communications Corporation ............... 1,151 2,328 Accounts payable .......................................... 13,168 13,059 Accrued interest payable .................................. 11,779 11,361 Accrued salaries and employee benefits .................... 2,656 2,324 Other accrued liabilities ................................. 8,448 16,031 Deferred revenue .......................................... 5,535 3,755 Customer deposits ......................................... 921 602 ----------- ----------- Total current liabilities ............................... 43,658 52,272 Obligation of Parent ....................................... 700,000 610,188 Obligation of Price Communications, Cellular Holdings, Inc. . 209,432 80,112 Accrued income taxes--long term ............................. 22,775 50,491 Deferred income taxes ....................................... 290,370 308,901 Minority interests .......................................... 9,530 7,352 Stockholder's equity (deficit) Class A Common Stock par value $.01 per share; 1,000 shares -- -- authorized, and issued Additional paid-in capital ................................ 31,391 31,391 Retained earnings (accumulated deficit) ................... (43,422) 3,772 ----------- ----------- Total stockholder's equity (deficit) .................... (12,031) 35,163 ----------- ----------- Total liabilities and stockholder's equity (deficit) .... $ 1,263,734 $ 1,144,479 =========== ===========
See accompanying notes to consolidated financial statements. F-22 PALMER WIRELESS HOLDINGS, INC. Consolidated Statements of Operations ($ in thousands)
For the Years Ended December 31, 1998 1997 1996 ---- ---- ---- Revenue: Service .......................................... $ 184,652 $ 175,488 $ 151,119 Equipment sales and installation ................. 12,677 9,961 8,624 --------- --------- --------- Total revenue .................................. 197,329 185,449 159,743 --------- --------- --------- Operating expenses: Engineering, technical and other direct .......... 30,022 29,279 28,717 Cost of equipment ................................ 23,710 21,371 17,944 Selling, general and administrative .............. 55,002 53,819 46,892 Depreciation and amortization .................... 43,569 36,553 25,013 --------- --------- --------- Total operating expenses ....................... 152,303 141,022 118,566 Operating income ............................... 45,026 44,427 41,177 --------- --------- --------- Other income (expense): Interest income .................................. 5,435 2,225 62 Interest expense ................................. (82,945) (48,890) (31,524) --------- --------- --------- Interest expense, net .......................... (77,510) (46.665) (31,462) Other (expense) income, net ...................... (19) 223 (429) --------- --------- --------- Total other expense ............................ (77,529) (46.442) (31,891) --------- --------- --------- Income (loss) before minority interest share of income and income taxes ............. (32,503) (2,015) 9,286 Minority interest share of income .................. (2,178) 1,724 (1,880) --------- --------- --------- Income (loss) before income tax expense (benefit) .................................... (34,681) (3,739) 7,406 Income tax benefit (expense) ....................... 12,831 976 (2,724) --------- --------- --------- Income (loss) before extraordinary item ........ (21,850) (2,763) 4,682 Extraordinary item - Loss on early extinguishment of debt (net of income tax benefit of $14,885) ........ (25,344) -- -- --------- --------- --------- Net income (loss) ........................ $ (47,194) (2,763) $ 4,682 --------- --------- --------- Retained earnings at beginning of year ............. $ 3,772 $ 6,535 $ 1,853 --------- --------- --------- Retained earnings (accumlated deficit) at end of year ............................................ $ (43,422) $ 3,772 $ 6,535 ========= ========= =========
See accompanying notes to consolidated financial statements. F-23 PALMER WIRELESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands)
For The Years Ended December 31, 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income (loss) ...................................... $ (47,194) $ (2,763) $ 4,682 --------- --------- --------- Adjustments to reconcile net income (loss) to net cash provided by Operating activities: Depreciation and amortization ........................ 43,569 36,553 25,013 Minority interest share of income .................... 2,178 1,724 1,880 Deferred income taxes ................................ (373) 1,485 1,855 Extraordinary item ................................ 40,229 -- -- Interest deferred and added to long-term debt ........ -- -- 355 Interest deferred and added to obligation of parent .. 9,432 4,400 -- company Payment of deferred interest ......................... -- (1,514) (1,080) Amortization of deferred finance costs ............... 2,030 -- -- Changes in current assets and liabilities: (Increase) decrease in trade and other accounts .... (2,948) 597 (1,561) receivable (Increase) decrease in inventory ................... (2,660) 3,258 (2,595) Increase (decrease) in accounts payable ............ 109 2,208 (841) Increase (decrease) in accrued interest payable .... 418 9,020 (167) Increase (decrease) in accrued salaries and employee 332 (90) 165 benefits (Decrease) increase in other accrued liabilities ... (4,605) (2,480) (507) Increase (decrease) in deferred revenue ............ 1,780 (1,042) 912 Increase (decrease) in customer deposits ........... 319 (79) 134 (Decrease) in accrued income tax long term ......... (27,716) (2,675) -- Other .............................................. 671 1,502 1,885 --------- --------- --------- Total adjustments .................................. 62,765 52,867 25,448 --------- --------- --------- Net cash provided by operating activities ........ 15,571 50,104 30,130 --------- --------- --------- Cash flows from investing activities: Capital expenditures ................................... (14,725) (55,256) (41,445) Increase in other asset ................................ -- (778) (2,180) Proceeds from sales of property and equipment .......... -- 201 5 Acquisition of Predecessor net assets .................. -- (497,856) -- Purchase of cellular systems ........................... -- (31,469) (67,588) Proceeds from sales of cellular systems ................ -- 193,799 2,452 Collection of purchase price adjustment ................ -- -- -- Purchases of minority interests ........................ -- (1,750) (1,854) Distributions to minority interest ................... -- (1,680) -- Cash return of escrow ................................ 2,000 -- -- --------- --------- --------- Net cash used in investing activities ............ (12,725) 394,789 (110,610) --------- --------- --------- Cash flows from financing activities: (Repayments to) advances from Price Communications ..... (1,177) 2,328 -- Corporation Increase (decrease) in short term notes payable ........ -- (1,366) 1,366 Repayment of long-term debt ............................ (518,112) (388,782) (108,319) Proceeds from long-term debt ........................... 725,000 736,712 100,000 Segregation of restricted cash from proceeds of ...... (79,081) -- -- long-term debt Costs associated with early extinguishment of debt ..... (28,080) -- -- Payment of debt issuance costs ......................... (20,185) (19,412) -- Cash received from parent for equity transactions -- 45,014 85,695 Net cash provided by financing activities ........ 78,365 374,494 78,742 --------- --------- --------- Net increase (decrease) in cash and cash equivalents .................................... 81,211 29,809 (1,738) Cash and cash equivalents at the beginning of period ..... 27,926 1,698 3,436 --------- --------- --------- Cash and cash equivalents at the end of period ........... $ 109,137 $ 31,507 $ 1,698 ========= ========= =========
See accompanying notes to consolidated financial statements. F-24 PALMER WIRELESS HOLDINGS, INC. Consolidated Statements of Cash Flows--(Continued) ($ in thousands) Supplemental Schedule of Noncash Investing and Financing Activities During 1996, the Company increased the purchase obligations related to the final purchase price adjustment for the controlling interest in a non-wireline cellular telephone system purchased in 1991. This increase amounted to $899 and resulted in an increase in licenses. Acquisitions of non-wireline cellular telephone systems in 1996 and 1997: For the Years Ended December 31, 1997 1996 ---- ---- Cash payment ..................................... $31,469 $67,588 ======= ======= Allocated to: Fixed assets ................................ 3,197 5,678 Licenses and goodwill ....................... 27,738 61,433 Deferred income taxes ....................... -- -- Current assets and liabilities, net ......... 534 477 ------- ------- $31,469 $67,588 ======= ======= Supplemental disclosure of cash flow information For the Years Ended December 31, 1998 1997 1996 ---- ---- ---- Income taxes paid (received), net ..... $ 728 $ (776) $ 1,591 ======== ======== ======== Interest paid ......................... $ 81,379 $ 35,026 $ 29,733 ======== ======== ======== See accompanying notes to consolidated financial statements. F-25 PALMER WIRELESS HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Organization and Acquisition Palmer Wireless Holdings, Inc. (the "Company") was incorporated in March 1995. It was the wholly-owned subsidiary of Palmer Wireless, Inc. Price Communications Wireless, Inc. ("PCW"), a wholly-owned subsidiary of Price Communications Cellular Holdings, Inc. ("Holdings"), a wholly-owned subsidiary of Price Communications Cellular, Inc., a wholly-owned subsidiary of Price Communications Corporation ("PCC"), was incorporated on May 29, 1997 in connection with the purchase of Palmer Wireless, Inc. and subsidiaries ("Palmer" or the "Company"). In May 1997, PCC, PCW and Palmer entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provided, among other things, for the merger of PCW with and into Palmer with Palmer as the surviving corporation (the "Merger"). In October, 1997, the Merger was consummated and Palmer changed its name to "Price Communications Wireless, Inc." Pursuant to the Merger Agreement, PCC acquired each issued and outstanding share of common stock of Palmer for a purchase price of $17.50 per share in cash and purchased outstanding options and rights under employee and direct stock purchase plans for an aggregate price of approximately $486.4 million. In addition, as a result of the Merger, PCW assumed all outstanding indebtedness of Palmer of approximately $378.0 million. Therefore, the aggregate purchase price for Palmer (including transaction fees and expenses) was approximately $880.0 million. PCW refinanced all of the Palmer Existing Indebtedness concurrently with the consummation of the Merger. In June 1997, PCW entered into an agreement to sell Palmer's Fort Myers, Florida MSA as part of the financing of the Merger (the "Fort Myers Sale"). In October 1997, the Fort Myers Sale was consummated, and generated proceeds to the Company of approximately $166.0 million. The proceeds of the Fort Myers Sale were used to fund a portion of the acquisition of Palmer. Accordingly, no gain or loss was recognized on the Fort Myers Sale. Also in connection with the Merger, on October 21, 1997, PCC and PCW entered into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. which provided for the sale by PCW of substantially all of the assets used in the operation of the non-wireline cellular telephone system serving the Georgia-1-Whitfield Rural Service Area ("Georgia-1"), including the FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale of the assets of Georgia-1 was consummated on December 30, 1997 for $24.2 million. In January 1998 the proceeds from the Georgia Sale were used to retire a portion of the debt used to fund the Palmer acquisition. Accordingly, no gain or loss was recognized on the Georgia Sale. In order to fund the Merger and pay related fees and expenses, in July, 1997, PCW issued $175.0 million aggregate principal amount of 11 3/4% Senior Subordinated Notes due 2007 and entered into a syndicated senior loan facility providing for term loan borrowings in the aggregate principal amount of approximately $325.0 million and revolving loan borrowings of $200.0 million. In October 1997, PCW borrowed all term loans available thereunder and approximately $120.0 million of revolving loans. DLJ Capital Funding, Inc. provided and syndicated the New Credit Facility. The remaining acquisition price of Palmer was funded through a $44.0 million equity contribution of PCC and $75.7 million of borrowings of Holdings. Basis of Presentation For financial reporting purposes, the Company revalued its assets and liabilities as of October 1, 1997 to reflect the price paid by PCC to acquire 100% of Palmer's Common Stock, a process generally referred to as "push down" the accounting. As of December 31, 1997 the consolidated financial statements reflect an allocation of the purchase price to the assets acquired and liabilities assumed including $12.5 million of purchase reserves. The preliminary allocation of the purchase price resulted in licenses of approximately $924.5 million on the balance sheet, which are being amortized on a straight-line basis over a period of 40 years. During 1998, approximately $2.3 million of unused purchase reserves were reversed against the value of the licenses established at the end of 1997. In addition, during 1998, the allocation was finanized resulting in an allocation of approximately $906.0 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. F-26 PALMER WIRELESS HOLDINGS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries after the elimination of significant intercompany accounts and transactions. The financial statements also include the cash (Restricted cash) and debt of Holdings, (Obligation of PCW's parent company) which funded a portion of the acquisition of Palmer and is indirectly guaranteed by the assets of the Company. The Company is a Delaware corporation and was incorporated in March, 1995. At December 31, 1996, Palmer Communications Incorporated ("PCI") owned 61 percent of the Company's outstanding stock and had 75 percent of its voting rights and therefore the Company was a subsidiary of PCI. Losses in subsidiaries, attributable to minority stockholders and partners, in excess of their capital accounts and cash capital call provisions are not eliminated in consolidation. Operations The Company has majority ownership in corporations and partnerships which operate the non-wireline cellular telephone systems in eight Metropolitan Statistical Areas ("MSA") in three states: Florida (one), Georgia (five) and Alabama (two). The Company's ownership percentages in these entities range from approximately 78 percent to 100 percent. The Company owns directly and operates eight non-wireline cellular telephone systems in Rural Service Areas in Georgia (seven) and Alabama (one). The Company is owned 100% by its Parent, Price Communications Wireless, Inc. The Company is the direct oener of all of the operating subsidiaries. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Cash and Cash Equivalents The Company considers cash and repurchase agreements with a maturity of three months or less to be cash equivalents. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. F-27 PALMER WIRELESS HOLDINGS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and Equipment Property and equipment are stated at cost. The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Depreciation is provided principally by the straight-line method over the estimated useful lives, ranging from 5 to 20 years for buildings and improvements and 5 to 10 years for equipment, communications systems and furnishings. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses, based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is record as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the licenses, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of licenses might warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the licenses and sales of comparable businesses to evaluate the recorded value of licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Other Intangible Assets Other intangibles consist principally of deferred financing costs and other items. These costs are being amortized by the interest or straight-line method over their respective useful lives, which range from 5 to 10 years. Income Taxes The Company accounts for income taxes under the asset and liability method of accounting for deferred income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Interest Rate Swap Agreements The differential to be paid or received in connection with interest rate swap agreements is accrued as interest rates change and is recognized over the life of the agreements. Revenue Recognition Service revenue includes local subscriber revenue and outcollect roaming revenue. F-28 PALMER WIRELESS HOLDINGS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Local subscriber revenue is earned by providing access to the cellular network ("access revenue") or, as applicable, for usage of the cellular network ("airtime revenue"). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Outcollect roaming revenue represents revenue earned for usage of its cellular network by subscribers of other cellular carriers. Outcollect roaming revenue is recognized when the services are rendered. Equipment sales and installation revenues are recognized upon delivery to the customer or installation of the equipment. Operating Expenses--Engineering, Technical and Other Direct Engineering, technical and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Fair Value of Financial Instruments Fair value estimates, methods and assumptions used to estimate the fair value of financial instruments are set forth below: For cash and cash equivalents, trade accounts receivable, receivable from other cellular carriers, notes payable, accounts payable and accrued expenses, the carrying amount approximates the estimated fair value due to the short-term nature of those instruments. Rates currently available for long-term debt with similar terms and remaining maturities are used to discount the future cash flows to estimate the fair value for long-term debt. Note 5 presents the fair value for long-term debt and the related interest rate cap and swap agreements. Fair value estimates are made as of a specific point in time, based upon the relevant market information about the financial instruments. Because no market exists for a majority of the financial instruments, fair value estimates are based on judgments regarding current economic conditions and other factors. These estimates are subjective in nature and involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Impact of new accounting pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("Accounting for Derivative Instruments and Hedging Activities"). This statement establishes accounting and reporting standards requiring that all derivative instruments (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as an asset or a liability and measured at its fair value. This statement requires that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. This statement is effective for fiscal years beginning after June 15, 1999, but can be adopted earlier. Management has not yet determined the timing of or method to be used in adopting this statement. Management does not believe at this time that such adoption would have a material impact on its consolidated financial statements. (2) Trade Accounts Receivable The Company grants credit to its customers. Substantially all of the customers are residents of the local areas served. Generally, service is discontinued to customers whose accounts are 60 days past due. F-29 PALMER WIRELESS HOLDINGS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The activity in the Company's allowance for doubtful accounts for the years ended December 31, 1996, December 31, 1997 and December 31, 1998 consisted of the following ($ in thousands):
Allowances at Balance at Charged Dates of Beginning To Acquisitions Deductions, Net Balance at of Period Expenses (Dispositions) of Recoveries End of Period Year ended December 31, 1996 ....... $ 1,880 $ 3,946 $ 1,270 $(5,305) $ 1,791 ======= ======= ======= ======= ======= Year ended December 31, 1997 ....... $ 1,791 $ 4,816 $ (59) $(5,730) $ 818 ======= ======= ======= ======= ======= Year Ended December 31, 1998 ....... $ 818 $ 5,716 $ --- $(4,938) $ 1,596 ======= ======= ======= ======= =======
(3) Other Accrued Liabilities Other accrued liabilities at December 31, 1998 and 1997 consisted of the following: 1998 1997 ---- ---- ($ in thousands) Accrued telecommunications expenses .......... $ 1,861 $ 2,176 Accrued local taxes .......................... 1,368 888 Accrued severance payments ................... -- 6,155 Accrued shutdown costs of certain facilities ........................... -- 3,818 Other ........................................ 5,219 2,994 ------- ------- $ 8,448 $16,031 ======= ======= (4) Acquisitions and Purchase of Licenses On June 20, 1996, the Company acquired the assets of and the license to operate the non-wireline cellular telephone system serving the Georgia-1 RSA for an aggregate purchase price of $31.6 million. The acquisition was accounted for by the purchase method of accounting. In connection with the acquisition, $27.9 million of the purchase price was allocated to licenses. On July 5, 1996, two of the Company's majority-owned subsidiaries acquired the assets of and the license to operate the non-wireline cellular telephone system serving the Georgia-6 RSA for an aggregate purchase price of $36.0 million. The acquisition was accounted for by the purchase method of accounting. In connection with the acquisition, $33.5 million of the purchase price was allocated to licenses. F-30 PALMER WIRELESS HOLDINGS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On January 31, 1997, a majority-owned subsidiary of the Company acquired the assets of and the license to operate the non-wireline cellular telephone system serving the Georgia-13 RSA for an aggregate purchase price of $31.5. The acquisition was accounted for by the purchase method of accounting. In connection with the acquisition, $27.7 of the purchase price was allocated to licenses. (5) Pro Forma Information The following unaudited pro forma condensed consolidated financial information was prepared assuming (i) the purchase by PCC occurred on January 1, 1996, (ii) the acquisitions of the licenses had occurred on January 1, 1996 (See Note 4) and (iii) the Ft. Myers Sale and Georgia Sale occurred on January 1, 1996. Proforma information is presented for comparative purposes only and does not purport to be indicative of the results which would have been achieved had this acquisition occurred as of January 1, 1996, nor does it purport to be indicative of results that may be achieved in the future. Years Ended December 31, ------------------------ 1997 1996 ---- ---- ($ in thousands) Unaudited Total Revenue ........................ $ 161,468 $ 145,643 ========= ========= Loss Before Income Taxes ............. $ (51,532) $ (54,529) ========= ========= Net Loss ............................. $ (43,911) $ (48,895) ========= ========= (6) Obligation of Parent and Price Communications Holdings, Inc. Obligation of parent consists of the following:
December 31, ------------ ($ in thousands) ---------------- 1998 1997 ---- ---- Credit agreement ............................. $ -- $438,000 11.75% Senior Subordinated Notes ............. 175,000(b) 175,000(b) 9.125% Senior Secured Notes .................. 525,000(c) -- -------- -------- 613,000 Less current installments .................... -- 2,812 -------- -------- Obligation of Parent ......................... $700,000 $610,188 ======== ======== Obligation of Price Communications Holdings, Inc. ....................................... $209,432(d) $ 80,112(d) ======== ========
(a) In October 1997, PCW entered into a credit agreement ("Credit Agreement") with a syndicate of banks, financial institutions and other "accredited investors" providing for loans of up to $525.0 million. The Credit Agreement included a $325.0 million term loan facility and a $200.0 million revolving credit facility. The term loan facility was comprised of tranche A loans of up to $100.0 million which were to mature on September 30, 2005, and tranche B term loans of up to $225.0 million, which were to mature on September 30, 2006. The Credit Agreement bears interest at the alternate base rate, as defined in the Credit Agreement, as the reserve adjusted Euro-Dollar rate plus, in each case, applicable margins of (i) in the case of tranche A term loans and revolving loans (x) 2.5% for Euro-Dollar rate loans and (y) 1.5% for base rate loans and (ii) in the case of tranche B term loans (x) 2.75 for Euro-Dollar rate loans and (y) 1.75% for base rate loans. F-31 PALMER WIRELESS HOLDINGS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company entered into interest rate swap and cap agreements to reduce the impact of changes in interest rates on its floating rate debt. At December 31, 1997, the Company had outstanding seven interest rate swap agreements and one interest rate cap agreement having a total notional value of $370.0 million. All interest rate swap contracts were liquidated as of December 31, 1998. Included in the extraordinary item is approximately $3.7 million (net of taxes) of additional expense relating to the liquidation of these contracts. (b) In July 1997, PCW issued $175.0 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. The fair market value of the 11.75% Notes approximated $166.3 million as of December 31, 1998. (c) In June 1998, PCW issued $525.0 million of 9.125% Senior Secured Notes due December 15, 2006 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 of the notes were used to retire the outstanding indebtedness under the credit facility. The fair market value of the notes approximated $535.5 million as of December 31, 1998. (d) In August 1997, Holdings issued 153,400 units, consisting of Notes and warrants of PCC (the "Warrants"), in exchange for $80.0 million. The Notes accrete at a rate of 13.5%, compounded semi-annually, to an aggregate principal amount of approximately $153.4 million by August 1, 2002. Cash interest will not commence to accrue on the Notes prior to August 2, 2002. Commencing on February 1, 2003, cash interest on the Notes will be payable at a rate of 13.5% per annum, payable semi-annually. The Notes will be redeemable at the option of Holdings, in whole or in part, at any time after August 1, 1998 in cash at the redemption price as defined, plus accrued and unpaid interest, if any, thereon to the redemption date; provided that the trading price of the common stock of PCC shall equal or exceed certain levels. In August 1998, Holdings redeemed all its outstanding 13.5% Senior Secured Discount Notes due 2007 (the "13.5% Notes"). The notes were redeemed at the redemption price per $1,000 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 Company's Parent financed the redemption out of the proceeds of a new $200.0 million Holdings offering of 11.25% Senior Exchangeable Payable-in-Kind Notes ("the Payable-in-Kind Notes") due 2008. Cash interest will begin to accrue on the Payable-in-Kind Notes on February 15, 2003 whereupon the interest rate will be reduced by 0.5%. Commencing February 15, 1999 Holdings may elect to pay cash interest whereupon all future interest becomes cash pay and the interest rate would be reduced by 0.5%. In the event the daily high price of PCC's common stock equals or exceeds 115.0% of the Exchange Price for 10 out of 15 consecutive trading days, each outstanding note will be mandatorily exchanged for shares of PCC common stock, par value $.01 per share on the fifth trading day immediately succeeding such 10th trading day (unless Holdings elects on or prior to the second trading day immediately succeeding such 10th trading day to permanently terminate this mandatory provision). The current exchange price is $16 per share after giving effect to the 2 for 1 stock split in September 1998 and the 5 for 4 stock split in January 1999. The accompanying Balance Sheet includes $79.1 million of restricted cash which is reflected on the Company's balance sheet. The Company cannot use cash to fund its operations. The accompanying Balance Sheets includes $209.4 million and $80.1 million at December 31, 1998 and 1997 respectively (including accrued interest) of the 11.25% notes and the 13.5% notes which are obligations of Holdings and are included in the Balance Sheets solely pursuant to "push down" accounting rules. The carrying value approximates fair value as of December 31, 1998. (7) Extraordinary Item In June and August 1998, the Company and Holdings retired the outstanding indebtedness under its Credit Facility and the 13 1/2% Notes. The additional costs incurred to retire the Credit Facility and the 13 1/2% Notes, as well as the write off of deferred financing costs associated with these financings resulted in an extraordinary loss of $25.3 million net of a tax benefit of $14.9 million. F-32 PALMER WIRELESS HOLDINGS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) Income Taxes Components of income tax expense (benefit) consist of the following:
($ in thousands) Federal State Total ------- ----- ----- Year ended December 31, 1996: Current .................. $ -- $ 869 $ 869 Deferred ................. 1,795 60 1,855 -------- -------- -------- $ 1,795 $ 929 $ 2,724 ======== ======== ======== Year ended December 31, 1997 Current .................. $ (2,244) $ (218) $ (2,462) Deferred ................. (1,437 29 1,486 -------- -------- -------- $ (807) $ (189) $ (976) Year ended December 31, 1998 Current .................. $ (3,355) $ (531) $ (3,886) Deferred ................. (7,713) (1,232) (8,945) -------- -------- -------- $(11,068) $ (1,763) $(12,831) ======== ======== ========
The consolidated effective tax rate differs from the statutory United States federal tax rate for the following reasons and by the following percentages:
Year Ended Year Ended Year Ended ------------ ------------ ------------ December 31, December 31, December 31, ------------ ------------ ------------ 1998 1997 1996 ---- ---- ---- Statutory United States federal tax rate .. (34.0)% (34.0)% 34.0% License amortization not deductible for tax -- -- 32.5 Net operating loss carryforwards .......... -- -- (42.8) State taxes ............................... (3.6) (3.6) 8.3 Non deductible interest expense ........... -- 10.2 -- Other ..................................... .6 1.3 4.8 ----- ----- ---- Consolidated effective tax rate ...... (37.0)% (26.1)% 36.8% ===== ===== ====
F-33 PALMER WIRELESS HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 1997, the Company recorded an additional deferred tax liability and a corresponding increase in licenses for timing differences attributable to pre-1997 acquisitions. The components of the deferred income tax assets and liabilities are as follows:
($ in thousands) 1998 1997 ---- ---- Deferred tax assets: Allowance for doubtful accounts ..... $ 591 $ 327 Inventory reserve ................... 133 144 Deferred revenue .................... -- 400 Nondeductible accruals .............. 4,149 6.495 Net operating loss carryforwards .... 29,320 3,560 Valuation allowance ................. (29,320) (3,560) --------- --------- Total deferred tax assets ...... 4,873 7,366 --------- --------- Deferred tax liabilities: Accumulated depreciation ............ (12,808) (8,559) Licenses ............................ (281,052) (302,306) --------- --------- Total deferred tax liabilities.. (293,860) (310,865) --------- --------- Deferred tax liability, net .... $(288,987) $(303,499) ========= =========
The net operating loss carryforwards totaled approximately $79.0 million at December 31, 1998 and expire in amounts ranging from approximately $300,000 to $70.0 million through 2013. For these carryforwards utilization is limited to the subsidiary that generated the carryforwards, unless the Company utilizes alternative tax planning strategies. F-34 PALMER WIRELESS HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) Related Party Transactions On January 1, 1997 the Company purchased a building and certain towers from PCI for $6.2 million. These assets were previously leased from PCI. Concurrently with the Offering and the Exchange, the Company and PCI entered into both a transitional management and administrative services agreement and a computer services agreement that extended each December 31 for additional one-year periods unless and until either party notified the other. The fees from these arrangements amounted to a total of $534,000 and $88,000 for the year ended December 31, 1996 and the nine months ended September 30, 1997, respectively, and are included as a reduction of selling, general and administrative expenses. Concurrently with the Offering and the Exchange, the Company and PCI entered into a tax consulting agreement that extended each December 31 for additional one-year periods unless and until either party notified the other. The fees for tax consulting services amounted to a total of $120,000 and $97,000 for the year ended December 31, 1996 and the nine months ended September 30, 1997, respectively, and are included in selling, general and administrative expenses. PCI has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Company participated in this plan and was allocated 401(k) retirement and matching expense of $696,000 and $544,000 for the year ended December 31, 1996, and the nine months ended September 30, 1997, respectively. (10) Commitments and Contingencies Leases The Company occupies certain buildings and uses certain tower sites, cell sites and equipment under noncancelable operating leases which expire through 2013. Future minimum lease payments under noncancelable operating leases as of December 31, 1998 are as follows: ($ in thousands) Year ending December 31: 1999 .................................................. $2,807 2000 .................................................. 2,244 2001 .................................................. 1,764 2002 .................................................. 1,233 2003 .................................................. 710 Later years through 2013............................... 1,120 ------ Total minimum lease payments......................... $9,878 ====== Rent expense for the Company was $2,928 for the year ended December 31, 1998 and $806 for the period from May 29, 1997 to December 31, 1997 and for the Company was $3,123, and $3,551 for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively, of which $278 was paid to related parties for 1996. Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial statements. F-35 PALMER WIRELESS HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) Selected Quarterly Financial Data (Unaudited)
($ in thousands) First Second Third Fourth Year Ended December 31, 1997 Quarter Quarter Quarter(c) Quarter ------- ------- ---------- ------- Total Revenue ................................ $ 44,683 $ 48,545 $ 48,508 $ 43,713 ======== ======== ======== ======== Operating Income ............................. $ 9,805(a) $ 13,022(a) $ 12,984(a) $ 8,616 ======== ======== ======== ======== Net Income (Loss) ............................ $ 1,177 $ 2,523 $ 2,389 $ (8,852) ======== ======== ======== ======== First Second Third Fourth Year Ended December 31, 1998 Quarter Quarter Quarter(c) Quarter ------- ------- ---------- ------- Total Revenue ................................ $ 43,275 $ 48,918 $ 51,920 $ 53,216 ======== ======== ======== ======== Operating Income ............................. $ 7,923 $ 11,035 $ 12,065 $ 14,003 ======== ======== ======== ======== Net Income (Loss) ............................ $ (6,571) $(10,810) $(21,777) $ (8,036) ======== ======== ======== ========
(a) Certain reclassifications were made to conform to the fourth quarter presentation. (b) The decrease in operating income in the fourth quarter is a result of customer acquisition costs, including advertising, commissions and phone discounts, related to Holiday sales (consistent with prior years), the Fort Myers Sale, and amortization of the additional license recorded in connection with the Merger. The net loss is due to these reasons as well as the interest expense on debt incurred to fund the Acquisition (c) The increase in net loss is principally a result of the extraordinary loss associated with the early extinguishment of debt. F-36 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Cellular Systems of Southeast Alabama, Inc.: We have audited the accompanying balance sheets of Cellular Systems of Southeast Alabama, Inc. (A Delaware Corporation) and Subsidiary as of December 31, 1998 and 1997 and the related statements of operations and retained earnings (accumulated deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Cellular Systems of Southeast Alabama, Inc and Subsidiary as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-37 INDEPENDENT AUDITORS' REPORT To the Board of Directors Cellular Systems of Southeast Alabama, Inc.: We have audited the accompanying consolidated statements of operations and retained earnings (accumulated deficit) and cash flows for the year ended December 31, 1996 of Cellular Systems of Southeast Alabama, Inc. and subsidiary. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provideS a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows OF Cellular Systems of Southeast Alabama, Inc. and subsidiary for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP --------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-38 CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. AND SUBSIDIARY Consolidated Balance Sheets ($ in thousands)
December 31, ------------ 1998 1997 ---- ---- Assets Current Assets: Cash $ 57 $ 88 Trade accounts receivable, less allowance for doubtful accounts of $30 in 1998 and $28 in 1997 1,618 1,025 Inventory 120 37 Other current assets 8 20 ------------------- Total current assets 1,803 1,170 ------------------- Property and equipment: Land and land improvements 356 355 Buildings and leasehold improvements 196 187 Equipment and furnishings 324 324 Cellular equipment 5,456 4,451 ------------------- 6,332 5,317 Less accumulated depreciation and amortization 776 65 ------------------- Net property and equipment 5,556 5,252 Licenses and other intangibles, less accumulated amortization of $1,576 in 1998 and $330 in 1997 47,368 50,109 =================== $54,727 $56,531 =================== Liabilities and Stockholder's Equity Current liabilities: Accrued salaries and benefits $ 23 $ 66 Other accrued expenses 125 90 Deferred revenue 427 176 Customer deposits 53 23 ------------------- Total current liabilities 628 355 Deferred income taxes 17,895 16,944 Advances from affiliates 4,717 6,222 ------------------- Total liabilities 23,240 23,521 ------------------- Commitments and contingencies Stockholder's equity: Common stock, par value $.01 per share Class A, authorized and issued 5,001 shares -- -- Class B, authorized and issued 4,999 shares -- -- Class C, authorized 90,000 shares, none issued -- -- Additional paid-in capital 30,343 32,788 Retained earnings 1,144 222 ------------------- Total stockholder's equity 31,487 33,010 -------- ------- $ 54,727 $56,531 ===================
See accompanying notes to consolidated financial statements. F-39 CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. AND SUBSIDIARY Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) ($ in thousands)
Years Ended December 31, ------------------------------------ 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $ 12,398 $ 10,113 $ 9,337 Equipment sales and installation 1,093 608 452 ------------------------------------ Total revenue 13,491 10,721 9,789 ------------------------------------ Operating expenses: Engineering, technical and other direct service 4,638 2,976 2,675 Cost of equipment 1,654 1,035 774 Sales and marketing 820 605 444 General and administrative 2,502 2,245 2,169 Depreciation and amortization 1,975 930 445 ------------------------------------ Total operating expenses 11,589 7,791 6,507 ------------------------------------ Operating income 1,902 2,930 3,282 Other expense -- 2 -- Interest expense 438 657 787 ------------------------------------ Net income before taxes 1,464 2,271 2,495 Provision for taxes 542 68 -- ------------------------------------ Net income 922 2,203 2,495 Retained earnings (accumulated deficit) at beginning of year 222 (1,981) (4,476) ------------------------------------ Retained earnings (accumulated deficit) at end of year $ 1,144 $ 222 $ (1,981) ====================================
See accompanying notes to consolidated financial statements. F-40 CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows ($ in thousands)
Years Ended December 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 922 $ 2,203 $ 2,495 ----------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,975 930 445 Deferred taxes (386) (107) -- (Increase) decrease in trade accounts receivable (593) 143 (46) (Increase) decrease in inventory (83) 118 34 Decrease (increase) in other current assets 12 (9) (2) Decrease in accrued expenses (8) (17) (40) Decrease in accrued interest due to affiliates -- -- (1,900) Increase (decrease) in deferred revenue 251 (86) 20 Increase (decrease) in customer deposits 30 (4) 11 ----------------------------------- Total adjustments 1,198 968 (1,478) ----------------------------------- Net cash provided by operating activities 2,120 3,171 1,017 Cash flows from investing activities: Purchases of intangibles -- (589) -- Purchases of property and equipment (1,015) (1,832) (1,059) ----------------------------------- Net cash used in investing activities (1,015) (2,421) (1,059) Cash flows from financing activities: Decrease in advances from affiliates, net (1,136) (688) -- ----------------------------------- Net (decrease) increase in cash (31) 62 (42) Cash at beginning of year 88 26 68 ----------------------------------- Cash at end of year $ 57 $ 88 $ 26 =================================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 438 $ 657 $ 2,687 ===================================
See accompanying notes to consolidated financial statements. F-41 CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Corporate Information Cellular Systems of Southeast Alabama (the "Company") was formed on October 7, 1987, and its wholly owned subsidiary, Dothan Cellular Telephone Company, Inc., was formed on June 7, 1988, to operate the non-wireline cellular telephone system in the Dothan, Alabama, Metropolitan Statistical Area. Palmer Communications Incorporated (Palmer) acquired an interest in the outstanding stock of Cellular Systems of Southeast Alabama, Inc. on December 20, 1988. Effective August 4, 1989, Palmer transferred its investment in and advances to the Cellular Systems of Southeast Alabama, Inc. and subsidiary (the Company) to Palmer Cellular Partnership (PCP). Palmer owned a majority interest in PCP. When Palmer's interest in the Company was transferred to PCP, it had no effect on the carrying value of the assets of the Company. In March of 1995, Palmer Wireless, Inc. (PWI) issued common stock for 100 percent of the Partnership interest of PCP. Palmer owned a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying consolidated financial statements and notes to consolidated financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The direct owner of the Company is Palmer Wireless Holdings, Inc.("Holdings"), which was formed in January, 1994. PCW is the 100% owner of Holdings. The Company's subsidiary is the 100% owner of Price Communications Wireless III, Inc., the license holder for the Dothan MSA. Basis of Presentation PWI owned approximately 92.3% of the Company at December 31, 1996. The accompanying 1996 Consolidated Financial Statements have been prepared on the basis of historical cost. The assets of the Company were not revalued in connection with the acquisition by Palmer or the subsequent transfers to PCP or PWI. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the Company revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $50.4 million. During 1998, the allocation was finalized resulting in an allocation of approximately $48.9 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. F-42 CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) The consolidated financial statements include the accounts of the Company and its subsidiary. All significant inter-company balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the licenses, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Company earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. F-43 CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Roamer revenue represents revenue earned by the Company for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses - Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes Since March of 1995 through September 30, 1997 the Company was included in the consolidated income tax return of PWI, and for the period October 1, 1997 through December 31, 1997 and for the year ended December 31, 1998, the tax return of PCC. Through the Company's tax sharing arrangement with its parent, the Company computes its current and deferred income taxes based on the separate return method for financial statement purposes. During 1998, the available carryforward loss of $1.4 million was fully utilized. 2) Related Party Transactions The Company has various agreements with its parent whereby the Company is charged or can charge other related entities various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Company. The agreement provides for a monthly management fee based upon 5 percent of revenues or a construction fee based upon 10 percent of the construction costs. The agreement also provides for reimbursement of certain out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Company as out-of-pocket costs. Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Company based on the parent's estimate of its time spent managing the Company. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. F-44 CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) 2) Related Party Transactions (Continued) Reciprocal roaming revenue and cost: The Company enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the Consolidated Statements of Operations. 401(k) Matching Provision: The Company's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Company participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Company's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 -------------------------- Management Fee $674 $536 $489 Construction Fee 0 0 96 Operating Expenses 938 896 895 Switching Service 255 205 175 Billing Service 509 409 350 Roaming Revenue 550 378 245 Roaming Cost 2,020 1,298 755 401(k) Match 14 8 15 Interest expense 438 656 787 3) Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes," under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. F-45 CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) 3) Income Taxes (Continued) There were no deferred tax assets as of December 31, 1998 and December 31, 1997. Income tax expense for the years ended December 31, 1998, 1997 and 1996 differs from the "expected" income tax expense computed by applying the United States federal income tax rate of 34 percent for these respective periods due to the utilization of net operating loss carryforwards. For the years ended December 31,1998 and December 31, 1997 the current provision amounted to $928 and $2,253, respectively, and the deferred benefit amounted to $(386) and $(777), respectively. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses and additional depreciation for tax purposes on property and equipment. 4) Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Company is involved in various claims and legal action arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's Consolidated Financial Statements. 5) Leases ($ in thousands) The Company, as lessee, has various noncancelable leases for certain cellular plant facilities, office facilities, and office equipment, all of which are classified as operating leases. Rent expense under these noncancelable leases amounted to $44, $42 and $40 for the years ended December 31, 1998, 1997 and 1996, respectively, of which $11 was paid to a related party in 1996. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: Year ending December 31: 1999 $ 49 2000 37 2001 37 2002 31 2003 and thereafter 50 ---- $204 ==== F-46 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Albany Cellular Partners: We have audited the accompanying consolidated balance sheets of Albany Cellular Partners (A Georgia Partnership) and Subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Albany Cellular Partners and Subsidiary as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-47 INDEPENDENT AUDITORS' REPORT The Partners Albany Cellular Partners: We have audited the accompanying consolidated statements of operations, partners' equity and cash flows for the year ended December 31, 1996 of Albany Cellular Partners and subsidiary (a Georgia Partnership). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Albany Cellular Partners and subsidiary (a Georgia Partnership) for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP --------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-48 ALBANY CELLULAR PARTNERS AND SUBSIDIARY (A Georgia Partnership) Consolidated Balance Sheets ($ in thousands)
December 31, 1998 1997 ---- ---- Assets Current Assets: Cash $ 161 $ 111 Trade accounts receivable, less allowance for doubtful accounts of $77 in 1998 and $70 in 1997 2,063 1,665 Inventory 280 144 Other current assets 14 17 -------------------- Total current assets 2,518 1,937 -------------------- Property and equipment: Land and land improvements 123 97 Buildings and leasehold improvements 279 277 Equipment and furnishings 772 662 Cellular equipment 8,520 6,999 -------------------- 9,694 8,035 Less accumulated depreciation and amortization 1,368 290 -------------------- Net property and equipment 8,326 7,745 -------------------- License and other intangibles, less accumulated amortization of $2,444 in 1998 and $489 in 1997 74,209 77,828 -------------------- $85,053 $87,510 ==================== Liabilities and Partners' Equity Current liabilities: Accrued salaries and benefits $ 53 $ 141 Other accrued expenses 231 121 Deferred revenue 651 329 Customer deposits 58 45 -------------------- Total current liabilities 993 636 Deferred income taxes 11,759 10,206 Advances from affiliates 32,023 32,250 -------------------- Total liabilities 44,775 43,092 Commitments and contingencies Partners' equity 40,278 44,418 -------------------- $85,053 $87,510 ====================
See accompanying notes to consolidated financial statements. F-49 ALBANY CELLULAR PARTNERS AND SUBSIDIARY (A Georgia Partnership) Consolidated Statements of Operations ($ in thousands)
Years Ended December 31, -------------------------------------- 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $ 18,498 $ 14,737 $ 6,542 Equipment sales and installation 1,121 794 409 -------------------------------------- Total revenue 19,619 15,531 6,951 -------------------------------------- Operating expenses: Engineering, technical and other direct 6,301 4,204 1,874 Cost of equipment 2,117 1,597 742 Sales and marketing 1,786 1,405 467 General and administrative 4,407 3,959 1,843 Depreciation and amortization 3,080 1,859 445 -------------------------------------- Total operating expenses 17,691 13,024 5,371 -------------------------------------- Operating income 1,928 2,507 1,580 Interest expense 3,215 3,022 8 -------------------------------------- Net income (loss) before income taxes (1,287) (515) 1,572 Income tax benefit 476 64 -- -------------------------------------- Net income (loss) $ (811) $ (451) $ 1,572 ====================================== Consolidated Statements of Partners' Equity Balance at December 31, 1996 6,269 Net (loss) (350) "Push-down" of Price Communications Wireless, Inc.'s acquisition price 38,600 -------- Balance at December 31, 1997 44,418 Adjustment for "push down" of Price Communications Wireless, Inc.'s acquisition price (3,256) Net (loss) (811) -------- Balance at December 31, 1998 $ 40,351 ========
See accompanying notes to consolidated financial statements. F-50 ALBANY CELLULAR PARTNERS AND SUBSIDIARY (A Georgia Partnership) Consolidated Statements of Cash Flows ($ in thousands)
Years Ended December 31, ------------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ (811) $ (451) $ 1,572 ------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,080 1,859 445 Deferred income taxes (506) (64) -- Loss on sale of property and equipment 2 (Increase) decrease in trade accounts receivable (398) 121 (4) (Increase) decrease in inventory (137) 237 (84) Decrease (increase) in other current assets 4 (9) -- Increase (decrease) in accrued expenses 22 (176) (85) Increase (decrease) in deferred revenue 322 (170) 35 Increase in customer deposits 13 6 9 ------------------------------------- Total adjustments 2,402 1,804 318 ------------------------------------- Net cash provided by operating activities 1,591 1,353 1,890 ------------------------------------- Cash flows from investing activities: Purchase of cellular system -- (31,260) -- Purchases of intangibles -- (138) -- Purchases of property and equipment (1,676) (1,987) (1,427) ------------------------------------- Net cash used in investing activities (1,676) (33,385) (1,427) ------------------------------------- Cash flows from financing activities: Increase (decrease) in advances from affiliates, net 137 32,098 (451) ------------------------------------- Net increase in cash 52 66 12 Cash at beginning of year 111 45 33 ===================================== Cash at end of year $ 163 $ 111 $ 45 ===================================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 3,215 $ 3,022 $ 8 =====================================
Supplemental disclosure of noncash investing and financing activities: During 1996, the Partnership transferred certain property and equipment with an original cost of $8 and a depreciated cost of $4 to Palmer Wireless, Inc. and affiliates by decreasing the advances from Palmer Wireless, Inc. and affiliates. No gains or losses were recognized on the transfers. See accompanying notes to consolidated financial statements. F-51 ALBANY CELLULAR PARTNERS AND SUBSIDIARY (A Georgia Partnership) Notes to Consolidated Financial Statements Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Partnership Operations Albany Cellular Partners (the "Partnership") was formed on December 21, 1987, and its wholly owned subsidiary, Cellular Dynamics Telephone Company of Georgia, was formed on September 17, 1987, to operate the non-wireline cellular telephone system in the Albany, Georgia, Metropolitan Statistical Area. Palmer Communications Incorporated ("Palmer") acquired an interest in the outstanding Partnership interest in the Partnership on December 2, 1988. Effective August 4, 1989, Palmer transferred its investment in and advances to the Partnership to Palmer Cellular Partnership ("PCP"). Palmer owned a majority interest in PCP. When Palmer's interest in the Partnership was transferred to PCP, it had no effect on the carrying value of the assets of the Partnership. In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock for 100 percent of the Partnership interest of PCP. Palmer owned a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interest. References to PWI in the accompanying consolidated financial statements and notes to consolidated financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless, Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The direct owner of the Partnership is Palmer Wireless Holdings, Inc. ("Holdings"), which was formed in January, 1994. PCW is the 100% owner of Holdings. The partnership's subsidiary is the 100% owner of Price Communications Wireless V, Inc., the license holder for the Albany MSA. Basis of Presentation For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the partnership revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $78.3 million. During 1998 the allocation was finalized resulting in an allocation of approximately $76.7 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. The consolidated financial statements include the accounts of the Partnership and its subsidiary. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements of the Partnership do not include the assets and liabilities of the partners. F-52 ALBANY CELLULAR PARTNERS AND SUBSIDIARY (A Georgia Partnership) Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Partnership continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Partnership utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Partnership earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Partnership for usage of the cellular network by subscribers of other cellular carriers. Airtime revenue is recognized when the services re rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. F-53 ALBANY CELLULAR PARTNERS AND SUBSIDIARY (A Georgia Partnership) Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Operating Expenses -Engineering, Technical and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes The Consolidated Financial Statements prior to the adjustment of the value of the licenses made no provision for income taxes, as gains and losses of the Partnership are included in the income tax returns of the individual partners. At December 31, 1998, the Partnership's subsidiary had approximately $5.9 million in net operating loss carryforwards for federal income tax purposes. These net operating loss carry-forwards will expire from 2005 through 2009. The Partnership's subsidiary accounts for income taxes under Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. At December 31, 1996 the Partnership's subsidiary had approximately $.4 million of deferred tax assets, net, which have been offset by a valuation allowance. The valuation allowance decreased by approximately $.6 million in 1996. At December 31,1998 and December 31, 1997 the Consolidated Balance Sheets include a net deferred tax liability principally as a result of the difference between the tax and book basis of the license as a result of the valuation on October 7, 1997. This difference is being amortized over a 40 year period and accordingly the Consolidated Statements of Operations reflect a tax credit for the years ended December 31, 1998 and 1997. 2) Pro-Forma Information Acquisition of license On February 1, 1997 the Partnership acquired the assets and license to operate the non-wireline cellular system serving the Georgia Rural Service Area Market No. 383, otherwise known as GA-13 RSA for a total cash purchase price of approximately $31.3 million. This acquisition was accounted for using the purchase method of accounting. In connection with the acquisition, approximately $27.7 million was allocated to license. The following unaudited pro-forma information condensed consolidated financial information was prepared assuming the Partnership acquired the GA-13 RSA as of January 1, 1996. The pro-forma information is presented for comparative purposes only and does not purport to be indicative of the results which would have been achieved had this acquisition occurred as of January 1, 1996, nor does it purport to be indicative of results that may be achieved in the future: Unaudited ($ in thousands) -------------------------- Years Ended December 31, 1997 1996 ---- ---- Total Revenue $ 16,271 $ 15,927 Net Income (loss) $ (497) $ 878 ======== ======== F-54 ALBANY CELLULAR PARTNERS AND SUBSIDIARY (A Georgia Partnership) Notes to Consolidated Financial Statements (Continued) 3) Partners' Equity In accordance with the Partnership agreement, the partners' proportionate share of cash distributions from current operations and net income or loss is calculated by dividing the partner's capital contribution by total partners' capital contributions. The allocation to the partners of gain or loss arising from the sale of property will be in the same proportion as they share net income or net loss of the Partnership. 4) Related Party Transactions The Partnership has various agreements with its parent whereby the Partnership is charged or can charge other related entities for various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Partnership. The agreement provides for a monthly management fee based upon 5 percent of revenues or a construction fee based upon 10 percent of the construction costs. The agreement also provides for the reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the partnership as out-of-pocket costs Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Partnership based on parent's estimate of its time spent managing the Partnership. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Partnership enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the Consolidated Statements of Operations. 401(k) Matching Provision: The Partnership's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Partnership participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Partnership's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. F-55 ALBANY CELLULAR PARTNERS AND SUBSIDIARY (A Georgia Partnership) Notes to Consolidated Financial Statements (Continued) 4) Related Party Transactions (Continued) The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands):
For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Management Fee $ 981 $ 777 $ 348 Construction Fee 0 0 130 Operating Expenses 1,459 1,327 690 Switching Service 393 326 129 Billing Service 786 620 257 Roaming Revenue 1,464 702 516 Roaming Cost 2,798 1,298 568 401(k) Match 20 16 17 Interest expense 3,215 3,022 8
5) Commitments and Contingencies The Partnership is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Partnership is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Partnership's Consolidated Financial Statements. 6) Leases ($ in thousands) The Partnership, as lessee, has various noncancelable leases for certain cellular plant facilities, office facilities, and office equipment, all of which are classified as operating leases. Rent expense under these noncancelable leases was $243, $230, and $66 for the years ended December 31, in 1998,1997 and 1996, respectively. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: Year ending December 31: 1999 $ 235 2000 180 2001 127 2002 15 2003 4 ----- $ 561 ===== F-56 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholder of Cellular Dynamics Telephone Company of Georgia We have audited the accompanying balance sheets of Cellular Dynamics Telephone Company of Georgia (A Georgia Corporation) and Subsidiary as of December 31, 1998 and 1997 and the related statements of operations and retained earnings ( accumulated deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Cellular Dynamics Telephone Company of Georgia and subsidiary as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-57 INDEPENDENT AUDITORS' REPORT The Board of Directors Cellular Dynamics Telephone Company of Georgia: We have audited the accompanying consolidated statements of operations and retained earnings (accumulated deficit) and cash flows for the year ended December 31, 1996 of Cellular Dynamics Telephone Company of Georgia. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Cellular Dynamics Telephone Company of Georgia for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP -------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-58 CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA Consolidated Balance Sheets ($ in thousands)
December 31, 1998 1997 ----------------------- Assets Current Assets: Cash $ 161 $ 111 Trade accounts receivable, less allowance for doubtful accounts of $77 1998 and $70 in 1997 2,063 1,665 Inventory 280 144 Other current assets 14 17 ----------------------- Total current assets 2,518 1,937 ----------------------- Property and equipment: Land and land improvements 123 97 Buildings and leasehold improvements 279 277 Equipment and furnishings 772 662 Cellular equipment 8,567 6,999 ----------------------- 9,741 8,035 Less accumulated depreciation and amortization 1,415 290 ----------------------- Net property and equipment 8,326 7,745 ----------------------- License and other intangibles, less accumulated amortization of $2,444 in 1998 and $489 in 1997 74,209 77,828 ----------------------- $ 85,053 $ 87,510 ======================= Liabilities and Partners' Equity Current liabilities: Accrued salaries and benefits $ 53 $ 141 Other accrued expenses 231 121 Deferred revenue 651 329 Customer deposits 58 45 ----------------------- Total current liabilities 993 636 Deferred income taxes 11,759 10,206 Advances from affiliates 32,023 32,250 ----------------------- Total liabilities 44,775 43,092 Commitments and contingencies Stockholder's equity Common stock; no par value, 200 shares authorized; 100 shares issued 1 1 Paid-in capital 44,811 48,139 Retained earnings (deficit) (4,534) (3,722) ----------------------- Total stockholder's equity 40,278 44,418 ----------------------- $ 85,053 $ 87,510 =======================
See accompanying notes to consolidated financial statements. F-59 CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) ($ in thousands)
Years Ended December 31, -------------------------------------- 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $ 18,498 $ 14,737 $ 6,542 Equipment sales and installation 1,121 794 409 -------------------------------------- Total revenue 19,619 15,531 6,951 -------------------------------------- Operating expenses: Engineering, technical and other direct 6,301 4,204 1,874 Cost of equipment 2,117 1,597 742 Sales and marketing 1,786 1,405 467 General and administrative 4,407 3,959 1,843 Depreciation and amortization 3,080 1,859 445 -------------------------------------- Total operating expenses 17,691 13,024 5,371 -------------------------------------- Operating income 1,928 2,507 1,580 Interest expense 3,215 3,022 8 Net (loss) income before taxes (1,287) (515) 1,572 Tax benefit 476 64 -------------------------------------- Net income (loss) income (811) (451) 1,572 Retained earnings (accumulated deficit) at beginning of year (3,723) (3,271) (4,843) -------------------------------------- Retained earnings (accumulated deficit) at end of year ($ 4,534) ($ 3,722) ($ 3,271) ======================================
See accompanying notes to consolidated financial statements. F-60 CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA Consolidated Statements of Cash Flows ($ in thousands)
Years Ended December 31, -------------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ (811) $ (451) $ 1,572 -------------------------------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,080 1,859 445 Deferred income taxes (506) (64) -- Loss on sale of property and equipment 2 (Increase) decrease in trade accounts receivable (398) 121 (4) (Increase) decrease in inventory (137) 237 (84) (Increase) decrease in other current assets 4 (9) Increase (decrease) in accrued expenses 22 (176) (85) Increase (decrease) in deferred revenue 322 (170) 35 Increase (decrease) in customer deposits 13 6 9 -------------------------------------- Total adjustments 2,402 1,804 318 -------------------------------------- Net cash provided by operating activities 1,591 1,353 1,890 -------------------------------------- Cash flows from investing activities: Purchase of cellular system -- (31,260) -- Purchases of intangibles -- (138) -- Purchases of property and equipment (1,676) (1,987) (1,427) -------------------------------------- Net cash used in investing activities (1,676) (33,385) (1,427) -------------------------------------- Cash flows from financing activities - Increase (decrease) in advances from affiliates, net 137 32,098 (451) -------------------------------------- Net increase in cash 52 66 12 Cash at beginning of year 111 45 33 ====================================== Cash at end of year $ 163 $ 111 $ 45 ====================================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 3,215 $ 3,022 $ 8 ======================================
Supplemental disclosure of noncash investing and financing activities: During 1996 the Company transferred certain property and equipment with an original cost of $8 and a depreciated cost of $4 to Palmer Wireless, Inc. and affiliated by decreasing the advances from Palmer Wireless, Inc. and affiliates. No gains or losses were recognized on the transfers. See accompanying notes to consolidated financial statements. F-61 CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Company Operations Cellular Dynamics Telephone Company of Georgia (the "Company"), was formed on September 17, 1987 to operate the non-wireline cellular telephone system in the Albany, Georgia, Metropolitan Statistical Area. Albany Cellular Partners was formed on December 21, 1987, and is the 100% owner of the Company. The financial statements of Albany Cellular Partners are included elsewhere in this document. Palmer Communications Incorporated ("Palmer") acquired an interest in the outstanding Partnership interest of the Partnership on December 2, 1988. Effective August 4, 1989, Palmer transferred its investment in and advances to the Partnership to Palmer Cellular Partnership ("PCP"). Palmer owned a majority interest in PCP. When Palmer's interest in the Partnership was transferred to PCP, it had no effect on the carrying value of the assets of the Partnership. In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock for 100 percent of the Partnership interest of PCP. Palmer owned a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying consolidated financial statements and notes to consolidated financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The direct owner of the Company is Palmer Wireless Holdings, Inc. ("Holdings") which was formed in January 1994. PCW is the 100% owner of Holdings. The Company is the 100% owner of Price Communications Wireless V, Inc., the license holder for the Albany MSA. Basis of Presentation PWI owned approximately 82.7% of the Company at December 31, 1996. The accompanying 1996 Consolidated Financial Statements have been prepared on the basis of historical cost. The assets of the Company were not revalued in connection with the acquisition by Palmer or the subsequent transfers to PCP or PWI. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the partnership revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $78.3 million. During 1998 the allocation was finalized resulting in an allocation of approximately $76.7 million. The license is being amortized over a period of 40 years. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at F-62 the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-63 CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Company earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Company for usage of the cellular network by subscribers of other cellular carriers. Airtime revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses - Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. F-64 CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Income Taxes The Company is owned by a partnership and accordingly is not included in the consolidated tax return. At December 31, 1998, the Company had approximately $5.9 million in net operating loss carryforwards for federal income tax purposes. These net operating loss carryforwards will expire from 2005 through 2009. The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. At December 31, 1996, the Company had approximately $.4 million of deferred tax assets, net, which have been offset by a valuation allowance. The valuation allowance decreased by approximately $.6 million 1996. At December 31, 1998, and 1997 the Company has a net deferred tax liability principally as a result of the difference between the tax and book basis of the license as a result of the valuation on October 7, 1997. This difference is being amortized over a 40 year period and accordingly the Consolidated Statements of Operations reflect a tax credit for the years ended December 31, 1998 and 1997. 2) Pro-Forma Information Acquisition of license On February 1, 1997 the Partnership acquired the assets and license to operate the non-wireline cellular system serving the Georgia Rural Service Area Market No. 383, otherwise known as GA-13 RSA for a total cash purchase price of approximately $31.3 million. This acquisition was accounted for using the purchase method of accounting. In connection with the acquisition, approximately $27.7 million was allocated to license. The following unaudited pro-forma information condensed consolidated financial information was prepared assuming the Partnership acquired the GA-13 RSA as of January 1, 1996. Pro-forma information is presented for comparative purposes only and does not purport to be indicative of the results which would have been achieved had this acquisition occurred as of January 1, 1996, nor does it purport to be indicative of results that may be achieved in the future: Unaudited ($ in thousands) -------------------------- Years Ended December 31, 1997 1996 ---- ---- Total Revenue $16,271 $15,927 Net Income (Loss) $ (276) $ 3,533 ======= ======= 3) Related Party Transactions The Company has various agreements with its parent whereby the Company is charged or can charge other related entities various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Company. The agreement provides for a monthly management fee based upon 5 percent of revenues or a construction fee based upon 10 percent of the construction costs. The agreement also provides for reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the F-65 CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA Notes to Consolidated Financial Statements (Continued) 3) Related Party Transactions (Continued) company as out-of-pocket costs. Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Company based on parent's estimate of its time spent managing the Company. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Company enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the statements of operations. 401(k) Matching Provision: The Company's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Company participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Company's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Management Fee $ 981 $ 777 $ 348 Construction Fee 0 0 130 Operating Expenses 1,459 1,327 690 Switching Service 393 326 129 Billing Service 786 620 257 Roaming Revenue 1,464 702 516 Roaming Cost 2,798 1,298 568 401(k) Match 20 16 17 Interest Expense 3,215 3,022 8 4) Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Company is involved in various claims and legal actions arising in the ordinary course of F-66 CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA Notes to Consolidated Financial Statements (Continued) 4) Commitments and Contingencies (Continued) business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's Consolidated Financial Statements. 5) Leases ($ in thousands) The Company, as lessee, has various noncancelable leases for certain cellular plant facilities, office facilities, and office equipment, all of which are classified as operating leases. Rent expense under these noncancelable leases was $243, $230 and $66 for the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998 the approximate minimum rental commitments under noncancelable operating leases were as follows: Year ending December 31: 1999 $ 235 2000 180 2001 127 2002 15 2003 4 ------- $ 561 ======= F-67 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Columbus Cellular Telephone Company: We have audited the accompanying consolidated balance sheets of Columbus Cellular Telephone Company (A Georgia Partnership) and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Columbus Cellular Telephone Company as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-68 INDEPENDENT AUDITORS' REPORT The Partners: Columbus Cellular Telephone Company: We have audited the accompanying consolidated statements of operations, partners' equity, and cash flows for the year ended December 31, 1996 of Columbus Cellular Telephone Company (a Georgia Partnership). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Columbus Cellular Telephone Company (a Georgia Partnership) for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP -------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-69 COLUMBUS CELLULAR TELEPHONE COMPANY (A Georgia Partnership) Consolidated Balance Sheets ($ in thousands)
December 31, December 31, 1998 1997 ---- ---- Assets Current Assets: Cash $ 41 $ 66 Trade accounts receivable, less allowance for doubtful accounts of $213 in 1998 and $87 in 1997 1,847 1,603 Inventory 472 116 Other current assets 31 21 ------------------------- Total current assets 2,391 1,806 ------------------------- Property and equipment: Land and land improvements 277 218 Buildings and leasehold improvements 287 211 Equipment and furnishings 378 351 Cellular equipment 10,030 8,563 ------------------------- 10,972 9,343 Less accumulated depreciation and amortization 1,655 292 ------------------------- Net property and equipment 9,317 9,051 ------------------------- Licenses and other intangibles less accumulated amortization of $2,860 in 1998 and $626 in 1997 86,841 90,933 ------------------------- $ 98,549 $ 101,790 ========================= Liabilities and Partners' Equity Current liabilities: Accrued salaries and benefits $ 39 $ 98 Other accrued expenses 318 83 Deferred revenue 545 283 Customer deposits 110 84 ------------------------- Total current liabilities 1,012 548 Deferred income taxes 28,505 30,740 Advances from affiliates (671) 4,352 ------------------------- Total liabilities 28,846 35,640 Commitments and contingencies Partners' equity 69,703 66,150 ------------------------- $ 98,549 $ 101,790 =========================
See accompanying notes to consolidated financial statements. F-70 COLUMBUS CELLULAR TELEPHONE COMPANY (A Georgia Partnership) Consolidated Statements of Operations Years Ended December 31 ($ in thousands)
1998 1997 1996 ---- ---- ---- Revenue: Service revenue $ 17,866 $ 15,327 $ 13,031 Equipment sales and installation 1,285 930 894 ------------------------------------ Total revenue 19,151 16,257 13,925 ------------------------------------ Operating expenses: Engineering, technical and other direct 3,962 2,934 2,287 Cost of equipment 2,138 1,605 1,344 Sales and marketing 1,896 1,335 1,369 General and administrative 4,304 3,924 3,517 Depreciation and amortization 3,597 2,129 1,250 ------------------------------------ Total operating expenses 15,897 11,927 9,767 ------------------------------------ Operating income 3,254 4,330 4,158 Interest expense, net 192 560 265 ------------------------------------ Net income before taxes 3,062 3,770 3,893 Deferred tax benefit 773 193 -- ------------------------------------ Net income $ 3,835 $ 3,963 $ 3,893 ====================================
Consolidated Statements of Partners' Equity Balance at December 31, 1996 19,303 Net income 3,963 "Push-down" of Price Communications Wireless, Inc.'s acquisition price 42,830 -------- Balance at December 31, 1997 66,096 Adjustment for finalization of "Push down" of Price Communications Wireless, Inc.'s acquisition price (342) Net income 3,835 -------- Balance at December 31, 1998 $ 69,589 ========
See accompanying notes to consolidated financial statements. F-71 COLUMBUS CELLULAR TELEPHONE COMPANY (A Georgia Partnership) Consolidated Statements of Cash Flows Years Ended December 31 ($ in thousands)
1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 3,835 $ 3,963 $ 3,893 -------- ---------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,597 2,129 1,250 Deferred income taxes (773) (193) -- Loss on sale of property and equipment -- -- 27 (Increase) decrease in trade accounts receivable (244) 191 (275) (Increase) decrease in inventory (356) 41 64 (Increase) decrease in other current assets (10) 1 (1) Increase (decrease) in accrued expenses 178 (284) (251) Increase (decrease) in deferred revenue 261 (188) 35 Increase (decrease) in customer deposits 25 (15) 17 -------- ---------------------- Total adjustments 2,678 1,682 866 -------- ---------------------- Net cash provided by operating activities 6,513 5,645 4,759 -------- ---------------------- Cash flows from investing activities: Purchase of property and equipment (1,515) (2,532) (2,923) Cash payment for purchase of nonwireline cellular telephone system and license -- -- (10,727) -------- ---------------------- Net cash used in investing activities (1,515) (2,532) (13,650) -------- ---------------------- Cash flows from financing activities: (Decrease) increase in advances from subsidiaries, net (5,023) (3,088) 8,795 -------- ---------------------- Net (decrease) increase in cash (25) 25 (96) Cash at beginning of year 66 41 137 -------- ---------------------- Cash at end of year $ 41 $ 66 $ 41 ======== ====================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 192 $ 560 $ 368 ======== ======================
Supplemental disclosures of noncash investing and financing activities: During 1996, the Partnership transferred certain property and equipment with depreciated cost totaling $289 to Palmer Wireless, Inc. and affiliates by decreasing the advances from Palmer Wireless, Inc. and affiliates. No gain or loss was recognized on the transfer. See accompanying notes to consolidated financial statements. F-72 COLUMBUS CELLULAR TELEPHONE COMPANY (A Georgia Partnership) Notes to Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Partnership Operations The formal partnership agreement of Columbus Cellular Telephone Company (the "Partnership") was entered into by the partners effective March 1, 1988. The Partnership was inactive for the period March 1, 1988, through June 9, 1988, at which date Palmer Communications Incorporated ("Palmer") acquired and transferred the FCC license to operate the non-wireline cellular telephone system in the Columbus, Georgia, Metropolitan Statistical Area to the Partnership. The non-wireline cellular telephone system was constructed after June 9, 1988, and actual operations of the system began on November 24, 1988. Effective August 4, 1989, Palmer transferred its investment in and advances to the Partnership to Palmer Cellular Partnership ("PCP"). Palmer owned a majority interest in PCP. When Palmer's interest in the Partnership was transferred to PCP, it had no effect on the carrying value of the assets of the Partnership. In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock for 100 percent of the partnership interests of PCP. Palmer owned a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying financial statements and notes to financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The direct owner of the Partnership is Palmer Wireless Holdings, Inc. ("Holdings") which was formed in January, 1994. PCW is the 100% owner of Holdings. The Partnership is the 100% owner of Price Communications Wireless VI Inc., the license holder for the Columbus MSA. Basis of Presentation PWI owned approximately 84.9% of the Partnership at December 31, 1996. The accompanying 1996 Consolidated Financial Statements have been prepared on the basis of historical cost. The assets of the Partnership were not revalued in connection with the acquisition by Palmer or the subsequent transfers to PCP or PWI. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the Partnership revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $91.5 million. During 1998 the allocation was finalized resulting in an allocation of approximately $89.6 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. The financial statements of the Partnership do not include the assets and liabilities of the partners. F-73 COLUMBUS CELLULAR TELEPHONE COMPANY (A Georgia Partnership) Notes to Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory, consisting primarily of cellular telephones and telephone parts, is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Partnership continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Partnership utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Partnership earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Partnership for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. F-74 COLUMBUS CELLULAR TELEPHONE COMPANY (A Georgia Partnership) Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses -Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes The Consolidated Financial Statements made no provision for income taxes prior to the adjustment of the value of the licenses as income and losses of the Partnership are included in the income tax returns of the individual partners. Such income and losses are proportionately allocated to the partners based upon their ownership interests. At December 31, 1998 and December 31, 1997 the Consolidated Balance Sheets include a net deferred tax liability as a result of the difference between the tax and book basis of the license as a result of the valuation on October 7, 1997 recorded by the Partnership's wholly owned subsidiary Price Communications Wireless Inc., VI. This difference is being deferred over a 40 year period and accordingly the Consolidated Statements of Operations reflect a tax benefit for the years ended December 31, 1998 and December 31, 1997. 2) Acquisition and Purchase of License On July 15, 1996, the Partnership acquired the assets of and the license to operate the non-wireline cellular system serving the western portion (including Harris, Talbot, Taylor and Meriweather Counties) of the Georgia Rural Service Area Market No. 376, otherwise known as Georgia-6 RSA, for a purchase price of $10.7 million. The acquisition was accounted for by the purchase method of accounting and was funded by an increase in advances from Palmer Wireless, Inc. and affiliates. In connection with the acquisition, $10.0 million of the purchase price was allocated to licenses and goodwill. 3) Partners' Equity In accordance with the Partnership agreement, the partners' proportionate share in cash distributions from current operations and net income or loss is calculated by dividing the partners' capital contribution by total partners' capital contributions. The allocation of gain or loss to the partners arising from the sale of property will be in the same proportion as the share net income or net loss of the Partnership. F-75 COLUMBUS CELLULAR TELEPHONE COMPANY (A Georgia Partnership) Notes to Consolidated Financial Statements (Continued) 4) Related Party Transactions The Partnership has various agreements with its parent whereby the Partnership is charged or can charge other related entities various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Partnership. The agreement provides for a monthly management fee based upon 5 percent of revenues or a construction fee based upon 10 percent of the construction costs. The agreement also provides for reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Partnership as out-of-pocket costs Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Partnership based on the parent's estimate of its time spent managing the Partnership. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Partnership enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the statements of operations. 401(k) Matching Provision: The Partnership's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Partnership participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Partnership's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Management Fee $ 957 $ 813 $ 696 Construction Fee 0 0 266 Operating Expenses 1,525 1,502 1,425 Switching Service 386 343 282 Billing Service 771 685 564 Roaming Revenue 1,627 887 538 Roaming Cost 1,613 844 513 401(k) Match 11 14 31 Interest expense 192 560 265 F-76 5) Commitments and Contingencies The Partnership is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Partnership is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Partnership's Consolidated Financial Statements. 6) Leases ($ in thousands) The Partnership occupies certain office facilities and uses certain cellular plant facilities and office equipment under noncancelable operating leases, which expire through 2003. Rent expense under these noncancelable leases amounted to $229, $178, and $156 for the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: Year ending December 31, 1999 $ 214 2000 169 2001 99 2002 91 2003 and thereafter 124 ----- $ 697 ===== F-77 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholder of Dothan Cellular Telephone Company, Inc.: We have audited the accompanying consolidated balance sheets of Dothan Cellular Telephone Company, Inc. (an Alabama Partnership) and Subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of operations and retained earnings (accumulated deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dothan Cellular Telephone, Inc. as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-78 INDEPENDENT AUDITORS' REPORT The Board of Directors Dothan Cellular Telephone Company, Inc.: We have audited the accompanying consolidated statements of operations and retained earnings and cash flows for the year ended December 31, 1996 of Dothan Cellular Telephone Company, Inc.. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provideS a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Dothan Cellular Telephone Company, Inc. for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP ---------------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-79 DOTHAN CELLULAR TELEPHONE CO., INC. Consolidated Balance Sheets ($ in thousands)
December 31, ------------ 1998 1997 ---- ---- Assets Current Assets: Cash $ 57 $ 88 Trade accounts receivable, less allowance for doubtful accounts of $30 in 1998 and $28 in 1997 1,618 1,025 Inventory 120 37 Other current assets 8 20 -------------------- Total current assets 1,803 1,170 -------------------- Property and equipment: Land and land improvements 356 355 Buildings and leasehold improvements 196 187 Equipment and furnishings 324 324 Cellular equipment 5,474 4,451 -------------------- 6,350 5,317 Less accumulated depreciation and amortization 794 65 -------------------- Net property and equipment 5,556 5,252 Licenses, less accumulated amortization of $1,576 in 1998 and $330 in 1997 47,368 50,109 -------------------- $54,727 $56,531 ==================== Liabilities and Stockholder's Equity Current liabilities: Accrued salaries and benefits $ 23 $ 66 Other accrued expenses 125 90 Deferred revenue 427 176 Customer deposits 53 23 -------------------- Total current liabilities 628 355 Deferred income taxes 17,895 16,944 Advances from affiliates 4,717 6,222 -------------------- Total liabilities 23,240 23,521 -------------------- Commitments and contingencies Stockholder's equity (deficit): Common stock, par value $.01 per share; authorized 3,000 shares issued and outstanding 200 shares -- -- Additional paid-in capital 30,343 32,788 Retained earnings 1,144 222 -------------------- Total stockholder's equity 31,487 33,010 ------- ------- $54,727 $56,531 ====================
See accompanying notes to consolidated financial statements. F-80 DOTHAN CELLULAR TELEPHONE CO., INC. Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) ($ in thousands)
Years Ended December 31, ------------------------------------ 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $ 12,398 $ 10,113 $ 9,337 Equipment sales and installation 1,093 608 452 ------------------------------------ Total revenue 13,491 10,721 9,789 ------------------------------------ Operating expenses: Engineering, technical and other direct 4,638 2,976 2,675 Cost of equipment 1,653 1,035 774 Sales and marketing 821 605 444 General and administrative 2,502 2,245 2,169 Depreciation and amortization 1,975 930 445 ------------------------------------ Total operating expenses 11,589 7,791 6,507 ------------------------------------ Operating income 1,902 2,930 3,282 Other expense -- 2 -- Interest expense 438 657 787 ------------------------------------ Net income before taxes 1,464 2,271 2,495 Provision for taxes 542 68 -- ------------------------------------ Net income 922 2,203 2,495 Retained earnings (deficit) at beginning of year 222 (1,981) (4,476) ------------------------------------ Retained earnings (deficit) at end of year $ 1,144 $ 222 $ (1,981) ====================================
See accompanying notes to consolidated financial statements. F-81 DOTHAN CELLULAR TELEPHONE CO., INC. Consolidated Statements of Cash Flows ($ in thousands)
Years Ended December 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 922 $ 2,203 $ 2,495 ----------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,975 930 445 Deferred taxes (386) (107) -- (Increase) decrease in trade accounts receivable (593) 143 (46) (Increase) decrease in inventory (83) 118 34 Decrease (increase) in other current assets 12 (9) (2) Decrease in accrued expenses (8) (17) (40) Decrease in accrued interest due to affiliates -- -- (1,900) Increase (decrease) in deferred revenue 251 (86) 20 Increase (decrease) in customer deposits 30 (4) 11 ----------------------------------- Total adjustments 1,198 968 (1,478) ----------------------------------- Net cash provided by operating activities 2,120 3,171 1,017 Cash flows from investing activities: Purchases of intangibles -- (589) -- Purchases of property and equipment (1,015) (1,832) (1,059) ----------------------------------- Net cash used in investing activities (1,015) (2,421) (1,059) Cash flows from financing activities: Decrease in advances from affiliates, net (1,136) (688) -- ----------------------------------- Net (decrease) increase in cash (31) 62 (42) Cash at beginning of year 88 26 68 ----------------------------------- Cash at end of year $ 57 $ 88 $ 26 =================================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 438 $ 657 $ 2,687 ===================================
See accompanying notes to consolidated financial statements. F-82 DOTHAN CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Corporate Information Dothan Cellular Telephone Company, Inc. (the "Company") was formed on June 7,1988 to operate the non-wireline cellular telephone system in the Dothan, Alabama, Metropolitan Statistical Area. Cellular Systems of Southeast Alabama, the 100% owner of the Company, was formed on October 7, 1987. On December 20, 1988 Palmer Communications Incorporated (Palmer) acquired an interest in the outstanding stock of Cellular Systems of Southeast Alabama, Inc. whose financial statements are included elsewhere in this document. Effective August 4, 1989, Palmer transferred its investment in and advances to the Cellular Systems of Southeast Alabama, Inc. and the Company to Palmer Cellular Partnership (PCP). Palmer owned a majority interest in PCP. When Palmer's interest in the Company was transferred to PCP, it had no effect on the carrying value of the assets of the Company. In March of 1995, Palmer Wireless, Inc. (PWI) issued common stock for 100 percent of the Partnership interest of PCP. Palmer owned a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying consolidated financial statements and notes to consolidated financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The direct owner of the Company is Palmer Wireless Holdings, Inc. ("Holdings") which was formed in January, 1994. PCW is the 100% owner of Holdings. The Company is the 100% owner of Piece Communications Wireless III Inc., the license holder for the Dothan MSA. Basis of Presentation PWI owned approximately 92.3% of the Company at December 31, 1996. The accompanying 1996 financial statements have been prepared on the basis of historical cost. The assets of the Company were not revalued in connection with the acquisition by Palmer or the subsequent transfer to PCP or PWI. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the Company revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $50.4 million. During 1998, the allocation was finalized resulting in an allocation of approximately $48.9 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. The consolidated financial statements include the accounts of the Company and its subsidiary All significant inter-company balances and transactions have been eliminated. F-83 DOTHAN CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts, is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the licenses, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Company earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Company for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. F-84 DOTHAN CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses - Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes Since March of 1995 through September 30, 1997 the Company was included in the consolidated income tax return of PWI, and for the period October 1, 1997 through December 31, 1997 and the year ended December 31, 1998 the tax return of PCC. Through the Company's tax sharing arrangement with its parent, the Company computes its current and deferred income taxes based on the separate return method for financial statement purposes. During 1998, the available carryforward loss of $1.4 million was fully utilized. 2) Related Party Transactions The Company has various agreements with its parent whereby the Company is charged or can charge other related entities various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Company. The agreement provides for a monthly management fee based upon 5 percent of revenues or a construction fee based upon 10 percent of the construction costs. The agreement also provides for reimbursement of certain out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Company as out-of-pocket costs Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Company based on the parent's estimate of its time spent managing the Company. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Company enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the statements of operations. F-85 DOTHAN CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 2) Related Party Transactions (Continued) 401(k) Matching Provision: The Company's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Company participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Company's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Management Fee $674 $536 $489 Construction Fee 0 0 96 Operating Expenses 938 896 895 Switching Service 255 205 175 Billing Service 509 409 350 Roaming Revenue 550 378 245 Roaming Cost 2,020 1,298 755 401(k) Match 14 8 15 Interest expense 438 656 787 3) Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes," under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. There were no deferred tax assets as of December 31, 1998 and December 31, 1997. F-86 DOTHAN CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 3) Income Taxes (Continued) Income tax expense for the years ended December 31, 1997 and December 31, 1996 differs from the "expected" income tax expense computed by applying the United States federal income tax rate of 34 percent for these respective periods due to the utilization of net operating loss carry-forwards. For the years ended December 31, 1998 and December 31, 1997 the current provision amounted to $1,003 and $2,253, respectively, and the deferred benefit amounted to $(386) and $(777), respectively. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses. 4) Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company's Consolidated Financial Statements. 5) Leases ($ in thousands) The Company, as lessee, has various noncancelable leases for certain cellular plant facilities, office facilities, and office equipment, all of which are classified as operating leases. Rent expense under these noncancelable leases amounted to $44, $42 and $40 for the years ended December 31, 1998, 1997 and 1996, respectively, of which $11 was paid to a related party in 1996. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: Year ending December 31: 1999 $ 49 2000 37 2001 37 2002 31 2003 and thereafter 50 ----- $ 204 ===== F-87 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Macon Cellular Telephone Systems Limited Partnership: We have audited the accompanying consolidated balance sheets of Macon Cellular Telephone Systems Limited Partnership (A New Hampshire Limited Partnership) and Subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of income, shareholders' investment and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Macon Cellular Telephone Systems Limited Partnership as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-88 INDEPENDENT AUDITORS' REPORT The Partners Macon Cellular Telephone Systems Limited Partnership: We have audited the accompanying consolidated statements of operations, partners' equity and cash flows for the year ended December 31, 1996 of Macon Cellular Telephone Systems Limited Partnership (a New Hampshire Limited Partnership). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Macon Cellular Telephone Systems Limited Partnership (a New Hampshire Limited Partnership) for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP -------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-89 MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP (A New Hampshire Limited Partnership) Consolidated Balance Sheets ($ in thousands)
December 31, 1998 1997 ---- ---- Assets Current Assets: Cash $ 145 $ 50 Trade accounts receivable, less allowance for doubtful accounts of $142 in 1998 and $89 in 1997 2,921 2,258 Inventory 680 353 Other current assets 58 78 ------------------------- Total current assets 3,804 2,739 ------------------------- Property and equipment: Land and leasehold improvements 203 126 Buildings & improvements 36 Equipment and furnishings 792 791 Cellular equipment 15,947 14,712 ------------------------- 16,978 15,629 Less accumulated depreciation and amortization 2,569 516 ------------------------- Net property and equipment 14,409 15,113 Licenses and other intangibles less accumulated amortization of $4,603 in 1998 and $953 in 1997 131,577 137,702 ------------------------- $ 149,790 $ 155,554 ========================= Liabilities and Partners' Equity Current liabilities: Accrued salaries and benefits $ 113 $ 140 Other accrued expenses 460 148 Deferred revenue 824 350 Customer deposits 158 103 ------------------------- Total current liabilities 1,555 741 Deferred income taxes 40,888 46,579 Advances from affiliates (119) 11,402 ------------------------- Total liabilities 42,324 58,722 Commitments and contingencies Partners' equity 107,466 96,832 ------------------------- $ 149,790 $ 155,554 =========================
See accompanying notes to consolidated financial statements. F-90 MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP (A New Hampshire Limited Partnership) Consolidated Statements of Operations ( $ in thousands)
Years Ended December 31, ---------------------------------------- 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $ 30,599 $ 26,335 $ 21,178 Equipment sales and installation 1,579 1,479 1,211 ---------------------------------------- Total revenue 32,178 27,814 22,389 ---------------------------------------- Operating expenses: Engineering, technical and other direct 8,556 6,743 5,312 Cost of equipment 2,787 2,689 1,956 Sales and marketing 2,396 1,979 1,648 General and administrative 4,753 4,809 4,272 Depreciation and amortization 5,703 3,879 2,467 ---------------------------------------- Total operating expenses 24,195 20,099 15,655 ---------------------------------------- Operating income 7,983 7,715 6,734 Interest expense, net (564) (1,406) (486) ---------------------------------------- Net income before income taxes 7,419 6,309 6,248 Deferred tax benefit 1,172 293 -- ---------------------------------------- Net income $ 8,591 $ 6,602 $ 6,248 ========================================
Statements of Partners' Equity Balance at December 31, 1996 47,504 Net income 6,602 "Push-down" of Price Communications Wireless, Inc.'s acquisition price 42,726 --------- Balance at December 31, 1997 96,832 Adjustment for finalization of "push down" of Price Communications wireless, Inc.'s acquisition price 2,043 Net income 8,591 --------- Balance at December 31, 1998 $ 107,466 =========
See accompanying notes to consolidated financial statements. F-91 MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP (A New Hampshire Limited Partnership) Consolidated Statements of Cash Flows ($ in thousands)
Years Ended December 31, ------------ 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 8,591 $ 6,602 $ 6,248 -------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,703 3,880 2,467 Deferred income taxes (1,172) (293) -- (Increase) decrease in trade accounts receivable (663) 380 (72) (Increase) decrease in inventory (327) 336 (345) Decrease in other current assets 20 14 11 Increase (decrease) in accrued expenses 285 (232) 29 Increase (decrease) in deferred revenue 474 (259) (84) Increase in customer deposits 55 10 19 -------------------------------------- Total adjustments 4,375 3,836 2,025 -------------------------------------- Net cash provided by operating activities 12,966 10,438 8,273 -------------------------------------- Cash flows from investing activities: Purchases of property and equipment (1,350) (5,165) (4,561) Cash payments for purchase of non-wireline cellular telephone system and license -- -- (25,244) -------------------------------------- Net cash used in investing activities (1,350) (5,165) (29,805) -------------------------------------- Cash flows from financing activities: (Decrease) increase in advances from affiliates, net (11,521) (5,306) 21,485 -------------------------------------- Net increase (decrease) in cash 95 (33) (47) Cash at beginning of year 50 83 130 -------------------------------------- Cash at end of year $ 145 $ 50 $ 83 ====================================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 564 $ 1,404 $ 821 ======================================
Supplemental disclosure of noncash investing and financing activities: During 1996, the Partnership transferred certain property and equipment with depreciated cost of $30 to Palmer Wireless Inc. and affiliates by decreasing the advances from Palmer Wireless, Inc. and affiliates. No gain or loss was recognized on the transfer. The 1996 acquisition of the non-wireline cellular telephone system was allocated as follows: Property and equipment $ 1,546 License 23,444 Current assets and liabilities, net 254 --------- $ 25,244 =========
See accompanying notes to consolidated financial statements. F-92 MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP (A New Hampshire Limited Partnership) Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Partnership Operations and Asset Exchange Agreement Macon Cellular Telephone Systems Limited Partnership (the "Partnership") was formed on November 11, 1986, to construct and operate certain non-wireline cellular telephone systems. On October 24, 1989, Palmer Cellular Partnership ("PCP"), a subsidiary of Palmer Communications Incorporated ("Palmer"), directly or indirectly acquired the Partnership's general partner (approximately 1 percent) and approximately 94 percent of the limited partnership units. In conjunction with this acquisition, the Partnership entered into an Asset Exchange Agreement with Macon Cellular Telephone Corp. ("Macon"), whereby the assets consisted primarily of FCC licenses and a nonwireline cellular telephone system serving the Macon, Georgia, Metropolitan Statistical Area. The partnership operates the non-wireline cellular telephone system serving the Georgia-6 RSA which was acquired on July 5, 1996. In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock for 100 percent of the partnership interests of PCP. Palmer owns a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying financial statements and notes to financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless, Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The direct owner of the Partnership is Palmer Wireless Holdings, Inc. ("Holdings") which was formed in January, 1994. PCW is the 100% owner of Holdings. The Partnership is the 100% owner of Price Communications Wireless VII Inc., the licenseholder for the Macon MSA. Basis of Presentation For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the partnership revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $138.7 million. During 1998, the allocation was finalized resulting in an allocation of approximately $136.2 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. Prior to October 6, 1997, PWI also utilized "push down accounting", as PWI owned approximately 99.1% of the Partnership. The accompanying financial statements do not include the assets and liabilities of the partners. F-93 MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP (A New Hampshire Limited Partnership) Notes to Consolidated Financial Statements (continued) 1) Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Partnership continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Partnership utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Partnership earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed on month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. F-94 MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP (A New Hampshire Limited Partnership) Notes to Consolidated Financial Statements (continued) 1) Summary of Significant Accounting Policies (Continued) Roamer revenue represents revenue earned by the Partnership for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses -Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes The Consolidated Financial Statements prior to the adjustment of the value of the licenses made no provision for income taxes, as income and losses of the Partnership are included in the income tax returns of the individual partners. Such income and losses are proportionately allocated to the partners based upon their ownership interests. At December 31, 1998 and 1997, the Consolidated Balance Sheets include a net deferred tax liability as a result of the difference between the tax and book basis of the license as a result of the valuation on October 7, 1997. This difference is being deferred over a 40 year period and accordingly the Consolidated Statements of Operations reflect a tax benefit for the years ended December 31, 1998 and 1997. 2) Acquisition and Purchase of License On July 5, 1996, the Partnership acquired the assets of and the license to operate the non-wireline cellular system serving the eastern portion (including Crawford, Lamar, Monroe, Spalding, Pike, and Upson Counties) of the Georgia Rural Service Area Market No. 376, otherwise known as Georgia-6 RSA, for a purchase price of $25.2 million. The acquisition was accounted for by the purchase method of accounting and was funded by an increase in the advances from Palmer Wireless, Inc. and affiliates. In connection with the acquisition, $23.4 million of the purchase price was allocated to the license and goodwill. From the date of the acquisition to December 31, 1996, the effect of this purchase on the operations of the Partnership cannot be differentiated from the operations of the whole due to the interrelated nature of the transactions. 3) Partners' Equity In accordance with the Partnership agreement, the partners' proportionate share of cash distributions from current operations and net income or loss is calculated by dividing the partner's capital contribution by total partners' capital contributions. F-95 MACON CELLULAR TELEPHONE SYSTEMS LIMITED PARTNERSHIP (A New Hampshire Limited Partnership) Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 3) Partners' Equity (continued) The allocation to the partners of gain or loss arising from the sale of property will be in the same proportion as they share net income or net loss of the Partnership. 4) Related Party Transactions The Partnership has various agreements with its parent whereby the Partnership is charged or can charge other related entities various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Partnership. The agreement provides for a monthly management fee of $2,000. The agreement also provides for reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Partnership as out-of-pocket costs. Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Partnership based on the parent's estimate of its time spent managing the Partnership. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Partnership enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the Consolidated Statements of Operations. 401(k) Matching Provision: The Partnership's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Partnership participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Partnership's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. F-96 The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Management Fee $ 24 $ 24 $ 24 Operating Expenses 2,326 2,354 2,113 Switching Service 589 512 379 Billing Service 1,178 1,022 759 Roaming Revenue 2,031 1,183 770 Roaming Cost 3,490 1,981 1,164 401(k) Match 23 27 45 Interest expense 564 1,404 486 5) Commitments and Contingencies The Partnership is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Partnership is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Partnership's Consolidated Financial Statements. 6) Leases ($ in thousands) The Partnership, as lessee, has various noncancelable leases for certain cellular plant facilities, office facilities, and office equipment, all of which are classified as operating leases. Rent expense under these noncancelable leases was $533, $389 and $311 for the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: Year ending December 31: 1999 $ 345 2000 311 2001 281 2002 255 2003 35 ------- $ 1,227 ======= F-97 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Montgomery Cellular Holding Co., Inc. We have audited the accompanying consolidated balance sheets of Montgomery Cellular Holding Co., Inc. (a Delaware Corporation) and Subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Montgomery Cellular Holding Co., Inc. as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-98 The Board of Directors Montgomery Cellular Holding Co., Inc.: We have audited the accompanying consolidated statements of operations and retained earnings and cash flows for the year ended December 31, 1996 of Montgomery Cellular Holding Co., Inc. and subsidiary. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Montgomery Cellular Holding Co., Inc and subsidiary for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP -------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-99 MONTGOMERY CELLULAR HOLDING CO., INC. AND SUBSIDIARY Consolidated Balance Sheets ($ in thousands Except Per Share Amounts)
December 31, 1998 1997 ---- ---- Assets Current Assets: Cash $ 36 $ 184 Trade accounts receivable, less allowance for doubtful accounts of $98 in 1998 and $102 in 1997 2,365 1,968 Inventory 182 116 Other current assets 22 19 ------------------------- Total current assets 2,605 2,287 ------------------------- Property and equipment: Land and leasehold improvements 136 -- Equipment and furnishings 418 392 Cellular equipment 12,000 9,892 ------------------------- 12,554 10,284 Less accumulated depreciation and amortization 1,862 224 ------------------------- Net property and equipment 10,692 10,060 ------------------------- Advances to affiliates 1,242 -- Licenses and other intangibles, less accumulated amortization of $3,507 in 1998 and $698 in 1997 107,444 112,677 ------------------------- 121,983 125,024 ========================= Liabilities and Stockholder's Equity Current liabilities: Accrued salaries and benefits $ 51 $ 111 Other accrued expenses 296 100 Deferred revenue 525 333 Customer deposits 68 31 ------------------------- Total current liabilities 940 575 Deferred income taxes 40,624 38,086 Other notes payable 15 17 Advances from affiliates -- 3,894 ------------------------- Total liabilities 41,579 42,572 ------------------------- Commitments and contingencies Stockholder's equity: Preferred stock, $.01 par value; authorized 50,000 shares none issued -- -- Common stock, $.01 par value; authorized 100,000 shares, issued 10,000 shares -- -- Additional paid in capital 69,031 74,043 Retained earnings 11,373 8,409 ------------------------- Total stockholder's equity 80,404 82,452 ------------------------- $ 121,983 $ 125,024 =========================
See accompanying notes to consolidated financial statements. F-100 MONTGOMERY CELLULAR HOLDING CO., INC. AND SUBSIDIARY Consolidated Statements of Operations and Retained Earnings ($ in thousands) Years Ended December 31, --------------------------------- 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $22,225 $19,389 $19,174 Equipment sales and installation 1,491 903 987 --------------------------------- Total revenue 23,716 20,292 20,161 --------------------------------- Operating expenses: Engineering, technical and other direct 4,935 3,607 4,175 Cost of equipment 2,719 1,918 1,958 Sales and marketing 1,838 1,234 1,054 General and administrative 5,037 4,637 4,589 Depreciation and amortization 4,447 2,169 1,239 --------------------------------- Total operating expenses 18,976 13,565 13,015 --------------------------------- Operating income 4,740 6,727 7,146 Interest expense 34 425 695 --------------------------------- Income before income tax expense 4,706 6,302 6,451 Income tax expense 1,742 2,332 2,405 --------------------------------- Net income 2,964 3,970 4,046 Retained earnings at beginning of year 8,409 4,439 393 --------------------------------- Retained earnings at end of year $11,373 $ 8,409 $ 4,439 ================================= See accompanying notes to consolidated financial statements. F-101 MONTGOMERY CELLULAR HOLDING CO., INC. AND SUBSIDIARY Consolidated Statements of Cash Flows ($ In Thousands)
Years Ended December 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 2,964 $ 3,970 $ 4,046 ----------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,447 2,169 1,239 Loss on disposal of property and equipment -- -- 15 Deferred taxes (958) (340) 100 (Increase) decrease in trade accounts receivable (397) 306 (295) (Increase) decrease in inventory (66) 421 (385) (Increase) decrease in other current assets (3) (2) (1) Increase (decrease) in accrued expenses 136 (497) 193 Decrease in accrued interest due to affiliates -- -- (768) Increase (decrease) in deferred revenue 192 (67) 94 Increase (decrease) in customer deposits 37 (39) 22 ----------------------------------- Total adjustments 3,388 1,951 214 ----------------------------------- Net cash provided by operating activities 6,352 5,921 4,260 ----------------------------------- Cash flows from investing activities: Purchases of property and equipment (2,228) (2,413) (2,777) Cash flows from financing activities: Decrease in advances from affiliates, net (4,272) (3,400) (2,041) ----------------------------------- Net (decrease) increase in cash (148) 108 (558) Cash at beginning of year 184 76 634 ----------------------------------- Cash at end of year $ 36 $ 184 $ 76 ----------------------------------- Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 34 $ 425 $ 1,463 ===================================
Supplemental disclosures of noncash investing and financing activities: During 1996, the Company received certain property and equipment totaling $279 from a related party by increasing the advances from Palmer Wireless, Inc. and affiliates. See accompanying notes to consolidated financial statements. F-102 MONTGOMERY CELLULAR HOLDING CO., INC. AND SUBSIDIARY Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Corporate Information Montgomery Cellular Holding Co., Inc. and its wholly owned subsidiary, Montgomery Cellular Telephone Company, Inc., (the "Company") were formed in February 1988 to operate the non-wireline cellular telephone system in the Montgomery, Alabama, Metropolitan Statistical Area. Palmer Communications Incorporated ("Palmer") acquired an interest in the outstanding stock of Montgomery Cellular Holding Co., Inc. on December 31, 1988. Effective August 4, 1989, Palmer transferred its investment in and advances to the Company to Palmer Cellular Partnership ("PCP"). Palmer owned a majority interest in PCP. When Palmer's interest in the Company was transferred to PCP, it had no effect on the carrying value of the assets of the Company. In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock for 100 percent of the partnership interests of PCP. Palmer owns a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying consolidated financial statements and notes to financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The direct owner of the Company is Palmer Wireless Holdings Inc. ("Holdings") which was formed in January 1994. PCW is the 100% owner of Holdings. The Company's subsidiary is the 100% owner of Price Communocations Wireless IV, Inc. the license holder for the Montgomery MSA. Basis of Presentation PWI owned approximately 91.9% of the Company at December 31, 1996. The accompanying 1996 Consolidated Financial Statements have been prepared on the basis of historical cost. The assets of the Company were not revalued in connection with the acquisition by Palmer or the subsequent transfers to PCP or PWI. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the Company revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $113.4 million. During 1998, the allocation was finalized resulting in an allocation of approximately $111.0 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. The Consolidated Financial Statements include the accounts of Montgomery Cellular Holding Co., Inc. and its Subsidiary. All significant inter-company balances and transactions have been eliminated. F-103 MONTGOMERY CELLULAR HOLDING CO., INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance aqnd repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Company earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Company for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. F-104 MONTGOMERY CELLULAR HOLDING CO., INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Operating Expenses - Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes Since March of 1995 through September 30, 1997 the Company was included in the consolidated income tax return of PWI and for the period October 1, 1997 through December 31, 1997 the tax return of PCW. Through the Company's tax sharing arrangement with PWI and PCW, the Company computes its current and deferred income taxes based on the separate return method for financial statement purposes. During 1998, the Company fully utilized their net operating loss carryforwards of $.5 million. 2) Related Party Transactions The Company has various agreements with its parent whereby the Company is charged or can charge other related entities various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Company. The agreement provides for a monthly management fee based upon 5 percent of revenues or a construction fee based upon 10 percent of the construction costs. The agreement provides for reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Company as out-of-pocket costs. Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Company based on the parent's estimate of its time spent managing the Company. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Company enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the Consolidated Statements of Operations. 401(k) Matching Provision: The Company's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Company participates in this plan and was allocated 401(k) retirement and matching expense. F-105 MONTGOMERY CELLULAR HOLDING CO., INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) 2) Related Party Transactions (Continued) Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Company's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Management Fee $ 1,186 $ 1,015 $ 1008 Construction Fee 0 0 252 Operating Expenses 2,008 1,888 1,910 Switching Service 506 444 392 Billing Service 1,011 886 784 Roaming Revenue 841 586 476 Roaming Cost 1,268 761 543 401(k) Match 22 14 32 Interest Expense 34 425 693 3) Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes," under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. At December 31, 1998 and December 31, 1997 the Company has a net deferred tax liability as a result of the difference between the tax and book basis of the license as a result of the valuation on October 7, 1997. In addition at December 31, 1998 the deferred tax liability includes an amount related to the difference between financial statement and income tax basis of property and equipment. The difference attributable to the license is being deferred over a 40 year period. F-106 MONTGOMERY CELLULAR HOLDING CO., INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) Components of income tax expense consisted of the following for the years ended December 31 ($ in thousands): Federal State Total ----------------------------------- Year Ended December 31, 1998: Current $ 2,504 $ 196 $ 2,700 Deferred (868) (90) (958) ----------------------------------- $ 1,636 $ 106 $ 1,742 =================================== Year Ended December 31, 1997: Current $ 2,441 $ 150 $ 2,591 Deferred (259) (259) ----------------------------------- $ 2,182 $ 150 $ 2,332 =================================== Year Ended December 30, 1996: Current $ 2,105 $ 200 $ 2,305 Deferred 90 10 100 ----------------------------------- $ 2,195 $ 210 $ 2,405 =================================== Income taxes differ from the "expected" income taxes computed by applying the United States federal income tax rate of 34 percent to income before income tax expense due to the utilization of deferred tax credits for the years ended December 31, 1998 and December 31, 1997 and due to state taxes for the year ended December 31, 1996. F-107 MONTGOMERY CELLULAR HOLDING CO., INC AND SUBSIDIARY Notes to Consolidated Financial Statements (Continued) 4) Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company's Consolidated Financial Statements. 5) Leases ($ in thousands) The Company, as lessee, has various leases for an office building and certain cellular plant facilities, all of which are classified as operating leases. One is with a related party. Rent expense under noncancelable leases amounted to $252 for the years ended December 31, 1998 and 1997 and $191 for the year ended December 31, 1996 of which $30 was paid to a related party in 1996. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: Related Party Other ----- ----- Year ending December 31: 1999 $ 29 $181 2000 29 168 2001 163 2002 -- 117 2003 and thereafter -- 86 ---- ---- $ 58 $715 ==== ==== F-108 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Montgomery Cellular Telephone Company, Inc. We have audited the accompanying consolidated balance sheets of Montgomery Cellular Telephone Company, Inc. (an Alabama Corporation) and subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Montgomery Cellular Telephone Company, Inc. as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-109 INDEPENDENT AUDITORS' REPORT The Board of Directors Montgomery Cellular Telephone Company, Inc.: We have audited the accompanying consolidated statements of operations and retained earnings and cash flows for the year ended December 31, 1996 of Montgomery Cellular Telephone Company, Inc. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Montgomery Cellular Telephone Company, Inc. for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP --------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-110 MONTGOMERY CELLULAR TELEPHONE CO., INC. Consolidated Balance Sheets ($ In thousands Except Per Share Amounts)
December 31, 1998 1997 ---- ---- Assets Current Assets: Cash $ 36 $ 184 Trade accounts receivable, less allowance for doubtful accounts of $98 in 1998 and $102 in 1997 2,365 1,968 Inventory 182 116 Other current assets 22 19 ------------------------- Total current assets 2,605 2,287 ------------------------- Property and equipment: Land and leasehold improvements 136 -- Equipment and furnishings 418 392 Cellular equipment 12,000 9,892 ------------------------- 12,554 10,284 Less accumulated depreciation and amortization 1,862 224 ------------------------- Net property and equipment 10,692 10,060 ------------------------- Advances to affiliates 1,242 -- License and other intangibles, less accumulated amortization of $3,507 in 1998 and $698 in 1997 107,444 112,677 ------------------------- 121,983 125,024 ========================= Liabilities and Stockholder's Equity Current liabilities: Accrued salaries and benefits $ 51 $ 111 Other accrued expenses 296 100 Deferred revenue 525 333 Customer deposits 68 31 ------------------------- Total current liabilities 940 575 Deferred income taxes 40,624 38,086 Other notes payable 15 17 Advances from affiliates -- 3,894 ------------------------- Total liabilities 41,579 42,572 ------------------------- Commitments and contingencies Stockholder's equity: Common stock, $1.00 par value; authorized 5,000 shares, 100 shares, issued and outstanding -- -- Additional paid in capital 69,031 74,043 Retained earnings 11,373 8,409 ------------------------- Total stockholder's equity 80,404 82,452 ------------------------- $ 121,983 $ 125,024 =========================
See accompanying notes to consolidated financial statements. F-111 MONTGOMERY CELLULAR TELEPHONE CO., INC. Consolidated Statements of Operations and Retained Earnings ($ in thousands)
Years Ended December 31, --------------------------------- 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $22,225 $19,389 $19,174 Equipment sales and installation 1,491 903 987 --------------------------------- Total revenue 23,716 20,292 20,161 --------------------------------- Operating expenses: Engineering, technical and other direct 4,935 3,607 4,175 Cost of equipment 2,719 1,918 1,958 Sales and marketing 1,838 1,234 1,054 General and administrative 5,037 4,637 4,589 Depreciation and amortization 4,447 2,169 1,239 --------------------------------- Total operating expenses 18,976 13,565 13,015 --------------------------------- Operating income 4,740 6,727 7,146 Interest expense 34 425 695 --------------------------------- Income before income tax expense 4,706 6,302 6,451 Income tax expense 1,742 2,332 2,405 --------------------------------- Net income 2,964 3,970 4,046 Retained earnings at beginning of year 8,409 4,439 393 --------------------------------- Retained earnings at end of year $11,373 $ 8,409 $ 4,439 =================================
See accompanying notes to consolidated financial statements F-112 MONTGOMERY CELLULAR TELEPHONE CO., INC. Consolidated Statements of Cash Flows ($ In thousands)
Years Ended December 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 2,964 $ 3,970 $ 4,046 ----------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,447 2,169 1,239 Loss on disposal of property and equipment -- -- 15 Deferred taxes (958) (340) 100 (Increase) decrease in trade accounts receivable (397) 306 (295) (Increase) decrease in inventory (66) 421 (385) Increase in other current assets (3) (2) (1) Increase (decrease) in accrued expenses 136 (497) 193 Decrease in accrued interest due to affiliates -- -- (768) Increase (decrease) in deferred revenue 192 (67) 94 Increase (decrease) in customer deposits 37 (39) 22 ----------------------------------- Total adjustments 3,388 1,951 214 ----------------------------------- Net cash provided by operating activities 6,352 5,921 4,260 ----------------------------------- Cash flows from investing activities: Purchases of property and equipment (2,228) (2,413) (2,777) ----------------------------------- Cash flows from financing activities: Decrease in advances from affiliates, net (4,272) (3,400) (2,041) ----------------------------------- Net cash used in financing activities (4,272) (3,400) (2,041) Net (decrease) increase in cash (148) 108 (558) Cash at beginning of year 184 76 634 ----------------------------------- Cash at end of year $ 36 $ 184 $ 76 =================================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 34 $ 425 $ 1,463 ===================================
Supplemental disclosures of noncash investing and financing activities: During 1996, the Company received certain property and equipment totaling $279 from a related party by increasing the advances from Palmer Wireless, Inc. and affiliates. See accompanying notes to consolidated financial statements. F-113 MONTGOMERY CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Corporate Information Montgomery Cellular Telephone Co., Inc., (the "Company") and its parent Montgomery Cellular Holding Co., Inc., whose financial statements are included elsewhere in this document, were formed in February 1988 to operate the non-wireline cellular telephone system in the Montgomery, Alabama, Metropolitan Statistical Area. Palmer Communications Incorporated ("Palmer") acquired an interest in the outstanding stock of Montgomery Cellular Holding Co., Inc. on December 31, 1988. Effective August 4, 1989, Palmer transferred its investment in and advances to the Company to Palmer Cellular Partnership ("PCP"). Palmer owned a majority interest in PCP. When Palmer's interest in the Company was transferred to PCP, it had no effect on the carrying value of the assets of the Company. In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock for 100 percent of the partnership interests of PCP. Palmer owns a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying consolidated financial statements and notes to financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The Company's direct owner Montgomery Cellular Holding Co., Inc. ("Montgomery Holding"). Montgomery Holding in turn is 100% owned by Palmer Wireless Holdings, Inc. which was formed in January, 1994. PCW is the 100% owner of Holdings. The Company is the 100% owner of Price Communications Wireless IV, Inc., the license holder for the Montgomery MSA. Basis of Presentation PWI owned approximately 91.9% of the Company at December 31, 1996. The accompanying 1996 Consolidated Financial Statements have been prepared on the basis of historical cost. The assets of the Company were not revalued in connection with the acquisition by Palmer or the subsequent transfers to PCP or PWI. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the Company revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $113.4 million. During 1998 the allocation was finalized resulting in an allocation of approximately $111.0 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. F-114 MONTGOMERY CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance aqnd repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Organization Expenses and Start-up Costs Organization expenses and start-up costs are being amortized primarily using the straight-line method over ten years. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Company earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. F-115 MONTGOMERY CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Roamer revenue represents revenue earned by the Company for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses - Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes Since March of 1995 through September 30, 1997 the Company was included in the consolidated income tax return of PWI and for the period October 1, 1997 through December 31, 1997 and for the year ended December 31, 1998, the tax return of PCC. Through the Company's tax sharing arrangement with PWI and PCC, the Company computes its current and deferred income taxes based on the separate return method for financial statement purposes. During 1998, the Company fully utilized their net operating loss carryforwards of $.5 million. 2) Related Party Transactions The Company has various agreements with its parent whereby the Company is charged or can charge other related entities various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Company. The agreement provides for a monthly management fee based upon 5 percent of revenues or a construction fee based upon 10 percent of the construction costs. The agreement provides for reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Company as out-of-pocket costs. Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Company based on the parent's estimate of its time spent managing the Company. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. F-116 MONTGOMERY CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 2) Related Party Transactions (Continued) Reciprocal roaming revenue and cost: The Company enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the Consolidated Statements of Operations. 401(k) Matching Provision: The Company's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Company participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Company's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Management Fee $1,186 $1,015 $1008 Construction Fee 0 0 252 Operating Expenses 2,008 1,888 1,910 Switching Service 506 444 392 Billing Service 1,011 886 784 Roaming Revenue 841 586 476 Roaming Cost 1,268 761 543 401(k) Match 22 14 32 Interest Expense 34 425 693 3) Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes," under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. At December 31, 1998 and December 31, 1997 the Company has a net deferred tax liability as a result of the difference between the tax and book basis of the license as a result of the valuation on October 7, 1997 and the difference between financial statement and income tax basis of property and equipment. F-117 MONTGOMERY CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 3) Income Taxes (Continued) Components of income tax expense consisted of the following for the years ended December 31 ($ in thousands): Federal State Total ----------------------------------- Year Ended December 31, 1998: Current $ 2,504 $ 196 $ 2,700 Deferred (868) (90) (958) ----------------------------------- $ 1,636 $ 106 $ 1,742 =================================== Year Ended December 31, 1997: Current $ 2,441 $ 150 $ 2,591 Deferred (259) (259) ----------------------------------- $ 2,182 $ 150 $ 2,332 =================================== Year Ended December 30, 1996: Current $ 2,105 $ 200 $ 2,305 Deferred 90 10 100 ----------------------------------- $ 2,195 $ 210 $ 2,405 =================================== Income taxes differ from the "expected" income taxes computed by applying the United States federal income tax rate of 34 percent to income before income tax expense due to the utilization of deferred tax credits for the years ended December 31, 1998 and December 31, 1997 and due to state taxes for the year ended December 31, 1996. 4) Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company's Consolidated Financial Statements. F-118 MONTGOMERY CELLULAR TELEPHONE CO., INC. Notes to Consolidated Financial Statements (Continued) 5) Leases ($ in thousands) The Company, as lessee, has various leases for an office building and certain cellular plant facilities, all of which are classified as operating leases. One is with a related party. Rent expense under noncancelable leases amounted to $252 for the years ended December 31, 1998 and 1997 and $191 for the year ended December 31, 1996, of which $30 was paid to a related party in 1996. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows ($ in thousands): Related Party Other ------- ----- Year ending December 31: 1999 $ 29 $181 2000 29 168 2001 163 2002 -- 117 2003 and thereafter -- 96 ---- ---- $ 58 $715 ==== ==== F-119 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Panama City Cellular Telephone Company, Ltd: We have audited the accompanying consolidated balance sheets of Panama City Cellular Telephone Company, Ltd. (A Florida Limited Partnership) and subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Panama City Cellular Telephone Company, Ltd. as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-120 INDEPENDENT AUDITORS' REPORT The Partners Panama City Cellular Telephone Company, Ltd.: We have audited the accompanying consolidated statements of operations, partners' equity and cash flows for the year ended December 31, 1996 of Panama City Cellular Telephone Company, Ltd. (a Florida Limited Partnership). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Panama City Cellular Telephone Company, Ltd. (a Florida Limited Partnership) for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP --------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-121 PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD. (A Florida Limited Partnership) Consolidated Balance Sheets ($ in thousands)
December 31, 1998 1997 ---- ---- Assets Current Assets: Cash $ 18 $ 13 Trade accounts receivable, less allowance for doubtful accounts of $29 in 1998 and $42 in 1997 961 842 Inventory 135 37 Other current assets 15 18 -------------------- Total current assets 1,129 910 -------------------- Property and equipment: Land and land improvements 295 295 Buildings and leasehold improvements 109 106 Equipment and furnishings 239 252 Cellular equipment 4,810 5,008 -------------------- 5,453 5,661 Less accumulated depreciation and amortization 692 184 -------------------- Net property and equipment 4,761 5,477 -------------------- Advances to affiliates 6,809 1,905 License and other intangibles, less accumulated amortization of $1,381 in 1998 and $30 in 1997 41,929 44,212 -------------------- $54,628 $52,504 ==================== Liabilities and Partners' Equity Current liabilities: Accrued salaries and benefits $ 20 $ 50 Other accrued expenses 98 60 Deferred revenue 225 152 Customer deposits 68 25 -------------------- Total current liabilities 411 287 Deferred income taxes 13,169 14,863 -------------------- Total liabilities 13,580 15,150 -------------------- Commitments and contingencies Partners' equity 41,048 37,354 -------------------- $54,628 $52,504 ====================
See accompanying notes to consolidated financial statements. F-122 PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD. (A Florida Limited Partnership) Consolidated Statements of Operations ($ in thousands)
Years Ended December 31, -------------------------------- 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $ 9,435 $ 7,650 $ 6,770 Equipment sales and installation 780 403 441 -------------------------------- Total revenue 10,215 8,053 7,211 -------------------------------- Operating expenses: Engineering, technical and other direct 1,527 1,258 1,392 Cost of equipment 1,198 807 916 Sales and marketing 796 543 425 General and administrative 2,099 2,100 2,052 Depreciation and amortization 1,859 994 607 -------------------------------- Total operating expenses 7,479 5,702 5,392 -------------------------------- Operating income 2,736 2,351 1,819 Interest income (expense) 435 97 (66) -------------------------------- Income before taxes 3,171 2,448 1,753 Deferred tax benefit 374 93 -- -------------------------------- Net income $ 3,545 $ 2,541 $ 1,753 ================================
Consolidated Statement of Partners' Equity Balance at December 31, 1996 5,527 Net income 2,541 "Push-down" of Price Communication Wireless Inc.'s acquisition price 29,286 -------- Balance at December 31, 1997 37,354 Adjustment for finalization of "Push down" of Price Communications Wireless, Inc.'s acquisition price 149 Net income 3,545 -------- Balance at December 31, 1998 $ 41,048 ========
See accompanying notes to consolidated financial statements. F-123 PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD. (A Florida Limited Partnership) Consolidated Statements of Cash Flows ($ in thousands)
Years Ended December 31, -------------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 3,545 $ 2,541 $ 1,753 ----------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,859 994 607 Deferred taxes (374) (93) -- (Increase) decrease in trade accounts receivable (119) 131 (73) (Increase) decrease in inventory (99) 106 (11) Decrease in other current assets 3 2 16 Increase (decrease) in accrued expenses 8 (146) (189) Decrease in accrued interest due to affiliates -- -- (102) Increase (decrease) in deferred revenue 72 (8) 13 Increase in customer deposits 43 -- 7 ----------------------------------- Total adjustments 1,393 986 268 ----------------------------------- Net cash provided by operating activities 4,938 3,527 2,021 ----------------------------------- Cash flows from investing activities: Purchases of property and equipment (29) (1,182) (871) Purchase of other intangibles -- (266) (3) ----------------------------------- Net cash used in investing activities (29) (1,448) (874) ----------------------------------- Cash flows from financing activities - Decrease in advances from affiliates, net (4,904) (2,083) (1,176) ----------------------------------- Net increase (decrease) in cash 5 (4) (29) Cash at beginning of year 13 17 46 ----------------------------------- Cash at end of year $ 18 $ 13 $ 17 =================================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 435 $ 254 $ 169 ===================================
See accompanying notes to consolidated financial statements. F-124 PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD. (A Florida Limited Partnership) Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Partnership Operations Panama City Cellular Telephone Company Ltd. (the "Partnership") was formed on April 1, 1988, to construct and operate non-wireline cellular telephone systems in the Panama City, Florida, Metropolitan Statistical Area. On July 25, 1991, Palmer Cellular Partnership ("PCP"), a subsidiary of Palmer Communications Incorporated ("Palmer"), acquired 100 percent of the general partners' interest and a portion of the limited partners' interest. In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock for 100 percent of the partnership interests of PCP. Palmer owns a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying financial statements and notes to financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997, the merger was completed and PWI changed its name to PCW. The Partnership's direct owner is Panhandle Cellular Partnership ("Panhandle") Panhandle in turn is owned by Palmer Wireless Holdings, Inc. ("Holdings"). PCW is the 100% owner of Holdings. The Partnership is the 100% owner of Price Communications Wireless IX, Inc., the licenseholder for the Panama City MSA. Basis of Presentation For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the Partnership revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $44.2 million. During 1998 the allocation was finalized resulting in an allocation to licenses of approximately $43.3 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. The accompanying financial statements do not include the assets and liabilities of the partners. F-125 PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD. (A Florida Limited Partnership) Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Partnership continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Partnership utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Other Intangible Assets Other intangible assets consist primarily of subscriber lists, which are being amortized using the straight-line method over 10 years. Revenue Recognition Service revenue includes local subscriber revenue. F-126 PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD. (A Florida Limited Partnership) Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) The Partnership earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Partnership for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses - Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes The Consolidated Financial Statements prior to the adjustment of the value of the licenses made no provision for income taxes, as income or losses of the Partnership are to be included in the income tax returns of the individual partners. Such income or losses are proportionately allocated to the partners based upon their ownership interests. At December 31, 1998 and 1997, the Consolidated Balance Sheets include a net deferred tax liability as a result of the difference between the tax and book basis of the license as a result of the revaluation in connection with the acquisition of PWI on October 7, 1997. This difference is being deferred over a 40 year period and accordingly the Consolidated Statements of Operations reflect a tax benefit for the years ended December 31, 1998 and 1997. 2) Partners' Equity In accordance with the Partnership agreement, the partners' proportionate share in cash distributions from current operations and net income or loss is calculated by dividing the partners' capital contribution by total partners' capital contributions. The allocation of gain or loss to the partners arising from the sale of property will be in the same proportion as their share of net income or net loss of the Partnership. 3) Related Party Transactions The Partnership has various agreements with its parent whereby the Partnership is charged or can charge other related entities various items. Among these are the following arrangements: F-127 PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD. (A Florida Limited Partnership) Notes to Consolidated Financial Statements (Continued) 3) Related Party Transactions Consulting agreement with its parent for the management of the day-to-day operations of the Partnership. The agreement provides for a monthly management fee based upon 5 percent of revenues. The agreement also provides for reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Partnership as out-of-pocket costs. Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Partnership based on the parent's estimate of its time spent managing the Partnership. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Partnership enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the Consolidated Statements of Operations. 401(k) Matching Provision: The Partnership's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Partnership participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Partnership's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------ Management Fee $511 $403 $361 Operating Expenses 766 761 853 Switching Service 168 151 133 Billing Service 335 301 265 Roaming Revenue 331 189 125 Roaming Cost 132 93 41 401(k) Match 11 11 18 Interest Income (Expense) 435 96 (67) F-128 PANAMA CITY CELLULAR TELEPHONE COMPANY, LTD. (A Florida Limited Partnership) Notes to Consolidated Financial Statements (Continued) 4) Commitments and Contingencies The Partnership is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company's Consolidated Financial Statements. 5) Leases ($ in thousands) The Partnership, as lessee, has various noncancelable leases for certain cellular plant facilities, office facilities, and office equipment, all of which are classified as operating leases. One of these leases is with a related party. Rent expense under these noncancelable leases amounted to $142, $140 and $142 for the years ended December 31, 1998, 1997 and 1996, respectively, of which $14 in 1997 and 1996, were paid to a related party. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: Related Party Other ----- ----- Year ending December 31: 1999 $ 15 $ 71 2000 -- 36 2001 -- 29 2002 -- 10 2003 -- 5 ---- ---- $ 15 $151 ==== ==== F-129 REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS To the Partners of Panhandle Cellular Partnership: We have audited the accompanying balance sheets of Panhandle Cellular Partnership (a Florida Limited Partnership) and subsidiary as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Panhandle Cellular Partnership as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-130 INDEPENDENT AUDITORS' REPORT The Partners Panhandle Cellular Partnership: We have audited the accompanying consolidated statements of operations, partners' equity and cash flows for the year ended December 31, 1996 of Panhandle Cellular Partnership. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Panhandle Cellular Partnership for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP -------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-131 PANHANDLE CELLULAR PARTNERSHIP Consolidated Balance Sheets ($ in thousands)
December 31, 1998 1997 ---- ---- Assets Current Assets: Cash $ 18 $ 13 Trade accounts receivable, less allowance for doubtful accounts of $29 in 1998 and $42 in 1997 961 842 Inventory 135 37 Other current assets 15 18 -------------------- Total current assets 1,129 910 -------------------- Property and equipment: Land and land improvements 295 295 Buildings and leasehold improvements 109 106 Equipment and furnishings 239 252 Cellular equipment 4,810 5,008 -------------------- 5,453 5,661 Less accumulated depreciation and amortization 692 184 -------------------- Net property and equipment 4,761 5,477 Advances to affiliates 6,809 1,905 Licenses and other intangibles, less accumulated amortization of $1,381 in 1998 and $30 in 1997 41,929 44,212 -------------------- $54,628 $52,504 ==================== Liabilities and Partners' Equity Current liabilities: Accrued salaries and benefits $ 20 $ 50 Other accrued expenses 98 60 Deferred revenue 225 152 Customer deposits 68 25 -------------------- Total current liabilities 411 287 Deferred income taxes 13,169 14,863 Minority interest 549 517 -------------------- Total liabilities 14,129 15,667 Commitments and contingencies Partners' equity 40,499 36,837 -------------------- $54,628 $52,504 ====================
See accompanying notes to consolidated financial statements. F-132 PANHANDLE CELLULAR PARTNERSHIP Consolidated Statements of Operations ($ in thousands)
Years Ended December 31, ---------------------------------------- 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $ 9,435 $ 7,650 $ 6,770 Equipment sales and installation 780 403 441 ------------------------------------- Total revenue 10,215 8,053 7,211 ------------------------------------- Operating expenses: Engineering, technical and other direct 1,527 1,258 1,392 Cost of equipment 1,198 807 916 Sales and marketing 796 543 425 General and administrative 2,099 2,100 2,052 Depreciation and amortization 1,859 994 607 ------------------------------------- Total operating expenses 7,479 5,702 5,392 ------------------------------------- Operating income 2,736 2,351 1,819 ------------------------------------- Interest income (expense) 435 97 (66) Minority interest (32) (24) (17) ------------------------------------- Income before taxes 3,139 2,424 1,736 Deferred tax benefit 374 93 -- ------------------------------------- Net income $ 3,513 $ 2,517 $ 1,736 =====================================
Consolidated Statement of Partners' Equity Total -------- Balance at December 31, 1996 5,472 Net income 2,517 "Push-down" of Price Communication Wireless Inc.'s acquisition price 28,848 -------- Balance at December 31, 1997 36,837 Adjustment for finalization of "push down" of Price Communications Wireless, Inc.'s acquisition price 149 Net income 3,513 -------- Balance at December 31, 1998 $ 40,499 ========
See accompanying notes to consolidated financial statements. F-133 PANHANDLE CELLULAR PARTNERSHIP Consolidated Statements of Cash Flows ($ in thousands)
Years Ended December 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 3,513 $ 2,517 $ 1,736 ----------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,859 994 607 Deferred income taxes (374) (93) -- Minority interest share of income 32 24 17 (Increase) decrease in trade accounts receivable (119) 131 (73) (Increase) decrease in inventory (99) 106 (11) Decrease in other current assets 3 2 16 Increase (decrease) in accrued expenses 8 (146) (189) Decrease in accrued interest due to affiliates -- -- (102) Increase (decrease) in deferred revenue 72 (8) 13 Increase in customer deposits 43 -- 7 ----------------------------------- Total adjustments 1,425 1,010 285 ----------------------------------- Net cash provided by operating activities 4,938 3,527 2,021 ----------------------------------- Cash flows from investing activities: Purchases of property and equipment (29) (1,182) (871) Purchase of other intangibles -- (266) (3) ----------------------------------- Net cash used in investing activities (29) (1,448) (874) ----------------------------------- Cash flows from financing activities: Increase in advances to affiliates, net (4,904) (2,083) (1,176) ----------------------------------- Net increase (decrease) in cash 5 (4) (29) Cash at beginning of year 13 17 46 ----------------------------------- Cash at end of year $ 18 $ 13 $ 17 ----------------------------------- Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 435 $ 254 $ 169 ===================================
See accompanying notes to consolidated financial statements. F-134 PANHANDLE CELLULAR PARTNERSHIP Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Partnership Operations Panhandle Cellular Partnership. (the "Partnership") was formed on January 1, 1987, to construct and operate non-wireline cellular telephone systems in the Panama City, Florida, Metropolitan Statistical Area. The Partnership is the 99.01% partner of Panama City Cellular Telephone Co., Ltd. which was formed on April 1, 1988. On July 25, 1991, Palmer Cellular Partnership ("PCP"), a subsidiary of Palmer Communications Incorporated ("Palmer"), acquired an interest in the Partnership. In March of 1995, Palmer Wireless, Inc. ("PWI") issued common stock for 100 percent of the partnership interests of PCP. Palmer owns a majority interest in PWI. Since this exchange was between related parties, it was accounted for in a manner similar to a pooling of interests. References to PWI in the accompanying financial statements and notes to financial statements include the activity of PWI and its predecessor, PCP. On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997, the merger was completed and PWI changed its name to PCW. The direct owner of the Partnership is Palmer Wireless Holdings, Inc. ("Holdings") which has a 78.41% ownership interest. Holdings, which was formed in January, 1994, is 100% owned by PCW. The Partnership's subsidiary is the 100% owner of Price Communications Wireless IX, Inc., the license holder for the Panama City MSA. Basis of Presentation For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the Partnership revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $44.2 million. During 1998, the allocation was finalized resulting in an allocation to licenses of approximately $43.3 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. The license is being amortized over a period of 40 years. The accompanying financial statements do not include the assets and liabilities of the partners. F-135 PANHANDLE CELLULAR PARTNERSHIP Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Partnership continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Partnership utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Other Intangible Assets Other intangible assets consist primarily of subscriber lists, which are being amortized using the straight-line method over 10 years. Revenue Recognition Service revenue includes local subscriber revenue. F-136 PANHANDLE CELLULAR PARTNERSHIP Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies The Partnership earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Partnership for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses - Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. Income Taxes The Consolidated Financial Statements prior to the adjustment of the value of the licenses made no provision for income taxes, as income or losses of the Partnership are to be included in the income tax returns of the individual partners. Such income or losses are proportionately allocated to the partners based upon their ownership interests. At December 31, 1998 and 1997, the Consolidated Balance Sheets include a net deferred tax liability as a result of the difference between the tax and book basis of the license as a result of the revaluation in connection with the acquisition of PWI on October 7, 1997. This difference is being deferred over a 40 year period and accordingly the Consolidated Statements of Operations reflect a tax credit for the years ended December 31, 1998 and 1997. 2) Partners' Equity In accordance with the Partnership agreement, the partners' proportionate share in cash distributions from current operations and net income or loss is calculated by dividing the partners' capital contribution by total partners' capital contributions. The allocation of gain or loss to the partners arising from the sale of property will be in the same proportion as their share of net income or net loss of the Partnership. 3) Related Party Transactions The Partnership has various agreements with its parent whereby the Partnership is charged or can charge other related entities various items. Among these are the following arrangements: F-137 PANHANDLE CELLULAR PARTNERSHIP Notes to Consolidated Financial Statements (Continued) 3) Related Party Transactions (Continued) Consulting agreement with its parent for the management of the day-to-day operations of the Partnership. The agreement provides for a monthly management fee based upon 5 percent of revenues. The agreement also provides for reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Partnership as out-of-pocket costs.. Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Partnership based on the parent's estimate of its time spent managing the Partnership. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Partnership enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the Consolidated Statements of Operations. 401(k) Matching Provision: The Partnership's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Partnership participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Partnership's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Management Fee $511 $403 $361 Operating Expenses 766 761 853 Switching Service 168 151 133 Billing Service 335 301 265 Roaming Revenue 332 189 125 Roaming Cost 132 93 41 401(k) Match 11 11 18 Interest income (Expense) 435 96 (67) F-138 PANHANDLE CELLULAR PARTNERSHIP Notes to Consolidated Financial Statements (Continued) 4) Commitments and Contingencies The Partnership is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Partnership is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Partnership's Consolidated Financial Statements. 5) Leases ($ in thousands) The Partnership, as lessee, has various noncancelable leases for certain cellular plant facilities, office facilities, and office equipment, all of which are classified as operating leases. One of these leases is with a related party. Rent expense under these noncancelable leases amounted to $142, $140 and $142 for the years ended December 31, 1998, 1997 and 1996, respectively, of which $14 in 1997 and 1996 were paid to a related party. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: Related Party Other ----- ----- Year ending December 31: 1999 $ 15 $ 71 2000 -- 36 2001 -- 29 2002 10 2003 5 ---- ---- $ 15 $151 ==== ==== F-139 REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS To the Partners of Savannah Cellular Limited Partnership: We have audited the accompanying consolidated balance sheets of Savannah Cellular Limited Partnership (A Delaware Limited Partnership) and subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Savannah Cellular Limited Partnership as of December 31, 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-140 INDEPENDENT AUDITORS' REPORT The Partners Savannah Cellular Limited Partnership: We have audited the accompanying consolidated statements of operations, partners' equity and cash flows for the year ended December 31, 1996 of Savannah Cellular Limited Partnership (a Delaware Limited Partnership). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Savannah Cellular Limited Partnership (a Delaware Limited Partnership) for the year ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP --------------------------------- KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997 F-141 SAVANNAH CELLULAR LIMITED PARTNERSHIP (A Delaware Limited Partnership) Consolidated Balance Sheets ($ in thousands)
December 31, 1998 1997 ---- ---- Assets Current Assets: Cash $ 14 $ 24 Trade accounts receivable, less allowance for doubtful accounts of $108 in 1998 and $265 in 1997 1,751 950 Inventory 368 91 Other current assets 30 35 ---------------------- Total current assets 2,163 1,100 ---------------------- Property and equipment: Land and land improvements 715 704 Buildings and leasehold improvements 975 812 Equipment and furnishings 278 240 Cellular equipment 10,457 10,265 ---------------------- 12,425 12,021 Less accumulated depreciation and amortization 2,469 1,036 ---------------------- Net property and equipment 9,956 10,985 ---------------------- Licenses and other intangibles, less accumulated amortization of $2,583 in 1998 and $536 in 1997 74,690 78,416 ---------------------- $ 86,809 $90,501 ====================== Liabilities and Partners' Equity Current liabilities: Accrued salaries and benefits $ 43 $ 135 Other accrued expenses 190 95 Deferred revenue 390 184 Customer deposits 64 59 ---------------------- Total current liabilities 687 473 Deferred income taxes 22,103 26,523 Advances from affiliates (3) 6,742 ---------------------- Total liabilities 22,787 33,738 Commitments and contingencies Partners' equity 64,022 56,763 ---------------------- $ 86,809 $90,501 ======================
See accompanying notes to consolidated financial statements. F-142 SAVANNAH CELLULAR LIMITED PARTNERHIP (A Delaware Limited Partnership) Consolidated Statements of Operations and Partners' Equity ($ in thousands)
Years Ended December 31, --------------------------------- 1998 1997 1996 ---- ---- ---- Revenue: Service revenue $17,987 $14,264 $13,309 Equipment sales and installation 1,145 611 501 --------------------------------- Total revenue 19,132 14,875 13,810 --------------------------------- Operating expenses: Engineering, technical and other direct 3,492 2,854 2,909 Cost of equipment 2,134 1,623 1,211 Sales and marketing 2,123 1,238 1,118 General and administrative 3,032 2,570 2,421 Depreciation and amortization 3,480 2,104 2,439 --------------------------------- Total operating expenses 14,261 10,389 10,098 --------------------------------- Operating income 4,871 4,486 3,712 Loss on sale of assets -- 10 -- Interest expense 368 746 1,009 --------------------------------- Income before taxes 4,503 3,730 2,703 Deferred tax benefit 667 167 -- --------------------------------- Net income $ 5,170 $ 3,897 $ 2,703 =================================
Consolidated Statements of Partners' Equity Balance at December 31, 1996 51,826 Net income 3,897 "Push-down" of Price Communications Wireless, Inc.'s acquisition price 1,040 ------- Balance at December 31, 1997 56,763 Adjustment for finalization of "push down" of Price Communications Wireless, Inc.'s acquisition price 2,089 Net income 5,170 ------- Balance at December 31, 1998 $64,022 =======
See accompanying notes to consolidated financial statements. F-143 SAVANNAH CELLULAR LIMITED PARTNERHSIP (A Delaware Limited Partnership) Consolidated Statements of Cash Flows ($ in thousands)
Years Ended December 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 5,170 $ 3,897 $ 2,703 ----------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,480 2,104 2,439 Deferred taxes (667) (167) -- (Increase) decrease in trade accounts receivable (801) (78) 1,429 (Increase) decrease in inventory (277) 161 (156) Decrease (increase) in other current assets 5 (9) (2) Increase (decrease) in accrued expenses 3 (145) (319) Increase in deferred revenue 207 19 109 Increase (decrease) in customer deposits 5 (4) (13) ----------------------------------- Total adjustments 1,955 1,881 3,487 ----------------------------------- Net cash provided by operating activities 7,125 5,778 6,190 Cash flows from investing activities: Purchases of property and equipment (390) (4,288) (2,516) Cash flows from financing activities: Decrease in advances to affiliates, net (6,745) (1,514) (3,630) ----------------------------------- Net (decrease) increase in cash (10) (24) 44 Cash at beginning of year 24 48 4 ----------------------------------- Cash at end of year $ 14 $ 24 $ 48 =================================== Supplemental disclosure of cash flow information - Cash paid during the year for interest $ 368 $ 747 $ 1,009 ===================================
See accompanying notes to consolidated financial statements F-144 SAVANNAH CELLULAR LIMITED PARTNERSHIP (A Delaware Limited Partnership) Notes to Consolidated Financial Statements For the Years Ended December 31, 1998, 1997, and 1996 1) Summary of Significant Accounting Policies Partnership Operations Savannah Cellular Limited Partnership (the "Partnership") was formed on June 21, 1987, to construct and operate certain non-wireline cellular telephone systems in Bryan, Chatham and Effingham counties, Georgia. On December 1, 1995, Palmer Wireless Holdings, Inc. ("Holdings"), a subsidiary of Palmer Wireless, Inc. ("PWI"), acquired Georgia Metronet, Inc., which owned 47.6226 percent of the Partnership directly through its 100 percent ownership of the Savannah General Partnership, the general partner of the Partnership. As such, Holdings purchased 97.8816 percent of the Partnership's general and limited partnership interests on December 1, 1995. On May 23, 1997, Price Communications Wireless , Inc. ("PCW") and PWI entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. The direct owner of the Partnership is Holdings which was formed in January, 1994. PCW is the 100% owner of Holdings. The Partnership is the 100% owner of Price Communications Wireless VIII, Inc., the license holder for the Savannah MSA. Basis of Presentation For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of PWI's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the partnership revalued its assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $79.0 million during 1998, the allocation was finalized resulting in an allocation to licenses of approximately $77.3 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting, which are being amortized over a period of 40 years. Prior to October 6, 1997, Holdings utilized "push down accounting." The accompanying financial statements do not include the assets and liabilities of the partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. F-145 SAVANNAH CELLULAR LIMITED PARTNERSHIP (A Delaware Limited Partnership) Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Property and Equipment The cost of additions and improvements are capitalized while maintenance and repairs are charged to expense when incurred. Property and equipment are stated at cost. Depreciation is provided principally using the straight-line method over the estimated useful lives ranging from 5 to 20 years. Acquisitions and Licenses The cost of acquired companies is allocated first to the identifiable assets, including licenses based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Licenses and goodwill are being amortized on a straight-line basis over a 40-year period. Subsequent to the acquisition of the license, the Partnership continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Partnership utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Revenue Recognition Service revenue includes local subscriber revenue and roamer revenue. The Partnership earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Partnership for usage of the cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. Operating Expenses -Engineering, Technical, and Other Direct Engineering, technical, and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include incollect roaming expense. Incollect roaming expense is the result of subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the incollect roaming expense to determine net incollect roaming expense. F-146 SAVANNAH CELLULAR LIMITED PARTNERSHIP (A Delaware Limited Partnership) Notes to Consolidated Financial Statements (Continued) 1) Summary of Significant Accounting Policies (Continued) Income Tax The Consolidated Financial Statements prior to the adjustment of the value of the licenses made no provision for income taxes, as income and losses of the Partnership are included in the income tax returns of the individual partners. At December 31, 1998 and 1997, the Consolidated Balance Sheets include a net deferred tax liability as a result of the difference between the tax and book basis of the license as a result of the revaluation in connection with the PWI acquisition on October 7, 1997. The difference is being deferred over a 40 year period and accordingly the Consolidated Statements of Operations reflect a tax benefit for the years ended December 31, 1998 and 1997. 2) Partners' Equity In accordance with the Partnership agreement, for financial and tax reporting purposes, the income or loss from operations of the Partnership will be allocated to the partners in accordance with their respective ownership of outstanding partnership units. However, to the extent any loss allocation exceeds a partner's financial or tax reporting capital account, the loss will be allocated among the remaining partners having the economic risk of loss. The burden of economic risk corresponds to liabilities in which a partner has the economic risk of loss. Net income will be allocated first to those partners that were previously allocated losses. The allocation of gain or loss to the partners arising from the sale of property will be in the same proportion as they share net income or note loss of the Partnership. 3) Related Party Transactions The Partnership has various agreements with its parent whereby the Partnership is charged or can charge other related entities various items. Among these are the following arrangements: Consulting agreement with its parent for the management of the day-to-day operations of the Company. The agreement provides for reimbursement of out-of-pocket costs. Certain property and equipment acquisitions and expenses related to the operations of the system have been allocated to the Partnership as out-of-pocket costs. Property and equipment acquisitions are allocated based on specific identification. Operating expenses are allocated to the Partnership based on the parent's estimate of its time spent managing the Partnership. Regionalized switching service: These monthly charges are based on minutes of use. Centralized billing service: The monthly charges are based on the number of bills printed. Reciprocal roaming revenue and cost: The Partnership enjoys favorable reciprocal roaming arrangements with its affiliates. The revenue is included in service revenue in the statements of operations. Cost of incollect roaming related to these arrangements, is included in engineering, technical and other direct operating expenses in the Consolidated Statements of Operations. F-147 SAVANNAH CELLULAR LIMITED PARTNERSHIP (A Delaware Limited Partnership) Notes to Consolidated Financial Statements (Continued) 3) Related Party Transactions (Continued) 401(k) Matching Provision: The Partnership's parent has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Partnership participates in this plan and was allocated 401(k) retirement and matching expense. Interest on advances: The balance of the advances from PWI and PCW and affiliates is a result of the allocation of property and equipment acquisitions, operating expenses and accrued interest thereon. The advances accrue interest at 2 percent above the prime rate. The Partnership's accounts payable and disbursement function are performed by its parent. Under this centralized system, all payments are made by the parent and all accounts payable are recorded by the parent. The following table indicates the amounts included in the accompanying statements of operations for the appropriate accounting periods ($ in thousands): For the Years Ended December 31, 1998 1997 1996 ------------------------------------- Operating Expenses $1,418 $1,347 $1,346 Switching Service 315 249 173 Billing Service 633 497 345 Roaming Revenue 1,145 795 567 Roaming Cost 1,239 749 339 401(k) Match 16 14 25 Interest 368 747 1,009 4) Commitments and Contingencies The Partnership is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. The Partnership is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Partnership's Consolidated Financial Statements. 5) Leases ($ in thousands) The Partnership, as lessee, has various noncancelable leases for certain cellular plant facilities, office facilities, and office equipment, all of which are classified as operating leases. Rent expenses under these noncancelable leases was $ 258, $227, and $267 for the years ended December 31, 1998, 1997, and 1996, respectively. At December 31, 1998, the approximate minimum rental commitments under noncancelable operating leases were as follows: F-148 SAVANNAH CELLULAR LIMITED PARTNERSHIP (A Delaware Limited Partnership) Notes to Consolidated Financial Statements (Continued) 5) Leases ($ in thousands) (Continued) Year ending December 31: 1999 $ 254 2000 206 2001 104 2002 29 2003 8 ----- $ 601 ===== F-149 CEI COMMUNICATIONS, INC. Balance Sheets ($ in thousands) Ended December 31,
1998 1997 -------------- Assets Investment in Macon Cellular Telephone Systems Limited Partnership $564 $573 ============== Commitments and contingencies Equity Common stock, $1.00 par value, 150,000 shares authorized, 500 shares issued and outstanding $ -- $ -- Retained earnings 564 573 -------------- $564 $573 ==============
See accompanying notes to financial statements. F-150 CEI COMMUNICATIONS, INC. Statements of Operations ($ in thousands) For the Years Ended December 31 (Unaudited),
1998 1997 1996 ------------------------ Partnership income from Macon Cellular Telephone Systems Limited Partnership $ 91 $ 70 $ 66 Retained earnings beginning of year 573 503 437 ------------------------ Retained earnings end of year $664 $573 $503 ========================
See accompanying notes to financial statements. F-151 CEI COMMUNICATIONS, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31 (Unaudited), 1998 1997 1996 -------------------------- Net income $ 91 $ 70 $ 66 Increase in investment account ($91) ($70) ($66) -------------------------- Increase in cash $ 0 $ 0 $ 0 ========================== See accompanying notes to financial statements. F-152 CEI COMMUNICATIONS, INC. Notes to Unaudited Financial Statements Years Ended December 31, 1998, 1997 and 1996 (Unaudited), 1) Summary of Significant Accounting Policies CEI Communications, Inc. (the "Company") has a 1.06% partnership interest in Macon Cellular Telephone Systems Limited Partnership. The Company is owned 100% by Palmer Wireless Holdings, Inc. 2) Commitments and Contingencies The Company is listed as a guarantor for Price Communications Wireless, Inc.'s $525.0 million 9 1/8 % Senior Secured Notes due 2006. Price Communications Wireless, Inc. ("PCW") is the parent of Palmer Wireless Holdings, Inc. All of PCW's direct and indirect subsidiaries are also listed as guarantors. F-153 PANAMA CITY COMMUNICATIONS INC. Balance Sheets ($ in thousands) (Unaudited) December 31, 1998 1997 1996 ---- ---- ---- Assets Investment in Panama City Cellular Telephone Co. Inc. $111 $79 $54 ====================== Equity Common stock, no par value: 100 shares authorized, issued and outstanding $ -- $-- $-- Retained earnings 111 79 54 ---------------------- $111 $79 $54 ====================== F-154 PANAMA CITY COMMUNICATIONS INC. Statements of Operations ($ in thousands) (Unaudited) Years Ended December 31, ---------------------- 1998 1997 1996 ---- ---- ---- Partnership income from Panama City Cellular Telephone Co. Ltd. $ 32 $25 $17 Retained earnings beginning of year 79 54 37 ---------------------- Retained earnings end of period $111 $79 $54 ====================== F-155 PANAMA CITY COMMUNICATIONS INC. Statements of Cash Flows ($ in thousands) Years Ended December 31 (Unaudited), -------------------------- 1998 1997 1996 ---- ---- ---- Net income $ 32 $ 25 $ 17 Increase in investment account account (32) (25) (17) -------------------------- Increase in cash $ 0 $ 0 $ 0 ========================== F-156 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Price Communications Wireless II, Inc.: We have audited the accompanying balance sheets of Price Communications Wireless II, Inc. (a Delaware corporation) as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Price Communications Wireless II, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-157 PRICE COMMUNICATIONS WIRELESS II, INC. Balance Sheets ($ in thousands except share data) December 31, 1998 and 1997
1998 1997 ---- ---- Assets Cellular license, net of accumulated amortization of $10,533 in 1998 and $2,060 in 1997 $ 312,733 $ 327,601 ========================= Liabilities and Stockholder's Equity Deferred taxes $ 95,724 $ 110,745 Commitments and contingencies -- -- Stockholder's Equity Common stock, par value $.01 per share; authorized, issued and outstanding 1,000 shares -- -- Paid-in capital 224,058 218,219 (Accumulated Deficit) (7,049) (1,363) ------------------------- Total stockholder's equity 217,009 216,856 ------------------------- Total liabilities and stockholder's equity $ 312,733 $ 327,601 =========================
See accompanying notes to financial statements. F-158 PRICE COMMUNICATIONS WIRELESS II, INC. Statements of Operations ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Amortization of cellular license $ 8,473 $ 2,060 Deferred tax benefit 2,787 697 ------------------------- Net (loss) $(5,686) ($1,363) ========================= See accompanying notes to financial statements. F-159 PRICE COMMUNICATIONS WIRELESS II, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Net (loss) $ (5,686) ($1,363) Amortization of cellular license 8,473 2,060 Decrease in deferred tax liability (2,787) (697) -------------------------- Net change in cash $ 0 $ 0 ========================== See accompanying notes to financial statements. F-160 PRICE COMMUNICATIONS WIRELESS II, INC. Notes to Financial Statements For the Years Ended December 31, 1998 and 1997 1) Summary of Significant Accounting Policies Corporation Operations Price Communications Wireless II, Inc. ("Wireless II") (the "Company") was incorporated in the state of Delaware on October 7, 1997. The Company is 100% owned by its parent Palmer Wireless Holdings Inc. which in turn is 100% owned by its parent Price Communications Wireless Inc. ("PCW"), the Registrant. The Company owns the non-wireline licenses of the AL-5 RSA, AL-8 RSA, GA-7 RSA, GA-8 RSA, GA-9 RSA, GA-10 RSA, GA-12 RSA, Augusta Georgia MSA and the interim operating authority for SC-7 RSA. Financial Statement Basis On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of Palmer's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the various operating entities revalued their assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $330.0 million. During 1998, the preliminary aloocation was finalized resulting in an allocation of approximately $323.3 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. Palmer Wireless Holdings Inc. is 100% owned by PCW and accordingly the value of the license allocated to it was contributed to Wireless II. Licenses Subsequent to the initial license valuation, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Deferred Tax Liability For financial statement purposes, the Company, recognizes deferred taxes as it relates to the difference between financial statement and income tax basis of the licenses. Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. F-161 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Price Communications Wireless III, Inc.: We have audited the accompanying balance sheets of Price Communications Wireless III (a Delaware corporation) as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Price Communications Wireless III, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-162 PRICE COMMUNICATIONS WIRELESS III, INC. Balance Sheets ($ in thousands except share data) December 31, 1998 and 1997
1998 1997 ---- ---- Assets Cellular license, net of accumulated amortization of $1,576 in 1998 and $315 in 1997 $ 47,368 $ 50,124 ======================= Liabilities and Stockholder's Equity Deferred taxes $ 17,526 $ 16,944 Commitments and contingencies -- -- Stockholder's Equity Common stock, par value $.01 per share; authorized, issued and outstanding 1,000 shares -- -- Paid-in capital 30,884 33,388 (Accumulated Deficit) (1,042) (208) ------------------------ Total stockholder's equity 29,842 33,180 ------------------------ Total liabilities and stockholder's equity $ 47,368 $ 50,124 =======================
See accompanying notes to financial statements. F-163 PRICE COMMUNICATIONS WIRELESS III, INC. Statements of Operations ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Amortization of cellular license $ 1,261 $ 315 Tax credit 427 107 ----------------------- Net (loss) ($834) ($208) ======================= See accompanying notes to financial statements. F-164 PRICE COMMUNICATIONS WIRELESS III, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Net (loss) ($834) ($208) Amortization of cellular license 1,261 315 Decrease in deferred tax liability (427) (107) ----------------------- Net change in cash $ 0 $ 0 ======================= See accompanying notes to financial statements. F-165 PRICE COMMUNICATIONS WIRELESS III, INC. Notes to Financial Statements For the Years Ended December 31, 1998 and 1997 1) Summary of Significant Accounting Policies Corporation Operations Price Communications Wireless III, Inc. ("Wireless III") (the "Company") was incorporated in the state of Delaware on October 7, 1997. The Company is 100% owned by its parent Dothan Cellular Telephone Co. Inc. ("Dothan") whose financial statements are included elsewhere in this document. Dothan in turn is 100% owned by Cellular Systems of Southeast Alabama, Inc. ("Cellular Systems"). Palmer Wireless Holdings, Inc.("Holdings") has a 94.6% ownership interest in Cellular Systems. Holdings is 100% owned by Price Communications Wireless, Inc. ("PCW"). The Company owns the non-wireline license of Dothan (Dothan MSA), the operating entity. Financial Statement Basis On May 23, 1997, PCW, and Palmer Wireless, Inc. ("PWI") entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997, the merger was completed and PWI changed its name to PCW. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of Palmer's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the various operating entities revalued their assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $50.4 million. During 1998, the preliminary allocation was finalized resulting in an allocation $48.9 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. Palmer Wireless Holdings Inc. contributed the value of the license allocated to it by PCW to Wireless III. During the year ended December 31, 1998 the allocation was finalized and accordingly the value of the license along with the amount of deferred taxes associated with the license was adjusted. Licenses Subsequent to the initial license valuation, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Deferred Income Taxes For financial statement purposes, the Company recognizes a deferred tax liability as it relates to the difference between the financial statement and income tax basis of the licenses. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses. Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. F-166 REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS To the Shareholders of Price Communications Wireless IV, Inc.: We have audited the accompanying balance sheets of Price Communications Wireless IV (a Delaware corporation) as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Price Communications Wireless IV as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-167 PRICE COMMUNICATIONS WIRELESS IV, INC. Balance Sheets ($ in thousands except share data) December 31, 1998 and 1997
1998 1997 ---- ---- Assets Cellular license, net of accumulated amortization of $3,544 in 1998 and $709 in 1997 $ 107,449 $ 112,666 ========================= Liabilities and Stockholder's Equity Deferred taxes $ 39,756 $ 38,086 Commitments and contingencies -- -- Stockholder's Equity Common stock, par value $.01 per share; authorized, issued and outstanding 1,000 shares -- -- Paid-in capital 70,038 75,049 (Accumulated Deficit) (2,345) (469) ------------------------- Total stockholder's equity 67,693 74,580 ------------------------- Total liabilities and stockholder's equity $ 107,449 $ 112,666 =========================
See accompanying notes to financial statements. F-168 PRICE COMMUNICATIONS WIRELESS IV, INC. Statements of Operations ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Amortization of cellular license $ 2,835 $ 709 Tax credit 959 240 ------------------------ Net (loss) ($ 1,876) ($469) ======================== See accompanying notes to financial statements. F-169 PRICE COMMUNICATIONS WIRELESS IV, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Net (loss) ($ 1,876) ($469) Amortization of cellular license 2,835 709 Decrease in deferred tax liability (959) (240) ------------------------ Net change in cash $ 0 $ 0 ======================== See accompanying notes to financial statements. F-170 PRICE COMMUNICATIONS WIRELESS IV, INC. Notes to Financial Statements For the Years Ended December 31, 1998 and 1997 1) Summary of Significant Accounting Policies Corporation Operations Price Communications Wireless IV, Inc. ("Wireless IV") (the "Company") was incorporated in the state of Delaware on October 7, 1997. The Company is 100% owned by its parent Montgomery Cellular Telephone Co. Inc. ("Montgomery"). Montgomery in turn is 100% owned by its parent, Montgomery Cellular Holding Co. Inc. ("Montgomery Holdings"), the operating entity. Palmer Wireless Holdings, Inc. has a 92.8% ownership interest in Montgomery Holdings. Palmer Wireless Holdings, Inc. is 100% owned by Price Communications Wireless, Inc.,("PCW"). The Company owns the non-wireline license of Montgomery Holdings (Montgomery MSA). Financial Statement Basis On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997, the merger was completed and PWI changed its name to PCW. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of Palmer's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the various operating entities revalued their assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $113.4 million. During 1998, the preliminary allocation was finalized resulting in an allocation of approximately $111.0 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. Palmer Wireless Holdings Inc. contributed the value of the license allocated to it by PCW to Wireless IV. During the year ended December 31, 1998 the allocation was finalized and accordingly the value of the license along with the amount of deferred taxes associated with the license was adjusted. Licenses Subsequent to the initial license valuation, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not br recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Deferred Income Taxes For financial statement purposes, the Company recognizes a deferred tax liability as it relates to the difference between the financial statement and income tax basis of the licenses. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses. Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. F-171 REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS To the Shareholders of Price Communications V, Inc.: We have audited the accompanying balance sheets of Price Communications Wireless V, Inc. (a Delaware corporation) as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Price Communications Wireless V as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-172 PRICE COMMUNICATIONS WIRELESS V, INC. Balance Sheets ($ in thousands except share data) December 31, 1998 and 1997
1998 1997 ---- ---- Assets Cellular license, net of accumulated amortization of $2,444 in 1998 and $489 in 1997 $ 74,209 $ 77,813 ======================= Liabilities and Stockholder's Equity Deferred taxes $ 11,759 $ 26,305 Stockholder's Equity Common stock, par value $.01 per share; authorized, issued and outstanding 1,000 shares Paid-in capital 64,069 51,832 (Accumulated Deficit) (1,619) (324) ------------------------ Total stockholder's equity 62,450 51,508 ------------------------ Total liabilities and stockholder's equity $ 74,209 $ 77,813 =======================
See accompanying notes to financial statements. F-173 PRICE COMMUNICATIONS WIRELESS V, INC. Statements of Operations ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Amortization of cellular license $ 1,955 $ 489 Tax credit 662 165 ----------------------- Net (loss) ($1,293) ($324) ======================= See accompanying notes to financial statements. F-174 PRICE COMMUNICATIONS WIRELESS V, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Net (loss) ($1,293) ($324) Amortization of cellular license 1,955 489 Decrease in deferred tax liability (662) (165) ----------------------- Net change in cash $ 0 $ 0 ======================= See accompanying notes to financial statements. F-175 PRICE COMMUNICATIONS WIRELESS V, INC. Notes to Financial Statements For the Years Ended December 31, 1998 and 1997 1) Summary of Significant Accounting Policies Corporation Operations Price Communications Wireless V, Inc. ("Wireless V") (the "Company") was incorporated in the state of Delaware on October 7, 1997. The Company is 100% owned by its parent Cellular Dynamics Telephone Company of Georgia ("Cellular Dynamics"). Cellular Dynamics in turn is 100% owned by its parent Albany Cellular Partners ("Albany"), the operating entity. Palmer Wireless Holdings, Inc.("Holdings"), has an 86.5% ownership interest in Albany. Holdings is 100% owned by Price Communications Wireless, Inc.("PCW"). The Company owns the non-wireline license of Albany (Albany MSA and GA-13 RSA). Financial Statement Basis On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997 the merger was completed and PWI changed its name to PCW. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of Palmer's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the various operating entities revalued their assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $78.3 million. During 1998, the preliminary allocation was finalized resulting in an allocation of approximately $76.7 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. Palmer Wireless Holdings Inc. contributed the value of the license allocated to it by PCW to Wireless V. During the year ended December 31, 1998 the allocation was finalized and accordingly the value of the license along with the amount of deferred taxes associated with the license was adjusted. Licenses Subsequent to the initial license valuation, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Deferred Income Taxes For financial statement purposes, the Company recognizes a deferred tax liability as it relates to the difference between the financial statement and income tax basis of the licenses. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses. Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 91/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. F-176 REPORT OF INDEPENDENT REPORT OF ACCOUNTANTS To the Shareholders of Price Communications Wireless VI, Inc.: We have audited the accompanying balance sheets of Price Communications Wireless VI, Inc. (a Delaware corporation) as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Price Communications Wireless VI as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-177 PRICE COMMUNICATIONS WIRELESS VI, INC. Balance Sheets ($ in thousands except share data) December 31, 1998 and 1997
1998 1997 ---- ---- Assets Cellular license, net of accumulated amortization of $2,860 in 1998 and $572 in 1997 $ 86,841 $ 90,933 ======================= Liabilities and Stockholder's Equity Deferred taxes $ 28,506 $ 30,740 Stockholder's Equity Common stock, par value $.01 per share; authorized, issued and outstanding 1,000 shares Paid-in capital 60,229 60,372 (Accumulated Deficit) (1,894) (379) ----------------------- Total stockholder's equity 58,335 60,193 ----------------------- Total liabilities and stockholder's equity $ 86,841 $ 90,933 =======================
See accompanying notes to financial statements. F-178 PRICE COMMUNICATIONS WIRELESS VI, INC. Statements of Operations ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Amortization of cellular license $ 2,288 $ 572 Tax credit 773 193 ------------------------ Net (loss) ($1,515) ($379) ======================== See accompanying notes to financial statements. F-179 PRICE COMMUNICATIONS WIRELESS VI, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Net (loss) ($1,515) ($379) Amortization of cellular license 2,288 572 Decrease in deferred tax liability (773) (193) ------------------------ Net change in cash $ 0 $ 0 ======================= See accompanying notes to financial statements. F-180 PRICE COMMUNICATIONS WIRELESS VI, INC. Notes to Financial Statements For the Years Ended December 31, 1998 and 1997 1) Summary of Significant Accounting Policies Corporation Operations Price Communications Wireless VI, Inc. ("Wireless VI") (the "Company") was incorporated in the state of Delaware on October 7, 1997. The Company is 100% owned by its parent Columbus Cellular Telephone Company ("Columbus Cellular"). Palmer Wireless Holdings, Inc.("Holdings") has an 85.2% ownership interest in Columbus Cellular Holdings and is 100% owned by Price Communications Wireless, Inc. ("PCW"). The Company owns the non-wireline licenses of Columbus Cellular (Columbus MSA and the GA-6 A2 RSA. Financial Statement Basis On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997, the merger was completed and PWI changed its name to PCW. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of Palmer's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the various operating entities revalued their assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $91.5 million. During 1998, the preliminary allocation was finalized resulting in an allocation of approximately $89.7 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. Palmer Wireless Holdings Inc. contributed the value of the license allocated to it by PCW to Wireless VI. During the year ended December 31, 1998 the allocation was finalized and accordingly the value of the license along with the amount of deferred taxes associated with the license was adjusted. Licenses Subsequent to the initial license valuation, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Deferred Income Taxes For financial statement purposes, the Company recognizes a deferred tax liability as it relates to the difference between the financial statement and income tax basis of the licenses. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses. Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. F-181 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Price Communications Wireless VII, Inc.: We have audited the accompanying balance sheets of Price Communications Wireless VII (a Delaware corporation) as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Price Communications Wireless VII, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-182 PRICE COMMUNICATIONS WIRELESS VII, INC. Balance Sheets ($ in thousands except share data) December 31, 1998 and 1997
1998 1997 ---- ---- Assets Cellular license, net of accumulated amortization of $4,334 in 1998 and $867 in 1997 $ 131,577 $ 137,788 ========================= Liabilities and Stockholder's Equity Deferred taxes $ 40,888 $ 46,579 Stockholder's Equity Common stock, par value $.01 per share; authorized, issued and outstanding 1,000 shares Paid-in capital 93,558 91,783 (Accumulated Deficit) (2,869) (574) ------------------------- Total stockholder's equity 90,689 91,209 ------------------------- Total liabilities and stockholder's equity $ 131,577 $ 137,788 =========================
See accompanying notes to financial statements. F-183 PRICE COMMUNICATIONS WIRELESS VII, INC. Statements of Operations ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Amortization of cellular license $ 3,467 $ 867 Tax credit 1,172 293 ------------------------ Net (loss) ($2,295) ($574) ======================== See accompanying notes to financial statements. F-184 PRICE COMMUNICATIONS WIRELESS VII, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Net (loss) ($2,295) ($574) Amortization of cellular license 3,467 867 Decrease in deferred tax liability (1,172) (293) ------------------------ Net change in cash $ 0 $ 0 ======================== See accompanying notes to financial statements. F-185 PRICE COMMUNICATIONS WIRELESS VII, INC. Notes to Financial Statements For the Years Ended December 31, 1998 and 1997 1) Summary of Significant Accounting Policies Corporation Operations Price Communications Wireless VII, Inc. ("Wireless VII") (the "Company") was incorporated in the state of Delaware on October 7, 1997. The Company is 100% owned by its parent Macon Cellular Telephone Systems Limited Partnership ("Macon"). C.E.I. Communications Inc. ("CEI") is the general partner of Macon and holds a 1.06% ownership interest in Macon. Palmer Wireless Holdings, Inc.("Holdings") is the 100% owner of CEI and has a 99.2% ownership interest in Macon when combined with its ownership of CEI. Holdings is 100% owned by Price Communications Wireless, Inc. ("PCW"). The Company owns the non-wireline licenses of Macon (Macon MSA and the GA-6 A1 RSA. Financial Statement Basis On May 23, 1997, PCW, and Palmer Wireless, Inc. ("PWI") entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997, the merger was completed and PWI changed its name to PCW. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of Palmer's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the various operating entities revalued their assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $138.7 million. During 1998, the preliminary allocation was finalized resulting in an allocation of approximately $135.9 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. Palmer Wireless Holdings Inc. contributed the value of the license allocated to it by PCW to Wireless VII. During the year ended December 31, 1998 the allocation was finalized and accordingly the value of the license along with the amount of deferred taxes associated with the license was adjusted. Licenses Subsequent to the initial license valuation, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Deferred Income Taxes For financial statement purposes, the Company recognizes a deferred tax liability as it relates to the difference between the financial statement and income tax basis of the licenses. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses. Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. F-186 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Price Communications Wireless VIII, Inc.: We have audited the accompanying balance sheet of Price Communications Wireless VIII, Inc. (a Delaware corporation) as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Price Communications Wireless VIII, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended n conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-187 PRICE COMMUNICATIONS WIRELESS VIII, INC. Balance Sheets ($ in thousands except share data) December 31, 1998 and 1997
1998 1997 ---- ---- Assets Cellular license, net of accumulated amortization of $2,583 in 1998 and $493 in 1997 $ 74,690 $ 78,459 ======================= Liabilities and Stockholder's Equity Deferred taxes $ 22,103 $ 26,523 Stockholder's Equity Common stock, par value $.01 per share; authorized, issued and outstanding 1,000 shares Paid-in capital 54,336 52,262 (Accumulated Deficit) (1,749) (326) ----------------------- Total stockholder's equity 52,587 51,936 ----------------------- Total liabilities and stockholder's equity $ 74,690 $ 78,459 =======================
See accompanying notes to financial statements. F-188 PRICE COMMUNICATIONS WIRELESS VIII, INC. Statements of Operations ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Amortization of cellular license $ 2,090 $ 493 Tax credit 667 167 ------------------------ Net (loss) ($ 1,423) ($326) ======================== See accompanying notes to financial statements. F-189 PRICE COMMUNICATIONS WIRELESS VIII, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Net (loss) ($ 1,423) ($326) Amortization of cellular license 2,090 493 Decrease in deferred tax liability (667) (167) ------------------------ Net change in cash $ 0 $ 0 ======================== See accompanying notes to financial statements. F-190 PRICE COMMUNICATIONS WIRELESS VIII, INC. Notes to Financial Statements For the Years Ended December 31, 1998 and 1997 1) Summary of Significant Accounting Policies Corporation Operations Price Communications Wireless VIII, Inc. ("Wireless VIII") (the "Company") was incorporated in the state of Delaware on October 7, 1997. The Company is 100% owned by its parent Savannah Cellular Limited Partnership ("Savannah"). Palmer Wireless Holdings, Inc.("Holdings") has a 98.5% ownership interest in Savannah. Holdings is 100% owned by Price Communications Wireless, Inc. ("PCW"). The Company owns the non-wireline license of Savannah (Savannah MSA). Financial Statement Basis On May 23, 1997, PCW and Palmer Wireless, Inc. ("PWI") entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997, the merger was completed and PWI changed its name to PCW. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of Palmer's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the various operating entities revalued their assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of 79.0 million. During 1998, the preliminary allocation was finalized resulting in an allocation of approximately $77.3 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. Palmer Wireless Holdings Inc. contributed the value of the license allocated to it by PCW to Wireless VIII. During the year ended December 31, 1998 the allocation was finalized and accordingly the value of the license along with the amount of deferred taxes associated with the license was adjusted. Licenses Subsequent to the initial license valuation, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Deferred Income Taxes For financial statement purposes, the Company recognizes a deferred tax liability as it relates to the difference between the financial statement and income tax basis of the licenses. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses. Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. F-191 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Price Communications Wireless IX, Inc.: We have audited the accompanying balance sheets of Price Communications Wireless IX, Inc. (a Delaware corporation) as of December 31, 1998 and 1997 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of Price Communications Wireless IX as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 10, 1999 F-192 PRICE COMMUNICATIONS WIRELESS IX, INC. Balance Sheets ($ in thousands except share data) December 31, 1998 and 1997
1998 1997 ---- ---- Assets Cellular license, net of accumulated amortization of $1,381 in 1998 and $277 in 1997 $ 41,929 $ 43,965 ======================= Liabilities and Stockholder's Equity Deferred taxes $ 13,170 $ 14,863 Stockholder's Equity Common stock, par value $.01 per share; authorized, issued and outstanding 1,000 shares Paid-in capital 29,674 29,286 (Accumulated deficit) (915) (184) ----------------------- Total stockholder's equity 28,759 29,102 ----------------------- Total liabilities and stockholder's equity $ 41,929 $ 43,965 =======================
See accompanying notes to financial statements. F-193 PRICE COMMUNICATIONS WIRELESS IX, INC. Statements of Operations ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Amortization of cellular license $ 1,104 $ 277 Tax benefit 373 93 ------------------------ Net (loss) ($731) ($184) ======================== See accompanying notes to financial statements. F-194 PRICE COMMUNICATIONS WIRELESS IX, INC. Statements of Cash Flows ($ in thousands) For the Years Ended December 31, 1998 and 1997 1998 1997 ---- ---- Net (loss) ($731) ($184) Amortization of cellular license 1,104 277 Decrease in deferred tax liability (373) (93) ------------------------ Net change in cash $ 0 $ 0 ======================== See accompanying notes to financial statements. F-195 PRICE COMMUNICATIONS WIRELESS IX, INC. Notes to Financial Statements For the Years Ended December 31, 1998 and 1997 1) Summary of Significant Accounting Policies Corporation Operations Price Communications Wireless IX, Inc. ("Wireless IX") ("Company") was incorporated in the state of Delaware on October 7, 1997. The Company is 100% owned by its parent Panama Cellular Telephone Company, Ltd. ("Panama City"), the operating entity. Panama City in turn is owned by Panhandle Cellular Partnership ("PCP") and by Panama City Communications, Inc. ("PCCI"), which owns .99% of Panama City and which is 100% owned by Palmer Wireless Holdings, Inc.("Holdings"). Through its ownership of PCP and PCCI, Palmer Wireless Holdings, Inc. has a 78.4% ownership interest in Panama City. Holdings is 100% owned by Price Communications Wireless, Inc. ("PCW"). The Company owns the non-wireline license of Panama City(Panama City MSA). Financial Statement Basis On May 23, 1997, Price Communications Wireless, Inc. ("PCW"), the parent of Palmer Wireless Holdings, Inc. and Palmer Wireless, Inc. ("PWI") entered into a plan of merger whereby PCW merged into PWI with PWI as the surviving corporation. On October 6, 1997, the merger was completed and PWI changed its name to PCW. For financial reporting purposes, PCW revalued its assets and liabilities as of October 6, 1997 to reflect the price paid by Price Communications Corporation to acquire 100% of Palmer's common stock, a process generally referred to as "push down accounting". On October 6, 1997, PCW allocated the purchase price to each of the markets purchased and the various operating entities revalued their assets and liabilities to reflect this allocation. The preliminary allocation of the purchase price resulted in licenses of approximately $44.2 million. During 1998, the preliminary allocation was finalized resulting in an allocation of approximately $43.3 million to licenses, with an adjustment also made to deferred tax liability and paid in capital to finalize "push down" accounting. Palmer Wireless Holdings Inc. contributed the value of the license allocated to it by PCW to Wireless IX. During the year ended December 31, 1998 the allocation was finalized and accordingly the value of the license along with the amount of deferred taxes associated with the license was adjusted. Licenses Subsequent to the initial license valuation, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the license or licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company utilizes projected undiscounted cash flows over the remaining life of the license or licenses and sales of comparable businesses to evaluate the recorded value of these licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. Deferred Income Taxes For financial statement purposes, the Company recognizes a deferred tax liability as it relates to the difference between the financial statement and income tax basis of the licenses. The Company recognizes a deferred tax benefit for the turnaround in the deferred tax liability attributable to the additional amortization of the licenses. Commitments and Contingencies The Company is listed as a guarantor for PCW's $525.0 million 9 1/8% Senior Secured Notes due 2006. All of PCW's direct or indirect subsidiaries are also listed as guarantors. F-196 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS, INC. By: /S/ ROBERT PRICE ------------------------------------------- Robert Price Director, President and Treasurer By: /S/ KIM I. PRESSMAN ------------------------------------------- Kim I. Pressman Vice President and Chief Financial Officer By: /S/ MICHAEL WASSERMAN ------------------------------------------- Michael Wasserman Vice President and Chief Accounting Officer Dated: February 26, 1999 F-197 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, and By: /s/ ROBERT PRICE Treasurer (Principal March 31, 1999 - ----------------------------- Executive Officer) Robert Price By: /s/ KIM I. PRESSMAN Chief Financial Officer March 31, 1999 - ----------------------------- Kim I. Pressman By: /s/ MICHAEL WASSERMAN Chief Accounting Officer March 31, 1999 - ----------------------------- Michael Wasserman F-198 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PANAMA CITY COMMUNICATIONS, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-199 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PANAMA CITY CELLULAR TELEPHONE COMPANY LTD. By: Panama City Communications, Inc. its managing partner By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-200 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PANHANDLE CELLULAR PARTNERSHIP By: Palmer Wireless Holdings, Inc. its managing partner By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-201 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. SAVANNAH CELLULAR LIMITED PARTNERSHIP By: Palmer Wireless Holdings, Inc. its managing partner By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-202 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. CEI COMMUNICATIONS, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-203 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. MACON CELLULAR TELEPHONE SYSTEMS, L.P. By: CEI Communications, Inc. its managing partner By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-204 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. COLUMBUS CELLULAR TELEPHONE COMPANY By: Palmer Wireless Holdings, Inc. its managing partner By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-205 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Partnership has duly caused this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. ALBANY CELLULAR PARTNERS By: Palmer Wireless Holdings, Inc. its managing partner By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Partnership's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-206 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. CELLULAR DYNAMICS TELEPHONE COMPANY OF GEORGIA By: Palmer Wireless Holdings, Inc. its managing partner By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-207 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. MONTGOMERY CELLULAR HOLDING CO., INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-208 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. MONTGOMERY CELLULAR TELEPHONE COMPANY, INC. /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-209 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. CELLULAR SYSTEMS OF SOUTHEAST ALABAMA, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-210 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. DOTHAN CELLULAR TELEPHONE COMPANY, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-211 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PALMER WIRELESS HOLDINGS, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-212 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS II, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-213 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS III, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-214 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS IV, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-215 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS V, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-216 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS VI, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-217 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS VII, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-218 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS VIII, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-219 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE COMMUNICATIONS WIRELESS IX, INC. By: /s/ ROBERT PRICE ---------------------------------------------- Robert Price Director, President, Chief Executive Officer, Assistant Secretary and Treasurer Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Company's Statement on this Form 10K/A to be signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Director, President, Chief Executive Officer, /s/ ROBERT PRICE Assistant Secretary and March 31, 1999 - ----------------------------- Treasurer (Principal Robert Price Financial Officer and Principal Executive Officer) /s/ KIM I. PRESSMAN Vice-President, Secretary and March 31, 1999 - ----------------------------- Assistant Treasurer Kim I. Pressman (Accounting Officer) F-220 EXHIBIT INDEX Exhibit No. Description 2.1 The Merger Agreement, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 3.1 Certificate of Incorporation of PCW, as amended, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 3.2 By-laws of PCW, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 4.1 Indenture to 11 3/4% Senior Subordinated Notes due 2007 between PCW and Bank of Montreal Trust Company, as Trustee (including form of Senior Subordinated Note), incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 10.1 Credit Agreement dated as of September 30, 1997 among Holdings, PCW, the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent and Bank of Montreal, Chicago branch, as administrative agent, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 10.2 Fort Myers Sale Agreement, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 10.3 Georgia Sale Agreement, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 10.4 Ryan Agreement, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 10.5 Wisehart Agreement, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) 10.6 Meehan Agreement, incorporated by reference to Registration Statement on Form S-4 of the Company (File No. 333-36253) EX-27 2 FDS
5 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 109,137 0 20,508 0 3,940 216,634 169,148 24,320 1,263,734 43,668 700,000 0 0 0 (12,031) 1,263,734 12,677 197,329 23,710 152,303 (19) 0 77,510 (34,681) 12,831 (21,850) 0 (25,344) 0 (47,194) 0 0
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