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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 333-36253
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PRICE COMMUNICATIONS WIRELESS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 13-3956941
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 Rockefeller Plaza, 10020
New York, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number (212) 757-5600
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Securities registered pursuant to Section 12(b) or Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the issuer's common stock as of July 25,
1999 was 100.
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<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets- June 30, 1999 and
December 31, 1998........................................... I-1
Condensed Consolidated Statements of Operations - Three
months ended June 30, 1999 and 1998 and six months
ended June 30, 1999 and 1998................................ I-2
Condensed Consolidated Statements of Cash Flows - Six
months ended June 30, 1999 and 1998......................... I-3
Notes to Condensed Consolidated Financial Statements............... I-4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... I-6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... II-1
ITEM 2. Changes in Securities........................................... II-1
ITEM 3. Defaults Upon Senior Securities-None............................ II-1
ITEM 4. Submission of Matters to a Vote of Security Holders............. II-1
ITEM 5. Other Information............................................... II-1
ITEM 6. Exhibits and Reports on Form 8-K................................ II-1
SIGNATURES................................................................. II-2
<PAGE>
Item 1. Financial Statements
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited) (Audited)
June 30, December 31,
1999 1998
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 117,299 $ 109,137
Restricted cash -- 79,081
Trade accounts receivable, net of
allowance for doubtful accounts 24,076 20,508
Receivable from other cellular carriers 3,067 2,282
Prepaid expenses and deposits 565 303
Inventory 2,799 3,940
Deferred income taxes 572 1,383
----------- -----------
Total current assets 148,378 216,634
Net property and equipment 145,267 144,828
Licenses, net of amortization 869,511 876,952
Other intangible assets and other assets,
at cost less accumulated amortization 19,026 25,320
----------- -----------
$ 1,182,182 $ 1,263,734
=========== ===========
Liabilities and Equity (Deficit)
Current liabilities:
Payable to Price Communications Corporation $ 928 $ 1,151
Accounts payable and accrued expenses 22,885 21,616
Accrued interest payable 11,617 11,779
Accrued salaries and employee benefits 2,499 2,656
Deferred revenue 6,355 5,535
Customer deposits 1,253 921
----------- -----------
Total current liabilities 45,537 43,658
Long-term debt 700,000 700,000
Obligation of Parent Company -- 209,432
Accrued income taxes - long term 23,426 22,775
Deferred income taxes 291,315 290,370
Minority interests 6,939 9,530
----------- -----------
Total liabilities 1,067,217 1,275,765
----------- -----------
Commitments and contingencies -- --
Stockholder's equity (deficit) 114,965 (12,031)
----------- -----------
$ 1,182,182 $ 1,263,734
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
---------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Service $ 59,839 $ 45,737 $ 112,660 $ 86,421
Equipment sales and installation 4,770 3,181 8,540 5,772
--------- --------- --------- ---------
Total revenue 64,609 48,918 121,200 92,193
--------- --------- --------- ---------
Operating expenses:
Engineering, technical and other direct 8,076 6,655 16,389 13,022
Cost of equipment 7,601 6,019 14,441 11,515
Selling, general and administrative 15,288 14,044 28,671 26,145
Depreciation and amortization 10,667 11,165 21,387 22,553
--------- --------- --------- ---------
Total operating expenses 41,632 37,883 80,888 73,235
--------- --------- --------- ---------
Operating income 22,977 11,035 40,312 18,958
--------- --------- --------- ---------
Other income (expense):
Interest expense, net (21,316) (18,082) (42,472) (35,907)
Other income (expense), net 47 (6) 100 (43)
--------- --------- --------- ---------
Total other expense (21,269) (18,088) (42,372) (35,950)
--------- --------- --------- ---------
Income (loss) before minority interest
share of income, income taxes
and extraordinary item 1,708 (7,053) (2,060) (16,992)
Minority interest share of income (370) (542) (987) (1,002)
--------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item 1,338 (7,595) (3,047) (17,994)
Income tax (expense) benefit (535) 2,687 1,087 6,515
--------- --------- --------- ---------
Income (loss) before extraordinary item 803 (4,908) (1,960) (11,479)
Extraordinary item - write-off of deferred finance costs,
net of income tax benefit of $3,935 -- (5,902) -- (5,902)
--------- --------- --------- ---------
Net income (loss) $ 803 $ (10,810) $ (1,960) $ (17,381)
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-2
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,960) $ (17,381)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 21,387 22,553
Minority interest share of income 987 1,002
Deferred income taxes (1,734) (3,217)
Loss on disposal of property -- 37
Interest deferred and added to obligation of Parent Company 11,309 5,876
Amortization of deferred finance 1,307 9,838
Decrease in trade accounts receivable (4,353) (2,742)
Decrease (increase) in inventory 1,141 (1,327)
Increase (decrease) in accounts payable and accrued expenses 1,763 (15,821)
(Decrease) increase in accrued interest payable (162) 1,640
Change in other accounts 890 2,893
--------- ---------
Total adjustments 32,535 20,732
--------- ---------
Net cash provided by operating activities 30,575 3,351
--------- ---------
Cash flows from investing activities:
Capital expenditures (10,771) (4,171)
Purchases of minority interests (7,177) --
--------- ---------
Net cash used in investing activities (17,948) (4,171)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt -- (437,999)
Repayment of advances from Price Communications Corporation (223) (928)
Proceeds from long-term debt -- 525,000
Cash pledged for outstanding interest rate swap contracts -- (6,738)
Interest earned on restricted cash (3,454) --
Increase in other intangible assets and other assets (788)
Payment of debt issuance costs -- (13,760)
--------- ---------
Net cash (used in )/provided by financing activities (4,465) 65,575
--------- ---------
Net increase in cash and cash equivalents 8,162 64,755
Cash and cash equivalents at the beginning of period 109,137 27,926
--------- ---------
Cash and cash equivalents at the end of period $ 117,299 $ 92,681
========= =========
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 205 $ 134
========= =========
Interest paid $ 34,234 $ 29,177
========= =========
Reversal of obligation of Parent Company recorded on books
pursuant to "push-down" accounting:
Obligation of Parent Company $ 220,741
Elimination of restricted cash (79,081)
Interest earned on restricted cash (3,454)
Write-off of unamortized finance charges (5,760)
Reversal of deferred taxes on accreted interest (3,490)
---------
Addition to paid-in capital $ 128,956
=========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
($ in thousands)
(Unaudited)
(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").
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."
The acquisition was funded in part by the issuance of PCW of $175.0
million aggregate principal amount of 11 3/4% Senior Subordinated Notes due
2007, a $44.0 million equity contribution from PCC, the issuance and sale for
$80.0 million by Holdings of units consisting of $153.4 million principal amount
of 13 1/2% Senior Secured Discount Notes due 2007 and the cash proceeds
generated from the sale of Palmer's Fort Myers, Florida MSA and GA-1 RSA the
total of which approximated $190.2 million. In addition, the Company 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.
In June 1998, the Company issued $525.0 million of 9 1/8% Senior Secured
Notes due December 15, 2006 with interest payable semi-annually commencing
December 15, 1998. The proceeds of these notes were used principally to replace
the previously existing syndicated loan facility mentioned above.
In August 1998, Holdings redeemed all of its outstanding 13 1/2% notes.
The redemption was financed out of the net proceeds of a new $200.0 million
Holdings offering of 11 3/4% Senior Exchangeable Payable-in-Kind notes due 2008.
In June 1999, PCC converted these notes by issuing to the holders 17.2 million
shares of its common stock. The accompanying Balance Sheets include $79.1
million at December 31, 1998 of restricted cash and $209.4 million (including
accrued interest) of the 11 1/4% notes which were obligations of Holdings and
were included in the Balance Sheets solely pursuant to "push down" accounting
rules. The Company had no rights with respect to the restricted cash included
herein.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of Price
Communications Wireless, Inc. and subsidiaries (the "Company") have been
prepared without audit pursuant to Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for financial statements. These Condensed Consolidated Financial Statements
should be read in conjunction with the audited Consolidated Financial Statements
previously filed on the Company's Form 10-K. In the opinion of management, all
adjustments (none of which were other than normal recurring items) considered
necessary for a fair presentation have been included. The results of operations
for the interim periods reported are not necessarily indicative of results to be
expected for the year.
I-4
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - (Continued)
($ in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies - (Continued)
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" accounting.
Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
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 their fair value. 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.
Reclassifications
Certain reclassifications have been made to the 1998 Statement of
Operations and Statement of Cash Flows to conform to the 1999 presentation.
(2) Obligation of Parent Company
Effective June 24, 1999, the Company's parent, PCH, elected to convert the
outstanding indebtedness of the $200 million 11 3/4% Senior Exchangeable
Payable-in-Kind notes according to the provisions of the indenture. Accordingly,
the obligation as of June 24, 1999, which amounted to $220.7 million including
accrued interest, was satisfied by the issuance by PCC of 17.2 million shares of
its common stock. In addition, the restricted cash previously recorded on the
Company's Balance Sheets, as well as the unamortized finance costs and deferred
taxes associated with the accreted interest, have been written off against
paid-in-capital.
I-5
<PAGE>
Item 2. 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 Condensed Consolidated Financial Statements and
the related notes thereto.
The discussion contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are made regarding the intent, belief or current
expectations of the Company and its directors or officers primarily with respect
to the future operating performance of the Company. Readers are cautioned that
any such forward-looking statements are not guarantees of future performance and
may involve risks and uncertainties, and that actual results may differ from
those in the forward-looking statements as a result of factors, many of which
are outside the control of the Company.
OVERVIEW
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 Corporation
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. ("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."
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
June 30, 1999, the Company provided cellular telephone service to approximately
418,000 subscribers in Alabama, Florida, Georgia, and South Carolina in a total
of 16 licensed service areas, composed of eight Metropolitan Service Areas
("MSAs") and eight Rural Service Areas ("RSAs"), with an aggregate estimated
population of 3.3 million. 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 CELLULARONE.
During the course of the year, the Company has been engaged and continues
to be engaged in preliminary discussions and negotiations with respect to
potential acquisitions and exchanges, all with the object of being accretive in
the long term for shareholders and bondholders. There can be no assurances that
the Company will be successful in consummating any of such transactions or as to
the terms thereof.
I-6
<PAGE>
Market Ownership
The following is a summary of the Company's ownership interest in the
cellular telephone system in each licensed service area to which the Company
provided service at December 31, 1998 and June 30, 1999.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
DLJ Winter 98-9 ---------------------- ---------------------
Cellular MSA Estimated Percentage Net POPS Percentage Net POPS
Service Area Rank Market POPS Ownership Owned Ownership Owned
- ------------ ---- ----------- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Albany 270 117,984 96.8% 114,209 86.5% 102,056
Augusta 105 440,864 100.0% 440,864 100.0% 440,864
Columbus 165 250,845 99.1% 248,587 85.2% 213,720
Macon 139 318,227 99.6% 316,954 99.2% 315,681
Savannah 152 288,736 98.5% 284,405 98.5% 284,405
Montgomery 138 320,687 94.6% 303,370 92.8% 297,598
Dothan 252 133,618 95.0% 126,937 94.6% 126,403
Panama City 230 149,953 92.0% 137,957 78.4% 117,563
GA-6 203,899 96.5% 196,763 96.3% 196,355
GA-7 135,121 100.0% 135,121 100.0% 135,121
GA-8 157,912 100.0% 157,912 100.0% 157,912
GA-9 118,111 100.0% 118,111 100.0% 118,111
GA-10 151,827 100.0% 151,827 100.0% 151,827
GA-12 215,935 100.0% 215,935 100.0% 215,935
GA-13 148,361 100.0% 148,361 86.5% 128,332
AL-8 173,677 100.0% 173,677 100.0% 173,677
--------- --------- ---------
3,325,757 3,270,990 3,175,560
========= ========= =========
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth for the Company for the periods indicated,
the percentage which certain amounts bear to total revenue.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
Service 92.6% 93.5% 93.0% 93.7%
Equipment sales and installation 7.4 6.5 7.0 6.3
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating expenses:
Engineering, technical and other direct:
Engineering and technical(1) 5.3 6.2 5.8 6.8
Other direct costs of services(2) 7.2 7.4 7.7 7.3
Cost of equipment(3) 11.7 12.3 11.9 12.5
Selling, general and administrative:
Sales and marketing(4) 8.3 12.0 8.5 11.4
Customer service(5) 6.3 6.3 6.3 6.5
General and administrative(6) 9.1 10.4 8.8 10.5
Depreciation and amortization 16.5 22.8 17.7 24.4
----- ----- ----- -----
Total operating expenses 64.4 77.4 66.7 79.4
----- ----- ----- -----
Operating income 35.6% 22.6% 33.3% 20.6%
Operating income before depreciation and
Amortization(7) 52.1% 45.4% 50.9% 45.0%
</TABLE>
I-7
<PAGE>
- ----------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, advertising and promotion expenses and employee and agent
commissions.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing subscriber invoices.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation or as an alternative to net income, operating
income or any other measure of performance under generally accepted
accounting principles. The Company believes that operating income before
depreciation and amortization is viewed as a relevant supplemental measure
of performance in the cellular telephone industry.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenue. Service revenues totaled $59.8 million for the second quarter of
1999, an increase of 30.8% from $45.7 million for the second quarter of 1998.
The significant increase is primarily attributable to the continued improvement
in the operating statistics combined with an increase in the average number of
subscribers for the period. The average number of subscribers increased by
approximately 76,000 for the current three months compared to last year's second
quarter. In addition, roaming revenue increased by $3.8 million or 57% over last
year's second quarter results.
Average monthly revenue per subscriber (defined as service revenue per the
financial statement) excludes incollect revenue from our subscribers since this
revenue is offset against incollect expense in the other direct cost caption.
For the second quarter of 1999 the average monthly revenue per subscriber
amounted to $48.70 compared to $45.30 for the same period last year or an
increase of 7.5%. In the future, the Company may realize a decrease in the
average monthly revenue per subscriber as a result of the new roaming rates
negotiated with roaming partners. Minutes of use per subscriber has also
markedly increased improving from 187 minutes from last year's second quarter to
247 minutes for the current quarter. Although this increase does not immediately
result in a direct corresponding increase in airtime revenue, greater usage by
subscribers may eventually lead to additional billable minutes of use.
Equipment sales and installation revenue, which consists primarily of
subscriber equipment sales, increased to $4.8 million for the second quarter of
1999 compared to $3.2 million for the second quarter of 1998. The increase is
primarily due to the emphasis on recovering a greater percentage of the phone
cost from subscribers. In addition, increased sales of accessories, as well as
the sale of digital phones which have a higher price point, have contributed to
the increase in equipment revenue.
Operating Expenses. Operating expenses, excluding depreciation and
amortization, increased by $4.2 million for the current three month period but
decreased as a percentage of total revenue to 47.9% from 54.6% for the second
quarter of 1998.
Engineering, technical and other direct costs of service increased to $8.1
million for the second quarter of 1999 from $6.7 million for the second quarter
of 1998. Included in this category is the net cost of incollect which represents
the difference between the amount paid to other cellular carriers for the
Company's subscribers roaming in other markets and the amount charged to
subscribers. Although the cost increased by $1.3 million, the amount recovered
from subscribers increased by $1.6 million which resulted in an improved
recovery ratio. The recovery ratio amount may improve further based on the
negotiated decreases in rates reimbursed to various outside carriers (see
outcollect roaming revenue for a similar decrease in rates). The increase is a
result of the increased subscriber base which generates increases in long
distance costs, and span and inter-trunk cost increases as a result of the
increase in the lines due to the additional cellular usage.
I-8
<PAGE>
Cost of equipment increased to $7.6 million for the second quarter of 1999
from $6.0 million for the second quarter of 1998, primarily as a result of an
increase in the average cost of a phone as more subscribers buy digital phones
and the increase in accessories now being sold to subscribers. The percentage of
cost recovered increased from 52.8% for the second quarter of 1998 to 62.8% for
the current quarter. This positive trend is a result of the emphasis on selling
more accessories per subscriber addition and an effort to reduce the loss on the
sale of phones, which loss is standard practice in the industry.
Selling, general and administrative expenses ("SG&A") increased by $1.2
million from $14.0 million in the second quarter of 1998 to $15.3 million for
the same period of the current year. As a percentage of revenue, SG&A for the
current three month period is 23.7% of revenue compared to 28.7% for the same
three month period in 1998 or an improvement of 17.4%. SG&A expenses decreased
by $740,000 as a result of stronger budgetary controls initiated by management.
Decreases in salaries combined with flat advertising expenditures were factors
contributing to the decrease in the current three month period. The cost to add
a subscriber (gross), which consists of the net cost of equipment sold,
installation costs and sales and marketing, has improved, decreasing from
$221.67 for the second quarter of 1998 to $205.16 for the same period in 1999 or
a decrease of 7.4%. General and administrative expenses, which include customer
service expenses, increased to $9.9 million for the current three month period
from $8.2 million for the same period in 1998. As a percentage of revenue, the
current quarter amounts to 15.4% of revenue compared to 16.7% of revenue for the
second quarter of 1998. Customer service expenses increased $1.0 million for the
current quarter but remained at 6.3% of revenue as it was in last year's second
quarter. As the number of subscribers increase, billing costs, which comprise
the major portion of customer service, increase. General and administrative
expenses increased by $753,000 principally as a result of increased bad debts,
which were partially offset by decreases in payroll and related expenses.
Depreciation and amortization decreased $498,000 to $10.7 million in the
current period from $11.2 million for the second quarter of 1998. The decrease
was primarily due to the reduction in the carrying value of the licenses due to
the finalization of purchase accounting in the fourth quarter of 1998. As a
percentage of revenue, depreciation and amortization decreased to 16.5% for the
second quarter of 1999 compared to 22.8% for the second quarter of 1998.
Operating income increased significantly to $23.0 million in the second
quarter of 1999 from $11.0 million for the second quarter of 1998. Operating
income before depreciation and amortization increased to 52.1% as a percentage
of revenue compared to 45.4% for the second quarter of 1998. This increase in
operating margin is attributable primarily to the increase in operating revenue
combined with control of operating costs.
Net Interest Expense, Income Taxes, Extraordinary Item and Net Income. Net
interest expense increased to $21.3 million for the second quarter of 1999 from
$18.1 million in the second quarter of 1998, primarily due to the increased
level of debt from the refinancings* which occurred in the second and third
quarters of 1998. Partially offsetting this increase is the additional interest
earned on the higher level of cash during the second quarter of 1999. The effect
of the conversion of the PCH debt will be realized in the third and fourth
quarters of 1999 with a reduction in interest expense approximating $12.4
million.
The provision for taxes in the current quarter ($535,000) as compared to
the income tax benefit of $2.7 million in the second quarter of 1998 is a result
of taxable income for the current quarter compared to a loss for 1998. The
income tax benefit in 1998 represents the reduction of the accrued tax liability
associated with the sale of the Ft. Myers and GA-1 properties which was
established as the result of purchase accounting.
The net income for the current three month period of $803,000 compared to
a net loss for the second quarter of 1998 of $10.8 million is a function of the
items discussed above. In addition, the second quarter of 1998 includes $5.9
million net of taxes of deferred finance charges written off as the result of
early extinguishment of debt.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue. Service revenues totaled $112.7 million for the six month period
of 1999, an increase of 30.4% from $86.4 million for the same period of 1998.
The significant increase is primarily attributable to the increase in
I-9
<PAGE>
the average number of subscribers for the period. The average number of
subscribers increased by approximately 73,000 for the current six month period
compared to last year's comparable period. In addition, roaming revenue
increased by $7.0 million or 58% over last year's six month results.
Average monthly revenue per subscriber (defined as service revenue per the
financial statement) excludes incollect revenue from our subscribers since the
revenue is offset against incollect expense in the other direct cost caption.
For 1999, the average monthly revenue amounted to $47.00 compared to $44.08 for
the same period last year or an increase of 6.6%. In the future, the Company may
realize a decrease in the average monthly revenue per subscriber as a result of
the new roaming rates negotiated with roaming partners. Minutes of use per
subscriber has also increased improving from 167 minutes for last year's six
month period quarter to 224 minutes for the current six months. Although this
increase does not immediately result in a direct corresponding increase in
airtime revenue, greater usage by our subscribers may eventually lead to
additional billable minutes of use.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $8.5 million for the first six
months of 1999 compared to $5.8 million for the same period in 1998. The
increase is primarily due to the emphasis on recovering a greater percentage of
the phone cost from subscribers as well as additional gross adds for the current
six month period. In addition, increased sales of accessories, as well as the
sale of digital phones which have a higher price point, have contributed to the
increase in equipment revenue.
Operating Expenses. Operating expenses, excluding depreciation and
amortization, increased by $8.8 million for the current six month period but
decreased as a percentage of total revenue to 49.0% from 55.0% for last year's
comparable period.
Engineering, technical and other direct costs of service increased to
$16.4 million for the current six months from $13.0 million for the same period
in 1998. Included in this category is the net cost of incollect which represents
the difference between the amount paid to other cellular carriers for our
subscribers roaming in their markets and the amount we charge our subscribers.
Although the cost increased by $4.3 million, the amount recovered from
subscribers increased by $3.8 million resulting in a net increase of $470,000
for the current six months. In the future, the recovery ratio amount may improve
based on the negotiated decrease in rates reimbursed to various outside carriers
(see outcollect roaming revenue for a similar decrease in rates). The increase
is a result of the increased subscriber base which generates increases in long
distance costs, and span and inter-trunk cost increases as a result of the
increase in the lines due to the additional cellular usage
Cost of equipment increased to $14.4 million for the current period from
$11.5 million for the first six months of 1998, primarily as a result of an
increase in the average cost of a phone as more subscribers buy digital phones,
the increase in gross subscriber additions and the increase in accessories now
being sold to subscribers. The percentage of cost recovered increased from 50.1%
for 1998 to 59.1% for 1999. This positive trend is a result of the emphasis on
selling more accessories per subscriber addition and an effort to reduce the
loss on the sale of phones, which loss is standard practice in the industry.
Selling, general and administrative expenses ("SG&A") increased $2.5
million to $28.7 million from $26.1 million in 1998. As a percentage of revenue,
SG&A for the current six month period is 23.7% of revenue compared to 28.4% for
the same six month period in 1998 or an improvement of 16.5%. SG&A expenses
decreased by $173,000 as a result of stronger budgetary controls initiated by
management. Decreases in salaries combined with slight increases in advertising
expenditures and installation costs were factors contributing to the decrease in
the current month period. The cost to add a subscriber (gross), which consists
of the net cost of equipment sold, installation costs and sales and marketing,
has improved, decreasing from $222.25 for the six months of 1998 to $202.16 for
the same period in 1999 or a decrease of 9.0%. General and administrative
expenses, which include customer service expenses, increased to $18.3 million
for the current six month period from $15.6 million for the same period in 1998.
As a percentage of revenue, the current six month period amounts to 15.1% of
revenue compared to 17.0% of revenue for the same period in 1998. Customer
service expenses increased $1.7 million but remained at 6.3% of revenue a light
decrease from the 6.5% for last year's six month period. As the number of
subscribers increase, billing costs, which comprise the major portion of
customer service, increase. General and administrative expenses
I-10
<PAGE>
increased by $1.0 million principally as a result of increased bad debts, which
were partially offset by decreases in payroll and related expenses.
Depreciation and amortization decreased $1.2 million to $21.4 million in
the current period from $22.6 million for the same period in 1998. The decrease
was primarily due to the reduction in the carrying value of the licenses due to
the finalization of purchase accounting in the fourth quarter of 1998. As a
percentage of revenue, depreciation and amortization decreased to 17.7% for 1999
compared to 24.4% for 1998.
Operating income increased significantly to $40.3 million for the first
six months of 1999, from $19.0 million for the same period in 1998. Operating
income before depreciation and amortization increased to 50.9% as a percentage
of revenue compared to 45.0% for the first six months of 1998. This increase in
operating margin is attributable primarily to the increase in operating revenue
combined with control of operating costs.
Net Interest Expense, Income Taxes, Extraordinary Item and Net Income. Net
interest expense increased to $42.5 million for 1999 from $35.9 million in the
first six months primarily due to the increased level of debt from the
refinancings which occurred in the second and third quarters of 1998. Partially
offsetting this increase is the additional interest earned on the higher level
of cash during the second quarter of 1999. The effect of the conversion of the
PCH debt will be realized in the third and fourth quarters of 1999 with a
reduction in interest for the second six months approximating $12.4 million.
The income tax benefit was $1.1 million for the first six months of 1999
compared to $2.7 million for the same period in 1998. The income tax benefit in
1998 represents the reduction of the accrued tax liability associated with the
sale of the Ft. Myers and GA-1 properties, which was established as the result
of purchase accounting.
The net loss for the current six month period of $2.0 million compared to
a net loss $17.4 million for 1998 is a function of the items discussed above. In
addition, the second quarter of 1998 includes $5.9 million net of taxes of
deferred finance charges written off as the result of early extinguishment of
debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. Historically, the Company has met
its capital requirements primarily through equity contributions, bank debt, debt
issued to the public, and, to a lesser extent, operating cash flow. During the
current six month period, the Company generated $30.6 million of operating cash
flow as shown in the Condensed Consolidated Statement Of Cash Flows compared to
$3.4 million for 1998. The Company's debt service requirements for the current
year consist of cash interest payments of $68.5 million, of which $34.3 million
has been paid through June 30, 1999. The remaining cash interest requirements
are approximately $10.3 million in the third quarter and $24.0 million in the
fourth quarter. Based upon the Company's current ability to generate operating
cash flow combined with its current available cash position, there does not
appear to be any necessity to provide additional funding for the current level
of operations. The Company's outstanding debt instruments consist of $525
million of 9 1/8% Senior Secured Notes due June 15, 2002 and $175 million 11
3/4% Senior Subordinated Notes due July 15, 2007. Both of these instruments
contain covenants that restrict the payment of dividends, incurrence of debt and
sale of assets, among other things.
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 and MIS outsource provider to coordinate the testing of all
of the operating and financial systems that could effect 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 general
ledger system are currently integrated into the billing system.
The Company's current billing vendor (EDS) and MIS outsource provider has
committed to test the compliance of the above systems with the Year 2000
requirements by reviewing each system's upgrade releases which these third party
providers maintain will make their systems Year 2000 compliant. Most of these
third party
I-11
<PAGE>
providers deal with other cellular companies, which enables the Company to
leverage the knowledge obtained from servicing these 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 provider systems, the current
billing vendor will review their own internal operating systems to verify Year
2000 compliance. They will then test the integration of the updated Year 2000
versions with their own updated version to ensure compliance and operational
compatibility.
The Company, with the billing provider's guidance, has formulated its
strategy after analyzing all systems that could have an effect on the Company's
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 $2.0 million. However, the Company is unable to predict all of
the implications of the Year 2000 issue as it relates to the Company's 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. The Company's dependence on a few
key third party providers, which provides service to most of the cellular
industry, combined with the lack of accessibility of alternative systems makes a
contingency plan impractical.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
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.
I-12
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS, INC.
Date: July 28, 1999 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
II-2
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
II-3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 117,299
<SECURITIES> 0
<RECEIVABLES> 24,076
<ALLOWANCES> 0
<INVENTORY> 2,799
<CURRENT-ASSETS> 148,378
<PP&E> 145,267
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,182,182
<CURRENT-LIABILITIES> 45,537
<BONDS> 700,000
0
0
<COMMON> 0
<OTHER-SE> 114,965
<TOTAL-LIABILITY-AND-EQUITY> 1,182,182
<SALES> 8,540
<TOTAL-REVENUES> 121,200
<CGS> 14,441
<TOTAL-COSTS> 80,888
<OTHER-EXPENSES> 100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (42,472)
<INCOME-PRETAX> 0
<INCOME-TAX> 1,087
<INCOME-CONTINUING> (1,960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,960)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
