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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 September 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 65-0456627
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 Rockefeller Plaza,
New York, New York 10020
(Address of principal executive offices) (Zip Code)
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 October 23,
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 - September 30, 1999 and
December 31, 1998 .............................................I-1
Condensed Consolidated Statements of Operations - Three months
ended September 30, 1999 and 1998 and nine months ended
September 30, 1999 and 1998 ...................................I-2
Condensed Consolidated Statements of Cash Flows - Nine months
ended September 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-5
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ......I-12
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)
September 30, December 31,
1999 1998
------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 139,959 $ 109,137
Restricted cash -- 79,081
Trade accounts receivable, net of
allowance for doubtful accounts 25,215 20,508
Receivable from other cellular carriers 2,881 2,282
Prepaid expenses and deposits 455 303
Inventory 2,572 3,940
Deferred income taxes 572 1,383
----------- -----------
Total current assets 171,654 216,634
Net property and equipment 142,955 144,828
Licenses, net of amortization 863,216 876,952
Other intangible assets and other assets,
at cost less accumulated amortization 18,411 25,320
----------- -----------
$ 1,196,236 $ 1,263,734
=========== ===========
Liabilities and Stockholder's Equity (Deficit)
Current liabilities:
Payable to Price Communications Corporation $ 1,570 $ 1,151
Accounts payable and accrued expenses 22,920 21,616
Accrued interest payable 18,555 11,779
Accrued salaries and employee benefits 2,244 2,656
Deferred revenue 6,437 5,535
Customer deposits 1,280 921
----------- -----------
Total current liabilities 53,006 43,658
Long-term debt 700,000 700,000
Obligation of Parent Company -- 209,432
Accrued income taxes - long term 25,681 22,775
Deferred income taxes 291,315 290,370
Minority interests 7,322 9,530
----------- -----------
Total liabilities 1,077,324 1,275,765
----------- -----------
Commitments and contingencies -- --
Stockholder's equity (deficit) 118,912 (12,031)
----------- -----------
$ 1,196,236 $ 1,263,734
=========== ===========
See accompanying notes to condensed consolidated financial statements.
I-1
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Service $ 60,113 $ 48,517 $ 172,773 $ 134,938
Equipment sales and installation 5,029 3,403 13,569 9,175
--------- --------- --------- ---------
Total revenue 65,142 51,920 186,342 144,113
--------- --------- --------- ---------
Operating expenses:
Engineering, technical and other direct 6,548 7,480 22,937 20,502
Cost of equipment 8,223 5,886 22,664 17,401
Selling, general and administrative 15,285 15,321 43,956 41,466
Depreciation and amortization 12,387 11,168 33,774 33,721
--------- --------- --------- ---------
Total operating expenses 42,443 39,855 123,331 113,090
--------- --------- --------- ---------
Operating income 22,699 12,065 63,011 31,023
--------- --------- --------- ---------
Other income (expense):
Interest expense, net (16,160) (24,879) (58,632) (60,786)
Other income (expense), net 43 (55) 143 (98)
--------- --------- --------- ---------
Total other expense (16,117) (24,934) (58,489) (60,884)
--------- --------- --------- ---------
Income (loss) before minority interest
share of income, income taxes
and extraordinary item 6,582 (12,869) 4,522 (29,861)
Minority interest share of income (382) (713) (1,369) (1,715)
--------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item 6,200 (13,582) 3,153 (31,576)
Income tax (expense) benefit (2,254) 5,051 (1,167) 11,566
--------- --------- --------- ---------
Income (loss) before extraordinary item 3,946 (8,531) 1,986 (20,010)
Extraordinary item - write-off of deferred finance costs
and premium on early extinguishment of debt (net of
income tax benefit of $7,311 and $11,246 respectively) -- (13,246) -- (19,148)
--------- --------- --------- ---------
Net income (loss) $ 3,946 $ (21,777) $ 1,986 $ (39,158)
========= ========= ========= =========
</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 nine months
ended September 30,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,986 $ (39,158)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 33,774 33,721
Minority interest share of income 1,369 1,715
Deferred income taxes (1,734) (3,217)
Loss on disposal of property -- 151
Premium on early extinguishment of debt -- 18,194
Accrued interest satisfied by issuance of PCC Stock 11,309 --
Interest deferred and added to obligation of Parent Company -- 1,911
Write-off of deferred finance charges -- 12,200
Amortization of deferred finance charges 1,916 76
Interest earned on restricted cash (3,454) --
Increase in trade accounts receivable (5,306) (5,096)
Decrease (increase) in inventory 1,368 (2,070)
Increase (decrease) in accounts payable and accrued expenses 3,799 (5,434)
Decrease in accrued income taxes-long term -- (19,634)
Increase in accrued interest payable 6,776 8,932
Change in other accounts 1,110 4,825
--------- ---------
Total adjustments 50,927 46,274
--------- ---------
Net cash provided by operating activities 52,913 7,116
--------- ---------
Cash flows from investing activities:
Capital expenditures (14,545) (5,544)
Purchase of additional minority interests (7,177) --
--------- ---------
Net cash used in investing activities (21,722) (5,544)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt -- (518,112)
Repayment of advances from Price Communications Corporation 419 (930)
Proceeds from long-term debt -- 725,000
Premium on early extinguishment of debt -- (18,194)
Cash pledged for outstanding interest rate swap contracts -- (9,302)
Increase in other intangible assets and other assets (788) --
Payment of debt issuance costs -- (18,223)
--------- ---------
Net cash (used in ) provided by financing activities (369) 160,239
--------- ---------
Net increase in cash and cash equivalents 30,822 161,811
Cash and cash equivalents at the beginning of period 109,137 27,926
--------- ---------
Cash and cash equivalents at the end of period $ 139,959 $ 189,737
========= =========
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 205 $ 643
========= =========
Interest paid $ 44,516 $ 82,620
========= =========
</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").
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.
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. As amended by Statement
of Accounting Standards No. 137, this statement is effective for fiscal years
beginning after June 15, 2000, 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 will have a material
impact on its consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the 1998 Statements of
Operations and Statements of Cash Flows to conform to the 1999 presentation.
(2) Obligation of Parent Company
In June 1999, the Company's parent, PCH, allowed the conversion of the
outstanding indebtedness of the $200 million 11 1/4% 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 of 17.2 million shares of PCC's
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-4
<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").
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
September 30, 1999, the Company provided cellular telephone service to
approximately 434,000 subscribers in Alabama, Florida, Georgia, and South
Carolina 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 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-5
<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 September 30, 1999.
DLJ Winter September 30, 1999
98-9 ---------------------------
Cellular MSA Estimated Percentage Net POPS
Service Area Rank Market POPS Ownership Owned
- ------------ ---- ----------- --------- -----
Albany 270 117,984 96.8% 114,209
Augusta 105 440,864 100.0% 440,864
Columbus 165 250,845 99.1% 248,587
Macon 139 318,227 99.6% 316,954
Savannah 152 288,736 98.5% 284,405
Montgomery 138 320,687 94.6% 303,370
Dothan 252 133,618 95.0% 126,937
Panama City 230 149,953 92.0% 137,957
GA-6 203,899 96.5% 196,763
GA-7 135,121 100.0% 135,121
GA-8 157,912 100.0% 157,912
GA-9 118,111 100.0% 118,111
GA-10 151,827 100.0% 151,827
GA-12 215,935 100.0% 215,935
GA-13 148,361 96.8% 143,613
AL-8 173,677 100.0% 173,677
--------- ---------
3,325,757 3,266,242
========= =========
I-6
<PAGE>
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 Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
Service ................................ 92.3% 93.4% 92.7% 93.6%
Equipment sales and installation ....... 7.7 6.6 7.3 6.4
----- ----- ----- -----
Total revenue ..................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating expenses:
Engineering, technical and other direct:
Engineering and technical (1) ........ 4.8 6.7 5.4 6.8
Other direct costs of services (2) ... 5.3 7.7 6.9 7.4
Cost of equipment (3) .................. 12.6 11.3 12.2 12.1
Selling, general and administrative:
Sales and marketing (4) .............. 7.5 10.9 8.2 11.2
Customer service (5) ................. 6.4 6.5 6.3 6.5
General and administrative (6) ....... 9.5 12.2 9.1 11.1
Depreciation and amortization .......... 19.0 21.5 18.1 23.4
----- ----- ----- -----
Total operating expenses .......... 65.1 76.8 66.2 78.5
----- ----- ----- -----
Operating income ......................... 34.9% 23.2% 33.8% 21.5%
Operating income before depreciation and
Amortization (7) ..................... 53.9% 44.8% 51.9% 44.9%
</TABLE>
- --------------------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, 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 September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenue. Service revenues totaled $60.1 million for the third quarter of
1999, an increase of 23.9% from $48.5 million for the third quarter of 1998. The
increase is primarily attributable to an increase in the average number of
subscribers for the period. The average number of subscribers increased by
approximately 51,000 for the current three months compared to last year's third
quarter. In addition, roaming revenue increased by $3.1 million or 44% over last
year's third 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 third quarter of 1999, the average monthly revenue per subscriber
amounted to $49.21 compared to $45.63 for the same period last year or an
increase of 7.9%. 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 203 minutes from last year's third quarter to
268 minutes for the current quarter or an increase of 24%. Although this
increase does not immediately
I-7
<PAGE>
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 $5.0 million for the third quarter of
1999 compared to $3.4 million for the third quarter of 1998. The increase is
primarily due to the emphasis on recovering a greater percentage of the phone
cost from subscribers. Increased sales of accessories, as well as the sale of
digital phones and upgrades to 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 $1.4 million for the current three month period but
decreased as a percentage of total revenue to 46.1% for the current three months
from 55.3% for the third quarter of 1998.
Engineering, technical and other direct costs of service decreased from
$7.5 million for the third quarter of 1998 to $6.5 million for the same period
in 1999. 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 these
subscribers. The net cost decreased to $239,000 for the current three month
period from $2.5 million in the third quarter of 1998. The decrease results from
the increase in the amount recovered from our subscribers ($2.0 million)
combined with the more favorable reimbursement rates negotiated with the other
carriers during the second quarter of 1999. The decrease was partially offset by
increases in long distance charges as a result of the increased subscriber base,
the corresponding increase in usage as well as increases in span line and
inter-trunk costs due to increased network capacity necessitated by the
increased cellular usage.
Cost of equipment increased to $8.2 million for the third quarter of 1999
from $5.9 million for the third 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 57.8% for the third quarter of 1998 to 61.2% 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") was flat at $15.3
million for both three month periods. As a percentage of revenue, SG&A for the
current three month period is 23.5% of revenue compared to 29.5% for the same
three month period in 1998 or an improvement of 20.3%. The ability to maintain
the same level of SG&A expenses in conjunction with significant increases in
service revenue is a result of strong budgetary controls initiated by
management. Selling expenses decreased by $800,000 principally as a result of
decreases in salaries and related benefits combined with reductions in
advertising expenditures. The cost to add a subscriber (gross), which consists
of the cost of equipment sold reduced by the sales revenue, installation costs
and sales and marketing, has improved, decreasing from $212.16 for the third
quarter of 1998 to $187.73 for the same period in 1999 or a decrease of 13.0%.
General and administrative expenses, which include customer service expenses,
increased to $10.4 million for the current three month period from $9.7 million
for the same period in 1998. As a percentage of revenue, the current quarter
amounts to 16.0% of revenue compared to 18.6% of revenue for the third quarter
of 1998. Customer service expenses increased $840,000 for the current quarter
but remained at 6.4% of revenue as it was in last year's third quarter. As the
number of subscribers increase, billing costs, which comprise the major portion
of customer service, increase. General and administrative expenses decreased
slightly as a result of an increase in the provision for bad debts, which was
offset by decreases in payroll and related expenses.
Depreciation and amortization increased to $12.4 million for the current
three month period from $11.2 million for the same period of the prior year. The
increase is related to the additional depreciation for fixed assets purchased as
well as a reclass in the third quarter of 1998 for amortization of deferred
finance charges previously included as amortization but reclassified as interest
during the third quarter of 1998. In addition, amortization of cellular licenses
reflects a decrease due to the reduction in the carrying value of the licenses
as a result of the finalization of purchase accounting in the fourth quarter of
1998. As a percentage of revenue, depreciation and amortization decreased to
19.0% for the third quarter of 1999 compared to 21.5% for the third quarter of
1998.
Operating income increased to $22.7 million in the third quarter of 1999
from $12.1 million for the third quarter of 1998. Operating income before
depreciation and amortization increased to 53.9% as a percentage of
I-8
<PAGE>
revenue compared to 44.8% for the third quarter of 1998. This increase in
operating margin is attributable primarily to the increase in operating revenue
combined with the control of operating costs.
Net Interest Expense, Income Taxes, Extraordinary Item and Net Income. Net
interest expense decreased to $16.2 million for the third quarter of 1999 from
$24.9 million in the third quarter of 1998. During the second quarter of 1999,
the Company's parent, PCH, allowed the conversion of the outstanding
indebtedness of the 11 1/4% Senior Exchangeable Payable-in-Kind Notes which were
obligations of PCH but were included in the balance sheets of the Company
because of "push down" rules of accounting. As a result of the conversion of
these notes, the Company no longer accrues interest on the indebtedness.
The provision for taxes of $2.3 million in the current quarter is a result
of income before taxes for the current three month period compared to an income
tax benefit of $5.1 million in the third quarter of 1998 as a result of the loss
for that 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 income for the current three month period of $3.9 million compared
to a net loss for the third quarter of 1998 of $21.8 million is a function of
the items discussed above. In addition, the third quarter of 1998 includes $13.2
million net of taxes for the write off of deferred finance charges and the
premium paid as the result of the early extinguishment of debt.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenue. Service revenues totaled $172.8 million for the nine month period
of 1999, an increase of 28.0% from $134.9 million for the same period of 1998.
The increase is primarily attributable to the increase in the average number of
subscribers for the period. The average number of cellular subscribers increased
by approximately 53,000 for the current nine month period compared to last
year's comparable period. In addition, roaming revenue, which is income the
Company earns from other cellular carriers whose subscribers use their cellular
phones in our markets, increased by $10.0 million or 52% over last year's nine
month 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 1999, the average cellular monthly revenue for the nine months amounted to
$48.67 compared to $44.61 for the same period last year or an increase of 9.1%.
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 in the second
quarter of 1999 with the Company's roaming partners. Minutes of use per
subscriber has also increased improving from 180 minutes for last year's nine
month period to 239 minutes for the current nine 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 $13.6 million for the first
nine months of 1999 compared to $9.2 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. In addition, increased sales of accessories, as
well as the sale of and upgrade to 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 $10.2 million for the current nine month period but
decreased as a percentage of total revenue to 48.1% from 55.1% for last year's
comparable period.
Engineering, technical and other direct costs of service increased to
$22.9 million for the current nine months from $20.5 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.
The cost decreased by $1.8 million, principally as a result of the decrease in
the amount we pay other cellular carriers due to renegotiated rates while
maintaining the amount the company charges its subscribers. 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 of $2.4 million is a result of the
increased subscriber base which generates increases in long
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<PAGE>
distance costs, span and inter-trunk cost increases as a result of the increase
in the systems capacity necessitated by additional cellular usage, additional
rent and utilities associated with the increase in the number of cell sites,
partially offset by reductions in net incollect expense as mentioned previously,
and reductions in payroll and related costs.
Cost of equipment increased to $22.7 million for the current nine month
period from $17.4 million for the first nine months of 1998, primarily as a
result of an increase in the average cost of a phone as more subscribers buy or
upgrade to digital phones and an increase in accessories now being sold to
subscribers. The percentage of cost recovered increased from 52.7% for the nine
month period in 1998 to 59.9% for the same period in 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 $44.0 million from $41.5 million in 1998. As a percentage of revenue,
SG&A for the current nine month period is 23.6% of revenue compared to 28.8% for
the same nine month period in 1998 or an improvement of 18.1%. SG&A expenses
consist of sales and marketing expenses, customer service expenses and general
and administrative expenses. Sales and marketing expenses decreased from $16.2
million for the nine months in 1998 to $15.2 million for the current nine month
period. Decreases in payroll and related expenses were the principal causes of
such decrease. The cost to add a subscriber (gross), which consists of the cost
of equipment sold reduced by sales revenue, installation costs and sales and
marketing, has improved, decreasing from $218.77 for last year's nine month
period to $197.13 for the current nine month period or a decrease of 9.9%.
General and administrative expenses, including customer service expenses,
increased to $28.8 million for the current nine month period from $25.3 million
for the same period in 1998. As a percentage of revenue, the current nine month
period amounts to 15.4% of revenue compared to 17.6% of revenue for the same
period in 1998. Customer service expenses increased by $1.7 million but at 6.4%
of revenue represents a slight decrease from the 6.5% for last year's nine month
period. As the number of subscribers increase, billing costs, which comprise the
major portion of customer service, increase. For the current nine month period,
billing costs are at $1.80 per cellular subscriber compared to $1.75 for the
nine months in 1998. General and administrative expenses increased by $927,000
to $16.9 million for the nine month period in 1999 from $16.0 million in the
same period in 1998. The increase principally was a result of an increase in the
provision for bad debts, which was partially offset by decreases in payroll and
related expenses. As a percentage of total revenue, general and administrative
expenses amounted to 9.1% for the current nine month period compared to 11.1%
for the same period in 1998.
Depreciation and amortization remained flat at $33.8 million for both nine
month periods. The decrease in amortization for the licenses, which was
primarily due to the reduction in the carrying value of the licenses as a result
of the finalization of purchase accounting in the fourth quarter of 1998, was
offset by the increase in depreciation related to the additional purchases of
fixed assets. As a percentage of revenue, depreciation and amortization
decreased to 18.1% for 1999 from 23.4% for 1998.
Operating income increased significantly to $63.0 million for the first
nine months of 1999, from $31.0 million for the same period in 1998. Operating
income before depreciation and amortization increased to 51.9% as a percentage
of total revenue compared to 44.9% for the first nine 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 decreased to $58.6 million for the current nine month period
from $60.8 million for the same period in 1998. During the second quarter of
1999 the Company's parent, PCH, allowed the conversion of the outstanding
indebtedness of the 11 1/4% Senior Exchangeable Payable-in-Kind Notes which were
obligations of PCH but were included in the balance sheets of the Company
because of "push down" rules of accounting. As a result of the conversion of
these notes, the Company no longer accrues interest on the indebtedness.
The provision for taxes in the current nine month period of $1.2 million
is a result of income before taxes for 1999 compared to an income tax benefit of
$11.6 million for the nine months in as a result of the 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 nine month period of $2.0 million compared
to a net loss for the nine months of 1998 of $39.2 million is a function of the
items discussed above. In addition, the nine month period in 1998
I-10
<PAGE>
includes $19.1 million net of taxes for the write off of deferred finance
charges and the premium paid as the result of the 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 nine month period, the Company generated $52.9 million of operating cash
flow as shown in the Condensed Consolidated Statements of Cash Flows compared to
$7.1 million for 1998. At September 30, 1999, the Company had $140.0 million of
cash and cash equivalents. The Company's debt service requirements for the
current year consist of cash interest payments of $68.5 million, of which $44.6
million has been paid through September 30, 1999. The remaining cash interest
requirements are approximately $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 appears no 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 December 15, 2006 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 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 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 billing vendor (EDS) and MIS outsource provider has
committed to apply upgrades to the above systems to the levels recommended by
these third party providers to achieve Year 2000 Compliance. Most of these third
party 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 a reduction in the testing
and validation time necessary for a comprehensive review. The Company has
completed its survey of key suppliers of products and services and anticipates
no significant problems as a result of their responses. The company has
completed supplier recommendation upgrades to the Company's infrastructure such
as switches, computer hardware and software, departmental file servers, and
desktop computers in order to achieve Year 2000 readiness and compliance.
Upgrades to many of the Business Applications critical to the operations of the
company have been completed with the remainder scheduled during the fourth
quarter of 1999.
Additionally, the current billing vendor has reviewed their own internal
operating systems based on the company's Year 2000 Compliance requirements.
Future date testing and integration of the Year 2000 Ready version of the
billing system was successfully completed during the third quarter 1999.
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 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'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 total back up contingency plan
impractical. Should external failures cause an impact to the Company's
information systems, the Company has a recovery services agreement in place to
cover mission critical telecommunications and data center systems. The Company
is still in the process of developing contingency plans, which are scheduled for
completion in the fourth quarter of 1999 for key business processes.
I-11
<PAGE>
Item 3. 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: October 27, 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
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 139,959
<SECURITIES> 0
<RECEIVABLES> 25,215
<ALLOWANCES> 0
<INVENTORY> 2,572
<CURRENT-ASSETS> 171,654
<PP&E> 142,955
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,196,236
<CURRENT-LIABILITIES> 53,006
<BONDS> 700,000
0
0
<COMMON> 0
<OTHER-SE> 118,912
<TOTAL-LIABILITY-AND-EQUITY> 1,196,236
<SALES> 13,569
<TOTAL-REVENUES> 186,342
<CGS> 22,664
<TOTAL-COSTS> 123,331
<OTHER-EXPENSES> 143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (58,632)
<INCOME-PRETAX> 0
<INCOME-TAX> (1,167)
<INCOME-CONTINUING> 1,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,986
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
