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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
1-8309
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PRICE COMMUNICATIONS CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 13-2991700
(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
--------------------
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 25,
1999 was 56,959,706
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<PAGE>
PRICE COMMUNICATIONS CORPORATION 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
Condensed Consolidated Statements of Shareholders' Equity - Nine
months ended September 30, 1999 ................................ I-4
Notes to Condensed Consolidated Financial Statements ............ I-5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................... I-7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk .... I-14
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 CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 198,259 $ 204,999
Trade accounts receivable, net 25,215 20,509
Receivable from other cellular carriers 2,881 2,282
Available for sale securities 7,932 5,608
Prepaid expenses and deposits 467 521
Inventory 2,572 3,940
---------- ----------
Total current assets 237,326 237,859
Net property and equipment 142,980 144,895
Investment in minority POPS 9,964 --
Licenses, net of amortization 863,216 876,952
Other intangible assets and other assets,
at cost less accumulated amortization 19,654 26,563
---------- ----------
$1,273,140 $1,286,269
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 26,761 $ 25,336
Accrued interest payable 18,555 11,779
Accrued salaries and employee benefits 3,167 3,256
Deferred revenue 6,437 5,535
Customer deposits 1,280 921
Deferred tax liability, net 1,752 272
---------- ----------
Total current liabilities 57,952 47,099
Long-term debt 700,000 909,432
Accrued income taxes - long term 36,015 25,434
Deferred income taxes 291,315 290,370
Minority interests 7,322 9,530
---------- ----------
Total liabilities 1,092,604 1,281,865
---------- ----------
Commitments and contingencies
Redeemable preferred stock, Series A, par value $.01 per share;
728,133 in 1998 -- 25
Shareholders' equity 180,536 4,379
---------- ----------
$1,273,140 $1,286,269
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I - 1
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($ in thousands except per share data)
(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 16,408 16,221 47,220 43,801
Depreciation and amortization 13,000 11,182 34,877 33,763
------------ ------------ ------------ ------------
Total operating expenses 44,179 40,769 127,698 115,467
------------ ------------ ------------ ------------
Operating income 20,963 11,151 58,644 28,646
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (15,378) (24,522) (57,748) (60,515)
Other income, net 826 7,943 2,418 14,724
------------ ------------ ------------ ------------
Total other expense (14,552) (16,579) (55,330) (45,791)
------------ ------------ ------------ ------------
Income (loss) before minority interest
share of income, income taxes
and extraordinary item 6,411 (5,428) 3,314 (17,145)
Minority interest share of income (382) (713) (1,369) (1,715)
------------ ------------ ------------ ------------
Income (loss) before income taxes
and extraordinary item 6,029 (6,141) 1,945 (18,860)
Income tax (expense) benefit (2,231) 2,246 (720) 6,858
------------ ------------ ------------ ------------
Income (loss) before extraordinary item 3,798 (3,895) 1,225 (12,002)
Extraordinary item - write-off of deferred finance costs,
and premium on early extinguishment of debt (net of
income tax benefit of $8,319 and $12,254 respectively) -- (14,963) -- (20,865)
------------ ------------ ------------ ------------
Net income (loss) $ 3,798 $ (18,858) $ 1,225 $ (32,867)
------------ ------------ ------------ ------------
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities (453) -- 1,809 --
Reclassification adjustment (105) (5,083) (87) (8,497)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 3,240 $ (23,941) $ 2,947 $ (41,364)
============ ============ ============ ============
Per share data:
Basic earnings (loss) per share $ 0.07 $ (0.50) $ 0.03 $ (0.90)
Weighted average shares outstanding 56,418,000 37,802,000 45,165,000 36,333,000
Diluted earnings (loss) per share $ 0.07 $ (0.50) $ 0.03 $ (0.90)
Weighted average shares outstanding 57,906,000 37,802,000 46,828,000 36,333,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I - 2
<PAGE>
PRICE COMMUNICATIONS CORPORATION 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) $ 1,225 $ (32,867)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 33,816 33,838
Minority interest share of income 1,369 1,715
Deferred income taxes (1,734) (19,151)
Gain on sale of marketable securities (1,907) (15,596)
Accrued interest satisfied by issuance of PCC stock 11,309 --
Interest deferred and added to long-term debt -- 1,911
Write-off of deferred finance costs -- 14,925
Amortization of deferred finance charges 1,916 1,912
Premium on early extinguishment of debt -- 18,194
Non-cash compensation 1,061 --
Increase in trade accounts receivable (5,306) (5,086)
Decrease (increase) in inventory 1,368 (2,070)
Increase (decrease) in accounts payable, accrued expenses
and related tax accruals 13,411 (3,562)
Increase in accrued interest payable 6,776 8,932
Changes in other accounts 1,317 (901)
--------- ---------
Total adjustments 63,396 35,061
--------- ---------
Net cash provided by operating activities 64,621 2,194
--------- ---------
Cash flows from investing activities:
Capital expenditures (14,545) (5,544)
Sale of available-for-sale securities and long-term investments 6,957 40,702
Purchase of available-for-sale securities (5,565) (6,557)
Purchase of additional minority interests in majority owned systems (7,177) --
Purchase of minority equity interests in other cellular companies (9,964) --
Long-term investments -- (434)
--------- ---------
Net cash (used in) provided by investing activities (30,295) 28,166
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt -- 725,000
Repayment of long-term debt -- (518,112)
Payment of debt issuance costs -- (17,523)
Purchase and retirement of Company's common stock (40,308) (3,747)
Premium on early extinguishment of debt -- (18,194)
Cash pledged for outstanding interest rate contracts -- (6,718)
Increase in other intangible assets and other assets (788) --
Exercise of employee stock options and warrants 35 427
Other (5) --
--------- ---------
Net cash used in financing activities (41,066) 161,133
--------- ---------
Net increase (decrease) in cash and cash equivalents (6,740) 191,493
Cash and cash equivalents at the beginning of period 204,999 29,451
--------- ---------
Cash and cash equivalents at the end of period $ 198,259 $ 220,944
========= =========
Supplemental disclosure of cash flow information:
Non-cash transactions - employee bonus paid in stock $ 595 $ 500
========= =========
Income taxes paid, net $ 205 $ 688
========= =========
Interest paid $ 44,516 $ 82,620
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I - 3
<PAGE>
Condensed Consolidated Statements of Shareholders' Equity
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Class A Additional
--------------------- paid-in Unrealized
Shares Amount capital gain
------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 21,677 $ 218 $ (5,869) $ 2,836
------ --------- --------- --------
Adjustment to reflect five for four
stock split in Jan. 1999 for which
the shares were previously adjusted 5,545 55 (55)
Five for four stock split in May, 1999 6,688 66 (66)
5 % stock dividend in August 1999 2,560 26 (26)
Issue of warrants from $105M debt redeemed in 1998 2,139 21 (21)
Change in unrealized gain on
marketable equity securities,
net of tax effect 1,140
Purchase and retirement of treasury stock (2,854) (29) (40,279)
Exercise of stock options and warrants 337 3 31
Payment for fractions (28)
Issuance of common stock for
payment of prior year accrued bonus 50 -- 594
Miscellaneous (74) (1) 1
Conversion of Class A and Class B
preferred stock to common stock 3,724 38 67,962
Deferred compensation expense
associated with the conversion of
preferred stock to common stock
Shares issued for conversion of PIK notes 17,245 172 220,569
Write off of deferred finance costs on PIK notes (5,760)
Write off of deferred taxes related to PIK notes (3,490)
Tax benefit from the exercise of stock options
Net loss
------ --------- --------- --------
Balances at September 30, 1999 57,037 $ 569 $ 234,462 $ 3,976
====== ========= ========= ========
<CAPTION>
Total
Retained Deferred shareholders'
earnings compensation equity
-------- ------------ -------------
<S> <C> <C> <C>
Balances at December 31, 1998 $ 7,194 $ -- $ 4,379
-------- -------- ---------
Adjustment to reflect five for four
stock split in Jan. 1999 for which
the shares were previously adjusted --
Five for four stock split in May, 1999 --
5 % stock dividend in August 1999 --
Issue of warrants from $105M debt redeemed in 1998 --
Change in unrealized gain on
marketable equity securities,
net of tax effect 1,140
Purchase and retirement of treasury stock (40,308)
Exercise of stock options and warrants 34
Payment for fractions (28)
Issuance of common stock for
payment of prior year accrued bonus 594
Miscellaneous --
Conversion of Class A and Class B
preferred stock to common stock (67,951) 49
Deferred compensation expense
associated with the conversion of
preferred stock to common stock 1,061 1,061
Shares issued for conversion of PIK notes 220,741
Write off of deferred finance costs on PIK notes (5,760)
Write off of deferred taxes related to PIK notes (3,490)
Tax benefit from the exercise of stock options 899
Net loss 1,225 1,225
-------- -------- ---------
Balances at September 30, 1999 $ 8,419 $(66,890) $ 180,536
======== ======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I - 4
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of
Price Communications Corporation and its subsidiaries (the "Company" or
"Price"). All significant intercompany items and transactions have been
eliminated. On October 6, 1997, the Company acquired all of the outstanding
shares of Palmer Wireless, Inc. ("Palmer").
The Condensed Consolidated Financial Statements have been prepared by the
Company without audit in accordance with the rules and regulations of the
Securities and Exchange Commission. 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, the statements reflect all adjustments necessary for a fair
presentation of the results of interim periods. All such adjustments are of a
normal and recurring nature. The results of operations for any interim period
are not necessarily indicative of the results to be expected for a full 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 Financial Statements
to conform to the 1999 presentation.
(2) Redeemable Preferred Stock
During 1997, the Board of Directors authorized the issuance of
approximately 728,000 shares of the Company's Series A Preferred Stock, and
364,000 shares of the Company's Series B Preferred Stock. In June 1998, Mr.
Price notified the Company that he was considering the exercise of his right to
have the Series B Preferred Stock redeemed by the Company. Mr. Price, pursuant
to the terms of the Series B Preferred Stock, would have received a cash payment
of $5.0 million in respect of the redemption. In order to avoid a significant
cash payment to Mr. Price at a time when the Company had substantial
indebtedness, Mr. Price and the Board agreed that in place of such cash payment,
the Company would issue 411,423 shares (the equivalent of 1.3 million shares
after giving effect to the Company's stock splits in August 1998, January 1999,
and May 1999 and the 5% stock dividend in August 1999) of its $.01 par value
common stock to Mr. Price in exchange for his shares of Series B Preferred
Stock. The value of the Company's common stock received by Mr. Price on the date
of conversion approximated $5.0 million. The common stock vests over a ten-year
period or immediately upon a change of control or other events. Accordingly,
included in Depreciation and amortization in the Condensed Consolidated
Statements of Operations for the nine months ended September 30, 1999 is a
charge for $500,000 representing the amortization of such deferred compensation.
I - 5
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
In June and August 1999, Mr. Price notified the Company that he was
considering the exercise of his right to have the Series A Preferred Stock
redeemed by the Company. Mr. Price, pursuant to the terms of the Series A
Preferred Stock, would have received cash payments totaling $63.0 million in
respect of such redemptions. In order to avoid a significant cash payment to Mr.
Price at a time when the Company had substantial indebtedness, Mr. Price and the
Board agreed that in place of such cash payment, the Company would issue
approximately 3.7 million shares of its $.01 par value common stock to Mr. Price
in exchange for approximately 728,000 shares of Series A Preferred Stock. The
value of the Company's common stock received by Mr. Price on the two respective
dates of conversion approximated $63.0 million. The common stock vests over a
twenty year period or immediately upon a change of control or other events.
Accordingly, included in depreciation and amortization is $600,000 representing
four month's amortization for the first redemption and one month's amortization
for the second redemption.
Included as an offset to shareholders' equity is the unamortized deferred
compensation related to the conversion in 1998 of the Class B Preferred Stock
and the conversion in 1999 of the Class A Preferred Stock.
(3) Shareholders' Equity
In January 1999, the Company's Board of Directors approved a five-for-four
stock split of the Company's Common Stock payable in the form of a 25% stock
dividend to shareholders of record as of the close of business on January 19,
1999. The stated par value of each share was not changed from $.01.
Approximately 5.5 million shares were issued as a result of the stock split.
In May 1999, the Board of Directors declared a five-for-four stock split
of the Company's common stock payable in the form of a 25% stock dividend on May
4, 1999 to shareholders of record at the close of business on April 21, 1999.
Approximately 6.7 million shares were issued as a result of the stock split.
In August 1999, the Board of Directors declared a 5% stock dividend on the
Company's common stock to shareholders of record at the close of business on
August 26, 1999. Approximately 2.6 million shares were issued as a result of the
stock dividend.
All current and prior year earnings (loss) per common share as well as all
other share data have been adjusted to reflect all stock splits through
September 1999 and the stock dividend in August 1999.
In 1998 and 1999, the Company's Board of Directors authorized stock
repurchase programs of up to 5.1 million shares of the Company's common stock.
During the first nine months of 1999, the Company repurchased and retired 3.0
million shares at an average price of $14.16 per share.
In June 1999, the Company allowed the conversion of the outstanding
indebtedness of its wholly owned subsidiary Price Communications Cellular
Holding, Inc. ("PCH"). According to the indenture, in the event the daily high
price of the Company's common stock equaled or exceeded 115% of the Exchange
Price for 10 out of 15 consecutive trading days, the Company could convert PCH's
$200 million plus accrued interest, 11 1/4% Senior Exchangeable Payable-in-Kind
Notes. The terms of the indenture were met and the Company issued 18.1 million
shares of its common stock in exchange for PCH's Notes which included $20.7
million of accrued int erest to the date of conversion.
I - 6
<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") a wholly owned subsidiary of
Price Communications Cellular Holdings, Inc. ("PCH"), a wholly-owned subsidiary
of Price Communications Corporation Cellular, Inc., a wholly owned subsidiary of
Price Communications Corporation ("PCC" the "Company"), 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
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 - 7
<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.
September 30, 1999
DLJ Winter 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 - 8
<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) ....... 11.3 13.9 10.8 12.7
Depreciation and amortization (7) ........ 20.0 21.5 18.7 23.4
----- ----- ----- -----
Total operating expenses ............. 67.8 78.5 68.5 80.1
----- ----- ----- -----
Operating income ......................... 32.2% 21.5% 31.5% 19.9%
Operating income before depreciation and
amortization and non-cash compensation (8) 52.1% 43.0% 50.2% 43.3
</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,
other overhead expenses and non-cash compensation.
(7) Includes non-cash compensation.
(8) Operating income before depreciation and amortization and non-cash
compensation 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, amortization and non-cash
compensation 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.
I - 9
<PAGE>
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 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. In addition, increased sales of accessories, as well as
the sale of digital phones combined with the 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 and non-cash compensation, increased by $1.6 million for the
current three month period but decreased as a percentage of total revenue to
47.9% for the current three months from 57.0% 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
and the corresponding increase in usage as well as increases in span line and
inter-trunk costs related to the increase in the capacity of our network
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") increased slightly
to $16.4 million for the current three month period from $16.2 million for last
year's third quarter. As a percentage of revenue, SG&A for the current three
month period is 25.2% of revenue compared to 31.3% for the same three month
period in 1998 or an improvement of 19.5%. The ability to maintain the same
level of SG&A expenses despite 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 per subscriber addition 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 $11.5 million for the current three month period from $10.6 million for the
same period in 1998. As a percentage of revenue, general and administrative
expenses for the current quarter amount to 17.7% of revenue compared to 20.4% 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 increased by $131,000 principally as a result of an
increase in the provision for bad debts, which was offset by decreases in
payroll and related expenses.
Included in depreciation and amortization for the current three months is
a charge of $599,000 representing the non-cash amortization for compensation
related to the conversion by an officer of the Corporation of the Company's
Preferred stock into the Company's common stock (see notes to Condensed
Consolidated Financial Statements).
Depreciation and amortization increased to $13.0 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, a
reclass in the third quarter of 1998 for amortization of deferred finance
charges previously included as
I - 10
<PAGE>
amortization but reclassified as interest during the third quarter of 1998 and
the amortization of non-cash compensation mentioned above. As a percentage of
revenue, depreciation and amortization decreased to 20.0% for the third quarter
of 1999 from 21.5% for the third quarter of 1998.
Operating income increased to $21.0 million in the third quarter of 1999
from $11.2 million for the third quarter of 1998. Operating income before
depreciation and amortization and non-cash compensation increased to 52.1% as a
percentage of revenue compared to 43.0% 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 $15.4 million for the third quarter of 1999 from
$24.5 million in the third quarter of 1998. During the second quarter of 1999,
PCH allowed the conversion of the outstanding indebtedness of the 11 1/4% Senior
Exchangeable Payable-in-Kind Notes. As a result of the conversion of these
notes, the Company will no longer have an interest charge on the indebtedness.
Other income for the three months period in 1998 includes the gain from
the sale of PriCellular warrants which were not present in the current quarter.
The provision for taxes of $2.2 million for the current quarter is a
result of income before taxes for the current three month period compared to an
income tax benefit of $2.2 million in the third quarter of 1998 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 three month period of $3.8 million compared
to a net loss for the third quarter of 1998 of $18.9 million is a function of
the items discussed above. In addition, the third quarter of 1998 includes $15.0
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 with roaming
partners. Minutes of use per subscriber has also increased improving from 180
minutes for last year's nine month period quarter 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 and non-cash compensation increased by $11.1 million for the
current nine month period but decreased as a percentage of total revenue to
49.8% from 56.7% 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
I - 11
<PAGE>
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 distance costs.
Engineering and other direct expenses also reflect increases due to greater span
and inter-trunk costs which are 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 $3.4
million to $47.2 million from $43.8 million in 1998. As a percentage of revenue,
SG&A for the current nine month period is 25.3% of revenue compared to 30.4% for
the same nine month period in 1998 or an improvement of 16.8%. 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 per subscriber addition 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 $32.0 million for the current nine month period
from $27.6 million for the same period in 1998. As a percentage of revenue,
general and administrative expenses for the current nine month period amount to
17.2% of revenue compared to 19.2% of revenue for the same period in 1998.
Customer service expenses increased by $1.7 million but at 6.3% 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 $1.9
million to $20.2 million for the nine month period in 1999 from $18.3 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 10.8% for the current nine month period
compared to 12.7% for the same period in 1998.
Included in total operating expenses for the current nine months is a
charge of $1.1 million representing the non-cash amortization for compensation
related to the conversion by an officer of the Corporation of the Company's
Preferred stock into the Company's common stock (see notes to Condensed
Consolidated Financial Statements).
Depreciation and amortization increased to $34.9 million for the current
nine month period from $33.8 million for the comparable period in 1998. 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 and the
amortization related to the non-cash compensation discussed above. As a
percentage of revenue, depreciation and amortization decreased to 18.1% for 1999
from 23.4% for 1998.
Operating income increased to $58.6 million for the first nine months of
1999, from $28.6 million for the same period in 1998. Operating income before
depreciation and amortization and non-cash compensation increased to 50.2% as a
percentage of total revenue compared to 43.3% 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 $57.7 million for the current nine month period
from $60.5 million for the same period in 1998.
I - 12
<PAGE>
During the second quarter of 1999, PCH allowed the conversion of the outstanding
indebtedness of the 11 1/4% Senior Exchangeable Payable-in-Kind Notes. As a
result of the conversion of these notes, the Company will no longer have an
interest charge on the indebtedness.
Other income for the three months period in 1998 includes the gain from
the sale of PriCellular stock and warrants which were not present in the current
nine month period.
The provision for taxes in the current nine month period of $700,000 is a
result of income before taxes for 1999 compared to an income tax benefit of $6.9
million for the nine months in 1998 is 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.
Net income for the current nine month period of $1.2 million compared to a
net loss for the nine months of 1998 of $32.9 million is a function of the items
discussed above. In addition, the nine month period in 1998 includes $20.9
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 $64.6 million of operating cash
flow as shown in the Condensed Consolidated Statement of Cash Flows compared to
$2.2 million for 1998. At September 30, 1999, the Company had $198.3 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 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 December 15, 2006 and $175 million 11 3/4% Senior Subordinated Notes
due July 15, 2007 both of which were issued by the Company's wholly owned
subsidiary PCW. 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 current 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 for completion during
the fourth quarter of 1999.
Additionally, the current billing vendor has reviewed its own internal
operation 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 of 1999.
I - 13
<PAGE>
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.
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 - 14
<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 CORPORATION
Date: November 5, 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 198,259
<SECURITIES> 7,932
<RECEIVABLES> 25,215
<ALLOWANCES> 0
<INVENTORY> 2,572
<CURRENT-ASSETS> 237,326
<PP&E> 142,980
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,273,140
<CURRENT-LIABILITIES> 57,952
<BONDS> 700,000
0
0
<COMMON> 0
<OTHER-SE> 180,536
<TOTAL-LIABILITY-AND-EQUITY> 1,273,140
<SALES> 13,569
<TOTAL-REVENUES> 186,342
<CGS> 22,664
<TOTAL-COSTS> 127,698
<OTHER-EXPENSES> 2,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (57,748)
<INCOME-PRETAX> 0
<INCOME-TAX> (720)
<INCOME-CONTINUING> 1,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,225
<EPS-BASIC> .03
<EPS-DILUTED> .02
</TABLE>
