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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
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,
New York, New York 10020
(Address of principal executive offices) (Zip Code)
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 July 15,
1999 was 51,279,089
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<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
June 30, 1999 and December 31, 1998........................I-1
Condensed Consolidated Statements of Operations -
Three months ended June 30, 1999 and 1998
and six months ended June 30 1999 and 1998.................I-2
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and 1998....................I-3
Condensed Consolidated Statement of Shareholders'
Equity - Six months ended June 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-13
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
ii
<PAGE>
Item 1. Financial Statements
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited) (Audited)
June 30, December 31,
1999 1998
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 197,672 $ 204,999
Trade accounts receivable, net 24,076 20,509
Receivable from other cellular carriers 3,067 2,282
Available for sale securities 8,145 5,608
Prepaid expenses and deposits 577 521
Inventory 2,799 3,940
---------- ----------
Total current assets 236,336 237,859
Net property and equipment 145,306 144,895
Licenses, net of amortization 869,511 876,952
Other intangible assets and other assets,
at cost less accumulated amortization 20,269 26,563
---------- ----------
$1,271,422 $1,286,269
========== ==========
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses $ 30,441 $ 25,336
Accrued interest payable 11,617 11,779
Accrued salaries and employee benefits 3,172 3,256
Deferred revenue 6,355 5,535
Customer deposits 1,253 921
Deferred tax liability, net 1,920 272
---------- ----------
Total current liabilities 54,758 47,099
Long-term debt 700,000 909,432
Accrued income taxes - long term 34,032 25,434
Deferred income taxes 291,315 290,370
Minority interests 6,939 9,530
---------- ----------
Total liabilities 1,087,044 1,281,865
---------- ----------
Commitments and contingencies
Redeemable preferred stock, Series A,
par value $.01 per share;
364,066 in 1999 and 728,133 in
1998, respectively 13 25
Shareholders' equity 184,365 4,379
---------- ----------
$1,271,422 $1,286,269
========== ==========
See accompanying notes to condensed consolidated financial statements.
I-1
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service $ 59,839 $ 45,737 $ 112,660 $ 86,421
Equipment sales and installation 4,770 3,181 8,540 5,772
------------ ------------ ------------ ------------
Total revenue 64,609 48,918 121,200 92,193
------------ ------------ ------------ ------------
Operating expenses:
Engineering, technical and other direct 8,076 6,655 16,389 13,022
Cost of equipment 7,601 6,019 14,441 11,515
Selling, general and administrative 16,149 14,855 30,812 27,580
Depreciation and amortization 10,681 11,230 21,415 22,460
------------ ------------ ------------ ------------
Total operating expenses 42,507 38,759 83,057 74,577
------------ ------------ ------------ ------------
Operating income 22,102 10,159 38,143 17,616
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (21,298) (18,137) (42,370) (36,178)
Other income (expense), net 731 6,662 1,130 6,845
------------ ------------ ------------ ------------
Total other expense (20,567) (11,475) (41,240) (29,333)
------------ ------------ ------------ ------------
Income (loss) before minority
interest share of income,
income taxes and
extraordinary item 1,535 (1,316) (3,097) (11,717)
Minority interest share of income (370) (542) (987) (1,002)
------------ ------------ ------------ ------------
Income (loss) before income
taxes and extraordinary item 1,165 (1,858) (4,084) (12,719)
Income tax (expense) benefit (431) 596 1,511 4,612
------------ ------------ ------------ ------------
Income (loss) before
extraordinary item 734 (1,262) (2,573) (8,107)
Extraordinary item - write-off of
deferred finance costs, net of
income tax benefit of $3,935 -- (5,902) -- (5,902)
------------ ------------ ------------ ------------
Net income (loss) $ 734 $ (7,164) $ (2,573) $ (14,009)
------------ ------------ ------------ ------------
Other comprehensive income, net of tax
Unrealized gain (loss) on available
for sale securities (1,439) (3,881) 1,425 2,639
Reclassification adjustment (32) (1,065) (93) (3,026)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ (737) $ (12,110) $ (1,241) $ (14,396)
============ ============ ============ ============
Per share data:
Basic earnings (loss) per share $ 0.02 $ (0.21) $ (0.07) $ (0.41)
Weighted average shares outstanding 34,576,000 34,278,000 34,186,000 34,406,000
Diluted earnings (loss) per share $ 0.02 $ (0.21) $ (0.07) $ (0.41)
Weighted average shares outstanding 38,819,000 34,278,000 34,186,000 34,406,000
</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 six months
ended June 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,573) $ (14,009)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 21,415 22,460
Minority interest share of income 987 1,002
Deferred income taxes (1,734) (8,586)
Gain on sale of marketable securities (1,735) (8,093)
Interest deferred and added to long-term debt 11,309 5,876
Amortization of deferred finance costs 1,307 10,972
Deferred compensation expense 599 --
Increase in trade accounts receivable (4,352) (2,732)
Increase (decrease) in accounts payable and accrued expenses 14,213 (7,431)
(Decrease) increase in accrued interest payable (162) 1,640
Changes in other accounts 2,225 925
--------- ---------
Total adjustments 44,072 16,033
--------- ---------
Net cash provided by operating activities 41,499 2,024
--------- ---------
Cash flows from investing activities:
Capital expenditures (10,771) (4,171)
Sale of available-for-sale securities 2,742 24,756
Purchase of available-for-sale securities (1,282) (6,686)
Purchase of minority interests (7,177) --
--------- ---------
Net cash used in investing activities (16,488) 13,898
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt -- 525,000
Repayment of long-term debt -- (437,999)
Payment of debt issuance costs -- (13,760)
Purchase of common stock (31,565) --
Cash pledged for outstanding interest rate contracts -- (6,738)
Increase in other intangible assets and other assets (788) (575)
Exercise of employee stock options 15 --
Other -- 535
--------- ---------
Net cash used in financing activities (32,338) 66,463
--------- ---------
Net increase (decrease) in cash and cash equivalents (7,327) 82,385
Cash and cash equivalents at the beginning of period 204,999 29,451
--------- ---------
Cash and cash equivalents at the end of period $ 197,672 $ 111,836
========= =========
Supplemental disclosure of cash flow information:
Non-cash transactions - stock bonus $ 595 $ 500
========= =========
Income taxes paid, net $ 205 $ 63
========= =========
Interest paid $ 34,234 $ 20,577
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders' Equity
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Class A Additional Total
---------------------- paid-in Unrealized Retained Deferred shareholders'
Shares Amount capital gain earnings compensation equity
--------- --------- --------- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 21,677 $ 218 $ (5,869) $ 2,836 $ 7,194 $ -- $ 4,379
--------- --------- --------- --------- --------- ---------- ---------
Adjustment to reflect five for four
stock split in Jan. 1999 for which
the shares were previously adjusted 5,545 53 (53) --
Five for four stock split in May, 1999 6,470 65 (65) --
Change in unrealized gain on
marketable equity securities,
net of tax effect 1,425 1,425
Purchase of treasury stock (2,353) (18) (31,541) (31,559)
Cashless stock option exercise 323 3 (3) --
Stock options exercised-cash 14 1 14 15
Issuance of common stock for
payment of prior year accrued bonus 50 -- 594 594
Conversion of Class A and Class B
preferred stock to common stock 1,657 17 28,831 (28,854) (6)
Deferred compensation expense
associated with the conversion of
preferred stock to common stock 599 599
Shares issued for conversion of
PIK notes 17,245 172 220,569 220,741
Write off of deferred finance costs
on PIK notes (5,760) (5,760)
Write off of deferred taxes related
to PIK notes (3,490) (3,490)
Net loss (2,573) (2,573)
--
--------- --------- --------- --------- --------- ---------- ---------
Balances at June 30, 1999 50,628 $ 511 $ 203,227 $ 4,261 $ 4,621 $ (28,255) $ 184,365
========= ========= ========= ========= ========= ========== =========
</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 Consolidated Financial Statements include the accounts of Price
Communications Corporation and its subsidiaries (the "Company" or "Price"). All
significant intercompany items and transactions have been eliminated. On October
6, 1997, the Company acquired all of the outstanding shares of Palmer Wireless,
Inc. ("Palmer").
The Consolidated Financial Statements have been prepared by the Company
without audit in accordance with 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. This statement is
effective for fiscal years beginning after June 15, 1999, but can be adopted
earlier. Management has not yet determined the timing of or method to be used in
adopting this statement. Management does not believe at this time that such
adoption would have a material impact on its consolidated financial statements
nor that the Financial Accounting Standards Board has any authority to compel
this.
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 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 1,285,696 shares after giving
effect to the Company's stock splits in August 1998, January 1999, and May 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 as other expense in the Condensed Consolidated
Statements of Operations for the six months ended June 30, 1999 is a charge for
$375,000 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 1999, Mr. Price notified the Company that he was considering the
exercise of his right to have one half of the Series A Preferred Stock redeemed
by the Company. Mr. Price, pursuant to the terms of the Series A Preferred
Stock, would have received a cash payment of $23.9 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 approximately 1.7
million shares of its $.01 par value common stock to Mr. Price in exchange for
approximately 364,000 shares of Series A Preferred Stock. The value of the
Company's common stock received by Mr. Price on the date of conversion
approximated $23.9 million. The common stock vests over a twenty year period or
immediately upon a change of control or other events. Accordingly included as
other expense is $100,000 representing one month's amortization of such deferred
compensation. The balance of Mr. Price's shares of Series A Preferred Stock will
be repurchased by the Company upon Mr. Price's request. The shares of the Series
A Preferred Stock will be repurchased by the Company in the event of Mr. Price's
death or termination of employment prior to a transaction resulting in payment
as aforesaid under certain conditions. As of June 30, 1999, the value of the
remaining Series A Preferred Stock approximated $25.5 million which amount is
convertible into approximately 1.7 million shares of the Company's common stock.
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 a portion 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.
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 May
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 six months of 1999, the Company repurchased and retired 2.4
million shares at an average price of $13.42 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 17.2 million
shares of its common stock in exchange for PCH's Notes which Notes included
$20.7 million of accreted interest 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. ("Holdings"), 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
June 30, 1999, the Company provided cellular telephone service to approximately
418,000 subscribers in Alabama, Florida, Georgia, and South Carolina in a total
of 16 licensed service areas, composed of eight Metropolitan Service Areas
("MSAs") and eight Rural Service Areas ("RSAs"), with an aggregate estimated
population of 3.3 million. The Company sells its cellular telephone service as
well as a full line of cellular products and accessories principally through its
network of retail stores. The Company markets all of its products and services
under the nationally-recognized service mark CELLULARONE.
During the course of the year, the Company has been engaged and continues
to be engaged in preliminary discussions and negotiations with respect to
potential acquisitions and exchanges, all with the object of being accretive in
the long term for shareholders and bondholders. There can be no assurances that
the Company will be successful in consummating any of such transactions or as to
the terms thereof.
I-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 June 30, 1999.
June 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-13 148,361 100.0% 148,361
AL-8 173,677 100.0% 173,677
--------- ---------
3,325,757 3,270,990
========= =========
RESULTS OF OPERATIONS
The following table sets forth for the Company for the periods indicated,
the percentage which certain amounts bear to total revenue.
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Revenue:
Service ................................. 92.6% 93.5% 93.0% 93.7%
Equipment sales and installation ........ 7.4 6.5 7.0 6.3
----- ----- ----- -----
Total revenue ...................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating expenses:
Engineering, technical and other direct:
Engineering and technical (1) ........ 5.3 6.2 5.8 6.8
Other direct costs of services(2) .. 7.2 7.4 7.7 7.3
Cost of equipment (3) ................... 11.7 12.3 11.9 12.5
Selling, general and administrative:
Sales and marketing (4) .............. 8.3 12.0 8.5 11.4
Customer service (5) ................. 6.3 6.3 6.3 6.5
General and administrative (6) ....... 10.4 12.0 10.6 12.0
Depreciation and amortization ........... 16.5 23.0 17.7 24.4
----- ----- ----- -----
Total operating expenses .......... 65.7 79.2 68.5 80.9
----- ----- ----- -----
Operating income ........................ 34.3% 20.8% 31.5% 19.1%
Operating income before depreciation and
Amortization (7) ..................... 50.7% 43.7% 49.1% 43.5%
I-8
<PAGE>
- ----------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, advertising and promotion expenses and employee and agent
commissions.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing subscriber invoices.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation or as an alternative to net income, operating
income or any other measure of performance under generally accepted
accounting principles. The Company believes that operating income before
depreciation and amortization is viewed as a relevant supplemental measure
of performance in the cellular telephone industry.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenue. Service revenues totaled $59.8 million for the second quarter of
1999, an increase of 30.8% from $45.7 million for the second quarter of 1998.
The significant increase is primarily attributable to the continued improvement
in the operating statistics combined with an increase in the average number of
subscribers for the period. The average number of subscribers increased by
approximately 76,000 for the current three months compared to last year's second
quarter. In addition, roaming revenue increased by $3.8 million or 57% over last
year's second quarter results.
Average monthly revenue per subscriber (service revenue per the financial
statement) excludes incollect revenue from our subscribers since this revenue is
offset against incollect expense in the other direct cost caption. For the
second quarter of 1999, the average monthly revenue per subscriber amounted to
$48.70 compared to $45.30 for the same period last year or an increase of 7.5%.
In the future, the Company may realize a decrease in the average monthly revenue
per subscriber as a result of the new roaming rates negotiated with roaming
partners. Minutes of use per subscriber has also markedly increased improving
from 187 minutes for last year's second quarter to 247 minutes for the current
quarter. Although this increase does not immediately result in a direct
corresponding increase in airtime revenue, greater usage by subscribers may
eventually lead to additional billable minutes of use.
Equipment sales and installation revenue, which consists primarily of
subscriber equipment sales, increased to $4.8 million for the second quarter of
1999 compared to $3.2 million for the second quarter of 1998. The increase is
primarily due to the emphasis on recovering a greater percentage of the phone
cost from subscribers. In addition, increased sales of accessories, as well as
the sale of digital phones which have a higher price point, have contributed to
the increase in equipment revenue.
Operating Expenses. Operating expenses, excluding depreciation and
amortization, increased by $4.3 million for the current three month period but
decreased as a percentage of total revenue to 49.3% from 56.3% for the second
quarter of 1998.
Engineering, technical and other direct costs of service increased to $8.1
million for the second quarter of 1999 from $6.7 million for the second quarter
of 1998. Included in this category is the net cost of incollect which represents
the difference between the amount paid to other cellular carriers for the
Company's subscribers roaming in other markets and the amount charged to those
subscribers. Although the cost increased by $1.3 million, the amount recovered
from subscribers increased by $1.6 million which resulted in an improved
recovery ratio. The recovery ratio amount may improve further based on the
negotiated decreases in rates reimbursed to various outside carriers (see
outcollect roaming revenue for a similar decrease in rates). The increase is a
result of the increased subscriber base which generates increases in long
distance costs, and span and inter-trunk cost increases as a result of the
increase in the lines due to the additional cellular usage.
I-9
<PAGE>
Cost of equipment increased to $7.6 million for the second quarter of 1999
from $6.0 million for the second quarter of 1998, primarily as a result of an
increase in the average cost of a phone as more subscribers buy digital phones
and the increase in accessories sold to subscribers. The percentage of cost
recovered increased from 52.8% for the second quarter of 1998 to 62.8% for the
current quarter. This positive trend is a result of the emphasis on selling more
accessories per subscriber addition and an effort to reduce the loss on the sale
of phones, which loss is standard practice in the industry.
Selling, general and administrative expenses ("SG&A") increased by $1.2
million from $14.9 million in the second quarter of 1998 to $16.1 million for
the same period of the current year. As a percentage of revenue, SG&A for the
current three month period is 25.0% of revenue compared to 30.4% for the same
three month period in 1998 or an improvement of 17.8%. SG&A expenses decreased
by $740,000 as a result of stronger budgetary controls initiated by management.
Decreases in salaries combined with flat advertising expenditures were factors
contributing to the decrease in the current three month period. The cost to add
a gross subscriber, which consists of the net cost of equipment sold,
installation costs and sales and marketing, has improved, decreasing from
$221.67 for the second quarter of 1998 to $205.16 for the same period in 1999 or
a decrease of 7.4%. General and administrative expenses, which include customer
service expenses, increased to $10.8 million for the current three month period
from $9.0 million for the same period in 1998. As a percentage of revenue,
general and administrative expenses for the current quarter amounts to 16.7% of
revenue compared to 18.3% of revenue for the second quarter of 1998. Customer
service expenses increased $1.0 million for the current quarter but remained at
6.3% of revenue as it was in last year's second quarter. As the number of
subscribers increase, billing costs, which comprise the major portion of
customer service, increase. General and administrative expenses increased by
$803,000 principally as a result of increased bad debts, which were partially
offset by decreases in payroll and related expenses.
Depreciation and amortization decreased $549,000 to $10.7 million in the
current period from $11.2 million for the second quarter of 1998. The decrease
was primarily due to the reduction in the carrying value of the licenses due to
the finalization of purchase accounting in the fourth quarter of 1998. As a
percentage of revenue, depreciation and amortization decreased to 16.5% for the
second quarter of 1999 compared to 23.0% for the second quarter of 1998.
Operating income increased significantly to $22.1 million in the second
quarter of 1999 from $10.2 million for the second quarter of 1998. Operating
income before depreciation and amortization increased to 50.7% as a percentage
of revenue compared to 43.7% for the second quarter of 1998. This increase in
operating margin is attributable primarily to the increase in operating revenue
combined with control of operating costs.
Net Interest Expense, Income Taxes, Extraordinary Item and Net Income. Net
interest expense increased to $21.3 million for the second quarter of 1999 from
$18.1 million in the second quarter of 1998, primarily due to the increased
level of debt from the refinancings which occurred in the second and third
quarters of 1998. Partially offsetting this increase is the additional interest
earned on the higher level of cash during the second quarter of 1999. The
conversion of the PCH debt in June 1999 will reduce future interest expense by
approximately $24.8 million annually.
Other income (net) for 1999 includes the amortization of deferred
compensation related to the conversion by Mr. Price of Series A and B Preferred
shares as well as gains on the disposition of marketable securities.
Amortization of deferred compensation expense will increase by approximately
$1.2 million annually in future periods as a result of Mr. Price's conversion of
Series A Preferred shares in June 1999. In 1998, other income includes the gain
from the sale of PriCellular stock which is the principle component of other
income for 1998.
The provision for taxes in the current quarter of $431,000 as compared to
the income tax benefit of $596,000 in the second quarter of 1998 is a result of
taxable income for the current quarter compared to a loss for 1998. The income
tax benefit in 1998 represents the reduction of the accrued tax liability
associated with the sale of the Ft. Myers and GA-1 properties, which was
established as the result of purchase accounting.
The net income for the current three month period of $734,000 compared to
a net loss for the second quarter of 1998 of $7.2 million is a function of the
items discussed above. In addition, the second quarter of 1998 includes $5.9
million net of taxes of deferred finance charges written off as the result of
early extinguishment of debt.
I-10
<PAGE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue. Service revenues totaled $112.7 million for the six month period
of 1999, an increase of 30.4% from $86.4 million for the same period of 1998.
The significant increase is primarily attributable to the increase in the
average number of subscribers for the period. The average number of subscribers
increased by approximately 73,000 for the current six month period compared to
last year's comparable period. In addition, roaming revenue increased by $7.0
million or 58% over last year's six month results.
Average monthly revenue per subscriber (defined as service revenue per the
financial statement) excludes incollect revenue from our subscribers since the
revenue is offset against incollect expense in the other direct cost caption.
For 1999, the average monthly revenue per subscriber amounted to $47.00 compared
to $44.08 for the same period last year or an increase of 6.6%. In the future,
the Company may realize a decrease in the average monthly revenue per subscriber
as a result of the new roaming rates negotiated with roaming partners. Minutes
of use per subscriber has also increased improving from 167 minutes for last
year's six month period quarter to 224 minutes for the current six months.
Although this increase does not immediately result in a direct corresponding
increase in airtime revenue, greater usage by our subscribers may eventually
lead to additional billable minutes of use.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $8.5 million for the first six
months of 1999 compared to $5.8 million for the same period in 1998. The
increase is primarily due to the emphasis on recovering a greater percentage of
the phone cost from subscribers as well as additional gross subscriber additions
for the current six month period. In addition, increased sales of accessories,
as well as the sale of digital phones which have a higher price point, have
contributed to the increase in equipment revenue.
Operating Expenses. Operating expenses, excluding depreciation and
amortization, increased by $8.8 million for the current six month period but
decreased as a percentage of total revenue to 50.8% from 56.5% for last year's
comparable period.
Engineering, technical and other direct costs of service increased to
$16.4 million for the current six months from $13.0 million for the same period
in 1998. Included in this category is the net cost of incollect which represents
the difference between the amount paid to other cellular carriers for our
subscribers roaming in their markets and the amount charged to subscribers.
Although the cost increased by $4.3 million, the amount recovered from
subscribers increased by $3.8 million resulting in a net increase of $470,000
for the current six months. In the future, the recovery ratio may improve based
on the negotiated decrease in rates reimbursed to various outside carriers (see
outcollect roaming revenue for a similar decrease in rates). The increase is a
result of the increased subscriber base which generates increases in long
distance costs, and span and inter-trunk cost increases as a result of the
increase in the lines due to the additional cellular usage
Cost of equipment increased to $14.4 million for the current period from
$11.5 million for the first six months of 1998, primarily as a result of an
increase in the average cost of a phone as more subscribers buy digital phones,
the increase in gross subscriber additions and the increase in accessories now
being sold to subscribers. The percentage of cost recovered increased from 50.1%
for 1998 to 59.1% for 1999. This positive trend is a result of the emphasis on
selling more accessories per subscriber addition and an effort to reduce the
loss on the sale of phones, which loss is standard practice in the industry.
Selling, general and administrative expenses ("SG&A") increased $2.5
million to $30.8 million from $27.6 million in 1998. As a percentage of revenue,
SG&A for the current six month period is 25.4% of revenue compared to 29.9% for
the same six month period in 1998 or an improvement of 15.0%. SG&A expenses
decreased by $173,000 as a result of stronger budgetary controls initiated by
management. Decreases in salaries combined with slight increases in advertising
expenditures and installation costs were factors contributing to the decrease in
the current month period. The cost to add a gross subscriber, which consists of
the net cost of equipment sold, installation costs and sales and marketing, has
improved, decreasing from $222.25 for the six months of 1998 to $202.16 for the
same period in 1999 or a decrease of 9.0%. General and administrative expenses,
which include customer service expenses, increased to $20.4 million for the
current six month period from $17.0 million for the
I-11
<PAGE>
same period in 1998. As a percentage of revenue, the current six month period
amounts to 16.8% of revenue compared to 18.4% of revenue for the same period in
1998. Customer service expenses increased $1.7 million but remained at 6.3% of
revenue a light decrease from the 6.5% for last year's six month period. As the
number of subscribers increase, billing costs, which comprise the major portion
of customer service, increase. General and administrative expenses increased by
$1.0 million principally as a result of increased bad debts, which were
partially offset by decreases in payroll and related expenses.
Depreciation and amortization decreased to $21.4 million in the current
period from $22.5 million for the same period in 1998. The decrease was
primarily due to the reduction in the carrying value of the licenses due to the
finalization of purchase accounting in the fourth quarter of 1998. As a
percentage of revenue, depreciation and amortization decreased to 17.7% for 1999
compared to 24.4% for 1998.
Operating income increased significantly to $38.1 million for the first
six months of 1999, from $17.6 million for the same period in 1998. Operating
income before depreciation and amortization increased to 49.1% as a percentage
of revenue compared to 43.5% for the first six months of 1998. This increase in
operating margin is attributable primarily to the increase in operating revenue
combined with control of operating costs.
Net Interest Expense, Income Taxes, Extraordinary Item and Net Income. Net
interest expense increased to $42.4 million for 1999 from $36.2 million in the
first six months primarily due to the increased level of debt from the
refinancings which occurred in the second and third quarters of 1998. Partially
offsetting this increase is the additional interest earned on the higher level
of cash during the second quarter of 1999. The conversion of the PCH debt in
June 1999 will reduce future interest expense by approximately $24.8 million
annually.
Other income (net) for 1999 includes the amortization of deferred
compensation related to the conversion by Mr. Price of Series A and B Preferred
shares as well as gains on the disposition of marketable securities.
Amortization of deferred compensation expense will increase by approximately
$1.2 million annually in future periods as a result of Mr. Price's conversion of
Series A Preferred shares in June 1999. In 1998, other income includes the gain
from the sale of PriCellular stock which is the principle component of other
income for 1998.
The income tax benefit was $1.5 million for the first six months of 1999
compared to $4.6 million for the same period in 1998. The income tax benefit in
1998 represents the reduction of the accrued liability associated with the sale
of the Ft. Myers and GA-1 properties which was established as the result of
purchase accounting.
The net loss for the current six month period of $2.6 million compared to
a net loss $14.0 million for 1998 is a function of the items discussed above. In
addition, the second quarter of 1998 includes $5.9 million net of taxes of
deferred finance charges written off as the result of early extinguishment of
debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. Historically, the Company has met
its capital requirements primarily through bank debt, debt issued to the public
and, to a lesser extent, operating cash flow. During the current six month
period, the Company generated $41.5 million of operating cash flow as shown in
the Condensed Consolidated Statement Of Cash Flows compared to $2.0 million for
1998. The Company's debt service requirements for the current year consist of
cash interest payments of $68.5 million, of which $34.3 million has been paid
through June 30, 1999. The remaining cash interest requirements are
approximately $10.3 million in the third quarter and $24.0 million in the fourth
quarter. Based upon the Company's current ability to generate operating cash
flow combined with its current available cash position, there does not appear to
be any necessity to provide additional funding for the current level of
operations. The Company's outstanding debt instruments consist of $525 million
of 9 1/8% Senior Secured Notes due June 15, 2002 and $175 million 11 3/4% Senior
Subordinated Notes due July 15, 2007. Both of these instruments contain
covenants that restrict the payment of dividends, incurrence of debt and sale of
assets, among other things.
I-12
<PAGE>
YEAR 2000 IMPACT
The Company is in the process of reviewing the full impact that the Year
2000 could have on its operational and financial systems. The Company has chosen
its current billing and MIS outsource provider to coordinate the testing of all
of the operating and financial systems that could effect the Company's
operations. Several of these systems, such as the point of sale system, the
prepaid calling system, wide area network and local area network, and general
ledger system are currently integrated into the billing system.
The Company's current billing vendor and MIS outsource provider (EDS) has
committed to test the compliance of the above systems with the Year 2000
requirements by reviewing each system's upgrade releases which these third party
providers maintain will make their systems Year 2000 compliant. Most of these
third party providers deal with other cellular companies, which enables the
Company to leverage the knowledge obtained from servicing these other cellular
and telecommunications companies. The Company anticipates that this will reduce
the testing and validation time necessary for a comprehensive review.
In addition to the testing of third party provider systems, the current
billing vendor will review their own internal operating systems to verify Year
2000 compliance. They will then test the integration of the updated Year 2000
versions with their own updated version to ensure compliance and operational
compatibility.
The Company, with the billing provider's guidance, has formulated its
strategy after analyzing all systems that could have an effect on the Company's
operations and prioritizing the impact into high, medium and low risk. The
Company estimates that the total costs of these testing and upgrading procedures
will be less than $2.0 million. However, the Company is unable to predict all of
the implications of the Year 2000 issue as it relates to the Company's suppliers
and other entities. It is anticipated that the substantial portion of these
costs will be incurred during 1999 and will be expensed when incurred.
The Company has investigated the possibility of establishing a contingency
plan in the event the above is not successful. The Company's dependence on a few
key third party providers, which provides service to most of the cellular
industry combined with the lack of accessibility of alternative systems makes a
contingency plan impractical.
Item 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-13
<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
On July 14, 1999 the Company held its annual meeting of shareholders. The
two items voted on are as follows:
Election of George Cadgene as director to serve for a term of three
years expiring in 2002 Approval of an amendment to the Company's
Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 60,000,000 to 120,000,000. The total
eligible shares were 36,857,316.
As to the election of George Cadgene: 34,127,721 or 92.6% of the
eligible vote voted in favor with 44,828 withheld
As to the amendment: 33,808,067 or 91.7% of the eligible vote voted
in favor with 336,633 or .9% voting against and 27,849 votes
withheld
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: July 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 197,672
<SECURITIES> 8,145
<RECEIVABLES> 24,076
<ALLOWANCES> 0
<INVENTORY> 2,799
<CURRENT-ASSETS> 236,336
<PP&E> 145,306
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,271,422
<CURRENT-LIABILITIES> 54,758
<BONDS> 700,000
0
13
<COMMON> 0
<OTHER-SE> 184,325
<TOTAL-LIABILITY-AND-EQUITY> 1,271,422
<SALES> 8,540
<TOTAL-REVENUES> 121,200
<CGS> 14,441
<TOTAL-COSTS> 83,057
<OTHER-EXPENSES> 1,130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (42,370)
<INCOME-PRETAX> 0
<INCOME-TAX> 1,471
<INCOME-CONTINUING> (2,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,613)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
