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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 March 31, 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
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Securities registered pursuant to Section 12(b) or Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the issuer's common stock as of May 3, 1999
was 33,420,928.
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<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets- March 31, 1999 and
December 31, 1998 .......................................... I-1
Condensed Consolidated Statements of Operations - Three months
ended March 31, 1999 and 1998 .............................. I-2
Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 1999 and 1998 .............................. I-3
Condensed Consolidates Statement of Stockholders' Equity - Three
months ended March 31, 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
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)
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 211,075 $ 204,999
Trade accounts receivable, net 20,914 20,509
Receivable from other cellular carriers 2,412 2,282
Available for sale securities 10,421 5,608
Prepaid expenses and deposits 1,045 521
Inventory 2,710 3,940
----------- -----------
Total current assets 248,577 237,859
Net property and equipment 145,674 144,895
Licenses, net of amortization 871,263 876,952
Other intangible assets and other assets,
at cost less accumulated amortization 26,747 26,563
----------- -----------
$ 1,292,261 $ 1,286,269
=========== ===========
Liabilities and Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses $ 26,558 $ 25,336
Accrued interest payable 18,462 11,779
Accrued salaries and employee benefits 2,382 3,256
Deferred revenue 5,799 5,535
Customer deposits 1,105 921
Deferred tax liability, net 2,823 272
----------- -----------
Total current liabilities 57,129 47,099
Long-term debt 915,065 909,432
Accrued income taxes - long term 25,077 25,434
Deferred income taxes 287,825 290,370
Minority interests 10,148 9,530
----------- -----------
Total liabilities 1,295,244 1,281,865
----------- -----------
Commitments and contingencies
Redeemable preferred stock, Series A, par value $.01 per share;
728,133 shares authorized and outstanding 25 25
Shareholders' equity (deficit) (3,008) 4,379
----------- -----------
$ 1,292,261 $ 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 and Comprehensive Income
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Service $ 52,821 $ 40,684
Equipment sales and installation 3,770 2,591
------------ ------------
Total revenue 56,591 43,275
------------ ------------
Operating expenses:
Engineering, technical and other direct 8,313 6,751
Cost of equipment 6,840 5,496
Selling, general and administrative 14,663 12,341
Depreciation and amortization 10,734 11,396
------------ ------------
Total operating expenses 40,550 35,984
------------ ------------
Operating income 16,041 7,291
------------ ------------
Other income (expense):
Interest expense, net (21,072) (17,875)
Other income (expense), net 399 183
------------ ------------
Total other expense (20,673) (17,692)
------------ ------------
Income (loss) before minority interest
share of income and income taxes (4,632) (10,401)
Minority interest share of income (617) (460)
------------ ------------
Income (loss) before income taxes (5,249) (10,861)
Income tax benefit 1,942 4,016
------------ ------------
Net income (loss) $ (3,307) $ (6,845)
------------ ------------
Other comprehensive income, net of tax
Unrealized gains on available for sale securities 2,864 5,927
Reclassification adjustment (52) --
------------ ------------
Comprehensive income (loss) $ (495) $ (918)
============ ============
Per share data:
Basic and diluted earnings (loss) per share $ (0.10) $ (0.20)
Weighted average shares outstanding 33,923,000 34,221,000
</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 three months
ended March 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,307) $ (6,845)
--------- ---------
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 10,734 11,396
Minority interest share of income 617 460
Deferred income taxes (1,734) (1,037)
Gain on sale of investments (731) --
Interest deferred and added to long-term debt 5,633 2,886
Amortization of deferred finance 594 621
Increase in trade accounts receivable (535) (491)
Increase (decrease) in accounts payable and accrued expenses 585 (4,289)
Increase (decrease) in accrued interest payable 6,683 (6,076)
Change in other accounts 1,530 23
--------- ---------
Total adjustments 23,376 3,493
--------- ---------
Net cash provided by (used in) operating activities 20,069 (3,352)
--------- ---------
Cash flows from investing activities:
Capital expenditures (5,814) (704)
Sale of available-for-sale securities 1,443 --
Purchase of available-for-sale securities (921) (4,144)
Increase in other intangible assets and other assets (788) (497)
--------- ---------
Net cash used in investing activities (6,080) (5,346)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt -- (12,124)
Purchase of common stock (7,928) --
Exercise of employee stock options 15 --
--------- ---------
Net cash used in financing activities (7,913) (12,124)
--------- ---------
Net increase (decrease) in cash and cash equivalents 6,076 (20,822)
Cash and cash equivalents at the beginning of period 204,999 29,451
--------- ---------
Cash and cash equivalents at the end of period $ 211,075 $ 8,629
========= =========
Supplemental disclosure of cash flow information:
Non-cash transactions - stock bonus $ 595 $ 500
========= =========
Income taxes paid, net $ 167 $ 63
========= =========
Interest paid $ 10,281 $ 20,577
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Class A Additional Total
---------------------- paid-in Unrealized Retained stockholders'
Shares Amount capital Gain earnings equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 21,670 $ 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 5,321 53 (53) --
Five for four stock split in May, 1999 7,050 70 (70)
Net loss -- -- -- -- (3,307) (3,307)
Change in unrealized gain on
marketable equity securities,
net of tax effect 2,864 2,864
Purchase of treasury stock (892) (9) (7,919) (7,928)
Cashless stock option exercise 402 3 (3) --
Stock options exercised-cash 17 1 14 15
Issuance of common stock for
payment of prior year accrued bonus 63 -- 594 594
Compensation associated with
conversion of Series B Preferred 375 375
-------- -------- -------- -------- -------- --------
Balances at March 31, 1999 33,631 $ 336 $(12,931) $ 5,700 $ 3,887 $ (3,008)
======== ======== ======== ======== ======== ========
</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. 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 its 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 intended to exercise his right to have the
Series B Preferred Stock redeemed by the Company. Accordingly, the Company
issued 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 Class A 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, is a charge for $125,000, representing the
amortization of such compensation.
The shares of Series A Preferred Stock will be repurchased by the Company
upon Mr. Price's request, provided that the trading price of the Company's
common stock during any 10 consecutive trading days prior to such request was at
least $3.61 per share, for a purchase price equal to its then fair market value.
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. The
Company estimated as of March 31, 1999, the value of Series A
I-5
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Preferred Stock to be approximately $20.0 million, based upon a 10 day average
closing price of $9.39 per share for the Company's common stock. Mr. Price has
waived his right to receive such value in cash. Common stock to be issued in
exchange for the Series A Preferred Stock will vest over a ten-year period or
immediately upon a change of control or other events.
(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 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 $6.7 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 Class A Common Stock, payable in the form of 25% stock dividend
on May 4, 1999 to shareholders of record at the close of business on April 21,
1999.
In June 1998, the Company's Board of Directors authorized a stock
repurchase program of up to 2,000,000 shares of the Company's Class A Common
Stock. During the first quarter of 1999, the company repurchased and retired
892,031 shares at an average price of $8.89 per share.
All current and prior year earnings (loss) per common share as well at all
other share data have been adjusted to reflect all stock splits through May
1999.
(4) Subsequent Event
In April 1999, the Company purchased existing minority interests in
several of its MSA's and RSA's. Based upon the percentages acquired, the Company
increased its existing POP holdings by 93,000 POPS at an aggregate purchase
price of approximately $7.1 million or approximately $76.00 per POP.
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
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 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.
References to the "Company" or "Price" in this report include Price
Communications Corporation and its subsidiaries unless the context otherwise
indicates.
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"), 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
March 31, 1999, the Company provided cellular telephone service to 398,542
subscribers (excluding subscribers in the area where the Company had interim
operating authority) 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 3.4 million (including the acquisition of additional Pops in April
1999). 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 assurance 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 interests in the
cellular telephone system in each licensed service area to which the Company
provided service at March 31, 1999 and December 31, 1998. The percentages for
March reflect the additional minority percentages acquired in April 1999.
March 31, December 31,
1999 1998
---- ----
Dothan, Alabama ............. 95.0% 94.6%
Montgomery, Alabama ......... 94.6 92.8
Albany, Georgia ............. 96.8 86.5
Augusta, Georgia ............ 100.0 100.0
Columbus, Georgia ........... 98.9 85.2
Macon, Georgia .............. 99.2 99.2
Savannah, Georgia ........... 98.5 98.5
Panama City, Florida ........ 92.0 78.4
Alabama 8 - RSA ............. 100.0 100.0
Georgia 6 - RSA ............. 96.3 96.3
Georgia 7 - RSA ............. 100.0 100.0
Georgia 8 - RSA ............. 100.0 100.0
Georgia 9 - RSA ............. 100.0 100.0
Georgia 10 - RSA ............ 100.0 100.0
Georgia 12 - RSA ............ 100.0 100.0
Georgia 13 - RSA ............ 100.0 86.5
RESULTS OF OPERATIONS
The following table sets forth for the Company the percentage which
certain amounts bear to total revenue.
Three Months Ended
March 31,
---------
1999 1998
------ ------
Revenue:
Service ................................ 93.3% 94.0%
Equipment sales and installation ....... 6.7 6.0
------ ------
Total revenue ........................ 100.0 100.0
Operating expenses:
Engineering, technical and other direct:
Engineering and technical (1) ........ 6.4 7.5
Other direct costs of services (2) ... 8.3 7.2
Cost of equipment (3) .................. 12.1 12.7
Selling, general and administrative:
Sales and marketing (4) .............. 8.8 10.7
Customer service (5) ................. 6.4 6.7
General and administrative (6) ....... 10.8 12.0
Depreciation and amortization .......... 18.9 26.3
------ ------
Total operating expenses ........... 71.7 83.1
Operating income ....................... 28.3% 16.9%
Operating income before depreciation and
amortization (7) ..................... 47.3% 43.2%
(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.
I-8
<PAGE>
(2) Consists of net costs of incollect roaming, costs of long distance, costs
of interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, advertising and promotion expenses and employee and agent
commissions.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing billings generated in-house.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation or as an alternative to net income, operating
income or any other measure of performance under generally accepted
accounting principles. The Company believes that operating income before
depreciation and amortization is viewed as a relevant supplemental measure
of performance in the cellular telephone industry.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenue. Service revenues totaled $52.8 million for the first quarter of
1999, an increase of 29.8% from $40.7 million for the same period in 1998. The
increase is attributable to a combination of several factors which showed
positive trends when comparing the current quarter to 1998's first quarter. A
significant increase in the average number of subscribers to 389,467 from
316,906, a significant increase in the number of minutes subscribers are using
(60.8%) and an increase in the average local revenue per subscriber, which
consists primarily of a monthly access fee and billable airtime (including
roaming revenue) all contributed to the significant increase.
Average monthly revenue per subscriber (based upon service revenue only)
includes local revenue as well as roaming revenue, but does not include
incollect revenue from subscribers, as this revenue offsets the Company's direct
cost of service. Such revenue increased to $44.38 for the current quarter from
$42.80 for the same period last year or an increase of 3.7%. The significant
increase in total minutes used per subscriber from 148 minutes to 198 minutes is
noteworthy since this increase does indicate a greater acceptance by customers
of the use of cellular service which may manifest itself in increased revenue in
the future.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased from $2.6 million for the first
quarter of 1998 to $3.8 million for the first quarter of 1999. The increase is
primarily due to a 19.4% increase in gross subscriber activations in the current
quarter of 1999 compared to 1998. Also contributing to the increase is an
increase in accessory sales, as well as an increase in the price point for phone
sales, as the Company continues to sell more digital phones compared to analog
phones. As a percentage of revenue, equipment sales and installation revenue
increased to 6.7% in the current quarter of 1999 from 6.0% in the same quarter
of 1998.
Operating Expenses. Total operating expenses increased from $36.0 million
in the first quarter of 1998 to $40.6 million in the current quarter. As a
percentage of total revenue, however, operating expenses decreased to 71.7% for
the current quarter in 1999 from 83.1 % for the same quarter in 1998.
Engineering, technical and other direct expenses increased by $1.5 million
to $8.3 million in the current quarter from $6.8 million in the first quarter of
1998. Included in engineering, technical and other direct is the expense which
represents the difference between the amount the Company charges its subscribers
when they roam in other markets compared to the amount the Company is charged by
other cellular providers. The increase in this expense for the current quarter
in 1999 compared to the same quarter in 1998 amounted to approximately $739,000
as a result of the increased subscribers in 1999. The ratio of revenue to cost
remained relatively constant. The significant increase in subscribers and
minutes of use resulted in an increase in long distance telephone charges
($672,000), increases in fixed span lines to provide additional capacity
($192,000), and increases in the variable telephone costs from charges per
minute of use ($355,000).
I-9
<PAGE>
The increase in cost of equipment from $5.5 million in the first quarter
of 1998 to $6.8 million in the first quarter of 1999 is a direct result of
additional phone sales to the increased number of subscribers added in the
current quarter over the same period last year. In the current period, the
Company was able to recover approximately 55% of its cost which compares
favorably to the 47% recovery in the same quarter of 1998.
Selling, general and administrative expenses increased only $1.3 million,
and as a percentage of revenue decreased from 29.4% to 26.0% when comparing the
current three month period to the same period in 1998. Sales and marketing
(including the cost of installation) increased $336,000 when comparing the
current quarter to last year's first quarter. Advertising and commissions were
variable expenses that contributed to the increase. The cost to add a gross
subscriber, which includes sales and marketing costs combined with the loss on
equipment sales, an important statistic in the cellular industry, decreased from
approximately $223 per subscriber for the first three months of 1998 to
approximately $199 in the first quarter of 1999. General and administrative
expenses, which include customer service expenses, amounted to $8.4 million for
the current three month period versus $7.5 million for the same period last
year. Customer service, which consists primarily of costs relating to the
generation of the subscriber's monthly invoice and payroll costs, increased
$681,000 for the current period. The cost per subscriber, however, remained flat
at approximately $3 per subscriber.
General and administrative expenses (including Corporate) increased only
$922,000 for the current quarter compared to the same quarter in 1998. The
increase was related to additional "MIS" support expenses, due to the increase
in the average number of subscribers, as well as increased license and
maintenance fees related to the various systems maintained by the Company,
including the Company's fraud prevention system and prepay system. General and
administrative expenses without customer service costs decreased to 10.8% of
total revenue for the 1999 quarter compared to 12.0% for the same period in
1998.
Depreciation and amortization decreased 5.9% to $10.7 million for the
first quarter of 1999 from $11.4 million for the first quarter of 1998. As a
percentage of revenue, depreciation and amortization decreased to 18.9% for the
first quarter of 1999 compared to 26.3% for the first quarter of 1998. The
reduction reflects the adjustment of the value of the licenses in the fourth
quarter of 1998 to finalize purchase accounting.
Operating income increased approximately 119% to $16.0 million in the
first quarter of 1999 from $7.3 million for the same period in 1998. Operating
income before depreciation and amortization amounts to 47.3% of total revenue in
the current quarter compared to 43.2% of total revenue in the same quarter of
1998. This increase in operating margin is attributable primarily to the strong
increase in revenue as a result of significant subscriber growth, increases in
roaming revenue, and management's emphasis on cost control, which has resulted
in an average operating cost (total operating costs before depreciation and
amortization) of $21.20 for the current three month period compared to $22.48
for the first quarter of 1998.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased to $21.1 million for the first quarter of 1999 from $17.9 million in
the first quarter of 1998 primarily due to the increased level of debt from the
refinancings which took place in the second and third quarters of 1998. Somewhat
offsetting the increase in interest expense is the increase in interest income,
as a result of the higher level of available cash during the first quarter of
1999 compared with the first quarter of 1998.
The current period income tax benefit of $1.9 million compared to the
income tax benefit of $4.0 million in the first quarter of 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.
This reduction is lower for the current quarter due to the smaller loss before
income taxes.
The net loss for the first quarter of 1999 was $3.3 million compared to a
net loss of $6.8 million for the first quarter of 1998 represents a decrease of
approximately 52%. The decrease in the net loss is primarily attributable to the
factors discussed above.
I-10
<PAGE>
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, and,
to a lesser extent, operating cash flow. During the three month period ended
March 31, 1999, the Company generated $20.1 million of cash provided by
operations as shown in the Condensed Consolidated Statements of Cash Flows. The
Company's EBITDA (earnings before interest, depreciation, and amortization) was
$26.8 million for the current quarter. The Company's debt service requirements
for the current year consists of cash interest payments of 68.5 million of which
$10.3 million was paid in January 1999. The remaining cash interest requirements
are approximately $24.0 million during the second quarter, $10.3 million during
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
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 9 1/8% Senior Secured Notes
due June 15, 2002, $175 million and 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.
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 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 enable 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 providers service most of the cellular industry
to a great extent and therefore the lack of accessibility of alternative systems
make a contingency plan impractical.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company utilizes fixed rate debt instruments to fund its acquisitions.
Management believes that the use of fixed rate debt minimizes the Company's
exposure to market conditions and the ensuing increases and decreases that could
arise with variable rate financing. See notes to consolidated financial
statements for description and terms of long term debt.
I-11
<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: May 10, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 211,075
<SECURITIES> 10,421
<RECEIVABLES> 20,914
<ALLOWANCES> 0
<INVENTORY> 2,710
<CURRENT-ASSETS> 248,577
<PP&E> 145,674
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,292,261
<CURRENT-LIABILITIES> 57,129
<BONDS> 915,065
0
25
<COMMON> 0
<OTHER-SE> (3,008)
<TOTAL-LIABILITY-AND-EQUITY> 1,292,261
<SALES> 3,770
<TOTAL-REVENUES> 56,591
<CGS> 6,840
<TOTAL-COSTS> 40,550
<OTHER-EXPENSES> 399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (21,072)
<INCOME-PRETAX> 0
<INCOME-TAX> 1,942
<INCOME-CONTINUING> (3,307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,307)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
