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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, 2000
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
PRICE COMMUNICATIONS CORPORATION
(Exact Name of Registrant as specified in its charter)
New York 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Associated Common Stock Rights Under Rights Plan Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the issuer's common stock as of October 31,
2000 was 55,546,917.
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<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets- September 30, 2000 and
December 31, 1999..................................... I-1
Condensed Consolidated Statements of Operations - Three
months ended September 30, 2000 and 1999 and nine
months ended September 30, 2000 and 1999.............. I-2
Condensed Consolidated Statements of Cash Flows - Nine
months ended September 30, 2000 and 1999.............. I-3
Condensed Consolidated Statement of Shareholders' Equity -
Nine months ended September 30, 2000.................. 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-6
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk... I-12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ II-1
ITEM 2. Changes in Securities........................................ II-1
ITEM 3. Defaults Upon Senior Securities- None........................ II-1
ITEM 4. Submission of Matters to a Vote of Security Holders.......... II-1
ITEM 5. Other Information............................................ II-1
ITEM 6. Exhibits and Reports on Form 8-K............................. II-1
SIGNATURES.............................................................. II-2
ii
<PAGE>
Item 1. Financial Statements
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 183,741 $ 194,231
Available for sale securities 20,447 2,056
Trade accounts receivable, net 23,668 22,407
Receivable from other cellular carriers 5,279 5,154
Inventory 4,547 5,205
Deferred income taxes 3,143 409
Prepaid expenses and other current assets 2,552 138
---------- ----------
Total current assets 243,377 229,600
Net property and equipment 152,120 144,313
Licenses, net of amortization 837,384 854,799
Other intangible and other assets,
net of amortization 28,426 30,282
---------- ----------
$1,261,307 $1,258,994
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 7,932 $ 15,895
Accrued interest payable 18,997 11,942
Accrued salaries and employee benefits 1,645 1,642
Deferred revenue 6,453 5,525
Customer deposits 1,285 1,222
Other current liabilities 12,334 15,214
---------- ----------
Total current liabilities 48,646 51,440
Long-term debt 700,000 700,000
Accrued income taxes - long term 48,532 37,934
Deferred income taxes 291,482 292,482
Minority interests 5,047 3,948
---------- ----------
Total liabilities 1,093,707 1,085,804
---------- ----------
Commitments and contingencies
Shareholders' equity 167,600 173,190
---------- ----------
$1,261,307 $1,258,994
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-1
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($ in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service $ 63,941 $ 60,113 $ 190,142 $ 172,773
Equipment sales and installation 6,142 5,029 17,660 13,569
------------ ------------ ------------ ------------
Total revenue 70,083 65,142 207,802 186,342
------------ ------------ ------------ ------------
Operating expenses:
Engineering, technical and other direct 6,463 6,548 21,010 22,937
Cost of equipment 9,905 8,223 28,136 22,664
Selling, general and administrative 16,737 16,408 48,675 47,220
Non-cash compensation-selling, general and administrative 913 586 2,737 1,061
Depreciation and amortization 11,876 13,000 35,470 34,877
------------ ------------ ------------ ------------
Total operating expenses 45,894 44,765 136,028 128,759
------------ ------------ ------------ ------------
Operating income 24,189 20,377 71,774 57,583
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (15,050) (15,378) (45,530) (57,748)
Other income, net 2,558 1,412 7,545 3,479
------------ ------------ ------------ ------------
Total other expense (12,492) (13,966) (37,985) (54,269)
------------ ------------ ------------ ------------
Income before minority interest
share of income and income taxes 11,697 6,411 33,789 3,314
Minority interest share of income (389) (382) (1,105) (1,369)
------------ ------------ ------------ ------------
Income before provision for income taxes 11,308 6,029 32,684 1,945
Provision for Income taxes 3,367 2,231 11,276 720
------------ ------------ ------------ ------------
Net income 7,941 3,798 21,408 1,225
------------ ------------ ------------ ------------
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities 1,923 (453) (2,234) 1,809
Reclassification adjustment -- (105) (1,215) (87)
------------ ------------ ------------ ------------
Comprehensive income $ 9,864 $ 3,240 $ 17,959 $ 2,947
============ ============ ============ ============
Per share data:
Basic earnings (loss) per share $ 0.14 $ 0.07 $ 0.38 $ 0.03
Weighted average shares outstanding 55,802,000 56,418,000 56,172,000 45,165,000
Diluted earnings (loss) per share $ 0.14 $ 0.07 $ 0.38 $ 0.03
Weighted average shares outstanding 56,298,000 57,906,000 56,666,000 46,828,000
</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,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 21,408 $ 1,225
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 35,470 33,816
Minority interest share of income 1,105 1,369
Deferred income taxes (1,664) (1,734)
Gain on sale of marketable securities (5,882) (1,907)
Interest deferred and added to long-term debt -- 11,309
Amortization of deferred finance costs 1,824 1,916
Non-cash compensation 2,737 1,061
Increase in trade and other receivables (1,386) (5,307)
Increase in accounts payable and accrued expenses 909 13,411
Increase in accrued interest payable 7,055 6,776
Changes in other accounts (658) 2,685
--------- ---------
Total adjustments 39,510 63,395
--------- ---------
Net cash provided by operating activities 60,918 64,620
--------- ---------
Cash flows from investing activities:
Capital expenditures (25,602) (14,545)
Proceeds from the sale of available-for-sale securities 21,190 6,957
Purchase of available-for-sale securities (39,294) (5,565)
Purchase of additional minority interests in majority owned company systems (353) (7,177)
Purchase of minority equity interests in other cellular properties -- (9,964)
--------- ---------
Net cash used in investing activities (44,059) (30,294)
--------- ---------
Cash flows from financing activities:
Purchase and retirement of common stock (27,785) (40,308)
Decrease (increase) in other intangible assets and other assets 12 (788)
Exercise of employee stock options 424 35
Other -- (5)
--------- ---------
Net cash used in financing activities (27,349) (41,066)
--------- ---------
Net decrease in cash and cash equivalents (10,490) (6,740)
Cash and cash equivalents at the beginning of period 194,231 204,999
--------- ---------
Cash and cash equivalents at the end of period $ 183,741 $ 198,259
========= =========
Supplemental disclosure of cash flow information:
Non-cash transactions - stock bonus $ -- $ 595
========= =========
Income taxes paid, net $ 1,919 $ 205
========= =========
Interest paid $ 44,516 $ 44,516
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Class A Additional Total
---------------------- paid-in Unearned Unrealized Retained shareholders'
Shares Par Value capital compensation gain (loss) earnings equity
--------- --------- --------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 56,649 $ 567 $ 219,896 $ (65,978) $ 1,291 $ 17,414 $ 173,190
Change in unrealized gain on
available for sale securities
net of tax effect (3,525) (3,525)
Purchase and retirement of treasury stock (1,247) (12) (27,773) (27,785)
Cashless stock option exercise 30 -- -- --
Stock options exercised for cash 217 2 422 424
Deferred compensation expense
associated with the conversion of
preferred stock to common stock 2,737 2,737
Tax benefit from the exercise of stock options 1,151 1,151
Net income 21,408 21,408
--------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 2000 55,649 $ 557 $ 193,696 $ (63,241) $ (2,234) $ 38,822 $ 167,600
========= ========= ========= ========= ========= ========= =========
</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.
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, 2000, as amended by
Statement of Financial Standards No. 137 but can be adopted earlier. Management
has not yet determined the 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.
In December 1999, the Securities Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which currently must be adopted by the fourth quarter of 2000. SAB
No. 101 provides additional guidance on revenue recognition as well as criteria
for when revenue is generally realized and earned and also requires deferral of
incremental costs. The Company is currently assessing the impact of SAB No. 101.
Reclassifications
Certain reclassifications have been made to the 1999 Financial Statements
to conform to the 2000 presentation.
(2) Shareholders' Equity
The Company's Board of Directors has authorized stock repurchase programs
of the Company's Class A common stock. The Company is authorized to make such
purchases from time to time in the open market or in privately negotiated
transactions when it is legally permissible to do so or it is believed to be in
the Company's best interests. During the current nine month period, the Company
repurchased and retired 1.2 million shares at an average price of $22.25 per
share.
All and prior year earnings per common share as well as all other share
data have been adjusted to reflect all of the stock splits and the stock
dividend during the year ended December 31, 1999.
I-5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to facilitate an understanding and
assessment of significant changes and trends related to the financial condition
and results of operations of the Company. This discussion should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
the related notes thereto.
The discussion contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are made regarding the intent, belief or current
expectations of the Company and its directors or officers primarily with respect
to the future operating performance of the Company. Readers are cautioned that
any such forward-looking statements are not guarantees of future performance and
may involve risks and uncertainties, and that actual results may differ from
those in the forward-looking statements as a result of factors, many of which
are outside the control of the Company.
References to the "Company" or "Price" in this report include Price
Communications Corporation and its subsidiaries unless the context otherwise
indicates.
OVERVIEW
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
September 30, 2000, the Company provided cellular telephone service to
approximately 510,000 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, exchanges or dispositions 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.
Market Ownership
The Company's cellular telephone systems serve contiguous licensed service
areas in Georgia, Alabama and South Carolina. The Company also has a cellular
service area in Panama City, Florida. The following table sets forth as of
September 30, 2000, with respect to each service area in which the Company owns
a cellular telephone system, the estimated population, the Company's beneficial
ownership percentage and the Net Pops as of September 30, 2000.
<TABLE>
<CAPTION>
MSA Estimated
Service Area Rank Population (1) Percentage Net Pops
------------ ---- -------------- ---------- --------
<S> <C> <C> <C> <C>
Albany, GA.................................................... 271 118,442 100.0% 118,442
Augusta, GA................................................... 106 440,242 100.0 440,242
Columbus, GA.................................................. 165 249,365 99.1 247,121
Macon, GA..................................................... 139 322,093 99.6 320,805
Savannah, GA.................................................. 153 287,349 98.5 283,039
Georgia-6 RSA................................................. --- 204,765 99.5 203,741
Georgia-7 RSA................................................. --- 134,698 100.0 134,698
Georgia-8 RSA................................................. --- 159,858 100.0 159,858
Georgia-9 RSA................................................. --- 119,299 100.0 119,299
Georgia-10 RSA................................................ --- 152,871 100.0 152,871
Georgia-12 RSA................................................ --- 220,340 100.0 220,340
Georgia-13 RSA................................................ --- 150,714 100.0 150,714
Dothan, AL.................................................... 250 134,980 95.2 128,487
Montgomery, AL................................................ 137 323,675 94.6 306,197
Alabama-8 RSA................................................. --- 178,813 100.0 178,813
--------- ---------
Subtotal................................................. 3,197,504 3,164,667
--------- ---------
Panama City, FL............................................... 233 148,422 92.0 136,548
--------- ---------
Total.................................................... 3,345,926 3,301,215
--------- ---------
</TABLE>
(1) Based on population estimates for 1999 from the DLJ 1999-2000 Winter Book.
I-6
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the Company for the periods indicated,
the percentage of certain amounts in relation to total revenue.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- --------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
Service ................................... 91.2% 92.3% 91.5% 92.7%
Equipment sales and installation ....... 8.8 7.7 8.5 7.3
----- ----- ----- -----
Total revenue ................ 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating expenses:
Engineering, technical and other direct:
Engineering and technical (1) ....... 4.7 4.8 5.2 5.4
Other direct costs of services (2) .. 4.5 5.3 5.0 6.9
Cost of equipment (3) .................. 14.1 12.6 13.5 12.2
Selling, general and administrative:
Sales and marketing (4) ............. 8.4 7.5 8.3 8.2
Customer service (5) ................ 7.4 6.4 7.3 6.4
General and administrative (6) ...... 8.1 11.3 7.8 10.8
Non-cash compensation ............... 1.3 .7 1.3 .6
Depreciation and amortization .......... 17.0 19.9 17.1 18.6
----- ----- ----- -----
Total operating expenses ..... 65.5 68.5 65.5 69.1
----- ----- ----- -----
Operating income ....................... 34.5% 31.5% 34.5% 30.9%
Operating income before depreciation and
amortization - adjusted EBITDA (7) . 52.8% 52.1% 52.9% 50.2%
Operating income before depreciation and
amortization - Price Communications
Wireless, Inc. (8) .................. 53.5% 53.9% 54.0% 51.9%
</TABLE>
--------------------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, advertising and promotion expenses and employee and agent
commissions.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing subscriber invoices.
(6) Consists primarily of salaries and benefits of general and administrative
personnel, the provisions for bad debts and other overhead expenses.
(7) Adjusted EBITDA represents operating income before depreciation and
amortization and non-cash compensation. Adjusted EBITDA should not be
considered in isolation or as an alternative measurement of operating
performance or liquidity to net income, operating income or any other
measure of performance under generally accepted accounting principles. The
Company believes that adjusted EBITDA is viewed as a relevant supplemental
measure of performance in the cellular telephone industry.
(8) Represents operating income before depreciation and amortization of the
Company's operating subsidiary Price Communications Wireless, Inc. It does
not include $537,000 and $2.2 million and $1.1 million and $3.3 million
for the three months and nine month periods ended September 30, 2000 and
the three and nine month periods ended September 30, 1999, respectively,
of the parent company's general and administrative expenses.
I-7
<PAGE>
Three Months Ended September 30, 2000 Compared with Three Months Ended September
30, 1999
Revenue. Service revenues totaled $63.9 million for the third quarter of
2000, an increase of $3.8 million or approximately 6.4% from $60.1 million for
the same quarter of 1999. The increase is primarily attributable to the increase
in the average number of post-paid and prepaid subscribers for the period. The
average number of post-paid subscribers increased by approximately 35,000 or an
increase of 8.8% for the current three months compared to last year's third
quarter. The increase in the number of post-paid subscribers generated
approximately $2.3 million additional gross access revenue or an increase of
6.5% over last year's third quarter. In addition, the significant increase in
the average number of prepaid subscribers (more than twice as many), resulted in
an increase of approximately $800,000 in prepaid airtime. The average revenue
per prepaid subscriber amounted to $8.59 for the current quarter compared with
$12.57 for the same period of the prior year. The company changed its prepaid
billing vendor and as a result provided credits to certain subscribers for
unused air time. Increases in toll and directory assistance revenue ($1.2
million) and net feature revenue ($637,000) also contributed to the additional
revenue. Additional promotional credits ($1.0 million) and rate plans that
incorporate a greater amount of free airtime minutes offset a portion of the
revenue increase. The Company's outcollect revenue increased by $124,000 for the
quarter ended September 30, 2000 compared to the quarter ended September 30,
1999.
Average monthly revenue per post-paid subscriber excludes incollect
revenue from the Company's subscribers since this revenue is offset against
incollect expense in the other direct cost caption. For the third quarter of
2000, the average monthly revenue per post-paid subscriber, based upon service
revenue less prepaid airtime revenue, amounted to $47.54 compared with $49.22
for the same period last year, a decrease of approximately 3%. The average
minutes of use per post-paid subscriber increased, improving from 268 minutes
for last year's third quarter to 323 minutes for the current quarter. Although
this increase does not currently result in a direct corresponding increase in
airtime revenue, greater usage by subscribers may eventually lead to additional
billable minutes of use and therefore additional revenue.
Equipment sales and installation revenue, which consists primarily of
subscriber equipment sales, increased to $6.1 million for the third quarter of
2000 compared with $5.0 million for the same period in 1999. The increase is due
to higher price points for telephone sales as more subscribers choose digital
rather than analog telephones and an increase in accessory sales. In addition,
many of the Company's existing subscribers choose to upgrade analog phones to
digital, thus creating additional revenue.
Operating Expenses. Total operating expenses increased by $1.1 million to
$45.9 million for the current three month period from $44.8 million for the
three month period ending September 30, 1999. As a percentage of total revenue
however, the current three months' operating expenses amounted to 65.5% of total
revenue compared with 68.7% for the same period in 1999.
Engineering, technical and other direct costs of service was almost flat
for both three month periods decreasing $185,000 in the current three month
period. Included in this caption is the net cost of incollect roaming which
represents the difference between the amount the Company pays to other cellular
carriers for the Company's subscribers roaming in their markets and the amount
charged by Price to these same subscribers. The current three month period
resulted in net revenue of approximately $239,000 compared with a net cost of
approximately $349,000 for the three month period ending September 30, 1999. The
improvement ($588,000) results primarily from the decreases in rates paid to
these other carriers due to negotiations consummated during 2000. The changed
rates with these carriers also resulted in reduced outcollect roaming revenue
when their subscribers roam in Price's markets. Increases in the cost of
operating the system due to the additional minutes generated by our subscribers,
were significantly offset by reduced long distance and directory assistance
costs, which reduction was a result of more favorable rates negotiated by Price
during the current period.
Cost of equipment increased $1.7 million to $9.9 million for the third
quarter of 2000 from $8.2 million for the third quarter of 1999, primarily as a
result of approximately 10,500 additional phones sold (including upgrades). In
addition, of the phones sold or upgraded during the current three month period,
19,800 additional digital phones were sold with a corresponding decrease in
analog phone sales or upgrades. During the current three month period, 55% of
phone sales including upgrades were digital compared to 18% for the comparable
period in 1999. Digital phones have a higher average cost which accounts for the
principal component of the increase.
I-8
<PAGE>
Selling, general and administrative expenses ("SG&A") increased $329,000
from $16.4 million in the third quarter of 1999 to $16.7 million for the same
period of the current year. As a percentage of revenue, SG&A for the current
three month period is 23.9% of revenue compared with 25.2% for the same three
month period in 1999, an improvement of 5.2%. Sales and marketing increased from
$4.9 million for the third quarter of 1999 to $5.9 million for the current three
month period. The $1.0 million increase is principally due to $753,000 in
increased advertising expenditures. The cost to add a gross subscriber, which
consists of the net equipment loss and sales and marketing expenditures, an
important statistic in the cellular industry, increased slightly from
approximately $192 for the three month period ending September 30, 1999 to $203
for the current three month period. The company believes that this statistic is
favorable when compared to the industry average. Prepaid as opposed to post paid
subscribers, require lower commission rates and usually incur smaller equipment
losses. This increase in the number of prepaid subscribers for the current three
month period, significantly offset additional sales and marketing expenditures.
Included in general and administrative expenses are the costs of the
customer service department. For the current three month period, customer
service costs amounted to $5.2 million compared with $4.2 million for the same
period in 1999. Increased billing costs resulting from more post-paid
subscribers contributed to the additional costs. Payroll and related benefits,
as well as outside services, are some other reasons for the increase, a direct
result of management's intent to positively effect the Company's churn through
additional communication with the Company's subscribers. The additional costs
also had a positive effect on the Company's provision for bad debts (see below).
General and administrative expenses (excluding customer service),
decreased from $7.3 million for the prior three month period to $5.7 million for
the current three month period. The $1.6 million decrease was primarily a
function of the reduction in bad debts ($1.1 million) combined with the
decreases in payroll and related benefits. General and administrative expenses,
excluding customer service, amount to 8.1% of total revenue for the current
quarter compared with 11.3% for the same period of the prior year.
Included in operating expenses is a charge of $913,000 for the three
months ending September 30, 2000 and $586,000 for the same period of 1999 for
non-cash compensation on the conversion by an officer of the Corporation of the
Company's Preferred stock into common stock. Such charges are being amortized
over the vesting period of the common stock. The current three month period
represents three months of amortization of the three conversions all of which
occurred in 1999 whereas the three month period of 1999 represents amortization
of only those conversions occurring prior to September 30 and a partial
amoritization for the conversion occurring during the third quarter of 1999.
Depreciation and amortization decreased approximately $1.1 million to
$11.9 million in the quarter ended September 30, 2000 from $13.0 million for the
three month period ending September 30, 1999. The additional depreciation for
the three month period of 1999 was a result of an over estimation which was
corrected by the end of the calendar year. As a percentage of revenue,
depreciation and amortization amount to 16.9% of revenue for the current three
month period compared with 20.0% for the same period of the prior year.
Operating income increased to $24.2 million for the third quarter of 2000
from $20.5 million for the third quarter of 1999 or an increase of 18.0%.
Operating income before depreciation and amortization and non-cash compensation
increased to 52.8% as a percentage of revenue for the current quarter compared
with 52.1% for the third quarter of 1999. This increase in operating margin is
attributable primarily to the increase in operating revenue as a result of
subscriber growth combined with management's continuing concentration on cost
controls, which has resulted in an average operating cost per subscriber for
Price Communications Wireless, Inc. (total operating costs before non-cash
compensation, depreciation and amortization and parent company overhead) of
$17.48 for the current period compared with $19.62 for the same period of the
prior year.
Net Interest Expense, Income Taxes, and Net Income. Net interest expense
is comparable for both the current and prior three month periods.
The current period's income tax provision of $3.4 million compared with a
provision of $2.2 million for the three month period in 1999, is primarily a
result of the additional income before income taxes on which taxes are accrued
at a rate of approximately 37%.
The net income for the three month period ended September 30, 2000 of $7.9
million compared with net income for the third quarter of 1999 of $3.8 million
is a function of the items discussed above.
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Nine Months Ended September 30, 2000 Compared with Nine Months Ended September
30, 1999
Revenue. Service revenue amounted to $190.1 million for the first nine
months of 2000, an increase of $17.4 million or approximately 10% from $172.8
million for the same period in 1999. The increase is primarily attributable to
the increase in the average number of post-paid and prepaid subscribers for the
period. The average number of post-paid subscribers increased by approximately
41,000 or approximately 10.6% for the current nine months compared with last
year's nine month period. The increase in the number of post-paid subscribers
generated approximately $8.9 million of additional gross access revenue (the
fixed monthly portion of cellular revenue). The significant increase in the
average number of prepaid subscribers (almost three times as many), resulted in
an increase of approximately $3.8 million in prepaid airtime. The decrease in
the average revenue per prepaid subscriber from $16.16 for the nine month period
of the prior year to $13.20 for the current nine month period is a result of
more competitive rate plans being offered which include additional minutes. The
increase in outcollect roaming revenue ($2.5 million), toll and directory
assistance revenue ($4.1 million) as well as the increase in net feature revenue
($2.2 million) for the current nine month period compared with the same period
of the prior year, were other significant components of the additional revenue.
Additional promotional credits ($4.0 million) and rate plans that incorporate a
greater amount of free airtime minutes offset a portion of the revenue increase.
Average monthly revenue per post-paid subscriber excludes incollect
revenue from the Company's subscribers since this revenue is offset against
incollect expense in the other direct cost caption. For the first nine months of
2000, the average monthly revenue per post-paid subscriber based upon service
revenue less prepaid airtime amounted to $47.59 compared with $48.73 for the
same period last year, a decrease of less than 3%. Additional promotional
credits given in the current nine month period was the primary reason for such
decrease. The average minutes of use per post-paid subscriber increased,
improving from 240 minutes for last year's nine month period to 315 minutes for
the current nine months. Although this increase does not currently result in a
direct corresponding increase in airtime revenue, greater usage by subscribers
may eventually lead to additional billable minutes of use and therefore
additional revenue.
Equipment sales and installation revenue, which consists primarily of
subscriber equipment sales, increased to $17.7 million for this year's nine
months compared with $13.6 million for the same period in 1999. The increase is
due to the emphasis on recovering a greater percentage of the phone cost from
new subscribers, higher price points as more subscribers choose digital rather
than analog telephones and an increase in accessory sales. In addition, many of
the Company's existing subscribers choose to upgrade analog phones to digital,
thus creating additional revenue as well as additional cost (see below for a
comparison of equipment cost). During the first nine months of 2000,
approximately 36% of phones sold or upgraded were digital compared to less than
20% for the same period in 1999.
Operating Expenses. Total operating expenses increased by $7.3 million to
$136.0 million for the current nine month period from $128.8 million for the
nine month period ending September 30, 1999. As a percentage of total revenue
however, the current nine months' operating expenses amounted to 65.5% compared
with 69.1% for the same period in 1999.
Engineering, technical and other direct costs of service decreased $1.9
million to $21.0 million for the current nine months from $22.9 million for the
same period in 1999. Included in this caption is the net cost of incollect
roaming which represents the difference between the amount the Company pays to
other cellular carriers for the Company's subscribers roaming in their markets
and the amount charged by Price to these same subscribers. The current nine
month period resulted in a net cost of approximately $784,000 compared with a
net cost of approximately $4.1 million for the nine month period ending
September 30, 1999. The significant improvement ($3.3 million) results primarily
from the decrease in rates paid to these other carriers due to negotiations
consummated during 2000. The changed rates with these carriers also resulted in
reduced outcollect roaming revenue when their subscribers roam in Price's
markets.
Increases in the cost of operating the system due to the additional
minutes generated by our subscribers, were significantly offset by reduced long
distance and directory assistance costs, which reduction was a result of more
favorable rates negotiated by Price during the current period.
Cost of equipment increased to $28.1 million for the current nine months
from $22.7 million for the nine month period ending September 30, 1999,
primarily as a result of approximately 29,400 additional post and prepaid gross
subscriber additions for the current nine month period, an increase in the
average cost of a phone as more subscribers buy or upgrade to digital phones
which are more costly than analog phones. and the increase in
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<PAGE>
accessory cost as more items are sold to subscribers. The percentage of cost
recovered increased from 59.9% for the nine month period in 1999 to 62.8% for
the current nine months. 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.
Selling, general and administrative expenses ("SG&A") increased $1.5
million from $47.2 million for the first nine months of 1999 to $48.7 million
for the same period of the current year. As a percentage of revenue, SG&A for
the current nine month period is 23.4% of revenue compared with 25.3% for the
same nine month period in 1999, an improvement of 8.1%. Sales and marketing
increased from $15.2 million for the nine month period ending September 30, 1999
to $17.2 million for the current nine month period. The $2.0 million increase is
principally due to increases in commissions and advertising expenditures. The
cost to add a gross subscriber, which consists of the net equipment loss and
sales and marketing expenditures, an important statistic in the cellular
industry, decreased from approximately $197 for the nine month period ending
September 30, 1999 to $182 for the current nine month period, a decrease of
approximately 7.6%. The increase in the number of prepaid subscribers for the
current nine month period is the primary reason for such decrease. Prepaid
additions require less commission expense and usually have reduced equipment
losses associated with their service.
Included in general and administrative expenses are the costs of the
customer service department. For the current six month period, customer service
costs amounted to $15.2 million compared to $11.9 million for the same period in
1999. Increased billing costs resulting from additional post-paid subscribers,
contributed to the increased costs. Payroll and related benefits, as well as
outside services, are the primary reason for the increase, a direct result of
management's intent to positively effect the Company's churn through additional
communication with the Company's subscribers. The additional costs also had a
positive effect on the Company's provision for bad debts (see below).
General and administrative expenses (excluding customer service),
decreased from $20.2 million for the prior nine month period to $16.3 million
for the current nine month period. The $3.9 million decrease was primarily a
function of the $2.7 million reduction in bad debts. General and administrative
expenses, excluding customer service, amount to 7.8% of total revenue for the
current nine month period compared with 10.8% for the same period of the prior
year.
Included in operating expenses is a charge of $2.7 million for the nine
month's ending September 30, 2000 and $1.1 million for the same period of 1999
for non-cash compensation on the conversion by an officer of the Corporation of
the Company's Preferred stock into common stock. Such charges are being
amortized over the vesting period of the common stock. The current nine month
period represents six months of amortization of the three conversions all of
which occurred in 1999 whereas the nine month period of 1999 represents
amortization of only those conversions occurring through September 30, 1999.
Depreciation and amortization increased approximately $593,000 to $35.5
million in the current nine months from $34.9 million for the nine month period
ending September 30, 1999. The additional depreciation is a result of capital
additions during the second half of 1999 and the first nine months of 2000. As a
percentage of revenue, depreciation and amortization decreased from 18.7% for
the prior nine month period to 17.1% for the current nine months.
Operating income increased to $71.8 million for the nine month period
ending September 30, 2000 compared with $57.6 million for the same period in
1999 or an increase of 24.6%. Operating income before depreciation and
amortization and non-cash compensation increased to 52.9% as a percentage of
revenue for the current nine month period compared with 50.2% for the same
period of the prior year. The increase in operating margin is attributable
primarily to the increase in operating revenue as a result of subscriber growth
combined with management's continuing concentration on cost controls, which has
resulted in an average operating cost per subscriber (total operating costs
before non-cash compensation, depreciation and amortization and Parent Company
overhead) of $17.87 for the current period compared with $20.73 for the same
period of the prior year.
Net Interest Expense, Income Taxes, and Net Income. Net interest expense
decreased to $45.5 million for the nine months of 2000 from $57.7 million for
the same period in 1999. In June of 1999, the Company allowed the conversion of
the $200 million 11 1/4% Payable-in-Kind Notes and therefore did not incur any
interest expense on that debt for the current nine month period but did incur an
expense for six of the nine months in the period ended September 30, 1999.
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The current nine month period's income tax provision of $11.3 million
compared with a tax provision of $720,000 million for the nine month period in
1999, is a result of financial statement taxable income for the current nine
months of $32.7 million compared with financial statement taxable income of $1.9
million for the same period in 1999 accrued at a rate of approximately 37%.
The net income for the nine month period ended September 30, 2000 of $21.4
million compared with net income for the nine month period ended September 30,
1999 of $1.2 million is a function of the items discussed above. The current
nine month period does not include an unrealized loss of $2.2 million (net of
taxes) related to the Company's available for sale securities.
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 nine month
period, the Company generated $60.9 million of operating cash flow as shown in
the Condensed Consolidated Statement of Cash Flows. The Company's adjusted
EBITDA (earnings before interest, depreciation and amortization, non-cash
compensation and taxes) was $110.0 million for the nine month period ending
September 30, 2000. The Company's debt service requirements for the current year
consist of cash interest payments of $68.5 million, of which $44.5 million has
been paid through September 30, 2000. The remaining cash interest requirement of
approximately $24.0 million is due in the fourth quarter. During the nine months
ended September 30, 2000, the Company spent approximately $25.6 million for
capital additions. The expenditures were principally utilized for additional
cell sites (an additional 51 sites went on the air) and the upgrade of the
Company's three switches which commenced during this period. The Company also
spent approximately $27.8 million for the repurchase and retirement of its Class
A common stock. The Company's current ability to generate operating cash flow
combined with its current available cash and securities position, after
potential market adjustments, approximates $200.6 million. There does not appear
to be any necessity to provide additional funding for the Company's current
level of operations. The Company's wireless subsidiary has outstanding debt
instruments which consist of $525 million 9 1/8% Senior Secured Notes due
December 15, 2006 and $175 million 11 3/4% Senior Subordinated Notes due July
15, 2007. Both of these instruments contain covenants that restrict the payment
of dividends, incurrence of debt and sale of assets, among other things.
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.
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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 August 22, 2000 the Company held its annual meeting of shareholders.
The one item voted on was The election of Robert F. Ellsworth as director
to serve for a term of three years expiring in 2003. The total eligible
shares were 56,243,277.
50,401,847, or 89.6% of the eligible vote, voted in favor with 1,400,000
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
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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 14, 2000 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
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INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
