<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
-------------------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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
-------------------
Commission file number
1-8309
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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 July 15,
2000 was 56,050,017.
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<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets- June 30, 2000 and December 31, 1999.............. I-1
Condensed Consolidated Statements of Operations - Three months ended
June 30, 2000 and 1999 and six months ended June 30, 2000 and 1999............... I-2
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 2000 and 1999........................................................... I-3
Condensed Consolidated Statement of Shareholders' Equity - Six months ended
June 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-7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.............................. I-14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................................... II-1
ITEM 2. Changes in Securities................................................................... II-1
ITEM 3. Defaults Upon Senior Securities- None................................................... II-1
ITEM 4. Submission of Matters to a Vote of Security Holders..................................... II-1
ITEM 5. Other Information....................................................................... II-1
ITEM 6. Exhibits and Reports on Form 8-K........................................................ II-1
SIGNATURES......................................................................................... II-2
</TABLE>
ii
<PAGE>
Item 1. Financial Statements
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 172,680 $ 194,231
Available for sale securities 16,012 2,056
Trade accounts receivable, net 22,812 25,056
Receivable from other cellular carriers 5,675 2,505
Inventory 4,124 5,205
Deferred income taxes 5,000 409
Prepaid expenses and other current assets 1,262 138
---------- ----------
Total current assets 227,565 229,600
Net property and equipment 149,933 144,313
Licenses, net of amortization 843,225 854,799
Other intangible and other assets,
net of amortization 29,041 30,282
---------- ----------
$1,249,764 $1,258,994
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 8,115 $ 15,895
Accrued interest payable 12,013 11,942
Accrued salaries and employee benefits 1,409 1,642
Deferred revenue 6,014 5,525
Customer deposits 1,404 1,222
Other current liabilities 13,175 15,214
---------- ----------
Total current liabilities 42,130 51,440
Long-term debt 700,000 700,000
Accrued income taxes - long term 45,613 37,934
Deferred income taxes 291,982 292,482
Minority interests 4,658 3,948
---------- ----------
Total liabilities 1,084,383 1,085,804
---------- ----------
Commitments and contingencies
Shareholders' equity 165,381 173,190
---------- ----------
$1,249,764 $1,258,994
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-1
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service $ 65,251 $ 59,839 $ 126,201 $ 112,660
Equipment sales and installation 5,854 4,770 11,518 8,540
------------ ------------ ------------ ------------
Total revenue 71,105 64,609 137,719 121,200
------------ ------------ ------------ ------------
Operating expenses:
Engineering, technical and other direct 7,460 8,076 14,547 16,389
Cost of equipment 9,080 7,601 18,231 14,441
Selling, general and administrative 15,616 16,149 31,938 30,812
Non-cash compensation-selling, general and administrative 912 224 1,824 599
Depreciation and amortization 11,864 10,681 23,594 21,415
------------ ------------ ------------ ------------
Total operating expenses 44,932 42,731 90,134 83,656
------------ ------------ ------------ ------------
Operating income 26,173 21,878 47,585 37,544
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (15,030) (21,298) (30,480) (42,370)
Other income, net 1,626 955 4,987 1,729
------------ ------------ ------------ ------------
Total other expense (13,404) (20,343) (25,493) (40,641)
------------ ------------ ------------ ------------
Income (loss) before minority interest
share of income and income taxes 12,769 1,535 22,092 (3,097)
Minority interest share of income (407) (370) (716) (987)
------------ ------------ ------------ ------------
Income (loss) before income taxes 12,362 1,165 21,376 (4,084)
Income tax (expense) benefit (4,574) (431) (7,909) 1,511
------------ ------------ ------------ ------------
Net income (loss) 7,788 734 13,467 (2,573)
------------ ------------ ------------ ------------
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities 134 (1,439) (4,157) 1,425
Reclassification adjustment 8 (32) (1,283) (93)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 7,930 $ (737) $ 8,027 $ (1,241)
============ ============ ============ ============
Per share data:
Basic earnings (loss) per share $ 0.14 $ 0.02 $ 0.24 $ (0.07)
Weighted average shares outstanding 56,252,000 36,305,000 56,358,000 35,895,000
Diluted earnings (loss) per share $ 0.14 $ 0.02 $ 0.24 $ (0.07)
Weighted average shares outstanding 56,592,000 40,760,000 56,928,000 35,895,000
</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,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 13,467 $ (2,573)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 23,594 21,415
Minority interest share of income 716 987
Deferred income taxes (1,892) (1,734)
Gain on sale of marketable securities (4,284) (1,735)
Interest deferred and added to long-term debt -- 11,309
Amortization of deferred finance costs 1,215 1,307
Non-cash compensation 1,825 599
Increase in trade and other receivables (926) (4,352)
(Decrease) increase in accounts payable and accrued expenses (1,232) 14,213
Increase (decrease) in accrued interest payable 71 (162)
Changes in other accounts 735 2,225
--------- ---------
Total adjustments 19,822 44,072
--------- ---------
Net cash provided by operating activities 33,289 41,499
--------- ---------
Cash flows from investing activities:
Capital expenditures (17,464) (10,771)
Proceeds from the sale of available-for-sale securities 5,992 2,742
Purchase of available-for-sale securities (24,505) (1,282)
Purchase of minority interests (293) (7,177)
--------- ---------
Net cash used in investing activities (36,270) (16,488)
--------- ---------
Cash flows from financing activities:
Purchase and retirement of common stock (19,000) (31,565)
Decrease (increase) in other intangible assets and other assets 12 (788)
Exercise of employee stock options 418 15
--------- ---------
Net cash used in financing activities (18,570) (32,338)
--------- ---------
Net decrease in cash and cash equivalents (21,551) (7,327)
Cash and cash equivalents at the beginning of period 194,231 204,999
--------- ---------
Cash and cash equivalents at the end of period $ 172,680 $ 197,672
========= =========
Supplemental disclosure of cash flow information:
Non-cash transactions - stock bonus $ -- $ 595
========= =========
Income taxes paid, net $ 1,866 $ 205
========= =========
Interest paid $ 34,234 $ 34,234
========= =========
</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 (5,660) (5,660)
Purchase and retirement of treasury stock (843) (8) (18,992) (19,000)
Cashless stock option exercise 30 -- -- --
Stock options exercised for cash 214 2 416 418
Deferred compensation expense
associated with the conversion of
preferred stock to common stock 1,825 1,825
Tax benefit from the exercise of stock options 1,141 1,141
Net income 13,467 13,467
------- -------- --------- -------- ------- ------- --------
Balance at June 30, 2000 56,050 $ 561 $ 202,461 $(64,153) $(4,369) $30,881 $165,381
======= ======== ========= ======== ======= ======= ========
</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 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 Financial Statements
to conform to the 2000 presentation.
(2) SHAREHOLDERS' EQUITY
In January 1999, the Company's Board of Directors approved a five-for-four
stock split of the Company's Class A 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 5.4 million shares were issued as a result of the stock split.
In April 1999, the Company's Board of Directors declared a five-for-four
stock split of the Company's Class A common stock payable in the form of a 25%
stock dividend on May 4, 1999 to shareholders of record at the close of business
on April 21, 1999. Approximately 6.7 million shares were issued as a result of
the stock split.
In August 1999, the Company's Board of Directors declared a stock dividend
of the Company's Class A common stock payable in the form of a 5% stock dividend
on August 5, 1999 to shareholders of record at the close of business on August
12, 1999.
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 six month period, the Company
repurchased and retired 843,500 shares at an average price of $22.53 per share.
I-5
<PAGE>
All current and prior year earnings (loss) 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-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.
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
June 30, 2000, the Company provided cellular telephone service to approximately
496,000 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 June
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 June 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 95.0 128,231
Montgomery, AL.................... 137 323,675 94.6 306,197
Alabama-8 RSA..................... --- 178,813 100.0 178,813
---------- ----------
Subtotal..................... 3,197,504 3,164,411
--------- ---------
Panama City, FL................... 233 148,422 92.0 136,548
---------- ----------
Total........................ 3,345,926 3,300,959
--------- ---------
</TABLE>
(1) Based on population estimates for 1999 from the DLJ 1999-2000 Winter Book.
I-7
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUE:
Service ................................. 91.8% 92.6% 91.6% 93.0%
Equipment sales and installation ........ 8.2 7.4 8.4 7.0
------ ------ ------ ------
TOTAL REVENUE ................. 100.0 100.0 100.0 100.0
------ ------ ------ ------
OPERATING EXPENSES:
Engineering, technical and other direct:
Engineering and technical (1) ..... 5.4 5.3 5.4 5.8
Other direct costs of services (2) 5.1 7.2 5.2 7.7
Cost of equipment (3) ................... 12.8 11.8 13.2 11.9
Selling, general and administrative:
Sales and marketing (4) ........... 8.2 8.3 8.2 8.5
Customer service (5) .............. 7.0 6.3 7.3 6.3
General and administrative (6) .... 6.7 10.4 7.7 10.6
Non-cash compensation ............. 1.3 .3 1.3 .5
Depreciation and amortization ........... 16.7 16.5 17.1 17.7
------ ------ ------ ------
TOTAL OPERATING EXPENSES .... 63.2 66.1 65.4 69.0
------ ------ ------ ------
Operating income ....................... 36.8% 33.9% 34.6% 31.0%
Operating income before depreciation and
amortization - adjusted EBITDA (7) 54.8% 50.7% 53.0% 49.2%
Operating income before depreciation and
amortization - Price Communications
Wireless, Inc. (8) ................... 55.1% 52.1% 54.2% 50.9%
</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 $195,000 and $1.7 million and $861,000 and $2.1 million for the
three months and six month periods ended June 30, 2000 and the three and
six month periods ended June 30, 1999, respectively, of the parent
company's general and administrative expenses.
I-8
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
REVENUE. Service revenues totaled $65.3 million for the second quarter of
2000, an increase of $5.4 million or approximately 9% from $59.8 million for the
second 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 40,000 or an
increase of 10% for the current three months compared to last year's second
quarter. The 10% increase in the number of post-paid subscribers generated
approximately the same percentage increase in gross access revenue (the fixed
monthly portion of cellular revenue). In addition, the significant increase in
the average number of prepaid subscribers (more than twice as many), resulted in
an increase of approximately $1.3 million in prepaid airtime. The average
revenue per prepaid subscriber amounted to $13.37 for the current quarter
compared with $15.77 for the same period of the prior year. Increases in
outcollect roaming revenue ($1.2 million), toll and directory assistance revenue
($1.5 million) and net feature revenue ($913,000) also contributed to the $5.4
million of additional revenue. Additional promotional credits ($1.5 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 second quarter of
2000, the average monthly revenue per post-paid subscriber, based upon service
revenue less prepaid airtime, amounted to $48.98 compared with $50.47 for the
same period last year, a decrease of approximately 3%. The average minutes of
use per post-paid subscriber increased, improving from 247 minutes for last
year's second quarter to 324 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 $5.9 million for the second quarter of
2000 compared with $4.8 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.
OPERATING EXPENSES. Total operating expenses increased by $2.2 million to
$44.9 million for the current three month period from $42.7 million for the
three month period ending June 30, 1999. As a percentage of total revenue
however, the current three months' operating expenses amounted to 63.2% compared
with 66.1% for the same period in 1999.
Engineering, technical and other direct costs of service decreased by
$616,000 to $7.5 million for the second quarter of 2000 from $8.1 million for
the second quarter of 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
three month period resulted in a net cost of approximately $142,000 compared
with a net cost of approximately $1.5 million for the three month period ending
June 30, 1999. The significant improvement ($1.4 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 $9.1 million for the second quarter of
2000 from $7.6 million for the second quarter of 1999, primarily as a result of
approximately 8,800 additional gross subscriber additions for the current three
month period, 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 63% for the second quarter of 1999
to 64% 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.
I-9
<PAGE>
Selling, general and administrative expenses ("SG&A") decreased
$533,000 from $16.1 million in the second quarter of 1999 to $15.6 million for
the same period of the current year. As a percentage of revenue, SG&A for the
current three month period is 22.0% of revenue compared with 25.0% for the same
three month period in 1999, an improvement of 12.0%. Sales and marketing
increased from $5.4 million for the second quarter of 1999 to $5.8 million for
the current three month period. The $400,000 increase is principally due to
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, decreased from approximately $203
for the three month period ending June 30, 1999 to $184 for the current three
month period, a decrease of 9%. The increase in the number of prepaid
subscribers for the current three 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 three month period, customer
service costs amounted to $5.0 million compared with $4.1 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 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 $6.7 million for the prior three month period to $4.8 million for
the current three month period. The $1.9 million decrease was primarily a
function of the reduction in bad debts ($1.2 million) combined with the decrease
in payroll and related benefits ($420,000). General and administrative expenses,
excluding customer service, amount to 6.7% of total revenue for the current
quarter compared with 10.4% for the same period of the prior year.
Included in operating expenses is a charge of $912,000 for the three
months ending June 30, 2000 and $224,000 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 through June 30, 1999.
Depreciation and amortization increased approximately $1.2 million to
$11.9 million in the quarter ended June 30, 2000 from $10.7 million for the
three month period ending June 30, 1999. The additional depreciation is a result
of capital additions during the second half of 1999 and the first six months of
2000. As a percentage of revenue, depreciation and amortization is almost
constant.
Operating income increased to $26.2 million for the second quarter of
2000 from $21.9 million for the second quarter of 1999 or an increase of 19.6%.
Operating income before depreciation and amortization and non-cash compensation
increased to 54.8% as a percentage of revenue for the current quarter compared
with 50.7% for the second 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
$17.92 for the current period compared with $21.32 for the same period of the
prior year.
NET INTEREST EXPENSE, INCOME TAXES, AND NET INCOME. Net interest expense
decreased to $15.0 million for the second quarter of 2000 from $21.3 million in
the second quarter of 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 three month period.
The current period's income tax provision of $4.6 million compared with a
provision of $431,000 for the three month period in 1999, is a result of the
additional income before income taxes on which taxes are accrued at a rate of
approximately 37%.
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The net income for the three month period ended June 30, 2000 of $7.8
million compared with net income for the second quarter of 1999 of $734,000 is a
function of the items discussed above.
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SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
REVENUE. Service revenue amounted to $126.2 million for the first six
months of 2000, an increase of $13.5 million or approximately 12% from $112.7
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
43,000 or approximately 11% for the current six months compared with last year's
six months. The 11% increase in the number of post-paid subscribers generated
approximately $6.5 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 $2.9 million in prepaid airtime. The average revenue per prepaid
subscriber amounted to $16.27 for the current six month period compared with
$18.19 for the same period of the prior year. The increase in outcollect roaming
revenue ($2.4 million), toll and directory assistance revenue ($2.9 million) as
well as the increase in feature revenue ($1.5 million) for the current six month
period compared with the same period of the prior year, were other significant
components of the additional revenue. Additional promotional credits ($2.9
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 six months of
2000, the average monthly revenue per post-paid subscriber based upon service
revenue less prepaid airtime amounted to $47.62 compared with $48.38 for the
same period last year, a decrease of less than 2%. The average minutes of use
per post-paid subscriber increased, improving from 224 minutes for last year's
six month period to 311 minutes for the current six 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 $11.5 million for this year's six
months compared with $8.5 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.
OPERATING EXPENSES. Total operating expenses increased by $6.5 million to
$90.1 million for the current six month period from $83.7 million for the six
month period ending June 30, 1999. As a percentage of total revenue however, the
current six months' operating expenses amounted to 65.4% compared with 69.0% for
the same period in 1999.
Engineering, technical and other direct costs of service decreased $1.8
million to $14.5 million for the current six months from $16.4 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 six month
period resulted in a net cost of approximately $893,000 compared with a net cost
of approximately $3.8 million for the six month period ending June 30, 1999. The
significant improvement ($2.9 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 $18.2 million for the current six months
from $14.4 million for the six month period ending June 30, 1999, primarily as a
result of approximately 23,800 additional gross subscriber additions for the
current six month period, 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 59% for the six
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month period in 1999 to 63% for the current six 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 $1.1
million from $30.8 million for the first six months of 1999 to $31.9 million for
the same period of the current year. As a percentage of revenue, SG&A for the
current six month period is 23.2% of revenue compared with 25.4% for the same
six month period in 1999, an improvement of 8.7%. Sales and marketing increased
from $10.3 million for the six month period ending June 30, 1999 to $11.3
million for the current six month period. The $1.0 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 $200 for the six month period ending June
30, 1999 to $172 for the current six month period, a decrease of approximately
14%. The increase in the number of prepaid subscribers for the current six 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 $10.0 million compared to $7.7 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 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 $12.8 million for the prior six month period to $10.5 million for
the current six month period. The $2.3 million decrease was primarily a function
of the $1.6 million reduction in bad debts. General and administrative expenses,
excluding customer service, amount to 7.7% of total revenue for the current six
month period compared with 10.6% for the same period of the prior year.
Included in operating expenses is a charge of $1.8 million for the six
month's ending June 30, 2000 and $599,000 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 six month period
represents six months of amortization of the three conversions all of which
occurred in 1999 whereas the six month period of 1999 represents amortization of
only those conversions occurring through June 30, 1999.
Depreciation and amortization increased approximately $2.2 million to
$23.6 million in the current six months from $21.4 million for the six month
period ending June 30, 1999. The additional depreciation is a result of capital
additions during the second half of 1999 and the first six months of 2000. As a
percentage of revenue, depreciation and amortization decreased slightly from
17.7% for the prior six month period to 17.1% for the current six months.
Operating income increased to $47.6 million for the six month period
ending June 30, 2000 compared with $37.5 million for the same period in 1999 or
an increase of 26.9%. Operating income before depreciation and amortization and
non-cash compensation increased to 53.0% as a percentage of revenue for the
current six month period compared with 49.1% 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
$18.08 for the current period compared with $21.26 for the same period of the
prior year.
NET INTEREST EXPENSE, INCOME TAXES, AND NET INCOME. Net interest expense
decreased to $30.5 million for the six months of 2000 from $42.4 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 six month period.
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<PAGE>
The current six month period's income tax provision of $7.9 million
compared with a tax benefit of $1.5 million for the six month period in 1999, is
a result of financial statement taxable income for the current six months
compared with a financial statement taxable loss for the same period in 1999
accrued at a rate of approximately 37%.
The net income for the six month period ended June 30, 2000 of $13.5
million compared with a net loss for the six month period ended June 30, 1999 of
$2.6 million is a function of the items discussed above. The current six month
period does not include an unrealized loss of $4.2 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 six month
period, the Company generated $33.3 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 $73.0 million for the six month period ending June
30, 2000. The Company's debt service requirements for the current year consist
of cash interest payments of $68.5 million, of which $34.2 million has been paid
through June 30, 2000. The remaining cash interest requirements are
approximately $10.3 million in the third quarter and $24.0 million in the fourth
quarter. During the six months ended June 30, 2000, the Company spent
approximately $17.5 million for capital additions. The expenditures were
principally utilized for additional cell sites (an additional 39 sites went on
the air) and the upgrade of the Company's three switches which commenced during
this period. The Company also spent $19.0 million for the repurchase and
retirement of its Class A common stock. Based upon the Company's current ability
to generate operating cash flow combined with its current available cash and
securities position ($188.7 million), there does not appear to be any necessity
to provide additional funding for the 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
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
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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: August 1, 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
