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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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
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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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of the issuer's common stock as of May 3, 2002
was 54,620,901.
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PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2002 and December 31, 2001................... I-1
Condensed Consolidated Statements of Operations - Three months ended
March 31, 2002 and 2001..................................................................... I-2
Condensed Consolidated Statements of Cash Flows - Three months ended
March 31, 2002 and 2001..................................................................... I-3
Condensed Consolidated Statement of Shareholders' Equity - Three months ended
March 31, 2002.............................................................................. I-4
Notes to Condensed Consolidated Financial Statements........................................... I-5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................. I-7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................................................. II-1
ITEM 2. Changes in Securities.......................................................................... II-1
ITEM 3. Defaults Upon Senior Securities - None......................................................... II-1
ITEM 4. Submission of Matters to a Vote of Security Holders............................................ II-1
ITEM 5. Other Information.............................................................................. II-1
ITEM 6. Exhibits and Reports on Form 8-K............................................................... II-1
SIGNATURES.................................................................................................... II-2
ITEM 1. FINANCIAL STATEMENTS
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
(UNAUDITED) (AUDITED)
MARCH 31, DECEMBER 31,
2002 2001
----------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 259,236 $ 246,447
Trade accounts receivable, net of
allowance for doubtful accounts 19,491 21,260
Receivable from other cellular carriers 5,010 5,190
Available for sale securities 1,447 906
Inventory 3,395 5,129
Prepaid expenses and other current assets 13,597 10,460
----------------- ---------------
Total current assets 302,176 289,392
Net property and equipment 139,078 141,230
Licenses, net of amortization 814,824 815,178
Other intangible and other assets, net of amortization 15,290 15,898
----------------- ---------------
$ 1,271,368 $ 1,261,698
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,934 $ 11,665
Accrued interest payable 18,257 11,421
Accrued salaries and employee benefits 1,589 1,281
Deferred revenue 10,005 9,693
Income taxes payable 11,154 9,621
Customer deposits 819 856
Minority interests 2,732 3,194
Other current liabilities 12,698 9,020
----------------- ---------------
Total current liabilities 64,188 56,751
Long-term debt 700,000 700,000
Accrued income taxes - long term 53,165 53,165
Deferred income taxes 277,203 276,140
----------------- ---------------
Total liabilities 1,094,556 1,086,056
----------------- ---------------
Commitments and contingencies
Shareholders' equity 176,812 175,642
----------------- ---------------
$ 1,271,368 $ 1,261,698
================= ===============
See accompanying notes to condensed consolidated financial statements.
I-1
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------------
2002 2001
----------------- ---------------
Revenue:
Service $ 62,641 $ 61,464
Equipment sales and installation 5,592 4,255
----------------- ---------------
Total revenue 68,233 65,719
----------------- ---------------
Operating expenses:
Engineering, technical and other direct 10,262 7,953
Cost of equipment 8,866 8,847
Selling, general and administrative 18,238 17,352
Non-cash compensation-selling, general and administration 912 912
Depreciation and amortization 6,217 11,862
----------------- ---------------
Total operating expenses 44,495 46,926
----------------- ---------------
Operating income 23,738 18,793
----------------- ---------------
Other income (expense):
Interest expense, net (16,586) (14,091)
Other income (expense), net 338 (1,029)
----------------- ---------------
Total other expense (16,248) (15,120)
----------------- ---------------
Income before minority interest
share of income and income taxes 7,490 3,673
Minority interest share of income - (300)
----------------- ---------------
Income before income taxes 7,490 3,373
Income tax expense 2,776 1,907
----------------- ---------------
Net income $ 4,714 $ 1,466
----------------- ---------------
Other comprehensive income, net of tax
Unrealized gains (losses) on available for sale securities (30) (2,799)
Reclassification adjustment - 13
----------------- ---------------
Comprehensive income (loss) $ 4,684 $ (1,320)
================= ===============
Per share data:
Basic earnings per share $ 0.09 $ 0.03
Weighted average shares outstanding 54,753,000 55,329,000
Diluted earnings per share $ 0.09 $ 0.03
Weighted average shares outstanding 55,092,000 55,712,000
See accompanying notes to condensed consolidated financial statements.
I-2
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------------
2002 2001
----------------- ---------------
Cash flows from operating activities:
Net income $ 4,714 $ 1,466
----------------- ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,217 11,862
Minority interest share of income - 300
Deferred income taxes 1,163 -
Gain on available for sale securities (77) (248)
Non-cash compensation 912 912
Amortization of deferred finance charges 608 610
Increase in outstanding put option contracts - 1,794
Decrease in trade accounts receivable 1,949 9,244
Decrease in inventory 1,734 1,335
Decrease in accounts payable and accrued expenses (1,134) (1,232)
Increase in accrued interest payable 6,836 5,822
Change in other accounts (997) (492)
----------------- ---------------
Total adjustments 17,211 29,907
----------------- ---------------
Net cash provided by operating activities 21,925 31,373
----------------- ---------------
Cash flows from investing activities:
Capital expenditures (4,065) (3,137)
Proceeds from sale of available for sale securities 5,457 3,821
Purchase of available for sale securities (5,970) (5,599)
Purchase of minority interests (108) -
----------------- ---------------
Net cash used in investing activities (4,686) (4,915)
----------------- ---------------
Cash flows from financing activities:
Purchase and retirement of common stock (4,480) (7,210)
Exercise of employee stock options 30 702
----------------- ---------------
Net cash used in financing activities (4,450) (6,508)
----------------- ---------------
Net increase (decrease) in cash and cash equivalents 12,789 19,950
Cash and cash equivalents at the beginning of period 246,447 180,708
----------------- ---------------
Cash and cash equivalents at the end of period $ 259,236 $ 200,658
================= ===============
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 61 $ 1,138
================= ===============
Interest paid $ 10,281 $ 10,281
================= ===============
See accompanying notes to condensed consolidated financial statements.
I-3
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ IN THOUSANDS)
Common Stock Accumulated
Class A Additional other Total
------------------ paid-in comprehensive Retained Deferred shareholders'
Shares Par Value capital income earnings compensation equity
------- --------- ----------- ------------- ----------- ------------ -------------
Balance December 31, 2001 54,885 $ 550 $ 177,166 $ (129) $ 56,735 $ (58,680) $ 175,642
Change in unrealized gain (loss) on
available for sale securities,
net of tax effect (30) (30)
Purchase and retirement of common
stock (241) (3) (4,477) (4,480)
Exercise of stock options 3 0 30 30
Deferred compensation expense
associated with the conversion of
preferred stock to common stock 912 912
Tax benefit from the exercise of
stock options 24 24
Net income 4,714 4,714
------- --------- ----------- ------------- ----------- ------------ -------------
Balance March 31, 2002 54,647 $ 547 $ 172,743 $ (159) $ 61,449 $ (57,768) $ 176,812
======= ========= =========== ============= =========== ============ =============
See accompanying notes to condensed consolidated financial statements.
I-4
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").
Price Communications Wireless, Inc. ("PCW") is a wholly owned subsidiary of
Price Communications Corporation and represents the operating entity for the
cellular business. 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.
(2) AGREEMENT TO CONTRIBUTE COMPANY'S BUSINESS
On December 18, 2001, the Company entered into an agreement (the
"Transaction Agreement") with affiliates of Cellco Partnership (doing business
as Verizon Wireless and referred to herein as "Verizon Wireless") pursuant to
which the Company agreed to contribute substantially all of the assets of PCW to
a new partnership controlled by Verizon Wireless ("New Limited Partnership"),
subject to shareholder approval, in exchange for a Preferred Exchangeable
Limited Partnership Interest (the "Preferred Exchangeable Interest") (the
"contribution transaction"). New Limited Partnership will assume certain
liabilities of PCW relating to the contributed business (including such
liabilities as arise under PCW's 11 3/4% Senior Subordinated Notes due 2007 and
9 1/8% Senior Secured Notes due 2006). For financial statement purposes, the
Company expects to record a gain on the transaction.
If an initial public offering of Verizon Wireless common stock (meeting
certain size requirements) occurs within four years of the contribution
transaction, PCC will have an option, subject to the approval of the
shareholders of PCC, to exchange such Preferred Exchangeable Interest for
Verizon Wireless common stock during a period of sixty days which begins upon
the later of (i) the date of the initial public offering and (ii) the one-year
anniversary of the contribution transaction.
If Verizon Wireless does not complete such an initial public offering prior
to the four-year anniversary of the contribution transaction or if Verizon
Wireless does complete such an offering but an exchange into Verizon Wireless
common stock does not occur for other reasons, the Preferred Exchangeable
Interest will be exchanged for Verizon Communications common stock.
In addition, in certain circumstances (including a change in control of PCC
or a transfer of the Preferred Exchangeable Interest to a secured creditor of
PCC), Verizon Communications will have the right to cause an exchange of the
Preferred Exchangeable Interest into Verizon Communications common stock.
Subject to certain adjustments, the amount of the Company's initial capital
account in the partnership will be approximately $1.15 billion. Pursuant to the
partnership agreement, any profits of the partnership will be allocated to the
Company's capital account annually up to an amount equal to approximately 4.00%
per annum (subject to downward adjustments relating to the interest rate payable
on certain indebtedness) accreted quarterly on the weighted daily average
balance of the Company's capital account (for a maximum period of four years).
Any losses incurred by the partnership will be allocated to Verizon Wireless up
to an amount equal to its capital accounts before being allocated to the
Company. With respect to each quarter ending after the second anniversary of the
contribution transaction, the partnership will distribute to the Company an
amount in cash equal to 50% of the Company's share of any profits of the
partnership. These distributions will reduce the Company's capital account in
the partnership. The transaction is structured to be a tax-free exchange of
assets under the Internal Revenue Code.
I-5
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company expects to account for the Preferred Exchangeable Interest
using the equity method of accounting. The initial investment on the PCC balance
sheet will equal the credit in the capital account on the partnership's
financial statement. Thereafter, the Company will increase its investment by the
amount of income it will be entitled to based on the availability of profits and
the agreed upon preferred rate of return.
(3) 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 market or in privately negotiated
transactions when it is legally permissible to do so or believed to be in the
best interests of the Company. During the first quarter of 2002, the Company
repurchased and retired 241,000 shares at an average price of $18.57 per share.
(4) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 142 requires the use of a
nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The provisions of SFAS No. 142 were adopted by the Company
on January 1, 2002. The Company does not have any goodwill recorded in its
consolidated financial statements and therefore the adoption of SFAS No. 142 did
not have any effect on its financial position or results of operations as it
relates to goodwill. However, the Company does have a significant intangible
asset in the form of cellular licenses. Based upon the Verizon agreement and the
valuation of PCW's business contained therein, management of the Company does
not believe that there has been an impairment and accordingly has not recorded a
charge against earnings for the three month period ended March 31, 2002. In
addition, the Company believes its cellular licenses qualify as indefinite life
intangibles as defined by SFAS No. 142, and accordingly the current three month
period does not include any amortization for licenses. Had the Company adopted
SFAS No. 142 at the beginning of 2001, operating income would have increased by
$5,825 to $24,618, net income would have increased by $3,670 to $5,136 and
earnings per share (basic and diluted) would have increased by $.06 to $.09 for
the three month period ending March 31, 2001.
In August 2001, the FASB issued SFAS No 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 supercedes SFAS
No. 121, but retains SFAS No. 121's fundamental provisions for (a) recognition
and measurement of impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale. SFAS No. 144 also
supercedes Accounting Principle Board Opinion No. 30 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB
No. 30") for segments of a business to be disposed of but retains APB No. 30's
requirement to report discontinued operations separately from continuing
operations and extends that reporting to a component of an entity that either
has been disposed of or is classified as held for sale. Effective January 1,
2002, the Company adopted SFAS No. 144 which adoption had no effect on the
Condensed Consolidated Statements of Operations.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has sold put and call options. Some puts were for the Company's
own common stock. These puts entitle the holders to sell publicly traded
securities to the Company during certain periods at certain prices. The Company
is required to maintain collateral to support options issued, therefore such
unsettled contracts if and when outstanding were classified as liabilities with
changes in fair values recorded as part of Other income. At March 31, 2002, open
put contracts were not material.
I-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to facilitate an understanding and
assessment of significant changes and trends related to the financial condition
and results of operations of the Company. This discussion should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
related notes thereto.
The discussion contains statements, which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are made regarding the intent, belief, or current
expectations of the Company, its directors, or officers primarily with respect
to the future operating performance of the Company. Readers are cautioned that
any such forward-looking statements are not guarantees of future performance and
may involve risks and uncertainties and that actual results may differ from
those in the forward-looking statements as a result of factors, many of which
are outside the control of the Company.
References to the "Company" or "Price" in this report include Price
Communications Corporation and its subsidiaries unless the context otherwise
indicates.
OVERVIEW
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
March 31, 2002, the Company provided cellular telephone service to 580,251
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 3.4 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.
AGREEMENT TO CONTRIBUTE COMPANY'S BUSINESS
On December 18, 2001, the Company entered into an agreement (the
"Transaction Agreement") with affiliates of Cellco Partnership (doing business
as Verizon Wireless and referred to herein as "Verizon Wireless") pursuant to
which the Company agreed to contribute substantially all of the assets of PCW to
a new partnership controlled by Verizon Wireless ("New Limited Partnership"),
subject to shareholder approval, in exchange for a Preferred Exchangeable
Limited Partnership Interest (the "Preferred Exchangeable Interest") (the
"contribution transaction"). New Limited Partnership will assume certain
liabilities of PCW relating to the contributed business (including such
liabilities as arise under PCW's 11 3/4% Senior Subordinated Notes due 2007 and
9 1/8% Senior Secured Notes due 2006).
If an initial public offering of Verizon Wireless common stock (meeting
certain size requirements) occurs within four years of the contribution
transaction, PCC will have an option, subject to the approval of the
shareholders of PCC, to exchange such Preferred Exchangeable Interest for
Verizon Wireless common stock during a period of sixty days which begins upon
the later of (i) the date of the initial public offering and (ii) the one-year
anniversary of the contribution transaction.
If Verizon Wireless does not complete such an initial public offering prior
to the four-year anniversary of the contribution transaction or if Verizon
Wireless does complete such an offering but an exchange into Verizon Wireless
common stock does not occur for other reasons, the Preferred Exchangeable
Interest will be exchanged for Verizon Communications common stock.
In addition, in certain circumstances (including a change in control of PCC
or a transfer of the Preferred Exchangeable Interest to a secured creditor of
PCC), Verizon Communications will have the right to cause an exchange of the
Preferred Exchangeable Interest into Verizon Communications common stock.
Subject to certain adjustments, the amount of the Company's initial capital
account in the partnership will be approximately $1.15 billion. Pursuant to the
partnership, any profits of the partnership will be allocated to the Company's
capital account annually up to an amount equal to approximately 4.00% per annum
(subject to downward adjustments relating to the interest rate payable on
certain indebtedness) accreted quarterly on the weighted daily average balance
of the Company's capital account (for a maximum period of four years). Any
losses incurred by the partnership will be allocated to Verizon Wireless up to
an amount equal to its capital accounts before being allocated to the Company.
With respect to each quarter ending after the second anniversary of the
contribution transaction, the partnership will distribute to the Company an
amount in cash equal to 50% of the Company's share of any profits of the
partnership. These distributions will reduce the Company's
I-7
capital account in the partnership. The transaction is structured to be a
tax-free exchange of assets under the Internal Revenue Code.
The Company expects to account for the Preferred Exchangeable Interest
using the equity method of accounting. The initial investment on the PCC balance
sheet will equal the credit in the capital account on the partnership's
financial statement. Thereafter, the Company will increase its investment by the
amount of income it will be entitled to based on the availability of profits and
the agreed upon preferred rate of return. Future cash distributions will reduce
the investment balance.
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, with
respect to each service area in which the Company owns a cellular telephone
system, the estimated population and national MSA ranking of such service area.
MSA ESTIMATED
SERVICE AREA RANK POPULATION (1)
------------ ---- --------------
Albany, GA.................................................... 261 120,822
Augusta, GA................................................... 108 452,846
Columbus, GA.................................................. 153 250,929
Macon, GA..................................................... 138 322,544
Savannah, GA.................................................. 155 293,000
Georgia-6 RSA................................................. --- 211,408
Georgia-7 RSA................................................. --- 139,606
Georgia-8 RSA................................................. --- 166,601
Georgia-9 RSA................................................. --- 124,063
Georgia-10 RSA................................................ --- 162,261
Georgia-12 RSA................................................ --- 220,558
Georgia-13 RSA................................................ --- 157,068
Dothan, AL.................................................... 246 137,916
Montgomery, AL................................................ 139 333,065
Alabama-8 RSA................................................. --- 196,259
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Subtotal................................................. 3,288,946
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Panama City, FL............................................... 283 148,217
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Total.................................................... 3,437,163
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(1) Based on population estimates from U.S. Census 2000.
I-8
RESULTS OF OPERATIONS
The following table sets forth for the Company the percentage, which
certain amounts bear to total revenue.
THREE MONTHS ENDED
MARCH 31,
-----------------------
2002 2001
------ -------
(IN PERCENTAGE TERMS)
REVENUE:
Service.............................................. 91.8% 93.5%
Equipment sales and installation....................... 8.2 6.5
------ -------
TOTAL REVENUE...................................... 100.0 100.0
OPERATING EXPENSES:
Engineering, technical and other direct:
Engineering and technical (1)...................... 7.4 5.7
Other direct costs of services (2)................. 7.7 6.4
Cost of equipment (3)................................ 13.0 13.5
Selling, general and administrative:
Sales and marketing (4)............................ 9.4 8.8
Customer service (5)............................... 9.0 6.0
General and administrative (6)..................... 8.3 11.6
Non-cash compensation.............................. 1.3 1.4
Depreciation and amortization.......................... 9.1 18.0
------ -------
TOTAL OPERATING EXPENSES........................... 65.2 71.4
Operating income....................................... 34.8% 28.6%
Operating income before depreciation and amortization
and non-cash compensation adjusted EBITDA (7)....... 45.2% 48.0%
Operating income before depreciation and amortization
Price Communications Wireless, Inc. (8).............. 46.5% 49.0%
(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 incollect roaming, costs of long distance, costs
of interconnection with wireline telephone companies, costs for prepaid
airtime usage 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's bills.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Adjusted EBITDA represents operating income before interest expense,
provision for income taxes, 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 interest expense, provision for income
taxes, depreciation and amortization and non-cash compensation of the
Company's operating subsidiary Price Communications Wireless, Inc. It does
not include $862,000 for the current quarter and $656,000 for the same
period last year of the parent Company's general and administrative
expenses.
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
REVENUE. Service revenue totaled $62.6 million for the first quarter of
2002 compared with $61.5 million for the first quarter of 2001. An increase in
the average number of postpaid subscribers, an increase in the average access
per subscriber and a reduction in promotional credits generated additional
access revenue of approximately $2.1 million for the current three month period.
Airtime revenue decreased by $322,000 due to migration of the Company's
subscribers to higher access rate plans which include a larger proportion of
free airtime minutes. Prepaid revenue decreased by approximately $1.1 million
during the first quarter of 2002 compared to the first quarter of 2001. Since
the Company recognizes prepaid revenue as the
I-9
minutes are used by its subscribers, this decrease was caused by lower usage of
prepaid minutes during the quarter. The Company's outcollect airtime roaming
revenue, which is revenue that the Company collects from other wireless
carrier's subscribers using their phones in the Company's markets, decreased
from $7.5 million for the first quarter of 2001 to $6.3 million for the current
three month period. This was caused by a decrease in the number of outcollect
minutes (1.4%) in the current quarter and lower reimbursement rates with certain
carriers during the first quarter of 2002 which resulted in a decrease of the
average reimbursement rate from $.26 to $.22. The Company raised the toll
reimbursement rates, which resulted in an increase of outcollect toll of $1.5
million for the current three month period. In order to meet competition, the
Company promoted rate plans which have a much broader coverage area which
enables the subscriber to call outside of their home area without being charged
for toll or incollect airtime usage (see below in engineering technical and
other direct). These changes in plans resulted in a decrease of $730,000 in
local toll revenue. Other items of local revenue, principally feature revenue,
account for the remaining $1.0 million increase in service revenue.
Average monthly revenue per postpaid subscriber (based upon service revenue
only) includes local revenue as well as outcollect revenue, but does not include
incollect revenue from subscribers, as this revenue is accounted for as an
offset to the Company's direct cost of service. Such revenue statistic increased
to $45.82 for the current three month period from $44.15 for last year's first
quarter because of the factors stated above.
Equipment sales and installation revenue, which consists primarily of the
sale of handsets and accessories, increased to $5.6 million for the current
quarter from $4.3 million for the first quarter of 2001. There were 67,500
handsets sold in the current three month period compared with 58,900 handsets
for the same period in 2001. Of the 67,500 current quarter's units, 84% were
digital handsets compared with 42% for last year's first quarter. Digital
handsets typically have a higher retail price, which resulted in the increase of
$1.3 million in equipment sales. Installation revenue for both three month
periods is not significant.
OPERATING EXPENSES. Total operating expenses decreased from $46.9 million
in the first quarter of 2001 to $44.5 million in the current quarter. As a
percentage of total revenue, operating expenses decreased to 65.2% of revenue
for the current quarter from 71.4 % of revenue for the same period in 2001.
Engineering, technical and other direct increased by $2.3 million to $10.3
million for the current quarter from $8.0 million in the first quarter of 2001.
Included in engineering, technical and other direct is the net cost of incollect
roaming which represents the difference between the amount paid to other
cellular carriers for the Company's subscribers roaming in those carriers'
markets and the amount billed to these subscribers by the Company. Incollect
cost before the offset for revenue billed to the Company's subscribers decreased
$963,000 despite a 13% increase in incollect minutes used. The decrease is
attributable to the lower negotiated rates paid to other carriers during the
current quarter which also effected the amount the Company was reimbursed from
these same carriers for outcollect roaming airtime revenue as stated above. More
than offsetting the reduced incollect cost was the decrease in the amount
charged to the Company's subscribers for roaming in the other carriers' markets
which resulted in a net incollect cost for the Company during the current
quarter. As discussed previously, the Company has sold many more rate plans that
include four states in the subscriber's home territory or 50 states. In these
plans, incollect minutes for roaming in either the four states or fifty states
are considered home minutes and are not subject to roaming charges. The emphasis
on these plans resulted in a decrease of incollect revenue of $2.2 million
during the current three month period. The net effect of the decreased costs and
revenues resulted in an increase of $1.2 million for net incollect cost. In
addition the expansion of the network resulted in a $948,000 increase during the
current quarter for fixed span line costs and cell site rentals. The reduction
in prepaid revenue resulted in a $756,000 reduction in costs to operate the
prepaid subscriber system.
The cost of equipment sold approximates $8.8 million for both the current
and prior year's three month period. As mentioned previously, the Company sold
more handsets during the current three months than in the prior three months.
During the current quarter, significantly more digital handsets were sold than
in the prior year's first quarter. The technical innovations in the wireless
industry have resulted in a reduction in the average cost of a digital phone
which enabled the Company to sell many more units at the same total cost. In the
current period, the Company was able to recover approximately 63% of its
equipment cost, which is an improvement over the 48% recovered for the three
month period in 2001.
Selling, general and administrative expenses ("SG&A") increased by $886,000
from $17.4 million for the three month period ending in 2001 to $18.2 million
for the same period of the current year. As a percentage of total revenue, SG&A
increased from 26.4% of total revenue in 2001 to 26.7% of total revenue for the
current three month period.
Sales and marketing costs included in SG&A are comprised of installation
costs, salaries, commissions and advertising. The sum of these components
amounted to $6.4 million for the current three month period compared with $5.8
million for the
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prior three month period or an increase of $646,000. The increase in
commissions, which result from more post paid additions in the current three
months and the higher commission rate associated with these subscriber
additions, is the principal component of the increase. The cost to add a gross
subscriber, which is made up of the net loss on equipment sales and marketing
expenditures, decreased from $161.13 for the three month period ended March 31,
2001 to $136.20 for the three month period ended March 31, 2002.
Customer service costs (also included in SG&A), primarily billing costs and
payroll and related benefits, increased to $6.1 million in 2002 from $3.9
million in 2001 or an increase of $2.2 million. During the last quarter of 2000,
the Company changed its billing vendor and encountered various problems in the
integration of the new system. Because of these problems and the resultant
failure to mail subscribers' bills on a timely basis, the Company's provision
for bad debts increased significantly. The billing company acknowledged their
role in the problem by issuing a $2 million credit to the Company in the first
quarter of 2001. This credit is the primary factor in the increase of $2.2
million for the current three month period. During the fourth quarter of 2001,
the Company centralized the collection process. These additional costs were
offset by decreases in temporary help and other related collection expenses.
General and administrative expenses, the final component of SG&A, decreased
from $7.6 for the three month period ended March 31, 2001 to $5.7 million for
the current three month period. The decrease of $1.9 million is primarily a
result of the decrease in the provision for bad debts from $3.1 million for the
three months in 2001 to $896,000 for the current three month period. The
decrease is a result of the improvement in the billing system, as well as the
benefit derived from centralizing the collection effort (see above in customer
service).
During the first quarter of 2002, the Company adopted Financial Accounting
Standard No. 142 "Goodwill and Other Intangible Assets". Management believes its
cellular licenses qualify as indefinite life intangibles which are not subject
to amortization as of January 1, 2002. Accordingly, the current three month
period does not include any amortization for licenses which amounted to $5.8
million for the three months ended March 31, 2001 and was included in
depreciation and amortization.
Operating income increased approximately $4.9 million to $23.7 million in
the first quarter of 2002 from $18.8 million for the same period in 2001
principally as a result of the decrease in depreciation and amortization.
Operating income before depreciation and amortization and non-cash compensation
amounted to 45.2% of total revenue in the current quarter compared to 48.0% of
total revenue for the quarter ended March 31, 2001. The decrease is a result of
the items discussed above. The continuing emphasis by management on maintaining
cost controls, resulted in a decrease in the average operating cost per
subscriber (total operating costs before depreciation and amortization, non-cash
compensation and corporate overhead) which was $17.88 for the current three
month period compared to $18.22 for the first quarter of 2001. Management
believes that the current figure of $17.88 continues to be one of the lowest in
the industry.
NET INTEREST EXPENSE, INCOME TAXES AND NET INCOME. Net interest expense
increased to $16.2 million for the quarter ended March 31, 2002 from $15.1
million in the first quarter of 2001. Interest income decreased from $2.5
million for the three month period in 2001 to $1.0 million for the current three
month period. The drop in interest earned is a result of the almost 4% drop in
the average interest rate (5.67% for the period in 2001 compared with 1.75% for
the current period).
The current period's income tax provision of $2.8 million compared to the
income tax provision of $1.9 million in the first quarter of 2001 is a result of
the higher financial statement taxable income for the first three months of 2002
compared to the first three months of 2001 and certain non deductible losses.
The net income of $4.7 million for the first quarter of 2002 compared to
net income of $1.4 million for the first quarter of 2001 is a function of the
items discussed above.
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 the issuance of debt, and to a lesser
extent, operating cash flow. During the three month period ended March 31, 2002,
the Company generated $21.9 million of cash from operating activities as shown
in the Condensed Consolidated Statements of Cash Flows. The Company's EBITDA
(earnings before interest, depreciation and amortization and non-cash
compensation) was $30.9 million for the current quarter. The Company's debt
service requirements for the current year consist of cash interest payments of
$68.5 million of which $10.3 million was paid in January 2002. The remaining
cash interest requirements are approximately $24.0 million during the second
quarter, $10.3 million during the third quarter and $24.0 million in the fourth
quarter. Based upon the Company's current ability to generate operating cash
flow combined with its available cash position of $259.2 million, there does not
appear to be a necessity to provide additional funding for the foreseeable
future. The Company's outstanding debt instruments consist of
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$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. The 9 1/8% notes are
callable after June 15, 2002 and the 11 3/4% notes are callable after July 15,
2002. Both of these instruments contain covenants that restrict the payment of
dividends, incurrence of debt and sale of assets.
From the asset contribution transaction to the exchange of the preferred
interest for either the common stock of Verizon Wireless Inc. or Verizon
Communications, the preferred interest is expected to be substantially all of
Price Communications Wireless' assets. While Price Communications Wireless will
receive taxable allocations of any profits from Verizon Wireless of the East
equal to its preferred return (which allocations will increase Price
Communications Wireless' capital account in Verizon Wireless of the East), it
will not, during the two year period following the asset contribution
transaction, receive any cash distributions in respect of the preferred return.
However, after the second anniversary of the asset contribution transaction, for
a period of up to two years, Price Communications Wireless will receive cash
distributions equal to 50% of its preferred return. Price Communications and
Price Communications Wireless currently expect to retain approximately $65
million to $70 million of total net cash and securities (assuming a closing on
June 30, 2002). During the period following the asset contribution transaction,
Price Communications and Price Communications Wireless do not expect to have
sources of cash other than the cash remaining after the asset contribution
transaction, the cash distributions from Verizon Wireless of the East, income
from the investment of cash and any funds that they may be able to borrow. Price
Communications and Price Communications Wireless currently anticipate that their
cash and income will be sufficient to meet their cash obligations during this
period. There is a risk, however, if significant unexpected cash needs arise,
that their funds (including distributions) will be insufficient to meet their
obligations and if Price Communications and/or Price Communications Wireless
need to borrow money to meet such obligations, they may be forced to do so on
unfavorable terms.
If the asset contribution transaction is not completed, Price
Communications Wireless would require certain additional capital expenditures
over the next few years both to comply with government mandated projects, such
as emergency 911 service and local number portability, and to upgrade its
technology to stay competitive in the digital marketplace. Price Communications
Wireless would be likely to upgrade its technology to global system for mobile
communications/general packet radio service (GSM/GPRS) as a step toward
provision of 3G (third generation) services to its customers, similar to the
recent announcement by AT&T Wireless of its intention to add a GSM-overlay to
its network. As a result, Price Communications Wireless estimates that its
capital expenditures for the years 2003 and 2004 could increase to approximately
$52 million and $58 million, respectively. Price Communications Wireless'
operating cash flow and cash on hand should be sufficient to finance these
expenditures.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company utilizes fixed rate debt instruments to fund its acquisitions.
Management believes that the use of fixed rate debt minimizes the Company's
exposure to market conditions and the ensuing increases and decreases that could
arise with variable rate financing.
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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
None
(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: May 13, 2002 By: /s/ Robert Price
-------------------
Robert Price
Director, President and Treasurer
By: /s/ Kim I. Pressman
---------------------
Kim I. Pressman
Director, Executive Vice President
and Principal Financial Officer
By: /s/ Michael Wasserman
-----------------------
Michael Wasserman
Vice President and Chief Accounting Officer
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