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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
------------------- ---------------------
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 November 10,
2002 was 54,543,308
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PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets- September 30, 2002 and December 31, 2001 I-1
Unaudited Condensed Consolidated Statements of Operations - Three months ended
September 30, 2002 and 2001 and nine months ended September 30, 2002 and 2001 I-2
Unaudited Condensed Consolidated Statements of Cash Flows - Nine months ended
September 30, 2002 and 2001...................................................... I-3
Unaudited Condensed Consolidated Statement of Shareholders' Equity - Nine months ended
September 30, 2002 .............................................................. I-5
Notes to Unaudited Condensed Consolidated Financial Statements....................... I-6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... I-12
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................................... II-1
ITEM 2. Changes in Securities................................................................ II-1
ITEM 3. Defaults Upon Senior Securities- None................................................ II-1
ITEM 4. Submission of Matters to a Vote of Security Holders.................................. II-1
ITEM 5. Other Information.................................................................... II-1
ITEM 6. Exhibits and Reports on Form 8-K..................................................... II-1
SIGNATURES.................................................................................... II-2
CERTIFICATIONS
ii
ITEM 1. FINANCIAL STATEMENTS
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2002 2001
---------------- -----------------
($ IN THOUSANDS) ($ IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 16,205 $ 246,447
Trade accounts receivable, net of allowance
for doubtful accounts - 21,260
Receivable from other cellular carriers - 5,190
Available for sale securities (net of market adjustment of $307) 1,156 906
Estimated working capital adjustment due from Verizon Wireless
of the East LP 5,000 -
Income taxes receivable 5,804
Current deferred taxes 4,657 -
Inventory - 5,129
Prepaid expenses and other current assets 741 10,460
---------------- -----------------
Total current assets 33,563 289,392
Cash and securities deposited in collateral account (net of market -
valuation of $5,085) 65,946
Investment in limited partnership 1,117,701 -
Net property and equipment - 141,230
Licenses, net of amortization - 815,178
Other intangible and other assets, net of amortization 30 15,898
---------------- -----------------
$ 1,217,240 $ 1,261,698
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,052 $ 11,665
Accrued interest payable - 11,421
Accrued salaries and employee benefits 370 1,281
Deferred revenue - 9,693
Income taxes payable - 8,457
Minority interests - 3,194
Deferred taxes - 2,608
Other current liabilities 3,327 8,432
---------------- -----------------
Total current liabilities 10,749 56,751
Estimated liability to former minority interest holders 16,000
Long-term debt - 700,000
Accrued income taxes - long term 53,165 53,165
Deferred income taxes 530,000 276,140
---------------- -----------------
Total liabilities 609,914 1,086,056
---------------- -----------------
Commitments and contingencies
Shareholders' equity 607,326 175,642
---------------- -----------------
$ 1,217,240 $ 1,261,698
================ =================
See accompanying notes to condensed consolidated financial statements.
I-1
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -------------------------
2002 2001 2002 2001
------------- ------------ ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Service $ 34,197 $ 68,660 $ 168,944 $ 205,628
Equipment sales and installation 1,836 4,369 11,635 13,168
Income from partnership 4,031 - 4,031 -
------------- ------------ ----------- -----------
Total revenue 40,064 73,029 184,610 218,796
------------- ------------ ----------- -----------
Operating expenses:
Engineering, technical and other direct 8,443 15,177 39,350 44,281
Cost of equipment 3,453 7,591 19,048 24,765
Selling, general and administrative 9,079 18,809 45,785 55,307
Non-cash compensation-selling, general and administrative 56,855 913 58,680 2,737
Depreciation and amortization 3,169 11,838 15,859 35,733
------------- ------------ ----------- -----------
Total operating expenses 80,999 54,328 178,722 162,823
------------- ------------ ----------- -----------
Operating income (loss) (40,935) 18,701 5,888 55,973
------------- ------------ ----------- -----------
Other income (expense):
Interest expense, net (8,597) (15,747) (41,925) (45,010)
Gain on contribution of cellular business 659,181 - 659,181 -
Other income (expense), net (5,813) 4,003 (5,426) 6,826
------------- ------------ ----------- -----------
Total other income (expense) 644,771 (11,744) 611,830 (38,184)
------------- ------------ ----------- -----------
Income before minority interest
share of income and income taxes 603,836 6,957 617,718 17,789
Minority interest share of income - - - (631)
------------- ------------ ----------- -----------
Income before income taxes 603,836 6,957 617,718 17,158
Income tax expense (including for 2002, $238.1 million
of deferred taxes on the gain of the contribution
of the cellular business) 229,602 2,627 234,749 5,950
------------- ------------ ----------- -----------
Net income 374,234 4,330 382,969 11,208
------------- ------------ ----------- -----------
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities (3,290) 1,444 (3,395) (716)
Reclassification adjustment 1,055 112 128 11
------------- ------------ ----------- -----------
Comprehensive income $ 371,999 $ 5,886 379,702 $ 10,503
============= ============ =========== ===========
Per share data:
Basic earnings per share before gain on contribution
of business, deferred taxes on gain and write-off
of unamortized deferred compensation including
deferred taxes thereon $ 0.24 $ 0.08 $ 0.40 $ 0.20
Basic earnings per share on adjusted earnings for one time
items listed above including taxes thereon $ 6.62 $ - $ 6.61 $ -
Weighted average shares outstanding 54,531,000 54,791,000 54,623,000 55,121,000
Diluted earnings per share before gain on contribution
of business, deferred taxes on gain and write-off of
unamortized deferred compensation including deferred
taxes thereon $ 0.24 $ 0.08 $ 0.40 $ 0.20
Diluted earnings per share on adjusted earnings for one time
items listed above including taxes thereon $ 6.59 $ - $ 6.57 $ -
Weighted average shares outstanding 54,774,000 55,216,000 54,929,000 55,016,000
See accompanying notes to condensed consolidated financial statements.
I-2
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(Unaudited)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
2002 2001
---------- ----------
($ IN THOUSANDS)
Cash flows from operating activities:
Net income $ 382,969 $ 11,208
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on contribution of cellular business (659,181) -
Depreciation and amortization 15,859 35,733
Minority interest share of income - 631
Deferred income taxes 241,498 (1,418)
Loss (gain) on collateral and available for sale marketable securities 2,155 (1,709)
Loss on put and call options 1,098 -
Gain on sale of equity investment in
cellular properties (net) - (4,109)
Loss on write-off of investment and other assets 3,426 -
Non-cash compensation 58,680 2,737
Amortization of deferred finance costs 1,520 1,825
Decrease in trade and other receivables 4,541 9,622
Increase in income taxes receivable (5,804) -
(Decrease) increase in accounts payable and accrued expenses (11,227) 12,116
(Decrease) increase in accrued interest payable (11,421) 5,883
Changes in other accounts (37) 1,323
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Total adjustments (358,893) 62,634
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Net cash provided by operating activities 24,076 73,842
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Cash flows from investing activities:
Cash transferred to Verizon Wireless of the East (149,000) -
Capital expenditures (9,704) (12,681)
Proceeds from sale of available for sale securities and put and call options 13,309 13,329
Purchase of available for sale securities and put and call options (14,758) (14,355)
Net purchases of securities for collateral account (70,861)
Cash transferred to collateral account (165)
Purchase of minority interests (4,045) (7,817)
Fees and expenses related to Verizon transaction (12,312)
Sale of equity investments in cellular properties - 15,419
Other 86 -
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Net cash used in investing activities (247,450) (6,105)
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Cash flows from financing activities:
Purchase and retirement of common stock (7,027) (12,563)
Exercise of employee stock options 159 705
---------- ----------
Net cash used in financing activities (6,868) (11,858)
---------- ----------
Net (decrease) increase in cash and cash equivalents (230,242) 55,879
Cash and cash equivalents at the beginning of period 246,447 180,708
---------- ----------
Cash and cash equivalents at the end of period $ 16,205 $ 236,587
========== ==========
I-3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(Unaudited)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
2002 2001
----------- -----------
($ IN THOUSANDS)
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 328 $ 2,639
=========== ===========
Interest paid $ 54,214 $ 44,516
=========== ===========
Non-cash transactions
Gain on contribution of wireless business
Increase in investment account $ 1,112,000
Assumption of debt by Verizon Wireless of the East 700,000
-----------
Total 1,812,000
-----------
Contribution of fixed assets 126,936
Contribution of licenses 832,028
Write-off of unamortized deferred financing fees 10,836
Write-off of prepaid investment banking fees, professional, legal and others 14,016
Other items 7,691
-----------
991,507
-----------
Net non-cash transactions on contribution of Wireless business $ 820,493
===========
Contribution of net working capital to Verizon Wireless of the East $ (6,711)
-----------
Estimated receivable from Verizon Wireless of the East $ 5,000
-----------
Increase in investment account $ 1,711
-----------
See accompanying notes to condensed consolidated financial statements
I-4
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($ IN THOUSANDS)
(UNAUDITED)
Common Stock Accumulated
Class A Additional other
--------------------- paid-in comprehensive Retained
Shares Par Value capital income/(loss) earnings
--------- --------- ---------- ------------- ----------
Balance at December 31, 2001 54,885 $ 550 $ 177,166 $ (129) $ 56,735
Change in unrealized gain (loss) on
available for sale securities
net of tax effect (3,267)
Purchase and retirement of treasury stock (395) (4) (7,023)
Exercise of stock options 52 - 159
Deferred compensation expense
associated with the conversion of
preferred stock to common stock-
for the six months ended June 30, 2002
Write-off of remaining deferred compensation
Tax benefit from the exercise of stock options 170
Net income 382,969
--------- --------- ---------- ------------- ----------
Balance September 30, 2002 54,542 $ 546 $ 170,472 $ (3,396) $ 439,704
========= ========= ========== ============= ==========
Total
Deferred shareholders'
compensation equity
------------ -------------
Balance at December 31, 2001 $ (58,680) $ 175,642
Change in unrealized gain (loss) on
available for sale securities
net of tax effect (3,267)
Purchase and retirement of treasury stock (7,027)
Exercise of stock options 159
Deferred compensation expense
associated with the conversion of
preferred stock to common stock-
for the six months ended June 30, 2002 1,825 1,825
Write-off of remaining deferred compensation 56,855 56,855
Tax benefit from the exercise of stock options 170
Net income 382,969
-
------------ -------------
Balance September 30, 2002 $ - $ 607,326
============ =============
See accompanying notes to condensed consolidated financial statements
I-5
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", "Price" or
"PCC"). Price Communications Wireless, Inc. ("PCW") is a wholly owned
subsidiary of Price Communications Corporation and prior to the consummation
of the asset contribution described under Note 2 below, was the operating
entity for the Company's 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, 10-K/A amendment 2, and Form S-4.
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" or
"Verizon Wireless of the East"),in exchange for a Preferred Exchangeable Limited
Partnership Interest (the "Preferred Exchangeable Interest") (the "asset
contribution"). The asset contribution transaction as contemplated by the
Transaction Agreement as amended, was consummated on August 15, 2002. New
Limited Partnership assumed certain liabilities of PCW relating to the
contributed business (including such liabilities as arose under PCW's 11 3/4%
Senior Subordinated Notes due 2007 and 9 1/8% Senior Secured Notes due 2006).
The asset contribution transaction was structured to be a tax-free contribution
of assets under the Internal Revenue Code.
Under a letter agreement dated August 9, 2002, Verizon Communications
provided Verizon Wireless of the East with $350 million of debt financing
(previously contemplated to be provided by an independent lender) to be used
in connection with the covenant defeasance and redemption of PCW's Senior
Subordinated Notes and Senior Secured Notes referred to above. PCW provided
its guaranty of such indebtedness, provided that in no event shall PCW be
obligated to make payment under such guaranty until Verizon Communications
shall have exhausted all remedies against Verizon Wireless of the East. The
Company believes that the probability of the guaranty being enforced is
remote. Price has agreed to guarantee PCW's obligation under such guaranty,
and accordingly deposited $70 million in cash and other property into a
collateral account to secure such guaranty. Price will control the investment
of the assets deposited in the collateral account, has the right to withdraw
certain sums such as dividends, interest, and earnings on investments in such
account, and has the right, in addition, to withdraw up to $5 million from
such account to cover its ordinary operating expenses. Price and Verizon
Communications have further agreed that Price will retain its cash existing
at the closing of the asset contribution which is not reserved to satisfy
known liabilities existing at such time (and in any event in a minimum amount
of $2 million) for the purpose of making such investments as Price deems
appropriate.
I - 6
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
If an initial public offering of Verizon Wireless common stock (meeting
certain size requirements) occurs within four years of the asset 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 the sixty-day period which begins upon the
later of (i) the date of the initial public offering and (ii) the one-year
anniversary of the asset contribution.
If a qualifying initial public offering of Verizon Wireless occurs
within four years after the asset contribution and the Company exercises its
option to exchange its Preferred Exchangeable Interest for shares of Verizon
Wireless, the number of shares it will receive will be derived by dividing
the then balance in its capital account by the Verizon Wireless initial
public offering price. If the Company chooses not to exercise such option, it
will be obligated to exchange its Preferred Exchangeable Interest for Verizon
Communications common stock on the tenth anniversary of the transaction or
such earlier date as may be specified by Verizon Communications. In this
case, the number of shares the Company will receive will be derived by
dividing the amount in the Company's capital account as of the date of
exchange by the greater of the trailing 20 day average closing price of
Verizon Communications common stock as of the date of the exchange and
$55.30. The preferred return, however, ceases on the fourth anniversary of
the transaction.
If Verizon Wireless does not complete such an initial public offering prior
to the four-year anniversary of the asset contribution 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 may
be exchanged for Verizon Communications common stock.
In the event a qualifying initial public offering of Verizon Wireless
does not occur prior to the fourth anniversary of the asset contribution, the
Preferred Exchangeable Interest will be mandatorily exchanged for shares of
Verizon Communications common stock on such fourth anniversary. In this case
the number of shares of Verizon Communications common stock issuable to the
Company is equal to the amount in the Company's capital account as of the
date of the exchange divided by the trailing 20 day average closing price of
Verizon Communications common stock as of the date of the exchange, provided
that such price shall not be less than $40 or more than $74.
In addition, under certain circumstances (including a change in control of
PCC, as described in the Company's proxy statement dated July 23, 2002, or a
transfer of the Preferred Exchangeable Interest to a secured creditor of the
Company), Verizon Communications will have the right to cause an exchange of the
Preferred Exchangeable Interest into Verizon Communications common stock,
whether or not an initial public offering of Verizon Wireless common stock has
occurred.
Subject to certain adjustments, the amount of PCW's initial capital account
in the partnership amounted to approximately $1.112 billion. PCW will receive
taxable allocations of any profits from Verizon Wireless of the East equal to
its preferred return, which is currently expected to be approximately 2.9% per
annum after giving effect to certain adjustments (which allocations to the
extent not distributed in cash will increase PCW's capital account in Verizon
Wireless of the East). 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 PCW. The partnership will distribute to PCW an amount in cash equal
to 50% of PCW's share of any profits of the partnership. These distributions
will reduce PCW's investment in the partnership.
The Company has accounted for the Preferred Exchangeable Interest using the
equity method of accounting. The initial investment on the PCC balance sheet
equals 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. As of September 30, 2002, the Company has
accrued an additional $16.0 million for the Company's estimate of amounts to be
incurred in the future related to the redemption of the remaining minority
interests.
(3) SHAREHOLDERS' EQUITY
Pursuant to the Company's guaranty of the $350 million debt financing of
Verizon Wireless of the East, the Company has agreed to limitations on
expenditures of its funds which will significantly limit or eliminate the
Company's ability to repurchase any additional shares of its stock, though the
Company's Board of Directors had previously authorized stock repurchase programs
of the Company's Common Stock. The Company was 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 nine months of 2002, the Company repurchased and
retired approximately 395,000 shares at an average price of $17.80 per share.
(4) REVISIONS TO PREVIOUSLY REPORTED AMOUNTS
Based on discussions with the SEC, generally all cellular companies and the
Company have revised the classification of incollect roaming revenue to reflect
such revenue as part of revenues from cellular service, rather than as an offset
to incollect roaming costs, as the Company has done historically. This change in
classification resulted in an increase in corporate revenue from cellular
service and a corresponding increase in engineering, technical and other direct
costs of $7.1 million and $21.0 million for the three and nine-month periods
ended
I - 7
September 30, 2001, respectively. Total operating income, net income and all
other financial statements are not affected by this change in classification.
I - 8
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(5) 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 did have a significant intangible
asset in the form of cellular licenses. Based upon the transaction with Verizon
Wireless 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 and nine month periods
ended September 30, 2002. In addition, the Company believes its cellular
licenses qualified as indefinite life intangibles as defined by SFAS No. 142,
and accordingly the current three and nine-month periods do not include any
amortization for licenses. Had the Company adopted SFAS No. 142 at the beginning
of 2001, operating income would have increased by $5,681 and $17,042 to $24,382
and $73,015 for the three and nine-month periods ended September 30, 2001,
respectively, net income would have increased by $4,330 and $11,208 to $7,909
and $21,944 for the three and nine-month periods ended September 30, 2001,
respectively, earnings per share (basic and diluted) would have increased by
$.06 to $.14 for the three-month period ending September 30, 2001, and earnings
per share (basic and diluted) would have increased by $.20 to $.40 for the
nine-month period ended September 30, 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.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has sold put and call options. Put and call options entitle the
holders to sell publicly traded securities to the Company or buy such securities
from 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 are classified as liabilities with
changes in fair values recorded as part of other income (expense). At September
30, 2002, approximately $2.2 million of these contracts were still open expiring
in October 2002. As of October 8, 2002 the open contracts had been reduced to
approximately $290,000.
(7) GAIN ON CONTRIBUTION OF COMPANY'S BUSINESS.
Effective August 15, 2002, the Company contributed substantially all of the
assets of Price Communications Wireless, Inc., the operating entity owned by
Price, to Verizon Wireless of the East. In addition, Verizon Wireless of the
East assumed substantially all of the liabilities (including long-term debt) of
Wireless. Included in the $659.2 million book gain on the sale of the business
is the difference between the amount included in the investment account of the
condensed consolidated balance sheet as at September 30, 2002 ($1.112 billion)
and the net book basis of the licenses contributed ($832.0 million), the net
book basis of fixed assets contributed ($126.9 million) and cash contributed
($149 million). Increasing the gain is the amount of long-term debt assumed by
the partnership ($700
I - 9
million). Reducing the gain is the write-off of unamortized deferred finance
costs ($10.8 million), loss on the abandonment of certain property ($2.2
million) and additional fees and expenses related to the transaction ($31.9
I - 10
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
million). Although the transaction is structured to be a tax-free transaction,
there may be a tax in the future if the Company sells the Verizon Wireless or
Verizon Communications stock, which will be received by the Company on the
exchange of the Preferred Exchangeable Interest. Accordingly, the financial
statements include an adjustment for deferred taxes of $238.1 million which
adjustment along with the previous balance of deferred taxes represents the
potential tax on the difference between the tax basis of the assets contributed
and the consideration received for the contribution.
(8) WRITE-OFF OF UNAMORTIZED DEFERRED COMPENSATION
In 1998 and 1999, the Company issued to its Chief Executive, Mr. Price,
restricted common stock of the Company in exchange for two issues of redeemable
preferred stock, which he held. The fair market value of the stock when it was
issued was deemed to be deferred compensation and accordingly, the Company had
previously been amortizing such deferred compensation against earnings over the
restriction period. As a result of the contribution of PCW to Verizon Wireless
of the East, the Company believes that the change of control language included
in the agreement related to the aforementioned restricted stock negates the
previous restrictions and therefore precludes the Company from continuing to
defer and amortize the balance of the deferred compensation. Accordingly, the
Condensed Consolidated Statements of Operations include an additional charge of
$56.8 million related to the write-off of the unamortized portion as of
September 30, 2002 of such deferred compensation.
(9) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and litigation in the ordinary
course of business. In the opinion of legal counsel and management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
I - 11
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 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 (including without limitation the risks and
uncertainties described under "Risk Factors" in the Company's proxy statement
dated July 23, 2002), and that actual results may differ from those in the
forward-looking statements as a result of factors, many of which are outside of
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 had been engaged in the construction, development, management
and operation of cellular telephone systems in the southeastern United States.
Effective August 15, 2002 the Company contributed substantially all of the
assets and liabilities of its operating subsidiary, Price Communications
Wireless, Inc., to Verizon Wireless of the East. Accordingly, the financial
information for the three and nine-month periods ending September 30, 2002 are
not comparable to those same periods ending in 2001.
The Company remains listed on the New York and other stock exchanges and
has no operating assets and approximately $1.2 billion in an illiquid Verizon
Wireless preferred partnership interest, cash, and marketable securities.
The Company is studying and may do one of the following:
1. Certain shareholders, primarily arbitrageurs, have indicated to the
Company that the Company should be liquidated on a tax deferred basis
following the exchange of the Company's Preferred Exchangeable Interest
for Verizon Communications common stock (which would likely occur
following the fourth anniversary of the closing of the asset
contribution) or Verizon Wireless common stock (which would occur, at
the Company's option, subject to approval of the Company's shareholders,
following an earlier initial public offering of Verizon Wireless common
stock meeting certain size requirements, but in no event earlier than
the first anniversary of the closing of the asset contribution
transaction). Such shareholders have informed the Company that they
estimate (without the Company's input or concurrence) that the value of
the assets that would be distributed to the Company's shareholders in
such a liquidation would be approximately $21 or more per share, subject
to a number of assumptions and uncertainties, including, without
limitation, that the value of the Verizon Communications or Verizon
Wireless common stock distributed in such liquidation was equal to the
Company's capital account in Verizon Wireless of the East at the time of
the exchange of the Preferred Exchangeable Interest for such stock.
Management has informed such shareholders that under New York law the
affirmative vote of at least two-thirds of the Company's outstanding
shares would be required to approve such a liquidation, and that the
Company has been informed by the holders of more than 20% of the
Company's outstanding shares that they will not support such a
liquidation.
2. As an alternative to liquidation, the Company has been shown a variety
of potential acquisitions and concepts. These include the purchase of
mutual funds, banks, cellular properties, independent telephone
companies, broadcasting and/or publishing companies, and concepts to
convert Price Communications into a closed-end investment company.
Management continues to study and consider these and other ideas.
3. It is possible that in early 2003 in connection with the next annual
meeting of shareholders of the Company, the Board of Directors may seek
SEC approval to solicit opinions from shareholders as to whether they
would prefer to wait a maximum of a four-year period and vote for a tax
deferred exchange and liquidate, or
I - 12
if the shareholders would prefer that the corporation acquire other
operating businesses and retain the investment in Verizon on either a
liquid or illiquid basis. If this polling of shareholders does occur,
though 66 2/3% will be needed to liquidate, if 55 % (of the Company's
outstanding shares) now express a preference for liquidation, management
may postpone acquiring another company. If 55% do not affirmatively vote
in favor of liquidation it may indicate to management that a proper
course would be to seek another operating business.
4. These opportunities for investment by the corporation or by Robert Price
personally have been presented on an ongoing basis and are being
studied. If the judgment of the Board of Directors and the shareholders
is that they ultimately prefer liquidation, prior or subsequent to this
vote there is no assurance that Robert Price will not leave the Company
and privately begin another company.
AGREEMENT TO CONTRIBUTE COMPANY'S BUSINESS
On December 18, 2001, the Company agreed to the contribution of
substantially all of the assets of PCW and approximately $149 million in cash to
Verizon Wireless of the East in exchange for a preferred limited partnership
interest in Verizon Wireless of the East. The transaction was consummated on
August 15, 2002. Verizon Wireless of the East assumed and redeemed $700 million
of indebtedness of PCW. It is currently estimated that after giving effect to
certain adjustments provided for in the transaction agreement governing the
asset contribution, PCW's initial capital account in Verizon Wireless of the
East will be approximately $1.112 billion. PCW will receive taxable allocations
of any profits from Verizon Wireless of the East equal to its preferred return,
which is currently expected to be approximately 2.9% per annum after giving
effect to certain adjustments (which allocations to the extent not distributed
in cash will increase PCW's capital account in Verizon Wireless of the East).
For a period of up to four years, PCW will receive cash distributions equal to
50% of its preferred return.
Under a letter agreement dated August 9, 2002, Verizon Communications
provided Verizon Wireless of the East with $350 million of debt financing
(previously contemplated to be provided by an independent lender) to be used in
connection with the covenant defeasance and redemption of PCW's Senior
Subordinated Notes and Senior Secured Notes referred to above. PCW provided its
guaranty of such indebtedness, provided that in no event shall PCW be obligated
to make payment under such guaranty until Verizon Communications shall have
exhausted all remedies against Verizon Wireless of the East. Price has agreed to
guarantee PCW's obligation under such guaranty, and accordingly deposited $70
million in cash and other property into a collateral account to secure such
guaranty. Price will control the investment of the assets in the collateral
account, has the right to withdraw interest, dividends, and earnings on
investments in such account, and has the right, in addition, to withdraw up to
$5 million from such account to cover its ordinary operating expenses. Price and
Verizon Communications further agreed that Price will retain its cash existing
at the closing of the asset contribution which is not reserved to satisfy known
liabilities existing at such time (and in any event in a minimum amount of $2
million) for the purpose of making such investments as Price deems appropriate.
If a qualifying initial public offering of Verizon Wireless occurs
within four years after the asset contribution and the Company exercises its
option to exchange its Preferred Exchangeable Interest for shares of Verizon
Wireless, the number of shares it will receive will be derived by dividing
the then balance in its capital account by the Verizon Wireless initial
public offering price. If the Company chooses not to exercise such option, it
will be obligated to exchange its Preferred Exchangeable Interest for Verizon
Communications common stock on the tenth anniversary of the transaction or
such earlier date as may be specified by Verizon Communications. In this
case, the number of shares the Company will receive will be derived by
dividing the amount in the Company's capital account as of the date of
exchange by the greater of the trailing 20 day average closing price of
Verizon Communications common stock as of the date of the exchange and
$55.30. The preferred return, however, ceases on the fourth anniversary of
the transaction.
In the event a qualifying initial public offering of Verizon Wireless
does not occur prior to the fourth anniversary of the asset contribution, the
Preferred Exchangeable Interest will be mandatorily exchanged for shares of
Verizon Communications common stock on such fourth anniversary. In this case
the number of shares of Verizon Communications common stock issuable to the
Company is equal to the amount in the Company's capital account as of the
date of the exchange divided by the trailing 20 day average closing price of
Verizon Communications common stock as of the date of the exchange, provided
that such price shall not be less than $40 or more than $74.
The preferred interest, the assets in the collateral account referred to
above, and the excess cash reserves are substantially all of the assets of the
Company and the Company owns no operating assets. It is anticipated that
substantially all of the Company's income in the future will be derived from
cash dividends and interest on investments in such collateral account and from
cash distributions it is entitled to receive in respect of its preferred return.
The Company does not expect to have any significant operating expenses other
than income taxes attributed to such cash investments and the preferred return.
Verizon Wireless of the East is managed by a wholly owned subsidiary of
Verizon Wireless, and PCW has limited veto rights over certain transactions in
which Verizon Wireless of the East may engage. There can be no assurance that
the managing partner of Verizon Wireless of the East will be successful in
managing Verizon Wireless of the East or that the managing general partner's
interests in managing Verizon Wireless of the East will not conflict with the
interests of the Company.
Following an exchange of the preferred interest for either Verizon Wireless
or Verizon Communications common stock, to the extent that the Company has not
acquired other assets, substantially all of the Company's income will be derived
from dividends that may be paid in respect of the shares of Verizon Wireless or
Verizon Communications common stock received in the exchange. The Company is not
contractually entitled to receive any
I - 13
dividends or distributions in respect of the shares of common stock it receives
in the exchange and therefore there can be no assurances that either Verizon
Wireless or Verizon Communications will pay dividends to its shareholders.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001
As previously stated, substantially all of the assets of the operating
subsidiary of the Company were acquired by Verizon Wireless of the East on
August 15, 2002. Accordingly the condensed statement of operations for the
current quarter includes one and one-half months of operating activity which
therefore precludes any comparison of operations for the current three month
period against the same period ending in 2001.
During the first quarter of 2002, the company adopted Financial Accounting
Standard No. 142 "Goodwill and Other Intangible Assets". Management believes the
Company's 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 cellular licenses,
which amounted to $5.7 million for the three months ended September 30, 2001,
and is included in depreciation and amortization. Prior to the contribution of
PCW, the Company had been amortizing deferred compensation related to restricted
stock previously given to its Chief Executive Officer. As a result of the
contribution of PCW, the restrictions contained in the agreement are no longer
applicable and accordingly, the operating results for the current three-month
period include the write-off of $56.8 million of deferred compensation, which
previously was being amortized over periods of 10 or 20 years.
NET INTEREST EXPENSE, OTHER INCOME, INCOME TAXES AND NET INCOME. Net
interest expense decreased by $7.1 million for the third quarter from $15.7
million for the third quarter of 2001 to $8.6 million for the third quarter of
2002. The decrease is primarily a result of the decrease in interest expense on
the Company's long-term debt as a result of the assumption by Verizon Wireless
of the East of the Company's long-term debt ($700 million) on August 15, 2002.
During the current three-month period the Company disposed of the
assets of its operating subsidiary (PCW) and recorded a gain on the
transaction. PCW contributed $149.0 million of cash, its cellular licenses
($832 million net of accumulated amortization) and fixed assets ($126.9
million net of accumulated depreciation) to the new partnership. The new
partnership assumed PCW's outstanding long-term debt ($700 million) and
credited PCW's capital account for $1.112 billion. Deductions for fees and
expenses, some of which occurred in prior years and the write-off of the
unamortized balance of deferred financing costs were netted against the gain
on the transaction, resulting in a net gain of $659.2 million.
Other income (expense) for the current three-month period amounted to an
expense of $5.8 million compared with income of $4.0 million for the comparable
period in 2001 or a net unfavorable change of $9.8 million. Other income for the
quarter ending September 30, 2001 was primarily a result of the gain from the
sale of the Company's minority equity investment in other cellular properties.
The current three-month period includes the net loss on securities transactions,
including puts and calls, some of which are not deductible for tax purposes,
which net loss approximated $3.3 million as well as the write-off of an
investment which approximated $2.4 million.
As previously stated the contribution transaction is a non-taxable
exchange except that for financial statement purposes there is a provision
for deferred taxes of $238.1 million which amount is necessary to increase
the existing deferred tax liability on the balance sheet to the amount of the
estimated potential liability on the difference between the tax basis of the
assets contributed by the Company and the total consideration received by the
Company including the forgiveness of long-term debt. However, certain
expenses that are netted against the gain are deductible for tax purposes and
accordingly also reduce taxable income. Because of these expenses,
partially off set by certain non-deductible items and other items, the
deferred provision for taxes for the current three-month period has been
reduced by a net tax benefit of $8.6 million. The total provision of $229.6
million for the current three-month period is compared with a tax provision
of $2.6 million for the three months ended September 30, 2001.
The net income for the three-month period ended September 30, 2002 of
$374.2 million compared with net income for the third quarter of 2001 of $4.3
million is a function of the items discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001
I - 14
As stated above, the Company's operating subsidiary, Price Communications
Wireless (PCW) was sold to Verizon Wireless of the East effective August 15,
2002. Accordingly any comparison of operations for the current nine-month period
ending September 30, 2002 against the nine-month period ending September 30,
2001 is not meaningful.
During the first quarter of 2002, the Company adopted Financial Accounting
Standard No. 142 "Goodwill and Other Intangible Assets", Management believes its
cellular licenses qualified as indefinite life intangibles which are not subject
to amortization as at January 1, 2002. Accordingly, the current nine-month
period does not include any amortization for licenses, which amounted to $17.0
million for the nine-months ended September 30, 2001 and was included in
depreciation and amortization. Prior to the contribution of PCW, the Company had
been amortizing deferred compensation related to restricted stock previously
held by its Chief Executive Officer. As a result of the contribution of PCW, the
restrictions contained in the agreement are no longer applicable and accordingly
the operating results for the current nine-month period include the write-off of
$56.8 million of deferred compensation, which previously was being amortized
over periods of 10 or 20 years.
NET INTEREST EXPENSE, OTHER INCOME, INCOME TAXES AND NET INCOME. Net
interest expense decreased to $41.9 million for the nine-months of 2002 from
$45.0 million for the same period in 2001. The $3.1 million decrease in net
interest expense is primarily the result of a reduction in interest expense on
the Company's $700 million long-term debt which debt was assumed on August 15,
2002 as a result of the closing of the transaction.
During the current three-month period the Company sold its operating
subsidiary (PCW) and recorded a gain on the transaction. PCW contributed $149.0
million of cash, its cellular licenses ($832 million net of accumulated
amortization) and fixed assets ($126.9 million net of accumulated depreciation)
to the new partnership. The new partnership assumed PCW's outstanding long-term
debt ($700 million) and credited PCW's capital account for $1.112 billion.
Reducing the gain on the transaction, were deductions for fees and expenses,
some of which occurred in prior years and the write-off of the unamortized
balance of deferred financing costs. The net result of these transactions was a
gain of $659.2 million.
Other income (expense) for the current nine-month period amounted to an
expense of $5.4 million compared with income of $6.8 million for the nine-months
ending September 30, 2001 or an unfavorable change of $12.2 million. Included in
the current nine-month period is a net loss on securities transactions,
including puts and calls, some of which are not deductible, which net loss
approximated $3.4 million as well as the write-off of an investment which
approximated $2.4 million. Other income for the nine-month period ending
September 30, 2001 includes a gain of $4.1 million from the sale of the
Company's minority equity investment in other cellular properties and $1.6
million of gains from securities including puts and calls, some of which are not
taxable.
The current nine-month period includes deferred taxes of $238.1 million
related to the gain on the asset contribution (see above for computation of
potential tax liability). Reducing this deferred provision is a net tax
benefit of $3.3 million which results from certain expenses which are netted
against the gain but are deductible for tax and book purposes and other items.
The $5.9 million provision for the nine-months ending September 30, 2001 is a
function of financial statement income somewhat reduced by certain items which
are not taxable.
The net income for the current nine-month period of $$383.0 million
compared with net income of $11.2 million for the nine-month period ended
September 30, 2001 is a function of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the asset contribution transaction with Verizon, the Company
has substantial assets but limited sources of revenue in the future. From the
asset contribution transaction (August 15,2002) to the exchange of the preferred
interest for either the common stock of Verizon Wireless Inc. or Verizon
Communications, the preferred interest, and the investments in the collateral
account described under "Agreement to Contribute Company's Business" above are
expected to be substantially all of the Company's assets. The Company will
receive taxable allocations of any profits from Verizon Wireless of the East
equal to its preferred return (which allocation to the extent not distributed in
cash, will increase Price Communications Wireless' capital account in Verizon
Wireless of the East). After the asset contribution for a period of up to four
years, PCW will receive cash distributions equal to
I - 15
50% of its preferred return. During the period following the asset contribution
the Company will have sources of cash in addition to the cash remaining after
the asset contribution not reserved for liabilities existing at the time of such
contribution, i.e., the cash distributions from Verizon Wireless of the East,
income from earnings on investments in the collateral account and its other
cash, an aggregate of $5 million which the Company is authorized to withdraw
from the collateral account to cover its ordinary operating expenses, and funds
that the Company may be able to borrow. As of September 30, 2002, the Company
has available approximately $18.2 million of working capital (excluding deferred
and carryforward taxes). In accordance with the asset contribution agreement,
Verizon will calculate a working capital adjustment, based on the balance sheet
of PCW at August 15, 2002. The Company preliminarily has calculated this
adjustment and accordingly has recorded a receivable of $5.0 million and an
addition to the investment in limited partnership of $1.7 million. The Company
expects to receive the $5.0 million in the fourth quarter of 2002. The
nine-month condensed consolidated statement of operations includes $4.0 million
of income from the partnership. Assuming there are sufficient profits, as
defined in the partnership agreement of Verizon Wireless of the East, the
Company anticipates receiving 50% of this amount in the fourth quarter of 2002.
Included in accrued expenses is an estimated accrual of $5.0 million for
additional fees related to the closing agreement. The Company has provided for
an additional $16.0 million for its previous minority interests which amount is
currently being disputed by such parties. Of this amount, $2.7 million was
allocated to liquidate the minority interest payable balance with the balance
being allocated to the basis of the licenses contributed to the partnership. .
The Company currently anticipates that its cash and income will be
sufficient to meet any cash obligations in the future. There is a remote risk,
however, if significant unexpected cash needs arise (such as a demand for
payment under the Company's guaranty to Verizon Communications), that its funds
(including distributions, interest and dividends) will be insufficient to meet
its obligations and if the Company needs to borrow money to meet such
obligations, it may be forced to do so on unfavorable terms.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information, the instructions to Form
10-Q and Article 10 of Regulation S-X. The preparation of our financial
statements requires us to make estimates that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosures of contingent
assets and liabilities. We base our accounting estimates on historical
experience and other factors that are believed to be reasonable under the
circumstances. However, actual results may vary from these estimates under
different assumptions or conditions. The following is a summary of our critical
significant accounting policies and estimates:
FINANCIAL INSTRUMENTS. At September 30, 2002 and December 31, 2001,
substantially all of the Company's investment securities were marketable equity
securities classified as "Available-for-Sale Securities". Unrealized holding
gains and losses for Available-for-Sale Securities are excluded from earnings
and reported, net of taxes, as accumulated other comprehensive income (loss).
The Company sells put and call options. 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 have been classified as liabilities
in the accompanying consolidated balance sheets (if unsettled at the balance
sheet date) with changes in fair values recorded as part of other income
(expense).
REVENUE RECOGNITION. Service revenue from cellular operations for prepaid
and post paid customers included local subscriber revenue and outcollect roaming
revenue.
In accordance with the Securities and Exchange Commission Staff Accounting
Bulletin No. 101 ("SAB 101"), which was adopted in the fourth quarter of 2000
effective January 1, 2000, prepaid airtime revenue was recognized when the
airtime was utilized and activation revenue was recognized over the estimated
life of the subscriber's contract or the expected term of the customers
relationship, whichever was longer. Local subscriber revenue was earned by
providing access to the cellular network ("access revenue") or, as applicable,
for usage of the cellular network ("airtime revenue"). Access revenue was billed
one month in advance and was recognized when earned. Postpaid airtime revenue
was recognized when the service was rendered.
I - 16
Outcollect roaming revenue represents revenue earned for usage of its
cellular network by subscribers of other cellular carriers. Outcollect roaming
revenue was recognized when the services were rendered.
Equipment sales and installation revenues were recognized upon delivery to
the customer or installation of the equipment.
COST TO ADD A SUBSCRIBER. The cost to add a subscriber, which consisted
principally of the net loss on the sale of equipment, as well as commissions,
was recognized at the time the subscriber started to receive cellular service.
Both commissions and the loss on the sale of handsets, which represent a
separate earnings process, were expensed in the same month that the subscriber
commenced using the Company's system.
OPERATING EXPENSES - ENGINEERING, TECHNICAL AND OTHER DIRECT. Engineering,
technical and other direct operating expenses represented certain costs of
providing cellular telephone services to customers. These costs included
incollect roaming expense. Incollect roaming expense was the result of the
Company's subscribers using cellular networks of other cellular carriers.
EXPENSING STOCK OPTIONS. Robert Price, President of the Company,
believes the potential expensing of stock options is a silliness. The Company
has always submitted stock option plans for shareholder approval. In
addition, stock options have generally gone in small amounts, often 1,000
shares or less, to one or two hundred employees with management never
receiving excessive amounts. Currently, the principal stock options
outstanding are 100,000 shares each to Robert Price and Kim Pressman at
$31.00 per share with another 100,000 shares each to Robert Price and Kim
Pressman at $32.00 per share. These options would hardly be capable of being
expensed and management believes stock options have helped employee
performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company previously utilized fixed rate debt instruments. As of
September 30, 2002, the company no longer has any outstanding debt.
ITEM 4. PROCEDURES AND CONTROLS
Within the 90 days prior to the date of this report. The Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation
of the Company's disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
I - 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Assumption by Verizon Wireless of the East L.P. of the $175 million
Senior Subordinated Notes due July 15, 2007 and the $525 million Senior
Secured Notes due December 15, 2006.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 23, 2002, the Company held its annual meeting of shareholders.
There were three items voted on as follows:
Election of Robert Price and Kim I Pressman as directors for a term of
two years expiring in 2004
Election of Stuart Rosenstein and John Deardourff as directors for a
term of three years expiring in 2005
Contribution of the wireless business of the Corporation to Verizon
Wireless of the East LP
Possible exchange of the preferred interest in Verizon Wireless of the
East LP for Verizon Communications Inc.'s Common stock
As to the election of Robert Price: 51,045,550 or 99.4% of the eligible
vote voted in favor with 307,631 withheld
As to the election of Kim I Pressman: 50,859,081 or 99.0% of the
eligible vote voted in favor with 494,100 withheld
As to the election of Stuart Rosenstein: 48,733,005 or 94.9% of the
eligible vote voted in favor with 2,620,176 withheld
As to the election of John Deardourff: 49,134,663 or 95.7% of the
eligible vote voted in favor with 2,218,518 withheld
As to the contribution of the wireless business: 46,636,411 or 90.8% of
the eligible vote voted in favor with 40,490 voting against, 11,972
abstaining and 4,664,228 being non-vote by brokers
As to the possible exchange of the preferred interest: 46,604,533 or
90.8% of the eligible vote voted in favor with 49,709 voting against,
34,631 abstaining and 4,664,228 being non-vote by brokers
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
Form 8-K filed on August 5, 2002 relating to the dismissal of Arthur
Andersen LLP as Registrant's principal accountant to audit Registrant's
financial statements and the appointment of Deloitte & Touche to perform
the same tasks as previously performed by Arthur Andersen LLP
Form 8-K filed on August 15, 2002 announcing the consummation of the
asset contribution transaction with Verizon Wireless as contemplated by
the Transaction Agreement dated as of December 18, 2001 (previously
filed as Exhibit 10.1 to the Form 8-K filed on January 4, 2002, as
amended.
II - 1
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRICE COMMUNICATIONS CORPORATION
Date: November 14, 2002 By: /s/ Robert Price
-------------------
Robert Price
Director, President and Treasurer
By: /s/ Kim I Pressman
---------------------
Kim I Pressman
Vice President and Chief Financial Officer
By: /s/ Michael Wasserman
------------------------
Michael Wasserman
Vice President and Chief Accounting Officer
II - 2
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF PRICE COMMUNICATIONS CORPORATION
I, Robert Price, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Price
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the periods covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified to the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated, November 13, 2002
/s/ ROBERT PRICE
----------------
Robert Price
President
CERTIFICATION OF CHIEF FINANCIAL OFFICER OF PRICE COMMUNICATIONS CORPORATION
I, Kim I. Pressman, certify that:
7. I have reviewed this quarterly report on Form 10-Q of Price
Communications Corporation;
8. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the periods covered by this quarterly
report;
9. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
10. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. . evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
11. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified to the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
12. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated, November 13, 2002
By: /s/ KIM I. PRESSMAN
------------------------
Kim I. Pressman
Chief Financial Officer
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER OF PRICE
COMMUNICATIONS CORPORATION
Each of the undersigned, the Chief Executive Officer and the Chief Financial
Officer of Price Communications Corporation (the "Company"), hereby certifies,
to the best of his or her knowledge and belief, that the Form 10-Q of the
Company for the quarterly period ended September 30, 2002 (the "Periodic
Report") accompanying this certification fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or
78o(d)) and that the information contained in the Periodic Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company. The foregoing certification is provided solely for
purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley
Act and is not intended to be used for any other purpose.
PRICE COMMUNICATIONS CORPORATION
Registrant
Date: November 13, 2002 /s/ ROBERT PRICE
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Robert Price
Chief Executive Officer
Date: November 13, 2002 /s/ KIM PRESSMAN
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Kim Pressman
Chief Financial Officer