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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, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
1-8309
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PRICE COMMUNICATIONS CORPORATION
(Exact Name of Registrant as specified in its charter)
New York 13-2991700
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 Rockefeller Plaza, 10020
New York, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number (212) 757-5600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Associated Common Stock Rights Under Rights Plan Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the issuer's common stock as of November 5,
2001 was 54,882,737.
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PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2001
and December 31, 2000 ..................................... I-1
Condensed Consolidated Statements of Operations - Three
months ended September 30, 2001 and 2000 and nine months
ended September 30, 2001 and 2000 ......................... I-2
Condensed Consolidated Statements of Cash Flows - Nine
months ended September 30, 2001 and 2000 .................. I-3
Condensed Consolidated Statement of Shareholders' Equity -
Nine months ended September 30, 2001 ...................... I-4
Notes to Condensed Consolidated Financial Statements ......... I-5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. I-7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ... I-15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................ II-1
ITEM 2. Changes in Securities ........................................ II-1
ITEM 3. Defaults Upon Senior Securities - None ....................... II-1
ITEM 4. Submission of Matters to a Vote of Security Holders .......... II-1
ITEM 5. Other Information ............................................ II-1
ITEM 6. Exhibits and Reports on Form 8-K ............................. II-1
SIGNATURES ............................................................. II-2
ii
ITEM 1. FINANCIAL STATEMENTS
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
(UNAUDITED) (AUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 236,587 $ 180,708
Trade accounts receivable, net of allowance
for doubtful accounts 28,803 36,052
Receivable from other cellular carriers 4,837 4,101
Available for sale securities 22,065 23,517
Inventory 4,366 6,015
Prepaid expenses and other current assets 6,083 5,511
---------- ----------
Total current assets 302,741 255,904
Net property and equipment 141,775 147,233
Licenses, net of amortization 820,642 832,471
Other intangible and other assets, net of amortization 17,401 30,812
---------- ----------
$1,282,559 $1,266,420
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,014 $ 8,181
Accrued interest payable 18,257 12,374
Accrued salaries and employee benefits 1,382 1,329
Deferred revenue 14,135 9,029
Income taxes payable 15,861 8,013
Customer deposits 959 1,153
Minority interests 3,306 --
Other current liabilities 4,190 12,210
---------- ----------
Total current liabilities 74,104 52,289
Long-term debt 700,000 700,000
Accrued income taxes - long term 53,165 53,165
Deferred income taxes 280,686 283,075
Minority interests -- 5,279
---------- ----------
Total liabilities 1,107,955 1,093,808
---------- ----------
Commitments and contingencies
Shareholders' equity 174,604 172,612
---------- ----------
$1,282,559 $1,266,420
========== ==========
See accompanying notes to condensed consolidated financial statements.
I - 1
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue:
Service $ 61,496 $ 63,816 $ 184,662 $ 189,767
Equipment sales and installation 4,369 4,950 13,168 14,113
------------ ------------ ------------ ------------
Total revenue 65,865 68,766 197,830 203,880
------------ ------------ ------------ ------------
Operating expenses:
Engineering, technical and other direct 8,013 6,463 23,315 21,010
Cost of equipment 7,591 8,713 24,765 24,589
Selling, general and administrative 18,809 16,737 55,307 48,675
Non-cash compensation-selling, general and administrative 913 913 2,737 2,737
Depreciation and amortization 11,838 11,876 35,733 35,470
------------ ------------ ------------ ------------
Total operating expenses 47,164 44,702 141,857 132,481
------------ ------------ ------------ ------------
Operating income 18,701 24,064 55,973 71,399
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (15,747) (15,050) (45,010) (45,530)
Other income, net 4,003 2,558 6,826 7,545
------------ ------------ ------------ ------------
Total other expense (11,744) (12,492) (38,184) (37,985)
------------ ------------ ------------ ------------
Income before minority interest
share of income and income taxes 6,957 11,572 17,789 33,414
Minority interest share of income -- (389) (631) (1,105)
------------ ------------ ------------ ------------
Income before income taxes 6,957 11,183 17,158 32,309
Income tax expense 2,627 3,321 5,950 11,138
------------ ------------ ------------ ------------
Net income 4,330 7,862 11,208 21,171
------------ ------------ ------------ ------------
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities 1,444 1,923 (716) (2,234)
Reclassification adjustment 112 -- 11 (1,215)
------------ ------------ ------------ ------------
Comprehensive income $ 5,886 $ 9,785 $ 10,503 $ 17,722
============ ============ ============ ============
Per share data:
Basic earnings per share $ 0.08 $ 0.14 $ 0.20 $ 0.38
Weighted average shares outstanding 54,971,000 55,802,000 55,121,000 56,172,000
Diluted earnings per share $ 0.08 $ 0.14 $ 0.20 $ 0.37
Weighted average shares outstanding 55,216,000 56,298,000 55,016,000 56,666,000
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 NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 11,208 $ 21,171
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 35,733 35,470
Minority interest share of income 631 1,105
Deferred income taxes (1,418) (1,664)
Gain on available for sale marketable securities (1,709) (5,882)
Gain on sale of equity investment in
cellular properties (net) (4,109) --
Non-cash compensation 2,737 2,737
Amortization of deferred finance costs 1,825 1,824
Decrease (increase) in trade and other receivables 6,513 (1,386)
Increase in accounts payable and accrued expenses 12,116 909
Increase in accrued interest payable 5,883 7,055
Changes in other accounts 4,432 (421)
--------- ---------
Total adjustments 62,634 39,747
--------- ---------
Net cash provided by operating activities 73,842 60,918
--------- ---------
Cash flows from investing activities:
Capital expenditures (12,681) (25,602)
Sale of equity investments in cellular properties 15,419 --
Proceeds from sale of available for sale securities 13,329 21,190
Purchase of available for sale securities (14,355) (39,294)
Purchase of minority interests (7,817) (353)
--------- ---------
Net cash used in investing activities (6,105) (44,059)
--------- ---------
Cash flows from financing activities:
Purchase and retirement of common stock (12,563) (27,785)
Exercise of employee stock options and other 705 436
--------- ---------
Net cash used in financing activities (11,858) (27,349)
--------- ---------
Net increase (decrease) in cash and cash equivalents 55,879 (10,490)
Cash and cash equivalents at the beginning of period 180,708 194,231
--------- ---------
Cash and cash equivalents at the end of period $ 236,587 $ 183,741
========= =========
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 2,639 $ 1,919
========= =========
Interest paid $ 44,516 $ 44,516
========= =========
See accompanying notes to condensed consolidated financial statements.
I - 3
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($ IN THOUSANDS)
(UNAUDITED)
Common Stock Accumulated
Class A Additional other Total
------------------ paid-in comprehensive Retained Deferred shareholders'
Shares Par Value capital income earnings compensation equity
------ -------- ---------- ------------- ------- ------------ -------------
Balance at December 31, 2000 55,433 $ 555 $ 189,053 $ (457) $45,790 $(62,329) $172,612
Change in unrealized gain (loss) on
available for sale securities
net of tax effect (705) (705)
Purchase and retirement of treasury stock (698) (7) (12,556) (12,563)
Exercise of stock options 155 2 978 980
Deferred compensation expense
associated with the conversion of
preferred stock to common stock 2,737 2,737
Tax benefit from the exercise of stock options 335 335
Net income 11,208 11,208
------ -------- --------- -------- ------- -------- --------
Balance September 30, 2001 54,890 $ 550 $ 177,810 $ (1,162) $56,998 $(59,592) $174,604
====== ======== ========= ======== ======= ======== ========
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"). 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.
REVENUE RECOGNITION
Service revenue from cellular operations for prepaid and post paid
customers includes 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 is recognized when the airtime is
utilized and activation revenue is recognized over the estimated life of the
subscriber's contract or expected term of the subscriber's relationship,
whichever is longer. Accordingly, the Condensed Consolidated Statements of
Operations and the Condensed Consolidated Statement of Cash Flows have been
adjusted for the nine and three month periods ending September 30, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 Financial Statements
to conform to the 2001 presentation.
(2) SHAREHOLDERS' EQUITY
The Company's Board of Directors has authorized stock repurchase programs
of the Company's Class A common stock. The Company is authorized to make such
purchases from time to time in the open market or in privately negotiated
transactions when it is legally permissible to do so and it is believed to be in
the Company's best interests. During the current nine month period ended
September 30, 2001, the Company repurchased and retired 698,000 shares at an
average price of $17.99 per share.
(3) MINORITY INTERESTS
The Company notified the minority interest holders in the subsidiary
corporations and limited partnerships that held certain of the Company's
cellular licenses that effective June 30, 2001 these subsidiaries were merged
into Palmer Wireless Holdings, Inc. (a wholly owned subsidiary of the Company).
Pursuant to these mergers, the minority interest holders have the right to
receive merger consideration totaling $10.6 million subject to appraisal rights
pursuant to applicable state law. Effective June 28, 2001, one such subsidiary
partnership was dissolved and liquidated, resulting in a distribution of $5.6
million to minority interest holders. Amounts payable to certain minority
interest holders may be finally determined by negotiations between the parties
or, by applicable court proceedings. Appraisal actions to value minority
interests in the Company's former subsidiaries and other related actions have
recently been filed against the Company and in some cases against Robert Price
in his capacity as an officer and director of the Company. Robert Price has been
indemnified by the Company in respect to these actions. The Company does not
believe that the resolution of these actions will have a material effect on the
Company's consolidated financial position. In addition, the Company expended
approximately $2.8 million for other purchases of minority interests during the
nine month period. The Company owns 100% of its telephone operating systems.
I - 5
(4) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standard 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 will be adopted by the
Company on January 1, 2002. The Company does not have any goodwill recorded in
its consolidated financial statements and therefore does not believe the
adoption of SFAS No. 142 will 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. The Company is
in the process of evaluating the financial statement impact of adoption of SFAS
No. 142 as it relates to intangible assets.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment of 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 Occuring
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. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001, and interim periods within those fiscal years, with early application
encouraged. Based on preliminary estimates the Company does not believe the
adoption of SFAS No. 144 will have a material impact on its consolidated
financial statements.
(5) POTENTIAL SALE OF CELLULAR BUSINESS
On November 14, 2000, the Company entered into an agreement with Verizon
Wireless, Inc. ("VW") whereby it agreed to sell its wholly owned subsidiary,
Price Communications Wireless ("PCW"), for approximately $2.06 billion through
an exchange of stock. VW would have assumed the outstanding debt of PCW and
Price was to receive the balance in shares of Class A Common Stock, par value
$.001 per share of VW upon completion of its IPO. The transaction was subject to
termination in certain events, the completion of VW's IPO and approval by the
Company's shareholders. The transaction has received FCC and other regulatory
approvals. The closing of the transaction did not occur by September 30, 2001,
at which point either party had the right to terminate the agreement. Both
parties to the transaction indicated in a press release dated July 31, 2001,
that the timing of the IPO precluded the completion of the transaction by
September 30, 2001. Both parties still seek the completion of a transaction and
have continued discussions to explore alternative terms, including the use of
new forms of consideration.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has sold put and call options (principally on the Company's
common stock) which grant the holders the right to sell publicly traded
securities to the Company during certain periods at certain prices. At September
30, 2001, 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
the related notes thereto.
The discussion contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are made regarding the intent, belief or current
expectations of the Company and its directors or officers primarily with respect
to the future operating performance of the Company. Readers are cautioned that
any such forward-looking statements are not guarantees of future performance and
may involve risks and uncertainties, and that actual results may differ from
those in the forward-looking statements as a result of factors, many of which
are outside the control of the Company.
References to the "Company" or "Price" in this report include Price
Communications Corporation and its subsidiaries unless the context otherwise
indicates.
OVERVIEW
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
September 30, 2001, the Company provided cellular telephone service to
approximately 564,000 subscribers in Alabama, Florida, Georgia, and South
Carolina in a total of 16 licensed service areas, composed of eight Metropolitan
Statistical Areas ("MSAs") and eight Rural Service Areas ("RSAs"), with an
aggregate estimated population of 3.3 million. The Company sells its cellular
telephone service as well as a full line of cellular products and accessories
principally through its network of retail stores. The Company markets all of its
products and services under the nationally recognized service mark CELLULARONE.
On November 14, 2000 the company entered into an agreement with Verizon
Wireless, Inc. ("VW") whereby the Company agreed to sell its wholly owned
subsidiary Price Communications Wireless ("PCW") for approximately $2.06 billion
through an exchange of stock. VW would have assumed the outstanding debt of PCW
and Price was to receive the balance in shares of Class A Common Stock, par
value $.001 per share of VW upon completion of its IPO. The transaction was
subject to termination in certain events, the completion of VW's IPO and
approval by the Company's shareholders. The transaction has received FCC and
other regulatory approvals. The closing of the transaction did not occur by
September 30, 2001, at which point either party had the right to terminate the
agreement. Both parties to the transaction indicated in a press release dated
July 31, 2001 that the timing of the IPO precluded the completion of the
transaction by September 30, 2001. Both parties still seek the completion of a
transaction and have continued discussions to explore alternative terms,
including the use of new forms of consideration.
MARKET OWNERSHIP
The Company's cellular telephone systems serve contiguous licensed service
areas in Georgia, Alabama and South Carolina. The Company also has a cellular
service area in Panama City, Florida. The following table sets forth as of
September 30, 2001, with respect to each service area in which the Company owns
a cellular telephone system the estimated population of which the Company is now
the beneficial owner of 100% (see Notes to Condensed Consolidated Financial
Statements).
I - 7
MSA ESTIMATED
SERVICE AREA RANK POPULATION (1)
------------ ---- --------------
Albany, GA...................................... 271 118,442
Augusta, GA..................................... 106 440,242
Columbus, GA.................................... 165 249,365
Macon, GA....................................... 139 322,093
Savannah, GA.................................... 153 287,349
Georgia-6 RSA................................... -- 204,765
Georgia-7 RSA................................... -- 134,698
Georgia-8 RSA................................... -- 159,858
Georgia-9 RSA................................... -- 119,299
Georgia-10 RSA.................................. -- 152,871
Georgia-12 RSA.................................. -- 220,340
Georgia-13 RSA.................................. -- 150,714
Dothan, AL...................................... 250 134,980
Montgomery, AL.................................. 137 323,675
Alabama-8 RSA................................... -- 178,813
---------
Subtotal................................... 3,197,504
---------
Panama City, FL................................. 233 148,422
---------
Total...................................... 3,345,926
=========
(1) Based on population estimates for 1999 from the DLJ 1999-2000 Summer
Book.
RESULTS OF OPERATIONS
The following table sets forth for the Company for the periods indicated,
the percentage of certain amounts in relation to total revenue.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUE:
Service ................................................. 93.4% 92.8% 93.3% 93.1%
Equipment sales and installation ........................ 6.6 7.2 6.7 6.9
----- ----- ----- -----
TOTAL REVENUE ...................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
OPERATING EXPENSES:
Engineering, technical and other direct:
Engineering and technical (1) ........................ 6.8 4.8 6.2 5.2
Other direct costs of services (2) ................... 5.3 4.6 5.6 5.1
Cost of equipment (3) ................................... 11.6 12.7 12.5 12.1
Selling, general and administrative:
Sales and marketing (4) .............................. 9.2 8.6 9.1 8.5
Customer service (5) ................................. 8.7 7.5 8.0 7.5
General and administrative (6) ....................... 10.6 8.3 10.8 8.0
Non-cash compensation ................................ 1.4 1.3 1.4 1.3
Depreciation and amortization ........................... 18.0 17.2 18.1 17.3
----- ----- ----- -----
TOTAL OPERATING EXPENSES ........................... 71.6 65.0 71.7 65.0
----- ----- ----- -----
Operating income ....................................... 28.4% 35.0% 28.3% 35.0%
Operating income before depreciation and
amortization - adjusted EBITDA (7) ................. 47.8% 53.6% 47.7% 53.8%
Operating income before depreciation and
amortization - Price Communications
Wireless, Inc. (8) .................................. 48.3% 54.4% 48.5% 54.8%
----------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
I - 8
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the cost 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,
the provision for bad debts and other overhead expenses.
(7) Adjusted EBITDA represents operating income before depreciation and
amortization and non-cash compensation. Adjusted EBITDA should not be
considered in isolation or as an alternative measurement of operating
performance or liquidity to net income, operating income or any other
measure of performance under generally accepted accounting principles. The
Company believes that adjusted EBITDA is viewed as a relevant supplemental
measure of performance in the cellular telephone industry.
(8) Represents operating income before depreciation and amortization of the
Company's operating subsidiary Price Communications Wireless, Inc. It does
not include $369,000 and $1.6 million and $539,000 and $2.2 million for
the three months and nine month periods ended September 30, 2001 and the
three and nine month periods ended September 30, 2000, respectively, of
the parent company's general and administrative expenses.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 2000
REVENUE. Service revenue totaled $61.5 million for the third quarter of
2001, a decrease of $2.3 million or approximately 3.6% from $63.8 million for
the third quarter of 2000. An increase in the average number of post-paid
subscribers resulted in an increase of $2.2 million in access revenue, which was
partially offset by additional promotional access credits of $703,000. Airtime
and other revenue increased $106,000 for the current three month period also as
a result of post-paid subscriber growth. The increase in the average number of
prepaid subscribers resulted in an increase of $509,000 in prepaid revenue for
the current three month period which was more than offset by a decrease in
outcollect roaming revenue, including toll, that the Company collects from other
wireless carriers' subscribers using their phones in the Company's markets.
Outcollect airtime revenue decreased from $10.2 million for last year's third
quarter to $7.3 million for the same quarter in the current year. A decrease in
the number of outcollect minutes from 35.8 million for last year's third quarter
to 30.3 million for the current quarter, as well as the reduction in the average
reimbursement rate from other cellular carriers from $.29 for the three months
ended September 30, 2000, to $.24 for the three months ended September 30, 2001,
were the cause for such decline. Roaming rates have generally been decreasing
throughout the wireless industry. The reduction in outcollect minutes combined
with a reduction in the toll reimbursement rate caused a drop in outcollect toll
revenue from $4.9 million in the third quarter of 2000 to $3.8 million for the
same period of the current year. The Company expects the declining trend for
both outcollect air and outcollect toll revenue to continue for the remainder of
the year.
Average monthly revenue per post-paid subscriber ("ARPU") (based upon
service revenue excluding prepaid revenue) 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. ARPU decreased from $47.54 for the three month period ended September
30, 2000 to $45.10 for the current three month period because of the factors
discussed above.
Equipment sales and installation revenue, which consists primarily of
sales of handsets and related accessories to subscribers, decreased from $5.0
million for the third quarter of 2000 to $4.4 million for the same period in
2001. The Company sold or upgraded approximately the same number of handset
units during each three month period. During the current three month period,
approximately 76% of the units were digital compared with 55% for last year's
three month period. As less costly digital handsets have become predominant,
retail prices have declined which principally accounts for the $295,000 decrease
in equipment revenue for the current three month period. In addition accessory
revenue decreased approximately $167,000 from last year's third quarter.
OPERATING EXPENSES. Total operating expenses increased by $2.7 million to
$47.2 million for the current three month period from $44.7 million for the
three month period ended September 30, 2000. As a percentage of total revenue
the current three months' operating expenses amounted to 71.6% compared with
65.0% for the same period in 2000.
I - 9
Engineering, technical and other direct costs of service increased by $1.5
million from $6.5 million for the third quarter of 2000 to $8.0 million for the
same period in 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 their
markets and the amount billed to these subscribers by the Company. The current
three month period resulted in net revenue of approximately $856,000 compared
with net revenue of approximately $110,000 for the three month period ended
September 30, 2000. The improvement ($746,000 million) results primarily from
the more favorable rates negotiated with certain other cellular carriers during
the first three months of 2001. Additional costs to operate the Company's
prepaid subscriber system ($252,000) partially reduced the benefits of the
incollect savings. These costs resulted from the Company's forced switch of
prepaid vendors during the third quarter of 2000 after learning that the
previous vendor was going out of business. During the fiscal twelve month period
ended September 30, 2001, the Company added 43 cell sites (27 in the current
three month period). The expansion of the network resulted in additional span
line costs ($406,000), rent and utility expense ($284,000) and system related
communications expenses ($1.3 million).
Cost of equipment decreased from $8.7 million for the third quarter of
2000 to $7.6 million for the third quarter of 2001, primarily as a result of the
reduction in the cost of digital handsets as mentioned above. For the current
three month period, the Company recovered 57.5% of the cost of equipment
compared with a recovery of 56.8% for the three months ended September 30, 2000.
Selling, general and administrative expenses ("SG&A") increased $2.1
million from $16.7 million in the third quarter of 2000 to $18.8 million for the
same period of the current year. As a percentage of revenue, SG&A for the
current three month period is 28.5% of revenue compared with 24.3% for the same
three month period in 2000.
Sales and marketing increased $179,000 from $5.9 million for the third
quarter of 2000 to $6.1 million for the current three month period principally
due to increases in salaries and commissions offset by reductions in advertising
expenditures. The cost to add a gross subscriber, which consists of the net
equipment loss and sales and marketing expenditures decreased from approximately
$203 for the three month period ending September 30, 2000 to $166 for the
current three month period.
For the three month period ended September 30, 2001, customer service
costs amounted to $5.7 million compared with $5.1 million for the same period in
2000. Increases in billing costs resulting from a higher average of post-paid
and prepaid subscribers for the current three month period contributed to the
additional costs. The use of additional personnel and professional services to
handle the expanding customer base in an attempt to control churn, and the use
of temporary employees in the markets to effectuate mandated area code changes
also contributed to the increase.
General and administrative expenses (excluding customer service),
increased from $5.7 million for the prior three month period to $7.0 million for
the current three month period. The $1.3 million increase was primarily a result
of the increase in the provision for doubtful accounts somewhat attributable to
the downturn in the current economic condition. The Company is in the process of
centralizing the collection process for its markets in order to more effectively
manage the collection process for the Company's accounts receivable.
Depreciation and amortization are basically flat for both the current and
previous three month periods.
Operating income decreased to $18.7 million for the third quarter of 2001
from $24.1 million for the third quarter of 2000. Operating income before
depreciation and amortization and non-cash compensation was 47.8% of revenue for
the current quarter compared with 53.6% for the third quarter of 2000. The
decrease in operating margin is attributable primarily to the decrease in
outcollect roaming revenue combined with the increase in the provision for bad
debts. Despite this decrease in operating income, management's continuing
concentration on cost controls, maintained a low operating cost per subscriber
(total operating costs before non-cash compensation, depreciation and
amortization and parent company overhead) of $17.76 for the current period
compared with $17.48 for the same period of the prior year.
NET INTEREST EXPENSE, INCOME TAXES, AND NET INCOME. Net interest expense
is comparable for the current and prior three month period. Included in Other
income, net is the gain from the sale of the Company's minority equity
investment in other cellular properties of $4.1 million. The current period's
income tax provision of $2.6 million
I - 10
compared with a provision of $3.3 million for the three month period in 2000, is
a result of the reduced financial statement taxable income and certain non
taxable and or non-deductible security transactions.
The net income for the three month period ended September 30, 2001 of $4.3
million compared with net income for the third quarter of 2000 of $7.9 million
is a function of the items discussed above.
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NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2000
REVENUE. Service revenue amounted to $184.7 million for the first nine
months of 2001, a decrease of $5.1 million or approximately 2.7% from $189.8
million for the same period in 2000. Gross access revenue increased by $7.0
million principally a result of the greater number of post-paid subscribers
during the current nine month period compared to the same nine months during the
year 2000. The increase in gross access revenue was reduced by additional
promotion credits for the current nine month period approximating $1.0 million.
Airtime revenue from post-paid subscribers was flat but revenue from prepaid
subscribers increased by $1.9 million due to an increased number of subscribers
during the current nine month period compared to last year. These increases were
more than offset by decreases in outcollect airtime roaming revenue, which is
revenue that the Company collects from other wireless carriers' subscribers
using their phones in the Company's markets. Airtime roaming decreased from
$31.7 million for the nine month period ended in 2000 to $22.4 million for the
current nine month period, a decrease of 29%. The decrease in the number of
outcollect minutes of use from 98.2 million for the nine month period ended
September 30, 2000, to 90.0 for the nine month period ended September 30, 2001,
combined with the reduction in the average reimbursement rate from other
cellular carriers from $.32 in 2000 to $.25 in 2001 was the cause of such
decline. While toll and directory assistance revenue were basically flat for the
nine month periods, the reduction in outcollect minutes of use combined with
reduced toll reimbursement rates resulted in a decrease of roaming toll revenue
of $4.3 million during the current nine month period. The Company expects this
level for both outcollect air and outcollect toll to continue for the remainder
of the year.
Average monthly revenue per post-paid subscriber (based upon service
revenue excluding prepaid revenue) 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 amount decreased from $47.59 for the nine month period ended September 30,
2000 to $44.81 for the current nine month period because of the factors
discussed above.
Equipment sales and installation revenue, which consists primarily of
subscriber phone and accessory sales, decreased to $13.2 million for this year's
nine month period from $14.1 million for the same period in 2000. Revenue from
the sales of handsets was flat despite an additional 25,000 units sold. During
the current nine month period, 61% of units sold were digital and 39% were
analog. During the nine month period ended September 30, 2000, 64% of sales were
analog and 36% were digital. As digital phones have become more popular, their
cost and therefore the price points at which the Company sells these units were
decreased. The overall decrease is a primarily a result of the decrease in
accessory and install revenue.
OPERATING EXPENSES. Total operating expenses increased by $9.4 million to
$141.9 million for the current nine month period from $132.5 million for the
nine month period ended September 30, 2000. As a percentage of total revenue the
current nine months' operating expenses amounted to 71.7% compared with 65.0%
for the same period in 2000.
Engineering, technical and other direct costs of service increased $2.3
million to $23.3 million for the current nine months from $21.0 million for the
same period in 2000. Included in engineering, technical and other direct costs
of service 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. The net for the current nine month period resulted in revenue of
$2.0 million compared to an expense of $784,000 for the same period in 2000 or a
net decrease of $2.8 million. More than offsetting the savings in net incollect
were additional costs to operate the Company's prepaid subscriber system ($2.4
million). These costs increased in the latter part of the third quarter of 2000
when the Company was forced to switch prepaid vendors after learning that the
previous vendor was going out of business. Additional costs associated with the
installation of 43 cell sites subsequent to September 30, 2000 such as cell site
rent and utilities ($751,000), span line costs and intertrunk expenses
($526,000) as well as other system related expenses ($1.4 million) also
decreased the incollect savings mentioned above.
The increase in equipment cost from $24.6 million for the nine month
period in 2000 to $24.8 million for the current nine month period is principally
a result of additional telephone units sold or upgraded during the current nine
month period (see breakdown of equipment sales above). The percentage of cost
recovered decreased from 57.4% for the nine month period in 2000 to 53.2% for
the current nine months principally because of the reduction in accessory sales
which have a positive gross profit percentage.
I - 12
Selling, general and administrative expenses ("SG&A") increased $6.6
million from $48.7 million for the first nine months of 2000 to $55.3 million
for the same period of the current year. As a percentage of revenue, SG&A for
the current nine month period is 27.9% of revenue compared with 23.9% for the
same nine month period in 2000. Sales and marketing increased $763,000 from
$17.2 million for the nine month period ending September 30, 2000 to $18.0
million for the current nine month period principally due to increases in
advertising expenditures. The cost to add a gross subscriber, which includes
sales and marketing costs combined with the loss on equipment sales, decreased
from $182 for the nine month period ending September 30, 2000 to $169 for the
current nine month period.
For the current nine month period, customer service costs amounted to
$15.9 million compared to $15.2 million for the same period in 2000. Increased
costs for the generation of subscriber's monthly statements because of the
greater number of subscribers contributed to the additional cost. The use of
additional personnel and professional services to handle the expanding customer
base in order to control churn and the use of temporary employees in the markets
to effectuate mandated area code changes also resulted in increased costs.
Offsetting these increases was a $2.0 million credit issued to the Company by
its current billing vendor due to the problems encountered during the transition
(see General and administrative expenses and bad debts below).
General and administrative expenses (excluding customer service),
increased from $16.3 million for the prior nine month period to $21.4 million
for the current nine month period. The $5.1 million increase was principally a
result of a $5.8 million increase in the provision for doubtful accounts. In the
fourth quarter of 2000, the Company changed its billing vendor since the Company
learned that the previous billing vendor would not be a long-term participant in
the cellular billing business. The transition encountered problems and as a
result, the Company's collection efforts were hampered, which led to a longer
average aging period of the Company's accounts receivable and a necessity to
provide a higher provision for bad debts. General and administrative expenses,
excluding customer service, increased from 8.0% of total revenue for the nine
month period of the prior year to 10.8% for the current nine month period.
Depreciation and amortization are comparable amounting to $35.7 million
for the current nine month period and $35.5 million for the same period last
year.
Operating income decreased to $56.0 million for the nine month period
ended September 30, 2001 compared with $71.4 million for the same period in 2000
or a decrease of $15.4 million. Operating income before depreciation and
amortization and non-cash compensation amounted to 47.7% as a percentage of
revenue for the current nine month period compared with 53.8% for the same
period of the prior year. The decrease in operating margin is attributable
primarily to the decrease in outcollect roaming revenue as well as the increase
in the provision for bad debts. The Company was able to maintain its low
operating cost per subscriber (total operating costs before non-cash
compensation, depreciation and amortization and Parent Company overhead), which
amounted to $17.98 for the current nine month period, compared to $17.87 for the
same period last year.
NET INTEREST EXPENSE, INCOME TAXES, AND NET INCOME. Net interest expense
decreased to $45.0 million for the nine months of 2001 from $45.5 million for
the same period in 2000.
The current nine month period's income tax provision of $6.0 million
compared with a tax provision of $11.1 million for the nine month period in
2000, is a result of the higher financial statement taxable income for the nine
months of the prior year compared with a financial statement taxable income for
the current nine month period and certain non taxable security transactions.
Net income for the current nine month period of $11.2 million compared
with net income of $21.2 million for the nine month period ended September 30,
2000 is a function of the items discussed above.
I - 13
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. During the current nine month
period, the Company generated $73.8 million of cash flow from operating
activities as shown in the Condensed Consolidated Statement Of Cash Flows. The
Company's adjusted EBITDA (earnings before interest, depreciation and
amortization, non-cash compensation and taxes) was $94.4 million for the nine
month period ending September 30, 2001. The Company's debt service requirements
for the current year consist of cash interest payments of $68.5 million, of
which $44.5 million has been paid through September 30, 2001. The remaining cash
interest requirement is approximately $24.0 million in the fourth quarter. Based
upon the Company's current ability to generate operating cash flow combined with
its available cash of $236.6 million, there does not appear to be a necessity to
provide additional funding for the foreseeable future. The Company's wireless
subsidiary has outstanding debt instruments which consist of $525 million 9 1/8%
Senior Secured Notes due December 15, 2006 and $175 million 11 3/4% Senior
Subordinated Notes due July 15, 2007. Both of these instruments contain
covenants that restrict the payment of dividends, incurrence of debt and sale of
assets, among other things.
I - 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company utilizes fixed rate debt instruments to fund its acquisitions.
Management believes that the use of fixed rate debt minimizes the Company's
exposure to market conditions and the ensuing increases and decreases that could
arise with variable rate financing.
I - 15
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
(b) REPORTS ON FORM 8-K
None
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 13, 2001 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