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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
Annual Report Pursuant To Section 13 Or 15(d)
Of The Securities Exchange Act Of 1934
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(Mark One)
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] For the fiscal year ended December 31, 2000 or
|_| Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from to
Commission file number 1-8309.
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Price Communications Corporation
(Exact name of registrant as specified in its charter)
New York 13-2991700
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
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45 Rockefeller Plaza, 10020
New York, New York (Zip code)
(Address of principal executive offices)
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Registrant's telephone number, including area code (212) 757-5600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 per share New York Stock Exchange
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 the
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to the Form 10-K. |_|
AGGREGATE MARKET VALUE OF THE VOTING STOCK
HELD BY NONAFFILIATES OF THE COMPANY
Aggregate market value of the Common Stock held by non-affiliates of the
Company, based on the last sale price on the New York Stock Exchange ("NYSE") on
March 16, 2001 ($17.01 as reported in the Wall Street Journal): approximately
$827.6 million.
The number of shares outstanding of the Company's common stock as of March 16,
2001 was 55,263,799.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of this Form 10-K incorporates certain information contained in
the registrant's definitive proxy statement to be filed by the registrant in
connection with its 2001 Meeting of Shareholders.
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PART I
Item 1. Business
General
Unless otherwise indicated, all references herein to "PCC" refer to Price
Communications Corporation and all references herein to the "Company" refer to
PCC and its subsidiaries and their respective predecessors. References herein to
"PCW" refer to Price Communications Wireless, Inc., a wholly-owned indirect
subsidiary of PCC, and its respective subsidiaries and predecessors. References
to Holdings are to Price Communications Cellular Holdings, Inc., an indirect
wholly-owned subsidiary of PCC and the holder of 100% of the outstanding capital
stock of PCW. References herein to the "Acquisition" refer to the acquisition by
PCW of Palmer Wireless, Inc. ("Predecessor") and the related sales of the Fort
Myers and Georgia-1 systems of the Predecessor. PCC was organized in New York in
1979 and began active operations in 1981. Its principal executive offices are
located at 45 Rockefeller Plaza, New York, New York 10020, and its telephone
number is (212) 757-5600. See "Certain Terms" for definitions of certain terms
used herein.
The Company has historically been a nationwide communications company
owning and then disposing of a number of television, radio, newspaper, cellular
telephone and other communications and related properties. The Company's
business strategy is to acquire communications properties at prices it considers
attractive, finance such properties on terms satisfactory to it, manage such
properties in accordance with its operating strategy and dispose of them if and
when the Company determines such dispositions to be in its best interests. Prior
to 1995 the Company owned a number of television, radio, newspaper and other
media and related properties which were disposed of pursuant to the Company's
long-standing policy of buying and selling media properties at times deemed
advantageous by the Company's Board of Directors.
The Company is currently engaged, through PCW, in the construction,
development, management and operation of cellular telephone systems in the
southeastern United States. At December 31, 2000, the Company provided cellular
telephone service to 528,405 subscribers in Georgia, Alabama, South Carolina and
Florida 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.
The Company has developed its business through the acquisition and
integration of cellular telephone systems, clustering multiple systems in order
to provide broad areas of uninterrupted service and achieve certain economies of
scale, including centralized marketing and administrative functions as well as
multi-system capital expenditures. The Company devotes considerable attention to
engineering, maintenance and improvement of its cellular telephone systems in an
effort to deliver high-quality service to its subscribers and to implement new
technologies as soon as economically practicable. Through its participation in
the North American Cellular Network ("NACN"), the Company is able to offer
ten-digit dialing access to its subscribers when they travel outside the
Company's service areas, providing them with convenient roaming access
throughout large areas of the United States, Canada, Mexico and Puerto Rico
served by other NACN participants. By marketing its products and services under
the CELLULARONE name, the Company also enjoys the benefits of association with a
nationally recognized service mark.
On November 14, 2000, the Company, Holdings and PCW collectively ("Price
Group") entered into a Transaction Agreement ("Transaction Agreement") with
Verizon Wireless, Inc. ("Verizon"), Cellco Partnership and VWI Acquisition
Corporation collectively ("Verizon Wireless"). Pursuant to the Transaction
Agreement, the Price Group would sell all of the outstanding shares of PCW to
Verizon Wireless in exchange for a number of shares of Class A Common Stock, par
value $.001 of Verizon ("Verizon Shares") valued at approximately $2.06 billion,
less PCW debt assumed which should approximate $550 million, as adjusted for
working capital and other adjustments provided for in the Transaction Agreement.
The number of shares to be received by the Company will be based upon the price
of the Verizon Shares at Verizon's initial public offering ("IPO"). See
"Agreement to Sell Price Communications Wireless" for a more complete summary of
this transaction. At the closing, the Company will enter into a Lock-up
agreement which prevents the Company from pledging or selling the shares
received for a period of 270 days except with respect to $20 million of Verizon
Shares, the number of which shares will be determined by the IPO price. The
Transaction Agreement, which is subject to the completion of the IPO and
approval of the Company's stockholders among other things, must be completed by
September 30, 2001. If these conditions are not met, either party may terminate
the Transaction Agreement.
2
Markets and Systems
The Company's cellular telephone systems serve contiguous licensed service
areas in Georgia, Alabama and South Carolina. The Company also has a cellular
service area in Panama City, Florida. The following table sets forth, with
respect to each service area in which the Company owns a cellular telephone
system, the estimated population, the Company's beneficial ownership percentage
and the Net Pops as of December 31, 2000.
MSA Estimated
Service Area Rank Population(1) Percentage Net Pops
------------ ---- ------------- ---------- --------
Albany, GA.................... 271 118,442 100.0% 118,442
Augusta, GA................... 106 440,242 100.0 440,242
Columbus, GA.................. 165 249,365 99.1 247,121
Macon, GA..................... 139 322,093 99.6 320,805
Savannah, GA.................. 153 287,349 98.5 283,039
Georgia-6 RSA................. --- 204,765 99.5 203,741
Georgia-7 RSA................. --- 134,698 100.0 134,698
Georgia-8 RSA................. --- 159,858 100.0 159,858
Georgia-9 RSA................. --- 119,299 100.0 119,299
Georgia-10 RSA................ --- 152,871 100.0 152,871
Georgia-12 RSA................ --- 220,340 100.0 220,340
Georgia-13 RSA................ --- 150,714 100.0 150,714
Dothan, AL.................... 250 134,980 95.2 128,487
Montgomery, AL................ 137 323,675 94.6 306,197
Alabama-8, RSA................ --- 178,813 100.0 178,813
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Subtotal................. 3,197,504 3,164,667
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Panama City, FL............... 233 178,813 92.0 136,548
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Total.................... 3,345,926 3,301,215
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(1) Based on population estimates for 1999 from the DLJ 1999-2000 Summer Book
Georgia/Alabama
Seven MSAs, Montgomery and Dothan, Alabama and Macon, Columbus, Albany,
Augusta and Savannah, Georgia make up the core of the Company's Georgia/Alabama
cluster. The Company owns additional cellular service areas in this region
including the Georgia-9 RSA, Alabama-8 RSA, Georgia-7 RSA, Georgia-8 RSA,
Georgia-10 RSA, Georgia-12 RSA, Georgia-13 RSA and the Georgia-6 RSA. The
Augusta, Georgia MSA includes Aiken County in South Carolina. In the aggregate,
these markets now cover a contiguous service area of approximately 38,000 square
miles that includes Montgomery, the state capital of Alabama, prominent resort
destinations in Jekyll Island, St. Simons Island and Sea Island, Georgia, and
over 710 miles of interstate highway, including most of 1-95 from Savannah,
Georgia to Jacksonville, Florida. The Company collects substantial roaming
revenue from cellular telephone subscribers from other systems traveling in
these markets from nearby population centers such as Atlanta and Birmingham, as
well as from vacation and business traffic in the southeastern United States.
Due in part to the favorable labor environment, moderate weather and relatively
low cost of land during the last several years, there has been an influx of new
manufacturing plants in this market. As of December 31, 2000 the Company
utilized 312 cell sites in this cluster.
Panama City
The Company owns the non-wireline cellular license for the Panama City,
Florida market. The Company collects substantial roaming revenue in this market
from subscribers from other systems who visit Panama City, a popular spring and
summer vacation destination. As of December 31, 2000, the Company utilized 16
cell sites in this market.
Strategy
The Company's four strategic objectives are to: (1) expand its revenue
base by increasing penetration in existing service areas and encouraging greater
usage among its existing customers, (2) provide high-quality customer service to
create and maintain customer loyalty, (3) enhance performance by aggressively
pursuing opportunities to increase operating efficiencies and (4) expand its
regional wireless communications presence by selectively acquiring additional
interests in cellular telephone systems (including minority interests).
Specifically, the Company strives to achieve these objectives through
implementation of the following:
3
Aggressive, Direct Marketing. The Company employs a two-tier direct sales
force. A retail sales force handles walk-in traffic at the Company's 42 retail
outlets and a targeted sales staff solicits certain industry and government
subscribers. The Company's management believes that its internal sales force is
the best way to successfully select and screen new subscribers and select
pricing plans that realistically match subscriber means and needs. The Company
tries to minimize its use of independent agents.
Flexible, Value-Oriented Pricing Plans. The Company provides a range of
pricing plans, each of which includes a monthly access fee and a bundle of
"free" minutes. Additional home rate minutes are charged at rates dependent on
the customer's usage plan and time of day. In addition, the Company offers
nation wide area home rate roaming in the Company's systems and low flat rate
roaming in a four state region in the Southeastern United States.
The Company believes that its bundled minute offerings will encourage
greater customer usage. By increasing the number of minutes a customer can use
for one flat rate, subscribers perceive greater value in their cellular service
and become less usage sensitive, i.e.; they can increase their cellular phone
usage without seeing large corresponding increases in their cellular bills.
Continually Adopting State of the Art System Design. The Company's network
allows the delivery of full personal communication services ("PCS")
functionality to its digital cellular customers, including caller ID, short
message paging and extended battery life. The Company's network provides for
"seamless handoff" between digital cellular and PCS operators that, like the
Company, employ TDMA (Time Division Multiple Access) technology, one of three
industry standards and the one employed by AT&T, SBC and others; i.e. the
Company's customers may leave the Company's service area and enter an area
serviced by a PCS provider using TDMA technology without noticing the difference
and vice versa.
Focusing on Customer Service. Customer service is an essential element of
the Company's marketing and operating philosophy. The Company is committed to
attracting new subscribers and retaining existing subscribers by providing
consistently high-quality customer service. In each of its cellular service
areas, the Company maintains a local staff, including a market manager, customer
service representatives, technical and engineering staff, sales representatives
and installation and repair facilities. Each cellular service area handles its
own customer-related functions such as credit evaluations, customer evaluations,
account adjustments and rate plan changes. To ensure high-quality service,
Cellular One Group authorizes a third-party marketing research firm to perform
customer satisfaction surveys of each of its licensees. Licensees must achieve a
minimum satisfaction level in order to continue using the Cellular One service
mark. The Company has repeatedly ranked number one in customer satisfaction
among all Cellular One operators (#l MSA in its category in 1998,1997, 1996,
1995, 1993, and 1992; #1 RSA in its category in 1995) and in 1999 two of the
company's RSA's received service excellence awards.
Agreement to Sell Price Communications Wireless
On November 14, 2000, the Company, Price Communications Cellular Inc.,
Holdings and PCW (collectively the "Price Group"), Verizon Wireless, Inc.
("Verizon"), Cellco Partnership and VWI Acquisition Corporation, a newly-formed,
wholly owned subsidiary of Verizon ("VWI") entered into a Transaction Agreement
(the "Transaction Agreement"). Pursuant to the Transaction Agreement, the
acquisition of PCW by Verizon will be accomplished by the merger (the "Merger")
of VWI with and into PCW, with PCW remaining as the surviving corporation and
becoming a wholly owned subsidiary of Verizon. The Transaction Agreement
provides that, upon effectiveness of the Merger (the "Effective Time"), (i) each
share of common stock of PCW outstanding immediately prior to the Effective Time
will be converted into the right to receive a number of shares of Class A Common
Stock, par value $.001 per share, of Verizon (the "Verizon Shares") valued at
$2.06 billion, (less PCW's net indebtedness, estimated at $550 million, and
subject to working capital and other adjustments as provided in the Transaction
Agreement) based upon the price of the Verizon Shares at Verizon's initial
public offering ("IPO") and (ii) each share of VWI common stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive one share of the common stock of PCW. Concurrently with the Merger, PCW
will transfer its assets to Cellco, in exchange for a partnership interest in
Cellco.
At the closing, the Price Group will enter into a Lock-up Agreement
pursuant to which they will agree that, except with respect to up to $20 million
of Verizon Shares (valued at the price of Verizon Shares in the IPO) received by
the Price Group in a working capital adjustment, until the later of (x) the date
270 days after the closing and (y) the first day of the Company's federal
taxable year after the taxable year in which the closing occurs, they shall not,
directly or indirectly, pledge, sell, transfer or contract to sell any of the
Verizon Shares.
At the closing, the Price Group will enter into a Pledge Agreement
pursuant to which they will agree to pledge to Verizon $150 million of the
Verizon Shares (valued at the price of the Verizon Shares in the IPO) to secure
their indemnity obligations under the Transaction
4
Agreement. At the first and second anniversaries of the closing, the number of
Verizon Shares subject to the pledge shall be reduced to $75 million and $25
million, respectively (in each case, valued at the price of the Verizon Shares
in the IPO). The Pledge Agreement will terminate on the third anniversary of the
closing unless any claim under the Transaction Agreement is asserted or
commenced on such date and in such event, the Pledge Agreement will terminate
upon satisfaction of such claim.
The consummation of the transactions contemplated by the Transaction
Agreement is subject to termination in certain events and is subject to the
completion of the IPO and other conditions, including the approval by the
stockholders of the Company. If the closing of the transaction does not occur by
September 30, 2001, either party may terminate the Transaction Agreement.
Certain Considerations
In addition to the other matters described herein, holders of PCC's Common
Stock should carefully consider the following risk factors.
Leverage and Liquidity. The Company is highly leveraged which could limit
significantly its ability to make acquisitions, withstand competitive pressures
or adverse economic conditions, obtain necessary financing or take advantage of
business opportunities that may arise.
The Company at year-end had approximately $180.7 million in cash or cash
equivalents. Its ability to borrow additional funds is limited by the covenants
contained in the two outstanding debt instruments. The Company's cash interest
requirement is approximately $68.5 million for the next several years until the
$525.0 million 9 1/8% notes are repaid in 2006. The Company expects to generate
sufficient operating cash flow to meet its liquidity needs for the next 12
months.
The Company's ability to meet its debt service requirements will require
significant and sustained growth in the Company's cash flow. In addition, the
Company expects to fund its growth strategy with cash from operations. There can
be no assurance that the Company will be successful in improving its cash flow
by a sufficient magnitude or in a timely manner or in raising additional equity
or debt financing to enable the Company to meet its debt service requirements or
to sustain its growth strategy.
Limitations on Access to Cash Flow of Subsidiaries. PCC does not have, and
may not in the future have, any significant assets other than the common stock
of its subsidiaries and cash which approximated $10.6 million at December 31,
2000. The current indentures of the Company's subsidiaries impose substantial
restrictions on the ability of the Company's subsidiaries to pay dividends to
the Company. Any payment of dividends to the Company is subject to the
satisfaction of certain financial conditions set forth in the indentures as well
as restrictions under applicable state corporation law. Under these financing
documents, the Company's subsidiaries are prohibited for the foreseeable future
from dividending an aggregate of more than $10.0 million to the Company which
amount was paid to the Company in December of 2000. The Company has not in the
past paid any cash dividends to its common shareholders and does not expect to
pay any cash dividends to common shareholders in the foreseeable future. The
ability of the Company and its subsidiaries to comply with the conditions of its
financial obligations may be affected by events that are beyond the control of
the Company. The breach of any such conditions could result in a default under
the financing agreements and in the event of any such default, the lenders could
elect to accelerate the maturity of the loans under such indebtedness. In the
event of such acceleration, all outstanding debt would be required to be paid in
full before any cash could be distributed to the Company. There can be no
assurance that the assets of the Company and its subsidiaries would be
sufficient to repay all outstanding indebtedness or meet other financial
obligations.
Competition. Although current policies of the FCC authorize only two
licensees to operate cellular telephone systems in each cellular market, there
is, and the Company expects there will continue to be, competition from various
wireless technology licensees authorized to serve each market in which the
Company operates, as well as from resellers of cellular service. Competition for
subscribers between the two cellular licensees and other wireless providers in
each market is based principally upon the services and enhancements offered, the
technical quality of the cellular telephone system, customer service, system
coverage and capacity and price. The Company competes with a cellular wireline
licensee in each of its cellular markets, most of which are larger and have
access to more substantial capital resources than the Company.
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, specialized mobile
radio ("SMR") and enhanced specialized mobile radio ("ESMR") systems and paging
services and to a limited extent, satellite systems for mobile communications.
The Company also faces competition from and may in the future face increased
competition from PCS. Broadband PCS involves a network of small, low-powered
transceivers placed throughout a neighborhood, business complex, community or
metropolitan area to provide customers with mobile and portable voice and data
communications. PCS may be capable of offering, and PCS operators claim they
will offer, additional services not offered by cellular providers. There can be
no assurances that the Company will be able to provide nor that it will choose
to pursue, depending on the economics thereof, such services and features. The
FCC has also completed or announced plans for auctions in wireless services such
as narrowband PCS, local multipoint multichannel distribution service ("LMDS"),
interactive video distribution service ("IVDS"), wireless communication service
("WCS") and general wireless communication service
5
("GWCS") spectrum. Some of this spectrum might be used for services competitive
in some manner with cellular service. The Company cannot predict the effect of
these proceedings and auctions on the Company's business. However, the Company
currently believes that traditional tested cellular is economically proven
unlike many of these other technologies and therefore does not intend to pursue
such other technologies.
Although the Company believes that the technology, financing and
engineering of these other technologies is not as advanced as their publicity
would suggest there can be no assurance that one or more of the technologies
currently utilized by the Company in its business will not become obsolete at
some time in the future.
Potential for Regulatory Changes and Need for Regulatory Approvals. The
FCC regulates the licensing, construction, operation, acquisition, assignment
and transfer of cellular telephone systems, as well as the number of licensees
permitted in each market. Changes in the regulation of cellular activities could
have a material adverse effect on the Company's operations. In addition, all
cellular licenses in the United States are granted for an initial term of up to
10 years and are subject to renewal. The Company's cellular licenses expire in
the following years with respect to the following number of service areas: 2001
(four); 2002 (three); 2006 (one); 2008 (six) and 2010 (two). While the Company
believes that each of these licenses will be renewed based upon FCC rules
establishing a renewal expectancy in favor of licensees that have complied with
their regulatory obligations during the relevant license period, there can be no
assurance that all of the Company's licenses will be renewed in due course. In
the event that a license is not renewed, the Company would no longer have the
right to operate in the relevant service area. The non-renewal of licenses could
have a material adverse effect on the Company's results of operations. See
"Business of the Company--Regulation."
Fluctuations in Market Value of License. A substantial portion of the
Company's assets consists of its interests in cellular licenses. The assignment
of interests in such licenses is subject to prior FCC approval and may also be
subject to contractual restrictions, future competition and the relative supply
and demand for radio spectrum. The future value of the Company's interests in
its cellular licenses will depend significantly upon the success of the
Company's business. While there is a current market for the Company's licenses,
such market may not exist in the future or the values obtainable may be
significantly lower than at present. As a consequence, in the event of the
liquidation or sale of the Company's assets, there can be no assurance that the
proceeds would be sufficient to pay the Company's obligations and a significant
reduction in the value of the licenses could require a charge to the Company's
results of operations.
Reliance on Use of Third Party Service Mark. The Company currently uses
the registered service mark CELLULARONE to market its services. The Company's
use of this is and has historically been governed by five-year contracts between
the Company and Cellular One Group, the owner of the service mark, for each of
the markets in which the Company operates. See "Description of Cellular One
Agreements." Such contracts currently in effect are expiring at different times
through December 1, 2001. If for some reason beyond the Company's control, the
name CELLULARONE were to suffer diminished marketing appeal, the Company's
ability both to attract new subscribers and to retain existing subscribers could
be materially affected. AT&T Wireless Services, Inc., which has been the single
largest user of the CELLULARONE service mark, has significantly reduced its use
of the service mark as a primary service mark as has Centennial Cellular. There
can be no assurance that such reduction in use by any of such parties will not
have an adverse effect on the marketing appeal of the brand name.
Dependence on Key Personnel. The Company's affairs are managed by a small
number of key management and operating personnel, the loss of whom could have an
adverse impact on the Company. The success of the Company's operations and
expansion strategy depends on its ability to retain and to expand its staff of
qualified personnel in the future.
Radio Frequency Emission Concerns. Media reports have suggested that
certain radio frequency ("RF") emissions from portable cellular telephones may
be linked to certain types of cancer. In addition, recently a limited number of
lawsuits have been brought, not involving the Company, alleging a connection
between cellular telephone use and certain types of cancer. Concerns over RF
emissions and interference may have the effect of discouraging the use of
cellular telephones, which could have an adverse effect upon the Company's
business. As required by the Telecom Act, in August 1996, the FCC adopted new
guidelines and methods for evaluating RF emissions from radio equipment,
including cellular telephones. While the new guidelines impose more restrictive
standards on RF emissions from low power devices such as portable cellular
telephones, the Company believes that all cellular telephones currently marketed
and in use comply with the new standards.
The Company carries $2.0 million in General Liability insurance and $25.0
million in umbrella liability coverage. This insurance would cover (subject to
coverage limits) any liability suits with respect to human exposure to radio
frequency emissions.
Equipment Failure, Natural Disaster. Although the Company carries
"business interruption" insurance, a major equipment failure or a natural
disaster affecting any one of the Company's central switching offices or certain
of its cell sites could have a significant adverse effect on the Company's
operations.
6
<
Operations
General
The Company is currently engaged in the construction, development,
management and operation of cellular telephone systems in the southeastern
United States. At December 31, 2000, the Company provided cellular telephone
service to 528,405 subscribers in Georgia, Alabama, Florida and South Carolina
in a total of 16 licensed service areas composed of eight MSAs and eight 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, including pagers, principally through its network of retail stores.
The Company markets all of its products and services under the nationally
recognized service mark CELLULARONE. The Company has developed its business
through the acquisition and integration of cellular telephone systems,
clustering multiple systems in order to provide broad areas of uninterrupted
service and achieve certain economies of scale, including centralized marketing
and administrative functions as well as multi-system capital expenditures. The
Company devotes considerable attention to engineering, maintenance and
improvement of its cellular telephone systems in an effort to deliver
high-quality service to its subscribers. Through its participation in NACN, the
Company is able to offer ten-digit dialing access to its subscribers when they
travel outside the Company's service areas, providing them with convenient
roaming access throughout large areas of the United States, Canada, Mexico and
Puerto Rico. By marketing its products and services under the CELLULARONE name,
the Company also enjoys the benefits of association with a nationally recognized
service mark.
The following table sets forth information, at the dates indicated after
giving effect to the Acquisition, regarding subscribers, penetration rate, cost
to add a net subscriber, average monthly churn rate and average monthly service
revenue per subscriber for the Company and its Predecessor.
Company Predecessor
---------------------------------------------- -----------
Year ended December 31,
-----------------------
2000 1999 1998 1997(6) 1996
---- ---- ---- ------- ----
Subscribers at end of period (1) ................. 528,405 453,984 381,977 309,606 243,204
Penetration at end of period (2) ................. 15.89% 13.65% 11.57% 9.40% 7.73%
Cost to add a gross subscriber (3) ............... $ 177 $ 199 $ 214 $ 220 $ 216
Average monthly churn (4) ........................ 1.95% 1.95% 1.91% 1.88% 1.89%
Average monthly service revenue per subscriber (5) $ 53.93 $ 56.11 $ 52.04 $ 52.06 $ 52.20
--------------
(1) Each billable telephone number in service represents one subscriber.
(2) Determined by dividing the aggregate number of subscribers by the
estimated population.
(3) Determined for the periods by dividing (i) all costs of sales and
marketing, including salaries, commissions and employee benefits and all
expenses incurred by sales and marketing personnel, agent commissions,
credit reference expenses, losses on cellular telephone sales, rental
expenses allocated to retail operations, net installation expenses and
other miscellaneous sales and marketing charges for such period by (ii)
the gross subscribers added during such period.
(4) Determined for the periods by dividing total subscribers discontinuing
service by the average number of subscribers for such period, and divided
by the number of months in the relevant period.
(5) Determined for the periods by dividing the (i) sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for
such period, divided by the number of months in the relevant period.
(6) Combines operating information of the Company for the period October 6,
1997 to December 31, 1997 and its Predecessor for the period January 1,
1997, to October 6, 1997.
Subscribers and System Usage
The Company's subscribers have increased to 528,405 at December 31, 2000.
Reductions in the cost of cellular telephone services and equipment at the
retail level have led to an increase in cellular telephone usage by general
consumers for non- business purposes. As a result, the Company believes that
there is an opportunity for significant growth in each of its existing service
areas. The Company will continue to broaden its subscriber base for basic
cellular telephone services as well as increase its offering of customized
services. The sale of custom calling features typically results in increased
usage of cellular telephones by subscribers thereby further enhancing revenues.
In 2000, cellular telephone service revenues represented 93.3% of the Company's
total revenues with equipment sales and installation representing the balance.
7
Marketing
The Company's marketing strategy is designed to generate continued net
subscriber growth by focusing on subscribers who are likely to generate lower
than average deactivations and delinquent accounts, while simultaneously
maintaining a low cost of adding net subscribers. Management has implemented its
marketing strategy by training and compensating its sales force in a manner
designed to stress the importance of high penetration levels and minimum costs
per net subscriber addition. The Company's sales staff has a two-tier structure.
A retail sales force handles walk-in traffic and a targeted sales staff solicits
certain industry and government subscribers.
The Company believes its use of an internal sales force keeps marketing
costs low, both because commissions are lower and because subscriber retention
is higher than if it used independent agents. The Company believes its cost to
add a subscriber will continue to be among the lowest in the cellular telephone
industry, principally because of its in-house direct sales and marketing staff.
The Company's sales force works principally out of retail stores in which
the Company offers its cellular products and services. As of December 31, 2000,
the Company maintained 41 retail stores, 1 kiosk and 3 offices. Retail stores,
which range in size up to 11,000 square feet, are fully equipped to handle
customer service and the sale of cellular services, telephones and accessories.
Eight of the newer and larger stores are promoted by the Company as
"Superstores," seven of which are located in the Company's Georgia/Alabama
service areas and one in the Panama City, Florida service area. Each Superstore
has an authorized warranty repair center and provides cellular telephone
installation and maintenance services. Most of the Company's larger markets
currently have at least one Superstore. To enhance convenience for its
customers, the Company has opened some smaller stores in locations such as
shopping malls. The Company's stores provide subscriber-friendly retail
environments-extended hours, a large selection of phones and accessories, an
expert sales staff, and convenient locations-which make the sales process quick
and easy for the subscriber.
The Company markets all of its products and services under the name
CELLULARONE. The national advertising campaign conducted by Cellular One Group
enhances the Company's advertising exposure compared to what could be achieved
by the Company alone. The Company also obtains substantial marketing benefits
from the name recognition associated with this widely used service mark, both
with existing subscribers traveling outside the Company's service areas and with
potential new subscribers moving into the Company's service areas.
Through its membership in NACN and other special networking arrangements,
the Company provides extended regional and national service to its subscribers,
thereby allowing them to make and receive calls while in other cellular service
areas without dialing special access codes.
Products and Services
In addition to providing high-quality cellular telephone service in each
of its markets, the Company also offers various custom-calling features such as
voicemail, call forwarding, call waiting, three-way conference calling, no
answer and busy transfer. Several rate plans are presented to prospective
subscribers so that they may choose the plan that will best fit their expected
calling needs. Generally, these rate plans include a high user plan, a medium
user plan, a basic plan and an economy plan. Most rate plans combine a fixed
monthly access fee, per minute usage charges and additional charges for
custom-calling features in a package that offers value to the subscriber while
enhancing airtime use and revenues for the Company. In general, rate plans that
include a higher monthly access fee typically include a lower usage rate per
minute. An ongoing review of equipment and service pricing is maintained to
ensure the Company's competitiveness and appropriate revisions to pricing of
service plans and equipment are made to meet the demands of the local
marketplace. The Company offers paging as an accessory to its cellular
customers.
8
The following table sets forth a breakdown of the Company's revenues after
giving effect to the Fort Myers and Georgia Sales from the sale of its services
and equipment for the periods indicated.
Company Predecessor
------------------------------------------------------- -------------------------
For the Period For the
-------------- -------
Oct. 1, 1997 Nine For the
------------ ---- -------
Through Months Ended Year Ended
------- ------------ ----------
For the Year Ended Dec. 31, Dec. 31, Sept. 30, Dec. 31,
--------------------------- -------- --------- --------
2000 1999 1998 1997 1997 1996
---- ---- ---- ---- ---- ----
Service Revenue:
Access and usage (1)................ $175,988 $166,030 $140,024 $31,786 $ 89,339 $105,006
Roaming (2)......................... 40,491 39,665 27,029 5,691 14,447 13,099
Long distance (3)................... 26,537 22,188 13,045 2,014 5,949 6,632
Other (4)........................... 9,497 5,692 4,554 891 2,061 2,596
-------- -------- -------- ------- -------- --------
Total service revenue............... 252,513 233,575 184,652 40,382 111,796 127,333
Equipment sales and installation (5) 17,995 15,548 12,053 2,308 6,242 7,027
-------- -------- -------- ------- -------- --------
Total............................... $270,508 $249,123 $196,705 $42,690 $118,038 $134,360
======== ======== ======== ======= ======== ========
(1) Access and usage revenues include monthly access fees for providing
service and usage fees based on per minute usage rates.
(2) Roaming revenues are fees charged for providing services to subscribers of
other systems when such subscribers or "roamers" place or receive a
telephone call within one of the Company's service areas.
(3) Long distance revenue is derived from long distance telephone calls placed
by the Company's subscribers.
(4) Other revenue includes, among other things, connect fees charged to
subscribers for initial activation on the cellular telephone system and
fees for feature services such as voicemail, call forwarding and call
waiting.
(5) Equipment sales and installation revenue includes revenue derived from the
sale of cellular telephones and fees for the installation of such
telephones.
Reciprocal roaming agreements between each of the Company's cellular
telephone systems and the cellular telephone systems of other operators allow
their respective subscribers to place calls in most cellular service areas
throughout the country. The roamers home systems are charged usage fees, which
are generally higher than a given cellular telephone system's regular usage
fees, thereby resulting in a higher profit margin on roaming revenue. Roaming
revenue is a substantial source of incremental revenue for the Company. In 2000,
roaming revenues accounted for 16.0% of the Company's service revenues and 14.0%
of the Company's total revenue. This level of roaming revenue is due in part to
the fact that the Company's markets include several vacation destinations and a
number of its systems are located along major interstate travel corridors.
In order to develop the market for cellular telephone service, the Company
provides retail distribution and maintains inventories of cellular telephones
and accessories. The Company negotiates volume discounts for the purchase of
cellular telephones and, in many cases, passes such discounts on to its
customers. The Company believes that earning an operating profit on the sale of
cellular telephones is of secondary importance to offering cellular telephones
at competitive prices to potential subscribers. To respond to competition and to
enhance subscriber growth, the Company has historically sold cellular telephones
below cost. However, the Company generally tries to earn a profit on the sales
of accessories.
The Company is currently developing several new services which it believes
will provide additional revenue sources. Using the TDMA IS-136 standard for the
Company's digital services, the Company will offer Enhanced Short Messaging
Services (SMS) including text messaging and e-mail addresses. Subscribers will
also be able to order content from internet sources such as weather reports,
horoscopes, stock quotes and various other data at their discretion, on a
subscription basis. The Company has engaged a third party provider to customize
this service for its subscribers. Additionally, the Company will deploy Wireless
Application Protocol (WAP) to allow customers to browse the internet with new
handsets to be introduced by certain manufacturers. This service will provide
customers the means to be totally interactive by selecting what information they
desire real time via wireless handsets.
Customer Service
The Company is committed to attracting new subscribers and retaining
existing subscribers by providing consistently high-quality customer service. In
each of its cellular service areas, the Company maintains a local staff,
including a store manager, customer service representatives, technical and
engineering staff, sales representatives and installation and repair facilities.
Each cellular service area handles its own customer-related functions such as
customer activations, account adjustments and rate plan
9
changes. Local offices and installation and repair facilities enable the Company
to better service customers, schedule installations and repairs and monitor the
technical quality of the cellular service areas.
To ensure high-quality customer service, the Cellular One Group authorizes
a third-party marketing research firm to perform customer satisfaction surveys
of each of its licensees. Licensees must achieve a minimum customer satisfaction
level in order to be permitted to continue using the CELLULARONE service mark.
In 1999, the Company received service excellence awards for two of its RSA's. In
1998, the Company was awarded the #1 MSA in CELLULARONE's National Customer
Satisfaction Survey. The Company has held number one ranking in its category in
six out of the last nine years. The Company believes it has achieved this first
place ranking through effective implementation of its direct sales and customer
service support strategy.
The Company has implemented a software package to combat cellular
telephone service fraud. This software system can detect counterfeit cellular
telephones while they are being operated and enable the Company to terminate
service to the fraudulent user of the counterfeit cellular telephone. The
Company also helps protect itself from fraud with pre-call customer validation
and subscriber profiles specifically designed to combat the fraudulent use of
subscriber accounts.
Networks
The Company strives to provide its subscribers with virtually seamless
coverage throughout its cellular service market areas, thereby permitting
subscribers to travel freely within this region and have their calls and custom
calling features, such as voicemail, call waiting and call forwarding, follow
them automatically without having to notify callers of their location or to rely
on special access codes. The Company has been able to offer virtually seamless
coverage by implementing a switch inter-connection plan to mobile telephone
switching offices ("MTSO") located in adjoining markets. The Company's equipment
is built by NORTEL, formerly Northern Telecom, Inc. ("NTI"), and interconnection
between MTSOs is achieved by using the IS-41, Rev.C, standard protocol.
Through its participation in NACN since 1992 and other special networking
arrangements, the Company has pursued its goal of offering seamless regional and
national cellular service to its subscribers. NACN is the largest wireless
telephone network system in the world linking non-wireline cellular operators
throughout the United States and Canada. Membership in NACN has aided the
Company in integrating its cellular telephone systems within its region and has
permitted the Company to offer cellular telephone service to its subscribers
throughout a large portion of the United States, Canada, Mexico and Puerto Rico.
NACN has provided the Company with a number of distinct advantages: (i) lower
costs for roaming verification, (ii) increased roaming revenue, (iii) more
efficient roaming service and (iv) integration of the Company's markets with
over 7,500 cities worldwide.
System Development and Expansion
The Company develops its service areas by adding channels to existing cell
sites and by building new cell sites. Such development is done for the purpose
of increasing capacity and improving coverage in direct response to projected
subscriber demand. Projected subscriber demand is calculated for each cellular
service area on a cell by cell basis. These projections involve a traffic
analysis of usage by existing subscribers and an estimation of the number of
additional subscribers in each such area. In calculating projected subscriber
demand, the Company builds into its design assumptions a maximum call "blockage"
rate of 2.0% (percentage of calls that are not connected on first attempt at
peak usage time during the day).
The following table sets forth, by market, at the dates indicated, the
number of the Company's operational cell sites.
At December 31,
---------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Georgia/Alabama ................ 312 257 223 207 181
Panama City, FL ................ 16 15 13 12 11
---- ---- ---- ---- ----
Total ..................... 328 272 236 219 192
---- ---- ---- ---- ----
The Company constructed 56 cell sites in 2000 and plans to construct
additional cell sites with respect to its existing cellular systems during 2001
to meet projected subscriber demand and improve the quality of service. Cell
site expansion is expected to enable the Company to continue to add subscribers,
enhance use of its cellular telephone systems by existing subscribers, increase
services used by subscribers of other cellular telephone systems due to the
larger geographic area covered by the cellular telephone networks and further
enhance the overall efficiency of the network and decrease churn. The Company
believes that the increased cellular telephone coverage will have a positive
effect on market penetration and subscriber usage.
Microwave networks, previously built by the Company, enable the Company to
connect switching equipment and cell sites without making use of local landline
telephone carriers, thereby reducing or eliminating fees paid to landline
carriers. The
10
Company also owned a fiber optic network which carries calls between its Dothan,
Alabama market and Panama City, Florida market. During 1999, the Company sold
the fiber optic network but retained the right to use such network until October
31, 2001 at no additional charge, another means of reducing fees paid to
landline carriers.
Digital Cellular Technology
Over the next decade, it is expected that cellular telephones will
gradually convert from analog to digital technology. This conversion is due in
part to capacity constraints of analog technology. As carriers reach limited
capacity levels, certain calls may be unable to be completed, especially during
peak hours. Digital technology increases system capacity and offers other
advantages over analog technology, including improved overall average signal
quality, improved call security, potentially lower incremental costs for
additional subscribers and the ability to provide data transmission services.
The conversion from analog to digital technology is expected to be an
industry-wide process that will take a number of years. The exact timing and
overall costs of such conversion are not yet known.
The Company began offering Time Division Multiple Access ("TDMA") standard
digital service, one of three standards for digital service, during 1997. This
digital network allows the Company to offer advanced cellular features and
services such as caller-ID, short message paging and extended battery life.
Where cell sites are not yet at their maximum capacity of radio channels, the
Company is adding digital channels to the network incrementally based on the
relative demand for digital and analog channels. Where cell sites are at full
capacity, analog channels are being removed and redeployed to expand capacity
elsewhere within the network and replaced in such cell sites by digital
channels. The implementation of digital cellular technology over a period of
several years will involve modest incremental expenditures for switch software
and possible significant cost reductions as a result of reduced purchases of
radio channels and a reduced requirement to split existing cells. However, as
indicated above, the extent of any implementation of digital radio channels and
the amount of any cost savings ultimately to be derived therefrom will depend
primarily on subscriber demand. In the ordinary course of business, equipment
upgrades at the cell sites have involved purchasing dual mode radios capable of
using both analog and digital technology.
The benefits of digital radio channels can only be achieved if subscribers
purchase cellular telephones that are capable of transmitting and receiving
digital signals. Currently, such telephones are more costly than analog
telephones. The widespread use of digital cellular telephones is likely to occur
only over a substantial period of time and there can be no assurance that this
technology will replace analog cellular telephones. In addition, since most of
the Company's existing subscribers currently have cellular telephones that
exclusively utilize analog technology, it will be necessary to continue to
support and if necessary, increase the number of analog radio channels within
the network for many years.
Competition
The cellular telephone service industry in the United States is highly
competitive. Cellular telephone systems compete principally on the basis of
services and enhancements offered, the technical quality of the cellular system,
customer service, coverage capacity and price of service and equipment.
Currently, the Company's primary competition in each of its service areas is the
other cellular licensee-the wireline carrier. The table below lists the wireline
competitor in each of the Company's existing service areas:
Market Wireline Competitor
------ -------------------
Albany, GA............... ALLTEL
Augusta, GA.............. ALLTEL
Columbus, GA............. Public Service Cellular
Macon, GA................ Cingular Wireless
Savannah, GA............. ALLTEL
Georgia-6 RSA............ Cingular Wireless and Public Service Cellular
Georgia-7 RSA............ ALLTEL and Cingular Wireless(1)
Georgia-8 RSA............ ALLTEL
Georgia-9 RSA............ ALLTEL and Public Service Cellular(1)
Georgia-10 RSA........... ALLTEL
Georgia-12 RSA........... ALLTEL
Georgia-13 RSA........... ALLTEL
Dothan, AL............... ALLTEL
Montgomery, AL........... ALLTEL
Alabama-8 RSA............ Public Service Cellular and ALLTEL
Panama City, FL.......... ALLTEL
11
--------------
(1) The purchasers of the authorization have subdivided the wireline service
area into two service areas for the RSA.
The Company also faces competition from and may in the future face
increased competition from broadband PCS. Broadband PCS involves a network of
small, low-powered transceivers placed throughout a neighborhood, business
complex, community or metropolitan area to provide customers with mobile and
portable voice and data communications. PCS subscribers communicate using
digital radio handsets.
The FCC allocated 120 MHz of spectrum for licensed broadband PCS. The
allocations for licensed PCS services are split into six blocks of
frequencies--blocks "A" and "B" being two 30 MHz allocations for each of the 51
Major Trading Areas ("MTAs") throughout the United States; block "C" being one
30 MHz allocation in each of 493 Basic Trading Areas ("BTAs") in the United
States; and blocks "D," "E" and "F" being three 10 MHz allocations in each of
the BTAs. The FCC has concluded the initial auction of all broadband PCS
frequency blocks, although a limited number of PCS licenses are from time to
time reauctioned due to a failure of the initial auction winner to complete the
required payments for the licenses. In some of these reauctions, the FCC
subdivided certain markets and frequencies. Following the initial PCS auctions,
the FCC adopted rules that permit parties to engage in partitioning or
geographic disaggregation of PCS spectrum. Partitioning is the sale of less than
the full 30 MHz or 10 MHz spectrum block to a third party. Disaggregation is the
sale of the full 30 MHz or 10 MHz spectrum block for less than an entire MTA or
BTA. The FCC also permitted parties to return a portion of their spectrum to the
government to avoid defaulting on payment obligations for their remaining
spectrum.
The FCC recently held a reauction of C-Block and F-Block licenses that
closed in January 2001. In connection with that reauction, the FCC made a number
of changes to its wireless and PCS licensing rules, and to the size of the
licenses being sold. Specifically, the FCC subdivided the C-Block licenses
slated for reauction into three 10 MHz licenses. Certain of these licenses were
subject to open bidding while for others, the FCC retained its C-Block and
F-Block eligibility requirements permitting only certain "designated entities"
to bid. There is litigation challenging the validity of the auction and other
parties have indicated an intent to challenge the validity of the auction and
grants thereunder, as well.
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, SMR, and ESMR
systems and paging services.
In addition, the FCC has licensed operators to provide mobile satellite
service in which transmissions from mobile units to satellites would augment or
replace transmissions to land-based stations. Although such systems are designed
primarily to serve remote areas and are subject to transmission delays inherent
in satellite communications, mobile satellite systems could augment or replace
communications with segments of land-based cellular systems. Based on current
technologies, however, satellite transmission services have not been
competitively priced with cellular telephone services.
In order to grow and compete effectively in the wireless market, the
Company plans to follow a strategy of increasing its bundled minute offerings.
By increasing the number of minutes a customer can use for one flat rate,
subscribers perceive greater value in their cellular service and become less
usage sensitive. For example, customers can increase their cellular phone usage
without seeing large corresponding increases in their cellular bill. These
factors translate into more satisfied customers, greater customer usage and
assist in the control of churn among existing subscribers. The perceived greater
value also increases the number of potential customers in the marketplace. The
Company believes that this strategy will enable it to increase its share of the
wireless market.
Service Marks
CELLULARONE is a registered service mark with the U.S. Patent and
Trademark Office. The service mark is owned by Cellular One Group, a Delaware
general partnership of Cellular One Marketing, Inc., a subsidiary of
Southwestern Bell Mobile Systems, Inc., together with Cellular One Development,
Inc., a subsidiary of AT&T and Vanguard Cellular Systems, Inc. The Company uses
the CELLULARONE service mark to identify and promote its cellular telephone
service pursuant to licensing agreements with Cellular One Group. In 2000, the
Company paid $352,000 in licensing and advertising fees under these agreements.
See "Certain Considerations--Reliance on Use of Third Party Service Mark."
Description of Cellular One Agreements
The Company is currently party to sixteen license agreements with Cellular
One Group, which cover separate cellular telephone system areas. The terms of
each agreement (each, a "Cellular One Agreement") are substantially identical.
Pursuant to each Cellular One Agreement, Cellular One Group has granted a
license to use the "CELLULARONE" mark (the "Mark") in its
12
FCC-licensed territory (the "Licensed Territory") to promote its cellular
telephone service. Cellular One Group has agreed not to license such mark to any
other cellular telephone service provider in such territory during the term of
the agreement.
Each Cellular One Agreement has a term of five years and is renewable,
subject to the conditions described herein, at the option of the Company for
three additional five-year terms subject to provision of advanced written notice
by the Company. In connection with any renewal, the Company must execute
Cellular One Group's then-current form of license renewal agreement, which form
may contain provisions materially different than those in the Cellular One
Agreement.
Cellular One Group may terminate the Cellular One Agreements at any time
without written notice to the Company upon certain events, including bankruptcy,
insolvency and dissolution of the Company.
Cellular One Group may terminate the Cellular One Agreements if the
Company (i) fails to pay any amounts thereunder when due or fails to submit
information required to be provided pursuant to the Cellular One Agreement when
due or makes a false statement in connection therewith, (ii) fails to operate
its business in conformity with FCC directives, technical industry standards and
other standards specified from time to time by Cellular One Group, (iii)
misuses, makes unauthorized use of or materially impairs the goodwill of the
Mark, (iv) engages in any business under a name that is confusingly similar to
the Mark, or (v) permits a continued violation of any law or regulation
applicable to it, in each case subject to a thirty-day cure period.
The Cellular One Agreements are terminable by the Company at any time
subject to 120 days written notice.
The Company has agreed to indemnify Cellular One Group and its employees
and affiliates, including its constituent partners, against all claims arising
from the operation of its cellular phone business and the costs, including
attorneys fees, of defending against them.
Regulation
As a provider of cellular telephone services, the Company is subject to
extensive regulation by the federal government.
The licensing, construction, operation, acquisition and transfer of
cellular telephone systems in the United States are regulated by the FCC
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The FCC has promulgated rules governing the construction and operation of
cellular telephone systems and licensing and technical standards for the
provision of cellular telephone service ("FCC Rules"). For cellular licensing
purposes, the United States is divided into MSAs and RSAs. In each market, the
frequencies allocated for cellular telephone use are divided into two equal
blocks designated as Block A and Block B. Block A licenses were initially
reserved for non-wireline companies, such as PCW, while Block B licenses were
initially reserved for entities affiliated with a local wireline telephone
company. Under current FCC Rules, a Block A or Block B license may be
transferred with FCC approval without restriction as to wireline affiliation,
but generally, no entity may own any substantial interest in both systems in any
one MSA or RSA. The FCC may prohibit or impose conditions on sales or transfers
of licenses.
Initial operating licenses are generally granted for terms of up to 10
years, renewable upon application to the FCC. Licenses may be revoked and
license renewal applications denied for cause after appropriate notice and
hearing. The Company's cellular licenses expire in the following years with
respect to the following number of service areas: 2001 (four); 2002 (three);
2006 (one); 2008 (six) and 2010 (two). The FCC has issued a decision confirming
that current licensees will be granted a renewal expectancy if they have
complied with their obligations under the Communications Act during their
license terms and provided substantial public service. A potential challenger
will bear a heavy burden to demonstrate that a license should not be renewed if
the licensee's performance merits renewal expectancy. The Company believes that
the licenses it controls will continue to be renewed in a timely manner.
However, in the event that a license is not renewed, the Company would no longer
have the right to operate in the relevant service area which would have an
adverse effect on the Company's results of operations.
Under FCC rules, each cellular licensee was given the exclusive right to
construct one of two cellular telephone systems within the licensee's MSA or RSA
during the initial five-year period of its authorization. At the end of such
five-year period, other persons are permitted to apply to serve areas within the
licensed market that are not served by the licensee and current FCC
Rules provide that competing applications for these "unserved areas" are to be
resolved through the auction process. The Company has no material unserved areas
in any of its cellular telephone systems.
The Company also regularly applies for FCC authority to use additional
frequencies, to modify the technical parameters of existing licenses, to expand
its service territory and to provide new services. The Communications Act
requires prior FCC approval for acquisitions by the Company of other cellular
telephone systems licensed by the FCC and transfers by the Company of a
controlling interest in any of its licenses or any rights thereunder. Although
there can be no assurance that any future requests
13
for approval or applications filed by the Company will be approved or acted upon
in a timely manner by the FCC, based upon its experience to date, the Company
has no reason to believe such requests or applications would not be approved or
granted in due course.
The Communications Act prohibits the holding of a common carrier license
(such as the Company's cellular licenses) by a corporation of which more than
20% of the capital stock is owned directly or beneficially by aliens. Where a
corporation such as the Company controls another entity that holds an FCC
license, such corporation may not have more than 25% of its capital stock owned
directly or beneficially by aliens, in each case, if the FCC finds that the
public interest would be served by such prohibitions. The 25% limitation has
been relaxed with regard to certain foreign investors pursuant to a World Trade
Organization treaty and FCC actions implementing the treaty. Failure to comply
with these requirements may result in the FCC issuing an order to the Company
requiring divestiture of alien ownership to bring the Company into compliance
with the Communications Act. In addition, fines or a denial of renewal, or
revocation of the license are possible.
From time to time, federal and state legislators may propose legislation,
which could potentially affect the Company, either beneficially or adversely. On
February 8, 1996, the Telecommunications Act of 1996 (the "Telecom Act") was
signed into law, revising the Communications Act to eliminate unnecessary
regulation and to increase competition among providers of communications
services. The Company cannot predict the future impact of this or other
legislation on its operations.
The major provisions of the Telecom Act potentially affecting the Company
are as follows:
Interconnection. The Telecom Act required state public utilities
commissions and the FCC to implement policies that mandate cost-based reciprocal
compensation between cellular carriers and local exchange carriers ("LEC") for
interconnection services.
The FCC has established procedures for the Company's renegotiations of
interconnection agreements with the incumbent local exchange carrier in each of
the Company's markets. The Company has renegotiated certain interconnection
agreements with LECs in most of the Company's markets. These negotiations have
resulted in a substantial decrease in interconnection expenses incurred by the
Company.
Facilities siting for personal wireless services. The siting and
construction of cellular transmitter towers, antennas and equipment shelters are
often subject to state or local zoning, land use and other regulation. Such
regulation may require zoning, environmental and building permit approvals or
other state or local certification.
The Telecom Act provides that state and local authority over the
placement, construction and modification of personal wireless services
(including cellular and other commercial mobile radio services and unlicensed
wireless services) shall not prohibit or have the effect of prohibiting personal
wireless services or unreasonably discriminate among providers of functionally
equivalent services. In addition, local authorities must act on requests made
for siting in a reasonable period of time and any decision to deny must be in
writing and supported by substantial evidence. Appeals of zoning decisions that
fail to comply with the provisions of the Telecom Act can be made on an
expedited basis to a court of competent jurisdiction, which can be either
federal district or state court. The Company anticipates that, as a result of
the Telecom Act, it will more readily receive local zoning approval for proposed
cellular base stations. In addition, the Telecom Act codified the Presidential
memorandum on the use of federal lands for siting wireless facilities by
requiring the President or his designee to establish procedures whereby federal
agencies will make available their properties, rights of ways and other
easements at a fair and reasonable price for service dependent upon federal
spectrum.
Environmental effect of radio frequency emissions. The Telecom Act
provides that state and local authorities cannot regulate personal wireless
facilities based on the environmental effects of radio frequency emissions if
those facilities comply with the federal standard.
Universal service. The Telecom Act also provides that all communications
carriers providing interstate communications services, including cellular
carriers, must contribute to the federal universal service support mechanisms
established by the FCC. The FCC also provided that any cellular carrier is
potentially eligible to receive universal service support. The universal service
support fund will support telephone service in high-cost and low-income areas
and support access to telecommunications facilities by schools, libraries and
rural health care facilities. States will also be implementing requirements that
carriers contribute universal service funding from intrastate telecommunications
revenues. The Company has revised its customer billing to reflect additional
costs related to these universal service fund requirements. There can be no
guarantee that the Company will be able to continue to pass the costs of the
fund requirements on to its subscribers in the future.
14
Other Recent Industry Developments. The FCC has a number of other complex
requirements and proceedings that affect the operation of our business. For
example, FCC rules currently require wireless carriers to make available
emergency 911 services, including enhanced emergency 911 services that provide
the caller's telephone number, and a requirement that emergency 911 services be
made available to users with speech or hearing disabilities. We also are subject
or potentially subject to interconnection, reciprocal compensation and universal
service obligations; number portability obligations; rules governing billing and
subscriber privacy; rules governing wireless resale and roaming obligations;
rules that require wireless service providers to configure their networks to
facilitate electronic surveillance by law enforcement officials; and rules
requiring the Company to offer equipment and services that are accessible to and
usable by persons with disabilities. These requirements are the subject of
pending FCC or judicial proceedings, and we are unable to predict how they may
affect our business, financial condition or results of operations.
The FCC has eliminated its cellular-PCS cross ownership rule, but retained
a spectrum cap on aggregation of CMRS spectrum. A cellular licensee and its
affiliates may not hold an attributable interest in more than 45 MHz of licensed
cellular, broadband PCS and SMR spectrum in a particular geographic area,
although the FCC recently relaxed its cellular PCS cross ownership rule to
permit ownership of 55 MHz of licensed cellular, broadband PCS and SMR spectrum
in RSA markets.
The Communications Act preempts state and local regulation of the entry
of, or the rates charged by, any provider of cellular service. The FCC, to date,
has denied all state petitions to regulate the rates charged by commercial
mobile radio service providers. State and local governments are permitted to
manage public rights of way and can require fair and reasonable compensation
from telecommunications providers, on a competitively neutral and
nondiscriminatory basis for the use of such rights of way by telecommunications
carriers, so long as the compensation required is publicly disclosed by the
government. States may also impose competitively neutral requirements that are
necessary for universal service, conserving telephone numbering resources,
protecting the public safety and welfare, ensuring continued service quality and
safeguarding the rights of consumers. While a state may not impose requirements
that effectively function as barriers to entry or create a competitive
disadvantage, the scope of state authority to maintain existing or to adopt new
such requirements is unclear.
Certain Terms
Interests in cellular markets that are licensed by the FCC are commonly
measured on the basis of the population of the market served with each person in
the market area referred to as a "Pop." The number of Pops or Net Pops owned is
not necessarily indicative of the number of subscribers or potential
subscribers. As used herein, unless otherwise indicated, the term "Pops" means
the estimate of the 1999 population of an MSA or RSA, as derived from the
1999-2000 Donaldson, Lufkin & Jenrette Market Information Service. The term "Net
Pops" means the estimated population with respect to a given service area
multiplied by the percentage interest that the Company owns in the entity
licensed in such service area. MSAs and RSAs are also referred to as "markets."
The term "wireline" license refers to the license for any market initially
awarded to a company or group that was affiliated with a local landline
telephone carrier in the market, and the term "non-wireline" license refers to
the license for any market that was initially awarded to a company, individual
or group not affiliated with any landline carrier. The term "System" means an
FCC-licensed cellular telephone system.
Employees
At December 31, 2000, the Company had approximately 741 full-time
employees, none of whom is represented by a labor organization. Management
considers its relations with employees to be good.
Item 2. Properties
For each market served by the Company's operations, the Company maintains
at least one sales or administrative office and operates a number of cell
transmitter and antenna sites. As of December 31, 2000, the Company had
approximately 42 leases for retail stores (including one kiosk) used in
conjunction with its operations and 3 leases for administrative offices. The
Company also had approximately 235 leases to accommodate cell transmitters and
antennas as of December 31, 2000.
The Company leases space for its headquarters in New York City. (See Note
13 of the Notes to Consolidated Financial Statements for information on minimum
lease payments by the Company and its subsidiaries for the next five years.)
Item 3. Legal Proceedings
The Company is not currently involved in any pending legal proceedings
likely to have a material adverse impact on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
15
Not Applicable
16
PART II
Item 5. Market for Company's Common Stock and Related Stockholder Matters
(a) Market for Common Stock
Effective February 17, 2000, the Company became listed on the New York
Stock Exchange ("NYSE") under the ticker symbol "PR". The range of high and low
last sale prices for the Company's Common Stock on the NYSE and prior to
February 17, 2000 on the American Stock Exchange as adjusted to reflect the
Company's January 1999 and May 1999 5 for 4 stock splits, and the August 1999 5%
stock dividend for each of the quarters of 2000 and 1999 as reported by the NYSE
and the American Stock Exchange was:
2001 2000 1999
---- ---- ----
Quarter High Low High Low High Low
------- ---- --- ---- --- ---- ---
First (through March 16, 2001)......... $19.89 $16.25 $26.56 $21.00 $10.32 $ 7.80
Second................................. 25.00 18.75 15.25 9.10
Third.................................. 24.38 18.38 25.06 14.25
Fourth................................. 23.00 15.50 28.38 19.50
The Company's Common Stock has been afforded unlisted trading privileges
on the Pacific Stock Exchange under the ticker symbol "PR.P", on the Chicago
Stock Exchange under the ticker symbol "PR.M" and on the Boston Stock Exchange
under the ticker symbol "PR.B" and trades in Euros on the Frankfurt and Munich
Stock Exchanges.
(b) Holders
On March 27, 2001, there were approximately 400 holders of record of the
Company's Common Stock. The Company estimates that brokerage firms hold Common
Stock in street name for approximately 5,000 persons.
(c) Dividends
The Company, to date, has paid no cash dividends on its Common Stock. The
Board of Directors will determine future dividend policy based on the Company's
earnings, financial condition, capital requirements and other circumstances.
17
Item 6. Selected Consolidated Financial Data
The following tables contain certain consolidated financial data with
respect to the Company and for Palmer ("Predecessor") for the periods and dates
set forth below. This information has been derived from the audited consolidated
financial statements of the Company and Palmer or the Company's unaudited data.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto, included elsewhere
herein.
Consolidated Operating Statement Items
Company
Year ended December 31,
----------------------------------------------------------------------
2000 1999 1998 1997(9) 1996(9)
---- ---- ---- ------- -------
Service Revenue ........................................ $252,513 $233,575 $184,652 $ 41,365 $ --
Equipment Sales and Installation ....................... 17,995 15,548 12,053 2,348 --
Media Revenue .......................................... -- -- -- -- 2,962
-------- -------- -------- --------- ---------
Revenue ................................................ 270,508 249,123 196,705 43,713 2,962
Engineering, Technical and Other Direct Expenses ....... 25,321 29,666 28,122 5,978 --
Cost of Equipment ...................................... 32,685 28,650 23,086 5,259 --
Media Operating Expenses ............................... -- -- -- -- 2,233
Selling, General and Administrative Expenses ........... 64,984 65,150 61,093 16,750 2,373
Non-cash Compensation - Selling, General and
Administrative ...................................... 3,649 1,973 -- -- --
Depreciation and Amortization .......................... 46,981 45,157 43,625 11,107 467
-------- -------- -------- --------- ---------
Operating Income (Loss) ................................ 96,888 78,527 40,779 4,619 (2,111)
Other Income (Expense):
Interest, net ....................................... (59,661) (72,892) (76,926) (20,063) 4,367
Other, net .......................................... 7,711 12,251 15,279 1,400 92,995
-------- -------- -------- --------- ---------
Total Other Income (Expense) ...................... (51,950) (60,641) (61,647) (18,663) 97,362
Minority Interest ...................................... (1,432) (1,664) (2,178) (414) --
Extraordinary Item-Loss on Early Extinguishment of
Debt (net of tax benefit of $15,893) ................ -- -- (27,061) -- --
Cumulative effect on prior year change in revenue
recognition (net of tax expense of $92) ............. (158) -- -- -- --
Income Tax (Expense) Benefit ........................... (14,972) (6,002) 8,523 5,509 (24,584)
-------- -------- -------- --------- ---------
Net Income (Loss) ...................................... $ 28,376 $ 10,220 $(41,584) $ (8,949) $ 70,667
======== ======== ======== ========= =========
Per Share Amounts (1):
Basic Earnings (Loss) Per Share Before Cumulative Effect
of Accounting Change and Extraordinary Item ......... $ .51 $ .22 $ (.40) $ (.22) $ 1.18
Basic Earnings (Loss) for Accounting Change and
Extraordinary Item .................................. -- -- (.73) -- --
-------- -------- -------- --------- ---------
Basic Earnings (Loss) Per Share ........................ $ .51 $ .22 $ (1.13) $ .22 $ (1.18)
Diluted Earnings Per Share Before and After Cumulative
Effect of Accounting Change and Extraordinary Item .. $ .50 $ .22 $ (1.13) $ (.22) $ 1.16
Other Data:
Capital Expenditures ................................... $ 27,218 $ 24,575 $ 14,725 $ 14,515 $ 137
Operating Income Before Depreciation and
Amortization - Adjusted EBITDA (2) .................. $150,367 $130,150 $ 88,595 $ 19,671 $ (1,644)
Adjusted EBITDA Margin on Service Revenue .............. 59.6% 55.7% 48.0% 47.6% N/A
Net Cash Provided By (Used In):
Operating Activities ................................ $ 63,075 $ 74,591 $ 12,366 $ 6,451 $ (24,148)
Investing Activities ................................ (41,490) (30,746) 21,361 (312,577) 138,999
Financing Activities ................................ (32,108) (57,613) 141,821 252,220 (32,701)
Penetration (3) ........................................ 15.90% 13.65% 11.60% 9.40% N/A
Subscribers at the End of Period (4) ................... 528,405 453,984 381,977 309,606 N/A
Cost to Add a Net Subscriber (5) ....................... $ 509 $ 471 $ 448 $ 370 N/A
Average Monthly Revenue per
Subscriber (6) ...................................... $ 53.93 $ 56.11 $ 52.04 $ 50.59 N/A
18
Average Monthly Churn (7) .............................. 1.90% 1.95% 1.91% 1.84% N/A
Ratio of Earnings to Fixed Charges (8) ................. 1.61x 1.21x (8) (8) 1.28x
19
(1) Per share amounts have been retroactively adjusted to reflect 5 for 4
stock splits in May 1999, January 1999, April 1998 (2), and December 1997,
the 2 for 1 stock split in August 1998 and the 5% stock dividend in August
1999. All per share amounts prior to 1997 have been restated to comply
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". See notes to consolidated financial statements.
(2) Adjusted EBITDA represents operating income before Depreciation and
Amortization, non-cash compensation, and overhead of the parent company
for 2000 ($3.6 million), 1999 ($4.5 million), 1998 ($4.2 million) and 1997
($3.9 million). Adjusted EBITDA may not be identical to similarly titled
measures reported by other companies. Adjusted EBITDA should not be
considered in isolation or as an alternative measurement of operating
performance or liquidity to net income (loss), operating income (loss),
cash flows from operating activities or any other measure of performance
under GAAP. The Company believes that adjusted EBITDA is viewed as a
relevant supplemental measure of performance in the cellular telephone
industry.
(3) Determined by dividing the aggregate number of subscribers by the
estimated population.
(4) Each billable telephone number in service represents one subscriber.
(5) Determined for a period by dividing (i) costs of sales and marketing,
including salaries, commissions and employee benefits and all expenses
incurred by sales and marketing personnel, agent commissions, credit
reference expenses, losses on cellular telephone sales, rental expenses
allocated to retail operations, net installation expenses and other
miscellaneous sales and marketing charges for such period, by (ii) the net
subscribers added during such period.
(6) Determined for a period by dividing (i) the sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of post paid
subscribers for such period divided by the number of months in such
period.
(7) Determined for a period by dividing total subscribers discontinuing
service by the average number of subscribers for such period, and dividing
that result by the number of months in such period.
(8) The ratio of earnings to fixed charges is determined by dividing the sum
of earnings before interest expense, taxes and a portion of rent expense
representative of interest by the sum of interest expense and a portion of
rent expense representative of interest. The ratio of earnings to fixed
charges is not meaningful for periods that result in a deficit. For the
years ended December 31, 1998 and 1997, the deficit of earnings to fixed
charges was $41,584 and $8,949, respectively.
(9) Operating information for PCC in 1997 includes the cellular operating
results of PCW for the period subsequent to the acquisition of Palmer. The
results of PCC's operations do not include any cellular operating results
in 1996.
Consolidated Balance Sheet Items
As of December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total Current Assets.................... $ 255,904 $ 229,600 $ 237,859 $ 79,949 $114,809
Total Assets............................ 1,266,420 1,258,994 1,286,269 1,173,608 115,888
Total Current Liabilities............... 52,289 52,000 47,099 55,603 7,109
Long-Term Debt.......................... 700,000 700,000 909,432 690,300 ---
Shareholders' Equity.................... 172,612 173,190 4,379 60,926 108,779
20
Consolidated Operating Statement Items
Predecessor
--------------------------------------
For The For The
------- -------
Nine Months Year Ended
----------- ----------
Ended September 30, December 31,
------------------- ------------
1997 1996(a)
---- -------
Revenue:
Cellular Service .................................... $ 134,123 $ 151,119
Equipment Sales and Installation ................. 7,613 8,624
--------- ---------
Total Revenue .................................. 141,736 159,743
--------- ---------
Engineering, Technical and Other Direct Expenses . 23,301 28,717
Cost of Equipment ................................ 16,112 17,944
Selling, General and Administrative Expenses ..... 41,014 46,892
Depreciation and Amortization .................... 25,498 25,013
--------- ---------
Operating Income ................................. 35,811 41,177
--------- ---------
Other Income (Expense):
Interest, net .................................. (24,467) (31,462)
Other, net ..................................... 208 (429)
--------- ---------
Total Other Expenses ......................... (24,259) (31,891)
--------- ---------
Minority Interest ................................ (1,310) (1,880)
Income Tax Expense ............................. (4,153) (2,724)
--------- ---------
Net Income ..................................... $ 6,089 $ 4,682
========= =========
Other Data:
Capital Expenditures ................................ $ 40,757 $ 41,445
Operating Income Before Depreciation and
Amortization ("EBITDA") (2) ...................... $ 61,309 $ 66,190
EBITDA Margin on Service Revenue .................... 45.7% 43.8%
Net Cash Provided By (used in):
Operating Activities ............................. $ 38,791 $ 30,130
Investing Activities ............................. (73,759) (110,610)
Financing Activities ............................. 36,851 78,742
Penetration (3) ..................................... 8.60% 7.45%
Subscribers at the End of Period (4) ................ 337,345 279,816
Cost to Add a Net Subscriber (5) .................... $ 514 $ 407
Average Monthly Service Revenue per
Subscriber (6) ................................... $ 53.99 $ 52.20
Average Monthly Churn (7) ........................... 1.89% 1.84%
Ratio of Earnings to Fixed Charges (8) .............. 1.45x 1.28x
----------
(a) Includes the acquisition of the Georgia-1 RSA, which occurred on
June 20, 1996, and the Georgia-6 RSA, which occurred on July 5,
1996. The acquisitions of the GA-1 and GA-6 RSA resulted in revenues
to the Predecessor of $1,239 and $2,682, respectively, and operating
(loss) income of $(278) and $743, respectively, during such year.
21
Item 7. 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 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.
Overview
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
December 31, 2000, the Company provided cellular telephone service to 528,405
subscribers in Georgia, Alabama, South Carolina and Florida in a total of 16
licensed service areas, composed of eight MSA's and eight RSA's, 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.
Results of Operations
The following table sets forth for the periods indicated, the percentage
which certain amounts bear to total revenue.
For The Year Ended December 31,
-------------------------------
2000 1999 1998
---- ---- ----
Revenue:
Service.......................................... 93.4% 93.8% 93.9%
Equipment sales and installation................. 6.6 6.2 6.1
----- ----- -----
Total Revenue.......................................... 100.0 100.0 100.0
----- ----- -----
Operating Expenses:
Engineering, technical and other direct:
Engineering and technical (1)................. 5.2 5.5 6.3
Other direct costs of services (2)............ 4.1 6.5 8.0
Cost of equipment (3)............................ 12.1 11.5 11.7
Selling, general and administrative:
Selling and marketing (4)..................... 8.6 8.6 10.9
Customer service (5).......................... 7.4 6.6 6.3
General and administrative (6)................ 8.0 11.0 13.9
Non-cash compensation......................... 1.4 .8 ---
Depreciation and amortization ................... 17.4 18.0 22.2
----- ----- -----
Total Operating Expenses............................... 64.2 68.5 79.3
----- ----- -----
Operating Income....................................... 35.8% 31.5% 20.7%
Operating Income Before Depreciation and
Amortization and Non-Cash Compensation (7).......... 54.5% 50.4% 42.9%
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
22
(3) Consists primarily of the costs of the cellular telephones and accessories
sold, sales and marketing personnel, employee and agent commissions.
(4) Consists primarily of salaries and benefits of advertising and promotional
expenses.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing subscriber's bills.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization and non-cash
compensation ("EBITDA") should not be considered in isolation or as an
alternative to net income, operating income or any other measure of
performance under generally accepted accounting principles. The Company
believes that operating income before depreciation and amortization and
non-cash compensation is viewed as a relevant supplemental measure of
performance in the cellular telephone industry.
Year ended December 31, 2000 compared to Year ended December 31, 1999
Operating results for the year ended December 31, 2000 reflect the
continued improvement in operating cash flow ("EBITDA"), subscriber growth and
the related increase in penetration, a slight decrease in the Average Revenue
Per Subscriber ("ARPU") and the continuation of strong cost controls which
translate to a low average operating cost per subscriber.
Revenue. Service revenues totaled approximately $252.5 million for the
current year compared to approximately $233.6 million for 1999 or an increase of
8.1%. The increase is principally a result of the greater amount of access
revenue ($5.7 million) due to the increase in the average number of post paid
subscribers, as well as increases in toll revenue ($4.4 million), feature
revenue ($2.5 million) and prepaid airtime revenue ($4.0 million). The increase
in toll revenue is primarily due to the increase in the number of minutes used
by post paid subscribers (an increase of 463 million minutes) which per
subscriber increased from 250 minutes per post paid subscriber in 1999 to 318
minutes in 2000. Despite the increase in minutes of use, airtime revenue was
flat as the Company's rate plans provided larger amounts of free minutes than in
the past in order to remain competitive in its markets. As a result of increased
competition for additional post paid cellular subscribers, the Company's local
revenue per cellular subscriber decreased slightly from $40.16 in 1999 to $39.42
in 2000. In addition, the Company's outcollect roaming revenue, which is revenue
that the Company derives from other cellular companies' subscribers roaming in
our markets, increased by ($826,000) as a result of an increase in usage from
105.8 million minutes in 1999 to 129.9 million minutes in 2000, partially offset
by reduced reimbursement rates from the other carriers. The Company expects this
trend to continue as a result of new roaming rates negotiated with some of the
Company's roaming partners as well as the increased number of wireless carriers
in each market which can be utilized by other carriers.
Equipment and installation revenue amounted to $18.0 million for the
current year compared to $15.5 million in 1999. The increase in equipment
revenue of 16.1% is primarily a combination of a greater number of gross pre and
post paid subscriber additions (39,409 increase over 1999) as well as a greater
emphasis on accessory sales to new subscribers.
Operating Expenses. Operating expenses increased $3.0 million from $170.6
million in 1999 to $173.6 million in 2000. As a percentage of total revenue,
operating expenses decreased from 68.5% of total revenue in 1999 to 64.2% of
total revenue in 2000. After excluding non-cash compensation and depreciation
and amortization, operating expenses amount to 45.5% of total revenue for 2000
compared to 49.6% of total revenue for 1999. Total operating costs per cellular
subscriber excluding PCC overhead and all non-cash charges amounted to $17.27 in
2000 and $20.68 in 1999.
Engineering, technical and other direct expenses decreased from $29.7
million in 1999 to $25.3 million in 2000. There are three major components in
this category. 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 other carriers' markets and the amount charged to these
subscribers, variable network costs such as inter trunk, long distance and
directory assistance costs, and engineering costs which consist principally of
salaries and related fringe benefits, fixed span line costs and tower rentals.
As a result of negotiations with other cellular carriers (see comments
above concerning outcollect revenue), the Company was able to reduce the amount
it reimburses those carriers for incollect roaming resulting in net incollect
revenue of $1.1 million for the current year compared to a net cost of $4.0
million for 1999. This reduction was augmented by decreased long distance and
directory assistance costs resulting from renegotiated rates. Partially
offsetting these cost savings, were increases in variable telephone costs such
as interconnect and reverse toll charges as well as the direct cost of prepaid
usage due to the increase in prepaid revenue and the implementation of a new
prepaid software system.
Decreases in engineering salaries and related expenses were offset by
increases in fixed span line costs and additional cell site rental costs as the
Company continued to build out its system by adding 56 new cell sites and
increasing the number of radios in the existing cell sites.
The increase in gross subscriber additions combined with the increase in
cellular phone upgrades as well as the higher cost of digital phones, resulted
in an increase of the cost of equipment sold from $28.7 million in 1999 to $32.7
million in 2000. In
23
addition, increases in the sale of accessories contributed to the increase. As a
percentage of recovered cost, the Company recovered 55.1% of the cost of
equipment in 2000 compared to a recovery of 54.3% in 1999.
Selling, general and administrative ("SG&A") decreased slightly from $65.2
million for 1999 to $65.0 for the current year. As a percentage of total
revenue, SG&A decreased from 26.2% of total revenue in 1999 to 24.0% in 2000.
Sales and marketing costs which include installation costs, salaries,
commissions and advertising, amounted to $23.2 million for the year 2000 and
$21.5 million for 1999. Increases in salaries and related benefits, commissions
and advertising expenditures increased in total by $1.2 million as the number of
gross activations increased for the current year. The cost to add a gross
subscriber, which consists of the net loss on equipment sales and sales and
marketing expenditures, decreased from $198.68 in 1999 to $177.63 in 2000.
Customer service costs, primarily billing costs and payroll and related
benefits, increased to $20.2 million in 2000 from $16.4 million in 1999.
Increases in personnel and billing costs are a direct function of the increases
in the number of subscribers. Additional subscribers require an increase in the
number of cellular bills mailed out, as well as an increase in the number of
customer service representatives necessary to handle the additional subscriber
inquiries.
General and administrative expenses were reduced to $21.6 million in 2000
compared with $27.3 million in 1999. The Company's provision for bad debts
decreased from $7.1 million in 1999 to $4.2 million in 2000 due to additional
customer service staffing, as well as the utilization of outside collection
services. Additional savings in PCC overhead ($1.6 million reduction principally
from payroll related costs) as well as reductions in legal and professional fees
($800,000) and computer support services ($1.0 million) contributed to the $5.6
million reduction in expenses.
Included in operating expenses for 2000 and 1999 is a charge of $3.6
million and $2.0 million representing the non-cash compensation charges related
to the conversion by an officer of the Corporation of the Company's Preferred
stock into common stock (see Notes to Consolidated Financial Statements). Such
charges are being expensed over the vesting period of the common stock. The
conversions occurred during 1998 and 1999. Since the conversions occurred in
varying stages prior to December 31, 1999, the year 2000 has a full year of
amortization whereas 1999 has less than twelve months.
Depreciation and amortization increased from $45.2 million in 1999 to
$47.0 million in 2000. The increase is primarily a result of additional
depreciation expense due to the significant capital equipment additions during
1999 and 2000.
Operating income grew from $78.5 million 1999 to $96.9 million in 2000.
Earnings before non-cash compensation and depreciation and amortization
("EBITDA") amounted to $147.5 million for 2000 or 54.5% of total revenue
compared to $125.7 million or 50.4% of total revenue for 1999. The improvement
is a function of management's ability to control costs while still maintaining
subscriber growth. The increase in EBITDA from 1999 to 2000 represents a growth
of 17.3%.
Interest Expense, Other Income, Income Taxes, and Net Income. Interest
expense decreased to $71.4 in 2000 from $82.6 million in 1999. During 1999, long
term debt consisted of, $175 million of 11 3/4% Senior Subordinated Notes, $525
million of 9 1/8% Senior Secured Notes and $200 million of 11 1/4% Senior
Exchangeable Payable-in-Kind Notes. In June 1999, the Company allowed the
conversion of the $200 million 11 1/4% Payable-in-Kind Notes and therefore
incurred an additional six months of interest expense. The increase of $2.0
million in interest income is a result of the increase in the average rate the
Company earned on its cash during the year.
Other income for 2000 resulted largely from gains from security
transactions of the Parent company and in 1999 resulted primarily from the
liquidation of a long-standing investment by the Company ($8.5 million) combined
with net gains realized from security transactions by the Parent Company.
The income tax provision for 2000 of $15.0 million compared to the
provision of $6.0 million is principally a result of the increase in taxable
income in 2000 at an effective rate of approximately 37%.
The net income of $28.4 million for 2000 compared to net income of $10.2
million for 1999 is a function of the items discussed above. During the current
year, the Company adopted Securities and Exchange Commission Staff Accounting
Bulletin No. 101 ("SAB 101") which requires the deferral of certain revenue over
the approximate length of a subscribers' contract or over the remaining unused
minutes for prepaid revenue. The effect on the current financial statements was
not material.
Year ended December 31, 1999 compared to Year ended December 31, 1998
Operating results for the year ended December 31, 1999 reflect the
continued improvement in operating cash flow, subscriber growth and the related
increase in penetration, maintenance of a strong Average Revenue Per Subscriber
("ARPU") and strong cost controls which translate to a low average cost per
subscriber.
24
Revenue. Service revenues totaled approximately $233.6 million for the
current year compared to approximately $184.7 million for 1998 or an increase of
26.5%. The increase is principally a result of greater access revenue ($21.8
million) due to an increase in the average number of cellular subscribers. The
increase in airtime usage from .8 billion minutes of use for 1998 (188 minutes
per average subscriber) to 1.2 billion minutes of use in 1999 (250 minutes per
average subscriber) generated an additional amount of airtime revenue ($4.2
million) as well as toll revenue ($9.1 million). There is not necessarily a
direct relationship between the increase in minutes of use and revenue since a
significant portion of airtime usage is included in a subscriber's monthly fee.
Despite the increasing competition for additional cellular subscribers, the
Company was able to increase its local revenue per cellular subscriber from
$38.20 in 1998 to $40.16 in 1999. In addition, the Company's outcollect roaming
revenue, which is revenue that the Company derives from other cellular
companies' subscribers roaming in our markets, increased approximately $12.6
million as a result of an increase in usage from 51.5 million minutes in 1998 to
105.8 million minutes in 1999.
Equipment revenue amounted to $15.5 million for the current year compared
to $12.1 million in 1998. The increase in equipment revenue of 29% is a
combination of a greater portion of the cost being recovered from subscribers.
The increase in the average revenue per gross addition (from $80 to $89)
resulted in an increase of $1.9 million for phone sales. In addition, a greater
emphasis on accessory sales to new subscribers resulted in an increase of $1.6
million.
Operating Expenses. Operating expenses increased $14.7 million from $155.9
million in 1998 to $170.6 million in 1999. As a percentage of total revenue,
operating expenses decreased from 79.3% of total revenue in 1998 to 68.5% of
total revenue in 1999. Approximately $5.6 million was related to additional
equipment costs (for the reasons stated in equipment revenue), approximately
$4.1 million was for selling, general and administrative for the reasons
indicated below and $3.5 million was a function of increases in non-cash
compensation and depreciation and amortization. After excluding non-cash
compensation and depreciation and amortization, operating expenses amount to
49.6% of total revenue for 1999 compared to 57.1% of total revenue for 1998.
Total operating costs per cellular subscriber excluding PCC overhead and all
non-cash charges amounted to $20.68 in 1999 and $23.48 in 1998.
Engineering, technical and other direct expenses increased from $28.1
million in 1998 to $29.7 million in 1999. There are three major components in
this category. The net cost of incollect, which represents the difference
between the amount paid to other cellular carriers for the Company's subscribers
roaming in other carriers' markets and the amount charged to these subscribers,
variable network costs such` as inter trunk, long distance and directory
assistance costs, and engineering costs which consist principally of salaries
and fixed span line costs and tower rentals.
As a result of negotiations with other cellular carriers, the Company was
able to reduce the amount it reimburses those carriers for incollect roaming
resulting in a recovery of 90% of cost for 1999 compared to a 78% recovery for
1998 or a decrease of $4.4 million of net expense. The Company expects to
realize additional benefits in the future thus expecting this significant
component of direct expenses to decrease in the future. Offsetting these savings
were increases in long distance, directory assistance and interconnect costs
related to the increased utilization of the system which is evidenced by a 53%
increase in minutes of use.
Decreases in engineering salaries and related expenses ($900,000) were
offset by increases in fixed span line costs ($1.2 million) and additional cell
site rents ($1.0 million) as the Company continued to build out its system by
adding new cell sites and increasing the number of radios in the existing cell
sites.
The increase in gross subscriber additions combined with the increase in
cellular phone upgrades as well as the higher cost of digital phones, resulted
in an increase of the cost of equipment from $23.1 million in 1998 to $28.7
million in 1999. In addition, increases in the sale of accessories contributed
to the increase in equipment cost. The Company recovered 54.3% of the cost of
equipment in 1999 compared to a recovery of 52.2% in 1998.
Selling, general and administrative ("SG&A") increased to $65.2 million
for the current year compared to $61.1 million in 1998. As a percentage of total
revenue, SG&A decreased from 31.1% of total revenue in 1998 to 26.2% in 1999.
Sales and marketing costs which include installation costs (included as
engineering in 1998), salaries, commissions and advertising, amount to $21.5
million for both 1999 and 1998. Decreases in salaries and related benefits were
offset by increases in commissions ($240,000) and advertising expenditures
($739,000). The cost to add a gross cellular subscriber, which consists of the
net loss on equipment sales and sales and marketing expenditures, decreased from
$214.30 in 1998 to $198.68 in 1999.
Customer service costs, which consist principally of billing costs and
payroll and related benefits, increased to $16.4 million in 1999 from $12.5
million in 1998. Increases in personnel and billing costs are a direct function
of the increases in the number of
25
subscribers. Additional subscribers require an increase in the number of
cellular bills mailed out, as well as an increase in the number of customer
service representatives to handle the additional subscriber inquiries.
General and administrative expenses remained almost constant amounting to
$27.3 million in 1999 and $27.1 million in 1998. Significant savings in payroll
and related benefits ($1.2 million) were offset by the increase in the provision
for bad debts ($600,000).
Included in operating expenses for 1999 is a charge of $2.0 million
representing the non-cash compensation charges related to the conversion by an
officer of the Corporation of the Company's Preferred stock into common stock
(see Notes to Consolidated Financial Statements). Such charges are being
expensed over the vesting period of the common stock. The conversions occurred
during 1998 and 1999. Had there been a full year of expense, the total non-cash
compensation would have amounted to $3.6 million for 1999.
Depreciation and amortization increased from $43.6 million in 1998 to
$45.2 million in 1999. Decreases in the amortization of intangibles related to
the finalization in 1998 of the value of the cellular licenses from the
acquisition, were more than offset by increases in depreciation expense due to
fixed asset additions in 1999.
Operating income improved significantly from $40.8 million achieved in
1998 to $78.5 million in 1999. Earnings before non-cash compensation and
depreciation and amortization ("EBITDA") amounted to $125.7 million for 1999 or
50.4% of total revenue compared to $84.4 million or 42.9% of total revenue for
1998. The improvement is a function of management's ability to control costs
while still maintaining significant subscriber growth and maintaining and
growing ARPU in the face of a declining trend in the cellular industry. The
increase in EBITDA from 1998 to 1999 represents a growth of 49%.
Net Interest Expense, Other Income, Income Taxes, Extraordinary Item and
Net Income. Net interest expense decreased to $72.9 in 1999 from $76.9 million
in 1998. During 1998, long term debt consisted of at various times the revolving
loan and credit facility at variable interest rates, $80 million of 13 1/2%
Senior Secured Discount Notes, $175 million of 11 3/4% Senior Subordinated
Notes, $525 million of 9 1/8% Senior Secured Notes and $200 million of 11 1/4%
Senior Exchangeable Payable-in-Kind Notes. In June 1999, the Company allowed the
conversion of the $200 million 11 1/4% Payable-in-Kind Notes and therefore
incurred only six months of non-cash interest expense. The $175 million 11 3/4%
Notes and the $525 million 9 1/8% Notes were outstanding for the full year. The
effect of the different borrowings resulted in interest savings of $500,000. The
additional cash on hand as a result of the new borrowings in 1998 resulted in
additional interest income of $3.6 million. The current debt outstanding pays
cash interest and would result in interest expense of $68.5 million for a full
year.
Other income for 1998 resulted largely from the gain from the sale of
PriCellular Corporation warrants and stock. Other income for 1999 resulted
primarily from the liquidation of a long-standing investment by the Company
($8.5 million) and from net gains realized from security transactions by the
Parent Company.
The income tax provision for 1999 of $6.0 million compared to the income
tax benefit of $8.5 million in 1998 is a result of taxable income in 1999 at an
effective rate of approximately 37% compared to a taxable loss at a benefit of
approximately 37%.
The net income of $10.2 million for 1999 compared to a net loss of $41.6
million for 1998 is a function of the items discussed above. In addition, 1998
includes $27.1 million net of tax benefit of deferred finance charges written
off, the premium associated with the early extinguishment of debt and interest
paid for the early liquidation of the interest rate swap contracts.
Liquidity and Capital Resources
The Company's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. Historically, the Company has met
its capital requirements primarily through equity contributions, long-term debt,
and to a lesser extent, operating cash flow. Net cash provided by operating
activities amounted to $63.1 million for the year ended December 31, 2000.
Working capital at December 31, 2000 approximated $203.6 million. The current
level of operating cash flow is sufficient to fund the current anticipated level
of capital expenditures and cash interest, which interest amounts to
approximately $68.5 million.
In the year ended December 31, 2000, the Company spent approximately $27.2
million for capital expenditures. The Company expects capital expenditures for
the coming year to be approximately $24.0 million, depending upon the timing of
the proposed acquisition of PCW by Verizon Wireless. The Company anticipates
that its capital expenditure requirements will be funded by operating
activities.
Accounting Policies
26
For financial reporting purposes, the Company reports 100% of revenues and
expenses for the markets for which it provides cellular telephone service.
However, in several of its markets, the Company holds less than 100% of the
equity ownership. The minority stockholders' and partners' share of income or
losses in those markets is reflected in the consolidated financial statements as
"minority interest" except for losses in excess of their capital accounts and
cash call provisions which are not eliminated in consolidation. For financial
reporting purposes, the Company consolidates each subsidiary and partnership in
which it has a controlling interest (greater than 50%) in each.
27
Year 2000 Impact
During the year ended December 31, 2000 the Company did not experience any
significant problems related to the Year 2000 conversion.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company generally utilizes fixed debt 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. See notes to consolidated financial
statements for description and terms of long term debt.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements on page 28.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
28
PART III
The information called for by Items 10, 11, 12 and 13 is incorporated
herein by reference from the following portions of the definitive proxy
statement to be filed by the Company in connection with its 2001 Meeting of
Shareholders.
Item Incorporated from
---- -----------------
Item 10. Directors and Executive Officers of the "Directors and Executive Officers"
Company
Item 11. Executive Compensation "Executive Compensation" and "Related
Transactions"
Item 12. Security Ownership of Certain Beneficial "Principal Shareholders" and "Security
Owners and Management Ownership of Management"
Item 13. Certain Relationships and Related Transactions "Executive Compensation" and "Related
Transactions"
29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) List of financial statements and financial statement
schedules:
See Index to Financial Statements on page 28.
(Schedules other than those listed are omitted for the reason that
they are not required or are not applicable or the required
information is shown in the financial statements or notes thereto.)
(3) Exhibits
See Exhibit Index at page E-1, which is incorporated herein by
reference.
(b) Reports on Form 8-K.
Form 8-K filed on December 4, 2000, reporting agreement to sell the
Company's operating subsidiary, Price Communications Wireless, Inc. to Verizon
Wireless, Inc.
30
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Auditors' Report ....................................................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999 ........... F-2
Consolidated Statements of Operations and Comprehensive Income for
the Years Ended December 31, 2000, 1999 and 1998 .................... F-3
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 .................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 .................................... F-5
Notes to Consolidated Financial Statements ............................. F-6
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS SCHEDULE
Schedule No.
I. Condensed Financial Information of Registrant ...................... F-16
II. Valuation and Qualifying Accounts .................................. F-20
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Price Communications Corporation:
We have audited the accompanying consolidated balance sheets of Price
Communications Corporation (a New York Corporation) and subsidiaries as of
December 31, 2000 and 1999, and the related consolidated statements of
operations and comprehensive income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These
consolidated financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedules based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Price Communications
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 3, the Company changed its methodology for revenue
recognition.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
/S/ ARTHUR ANDERSEN LLP
New York, New York
February 22, 2001
F-1
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
($ in thousands except share data)
2000 1999
---- ----
Current assets:
Cash and cash equivalents .............................................. $ 180,708 $ 194,231
Accounts receivable, net of allowance for doubtful accounts
of $1,396 in 2000 and $2,003 in 1999 ................................ 36,052 22,407
Receivables from other cellular carriers ............................... 4,101 5,154
Available for sale securities .......................................... 23,517 2,056
Inventory .............................................................. 6,015 5,205
Deferred income taxes .................................................. 1,091 409
Prepaid expenses and other current assets .............................. 4,420 138
----------- -----------
Total current assets ................................................. 255,904 229,600
----------- -----------
Property and equipment:
Land and improvements .................................................. 7,480 6,989
Buildings and improvements ............................................. 11,440 9,770
Equipment, communication systems and furnishings ....................... 198,347 173,450
----------- -----------
217,267 190,209
Less accumulated depreciation .......................................... 70,034 45,896
----------- -----------
Net property and equipment ........................................... 147,233 144,313
Equity investment in other cellular properties ............................ 11,810 11,810
Licenses, net of accumulated amortization of $74,628 in 2000 and
$51,848 in 1999 ........................................................ 832,471 854,799
Other intangible and other assets, net of accumulated amortization
of $6,555 in 2000 and $4,097 in 1999 ................................... 19,002 18,472
----------- -----------
Total assets ......................................................... $ 1,266,420 $ 1,258,994
=========== ===========
Current liabilities:
Accounts payable ....................................................... $ 8,181 $ 15,895
Accrued interest payable ............................................... 12,374 11,942
Accrued salaries and employee benefits ................................. 1,329 1,642
Deferred revenue ....................................................... 9,029 5,525
Customer deposits ...................................................... 1,153 1,222
Outstanding put option contract ........................................ 3,109 --
Income taxes payable ................................................... 8,013 2,985
Accrued engineering, technical and other direct ........................ 4,480 5,376
Excise and sales taxes payable ......................................... 1,811 2,231
Other current liabilities .............................................. 2,810 5,182
----------- -----------
Total current liabilities ............................................ 52,289 52,000
Long-term debt ............................................................ 700,000 700,000
Accrued income taxes long-term ............................................ 53,165 37,374
Deferred income taxes (net) ............................................... 283,075 292,482
Commitments and contingencies
Minority interests in cellular licenses ................................... 5,279 3,948
Shareholders' equity:
Preferred stock, par value $.01 per share; authorized 18,907,801
shares; no shares outstanding ........................................ -- --
Common stock, par value $.01; authorized 120,000,000 shares; outstanding
55,436,061 shares in 2000 and 56,649,277 shares in 1999 .............. 555 567
Additional paid-in-capital ............................................. 189,053 219,896
Unearned compensation .................................................. (62,329) (65,978)
Accumulated other comprehensive income (loss) .......................... (457) 1,291
Retained earnings ...................................................... 45,790 17,414
----------- -----------
Total shareholders' equity ........................................... 172,612 173,190
----------- -----------
Total liabilities and shareholders' equity ........................... $ 1,266,420 $ 1,258,994
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
($ in thousands, except per share data)
2000 1999 1998
---- ---- ----
Revenue:
Cellular operations:
Service ................................................................. $ 252,513 $ 233,575 $ 184,652
Equipment sales and installation ........................................ 17,995 15,548 12,053
--------- --------- ---------
Total revenue ......................................................... 270,508 249,123 196,705
--------- --------- ---------
Operating expenses:
Engineering, technical and other direct ................................... 25,321 29,666 28,122
Cost of equipment ......................................................... 32,685 28,650 23,086
Selling, general and administrative ....................................... 64,984 65,150 61,093
Non-cash compensation ..................................................... 3,649 1,973 --
Depreciation and amortization ............................................. 46,981 45,157 43,625
--------- --------- ---------
Total operating expenses .............................................. 173,620 170,596 155,926
--------- --------- ---------
Operating income ............................................................. 96,888 78,527 40,779
Interest income .............................................................. 11,758 9,758 6,194
Interest expense ............................................................. (71,419) (82,650) (83,120)
Other income ................................................................. 7,711 12,251 15,279
Minority interest ............................................................ (1,432) (1,664) (2,178)
--------- --------- ---------
Income (loss) before income taxes ............................................ 43,506 16,222 (23,046)
Income tax (expense) benefit ................................................. (14,972) (6,002) 8,523
--------- --------- ---------
Income before cumulative effect of accounting change ......................... 28,534 10,220 (14,523)
Cumulative effect on prior year of change in revenue recognition
(net of income tax expense of $92) ....................................... (158) -- --
--------- --------- ---------
Income (loss) before extraordinary item ...................................... 28,376 10,220 (14,523)
Extraordinary item - loss on early extinguishment of debt (net of income tax
benefit of $15,893) ....................................................... -- -- (27,061)
--------- --------- ---------
Net income (loss) ............................................................ 28,376 10,220 (41,584)
Other comprehensive income (net of income tax benefit of $1,027 and $905
for the years 2000 and 1999 respectively and income tax expense of $404
for 1998)
Unrealized gains (losses) on available for sale securities ................ (457) 1,291 2,836
Reclassification adjustment ............................................... (1,291) (2,832) (2,148)
--------- --------- ---------
Comprehensive income (loss) .................................................. $ 26,628 $ 8,679 $ (40,896)
========= ========= =========
Per share data:
Basic earnings (loss) per share before cumulative effect of accounting
change and extraordinary item ........................................... $ .51 $ .22 $ (.40)
Basic earnings (loss) for accounting change and extraordinary item ........ -- -- (.73)
--------- --------- ---------
Basic earnings (loss) per share ........................................... $ .51 $ .22 $ (1.13)
Diluted earnings per share before and after cumulative effect of accounting
change and extraordinary item ........................................... .50 .22 (1.13)
Weighted average number of common shares outstanding - basic ................. 56,013 46,334 36,688
Weighted average number of common shares outstanding - diluted ............... 56,531 47,495 36,688
See accompanying notes to consolidated financial statements.
F-3
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
($ in thousands)
2000 1999 1998
---- ---- ----
Cash Flows From Operating Activities:
Net income (loss) ......................................................... $ 28,376 $ 10,220 $ (41,584)
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization ........................................ 46,981 45,157 43,625
Amortization of deferred finance costs ............................... 2,430 2,523 2,205
Minority interest share of income .................................... 1,432 1,664 2,178
Deferred income taxes ................................................ (9,716) (3,648) (8,945)
Interest deferred and added to long-term debt ........................ -- -- 9,432
Accrued interest satisfied by issuance of PCC stock .................. -- 11,309 --
Gain on available for sale securities ................................ (6,724) (12,607) (15,659)
Extraordinary item ................................................... -- -- 42,954
Non-cash compensation ................................................ 3,649 1,973 --
Increase in accounts receivable ...................................... (13,645) (4,547) (4,558)
Decrease in other current assets ..................................... (4,039) (1,488) (1,040)
(Decrease) increase in accounts payable and accrued expenses ......... (11,402) 2,727 (1,309)
Increase in accrued interest payable ................................. 432 163 418
(Decrease) increase in other current liabilities ..................... (382) 2,350 (2,217)
Increase (decrease) in deferred revenue .............................. 3,504 (10) 1,780
Increase in income taxes payable ..................................... 5,028 -- --
Increase (decrease) in accrued income taxes long-term ................ 17,044 18,340 (15,843)
Other ................................................................ 107 465 929
--------- --------- ---------
Total adjustments .................................................. 34,699 64,371 53,950
--------- --------- ---------
Net cash provided by operating activities .......................... 63,075 74,591 12,366
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures ...................................................... (27,218) (24,575) (14,725)
Acquisition of Palmer Wireless Inc. ....................................... -- -- 2,000
Purchase of available-for-sale securities ................................. (59,556) (7,718) (10,401)
Proceeds from sale of available-for-sale securities ....................... 42,045 21,435 44,487
Purchase of additional minority interests in majority owned Company systems (553) (7,732) --
Purchase of minority equity interests in other cellular properties ........ -- (11,810) --
Other ..................................................................... 792 2,654 --
--------- --------- ---------
Net cash (used in) provided by investing activities ................ (44,490) (27,746) 21,361
--------- --------- ---------
Cash Flows From Financing Activities:
Repayment of long-term debt ............................................... -- -- (518,112)
Proceeds from long-term debt .............................................. -- -- 725,000
Costs associated with early extinguishment of debt ........................ -- -- (28,080)
Payment of debt issuance costs ............................................ -- (789) (20,185)
Repurchase of Company's common stock ...................................... (32,584) (57,055) (17,412)
Exercise of employee stock options and warrants ........................... 476 231 610
--------- --------- ---------
Net cash (used in) provided by financing activities ................ (32,108) (57,613) 141,821
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ............... (13,523) (10,768) 175,548
Cash and Cash Equivalents, beginning of year .............................. 194,231 204,999 29,451
--------- --------- ---------
Cash and Cash Equivalents, end of year .................................... $ 180,708 $ 194,231 $ 204,999
========= ========= =========
See accompanying notes to consolidated financial statements.
F-4
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
($ and share amounts in thousands)
Accumulated
other
Common Stock Additional compre-
Class A paid-in hensive
Shares Value capital income
------ ----- ------- ------
Balance, December 31, 1997 ......................... 6,994 $ 70 $ 9,930 $ 2,144
Net (loss) ...................................... -- -- -- --
Change in unrealized gain on marketable equity
securities, net of tax effect ................... -- -- -- 692
Purchase and retirement of common stock ............ (2,249) (22) (17,390) --
Exchange of preferred stock for common stock ....... 411 4 6 --
Stock options exercised ............................ 189 2 604 --
Tax benefit from the exercise of stock options ..... -- -- 641 --
Issuance of common stock for payment of bonus ...... 62 1 499 --
Issuance of warrants ............................... 626 6 (6) --
Stock splits ....................................... 15,662 157 (157) --
------ ----- --------- -------
Balance, December 31, 1998 ......................... 21,695 218 (5,869) 2,836
Stock splits and stock dividend .................... 14,663 147 (147) --
Issue of warrants from $105M debt redeemed in 1998 . 2,347 23 (23) --
Change in unrealized gain on marketable equity
securities, net of tax effect ................... -- -- -- (1,545)
Purchase and retirement of treasury stock .......... (3,544) (35) (57,020) --
Exercise of stock options and warrants ............. 462 5 226 --
Other .............................................. 56 -- 686 --
Conversion of Class A and Class B preferred stock to
common stock .................................... 3,725 37 67,938 --
Deferred compensation expense associated with the
conversion of preferred stock to common stock ... -- -- -- --
Conversion of PIK notes, net ....................... 17,245 172 211,319 --
Tax benefit from the exercise of stock options ..... -- -- 2,786 --
Net income ......................................... -- -- -- --
------ ----- --------- -------
Balance, December 31, 1999 ......................... 56,649 567 219,896 1,291
Change in unrealized gain on marketable equity
securities, net of tax effect ................... -- -- -- (1,748)
Purchase and retirement of treasury stock .......... (1,495) (15) (32,569) --
Exercise of stock options .......................... 279 3 473 --
Deferred compensation expense associated with the
conversion of preferred stock to common stock ... -- -- -- --
Tax benefit from the exercise of stock options ..... -- -- 1,253 --
Net income ......................................... -- -- -- --
------ ----- --------- -------
Balance, December 31, 2000 ......................... 55,433 $ 555 $ 189,053 $ (457)
====== ===== ========= =======
Total
share-
Retained Deferred holders'
earnings compensation equity
-------- ------------ ------
Balance, December 31, 1997 ......................... 48,778 -- $ 60,926
Net (loss) ...................................... (41,584) -- (41,584)
Change in unrealized gain on marketable equity
securities, net of tax effect ................... -- -- 692
Purchase and retirement of common stock ............ -- -- (17,412)
Exchange of preferred stock for common stock ....... -- -- 10
Stock options exercised ............................ -- -- 606
Tax benefit from the exercise of stock options ..... -- -- 641
Issuance of common stock for payment of bonus ...... -- -- 500
Issuance of warrants ............................... -- -- --
Stock splits ....................................... -- -- --
-------- -------- ---------
Balance, December 31, 1998 ......................... 7,194 -- 4,379
Stock splits and stock dividend .................... -- -- --
Issue of warrants from $105M debt redeemed in 1998 . -- -- --
Change in unrealized gain on marketable equity
securities, net of tax effect ................... -- -- (1,545)
Purchase and retirement of treasury stock .......... -- -- (57,055)
Exercise of stock options and warrants ............. -- -- 231
Other .............................................. -- -- 686
Conversion of Class A and Class B preferred stock to
common stock .................................... -- $(67,951) 24
Deferred compensation expense associated with the
conversion of preferred stock to common stock ... -- 1,973 1,973
Conversion of PIK notes, net ....................... -- -- 211,491
Tax benefit from the exercise of stock options ..... -- -- 2,786
Net income ......................................... 10,220 -- 10,220
-------- -------- ---------
Balance, December 31, 1999 ......................... 17,414 (65,978) 173,190
Change in unrealized gain on marketable equity
securities, net of tax effect ................... -- -- (1,748)
Purchase and retirement of treasury stock .......... -- -- (32,584)
Exercise of stock options .......................... -- -- 476
Deferred compensation expense associated with the
conversion of preferred stock to common stock ... -- 3,649 3,649
Tax benefit from the exercise of stock options ..... -- -- 1,253
Net income ......................................... 28,376 -- 28,376
-------- -------- ---------
Balance, December 31, 2000 ......................... $ 45,790 $(62,329) $ 172,612
======== ======== =========
See accompanying notes to consolidated financial statements.
F-5
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Acquisition
Price Communications Corporation ("Price" or the "Company") owns 100% of
Price Communications Cellular, Inc., which owns 100% of Price Communications
Cellular Holdings, Inc. ("Holdings"), which owns 100% of Price Communications
Wireless, Inc. ("PCW"). References herein to the "Acquisition" refer to the
acquisition by PCW of Palmer Wireless, Inc. ("Predecessor") and the related
sales of the Fort Myers and Georgia-1 systems of the Predecessor. The Company
has majority ownership in corporations and partnerships which operate the
non-wireline cellular telephone systems in eight Metropolitan Statistical Areas
("MSA") in four states: Florida (one), Georgia (five), Alabama (two), and South
Carolina (one). The Company's ownership percentages in these entities range from
approximately 92 percent to 100 percent. The Company owns directly and operates
eight non-wireline cellular telephone systems in Rural Service Areas ("RSA") in
Georgia (seven) and Alabama (one).
2. Agreement to Sell Price Communications Wireless
On November 14, 2000, the Company, Price Communications Cellular Inc.,
Holdings and PCW (collectively the "Price Group"), Verizon Wireless, Inc.
("Verizon"), Cellco Partnership and VWI Acquisition Corporation, a newly-formed,
wholly owned subsidiary of Verizon ("VWI") entered into a Transaction Agreement
(the "Transaction Agreement"). Pursuant to the Transaction Agreement, the
acquisition of PCW by Verizon will be accomplished by the merger (the "Merger")
of VWI with and into PCW, with PCW remaining as the surviving corporation and
becoming a wholly owned subsidiary of Verizon. The Transaction Agreement
provides that, upon effectiveness of the Merger (the "Effective Time"), (i) each
share of common stock of PCW outstanding immediately prior to the Effective Time
will be converted in the right to receive a number of shares of Class A Common
Stock, par value $.001 per share, of Verizon (the "Verizon Shares") valued at
$2.06 billion, (less PCW's net indebtedness, estimated at $550 million, and
subject to working capital and other adjustments as provided in the Transaction
Agreement) based upon the price of the Verizon Shares at Verizon's initial
public offering ("IPO") and (ii) each share of VWI common stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive one share of the common stock of PCW. Concurrently with the Merger, PCW
will transfer its assets to Cellco, in exchange for a partnership interest in
Cellco.
At the closing, the Price Group will enter into a Lock-up Agreement
pursuant to which they will agree that, except with respect to up to $20 million
of Verizon Shares (valued at the price of Verizon Shares in the IPO) received by
the Price Group in a working capital adjustment, until the later of (x) the date
270 days after the closing and (y) the first day of the Company's federal
taxable year after the taxable year in which the closing occurs, they shall not,
directly or indirectly, pledge, sell, transfer or contract to sell any of the
Verizon Shares.
At the closing, the Price Group will enter into a Pledge Agreement
pursuant to which they will agree to pledge to Verizon $150 million of the
Verizon Shares (valued at the price of the Verizon Shares in the IPO) to secure
their indemnity obligations under the Transaction Agreement. At the first and
second anniversaries of the closing, the number of Verizon Shares subject to the
pledge shall be reduced to $75 million and $25 million, respectively (in each
case, valued at the price of the Verizon Shares in the IPO). The Pledge
Agreement will terminate on the third anniversary of the closing unless any
claim under the Transaction Agreement is asserted or commenced on such date and
in such event, the Pledge Agreement will terminate upon satisfaction of such
claim.
The consummation of the transactions contemplated by the Transaction
Agreement is subject to termination in certain events and is subject to the
completion of the IPO and other conditions, including the approval by the
stockholders of the Company. If the closing of the transaction does not occur by
September 30, 2001, either party may terminate the Transaction Agreement.
3. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Price and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements. Certain prior year
amounts have been reclassified to conform to current year presentation.
F-6
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments, including
treasury bills, purchased with original maturities of three months or less to be
cash equivalents.
Financial Instruments
At December 31, 2000 and 1999, 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, some of which are for the
Company's own common stock. These puts entitle the holders to sell publicly
traded securities to the Company during certain periods at certain prices. The
Company is required to maintain collateral to support options issued, therefore
such unsettled contracts have been classified as liabilities in the accompanying
consolidated balance sheets with changes in fair values recorded as part of
Other income.
Inventory
Inventory, consisting primarily of cellular telephones and telephone
accessories, is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. The cost of additions and
improvements are capitalized while maintenance and repairs are charged to
expense when incurred. Depreciation is provided principally by the straight-line
method over the estimated useful lives, ranging from 5 to 20 years for buildings
and improvements and 5 to 10 years for equipment, communications systems and
furnishings.
Acquisitions and Licenses
The cost of acquired companies is allocated first to the identifiable
assets, including licenses, based on the fair market value of such assets at the
date of acquisition. Accordingly, the Company has not recorded any goodwill.
Licenses are amortized on a straight-line basis over a 40-year period.
Subsequent to the acquisition of licenses and other long-lived assets, the
Company continually evaluates whether subsequent events and circumstances have
occurred that indicate the remaining estimated useful life of such licenses
might warrant revision or that the remaining balance of the license rights may
not be recoverable. The Company utilizes projected undiscounted cash flows over
the remaining life of the licenses and sales of comparable businesses to
evaluate the recorded value of licenses. The assessment of the recoverability of
the remaining balance of the license rights may be impacted if projected cash
flows are not achieved.
Other Intangible Assets
Other intangible assets consist principally of deferred financing costs.
These costs are being amortized on a straight-line basis over the lives of the
related debt agreements, which range from 8 to 10 years.
Revenue Recognition
F-7
Service revenue from cellular operations for prepaid and post paid
customers includes local subscriber revenue and outcollect roaming revenue.
F-8
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with the Securities and Exchange Commission Staff Accounting
Bulletin No. 101 ("SAB 101"), which was adopted in the fourth quarter 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. Accordingly, the financial statements for the year ended
December 31, 2000, include a deferral of unearned revenue, as well as a
cumulative catch up adjustment representing the effect of the application of SAB
101 on prior years. Local subscriber revenue is earned by providing access to
the cellular network ("access revenue") or, as applicable, for usage of the
cellular network ("airtime revenue"). Access revenue is billed one month in
advance and is recognized when earned. Postpaid airtime revenue is recognized
when the service is rendered.
Outcollect roaming revenue represents revenue earned for usage of its
cellular network by subscribers of other cellular carriers. Outcollect roaming
revenue is recognized when the services are rendered.
Equipment sales and installation revenues are recognized upon delivery to
the customer or installation of the equipment.
Operating Expenses - Engineering, Technical and Other Direct
Engineering, technical and other direct operating expenses represent
certain costs of providing cellular telephone services to customers. These costs
include incollect roaming expense. Incollect roaming expense is the result of
the Company's subscribers using cellular networks of other cellular carriers.
Incollect roaming revenue, collected from the Company's subscribers, is netted
against the incollect roaming expense to determine net incollect roaming
expense.
Cost to Add a Subscriber
The cost to add a subscriber which consists principally of the net loss on
the sale of equipment, as well as commissions, are recognized at the time the
subscriber starts to receive cellular service.
Per Share Data
Basic earnings per share exclude the dilutive effects of options, warrants
and convertible securities. Diluted earnings per share gives effect to all
dilutive securities that were outstanding during the period. The only difference
between basic and diluted earnings per share of the Company is the effect of
dilutive stock options and warrants.
The following table reconciles the number of shares used in the earnings
per share calculations:
Diluted Average Common Shares Computation 2000 1999 1998
----------------------------------------- ---- ---- ----
Basic average common shares outstanding....................... 56,013 46,334 36,688
Dilutive potential common shares - options and warrants....... 518 1,161 ---
------ ------ ------
Diluted Average Common Shares................................. 56,531 47,495 36,688
Options excluded from the computation of earnings per
share - diluted since option exercise price was greater
than the market price of the common shares for the
period................................................... 69 --- N/A
Stock Options
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock - Based
Compensation" ("SFAS No. 123"). As permitted by SFAS No. 123, the Company
continues to apply the recognition and measurement provisions of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
25). However, the Company has adopted the disclosure requirement of SFAS No. 123
as shown later in the document.
Income Taxes
The Company records income taxes to recognize full inter-period tax
allocations. Under the liability method, deferred taxes are recognized for the
future tax consequences of temporary differences by applying enacted statuatory
tax rates applicable to future years differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
F-9
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("Accounting for Derivative Instruments
and Hedging Activities"). This statement establishes accounting and reporting
standards requiring that all derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded on the balance
sheet as an asset or a liability and measured at its fair value. This statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. This statement is
effective for fiscal years beginning after June 15, 2000, as amended by
Statement of Financial Accounting Standards No. 137 ("FAS No. 137") but can be
adopted earlier. The Company does not believe that at this time the adoption of
FAS No. 137 will have a significant impact.
4. Fair Value of Financial Instruments
Fair value estimates, methods and assumptions used to estimate the fair
value of financial instruments are set forth below:
For cash and cash equivalents, accounts receivable, receivables from other
cellular carriers, accounts payable and accrued expenses, and virtually all
current liabilities, the carrying value approximates fair value due to the
short-term nature of those accounts. Investment securities are recorded at fair
value.
Rates currently available for long-term debt with similar terms and
remaining maturities are used to discount the future cash flows to estimate the
fair value of long-term debt.
As mentioned earlier, the Company has sold put and call options (including
some 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 December 31, 2000, open put contracts of approximately $4.8 million,
which expire in May of 2001, have a settlement value of approximately $3.1
million. Accordingly, the Company recognized income of $1.7 million which is
included in other income.
5. Investment in Partially Owned Companies
On December 21, 1995, the Company acquired warrants for $8.4 million to
purchase approximately 1.8 million shares of PriCellular Corporation's
("PriCellular") Class B Common Stock. During 1996, the Company purchased
1,726,250 shares of PriCellular Class A Common Stock for approximately $13.1
million. During 1998, PriCellular was sold to American Cellular Corporation. The
Company's warrants and Class A Common Stock were redeemed at $14.00 per share,
and in the case of the Warrants, net of the exercise price of $5.42 per warrant.
The gains on these transactions ($15.2 million) are included in Other income in
the Consolidated Statements of Operations and Comprehensive Income for the year
ended December 31, 1998.
The President of the Company was a director and Chairman of PriCellular.
6. Long-Term Debt
Long-term debt consists of the following:
December 31,
------------
($ in thousands)
----------------
2000 1999
---- ----
11 3/4% Senior Subordinated Notes ........ $175,000(a) $175,000(a)
9 1/8% Senior Secured Notes .............. 525,000(b) 525,000(b)
-------- --------
Long-term debt ........................... $700,000 $700,000
======== ========
(a) In July 1997, PCW issued $175.0 million of 11 3/4% Senior
Subordinated Notes ("11 3/4% Notes") due July 15, 2007 with interest
payable semi-annually commencing January 15, 1998. The 11 3/4% Notes
contain covenants that restrict the payment of dividends, incurrence
of debt and sale of assets. The fair market value of these notes
approximated $191.6 million as of December 31, 2000.
(b) In June 1998, PCW issued $525.0 million of 9 1/8% Senior Secured
Notes ("9 1/8% Notes") due December 15, 2006 with interest payable
semi-annually commencing December 15, 1998. The 9 1/8% Notes contain
covenants that restrict the payment of dividends, incurrence of debt
and the sale of assets. The net proceeds of the notes were used to
retire the outstanding indebtedness under a credit facility. The
unamortized deferred finance costs relating to a prior credit
facility were written off and accordingly, approximately $6.2
F-10
million is included in the caption. Extraordinary item in the
Consolidated Statements of Operations and Comprehensive Income. The
fair market value of these notes approximated $543.4 million as of
December 31, 2000.
F-11
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate maturities of long-term debt are as follows:
December 31,
2001 to 2005................................ $ ---
Thereafter.................................. 700,000
--------
$700,000
========
7. Extraordinary Item
In June and August 1998, the Company and Holdings retired certain
outstanding indebtedness. The additional costs incurred to retire the debt, as
well as the write-off of deferred financing costs associated with these
financings, resulted in an extraordinary loss of $27.1 million which is net of a
tax benefit of $15.9 million.
8. Income Taxes
Provision (benefit) for income taxes consists of the following:
Year Ended December 31,
-----------------------
($ in thousands)
----------------
2000 1999 1998
---- ---- ----
Current:
Federal ..................... $ 4,073 $ 8,868 $ 364
State and local ............. 630 782 58
-------- ------- -------
4,703 9,650 422
-------- ------- -------
Deferred:
Federal ..................... 8,803 (3,352) (7,713)
State and local ............. 1,286 (296) (1,232)
-------- ------- -------
10,089 (3,648) (8,945)
-------- ------- -------
Tax provision (benefit) ......... $ 14,972 $ 6,002 $(8,523)
======== ======= =======
For the years ended December 31, 2000, 1999 and 1998, the provision for
income taxes differs from the amount computed by applying the federal income tax
rate (34%) because of the following items:
Year Ended December 31,
-----------------------
($ in thousands)
----------------
2000 1999 1998
---- ---- ----
Tax at statutory federal income tax rate ..... $ 14,792 $ 5,678 $(7,836)
State taxes, net of federal income tax benefit 856 324 (648)
Non deductible interest expense .............. -- -- 234
Non-taxable gain on sale of securities ....... (1,034) -- --
Other ........................................ (358) -- (273)
-------- ------- -------
$ 14,972 $ 6,002 $(8,523)
======== ======= =======
F-12
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities and the principal temporary
differences from which they arise are as follows:
December 31,
------------
($ in thousands)
----------------
2000 1999
---- ----
Deferred tax assets:
Allowance for doubtful accounts ................. $ 517 $ 741
Inventory reserve ............................... -- 133
Non-deductible accruals ......................... 121 107
Reserve on long-term investments ................ 185 185
Unrealized loss on marketable equity securities . 268 --
Deferred compensation ........................... 2,080 --
-------- --------
Total deferred tax assets ..................... 3,171 1,166
-------- --------
Deferred tax liabilities:
Accumulated depreciation ............................ 17,942 15,827
Licenses ............................................ 267,213 276,654
Unrealized gain on marketable equity securities ..... -- 758
-------- --------
Total deferred tax liabilities ................ 285,155 293,239
-------- --------
Net deferred tax liabilities ........................ $281,984 $292,073
======== ========
As a result of PCW's current federal tax provision, the Company utilized
the entire prior years' tax carryforwards in the year ended December 31, 2000.
9. Other Income
Other income consists of the following:
Year Ended December 31,
-----------------------
($ in thousands)
----------------
2000 1999 1998
---- ---- ----
Gain on investments, net ....... $ 6,724 $ 12,651 $ 15,767
Other, net ..................... 987 (400) (488)
------- -------- --------
$ 7,711 $ 12,251 $ 15,279
======= ======== ========
10. Shareholders' Equity
In October 1994, the Company declared a dividend distribution of one
Common Share Purchase Right (a "Right") for each outstanding share of the
Company's common stock. Until exercisable, the Rights will not be transferable
apart from the common stock. When exercisable, each Right will entitle its
holder to buy one share of the Company's common stock at an exercise price of
$3.51 until October 17, 2004. The Rights will become exercisable only if a
person or group acquires 20 percent of more of the Company's common stock. In
the event the Company is acquired in a merger, each Right entitles the holder to
purchase common stock of the surviving company having a market value of twice
the exercise price of the Rights. The Rights may be redeemed by the Company at a
nominal price prior to the acquisition of 20 percent of the outstanding shares
of the Company's common stock.
The following represents the various stock splits authorized by the
Company's Board of Directors during the period 1998-2000 including the
approximate number of shares issued. In each case, the stated par value per
share of $.01 was not changed.
Holders of Number
Date Authorized Record Date Type of Shares
--------------- ----------- ---- ---------
April 1, 1998 March 19, 1998 5 for 4 1,815,000
April 30, 1998 April 17, 1998 5 for 4 2,279,000
August 31, 1998 August 17, 1998 2 for 1 11,561,000
January 4, 1999 January 12, 1999 5 for 4 5,421,000
April 14, 1999 April 21, 1999 5 for 4 6,688,000
F-13
August 5, 1999 August 12, 1999 5% stock dividend 2,560,000
F-14
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All current and prior year earnings (loss) per common share as well as all
other share data have been adjusted to reflect all stock splits and the stock
dividend.
The Company is authorized by its Board of Directors to make purchases of
its common stock 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 its shareholders. Approximately 2.5 million shares were
purchased and retired in 1997. During 1998, the Company's Board of Directors
authorized the repurchase of 3.3 million shares of its common stock in addition
to previous authorization. During 1998, approximately 2.1 million shares were
repurchased and retired at an average cost of $8.48 per share. During 1999, an
additional 3.5 million shares were repurchased and retired at an average cost of
$16.10 per share. During 2000, an additional 1.5 million shares were repurchased
and retired at an average cost of $21.80.
In August 1997, in connection with the issuance by a subsidiary of the
Company of the 13 1/2% Senior Secured Discount Notes, the Company issued
Warrants to purchase approximately 2.6 million shares of its common stock at an
exercise price of less than $0.01 per share. The Warrants expire on August 1,
2007. As of December 31, 2000, approximately 37,200 warrants remain unexercised,
which are convertible into approximately 238,000 shares of the Company's common
stock.
In June 1999, the Company allowed the conversion of the outstanding
indebtedness of its wholly-owned subsidiary, Price Communications Cellular
Holdings, Inc. ("Holdings"). According to the indenture, in the event the daily
high price of the Company's common stock equaled or exceeded 115% of the
Exchange Price for 10 out of 15 consecutive trading days, the Company could
convert PCH's $200 million 11 1/4% Senior Exchangeable Payable-in-Kind Notes
plus accrued interest. The terms of the indenture were met and the Company
issued 17.2 million shares of its common stock in exchange for PCH's Notes which
included $20.7 million of accrued interest to the date of conversion.
11. Redeemable Preferred Stock
During 1997, the Board of Directors authorized the issuance of
approximately 728,000 shares of the Company's Series A Preferred Stock, and
364,000 shares of the Company's Series B Preferred Stock to the Company's Chief
Executive Officer, Mr. Price. In June 1998, Mr. Price notified the Company that
he was considering the exercise of his right to have the Series B Preferred
Stock redeemed by the Company. The Series B Preferred Stock had a carrying value
of $10,000. Mr. Price, pursuant to the terms of the Series B Preferred Stock,
would have received a cash payment of $5.0 million in respect of the redemption.
In order to avoid a significant cash payment to Mr. Price at a time when the
Company had substantial indebtedness, Mr. Price and the Board agreed that in
place of such cash payment, the Company would issue 1.3 million shares of its
$.01 par value common stock to Mr. Price in exchange for his shares of Series B
Preferred Stock. The value of the Company's common stock received by Mr. Price
on the date of conversion approximated $5.0 million. The common stock vests over
a ten-year period or immediately upon a change of control or other events.
Accordingly, included in the Consolidated Statements of Operations for the years
ended December 31, 2000 and 1999 is a charge for $500 thousand and $625
thousand, respectively, representing such non-cash compensation expense.
In June and August 1999, Mr. Price notified the Company that he was
considering the exercise of his right to have the Series A Preferred Stock
redeemed by the Company. The Series A Preferred Stock had a carrying value of
$25,000. Mr. Price, pursuant to the terms of the Series A Preferred Stock, would
have received cash payments totaling $63.0 million in respect of such
redemptions. In order to avoid a significant cash payment to Mr. Price at a time
when the Company had substantial indebtedness, Mr. Price and the Board agreed
that in place of such cash payment, the Company would issue approximately 3.7
million shares of its $.01 par value common stock to Mr. Price in exchange for
approximately 728,000 shares of Series A Preferred Stock. The value of the
Company's common stock received by Mr. Price on the two respective dates of
conversion approximated $63.0 million. The common stock vests over a twenty year
period or immediately upon a change of control or other events. Accordingly,
included in the Consolidated Statement of Operations for the years ended
December 31, 2000 and 1999 is a charge for $3.1 million and $1.3 million,
respectively which in 1999 represents seven month's compensation expense for the
first redemption and four month's compensation expense for the second
redemption.
Included as an offset to shareholders' equity is the remaining unamortized
unearned compensation related to the conversions of the Class B and Class A
Preferred Stock.
F-15
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Stock Option Plan
The Company has a long-term incentive plan (the "1992 Long-Term Incentive
Plan"), which provides for granting incentive stock options, as defined under
current law, and other stock-based incentives to key employees and officers. The
maximum number of shares of the Company that are subject to awards granted under
the 1992 Long-Term Incentive Plan is 7,898,017. The exercise of such options
will be at a price not less than the fair market value on the date of grant, for
a period up to ten years.
In accordance with SFAS 123, the fair value of option grants is estimated
on the date of grant using the Black Scholes option pricing model for proforma
footnote purposes with the following assumptions used for grants; dividend yield
of 0% in all years; risk free interest rate of 7.5% in 2000, 6.5% and 5.7%, in
1999, and 5.7% in 1998, respectively; and an expected life of 7 years for all
years. Expected volatility was assumed to be 44.6%, 49.0%, and 67.4% in 2000,
1999 and 1998, respectively.
A summary of plan transactions is presented in the table below:
Weighted Weighted
Number of Average Average
Shares Exercise Price Fair Value
Outstanding at December 31, 1997 .... 5,383,301 $ 1.51
Granted ......................... 88,594 $ 3.96 $ 2.76
Exercised ....................... (488,140) $ 1.25
Canceled ........................ (3,306,881) $ 1.52
---------- ------
Outstanding at December 31, 1998 .... 1,676,874 $ 1.68
Granted ......................... 249,115 $10.34 $ 6.15
Exercised ....................... (784,542) $ 1.62
Canceled ........................ (500,971) $ 2.13
---------- ------
Outstanding at December 31, 1999 .... 640,476 $ 4.96
Granted ......................... 145,000 $23.02 $13.51
Exercised ....................... (284,749) $ 2.17
Canceled ........................ (32,153) $13.28
---------- ------
Outstanding at December 31, 2000 .... 468,575 $11.68
The following table summarizes information about stock options outstanding
at December 31, 2000:
Weighted
Number Average Number
Outstanding Remaining Exercisable
Exercise Price at 12/31/00 Life at 12/31/00
-------------- ----------- ------- -----------
$ 1.64................................ 113,964 7 years 113,964
$ 3.96................................ 22,969 7 years 22,969
$ 8.02................................ 90,235 7 years --
$ 9.05................................ 42,657 8 years --
$13.90................................ 36,750 8 years --
$15.20................................ 21,000 8 years --
$21.00................................ 31,000 9 years --
$25.56................................ 64,000 9 years --
$20.75................................ 41,000 9 years --
$23.31................................ 5,000 9 years --
-------
468,575
=======
F-16
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As permitted by SFAS 123, the Company has chosen to continue accounting
for stock options at their intrinsic value. Accordingly, no compensation expense
is recognized. Had the fair value method of accounting been applied, the
proforma net income would be as follows:
($ in thousands)
2000 1999 1998
---- ---- ----
Net income (loss), as reported ............................. $28,376 $10,220 $(41,584)
Estimated fair value of the year's net option grants, net of
forfeitures and taxes .................................. 868 861 (12)
Proforma net income (loss) ................................. $27,508 $ 9,359 $(41,572)
Porforma basic earnings (loss) per share ................... $ .49 $ .20 $ (1.13)
Porforma diluted earnings (loss) per share ................. $ .49 $ .20 $ (1.13)
13. 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.
The Company and its subsidiaries lease a variety of assets used in their
operations, including office space. Renewal options are available in the
majority of leases. The following is a schedule of the Company's minimum rental
commitment for operating leases of real and personal property for each of the
five years subsequent to 2000 and in the aggregate.
Year ending December 31,: ($ in thousands)
2001.............................................. $5,192
2002.............................................. 4,843
2003.............................................. 3,947
2004.............................................. 2,672
2005.............................................. 1,334
Thereafter........................................ 1,282
Rental expense, net of sublease income, for operating leases was
approximately $5.2 million, $4.0 million and $3.2 million for the years
ended December 31, 2000, 1999 and 1998, respectively.
14. Supplemental Cash Flow Information
The following is supplemental disclosure cash flow information for the
years ended December 31, 2000, 1999 and 1998.
($ in thousands)
2000 1999 1998
---- ---- ----
Cash paid for:
Income taxes ................ $ 2,031 $ 280 $ 780
Interest .................... $68,469 $68,469 $81,379
F-17
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Selected Quarterly Financial Data (Unaudited):
($ in thousands Except Per Share Amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Year Ended December 31, 1999
Total revenue .............. $ 56,286 $63,939 $64,035 $64,863 $249,123
Operating income ........... 16,041 22,102 20,963 19,421 78,527
Net income (loss) .......... (3,307) 734 3,798 8,995 10,220
Net income (loss) per share:
Basic and diluted ..... (0.10) 0.02 0.07 0.16 0.22
Year Ended December 31, 2000
Total revenue (a) .......... $ 65,355 $69,759 $68,766 $66,628 $270,508
Operating income (a) ....... 21,287 26,048 24,064 25,489 96,888
Net income ................. 5,600 7,709 7,862 7,204 28,376
Net income per share:
Basic ................. .10 0.14 0.14 0.13 0.51
Net income per share:
Diluted ............... .10 0.14 0.14 0.12 0.50
(a) Prior quarters restated due to adoption of Staff Accounting Bulletin No.
101.
F-18
PRICE COMMUNICATIONS CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
December 31, 2000 and 1999
($ in thousands)
2000 1999
---- ----
ASSETS:
Cash and cash equivalents ............................ $ 10,641 $ 51,004
Available for sale securities ........................ 23,517 2,056
Deferred income taxes ................................ 453 --
Prepaid expenses and other current assets ............ 12 12
-------- --------
Total current assets ............................ 34,623 50,072
Investments in and receivables from subsidiaries* .... 137,844 123,596
Deferred income taxes ................................ 2,080 --
Property and equipment ............................... -- 11
Other Assets ......................................... 15,473 12,485
-------- --------
$190,020 $189,164
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses ................ $ 97 $ 827
Other current liabilities ............................ 17,311 15,147
-------- --------
Total current liabilities ....................... 17,408 15,974
Shareholders' equity ................................. 172,612 173,190
-------- --------
$190,020 $189,164
======== ========
* Eliminated in consolidation
See accompanying notes to condensed financial statements
F-19
PRICE COMMUNICATIONS CORPORATION
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
($ in thousands)
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Corporate expenses ............................................ $ (2,849) $ (4,493) $ (4,191)
Non-cash compensation ......................................... (3,649) (1,973) --
Other income (expense) ........................................ 913 (494) (361)
Interest income ............................................... 1,702 1,563 759
Interest expense .............................................. (17) (19) (175)
Depreciation and amortization ................................. (11) (56) (56)
Net gain on security transactions ............................. 6,724 12,651 15,659
Income (loss) of unconsolidated subsidiaries .................. 25,479 5,697 (47,194)
-------- -------- --------
Income (loss) before income taxes ........................ 28,292 12,876 (35,559)
Income tax (expense) benefit .................................. 84 (2,656) (6,025)
-------- -------- --------
Net income (loss) ........................................ 28,376 10,220 (41,584)
-------- -------- --------
Other comprehensive income, net of tax:
Unrealized gains (losses) on available for sale securities (457) 1,291 2,836
Reclassification adjustment .............................. (1,291) (2,832) (2,148)
-------- -------- --------
Comprehensive income (loss) ................................... $ 26,628 $ 8,679 $(40,896)
======== ======== ========
Per share data:
Basic earnings (loss) per share .......................... $ .51 $ .22 $ (1.49)
Diluted earnings (loss) per share ........................ $ .50 $ .22 $ (1.49)
See accompanying notes to condensed financial statements
F-20
PRICE COMMUNICATIONS CORPORATION
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
($ in thousands)
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) ........................................... $ 28,376 $ 10,220 $(41,584)
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization ............................... 11 56 56
(Income) loss of unconsolidated subsidiaries ................ (25,479) (5,697) 47,194
Non-cash compensation ....................................... 3,649 1,973 --
Deferred income taxes ....................................... (2,348) -- --
Decrease in prepaid expenses and other assets ............... -- 207 3,169
Decrease in other assets .................................... 12 -- --
(Decrease) increase in accounts payable and accrued expenses (730) 327 4,600
Increase in other liabilities ............................... 4,257 7,940 2,659
Gain on sale of securities, net ............................. (6,724) (12,651) (15,659)
-------- -------- --------
Total adjustments ....................................... (27,434) (7,845) 42,019
-------- -------- --------
Net cash provided by operating activities ............... 1,024 2,375 435
-------- -------- --------
Cash flows from investing activities:
Sale of available for sale securities ....................... 42,045 21,435 44,487
Purchase of available for sale securities ................... (59,556) (7,718) (10,401)
Purchase of investment in other cellular operations ......... -- (11,810) --
Other ....................................................... (3,000) -- --
Advances from (to) subsidiaries ............................. 1,231 178 (2,463)
-------- -------- --------
Net cash (used in) provided by investing activities ..... (19,280) 2,085 31,623
-------- -------- --------
Cash flows from financing activities:
Cash transferred from PCH including cash used by PCC during
the year ................................................ -- 86,588 --
Dividend received from Company's subsidiary ................. 10,000 -- --
Repurchase of Company's common stock ........................ (32,584) (57,055) (17,412)
Proceeds from exercise of employee stock options and warrants 477 230 610
-------- -------- --------
Net cash (used in) provided by financing activities ..... (22,107) 29,763 (16,802)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ............. (40,363) 34,223 15,256
Cash and cash equivalents at beginning of year ................... 51,004 16,781 1,525
-------- -------- --------
Cash and cash equivalents at end of year ......................... $ 10,641 $ 51,004 $ 16,781
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes, net of refunds ............................ $ 1,115 $ -- $ --
======== ======== ========
Interest ................................................ $ -- $ -- $ --
======== ======== ========
See accompanying notes to condensed financial statements
F-21
PRICE COMMUNICATIONS CORPORATION
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
In the parent company-only financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The parent company-only financial
statements should be read in conjunction with the Company's consolidated
financial statements.
2. Acquisition
In May 1997, the Company, through a wholly-owned indirect subsidiary,
entered into an agreement to acquire Palmer Wireless, Inc. The transaction was
consummated on October 6, 1997. See Note 1 of Notes to Consolidated Financial
Statements.
3. Agreement to Sell Price Communications Wireless
On November 14, 2000, the Company, Price Communications Cellular Inc.,
Holdings and PCW (collectively the "Price Group"), Verizon Wireless, Inc.
("Verizon"), Cellco Partnership and VWI Acquisition Corporation, a newly-formed,
wholly owned subsidiary of Verizon ("VWI") entered into a Transaction Agreement
(the "Transaction Agreement"). Pursuant to the Transaction Agreement, the
acquisition of PCW by Verizon will be accomplished by the merger (the "Merger")
of VWI with and into PCW, with PCW remaining as the surviving corporation and
becoming a wholly owned subsidiary of Verizon. The Transaction Agreement
provides that, upon effectiveness of the Merger (the "Effective Time"), (i) each
share of common stock of PCW outstanding immediately prior to the Effective Time
will be converted into the right to receive a number of shares of Class A Common
Stock, par value $.001 per share, of Verizon (the "Verizon Shares") valued at
$2.06 billion, (less PCW's net indebtedness, estimated at $550 million, and
subject to working capital and other adjustments as provided in the Transaction
Agreement) based upon the price of the Verizon Shares at Verizon's initial
public offering ("IPO") and (ii) each share of VWI common stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive one share of the common stock of PCW. Concurrently with the Merger, PCW
will transfer its assets to Cellco, in exchange for a partnership interest in
Cellco.
At the closing, the Price Group will enter into a Lock-up Agreement
pursuant to which they will agree that, except with respect to up to $20 million
of Verizon Shares (valued at the price of Verizon Shares in the IPO) received by
the Price Group in a working capital adjustment, until the later of (x) the date
270 days after the closing and (y) the first day of the Company's federal
taxable year after the taxable year in which the closing occurs, they shall not,
directly or indirectly, pledge, sell, transfer or contract to sell any of the
Verizon Shares.
At the closing, the Price Group will enter into a Pledge Agreement
pursuant to which they will agree to pledge to Verizon $150 million of the
Verizon Shares (valued at the price of the Verizon Shares in the IPO) to secure
their indemnity obligations under the Transaction Agreement. At the first and
second anniversaries of the closing, the number of Verizon Shares subject to the
pledge shall be reduced to $75 million and $25 million, respectively (in each
case, valued at the price of the Verizon Shares in the IPO). The Pledge
Agreement will terminate on the third anniversary of the closing unless any
claim under the Transaction Agreement is asserted or commenced on such date and
in such event, the Pledge Agreement will terminate upon satisfaction of such
claim.
The consummation of the transactions contemplated by the Transaction
Agreement is subject to termination in certain events and is subject to the
completion of the IPO and other conditions, including the approval by the
stockholders of the Company. If the closing of the transaction does not occur by
September 30, 2001, either party may terminate the Transaction Agreement.
F-22
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
($ in thousands)
Balance at Additions Balance
Beginning Charged to Deductions at End
Description of Period Expenses Net of Recoveries of Period
--------- -------- ----------------- ---------
For the year ended December 31, 2000:
Allowance for doubtful accounts....................... $2,003 $4,395 $(5,002) $1,396
For the year ended December 31, 1999:
Allowance for doubtful accounts....................... $1,596 $6,303 $(5,896) $2,003
For the year ended December 31, 1998:
Allowance for doubtful accounts....................... $ 818 $7,159 $(6,381) $1,596
F-23
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS CORPORATION
By: /s/ ROBERT PRICE
-----------------------------
Robert Price,
President
Dated: March 29, 2001
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated. Each person whose
signature appears below hereby authorizes and appoints Robert Price as his
attorney-in-fact to sign and file in his behalf individually and in each
capacity stated below any and all amendments to this Annual Report.
Signature Title Date
--------- ----- ----
BY: /S/ ROBERT PRICE Director and President
------------------------- (Principal Executive
Robert Price Officer) March 29, 2001
By: /S/ STUART B. ROSENSTEIN Director March 29, 2001
-------------------------
Stuart B. Rosenstein
BY: /S/ ROBERT F. ELLSWORTH Director March 29, 2001
-------------------------
Robert F. Ellsworth
BY: /S/ KIM I. PRESSMAN Executive Vice President and
------------------------- Principal Financial and
Kim I. Pressman Accounting Officer March 29, 2001
II-1
EXHIBIT INDEX
Exhibit
No. Description
---
2.1 Agreement and Plan of Merger with Palmer Wireless, Inc., incorporated by
reference to Registration Statement on Form S-4 of Price Communications
Wireless, Inc. ("Wireless") (File No. 333-36253)
3.1 Restated Certificate of Incorporation of the Registrant as filed with the
Secretary of State of the State of New York on December 29, 1992,
incorporated by reference to Exhibit 3(a) to Registrant's Form 10-K for
the year ended December 31, 1992
3.2 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of State of New York on March 17,
1995, incorporated by reference to Exhibit 3(a)(2) to Registrant's Form
10-K for the year ended December 31, 1996
3.3 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of State of New York on January 2,
1996, incorporated by reference to Exhibit 3(a)(2) to Registrant's Form
10-K for the year ended December 31, 1996
3.4 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of State of New York on October 29,
1997
3.5 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of State of New York on January 12,
1998
3.6 Restated By-laws of the Registrant, incorporated by reference to Exhibit
3(a)(2) to Registrant's Form 10-K for the year ended December 31, 1996
3.7 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of the State of New York on
July 26, 1999.
4.1 Indenture to 11 3/4% Senior Subordinated Notes due 2007 between Wireless
and Bank of Montreal Trust Company, as Trustee (including form of Note),
incorporated by reference to Registration Statement on Form S-4 of
Wireless (File No. 333-36254)
4.2 Indenture to 9 1/8% Senior Secured Notes due 2006 among Wireless, each of
the guarantors party thereto and Bank of Montreal Trust Company, as
trustee (including form of Note, form of Guarantee and form of Security
Agreement) incorporated by reference to Registration Statement on Form S-4
of Wireless (333-64773)
10.1 The Registrant's 1992 Long Term Incentive Plan, incorporated by reference
to Exhibit 10(a) to Registrant's Form 10-K for the year ended December 31,
1992
10.2 Indenture to 9 1/8% Senior Secured Notes due 2006 among Wireless, each of
the guarantors party thereto and Bank of 10.2 Iontreal Trust Company, as
trustee (including form on Note and Guarantee) incorporated by reference
to registration Statement on Form S-4 of Wireless (333-64773)
10.3 Indenture to 11 3/4% Senior Subordinated Notes due 2007 between Wireless
and Bank of Montreal Trust Company, as Trustee (including form of Note),
incorporated by reference to Registration Statement on Form S-4 of
Wireless (File No. 333-36254)
10.4 Rights Agreement dated as of October 6, 1994 between the Registrant and
Harris Trust Company of New York, incorporated by reference to Exhibit 4
to Registrant's Form 8-K filed to report an event on October 6, 1994
10.5 Amendment dated January 12, 1995 to Rights Agreement dated as of October
6, 1994 between the Registrant and Harris Trust Bank of New York,
incorporated by referenced to Exhibit 4 to Registrant's Form 8-K filed to
report an event on January 12, 1995
E-1
EXHIBIT INDEX
Exhibit
No. Description
---
10.6 Amendment dated April 7, 1995 to Rights Agreement dated as of October 6,
1994 between the Registrant and Harris Trust Bank of New York
10.7 Amendment dated June 19, 1997 to Rights Agreement dated as of October 6,
1994 between the Registrant and Harris Trust Bank of New York
10.8 Amendment dated June 11, 1998 to Rights Agreement dated as of October 6,
1994 between the Registrant and Harris Trust Bank of New York,
incorporated by reference to Registrant's Form 8-K filed to report on
event on August 11, 1998
10.9 Transaction Agreement dated as of November 14, 2000 among Registrant,
Price Communications Cellular Inc., Holdings, Wireless, Verizon Wireless,
Inc. ("Verizon"), Cellco Partnership ("Cellco") and VWI Acquisition
Corporation ("VWI")
21.1 Subsidiaries of Registrant
23.1 Consent of Public Accountants
E-2