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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
1-8309
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PRICE COMMUNICATIONS CORPORATION
(Exact Name of Registrant as specified in its charter)
New York 13-2991700
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 Rockefeller Plaza, 10020
New York, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number (212) 757-5600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Associated Common Stock Rights Under Rights Plan Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the issuer's common stock as of July 31,
2001 was 54,993,637.
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PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets- June 30, 2001 and December 31, 2000.......... I-1
Condensed Consolidated Statements of Operations - Three months ended
June 30, 2001 and 2000 and six months ended June 30, 2001 and 2000............. I-2
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 2001 and 2000......................................................... I-3
Condensed Consolidated Statement of Shareholders' Equity - Six months ended
June 30, 2001 ................................................................. I-4
Notes to Condensed Consolidated Financial Statements................................ I-5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... I-7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk....................... I-13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................ II-1
ITEM 2. Changes in Securities............................................................ II-1
ITEM 3. Defaults Upon Senior Securities- None............................................ II-1
ITEM 4. Submission of Matters to a Vote of Security Holders.............................. II-1
ITEM 5. Other Information................................................................ II-1
ITEM 6. Exhibits and Reports on Form 8-K................................................. II-1
SIGNATURES.................................................................................. II-2
ITEM 1. FINANCIAL STATEMENTS
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
(UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
2001 2000
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 204,763 $ 180,708
Trade accounts receivable, net of allowance
for doubtful accounts .............................. 28,626 36,052
Receivable from other cellular carriers .................. 4,079 4,101
Available for sale securities ............................ 20,214 23,517
Inventory ................................................ 7,070 6,015
Deferred income taxes .................................... 2,234 1,091
Prepaid expenses and other current assets ................ 5,498 4,420
---------- ----------
Total current assets ............................... 272,484 255,904
Net property and equipment ..................................... 142,581 147,233
Licenses, net of amortization .................................. 825,641 832,471
Other intangible and other assets, net of amortization ......... 29,319 30,812
---------- ----------
$1,270,025 $1,266,420
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .................... $ 17,126 $ 8,181
Accrued interest payable ................................. 11,421 12,374
Accrued salaries and employee benefits ................... 1,120 1,329
Deferred revenue ......................................... 11,786 9,029
Income taxes payable ..................................... 11,984 8,013
Customer deposits ........................................ 1,080 1,153
Minority interests ....................................... 3,840 --
Other current liabilities ................................ 5,550 12,210
---------- ----------
Total current liabilities ........................... 63,907 52,289
Long-term debt ................................................. 700,000 700,000
Accrued income taxes - long term ............................... 53,165 53,165
Deferred income taxes .......................................... 282,890 283,075
Minority interests ............................................. -- 5,279
---------- ----------
Total liabilities ................................... 1,099,962 1,093,808
---------- ----------
Commitments and contingencies
Shareholders' equity ........................................... 170,063 172,612
---------- ----------
$1,270,025 $1,266,420
========== ==========
See accompanying notes to condensed consolidated financial statements.
I-1
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue:
Service $ 61,702 $ 65,126 $ 123,166 $ 125,951
Equipment sales and installation 4,544 4,634 8,799 9,164
------------ ------------ ------------ ------------
Total revenue 66,246 69,760 131,965 135,115
------------ ------------ ------------ ------------
Operating expenses:
Engineering, technical and other direct 7,349 7,460 15,302 14,547
Cost of equipment 8,327 7,860 17,174 15,877
Selling, general and administrative 19,146 15,616 36,498 31,938
Non-cash compensation-selling, general and administrative 912 912 1,824 1,824
Depreciation and amortization 12,033 11,864 23,895 23,594
------------ ------------ ------------ ------------
Total operating expenses 47,767 43,712 94,693 87,780
------------ ------------ ------------ ------------
Operating income 18,479 26,048 37,272 47,335
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (15,172) (15,030) (29,263) (30,480)
Other income, net 3,852 1,626 2,823 4,987
------------ ------------ ------------ ------------
Total other expense (11,320) (13,404) (26,440) (25,493)
------------ ------------ ------------ ------------
Income before minority interest
share of income and income taxes 7,159 12,644 10,832 21,842
Minority interest share of income (331) (407) (631) (716)
------------ ------------ ------------ ------------
Income before income taxes 6,828 12,237 10,201 21,126
Income tax expense 1,416 4,528 3,323 7,817
------------ ------------ ------------ ------------
Net income 5,412 7,709 6,878 13,309
------------ ------------ ------------ ------------
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities 680 134 (2,105) (4,157)
Reclassification adjustment (141) 8 (156) (1,283)
------------ ------------ ------------ ------------
Comprehensive income $ 5,951 $ 7,851 $ 4,617 $ 7,869
============ ============ ============ ============
Per share data:
Basic earnings per share $ 0.10 $ 0.14 $ 0.12 $ 0.24
Weighted average shares outstanding 55,068,000 56,252,000 55,198,000 56,358,000
Diluted earnings per share $ 0.10 $ 0.14 $ 0.12 $ 0.23
Weighted average shares outstanding 55,404,000 56,592,000 55,556,000 56,928,000
See accompanying notes to condensed consolidated financial statements.
I-2
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 6,878 $ 13,309
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 23,895 23,594
Minority interest share of income 631 716
Deferred income taxes (675) (1,892)
Gain on available for sale marketable securities (1,851) (4,284)
Non-cash compensation 1,824 1,825
Amortization of deferred finance costs 1,217 1,215
Decrease (increase) in trade and other receivables 7,448 (926)
Increase (decrease) in accounts payable and accrued expenses 9,073 (1,232)
(Decrease) increase in accrued interest payable (953) 71
Changes in other accounts 551 893
--------- ---------
Total adjustments 41,160 19,980
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Net cash provided by operating activities 48,038 33,289
--------- ---------
Cash flows from investing activities:
Capital expenditures (7,331) (17,464)
Proceeds from sale of available for sale securities 12,097 5,992
Purchase of available for sale securities (12,574) (24,505)
Purchase of minority interests (6,601) (293)
--------- ---------
Net cash used in investing activities (14,409) (36,270)
--------- ---------
Cash flows from financing activities:
Purchase and retirement of common stock (10,219) (19,000)
Decrease (increase) in other intangible assets and other assets (275) 12
Exercise of employee stock options 920 418
--------- ---------
Net cash used in financing activities (9,574) (18,570)
--------- ---------
Net decrease in cash and cash equivalents 24,055 (21,551)
Cash and cash equivalents at the beginning of period 180,708 194,231
--------- ---------
Cash and cash equivalents at the end of period $ 204,763 $ 172,680
========= =========
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 2,774 $ 1,866
========= =========
Interest paid $ 34,234 $ 34,234
========= =========
See accompanying notes to condensed consolidated financial statements.
I - 3
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($ IN THOUSANDS)
(UNAUDITED)
Common Stock Accumulated
Class A Additional other Total
------------------ paid-in comprehensive Retained Deferred shareholders'
Shares Par Value capital income earnings compensation equity
------ --------- ------- ------------- -------- ------------ -------------
Balance at December 31, 2000 55,433 $ 555 $ 189,053 $ (457) $ 45,790 $(62,329) $ 172,612
Change in unrealized gain (loss) on
available for sale securities
net of tax effect (2,261) (2,261)
Purchase and retirement of treasury stock (566) (6) (10,214) (10,220)
Exercise of stock options 148 1 919 920
Deferred compensation expense
associated with the conversion of
preferred stock to common stock 1,825 1,825
Tax benefit from the exercise of stock
options 309 309
Net income 6,878 6,878
------ ------ --------- -------- -------- -------- ---------
Balance June 30, 2001 55,015 $ 550 $ 180,067 $ (2,718) $ 52,668 $(60,504) $ 170,063
====== ====== ========= ======== ======== ======== =========
See accompanying notes to condensed consolidated financial statements.
I - 4
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of Price
Communications Corporation and its subsidiaries (the "Company" or "Price"). All
significant intercompany items and transactions have been eliminated.
The Consolidated Financial Statements have been prepared by the Company
without audit in accordance with the rules and regulations of the Securities and
Exchange Commission. These Condensed Consolidated Financial Statements should be
read in conjunction with the audited Consolidated Financial Statements
previously filed on the Company's Form 10-K. In the opinion of management, the
statements reflect all adjustments necessary for a fair presentation of the
results of interim periods. All such adjustments are of a normal and recurring
nature. The results of operations for any interim period are not necessarily
indicative of the results to be expected for a full year.
REVENUE RECOGNITIONS
Service revenue from cellular operations for prepaid and post paid
customers includes local subscriber revenue and outcollect roaming revenue. In
accordance with the Securities and Exchange Commission Staff Accounting Bulletin
No. 101 ("SAB 101"), which was adopted in the fourth quarter of 2000 effective
January 1, 2000, prepaid airtime revenue is recognized when the airtime is
utilized and activation revenue is recognized over the estimated life of the
subscriber's contract or expected term of the subscriber's relationship,
whichever is longer. Accordingly, the Condensed Consolidated Statements of
Operations and the Condensed Consolidated Statement of Cash Flows have been
adjusted for the six and three month periods ending June 30, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 Financial Statements
to conform to the 2001 presentation.
(2) SHAREHOLDERS' EQUITY
The Company's Board of Directors has authorized stock repurchase programs
of the Company's Class A common stock. The Company is authorized to make such
purchases from time to time in the open market or in privately negotiated
transactions when it is legally permissible to do so and it is believed to be in
the Company's best interests. During the current six month period ended June 30,
2001, the Company repurchased and retired 565,600 shares at an average price of
$18.05 per share.
(3) MINORITY INTERESTS
A subsidiary of the Company notified the minority interest holders in the
subsidiary corporations and limited partnerships that effective June 30, 2001
these subsidiaries were merged into Palmer Wireless Holdings, Inc. (a wholly
owned subsidiary of the Company). Pursuant to the merger, the minority interest
holders have the right to receive merger consideration totaling $10.6 million
subject to appraisal rights pursuant to applicable state law. Effective June 28,
2001, a subsidiary partnership was dissolved and liquidated, resulting in a
distribution of $5.6 million to minority interest holders. Amounts payable to
such minority interest holders may be finally determined by negotiations between
the parties or if such negotiations fail, by applicable state court proceedings.
As of June 30, 2001, the Company owned 100% of its telephone operating systems.
I - 5
(4) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standard No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 142 requires the use of a
nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The provisions of SFAS No. 142 will be adopted by the
Company on January 1, 2002. The Company is in the process of evaluating the
financial statement impact of adoption of SFAS No. 142.
(5) POTENTIAL ACQUISITION
On November 14, 2000, the company entered into an agreement with Verizon
Wireless, Inc. ("VW") whereby the Company agreed to sell its wholly owned
subsidiary Price Communications Wireless ("PCW") for approximately $2.06 billion
through an exchange of stock. VW will assume the then outstanding debt of PCW
and Price will receive the balance in shares of Class A Common Stock, par value
$.001 per share of VW upon completion of its IPO. The transaction is subject to
termination in certain events, the completion of VW's IPO and approval of the
Company's shareholders. The transaction has received FCC and other regulatory
approvals. If the closing of the transaction does not occur by September 30,
2001, either party may terminate the agreement. Both parties to the transaction
indicated in a press release dated July 31, 2001, that the timing of the IPO
would preclude the completion of the transaction by September 30, 2001. Both
parties still seek the completion of a transaction and will begin discussions to
explore alternative terms, including the use of new forms of consideration.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has sold put and call options (principally on the Company's
common stock) which grant the holders the right to sell publicly traded
securities to the Company during certain periods at certain prices. At June 30,
2001, open put contracts of approximately $2.7 million, which expire in August
of 2001, have a settlement value of approximately $1.1 million. Accordingly, the
Company recognized income of $1.6 million, which is included in Other income,
net.
I - 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to facilitate an understanding and
assessment of significant changes and trends related to the financial condition
and results of operations of the Company. This discussion should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
the related notes thereto.
The discussion contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are made regarding the intent, belief or current
expectations of the Company and its directors or officers primarily with respect
to the future operating performance of the Company. Readers are cautioned that
any such forward-looking statements are not guarantees of future performance and
may involve risks and uncertainties, and that actual results may differ from
those in the forward-looking statements as a result of factors, many of which
are outside the control of the Company.
References to the "Company" or "Price" in this report include Price
Communications Corporation and its subsidiaries unless the context otherwise
indicates.
OVERVIEW
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
June 30, 2001, the Company provided cellular telephone service to approximately
557,000 subscribers in Alabama, Florida, Georgia, and South Carolina in a total
of 16 licensed service areas, composed of eight Metropolitan Statistical Areas
("MSAs") and eight Rural Service Areas ("RSAs"), with an aggregate estimated
population of 3.3 million. The Company sells its cellular telephone service as
well as a full line of cellular products and accessories principally through its
network of retail stores. The Company markets all of its products and services
under the nationally recognized service mark CELLULARONE.
On November 14, 2000 the company entered into an agreement with Verizon
Wireless, Inc. ("VW") whereby the Company agreed to sell its wholly owned
subsidiary Price Communications Wireless ("PCW") for approximately $2.06 billion
through an exchange of stock. VW will assume the then outstanding debt of PCW
and Price will receive the balance in shares of Class A Common Stock, par value
$.001 per share of VW upon completion of its IPO. The transaction is subject to
termination in certain events, the completion of VW's IPO and approval of the
Company's shareholders. The transaction has received FCC and other regulatory
approvals. If the closing of the transaction does not occur by September 30,
2001, either party may terminate the agreement. Both parties to the transaction
indicated in a press release dated July 31, 2001 that the timing of the IPO
would preclude the completion of the transaction by September 30, 2001. Both
parties still seek the completion of a transaction and will begin discussions to
explore alternative terms, including the use of new forms of consideration.
MARKET OWNERSHIP
The Company's cellular telephone systems serve contiguous licensed service
areas in Georgia, Alabama and South Carolina. The Company also has a cellular
service area in Panama City, Florida. The following table sets forth as of June
30, 2001, with respect to each service area in which the Company owns a cellular
telephone system and the estimated population of which the Company is now the
beneficial owner of 100% (see Notes to Condensed Consolidated Financial
Statements).
I - 7
MSA ESTIMATED
SERVICE AREA RANK POPULATION (1)
------------ ---- --------------
Albany, GA ........................................... 271 118,442
Augusta, GA .......................................... 106 440,242
Columbus, GA ......................................... 165 249,365
Macon, GA ............................................ 139 322,093
Savannah, GA ......................................... 153 287,349
Georgia-6 RSA ........................................ -- 204,765
Georgia-7 RSA ........................................ -- 134,698
Georgia-8 RSA ........................................ -- 159,858
Georgia-9 RSA ........................................ -- 119,299
Georgia-10 RSA ....................................... -- 152,871
Georgia-12 RSA ....................................... -- 220,340
Georgia-13 RSA ....................................... -- 150,714
Dothan, AL ........................................... 250 134,980
Montgomery, AL ....................................... 137 323,675
Alabama-8 RSA ........................................ -- 178,813
---------
Subtotal ........................................ 3,197,504
---------
Panama City, FL ...................................... 233 148,422
---------
Total ........................................... 3,345,926
---------
(1) Based on population estimates for 1999 from the DLJ 1999-2000 Summer
Book.
RESULTS OF OPERATIONS
The following table sets forth for the Company for the periods indicated,
the percentage of certain amounts in relation to total revenue.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2001 2000 2001 2000
------ ------
REVENUE:
Service .................................... 93.1% 93.4% 93.3% 93.2%
Equipment sales and installation ........ 6.9 6.6 6.7 6.8
------ ------ ------ ------
TOTAL REVENUE ................. 100.0 100.0 100.0 100.0
------ ------ ------ ------
OPERATING EXPENSES:
Engineering, technical and other direct:
Engineering and technical (1) ..... 6.1 5.5 5.9 5.5
Other direct costs of services (2) 5.0 5.2 5.7 5.3
Cost of equipment (3) ................... 12.5 11.3 13.0 11.8
Selling, general and administrative:
Sales and marketing (4) ........... 9.3 8.4 9.1 8.4
Customer service (5) .............. 9.4 7.2 7.7 7.4
General and administrative (6) .... 10.2 6.8 10.9 7.8
Non-cash compensation ............. 1.4 1.3 1.4 1.4
Depreciation and amortization ........... 18.2 17.0 18.1 17.4
------ ------ ------ ------
TOTAL OPERATING EXPENSES .... 72.1 62.7 71.8 65.0
------ ------ ------ ------
Operating income ....................... 27.9% 37.3% 28.2% 35.0%
Operating income before depreciation and
amortization - adjusted EBITDA (7) 47.4% 55.7% 47.7% 53.9%
Operating income before depreciation and
amortization - Price Communications
Wireless, Inc. (8) ................... 48.3% 55.9% 48.7% 55.0%
----------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
I - 8
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, advertising and promotion expenses and employee and agent
commissions.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing subscriber's bills.
(6) Includes salaries and benefits of general and administrative personnel,
the provision for bad debts and other overhead expenses.
(7) Adjusted EBITDA represents operating income before depreciation and
amortization and non-cash compensation. Adjusted EBITDA should not be
considered in isolation or as an alternative measurement of operating
performance or liquidity to net income, operating income or any other
measure of performance under generally accepted accounting principles. The
Company believes that adjusted EBITDA is viewed as a relevant supplemental
measure of performance in the cellular telephone industry.
(8) Represents operating income before depreciation and amortization of the
Company's operating subsidiary Price Communications Wireless, Inc. It does
not include $597,000 and $1.3 million and $195,000 and $1.7 million for
the three months and six month periods ended June 30, 2001 and the three
and six month periods ended June 30, 2000, respectively, of the parent
company's general and administrative expenses.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000
REVENUE. Service revenue totaled $61.7 million for the second quarter of
2001, a decrease of $3.4 million or approximately 5% from $65.1 million for the
second quarter of 2000. An increase in the average number of post-paid
subscribers, resulted in an increase of $2.0 million in access revenue, but was
partially offset by additional promotional access credits of $579,000. Airtime
and other revenue, which is also affected by post-paid subscriber growth,
increased $684,000 for the current three month period. In addition, the increase
in prepaid subscribers resulted in an increase of $589,000 for prepaid revenue
for the three month period. These positive results were more than offset by a
decrease in outcollect roaming revenue, including toll, that the Company
collects from other wireless carriers' subscribers using their phones in the
Company's markets. Outcollect airtime revenue decreased from $11.6 million for
last year's second quarter to $7.6 million in the quarter ended June 30, 2001. A
decrease in the number of outcollect minutes from 35.6 million for last year's
second quarter to 31.1 million for the current quarter, as well as the reduction
in the average reimbursement rate from other cellular carriers from $.33 for the
three months ended June 30, 2000, to $.24 for the three months ended June 30,
2001, were the cause of such decline. Roaming rates have generally been
decreasing throughout the wireless industry. In addition, reduced outcollect
minutes combined with a reduced toll reimbursement rate caused a drop in
outcollect toll revenue from $5.1 million in the second quarter of 2000 to $3.1
million for the same period of the current year. The Company expects the trend
for both outcollect air and outcollect toll to continue for the remainder of the
year.
Average monthly revenue per post-paid subscriber (based upon service
revenue excluding prepaid revenue) includes local revenue as well as outcollect
revenue, but does not include incollect revenue from subscribers, as this
revenue is accounted for as an offset to the Company's direct cost of service.
Such amount decreased from $48.98 for the three month period ended June 30, 2000
to $45.18 for the current three month period because of the factors discussed
above.
Equipment sales and installation revenue, which consists primarily of
sales of handsets and related accessories to subscribers, decreased from $4.7
million for the second quarter of 2000 to $4.5 million for the same period in
2001. The principal reason for the decrease was reduced installation fees and a
decrease in accessory sales.
OPERATING EXPENSES. Total operating expenses increased by $4.1 million to
$47.8 million for the current three month period from $43.7 million for the
three month period ended June 30, 2000. As a percentage of total revenue the
current three months' operating expenses amounted to 72.1% compared with 62.7%
for the same period in 2000.
Engineering, technical and other direct costs of service decreased by
$111,000 from $7.4 million for the second quarter of 2000 to $7.3 million for
the second quarter of 2000. Included in engineering, technical and other direct
is the net cost of incollect roaming which represents the difference between the
amount paid to other cellular carriers for the Company's subscribers roaming in
their markets and the amount billed to these subscribers by the Company. The
current three month period resulted in net revenue of approximately $1.1 million
compared with a net cost of
I - 9
approximately $142,000 for the three month period ended June 30, 2000. The
improvement ($1.3 million) results primarily from the more favorable rates
negotiated with certain other cellular carriers during the first three months of
2001. Additional costs to operate the Company's prepaid subscriber system
partially reduced the benefits of the incollect savings. These costs resulted
from the Company's forced switch of prepaid vendors once the Company discovered
that the previous vendor was going out of business in the third quarter of 2000.
Additional cell site rents related to the expansion of the company's systems in
2000 also decreased the incollect savings mentioned above.
Cost of equipment increased to $8.3 million for the second quarter of 2001
from $7.9 million for the second quarter of 2000, primarily as a result of 5,500
additional phones sold or upgraded, combined with a product mix of 68% of phones
sold being digital and 32% analog for the current three month period compared
with approximately 37% digital and 63% analog for the comparable period in 2000.
Digital phones generally have a higher unit cost. For the current three month
period, the Company recovered 55% of the cost of equipment compared with a
recovery of 59% for the three months ended June 30, 2000.
Selling, general and administrative expenses ("SG&A") increased $3.5
million from $15.6 million in the second quarter of 2000 to $19.1 million for
the same period of the current year. As a percentage of revenue, SG&A for the
current three month period is 28.9% of revenue compared with 22.4% for the same
three month period in 2000.
Sales and marketing increased $313,000 from $5.8 million for the second
quarter of 2000 to $6.1 million for the current three month period principally
due to increased advertising expenditures. The cost to add a gross subscriber,
which consists of the net equipment loss and sales and marketing expenditures
decreased from approximately $184 for the three month period ending June 30,
2000 to $175 for the current three month period.
For the current three month period, customer service costs amounted to
$6.2 million compared with $5.0 million for the same period in 2000. Increases
in billing costs resulting from a higher average of post-paid and prepaid
subscribers for the current three month period contributed to the additional
costs. The use of additional personnel and professional services to handle the
expanding customer base in an attempt to control churn, and the use of temporary
employees in the markets to effectuate mandated area code changes also
contributed to the increase.
General and administrative expenses (excluding customer service),
increased from $4.8 million for the prior three month period to $6.8 million for
the current three month period. The $2.0 million increase was primarily a result
of the increase in the provision for doubtful accounts. During 2000, the Company
learned that its previous billing vendor would not be a long term participant in
the cellular billing field. Accordingly, the Company changed its billing vendor
in the fourth quarter of 2000, and experienced problems introducing its
customers to the new billing form, as well as delays in mailing bills to
subscribers and subsequent collections on such late bills. Although bad debts
are unfavorable to the prior period, the provision is approximately $ 600,000
less than the amount for the period ended March 31, 2001. The Company has
centralized the collection process for certain of its markets in order to more
effectively manage the collection of the Company's accounts receivable.
Depreciation and amortization increased $169,000 to $12.0 million in the
quarter ended June 30, 2001 from $11.9 million for the three month period ended
June 30, 2000. The additional depreciation is a result of capital additions
during the second half of 2000 and the first six months of 2001. As a percentage
of revenue, depreciation and amortization was 18.2% for the current quarter
compared to 16.9% for the same period last year.
Operating income decreased to $18.5 million for the second quarter of 2001
from $26.0 million for the second quarter of 2000. Operating income before
depreciation and amortization and non-cash compensation was 47.4% of revenue for
the current quarter compared with 55.7% for the second quarter of 2000. The
decrease in operating margin is attributable primarily to the decrease in
outcollect roaming revenue. Despite this decrease in operating income,
management's continuing concentration on cost controls, maintained a low
operating cost per subscriber (total operating costs before non-cash
compensation, depreciation and amortization and parent company overhead) of
$18.08 for the current period compared with $17.92 for the same period of the
prior year.
NET INTEREST EXPENSE, INCOME TAXES, AND NET INCOME. Net interest expense
is comparable for the current and prior three month period. The current period's
income tax provision of $1.4 million compared with a provision of $4.5 million
for the three month period in 2000, is a result of the reduced financial
statement taxable income and certain non taxable security transactions.
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The net income for the three month period ended June 30, 2001 of $5.4
million compared with net income for the second quarter of $7.7 million is a
function of the items discussed above.
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SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
REVENUE. Service revenue amounted to $123.2 million for the first six
months of 2001, a decrease of $2.8 million or approximately 2.2% from $126.0
million for the same period in 2000. Access revenue increased by $4.5 million
principally a result of the greater number of post-paid subscribers during the
current six month period compared to the same six months during the year 2000.
Airtime revenue from post-paid subscribers was flat but revenue from prepaid
subscribers increased by $1.4 million due to an increased number of subscribers
during the current six month period compared to last year. These positive
results were more than offset by decreases in outcollect airtime roaming
revenue, which is revenue that the Company collects from other wireless
carriers' subscribers using their phones in the Company's markets, from $21.5
million for the six months of 2000 to $15.1 million for the current six month
period. The decrease in the number of outcollect minutes of use from 62.3
million for the six month period ended June 30, 2000, to 59.7 for the six month
period ended June 30, 2001, and the reduction in the average reimbursement rate
from other cellular carriers from $.34 in 2000 to $.25 in 2001 were the cause of
such decline. While toll and directory assistance revenue increased $489,000 for
the current six month period, the reduction in outcollect minutes of use
combined with reduced toll reimbursement rates resulted in a decrease of roaming
toll revenue of $3.2 million during the current six month period. The Company
expects the trend for both outcollect air and outcollect toll to continue for
the remainder of the year.
Average monthly revenue per post-paid subscriber (based upon service
revenue excluding prepaid revenue) includes local revenue as well as outcollect
revenue, but does not include incollect revenue from subscribers, as this
revenue is accounted for as an offset to the Company's direct cost of service.
Such amount decreased from $47.62 for the six month period ended June 30, 2000
to $44.66 for the current six month period because of the factors discussed
above.
Equipment sales and installation revenue, which consists primarily of
subscriber phone and accessory sales, decreased to $8.8 million for this year's
six month period from $9.2 million for the same period in 2000. The decrease is
a result of the smaller number of post-paid customer additions during the
current six month period compared to the same period last year, which results in
a reduction of accessory revenue.
OPERATING EXPENSES. Total operating expenses increased by $6.9 million to
$94.7 million for the current six month period from $87.8 million for the six
month period ended June 30, 2000. As a percentage of total revenue the current
six months' operating expenses amounted to 71.8% compared with 65.0% for the
same period in 2000.
Engineering, technical and other direct costs of service increased
$756,000 to $15.3 million for the current six months from $14.5 million for the
same period in 2000. Included in engineering, technical and other direct costs
of service is the net cost of incollect roaming which represents the difference
between the amount paid to other cellular carriers for the Company's subscribers
roaming in those carriers' markets and the amount billed to these subscribers by
the Company. The net for the current six month period resulted in revenue of
$1.2 million compared to an expense of $893,000 for the same period in 2000 or a
net decrease of $2.1 million. Partially reducing the benefits of the incollect
savings, were additional costs to operate the Company's prepaid subscriber
system. These costs increased in the third quarter of 2000 when the Company was
forced to switch prepaid vendors after learning that the previous vendor was
going out of business. Additional cell site rents related to the expansion of
the Company's systems in 2000 also decreased the incollect savings mentioned
above.
The increase in equipment cost from $15.9 million for the six month period
in 2000 to $17.2 million for the current six month period is principally a
result of additional telephone units sold or upgraded during the current six
month period. In addition, in the current six month period 54% of phones sold
were digital compared with only 27% for the same period of the prior year.
Digital phones generally have a higher unit cost. The percentage of cost
recovered decreased from 58% for the six month period in 2000 to 51% for the
current six months.
Selling, general and administrative expenses ("SG&A") increased $4.6
million from $31.9 million for the first six months of 2000 to $36.5 million for
the same period of the current year. As a percentage of revenue, SG&A for the
current six month period is 27.7% of revenue compared with 23.6% for the same
six month period in 2000. Sales and marketing increased $585,000 from $11.3
million for the six month period ending June 30, 2000 to $11.9 million for the
current six month period principally due to increases in advertising
expenditures. The cost to add a gross subscriber, which includes sales and
marketing costs combined with the loss on equipment sales, increased slightly
from $171.75 for the six month period ending June 30, 2000 to $173.44 for the
current six month period.
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For the current six month period, customer service costs amounted to $10.1
million compared to $10.0 million for the same period in 2000. Increased costs
for the generation of subscriber's monthly statements because of the greater
number of subscribers contributed to the additional cost. The use of additional
personnel and professional services to handle the expanding customer base in
order to control churn and the use of temporary employees in the markets to
effectuate mandated area code changes also resulted in increased costs.
Offsetting these increases was a $2.0 million credit issued to the Company by
its current billing vendor due to the problems encountered during the transition
(see General and administrative expenses and bad debts below).
General and administrative expenses (excluding customer service),
increased from $10.6 million for the prior six month period to $14.4 million for
the current six month period. The $3.8 million increase was primarily a result
of a $4.1 million increase in the provision for doubtful accounts. In the fourth
quarter of 2000, the Company changed its billing vendor since the Company
learned that the previous billing vendor would not be a long-term participant in
the cellular billing business. The transition encountered problems and as a
result, the Company's collection efforts were hampered, which led to a longer
average aging period of the Company's accounts receivable and a necessity to
provide a higher provision for bad debts. General and administrative expenses,
excluding customer service, increased from 7.8% of total revenue for the six
month period of the prior year to 10.9% for the current six month period.
Depreciation and amortization are comparable amounting to $23.9 million
for the current six month period and $23.6 million for the same period last
year.
Operating income decreased to $37.3 million for the six month period
ending June 30, 2001 compared with $47.3 million for the same period in 2000 or
a decrease of $10.0 million. Operating income before depreciation and
amortization and non-cash compensation amounted to 47.7% as a percentage of
revenue for the current six month period compared with 53.8% for the same period
of the prior year. The decrease in operating margin is attributable primarily to
the decrease in outcollect roaming revenue. The Company was able to maintain its
low operating cost per subscriber (total operating costs before non-cash
compensation, depreciation and amortization and Parent Company overhead), which
amounted to $18.15 for the current six month period, compared to $18.08 for the
same period last year.
NET INTEREST EXPENSE, INCOME TAXES, AND NET INCOME. Net interest expense
decreased to $29.3 million for the six months of 2001 from $30.4 million for the
same period in 1999.
The current six month period's income tax provision of $3.3 million
compared with the tax provision of $7.8 million for the six month period in
2000, is a result of the higher financial statement taxable income for the six
months of the prior year compared with a financial statement taxable income for
the current six month period and certain non taxable security transactions.
The net income for the current six month period of $6.9 million compared
with net income of $13.3 million for the six month period ended June 30, 2000 is
a function of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. During the current six month
period, the Company generated $48.0 million of cash flow from operating
activities as shown in the Condensed Consolidated Statement Of Cash Flows. The
Company's adjusted EBITDA (earnings before interest, depreciation and
amortization, non-cash compensation and taxes) was $63.0 million for the six
month period ending June 30, 2001. The Company's debt service requirements for
the current year consist of cash interest payments of $68.5 million, of which
$34.2 million has been paid through June 30, 2001. The remaining cash interest
requirements are approximately $10.3 million in the third quarter and $24.0
million in the fourth quarter. Based upon the Company's current ability to
generate operating cash flow combined with its available cash of $204.8 million,
there does not appear to be a necessity to provide additional funding for the
foreseeable future. The Company's wireless subsidiary has outstanding debt
instruments which consist of $525 million 9 1/8% Senior Secured Notes due
December 15, 2006 and $175 million 11 3/4% Senior Subordinated Notes due July
15, 2007. Both of these instruments contain covenants that restrict the payment
of dividends, incurrence of debt and sale of assets, among other things.
I - 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company utilizes fixed rate debt instruments to fund its acquisitions.
Management believes that the use of fixed rate debt minimizes the Company's
exposure to market conditions and the ensuing increases and decreases that could
arise with variable rate financing.
I - 14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(b) REPORTS ON FORM 8-K
None
II - 1
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRICE COMMUNICATIONS CORPORATION
Date: August 8, 2001 By: /s/ Robert Price
-------------------------------------
Robert Price
Director, President and Treasurer
By: /s/ Kim I Pressman
------------------------------------
Kim I Pressman
Vice President and Chief Financial
Officer
By: /s/ Michael Wasserman
------------------------------------
Michael Wasserman
Vice President and Chief Accounting
Officer
II - 2