10-Q/A 1 a2081461z10-qa.txt FORM-10Q/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q/A ------------------- (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- Commission file number 1-8309 PRICE COMMUNICATIONS CORPORATION (Exact Name of Registrant as specified in its charter) New York 13-2991700 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 45 Rockefeller Plaza, 10020 New York, New York (Zip Code) (Address of principal executive offices) Registrant's telephone number (212) 757-5600 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock, par value $.01 per share New York Stock Exchange Associated Common Stock Rights Under Rights Plan Boston Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ The number of shares outstanding of the issuer's common stock as of May 3, 2002 was 54,620,901. =============================================================================== PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES INDEX
PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - March 31, 2002 and December 31, 2001................... I-1 Condensed Consolidated Statements of Operations - Three months ended March 31, 2002 and 2001.................................................................... I-2 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2002 and 2001.................................................................... I-3 Condensed Consolidated Statement of Shareholders' Equity - Three months ended March 31, 2002............................................................................. I-4 Notes to Condensed Consolidated Financial Statements........................................... I-5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................. I-8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings.............................................................................. II-1 ITEM 2. Changes in Securities.......................................................................... II-1 ITEM 3. Defaults Upon Senior Securities - None......................................................... II-1 ITEM 4. Submission of Matters to a Vote of Security Holders............................................ II-1 ITEM 5. Other Information.............................................................................. II-1 ITEM 6. Exhibits and Reports on Form 8-K............................................................... II-1 SIGNATURES.................................................................................................... II-2
ITEM 1. FINANCIAL STATEMENTS PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS)
(UNAUDITED) (AUDITED) MARCH 31, DECEMBER 31, 2002 2001 ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 258,726 $ 246,447 Trade accounts receivable, net of allowance for doubtful accounts 20,001 21,260 Receivable from other cellular carriers 5,010 5,190 Available for sale securities 1,447 906 Inventory 3,395 5,129 Prepaid expenses and other current assets 13,597 10,460 ---------------- ---------------- Total current assets 302,176 289,392 Net property and equipment 139,078 141,230 Licenses, net of amortization 814,824 815,178 Other intangible and other assets, net of amortization 15,290 15,898 ---------------- ---------------- $ 1,271,368 $ 1,261,698 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 12,405 $ 11,665 Accrued interest payable 18,257 11,421 Accrued salaries and employee benefits 1,589 1,281 Deferred revenue 10,005 9,693 Income taxes payable 11,154 9,621 Minority interests 2,732 3,194 Other current liabilities 8,046 9,876 ---------------- ---------------- Total current liabilities 64,188 56,751 Long-term debt 700,000 700,000 Accrued income taxes - long term 53,165 53,165 Deferred income taxes 277,203 276,140 ---------------- ---------------- Total liabilities 1,094,556 1,086,056 ---------------- ---------------- Commitments and contingencies Shareholders' equity 176,812 175,642 ---------------- ---------------- $ 1,271,368 $ 1,261,698 ================ ================
See accompanying notes to condensed consolidated financial statements. I-1 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (REVISED) ($ IN THOUSANDS, EXCEPT PER SHARE DATA) (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------- 2002 2001 ----------- ----------- Revenue: Service $ 66,815 $ 67,820 Equipment sales and installation 5,592 4,255 ------------- ----------- Total revenue 72,407 72,075 ------------- ----------- Operating expenses: Engineering, technical and other direct 14,436 14,309 Cost of equipment 8,866 8,847 Selling, general and administrative 18,238 17,352 Non-cash compensation-selling, general and administration 912 912 Depreciation and amortization 6,217 11,862 ------------- ----------- Total operating expenses 48,669 53,282 ------------- ----------- Operating income 23,738 18,793 ------------- ----------- Other income (expense): Interest expense, net (16,586) (14,091) Other income (expense), net 338 (1,029) ------------- ----------- Total other expense (16,248) (15,120) ------------- ----------- Income before minority interest share of income and income taxes 7,490 3,673 Minority interest share of income - (300) ------------- ----------- Income before income taxes 7,490 3,373 Income tax expense 2,776 1,907 ------------- ----------- Net income $ 4,714 1,466 ------------- ----------- Other comprehensive income, net of tax Unrealized gains (losses) on available for sale securities (30) (2,799) Reclassification adjustment - 13 ------------- ----------- Comprehensive income (loss) $ 4,684 $ (1,320) ============= =========== Per share data: Basic earnings per share $ 0.09 $ 0.03 Weighted average shares outstanding 54,753,000 55,329,000 Diluted earnings per share $ 0.09 $ 0.03 Weighted average shares outstanding 55,092,000 55,712,000
See accompanying notes to condensed consolidated financial statements. I-2 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ IN THOUSANDS) (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------- 2002 2001 ------------- ------------- Cash flows from operating activities: Net income $ 4,714 $ 1,466 ------------ ------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,217 11,862 Minority interest share of income - 300 Deferred income taxes 1,163 - Gain on available for sale securities (77) (248) Non-cash compensation 912 912 Amortization of deferred finance charges 608 610 Increase in outstanding put option contracts - 1,794 Decrease in trade accounts receivable 1,949 9,244 Decrease in inventory 1,734 1,335 Decrease in accounts payable and accrued expenses (1,134) (1,232) Increase in accrued interest payable 6,836 5,822 Change in other accounts (997) (492) ------------- ------------- Total adjustments 17,211 29,907 ------------- ------------- Net cash provided by operating activities 21,925 31,373 ------------- ------------- Cash flows from investing activities: Capital expenditures (4,065) (3,137) Proceeds from sale of available for sale securities 5,457 3,821 Purchase of available for sale securities (5,970) (5,599) Purchase of minority interests (108) - ------------- ------------- Net cash used in investing activities (4,686) (4,915) ------------- ------------- Cash flows from financing activities: Purchase and retirement of common stock (4,480) (7,210) Exercise of employee stock options 30 702 ------------- ------------- Net cash used in financing activities (4,450) (6,508) ------------- ------------- Net increase (decrease) in cash and cash equivalents 12,789 19,950 Cash and cash equivalents at the beginning of period 246,447 180,708 ------------- ------------- Cash and cash equivalents at the end of period $ 259,236 $ 200,658 ============= ============= Supplemental disclosure of cash flow information: Income taxes paid, net $ 61 $ 1,138 ============ ============= Interest paid $ 10,281 $ 10,281 ============ =============
I-3 See accompanying notes to condensed consolidated financial statements. PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($ IN THOUSANDS)
Common Stock Accumulated Total Class A Additional other sharehol- ---------------------- paid-in comprehensive Retained Deferred ders' Shares Par Value capital income earnings compensation equity -------- ----------- ---------- ------------- -------- ------------ --------- Balance December 31, 2001 54,885 $ 550 $ 177,166 $ (129) $ 56,735 $ (58,680) $ 175,642 Change in unrealized gain (loss) on available for sale securities, net of tax effect (30) (30) Purchase and retirement of common stock (241) (3) (4,477) (4,480) Exercise of stock options 3 0 30 30 Deferred compensation expense associated with the conversion of preferred stock to common stock 912 912 Tax benefit from the exercise of stock options 24 24 Net income 4,714 4,714 ------- -------- --------- -------- -------- --------- -------- Balance March 31, 2002 54,647 $ 547 $ 172,743 $ (159) $ 61,449 $ (57,768) $176,812 ======= ======== ========= ======== ======== ========= ========
See accompanying notes to condensed consolidated financial statements. I-4 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Consolidated Financial Statements include the accounts of Price Communications Corporation and its subsidiaries (the "Company" or "Price"). Price Communications Wireless, Inc. ("PCW") is a wholly owned subsidiary of Price Communications Corporation and represents the operating entity for the cellular business. All significant intercompany items and transactions have been eliminated. The Consolidated Financial Statements have been prepared by the Company without audit in accordance with the rules and regulations of the Securities and Exchange Commission. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements previously filed on the Company's Form 10-K and 10-KA amendment 2. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the results of interim periods. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year. (2) AGREEMENT TO CONTRIBUTE COMPANY'S BUSINESS On December 18, 2001, the Company entered into an agreement (the "Transaction Agreement") with affiliates of Cellco Partnership (doing business as Verizon Wireless and referred to herein as "Verizon Wireless") pursuant to which the Company agreed to contribute substantially all of the assets of PCW to a new partnership controlled by Verizon Wireless ("New Limited Partnership"), subject to shareholder approval, in exchange for a Preferred Exchangeable Limited Partnership Interest (the "Preferred Exchangeable Interest") (the "asset contribution"). New Limited Partnership will assume certain liabilities of PCW relating to the contributed business (including such liabilities as arise under PCW's 11 3/4% Senior Subordinated Notes due 2007 and 9 1/8% Senior Secured Notes due 2006). For financial statement purposes, the Company expects to record a gain on the transaction. If an initial public offering of Verizon Wireless common stock (meeting certain size requirements) occurs within four years of the contribution transaction, PCC will have an option, subject to the approval of the shareholders of PCC, to exchange such Preferred Exchangeable Interest for Verizon Wireless common stock during the sixty-day period which begins upon the later of (i) the date of the initial public offering and (ii) the one-year anniversary of the asset contribution. If Verizon Wireless does not complete such an initial public offering prior to the four-year anniversary of the asset contribution or if Verizon Wireless does complete such an offering but an exchange into Verizon Wireless common stock does not occur for other reasons, the Preferred Exchangeable Interest will be exchanged for Verizon Communications common stock. In addition, in certain circumstances (including a change in control of PCC or a transfer of the Preferred Exchangeable Interest to a secured creditor of the Company), Verizon Communications will have the right to cause an exchange of the Preferred Exchangeable Interest into Verizon Communications common stock, whether or not an initial public offering of Verizon Wireless common stock has occurred. Subject to certain adjustments, the amount of PCW's initial capital account in the partnership will be approximately $1.15 billion. Pursuant to the partnership agreement, any profits of the partnership will be allocated to PCW's capital account annually up to an amount equal to approximately 4.00% per annum (subject to downward adjustments relating to the interest rate payable on certain indebtedness) accreted quarterly on the weighted daily average balance of PCW's capital account (for a maximum period of four years). Any losses incurred by the partnership will be allocated to Verizon Wireless up to an amount equal to its capital accounts before being allocated to PCW. With respect to each quarter ending after the second anniversary of the contribution transaction, the partnership will distribute to PCW an amount in cash equal to 50% of PCWs share of any profits of the partnership. These distributions will reduce PCW's capital account in the partnership. The transaction is structured to be a tax-free exchange of assets under the Internal Revenue Code. I-5 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Company expects to account for the Preferred Exchangeable Interest using the equity method of accounting. The initial investment on the PCC balance sheet will equal the credit in the capital account on the partnership's financial statement. Thereafter, the Company will increase its investment by the amount of income it will be entitled to based on the availability of profits and the agreed upon preferred rate of return. (3) SHAREHOLDERS' EQUITY The Company's Board of Directors has authorized stock repurchase programs of the Company's Class A Common Stock. The Company is authorized to make such purchases from time to time in the market or in privately negotiated transactions when it is legally permissible to do so or believed to be in the best interests of the Company. During the first quarter of 2002, the Company repurchased and retired 241,000 shares at an average price of $18.57 per share. (4) REVISIONS TO PREVIOUSLY REPORTED AMOUNTS Based on discussions with the SEC, the Company revised the classification of incollect roaming revenue to reflect such revenue as part of revenues from cellular service, rather than as an offset to incollect roaming costs, as the Company has historically done in the past. Such recommended change by the SEC in classification resulted in an increase in corporate revenue from cellular service and a corresponding increase in engineering, technical and other direct costs of $4.2 million and $6.4 million for the three month periods ended March 31, 2002 and 2001, respectively. Total operating income, net income and all other financial statements are not effected by this change in classification. (5) IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The provisions of SFAS No. 142 were adopted by the Company on January 1, 2002. The Company does not have any goodwill recorded in its consolidated financial statements and therefore the adoption of SFAS No. 142 did not have any effect on its financial position or results of operations as it relates to goodwill. However, the Company does have a significant intangible asset in the form of cellular licenses. Based upon the Verizon agreement and the valuation of PCW's business contained therein, management of the Company does not believe that there has been an impairment and accordingly has not recorded a charge against earnings for the three month period ended March 31, 2002. In addition, the Company believes its cellular licenses qualify as indefinite life intangibles as defined by SFAS No. 142, and accordingly the current three month period does not include any amortization for licenses. Had the Company adopted SFAS No. 142 at the beginning of 2001, operating income would have increased by $5,825 to $24,618, net income would have increased by $3,670 to $5,136 and earnings per share (basic and diluted) would have increased by $.06 to $.09 for the three month period ending March 31, 2001. In August 2001, the FASB issued SFAS No 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 supercedes SFAS No. 121, but retains SFAS No. 121's fundamental provisions for (a) recognition and measurement of impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 also supercedes Accounting Principle Board Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB No. 30") for segments of a business to be disposed of but retains APB No. 30's requirement to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. Effective January 1, 2002, the Company adopted SFAS No. 144 which adoption had no effect on the Condensed Consolidated Statements of Operations. I-6 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has sold put and call options. Some puts were for the Company's own common stock. These puts entitle the holders to sell publicly traded securities to the Company during certain periods at certain prices. The Company is required to maintain collateral to support options issued, therefore such unsettled contracts if and when outstanding were classified as liabilities with changes in fair values recorded as part of Other income. At March 31, 2002, open put contracts were not material. I-7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to facilitate an understanding and assessment of significant changes and trends related to the financial condition and results of operations of the Company. This discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and related notes thereto. The discussion contains statements, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are made regarding the intent, belief, or current expectations of the Company, its directors, or officers primarily with respect to the future operating performance of the Company. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties and that actual results may differ from those in the forward-looking statements as a result of factors, many of which are outside the control of the Company. References to the "Company" or "Price" in this report include Price Communications Corporation and its subsidiaries unless the context otherwise indicates. OVERVIEW The Company is engaged in the construction, development, management and operation of cellular telephone systems in the southeastern United States. As of March 31, 2002, the Company provided cellular telephone service to 580,251 subscribers in Alabama, Florida, Georgia, and South Carolina in a total of 16 licensed service areas, composed of eight Metropolitan Statistical Areas ("MSAs") and eight Rural Service Areas ("RSAs"), with an aggregate estimated population of 3.4 million. The Company sells its cellular telephone service as well as a full line of cellular products and accessories principally through its network of retail stores. The Company markets all of its products and services under the nationally recognized service mark CELLULARONE. Based on discussions with the SEC, the Company revised the classification of incollect roaming revenue to reflect such revenue as part of revenues from cellular service, rather than as an offset to incollect roaming costs, as the Company has historically done in the past. Such recommended change by the SEC in classification resulted in an increase in corporate revenue and a corresponding decrease in engineering, technical and other direct costs of $4.2 million and $6.4 million for the three month periods ended March 31, 2002 and 2001, respectively. AGREEMENT TO CONTRIBUTE COMPANY'S BUSINESS On December 18, 2001, the Company agreed to the contribution of substantially all of the assets of PCW and approximately $150 million in cash to Verizon Wireless of the East in exchange for a preferred limited partnership interest in Verizon Wireless of the East. Verizon Wireless of the East will assume and redeem $700 million of indebtedness of PCW. It is currently anticipated that after giving effect to certain adjustments provided for in the transaction agreement governing the asset contribution, PCW's initial capital account in Verizon Wireless of the East will be approximately $1.11 billion. PCW will receive taxable allocations of any profits from Verizon Wireless of the East equal to its preferred return, which is currently expected to be 3.6% per annum after giving effect to certain adjustments (which allocations to the extent not distributed in cash will increase PCW's capital account in Verizon Wireless of the East). After the second anniversary of the asset contribution, for a period of up to two years, PCW will receive cash distributions equal to 50% of its preferred return. Following consummation of the asset contribution, the preferred interest is expected to be substantially all of the assets of the Company and it is expected that the Company will own no operating assets. It is anticipated that substantially all of the Company's income will be derived from investments of cash that it will retain following the closing and from cash distributions it is entitled to receive in respect of its preferred return. The Company does not expect to have any significant operating expenses other than income taxes attributed to cash investments and the preferred return. Verizon Wireless of the East will be managed by a wholly-owned subsidiary of Cellco Partnership, and PCW will have limited veto rights over certain transactions in which Verizon Wireless of the East may engage. There can be no assurance that the managing partner of Verizon Wireless of the East will be successful in managing Verizon Wireless of the East or that the managing general partner's interests in managing Verizon Wireless of the East will not conflict with the interests of the Company. Following an exchange of the preferred interest for either Verizon Wireless or Verizon Communications common stock, to the extent that the Company has not acquired other assets, substantially all of the Company's income will be derived from I-8 dividends that may be paid in respect of the shares of Verizon Wireless or Verizon Communications common stock received in the exchange. The Company is not contractually entitled to receive any dividends or distributions in respect of the shares of common stock it receives in the exchange and therefore there can be no assurances that either Verizon Wireless or Verizon Communications will pay dividends to its shareholders. I-9 MARKET OWNERSHIP The Company's cellular telephone systems serve contiguous licensed service areas in Georgia, Alabama and South Carolina. The Company also has a cellular service area in Panama City, Florida. The following table sets forth, with respect to each service area in which the Company owns a cellular telephone system, the estimated population and national MSA ranking of such service area.
MSA ESTIMATED SERVICE AREA RANK POPULATION (1) ------------ ---- -------------- Albany, GA.................................................... 261 120,822 Augusta, GA................................................... 108 452,846 Columbus, GA.................................................. 153 250,929 Macon, GA..................................................... 138 322,544 Savannah, GA.................................................. 155 293,000 Georgia-6 RSA................................................. --- 211,408 Georgia-7 RSA................................................. --- 139,606 Georgia-8 RSA................................................. --- 166,601 Georgia-9 RSA................................................. --- 124,063 Georgia-10 RSA................................................ --- 162,261 Georgia-12 RSA................................................ --- 220,558 Georgia-13 RSA................................................ --- 157,068 Dothan, AL.................................................... 246 137,916 Montgomery, AL................................................ 139 333,065 Alabama-8 RSA................................................. --- 196,259 ---------- Subtotal................................................. 3,288,946 --------- Panama City, FL............................................... 283 148,217 ---------- Total.................................................... 3,437,163 ---------
(1) Based on population estimates from U.S. Census 2000. I-10 RESULTS OF OPERATIONS The following table sets forth for the Company the percentage, which certain amounts bear to total revenue.
THREE MONTHS ENDED MARCH 31, --------------------- 2002 2001 --------------------- (IN PERCENTAGE TERMS) REVENUE: Service.............................................. 92.3% 94.1% Equipment sales and installation....................... 7.7 5.9 ------- ------- TOTAL REVENUE...................................... 100.0 100.0 OPERATING EXPENSES: Engineering, technical and other direct: Engineering and technical (1)...................... 6.9 5.2 Other direct costs of services (2)................. 13.0 14.7 Cost of equipment (3)................................ 12.2 12.3 Selling, general and administrative: Sales and marketing (4)............................ 8.9 8.0 Customer service (5)............................... 8.4 5.4 General and administrative (6)..................... 7.9 10.6 Non-cash compensation.............................. 1.3 1.3 Depreciation and amortization.......................... 8.6 16.4 ----- ---- TOTAL OPERATING EXPENSES........................... 67.2 73.9 Operating income....................................... 32.8% 26.1% Operating income before depreciation and amortization and non-cash compensation - adjusted EBITDA (7)...... 42.6% 43.8% Operating income before depreciation and amortization Price Communications Wireless, Inc. (8).............. 43.8% 44.7%
(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 costs of incollect roaming, costs of long distance, costs of interconnection with wireline telephone companies, costs for prepaid airtime usage and other costs of services. (3) Consists primarily of the costs of the cellular telephones and accessories sold. (4) Consists primarily of salaries and benefits of sales and marketing personnel, advertising and promotion expenses and employee and agent commissions. (5) Consists primarily of salaries and benefits of customer service personnel and costs of printing and mailing subscriber's bills. (6) Includes salaries and benefits of general and administrative personnel and other overhead expenses. (7) Adjusted EBITDA represents operating income before interest expense, provision for income taxes, depreciation and amortization and non-cash compensation. Adjusted EBITDA should not be considered in isolation or as an alternative measurement of operating performance or liquidity to net income, operating income or any other measure of performance under generally accepted accounting principles. The Company believes that adjusted EBITDA is viewed as a relevant supplemental measure of performance in the cellular telephone industry. (8) Represents operating income before interest expense, provision for income taxes, depreciation and amortization and non-cash compensation of the Company's operating subsidiary Price Communications Wireless, Inc. It does not include $862,000 for the current quarter and $656,000 for the same period last year of the parent Company's general and administrative expenses. I-11 THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 REVENUE. Service revenue totaled $66.8 million for the first quarter of 2002 compared with $67.8 million for the first quarter of 2001. An increase in the average number of postpaid subscribers, an increase in the average access per subscriber and a reduction in promotional credits generated additional access revenue of approximately $2.1 million for the current three month period. Airtime revenue decreased by $322,000 due to migration of the Company's subscribers to higher access rate plans which include a larger proportion of free airtime minutes. Prepaid revenue decreased by approximately $1.1 million during the first quarter of 2002 compared to the first quarter of 2001. Since the Company recognizes prepaid revenue as the minutes are used by its subscribers, this decrease was caused by lower usage of prepaid minutes during the quarter. The Company's outcollect airtime roaming revenue, which is revenue that the Company collects from other wireless carrier's subscribers using their phones in the Company's markets, decreased from $7.5 million for the first quarter of 2001 to $6.3 million for the current three month period. This was caused by a decrease in the number of outcollect minutes (1.4%) in the current quarter and lower reimbursement rates with certain carriers during the first quarter of 2002 which resulted in a decrease of the average reimbursement rate from $.26 to $.22. The Company raised the toll reimbursement rates, which resulted in an increase of outcollect toll of $1.5 million for the current three month period. In order to meet competition, the Company promoted rate plans that have a much broader coverage area, which enables the subscriber to call outside of their home area without being charged for toll or incollect airtime usage. These changes in plans resulted in a decrease of $2.2 million in incollect airtime and a decrease of $730,000 in local toll revenue. Other items of local revenue increased by approximately $900,000, principally feature revenue, which partially offset the net decrease in service revenue listed above. Average monthly revenue per postpaid subscriber (based upon service revenue only) includes local revenue as well as outcollect revenue, but does not include incollect revenue from subscribers, as this revenue is basically a pass through of incollect costs which are accounted in direct cost of service. Such revenue statistic increased to $45.82 for the current three month period from $44.15 for last year's first quarter because of the factors stated above. Equipment sales and installation revenue, which consists primarily of the sale of handsets and accessories, increased to $5.6 million for the current quarter from $4.3 million for the first quarter of 2001. There were 67,500 handsets sold in the current three month period compared with 58,900 handsets for the same period in 2001. Of the 67,500 current quarter's units, 84% were digital handsets compared with 42% for last year's first quarter. Digital handsets typically have a higher retail price, which resulted in the increase of $1.3 million in equipment sales. Installation revenue for both three month periods is not significant. OPERATING EXPENSES. Total operating expenses decreased from $53.3 million in the first quarter of 2001 to $48.7 million in the current quarter. As a percentage of total revenue, operating expenses decreased to 67.2% of revenue for the current quarter from 73.9 % of revenue for the same period in 2001. Engineering, technical and other direct are basically even for both three month periods. Included in engineering, technical and other direct is the cost of incollect roaming which represents the amount paid to other cellular carriers for the Company's subscribers roaming in those carriers' markets. Incollect cost decreased $963,000 despite a 13% increase in incollect minutes used. The decrease is attributable to the lower negotiated rates paid to other carriers during the current quarter which also effected the amount the Company was reimbursed from these same carriers for outcollect roaming airtime revenue as stated above. Offsetting this decrease was an increase of $948,000 for fixed span line costs and cell site rentals. The reduction in prepaid revenue resulted in a $756,000 reduction in costs to operate the prepaid subscriber system. The cost of equipment sold approximates $8.8 million for both the current and prior year's three month period. As mentioned previously, the Company sold more handsets during the current three months than in the prior three months. During the current quarter, significantly more digital handsets were sold than in the prior year's first quarter. The technical innovations in the wireless industry have resulted in a reduction in the average cost of a digital phone, which enabled the Company to sell many more units at the same total cost. In the current period, the Company was able to recover approximately 63% of its equipment cost, which is an improvement over the 48% recovered for the three month period in 2001. Selling, general and administrative expenses ("SG&A") increased by $886,000 from $17.4 million for the three month period ending in 2001 to $18.2 million for the same period of the current year. As a percentage of total revenue, SG&A increased from 24.0% of total revenue in 2001 to 25.2% of total revenue for the current three month period. I-12 Sales and marketing costs included in SG&A are comprised of installation costs, salaries, commissions and advertising. The sum of these components amounted to $6.4 million for the current three month period compared with $5.8 million for the prior three month period or an increase of $646,000. The increase in commissions, which result from more post paid additions in the current three months and the higher commission rate associated with these subscriber additions, is the principal component of the increase. The cost to add a gross subscriber, which is made up of the net loss on equipment sales and marketing expenditures, decreased from $161.13 for the three month period ended March 31, 2001 to $136.20 for the three month period ended March 31, 2002. Customer service costs (also included in SG&A), primarily billing costs and payroll and related benefits, increased to $6.1 million in 2002 from $3.9 million in 2001 or an increase of $2.2 million. During the last quarter of 2000, the Company changed its billing vendor and encountered various problems in the integration of the new system. Because of these problems and the resultant failure to mail subscribers' bills on a timely basis, the Company's provision for bad debts increased significantly. The billing company acknowledged their role in the problem by issuing a $2 million credit to the Company in the first quarter of 2001. This credit is the primary factor in the increase of $2.2 million for the current three month period. During the fourth quarter of 2001, the Company centralized the collection process. These additional costs were offset by decreases in temporary help and other related collection expenses. General and administrative expenses, the final component of SG&A, decreased from $7.6 for the three month period ended March 31, 2001 to $5.7 million for the current three month period. The decrease of $1.9 million is primarily a result of the decrease in the provision for bad debts from $3.1 million for the three months in 2001 to $896,000 for the current three month period. The decrease is a result of the improvement in the billing system, as well as the benefit derived from centralizing the collection effort (see above in customer service). During the first quarter of 2002, the Company adopted Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets". Management believes its cellular licenses qualify as indefinite life intangibles which are not subject to amortization as of January 1, 2002. Accordingly, the current three month period does not include any amortization for licenses which amounted to $5.8 million for the three months ended March 31, 2001 and was included in depreciation and amortization. Operating income increased approximately $4.9 million to $23.7 million in the first quarter of 2002 from $18.8 million for the same period in 2001 principally as a result of the decrease in depreciation and amortization. Operating income before depreciation and amortization and non-cash compensation amounted to 42.6% of total revenue in the current quarter compared to 43.8% of total revenue for the quarter ended March 31, 2001. The decrease is a result of the items discussed above. The continuing emphasis by management on maintaining cost controls, resulted in a decrease in the average operating cost per subscriber (total operating costs before depreciation and amortization, non-cash compensation and corporate overhead) which was $17.88 for the current three month period compared to $18.22 for the first quarter of 2001 (net of incollect revenue for both periods). Management believes that the current figure of $17.88 continues to be one of the lowest in the industry. NET INTEREST EXPENSE, INCOME TAXES AND NET INCOME. Net interest expense increased to $16.2 million for the quarter ended March 31, 2002 from $15.1 million in the first quarter of 2001. Interest income decreased from $2.5 million for the three month period in 2001 to $1.0 million for the current three month period. The drop in interest earned is a result of the almost 4% drop in the average interest rate (5.67% for the period in 2001 compared with 1.75% for the current period). The current period's income tax provision of $2.8 million compared to the income tax provision of $1.9 million in the first quarter of 2001 is a result of the higher financial statement taxable income for the first three months of 2002 compared to the first three months of 2001 and certain non deductible losses. The net income of $4.7 million for the first quarter of 2002 compared to net income of $1.4 million for the first quarter of 2001 is a function of the items discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's long-term capital requirements consist of funds for capital expenditures, acquisitions and debt service. Historically, the Company has met its capital requirements primarily through the issuance of debt, and to a lesser extent, operating cash flow. During the three month period ended March 31, 2002, the Company generated $21.9 million of cash from operating activities as shown in the Condensed Consolidated Statements of Cash Flows. The Company's EBITDA (earnings before interest, depreciation and amortization and non-cash compensation) was $30.9 million for the current quarter. The Company's debt service requirements for the current year consist of cash interest payments of $68.5 million of which $10.3 million was paid in January 2002. The remaining cash interest requirements are approximately $24.0 million during the second I-13 quarter, $10.3 million during the third quarter and $24.0 million in the fourth quarter. Based upon the Company's current ability to generate operating cash flow combined with its available cash position of $259.2 million, there does not appear to be a necessity to provide additional funding for the foreseeable future. The Company's outstanding debt instruments consist of $525 million 9 1/8% Senior Secured Notes due December 15, 2006, and $175 million 11 3/4% Senior Subordinated Notes due July 15, 2007. The 9 1/8% notes are callable after June 15, 2002 and the 11 3/4% notes are callable after July 15, 2002. Both of these instruments contain covenants that restrict the payment of dividends, incurrence of debt and sale of assets. From the asset contribution transaction to the exchange of the preferred interest for either the common stock of Verizon Wireless Inc. or Verizon Communications, the preferred interest is expected to be substantially all of the Company's assets. While the Company will receive taxable allocations of any profits from Verizon Wireless of the East equal to its preferred return (which allocation to the extent not distributed in cash, will increase Price Communications Wireless' capital account in Verizon Wireless of the East), it will not, during the two year period following the asset contribution receive any cash distributions in respect of the preferred return. However, after the second anniversary of the asset contribution for a period of up to two years, PCW will receive cash distributions equal to 50% of its preferred return. The Company currently expects to retain approximately $65 million to $70 million of total net cash and securities (assuming a closing on June 30, 2002). During the period following the asset contribution the Company does not expect to have sources of cash other than the cash remaining after the asset contribution, the cash distributions from Verizon Wireless of the East, income from the investment of cash and any funds that the Company may be able to borrow. The Company currently anticipates that its cash and income will be sufficient to meet its cash obligations during the period. There is a risk, however, if significant unexpected cash needs arise, that its funds (including distributions) will be insufficient to meet its obligations and if the Company needs to borrow money to meet such obligations, it may be forced to do so on unfavorable terms. If the asset contribution is not completed, the Company would require certain additional capital expenditures over the next few years both to comply with government mandated projects, such as emergency 911 service and local number portability, and to upgrade its technology to global system for mobile communications/general packet radio service (GSM/GPRS) as a step toward provision of 3G (third generation) services to its customers, similar to the recent announcement by AT&T Wireless of its intention to add a GSM-overlay to its network. As a result, the Company estimates that its capital expenditures for the years 2003 and 2004 could increase to approximately $52 million and $58 million, respectively. The Company's operating cash flow and cash on hand should be sufficient to finance these expenditures. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company utilizes fixed rate debt instruments to fund its acquisitions. Management believes that the use of fixed rate debt minimizes the Company's exposure to market conditions and the ensuing increases and decreases that could arise with variable rate financing. 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 None (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: May 31, 2002 By: /S/ ROBERT PRICE --------------------------- Robert Price Director, President and Treasurer By: /S/ KIM I. PRESSMAN ------------------------------ Kim I. Pressman Director, Executive Vice President and Principal Financial Officer By: /S/ MICHAEL WASSERMAN -------------------------------- Michael Wasserman Vice President and Chief Accounting Officer II-2