<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ______ to ______
Commission file number 01-23102
--------
INTERCEL, INC.
- -------------------------------------------------------------------------------
(Exact name of issuer as specified in its charter)
Delaware 58-1944750
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1233 O. G. Skinner Drive, West Point, Georgia 31833
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 645-2000
--------------------------
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at June 30, 1996
----------------------------
Common Stock at $.01 par value 26,808,690 Shares
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERCEL, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 281,487,737 $ 629,739
Short-term Investments 111,955,873 -
Accounts Receivable - Net of Allowance for Doubtful Accounts 5,570,727 4,233,139
Other Current Assets 2,614,770 1,415,719
Current Portion of Deferred Income Taxes 134,086 269,817
---------------- ----------------
401,763,193 6,548,414
---------------- ----------------
PROPERTY AND EQUIPMENT, AT COST: 80,554,947 23,274,314
Less: Accumulated Depreciation (6,753,886) (5,208,269)
---------------- ----------------
73,801,061 18,066,045
---------------- ----------------
OTHER ASSETS:
Licenses 334,577,315 -
Goodwill - Net of Amortization 22,977,108 23,282,911
Investment in Powertel - 19,224,456
Investments 15,594,335 105,892
Deferred Income Taxes 4,827,400 1,404,507
Deferred Charges and Other 17,686,294 5,697,369
---------------- ----------------
395,662,452 49,715,135
---------------- ----------------
---------------- ----------------
Total Assets $ 871,226,706 $ 74,329,594
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable - Trade $ 2,374,862 $ 811,486
Accounts Payable - Related Parties 7,188 72,382
Advance Billings and Customer Deposits 984,558 828,220
Accrued Expenses and Other Current Liabilities 6,085,098 3,860,613
---------------- ----------------
9,451,706 5,572,701
---------------- ----------------
LONG TERM OBLIGATIONS:
12% Senior Discount Notes due February 2006 203,879,458 -
12% Senior Discount Notes due May 2006 205,042,562 -
Vendor Line of Credit 16,042,261 -
Credit Facility - 24,601,514
ITC Holding Company - 3,500,000
Other 2,648 919,189
---------------- ----------------
424,966,929 29,020,703
---------------- ----------------
DEFERRED REVENUE 389,515 389,515
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN SUBSIDIARY 2,818,548 2,674,159
STOCKHOLDERS' EQUITY:
Common Stock 268,612 100,116
Preferred Stock 2,000 -
Warrants Outstanding 6,092,433 -
Paid-in Capital 423,943,906 32,437,733
Retained Earnings 3,925,832 4,845,288
Deferred Compensation (288,385) (370,781)
Treasury Stock (344,390) (339,840)
---------------- ----------------
433,600,008 36,672,516
---------------- ----------------
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 871,226,706 $ 74,329,594
================ ================
The accompanying condensed notes to financial statements
are an integral part of these statements.
</TABLE>
2
<PAGE> 3
FINANCIAL STATEMENTS - Continued
INTERCEL, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES AND SALES
Monthly Access Revenue $ 3,610,847 $2,984,963 $7,039,340 $5,746,320
Airtime Revenue 1,521,363 1,252,872 2,837,877 2,264,236
Roaming Revenue 1,595,828 1,325,221 3,098,813 2,412,834
Toll Revenue 615,734 443,605 1,194,107 855,206
Installation/Connection Revenue 60,917 109,807 141,733 206,950
Other Revenue 99,792 53,488 189,318 103,070
----------- ---------- ---------- ----------
Total Service Revenues 7,504,481 6,169,956 14,501,188 11,588,616
Equipment Sales 951,936 918,388 1,805,406 1,778,167
----------- ---------- ---------- ----------
Total Revenues and Sales 8,456,417 7,088,344 16,306,594 13,366,783
----------- ---------- ---------- ----------
OPERATING EXPENSES
Cost of Services 739,819 561,354 1,423,850 1,085,011
Cost of Equipment Sold 803,262 741,100 1,496,870 1,451,629
Operations 1,619,966 854,707 2,824,364 1,608,894
Selling, General and Administrative 4,844,177 1,981,551 7,927,787 4,011,776
----------- ---------- ---------- ----------
Depreciation and Amortization 1,631,122 1,202,784 3,243,337 2,319,334
----------- ---------- ---------- ----------
Total Operating Expenses 9,638,346 5,341,496 16,916,208 10,476,644
----------- ---------- ---------- ----------
OPERATING (LOSS) INCOME (1,181,929) 1,746,848 (609,614) 2,890,139
----------- ---------- ---------- ----------
OTHER (INCOME) EXPENSE
Interest Expense, Net 1,158,482 273,185 419,304 572,507
Loss on Equity Investments - - 34,158 -
Minority Interest in Loss of Cellular Partnership (71,162) (20,014) (150,266) (75,115)
Miscellaneous (Income) Expense 27,509 36,843 376,294 (326,798)
----------- ---------- ---------- -----------
Total Other (Income) Expense 1,114,829 290,014 679,490 170,594
----------- ---------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (2,296,758) 1,456,834 (1,289,104) 2,719,545
Income Tax Benefit (Expense) 841,563 (606,764) 369,648 (1,146,549)
----------- ---------- ---------- ----------
NET (LOSS) INCOME $( 1,455,195) $ 850,070 $( 919,456) $1,572,996
----------- ---------- ---------- ----------
NET (LOSS) INCOME PER SHARE $( 0.05) $ 0.08 $( 0.04) $ 0.15
----------- ---------- ---------- ----------
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 26,807,161 10,278,278 23,353,072 10,225,816
----------- ---------- ---------- ----------
</TABLE>
The accompanying condensed notes to financial statements
are an integral part of these statements.
3
<PAGE> 4
FINANCIAL STATEMENTS - Continued
INTERCEL, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 30,
1996 1995
------------- ------------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Income $ (919,456) $1,572,996
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) By Operating Activities -
Minority Interest in Loss of Cellular Partnership (150,266) (75,116)
Depreciation 1,552,960 1,277,494
Amortization 1,690,377 1,041,840
Bond Accretion, Net of Amount Capitalized 7,640,320 -
Other 33,859 -
Interest from Amortization of Debt Costs 505,705 -
Deferred Compensation 82,396 39,336
Gain on Disposal of Asset - (27,163)
Deferred Taxes, Net (3,287,162) 368,766
Changes in Assets and Liabilities:
Increase in Accounts Receivable (1,337,588) (519,686)
(Increase) Decrease in Other Current Assets (1,137,278) 202,953
Increase in Deferred Charges (6,955,091) (1,097,749)
Increase in Accounts Payable, Accrued
Expenses and Other Current Liabilities 3,409,106 323,257
Increase in Advance Billings and Customer Deposits 156,338 35,098
------------ -----------
Net Cash Provided By Operating Activities 1,284,220 3,142,026
------------ -----------
Cash Flow From Investing Activities:
Capital Expenditures (55,287,495) (4,927,324)
Cash Acquired in Powertel Acquisition 15,378,599 -
Purchase of Atlanta MTA License (195,241,900) -
Investments in Marketable Securities (127,444,316) 1,738,472
Investment - Powertel - (16,974,828)
------------ -----------
Net Cash Used For Investing Activities (362,595,112) (20,163,680)
------------ -----------
Cash Flow From Financing Activities:
Advances from (Repayments to) Affiliated Companies, Net (65,194) (1,826,190)
Capital Investment in Partnership - NYNEX 294,655 497,852
Proceeds from Sale of Stock, Net 261,674,421 (63,406)
Proceeds from Bond Issuance, Net 392,324,261 -
Proceeds from Vendor Credit Facility 16,042,261 20,774,828
Repayments of Long-Term Obligations (28,101,514) (1,337,019)
------------ -----------
Net Cash Provided By Financing Activities 642,168,890 18,046,065
------------ -----------
Net Increase in Cash 280,857,998 1,024,411
Cash and Cash Equivalents at Beginning of Period 629,739 506,853
------------ -----------
Cash and Cash Equivalents at End of Period $281,487,737 $1,531,264
============ ===========
</TABLE>
The accompanying condensed notes to financial statements
are an integral part of these statements.
4
<PAGE> 5
FINANCIAL STATEMENTS - Continued
INTERCEL, INC. & SUBSIDIARIES
CONSENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to Article
10 of Regulation S-X of the Securities and Exchange Commission. The
accompanying unaudited condensed consolidated financial statements
reflect, in the opinion of management, all adjustments necessary to
achieve a fair statement of financial position and results for the interim
periods presented. All such adjustments are of a normal recurring nature.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
2. Certain prior year amounts have been reclassified to conform with the
current period presentation.
3. Pursuant to an Asset Purchase Agreement, dated as of March 5, 1996,
between InterCel Atlanta Licenses, Inc., a wholly owned subsidiary of
the Company and GTE Mobilnet Incorporated ("GTE Mobilnet"), on June 28,
1996 the Company purchased GTE Mobilnet's license to provide personal
communications services ("PCS") in the Atlanta (MO11) PCS major trading
area ("MTA") for approximately $195 million. Also on June 28, 1996,
pursuant to a Stock Purchase Agreement dated as of March 4, 1996, between
the Company and Ericsson, Inc ("Ericsson"), Ericsson purchased 100,000
shares of nonvoting Series A Convertible Preferred Stock from the Company
in a private placement for an aggregate purchase price of $75 million and
pursuant to a Stock Purchase Agreement dated as of March 4, 1996, between
the Company and MPX Systems, Inc. ("MPX"), MPX purchased 100,000 shares of
nonvoting Series B Convertible Preferred Stock from the Company in a
private placement for an aggregate purchase price of $75 million.
4. On February 7, 1996, the Company consummated the following transactions:
(i) pursuant to a Business Combination Agreement dated August 23, 1995,
among the Company, Powertel and the owners of Powertel, such owners (other
than the Company) exchanged their ownership interests in Powertel for an
aggregate of 9,686,410 shares of the Company's common stock in a
private placement (the "Powertel Combination"); (ii) the Company received
approximately $110.1 million of net proceeds from the sale of 7,124,322
shares of its Common Stock (which includes 124,322 shares purchased in
March 1996 under the underwriters' overallotment option) in a public
offering (the "Stock Offering"); and (iii) the Company received
approximately $192.2 million of net proceeds from the sale of 35,747 units,
consisting in the aggregate of $357,470,000 principal amount at maturity
of the Company's 12% Senior Discount Notes due 2006 (the "12% Notes") and
1,143,904 warrants (the "Warrants") to purchase an equal number of shares
of the Company's common stock at an exercise price of $18.15 per share,
subject to adjustment (the "Unit Offering"; and together with the Stock
Offering, the "February Offerings"). A portion of the net proceeds from
the February Offerings was used to repay all outstanding borrowings under
the Credit Facility and under the lending arrangement with ITC Holding.
The balance of the net proceeds from the February Offerings will be used
to partially finance the buildout and operating costs of the PCS system
for, and certain acquisition expenses associated with, the Birmingham,
Jacksonville and Memphis/Jackson MTAs.
5
<PAGE> 6
5. On April 16, 1996, the Company issued $360 million aggregate
principal amount at maturity (approximately $200.2 million
gross proceeds) of the Company's 12% Senior Discount Notes
due May 2006 (the "Notes" and together with the February
Offerings, the "Offerings") in a public offering.
6. The unaudited pro forma condensed consolidated statements of
operations of the company for the six months ended June 30,
1996 and the year ended December 31, 1995 (presented on the
following pages), give effect to the transactions described
in Notes 3 and 4 above as if they occurred at the beginning of
the respective periods. The pro forma adjustments are based
upon available information and certain assumptions that the
Company believes are reasonable under the circumstances.
These unaudited pro forma condensed consolidated statements of
operations and notes thereto are provided for informational
purposes only and do not purport to be indicative of the
results that would have actually been obtained had such
transactions been completed on the dates indicated.
6
<PAGE> 7
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
INTERCEL, INC. PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(dollars in thousands, except per share data)
<S> <C> <C> <C>
REVENUES AND SALES:
Monthly Access Revenue $ 7,039 $- $ 7,039
Airtime Revenue 2,838 - 2,838
Roaming Revenue 3,099 - 3,099
Toll Revenue 1,194 - 1,194
Installation/Connection Revenue 142 - 142
Other Revenue 189 - 189
---------- --------- ----------
Total Service Revenues 14,501 - 14,501
Equipment Sales 1,806 - 1,806
---------- --------- ----------
Total Revenues and Sales 16,307 - 16,307
---------- --------- ----------
OPERATING EXPENSES:
Cost of Services 1,424 - 1,424
Cost of Equipment Sold 1,497 - 1,497
Operations 2,824 - 2,824
Selling, General and Adminstrative 7,928 - 7,928
Depreciation and Amortization 3,244 18 (1) 3,262
---------- --------- ----------
Total Operating Expenses 16,917 18 16,935
---------- --------- ----------
OPERATING INCOME (EXPENSE) (610) (18) (628)
---------- --------- ----------
OTHER (INCOME) EXPENSE
Interest Expense(Income) 419 206 (2) 625
Loss on Investment in Powertel 34 (34) (3) 0
Minority Interest in Loss of Cellular (150) 0 (150)
Partnership
Miscellaneous (Income) Expense 376 - 376
---------- --------- ----------
Total Other (Income) Expense 679 172 851
---------- --------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES (1,289) (190) (1,479)
INCOME TAX BENEFIT 370 74 (4) 444
---------- --------- ----------
NET (LOSS) (919) ($116) (1,035)
========== ========= ==========
NET (LOSS) PER SHARE (0.04) (0.04)
========== ==========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 23,353,072 23,353,072 (7)
========== ==========
</TABLE>
7
<PAGE> 8
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Powertel PCS
Intercel, Inc. Partners, L.P. ProForma
Historical Historical Adjustments ProForma
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES AND SALES
Monthly Access Revenue $ 12,244 $ - $ - $ 2,244
Airtime Revenue 4,938 - - 4,938
Roaming Revenue 5,541 - - 5,541
Toll Revenue 2,026 - - 2,026
Installation/Connection Revenue 394 - - 394
Other Revenue 241 - - 241
---------- ------------ ------------- -----------
Total Service Revenues 25,384 - - 25,384
Equipment Sales 3,928 - - 3,928
---------- ------------ ------------- -----------
Total Revenue and Sales 29,312 - - 29,312
========== ============= ============= ===========
OPERATING EXPENSES:
Cost of Services 2,394 - - 2,394
Cost of Equipment Sold 3,127 - - 3,127
Operations 3,596 4 - 3,600
Selling, General and Administrative 8,498 1,753 - 10,251
Depreciation and Amortization 5,101 3 61 (1) 5,165
---------- ------------ ------------- -----------
Total Operating Expenses 22,716 1,760 61 24,537
---------- ------------ ------------- -----------
OPERATING INCOME (EXPENSE) 6,596 (1,760) (61) 4,775
---------- ------------ ------------- -----------
OTHER (INCOME) EXPENSE
Interest Expense (Income) 1,657 (781) 412 (2) 1,288
Loss on Investment in Powertel 133 - (133)(3) 0
Minority Investment in Loss of Cellular (130) - - (130)
Partnership
Miscellaneous (Income) Expense (298) - 200 (5) (98)
---------- ------------ ------------- -----------
Total Other (Income) Expense 1,362 (781) 479 1,060
---------- ------------ ------------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES 5,234 (979) (540) 3,715
INCOME TAX PROVISION (2,230) 592 (4) (1,638)
---------- ------------ ------------- -----------
NET INCOME (LOSS) $ 3,004 $ (979) $ 52 $ 2,077
========== ============ ============= ===========
NET INCOME PER SHARE $ 0.29 $ 0.06
========== ===========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 10,280,616 36,182,248(6)
========== ===========
</TABLE>
8
<PAGE> 9
(1) Reflects the amortization of the debt issuance costs related to the
portion of the Notes and the 12% Notes used to extinguish the
existing long-term obligations of InterCel. No amortization of
debt issuance costs related to the remaining portion of the Notes
or the 12% Notes has been reflected as it is expected that a
majority of such amortization will be capitalized during the
construction period of the Company's PCS system. No pro forma
adjustment has been made to amortize the PCS license as the
Company's PSC system has not yet been constructed or placed in
service. when placed in service, the PCS license will be amortized
over 40 years resulting in amortization expense of $8,182 per year.
(2) Adjustment to interest expense reflects the impact of the
increased interest cost of the Notes and the 12% Notes over the
interest cost of the Company's existing borrowings, which were
repaid with proceeds of the Offerings. The existing borrowings are
assumed to be repaid pro rata from the net proceeds of the
Offerings. During the construction of the Company's PCS system,
the cost of the PCS licenses and the costs related to construction
expenditures are considered to be assets qualifying for interest
capitalization under FASB Statement No. 34 "Capitalization of
Interest Cost." Accordingly, management expects that a majority of
the interest on the Notes and the 12% Notes will be capitalized
during the construction of the Company's PCS system. Pro forma
interest expense is not intended to be indicative of interest
expense which will be incurred following the transactions.
Interest expense following the transactions may be higher than
the interest expense in the accompanying pro forma income statements.
(3) Reflects the elimination of InterCel's portion of the Powertel
PCS Partner, L.P. partners' net loss for the six months ended
June 30, 1966 and the year ended December 31, 1995.
(4) Reflects pro forma income tax expense/benefit.
(5) Reflects the write-off of previously deferred loa costs
totaling $200 (before income tax benefit of $78).
(6) Reflects the Stock Offering, the Powertel Combination and the
9,090,900 shares of Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock (the "Preferred Conversion Shares"). Does not reflect
the 1,143,904 shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Conversion Shares"), as the inclusion of such
shares would have an anti-dilutive effect as of December 31, 1995
(7) Does not reflect the Preferred Conversion Shares or the Warrant
Conversion Shares as the inclusion of such shares would have
an anti-dilutive effect as of June 30, 1996.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
InterCel Inc. (the "Company") provides cellular telecommunications
services in contiguous portions of western Georgia and eastern Alabama (the
"Southern Markets") as well as in major areas in Maine (the "Maine Markets").
In addition, on February 7, 1996, the Company acquired Powertel PCS Partners,
L.P., the owner of three personal communications services ("PCS") licenses for
the rights to provide PCS in contiguous parts of nine southeastern states in
the major trading areas ("MTAs") of Jacksonville, Florida; Memphis,
Tennessee/Jackson, Mississippi; and Birmingham, Alabama (the "Current PCS
Markets"). The Company is currently in the process of developing and
constructing the PCS systems in the Current PCS Markets. In order to increase
its PCS coverage from 9.7 million to approximately 16 million potential
customers and provide the Company with one of the largest contiguous PCS
footprints in the southeastern United States, on June 28, 1996, the Company
consummated the acquisition of the license to provide PCS in the Atlanta MTA
from GTE Mobilnet. The Company believes that its enhanced coverage footprint,
particularly the addition of the Atlanta MTA to its coverage area, will provide
an incremental competitive advantage in attracting new customers in its Current
PCS Markets. Since the Company commenced cellular service in October 1990, the
number of cellular customers has grown rapidly to 42,442 at June 30, 1996 (a
penetration of approximately 5.5% of the total cellular service area
population).
The cellular industry has seen average revenues per subscriber decline
during recent years. The Company believes that this downward trend reflects the
addition of lower-usage customers, who utilize cellular service for personal
convenience, security or as backup for their traditional landline telephones.
The Company expects that revenue per minute will continue to decline as
competition within the wireless telecommunications industry intensifies. The
Company believes the effect of this trend on the Company's earnings will be
mitigated by corresponding increases in the number of wireless
telecommunications subscribers and the number of minutes of usage per
subscriber.
The Company's overall financial performance has been impacted positively
by its efforts to attract and retain subscribers and encourage more use of its
services. Unlike many other companies in the cellular industry that continue to
experience operating losses due to the substantial capital costs associated
with constructing a system and acquiring licenses, the Company has been
successful in achieving positive operating income from its cellular operations.
However, the Company incurred an operating loss during the second quarter and
expects to continue to incur significant operating losses as it develops and
constructs its PCS system covering the four MTAs and builds a PCS customer
base.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following tables reflect composition of the Company's service revenue
and equipment sales, and related gross margins, as well as overall operating
and other costs and margins, as a percentage of total revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
% OF % OF
1996 REVENUE/SALES 1995 REVENUE/SALES
<S> <C> <C> <C> <C>
SERVICE REVENUE & COST
ANALYSIS:
Service Revenue
Local Customers -
Access Revenue $ 3,610,847 48.1% $ 2,984,963 48.4%
Airtime Revenue 1,521,363 20.3% 1,252,872 20.3%
Toll Revenue 204,502 2.7% 132,155 2.1%
5,336,712 71.1% 4,369,990 70.8%
------------ --------- ------------ ----------
Roamers -
Access & Airtime Revenue 1,595,828 21.3% 1,325,221 21.5%
Toll Revenue 411,232 5.5% 311,450 5.0%
------------ --------- ------------ ----------
2,007,060 26.8% 1,636,671 26.5%
------------ --------- ------------ ----------
Other Service Revenue 160,709 2.1% 163,295 2.7%
------------ --------- ------------ ----------
Total Service Revenue 7,504,481 100.0% 6,169,956 100.0%
Cost of Services 739,819 9.9% 561,354 9.1%
------------ --------- ------------ ----------
Gross Margin $ 6,764,662 90.1% $ 5,608,602 90.9%
============ ========= ============ ==========
EQUIPMENT SALES & COST
ANALYSIS:
Equipment Sales $ 951,936 100.0% $ 918,388 100.0%
Cost of Equipment Sales 803,262 84.4% 741,100 80.7%
------------ --------- ------------ ----------
Gross Margin $ 148,674 15.6% $ 177,288 19.3%
============ ========= ============ ==========
OPERATING MARGIN
ANALYSIS:
Total Revenues $ 8,456,417 100.0% $ 7,088,344 100.0%
------------ --------- ------------ ----------
Operating Expense -
Cost of Services & Equipment Sales 1,543,081 18.3% 1,302,454 18.4%
Operations 1,619,966 19.2% 854,707 12.1%
Selling, General, & Administrative 4,844,177 57.3% 1,981,551 27.9%
Depreciation & Amortization 1,631,122 19.3% 1,202,784 17.0%
------------ --------- ------------ ----------
Total Operating Expenses 9,638,346 114.0% 5,341,496 75.4%
------------ --------- ------------ ----------
Operating Income (1,181,929) (14.0%) 1,746,848 24.6%
Interest Expense, net 1,158,482 13.7% 273,185 3.8%
Minority Interest in Cellular Partnership (71,162) (0.8%) (20,014) (0.3%)
Miscellaneous Expense 27,509 0.3% 36,843 0.5%
------------ --------- ------------ ----------
Income Before Income Taxes (2,296,758) (27.2%) 1,456,834 20.6%
Income Tax Benefit (Provision) 841,563 10.0% (606,764) (8.6%)
------------ --------- ------------ ----------
Net Income $ (1,455,195) (17.2%) $ 850,070 12.0%
============ ========== ============ ==========
</TABLE>
11
<PAGE> 12
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Service revenue from local customers increased $625,884, or 21.0%, for the
three months ended June 30, 1996, as compared to the same period of 1995. A
28.2% increase in the number of customers (to 42,442 at June 30, 1996, from
33,113 at June 30, 1995) was the primary factor driving this growth. The
increase in new customers reflects the continued success of the Company's
marketing efforts.
The average monthly service revenue per customer (excluding roaming
revenue and equipment charges) decreased to $42.98 for the three months ended
June 30, 1996, from $45.64 for the same period of the prior year. This decrease
was due primarily to the addition of customers who tend to use cellular service
less frequently.
Toll revenue attributable to local customers for the three months ended
June 30, 1996 increased $72,347, or 54.7%, compared to the same period of 1995.
This increase is primarily attributable to increased customers and a change in
classification of subsidized roaming toll costs between reporting periods. For
the three months ended June 30, 1995, such costs were classified as a reduction
of local toll revenue. However, for the three months ended June 30, 1996, such
costs were properly classified as a cost of service.
Roamer revenue (including roamer long distance) for the three months ended
June 30, 1996 increased $370,389, or 22.6%, compared to the same period of the
prior year. This increase relates primarily to increased market penetration
levels by the cellular industry as a whole. In addition, during the third
quarter of 1995, the Company entered into an agreement with BellSouth Mobility
to provide discounted rates to BellSouth Mobility for its northern Georgia
customers roaming in the Company's Georgia and Alabama service area in exchange
for discounted rates for the Company's Georgia and Alabama customers roaming in
certain parts of BellSouth Mobility's service area. Although this agreement
initially resulted in a slight reduction in overall roaming revenue, management
believes that the agreement has now resulted in increased roaming revenue due
to the effects of its reduced pricing and the promotion of such reduced pricing
by BellSouth Mobility to its applicable customer base.
Monthly access revenue remains the largest component of service revenue,
representing 48.1% of revenue during the three months ended June 30, 1996, as
compared to 48.4% of revenue for the prior year period. Roaming revenue
increased to 26.7% of service revenue for the quarter ended June 30, 1996, as
compared to 26.5% of service revenue for the same period of 1995. These changes
reflect the effects of the roaming agreement with BellSouth Mobility as
discussed above.
Cost of services includes cost of access to local exchange company
facilities, cost of roaming validation (provided by a third-party clearing
house), cost for long distance toll services (provided by both interexchange
carriers and local exchange companies), cost of installation when performed by
outside contractors, costs associated with cellular fraud, and cost of
supplementary services (such as voice mail). For the three months ended June
30, 1996, cost of services was 9.7% of total service revenue, compared to 9.1%
for the same period in 1995. This increase is primarily attributable to
increased costs associated with cellular fraud and the aforementioned change in
classification of subsidized roaming toll costs.
Equipment sales amounted to $951,936 for the three months ended June 30,
1996, an increase of $33,548, or 3.7% due to the sale of a higher percentage
of portable phones to total phones sold during the three months ended June 30,
1996 as compared to the same period in the prior year.
Cost of equipment sales increased $62,162 for the three months ended June
30, 1996, an 8.4% increase over the same period of the prior year. The gross
margin on equipment sales was 15.6% and 19.3% for quarter ended June 30, 1996
and 1995, respectively. Cost of sales increased due to the increased sales of
equipment during the second quarter of 1996 compared to the same period of the
prior year. The
12
<PAGE> 13
decrease in the related margin is attributable to the reduction in equipment
sales prices in the Maine Market.
Operations costs, which include the costs of maintaining the cellular
system, customer service (including PCS customer service personnel recruiting
costs, salaries and training costs), inventory management, and in-house
installations, totaled $1,619,966 for the three months ended June 30, 1996,
which represented an increase of $765,259, or 89.5%, from the same period of
1995. As a percentage of total revenue, operations costs increased from 12.1%
for the three months ended June 30, 1995 to 19.2% for the same period of 1996.
The main components of cost in this category are employee-related costs
(salaries, payroll taxes, and employee benefits), the provision for bad debts,
and communication costs (i.e. telephone, paging, etc.). The increase in the
second quarter of 1996 over the second quarter of 1995 was primarily due to the
hiring of additional personnel to facilitate the Company's entrance into the
PCS business and the expenses related to this expansion (see "Liquidity and
Capital Resources").
Selling, general, and administrative costs ("SG&A") were $4,844,177 for
three months ended June 30, 1996, an increase of $2,862,626, or 144.5%, as
compared to the same period of the prior year. This increase was primarily
attributable to several factors, including increases in employee-related costs
due to the hiring of more employees to facilitate the Company's expansion into
the PCS business and increases in billing costs due to more customers.
Depreciation and amortization include principally the depreciation of the
cellular system and the amortization of the promotional credits associated with
the Company's promotional programs. Depreciation and amortization expense
totaled $1,631,122 for the three months ended June 30, 1996, as compared to
$1,202,784 for the same period in 1995. Depreciation expense increased as a
result of the installation of a new digital switch (placed in service during
August 1995) and the related radio equipment in the Southern Market and the
construction of nine additional cell sites. As a percentage of revenue,
depreciation and amortization increased from 17.0% to 19.3% for the three
months ended June 30, 1995 and 1996, respectively.
Operating income before depreciation and amortization decreased to 5.3% of
total revenue for the three months ended June 30, 1996, as compared to 41.6%
for the same period of the prior year. This decrease reflects an increase in
operations and selling, general, and administrative costs resulting from the
Company's entrance into PCS. Similarly, the Company experienced a first quarter
1996 negative operating margin as compared to an operating margin of 24.6% for
the same period in 1995.
The Company incurred net interest expense of $1,158,482 for the three
months ended June 30, 1996, as compared to $273,185 for the same period of the
prior year. This increase is due to interest costs associated with the debt
offerings that became effective on February 7 and April 16, 1996 (see
"Liquidity and Capital Resources"). Additionally, approximately $7.2 million of
interest expense has been capitalized to construction through June 30, 1996 as
the Company completes its initial build-out.
The results for the three months ended June 30, 1996 and 1995 reflect an
offset to expense of $71,162 and $20,014, respectively, related to the Northern
Maine Partnership and the minority partner's share of the loss in the
partnership for the periods. The amount represents 49% of the Northern Maine
Partnership's loss for the year.
The effective income tax rates for the three months ended June 30, 1996
and 1995 were 36.6% (tax benefit) and 41.6% (tax provision), respectively. The
1996 tax benefit reflects the utilization of NOL carrybacks to prior years'
taxable income.
13
<PAGE> 14
The following tables reflect the composition of the Company's service
revenue and equipment sales, and related gross margins, as well as overall
operating and other costs and margins, as a percentage of total revenue.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
% OF % OF
1996 REVENUE/SALES 1995 REVENUE/SALES
<C> <C> <C> <C> <C>
SERVICE REVENUE & COST
ANALYSIS:
Service Revenue
Local Customers -
Access Revenue $ 7,039,340 48.5% $ 5,746,320 49.6%
Airtime Revenue 2,837,877 19.6% 2,264,236 19.5%
Toll Revenue 370,205 2.5% 279,937 2.4%
------------ ------- ------------ -------
10,247,422 70.6% 8,290,493 71.5%
------------ ------- ------------ -------
Roamers -
Access & Airtime Revenue 3,098,813 21.4% 2,412,834 20.8%
Toll Revenue 823,902 5.7% 575,269 5.0%
------------ ------- ------------- -------
3,922,715 27.1% 2,988,103 25.8%
------------ ------- ------------ -------
Other Service Revenue 331,051 2.3% 310,020 2.7%
------------ ------- ------------ -------
Total Service Revenue 14,501,188 100.0% 11,588,616 100.0%
Cost of Services 1,423,850 9.8% 1,085,011 9.4%
------------ ------- ------------ -------
Gross Margin $ 13,077,338 90.2% $ 10,503,605 90.6%
============ ======= ============ =======
EQUIPMENT SALES & COST
ANALYSIS:
Equipment Sales $ 1,805,406 100.0% $ 1,778,167 100.0%
Cost of Equipment Sales 1,496,870 82.9% 1,451,629 81.6%
Gross Margin $ 308,536 17.1% $ 326,538 18.4%
============ ======= ============ =======
OPERATING MARGIN
ANALYSIS:
Total Revenues $ 16,306,594 100.0% $ 13,366,783 100.0%
------------ ------- ------------ -------
Operating Expense -
Cost of Services & Equipment Sales 2,920,720 17.9% 2,536,640 19.0%
Operations 2,824,364 17.3% 1,608,894 12.0%
Selling, General, & Administrative 7,927,787 48.6% 4,011,776 30.0%
Depreciation & Amortization 3,243,337 19.9% 2,319,334 17.4%
------------ ------- ------------ -------
Total Operating Expenses 16,916,208 103.7% 10,476,644 78.4%
------------ ------- ------------ -------
Operating Income (609,614) (3.7%) 2,890,139 21.6%
Interest Expense, net 419,304 2.6% 572,507 4.3%
Loss on Equity Investments 34,158 0.2% 0 0.0%
Minority Interest in Cellular Partnership (150,266) (0.9%) (75,115) (0.6%)
Miscellaneous (Income) Expense 376,294 2.3% (326,798) (2.5%)
------------ ------- ------------ -------
Income Before Income Taxes (1,289,104) (7.9%) 2,719,545 20.4%
Income Tax Benefit (Provision) 369,648 2.3% (1,146,549) (8.6%)
------------ ------- ------------ -------
Net Income $ (919,456) (5.6%) $ 1,572,996 11.8%
============ ======= ============ =======
</TABLE>
14
<PAGE> 15
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Service revenue from local customers increased $1,293,020, or 22.5%, for
the six months ended June 30, 1996, as compared to the same period of 1995. A
28.2% increase in the number of customers (to 42,442 at June 30, 1996, from
33,113 at June 30, 1995) was the primary factor driving this growth. The
substantial increase in new customers reflects the continued success of the
Company's marketing efforts.
The average monthly service revenue per customer (excluding roaming
revenue and equipment charges) decreased to $42.21 for the six months ended
June 30, 1996, from $44.90 for the same period of the prior year. This decrease
was due primarily to the addition of customers who tend to use cellular service
less frequently.
Toll revenue attributable to local customers for the six months ended June
30, 1996 increased $90,268, or 32.3%, compared to the same period of 1995. This
increase is primarily attributable to increased customers and a change in
classification of subsidized roaming toll costs between reporting periods. For
the six months ended June 30, 1995, such costs were classified as a reduction
of local toll revenue. However, for the six months ended June 30, 1996, such
costs were properly classified as a cost of service.
Roamer revenue (including roamer long distance) for the six months ended
June 30, 1996 increased $934,612, or 31.3%, compared to the same period of the
prior year. This increase relates primarily to increased market penetration
levels by the cellular industry as a whole. In addition, during the third
quarter of 1995, the Company entered into an agreement with BellSouth Mobility
to provide discounted rates to BellSouth Mobility for its northern Georgia
customers roaming in the Company's Georgia and Alabama service area in exchange
for discounted rates for the Company's Georgia and Alabama customers roaming in
certain parts of BellSouth Mobility's service area. Although this agreement
initially resulted in a slight reduction in overall roaming revenue, management
believes that the agreement has now resulted in increased roaming revenue due
to the effects of its reduced pricing and the promotion of such reduced pricing
by BellSouth Mobility to its applicable customer base.
Monthly access revenue remains the largest component of service revenue,
representing 48.5% of revenue during the six months ended June 30, 1996, as
compared to 49.6% of revenue for the prior year period. Roaming revenue
increased to 27.1% of service revenue for the six months ended June 30, 1996,
as compared to 25.8% of service revenue for the same period of 1995. These
changes reflect the effects of the roaming agreement with BellSouth Mobility as
discussed above.
Cost of services includes cost of access to local exchange company
facilities, cost of roaming validation (provided by a third-party clearing
house), cost for long distance toll services (provided by both interexchange
carriers and local exchange companies), cost of installation when performed by
outside contractors, costs associated with cellular fraud, and cost of
supplementary services (such as voice mail). For the six months ended June 30,
1996, cost of services was 9.8% of total service revenue, compared to 9.4% for
the same period in 1995. This increase is primarily attributable to increased
costs associated with cellular fraud and the aforementioned change in
classification of subsidized roaming toll costs.
Equipment sales amounted to $1,805,406 for the six months ended June 30,
1996, an increase of $27,239, or 1.5% due to the sale of a higher percentage
of portable phones to total phones sold during the six months ended June 30,
1996 as compared to the same period in the prior year.
Cost of equipment sales increased $45,241 for six months ended June 30,
1996, a 3.1% increase over the same period of the prior year. The gross margin
on equipment sales was 17.1% and 18.4% for six months ended June 30, 1996 and
1995, respectively. Cost of sales increased due to the increased sales of
equipment during the first six months of 1996 compared to the same period of
the prior year. The decrease in the related margin is primarily attributable to
the reduction in equipment sales prices in the Maine Market.
15
<PAGE> 16
Operations costs, which include the costs of maintaining the cellular
system, customer service (including PCS customer service personnel recruiting
costs, salaries and training costs), inventory management, and in-house
installations, totaled $2,824,364 for six months ended June 30, 1996, which
represented an increase of $1,215,470, or 75.6%, from the same period of 1995.
As a percentage of total revenue, operations costs increased from 12.0% for the
six months ended June 30, 1995 to 17.3% for the same period of 1996. The main
components of cost in this category are employee-related costs (salaries,
payroll taxes, and employee benefits), the provision for bad debts, and
communication costs (i.e. telephone, paging, etc.). The increase in the first
six months of 1996 over the first six months of 1995 was primarily due to the
hiring of additional personnel to facilitate the Company's entrance into the
PCS business and the expenses related to this expansion (see "Liquidity and
Capital Resources").
Selling, general, and administrative costs ("SG&A") were $7,927,787 for
six months ended June 30, 1996, an increase of $3,916,011, or 97.6%, as
compared to the same period of the prior year. This increase was primarily
attributable to several factors, including increases in employee-related costs
due to the hiring of more employees to facilitate the Company's expansion into
the PCS business, and increases in billing costs due to more customers.
Depreciation and amortization include principally the depreciation of the
cellular system and the amortization of promotional credits associated with
Company's promotional programs. Depreciation and amortization expense totaled
$3,243,337 for the six months ended June 30, 1996, as compared to $2,319,334
for the same period in 1995. Depreciation expense increased as a result of the
installation of a new digital switch (placed in service during August 1995) and
the related radio equipment in the Southern Market and the construction of nine
additional cell sites. As a percentage of revenue, depreciation and
amortization increased from 17.4% to 19.9% for the six months ended June 30,
1995 and 1996, respectively.
Operating income before depreciation and amortization decreased to 16.2%
of total revenue for the six months ended June 30, 1996, as compared to 39.0%
for the same period of the prior year. This decrease reflects an increase in
operations and selling, general, and administrative costs. Similarly, the
Company had an operating loss for the six months ended June 30, 1996 as
compared to a 21.6% operating income margin for the same period in 1995.
The Company incurred net interest expense of $419,304 for the six months
ended June 30, 1996, as compared to $572,507 for the same period of the prior
year. This decrease is due to interest costs associated with the debt offerings
that became effective on February 7 and April 16, 1996 (see "Liquidity and
Capital Resources") which were more than offset by interest earned on such
proceeds during the six months ended June 30, 1996. Additionally, approximately
$7.2 million of interest expense has been capitalized to construction through
June 30, 1996 as the Company completes its initial build-out.
The results for the six months ended June 30, 1996 and 1995 reflect an
offset to expense of $150,266 and $75,115, respectively, related to the
Northern Maine Partnership and the minority partner's share of the loss in the
partnership for the periods. The amount represents 49% of the Northern Maine
Partnership's loss for the year.
The effective income tax rates for six months ended June 30, 1996 and 1995
were 28.7% (tax benefit) and 42.2% (tax provision), respectively. The 1996 tax
benefit reflects the utilization of NOL carrybacks to prior years' taxable
income.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant amounts of capital for funding its entry
into the PCS business and for the operation of its cellular system,
construction of additional cell sites and equipment additions to expand
existing cellular capacity. The Company may also require additional financing
in the event it decides to make additional acquisitions.
On February 7, 1996, the Company received approximately $110.1 million of
net proceeds from the sale of 7,124,322 shares of its Common Stock (which
includes 124,322 shares purchased in March 1996 under the underwriters'
overallotment option) in a public offering (the "Stock Offering"); and received
approximately $192.2 million of net proceeds from the sale of 35,747 units,
consisting in the aggregate of $357,470,000 principal amount at maturity of the
Company's 12% Senior Discount Notes due 2006 (the "12% Notes") and 1,143,904
warrants (the "Warrants") to purchase an equal number of shares of the
Company's common stock at an exercise price of $18.15 per share, subject to
adjustment (the "Unit Offering"; and together with the Stock Offering, the
"February Offerings"). A portion of the net proceeds from the February
Offerings was used to repay all previously outstanding borrowings. The balance
of the net proceeds from the February Offerings will be used to partially
finance the buildout and operating costs of the PCS system for, and certain
acquisition expenses associated with the Birmingham, Jacksonville and
Memphis/Jackson MTAs.
Pursuant to an Asset Purchase Agreement, dated as of March 5, 1996,
between InterCel Atlanta Licenses, Inc., a wholly owned subsidiary of the
Company (the "Atlanta License Subsidiary") and GTE Mobilnet Incorporated ("GTE
Mobilnet"), on June 28, 1996 the Company purchased GTE Mobilnet's license to
provide PCS in the Atlanta (M011) PCS MTA for approximately $195 million (the
"Atlanta MTA Acquisition"). Also on June 28, 1996, pursuant to a stock purchase
agreement dated as of March 4, 1996, between the Company and Ericsson, Inc
("Ericsson"), Ericsson purchased 100,000 shares of nonvoting Series A
Convertible Preferred Stock from the Company in a private placement for an
aggregate purchase price of $75 million (the "Ericsson Preferred Stock Sale"),
and pursuant to a Stock Purchase Agreement dated as of March 4, 1996, between
the Company and MPX Systems, Inc. ("MPX"), MPX purchased 100,000 shares of
nonvoting Series B Convertible Preferred Stock from the Company in a private
placement for an aggregate purchase price of $75 million (the "MPX Preferred
Stock Sale"; and together with the Ericsson Preferred Stock Sale, the
"Preferred Stock Sales").
On April 16, 1996, the Company received and concurrently escrowed
approximately $193.2 million of net proceeds from the sale of the Company's 12%
Senior Discount Notes due May 2006 (the "Notes") in a public offering (the
"Atlanta Offering"). The escrowed funds and all earnings thereon were released
to the Company on June 28, 1996 in connection with the Atlanta MTA Acquisition.
The Company intends to use the net proceeds from the Atlanta Offering and the
Preferred Stock Sales primarily to partially finance development, construction
and operating costs and certain acquisition expenses associated with the PCS
system.
The development, construction and initial start-up phase associated with
the implementation of the Company's PCS system will require substantial
capital. Costs associated with the PCS system buildout include tower sites,
leasehold improvements, base station and switch equipment, microwave relocation
costs and labor expenses related to construction of sites. Upon completion of
the initial buildouts, the PCS system is expected to cover approximately 81,000
square miles with coverage of approximately 60% of the population within the
Company's PCS markets. The initial coverage will extend across each of the 22
major metropolitan areas within the Company's PCS markets, as well as the major
highway corridors connecting those areas. The Company thereafter expects to
continue to build the PCS system in less populous areas of its PCS markets,
based on customer needs and competitive factors (in the same way that most of
the country's cellular systems have been built).
17
<PAGE> 18
Pursuant to a $125 million credit agreement with Ericsson (the "Vendor
Financing Agreement"), Ericsson agreed, subject to the terms and conditions
therein, to provide the Company with up to $125 million of financing for
purchases of PCS equipment and services under an equipment purchase agreement
between the Company and Ericsson. Under certain circumstances, the amount of
vendor financing available under the Vendor Financing Agreement may be
increased to $165 million. The Company's obligations under the Vendor Financing
Agreement are secured by all tangible assets purchased with the proceeds
therefrom and by a pledge of the capital stock of the Company's subsidiaries
that hold the PCS licenses for the Current PCS Markets. In the event the amount
of available vendor financing is increased, the Company's obligations will also
be secured by a pledge of the capital stock of the Company's subsidiary that
holds the PCS license for the Atlanta MTA. As of June 30, 1996, the Company had
borrowings totaling approximately $16 million under the Vendor Financing
Agreement.
The Vendor Financing Agreement requires the Company to maintain certain
financial ratios. The failure of the Company and its subsidiaries to maintain
such ratios would constitute events of default under the agreement,
notwithstanding the ability of the Company to meet its debt service
obligations. An event of default under such agreement would allow the lender to
accelerate the maturity of such indebtedness. In such event, a significant
portion of the Company's other indebtedness may become due and payable. The
Company was in compliance with all such ratios as of June 30, 1996.
The Company believes that cash on hand and borrowings under the Vendor
Financing Agreement will be sufficient to finance the development, construction
and operating costs associated with the initial buildout of the Company's PCS
system through 1997.
Although the Company is currently unable to predict the amount of
expenditures that may be made after 1997, the Company expects that it may
require additional capital for the buildout of the PCS system after 1997.
Sources of additional capital may include vendor financing, cash flow from
cellular operations, public and private equity and debt financings by the
Company and proceeds received from any exercises of the Warrants. The Company
may also require additional financing in the event it is successful in the
FCC's upcoming D, E and F block auction for 10 MHz PCS licenses or it decides
to make additional acquisitions. The extent of additional financing required
will depend on the success of the Company's businesses. The Company currently
has no other sources of income or cash flows other than its cellular operations
and the interest income earned from investing the net proceeds of the February
Offerings and the Atlanta Offering. There can be no assurance that additional
financing will be available to the Company, or if available, that it can be
obtained on terms acceptable to the Company and within the limitations
contained in the indentures to the Notes and the 12% Notes (the "Indentures")
or the Vendor Financing Agreement or limitations that may be contained in any
future financing arrangements. The restrictions on additional indebtedness
under the Indentures require the Company to satisfy specified leverage ratios
in order to incur indebtedness; however, they permit the Company and its
subsidiaries to incur an unlimited amount of additional indebtedness to finance
the acquisition of inventory or equipment.
The Company expects to incur significant operating losses and to generate
negative cash flow from operating activities during the next several years,
while it develops and constructs its PCS system and builds a PCS customer base.
Cash interest will not be payable on the Notes or the 12% Notes prior to 2001.
However, the accretion of original issue discount on the 12% Notes and the
Notes will cause an increase in the Company's indebtedness under the Indentures
of $323.4 million ($163.6 million by February 1, 2001, with respect to the 12%
Notes and $159.8 million by May 1, 2001, with respect to the Notes). The Notes
and the 12% Notes will require semi-annual cash interest payments beginning in
2001. Management believes that cash flow from operations may be insufficient
to repay the Notes and the 12% Notes in full at maturity and that such notes
may need to be refinanced at maturity. There can be no assurance that any such
refinancing could be effected successfully or on terms acceptable to the
Company.
18
<PAGE> 19
During the six months ended June 30, 1996, the Company generated net cash of
$1,284,220 from operating activities, which was a decrease of $1,857,806 from
the same period of 1995. Operating income, before depreciation and
amortization, decreased from $5,209,473 for the first six months of 1995 to
$2,633,723 for the first six months of 1996 due primarily to the aforementioned
PCS related expenditures.
Cash used for investing activities was $362,595,112 for the six months
ended June 30, 1996 as compared to $20,163,680 for the same period of 1995.
Investing activities for the six months ended June 30, 1996 included capital
expenditures totaling $55,287,495 (the majority of which related to buildout
and development of the PCS system), investment of proceeds from the Preferred
Stock Sales and Atlanta Offering in marketable securities of $127,444,316 and
the acquisition of the Atlanta MTA license for $195,241,900. Additionally, the
Company acquired $15,378,599 of cash in the acquisition of Powertel PCS
Partners, L.P. during the first six months of 1996.
Cash provided by financing activities amounted to $642,168,890 for the six
months ended June 30, 1996 which principally reflects the proceeds from the
Offerings, the Atlanta Offering, and the Preferred Stock Sales.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
<TABLE>
<S> <C>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
*2(a) -- Business Combination Agreement dated as of August 23, 1995 by and among
InterCel, Inc., Powertel PCS Partners, L.P., the partners of Powertel PCS
Partners, L.P. and the stockholders of certain of the partners of Powertel
PCS Partners, L.P. (Filed as Exhibit 2(a) to Registration Statement on Form
S-1, File No. 33-96218 ("1995 Form S-1"), and incorporated herein by
reference.)
*2(b) -- Amended and Restated Business Combination Agreement dated as of August 12,
1993 among Unity Telephone Company, InterCel, Inc., and certain stockholders
of Unity Telephone Company, with Exhibits. (Filed as Exhibit 2 to
Registration Statement on Form S-1, File No. 33-72734 ("1993 Form S-1"), and
incorporated herein by reference.)
*2(c) -- Letter Agreement dated January 31, 1994 among Bert G. Clifford, Coral B.
Clifford, and InterCel, Inc. (Filed as Exhibit 2(a) to 1993 Form S-1, and
incorporated herein by reference.)
*2(d) -- Amendment No. 1 to Business Combination Agreement dated as of October 17,
1995 between InterCel, Inc. and InterCel PCS Services, Inc. (Filed as
Exhibit 2(d) to 1995 Form S-1, and incorporated herein by reference.)
*10(a) -- Lease Agreement dated September 1, 1990 by and between Interstate Telephone
Company and Interstate Cellular, Inc. for the premises located at 910 First
Avenue, West Point, Georgia (Filed as Exhibit 10(f) to Registration
Statement on Form S-18, File No. 33-41230 ("Form S-18"), and incorporated
herein by reference.)
*10(b) -- Connection and Traffic Interexchange Agreement dated November 19, 1990
between Southern Bell Telephone and Telegraph Company and Interstate
Cellular, Inc. (Filed as Exhibit 10(h) to Form S-18, and incorporated herein
by reference.)
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
*10(c) -- Connection and Traffic Interchange Agreement dated September 15, 1990 by and
between Interstate Telephone Company and Interstate Cellular, Inc. (Filed as
Exhibit 10(i) to Form S-18, and incorporated herein by reference.)
*10(d) -- Building Lease dated November 1, 1991 between InterCel, Inc. and Riverside
Corporation. (Filed as Exhibit 10(q) to Annual Report on Form 10-K for the
year ended Dec. 31, 1991, File No. 33-41230, and incorporated herein by
reference.)
*10(e) -- InterCel, Inc. 1995 Employee Restricted Stock Plan (as amended on November
17, 1995). (Filed as Exhibit 10(e) to 1995 Form S-1, and incorporated herein
by reference.)
*10(f) -- InterCel, Inc. 1991 Stock Option Plan (as amended on November 17, 1995).
(Filed as Exhibit 10(f) to 1995 Form S-1, and incorporated herein by
reference.)
*10(g) -- InterCel, Inc. Amended Nonemployee Stock Option Plan. (Filed as Exhibit
10(q) to Annual Report on Form 10-K for the year ended Dec. 31, 1994, File
No. 0-23102 ("1994 Form 10-K"), and incorporated herein by reference.)
*10(h) -- Amended and Restated Option Agreement dated as of October 29, 1993 among
InterCel, Inc., Bert G. Clifford, and Coral B. Clifford. (Filed as Exhibit
10(gg) to 1993 Form S-1, and incorporated herein by reference.)
*10(i) -- Directed Employee Benefit Trust Agreement between The Charles Schwab Trust
Company and InterCel, Inc. (Filed as Exhibit 10(jjjj) to 1994 Form 10-K, and
incorporated herein by reference.)
*10(j) -- InterCel, Inc. 401(k) Profit Sharing Plan. (Filed as Exhibit 10(j) to 1995
Form S-1, and incorporated herein by reference.)
*10(k) -- Defined Benefit Pension Plan and Trust Adoption Agreement (Unity Telephone
Company) dated as of January 15, 1984. (Filed as Exhibit 10(ss) to 1993 Form
S-1, and incorporated herein by reference.)
*10(l) -- Defined Benefit Pension Plan (Unity Telephone Company). (Filed as Exhibit
10(tt) to 1993 Form S-1, and incorporated herein by reference.)
*10(m) -- Amendment to the Unity Telephone Company Pension Plan dated June 29, 1992.
(Filed as Exhibit 10(uu) to 1993 Form S-1, and incorporated herein by
reference.)
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
*10(n) -- Software License Agreement between InterCel, Inc. and Systematics
Telecommunications Services, Inc. dated July 24, 1992. (Filed as Exhibit
10(aa) to 1992 Form 10-KSB, and incorporated herein by reference.)
*10(o) -- Lease Agreement dated August 17, 1992 between InterCel, Inc. and Eastern
Telecom. (Filed as Exhibit 10(cc) to 1992 Form 10-KSB, and incorporated
herein by reference.)
*10(p) -- Customer Acceptance Agreement dated December 21, 1992 between InterCel, Inc.
and Interstate/Valley Telephone Company. (Filed as Exhibit 10(gg) to 1992
Form 10-KSB, and incorporated herein by reference.)
*10(q) -- Agreement dated as of October 29, 1993 among InterCel, Inc., Unity Cellular
Systems, Inc., and New York Cellular Geographic Service Area, Inc. (Filed as
Exhibit 10(hh) to 1993 Form S-1, and incorporated herein by reference.)
*10(r) -- Letter Agreement dated January 24, 1995 among InterCel, Inc., Unity Cellular
Systems, Inc. and New York Cellular Geographic Service Area, Inc. amending
Agreement dated October 29, 1993 among the same parties and filed as Exhibit
10(q). (Filed as Exhibit 10(xxx) to 1994 Form 10-K, and incorporated herein
by reference.)
*10(s) -- Directors and Officers Insurance and Company Reimbursement Policy. (Filed as
Exhibit 10(ii) to 1993 Form S-1, and incorporated herein by reference.)
*10(t) -- Form of Indemnity Agreement. (Filed as Exhibit 10(jj) to 1993 Form S-1, and
incorporated herein by reference.)
*10(u) -- Partnership Agreement dated as of June 1, 1992 between New York Cellular
Geographic Service Area, Inc. and Unity Cellular Systems, Inc. (Filed as
Exhibit 10(qq) to 1993 Form S-1, and incorporated herein by reference.)
*10(v) -- Software Product License Agreement dated May 2, 1988 between NovAtel
Communications Ltd. and Unity Cellular Systems, Inc. (Filed as Exhibit
10(rr) to 1993 Form S-1, and incorporated herein by reference.)
*10(w) -- Limited Partnership Agreement of Powertel PCS Partners, L.P. dated as of
October 26, 1994. (Filed as Exhibit 10(yyy) to 1994 Form 10-K, and
incorporated herein by reference.)
*10(x) -- First Amendment of Limited Partnership Agreement of Powertel PCS Partners,
L.P. dated as of June 7, 1995. (Filed as Exhibit 10(mm) to 1995 Form S-1,
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
and incorporated herein by reference.)
*10(y) -- Management Agreement dated October 28, 1994 between Powertel PCS Partners,
L.P. and InterCel PCS Services, Inc. (Filed as Exhibit 10(zzz) to 1994 Form
10-K, and incorporated herein by reference.)
*10(z) -- Agreement dated July 28, 1995 between InterCel, Inc. and GGT U.S.A./South,
Inc. d/b/a Bright House. (Filed as Exhibit 10(oo) to 1995 Form S-1, and
incorporated herein by reference.)
*10(aa) -- DMS-MTX Cellular Supply Agreement dated March 29, 1995 between InterCel,
Inc. and Northern Telecom Inc. (Filed as Exhibit 10(pp) to 1995 Form S-1,
and incorporated herein by reference.)
*10(bb) -- Amendment No. 1 to DMS-MTX Cellular Supply Agreement between InterCel, Inc.
and Northern Telecom Inc. dated August 9, 1995. (Filed as Exhibit 10(qq) to
1995 Form S-1, and incorporated herein by reference.)
*10(cc) -- DMS-MTX Cellular Supply Agreement dated August 9, 1995 between Unity
Cellular Systems, Inc. d/b/a Unicel and Northern Telecom Inc. (Filed as
Exhibit 10(rr) to 1995 Form S-1, and incorporated herein by reference.)
*10(dd) -- Lease Agreement effective as of July 1, 1995 between ITC Holding Company,
Inc., InterCel, Inc. and Telecommunications Operations Group. (Filed as
Exhibit 10(ss) to 1995 Form S-1, and incorporated herein by reference.)
*10(ee) -- Information and Network Products and Services Agreement dated May 16, 1994
between Unity Cellular Systems, Inc. d/b/a Unicel and GTE Telecommunication
Services Incorporated. (Filed as Exhibit 10(tt) to 1995 Form S-1, and
incorporated herein by reference.)
*10(ff) -- Information and Network Products and Services Agreement dated June 16, 1994
between InterCel, Inc. and GTE Telecommunication Services Incorporated.
(Filed as Exhibit 10(uu) to 1995 Form S-1, and incorporated herein by
reference.)
*10(gg) -- Site Acquisition Services Agreement entered into as of September 18, 1995,
by and between Telesite Services, L.L.C. and Powertel PCS Partners, L.P.
(Filed as Exhibit 10(vv) to 1995 Form S-1, and incorporated herein by
reference.)
*10(hh) -- Site Acquisition Services Agreement entered into as of September 15, 1995,
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C>
by and between Silvergate, L.L.C. and Powertel PCS Partners, L.P. (Filed as
Exhibit 10(ww) to 1995 Form S-1, and incorporated herein by reference.)
*10(ii) -- Site Acquisition Services Agreement entered into as of September 20, 1995,
by and between Teletronics, Inc. and Powertel PCS Partners, L.P. (Filed as
Exhibit 10(xx) to 1995 Form S-1, and incorporated herein by reference.)
*10(jj) -- Amendment No. 1 to Site Acquisition Services Agreement entered into as of
December 4, 1995 by and between Silvergate, L.L.C. and Powertel PCS
Partners, L.P. (Filed as Exhibit 10(yy) to 1995 Form S-1, and incorporated
herein by reference.)
*10(kk) -- ITC Holding Company, Inc. Employees Pension Plan and Trust (as amended on
December 15, 1994). (Filed as Exhibit 10(zz) to 1995 Form S-1, and
incorporated herein by reference.)
*10(ll) -- Memorandum of Understanding dated January 19, 1996 between InterCel, Inc.
and Ericsson Inc. (Filed as Exhibit 10(aaa) to 1995 Form S-1, and
incorporated herein by reference.)
*10(mm) -- Commitment Letter dated April 2, 1996 between NationsBank of Texas, N.A. and
Unity Cellular Systems, Inc., InterCel Licenses, Inc. and InterCel, Inc. (Filed as Exhibit 10(mm)
to Registration Statement on Form S-1, File No. 333-2748 ("1996 Form S-1"), and
incorporated herein by reference.)
*10(nn) -- Credit Agreement dated as of March 4, 1996 among InterCel PCS Services,
Inc., as Borrower, and Ericsson Inc., as Initial Lender, and Ericsson Inc.,
as Agent. (Filed as Exhibit 10(nn) to 1996 Form S-1, and incorporated herein by reference.)
*10(oo) -- Stock Purchase Agreement dated as of March 4, 1996 between InterCel, Inc.
and MPX Systems, Inc. (Filed as Exhibit 10(oo) to 1996 Form S-1, and incorporated herein by
reference.)
*10(pp) -- Stock Purchase Agreement dated as of March 4, 1996 between InterCel, Inc.
and Ericsson Inc. (Filed as Exhibit 10(pp) to 1996 Form S-1, and incorporated herein by
reference.)
*10(qq) -- Asset Purchase Agreement dated as of March 5, 1996 by and between GTE
Mobilnet Incorporated, InterCel Atlanta Licenses, Inc. and InterCel, Inc.
(Filed as Exhibit 10(qq) to 1996 Form S-1, and incorporated herein by reference.)
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
*10(rr) -- Acquisition Agreement dated as of March 4, 1996 between InterCel PCS
Services, Inc. and Ericsson Inc. (Filed as Exhibit 10(rr) to 1996 Form S-1, and incorporated
herein by reference.)
11 -- Statement regarding Computation of Per Share Earnings.
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
(B) REPORTS ON FORM 8-K.
NONE
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERCEL, INC.
--------------
(Registrant)
Date: August 2, 1996 By: /s/ Allen E. Smith
-------------------------------------
Allen E. Smith
President and Chief Executive Officer
Date: August 2, 1996 By: /s/ Fred G. Astor, Jr.
-------------------------------------
Fred G. Astor, Jr.
Executive Vice President and Chief
Financial Officer (Chief Accounting
Officer
26
<PAGE> 1
EXHIBIT 11
INTERCEL, INC.
EARNINGS PER SHARE CALCULATION
PRIMARY & FULLY DILUTED EARNINGS PER SHARE:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
06/30/96 06/30/95 06/30/96 06/30/95
------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Net (Loss) Income $ (1,455,195) $ 850,070 $ (919,456) $ 1,572,996
Weighted average shares outstanding 26,807,161 9,927,550 23,353,072 9,905,995
Common stock equivalents outstanding (a) (b) 350,728 (b) 319,821
----------- ---------- ---------- ----------
26,807,161 10,278,278 23,353,072 10,225,816
----------- ---------- ---------- ----------
Earnings per share $ (0.05) $ 0.08 $ (0.04) $ 0.15
=========== ========== ========== ==========
</TABLE>
(a) Common stock equivalents outstanding includes the dilutive effect of all
outstanding options and warrants calculated using the average stock price
for each period under the treasury stock method.
(b) Excludes 1,131,400 and 1,039,415 common stock equivalents (as calculated
under the treasury stock method) for the quarter and six months ended June
30, 1996, respectively as inclusion of such equivalents would have an
anti-dilutive effect on earnings per share for those periods.
27
<TABLE> <S> <C>
<ARTICLE> CT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERCEL, INC. FOR THE SIX MONTHS ENDED JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<TOTAL-ASSETS> 871,226,706
0
2,000
<COMMON> 268,612
<OTHER-SE> 433,330,396
<TOTAL-LIABILITY-AND-EQUITY> 871,226,706
<TOTAL-REVENUES> 16,306,594
<INCOME-TAX> (369,648)
<INCOME-CONTINUING> (919,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (919,456)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
