<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 SEPTEMBER 30, 1997.
Or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO _____, 19__.
Commission File Number: 0-23102
--------------------------
POWERTEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1944750
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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 a 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.
Class Outstanding at November 11, 1997
Common Stock, $0.01 par value per share 26,919,128
================================================================================
<PAGE> 2
POWERTEL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements..................................... 3
Condensed Consolidated Balance Sheets as of September
30, 1997 and December 31, 1996........................... 3
Condensed Consolidated Statements of Operations for
the three months and nine months ended September 30,
1997 and 1996............................................ 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996........ 5
Condensed Notes to Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
Item 3. Quantitative and Qualitative Disclosure About Market
Risks.................................................... 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................ 18
Item 5. Other Information........................................ 18
Item 6. Exhibits and Reports on Form 8-K......................... 18
SIGNATURES
EXHIBIT INDEX
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POWERTEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(DOLLARS IN THOUSANDS)
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 375,463 $ 185,525
Restricted cash for payment of interest 33,375 --
Cash in escrow 5,405 --
Short-term investments -- 75,659
Accounts receivable - net of allowance for doubtful accounts 17,739 8,228
Inventories 8,759 7,805
Prepaid expenses and other 5,369 12,642
------------- ------------
446,110 289,859
------------- ------------
PROPERTY AND EQUIPMENT, AT COST: 432,740 261,251
Less: accumulated depreciation (35,647) (9,982)
------------- ------------
397,093 251,269
------------- ------------
OTHER ASSETS:
Licenses, net 414,082 365,964
Restricted cash for payment of interest 58,155 --
Goodwill, net -- 22,670
Deferred offering costs, net 21,551 13,687
Other 1,997 3,668
------------- ------------
495,785 405,989
------------- ------------
Total assets $ 1,338,988 $ 947,117
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 8,713 $ 7,723
Accrued construction costs 22,513 15,214
Accrued interest 10,721 373
Accrued taxes other than income 6,640 3,609
Accrued other 5,050 5,121
Advance billings and customer deposits 1,931 1,352
Current portion of long-term obligations 210 118
------------- ------------
55,778 33,510
------------- ------------
LONG TERM OBLIGATIONS:
12% Senior Discount Notes due February 2006 236,851 216,465
12% Senior Discount Notes due May 2006 237,162 217,345
11.125% Senior Notes due June 2007 300,000 --
Vendor Financing Agreement 119,081 69,514
Other 721 741
------------- ------------
893,815 504,065
------------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN SUBSIDIARY -- 2,535
------------- ------------
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock 1 1
Series B Convertible Preferred Stock 1 1
Series C Convertible Preferred Stock 1 --
Series D Convertible Preferred Stock 1 --
Common Stock 270 269
Paid-in capital 477,002 430,053
Accumulated deficit (86,091) (22,766)
Deferred compensation (1,445) (206)
Treasury stock (345) (345)
------------- ------------
389,395 407,007
------------- ------------
Total liabilities and stockholders' equity $ 1,338,988 $ 947,117
============= ============
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these statements.
3
<PAGE> 4
POWERTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES AND SALES:
Monthly access revenue $ 8,639 $ 3,741 $ 25,470 $ 10,780
Airtime revenue 2,483 1,642 6,744 4,480
Roaming revenue 1,067 1,865 3,537 4,964
Toll revenue 1,610 666 4,408 1,861
Installation and connection revenue 673 50 1,644 192
Other revenue 366 163 1,391 352
--------- --------- --------- ---------
Total service revenues 14,838 8,127 43,194 22,629
Equipment sales 3,629 980 11,011 2,785
--------- --------- --------- ---------
Total revenues and sales 18,467 9,107 54,205 25,414
--------- --------- --------- ---------
OPERATING EXPENSES:
Cost of services 7,267 1,163 20,391 2,587
Cost of equipment sold 9,898 842 26,632 2,339
Operations 5,453 2,835 12,812 5,659
Selling and marketing 9,066 2,702 23,345 5,643
General and administrative 5,467 4,084 18,384 9,071
Depreciation 12,025 1,012 28,928 2,565
Amortization 1,968 803 4,215 2,493
--------- --------- --------- ---------
Total operating expenses 51,144 13,441 134,707 30,357
--------- --------- --------- ---------
OPERATING LOSS (32,677) (4,334) (80,502) (4,943)
--------- --------- --------- ---------
OTHER EXPENSE (INCOME):
Net interest expense (income) 13,263 (4,459) 24,901 (4,040)
Gain on sale of subsidiary -- -- (41,912) --
Miscellaneous (income) expense (44) 2 (166) 263
--------- --------- --------- ---------
Total other (income) expense 13,219 (4,457) (17,177) (3,777)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (45,896) 123 (63,325) (1,166)
Income tax (provision) benefit -- (64) -- 306
--------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (45,896) 59 (63,325) (860)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- -- (2,583)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (45,896) $ 59 $ (63,325) $ (3,443)
========= ========= ========= =========
PER SHARE DATA:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE $ (1.71) $ -- $ (2.36) $ (0.03)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- -- (0.11)
--------- --------- --------- ---------
NET INCOME (LOSS) PER COMMON SHARE $ (1.71) $ -- $ (2.36) $ (0.14)
========= ========= ========= =========
AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 26,846 27,466 26,824 24,513
========= ========= ========= =========
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these statements.
4
<PAGE> 5
POWERTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows (used in) provided from operating activities:
Net loss $ (63,325) $ (3,443)
Adjustments to reconcile net loss to net cash
provided from (used in) operating activities -
Gain on sale of subsidiary, net (41,912) --
Cumulative effect of change in accounting principle -- 2,583
Depreciation and amortization 33,143 5,058
Bond accretion 22,132 16,043
Other (153) 34
Amortization of deferred offering costs 1,428 1,027
Deferred compensation - restricted stock 216 124
Deferred taxes, net -- (4,433)
Changes in assets and liabilities:
Increase in accounts receivable (11,786) (1,346)
Increase in inventories (1,391) (971)
Decrease (increase) in prepaid expenses and other 7,112 (12,109)
Decrease (increase) in deferred charges and other 575 (9,754)
Increase in accounts payable 1,882 2,205
Increase in accrued expenses 12,866 13,544
Increase in advance billings and customer deposits 931 76
--------- ---------
Net cash (used in) provided from operating activities (38,282) 8,638
--------- ---------
Cash flows provided from (used in) investing activities:
Capital expenditures (184,856) (161,240)
Increase in accrued construction costs 7,299 --
Cash acquired in Powertel Business Combination -- 15,379
Purchase of FCC licenses (31,251) (195,242)
Liquidation (purchase) of short-term investments 36,879 (144,365)
Purchase of long-term investments (58,155) --
Microwave relocation costs (5,709) --
Proceeds from sale of subsidiary 77,204 --
--------- ---------
Net cash used in investing activities (158,589) (485,468)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of Preferred Stock, net 44,898 151,511
Proceeds from sale of Common Stock, net 599 110,166
Proceeds from issuance of Senior Notes, net 291,284 392,324
Borrowings under Vendor Financing Agreement 49,567 45,414
Borrowings from (repayments of) long-term obligations 461 (28,102)
Other -- 309
--------- ---------
Net cash provided from financing activities 386,809 671,622
--------- ---------
Net increase in cash 189,938 194,792
Cash and cash equivalents at beginning of period 185,525 630
--------- ---------
Cash and cash equivalents at end of period $ 375,463 $ 195,422
========= =========
</TABLE>
The accompanying condensed notes to financial statements are an
integral part of these statements.
5
<PAGE> 6
POWERTEL, INC.
CONDENSED NOTES TO CONSOLIDATED 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 Annual Report of Powertel,
Inc. ("Powertel" or the "Company") on Form 10-K for the year ended
December 31, 1996.
2. Certain prior year amounts have been reclassified to conform with the
current period presentation.
3. On May 1, 1997 (the "Closing Date"), pursuant to an Asset Purchase
Agreement dated as of December 23, 1996, Unity Cellular Systems, Inc.
(the "Seller") and Intercel Licenses, Inc. (the "Licensee"), each a
wholly owned subsidiary of the Company, sold and assigned (the "Maine
Disposition") to MRCC, Inc., a wholly owned subsidiary of Rural
Cellular Corporation ("Rural Cellular"), (i) substantially all the
assets and rights of Seller, including Seller's 51% general partnership
interest in the Northern Maine Cellular Partnership; and (ii) the FCC
licenses held by Licensee to provide cellular and microwave service in
the Bangor, Maine RSA and Maine RSA3 and to provide microwave service
in Maine RSA2. On the Closing Date, MRCC, Inc. paid the Seller $71.8
million in cash and paid $5.4 million into escrow. This transaction
resulted in a $41.9 million gain to the Company. On November 3, 1997,
the $5.4 million was released from escrow to the Company. The following
unaudited pro forma condensed consolidated statements of operations
assume the sale occurred at the beginning of each period presented. In
the opinion of management, all adjustments necessary to present fairly
such unaudited pro forma condensed statements of operations have been
made.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
Three Months Ended -----------------------
September 30, 1996 1997 1996
------------------ ---------- --------
<S> <C> <C> <C>
Revenues and Sales $ 4,675 $ 49,288 $13,524
Net Loss (218) (105,614) (3,814)
Net Loss per Share $ (0.01) $ (3.94) $ (0.16)
</TABLE>
4. On May 5, 1997, the Federal Communications Commission (the "FCC")
officially granted the Company personal communications services ("PCS")
licenses for which the Company was the winning bidder in the D/E/F
block auctions for 13 Basic Trading Areas covering approximately 6.8
million persons (according to industry publications) located in
Kentucky, Tennessee, Illinois and Indiana for a purchase price of $31.2
million, of which $6.2 million had previously been paid by the Company.
On May 12, 1997, the Company paid the remaining $25 million and took
possession of these licenses.
5. On June 5, 1997, pursuant to a Stock Purchase Agreement, dated as of
May 23, 1997 between the Company and The Huff Alternative Income Fund,
L.P. ("Huff"), Huff purchased 50,000 shares of nonvoting Series C
Convertible Preferred Stock from the Company in a private placement for
an aggregate purchase price of $22.5 million. Also, on June 5, 1997,
pursuant to a Stock Purchase Agreement, dated as of May 23, 1997
between the Company and SCANA Communications, Inc., a wholly owned
subsidiary of SCANA Corporation ("SCANA"), SCANA purchased 50,000
shares of nonvoting Series D Convertible Preferred Stock from the
Company in a private placement for an aggregate purchase price of $22.5
million.
6. On June 5, 1997, the Company issued $300 million principal amount of
11.125% Senior Notes due June 1, 2007 (the "Notes") in a private
offering. The Company used $89.6 million of the net proceeds from the
offering to purchase and pledge, for the benefit of the holders of the
Notes, certain U.S. government securities in an amount sufficient to
provide for the payment in full of the first six scheduled interest
payments on the Notes. The remaining portion of such amounts are
classified as "Restricted Cash for
6
<PAGE> 7
Payment of Interest" in the accompanying balance sheet. The Company
intends to use the net proceeds from this offering and the
aforementioned preferred stock sales primarily to partially finance the
continued development, construction and operating costs and certain
acquisition expenses associated with the Company's PCS system.
7. During the first quarter of 1996, the Company changed its method of
accounting for costs incurred in connection with certain promotional
programs under which the Company's cellular customers received
discounted cellular equipment or airtime usage credits. Under its
previous accounting method, all such costs were deferred and amortized
over the life of the related non-cancelable cellular telephone service
agreements. Under the new accounting method, the costs are expensed as
incurred. This change in accounting principle resulted in a total
nonrecurring charge for the cumulative effect of this accounting
change, net of taxes, of approximately $2.6 million. Additionally, such
costs are not deferred in conjunction with the acquisition of PCS
customers.
8. The Company, through its subsidiary Powertel/Birmingham Inc.
("Powertel/Birmingham"), was served with a complaint filed on April 4,
1997 by American Page One, Inc. d/b/a American Mobile Wireless
Communications ("Plaintiff") in the circuit court of Macon County,
Alabama. Plaintiff claims that Powertel/Birmingham has breached its
agency contract and has committed other torts with respect to Plaintiff
by failing to accurately track Plaintiff's account with respect to
inventory invoicing and commissions, failing to pay timely commissions,
failing to provide services to Plaintiff's customers in a competent and
accurate manner, billing Plaintiff's customers inaccurately and in
excessive amounts, and making false representations with regard to its
customer service and operational capabilities. Plaintiff is seeking
unspecified damages. While the Company believes that the claims are
without merit and intends to vigorously defend itself, there can be no
assurance that these claims or the loss of its agency relationship with
Plaintiff will not result in a loss of customers acquired from such
agency relationship or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations.
9. The Company received a Civil Investigative Demand (the "Demand") from
the U.S. Department of Justice Antitrust Division (the "Antitrust
Division") requiring the Company to produce certain documents and
answer certain interrogatories in connection with the Antitrust
Division's investigation of possible bid rigging and market allocation
for licenses auctioned by the FCC for broadband PCS frequency blocks.
The Company has cooperated with the Antitrust Division's requests.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Powertel provides PCS in the southeastern United States under the name
"Powertel" and cellular telephone service in contiguous portions of western
Georgia and eastern Alabama under the name "InterCel." The Company formerly
provided cellular telephone service in the State of Maine under the name
"Unicel." On May 1, 1997, the Company sold substantially all the assets related
to its cellular telephone operations in the State of Maine for approximately
$77.2 million. The common stock, par value $0.01 per share (the "Common Stock"),
of the Company is traded on the Nasdaq Stock Market under the symbol "PTEL."
Powertel's PCS licenses encompass a territory of approximately 246,000
contiguous square miles with a population of approximately 24.3 million people
in the Major Trading Areas ("MTAs") of Atlanta, Georgia; Jacksonville, Florida;
Memphis, Tennessee/Jackson, Mississippi; and Birmingham, Alabama (the "Current
PCS Markets"); and in 13 Basic Trading Areas ("BTAs") in Kentucky and Tennessee
(the "Kentucky/Tennessee BTAs"). Powertel first introduced its PCS services in
October 1996 in Jacksonville, Florida and Montgomery, Alabama and, to date, has
launched its PCS services in a total of 21 markets in the Southeast. In all of
these markets, the Company was the first to offer PCS services commercially.
Powertel intends to continue to rapidly build out its PCS network and to launch
its PCS services.
Average revenues per subscriber in the wireless industry have declined
during recent years and are expected to continue to decline in the future. The
Company believes that this downward trend is the result of the addition of
customers who utilize cellular service for personal convenience, security or as
backup for their traditional landline telephones. In addition, 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 subscribers, the number of minutes of
usage per subscriber and the use of more advanced vertical features that will be
offered to PCS subscribers.
The Company's overall historical 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.
As a result of: (i) the significant costs required to build out and
maintain the PCS system, hire and manage the required personnel to operate the
PCS business and market its services; (ii) the subsidization of PCS handsets to
customers; and (iii) the depreciation of PCS equipment and amortization of the
PCS licenses, the Company incurred an operating loss of $32.7 million for the
quarter ended September 30, 1997. The Company expects to continue subsidizing
the cost of PCS handsets to customers for the foreseeable future and expects
that negative PCS equipment margins will continue to contribute significantly to
future operating results. The Company expects to continue incurring significant
operating losses during the remainder of 1997 and thereafter as it continues to
build out its PCS system and build its PCS customer base.
Minimizing customer attrition, or "churn," becomes a greater challenge
as the subscriber base grows and the marketplace becomes more competitive. The
Company achieved an average monthly churn rate of 1.8% for its cellular
business in the quarter ended September 30, 1997. The Company's churn rate for
its PCS business increased to 3.7% as compared to 2.6% for the second quarter of
1997. On a year-to-date basis, the Company's average monthly churn for PCS is
3.0%. During the quarter ended September 30, 1997, the Company proactively
deactivated a substantial number of non-paying accounts. The management of the
Company's accounts receivable aging has been a primary focus in recent months.
The Company's efforts have been hampered by the lack of a developed collection
functionality in the American version of the Company's BSCS billing system. As a
result, the Company is targeting this issue on two fronts: (1) the Company has
added a Vice President of customer service at its corporate headquarters and has
staffed dedicated collection departments in each market with head count to
support anticipated year end subscriber levels; and (2) each group is led by a
collection supervisor, focused on early identification of problem accounts and
proactively contacting them to obtain payment. The Company expects to improve
these churn rates in the future by continuing to focus efforts
8
<PAGE> 9
on collections and on achieving consistently high levels of customer
satisfaction coupled with the Company's proactive customer retention program.
On August 4, 1997, the Company, along with six other leading North
American PCS carriers utilizing the same digital protocol, Global Systems for
Mobile Communications ("GSM"), announced the formation of the North American GSM
Alliance LLC. All members of the alliance have executed roaming agreements with
each other, thereby allowing GSM customers to roam throughout much of the United
States and Canada.
Unless otherwise indicated, all population data set forth herein is
based on the 1996 Paul Kagan Associates, Inc. Cellular/PCS Pop Book.
RESULTS OF OPERATIONS
The following table reflects the composition of the Company's cellular
and PCS service revenue and equipment sales, and related gross margins, as well
as overall operating and other costs and margins. The Company's historical
results of operations, particularly in view of the Maine Disposition and the
start-up costs associated with the Company's PCS business, will not be
comparable with future periods.
<TABLE>
<CAPTION>
QUARTERS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1997 1996
-------------------------------- -------------------------------
COMBINED COMBINED
PCS PCS
AND AND
CELLULAR PCS CELLULAR CELLULAR PCS(A) CELLULAR
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUE & COST ANALYSIS:
Service revenue
Local customers--
Access revenue $ 1,978 $ 6,661 $ 8,639 $ 3,741 $ -- $ 3,741
Airtime revenue 868 1,615 2,483 1,642 -- 1,642
Toll revenue 55 1,199 1,254 194 -- 194
-------- -------- -------- -------- -------- --------
2,901 9,475 12,376 5,577 -- 5,577
-------- -------- -------- -------- -------- --------
Roamers--
Access & airtime revenue 1,067 -- 1,067 1,865 -- 1,865
Toll revenue 356 -- 356 472 -- 472
-------- -------- -------- -------- -------- --------
1,423 -- 1,423 2,337 -- 2,337
-------- -------- -------- -------- -------- --------
Other service revenue 265 774 1,039 213 -- 213
-------- -------- -------- -------- -------- --------
Total service revenue 4,589 10,249 14,838 8,127 -- 8,127
Cost of services 477 6,790 7,267 1,163 -- 1,163
-------- -------- -------- -------- -------- --------
Gross margin $ 4,112 $ 3,459 $ 7,571 $ 6,964 $ -- $ 6,964
======== ======== ======== ======== ======== ========
EQUIPMENT SALES & COST ANALYSIS:
Equipment sales $ 140 $ 3,489 $ 3,629 $ 980 $ -- $ 980
Cost of equipment sales 329 9,569 9,898 543 299 842
-------- -------- -------- -------- -------- --------
Gross margin $ (189) $ (6,080) $ (6,269) $ 437 $ (299) $ 138
======== ======== ======== ======== ======== ========
OPERATING MARGIN ANALYSIS:
Total revenues $ 4,729 $ 13,738 $ 18,467 $ 9,107 $ -- $ 9,107
-------- -------- -------- -------- -------- --------
Operating expense--
Cost of services and equipment 806 16,359 17,165 1,706 299 2,005
Operations 666 4,787 5,453 1,111 1,724 2,835
Selling and marketing 569 8,497 9,066 1,114 1,588 2,702
General and administrative 592 4,875 5,467 1,038 3,046 4,084
Depreciation 484 11,541 12,025 777 235 1,012
Amortization 15 1,953 1,968 803 -- 803
-------- -------- -------- -------- -------- --------
Total operating expenses 3,132 48,012 51,144 6,549 6,892 13,441
-------- -------- -------- -------- -------- --------
Operating income (loss) $ 1,597 $(34,274) (32,677) $ 2,558 $ (6,892) (4,334)
======== ======== ======== ========
Interest expense (income), net 13,263 (4,459)
Miscellaneous (income) expense (44) 2
-------- --------
Income (loss) before income taxes (45,896) 123
Income tax (provision) benefit -- (64)
-------- --------
Net income (loss) $(45,896) $ 59
======== ========
</TABLE>
- ------------------------------
(a) The company did not commence PCS operations until fourth quarter 1996.
9
<PAGE> 10
Quarters Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
The following discussion reflects the Company's results of operations
for its PCS and cellular lines of business. All general corporate costs have
been allocated to those lines of business based on management's estimates of
actual expenses incurred related to such lines of business.
Service revenue from local customers increased $6.8 million, or 121.9%,
for the quarter ended September 30, 1997, as compared to the same period of
1996. Cellular service revenue from local customers decreased $2.7 million, or
48.0%, primarily as a result of the Maine Disposition during the second quarter
of 1997 and the corresponding reduction in customers (to 24,895 at September 30,
1997, from 44,230 at September 30, 1996). PCS service revenue from local
customers, which was $9.5 million for the quarter ended September 30, 1997, was
the result of the continued increase in subscribers (20,795 net subscribers
added for the quarter ended September 30, 1997) to 66,066 at September 30, 1997.
The average monthly service revenue per local cellular subscriber
(excluding roaming revenue and equipment sales) decreased to $39.30 for the
quarter ended September 30, 1997, from $42.60 for the same period of the prior
year. This decrease is attributable to the addition of numerous customers on
lower monthly access rate plans. The average monthly service revenue per local
PCS subscriber was $58.05, which is substantially higher than cellular due
mainly to the higher monthly access fees paid by the majority of the Company's
subscribers and the long distance revenue generated by those subscribers, but
which is lower than the previous quarter due to the addition of PCS customers on
lower monthly access plans.
Roamer revenue (including roamer long distance), which was generated
solely from the Company's cellular business, decreased $914,000, or 39.1%, for
the quarter ended September 30, 1997, as compared to the same period of the
prior year. This decrease is attributable to the Maine Disposition, as well as
the Company's amended agreement with BellSouth Cellular Corp., operating as
Bellsouth Mobility ("BellSouth Mobility"), effective January 16, 1997, under
which the parties agreed to per-minute reductions to the rates charged to
BellSouth Mobility for roaming incurred by its customers in InterCel's service
territory.
Other revenue, which includes primarily activation and installation
fees and fees from optional features, increased $826,000, or 387.8%, for the
quarter ended September 30, 1997, as compared to the same period of 1996. This
increase is due mainly to the activation fees associated with the addition of
PCS subscribers noted above.
Cost of services includes the cost of: (i) interconnection with local
exchange carriers' ("LECs") facilities; (ii) direct cell site costs (e.g.,
property taxes and insurance, site lease costs and electric utilities); (iii)
cellular roaming validation (provided by a third-party clearinghouse); (iv) long
distance toll services; (v) cellular cloning and fraud; and (vi) supplementary
services (such as voice mail). For the quarter ended September 30, 1997, cost of
services increased $6.1 million, or 524.8%, as compared to the same period of
1996 and was 49.0% of total service revenue, compared to 14.3% for the same
period in 1996. This increase is primarily attributable to costs associated with
operating and maintaining the expanding PCS network.
The Company generated a negative cellular equipment margin of 135.0% on
$140,000 of sales for the quarter ended September 30, 1997, as compared to a
positive margin of 44.6% on $1 million of sales for the same period of 1996.
This decrease in margin is due to the Company's change in its method of
accounting for certain promotional costs (primarily equipment credits). Under
the new method of accounting, all cellular equipment subsidies are expensed as
incurred. Such subsidies were deferred and amortized over the life of the
related cellular contract in prior periods. For its PCS operations, the Company
generated a negative equipment margin of 174.3% on $3.5 million of sales for the
quarter ended September 30, 1997, as a result of the Company selling PCS
handsets at less than its cost to attract new subscribers. The Company expects
to continue subsidizing the cost of PCS handsets to consumers for the
foreseeable future.
Operations costs, which include the costs of maintaining the cellular
and PCS systems, customer service, credit and collections (including bad debt
expense) and inventory management totaled $5.5 million for the quarter ended
September 30, 1997, which represented an increase of $2.6 million, or 92.3%,
from the same period of 1996. Cellular operations costs totaled $666,000 for the
quarter ended September 30, 1997, a 40.1% decrease from the same period of 1996,
which is attributable primarily to the Maine Disposition. PCS operations costs
totaled $4.8 million for the quarter ended September 30, 1997, which represented
a 177.7% increase from the
10
<PAGE> 11
same period of 1996 and were comprised primarily of salaries and benefits, bad
debt expense, credit and collection costs and ongoing maintenance costs
associated with the network.
Selling and marketing costs were $9.1 million for the quarter ended
September 30, 1997, an increase of $6.4 million, or 235.5%, as compared to the
same period of the prior year. Substantially all of this increase is
attributable to ongoing PCS advertising costs, as well as the costs of all
direct and indirect sales channels, including commissions incurred as the result
of the continued growth in the number of PCS subscribers.
General and administrative costs ("G&A") were $5.5 million for the
quarter ended September 30, 1997, an increase of $1.4 million, or 33.9%, from
the same period of 1996. This increase is attributable to PCS G&A costs, which
totaled $4.9 million for the quarter ended September 30, 1997 and were comprised
primarily of costs (excluding depreciation) associated with the corporate and
regional facilities, such as salaries and benefits, data processing costs, rent
and communications costs.
Depreciation and amortization for the quarter ended September 30, 1997
totaled $14.0 million, as compared to $1.8 million for the same period of 1996,
and consists principally of the depreciation of the cellular and PCS network and
the amortization of PCS licenses. Substantially all of the increase of $12.2
million in depreciation and amortization for the quarter ended September 30,
1997 is due to the PCS system and PCS licenses, substantial portions of which
were placed in service in late fourth quarter 1996 and throughout 1997. The
Company anticipates these costs will continue to increase in future periods as
additional portions of the PCS system are completed and placed in service.
Net consolidated interest expense totaled $13.3 million for the quarter
ended September 30, 1997, as compared to $4.5 million of net consolidated
interest income for the same period of 1996. The increase of $17.8 million, or
397.4%, is a result of interest expense incurred on the Notes, as well as a
reduction in the amount of interest being capitalized as a cost of construction
on the PCS system and PCS licenses, substantial portions of which now have been
placed in service. Approximately $4.4 million and $12.5 million of interest
expense was capitalized during the quarters ended September 30, 1997 and 1996,
respectively.
The effective income tax rates for the quarters ended September 30,
1997 and 1996 were 0% and 51.7% (tax benefit), respectively. The decrease
between periods is primarily attributable to the deferred tax asset valuation
allowance required as of September 30, 1997. The Company generated a $45.9
million net loss for the quarter ended September 30, 1997 and expects to
continue to incur significant operating losses through the remainder of 1997 and
beyond. The tax benefit of these operating losses will not be recognized until
management determines that it is more likely than not that such benefit is
realizable.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following table reflects the composition of the Company's cellular
and PCS service revenue and equipment sales, and related gross margins, as well
as overall operating and other costs and margins. The Company's historical
results of operations, particularly in view of the Maine Disposition and the
start-up costs associated with the Company's PCS business, will not be
comparable with future periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1997 1996
----------------------------------- ----------------------------------
COMBINED COMBINED
PCS PCS
AND AND
CELLULAR PCS CELLULAR CELLULAR PCS(A) CELLULAR
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUE & COST ANALYSIS:
Service revenue
Local customers--
Access revenue $ 8,653 $ 16,817 $ 25,470 $ 10,780 $ -- $ 10,780
Airtime revenue 3,789 2,955 6,744 4,480 -- 4,480
Toll revenue 372 2,853 3,225 565 -- 565
--------- --------- --------- --------- --------- ---------
12,814 22,625 35,439 15,825 -- 15,825
--------- --------- --------- --------- --------- ---------
Roamers--
Access & airtime revenue 3,537 -- 3,537 4,964 -- 4,964
Toll revenue 1,183 -- 1,183 1,296 -- 1,296
--------- --------- --------- --------- --------- ---------
4,720 -- 4,720 6,260 -- 6,260
--------- --------- --------- --------- --------- ---------
Other service revenue 904 2,131 3,035 544 -- 544
--------- --------- --------- --------- --------- ---------
Total service revenue 18,438 24,756 43,194 22,629 -- 22,629
Cost of services 2,631 17,760 20,391 2,587 -- 2,587
--------- --------- --------- --------- --------- ---------
Gross margin $ 15,807 $ 6,996 $ 22,803 $ 20,042 $ -- $ 20,042
========= ========= ========= ========= ========= =========
EQUIPMENT SALES & COST ANALYSIS:
Equipment sales $ 736 $ 10,275 $ 11,011 $ 2,785 $ -- $ 2,785
Cost of equipment sales 1,941 24,691 26,632 2,040 299 2,339
--------- --------- --------- --------- --------- ---------
Gross margin $ (1,205) $ (14,416) $ (15,621) $ 745 $ (299) $ 446
========= ========= ========= ========= ========= =========
OPERATING MARGIN ANALYSIS:
Total revenues $ 19,174 $ 35,031 $ 54,205 $ 25,414 $ -- $ 25,414
--------- --------- --------- --------- --------- ---------
Operating Expense--
Cost of services and equipment sales 4,572 42,451 47,023 4,627 299 4,926
Operations 2,439 10,373 12,812 3,322 2,337 5,659
Selling and marketing 2,754 20,591 23,345 3,316 2,327 5,643
General and administrative 2,175 16,209 18,384 2,793 6,278 9,071
Depreciation 2,037 26,891 28,928 2,251 314 2,565
Amortization 261 3,954 4,215 2,493 -- 2,493
--------- --------- --------- --------- --------- ---------
Total operating expenses 14,238 120,469 134,707 18,802 11,555 30,357
--------- --------- --------- --------- --------- ---------
Operating income (loss) $ 4,936 $ (85,438) (80,502) $ 6,612 $ (11,555) (4,943)
========= ========= ========= =========
Gain on sale of subsidiary (41,912) --
Interest expense (income), net 24,901 (4,040)
Miscellaneous (income) expense (166) 263
--------- ---------
Income (loss) before income taxes (63,325) (1,166)
Income tax (provision) benefit -- 306
--------- ---------
(Loss) income before cumulative effect (63,325) (860)
Cumulative effect of change in --
accounting principle -- (2,583)
--------- ---------
Net income (loss) $ (63,325) $ (3,443)
========= =========
</TABLE>
- ------------------------------------
(a) The company did not commence PCS operations until fourth quarter 1996.
12
<PAGE> 13
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
The following discussion considers the Company's combined results of
operations for its PCS and cellular lines of business. All general corporate
costs have been allocated to those lines of business based on management's
estimates of actual expenses incurred related to such lines of business.
Service revenue from local customers increased $19.6 million, or
123.9%, for the nine months ended September 30, 1997, as compared to the same
period of 1996. Cellular service revenue from local customers decreased $3
million or 19.0%, primarily as a result of the Maine Disposition during the
second quarter of 1997 and the corresponding reduction in customers (to 24,895
at September 30, 1997 from 44,230 at September 30, 1996). PCS service revenue
from local customers, which was $22.6 million for the nine months ended
September 30, 1997, was the result of the 1997 addition of 51,174 net
subscribers (to 66,066 at September 30, 1997).
The average monthly service revenue per local cellular subscriber
(excluding roaming revenue and equipment sales) decreased to $38.73 for the nine
months ended September 30, 1997, from $42.12 for the same period of the prior
year. This decrease was due primarily to the addition of numerous customers on
lower monthly access rate plans and a decrease in cellular pricing (primarily in
the Maine cellular markets). The average monthly service revenue per local PCS
subscriber was $61.41, which is substantially higher than cellular due mainly to
the higher monthly access fees paid by the majority of the Company's PCS
subscribers and the long distance revenue generated by those subscribers.
Roamer revenue (including roamer long distance), which was generated
solely from the Company's cellular business, decreased $1.5 million, or 24.6%,
for the nine months ended September 30, 1997, as compared to the same period of
the prior year. This decrease is attributable to the Maine Disposition, as well
as the Company's amended agreement with BellSouth Mobility, effective January
16, 1997, under which the parties agreed to per-minute reductions to the rates
charged to BellSouth Mobility for roaming incurred by its customers in
InterCel's service territory.
Other revenue, which includes primarily activation and installation
fees and fees from optional features, increased $2.5 million, or 457.9%, for the
nine months ended September 30, 1997, as compared to the same period of 1996.
This increase is due mainly to the activation fees associated with the addition
of PCS subscribers noted above.
Cost of services includes the cost of: (i) interconnection with LEC
facilities; (ii) direct cell site costs (e.g. property taxes, site lease costs
and electric utilities); (iii) cellular roaming validation (provided by a
third-party clearinghouse); (iv) long distance toll services; (v) cellular
cloning and fraud; and (vi) supplementary services (such as voice mail). For the
nine months ended September 30, 1997, cost of services increased $17.8 million,
or 688.2%, as compared to the same period of 1996 and was 47.2% of total service
revenue, compared to 11.4% for the same period in 1996. This increase is
primarily attributable to costs associated with operating and maintaining the
expanding PCS network. Additionally, the Company, like other participants in the
cellular industry, has experienced a significant increase in costs associated
with both cloning and subscription fraud ($656,000 for the nine months ended
September 30, 1997 versus $147,000 for the same period in 1996).
The Company generated a negative cellular equipment margin of 163.7% on
$736,000 of sales for the nine months ended September 30, 1997, as compared to a
positive margin of 26.8% on $2.8 million of sales for the same period of 1996.
This decrease is due to the Company's change in its method of accounting for
certain promotional costs (primarily equipment credits). Under the new method of
accounting, all cellular equipment subsidies are expensed as incurred. Such
subsidies were deferred and amortized over the life of the related cellular
contract in prior periods. For its PCS operations, the Company generated a
negative equipment margin of 140.3% on $10.3 million of sales for the nine
months ended September 30, 1997 as the result of the Company's continued
subsidization of the cost of PCS handsets. The Company expects to continue
subsidizing the cost of PCS handsets to consumers for the foreseeable future.
Operations costs, which include the costs of maintaining the cellular
and PCS systems, customer service, credit and collections (including bad debt
expense) and inventory management totaled $12.8 million for the nine months
ended September 30, 1997, which represented an increase of $7.2 million, or
126.4%, from the same period of 1996. Cellular operations costs totaled $2.4
million for the nine months ended September 30, 1997, a
13
<PAGE> 14
26.6% decrease from the same period of 1996, which is attributable primarily to
the Maine Disposition. PCS operations costs totaled $10.4 million for the nine
months ended September 30, 1997 and were comprised primarily of salaries and
benefits, bad debt expense, credit and collection costs and ongoing maintenance
costs associated with the network.
Selling and marketing costs were $23.3 million for the nine months
ended September 30, 1997, an increase of $17.7 million, or 313.7%, as compared
to the same period of the prior year. Substantially all of this increase is
attributable to ongoing PCS advertising costs, as well as the costs of all
direct and indirect sales channels, including commissions incurred as the result
of the continued growth in the number of PCS subscribers.
G&A was $18.4 million for the nine months ended September 30, 1997, an
increase of $9.3 million, or 102.7%, from the same period of 1996. This increase
is attributable to PCS G&A costs, which totaled $16.2 million for the nine
months ended September 30, 1997 and were comprised primarily of costs (excluding
depreciation) associated with the Company's corporate and regional facilities,
such as salaries and benefits, data processing costs, rent and communications
costs.
Depreciation and amortization for the nine months ended September 30,
1997, which totaled $33.1 million, as compared to $5.1 million for the same
period of 1996, consists principally of the depreciation of the cellular and PCS
network and the amortization of PCS licenses. Substantially all of the increase
of $28.0 million in depreciation and amortization for the nine months ended
September 30, 1997 is related to the PCS system and PCS licenses, substantial
portions of which were placed in service in late fourth quarter 1996 and
throughout 1997. The Company anticipates these costs will continue to increase
in future periods as additional portions of the PCS system are completed and
placed in service.
Net consolidated interest expense totaled $24.9 million for the nine
months ended September 30, 1997 as compared to $4.0 million of net consolidated
interest income for the same period of 1996. The increase of $28.9 million, or
716.4%, is a result of interest expense incurred on the $300 million Senior
Notes issued June 5, 1997 as well as a reduction in the amount of interest being
capitalized as a cost of construction on the PCS system and PCS licenses,
substantial portions of which now have been placed in service. Approximately
$18.1 million and $19.6 million of interest expense was capitalized through
September 30, 1997 and 1996, respectively.
The effective income tax rates for the nine months ended September 30,
1997 and 1996 were 0% and 26.2% (tax benefit), respectively. The decrease
between periods is primarily attributable to the deferred tax asset valuation
allowance required as of September 30, 1997. The Company generated a $63.3
million net loss for the nine months ended September 30, 1997 and expects to
continue to incur significant operating losses through the remainder of 1997 and
beyond. The tax benefit of these operating losses will not be recognized until
management determines that it is more likely than not that such benefit is
realizable.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant amounts of capital for funding the
operation and expansion of its PCS business. Total capital expenditures,
including capital expenditures for information technology and the support of the
PCS business, are estimated to total approximately $270 million for 1997. Costs
associated with the PCS system buildout include the cost of tower sites,
leasehold improvements, base station and switch equipment and labor expenses
related to construction of sites. The Company currently estimates that capital
expenditures will total approximately $250 million in 1998 relating to the
initial buildout of the PCS systems in the Kentucky/Tennessee BTAs and the
continued expansion of its other PCS markets and the cellular system. By the end
of 1998, the Company expects to be able to offer PCS services in markets
containing approximately 60% of the population within the PCS markets. The
initial coverage is expected to extend across most metropolitan areas, certain
secondary cities and major connecting highway corridors within its PCS markets.
Thereafter, based on customer demand and competitive factors, the Company
intends to continue to build out its PCS system to enhance and expand its
coverage. The Company anticipates that it will need to raise additional capital
to fund the expansion of its PCS system. The Company may also require additional
financing in the event it decides to make acquisitions of additional licenses or
businesses.
On May 1, 1997, pursuant to an Asset Purchase Agreement dated as of
December 23, 1996, among Seller and Licensee, each a wholly owned subsidiary of
the Company, sold and assigned to MRCC, Inc., a wholly owned subsidiary of Rural
Cellular, (i) substantially all the assets and rights of Seller, including
Seller's 51% general partnership interest in the Northern Maine Cellular
Partnership; and (ii) the FCC licenses held by Licensee to provide cellular and
microwave service in the Bangor, Maine RSA and Maine RSA3 and to provide
microwave service in Maine RSA2. On the Closing Date, MRCC, Inc. paid the Seller
$71.8 million in cash and paid $5.4 million into escrow. On November 3, 1997,
the $5.4 million was released from escrow to the Company.
On June 5, 1997, the Company issued $300 million principal amount of
the Notes in a private offering. The Company used $89.6 million of the net
proceeds from the offering to purchase and pledge, for the benefit of the
holders of the Notes, certain U.S. government securities in an amount sufficient
to provide for the payment in full of the first six scheduled interest payments
on the Notes. Also, on June 5, 1997, pursuant to Stock Purchase Agreements dated
as of May 23, 1997 between the Company and Huff and the Company and SCANA. Huff
and SCANA purchased 50,000 shares of Series C Preferred Stock and 50,000 shares
of Series D Preferred Stock, respectively, from the Company in a private
placement, each for an aggregate purchase price of $22.5 million (the "Preferred
Stock Sales"). Each share of Preferred Stock has a liquidation preference over
the Common Stock of $450 per share plus declared and unpaid dividends in
connection with a liquidation, dissolution or winding up of the Company. The
Preferred Stock ranks, as to dividends, on a parity with the Common Stock. The
Series C Preferred Stock and Series D Preferred Stock are redeemable at the
option of the Company, on June 5, 2002 and on June 10, 2002, respectively, in
whole or in part, on a pro rata basis, at a redemption price of $450 per share
plus declared and unpaid dividends. The Series C Preferred Stock and Series D
Preferred Stock become convertible on December 5, 1998 and on March 14, 2002,
respectively, at the option of the holder, into Common Stock at a conversion
price of $12.75, subject to adjustment. The Company intends to use the net
proceeds from the sale of the Notes and the Preferred Stock Sales primarily to
partially finance the continued development, construction and operating costs
and certain acquisition expenses associated with the PCS system.
Powertel PCS, Inc., a wholly owned subsidiary of the Company ("Powertel
PCS"), entered into an Equipment Purchase Agreement dated as of March 4, 1996
with Ericsson Inc. ("Ericsson") for the purchase of PCS equipment and services
(the "Ericsson Equipment Agreement") and a credit agreement (the "Vendor
Financing Agreement") with Ericsson to finance up to $125 million of such
purchases. On October 31, 1996, March 31, 1997, and June 26, 1997, Powertel PCS
and Ericsson entered into amendments to the Vendor Financing Agreement which
increased the amount of vendor financing to $165 million and amended certain
other provisions of the Vendor Financing Agreement. On September 2, 1997,
Powertel PCS and Ericsson entered into an amendment to the Ericsson Equipment
Agreement for the purchase of PCS equipment and services for the
Kentucky/Tennessee BTAs. The Company also obtained a commitment from Ericsson
for an additional $100 million of vendor financing under terms and conditions
similar to those of the Vendor Financing Agreement to finance equipment
purchases.
Although the Company is currently unable to predict with certainty the
amount of expenditures that it may make beyond 1998, the Company expects that it
will require additional capital. Sources of additional capital
15
<PAGE> 16
may include vendor financing, cash flow from operations, public and private
equity and debt financing and asset dispositions by the Company. The Company may
also require additional financing in the event it decides to make acquisitions
of additional licenses or businesses. The extent of additional financing
required will partially 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 and PCS operations and the interest income earned from investing its
cash and the proceeds of the public and private debt and equity offerings which
were completed during 1997 and 1996. 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 its bonds, the Vendor Financing Agreement or 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 significant 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 12% Senior Discount
Notes due February 2006 or the 12% Senior Discount Notes due May 2006
(collectively, the "Senior Discount Notes") prior to 2001. Management believes
that cash flow from operations may be insufficient to repay the Senior Discount
Notes and the Notes or any additional financing that the Company may obtain in
full at maturity and that they may need to be refinanced. There can be no
assurance that any such refinancing could be effected successfully or on terms
acceptable to the Company.
During the nine months ended September 30, 1997, the Company used net
cash of $38.3 million for operating activities, compared to $8.6 million of cash
provided from operating activities during the same period of 1996. Included in
net cash used in operating activities for the nine months ended September 30,
1997 was $63.3 million of net loss, $41.9 million of gain from the Maine
Disposition, $33.1 million of depreciation and amortization, $22.1 million of
bond accretion on the Senior Discount Notes and $10.2 million related to changes
in assets and liabilities.
Cash used in investing activities was $158.6 million for the nine
months ended September 30, 1997, compared to cash used of $485.5 million for the
same period of 1996. For investing activities for the nine months ended
September 30, 1997, the Company incurred capital expenditures totaling $184.9
million (primarily related to the buildout of the PCS system and support
systems), license acquisition costs of $31.3 million and microwave relocation
costs of $5.7 million. The Company also purchased $58.2 million of long-term
investments to be used for payment of certain interest costs related to the
Notes. These costs were partially offset by proceeds from the Maine Disposition
totaling $77.2 million and the liquidation of short-term investments totaling
$36.9 million.
Cash provided from financing activities, which consisted primarily of
the proceeds from the sale of the Notes ($291.3 million), proceeds from the sale
of the Series C Preferred Stock and Series D Preferred Stock ($44.9 million),
and additional borrowings of $49.6 million under the Vendor Financing Agreement
amounted to $386.8 million for the nine months ended September 30, 1997,
compared to $671.6 million for the same period of 1996, during which the Company
completed debt and equity offerings which provided $654.0 million in net
proceeds.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("FAS 128"), which becomes
effective for fiscal years ending after December 15, 1997. FAS 128 changes
certain reporting and disclosure requirements for earnings per share and will
require restatement of all prior period earnings per share amounts. The Company
does not anticipate that this statement will have a material impact on its
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 ("FAS 130"), "Reporting Comprehensive Income," and Statement
of Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures About
Segments of an Enterprise and Related Information." Both statements are
effective for fiscal years beginning after December 15, 1997. The Company does
not anticipate that these statements will have a material impact on its
financial statements.
16
<PAGE> 17
OTHER ANNOUNCEMENTS
An issue which is common to most companies that utilize computerized
information systems concerns the inability of such information systems to
properly recognize and process date sensitive information as the year 2000
approaches. The Company is currently working to address and resolve this issue
with respect to its computerized information systems, but has not yet assessed
the total cost. However, based on preliminary information available to the
Company, such costs are not currently expected to have a material adverse impact
on the Company's financial position or results of operations in future periods.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These statements appear in a number of places in
this Report and include all statements which are not historical facts and which
relate to the intent, belief or expectations of the Company, its directors or
its officers with respect to, among other things: (i) the Company's financing
plans, including the Company's ability to obtain financing in the future; (ii)
trends affecting the Company's financial condition or results of operations;
(iii) the Company's growth strategy (including the Company's anticipated network
buildout) and operating strategy; (iv) the Company's anticipated capital needs
and anticipated capital expenditures; and (v) projected outcomes and effects on
the Company of litigation and investigations concerning the Company. Investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in forward-looking statements as a
result of: (i) factors affecting the availability, terms and cost of capital,
risks associated with the selection of the Company's PCS digital protocol and
PCS system implementation, competitive factors and pricing pressures, general
economic conditions, the failure of the market demand for the Company's products
and services to be commensurate with management's expectations or past
experience, the impact of present or future laws and regulations on the
Company's business, changes in operating expenses or the failure of operating
and buildout expenses to be consistent with management's expectations and the
difficulty of accurately predicting the outcome and effect of certain matters,
such as matters involving litigation and investigations; (ii) various factors
discussed herein; and (iii) those factors discussed in detail in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section of the Company's Registration Statement on Form S-4
(Registration number 333-31399), as declared effective by the Securities and
Exchange Commission on July 31, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, through its subsidiary Powertel/Birmingham was served with
a complaint filed on April 4, 1997 by American Page One, Inc. d/b/a American
Mobile Wireless Communications in the Circuit Court of Macon County, Alabama.
Plaintiff claims that Powertel/Birmingham has breached its agency contract and
has committed other torts with respect to Plaintiff by failing to accurately
track Plaintiff's account with respect to inventory invoicing and commissions,
failing to pay timely commissions, failing to provide services to Plaintiff's
customers in a competent and accurate manner, billing Plaintiff's customers
inaccurately and in excessive amounts, and making false representations with
regard to its customer service and operational capabilities. Plaintiff is
seeking unspecified damages. While the Company believes that the claims are
without merit and intends to vigorously defend itself, there can be no assurance
that these claims or the loss of its agency relationship with Plaintiff will not
result in a loss of customers acquired from such agency relationship or
otherwise have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company received a Demand from the Antitrust Division requiring the
Company to produce certain documents and answer certain interrogatories in
connection with the Antitrust Division's investigation of possible bid rigging
and market allocation for licenses auctioned by the FCC for broadband PCS
frequency blocks. The Company has cooperated with the Antitrust Division's
requests.
ITEM 5. OTHER INFORMATION
On July 16, 1997, the Company filed a Registration Statement on Form
S-4 (Reg. No. 333-31399) under the Securities Act relating to the proposed
exchange (the "Exchange Offer") of up to $300 million principal amount of 11
1/8% Senior Notes due 2007 (the "New Notes") for a like principal amount of the
Company's issued and outstanding 11 1/8% Senior Notes due 2007 (the "Old
Notes"). On September 18, 1997, the Exchange Offer expired. Pursuant to the
Exchange Offer, $298,960,000 principal amount of Old Notes were exchanged for
New Notes. An aggregate of $1,040,000 in principal amount of Old Notes remain
outstanding. The Company did not receive any proceeds from the issuance of the
New Notes.
The Old Notes and the New Notes were issued pursuant to an Indenture
(the "Indenture") dated as of June 10, 1997, between the Company and Bankers
Trust Company, as trustee. The form and terms of the New Notes are identical in
all material respects to the form and terms of the Old Notes except that the New
Notes have been registered under the Securities Act. The New Notes and the Old
Notes are obligations of the Company entitled to the benefits of the Indenture.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
* 4(a) Indenture (including form of Note) dated June 10, 1997 between
InterCel, Inc. and Bankers Trust Company, as Trustee, relating
to the 11 1/8% Senior Notes due 2007 of InterCel, Inc. (Filed
as Exhibit 4(h) to Registration Statement on Form S-4, File
No. 333-31399 (the "1997 Form S-4"), and incorporated herein
by reference.)
* 4(b) Registration Rights Agreement dated June 10, 1997 between
InterCel, Inc. and Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Oppenheimer &
Co., Inc. (Filed as Exhibit 4(i) to the 1997 Form S-4 and
incorporated herein by reference.)
* 4(c) Collateral Pledge and Security Agreement dated June 10, 1997
between InterCel, Inc. and Bankers Trust Company, as
Trustee.** (Filed as Exhibit 4(j) to the 1997 Form S-4 and
incorporated herein by reference.)
* 4(d) Certificate of Amendment to the Certificate of Designations,
Powers, Preferences and Relative, Participating or Other
Rights, and the Qualifications, Limitations or Restrictions
Thereof, of Series B Convertible Preferred Stock of InterCel,
Inc. (Filed as Exhibit 4(k) to the 1997 Form S-4 and
incorporated herein by reference.)
* 4(e) Amended Certificate of Designations, Powers, Preferences and
Relative, Participating or Other
18
<PAGE> 19
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
Rights, and the Qualifications, Limitations or Restrictions
Thereof, of Series C Convertible Preferred Stock of InterCel,
Inc. (Filed as Exhibit 4(l) to the 1997 Form S-4 and
incorporated herein by reference.)
* 4(f) Amended Designations, Powers, Preferences and Relative,
Participating or Other Rights, and the Qualifications,
Limitations or Restrictions Thereof, of Series D Convertible
Preferred Stock of InterCel, Inc. (Filed as Exhibit 4(m) to
the 1997 Form S-4 and incorporated herein by reference.)
* 10(a) Closing Memorandum dated May 1, 1997 by and between Rural
Cellular Corporation, MRCC, Inc., Unity Cellular Systems,
Inc., InterCel Licenses, Inc. and InterCel, Inc. (Filed as
Exhibit 2.2 to the Form 8-K dated May 12, 1997 and
incorporated herein by reference.)**
* 10(b) Agreement effective as of April 1, 1997 by and between
BellSouth Telecommunications, Inc. and InterCel, Inc.** (Filed
as Exhibit 10(pp) to the Form 10-Q for the quarter ended March
31, 1997 (the "1997 First Quarter 10-Q") and incorporated
herein by reference.)
* 10(c) Agreement effective as of April 1, 1997 by and between
BellSouth Telecommunications, Inc. and Powertel, Inc.** (Filed
as Exhibit 10(qq) to the 1997 First Quarter 10-Q and
incorporated herein by reference.)
* 10(d) Stock Purchase Agreement dated May 23, 1997 between InterCel,
Inc. and The Huff Alternative Income Fund, L.P.** (Filed as
Exhibit 10(a) to the 1997 Form S-4 and incorporated herein by
reference.)
* 10(e) Escrow Agreement dated June 5, 1997 between InterCel, Inc. and
The Huff Alternative Income Fund, L.P.** (Filed as Exhibit
10(b) to the 1997 Form S-4 and incorporated herein by
reference.)
* 10(f) Stock Purchase Agreement dated May 23, 1997 between InterCel,
Inc. and SCANA Communications, Inc.** (Filed as Exhibit 10(c)
to the 1997 Form S-4 and incorporated herein by reference.)
* 10(g) Escrow Agreement dated June 5, 1997 between InterCel, Inc. and
SCANA Communications, Inc.** (Filed as Exhibit 10(d) to the
1997 Form S-4 and incorporated herein by reference.)
* 10(h) Amendment No. 2 dated March 31, 1997 to the Credit Agreement
dated March 4, 1996 among Powertel, Inc., Ericsson Project
Finance A.B., as Lender, and Ericsson Inc., as Agent for the
Lenders. (Filed as Exhibit 10(e) to the 1997 Form S-4 and
incorporated herein by reference.)
* 10(i) Amendment No. 3 dated June 26, 1997 to the Credit Agreement
dated March 4, 1996 among Powertel PCS, Inc., the Lenders set
forth on the signature pages thereto and Ericsson Inc., as
Agent for the Lenders. (Filed as Exhibit 10(f) to the 1997
Form S-4 and incorporated herein by reference.)
10(j) Amendment No. 1 dated September 2, 1997 to the Acquisition
Agreement for Ericsson CMS 40 Personal Communications Systems
by and between Ericsson Inc. and Powertel PCS, Inc.+
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule (for SEC use only).
- ------------------------------
* Previously filed.
** The Registrant agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the Securities and Exchange Commission upon
request, as provided in Item 601(b)(2) of Regulation S-K.
+ Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 24(b)(2) under the Exchange
Act. In accordance with Rule 24(b)(2), these confidential portions have
been omitted from this exhibit and filed separately with the
Commission.
(B) REPORTS ON FORM 8-K.
None.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
POWERTEL, INC.
November 12, 1997 /s/ Allen E. Smith
- -------------------- -----------------------------------------------------
Date Allen E. Smith
President and Chief Executive Officer
November 12, 1997 /s/ Fred G. Astor, Jr.
- -------------------- -----------------------------------------------------
Date Fred G. Astor, Jr.
Executive Vice President and Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 21
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
* 4(a) Indenture (including form of Note) dated June 10, 1997 between
InterCel, Inc. and Bankers Trust Company, as Trustee, relating
to the 11 1/8% Senior Notes due 2007 of InterCel, Inc. (Filed
as Exhibit 4(h) to Registration Statement on Form S-4, File
No. 333-31399 (the "1997 Form S-4"), and incorporated herein
by reference.)
* 4(b) Registration Rights Agreement dated June 10, 1997 between
InterCel, Inc. and Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Oppenheimer &
Co., Inc. (Filed as Exhibit 4(i) to the 1997 Form S-4 and
incorporated herein by reference.)
* 4(c) Collateral Pledge and Security Agreement dated June 10, 1997
between InterCel, Inc. and Bankers Trust Company, as
Trustee.** (Filed as Exhibit 4(j) to the 1997 Form S-4 and
incorporated herein by reference.)
* 4(d) Certificate of Amendment to the Certificate of Designations,
Powers, Preferences and Relative, Participating or Other
Rights, and the Qualifications, Limitations or Restrictions
Thereof, of Series B Convertible Preferred Stock of InterCel,
Inc. (Filed as Exhibit 4(k) to the 1997 Form S-4 and
incorporated herein by reference.)
* 4(e) Amended Certificate of Designations, Powers, Preferences and
Relative, Participating or Other Rights, and the
Qualifications, Limitations or Restrictions Thereof, of Series
C Convertible Preferred Stock of InterCel, Inc. (Filed as
Exhibit 4(l) to the 1997 Form S-4 and incorporated herein by
reference.)
* 4(f) Amended Designations, Powers, Preferences and Relative,
Participating or Other Rights, and the Qualifications,
Limitations or Restrictions Thereof, of Series D Convertible
Preferred Stock of InterCel, Inc. (Filed as Exhibit 4(m) to
the 1997 Form S-4 and incorporated herein by reference.)
* 10(a) Closing Memorandum dated May 1, 1997 by and between Rural
Cellular Corporation, MRCC, Inc., Unity Cellular Systems,
Inc., InterCel Licenses, Inc. and InterCel, Inc. (Filed as
Exhibit 2.2 to the Form 8-K dated May 12, 1997 and
incorporated herein by reference.)**
* 10(b) Agreement effective as of April 1, 1997 by and between
BellSouth Telecommunications, Inc. and InterCel, Inc.** (Filed
as Exhibit 10(pp) to the Form 10-Q for the quarter ended March
31, 1997 (the "1997 First Quarter 10-Q") and incorporated
herein by reference.)
* 10(c) Agreement effective as of April 1, 1997 by and between
BellSouth Telecommunications, Inc. and Powertel, Inc.** (Filed
as Exhibit 10(qq) to the 1997 First Quarter 10-Q and
incorporated herein by reference.)
* 10(d) Stock Purchase Agreement dated May 23, 1997 between InterCel,
Inc. and The Huff Alternative Income Fund, L.P.** (Filed as
Exhibit 10(a) to the 1997 Form S-4 and incorporated herein by
reference.)
* 10(e) Escrow Agreement dated June 5, 1997 between InterCel, Inc. and
The Huff Alternative Income Fund, L.P.** (Filed as Exhibit
10(b) to the 1997 Form S-4 and incorporated herein by
reference.)
* 10(f) Stock Purchase Agreement dated May 23, 1997 between InterCel,
Inc. and SCANA Communications, Inc.** (Filed as Exhibit 10(c)
to the 1997 Form S-4 and incorporated herein by reference.)
* 10(g) Escrow Agreement dated June 5, 1997 between InterCel, Inc. and
SCANA Communications, Inc.** (Filed as Exhibit 10(d) to the
1997 Form S-4 and incorporated herein by reference.)
* 10(h) Amendment No. 2 dated March 31, 1997 to the Credit Agreement
dated March 4, 1996 among Powertel, Inc., Ericsson Project
Finance A.B., as Lender, and Ericsson Inc., as Agent for the
Lenders. (Filed as Exhibit 10(e) to the 1997 Form S-4 and
incorporated herein by reference.)
<PAGE> 22
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
* 10(i) Amendment No. 3 dated June 26, 1997 to the Credit Agreement
dated March 4, 1996 among Powertel PCS, Inc., the Lenders set
forth on the signature pages thereto and Ericsson Inc., as
Agent for the Lenders. (Filed as Exhibit 10(f) to the 1997
Form S-4 and incorporated herein by reference).
10(j) Amendment No. 1 dated September 2, 1997 to the Acquisition
Agreement for Ericsson CMS 40 Personal Communications Systems
by and between Ericsson Inc. and Powertel PCS, Inc.+
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule (for SEC use only).
- ------------------------------
* Previously filed.
** The Registrant agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the Securities and Exchange Commission upon
request, as provided in Item 601(b)(2) of Regulation S-K.
+ Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 24(b)(2) under the Exchange
Act. In accordance with Rule 24(b)(2), these confidential portions have
been omitted from this exhibit and filed separately with the
Commission.
<PAGE> 1
CONFIDENTIAL
EXHIBIT 10(J)
CONFIDENTIAL TREATMENT REQUESTED BY POWERTEL, INC.
AMENDMENT NUMBER 1 TO
ACQUISITION AGREEMENT
ERICSSON CMS 40 PERSONAL COMMUNICATION SYSTEMS (PCS)
BY AND BETWEEN
ERICSSON INC.
AND
POWERTEL, INC.
This Amendment Number 1 ("Amendment") to the Acquisition Agreement for Ericsson
CMS 40 Personal Communication System (PCS), Number 9109 (as amended hereby,
together with all attachments, the "Agreement") by and between Ericsson Inc.
("SELLER") and Powertel PCS, Inc. (f/k/a InterCel PCS Services, Inc.) is
effective as of September 2nd, 1997. Powertel PCS, Inc. and its Affiliates are
referred to herein as "PURCHASER." The Agreement is amended as set forth below.
ARTICLE 1 PURCHASE COMMITMENT
1. The "Kentucky and Tennessee BTAs" are defined as:
Bowling Green-Glasgow, KY [#052];
Clarksville, TN /Hopkinsville, KY [#083];
Cookeville, TN [#096];
Corbin, KY [#098];
Evansville, IN [#135];
Knoxville, TN [#232];
Lexington, KY [#252];
Louisville, KY [#263];
Madisonville, KY [#273];
Nashville, TN [#314];
Owensboro, KY [#338];
Paducah-Murray-Mayfield, KY [#339]; and
Somerset, KY [#423].
Unless stated otherwise, the Kentucky and Tennessee BTAs
together comprise one (1) Market.
2. Amend the Agreement Article 1.29 as follows:
a) DELETE: "... except as modified or clarified in the September
17, 1995 Request for Quotation ("RFQ"), issued by Purchaser,
SELLER's October 17, 1995 response to the RFQ, and the
Requests for Clarifications and Responses thereto set forth as
Attachment N."
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-1-
<PAGE> 2
CONFIDENTIAL
b) REPLACE WITH: "...except as modified or clarified in the
September 17, 1995 Request for Quotation ("RFQ") or the May 8,
1997 Request for Quotation ("RFQII") issued by PURCHASER,
SELLER's October 17, 1995 response to the RFQ, SELLER's June
9, 1997 response to RFQII, PURCHASER's Requests for
Clarifications of SELLER's responses to the RFQ and RFQII, and
SELLER's Responses PURCHASER's Requests for Clarifications, as
set forth in Attachment N."
3. Upon the terms and conditions as set forth in the Agreement and the
Amendment, PURCHASER hereby agrees to purchase from SELLER, and SELLER
hereby agrees to sell to PURCHASER for installation and operation in
the Atlanta, Birmingham, Jacksonville, and Memphis/Jackson MTAs and the
Kentucky and Tennessee BTAs, or such other markets or locations as
PURCHASER may specify, the Initial Configuration of the System,
including the Equipment, Software, Installation and any Documentation
ordered therefor, OSS, as well as any other services described in the
Agreement as may be ordered by PURCHASER as part of the Initial
Configuration. SELLER shall render such services provided that
PURCHASER is in compliance in all material respects with its
obligations and requirements under the Agreement and Amendment. The
parties shall mutually agree to a schedule for buildout of the Kentucky
and Tennessee BTAs.
4. Amend the Agreement Article 2.2 as follows:
a) DELETE: "... under the same terms and conditions as set forth
herein, ..."
b) REPLACE WITH: "...under the terms and conditions set forth in
the Agreement."
5. Amend the Agreement Article 2.3, "Scope of Agreement," as follows:
a) DELETE: "...PURCHASER would utilize SELLER as the exclusive
PCS 1900 Equipment provider for a term of 3 years for the
Atlanta MTA as well as the three MTAs, as set forth more fully
below..."
b) REPLACE WITH: "...PURCHASER would utilize SELLER as the
exclusive PCS 1900 Equipment provider for the Birmingham,
Memphis/Jackson, Jacksonville, and Atlanta MTAs and for the
Kentucky and Tennessee BTAs, as set forth more fully below..."
c) DELETE: "...The term of exclusivity would run independently
for each MTA, and would commence six (6) months prior to the
date of Acceptance for such MTA, as set forth in Article 9,
and end three (3) years thereafter..."
d) REPLACE WITH: "...The term of exclusivity would run
simultaneously for the Birmingham, Memphis/Jackson,
Jacksonville, and Atlanta MTAs and for the Kentucky and
Tennessee BTAs, and would commence on March 4, 1996, and end
on December 31, 2001..."
e) DELETE: "PURCHASER's grant of exclusivity is conditioned upon
SELLER continuing to make available to PURCHASER sufficient
quantities of PCS 1900 equipment, under the terms and
conditions of this Agreement, to meet PURCHASER's needs in all
of the MTAs."
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-2-
<PAGE> 3
CONFIDENTIAL
f) REPLACE WITH: "PURCHASER's grant of exclusivity is conditioned
upon SELLER continuing to make available to PURCHASER
sufficient quantities of PCS 1900 equipment, under the terms
and conditions of the Agreement to meet PURCHASER's needs in
all of the MTAs and the Kentucky and Tennessee BTAs."
6. Agreement Article 2.4 is deleted and replaced by the following:
"In addition to the requirements of Section 2.3 above,
PURCHASER's grant of exclusivity shall automatically terminate
in the event that SELLER fails to meet the 31 August 1998
commercial in-service date for the Initial Configuration for
the Kentucky and Tennessee BTAs. In addition, the grant of
exclusivity will automatically terminate (i) if the SELLER is
in default of any material term of the Agreement, the
Financing Agreement or the Preferred Stock Agreement and fails
to cure such default within ten (10) days written notice of
such default; (ii) upon termination of this Agreement or
Amendment as provided in Article 24; or (iii) any claim by
SELLER of force majeur under Article 10.3 hereto."
In the event that SELLER fails to meet the commercial
in-service date for the Kentucky and Tennessee BTAs,
exclusivity shall remain in effect for the Birmingham,
Memphis/Jackson, Jacksonville, and Atlanta MTAs according to
the terms of the Acquisition Agreement dated 4 March 1996.
7. Agreement Article 3 is deleted and replaced by the following:
"ARTICLE 3 TERM OF AGREEMENT
This Agreement shall commence 4 March 1996 and continue until
31 August 2002 (hereinafter, the "Term") unless terminated on
an earlier date as provided herein, except as to those
provisions which by their express terms survive such
termination."
8. Agreement Article 4, Section 4.8, is amended as follows:
a) ADD: "If at any time during the Term, SELLER contracts with
another customer for the purchase or delivery of equipment,
products, services, or other deliverables similar to the
deliverables SELLER provides PURCHASER, on a basis that
provides more favorable prices to the customer than those
provided to PURCHASER, for comparable or lower volumes, SELLER
shall apply the more favorable prices to the deliverables
which, as of the effective date of such more favorable
pricing, have been ordered by PURCHASER. An executive officer
with SELLER will certify for the PURCHASER, in writing, that
the prices SELLER gives to PURCHASER are comparable to or more
favorable than prices SELLER gives to its other customers
during the term of this Agreement. Such certification will be
given at least annually beginning during the 1999 calendar
year."
b) DELETE: "or prices offered to another SELLER customer when
such customer makes bulk purchase of a Product; provided,
however, that the purchase of an initial configuration for a
system shall not be considered a "bulk" purchase for purposes
of this sentence."
c) REPLACE: "...Most Favored Pricing will not apply to prices
offered to new customers as an incentive to change out an
entire built-out PCS system..."
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-3-
<PAGE> 4
CONFIDENTIAL
WITH: "...Most Favored Pricing will not apply to prices
offered to new customers for an Initial Configuration or as an
incentive to change out an entire built-out PCS system..."
9. Agreement Article 10.1(a) is amended by the addition of the following:
"PURCHASER shall also be entitled to, and SELLER shall pay to
PURCHASER, damages in accordance with this Paragraph if, due
solely to SELLER's fault or negligence, installation and
Acceptance of the Initial Configuration of the Kentucky and
Tennessee BTAs do not occur before the applicable dates
negotiated by the parties."
10. The term "Agreement," wherever used in the Acquisition Agreement
entered between the parties on March 4, 1996, shall be defined to
include said Acquisition Agreement and this Agreement.
11. Agreement Article 29 is amended by replacing the name and the addresses
for notifying the PURCHASER with the following:
"Powertel PCS, Inc.
c/o Jill Dorsey, Vice-President/General Counsel
1233 O.G. Skinner Drive
West Point, GA 31833"
12. Upon request by PURCHASER, SELLER agrees to negotiate in good faith a
performance-based Systems Support Agreement to be effective from the
end of the Warranty Period until December 31, 2001 for all of
PURCHASER's Markets. A Market is defined as (1) the PURCHASER's
combined Kentucky and Tennessee BTAs; (2) the Atlanta, Georgia MTA; (3)
the Birmingham, Alabama MTA; (4) the Jacksonville, Florida MTA; or (5)
the Memphis, Tennessee / Jackson, Mississippi MTA. Such negotiation
will be based upon the prices and terms in the 4 March 1996 Acquisition
Agreement.
13. PURCHASER and SELLER shall jointly agree upon a scheduled date certain
for the Kentucky and Tennessee BTA Initial Configuration. PURCHASER and
SELLER shall also jointly agree upon a project implementation schedule
for the Kentucky and Tennessee BTAs. PURCHASER and SELLER shall attempt
to reach agreement on said schedules and dates no later than sixty (60)
days from the date this Amendment is signed.
14. Except as expressly modified by this Amendment, or by updated
attachments to the Agreement as provided below, the Agreement shall
continue in full force and effect in accordance with its original terms
and conditions. In the event of any conflict or inconsistency among the
provisions of the Amendment, the attachments, or the Agreement, such
conflict or inconsistency shall be resolved by giving precedence first
to the Amendment, next to the updated attachments to the Agreement, and
finally to the Agreement.
15. Agreement Article 38 is amended as follows:
a) DELETE: "This Agreement, the RFQ and its supplements and
SELLER's responses thereto, and the Attachments referenced
herein constitute the entire Agreement..."
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-4-
<PAGE> 5
CONFIDENTIAL
b) REPLACE WITH: "This Agreement, the RFQ and its supplements and
SELLER's responses thereto, the RFQII, SELLER's 9 June 1997
Response to RFQII, PURCHASER's Requests for Clarification of
SELLER's 9 June 1997 Response, and SELLER's Responses to
PURCHASER's Requests for Clarification, and the Attachments,
as referenced herein and subsequently updated by the parties,
constitute the entire Agreement..."
ARTICLE 2 INCENTIVE COMMITMENT
1. SELLER grants PURCHASER free BSC hardware worth *** of the net price of
the BTS hardware deliveries through the end of 1998 for the Kentucky
and Tennessee BTAs. This incentive is capped at a maximum of ***.
2. SELLER grants PURCHASER RF services credit worth *** of the net price
of the BTS hardware deliveries through the end of 1998 for the Kentucky
and Tennessee BTAs. This incentive is capped at a maximum of ***. This
credit is effective on orders placed for services scheduled to occur
after 1 January 1998 and may be used for any RF services purchased from
SELLER for any of PURCHASER's markets. This credit is updated monthly
based on the BTS deliveries completed for the Kentucky and Tennessee
BTAs. This credit replaces the specific RF Verification and RF
Optimization incentives described in Agreement Attachment A, Sections
3.5 and 3.6 for the Kentucky and Tennessee BTAs.
3. SELLER grants PURCHASER a cooperative advertising incentive worth ***
of the net sales price of the Kentucky and Tennessee BTA Initial
Configuration. This incentive is capped at a maximum of *** and is
effective 1 January 1998. The application of this incentive is more
fully described in Agreement Article 25.
4. SELLER grants PURCHASER a technical training credit for the courses and
quantities specified in Section 3.7 of Agreement Attachment A based on
the Initial Configuration for the Kentucky and Tennessee BTAs.
5. PURCHASER will issue payment to SELLER for all invoices related to
delivery and installation of SELLER's PBX product through the date of
this Agreement. If PURCHASER grants SELLER exclusivity for its PBX-ACD
product line through the year 2001, subject to PURCHASER's current
PBX-ACD RFQ evaluation, SELLER will give PURCHASER credit ***.
PURCHASER's evaluation of SELLER's PBX-ACD product should be completed
prior to 31 December 1997. If PURCHASER selects another vendor for its
PBX or ACD products, such selection will not effect any other terms or
conditions of the Agreement.
ARTICLE 3 DISCOUNT COMMITMENT
1. Agreement Attachment A is hereby amended to include the following
volume discount steps and conditions. These volume discounts are
applied to the list prices less Initial System Discount as fully
described in Agreement Attachment A, Section 2.2 and as shown in the
following formula:
Net Price = List Price x (***) x (***)
- -----------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-5-
<PAGE> 6
CONFIDENTIAL
For example, a BTS hardware unit purchased for Kentucky in 1998 is
priced as follows using a ***volume discount according to paragraph
1.a.ii:
Net Price = List Price x (***) x (***) = List Price x ***
Only a single volume discount is applied to each item purchased. The
volume discounts specified in Section 2.2 of Agreement Attachment A are
used unless a different volume discount is applied by the amendment.
a) PURCHASER will receive the following volume discounts for MSC,
HLR, BSC, and BTS hardware:
i) A *** volume discount effective on orders placed
after the date of signing of this amendment for the
Birmingham, Memphis/Jackson, and Jacksonville MTAs
effective through 31 December 1997;
ii) A *** volume discount effective for orders placed for
delivery after 1 January 1998 for the Birmingham,
Memphis/Jackson, and Jacksonville MTAs and for the
Kentucky and Tennessee BTAs;
iii) A *** volume discount for Expansions beyond the
Atlanta MTA Initial Configuration;
iv) SELLER grants PURCHASER a *** volume discount for one
MSC and one BSC to be delivered during 1997 for the
Kentucky and Tennessee BTAs. If needed for the
Nashville buildout, PURCHASER may purchase, using the
*** volume discount, up to 30 BTSs from SELLER for
delivery during 1997.
b) PURCHASER will receive the following volume discounts for BSC
software:
i) A *** volume discount effective on orders placed
after the date of signing of this amendment for the
Birmingham, Memphis/Jackson, Jacksonville, and
Atlanta MTAs effective through 31 December 1997;
ii) A *** volume discount effective on orders placed
after 1 January 1998 for the Birmingham,
Memphis/Jackson, Jacksonville, and Atlanta MTAs;
iii) A *** volume discount effective on orders placed
after the date of signing of this amendment for the
Kentucky and Tennessee BTAs.
c) PURCHASER will receive the following volume discounts for MSC
software:
i) A *** volume discount effective on orders placed
after the date of signing of this amendment for the
Kentucky and Tennessee BTAs;
ii) Volume discount steps applied to all markets as
defined in Agreement Attachment A using the
cumulative ETCs ordered for all markets including the
Kentucky and Tennessee BTAs.
d) PURCHASER will receive a *** volume discount on Power Hardware
effective on orders placed after 9 June 1997 for all markets
including the Kentucky and Tennessee BTAs.
- -----------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-6-
<PAGE> 7
CONFIDENTIAL
2. Agreement Attachment A is hereby amended to reflect the following BTS
hardware price reductions:
a) A BTS cabinet list price reduction from *** to *** effective
on orders placed for delivery after 1 January 1998 for all
markets;
b) A LNA/TMA list price reduction from *** to *** per unit
effective on orders placed after the date of signing of this
amendment for the Birmingham, Memphis/Jackson, and
Jacksonville MTAs and for the Kentucky and Tennessee BTAs;
c) A LNA/TMA list price reduction from *** to *** per unit
effective for Expansions to the Atlanta MTA Initial
Configuration (BTSs ordered beyond PURCHASER's commitment of
*** TRUs);
d) A 2-TRU micro-BTS (RBS 2301) discounted sales price reduction
to ***;
e) An active antenna (single-carrier) discounted sales price
reduction to ***.
3. Agreement Attachment A is hereby amended to reflect the following BTS
installation price changes:
a) A single-cabinet BTS installation price of *** for the
Birmingham, Memphis/Jackson and Jacksonville MTAs and for the
Kentucky and Tennessee BTAs;
b) A single-cabinet BTS installation price of *** for Expansions
to the Atlanta MTA Initial Configuration.
ARTICLE 4 SOFTWARE PRICING
1. List software pricing for the MSC and BSC nodes quoted in SELLER's
Kentucky and Tennessee RFQII response is as follows:
MSC/VLR Software *** per ETC
BSC/TRC Software *** per TRU
These software prices are applicable only to new nodes being installed
at the CMS 40 R7 software level. Other nodes, or nodes being placed
into service at CMS 40 R3 level, will be priced using the PURCHASER's
current software prices.
2. SELLER agrees to negotiate in good faith for all markets the sale of
certain BSC software features on a per-BSC level.
3. SELLER agrees to negotiate in good faith for all markets the sale of
certain MSC/VLR end-user software features on a per 5,000-subscriber
basis.
4. SELLER agrees to provide CMS 40 R7 software pricing for all MSCs and
BSCs ordered for the Kentucky and Tennessee BTAs. For MSCs and BSCs
requested by PURCHASER to be installed prior to the availability of CMS
40 R7, SELLER's CMS 40 R3 software will be installed. SELLER will
provide the R3 to R7 upgrade software for these nodes, excluding
upgrade services and any necessary hardware, free of charge to
PURCHASER once CMS 40 R7 is available.
-----------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-7-
<PAGE> 8
CONFIDENTIAL
ARTICLE 5 AGREEMENT ATTACHMENT UPDATES
1. The following Agreement Attachments are updated with the Attachments as
provided below:
a) Agreement Attachment A is amended to add Appendix IX, document
number EUS/RO/IM-97:072, Revision B. This description of
included basic and optional software features applies to MSC
and BSC elements for the Kentucky and Tennessee BTAs installed
at the CMS 40 R7 level. Previous software pricing applies to
other PURCHASER markets, other CMS 40 nodes, and for all nodes
installed in the Kentucky and Tennessee BTAs at the CMS 40 R3
level.
b) Agreement Attachment A is amended to add Appendix X, document
number EUS/RO/IM-97:073, Revision B, which specifies the
optional, non-purchased software features available for CMS 40
R7.
c) Agreement Attachment A is amended to add Appendix XI, document
number EUS/RO/IM-97:069, Revision B, which specifies the new
BSC hardware available for CMS 40 R7. BSC nodes installed at
the CMS 40 R3 level will be priced according to the previous
Agreement.
d) Agreement Attachment N is amended to add SELLER's response
(the "Response"), dated June 9, 1997, to PURCHASER's Request
for Quotation for Network Equipment to serve the Kentucky and
Tennessee BTAs, and PURCHASER's requests for clarification to
the Response and SELLER's answers to PURCHASER's requests for
clarification. Attachment N is incorporated herein by
reference except as modified by the Amendment.
e) Agreement Attachment A is amended to add Appendix XII,
document number EUS/RO/IM-97:192, Revision A, which specifies
the Initial Configuration and pricing for the Kentucky and
Tennessee BTAs.
f) SELLER agrees to maintain sufficient staffing in its West
Point core office and its local market offices in order to
support PURCHASER's Initial Configuration network build-out.
This support staff organization consists of project
management, implementation, and system support resources.
Project management and implementation resources will be
provided by SELLER sufficient to implement all PURCHASER
Initial Configurations, including the Atlanta MTA and the
Kentucky and Tennessee BTAs. SELLER will establish a local
operations office in Kentucky in order to support the Kentucky
and Tennessee BTA Initial Configuration build-out.
SELLER will maintain system support (R-TAC) staffing in West
Point during the Warranty Period. After the Warranty Period,
SELLER's continuation of local support is contingent upon
successful negotiation of a performance-based support
agreement for all of PURCHASER's Markets.
SELLER's support of PURCHASER, including its level of staffing
and the organization of its staff, must be consistent with
Section 1.9 of SELLER's response to RFQII and SELLER's support
of PURCHASER's network build-out of the Birmingham,
Jacksonville, and Memphis MTAs.
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-8-
<PAGE> 9
CONFIDENTIAL
2. PURCHASER and SELLER shall negotiate in good faith and jointly agree to
updates or replacements for all of the Agreement's Attachments, which
shall be incorporated by reference into the Amendment, to make the
Attachments conform to the parties agreement as set forth in the
Amendment and SELLER's response to RFQII.
3. PURCHASER understands that SELLER will price all MSC, HLR, BSC, and BTS
hardware according to the hardware configurations defined at the time
of purchase using the unit and package prices in the Appendices of
Agreement Attachment A. New AXE hardware is priced by SELLER based on
prices for equivalent functionality in older hardware versions.
ARTICLE 6 SYSTEM PERFORMANCE
1. SELLER agrees to provide PURCHASER a performance based credit for
system down-time. SELLER will give PURCHASER a CMS 40 system
infrastructure credit of *** during the period of 5:00 a.m. to 12:00
midnight (hereinafter "Prime Time") for outages proximately caused by
SELLER's acts or omissions related to the failure of equipment
manufactured, engineered and installed by SELLER or related to software
developed and installed by SELLER. This credit is capped at *** per
Market per year. SELLER's payment shall be mitigated to the extent
SELLER shows outage has been caused by PURCHASER.
2. The outage must be fully documented by PURCHASER and the SELLER must be
provided information reasonably requested by SELLER regarding the
number of effected subscribers and the length of the outage. Software
upgrades installed solely at PURCHASER's request (when such request
specifies the upgrade is to made during Prime Time), First Office
Applications ("FOAs"), and other activities specifically requested by
PURCHASER to be performed by SELLER during Prime Time are excluded from
these penalties.
These system performance penalties are effective during the Warranty
Period. At the end of the Warranty Period, SELLER will negotiate a
performance-based support agreement with PURCHASER.
ARTICLE 7 FINANCING
1. PURCHASER can use financing secured by SELLER for the Kentucky and
Tennessee BTAs for professional services purchased from SELLER. A
financed limit of *** applies to additional services purchased beyond
the engineering and installation sold with each network element.
2. PURCHASER and SELLER agree to negotiate a credit agreement in good
faith as described in Section 1.4 of SELLER's response to RFQII.
- -----------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-9-
<PAGE> 10
CONFIDENTIAL
ARTICLE 8 SOFTWARE SUBSCRIPTION
1. Agreement Attachment A is hereby amended to include the following
software subscription description and pricing.
a) The software subscription offered by SELLER allows PURCHASER
to receive the following deliverables for a quarterly fee.
These items only apply to nodes for which software has been
previously purchased.
i) New CMS 40 system releases consisting of basic
features installed and tested in a single node by
SELLER and released to PURCHASER;
ii) Enhancements to optional features previously
purchased by PURCHASER installed and tested in a
single node by SELLER and released to PURCHASER;
iii) A three (3) month trial period for optional feature
packages excluding any required hardware, DT changes,
or engineering or testing services provided by
SELLER;
iv) Software updates for AXE nodes to be released to
PURCHASER;
v) Software corrections installed by SELLER in one node
and released to PURCHASER.
b) The software subscription consists of a two (2) year contract
with eight (8) quarterly payments based on the number of nodes
in PURCHASER's network. The quarterly prices per node with the
*** Initial System Discount applied are as follows:
AXE Nodes (MSC, BSC, HLR) *** per node
Remote BSC *** per node
OSS Node *** per node
SOG and BGw Nodes *** per node
Volume discounts do not apply to the software subscription
purchase. Payments are made at the end of each calendar
quarter based on the number of nodes in PURCHASER's network at
the time of the payment. The software subscription can be
started at any time and guarantees PURCHASER three (3) CMS 40
system release upgrades.
SELLER grants PURCHASER an option to extend this two year
software subscription for an additional year under the same
terms if the PURCHASER exercises its option during the first
year of the software subscription. If PURCHASER elects to
extend the software subscription within the first year, a
discount of *** will be applied to the second and third year
prices (quarterly payments five through twelve).
If PURCHASER originally commits to a three year software
subscription, a *** discount will apply to all twelve (12)
quarterly payments.
c) The purchase of a software subscription must be accompanied by
a System Support Agreement beyond the Warranty Period.
- -----------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-10-
<PAGE> 11
CONFIDENTIAL
ARTICLE 9 LEGAL COMPLIANCE
1. SELLER shall comply with the legal requirements for advanced lawful
intercept (CALEA) upon the schedule required by law, including any
extensions that may be granted as provided below. The price for the
CALEA intercept feature shall be commercially reasonable and shall be
identified by SELLER as the feature is further along in the development
process.
2. If SELLER is unable to meet the legally required implementation date
for CALEA, PURCHASER will seek a reasonable extension of such date upon
written request by SELLER. If granted such extension, SELLER's failure
shall not be deemed to be a default of this Agreement. SELLER shall
promptly reimburse PURCHASER for its reasonable legal and other
expenses in requesting such extension, when SELLER is primarily the
cause for requesting such extension, whether or not granted.
3. Should PURCHASER be fined or otherwise have a monetary forfeiture
imposed upon it by a governmental agency for PURCHASER's failure to
meet the CALEA compliance date where such failure is due to SELLER's
inability to timely deliver such feature, SELLER shall reimburse
PURCHASER for the same.
4. SELLER represents and warrants that its equipment and software will
comply, and will enable PURCHASER to comply, with all applicable
federal, state, and local laws, regulations, and codes. The price to
PURCHASER for equipment and software necessary for compliance to such
laws, regulations, and codes shall be commercially reasonable, unless
priced under the Agreement.
AGREED TO AND EXECUTED THIS 2ND DAY OF SEPTEMBER 1997
SELLER PURCHASER
Ericsson Inc. Powertel PCS, Inc.
/s/ Bo Hedfors 9/2/97 /s/ Allen E. Smith 9/2/97
- ---------------------------------- -----------------------------------------
Signature and Date Signature and Date
Bo Hedfors Allen E. Smith
President & C.E.O. President & C.E.O.
NOT FOR DISCLOSURE OUTSIDE POWERTEL AND ERICSSON EXCEPT UNDER WRITTEN AGREEMENT
EXECUTION VERSION
-11-
<PAGE> 1
EXHIBIT 11
POWERTEL, INC.
EARNINGS PER SHARE CALCULATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
PRIMARY & FULLY DILUTED EARNINGS PER SHARE:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net (loss) income before cumulative effect of change
in accounting principle $ (45,896) $ 59 $ (63,325) $ (860)
Cumulative effect of change in accounting principle -- -- -- (2,583)
------------------ ------------------ ------------------ ------------------
Net loss $ (45,896) $ 59 $ (63,325) $ (3,443)
================== ================== ================== ==================
Weighted average shares outstanding 26,846 26,809 26,824 24,513
Common stock equivalents outstanding(a) -- 657 -- --
================== ================== ================== ==================
26,846 27,466 26,824 24,513
================== ================== ================== ==================
PER SHARE DATA:
Net (loss) income before cumulative effect of change
in accounting principle $ (1.71) $ -- $ (2.36) $ (0.03)
Cumulative effect of change in accounting principle -- -- -- (0.11)
------------------ ------------------ ------------------ ------------------
Net loss $ (1.71) $ -- $ (2.36) $ (0.14)
================== ================== ================== ==================
</TABLE>
- --------------------------------------------------
(a) Excludes 13,284 common stock equivalents (as calculated under the treasury
stock method) for the three months ended September 30, 1997 and 11,042 and
990 common stock equivalents for the nine months ended September 30, 1997
and 1996, respectively, as inclusion of such equivalents would have an
anti-dilutive effect on earnings per share for those periods.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF POWERTEL, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 375,463
<SECURITIES> 91,530
<RECEIVABLES> 17,739
<ALLOWANCES> 0
<INVENTORY> 8,759
<CURRENT-ASSETS> 446,110
<PP&E> 432,740
<DEPRECIATION> (35,647)
<TOTAL-ASSETS> 1,338,988
<CURRENT-LIABILITIES> 55,778
<BONDS> 774,013
0
4
<COMMON> 270
<OTHER-SE> 389,121
<TOTAL-LIABILITY-AND-EQUITY> 1,338,988
<SALES> 11,011
<TOTAL-REVENUES> 54,205
<CGS> 26,632
<TOTAL-COSTS> 134,707
<OTHER-EXPENSES> (17,177)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,901
<INCOME-PRETAX> (63,325)
<INCOME-TAX> 0
<INCOME-CONTINUING> (63,325)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,325)
<EPS-PRIMARY> (2.36)
<EPS-DILUTED> 0
</TABLE>
