<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 August 8, 1997
Common Stock at $0.01 par value 26,908,651
================================================================================
<PAGE> 2
POWERTEL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
PART I FINANCIAL INFORMATION
<S> <C> <C> <C>
Item 1. Financial Statements............................................. 3
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996..................... 3
Condensed Consolidated Statements of Operations
for the three months and six months
ended June 30, 1997 and 1996............................ 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 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................................................... 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................ 20
Item 2. Changes in Securities............................................ 20
Item 4. Submission of Matters to a Vote of Security Holders.............. 21
Item 5. Other Information................................................ 22
Item 6. Exhibits and Reports on Form 8-K................................. 22
SIGNATURES
EXHIBIT INDEX
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POWERTEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ---------
ASSETS (DOLLARS IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 440,343 $ 185,525
Restricted Cash 89,618 -
Cash in Escrow 5,405 -
Short-term Investments - 75,659
Accounts Receivable - Net of Allowance for Doubtful Accounts 11,723 8,228
Inventories 22,017 7,805
Prepaid Expenses and Other 2,908 12,642
---------- ---------
572,014 289,859
---------- ---------
PROPERTY AND EQUIPMENT, AT COST: 357,094 261,251
Less: Accumulated Depreciation (23,623) (9,982)
---------- ---------
333,471 251,269
---------- ---------
OTHER ASSETS:
Licenses, net 413,395 365,964
Goodwill, net - 22,670
Deferred Offering Costs, net 21,579 13,687
Deferred Income Taxes 2,776 2,190
Deferred Charges and Other, net 610 1,478
---------- ---------
438,360 405,989
---------- ---------
Total Assets $1,343,845 $ 947,117
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable - Trade $ 6,634 $ 7,723
Advance Billings and Customer Deposits 1,847 1,352
Accrued Construction Costs 14,283 15,214
Accrued Taxes Other than Income 5,483 3,609
Accrued Compensation 1,475 1,509
Accrued Interest 2,377 373
Accrued Other 5,905 3,612
Current Portion of Long-term Obligations 82 118
---------- ---------
38,086 33,510
---------- ---------
LONG-TERM OBLIGATIONS:
12% Senior Discount Notes due February 2006 229,827 216,465
12% Senior Discount Notes due May 2006 230,386 217,345
11.125% Senior Notes due June 2007 300,000 -
Vendor Financing Agreement 109,938 69,514
Other 921 741
---------- ---------
871,072 504,065
---------- ---------
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 269 269
Paid-in Capital 475,060 430,053
Accumulated Deficit (40,195) (22,766)
Deferred Compensation (106) (206)
Treasury Stock (345) (345)
---------- ---------
434,687 407,007
---------- ---------
Total Liabilities and Stockholders' Equity $1,343,845 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------- ------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES AND SALES:
Monthly Access Revenue $ 8,291 $ 3,611 $ 16,831 $ 7,039
Airtime Revenue 2,434 1,521 4,261 2,838
Roaming Revenue 1,228 1,596 2,470 3,099
Toll Revenue 1,508 616 2,798 1,194
Installation and Connection Revenue 304 61 971 142
Other Revenue 507 100 1,025 189
-------- -------- -------- --------
Total Service Revenues 14,272 7,505 28,356 14,501
Equipment Sales 2,357 952 7,382 1,806
-------- -------- -------- --------
Total Revenues and Sales 16,629 8,457 35,738 16,307
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of Services 7,696 740 13,124 1,424
Cost of Equipment Sold 4,747 803 16,734 1,497
Operations 3,550 1,620 7,359 2,824
Selling and Marketing 9,042 1,667 14,279 2,941
General and Administrative 5,237 3,177 12,917 4,987
Depreciation 8,563 822 16,903 1,553
Amortization 1,069 809 2,247 1,690
-------- -------- -------- --------
Total Operating Expenses 39,904 9,638 83,563 16,916
-------- -------- -------- --------
OPERATING (LOSS) INCOME (23,275) (1,181) (47,825) (609)
-------- -------- -------- --------
OTHER EXPENSE (INCOME):
Net Interest Expense (Income) 7,095 1,159 11,638 419
Gain on Sale of Subsidiary (41,912) -- (41,912) --
Miscellaneous (Income) Expense (595) (44) (122) 261
-------- -------- -------- --------
Total Other (Income) Expense (35,412) 1,115 (30,396) 680
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 12,137 (2,296) (17,429) (1,289)
Income Tax (Provision) Benefit -- 841 -- 370
-------- -------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 12,137 (1,455) (17,429) (919)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- -- (2,583)
-------- -------- -------- --------
NET INCOME (LOSS) $ 12,137 $ (1,455) $(17,429) $ (3,502)
======== ======== ======== ========
PER SHARE DATA:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE $ 0.33 $ (0.05) $ (0.65) $ (0.04)
IN ACCOUNTING PRINCIPLE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- -- (0.11)
-------- -------- -------- --------
NET INCOME (LOSS) PER COMMON SHARE $ 0.33 $ (0.05) $ (0.65) $ (0.15)
======== ======== ======== ========
AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 37,144 26,807 26,812 23,353
======== ======== ======== ========
</TABLE>
The accompanying condensed notes to financial statements
are an integral part of these statements.
4
<PAGE> 5
FINANCIAL STATEMENTS - CONTINUED
- --------------------------------
POWERTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash Flows (Used In) Provided From Operating Activities:
Net Loss................................................................. $ (17,429) $ (3,502)
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 .......................................... 19,150 3,243
Bond Accretion........................................................... 12,702 7,640
Other.................................................................... (153) (116)
Amortization of Deferred Offering Costs.................................. 824 506
Deferred Compensation - Restricted Stock................................. 100 82
Deferred Taxes, Net...................................................... -- (3,287)
Changes in Assets and Liabilities:
Increase in Accounts Receivable.................................... (5,770) (1,338)
Increase in Inventories............................................ (14,649) (1,137)
Decrease in Prepaid Expenses and Other............................. 9,573 --
Increase in Deferred Charges and Other............................. (223) (6,955)
Increase (Decrease) in Accounts Payable............................ (197) 3,409
Decrease in Accrued Expenses....................................... 4,764 --
Increase in Advance Billings and Customer Deposits................. 847 156
--------- ---------
Net Cash (Used In) Provided From Operating Activities....... (32,373) 1,284
--------- ---------
Cash Flows Provided From (Used In) Investing Activities:
Capital Expenditures..................................................... (110,676) (55,288)
Cash Acquired in Powertel Business Combination........................... -- 15,379
Purchase of FCC Licenses................................................. (31,251) (195,242)
Purchase (Liquidations) of Short-Term Investments........................ 75,659 (127,444)
Microwave Relocation Costs............................................... (5,972) --
Proceeds from Sale of Subsidiary......................................... 77,204 --
--------- ---------
Net Cash Provided From (Used In) Investing Activities........ 4,964 (362,595)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from Sale of Preferred Stock, Net............................... 44,996 261,674
Proceeds from Issuance of Senior Notes, Net.............................. 291,284 392,324
Borrowings Under Vendor Financing Agreement.............................. 40,424 16,042
Borrowings (Repayments of) Long-term Obligations......................... 533 (28,102)
Other.................................................................... 13 231
--------- ---------
Net Cash Provided From Financing Activities.................. 377,250 642,169
--------- ---------
Net Increase in Cash........................................................ 349,841 280,858
Cash and Cash Equivalents at Beginning of Period............................ 185,525 630
--------- ---------
Cash and Cash Equivalents at End of Period.................................. $ 535,366 $ 281,488
========= =========
</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 Company's Annual
Report 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 Unicel, including
Unicel'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. 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>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues and Sales $ 15,293 $ 4,534 $ 30,821 $ 8,849
Net Income (Loss) (29,869) (1,569) (59,718) (3,596)
Net Loss per Share $ (0.80) $ (0.06) $ (2.23) $ (0.15)
</TABLE>
4. On May 5, 1997, 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.
6
<PAGE> 7
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 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 PCS system.
7. During first quarter 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
Federal Communications Commission for broadband PCS frequency blocks. The
Company has cooperated fully with the Antitrust Division's requests.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
On June 25, 1997, the Company changed its name from Intercel, Inc. to
Powertel, Inc. 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 provides personal communications services ("PCS") in the
southeastern United States 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 "Maine Disposition").
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. 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 18 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.
In the Federal Communication Commission's (the "FCC") D/E/F Auctions, the
Company acquired both the 10 MHz "D" block and the 10 MHz "E" block licenses in
each of the BTAs of Evansville, Indiana; Lexington, Louisville, Bowling
Green-Glasgow, Corbin, Madisonville, Owensboro, Paducah-Murray-Mayfield and
Somerset, Kentucky; Nashville and Cookeville, Tennessee; and Hopkinsville,
Kentucky-Clarksville, Tennessee; and the 10 MHz "E" block license in the
Knoxville, Tennessee BTA (collectively the "Kentucky/Tennessee BTAs" and
together with the Current PCS Markets, the "PCS Markets"). These licenses
encompass an area of approximately 66,000 square miles with a population of
approximately 6.8 million people and, when combined with the Company's existing
licensed territory, give the Company one of the largest contiguous PCS
footprints in the southeastern United States. On May 5, 1997, the FCC
officially granted the Company these PCS licenses for a purchase price of $31.2
million, of which $6.2 million had previously been paid. On May 12, 1997, the
Company paid the remaining $25 million and took possession of these licenses.
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 lower
usage customers who utilize wireless 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 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.
8
<PAGE> 9
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 significant 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
$23.3 million for the quarter ended June 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% and 2.6%, respectively,
for its cellular and PCS lines of business for the quarter ended June 30, 1997.
The Company believes that it may continue to experience an increase in its PCS
churn rate during the current year related to the disconnection of non-paying
customers. However, the Company expects to minimize the impact of such increase
by focusing efforts on collections and consistently high levels of customer
satisfaction coupled with a proactive customer retention program.
The Company offers its PCS customers a choice of multiple pricing plans,
with varying amounts of unbilled or "free" minutes included in the monthly
access charge. From November 29, 1996 to January 18, 1997, the Company offered
its customers a special, limited-time promotional pricing plan (the "Prestige
Partners Promotion") in all of its operational markets. This special
limited-time promotional pricing plan offered unlimited local airtime through
December 31, 1997 (with the exception of certain subscribers in the Memphis area
who were unable to obtain the handset model of their choice due to a shortage in
that market and for whom the promotional pricing extends through April 30, 1998)
for a $50 per month access charge (excluding toll and roaming charges, taxes and
other optional fees). As of June 30, 1997, a substantial portion of the
Company's PCS subscribers were participants in this promotion.
The majority of the interest costs incurred during 1996 were capitalized
as a cost of construction of the Company's PCS system. As the Company is now
providing PCS services in numerous markets, the interest costs related to the
construction of the PCS systems in such markets will be amortized over the life
of the related assets from the time such systems were placed in service.
Additionally, the Company's depreciation and amortization expense have
significantly increased as a result of the fixed assets and PCS licenses
related to PCS systems placed in service during the fourth quarter 1996 and the
first six months of 1997 and will continue to increase as a result of systems
to be placed in service during the remainder of 1997 and thereafter.
On August 4, 1997, the Company along with six other leading North
American PCS carriers that utilize the same digital protocol, Global System for
Mobile Communications ("GSM"), as the Company announced the GSM Alliance,
L.L.C. 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.
9
<PAGE> 10
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, as a percentage of total revenue.
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 JUNE 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 $ 2,675 $ 5,616 $ 8,291 $ 3,611 $ -- $ 3,611
Airtime Revenue 1,376 1,058 2,434 1,521 -- 1,521
Toll Revenue 99 981 1,080 205 -- 205
-------- -------- -------- -------- -------- --------
4,150 7,655 11,805 5,337 -- 5,337
-------- -------- -------- -------- -------- --------
Roamers--
Access & Airtime Revenue 1,228 -- 1,228 1,596 -- 1,596
Toll Revenue 428 -- 428 411 -- 411
-------- -------- -------- -------- -------- --------
1,656 -- 1,656 2,007 -- 2,007
-------- -------- -------- -------- -------- --------
Other Service Revenue 305 506 811 161 161
-------- -------- -------- -------- -------- --------
Total Service Revenue 6,111 8,161 14,272 7,505 -- 7,505
Cost of Services 1,085 6,611 7,696 740 -- 740
-------- -------- -------- -------- -------- --------
Gross Margin $ 5,026 $ 1,550 $ 6,576 $ 6,765 $ -- $ 6,765
======== ======== ======== ======== ======== ========
EQUIPMENT SALES & COST ANALYSIS:
Equipment Sales $ 356 $ 2,001 $ 2,357 $ 952 $ -- $ 952
Cost of equipment Sales 772 3,975 4,747 803 -- 803
-------- -------- -------- -------- -------- --------
Gross Margin $ (416) $ (1,974) $ (2,390) $ 149 $ -- $ 149
======== ======== ======== ======== ======== ========
OPERATING MARGIN ANALYSIS:
Total Revenues $ 6,467 $ 10,162 $ 16,629 $ 8,457 $ -- $ 8,457
-------- -------- -------- -------- -------- --------
Operating Expense--
Cost of Services and Equipment Sales 1,857 10,586 12,443 1,543 -- 1,543
Operations 763 2,787 3,550 1,141 479 1,620
Selling and Marketing 946 8,096 9,042 1,106 561 1,667
General and Administrative 670 4,567 5,237 962 2,215 3,177
Depreciation 602 7,961 8,563 765 57 822
Amortization 68 1,001 1,069 809 -- 809
-------- -------- -------- -------- -------- --------
Total Operating Expenses 4,906 34,998 39,904 6,326 3,312 9,638
-------- -------- -------- -------- -------- --------
Operating Income (Loss) $ 1,561 $(24,836) (23,275) $ 2,131 $ (3,312) (1,181)
======== ======== ======== ========
Gain on sale of Subsidiary (41,912) --
Interest Expense (Income) , net 7,095 1,159
Miscellaneous (Income) Expense (595) (43)
-------- --------
Income (Loss) before Income Taxes 12,137 (2,297)
Income Tax (Provision) Benefit -- 842
-------- --------
Net Income (Loss) $ 12,137 $ (1,455)
======== ========
</TABLE>
(a) The company did not commence PCS operations until fourth quarter 1996.
10
<PAGE> 11
Quarter Ended June 30, 1997 Compared to Quarter Ended June 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 $6.5 million or 121.2% for
the quarter ended June 30, 1997, as compared to the same period of 1996.
Cellular service revenue from local customers decreased $1.2 million, or 22.2%,
primarily as a result of the Maine Disposition and the corresponding reduction
in customers (to 24,331 at June 30, 1997 from 42,442 at June 30, 1996). PCS
service revenue from local customers, which was $7.7 million for the quarter
ended June 30, 1997, was the result of the continued increase in subscribers
(10,385 subscribers added for the quarter ended June 30, 1997) to 45,271 at June
30, 1997.
The average monthly service revenue per local cellular subscriber
(excluding roaming revenue and equipment sales) increased to $43.33 for the
quarter ended June 30, 1997, from $42.98 for the same period of the prior year,
due primarily to the disposition of the Maine customers, who tended to use
cellular service less frequently. The average monthly service revenue per local
PCS subscriber was $65.06, which is substantially higher than cellular due
primarily to the $50 monthly access fee associated with the Prestige Partners
Promotion and the long distance revenue being generated by those customers.
Roamer revenue (including roamer long distance), which was generated
solely from the Company's cellular business, decreased $351,000, or 17.5%, for
the quarter ended June 30, 1997, as compared to the same period of the prior
year. This decrease is attributable to the Maine Disposition, as well as the
amended agreement with BellSouth Cellular Corp., operating as BellSouth
Mobility, Inc. ("BellSouth Mobility"), effective January 16, 1997, under which
the parties agreed to per-minute reductions to the rates charged to BellSouth
Mobility for its customers roaming in InterCel's service territory.
Other revenue, which includes primarily connection and installation fees
and fees from optional features, increased $650,000, or 403.7%, for the quarter
ended June 30, 1997, as compared to the same period of 1996. This increase is
due to 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 June 30, 1997, cost of
services increased $7.0 million, or 940.0%, as compared to the same period of
1996 and was 53.9% of total service revenue, compared to 9.9% 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 ($431,000
for the three months ended June 30, 1997 versus $27,000 for the same period in
1996).
11
<PAGE> 12
To date, wireless telecommunications operators have been required to pay
fees to the LECs for interconnection to their networks. However, pursuant to the
1996 Telecommunications Act, such interconnection arrangements must now be
reciprocal and cost-based, with each party compensating the other at the same
rate for the right to interconnect with each other's network. The Company has
recently concluded negotiations for interconnection with BellSouth
Telecommunication Corporation, the local exchange subsidiary of BellSouth
Corporation ("BellSouth"), the LEC with which the Company primarily
interconnects in its service territory, on behalf of its cellular and PCS
operations and has executed interconnection agreements with respect to the same.
Under the new arrangements, the mutual and reciprocal interconnection rates for
those states in which the Company interconnects with BellSouth range from
$.005644 per minute to $.01586. These rates represent a significant decrease
from the previous rates paid by the Company to BellSouth of approximately $.022
per minute.
The Company generated a negative cellular equipment margin of 116.9% on
$356,000 of sales for the quarter ended June 30, 1997, as compared to a
positive margin of 15.7% on $1.0 million of sales for the same period of 1996.
This decrease in margins is due to the Company's change in its method of
accounting for certain promotional costs (primarily equipment credits) in 1996.
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 98.7% on $2.0 million of sales
for the quarter ended June 30, 1997, as the result of the Company's decision to
subsidize 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 and in-house cellular installations, totaled $3.6
million for the quarter ended June 30, 1997, which represented an increase of
$1.9 million, or 119.1%, from the same period of 1996. Cellular operations costs
totaled $763,000 for the quarter ended June 30, 1997, a 33.1% decrease from
the same period of 1996, which is attributable primarily to the Maine
Disposition. Cellular operations costs as a percentage of total cellular revenue
improved to 11.8% for the quarter ended June 30, 1997 as compared to 13.5% for
the same period of 1996. PCS operations costs totaled $2.8 million for the
quarter ended June 30, 1997, which represented a 481.8% increase from the same
period of 1996 and were comprised primarily of salaries and benefits, bad debt
provisions, credit and collection costs and communications costs (i.e.
telephone, paging, etc.).
Selling and marketing costs were $9.0 million for the quarter ended June
30, 1997, an increase of $7.4 million, or 442.4%, 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 increase in PCS
subscribers.
General and administrative costs ("G&A") were $5.2 million for the quarter
ended June 30, 1997, an increase of $2.1 million, or 64.8%, from the same period
of 1996. This increase is attributable to PCS G&A costs, which totaled $4.6
million for the quarter ended June 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 June 30, 1997, totaled
$9.6 million, as compared to $1.6 million for the same period of 1996, and
consists principally of the depreciation of the cellular and PCS networks and
the amortization of the PCS licenses. Substantially all of the increase of $8.0
million in depreciation and amortization for the quarter ended June 30, 1997 is
due to the PCS system and PCS licenses. 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.
12
<PAGE> 13
Net consolidated interest expense totaled $7.1 million for the quarter
ended June 30, 1997 as compared to $1.2 million for the same period of 1996.
Interest income earned during each period was $3.7 million. Additionally,
approximately $6.9 million and $4.5 million of interest expense was capitalized
during the quarters ended June 30, 1997 and 1996, respectively, as the Company
continued to construct its PCS system.
The effective income tax rates for the quarters ended June 30, 1997 and
1996 were 0% and 36.6%, respectively. The decrease between periods is primarily
attributable to the deferred tax asset valuation allowance required as of June
30, 1997. The Company generated a $17.4 million net loss through June 30, 1997
and expects to continue to incur significant operating losses throughout the
remainder of 1997 and beyond. The tax benefit of these operating losses will not
be recognized until it is more likely than not that such benefit is realizable.
13
<PAGE> 14
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, as a percentage of total revenue.
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>
SIX MONTHS ENDED JUNE 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 $ 6,675 $ 10,156 $ 16,831 $ 7,039 $ -- $ 7,039
Airtime Revenue 2,921 1,340 4,261 2,838 -- 2,838
Toll Revenue 317 1,654 1,971 370 -- 370
-------- -------- -------- -------- -------- --------
9,913 13,150 23,063 10,247 -- 10,247
-------- -------- -------- -------- -------- --------
Roamers--
Access & Airtime Revenue 2,470 -- 2,470 3,099 -- 3,099
Toll Revenue 827 -- 827 824 -- 824
-------- -------- -------- -------- -------- --------
3,297 -- 3,297 3,923 -- 3,923
-------- -------- -------- -------- -------- --------
Other Service Revenue 639 1,357 1,996 331 331
-------- -------- -------- -------- -------- --------
Total Service Revenue 13,849 14,507 28,356 14,501 -- 14,501
Cost of Services 2,154 10,970 13,124 1,424 -- 1,424
-------- -------- -------- -------- -------- --------
Gross Margin $ 11,695 $ 3,537 $ 15,232 $ 13,077 $ -- $ 13,077
======== ======== ======== ======== ======== ========
EQUIPMENT SALES & COST ANALYSIS:
Equipment Sales $ 596 $ 6,786 $ 7,382 $ 1,806 $ -- $ 1,806
Cost of equipment Sales 1,612 15,122 16,734 1,497 -- 1,497
-------- -------- -------- -------- -------- --------
Gross Margin $ (1,016) $ (8,336) $ (9,352) $ 309 $ -- $ 309
======== ======== ======== ======== ======== ========
OPERATING MARGIN ANALYSIS:
Total Revenues $ 14,445 $ 21,293 $ 35,738 $ 16,307 $ -- $ 16,307
-------- -------- -------- -------- -------- --------
Operating Expense--
Cost of Services and Equipment Sales 3,766 26,092 29,858 2,921 -- 2,921
Operations 1,773 5,586 7,359 2,211 613 2,824
Selling and Marketing 2,185 12,094 14,279 2,202 739 2,941
General and Administrative 1,583 11,334 12,917 1,755 3,232 4,987
Depreciation 1,553 15,350 16,903 1,474 79 1,553
Amortization 246 2,001 2,247 1,690 -- 1,690
-------- -------- -------- -------- -------- --------
Total Operating Expenses 11,106 72,457 83,563 12,253 4,663 16,916
-------- -------- -------- -------- -------- --------
Operating Income (Loss) $ 3,339 $(51,164) (47,825) $ 4,054 $ (4,663) (609)
======== ======== ======== ========
Gain on sale of Subsidiary (41,912) --
Interest Expense (Income) , net 11,638 419
Miscellaneous (Income) Expense (122) 261
-------- --------
Income (Loss) before Income Taxes (17,429) (1,289)
Income Tax (Provision) Benefit -- 370
-------- --------
(Loss) Income before Cumulative Effect (17,429) (919)
Cumulative Effect of Change in
Accounting Principle -- (2,583)
-------- --------
Net Income (Loss) $(17,429) $ (3,502)
======== ========
</TABLE>
(a) The company did not commence PCS operations until fourth quarter 1996.
14
<PAGE> 15
Six Months Ended June 30, 1997 Compared to Six Months Ended June 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 $12.8 million, or 125.1%,
for the six months ended June 30, 1997, as compared to the same period of 1996.
Cellular service revenue from local customers decreased $334,000, or 3.3%,
primarily as a result of the Maine Disposition and the corresponding reduction
in customers (to 24,331 at June 30, 1997 from 42,442 at June 30, 1996). PCS
service revenue from local customers, which was $13.2 million for the six
months ended June 30, 1997, was the result of the 1997 addition of 30,379 net
subscribers (to 45,271 at June 30, 1997).
The average monthly service revenue per local cellular subscriber
(excluding roaming revenue and equipment sales) decreased to $39.40 for the six
months ended June 30, 1997, from $42.21 for the same period of the prior year.
This decrease was due primarily to the addition of customers who tend to use
cellular service less frequently and a decrease in cellular pricing (primarily
in the Maine cellular market). The average monthly service revenue per local PCS
subscriber was $64.72, which is substantially higher than cellular due mainly to
the $50 monthly access fee associated with the Prestige Partners Promotion and
the long distance revenue being generated by those customers.
Roamer revenue (including roamer long distance), which was generated
solely from the Company's cellular business, decreased $626,000, or 16.0%, for
the six months ended June 30, 1997, as compared to the same period of the prior
year. This decrease is attributable to the Maine Disposition, as well as the
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 its customers roaming in InterCel's service territory.
Other revenue, which includes primarily connection and installation fees
and fees from optional features, increased $1.7 million, or 503.0%, for the six
months ended June 30, 1997, as compared to the same period of 1996. This
increase is due to 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 six months ended June 30, 1997, cost of services increased $11.7 million,
or 821.6%, as compared to the same period of 1996 and was 46.3% of total
service revenue, compared to 9.8% 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 ($534,000 for the six
months ended June 30, 1997 versus $73,000 for the same period in 1996).
To date, wireless telecommunications operators have been required to pay
fees to the LECs for interconnection to their networks. However, pursuant to the
1996 Telecommunications Act, such interconnection arrangements must now be
reciprocal and cost-based, with each party compensating the other at the same
rate for the right to interconnect with each other's network. The Company has
recently concluded negotiations for interconnection with BellSouth
Telecommunication Corporation, the local exchange subsidiary of BellSouth,
the LEC with which the Company primarily interconnects in its service
territory, on behalf of its cellular and PCS operations and has executed
interconnection agreements with respect to the same. Under the new
arrangements, the mutual and reciprocal interconnection rates for those states
in which the Company interconnects with BellSouth range
15
<PAGE> 16
from $.005644 per minute to $.01586. These rates represent a significant
decrease from the previous rates paid by the Company to BellSouth of
approximately $.022 per minute.
The Company generated a negative cellular equipment margin of 170.5% on
$596,000 of sales for the six months ended June 30, 1997, as compared to a
positive margin of 17.1% on $1.8 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 122.8% on $6.8 million of sales for the six months
ended June 30, 1997, as the result of the Company's decision to subsidize 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 and in-house cellular installations, totaled $7.4
million for the six months ended June 30, 1997, which represented an increase of
$4.5 million, or 160.6%, from the same period of 1996. Cellular operations costs
totaled $1.8 million for the six months ended June 30, 1997, a 19.8% decrease
from the same period of 1996, which is attributable primarily to the Maine
Disposition. Cellular operations costs as a percentage of total cellular revenue
improved to 12.3% for the six months ended June 30, 1997 as compared to 13.6%
for the same period of 1996. PCS operations costs totaled $5.6 million for the
six months ended June 30, 1997 and were comprised primarily of salaries and
benefits, bad debt provisions, credit and collection costs and communications
costs (i.e. telephone, paging, etc.).
Selling and marketing costs were $14.3 million for the six months ended
June 30, 1997, an increase of $11.3 million, or 385.5%, 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 increase in PCS subscribers.
G&A costs were $12.9 million for the six months ended June 30, 1997, an
increase of $7.9 million, or 159.0%, from the same period of 1996. This
increase is attributable to PCS G&A costs, which totaled $11.3 million for the
six months ended June 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 six months ended June 30, 1997,
totaled $19.2 million, as compared to $3.2 million for the same period of 1996,
and consists principally of the depreciation of the cellular and PCS networks
and the amortization of the PCS licenses. Substantially all of the increase of
$16.0 million in depreciation and amortization for the six months ended June 30,
1997 is due to the PCS system and PCS licenses. 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 $11.6 million for the six months
ended June 30, 1997 as compared to $419,000 for the same period of 1996.
Interest income earned during such periods was $6.9 million and $5.8 million,
respectively. Additionally, approximately $13.7 million and $7.2 million of
interest expense was capitalized through June 30, 1997 and 1996, respectively,
as the Company continued to construct its PCS system.
The effective income tax rates for the six months ended June 30, 1997 and
1996 were 0% and 28.7%, respectively. The decrease between periods is primarily
attributable to the deferred tax asset valuation allowance required as of June
30, 1997. The Company generated a $17.4 million net loss through June 30, 1997
and expects to continue to incur significant operating losses throughout the
remainder of 1997 and beyond. The tax benefit of these operating losses will not
be recognized until it is more likely than not that such benefit is realizable.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant amounts of capital for funding the
operations and expansion of its PCS business. The Company may also require
additional financing in the event it decides to make additional acquisitions.
Total capital expenditures, including capital expenditures for information
technology and the support of the PCS business, are estimated to be
approximately $280.0 million for 1997. Costs associated with the PCS System
buildout include the cost of tower sites, leasehold improvements, base station
and switch equipment, microwave relocation and labor expenses related to
construction of sites. The Company currently estimates that capital expenditures
will total approximately $200.0 million in 1997 to complete the initial buildout
of the PCS system in the Current PCS Markets (excluding Albany, Georgia and
Chattanooga, Tennessee) and the digital upgrade of the Company's cellular
system, and $150.0 million ($30.0 million in 1997 and $120.0 million in 1998)
relating to the initial buildout of the PCS system in the Kentucky/Tennessee
BTAs. Upon completion of the initial buildouts, the Company expects to be able
to offer PCS services in markets containing approximately 55% of the population
within the PCS Markets. The initial coverage will extend across most
metropolitan areas, certain secondary cities and major connecting highway
corridors within the 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.
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 Unicel, including
Unicel'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 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. Also 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, per value
$0.01 per share (the "Series C Preferred Stock"), from the Company in a
private placement for an aggregate purchase price of $22.5 million. Finally, 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, par value $0.01 per share (the "Series D
Preferred Stock"), from the Company in a private placement for an aggregate
purchase price of $22.5 million. Each share of Series C Preferred Stock and
Series D 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 Series C Preferred
Stock and Series D Preferred Stock rank, 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. ("Ericcson") for the purchase of PCS equipment and services
and a credit agreement (the "Vendor Financing Agreement") with Ericcson to
finance up to $125.0 million of such purchase. On October 31, 1996, March 31,
1997 and June 26, 1997, Powertel PCS and Ericcson entered into amendments to
the Vendor Financing Agreement which increased the amount of vendor financing
to $165.0 million and amended certain other provisions of the Vendor Financing
Agreement. The Company intends to obtain vendor financing, under terms similar
to the terms of the Vendor Financing Agreement, for the equipment purchases for
the Kentucky/Tennessee BTAs concurrent with signing an equipment purchase
agreement for the Kentucky/Tennessee BTAs. There can be no assurance that such
an agreement will be consummated on terms acceptable to the Company and within
the limitations contained in the indentures to the Company's outstanding bonds
or the Vendor Financing Agreement.
17
<PAGE> 18
Although the Company is currently unable to predict with certainty the
amount of expenditures that may be made subsequent to the initial buildout of
the PCS System, the Company expects that it may require additional capital.
Sources of additional capital 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 additional acquisitions. 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 February 2006 Senior Notes or the
May 2006 Senior Notes prior to 2001. Management believes that cash flow from
operations may be insufficient to repay the Senior 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 six months ended June 30, 1997, the Company used net cash
of $32.4 million from operating activities, which was a decrease of $33.7
million from the same period of 1996. Included in net cash used in operating
activities for the six months ended June 30, 1997 was $17.4 million of net
loss, $41.9 million of gain from the Maine Disposition, $12.7 million of bond
accretion on the Senior Notes, $19.2 million of depreciation and amortization
and $5.7 million related to changes in assets and liabilities.
Cash provided from investing activities was $5.0 million for the six
months ended June 30, 1997, as compared to cash used of $362.6 million for the
same period of 1996. For investing activities for the six months ended June 30,
1997, the Company incurred capital expenditures totaling $110.7 million
(primarily related to the buildout of the PCS system and support systems),
license acquisition costs of $31.3 million and other license costs (primarily
microwave relocation expenditures) of $6.0 million. These uses of capital were
more than offset by the proceeds from the Maine Disposition totalling $77.2
million and the liquidation of short-term investments totaling $75.7 million.
Cash provided from financing activities, which consisted primarily of
the proceeds from the Notes ($291.3 million), proceeds from the sale of the
Series C Preferred Stock and Series D Preferred Stock ($45.0 million) and
additional borrowings of $40.4 million under the Vendor Financing Agreement
amounted to $377.3 million for the six months ended June 30, 1997 compared to
$642.2 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 become
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.
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
18
<PAGE> 19
effective for fiscal years beginning after December 15, 1997. The Company does
not expect to be impacted by the provisions of these statements.
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 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 current 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 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.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
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 Federal
Communications Commission for broadband PCS frequency blocks. The Company has
cooperated fully with the Antitrust Division's requests.
ITEM 2. CHANGES IN SECURITIES
On June 5, 1997, pursuant to a Stock Purchase Agreement (the "Huff
Stock Purchase Agreement") dated as of May 23, 1997 between the Company and
Huff and a Stock Purchase Agreement (the "SCANA Stock Purchase Agreement" and,
together with the Huff Stock Purchase Agreement, the "Stock Purchase
Agreements") dated as of May 23, 1997 between the Company and SCANA, Powertel
sold 50,000 shares of Series C Preferred Stock for $22.5 million in cash to
Huff and 50,000 shares of Series D Preferred Stock for $22.5 million in cash
to SCANA.
Preferred Stock Terms. The holders of Series C Preferred Stock and
Series D Preferred Stock have no voting rights, except as required by law and
certain specified exceptions. Each share of Series C Preferred Stock and Series
D 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 Series C Preferred Stock and
Series D Preferred Stock rank, 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.
Registration Rights. The offer and sale of the Series C Preferred
Stock, the Series D Preferred Stock and the shares of Common Stock into which
such preferred stock is convertible have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on one or
more of the exemptions from registration provided by Section 4(2) and Regulation
D of the Securities Act. Huff and SCANA have been granted certain "demand" and
"piggyback" registration rights with respect to the shares of Common Stock
issued and issuable upon conversion of the Series C Preferred Stock and Series D
Preferred Stock, respectively.
20
<PAGE> 21
Resale Restrictions. Each of Huff and SCANA has agreed, among other
things, that except for limited exceptions they will not transfer, directly or
indirectly, any shares of Series C Convertible Stock or Series D Preferred
Stock, as the case may be, or any shares of Common Stock into which such
preferred stock is convertible until June 5, 1998 and June 10, 1998,
respectively, without the prior written consent of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 annual meeting of the stockholders of the Company was held on
April 22, 1997 to: (i) consider and vote upon a proposed amendment to the terms
of the Certificate of Designations for the Series B Convertible Preferred Stock
(the "Series B Preferred Stock"), which amendment would extend the earliest
possible conversion date for the Series B Preferred Stock from June 28, 2000 to
March 14, 2002; (ii) consider and vote upon a proposed amendment to the
Company's Third Restated Certificate of Incorporation, as further amended (the
"Certificate of Incorporation"), to change the Company's name to Powertel, Inc.;
(iii) consider and vote upon a proposed amendment to the 1991 Stock Option Plan,
as amended (the "Employee Plan"), to increase the number of shares of Common
Stock reserved for issuance thereunder by 1,000,000 shares; (iv) elect four
directors to serve on the Company's Board of Directors, each for a three-year
term; and (v) ratify the appointment of Arthur Andersen LLP as independent
public accountants of the Company for the year ending December 31, 1997.
Series B Preferred Stock. The stockholders were asked to consider and
vote upon a proposed amendment to Section 7(a) of the Certificate of
Designations for the Series B Preferred Stock, which amendment would extend the
earliest possible conversion date for the Series B Preferred Stock from June 28,
2000 (the fourth anniversary of the issuance of the Series B Preferred Stock) to
March 14, 2002. Votes cast for and against the measure were 17,281,329 and
20,108, respectively. Broker non-votes and abstentions were 2,838,362 and
16,890, respectively. In addition, SCANA, the sole stockholder of the Series B
Preferred Stock, voted by written consent dated June 24, 1997 in favor of the
amendment.
Amendment of Certificate of Incorporation. The stockholders were asked
to consider and vote upon a proposed amendment to the Certificate of
Incorporation to change the Company's name to Powertel, Inc. Votes cast for and
against the measure were 20,122,948 and 20,501, respectively. Broker non-votes
and abstentions were 0 and 13,240, respectively.
Amendment to Employee Plan. The stockholders were asked to consider and
vote upon an amendment to the Employee Plan, to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,000,000 shares from 2,000,000
to 3,000,000 shares. Votes cast for and against the measure were 18,949,420 and
1,167,576, respectively. Broker non-votes and abstentions were 0 and 39,693,
respectively.
Election of Directors. The stockholders were asked to elect O. Gene
Gabbard, William H. Scott, III, William B. Timmerman and Donald W. Weber to the
Company's Board of Directors, each for a three-year term. Votes cast for and
against the election of Messrs. Gabbard, Scott, Timmerman and Weber were
19,472,259 and 684,430, respectively. Broker non-votes and abstentions were 0
and 0, respectively. In addition, the following persons continue to serve as
directors: Campbell B. Lanier, III; Allen E. Smith; Maurice P. O'Connor; Donald
W. Burton; Bert G. Clifford; and Lawrence M. Gressette, Jr.
Accountants. The stockholders were asked to ratify the appointment by
the Board of Directors of the firm of Arthur Andersen LLP as independent public
accountants of the Company for the year ending December 31, 1997. Votes cast for
and against the measure were 20,131,012 and 7,862, respectively. Broker
non-votes and abstentions were 0 and 17,815, respectively.
21
<PAGE> 22
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 11.125% Senior
Notes due 2007 (the "New Notes") for a like principal amount of the Company's
issued and outstanding 11.125% Senior Notes due 2007 (the "Old Notes"). The Old
Notes were, and the New Notes will be, issued pursuant to an 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 Company will not receive any proceeds from the
issuance of the New Notes. The Exchange Offer commenced on July 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C> <C>
* 4(a) Indenture (including form of Note) dated June 10, 1997
between InterCel, Inc. and Bankers Trust Company, as Trustee,
relating to the 111/8% 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.)
</TABLE>
22
<PAGE> 23
<TABLE>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C> <C>
* 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.)
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule (for SEC use only).
</TABLE>
- --------------------
* 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.
(B) REPORTS ON FORM 8-K.
On May 12, 1997, the Company filed a Current Report on Form 8-K which
reported events under Item 2 (Acquisition or Disposition of Assets) in
connection with the sale of all of the Company's assets related to its cellular
telephone operations in Maine and reported events under Item 5 (Other Events) in
connection with the return of monies held in escrow to potential purchasers of
the Company's Series C Preferred Stock and Series D Preferred Stock. An
unaudited Pro Forma Balance Sheet as of December 31, 1996 and an unaudited
Statement of Operations for the Year Ended December 31, 1996 were filed with
such Report.
On July 1, 1997, the Company filed a Current Report on Form 8-K dated
June 25, 1997. Such Form 8-K was filed in connection with the change of the
Company's name from InterCel, Inc. to Powertel, Inc. and reported information
under Item 5 (Other Events).
23
<PAGE> 24
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.
August 13, 1997 /s/ Allen E. Smith
- --------------- -------------------------------------
Date Allen E. Smith
President and Chief Executive Officer
August 13, 1997 /s/ Fred G. Astor, Jr.
- --------------- -------------------------------------
Date Fred G. Astor, Jr.
Executive Vice President and Chief
Financial Officer
(Chief Accounting Officer)
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C> <C>
* 4(j) Indenture (including form of Note) dated June 10, 1997
between InterCel, Inc. and Bankers Trust Company, as Trustee,
relating to the 111/8% 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(k) 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(l) 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(m) 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(n) 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(o) 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.)
11 Statement regarding Computation of Per Share Earnings.
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C> <C>
27 Financial Data Schedule (for SEC use only).
</TABLE>
- -------------------
* 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.
<PAGE> 1
Exhibit 11
INTERCEL, INC.
EARNINGS PER SHARE CALCULATION
PRIMARY & FULLY DILUTED EARNINGS PER SHARE:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net (Loss) Income Before Cumulative Effect of Change
in Accounting Principle $ 12,137 $ (1,455) $(17,429) $ (919)
Cumulative Effect of Change in Accounting Principle -- -- -- (2,583)
-------- -------- -------- --------
Net Loss $ 12,137 $ (1,455) $(17,429) $ (3,502)
======== ======== ======== ========
Weighted average shares outstanding 26,812 26,807 26,812 23,353
Common stock equivalents outstanding (a) 10,332 -- -- --
======== ======== ======== ========
37,144 26,807 26,812 23,353
======== ======== ======== ========
PER SHARE DATA:
Net (Loss) Income Before Cumulative Effect of Change
in Accounting Principle $ 0.33 $ (0.05) $ (0.65) $ (0.04)
Cumulative Effect of Change in Accounting Principle -- -- -- (0.11)
-------- -------- -------- --------
Net Loss $ 0.33 $ (0.05) $ (0.65) $ (0.15)
======== ======== ======== ========
</TABLE>
(a) Excludes common stock equivalents (as calculated under the treasury stock
method) totaling 1,131 for the three months ended June 30, 1996 and 276
and 1,039 for the six months ended June 30, 1997 and 1996, respectively,
as inclusion of such equivalents would have an antidilutive effect on
earnings per share for those periods.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF POWERTEL, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 535,366
<SECURITIES> 0
<RECEIVABLES> 11,723
<ALLOWANCES> 0
<INVENTORY> 22,017
<CURRENT-ASSETS> 572,014
<PP&E> 357,094
<DEPRECIATION> (23,623)
<TOTAL-ASSETS> 1,343,845
<CURRENT-LIABILITIES> 38,086
<BONDS> 760,213
0
4
<COMMON> 269
<OTHER-SE> 434,414
<TOTAL-LIABILITY-AND-EQUITY> 1,343,845
<SALES> 7,382
<TOTAL-REVENUES> 35,738
<CGS> 16,734
<TOTAL-COSTS> 83,563
<OTHER-EXPENSES> (30,396)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,638
<INCOME-PRETAX> (17,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,429)
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0
</TABLE>
