<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the Fiscal Year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
----- -----
COMMISSION FILE NUMBER: 0-23012
POWERTEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1944750
(State of incorporation) (I.R.S. Employer Identification No.)
1233 O.G. Skinner Drive, West Point, Georgia 31833
(Address of principal executive office) (Zip Code)
(Registrant's telephone number including area code): (706) 645-2000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of each class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference into Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of $80.00 on March 27, 2000, as
reported on the Nasdaq Stock Market's National Market, was approximately
$1,306,429,000. As of March 27, 2000, the Registrant had 30,937,441 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Definitive Proxy Statement for the 2000 Annual Meeting
of Stockholders are incorporated by reference into Part III of this Report.
<PAGE> 2
EXPLANATORY NOTE
This Amendment No. 1 to Annual Report on Form 10-K/A is being filed to
revise the following items in this Report:
(1) Item 6. Selected Financial Data;
(2) Discussion of "Impairment of Long-Lived Assets" in Note 2 to
the Powertel, Inc. and Subsidiaries Consolidated Financial
Statements.; and
(3) Discussion of "Revenue Recognition" in Note 2 to the Powertel,
Inc. and Subsidiaries Consolidated Financial Statements.
<PAGE> 3
PART II
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial information
for Powertel as of and for each of the years in the five-year period ended
December 31, 1999. Arthur Andersen LLP has audited our consolidated financial
statements. Our stockholders should read the selected financial information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
thereto and other financial and operating information included elsewhere in this
Report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenues ........................ $ 254,051 $ 152,275 $ 62,745 $ 31,875 $ 25,384
Equipment sales ......................... 29,360 23,161 16,171 7,250 3,928
------------ ------------ ------------ ------------ ---------
Total revenues and sales ............. 283,411 175,436 78,916 39,125 29,312
------------ ------------ ------------ ------------ ---------
Cost of services ........................ 59,183 42,777 28,277 5,811 2,394
Cost of equipment sales ................. 73,526 79,144 45,318 11,653 3,127
Operations expenses ..................... 64,269 56,522 23,989 9,927 3,596
Selling and marketing expenses .......... 99,012 63,936 41,409 13,301 4,280
General and administrative expenses ..... 44,184 37,639 25,742 16,963 4,218
Depreciation ............................ 78,968 57,938 42,747 5,887 2,741
Amortization ............................ 10,212 9,716 6,535 4,214 2,360
------------ ------------ ------------ ------------ ---------
Total operating expenses ............. 429,354 347,672 214,017 67,756 22,716
------------ ------------ ------------ ------------ ---------
Operating (loss) income ............ (145,943) (172,236) (135,101) (28,631) 6,596
Interest expense (income), net(a) ....... 108,183 93,656 42,564 (3,175) 1,657
Gain on sale of assets(b) ............... (129,172) -- (41,912) -- --
Miscellaneous (income) expense .......... (288) (62) (585) 1,226 (295)
------------ ------------ ------------ ------------ ---------
(Loss) income before income taxes .... (124,666) (265,830) (135,168) (26,682) 5,234
and cumulative effect
Income tax (benefit) provision .......... -- -- -- (1,654) 2,230
------------ ------------ ------------ ------------ ---------
(Loss) income before cumulative effect (124,666) (265,830) (135,168) (25,028) 3,004
Dividends on cumulative convertible,
redeemable preferred stock ........... (9,750) (5,010) -- -- --
------------ ------------ ------------ ------------ ---------
Net (loss) income attributable to
common stockholders before
cumulative effect .................. (134,416) (270,840) (135,168) (25,028) 3,004
Cumulative effect of change in accounting
principle, net of tax(c) ............. -- -- -- (2,583) --
------------ ------------ ------------ ------------ ---------
Net (loss) income attributable to
common stockholders .............. $ (134,416) $ (270,840) $ (135,168) $ (27,611) $ 3,004
============ ============ ============ ============ =========
Earnings (loss) per share:
Net (loss) income attributable to common
stockholders before cumulative effect
of change in accounting principle .... $ (4.75) $ (10.02) $ (5.04) $ (1.00) $ 0.30
Cumulative effect of change in
accounting principle ................. -- -- -- (0.10) --
------------ ------------ ------------ ------------ ---------
Basic and diluted (loss) income
per common share ..................... $ (4.75) $ (10.02) $ (5.04) $ (1.10) $ 0.30
============ ============ ============ ============ =========
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(d) ............................... $ (56,763) $ (104,582) $ (85,819) $ (18,530) $ 11,697
Cash flows provided by (used in):
Operating activities ................. (98,977) (165,818) (57,030) (15,255) 5,640
Investing activities ................. 255,343 (184,072) (248,710) (489,084) (22,795)
Financing activities ................. 10,243 227,723 447,169 669,234 17,278
Capital expenditures .................... 130,816 207,292 291,849 233,551 7,661
Cellular subscribers at end of
period(e) ............................ -- 28,989 25,848 47,617 38,582
Net cellular population equivalents(f) .. -- 295,600 295,600 737,800 732,900
PCS subscribers at end of period ........ 546,364 295,295 118,757 14,892 --
Net PCS population equivalents(f) ....... 24,425,900 24,425,900 24,292,400 17,460,000 --
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ------------ ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ......................... $ 357,953 $ 226,861 $ 313,722 $ 256,349 $ 977
Property and equipment, net ............. 561,110 642,404 491,750 251,269 18,066
Licenses, goodwill and other intangibles,
net .................................. 400,587 407,998 416,252 388,634 24,904
Total assets ............................ 1,439,795 1,380,578 1,378,592 947,117 74,330
Long-term obligations ................... 1,253,845 1,108,070 969,014 504,065 29,411
Retained earnings (accumulated deficit) (563,190) (428,774) (157,934) (22,766) 4,845
Stockholders' (deficit) equity .......... (69,857) 50,331 317,816 407,007 36,674
</TABLE>
------------------------
(a) For the years ended December 31, 1999, 1998, 1997 and 1996, interest
income was $18.9 million, $19.5 million, $21.0 million and $17.3
million, respectively. This excludes capitalized interest of $1.9
million, $22.1 million and $29.0 million for the years ended December
31, 1998, 1997 and 1996, respectively. We did not have interest income
or capitalized interest for the year ended December 31, 1995 and did
not capitalize interest for the year ended December 31, 1999. During
the construction of the PCS system, the cost of the PCS licenses and
the costs related to the construction expenditures are considered to be
assets qualifying for interest capitalization under FASB Statement No.
34 "Capitalization of Interest Cost."
(b) During the year ended December 31, 1999, we sold substantially all of
our remaining cellular telephone assets for $89.3 million and 650 of
our wireless towers for $274.6 million, resulting in an aggregate
realized gain of $129.2 million. During the year ended December 31,
1997, we sold substantially all of our cellular telephone assets in the
State of Maine for $77.2 million, resulting in a gain of $41.9 million.
(c) During 1996, we changed our method of accounting for costs incurred in
connection with certain promotional programs under which subscribers
receive discounted cellular equipment or airtime usage credits. Under
our previous accounting method, all such costs were deferred and
amortized over the life of the related non-cancelable cellular
telephone service agreement. Under the new accounting method, the costs
are expensed as incurred.
(d) EBITDA represents operating (loss) income before depreciation and
amortization and excludes interest expense and income taxes. EBITDA is
provided because it is a measure commonly used in the industry. EBITDA
is not a measurement of financial performance under generally accepted
accounting principles and should not be considered an alternative to
net income as a measure of performance or to cash flow from operating
activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
(e) Cellular subscribers at end of period include 20,288 and 25,456
subscribers of Unicel in the State of Maine for the periods ended
December 31, 1995 and 1996, respectively.
(f) Net population equivalents means the estimated population of the
license market area multiplied by the percentage ownership of the
license. For the periods ended December 31, 1995 and 1996, net cellular
population equivalents include 442,000 and 442,200 population
equivalents, respectively, from Unicel's license market areas
(including Maine RSA 2).
<PAGE> 5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements, including our consolidated balance sheets as
of December 31, 1999 and 1998 and consolidated statements of income,
consolidated statements of cash flows and consolidated statements of changes in
stockholders' (deficit) equity for the years ended December 31, 1999, 1998 and
1997, together with the report of Arthur Andersen L.L.P. dated February 4, 2000,
and the schedule containing certain supporting information are attached to this
Report as pages F-1 through F-19.
<PAGE> 6
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(3) EXHIBITS
The following exhibit is added to the exhibits previously filed with
the Company's Annual Report on Form 10-K dated March 29, 2000:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<S> <C>
23(a) Consent of Arthur Andersen LLP
</TABLE>
<PAGE> 7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized.
POWERTEL, INC.
December 5, 2000 By: /s/ Allen E. Smith
----------------------------------------
Allen E. Smith
Chief Executive Officer, President and Director
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Allen E. Smith and
Fred G. Astor, Jr., and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report (Form 10-K) and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchanges Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
December 5, 2000 *
-------------------------------------------------------------
Campbell B. Lanier, III
Chairman of the Board of Directors
December 5, 2000 /s/ Allen E. Smith
-------------------------------------------------------------
Allen E. Smith
Chief Executive Officer, President and Director
(principal executive officer)
December 5, 2000 /s/ Fred G. Astor, Jr.
-------------------------------------------------------------
Fred G. Astor, Jr.
Chief Financial Officer and Executive Vice President
(principal financial and accounting officer)
December 5, 2000 *
-------------------------------------------------------------
Donald W. Burton
Director
December 5, 2000 *
-------------------------------------------------------------
O. Gene Gabbard
Director
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
December 5, 2000 *
-------------------------------------------------------------
Ann Milligan
Director
December 5, 2000
-------------------------------------------------------------
William H. Scott, III
Director
December 5, 2000
-------------------------------------------------------------
William B. Timmerman
Director
December 5, 2000
-------------------------------------------------------------
Donald W. Weber
Director
</TABLE>
*By: /s/ Allen E. Smith
---------------------------
Allen E. Smith
Attorney-in-Fact
<PAGE> 9
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998.............................................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997................ F-4
Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the Years Ended
December 31, 1999, 1998 and 1997....................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997................ F-6
Notes to Consolidated Financial Statements................................................................ F-7
</TABLE>
F-1
<PAGE> 10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Powertel, Inc.:
We have audited the accompanying consolidated balance sheets of
POWERTEL, INC. (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998 and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the three years ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Powertel, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 4, 2000
F-2
<PAGE> 11
POWERTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 371,396 $ 204,787
Restricted cash for payment of interest (Note 2) ...................... 16,223 33,375
Accounts receivable, net of allowance for doubtful accounts
of $6,544 and $4,895 at December 31, 1999 and 1998, respectively .... 30,925 28,726
Inventories (Note 2) .................................................. 21,250 20,683
Prepaid expenses and other ............................................ 21,747 9,248
----------- -----------
461,541 296,819
----------- -----------
PROPERTY AND EQUIPMENT, AT COST (Note 2):
Land .................................................................. 932 932
Building and towers ................................................... 241,617 311,723
Equipment ............................................................. 433,264 329,993
Furniture and fixtures ................................................ 11,259 8,616
Assets under construction ............................................. 34,841 98,350
----------- -----------
721,913 749,614
Less: accumulated depreciation ..................................... (160,803) (107,210)
----------- -----------
561,110 642,404
----------- -----------
OTHER ASSETS (Note 2):
Licenses, net of accumulated amortization of $26,950 and $16,748 at
December 31, 1999 and 1998, respectively ............................ 400,587 407,998
Deferred charges and other, net of accumulated amortization of $8,206
and $5,749 at December 31, 1999 and 1998, respectively .............. 16,557 19,014
Restricted cash for payment of interest ............................... -- 14,343
----------- -----------
417,144 441,355
----------- -----------
Total assets ...................................................... $ 1,439,795 $ 1,380,578
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable - trade .............................................. $ 26,261 $ 14,633
Accrued other ......................................................... 20,612 20,529
Accrued construction costs ............................................ 18,479 17,807
Current portion of long-term obligations (Note 5) ..................... 12,946 49
Accrued taxes other than income ....................................... 12,601 6,261
Advance billings and customer deposits ................................ 9,908 7,898
Accrued interest ...................................................... 2,781 2,781
----------- -----------
103,588 69,958
----------- -----------
LONG-TERM OBLIGATIONS (Note 5):
12% Senior Discount Notes due February 2006 ........................... 310,076 275,069
12% Senior Discount Notes due May 2006 ................................ 308,308 274,393
11.125% Senior Notes due June 2007 .................................... 300,000 300,000
Long-term portion of Credit Facility .................................. 252,107 258,532
Deferred gain on sale-leaseback (Note 3) .............................. 83,331 --
Other ................................................................. 23 76
----------- -----------
1,253,845 1,108,070
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
CUMULATIVE CONVERTIBLE, REDEEMABLE
PREFERRED STOCK (Note 6) ............................................... 152,219 152,219
----------- -----------
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred Stock (Note 6) .............................................. 3 4
Common Stock: $.01 par value; 100,000,000 shares authorized,
29,933,269 and 27,265,924 issued and outstanding at December 31, 1999
and 1998, respectively .............................................. 299 273
Paid-in capital ....................................................... 494,936 479,875
Accumulated deficit ................................................... (563,190) (428,774)
Deferred compensation ................................................. (1,410) (70)
Treasury stock, at cost - 55,352 and 52,483 shares at December 31, 1999
and 1998, respectively .............................................. (495) (34)
----------- -----------
(69,857) 50,331
----------- -----------
Total liabilities and stockholders' (deficit) equity .............. $ 1,439,795 $ 1,380,578
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-3
<PAGE> 12
POWERTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997
--------------- --------- --------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES AND SALES (Note 2):
Postpaid revenues ........................... $ 176,356 $ 132,709 $ 51,951
Roaming revenues ............................ 8,799 10,244 5,858
Prepaid revenues ............................ 55,752 2,579 --
Other revenues .............................. 13,144 6,743 4,936
--------- --------- ---------
Total service revenues .................... 254,051 152,275 62,745
Equipment sales ............................. 29,360 23,161 16,171
--------- --------- ---------
Total revenues and sales ................ 283,411 175,436 78,916
--------- --------- ---------
OPERATING EXPENSES:
Cost of services ............................ 59,183 42,777 28,277
Cost of equipment sales ..................... 73,526 79,144 45,318
Operations .................................. 64,269 56,522 23,989
Selling and marketing ....................... 99,012 63,936 41,409
General and administrative .................. 44,184 37,639 25,742
Depreciation ................................ 78,968 57,938 42,747
Amortization ................................ 10,212 9,716 6,535
--------- --------- ---------
Total operating expenses ................ 429,354 347,672 214,017
--------- --------- ---------
OPERATING LOSS ................................. (145,943) (172,236) (135,101)
--------- --------- ---------
OTHER (INCOME) EXPENSE:
Interest expense, net ....................... 108,183 93,656 42,564
Gain on sale of assets ...................... (129,172) -- (41,912)
Miscellaneous income ........................ (288) (62) (585)
--------- --------- ---------
Total other (income) expense ............ (21,277) 93,594 67
--------- --------- ---------
LOSS BEFORE INCOME TAXES ....................... (124,666) (265,830) (135,168)
INCOME TAX PROVISION ........................... -- -- --
--------- --------- ---------
NET LOSS ....................................... (124,666) (265,830) (135,168)
DIVIDENDS ON CUMULATIVE CONVERTIBLE,
REDEEMABLE PREFERRED STOCK .................. (9,750) (5,010) --
--------- --------- ---------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ... $(134,416) $(270,840) $(135,168)
========= ========= =========
PER SHARE DATA (Note 2):
BASIC AND DILUTED LOSS PER COMMON SHARE ..... $ (4.75) $ (10.02) $ (5.04)
========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ............. 28,270 27,019 26,834
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-4
<PAGE> 13
POWERTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL
CONVERTIBLE STOCKHOLDER'S
COMMON REFERRED PAID-IN ACCUMULATED DEFERRED TREASURY (DEFICIT)
STOCK STOCK CAPITAL DEFICIT COMPENSATION STOCK EQUITY
------ ----------- --------- ----------- ------------ -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 ......... $269 $ 2 $ 430,053 $ (22,766) $ (206) $(345) $ 407,007
Stock options exercised ............ 1 -- 711 -- -- -- 712
Issuance of restricted common
stock (Note 7) .................. -- -- 1,455 -- (1,455) -- --
Issuance of Series C Convertible
Preferred Stock, net of issuance
costs (Note 6) .................. -- 1 22,445 -- -- -- 22,446
Issuance of Series D Convertible
Preferred Stock, net of issuance
costs (Note 6) .................. -- 1 22,445 -- -- -- 22,446
Amortization of deferred
compensation .................... -- -- -- -- 373 -- 373
Net loss attributable to common
stockholders .................... -- -- -- (135,168) -- -- (135,168)
---- --- --------- --------- ------- ----- ---------
BALANCE, DECEMBER 31, 1997 ......... 270 4 477,109 (157,934) (1,288) (345) 317,816
Stock options exercised ............ 1 -- 195 -- -- -- 196
6.5% stock dividend on Cumulative
Convertible, Redeemable
Preferred Stock (Note 6) ........ 2 -- 2,571 -- -- -- 2,573
Amortization of deferred
compensation .................... -- -- -- -- 586 -- 586
Net loss attributable to common
stockholders .................... -- -- -- (270,840) -- -- (270,840)
---- --- --------- --------- ------- ----- ---------
BALANCE, DECEMBER 31, 1998 ......... 273 4 479,875 (428,774) (702) (345) 50,331
Stock options and warrants
exercised .......................... 3 -- 3,971 -- -- -- 3,974
Issuance of restricted common
stock (Note 7) .................. -- -- 1,362 -- (1,362) -- --
Conversion of Series C Convertible
Preferred Stock (Note 6) ........ 18 (1) (17) -- -- -- --
6.5% stock dividend on Cumulative
Convertible, Redeemable Preferred
stock (Note 6) .................. 5 -- 9,745 -- -- -- 9,750
Purchase of treasury shares ........ -- -- -- -- -- (150) (150)
Amortization of deferred
compensation .................... -- -- -- -- 654 -- 654
Net loss attributable to common
stockholders .................... -- -- -- (134,416) -- -- (134,416)
---- --- --------- --------- ------- ----- ---------
BALANCE, DECEMBER 31, 1999 ......... $299 $ 3 $ 494,936 $(563,190) $(1,410) $(495) $ (69,857)
==== === ========= ========= ======= ===== =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-5
<PAGE> 14
POWERTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss ......................................................... $(124,666) $(265,830) $(135,168)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on sale of subsidiary, net ................................ (79,312) -- (41,912)
Realized gain on sale-leaseback, net ........................... (49,860) -- --
Bond accretion ................................................. 68,922 59,204 34,061
Depreciation and amortization .................................. 89,180 67,654 49,282
Other, net ..................................................... (1,878) 3,041 2,565
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ................... (5,841) 5,823 (28,596)
(Increase) decrease in inventories ........................... (879) (16,708) 3,393
(Increase) decrease in other assets .......................... (2,492) (2,690) 8,613
Increase (decrease) in accounts payable, accrued expenses
and other current liabilities .............................. 7,849 (16,312) 50,732
--------- --------- ---------
Net cash used in operating activities .................... (98,977) (165,818) (57,030)
--------- --------- ---------
CASH FLOWS PROVIDED FROM (USED IN) INVESTING ACTIVITIES:
Proceeds from sale-leaseback ..................................... 274,617 -- --
Proceeds from sale of subsidiary ................................. 89,339 -- 77,204
Capital expenditures ............................................. (130,816) (207,292) (291,849)
Liquidation (purchase) of investments, net ....................... 31,495 29,367 (1,426)
Short-term notes receivable ...................................... (7,163) -- --
Microwave relocation ............................................. (2,801) (862) (9,266)
Increase (decrease) in accrued construction costs ................ 672 (5,285) 7,878
Payment for FCC licenses ......................................... -- -- (31,251)
--------- --------- ---------
Net cash provided from (used in) investing activities .... 255,343 (184,072) (248,710)
--------- --------- ---------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES:
Borrowings under Credit Facility ................................. 6,468 78,571 110,447
Proceeds from sale of common stock, net .......................... 3,974 196 712
Proceeds from sale of cumulative convertible, redeemable preferred
stock, net .................................................... -- 149,782 --
Proceeds from issuance of 11.125% Senior Notes due June 2007 ..... -- -- 290,637
Proceeds from sale of preferred stock, net ....................... -- -- 44,892
Other, net ....................................................... (199) (826) 481
--------- --------- ---------
Net cash provided from financing activities .............. 10,243 227,723 447,169
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ 166,609 (122,167) 141,429
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...................... 204,787 326,954 185,525
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................ $ 371,396 $ 204,787 $ 326,954
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized ............... $ 55,675 $ 52,913 $ 24,453
Cash paid for income taxes ....................................... -- -- 213
Net book value of assets sold in subsidiary disposition .......... 10,027 -- 35,292
Net book value of assets sold under sale-leaseback ............... 136,437 -- --
Noncash investing and financing activities:
Total capitalized interest ..................................... -- 1,900 22,093
Dividends on cumulative convertible, redeemable preferred stock
paid in stock .............................................. 9,750 2,573 --
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-6
<PAGE> 15
POWERTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
1. ORGANIZATION AND NATURE OF BUSINESS
Powertel, Inc. (the "Company") was incorporated in Delaware in April
1991 under the name Intercel, Inc. In June 1997, the Company changed its name to
Powertel, Inc. The Company provides digital wireless personal communication
services ("PCS") in the southeastern United States. Prior to April 30, 1999, the
Company also provided cellular telephone services in contiguous portions of
eastern Alabama and western Georgia under the name "Intercel" (Note 4).
Prior to May 1, 1997, the Company provided cellular telephone services
in the State of Maine under the name "Unicel" (Note 4).
The Company's PCS licenses encompass a territory of approximately
246,000 contiguous square miles with a population of approximately 24.4 million
people (according to industry publications) in the Major Trading Areas ("MTAs")
of Atlanta, Georgia; Jacksonville, Florida; Memphis, Tennessee/Jackson,
Mississippi; and Birmingham, Alabama; and in 13 Basic Trading Areas ("BTAs") in
Kentucky and Tennessee. The Company holds 30 MHz of spectrum licensed for PCS in
the MTA Markets and 20 MHz of spectrum licensed for PCS in all of the BTA
Markets except for the Knoxville, Tennessee BTA, where the Company holds a
license for 10 MHz of spectrum. The Company 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 34 markets in the Southeast.
While there are numerous wireless telephone systems operating in the
United States and other countries, the wireless telecommunications industry has
only limited operating history. Achieving profitable PCS operations will require
the Company to successfully compete with other PCS providers in all of its
markets, as well as with both existing and future wireless providers. In
addition, successful PCS operations will require the development of products
that are at least as commercially effective as its wireless competitors. Any
failure to anticipate and respond to changes to technology and subscriber
desires could have an adverse effect on the PCS business.
Management expects to continue incurring operating losses in future
periods while it continues to develop and expand its PCS system and PCS
subscriber base. Management believes it has adequate resources to fund these
losses during its initial years of operation or that additional sources of funds
will be available via public and private debt and equity placements or
additional lines of credit. If such sources are needed but not available,
management will have to alter its current operating plans.
2. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements are prepared on the accrual basis
of accounting and include the accounts of the Company and all majority-owned
subsidiaries. All significant intercompany balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 16
Source of Supplies
The Company relies on local telephone companies and other companies to
provide certain communications services. Although management feels alternative
telecommunications facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
Although the Company attempts to maintain multiple vendors for each
required product, its inventory and equipment, which are important components of
its operations, are each currently acquired primarily from less than five
sources. In addition, some of the Company's suppliers have limited resources and
production capacity. If the suppliers are unable to meet the Company's needs as
it builds out its network infrastructure and sells services and equipment, then
delays and increased costs in the expansion of the Company's network
infrastructure or losses of potential subscribers could result, which would
affect operating results adversely.
Presentation
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, and
short-term investments with original maturities of three months or less.
Restricted Cash for Payment of Interest
Restricted cash consists of certain U.S. government securities with
varying maturities which have been purchased and pledged, for the benefit of the
holders of the 11.125% Senior Notes due June 2007, to provide for the payment of
the first six scheduled interest payments on such Notes (Note 5).
Credit Risk
The Company's accounts receivable subject the Company to credit risk.
The Company extends credit to its subscribers based upon an evaluation of the
subscriber's financial condition and credit history and generally does not
require collateral. The Company maintains an allowance for doubtful accounts
based upon the expected collectibility of subscribers' accounts receivable. The
Company bills certain services to subscribers in advance and has the ability to
terminate access on delinquent accounts. The Company also introduced an
intelligent-network-based prepaid service alternative during September 1998.
Management believes these factors, as well as the large and geographically
diverse number of subscribers comprising the subscriber base, mitigate the risk
of loss and the concentration of credit risk.
The carrying amount of the Company's receivables approximates their
fair value.
Inventories
The Company maintains inventories for resale of wireless handsets and
accessory parts (i.e., antennae, batteries, cable, etc.). Inventories are valued
at the lower of average cost (which approximates first-in, first-out) or market
and are recorded net of a reserve for obsolescence of $1.5 million and $1.8
million at December 31, 1999 and 1998, respectively.
Property and Depreciation
Property and equipment are recorded at cost, including certain
engineering costs. The Company records depreciation using the straight-line
method over the estimated useful lives of the assets, which are 10 to 15 years
for towers, buildings and improvements and 3 to 10 years for equipment,
furniture and fixtures. The Company's policy is to remove the cost and
accumulated depreciation of retirements from the accounts and recognize the
related gain or loss upon the disposition of assets. Such gains and losses were
not material for any period presented, except as described in Notes 3 and 4.
F-8
<PAGE> 17
Assets Under Construction
Expenditures to construct the Company's PCS system are recorded as
assets under construction until the assets are placed in service. When the
assets are placed in service, they are transferred to the appropriate property
and equipment category and depreciated.
The Company capitalized interest incurred on borrowings related to
assets under construction during the initial buildout of the PCS system. Of the
cumulative aggregate capitalized interest of $50.3 million, $9.9 was attributed
to property, plant and equipment at December 31, 1999.
Licenses
Licenses consist of costs incurred to acquire PCS licenses, including
cumulative capitalized interest of $40.4 million at December 31, 1999, and
certain microwave relocation costs. Licenses are stated at cost less accumulated
amortization and are being amortized using the straight-line method over 40
years.
Deferred Charges and Other
Deferred charges and other consist primarily of costs related to the
offerings of the Company's senior notes and senior discount notes (Note 5) and
are being amortized over the 10-year lives of the related notes.
Impairment of Long-Lived Assets
The Company periodically reviews the values assigned to long-lived
assets, such as property and equipment, licenses, and deferred charges and
other, to determine whether any impairments are other than temporary. Management
reviews the undiscounted projected cash flows related to such assets and
compares them to the carrying values of the assets to determine if an impairment
has occurred. If an asset is deemed to be impaired, the Company records the
difference between the projected cash flows on a discounted basis or the fair
market value (whichever is more appropriate) and the carrying value as an asset
impairment charge in the period incurred. There were no such impairments in the
periods presented. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.
Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Effective in 1996, the Company adopted the disclosure
option of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") (Note 7) for all options granted
subsequent to January 1, 1995.
Revenue Recognition
The Company earns revenues by providing PCS and cellular service to
both local subscribers and subscribers of other PCS and cellular carriers
traveling ("roaming") through the Company's service area, as well as from sales
of PCS and cellular equipment. Postpaid service revenues consist of base monthly
service fees ("access"), airtime revenue and long-distance revenues ("toll
revenues"). Generally, access fees are billed one month in advance, but
recognized when earned, while airtime and toll revenues are recognized when
service is provided.
The Company introduced a prepaid PCS service alternative in September
1998. Prepaid PCS service revenues are collected in advance but recognized as
service is provided.
Roaming revenues consist of the airtime and toll fees charged to the
subscribers of other PCS and cellular carriers for use of the Company's PCS
network while traveling in the Company's service area. Roaming revenues are
recognized when service is rendered.
F-9
<PAGE> 18
Other revenues consist of activation fees, optional enhanced service
features and interconnection fees charged to local exchange carriers for
connections to the PCS network and are recognized when earned, which for
activation fees is the period in which the subscriber is activated.
Equipment sales are recognized upon delivery of the equipment to the
customer.
Advertising
The Company expenses advertising as incurred.
Interest Expense, Net
Interest expense, net is comprised of the following (in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Interest income .............. $(18.9) $(19.5) $(21.0)
Interest expense ............. 127.1 115.1 85.7
Capitalized interest ......... -- (1.9) (22.1)
------ ------ ------
Interest expense, net ... $108.2 $ 93.7 $ 42.6
====== ====== ======
</TABLE>
Loss Per Share
Basic loss per share (EPS) was computed by dividing net loss available
to common stockholders by the weighted average number of shares of common stock
outstanding during the year. Diluted EPS is the same as basic EPS for all
periods presented as all common stock equivalents would have an antidilutive
effect.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is effective for fiscal
years beginning after June 15, 1999. In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133", which amends Statement 133 to be effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000 (that is, January 1, 2001 for
companies with calendar-year fiscal years). SFAS 133 establishes accounting and
reporting standards for derivative instruments and transactions involving hedge
accounting. The Company does not anticipate that this statement will have a
material impact on its financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which is
effective for fiscal years beginning after December 15, 1998. SOP 98-1 requires
capitalization of certain costs of internal-use software. The Company adopted
SOP 98-1 in January 1999. Adoption of SOP 98-1 did not have a material impact on
the Company's financial statements.
3. TOWER ASSETS SALE-LEASEBACK
On June 2, 1999, pursuant to an Asset Purchase Agreement dated March
15, 1999, the Company sold to CCP Inc., a wholly-owned subsidiary of Crown
Castle International Corp ("Crown Castle"), 619 of its wireless transmission
towers, related assets and certain liabilities for $261.5 million. On December
2, 1999, pursuant to an Asset Purchase Agreement dated September 27, 1999, the
Company sold to Crown Castle an additional 31 towers for $13.1 million. In
connection with these sales, the Company entered into master lease agreements
with Crown Castle to lease space on the towers for a monthly rent of $1,800 per
tower for an initial lease term of ten years, with
F-10
<PAGE> 19
three five-year renewal periods at the option of the Company. The transactions
were recorded as a sale-leaseback. Accordingly, $88.3 million of the total gain
on the sale of $138.2 million was deferred and will be amortized over the
initial lease term of ten years as a reduction of cost of services. The
unamortized portion of the deferred gain is recorded as a long-term obligation
in the accompanying consolidated balance sheets.
In connection with these transactions, the Company also entered into a
build-to-suit construction contract with Crown Castle (Note 9).
4. ASSET DISPOSITIONS
On April 30, 1999, pursuant to an Asset Purchase Agreement dated
January 5, 1999, the Company and certain of its wholly-owned subsidiaries sold
to Public Service Cellular, Inc. ("PSC") substantially all of the assets and FCC
Licenses of the Company relating to its cellular telephone operations in eastern
Alabama and western Georgia for $89.3 million. The transaction constituted the
sale of all of the Company's cellular telephone operations and resulted in a
$79.3 million gain to the Company. At closing, PSC paid the Company $83.1
million in cash (including reimbursement for certain capital expenditures of $.3
million) and paid $6.2 million into escrow. On November 1, 1999, substantially
all of the $6.2 million was released from escrow to the Company.
On May 1, 1997, pursuant to an Asset Purchase Agreement dated as of
December 23, 1996, certain subsidiaries of the Company sold and assigned (the
"Unicel Disposition") to a subsidiary of Rural Cellular Corporation ("Rural
Cellular"), substantially all the assets and rights of the Company (including
its 51% general partnership interest in the Northern Maine Cellular Partnership)
to provide cellular and microwave service in the Bangor, Maine MSA and Maine
RSA3 and to provide microwave service in Maine RSA2. This transaction resulted
in a $41.9 million gain to the Company. At closing, Rural Cellular paid the
Company $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.
The following unaudited pro forma condensed consolidated statements of
operations (in millions, except per share data) assume the sales 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>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues and sales ............................. $ 276.4 $ 155.8 $ 55.9
Net loss (excluding gain on sale) .............. (207.6) (273.9) (183.9)
Basic and diluted loss per common share ........ $ (7.68) $(10.33) $ (6.86)
</TABLE>
5. LONG-TERM OBLIGATIONS
During 1997, the Company issued $300 million principal amount of
11.125% Senior Notes due June 2007 (the "June Notes"). The June Notes may be
redeemed at any time on or after June 1, 2002, at the option of the Company, at
105.5626% of their principal amount, plus accrued interest, declining to 100% of
their principal amount, plus accrued interest, on and after June 1, 2004. In
addition, at any time prior to June 1, 2000, up to 35% of the aggregate
principal amount of the June Notes may be redeemed from the proceeds of one or
more public equity offerings at 111.125% of their principal amount, provided
that after any such redemption at least $195.0 million aggregate principal
amount of the June Notes remains outstanding. Interest on the June Notes is
payable semiannually in cash on June 1 and December 1 of each year.
The Company used $89.6 million of the proceeds from the June Notes to
purchase and pledge, for the benefit of the holders of the June Notes, certain
U.S. government securities to provide for the payment of the first six scheduled
interest payments on the June Notes. The remaining unpaid portion of such
amounts is classified as "Restricted Cash for Payment of Interest" in the
accompanying consolidated balance sheets (Note 2).
F-11
<PAGE> 20
During 1996, the Company issued $360 million principal amount at
maturity of the Company's 12% Senior Discount Notes due April 2006 (the "April
Notes") and $357 million aggregate principal amount at maturity of the Company's
12% Senior Discount Notes due February 2006 (the "February Notes"). The April
Notes may be redeemed at any time on or after May 1, 2001, at the option of the
Company, at 106% of their principal amount at maturity, plus accrued interest,
declining to 100% of their principal amount at maturity, plus accrued interest,
on and after May 1, 2003. The April Notes will fully accrete to face value on
May 1, 2001, at which time they will bear interest, payable in cash, at a rate
of 12% per annum on each May 1 and November 1, commencing November 1, 2001.
The February Notes may be redeemed at any time on or after February 1,
2001, at the option of the Company, at 106% of their principal amount at
maturity, plus accrued interest, declining to 100% of their principal amount at
maturity, plus accrued interest on and after February 1, 2003. The February
Notes will fully accrete to face value on February 1, 2001, at which time they
will bear interest, payable in cash, at a rate of 12% per annum on each February
1 and August 1, commencing August 1, 2001.
Unamortized original issue discount on the April Notes and February
Notes is being amortized using effective interest rates of 12% and 12.35%,
respectively. For the years ended December 31, 1999, 1998 and 1997, total
accretion of the original issue discount was $68.9 million, $61.1 million and
$54.5 million, respectively, of which $0.0 million, $1.9 million and $20.4
million was capitalized and $68.9 million, $59.2 million and $34.1 million,
respectively, was included in interest expense in the accompanying consolidated
statements of operations.
The Company maintains a $265 million Credit Facility regarding the
purchase of and vendor financing for PCS network equipment and services. Under
the original terms of the Credit Facility, advances were made as requested by
the Company to finance purchases from Ericsson Inc. pursuant to the terms of the
related Ericsson Equipment Purchase Agreement (Note 9). As of December 31, 1999,
the Company had borrowed the maximum available under the Credit Facility. The
aggregate amount of the advances made will be repaid in twenty equal quarterly
installments, commencing in March 2000 and continuing for a period of five years
thereafter, with the last installment in an amount necessary to repay in full
the remaining outstanding balance.
The interest rate under the Credit Facility is based on the applicable
Eurodollar Rate plus 3% (9.0625% at December 31, 1999) but can be converted to a
fluctuating interest rate per annum based on the higher of Citibank N.A.'s base
rate or .5% above the Federal Funds Rate, plus 1%, at the discretion of the
lender. Interest on the unpaid principal amount of each advance is payable in
arrears on the last day of each calendar quarter.
The Credit Facility is secured by all the equipment purchased with the
proceeds therefrom, subject to the terms of the Ericsson Equipment Purchase
Agreement, as well as a pledge of the stock of the Company's subsidiaries that
hold the PCS licenses.
Scheduled maturities of long-term obligations are as follows (in
millions):
<TABLE>
<S> <C>
2000 $ 12.9
2001 33.0
2002 53.0
2003 53.0
2004 53.0
Thereafter 978.5
--------
Total $1,183.4
========
</TABLE>
The indentures relating to the June Notes, February Notes and April
Notes (the "Indentures") and Credit Facility contain certain restrictive
covenants which significantly limit or prohibit, among other things, the ability
of the Company to incur additional indebtedness, make prepayments of certain
indebtedness, pay dividends, make investments, engage in transactions with
stockholders and affiliates, issue capital stock, create liens, sell assets and
engage in mergers and consolidations. The Credit Facility also requires the
Company to maintain certain financial ratios. If the Company fails to comply
with these restrictive covenants or maintain such ratios, the Company's
obligation to repay all, or significant portions of, the Notes and Credit
Facility may be accelerated. The limitations
F-12
<PAGE> 21
in the Indentures are subject to certain qualifications and exceptions, which,
in particular, allow the Company and its subsidiaries to incur additional
indebtedness in certain circumstances.
At December 31, 1999, the Company was in compliance with all covenants
and financial ratios under the Indentures and Credit Facility.
6. PREFERRED STOCK
The Preferred Stock reflected in the accompanying consolidated balance
sheets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Preferred stock, $.01 par value, 1,000,000 shares authorized:
Series E Cumulative Convertible, Redeemable Preferred, 50,000 shares
issued and outstanding at December 31, 1999 and 1998 ................ $ 76,109 $ 76,109
Series F Cumulative Convertible, Redeemable Preferred, 50,000 shares
issued and outstanding at December 31, 1999 and 1998 ................ 76,110 76,110
-------- --------
Total cumulative convertible, redeemable preferred stock .... $152,219 $152,219
======== ========
Series A Convertible Preferred, 100,000 shares issued and
outstanding in 1999 and 1998 ........................................ $ 1 $ 1
Series B Convertible Preferred, 100,000 shares issued and
outstanding in 1999 and 1998 ........................................ 1 1
Series C Convertible Preferred, 0 and 50,000 shares issued and
outstanding in 1999 and 1998, respectively .......................... -- 1
Series D Convertible Preferred, 50,000 shares issued and
outstanding in 1999 and 1998 ........................................ 1 1
-------- --------
Total preferred stock in stockholders' equity ................... $ 3 $ 4
======== ========
</TABLE>
On September 22, 1999, The Huff Alternative Income Fund, L.P., which
originally purchased 50,000 shares of Series C Convertible Preferred Stock (the
"Series C Preferred") from the Company on June 5, 1997, converted all of the
Series C Preferred shares into 1,764,706 shares of common stock.
On September 15, 1999, Sonera Ltd. purchased 100,000 shares of
non-voting Series A Convertible Preferred Stock (the "Series A Preferred") from
Ericsson Inc., which originally purchased the Series A Preferred from the
Company on June 29, 1996. The Series A Preferred is currently convertible, at
the option of the holder, at a rate of 46.27 shares of common stock per share of
preferred stock, subject to adjustment. The Series A Preferred is redeemable, at
the option of the Company, in whole or in part, on a pro rata basis, at a
redemption price of $750 per share plus declared and unpaid dividends, anytime
subsequent to June 28, 2001. The Series A Preferred has a liquidation preference
of $750 per share plus declared and unpaid dividends in the event of a
liquidation, dissolution or winding up of the Company.
On June 22, 1998, in separate private placements, the Company issued:
(a) 50,000 shares of non-voting Series E 6.5% Cumulative Convertible, Redeemable
Preferred Stock (the "Series E Preferred") to SCANA Communications, Inc., a
wholly-owned subsidiary of SCANA Corporation ("SCANA"), for $75 million; and (b)
50,000 shares of non-voting Series F 6.5% Cumulative Convertible, Redeemable
Preferred Stock (the "Series F Preferred") to ITC Wireless, Inc., a wholly-owned
subsidiary of ITC Holding Company, Inc., for $75 million. The Series E Preferred
and Series F Preferred become convertible on June 22, 2003, at the option of the
holder, at a rate of 68.15 shares of common stock per share of preferred stock,
subject to adjustment. Each is redeemable at the option of the Company, in whole
or in part, on a pro rata basis, at a redemption price of $1,500 per share plus
accrued and unpaid dividends, anytime subsequent to June 22, 2003, but no later
than June 1, 2010. Each has a liquidation preference over the common stock of
$1,500 per share, subject to adjustment, plus accrued and unpaid dividends in
the event of a liquidation, dissolution or winding up of the Company.
F-13
<PAGE> 22
Due to the mandatory redemption feature included in the Series E
Preferred and Series F Preferred, the Series E Preferred and Series F Preferred
have been classified in the mezzanine of the accompanying consolidated balance
sheets at redemption value, net of issuance costs.
The 6.5% annual dividend on each of the Series E Preferred and Series F
Preferred is payable quarterly in common stock or, under certain circumstances,
cash. The Company intends to pay such quarterly dividend in common stock for the
foreseeable future.
During 1997, the Company issued 50,000 shares of non-voting Series D
Convertible Preferred Stock (the "Series D Preferred") to SCANA for $22.5
million. The Series D Preferred becomes convertible on March 14, 2002, at the
option of the holder, at a rate of 35.29 shares of common stock per share of
preferred stock, subject to adjustment. The Series D Preferred is redeemable, at
the option of the Company, in whole or in part, on a pro rata basis, at a
redemption price of $450 per share plus declared and unpaid dividends, anytime
subsequent to June 5, 2002. The Series D Preferred has a liquidation preference
of $450 per share plus declared and unpaid dividends in the event of a
liquidation, dissolution or winding up of the Company.
During 1996, the Company issued 100,000 shares of non-voting Series B
Convertible Preferred Stock (the "Series B Preferred") to SCANA for $75 million.
The Series B Preferred becomes convertible on March 14, 2002, at the option of
the holder, at a rate of 45.45 shares of common stock per share of preferred
stock, subject to adjustment. The Series B Preferred is redeemable, at the
option of the Company, in whole or in part, on a pro rata basis, at a redemption
price of $750 per share plus declared and unpaid dividends, anytime subsequent
to June 28, 2001. The Series B Preferred has a liquidation preference of $750
per share plus declared and unpaid dividends in the event of a liquidation,
dissolution or winding up of the Company.
The Company's certificate of incorporation authorizes the Board of
Directors to issue, from time to time and without further stockholder action,
one or more series of preferred stock and to fix the relative rights and
preferences of the shares, including voting powers, dividend rights, liquidation
preferences, redemption rights, and conversion privileges.
7. STOCK OPTION PLANS
Stock Options
Under the Powertel, Inc. 1991 Stock Option Plan, as amended (the "Stock
Plan"), 5,000,000 shares of common stock are reserved for issuance upon exercise
of options. Substantially all of the employees of the Company are eligible to
receive options under the Stock Plan. Management recommends to the
Compensation/Stock Option Committee the number of options to grant based on
management's analysis of the employee's performance and level of responsibility.
The Board of Directors also may include in each option granted under the Stock
Plan certain additional limitations on the recipient's right to exercise the
option. Options under the Stock Plan may be either "incentive stock options," as
defined under Section 422 of the Internal Revenue Code, or nonqualified options.
Under the Company's Nonemployee Stock Option Plan (the "Nonemployee
Plan"), 400,000 shares of common stock are reserved for issuance upon exercise
of options. All nonemployee directors of the Company and all employees of
affiliates of the Company are eligible to receive options under the Nonemployee
Plan. Options to purchase 10,000 shares of common stock are granted to each
nonemployee director upon his or her election or appointment to the Board of
Directors. The Nonemployee Plan does not provide for discretionary option
grants.
Options granted under the Stock Plan and Nonemployee Plan generally
become exercisable as to 50% two years after the date of grant, 25% three years
after the date of grant, and 25% four years after the date of grant, but no
option may be exercised more than ten years after the date of grant. Options
generally are exercisable at a price established by the Compensation/Stock
Option Committee equal to at least 100% of the fair market value of the Common
Stock on the options' grant date, except that the exercise price with respect to
options granted to an individual who owns more than 10% of the combined voting
power of all classes of stock of the Company must be at least 110% of the fair
market value of the common stock on the date of grant. The full exercise price
for shares
F-14
<PAGE> 23
being purchased must be paid at the time of exercise in cash or, if
permitted by the particular option agreement, in whole or in part by delivery of
shares of Common Stock having a fair market value (on the delivery date) of not
less than the exercise price.
The Company accounts for its stock-based compensation related to the
Stock Plan and Nonemployee Plan under APB 25. Accordingly, no compensation
expense has been recognized, as all options have been granted with an exercise
price equal to the fair value of the Company's stock on the date of grant. For
SFAS 123 pro forma purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black-Scholes option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate ..... 5.31% 4.65% 5.92%
Expected dividend yield ..... -- -- --
Expected lives .............. 6.0 Yrs. 8.2 Yrs. 8.2 Yrs.
Expected volatility ......... 54% 50% 55%
</TABLE>
Using these assumptions, the fair value of the stock options granted in
1999, 1998 and 1997 is $9.7 million, $6.7 million and $4.3 million,
respectively, which would be amortized as compensation expense over the vesting
period of the options. Had compensation cost been determined consistent with the
provisions of SFAS 123, the Company's net loss and pro forma net loss per common
share for 1999, 1998 and 1997 would have been as follows (in millions, except
per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported .............. $(134.4) $(270.8) $(135.2)
Pro forma ................ (141.5) (274.6) (139.6)
Net loss per common share:
As reported .............. $ (4.75) $(10.02) $ (5.04)
Pro forma ................ (5.00) (10.12) (5.21)
</TABLE>
Because SFAS 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that expected in future years.
Under the Company's 1995 Employee Restricted Stock Plan (the
"Restricted Stock Plan"), 200,000 shares of common stock are reserved for
issuance, of which 163,800 shares had been awarded through December 31, 1999.
These restricted stock awards vest in three equal installments on the first,
second and third anniversaries of the date of grant. The compensation associated
with the restricted grants (i.e., the difference between the market price of the
Company's Common Stock on the date of grant and the exercise price) is being
amortized ratably over the three-year vesting period. Such compensation expense
totaled $0.7 million, $0.6 million and $0.4 million for the years ended December
31, 1999, 1998 and 1997, respectively. Any unamortized deferred compensation is
reflected as a reduction to stockholders' equity (deficit) in the accompanying
consolidated balance sheets. The Restricted Stock Plan is administered by the
Compensation/Stock Option Committee of the Board of Directors.
F-15
<PAGE> 24
A summary of the combined status of all stock plans at December 31,
1999, 1998 and 1997 is presented in the following table:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996 1,692,153 $13.78
Granted .......................... 921,344 13.27
Forfeited ........................ (175,926) 17.15
Exercised ........................ (67,293) 14.17
---------
Outstanding at December 31, 1997 2,370,278 13.39
Granted .......................... 541,192 17.71
Forfeited ........................ (293,401) 16.80
Exercised ........................ (28,119) 10.98
---------
Outstanding at December 31, 1998 2,589,950 13.93
Granted .......................... 691,701 24.41
Forfeited ........................ (189,341) 17.66
Exercised ........................ (305,139) 13.24
---------
Outstanding at December 31, 1999 2,787,171 16.36
=========
</TABLE>
The following table summarizes the exercise price range, weighted
average exercise price and weighted average remaining contractual life for the
options outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE WEIGHTED AVERAGE REMAINING
OUTSTANDING RANGE EXERCISE PRICE CONTRACTUAL LIFE
----------- -------------- ---------------- ----------------
<S> <C> <C> <C>
135,000 $ 3.33-3.33 $ 3.33 1.3 Years
79,100 5.25-6.50 5.61 2.4 Years
790,663 8.25-12.38 11.32 6.3 Years
1,306,773 12.50-18.75 15.65 7.6 Years
329,515 18.81-25.75 21.63 7.5 Years
52,720 28.38-42.00 34.54 9.6 Years
38,200 44.19-65.00 52.70 9.7 Years
55,200 66.38-92.88 78.76 9.9 Years
--------- ------------ ------ ---------
2,787,171 3.33-92.88 16.36 6.9 Years
</TABLE>
Total stock options exercisable at December 31, 1999 were 1,298,791 at
a weighted average exercise price of $12.45.
Stock Warrants
As of December 31, 1999, the Company had outstanding approximately 1.2
million warrants to purchase its common stock. Each warrant entitles the holder
to purchase 1.0705 shares of common stock at $16.95 per share (as adjusted for
the June 1996 issuance of the Series A Preferred and Series B Preferred). The
warrants may be exercised at any time prior to February 1, 2006. At December 31,
1999, 69,301 warrants had been exercised.
F-16
<PAGE> 25
8. INCOME TAXES
The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate ............. (35)% (35)% (35)%
Increase (decrease) in income tax rate
resulting from:
State income taxes, net of federal benefit (6) (6) (7
Valuation allowance ...................... 41 41 42
--- --- ---
Effective income tax rate ..................... 0% 0% 0%
=== === ===
</TABLE>
The significant components of the Company's net deferred tax asset are
as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards ................ $140.0 $136.5 $ 49.0
Start up costs capitalized ...................... 17.2 19.7 15.9
Bond accretion capitalized ...................... 71.8 46.3 20.2
Deferred gain ................................... 34.9 -- --
Other ........................................... 10.5 8.4 1.5
------ ------ ------
274.4 210.9 86.6
------ ------ ------
Deferred Tax Liabilities:
Depreciation .................................... (34.0) (25.6) (11.3)
Other ........................................... (2.0) (1.5) (0.5)
------ ------ ------
(36.0) (27.1) (11.8)
------ ------ ------
Net deferred tax asset before valuation allowance .. 238.4 183.8 74.8
Valuation allowance ................................ (237.1) (182.5) (73.5)
------ ------ ------
Net deferred tax asset ............................. 1.3 1.3 1.3
Less: current portion .............................. 1.3 1.3 1.3
------ ------ ------
Net deferred tax asset--non-current portion ........ $ -- $ -- $ --
====== ====== ======
</TABLE>
At December 31, 1999, the Company had available net operating loss
carryforwards for regular tax purposes of approximately $328 million, which will
expire at various dates between 2005 and 2018, and alternative minimum tax
credit carryforwards of $0.2 million, which have no expiration. The utilization
of a portion of these carryforwards is subject to limitations under the Internal
Revenue Code of 1986. Since management is currently unable to determine whether
it is more likely than not that some portion of the net deferred tax asset will
be realized, a valuation allowance of $237.1 million has been provided in the
accompanying consolidated financial statements. The valuation allowance
increased $54.6 million and $109.0 million in 1999 and 1998, respectively.
9. COMMITMENTS AND CONTINGENCIES
Leases
Lease expenses relate to the lease of office and warehouse space, land
for cell sites, cell sites, dedicated lines and trunk access facilities,
computer equipment, and billboards and include leases with affiliates (Note 10).
Rents charged to expense were approximately $29.1 million, $20.6 million and
$10.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-17
<PAGE> 26
At December 31, 1999, future minimum lease payments under noncancelable
operating leases with initial remaining terms of more than one year are as
follows (in millions):
2000 $ 30.1
2001 28.7
2002 24.5
2003 18.7
2004 12.0
Thereafter 31.3
--------
$ 145.3
========
Construction Contract
On September 27, 1999, the Company entered into a build-to-suit
construction contract (Note 3) with Crown Castle that grants Crown Castle a
right of first refusal to build, acquire and lease back to the Company at $1,800
per month up to 40 tower sites to be constructed prior to December 31, 2000.
Equipment Purchase Commitments
In 1996, the Company entered into a five-year equipment purchase
agreement and related vendor financing agreement (Note 5) with Ericsson Inc. for
the purchase of certain network equipment and services required for the initial
buildout and operation of the Company's PCS system. Under the terms of the
agreement and subsequent amendments, the Company committed to purchase certain
PCS network equipment and services for specific markets and utilize Ericsson as
the exclusive provider of certain PCS network equipment until December 31, 2001
for all of its markets. The Company's grant of exclusivity is conditioned upon
Ericsson's ability to provide sufficient quantities of PCS network equipment to
meet the Company's needs in the PCS markets, provide commercial service for each
PCS market by pre-defined dates, and continue to provide "state of the art"
equipment. The Company's cumulative total purchases under the agreement were
approximately $297 million at December 31, 1999.
Litigation
The Company is subject to litigation related to matters arising in the
normal course of business. As of December 31, 1999 management is not aware of
any asserted or pending material litigation or claims against the Company that
would have a material impact.
10. TRANSACTIONS WITH AFFILIATES
The Company leases certain dedicated and trunk telephone access lines
and purchases local and long-distance services through its former parent, ITC
Holding Company, Inc., and certain of its other subsidiaries and related
parties. The total expense recorded by the Company for these services was
approximately $10.7 million, $10.1 million and $5.8 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
The Company purchases certain equipment, inventory and services related
to the buildout and operation of its PCS line of business from preferred
stockholders and certain of their subsidiaries. The Company's total purchases
for equipment, inventory and services from these related parties were $75.5
million, $138.3 million and $106.8 million for the years ended December 31,
1999, 1998 and 1997, respectively.
F-18
<PAGE> 27
11. BUSINESS SEGMENT DATA
Effective with the year ended December 31, 1998, the Company adopted
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which requires the
Company to report financial and descriptive information about its reportable
operating segments. SFAS 131 requires the reporting of a measure of segment
profit or loss, certain specific revenue and expense items and segment assets,
as well as a reconciliation of total segment revenues, total segment profit or
loss, total segment assets and other amounts disclosed for segments to
corresponding amounts in the company's general purpose financial statements.
The Company classifies its operations into two business segments: PCS
and cellular. Certain corporate administrative expenses have been allocated to
the segments based upon the nature of the expense. Intersegment revenues are not
material. Summarized financial information by business segment is as follows (in
millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------ --------------------------------
PCS(A) CELLULAR(B) TOTALS PCS CELLULAR TOTALS PCS CELLULAR(C) TOTALS
-------- ----------- -------- -------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and sales .......... $ 276.4 $ 7.0 $ 283.4 $ 155.8 $ 19.6 $ 175.4 $ 55.9 $ 23.0 $ 78.9
Depreciation and
amortization ............. 88.7 0.5 89.2 65.8 1.9 67.7 46.7 2.6 49.3
Operating (loss) income ..... (149.5) 3.6 (145.9) (180.3) 8.1 (172.2) (141.9) 6.8 (135.1)
Interest expense (income),
net ...................... 108.2 -- 108.2 93.7 -- 93.7 42.6 -- 42.6
Net (loss) income ........... (207.6) 82.9 (124.7) (273.9) 8.1 (265.8) (183.9) 48.7 (135.2)
Total assets ................ 1,439.8 -- 1,439.8 1,365.6 15.0 1,380.6 1,364.5 14.1 1,378.6
Capital expenditures ........ 130.5 .3 130.8 205.0 2.3 207.3 289.6 2.2 291.8
</TABLE>
---------------
(a) Includes realized gain on sale of tower assets of $49.9 million.
(b) Includes gain on sale of subsidiary of $79.3 million.
(c) Includes gain on sale of subsidiary of $41.9 million.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999 QUARTERS:
Revenues and sales .......................... $ 62.0 $ 64.0 $ 72.4 $ 85.0
Operating loss .............................. (33.6) (36.9) (30.8) (44.6)
Net (loss) income attributable to common
stockholders ............................ (63.8) 60.6 (58.9) (72.3)
Basic (loss) earnings per common share ...... $(2.33) $ 2.19 $(2.10) $(2.43)
Diluted (loss) earnings per common share .... (2.33) 1.22 (2.10) (2.43)
1998 QUARTERS:
Revenues and sales .......................... $ 36.7 $ 40.8 $ 44.6 $ 53.3
Operating loss .............................. (36.0) (34.2) (41.1) (60.9)
Net (loss) income attributable to common
stockholders ............................ (57.7) (57.8) (66.7) (88.6)
Basic and diluted loss per common share ..... $(2.14) $(2.15) $(2.47) $(3.26)
1997 QUARTERS:
Revenues and sales .......................... $ 19.1 $ 16.6 $ 18.5 $ 24.7
Operating loss .............................. (24.6) (23.3) (32.7) (54.5)
Net (loss) income attributable to common
stockholders ............................ (29.6) 12.1 (45.9) (71.8)
Basic (loss) earnings per common share ...... $(1.10) $ 0.45 $(1.71) $(2.66)
Diluted (loss) earnings per common share .... (1.10) 0.42 (1.71) (2.66)
</TABLE>
F-19
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES
We have audited in accordance with auditing standards generally
accepted in the United States, the financial statements of POWERTEL, INC. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
February 4, 2000. Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in the
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 4, 2000
S-1
<PAGE> 29
POWERTEL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------------------------------------- ----------- ------------ ------------- ----------
BALANCE AT ADDITIONS WRITEOFFS, BALANCE AT
BEGINNING CHARGED NET OF END OF
CLASSIFICATION OF PERIOD TO INCOME RECOVERIES PERIOD
---------------------------------------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts ........ $ 4,894,688 $ 12,203,408 $(10,553,730) $6,544,366
Allowance for obsolete inventory ....... 1,813,394 2,255,888 (2,545,698) 1,523,584
----------- ------------ ------------ ----------
$ 6,708,082 $ 14,459,296 $(13,099,428) $8,067,950
=========== ============ ============ ==========
FOR THE YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts ........ $ 1,768,194 $ 21,206,041 $(18,079,547) $4,894,688
Allowance for obsolete inventory ....... 1,178,699 1,876,220 (1,241,525) 1,813,394
----------- ------------ ------------ ----------
$ 2,946,893 $ 23,082,261 $(19,321,072) $6,708,082
=========== ============ ============ ==========
FOR THE YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts ........ $ 217,000 $ 7,610,741 $ (6,059,547) $1,768,194
Allowance for obsolete inventory ....... 53,470 1,197,121 (71,892) 1,178,699
----------- ------------ ------------ ----------
$ 270,470 $ 8,807,862 $ (6,131,439) $2,946,893
=========== ============ ============ ==========
</TABLE>
S-2
