<PAGE> 1
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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, 2000
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.)
1239 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 9, 2000
Common Stock, $0.01 par value [31,380,721]
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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, 2000 (Unaudited) and December 31, 1999................ 3
Condensed Consolidated Statements of Operations for the
Three Months and Six Months ended June 30, 2000 and
1999 (Unaudited)............................................... 4
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2000 and 1999 (Unaudited)............ 5
Condensed Notes to Consolidated Financial Statements
(Unaudited).................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 8
Item 3. Quantitative and Qualitative Disclosure About Market
Risks........................................................ 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................ 18
Item 2. Changes in Securities and Use of Proceeds........................ 18
Item 4. Submission of Matters to a Vote of Security Holders.............. 18
Item 6. Exhibits and Reports on Form 8-K................................. 19
</TABLE>
SIGNATURES
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POWERTEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 280,101 $ 371,396
Restricted cash for payment of interest ............................ -- 16,223
Accounts receivable, net of allowance for doubtful accounts ........ 39,557 30,925
Inventories ........................................................ 16,346 21,250
Prepaid expenses and other ......................................... 17,736 14,584
----------- -----------
353,740 454,378
----------- -----------
PROPERTY AND EQUIPMENT, AT COST ...................................... 766,567 721,913
Less: accumulated depreciation ..................................... (204,468) (160,803)
----------- -----------
562,099 561,110
----------- -----------
OTHER ASSETS:
Licenses, net ...................................................... 395,483 400,587
Investment in unconsolidated affiliates ............................ 34,413 7,163
Deferred charges and other, net .................................... 15,328 16,557
----------- -----------
445,224 424,307
----------- -----------
Total assets ................................................... $ 1,361,063 $ 1,439,795
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable--trade ............................................ $ 9,681 $ 26,261
Current portion of Credit Facility ................................. 22,997 12,946
Accrued other ...................................................... 19,500 20,612
Accrued taxes other than income .................................... 13,616 12,601
Advance billings and customer deposits ............................. 11,945 9,908
Accrued construction costs ......................................... 3,463 18,479
Accrued interest ................................................... 2,781 2,781
----------- -----------
83,983 103,588
----------- -----------
LONG-TERM OBLIGATIONS:
12% Senior Discount Notes due February 2006 ........................ 329,217 310,076
12% Senior Discount Notes due May 2006 ............................. 326,807 308,308
11.125% Senior Notes due June 2007 ................................. 300,000 300,000
Long-term portion of Credit facility ............................... 235,606 252,107
Deferred gain on sale-leaseback .................................... 78,915 83,331
Other .............................................................. -- 23
----------- -----------
1,270,545 1,253,845
----------- -----------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE CONVERTIBLE, REDEEMABLE
PREFERRED STOCK .................................................... 152,219 152,219
----------- -----------
STOCKHOLDERS' DEFICIT:
Preferred stock .................................................... 3 3
Common stock ....................................................... 313 299
Paid-in capital .................................................... 518,832 494,936
Accumulated deficit ................................................ (663,286) (563,190)
Deferred compensation .............................................. (966) (1,410)
Treasury stock, at cost ............................................ (580) (495)
----------- -----------
(145,684) (69,857)
----------- -----------
Total liabilities and stockholders' deficit .................... $ 1,361,063 $ 1,439,795
=========== ===========
</TABLE>
The accompanying condensed notes to consolidated 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,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
REVENUES AND SALES:
Postpaid revenues ......................................... $ 57,831 $ 41,342 $ 110,188 $ 81,614
Prepaid revenues .......................................... 40,406 11,491 73,967 20,230
Roaming revenues .......................................... 3,123 2,369 5,229 5,265
Other revenues ............................................ 4,870 2,450 9,921 4,411
--------- --------- --------- ---------
Total service revenues .................................. 106,230 57,652 199,305 111,520
Equipment sales ........................................... 5,965 6,304 12,966 14,422
--------- --------- --------- ---------
Total revenues and sales ............................ 112,195 63,956 212,271 125,942
--------- --------- --------- ---------
OPERATING EXPENSES:
Cost of services .......................................... 25,465 13,341 45,888 26,722
Cost of equipment sales ................................... 21,330 16,146 50,468 31,578
Operations ................................................ 16,570 16,762 31,026 31,819
Selling and marketing ..................................... 29,314 21,936 53,384 42,481
General and administrative ................................ 10,957 10,132 22,319 19,926
Depreciation .............................................. 22,305 19,953 43,665 38,730
Amortization .............................................. 2,551 2,541 5,102 5,111
--------- --------- --------- ---------
Total operating expenses ............................ 128,492 100,811 251,852 196,367
--------- --------- --------- ---------
OPERATING LOSS ............................................. (16,297) (36,855) (39,581) (70,425)
--------- --------- --------- ---------
OTHER EXPENSE (INCOME):
Interest expense, net ..................................... 28,767 27,347 56,063 55,194
Gain on sale of assets .................................... -- (127,161) -- (127,161)
Miscellaneous income ...................................... (317) (38) (423) (142)
--------- --------- --------- ---------
Total other expense (income) ........................ 28,450 (99,852) 55,640 (72,109)
--------- --------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES .......................... (44,747) 62,997 (95,221) 1,684
INCOME TAX PROVISION ....................................... -- -- -- --
--------- --------- --------- ---------
NET (LOSS) INCOME .......................................... (44,747) 62,997 (95,221) 1,684
DIVIDENDS ON CUMULATIVE CONVERTIBLE,
REDEEMABLE PREFERRED STOCK ................................ (2,438) (2,438) (4,875) (4,875)
--------- --------- --------- ---------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON
STOCKHOLDERS .............................................. $ (47,185) $ 60,559 $(100,096) $ (3,191)
========= ========= ========= =========
PER SHARE DATA:
BASIC (LOSS) INCOME PER COMMON SHARE ...................... $ (1.52) $ 2.19 $ (3.31) $ (0.12)
========= ========= ========= =========
DILUTED (LOSS) INCOME PER COMMON SHARE .................... $ (1.52) $ 1.22 $ (3.31) $ (0.12)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING--BASIC .................... 31,084 27,594 30,216 27,507
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING--DILUTED .................. 31,084 49,631 30,216 27,507
========= ========= ========= =========
</TABLE>
The accompanying condensed notes to consolidated financial statements are an
integral part of these statements.
4
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POWERTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net (loss) income ....................................................................... $ (95,221) $ 1,684
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Gain on sale of subsidiary, net ....................................................... -- (79,312)
Realized gain on sale-leaseback, net .................................................. -- (47,849)
Depreciation and amortization ......................................................... 48,767 43,841
Bond accretion ........................................................................ 37,640 33,443
Other ................................................................................. (2,743) 763
Changes in current assets and liabilities:
Increase in accounts receivable ..................................................... (8,632) (8,724)
Decrease in inventories ............................................................. 4,904 7,018
(Increase) decrease in other assets ................................................. (3,152) 1,003
Decrease in accounts payable and accrued expenses ................................... (14,640) (5,962)
--------- ---------
Net cash used in operating activities ........................................... (33,077) (54,095)
--------- ---------
CASH FLOWS (USED IN) PROVIDED FROM INVESTING ACTIVITIES:
Capital expenditures .................................................................... (44,654) (52,192)
Investment in unconsolidated affiliates ................................................. (27,250) (7,140)
Liquidation of short-term investments ................................................... 16,223 15,325
Decrease in accrued construction costs .................................................. (15,016) (12,266)
Proceeds from sale-leaseback ............................................................ -- 261,501
Proceeds from sale of subsidiary ........................................................ -- 89,339
Microwave relocation costs .............................................................. 2 (2,836)
--------- ---------
Net cash (used in) provided from investing activities ........................... (70,695) 291,731
--------- ---------
Cash Flows Provided From Financing Activities:
Proceeds from exercise of stock options and warrants .................................... 19,035 1,439
(Repayments of) borrowings under credit facility ........................................ (6,447) 6,468
Other ................................................................................... (111) (24)
--------- ---------
Net cash provided from financing activities ..................................... 12,477 7,883
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..................................... (91,295) 245,519
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................................... 371,396 204,787
========= =========
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................... $ 280,101 $ 450,306
========= =========
</TABLE>
The accompanying condensed notes to consolidated financial statements are an
integral part of these statements.
5
<PAGE> 6
POWERTEL, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to Article
10 of Regulation S-X of the Securities and Exchange Commission. The
accompanying unaudited condensed consolidated financial statements
reflect, in the opinion of management, all adjustments necessary to
achieve a fair statement of financial position and results for the
interim periods presented. All such adjustments are of a normal
recurring nature. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial
statements and notes thereto included in the Annual Report of Powertel,
Inc. on Form 10-K for the year ended December 31, 1999.
2. Certain prior year amounts have been reclassified to conform to the
current period presentation.
3. Prior to the sale of our cellular operations in April 1999, we
classified our operations into two business segments: PCS and cellular.
We allocated certain corporate administrative expenses to the segments
based upon the nature of the expense. Intersegment revenues were not
material. The following table summarizes financial information by
business segment (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------------------------
2000 1999
---------- ---------------------------------
TOTAL PCS CELLULAR TOTAL
---------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues and sales............ $ 112.2 $ 62.0 $ 2.0 $ 64.0
Operating (loss) income....... (16.3) (37.9) 1.0 (36.9)
Net (loss) income ............ (44.7) (17.4) 80.4 63.0
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------
2000 1999
----------- ---------------------------------
TOTAL PCS CELLULAR TOTAL
----------- ------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues and sales............ $ 212.3 $118.9 $ 7.0 $125.9
Operating (loss) income....... (39.6) (74.0) 3.6 (70.4)
Net (loss) income ............ (95.2) (81.2) 82.9 1.7
</TABLE>
4. Pursuant to a stock purchase agreement dated May 30, 2000 with Eliska
Wireless Ventures I, Inc. ("Eliska Ventures"), we agreed to purchase
12,475 shares of the Series A Preferred Stock of Eliska Ventures for
$125 million. In addition, Sonera Holding B.V., a wholly owned
subsidiary of Sonera Corporation ("Sonera"), agreed to invest $75
million, and Eliska Wireless Investors I, L.P. agreed to invest $50
million, in Eliska Ventures. Assuming closing of these transactions, we
will have a 49.9% equity interest and a 24.95% voting interest in
Eliska Ventures, Sonera will have a 30.1% equity interest and a 15.05%
voting interest, and Eliska Investors will have a 20% equity interest
and 60% voting interest. In connection with the formation of Eliska
Ventures, on May 30, 2000, we also entered into a stock purchase
agreement with Sonera whereby Sonera agreed to purchase $125 million of
our common stock subject to the closing of the formation of Eliska
Ventures. The purchase price for the common stock is $71.80 per share.
Eliska Ventures is being formed to acquire substantially all of the
assets, business and operations of, and certain related liabilities of,
DigiPH Holding Company, Inc. ("Holding"), DigiPH Communication, Inc.
("Communication"), and DiGiPH PCS, Inc. (with Holding and
Communication, "DiGiPH PCS"), including the assignment of the FCC
licenses held by DiGiPH PCS (the "Asset Acquisition"). The aggregate
purchase price for the Asset Acquisition is $375 million, subject to
adjustment upward or downward for certain performance and post-closing
matters. In connection with the Asset Acquisition, we intend to enter
into a technical services agreement with Eliska Ventures for
management, technical and consulting services. Pursuant to this
agreement, we will assist Eliska Ventures in marketing its services
under the
6
<PAGE> 7
Powertel brand name, expanding distribution channels and increasing
network coverage in the market areas covered by the FCC licenses to be
acquired by Eliska Ventures. One of our subsidiaries has loaned Eliska
Ventures $27.3 million to fund its pre-closing deposit in connection
with the Asset Acquisition and certain other expenses pending closing.
This loan becomes due and payable in full at the closing of the Asset
Acquisition.
The formation of Eliska Ventures, Sonera's investment in our common
stock and the Asset Acquisition are subject to the satisfaction of a
number of conditions prior to closing, including the receipt of
regulatory approval from the FCC and the expiration or early
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act, and there can be no assurance that any of these
transactions will be consummated on the terms currently negotiated or
at all. In management's opinion, however, these transactions are
anticipated to close during the fourth quarter of 2000.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We provide PCS services in the southeastern United States. Our PCS
licenses encompass a territory of approximately 246,000 contiguous square miles
with a population of approximately 24.4 million people. We hold licenses to
serve the Atlanta, Georgia MTA, the Jacksonville, Florida MTA, the Memphis,
Tennessee/Jackson, Mississippi MTA and the Birmingham, Alabama MTA and 13 BTAs
in Kentucky and Tennessee. We hold 30 MHz of spectrum licensed for PCS in the
MTA Markets, and we hold 20 MHz of spectrum licensed for PCS in all of the BTA
Markets except for the Knoxville, Tennessee BTA, where we hold a license for 10
MHz of spectrum. We have one of the largest contiguous licensed PCS footprints
in the southeastern United States.
We introduced our PCS services in October 1996 in Jacksonville, Florida
and Montgomery, Alabama and, to date, have launched our PCS services in a total
of 34 markets in the Southeast. As of June 30, 2000, we had approximately
383,000 postpaid PCS subscribers and 344,000 prepaid PCS subscribers.
We incurred a net loss of $44.7 million for the three months ended June
30, 2000, primarily as a result of the significant costs required to maintain
our expanding PCS network, the hiring and managing of required personnel to
operate our business and market our services, the subsidization of handsets to
our subscribers and the depreciation of PCS equipment and amortization of the
PCS licenses. We expect to continue incurring operating losses during the
remainder of 2000 as we continue to expand our PCS network, increase our
subscriber base and subsidize the cost of handsets to our subscribers.
Average revenues per subscriber in the wireless industry have declined,
which we believe is the result of the addition of new subscribers on
lower-priced rate plans, as well as intensified competition within the wireless
industry. We believe the effects of these trends on our earnings will be
mitigated by a corresponding increase in the number of wireless subscribers who
desire additional value-added services primarily in the data area and our
continued focus on offering products and services designed to encourage our
subscribers to purchase higher-priced rate plans.
Minimizing subscriber attrition, or "churn," remains a challenge as our
subscriber base grows and competition intensifies. We generated an average
monthly churn rate of 2.8% and 4.4% for our postpaid and prepaid PCS subscriber
base, respectively, for the three months ended June 30, 2000, as compared to
2.8% and 8.1%, respectively, for the same period of 1999. We believe our
postpaid PCS churn rate remains consistently low due to our commitment to
quality customer service, our focused collections efforts and the availability
of our prepaid service. The decline in our prepaid PCS churn rate is due
primarily to the introduction of lower-denominated cards, which increase the
ease and probability of renewal.
We have experienced a substantial increase in our prepaid PCS
subscriber base since the introduction of our "Ready to Call" kit in October
1999. We continue to believe our prepaid service is an attractive alternative
payment method for a substantial portion of the market which, for various
reasons, cannot obtain traditional postpaid service. We expect our new
subscribers to continue to be weighted toward prepaid service in subsequent
months.
We are a member of the GSM Alliance, a consortium of PCS carriers who
offer GSM-based PCS service throughout North America. All members of the
Alliance have executed roaming agreements with each other, which allows GSM
customers to roam throughout many major metropolitan areas in the United States
and Canada. Additionally, we have signed a substantial number of international
roaming agreements and expect to sign numerous others with international GSM
carriers to facilitate international roaming, which we officially launched
during August 1999.
RECENT DEVELOPMENTS
Pursuant to a stock purchase agreement dated May 30, 2000 with Eliska
Ventures, we agreed to purchase 12,475 shares of the Series A Preferred Stock of
Eliska Ventures for $125 million. In addition, Sonera and Eliska Investors
entered into stock purchase agreements with Eliska Ventures on May 30, 2000.
Under these agreements, Sonera agreed to invest $75 million in Eliska Ventures
in exchange for 7,525 shares of its Series B
8
<PAGE> 9
Preferred Stock and Eliska Investors agreed to invest $50 million in Eliska
Ventures in exchange for 5,000 shares of its common stock. Eliska Investors'
investment will be made by delivery of $1 million in cash and a $49 million
promissory note secured by 4,900 of the shares purchased by Eliska Investors.
Assuming closing of these transactions, we will have a 49.9% equity interest and
a 24.95% voting interest in Eliska Ventures, Sonera will have a 30.1% equity
interest and a 15.05% voting interest, and Eliska Investors will have a 20%
equity interest and 60% voting interest.
Eliska Ventures is being formed to acquire substantially all of the
assets, business and operations of, and certain related liabilities of, DiGiPH
PCS, including the assignment of the FCC licenses held by DiGiPH PCS. The
aggregate purchase price for the Asset Acquisition is $375 million, subject to
adjustment upward or downward for certain performance and post-closing matters.
In connection with the Asset Acquisition, we intend to enter into a technical
services agreement with Eliska Ventures for management, technical and consulting
services. Pursuant to this agreement, we will assist Eliska Ventures in
marketing its services under the Powertel brand name, expanding distribution
channels and increasing network coverage in the market areas covered by the FCC
licenses to be acquired by Eliska Ventures. One of our subsidiaries has loaned
Eliska Ventures $27.3 million to fund its pre-closing deposit in connection with
the Asset Acquisition and certain other expenses pending closing. This loan
becomes due and payable in full at the closing of the Asset Acquisition.
On May 30, 2000, we entered into a stock purchase agreement with Sonera
whereby Sonera agreed to purchase $125 million of our common stock subject to
the closing of the formation of Eliska Ventures. The purchase price for the
common stock is $71.80 per share.
In connection with the formation of Eliska Ventures, we entered into a
put agreement with each of Sonera and Eliska Investors. Pursuant to the put
agreement with Sonera, we agreed that, from October 1, 2001 until June 30, 2002,
Sonera may sell all of its interest in Eliska Ventures to us in exchange for
1,044,568 shares of our common stock. At any time, we have a right of first
offer on Sonera's stock in Eliska Ventures in the event Sonera desires to sell
such stock to a third party. Pursuant to the put agreement with Eliska
Investors, we agreed that, from October 1, 2001 until October 30, 2001, Eliska
Investors may sell its initial $1 million interest in Eliska Ventures to us in
exchange for 13,928 shares of our common stock or $1.5 million in cash. In such
an event, the remaining ownership interest of Eliska Investors in Eliska
Ventures would be cancelled, subject to the receipt of regulatory approvals. In
addition, if Eliska Investors has fully satisfied its obligations under the $49
million promissory note to Eliska Ventures, we agreed that, from July 2, 2003
until July 31, 2003, Eliska Investors may exchange all of its interest in Eliska
Ventures for shares of our common stock at fair market value. Any time, we have
a right of first refusal with respect to Eliska Investors' interest in Eliska
Ventures in the event that Eliska Investors desires to sell its stock to a third
party.
The formation of Eliska Ventures, Sonera's investment in our common
stock and the Asset Acquisition are subject to the satisfaction of a number of
conditions prior to closing, including the receipt of regulatory approval from
the FCC and the expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, and there can be no assurance that
any of these transactions will be consummated on the terms currently negotiated
or at all. In management's opinion, however, these transactions are anticipated
to close during the fourth quarter of 2000.
9
<PAGE> 10
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
The following table reflects the composition of our cellular and PCS
service revenue and equipment sales and related gross margins, as well as
overall operating and other costs and margins. Our historical results of
operations, particularly in view of the sale of our cellular telephone assets in
April 1999, will not be comparable with future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
2000 1999
--------- -------------------------------------------------
COMBINED
CELLULAR
AND
TOTAL CELLULAR PCS PCS
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
SERVICE REVENUE & COST ANALYSIS:
Service revenues:
Postpaid revenues ......................... $ 57,831 $ 1,016 $ 40,326 $ 41,342
Prepaid revenues .......................... 40,406 -- 11,491 11,491
Roaming revenues .......................... 3,123 833 1,536 2,369
Other revenues ............................ 4,870 35 2,415 2,450
--------- --------- --------- ---------
Total service revenues .................. 106,230 1,884 55,768 57,652
Cost of services ............................ 25,465 153 13,188 13,341
--------- --------- --------- ---------
Gross margin .............................. $ 80,765 $ 1,731 $ 42,580 $ 44,311
========= ========= ========= =========
EQUIPMENT SALES & COST ANALYSIS:
Equipment sales ............................. $ 5,965 $ 80 $ 6,224 $ 6,304
Cost of equipment sales ..................... 21,330 171 15,975 16,146
--------- --------- --------- ---------
Gross margin .............................. $ (15,365) $ (91) $ (9,751) $ (9,842)
========= ========= ========= =========
OPERATING MARGIN ANALYSIS:
Total revenues and sales .................... $ 112,195 $ 1,964 $ 61,992 $ 63,956
--------- --------- --------- ---------
Operating expenses:
Cost of services and equipment sales ...... 46,795 324 29,163 29,487
Operations ................................ 16,570 139 16,623 16,762
Selling and marketing ..................... 29,314 177 21,759 21,936
General and administrative ................ 10,957 135 9,997 10,132
Depreciation .............................. 22,305 131 19,822 19,953
Amortization .............................. 2,551 -- 2,541 2,541
--------- --------- --------- ---------
Total operating expenses ................ 128,492 906 99,905 100,811
--------- --------- --------- ---------
Operating (loss) income ..................... (16,297) $ 1,058 $ (37,913) (36,855)
========= =========
Interest expense, net ....................... 28,767 27,347
Gain on sale of assets ...................... -- (127,161)
Miscellaneous income ........................ (317) (38)
--------- ---------
(Loss) income before income taxes ........... (44,747) 62,997
Income tax provision ........................ -- --
--------- ---------
Net (loss) income ........................... (44,747) 62,997
Dividends on Cumulative, Convertible
Redeemable Preferred Stock ................ (2,438) (2,438)
--------- ---------
Net (loss) income attributable to common
stockholders .............................. $ (47,185) $ 60,559
========= =========
OTHER SUPPLEMENTAL DATA:
Subscribers at end of period ................ 727,000 -- 382,000 382,000
Capital expenditures ........................ $ 29,222 $ 30 $ 37,420 $ 37,450
</TABLE>
10
<PAGE> 11
Unless specifically noted, the following discussion reflects the
results of operations for our PCS line of business only. We sold substantially
all of the assets for our cellular line of business in the second quarter of
1999.
Postpaid PCS service revenues increased $17.5 million, or 43.4%, for
the three months ended June 30, 2000 as compared to the same period of 1999,
which is primarily the result of our continued PCS subscriber growth. Our
postpaid PCS subscribers grew to approximately 383,000 at June 30, 2000, from
approximately 292,000 at June 30, 1999, of which approximately 16,000 net
postpaid PCS subscribers were added during the three months ended June 30, 2000
as compared to approximately 22,000 for the same period of 1999. A significant
portion of our postpaid subscriber growth for the three months ended June 30,
2000 is attributable to our 50-State Rate plans and our "50% more minutes"
promotional offering.
The average monthly service revenue ("RPU") per postpaid PCS subscriber
increased to $51.69 for the three months ended June 30, 2000 as compared to
$48.30 for the same period of 1999. This increase in RPU reflects the success of
our rate plans that emphasize bundled airtime and toll minutes for higher-priced
plans, as well as an increase in the average minutes of use per subscriber.
Prepaid PCS service revenues increased $28.9 million, or 251.6%, for
the three months ended June 30, 2000 as compared to the same period of 1999. Our
prepaid PCS subscribers grew to approximately 344,000 at June 30, 2000, from
approximately 90,000 at June 30, 1999, of which approximately 55,000 net prepaid
PCS subscribers were added during the three months ended June 30, 2000, as
compared to approximately 22,000 for the same period of 1999. A significant
portion of our prepaid subscriber growth is attributable to the introduction of
our "Ready to Call" kit in October 1999.
RPU per prepaid PCS subscriber decreased to $41.36 for the three months
ended June 30, 2000 as compared to $51.05 for the same period of 1999. This
decrease in RPU is attributable primarily to the introduction of
lower-denominated prepaid cards for airtime renewals.
PCS roaming revenues (including roaming long distance) increased $1.6
million, or 103.3%, for the three months ended June 30, 2000 as compared to the
same period of 1999. This increase is due primarily to an increase in the number
of roamers and usage per roamer, which is the result of increased penetration
levels by surrounding GSM carriers and our success in obtaining roaming
agreements with these carriers. We also launched international roaming in August
1999 and currently have agreements with other GSM carriers in more than 50
countries outside North America.
Other PCS service revenues, which include activation fees and
interconnection fees billed to local exchange carriers ("LECs") for connections
to our PCS network, increased $2.5 million, or 101.6%, for the three months
ended June 30, 2000 as compared to the same period of 1999. This increase is due
primarily to the increase in new subscribers and a continued increase in
interconnection fees as a result of increased utilization of our PCS network by
LECs.
Cost of services includes the cost of interconnection with LEC
facilities, direct cell site costs (property taxes and insurance, site lease
costs and electric utilities), roaming validation (provided by a third-party
clearinghouse), long distance toll costs and certain prepaid subscriber-related
fees. PCS cost of services increased $12.3 million, or 93.1%, for the three
months ended June 30, 2000 as compared to the same period of 1999. This increase
is due primarily to the costs of providing service to our prepaid subscriber
base, including sales commissions on prepaid card renewals, taxes and other
surcharges that we do not bill to our prepaid subscribers and
intelligent-network management fees. We also experienced an increase in cell
site costs due to the 194 additional cell sites we placed in service since June
30, 1999.
We generated a negative PCS equipment margin of 257.6% on $6.0 million
of sales during the three months ended June 30, 2000 as compared to a negative
156.7% on $6.2 million of sales for the same period of 1999. Although we
experienced a continued decrease in the average cost of handsets, we sold our
handsets at disproportionately low prices for competitive reasons. We also
subsidized the handset associated with our "Ready to Call" kit more heavily than
our other handset models and offered a $50 handset credit to all postpaid PCS
subscribers who activated during a substantial portion of the three months ended
June 30, 2000. We expect to continue subsidizing the cost of handsets to
subscribers for the foreseeable future.
11
<PAGE> 12
PCS operations costs, which include the costs of managing and
maintaining our PCS system, customer service, credit and collections (including
bad debt) and inventory management remained relatively constant for the three
months ended June 30, 2000 as compared to the same period of 1999, which
reflects efficiencies gained from spreading these costs over our growing
subscriber base. Our personnel costs increased due to providing customer service
through our centralized call center to the growing PCS subscriber base and our
network maintenance costs increased due to our expanding PCS network and certain
equipment warranty expirations. These increases were offset by a substantial
reduction in bad debt provisions resulting from the success of our prepaid PCS
service alternative, as well as improvements in credit and collections
associated with our postpaid PCS subscriber base.
PCS selling and marketing costs increased $7.6 million, or 34.7%, for
the three months ended June 30, 2000 as compared to the same period of 1999.
Substantially all of this increase is attributable to an increase in advertising
to support our promotional campaigns and the continued expansion of our sales
distribution channels, including increases in personnel and retail location
costs.
PCS general and administrative costs increased $1.0 million, or 9.6%,
for the three months ended June 30, 2000 as compared to the same period of 1999.
Substantially all of this increase is attributable to increased personnel,
facilities and computer systems costs at our corporate and regional
administrative offices and information technology center to support our rapidly
growing operations.
Depreciation and amortization increased $2.5 million, or 11.1%, for the
three months ended June 30, 2000 as compared to the same period of 1999 and
consists principally of the depreciation of the PCS network and the amortization
of PCS licenses. Substantially all of the increase is attributable to
depreciation associated with the 194 additional cell sites that we placed in
service since June 30, 1999, as well as depreciation of computer systems and
infrastructure costs required to manage the administrative functions of our
business.
Net consolidated interest expense increased $1.4 million, or 5.2%, for
the three months ended June 30, 2000 as compared to the same period of 1999.
This increase in net interest expense is the result primarily of an increase in
our bond accretion, which was partially offset by an increase in interest income
earned on the additional cash available for investment due to asset sales in
1999.
The effective income tax rate for the three months ended June 30, 2000
and 1999 was 0%. We generated a net loss of $44.7 million for the three months
ended June 30, 2000 and expect to incur a net loss for the remainder of 2000. We
will not recognize the tax benefit of these losses until management determines
that it is more likely than not that such benefit is realizable.
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<PAGE> 13
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
The following table reflects the composition of our cellular and PCS
service revenue and equipment sales and related gross margins, as well as
overall operating and other costs and margins. Our historical results of
operations, particularly in view of the sale of our cellular telephone assets in
April 1999, will not be comparable with future periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
2000 1999
--------- ---------------------------------------------
COMBINED
CELLULAR
AND
TOTAL CELLULAR PCS PCS
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
SERVICE REVENUE & COST ANALYSIS:
Service revenues:
Postpaid revenues ........................................ $ 110,188 $ 3,922 $ 77,692 $ 81,614
Prepaid revenues ......................................... 73,967 -- 20,230 20,230
Roaming revenues ......................................... 5,229 2,597 2,668 5,265
Other revenues ........................................... 9,921 173 4,238 4,411
--------- --------- --------- ---------
Total service revenues ................................. 199,305 6,692 104,828 111,520
Cost of services ........................................... 45,888 564 26,158 26,722
--------- --------- --------- ---------
Gross margin ............................................. $ 153,417 $ 6,128 $ 78,670 $ 84,798
========= ========= ========= =========
EQUIPMENT SALES & COST ANALYSIS:
Equipment sales ............................................ $ 12,966 $ 316 $ 14,106 $ 14,422
Cost of equipment sales .................................... 50,468 598 30,980 31,578
--------- --------- --------- ---------
Gross margin ............................................. $ (37,502) $ (282) $ (16,874) $ (17,156)
========= ========= ========= =========
OPERATING MARGIN ANALYSIS:
Total revenues and sales ................................... $ 212,271 $ 7,008 $ 118,934 $ 125,942
--------- --------- --------- ---------
Operating expenses:
Cost of services and equipment sales ..................... 96,356 1,162 57,138 58,300
Operations ............................................... 31,026 576 31,243 31,819
Selling and marketing .................................... 53,384 658 41,823 42,481
General and administrative ............................... 22,319 537 19,389 19,926
Depreciation ............................................. 43,665 521 38,209 38,730
Amortization ............................................. 5,102 -- 5,111 5,111
--------- --------- --------- ---------
Total operating expenses ............................... 251,852 3,454 192,913 196,367
--------- --------- --------- ---------
Operating (loss) income .................................... (39,581) $ 3,554 $ (73,979) (70,425)
========= =========
Interest expense, net ...................................... 56,063 55,194
Gain on sale of assets ..................................... -- (127,161)
Miscellaneous income ....................................... (423) (142)
--------- ---------
(Loss) income before income taxes .......................... (95,221) 1,684
Income tax provision ....................................... -- --
--------- ---------
Net (loss) income .......................................... (95,221) 1,684
Dividends on Cumulative, Convertible
Redeemable Preferred Stock ............................... (4,875) (4,875)
--------- ---------
Net loss attributable to common stockholders ............... $(100,096) $ (3,191)
========= =========
OTHER SUPPLEMENTAL DATA:
Subscribers at end of period ............................... 727,000 -- 382,000 382,000
Capital expenditures ....................................... $ 44,654 $ 326 $ 51,866 $ 52,192
</TABLE>
13
<PAGE> 14
Unless specifically noted, the following discussion reflects the
results of operations for our PCS line of business only. We sold substantially
all of the assets for our cellular line of business in the second quarter of
1999.
Postpaid PCS service revenues increased $32.5 million, or 41.8%, for
the six months ended June 30, 2000 as compared to the same period of 1999,
which is primarily the result of our continued PCS subscriber growth. Our
postpaid PCS subscribers grew to approximately 383,000 at June 30, 2000, from
approximately 292,000 at June 30, 1999, of which approximately 42,000 net
postpaid PCS subscribers were added during the six months ended June 30, 2000
as compared to approximately 38,000 for the same period of 1999. A significant
portion of our postpaid subscriber growth for the six months ended June 30,
2000 is attributable to our 50-State Rate plans and our "50% more minutes"
promotional offering, which we introduced in the first quarter of 2000.
RPU per postpaid PCS subscriber increased to $50.66 for the six months
ended June 30, 2000 as compared to $47.86 for the same period of 1999. This
increase in RPU reflects the success of our rate plans that emphasize bundled
airtime and toll minutes for higher-priced plans, as well as an increase in the
average minutes of use per subscriber.
Prepaid PCS service revenues increased $53.7 million, or 265.6%, for
the six months ended June 30, 2000 as compared to the same period of 1999. Our
prepaid PCS subscribers grew to approximately 344,000 at June 30, 2000, from
approximately 90,000 at June 30, 1999, of which approximately 139,000 net
prepaid PCS subscribers were added during the six months ended June 30, 2000 as
compared to approximately 48,000 for the same period of 1999. A significant
portion of our prepaid subscriber growth is attributable to the introduction of
our "Ready to Call" kit in October 1999.
RPU per prepaid PCS subscriber decreased to $42.97 for the six months
ended June 30, 2000 as compared to $52.22 for the same period of 1999. This
decrease in RPU is attributable primarily to the introduction of
lower-denominated prepaid cards for airtime renewals.
PCS roaming revenues (including roaming long distance) increased $2.6
million, or 96.0%, for the six months ended June 30, 2000 as compared to the
same period of 1999. This increase is due primarily to an increase in the number
of roamers and usage per roamer, which is the result of increased penetration
levels by surrounding GSM carriers and our success in obtaining roaming
agreements with these carriers. We also launched international roaming in August
1999 and currently have agreements with other GSM carriers in more than 50
countries outside North America.
Other PCS service revenues, which include activation fees and
interconnection fees billed to local exchange carriers ("LECs") for connections
to our PCS network, increased $5.7 million, or 134.0%, for the six months ended
June 30, 2000 as compared to the same period of 1999. This increase is due
primarily to the increase in new subscribers and a continued increase in
interconnection fees as a result of increased utilization of our PCS network by
LECs.
Cost of services includes the cost of interconnection with LEC
facilities, direct cell site costs (property taxes and insurance, site lease
costs and electric utilities), roaming validation (provided by a third-party
clearinghouse), long distance toll costs and certain prepaid subscriber-related
fees. PCS cost of services increased $19.7 million, or 75.4%, for the six months
ended June 30, 2000 as compared to the same period of 1999. This increase is due
primarily to the costs of providing service to our prepaid subscriber base,
including sales commissions on prepaid card renewals, taxes and other surcharges
that we do not bill to our prepaid subscribers and intelligent-network
management fees. We also experienced an increase in cell site costs due to the
194 additional cell sites we placed in service since June 30, 1999.
We generated a negative PCS equipment margin of 289.2% on $13.0 million
of sales during the six months ended June 30, 2000 as compared to a negative
119.6% on $14.1 million of sales for the same period of 1999. Although we
experienced a continued decrease in the average cost of handsets, we sold our
handsets at disproportionately low prices for competitive reasons. We also
subsidized the handset associated with our "Ready to Call" kit more heavily than
our other handset models and offered a $50 handset credit to all postpaid PCS
subscribers who activated during a substantial portion of the six months ended
June 30, 2000. We expect to continue subsidizing the cost of handsets to
subscribers for the foreseeable future.
14
<PAGE> 15
PCS operations costs, which include the costs of managing and
maintaining our PCS system, customer service, credit and collections (including
bad debt) and inventory management remained relatively constant for the six
months ended June 30, 2000 as compared to the same period of 1999, which
reflects efficiencies gained from spreading these costs over our growing
subscriber base. Our personnel costs increased due to providing customer service
through our centralized call center to the growing PCS subscriber base and our
network maintenance costs increased due to our expanding PCS network and certain
equipment warranty expirations. These increases were offset by a substantial
reduction in bad debt provisions resulting from the success of our prepaid PCS
service alternative, as well as improvements in credit and collections
associated with our postpaid PCS subscriber base.
PCS selling and marketing costs increased $11.6 million, or 27.6%, for
the six months ended June 30, 2000 as compared to the same period of 1999.
Substantially all of this increase is attributable to an increase in advertising
to support our promotional campaigns and the continued expansion of our sales
distribution channels, including increases in personnel, commissions and retail
location costs.
PCS general and administrative costs increased $2.9 million, or 15.1%,
for the six months ended June 30, 2000 as compared to the same period of 1999.
Substantially all of this increase is attributable to increased personnel,
facilities and computer systems costs at our corporate and regional
administrative offices and information technology center to support our rapidly
growing operations.
Depreciation and amortization increased $5.4 million, or 11.1%, for the
six months ended June 30, 2000 as compared to the same period of 1999 and
consists principally of the depreciation of the PCS network and the amortization
of PCS licenses. Substantially all of the increase is attributable to
depreciation associated with the 194 additional cell sites that we placed in
service since June 30, 1999, as well as depreciation of computer systems and
infrastructure costs required to manage the administrative functions of our
business.
Net consolidated interest expense increased $.9 million, or 1.6%, for
the six months ended June 30, 2000 as compared to the same period of 1999. This
increase in net interest expense is the result primarily of an increase in our
bond accretion, which was partially offset by an increase in interest income
earned on the additional cash available for investment due to asset sales in
1999.
The effective income tax rate for the six months ended June 30, 2000
and 1999 was 0%. We generated a net loss of $95.2 million for the six months
ended June 30, 2000 and expect to incur a net loss for the remainder of 2000. We
will not recognize the tax benefit of these losses until management determines
that it is more likely than not that such benefit is realizable.
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents of $280.1 million at June 30, 2000 as
compared to $371.4 at December 31, 1999. For the six months ended June 30, 2000,
we used net cash of $33.1 million for operating activities as compared to $54.1
million for the same period of 1999. The cash impact of the net loss from
operations totaled $95.2 million but was partially offset by $48.8 million of
depreciation and amortization and $37.6 million of bond accretion on the senior
discount notes.
Cash used in investing activities was $70.7 million for the six months
ended June 30, 2000 as compared to cash provided from investing activities of
$291.7 million for the same period of 1999. Investing activities for the six
months ended June 30, 2000 consisted primarily of capital expenditures of $44.7
million and $27.3 million of investments in an unconsolidated affiliate. The
investment in the unconsolidated affiliate represents a loan of $27.3 million to
Eliska Ventures to fund its pre-closing deposit in connection with the Asset
Acquisition and certain other expenses pending closing. See "Recent
Developments" above for further information on the transactions with Eliska
Ventures and the Asset Acquisition. We also liquidated $16.2 million of
short-term investments to satisfy our commitment to make the last of the first
six scheduled interest payments on the 11.125% Senior Notes due June 2007 from
restricted cash. At June 30, 2000, we had no restricted cash on our balance
sheets.
Cash provided from financing activities was $12.5 million for the six
months ended June 30, 2000 as compared to $7.9 million for the same period of
1999. Financing activities for the six months ended June 30, 2000
15
<PAGE> 16
consisted primarily of proceeds from the exercise of stock options and warrants
of $19.0 million, which was partially offset by repayments of our credit
facility of $6.4 million.
We maintain a $265 million credit facility, which funded our purchase
of PCS network equipment and services for our initial buildout. We have borrowed
the maximum amount available under the credit facility. We are repaying the
aggregate amount of the advances made in each calendar year (1996-1999) under
the credit facility in twenty equal quarterly installments, with the last
installment in an amount necessary to repay in full the remaining outstanding
balance. We paid the first such installment in March 2000.
Total capital expenditures, including capital expenditures for
information technology and support of the PCS business, were $44.7 million for
the six months ended June 30, 2000, as compared to $52.2 million for the same
period of 1999. We currently estimate that capital expenditures will total
approximately $115 million for the remainder of 2000. These expenditures are
primarily to enhance and expand our PCS network in existing markets in order to
increase capacity and to satisfy subscriber needs and competitive requirements,
as well as to build out certain secondary cities within our licensed footprint.
We will continue to upgrade our network capacity and service quality,
particularly as they relate to our prepaid service intelligent-network platform,
to support our anticipated subscriber growth.
Although we have completed the initial buildout of our PCS system, we
continue to require significant amounts of capital to fund the operation and
expansion of our PCS business. We achieved positive operating cash flow
(operating income (loss) before depreciation and amortization) during the first
quarter of 2000 and had positive operating cash flow of $9.2 million for the six
months ended June 30, 2000. We discuss operating cash flow because it is a
measure commonly used in the industry. Operating cash flow is not a measurement
of financial performance under generally accepted accounting principles and
should not be considered an alternative to cash flow as a measure of liquidity.
We expect to continue to improve operating cash flow for the remainder of 2000.
We believe our cash on hand and operating cash flow will be sufficient to fund
our PCS operations for the remainder of 2000.
We are unable to predict the amount of expenditures that we will make
beyond 2000, and we may need to raise additional capital to fund and expand our
business operations. We also will need to raise additional capital if we decide
to acquire additional licenses or businesses. We may attempt to raise additional
capital through public or private debt or equity financings, vendor financings
or other means. However, we cannot guarantee that additional financing will be
available to us or, if available, that we will be able to obtain it on terms
acceptable to us, favorable to our stockholders and within the limitations
contained in our indentures, credit facility and any future financing
arrangements. If we fail to obtain additional financing, we could experience
delays in some or all of our expansion plans and expenditures, which could limit
our ability to meet our debt service obligations and could materially adversely
affect our business, financial condition and operating results.
We expect to continue to incur operating losses in the future while we
continue to expand our PCS system and build our subscriber base. Our ability to
satisfy our debt repayment obligations and covenants depends upon our future
performance, which is subject to a number of factors, many of which are beyond
our control. Cash interest will not be payable on our senior discount notes
prior to 2001. We cannot guarantee that we will generate sufficient cash flow
from our operating activities to meet our debt service and working capital
requirements, and we may need to refinance our indebtedness. However, our
ability to refinance our indebtedness will depend on, among other things, our
financial condition, the state of the public and private debt and equity
markets, the restrictions in the instruments governing our indebtedness and
other factors, some of which may be beyond our control. In addition, if we do
not generate sufficient cash flow to meet our debt service requirements or if we
fail to comply with the covenants governing our indebtedness, we may need
additional financing in order to service or extinguish our indebtedness. We may
not be able to obtain financing or refinancing on terms that are either
acceptable or favorable to our stockholders or us.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101, "Revenue Recognition in Financial Statements,"
which provides additional guidance on the recognition of revenue in financial
statements for transactions not specifically addressed within the scope of
existing accounting
16
<PAGE> 17
pronouncements. We are currently evaluating the substance of this bulletin to
determine its impact on our financial statements but do not expect it to have a
material impact on our financial statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements appear in a number of places in this
Report and include all statements that are not historical facts and which relate
to our intent, belief or current expectations, or that of our directors or
officers. In this Report, we may have made forward-looking statements with
respect to, among other things: (i) our financing plans, including our ability
to obtain financing in the future; (ii) trends affecting our financial condition
or results of operations; (iii) our growth and operating strategies; and (iv)
our anticipated capital needs and capital expenditures. We caution investors
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 our PCS digital protocol, competitive factors
and pricing pressures, general economic conditions, the failure of the market
demand for our products and services to be commensurate with our management's
expectations or past experience, issues associated with the management of our
growth, including the expansion of our network capacity, the impact of present
or future laws and regulations on our business, changes in operating expenses or
the failure of operating and buildout expenses to be consistent with our
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 our previous filings with the Securities and Exchange
Commission, including the "Risk Factors" section of our Registration Statement
on Form S-3 (Registration number 333-84981), as declared effective by the
Securities and Exchange Commission on September 24, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We believe our exposure to market rate fluctuations on our investments
is nominal due to the short-term nature of those investments. We have market
risk to the extent of our borrowings under our credit facility because of the
variable interest rate on the credit facility. However, our management does not
foresee any material prolonged changes in interest rates in the near future. At
present, we have no plans to enter into any hedging arrangements with respect to
our borrowings.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to our Form 10-K for the year ended December 31, 1999
(as filed with the Securities and Exchange Commission on March 29, 2000) for a
discussion of certain legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
We pay a quarterly dividend of 6.5% per annum on our Series E 6.5%
Cumulative Convertible Preferred Stock and Series F 6.5% Cumulative Convertible
Preferred Stock. Although the terms of the Series E Preferred and Series F
Preferred allow us to pay these dividends in stock or in cash, we are prohibited
from paying cash dividends for the foreseeable future because of restrictions
contained in our credit facility and the indentures relating to our outstanding
bonds. Therefore, we intend to pay these quarterly dividends in common stock for
the foreseeable future. During the three months ended June 30, 2000, we issued
14,653 shares of our common stock to SCANA Communications, Inc., who owns all of
our Series E Preferred, and 14,653 shares of common stock to ITC Wireless, Inc.,
who owns all of our Series F Preferred, in payment of the quarterly dividends
owed on March 15, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our 2000 annual meeting of the stockholders on May 25, 2000. We
asked the stockholders to vote on the following matters:
Approval of an Amendment to our Certificate of Incorporation. We asked
the stockholders to consider and vote upon a proposed amendment to our
Certificate of Incorporation to increase the number of authorized shares of
common stock from 100,000,000 to 400,000,000 shares. Votes cast for and against
the proposal were 22,467,563 and 2,199,020, respectively. Broker non-votes and
abstentions were 4,623,330 and 302,018, respectively.
Approval of the 2000 Stock Option and Incentive Plan. We asked the
stockholders to consider and approve the Powertel, Inc. 2000 Stock Option and
Incentive Plan. Votes cast for and against the proposal were 18,939,268 and
2,500,555, respectively. Broker non-votes and abstentions were 7,849,685
and 302,423, respectively.
Election of Directors. We asked the stockholders to elect O. Gene
Gabbard, William H. Scott, III, William B. Timmerman and Donald W. Weber to our
Board of Directors, each for a three-year term. Votes cast for and against the
election of Messrs. Gabbard, Scott and Weber were 24,431,625 and 536,976,
respectively, and votes cast for and against the election of Mr. Timmerman were
24,431,525 and 537,076, respectively. Broker non-votes were 4,623,330 and there
were no abstentions. The following persons continue to serve as directors:
Campbell B. Lanier, III; Allen E. Smith; Donald W. Burton; and Ann M. Milligan.
Accountants. We asked the stockholders to ratify the appointment by the
Board of Directors of Arthur Andersen LLP as our independent public accountants
for the year ending December 31, 2000. Votes cast for and against the proposal
were 24,963,180 and 2,416, respectively. Broker non-votes and abstentions were
4,623,330 and 3,005, respectively.
18
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3(i) Certificate of Amendment of the Third Restated Certificate of
Incorporation of Powertel, Inc., as filed on June 16, 2000
with the Secretary of State of the State of Delaware.
27 Financial Data Schedule (for SEC use only).
</TABLE>
(B) REPORTS ON FORM 8-K.
On June 16, 2000, we filed a Current Report on Form 8-K dated May 30,
2000 which reported events under Item 5 (Other Events) in connection with (i)
our investment in Eliska Ventures, (ii) Sonera's purchase of our common stock
and (iii) Eliska Ventures agreement to purchase substantially all of the assets,
business and operations and certain related liabilities of DiGiPH PCS. We were
not required to file financial statements in connection with the sale.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWERTEL, INC.
August 11, 2000 /s/ Allen E. Smith
------------------------------------------------------
Allen E. Smith
President and Chief Executive Officer
August 11, 2000 /s/ Fred G. Astor, Jr.
------------------------------------------------------
Fred G. Astor, Jr.
Executive Vice President and Chief Financial Officer
(Chief Accounting Officer)
20
