<PAGE> 1
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 33-96218
PROSPECTUS SUPPLEMENT NO. 1
TO PROSPECTUS DATED MAY 12, 2000
1,224,557 Shares
POWERTEL, INC.
Common Stock
-----------------
This prospectus supplement updates information included in our
prospectus dated May 12, 2000. Our prospectus relates to the offer and sale of
up to 1,224,557 shares of our common stock to the holders of our currently
outstanding warrants to purchase shares of common stock upon the exercise
thereof by such holders and in accordance with a warrant agreement relating to
the warrants between us and Bankers Trust Company, as warrant agent. This
prospectus supplement includes our Quarterly Report on Form 10-Q for the period
ended March 31, 2000, which we filed with the Securities and Exchange
Commission on May 12, 2000.
This prospectus supplement should be read in conjunction with our
prospectus dated May 12, 2000.
-----------------
YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 4
OF THE PROSPECTUS DATED MAY 12, 2000 BEFORE PURCHASING
ANY OF THE COMMON STOCK OFFERED HEREBY.
-----------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus Supplement is May 26, 2000
<PAGE> 2
===============================================================================
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 MARCH 31, 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 May 10, 2000
Common Stock, $0.01 par value 31,114,533
===============================================================================
<PAGE> 3
POWERTEL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements................................................ 3
Condensed Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and December 31, 1999.................... 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2000 and
1999 (Unaudited).................................................... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 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....................... 7
Item 3. Quantitative and Qualitative Disclosure About
Market Risks........................................................ 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................... 12
Item 2. Changes in Securities and Use of Proceeds........................... 12
Item 6. Exhibits and Reports on Form 8-K.................................... 12
SIGNATURES
</TABLE>
2
<PAGE> 4
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POWERTEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 334,109 $ 371,396
Restricted cash for payment of interest ........................... 16,688 16,223
Accounts receivable, net of allowance for doubtful accounts ....... 33,349 30,925
Inventories ....................................................... 19,029 21,250
Prepaid expenses and other ........................................ 22,925 21,747
----------- -----------
426,100 461,541
----------- -----------
PROPERTY AND EQUIPMENT, AT COST ...................................... 737,345 721,913
Less: accumulated depreciation ................................. (182,163) (160,803)
----------- -----------
555,182 561,110
----------- -----------
OTHER ASSETS:
Licenses, net ..................................................... 398,034 400,587
Deferred charges and other, net ................................... 15,943 16,557
----------- -----------
413,977 417,144
----------- -----------
Total assets .................................................. $ 1,395,259 $ 1,439,795
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable - trade .......................................... $ 13,144 $ 26,261
Current portion of Credit Facility ................................ 12,946 12,946
Advance billings and customer deposits ............................ 11,946 9,908
Accrued interest .................................................. 11,125 2,781
Accrued taxes other than income ................................... 10,905 12,601
Accrued construction costs ........................................ 5,686 18,479
Accrued other ..................................................... 15,307 20,612
----------- -----------
81,059 103,588
----------- -----------
LONG-TERM OBLIGATIONS:
12% Senior Discount Notes due February 2006 ....................... 319,553 310,076
12% Senior Discount Notes due May 2006 ............................ 317,376 308,308
11.125% Senior Notes due June 2007 ................................ 300,000 300,000
Long-term portion of Credit Facility .............................. 248,884 252,107
Deferred gain on sale-leaseback ................................... 81,123 83,331
Other ............................................................. 10 23
----------- -----------
1,266,496 1,253,845
----------- -----------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE CONVERTIBLE, REDEEMABLE PREFERRED STOCK ................... 152,219 152,219
----------- -----------
STOCKHOLDERS' DEFICIT:
Preferred Stock ................................................... 3 3
Common Stock ...................................................... 312 299
Paid-in capital ................................................... 512,504 494,936
Accumulated deficit ............................................... (616,101) (563,190)
Deferred compensation ............................................. (1,188) (1,410)
Treasury stock, at cost ........................................... (495) (495)
----------- -----------
(104,965) (69,857)
----------- -----------
Total liabilities and stockholders' deficit ................... $ 1,395,259 $ 1,439,795
=========== ===========
</TABLE>
The accompanying condensed notes to consolidated financial statements are an
integral part of these statements.
3
<PAGE> 5
POWERTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
2000 1999
------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES AND SALES:
Postpaid revenues ................................................. $ 52,357 $ 40,272
Prepaid revenues .................................................. 33,561 8,739
Roaming revenues .................................................. 2,106 2,896
Other revenues .................................................... 5,051 1,961
------------ ------------
Total service revenues .......................................... 93,075 53,868
Equipment sales ................................................... 7,001 8,118
------------ ------------
Total revenues and sales ...................................... 100,076 61,986
------------ ------------
OPERATING EXPENSES:
Cost of services .................................................. 20,423 13,381
Cost of equipment sales ........................................... 29,138 15,432
Operations ........................................................ 14,456 14,877
Selling and marketing ............................................. 24,070 20,780
General and administrative ........................................ 11,362 9,739
Depreciation ...................................................... 21,360 18,777
Amortization ...................................................... 2,551 2,570
------------ ------------
Total operating expenses ...................................... 123,360 95,556
------------ ------------
OPERATING LOSS ....................................................... (23,284) (33,570)
------------ ------------
OTHER EXPENSE (INCOME):
Interest expense, net ............................................. 27,296 27,847
Miscellaneous income .............................................. (106) (104)
------------ ------------
Total other expense (income) .................................. 27,190 27,743
------------ ------------
LOSS BEFORE INCOME TAXES ............................................. (50,474) (61,313)
INCOME TAX PROVISION ................................................. -- --
------------ ------------
NET LOSS ............................................................. (50,474) (61,313)
------------ ------------
DIVIDENDS ON CUMULATIVE CONVERTIBLE,
REDEEMABLE PREFERRED STOCK ........................................ (2,437) (2,437)
------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ......................... $ (52,911) $ (63,750)
============ ============
PER SHARE DATA:
BASIC AND DILUTED LOSS PER COMMON SHARE ........................... $ (1.74) $ (2.33)
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ................................... 30,404 27,317
============ ============
</TABLE>
The accompanying condensed notes to consolidated financial statements are an
integral part of these statements.
4
<PAGE> 6
POWERTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss ......................................................................... $ (50,474) $ (61,313)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................... 23,911 21,347
Bond accretion .............................................................. 18,545 16,477
Other ....................................................................... (1,372) 730
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ................................ (2,424) 823
Decrease (increase) in inventories ........................................ 2,221 (2,450)
(Increase) decrease in other assets ....................................... (1,178) 812
(Decrease) increase in accounts payable and accrued expenses ............. (9,736) 130
------------ ------------
Net cash used in operating activities .................................. (20,507) (23,444)
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures ........................................................ (15,432) (14,742)
Decrease in accrued construction costs ...................................... (12,793) (11,159)
Liquidation of short-term investments ....................................... (465) (716)
Microwave relocation costs .................................................. 2 106
Short-term notes receivable ................................................. -- (9,257)
------------ ------------
Net cash used in investing activities .................................. (28,688) (35,768)
------------ ------------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants ........................ 15,144 251
(Repayments of) borrowings under credit facility ............................ (3,223) 6,468
Other ....................................................................... (13) (12)
------------ ------------
Net cash provided from financing activities ............................ 11,908 6,707
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................................ (37,287) (52,505)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................. 371,396 204,787
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................................... $ 334,109 $ 152,282
============ ============
</TABLE>
The accompanying condensed notes to consolidated financial statements are an
integral part of these statements.
5
<PAGE> 7
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. We classify our operations into two business segments: PCS and
cellular. We have allocated certain corporate administrative expenses
to the segments based upon the nature of the expense. Intersegment
revenues are not material. The following table summarizes financial
information by business segment (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1999
----------------------------------
2000 PCS CELLULAR(A) TOTALS
----------- --------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues and sales............ $ 100.1 $ 56.9 $ 5.1 $ 62.0
Operating (loss) income....... (23.3) (36.1) 2.5 (33.6)
Net (loss) income ............ (50.5) (63.8) 2.5 (61.3)
</TABLE>
----------------
(a) We sold our cellular operations in April 1999.
6
<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 March 31, 2000, we had
approximately 367,000 postpaid PCS subscribers and 289,000 prepaid PCS
subscribers.
We incurred a net loss of $50.5 million for the three months ended
March 31, 2000, primarily as a result of the significant costs required to
maintain our expanding PCS network, the hiring and management 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.
Until recently, 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 2.6% and 4.9% for our postpaid and prepaid PCS subscriber
base, respectively, for the three months ended March 31, 2000, as compared to
3.4% and 6.2% for the same period of 1999. We believe the continued improvement
in our postpaid PCS churn rate is the result of stricter credit evaluation
policies, improved customer service response and training, our centralized call
center, focused collections efforts and the availability of our prepaid
service. We believe the improvement in our prepaid PCS churn rate is
attributable to the introduction of lower-denominated cards, as well as a
substantial increase in the number of distribution points for additional card
purchases, making it easier for the subscriber to renew.
For the second consecutive quarter, we experienced a substantial
increase in our prepaid PCS subscriber base, which we believe is attributable
to the introduction of our "Ready to Call" kit in October 1999. We continue to
believe our prepaid service is an attractive alternative for a substantial
portion of the market that, 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 allow 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.
7
<PAGE> 9
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 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
and certain of our tower assets, will not be comparable with future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------
2000 1999
------------- ------------------------------------------
COMBINED
CELLULAR
TOTAL CELLULAR(A) PCS AND PCS
------------- ----------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SERVICE REVENUES & COST ANALYSIS:
Service revenues:
Postpaid revenues................................ $ 52,357 $ 2,812 $ 37,460 $ 40,272
Prepaid revenues................................. 33,561 -- 8,739 8,739
Roaming revenues................................. 2,106 1,764 1,132 2,896
Other revenues................................... 5,051 232 1,729 1,961
------------ ---------- ----------- ------------
Total service revenues.......................... 93,075 4,808 49,060 53,868
Cost of services.................................... 20,423 411 12,970 13,381
------------ ---------- ----------- ------------
Gross margin..................................... $ 72,652 $ 4,397 $ 36,090 $ 40,487
============ ========== =========== ============
EQUIPMENT SALES & COST ANALYSIS:
Equipment sales..................................... $ 7,001 $ 236 $ 7,882 $ 8,118
Cost of equipment sales............................. 29,138 427 15,005 15,432
------------ ---------- ----------- ------------
Gross margin..................................... $ (22,137) $ (191) $ (7,123) $ (7,314)
============ ========== =========== ============
OPERATING MARGIN ANALYSIS:
Total revenues and sales............................ $ 100,076 $ 5,044 $ 56,942 $ 61,986
------------ ---------- ----------- ------------
Operating expenses:
Cost of services and equipment sales............. 49,561 838 27,975 28,813
Operations....................................... 14,456 437 14,440 14,877
Selling and marketing............................ 24,070 481 20,299 20,780
General and administrative....................... 11,362 402 9,337 9,739
Depreciation..................................... 21,360 390 18,387 18,777
Amortization..................................... 2,551 -- 2,570 2,570
------------ ---------- ----------- ------------
Total operating expenses........................ 123,360 2,548 93,008 95,556
------------ ---------- ----------- ------------
Operating income (loss)............................. (23,284) $ 2,496 $ (36,066) (33,570)
========== ===========
Interest expense, net............................... 27,296 27,847
Miscellaneous income................................ (106) (104)
------------ ------------
Loss before income taxes............................ (50,474) (61,313)
Income tax provision................................ -- --
------------ ------------
Net loss............................................ (50,474) (61,313)
Dividends on cumulative convertible,
redeemable preferred stock....................... (2,437) (2,437)
------------ ------------
Net loss attributable to common
stockholders..................................... $ (52,911) $ (63,750)
============ ============
OTHER SUPPLEMENTAL DATA:
Subscribers at end of period........................ 655,968 29,955 337,862 367,817
Capital expenditures................................ $ 15,432 $ 296 $ 14,446 $ 14,742
</TABLE>
-----------------
(a) We sold our remaining cellular operations in April 1999.
8
<PAGE> 10
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 $14.9 million, or 39.8%, for
the three months ended March 31, 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 367,000 at March 31, 2000, from
approximately 269,000 at March 31, 1999, of which approximately 26,000 net
postpaid PCS subscribers were added during the three months ended March 31,
2000 as compared to approximately 16,000 for the same period of 1999. A
significant portion of our postpaid subscriber growth for the three months
ended March 31, 2000 is attributable to our 50-State Rate plans, which we
introduced in July 1999, and our "50% more minutes" promotional offering,
which we introduced in the first quarter of 2000.
The average monthly service revenue ("RPU") per postpaid PCS
subscriber increased to $49.57 for the three months ended March 31, 2000 as
compared to $47.42 for the same period of 1999. This increase in RPU is the
result of an increase in the average minutes of use per subscriber and our
introduction of rate plans that emphasize bundled airtime and toll minutes for
higher-priced plans.
Prepaid PCS service revenues increased $24.8 million, or 284.0%, for
the three months ended March 31, 2000 as compared to the same period of 1999.
Our prepaid PCS subscribers grew to approximately 289,000 at March 31, 2000,
from approximately 68,000 at March 31, 1999, of which approximately 84,000 net
prepaid PCS subscribers were added during the three months ended March 31, 2000
as compared to approximately 27,000 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 $45.09 for the three
months ended March 31, 2000 as compared to $52.99 for the same period of 1999.
This decrease in RPU is attributable primarily to the introduction of
lower-denominated prepaid cards for airtime renewals, but was partially offset
by an increase in the rate of renewals.
PCS roaming revenues (including roaming long distance) increased $1.0
million, or 86.0%, for the three months ended March 31, 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 service revenues, which include activation fees and
interconnection fees billed to local exchange carriers ("LECs") for connections
to our PCS network, increased $3.3 million, or 192.1%, for the three months
ended March 31, 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 $7.5 million, or 57.5%, for the three
months ended March 31, 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 subscribers and
intelligent-network management fees. We also experienced an increase in cell
site costs due to the 199 additional cell sites we placed in service since
March 31, 1999.
We generated a negative PCS equipment margin of 316.2% on $7.0 million
of sales during the three months ended March 31, 2000 as compared to a negative
90.4% on $7.9 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
offered a $50 handset credit to all postpaid PCS subscribers who activated
during the three months ended March 31, 2000. We expect to continue subsidizing
the cost of handsets to subscribers for the foreseeable future.
9
<PAGE> 11
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 March 31, 2000 as compared to the same period of 1999. Our
personnel costs increased due to providing customer service through our
centralized call center to the growing PCS customer 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 customer base.
PCS selling and marketing costs increased $3.8 million, or 18.6%, for
the three months ended March 31, 2000 as compared to the same period of 1999.
Substantially all of this increase is attributable to an increase in sales
commissions due to the increase in subscriber activations and to the continued
expansion of our sales distribution channels, including increases in personnel
and retail location costs.
PCS general and administrative costs increased $2.0 million, or 21.7%,
for the three months ended March 31, 2000 as compared to the same period of
1999. Substantially all of this increase is attributable to increased personnel
and facilities costs at our corporate and regional administrative offices and
information technology center to support our rapidly growing operations.
Depreciation and amortization increased $3.0 million, or 14.1%, for
the three months ended March 31, 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 199 additional cell sites that we placed in
service since March 31, 1999, as well as depreciation of computer systems and
infrastructure costs required to manage the administrative functions of our
business.
Net consolidated interest expense decreased $.6 million, or 2.0%, for
the three months ended March 31, 2000 as compared to the same period of 1999.
This decrease in net interest expense is the result of 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 March 31,
2000 and 1999 was 0%. We generated a net loss of $50.5 million for the three
months ended March 31, 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 $334.1 million and restricted cash
of $16.7 million at March 31, 2000, as compared to $371.4 million and $16.2
million, respectively, at December 31, 1999. For the three months ended March
31, 2000, we used net cash of $20.5 million for operating activities as
compared to $23.4 million for the same period of 1999. The cash impact of the
net loss from operations totaled $50.5 million but was partially offset by
$23.9 million of depreciation and amortization and $18.5 million of bond
accretion on the senior discount notes.
Cash used in investing activities was $28.7 million for the three
months ended March 31, 2000 as compared to $35.8 million for the same period of
1999. Investing activities for 2000 consisted primarily of capital expenditures
totaling $15.4 million and a decrease in accrued construction costs of $12.8
million primarily related to the expansion of our PCS system and support
systems.
Cash provided from financing activities was $11.9 million for the
three months ended March 31, 2000 as compared to $6.7 million for the same
period of 1999. Financing activities for 2000 consisted primarily of proceeds
from the exercise of stock options and warrants of $15.1 million, which was
partially offset by repayments of our credit facility of $3.2 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 will repay
the aggregate advances under the credit facility in twenty equal quarterly
installments, with the last
10
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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 the support of the PCS business, were $15.4 million
for the three months ended March 31, 2000, as compared to $14.7 million for the
same period of 1999. We currently estimate that capital expenditures will total
approximately $136 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 believe cash on hand and cash from continuing
operations will be sufficient to fund our PCS operations in 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 pronouncements. We are currently evaluating the substance
of this bulletin to determine its 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
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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.
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 March
31, 2000, we issued 14,402 shares of our common stock to SCANA Communications,
Inc., who owns all of our Series E Preferred, and 14,402 shares of common stock
to ITC Wireless, Inc., who owns all of our Series F Preferred, in payment of
the quarterly dividends owed on December 15, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27 Financial Data Schedule (for SEC use only).
(B) REPORTS ON FORM 8-K.
None.
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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.
May 12, 2000 /s/ Allen E. Smith
----------------------------------------------------
Allen E. Smith
President and Chief Executive Officer
May 12, 2000 /s/ Fred G. Astor, Jr.
----------------------------------------------------
Fred G. Astor, Jr.
Executive Vice President and Chief Financial Officer
(Chief Accounting Officer)
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