FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of: May 17, 1999
-------------
TRICOM, S.A.
(Translation of registrant's name into English)
AVENIDA LOPE DE VEGA NO. 95, SANTO DOMINGO, DOMINICAN REPUBLIC
(Address of principal executives offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_________
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TRICOM, S.A.
QUARTERLY REPORT
FOR THE
FIRST QUARTER
ENDED
MARCH 31, 1999
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TABLE OF CONTENTS
PAGE
GENERAL INTRODUCTION.........................................................1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS................................................2
Consolidated Balance Sheet as of December 31, 1998 and
March 31, 1999 (unaudited)...................................................2
Consolidated Statement of Operations Three Months Ended
March 31, 1998 and 1999 (unaudited)..........................................5
Consolidated Statements of Cash Flows Three Months Ended
March 31, 1998 and 1999 (unaudited)..........................................6
Notes to Financial Statements................................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION..............................................6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................18
ITEM 5. OTHER INFORMATION...................................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K....................................18
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GENERAL INTRODUCTION
Unless the context indicates otherwise, all references to (i) the "Company"
or "TRICOM" refer to TRICOM, S.A. and its consolidated subsidiaries and their
respective operations, and include TRICOM's predecessors, and (ii) "GFN" refers
to GFN Corporation Ltd. and its direct and indirect subsidiaries, other than the
Company and its subsidiaries, and include GFN's predecessors.
PRESENTATION OF CERTAIN FINANCIAL INFORMATION
The Company prepares its consolidated financial statements in conformity
with generally accepted accounting principles in the United States. The Company
adopted the United States dollar as its functional currency effective January 1,
1997.
In this Quarterly Report references to "$," "US$" or "U.S. dollars" are to
United States dollars, and references to "Dominican pesos" or "RD$" are to
Dominican pesos. This Quarterly Report contains translations of certain
Dominican peso amounts into U.S. dollars at specified rates solely for the
convenience of the reader. These translations should not be construed as
representations that the Dominican peso amounts actually represent such U.S.
dollar amounts or could be converted into U.S. dollars at the rate indicated.
The average of prices of one U.S. dollar quoted by certain private commercial
banks (the "Private Market Rate") as reported by Banco Central de la Republica
Dominicana (the "Central Bank") on March 31, 1999 was RD$16.20 = US$1.00, the
date of the most recent financial information included in this Quarterly Report.
The Federal Reserve Bank of New York does not report a noon buying rate for
Dominican pesos. On May 11, 1999, the Private Market Rate was RD$16.08 =
US$1.00.
FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report which are not historical
facts are forward-looking statements that involve risks and uncertainties.
Management cautions the reader that these forward-looking statements are only
predictions; actual events or results may differ materially as a result of risks
facing the Company. Such risks include, but are not limited to, the following
factors: competition; declining rates for international long distance traffic;
opposition to increased rates for basic local service; the Company's significant
capital expenditure requirements and its need to finance such expenditures; the
inability of the Company to expand its local access line network in a timely
manner and within the amount budgeted for such capital expenditure program; the
inability of the Company to manage effectively its rapid expansion; the
continued growth of the Dominican economy, demand for telephone services in the
Dominican Republic and moderation of inflation; and the continuation of a
favorable political and regulatory environment in the Dominican Republic.
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PART I
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN US$)
DECEMBER 31, MARCH 31,
-------------- -------------
1998 1999
ASSETS (AUDITED) (UNAUDITED)
Current assets:
Cash and cash equivalents US$ 15,377,410 US$ 5,048,152
Accounts receivable:
Customers 9,168,740 9,878,925
Carriers 4,153,003 5,140,117
Related parties 163,110 476,167
Officers and employees 275,069 379,026
Current portion of long term
accounts receivable 75,071 53,358
Other 2,113,228 605,861
-------------- --------------
15,948,221 16,533,454
Allowance for doubtful accounts (740,687) (826,557)
-------------- --------------
Accounts receivable, net 15,207,534 15,706,897
Current portion of pledged securities 54,470,478 43,905,746
Inventories, net 8,687,356 10,666,220
Prepaid expenses 2,921,680 2,140,698
Deferred income taxes 556,949 613,152
-------------- --------------
Total current assets 97,221,407 78,080,866
Long-term accounts receivable 91,556 88,273
Unearned interest -- --
-------------- --------------
Long-term accounts receivable, net 91,556 88,273
Other investments 2,164,387 2,194,724
Property and equipment cost 365,682,963 391,440,929
Accumulated depreciation (35,226,515) (39,721,399)
-------------- --------------
Property and equipment, net 330,456,448 351,719,530
Other assets at cost, net of amortization 14,880,805 16,826,504
TOTAL ASSETS US$ 444,814,603 US$ 448,909,897
============== ==============
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TRICOM, S.A.
CONSOLIDATED BALANCE SHEET (CONTINUED)
(IN US$)
DECEMBER 31, MARCH 31,
--------------- ------------
1998 1999
(AUDITED) (UNAUDITED)
LIABILITIES & SHAREHOLDERS EQUITY
Current liabilities:
Notes payable:
Borrowed funds-banks US$ 21,665,516 US$ 40,996,562
Borrowed funds-related parties 25,591,915 6,013,364
Current portion of long term debt
- Carifa Loan 32,000,000 32,000,000
--------------- ------------
79,257,431 79,009,926
Accounts payable:
Carriers 3,106,898 2,506,352
Suppliers 11,772,957 20,675,026
Related parties -- 8,242
Other 1,566,076 420,816
--------------- ------------
16,445,931 23,610,436
Other liabilities 7,413,821 4,257,111
Accrued expenses 13,887,974 9,599,531
--------------- ------------
Total current liabilities 117,005,157 116,477,004
Reserve for severance indemnities 42,886 27,868
Deferred income tax 205,258 205,258
Long-term debt:
Carifa Loan -- --
Senior Notes 200,000,000 200,000,000
--------------- ------------
Total liabilities 317,253,301 316,710,130
Shareholders equity:
Class A Common Stock at par value RD$10:
Authorized 55,000,000 shares; 5,700,000
shares issued at December 31, 1998 and
March 31, 1999 3,750,000 3,750,000
Class B Stock at par value RD$10:
Authorized 25,000,000 shares at
December 31, 1998 and March 31, 1999;
19,144,544 issued at December 31, 1998
and March 31, 1999 12,595,095 12,595,095
Additional paid-in-capital, excess over par 94,015,852 94,015,852
Retained earnings 19,224,112 23,862,577
Equity adjustment for foreign currency
translation (2,023,757) (2,023,757)
--------------- ------------
Shareholders equity, net 127,561,302 132,199,767
TOTAL LIABILITIES &
SHAREHOLDERS EQUITY US$ 444,814,603 US$ 448,909,897
=============== ===============
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TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN US$)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
MARCH 31,
------------------------------
1998 1999
(UNAUDITED) (UNAUDITED)
OPERATING REVENUES:
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Toll US$ 4,533,777 US$ 4,705,266
International settlement 10,843,462 12,970,980
Local service 2,681,624 5,840,175
Cellular 4,235,646 5,863,334
Paging 1,264,116 900,254
Sale and lease of equipment 997,386 966,004
Installations 2,397,536 3,419,179
Other 62,137 158,007
----------- -------------
TOTAL OPERATING REVENUES 27,015,684 34,823,199
OPERATING COSTS:
Satellite connections and carriers 7,478,406 8,420,901
Network depreciation 2,363,897 3,449,453
Expense in lieu of income taxes 1,926,880 2,969,610
General and administrative expenses 7,445,802 9,600,529
Depreciation expense 637,266 1,045,431
Other 1,022,133 1,009,404
----------- -------------
TOTAL OPERATING COSTS 20,874,384 26,495,328
OPERATING INCOME 6,141,300 8,327,871
OTHER INCOME (EXPENSES):
Interest expense (4,365,511) (4,454,860)
Interest income 1,177,995 971,202
Foreign exchange gain (loss) (106,223) 165,392
Other (436,869) (427,343)
----------- -------------
TOTAL OTHER EXPENSES (3,730,608) (3,745,609)
EARNINGS BEFORE INCOME TAX 2,410,692 4,582,262
INCOME TAX - DEFERRED CREDIT -- 56,203
NET EARNINGS US$ 2,410,692 US$ 4,638,465
=========== =============
EBITDA US$ 11,069,343 US$ 15,792,365
EARNINGS PER SHARE US$ 0.13 US$ 0.19
</TABLE>
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TRICOM, S.A. and Subsidiaries
Consolidated Statement of Cash Flows
(In US$)
Three Months Ended
----------------------------
March 31,
----------------------------
1998 1999
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings (loss) US$ 2,410,692 US$ 4,638,465
Adjustments to reconcile net earnings
(loss) and net
Cash provided by operating activities:
Depreciation 3,001,163 4,494,884
Allowance for doubtful accounts 157,069 628,689
Accounts receivable charged off (314,138) (542,819)
Unrealized loss (gain) in foreign exchange 101,274 --
Reserve for severance indemnities, net of
payments (37,513) 89,043
Net changes in assets and liabilities:
Accounts receivable 915,194 (595,420)
Inventories (5,583,587) (1,978,864)
Prepaid expenses 2,333,859 780,982
Long-term accounts receivable 367,504 21,714
Unearned interest (12,526) --
Other assets (1,806,711) (1,388,752)
Accounts payable 11,937,070 7,156,261
Other liabilities 502,891 (3,212,914)
Accrued expenses (6,152,264) (4,392,504)
--------------- ---------------
Total adjustments 5,409,285 1,060,300
--------------- ---------------
Net cash provided by operating activities 7,819,977 5,698,765
=============== ===============
Cash flows from investing activities:
Current portion of investments -- 10,564,732
Cancellation of investments 13,213,028 (587,285)
Acquisition of property and equipment (29,516,058) (25,757,965)
--------------- ---------------
Net cash used in investing activities (16,303,030) (15,780,518)
Cash flows from financing activities:
Borrowed funds from banks 1,900,330 19,331,046
Borrowed funds from related parties 4,500,813 (19,578,551)
--------------- ---------------
Net cash provided by financing activities 6,401,143 (247,505)
Effect of exchange rate changes on cash (100,766) --
Net increase in cash and cash equivalents (2,182,676) (10,329,258)
Cash and cash equivalents at beginning of the
period 5,732,505 15,377,410
Cash and cash equivalents at end of period US$ 3,549,829 US$ 5,048,152
=============== =============
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TRICOM, S.A. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The Company considers that all adjustments (all of which are normal
recurring accruals) necessary for a fair statement of financial position and
results of operations for these periods have been made; however, results for
such interim periods are subject to year-end audit adjustments. Results for such
interim periods are not necessarily indicative of results for a full year.
NOTE 2 - CALCULATION OF EBITDA
EBITDA typically consists of earnings (loss) before interest expense,
income taxes, depreciation and amortization. Because the Company makes payments
to the Dominican government in lieu of income taxes, such expense is
characterized as an operating expense and EBITDA is calculated after the
deduction of such expense. EBITDA is commonly used in the telecommunications
industry to analyze companies on the basis of operating performance, leverage
and liquidity. However, it does not purport to represent cash generated or used
by operating activities and should not be considered in isolation or as a
substitute for a measure of performance in accordance with generally accepted ac
counting principles.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
COMPANY OVERVIEW
BACKGROUND
TRICOM is a full service telecommunications provider in the Dominican
Republic, and an international long distance carrier in the United States.
TRICOM commenced operations as a low-cost international long distance provider
in 1992 and has since expanded to provide basic local service, national long
distance, cellular, paging, Internet access and value-added services. The
Company has developed a substantial presence in the international long distance
market for the Dominican Republic and has constructed a cellular network which
covers approximately 80% of the country's population. In addition, TRICOM has
been aggressively expanding its basic local phone service business since the
fourth quarter of 1996. As a result of these efforts, the Company has achieved
significant growth, with operating revenues increasing from US$1.9 million in
1992, to US$125.5 million in 1998.
INTERNATIONAL LONG DISTANCE SERVICES
TRICOM is a leading participant in the large market for international long
distance traffic between the Dominican Republic and the United States. The
Company has operating agreements with all the major facilities-based
international carriers responsible for international long distance traffic
between the Dominican Republic and the United States, and also has agreements
with numerous emerging carriers which account for an increasing share of the
total traffic between the two countries. In January 1997, the Company commenced
operations of its subsidiary TRICOM USA, Inc., a Delaware corporation ("TRICOM
USA"), which is a facilities-based international and resale carrier located in
the United States. The Company believes that TRICOM USA will provide it with an
important means for gaining additional market share of the international long
distance traffic from the United States to the Dominican Republic.
The Company operates a chain of owned or franchised public telephone
centers and sells a prepaid calling card, the Efectiva Card, which allows
customers to make international long distance calls. The Company receives the
bulk of its international long distance toll revenues from its local service
customers, users of the Efectiva Card, its public telephone centers and its
large business customers. In the future, the Company expects that its local
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service customers will generate an increasing portion of these international
long distance revenues, as well as additional long distance revenues for calls
within the Dominican Republic.
DOMESTIC SERVICES
Local Service. TRICOM provides local exchange services to residential and
small business customers in select areas of Santo Domingo, Santiago and San
Francisco de Macoris. These cities are the three largest in the Dominican
Republic, comprising 43% of the total population of the country. At March 31,
1999, the Company had 92,055 local access lines in service. The Company
anticipates installing approximately 45,000 local access lines in 1999. The
Company currently uses copper or fiber wirelines to connect customers to its
network. The Company is accelerating its penetration of the basic local service
market by deploying a fixed digital cellular system, or wireless local loop
("WLL"). The WLL employs digital cellular technology that uses the Code Division
Multiple Access ("CDMA") protocol and operates on the 1.9 GHz radio frequency
band. The WLL, will allow the Company to achieve faster line installation and to
reach broader service areas than possible with a wireline network. The Company
is currently market testing approximately 3,000 WLL lines in service around the
Dominican Republic's capital city of Santo Domingo and expects to complete the
first two phases of its wireless local loop deployment by the third quarter of
1999.
Cellular. At March 31, 1999, the Company had 126,923 mobile cellular
subscribers. In August 1997, the Company initiated several programs to enhance
cellular subscriber growth, including the introduction of the "Amigo" prepaid
cellular card program and arrangements with major consumer electronics retailers
to offer the Company's cellular service in conjunction with their sale of
handsets. As a result, the Company's cellular subscriber base grew by 126.7%
from 55,986 subscribers at March 31, 1997 to 126,923 subscribers at March 31,
1999.
On April 26, 1999, the Company announced the launching of its "Millennium"
PCS digital wireless service. The service will utilize CDMA technology enabling
cellular customers in the Dominican Republic to enjoy higher sound clarity and
call quality than available through analog wireless services. The announcement
marked the completion of the first phase of TRICOM's PCS deployment, which will
initially serve 80% of the nation's capital city of Santo Domingo, covering a
population of approximately 2.5 million people. The second phase of the
Company's digital mobile expansion program is scheduled to be completed by the
end of the second quarter of 1999, expanding coverage to five additional cities
and addressing a total population of over 4 million. The Company believes that
these programs will be instrumental to the future growth of its cellular
subscriber base.
PRINCIPAL SHAREHOLDERS
TRICOM is controlled by GFN Corporation, Ltd. and Motorola, Inc.
("Motorola"). GFN, one of the Dominican Republic's largest holding companies
with interests in media, banking, credit cards and insurance, beneficially owns
60% of the issued and outstanding shares of Class B Stock and Motorola
beneficially owns 40% of the issued and outstanding shares of Class B Stock. In
May 1998, TRICOM made its initial public offering in the United States of 5.7
million American Depositary Receipts representing an equal number of TRICOM's
Class A Common Stock. The ADRs are listed on the New York Stock Exchange under
the ticker symbol "TDR." Each share of Class B Stock entitles the holder thereof
to cast ten votes while each share of Class A Common Stock entitles the holder
thereof to cast one vote. At March 31, 1999, GFN owned 46.2% of the shares of
Common Stock (58.4% of the total voting power), Motorola 30.8% (38.8% of the
total voting power) and the public 23% (2.8% of the total voting power).
REVENUE RECOGNITION
The Company derives its operating revenues primarily from toll revenues,
international revenues, cellular services, paging services, local services, the
sale and lease of equipment and installations. The components of each of these
services are as follows:
Toll revenues are amounts received by the Company from its customers in the
Dominican Republic for international and domestic long distance calls as
well as interconnection charges received from Codetel. Toll revenues are
generated by retail telephone centers, large corporate accounts,
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residential and commercial customers, calling card users and cellular
subscribers. Toll revenues are recognized as they are billed to customers,
except that revenues from prepaid calling cards are recognized as the
calling cards are used or expire.
International revenues represent amounts recognized by the Company for
termination of traffic from foreign telecommunications carriers to the
Dominican network, including revenues derived from the Company's U.S. based
international long distance pre-paid calling cards.
Local service revenues consist of wireline rent, local measured service and
charges for CLASS services or vertical features, including call forwarding,
three-way calling, call waiting and voice mail, as well as calling party
pays revenues and revenues from other miscellaneous wireline services.
Cellular revenues represent fees received for mobile cellular services,
including interconnection charges for calls incoming to the Company's
cellular subscribers, but excluding international long distance calls
generated by cellular units. Cellular fees consist of fixed monthly access
fees, per minute usage charges and additional charges for custom or
vertical features, including call waiting, call forwarding, three-way
calling and voice mail, and for other miscellaneous cellular services.
Paging revenues consist of fixed monthly charges for nationwide service and
use of paging equipment and activation fees.
Revenues from the sale and lease of equipment consist of sales and rental
fees charged for customer premise equipment, including private branch
exchanges and key telephone systems, residential telephones, cellular
handsets and paging units. Since late 1996, the Company has only sold such
equipment.
Installation revenues consist of fees charged by the Company for installing
local access lines, private branch exchanges and key telephone systems as
well as fees for activating cellular handsets.
Other revenues consist of revenues that are not generated from the
Company's core business, including commissions received for providing
package handling services for a courier and commissions received for
collection services for utility companies.
The following table sets forth the percentage contribution of each category
of revenues to total operating revenues for the period indicated:
THREE MONTHS
ENDED
MARCH 31,
--------------------
1998 1999
---- ----
Toll..................................... 16.8% 13.5%
International settlement................. 40.1 37.2
Local service............................ 9.9 16.8
Cellular................................. 15.7 16.8
Paging................................... 4.7 2.6
Sale and lease of equipment.............. 3.7 2.8
Installations............................ 8.9 9.8
Other.................................... 0.2 0.5
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The following table sets forth certain items in the statements of
operations expressed as a percentage of total operating revenues for the period
indicated:
THREE MONTHS
ENDED
MARCH 31,
--------------------
1998 1999
---- ----
Operating costs.......................... 77.3% 76.1%
Operating income......................... 22.7 23.9
Interest expense, net.................... (11.8) (10.0)
Other income (expenses).................. (13.8) (10.8)
Net earnings............................. 8.9 13.3
EBITDA................................... 41.0 45.4
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1999
OPERATING REVENUES. The Company's total operating revenues increased 28.9%
from US$27.0 million for the three-month period ended March 31, 1998 (the "1998
First Quarter") to US$34.8 million for the three-month period ended March 31,
1999 (the "1999 First Quarter"). The Company attributes this growth to increased
local service, cellular and installation revenues associated with the Company's
local network expansion, as well as increased international revenues generated
by TRICOM USA, Inc., the Company's U.S. subsidiary which is a facilities based
international carrier.
Toll. Toll revenues increased 3.8% from US$4.5 million for the 1998 First
Quarter to US$4.7 million for the 1999 First Quarter as a result of higher
domestic and outbound international traffic. Domestic long distance minutes
increased by 50.0% from 4.5 million minutes for the 1998 First Quarter to 6.8
million minutes for the 1999 First Quarter as a result of a higher number of
local access lines in service. Outbound international minutes increased by 19.6%
from 5.6 million minutes for the 1998 First Quarter to 6.7 million minutes for
the 1999 First Quarter, reflecting increased traffic volume from retail
telephone centers, the Efectiva prepaid calling card and from the increased
number of local access lines. The Company's retail telephone centers, Efectiva
prepaid calling card and local access lines accounted for 28.6%, 28.0%, and
27.9%, respectively, of the total outbound international minutes for the 1999
First Quarter compared to 29.6%, 29.2%, and 29.6% respectively, for the 1998
First Quarter.
Interconnection revenues related to domestic and international long
distance traffic also increased due to the growth of the Company's local access
line installed base. Interconnection revenues increased by 74.7% from US$685,000
for the 1998 First Quarter to US$1.2 million for the 1999 First Quarter. Toll
revenues represented 16.8% of total operating revenues for the 1998 First
Quarter compared to 13.5% of total operating revenues for the 1999 First
Quarter.
International. International revenues increased 19.6% from US$10.8 million
for the 1998 First Quarter to US$13.0 million for the 1999 First Quarter,
primarily as a result of the growth of inbound traffic volume generated by
TRICOM USA. Inbound minutes increased by 73.8% from 40.9 million for the 1998
First Quarter to 71.0 million minutes for the 1999 First Quarter, reflecting
volume based agreements and the contribution of TRICOM USA's operations in the
United States. TRICOM USA accounted for 56.7% of the total inbound minutes in
the 1998 First Quarter compared to 57.6% of the total inbound minutes in the
1999 First Quarter. The total number of inbound minutes generated by TRICOM USA
increased by 76.8% from 23.2 million during the 1998 First Quarter to 40.9
million during the 1999 First Quarter. Provision of facilities by TRICOM USA to
resellers and prepaid calling cards distributed in the United States accounted
for 21.3 million minutes and 1.9 million minutes of the total inbound minutes
generated by TRICOM USA during the 1998 First Quarter compared to 33.2 million
and 7.7 million during the 1999 First Quarter.
The increase in international revenues was achieved despite a 19% decrease
in settlement rates from an average of US$0.22 per minute during the 1998 First
Quarter to an average of US$0.18 per minute during the 1999 First Quarter.
Settlement rates for traffic between the United States and the Dominican
Republic have declined over the past five years as a result of increased
competition in the market for international long distance service, and the
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Company anticipates that competitive and regulatory pressures could push
settlement rates lower. TRICOM has been able to increase revenues from the
provision of international long distance services by increasing the volume of
international traffic that it handles. Future decreases in settlement rates,
without corresponding increases in the Company's long distance traffic from the
United States would reduce the Company's international settlement revenues,
adversely affect the profit margins that the Company realizes on such traffic
and could have a material adverse effect on the Company's business, financial
condition and results of operations. International settlement revenues
represented 40.1% of total operating revenues for the 1998 First Quarter
compared to 37.2% of total operating revenues for the 1999 First Quarter.
Local service. Local service revenues increased 117.8% from US$2.7 million
for the 1998 First Quarter to US$5.8 million for the 1999 First Quarter as a
result of the Company's local access subscriber base growth, combined with the
positive effects of local rate rebalancing.
The Company added 11,439 net local access lines during the 1999 First
Quarter compared to 8,386 net local access lines added during the 1998 First
Quarter. The number of net local access line additions during the 1999 First
Quarter represents the highest number of net line additions in any quarter since
the Company began installing them in 1994. At March 31, 1999, the Company had
92,055 local access lines in service compared to 51,581 local access lines in
service at March 31, 1998. As a result of a higher number of lines in service,
interconnection revenues related to local calls received from Codetel increased
96.3% from US$234,000 for the 1998 First Quarter to US$459,000 for the 1999
First Quarter.
On January 14, 1999, the Company announced price increases in residential
monthly rent charges as well as measured local service rates as part of the
industry's process of price liberalization initiated under the new
Telecommunications Law No. 153. Effective as of January 1, 1999, TRICOM
increased the price per minute of measured local service from RD$0.10 (US$0.006)
to RD$0.14 (US$0.009). The Company has and will thereafter, adjust the price per
minute of measured local service in monthly increments of RD$0.01 until it
reaches RD$0.25 (US$0.015) at December 31, 1999. On average, the price per
minute of measured local service increased by 16% from US$0.007 per minute
during the 1998 First Quarter to US$0.009 per minute during the 1999 First
Quarter. As a result, measured local service revenues increased by 49.3% from
US$422,000 during the 1998 First Quarter to US$713,000 during the 1999 First
Quarter. In addition, average monthly rent charges increased by 32% from
US$11.69 in the First Quarter of 1998 to US$15.38 in the First Quarter of 1999.
Local service rent revenues increased by 135.6% from US$1.9 million during the
1998 First Quarter to US$4.6 million during the 1999 First Quarter. Local
service revenues represented 9.9% of total operating revenues for the 1998 First
Quarter compared to 16.8% of total operating revenues for the 1999 First
Quarter.
Cellular. Cellular revenues increased by 38.4% from US$4.2 million for the
1998 First Quarter to US$5.9 million for the 1999 First Quarter, primarily as a
result of a higher average subscriber base and a higher average price per
outgoing airtime minute. The Company added 18,391 net subscribers during the
1999 First Quarter compared to 14,879 net subscribers added in the 1998 First
Quarter. The number of cellular subscribers increased at March 31, 1999 by
126.7% to 126,923 from 55,986 at March 31, 1998. As a result of a higher average
subscriber base, airtime minutes increased 28.0% from 21.6 million minutes for
the 1998 First Quarter to 27.7 million minutes for the 1999 First Quarter. In
addition, the average price per outgoing airtime minute increased by 14.0% from
US$0.23 in the 1998 First Quarter to US$0.27 in the 1999 First Quarter.
The Company attributes the increase in the number of subscribers and
cellular airtime to the introduction of prepaid cellular services and the Amigo
prepaid card for cellular calls in the third quarter of 1997. Prepaid cellular
services generated approximately 51% of the Company's total airtime minutes and
61% of total cellular revenues in the 1999 First Quarter. Prepaid cellular
revenues increased by 152.9% from US$967,000 in the 1998 First Quarter to US$2.4
million during the 1999 First Quarter.
The Company's average monthly churn rate for cellular services declined
from 3.6% for the 1998 First Quarter to 1.7% for the 1999 First Quarter. The
Company calculates churn by dividing the number of subscribers disconnected
during a given period by the sum of subscribers at the beginning of each month
during such period. Interconnection revenues associated with airtime traffic
received from Codetel increased by 207.0% from US$318,000 in the 1998 First
Quarter to US$975,000 in the 1999 First Quarter due to a higher volume of
incoming minutes received by prepaid cellular subscribers, as well as to a
larger subscriber base. Cellular revenues represented 15.7% of total operating
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revenues for the 1998 First Quarter compared to 16.8% of total operating
revenues for the 1999 First Quarter.
Paging. Paging revenues decreased 28.8% from US$1.2 million for the 1998
First Quarter to US$900,000 for the 1999 First Quarter. The decrease reflected a
decline in the average revenue per paging subscriber during the 1999 First
Quarter from the average revenue per paging subscriber during the 1998 First
Quarter, as a result of increased competition in the market. In addition, the
Company believes that the success of its prepaid cellular program has
contributed to the decline of its paging revenues by encouraging paging
subscribers to replace their paging services with prepaid cellular services. At
March 31, 1999, the Company had 28,892 paging subscribers compared to 28,332
paging subscribers at March 31, 1998. The Company's average monthly churn rate
for paging services declined from 3.5% for the 1998 First Quarter to 3.0% for
the 1999 First Quarter. Paging revenues represented 4.7% of total operating
revenues for the 1998 First Quarter compared to 2.6% of total operating revenues
for the 1999 First Quarter. The Company has determined that paging will not be a
major focus of its marketing efforts.
Sale and lease of equipment. Revenues from the sale and lease of equipment
decreased 3.1% from US$997,000 for the 1998 First Quarter to US$966,000 for the
1999 First Quarter, primarily due to a lower number of cellular handsets and
paging equipment sold as a result of the Company entering into arrangements for
the distribution of cellular service with major electronics retailers. The
Company believes that these arrangements will decrease revenues from the sale of
cellular equipment, but could increase cellular service revenues by expanding
the number of subscriber additions. Sale and lease of equipment revenues
represented 3.7% of total operating revenues in the 1998 First Quarter compared
to 2.8% of total operating revenues for the 1999 First Quarter. The Company has
strategically migrated away from this revenue source and has determined that the
sale and lease of equipment will not be a major focus of its marketing program.
Installations. Installation revenues increased 42.6% from US$2.4 million
for the 1998 First Quarter to US$3.4 million for the 1999 First Quarter. This
increase is attributable to the significant growth in the number of local access
line installations and cellular activations as well as an increase in the
average installation fee per local access line from US$185 during the 1998 First
Quarter to US$188 during the 1999 First Quarter. The Company installed 13,939
gross local access lines and 24,344 gross cellular additions in the 1999 First
Quarter, compared to 9,553 gross local access lines and 19,881 gross cellular
additions for the 1998 First Quarter, reflecting the increased demand for the
Company's services. Installation revenues represented 8.9% of total operating
revenues in the 1998 First Quarter compared to 9.8% of total operating revenues
for the 1999 First Quarter.
OPERATING COSTS. Major components of operating costs are (a) carrier costs,
which include amounts owed to foreign carriers for the use of their networks for
termination of outbound traffic, (b) interconnection costs, which are access
charges paid to Codetel, (c) depreciation of network equipment and leased
terminal equipment, (d) payments for international satellite circuit leases, (e)
expenses in lieu of income tax, (f) general and administrative expenses and (g)
depreciation expense. The Company's operating costs increased 26.9% from US$20.9
million for the 1998 First Quarter to US$26.5 million for the 1999 First
Quarter. Operating costs represented 77.3% of total operating revenues for the
1998 First Quarter compared to 76.1% of total operating revenues for the 1999
First Quarter.
Satellite connections and carrier costs increased by 12.6% from US$7.5
million during the 1998 First Quarter to US$8.4 million during the 1999 First
Quarter. This increase reflected a 7.0% increase in carrier costs from US$2.4
million in the 1998 First Quarter to US$2.6 million in the 1999 First Quarter
due to higher volume of outbound traffic. Interconnection costs increased by
US$1.2 million from US$2.0 million in the 1998 First Quarter to US$3.3 million
in the 1999 First Quarter, as a result of a higher subscriber base and a larger
proportion of the southbound traffic terminating in the Company's network. These
increases were partially offset by a 34.1% decrease in lease payments for
switching facilities and satellite connections costs from US$1.3 million in the
1998 First Quarter to US$834,000 in the 1999 First Quarter due to cost savings
resulting from the commencement of operations of the Antilles-I fiber optic
cable.
Network depreciation and depreciation expense increased 45.9% and 64.0%
from US$2.3 million and US$637,000, respectively, for the 1998 First Quarter to
US$3.4 million and US$1.0 million, respectively, for the 1999 First Quarter as a
result of the Company's continued investments in telephone plant and equipment.
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TRICOM currently is making payments to the Dominican government in lieu of
income tax equal to 10% of net international revenues. This expense in lieu of
income taxes increased by 54.1% from US$1.9 million for the 1998 First Quarter
to US$3.0 million for the 1999 First Quarter, due to increased revenues, a
portion of which were not subject to deductible access charges, including, in
particular, installation revenues.
Other costs decreased slightly to US$1.0 million for the 1999 First Quarter
primarily as a result of lower costs of sale of equipment, as a result of fewer
cellular and paging unit sales brought about by the Company entering into the
distribution arrangements with major electronics retailers.
The Company's general and administrative expenses include salaries and
other compensation to personnel, building depreciation charges, maintenance
expenses, marketing expenses and other related costs. The Company's general and
administrative expenses increased by 28.9% from US$7.4 million for the 1998
First Quarter to US$9.6 million for the 1999 First Quarter. The increases were
primarily attributable to higher sales commissions paid to sales staff,
increased personnel costs due to a higher employee headcount, and higher
marketing expenses. Commissions increased by 175.4% from US$646,000 in the 1998
First Quarter to US$1.8 million in the 1999 First Quarter. Personnel costs
increased by 23.4% from US$3.9 million during the 1998 First Quarter to US$4.9
million for the 1999 First Quarter. At March 31, 1999, the Company had 1,452
employees compared to 1,042 employees at March 31, 1998. Marketing expenses
increased by 14.9% from US$899,000 in the 1998 First Quarter to US$1.0 million
in the 1999 First Quarter, as a result of campaigns related to the Amigo prepaid
card program. General and administrative costs represented to 27.6% as a
percentage of total operating revenues for both the 1998 First Quarter and the
1999 First Quarter.
OPERATING INCOME. Operating income increased 35.6% from US$6.1 million for
the 1998 First Quarter to US$8.3 million for the 1999 First Quarter. The
Company's operating income improved from 22.7% of total operating revenues for
the 1998 First Quarter to 23.9% of total operating revenues for the 1999 First
Quarter, as a result of higher margins from local service, cellular and
international long distance services.
OTHER INCOME (EXPENSES). Other expenses decreased slightly to US$3.7
million for the 1999 First Quarter over the same period in 1998. Interest
expense increased by 2.0% from US$4.4 million for the 1998 First Quarter to
US$4.5 million for the 1999 First Quarter due to higher long term debt
outstanding as a result of the issuance of US$200 million aggregate principal
amount of the Company's 11 3/8% Senior Notes due 2004. Interest expense as a
percentage of total operating revenues declined from 16.2% for the 1998 First
Quarter to 12.8% for the 1999 First Quarter.
NET EARNINGS. Net earnings increased by 92.4% from US$2.4 million, or
US$0.13 per share, for the 1998 First Quarter from net earnings of US$4.6
million, or US$0.19 per share, for the 1999 First Quarter, as a result of higher
operating income. The weighted average number of shares outstanding at March 31,
1999 were 24,844,544 compared to 19,144,544 at March 31, 1998. Net earnings
accounted for 8.9% of total operating revenues for the 1998 First Quarter
compared to 13.3% of total operating revenues for the 1999 First Quarter.
EBITDA. Earnings before interest, taxes, depreciation and amortization
increased by 42.7% from US$11.1 million for the 1998 First Quarter to US$15.8
million for the 1999 First Quarter. The increase is attributed to the Company's
improved operating performance as a result of higher operating margins from its
local service, cellular, and international businesses. See Note 2 of Notes to
Financial Statements.
EFFECTS OF INFLATION
The annual inflation rates in the Dominican Republic in 1996, 1997 and 1998
were 4.0%, 8.0% and 7.8%, respectively. To date, the effects of inflation on
TRICOM's operations have not been significant.
CHANGE IN FUNCTIONAL AND REPORTING CURRENCY
Through December 31, 1996, the Company used the Dominican peso as its
functional and reporting currency. While a significant portion of the Company's
revenues, assets and liabilities historically were denominated in U.S. dollars,
a clear determination of the functional currency was difficult, and the Company
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used the Dominican peso as its functional currency. However, in the Company's
opinion, with the issuance of the Senior Notes, the Company's cash flows and
financial results of operations are more appropriately presented in the U.S.
dollar as the functional currency. Effective January 1, 1997, the Company
changed its functional currency from the Dominican peso to the U.S. dollar. The
Company's financial statements for periods prior to January 1, 1997 have not
been restated for this change in the functional currency. However, the Company
did retroactively change its reporting currency to the U.S. dollar.
The Company anticipates that this change in functional currency may
diminish the impact of any future devaluation of the Dominican peso against the
U.S. dollar.
LIQUIDITY AND CAPITAL RESOURCES
Substantial capital is required to expand and operate the Company's
telephone networks. During the First Quarter of 1998 and 1999, the Company
expended US$29.5 million and US$25.8 million, respectively, for capital
expenditures. During 1998, the Company made capital expenditures for the
installation of additional local access lines, enhancement of the Company's
cellular network, expansion of international facilities, including the
installation of TRICOM's switch in New York, and other network improvements. The
Company currently estimates that capital expenditures relating to the
installation of approximately 45,000 local access lines will total approximately
US$97.3 million for 1999, including US$25.8 million expended through March 31,
1999. The Company anticipates expending approximately US$32.8 million for the
expansion of its local network and US$11.1 million in 1999 to enhance its
cellular network by adding new cell sites and capacity to existing cell sites.
The Company also anticipates expending approximately US$2.9 million and US$18.6
million during 1999 to expand its international circuit capacity and network
facilities, respectively. However, the amounts to be expended in 1999 for these
purposes will depend upon a number of factors, including demand for the
Company's services and competition in the Company's various markets. Thereafter,
the Company expects to continue to expand its network in order to increase its
penetration of the residential and commercial markets.
In August 1998, the Company selected Motorola as the infrastructure
provider of CDMA technology and equipment for its WLL and PCS build-out plans.
The four-year US$52 million contract with Motorola provides for the installation
of 150,000 wireless subscribers. The Company is currently market testing
approximately 3,000 WLL lines around the Dominican Republic's capital city of
Santo Domingo and expects to be rolling this product out commercially during the
second quarter of 1999. TRICOM plans to expand into five other cities during the
rest of 1999. The Company anticipates that the first phase of the WLL build-out
will be completed at a cost of US$12.6 million, and will deploy capacity to
connect approximately 36,000 subscribers by the end of 1999. Upon completion of
the first stage, the WLL system is expected to cover approximately 60% of the
area of Santo Domingo. The Company expects the second stage, which will cover
five additional cities, to be operational by the end of the second quarter of
1999. The Company expects to implement the third and final stage over the course
of the following three years, extending coverage to seven additional cities and
increasing capacity in the previously covered cities. The Company anticipates
financing the cost of the first phase of the WLL with a portion of the US$68.7
in net proceeds received from the offering of 5,700,000 American Depositary
Receipts which was consummated in May 1998, as well as net cash flows from
operations and short-term and medium-term borrowings.
The Company anticipates that it will be able to meet its operating and
capital requirements with the net proceeds received from the ADR Offering, cash
flows from operating activities and available borrowings under existing
short-term credit facilities. Management believes that the increased average
maturity of the Company's indebtedness, as a result of its Senior Note Offering
in August 1997, will enhance the Company's operational flexibility. The payment
of interest on the Senior Notes for the first four interest periods has been
funded with investments that are held in an escrow account, which will result in
the enhancement of the Company's cash flow through 1999. Net cash provided by
operating activities was US$7.8 million and US$5.7 million for the 1998 and 1999
First Quarter, respectively.
The Company had account receivables of US$15.9 million and US$16.5 million
and allowance for doubtful accounts of US$741,000, and US$827,000 at December
31, 1998 and March 31, 1999, respectively. Accounts receivables and allowance
for doubtful accounts remained stable for the last two years given the
implementation of tighter credit policies by the Company and increased traffic
from resellers, which the Company requires to prepay for its services or gives
very short-term credit terms.
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The Company's total assets increased from US$444.8 million at December 31,
1998 to US$448.9 million at March 31, 1999. The Company's indebtedness was
approximately US$279.0 million at March 31, 1999, of which US$200.0 million
represented the Company's Senior Notes and US$79.0 million represented
short-term borrowings, including an aggregate principal amount of US$32.0
million of industrial revenue bonds issued by the Caribbean Basin Projects
Financing Authority ("Carifa Bonds"). The Company has irrevocably deposited with
the trustee for the Carifa Bonds an amount estimated to be sufficient to pay the
principal amount of the Carifa Bonds at their maturity in September 1, 1999 and
to pay interest on such industrial revenue bonds through such date.
Shareholders' equity increased from US$127.6 million at December 31, 1998 to
US$132.2 from million at March 31, 1999, as a result of increased net income for
the period.
As a result of the ADR Offering, GFN and Motorola were no longer required
to provide guarantees of borrowings of the Company, and the Company terminated a
credit facility with Citibank (the "Citibank Facility") guaranteed by Motorola,
which permitted the Company to borrow up to US$11.0 million. However, in January
1999, Citibank increased its existing credit facilities to TRICOM by US$11.0
million to US$20.0 million. In addition, at January 31, 1998 the Company
obtained a US$10.0 million credit facility with a local Dominican bank to
finance working capital. Moreover, the Company is in the process of obtaining
additional credit facilities with international banks for approximately US$27.5
million. At March 31, 1999, the Company had approximately US$40.8 million
available under short-term, U.S. dollar- and peso- denominated credit facilities
with Dominican banks.
The Company has not engaged in transactions to hedge against foreign
currency or interest rate fluctuations.
IMPACT OF YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year (the "Year 2000
Issue"). Any of TRICOM's computer programs or hardware that have date-sensitive
software or embedded microprocessors may recognize a date using "00" as the year
1900 rather than the year 2000. The failure to correct any such programs or
hardware could result in system failures or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Based on recent assessments, TRICOM has determined that it will be required to
modify or replace some portions of its software, and, to a lesser extent, its
hardware so that those systems will properly utilize dates beyond December 31,
1999. TRICOM believes that with modification and replacement of existing
software and hardware, the Year 2000 Issue can be substantially mitigated.
However, if such modifications and replacements are not made, or are not
completed on a timely basis, the Year 2000 Issue could have a material impact on
the operations of TRICOM. The Company currently anticipates that such
replacements and modifications will be completed on a timely basis.
TRICOM's plan to resolve Year 2000 Issues involves four phases: assessment,
remediation, testing and implementation. TRICOM's management information systems
("MIS") department has completed an assessment of all material information
technology systems that would be affected by the Year 2000 Issue if not modified
and has initiated a program to modify or replace portions of its software so
that TRICOM's computer systems will function properly after December 31, 1999.
TRICOM's financial systems, including general ledger, accounts payable, purchase
orders, fixed assets and inventory control functions, already have been upgraded
and are Year 2000 compliant. TRICOM's systems that assist in the management of
service orders, facilities management, engineering work orders, toll rating,
toll editing and trouble tracking are now Year 2000 compliant. The MIS
department has assessed and modified the BIOS of every computer on the Company's
internal network, and every computer on such network is now Year 2000 compliant.
The MIS department has commenced a software application development project to
improve TRICOM's billing system and make such systems Year 2000 compliant. The
Company anticipates that the new billing application platform will be completed
by the second quarter of 1999. TRICOM expects software reprogramming and
replacement, testing and implementation to be completed by the second quarter of
1999.
TRICOM's network engineering department has identified every component of
the Company's telecommunications network that may be subject to Year 2000
failures. The Company anticipates that it will have remedied or replaced any
network components that are not Year 2000 compliant by the end of the third
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quarter of 1999. The remediation or replacement of telecommunications equipment
depends primarily on the manufacturers of that equipment for modifications.
TRICOM is also in the process of assessing the extent to which its suppliers of
other products and services will be able to supply TRICOM after December 31,
1999. TRICOM has initiated communications with all of its significant equipment
vendors and other suppliers. TRICOM has not obtained timetables of expected
completion dates of modification, testing and implementation from all of the
vendors and suppliers. TRICOM does not control its equipment vendors and other
suppliers, but is attempting to have such timetables submitted in the third
quarter of 1999. The effect on TRICOM's operations of not having these systems
remediated could be significant.
TRICOM believes that its Year 2000 assessment and remediation program is
approximately 90% complete with respect to its critical business systems and 70%
complete with respect to its network. The total cost of the Year 2000 project is
estimated to be less than US$100,000 and is being expensed as incurred and
funded through operating cash flows.
TRICOM conducts transactions that interface directly with other domestic
and international telecommunications networks. There is no guarantee that the
networks of other companies to which TRICOM's network connects will be timely
compliant or that the failure to so comply would not have an adverse effect on
TRICOM's network. Furthermore, there can be no assurance that other
telecommunications providers will not experience material business disruptions
that could affect TRICOM as a result of the Year 2000 Issue. TRICOM plans to
complete communications with important international carriers and providers of
international connectivity as to their Year 2000 readiness in the second quarter
of 1999. The communications to date from such third parties to TRICOM's
inquiries do not indicate that these third parties expect, at this time, to be
non-compliant by the Year 2000 based on their progress to date. However, the
inability of a substantial number of third parties to complete their Year 2000
resolution process could materially impact TRICOM. For example, the failure of
satellite circuits or international gateway switches to function properly as a
result of the Year 2000 Issue could cause significant disruptions in TRICOM's
ability to generate revenues, which could have a material adverse effect on
TRICOM's results of operations and financial condition.
TRICOM is developing a contingency plan in case of failure of its
information technology systems and anticipates that it will have tested such
plan by the second quarter of 1999. In the event TRICOM's vendors or the
telecommunications networks with which it connects do not expect to be Year 2000
compliant, TRICOM's contingency plan may include replacing such vendors or
conducting the particular operations itself.
TRICOM's schedule for completing its Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources, and
other factors. Estimates on the status of completion and the expected completion
dates are based on progress to date compared to the timetable established by its
management. TRICOM has not employed the services of independent contractors to
verify TRICOM's assessment and estimates related to the Year 2000 problem. There
can be no guarantee that these estimates will be achieved and actual results
could differ materially from these plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes and similar uncertainties.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion about market risks to certain financial
instruments of the Company includes "forward-looking" statements that involve
risks and uncertainties. Actual results could differ materially from those
projected in the forward-looking statements.
The Company is exposed to market risks from adverse changes in interest
rates and foreign exchange rates. TRICOM does not engage in speculative or
leveraged transactions, nor does the Company hold or issue financial instruments
for trading purposes. In addition, TRICOM does not engage in any interest rate
or foreign currency exchange rate hedging transactions.
INTEREST RATE RISK
TRICOM's interest expense is sensitive to changes in the general level of
interest rates in the United States and in the Dominican Republic. At March 31,
1999, TRICOM had outstanding US$200 million aggregate principal amount of
long-term debt, representing TRICOM's Senior Notes. The Senior Notes bear
interest at 11 3/8% per annum and mature in the year 2004. The fair value of
such Senior Notes was approximately US$164 million and US$185 million at
December 31, 1998 and March 31, 1999, respectively.
TRICOM's primary exposure to market risk for changes in interest rates
relates to its short-term borrowings from Dominican banks. At December 31, 1998
and March 31, 1999, the Company had US$47.3 million and US$47.0 million,
respectively, of short-term borrowings, including trade finance, outstanding
from Dominican and international banks mostly denominated in US$ dollars. During
the 1999 First Quarter, the Company's short-term borrowings bore interest at
rates ranging from 9.5 % to 12% per annum, except for borrowings denominated in
Dominican pesos which bore annual interest at 21 %. A 10% increase in the
average rate for TRICOM's short-term debt would have decreased the Company's
1999 First Quarter net income by approximately US$52,000.
The amount of short-term debt discussed above excludes US$32 million
aggregate principal amount of industrial revenue bonds which mature in September
1999. TRICOM has deposited irrevocably funds with the trustee of such bonds in
an amount sufficient to pay all accrued interest and principal at maturity.
FOREIGN EXCHANGE RISKS
The Company is subject to currency exchange risks. During the 1999 First
Quarter, TRICOM generated revenues of US$13.0 million in US dollars and US$21.8
million in Dominican pesos. In addition, at March 31, 1999, the Company had
US$43.9 million of US dollar denominated debt and approximately US$3.1 million
of Dominican peso denominated debt outstanding. At March 31, 1999, TRICOM had an
indexed debt to the dollar of RD$35.0 million at a contracted exchange rate of
RD$15.50 per US$1.00, resulting in a obligation of US$2.3 million.
Dominican foreign exchange regulations require TRICOM and other
telecommunications companies to convert all of its US dollar revenues into
Dominican pesos at the official exchange rate, and it must purchase US dollars
at the private market exchange rate. Although the official exchange rate now
fluctuates and is tied to the private market rate, the official exchange rate
tends to be lower than the private market rate. During 1999 First Quarter, the
average official exchange rate was RD$ 15.70 per US$1.00 while the average
private market rate was RD$ 16.03 per US$1.00.
The Company's functional currency is the US dollar and, as a result, it
must translate the value of Dominican peso-denominated assets into US dollars
when compiling its financial statements. This translation can create foreign
exchange gains or losses depending upon fluctuations in the relative value of
the Dominican peso against the US dollar. During the 1999 First Quarter, TRICOM
recognized an approximate US$165,000 foreign exchange gain. If the Dominican
peso had devalued by an additional 10% against the US dollar on average during
the 1999 First Quarter, then TRICOM would have realized a foreign exchange gain
of US$182,000.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party, other than
routine litigation incidental to the business of the Company which is not
otherwise material to the business or financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K
(a) Exhibits.
None.
(b) Reports on Form 6-K.
The Company filed with the Securities and Exchange Commission a
Report on Form 6-K on January 19, 1999 reporting the Company's
residential service rates increase, a Report on Form 6-K on
February 2, 1999 reporting the results of operations for the
three-month period and year ended December 31, 1998, and a Report
on Form 6-K on April 23, 1999 reporting the results of operations
for the three-month period ended March 31, 1999.
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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.
TRICOM, S.A
Dated: May 17, 1999 By: /s/ Carl H. Carlson
-------------------
Carl H. Carlson
Executive Vice President
and Member of the
Office of the President
