Type: 10Q
Sequence: 1
Descritpion: Form 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED
SEPTEMBER 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBERS: 333-57715 and
333-57715-01 through 06
TRITON PCS, INC.
TRITON PCS OPERATING COMPANY L.L.C.
TRITON PCS LICENSE COMPANY L.L.C.
TRITON PCS EQUIPMENT COMPANY L.L.C.
TRITON PCS PROPERTY COMPANY L.L.C.
TRITON PCS HOLDINGS COMPANY L.L.C.
TRITON MANAGEMENT COMPANY, INC.
375 TECHNOLOGY DRIVE
MALVERN, PA 19355
(610) 651-5900
Delaware 23-2930873
Delaware 23-2941874
Delaware 23-2941874
Delaware 23-2941874
Delaware 23-2941874
Delaware 23-2941874
Delaware 23-2940271
(STATE OR OTHER JURISDICTIONS (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBERS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
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 ______
TRITON PCS, INC.
THIRD QUARTER REPORT
Table of Contents
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1999
(unaudited) and December 31, 1998
Consolidated Statements of Operations and Comprehensive Loss
(unaudited) for the three and nine months ended September
30, 1999 and 1998
Consolidated Statements of Cash Flows (unaudited) for the
nine months ended September 30, 1999 and 1998
Notes to the Consolidated Financial Statements (unaudited)
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
PART II Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
Exhibit 27 Financial Data Schedule
PART I. Financial Information
Item I. Financial Statements
TRITON PCS, INC.
CONSOLIDATED BALANCE SHEETS
($000s)
December 31, September 30,
1998 1999
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $146,172 $ 50,931
Marketable securities 23,612 -
Due from related party 951 751
Accounts receivable, net of
allowance for doubtful accounts
of $1,071and $451, respectively 3,102 16,032
Inventory 1,433 6,822
Prepaid expenses and other current assets 4,369 7,004
-------- ---------
Total current assets 179,639 81,540
Property, plant, and equipment:
Land 313 313
Network infrastructure and equipment 34,147 201,226
Office furniture and equipment 17,642 26,953
Capital lease asset 2,263 4,567
Construction in progress 145,667 113,852
-------- ---------
200,032 346,911
Less accumulated depreciation (1,079) (17,486)
-------- ---------
Net property and equipment 198,953 329,425
Intangible assets, net 307,361 318,370
Deferred transaction costs 906 430
Other long term assets - 2,944
-------- ---------
Total assets $686,859 $732,709
======== =========
LIABILITIES AND SHAREHOLDERS EQUITY:
Current liabilities:
Accounts payable $25,256 $28,071
Accrued payroll & related expenses 3,719 9,072
Accrued expenses 3,646 10,842
Accrued interest 545 638
Capital lease obligation 281 838
Deferred gain on sale - 1,190
-------- ---------
Total current liabilities 33,447 50,651
Long-term debt 463,648 500,975
Capital lease obligation 2,041 3,417
Deferred gain on sale - 30,940
Deferred income taxes 11,744 11,744
Shareholders Equity:
Common stock, $.01 par value,
1,000 shares authorized, 100 shares
issued and outstanding - -
Additional paid-in capital 217,050 280,786
Deferred compensation (4,370) (17,836)
Accumulated deficit (36,701) (127,968)
-------- ---------
Total shareholders equity 175,979 134,982
-------- ---------
Total liabilities & shareholders equity $686,859 $732,709
======== =========
See accompanying notes to consolidated financial statements.
TRITON PCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($000s)
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1999 1998 1999
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Service revenues $ 5,656 $19,887 $5,656 $37,516
Roaming revenues 2,718 14,226 2,718 27,210
Equipment revenues 431 9,000 431 16,629
-------- -------- ------- --------
Total revenue 8,805 43,113 8,805 81,355
Expenses:
Cost of service 2,487 19,749 3,167 38,202
Cost of equipment 770 14,677 770 27,494
Selling and marketing 665 17,237 793 38,376
General and administrative 5,011 11,119 9,385 28,558
Non-cash compensation 33 1,390 339 2,325
Depreciation and
amortization 2,977 11,278 4,326 27,247
-------- -------- ------- --------
Loss from operations 3,138 32,337 9,975 80,847
Interest and other expense,
net of capitalized
interest 11,723 7,388 21,594 26,242
Interest and other income 4,147 1,488 6,886 4,140
Gain on sale of
property and equipment - 11,682 - 11,682
-------- -------- -------- --------
Loss before taxes 10,714 26,555 24,683 91,267
Income tax benefit 4,059 - 10,861 -
-------- -------- -------- --------
Net loss and comprehensive
loss $6,655 $26,555 $13,822 $91,267
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
TRITON PCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000s)
Nine Months
Ended
September 30,
1998 1999
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(13,822) $(91,267)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 4,326 27,248
Deferred income taxes (10,861) -
Accretion of interest 14,603 27,808
Gain on sale of marketable securities - (1,004)
Gain on sale of property and equipment - (11,682)
Non-cash compensation 339 2,325
Change in operating assets and liabilities:
Accounts receivable (1,716) (12,930)
Inventory (54) (5,389)
Prepaid expenses and other current assets (531) (2,291)
Other long term assets - (3,158)
Accounts payable 2,659 (12,245)
Accrued payroll and liabilities 2,387 11,983
Accrued interest 2,543 93
-------- --------
Net cash used in operating activities (177) (70,509)
Cash flows from investing activities:
Capital expenditures (33,245) (162,661)
Proceeds from sale of property and
equipment, net - 69,712
Proceeds from maturity of short
term investments - 47,855
Purchase of marketable securites - (23,239)
Myrtle Beach acquisition, net of
cash acquired (163,853) -
-------- -------
Net cash used in investing activities (197,098) (68,333)
Cash flows from financing activities:
Borrowings under credit facility 150,000 10,000
Borrowings on subordinated debt 291,000 -
Capital contributions from parent 68,347 37,513
Payment of deferred transaction costs (11,822) (3,826)
Advances to related party, net (123) 200
Principal payments under capital
lease obligations (18) (286)
-------- -------
Net cash provided by financing activities 497,384 43,601
-------- -------
Net increase (decrease) in cash 300,109 (95,241)
Cash and cash equivalents, beginning of period 11,362 146,172
-------- -------
Cash and cash equivalents, end of period $311,471 $50,931
======== =======
See accompanying notes to consolidated financial statements.
TRITON PCS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements are
unaudited and have been prepared by management. In the
opinion of management, these consolidated financial
statements contain all of the adjustments, consisting of
normal recurring adjustments, necessary to present fairly,
in summarized form, the financial position and the results
of operations of Triton PCS, Inc. (Triton or the Company).
The results of operations for the three and nine months
ended September 30, 1999 are not indicative of the results
that may be expected for the year ending December 31, 1999.
The financial information presented herein should be read in
conjunction with the combined financial statements for the
year ended December 31, 1998 which include information and
disclosures not included herein.
Triton PCS, Inc. is a wholly owned subsidiary of Triton PCS
Holdings, Inc. (Holdings). The consolidated accounts of
the Company include Triton PCS, Inc. and wholly owned
subsidiaries. All significant intercompany accounts or
balances have been eliminated in consolidation.
Certain reclassifications have been made to prior period
financial statements to conform to the current period
presentation.
(2) New Accounting Pronouncements
On July 8, 1999, the Financial Accounting Standards Board
(FASB) issued SFAS No. 137, Deferral of the Effective Date
of FAS 133 which defers the effective date of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
to all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company is currently evaluating the
financial impact of adoption of SFAS No. 133. The adoption
is not expected to have a material effect on the Companys
consolidated results of operations, financial position, or
cash flows.
(3) Capital Contributions
On February 4, 1998, pursuant to the Securities Purchase
Agreement, Holdings issued $140.0 million of equity to
certain institutional investors and management stockholders
in exchange for irrevocable capital commitments and
contributions aggregating $140.0 million, $80.0 million of
which has been contributed to date. The $60.0 million
balance of the unfunded commitments are expected to be
contributed by November 30, 1999.
The Securities Purchase Agreement provides that the initial
cash contributions and the unfunded commitments be made to
Holdings. Holdings has directed that all cash
contributions subsequent to the initial cash contributions
be made directly to the Company.
(4) Stock Compensation
On August 9, 1999 Holdings granted, through the trust,
356,500 shares of restricted common stock to certain
management employees. These shares are subject to vesting
provisions. Deferred compensation of approximately $5.1
million was recorded based on the estimated fair value at
the date of issuance.
In September 1999, Holdings sold to certain directors and
an officer, subject to stock purchase agreements, an
aggregate of 3,400 shares of Holdings Series C preferred
stock for a purchase price of $100.00 per share.
Compensation expense of $0.8 million was recorded based on
the excess of the estimated fair value at the date of
issuance over amounts paid.
(5) Credit Facility
On February 3, 1998, the Company entered into a bank credit
facility for an aggregate amount of $425.0 million of
borrowings. On September 22, 1999 the Company entered into
an amendment to the bank credit facility under which the
credit available was increased to $600.0 million. This
credit facility provides for (i) a $175 million, eight and
one-half year Tranche A term loan, (ii) a $150 million, nine
and one-quarter year Tranche B term loan (iii) a $175
million, eight and one-half year Tranche C term and (iv) a
$100 million, eight and one-half year revolving credit
facility. The commitment to make revolving credit loans is
reduced automatically beginning on August 3, 2004 and the
term loans must be repaid beginning on February 3, 2002. In
addition, the credit facility requires the Company to make
mandatory prepayments of outstanding borrowings under the
credit facility commencing with the fiscal year ending
December 31, 2001 based on a percentage of excess cash flow,
and contains customary financial and other covenants. To
date, $150 million of the Tranche B term loans have been
drawn by the Company, which are expected to fund the
Companys future operations. In addition, $10.0 million of
the revolving credit facility were drawn by the Company in
September to temporarily fund the Companys operations.
Borrowings under the facilities are secured by a first
priority pledge of all assets of the Company, including the
capital stock of the Company and its subsidiary that holds
the PCS licenses.
(6) Sale of Fixed Assets and Sale Leaseback
On September 22, 1999, Triton PCS, Inc. sold and transferred
to American Tower Inc., a subsidiary of American Tower
Company (ATC), 187 of its towers, related assets and certain
liabilities. The purchase price was $71.1 million,
reflecting a price of $380,000 per site. Triton PCS, Inc.
has agreed to contract with ATC for additional 100 build-to-
suit towers in addition to its current contracted 125 build-
to-suit towers, and to extend its current agreement for
turnkey services for co-location sites through 2001. In
addition, Triton PCS, Inc. expects to receive an additional
$1.52 million upon the construction and sale to ATC of four
additional tower facilities. An affiliate of an investor
has acted as the Companys financial advisor in connection
with the sale of the Companys personal communication tower.
The Company has also enter into a master lease agreement
with ATC, in which the Company has agreed to pay ATC monthly
rent for the continued use of the space that the Company
occupied on the towers prior to the sale. The initial term
of the lease is for 12 years and the monthly rental amount
is subject to certain escalation clauses over the life of
the lease and related options. Annual payments under the
operating lease are $2.7 million.
The carrying value of towers sold was $25.7 million. After
$1.6 million of selling costs, the gain on the sale of the
towers is approximately $43.8 million, of which $11.7
million was recognized immediately, and $32.1 million was
deferred and will be recognized over operating leases term.
(7) Subsequent Events
On October 28, 1999 the Holdings completed an initial public
offering and raised approximately $192.5 million, net of
$14.5 million costs. Holdings subsequently contributed all
funds to the Company. The Company expects to use the
proceeds for general corporate purposes, including capital
expenditures in connection with the expansion of our
personal communication services network, sales and marketing
activities, and working capital.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q and in future filings by the Company
with the SEC, in the Companys press releases and in oral
statements made with the approval of an authorized executive
officer of the Company, the words or phrases will likely result,
management expects or the Company expects, will continue, is
anticipated, estimated or similar expressions (including
confirmations by an authorized executive officer of the Company
or any such expressions made by a third party with respect to the
Company) are intended to identify forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Readers are cautioned not to place undue reliance on
any such forward-looking statements, each of which speaks only as
of the date made. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ
materially from historical earnings and those presently
anticipated or projected. The Company has no obligation to
release publicly the result of any revisions, which may be made
to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of
such statements.
GENERAL
The following discussion and analysis is based upon the
consolidated financial statements of the Company for the periods
presented herein, and should be read in conjunction with the
combined financial statements or the Company as of December 31,
1998 and for the year then ended.
OVERVIEW
The Company was incorporated in October 1997. In February 1998,
the Company entered into a joint venture with AT&T whereby AT&T
contributed personal communications services licenses covering 20
MHz of authorized frequencies in a contiguous geographic area
encompassing portions of Virginia, North Carolina, South
Carolina, Tennessee, Georgia and Kentucky. As part of this
agreement, AT&T became the largest equity holder, and the Company
was granted the right to be the exclusive provider of wireless
mobility services using equal emphasis co-branding with AT&T in
the licensed markets.
On June 30, 1998, the Company acquired an existing cellular
system serving Myrtle Beach, South Carolina and the surrounding
area from Vanguard Cellular Systems of South Carolina, Inc. This
transaction was accounted for as a purchase. In connection with
this acquisition, the Company began commercial operations and
earning recurring revenue in July 1998. The Company integrated
the Myrtle Beach system into our personal communications services
network as part of the Phase I network deployment. Substantially
all of the Companys revenues prior to 1999 were generated by
cellular services provided in Myrtle Beach. The results of
operations do not include the Myrtle Beach system prior to our
acquisition of that system.
The Company began generating revenues from the sale of personal
communications services in the first quarter of 1999 as part of
Phase I of our personal communications services network build-
out. The personal communications services network build-out is
scheduled for three phases. The Company completed the first phase
of our build-out in the first half of 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1998
Customer Analysis
The Companys number of customers increased to 129,616 at
September 30, 1999. For the three months ended September 30,
1999, the Company added 51,252 customers, which was primarily
related to 15 markets launched as part of Phase I network build-
out.
Revenues
Service revenues were $19.9 million and $5.7 million for the
three months ended September 30, 1999 and 1998, respectively.
Equipment revenues were $9.0 million and $0.4 million, for the
three months ended September 30, 1999 and 1998, respectively.
The $14.2 million increase in service revenues and $8.6 million
in equipment revenues over the same period in 1998 were primarily
related to launching 15 markets as part of Phase I network build-
out. Roaming revenues were $14.2 million and $2.7 million for
the three months ended September 30, 1999 and 1998, respectively.
The $11.5 million increase over the same period in 1998 was due
primarily from our launched markets.
Cost of Service and Equipment
Cost of service and equipment were $34.4 million and $3.3 million
for three months ended September 30, 1999 and 1998, respectively.
The increase of $31.1 over the same period in 1998 was primarily
related to launching 15 markets as part of the Phase I network
build-out.
Selling and Marketing Expenses
Selling and marketing costs were $17.2 million and $0.7 for three
months ending September 30, 1999 and 1998, respectively. The
increase of $16.5 million over the same period in 1998 was due to
higher salary and benefits expenses for new sales and marketing
staff and advertising and promotion associated with launching 15
markets as part of completing our Phase I network build-out.
General & Administrative Expenses
General and administrative expenses were $11.1 million and $5.0
for three months ended September 30, 1999 and 1998, respectively.
The increase of $6.1 million over the same period in 1998 was
primarily due to the development and growth of infrastructure and
staffing related to information technology, customer care and
other administrative functions incurred in conjunction with
launching 15 markets.
Depreciation & Amortization Expenses
Depreciation and amortization expenses were $11.3 million and
$3.0 for three months ended September 30, 1999 and 1998,
respectively. The increase of $8.3 million over the same period
in 1998 relates primarily to depreciation of our fixed assets, as
well as the amortization on personal communications services
licenses and the AT&T agreements upon the commercial launch of
our Phase I markets.
Non-cash Compensation
Non-cash compensation was $1.4 million and $0.1 million for three
months ended September 30, 1999 and 1998, respectively. This
increase of $1.3 million over the same period in 1998 was
attributable to an increase in the vesting of restricted shares
as compared to the same period in 1998 and the issuance of
additional shares to certain management employees and directors.
Interest Expense & Income
Interest expense was $7.4 million, net of capitalized interest of
$5.7 million, for the three months ended September 30, 1999.
Interest expense was $11.7 million, net of capitalized interest
of $0.5 million, for the three months ended September 30, 1998.
The decrease of $4.3 million over the same peiod in 1998 is
attributable to an increase in capitalized interest of $5.2
million due to higher capital expenditures, offset by an increase
in interest expense of $0.8 million. The Company capitalizes the
interest expense on debt incurred to build out our network until
the applicable asset is placed in service. The Company had
borrowings of $501.0 million as of September 30, 1999, with a
weighted average interest rate of 10.12%.
Interest income was $1.5 million and $4.1 million for the three
months ended September 30, 1999 and 1998 respectively. The
decrease of $2.6 million over the same period in 1998 was due
primarily to lower cash balances.
Net Income
For the three months ended September 30, 1999, the net loss was
$26.6 million as compared to $6.7 million for the same period in
1998. The increase of $19.9 million over the same period in 1998
resulted primarily from the items discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998
Customer Analysis
The Companys number of customers increased to 129,616 at
September 30, 1999. For the nine months ended September 30,
1999, the Company added 95,772 customers, primarily related to
the launch of 15 markets included in the completion of the
Companys initial build-out.
Revenues
For nine months ended September 30, 1999 and 1998, service
revenues were $37.5 million and $5.7 million, respectively. For
nine months ended September 30, 1999 and 1998, equipment revenues
were $16.6 million and $0.4 million, respectively. The $31.8
million increase in service revenues and $16.2 million increase
for equipment revenues over the same period in 1998 were
primarily the result of launching 15 markets as part of
completing the Phase I network build-out. In addition, the
Company generated no revenue for the six months ended June 30,
1998. Roaming revenues were $27.2 million and $2.7 million for
the nine months ended September 30, 1999 and 1998, respectively.
The increase of $24.5 million over the same period in 1998 was
due primarily from our launched markets.
Cost of Service and Equipment
For nine months ended September 30, 1999 and 1998 cost of service
and equipment were $65.7 million and $3.9 million, respectively.
The increase of $61.8 million over the same period in 1998 was
primarily related to launching 15 markets as part of the Phase I
network build-out. In addition, there were not cost of service
and equipment for the six months ended June 30, 1998.
Selling and Marketing Expenses
For nine months ending September 30, 1999 and 1998 selling and
marketing costs were $39.4 million and $0.8 million,
respectively. The increase of $38.6 million increase over the
same period in 1998 was due to higher salary and benefits
expenses for new sales and marketing staff and advertising and
promotion associated with launching 15 markets as part of
completing our Phase I network build-out
General & Administrative Expenses
General and administrative expenses were $27.5 million and $9.4
million for the nine months ended September 30, 1999 and 1998,
respectively. The increase of $18.1 million over the same
period in 1998 was due to the development and growth of
infrastructure and staffing related to information technology,
customer care and other administrative functions incurred in
conjunction with the commercial launch of our first 15 markets
during 1999.
Non-cash Compensation
Non-cash compensation was $2.3 million and $0.3 million for the nine
months ended September 30, 1999 and 1998, respectively. The increase
of $1.3 million over the same period in 1998 was attributable to an
increase in the vesting of restricted shares as compared to the same
period in 1998 and the issuance of additional shares to certain management
employees and directors.
Depreciation & Amortization Expense
Depreciation and amortization expense was $27.2 million and $4.3
million for the nine months ended September 30, 1999 and 1998,
respectively. The increase of $22.9 million over the same period
in 1998 relates primarily to depreciation on equipment launched
in our 15 markets and the amortization of licenses put into
service related to the Companys initial build-out and
amortization attributable to certain agreements acquired in the
AT&T transaction.
Interest Expense & Income
For the nine months ended September 30, 1999, interest expense
was $26.2 million, net of capitalized interest of $12.9 million.
For the nine months ended September 30, 1998, interest expense
was $21.6 million, net of capitalized interest of $0.8 million.
The increase of $4.6 million over the same period in 1998 is
primarily due to increased borrowings for the network build-out.
The Company had borrowings of $501.0 million as of September 30,
1999, with a weighted average interest rate of 10.07%.
Interest income was $4.1 million and $6.9 million for nine months
ended September 30, 1999 and 1998, respectively. The decrease of
$2.8 million over the same period in 1998 was the result of the
lower average available cash balance for the nine months ended
September 30, 1999 was $78.5 million, as compared to the $136.4
million for the same period in 1998. The reduction in available
cash was due primarily to capital expenditures related to the
network build-out.
Net Income
For the nine months ended September 30, 1999, the net loss was
$91.3 million as compared to $13.8 million for the same period in
1998. The net loss increased $77.5 million, resulting primarily
from the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had $50.9 million in cash
and cash equivalents, as compared to $146.2 million in cash and
cash equivalents at December 31, 1998. Net working capital was
$30.1 million at September 30, 1999 and $146.2 million at
December 31, 1998.
Net Cash Used in Operating Activities
The $70.5 million in cash used by operating activities arose
primarily from an increase in sales, marketing and operating
activities related to launching 14 new markets and the ongoing
establishment of the regional organization structures.
Net Cash Used in Investing Activities
The $68.3 million in cash used by investing activities arose from
the purchase of marketable securities of $23.2 million and
capital expenditures related to the network build-out of $162.7
million offset by the proceeds from the sale of towers of $69.8
million and the proceeds from the sale of short term investments
of $47.9 million.
Net Cash Provided by Financing Activities
The $43.6 million provided by financing activities arose from
$37.5 million in capital contributions from Holdings and $10.0
million draw down of the revolving credit line offset by $3.8
million of deferred transaction costs.
LIQUIDITY
Since inception, the Companys activities have consisted
principally of hiring a management team, raising capital,
negotiating strategic business relationships, participating in
personal communications services auctions,
initiating research and development, conducting market research,
developing our wireless services offering and network, and
launching our wireless services in our Phase I markets. The
Companys primary source of financing during this time has been
from borrowings under our credit facility and the net proceeds
from issuances of capital stock and senior subordinated discount
notes.
The construction of the network and the marketing and
distribution of wireless communications products and services has
required, and will continue to require, substantial capital.
These capital requirements include license
acquisition costs, capital expenditures for network construction,
operating cash flow losses and other working capital costs, debt
service and closing fees and expenses. The Company has incurred
significant amounts of debt to implement the business plan, and
therefore the Company is highly leveraged. The Company estimates
that our total capital requirements, assuming substantial
completion of our network build-out, which will allow us to
provide services to 100% of the potential customers in the
licensed area, from the Companys inception until December 31,
2001 will be approximately $1.3 billion.
Costs associated with the network build-out include switches,
base stations, towers and antennae, radio frequency engineering,
cell site acquisition and construction and microwave relocation,
and include $95.6 million of capital expenditures related to
purchase commitments as part of the agreement with Ericsson. The
actual funds required to build out our personal communications
services network may vary materially from these estimates, and
additional funds could be required in the event of significant
departures from the current business plan, in the event of
unforeseen delays, cost overruns, unanticipated expenses,
regulatory expenses, engineering design changes and
other technological risks.
The Company has funded, and expects to continue to fund, our
capital requirements with:
. the proceeds from equity investments by our shareholders and
from additional irrevocable equity commitments
by our shareholders;
. borrowings under our credit facility;
. the proceeds from an offering of senior subordinated discount
notes in 1998;
. the proceeds from the sale of our towers; and
. the proceeds from Holdings offering.
The Company believes that with the available credit facility
borrowings, the equity investments that have been committed to us
and proceeds from the tower sale will be sufficient to meet our
projected capital requirements through the end of 2001. Although
the Company estimates that these funds will be sufficient to
build-out our network and to enable us to provide services to
100% of the customers in our licensed area, it is possible that
additional funding will be necessary.
Equity Contributions
As part of the joint venture agreement with AT&T, AT&T
transferred personal communications services licenses covering 20
MHz of authorized frequencies in exchange for 732,371 shares for
Holdings Series A preferred stock and 366,131 shares of Holdings
Series D preferred stock. The Series A preferred stock provides
for cumulative dividends at an annual 10% rate on the $100
liquidation value per share plus unpaid dividends. These
dividends accrue and are payable quarterly; however, Holdings may
defer all cash payments due to the holders until June 30, 2008 and
quarterly dividends are payable in cash thereafter. The Series A
preferred stock is redeemable at the option of its holders beginning
in 2018 and at our option, at its accreted value, on or
after February 4, 2008. Holdings may not pay dividends on, or,
subject to specified exceptions, repurchase shares of, common
stock without the consent of the holders of the Series A
preferred stock. The Series D preferred stock provides for
dividends when, as and if declared by our board of directors and
contains limitations on the payment of dividends on the common
stock.
In connection with the consummation of the joint venture with
AT&T, Holdings received unconditional and irrevocable equity
commitments from institutional equity investors, as well as
Michael Kalogris and Steven Skinner, in the aggregate amount of
$140.0 million in return for the issuance of 1.4 million shares
of Series C preferred stock. As of September 30, 1999, $80.0
million of these equity commitments had been funded. Holdings
expectsWe expect that the remaining equity commitments will be
funded by November 30, 1999. The Series C preferred stock
provides for dividends when, as and if declared by our board of
directors and contains limitation on the payment of dividends on
common stock.
Holdings also received equity contributions from our stockholders
in the aggregate amount of $35.0 million in return for the
issuance of 350,000 shares of Series C preferred stock in order
to fund a portion of our acquisition of an existing cellular
system in Myrtle Beach, South Carolina. In addition, Holdings
received equity contributions from stockholders in the aggregate
amount of approximately $30.1 million in return for the issuance
of 165,187 shares of Series C preferred stock and 134,813 shares
of Series D preferred stock in order to fund a portion of our
Norfolk license acquisition.
On June 8, 1999, the Company completed an exchange of licenses
with AT&T. We transferred licenses covering the Hagerstown and
Cumberland, Maryland areas and received licenses covering the
Savannah and Athens, Georgia areas. Holdings issued to AT&T
53,882 shares of our Series A preferred stock and 42,739 shares
of Series D preferred stock in connection with this exchange.
Credit Facility
On February 3, 1998, the Company entered into a loan agreement
that provided for a senior secured bank facility with a group of
lenders for an aggregate amount of $425.0 million of borrowings.
On September 22, 1999, the Company entered into an amendment to
that loan agreement under which the amount of credit available to
us was increased to $600.0 million. The bank facility provides
for:
. a $175.0 million senior secured Tranche A term loan maturing
on August 4, 2006;
. a $150.0 million senior secured Tranche B term loan maturing
on May 4, 2007;
. a $175.0 million senior secured Tranche C term loan maturing
on August 4, 2006; and
. a $100.0 million senior secured revolving credit facility
maturing on August 4, 2006.
The terms of the bank facility will permit the Company, subject
to various terms and conditions, including compliance with
specified leverage ratios and satisfaction of build-out and
subscriber milestones, to draw up to $600.0 million to finance
working capital requirements, capital expenditures, permitted
acquisitions and other corporate purposes. Borrowings under these
facilities are subject to customary conditions, including the
absence of material adverse changes.
The Company must begin to repay the term loans in quarterly
installments, beginning on February 4, 2002, and the commitments
to make loans under the revolving credit facility are
automatically and permanently reduced beginning on August 4,
2004. In addition, the credit facility requires the Company to
make mandatory prepayments of outstanding borrowings under the
credit facility, commencing with the fiscal year ending December
31, 2001, based on a percentage of excess cash flow and contains
financial and other covenants customary for facilities of this
type, including limitations on investments and on our ability to
incur debt and pay dividends. As of September 30, 1999, the
Company had drawn $150.0 million under the Tranche B term loan
and $10.0 million under the revolving credit facility.
After giving effect to the amendment, the Company had an
additional $440.0 million available under our credit facility as
of September 30, 1999.
Tower Sale
On September 22, 1999 the Company sold 187 towers to American
Tower. The net proceeds from the sale were $69.7 million at the
closing, and we expect to receive an additional $1.5 million upon
our construction and sale to American Tower of four additional
tower facilities.
At the closing of the transaction, the parties entered into
certain other agreements, including:
. a master license and sublease agreement providing for our
lease of the tower facilities from American Tower;
. an amendment to an existing build-to-suit agreement between
the Company and American Tower providing for American Towers
construction of 100 additional tower sites that we will then
lease from American Tower; and
. an amendment to an existing site acquisition agreement
expanding the agreement to provide for American Tower
to perform site acquisition services for 70% of the tower
sites we develop through December 31, 2000.
The estimates that capital expenditures will total approximately
$300.0 million for the year ended December 31, 1999, and we have
incurred $162.7 million of capital expenditures in the six months
ended September 30, 1999.
INTEREST RATE RISK MANAGEMENT POLICIES
The Companys interest rate risk management program focuses on
minimizing exposure to interest rate movements, setting an
optimal mixture of floating and fixed rate debt, and minimizing
liquidity risk. To the extent possible, the Company manages
interest rate exposure and the floating and fixed ratio through
its borrowings, but sometimes uses interest rate swaps to adjust
its risk profile. The Company selectively enters into interest
rate swaps to manage interest rate exposure only.
YEAR 2000 DISCLOSURE
The year 2000 issue is the result of computer programs being
written using two digits rather than four digits to define the
applicable year. Computer programs that have time-sensitive
software may recognize a date using 00 as the year 1900 rather
than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations and a temporary
inability to process transactions, send invoices or engage in
normal business activities.
Currently, the Company is actively taking measures to eliminate
or mitigate the impact of any issues associated with the year
2000. To that end, the Company has established a project team
with senior management sponsorship to provide centralized
coordination for our year 2000 related activities. The Companys
program is divided into five major phases which we implemented
concurrently.
Awareness Phase. In the awareness phase the Company established
the guidelines for the year 2000 project and communicated this
information to the appropriate parties. The Company has completed
this phase.
Assessment Phase. In the assessment phase of the program the
Company defined the scope and level of effort for our project by
conducting an inventory of potentially date and time sensitive
applications. Upon completion of the Inventory, the Company
determined the compliance status and the actions that will be
required to bring non-conforming items into a conforming status.
Through this assessment and surveying process, the Company
identifying those remediation efforts necessary to ensure that
our systems and applications will continue to operate without
interruption prior to, during and after the year 2000. The
Company expects to complete the assessment phase fully by
November 1, 1999 and have completed the assessment for all
our mission critical systems and components. However, the
Company cannot assure that the information provided to us
by our vendors, suppliers and third-party providers, upon
whom we rely for our services, is accurate. As such, the Company
cannot guarantee that inaccurate information provided to us could
not have a material adverse effect upon our business.
The project team has substantially completed the inventory phase
and has made significant progress on completing the assessment
phase. The Company procured the majority of the software,
hardware and firmware deployed as part of our start-up operation
at the latest revision levels and the Company believes to be year
2000 capable, but our process requires a reverification of the
year 2000 readiness capabilities of our vendors, suppliers and
third party providers.
To date, the Companys assessments have shown that our main
switching and transmission is capable of correctly recognizing
and processing date sensitive information. This capability was
further demonstrated through inter-operability testing conducted
by the Cellular telecommunications Industry Association. In
addition to revealing the year 2000 readiness of the wireless
operational infrastructure, initial assessments of support system
providers have revealed some products and applications that are
not currently year 2000 compatible. In all the instances the
Company has identified to date, the suppliers of those products
or applications have asserted that their products will be
compliant in the third quarter of 1999.
Remediation Phase. The remediation phase of the program
encompasses the upgrade, modification or replacement of the non-
conforming systems and components. The remediation phase has
begun, and the Company will continue to conduct our remediation
program in parallel with our assessment phase to assure all
remediation is completed in a timely fashion. All systems that
were found to be non-compliant have either been remediated or are
in the process of remediation.
Validation Phase. Validation is the process used to ensure that
the systems and components will properly function prior to,
during and after the year 2000. The focus of the validation
efforts is on testing and analysis of
vendor supplied testing. The Company expects to complete all
mission critical testing and the validation phase by November 30,
1999. However, the Company cannot guarantee that the systems of
other companies which we rely on will be converted on a timely
basis or that another companys failure to convert would not have
a material adverse effect on our business.
Implementation Phase. The implementation phase of the project
involves the development and implementation of contingency plans.
The Company has begun the process of developing a comprehensive
set of contingency plans to address situations that may result if
we experience any disruptions of our critical operations due to
year 2000 related issues. The goal of the contingency plans is to
minimize the impact of any year 2000 interruptions as well as to
mitigate any resulting damages. The Company expects to have all
contingency plans for mission critical functions in place by
November 30, 1999 and plans for the remaining functions shortly
thereafter. The Company expects to complete the implementation
phase, as a whole, by November 30, 1999. The Company cannot
assure you that we will be able to develop contingency plans that
will adequately address issues that may arise due to year 2000
issues. The Companys failure to resolve such issues successfully
could result in a disruption of our service and operations, which
would have a material adverse effect on our business.
The Company estimates the costs associated with year 2000 issues
to be approximately $350,000, excluding internal costs, of which
we have spent $318,000 to date. These costs are not material to
our business operations or financial position. The costs of our
contingency plan and the date on which the Company believes we
will complete year 2000 modifications are based on managements
best estimates, which were derived utilizing numerous assumptions
regarding future events, including the continued availability of
certain resources, third-party modification plans and other
factors. The Company cannot assure you that we will achieve these
estimates, and actual results could differ materially from those
we anticipate.
INFLATION
The Company does not believe that inflation has had a material
impact on operations.
NEW ACCOUNTING PRONOUNCEMENTS
On July 8, 1999, the Financial Accounting Standards Board (FASB)
issued SFAS No. 137, Deferral of the Effective Date of FAS 133
which defers the effective date of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities to all fiscal
quarters of all fiscal years beginning after June 15, 2000. The
Company is currently evaluating the financial impact of adoption
of SFAS No. 133. The adoption is not expected to have a material
effect on the Companys consolidated results of operations,
financial position, or cash flows.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims
which arise in the ordinary course of its business. In
the opinion of management, the amount of ultimate
liability with respect to these actions will not
materially affect the financial position, results of
operations or liquidity of the Company
Item 4. Submission of Matters to a Vote of Security Holders
On September 22, 1999 the sole stockholder of Triton PCS, Inc.
(i.e., Triton PCS Holdings, Inc.), by written consent, approved
the execution by Triton PCS, Inc. of the Fifth Amendment (including
the First Amended and Restated Credit Agreement annexed thereto)
dated as of September 22, 1999 to the Credit Agreement dated as of
February 3, 1998 among Triton PCS Holdings, Inc., Triton PCS, Inc.
and Chase Manhattan Bank, N.A., as Administrative Agent on behalf
of the Lenders thereto.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereto duly authorized.
TRITON PCS, INC.
By: /S/ Michael E. Kalogris
Sole Director and CEO
Triton Management Company, Inc.
By: /S/ Michael E. Kalogris
Sole Director and CEO
By: /S/ David D. Clark
Senior Vice President & CFO
Triton PCS Holdings Company L.L.C.
By: Triton Management Compayany, Inc.
its manager
By: /S/ Michael E. Kalogris
Sole Director and CEO
Triton Property Company L.L.C. Inc.
By: Triton Management Company, Inc.
its manager
By: /S/ Michael E. Kalogris
Sole Director and CEO
Triton PCS Equipment Company L.L.C.
By: Triton Management Company Inc.
its management
By: /S/ Michael E. Kalogris
Sole Director and CEO
Triton Operating Company L.L.C.
By: Triton Management Company, Inc.
its
By: /S/ Michael E. Kalogris
Sole Director and CEO
Triton PCS License Company L.L.C.
By: Triton Management Company, Inc.
its management
By: /S/ Michael E. Kalogris
Sole Director and CEO
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