Type: 10-Q/Q
Sequence: 1
Descritpion: Form 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q/A
(Amendment No. 1)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE
30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBERS: 333-57715
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 COMPNAY 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 ORGANIZATIONS) 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.
SECOND QUARTER REPORT
Table of Contents
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1999 (unaudited) and
December 31, 1998
Consolidated Statements of Operations and Comprehensive Loss
(unaudited) for the three and six months ended June 30, 1999
and 1998
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 1999 and 1998
Notes to the Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and reports on From 8-K
27 Financial Data Schedule
PART I. Financial Information
Item I. Financial Statements
TRITON PCS, INC.
CONSOLIDATED BALANCE SHEET
($000s)
December 31, June 30,
1998 1999
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $146,172 $9,250
Marketable securities 23,612 37,058
Due from related party 951 1,021
Accounts receivable net of allowance
for doubtful accounts of
$1,071and $468 respectfully 3,102 18,287
Inventory 1,433 7,564
Prepaid expenses and other
current assets 4,288 6,001
Deferred income tax 81 81
-------- --------
Total current assets 179,639 79,262
Property, plant, and equipment:
Land 313 313
Network infrastructure and equipment 34,147 198,045
Office furniture and equipment 17,642 31,624
Capital lease asset 2,263 2,263
Construction in progress 145,667 71,836
-------- --------
200,032 304,081
Less accumulated depreciation (1,079) (10,375)
-------- --------
Net property and equipment 198,953 293,706
Intangible assets, net 307,361 318,381
Deferred transaction costs 906 1,124
Other long term assets - 2,000
-------- --------
Total assets $686,859 $694,473
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY:
Current liabilities:
Accounts payable $25,256 $28,824
Accrued payroll & related expenses 3,719 4,654
Accrued expenses 3,646 4,072
Accrued interest 545 779
Capital lease obligation 281 278
-------- --------
Total current liabilities 33,447 38,607
Long-term debt 463,648 481,650
Capital lease obligations 2,041 1,924
Deferred income taxes 11,744 11,744
Shareholder's Equity:
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding - -
Additional paid-in capital 217,050 274,528
Deferred compensation (4,370) (13,302)
Unrealized gains on securities - 735
Accumulated deficit (36,701) (101,413)
-------- --------
Total shareholder's equity 175,979 160,548
-------- --------
Total liabilities & shareholder's equity $686,859 $694,473
======== ========
See accompanying notes to consolidated financial statements.
TRITON PCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($000s)
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1999 1998 1999
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Service revenues $ - $11,152 $ - $17,662
Roaming revenues - 10,148 - 12,953
Equipment revenues - 5,402 - 7,627
------- -------- -------- -------
Total revenue - 26,702 - 38,242
Expenses:
Cost of service - 11,938 - 18,525
Cost of equipment - 9,212 - 12,816
Selling and marketing - 14,795 - 22,441
General and administrative 2,498 8,263 5,153 16,072
Non-cash compensation 295 526 306 936
Depreciation and amortization 1,086 10,458 1,114 15,969
------- -------- -------- -------
Loss from operations 3,879 28,490 6,573 48,517
Interest expense, net of
capitalized interest 9,566 8,847 9,872 18,847
Interest income 2,739 1,398 2,739 2,474
Other income, net - 134 - 178
------- -------- ------- -------
Loss before taxes 10,706 35,805 13,706 64,712
Tax benefit 3,956 - 6,803 -
------- -------- ------- -------
Net loss 6,750 35,805 6,903 64,712
Unrealized gains on securities - 735 - 735
------- -------- ------- -------
Comprehensive loss $6,750 $35,070 $6,903 $63,977
======= ======== ======= =======
See accompanying notes to consolidated financial statements.
TRITON PCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000s)
Six Months Ended
June 31,
1998 1999
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(6,903) $(64,712)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 1,114 15,969
Amortization of bond discount 104 307
Deferred income taxes (6,802) -
Accretion of interest 5,876 17,694
Non-cash compensation 306 936
Change in operating assets and liabilities:
Accounts receivable - (15,185)
Inventory - (6,131)
Prepaid expenses and other current assets (296) (1,713)
Other noncurrent assets - (2,196)
Accounts payable 2,400 3,568
Accrued expenses - 1,654
Accrued interest 4,013 234
--------- ---------
Net cash used in operating activities (188) (49,575)
Cash flows from investing activities:
Capital expenditures (9,754) (111,397)
Proceeds from maturity of short term investments - 9,793
Purchase of marketable securites - (22,504)
Myrtle Beach acquisition, net of cash acquired (162,475) -
--------- ---------
Net cash used in investing activities (172,229) (124,108)
Cash flows from financing activities:
Borrowings under credit facility 75,000 -
Borrowings on subordinated debt 291,000 -
Capital contributions from parent 68,347 37,169
Payment of deferred transaction costs (11,822) (218)
Advances to related party, net 38 (70)
Principal payments under capital
lease obligations - (120)
--------- ---------
Net cash provided by financing activities 422,563 36,761
--------- ---------
Net increase (decrease) in cash 250,146 (136,922)
Cash and cash equivalents, beginning of period 11,362 146,172
--------- ---------
Cash and cash equivalents, end of period $261,508 $9,250
========= =========
See accompanying notes to consolidated financial statements.
TRITON PCS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six
months ended June 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 Company's consolidated results of operations, financial
position, or cash flows.
(3) Savannah/Athens Exchange
One June 8, 1999, Triton completed an exchange of certain
licenses with AT&T, transferring licenses to the Hagerstown,
MD and Cumberland, MD Basic Trading Areas (BTAs) covering
512,000 potential customers in exchange for licenses to
certain counties in the Savannah, GA and Athens, GA BTAs,
which cover 517,000 potential customers. All acquired
licenses are continguous to Triton's existing service area.
In addition, consideration of approximately $10.4 million in
Holdings preferred stock was issued to AT&T. The licensed
areas in Savannah and Athens have not been built and are
expected to be included in the current build-out plan
developed for the Triton's existing footprint.
(4) 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 balance of the
unfunded commitments are to be contributed as follows:
$35.0 million on February 4, 2000 and $25.0 million on
February 4, 2001.
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.
(5) Subsequent Event
On July 13, 1999, Triton entered into an asset purchase
agreement pursuant to which Triton will sell and transfer to
American Towers L.P., a subsidiary of American Tower
Corporation (ATC), 192 of its towers, related assets and
certain liabilities. The purchase price is approximately
$72.8 million, reflecting a price of $380,000 per site. At
closing, Triton has agreed to contract with ATC for an
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.
The Company will also enter into a master lease agreement
with ATC, in which the Company has agreed to pay ATC monthly
rent of $1,200 per tower 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.
The closing of the sale is conditioned on the receipt of
regulatory approval and approval from our lenders.
(6) Financial Statement Adjustment
The Companys consolidated financial statements as of and
for the three and six month periods ended June 30, 1999 as
originally presented have been adjusted to reflect deferred
compensation related to the issuance of 32,175 shares of
common stock of Holdings to employees. In January 1999,
Holdings granted 2,685 shares of restricted common stock to
an employee and deferred compensation of $243,000 was
recorded in connection with the adjustment. In March 1999,
$139,000 of deferred compensation was forfeited by a
terminated employee. On June 8, 1999, Holdings issued 3,702
shares to certain employees as anti-dilutive protection
related to the capital contributions received by Holdings in
connection with the license exchange and acquisition transaction
resulting in the recording of deferred compensation of $1,225,000
in conjunction with the adjustment. On June 30, 1999, Holdings
granted 25,788 shares of restricted common stock to certain
employees resulting in the recording of deferred compensation
of $8,539,000 in conjunctin with the adjustment.
Deferred compensation will amortize into income over five
years, and $526,000 and $936,000 was amortized into income
for the three and six month periods ended June 30, 1999
respectively. The following is a reconciliation of the
adjusted amounts:
As originally
Presented Adjustment As Adjusted
($000s)
Balance Sheet at June 30, 1999:
Additional paid in capital $259,425 $15,103 $274,528
Accumulated deficit 99,366 2,047 101,413
Deferred compensation 255 13,047 13,302
Statement of Operations:
Three months ended June 30, 1999
Non-cash compensation $9 $517 $526
Net loss 35,289 517 35,805
Comprehensive loss 34,554 517 35,070
Three months ended June 30, 1998
Non-cash compensation - 295 295
Net loss 6,455 295 6,750
Six months ended June 30, 1999
Non-cash compensation 9 927 936
Net loss 63,785 927 64,712
Comprehensive loss 63,050 927 63,977
Six months ended June 30, 1998
Non-cash compensation - 306 306
Net loss 6,597 306 6,903
ITEM 2 MANAGEMENT'S 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 established by Michael Kalogris, Steven Skinner
and other former executives of Horizon Cellular Group, along with
AT&T and various equity investors. In February 1998, the Company
entered into a joint venture with AT&T, whereby the Company is
positioned as the exclusive provider of wireless mobility
services under the AT&T consumer brand name in certain areas of
the southeastern United States. The Company is also party to
agreements with AT&T that allow the Company to benefit from
AT&T's nationwide wireless footprint and promotional and
marketing efforts and provide the Company with favorable roaming
and long distance rates for services on AT&T's wireless and long
distance networks.
The Company is a leading provider of wireless broadband PCS
services in the southeastern United States. The Company provides
services in a contiguous area covering approximately 13 million
Pops, including such major population and business centers as
Charleston, SC, Columbia, SC, Greenville/Spartanburg, SC,
Norfolk, VA, Richmond, VA and Augusta, GA, as well as major
resort destinations such as Myrtle Beach, SC, Hilton Head, SC and
Kiawah Island, SC.
To date, the Company has incurred expenditures in connection with
the establishment of its business, raising capital, the initial
design and construction of its PCS network, and engineering,
marketing, administrative and other start-up related expenses.
The Company has completed its initial build-out. As of June 30,
1999, the Company has launched commercial service in 15 markets
serving approximately 8.7 million people. The Company has
continued the build-out of its licensed area, and intends to
target the remaining cities, connecting highway corridors and
counties along the interstates with population densities of 50 or
more per square mile. The extent to which the Company is able to
generate operating revenues and earnings is dependent on a number
of business factors, including construction of the network at or
below its estimated costs, successful deployment of the PCS
network and attainment of profitable levels of market demand for
the Companys products and services.
FINANCIAL STATEMENT ADJUSTMENT
The Companys consolidated financial statements as of and for the
three and six month periods ended June 30, 1999 as originally
presented have been adjusted to reflect deferred compensation
related to the issuance of 32,175 shares of common stock of
Holdings to employees. In January 1999, Holdings granted 2,685
shares of restricted common stock to an employee and deferred
compensation of $243,000 was recorded in connection with the
adjustment. In March 1999, $139,000 of deferred compensation
was forfeited by a terminated employee.On June 8, 1999, Holdings
issued 3,702 shares to certain employees as anti-dilutive protection
related to the capital contributions received by Holdings in
connection with the license exchange and acquisition transaction
resulting in the recording of deferred compensation of $1,225,000
in conjunction with the adjustment. On June 30, 1999, Holdings granted
25,788 shares of restricted common stock to certain employees
resulting in the recording of deferred compensation of $8,539,000
in conjunction with the adjustment. Deferred compensation will
amortize into income over five years, and $526,000 and $936,000
was amortized into income for the three and six month periods ended
June 30, 1999 respectively. The following is a reconciliation of
the adjusted amounts:
As originally
Presented Adjustment As Adjusted
($000s)
Balance Sheet at June 30, 1999:
Additional paid in capital $259,425 $15,103 $274,528
Accumulated deficit 99,366 2,047 101,413
Deferred compensation 255 13,047 13,302
Statement of Operations:
Three months ended June 30, 1999
Non-cash compensation $9 $517 $526
Net loss 35,289 517 35,805
Comprehensive loss 34,554 517 35,070
Three months ended June 30, 1998
Non-cash compensation - 295 295
Net loss 6,455 295 6,750
Six months ended June 30, 1999
Non-cash compensation 9 927 936
Net loss 63,785 927 64,712
Comprehensive loss 63,050 927 63,977
Six months ended June 30, 1998
Non-cash compensation - 306 306
Net loss 6,597 306 6,903
SAVANNAH / ATHENS EXCHANGE
On June 8, 1999, the Company completed an exchange of certain
licenses with AT&T, transferring licenses to the Hagerstown, MD
and Cumberland, MD BTAs covering 512,000 potential customers in
exchange for licenses to certain counties in Savannah, GA and
Athens, GA BTAs, which cover approximately 517,000 potential
customers. All acquired licenses are contiguous to the Companys
existing service area. In addition, consideration of
approximately $10.4 million in preferred stock of Triton PCS
Holdings, Inc, the Companys parent, was issued to AT&T. The
licensed areas in Savannah and Athens have not been built and are
expected to be included in the current build-out plan developed
for the Companys existing footprint.
SUBSEQUENT EVENT
On July 13, 1999, Triton PCS Inc. entered into an asset purchase
agreement pursuant to which Triton will sell and transfer to
American Towers L.P., a subsidiary of American Tower Corporation
(ATC), 192 of its towers, related assets and certain
liabilities. The purchase price is approximately $72.8 million,
reflecting a price of $380,000 per site. At closing, Triton has
agreed to contract with ATC for an 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.
The Company will also enter into a master lease agreement with
ATC, in which the Company has agreed to pay ATC monthly rent of
$1,200 per tower 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.
The closing of the sale is conditioned on the receipt of
regulatory approval and approval from our lenders.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1998
Customer Analysis
The Company's number of customers increased to 78,364 at June 30,
1999. For the three months ended June 30, 1999, the Company
added 34,586 customers, primarily related to the launch of seven
markets including the Richmond and Roanoke, Virginia BTAs,
marking the completion of the Company's initial build-out.
Service and Roaming Revenues
Service revenues were $11.2 million for the three months ended
June 30, 1999, which reflects the growth in our launched markets.
Roaming revenues were $10.1 million, generated primarily in our
launched markets.
Cost of Service
Cost of services includes the cost of interconnection, cell site
costs, roaming costs, toll costs, and supplementary services.
Costs of services were $11.9 million for the three months ended
June 30, 1999 resulting primarily from services provided in our
launched markets.
Cost to Acquire New Customers
Cost to acquire new customers includes equipment margins, selling
and marketing costs, and non-recurring launch related activities.
Equipment margins were a negative 71% on equipment revenues of
$5.4 million for the three months ended June 30, 1999. The
Company expects to continue subsidizing the cost of handsets to
consumers for the foreseeable future. Selling and marketing
costs were $14.8 million for the three months ended June 30,
1999, which includes advertising and promotion related to the
launches of the seven new markets.
General & Administrative Expenses
General and administrative expenses were $8.3 million for the
three months ended June 30, 1999, an increase of $5.8 million
over the same period in 1998. The increase was primarily a
result of increased personnel and office expenses associated with
the Company's corporate and regional headquarters, establishment
and operations of the Company's two customer care centers, costs
of operating the Company's internal information technology and
telecommunications infrastructure, and expenses related to
consultants and outside services in establishing the Company's
operations.
Non-cash compensation
Non-cash compensation was $0.5 and $0.3 million for the three
months ended June 30, 1999 and 1998. The increase of $0.2 million
over the same period in 1998 was attributable to an increase in the
vesting of restriced shares as compared to the same period in 1998
and the issuance of additional shares to certain management employees.
Depreciation & Amortization Expenses
For the three months ended June 30, 1999, depreciation and
amortization expense was $10.5 million. This amount relates
primarily to depreciation on equipment and the amortization of
licenses in service during the second quarter, including the
depreciation of equipment put into service in the seven markets
launched during the second quarter.
Interest Expense & Income
For the three months ended June 30, 1999, interest expense was
$8.8 million, net of capitalized interest of $4.3 million, a
decrease of $0.7 million or 8% over the same period in 1998. The
decrease is attributable to an increase in capitalized interest
of $4.1 million due to higher capital expenditures, offset by an
increase in interest expense of $3.4 million as compared to the
same period in 1998. The Company had borrowings of $481.7
million as of June 30, 1999, with a weighted average interest
rate of 10.02%.
For the three months ended June 30, 1999, interest income was
$1.4 million, a decrease of $1.3 million or 49% as compared to
the same period in 1998. The average available cash balance for
the three months ended June 30, 1999 was $55.5 million, as
compared to $181.3 million for the same period in 1998. The
reduction in available cash is due primarily to capital
expenditures related to the network build-out.
Net Income
For the three months ended June 30, 1999, the net loss was $35.8
million as compared to $6.8 million for the same period in 1998.
The net loss increased $29.0 million, resulting primarily from
the items discussed above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1998
Customer Analysis
The Company's number of customers increased to 78,364 at June 30,
1999. For the six months ended June 30, 1999, the Company added
44,520 customers, primarily related to the launch of 14 markets
included in the completion of the Company's initial build-out.
Service and Roaming Revenues
Service revenues were $17.7 million for the six months ended June
30, 1999, which reflects growth in our 14 launched markets during
1999. Roaming revenues were $13.0 million, generated primarily
from the launched markets.
Cost of Service
Costs of services includes the cost of interconnection, cell site
costs, roaming validation, toll costs, and supplementary
services. Costs of services were $18.5 million for the six
months ended June 30, 1999, resulting primarily from the 14
market launches, marking the completion of the Company's initial
build-out.
Cost to Acquire New Customers
Costs to acquire new customers includes equipment margins,
selling and marketing costs, and non-recurring launch related
activities. Equipment margins were a negative 68% on equipment
revenues of $7.6 million for the six months ended June 30, 1999.
The Company expects to continue subsidizing the cost of handsets
to consumers for the foreseeable future. Selling and marketing
costs were $22.4 million for the six months ended June 30, 1999,
which includes advertising and promotion related to the launches
of the 14 launched markets.
General & Administrative Expenses
General and administrative expenses were $16.1 million for the
six months ended June 30, 1999, an increase of $10.9 million over
the same period in 1998. The increase was primarily a result of
increased personnel and office expenses associated with the
Company's corporate and regional headquarters, establishment and
operations of the Company's two customer care centers, costs of
operating the Company's internal information technology and
telecommunications infrastructure, and expenses related to
consultants and outside services in establishing the Company's
operations.
Non-cash compensation
Non-cash compensation was $0.9 and $0.3 million for the six months
ended June 30, 1999 and 1998. The increase of $0.6 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.
Depreciation & Amortization Expense
For the six months ended June 30, 1999, depreciation and
amortization expense was $16.0 million. This amount relates
primarily to depreciation on equipment and the amortization of
licenses put into service related to the Company's initial build-
out and amortization attributable to certain agreements acquired
in the AT&T transaction.
Interest Expense & Income
For the six months ended June 30, 1999, interest expense was
$18.8 million, net of capitalized interest of $7.2 million, an
increase of $10.0 million over the same period in 1998. The
increase is attributable to increased borrowings of $109.9
million as compared to the same period in 1998. The Company had
borrowings of $481.7 million as of June 30, 1999, with a weighted
average interest rate of 10.06%.
For the six months ended June 30, 1999, interest income was $2.5
million. This amount relates primarily to interest income on the
Company's cash and cash equivalents. The average available cash
balance for the six months ended June 30, 1999 was $78.5 million,
as compared to the $136.4 million for the same period in 1998.
The reduction in available cash is due primarily to capital
expenditures related to the network build-out.
Net Income
For the six months ended June 30, 1999, the net loss was $64.7
million as compared to $6.9 million for the same period in 1998.
The net loss increased $57.8 million, resulting primarily from
the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had $9.3 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 $40.7
million at June 30, 1999 and $146.2 million at December 31, 1998.
Net Cash Used in Operating Activities
The $49.6 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 $124.1 million in cash used by investing activities arose
from the purchase of marketable securities of $22.5 million and
capital expenditures related to the network build-out of $111.4
million offset by $9.8 million of proceeds from short term
investments.
Net Cash Provided by Financing Activities
The $36.8 million provided by financing activities arose
primarily from $37.2 million in capital contributions from
Holdings related to funding of capital commitments by the cash
equity investors.
LIQUIDITY
The build-out of the Company's PCS network and the marketing of
the Company's PCS services will require substantial capital. As
it completes its build-out, the Company will be highly leveraged.
As part of the Company's network build-out, the Company expects
to spend approximately $300.0 million in 1999 related to the
completion of the build-out of its initial coverage area and its
continued build out of the Company's Licensed Area. The build-
out of the initial coverage area and the continued buildout
included the installation of two switches and the lease or
acquisition of approximately 1,200 cell sites, as well as
spectrum clearing costs, retail store fitout, and administrative
systems. The preceding capital forecasts exclude internal
engineering and capitalized interest costs.
Certain institutional investors and management shareholders
(cash equity investors) have severally made irrevocable
commitments to contribute $140 million in cash to the Company
through January 2001 in exchange for 1.4 million shares of Series
C preferred stock. The cash equity investors and management
stockholders have contributed $80 million of these commitments
and are obligated to contribute the balance as follows: $35
million on February 4, 2000 and $25 million on February 4, 2001.
In addition, the Company has received additional equity
contributions of $35.0 million and $16.5 million from certain
cash equity investors related to the Myrtle Beach and Norfolk
acquisitions, respectively.
On February 3, 1998, the Company entered into a bank credit
facility. 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 and (iii) 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
Company's future 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.
On May 7, 1998, the Company completed an offering of $512 million
aggregate principal amount at maturity of 11% senior subordinated
discount notes due 2008, pursuant to Rule 144A of the Securities
Act of 1933, as amended. The proceeds of the offering (after
deducting an initial purchaser's discount of $9 million) were
$291 million. The Company has used or intends to use the net
proceeds from the offering, together with the capital
contributions and borrowings under the credit facility, to fund:
(i) capital expenditures, including the build-out of its PCS
network; (ii) the acquisition of the Myrtle Beach system; (iii)
the Norfolk acquisition; (iv) working capital as required; (v)
operating losses; (vi) general corporate purposes; and (vii)
potential acquisitions.
INTEREST RATE RISK MANAGEMENT POLICIES
The Company's 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, 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, a project team with senior management
sponsorship has been established to provide centralized
coordination for the Company's Year 2000 related activities.
This team has substantially completed the inventory phase and has
made substantial progress of the Assessment Phase. Although the
majority of the software, hardware and firmware deployed as part
of our start-up operation was procured to the latest revision
levels and believed to be year 2000 capable, our process requires
a re-verification of the Year 2000 readiness capabilities with
the vendors, suppliers and third party providers. All suppliers
and third-party vendors deemed critical to the function of the
Company are being surveyed to ensure readiness and non-
disruption to the Company's operations. Through this assessment
and surveying process, we are identifying those remediation
efforts necessary to ensure our systems and applications will
continue to operate without interruption prior to, during and
after the Year 2000. However, we can provide no assurance that
the information provided by the vendors, suppliers and third
party providers, upon whom we rely for our services, is accurate.
As such, we can make no guarantee that inaccurate information
provided to us could not have a material effect upon our Company.
To date, our assessments have shown that the Company's main
switching and transmission equipment, with the exception of the
Myrtle Beach operational systems, 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 the wireless operational
infrastructure, initial assessments of support system providers
have revealed some products and applications that are not
currently in a conforming status. In all identified instances to
date, the supplier(s) of those products or applications have
identified that their product(s) will be compliant in the third
quarter of 1999. However, there can be no guarantee that the
systems of other companies which the Company relies on will be
converted on a timely basis, or that a failure to convert by
another company would not have a material adverse effect on the
Company.
As part of the Myrtle Beach acquisition, the operational and
financial systems were to be migrated to the systems being
deployed as part of the Company's PCS start-up plan. The Myrtle
Beach financial systems were successfully migrated to those
systems in the first quarter of 1999. Additionally, the Company
is developing plans to upgrade or replace the existing
operational systems with compliant versions. This remediation
effort is expected to be completed by the end of the third
quarter of 1999. The failure to upgrade the Myrtle Beach
operational systems to a compliant version could have a material
adverse effect on the Company.
Initial assessments of our information technology have shown that
our network hardware, software and firmware was procured and
deployed at a compliant version level. Some previously deployed
information technology hardware in the Myrtle Beach markets is
non-compliant. However, these non-compliant applications are
currently in the process of being upgraded, and given the nature
of the Company's operations, potential failures of these
applications are not expected to have a material adverse effect
on the Company.
The Company has begun the process of developing a comprehensive
set of contingency plans to address situations that may result if
the Company experiences any disruptions of its critical
operations due to Year 2000 related issues. The goal of the
Contingency plans will be to minimize the impact of any Year 2000
interruptions as well as to mitigate any damages that may result.
There can be no assurance that the Company will be able to
develop contingency plans that will adequately address issues
that may arise in the year 2000. The failure of the Company to
successfully resolve such issues could result in a disruption of
the Company's service and operations, which would have a material
adverse effect on the Company.
The costs associated with the Year 2000 issues are estimated to
be approximately $350,000, of which $220,000 has been spent to
date. These costs are not material to the Company's business
operations or financial position. The costs of the plan and the
date on which the Company believes it will complete the Year 2000
modification are based on management's 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. There can be no
assurance that these estimates will be achieved and actual
results could differ materially from those anticipated.
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 6. Exhibits and Reports on Form 8-K
(a) A current report on Form 8-K dated June 23, 1999 was filed
by the Company with respect to the June 8, 1999 agreement
with AT&T to exchange licenses to the Hagerstown, MD and
Cumberland, MD BTAs covering 512,000 potential customers
for licenses to certain counties in Savannah, GA and
Athens, GA covering 517,000 potential customers. In
addition, consideration of approximately $10.4 million in
preferred stock of Triton PCS Holdings, Triton PCS, Inc.s
parent, was issued to AT&T.
(b) 27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned hereto duly authorized.
TRITON PCS, INC.
(Registrant)
By: /S/ Michael E. Kalogris
---------------------------------
Michael E. Kalogris CEO
By: /S/ David D. Clark
---------------------------------
David D. Clark
Senior Vice President & CFO
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