Type: 10-Q/A
Sequence: 1
Description: 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
SEPTEMBER 30, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 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.
TRIOTN PCS HOLDINGS COMPANY L.L.C.
TRITON MANANGEMENT 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
OFINCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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. AND PREDECESSOR COMPANY
THIRD QUARTER REPORT
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Combined Balance Sheets - September 30, 1998 and
December 31, 1997
Combined Statements of Operations
Three and nine months periods ended September 30,
1998, three months period ended September 30, 1997,
and for the period from March 6, 1997 (inception)
to September 30, 1997
Combined Statements of Cash Flows
Nine months ended September 30, 1998 and for the
period from March 6, 1997 (inception) to
September 30, 1997
Notes to the Combined Financial Statements September
30, 1998
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on From 8-K
TRITON PCS INC. AND PREDECESSOR COMPANY
COMBINED BALANCE SHEETS
December 31, September 30,
1997 1998
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $11,362,212 $311,470,902
Due from related party 148,100 225,824
Accounts receivable, net of
allowance for doubtful accounts
of $ - and $ 0.6 million
respectively - 4,854,890
Inventory - 441,135
Prepaid expenses and other
current assets 20,960 746,035
------------ ------------
Total current assets 11,531,272 317,738,786
Property, plant, and equipment:
Network infrastructure
and equipment - 28,236,159
Land - 313,000
Office furniture and equipment 121,398 4,898,733
Construction in progress 356,258 25,671,102
----------- ------------
477,656 59,118,994
Less accumulated depreciation (4,762) (1,045,849)
----------- ------------
Net property and equipment 472,894 58,073,145
Intangible assets, net - 262,648,805
Deferred transaction costs 1,248,855 695,472
----------- ------------
Total assets $13,253,021 $639,156,208
=========== ============
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
Current liabilities:
Accounts payable $1,580,880 $2,948,472
Accrued expenses 1,016,048 4,823,560
Accrued interest 1,228,029 2,342,730
Due to related party 45,402 45,402
Notes payable 13,343,500 -
----------- ------------
Total current liabilities 17,213,859 10,160,164
Long-term debt - 455,441,380
Deferred income taxes - 9,177,426
Commitments and contingencies - -
Shareholders equity (deficit):
Common stock, $.01 par value,
1,000 shares authorized,
100 shares issued and outstanding 1 1
Additional paid-in capital - 184,976,906
Deferred compensation - (2,817,145)
Accumulated Deficit (3,960,839) (17,782,524)
----------- ------------
Total shareholders equity
(deficit) (3,960,838) 164,377,238
----------- ------------
$13,253,021 $639,156,208
=========== ============
See accompanying notes to combined financial statements.
TRITON PCS INC. AND PREDECESSOR COMPANY
COMBINED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Period from Nine Months
Ended March 6, Ended
September 30,To September 30, September 30,
1997 1998 1997 1998
Revenues:
Roaming revenues $ - $2,717,361 $ - $2,717,361
Service revenues - 5,655,983 - 5,655,983
Equipment revenues - 431,285 - 431,285
--------- ---------- -------- ----------
Total revenue - 8,804,629 - 8,804,629
Expenses:
Cost of service revenues - 2,487,163 - 3,167,353
Cost of equipment revenues - 770,134 - 770,134
Sales and marketing - 664,864 - 792,504
General and administrative 536,289 5,011,336 923,966 9,384,913
Non-cash compensation - 32,645 - 338,645
Depreciation and amortization - 2,976,529 - 4,325,914
--------- ---------- --------- ----------
Loss from operations 536,289 3,138,042 923,966 9,974,834
Interest and other expense 850,174 11,722,709 850,174 21,594,515
Interest and other income - (4,147,090) - (6,886,253)
--------- ---------- --------- ----------
Loss before taxes 1,386,463 10,713,661 1,774,140 24,683,096
Tax benefit - 4,058,786 - 10,861,411
--------- ---------- --------- ----------
Net loss $1,386,463 $6,654,875 $1,774,140 $13,821,685
========= ========== ========= ==========
See accompanying notes to combined financial statements.
TRITON PCS, INC. AND PREDECESSOR GROUP
COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
Period from Nine Months
March 6, 1997 To Ended
September 30, 1997 September 30, 1998
Cash flows from operating activities:
Net loss $ (1,774,140) $(13,821,685)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization - 4,325,914
Deferred income taxes - (10,861,411)
Accretion of interest 850,174 14,602,509
Non-cash compensation - 338,645
Change in operating assets and liabilities:
Accounts receivable (252) (1,715,569)
Inventory - (54,006)
Prepaid expenses and other current assets (4,138) (531,088)
Accounts payable 166,853 2,658,579
Accrued expenses (36,661) 2,337,169
Accrued interest - 2,543,499
---------- -------------
Net cash used in operating activities (798,164) (177,446)
Cash flows from investing activities:
Capital expenditures (48,997) (33,245,322)
Myrtle Beach acquisition, net of
cash acquired - (163,852,776)
---------- -------------
Net cash used in investing activities (48,997) (197,098,098)
Cash flows from financing activities:
Borrowings under credit facility - 150,000,000
Borrowings on notes payable 1,050,000 -
Borrowings on subordinated debt - 291,000,000
Issuance of common stock - -
Capital contributions from Parent - 68,346,606
Payment of deferred transaction costs - (11,822,145)
Advances from related party, net 36,843 (122,126)
Principal payments under capital
lease obligations - (18,101)
---------- -------------
Net cash provided by
financing activities 1,636,843 497,384,234
---------- -------------
Net increase in cash 789,682 300,108,690
Cash and cash equivalents, beginning of period - 11,362,212
---------- -------------
Cash and cash equivalents, end of period $789,682 $311,470,902
========== =============
See accompanying notes to combined financial statements.
TRITON PCS, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
September 30, 1998
(1) Description of Business
Triton PCS, Inc (formerly Triton PCS License Company, Inc.
with its subsidiaries referred to as the Company was formed
on October 2, 1997 as a wholly-owned subsidiary of Triton
PCS Holdings, Inc. (formerly Triton PCS, Inc. referred to as
Holdings or Parent). The Company is the exclusive provider
of wireless mobility services in the AT&T Corporation
(together with affiliates AT&T) Mid-Atlantic and Southeast
regions. The Company intends to become the leading provider
of broadband PCS (Personal Communication System) in
Virginia, South Carolina, North Carolina, northern Georgia,
and surrounding areas. The Company is authorized to provide
PCS Service in major population and business centers such as
Charleston, SC, Columbia, SC, Greenville / Spartansburg, SC,
Richmond, VA and Augusta, GA, as well as major resort
destinations such as Myrtle Beach, SC, Hilton Head, SC, and
Kiawah Island, SC. On June 30, 1998, the Company acquired
an existing cellular system in Myrtle Beach (see note 4).
Certain reclassifications have been made to prior period
financial statements to conform to current period
presentation.
(2) Summary of Significant Accounting Policies
Basis of Presentation
On March 6, 1997, Triton Communications L.L.C. (L.L.C.) was
formed to explore various business opportunities in the
wireless telecommunications industry, principally related to
PCS and cellular activities. During the period March 6,
1997 through October 1, 1997, L.L.C.s activities consisted
principally of hiring a management team, raising capital,
and negotiating strategic business relationships, primarily
related to PCS business opportunities. Subsequent to
October 2, 1997, these activities continued but were
conducted primarily through the Company. Consequently, for
purposes of the accompanying financial statements, L.L.C.
has been treated as a predecessor entity. As a result of
this relationship, certain financing relationships and the
similar nature of the business activities conducted by each
respective legal entity, L.L.C. and the Company are
considered companies under common control.
The accompanying combined financial statements are unaudited
and have been prepared by management. In the opinion of
management, these combined 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 the Company. The results of operations for the three and
nine month periods ended September 30, 1998 are not
indicative of the results that may be expected for the year
ending December 31, 1998. The financial information
presented herein should be read in conjunction with the
combined financial statements for the year ended December
31, 1997.
The combined financial statements incorporate the PCS-
related business activities of L.L.C. and the activities of
the Company. The consolidated accounts of the Company
include Triton PCS Inc; Triton PCS Holdings Company L.L.C.;
Triton Management Company, Inc.; Triton PCS Property Company
L.L.C.; Triton PCS Equipment Company L.L.C.; Triton PCS
Operating Company L.L.C.; and Triton PCS License Company
L.L.C. All significant intercompany accounts or balances
have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amount of expenses during the
reporting period. Actual results could differ from those
estimates.
Comprehensive Income
The Company adopted Statement of Financial Accounting
Standard No. 130, Reporting Comprehensive Income (SFAS 130),
effective January 1, 1998. SFAS 130 establishes standards
for reporting and display of comprehensive income and its
components in a full set of general-purpose financial
statements. Comprehensive income is the change in equity of
a business enterprise during a period from transactions and
the events and circumstances from non-owner sources. For
the periods presented in the accompanying statements of
operations, comprehensive loss equals the amounts of net
reported on the accompanying statements of operations.
Construction in Progress
Construction in progress includes expenditures for the
design, construction and testing of the Companys PCS network
and also includes costs associated with developing
information systems. The Company capitalizes interest on
certain of its construction in progress activities. As of
September 30, 1998, interest capitalized totaled $800,579.
When the assets are placed in service, the Company will
transfer the assets to the appropriate property and
equipment category and depreciate these assets over their
respective estimated useful lives. The Company expects to
commence PCS service in the first quarter 1999 or shortly
thereafter.
Investment in PCS Licenses
Investments in PCS Licenses, a component of intangible
assets, are recorded at their fair value as determined by an
independent appraisal. In transactions in which the
acquisition of the licenses has been funded using debt, the
Company records capitalized interest while readying the
licenses in the Companys region for use. The Company will
begin amortizing its licenses over 40 years upon
commencement of service, which is expected in its first
market in the first quarter of 1999, or shortly thereafter.
A FCC license pertaining to the Myrtle Beach system acquired
on June 30, is being amortized using a 40 year estimated
life.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting
Standard No. 130, Reporting Comprehensive Income (SFAS 130),
which was effective for fiscal year beginning after December
15, 1997. SFAS 130 established standards for reporting and
display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive
income is the change in equity of a business enterprise
during a period from transactions and the events and
circumstances from non-owner sources. For the periods
presented in the accompanying statements of operations,
comprehensive income equals the amounts reported on the
accompanying statement of operations.
In February 1997, the FASB issued Statement No. 129,
Disclosure of Information about Capital Structure (SFAS
129). This statement establishes standards for disclosing
information about an entitys capital structure and is
effective for periods ending after December 15, 1997. The
Company has adopted SFAS 129. The effect of initial
application of this statement did not have a material effect
on the Companys financial statements.
In June 1997, the FASB issued Statement No. 131, Disclosure
About Segments of an Enterprise and Related Information
(SFAS 131). This statement establishes additional standards
for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15,
1997. The Company has adopted SFAS 131. The effect of
initial application of the statement did not have a material
effect on the Companys financial statements.
In February 1998, the FASB issued Statement No. 132,
Employees Disclosures about Pensions and Other
Postretirement Benefits (SFAS 132). This statement is
effective for fiscal years beginning after December 15,
1997. It is not expected that application of this statement
will have a material effect on the Companys financial
statements.
In April 1998, the Accounting Standards Executive Committee
(AcSEC) of the AICPA issued Statement of Position (SOP) 98-
5, Reporting on the Costs of Start-up Activities (SOP 98-5).
This statement requires that the costs of start-up
activities, including organization costs, be expensed as
incurred and is effective for fiscal years beginning after
December 31, 1998. The Company has elected early adoption of
this statement as of January 1, 1998. The initial
application of the statement did not have a material effect
on the Companys financial statements.
In June 1998, the FASB issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities (SFAS
133). The Company has not yet fully analyzed the impact of
this statement on its financial statements.
(3) AT&T Transaction
On October 8, 1997, Holdings entered into a Securities
Purchase Agreement with AT&T Wireless PCS, Inc (AT&T PCS), a
subsidiary of AT&T, and the other stockholders of Holdings,
whereby the Company will be the exclusive provider of
wireless mobility services in the AT&T mid-Atlantic and
Southeast regions.
On February 4, 1998, Holdings executed the Closing Agreement
with AT&T PCS and the other stockholders of Holdings,
finalizing the transactions contemplated in the Securities
Purchase Agreement. In accordance with the Closing
Agreement, Holdings and AT&T PCS and the other stockholders
of Holdings consented that one or more of Holdings
subsidiaries shall enter into certain agreements or conduct
certain operations on the condition that such subsidiaries
shall at all times be direct or indirect wholly-owned
subsidiaries of Holdings and Holdings shall cause such
subsidiaries to perform the obligations and conduct such
operations required to be performed or conducted under those
agreements.
Under the Closing Agreement, Holdings issued equity to AT&T
PCS in exchange for 20 MHz A and B block PCS licenses, which
were contributed to the Company and certain other agreements
covering certain areas in the southeastern United States.
The aggregate fair value of all intangibles acquired was $
118.6 million, of which $ 92.8 million was allocated to the
PCS licenses with an estimated useful life of 40 years.
AT&T PCS was issued Series D Preferred, which at the time of
the closing of the transaction was equal to an initial
common equity ownership of Holdings on a fully diluted basis
of 18.66% along with 732,371 shares of non-voting Series A
Preferred Stock.
In connection with the closing of the AT&T transaction, the
Company executed or was a party to certain agreements,
including the following:
Stockholders Agreement
Resale Agreement
Pursuant to the Stockholders Agreement, the Company is
required to enter into a Resale Agreement at the request of
AT&T. Under this agreement, AT&T PCS will be granted the
right to purchase and resell on a nonexclusive basis access
to and usage of the Companys services in the Companys
Licensed Area. The Company will retain the continuing right
to market and sell its services to customers and potential
customers in competition with AT&T PCS.
The Resale Agreement will have a term of ten years and will
renew automatically for successive one-year periods unless,
after the eleventh anniversary thereof, either party elects
to terminate the Resale Agreement. Furthermore, AT&T PCS may
terminate the Resale Agreement at any time for any reason on
180 days written notice.
The Company has agreed that the rates, terms, and conditions
of service, taken as a whole, provided by the Company to
AT&T PCS pursuant to the Resale Agreement, shall be at least
as favorable as (or if permitted by applicable law, superior
to) the rates, terms, and conditions of service, taken as a
whole, provided by the Company to any other customer.
Without limiting the foregoing, the rate plans offered by
the Company pursuant to the Resale Agreement shall be
designed to result in a discounted average actual rate per
minute paid by AT&T PCS for service below the weighted
average actual rate per minute billed by the Company to its
subscribers generally for access and air time.
Neither party may assign or transfer the Resale Agreement or
any of its rights thereunder without the other partys prior
written consent, which will not be unreasonably withheld,
except (a) to an affiliate of that party at the time of
execution of the Resale Agreement, (b) by the Company to any
of its operating subsidiaries, and (c) to the transferee of
a partys stock or substantially all of its assets, provided
that all FCC and other necessary approvals have been
received.
The Company expects to enter into the Resale Agreement upon
commencement of its operations in the initial configuration.
Exclusivity
Under the Stockholders Agreement, none of the Stockholders
will provide or resell, or act as the agent for any person
offering, within the Territory mobile wireless
telecommunications services initiated or terminated using
Time Division Multiple Access and frequencies licensed by
the FCC (Company Communications Services), except AT&T PCS
and its affiliates may (i) resell or act as agent for the
Company in connection with the provision of Company
Communications Services, (ii) provide or resell wireless
telecommunications services to or from certain specific
locations, and (iii) resell Company Communications Services
for another person in any area where the Company has not
placed a system into commercial service by August 2002.
Additionally, with respect to the markets listed on the
Roaming Agreement, each of the Company and AT&T PCS agrees
to cause their respective affiliates in their home carrier
capacities to program and direct the programming of customer
equipment so that the other party in its capacity as the
serving carrier is the preferred provider in such markets,
and refrain from inducing any of its customers to change
such programming.
Build-out
The Company is required to conform to certain requirements
regarding the construction of the Companys PCS system. In
the event that the Company breaches these requirements, AT&T
PCS may terminate its exclusivity provisions.
Disqualifying Transactions
In the event of a merger, asset sale, or consolidation, as
defined, involving AT&T and another person that derives
annual revenues in excess of $5.0 billion, derives less than
one third of its aggregate revenues from wireless
telecommunications, and owns FCC licenses to offer mobile
wireless telecommunication services to more than 25% of the
population within the Companys territory, AT&T and the
Company have certain rights. AT&T may terminate its
exclusivity in the territory in which the other party
overlaps that of the Company. In the event that AT&T
proposes to sell, transfer, or assign to a non-affiliate its
PCS system owned and operated in Charlotte, NC; Atlanta, GA;
Baltimore, MD; and Washington, DC, or Richmond, VA BTAs,
then AT&T will provide the Company with the opportunity for
a 180 day period to have AT&T jointly market the Companys
licenses that are included in the MTA that AT&T is
requesting to sell.
The Stockholders Agreement expires on February 4, 2009.
Certain provisions expire upon an initial public offering.
License Agreement
Pursuant to a Network Membership License Agreement, dated
February 4, 1998 (the License Agreement), between AT&T and
the Company, AT&T granted to the Company a royalty-free,
nontransferable, nonsublicensable, limited right, and
license to use certain Licensed Marks solely in connection
with certain licensed activities. The Licensed Marks include
the logo containing the AT&T and globe design and the
expression Member, AT&T Wireless Services Network. The
Licensed Activities include (i) the provision to end-users
and resellers, solely within the Territory, of Company
Communications Services on frequencies licensed to the
Company for Commercial Mobile Radio Services (CMRS) provided
in accordance with the AT&T Agreement (collectively, the
Licensed Services) and (ii) marketing and offering the
Licensed Services within the Territory. The License
Agreement also grants to the Company the right and license
to use Licensed Marks on certain permitted mobile phones.
The License Agreement contains numerous restrictions with
respect to the use and modification of any of the Licensed
Marks. Furthermore, the Company is obligated to use
commercially reasonable efforts to cause all Licensed
Services marketed and provided using the Licensed Marks to
be of comparable quality to the Licensed Services marketed
and provided by AT&T and its affiliates in areas that are
comparable to the Territory taking into account, among other
things, the relative stage of development of the areas. The
License Agreement also sets forth specific testing
procedures to determine compliance with these standards, and
affords the Company with a grace period to cure any
instances of alleged noncompliance therewith.
The Company may not assign or sublicense any of its rights
under the License Agreement; provided, however, that the
License Agreement may be assigned to the Companys lenders
under the Credit Facility (see note 6) and after the
expiration of any applicable grace and cure periods under
the Credit Facility, such lenders may enforce the Companys
rights under the License Agreement and assign the License
Agreement to any person with AT&Ts consent.
The term of the License Agreement is for five years (the
Initial Term) and renews for an additional five-year period
if neither party terminates the Agreement. The License
Agreement may be terminated by AT&T at any time in the event
of a significant breach by the Company, including the
Companys misuse of any Licensed Marks, the Company licensing
or assigning any of the rights in the License Agreement, the
Companys failure to maintain AT&Ts quality standards, or a
change in control of the Company occurs.
After the Initial Term, AT&T may also terminate the License
Agreement upon the occurrence of certain transactions
described in the Stockholders Agreement.
The License Agreement, along with the Exclusivity and Resale
Agreement and AT&Ts exclusivity obligations under the Stock
Holders Agreement, have a fair value of $20.3 million, as
determined by an independent appraisal, with an estimated
useful life of 10 years.
Roaming Agreement
Pursuant to the Intercarrier Roamer Service Agreement, dated
as of February 4, 1998 (the Roaming Agreement), between AT&T
Wireless Services, Inc. and the Company, each of AT&T PCS
and the Company agrees to provide (each in its capacity as
serving provider, the Serving Provider) mobile wireless
radiotelephone service for registered customers of the other
partys (the Home Carrier) customers while such customers are
out of the Home Carriers geographic area and in the
geographic area where the Serving Carrier (itself or through
affiliates) holds a license or permit to construct and
operate a mobile wireless radio/telephone system and
station. Each Home Carrier whose customers receive service
from a Serving Carrier shall pay to such Serving Carrier
100% of the Serving Carriers charges for wireless service
and 100% of pass-through charges (i.e., toll or other
charges). Each Service Carriers service charges per minute
or partial minute for the use for the first 3 years will be
fixed at a declining rate, and thereafter will be equal to
an adjusted average home rate or such lower rate as the
parties negotiate from time to time. Each service Carriers
toll charges per minute of use for the first 3 years will be
fixed at a declining rate and thereafter such other rates as
the parties negotiate from time to time.
The Roaming Agreement has a term of 20 years, unless earlier
terminated by a party due to the other partys uncured breach
of any term of the Roaming Agreement or the FCC revoking or
denying renewal of the other partys license or permit to
provide CMRS.
Neither party may assign or transfer the Roaming Agreement
or any of its rights thereunder except to an assignee of all
or part of its license or permit to provide CMRS, provided
that such assignee expressly assumes all or the applicable
part of the obligations of such party under the Roaming
Agreement.
The fair value of the Roaming Agreement, as determined by an
independent appraisal, was $5.5 million, with an estimated
useful life of 20 years.
(4) Myrtle Beach Acquisition
On June 30, 1998, the Company acquired an existing cellular
system (the Myrtle Beach System) which serves the South
Carolina 5--Georgetown Rural Service Area (the SC-5) for a
purchase price of approximately $163.8 million from Vanguard
Cellular Systems. The Company intends to integrate the
Myrtle Beach System into its planned PCS Network. As a
result of the acquisition, the Company is no longer
considered a development stage enterprise under SFAS No. 7.
The effects of the acquisition have been presented using the
purchase method and accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed
based upon managements best estimate of their fair value.
Results of operations after the acquisition date are
included in the Statement of Operations from July 1, 1998.
The following pro forma information has been prepared
assuming that this acquisition had taken place on January 1,
1997. The pro forma information includes adjustments to
interest expense that would have been incurred to finance
the purchase, additional depreciation based on the fair
market value of the property, plant and equipment acquired,
and the amortization of intangibles arising from the
transaction.
Nine months ended September 1997 1998
Net revenues $18,650,320 $23,342,629
----------- -----------
Net loss $13,215,000 $10,268,034
=========== ===========
(5) Short-term Debt
Convertible Notes
At various dates in 1997, certain private equity investors
provided $1.6 million in financing to L.L.C. in the form of
convertible promissory notes. The notes originally bore
interest at 14% annually, payable at maturity. On January
15, 1998, L.L.C. assigned the notes to the Company. The
Company, in conjunction with Holdings and the noteholders,
subsequently negotiated a revised arrangement under which no
interest would be paid on the notes, which became
convertible into approximately $3.2 million worth of
Holdings Series C preferred stock. The conversion of L.L.C.
notes into Holdings equity occurred on February 4, 1998. The
$1.6 million preferred return to the investors was accounted
for as a financing cost during the period the notes were
outstanding.
Noninterest bearing loans
During 1997, Holdings Cash Equity Investors provided short-
term financing in the form of $11.9 million noninterest-
bearing loans, which were advanced to the Company. Pursuant
to the Closing Agreement, such loans were converted to
equity of Holdings as a reduction of the requirements of the
initial cash contribution. Concurrently, Holdings
contributed these funds to the Company, which has recorded
the transaction as additional paid in capital on the date of
the contribution.
(6) Bank Credit Facility
On February 3, 1998, the Company entered into a Credit
Agreement (the Credit Facility), a $425.0 million Credit
Facility with Holdings, The Chase Manhattan Bank, as
Administrative Agent, and certain banks and other financial
institutions party thereto. The Credit Facility provides for
(i) a $175.0 million senior secured term loan (the Tranche A
Term Loan) which matures on August 3, 2004 (ii) a $150.0
million senior secured term loan (the Tranche B Term Loan
and, together with the Tranche A Term Loan, the Term Loans)
which matures on May 3, 2007 and (iii) a $100.0 million
senior secured revolving credit facility (the Revolving
Credit Facility and, together with the commitments to make
the Term Loans, the Facilities) which matures on August 3,
2006.
The commitment to make loans under the Revolving Credit
Facility (Revolving Credit Loans and, together with the Term
Loans, the Loans) automatically and permanently reduces,
beginning on August 3, 2004 in eight quarterly reductions
(the amount of each of the first two reductions, $5.0
million, the next four reductions, $10.0 million, and the
last two reductions, $25.0 million). The Tranche A Term
Loans are required to be repaid, beginning on February 4,
2002 in eighteen consecutive quarterly installments (the
amount of each of the first four installments, $4,375,000,
the next four installments, $6,562,500, the next four
installments $8,750,000, the next four installments,
$10,937,500, and the last two installments, $26,250,000).
The Tranche B Term Loans are also required to be repaid
beginning on February 4, 2002 in twenty-one consecutive
quarterly installments (the amount of the first sixteen
installments, $375,000, the next four installments
$7,500,000, and the last installment, $114.0 million).
Interest on all loans accrue, at the Companys option, either
at (i) (a) a LIBOR rate multiplied by a fraction, the
numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum
reserve percentages (including any marginal, special,
emergency, or supplemental reserves) expressed as a decimal
established by the Board of Governors of the Federal Reserve
System which the Administrative Agent is subject for
eurocurrency funding, plus (b) the Applicable Rate (as
defined below) (Loans bearing interest described in (i),
Eurodollar Loans) or (ii) (a) the higher of (1) the
Administrative Agents prime rate and (2) the Federal Funds
Effective Rate (as defined in the Credit Facility) plus
0.5%, plus (b) the Applicable Rate (Loans bearing interest
described in (ii), ABR Loans). Interest on any overdue
amounts will be at a rate per annum equal to 2% plus the
rate otherwise applicable to such amounts. The Applicable
Rate means, with respect to Tranche B Term Loans, 1.75% per
annum, in the case of an ABR Loan, and 3.00% per annum, in
the case of a Eurodollar Loan, and, with respect to Tranche
A Term Loans and Revolving Credit Loans, a rate between 0.0%
to 1.25% per annum (depending on the level of the Companys
ratio of debt to earnings before income taxes, depreciation,
and amortization (EBITDA) in the case of an ABR Loan, and a
rate between 1.00% and 2.25% per annum (depending on the
level of the Companys ratio of debt to EBITDA), in the case
of a Eurodollar Loan.
The Credit Facility requires an annual commitment fee of
between 0.375% and 0.60% (depending on the level of the
Companys ratio of debt to EBITDA) of the unused portion of
the Facilities payable quarterly in arrears and a separate
agents fee payable to the Administrative Agent. The Credit
Facility also requires the Company to purchase an interest
rate hedging contract covering an amount equal to at least
60% (as amended in July 1998) of the total amount of the
outstanding indebtedness of the Company.
The Term Loans are required to be prepaid and commitments
under the Revolving Credit Facility reduced in an aggregate
amount equal to (i) 50% of excess cash flow of each fiscal
year commencing the fiscal year ending December 31, 2001,
(ii) 100% of the net proceeds of asset sales, in excess of a
yearly threshold, outside the ordinary course of business or
unused insurance proceeds, (iii) 100% of the net cash
proceeds in excess of the initial $150.0 million of
issuances of debt obligations and (iv) 50% of the net cash
proceeds of issuances of equity securities (other than in
connection with the Equity Commitments); provided, that the
prepayments and reductions set forth under clauses (iii) and
(iv) will not be required if, after giving effect to such
issuance, (a) the Companys ratio of senior debt to EBITDA
would be less than 5 to 1 and (b) the Company would be in
pro forma compliance with certain covenants in the Credit
Facility.
All obligations of the Company under the Facilities are
unconditionally and irrevocably guaranteed (the Bank
Facility Guarantees) by Holdings and each existing and
subsequently acquired or organized domestic subsidiary of
the Company. The Facilities and the Bank Facility
Guarantees, and any related hedging contracts provided by
the lenders under the Credit Facility, will be secured by
substantially all of the assets of the Company and each
existing and subsequently acquired or organized domestic
subsidiary of the Company, including a first priority pledge
of all of the capital stock held by the Company or any of
its subsidiaries; provided that the pledge of shares of
foreign subsidiaries may be limited to 65% of the
outstanding shares of such foreign subsidiaries. The PCS
Licenses will be held by one or more single purpose
subsidiaries of the Company and will not be pledged to
secure the obligations of the Company under the Credit
Facility, although the equity interest of such subsidiaries
must be pledged. Each single purpose subsidiary will not be
allowed by the Company to incur any liabilities or
obligations other than the Bank Facility Guarantee issued by
it, the security agreement entered into by it in connection
with the Credit Facility, and, in the case of any single
purpose subsidiary established to hold real estate,
liabilities incurred in the ordinary course of business of
such subsidiary which are incident to being the lessee of
real property of the purchaser, owner of lessee of equipment
and taxes and other liabilities incurred in the ordinary
course in order to maintain its existence.
The Credit Facility contains covenants customary for
facilities and transactions similar to the Credit Facility,
including covenants relating to the amounts of indebtedness
that the Company may incur, limitations on dividends and
distributions on, and redemptions and repurchases of,
capital stock and other similar payments and various
financial maintenance covenants. The Credit Facility also
contains covenants relating to the population covered by the
Companys network and number of customers and customary
representations, warranties, indemnities, conditions
precedent to borrowing, and events of default. Loans under
the Credit Facility are available to fund capital
expenditures related to the construction of the Companys PCS
network, the acquisition of related businesses, working
capital needs of the Company, and customer acquisition
costs. All indebtedness under the Credit Facility will
constitute Senior Debt.
The terms of the Credit Facility originally allowed the
Company to incur only $150 million of indebtedness pursuant
to the issuance of Subordinated Debt (as defined in the
Credit Facility). In April 1998, the Company negated an
amendment to the Credit Facility, which included provisions
that (i) permit certain acquisitions (note 4); (ii) permit
up to a total of $450 million in high yield debt; and (iii)
exclude the equity issuances associated with certain
acquisitions from the mandatory prepayment requirement
As of September 30, 1998, the Company has drawn $150 million
of Tranche B Term Loans under the facility.
(7) Income Taxes
The Company accounts for income taxes in accordance with the
principles of SFAS No. 109, which requires the use of the
liability method in accounting for deferred taxes.
In connection with the AT&T transaction discussed in Note 3,
a gross deferred tax liability (due to a difference in book
and tax basis of intangibles) of $20,040,000 was initially
recorded.
As of September 30, 1998, the Company recorded a tax benefit
(gross deferred tax asset) of $10,861,411 related to
temporary deductible differences, primarily net operating
losses and capitalized start-up costs, arising during the
current and prior year. No valuation allowance is necessary
for these items due to the scheduled reversal of existing
taxable temporary differences arising from the AT&T
transaction, within the applicable carryforward period of
these deductible differences. Accordingly, management
believes it is more likely than not that all recorded
deferred tax assets will be realized.
Deferred taxes of $9,177,426 are shown net in the
accompanying balance sheet.
(8) Pending Acquisition
The Company has signed a purchase agreement to acquire from
AT&T PCS, Inc, (the Norfolk Acquisition) (i) an FCC license
to use 20MHz of authorized frequencies to provide broadband
PCS services throughout the entirety of the Norfolk,
Virginia BTA and (ii) certain assets of AT&T PCS used in the
operation of the PCS system in such BTA for an aggregate
purchase price of $105 million, including $13.5 million of
Holdings Series D Preferred Stock to be issued to AT&T PCS.
In addition, the company has received equity commitments of
$16.5 million from certain institutional investors related
to the acquisition (See note 10). The build-out of the
network relating to the Norfolk Acquisition, including the
installation of a switch, has been substantially completed.
The Norfolk Acquisition is subject to closing condition
typical in acquisitions of this nature. There can be no
assurance that the Norfolk Acquisition will be consummated
on the terms described herein or at all.
(9) Subordinated Debt
On May 7, 1998, the Company completed an offering (the
Offering) of $511,989,000 of 11% Senior Subordinated
Discount Notes (the Notes), pursuant to Rule 144A of the
Securities Act of 1933, as amended. The net proceeds of the
Offering (after deducting an Initial Purchasers Discount of
$9 million and fees and expenses of the offering of $1
million) were approximately $290 million. The Company used
$135.0 million of the net proceeds to acquire the Myrtle
Beach System (note 4). The Company intends to use the
balance of the net proceeds from the Offering, together with
the Capital Contributions (note 10) and borrowings under the
Credit Facility, to fund: (i) capital expenditures,
including the build-out of its PCS network; (ii) the Norfolk
acquisition (note 8), (iii) operating losses; (iv) general
corporate purposes, and (v) potential acquisitions.
Cash interest will not accrue prior to May 1, 2003.
Commencing on November 1, 2003, cash interest will be
payable semiannually. Each Note was offered at an original
issue discount (Initial Purchasers Discount). Although cash
interest will not be paid prior to May 1, 2003, the original
issue discount will accrue from the issue date to May 1,
2003.
The Notes are not redeemable prior to May 1, 2003, except as
set forth below. The Notes will be redeemable at the option
of the Company, in whole or in part, at any time on or after
May 1, 2003 and prior to maturity at the following
redemption prices (expressed as percentages of principal
amount), plus accrued interest, if any, to but excluding the
redemption date, if redeemed during the 12-month period
beginning on May 1 of the years indicated:
Year Percentage
2003 105.50%
2004 103.67
2005 101.84
2006 and thereafter 100.00
In addition, on or prior to May 1, 2001, the Company may
redeem up to 35% of the principal amount at maturity of
Notes issued under the Indenture at a redemption price equal
to 111% of the accreted value at the redemption date with
the net proceeds of one or more equity offerings of
qualified stock of (a) the Company, (b) Holdings, or (c) a
special purpose corporation formed to own qualified stock of
the Company or Holdings, provided that at least 65% of the
aggregate principal amount at maturity of Notes issued under
the Indenture would remain outstanding immediately after
giving effect to such redemption.
Upon a change in control, each holder of the Notes may
require the Company to repurchase such Holders Notes, in
whole or in part, at a purchase price equal to 101% of the
accreted value thereof or the principal amount at maturity,
as applicable plus accrued and unpaid interest to the
purchase date.
(10) Capital Contributions
On February 4, 1998, pursuant to the Securities Purchase
Agreement, Holdings issued $140,000,000 of equity to certain
institutional investors. The Securities Purchase Agreement
requires the institutional investors to fund their
unconditional and irrevocable obligations in installments in
accordance with the following schedule:
Date due Amount
February 4, 1998 $ 45,000,000
February 4, 1999 35,000,000
February 4, 2000 35,000,000
February 4, 2001 25,000,000
------------
$140,000,000
Pursuant to the Securities Purchase Agreement, the initial
cash contribution and the unfunded commitments are required
to be made to Holdings however the credit agreement requires
and pursuant to the Closing Agreement, Holdings has directed
that all cash contributions subsequent to the initial cash
contribution be made directly to the Company.
As of September 30, 1998, Holdings received $35 million of
additional equity contributions related to the acquisition
of the Myrtle Beach System (see note 4). These funds were
concurrently contributed to the Company.
Through September 30, 1998, Holdings received commitments
for $55 million in equity contributions related to (i)
Norfolk acquisition (note 8) and (ii) a potential
contribution by AT&T PCS of additional PCS licenses to the
company. These commitments are contingent on the completion
of the pending acquisition.
Common Stock
On October 2, 1997, the Company issued 100 shares of its
common stock to Holdings.
L.L.C. Members Capital
Members capital contributions are recorded when received.
Total committed capital at October 31, 1997 was $1.00. Cash
available for distribution will be made in proportion to
their capital accounts. Allocation of income, gains,
losses, and deductions will be in proportion to their
capital accounts.
(11) Financial Statement Adjustment
The Companys combined financial statements as of and for the
three and nine month periods ended September 30, 1998 as
originally presented have been adjusted to reflect deferred
compensation related to the issuance of 49,137 shares of
common stock of Holdings to employees. In February 1998,
Holdings granted 16,876 shares of restricted stock to
certain employees. Deferred compensation for the stock
granted to employees of $307,017, net of $30,671 for
forfeited shares was recorded in 1998 in connection with the
adjustment based on the estimated fair value at the time
of issuance. In June 1998 additional shares of 32,261 were
issued as anti-dilutive protection related to capital
contributions received by Holdings for the Myrtle Beach
transaction. Deferred compensation of $2,848,773 was recorded
for stock granted to employees, net of forfeitures in connection
with the adjustment. Deferred compensation will amortize into income
over five years and $32,645 and $338,645 was amortized into income for
the three and nine month periods ended September 1998. The following is
a reconciliation of the adjusted amounts:
As originally
Presented Adjustment As Adjusted
Balance Sheet at September 30, 1998:
Additional paid in capital $181,821,116 $3,155,790 $184,976,906
Accumulated deficit 17,443,879 338,645 17,782,524
Deferred compensation - 2,817,145 2,817,145
Statement of Operations:
Three months ended September 1998
Non-cash compensation $ - $32,645 $32,645
Net loss 6,622,230 32,645 6,654,875
Nine months ended September 1998
Non-cash compensation $ - $338,645 $338,645
Net loss 13,483,040 338,645 13,821,685
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
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 Securities and Exchange Commission (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 speak 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
combined financial statements of the Company and its predecessor,
Triton Communications L.L.C. (L.L.C.) for the periods presented
herein, and should be read in conjunction with the combined
financial statements and the notes thereto contained elsewhere in
this prospectus.
On March 6, 1997, L.L.C. was formed to explore various business
opportunities in the wireless telecommunications industry,
principally related to PCS and cellular activities. During the
period from March 6, 1997 through October 1, 1997, L.L.C.s
activities consisted principally of hiring a management team,
raising capital, and negotiating strategic business
relationships, primarily related to PCS business opportunities.
Triton PCS, Inc.(formerly Triton PCS License Company, Inc., with
its subsidiaries referred to as Triton) was formed on October 2,
1997 as a wholly owned subsidiary of Triton PCS Holdings, Inc.
(formerly Triton PCS, Inc. referred to as Holdings).Subsequent to
October 2, 1997, the above activities continued but were
conducted primarily through Triton. Consequently, for purposes of
the accompanying financial statements, L.L.C. has been treated as
a predecessor entity. The chief executive officer of L.L.C. is
also the chief executive officer of Holdings and Triton. As a
result of this relationship, certain financing relationships and
the similar nature of the business activities conducted by each
respective legal entity, L.L.C. and Triton are considered
companies under common control.
Overview
The Company intends to become a leading provider of wireless
broadband PCS in the southeastern United States. The Company was
established by Michael Kalogris, Steven Skinner and other former
executives of Horizon Cellular Group, along with various private
equity investors, with the intent to develop and operate a
leading PCS network in the Southeast. In October 1997, the
Company entered into a joint venture agreement with AT&T PCS, a
wholly-owned subsidiary of AT&T Corp., whereby the Company will
be the exclusive provider of wireless mobility services under the
AT&T consumer brand name in a contiguous area covering
approximately 11 million Pops (population equivalents) in the
southeastern United States. AT&T PCS contributed the PCS Licenses
to the Company covering the Licensed Area in exchange for an
equity interest in Holdings. Additionally, the Company is a party
to agreements with AT&T that, among other things, allow the
Company to benefit from AT&Ts nationwide wireless foot print and
promotional and marketing efforts and provide the Company with
favorable roaming and long distance rates for services on AT&Ts
wireless and long distance networks. The PCS Licenses authorize
the Company to provide PCS services to such major population and
business centers as Charleston, SC, Columbia, SC,
Greenville/Spartanburg, SC, Richmond, VA and Augusta, GA, as well
as major resort destination such as Myrtle Beach, SC, Hilton
Head, SC and Kiawah Island, SC. The Company expects to commence
commercial operations by the end of the first quarter of 1999 or
shortly thereafter in the Initial Configuration.
On June 30, 1998, the Company acquired an existing cellular
system (the Myrtle Beach System), which serves Myrtle Beach, SC
and the surrounding area(the Myrtle Beach Acquisition), from
Vanguard Cellular Systems of South Carolina, Inc. for a purchase
price of approximately $163.8 million. The Company believes it
will seamlessly integrate the Myrtle Beach System, which uses
digital TDMA/IS-136 cellular technology, into its planned PCS
network as part of the Initial Configuration. Since the Myrtle
Beach System is within the Licensed Area, it will operate under
the AT&T Agreements. The Company expects that the Myrtle Beach
Acquisition will (i) provide the Company with a system that
currently generates positive cash flow, (ii) accelerate the
ability of the Company to capture roaming traffic generated by
Myrtle Beachs highly transitory population, (iii) accelerate the
Companys time-to-market in South Carolina and(iv) render a PCS
build-out in the Myrtle Beach region unnecessary.
The Company has signed a purchase agreement to acquire from AT&T
PCS, Inc. (the Norfolk Acquisition) (i) an FCC license to use
20MHz of authorized frequencies to provide broadband PCS services
throughout the entirety of the Norfolk, Virginia BTA and (ii)
certain assets of AT&T PCS used in the operation of the PCS
system in such BTA for an aggregate purchase price of $105
million, including $13.5 million of Series D Holdings Preferred
Stock to be issued to AT&T PCS. In addition, the company has
received equity commitments of $16.5million from certain
institutional investors related to the acquisition. The build-out
of the network relating to the Norfolk Acquisition, including the
installation of a switch, has been substantially completed. The
Norfolk Acquisition is subject to closing conditions typical in
acquisitions of this nature. There can be no assurance that the
Norfolk Acquisition will be consummated on the terms described
herein or at all.
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 expects to launch commercial operations in the
Initial Configuration by the end of the first quarter of 1999 or
shortly thereafter. Upon completion of the Initial Configuration,
the Company 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 Company
expects to extend its coverage to approximately 85% of the Pops
in the Licensed Area by the end of the fourth quarter of 2001,
which the Company believes will generally provide greater
coverage than current cellular operators in such markets. 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, successfully deploying the PCS network and
attaining profitable levels of market demand for the Companys
products and services.
Financial Statement Adjustment
The Companys combined financial statements as of and for the
three and nine months periods ended September 30, 1998 as
originally presented have been adjusted to reflect deferred
compensation related to the issuance of 49,137 shares of common
stock of Holdings to employees. In February 1998, Holdings granted
16,876 shares of restricted stock to certain employees. Deferred
compensation for the stock granted to employees of $307,017, net
of $30,671 for forfeited shares was recorded in 1998 in connection
with the adjustment based on the estimated fair value at the time
of issuance. In June 1998, additional shares of 32,261 were issued
as anti-dilutive protection related to capital contributions received
by Holdings for the Myrtle Beach transaction. Deferred compensation of
$2,848,773 was recorded for stock granted to employees, net of
forfeitures in connection with the adjustment. Deferred compensation
will amortize into income over five years and $32,645 and $338,645
was amortized into income for the three and nine month periods ended
September 1998. The following is a reconciliation of the adjusted amounts:
As originally
Presented Adjustment As Adjusted
Balance Sheet at September 30, 1998:
Additional paid in capital $181,821,116 $3,155,790 $184,976,906
Accumulated deficit 17,443,879 338,645 17,782,524
Deferred compensation - 2,817,145 2,817,145
Statement of Operations:
Three months ended September 1998
Non-cash compensation $ - $32,645 $32,645
Net loss 6,622,230 32,645 6,654,875
Nine months ended September 1998
Non-cash compensation $ - $338,645 $338,645
Net loss 13,483,040 338,645 13,821,685
Results of Operations
Three months ended September 30, 1998 compared to three months ended
September 30, 1997
Revenues for the three months ended September 30, 1998 were $ 8.8
million related to the Myrtle Beach area. Service revenues were
$ 5.7 million for the quarter, primarily due to an increasing
customer base and increased roaming revenues for the quarter due
to seasonality of roaming traffic in the Myrtle Beach Area.
Equipment revenues were $ 0.4 million for the quarter, primarily
due to sales of handsets and accessories to new customers.
Roaming revenues were $ 2.7 million for the quarter ended
September 30, 1998.
General and Administrative expenses increased $8.8 million to
$9.7 million for the three months ended September 30, 1998 as
compared to the same period in 1997, primarily due to
administrative costs associated with the Myrtle Beach Area and
the establishment of the Companys corporate and regional
organizational structure. During the three months ended
September 30, 1998, depreciation and amortization expenses were $
3.0 million. The increase related primarily to the depreciation
of the assets acquired in Myrtle Beach and the amortization of
the Myrtle Beach license.
For three months ended September 30, 1998, non-cash compensation
was $32,645. This amount relates to the issuance of common and
preferred stock of Holdings to employees. There were no non-cash
compensation charges in 1997.
For the three months ended September 30, 1998, interest expense
was $ 11.7 million, net of capitalized interest of
$ 0.5 million. The Company had borrowings of $ 455.4 million as
of September 30, 1998, with a weighted average interest rate of
10.11 %.
For the three months ended September 30, 1998, interest income
was $ 4.1 million related to interest income on its cash and cash
equivalents. Available cash increased significantly in August
after drawing down $75 million on the Companys outstanding bank
credit facility.
For the three months ended September 30, 1998, the Company
recorded a tax benefit of $ 4.1 million related to temporary
deductible differences, primarily net operating losses, arising
during the current and prior year. Management has concluded that
a valuation allowance is not necessary for these items due to the
scheduled reversal of existing taxable temporary differences
within the applicable carry forward period of those deductible
differences, which arose in connection with the AT&T transaction.
Accordingly, management believes it is more likely than not that
all recorded deferred tax assets will be realized.
The net loss increased $5.3 million to $6.7 million for the three
months ended September 30, 1998 as compared to the same period in
1997. The loss resulted primarily from the items discussed
above.
Nine months ended September 30, 1998 compared to nine months
ended September 30, 1997
Revenues for the nine months ended September 30, 1998 was $8.8
million related to the Myrtle Beach Acquisition. For the nine
months ended September 30, 1998, service revenues were $5.7
million, and equipment revenues were $0.4 million, respectively,
which represents third quarter activity of the Myrtle Beach Area
subsequent to the acquisition on June 30, 1998. Roaming revenue
was $2.7 million for the nine months ended September 30, 1998.
General and Administrative expenses increased $8.8 million for
the nine months ended September 30, 1998, primarily due to
administrative costs associated with the Myrtle Beach Acquisition
and the establishment of the Companys organizational structure.
During the nine months ended September 30, 1998, depreciation and
amortization expenses were $4.3 million and relates to the
depreciation of the Myrtle Beach assets and the amortization of
the Myrtle Beach license.
For the nine months ended September 30, 1998 non-cash
compensation was $ 0.3 million. This amount relates to the
issuance of common and preferred stock of Holdings to employees.
There were no non-cash compensation charges in 1997.
For the nine months ended September 30, 1998, interest expense
was $21.6 million, net of capitalized interest of
$0.8 million. The Company had borrowings of $455.4 million as of
September 30,1 998, with a weighted average interest rate of
10.11%.
For the nine months ended September 30, 1998, interest income was
$6.9 million, due primarily to interest income on its cash and
cash equivalents. Available cash increased significantly during
the nine months due to process of $150 million from the Companys
outstanding bank credit facility and proceeds of $291 million
from the subordinated offering in May 1998.
For the nine months ended September 30, 1998, the Company
recorded a tax benefit of $10.9 million related to temporary
deductible differences, primarily net operating losses, arising
during the current and prior year. Management has concluded that
a valuation allowance is not necessary for these items due to the
scheduled reversal of existing taxable temporary differences
within the applicable carry forward period of those deductible
differences, which arose in connection with the AT&T transaction.
Accordingly, management believes it is more likely than not that
all recorded deferred tax assets will be realized.
The net loss increased $12.0 million to $13.8 million for the nine
months ended September 30, 1998 as compared to the same period in
1997. The loss resulted primarily from the items discussed
above.
Liquidity and Capital Resources
Net Cash Used In Operating Activities
Net cash used in operating activities decreased $0.6 million to
$0.2 million as compared to the same period in 1997. The decrease
is due primarily to an increase in the Companys net loss, as
adjusted to cash used in operating activities, of $4.6 million,
offset by a positive change in working capital of$5.2 million due
to increases in accounts payable and accrued expenses related to
the operations in the Myrtle Beach area and the ongoing
establishment of the Companys corporate and regional
organizational structures.
Net Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended
September 30, 1998 was $197.1 million due to capital expenditures
related to the initial network build-out and the establishment of
administrative operations and the payments of approximately
$163.9 million attributable to the Myrtle Beach Acquisition
completed on June 30, 1998.
Net Cash Provided By Financing Activities
Net cash provided by financing activities for the nine months
ended September 30, 1998 was $497.4 million, an increase of
$495.7 million over the period from March 6, 1997 to September
30, 1997. During the period, the Company had net proceeds from
borrowings under the Bank Credit Facility of $150 million. The
Company had net proceeds from borrowings under the High Yield
Offering $290 million net of an initial purchasers discount of
$9.0 million and fees and expenses of $1.0 million. In addition,
the Company received capital contributions of $68.3 million from
Holdings related to funding of capital commitments by the initial
cash equity investors and receipt of additional capital
commitments related to the pending Myrtle Beach Acquisition.
Liquidity
The build-out of the Companys PCS network and the marketing of
the Companys PCS services will require substantial capital. As it
completes its build-out, the Company will be highly leveraged.
The Company currently estimates that its capital requirements
(including capital expenditures, working capital, debt service
requirements and anticipated operating losses) for the period
from inception through year-end 2001 (assuming substantial
completion of the Companys network build-out of the Pops in the
Licensed Area by such time) will total approximately $859
million. Actual amounts of the funds required may vary materially
from these estimates.
The Company is engaged in a substantial construction project. The
Company expects to spend $167 million on the build-out of its
initial coverage area by year-end 1998. The build-out will
include the installation of two switches and the lease or
acquisition of approximately 500 cell sites, as well as spectrum
clearing costs, retail store fit out, and administrative systems.
The Company estimates that it will spend $185 million in 1999 as
it continues its build out, which will include such activities as
cell site acquisitions, construction, and costs related to its
administrative systems, spectrum clearing, switch software and
retail store fit outs. The preceding capital forecasts exclude
internal engineering and capitalized interest costs.
The Company currently has no sources of revenue to meet its
capital requirements other than from the Myrtle Beach
Acquisition. Accordingly, the Companys revenues will remain
insufficient to meet its capital requirements. The Cash Equity
Investors and certain Management Stockholders 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. To date, the Cash Equity Investors,
along with the Management Stockholders, have contributed an
aggregate of $45 million. The Cash Equity Investors, along with
Management Stockholders, will contribute an additional $35million
on each of the first and second anniversaries of the Securities
Purchase Closing Date and $25 million on the third anniversary of
the Securities Purchase Closing Date. In addition, the Company
has received an additional equity commitment of $35 million of
these commitments have been received. These funds were
concurrently contributed to the Company.
Through September 30, 1998, Holdings received commitments for $55
million in equity contributions related to (i) the Norfolk
acquisition and (ii) a potential contribution by AT&T PCS of
additional PCS licenses to the company. These commitments are
contingent on the completion of the pending acquisition.
On February 3, 1998, the Company entered into the Credit
Facility. The 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 4, 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, $150million of the Tranche B Term Loans have
been drawn by the Company, which are expected to fund the
Companys 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 subsidiaries.
On May 7, 1998, the Company completed an offering (the Offering)
of $511,989,000 of 11% Senior Subordinated Discount Notes due
2008 (the Notes),pursuant to Rule 144A of the Securities Act of
1933, as amended. The net proceeds of the Offering (after
deducting an Initial Purchasers Discount of $9million and fees
and expenses of the offering of $1 million) were $290 million.
The Company used $135 million of the net proceeds to acquire the
Myrtle Beach System. The Company intends to use the balance of
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)
operating losses; (iv) general corporate purposes, and (v)
potential acquisitions.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard
No. 130, Reporting Comprehensive Income (SFAS 130), which was
effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-
purpose financial statements. Comprehensive income is the change
in equity of a business enterprise during a period from
transactions and the events and circumstances from non-owner
sources. For the periods presented in the accompanying
statements of operations, comprehensive income equals the amounts
reported on the accompanying statement of operations.
In June 1997, the FASB issued Statement No. 131, Disclosures
About Segments of an Enterprise and Related Information (SFAS
131). This statement establishes additional standards for segment
reporting in the financial statements and is effective for fiscal
years beginning after December 15, 1997. The Company adopted
SFAS 131 during the current period. The effect of initial
application of the statement did not have a material effect on
the Companys financial statements.
In February 1998, the FASB issued Statement No. 132, Employees
Disclosures about Pensions and Other Postretirement Benefits
(SFAS 132). This statement is effective for fiscal years
beginning after December 15, 1997. It is not expected that
application of this statement will have a material effect on the
Companys financial statements.
In April 1998, the Accounting Standards Executive Committee
(AcSEC) of the AICPA issued Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-up Activities (SOP 98-5). This
statement requires that the costs of start-up activities,
including organization costs, be expensed as incurred and is
effective for fiscal years beginning after December 31, 1998.
The Company has elected early adoption of this statement
beginning in fiscal year ending December 31, 1998. The effect of
initial application of the statement did not have a material
effect on the Companys financial statements.
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133. The
Company has not yet fully analyzed the impact of this statement
on its financial statements.
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. This issue will impact not only Information
Technology (IT), but Non-IT systems as well, given Non-IT systems
typically include embedded technology such as microcontrollers.
If date sensitive software recognize the year 00 as the year 1900
rather than the Year 2000, the potential exists for computer
system failure or miscalculations, which could cause disruption
of operations.
Given that the Company is in the development stage, and is
currently in the process of selecting and implementing its
operational and financial systems, the Company believes that it
has adequately considered Year 2000 compliance in its selection
of IT systems. In addition, given the nature of the Companys
operations, potential non-compliance of Non-IT systems are not
expected to have a significant impact on the Company. However,
there can be no assurance that non-compliance of Non-IT systems
will not have a material adverse effect on the Company or its
operations.
The Company has initiated communications with all of its
significant software suppliers and service bureaus to determine
their plans for remediating the Year 2000 Issue in their software
which the Company uses or relies upon. The Companys estimate to
complete the remediation plan includes the estimated time
associated with mitigating the Year 2000 Issue for third party
software. However, there can be no guarantee that the systems of
other companies on which the Company relies will be converted on
a timely basis, or that a failure to convert by another company
would not have material adverse effect on the Company.
A thorough assessment of the Year 2000 Issue relative to the
Myrtle Beach Acquisition will be performed. The Company intends
to migrate the Myrtle Beach operational and financial systems to
the systems currently being implemented for the Company and
expects to complete this migration by December 31, 1998. There
can be no assurance that this migration will be successful. The
failure to successfully migrate the Myrtle Beach operational and
financial systems into the Companys systems could have a material
adverse effect on the Company.
The costs and risks associated with the Year 2000 Issue are not
expected to have a significant impact on the Company.
Inflation
The Company does not believe that inflation has had a material
impact on the Companys operations. However, there can be no
assurance that a high rate of inflation in the future will not
have a material adverse effect on the Companys operating results.
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 5. Other Information
On October 31, 1998 the Company consummated a fully
subscribed registered exchange offer for the notes (the
Exchange Offer) to satisfy certain of the Companys
obligations under a registration rights agreement relating
to the notes. The form and terms of the notes issued
under the Exchange Offer are substantially identical in
all material respects to the form and terms of the notes
used on May 7, 1998.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
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
Chairman & CEO
By: /S/ David D. Clark
----------------------------
David D. Clark
Senior Vice President & CFO
THIS PROSPECTUS IS FILED
PURSUANT TO RULE 424 (B) (3) OF THE SECURITIES ACT OF 1933.
PROSPECTUS SUPPLEMENT
TO PROSPECTUS
DATED OCTOBER 30, 1998
TRITON PCS, INC.
11% SENIOR SUBORDINATED DISCOUNT NOTES
DUE 2008
ATTACHED IS THE COMPANYS REPORT ON FORM [10-Q]
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