<PAGE>
Type: 10Q
Sequence: 1
Description: Form 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBERS: 333-57715 and
333-57715-01 through 06
TRITON PCS, INC.
TRITON PCS OPERATING COMPANY L.L.C.*
TRITON PCS LICENSE COMPANY L.L.C.*
TRITON PCS EQUIPMENT COMPANY L.L.C.*
TRITON PCS PROPERTY COMPANY L.L.C.*
TRITON PCS HOLDINGS COMPANY L.L.C.*
TRITON MANAGEMENT COMPANY, INC. *
1100 Cassatt Road
Berwyn, PA 19312
(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 IDENTIFICATION
OF INCORPORATION OR ORGANIZATION) NUMBERS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
* The registrants meet the conditions set forth in General Instructions
(H) (1) (a) and (b) of Form 10-Q and are therefore filing
this Form with the reduced disclosure format provided therein.
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
______ ------
<PAGE>
TRITON PCS, INC.
SECOND QUARTER REPORT
Table of Contents
PART I Financial Information
Item 1. Financial Statements
Condensed Balance Sheets at December 31, 1999 and June 30, 2000
(unaudited)
Consolidated Statements of Operations and Comprehensive Loss for the
three and six months ended June 30, 1999 and 2000 (unaudited)
Consolidated Statements of Cash Flows for the six months ended June 30,
1999 and 2000 (unaudited)
Notes to the Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. Financial Information
Item I. Financial Statements
TRITON PCS, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
(unaudited) (unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 186,251 $ 47,062
Due from related party 1,099 490
Accounts receivable, net of $1,765 and $1,951 29,064 37,527
Inventory, net 15,270 18,021
Prepaid expenses and other current assets 7,674 11,728
---------------------------
Total current assets 239,358 114,828
Property and equipment:
Land 313 313
Network infrastructure and equipment 304,656 465,692
Office furniture and equipment 38,382 44,784
Capital lease assets 5,985 7,914
Construction in progress 105,593 86,235
---------------------------
454,929 604,938
Less accumulated depreciation (33,065) (70,425)
---------------------------
Net property and equipment 421,864 534,513
Intangible assets, net 315,538 307,648
Other long-term assets 3,037 3,051
---------------------------
Total Assets $ 979,797 $ 960,040
===========================
LIABILITIES AND SHAREHOLDER'S EQUITY:
Current liabilities:
Accounts payable $ 82,129 $ 61,860
Accrued payroll and related expenses 9,051 6,463
Accrued expenses 4,890 17,806
Deferred revenue 5,526 8,808
Other liabilities 3,093 3,625
---------------------------
Total current liabilities 104,689 98,562
Bank credit facility 150,000 200,000
Senior subordinated debt 350,639 370,671
Capital lease obligations 3,997 4,728
Deferred income taxes 11,718 11,718
Deferred gain on sale of property and equipment 30,641 29,989
---------------------------
Total liabilities 651,684 715,668
Common Stock, $.01 par value, 1,000 shares
authorized; 100 shares issued and outstanding - -
Additional paid-in capital 531,026 548,642
Accumulated deficit (186,061) (272,766)
Deferred compensation (16,852) (31,504)
---------------------------
Total Shareholder's Equity 328,113 244,372
---------------------------
Total Liabilities and Shareholder's Equity $ 979,797 $ 960,040
===========================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TRITON PCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
1999 2000 1999 2000
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service revenues $11,118 $50,406 $17,662 $ 88,399
Roaming revenues 10,182 25,987 12,953 44,113
Equipment revenues 5,402 8,843 7,627 15,572
------- ------- ------- --------
Total revenue 26,702 85,236 38,242 148,084
Expenses:
Cost of service (excluding noncash
compensation of $0 and $114 for the
three months ended June 30, 1999 and
2000, respectively and $0 and $175 for
the six months ended June 30, 1999 and
2000, respectively) 11,938 31,106 18,525 57,491
Cost of equipment 9,212 17,337 12,816 29,068
Selling and marketing (excluding noncash
compensation of $0 and $321 for the
three months ended June 30, 1999 and
2000, respectively and $0 and $413 for
the six months ended June 30, 1999 and
2000, respectively) 14,269 25,150 21,915 44,695
General and administrative (excluding
noncash compensation of $526 and $1,286
for the three months ended June 30, 1999
and 2000, respectively and $936 and
$2,330 for the six months ended June 30,
1999 and 2000, respectively) 8,789 18,731 16,598 36,180
Non-cash compensation 526 1,721 936 2,918
Depreciation and amortization 10,458 23,130 15,969 44,909
------- ------- ------- --------
Loss from operations (28,490) (31,939) (48,517) (67,177)
Interest expense, net of capitalized interest 8,847 11,824 18,847 23,660
Interest and other income 1,532 1,421 2,652 4,132
------- ------- ------- -------
Net loss (35,805) (42,342) (64,712) (86,705)
======== ======== ======== ========
Unrealized Gain on securities 735 - 735 -
Comprehensive Loss ($35,070) ($42,342) ($63,977) ($86,705)
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TRITON PCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
<S> <C> <C>
1999 2000
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (64,712) $ (86,705)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 15,969 44,909
Bad debt expense 762 2,396
Accretion of interest 18,001 20,356
Non-cash compensation 936 2,918
Change in operating assets and liabilities:
Accounts receivable (15,947) (10,859)
Inventory (6,131) (2,751)
Prepaid expenses and other current assets (1,713) (4,054)
Other long-term assets (2,196) (14)
Accounts payable 3,568 (24,769)
Accrued payroll and related expenses 935 (2,588)
Deferred revenue 30 3,282
Accrued expenses 349 12,916
Other liabilities 574 (120)
--------- ---------
Net cash used in operating activities (49,575) (45,083)
Cash flows from investing activities:
Capital expenditures (111,397) (143,803)
Proceeds from maturity of short term investments 9,793 -
Purchase of marketable securites (22,504) -
--------- ---------
Net cash used in investing activities (124,108) (143,803)
Cash flows from financing activities:
Borrowings under credit facility - 50,000
Proceeds from issuance of stock in connection with private equity investment 35,000 -
Proceeds from issuance of stock in connection with Norfolk transaction 2,169 -
Contributions under employee stock purchase plan - 316
Payment of deferred transaction costs (218) (270)
(Advances to) proceeds from related party, net (70) 609
Principal payments under capital lease obligations (120) (958)
--------- ---------
Net cash provided by financing activities 36,761 49,697
Net decrease in cash (136,922) (139,189)
Cash and cash equivalents, beginning of period 146,172 186,251
--------- ---------
Cash and cash equivalents, end of period $ 9,250 $ 47,062
========= =========
Non-cash investing and financing activities:
Capital expenditures included in accounts payable 116 4,512
Deferred stock compensation 9,868 17,570
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TRITON PCS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(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, 2000 are not indicative of the
results that may be expected for the year ending December 31, 2000. The
financial information presented herein should be read in conjunction with
the consolidated financial statements for the year ended December 31, 1999
which include information and disclosures not included herein.
Triton is a wholly owned subsidiary of Triton PCS Holdings, Inc.
("Holdings" or "Parent"). Triton PCS Operating Company L.L.C., Triton PCS
License Company L.L.C., Triton PCS Equipment Company L.L.C., Triton PCS
Property Company L.L.C., Triton PCS Holdings Company L.L.C. and Triton
Management Company, Inc. are each wholly-owned subsidiaries of Triton. The
consolidated accounts of the Company include Triton and its 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 SFAS 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 results of operations, financial
position, or cash flows.
On April 3, 2000 FASB issued FASB Interpretation ("FIN") No. 44,
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB No. 25" which clarifies, among other issues, (a) the
definition of employee for purposes of applying APB No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequences of various modifications to the terms
of a previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN No. 44
is effective July 1, 2000, but certain conclusions in FIN No. 44 cover
specific events that occur after December 15, 1998. To the extent that FIN
No. 44 covers events occurring during the period after December 15, 1998,
but before the effective date of July 1, 2000, the effects of applying FIN
No. 44 are recognized on a prospective basis from July 1, 2000. Management
anticipates that the impact will not be material to the Company's financial
position or results of operations.
On June 26, 2000 the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101B which amends the implementation date
of SAB No. 101, "Revenue Recognition", to no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. SAB No. 101
provides guidance on the recognition, presentation, and disclosure of
revenue in the financial statements. Management anticipates the impact will
not be material to the Company's financial position or results of
operations.
(3) Employee Stock Purchase Plan
Holdings maintains an Employee Stock Purchase Plan ("the Plan"). Under the
terms of the Plan, during any calendar year there are four three-month
offering periods beginning January 1st, April 1st, July 1st and October
1st, during which employees can participate. The purchase price is
determined at the discretion of the Stock Plan Committee, but shall not be
less than the lesser of: (i) eighty-five percent (85%) of the fair market
value on the first business day of each offering period or (ii) eighty-five
percent (85%) of the fair market value on the last business day of the
offering period. Holdings issued 4,596 shares of Class A common stock, at a
per share price of $49.09, in July 2000 and 8,840 shares of Class A common
stock, at a per share price of $35.81, in April 2000 pursuant to the Plan.
<PAGE>
(4) Stock Compensation
On March 22, 2000, Holdings granted, through a common stock trust
established for grants of common stock to management employees and
independent directors (the "Trust"), 237,511 shares of restricted Class A
common stock to certain management employees. These shares are subject to
five-year vesting provisions. Deferred compensation of approximately $15.1
million was recorded based on the estimated fair value at the date of
issuance. In February 2000, an employee resigned employment with the
Company and forfeited $0.7 million of deferred compensation and returned
94,970 shares to the common stock trust established for grants of common
stock to management employees and independent directors.
On May 23, 2000, Holdings granted, through the Trust, 75,000 shares of
restricted Class A common stock to a management employee. These shares are
subject to five-year vesting provisions. Deferred compensation of
approximately $3.4 million was recorded based on the estimated fair value
at the date of issuance. During the second quarter of 2000, $0.2 million of
deferred compensation was forfeited and 3,751 shares were returned to the
Trust as a result of individuals resigning their employment with the
Company.
(5) Credit Facility Draw
On February 3, 1998, Triton entered into a bank credit facility for an
aggregate amount of $425.0 million of borrowings. On September 22, 1999,
the Company entered into an amendment to the bank credit facility under
which the credit available was increased to $600.0 million. This credit
facility provides for (i) a $175 million Tranche A term loan, which matures
in August 2006 (ii) a $150 million Tranche B term loan, which matures in
May 2007 (iii) a $175 million Tranche C term loan, which matures in August
2006 and (iv) a $100 million revolving credit facility, which matures in
August 2006. As of June 30, 2000, the Company had $150 million of the
Tranche B term loan outstanding and $50 million of the Tranche A term loan
outstanding.
(6) Interest Rate Swaps
Triton uses interest rate swap contracts to adjust the proportion of total
debt that is subject to variable and fixed interest rates. The Company does
not hold or issue financial instruments for trading or speculative
purposes. Swap counterparties are major commercial banks.
Triton entered into several interest rate swaps during the second quarter
of 2000. Under these interest rate swap contracts, the Company agrees to
pay an amount equal to a specified fixed-rate of interest times a notional
principal amount and to receive in turn an amount equal to specified
variable-rate of interest times the same notional amount. The notional
amounts of the contracts are not exchanged.
Information, as of June 30, 2000, for the interest rate swaps entered into
in June 2000 is as follows:
<TABLE>
<CAPTION>
Payable @
Term Notional Fixed Rate Variable Rate 6/30/00 Fair Value
---- -------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
6/12/00 - 6/12/03 $75,000,000 6.9025% 6.80% $3,203 $354,080
6/15/00 - 6/16/03 $50,000,000 6.895% 6.81% $1,771 $246,080
7/17/00 - 7/15/03 $25,000,000 6.89% USD-LIBOR-BBA n/a n/a
8/15/00 - 8/15/03 $25,000,000 6.89% USD-LIBOR-BBA n/a n/a
</TABLE>
The variable rate is capped at 7.5% for the above interest rate swaps.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
As used herein, the terms, "Triton," "we," "our" and similar terms refer
collectively to Triton PCS, Inc and its consolidated subsidiaries. The
following discussion and analysis is based upon our financial statements as of
the dates and for the periods presented in this section. You should read this
discussion and analysis in conjunction with our financial statements and the
related notes contained elsewhere in this report.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q and in future filings by us with the Securities and
Exchange Commission, in our press releases and in oral statements made with the
approval of an authorized executive officer of Triton, the words or phrases
"will likely result," "management expects" or "management anticipates," "will
continue," "is anticipated," "is estimated" or similar expressions (including
confirmations by an authorized executive officer of Triton or any such
expressions made by a third party with respect to Triton) 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. We have 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.
OVERVIEW
We were incorporated in October 1997. In February 1998, we entered into a joint
venture with AT&T Wireless PCS LLC (AT&T") whereby AT&T contributed to us
personal communications services licenses covering 20 MHz of authorized
frequencies in a contiguous geographic area encompassing portions of Virginia,
North Carolina, South Carolina, Tennessee, Georgia and Kentucky. As part of this
agreement, AT&T became our largest equity holder, and we were granted the right
to be the exclusive provider of wireless mobility services using equal emphasis
co-branding with AT&T in our licensed markets.
We began generating revenues from the sale of personal communications services
in the first quarter of 1999 as part of Phase I of our personal communications
services network build-out. Our personal communications services network build-
out is scheduled for three phases. We completed the first phase of our build-out
in the first half of 1999 with the launch of 15 markets and completed the second
phase during the first quarter of 2000, launching 21 additional markets. We
have began the third phase of our network build-out which is expected to be
completed by the end of 2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Subscribers
Net subscriber additions were 58,362 and 34,586 for the three months ended June
30, 2000 and 1999, respectively. Subscribers were 300,982 and 78,364 as of June
30, 2000 and 1999, respectively. The increase in subscribers over the same
period in 1999 was primarily due to launching 21 additional markets between July
1, 1999 and June 30, 2000 as part of the Phase II network build-out, offering
three full months of service in the 15 markets launched as part of our Phase I
build-out, and continued strong demand for our digital service offerings and
pricing plans.
Revenues
Service revenues were $50.4 million and $11.1 million for the three months ended
June 30, 2000 and 1999, respectively. The increase in service revenues of $39.3
million was due primarily to subscriber growth. Of this increase, $34.4 million
occurred in markets launched prior to June 30, 1999 and $4.9 million in the 21
additional markets launched between July 1, 1999 and June 30, 2000. Equipment
revenues were $8.8 million and $5.4 million for the three months ended June 30,
2000 and 1999, respectively. The equipment revenues increase of $3.4 million
over the same period in 1999 was due primarily to the increase in gross
additions in the 21 additional
<PAGE>
markets launched. Roaming revenues were $26.0 million and $10.2 million for the
three months ended June 30, 2000 and 1999, respectively. The increase in roaming
revenues of $15.8 million was due to increased roaming minutes of use.
Costs of Service and Equipment
Costs of service and equipment were $48.4 million and $21.1 million for the
three months ended June 30, 2000 and 1999, respectively. The increase of $27.3
million over the same period in 1999 was due primarily to increases of $19.2
million in cost of service due to the deployment of network infrastructure as
part of our Phase II build-out and increases of $8.1 million in equipment costs
due to an increase in subscriber additions.
Selling and Marketing Expenses
Selling and marketing costs were $25.2 million and $14.3 million for the three
months ended June 30, 2000 and 1999, respectively. The increase of $10.9 million
over the same period in 1999 was primarily due to advertising and promotion
costs associated with the 21 additional markets launched as part of our Phase II
network build-out, and promoting the 15 Phase I markets for a full three months.
General & Administrative Expenses
General and administrative expenses were $18.7 million and $8.8 million for the
three months ended June 30, 2000 and 1999, respectively. The increase of $9.9
million over the same period in 1999 was primarily due to the development and
growth of infrastructure and staffing related to information technology,
customer care and other administrative functions established in conjunction with
launching 21 additional markets and the corresponding growth in subscriber base.
Non-cash Compensation
Non-cash compensation was $1.7 million and $0.5 million for the three months
ended June 30, 2000 and 1999, respectively. The increase of $1.2 million over
the same period in 1999 was attributable to the vesting of an increased number
of restricted shares.
Depreciation & Amortization Expenses
Depreciation and amortization expenses were $23.1 million and $10.5 million for
the three months ended June 30, 2000 and 1999, respectively. The increase of
$12.6 million over the same period in 1999 relates primarily to depreciation of
our fixed assets.
Interest Expense & Income
Interest expense was $11.8 million, net of capitalized interest of $2.8 million,
for the three months ended June 30, 2000. Interest expense was $8.8 million,
net of capitalized interest of $4.3 million, for the three months ended June 30,
1999. The increase of $3.0 million over the same period in 1999 relates
primarily to greater commitment fees for the increase in our credit facility
from $450.0 million to $600.0 million in September 1999, less capitalized
interest as a result of assets placed into service, and an additional $50
million draw on our credit facility in June 2000. For the three months ending
June 30, 2000, we had a weighted average interest rate of 11.05% on our average
borrowings under our bank credit facility and our average obligation for the
senior subordinated debt.
Interest income was $1.4 million and for the three months ended June 30, 2000
and 1999, respectively. Interest was earned on comparable cash balances during
both three-month periods.
Net Loss
Net loss was $42.3 million and $35.8 million for the three months ended June 30,
2000 and 1999, respectively. The increase of $6.5 million over the same period
in 1999 resulted primarily from the items discussed above.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Subscribers
Net subscriber additions were 105,778 and 44,520 for the six months ended June
30, 2000 and 1999, respectively. Subscribers were 300,982 and 78,364 as of June
30, 2000 and 1999, respectively. The increase in subscribers over
<PAGE>
the same period in 1999 was primarily due to launching 21 additional markets
between July 1, 1999 and June 30, 2000 as part of the Phase II network build-
out, offering six full months of service in the 15 markets launched as part of
our Phase I build-out, and continued strong demand for our digital service
offerings and pricing plans.
Revenues
Service revenues were $88.4 million and $17.7 million for the six months ended
June 30, 2000 and 1999, respectively. The increase in service revenues of
$70.7 million was due primarily to growth of subscribers. Of this increase,
$64.4 occurred in markets launched prior to June 30, 1999 and $6.3 million in
additional markets launched between July 1, 1999 and June 30, 2000. Equipment
revenues were $15.6 million and $7.6 million for the six months ended June 30,
2000 and 1999, respectively. The equipment revenues increase of $8.0 million
over the same period in 1999 was due primarily to the increase in gross
additions in the 21 additional markets launched between July 1, 1999 and June
30, 2000 as part of our Phase II network build-out and from offering six full
months of service in the 15 markets launched, in the first half of fiscal 1999,
as part of the Phase I build-out. Roaming revenues were $44.1 million and $13.0
million for the six months ended June 30, 2000 and 1999, respectively. The
increase in roaming revenues of $31.1 million was due to increased roaming
minutes of use.
Costs of Service and Equipment
Costs of service and equipment were $86.6 million and $31.3 million for the six
months ended June 30, 2000 and 1999, respectively. The increase of $55.3
million over the same period in 1999 was due primarily to increases of $39.0
million in cost of service due to the deployment of network infrastructure as
part of our Phase I and Phase II build-out and increases of $16.3 million in
equipment costs due to an increase in subscriber additions.
Selling and Marketing Expenses
Selling and marketing costs were $44.7 million and $21.9 million for the six
months ended June 30, 2000 and 1999, respectively. The increase of $22.8
million over the same period in 1999 was primarily due to advertising and
promotion costs associated with the 21 additional markets launched as part of
our Phase II network build-out and promoting the 15 Phase I markets for a full
six months.
General & Administrative Expenses
General and administrative expenses were $36.2 million and $16.6 million for the
six months ended June 30, 2000 and 1999, respectively. The increase of $19.6
million over the same period in 1999 was primarily due to the development and
growth of infrastructure and staffing related to information technology,
customer care and other administrative functions established in conjunction with
launching 21 additional markets and the corresponding growth in subscriber base.
Non-cash Compensation
Non-cash compensation was $2.9 million and $0.9 million for the six months ended
June 30, 2000 and 1999, respectively. The increase of $2.0 million over the same
period in 1999 was attributable to the vesting of an increased number of
restricted shares.
Depreciation & Amortization Expenses
Depreciation and amortization expenses were $44.9 million and $16.0 million for
the six months ended June 30, 2000 and 1999, respectively. The increase of $28.9
million over the same period in 1999 relates primarily to depreciation of our
fixed assets.
Interest Expense & Income
Interest expense was $23.7 million, net of capitalized interest of $5.3 million,
for the six months ended June 30, 2000. Interest expense was $18.8 million, net
of capitalized interest of $7.2 million, for the six months ended June 30, 1999.
The increase of $4.9 million over the same period in 1999 relates primarily to
greater commitment fees for the increase in our credit facility from $450.0
million to $600.0 million in September 1999, less capitalized interest as a
result of assets placed into service, and an additional $50 million draw on our
credit facility in June 2000. For the six months ending June 30, 2000, we had a
weighted average interest rate of 11.19% on our average borrowings under our
bank credit facility and our average obligation for the senior subordinated
debt.
<PAGE>
Interest income was $4.1 million and $2.5 million for the six months ended June
30, 2000 and 1999, respectively. The increase of $1.6 million over the same
period in 1999 was due primarily to interest on greater cash balances.
Net Loss
Net loss was $86.7 million and $64.7 million for the six months ended June 30,
2000 and 1999, respectively. The increase of $22.0 million over the same period
in 1999 resulted primarily from the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $47.1 million in cash and cash equivalents,
as compared to $186.3 million in cash and cash equivalents at December 31, 1999.
Net working capital was $16.3 million at June 30, 2000 and $134.7 million at
December 31, 1999.
Net Cash Used in Operating Activities
Cash used by operating activities, of $45.1 million, during the six-month period
ending June 30, 2000 relates primarily to operating the 36 established markets.
Net Cash Used in Investing Activities
The $143.8 million in cash used by investing activities during the six month
period ending June 30, 2000 was related to capital expenditures associated with
our Phase II and Phase III network build-out.
Net Cash Provided by Financing Activities
The $49.7 million provided by financing activities during the six-month period
ending June 30, 2000 relates primarily to our draw against our credit facility.
Liquidity
We believe that cash on hand and available credit facility borrowings, will be
sufficient to meet our projected capital requirements. Our credit facility will
permit us, subject to various terms and conditions, including compliance with
specified leverage ratios and satisfaction of build-out and subscriber
milestones, to draw up to $600.0 million to finance working capital
requirements, capital expenditures, permitted acquisitions and other corporate
purposes. Our borrowings under these facilities are subject to customary terms
and conditions. As of June 30, 2000, we had drawn $200.0 million. Although we
estimate that the cash on hand and available credit facility will be sufficient
to build-out our network and to enable us to offer services to 100% of the
potential customers in our licensed area, it is possible that additional funding
will be necessary.
INFLATION
We do not believe that inflation has had a material impact on operations.
NEW ACCOUNTING PRONOUNCEMENTS
On July 8, 1999, the Financial Accounting Standards Board, commonly known as
FASB, issued SFAS No. 137, "Deferral of the Effective Date of SFAS 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. We are currently evaluating the financial impact
of adoption of SFAS No. 133. The adoption is not expected to have a material
effect on our results of operations, financial position, or cash flows.
On April 3, 2000 FASB issued FASB interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB No. 25"
which clarifies, among other issues, (a) the definition of employee for purposes
of applying APB No. 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed
<PAGE>
stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FASB interpretation No. 44 is
effective July 1, 2000, but certain conclusions in FIN No. 44 cover specific
events that occur after December 15, 1998. To the extent that FASB
interpretation No. 44 covers events occurring during the period after December
15, 1998, but before the effective date of July 1, 2000, the effects of applying
FIN No. 44 are recognized on a prospective basis from July 1, 2000. We
anticipate the impact will not be material to our financial position or results
of operations.
On June 26, 2000 the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101B which amends the implementation date of Staff Accounting
Bulletin No. 101, "Revenue Recognition", to no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. Staff Accounting
Bulletin No. 101 provides guidance on the recognition, presentation, and
disclosure of revenue in the financial statements. We anticipate the impact
will not be material to our financial position or results of operations.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We utilize interest rate swaps to hedge against the effect of interest rate
fluctuations on our senior debt portfolio. We do not hold or issue financial
instruments for trading or speculative purposes. Swap counterparties are major
commercial banks. Through June 30, 2000, we had entered into six interest rate
swap transactions having an aggregate non-amortizing notional amount of $250.0
million. Under these interest rate swap contracts, we agree to pay an amount
equal to a specified fixed-rate of interest times a notional principal amount
and to receive in turn an amount equal to specified variable-rate of interest
times the same notional amount. The notional amounts of the contracts are not
exchanged. Net interest positions are settled quarterly. A 100 basis point
fluctuation in market rates would not have a material effect on our overall
financial condition.
Information, as of June 30, 2000, for the interest rate swaps entered into is as
follows:
<TABLE>
<CAPTION>
Term Notional Fixed Rate Variable Rate
---- -------- ---------- -------------
<S> <C> <C> <C>
12/8/98 - 12/4/03 $35,000,000 4.805% 6.86875%
12/8/98 - 12/4/03 $40,000,000 4.760% 6.86875%
6/12/00 - 6/12/03 $75,000,000 6.9025% 6.80%
6/15/00 - 6/16/03 $50,000,000 6.895% 6.81%
7/17/00 - 7/15/03 $25,000,000 6.89% USD-LIBOR-BBA
8/15/00 - 8/15/03 $25,000,000 6.89% USD-LIBOR-BBA
</TABLE>
The variable rate is capped at 7.5% for the interest rate swaps, with notional
amounts of $75.0 million, $50.0 million, $25.0 million and $25.0 million,
respectively. USD-LIBOR-BBA is the 3-Month LIBOR rate set by the British
Bankers Association.
Our cash and cash equivalents consist of short-term assets having initial
maturities of three months or less and are managed by high credit quality
financial institutions. While these investments are subject to a degree of
interest rate risk, it is not considered to be material relative to our overall
investment income position.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Triton PCS, Inc. (incorporated by
reference to the corresponding exhibit to the Form S-4 registration
statement of Triton PCS, Inc. and its subsidiaries, File No. 333-
7715 (the "Form S-4")).
3.2 Bylaws of Triton PCS, Inc. (incorporated by reference to the
corresponding exhibit to the Form S-4).
3.3 Certificate of Formation of Triton PCS Holdings Company L.L.C.
(incorporated by reference to the corresponding exhibit on the Form
S-4 Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-7715).
3.4 Certificate of Formation of Triton PCS License Company L.L.C.
(incorporated by reference to the corresponding exhibit on the Form
S-4 Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-7715).
3.5 Limited Liability Company Agreement of Triton PCS License Company
L.L.C. (incorporated by reference to the corresponding exhibit on
the Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-7715).
3.6 Limited Liability Company Agreement of Triton PCS Holdings Company
L.L.C. (incorporated by reference to the corresponding exhibit on
the Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-7715).
3.7 Certificate of Formation of Triton PCS Equipment Company L.L.C.
(incorporated by reference to the corresponding exhibit on the Form
S-4 Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-7715).
3.8 Limited Liability Company Agreement of Triton PCS Equipment Company
L.L.C. (incorporated by reference to the corresponding exhibit on
the Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-7715).
3.9 Certificate of Formation of Triton PCS Operating Company L.L.C.
(incorporated by reference to the corresponding exhibit on the Form
S-4 Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-7715).
<PAGE>
3.10 Limited Liability Company Agreement of Triton PCS Operating Company
L.L.C. (incorporated by reference to the corresponding exhibit on
the Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-7715).
3.11 Certificate of Formation of Triton PCS Property Company L.L.C.
(incorporated by reference to the corresponding exhibit on the Form
S-4 Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-7715).
3.12 Limited Liability Company Agreement of Triton PCS Property Company
L.L.C. (incorporated by reference to the corresponding exhibit on
the Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-7715).
4.1 Indenture, dated as of May 4, 1998, between Triton PCS, Inc., the
Guarantors party thereto and PNC Bank, National Association
(incorporated by reference to Exhibit 4.1 of the Form S-4
Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-57715).
4.2 First Supplemental Indenture, dated as of March 30, 1999, to the
Indenture dated as of May 4, 1998 (incorporated by reference to
exhibit 4.2 of the Form S-4).
10.1 Investors Stockholders' Agreement, dated as of February 4, 1998,
among CB Capital Investors, L.P., J.P. Morgan Investment
Corporation, Sixty Wall Street SBIC Fund, L.P., Private Equity
Investors III, L.P., Equity-Linked Investors-II, Toronto Dominion
Capital (U.S.A.), Inc., DAG-Triton PCS, L.P., First Union Capital
Partners, Inc., and the stockholders named therein (incorporated by
reference to Exhibit 10.10 to the Form S-4 Registration Statement of
Triton PCS, Inc. and its subsidiaries, File No. 333-57715).
10.2 Amendment No. 1 to Investor Stockholders' Agreement, dated as
of October 27, 1999 among CB Capital Investors, L.P., J.P. Morgan
Investment Corporation, Sixty Wall Street SBIC Fund, L.P., Private
Equity Investors III, L.P., Equity-Linked Investors-II, Toronto
Dominion Capital (U.S.A.), Inc., DAG-Triton PCS, L.P., First Union
Capital Partners, Inc., and the stockholders named therein
(incorporated by reference to exhibit 10.47 of the Form S-1)
10.3 First Amended and Restated Stockholders' Agreement, dated as
of October 27, 1999, among Triton PCS Holdings, Inc., AT&T Wireless
PCS LLC, and the cash equity investors and management stockholders
party thereto (incorporated by reference to exhibit 10.45 of the
Form S-1).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrants have duly caused this report to be signed on their
behalf by the undersigned, hereunto duly authorized, in the City of Berwyn,
State of Pennsylvania, on August 10, 2000.
Triton PCS, Inc.
By: /s/ Michael E. Kalogris
----------------------------------
Sole Director and CEO
By: /s/ David Clark
----------------------------------
Executive Vice President & CFO
Triton Management Company, Inc.
By: /s/ Michael E. Kalogris
----------------------------------
Sole Director and CEO
By: /s/ David Clark
----------------------------------
Executive Vice President & CFO
Triton PCS Holdings Company L.L.C.
By: Triton Management Company, Inc., its manager
By: /s/ Michael E. Kalogris
----------------------------------
Sole Director and CEO
By: /s/ David Clark
----------------------------------
Executive Vice President & CFO
Triton PCS Property Company L.L.C.
By: Triton Management Company, Inc., its manager
By: /s/ Michael E. Kalogris
----------------------------------
Sole Director and CEO
By: /s/ David Clark
----------------------------------
Executive Vice President & CFO
Triton PCS Equipment Company L.L.C.
By: Triton Management Company, Inc., its manager
By: /s/ Michael E. Kalogris
----------------------------------
Sole Director and CEO
By: /s/ David Clark
----------------------------------
Executive Vice President & CFO
<PAGE>
Triton PCS Operating Company L.L.C.
By: Triton Management Company, Inc., its manager
By: /s/ Michael E. Kalogris
----------------------------------
Sole Director and CEO
By: /s/ David Clark
----------------------------------
Executive Vice President & CFO
Triton PCS License Company L.L.C.
By: Triton Management Company, Inc., its manager
By: /s/ Michael E. Kalogris
----------------------------------
Sole Director and CEO
By: /s/ David Clark
----------------------------------
Executive Vice President & CFO
