FORM 10-Q. - Quarterly Report Under Section 23 or 15(d) of the Securities
Exchange Act of 1934
FORM 10-Q-QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No.
TRITEL, INC
(Exact name of registrant as specified in its charter)
Delaware 64-0896417
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
111 E. Capitol Street, Suite 500
Jackson, MS 39201
(Address of Principal Executive Offices)
(601) 914-8000
(Registrant's telephone number, including area code)
Indicate by 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[ ]
On August 10, 2000, there were 97,855,175 shares of class A voting common
stock, 2,927,120 shares of class B non-voting common stock, 1,380,448 shares
of class C common stock, 4,962,804 shares of class D common stock and 6 shares
of voting preference common stock outstanding.
Form 10-Q
Tritel, Inc.
Quarter Ended June 30, 2000
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Tritel, Inc. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets-
December 31, 1999 and June 30, 2000 ...........................2
Condensed Consolidated Statements of Operations-
Three and Six Month Periods Ended June 30, 1999 and
June 30, 2000..................................................3
Condensed Consolidated Statements of Cash Flows-
Three and Six Month Periods Ended June 30, 1999 and
June 30, 2000..................................................4
Notes to Condensed Consolidated Financial Statements...........5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.........................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................22
Item 4 Submission Of Matters To A Vote Of Security Holders.............22
Item 5. Other Information...............................................22
Item 6. Exhibits And Reports On Form 8-K................................22
Signature Page ........................................................... 24
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
TRITEL, INC.
Condensed Consolidated Balance Sheets
December 31, 1999 and June 30, 2000 (unaudited)
(amounts in thousands, except share data)
December 31, June 30,
1999 2000
--------------- ------------------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 609,269 350,573
Accounts receivable, net 5,040 14,325
Inventory 8,957 20,512
Prepaid expenses and other current assets 7,298 9,974
------------- --------------
Total current assets 630,564 395,384
Restricted cash 6,594 5,487
Property and equipment, net 262,343 415,651
Federal Communications Commission licensing costs, net 201,946 202,894
Intangible assets, net 59,508 56,646
Other assets 35,407 33,689
------------- --------------
Total assets $ 1,196,362 1,109,751
============= ==============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 923 974
Accounts payable and accrued liabilities 113,324 114,974
------------- --------------
Total current liabilities 114,247 115,948
------------- --------------
Non-current liabilities:
Long-term debt 557,716 571,464
Deferred income taxes and other liabilities 37,367 37,856
------------- --------------
Total non-current liabilities 595,083 609,320
------------- --------------
Total liabilities 709,330 725,268
------------- --------------
Series A 10% redeemable convertible preferred stock 99,586 104,119
------------- --------------
Stockholders' equity:
Preferred stock, authorized 3,100,000 shares:
Series D, outstanding 46,374 shares in 1999 and 2000 46,374 46,374
Common stock issued and outstanding at June 30, 2000
Class A Voting - 97,840,722 shares; Class B Non-voting - 2,927,120
shares; Class C - 1,380,448; Class D - 4,962,804 shares, Voting
Preference -- 6 shares 1,071 1,071
Additional paid in capital 611,277 748,432
Deferred compensation - (74,450)
Accumulated deficit (271,276) (441,063)
------------- --------------
Total stockholders' equity 387,446 280,364
------------- --------------
Total liabilities, redeemable preferred stock
and stockholders' equity $ 1,196,362 1,109,751
============= ==============
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
TRITEL, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three and Six Month Periods Ended June 30, 1999 and 2000
(amounts in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
------------------------------ --------------------------------
1999 2000 1999 2000
------------ ---------------- ------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ - 25,808 - 41,307
-------- ---------- -------- ----------
Operating expenses:
Cost of service and equipment - 15,409 - 29,111
Technical operations 1,990 11,795 3,946 21,987
General and administrative 4,314 17,097 7,204 26,425
Sales and marketing 1,708 16,464 2,724 28,603
Stock-based compensation - (46,186) - 62,111
Depreciation and amortization 1,865 14,324 3,474 24,875
-------- ---------- -------- ----------
Total operating expenses 9,877 28,903 17,348 193,112
-------- ---------- -------- ----------
Operating loss (9,877) (3,095) (17,348) (151,805)
Interest income 4,205 7,224 5,332 15,892
Financing cost - - (2,230) -
Interest expense (5,104) (16,056) (5,104) (30,416)
-------- ---------- -------- ----------
Loss before income taxes (10,776) (11,927) (19,350) (166,329)
Income tax benefit 4,121 570 6,448 1,076
-------- ---------- -------- ----------
Net loss (6,655) (11,357) (12,902) (165,253)
Series A preferred dividend (2,261) (2,267) (4,347) (4,534)
requirement -------- ---------- -------- ----------
Net loss available to
common stockholders $ (8,916) (13,624) (17,249) (169,787)
======== ========== ======== ==========
Basic and diluted
net loss per common share $ (2.94) (.12) (5.68) (1.43)
======== ========== ======== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
TRITEL, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three and Six Month Periods Ended June 30, 1999 and 2000
(amounts in thousands)
Three months ended Six months ended
June 30, June 30,
------------------------------- -----------------------------
1999 2000 1999 2000
------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,655) (11,357) (12,902) (165,253)
Adjustments to reconcile net loss to net
cash used in operating activities:
Financing costs - - 2,230 -
Depreciation and amortization 1,865 14,324 3,474 24,875
Stock-based compensation - (46,186) - 62,111
Accretion of discount on debt and
amortization of debt issuance costs - 7,233 - 13,705
Deferred income tax benefit (4,121) (570) (6,448) (1,076)
Provision for bad debts - 362 - 550
Changes in operating assets and liabilities:
Accounts receivable - (5,979) - (9,835)
Inventory - (3,352) - (10,805)
Accounts payable and accrued expenses 4,811 14,028 3,171 3,094
Change in other assets and liabilities (2,115) (1,683) (3,941) (2,384)
--------- --------- --------- ----------
Net cash used in operating activities (6,215) (33,180) (14,416) (85,018)
--------- --------- -------- ----------
Cash flows from investing activities:
Capital expenditures (22,329) (98,632) (44,687) (171,798)
Advance under notes receivable (50) - (7,550) -
Capitalized interest on network
construction and FCC licensing (2,181) (999) (5,896) (2,805)
costs
(Increase) decrease in restricted cash 436 - (7,957) 1,107
Other (325) 554 (325) (129)
---------- --------- --------- ----------
Net cash used in investing activities (24,449) (99,077) (66,415) (173,625)
--------- --------- -------- ----------
Cash flows from financing activities:
Proceeds from (repayments of)
long-term debt 200,240 (234) 400,240 (449)
Repayments of notes payable - - (22,100) -
Payment of debt issuance costs and
other deferred charges (9,272) - (36,473) (198)
Payment of stock issuance costs - (132) - (195)
Proceeds from vendor discount - - 15,000 -
Issuance of preferred stock - - 113,623 -
Proceeds from exercise of stock options - 737 - 789
--------- --------- -------- ----------
Net cash provided by (used in)
financing activities 190,968 371 470,290 (53)
--------- --------- -------- ----------
Net increase (decrease) in cash and cash
equivalents 160,304 (131,886) 389,459 (258,696)
Cash and cash equivalents at beginning of period 230,001 482,459 846 609,269
--------- --------- -------- ----------
Cash and cash equivalents at end of period $ 390,305 350,573 390,305 350,573
========= ========= ======== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
Tritel, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Tritel, Inc. ("Tritel") was formed on April 23, 1998 by the controlling
members of Airwave Communications LLC and Digital PCS, LLC, our
predecessor companies, to develop PCS markets in the south-central United
States. On January 7, 1999, our predecessor companies transferred
substantially all of their assets and liabilities at historical cost to
Tritel in exchange for 18,262 shares of series C preferred stock in
Tritel. The controlling members of our predecessor companies control
Tritel. Tritel continued the activities of our predecessor companies and,
for accounting purposes, this transaction was accounted for as a
reorganization of the predecessor company into a C corporation and a name
change to Tritel. Tritel and the predecessor company, together with
Tritel's subsidiaries, are referred to collectively as "the Company."
2. Merger with Telecorp PCS
On February 28, 2000, Tritel and TeleCorp PCS, Inc. announced the signing
of a definitive agreement and plan of reorganization and contribution,
called the Merger Agreement, for an all stock, tax-free merger, called
the Merger. The Merger Agreement provides for the creation of a new
entity to be called TeleCorp PCS, Inc. Tritel and TeleCorp will merge
into subsidiaries of the new entity.
Under the Merger Agreement, each share of Tritel class A voting common
stock will be converted into the right to receive 0.76 shares of the new
entity's class A common stock. This exchange ratio is fixed regardless of
future stock price movement.
Tritel and TeleCorp shareholders approved the Merger on August 8, 2000.
The Merger is still subject to regulatory approval.
3. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information
and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In
the opinion of management, the condensed consolidated financial
statements include all adjustments, consisting of normal recurring items,
necessary to fairly present the results of operations, financial position
and cash flows for the periods presented. The results of operations for
an interim period are not necessarily indicative of the results of
operations that may be expected for the complete fiscal year.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
for the year ended December 31, 1999 included in the Company's Annual
Report to Shareholders on Form 10-K.
4. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------
1999 2000
------------- ---------------
<S> <C> <C>
(Amounts in Thousands)
Supplementary Information:
Cash paid for interest, net of amounts capitalized $ 5,104 16,711
======= ========
Significant non-cash investing and financing activities:
Capitalized interest and discount on debt $ 455 2,301
======= ========
Capital expenditures included in accounts payable $ - 80,469
======= ========
</TABLE>
5. Stock Option Plan and Other Restricted Stock Awards
We have issued a total of 12,362,380 shares of our class A voting and
class C common stock to members of our management, primarily in
connection with the formation of the joint venture with AT&T Wireless
Services. These shares are subject to vesting and are currently held in
escrow. These shares are also subject to individual repurchase agreements
with each employee, which collectively were considered a "variable stock
plan" under generally accepted accounting principles. These individual
repurchase agreements were modified to remove the provision that required
the employees to surrender a portion of their vested shares. The
effective date of this modification, which occurred in June 2000, became
the measurement date upon which the value of the awards was fixed. Future
stock price movement will not result in charges that differ from this
amount. The stock-based compensation for the current quarter was a
benefit of $46.2 million and was an expense of $62.1 million for the six
months ended June 30, 2000. The Company will recognize additional
non-cash compensation expense related to these shares for the period from
2000 to 2004 of approximately $74.5 million.
6. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, ("FAS133"). FAS133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value. FAS133 will significantly
change the accounting treatment of derivative instruments and, depending
upon the underlying risk management strategy, these accounting changes
could affect future earnings, assets, liabilities, and shareholders'
equity. The Company is closely monitoring the deliberations of the FASB's
derivative implementation task force. With the issuance of Financial
Accounting Statement No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, which delayed the effective date of FAS133, the Company will be
required to adopt FAS133 on January 1, 2001. Presently, the Company has
not yet quantified the impact that the adoption will have on the
consolidated financial statements of the Company.
In December 1999, the SEC issued Staff Accounting Bulletin Number 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). The guidelines
in SAB 101 must be adopted during the fourth quarter of 2000. The Company
does not expect the adoption of these guidelines to have a material
impact on its consolidated financial statements.
7. Condensed Consolidating Financial Statements
The following condensed consolidating financial statements as of December
31, 1999 and June 30, 2000 and for the three and six month periods ended
June 30, 1999 and 2000 are presented for Tritel, Tritel PCS, those
subsidiaries of Tritel PCS who serve as guarantors and those subsidiaries
who do not serve as guarantors of the senior subordinated discount notes.
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
As of December 31, 1999
(Amounts in thousands) Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
-----------------------------------------------------------------------------
Current assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ - 613,999 (4,730) - - 609,269
Other current assets 2,462 1,407 17,426 - - 21,295
Intercompany receivables 1,799 210,673 - - (212,472) -
-------- ------- ------- ------- ------- -------
Total current assets 4,261 826,079 12,696 - (212,472) 630,564
Restricted cash - 6,594 - - - 6,594
Property and equipment, net - - 262,343 - - 262,343
Licenses and other intangibles 59,508 - - 201,946 - 261,454
Investment in subsidiaries 445,301 73,286 - - (518,587) -
Other long term assets - 62,633 82 - (27,308) 35,407
-------- ------- ------- ------- ------- -------
Total assets $ 509,070 968,592 272,121 201,946 (758,367) 1,196,362
=========== ======= ======= ======= ======= =========
Current liabilities:
Accounts payable, accrued
expenses and other current
liabilities $ 29 1,240 111,257 1,721 - 114,247
Intercompany payables - - 196,950 15,522 (212,472) -
-------- ------- ------- ------- ------- -------
Total current liabilities 29 1,240 308,207 17,243 (212,472) 114,247
Non-current liabilities:
Long-term debt - 516,734 27,121 40,982 (27,121) 557,716
Deferred income taxes and 22,009 5,318 (20,024) 30,251 (187) 37,367
other
-------- ------- ------- ------- ------- -------
Total liabilities 22,038 523,292 315,304 88,476 (239,780) 709,330
Series A redeemable convertible
preferred stock 99,586 - - - - 99,586
-------- ------- ------- ------- ------- -------
Stockholders' equity (deficit) 387,446 445,300 (40,183) 113,470 (518,587) 387,446
-------- ------- ------- ------- ------- -------
Total liabilities and
equity $ 509,070 968,592 272,121 201,946 (758,367) 1,196,362
=========== ======= ======= ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
As of June 30, 2000
(Amounts in thousands) Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ - 358,085 (7,512) - - 350,573
Other current assets 3,756 2,000 39,055 - - 44,811
Intercompany receivables - 449,808 - - (449,808) -
------------------------------------------------------------------------------
Total current assets 3,756 809,893 31,543 - (449,808) 395,384
Restricted cash - 5,487 - - - 5,487
Property and equipment, net - - 415,651 - - 415,651
Licenses and other intangibles 56,646 - - 202,894 - 259,540
Investment in subsidiaries 348,281 (12,476) - - (335,805) -
Other long term assets - 75,976 410 - (42,697) 33,689
------------------------------------------------------------------------------
Total assets $ 408,683 878,880 447,604 202,894 (828,310) 1,109,751
==============================================================================
Current liabilities:
Accounts payable, accrued
expenses and
other current liabilities $ 2,010 1,003 111,355 1,580 - 115,948
Intercompany payables 177 - 432,417 17,214 (449,808) -
------------------------------------------------------------------------------
Total current liabilities 2,187 1,003 543,772 18,794 (449,808) 115,948
Non-current liabilities:
Long-term debt - 530,497 42,409 40,967 (42,409) 571,464
Deferred income taxes and 22,013 (901) (13,213) 30,245 (288) 37,856
other liabilities
------------------------------------------------------------------------------
Total liabilities 24,200 530,599 572,968 90,006 (492,505) 725,268
------------------------------------------------------------------------------
Series A redeemable convertible
preferred stock 104,119 - - - - 104,119
------------------------------------------------------------------------------
Stockholders' equity (deficit) 280,364 348,281 (125,364) 112,888 (335,805) 280,364
------------------------------------------------------------------------------
Total liabilities and equity $ 408,683 878,880 447,604 202,894 (828,310) 1,109,751
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 1999
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
(Amounts in thousands) ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - - - - - -
------------------------------------------------------------------------------
Operating Expenses
Cost of services and equipment - - - - - -
Technical operations - - 1,900 - - 1,990
General and administrative 2 44 4,266 2 - 4,314
Sales and marketing - - 1,708 - - 1,708
Depreciation and amortization 1,849 (384) 400 - - 1,865
------------------------------------------------------------------------------
Total operating expenses 1,851 (340) 8,364 2 - 9,877
Operating loss (1,851) 340 (8,364) (2) - (9,877)
Interest income 39 4,121 45 - - 4,205
Interest expense - (5,104) - - - (5,104)
------------------------------------------------------------------------------
Income (loss) before income taxes (1,812) (643) (8,319) (2) - (10,776)
Income tax benefit (expense) 693 246 3,182 - - 4,121
------------------------------------------------------------------------------
Net loss $ (1,119) (397) (5,137) (2) - (6,655)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 2000
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
(Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - - 25,808 2,150 (2,150) 25,808
------------------------------------------------------------------------------
Operating Expenses
Cost of services and equipment - - 15,409 - - 15,409
Technical operations - - 11,795 - - 11,795
General and administrative 2,048 - 17,199 - (2,150) 17,097
Sales and marketing - - 16,464 - - 16,464
Stock-based compensation (46,186) - - - - (46,186)
Depreciation and amortization 1,431 - 11,866 1,027 - 14,324
------------------------------------------------------------------------------
Total operating expenses (42,707) - 72,733 1,027 (2,150) 28,903
------------------------------------------------------------------------------
Operating income (loss) 42,707 - (46,925) 1,123 - (3,095)
Interest income 87 7,824 111 - (798) 7,224
Interest expense - (14,992) (806) (1,056) 798 (16,056)
------------------------------------------------------------------------------
Income (loss) before income taxes 42,794 (7,168) (47,620) 67 - (11,927)
Income tax benefit (30) 72 529 (1) - 570
------------------------------------------------------------------------------
Net loss $ 42,764 (7,096) (47,091) 66 - (11,357)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 1999
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
(Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - - - - - -
------------------------------------------------------------------------------
Operating Expenses
Plant - - 3,946 - - 3,946
General and administrative 2 44 7,156 2 - 7,204
Sales and marketing - - 2,724 - - 2,724
Depreciation and amortization 2,829 - 645 - - 3,474
------------------------------------------------------------------------------
2,831 44 14,471 2 - 17,348
Operating loss (2,831) (44) (14,471) (2) - (17,348)
Interest income 77 5,174 81 - - 5,332
Financing cost - - (2,230) - - (2,230)
Interest expense - (5,104) - - - (5,104)
------------------------------------------------------------------------------
Income (loss) before income taxes (2,754) 26 (16,620) (2) - (19,350)
Income tax benefit (expense) 954 (10) 5,504 - - 6,448
------------------------------------------------------------------------------
Net income (loss) $ (1,800) 16 (11,116) (2) - (12,902)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2000
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
(Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - - 41,307 3,459 (3,459) 41,307
------------------------------------------------------------------------------
Operating Expenses
Cost of services and equipment - - 29,111 - - 29,111
Technical operations - - 21,987 - - 21,987
General and administrative 3,050 - 26,834 - (3,459) 26,425
Sales and marketing - - 28,603 - - 28,603
Stock-based compensation 62,111 - - - - 62,111
Depreciation and amortization 2,861 - 20,171 1,843 - 24,875
------------------------------------------------------------------------------
Total operating expenses 68,022 - 126,706 1,843 (3,459) 193,112
------------------------------------------------------------------------------
Operating income (loss) (68,022) - (85,399) 1,616 - (151,805)
Interest income 152 16,831 342 - (1,433) 15,892
Interest expense - (28,199) (1,447) (2,203) 1,433 (30,416)
------------------------------------------------------------------------------
Income (loss) before income (67,870) (11,368) (86,504) (587) - (166,329)
taxes
Income tax benefit (4) 112 962 6 - 1,076
------------------------------------------------------------------------------
Net loss $ (67,874) (11,256) (85,542) (581) - (165,253)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended June 30, 1999
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
(Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (34) (1,027) (5,154) - - (6,215)
------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - - (22,329) - - (22,329)
Advance under notes receivable - - (50) - - (50)
Capitalized interest on debt - - (1,382) (799) - (2,181)
Decrease in restricted cash - 436 - - - 436
Investment in subsidiaries (69,386) 69,386 - - - -
Other (325) - - - - (325)
------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: (69,711) 69,822 (23,761) (799) - (24,449)
------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long term debt - 200,240 - - - 200,240
Payment of debt issuance
costs and other - (9,272) - - - (9,272)
deferred charges
Intercompany (80,255) 47,964 31,492 799 - -
receivable/payable
------------------------------------------------------------------------------
Net cash provided by financing (80,255) 238,932 31,492 799 - 190,968
activities:
------------------------------------------------------------------------------
Net increase (decrease) in
restricted cash, cash and (150,000) 307,727 2,577 - - 160,304
cash equivalents
Cash and cash equivalents at
beginning of period 150,000 78,003 1,998 - - 230,001
------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ $ - 385,730 4,575 - - 390,305
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended June 30, 2000
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
(Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (801) (84) (32,295) - - (33,180)
------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - - (98,632) - - (98,632)
Capitalized interest on debt - - (814) (185) - (999)
Decrease in other assets - 539 15 - - 554
------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: - 539 (99,431) (185) - (99,077)
------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long term debt - - - (234) - (234)
Intercompany receivable/payable 196 (114,563) 113,948 419 - -
Payment of stock issuance costs (132) - - - - (132)
Proceeds from exercise of stock optons 737 - - - - 737
------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities: 801 (114,563) 113,948 185 - 371
------------------------------------------------------------------------------
Net increase (decrease) in restricted
cash, cash and cash equivalents - (114,108) (17,778) - - (131,886)
Cash and cash equivalents at
beginning of period - 472,193 10,266 - - 482,459
------------------------------------------------------------------------------
Cash and cash equivalents at
end of period - 358,085 (7,512) - - 350,573
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 1999
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
(Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (94) 880 (14,946) (256) - (14,416)
------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - - (44,687) - - (44,687)
Advance under notes receivable - (7,500) (50) - - (7,550)
Capitalized interest on
network - - (4,271) (1,625) - (5,896)
construction and FCC
licensing costs
Investment in subsidiaries (69,386) 69,386 - - - -
Increase in restricted cash - (7,957) - - - (7,957)
Other (325) - - - - (325)
------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: (69,711) 53,929 (49,008) (1,625) - (66,415)
------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long term debt - 400,240 - - - 400,240
Repayments of notes payable (22,100) - - - - (22,100)
Payment of debt issuance
costs and other (22,198) (14,275) - - - (36,473)
deferred charges
Intercompany 480 (70,044) 67,683 1,881 - -
receivable/payable
Proceeds from vendor discount - 15,000 - - - 15,000
Issuance of preferred stock 113,623 - - - - 113,623
------------------------------------------------------------------------------
Net cash provided by financing 69,805 330,921 67,683 1,881 - 470,290
activities:
------------------------------------------------------------------------------
Net increase in cash and cash - 385,730 3,729 - - 389,459
equivalents
Cash and cash equivalents at
beginning of period - - 846 - - 846
------------------------------------------------------------------------------
Cash and cash equivalents at $ - 385,730 4,575 - - 390,305
end of period
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2000
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated
(Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (2,209) 1,379 (84,188) - - (85,018)
-----------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - - (171,798) - - (171,798)
Capitalized interest on debt - - (1,533) (1,272) - (2,805)
Decrease in restricted cash - 1,107 - - - 1,107
Decrease in other assets - - (129) - - (129)
-----------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: - 1,107 (173,460) (1,272) - (173,625)
-----------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long term debt - - - (449) - (449)
Payment of debt issuance
costs and other - (198) - - - (198)
deferred charges
Intercompany 1,615 (258,202) 254,866 1,721 - -
receivable/payable
Payment of stock issuance (195) - - - - (195)
costs
Proceeds from exercise of 789 - - - - 789
stock options
---------------------------------------------------------------------------
Net cash provided by (used in)
financing activities: 2,209 (258,400) 254,866 1,272 - (53)
---------------------------------------------------------------------------
Net increase (decrease) in
restricted cash, cash and - (255,914) (2,782) - - (258,696)
cash equivalents
Cash and cash equivalents at
beginning of period - 613,999 (4,730) - - 609,269
---------------------------------------------------------------------------
Cash and cash equivalents at $ - 358,085 (7,512) - - 350,573
end of period
===========================================================================
</TABLE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and notes thereto, which are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
Forward Looking Statements; Cautionary Statements
Statements in this report expressing our expectations and beliefs of
the Company regarding our future results or performance are forward-looking
statements that involve a number of risks and uncertainties. In particular,
certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical facts
constitute "forward-looking statements." Our actual future results may differ
significantly from those stated in any forward-looking statements. Factors
that may cause or contribute to such differences include, but are not limited
to, risks discussed in our Registration Statement on Form S-1 (Reg. No.
333-91207) and from time to time in our other filings with the Securities and
Exchange Commission, including, without limitation, the following: (1) we
depend on our agreements with AT&T for our success, and under certain
circumstances AT&T could terminate its exclusive relationship with us and our
use of the AT&T brand name and logo, (2) we may not be able to manage the
construction of our network or the growth of our business successfully, (3) we
have substantial existing debt, and may incur substantial additional debt,
that we may be unable to service, (4) we may not be able to obtain the
additional financing we may need to complete our network and fund operating
losses, (5) we have many competitors that have substantial coverage of our
licensed areas, (6) difficulties in obtaining infrastructure equipment or
sites may affect our ability to construct our network and meet our development
requirements, (7) potential acquisitions may require us to incur substantial
additional debt and integrate new technologies, operations and services, which
may be costly and time consuming, (8) we may experience a high rate of
customer turnover, (9) our association with the other SunCom companies may
harm our reputation if consumers react unfavorably to them, (10) we depend
upon consultants and contractors for our network services, (11) we may become
subject to new health and safety regulations, which may result in a decrease
in demand for our services, (12) changes in our licenses or other governmental
action or regulation could affect how we do business, (13) we could lose our
PCS licenses or incur financial penalties if the Federal Communications
Commission determines we are not a very small business or if we do not meet
the Federal Communications Commission's minimum construction requirements,
(14) the technologies that we use may become obsolete, which would limit our
ability to compete effectively, and (15) we may incur operating costs due to
fraud. In addition, new factors emerge from time to time, and it is not
possible for us to predict all of these factors. Further, we cannot assess the
impact of each such factor on our business or the extent to which any factor,
or combination of factors, may cause actual results to be materially different
from those contained in any forward-looking statements. As a result of the
foregoing and other factors, we may experience material fluctuations in future
operating results on a quarterly or annual basis which could materially and
adversely affect our business, financial condition, operating results and
stock price. We specifically decline any obligation to publicly release the
result of any revisions that may be made to forward- looking statements to
reflect anticipated or unanticipated events or circumstances occurring after
the date of such statement.
General
We are an AT&T Wireless Services affiliate with licenses to provide
PCS services to approximately 14.0 million people in contiguous markets in the
south-central United States. In January 1999, we entered into our affiliation
agreement with AT&T Wireless Services, our largest equity shareholder with
21.6% ownership of our company. We have also joined with two other AT&T
Wireless Services affiliates to operate under a common regional brand name,
SunCom. We provide our PCS services as a member of the AT&T Wireless Network,
serving as the preferred roaming provider to AT&T Wireless Services' digital
customers in virtually all of our markets and co-branding our services with
the AT&T and SunCom brands and logos.
For periods prior to the fourth quarter of 1999, we were a
development stage company. We have incurred significant expenditures in
conjunction with our organization and financing, PCS license acquisitions,
hiring key personnel and the design and construction of our PCS network
facilities. We have commenced commercial PCS services in 25 markets as of June
30, 2000. We expect to have commenced commercial PCS service in all of our
major population and business centers by the end of 2000. The timing of launch
in individual markets will be determined by various factors, principally the
success of our site acquisition program, zoning and microwave relocation
activities, equipment delivery schedules and local market and competitive
considerations. We provided service to approximately 84% of the population in
our license area at June 30, 2000 and expect to provide service to over 98% by
the end of 2000. Thereafter, we will evaluate further coverage expansion on a
market-by-market basis.
We launched commercial service in our first markets in
September 1999. As of June 30, 2000, Tritel had successfully launched
commercial service in the following markets throughout our coverage areas:
Biloxi/Gulfport/ Huntsville, AL Nashville, TN
Pascagoula, MS Mobile, AL Dalton, GA
Hattiesburg, MS Montgomery, AL Bowling Green KY
Jackson, MS Opelika-Auburn, AL Corbin, KY
Meridian, MS Tuscaloosa, AL Lexington, KY
Vicksburg, MS Chattanooga, TN Louisville, KY
Anniston, AL Cleveland, TN Madisonville, KY
Birmingham, AL Cookeville, TN Clarksville, TN-
Decatur, AL Knoxville, TN Hopkinsville, KY
The extent to which we are able to generate operating revenues and
earnings will be dependent on a number of business factors, including
successfully deploying the PCS network and attaining profitable levels of
market demand for our products and services.
Results of Operations
Revenues. Revenues for the three and six months ended June 30, 2000,
were $25.8 million and $41.3 million, respectively. We did not recognize any
revenues during the three or six months ended June 30, 1999. Revenues consist
primarily of revenues derived from service to our customers, roaming services
provided to customers of other carriers, and the sale of handsets and
accessories.
As of June 30, 2000, we had approximately 104,400 subscribers
throughout our service area. Our average revenue per unit (ARPU) including
service and feature revenue as well as airtime and incollect roaming, but
excluding outcollect roaming charges, was $59 for the second quarter of 2000
and $56 for the six months ended June 30, 2000 as compared to $45 in December
1999. We expect ARPU to continue to increase as we target business customers,
realize the results from our successful implementation of a national accounts
program, focus on value added features and provide incentives to our sales
force for selling higher priced rate plans.
We anticipate continued strong growth during the remainder of the
year in revenue and subscribers as we continue to expand our operations in our
licensed areas. We expect to launch substantially all of our remaining markets
during 2000.
We expect roaming revenues to increase during 2000 as we expand our
coverage areas as well as complete our first full year of operations in the
markets that became operational during 1999.
Operating Expenses
Cost of services and equipment was $15.4 million and $29.1 million
for the three and six months ended June 30, 2000, respectively. Cost of
services and equipment includes primarily the cost of equipment sold to
customers, costs paid to other carriers for roaming services and wireline
access and long-distance costs from customer use on our system. We did not
incur any cost of services and equipment for the three and six months ended
June 30, 1999. The increase in these costs, which are expected to continue to
increase during 2000 and in future periods, is the result of new subscribers
added to the system and increased usage of our system.
Technical operations expenses were $2.0 million and $11.8 million for
the quarter ended June 30, 1999 and 2000, respectively, and were $3.9 million
and $22.0 million for the six months ended June 30, 1999 and 2000,
respectively. These expenses include primarily the cost of engineering and
operating staff devoted to the oversight of the design, implementation and
monitoring of our network, cell site lease expense, and charges incurred to
connect our network to other carriers. These costs increased in 2000 as
compared to 1999 as a result of our network expansion and increased customer
base.
We expect the majority of our future technical operations expenses
will consist of costs relating to operating the network, including the cost of
interconnection to wireline and other wireless networks, cell site lease
costs, network personnel and repair and maintenance. We expect these costs to
continue to increase during 2000 and in future periods as we expand our
coverage areas and incur a full year of operational expenses.
Our general and administrative expense includes customer service,
billing, information technology, finance, accounting, human resources and
legal services. General and administrative expenses increased from $4.3
million for the second quarter of 1999 to $17.1 million for the second quarter
of 2000, and increased from $7.2 million for the six month period ended June
30, 1999, to $26.4 million for the six month period ended June 30, 2000. The
increase was due primarily to increased staffing in various departments,
including information technology, billing, customer care, accounting, human
resources and other administrative functions, incurred in connection with the
expansion of our network and customer base, costs related to the modification
of restricted stock agreements in the second quarter, and costs related to the
pending merger with Telecorp PCS. We expect general and administrative
expenses to continue to increase during 2000 and in future periods as we
continue to launch additional markets and provide customer support functions
to a larger customer base. Costs related to the merger with Telecorp PCS are
expensed as incurred.
Our sales and marketing expense includes salaries and benefits,
commissions, advertising and promotions, retail distribution, and sales
training. Sales and marketing expenses increased from $1.7 million for the
three months ended June 30, 1999, to $16.5 million for the same period in 2000
and from $2.7 million for the first half of 1999 to $28.6 million for the same
period in 2000. The increase was primarily associated with the salary and
benefits for sales and marketing personnel, market deployment, including
planning and leasing of sales offices and retail store locations and
advertising costs related to market launches. We expect selling and marketing
costs to continue to increase during 2000 and in future periods primarily
related to sales commissions, ongoing advertising and promotions in our
existing markets and promotional events and advertising incurred in connection
with market launches.
Stock Based Compensation. We have issued a total of 12,362,380 shares
of our class A voting and class C common stock to members of our management,
primarily in connection with the formation of the joint venture with AT&T
Wireless Services. These shares are subject to vesting and are currently held
in escrow. These shares are also subject to individual repurchase agreements
with each employee, which collectively were considered a "variable stock plan"
under generally accepted accounting principles. These individual repurchase
agreements were modified to remove the provision that required the employees
to surrender a portion of their vested shares. The effective date of this
modification, which occurred in June 2000, became the measurement date upon
which the value of the awards was fixed. Future stock price movement will not
result in charges that differ from this amount. The stock-based compensation
for the current quarter was a benefit of $46.2 million and was an expense of
$62.1 million for the six months ended June 30, 2000. The Company will
recognize additional non-cash compensation expense related to these shares for
the period from 2000 to 2004 of approximately $74.5 million.
Depreciation and amortization expenses were $1.9 million for the
three month period ended June 30, 1999, as compared to $14.3 million for the
three month period ended June 30, 2000, and were $3.5 million for the six
month period ended June 30, 1999, as compared to $24.9 million for the six
month period ended June 30, 2000. The increases relate primarily to the
depreciation of network system equipment placed into service as our markets
are launched as well as depreciation of computer hardware, software,
furniture, fixtures, and office equipment. Depreciation and amortization
expenses are expected to increase during the remainder of 2000 and in future
periods as we complete the construction of our network as well as recognize a
full year of depreciation expense on our network assets placed in service
during 1999.
Non-Operating Income and Expense
Interest income was $4.2 million for the second quarter of 1999 as
compared to $7.2 million for the second quarter of 2000 and was $5.3 million
for the first half of 1999 as compared to $15.9 million for the first half of
2000. These increases in 2000 as compared to 1999 were primarily a result of
interest earned on our investment of advances under our bank facility of
$300.0 million, proceeds from the sale of senior subordinated discount notes
of approximately $200.2 million and proceeds from the sale of common stock in
our initial public offering of approximately $242.5 million. Our short-term
cash investments consist primarily of U.S. Government securities and highly
rated commercial paper with a dollar-weighted average maturity of 90 days or
less.
Financing costs were $2.2 million for the six months ended June 30,
1999. These costs were associated with the January 1999 conversion by Digital
PCS of debt due to an investor to equity in Airwave Communications.
Interest expense was $5.1 million for the second quarter of 1999 as
compared to $16.1 million in the second quarter of 2000. Interest expense was
$5.1 million for the first half of 1999 as compared to $30.4 million for the
first half of 2000. There was no interest expense for the first quarter of
1999 because all interest costs were capitalized in connection with the
construction of the network. Interest expense consisted of interest incurred
related to borrowing under our bank credit facility and the Federal
Communications Commission debt and discount accretion on the senior
subordinated discount notes issued in May 1999. Interest expense is net of the
amount capitalized for the purpose of completing the network buildout.
For the quarters ended June 30, 1999 and 2000, we recorded a deferred
income tax benefit of $4.1 million and $570,000, respectively. The deferred
income tax benefit recorded for the first six months of 1999 and 2000 was $6.4
million and $1.1 million, respectively. The valuation allowance for the gross
deferred tax asset at June 30, 2000 was $36.9 million. No valuation allowance
was considered necessary for the remaining gross deferred tax asset of $12.3
million, principally due to the existence of a deferred tax liability which
was recorded upon the closing of the AT&T transaction on January 7, 1999.
Liquidity and Capital Resources
The buildout of our network and the marketing and distribution of our
products and services will require substantial capital. We currently estimate
that our capital requirements, including capital expenditures, the cost of
acquiring licenses, working capital, debt service requirements and anticipated
operating losses, for the period from inception through the end of 2001, and
assuming substantial completion of our network buildout, will total
approximately $1.4 billion.
We believe the proceeds from the initial public offering completed in
December 1999, together with the proceeds from our sale of senior subordinated
discount notes, the financing made available to us by the Federal
Communications Commission, borrowings under our bank credit facility and the
equity investments we have received, will provide us with sufficient funds to
build out our existing network as planned and fund operating losses until we
complete our planned network buildout and generate positive cash flow.
Our January 7, 1999, loan agreement provides a senior bank facility
with a group of lenders for an aggregate amount of $550 million of senior
secured credit. Up to $10 million of the facility may be used for letters of
credit. We estimate that the $550 million bank facility will be drawn through
the end of 2001 for capital requirements. The terms of the bank facility will
permit us, subject to certain terms and conditions, including compliance with
certain leverage ratios and satisfaction of buildout and subscriber
milestones, to draw up to $550 million to finance working capital
requirements, capital expenditures or other corporate purposes. As of June 30,
2000, we had $300 million outstanding under the bank facility and could have
borrowed up to a total of approximately $550 million pursuant to the terms of
the bank facility.
Management estimates that capital expenditures associated with the
buildout will total approximately $706.6 million from inception through the
end of 2001, including a commitment to purchase a minimum of $300 million in
equipment and services from Ericsson of which approximately $195.6 million had
been purchased through June 30, 2000. Costs associated with the network
buildout include switches, software, base stations, towers and antennae,
radiofrequency engineering, cell site acquisition and construction, and
microwave relocation. The actual funds required to build out our network may
vary materially from these estimates, and additional funds could be required
in the event of significant departures from the current business plan,
unforeseen delays, cost overruns, unanticipated expenses, regulatory expenses,
engineering design changes and other technological risks. We have incurred
approximately $432.1 million in capital expenditures through June 30, 2000,
including $171.8 million in the first half of 2000.
We estimate that cash interest and fees through 2001 will total
approximately $147.6 million, including debt issuance costs related to the
bank credit facility and the senior subordinated discount notes. This amount
represents interest and fees on the senior bank facility and interest on the
financing from the U.S. Government for the C and F-Block licenses. Cash
interest will not be paid on the senior subordinated discount notes until
2004. We incurred approximately $19.5 million in cash interest and fees during
the first half of 2000 of which approximately $2.8 million was capitalized.
We estimate that working capital requirements during the period from
inception through 2001 will total $314.4 million. This amount represents the
costs related to initiating, marketing, operating and managing our PCS
network.
Our ability to meet our capital requirements without additional
financing is subject to our ability to construct our network and obtain
customers in accordance with our plans and assumptions and a number of other
risks and uncertainties. The development of our network may not be completed
as projected and we may not be able to generate positive cash flow. If any of
our projections are incorrect, we may not be able to meet our projected
capital requirements.
On February 28, 2000, the Company announced an agreement to merge
with Telecorp PCS, Inc. This merger is expected to take place during the last
quarter of 2000 and is a tax-free exchange of stock. The Company does not
expect the merger to have any material effect on its current plans related to
network buildout.
Our bank credit facility agreement prohibits the merger of Tritel
with any other parties, except with or among its subsidiaries. Unless a
consent or amendment is obtained, the proposed merger with TeleCorp would
violate the merger provision and the change of control provision. We are
actively seeking an amendment to the bank credit facility or consent from our
lenders concerning the merger and change of control provisions.
Digital PCS holds licenses covering 2.0 million people in Florida and
southern Georgia. These markets include the cities of Pensacola, Tallahassee
and Panama City, Florida. As part of our formation, we received from Digital
PCS an option to purchase these licenses for approximately 1.4 million shares
of our class A voting common stock (reflecting the conversion of series C
preferred stock and the stock split of our class A voting common stock in
December 1999) and our assumption of approximately $11.8 million of Federal
Communications Commission debt. In May 1999, we exercised this option, and on
March 29, 2000, the Federal Communications Commission approved the transfer of
licenses to us. This transfer is expected to be completed prior to December
31, 2000.
We have committed to sell these licenses to Panther Wireless LLC for
the assumption of all outstanding Federal Communications Commission debt on
the licenses and cash in the amount equal to 110% of the sum of (i) the amount
payable to the Federal Communications Commission in respect of the licenses
minus the amount of Federal Communications Commission debt assumed, plus (ii)
the aggregate amount of interest paid on the Federal Communications Commission
debt by us and Digital PCS.
Merger with TeleCorp PCS, Inc.
On February 28, 2000, Tritel and TeleCorp PCS, Inc. announced the
signing of a definitive agreement and plan of reorganization and contribution,
called the Merger Agreement, for an all stock, tax-free merger, called the
Merger. The Merger Agreement provides for the creation of a new entity to be
called TeleCorp PCS, Inc. Tritel and TeleCorp will merge with subsidiaries of
the new entity.
Under the Merger Agreement, Tritel's class A voting common stock will
be converted into the right to receive 0.76 shares of the new entity's class A
voting common stock per share of Tritel Inc.'s common stock. This exchange
ratio is fixed regardless of future stock price movement.
Tritel and Telecorp shareholders approved the Merger on August 8,
2000. The Merger is still subject to regulatory approval. It is expected that
the Merger will be completed in the last quarter of 2000.
Pending License Acquisition
On March 23, 1999, the Federal Communications Commission commenced a
re-auction of the C-, D-, E- and F-Block licenses that had been returned to
the Federal Communications Commission under a Federal Communications
Commission restructuring order or that had been forfeited for noncompliance
with Federal Communications Commission rules or for default under the related
Federal Communications Commission financing. Before the re-auction, we loaned
$7.5 million to ABC Wireless LLC ("ABC Wireless"), an entity formed to
participate in the C-Block re-auction as a "very small business" under
applicable Federal Communications Commission rules, to partially fund its
participation in the re-auction.
In the re-auction, ABC Wireless was successful in bidding for an
additional 15 to 30 MHz of spectrum covering a total of 5.7 million people,
all of which are already covered by Tritel's existing licenses. Nashville and
Chattanooga are the largest cities covered by the additional licenses. The
total bid price for these additional licenses was $7.8 million. Tritel's
purchase of licenses from ABC Wireless would be subject to, among other
things, the consent of AT&T Wireless Services.
As a result of the re-auction and our contractual rights to purchase
from ABC Wireless PCS licenses, we could, depending upon Federal
Communications Commission interpretations of the spectrum cap rules, hold an
attributable interest in Commercial Mobile Radio Service, or CMRS, spectrum in
excess of applicable limit in several cities in our markets. Current Federal
Communications Commission rules limit PCS licensees and certain PCS investors
in PCS licensees from having an attributable interest in more than 45 MHz of
CMRS spectrum (or 55 MHz where there is an overlap between a PCS service area
and rural cellular service area) in any given geographic area. In order to
exceed the applicable spectrum limit, we and certain investors, including AT&T
Wireless Services, must obtain the consent of the Federal Communications
Commission. The parties have sought the necessary interpretations and consents
in the context of the Telecorp/Tritel merger application. There is no
assurance that the Federal Communications Commission will give its consent and
seeking such consent could delay the processing of the required applications
to assign the licenses from ABC Wireless to us. We believe the Federal
Communications Commission will approve the disaggregation of spectrum from the
ABC Wireless licenses and transfer to us portions of the licenses so we will
be in compliance with the CMRS spectrum cap rules.
Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risk from changes in interest rates that
could impact results of operations. We manage interest rates through a
combination of fixed and variable rate debt. We have entered into interest
rate swap agreements as a risk management tool, not for speculative purposes.
At June 30, 2000, we had $300 million of Term A and Term B Notes
under our bank facility, which carried an average interest rate of 10.89%;
$372 million of the original 12.75% senior subordinated discount notes, due
2009; $38.0 million of 7%, discounted to yield 10%, debt to the Federal
Communications Commission, due in quarterly installments from 2003 to 2006;
and $9.0 million of 6 1/8%, discounted to yield 10%, debt to the Federal
Communications Commission, due in quarterly installments from 2000 to 2008.
Our senior subordinated discount notes and Federal Communications
Commission debt have fixed interest rates and as a result we are less
sensitive to market rate fluctuations. However, our Term A and Term B Notes
outstanding and other amounts available to us under our bank facility
agreement are variable interest rate. Beginning in May 1999, we entered into
interest rate swap agreements with notional amounts totaling $200 million to
manage our interest rate risk under the bank facility. The swap agreements
establish a fixed effective rate of 9.05% on $200.0 million of the current
balance outstanding under the bank facility through the earlier of March 31,
2002 or the date on which we achieve operating cash flow breakeven. Market
risk, due to potential fluctuations in interest rates, is inherent in swap
agreements.
The following table provides information about our market risk
exposure associated with changing interest rates on our fixed rate debt at
maturity value of the debt (dollars in millions):
<TABLE>
<CAPTION>
Expected Maturity
---------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Face value of long-term fixed
rate debt $0.4 $1.0 $1.1 $9.7 $10.4 $396.4 $419.0
Average interest rate 6.1% 6.1% 6.1% 6.9% 6.9% 12.4% --
</TABLE>
Collectively, our fixed rate debt has a carrying value and a fair
value of $272.4 million and $291.2 million at June 30, 2000, respectively. The
fair value of our fixed rate debt has been estimated using an incremental
borrowing rate of 10.5% based on the market value of our senior subordinated
discount notes.
We are also exposed to the impact of interest rate changes on our
short-term cash investments, consisting primarily of U.S. government
securities and highly rated commercial paper with a dollar weighted average
maturity of 90 days or less. As with all investments, these short-term
investments carry a degree of interest rate risk.
We are not exposed to fluctuations in currency exchange rates since
our operations are entirely within the United States.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various claims arising in the ordinary course of
business and is a party to various legal proceedings that constitute ordinary
routine litigation incidental to the Company's business. In the opinion of
management, all such matters in the aggregate are not expected to have a
material adverse effect on the Company.
The Company is a party to routine filings and customary regulatory proceedings
with the Federal Communications Commission relating to its operations.
Item 4. Submission Of Matters To A Vote Of Security Holders
The Company's 2000 Annual Meeting of Stockholders was held on May 25, 2000. At
the 2000 Annual Meeting, stockholders voted on the election of directors, an
amendment to the Company's 1999 Stock Option Plan and the ratification of KPMG
LLP as independent auditors to the Company for the year 2000.
William M. Mounger, II, Ann K. Hall, David A. Jones, Jr., and Kevin J.
Shepherd were elected directors of the Company for a term expiring in 2003.
This term will expire earlier upon the completion of the pending merger with
Telecorp PCS, Inc. Total votes of 9,000,581 were cast in favor of the election
of Mr. Mounger, and total votes of 9,095,460 were cast in favor of the
election of Ms. Hall, Mr. Jones, and Mr. Shepherd. Total votes of 95,160 were
cast in opposition to the election of Mr. Mounger and total votes of 282 were
cast in opposition to the election of Ms. Hall, Mr. Jones, and Mr. Shepherd.
The stockholders approved an amendment to the Company's 1999 Stock Option Plan
with 8,906,842 votes in favor of the amendment, 188,591 votes against the
amendment and 308 being withheld.
The stockholders ratified the appointment of KPMG LLP as independent auditors
to the Company for the year 2000 by a vote of 9,095,337 for, 300 against and
104 withheld.
Item 5. Other Information
None
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
2.1.1 Amendment No. 1 to the Agreement and Plan of
Reorganization and Contribution, dated May 4, 2000
(incorporated by reference to the Registration Statement
on Form S-4 of Telecorp-Tritel Holding Company filed with
the Commission on May 20, 2000).
2.1.2 Amendment No. 2 to the Agreement and Plan of Reorganization
and Contribution, dated June 12, 2000 (incorporated by
reference to the Registration Statement on Form S-4 of
Telecorp-Tritel Holding Company filed with the Commission
on June 20, 2000).
10.1 Form of Amended and Restated Restricted Stock Agreement
(incorporated by reference to the Registration
Statement on Form S-4 of Telecorp-Tritel Holding Company
filed with the Commission on June 20, 2000).
10.2.1 Amended and Restated Employment Agreement, by and between
Tritel, Inc., and William M. Mounger, II, dated effective
as of June 9, 2000.
10.2.2 Amended and Restated Employment Agreement, by and between
Tritel, Inc., and E.B. Martin, Jr., dated effective as of
June 9, 2000.
10.2.3 Amended and Restated Employment Agreement, by and between
Tritel, Inc., and William S. Arnett, dated effective as of
June 1, 2000.
10.3 Amended and Restated 1999 Stock Option Plan.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRITEL, INC.
Date: August 11, 2000
/s/ E. B. Martin, Jr.
------------------------------------
E. B. Martin, Jr.
Executive Vice President and
Chief Financial Officer
/s/ Karlen Turbeville
-------------------------------------
Karlen Turbeville
Senior Vice President - Finance
(Chief Accounting Officer)
