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 September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No.
-------------------------
TRITEL PCS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0896438
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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 [ ]
78141.0001
<PAGE>
FORM 10-Q
TRITEL PCS, INC.
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Tritel, Inc. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets-
December 31, 1999 and September 30, 2000.........................................2
Condensed Consolidated Statements of Operations- Three and Nine
Month Periods Ended September 30, 1999 and September 30, 2000.......................3
Condensed Consolidated Statements of Cash Flows- Three and Nine
Month Periods Ended September 30, 1999 and September 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
In accordance with Securities and Exchange Commission Rule 3-10 of
Regulation S-X, the financial statements of Tritel, Inc. are included herein and
separate financial statements of Tritel PCS, Inc. and its subsidiary guarantors
are not included. Condensed financial data for Tritel PCS, Inc. and its
subsidiary guarantors is included in Note 8 to the financial statements.
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........................................................23
Signature Page......................................................................................24
</TABLE>
1
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRITEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND SEPTEMBER 30, 2000 (UNAUDITED)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
-------------- ----------------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 609,269 168,786
Accounts receivable, net 5,040 15,805
Inventory 8,957 19,500
Prepaid expenses and other current assets 7,298 14,677
-------------- ----------------
Total current assets 630,564 218,768
Restricted cash 6,594 4,849
Property and equipment, net 262,343 503,436
Federal Communications Commission licensing costs, net 201,946 202,281
Intangible assets, net 59,508 55,216
Other assets 35,407 32,972
-------------- ----------------
Total assets $ 1,196,362 1,017,522
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 923 989
Accounts payable and accrued liabilities 113,324 82,113
-------------- ----------------
Total current liabilities 114,247 83,102
-------------- ----------------
Non-current liabilities:
Long-term debt 557,716 578,740
Deferred income taxes and other liabilities 37,367 40,171
-------------- ----------------
Total non-current liabilities 595,083 618,911
-------------- ----------------
Total liabilities 709,330 702,013
-------------- ----------------
Series A 10% redeemable convertible preferred stock 99,586 106,386
-------------- ----------------
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 September 30, 2000
Class A Voting - 97,847,848 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 611,277 748,329
Deferred compensation - (56,897)
Accumulated deficit (271,276) (529,754)
-------------- ----------------
Total stockholders' equity 387,446 209,123
-------------- ----------------
Total liabilities, redeemable preferred stock
and stockholders' equity $ 1,196,362 1,017,522
============== ================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
TRITEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 2000
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- ---------------------------------
1999 2000 1999 2000
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 179 38,771 179 80,076
--------- ----------- --------- ------------
Operating expenses:
Cost of service and equipment 187 22,850 189 51,961
Technical operations 4,985 15,886 8,931 38,103
General and administrative 10,212 18,863 17,414 45,288
Sales and marketing 3,897 18,969 6,621 47,339
Stock-based compensation - 16,980 - 79,092
Depreciation and amortization 2,127 20,194 5,601 45,069
--------- ----------- --------- ---------------
Total operating expenses 21,408 113,742 38,756 306,852
--------- ----------- --------- ---------------
Operating loss (21,229) (74,971) (38,577) (226,776)
Interest income 5,119 4,609 10,451 20,501
Financing cost - - (2,230) -
Interest expense (6,934) (16,844) (12,038) (47,260)
--------- ----------- --------- ---------------
Loss before income taxes (23,044) (87,206) (42,394) (253,535)
Income tax benefit 7,189 782 13,638 1,857
--------- ----------- --------- ---------------
Net loss (15,855) (86,424) (28,756) (251,678)
Series A preferred dividend requirement
(2,267) (2,267) (6,632) (6,800)
---------- ----------- --------- ------------
Net loss available to
common stockholders $ (18,122) (88,691) (35,388) (258,478)
========== =========== ========= ============
Basic and diluted
net loss per common share $ (5.22) (0.74) (11.73) (2.17)
========== =========== ========= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
TRITEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 2000
(amounts in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------ --------------------------------
1999 2000 1999 2000
---------------- ------------------ -------------- ---------------
<S> <S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (15,855) (86,424) (28,756) (251,678)
Adjustments to reconcile net loss to net
cash used in operating activities:
Financing costs - - 2,230 -
Depreciation and amortization 2,127 20,194 5,601 45,069
Stock-based compensation and
grant of unrestricted rights in
common stock to officer 4,500 16,980 4,500 79,092
Accretion of discount on debt and
amortization of debt issuance costs 3,672 7,922 3,672 21,627
Deferred income tax benefit (7,189) (782) (13,368) (1,857)
Provision for bad debts - 1,343 - 1,893
Changes in operating assets and liabilities:
Accounts receivable - (2,823) - (12,658)
Inventory (3,526) 453 (3,526) (10,352)
Accounts payable and accrued expenses 3,916 (1,808) 5,762 1,286
(1,926) (4,704) (4,813) (7,089)
----------- ---------- ----------- ------------
Change in other assets and liabilities (14,281) (49,649) (28,698) (134,667)
----------- ---------- ----------- ------------
Net cash used in operating activities
Cash flows from investing activities:
Capital expenditures (35,502) (132,443) (80,189) (304,241)
Advance under notes receivable - - (7,550) -
Capitalized interest on network
construction and FCC licensing costs (4,097) (508) (9,993) (3,313)
(Increase) decrease in restricted cash 570 638 (7,387) 1,745
Other - (55) (325) (184)
---------- ---------- ----------- ------------
(39,029) (132,368) (105,444) (305,993)
---------- ------------ ---------- ------------
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from (repayments of)
long-term debt 100,000 (238) 500,240 (687)
Repayments of notes payable - - (22,100) -
Payment of debt issuance costs and
other deferred charges (87) - (28,054) (198)
Payment of stock issuance costs - - (8,507) (195)
Proceeds from vendor discount - - 15,000 -
Issuance of preferred stock 49,078 - 162,703 -
Proceeds from exercise of stock options - 468 - 1,257
Other (302) - (302) -
------------- ------------ ----------- ------------
Net cash provided by financing Activities 148,689 230 618,980 177
------------ ---------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 95,379 (181,787) 484,838 (440,483)
Cash and cash equivalents at beginning of period 390,305 350,573 846 609,269
------------ ---------- ----------- ------------
Cash and cash equivalents at end of period $ 485,684 168,786 485,684 168,786
============ ========== =========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
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 stock in Tritel. Tritel continued the activities of
our predecessor companies and, for accounting purposes, this transaction
was accounted for as a reorganization of the predecessor companies into a
C corporation and a name change to Tritel. Tritel and the predecessor
companies, 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 provided for the creation of a new entity
called TeleCorp PCS, Inc. Tritel and TeleCorp merged into subsidiaries of
the new entity.
Under the Merger Agreement, each share of Tritel class A voting common
stock converted into 0.76 shares of the new entity's class A common stock.
Tritel and TeleCorp shareholders approved the Merger on August 8, 2000.
The Merger closed on November 13, 2000.
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.
5
<PAGE>
TRITEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. PER SHARE AMOUNTS
The Company computes net loss per common share in accordance with SFAS No.
128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98.
Weighted average common shares used for the purpose of calculating net
loss per share were 3,034,681 and 3,018,180 for the three and nine months
ended September 30, 1999 and were 119,239,757 and 119,229,069 for the
three and nine months ended September 30, 2000. In accordance with SFAS
No. 128, outstanding stock options and nonvested restricted stock grants
have been excluded.
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
1999 2000
---------------- --------------------
<S> <C> <C>
(Amounts in Thousands)
Supplementary Information:
Cash paid for interest, net of amounts capitalized $ 9,201 25,633
======== =========
Significant non-cash investing and financing activities:
Capitalized interest and discount on debt $ 4,599 2,796
======== =========
Capital expenditures included in accounts payable $ 33,066 49,416
======== =========
</TABLE>
6. STOCK OPTION PLAN AND OTHER RESTRICTED STOCK AWARDS
At September 30, 2000, we had issued a total of 12,343,388 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 unvested shares
are 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.
7. 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
6
<PAGE>
TRITEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements as of December
31, 1999 and September 30, 2000 and for the three and nine month periods
ended September 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.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
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 other 22,009 5,318 (20,024) 30,251 (187) 37,367
------------- --------------- ------------ --------------- ------------ -------------
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>
7
<PAGE>
TRITEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ - 173,299 (4,513) - - 168,786
Other current assets 4,708 915 44,359 - - 49,982
Intercompany receivables - 630,789 - - (630,789) -
-------------------------------------------------------------------------------------------
Total current assets 4,708 805,003 39,846 - (630,789) 218,768
Restricted cash - 4,849 - - - 4,849
Property and equipment, net - - 503,436 - - 503,436
Licenses and other intangibles 55,216 - - 202,281 - 257,497
Investment in subsidiaries 280,617 (69,763) - - (210,854) -
Other long term assets - 76,046 582 - (43,656) 32,972
-------------------------------------------------------------------------------------------
Total assets $ 340,541 816,135 543,864 202,281 (885,299) 1,017,522
===========================================================================================
Current liabilities:
Accounts payable, accrued expenses
and $ 2,014 1,091 78,476 1,521 - 83,102
other current liabilities
Intercompany payables 1,020 - 613,312 16,457 (630,789) -
-------------------------------------------------------------------------------------------
Total current liabilities 3,034 1,091 691,788 17,978 (630,789) 83,102
Non-current liabilities:
Long-term debt - 537,783 42,409 40,957 (42,409) 578,740
Deferred income taxes and other
liabilities 21,998 (3,356) (7,471) 30,247 (1,247) 40,171
-------------------------------------------------------------------------------------------
Total liabilities 25,032 535,518 726,726 89,182 (674,445) 702,013
-------------------------------------------------------------------------------------------
Series A redeemable convertible
preferred stock 106,386 - - - - 106,386
-------------------------------------------------------------------------------------------
Stockholders' equity (deficit) 209,123 280,617 (182,862) 113,099 (210,854) 209,123
-------------------------------------------------------------------------------------------
Total liabilities and equity $ 340,541 816,135 543,864 202,281 (885,299) 1,017,522
===========================================================================================
</TABLE>
8
<PAGE>
TRITEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - - 179 - - 179
-----------------------------------------------------------------------------------------
Operating Expenses
Cost of services and equipment - - 187 - - 187
Technical operations - - 4,985 - - 4,985
General and administrative - 2 10,210 - - 10,212
Sales and marketing - - 3,897 - - 3,897
Depreciation and amortization 1,374 - 744 9 - 2,127
-----------------------------------------------------------------------------------------
Total operating expenses - - 20,023 - - 21,408
Operating loss (1,374) (2) (19,844) (9) - (21,229)
Interest income 37 5,005 77 - - 5,119
Interest expense - (6,934) - - - (6,934)
-----------------------------------------------------------------------------------------
Income (loss) before income taxes (1,337) (1,931) (19,767) (9) - (23,044)
Income tax benefit 511 739 5,936 3 - 7,189
-----------------------------------------------------------------------------------------
Net loss $ (826) (1,192) (13,831) (6) - (15,855)
=========================================================================================
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-----------------------------------------------------------------------------------------
Revenues $ - - 38,771 2,447 (2,447) 38,771
-----------------------------------------------------------------------------------------
Operating Expenses -
Cost of services and equipment - - 22,850 - - 22,850
Technical operations - - 15,886 - - 15,886
General and administrative (8) - 21,311 7 (2,447) 18,863
Sales and marketing - - 18,969 - - 18,969
Stock-based compensation 16,980 - - - - 16,980
Depreciation and amortization 1,431 - 17,525 1,238 - 20,194
-----------------------------------------------------------------------------------------
Total operating expenses 18,403 - 96,541 1,245 (2,447) 113,742
-----------------------------------------------------------------------------------------
Operating income (loss) (18,403) - (57,770) 1,202 - (74,971)
Interest income 98 5,363 106 - (958) 4,609
Interest expense - (15,850) (964) (988) 958 (16,844)
-----------------------------------------------------------------------------------------
Income (loss) before income taxes (18,305) (10,487) (58,628) 214 - (87,206)
Income tax benefit (expense) 15 109 661 (3) - 782
-----------------------------------------------------------------------------------------
Net loss $ (18,290) (10,378) (57,967) 211 - (86,424)
=========================================================================================
</TABLE>
9
<PAGE>
TRITEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - - 179 - - 179
-----------------------------------------------------------------------------------------
Operating Expenses
Cost of services and equipment - - 189 - - 189
Technical operations - - 8,931 - - 8,931
General and administrative 3 45 17,364 2 - 17,414
Sales and marketing - - 6,621 - - 6,621
Depreciation and amortization 4,203 - 1,389 9 - 5,601
-----------------------------------------------------------------------------------------
4,206 45 34,494 11 - 38,756
Operating loss (4,206) (45) (34,315) (11) - (38,577)
Interest income 114 10,178 159 - - 10,451
Financing cost - - (2,230) - - (2,230)
Interest expense - (12,038) - - - (12,038)
-----------------------------------------------------------------------------------------
Income (loss) before income taxes (4,092) (1,905) (36,386) (11) - (42,394)
Income tax benefit 1,565 729 11,344 - - 13,638
-----------------------------------------------------------------------------------------
Net loss $ (2,527) (1,176) (25,042) (11) - (28,756)
=========================================================================================
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-----------------------------------------------------------------------------------------
Revenues $ - - 80,076 5,906 (5,906) 80,076
-----------------------------------------------------------------------------------------
Operating Expenses
Cost of services and equipment - - 51,961 - - 51,961
Technical operations - - 38,103 - - 38,103
General and administrative 3,042 - 48,145 7 (5,906) 45,288
Sales and marketing - - 47,339 - - 47,339
Stock-based compensation 79,092 - - - - 79,092
Depreciation and amortization 4,292 - 37,696 3,081 - 45,069
-----------------------------------------------------------------------------------------
Total operating expenses 86,426 - 223,244 3,088 (5,906) 306,852
-----------------------------------------------------------------------------------------
Operating income (loss) (86,426) - (143,168) 2,818 - (226,776)
Interest income 251 22,194 447 - (2,391) 20,501
Interest expense - (44,050) (2,409) (3,192) 2,391 (47,260)
-----------------------------------------------------------------------------------------
Income (loss) before income taxes (86,175) (21,856) (145,130) (374) - (253,535)
Income tax benefit 11 221 1,621 4 - 1,857
-----------------------------------------------------------------------------------------
Net loss $ (86,164) (21,635) (143,509) (370) - (251,678)
=========================================================================================
</TABLE>
10
<PAGE>
TRITEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ - (53,419) 39,138 - - (14,281)
-------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - - (35,502) - - (35,502)
Capitalized interest on debt - - (1,346) (2,751) - (4,097)
Decrease in restricted cash - 570 - - - 570
Investment in subsidiaries (49,078) 49,078 - - - -
-------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: (49,078) 49,648 (36,848) (2,751) - (39,029)
-------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long term debt - 100,000 - - - 100,000
Payment of debt issuance costs and
other deferred charges - (87) - - - (87)
Issues of preferred stock 49,078 - - - - 49,078
Intercompany receivable/payable - 4,468 (7,219) 2,751 - -
Other - (302) - - - (302)
-------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities: 49,078 104,079 (7,219) 2,751 - 148,689
-------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents - 100,308 (4,929) - - 95,379
Cash and cash equivalents at
beginning of period - 385,730 4,575 - - 309,305
-------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ - 486,038 (354) - - 485,684
===========================================================================================
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-------------------------------------------------------------------------------------------
Net cash used in operating activities $ (842) (1,620) (47,187) - - (49,649)
-------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - - (132,443) - - (132,443)
Capitalized interest on debt - - (189) (319) - (508)
Increase (decrease) in other assets - 638 (55) - - 583
-------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: - 638 (132,687) (319) - (132,368)
-------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long term debt - - - (238) - (238)
Intercompany receivable/payable 374 (183,804) 182,873 557 - -
Proceeds from exercise of stock 468 - - - - 468
options
-------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities: 842 (183,804) 182,873 319 - 230
-------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents - (184,786) 2,999 - - (181,787)
Cash and cash equivalents at
beginning of period - 358,085 (7,512) - - 350,573
-------------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ - 173,299 (4,513) - - 168,786
===========================================================================================
</TABLE>
11
<PAGE>
TRITEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (94) (50,011) 21,407 - - (28,698)
-----------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - - (80,189) - - (80,189)
Advance under notes receivable - (7,500) (50) - - (7,550)
Capitalized interest on debt - - (5,617) (4,376) - (9,993)
Investment in subsidiaries (118,466) 118,466 - - - -
Decrease in restricted cash - (7,387) - - - (7,387)
Other (325) - - - - (325)
-----------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: (118,791) 103,579 (85,856) (4,376) - (105,444)
-----------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long term debt - 500,240 - - - 500,240
Repayments of notes payable (22,100) - - - - (22,100)
Payment of debt issuance costs and
other deferred charges (22,198) (14,363) - - - (36,561)
Intercompany receivable/payable 480 (68,105) 63,249 4,376 - -
Proceeds from vendor discount - 15,000 - - - 15,000
Issuance of preferred stock 162,703 - - - - 162,703
Other - (302) - - - (302)
-----------------------------------------------------------------------------------------
Net cash provided by financing 118,885 432,470 63,249 4,376 - 618,980
activities:
-----------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents - 486,038 (1,200) - - 484,838
Cash and cash equivalents at
beginning of period - - 846 - - 846
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ - 486,038 (354) - - 485,684
=========================================================================================
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
GUARANTOR NONGUARANTOR CONSOLIDATED
(Amounts in thousands) TRITEL, INC. TRITEL PCS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TRITEL, INC.
-----------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities $ (3,051) (241) (131,375) - - (134,667)
-----------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures - - (304,241) - - (304,241)
Capitalized interest on debt - - (1,460) (1,853) - (3,313)
Decrease in restricted cash - 1,745 - - - 1,745
Decrease in other assets - - (184) - - (184)
-----------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: - 1,745 (305,885) (1,853) - (305,993)
-----------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long term debt - - - (687) - (687)
Payment of debt issuance costs and
other deferred charges - (198) - - - (198)
Intercompany receivable/payable 1,989 (442,006) 437,477 2,540 - -
Payment of stock issuance costs (195) - - - - (195)
Proceeds from exercise of stock 1,257 - - - - 1,257
options
-----------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities: 3,051 (442,204) 437,477 1,853 - 177
-----------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents - (440,700) 217 - - (440,483)
Cash and cash equivalents at
beginning of period - 613,999 (4,730) - - 609,269
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ - 173,299 (4,513) - - 168,786
=========================================================================================
</TABLE>
12
<PAGE>
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 Tritel Inc.'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 Tritel, Inc.'s 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.
13
<PAGE>
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. 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 35 markets as of
September 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 in areas that represent approximately 94% of
the population in our license area at September 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 September 30, 2000, Tritel had successfully launched commercial
service in the following markets throughout our coverage areas:
<TABLE>
<S> <C> <C>
Biloxi/Gulfport/ Decatur, AL Knoxville, TN
Pascagoula, MS Dothan-Enterprise, AL Nashville, TN
Brookhaven-McComb, MS Florence, AL Dalton, GA
Columbus-Starkville, MS Gadsden, AL Rome, GA
Greenville-Greenwood, MS Huntsville, AL Bowling Green, KY
Hattiesburg, MS Mobile, AL Corbin, KY
Jackson, MS Montgomery, AL Lexington, KY
Laurel, MS Opelika-Auburn, AL Louisville, KY
Meridian, MS Tuscaloosa, AL Madisonville, KY
Tupelo, MS Chattanooga, TN Owensboro, KY
Vicksburg, MS Cleveland, TN Clarksville, TN-
Anniston, AL Cookeville, TN Hopkinsville, KY
Birmingham, AL
</TABLE>
14
<PAGE>
RESULTS OF OPERATIONS
REVENUES. Revenues for the three and nine months ended September 30,
2000, were $38.8 million and $80.1 million, respectively. We recognized revenues
of $179,000 during the three and nine months ended September 30, 1999. We
launched commercial service in our first markets, Jackson and Vicksburg,
Mississippi, during September, 1999. As of September 30, 2000, we had 35 markets
in operation as compared to 2 markets at September 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 September 30, 2000, we had approximately 156,100 subscribers
throughout our service area as compared to approximately 300 as of September 30,
1999. Our average revenue per unit (ARPU) including service and feature revenue
as well as airtime and incollect roaming, but excluding outcollect roaming
charges, was $58.21 for the third quarter of 2000 and $57.19 for the nine months
ended September 30, 2000 as compared to $44.78 in December 1999.
We anticipate continued 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.
OPERATING EXPENSES
Cost of services and equipment was $22.9 million and $52.0 million
for the three and nine months ended September 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 incurred $187,000
and $189,000 in cost of services and equipment for the three and nine months
ended September 30, 1999, respectively. The increase in these costs, which are
expected to continue to increase during the remainder of 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 $5.0 million and $15.9 million for
the quarter ended September 30, 1999 and 2000, respectively, and were $8.9
million and $38.1 million for the nine months ended September 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 usage of our system.
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
15
<PAGE>
to increase during the remainder of 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 $10.2 million for
the third quarter of 1999 to $18.9 million for the third quarter of 2000, and
increased from $17.4 million for the nine month period ended September 30, 1999,
to $45.3 million for the nine month period ended September 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 of 2000, and costs related to
the merger with Telecorp PCS. We expect general and administrative expenses to
continue to increase during the remainder of 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 have been
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 $3.9 million for the three
months ended September 30, 1999, to $19.0 million for the same period in 2000
and from $6.6 million for the first nine months of 1999 to $47.3 million for the
same period in 2000. The increase was primarily associated with the salary,
benefits and commissions 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 sales costs to continue
to increase during the remainder of 2000 and in future periods primarily related
to sales commissions, ongoing advertising and promotions.
Stock-based compensation expense for the current quarter was $17.0
million and was $79.1 million for the nine months ended September 30, 2000. At
September 30, 2000 we had issued a total of 12,343,388 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 unvested shares are 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.
Depreciation and amortization expenses were $2.1 million for the
three month period ended September 30, 1999, as compared to $20.2 million for
the three month period ended September 30, 2000, and were $5.6 million for the
nine month period ended September 30, 1999, as compared to $45.1 million for the
nine month period ended September 30, 2000. The increases relate primarily to
the depreciation of network system equipment placed into service as our markets
are launched and the amortization of the Federal Communication Commission
licenses 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
16
<PAGE>
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 and
2000.
NON-OPERATING INCOME AND EXPENSE
Interest income was $5.1 million for the third quarter of 1999 as
compared to $4.6 million for the third quarter of 2000 and was $10.5 million for
the first nine months of 1999 as compared to $20.5 million for the first nine
months of 2000. The year to date increase in 2000 as compared to 1999 was
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. The
decrease in the current quarter as compared to the same period last year
reflects the continued use of our short-term cash investments to fund the
network buildout and other expenditures. 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 nine months ended September
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 $6.9 million for the third quarter of 1999 as
compared to $16.8 million in the third quarter of 2000. Interest expense was
$12.0 million for the first three quarters of 1999 as compared to $47.3 million
for the first three quarters of 2000. The increase in interest expense resulted
from interest incurred related to additional borrowings under our bank credit
facility in September 1999, discount accretion on the senior subordinated
discount notes issued in May 1999 and a reduction in the amount of interest
capitalized. Interest expense is net of the amount capitalized for the purpose
of completing the network buildout.
For the quarters ended September 30, 1999 and 2000, we recorded a
deferred income tax benefit of $7.2 million and $782,000, respectively. The
deferred income tax benefit recorded for the first nine months of 1999 and 2000
was $13.6 million and $1.9 million, respectively. The valuation allowance for
the gross deferred tax asset at September 30, 2000 was $63.0 million. No
valuation allowance was considered necessary for the remaining gross deferred
tax asset of $39.2 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
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. 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 September 30, 2000, we had $300
17
<PAGE>
million outstanding under the bank facility and, pursuant to the terms of the
bank facility, could have borrowed up to the total amount of approximately $550
million.
Costs associated with the network buildout include switches,
software, base stations, towers and antennae, radiofrequency engineering, cell
site acquisition and construction, and microwave relocation. We have incurred
approximately $535.0 million in capital expenditures through September 30, 2000,
including $274.6 million in the first nine months of 2000.
We incurred approximately $28.9 million in cash interest and fees
during the first nine months of 2000 of which approximately $3.3 million was
capitalized. 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.
On February 28, 2000, the Company announced an agreement to merge
with Telecorp PCS, Inc. This merger closed on November 13, 2000 as 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.
As part of our formation, we received from Digital PCS an option to
purchase licenses covering 2.0 million people in Florida and southern Georgia
including the cities of Pensacola, Tallahassee and Panama City, Florida for
1,480,697 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 $11.5 million of
Federal Communications Commission debt. In May 1999, we exercised this option,
and this transfer was completed on October 27, 2000.
We have entered into a License Acquisition Agreement 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. This transfer is
subject to Federal Communications Commission approval and is expected to be
completed in 2001.
MERGER WITH TELECORP PCS, INC.
On February 28, 2000, Tritel, Inc. 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 provided for the creation of a new
18
<PAGE>
entity called TeleCorp PCS, Inc. Tritel, Inc. and TeleCorp merged with
subsidiaries of the new entity.
Under the Merger Agreement, Tritel Inc.'s class A voting common stock
converted into 0.76 shares of the new entity's class A voting common stock per
share of Tritel, Inc.'s common stock. Tritel, Inc. and Telecorp shareholders
approved the Merger on August 8, 2000. The Merger was completed on November 13,
2000.
The Federal Communications Commission order approving the merger
required Tritel to repay certain bidding credits that Tritel received as a "very
small business" designated entity totaling approximately $2.2 million.
PENDING LICENSE ACQUISITIONS
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
Federal Communications Commission order approving the Telecorp/Tritel merger
will require the combined company to divest of wireless certain licenses in the
Bowling Green-Glasgow, Kentucky and Davies County, Kentucky markets where ABC
Wireless exceeds the spectrum cap rules.
During October 2000, Tritel signed an agreement to purchase two PCS
wireless licenses and related PCS market assets and subscribers from Alltel Corp
for $67.0 million. The two 10-MHz, D-block PCS licenses cover approximately 1.5
19
<PAGE>
million Pops in Birmingham and Tuscaloosa, Alabama. The asset purchase is
subject to regulatory agency approvals and is expected to close during 2001.
These licenses will be purchased with funding received from Tritel's new parent
company, Telecorp PCS, Inc. and have not been included in the discussion of
Liquidity and Capital Resources. Tritel and AT&T Wireless Services, Inc. have
entered into a put and call contract effective upon the closing of the
acquisition under which Tritel has the unconditional right to sell the two FCC
licenses (but not the related infrastructure and other assets) to AT&T Wireless
Services, Inc. at any time for 18 months for $50 million. Similarly, AT&T would
have the option to purchase the two licenses during the same period for $50
million, subject to Tritel's consent. In both cases, the purchase is conditioned
upon receipt of regulatory approvals.
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 September 30, 2000, we had $300 million of Term A and Term B Notes
under our bank facility, which carried an average interest rate of 10.87%; $372
million of the 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 $0.2 $1.0 $1.1 $9.7 $10.4 $396.4 $418.8
Average interest rate 6.1% 6.1% 6.1% 6.9% 6.9% 12.4% --
</TABLE>
20
<PAGE>
Collectively, our fixed rate debt has a carrying value and a fair
value of $279.7 million and $296.8 million at September 30, 2000, respectively.
The fair value of our fixed rate debt has been estimated using an incremental
borrowing rate of 10.7% 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.
21
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Predecessor Company, certain members of the Company's management and several
companies related through common ownership were defendants in a lawsuit in which
the plaintiff claimed wrongful termination of employment, breach of contract,
usurpation of corporate opportunities, breach of fiduciary duties and other
matters. The suit sought unspecified actual and punitive damages plus attorneys'
fees and court costs. Further, the plaintiff sought 5% of the portion of stock
(equity) and FCC licenses of the Predecessor Company owned by certain members of
the Company's management. The defendants in that action settled the lawsuit in
September 1999 pursuant to a comprehensive settlement and release agreement and
all claims were dismissed with prejudice pursuant to an agreed order of
dismissal. In August 2000, the plaintiff filed a pleading styled "Independent
Action for Relief from Judgment" seeking to reopen the prior case. The plaintiff
simultaneously filed a separate new action against the same defendants in the
prior litigation as well as the Company claiming that certain persons acting as
authorized agents of the Company fraudulently induced him to accept a grossly
inadequate settlement offer in the prior litigation. The plaintiff seeks actual
damages of $30 million and punitive damages of $300 million. Management believes
that the plaintiff's claims are totally without merit. Management and the other
defendants in these actions are vigorously defending all claims in these actions
and management believes that the Company's business prospects are not materially
affected by this matter.
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
None
ITEM 5. OTHER INFORMATION
None
22
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
23
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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 PCS, INC.
Date: November 14, 2000 /s/ Karlen Turbeville
-------------------------------------
Karlen Turbeville
Senior Vice President - Finance
(Chief Accounting Officer and Duly
Authorized Officer)
24
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EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule.
25
