<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): November 9, 2000
Triton PCS Holdings, Inc.
------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware
--------------------
(State or other jurisdiction of incorporation)
1-15325 23-2974475
------------------------ ---------------------------------------
(Commission File Number) (I.R.S. Employer Identification Number)
1100 Cassatt Road
Berwyn, Pennsylvania 19312
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 651-5900
-----------------------
(Registrant's telephone number, including area code)
<PAGE>
Item 7. Financial Statements, Pro forma financial Information and Exhibits
(a) Financial statements of business acquired.
Included in this report are the audited financial statements of
Vanguard Cellular Systems of South Carolina, Inc. ("Vanguard") as of
December 31, 1996 and 1997 and for the three years in the period ended
December 31, 1997 beginning on page F-1 and unaudited financial
statements of Vanguard as of June 30, 1998 and for the six months
ended June 30, 1997 and 1998 beginning on page F-11.
(b) Pro forma financial information.
None.
(c) Exhibits.
23.1 Consent of Arthur Andersen LLP.
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vanguard Cellular Systems of South Carolina, Inc.:
We have audited the accompanying balance sheets of Vanguard Cellular
Systems of South Carolina, Inc. (a South Carolina corporation and an indirect,
wholly-owned subsidiary of Vanguard Cellular Systems, Inc.) as of December 31,
1997 and 1996, and the related statements of operations, changes in
shareholder's deficit and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vanguard Cellular Systems
of South Carolina, Inc. as of December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Greensboro, North Carolina,
March 20, 1998.
F-1
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................... $ 199 $ 121
Accounts receivable, net of allowances for doubtful
accounts of $200 and $475.............................. 1,485 3,199
Cellular telephone inventories.......................... 511 526
Prepaid expenses........................................ 10 33
Deferred income tax asset............................... -- 8,190
-------- --------
Total current assets.................................. 2,205 12,069
-------- --------
Deferred Cellular License Acquisition Costs, net of
accumulated amortization of $2,860 and $3,343............ 16,247 15,764
-------- --------
Property and Equipment, at cost:
Land.................................................... 306 313
Cellular telephones held for rental..................... 1,653 1,859
Cellular telephone systems.............................. 24,068 29,453
Office furniture and equipment.......................... 2,323 3,139
-------- --------
28,350 34,764
Less--Accumulated depreciation.......................... 5,864 9,252
-------- --------
22,486 25,512
Construction in progress................................ 198 565
-------- --------
22,684 26,077
Other Assets.............................................. 22 21
-------- --------
Total assets............................................ $ 41,158 $ 53,931
======== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current Liabilities:
Accounts payable and accrued expenses................... $ 315 $ 686
Advances from Vanguard.................................. 53,350 63,092
-------- --------
Total current liabilities............................. 53,665 63,778
-------- --------
Deferred Income Tax Liability............................. -- 1,298
-------- --------
Commitments and Contingencies (Note 5)
Shareholder's Deficit:
Common stock--$1 par value, 1,000 shares issued and
outstanding............................................ 1 1
Accumulated deficit..................................... (12,508) (11,146)
-------- --------
Total shareholder's deficit........................... (12,507) (11,145)
-------- --------
Total liabilities and shareholder's deficit........... $ 41,158 $ 53,931
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-2
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Service fees.............................. $ 16,428 $ 19,778 $ 22,508
Cellular telephone equipment revenues..... 1,077 673 1,100
---------- ---------- ----------
17,505 20,451 23,608
---------- ---------- ----------
Costs and Expenses:
Cost of service........................... 1,796 3,014 2,811
Cost of cellular telephone equipment...... 1,853 1,478 2,495
General and administrative................ 2,260 2,948 4,793
Marketing and selling..................... 2,564 2,731 3,944
Depreciation and amortization............. 1,765 2,907 5,162
Management fees........................... 1,374 1,620 1,896
Corporate costs allocated from Vanguard... 989 1,195 1,586
---------- ---------- ----------
12,601 15,893 22,687
---------- ---------- ----------
Income From Operations...................... 4,904 4,558 921
Interest Expense............................ (4,414) (5,214) (6,451)
Other, net.................................. (326) (186) --
---------- ---------- ----------
Income (Loss) Before Income Taxes........... 164 (842) (5,530)
Income Tax Benefit.......................... -- -- 6,892
---------- ---------- ----------
Net Income (Loss)........................... $ 164 $ (842) $ 1,362
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)........................ $ 164 $ (842) $ 1,362
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization........... 1,765 2,907 5,162
Net losses on dispositions of property
and equipment.......................... 326 186 --
Deferred income tax benefit............. -- -- (6,892)
Changes in current items:
Accounts receivable, net............... (527) 404 (1,714)
Cellular telephone inventories......... (162) (104) (15)
Accounts payable and accrued expenses.. (47) (97) 371
Other, net............................. (20) 13 (23)
---------- ----------- ----------
Net cash provided by (used in)
operating activities................. 1,499 2,467 (1,749)
---------- ----------- ----------
Cash Flows From Investing Activities--
Purchases of property and equipment...... (8,948) (12,531) (8,072)
---------- ----------- ----------
Cash Flows From Financing Activities:
Net increase in advances from Vanguard... 7,603 10,050 9,742
Other, net............................... (12) -- 1
---------- ----------- ----------
Net cash provided by financing
activities........................... 7,591 10,050 9,743
---------- ----------- ----------
Net Increase (Decrease) in Cash........... 142 (14) (78)
Cash, beginning of period................. 71 213 199
---------- ----------- ----------
Cash, end of period....................... $ 213 $ 199 $ 121
========== =========== ==========
Supplemental Disclosure of Cash Paid
During the Period for Interest, net of
amounts capitalized...................... $ 4,414 $ 5,214 $ 6,451
========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1995, 1996 and 1997
------------------------------------------------------------
Common Stock Total
----------------------- Accumulated Shareholder's
Shares Amount Deficit Deficit
----------- ---------- --------------- -----------------
<S> <C> <C> <C> <C>
Balance, January 1,
1995................... 1,000 $ 1 $ (11,830) $ (11,829)
Net income............ -- -- 164 164
----------- ---------- -------------- --------------
Balance, December 31,
1995................... 1,000 1 (11,666) (11,665)
Net loss.............. -- -- (842) (842)
----------- ---------- -------------- --------------
Balance, December 31,
1996................... 1,000 1 (12,508) (12,507)
Net income............ -- -- 1,362 1,362
----------- ---------- -------------- --------------
Balance, December 31,
1997................... 1,000 $ 1 $ (11,146) $ (11,145)
=========== ========== ============== ==============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Note 1. Organization and Basis of Presentation:
Vanguard Cellular Systems of South Carolina, Inc. (the Company), a South
Carolina corporation, is a provider of nonwireline cellular telephone service
to the SC-5 (Myrtle Beach) Rural Statistical Area (RSA). The Company acquired
the Myrtle Beach RSA license in January 1991 and the cellular system in this
market became operational in the second quarter of 1991. The Company is 100%
controlled by Vanguard Cellular Systems, Inc. (Vanguard) and operates under
the trade name of CellularOne(R), which is the trade name many nonwireline
carriers have adopted to provide conformity throughout the industry.
The accompanying financial statements present the financial position,
results of operations and cash flows of the Company as if it were a separate
entity for all periods presented. In accordance with Staff Accounting Bulletin
No. 54 of the Securities and Exchange Commission, Vanguard's investment in the
Company is reflected in the financial statements of the Company ("pushdown
accounting"). The accompanying financial statements reflect the allocation of
the purchase price in excess of the net assets acquired on the same basis as
in the consolidation with Vanguard.
Substantially all of the Company's assets are pledged under Vanguard's
long-term credit facility. Operating and capital expansion funds have been
advanced between Vanguard and the Company on an interest bearing basis, with
the net amounts of these transfers reflected in advances from Vanguard in the
accompanying balance sheets. The debt of Vanguard has not been specifically
allocated to the Company; however, advances from Vanguard approximate the
borrowings of Vanguard that are attributable to the Company. Interest has been
charged by Vanguard to the Company on funds advanced to the Company as an
approximation of the Company's share of Vanguard's consolidated interest cost.
Vanguard charges interest to its subsidiaries based on its consolidated
borrowing rates plus 200 basis points. For each of the three years in the
period ended December 31, 1997, the average interest rate charged to the
Company by Vanguard was approximately 11%. Total interest charged, net of
amounts capitalized, from Vanguard to the Company was $4,414, $5,214 and
$6,451 for the years ended December 31, 1995, 1996 and 1997, respectively.
The net balance in Advances from Vanguard has been classified as a
liability in the accompanying balance sheets as the Company will repay these
advances to Vanguard upon receipt of the proceeds from the sale of the
company's assets to Triton PCS, Inc. (See Note 7) .
Note 2. Significant Accounting and Reporting Policies:
Use of Estimates
The preparation of these financial statements and footnote disclosures in
accordance with generally accepted accounting principles requires the use of
certain estimates by management in determining the Company's financial
position and results of operations. Actual results could differ from those
estimates.
Revenue Recognition
Service fees are recognized at the time cellular services are provided.
Cellular telephone equipment revenues consist primarily of sales to
subscribers, which are recognized at the time equipment is delivered to the
subscriber, and equipment rentals, which are recognized monthly over the terms
of the rental agreement with the subscriber.
F-6
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Cellular Telephone Inventories
Inventories, consisting primarily of cellular telephones held for resale,
are valued at the lower of first-in, first-out (FIFO) cost or market.
Deferred Cellular License Acquisition Costs
The Company's investment in deferred cellular license acquisition costs
consists of amounts paid for the acquisition of the Federal Communications
Commission construction permit to build and subsequently provide cellular
service in the Myrtle Beach RSA. The Company amortizes its investment over 40
years. Amortization expense of $446, $483 and $483 was recorded in 1995, 1996
and 1997, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated on
a straight-line basis for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<S> <C>
Cellular telephones held for rental............................. 3 years
Cellular telephone systems...................................... 7-20 years
Office furniture and equipment.................................. 3-10 years
</TABLE>
At December 31, 1996 and 1997, construction in progress was composed
primarily of the cost of uncompleted additions to the Company's cellular
telephone systems. The Company capitalized interest costs of $106, $125 and
$43 in 1995, 1996 and 1997, respectively, as part of the cost of cellular
telephone systems.
Maintenance, repairs and minor renewals are charged to operations as
incurred. Gains or losses at the time of disposition of property and equipment
are reflected in the statements of operations currently.
Cellular telephones are rented to certain customers generally with a
contract for a minimum length of service. Such customers have the option to
purchase the cellular telephone at any time during the term of the agreement.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121. "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company reviews for the impairment of long-
lived assets and certain identifiable intangibles, whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Under SFAS No. 121 an impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and
its eventual disposition are less than its carrying amount. No such impairment
losses have been identified by the Company.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires the use of the "asset and
liability method" of accounting for income taxes. Accordingly, deferred income
tax liabilities and assets are determined based on the differences between the
financial statement and income tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The Company is included in the consolidated Federal income tax
return of
F-7
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Vanguard and its subsidiaries. The Company records its share of consolidated
Federal income taxes as if the Company filed a separate return.
Note 3. Future Cash Flow Requirements:
The Company's ability to sustain its current and planned operations,
maintain adequate working capital and make required or planned capital
expenditures will depend on its ability to generate sufficient cash flow from
operations and obtain additional financing from Vanguard in the form of
interest bearing advances. During 1995, 1996 and 1997, the Company received
$7,603, $10,050 and $9,742, respectively, of these advances. Vanguard has
committed to fund the cash requirements of the Company at least through fiscal
1998 or through the ultimate date of disposition (Note 7), whichever is
earlier. Accordingly, the accompanying financial statements have been prepared
assuming the Company will continue as a going concern and, as such,
adjustments, if any, that may be required for presentation on another basis
have not been considered.
Note 4. Income Taxes:
For Federal income tax reporting purposes, the Company's identified portion
of Vanguard's consolidated net operating loss carryforward was approximately
$20,700 at December 31, 1997. These losses may be used to reduce future
taxable income, if any, and expire through 2012. The primary differences
between the accumulated deficit for financial reporting purposes and the
income tax loss carryforwards relate to differences in the treatment of
deferred cellular license acquisition costs and differences in the
depreciation methods and estimated useful lives of property and equipment.
Deferred income taxes are provided for the temporary differences between
the financial reporting and income tax bases of the Company's assets and
liabilities. The components of net deferred taxes as of December 31, 1996, and
1997 were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward.............. $ 5,802 $7,936
Other liabilities and reserves............... 216 254
Valuation allowance.......................... (4,776) --
------- ------
Total deferred income tax assets........... 1,242 8,190
------- ------
Deferred income tax liabilities:
Unamortized deferred cellular license
acquisition costs........................... 594 705
Property and equipment....................... 648 593
------- ------
Total deferred income tax liabilities...... 1,242 1,298
------- ------
Net deferred income taxes...................... $ -- $6,892
======= ======
</TABLE>
A valuation allowance of $4,454 as of December 31, 1995 was established
because in the Company's assessment, it was uncertain whether the net deferred
income tax assets would be realized. In addition, because of its continuing
assessment that it was uncertain whether the net deferred income tax assets
would be realized, the Company increased the valuation allowance by $322 to
offset the 1996 net deferred income tax benefit.
F-8
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
In March 1998, Vanguard entered into an agreement to sell the operational
assets of the Company for a cash purchase price of $160,000, subject to
adjustment (Note 7). This transaction is expected to generate substantial
capital gains which will utilize an equivalent amount of Vanguard's
accumulated net operating loss carryforwards. Based on these anticipated
gains, management has assessed that it is more likely than not that the
deferred income tax assets of Vanguard and its subsidiaries, including the
Company, are realizable. Accordingly, for the year ended December 31, 1997,
the Company recognized a net deferred income tax benefit of $6,892 upon
reversal of the valuation allowance on its net deferred income tax assets.
A reconciliation between income taxes computed at the statutory Federal
rate of 35% and the reported income tax benefit is as follows:
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------
December 31, December 31, December 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Amount at statutory Federal rate... $ 57 $(295) $(1,936)
Change in valuation allowance...... (63) 322 (4,776)
Other.............................. 6 (27) (180)
----- ----- -------
Income tax benefit................. $ -- $ -- $(6,892)
===== ===== =======
</TABLE>
Note 5. Operating Leases:
The Company leases office space and land under noncancelable operating
leases expiring through 2004. The future minimum rental payments required
under these lease agreements as of December 31, 1997, were as follows:
<TABLE>
<S> <C>
1998.................................. $ 562
1999.................................. 508
2000.................................. 508
2001.................................. 485
2002.................................. 438
Thereafter............................ 4,686
------
$7,187
======
</TABLE>
Rent expense under these leases was $349, $439 and $573, for the years
ended December 31, 1995, 1996 and 1997, respectively.
Note 6. Transactions with Parent and Affiliates:
At December 31, 1997, Vanguard has pledged its investment in the stock of
the Company as well as the assets of the Company as security for debt of
Vanguard totaling $569,000.
Operations Management Agreement
The Company is charged a management fee by Vanguard based upon a percentage
of service fees. The management fee expense under this agreement was $1,374,
$1,620 and $1,896, for the years ended December 31, 1995, 1996 and 1997,
respectively.
F-9
<PAGE>
VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Services Provided by Vanguard
Vanguard performs certain services and incurs certain costs for the
Company. Services provided include treasury, human resources, legal, technical
support, data processing, financial accounting, marketing, and other general
corporate services. The costs of the services provided by Vanguard have been
allocated to the Company based upon the Company's annual subscriber
activations and subscriber base as a percentage of Vanguard's total annual
subscriber activations and total subscriber base. Corporate costs of Vanguard
totaling $989, $1,195 and $1,586, have been allocated to the Company for the
years ended December 31, 1995, 1996 and 1997, respectively. In the opinion of
management, the method of allocating these costs is believed to be reasonable.
However, the costs of these services charged to the Company are not
necessarily indicative of the costs that would have been incurred if the
Company had performed these functions.
Other Transactions
During 1997, the Company added certain engineering and managerial functions
and incurred costs for such functions totaling $700. These services benefited
the Company and other Vanguard markets; however, none of these costs have been
allocated to other markets. These costs are included in general and
administrative expenses in the accompanying statement of operations.
Employee benefits costs are incurred by Vanguard and are allocated to the
Company based on an overall percentage of salaries expense. Such costs totaled
$267, $322 and $557 for the years ended December 31, 1995, 1996 and 1997,
respectively, and are included in general and administrative expenses in the
accompanying statements of operations. For purposes of these financial
statements, these costs are assumed to be fully funded by the Company and are
included in the Advances from Vanguard in the accompanying balance sheets.
Note 7. Event (Unaudited) Subsequent to Date of Auditors' Report:
Effective at the close of the business on June 30, 1998, the Company sold
substantially all of its assets to Triton PCS, Inc. for a purchase price of
approximately $162.5 million.
F-10
<PAGE>
MYRTLE BEACH SYSTEM OF VANGUARD CELLULAR SYSTEMS
OF SOUTH CAROLINA, INC.
BALANCE SHEET
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30,
1998
-----------
(Unaudited)
<S> <C>
ASSETS
Current Assets:
Cash............................................................ $ 46
Accounts receivable, net of allowances for doubtful accounts of
$461........................................................... 5,487
Cellular telephone inventories.................................. 387
Prepaid expenses................................................ 225
Deferred income tax asset....................................... 8,671
-------
Total current assets.......................................... 14,816
-------
Deferred Cellular License Acquisition costs, net of accumulated
amortization of $3,585........................................... 15,522
-------
Property and Equipment, at cost:
Land............................................................ 313
Cellular telephones held for rental............................. 1,710
Cellular telephone systems...................................... 30,761
Office furniture and equipment.................................. 3,317
-------
36,101
Less--Accumulated depreciation.................................. 11,739
-------
24,362
Construction in progress........................................ 330
-------
24,692
Other assets...................................................... 140
-------
Total assets.................................................... $55,170
=======
LIABILITIES AND DIVISIONAL EQUITY
Current Liabilities:
Accounts payable and accrued expenses........................... $ 2,509
Deferred income tax liability..................................... 1,181
-------
Commitments and Contingencies (Note 5)
Divisional equity--investments and advances from Vanguard....... 51,480
-------
Total liabilities and divisional equity....................... $55,170
=======
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-11
<PAGE>
MYRTLE BEACH SYSTEM OF VANGUARD CELLULAR SYSTEMS
OF SOUTH CAROLINA, INC.
STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1997 1998
-------- --------
(unaudited)
<S> <C> <C>
Revenues:
Service fees............................................. $ 10,602 $ 13,424
Cellular telephone equipment revenues.................... 457 1,114
-------- --------
11,059 14,538
-------- --------
Costs and Expenses:
Cost of service.......................................... 1,185 1,367
Cost of cellular telephone equipment..................... 979 1,388
General and administrative............................... 1,980 2,502
Marketing and selling.................................... 1,664 2,215
Depreciation and amortization............................ 2,023 3,080
Management fees.......................................... 890 1,106
Corporate costs allocated from Vanguard.................. 740 878
-------- --------
9,461 12,536
-------- --------
Income From Operations..................................... 1,598 2,002
Interest Expense........................................... (3,072) (3,560)
Other, net................................................. (334) (6)
-------- --------
Income (Loss) Before Income Taxes.......................... (1,808) (1,564)
Income Tax Benefit (Provision)............................. -- 598
-------- --------
Net Income (Loss).......................................... $ (1,808) $ (966)
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-12
<PAGE>
MYRTLE BEACH SYSTEM OF VANGUARD CELLULAR SYSTEMS OF SOUTH CAROLINA, INC.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1997 1998
-------- --------
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................................. $ (1,808) $ (966)
Adjustments to reconcile net loss to net cash each used in
operating activities:
Depreciation and amortization............................ 2,023 3,080
Deferred income tax benefit.............................. -- (598)
Changes in current items:
Accounts receivable, net................................ (1,560) (2,288)
Cellular telephone inventories.......................... (260) 139
Accounts payable and accrued expenses................... 907 1,823
Other, net.............................................. (44) (192)
-------- -------
Net cash provided by (used in) operating activities.... (742) 998
-------- -------
Cash Flows From Investing Activities:
Purchases of property and equipment....................... (4,143) (1,453)
-------- -------
Cash Flows From Financing Activities:
Net increase in advances from Vanguard.................... 4,945 499
Other, net................................................ -- (119)
-------- -------
Net cash provided by financing activities.............. 4,945 380
-------- -------
Net Increase (Decrease) in Cash............................ 60 (75)
Cash, beginning of period.................................. 199 121
-------- -------
Cash, end of period........................................ $ 259 $ 46
======== =======
Supplemental Disclosure of Cash Paid During the Period for
Interest, net of amounts capitalized...................... $ 3,072 $ 3,560
======== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-13
<PAGE>
MYRTLE BEACH SYSTEM OF VANGUARD CELLULAR SYSTEMS
OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Note 1. Organization and Basis of Presentation:
The Myrtle Beach System (the System) of Vanguard Cellular Systems of South
Carolina, Inc. (the Company), a North Carolina corporation, is a provider of
nonwireline cellular telephone service to the SC-5 (Myrtle Beach) Rural
Service Area (RSA). The Company acquired the Myrtle Beach RSA license in
January 1991 and the cellular system in this market became operational in the
second quarter of 1991. The Company is 100% controlled by Vanguard Cellular
Systems, Inc. (Vanguard) and operates the System under the trade name of
CellularOne(R), which is the trade name many nonwireline carriers have adopted
to provide conformity throughout the industry. Prior to June 1998, the
Company's only operations and net assets were related to the System. During
June 1998, Vanguard transferred certain assets to the Company. Such assets
were not acquired by Triton PCS, Inc. (See Note 7) and are, therefore, not a
part of the System in these financial statements. The accompanying financial
statements and footnotes reflect the historical basis financial position of
the System as of June 30, 1998, immediately prior to its sale to Triton, and
the results of operations for the three and six months ended June 30, 1998 and
1997 and the cash flows of the System for the six months ended June 30, 1997
and 1998.
The accompanying financial statements present the financial position,
results of operations and cash flows of the System as if it were a separate
entity for all periods presented. In accordance with Staff Accounting Bulletin
No. 54 of the Securities and Exchange Commission, Vanguard's investment in the
System is reflected in the financial statements of the Company ("pushdown
accounting"). The accompanying financial statements reflect the allocation of
the purchase price in excess of the net assets acquired on the same basis as
in the consolidation with Vanguard.
Substantially all of the System's assets were pledged under Vanguard's
long-term credit facility prior to sale of the system to Triton PCS, Inc.
Operating and capital expansion funds have been advanced between Vanguard and
the System on an interest bearing basis, with the net amounts of these
transfers reflected in advances from Vanguard in the accompanying balance
sheets. The debt of Vanguard has not been specifically allocated to the
System; however, advances from Vanguard approximate the borrowings of Vanguard
that are attributable to the System. Interest has been charged by Vanguard to
the System on funds advanced to the System as an approximation of the System's
share of Vanguard's consolidated interest cost. Vanguard charges interest to
its subsidiaries based on its consolidated borrowing rates plus 200 basis
points. For the six months ended June 30, 1997 and 1998, the average interest
rate charged to the System by Vanguard was approximately 11%. Total interest
charged, net of amounts capitalized, from Vanguard to the System was $1,568
(unaudited) and $1,791 (unaudited) for the three months ended June 30, 1997
and 1998, respectively; and $3,072 (unaudited) and $3,560 (unaudited) for the
six months ended June 30, 1997 and 1998, respectively.
Note 2. Significant Accounting and Reporting Policies:
Use of Estimates
The preparation of these financial statements and footnote disclosures in
accordance with generally accepted accounting principles requires the use of
certain estimates by management in determining the System's financial position
and results of operations. Actual results could differ from those estimates.
Revenue Recognition
Service fees are recognized at the time cellular services are provided.
Cellular telephone equipment revenues consist primarily of sales to
subscribers, which are recognized at the time equipment is delivered to the
subscriber, and equipment rentals, which are recognized monthly over the terms
of the rental agreement with the subscriber.
F-14
<PAGE>
MYRTLE BEACH SYSTEM OF VANGUARD CELLULAR SYSTEMS
OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Cellular Telephone Inventories
Inventories, consisting primarily of cellular telephones held for resale,
are valued at the lower of first-in, first-out (FIFO) cost or market.
Deferred Cellular License Acquisition Costs
The System's investment in deferred cellular license acquisition costs
consists of amounts paid for the acquisition of the Federal Communications
Commission construction permit to build and subsequently provide cellular
service in the Myrtle Beach RSA. The System amortizes its investment over 40
years. Amortization expense of $121 (unaudited) and $121 (unaudited) was
recorded for three months ended June 30, 1997 and 1998 respectively; and $242
(unaudited) and $242 (unaudited) for the six months ended June 30, 1997 and
1998, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated on
a straight-line basis for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<S> <C>
Cellular telephones held for rental............................. 3 years
Cellular telephone systems...................................... 7-20 years
Office furniture and equipment.................................. 3-10 years
</TABLE>
At June 30, 1998, construction in progress was composed primarily of the
cost of uncompleted additions to the System's cellular telephone systems. The
System capitalized interest costs of $14 (unaudited) and $7 (unaudited) in the
three-months ended June 30, 1997 and 1998, respectively, and $21 (unaudited)
and $17 (unaudited) for the six months ended June 30, 1997 and 1998,
respectively, as part of the cost of cellular telephone systems.
During the first quarter of 1998, the System revised its estimate of the
useful life of cellular telephones held for rental from 3 years to 18 months
as more closely approximate its historical experience. This change increased
depreciation expense for the three-months ended June 30, 1998 by approximately
$400 (unaudited) and $800 (unaudited) for the six months ended June 30, 1998.
Maintenance, repairs and minor renewals are charged to operations as
incurred. Gains or losses at the time of disposition of property and equipment
are reflected in the statements of operations currently.
Cellular telephones are rented to certain customers generally with a
contract for a minimum length of service. Such customers have the option to
purchase the cellular telephone at any time during the term of the agreement.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", management reviews for the impairment of long-lived
assets and certain identifiable intangibles, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Under SFAS No. 121 an impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and
its eventual disposition are less than its carrying amount. No such impairment
losses have been identified by management.
F-15
<PAGE>
MYRTLE BEACH SYSTEM OF VANGUARD CELLULAR SYSTEMS
OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Income Taxes
The System accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires the use of the "asset and
liability method" of accounting for income taxes. Accordingly, deferred income
tax liabilities and assets are determined based on the differences between the
financial statement and income tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The System is included in the consolidated Federal income tax
return of Vanguard and its subsidiaries. The System records its share of
consolidated Federal income taxes as if the System filed a separate return.
Note 3. Future Cash Flow Requirements:
The System's ability to sustain its current and planned operations,
maintain adequate working capital and make required or planned capital
expenditures will depend on its ability to generate sufficient cash flow from
operations and obtain additional financing from Vanguard in the form of
interest bearing advances. During the six months ended June 30, 1997 and 1998,
the System received $4,945 (unaudited) and $499 (unaudited), respectively, of
these advances.
Note 4. Income Taxes:
For Federal income tax reporting purposes, the System's identified portion
of Vanguard's consolidated net operating loss carryforward was approximately
$20,700 at December 31, 1997. These losses may be used to reduce future
taxable income, if any, and expire through 2012. The primary differences
between the accumulated deficit for financial reporting purposes and the
income tax loss carryforwards relate to differences in the treatment of
deferred cellular license acquisition costs and differences in the
depreciation methods and estimated useful lives of property and equipment.
Deferred income taxes are provided for the temporary differences between
the financial reporting and income tax bases of the System's assets and
liabilities. The components of net deferred taxes as of June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
June 30,
1998
-----------
(unaudited)
<S> <C>
Deferred income tax assets:
Net operating loss carryforward............................... $8,424
Other liabilities and reserves................................ 247
------
Total deferred income tax assets............................. 8,671
------
Deferred income tax liabilities:
Unamortized deferred cellular license acquisition costs....... 760
Property and equipment........................................ 421
------
Total deferred income tax liabilities........................ 1,181
------
Net deferred income taxes...................................... $7,490
======
</TABLE>
Based on substantial capital gains expected to be realized during 1998 by
Vanguard, for the year ended December 31, 1997, the System recognized a net
deferred income tax benefit of $6,892 upon reversal of the
F-16
<PAGE>
MYRTLE BEACH SYSTEM OF VANGUARD CELLULAR SYSTEMS
OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
previously provided valuation allowance on its net deferred income tax assets.
For the six months ended June 30, 1998, the System recognized a net deferred
income tax benefit of $598 (unaudited) related to operating losses generated
during the period.
A reconciliation between income taxes computed at the statutory Federal
rate of 35% and the reported income tax benefit is as follows:
<TABLE>
<CAPTION>
For the For he
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------
1997 1998 1997 1998
--------- ----------------- --------
(unaudited)
<S> <C> <C> <C> <C>
Amount at statutory Federal rate... $ (211) $ 135 $ (633) $ (548)
Change in valuation allowance...... 231 692 --
Other.............................. (20) 13 (59) (50)
--------- -------- -------- --------
Income tax benefit................. $ -- $ 148 $ -- $ (598)
========= ======== ======== ========
</TABLE>
Note 5. Operating Leases:
The System leases office space and land under noncancelable operating
leases expiring through 2004. The future minimum rental payments required
under these lease agreements as of December 31, 1997, were as follows:
<TABLE>
<S> <C>
1998.................................. $ 562
1999.................................. 508
2000.................................. 508
2001.................................. 485
2002.................................. 438
Thereafter............................ 4,686
------
$7,187
======
</TABLE>
Rent expense under these leases was $127 (unaudited) and $170 (unaudited)
for the three-months ended June 30, 1997 and 1998, respectively; and $254
(unaudited) and $340 (unaudited) for the six months ended June 30, 1998,
respectively.
Note 6. Transactions with Parent and Affiliates:
At December 31, 1997, Vanguard has pledged its investment in the stock of
the Company as well as the assets of the System as security for debt of
Vanguard totaling $569,000.
Operations Management Agreement
The System is charged a management fee by Vanguard based upon a percentage
of service fees. The management fee expense under this agreement was $612
(unaudited) and $648 (unaudited) for the three months ended June 30, 1997 and
1998, respectively; and $890 (unaudited) and $1,106 (unaudited) for the six
months ended June 30, 1997 and 1998, respectively.
F-17
<PAGE>
MYRTLE BEACH SYSTEM OF VANGUARD CELLULAR SYSTEMS
OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Services Provided by Vanguard
Vanguard performs certain services and incurs certain costs for the System.
Services provided include treasury, human resources, legal, technical support,
data processing, financial accounting, marketing, and other general corporate
services. The costs of the services provided by Vanguard have been allocated
to the System based upon the System's annual subscriber activations and
subscriber base as a percentage of Vanguard's total annual subscriber
activations and total subscriber base. Corporate costs of Vanguard totaling
$422 (unaudited), and $438 (unaudited), have been allocated to the System for
the three-months ended June 30, 1997 and 1998, respectively; and $740
(unaudited) and $878 (unaudited) have been allocated to the System for the
six-months ended June 30, 1997 and 1998, respectively. In the opinion of
management, the method of allocating these costs is believed to be reasonable.
However, the costs of these services charged to the System are not necessarily
indicative of the costs that would have been incurred if the System had
performed these functions.
Other Transactions
During 1997, the System added certain engineering and managerial functions
and incurred costs for such functions totaling $45 (unaudited) and $96
(unaudited) for the three months and six months ended June 30, 1997,
respectively. These services benefited the System and other Vanguard markets;
however, none of these costs has been allocated to other markets. For the
three and six months ended June 30, 1998, such costs totaled approximately $0
(unaudited) and $55 (unaudited), respectively. Those costs are included in
general and administrative expenses in the accompanying statement of
operations.
Employee benefits costs are incurred by Vanguard and are allocated to the
System based on an overall percentage of salaries expense. Such costs totaled
$131 (unaudited), and $115 (unaudited) for the three months ended June 30,
1997 and 1998, respectively, and $240 (unaudited) and $249 (unaudited) for the
six months ended June 30, 1997 and 1998, respectively, and are included in
general and administrative expenses in the accompanying statements of
operations. For purposes of these financial statements, these costs are
assumed to be fully funded by the System.
Note 7. Sale of System Assets:
Effective at the close of the business on June 30, 1998, the Company sold
substantially all of the assets of the System to Triton PCS, Inc. for a
purchase price of approximately $162.5 million.
F-18
<PAGE>
SIGNATURES
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 hereunto duly authorized.
TRITON PCS HOLDINGS, INC.
Dated: November 9, 2000 By: /s/ William A. Robinson
----------------------------
William A. Robinson
Vice President
and Controller
