<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-15325
TRITON PCS HOLDINGS, INC.
1100 Cassatt Road
Berwyn, PA 19312
(610) 651-5900
DELAWARE 23-2974475
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION OR ORGANIZATION) NUMBER)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ______
-----
As of October 31, 2000, 54,075,196 shares of the Registrant's Class A common
stock, par value $0.01 share, were outstanding.
<PAGE>
TRITON PCS HOLDINGS, INC.
THIRD QUARTER REPORT
Table of Contents
PART I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1999
and September 30, 2000 (unaudited)
Consolidated Statements of Operations for the three and nine
months ended September 30, 1999 and 2000 (unaudited)
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 2000 (unaudited)
Notes to the Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. Financial Information
Item I. Financial Statements
TRITON PCS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
(unaudited) (unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 186,251 $ 13,135
Due from related party 1,099 24
Accounts receivable, net of $1,765 and $2,229, respectively 29,064 42,740
Inventory, net 15,270 22,678
Prepaid expenses and other current assets 7,674 17,483
----------------------------
Total current assets 239,358 96,060
Property and equipment:
Land 313 313
Network infrastructure and equipment 304,656 571,022
Office furniture and equipment 38,382 51,094
Capital lease assets 5,985 7,839
Construction in progress 105,593 92,315
----------------------------
454,929 722,583
Less accumulated depreciation (33,065) (90,301)
----------------------------
Net property and equipment 421,864 632,282
Intangible assets, net 315,538 304,895
Other long-term assets 3,037 3,051
----------------------------
Total Assets $ 979,797 $1,036,288
============================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 82,129 $ 58,381
Accrued payroll and related expenses 9,051 9,220
Accrued expenses 4,890 19,728
Deferred revenue 5,526 5,603
Other liabilities 3,093 8,424
----------------------------
Total current liabilities 104,689 101,356
Bank credit facility 150,000 300,000
Senior subordinated debt 350,639 381,049
Capital lease obligations 3,997 4,211
Deferred income taxes 11,718 11,718
Deferred gain on sale of property and equipment 30,641 29,720
----------------------------
Total liabilities 651,684 828,054
Series A Redeemable Preferred Stock, $0.01 par value, 1,000,000 shares
authorized; issued and outstanding 786,253 shares as of September 30, 2000
and December 31, 1999, plus accreted dividends 94,203 101,509
SHAREHOLDERS' EQUITY
Series B Preferred Stock, $0.01 par value, 50,000,000 shares authorized;
no shares issued or outstanding as of September 30, 2000 or December 31, 1999 - -
Series C Preferred Stock, $0.01 par value, 3,000,000 shares authorized;
no shares issued and outstanding as of September 30, 2000 or December 31, 1999 - -
Series D Preferred Stock, $0.01 par value, 16,000,000 shares authorized;
issued and outstanding 543,683 shares as of September 30, 2000 and
December 31, 1999 5 5
Class A Common Stock, $0.01 par value, 520,000,000 shares authorized;
issued and outstanding 54,067,172 shares as of September 30, 2000 and
53,700,442 shares as of December 31, 1999 537 541
Class B Non-voting Common Stock, $.01 par value, 60,000,000 shares authorized;
issued and outstanding 8,210,827 shares as of September 30, 2000 and
December 31, 1999 82 82
Additional paid-in capital 436,229 463,167
Accumulated deficit (186,091) (311,539)
Deferred compensation (16,852) (45,531)
----------------------------
Total Shareholders' Equity 233,910 106,725
----------------------------
Total Liabilities and Shareholders' Equity $ 979,797 $1,036,288
============================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TRITON PCS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 2000 1999 2000
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service revenues $ 19,854 $ 62,585 $ 37,516 $ 150,984
Roaming revenues 14,257 27,528 27,210 71,641
Equipment revenues 9,002 9,229 16,629 24,801
----------- ----------- ----------- -----------
Total revenue 43,113 99,342 81,355 247,426
Expenses:
Cost of service (excluding noncash
compensation of $0 and $165 for the
three months ended September 30, 1999
and 2000, respectively and $0 and $340
for the nine months ended September 30,
1999 and 2000, respectively) 19,677 33,666 38,202 91,157
Cost of equipment 14,678 17,213 27,494 46,281
Selling and marketing (excluding noncash
compensation of $0 and $566 for the
three months ended September 30, 1999
and 2000, respectively and $0 and $979
for the nine months ended September 30,
1999 and 2000, respectively) 16,461 24,254 38,376 68,949
General and administrative (excluding
noncash compensation of $1,389 and
$1,648 for the three months ended
September 30, 1999 and 2000,
respectively and $2,325 and $3,978 for
the nine months ended September 30, 1999
and 2000, respectively) 11,961 21,906 28,558 58,156
Non-cash compensation 1,389 2,379 2,325 5,297
Depreciation and amortization 11,278 24,061 27,247 68,970
----------- ----------- ----------- -----------
Loss from operations (32,331) (24,137) (80,847) (91,384)
Interest expense, net of capitalized interest 7,395 15,203 26,242 38,863
Interest and other income 1,488 667 4,140 4,799
Gain on sale of property and equipment 11,682 - 11,682 -
----------- ----------- ----------- -----------
Net loss (26,556) (38,673) (91,267) (125,448)
Accretion on preferred stock 2,260 2,496 6,409 7,306
----------- ----------- ----------- -----------
Net loss applicable to shareholders ($28,816) ($41,169) ($97,676) ($132,754)
=========== =========== =========== ===========
Net loss per common share
(Basic and Diluted) $ (4.44) $ (0.66) $ (15.53) $ (2.14)
=========== =========== =========== ===========
Weighted average common shares
outstanding (Basic and Diluted) 6,489,175 62,105,092 6,289,398 61,979,187
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TRITON PCS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1999 2000
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (91,267) $(125,448)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 27,247 68,970
Bad debt expense 1,348 4,941
Accretion of interest 27,809 30,681
Gain on sale of marketable securities (1,004) -
Gain on sale of property and equipment (11,682) -
Non-cash compensation 2,325 5,297
Change in operating assets and liabilities:
Accounts receivable (14,278) (18,617)
Inventory (5,389) (7,408)
Prepaid expenses and other current assets (2,291) (9,809)
Other long-term assets (3,158) (14)
Accounts payable (12,245) (34,340)
Accrued payroll and related expenses 3,020 169
Deferred revenue 90 77
Accrued expenses 7,927 14,838
Other liabilities 1,043 4,410
--------- ---------
Net cash used in operating activities (70,505) (66,253)
Cash flows from investing activities:
Capital expenditures (162,661) (254,764)
Proceeds from sale of property and equipment, net 69,712 -
Proceeds from maturity of short term investments 47,855 -
Purchase of marketable securities (23,239) -
--------- ---------
Net cash used in investing activities (68,333) (254,764)
Cash flows from financing activities:
Borrowings under credit facility 10,000 150,000
Proceeds from issuance of stock in connection with private equity investment 35,000 -
Proceeds from issuance of stock in connection with Norfolk transaction 2,169 -
Proceeds from issuance of Series C preferred stock 340 -
Contributions under employee stock purchase plan - 542
Payment of deferred financing costs - (1,853)
Payment of deferred transaction costs (3,826) (270)
Proceeds from related party, net 200 1,075
Principal payments under capital lease obligations (286) (1,593)
--------- ---------
Net cash provided by financing activities 43,597 147,901
--------- ---------
Net decrease in cash (95,241) (173,116)
Cash and cash equivalents, beginning of period 146,172 186,251
--------- ---------
Cash and cash equivalents, end of period $ 50,931 $ 13,135
========= =========
Non-cash investing and financing activities:
Capital expenditures included in accounts payable 15,060 10,592
Deferred stock compensation 15,791 33,976
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TRITON PCS HOLDINGS, INC
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements are unaudited and have
been prepared by management. In the opinion of management, these
consolidated financial statements contain all of the adjustments,
consisting of normal recurring adjustments, necessary to present fairly, in
summarized form, the financial position and the results of operations of
Triton PCS Holdings, Inc. ("Triton" or the "Company"). The results of
operations for the three and nine months ended September 30, 2000 are not
indicative of the results that may be expected for the year ending December
31, 2000. The financial information presented herein should be read in
conjunction with the consolidated financial statements for the year ended
December 31, 1999, which include information and disclosures not included
herein.
The consolidated accounts of the Company include Triton PCS Holdings, Inc.
and its wholly-owned subsidiaries. All significant intercompany accounts or
balances have been eliminated in consolidation.
Certain reclassifications have been made to prior period financial
statements to conform to the current period presentation.
(2) New Accounting Pronouncements
On July 8, 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, "Deferral of the Effective Date of SFAS 133", which defers
the effective date of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" to all fiscal quarters of all fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities" as an amendment to SFAS No. 133. This statement provides
clarification with regard to certain implementation issues under SFAS No.
133 on specific types of hedges. The Company is currently evaluating the
financial impact of adoption of SFAS Nos. 133 and 138. The adoption is not
expected to have a material effect on the Company's results of operations,
financial position or cash flows.
On June 26, 2000 the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101B which amends the implementation date
of SAB No. 101, "Revenue Recognition", to no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. SAB No. 101
provides guidance on the recognition, presentation, and disclosure of
revenue in the financial statements. Management anticipates the impact will
not be material to the Company's financial position or results of
operations.
(3) Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (the "Plan"). Under
the terms of the Plan, during any calendar year there are four three-month
offering periods beginning January 1/st/, April 1/st/, July 1/st/ and
October 1/st/, during which employees can participate. The purchase price
is determined at the discretion of the Stock Plan Committee, but shall not
be less than the lesser of: (i) eighty-five percent (85%) of the fair
market value on the first business day of each offering period or (ii)
eighty-five percent (85%) of the fair market value on the last business day
of the offering period. The Company issued 8,024 shares of Class A common
stock, at a per share price of $23.38, in October 2000, 4,596 shares of
Class A common stock, at a per share price of $49.09, in July 2000 and
8,840 shares of Class A common stock, at a per share price of $35.81, in
April 2000 pursuant to the Plan.
(4) Stock Compensation
On March 22, 2000, the Company granted, through a common stock trust
established for grants of common stock to management employees and
independent directors (the "Trust"), 237,511 shares of restricted Class A
common stock to certain management employees. These shares are subject to
five-year vesting provisions and are amortized over the vesting period as
non-cash compensation. Deferred compensation of approximately $15.1 million
was recorded based on the estimated fair value at the date of issuance. In
February 2000, an employee resigned employment with the Company and
forfeited $0.7 million of deferred compensation and returned 94,970 shares
to the common stock trust established for grants of common stock to
management employees and independent directors.
On May 23, 2000, the Company granted, through the Trust, 75,000 shares of
restricted Class A common stock to a management employee. These shares are
subject to five-year vesting provisions. Deferred compensation of
approximately $3.4 million was recorded based on the estimated fair value
at the date of
<PAGE>
issuance. During the second quarter of 2000, $0.2 million of deferred
compensation was forfeited and 3,751 shares were returned to the Trust as a
result of individuals resigning their employment with the Company.
On August 15, 2000, the Company granted 353,294 shares of restricted Class
A common stock to management employees. These shares are subject to five-
year vesting provisions. Deferred compensation of approximately $16.4
million was recorded based on the estimated fair value at the date of
issuance.
(5) Credit Facility
On September 14, 2000, the Company entered into a second amended and
restated bank credit facility under which the credit available was
increased from $600.0 million to $750.0 million. This credit facility
provides for (i) a $175 million Tranche A term loan, which matures in
August 2006 (ii) a $150 million Tranche B term loan, which matures in May
2007 (iii) a $175 million Tranche C term loan, which matures in August 2006
(iv) a $150 million Tranche D term loan, which matures in August 2006 and
(v) a $100 million revolving credit facility, which matures in August 2006.
As of September 30, 2000, the Company had $150 million of the Tranche B
term loan outstanding and $150 million of the Tranche A term loan
outstanding.
(6) Interest Rate Swaps
Triton uses interest rate swap contracts to adjust the proportion of total
debt that is subject to variable and fixed interest rates. The Company does
not hold or issue financial instruments for trading or speculative
purposes. Swap counterparties are major commercial banks.
Triton entered into several interest rate swaps during the second quarter
of 2000. Under these interest rate swap contracts, the Company agrees to
pay an amount equal to a specified fixed-rate of interest times a notional
principal amount and to receive in turn an amount equal to specified
variable-rate of interest times the same notional amount. The notional
amounts of the contracts are not exchanged.
Information, as of September 30, 2000, for the interest rate swaps entered
into during 2000 is as follows:
<TABLE>
<CAPTION>
Payable @
Term Notional Fixed Rate Variable Rate 9/30/00 Fair Value
---- -------- ---------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C>
6/12/00 - 6/12/03 $75,000,000 6.9025% 6.554% $9,599 ($665,694)
6/15/00 - 6/16/03 $50,000,000 6.895% 6.554% $5,222 ($433,206)
7/17/00 - 7/15/03 $25,000,000 6.89% 6.554% $8,247 ($224,917)
8/15/00 - 8/15/03 $25,000,000 6.89% 6.554% $6,854 ($229,310)
</TABLE>
The variable rate is capped at 7.5% for the above interest rate swaps.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
As used herein, the terms, "Triton," "we," "our" and similar terms refer
collectively to Triton PCS Holdings, Inc, Triton PCS, Inc., and their
consolidated subsidiaries. The following discussion and analysis is based upon
our financial statements as of the dates and for the periods presented in this
section. You should read this discussion and analysis in conjunction with our
financial statements and the related notes contained elsewhere in this report.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q and in future filings by us with the Securities and
Exchange Commission, in our press releases and in oral statements made with the
approval of an authorized executive officer of Triton, the words or phrases
"will likely result," "management expects" or "management anticipates," "will
continue," "is anticipated," "is estimated" or similar expressions (including
confirmations by an authorized executive officer of Triton or any such
expressions made by a third party with respect to Triton) are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Readers are cautioned not to place
undue reliance on any such forward-looking statements, each of which speaks only
as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. We have no
obligation to release publicly the result of any revisions which may be made to
any forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
OVERVIEW
We were incorporated in October 1997. In February 1998, we entered into a joint
venture with AT&T Wireless PCS LLC whereby AT&T contributed to us personal
communications services licenses covering 20 megahertz of authorized frequencies
in a contiguous geographic area encompassing portions of Virginia, North
Carolina, South Carolina, Tennessee, Georgia and Kentucky. As part of this
agreement, we were granted the right to be the exclusive provider of wireless
mobility services using equal emphasis co-branding with AT&T in our licensed
markets.
We began generating revenues from the sale of personal communications services
in the first quarter of 1999 as part of Phase I of our personal communications
services network build-out. Our personal communications services network build-
out is scheduled for three phases. We completed the first phase of our build-out
in the first half of 1999 with the launch of 15 markets and completed the second
phase during the first quarter of 2000 with the launch of 21 additional markets.
We have begun the third phase of our network build-out, which focuses on
covering major highways linking the cities in our licensed area, and neighboring
cities where AT&T and other carriers use compatible wireless technology. This
phase, which is expected to be completed by the end of 2001, has included the
launch of one additional market in our licensed area.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Subscribers
Net subscriber additions were 60,608 and 51,252 for the three months ended
September 30, 2000 and 1999, respectively. Subscribers were 361,590 and 129,616
as of September 30, 2000 and 1999, respectively. The increase in subscribers
over the same period in 1999 was primarily due to launching 22 additional
markets between October 1, 1999 and September 30, 2000 and continued strong
demand for our digital service offerings and pricing plans.
The wireless industry typically generates a higher number of subscriber
additions and handset sales in the fourth quarter of each year compared to the
other quarters. This is due to the use of retail distribution, which is
dependent on the holiday shopping season, the timing of new products and service
introductions, and aggressive marketing and sales promotions.
<PAGE>
Churn
Subscriber attrition, or "churn", was 1.9% and 1.7% for the three months ended
September 30, 2000 and 1999, respectively. We believe that our churn rate
remains consistently low due to our high quality system performance, our
commitment to quality customer service and our focused collection efforts.
Average Revenue Per User
An important operating metric in the wireless industry is average revenue per
user, which summarizes the average monthly service revenue per customer.
Average revenue per user was $62.97 and $63.61 for the three months ended
September 30, 2000 and 1999, respectively. We continue to focus on attracting
new customers with rate plans that provide more value to the customer at a
higher average access charge.
Revenues
Service revenues were $62.6 million and $19.9 million for the three months ended
September 30, 2000 and 1999, respectively. Service revenues consist of monthly
recurring access and feature charges and monthly non-recurring charges comprised
primarily of local, long distance and roaming airtime usage in excess of the
pre-subscribed usage plan. The increase in service revenues of $42.7 million
was due primarily to subscriber growth. Of this increase, $34.0 million was
attributable to markets launched prior to September 30, 1999 and $8.7 million to
additional markets launched between October 1, 1999 and September 30, 2000.
Equipment revenues were $9.2 million and $9.0 million for the three months ended
September 30, 2000 and 1999, respectively. The equipment revenues increase of
$0.2 million over the same period in 1999 was due primarily to the increase in
gross additions, offset by a decrease in the average price per handset sold.
Roaming revenues were $27.5 million and $14.3 million for the three months ended
September 30, 2000 and 1999, respectively. The increase in roaming revenues of
$13.2 million was due to increased roaming minutes of use resulting from our
continued network buildout, offset by a contractual decrease in our service
charge per minute.
Costs of Service and Equipment
Costs of service were $33.7 million and $19.7 million for the three months ended
September 30, 2000 and 1999, respectively. Costs of service are comprised
primarily of network operating costs, roaming expense and long distance
expense. The increase in costs of service of $14.0 million over the same period
in 1999 was due primarily to increased costs of expanding and maintaining our
wireless network to support an increase in the number of subscriber and roamer
minutes of use. Cost of equipment was $17.2 million and $14.7 million for the
three months ended September 30, 2000 and 1999, respectively. The increase of
$2.5 million over the same period in 1999 is due primarily to an increase in
subscriber additions.
Selling and Marketing Expenses
Selling and marketing costs were $24.3 million and $16.5 million for the three
months ended September 30, 2000 and 1999, respectively. The increase of $7.8
million over the same period in 1999 was primarily due to the expansion of our
sales distribution channels and advertising and promotion costs associated with
the 22 additional markets launched as part of our network build-out.
General & Administrative Expenses
General and administrative expenses were $21.9 million and $12.0 million for the
three months ended September 30, 2000 and 1999, respectively. The increase of
$9.9 million over the same period in 1999 was primarily due to the development
and growth of infrastructure and staffing related to information technology,
customer care and other administrative functions established in conjunction with
launching additional markets and the corresponding growth in our subscriber
base.
EBITDA
EBITDA represents operating income before interest, taxes, depreciation and
amortization. We believe EBITDA provides meaningful additional information on
our operating results and on our ability to service our long-term debt and other
fixed obligations, as well as our ability to fund our continued growth. EBITDA
is considered by many financial analysts to be a meaningful indicator of an
entity's ability to meet its future financial obligations. Growth in EBITDA is
considered to be an indicator of future profitability, especially in a capital-
intensive industry such as wireless telecommunications. EBITDA should not be
construed as an alternative to operating income (loss) as determined in
accordance with United States GAAP, as an alternate to cash flows from operating
activities as determined in accordance with United States GAAP, or as a measure
of liquidity. EBITDA was $2.3 million and a
<PAGE>
loss of $19.7 million for the three months ended September 30, 2000 and 1999,
respectively. The increase of $22.0 million over the same period in 1999
resulted primarily from the items discussed above.
Non-cash Compensation
Non-cash compensation was $2.4 million and $1.4 million for the three months
ended September 30, 2000 and 1999, respectively. The increase of $1.0 million
over the same period in 1999 was attributable to the vesting of an increased
number of restricted shares.
Depreciation & Amortization Expenses
Depreciation and amortization expenses were $24.1 million and $11.3 million for
the three months ended September 30, 2000 and 1999, respectively. The increase
of $12.8 million over the same period in 1999 relates primarily to depreciation
of our fixed assets as well as the amortization on our personal communications
services licenses and AT&T agreements upon the commercial launch of our Phase II
markets. Depreciation will continue to increase as additional portions of our
network are placed into service.
Interest Expense & Income
Interest expense was $15.2 million, net of capitalized interest of $2.6 million,
for the three months ended September 30, 2000. Interest expense was $7.4
million, net of capitalized interest of $5.7 million, for the three months ended
September 30, 1999. The increase of $7.8 million over the same period in 1999
relates primarily to additional draws on our credit facility totaling $150.0
million and less capitalized interest as a result of assets placed into service.
For the three months ending September 30, 2000, we had a weighted average
interest rate of 11.04% on our average borrowings under our bank credit facility
and our average obligation for the senior subordinated debt.
Interest income was $0.7 million and $1.5 million for the three months ended
September 30, 2000 and 1999, respectively. The decrease of $0.8 million over
the same period in 1999 was due primarily to lower cash balances.
Net Loss
Net loss was $38.7 million and $26.6 million for the three months ended
September 30, 2000 and 1999, respectively. The increase of $12.1 million over
the same period in 1999 resulted primarily from the items discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
Subscribers
Net subscriber additions were 166,386 and 95,772 for the nine months ended
September 30, 2000 and 1999, respectively. Subscribers were 361,590 and 129,616
as of September 30, 2000 and 1999, respectively. The increase in subscribers
over the same period in 1999 was primarily due to launching 22 additional
markets between October 1, 1999 and September 30, 2000 as part of the Phase II
network build-out, offering nine full months of service in the 15 markets
launched as part of our Phase I build-out and continued strong demand for our
digital service offerings and pricing plans.
The wireless industry typically generates a higher number of subscriber
additions and handset sales in the fourth quarter of each year compared to the
other quarters. This is due to the use of retail distribution, which is
dependent on the holiday shopping season, the timing of new products and service
introductions, and aggressive marketing and sales promotions.
Churn
Subscriber churn was 1.8% and 2.0% for the nine months ended September 30, 2000
and 1999, respectively. We believe that our churn rate remains consistently low
due to our high quality system performance, our commitment to quality customer
service and our focused collection efforts.
Average Revenue Per User
Average revenue per user was $61.23 and $61.33 for the nine months ended
September 30, 2000 and 1999, respectively. We continue to focus on attracting
new customers with rate plans that provide more value to the customer at a
higher average access charge.
<PAGE>
Revenues
Service revenues were $151.0 million and $37.5 million for the nine months ended
September 30, 2000 and 1999, respectively. Service revenues consist of monthly
recurring access and feature charges and monthly non-recurring charges comprised
primarily of local, long distance and roaming airtime usage in excess of the
pre-subscribed usage plan. The increase in service revenues of $113.5 million
was due primarily to growth of subscribers. Of this increase, $98.5 million was
attributable to markets launched prior to September 30, 1999 and $15.0 million
to additional markets launched between October 1, 1999 and September 30, 2000.
Equipment revenues were $24.8 million and $16.6 million for the nine months
ended September 30, 2000 and 1999, respectively. The equipment revenues
increase of $8.2 million over the same period in 1999 was due primarily to the
increase in gross additions. Roaming revenues were $71.6 million and $27.2
million for the nine months ended September 30, 2000 and 1999, respectively.
The increase in roaming revenues of $44.4 million was due to increased roaming
minutes of use resulting from our continued network buildout, offset slightly by
a contractual decrease in our service charge per minute.
Costs of Service and Equipment
Costs of service were $91.2 million and $38.2 million for the nine months ended
September 30, 2000 and 1999, respectively. Costs of service are comprised
primarily of network operating costs, roaming expense and long distance expense.
The increase in costs of service of $53.0 million over the same period in 1999
was due primarily to increased costs of expanding and maintaining our wireless
network to support an increase in the number of subscriber and roamer minutes of
use. Cost of equipment was $46.3 million and $27.5 million for the nine months
ended September 30, 2000 and 1999, respectively. The increase of $18.8 million
over the same period in 1999 is due primarily to an increase in subscriber
additions.
Selling and Marketing Expenses
Selling and marketing costs were $69.0 million and $38.4 million for the nine
months ended September 30, 2000 and 1999, respectively. The increase of $30.6
million over the same period in 1999 was primarily due to the expansion of our
sales distribution channels and advertising and promotion costs associated with
the additional markets launched.
General & Administrative Expenses
General and administrative expenses were $58.2 million and $28.6 million for the
nine months ended September 30, 2000 and 1999, respectively. The increase of
$29.6 million over the same period in 1999 was primarily due to the development
and growth of infrastructure and staffing related to information technology,
customer care and other administrative functions established in conjunction with
launching additional markets and the corresponding growth in subscriber base.
EBITDA
EBITDA represents operating income before interest, taxes, depreciation and
amortization. We believe EBITDA provides meaningful additional information on
our operating results and on our ability to service our long-term debt and other
fixed obligations as well as our ability to fund our continued growth. EBITDA
is considered by many financial analysts to be a meaningful indicator of an
entity's ability to meet its future financial obligations. Growth in EBITDA is
considered to be an indicator of future profitability, especially in a capital-
intensive industry such as wireless telecommunications. EBITDA should not be
construed as an alternative to operating income (loss) as determined in
accordance with United States GAAP, as an alternate to cash flows from operating
activities as determined in accordance with United States GAAP, or as a measure
of liquidity. EBITDA was a loss of $17.1 million and a loss of $51.3 million
for the nine months ended September 30, 2000 and 1999, respectively. The
decrease in the loss of $34.2 million over the same period in 1999 resulted
primarily from the items discussed above.
Non-cash Compensation
Non-cash compensation was $5.3 million and $2.3 million for the nine months
ended September 30, 2000 and 1999, respectively. The increase of $3.0 million
over the same period in 1999 was attributable to the vesting of an increased
number of restricted shares.
<PAGE>
Depreciation & Amortization Expenses
Depreciation and amortization expenses were $69.0 million and $27.2 million for
the nine months ended September 30, 2000 and 1999, respectively. The increase of
$41.8 million over the same period in 1999 relates primarily to depreciation of
our fixed assets as well as the amortization on our personal communications
services licenses and AT&T agreements upon the commercial launch of our Phase II
markets. Depreciation will continue to increase as additional portions of our
network are placed into service.
Interest Expense & Income
Interest expense was $38.9 million, net of capitalized interest of $7.9 million,
for the nine months ended September 30, 2000. Interest expense was $26.2
million, net of capitalized interest of $12.9 million, for the nine months ended
September 30, 1999. The increase of $12.7 million over the same period in 1999
relates primarily to additional draws on our credit facility totaling $150.0
million and less capitalized interest as a result of assets placed into service.
For the nine months ending September 30, 2000, we had a weighted average
interest rate of 11.02% on our average borrowings under our bank credit facility
and our average obligation for the senior subordinated debt.
Interest income was $4.8 million and $4.1 million for the nine months ended
September 30, 2000 and 1999, respectively. The increase of $0.7 million over
the same period in 1999 was due primarily to interest on greater average cash
balances.
Net Loss
Net loss was $125.4 million and $91.3 million for the nine months ended
September 30, 2000 and 1999, respectively. The increase of $34.1 million over
the same period in 1999 resulted primarily from the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had $13.1 million in cash and cash
equivalents, as compared to $186.3 million in cash and cash equivalents at
December 31, 1999. Net working capital was $(5.3) million at September 30, 2000
and $134.7 million at December 31, 1999.
Net Cash Used in Operating Activities
The $66.3 million of cash used in operating activities during the nine month
period ended September 30, 2000 was the result of our net loss of $125.4 million
and $50.7 million of cash used by changes in working capital, partially offset
by $109.9 million of depreciation and amortization, accretion of interest, non-
cash compensation and bad debt expense.
Net Cash Used in Investing Activities
The $254.8 million of cash used by investing activities during the nine month
period ending September 30, 2000 was related to capital expenditures associated
with our Phase II and Phase III network build-out. These capital expenditures
were made primarily to enhance and expand our wireless network in order to
increase capacity and to satisfy subscriber needs and competitive requirements.
We will continue to upgrade our network capacity and service quality to support
our anticipated subscriber growth.
Net Cash Provided by Financing Activities
The $147.9 million provided by financing activities during the nine-month period
ending September 30, 2000 relates primarily to our $150.0 million draw against
our credit facility.
Liquidity
We believe that cash on hand and available credit facility borrowings, will be
sufficient to meet our projected capital requirements. Our credit facility will
permit us, subject to various terms and conditions, including compliance with
specified leverage ratios and satisfaction of build-out and subscriber
milestones, to draw up to $750.0 million to finance working capital
requirements, capital expenditures, permitted acquisitions and other corporate
purposes. Our borrowings under these facilities are subject to customary terms
and conditions. As of September 30, 2000, we had drawn $300.0 million. Although
we estimate that the cash on hand and available credit facility will be
sufficient to
<PAGE>
build-out our network and to enable us to offer services to 100% of the
potential customers in our licensed area, it is possible that additional debt or
equity financing may be needed to fund additional development activities or to
maintain our capital structure to ensure our financial flexibility.
INFLATION
We do not believe that inflation has had a material impact on operations.
NEW ACCOUNTING PRONOUNCEMENTS
On July 8, 1999, the Financial Accounting Standards Board, commonly known as
FASB, issued SFAS No. 137, "Deferral of the Effective Date of SFAS 133", which
defers the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" to all fiscal quarters of all fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities"
as an amendment to SFAS No. 133. This Statement provides clarification with
regard to certain implementation issues under SFAS No. 133 on specific types of
hedges. We are currently evaluating the financial impact of adoption of SFAS
Nos. 133 and 138. The adoption is not expected to have a material effect on our
results of operations, financial position or cash flows.
On June 26, 2000 the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101B which amends the implementation date of Staff Accounting
Bulletin No. 101, "Revenue Recognition", to no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. Staff Accounting
Bulletin No. 101 provides guidance on the recognition, presentation, and
disclosure of revenue in the financial statements. We anticipate the impact
will not be material to our financial position or results of operations.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We utilize interest rate swaps to hedge against the effect of interest rate
fluctuations on our senior debt portfolio. We do not hold or issue financial
instruments for trading or speculative purposes. Swap counterparties are major
commercial banks. Through September 30, 2000, we had entered into six interest
rate swap transactions having an aggregate non-amortizing notional amount of
$250.0 million. Under these interest rate swap contracts, we agree to pay an
amount equal to a specified fixed-rate of interest times a notional principal
amount and to receive in turn an amount equal to specified variable-rate of
interest times the same notional amount. The notional amounts of the contracts
are not exchanged. Net interest positions are settled quarterly. A 100 basis
point fluctuation in market rates would not have a material effect on our
overall financial condition.
Information, as of September 30, 2000, for the interest rate swaps entered into
is as follows:
Term Notional Fixed Rate Variable Rate
---- -------- ---------- -------------
12/8/98 - 12/4/03 $35,000,000 4.805% 6.598%
12/8/98 - 12/4/03 $40,000,000 4.760% 6.598%
6/12/00 - 6/12/03 $75,000,000 6.9025% 6.554%
6/15/00 - 6/16/03 $50,000,000 6.895% 6.554%
7/17/00 - 7/15/03 $25,000,000 6.89% 6.554%
8/15/00 - 8/15/03 $25,000,000 6.89% 6.554%
The variable rate is capped at 7.5% for the interest rate swaps, with notional
amounts of $75.0 million, $50.0 million, $25.0 million and $25.0 million,
respectively.
Our cash and cash equivalents consist of short-term assets having initial
maturities of three months or less. While these investments are subject to a
degree of interest rate risk, it is not considered to be material relative to
our overall investment income position.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Triton's wholly-owned subsidiary, Triton PCS License Company L.L.C.,
has filed with the Federal Communications Commission to participate in
the upcoming 1900 megahertz C and F Block Broadband PCS Auction No.
35, which is scheduled to begin on December 12, 2000. Triton also
holds a 39% interest in Lafayette Communications Company L.L.C., a
qualified designated entity under Federal Communications Guidelines
that has also filed to participate in Auction No. 35. A total of 422
licenses are available in Auction No. 35 which cover 195 basic trading
areas and consist of both C and F block licenses containing either 10
or 15 megahertz of spectrum.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation of Triton PCS Holdings, Inc.
(incorporated by reference to exhibit no. 3.4 to the Form S-1
registration statement of Triton PCS Holdings, Inc., File No. 333-
85149 (the "Form S-1")).
3.2 Amended and Restated Bylaws of Triton PCS Holdings, Inc. (incorporated
by reference to exhibit no. 3.5 to the Form S-1).
4.1 Indenture, dated as of May 4, 1998, between Triton PCS, Inc., the
Guarantors party thereto and PNC Bank, National Association
(incorporated by reference to Exhibit 4.1 of the Form S-4 Registration
Statement of Triton PCS, Inc. and its subsidiaries, File No. 333-
57715).
4.2 First Supplemental Indenture, dated as of March 30, 1999, to the
Indenture dated as of May 4, 1998 (incorporated by reference to
exhibit 4.2 of the Form S-4).
10.1 Investors Stockholders' Agreement, dated as of February 4, 1998, among
CB Capital Investors, L.P., J.P. Morgan Investment Corporation, Sixty
Wall Street SBIC Fund, L.P., Private Equity Investors III, L.P.,
Equity-Linked Investors-II, Toronto Dominion Capital (U.S.A.), Inc.,
DAG-Triton PCS, L.P., First Union Capital Partners, Inc., and the
stockholders named therein (incorporated by reference to Exhibit 10.10
to the Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-57715).
10.2 Amendment No. 1 to Investor Stockholders' Agreement, dated as of
October 27, 1999 among CB Capital Investors, L.P., J.P. Morgan
Investment Corporation, Sixty Wall Street SBIC Fund, L.P., Private
Equity Investors III, L.P., Equity-Linked Investors-II, Toronto
Dominion Capital (U.S.A.), Inc., DAG-Triton PCS, L.P., First Union
Capital Partners, Inc., and the stockholders named therein
(incorporated by reference to exhibit 10.47 of the Form S-1)
10.3 First Amended and Restated Stockholders' Agreement, dated as of
October 27, 1999, among Triton PCS Holdings, Inc., AT&T Wireless PCS
LLC, and the cash equity investors and management stockholders party
thereto (incorporated by reference to exhibit 10.45 of the Form S-1).
10.4 Second Amended and Restated Credit Agreement, dated as of September
14, 2000, among Triton PCS, Inc., Triton PCS Holdings, Inc., the
Lenders (as defined therein) party thereto, and The Chase Manhattan
Bank, as administrative agent.
<PAGE>
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized, in the City of Berwyn, State of
Pennsylvania, on November 10, 2000.
TRITON PCS HOLDINGS, INC.
(Registrant)
By: /s/ Michael E. Kalogris
------------------------------
Michael E. Kalogris
Chairman and CEO
By: /s/ David D. Clark
------------------------------
David D. Clark
Executive Vice President & CFO
