-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NkFFvWkDgsrq2CGHhm/jHu0cFCDi/posP652Uz70Kap7MoLIl3mY94P1SmZsy1IB 3dJjmirnsAik1bAmSlSl9A== 0000950130-01-000830.txt : 20010223 0000950130-01-000830.hdr.sgml : 20010223 ACCESSION NUMBER: 0000950130-01-000830 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRITEL INC CENTRAL INDEX KEY: 0001088383 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 640896417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-28435 FILM NUMBER: 1539225 BUSINESS ADDRESS: STREET 1: 111 E CAPITOL ST STREET 2: SUITE 500 CITY: JACKSON STATE: MS ZIP: 39201 BUSINESS PHONE: 6039292606 MAIL ADDRESS: STREET 1: 1080 RIVER OAKS DRIVE STREET 2: SUITE B 100 CITY: JACKSON STATE: MS ZIP: 39208 10-Q/A 1 0001.txt AMENDMENT NO.1 TO FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 or [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 000-28435 TRITEL, INC. (Exact name of registrant as specified in its charter) Delaware 64-0896417 (State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
1010 N. Glebe Road Suite 800 Arlington, VA 22201 (Address of Principal Executive Offices) (703) 236-1100 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[_] On April 28, 2000, there were 97,809,885 shares of class A voting common stock, 2,927,120 shares of class B non-voting common stock, 1,380,448 shares of class C common stock, 4,962,804 shares of class D common stock and 6 shares of voting preference common stock outstanding. EXPLANATORY NOTE This Form 10-Q/A amends Item 1 and Item 2 of the Company's quarterly report on Form 10-Q for the three month period ended March 31, 2000 (the "Form 10-Q") filed with the Securities and Exchange Commission on May 15, 2000. The purpose of this Form 10-Q/A is to restate the amount of reported outcollect revenues from roaming customers and separately state revenues by source (service, roaming and equipment). As previously publicly announced on January 5, 2001, subsequent to filing the Form 10-Q, the Company became aware that the amount of outcollect revenues from roaming customers required revision. Furthermore, subsequent to the merger with TeleCorp Wireless, Inc., management concluded that revenues are to be stated separately by source. Accordingly, the Company has determined to restate its financial statements as of and for the three months ended March 31, 2000. Exccept for Item 1 and Item 2 of Part I, no other information in the original report on Form 10-Q is amended by this Form 10-Q/A. Form 10-Q/A Tritel, Inc. Quarter Ended March 31, 2000 Table of Contents
Page ---- PART I. FINANCIAL INFORMATION Item 1. Tritel, Inc. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets- December 31, 1999 and March 31, 2000.......................... 2 Condensed Consolidated Statements of Operations- Three-Month Periods Ended March 31, 1999 and March 31, 2000............... 3 Condensed Consolidated Statements of Cash Flows- Three-Month Periods Ended March 31, 1999 and March 31, 2000............... 4 Notes to Condensed Consolidated Financial Statements........... 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................. 14
1 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements TRITEL, INC. Condensed Consolidated Balance Sheets December 31, 1999 and March 31, 2000 (unaudited) (amounts in thousands, except share data)
December 31, March 31, 1999 2000 ---------------- --------------- Assets (unaudited) Current assets: Cash and cash equivalents $ 609,269 482,459 Accounts receivable, net 5,040 8,092 Inventory 8,957 16,410 Prepaid expenses and other current assets 7,298 8,188 ---------------- --------------- Total current assets 630,564 515,149 Restricted cash 6,594 6,125 Property and equipment, net 262,343 292,215 Federal Communications Commission licensing costs, net 201,946 203,107 Intangible assets, net 59,508 58,077 Other assets 35,407 34,585 ---------------- --------------- Total assets $ 1,196,362 1,109,258 ================ =============== Liabilities and Stockholders' Equity Current liabilities: Current maturities of long-term debt $ 923 960 Accounts payable and accrued liabilities 113,324 64,118 ---------------- --------------- Total current liabilities 114,247 65,078 ---------------- --------------- Non-current liabilities: Long-term debt 557,716 564,483 Deferred income taxes and other liabilities 37,367 38,891 ---------------- --------------- Total non-current liabilities 595,083 603,374 ---------------- --------------- Total liabilities 709,330 668,452 ---------------- --------------- Series A 10% redeemable convertible preferred stock 99,586 101,853 ---------------- --------------- 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 March 31, 2000 Class A Voting - 97,799,735 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 602,359 708,378 Accumulated deficit (262,358) (416,870) ---------------- --------------- Total stockholders' equity 387,446 338,953 ---------------- --------------- Total liabilities, redeemable preferred stock and stockholders' equity $ 1,196,362 1,109,258 ================ ===============
See Notes to Condensed Consolidated Financial Statements. 2 TRITEL, INC. Condensed Consolidated Statements of Operations (Unaudited) For the Three-Month Periods Ended March 31, 1999 and 2000 (amounts in thousands, except per share data)
Three months ended March 31, ----------------------------------- 1999 2000 ---------------- ----------------- Revenues: Service $ - $ 6,815 Roaming - 5,285 Equipment - 2,783 ------- ---------- Total revenues - 14,883 ------- ---------- Operating expenses: Cost of service and equipment - 13,703 Technical operations 1,956 10,192 General and administrative 2,890 9,328 Sales and marketing 1,016 12,139 Stock-based compensation - 108,297 Depreciation and amortization 1,609 10,551 ------- ---------- Total operating expenses 7,471 164,210 ------- ---------- Operating loss (7,471) (149,327) Interest income 1,127 8,669 Financing cost (2,230) - Interest expense - (14,360) ------- ---------- Loss before income taxes (8,574) (155,018) Income tax benefit 2,327 506 ------- ---------- Net loss (6,247) (154,512) Series A preferred dividend requirement (2,087) (2,267) ------- ---------- Net loss available to common stockholders $ (8,334) (156,779) ======= ========== Basic and diluted net loss per share $ (1.33) ==========
See Notes to Condensed Consolidated Financial Statements. 3 TRITEL, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three-Month Periods Ended March 31, 1999 and 2000 (amounts in thousands)
Three-months ended March 31, ------------------------------- 1999 2000 ------------- --------------- Cash flows from operating activities: Net loss $ (6,247) (154,512) Adjustments to reconcile net loss to net cash used in operating activities: Financing costs 2,230 - Depreciation and amortization 1,609 10,551 Stock-based compensation - 108,297 Accretion of discount on debt and amortization - 6,472 of debt issuance costs Deferred income tax benefit (2,327) (506) Provision for bad debts - 188 Changes in operating assets and liabilities: Accounts receivable - (3,240) Inventory - (7,453) Accounts payable and accrued expenses (3,870) (10,935) Change in other current assets and liabilities 404 (700) --------- ----------- Net cash used in operating activities (8,201) (51,838) --------- ----------- Cash flows from investing activities: Capital expenditures (22,358) (73,166) Advance under notes receivable (7,500) - Capitalized interest on network construction and Federal Communications Commission licensing costs (3,715) (1,806) (Increase) decrease in restricted cash (8,393) 568 Other - (144) --------- ----------- Net cash used in investing activities (41,966) (74,548) --------- ----------- Cash flows from financing activities: Proceeds from (repayments of) long-term debt 200,000 (215) Repayments of notes payable (22,100) - Payment of debt issuance costs and other deferred charges (27,201) (199) Payment of stock issuance costs - (61) Proceeds from vendor discount 15,000 - Issuance of preferred stock 113,623 - Proceeds from exercise of stock options - 51 --------- ----------- Net cash provided by (used in) financing activities 279,322 (424) --------- ----------- Net increase (decrease) in cash and cash equivalents 229,155 (126,810) Cash and cash equivalents at beginning of period 846 609,269 --------- ----------- Cash and cash equivalents at end of period $ 230,001 482,459 ========= ===========
See Notes to Condensed Consolidated Financial Statements. 4 Tritel, Inc. Notes to Condensed Consolidated Financial Statements 1. Organization Tritel, Inc. ("Tritel") was formed on April 23, 1998 by the controlling shareholders of Airwave Communications LLC and Digital PCS, LLC, our predecessor companies, to develop PCS markets in the south-central United States. On January 7, 1999, our predecessor companies transferred substantially all of their assets and liabilities at historical cost to Tritel in exchange for 18,262 shares of series C preferred stock in Tritel. The controlling shareholders of our predecessor companies control Tritel. Tritel will continue the activities of our predecessor companies and, for accounting purposes, this transaction was accounted for as a reorganization of the predecessor company into a C corporation and a name change to Tritel. Tritel and the predecessor company, together with Tritel's subsidiaries, are referred to collectively as "the Company." 2. Merger with Telecorp PCS On February 28, 2000, Tritel and TeleCorp PCS, Inc. announced the signing of a definitive agreement and plan of reorganization and contribution, called the Merger Agreement, for an all stock, tax-free merger, called the Merger. The Merger Agreement provides for the creation of a new entity to be called TeleCorp PCS, Inc. Tritel and TeleCorp will merge into subsidiaries of the new entity. Under the Merger Agreement, each share of Tritel class A voting common stock will be converted into the right to receive 0.76 shares of the new entity's class A common stock. This exchange ratio is fixed regardless of future stock price movement. The Merger has been unanimously approved by the Tritel and TeleCorp boards of directors, with three members of the TeleCorp board abstaining. Shareholders with an excess of 50% of the voting power of each company have entered into agreements to vote in favor of the Merger. The Merger is still subject to regulatory approval and other conditions. 3. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring items, necessary to fairly present the results of operations, financial position and cash flows for the periods presented. The results of operations for an interim period are not necessarily indicative of the results of operations that may be expected for the complete fiscal year. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1999 included in the Company's Annual Report to Shareholders on Form 10-K. 4. Restatement of Financial Statements As previously publicly announced on January 5, 2001, subsequent to filing its quarterly report on Form 10-Q for the period ended March 31, 2000, the Company became aware that the amount of outcollect revenues from roaming customers required revision. Furthermore, subsequent to the merger with TeleCorp Wireless, Inc., management concluded that revenues are to be stated separately by source (service, roaming and equipment). Accordingly, the Company has determined to restate its financial statements as of and for the three months ended March 31, 2000. The total effect of the revision to roaming revenue was $0.6 million for the three months ended March 31, 2000. 5. Supplemental Cash Flow Information
Three months ended March 31, ----------------------------- 1999 2000 ------------- -------------- (Amounts in Thousands) Supplementary Information: Cash paid for interest, net of amounts capitalized $ - 7,888 ========== ========== Significant non-cash investing and financing activities: Capitalized interest and discount on debt $ 221 1,481 ========== ========== Conversions of debt to equity $ 6,746 - ========== ========== Capital expenditures included in accounts payable $ 5,762 43,642 and accrued exprenses ========== ==========
5 6. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, ("FAS133"). FAS133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. FAS133 will significantly change the accounting treatment of derivative instruments and, depending upon the underlying risk management strategy, these accounting changes could affect future earnings, assets, liabilities, and shareholders' equity. The Company is closely monitoring the deliberations of the FASB's derivative implementation task force. With the issuance of Financial Accounting Statement No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, which delayed the effective date of FAS133, the Company will be required to adopt FAS133 on January 1, 2001. Presently, the Company has determined that the adoption will not have a material impact on the consolidated financial statements of the Company. 7. Condensed Consolidating Financial Statements The following condensed consolidating financial statements as of December 31, 1999 and March 31, 2000 and for the three months ended March 31, 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 Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. --------------------------------------------------------------------------------------- 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 $ 509,070 968,592 275,121 201,946 (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 $ 509,070 968,592 275,121 201,946 (758,367) 1,196,362 ========= ========= ========== ========= ========== ==========
6
Condensed Consolidating Balance Sheet As of March 31, 2000 Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. --------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ - 472,193 10,266 - - 482,459 Other current assets 2,926 2,407 27,357 - 32,690 Intercompany receivables 443 345,696 - (346,139) - ------------------------------------------------------------------------------------ Total current assets 3,369 820,296 37,623 (346,139) 515,149 Restricted cash - 6,125 - - 6,125 Property and equipment, net - - 292,215 - 292,215 Licenses and other intangibles 58,077 - - 203,107 - 261,184 Investment in subsidiaries 401,363 33,510 - (434,873) - Other long term assets 70,354 424 (36,193) 34,585 ------------------------------------------------------------------------------------ Total assets $ 462,809 930,285 330,262 203,107 (817,205) 1,109,258 ==================================================================================== Current liabilities: Accounts payable, accrued expenses and other current liabilities $ 20 1,117 62,219 1,722 - 65,078 Intercompany payables 0 - 328,793 17,346 (346,139) - ------------------------------------------------------------------------------------ Total current liabilities 20 1,117 391,012 19,068 (346,139) 65,078 Non-current liabilities: Long-term debt - 523,510 35,371 40,973 (35,371) 564,483 Deferred income taxes and other liabilities 21,983 4,295 (16,809) 30,244 (822) 38,891 ------------------------------------------------------------------------------------ Total liabilities 22,003 528,922 409,574 90,285 (382,332) 668,452 ------------------------------------------------------------------------------------ Series A redeemable convertible preferred stock 101,853 - - - - 101,853 ------------------------------------------------------------------------------------ Stockholders' equity (deficit) 338,953 401,363 (79,312) 112,822 (434,873) 338,953 ------------------------------------------------------------------------------------ Total liabilities and equity $ 462,809 930,285 330,262 203,107 (817,205) 1,109,258 ====================================================================================
7
Condensed Consolidating Statement of Operations For the Three-Months Ended March 31, 1999 Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ---------------------------------------------------------------------------------------- Revenues $ - - - - - - ---------------------------------------------------------------------------------------- Operating Expenses Cost of services and equipment - - - - - Technical operations - - 1,956 - - 1,956 General and administrative - - 2,890 - - 2,890 Sales and marketing - - 1,016 - - 1,016 Depreciation and amortization 980 384 245 - - 1,609 ---------------------------------------------------------------------------------------- Total operating expenses 980 384 6,107 - - 7,471 Operating loss (980) (384) (6,107) - - (7,471) Interest income 38 1,052 37 - - 1,127 Financing cost - - (2,230) - - (2,230) Interest expense - - - - - - ---------------------------------------------------------------------------------------- Income (loss) before income taxes (942) 668 (8,300) - - (8,574) Income tax benefit (expense) 361 (256) 2,222 - - 2,327 ---------------------------------------------------------------------------------------- Net loss $ (581) 412 (6,078) - - (6,247) ========================================================================================
Condensed Consolidating Statement of Operations For the Three-Months Ended March 31, 2000 Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ---------------------------------------------------------------------------------------- Revenue Service $ - $ - $ 6,815 $ - $ - $ 6,815 Roaming - - 5,285 - - $ 5,285 Equipment - - 2,783 - - $ 2,783 Other - - - 1,309 <1,309> - ---------------------------------------------------------------------------------------- Total - - 14,883 1,309 <1,309> 14,883 ---------------------------------------------------------------------------------------- Operating Expenses Cost of services and equipment - - 13,703 - - 13,703 Technical operations - - 10,192 - - 10,192 General and administrative 1,002 - 9,635 - (1,309) 9,328 Sales and marketing - - 12,139 - - 12,139 Stock-based compensation 108,297 - - - - 108,297 Depreciation and amortization 1,431 - 8,304 816 - 10,551 ---------------------------------------------------------------------------------------- Total operating expenses 110,730 - 53,973 816 (1,309) 164,210 ---------------------------------------------------------------------------------------- Operating income (loss) (110,730) - <39,090> 493 - (149,327) Interest income 66 9,006 231 - (634) 8,669 Interest expense - (13,206) (640) (1,148) 634 (14,360) ---------------------------------------------------------------------------------------- Income (loss) before income taxes (110,664) (4,200) (39,499) (655) - (155,018) Income tax benefit 26 39 433 8 - 506 ---------------------------------------------------------------------------------------- Net loss $ (110,638) $ (4,161) $ (39,066) $ (647) $ - $(154,512) ========================================================================================
8
Condensed Consolidating Statement of Cash Flows For the Three-Months Ended March 31, 1999 Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities $ 37 1,052 (9,290) - - (8,201) ------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures - - (22,358) - - (22,358) Advance under notes receivable - (7,500) - - - (7,500) Increase in restricted cash - (8,393) - - - (8,393) Capitalized interest on debt - - (483) (3,232) - (3,715) ------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities: - (15,893) (22,841) (3,232) - (41,966) ------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from long term debt - 200,000 - - - 200,000 Repayments of notes payable (22,100) - - - - (22,100) Payment of debt issuance costs and other deferred charges - (27,201) - - - (27,201) Intercompany receivable/payable 57,594 (94,955) 34,129 3,232 - - Proceeds from vendor discount - 15,000 - - - 15,000 Issuance of preferred stock 113,623 - - - - 113,623 ------------------------------------------------------------------------------------- Net cash provided by financing activities: 149,117 92,844 34,129 3,232 - 279,322 ------------------------------------------------------------------------------------- Net increase (decrease) in restricted cash, cash and cash equivalents 149,154 78,003 1,998 - - 229,155 Cash and cash equivalents at beginning of period 846 - - - - 846 ------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 150,000 78,003 1,998 - - 230,001 =====================================================================================
9
Condensed Consolidating Statement of Cash Flows For the Three-Months Ended March 31, 2000 Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities $ (1,409) 1,464 (51,893) - - (51,838) ------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures - - (73,166) - - (73,166) Investment in subsidiaries - - - - - Decrease in other assets - 568 (144) - - 424 Capitalized interest on debt - - (719) (1,087) - (1,806) ------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities: - 568 (74,029) (1,087) - (74,548) ------------------------------------------------------------------------------------- Cash flows from financing activities: Repayment of long term debt - - - (215) - (215) Payment of debt issuance costs and other deferred charges - (199) - - - (199) Intercompany receivable/payable 1,419 (143,639) 140,918 1,302 - Payment of stock issuance costs (61) - - - - (61) Proceeds from exercise of stock options 51 - - - - 51 ------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities: 1,409 (143,838) 140,918 1,087 - (424) ------------------------------------------------------------------------------------- Net increase (decrease) in restricted cash, cash and cash equivalents - (141,806) 14,996 - - (126,810) Cash and cash equivalents at beginning of period - 613,999 (4,730) - - 609,269 ------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ - 472,193 10,266 - - 482,459 =====================================================================================
10 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All information subsequent to December 31, 1999 is unaudited) ($ in thousands, except per share data) (7) Subsequent Events Merger On February 28, 2000, the Company agreed to merge with TeleCorp Wireless, Inc. (formerly known as TeleCorp PCS, Inc.) through a merger of each of the Company and TeleCorp Wireless, Inc. with wholly-owned subsidiaries of a newly formed holding company. The merger was consummated on November 13, 2000. The holding company was named TeleCorp PCS, Inc. The merger resulted in the exchange of 100% of the outstanding common and preferred stock of the Company and TeleCorp Wireless for common and preferred stock of TeleCorp PCS, Inc. TeleCorp PCS, Inc. is controlled by its voting preference common stockholders. Both the Company and TeleCorp Wireless are subsidiaries of TeleCorp PCS, Inc. In connection with the merger, the AT&T network membership license agreement was extended to July 2005. Furthermore, in the merger the common and preferred stock of the Company was cancelled and the capitalization of the merger- subsidiary became the capitalization of the Company. Accordingly, after the merger the Company had issued 1,000 shares of common stock at a par value of $0.01 per share issued, outstanding and owned by TeleCorp PCS, Inc. The historical carrying value of the redeemable preferred stock, the preferred stock and the common stock including additional paid-in capital will be accounted for as common stock and additional paid-in capital of the Company after the merger. Purchase of Licenses in Georgia and Florida Digital PCS, held licenses covering 2.0 million people in Florida and southern Georgia. These markets include the cities of Pensacola, Tallahassee, and Panama City, Florida and will not be part of the territory where the Company is allowed to operate absent AT&T Wireless's consent. As part of the Company's formation, the Company acquired the option to purchase the Florida and Georgia licenses in exchange for certain shares of the Company's stock and the assumption of certain Federal Communications Commission debt. As consideration for the option, the Company agreed to pay Digital PCS an amount equal to (a) the interest that had accrued from May 20, 1998, until the closing of the exercise of the option under any Federal Communications Commission debt incurred to finance the Florida and Georgia licenses and (b) the interest that had accrued from May 20, 1998, until the closing of the exercise of the option on advances made by the Company to Digital PCS to fund interest on Federal Communications Commission debt. In May 1999, the Company exercised this option and was required to obtain consent from parties to the Company's stockholders' agreement to consummate such transaction. As a condition to obtaining such consent, the Company was required to transfer the licenses being acquired to a third party. At the time of the exercise, the Company's shares to be exchanged for the license were valued in the aggregate at approximately $3,700. The Company completed the acquisition of the licenses on October 27, 2000, in exchange for 1,480,697 shares of the Company's common stock and the Company's assumption of approximately $11,535 of Federal Communications Commission debt. In accordance with the terms of the consent, the Company simultaneously entered into an agreement to transfer the licenses to Panther Wireless, L.L.C. in exchange for Panther Wireless, L.L.C.'s assumption of all outstanding of Federal Communications Commission debt on these licenses and cash in an amount equal to 110% of the sum of (a) the amount paid to the Federal Communications Commission in respect of these licenses minus the Federal Communications Commission debt assumed, plus (b) the aggregate amount of interest paid by the Company and Digital PCS on the Federal Communications Commission debt. At the time the agreement was executed, the consideration for the licenses would have equaled approximately 11 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All information subsequent to December 31, 1999 is unaudited) ($ in thousands, except per share data) $6,300 plus the assumption of $11,535 of Federal Communications Commission debt. Panther Wireless, L.L.C. has subsequently assigned its rights and obligations under that agreement to an unrelated third party, solely in exchange for that party's assumption of Panther Wireless, L.L.C.'s obligations under the agreement. Bank Facility On October 31, 2000, the Company amended the terms of its Bank Facility to allow the Company to incur senior subordinated debt with gross proceeds of not more than $750,000 less previous subordinated debt incurred. On January 9, 2001, the Company further amended the terms of its Bank Facility to allow the Company to incur unsecured senior subordinated debt with proceeds of not more than $750,000 less previous subordinated debt incurred. On December 29, 2000, the Company drew $60,000 from the Revolver On January 10, 2001, the Company drew $30,000 from the Revolver The Company has subsequently paid down the $60,000 and $30,000 drawdowns on January 29, 2001 and February 12, 2001, respectively. Resignation of William S. Arnett Mr. William S. Arnett, the former president and chief operating officer of the Company, resigned in December 2000. Pursuant to a separation agreement between Mr. Arnett, and the Company, Mr. Arnett's employment with the Company was terminated as of December 15, 2000. The Company agreed to pay Mr. Arnett $450 in equal installments over two years, a lump sum for any unused vacation time and a lump sum bonus of $113. In addition, all of Mr. Arnett's shares of restricted TeleCorp PCS stock vest under the separation agreement. Mr. Arnett agreed to release the Company from any current or future claims arising out of his employment. Mr. Arnett's separation agreement became effective on January 26, 2001 and can be rescinded by Mr. Arnett until that time. Acquisition of PCS Licenses and Other Wireless Properties from ALLTEL On December 29, 2000, the Company completed the purchase from ALLTEL of two 10 MHz D-Block licenses covering approximately 1.5 million people in Birmingham and Tuscaloosa, Alabama, two markets in which the Company currently holds 15 MHz C-Block licenses. The Company also acquired certain equipment and other intangible assets of ALLTEL in the Birmingham and Tuscaloosa markets. These assets were purchased for an aggregate purchase price of $67,000 which was principally funded through the Bank Facility. In addition, the Company and AT&T Wireless Services have entered into a put and call agreement that gives the Company the right to sell the two licenses acquired from ALLTEL to AT&T Wireless Services at any time during the 18 months following the closing of this transaction for $50,000. This agreement also gives AT&T Wireless Services the right to purchase the two licenses during the same period for $50,000. However, generally, the Company can terminate AT&T Wireless Services' call right if the Company terminates our put right. In each case, the transfer of the licenses is conditioned upon receipt of the necessary regulatory approvals. 12 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All information subsequent to December 31, 1999 is unaudited) ($ in thousands, except per share data) Senior Subordinated Notes Offering On January 24, 2001, the Company issued $450,000 principal amount of 10 3/8% senior subordinated notes. The senior subordinated notes are subject to optional redemption, restrictive covenants, an exchange offer, registration rights, and transfer restrictions. On January 18, 2001, the Company obtained the consent of the holders of the 12 3/4% senior subordinated discount notes to allow the Company to complete this offering. The Company received $437,500 in net proceeds from the issuance. 13 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Forward Looking Statements; Cautionary Statements Statements in this report expressing our expectations and beliefs of the Company regarding our future results or performance are forward-looking statements that involve a number of risks and uncertainties. In particular, certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts constitute "forward-looking statements." Our actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, risks discussed in our Registration Statement on Form S-1 (Reg. No. 333-91207) and from time to time in our other filings with the Securities and Exchange Commission, including, without limitation, the following: (1) we depend on our agreements with AT&T for our success, and under certain circumstances AT&T could terminate its exclusive relationship with us and our use of the AT&T brand name and logo, (2) we may not be able to manage the construction of our network or the growth of our business successfully, (3) we have substantial existing debt, and may incur substantial additional debt, that we may be unable to service, (4) we may not be able to obtain the additional financing we may need to complete our network and fund operating losses, (5) we have many competitors that have substantial coverage of our licensed areas, (6) difficulties in obtaining infrastructure equipment or sites may affect our ability to construct our network and meet our development requirements, (7) potential acquisitions may require us to incur substantial additional debt and integrate new technologies, operations and services, which may be costly and time consuming, (8) we may experience a high rate of customer turnover, (9) our association with the other SunCom companies may harm our reputation if consumers react unfavorably to them, (10) we depend upon consultants and contractors for our network services, (11) we may become subject to new health and safety regulations, which may result in a decrease in demand for our services, (12) changes in our licenses or other governmental action or regulation could affect how we do business, (13) we could lose our PCS licenses or incur financial penalties if the Federal Communications Commission determines we are not a very small business or if we do not meet the Federal Communications Commission's minimum construction requirements, (14) the technologies that we use may become obsolete, which would limit our ability to compete effectively, and (15) we may incur operating costs due to fraud. In addition, new factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statements. As a result of the foregoing and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price. We specifically decline any obligation to publicly release the result of any revisions that may be made to forward- looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statement. 14 General For periods prior to the fourth quarter of 1999, we were a development stage company. We launched commercial service in Jackson and Vicksburg, Mississippi in September 1999 and launched commercial service in Nashville, Knoxville and Chattanooga, Tennessee; Montgomery and Huntsville, Alabama; and Louisville and Lexington, Kentucky during the fourth quarter of 1999. We are an AT&T Wireless 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, our largest equity shareholder with 21.6% ownership of our company. We have also joined with two other AT&T Wireless 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' digital customers in virtually all of our markets and co-branding our services with the AT&T and SunCom brands and logos, giving equal emphasis to each. AT&T Wireless operates the largest digital wireless network in North America. Its network consists of AT&T Wireless' existing digital and analog systems, PCS systems being constructed by four joint venture partners, including our company, and systems currently operated by third parties with which AT&T Wireless has roaming agreements. In the aggregate, these systems covered over 95% of the total population throughout the United States as of December 31, 1999. 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 nine of our ten largest markets as of April 30, 2000. We expect to have commenced commercial PCS service in all of our major population and business centers by the end of 2000. The timing of launch in individual markets will be determined by various factors, principally the success of our site acquisition program, zoning and microwave relocation activities, equipment delivery schedules and local market and competitive considerations. We provided service to over 50% of the population in our license area at the end of 1999 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. The extent to which we are able to generate operating revenues and earnings will be dependent on a number of business factors, including successfully deploying the PCS network and attaining profitable levels of market demand for our products and services. Revenues We generate substantially all of our revenues from the following sources: Service. We sell wireless personal communications services. The various types of service revenue associated with personal communications services for our subscribers include monthly recurring charges and monthly non-recurring airtime charges for local, long distance and roaming airtime used in excess of pre-subscribed usage. Our customers' charges are dependent on their rate plans, based on the number of minutes included in their plans. Service revenue also includes monthly non-recurring airtime usage associated with our prepaid subscribers and non-recurring activation and deactivation service charges. 15 Equipment. We sell wireless PCS handsets and accessories that are used by our customers in connection with our wireless services. Roaming. We charge monthly, non-recurring, per minute fees to other wireless companies whose customers use our network facilities to place and receive wireless services. Industry statistics indicate that average revenue per unit, called ARPU, for the wireless communications business has declined substantially over the period 1993-1998. Although this decline has stabilized recently, management believes that some deterioration in industry ARPU will continue. Management believes that certain direct operating costs, including billing, interconnect, roaming and long distance charges will decline on a per subscriber basis. However, our ability to improve our margins will depend primarily on our ability to manage our variable costs, including selling, general and administrative expense and costs per new subscriber. A particular focus of our strategy is to reduce subscriber churn. Industry data suggest that providers (including PCS providers) that have offered poor or spotty coverage, poor voice quality, unresponsive customer care or confusing billing suffer higher-than-average churn rates. Accordingly, we launch service in a new market only after we believe that comprehensive and reliable coverage and service can be maintained in that market. In addition, we have designed our billing system to provide simple and understandable options to our subscribers and to permit subscribers to select a flexible billing cycle. We also focus resources on a proactive subscriber retention program, strict credit policies and alternative methods of payment for credit-challenged customers. However, future PCS churn rates may be higher than historical rates due to the increase in number of competitors and expanded marketbase. Cost of Services and Equipment Our cost of services and equipment has consisted of, and we expect will continue to consist of, the following: Equipment. We purchase personal communications handsets and accessories from third party vendors to resell to our customers for use in connection with our services. The cost of handsets has been, and is expected to remain, higher than the resale price to the customer. This cost is recorded as a cost of services and equipment. We do not manufacture any of this equipment. Roaming Fees. We pay fees to other wireless communications companies based on airtime usage of our customers on other communications networks. It is expected that reciprocal roaming rates charged between our company and other carriers will decrease. Variable Interconnect. We pay monthly charges associated with the connection of our network with other carriers' networks. These fees are based on minutes of use by our customers. This is known as interconnection. Variable Long Distance. We pay monthly usage charges to other communications companies for long distance service provided to our customers. These variable charges are based on our subscribers' usage, applied at pre-negotiated rates with the other carriers. Clearinghouse Fees. We pay fees to an independent clearinghouse for processing our call data records and performing monthly intercarrier financial settlements for all charges that we pay to other wireless companies when our customers use their network, and that other wireless companies pay to us when their customers use our network. These fees are based on the number of transactions processed in a month. 16 Operating Expenses Our operating expenses have consisted of, and we expect will continue to consist of, the following costs: Technical Operations. Our technical operations expense includes engineering operations and support, cell site lease expenses, field technicians, network implementation support, and engineering management. This expense also includes monthly recurring charges directly associated with the maintenance of network facilities and equipment. General and Administrative. Our general and administrative expense includes customer service, billing, information technology, finance, accounting, human resources and legal services. Sales and Marketing. Our sales and marketing expense includes salaries and benefits, commissions, advertising and promotions, retail distribution, sales training, and direct and indirect support. Stock Based Compensation. We have issued a total of 12,362,380 shares of our class A voting and class C common stock to members of our management, primarily in connection with the formation of the joint venture with AT&T Wireless. These shares are subject to vesting and are currently held in escrow. These shares are also subject to repurchase agreements, which are considered a "variable stock plan" under generally accepted accounting principles. Under the repurchase agreements, the management holders will pay $2.50 per share for these shares, payable by surrendering shares to us valued at their fair value. Based on the average closing price of our common stock for the last ten trading days prior to March 31, 2000, we recorded non-cash compensation expense of approximately $108.3 million in the first quarter of 2000 relating to the earned portion of the stock issued to management. During the first quarter of 2000, the Board of Directors approved a plan to modify these awards to remove the provision that requires management to surrender a portion of their shares. The effective date of this modification, if and when completed, will become the measurement date upon which the value of the award will be fixed. Assuming our class A voting common stock continues to have a fair value of approximately $37.34 per share on the measurement date, we would record additional non-cash compensation expense related to these shares for the period from 2000 to 2004 of approximately $131.7 million. Future stock price movement will result in charges that differ from this amount. Each dollar increase or decrease in the average closing price of our common stock for the last ten trading days of any quarter will result in an increase or decrease in the non-cash compensation expense related to these shares of approximately $12.4 million. Depreciation and Amortization. Property and equipment are depreciated using the straight-line method, generally over three to seven years, based upon the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the term of the lease. Network development costs are capitalized and are depreciated generally over seven years beginning as PCS service is commenced in each of our markets. PCS license costs are amortized over 40 years beginning as PCS service is commenced in each of our markets. The AT&T agreements, including the Network Membership License Agreement and the Intercarrier Roamer Service Agreement, are amortized over the lives of the agreements, 10 years and 20 years, respectively, beginning in January 1999. Interest Income (Expense). Interest income is earned primarily on our cash and cash equivalents and restricted cash. Interest expense consists of interest due on our senior credit facilities and debt owed to the U.S. government related to our licenses as well as discount accretion on the senior subordinated discount notes. 17 Results of Operations Revenues. Revenues for the quarter ended March 31, 2000 were $14.9 million. We launched commercial service in Jackson and Vicksburg, Mississippi in September 1999 and launched commercial service in seven other major markets during the fourth quarter of 1999. We did not recognize any revenues during the quarter ended March 31, 1999. Revenues for the three months ended March 31, 2000 consisted primarily of revenues derived from service to our customers of $6.8 million, roaming services provided to customers of other carriers of $5.3 million, and the sale of handsets and accessories of $2.8 million. As of March 31, 2000 we had approximately 63,800 subscribers throughout our service area. Our ARPU including service and feature revenue as well as airtime and incollect roaming, but excluding outcollect roaming, charges was $51 for the first quarter of 2000 as compared to $45 in December 1999. We expect ARPU to continue to increase as we target business customers, implement a national accounts program, focus on value added features and provide incentives to our sales force for selling higher priced rate plans. We anticipate strong growth in 2000 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, including our Mobile, Alabama market which is expected to launch service in the second quarter of 2000. We began offering SunCom service in our Birmingham, Alabama market in April 2000. We expect roaming revenues to increase during 2000 as we expand our coverage areas as well as complete our first full year of operations in the markets that became operational during 1999. Operating Expenses Cost of services and equipment was $13.7 million for the quarter ended March 31, 2000. Cost of equipment includes primarily the cost of equipment sold to customers, costs paid to other carriers for roaming services and wireline access and long-distance costs from customer use on our system. We did not incur any cost of services and equipment for the three months ended March 31, 1999. These costs are expected to increase in future periods as subscribers are added to the system and usage of our system increases. Technical operations expenses were $2.0 million and $10.2 million for the three-months ended March 31, 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, charges incurred to connect our network to other carriers and construction site office expenses. We expect that 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 increase 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 $2.9 million for the first quarter of 1999 to $9.3 million for the first quarter of 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 preparation for commercial launch of our network in 1999. We expect general and administrative expenses to continue to increase during 2000 as we continue to launch additional markets and provide customer support functions to a larger customer base. Costs related to the merger with Telecorp will be expensed as incurred. Our sales and marketing expense includes salaries and benefits, commissions, advertising and promotions, retail distribution, sales training, and direct and indirect support. Sales and marketing expenses increased from $1.0 million for the first quarter of 1999 to $12.1 million for the first quarter of 2000. The increase was associated with the salary and benefits for sales and marketing personnel, market deployment, including planning and leasing of sales offices and retail store locations and advertising costs related to 1999 market launches. We expect to incur significant selling and marketing costs during 2000 primarily related to sales commissions, ongoing advertising and promotions in our existing markets and promotional events and advertising incurred in connection with market launches. 18 Depreciation and amortization expenses were $1.6 million for the first quarter of 1999 and $10.6 million for the first quarter of 2000. The increase relates primarily to the depreciation of network system equipment placed into service in the fourth quarter of 1999 as well as depreciation of computer hardware, software, furniture, fixtures, and office equipment. Depreciation and amortization expenses are expected to increase during 2000 as we complete the construction of our network as well as recognize a full year of depreciation expense on our network assets placed in service during 1999. Non-Operating Income and Expense Interest income was $1.1 million for the first quarter of 1999 as compared to $8.7 million for the first quarter of 2000. This significant increase in 2000 as compared to 1999 was a result of our investment of advances under our bank facility of $300.0 million, proceeds from the sale of senior subordinated discount notes of approximately $200.2 million and proceeds from the sale of common stock in our initial public offering of approximately $242.5 million. Our short-term cash investments consist primarily of U.S. Government securities and highly rated commercial paper with a dollar-weighted average maturity of 90 days or less. Financing costs were $2.2 million for the quarter ended March 31, 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 $14.4 million in the first quarter of 2000 and consisted of interest incurred related to borrowing under our bank credit facility and the Federal Communications Commission debt and discount accretion on the senior subordinated discount notes issued in May 1999. Interest expense is net of the amount capitalized for the purpose of completing the network buildout. There was no interest expense for the first quarter of 1999 because all interest costs were capitalized in connection with the construction of the network. For the quarters ended March 31, 1999 and 2000, we recorded a deferred income tax benefit of $2.3 million and $500,000, respectively. The valuation allowance for the gross deferred tax asset at March 31, 2000 was $17.9 million. No valuation allowance was considered necessary for the remaining gross deferred tax asset, principally due to the existence of a deferred tax liability which was recorded upon the closing of the AT&T transaction on January 7, 1999. Liquidity and Capital Resources The buildout of our network and the marketing and distribution of our products and services will require substantial capital. We currently estimate that our capital requirements, including capital expenditures, the cost of acquiring licenses, working capital, debt service requirements and anticipated operating losses, for the period from inception through the end of 2001, assuming substantial completion of our network buildout will total approximately $1.4 billion. We believe that the proceeds from the initial public offering completed in December 1999, together with the proceeds from our sale of senior subordinated discount notes, the financing made available to us by the Federal Communications Commission, borrowings under our bank credit facility and the equity investments we have received, will provide us with sufficient funds to build out our existing network as planned and fund operating losses until we complete our planned network buildout and generate positive cash flow. Our January 7, 1999 loan agreement provides a senior bank facility with a group of lenders for an aggregate amount of $550 million of senior secured credit. Up to $10 million of the facility may be used for letters of credit. We estimate that the $550 million bank facility will be drawn through the end of 2001 for capital requirements. The terms of the bank facility will permit us, subject to certain terms and conditions, including compliance with certain leverage ratios and satisfaction of buildout and subscriber milestones, to draw up to $550 million to finance working capital requirements, capital expenditures or other corporate purposes. As of March 31, 2000, we had $300 million outstanding under the bank facility and could have borrowed up to a total of approximately $550 million pursuant to the terms of the bank facility. 19 Management estimates that capital expenditures associated with the buildout will total approximately $706.6 million from inception through the end of 2001, including a commitment to purchase a minimum of $300 million in equipment and services from Ericsson. Costs associated with the network buildout include switches, base stations, towers and antennae, radiofrequency engineering, cell site acquisition and construction, and microwave relocation. The actual funds required to build out our network may vary materially from these estimates, and additional funds could be required in the event of significant departures from the current business plan, unforeseen delays, cost overruns, unanticipated expenses, regulatory expenses, engineering design changes and other technological risks. We have incurred approximately $295.2 million in capital expenditures through March 31, 2000, including $34.9 million in the first quarter of 2000. We estimate that cash interest and fees through 2001 will total approximately $147.6 million, including debt issuance costs related to the bank credit facility and the senior subordinated discount notes. This amount represents interest and fees on the senior bank facility and interest on the preferential financing from the U.S. Government for the C and F-Block licenses. Cash interest will not be paid on the senior subordinated discount notes until 2004. We incurred approximately $9.7 million in cash interest and fees during the first quarter of 2000 of which $1.8 million was capitalized. We estimate that working capital requirements during the period from inception through 2001 will total $314.4 million. This amount represents the costs related to initiating, marketing, operating and managing our PCS network. Our ability to meet our capital requirements without additional financing is subject to our ability to construct our network and obtain customers in accordance with our plans and assumptions and a number of other risks and uncertainties. The development of our network may not be completed as projected and we may not be able to generate positive cash flow. If any of our projections are incorrect, we may not be able to meet our projected capital requirements. On February 28, 2000, the Company announced an agreement to merge with Telecorp PCS, Inc. This merger is expected to take place during the last quarter of 2000 and is a tax-free exchange of stock. The Company does not expect the merger to have any material effect on its current plans related to network buildout. Our bank credit facility agreement prohibits the merger of Tritel with any other parties, except with or among its subsidiaries. Unless a consent or amendment is obtained, the proposed merger with TeleCorp would violate the merger provision and the change of control provision. We are actively seeking an amendment to the bank credit facility or consent from our lenders concerning the change of control and merger provisions. Digital PCS holds licenses covering 2.0 million people in Florida and southern Georgia. These markets include the cities of Pensacola, Tallahassee and Panama City, Florida. As part of our formation, we received from Digital PCS an option to purchase these licenses for approximately 1.2 million shares of our class A voting common stock (reflecting the conversion of series C preferred stock and the stock split of our class A voting common stock in December 1999) and our assumption of approximately $12.0 million of Federal Communications Commission debt. In May 1999, we exercised this option, and on March 29, 2000, the Federal Communications Commission approved the transfer of licenses to us. The transfer of these licenses is pending awaiting clearance under Hart-Scott-Rodino Antitrust Improvement Act of 1976 filings. 20 We have committed to sell these licenses to Panther Wireless LLC for the assumption of all outstanding Federal Communications Commission debt on the licenses and cash in the amount equal to 110% of the sum of (i) the amount payable to the Federal Communications Commission in respect of the licenses minus the amount of Federal Communications Commission debt assumed, plus (ii) the aggregate amount of interest paid on the Federal Communications Commission debt by us and Digital PCS. Merger with TeleCorp PCS, Inc. On February 28, 2000, Tritel and TeleCorp PCS, Inc. announced the signing of a definitive agreement and plan of reorganization and contribution, called the Merger Agreement, for an all stock, tax-free merger, called the Merger. The Merger Agreement provides for the creation of a new entity to be called TeleCorp PCS, Inc. Tritel and TeleCorp will merge with subsidiaries of the new entity. Under the Merger Agreement, Tritel's class A voting common stock will be converted into the right to receive 0.76 shares of the new entity's class A voting common stock per share of Tritel Inc.'s common stock. This exchange ratio is fixed regardless of future stock price movement. The Merger has been unanimously approved by the Tritel and TeleCorp boards of directors, with three members of the TeleCorp board abstaining. Shareholders with an excess of 50% of the voting power of each company have entered into agreements to vote in favor of the Merger. The Merger is still subject to regulatory approval and other conditions. It is expected that the Merger will be completed in the last quarter of 2000. Pending License Acquisition On March 23, 1999, the Federal Communications Commission commenced a re-auction of the C-, D-, E-and F-Block licenses that had been returned to the Federal Communications Commission under a Federal Communications Commission restructuring order or that had been forfeited for noncompliance with Federal Communications Commission rules or for default under the related Federal Communications Commission financing. Before the re-auction, we loaned $7.5 million to ABC Wireless, 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. 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, must obtain the consent of the Federal Communications Commission. The parties have sought the necessary interpretations and consents in the context of the Telecorp/Tritel merger application. There is no assurance that the Federal Communications Commission will give its consent and seeking such consent could delay the processing of the required applications to assign the licenses from ABC Wireless to us. We believe the Federal Communications Commission will approve the disaggregation of spectrum from the ABC Wireless licenses and transfer to us portions of the licenses so we will be in compliance with the CMRS spectrum cap rules. 21 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRITEL, INC. Date: February 13, 2001 By: /s/ Thomas H. Sullivan ----------------------- Thomas H. Sullivan Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----