-----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, MU6r8qzLl+NB9hzAA/anjBVgKTwvxLR0W7+QQoUMRmfy+jvhc0SiitLncYjYu6ba KqJf/nmjXgNd8WIiz2EFsw== 0000950130-01-000831.txt : 20010223 0000950130-01-000831.hdr.sgml : 20010223 ACCESSION NUMBER: 0000950130-01-000831 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000630 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: 1539226 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 AMENDED 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 June 30, 2000 or [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 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 August 10, 2000, there were 97,855,175 shares of class A voting common stock, 2,927,120 shares of class B non-voting common stock, 1,380,448 shares of class C common stock, 4,962,804 shares of class D common stock and 6 shares of voting preference common stock outstanding. 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 and six month periods ended June 30, 2000 (the "Form 10-Q") filed with the Securities and Exchange Commission on August 11, 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 and six months ended June 30, 2000. Except 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 June 30, 2000 Table of Contents PART I. FINANCIAL INFORMATION Item 1. Tritel, Inc. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets- December 31, 1999 and June 30, 2000 ...........................2 Condensed Consolidated Statements of Operations- Three and Six Month Periods Ended June 30, 1999 and June 30, 2000..................................................3 Condensed Consolidated Statements of Cash Flows- Three and Six Month Periods Ended June 30, 1999 and June 30, 2000..................................................4 Notes to Condensed Consolidated Financial Statements...........5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.........................21 TRITEL, INC. Condensed Consolidated Balance Sheets December 31, 1999 and June 30, 2000 (unaudited) (amounts in thousands, except share data)
December 31, June 30, 1999 2000 --------------- ------------------ (unaudited) Assets Current assets: Cash and cash equivalents $ 609,269 350,573 Accounts receivable, net 5,040 12,327 Inventory 8,957 20,512 Prepaid expenses and other current assets 7,298 9,974 ------------- -------------- Total current assets 630,564 393,386 Restricted cash 6,594 5,487 Property and equipment, net 262,343 415,651 Federal Communications Commission licensing costs, net 201,946 202,894 Intangible assets, net 59,508 56,646 Other assets 35,407 33,689 ------------- -------------- Total assets $ 1,196,362 1,107,753 ============= ============== Liabilities and Stockholders' Equity Current liabilities: Current maturities of long-term debt $ 923 974 Accounts payable and accrued liabilities 113,324 114,974 ------------- -------------- Total current liabilities 114,247 115,948 ------------- -------------- Non-current liabilities: Long-term debt 557,716 571,464 Deferred income taxes and other liabilities 37,367 37,856 ------------- -------------- Total non-current liabilities 595,083 609,320 ------------- -------------- Total liabilities 709,330 725,268 ------------- -------------- Series A 10% redeemable convertible preferred stock 99,586 104,119 ------------- -------------- Stockholders' equity: Preferred stock, authorized 3,100,000 shares: Series D, outstanding 46,374 shares in 1999 and 2000 46,374 46,374 Common stock issued and outstanding at June 30, 2000 Class A Voting - 97,840,722 shares; Class B Non-voting - 2,927,120 shares; Class C - 1,380,448; Class D - 4,962,804 shares, Voting Preference -- 6 shares 1,071 1,071 Additional paid in capital 602,359 734,981 Deferred compensation - (74,450) Accumulated deficit (262,358) (429,610) ------------- -------------- Total stockholders' equity 387,446 278,366 ------------- -------------- Total liabilities, redeemable preferred stock and stockholders' equity $ 1,196,362 1,107,753 ============= ==============
See Notes to Condensed Consolidated Financial Statements. 2 TRITEL, INC. Condensed Consolidated Statements of Operations (Unaudited) For the Three and Six Month Periods Ended June 30, 1999 and 2000 (amounts in thousands, except per share data)
Three months ended Six months ended June 30, June 30, ------------------------------ -------------------------------- 1999 2000 1999 2000 ------------ ---------------- ------------- ----------------- Revenues: Service $ - 14,620 - 21,435 Roaming - 7,957 - 13,242 Equipment - 1,848 - 4,632 -------- ---------- -------- ---------- Total revenues - 24,425 - 39,309 -------- ---------- -------- ---------- Operating expenses: Cost of service and equipment - 15,409 - 29,111 Technical operations 1,990 11,795 3,946 21,987 General and administrative 4,314 17,097 7,204 26,425 Sales and marketing 1,708 16,464 2,724 28,603 Stock-based compensation - (46,186) - 62,111 Depreciation and amortization 1,865 14,324 3,474 24,875 -------- ---------- -------- ---------- Total operating expenses 9,877 28,903 17,348 193,112 -------- ---------- -------- ---------- Operating loss (9,877) (4,478) (17,348) (153,803) Interest income 4,205 7,224 5,332 15,892 Financing cost - - (2,230) - Interest expense (5,104) (16,056) (5,104) (30,416) -------- ---------- -------- ---------- Loss before income taxes (10,776) (13,310) (19,350) (168,327) Income tax benefit 4,121 570 6,448 1,076 -------- ---------- -------- ---------- Net loss (6,655) (12,740) (12,902) (167,251) Series A preferred dividend (2,261) (2,267) (4,347) (4,534) requirement -------- ---------- -------- ---------- Net loss available to common stockholders $ (8,916) (15,007) (17,249) (171,785) ======== ========== ======== ========== Basic and diluted net loss per common share $ (2.94) (0.13) (5.68) (1.45) ======== ========== ======== ==========
See Notes to Condensed Consolidated Financial Statements. 3 TRITEL, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three and Six Month Periods Ended June 30, 1999 and 2000 (amounts in thousands)
Three months ended Six months ended June 30, June 30, ------------------------------- ----------------------------- 1999 2000 1999 2000 ------------- --------------- ------------ --------------- Cash flows from operating activities: Net loss $ (6,655) (12,740) (12,902) (167,251) Adjustments to reconcile net loss to net cash used in operating activities: Financing costs - - 2,230 - Depreciation and amortization 1,865 14,324 3,474 24,875 Stock-based compensation - (46,186) - 62,111 Accretion of discount on debt and amortization of debt issuance costs - 7,233 - 13,705 Deferred income tax benefit (4,121) (570) (6,448) (1,076) Provision for bad debts - 362 - 550 Changes in operating assets and liabilities: Accounts receivable - (4,596) - (7,837) Inventory - (3,352) - (10,805) Accounts payable and accrued expenses 4,811 14,028 3,171 3,094 Change in other assets and liabilities (2,115) (1,683) (3,941) (2,384) --------- --------- --------- ---------- Net cash used in operating activities (6,215) (33,180) (14,416) (85,018) --------- --------- -------- ---------- Cash flows from investing activities: Capital expenditures (22,329) (98,632) (44,687) (171,798) Advance under notes receivable (50) - (7,550) - Capitalized interest on network construction and FCC licensing (2,181) (999) (5,896) (2,805) costs (Increase) decrease in restricted cash 436 - (7,957) 1,107 Other (325) 554 (325) (129) ---------- --------- --------- ---------- Net cash used in investing activities (24,449) (99,077) (66,415) (173,625) --------- --------- -------- ---------- Cash flows from financing activities: Proceeds from (repayments of) long-term debt 200,240 (234) 400,240 (449) Repayments of notes payable - - (22,100) - Payment of debt issuance costs and other deferred charges (9,272) - (36,473) (198) Payment of stock issuance costs - (132) - (195) Proceeds from vendor discount - - 15,000 - Issuance of preferred stock - - 113,623 - Proceeds from exercise of stock options - 737 - 789 --------- --------- -------- ---------- Net cash provided by (used in) financing activities 190,968 371 470,290 (53) --------- --------- -------- ---------- Net increase (decrease) in cash and cash equivalents 160,304 (131,886) 389,459 (258,696) Cash and cash equivalents at beginning of period 230,001 482,459 846 609,269 --------- --------- -------- ---------- Cash and cash equivalents at end of period $ 390,305 350,573 390,305 350,573 ========= ========= ======== ==========
See Notes to Condensed Consolidated Financial Statements. 4 Tritel, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization Tritel, Inc. ("Tritel") was formed on April 23, 1998 by the controlling members of Airwave Communications LLC and Digital PCS, LLC, our predecessor companies, to develop PCS markets in the south-central United States. On January 7, 1999, our predecessor companies transferred substantially all of their assets and liabilities at historical cost to Tritel in exchange for 18,262 shares of series C preferred stock in Tritel. The controlling members of our predecessor companies control Tritel. Tritel continued the activities of our predecessor companies and, for accounting purposes, this transaction was accounted for as a reorganization of the predecessor company into a C corporation and a name change to Tritel. Tritel and the predecessor company, together with Tritel's subsidiaries, are referred to collectively as "the Company." 2. Merger with Telecorp PCS On February 28, 2000, Tritel and TeleCorp PCS, Inc. announced the signing of a definitive agreement and plan of reorganization and contribution, called the Merger Agreement, for an all stock, tax-free merger, called the Merger. The Merger Agreement provides for the creation of a new entity to be called TeleCorp PCS, Inc. Tritel and TeleCorp will merge into subsidiaries of the new entity. Under the Merger Agreement, each share of Tritel class A voting common stock will be converted into the right to receive 0.76 shares of the new entity's class A common stock. This exchange ratio is fixed regardless of future stock price movement. Tritel and TeleCorp shareholders approved the Merger on August 8, 2000. The Merger is still subject to regulatory approval. 3. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring items, necessary to fairly present the results of operations, financial position and cash flows for the periods presented. The results of operations for an interim period are not necessarily indicative of the results of operations that may be expected for the complete fiscal year. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1999 included in the Company's Annual Report to Shareholders on Form 10-K. 4. 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 June 30, 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 and six months ended June 30, 2000. The total effect of the revision to roaming revenue was $1.4 million and $2.0 million for the three and six months ended June 30, 2000. 5 5. Supplemental Cash Flow Information
Six months ended June 30, -------------------------------- 1999 2000 ------------- --------------- (Amounts in Thousands) Supplementary Information: Cash paid for interest, net of amounts capitalized $ 5,104 16,711 ======= ======== Significant non-cash investing and financing activities: Capitalized interest and discount on debt $ 455 2,301 ======= ======== Capital expenditures included in accounts payable and accrued expenses $ - 80,469 ======= ========
6. Stock Option Plan and Other Restricted Stock Awards We have issued a total of 12,362,380 shares of our class A voting and class C common stock to members of our management, primarily in connection with the formation of the joint venture with AT&T Wireless Services. These shares are subject to vesting and are currently held in escrow. These shares are also subject to individual repurchase agreements with each employee, which collectively were considered a "variable stock plan" under generally accepted accounting principles. These individual repurchase agreements were modified to remove the provision that required the employees to surrender a portion of their vested shares. The effective date of this modification, which occurred in June 2000, became the measurement date upon which the value of the awards was fixed. Future stock price movement will not result in charges that differ from this amount. The stock-based compensation for the current quarter was a benefit of $46.2 million and was an expense of $62.1 million for the six months ended June 30, 2000. The Company will recognize additional non-cash compensation expense related to these shares for the period from 2000 to 2004 of approximately $74.5 million. 6 7. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, ("FAS133"). FAS133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. FAS133 will significantly change the accounting treatment of derivative instruments and, depending upon the underlying risk management strategy, these accounting changes could affect future earnings, assets, liabilities, and shareholders' equity. The Company is closely monitoring the deliberations of the FASB's derivative implementation task force. With the issuance of Financial Accounting 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 the adoption will not have a material impact on the consolidated financial statements of the Company. In December 1999, the SEC issued Staff Accounting Bulletin Number 101, "Revenue Recognition in Financial Statements" ("SAB 101"). The guidelines in SAB 101 must be adopted during the fourth quarter of 2000. The Company determined that the adoption of these guidelines does not have a material impact on its consolidated financial statements. 7 8. Condensed Consolidating Financial Statements The following condensed consolidating financial statements as of December 31, 1999 and June 30, 2000 and for the three and six month periods ended June 30, 1999 and 2000 are presented for Tritel, Tritel PCS, those subsidiaries of Tritel PCS who serve as guarantors and those subsidiaries who do not serve as guarantors of the senior subordinated discount notes. Condensed Consolidating Balance Sheet As of December 31, 1999
(Amounts in thousands) Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ----------------------------------------------------------------------------- Current assets: 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 22,009 5,318 (20,024) 30,251 (187) 37,367 other -------- ------- ------- ------- ------- ------- Total liabilities 22,038 523,292 315,304 88,476 (239,780) 709,330 Series A redeemable convertible preferred stock 99,586 - - - - 99,586 -------- ------- ------- ------- ------- ------- Stockholders' equity (deficit) 387,446 445,300 (40,183) 113,470 (518,587) 387,446 -------- ------- ------- ------- ------- ------- Total liabilities and equity $ 509,070 968,592 275,121 201,946 (758,367) 1,196,362 =========== ======= ======= ======= ======= =========
8 Condensed Consolidating Balance Sheet As of June 30, 2000
(Amounts in thousands) Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------ Current assets: Cash and cash equivalents $ - 358,085 (7,512) - - 350,573 Other current assets 3,756 2,000 37,057 - - 42,813 Intercompany receivables - 449,808 - - (449,808) - ------------------------------------------------------------------------------ Total current assets 3,756 809,893 29,545 - (449,808) 393,386 Restricted cash - 5,487 - - - 5,487 Property and equipment, net - - 415,651 - - 415,651 Licenses and other intangibles 56,646 - - 202,894 - 259,540 Investment in subsidiaries 346,283 (14,474) - - (331,809) - Other long term assets - 75,976 410 - (42,697) 33,689 ------------------------------------------------------------------------------ Total assets $ 406,685 876,882 445,606 202,894 (824,314) 1,107,753 ============================================================================== Current liabilities: Accounts payable, accrued expenses and other current liabilities $ 2,010 1,003 111,355 1,580 - 115,948 Intercompany payables 177 - 432,417 17,214 (449,808) - ------------------------------------------------------------------------------ Total current liabilities 2,187 1,003 543,772 18,794 (449,808) 115,948 Non-current liabilities: Long-term debt - 530,497 42,409 40,967 (42,409) 571,464 Deferred income taxes and 22,013 (901) (13,213) 30,245 (288) 37,856 other liabilities ------------------------------------------------------------------------------ Total liabilities 24,200 530,599 572,968 90,006 (492,505) 725,268 ------------------------------------------------------------------------------ Series A redeemable convertible preferred stock 104,119 - - - - 104,119 ------------------------------------------------------------------------------ Stockholders' equity (deficit) 278,366 346,283 (127,362) 112,888 (331,809) 278,366 ------------------------------------------------------------------------------ Total liabilities and equity $ 406,685 876,882 445,606 202,894 (824,314) 1,107,753 ==============================================================================
9 Condensed Consolidating Statement of Operations For the Three Months Ended June 30, 1999
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. (Amounts in thousands) ------------------------------------------------------------------------------ Revenues $ - - - - - - ------------------------------------------------------------------------------ Operating Expenses Cost of services and equipment - - - - - - Technical operations - - 1,990 - - 1,990 General and administrative 2 44 4,266 2 - 4,314 Sales and marketing - - 1,708 - - 1,708 Depreciation and amortization 1,849 (384) 400 - - 1,865 ------------------------------------------------------------------------------ Total operating expenses 1,851 (340) 8,364 2 - 9,877 Operating loss (1,851) 340 (8,364) (2) - (9,877) Interest income 39 4,121 45 - - 4,205 Interest expense - (5,104) - - - (5,104) ------------------------------------------------------------------------------ Income (loss) before income taxes (1,812) (643) (8,319) (2) - (10,776) Income tax benefit (expense) 693 246 3,182 - - 4,121 ------------------------------------------------------------------------------ Net loss $ (1,119) (397) (5,137) (2) - (6,655) ==============================================================================
10 Condensed Consolidating Statement of Operations For the Three Months Ended June 30, 2000
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ----------------------------------------------------------------------------- Revenues Service $ - $ - $14,620 - - $14,620 Roaming - - 7,957 - - 7,957 Equipment - - 1,848 - - 1,848 Other - - - 2,150 (2,150) - ---------- ---------- ------- ----- ------- -------- Total - - 24,425 2,150 (2,150) 24,425 ---------- ---------- ------- ----- ------- -------- Operating Expenses Cost of services and equipment - - 15,409 - - 15,409 Technical operations - - 11,795 - - 11,795 General and administrative 2,048 - 17,199 - (2,150) 17,097 Sales and marketing - - 16,464 - - 16,464 Stock-based compensation (46,186) - - - - (46,186) Depreciation and amortization 1,431 - 11,866 1,027 - 14,324 ------------------------------------------------------------------------------ Total operating expenses (42,707) - 72,733 1,027 (2,150) 28,903 ------------------------------------------------------------------------------ Operating income (loss) 42,707 - (48,308) 1,123 - (4,478) Interest income 87 7,824 111 - (798) 7,224 Interest expense - (14,992) (806) (1,056) 798 (16,056) ------------------------------------------------------------------------------ Income (loss) before income taxes 42,794 (7,168) (49,003) 67 - (13,310) Income tax benefit (30) 72 529 (1) - 570 ------------------------------------------------------------------------------ Net loss $ 42,764 (7,096) (48,474) 66 - (12,740) ==============================================================================
11 Condensed Consolidating Statement of Operations For the Six Months Ended June 30, 1999
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------ Revenues $ - - - - - - ------------------------------------------------------------------------------ Operating Expenses Plant - - 3,946 - - 3,946 General and administrative 2 44 7,156 2 - 7,204 Sales and marketing - - 2,724 - - 2,724 Depreciation and amortization 2,829 - 645 - - 3,474 ------------------------------------------------------------------------------ 2,831 44 14,471 2 - 17,348 Operating loss (2,831) (44) (14,471) (2) - (17,348) Interest income 77 5,174 81 - - 5,332 Financing cost - - (2,230) - - (2,230) Interest expense - (5,104) - - - (5,104) ------------------------------------------------------------------------------ Income (loss) before income taxes (2,754) 26 (16,620) (2) - (19,350) Income tax benefit (expense) 954 (10) 5,504 - - 6,448 ------------------------------------------------------------------------------ Net income (loss) $ (1,800) 16 (11,116) (2) - (12,902) ==============================================================================
12 Condensed Consolidating Statement of Operations For the Six Months Ended June 30, 2000
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------ Revenues Service $ - $ - $21,435 $ - $ - $21,435 Roaming - - 13,242 - - 13,242 Equipment - - 4,632 - - 4,632 Other - - - 3,459 (3,459) - ---------- ---------- ------- ----- ------- -------- Total - - 39,309 3,459 (3,459) 39,309 ---------- ---------- ------- ----- ------- -------- Operating Expenses Cost of services and equipment - - 29,111 - - 29,111 Technical operations - - 21,987 - - 21,987 General and administrative 3,050 - 26,834 - (3,459) 26,425 Sales and marketing - - 28,603 - - 28,603 Stock-based compensation 62,111 - - - - 62,111 Depreciation and amortization 2,861 - 20,171 1,843 - 24,875 ------------------------------------------------------------------------------ Total operating expenses 68,022 - 126,706 1,843 (3,459) 193,112 ------------------------------------------------------------------------------ Operating income (loss) (68,022) - (87,397) 1,616 - (153,803) Interest income 152 16,831 342 - (1,433) 15,892 Interest expense - (28,199) (1,447) (2,203) 1,433 (30,416) ------------------------------------------------------------------------------ Income (loss) before income (67,870) (11,368) (88,502) (587) - (168,327) taxes Income tax benefit (4) 112 962 6 - 1,076 ------------------------------------------------------------------------------ Net loss $ (67,874) (11,256) (87,540) (581) - (167,251) ==============================================================================
13 Condensed Consolidating Statement of Cash Flows For the Three Months Ended June 30, 1999
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------ Net cash provided by (used in) operating activities $ (34) (1,027) (5,154) - - (6,215) ------------------------------------------------------------------------------ Cash flows from investing activities: Capital expenditures - - (22,329) - - (22,329) Advance under notes receivable - - (50) - - (50) Capitalized interest on debt - - (1,382) (799) - (2,181) Decrease in restricted cash - 436 - - - 436 Investment in subsidiaries (69,386) 69,386 - - - - Other (325) - - - - (325) ------------------------------------------------------------------------------ Net cash provided by (used in) investing activities: (69,711) 69,822 (23,761) (799) - (24,449) ------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from long term debt - 200,240 - - - 200,240 Payment of debt issuance costs and other - (9,272) - - - (9,272) deferred charges Intercompany (80,255) 47,964 31,492 799 - - receivable/payable ------------------------------------------------------------------------------ Net cash provided by financing (80,255) 238,932 31,492 799 - 190,968 activities: ------------------------------------------------------------------------------ Net increase (decrease) in restricted cash, cash and (150,000) 307,727 2,577 - - 160,304 cash equivalents Cash and cash equivalents at beginning of period 150,000 78,003 1,998 - - 230,001 ------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ $ - 385,730 4,575 - - 390,305 ==============================================================================
14 Condensed Consolidating Statement of Cash Flows For the Three Months Ended June 30, 2000
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------ Net cash provided by (used in) operating activities $ (801) (84) (32,295) - - (33,180) ------------------------------------------------------------------------------ Cash flows from investing activities: Capital expenditures - - (98,632) - - (98,632) Capitalized interest on debt - - (814) (185) - (999) Decrease in other assets - 539 15 - - 554 ------------------------------------------------------------------------------ Net cash provided by (used in) investing activities: - 539 (99,431) (185) - (99,077) ------------------------------------------------------------------------------ Cash flows from financing activities: Repayment of long term debt - - - (234) - (234) Intercompany receivable/payable 196 (114,563) 113,948 419 - - Payment of stock issuance costs (132) - - - - (132) Proceeds from exercise of stock options 737 - - - - 737 ------------------------------------------------------------------------------ Net cash provided by (used in) financing activities: 801 (114,563) 113,948 185 - 371 ------------------------------------------------------------------------------ Net increase (decrease) in restricted cash, cash and cash equivalents - (114,108) (17,778) - - (131,886) Cash and cash equivalents at beginning of period - 472,193 10,266 - - 482,459 ------------------------------------------------------------------------------ Cash and cash equivalents at end of period - 358,085 (7,512) - - 350,573 ==============================================================================
15 Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 1999
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------ Net cash provided by (used in) operating activities $ (94) 880 (14,946) (256) - (14,416) ------------------------------------------------------------------------------ Cash flows from investing activities: Capital expenditures - - (44,687) - - (44,687) Advance under notes receivable - (7,500) (50) - - (7,550) Capitalized interest on network - - (4,271) (1,625) - (5,896) construction and FCC licensing costs Investment in subsidiaries (69,386) 69,386 - - - - Increase in restricted cash - (7,957) - - - (7,957) Other (325) - - - - (325) ------------------------------------------------------------------------------ Net cash provided by (used in) investing activities: (69,711) 53,929 (49,008) (1,625) - (66,415) ------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from long term debt - 400,240 - - - 400,240 Repayments of notes payable (22,100) - - - - (22,100) Payment of debt issuance costs and other (22,198) (14,275) - - - (36,473) deferred charges Intercompany 480 (70,044) 67,683 1,881 - - receivable/payable Proceeds from vendor discount - 15,000 - - - 15,000 Issuance of preferred stock 113,623 - - - - 113,623 ------------------------------------------------------------------------------ Net cash provided by financing 69,805 330,921 67,683 1,881 - 470,290 activities: ------------------------------------------------------------------------------ Net increase in cash and cash - 385,730 3,729 - - 389,459 equivalents Cash and cash equivalents at beginning of period - - 846 - - 846 ------------------------------------------------------------------------------ Cash and cash equivalents at $ - 385,730 4,575 - - 390,305 end of period ==============================================================================
16 Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2000
Tritel, Tritel PCS, Guarantor NonGuarantor Consolidated (Amounts in thousands) Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------------------------------------------------------------------------ Net cash provided by (used in) operating activities $ (2,209) 1,379 (84,188) - - (85,018) ---------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures - - (171,798) - - (171,798) Capitalized interest on debt - - (1,533) (1,272) - (2,805) Decrease in restricted cash - 1,107 - - - 1,107 Decrease in other assets - - (129) - - (129) ---------------------------------------------------------------------------- Net cash provided by (used in) investing activities: - 1,107 (173,460) (1,272) - (173,625) ---------------------------------------------------------------------------- Cash flows from financing activities: Repayment of long term debt - - - (449) - (449) Payment of debt issuance costs and other - (198) - - - (198) deferred charges Intercompany 1,615 (258,202) 254,866 1,721 - - receivable/payable Payment of stock issuance (195) - - - - (195) costs Proceeds from exercise of 789 - - - - 789 stock options ---------------------------------------------------------------------------- Net cash provided by (used in) financing activities: 2,209 (258,400) 254,866 1,272 - (53) ---------------------------------------------------------------------------- Net increase (decrease) in restricted cash, cash and - (255,914) (2,782) - - (258,696) cash equivalents Cash and cash equivalents at beginning of period - 613,999 (4,730) - - 609,269 ---------------------------------------------------------------------------- Cash and cash equivalents at $ - 358,085 (7,512) - - 350,573 end of period ============================================================================
17 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All information subsequent to December 31, 1999 is unaudited) ($ in thousands, except per share data) (8) 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 $11,535 of Federal Communications Commission debt. In accordance with the terms of the consent, the Company simultaneously entered into an agreement to transfer the licenses to Panther Wireless, L.L.C. in exchange for Panther Wireless, L.L.C.'s assumption of all outstanding of Federal Communications Commission debt on these licenses and cash in an amount equal to 110% of the sum of (a) the amount paid to the Federal Communications Commission in respect of these licenses minus the Federal Communications Commission debt assumed, plus (b) the aggregate amount of interest paid by the Company and Digital PCS on the Federal Communications Commission debt. At the time the agreement was executed, the consideration for the licenses would have equaled approximately 18 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All information subsequent to December 31, 1999 is unaudited) ($ 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 $50,000. However, generally, the Company can terminate AT&T Wireless Services' call right if the Company terminates our put right. In each case, the transfer of the licenses is conditioned upon receipt of the necessary regulatory approvals. 19 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (All information subsequent to December 31, 1999 is unaudited) ($ 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. 20 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 21 harm our reputation if consumers react unfavorably to them, (10) we depend upon consultants and contractors for our network services, (11) we may become subject to new health and safety regulations, which may result in a decrease in demand for our services, (12) changes in our licenses or other governmental action or regulation could affect how we do business, (13) we could lose our PCS licenses or incur financial penalties if the Federal Communications Commission determines we are not a very small business or if we do not meet the Federal Communications Commission's minimum construction requirements, (14) the technologies that we use may become obsolete, which would limit our ability to compete effectively, and (15) we may incur operating costs due to fraud. In addition, new factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statements. As a result of the foregoing and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price. We specifically decline any obligation to publicly release the result of any revisions that may be made to forward- looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statement General We are an AT&T Wireless Services affiliate with licenses to provide PCS services to approximately 14.0 million people in contiguous markets in the south-central United States. In January 1999, we entered into our affiliation agreement with AT&T Wireless Services, our largest equity shareholder with 21.6% ownership of our company. We have also joined with two other AT&T Wireless Services affiliates to operate under a common regional brand name, SunCom. We provide our PCS services as a member of the AT&T Wireless Network, serving as the preferred roaming provider to AT&T Wireless Services' digital customers in virtually all of our markets and co-branding our services with the AT&T and SunCom brands and logos. For periods prior to the fourth quarter of 1999, we were a development stage company. We have incurred significant expenditures in conjunction with our organization and financing, PCS license acquisitions, hiring key personnel and the design and construction of our PCS network facilities. We have commenced commercial PCS services in 25 markets as of June 30, 2000. We expect to have commenced commercial PCS service in all of our major population and business centers by the end of 2000. The timing of launch in individual markets will be determined by various factors, principally the success of our site acquisition program, zoning and microwave relocation activities, equipment delivery schedules and local market and competitive considerations. We provided service to approximately 84% of the population in our license area at June 30, 2000 and expect to provide service to over 98% by the end of 2000. Thereafter, we will evaluate further coverage expansion on a market-by-market basis. We launched commercial service in our first markets in September 1999. As of June 30, 2000, Tritel had successfully launched commercial service in the following markets throughout our coverage areas: Biloxi/Gulfport/ Huntsville, AL Nashville, TN Pascagoula, MS Mobile, AL Dalton, GA 22 Hattiesburg, MS Montgomery, AL Bowling Green KY Jackson, MS Opelika-Auburn, AL Corbin, KY Meridian, MS Tuscaloosa, AL Lexington, KY Vicksburg, MS Chattanooga, TN Louisville, KY Anniston, AL Cleveland, TN Madisonville, KY Birmingham, AL Cookeville, TN Clarksville, TN- Decatur, AL Knoxville, TN Hopkinsville, KY The extent to which we are able to generate operating revenues and earnings will be dependent on a number of business factors, including successfully deploying the PCS network and attaining profitable levels of market demand for our products and services. Results of Operations Revenues. Revenues for the three and six months ended June 30, 2000, were $24.4 million and $39.3 million, respectively. We did not recognize any revenues during the three or six months ended June 30, 1999. For the three and six months end June 30, 2000, revenues consisted primarily of revenues derived from service to our customers of $14.7 million and $21.5 million respectively, roaming services provided to customers of other carriers of $7.9 million and $13.2 million, respectively, and the sale of handsets and accessories of $1.8 million and $4.6 million, respectively. As of June 30, 2000, we had approximately 104,400 subscribers throughout our service area. Our average revenue per unit (ARPU) including service and feature revenue as well as airtime and incollect roaming, but excluding outcollect roaming charges, was $59 for the second quarter of 2000 and $56 for the six months ended June 30, 2000 as compared to $45 in December 1999. We expect ARPU to continue to increase as we target business customers, realize the results from our successful implementation of a national accounts program, focus on value added features and provide incentives to our sales force for selling higher priced rate plans. We anticipate continued strong growth during the remainder of the year in revenue and subscribers as we continue to expand our operations in our licensed areas. We expect to launch substantially all of our remaining markets during 2000. We expect roaming revenues to increase during 2000 as we expand our coverage areas as well as complete our first full year of operations in the markets that became operational during 1999. Operating Expenses Cost of services and equipment was $15.4 million and $29.1 million for the three and six months ended June 30, 2000, respectively. Cost of services and equipment includes primarily the cost of equipment sold to customers, costs paid to other carriers for roaming services and wireline access and long-distance costs from customer use on our system. We did not incur any cost of services and equipment for the three and six months ended June 30, 1999. The increase in these costs, which are expected to continue to increase during 2000 and in future periods, is the result of new subscribers added to the system and increased usage of our system. Technical operations expenses were $2.0 million and $11.8 million for the quarter ended June 30, 1999 and 2000, respectively, and were $3.9 million and $22.0 million for the six months ended June 30, 1999 and 2000, respectively. These expenses include primarily the cost of engineering and 23 operating staff devoted to the oversight of the design, implementation and monitoring of our network, cell site lease expense, and charges incurred to connect our network to other carriers. These costs increased in 2000 as compared to 1999 as a result of our network expansion and increased customer base. We expect the majority of our future technical operations expenses will consist of costs relating to operating the network, including the cost of interconnection to wireline and other wireless networks, cell site lease costs, network personnel and repair and maintenance. We expect these costs to continue to increase during 2000 and in future periods as we expand our coverage areas and incur a full year of operational expenses. Our general and administrative expense includes customer service, billing, information technology, finance, accounting, human resources and legal services. General and administrative expenses increased from $4.3 million for the second quarter of 1999 to $17.1 million for the second quarter of 2000, and increased from $7.2 million for the six month period ended June 30, 1999, to $26.4 million for the six month period ended June 30, 2000. The increase was due primarily to increased staffing in various departments, including information technology, billing, customer care, accounting, human resources and other administrative functions, incurred in connection with the expansion of our network and customer base, costs related to the modification of restricted stock agreements in the second quarter, and costs related to the pending merger with Telecorp PCS. We expect general and administrative expenses to continue to increase during 2000 and in future periods as we continue to launch additional markets and provide customer support functions to a larger customer base. Costs related to the merger with Telecorp PCS are expensed as incurred. Our sales and marketing expense includes salaries and benefits, commissions, advertising and promotions, retail distribution, and sales training. Sales and marketing expenses increased from $1.7 million for the three months ended June 30, 1999, to $16.5 million for the same period in 2000 and from $2.7 million for the first half of 1999 to $28.6 million for the same period in 2000. The increase was primarily associated with the salary and benefits for sales and marketing personnel, market deployment, including planning and leasing of sales offices and retail store locations and advertising costs related to market launches. We expect selling and marketing costs to continue to increase during 2000 and in future periods primarily related to sales commissions, ongoing advertising and promotions in our existing markets and promotional events and advertising incurred in connection with market launches. Stock Based Compensation. We have issued a total of 12,362,380 shares of our class A voting and class C common stock to members of our management, primarily in connection with the formation of the joint venture with AT&T Wireless Services. These shares are subject to vesting and are currently held in escrow. These shares are also subject to individual repurchase agreements with each employee, which collectively were considered a "variable stock plan" under generally accepted accounting principles. These individual repurchase agreements were modified to remove the provision that required the employees to surrender a portion of their vested shares. The effective date of this modification, which occurred in June 2000, became the measurement date upon which the value of the awards was fixed. Future stock price movement will not result in charges that differ from this amount. The stock-based compensation for the current quarter was a benefit of $46.2 million and was an expense of 24 $62.1 million for the six months ended June 30, 2000. The Company will recognize additional non-cash compensation expense related to these shares for the period from 2000 to 2004 of approximately $74.5 million. Depreciation and amortization expenses were $1.9 million for the three month period ended June 30, 1999, as compared to $14.3 million for the three month period ended June 30, 2000, and were $3.5 million for the six month period ended June 30, 1999, as compared to $24.9 million for the six month period ended June 30, 2000. The increases relate primarily to the depreciation of network system equipment placed into service as our markets are launched as well as depreciation of computer hardware, software, furniture, fixtures, and office equipment. Depreciation and amortization expenses are expected to increase during the remainder of 2000 and in future periods as we complete the construction of our network as well as recognize a full year of depreciation expense on our network assets placed in service during 1999. Non-Operating Income and Expense Interest income was $4.2 million for the second quarter of 1999 as compared to $7.2 million for the second quarter of 2000 and was $5.3 million for the first half of 1999 as compared to $15.9 million for the first half of 2000. These increases in 2000 as compared to 1999 were primarily a result of interest earned on our investment of advances under our bank facility of $300.0 million, proceeds from the sale of senior subordinated discount notes of approximately $200.2 million and proceeds from the sale of common stock in our initial public offering of approximately $242.5 million. Our short-term cash investments consist primarily of U.S. Government securities and highly rated commercial paper with a dollar-weighted average maturity of 90 days or less. Financing costs were $2.2 million for the six months ended June 30, 1999. These costs were associated with the January 1999 conversion by Digital PCS of debt due to an investor to equity in Airwave Communications. Interest expense was $5.1 million for the second quarter of 1999 as compared to $16.1 million in the second quarter of 2000. Interest expense was $5.1 million for the first half of 1999 as compared to $30.4 million for the first half of 2000. There was no interest expense for the first quarter of 1999 because all interest costs were capitalized in connection with the construction of the network. Interest expense consisted of interest incurred related to borrowing under our bank credit facility and the Federal Communications Commission debt and discount accretion on the senior subordinated discount notes issued in May 1999. Interest expense is net of the amount capitalized for the purpose of completing the network buildout. For the quarters ended June 30, 1999 and 2000, we recorded a deferred income tax benefit of $4.1 million and $570,000, respectively. The deferred income tax benefit recorded for the first six months of 1999 and 2000 was $6.4 million and $1.1 million, respectively. The valuation allowance for the gross deferred tax asset at June 30, 2000 was $36.9 million. No valuation allowance was considered necessary for the remaining gross deferred tax asset of $12.3 million, principally due to the existence of a deferred tax liability which was recorded upon the closing of the AT&T transaction on January 7, 1999. Liquidity and Capital Resources 25 The buildout of our network and the marketing and distribution of our products and services will require substantial capital. We currently estimate that our capital requirements, including capital expenditures, the cost of acquiring licenses, working capital, debt service requirements and anticipated operating losses, for the period from inception through the end of 2001, and assuming substantial completion of our network buildout, will total approximately $1.4 billion. We believe the proceeds from the initial public offering completed in December 1999, together with the proceeds from our sale of senior subordinated discount notes, the financing made available to us by the Federal Communications Commission, borrowings under our bank credit facility and the equity investments we have received, will provide us with sufficient funds to build out our existing network as planned and fund operating losses until we complete our planned network buildout and generate positive cash flow. Our January 7, 1999, loan agreement provides a senior bank facility with a group of lenders for an aggregate amount of $550 million of senior secured credit. Up to $10 million of the facility may be used for letters of credit. We estimate that the $550 million bank facility will be drawn through the end of 2001 for capital requirements. The terms of the bank facility will permit us, subject to certain terms and conditions, including compliance with certain leverage ratios and satisfaction of buildout and subscriber milestones, to draw up to $550 million to finance working capital requirements, capital expenditures or other corporate purposes. As of June 30, 2000, we had $300 million outstanding under the bank facility and could have borrowed up to a total of approximately $550 million pursuant to the terms of the bank facility. Management estimates that capital expenditures associated with the buildout will total approximately $706.6 million from inception through the end of 2001, including a commitment to purchase a minimum of $300 million in equipment and services from Ericsson of which approximately $195.6 million had been purchased through June 30, 2000. Costs associated with the network buildout include switches, software, base stations, towers and antennae, radiofrequency engineering, cell site acquisition and construction, and microwave relocation. The actual funds required to build out our network may vary materially from these estimates, and additional funds could be required in the event of significant departures from the current business plan, unforeseen delays, cost overruns, unanticipated expenses, regulatory expenses, engineering design changes and other technological risks. We have incurred approximately $432.1 million in capital expenditures through June 30, 2000, including $171.8 million in the first half of 2000. We estimate that cash interest and fees through 2001 will total approximately $147.6 million, including debt issuance costs related to the bank credit facility and the senior subordinated discount notes. This amount represents interest and fees on the senior bank facility and interest on the financing from the U.S. Government for the C and F-Block licenses. Cash interest will not be paid on the senior subordinated discount notes until 2004. We incurred approximately $19.5 million in cash interest and fees during the first half of 2000 of which approximately $2.8 million was capitalized. We estimate that working capital requirements during the period from inception through 2001 will total $314.4 million. This amount represents the costs related to initiating, marketing, operating and managing our PCS network. 26 Our ability to meet our capital requirements without additional financing is subject to our ability to construct our network and obtain customers in accordance with our plans and assumptions and a number of other risks and uncertainties. The development of our network may not be completed as projected and we may not be able to generate positive cash flow. If any of our projections are incorrect, we may not be able to meet our projected capital requirements. On February 28, 2000, the Company announced an agreement to merge with Telecorp PCS, Inc. This merger is expected to take place during the last quarter of 2000 and is a tax-free exchange of stock. The Company does not expect the merger to have any material effect on its current plans related to network buildout. Our bank credit facility agreement prohibits the merger of Tritel with any other parties, except with or among its subsidiaries. Unless a consent or amendment is obtained, the proposed merger with TeleCorp would violate the merger provision and the change of control provision. We are actively seeking an amendment to the bank credit facility or consent from our lenders concerning the merger and change of control provisions. Digital PCS holds licenses covering 2.0 million people in Florida and southern Georgia. These markets include the cities of Pensacola, Tallahassee and Panama City, Florida. As part of our formation, we received from Digital PCS an option to purchase these licenses for approximately 1.4 million shares of our class A voting common stock (reflecting the conversion of series C preferred stock and the stock split of our class A voting common stock in December 1999) and our assumption of approximately $11.8 million of Federal Communications Commission debt. In May 1999, we exercised this option, and on March 29, 2000, the Federal Communications Commission approved the transfer of licenses to us. This transfer is expected to be completed prior to December 31, 2000. We have committed to sell these licenses to Panther Wireless LLC for the assumption of all outstanding Federal Communications Commission debt on the licenses and cash in the amount equal to 110% of the sum of (i) the amount payable to the Federal Communications Commission in respect of the licenses minus the amount of Federal Communications Commission debt assumed, plus (ii) the aggregate amount of interest paid on the Federal Communications Commission debt by us and Digital PCS. Merger with TeleCorp PCS, Inc. On February 28, 2000, Tritel and TeleCorp PCS, Inc. announced the signing of a definitive agreement and plan of reorganization and contribution, called the Merger Agreement, for an all stock, tax-free merger, called the Merger. The Merger Agreement provides for the creation of a new entity to be called TeleCorp PCS, Inc. Tritel and TeleCorp will merge with subsidiaries of the new entity. Under the Merger Agreement, Tritel's class A voting common stock will be converted into the right to receive 0.76 shares of the new entity's class A voting common stock per share of Tritel Inc.'s common stock. This exchange ratio is fixed regardless of future stock price movement. Tritel and Telecorp shareholders approved the Merger on August 8, 27 2000. The Merger is still subject to regulatory approval. It is expected that the Merger will be completed in the last quarter of 2000. Pending License Acquisition On March 23, 1999, the Federal Communications Commission commenced a re-auction of the C-, D-, E- and F-Block licenses that had been returned to the Federal Communications Commission under a Federal Communications Commission restructuring order or that had been forfeited for noncompliance with Federal Communications Commission rules or for default under the related Federal Communications Commission financing. Before the re-auction, we loaned $7.5 million to ABC Wireless LLC ("ABC Wireless"), an entity formed to participate in the C-Block re-auction as a "very small business" under applicable Federal Communications Commission rules, to partially fund its participation in the re-auction. In the re-auction, ABC Wireless was successful in bidding for an additional 15 to 30 MHz of spectrum covering a total of 5.7 million people, all of which are already covered by Tritel's existing licenses. Nashville and Chattanooga are the largest cities covered by the additional licenses. The total bid price for these additional licenses was $7.8 million. Tritel's purchase of licenses from ABC Wireless would be subject to, among other things, the consent of AT&T Wireless Services. As a result of the re-auction and our contractual rights to purchase from ABC Wireless PCS licenses, we could, depending upon Federal Communications Commission interpretations of the spectrum cap rules, hold an attributable interest in Commercial Mobile Radio Service, or CMRS, spectrum in excess of applicable limit in several cities in our markets. Current Federal Communications Commission rules limit PCS licensees and certain PCS investors in PCS licensees from having an attributable interest in more than 45 MHz of CMRS spectrum (or 55 MHz where there is an overlap between a PCS service area and rural cellular service area) in any given geographic area. In order to exceed the applicable spectrum limit, we and certain investors, including AT&T Wireless Services, must obtain the consent of the Federal Communications Commission. The parties have sought the necessary interpretations and consents in the context of the Telecorp/Tritel merger application. There is no assurance that the Federal Communications Commission will give its consent and seeking such consent could delay the processing of the required applications to assign the licenses from ABC Wireless to us. We believe the Federal Communications Commission will approve the disaggregation of spectrum from the ABC Wireless licenses and transfer to us portions of the licenses so we will be in compliance with the CMRS spectrum cap rules. 28 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-----