-----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, KWWW4Rn4wxCzDYtZSClGAumZqACiYt+kDM6asHWl27mLZO3vd1k5h2YiK5wcwePR YjlFQ/N4ucaCaWs4FFDkvA== 0000950130-01-505383.txt : 20020410 0000950130-01-505383.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950130-01-505383 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRITEL PCS INC CENTRAL INDEX KEY: 0001088384 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 640896438 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-82509 FILM NUMBER: 1790246 BUSINESS ADDRESS: STREET 1: 1080 RIVER OAKS DRIVE STREET 2: SUITE B 100 CITY: JACKSON STATE: MS ZIP: 39208 BUSINESS PHONE: 6039292606 MAIL ADDRESS: STREET 1: 1080 RIVER OAKS DRIVE STREET 2: SUITE B 100 CITY: JACKSON STATE: MS ZIP: 39208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRITEL FINANCE INC CENTRAL INDEX KEY: 0001088386 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 640896439 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-82509-03 FILM NUMBER: 1790247 BUSINESS ADDRESS: STREET 1: 1080 RIVER OAKS DRIVE STREET 2: SUITE B 100 CITY: JACKSON STATE: MS ZIP: 39208 BUSINESS PHONE: 6039292606 MAIL ADDRESS: STREET 1: 1080 RIVER OAKS DRIVE STREET 2: SUITE B 100 CITY: JACKSON STATE: MS ZIP: 39208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRITEL COMMUNICATIONS INC CENTRAL INDEX KEY: 0001088385 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 640896042 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-82509-02 FILM NUMBER: 1790248 BUSINESS ADDRESS: STREET 1: 1080 RIVER OAKS DRIVE STREET 2: SUITE B 100 CITY: JACKSON STATE: MS ZIP: 39208 BUSINESS PHONE: 6039292606 MAIL ADDRESS: STREET 1: 1080 RIVER OAKS DRIVE STREET 2: SUITE B 100 CITY: JACKSON STATE: MS ZIP: 39208 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-28435 FILM NUMBER: 1790249 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 1 d10q.txt QUARTERLY REPORT DATED SEPTEMBER 30, 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 000-28435 Tritel PCS, Inc. (Exact name of registrant as specified in its charter) Delaware 64-0896438 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) and the parent company of Tritel PCS, Inc.: Commission file number: 333-82509-01 Tritel, Inc. (Exact name of registrant as specified in its charter) Delaware 64-0896417 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) and the following subsidiary of Tritel PCS, Inc.: Commission file number: 333-82509-02 Tritel Communications, Inc. (Exact name of registrant as specified in its charter) Delaware 64-0896042 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) and the following subsidiary of Tritel PCS, Inc.: Commission file number: 333-82509-03 Tritel Finance, Inc. (Exact name of registrant as specified in its charter) Delaware 64-0896439 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 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 [_] As of November 14, 2001, the Registrant had 1,000 shares of common stock outstanding. The Registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEX
Page ---- PART I Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 2000 and September 30, 2001 (unaudited).......... 3 Consolidated Statements of Operations for the three months ended September 30, 2000 (unaudited) and 2001 (unaudited) and for the nine months ended September 30, 2000 (unaudited) and 2001 (unaudited)................................................................................... 4 Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2000 (unaudited) and 2001 (unaudited).............................................................. 5 Notes to Consolidated Financial Statements...................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................. 22 PART II Other Information Item 1. Legal Proceedings.......................................................................... 22 Item 2. Changes in Securities and Use of Proceeds.................................................. 22 Item 3. Defaults Upon Senior Securities............................................................ 22 Item 4. Submission of Matters to a Vote of Security Holders........................................ 22 Item 5. Other Information.......................................................................... 22 Item 6. Exhibits and Reports on Form 8-K........................................................... 22
2 PART I--FINANCIAL INFORMATION Item 1. Financial Statements TRITEL, INC. CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share data)
December 31, September 30 2000 2001 ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents...................................................... $ 11,959 $ 111,928 Short-term investments......................................................... -- 32,226 Accounts receivable, net....................................................... 14,723 25,824 Inventory, net................................................................. 18,818 4,529 Prepaid expenses and other current assets...................................... 8,591 11,068 ---------- ---------- Total current assets....................................................... 54,091 185,575 Property and equipment, net....................................................... 568,035 610,498 PCS licenses and microwave relocation costs, net.................................. 290,101 292,060 Intangible assets--AT&T agreements, net........................................... 53,785 49,493 Other assets...................................................................... 61,406 47,010 ---------- ---------- Total assets............................................................... $1,027,418 $1,184,636 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable............................................................... $ 64,447 $ 20,448 Accrued expenses and other..................................................... 36,348 78,429 Microwave relocation obligation, current portion............................... 4,000 2,285 Long-term debt, current portion................................................ 62,285 1,051 Advance billings............................................................... 5,089 8,085 Accrued interest............................................................... 1,963 10,924 ---------- ---------- Total current liabilities.................................................. 174,132 121,222 Long-term debt.................................................................... 596,186 1,059,950 Accrued expenses and other........................................................ 28,601 32,928 Deferred income taxes............................................................. 25,461 25,461 ---------- ---------- Total liabilities.......................................................... 824,380 1,239,561 ---------- ---------- Commitments and contingencies Stockholder's equity (deficit): Common stock, par value $0.01 per share, 3,000 shares authorized; 1,000 shares issued and outstanding....................................................... -- -- Additional paid-in capital..................................................... 880,406 880,406 Deferred compensation.......................................................... (3,386) (394) Accumulated deficit............................................................ (673,982) (934,937) ---------- ---------- Total stockholder's equity (deficit)....................................... 203,038 (54,925) ---------- ---------- Total liabilities and stockholder's equity (deficit)....................... $1,027,418 $1,184,636 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 TRITEL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands)
For the three months For the nine months ended ended September 30, September 30, ---------------------- ------------------------ 2000 2001 2000 2001 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue: Service.................................................. $ 21,933 $ 51,658 $ 43,366 $ 132,380 Roaming.................................................. 10,878 17,924 24,120 48,093 Equipment................................................ 3,880 5,521 8,511 11,367 -------- --------- --------- --------- Total revenue........................................ 36,691 75,103 75,997 191,840 -------- --------- --------- --------- Operating expenses: Cost of revenue.......................................... 15,193 23,669 31,344 58,778 Operations and development (including non-cash stock compensation of $1,565, $344, $7,290 and $1,059)....... 17,369 19,295 45,127 59,113 Selling and marketing (including non-cash stock compensation of $1,528, $0, $7,117 and $0)............. 27,775 33,029 73,959 85,742 General and administrative (including non-cash stock compensation of $13,887, $249, $64,685 and $1,933)..... 33,211 37,110 111,353 76,155 Depreciation and amortization............................ 20,194 33,364 45,069 90,043 -------- --------- --------- --------- Total operating expenses............................. 113,742 146,467 306,852 369,831 -------- --------- --------- --------- Operating loss....................................... (77,051) (71,364) (230,855) (177,991) Other income (expense): Interest expense......................................... (16,844) (30,283) (47,260) (87,745) Interest income and other................................ 4,609 1,823 20,501 8,884 Loss on derivatives...................................... -- (894) -- (4,910) -------- --------- --------- --------- Net loss before income taxes......................... (89,286) (100,718) (257,614) (261,762) Income tax benefit....................................... 782 -- 1,857 -- -------- --------- --------- --------- Net loss before cumulative effect of a change in accounting principle............................... (88,504) (100,718) (255,757) (261,762) Cumulative effect of a change in accounting principle, net of tax............................................. -- -- -- 807 -------- --------- --------- --------- Net loss............................................. $(88,504) $(100,718) $(255,757) $(260,955) ======== ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 TRITEL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ($ in thousands)
For the nine months ended September 30, ------------------------ 2000 2001 ----------- ----------- (unaudited) (unaudited) Cash flows from operating activities: Net cash used in operating activities......... $(134,667) $(102,932) --------- --------- Cash flows from investing activities: Expenditures for property and equipment........... (304,241) (160,737) Capitalized interest.............................. (3,313) -- Proceeds from sale of short-term investments...... -- 30,808 Proceeds from sale of FCC licenses held for sale.. -- 8,497 Purchase of short-term investments................ -- (63,034) Other............................................. 1,561 3,250 --------- --------- Net cash used in investing activities......... (305,993) (181,216) --------- --------- Cash flows from financing activities: Proceeds from (repayment) of long-term debt....... (687) 450,000 Proceeds from advance from TeleCorp PCS........... -- 10,000 Proceeds from senior credit facility.............. -- 30,000 Payments on senior credit facility................ -- (90,000) Payments of FCC debt.............................. -- (1,701) Payments of stock issuance costs.................. (195) -- Payment of debt issuance costs.................... (198) (14,182) Proceeds from exercise of stock options........... 1,257 -- --------- --------- Net cash provided by financing activities..... 177 384,117 --------- --------- Net (decrease) increase in cash and cash equivalents. (440,483) 99,969 Cash and cash equivalents at beginning of period..... 609,269 11,959 --------- --------- Cash and cash equivalents at end of period........... $ 168,786 $ 111,928 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) 1. Summary of Significant Accounting Policies Unaudited Interim Financial Information The accompanying unaudited consolidated financial statements and related footnotes have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods. Operating results for the nine months ended September 30, 2001 are not necessarily indicative of results that may be expected for the year ending December 31, 2001. Reclassifications Certain amounts in the 2000 consolidated financial statements have been reclassified to conform with the presentation of the consolidated financial statements as of and for the three and nine months ended September 30, 2001. Consolidation The consolidated financial statements include the accounts of Tritel, Inc. (the Company) and its wholly-owned subsidiaries, Tritel PCS, Inc. (Tritel PCS); Tritel A/B Holding Corp.; Tritel C/F Holding Corp.; Tritel Communications, Inc.; Tritel Finance, Inc.; and others. All intercompany accounts and transactions have been eliminated in consolidation. Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141, requires, among other matters, that purchase accounting be applied to business combinations initiated after June 30, 2001 and the separate recognition of intangible assets apart from goodwill if they meet either the contractual legal or separability criteria. The adoption of SFAS No. 141 had no effect on the consolidated financial position, results of operations, or cash flows of the Company. SFAS No. 142 addresses the accounting treatment and reporting for acquired goodwill and other intangible assets acquired individually or with a group of assets (but not those acquired in a business combination) and addresses how goodwill and other intangible assets are accounted for after initial acquisition. The Company intends to adopt SFAS No. 142 as of January 1, 2002, as required, and as of July 1, 2001 for goodwill and intangible assets acquired after June 30, 2001 (for the nonamortization and amortization provisions of the Statement). The Company is in the process of determining the effect of adopting this standard. At this time, no assurance can be given that material amounts of intangible assets will not need to be adjusted upon adoption of SFAS No. 142 in 2002 as a "cumulative effect of change in accounting principle". In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company intends to adopt SFAS No. 144, which supercedes SFAS No. 121, "Impairment of Long-Lived Assets", and portions of APB Opinion No. 30, as of January 1, 2002. The statement provides guidance on the recognition and measurement of impairment of long-lived assets to be held and used and assets to be disposed. The Company is in the process of determining the effect of adopting this standard. 6 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 2. Costs of Exiting Certain Activities and Pre-Acquisition Contingencies During the nine months ended September 30, 2001, the Company has incurred additional expenses related to its purchase by TeleCorp PCS which have been recorded as operating expenses in the statement of operations for the three and nine months ended September 30, 2001. These costs of approximately $28,700 for the nine months ended September 30, 2001, are comprised of additional costs to exit duplicative activities of TeleCorp PCS including contract termination fees and employee severance costs as well as costs related to pre-acquisition litigation. 3. Derivative Instruments and Hedging Activities The Company's activities expose it to market risks that are related to the effects of changes in interest rates. This financial exposure is monitored and managed by the Company as an integral part of its overall risk-management program. The Company's risk-management program focuses on the unpredictability of interest rates and seeks to reduce the potentially adverse effects that the volatility of these rates may have on its future cash flows. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, does not assume repayment risk. The Company minimizes its credit (or repayment) risk in derivative instruments by (1) entering into transactions with high-quality counterparties whose credit ratings are AA/Aa or higher, (2) limiting the amount of its exposure to each counterparty, and (3) monitoring the financial condition of its counterparties. The Company also maintains a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement and, depending on the nature of the derivative transaction, also be governed by bilateral collateral arrangements. Market risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company manages the market risk associated with interest rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001. The Company uses certain derivative financial instruments that did not meet the criteria to be designated for hedge accounting. The Company recorded as of January 1, 2001 an asset of $807 which represents an estimated fair value of the derivative instruments along with a one-time after tax benefit of $807 as a cumulative effect of accounting change. For the nine months ended September 30, 2001, the Company recognized a loss of $4,910 reported as "loss on derivatives" in the statement of operations, which represented the change in the fair value of the derivatives. 4. Accrued Expenses and Other Accrued expenses and other consist of the following:
December 31, September 30, 2000 2001 ------------ ------------- (unaudited) Property and equipment.................... $ -- $ 3,391 Sales and property taxes.................. 6,186 26,633 Payroll and related liabilities........... 18,904 12,337 Accrued operational expenses.............. 9,282 39,471 Microwave relocation obligation, long-term 13,898 13,898 Accrued liability of loss on derivatives.. -- 4,103 Other liabilities......................... 16,679 11,524 ------- -------- 64,949 111,357 Less: non-current portion................. 28,601 32,928 ------- -------- $36,348 $ 78,429 ======= ========
7 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 5. Long-term Debt Long-term debt consists of the following:
December 31, September 30, 2000 2001 ------------ ------------- (unaudited) Senior credit facility............ $360,000 $ 300,000 Senior subordinated notes......... -- 450,000 Senior subordinated discount notes 245,300 269,031 U.S. government financing......... 53,171 41,970 -------- ---------- 658,471 1,061,001 Less current portion.............. 62,285 1,051 -------- ---------- $596,186 $1,059,950 ======== ==========
Senior Credit Facility On January 9, 2001, the Company amended the terms of its Senior Credit 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 January 10, 2001, Tritel drew $30,000 from its Senior Credit Facility Revolver. Tritel paid down $60,000 and $30,000 of the Senior Credit Facility Revolver on January 29, 2001 and February 12, 2001, respectively. Senior Subordinated Notes On January 24, 2001, the Company issued $450,000 principal amount of 10 3/8% senior subordinated notes due 2011. The senior subordinated notes are subject to optional redemption, restrictive covenants, an exchange offer, registration rights, and transfer restrictions. The Company received $437,500 in net proceeds from the issuance after deducting debt issuance costs of $12,500. 6. Sale of Assets In September 2001, Tritel completed a sale of PCS licenses in Florida and southern Georgia for $8,497 in cash and transfer of $10,263 in debt. The Company recognized a loss of $112 that is included in Interest Income and Other in the consolidated statement of operations. These PCS licenses had been recorded as assets held for sale in the consolidated balance sheet. 7. Related Parties The Company engages in transactions with its affiliate company TeleCorp Wireless, Inc. (TeleCorp Wireless), each of which is a wholly-owned subsidiary of TeleCorp PCS, Inc. (TeleCorp PCS). These transactions include shared management and operational personnel, shared telecommunications assets, reciprocal roaming revenue and expense agreements, and joint purchasing arrangements. Due to certain covenants contained in the Company's various indentures, the Company tracks and settles these amounts in cash monthly at the estimated fair market value of the underlying transaction. For the three and nine months ended September 30, 2001, the Company recognized a net expense related to personnel shared with TeleCorp Wireless of $1,515 and $4,426, respectively. In addition, for the three and nine months ended September 30, 2001 the Company recognized rental expense related to telecommunications assets shared with TeleCorp Wireless of $54 and $162, respectively. For the three and nine months ended September 30, 2001 the Company recognized roaming revenues of $2,036 and $4,742, respectively, and roaming expenses of $1,302 and $3,002, respectively. As of September 30, 2001, the Company had a payable to TeleCorp Wireless of $70, included in current accrued expenses. The Company had a current payable as of September 30, 2001, to TeleCorp PCS of $10,000 for amounts advanced in 2001. 8 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 8. Commitments Pending PCS License Acquisition On May 11, 2001, the Company agreed to purchase two F-block licenses in Knoxville and Clarksville, TN for an aggregate purchase price of $11,900 in cash. This agreement is subject to FCC approval. 9. Subsidiary Guarantees On May 11, 1999, the Company completed the issuance and sale of 12 3/4% Senior Subordinated Discount Notes. The Notes are fully and unconditionally guaranteed on a joint and several basis by Tritel Communications, Inc. and Tritel Finance, Inc., two of Tritel PCS's wholly-owned subsidiaries. On January 24, 2001, the Company completed the issuance and sale of the 10 3/8% Senior Subordinated Notes. The Senior Subordinated Notes are also fully and unconditionally guaranteed on a joint and several basis by Tritel Communications, Inc. and Tritel Finance, Inc. The following condensed consolidating financial statements as of December 31, 2000 and September 30, 2001 and for the three and nine months ended September 30, 2000 and 2001, are presented for Tritel, Inc., Tritel PCS, those subsidiaries of Tritel PCS which serve as guarantors and those subsidiaries which do not serve as guarantors of the Notes and the senior subordinated discount notes. CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 2000
Non- Guarantor Guarantor Consolidated Tritel, Inc. Tritel PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ ---------- ------------ ------------ ------------ ------------ Current assets: Cash and cash equivalents............ $ -- $ 21,222 $ (9,263) $ -- $ -- $ 11,959 Other current assets................. 2,546 154 20,497 18,935 -- 42,132 -------- --------- --------- -------- --------- ---------- Total current assets............. 2,546 21,376 11,234 18,935 -- 54,091 Property and equipment, net............. -- -- 568,035 -- -- 568,035 Licenses and other intangibles, net..... 53,785 -- 25,029 265,072 -- 343,886 Investment in subsidiaries.............. 188,796 (78,811) -- -- (109,985) -- Other assets............................ -- 112,113 25,193 -- (75,900) 61,406 -------- --------- --------- -------- --------- ---------- Total assets..................... $245,127 $ 54,678 $ 629,491 $284,007 $(185,885) $1,027,418 ======== ========= ========= ======== ========= ========== Current liabilities: Accounts payable, accrued expenses and other current liabilities...... $ -- $ 1,318 $ 109,897 $ 2,917 $ -- $ 114,132 Revolving credit facility............ -- 60,000 -- -- -- 60,000 Intercompany payables................ 20,092 (737,379) 699,443 17,844 -- -- -------- --------- --------- -------- --------- ---------- Total current liabilities........ 20,092 (676,061) 809,340 20,761 -- 174,132 Non-current liabilities: Long-term debt....................... -- 545,300 75,366 50,886 (75,366) 596,186 Deferred income taxes and other liabilities........................ 21,997 (3,357) 5,708 30,248 (534) 54,062 -------- --------- --------- -------- --------- ---------- Total liabilities................ 42,089 (134,118) 890,414 101,895 (75,900) 824,380 Stockholder's equity (deficit).......... 203,038 188,796 (260,923) 182,112 (109,985) 203,038 -------- --------- --------- -------- --------- ---------- Total liabilities and equity (deficit)...................... $245,127 $ 54,678 $ 629,491 $284,007 $(185,885) $1,027,418 ======== ========= ========= ======== ========= ==========
9 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING BALANCE SHEET (unaudited) As of September 30, 2001
Non- Tritel, Guarantor Guarantor Consolidated Inc. Tritel PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. -------- ---------- ------------ ------------ ------------ ------------ Current assets: Cash and cash equivalents............ $ 9,787 $ 115,354 $ (13,213) $ -- $ -- $ 111,928 Short-term investments............... -- 32,226 -- -- -- 32,226 Accounts receivable, net............. -- -- 25,824 -- -- 25,824 Inventory, net....................... -- -- 4,529 -- -- 4,529 Other current assets................. 2,940 473 7,655 -- -- 11,068 -------- ---------- ---------- -------- --------- ---------- Total current assets............. 12,727 148,053 24,795 -- -- 185,575 Property and equipment, net............. -- -- 610,498 -- -- 610,498 Licenses and other intangibles, net..... 49,493 -- 24,228 267,832 -- 341,553 Investment in subsidiaries.............. (65,054) (251,273) -- -- 316,327 -- Other assets............................ -- 136,704 10,389 -- (100,083) 47,010 -------- ---------- ---------- -------- --------- ---------- Total assets............................ $ (2,834) $ 33,484 $ 669,910 $267,832 $ 216,244 $1,184,636 ======== ========== ========== ======== ========= ========== Current liabilities: Accounts payable, accrued expenses and other current liabilities...... $ 10,000 $ 15,280 $ 94,521 $ 1,421 $ -- $ 121,222 Intercompany payables................ 20,093 (932,419) 906,075 6,251 -- -- -------- ---------- ---------- -------- --------- ---------- Total current liabilities........ 30,093 (917,139) 1,000,596 7,672 -- 121,222 Non-current liabilities: Long-term debt....................... -- 1,019,032 97,169 40,919 (97,170) 1,059,950 Deferred income taxes and other...... 21,998 (3,355) 12,412 30,247 (2,913) 58,389 -------- ---------- ---------- -------- --------- ---------- Total liabilities................ 52,091 98,538 1,110,177 78,838 (100,083) 1,239,561 Stockholder's equity (deficit).......... (54,925) (65,054) (440,267) 188,994 316,327 (54,925) -------- ---------- ---------- -------- --------- ---------- Total liabilities and equity (deficit)...................... $ (2,834) $ 33,484 $ 669,910 $267,832 $ 216,244 $1,184,636 ======== ========== ========== ======== ========= ==========
10 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited) For the Three Months Ended September 30, 2000
Non- Tritel, Tritel Guarantor Guarantor Consolidated Inc. PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. -------- -------- ------------ ------------ ------------ ------------ Revenue................................ $ -- $ -- $ 36,691 $2,447 $ (2,447) $ 36,691 -------- -------- -------- ------ -------- -------- Operating Expenses: Cost of revenue..................... -- -- 15,193 -- -- 15,193 Operations and development.......... -- -- 17,369 -- -- 17,369 Selling and marketing............... -- -- 27,775 -- -- 27,775 General and administrative.......... (9) -- 35,660 7 (2,447) 33,211 Depreciation and amortization....... 1,431 -- 17,525 1,238 -- 20,194 -------- -------- -------- ------ -------- -------- Total operating expenses........ 1,422 -- 113,522 1,245 (2,447) 113,742 -------- -------- -------- ------ -------- -------- Operating income (loss)......... (1,422) -- (76,831) 1,202 -- (77,051) Other income (expense): Interest expense.................... -- (15,850) (964) (988) 958 (16,844) Interest income..................... 98 5,363 106 -- (958) 4,609 -------- -------- -------- ------ -------- -------- Income (loss) before income taxes......................... (1,324) (10,487) (77,689) 214 -- (89,286) Income tax benefit (expense)........ 15 109 661 (3) -- 782 Equity in net loss of subsidiaries.. (87,195) (76,817) -- -- 164,012 -- -------- -------- -------- ------ -------- -------- Net income (loss)............... $(88,504) $(87,195) $(77,028) $ 211 $164,012 $(88,504) ======== ======== ======== ====== ======== ========
11 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited) For the Three Months Ended September 30, 2001
Non- Tritel Guarantor Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ -------- ------------ ------------ ------------ ------------ Revenue............................... $ -- $ -- $ 75,103 $ 2,562 $ (2,562) $ 75,103 --------- -------- -------- ------- -------- --------- Operating Expenses: Cost of revenue.................... -- -- 23,669 -- -- 23,669 Operations and development......... -- -- 19,295 -- -- 19,295 Selling and marketing.............. -- -- 33,029 -- -- 33,029 General and administrative......... -- 9 39,663 -- (2,562) 37,110 Depreciation and amortization...... 1,430 -- 30,246 1,688 -- 33,364 --------- -------- -------- ------- -------- --------- Total operating expenses....... 1,430 9 145,902 1,688 (2,562) 146,467 --------- -------- -------- ------- -------- --------- Operating income (loss)........ (1,430) (9) (70,799) 874 -- (71,364) Other income (expense): Interest expense................... -- (29,149) (2,208) (1,123) 2,197 (30,283) Interest income and other.......... 83 3,873 64 -- (2,197) 1,823 Loss on derivatives................ -- (894) -- -- -- (894) Equity in net loss of subsidiaries. (99,371) (73,192) -- -- 172,563 -- --------- -------- -------- ------- -------- --------- Net income (loss).............. $(100,718) $(99,371) $(72,943) $ (249) $172,563 $(100,718) ========= ======== ======== ======= ======== =========
12 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited) For the Nine Months Ended September 30, 2000
Non- Guarantor Guarantor Consolidated Tritel, Inc. Tritel PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ ---------- ------------ ------------ ------------ ------------ Revenue............................... $ -- $ -- $ 75,997 $ 5,906 $ (5,906) $ 75,997 --------- --------- --------- ------- -------- --------- Operating expenses: Cost of revenue.................... -- -- 31,344 -- -- 31,344 Operations and development......... -- -- 45,127 -- -- 45,127 Selling and marketing.............. -- -- 73,959 -- -- 73,959 General and administrative......... 3,042 -- 114,210 7 (5,906) 111,353 Depreciation and amortization...... 4,292 -- 37,696 3,081 -- 45,069 --------- --------- --------- ------- -------- --------- Total operating expenses....... 7,334 -- 302,336 3,088 (5,906) 306,852 --------- --------- --------- ------- -------- --------- Operating income (loss)........ (7,334) -- (226,339) 2,818 -- (230,855) Other income (expense): Interest expense................... -- (44,050) (2,409) (3,192) 2,391 (47,260) Interest income.................... 251 22,194 447 -- (2,391) 20,501 --------- --------- --------- ------- -------- --------- Loss before income taxes....... (7,083) (21,856) (228,301) (374) -- (257,614) Income tax benefit................. 11 221 1,621 4 -- 1,857 Equity in net loss of subsidiaries. (248,685) (227,050) -- -- 475,735 -- --------- --------- --------- ------- -------- --------- Net income (loss).............. $(255,757) $(248,685) $(226,680) $ (370) $475,735 $(255,757) ========= ========= ========= ======= ======== =========
13 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited) For the Nine Months Ended September 30, 2001
Tritel Guarantor Non-Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ --------- ------------ ------------- ------------ ------------ Revenue............................... $ -- $ -- $ 191,840 $ 7,678 $ (7,678) $ 191,840 --------- --------- --------- ------- -------- --------- Operating Expenses: Cost of revenue.................... -- -- 58,778 -- -- 58,778 Operations and development......... -- -- 59,113 -- -- 59,113 Selling and marketing.............. -- -- 85,742 -- -- 85,742 General and administrative......... 1 34 83,796 2 (7,678) 76,155 Depreciation and amortization...... 4,292 -- 80,722 5,029 -- 90,043 --------- --------- --------- ------- -------- --------- Total operating expenses....... 4,293 34 368,151 5,031 (7,678) 369,831 --------- --------- --------- ------- -------- --------- Operating income (loss)........ (4,293) (34) (176,311) 2,647 -- (177,991) Other income (expense): Interest expense................... -- (84,164) (6,175) (3,554) 6,148 (87,745) Interest income and other.......... 181 14,702 149 -- (6,148) 8,884 Loss on derivatives................ -- (4,103) -- -- -- (4,103) Equity in net loss of subsidiaries. (256,843) (183,244) -- -- 440,087 -- --------- --------- --------- ------- -------- --------- Net income (loss).............. $(260,955) $(256,843) $(182,337) $ (907) $440,087 $(260,955) ========= ========= ========= ======= ======== =========
14 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (unaudited) For the Nine Months Ended September 30, 2000
Guarantor Non-Guarantor Consolidated Tritel, Inc. Tritel PCS Subsidiaries Subsidiaries Tritel, Inc. ------------ ---------- ------------ ------------- ------------ Cash flows from operating activities: Net cash used in operating activities..... $(3,051) $ (241) $(131,375) $ -- $(134,667) ------- --------- --------- ------- --------- Cash flows from investing activities: Expenditures for property and equipment....... -- -- (304,241) -- (304,241) Other......................................... -- 1,745 (184) -- 1,561 Capitalized interest.......................... -- -- (1,460) (1,853) (3,313) ------- --------- --------- ------- --------- Net cash provided by (used in) investing activities.................... -- 1,745 (305,885) (1,853) (305,993) ------- --------- --------- ------- --------- Cash flows from financing activities: Payment of long term debt..................... -- -- -- (687) (687) Payment of debt issuance costs................ -- (198) -- -- (198) Intercompany receivable/payable............... 1,989 (442,006) 437,477 2,540 -- Proceeds from exercise of stock options....... 1,257 -- -- -- 1,257 Payment of stock issuance costs............... (195) -- -- -- (195) ------- --------- --------- ------- --------- Net cash provided by (used in) financing activities.................... 3,051 (442,204) 437,477 1,853 177 ------- --------- --------- ------- --------- Net increase (decrease) in cash and cash equivalents.................................... -- (440,700) 217 -- (440,483) Cash and cash equivalents at beginning of period. -- 613,999 (4,730) -- 609,269 ------- --------- --------- ------- --------- Cash and cash equivalents at end of period....... $ -- $ 173,299 $ (4,513) $ -- $ 168,786 ======= ========= ========= ======= =========
15 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (unaudited) For the Nine Months Ended September 30, 2001
Guarantor Non-Guarantor Consolidated Tritel, Inc. Tritel PCS Subsidiaries Subsidiaries Tritel, Inc. ------------ ---------- ------------ ------------- ------------ Cash flows from operating activities: Net cash used in operating activities..... $ (213) $ (19,575) $ (83,144) $ -- $(102,932) ------- --------- --------- -------- --------- Cash flows from investing activities: Expenditures for property and equipment....... -- -- (160,737) -- (160,737) Purchase of short-term investments, net....... -- (32,226) -- -- (32,226) Sale of FCC licenses.......................... -- -- -- 8,497 8,497 Other......................................... -- 1,680 1,570 -- 3,250 ------- --------- --------- -------- --------- Net cash used in investing activities..... -- (30,546) (159,167) 8,497 (181,216) ------- --------- --------- -------- --------- Cash flows from financing activities: Proceeds from long term debt.................. -- 450,000 -- -- 450,000 Proceeds from TeleCorp PCS.................... 10,000 -- -- -- 10,000 Payments on senior credit facility, net....... -- (60,000) -- -- (60,000) Payments on long-term debt.................... -- -- -- (1,701) (1,701) Payment of debt issuance cost................. -- (14,182) -- -- (14,182) Investment in subsidiary...................... -- (7,789) -- 7,789 -- Intercompany receivable/payable............... -- (223,776) 238,361 (14,585) -- ------- --------- --------- -------- --------- Net cash provided by financing activities.............................. 10,000 144,253 238,361 (8,497) 384,117 ------- --------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents.................................... 9,787 94,132 (3,950) -- 99,969 Cash and cash equivalents at beginning of period......................................... -- 21,222 (9,263) -- 11,959 ------- --------- --------- -------- --------- Cash and cash equivalents at end of period....... $ 9,787 $ 115,354 $ (13,213) $ -- $ 111,928 ======= ========= ========= ======== =========
10. Subsequent Events Merger with AT&T Wireless Services, Inc. and TL Acquisition Corp. On October 7, 2001, TeleCorp PCS, Inc. (TeleCorp), the parent of the Company, entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with AT&T Wireless Services, Inc. and TL Acquisition Corp., a direct wholly-owned subsidiary of AT&T Wireless (the Merger Sub). Pursuant to the Merger Agreement, the Merger Sub shall be merged with and into TeleCorp with TeleCorp continuing as the surviving corporation and becoming a wholly-owned subsidiary of AT&T Wireless (the Merger). The Merger is subject to, among other things, regulatory approval and approval by TeleCorp's stockholders and is expected to be consummated in the first half of 2002. If the Merger is completed, other than shares owned by dissenting stockholders which are not Class A common shares and shares owned directly by AT&T Wireless Services, Inc.: . each issued and outstanding share of TeleCorp's common stock will be converted into and become exchangeable for 0.9 of a share of AT&T Wireless common stock; 16 . each issued and outstanding share of TeleCorp's series C and series E preferred stock will be converted into and become exchangeable for a share of AT&T Wireless preferred stock that is substantially identical to the share of TeleCorp preferred stock; . each issued and outstanding share of TeleCorp's series A convertible preferred stock will be converted into and become exchangeable for 82.9849 shares of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series B preferred stock will be converted into and become exchangeable for 81.2439 shares of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series D preferred stock will be converted into and become exchangeable for 27.6425 shares of AT&T Wireless common stock; and . each issued and outstanding share of TeleCorp's series F and G preferred stock will be converted into and become exchangeable for 0.9 shares of AT&T Wireless common stock. Amendment to the Senior Credit Facility On October 19, 2001, Tritel amended its Senior Credit Facility to accommodate the additional capital and operating expenditures necessary to implement a next generation network. As part of the amendment, TeleCorp PCS, Inc. contributed $75,000 in capital to Tritel on October 22, 2001 and is obligated to contribute another $75,000 on or before January 31, 2002. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General You should read the following discussion in conjunction with (1) the Company's accompanying unaudited Consolidated Financial Statements and notes thereto included in this report on Form 10-Q and (2) the Company's audited Consolidated Financial Statements, notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2000 included in the Company's annual report on Form 10-K for such period. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are based on current expectations, estimates, and projections. Such forward-looking statements reflect management's good-faith evaluation of information currently available. However, because such statements are based upon, and therefore can be influenced by, a number of external variables over which management has no, or incomplete, control, they are not, and should not be read as being guarantees of future performance or of actual future results; nor will they necessarily prove to be accurate indications of the times at or by which any such performance or result will be achieved. Accordingly, actual outcomes and results may differ materially from those expressed in such forward-looking statements. The Company does not intend to update any such forward-looking statements. Overview The Company is an AT&T Wireless affiliate in the United States providing digital wireless personal communications services, or PCS, to a licensed service area covering approximately 14.3 million people. As of September 30, 2001, the Company had launched service in 38 markets having approximately 14.0 million people and representing approximately 98% of the population where the Company holds licenses in the United States. As of September 30, 2001, the Company served more than 313,900 customers. Under the terms of the strategic alliance the Company has with AT&T, the Company is AT&T's exclusive provider of wireless mobility services on the Company's network. The Company is a wholly-owned subsidiary of TeleCorp PCS, Inc. On October 7, 2001, TeleCorp PCS, Inc. (TeleCorp), the parent of the Company, entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with AT&T Wireless Services, Inc. and TL Acquisition Corp., a direct wholly-owned subsidiary of AT&T Wireless (the Merger Sub). Pursuant to the Merger Agreement, the Merger Sub shall be merged with and into TeleCorp with TeleCorp continuing as the surviving corporation and becoming a wholly-owned subsidiary of AT&T Wireless (the Merger). The Merger is subject to, among other things, regulatory approval and approval by TeleCorp's stockholders and is expected to be consummated in the first half of 2002. If the Merger is completed, other that shares owned by dissenting stockholders which are not Class A common shares and shares owned directly by AT&T Wireless Services, Inc.: . each issued and outstanding share of the TeleCorp's common stock, will be converted into and become exchangeable for 0.9 of a share of AT&T Wireless common stock; . each issued and outstanding share of the TeleCorp's series C and series E preferred stock will be converted into and become exchangeable for a share of AT&T Wireless preferred stock that is substantially identical to the share of TeleCorp preferred stock; . each issued and outstanding share of TeleCorp's series A convertible preferred stock will be converted into and become exchangeable for 82.9849 shares of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series B preferred stock will be converted into and become exchangeable for 81.2439 shares of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series D preferred stock will be converted into and become exchangeable for 27.6425 shares of AT&T Wireless common stock; and 18 . each issued and outstanding share of TeleCorp's series F and G preferred stock will be converted into and become exchangeable for 0.9 of a share of AT&T Wireless common stock. Results of Operations Three months ended September 30, 2001 compared to three months ended September 30, 2000 Subscribers Net additions were 48,983 and 51,744 for the three months ended September 30, 2001 and 2000, respectively. Total PCS subscribers were 313,948 and 156,099 as of September 30, 2001 and 2000, respectively. Revenue Revenue for the three months ended September 30, 2001 and 2000 was $75.1 million and $36.7 million, respectively. Service revenue for the three months ended September 30, 2001 and 2000 was $51.7 million and $21.9 million, respectively. The increase in service revenue of $29.8 million was due to the addition of subscribers and the launch of additional markets. Roaming revenue for the three months ended September 30, 2001 and 2000 was $17.9 million and $10.9 million, respectively. The increase in roaming revenue of $7.0 million was due primarily to the full year use on cell sites integrated in 2000 and to additional cell sites integrated in 2001. Equipment revenue for the three months ended September 30, 2001 and 2000 was $5.5 million and $3.9 million, respectively. Cost of revenue Cost of revenue for the three months ended September 30, 2001 and 2000 was $23.7 million and $15.2 million, respectively. The increase in cost of revenue of $8.5 million was due primarily to additional roaming, interconnection and long distance expenses in connection with the Company's increased subscriber base. Operations and development Operations and development expense was $19.3 million and $17.4 million (including non-cash stock compensation of $0.3 million and $1.6 million, respectively) for the three months ended September 30, 2001 and 2000, respectively. Excluding non-cash stock compensation the increase of $3.2 million was primarily due to the development and growth of infrastructure and staffing and maintenance related to the support of the Company's network. Selling and marketing Selling and marketing expense was $33.0 million and $27.8 million (including non-cash stock compensation of $0.0 million and $1.5 million) for the three months ended September 30, 2001 and 2000, respectively. Excluding non-cash stock compensation, the increase of $6.7 million was primarily due to the cost of acquiring new subscribers as well as costs related to a full year of service. Costs associated with the Company's increased market base included advertising and promotion costs and commissions. General and administrative General and administrative expense was $37.1 million and $33.2 million (including non-cash stock compensation of $0.2 million and $13.9 million, respectively) for the three months ended September 30, 2001 and 2000, respectively. Excluding non-cash stock compensation the increase of $17.6 million primarily was due 19 to the development and growth of infrastructure and staffing related to information technology, billing, customer care, accounting, human resources and other administrative functions incurred in conjunction with managing the corresponding growth in the Company's subscriber base and launching the additional markets. Certain costs were also incurred in connection with the Company's acquisition by TeleCorp PCS which include additional costs to exit duplicate activities including contract termination fees and additional employee severance, litigation costs associated with pre-acquisition contingencies, and additional merger related expenses. Depreciation and amortization Depreciation and amortization expense was $33.4 million and $20.2 million for the three months ended September 30, 2001 and 2000, respectively. The increase of $13.2 million related primarily to depreciation of the Company's property and equipment as well as the amortization of its PCS licenses and the AT&T operating agreements related to the Company's markets launched between October 1, 2000 and September 30, 2001. Interest income and other Interest income was $1.8 million and $4.6 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $2.8 million was due primarily to lower cash balances available for investment during the 2001 period. Interest expense Interest expense was $30.3 million and $16.8 million for the three months ended September 30, 2001 and 2000, respectively. The increase of $13.5 million relates primarily to interest incurred on the Company's $450 million Senior Subordinated Notes issued in January 2001. Results of Operations Nine months ended September 30, 2001 compared to nine months ended September 30, 2000 Subscribers Net additions were 108,273 and 131,499 for the nine months ended September 30, 2001 and 2000, respectively. Total PCS subscribers were 313,948 and 156,099 as of September 30, 2001 and 2000, respectively. Revenue Revenue for the nine months ended September 30, 2001 and 2000 was $191.8 million and $76.0 million, respectively. Service revenue for the nine months ended September 30, 2001 and 2000 was $132.4 million and $43.4 million, respectively. The increase in service revenue of $89.0 million was due to the addition of subscribers and the launch of additional markets. Roaming revenue for the nine months ended September 30, 2001 and 2000 was $48.1 million and $24.1 million, respectively. The increase in roaming revenue of $24.0 million was due primarily to the full year of use on cell sites integrated in 2000 and to additional cell sites integrated in 2001. Equipment revenue for the nine months ended September 30, 2001 and 2000 was $11.4 million and $8.5 million, respectively. Cost of revenue Cost of revenue for the nine months ended September 30, 2001 and 2000 was $58.8 million and $31.3 million, respectively. The increase in cost of revenue of $27.5 million was due primarily to additional roaming, interconnection and long distance expenses in connection with the Company's increased subscriber base. 20 Operations and development Operations and development expense was $59.1 million and $45.1 million (including non-cash stock compensation of $1.1 million and $7.3 million, respectively) for the nine months ended September 30, 2001 and 2000, respectively. Excluding non-cash stock compensation, the increase of $20.2 million was primarily due to the development and growth of infrastructure and staffing and maintenance related to the support of the Company's network. Selling and marketing Selling and marketing expense was $85.7 million and $74.0 million (including non-cash stock compensation of $0.0 million and $7.1 million, respectively) for the nine months ended September 30, 2001 and 2000, respectively. Excluding non-cash stock compensation, the increase of $18.8 million was primarily due to the cost of acquiring new subscribers as well as costs related to a full year of service. Costs associated with the Company's increased market base included advertising and promotion costs and commissions. General and administrative General and administrative expense was $76.2 million and $111.4 million (including non-cash stock compensation of $1.9 million and $64.7 million, respectively) for the nine months ended September 30, 2001 and 2000, respectively. Excluding non-cash stock compensation, the increase of $27.6 million was primarily due to the development and growth of infrastructure and staffing related to information technology, billing, customer care, accounting, human resources and other administrative functions incurred in conjunction with managing the corresponding growth in the Company's subscriber base and launching the additional markets. Certain costs were also incurred in connection with the Company's acquisition by TeleCorp PCS which include additional costs to exit duplicative activities including contract termination fees and additional employee severance, litigation costs associated with pre-acquisition contingencies, and additional merger related expenses. Depreciation and amortization Depreciation and amortization expense was $90.0 million and $45.1 million for the nine months ended September 30, 2001 and 2000, respectively. The increase of $44.9 million related primarily to depreciation of the Company's property and equipment as well as the amortization of its PCS licenses and the and AT&T Wireless operating agreements related to the Company's markets launched between October 1, 2000 and September 30, 2001. Interest income and other Interest income was $8.9 million and $20.5 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $11.6 million was due primarily to lower cash balances available for investment during the 2001 period. Interest expense Interest expense was $87.7 million and $47.3 million for the nine months ended September 30, 2001 and 2000, respectively. The increase of $40.4 million relates primarily to interest incurred on the Company's $450 million Senior Subordinated Notes issued in January 2001. Forward Looking Statements: Cautionary Statements Statements in this quarterly report expressing the Company's expectations and beliefs regarding its future results or performance are forward-looking statements within the meaning of the Private Securities Litigation 21 Reform Act of 1995, which statements 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. Although the Company believes that the expectations expressed in such forward-looking statements are based on reasonable assumptions within the bounds of its knowledge of its business, the Company's 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, the risks described in the Annual Report on Form 10-K filed by TeleCorp PCS, Inc. for the fiscal year ended December 31, 2000. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Intentionally omitted as the registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the reduced disclosure format. PART II--OTHER INFORMATION Item 1. Legal Proceedings. None. Items 2, 3 and 4. Intentionally omitted as the registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the reduced disclosure format. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits
Exhibit No. Description - ------- ----------- 10.1* Master Services Agreement, dated September 5, 2001, between Convergys Information Management Group Inc., TeleCorp Communications, Inc. and Tritel Communications, Inc.
- -------- * Incorporated by reference to the TeleCorp PCS, Inc. Form 10-Q filed with the Securities and Exchange Commission on November 14, 2001. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 14, 2001 TRITEL, INC.
By: /S/ THOMAS H. SULLIVAN ------------------------------------------- Thomas H. Sullivan President, Chief Financial Officer and Treasurer (Duly Authorized and Principal Financial and Accounting Officer) Date: November 14, 2001 SUBSIDIARY OF TRITEL, INC. TRITEL PCS, INC. By: /S/ THOMAS H. SULLIVAN ------------------------------------------- Thomas H. Sullivan President, Chief Financial Officer and Treasurer (Duly Authorized and Principal Financial and Accounting Officer) Date: November 14, 2001 SUBSIDIARY OF TRITEL PCS, INC. TRITEL COMMUNICATIONS, INC. By: /S/ THOMAS H. SULLIVAN ------------------------------------------- Thomas H. Sullivan President, Chief Financial Officer and Treasurer (Duly Authorized and Principal Financial and Accounting Officer) Date: November 14, 2001 SUBSIDIARY OF TRITEL PCS, INC. TRITEL FINANCE, INC. By: /S/ THOMAS H. SULLIVAN ------------------------------------------- Thomas H. Sullivan President, Chief Financial Officer and Treasurer (Duly Authorized and Principal Financial and Accounting Officer)
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