10-Q 1 d10q.txt QUARTERLY REPORT -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 June 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: 333-82509 Tritel PCS, Inc. (Exact name of registrant as specified in its charter) Delaware 64-0896438 (State or other jurisdiction of (I.R.S. Employer 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 jurisdiction of (I.R.S. Employer 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 jurisdiction of (I.R.S. Employer 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 jurisdiction of (I.R.S. Employer 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 August 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 June 30, 2001 (unaudited)........ 3 Consolidated Statements of Operations for the three months ended June 30, 2000 (unaudited) and 2001 (unaudited) and for the six months ended June 30, 2000 (unaudited) and 2001(unaudited).................................................................... 4 Consolidated Condensed Statements of Cash Flows for the six months ended June 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.... 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 16 PART II Other Information Item 1. Legal Proceedings........................................................................ 16 Item 2. Changes in Securities and Use of Proceeds................................................ 16 Item 3. Defaults Upon Senior Securities.......................................................... 16 Item 4. Submission of Matters to a Vote of Security Holders...................................... 16 Item 5. Other Information........................................................................ 16 Item 6. Reports on Form 8-K...................................................................... 16
2 PART I--Financial Information Item 1. Financial Statements TRITEL, INC. CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share data)
December 31, June 30, 2000 2001 ------------ ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents...................................................... $ 11,959 $ 234,538 Short-term investments......................................................... -- 7,050 Accounts receivable, net....................................................... 14,723 21,034 Inventory, net................................................................. 18,818 6,693 Prepaid expenses and other current assets...................................... 8,591 12,134 ---------- ---------- Total current assets....................................................... 54,091 281,449 Property and equipment, net....................................................... 568,035 597,356 PCS licences and microwave relocation costs, net.................................. 290,101 286,312 Intangible assets--AT&T agreements, net........................................... 53,785 50,924 Other assets...................................................................... 61,406 75,302 ---------- ---------- Total assets............................................................... $1,027,418 $1,291,343 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable............................................................... $ 64,447 $ 42,709 Accrued expenses and other..................................................... 36,348 41,812 Microwave relocation obligation, current portion............................... 4,000 3,470 Long-term debt, current portion................................................ 62,285 2,355 Advance billings............................................................... 5,089 6,796 Accrued interest............................................................... 1,963 21,672 ---------- ---------- Total current liabilities.................................................. 174,132 118,814 Long-term debt.................................................................... 596,186 1,060,993 Accrued expenses and other........................................................ 28,601 40,875 Deferred income taxes............................................................. 25,461 25,461 ---------- ---------- Total liabilities.......................................................... 824,380 1,246,143 ---------- ---------- Commitments and contingencies Stockholder's equity: 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) (987) Accumulated deficit............................................................ (673,982) (834,219) ---------- ---------- Total stockholder's equity................................................. 203,038 45,200 ---------- ---------- Total liabilities and stockholder's equity................................. $1,027,418 $1,291,343 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 TRITEL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands)
For the three months ended For the six months ended June 30, June 30, ------------------------- ----------------------- 2000 2001 2000 2001 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue: Service.................................................. $ 14,620 $ 43,402 $ 21,435 $ 80,722 Roaming.................................................. 7,957 15,905 13,242 30,169 Equipment................................................ 1,848 3,031 4,632 5,846 -------- -------- --------- --------- Total revenue........................................ 24,425 62,338 39,309 116,737 -------- -------- --------- --------- Operating expenses: Cost of revenue.......................................... 8,939 19,189 16,151 35,109 Operations and development (including non-cash stock compensation of $(4,257), $467, $5,725 and $715)....... 7,552 20,247 27,761 39,818 Selling and marketing (including non-cash stock compensation of $(4,156), $0, $5,588 and $0)........... 18,283 29,458 46,184 52,713 General and administrative (including non-cash stock compensation of $(37,773), $1,282, $50,798 and $1,684)................................................ (20,195) 25,056 78,141 39,045 Depreciation and amortization............................ 14,324 29,453 24,875 56,679 -------- -------- --------- --------- Total operating expenses............................. 28,903 123,403 193,112 223,364 -------- -------- --------- --------- Operating loss....................................... (4,478) (61,065) (153,803) (106,627) Other income (expense): Interest expense......................................... (16,056) (30,036) (30,416) (57,462) Interest income and other................................ 7,224 3,287 15,892 7,061 Gain (loss) on derivatives............................... -- 321 -- (4,016) -------- -------- --------- --------- Net loss before income taxes......................... (13,310) (87,493) (168,327) (161,044) Income tax benefit....................................... 570 -- 1,076 -- -------- -------- --------- --------- Net loss before cumulative effect of a change in accounting principle............................... (12,740) (87,493) (167,251) (161,044) Cumulative effect of change in accounting principle, net of tax............................................. -- -- -- 807 -------- -------- --------- --------- Net loss............................................. $(12,740) $(87,493) $(167,251) $(160,237) ======== ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 TRITEL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ($ in thousands)
For the six months ended June 30, ---------------------- 2000 2001 - ----------- ----------- (unaudited) (unaudited) Cash flows from operating activities: Net cash used in operating activities................... $ (85,018) $ (47,558) --------- --------- Cash flows from investing activities: Expenditures for property and equipment....................... (171,798) (108,935) Capitalized interest.......................................... (2,805) -- Proceeds from sale of short-term investments.................. -- 30,808 Purchase of short-term investments............................ -- (37,837) Other......................................................... 978 1,247 --------- --------- Net cash used in investing activities................... (173,625) (114,717) --------- --------- Cash flows from financing activities: Proceeds from (repayment) of long-term debt................... (449) 450,000 Proceeds from TeleCorp PCS.................................... -- 10,000 Proceeds from Senior credit facility.......................... -- 30,000 Payments on Senior credit facility............................ -- (90,000) Payments of FCC debt.......................................... (198) (1,124) Payment of debt issuance costs................................ (195) (14,022) Proceeds from exercise of stock options....................... 789 -- --------- --------- Net cash (used in) provided by financing activities..... (53) 384,854 --------- --------- Net (decrease) increase in cash and cash equivalents........... (258,696) 222,579 Cash and cash equivalents at beginning of period............... 609,269 11,959 --------- --------- Cash and cash equivalents at end of period..................... $ 350,573 $ 234,538 ========= =========
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 six months ended June 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 six months ended June 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 AccountingStandards 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". The Company intends to adopt SFAS No. 141, which requires, among other matters, that purchase accounting to be applied to business combinations initiated after June 30, 2001 by a for-profit organization. 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. 2. 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. 6 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 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 six months ended June 30, 2001, the Company recognized a loss of $4,016 reported as "loss on derivatives" in the statement of operations, which represented the change in the fair value of the derivatives. 3. Long-term Debt Long-term debt consists of the following:
December 31, June 30, 2000 2001 ------------ ----------- (unaudited) Senior credit facility............ $360,000 $ 300,000 Senior subordinated notes......... -- 450,000 Senior subordinated discount notes 245,300 260,788 U.S. government financing......... 53,171 52,560 -------- ---------- 658,471 1,063,348 Less current portion.............. 62,285 2,355 -------- ---------- $596,186 $1,060,993 ======== ==========
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. 4. Related Parties The Company engages in transactions with its affiliate company TeleCorp Wireless, Inc. (Telecorp Wireless), which is also 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 six months ended June 30, 2001, the Company recognized a net expense related to personnel shared with TeleCorp Wireless of $1,456 and $2,911, respectively. In addition, for the three and six months ended June 30, 2001 the Company recognized rental expense related to telecommunications assets shared with TeleCorp Wireless of $54 and $108, respectively. For the three and six months ended June 30, 2001 the Company recognized roaming revenues of $1,527 and $2,706, respectively, and roaming expenses of $946 and $1,701, respectively. As of June 30, 2001, the Company had a payable to TeleCorp Wireless of $8,944, included in current accrued expenses. 7 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 5. 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 $11,900 in cash. This agreement is subject to FCC approval. 6. Subsidiary Guarantees On May 11, 1999, the Company completed the issuance and sale of 12 3/4% Senior Subordinated Discount Notes (the Notes). The Notes are fully and unconditionally guaranteed on a joint and several basis by Tritel Communications, Inc. and Tritel Finance, Inc., two of Tritel PCS's wholly-owned subsidiaries. On January 24, 2001, the Company completed the issuance and sale of the 10 3/8% Subordinated Notes. The Subordinated Notes are also fully and unconditionally guaranteed on a joint and several basis by Tritel Communications, Inc. and Tritel Finance, Inc. The following condensed consolidating financial statements as of December 31, 2000 and June 30, 2001 and for the three and six months ended June 30, 2000 and 2001, are presented for Tritel, Inc., Tritel PCS, those subsidiaries of Tritel PCS which serve as guarantors and those subsidiaries which do not serve as guarantors of the Notes and the senior subordinated discount notes. 8 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 2000
Tritel Guarantor Non-Guarantor Consolidated Tritel, Inc. 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 ======== ========= ========= ======== ========= ==========
CONDENSED CONSOLIDATING BALANCE SHEET (unaudited) As of June 30, 2001
Non- Tritel Guarantor Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ ---------- ------------ ------------ ------------ ------------ Current assets: Cash and cash equivalents............... $ 9,703 $ 229,435 $ (4,600) $ -- $ -- $ 234,538 Short-term investments.................. -- 7,050 -- -- -- 7,050 Accounts receivable, net................ -- -- 21,034 -- -- 21,034 Inventory, net.......................... -- -- 6,693 -- -- 6,693 Other current assets.................... 2,940 289 8,905 -- -- 12,134 ------- ---------- ---------- -------- -------- ---------- Total current assets................. 12,643 236,774 32,032 -- -- 281,449 Property and equipment, net................ -- -- 597,356 -- -- 597,356 Licenses and other intangibles, net........ 50,924 -- 24,581 261,731 -- 337,236 Investment in subsidiaries................. 33,723 (186,462) -- -- 152,739 -- Other assets............................... -- 143,955 10,299 18,934 (97,886) 75,302 ------- ---------- ---------- -------- -------- ---------- Total assets......................... $97,290 $ 194,267 $ 664,268 $280,665 $ 54,853 $1,291,343 ======= ========== ========== ======== ======== ========== Current liabilities: Accounts payable, accrued expenses and other current liabilities.............. $ -- $ 24,970 $ 90,869 $ 2,975 $ -- $ 118,814 Intercompany payables................... 20,092 (871,859) 835,982 15,785 -- -- ------- ---------- ---------- -------- -------- ---------- Total current liabilities............ 20,092 (846,889) 926,851 18,760 -- 118,814 Non-current liabilities: Long-term debt.......................... -- 1,010,788 97,170 50,205 (97,170) 1,060,993 Deferred income taxes and other......... 31,998 (3,355) 8,162 30,247 (716) 66,336 ------- ---------- ---------- -------- -------- ---------- Total liabilities.................... 52,090 160,544 1,032,183 99,212 (97,886) 1,246,143 Stockholder's equity (deficit)............. 45,200 33,723 (367,915) 181,453 152,739 45,200 ------- ---------- ---------- -------- -------- ---------- Total liabilities and equity......... $97,290 $ 194,267 $ 664,268 $280,665 $ 54,853 $1,291,343 ======= ========== ========== ======== ======== ==========
9 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited) For the Three Months Ended June 30, 2000
Non- Tritel Guarantor Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ -------- ------------ ------------ ------------ ------------ Revenue................................ $ -- $ -- $ 24,425 $ 2,150 $(2,150) $ 24,425 -------- -------- -------- ------- ------- -------- Operating Expenses: Cost of revenue..................... -- -- 8,939 -- -- 8,939 Operations and development.......... -- -- 7,552 -- -- 7,552 Selling and marketing............... -- -- 18,283 -- -- 18,283 General and administrative.......... 2,048 -- (20,093) -- (2,150) (20,195) Depreciation and amortization....... 1,431 -- 11,866 1,027 -- 14,324 -------- -------- -------- ------- ------- -------- Total operating expenses......... 3,479 -- 26,547 1,027 (2,150) 28,903 -------- -------- -------- ------- ------- -------- Operating income (loss).......... (3,479) -- (2,122) 1,123 -- (4,478) Other income (expense): Interest expense.................... -- (14,993) (805) (1,056) 798 (16,056) Interest income..................... 87 7,824 111 -- (798) 7,224 -------- -------- -------- ------- ------- -------- Loss before income taxes......... (3,392) (7,169) (2,816) 67 -- (13,310) Income tax benefit.................. (29) 72 529 (2) -- 570 Equity in net loss of subsidiaries.. (9,319) (2,222) -- -- 11,541 -- -------- -------- -------- ------- ------- -------- Net loss......................... $(12,740) $ (9,319) $ (2,287) $ 65 $11,541 $(12,740) ======== ======== ======== ======= ======= ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited) For the Three Months Ended June 30, 2001
Non- Tritel Guarantor Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ -------- ------------ ------------ ------------ ------------ Revenue................................ $ -- $ -- $ 62,338 $ 2,562 $ (2,562) $ 62,338 -------- -------- -------- ------- -------- -------- Operating Expenses: Cost of revenue..................... -- -- 19,189 -- -- 19,189 Operations and development.......... -- -- 20,247 -- -- 20,247 Selling and marketing............... -- -- 29,458 -- -- 29,458 General and administrative.......... -- 20 27,598 -- (2,562) 25,056 Depreciation and amortization....... 1,430 -- 26,335 1,688 -- 29,453 -------- -------- -------- ------- -------- -------- Total operating expenses......... 1,430 20 122,827 1,688 (2,562) 123,403 -------- -------- -------- ------- -------- -------- Operating income (loss).......... (1,430) (20) (60,489) 874 -- (61,065) Other income (expense): Interest expense.................... -- (28,818) (2,149) (1,210) 2,141 (30,036) Interest income..................... 97 5,286 45 -- (2,141) 3,287 Other............................... -- 321 -- -- -- 321 Equity in net loss of subsidiaries.. (86,160) (62,929) -- -- 149,089 -- -------- -------- -------- ------- -------- -------- Net loss......................... $(87,493) $(86,160) $(62,593) $ (336) $149,089 $(87,493) ======== ======== ======== ======= ======== ========
10 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited) For the Six Months Ended June 30, 2000
Non- Tritel Guarantor Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ --------- ------------ ------------ ------------ ------------ Revenue................................ $ -- $ -- $ 39,309 $ 3,459 $ (3,459) $ 39,309 --------- --------- --------- ------- -------- --------- Operating expenses: Cost of revenue..................... -- -- 16,151 -- -- 16,151 Operations and development.......... -- -- 27,761 -- -- 27,761 Selling and marketing............... -- -- 46,184 -- -- 46,184 General and administrative.......... 3,050 -- 78,550 -- (3,459) 78,141 Depreciation and amortization....... 2,861 -- 20,171 1,843 -- 24,875 --------- --------- --------- ------- -------- --------- Total operating expenses......... 5,911 -- 188,817 1,843 (3,459) 193,112 --------- --------- --------- ------- -------- --------- Operating income (loss).......... (5,911) -- (149,508) 1,616 -- (153,803) Other income (expense): Interest expense.................... -- (28,199) (1,447) (2,203) 1,433 (30,416) Interest income..................... 152 16,831 342 -- (1,433) 15,892 --------- --------- --------- ------- -------- --------- Loss before income taxes......... (5,759) (11,368) (150,613) (587) -- (168,327) Income tax benefit.................. (4) 112 962 6 -- 1,076 Equity in net loss of subsidiaries.. (161,488) (150,232) -- -- 311,720 -- --------- --------- --------- ------- -------- --------- Net loss......................... $(167,251) $(161,488) $(149,651) $ (581) $311,720 $(167,251) ========= ========= ========= ======= ======== =========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (unaudited) For the Six Months Ended June 30, 2001
Non- Tritel Guarantor Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Eliminations Tritel, Inc. ------------ --------- ------------ ------------ ------------ ------------ Revenue................................ $ -- $ -- $ 116,737 $ 5,116 $ (5,116) $ 116,737 --------- --------- --------- ------- -------- --------- Operating Expenses: Cost of revenue..................... -- -- 35,109 -- -- 35,109 Operations and development.......... -- -- 39,818 -- -- 39,818 Selling and marketing............... -- -- 52,713 -- -- 52,713 General and administrative.......... 1 25 44,133 2 (5,116) 39,045 Depreciation and amortization....... 2,861 -- 50,476 3,342 -- 56,679 --------- --------- --------- ------- -------- --------- Total operating expenses......... 2,862 25 222,249 3,344 (5,116) 223,364 --------- --------- --------- ------- -------- --------- Operating income (loss).......... (2,862) (25) (105,512) 1,772 -- (106,627) Other income (expense): Interest expense.................... -- (55,016) (3,966) (2,431) 3,951 (57,462) Interest income..................... 97 10,830 85 -- (3,951) 7,061 Other............................... -- (3,209) -- -- -- (3,209) Equity in net loss of subsidiaries.. (157,472) (110,052) -- -- 267,524 -- --------- --------- --------- ------- -------- --------- Net loss......................... $(160,237) $(157,472) $(109,393) $ (659) $267,524 $(160,237) ========= ========= ========= ======= ======== =========
11 TRITEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (unaudited) For the Six Months Ended June 30, 2000
Non- Tritel Guarantor Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Tritel, Inc. ------------ --------- ------------ ------------ ------------ Cash flows from operating activities: Net cash provided by (used in) operating activities...... $(2,209) $ 1,379 $ (84,188) $ -- $ (85,018) ------- --------- --------- ------- --------- Cash flows from investing activities: Expenditures for property and equipment..................... -- -- (171,798) -- (171,798) Other....................................................... -- 1,107 (129) -- 978 Capitalized interest........................................ -- -- (1,533) (1,272) (2,805) ------- --------- --------- ------- --------- Net cash provided by (used in) investing activities:..... -- 1,107 (173,460) (1,272) (173,625) ------- --------- --------- ------- --------- Cash flows from financing activities: Payment of long term debt................................... -- -- -- (449) (449) Payment of FCC debt......................................... -- (198) -- -- (198) Intercompany receivable/payable............................. 1,615 (258,202) 254,866 1,721 -- Proceeds from exercise of stock options..................... 789 -- -- -- 789 Payment of debt issuance costs.............................. (195) -- -- -- (195) ------- --------- --------- ------- --------- Net cash provided by (used in) financing activities:..... 2,209 (258,400) 254,866 1,272 (53) ------- --------- --------- ------- --------- Net decrease in cash and cash equivalents...................... -- (255,914) (2,782) -- (258,696) Cash and cash equivalents at beginning of period............... -- 613,999 (4,730) -- 609,269 ------- --------- --------- ------- --------- Cash and cash equivalents at end of period..................... $ -- $ 358,085 $ (7,512) $ -- $ 350,573 ======= ========= ========= ======= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (unaudited) For the Six Months Ended June 30, 2001
Non- Tritel Guarantor Guarantor Consolidated Tritel, Inc. PCS Subsidiaries Subsidiaries Tritel, Inc. ------------ --------- ------------ ------------ ------------ Cash flows from operating activities: Net cash used in operating activities.......... $ (298) $ (558) $ (46,702) $ -- $ (47,558) ------- --------- --------- ------- --------- Cash flows from investing activities: Expenditures for property and equipment........... -- -- (108,935) -- (108,935) Purchase of short-term investments, net........... -- (7,029) -- -- (7,029) Other............................................. -- 1,132 115 -- 1,247 ------- --------- --------- ------- --------- Net cash used in investing activities:......... -- (5,897) (108,820) -- (114,717) ------- --------- --------- ------- --------- 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........................ -- -- -- (1,124) (1,124) Payment of debt issuance cost..................... -- (14,022) -- -- (14,022) Intercompany receivable/payable................... -- (161,310) 160,186 1,124 -- ------- --------- --------- ------- --------- Net cash provided by financing activities:..... 10,000 214,668 160,186 -- 384,854 ------- --------- --------- ------- --------- Net increase in cash and cash equivalents......... 9,702 208,213 4,664 -- 222,579 Cash and cash equivalents at beginning of period.. -- 21,222 (9,263) -- 11,959 ------- --------- --------- ------- --------- Cash and cash equivalents at end of period........ $ 9,702 $ 229,435 $ (4,599) $ -- $ 234,538 ======= ========= ========= ======= =========
12 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 14.7 million people. As of June 30, 2001, the Company had launched service in 38 markets having approximately 13.7 million people and representing approximately 98% of the population where the Company holds licenses in the United States. As of June 30, 2001, the Company served more than 264,000 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. Results of Operations Three months ended June 30, 2001 compared to three months ended June 30, 2000 Subscribers Net additions were 28,810 and 40,555 for the three months ended June 30, 2001 and 2000, respectively. Total PCS subscribers were 264,965 and 104,355 as of June 30, 2001 and 2000, respectively. Revenue Revenue for the three months ended June 30, 2001 and 2000 was $62.3 million and $24.4 million, respectively. Service revenue for the three months ended June 30, 2001 and 2000 was $43.4 million and $14.6 million, respectively. The increase in service revenue of $28.8 million was due to the addition of subscribers and the launch of additional markets. Roaming revenue for the three months ended June 30, 2001 and 2000 was $15.9 million and $8.0 million, respectively. The increase in roaming revenue of $7.9 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 June 30, 2001 and 2000 was $3.0 million and $1.8 million, respectively. Cost of revenue Cost of revenue for the three months ended June 30, 2001 and 2000 was $19.2 million and $8.9 million, respectively. The increase in cost of revenue of $10.3 million was due primarily to additional roaming, interconnection and long distance expenses in connection with the Company's increased subscriber base and increases in equipment costs since June 30, 2000 due to increased gross additions during 2000 and 2001. 13 Operations and development Operations and development expense was $20.2 million and $7.6 million (including non-cash stock compensation of $0.5 million and negative $4.3 million, respectively) for the three months ended June 30, 2001 and 2000, respectively. Excluding non-cash stock compensation the increase of $7.8 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 $29.5 million and $18.3 million (including non-cash stock compensation of $0.0 million and negative $4.2 million, respectively) for the three months ended June 30, 2001 and 2000, respectively. Excluding non-cash stock compensation the increase of $7.0 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 $25.1 million and negative $20.2 million (including non-cash stock compensation of $1.3 million and negative $37.8 million, respectively) for the three months ended June 30, 2001 and 2000, respectively. Excluding non-cash stock compensation the increase of $6.2 million was 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. Depreciation and amortization Depreciation and amortization expense was $29.5 million and $14.3 million for the three months ended June 30, 2001 and 2000, respectively. The increase of $15.2 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 July 1, 2000 and June 30, 2001. Interest income Interest income was $3.3 million and $7.2 million for the three months ended June 30, 2001 and 2000, respectively. The decrease of $3.9 million was due primarily to lower cash balances available for investment during the 2001 period. Interest expense Interest expense was $30.0 million and $16.1 million for the three months ended June 30, 2001 and 2000, respectively. The increase of $13.9 million relates primarily to interest incurred on the Company's $450 million Senior Subordinated Notes issued in January 2001. Results of Operations Six months ended June 30, 2001 compared to six months ended June 30, 2000 Subscribers Net additions were 59,290 and 79,755 for the six months ended June 30, 2001 and 2000, respectively. Total PCS subscribers were 264,965 and 104,355 as of June 30, 2001 and 2000, respectively. Revenue Revenue for the six months ended June 30, 2001 and 2000 was $116.7 million and $39.3 million, respectively. Service revenue for the six months ended June 30, 2001 and 2000 was $80.7 million and $21.4 million, respectively. The increase in service revenue of $59.3 million was due to the addition of subscribers and 14 the launch of additional markets. Roaming revenue for the six months ended June 30, 2001 and 2000 was $30.2 million and $13.2 million, respectively. The increase in roaming revenue of $17.0 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 six months ended June 30, 2001 and 2000 was $5.8 million and $4.6 million, respectively. Cost of revenue Cost of revenue for the six months ended June 30, 2001 and 2000 was $35.1 million and $16.2 million, respectively. The increase in cost of revenue of $18.9 million was due primarily to additional roaming, interconnection and long distance expenses in connection with the Company's increased subscriber base and increases in equipment costs due to increased gross additions during 2000 and 2001. Operations and development Operations and development expense was $39.8 million and $27.8 million (including non-cash stock compensation of $0.7 million and $5.7 million, respectively) for the six months ended June 30, 2001 and 2000, respectively. Excluding non-cash stock compensation the increase of $17.0 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 $52.7 million and $46.2 million (including non-cash stock compensation of $0.0 million and $5.6 million, respectively) for the six months ended June 30, 2001 and 2000, respectively. Excluding non-cash stock compensation the increase of $12.1 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 $39.0 million and $78.1 million (including non-cash stock compensation of $1.7 million and $50.8 million, respectively) for the six months ended June 30, 2001 and 2000, respectively. Excluding non-cash stock compensation the increase of $10.0 million was 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. Depreciation and amortization Depreciation and amortization expense was $56.7 million and $24.9 million for the six months ended June 30, 2001 and 2000, respectively. The increase of $31.8 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 July 1, 2000 and June 30, 2001. Interest income Interest income was $7.1 million and $15.9 million for the six months ended June 30, 2001 and 2000, respectively. The decrease of $8.8 million was due primarily to lower cash balances available for investment during the period. Interest expense Interest expense was $57.5 million and $30.4 million for the six months ended June 30, 2001 and 2000, respectively. The increase of $27.1 million relates primarily to interest incurred on the Company's $450 million Senior Subordinated Notes issued in January 2001. 15 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 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. Reports on Form 8-K. (b) Reports on Form 8-K: Tritel, Inc., Tritel PCS, Inc., Tritel Communications, Inc., and Tritel Finance, Inc., all filed a Current Report on Form 8-K dated April 30, 2001, reporting events under Item 4. 16 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. TRITEL, INC. Date: August 14, 2001
/S/ THOMAS H. SULLIVAN By: ---------------------------------- Thomas H. Sullivan President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
SUBSIDIARY OF TRITEL, INC. Date: August 14, 2001 TRITEL PCS, INC.
/S/ THOMAS H. SULLIVAN By: ---------------------------------- Thomas H. Sullivan President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
SUBSIDIARY OF TRITEL PCS, INC. Date: August 14, 2001 TRITEL COMMUNICATIONS, INC.
/S/ THOMAS H. SULLIVAN By: ---------------------------------- Thomas H. Sullivan President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
SUBSIDIARY OF TRITEL PCS, INC. Date: August 14, 2001 TRITEL FINANCE, INC.
/S/ THOMAS H. SULLIVAN By: ---------------------------------- Thomas H. Sullivan President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
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