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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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: 1-15325
TRITON PCS HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 23-2974475
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1100 CASSATT ROAD
BERWYN, PENNSYLVANIA 19312
(Address and zip code of principal executive offices)
(610) 651-5900
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class
--------------
Class A common stock, $.01 par value per share
Name of Exchange on Which Registered
------------------------------------
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
As of February 28, 2002, 59,326,377 shares of registrant's Class A common stock
and 7,926,099 shares of the registrant's Class B non-voting common stock were
outstanding, and the aggregate market value of shares of Class A common stock
and Class B non-voting common stock held by non-affiliates was approximately
$549.1 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 2002 annual meeting of
stockholders are incorporated by reference into Part III.
TRITON PCS HOLDINGS, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
----
Item 1 Business............................................................................ 4
Item 2 Properties.......................................................................... 17
Item 3 Legal Proceedings................................................................... 17
Item 4 Submission of Matters to a Vote of Security Holders................................. 17
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters............... 18
Item 6 Selected Financial Data............................................................. 19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 20
Item 7A Quantitative and Qualitative Disclosures about Market Risk.......................... 28
Item 8 Financial Statements & Supplementary Data........................................... F-1
Report of PricewaterhouseCoopers LLP................................................ F-2
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Operations and Comprehensive Loss........................ F-4
Consolidated Statements of Redeemable Preferred Equity and Stockholders' Equity
(Deficit)......................................................................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................................. 30
PART III
Item 10 Directors and Executive Officers of the Registrant.................................. 30
Item 11 Executive Compensation.............................................................. 30
Item 12 Security Ownership of Certain Beneficial Owners and Management...................... 30
Item 13 Certain Relationships and Related Transactions...................................... 30
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K..................... 31
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks
and uncertainties. You can identify these statements by forward-looking words
such as anticipate, believe, could, estimate, expect, intend, may, should, will
and would or similar words. You should read statements that contain these words
carefully because they discuss our future expectations, contain projections of
our future results of operations or of our financial position or state other
forward-looking information. We believe that it is important to communicate our
future expectations to our investors. However, there may be events in the future
that we are not able to accurately predict or control. The factors listed in the
"Risk Factors" section of our prospectus supplement dated December 6, 2001, as
well as any cautionary language in this report, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. You should
be aware that the occurrence of the events described in the "Risk Factors"
section of our prospectus supplement dated December 6, 2001 and in this report
could have a material adverse effect on our business, results of operations and
financial position.
3
PART I
ITEM 1. BUSINESS
INTRODUCTION
Our principal offices are located at 1100 Cassatt Road, Berwyn,
Pennsylvania 19312, and our telephone number at that address is (610) 651-5900.
Our World Wide Web site address is http://www.tritonpcs.com. The information in
our website is not part of this report.
In this report, Triton, we, us and our refer to Triton PCS Holdings, Inc.
and its wholly-owned subsidiaries, unless the context requires otherwise.
Holdings refers to Triton PCS Holdings, Inc., AT&T Wireless PCS refers to AT&T
Wireless PCS, LLC, AT&T Wireless refers to AT&T Wireless Services, Inc. and AT&T
refers to AT&T Corp.
OVERVIEW
We are a leading provider of wireless communications services in the
southeastern United States. Our wireless communications licenses cover
approximately 13.5 million potential customers in a contiguous geographic area
encompassing portions of Virginia, North Carolina, South Carolina, Tennessee,
Georgia and Kentucky. In February 1998, we entered into a joint venture with
AT&T Wireless. As part of the agreement, AT&T Wireless contributed personal
communications services licenses for 20 MHz of authorized frequencies covering
11.2 million potential customers within defined areas of our region in exchange
for an equity position in Holdings. Since that time, we have expanded our
coverage area to include an additional 2.3 million potential customers through
acquisitions and license exchanges with AT&T Wireless. As part of the
transactions with AT&T Wireless, we were granted the right to be the exclusive
provider of wireless mobility services using equal emphasis co-branding with
AT&T within our region. We believe our markets are strategically attractive
because of their proximity to AT&T Wireless' systems in the Washington, D.C.,
Charlotte, North Carolina and Atlanta, Georgia markets, which collectively cover
a population of more than 28.5 million individuals. In addition, we are the
preferred provider of wireless mobility services to AT&T Wireless' digital
wireless customers who roam into our markets. Our strategy is to provide
extensive coverage to customers within our region, to offer our customers
coast-to-coast coverage and to benefit from roaming revenues generated by AT&T
Wireless' and other carriers' wireless customers who roam into our covered area.
Our management team is led by Michael Kalogris and Steven Skinner, the former
Chief Executive Officer and Chief Operating Officer, respectively, of Horizon
Cellular Group.
As of December 31, 2001, we had successfully launched personal communications
services in all of our 37 markets. Our network in these markets included 2,039
cell sites and seven switches. Our markets have attractive demographic
characteristics for wireless communications services and include 10 of the top
100 markets in the country with population densities that are 80% greater than
the national average. Since we began offering services in these 37 markets, our
subscriber base and the number of minutes generated by non-Triton subscribers
roaming onto our network have grown dramatically.
From our initial launch of personal communications services in January 1999 to
December 31, 2001, our subscriber base has grown from 33,844 subscribers to
685,653 subscribers, with 67,849 additional subscribers coming in the fourth
quarter of 2001. Roaming minutes generated by non-Triton subscribers since
January 1999 have increased from approximately 0.7 million minutes per month to
a high of 61.7 million minutes per month, with roaming minutes rising to 160.0
million minutes in the fourth quarter of 2001, which represents a 45% increase
over the fourth quarter of 2000.
Our goal is to provide our customers with simple, easy-to-use wireless services
with coast-to-coast service, superior call quality, personalized customer care
and competitive pricing. We utilize a mix of sales and distribution channels,
including, as of December 31, 2001, a network of 119 company-owned SunCom retail
stores, local and nationally recognized retailers such as Circuit City, Staples,
Best Buy, Metro Call and Zap, and 72 direct sales representatives covering
corporate accounts.
STRATEGIC ALLIANCE WITH AT&T WIRELESS
One of our most important competitive advantages is our strategic alliance with
AT&T Wireless, one of the largest providers of wireless communications services
in the United States. As part of its strategy to rapidly expand its digital
wireless coverage in the United States, AT&T Wireless has focused on
constructing its own network, making strategic acquisitions and entering into
agreements with other independent wireless operators, including Triton, to
construct and operate compatible wireless networks to extend AT&T Wireless'
national network.
Our strategic alliance with AT&T Wireless provides us with many business,
operational and marketing advantages, including the following:
- Recognized Brand Name. We market our wireless services to our
potential customers giving equal emphasis to our regional SunCom
brand name and logo and AT&T's brand name and logo. We believe that
association with the AT&T brand name significantly increases the
likelihood that potential customers will purchase our wireless
communications services.
- Exclusivity. We are AT&T Wireless' exclusive provider of
facilities-based wireless mobility communications services using
equal emphasis co-branding with AT&T in our covered markets.
4
- Preferred Roaming Partner. We are the preferred roaming partner for
AT&T Wireless' digital wireless customers who roam into our coverage
area. We expect to benefit from growth in roaming traffic as AT&T
Wireless' digital wireless customers, particularly those in
Washington, D.C., Charlotte, North Carolina and Atlanta, Georgia,
travel into our markets.
- Coverage Across the Nation. Our customers have access to
coast-to-coast coverage through our agreements with AT&T Wireless,
other members of the AT&T Wireless Network and other third-party
roaming partners. We believe this coast-to-coast coverage provides a
significant advantage over the personal communications services
competitors in our markets and allows us to offer competitive
pricing plans, including national rate plans.
- Volume Discounts. We receive preferred terms on certain products and
services, including handsets, infrastructure equipment and
administrative support from companies who provide these products and
services to AT&T.
- Marketing. We benefit from AT&T's nationwide marketing and
advertising campaigns, including the success of AT&T's national rate
plans, in the marketing of our own plans.
COMPETITIVE STRENGTHS
In addition to the advantages provided by our strategic alliance with AT&T
Wireless, we have a number of competitive strengths, including the following:
- Attractive Licensed Area. Our markets have favorable demographic
characteristics for wireless communications services, such as
population densities that are 80% greater than the national average.
- Network Quality. We have successfully launched and offer personal
communications service to approximately 13.5 million people in all
of our 37 markets. We have constructed a comprehensive network,
which includes over 2,000 cell sites and seven switches, using time
division multiple access digital technology. Our network is
compatible with AT&T Wireless' network and with the networks of
other wireless communications service providers that use time
division multiple access digital technology. We believe that the
quality and extensive coverage of our network provide a strategic
advantage over wireless communications providers that we compete
against.
- Experienced Management. We have a management team with a high level
of experience in the wireless communications industry. Our senior
management team has an average of 14 years of experience with
wireless leaders such as AT&T, Verizon Communications, Horizon
Cellular and ALLTEL Communications Inc. Our senior management team
also owns in excess of 10% of Holdings' outstanding Class A common
stock.
- Contiguous Service Area. We believe our contiguous service area
allows us to cost effectively offer large regional calling areas to
our customers and route a large number of minutes through our
network, thereby reducing interconnect costs for other networks.
Further, we believe that we generate operational cost savings,
including sales and marketing efficiencies, by operating in a
contiguous service area.
- Strong Capital Base. We believe that we have sufficient capital and
availability under our credit facility to fund the build-out of our
current network plan. On January 19, 2001, we completed the private
sale of $350.0 million aggregate principal amount of our 9 3/8%
senior subordinated notes due 2011 for net proceeds of approximately
$337.5 million. On November 14, 2001 we completed the private sale
of $400.0 million principal amount of our 8 3/4% senior subordinated
notes due 2011 for net proceeds of approximately $390.0 million,
which were used to extinguish a portion of our outstanding credit
facility. On February 28, 2001, Holdings issued and sold 3,500,000
shares of its Class A common stock in a public offering at $32.00
per share and raised approximately $106.1 million, net of $5.9
million of costs. As of December 31, 2001, we had approximately $2.1
billion of total capital, $371.1 million of available cash and
$175.0 million of available borrowings under our credit facility.
BUSINESS STRATEGY
Our objective is to become the leading provider of wireless communications
services in the markets we serve. We intend to achieve this objective by
pursuing the following business strategies:
- Operate a Superior, High Quality Network. We are committed to making
the capital investment required to develop and operate a superior,
high quality network. We provide extensive coverage within our
region and consistent quality performance, resulting in a high level
of customer satisfaction.
- Provide Superior Coast-to-Coast and In-Market Coverage. Our market
research indicates that scope and quality of coverage are extremely
important to customers in their choice of a wireless service
provider. We have designed extensive local calling areas, and we
offer coast-to-coast coverage through our arrangements with AT&T
Wireless, its affiliates and other third-party roaming partners. Our
network covers those areas where people are most likely to take
advantage of wireless coverage, such as suburbs, metropolitan areas
and vacation locations.
- Provide Enhanced Value at Low Cost. We offer our customers advanced
services and features at competitive prices. Our affordable, simple
pricing plans are designed to promote the use of wireless services
by enhancing the value of our services to our customers. We include
usage-enhancing features such as call waiting, voice mail, three-way
conference calling and short message service in our
5
basic packages. We also allow customers to purchase large packages
of minutes per month for a low fixed price.
- Deliver Quality Customer Service. We believe that superior customer
service is a critical element in attracting and retaining customers.
Our administrative systems have been designed with open interfaces
to other systems. This design allows us to select and deploy the
best software package for each application in our administrative
systems. Our point-of-sale activation process is designed to ensure
quick and easy service initiation, including customer qualification.
We also emphasize proactive and responsive customer care, including
rapid call-answer times, welcome packages and anniversary calls. We
currently operate state-of-the-art customer care facilities in
Richmond, Virginia and Charleston, South Carolina, which house our
customer service and collections personnel.
LICENSE ACQUISITION TRANSACTIONS
Our original personal communications services licenses were acquired as part of
our joint venture agreement with AT&T Wireless. Since our original acquisition
of spectrum, we have obtained additional licenses in our coverage area from AT&T
Wireless and other parties. In 2001, we entered into one such agreement.
Virginia PCS Alliance, L.C. agreed to partition its PCS C Block licenses for the
Charlottesville, Virginia and Winchester, Virginia basic trading areas by
assigning to us 10 MHz of spectrum in each market. FCC approval for this
transaction was received March 6, 2002, and is expected to close during the
second quarter of 2002.
SUMMARY MARKET DATA
The following table presents statistical information concerning the markets
covered by our licenses.
LICENSED AREAS(1) ESTIMATED %
2000 POTENTIAL GROWTH POPULATION LOCAL INTERSTATE
CUSTOMERS(2) 1998-2003 DENSITY(3) TRAFFIC DENSITY(4)
------------ --------- ---------- ------------------
CHARLOTTE MAJOR TRADING AREA
Anderson, SC................................................... 346.6 1.28% 117 29,540
Asheville, NC.................................................. 588.7 1.18% 94 28,774
Charleston, SC................................................. 686.8 0.59% 125 37,054
Columbia, SC................................................... 657.0 1.36% 161 31,789
Fayetteville/Lumberton, NC..................................... 636.8 0.76% 130 27,834
Florence, SC................................................... 260.2 0.71% 113 24,689
Goldsboro/Kinston, NC.......................................... 232.0 0.72% 112 9,065
Greenville/Washington, NC...................................... 245.1 0.60% 60 N/A
Greenville/Spartanburg, SC..................................... 897.7 1.33% 220 28,535
Greenwood, SC.................................................. 74.4 0.81% 91 N/A
Hickory/Lenoir, NC............................................. 331.1 1.09% 199 31,385
Jacksonville, NC............................................... 148.4 0.49% 193 N/A
Myrtle Beach, SC............................................... 186.4 3.00% 154 N/A
New Bern, NC................................................... 174.7 1.14% 84 N/A
Orangeburg, SC................................................. 119.6 0.35% 63 27,787
Roanoke Rapids, NC............................................. 76.8 -0.34% 61 28,372
Rocky Mount/Wilson, NC......................................... 217.2 0.82% 150 26,511
Sumter, SC..................................................... 156.7 0.57% 92 19,421
Wilmington, NC................................................. 327.6 2.32% 109 14,161
KNOXVILLE MAJOR TRADING AREA
Kingsport, TN.................................................. 693.4 0.31% 117 23,617
Middlesboro/Harlan, KY......................................... 118.4 -0.41% 75 N/A
ATLANTA MAJOR TRADING AREA
Athens, GA..................................................... 194.6 1.65% 137 36,559
Augusta, GA.................................................... 579.4 0.68% 89 24,497
Savannah, GA................................................... 737.1 1.18% 79 24,400
WASHINGTON MAJOR TRADING AREA
Charlottesville, VA............................................ 223.8 1.19% 75 15,925
Fredericksburg, VA............................................. 144.0 2.25% 102 67,606
Harrisonburg, VA............................................... 145.0 0.61% 58 29,728
6
LICENSED AREAS(1) ESTIMATED %
2000 POTENTIAL GROWTH POPULATION LOCAL INTERSTATE
CUSTOMERS(2) 1998-2003 DENSITY(3) TRAFFIC DENSITY(4)
------------ --------- ---------- ------------------
WASHINGTON MAJOR TRADING AREA (CONTINUED)
Winchester, VA................................................. 162.4 1.17% 119 25,156
RICHMOND MAJOR TRADING AREA
Danville, VA................................................... 167.2 -0.42% 75 N/A
Lynchburg, VA.................................................. 161.5 0.43% 117 31,863
Martinsville, VA............................................... 89.6 -0.42% 103 N/A
Norfolk-Virginia Beach, VA..................................... 1,751.0 0.44% 293 61,023
Richmond/Petersburg, VA........................................ 1,232.5 0.66% 133 35,969
Roanoke, VA.................................................... 647.6 0.19% 91 27,541
Staunton/Waynesboro, VA........................................ 108.9 0.62% 76 26,974
TRITON TOTAL/AVERAGE........................................... 13,520.2(5) 0.83%(6) 144.1(7) 30,183(8)
U.S. AVERAGE................................................... N/A 0.89% 80(9) 31,521
- ----------
All figures are based on 2000 estimates published by Paul Kagan Associates, Inc.
in 2000.
(1) Licensed major trading areas are segmented into basic trading areas.
(2) In thousands.
(3) Number of potential customers per square mile.
(4) Daily vehicle miles traveled (interstate only) divided by interstate
highway miles in the relevant area.
(5) Total potential customers in the licensed area.
(6) Weighted by potential customers. Projected average annual population
growth in our licensed area.
(7) Weighted by potential customers. Average number of potential customers per
square mile in our licensed area.
(8) Weighted by interstate miles. Average daily vehicle miles traveled
(interstate only) divided by interstate highway miles in our licensed
area.
(9) Average number of potential customers per square mile for the U.S.
SALES AND DISTRIBUTION
Our sales strategy is to utilize multiple distribution channels to minimize
customer acquisition costs and maximize penetration within our licensed service
area. Our distribution channels include a network of company-owned retail
stores, independent agent retailers, a direct sales force for corporate accounts
and online sales. We also work with AT&T Wireless' national corporate account
sales force to cooperatively exchange leads and develop new business.
- Company-Owned Retail Stores. We make extensive use of company-owned
retail stores for the distribution and sale of our handsets and
services. We believe that company-owned retail stores offer a
considerable competitive advantage by providing a strong local
presence, which is required to achieve high retail penetration in
suburban and rural areas and the lowest customer acquisition cost.
We have opened 119 company-owned SunCom retail stores as of December
31, 2001.
- Agent Distribution. We have negotiated distribution agreements with
national and regional mass merchandisers and consumer electronics
retailers, including Circuit City, Staples, Best Buy, Metro Call and
Zap.
- Direct Sales. We focus our direct sales force on high-revenue,
high-profit corporate users. As of December 31, 2001, our direct
corporate sales force consisted of 72 dedicated professionals
targeting wireless decision-makers within large corporations. We
also benefit from AT&T Wireless' national corporate accounts sales
force, which supports the marketing of our services to AT&T
Wireless' large national accounts located in certain of our service
areas.
- Direct Marketing. We use direct marketing efforts such as direct
mail and telemarketing to generate customer leads. Telesales allow
us to maintain low selling costs and to sell additional features or
customized services.
- Website. Our web page provides current information about our
markets, our product offerings and us. We have established an online
store on our website, http://www.suncom.com. The web page conveys
our marketing message and generates customers through online
purchasing. We deliver all information that a customer requires to
make a purchasing decision at our website. Customers are able to
choose rate plans, features, handsets and accessories. The online
store provides a secure environment for transactions, and customers
purchasing through the online store encounter a transaction
experience similar to that of customers purchasing service through
other channels.
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MARKETING STRATEGY
Our marketing strategy has been developed based on market research in our
markets. This research indicates that the limited coverage of existing wireless
systems, relatively high cost and inconsistent performance reduce the
attractiveness of wireless service to existing users and potential new users. We
believe that our affiliation with the AT&T brand name, combined with simplified,
attractive pricing plans, will allow us to capture significant market share from
existing analog cellular providers in our markets and to attract new wireless
users. We are focusing our marketing efforts on three primary market segments:
- current wireless users;
- individuals with the intent to purchase a wireless product within
six months; and
- corporate accounts.
For each segment, we are creating a specific marketing program including a
service package, pricing plan and promotional strategy. We believe that targeted
service offerings will increase customer loyalty and satisfaction, thereby
reducing customer turnover.
The following are key components of our marketing strategy:
- Regional Co-Branding. We market our wireless services as SunCom,
Member of the AT&T Wireless Network and use the globally recognized
AT&T brand name and logo in equal emphasis with the SunCom brand
name and logo. We believe that use of the AT&T brand reinforces an
association with reliability and quality. We are establishing the
SunCom brand as a strong local presence with an emphasis on customer
care and quality. We enjoy preferred pricing on equipment, handset
packaging and distribution by virtue of our affiliation with AT&T
Wireless.
- Pricing. Our pricing plans are competitive and straightforward,
offering large packages of minutes, large regional calling areas and
usage enhancing features. One way we differentiate ourselves from
existing wireless competitors is through our pricing policies. We
offer pricing plans designed to encourage customers to enter into
long-term service contract plans.
We offer our customers regional and national rate plans. Most of our
rate plans allow customers to make and receive calls without paying
additional roaming or long distance charges. By virtue of our
roaming arrangements with AT&T Wireless, its affiliates and other
third-party roaming partners, we offer competitive regional and
national rate plans.
- Customer Care. We are committed to building strong customer
relationships by providing our customers with service that exceeds
expectations. We currently operate state-of-the-art customer care
facilities in Richmond, Virginia and Charleston, South Carolina,
which house our customer service and collections personnel. We
supplement these facilities with customer care services provided by
Convergys Corporation in Clarksville, Tennessee. Through the support
of approximately 435 customer care representatives and a
sophisticated customer care information system, we have been able to
implement one ring customer care service using live operators and
state-of-the-art call routing. Historically, approximately 90% of
incoming calls to our customer care centers are answered on the
first ring by one of our professional care representatives.
- Advertising. We believe our most successful marketing strategy is to
establish a strong local presence in each of our markets. We are
directing our media and promotional efforts at the community level
with advertisements in local publications and sponsorship of local
and regional events. We combine our local efforts with mass
marketing strategies and tactics to build the SunCom and AT&T brands
locally. Our media effort includes television, radio, newspaper,
magazine, outdoor and Internet advertisements to promote our brand
name. In addition, we use newspaper and radio advertising and our
web page to promote specific product offerings and direct marketing
programs for targeted audiences.
SERVICES AND FEATURES
We provide affordable, reliable, high-quality mobile telecommunications service.
Our advanced digital personal communications services network allows us to offer
customers the most advanced wireless features that are designed to provide
greater call management and increase usage for both incoming and outgoing calls.
- Feature-Rich Handsets. As part of our service offering, we sell our
customers the most advanced, easy-to-use, interactive, menu-driven
handsets that can be activated over the air. These handsets have
many advanced features, including word prompts and easy-to-use
menus, one-touch dialing, multiple ring settings, call logs and
hands-free adaptability. These handsets also allow us to offer the
most advanced digital services, such as voice mail, call waiting,
call forwarding, three-way conference calling, two-way messaging and
paging.
- Multi-Mode Handsets. We exclusively offer multi-mode handsets, which
are compatible with personal communication services, digital
cellular and analog cellular frequencies and service modes. These
multi-mode handsets allow us to offer customers coast-to-coast
nationwide roaming across a variety of wireless networks. These
handsets incorporate a roaming database, which can be updated over
the air that controls roaming preferences from both a quality and
cost perspective.
8
NETWORK BUILD-OUT
The principal objective for the build-out of our network is to maximize service
levels within targeted demographic segments and geographic areas. As of December
31, 2001, we have successfully launched service in 37 markets, including 2,039
cell sites and seven switches.
The build-out of our network involves the following:
- Property Acquisition, Construction and Installation. Two experienced
vendors, Crown Castle International Corp. and American Tower,
identify and obtain the property rights we require to build out our
network, which includes securing all zoning, permitting and
government approvals and licenses. As of December 31, 2001, we had
signed leases or options for 2,094 sites, 14 of which were awaiting
required zoning approvals. Crown Castle and American Tower also act
as our construction management contractors and employ local
construction firms to build the cell sites.
- Interconnection. Our digital wireless network connects to local
exchange carriers. We have negotiated and received state approval of
interconnection agreements with telephone companies operating or
providing service in the areas where we are currently operating our
digital personal communications services network. We use AT&T as our
interexchange or long-distance carrier.
NETWORK OPERATIONS
We enter into agreements for switched interconnection/backhaul, long distance,
roaming, network monitoring and information technology services in order to
effectively maintain, operate and expand our network.
Switched Interconnection/Backhaul. Our network is connected to the public
switched telephone network to facilitate the origination and termination of
traffic on our network.
Long Distance. We have executed a wholesale long distance agreement with AT&T
that provides preferred rates for long distance services.
Roaming. Through our arrangements with AT&T Wireless and via the use of
multi-mode handsets, our customers have roaming capabilities on AT&T Wireless'
network. Further, we have established roaming agreements with third-party
carriers at preferred pricing, including in-region roaming agreements covering
all of our launched service areas.
Network Monitoring Systems. Our network monitoring service provides
around-the-clock surveillance of our entire network. The network operations
center is equipped with sophisticated systems that constantly monitor the status
of all switches and cell sites, identify failures and dispatch technicians to
resolve issues. Operations support systems are utilized to constantly monitor
system quality and identify devices that fail to meet performance criteria.
These same platforms generate statistics on system performance such as dropped
calls, blocked calls and handoff failures. Our operations support center located
in Richmond, Virginia performs maintenance on common network elements such as
voice mail, home location registers and short message centers.
NETWORK DIGITAL TECHNOLOGY
Our network utilizes time division multiple access, or TDMA, digital technology
on the IS-136 platform. This technology allows for the use of advanced
multi-mode handsets, which permit roaming across personal communications
services and cellular frequencies, including both analog and digital cellular.
This technology also allows for enhanced services and features, such as
short-messaging, extended battery life, added call security and improved voice
quality, and its hierarchical cell structure enables us to enhance network
coverage with lower incremental investment through the deployment of micro, as
opposed to full-size, cell sites. TDMA digital technology is currently used by
two of the largest wireless communications companies in the United States, AT&T
Wireless and Cingular Wireless. TDMA equipment is available from leading
telecommunications vendors such as Lucent, Ericsson and Northern Telecom, Inc.
In order to provide advanced wireless data services, commonly referred to as 3G
data, AT&T Wireless has chosen to deploy global systems for mobile
communications, or GSM digital technology, as an overlay to their TDMA network.
We are also deploying GSM technology in a select number of our existing cell
sites to eventually provide advanced 3G data services to our subscribers. GSM
digital technology will also position us to earn roaming revenue from other
wireless carriers who are selling GSM handsets.
RELATIONSHIP WITH LAFAYETTE COMMUNICATIONS COMPANY L.L.C.
We hold a 39% interest in Lafayette, an entrepreneur under FCC guidelines.
During 2001, Lafayette acquired 18 licenses covering a population of
approximately 6.3 million people in areas of Georgia, South Carolina, Tennessee
and Virginia. Lafayette has an application pending for an additional 13 licenses
in areas of North Carolina and Virginia, but this application is subject to
pending litigation involving the parties that formerly held these licenses,
NextWave Personal Communications, Inc. and Urban Comm-North Carolina, Inc. There
can be no assurance that this litigation will be resolved so as to allow these
licenses to be acquired by Lafayette. The Supreme Court recently agreed to
review the issues involved in this litigation, which will delay a resolution
until at least 2003,
9
unless an earlier settlement is reached. FCC license build-out requirements have
been satisfied for 17 of the 18 licenses which Lafayette currently holds.
As of December 31, 2001, we have funded approximately $117.4 million of senior
loans to Lafayette to finance the acquisition of licenses and expect to fund
additional loans for future acquisitions. The carrying value of these loans has
been adjusted for any losses in excess of our initial investment. In connection
with the loans, Lafayette has and will guarantee our obligations under our
credit facility, and such senior loans are and will be pledged to the lenders
under our credit facility.
For a description of our accounting treatment of Lafayette, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Relationship with Lafayette Communications Company L.L.C.".
REGULATION
The FCC regulates aspects of the licensing, construction, operation, acquisition
and sale of personal communications services and cellular systems in the United
States pursuant to the Communications Act, as amended from time to time, and the
associated rules, regulations and policies it promulgates. Many FCC requirements
impose restrictions on our business and could increase our costs. The FCC does
not currently regulate commercial mobile radio service rates.
Personal communications services and cellular systems are subject to certain FAA
regulations governing the location, lighting and construction of transmitter
towers and antennas and may be subject to regulation under Federal environmental
laws and the FCC's environmental regulations. State or local zoning and land use
regulations also apply to our activities.
We use common carrier point-to-point microwave facilities to connect the
transmitter, receiver, and signaling equipment for each personal communications
services or cellular cell or cell site, and to link them to the main switching
office. The FCC licenses these facilities separately and they are subject to
regulation as to technical parameters and service.
Licensing of Cellular and Personal Communications Services Systems. A broadband
personal communications services system operates under a protected geographic
service area license granted by the FCC for a particular market on one of six
frequency blocks allocated for broadband personal communications services.
Broadband personal communications services systems generally are used for
two-way voice applications. Narrowband personal communications services, in
contrast, are used for non-voice applications such as paging and data service
and are separately licensed. The FCC has segmented the United States into
personal communications services markets, resulting in 51 large regions called
major trading areas, which are comprised of 493 smaller regions called basic
trading areas. The FCC initially awarded two broadband personal communications
services licenses for each major trading area and four licenses for each basic
trading area. The two major trading area licenses authorize the use of 30 MHz of
spectrum. One of the basic trading area licenses is for 30 MHz of spectrum, and
the other three are for 10 MHz each. The FCC permits licensees to split their
licenses and assign a portion, on either a geographic or frequency basis or
both, to a third party. In this fashion, AT&T Wireless assigned us 20 MHz of its
30 MHz licenses covering our licensed areas. Two cellular licenses, 25 MHz each,
are also available in each market. Cellular markets are defined as either
metropolitan or rural service areas and do not correspond to the broadband
personal communications services markets. Specialized mobile radio service
licenses can also be used for two-way voice applications. In total, eight or
more licenses suitable for two-way voice applications are available in a given
geographic area.
Generally, the FCC awards initial personal communications services by auction.
The FCC has held a series of auctions since its first personal communications
services auctions in 1994. Although the initial round of personal communications
services auctions concluded in 1998, there have been several additional auctions
of returned spectrum and spectrum recaptured by the FCC following defaults on
payment obligations. Many of the licenses auctioned, including some won by
Lafayette, are subject to the pending litigation described under "- Relationship
with Lafayette Communications Company L.L.C.".
All personal communications services licenses have a 10-year term, at the end of
which they must be renewed. The FCC will award a renewal expectancy to a
personal communications services licensee that has:
- provided substantial service during its past license term; and
- has substantially complied with applicable FCC rules and policies
and the Communications Act.
Cellular radio licenses also generally expire after a 10-year term and are
renewable for periods of 10 years upon application to the FCC. Licenses may be
revoked for cause and license renewal applications denied if the FCC determines
that a renewal would not serve the public interest. FCC rules provide that
competing renewal applications for cellular licenses will be considered in
comparative hearings and establish the qualifications for competing applications
and the standards to be applied in hearings. Under current policies, the FCC
will grant incumbent cellular licensees the same renewal expectancy granted to
personal communications services licensees.
Build-Out and Microwave Relocation Obligations. All personal communications
services licensees must satisfy certain coverage requirements. In our case, we
must construct facilities sufficient to offer radio signal coverage to one-third
of the population of our service area within five years of the original license
grants to AT&T Wireless and to two-thirds of the population within ten years.
Licensees that fail to meet the coverage requirements may be subject to
forfeiture of their license. We have met the five-year construction deadline for
all of our
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personal communications services licenses; our ten-year construction deadline is
in 2005. Our cellular license, which covers the Myrtle Beach area, is not
subject to these coverage requirements.
When it was licensed, personal communications services spectrum was encumbered
by existing licensees that operate certain fixed microwave systems. To secure a
sufficient amount of unencumbered spectrum to operate our personal
communications services systems efficiently and with adequate population
coverage, we have relocated two of these incumbent licensees. In an effort to
balance the competing interests of existing microwave users and newly authorized
personal communications services licensees, the FCC adopted:
- a transition plan to relocate such microwave operators to other
spectrum blocks; and
- a cost sharing plan so that if the relocation of an incumbent
benefits more than one personal communications services licensee,
those licensees will share the cost of the relocation.
The transition and cost sharing plans expire on April 4, 2005, at which time
remaining microwave incumbents in the personal communications services spectrum
will be responsible for the costs of relocating to alternate spectrum locations.
Our cellular license is not encumbered by existing microwave licenses.
Spectrum Caps and Secondary Markets. Under the FCC's current rules specifying
spectrum aggregation limits affecting broadband personal communications
services, specialized mobile radio services and cellular licensees, no entity
may hold attributable interests, generally 20% or more of the equity of, or an
officer or director position with, the licensee, in licenses for more than 55
MHz of personal communications services, cellular and certain specialized mobile
radio services where there is significant overlap in any geographical area.
Passive investors may hold up to a 40% interest. Significant overlap will occur
when at least 10% of the population of the personal communications services
licensed service area is within the cellular and/or specialized mobile radio
service area(s).
In November 2001, the FCC voted to sunset the spectrum cap rule by eliminating
it effective January 1, 2003. Following the sunset of the spectrum cap, the FCC
will evaluate commercial wireless transactions on a case-by-case basis to
determine whether they will result in too much concentration in wireless
markets. It is widely believed that the FCC's action may spur consolidation in
the commercial wireless industry; however, it is unclear at this point what
guidelines or procedures the FCC will use to evaluate commercial wireless
transactions on a case-by-case basis or how such guidelines will affect the
speed with which transactions are processed at the FCC.
In November 2000, the FCC adopted a Policy Statement and Notice of Proposed
Rulemaking regarding secondary markets in radio spectrum. In the Notice of
Proposed Rulemaking, the FCC tentatively concludes that spectrum licensees
should be permitted to enter leasing agreements with third parties to promote
greater use of unused spectrum.
New Spectrum Opportunities and Third Generation Wireless Services. The FCC has
adopted licensing rules governing the upper 700 MHz spectrum originally
scheduled for auction in March 2001. Thirty (30) MHz of spectrum will be
auctioned. The FCC postponed the upper 700 MHz auction until June 19, 2002.
President Bush's budget includes a proposal to further delay the auction until
2004. Because of the flexible use policy adopted by the FCC for this spectrum,
wireless providers may provide Third Generation services over the 700 MHz band.
The FCC recently adopted service rules for the licensing of 48 MHz of spectrum
in the lower 700 MHz band to fixed and mobile services. The FCC determined that
all operations on the lower 700 MHz band will be regulated under a flexible
technical, licensing, and operational framework. The auction of the lower 700
MHz spectrum is currently scheduled to begin on June 19, 2002. President Bush's
budget includes a proposal to delay the auction until 2006.
In January 2001, the FCC issued a Notice of Proposed Rulemaking requesting
comment on the use of certain spectrum bands for Third Generation services. The
FCC also sought comment on whether Third Generation services could be provided
over the frequency bands currently allocated to cellular, personal
communications services and specialized mobile radio services. A Further Notice
of Proposed Rulemaking was released on August 20, 2001, seeking comment on
whether additional bands might be suitable for 3G data services. In October
2001, the National Telecommunications and Information Administration, or the
NTIA, and the FCC announced a plan for the assessment of spectrum available for
Third Generation services. Specifically, the plan examines the potential Third
Generation use of the 1710-1770 and the 2110-2170 MHz bands. It is unclear at
this point what impact, if any, this proceeding will have on our current
operations.
In January 2002, the FCC released a Report and Order reallocating 27 MHz of
spectrum that was previously reserved primarily for federal government uses to a
variety of non-federal government uses, including private and commercial fixed
and mobile operations. These reallocations could provide opportunities for
advanced wireless services. Licenses for operation on three of the spectrum
bands comprising the 27 MHz - the 216-220 MHz, 1432-1435 MHz and 1670-1675 MHz
bands - must be auctioned by September 30, 2002. In February 2002, the FCC
released a Notice of Proposed Rulemaking proposing a flexible licensing,
technical and operating framework, as well as competitive bidding and
interference standards for the 27 MHz. Generally, the bands identified are
encumbered by existing governmental or commercial users and there are
substantial unresolved transitional issues related to the relocation of these
incumbents. We cannot predict when or whether the FCC will conduct any spectrum
auctions or if it will release additional spectrum that might be useful to the
wireless industry in the future.
On August 9, 2001, the FCC adopted a Notice of Proposed Rulemaking seeking
comment on proposals by New ICO Global Communications (Holdings) Ltd. and
Motient Services, Inc. to bring flexibility to the delivery of communications by
mobile satellite service providers through the incorporation of a wireless
ancillary terrestrial component into their mobile satellite networks. This
proceeding is still pending. It is not
11
possible at this time to predict the success of this initiative.
Transfers and Assignments of Cellular and Personal Communications Services
Licenses. The Communications Act and FCC rules require the FCC's prior approval
of the assignment or transfer of control of a license for a personal
communications services or cellular system. In addition, the FCC has established
transfer disclosure requirements that require any licensee that assigns or
transfers control of a personal communications services license within the first
three years of the license term to file associated sale contracts, option
agreements, management agreements or other documents disclosing the total
consideration that the licensee would receive in return for the transfer or
assignment of its license. Non-controlling interests in an entity that holds a
FCC license generally may be bought or sold without FCC approval, subject to the
FCC's spectrum aggregation limits. However, we may require approval of the
Federal Trade Commission and the Department of Justice, as well as state or
local regulatory authorities having competent jurisdiction, if we sell or
acquire personal communications services or cellular interests over a certain
size.
Foreign Ownership. Under existing law, no more than 20% of an FCC licensee's
capital stock may be owned, directly or indirectly, or voted by non-U.S.
citizens or their representatives, by a foreign government or its
representatives or by a foreign corporation. If an FCC licensee is controlled by
another entity, as is the case with our ownership structure, up to 25% of that
entity's capital stock may be owned or voted by non-US citizens or their
representatives, by a foreign government or its representatives or by a foreign
corporation. Foreign ownership above the 25% level may be allowed should the FCC
find such higher levels not inconsistent with the public interest. The FCC has
ruled that higher levels of foreign ownership, even up to 100%, are
presumptively consistent with the public interest with respect to investors from
certain nations. If our foreign ownership were to exceed the permitted level,
the FCC could revoke our FCC licenses, although we could seek a declaratory
ruling from the FCC allowing the foreign ownership or take other actions to
reduce our foreign ownership percentage to avoid the loss of our licenses. We
have no knowledge of any present foreign ownership in violation of these
restrictions.
Enhanced 911 Services. Under the Wireless Communications and Public Safety Act
of 1999, commercial mobile radio service providers are required to transmit 911
calls and relay a caller's automatic number identification and cell site to
designated public safety answering points. This ability to relay a telephone
number and originating cell site is known as Phase I emergency 911 deployment.
FCC regulations also require wireless carriers to begin to identify within
certain parameters the location of emergency 911 callers by adoption of either
network-based or handset-based technologies. This more exact location reporting
is known as Phase II, and the FCC has adopted specific rules governing the
accuracy of location information and deployment of the location capability.
While we initially selected a handset-based technology, due to the
unavailability of equipment that can operate using our existing network, we now
intend to implement a network-based technology as our implementing technology
and, like virtually all carriers, have filed for a waiver of the FCC's timetable
and initial location accuracy requirements. On October 12, 2001, the FCC granted
several waivers of its 911 accuracy rules and deployment timetables for national
carriers. It simultaneously announced that all other carriers were required to
file or submit revised waivers to the FCC by November 30, 2001.
While we had previously filed a waiver and notified the FCC that we are in
negotiations with two network-based vendors for Phase II TDMA network solutions,
on November 30, 2001, we filed a revised 911 Phase II deployment request for
waiver with the FCC. The FCC has announced that it will not enforce its Phase II
rules against carriers, such as Triton, that have waivers pending with the FCC.
On December 14, 2000, the FCC released a decision establishing June 20, 2002, as
the deadline by which digital wireless service providers must be capable of
transmitting 911 calls made by users with speech or hearing disabilities using
text telephone devices. Our ability to comply is contingent upon our switch
vendor developing the software required for us to meet the FCC requirement. All
indications are that we will meet this deadline.
Radiofrequency Emissions. On January 10, 2001, the United States Supreme Court
denied a petition for review of the FCC guidelines for health and safety
standards of radiofrequency radiation. The guidelines, which were adopted by the
FCC in 1996, limit the permissible human exposure to radiofrequency radiation
from transmitters and other facilities. On December 11, 2001, the FCC's Office
of Engineering and Technology, OET, dismissed a Petition for Inquiry filed by
EMR Network to initiate a proceeding to revise the FCC's radiofrequency
guidelines. On January 10, 2002, EMR petitioned the FCC to overturn OET's
decision and open an inquiry. The Institute of Electrical and Electronics
Engineers currently is preparing a new radiofrequency standard, but it has not
yet been made public.
Media reports have suggested that, and studies are currently being undertaken to
determine whether, certain radiofrequency emissions from wireless handsets may
be linked to various health concerns, including cancer, and may interfere with
various electronic medical devices, including hearing aids and pacemakers.
Concerns over radiofrequency emissions may have the effect of discouraging the
use of wireless handsets, which would decrease demand for our services. However,
reports and fact sheets from the National Cancer Institute released in January
2002 and the American Health Foundation released in December 2000, and from the
Danish Cancer Society, released in February 2001, found no evidence that cell
phones cause cancer, although one of the reports indicated that further study
might be appropriate as to one rare form of cancer. The National Cancer
Institute, nonetheless, cautioned that the studies have limitations, given the
relatively short amount of time cellular phones have been widely available. In
January 2002, the Bioelectromagnetics Journal published a study that concluded
that under extended exposure conditions, certain radiofrequency emissions are
capable of inducing chromosomal damage in human lymphocytes. In addition, the
Federal Trade Commission, or FTC, issued a consumer alert in February 2002 for
cell phone users who want to limit their exposure to radiofrequency emissions
from their cell phones. The alert advised, among other things, that cell phone
users should limit use of their cell phones to short conversations and avoid
cell phone use in areas where the signal is poor. Additional studies of
radiofrequency emissions are ongoing, including a federal government funded
research program in North Carolina. The ultimate findings of these studies will
not be known until they are completed and made public. Class-action lawsuits are
also pending to force wireless carriers to supply
12
headsets with phones and to compensate consumers who have purchased
radiation-reducing devices. One such lawsuit is pending in Georgia, although we
are not a party. We cannot predict the effects of these or other health effects
lawsuits on our business. It is unclear what impact these lawsuits may have on
our operations in Georgia or elsewhere.
Interconnection. Under amendments to the Communications Act enacted in 1996, all
telecommunications carriers, including personal communications services
licensees, have a duty to interconnect with other carriers and local exchange
carriers have additional specific obligations to interconnect. The amendments
and the FCC's implementing rules modified the previous regime for
interconnection between local exchange carriers and commercial mobile radio
service providers, such as Triton, and adopted a series of requirements that
have benefited the commercial mobile radio service industry. These requirements
included compensation to carriers for terminating traffic originated by other
carriers; a ban on any charges to other carriers by originating carriers; and
specific rules governing the prices that can be charged for terminating
compensation. Under the rules, prices for termination of traffic and certain
other functions provided by local exchange carriers are set using a methodology
known as "total element long run incremental cost", or TELRIC. TELRIC is a
forward-looking cost model that sets prices based on what the cost would be to
provide network elements or facilities over the most efficient technology and
network configuration. As a result of these FCC rules, the charges that cellular
and personal communications services operators pay to interconnect their traffic
to the public switched telephone network have declined significantly from
pre-1996 levels.
With the exception of the rules governing prices, the FCC interconnection rules
material to our operations have become final and unappealable. In July 2000, the
United States Court of Appeals for the Eighth Circuit vacated the FCC's use of
TELRIC, although it did not foreclose the use of another forward-looking pricing
methodology. The Eighth Circuit stayed the effect of this decision pending
review by the Supreme Court, which agreed to hear the FCC's appeal in January
2001 and heard oral argument in this case on October 10, 2001. If the FCC's
rules are not reinstated it is possible that our costs for interconnection with
the public switched telecommunications network could increase. In addition,
Congress may consider legislation and the FCC have initiated a proceeding that
could greatly modify the current regime of payments for interconnection. If
legislation were enacted in the form under consideration in the previous session
of Congress, it could reduce our costs for interconnection.
The Communications Act permits carriers to appeal public utility commission
decisions to United States District Courts. Several state commissions have
challenged this provision based on the Eleventh Amendment, which gives states
immunity from suits in Federal court. In March and June 2001, the United States
Supreme Court agreed to hear two disputes that address whether Federal courts
have jurisdiction to review state public utility commission decisions that arise
when they arbitrate interconnection disputes between local exchange carriers and
competitive carriers. Oral argument in both cases was held on December 5, 2001.
On December 12, 2001, the Supreme Court requested additional briefing in one of
the cases, which could delay the Court's decision. Should the Supreme Court
determine that states are immune from such suits in Federal court, carriers
would be limited in their challenges to state arbitration decisions at the
Federal court level. In addition, on January 10, 2002, the United States Court
of Appeals for the Eleventh Circuit ruled that state commissions lack authority
under the Communications Act to act in proceedings to enforce the terms of
interconnection agreements. It is unclear whether telecommunications carriers
would have any avenues through which to enforce their agreements under this
decision, which applies in a region that includes Georgia, a state within our
operating region.
Universal Service Funds. Under the FCC's rules, wireless providers are
potentially eligible to receive universal service subsidies; however, they are
also required to contribute to both federal and state universal service funds.
The rules adopted by the FCC in its Universal Service orders require
telecommunications carriers generally (subject to limited exemptions) to
contribute to funding existing universal service programs for high cost carriers
and low income customers and to new universal service programs to support
services to schools, libraries and rural health care providers. On January 25,
2002, respectively, the FCC initiated two universal service proceedings relevant
to all telecommunications providers, including us. One deals with how universal
service fees are assessed; the other with what services universal service funds
can be used to support. Regardless of our ability to receive universal service
funding for the supported services we provide, we are required to fund these
federal programs and also may be required to contribute to state universal
service programs.
Electronic Surveillance. The FCC has adopted rules requiring providers of
wireless services that are interconnected to the public switched telephone
network to provide functions to facilitate electronic surveillance by law
enforcement officials. The Communications Assistance for Law Enforcement Act
requires telecommunications carriers to modify their equipment, facilities, and
services to ensure that they are able to comply with authorized electronic
surveillance. These modifications were required to be completed by June 30,
2000, unless carriers were granted temporary waivers, which Triton and many
other wireless providers requested. The FCC recently gave us until June 30, 2002
to comply with all of the federal government's assistance capability
requirements. Additional wireless carrier obligations to assist law enforcement
agencies were adopted in response to the September 11 terrorist attacks as part
of the USA Patriot Act.
Telephone Numbers. Like other telecommunications carriers, Triton must have
access to telephone numbers to serve its customers and to meet demand for new
service. In a series of proceedings over the past six years, the FCC has adopted
rules that could affect Triton's access to and use of telephone numbers. The
most significant FCC rules are intended to promote the efficient use of
telephone numbers by all telecommunications carriers. In orders adopted in March
and December 2000 and in December 2001, the FCC adopted the following rules:
- Carriers must meet specified number usage thresholds before they can
obtain additional telephone numbers. The threshold for 2001 required
carriers to show that they were using 60% of all numbers assigned to
them in a particular rate center. This threshold will increase by 5%
a year until it reaches 75% in 2004. The FCC has adopted a "safety
valve" mechanism that could permit carriers to obtain telephone
numbers under certain circumstances even if they do not meet the
usage thresholds.
13
- Carriers must share blocks of telephone numbers, a requirement known
as "number pooling." Under number pooling, numbers previously
assigned in blocks of 10,000 will be assigned in blocks of 1,000,
which significantly increases the efficiency of number assignment.
This requirement applies to all carriers, but wireless providers
have until November 24, 2002 to comply. The FCC's December 2001
order denied a request to defer this deadline. In connection with
the number pooling requirement, the FCC also adopted rules intended
to increase the availability of blocks of 1,000 numbers, including a
requirement that numbers be assigned sequentially within existing
blocks of 10,000 numbers.
- Carriers must provide detailed reports on their number usage, and
the reports will be subject to third-party audits. Carriers that do
not comply with reporting requirements are ineligible to receive
numbering resources.
- States may implement technology-specific and service-specific area
code "overlays" to relieve the exhaustion of existing area codes,
but only with specific FCC permission.
The FCC also has shown a willingness to delegate to the states a larger role in
number conservation. Examples of state conservation methods include number
pooling and number rationing. Since mid-1999, the FCC has granted interim number
conservation authority to several state commissions, including North Carolina
and South Carolina, states within our operating region.
The FCC's number conservation rules could benefit or harm Triton and other
telecommunications carriers. If the rules achieve the goal of reducing demand
for telephone numbers, then the costs associated with potential changes to the
telephone numbering system will be delayed or avoided. The rules may, however,
affect individual carriers by making it more difficult for them to obtain and
use telephone numbers. In particular, number pooling imposes significant costs
on carriers to modify their systems and operations. In addition,
technology-specific and service-specific area code overlays could result in
segregation of wireless providers, including Triton, into separate area codes,
which could have negative effects on customer perception of wireless service.
Wireless providers also are subject to a requirement that they implement
telephone number portability, which enables customers to maintain their
telephone numbers when they change carriers. Number portability already is
available to most landline customers and the FCC has set a deadline of November
24, 2002, for wireless providers to implement portability for their customers in
certain markets. Verizon Wireless has filed a petition seeking elimination of
the number portability requirement for wireless services. This petition remains
pending at the FCC.
Environmental Processing. Antenna structures used by Triton and other wireless
providers are subject to the FCC's rules implementing the National Environmental
Policy Act and the National Historic Preservation Act. Under these rules, any
structure that may significantly affect the human environment or that may affect
historic properties may not be constructed until the wireless provider has filed
an environmental assessment and obtained approval from the FCC. Processing of
environmental assessments can delay construction of antenna facilities,
particularly if the FCC determines that additional information is required or if
there is community opposition. In addition, in 2000 and 2001 several
environmental groups unsuccessfully requested changes in the FCC's environmental
processing rules, challenged specific environmental assessments as inadequate to
meet statutory requirements and sought to have the FCC conduct a comprehensive
assessment of the environmental effects of antenna tower construction. It is
possible that environmental groups and others will renew these efforts in the
future.
Rate Integration. The FCC has determined that the interstate, inter-exchange
offerings (commonly referred to as "long distance") of wireless carriers are
subject to the interstate, interexchange rate averaging and integration
provisions of the Communications Act. Rate averaging and integration requires
carriers to average interstate long distance commercial mobile radio service
rates between high cost and urban areas, and to offer comparable rates to all
customers, including those living in Alaska, Hawaii, Puerto Rico, and the Virgin
Islands. The U.S. Court of Appeals for the District of Columbia Circuit,
however, rejected the FCC's application of these requirements to wireless
carriers, remanding the issue to the FCC to further consider whether wireless
carriers should be required to average and integrate their long distance rates
across all U.S. territories. This proceeding remains pending, but the Commission
has stated that, the rate averaging and integration rules will not be applied to
wireless carriers during the pendency of the proceeding.
Privacy. The FCC has adopted rules limiting the use of customer proprietary
network information by telecommunications carriers, including Triton, in
marketing a broad range of telecommunications and other services to their
customers and the customers of affiliated companies. The rules give wireless
carriers discretion to use customer proprietary network information, without
customer approval, to market all information services used in the provision of
wireless services. The FCC also allowed all telephone companies to use customer
proprietary network information to solicit lost customers. While all carriers
must notify customers of their individual rights regarding the use of customer
proprietary network information for purposes not explicitly permitted by the law
or the FCC's rules, the specific details of gathering and storing this approval
are now left to the carriers. The FCC is seeking, through a new proceeding,
additional information regarding consumer privacy interests and whether FCC
rules should require affirmative opt-in or opt-out approvals by customers for
customer proprietary network information use.
Billing. The FCC adopted detailed billing rules for landline telecommunications
service providers and extended some of those rules to wireless carriers.
Wireless carriers must comply with two fundamental rules: (i) clearly identify
the name of the service provider for each charge; and (ii) display a toll-free
inquiry number for customers on all "paper copy" bills.
Access for Individuals with Disabilities. The FCC has adopted an order that
determines the obligations of telecommunications carriers to make their services
accessible to individuals with disabilities. The order requires
telecommunications services providers, including Triton, to
14
offer equipment and services that are accessible to and useable by persons with
disabilities, if that equipment can be made available without much difficulty or
expense. The rules require us to develop a process to evaluate the
accessibility, usability and compatibility of covered services and equipment.
While we expect our vendors to develop equipment compatible with the rules, we
cannot assure you that we will not be required to make material changes to our
network, product line, or services.
STATE REGULATION AND LOCAL APPROVALS
The Communications Act preempts state and local regulation of the entry of, or
the rates charged by, any provider of private mobile radio service or of
commercial mobile radio service, which includes personal communications services
and cellular service. The Communications Act permits states to regulate the
"other terms and conditions" of commercial mobile radio service. The FCC has not
clearly defined what is meant by the "other terms and conditions" of commercial
mobile radio service, however, but has upheld the legality of state universal
service requirements on commercial mobile radio service carriers. The FCC also
has held that private lawsuits based on state law claims concerning how wireless
rates are promoted or disclosed may not be preempted by the Communications Act.
State and local governments are permitted to manage public rights of way and can
require fair and reasonable compensation from telecommunications providers,
including personal communications services providers, so long as the
compensation required is publicly disclosed by the government. The sitting of
cells/base stations also remains subject to state and local jurisdiction,
although proceedings are pending at the FCC relating to the scope of that
authority. States also may impose competitively neutral requirements that are
necessary for universal service or to defray the costs of state emergency 911
services programs, to protect the public safety and welfare, to ensure continued
service quality and to safeguard the rights of consumers.
There are several state and local legislative initiatives that are underway to
ban the use of wireless phones in motor vehicles. New York enacted a statewide
ban on driving while holding a wireless phone, and similar legislation is
pending in other states, including Virginia, Georgia, Tennessee, South Carolina
and Kentucky. Officials in a handful of communities have enacted ordinances
banning or restricting the use of cell phones by drivers. Should this become a
nationwide initiative, commercial mobile radio service providers could
experience a decline in the number of minutes of use by subscribers. In general,
states continue to consider restrictions on wireless phone use while driving,
and some states are also beginning to collect data on whether wireless phone use
contributes to traffic accidents. On the federal level, the National
Transportation Safety Board is considering whether it should recommend limiting
the use of mobile phones in vehicles.
The foregoing does not purport to describe all present and proposed federal,
state and local regulations and legislation relating to the wireless
telecommunications industry. Other existing federal regulations, copyright
licensing and, in many jurisdictions, state and local franchise requirements are
the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals that could change, in varying degrees,
the manner in which wireless providers operate. Neither the outcome of these
proceedings nor their impact upon our operations or the wireless industry can be
predicted at this time.
COMPETITION
We compete directly with two cellular providers and several other personal
communications services providers in each of our markets except Myrtle Beach,
where we are one of two cellular providers, and against enhanced specialized
mobile radio providers in most of our markets. Some of these competitors have
greater financial, technical resources and spectrum than we do. Our ability to
compete successfully will depend, in part, on our ability to anticipate and
respond to various competitive factors affecting the industry, including new
services that may be introduced, changes in consumer preferences, demographic
trends, economic conditions and competitors' discount pricing strategies, all of
which could adversely affect our operating margins. We plan to use our digital
feature offerings, coast-to-coast digital wireless network through our AT&T
Wireless affiliation, contiguous presence providing an expanded home-rate
billing area and local presence in secondary markets to combat potential
competition. Our extensive digital network provides us a cost-effective means to
react effectively to any price competition.
We expect competition to intensify as a result of the consolidation of the
industry and the development of new technologies, products and services. The
wireless communications industry has been experiencing significant
consolidation, and we expect this trend will continue. This consolidation trend
may create additional large, well-capitalized competitors with substantial
financial, technical, marketing and other resources. In addition, we expect that
in the future, providers of wireless communications services will compete more
directly with providers of traditional landline telephone services, energy
companies, utility companies and cable operators that expand their services to
offer communications services.
New wireless spectrum allocations may create additional competition either from
new market entrants or from existing competitors. The FCC has scheduled an
auction of 700 MHz spectrum, which is exempt from spectrum cap limitations, for
June 19, 2002. On August 9, 2001, the FCC adopted a Notice of Proposed
Rulemaking seeking comment on proposals by New ICO Global Communications
(Holdings) Ltd. and Motient Services, Inc. to bring flexibility to the delivery
of communications by mobile satellite service providers through the
incorporation of a wireless ancillary terrestrial component into their mobile
satellite networks. This proceeding is still pending. It is not possible at this
time to predict the success of this initiative.
15
Wireless providers increasingly are competing in the provision of both voice and
non-voice services. Non-voice services, including data transmission, text
messaging, e-mail and Internet access are becoming available from a wide range
of providers, including cellular and personal communications services providers,
enhanced specialized mobile radio carriers such as Nextel, two-way paging
companies and new market entrants such as Palm Computing. In many cases,
non-voice services are offered in conjunction with or as adjuncts to voice
services. Depending on consumer demand, we may be required to expend significant
resources to respond to competitive offerings of these services.
The FCC requires all cellular and personal communications services licensees to
provide service to resellers. A reseller provides wireless service to customers
but does not hold an FCC license or own facilities. Instead, the reseller buys
blocks of wireless telephone numbers and capacity from a licensed carrier and
resells service through its own distribution network to the public. Thus, a
reseller is both a customer of a wireless licensee's services and a competitor
of that licensee. Several small resellers currently compete with us in our
licensed area. With respect to cellular and personal communications services
licenses, the resale obligations terminate five years after the last group of
initial licenses of currently allotted personal communications services spectrum
were awarded. Accordingly, our resale obligations end on November 24, 2002,
although licensees will continue to be subject to the provisions of the
Communications Act requiring non-discrimination among customers. We have also
agreed to permit AT&T Wireless to resell our services.
INTELLECTUAL PROPERTY
The AT&T globe design logo is a service mark owned by AT&T and registered with
the United States Patent and Trademark Office. Under the terms of our license
agreement with AT&T, we use the AT&T globe design logo and certain other service
marks of AT&T royalty-free in connection with marketing, offering and providing
wireless mobility telecommunications services using time division multiple
access digital technology and frequencies licensed by the FCC to end-users and
resellers within our licensed area. The license agreement also grants us the
right to use the licensed marks on certain permitted mobile phones.
AT&T has agreed not to grant to any other person a right or license to provide
or resell, or act as agent for any person offering, those licensed services
under the licensed marks in our licensed area except:
- to any person who resells, or acts as our agent for, licensed
services provided by us, or
- any person who provides or resells wireless communications services
to or from specific locations such as buildings or office complexes,
even if the applicable subscriber equipment being used is capable of
routine movement within a limited area and even if such subscriber
equipment may be capable of obtaining other telecommunications
services beyond that limited area and handing-off between the
service to the specific location and those other telecommunications
services.
In all other instances, AT&T reserves for itself and its affiliates the right to
use the licensed marks in providing its services whether within or outside of
our licensed area.
The license agreement contains numerous restrictions with respect to the use and
modification of any of the licensed marks.
We have entered into an agreement with TeleCorp PCS to adopt and use a common
regional brand name, SunCom. Under this agreement, we have formed Affiliate
License Company with TeleCorp PCS for the purpose of sharing ownership of and
maintaining the SunCom brand name. Each company shares in the ownership of the
SunCom brand name and the responsibility of securing protection for the SunCom
brand name in the United States Patent and Trademark Office, enforcing our
rights in the SunCom brand name against third parties and defending against
potential claims against the SunCom brand name. The agreements provide
parameters for each company's use of the SunCom brand name, including certain
quality control measures and provisions in the event that either of these
company's licensing arrangements with AT&T is terminated. AT&T Wireless has
agreed to acquire TeleCorp PCS and has announced its expectation to discontinue
use of the SunCom brand. We currently plan to continue using the SunCom brand.
The SunCom service mark was registered by the United States Patent and Trademark
Office on July 18, 2000 (Registration No. 2367621). Various other applications
for registration of service marks using the SunCom name have been filed in the
United States Patent and Trademark Office and are currently pending. Affiliate
License Company owns the SunCom brand name, as well as the applications for the
other related service marks.
EMPLOYEES
As of December 31, 2001, we had 1,896 employees. We believe our relations with
our employees are good.
16
ITEM 2. PROPERTIES
Triton maintains its executive offices in Berwyn, Pennsylvania. We also maintain
two regional offices in Richmond, Virginia and Charleston, South Carolina. We
lease these facilities.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any lawsuit or proceeding which, in management's opinion,
is likely to have a material adverse effect on our business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Holdings' Class A common stock began trading on the New York Stock exchange
under the trading symbol "TPC" on July 31, 2001. Prior to July 31, 2001,
Holdings' Class A common stock was traded on the Nasdaq National Market under
the trading symbol "TPCS". The following table provides the high and low closing
sales prices for Holdings' Class A common stock as reported by the New York
Stock Exchange or the Nasdaq National Market, as appropriate, for each of the
periods indicated:
LOW HIGH
--- ----
YEAR ENDED DECEMBER 31, 2000
First Quarter $39.38 $68.88
Second Quarter 37.88 60.00
Third Quarter 25.00 59.25
Fourth Quarter 25.94 52.38
YEAR ENDED DECEMBER 31, 2001
First Quarter $29.44 $45.69
Second Quarter 28.63 41.00
Third Quarter 31.99 42.36
Fourth Quarter 28.20 37.90
Holdings has not paid any cash dividends on its Class A common stock since its
inception and does not anticipate paying any cash dividends in the foreseeable
future. Holdings' ability to pay dividends is restricted by the terms of its
preferred stock, its indentures and its credit facility. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources -Credit Facility" and "- Senior Subordinated
Notes."
As of February 28, 2002, the closing price for Holdings' Class A common stock as
reported by the New York Stock Exchange was $8.96 per share, and Holdings had
approximately 4,608 holders of its Class A common stock and two holders of its
Class B non-voting common stock.
18
ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected financial data derived from audited
financial statements of Triton for the period from March 6, 1997 to December 31,
1997 and for the years ended December 31, 1998, 1999, 2000 and 2001. In
addition, subscriber data for the same periods is presented. The following
financial information is qualified by reference to and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
appearing elsewhere in this report.
MARCH 6, 1997 YEAR ENDED DECEMBER 31,
THROUGH --------------------------------------------------------------
DECEMBER 31, 1997 1998 1999 2000 2001
----------------- ----------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Statement of Operations Data:
Revenues:
Service $ -- $ 11,172 $ 63,545 $ 224,312 $ 396,152
Roaming -- 4,651 44,281 98,492 126,909
Equipment -- 755 25,405 34,477 26,928
----------- ----------- ------------ ------------ ------------
Total revenues -- 16,578 133,231 357,281 549,989
=========== =========== ============ ============ ============
Expenses:
Costs of services and equipment
(excluding noncash compensation of $0, $0,
$142, $1,026, $2,544 for the periods ended
December 31, 1997, 1998, 1999, 2000 and
2001, respectively) -- 10,466 107,521 194,686 246,255
Selling and marketing (excluding
noncash compensation of $0, $0, $213, $1,274
and $1,911 for the periods ended December
31, 1997, 1998, 1999, 2000 and 2001,
respectively) -- 3,260 59,580 100,403 108,737
General and administrative (excluding
noncash compensation of $0, $1,120, $2,954,
$5,967 and $12,736 for the periods ended
December 31, 1997, 1998, 1999, 2000 and
2001, respectively) 2,736 15,589 42,354 84,682 129,955
Non-cash compensation -- 1,120 3,309 8,267 17,191
Depreciation and amortization 5 6,663 45,546 94,131 127,677
----------- ----------- ------------ ------------ ------------
Total operating expenses 2,741 37,098 258,310 482,169 629,815
----------- ----------- ------------ ------------ ------------
Loss from operations (2,741) (20,520) (125,079) (124,888) (79,826)
Interest and other expense 1,228 30,391 41,061 56,229 131,581
Interest and other income 8 10,635 4,852 4,957 18,322
Gain (loss) on sale of property, equipment
and marketable securities, net -- -- 11,928 -- (174)
----------- ----------- ------------ ------------ ------------
Loss before taxes $ (3,961) $ (40,276) $ (149,360) $ (176,160) $ (193,259)
Income tax expense (benefit) -- (7,536) -- 746 1,372
Extraordinary loss on early retirement of debt -- -- -- -- 3,952
----------- ----------- ------------ ------------ ------------
Net loss $ (3,961) $ (32,740) $ (149,360) $ (176,906) $ (198,583)
Accretion of preferred stock -- 6,853 8,725 9,865 10,897
----------- ----------- ------------ ------------ ------------
Net loss available to common stockholders $ (3,961) $ (39,593) $ (158,085) $ (186,771) $ (209,480)
----------- ----------- ------------ ------------ ------------
Net loss per common share (basic and diluted) $ (1.25) $ (8.18) $ (9.79) $ (3.01) $ (3.22)
----------- ----------- ------------ ------------ ------------
Weighted average common shares
outstanding (basic and diluted) 3,159,418 4,841,520 16,142,482 62,058,844 64,968,315
----------- ----------- ------------ ------------ ------------
19
AS OF DECEMBER 31,
------------------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- ----------- -----------
(IN THOUSANDS)
Balance Sheet Data:
Cash and cash equivalents $ 11,362 $146,172 $186,251 $ 1,617 $ 371,088
Working capital (deficiency) (5,681) 146,192 134,669 (54,305) 283,314
Property, plant and equipment, net 473 198,953 421,864 662,990 793,175
Intangible assets, net 1,249 308,267 315,538 300,161 283,847
Total assets 13,253 686,859 979,797 1,065,890 1,683,605
Long-term debt and capital lease obligations -- 465,689 504,636 728,485 1,344,291
Redeemable preferred stock -- 80,090 94,203 104,068 114,965
Stockholders' (deficit) equity (3,959) 95,889 233,910 55,437 (39,221)
MARCH 6, 1997 YEAR ENDED DECEMBER 31,
THROUGH ---------------------------------------------------------
DECEMBER 31, 1997 1998 1999 2000 2001
----------------- -------- -------- ----------- -----------
(IN THOUSANDS)
Other Data:
Subscribers (end of period) -- 33,844 195,204 446,401 685,653
EBITDA(1) $ (2,736) $(12,737) $(76,224) $ (22,490) $ 65,042
Cash flows from:
Operating activities $ (1,077) $ (4,130) $(51,522) $ (18,132) $ 5,081
Investing activities (478) (372,372) (191,538) (346,444) (318,181)
Financing activities 12,917 511,312 283,139 179,942 682,571
(1) "EBITDA" is defined as operating loss plus depreciation and amortization
expense and non-cash compensation. EBITDA is key financial measure but should
not be construed as an alternative to operating income, cash flows from
operating activities or net income (loss), as determined in accordance with
generally accepted accounting principles. EBITDA is not a measure determined in
accordance with generally accepted accounting principles. We believe that EBITDA
is a standard measure commonly reported and widely used by analysts and
investors in the wireless communication industry. However, our method of
computation may or may not be comparable to other similarly titled measures of
other companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and analysis is based upon our financial statements as
of the dates and for the periods presented in this section. You should read this
discussion and analysis in conjunction with our financial statements and the
related notes contained elsewhere in this report.
We were incorporated in October 1997. In February 1998, we entered into a joint
venture with AT&T Wireless. As part of the agreement, AT&T Wireless contributed
to us personal communications services licenses covering 20 MHz of authorized
frequencies in a contiguous geographic area encompassing portions of Virginia,
North Carolina, South Carolina, Tennessee, Georgia and Kentucky in exchange for
an equity position in Triton. As part of the transaction, we were granted the
right to be the exclusive provider of wireless mobility services using equal
emphasis co-branding with AT&T within our region.
On June 30, 1998, we acquired an existing cellular system serving Myrtle Beach
and the surrounding area from Vanguard Cellular Systems of South Carolina, Inc.
In connection with this acquisition, we began commercial operations and earning
recurring revenue in July 1998. We integrated the Myrtle Beach system into our
personal communications services network as part of our initial network
deployment. Substantially all of our revenues prior to 1999 were generated by
cellular services provided in Myrtle Beach. Our results of operations do not
include the Myrtle Beach system prior to our acquisition of that system.
We began generating revenues from the sale of personal communications services
in the first quarter of 1999 as part of our initial personal communications
services network deployment. As of December 31, 2001, we had successfully
launched and offered personal communications service to approximately 13.5
million people in all of our 37 markets.
CRITICAL ACCOUNTING POLICES AND ESTIMATES
Triton's discussion and analysis of its financial condition and results of
operations are based upon Triton's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires Triton to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and
20
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, Triton evaluates its estimates, including those related to bad
debts, inventories, income taxes, contingencies and litigation. Triton bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Triton believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
- Triton maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its subscribers to make
required payments. If the financial condition of a material portion
of Triton's subscribers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances
may be required.
- Triton writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual market
conditions are less favorable than those projected by management,
additional inventory write-downs may be required.
- Triton records a valuation allowance to reduce its deferred tax
assets to the amount that is more likely than not to be realized.
While Triton has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need
for the valuation allowance, in the event Triton were to determine
that it would be able to realize its deferred tax assets in the
future in excess of its net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such
determination was made. Likewise, should Triton determine that it
would not be able to realize all or part of its net deferred tax
asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period such determination was made.
Triton assesses the impairment of identifiable intangible assets whenever events
or changes in circumstances indicate the carrying value may not be recoverable.
Factors we consider important which could trigger an impairment review include,
significant underperformance relative to historical or projected future
operating results or significant changes in the manner of use of the assets or
the strategy for our overall business. When we determine that the carrying value
of intangible assets may not be recoverable based upon the existence of one or
more of the above indicators of impairment, we measure any impairment based upon
a projected discounted cash flow method using a discount rate determined by our
management to be commensurate with the risk inherent in our current business
model.
In 2002, Statement of Financial Accounting Standards, or SFAS, No. 142 "Goodwill
and Other Intangible Assets" became effective and as a result, we will cease to
amortize approximately $278.0 million of intangible FCC licenses, which we
believe qualify as having an indefinite life. We had recorded approximately $6.9
million of amortization on these licenses during 2001 and would have recorded
approximately $6.9 million of amortization during 2002. In lieu of amortization,
we are required to perform an initial impairment review of our FCC licenses in
2002 and an annual review thereafter. We currently do not expect to record an
impairment charge upon completion of the initial impairment review. However, we
cannot be certain that at the time the review is completed a material impairment
charge will not be recorded.
REVENUE
We derive our revenue from the following sources:
- Service. We sell wireless personal communications services. The
various types of service revenue associated with wireless
communications services for our subscribers include monthly
recurring charges and monthly non-recurring airtime charges for
local, long distance and roaming airtime used in excess of
pre-subscribed usage. Our customers' roaming charges are rate plan
dependent and based on the number of pooled minutes included in
their plans. Service revenue also includes non-recurring activation
and de-activation service charges.
- Equipment. We sell wireless personal communications handsets and
accessories that are used by our customers in connection with our
wireless services.
- Roaming. We charge per minute fees to other wireless
telecommunications companies for their customers' use of our network
facilities to place and receive wireless services.
We believe our roaming revenues will be subject to seasonality. We expect to
derive increased revenues from roaming during vacation periods, reflecting the
large number of tourists visiting resorts in our coverage area. We believe that
our equipment revenues will also be seasonal, as we expect sales of telephones
to peak in the fourth quarter, primarily as a result of increased sales during
the holiday season. Although we expect our overall revenues to increase due to
increasing roaming minutes, our per-minute roaming revenue will decrease over
time according to the terms of our agreements with AT&T Wireless.
21
COSTS AND EXPENSES
Our costs of services and equipment include:
- Equipment. We purchase personal communications services handsets and
accessories from third party vendors to resell to our customers for
use in connection with our services. Because we subsidize the sale
of handsets to encourage the use of our services, the cost of
handsets is higher than the resale price to the customer. We do not
manufacture any of this equipment.
- Roaming Fees. We incur fees to other wireless communications
companies based on airtime usage by our customers on other wireless
communications networks.
- Transport and Variable Interconnect. We incur charges associated
with interconnection with other wireline and wireless carriers'
networks. These fees include monthly connection costs and other fees
based on minutes of use by our customers.
- Variable Long Distance. We pay usage charges to other communications
companies for long distance service provided to our customers. These
variable charges are based on our subscribers' usage, applied at
pre-negotiated rates with the other carriers.
- Cell Site Costs. We incur expenses for the rent of towers, network
facilities, engineering operations, field technicians, and related
utility and maintenance charges.
Recent industry data indicate that transport, interconnect, roaming and long
distance charges that we currently incur will continue to decline, due
principally to competitive pressures and new technologies.
Other expenses include:
- Selling and Marketing. Our selling and marketing expense includes
advertising and promotional costs, commission expense for our
indirect, direct and e-commerce agents, and fixed charges such as
store rent and retail associates' salaries.
- General and Administrative. Our general and administrative expense
includes customer care, billing, information technology, finance,
accounting, legal services and product development. Functions such
as customer care, billing, finance, accounting and legal services
are likely to remain centralized in order to achieve economies of
scale.
- Depreciation and Amortization. Depreciation of property and
equipment is computed using the straight-line method, generally over
three to twelve years, based upon estimated useful lives. Leasehold
improvements are amortized over the lesser of the useful lives of
the assets or the term of the lease. Network development costs
incurred to ready our network for use are capitalized. Depreciation
of network development costs begins when the network equipment is
ready for its intended use and is amortized over the estimated
useful life of the asset. Previous to January 1, 2002, our personal
communications services licenses and our cellular license were being
amortized over a period of 40 years. In 2002, SFAS No. 142 "Goodwill
and Other Intangible Assets" became effective, and as a result, we
will cease to amortize approximately $278.0 million of intangible
FCC licenses, which we believe qualify as having an indefinite life.
- Non-cash Compensation. As of December 31, 2001 we recorded $92.6
million of deferred compensation associated with the issuances of
our common and preferred stock to employees. The compensation is
being recognized over four to five years as the stock vests.
- Interest Income (Expense) and other. Interest income is earned
primarily on our cash and cash equivalents. Interest expense through
December 31, 2001 consists of interest on our credit facility, our
11% senior subordinated discount notes due 2008, our 9 3/8% senior
subordinated notes due 2011 and our 8 3/4% senior subordinated notes
due 2011, net of capitalized interest. Other expenses include
amortization of certain financing charges.
Our ability to improve our margins will depend on our ability to manage our
variable costs, including selling, general and administrative expense, costs per
gross added subscriber and costs of building out our network. We expect our
operating costs to grow as our operations expand and our customer base and call
volumes increase. Over time, these expenses should represent a reduced
percentage of revenues as our customer base grows. Management will focus on
application of systems and procedures to reduce billing expense and improve
subscriber communication. These systems and procedures will include debit
billing, credit card billing, over-the-air payment and Internet billing systems.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
Net subscriber additions were 239,252 for the year ended December 31, 2001,
bringing our total subscribers to 685,653 as of December 31, 2001, an increase
of 53.6% over our subscriber total as of December 31, 2000. The increase in
subscribers was primarily due to continued strong demand for our digital service
offerings and pricing plans. The wireless industry typically generates a higher
number of subscriber additions and handset sales in the fourth quarter of each
year compared to the other quarters. This is due to the use of retail
distribution, which is dependent on the holiday shopping season, the timing of
new products and service introductions, and aggressive marketing and sales
promotions.
22
Subscriber churn was 1.95% and 1.80% for the years ended December 31, 2001 and
2000, respectively. We believe that our churn rate remains consistently low due
to our high quality system performance, our commitment to quality customer
service and our focused collection efforts.
Average revenue per user, or ARPU, was $58.78 and $60.99 for the years ended
December 31, 2001 and 2000, respectively. We continue to focus on attracting new
customers with rate plans that provide more value to the customer at a higher
average customer bill. The $2.21 decrease, or 3.6%, was primarily the result of
a change in our rate plan mix, as subscribers who are new to the wireless sector
typically begin service with a lower monthly access plan.
Total revenue increased 53.9% to $550.0 million for the year ended December 31,
2001 from $357.3 million for the year ended December 31, 2000. Service revenue
for the year ended December 31, 2001 was $396.2 million, an increase of $171.9
million, or 76.6%, compared to $224.3 million for the year ended December 31,
2000. The increase in service revenue was due primarily to strong growth of
subscribers. Equipment revenue was $26.9 million for the year ended December 31,
2001, a decline of $7.6 million, or 22.0% compared to $34.5 million for the year
ended December 31, 2000. The equipment revenues decline was due primarily to a
decrease in the average revenue per item sold, partially offset by an increase
in the quantities sold. Roaming revenue was $126.9 million for the year ended
December 31, 2001, an increase of $28.4 million, or 28.8%, compared to $98.5
million for the year ended December 31, 2000. The increase in roaming revenue
was the result of increased roaming minutes of use resulting from the expansion
of our network, partially offset by a contractual decrease in our service charge
per minute.
Cost of service was $174.5 million for the year ended December 31, 2001, an
increase of $49.2 million, or 39.3%, compared to $125.3 million for the year
ended December 31, 2000. Approximately 40% of the increase was due to the
expansion of our network. We added approximately 350 cell sites to our network
in 2001. The remaining increase of approximately 60% over the prior year was the
result of an increase in the charges paid to connect calls on other networks,
including access, interconnection and toll related charges. These increases were
due primarily to increased costs of expanding and maintaining our wireless
network to support an increase in the number of subscriber and roamer minutes of
use. Cost of equipment was $71.8 million for the year ended December 31, 2001,
an increase of $2.4 million or 3.5%, compared to $69.4 million for the year
ended December 31, 2000. The increase was due primarily to an increase in gross
subscriber additions, partially offset by a decrease in the average cost of
items sold.
Selling and marketing costs were $108.7 million for the year ended December 31,
2001, an increase of $8.3 million, or 8.3%, compared to $100.4 million for the
year ended December 31, 2000. The increase was primarily due to increased
marketing and selling costs, including commission and manpower related costs.
This increase resulted from a 16.7% increase in gross subscriber additions in
the year ended December 31, 2001, versus the prior year ended December 31, 2000.
The increase was also attributable to increasing the points of distribution in
our company-owned retail store channel by 27% in 2001.
General and administrative expenses were $130.0 million for the year ended
December 31, 2001, an increase of $45.3 million or 53.5%, compared to $84.7
million for the year ended December 31, 2000. The increase was primarily due to
the development and growth of infrastructure and staffing related to information
technology, customer care, collections, retention and other administrative
functions established in conjunction with the corresponding growth in our
subscriber base.
EBITDA represents operating loss plus depreciation and amortization expense and
non-cash compensation. We believe EBITDA provides meaningful additional
information on our operating results and on our ability to service our long-term
debt and other fixed obligations as well as our ability to fund our continued
growth. EBITDA is considered by many financial analysts to be a meaningful
indicator of an entity's ability to meet its future financial obligations.
Growth in EBITDA is considered to be an indicator of future profitability,
especially in a capital-intensive industry such as wireless telecommunications.
EBITDA should not be construed as an alternative to operating income (loss) as
determined in accordance with United States GAAP, as an alternate to cash flows
from operating activities as determined in accordance with United States GAAP,
or as a measure of liquidity. EBITDA was $65.0 million and a loss of $22.5
million for the years ended December 31, 2001 and 2000, respectively. The gain
of $87.5 million resulted primarily from the items discussed above.
Non-cash compensation expense was $17.2 million for the year ended December 31,
2001, an increase of $8.9 million or 107.2%, compared to $8.3 million for the
year ended December 31, 2000. The increase is attributable to the vesting of an
increased number of restricted shares of Holdings' Class A common stock awarded
to management in prior years.
Depreciation and amortization expenses were $127.7 million for the year ended
December 31, 2001, an increase of $33.6 million or 35.7% compared to $94.1
million for the year ended December 31, 2000. The increase relates primarily to
increased depreciation expense due to the growth in the depreciable asset base
resulting from capital expenditures. Depreciation will continue to increase, as
additional portions of our network are placed into service.
Interest and other expense was $131.6 million, net of capitalized interest of
$5.9 million, for the year ended December 31, 2001. Interest and other expense
was $56.2 million, net of capitalized interest of $9.5 million, for the year
ended December 31, 2000. The increase of $75.4 million, or 134.2 % relates
primarily to $32.0 million of interest from our $350.0 million 9 3/8% senior
subordinated notes offering completed in January 2001 and $4.6 million of
interest from our $400.0 million 8 3/4% senior subordinated notes offering
completed in November 2001. For the year ended December 31, 2001, we had a
weighted average interest rate of 9.43% on our average borrowings under our bank
credit facility and our average obligation for the senior subordinated debt as
compared with 10.98% for the year ended December 31, 2000. In addition,
interest expense was higher on the credit facility due to mandatory draws on the
facility in 2001. Other
23
expense of $12.9 million was recorded in 2001. This expense was the result of
paying down $390.0 million of the credit facility with net proceeds from the 8
3/4% senior subordinated notes offering, certain fixed interest rate derivatives
no longer qualify as cash flow hedges in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS No. 137 and SFAS No. 138. The fair value of these non-qualifying hedges on
November 14, 2001 and subsequent changes in their fair value were recorded in
the statement of operations as other expense for the year ended December 31,
2001.
Interest income was $18.3 million for the year ended December 31, 2001, an
increase of $13.3 million, or 266.0%, compared to $5.0 million for the year
ended December 31, 2000. The increase of $13.3 million was due primarily to
interest on higher average cash balances.
Net loss was $198.6 million and $176.9 million for the years ended December 31,
2001 and 2000, respectively. The net loss increase of $21.7 million resulted
primarily from the items discussed above.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
Net subscriber additions were 251,197 and 161,360 for the years ended December
31, 2000 and 1999, respectively. Subscribers were 446,401 and 195,204 as of
December 31, 2000 and 1999, respectively. The increase in subscribers was
primarily due to offering twelve months of service in the 27 markets launched as
of December 31, 1999 as part of our network build-out, launching 10 additional
markets between December 31, 1999 and December 31, 2000 as part of the network
build-out, and continued strong demand for our digital service offerings and
pricing plans.
The wireless industry typically generates a higher number of subscriber
additions and handset sales in the fourth quarter of each year compared to the
other quarters. This is due to the use of retail distribution, which is
dependent on the holiday shopping season, the timing of new products and service
introductions, and aggressive marketing and sales promotions.
Subscriber churn was 1.80% and 1.86% for the years ended December 31, 2000 and
1999, respectively. We believe that our churn rate remains consistently low due
to our high quality system performance, our commitment to quality customer
service and our focused collection efforts.
ARPU was $60.99 and $57.81 for the years ended December 31, 2000 and 1999,
respectively. We continue to focus on attracting new customers with rate plans
that provide more value to the customer at a higher average customer bill.
Total revenue was $357.3 million and $133.2 million for the years ended December
31, 2000 and 1999, respectively. Service revenue was $224.3 million and $63.5
million for the years ended December 31, 2000 and 1999, respectively. The
increase in service revenue of $160.8 million was due primarily to growth of
subscribers. Equipment revenue was $34.5 million and $25.4 million for the years
ended December 31, 2000 and 1999, respectively. The equipment revenues increase
of $9.1 million was due primarily to the increase in gross additions. Roaming
revenue was $98.5 million and $44.3 million for the years ended December 31,
2000 and 1999, respectively. The increase in roaming revenues of $54.2 million
was due to increased roaming minutes of use resulting from our continued network
build-out, partially offset by a contractual decrease in our service charge per
minute.
Cost of service was $125.3 million and $63.2 million for the years ended
December 31, 2000 and 1999, respectively. The increase in costs of service of
$62.1 million was due primarily to increased costs of expanding and maintaining
our wireless network to support an increase in the number of subscriber and
roamer minutes of use. Cost of equipment was $69.4 million and $44.3 million for
the years ended December 31, 2000 and 1999, respectively. The increase of $25.1
million was due primarily to an increase in subscriber additions.
Selling and marketing costs were $100.4 million and $59.6 million for the years
ended December 31, 2000 and 1999, respectively. The increase of $40.8 million
was primarily due to the expansion of our sales distribution channels and
advertising and promotion costs associated with the additional markets launched.
General and administrative expenses were $84.7 million and $42.4 million for the
years ended December 31, 2000 and 1999, respectively. The increase of $42.3
million was primarily due to the development and growth of infrastructure and
staffing related to information technology, customer care, collections,
retention and other administrative functions established in conjunction with
launching additional markets and the corresponding growth in subscriber base.
EBITDA represents operating loss plus depreciation and amortization expense and
non-cash compensation. We believe EBITDA provides meaningful additional
information on our operating results and on our ability to service our long-term
debt and other fixed obligations as well as our ability to fund our continued
growth. EBITDA is considered by many financial analysts to be a meaningful
indicator of an entity's ability to meet its future financial obligations.
Growth in EBITDA is considered to be an indicator of future profitability,
especially in a capital-intensive industry such as wireless telecommunications.
EBITDA should not be construed as an alternative to operating income (loss) as
determined in accordance with United States GAAP, as an alternate to cash flows
from operating activities as determined in accordance with United States GAAP,
or as a measure of liquidity. EBITDA was a loss of $22.5 million and a loss of
$76.2 million for the years ended December 31, 2000 and 1999, respectively. The
decrease in the loss of $53.7 million resulted primarily from the items
discussed above.
Non-cash compensation expense was $8.3 million and $3.3 million for the years
ended December 31, 2000 and 1999, respectively. The increase of $5.0 million is
attributable to the vesting of an increased number of restricted shares of
Holdings' Class A common stock awarded
24
to management in prior years.
Depreciation and amortization expenses were $94.1 million and $45.5 million for
the years ended December 31, 2000 and 1999, respectively. The increase of $48.6
million relates primarily to depreciation of our fixed assets as well as the
amortization on our personal communications services licenses and AT&T
agreements upon the commercial launch of certain markets.
Interest and other expense was $56.2 million, net of capitalized interest of
$9.5 million, for the year ended December 31, 2000. Interest and other expense
was $41.1 million, net of capitalized interest of $12.3 million, for the year
ended December 31, 1999. The increase of $15.1 million relates primarily to
additional draws on our credit facility totaling $182.8 million and less
capitalized interest as a result of assets placed into service. For the year
ended December 31, 2000, we had a weighted average interest rate of 10.98% on
our average borrowings under our bank credit facility and our average obligation
for the 11% senior subordinated discount notes.
Interest income was $5.0 million and $4.9 million for the years ended December
31, 2000 and 1999, respectively. The increase of $0.1 million was due primarily
to interest on slightly higher average cash balances.
Gain on sale of property, equipment and marketable securities was $11.9 million
for the year ended December 31, 1999, relating primarily to the gain recorded on
the tower sale of $11.6 million, and the gain on the sale of marketable
securities of $1.0 million, partially offset by a $0.8 million loss on the sale
of furniture and fixtures. We recorded no gains or losses on the sale of assets
in 2000.
Net loss was $176.9 million and $149.4 million for the years ended December 31,
2000 and 1999, respectively. The net loss increase of $27.5 million resulted
primarily from the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The construction of our network and the marketing and distribution of wireless
communications products and services have required, and will continue to
require, substantial capital. Capital outlays have included license acquisition
costs, capital expenditures for network construction, funding of operating cash
flow losses and other working capital costs, debt service and financing fees and
expenses. We estimate that capital expenditures for network construction will be
approximately $150 million in 2002. We may have additional capital requirements,
which could be substantial, for acquisition of new broadband personal
communications service licenses or for future upgrades for advances in new
technology.
Preferred Stock. As part of our joint venture agreement with AT&T Wireless,
Holdings issued 732,371 shares of its Series A preferred stock to AT&T Wireless
PCS. The Series A preferred stock provides for cumulative dividends at an annual
rate of 10% on the $100 liquidation value per share plus unpaid dividends. These
dividends accrue and are payable quarterly; however, we may defer all cash
payments due to the holders until June 30, 2008, and quarterly dividends are
payable in cash thereafter. To date, all such dividends have been deferred. The
Series A preferred stock is redeemable at the option of its holders beginning in
2018 and at our option, at its liquidation value plus unpaid dividends on or
after February 4, 2008. On and after February 4, 2006, the Series A preferred
stock is also convertible at the option of its holders for shares of Holdings'
Class A common stock having a market value equal to the liquidation value plus
unpaid dividends on the Series A preferred stock. We may not pay dividends on,
or, subject to specified exceptions, repurchase shares of our common stock
without the consent of the holders of the Series A preferred stock.
Credit Facility. On September 14, 2000, Triton PCS, Inc. (Triton PCS), a wholly
owned subsidiary of Holdings, entered into a second amended and restated credit
agreement that provided for a senior secured bank facility with a group of
lenders for an aggregate amount of $750.0 million of borrowings. On November 14,
2001, Triton PCS extinguished $390.0 million of the bank facility with net
proceeds from the 8 3/4% senior subordinated notes offering. Triton PCS began to
repay the then outstanding term loans in quarterly installments, beginning on
February 4, 2002. On March 8, 2002, the credit agreement was amended to create a
new term loan with $125.0 million of available borrowings. As of December 31,
2001, after giving effect to the creation of the new $125.0 million term loan,
Triton PCS had $185.0 million and $300.0 million of outstanding borrowings and
committed availability, respectively, under the bank facility. The bank facility
provides for:
- a $14.4 million senior secured Tranche A term loan maturing in May
2006, all of which was outstanding as of December 31, 2001;
- a $150.0 million senior secured Tranche B term loan maturing in
February 2007, all of which was outstanding as of December 31, 2001;
- a $14.4 million senior secured Tranche C term loan maturing in May
2006, all of which was outstanding as of December 31, 2001;
- a $81.2 million senior secured Tranche D term loan maturing in May
2006, $6.2 million of which was outstanding as of December 31, 2001;
- a $125.0 million senior secured Tranche E term loan maturing in
February 2007, none of which was outstanding as of December 31,
2001; and
- a $100.0 million senior secured revolving credit facility maturing
in May 2006, none of which was outstanding as of
25
December 31, 2001.
The terms of the bank facility will permit Triton PCS, subject to various
terms and conditions, including compliance with specified leverage ratios, to
draw up to the remaining amount available under the facility to finance working
capital requirements, capital expenditures, permitted acquisitions and other
corporate purposes. Borrowings under the facility are subject to customary terms
and conditions. As of December 31, 2001, Triton PCS was in compliance with all
such covenants, and Triton PCS expects to remain compliant in the future.
The commitments to make loans under the revolving credit facility are
automatically and permanently reduced in installments beginning in August 2004
through May 2006. In addition, the credit agreement requires Triton PCS to make
mandatory prepayments of outstanding borrowings under the credit facility based
on a percentage of excess cash flow and contains financial and other covenants
customary for facilities of this type, including limitations on investments and
on Triton PCS's ability to incur debt and pay dividends.
Senior Subordinated Notes. On May 4, 1998, Triton PCS completed the private
placement of $512.0 million principal amount at maturity of 11% senior
subordinated discount notes due 2008 under Rule 144A and Regulation S of the
Securities Act of 1933. The proceeds of the offering, after deducting the
initial purchasers' discount, were $291.0 million. The 11% senior subordinated
discount notes due 2008 are guaranteed by all of Triton PCS's subsidiaries. The
indenture for the notes contains customary covenants, including covenants that
limit our subsidiaries' ability to pay dividends to us, make investments and
incur debt. The indenture also contains customary events of default. On October
30, 1998, Triton PCS closed its registered exchange offer of $512.0 million
aggregate principal amount at maturity of its 11% senior subordinated discount
notes due 2008 for $512.0 million aggregate principal amount at maturity of its
newly issued 11% senior subordinated discount notes due 2008, which have been
registered under the Securities Act.
On January 19, 2001, Triton PCS completed the private placement of $350.0
million principal amount of 9 3/8% senior subordinated notes due 2011 under Rule
144A and Regulation S of the Securities Act. The proceeds of the offering, after
deducting the initial purchasers' discount and estimated expenses, were $337.5
million. The 9 3/8% senior subordinated notes due 2011 are guaranteed by all of
the domestic subsidiaries of Triton PCS. The indenture for the notes contains
customary covenants, including covenants that limit our subsidiaries' ability to
pay dividends to us, make investments and incur debt. The indenture also
contains customary events of default. On June 15, 2001, Triton PCS closed its
registered exchange offer of $350.0 million principal amount of its 9 3/8%
senior subordinated notes due 2011 for $350.0 million principal amount of its
newly issued 9 3/8% senior subordinated notes due 2011, which have been
registered under the Securities Act.
On November 14, 2001, Triton PCS completed the private placement of $400.0
million principal amount of 8 3/4% senior subordinated notes due 2011 under Rule
144A and Regulation S of the Securities Act. The proceeds of the offering, after
deducting the initial purchasers' discount and estimated expenses, were
approximately $390.0 million. The 8 3/4% senior subordinated notes due 2011 are
guaranteed by all of the subsidiaries of Triton PCS. The indenture for the notes
contains customary covenants, including covenants that limit our subsidiaries
ability to pay dividends to us, make investments and incur debt. The indenture
also contains customary events of default. On February 14, 2002, Triton PCS
closed its registered exchange offer of $400.0 million principal amount of its 8
3/4% senior subordinated notes due 2011 for $400.0 million principal amount of
its newly issued 8 3/4% senior subordinated notes due 2011, which have been
registered under the Securities Act.
Equity Offering. On February 28, 2001, we issued and sold 3,500,000 shares of
Class A common stock in a public offering at $32.00 per share and raised
approximately $106.1 million, net of $5.9 million of costs.
Historical Cash Flow. As of December 31, 2001, we had $371.1 million in cash and
cash equivalents, as compared to $1.6 million in cash and cash equivalents at
December 31, 2000. Net working capital was $283.3 million at December 31, 2001
and $(54.3) million at December 31, 2000. The $5.1 million of cash provided by
operating activities during the year ended December 31, 2001 was the result of
our net loss of $198.6 million and $19.3 million of cash used by changes in
working capital and other long-term assets, partially offset by $223.0 million
of depreciation and amortization, accretion of interest, non-cash compensation,
bad debt expense, extraordinary loss on early retirement of debt, loss in equity
investment, loss on disposal of fixed asset, and loss on derivative instruments.
The $318.2 million of cash used by investing activities during the year ending
December 31, 2001 was primarily related to capital expenditures associated with
our network build-out and advances to non-consolidated entities. These capital
expenditures were made primarily to enhance and expand our wireless network in
order to increase capacity and to satisfy subscriber needs and competitive
requirements. We will continue to upgrade our network capacity and service
quality to support our anticipated subscriber growth. The $682.6 million
provided by financing activities during the year ended December 31, 2001 relates
primarily to our $281.0 million draw against our credit facility, $729.0 million
of net proceeds from the issuance of senior subordinated notes and $106.7
million of net proceeds from our equity offering, partially offset by $428.8
million of credit facility repayments.
As of December 31, 2000, we had $1.6 million in cash and cash equivalents, as
compared to $186.3 million in cash and cash equivalents at December 31, 1999.
Net working capital was $(54.3) million at December 31, 2000 and $134.7 million
at December 31, 1999. The $18.1 million of cash used in operating activities
during the year ended December 31, 2000 was the result of our net loss of $176.9
million partially offset by $5.7 million of cash provided by changes in working
capital and other long-term assets and $153.1 million of depreciation and
amortization, accretion of interest, non-cash compensation, deferred income
taxes and bad debt expense. The $346.4 million of cash used by investing
activities during the year ending December 31, 2000 was related primarily to
capital expenditures associated with our network build-out. These capital
expenditures were made primarily to enhance and expand our wireless network in
order to increase capacity and to satisfy subscriber needs and competitive
requirements. We will continue to upgrade our network capacity and service
quality to support our anticipated subscriber growth. The $179.9 million
provided by financing activities during the year ended December 31, 2000 relates
primarily to our $182.8 million draw against our credit facility.
26
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table provides aggregate information about our contractual
obligations and the periods in which payments are due. These disclosures are
also included in the footnotes to the financial statements, and the relevant
footnotes are cross-referenced in the table below.
Payments Due by Period
(dollars in thousands)
------------------------------------------------------------------
Less than After 4 Footnote
Contractual Obligation Total 1 year 1-2 years 3-4 years years Reference
---------------------------------------------------------------------------------------------------------------
Short-term debt $ 12,641 $12,641 $ -- $ -- $ -- 7
Long-term debt 1,344,291 -- 15,491 47,462 1,281,338 7
Operating leases 275,674 44,685 77,901 51,051 102,037 14
---------------------------------------------------------------------------------------------------------------
Total cash contractual
obligations $1,632,606 $57,326 $93,392 $98,513 $1,383,375
RELATIONSHIP WITH LAFAYETTE COMMUNICATIONS COMPANY L.L.C.
We hold a 39% interest in Lafayette, an entrepreneur under FCC guidelines.
During 2001, Lafayette acquired 18 licenses, covering a population of
approximately 6.3 million people in areas of Georgia, South Carolina, Tennessee
and Virginia, for aggregate consideration of $119.6 million. Lafayette has an
application pending for an additional 13 licenses in areas of North Carolina and
Virginia, but this application is subject to pending litigation involving the
parties that formerly held these licenses, NextWave Personal Communications,
Inc. and Urban Comm-North Carolina, Inc. There can be no assurance that this
litigation will be resolved so as to allow these licenses to be acquired by
Lafayette. The Supreme Court recently agreed to review the issues involved in
this litigation, which will delay a resolution until at least 2003, unless an
earlier settlement is reached. FCC license build-out requirements have been
satisfied for 17 of the 18 licenses which Lafayette currently holds.
As of December 31, 2001, we have funded approximately $117.4 million of senior
loans to Lafayette to finance the acquisition of licenses and expect to fund
additional loans for future acquisitions.
Because we do not control Lafayette, we are accounting for our investment under
the equity method. Ordinarily, as the investor, we would record our
proportionate share of Lafayette's losses in our income statement. However,
Triton has committed to provide further financial support to Lafayette in order
to preserve its business relationship. Therefore, even in the absence of a
legally binding obligation, we are now recognizing 100% of Lafayette's losses,
which arise primarily from interest costs related to an assumed note payable to
the FCC.
In accordance with EITF 98-13, "Accounting by an Equity Method Investor for
Investee Losses When the Investor Has Loans to and Investments in Other
Securities of the Investee," when the carrying amount of an investment has been
reduced to zero, the investor should continue to report its share of the equity
method losses in its statement of operations as an adjustment to the adjusted
basis of the loans receivable. As of December 31, 2001, Triton had written its
initial investment in Lafayette down to zero and had reduced its carrying value
of the approximate $117.4 million loan receivable from Lafayette, so as to
reflect 100% of Lafayette's 2001 loss of approximately $718,000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations". SFAS No. 141 supercedes Accounting Principles Board
Opinion No. 16, " Business Combinations". The most significant changes made by
SFAS No. 141 are: (i) requiring that the purchase method of accounting be used
for all business combinations; and (ii) establishing specific criteria for the
recognition of intangible assets separately from goodwill. These provisions are
effective for business combinations for which the date of acquisition is
subsequent to June 30, 2001.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No.142 supercedes Accounting
Principles Board Opinion No. 17 "Intangible Assets". SFAS No. 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition. The provisions of SFAS No. 142 are effective for fiscal years
beginning after December 15, 2001, except for certain provisions related to
goodwill and intangible assets which were acquired after June 30, 2001. We
believe that FCC licenses qualify as indefinite life intangible assets, and we
will accordingly cease our practice of amortizing FCC licenses beginning in
27
2002. Amortization expense for FCC licenses was approximately $6.9 million, for
each of the years ended December 31, 1999, 2000 and 2001, respectively. During
2002, Triton will perform the required impairment tests. We have not yet
determined what the effect of these tests will be on our financial position or
results of operations.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Obligations Associated with the Retirement of Long-Lived
Assets". SFAS No 143 primarily establishes accounting standards for the
recognition and measurement of an asset retirement obligation and its associated
asset retirement costs. The provisions of SFAS No. 143 will be effective for
fiscal years beginning after June 15, 2002. We are currently evaluating the
impact this statement will have on our financial position or results of
operations.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". SFAS No. 144 primarily addresses
significant issues relating to the implementation of SFAS No. 121 and develops a
single accounting model for long-lived assets to be disposed of, whether
previously held and used or newly acquired. The provisions of SFAS No. 144 are
effective for fiscal years beginning after December 15, 2001. We are currently
evaluating the impact this statement will have on our financial position or
results of operations.
INFLATION
We do not believe that inflation has had a material impact on our operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are highly leveraged and, as a result, our cash flows and earnings are
exposed to fluctuations in interest rates. Our debt obligations are U.S. dollar
denominated. Our market risk, therefore, is the potential loss arising from
adverse changes in interest rates. As of December 31, 2001, our debt can be
categorized as follows:
Fixed interest rates:
Senior subordinated notes ................ $1,167,338,000
Subject to interest rate fluctuations:
Bank credit facility ..................... $ 185,000,000
Our interest rate risk management program focuses on minimizing exposure to
interest rate movements, setting an optimal mixture of floating and fixed rate
debt and minimizing liquidity risk. To the extent possible, we manage interest
rate exposure and the floating to fixed ratio through Triton PCS's borrowings,
but sometimes we may use interest rate swaps to adjust our risk profile. We
selectively enter into interest rate swaps to manage interest rate exposure
only.
We utilize interest rate swaps to hedge against the effect of interest rate
fluctuations on our senior debt portfolio. Swap counter parties are major
commercial banks. Through December 31, 2001, we had entered into 13 interest
rate swap transactions having an aggregate non-amortizing notional amount of
$480.0 million. Under these interest rate swap contracts, we agree to pay an
amount equal to a specified fixed-rate of interest times a notional principal
amount and to receive in turn an amount equal to a specified variable-rate of
interest times the same notional amount. The notional amounts of the contracts
are not exchanged. Net interest positions are settled quarterly.
Information, as of December 31, 2001, for the interest rate swaps is as follows:
TERMS NOTIONAL AMOUNT FAIR VALUE
--------------- --------------- ------------
Swaps acting 12/4/98-12/4/03 $ 75,000,000 $(2,124,494)
as hedges 6/12/00-6/12/03 $ 75,000,000 $(4,581,180)
4/6/01-4/6/06 $ 28,823,530 $ (954,381)
Swaps not acting 6/15/00-6/16/03 $ 50,000,000 $(3,042,806)
as hedges 7/17/00-7/15/03 $ 25,000,000 $(1,747,186)
8/15/00-8/15/03 $ 25,000,000 $(1,708,787)
4/6/01-4/6/06 $156,176,470 $(5,178,145)
4/24/01-4/24/06 $ 45,000,000 $(1,246,927)
The swaps commencing on April 6, 2001, which have an aggregate notional amount
of $185 million, can be terminated at the banks' option on April 7, 2003. The
swaps commencing on April 24, 2001, which have an aggregate notional amount of
$45 million, can be terminated at the banks' option on April 24, 2002 and
quarterly thereafter.
The variable rate is capped at 7.5% for the interest rate swaps commencing on
June 12, 2000 through August 15, 2000. These swaps have an aggregate notional
amount of $175 million.
If market swap rates rise over the remaining term of these swaps, as expected,
we should realize other income of approximately $2
28
million for each 50 basis point increase in rates. If rates were to decline, we
would realize other expense of approximately $2 million for each 50 basis point
decrease in rates.
Our cash and cash equivalents consist of short-term assets having initial
maturities of three months or less. While these investments are subject to a
degree of interest rate risk, it is not considered to be material relative to
our overall investment income position.
29
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
TRITON PCS HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements:
Report of PricewaterhouseCoopers LLP F-2
Consolidated Balance Sheets as of December 31, 2000 and 2001 F-3
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 1999, 2000 and 2001 F-4
Consolidated Statements of Redeemable Preferred Equity and Stockholders' Equity (Deficit)
for the years ended December 31, 1999, 2000 and 2001 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
2000 and 2001 F-6
Notes to Consolidated Financial Statements F-7
Schedule I - Condensed Financial Information of Triton PCS Holdings, Inc. 32
Schedule II - Valuation and Qualifying Accounts 35
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Triton PCS Holdings, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on page F-1 of this Form 10-K present fairly, in all
material respects, the financial position of Triton PCS Holdings, Inc. and its
subsidiaries at December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under Item 14(a)(1) on page 31 of this
Form 10-K, present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 15, 2002, except for Note 18,
as to which the date is March 8, 2002
F-2
TRITON PCS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 2000 DECEMBER 31, 2001
-----------------------------------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,617 $ 371,088
Accounts receivable net of $2,906 and 3,345 50,844 68,685
Inventory, net 20,632 29,740
Prepaid expenses 6,764 8,160
Other current assets 1,104 5,301
-----------------------------------------
TOTAL CURRENT ASSETS 80,961 482,974
PROPERTY AND EQUIPMENT:
Land 313 313
Network infrastructure and equipment 648,865 871,523
Office furniture and equipment 54,970 75,651
Capital lease assets 8,071 8,860
Construction in progress 62,027 55,651
-----------------------------------------
774,246 1,011,998
Less accumulated depreciation (111,256) (218,823)
-----------------------------------------
Net property and equipment 662,990 793,175
Intangible assets, net 300,161 283,847
Investment in and advances to non-consolidated entities 16,965 116,731
Other long term assets 4,813 6,878
-----------------------------------------
TOTAL ASSETS $ 1,065,890 $ 1,683,605
=========================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 84,267 $ 97,792
Bank overdraft liability 13,670 22,265
Accrued payroll & related expenses 14,265 17,381
Accrued expenses 6,324 6,634
Current portion of long-term debt 1,845 12,641
Deferred revenue 6,128 12,099
Deferred gain on sale of property and equipment 1,190 1,190
Accrued interest 1,423 20,351
Other current liabilities 6,154 9,307
-----------------------------------------
TOTAL CURRENT LIABILITIES 135,266 199,660
Long-term debt:
Bank credit facility 332,750 174,441
Senior subordinated debt 391,804 1,167,338
Capital lease obligation 3,931 2,512
-----------------------------------------
Total Long-term debt: 728,485 1,344,291
Deferred income taxes 11,990 11,935
Deferred revenue 1,192 3,129
Fair value of derivative instruments -- 20,584
Deferred gain on sale of property and equipment 29,452 28,262
-----------------------------------------
TOTAL LIABILITIES 906,385 1,607,861
Series A Redeemable Convertible Preferred Stock, $.01 par value,
1,000,000 shares authorized, 786,253 shares issued and outstanding 104,068 114,965
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 50,000,000 shares authorized,
no shares issued or outstanding -- --
Series C Preferred Stock, $.01 par value, 3,000,000 shares authorized,
no shares issued or outstanding -- --
Series D Preferred Stock, $.01 par value, 16,000,000 shares authorized,
543,683 shares issued and outstanding 5 5
Class A Common Stock, $.01 par value, 520,000,000 shares authorized,
54,096,303 shares issued and outstanding as of December 31, 2000 and
59,438,555 shares issued and 59,327,637 shares outstanding as of December 31, 2001 541 594
Class B Non-voting Common Stock, $.01 par value, 60,000,000 shares authorized,
8,210,827 shares issued and outstanding as of December 31, 2000 and 7,926,099
shares issued and outstanding as of December 31, 2001 82 79
Additional paid-in capital 459,999 623,335
Accumulated deficit (362,997) (561,580)
Accumulated other comprehensive income -- (7,660)
Deferred compensation (42,193) (92,619)
Common stock held in treasury at cost (0 and 110,918, respectively) -- (1,375)
-----------------------------------------
TOTAL STOCKHOLDERS' EQUITY 55,437 (39,221)
-----------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,065,890 $ 1,683,605
=========================================
See accompanying notes to consolidated financial statements.
F-3
TRITON PCS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 2000 2001
---- ---- ----
Revenues:
Service $ 63,545 $ 224,312 $ 396,152
Roaming 44,281 98,492 126,909
Equipment 25,405 34,477 26,928
----------------------------------------------------------
Total revenue 133,231 357,281 549,989
Expenses:
Cost of service (excluding noncash
compensation of $142, $1,026 and $2,544
for the years ended December 31, 1999,
2000 and 2001, respectively) 63,200 125,288 174,500
Cost of equipment 44,321 69,398 71,755
Selling and marketing (excluding
noncash compensation of $213, $1,274
and $1,911 for the years ended
December 31, 1999, 2000 and 2001,
respectively) 59,580 100,403 108,737
General and administrative (excluding
noncash compensation of $2,954,
$5,967 and $12,736 for the years
ended December 31, 1999, 2000 and
2001, respectively) 42,354 84,682 129,955
Non-cash compensation 3,309 8,267 17,191
Depreciation and amortization 45,546 94,131 127,677
----------------------------------------------------------
Loss from operations (125,079) (124,888) (79,826)
Interest and other expense 41,061 56,229 131,581
Interest and other income 4,852 4,957 18,322
Gain/(loss) on sale of property, equipment
and marketable securities, net 11,928 -- (174)
----------------------------------------------------------
Loss before taxes and extraordinary item (149,360) (176,160) (193,259)
Income tax provision -- 746 1,372
----------------------------------------------------------
Loss before extraordinary item (149,360) (176,906) (194,631)
Extraordinary loss on early extinguishment
of debt -- -- 3,952
----------------------------------------------------------
Net loss (149,360) (176,906) (198,583)
Accretion of preferred stock 8,725 9,865 10,897
----------------------------------------------------------
Net loss available to common stockholders $ (158,085) $ (186,771) $ (209,480)
==========================================================
Other comprehensive loss, net of tax:
Cumulative effect of change in
accounting principle -- -- 4,162
Unrealized loss on derivative instruments -- -- 3,498
----------------------------------------------------------
Comprehensive loss $ (158,085) $ (186,771) $ (217,140)
==========================================================
Net loss per common share (Basic and Diluted):
Income before extraordinary item $ (9.25) $ (2.85) $ (2.99)
Extraordinary loss on early extinguishment
of debt -- -- (0.06)
----------------------------------------------------------
Net Loss (9.25) (2.85) (3.05)
Accretion of preferred stock (0.54) (0.16) (0.17)
----------------------------------------------------------
Net loss available to common stockholders $ (9.79) $ (3.01) $ (3.22)
==========================================================
Weighted average common shares outstanding
(Basic and Diluted) 16,142,482 62,058,844 64,968,315
==========================================================
See accompanying notes to consolidated financial statements.
F-4
TRITON PCS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED EQUITY AND
STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in Thousands)
SERIES A SERIES C SERIES D
REDEEMABLE PREFERRED PREFERRED
PREFERRED STOCK STOCK STOCK
Balance at December 31, 1998 $ 80,090 $ 19 $ 5
====================================================
Savannah/Athens Exchange 5,388 -- --
Issuance of stock in connection
with Norfolk transaction -- -- --
Private equity investment -- -- --
Deferred compensation -- -- --
Non-cash compensation -- -- --
Issuance of stock in connection
with initial public offering -- -- --
Proceeds from issuance of Series
C Preferred Stock -- 3 --
Conversion of Series C Preferred
Stock to Class A Common Stock and Class B
Non-voting Common Stock -- (22) --
Accreted dividends 8,725 -- --
Net Loss -- -- --
----------------------------------------------------
Balance at December 31, 1999 $ 94,203 $ -- $ 5
====================================================
Deferred compensation -- -- --
Non-cash compensation -- -- --
Costs in connection with initial public offering -- -- --
Issuance of stock in connection
with Employee Stock Purchase Plan -- -- --
Accreted dividends 9,865 -- --
Net Loss -- -- --
----------------------------------------------------
Balance at December 31, 2000 $ 104,068 $ -- $ 5
====================================================
Class A issuance -- -- --
Conversion of Class B Non-voting
Common Stock to Class A Common
Stock -- -- --
Costs in connection with equity
offering -- -- --
Deferred compensation, net of
forfeitures -- -- --
Non-cash compensation -- -- --
Issuance of stock in connection
with Employee Stock Purchase Plan -- -- --
Accreted dividends 10,897 -- --
Fair value of cash flow hedges -- -- --
Treasury stock purchase -- -- --
Net loss -- -- --
----------------------------------------------------
Balance at December 31, 2001 $ 114,965 $ -- $ 5
====================================================
CLASS B NON-
CLASS A VOTING ADDITIONAL
COMMON COMMON PAID-IN
STOCK STOCK CAPITAL
Balance at December 31, 1998 $ 62 $ -- $ 231,904
====================================================
Savannah/Athens Exchange -- -- 5,043
Issuance of stock in connection
with Norfolk transaction -- -- 2,169
Private equity investment -- -- --
Deferred compensation -- -- 15,791
Non-cash compensation -- -- --
Issuance of stock in connection
with initial public offering 115 -- 190,130
Proceeds from issuance of Series
C Preferred Stock -- -- 337
Conversion of Series C Preferred
Stock to Class A Common Stock and Class B
Non-voting Common Stock 360 82 (420)
Accreted dividends -- -- (8,725)
Net Loss -- -- --
----------------------------------------------------
Balance at December 31, 1999 $ 537 $ 82 $ 436,229
====================================================
Deferred compensation 4 -- 33,369
Non-cash compensation -- -- --
Costs in connection with initial public offering -- -- (462)
Issuance of stock in connection
with Employee Stock Purchase Plan -- -- 728
Accreted dividends -- -- (9,865)
Net Loss -- -- --
----------------------------------------------------
Balance at December 31, 2000 $ 541 $ 82 $ 459,999
====================================================
Class A issuance 35 -- 106,645
Conversion of Class B Non-voting
Common Stock to Class A Common
Stock 3 (3) --
Costs in connection with equity
offering -- -- (1,268)
Deferred compensation, net of
forfeitures 15 -- 67,837
Non-cash compensation -- -- --
Issuance of stock in connection
with Employee Stock Purchase Plan -- -- 1,019
Accreted dividends -- -- (10,897)
Fair value of cash flow hedges -- -- --
Treasury stock purchase -- -- --
Net loss -- -- --
----------------------------------------------------
Balance at December 31, 2001 $ 594 $ 79 $ 623,335
====================================================
SUBSCRIPTON DEFERRED
RECEIVABLE COMPENSATION AOCI
Balance at December 31, 1998 $ (95,000) $ (4,370) $ --
======================================================
Savannah/Athens Exchange -- -- --
Issuance of stock in connection
with Norfolk transaction -- -- --
Private equity investment 95,000 -- --
Deferred compensation -- (15,791) --
Non-cash compensation -- 3,309 --
Issuance of stock in connection
with initial public offering -- -- --
Proceeds from issuance of Series
C Preferred Stock -- -- --
Conversion of Series C Preferred
Stock to Class A Common Stock and Class B
Non-voting Common Stock -- -- --
Accreted dividends -- -- --
Net Loss -- -- --
------------------------------------------------------
Balance at December 31, 1999 $ -- $ (16,852) $ --
======================================================
Deferred compensation -- (33,373) --
Non-cash compensation -- 8,032 --
Costs in connection with initial public offering -- -- --
Issuance of stock in connection
with Employee Stock Purchase Plan -- -- --
Accreted dividends -- -- --
Net Loss -- -- --
------------------------------------------------------
Balance at December 31, 2000 $ -- $ (42,193) $ --
======================================================
Class A issuance -- -- --
Conversion of Class B Non-voting
Common Stock to Class A Common
Stock -- -- --
Costs in connection with equity
offering -- -- --
Deferred compensation, net of
forfeitures -- (67,852) --
Non-cash compensation -- 17,426 --
Issuance of stock in connection
with Employee Stock Purchase Plan -- -- --
Accreted dividends -- -- --
Fair value of cash flow hedges -- -- (7,660)
Treasury stock purchase -- -- --
Net loss -- -- --
------------------------------------------------------
Balance at December 31, 2001 $ -- $ (92,619) $ (7,660)
======================================================
TREASURY ACCUMULATED
STOCK DEFICIT TOTAL
Balance at December 31, 1998 $ -- $ (36,731) $ 95,889
=================================================
Savannah/Athens Exchange -- -- 5,043
Issuance of stock in connection
with Norfolk transaction -- -- 2,169
Private equity investment -- -- 95,000
Deferred compensation -- -- --
Non-cash compensation -- -- 3,309
Issuance of stock in connection
with initial public offering -- -- 190,245
Proceeds from issuance of Series
C Preferred Stock -- -- 340
Conversion of Series C Preferred
Stock to Class A Common Stock and Class B
Non-voting Common Stock -- -- --
Accreted dividends -- -- (8,725)
Net Loss (149,360) (149,360)
-------------------------------------------------
Balance at December 31, 1999 $ -- $(186,091) $ 233,910
=================================================
Deferred compensation -- -- --
Non-cash compensation -- -- 8,032
Costs in connection with initial public offering -- -- (462)
Issuance of stock in connection
with Employee Stock Purchase Plan -- -- 728
Accreted dividends -- -- (9,865)
Net Loss -- (176,906) (176,906)
-------------------------------------------------
Balance at December 31, 2000 $ -- $(362,997) $ 55,437
=================================================
Class A issuance -- -- 106,680
Conversion of Class B Non-voting
Common Stock to Class A Common
Stock -- -- --
Costs in connection with equity
offering -- -- (1,268)
Deferred compensation, net of
forfeitures -- -- --
Non-cash compensation -- -- 17,426
Issuance of stock in connection
with Employee Stock Purchase Plan -- -- 1,019
Accreted dividends -- -- (10,897)
Fair value of cash flow hedges -- -- (7,660)
Treasury stock purchase (1,375) -- (1,375)
Net loss -- (198,583) (198,583)
-------------------------------------------------
Balance at December 31, 2001 $ (1,375) $(561,580) $ (39,221)
=================================================
See accompanying notes to consolidated financial statements
F-5
TRITON PCS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 2000 2001
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(149,360) $(176,906) $(198,583)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 45,546 94,131 127,677
Deferred income taxes -- 272 --
Accretion of interest 38,213 42,688 48,271
Extraordinary loss on early retirement of debt -- -- 3,952
Loss on equity investment -- -- 718
Bad debt expense 2,758 7,763 12,103
(Gain)/loss on sale of property, equipment and marketable securities, net (11,928) -- 174
Non-cash compensation 3,309 8,267 17,191
Loss on derivative instruments -- -- 12,924
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (28,587) (29,543) (29,944)
Inventory (13,837) (5,362) (9,108)
Prepaid expenses and other current assets (1,035) (178) (5,664)
Intangible and other assets (3,408) (1,776) (4,691)
Accounts payable 45,691 24,422 (10,994)
Bank overdraft liability 9,549 4,121 8,595
Accrued payroll and liabilities 6,272 6,413 3,661
Deferred revenue 3,281 3,727 7,908
Accrued interest -- 797 18,928
Other liabilities 2,014 3,032 1,963
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (51,522) (18,132) 5,081
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (285,866) (329,479) (214,713)
Proceeds from sale of property and equipment, net 69,712 -- 201
Investments in and advances to non consolidated entity -- (16,965) (100,484)
Proceeds from maturity of marketable securities 47,855 -- --
Purchase of marketable securities (23,239) -- --
Other -- -- (3,185)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (191,538) (346,444) (318,181)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net 190,245 -- --
Proceeds from issuance of subordinated debt, net of discount -- -- 728,995
Proceeds from issuance of stock in connection with private equity investment 95,000 -- --
Proceeds from equity offering -- -- 106,680
Proceeds from issuance of stock in connection with Norfolk transaction 2,169 -- --
Proceeds from issuance of Series C Preferred Stock 340 -- --
Borrowings under credit facility 10,000 182,750 281,000
Payments under credit facility (10,000) -- (428,750)
Contributions under employee stock purchase plan -- 728 1,019
Payment of deferred transaction costs (3,592) (499) (1,142)
Payment of deferred financing costs -- (2,050) (1,899)
Repayments from (advances to) related-party, net (148) 1,083 16
Purchase of treasury stock -- -- (1,375)
Principal payments under capital lease obligations (875) (2,070) (1,973)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 283,139 179,942 682,571
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 40,079 (184,634) 369,471
Cash and cash equivalents, beginning of period 146,172 186,251 1,617
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 186,251 $ 1,617 $ 371,088
========= ========= =========
See accompanying notes to consolidated financial statements
F-6
TRITON PCS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Triton PCS
Holdings, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany accounts or balances have been eliminated in
consolidation. The more significant accounting policies follow:
(a) NATURE OF OPERATIONS
In February 1998, the Company entered into a joint venture with AT&T
Wireless Services, Inc. ("AT&T Wireless") whereby AT&T Wireless contributed to
the Company personal communications services licenses for 20 MHz of authorized
frequencies covering approximately 13.5 million potential subscribers in a
contiguous geographic area encompassing portions of Virginia, North Carolina,
South Carolina, Tennessee, Georgia and Kentucky. As part of this agreement, the
Company was granted the right to be the exclusive provider of wireless mobility
services using equal emphasis co-branding with AT&T Corp. in the Company's
licensed markets (see Note 2).
The Company began generating revenues from the sale of personal
communications services in the first quarter of 1999 as part of its initial
personal communications services network build-out. The Company has successfully
launched service in all 37 markets of its licensed area. As of December 31,
2001, the Company's network in these markets included 2,039 cell sites and seven
switches.
(b) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(c) CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, demand deposits and short
term investments with initial maturities of three months or less. The Company
maintains cash balances at financial institutions, which at times exceed the
$100,000 FDIC limit. Bank overdraft balances are classified as a current
liability.
(d) INVENTORY
Inventory, consisting primarily of wireless handsets and accessories held
for resale, is valued at lower of cost or market. Cost is determined by the
first-in, first-out method.
(e) PROPERTY AND EQUIPMENT
Property and equipment is carried at original cost. Depreciation is
calculated based on the straight-line method over the estimated useful lives of
the assets, which are ten to twelve years for network infrastructure and
equipment and three to five years for office furniture and equipment. In
addition, the Company capitalizes interest on expenditures related to the
build-out of the network. Expenditures for repairs and maintenance are charged
to expense as incurred. When property is retired or otherwise disposed, the cost
of the property and the related accumulated depreciation are removed from the
accounts, and any resulting gains or losses are reflected in the statement of
operations.
Capital leases are included under property and equipment with the
corresponding amortization included in depreciation. The related financial
obligations under the capital leases are included in current and long-term
obligations. Capital leases are amortized over the useful lives of the
respective assets.
(f) CONSTRUCTION IN PROGRESS
Construction in progress includes expenditures for the design,
construction and testing of the Company's PCS network and also includes costs
associated with developing information systems. The Company capitalizes interest
on certain of its construction in progress activities. When the assets are
placed in service, the Company transfers the assets to the appropriate property
and equipment category and depreciates these assets over their respective
estimated useful lives.
F-7
(g) INVESTMENT IN PCS LICENSES
Investments in PCS licenses are recorded at their estimated fair value at
the time of acquisition. Licenses are amortized on a straight-line basis over 40
years, as there is an observable market for PCS licenses and an indefinite life.
SFAS No. 142, which includes the requirement to test goodwill and indefinite
lived intangible assets for impairment rather than amortize them, is effective
for fiscal years beginning after December 15, 2001. We believe that FCC licenses
qualify as indefinite life intangibles, and we will accordingly cease our
practice of amortizing FCC licenses beginning in 2002 (see Note 1(r)).
(h) DEFERRED COSTS
Costs incurred in connection with the negotiation and documentation of
debt instruments are deferred and amortized over the terms of the debt
instruments using the effective interest rate method.
Costs incurred in connection with the issuance and sale of equity
securities are deferred and netted against the proceeds of the stock issuance
upon completion of the transaction. Costs incurred in connection with
acquisitions are deferred and included in the aggregate purchase price allocated
to the net assets acquired upon completion of the transaction.
(i) LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived assets
when events and circumstances warrant such review. The carrying value of a
long-lived asset is considered impaired when the anticipated undiscounted cash
flows from such assets are separately identifiable and are less than the
carrying value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined by using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Measurement of the impairment, if any,
will be based upon the difference between carrying value and the fair value of
the asset. Beginning in 2002, the Company will apply the principles of SFAS No.
144 (see Note 1(r)).
(j) INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED ENTITIES
Investment in and advances to non-consolidated entities consists of the
Company's investments and loans to Lafayette Communications Company L.L.C.
("Lafayette"). The Company has a 39% equity investment in Lafayette, and because
the Company does not control Lafayette, the Company accounts for its investment
under the equity method. As the Company has committed to provide further
financial support to Lafayette in order to preserve its business relationship,
the Company recognizes 100% of Lafayette's losses, which arise primarily from
interest costs related to an assumed note payable to the FCC. The carrying value
of the loans made to Lafayette have been adjusted for any losses in excess of
the Company's initial investment.
(k) REVENUE RECOGNITION
Revenues from operations consist of charges to customers for activation,
monthly access, airtime, roaming charges, long-distance charges, and equipment
sales. Revenues are recognized as services are rendered. Unbilled revenues
result from service provided from the billing cycle date to the end of the month
and from other carrier's customers using the Company's systems. Activation
revenue is deferred and recognized over the estimated subscriber's life.
Equipment sales are recognized upon delivery to the customer and reflect charges
to customers for wireless handset equipment purchases.
(l) INCOME TAXES
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using statutory
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
(m) FINANCIAL INSTRUMENTS
Derivative financial instruments are accounted for in accordance with SFAS
No. 133. Derivatives, which qualify as a cash flow hedge, are reflected on the
balance sheet at their fair market value and changes in their fair value are
reflected in Accumulated Other Comprehensive Income and reclassified into
earnings as the underlying hedge items affect earnings. Financial instruments,
which are deemed speculative, are reflected on the balance sheet at their fair
market value and changes in their fair value are recorded as other income or
expense on the income statement (see Note 11).
(n) ADVERTISING COSTS
The Company expenses advertising costs when the advertisement occurs.
Total advertising expense amounted to $25.8 million in 1999, $43.1 million in
2000 and $36.3 million in 2001.
F-8
(o) CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and equivalents and
accounts receivable. The Company's credit risk is managed through
diversification and by investing its cash and cash equivalents in high-quality
investment holdings.
Concentrations of credit risk with respect to accounts receivable are
limited due to a large customer base. Initial credit evaluations of customers'
financial condition are performed and security deposits are obtained for
customers with a higher credit risk profile. The Company maintains reserves for
potential credit losses.
(p) NET LOSS PER COMMON SHARE (BASIC AND DILUTED)
Basic loss per share excludes any dilutive effects of convertible
securities. Basic loss per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted loss per share is
computed using the weighted-average number of common and common stock equivalent
shares outstanding during the period. Common equivalent shares of Series A
convertible preferred stock, Series D convertible preferred stock and 1,756,027
shares of unvested restricted Class A common stock issued under the long-term
incentive plan are excluded from the computation as their effect is
antidilutive.
(q) RECLASSIFICATIONS
Certain reclassifications have been made to prior period financial
statements to conform to the current period presentation.
(r) NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations". SFAS No. 141 supercedes Accounting Principles
Board Opinion No. 16, " Business Combinations". The most significant changes
made by SFAS No. 141 are: (i) requiring that the purchase method of accounting
be used for all business combinations; and (ii) establishing specific criteria
for the recognition of intangible assets separately from goodwill. These
provisions are effective for business combinations for which the date of
acquisition is subsequent to June 30, 2001.
In June 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No.142 supercedes Accounting
Principles Board Opinion No. 17 "Intangible Assets". SFAS No. 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition. The provisions of SFAS No. 142 are effective for fiscal years
beginning after December 15, 2001, except for certain provisions related to
goodwill and intangible assets which were acquired after June 30, 2001. The
Company believes that FCC licenses qualify as indefinite life intangible assets,
and we will accordingly cease our practice of amortizing FCC licenses beginning
in 2002. Amortization expense for FCC licenses was approximately $6.9 million
for each of the years ended December 31, 1999, 2000 and 2001, respectively.
During 2002, the Company will perform the required impairment tests. The Company
has not yet determined what the effect of these tests will be on its financial
position or results of operations. However, we continue to monitor discussions
at the Emerging Issues Task Force and the Securities Exchange Commission on how
we will perform the impairment analysis.
In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Obligations Associated with the Retirement of Long-Lived
Assets". SFAS No 143 primarily establishes accounting standards for the
recognition and measurement of an asset retirement obligation and its associated
asset retirement costs. The provisions of SFAS No. 143 will be effective for
fiscal years beginning after June 15, 2002. Management is currently evaluating
the impact this statement will have on the Company's financial position or
results of operations.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No.
144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". SFAS No. 144 primarily addresses
significant issues relating to the implementation of SFAS No. 121 and develops a
single accounting model for long-lived assets to be disposed of, whether
previously held and used or newly acquired. The provisions of SFAS No. 144 are
effective for fiscal years beginning after December 15, 2001. Management is
currently evaluating the impact this statement will have on the Company's
financial position or results of operations.
(2) AT&T TRANSACTION
On October 8, 1997, the Company entered into a Securities Purchase
Agreement with AT&T Wireless PCS LLC (as successor to AT&T Wireless PCS, Inc.)
("AT&T Wireless PCS") and the stockholders of the Company, whereby Triton was to
become the exclusive provider of wireless mobility services in the AT&T
Southeast regions.
On February 4, 1998, the Company executed the Closing Agreement with AT&T
Wireless PCS and the other stockholders of the Company finalizing the
transactions contemplated in the Security Purchase Agreement. Under the Closing
Agreement, the Company issued 732,371 shares of Series A convertible preferred
stock and 366,131 shares of Series D convertible preferred stock to AT&T
Wireless PCS in exchange for 20 MHz A and B block PCS licenses covering certain
areas in the southeastern United States and the execution of certain
F-9
related agreements, as further described below. The fair value of the FCC
licenses was $92.8 million with an estimated useful life of 40 years. This
amount is substantially in excess of the tax basis of such licenses, and
accordingly, the Company recorded a deferred tax liability, upon the closing of
the transaction.
In accordance with the Closing Agreement, the Company and AT&T Wireless
PCS and the other stockholders of the Company consented to executing the
following agreements:
(a) STOCKHOLDERS' AGREEMENT
The Stockholders' Agreement expires on February 4, 2009. The agreement was
amended and restated on October 27, 1999 in connection with the Company's
initial public offering and includes the following sub-agreements:
RESALE AGREEMENT - The Company is required to enter into a Resale
Agreement at the request of AT&T Wireless PCS, which provides AT&T Wireless PCS
with the right to purchase and resell on a nonexclusive basis access to and
usage of the Company's services in the Company's Licensed Area. The Company will
retain the continuing right to market and sell its services to customers and
potential customers in competition with AT&T Wireless PCS.
EXCLUSIVITY - None of the stockholders who are party to the Stockholders'
Agreement will provide or resell, or act as the agent for any person offering,
within the defined territory wireless mobility telecommunications services
initiated or terminated using frequencies licensed by the FCC and Time Division
Multiple Access or, in certain circumstances such as if AT&T Wireless PCS and
its affiliates move to a successor technology in a majority of the defined
southeastern region, a successor technology ("Company Communications Services"),
except AT&T Wireless PCS and its affiliates may (i) resell or act as agent for
the Company in connection with the provision of Company Communications Services,
(ii) provide or resell wireless telecommunications services to or from certain
specific locations, and (iii) resell Company Communications Services for another
person in any area where the Company has not placed a system into commercial
service, provided that AT&T Wireless PCS has provided the Company with prior
written notice of AT&T Wireless PCS's intention to do so and only dual band/dual
mode phones are used in connection with such resale activities.
Additionally, with respect to the markets listed in the Roaming Agreement,
the Company and AT&T Wireless PCS agreed to cause their respective affiliates in
their home carrier capacities to program and direct the programming of customer
equipment so that the other party in its capacity as the serving carrier is the
preferred provider in such markets, and refrain from inducing any of its
customers to change such programming.
BUILD-OUT - The Company is required to conform to certain requirements
regarding the construction of the Company's PCS system. In the event that the
Company breaches these requirements, AT&T Wireless may terminate its exclusivity
provisions. This provision has been satisfied.
DISQUALIFYING TRANSACTIONS - In the event of a merger, asset sale, or
consolidation, as defined, involving AT&T Corp. (or its affiliates) and another
person that derives from telecommunications businesses annual revenues in excess
of $5.0 billion, derives less than one third of its aggregate revenues from
wireless telecommunications, and owns FCC licenses to offer wireless mobility
telecommunications services to more than 25% of the population within the
Company's territory, AT&T Wireless PCS and the Company have certain rights. AT&T
Wireless PCS may terminate its exclusivity in the territory in which the other
party overlaps that of the Company. In the event that AT&T Wireless PCS proposes
to sell, transfer, or assign to a non-affiliate its PCS system owned and
operated in Charlotte, NC; Atlanta, GA; Baltimore, MD; and Washington, DC, BTAs,
then AT&T Wireless PCS will provide the Company with the opportunity for a 180
day period to have AT&T Wireless PCS jointly market the Company's licenses that
are included in the MTA that AT&T Wireless PCS is requesting to sell.
(b) LICENSE AGREEMENT
Pursuant to a Network Membership License Agreement, dated February 4, 1998
(as amended, the "License Agreement"), between AT&T Corp. and the Company, AT&T
Corp. granted to the Company a royalty-free, nontransferable, nonsublicensable,
limited right, and license to use certain licensed marks (the "Licensed Marks")
solely in connection with certain licensed activities. The Licensed Marks
include the logo containing the AT&T and globe design and the expression
"Member, AT&T Wireless Services Network". The License Agreement also grants to
the Company the right and license to use Licensed Marks on certain permitted
mobile phones. The licensed activities include (i) the provision to end-users
and resellers, solely within the defined territory, of Company Communications
Services on frequencies licensed to the Company for Commercial Mobile Radio
Services ("CMRS") provided in accordance with the AT&T PCS contributed licenses
and permitted cellular licenses (collectively, the "Licensed Services") and (ii)
marketing and offering the Licensed Services within the defined territory.
The License Agreement has a five-year term, expiring February 4, 2003,
which renews for an additional five-year period if neither party terminates the
License Agreement. The license may be terminated at any time in the event of the
Company's significant breach, including the Company's misuse of any Licensed
Marks, the Company's license or assignment of any of the rights in the License
Agreement, the Company's failure to maintain AT&T quality standards or if the
Company experiences a change of control. The License Agreement, along with the
Exclusivity and Resale Agreements, has a fair value of $20.3 million.
Amortization commenced upon the effective date of the License Agreement.
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(c) ROAMING AGREEMENT
Pursuant to the Intercarrier Roamer Service Agreement, dated as of
February 4, 1998 (as amended, the "Roaming Agreement"), between AT&T Wireless
and the Company, each of AT&T Wireless and the Company agrees to provide (each
in its capacity as serving provider, the "Serving Carrier") wireless mobility
radiotelephone service for registered customers of the other party's (the "Home
Carrier") customers while such customers are out of the Home Carrier's
geographic area and in the geographic area where the Serving Carrier (itself or
through affiliates) holds a license or permit to construct and operate a
wireless mobility radio/telephone system and station. Each Home Carrier whose
customers receive service from a Serving Carrier shall pay to such Serving
Carrier 100% of the Serving Carrier's charges for wireless service and 100% of
pass-through charges (i.e., toll or other charges).
The fair value of the Roaming Agreement, as determined by an independent
appraisal, was $5.5 million, with an estimated useful life of 20 years.
Amortization commenced upon the effective date of the agreement.
(3) ACQUISITIONS
SAVANNAH/ATHENS EXCHANGE
On June 8, 1999, Triton completed an exchange of certain licenses with
AT&T Wireless, transferring licenses to the Hagerstown, Maryland and Cumberland,
Maryland Basic Trading Areas ("BTAs") covering 512,000 potential customers in
exchange for licenses to certain counties in the Savannah, GA and Athens, GA
BTAs, which cover 517,000 potential customers. All acquired licenses are
contiguous to Triton's existing service area. In addition, consideration of
approximately $10.4 million in Series A and Series D preferred stock was issued
to AT&T Wireless PCS.
(4) TOWER SALES
On September 22, 1999, Triton sold and transferred to American Tower
Corporation ("ATC"), 187 of its towers, related assets and certain liabilities.
The purchase price was $71.1 million, reflecting a price of $380,000 per site.
Triton also contracted with ATC for an additional 100 build-to-suit towers in
addition to its current contracted 125 build-to-suit towers, and the parties
extended their current agreement for turnkey services for co-location sites
through 2001. An affiliate of an investor has acted as Triton's financial
advisor in connection with the sale of the personal communications towers.
Triton also entered into a master lease agreement with ATC, in which
Triton has agreed to pay ATC monthly rent for the continued use of the space
that Triton occupied on the towers prior to the sale. The initial term of the
lease is for 12 years and the monthly rental amount is subject to certain
escalation clauses over the life of the lease and related option. Annual
payments under the operating lease are $2.7 million.
The carrying value of towers sold was $25.7 million. After deducting $1.6
million of selling costs, the gain on the sale of the towers was approximately
$43.8 million, of which $11.7 million was recognized immediately to reflect the
portion of the gain in excess of the present value of the future minimum lease
payments, and $32.1 million was deferred and will be recognized over operating
lease terms. As of December 31, 2001, $2.7 million had been amortized.
(5) STOCK COMPENSATION AND EMPLOYEE BENEFITS
RESTRICTED AWARDS:
The Company has made grants of restricted stock to provide incentive to
key employees and non-management directors and to further align the interests of
such individuals with those of its stockholders. Grants of restricted stock
generally are made annually under the long-term incentive plan and deferred
compensation is recorded for these awards based upon the stock's fair value at
the date of issuance. Grants vest over a four to five year period. The following
restricted stock grants were made in 1999, 2000 and 2001 respectively:
1999: In January 1999, the Company granted, through a common stock trust
established for grants of common stock to management employees and independent
directors (the "Trust"), 61,746 shares of restricted common stock to an employee
and deferred compensation of $0.2 million was recorded. The shares are subject
to five-year vesting provisions and are amortized over the vesting period as
non-cash compensation.
In March 1999, an employee terminated employment with the Company and
forfeited $0.1 million for deferred compensation and returned 74,095 shares to
the Trust.
On June 8, 1999, 109,222 additional shares were issued as anti-dilutive
protection related to capital contributions received by the Company in
connection with the license exchange and acquisition transaction. The shares are
subject to five-year vesting provisions. Deferred compensation of $1.2 million
was recorded based on the estimated value of the shares at the date of issuance.
On June 30, 1999, the Company granted, through the Trust, 593,124 shares
of restricted common stock to certain management employees. The shares are
subject to five-year vesting provisions. Deferred compensation of $8.5 million
was recorded based on the estimated fair value at the date of issuance.
F-11
On August 9, 1999, the Company granted, through the Trust, 356,500 shares
of restricted common stock to certain management employees. These shares are
subject to vesting provisions. Deferred compensation of approximately $5.1
million was recorded based on the estimated fair value at the date of issuance.
In September 1999, the Company sold to certain directors and an officer,
subject to stock purchase agreements, an aggregate of 3,400 shares of Series C
preferred stock (which were converted into 78,200 shares of common stock in the
Company's initial public offering) for a purchase price of $100.00 per share.
Compensation expense of $0.8 million was recorded based on the excess of the
estimated fair value at the date of issuance over amounts paid.
2000: On March 22, 2000, the Company granted, through the Trust, 229,072
shares of restricted Class A common stock to certain management employees. These
shares are subject to five-year vesting provisions. Deferred compensation of
approximately $15.1 million was recorded based on the estimated fair value at
the date of issuance.
On May 23, 2000, the Company granted, through the Trust, 75,000 shares of
restricted Class A common stock to a management employee. These shares are
subject to five-year vesting provisions. Deferred compensation of approximately
$3.4 million was recorded based on the estimated fair value at the date of
issuance.
On August 15, 2000, the Company granted 353,294 shares of restricted Class
A common stock to management employees. These shares are subject to five-year
vesting provisions. Deferred compensation of approximately $16.4 million was
recorded based on the estimated fair value at the date of issuance.
On November 24, 2000, the Company granted 21,107 shares of restricted
Class A common stock to a management employee. These shares are subject to
five-year vesting provisions. Deferred compensation of approximately $0.8
million was recorded based on the estimated fair value at the date of issuance.
During 2000, $2.3 million of deferred compensation was forfeited and
137,301 shares were returned to the Trust as a result of individuals resigning
their employment with the Company.
2001: On March 21, 2001, employees returned 220,321 shares of restricted
Class A common stock to the Trust and concurrently were granted 220,321 shares
of restricted Class A common stock under the incentive plan. These shares are
subject to the same vesting schedule as the returned shares, and the
compensation expense will continue to be amortized over the vesting period as
non-cash compensation.
On May 1, 2001, an employee returned 75,000 shares of restricted Class A
common stock to the Trust and concurrently was granted 75,000 shares of
restricted Class A common stock under the incentive plan. These shares are
subject to the same vesting schedule as the returned shares, and the
compensation expense will continue to be amortized over the vesting period as
non-cash compensation.
On May 1, 2001, Triton granted 1,881,473 shares of restricted Class A
common stock to management employees. Of the total grant, 646,223 shares of
restricted Class A common stock were issued from the Trust, and the remaining
shares were issued under the incentive plan. All of these shares are subject to
vesting provisions. Deferred compensation of approximately $74.1 million was
recorded based on the estimated fair value at the date of issuance.
On July 26, 2001, Triton granted 22,161 shares of restricted Class A
common stock to employees. All of these shares of restricted Class A common
stock were issued under the incentive plan. All of these shares are subject to
vesting provisions. Deferred compensation of approximately $0.8 million was
recorded based on the estimated fair value at the date of issuance.
During 2001, several employees resigned their employment with the Company.
These employees forfeited approximately $7.1 million of deferred compensation
and in doing so returned 147,809 shares of restricted Class A common stock to
the Trust, of which 96,970 shares were reissued as part of 2001 grants, and
forfeited another 106,237 shares of restricted Class A common stock, which were
issued under the incentive plan.
401(k) SAVINGS PLAN:
The Company's management subsidiary sponsors a 401(k) savings plan (the
"Savings Plan") which permits employees to make contributions to the Savings
Plan on a pre-tax salary reduction basis in accordance with the Internal Revenue
Code. Substantially all full-time employees are eligible to participate in the
next quarterly open enrollment after 90 days of service. The Company matches a
portion of the voluntary employee contributions. The cost of the Savings Plan
charged to expense was $482,000 in 1999, $944,000 in 2000 and $1,172,000 in
2001.
EMPLOYEE STOCK PURCHASE PLAN:
The Company commenced an Employee Stock Purchase Plan (the "Plan") on
January 1, 2000. Under the terms of the Plan, during any calendar year there are
four three-month offering periods beginning January 1st, April 1st, July 1st and
October 1st, during which employees can participate. The purchase price is
determined at the discretion of the Stock Plan Committee but shall not be less
than the lesser of: (i)
F-12
85% of the fair market value on the first business day of each offering period
or (ii) 85% of the fair market value on the last business day of the offering
period. The Company issued 21,460 shares of Class A common stock, at an average
per share price of $34.01, in 2000. The Company issued 38,167 shares of Class A
common stock, at an average per share price of $26.69, in 2001. The Company
issued 9,650 shares of Class A common stock, at a per share price of $24.95 in
January 2002.
We account for the Plan under APB Opinion 25, hence no compensation
expense is recognized for shares purchased under the Plan. Pro forma
compensation expense is calculated for the fair value of the employee's purchase
rights using the Black-Scholes model. Assumptions include an expected life of
three months, weighted average risk-free interest rate between 2.2% - 5.7%,
dividend yield of 0.0% and expected volatility between 70% - 78%. Had
compensation expense for the Company's grants for stock based compensation been
determined consistent with SFAS No. 123, the pro forma net loss and per share
net loss would have been:
(Amounts in thousands, except (Amounts in thousands, except
per share data) per share data)
YEAR ENDED DECEMBER 31, 2000 YEAR ENDED DECEMBER 31, 2001
----------------------------------------------- ---------------------------------------------
Net Loss: Net Loss:
As Reported $ 176,906 As Reported $ 198,583
Pro Forma $ 177,108 Pro Forma $ 198,858
Earnings per Share: Earnings per Share:
As Reported Net Loss Available As Reported Net Loss Available
to Common Stockholders to Common Stockholders
(basic and diluted) $ (3.01) (basic and diluted) $ (3.22)
Pro Forma Net Loss Available Pro Forma Net Loss Available
to Common Stockholders to Common Stockholders
(basic and diluted) $ (3.01) (basic and diluted) $ (3.23)
(6) INTANGIBLE ASSETS
DECEMBER 31,
------------------------ AMORTIZABLE
2000 2001 LIVES
--------- --------- -------------
(DOLLARS IN THOUSANDS)
PCS Licenses $ 277,993 $ 278,017 40 years
AT&T agreements 26,026 26,026 10-20 years
Subscriber lists 20,000 20,000 3.5 years
Bank financing 14,554 16,225 8.5-10 years
Exclusivity agreement -- 2,451 1-3 years
Trademark 64 64 40 years
Other -- 3,337 1-10 years
-------- --------
338,637 346,120
Less: accumulated amortization (38,476) (62,273)
-------- --------
Intangible assets, net $300,161 $283,847
======== ========
Amortization for the years ended December 31, 1999, 2000 and 2001 totaled
$14.5 million, $17.5 million and $23.8 million, respectively.
(7) LONG-TERM DEBT
DECEMBER 31,
--------------------------
2000 2001
---------- ----------
(DOLLARS IN THOUSANDS)
Bank credit facility $ 332,750 $ 185,000
Senior subordinated debt 391,804 1,167,338
Capital lease obligation 5,776 4,594
---------- ----------
730,330 1,356,932
Less current portion of long-term debt 1,845 12,641
---------- ----------
Long-term debt $ 728,485 $1,344,291
========== ==========
F-13
Interest expense, net of capitalized interest was $41.1 million, $55.9
million, and $117.5 million for the years ended December 31, 1999, 2000 and
2001, respectively. The Company capitalized interest of $12.3 million, $9.5
million and $5.9 million in the years ended December 31, 1999, 2000 and 2001
respectively. The weighted average interest rate for total debt outstanding
during 2000 and 2001 was 10.98% and 9.43% respectively. The average rate at
December 31, 2000 and 2001 was 10.52% and 9.58%, respectively. The Company is in
compliance with all required covenants as of December 31, 2001. Aggregate
maturities follow:
(000s)
-------------------------------
2002 12,641
2003 7,553
2004 7,938
2005 8,810
2006 38,652
Thereafter 1,281,338
-------------------------------
Total 1,356,932
-------------------------------
(8) BANK CREDIT FACILITY
On February 3, 1998, Triton PCS, Inc., a wholly owned subsidiary of the
Company ("Triton PCS"), and the Company (collectively referred to as the
"Obligors") entered into a credit agreement with certain banks and other
financial institutions, to establish a senior secured bank credit facility (the
"Facility"). The credit agreement was amended and restated on September 22, 1999
and September 14, 2000. The second amended and restated credit agreement was
amended in September 2001 (as so amended, the "Credit Agreement"). On November
14, 2001, the Company completed the private sale of $400.0 million aggregate
principal amount of 8 3/4% senior subordinated notes due in 2011. The net
proceeds of the 8 3/4% notes were approximately $390.0 million, which were
utilized to pay down a portion of the Facility. As a result of the
early-extinguishment of the Facility, approximately $4.0 million of related
unamortized deferred financing costs were written off as an extraordinary loss.
The Facility provides for (i) a Tranche A term loan, which matures in
August 2006, (ii) a Tranche B term loan, which matures in May 2007, (iii) a
Tranche C term loan, which matures in August 2006, (iv) a Tranche D term loan,
which matures in August 2006, and (v) a $100 million revolving credit facility
(the "Revolving Facility"), which matures in August 2006. As of December 31,
2001, Triton had current outstanding borrowings of (i) $14.4 million under the
Tranche A term loan, (ii) $150.0 million under the Tranche B term loan, (iii)
$14.4 million under the Tranche C term loan, and (iv) $6.2 million under the
Tranche D term loan. As of December 31, 2001, the Company had $175.0 million of
undrawn funds available under the Facility including (i) $100.0 million of the
Revolving Facility and (ii) $75.0 million under the Tranche D term loan.
The lenders' commitment to make loans under the Revolving Facility
automatically and permanently reduce, beginning in August 2004, in eight
quarterly reductions (the amount of each of the first two reductions, $5.0
million, the next four reductions, $10.0 million, and the last two reductions,
$25.0 million). The Tranche A, Tranche C and Tranche D term loans are required
to be repaid, beginning in February 2002 in eighteen consecutive quarterly
installments (the aggregate amount of each of the first four installments,
$2,750,000, the next four installments, $4,125,000, the next four installments,
$5,500,000, the next four installments, $6,875,000, and the last two
installments, $16,500,000). The Tranche B term loan is required to be repaid
beginning in February 2002, in twenty-one consecutive quarterly installments
(the amount of the first sixteen installments, $375,000, the next four
installments, $7.5 million, and the last installment, $114.0 million).
Loans accrue interest, at the Obligor's option, at (i) (a) the Adjusted
LIBOR rate (as defined in the Credit Agreement) plus (b) the Applicable Margin
(as defined in the Credit Agreement) (loans bearing interest described in (i),
"Eurodollar Loans") or (ii) (a) the higher of (1) the Administrative Agent's
prime rate or (2) the Federal Funds Effective Rate (as defined in the Credit
Agreement) plus 0.5%, plus (b) the Applicable Margin (loans bearing interest
described in (ii), "ABR Loans"). The Applicable Margin means, with respect to
the Tranche B Term Loan, 2.00% per annum, in the case of an ABR Loan, and 3.00%
per annum, in the case of a Eurodollar Loan; with respect to the Tranche A, C
and D term loans and the Revolving Facility, until September 14, 2001, 1.50% in
the case of ABR Loans and 2.50% in the case of Eurodollar Loans, and thereafter,
a rate between 0.0% and 1.25% per annum, depending upon the Obligor's leverage
ratio (the ratio of end-of-period debt to earnings before interest, taxes,
depreciation, and amortization ("EBITDA")) in the case of an ABR Loan, and a
rate between 1.00% and 2.25% per annum (depending upon the Obligor's leverage
ratio), in the case of a Eurodollar Loan. A per annum rate equal to 2% plus the
rate otherwise applicable to any such loan will be assessed on past due
principal amounts, and accrued interest payable in arrears.
The Facility provides for an annual commitment fee of between 0.375% and
0.50% to be paid on undrawn commitments under the Tranche A, C, and D Term Loans
and the Revolving Facility (depending on the Obligor's leverage ratio). The
Obligor incurred commitment fees of approximately $2 million in 1999, $3 million
in 2000, and $1 million in 2001. Under the Facility, the Obligor must also fix
or limit the interest cost with respect to at least 50% of their total
outstanding indebtedness. At December 31, 2001, approximately 100% of the
outstanding debt was fixed. At December 31, 2001 committed availability under
the Facility was $175.0 million.
All obligations of the Obligors under the Facility are unconditionally and
irrevocably guaranteed by each existing and subsequently acquired or organized
domestic subsidiary of Triton PCS. Borrowings under the Facility, and any
related hedging contracts provided by the
F-14
lenders thereunder, are collateralized by a first priority lien on substantially
all of the assets of Triton PCS and each existing and subsequently acquired or
organized domestic subsidiary of Triton PCS, including a first priority pledge
of all the capital stock held by the Company, or any of its subsidiaries,
provided that the pledge of shares of foreign subsidiaries may be limited to 65%
of the outstanding shares of such foreign subsidiaries. The PCS licenses will be
held by one or more single purpose subsidiaries of Triton PCS and will not be
pledged to secure the obligations of Triton PCS under the Facility, although the
equity interests of such subsidiaries will be pledged thereunder. Each single
purpose subsidiary will not be allowed by Triton PCS to incur any liabilities or
obligations other than the guarantee of the Facility issued by it, the security
agreement entered into by it in connection with the Facility, guarantees
relating to permitted subordinated debt, and, in the case of any single purpose
subsidiary established to hold real estate, liabilities incurred in the ordinary
course of business of such subsidiary which are incident to being the lessee of
real property of the purchaser, owner or lessee of equipment, and taxes and
other liabilities incurred in the ordinary course in order to maintain its
existence.
The Facility contains financial and other covenants, customary for a
facility of this type, including covenants relating to the amount of
indebtedness that Triton PCS may incur (including customary representations,
warranties, indemnities and conditions precedent to borrowing), limitations on
dividends, distributions (including distributions from Triton PCS to the
Company), redemptions and repurchases of capital stock, and events of default.
The Term Loans are required to be prepaid in an aggregate amount equal to
(i) 50% of excess cash flow of each fiscal year commencing with the fiscal year
ending December 31, 2001, (ii) 100% of the net proceeds of asset sales, outside
the ordinary course of business, or which are otherwise exempted, (iii) 100% of
unused insurance proceeds, as defined in the Credit Agreement, and (iv) 100% of
net cash proceeds received from additional debt issuance, over and above the
first $150.0 million (senior and/or subordinated) which Triton PCS may
subsequently incur unless, after giving effect to such issuance(s), (a) Triton
PCS's ratio of senior debt to EBITDA is less than 5 to 1 and (b) Triton PCS is
in pro forma compliance with required Credit Agreement covenants.
Loans under the Facility are available to fund capital expenditures
related to the construction of Triton PCS's PCS network, the acquisition of
related businesses, working capital needs of Triton PCS, subscriber acquisition
costs, investments in bidding entities and other permitted business activities,
as defined in the Credit Agreement. All indebtedness under the Facility
constitutes debt which is senior to Triton PCS's 11% Senior Subordinated
Discount Notes due 2008, 9 3/8% Senior Subordinated Notes due 2011 and 8 3/4%
Senior Subordinated Notes due 2011.
See Note (18), "Subsequent Events", for additional events relating to the
Facility.
(9) SUBORDINATED DEBT
11% SENIOR SUBORDINATED DISCOUNT NOTES
On May 4, 1998, Triton PCS completed a private offering of $512 million
principal amount at maturity of 11% Senior Subordinated Discount Notes due 2008
(the "11% Notes"), pursuant to Rule 144A and Regulation S of the Securities Act
of 1933, as amended (the "Securities Act"). The net proceeds of the offering
(after deducting the initial purchasers' discount of $9 million) were
approximately $291.0 million.
Commencing on November 1, 2003, cash interest will be payable
semiannually. Each 11% Note was offered at an original issue discount. Although
cash interest will not be paid prior to May 1, 2003, the original issue discount
will accrue from the issue date to May 1, 2003.
The 11% Notes may be redeemed at the option of Triton PCS, in whole or in
part, at various points in time after May 1, 2003 at redemption prices specified
in the indenture governing the 11% Notes plus accrued and unpaid interest, if
any.
The 11% Notes are guaranteed on a joint and several basis by all of the
subsidiaries of Triton PCS but are not guaranteed by the Company. The guarantees
are unsecured obligations of the guarantors and are subordinated in right to the
full payment of all senior debt under the Facility, including all of their
obligations as guarantors thereunder.
Upon a change in control, each holder of the 11% Notes may require Triton
PCS to repurchase such holder's 11% Notes, in whole or in part, at a purchase
price equal to 101% of the accreted value thereof or the principal amount at
maturity, as applicable, plus accrued and unpaid interest to the purchase date.
All outstanding principal and interest of the 11% Notes mature and require
complete repayment on May 1, 2008.
9 3/8% SENIOR SUBORDINATED NOTES
On January 19, 2001, Triton PCS completed a private offering of $350
million principal amount of 9 3/8% Senior Subordinated Notes due 2011 (the "9
3/8% Notes"), pursuant to Rule 144A and Regulation S of the Securities Act. The
net proceeds of the offering (after deducting the initial purchasers' discount
of approximately $9.2 million) were approximately $337.5 million.
F-15
Cash interest is payable semiannually on August 1 and February 1.
The 9 3/8% Notes may be redeemed at the option of Triton PCS, in whole or
in part, at various points in time after February 1, 2006 at redemption prices
specified in the indenture governing the 9 3/8% Notes plus accrued and unpaid
interest, if any.
The 9 3/8% Notes are guaranteed on a joint and several basis by all of the
subsidiaries of Triton PCS but are not guaranteed by the Company. The guarantees
are unsecured obligations of the guarantors, and are subordinated in right to
the full payment of all senior debt under the Facility, including all of their
obligations as guarantors thereunder.
Upon a change in control, each holder of the 9 3/8% Notes may require
Triton PCS to repurchase such holder's 9 3/8% Notes, in whole or in part, at a
purchase price equal to 101% of the aggregate principal amount, as applicable,
plus accrued and unpaid interest to the purchase date.
All outstanding principal and interest of the 9 3/8% Notes mature and
require complete repayment on February 1, 2011.
8 3/4% SENIOR SUBORDINATED NOTES
On November 14, 2001, Triton PCS completed an offering of $400 million
principal amount of 8 3/4% Senior Subordinated Notes due 2011 (the "8 3/4%
Notes"), pursuant to Rule 144A and Regulation S of the Securities Act. The net
proceeds of the offering (after deducting the initial purchasers' discount of
$9.0 million and estimated expenses of $1 million) were approximately $390.0
million.
Commencing on May 15, 2002, cash interest will be payable semiannually.
The 8 3/4% Notes may be redeemed at the option of Triton PCS, in whole or
in part, at various points in time after November 15, 2006 at redemption prices
specified in the indenture governing the 8 3/4% Notes plus accrued and unpaid
interest, if any.
The 8 3/4% Notes are guaranteed on a joint and several basis by all of the
subsidiaries of Triton PCS but are not guaranteed by the Company. The guarantees
are unsecured obligations of the guarantors, and are subordinated in right to
the full payment of all senior debt under the Facility, including all of their
obligations as guarantors thereunder.
Upon a change in control, each holder of the 8 3/4% Notes may require
Triton PCS to repurchase such holder's 8 3/4% Notes, in whole or in part, at a
purchase price equal to 101% of the aggregate principal amount, as applicable,
plus accrued and unpaid interest to the purchase date.
All outstanding principal and interest of the 8 3/4% Notes mature and
require complete repayment on November 15, 2011.
(10) INCOME TAXES
The components of income tax expense are presented in the following table
(in thousands):
YEARS ENDED DECEMBER 31, 1999 2000 2001
----------------------------------------------------------------------------------
Current
Federal -- -- --
State -- $ 474 $1,372
-------------------------------
-- 474 1,372
-------------------------------
Deferred
Federal -- 219 --
State -- 53 --
-------------------------------
-- 272 --
-------------------------------
Total income tax expense $ -- $ 746 $1,372
===============================
Income tax expense has been allocated $1,372 and $0 to continuing
operations and extraordinary item, respectively. The income tax expense differs
from those computed using the statutory U.S. Federal income tax rate as set
forth below:
1999 2000 2001
----------------------------------
U.S. Federal statutory rate 35.00 % 35.00 % 35.00 %
State income taxes, net of federal benefit 0.00 % (0.07)% (0.45)%
Change in federal valuation allowance (34.12)% (35.27)% (35.26)%
Other, net (0.88)% (0.08)% 0.02 %
----------------------------------
Effective Tax Rate 0.00 % (0.42)% (0.69)%
==================================
F-16
The tax effects of significant temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
as follows (in thousands):
2000 2001
-------------------------
Deferred tax assets:
Non-deductible accrued liabilities $ 7,069 $ 12,380
Capitalized startup costs 1,541 951
Deferred gain 11,920 11,791
Unrealized losses -- 5,174
Net operating loss carry forward 185,681 285,762
-------------------------
206,211 316,058
Valuation allowance (142,425) (236,567)
Net deferred tax assets 63,786 79,491
-------------------------
Deferred liabilities
Intangible assets 24,360 24,335
Depreciation and amortization 51,361 67,091
-------------------------
Deferred tax liabilities 75,721 91,426
-------------------------
Net deferred tax liabilities $ 11,935 11,935
=========================
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
believes it is more likely than not the Company will realize the benefits of the
deferred tax assets, net of the existing valuation allowance at December 31,
2001. As of December 31, 2001, approximately $11 million of the gross deferred
tax asset and related valuation allowance is attributable to restricted stock
compensation. To the extent that such assets are realized in the future, the
benefit is applied to equity. If not utilized, the net operating losses will
begin to expire in 2018.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, assumptions, and methods used to estimate the fair
value of the Company's financial instruments are made in accordance with the
requirements of SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments". The Company has used available market information to derive its
estimates. However, because these estimates are made as of a specific point in
time, they are not necessarily indicative of amounts the Company could realize
currently. The use of different assumptions or estimating methods may have a
material effect on the estimated fair value amounts.
DECEMBER 31,
------------------------------------------------------------
2000 2001
------------------------ ------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- ----------- ------------
(IN THOUSANDS)
Interest rate swaps - acting as a hedge $ -- $ (4,162) $ (7,660) $ (7,660)
Interest rate swaps - not acting as a hedge -- -- (12,924) (12,924)
Long-term debt:
Subordinated debt 391,804 403,191 1,167,338 1,233,280
Bank term loan 332,750 332,750 185,000 185,000
Capital leases 5,776 5,776 4,594 4,594
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, bank overdraft liability, accounts payable and accrued expenses are
a reasonable estimate of their fair value due to the short-term nature of the
instruments.
Long-term debt is comprised of subordinated debt, bank loans, and capital
leases. The fair value of subordinated debt is stated at quoted market value.
The carrying amounts of bank loans are a reasonable estimate of its fair value
because market interest rates are variable. Capital leases are recorded at their
net present value, which approximates fair value.
Management believes that determining a fair value for the Company's
preferred stock is impractical due to the closely held nature of these
investments.
F-17
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138, on January
1, 2001. SFAS No. 133, as amended, requires that the transition adjustment
resulting from adopting these statements be reported in net income or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle. In accordance with the transition provisions of SFAS No
133, as amended, the Company recorded a cumulative transition adjustment of
approximately $4.2 million to Other Comprehensive Income to recognize the fair
value of its derivative instruments as of the date of adoption.
The Company utilizes interest rate swap derivatives to manage changes in
market conditions related to interest rate payments on its variable rate debt
obligations. As December 31, 2001, the Company had interest rate swap agreements
with a total notional amount of $480.0 million.
The Company recognizes all derivatives on the balance sheet at fair value.
Changes in the fair value for the effective portion of the gain or loss on a
derivative that is designated as, and meets all the required criteria for, a
cash flow hedge are recorded in Accumulated Other Comprehensive Income and
reclassified into earnings as the underlying hedged items affect earnings.
Amounts reclassified into earnings related to interest rate swap agreements are
included in interest expense. The ineffective portion of the gain or loss on a
derivative is recognized in earnings within other income or expense. Through
November 14, 2001, the entire $480.0 million notional amount fixed the rate on a
like amount of variable rate borrowings. On November 14, 2001, with the net
proceeds from the 8 3/4% Notes offering, the Company extinguished $390.0 million
of the variable rate debt. Approximately $301.2 million of the extinguished debt
has been matched to a fixed interest rate swap in accordance with SFAS No. 133.
As of December 31, 2001, the fair value of the derivatives were recorded as a
$20.6 million liability, unrealized net losses of approximately $7.7 million
related to these interest rate swaps was included in Accumulated Other
Comprehensive Income, approximately $3.5 million of which is expected to be
reclassified into earnings during the next twelve months. In addition,
approximately $12.9 million of expense had been realized in the statement of
operations. No hedge ineffectiveness for existing derivative instruments for the
year ended December 31, 2001 was recorded based on calculations in accordance
with SFAS No. 133, as amended.
(12) RELATED-PARTY TRANSACTIONS
The Company was associated with Triton Cellular Partners L.P. ("Triton
Cellular") by virtue of certain management overlap. Triton Cellular consummated
the sale of substantially all of its assets in April 2000. As part of this
association, certain costs were incurred on behalf of Triton Cellular and
subsequently reimbursed to the Company. Such costs totaled $2.2 million and
$714,000 during 1999 and 2000, respectively. In addition, pursuant to an
agreement between the Company and Triton Cellular, allocations for management
services rendered are charged to Triton Cellular. Such allocations totaled
$505,000 and $196,000 for 1999 and 2000, respectively.
In February 1998, Triton PCS entered into a credit facility for which
affiliates of certain investors serve as agent and lenders. The credit facility
was amended and restated in September 1999 and September 2000. The second
amended and restated credit agreement was amended in September 2001. On November
14, 2001, Triton PCS extinguished $390.0 million of the credit facility with
proceeds from a senior subordinated notes offering (see Note 8). In connection
with entering into and administering the credit facility and such amendments,
the agent and lenders receive customary fees and expenses.
In January 2001 and November 2001, Triton PCS consummated private
offerings of senior subordinated notes (see Note 9). Affiliates of several cash
equity investors were initial purchasers in the private offerings and received
an aggregate placement fee of $18.2 million through the issuance of the notes at
a discount from the purchase price paid by investors.
(13) RELATIONSHIP WITH LAFAYETTE COMMUNICATIONS COMPANY L.L.C.
The Company holds a 39% interest in Lafayette, an entrepreneur under FCC
guidelines. During 2001, Lafayette acquired 18 licenses covering a population of
approximately 6.3 million people in areas of Georgia, South Carolina, Tennessee
and Virginia. Lafayette has an application pending for an additional 13 licenses
in areas of North Carolina and Virginia, but this application is subject to
pending litigation involving the parties that formerly held these licenses,
NextWave Personal Communications, Inc. and Urban Comm-North Carolina, Inc. There
can be no assurance that this litigation will be resolved so as to allow these
licenses to be acquired by Lafayette. Lafayette has met the initial FCC license
build-out requirements for 17 of the licenses it currently holds.
As of December 31, 2001, the Company had written its initial investment in
Lafayette down to zero and had reduced its carrying value of the $117.4 million
loan receivable from Lafayette, so as to reflect 100% of Lafayette's 2001 loss
of $718,000. The Company records any losses in Lafayette to Interest and Other
Expense on the statement of operations. In connection with the loans, Lafayette
has and will guarantee the Company's obligations under its credit facility, and
such senior loans are and will be pledged to the lenders under the Company's
credit facility.
F-18
(14) COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company has entered into various leases for its offices, land for cell
sites, cell sites, and furniture and equipment under capital and operating
leases expiring through 2025. The Company is recognizing rent expense on a
straight-line basis over the life of the lease, which establishes deferred rent
on the balance sheet. The Company has various capital lease commitments of
approximately $4.6 million as of December 31, 2001. As of December 31, 2001, the
future minimum rental payments under these lease agreements having an initial or
remaining term in excess of one year were as follows:
OPERATING CAPITAL
--------- -------
(IN THOUSANDS)
2002 44,685 2,339
2003 42,347 1,855
2004 35,554 702
2005 28,379 106
2006 22,672 5
Thereafter 102,037 --
-------- ---------
Total $275,674 5,007
========
Interest expense 413
---------
Net present value of future payments 4,594
Current portion of capital lease obligation 2,082
---------
$ 2,512
=========
Rent expense under operating leases was $13.2 million, $29.4 million and
$47.1 million for the years ended December 31, 1999, 2000 and 2001,
respectively.
(b) LITIGATION
The Company has been involved in litigation relating to claims arising out
of its operations in the normal course of business. The Company does not believe
that an adverse outcome of any of these legal proceedings will have a material
adverse effect on the Company's results of operations.
(15) PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(a) CAPITAL CONTRIBUTIONS
On February 4, 1998, pursuant to the Securities Purchase Agreement, the
Company issued $140.0 million of equity to certain institutional investors and
management stockholders in exchange for capital commitments aggregating $140.0
million. The Securities Purchase Agreement provided that the cash contributions
be made to the Company. The Company directed that all cash contributions
subsequent to the initial cash contributions be made directly to Triton.
(b) PREFERRED STOCK
The Series A convertible preferred stock ("Series A") is convertible into
common stock at the option of the holders on or after February 4, 2006. The
conversion rate for each share of Series A is equal to its accreted value
divided by the then fair market value of the Company's common stock.
The holders of the Series A are entitled to 10% cumulative annual
dividends, payable quarterly. At December 31, 2001, cumulative dividends accrued
and classified as a component of preferred stock in the accompanying balance
sheet are $36.3 million. The Company may defer payment of the dividends until
June 30, 2008, at which time all deferred dividend payments must be made. The
Series A is redeemable at its accreted value at the option of the Company on or
after February 4, 2008. The Series A is redeemable at the option of the holders
on or after February 4, 2018. The Series A and the Series B preferred stock
("Series B") are on a parity basis with respect to dividend rights and rights on
liquidation and senior to all other classes of preferred or common stock of the
Company. The Series A holders do not have any voting rights, except as required
by law or in certain circumstances, but have the right to nominate one director.
In the event that there is a disqualifying transaction, the Company has
the right to cause AT&T Wireless PCS to exchange certain shares of its Series A
into Series B. The Series B has dividend rights equal to that of the Series A.
The Series B is not convertible into any other security of the Company. The
Series B is redeemable at its accreted value, at the option of the Company at
any time. The Series B holders do not have any voting rights.
F-19
The Series C convertible preferred stock ("Series C") is convertible into
a fixed number of shares Class A common stock at the option of the holder.
Holder may elect, by written notice, to receive shares of Class B non-voting
common stock instead of Class A common stock. The holders of the Series C vote
with Class A common stock on an as-converted basis. Upon liquidation or
dissolution, the holders of the Series C have a liquidation preference of $100
per share, subject to adjustment, and rank senior to the common stock.
The Series D convertible preferred stock ("Series D") is convertible into
an equivalent number of shares of Series C at the option of the holder. The
holders of the Series D do not have any voting rights. Upon liquidation or
dissolution, the holders of the Series D have a liquidation preference of $100
per share, subject to adjustment, and rank senior to the Series C and the common
stock.
In September 1999, the Company sold to certain directors and an officer,
subject to stock purchase agreements, an aggregate of 3,400 shares of Series C
preferred stock (which were converted into 78,200 shares of common stock in the
Company's initial public offering) for a purchase price of $100.00 per share.
Compensation expense of $0.8 million was recorded based on the estimated fair
value at the date of issuance.
(c) STOCK SPLIT
In October 1999, the board of directors approved a 23-for-1 stock split of
its common stock effective immediately prior to the initial public offering. All
common stock share data have been retroactively adjusted to reflect this change.
(d) INITIAL PUBLIC OFFERING
On October 27, 1999, the Company completed an initial public offering of
shares of its Class A common stock and raised approximately $190.2 million, net
of $16.8 million of costs. Affiliates of First Union Affordable Housing
Community Development Corporation and J.P. Morgan Partners (23A SBIC), LLC, each
of which beneficially owns more than 5% of the Company's stock, served as
underwriters and received underwriters' fees in connection with the initial
public offering.
(e) PUBLIC OFFERING
On February 28, 2001, the Company issued and sold 3,500,000 shares of
Class A common stock in an offering at $32 per share and raised approximately
$106.1 million, net of $5.9 million of costs.
(16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Company's quarterly financial data for
the two years ended December 31, 2001 and December 31, 2000, respectively:
FIRST SECOND THIRD FOURTH
2001 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenue $ 113,360 $ 135,845 $ 149,164 $ 151,620
Loss from operations (21,946) (19,240) (17,754) (20,886)
Loss before extraordinary item (43,570) (42,652) (44,202) (64,207)
Net loss available to stockholders (46,193) (45,342) (46,960) (70,985)
Net loss per share - basic and diluted $ (0.73) $ (0.69) $ (0.72) $ (1.08)
FIRST SECOND THIRD FOURTH
2000 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenue $ 62,848 $ 85,236 $ 99,342 $ 109,855
Loss from operations (35,238) (32,009) (24,137) (33,504)
Net loss available to stockholders (46,738) (44,847) (41,169) (54,017)
Net loss per share - basic and diluted $ (0.75) $ (0.73) $ (0.66) $ (0.87)
F-20
(17) SUPPLEMENTAL CASH FLOW INFORMATION
1999 2000 2001
------- ------- -------
(IN THOUSANDS)
Cash paid during the year for interest, net of amounts capitalized $ 4,111 $12,943 $50,301
Non-cash investing and financing activities:
Deferred stock compensation 15,791 33,373 67,617
Equipment acquired under capital lease obligation 3,456 2,573 786
Issuance of preferred stock in connection with
Savannah/Athens Transaction 10,432 -- --
Change in fair value of derivative instruments -- -- 20,584
Capital expenditures included in accounts payable 26,145 13,410 37,929
(18) SUBSEQUENT EVENTS
On February 20, 2002, Triton PCS entered into a second amendment to its
Credit Agreement. As part of the second amendment, various maturity dates were
revised under the Credit Facility as follows: the maturity dates of each of the
Tranche A, C and D term loans and of the Revolving Facility were changed from
August 2006 to May 2006. The maturity date of the Tranche B term loan was
changed from May 2007 to February 2007.
On March 8, 2002, Triton PCS entered into a third amendment to its Credit
Agreement. The third amendment created a $125.0 million Tranche E term loan
maturing in February 2007, increasing Triton PCS's committed available
borrowings under the Facility to $300.0 million. Triton PCS must begin repaying
the Tranche E term loan in sixteen consecutive quarterly installments, beginning
in May 2003 (the amount of the first eleven installments, $312,500, the next
four installments, $6,250,000, and the last installment, $96,562,500). The
Tranche E term loan accrues interest under the same terms as the Tranche B term
loan, with an Applicable Margin of 2.00% in the case of an ABR Loan, and 3.00%
in the case of a Eurodollar Loan.
F-21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
Triton PCS Holdings, Inc.'s proxy statement for the 2002 annual meeting of
stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
Triton PCS Holdings, Inc.'s proxy statement for the 2002 annual meeting of
stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
Triton PCS Holdings, Inc.'s proxy statement for the 2002 annual meeting of
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
Triton PCS Holdings, Inc.'s proxy statement for the 2002 annual meeting of
stockholders.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements have been included as part of this
report:
Report of PricewaterhouseCoopers LLP F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations and Comprehensive Loss F-4
Consolidated Statements of Redeemable Preferred Equity and Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Schedule I - Condensed Financial Information of Triton PCS Holdings, Inc. 32
Schedule II - Valuation and Qualifying Accounts 35
31
(a) (1) FINANCIAL STATEMENT SCHEDULES
TRITON PCS HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION
TRITON PCS HOLDINGS, INC.
BALANCE SHEETS
(Dollars in thousands)
December 31, December 31,
2000 2001
------------ ------------
ASSETS:
Investment in subsidiaries $ 159,505 $ 75,744
--------- ---------
Total Assets $ 159,505 $ 75,744
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Total liabilities -- --
Series A Redeemable Preferred Stock, $0.01 par value 104,068 114,965
STOCKHOLDERS' EQUITY
Series B Preferred Stock, $0.01 par value -- --
Series C Preferred Stock, $0.01 par value -- --
Series D Preferred Stock, $0.01 par value 5 5
Class A Common Stock, $0.01 par value 541 594
Class B Non-voting Common Stock, $0.01 par value 82 79
Additional paid-in capital 459,999 623,335
Accumulated deficit (362,997) (561,580)
Accumulated Other Comprehensive Income -- (7,660)
Treasury Stock -- (1,375)
Deferred compensation (42,193) (92,619)
--------- ---------
Total Stockholders' Equity 55,437 (39,221)
--------- ---------
Total Liabilities and Stockholders' Equity $ 159,505 $ 75,744
========= =========
See accompanying notes to financial statements.
32
TRITON PCS HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION (Continued)
TRITON PCS HOLDINGS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands)
For the Year Ended For the Year Ended For the Year Ended
December 31, 1999 December 31, 2000 December 31, 2001
------------------ ------------------ ------------------
Equity in net loss of subsidiaries $(149,360) $(176,758) $(198,390)
General & administrative expenses -- (148) (193)
--------- --------- ---------
Net loss (149,360) (176,906) (198,583)
Accretion of preferred stock (8,725) (9,865) (10,897)
Net loss available to common stockholders $(158,085) $(186,771) $(209,480)
========= ========= =========
Other comprehensive loss, net of tax:
Cumulative effect of change in
accounting principal -- -- (4,162)
Unrealized loss on derivatives instruments -- -- (3,498)
--------- --------- ---------
Comprehensive loss $(158,085) $(186,771) $(217,140)
========= ========= =========
See accompanying notes to financial statements.
33
TRITON PCS HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION (Continued)
TRITON PCS HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the Year Ended For the Year Ended For the Year Ended
December 31, 1999 December 31, 2000 December 31, 2001
------------------ ------------------ ------------------
Cash flows from operating activities:
Net loss $(149,360) $(176,906) $(198,583)
Equity in net loss of subsidiaries 149,360 176,758 198,390
--------- --------- ---------
Net cash used in operating activities -- (148) (193)
Cash flows from investing activities
Investment in subsidiaries (287,754) (118) (104,989)
--------- --------- ---------
Net cash used in investing activities (287,754) (118) (104,989)
Cash flows from financing activities
Proceeds from initial public offering, net 190,245 -- --
Proceeds from issuance of stock in
connection with private equity
investment 95,000 -- --
Proceeds from issuance of Series C
Preferred Stock 340 -- --
Proceeds from the issuance of stock in
Connection with the Norfolk transaction 2,169 -- --
Payment of deferred transaction costs -- (462) (1,142)
Contributions under the Employee Stock
Purchase Plan -- 728 1,019
Proceeds from Equity Offering -- -- 106,680
Treasury Stock Purchase -- -- (1,375)
--------- --------- ---------
Net cash provided by financing activities 287,754 266 105,182
Net decrease in cash -- -- --
Cash and cash equivalents, beginning of
period -- -- --
--------- --------- ---------
Cash and cash equivalents, end of period $ -- $ -- $ --
========= ========= =========
See accompanying notes to financial statements.
34
TRITON PCS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1.
These statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto filed on Form 10-K.
TRITON PCS HOLDINGS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions Deductions
Balance at Charged to Credited to Balance
Beginning Cost and Costs and at End
of Year Expenses Expenses of Year
------- -------- -------- -------
Allowance for doubtful accounts:
Year ended December 31, 1999 1,071 2,758 2,064 1,765
Year ended December 31, 2000 1,765 7,763 6,622 2,906
Year ended December 31, 2001 2,906 12,103 11,664 3,345
Inventory Obsolescence Reserve:
Year ended December 31, 1999 -- 177 -- 177
Year ended December 31, 2000 177 1,711 -- 1,888
Year ended December 31, 2001 1,888 592 1,794 686
Valuation Allowance for Deferred Tax Assets:
Year ended December 31, 1999 8,506 58,178 -- 66,684
Year ended December 31, 2000 66,684 75,741 -- 142,425
Year ended December 31, 2001 142,425 94,142 -- 236,567
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
35
(a) (3) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Second Restated Certificate of Incorporation of Triton PCS Holdings,
Inc. (incorporated by reference to Exhibit 3.4 to the Form 10-Q of
Triton PCS Holdings, Inc. for the quarter ended September 30, 1999).
3.2 Second Amended and Restated Bylaws of Triton PCS Holdings, Inc.
(incorporated by reference to Exhibit 3.6 to the Form 10-Q of Triton
PCS Holdings, Inc. for the quarter ended September 30, 1999)
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 3 to the Form S-1 Registration
Statement of Triton PCS Holdings, Inc., File No. 333-85149).
4.2 Indenture, dated as of May 4, 1998, between Triton PCS, Inc., the
Guarantors party thereto and PNC Bank, National Association
(incorporated by reference to Exhibit 4.1 to the Form S-4
Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-57715).
4.3 First Supplemental Indenture, dated as of March 30, 1999, to the
Indenture dated as of May 4, 1998 (incorporated by reference to
Exhibit 4.1 to the Form 10-Q of Triton PCS, Inc. and its
subsidiaries, for the quarter ended March 31, 1999).
4.4 Second Supplemental Indenture, dated as of December 21, 1999, to the
Indenture dated as of May 4, 1998 (incorporated by reference to
Exhibit 4.4 to Amendment No. 2 to the Form S-3 Registration
Statement of Triton PCS Holdings, Inc., File No. 333-49974).
4.5 Indenture, dated as of January 19, 2001, among Triton PCS, Inc., the
Guarantors party thereto and The Bank of New York (incorporated by
reference to Exhibit 4.5 to Amendment No. 2 to the Form S-3
Registration Statement of Triton PCS Holdings, Inc., File No.
333-49974).
4.6 Agreement of Resignation, Appointment and Acceptance, dated as of
January 18, 2001, by and among Triton PCS, Inc., Chase Manhattan
Trust Company, National Association, as prior trustee and successor
to PNC Bank, National Association, and The Bank of New York, as
successor trustee under the Indenture dated as of May 4, 1998
(incorporated by reference to Exhibit 4.5 to the Form 10-Q of Triton
PCS Holdings, Inc. for the quarter ended June 30, 2001).
4.7 Indenture, dated as of November 14, 2001, among Triton PCS, Inc.,
the Guarantors thereto and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 to the Form 8-K/A of
Triton PCS Holdings, Inc. filed November 15, 2001).
10.1 Second Amended and Restated Credit Agreement, dated as of February
3, 1998, as amended and restated as of September 22, 1999 and
September 14, 2000, among Triton PCS, Inc., Triton PCS Holdings,
Inc., the Lenders (as defined therein) party thereto, and The Chase
Manhattan Bank, as administrative agent (incorporated by reference
to Exhibit 10.4 to the Form 10-Q of Triton PCS Holdings, Inc. for
the quarter ended September 30, 2000).
10.2 First Amendment, dated as of September 26, 2001, to the Second
Amended and Restated Credit Agreement, dated as of February 3, 1998,
as amended and restated as of September 14, 2000, among Triton PCS,
Inc., Triton PCS Holdings, Inc., the Lenders (as defined therein)
party thereto and The Chase Manhattan Bank, as administrative agent.
10.3 Second Amendment, dated as of February 20, 2002, to the Second
Amended and Restated Credit Agreement, dated as of February 3, 1998,
as amended and restated as of September 22, 1999 and September 14,
2000, among Triton PCS, Inc., Triton PCS Holdings, Inc., the Lenders
(as defined therein) party thereto and JPMorgan Chase Bank, as
administrative agent.
10.4 Third Amendment, dated as of March 8, 2002, to the Second Amended
and Restated Credit Agreement, dated as of February 3, 1998, as
amended and restated as of September 22, 1999 and September 14,
2000, among Triton PCS, Inc., Triton PCS Holdings, Inc., the Lenders
(as defined therein) party thereto,
36
JPMorgan Chase Bank, as administrative agent, First Union National
Bank, as Tranche E syndication agent and The Bank of Nova Scotia, as
Tranche E documentation agent.
10.5 AT&T Wireless Services Network Membership License Agreement, dated
as of February 4, 1998, between AT&T Corp. and Triton PCS Operating
Company L.L.C. (incorporated by reference to Exhibit 10.8 to the
Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-57715).
10.6 Amendment No. 1 to AT&T Wireless Services Network Membership License
Agreement, dated as of December 31, 1998, between AT&T Corp. and
Triton PCS Operating Company L.L.C. (incorporated by reference to
Exhibit 10.17 to Amendment No. 1 to the Form S-1 Registration
Statement of Triton PCS Holdings, Inc., File No. 333-85149).
10.7 Amendment No. 2 to AT&T Wireless Services Network Membership License
Agreement, dated as of June 8, 1999, between AT&T Corp. and Triton
PCS Operating Company L.L.C. (incorporated by reference to Exhibit
10.18 to Amendment No. 1 to the Form S-1 Registration Statement of
Triton PCS Holdings, Inc., File No. 333-85149).
10.8 Intercarrier Roamer Service Agreements, dated as of February 4,
1998, between AT&T Wireless Service, Inc. and Triton PCS Operating
Company L.L.C (incorporated by reference to Exhibit 10.11 to the
Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-57715).
10.9 Amendment No. 1 to Intercarrier Roamer Service Agreement, dated as
of December 31, 1998, between AT&T Wireless Services, Inc. and
Triton PCS Operating Company L.L.C. (incorporated by reference to
Exhibit 10.24 to Amendment No. 1 to the Form S-1 Registration
Statement of Triton PCS Holdings, Inc., File No. 333-85149).
10.10 Amendment No. 2 to Intercarrier Roamer Service Agreement, dated as
of June 8, 1999, between AT&T Wireless Services, Inc. and Triton PCS
Operating Company L.L.C. (incorporated by reference to Exhibit 10.25
to Amendment No. 1 to the Form S-1 Registration Statement of Triton
PCS Holdings, Inc., File No. 333-85149).
10.11 Amendment to Intercarrier Roamer Service Agreement, dated as of
August 11, 1999, between AT&T Wireless Services, Inc. and Triton
PCS, Inc. (incorporated by reference to Exhibit 10.8 to the Form
10-K of Triton PCS Holdings, Inc. for the year ended December 31,
2000).
10.12 Master Tower Site Lease Agreement, dated as of May 28, 1998, between
Triton PCS Property Company L.L.C. and AT&T Corp. (incorporated by
reference to Exhibit 10.23 to Amendment No. 1 to the Form S-4
Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-57715).
10.13 Asset Purchase Agreement, dated as of July 13, 1999, among Triton
PCS Operating Company, L.L.C., Triton PCS Property Company L.L.C.
and American Tower, L.P (incorporated by reference to Exhibit 10.38
to No. 1 to the Form S-4 Registration Statement of Triton PCS, Inc.
and its subsidiaries, File No. 333-57715).
+10.14 Ericsson Acquisition Agreement, dated as of March 11, 1998, between
Triton Equipment Company L.L.C. and Ericsson, Inc. (incorporated by
reference to Exhibit 10.15 to Amendment No. 2 to the Form S-4
Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-57715).
+10.15 First Addendum to Acquisition Agreement, dated as of May 24, 1999,
between Triton PCS Equipment Company L.L.C. and Ericsson, Inc.
(incorporated by reference to Exhibit 10.27 to Amendment No. 3 to
the Form S-1 Registration Statement of Triton PCS Holdings, Inc.,
File No. 333-85149).
+10.16 Second Addendum to Acquisition Agreement, dated as of September 22,
1999, between Triton PCS Equipment Company L.L.C. and Ericsson, Inc.
(incorporated by reference to Exhibit 10.13 to the Form 10-K of
Triton PCS Holdings, Inc. for the year ended December 31, 2000).
+10.17 Third Addendum to Acquisition Agreement, dated as of June 20, 2000,
between Triton PCS Equipment Company L.L.C. and Ericsson, Inc.
(incorporated by reference to Exhibit 10.14 to the Form 10-K of
Triton PCS Holdings, Inc. for the year ended December 31, 2000).
37
10.18 First Amended and Restated Stockholders' Agreement, dated as of
October 27, 1999, among AT&T Wireless PCS LLC, Triton PCS Holdings,
Inc., CB Capital Investors, L.P., J.P. Morgan Investment
Corporation, Sixty Wall Street SBIC Fund, L.P., Private Equity
Investors III, L.P., Equity-linked Investors-II, Toronto Dominion
Capital (USA) Inc., First Union Capital Partners, Inc., DAG-Triton
PCS, L.P., and the Management Stockholders and Independent Directors
named therein (incorporated by reference to Exhibit 10.47 to the
Form 10-Q of Triton PCS Holdings, Inc. for the quarter ended
September 30, 1999).
10.19 Investors Stockholders' Agreement, dated as of February 4, 1998,
among CB Capital Investors, L.P., J.P. Morgan Investment
Corporation, Sixty Wall Street SBIC Fund, L.P., Private Equity
Investors III, L.P., Equity-Linked Investors-II, Toronto Dominion
Capital (USA), Inc., DAG-Triton PCS, L.P., First Union Capital
Partners, Inc., and the stockholders named therein (incorporated by
reference to Exhibit 10.10 to the Form S-4 Registration Statement of
Triton PCS, Inc. and its subsidiaries, File No. 333-57715).
10.20 Amendment No. 1 to Investors Stockholders' Agreement among CB
Capital Investors, L.P., J.P. Morgan Investment Corporation, Sixty
Wall Street SBIC Fund, L.P., Private Equity Investors III, L.P.,
Equity-Linked Investors-II, Toronto Dominion Capital (USA), Inc.,
DAG-Triton PCS, L.P., First Union Capital Partners, Inc., and the
stockholders named therein (incorporated by reference to Exhibit
10.48 to the Form 10-Q of Triton PCS Holdings, Inc. for the quarter
ended September 30, 1999).
10.21 Employment Agreement, dated as of February 4, 1998, among Triton
Management Company, Inc., Triton PCS Holdings, Inc. and Michael E.
Kalogris (incorporated by reference to Exhibit 10.16 to the Form S-4
Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-57715).
10.22 Amendment No. 1 to Employment Agreement, dated as of June 29, 1998,
among Triton Management Company, Inc., Triton PCS Holdings, Inc.,
and Michael E. Kalogris (incorporated by reference to Exhibit
10.16.1 to Amendment No. 1 to the Form S-4 Registration Statement of
Triton PCS, Inc. and its subsidiaries, File No. 333-57715).
10.23 Amendment No. 2 to the Employment Agreement by and among Triton
Management Company, Inc., Triton PCS Holdings, Inc. and Michael E.
Kalogris, dated December, 1998 (incorporated by reference to Exhibit
10.39 to Post-Effective Amendment No. 2 to the Form S-4 Registration
Statement of Triton PCS, Inc. and its subsidiaries, File No.
333-57715).
10.24 Amendment No. 3 to the Employment Agreement by and among Triton
Management Company, Inc., Triton PCS Holdings, Inc. and Michael E.
Kalogris, dated June 8, 1999 (incorporated by reference to Exhibit
10.40 to Post-Effective Amendment No. 2 to the Form S-4 Registration
Statement of Triton PCS, Inc. and its subsidiaries, File No.
333-57715).
10.25 Employment Agreement, dated as of February 4, 1998, between Triton
Management Company and Steven R. Skinner (incorporated by reference
to Exhibit 10.18 to the Form S-4 Registration Statement of Triton
PCS, Inc. and its subsidiaries, File No. 333-57715).
10.26 Amendment No. 1 to Employment Agreement, dated as of June 29, 1998,
among Triton Management Company, Inc., Triton PCS Holdings, Inc.,
and Steven R. Skinner (incorporated by reference to Exhibit 10.18.1
to Amendment No. 1 to the Form S-4 Registration Statement of Triton
PCS, Inc. and its subsidiaries, File No. 333-57715).
10.27 Amendment No. 2 to the Employment Agreement by and among Triton
Management Company, Inc., Triton PCS Holdings, Inc. and Steven R.
Skinner, dated as of December 31, 1998 (incorporated by reference to
Exhibit 10.41 to Post-Effective Amendment No. 2 to the Form S-4
Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-57715).
10.28 Amendment No. 3 to the Employment Agreement by and among Triton
Management Company, Inc., Triton PCS Holdings, Inc. and Steven R.
Skinner, dated as of June 8, 1999 (incorporated by reference to
Exhibit 10.42 to Post-Effective Amendment No. 2 to the Form S-4
Registration Statement of Triton PCS, Inc. and its subsidiaries,
File No. 333-57715).
38
10.29 Employment Agreement, dated May 24, 2001, to be effective as of
January 1, 2001, by and between Triton Management Company, Inc. and
David D. Clark (incorporated by reference to Exhibit 10.1 to the
Form 10-Q of Triton PCS Holdings, Inc. for the quarter ended June
30, 2001).
10.30 Amended and Restated Common Stock Trust Agreement for Management
Employees and Independent Directors, dated as of June 26, 1998
(incorporated by reference to Exhibit 10.19 to Amendment No. 1 to
the Form S-4 Registration Statement of Triton PCS, Inc. and its
subsidiaries, File No. 333-57715).
10.31 Form of Stockholders Letter Agreement for management employees
(incorporated by reference to Exhibit 10.43 to Post-Effective
Amendment No. 2 to the Form S-4 Registration Statement of Triton
PCS, Inc. and its subsidiaries, File No. 333-57715).
10.32 Form of Stockholders Letter Agreement for independent directors
(incorporated by reference to Exhibit 10.44 to Post-Effective
Amendment No. 2 to the Form S-4 Registration Statement of Triton
PCS, Inc. and its subsidiaries, File No. 333-57715).
10.33 Triton PCS Holdings, Inc. 1999 Stock and Incentive Plan
(incorporated by reference to Exhibit 10.45 to Amendment No. 3 to
the Form S-1 Registration Statement of Triton PCS Holdings, Inc.,
File No. 333-85149).
10.34 Amendment Number One to the Triton PCS Holdings, Inc. 1999 Stock and
Incentive Plan (incorporated by reference to the definitive proxy
statement on Schedule 14A for the 2001 Annual Meeting of
Stockholders of Triton PCS Holdings, Inc. filed on March 30, 2001).
10.35 Triton PCS Holdings, Inc. Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.46 to Amendment no. 1 to the Form S-1
Registration Statement of Triton PCS Holdings, Inc., File No.
333-85149).
21.1 Subsidiaries of Triton PCS Holdings, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (set forth on the signature page of this report).
- ----------
+ Portions of this exhibit have been omitted under an SEC order granting
confidential treatment under the Securities Act.
(a) REPORTS ON FORM 8-K
A report on Form 8-K was filed on November 6, 2001 reporting under Item 5
the intention of Triton PCS, Inc. to pursue a $300 million private
placement of senior subordinated notes.
A report on Form 8-K/A was filed on November 15, 2001 reporting under Item
5 an increase in Triton PCS, Inc. private placement to $400 aggregate
principal amount of 8 3/4% senior subordinated notes due 2011 and filing
related documents.
A report on Form 8-K was filed on December 12, 2001 reporting under Item 5
a secondary offering of shares of Holdings' Class A common stock and
filing related documents.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Berwyn, State of Pennsylvania on March 15, 2002.
Triton PCS Holdings, Inc.
By: /s/ Michael E. Kalogris
-----------------------------------
Chief Executive Officer
(Principal Executive Officer)
By: /s/ David D. Clark
-----------------------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
POWER OF ATTORNEY
Triton PCS Holdings, Inc. a Delaware corporation, and each person whose
signature appears below, constitutes and appoints Michael E. Kalogris and David
D. Clark, and either of them, with full power to act without the other, such
person's true and lawful attorneys-in-fact, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Annual Report on Form 10-K and any and all amendments
to such Annual Report on Form 10-K and other documents in connection therewith,
and to file the same, and all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing necessary or desirable to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorneys-in-fact, or any
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
Triton PCS Holdings, Inc. and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael E. Kalogris Chief Executive Officer and Chairman of March 22, 2002
- ------------------------- the Board of Directors
Michael E. Kalogris (Principal Executive Officer)
/s/ Steven R. Skinner President, Chief Operating March 22, 2002
- ------------------------- Officer and Director
Steven R. Skinner
/s/ David D. Clark Executive Vice President, Chief Financial March 22, 2002
- ------------------------- Officer and Secretary
David D. Clark (Principal Financial Officer)
/s/ Andrew M. Davies Vice President and Controller March 22, 2002
- ------------------------- (Principal Accounting Officer)
Andrew M. Davies
40
/s/ Scott I. Anderson Director March 22, 2002
- -------------------------
Scott I. Anderson
/s/ John D. Beletic Director March 22, 2002
- -------------------------
John D. Beletic
/s/ Arnold L. Chavkin Director March 22, 2002
- -------------------------
Arnold L. Chavkin
/s/ John W. Watkins Director March 22, 2002
- -------------------------
John W. Watkins
/s/ William W. Hague Director March 22, 2002
- -------------------------
William W. Hague
41