Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2002
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 no.)
1100 CASSATT ROAD
BERWYN, PENNSYLVANIA 19312
(Address and zip code of principal executive offices)
(610) 651-5900
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of October 31, 2002, 60,290,516 shares of the registrant's Class A common
stock, par value $0.01 per share, and 7,926,099 shares of the registrant's Class
B non-voting common stock, par value $0.01 per share, were outstanding.
TRITON PCS HOLDINGS, INC.
THIRD QUARTER REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 2001 and
September 30, 2002 .................................................................. 3
Consolidated Statements of Operations and Comprehensive Loss for the three
and nine months ended September 30, 2001 and 2002 ................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2002 ......................................................... 5
Notes to the Financial Statements ................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......................... 17
Item 4. Controls and Procedures ............................................................. 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 18
Item 2. Changes in Securities and Use of Proceeds ........................................... 18
Item 3. Defaults Upon Senior Securities...................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.................................. 18
Item 5. Other Information.................................................................... 18
Item 6. Exhibits and Reports on Form 8-K..................................................... 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRITON PCS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 31, September 30,
2001 2002
------------ ------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 371,088 $ 276,321
Accounts receivable, net of allowance for doubtful accounts
of $3,345 and $4,748, respectively 52,496 72,094
Accounts receivable - roaming partners 16,189 28,407
Inventory, net 29,740 24,061
Prepaid expenses 8,160 11,139
Other current assets 5,301 5,566
------------ ------------
TOTAL CURRENT ASSETS 482,974 417,588
PROPERTY AND EQUIPMENT:
Land 313 462
Network infrastructure and equipment 871,523 938,229
Furniture, fixtures and computer equipment 75,651 85,954
Capital lease assets 8,860 8,737
Construction in progress 55,651 49,939
------------ ------------
1,011,998 1,083,321
Less accumulated depreciation (218,823) (311,258)
------------ ------------
Net property and equipment 793,175 772,063
Intangible assets, net 283,847 326,333
Investment in and advances to non-consolidated entities 116,731 101,525
Other long-term assets 6,878 6,942
------------ ------------
TOTAL ASSETS $ 1,683,605 $ 1,624,451
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
Accounts payable $ 120,057 $ 97,621
Accrued payroll and related expenses 17,381 16,989
Accrued expenses 6,634 10,444
Current portion of long-term debt 12,641 7,554
Deferred revenue 12,099 16,869
Deferred gain on sale of property and equipment 1,190 1,190
Accrued interest 20,351 21,006
Other current liabilities 9,307 9,010
------------ ------------
TOTAL CURRENT LIABILITIES 199,660 180,683
LONG-TERM DEBT:
Capital lease obligations 2,512 1,258
Bank credit facility 174,441 170,074
Senior subordinated debt 1,167,338 1,206,039
------------ ------------
TOTAL LONG-TERM DEBT 1,344,291 1,377,371
Deferred income taxes 11,935 11,935
Deferred revenue 3,129 3,161
Fair value of derivative instruments 20,584 25,951
Deferred gain on sale of property and equipment 28,262 27,370
------------ ------------
TOTAL LIABILITIES 1,607,861 1,626,471
Series A Convertible Preferred Stock, $0.01 par value,
1,000,000 shares authorized; 786,253 shares issued and
outstanding as of December 31, 2001 and September 30, 2002,
including accreted dividends 114,965 123,880
STOCKHOLDERS' DEFICIT:
Series B Preferred Stock, $0.01 par value, 50,000,000 shares
authorized; no shares issued or outstanding as of December
31, 2001 and September 30, 2002 -- --
Series C Convertible Preferred Stock, $0.01 par value,
3,000,000 shares authorized; no shares issued or
outstanding as of December 31, 2001 and September 30, 2002 -- --
Series D Convertible Preferred Stock, $0.01 par value,
16,000,000 shares authorized; 543,683 shares issued and
outstanding as of December 31, 2001 and September 30, 2002 5 5
Class A Common Stock, $0.01 par value, 520,000,000 shares
authorized; 59,438,555 shares issued and 59,327,637 shares
outstanding as of December 31, 2001 and 60,413,476 shares
issued and 60,200,246 shares outstanding as of September
30, 2002 594 602
Class B Non-voting Common Stock, $.01 par value, 60,000,000
shares authorized; 7,926,099 shares issued and outstanding
as of December 31, 2001 and September 30, 2002 79 79
Additional paid-in capital 623,335 618,801
Accumulated deficit (561,580) (656,126)
Accumulated other comprehensive loss (7,660) (7,686)
Deferred compensation (92,619) (80,200)
Common stock held in treasury, at cost (110,918) and
(213,230), respectively (1,375) (1,375)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (39,221) (125,900)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,683,605 $ 1,624,451
============ ============
See accompanying notes to financial statements.
3
TRITON PCS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
Revenues:
Service revenues $ 106,074 $ 135,767 $ 284,876 $ 382,700
Roaming revenues 35,896 50,396 93,995 131,030
Equipment revenues 6,788 8,521 18,937 23,825
------------ ------------ ------------ ------------
Total revenue 148,758 194,684 397,808 537,555
Expenses:
Cost of service (excluding the below amortization,
excluding depreciation of $23,292 and $27,753 for
the three months ended September 30, 2001 and 2002,
respectively, and $66,229 and $81,563 for the nine
months ended September 30, 2001 and 2002,
respectively, and excluding noncash compensation of
$788 and $911 for the three months ended September
30, 2001 and 2002, respectively, and $1,746 and
$2,736 for the nine months ended September 30,
2001 and 2002, respectively) 47,230 56,547 127,356 157,355
Cost of equipment 18,232 15,931 51,474 51,051
Selling and marketing (excluding noncash compensation
of $415 and $655 for the three months ended September
30, 2001 and 2002, respectively, and $1,288 and
$1,886 for the nine months ended September 30, 2001
and 2002, respectively) 26,033 28,321 75,128 78,471
General and administrative (excluding noncash
compensation of $3,855 and $3,864 for the three
months ended September 30, 2001 and 2002,
respectively, and $8,758 and $11,416 for the nine
months ended September 30, 2001 and 2002,
respectively) 37,480 43,375 98,346 118,161
Non-cash compensation 5,058 5,430 11,792 16,038
Depreciation 27,508 34,461 78,288 96,556
Amortization 4,971 1,243 14,364 3,785
------------ ------------ ------------ ------------
Income (loss) from operations (17,754) 9,376 (58,940) 16,138
Interest and other expense, net of capitalized interest 31,149 43,421 87,368 115,670
Interest and other income 4,701 1,556 15,884 4,986
------------ ------------ ------------ ------------
Net loss (44,202) (32,489) (130,424) (94,546)
Accretion on preferred stock 2,758 3,046 8,071 8,915
------------ ------------ ------------ ------------
Net loss applicable to common stockholders $ (46,960) $ (35,535) $ (138,495) $ (103,461)
============ ============ ============ ============
Other comprehensive loss, net of tax:
Cumulative effect of change in accounting principle -- -- (4,162) --
Unrealized loss on derivative instruments (12,883) (788) (16,832) (26)
------------ ------------ ------------ ------------
Comprehensive loss applicable to common stockholders $ (59,843) $ (36,323) $ (159,489) $ (103,487)
============ ============ ============ ============
Net loss per common share (basic and diluted) $ (0.72) $ (0.54) $ (2.14) $ (1.57)
============ ============ ============ ============
Weighted average common shares outstanding
(basic and diluted) 65,533,308 65,997,815 64,753,747 65,803,041
============ ============ ============ ============
See accompanying notes to financial statements.
4
TRITON PCS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS
ENDED
SEPTEMBER 30,
------------------------
2001 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (130,424) $ (94,546)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 92,652 100,341
Accretion of interest 35,627 39,559
Equity losses in non-consolidated entities 20 1,329
Bad debt expense 8,977 11,153
Non-cash compensation 11,792 16,038
Loss on derivative instruments not acting as hedges -- 5,341
Change in operating assets and liabilities:
Accounts receivable (26,776) (42,969)
Inventory 1,264 5,679
Prepaid expenses and other current assets (5,867) (4,444)
Intangible and other assets (3,003) 280
Accounts payable 8,151 7,095
Accrued payroll and related expenses 1,021 (392)
Deferred revenue 6,549 4,802
Accrued expenses 2,010 3,810
Accrued interest 6,145 655
Other liabilities 2,120 (1,189)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,258 52,542
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (184,652) (106,494)
Net (advances to) repayments from non-consolidated entities (88,880) 13,877
Acquisition of FCC licenses -- (43,129)
Proceeds from disposal of fixed assets -- 150
Other (3,077) (20)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (276,609) (135,616)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated debt, net 337,995 --
Borrowings under credit facility 281,000 --
Payments under credit facility (38,750) (9,375)
Proceeds from equity offering, net 106,680 --
Contributions under employee stock purchase plan 803 747
Payment of deferred financing costs (1,163) (1,473)
Payment of deferred transaction costs (1,142) --
Proceeds from related party, net 16 --
Capital contribution -- 23
Purchase of treasury stock (1,270) --
Principal payments under capital lease obligations (1,466) (1,615)
---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 682,703 (11,693)
---------- ----------
NET (DECREASE) INCREASE IN CASH 416,352 (94,767)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,617 371,088
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 417,969 $ 276,321
========== ==========
CASH PAID FOR INTEREST EXPENSE $ 48,479 $ 70,594
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures included in accounts payable 23,201 8,398
Deferred stock compensation 68,036 3,619
Change in fair value of derivative instruments acting as hedges 20,994 26
See accompanying notes to financial statements.
5
TRITON PCS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited and have
been prepared by management. In the opinion of management, these
consolidated financial statements contain all of the adjustments,
consisting of normal recurring adjustments, necessary to present fairly, in
summarized form, the financial position and the results of operations of
Triton PCS Holdings, Inc. ("Triton"). The results of operations for the
three and nine months ended September 30, 2002 may not be indicative of the
results that may be expected for the year ending December 31, 2002. The
financial information presented herein should be read in conjunction with
the consolidated financial statements for the year ended December 31, 2001,
which include information and disclosures not included herein.
The consolidated accounts include Triton and its wholly-owned subsidiaries
(collectively, the "Company"). All significant intercompany accounts or
balances have been eliminated in consolidation.
Certain reclassifications have been made to prior period financial
statements to conform to the current period presentation. In the third
quarter of 2002, the Company determined that certain expenses previously
classified as selling and marketing and cost of equipment were more
accurately classified as general and administrative expenses. These
expenses include retail customer service expenses and handset subsidies
incurred specifically for existing subscribers and not related to new
customer additions.
(2) NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("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 and 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 addresses financial accounting and reporting for the impairment of
long-lived assets. It also eliminates the exception to consolidate a
subsidiary for which control is likely to be temporary. Management is
currently evaluating the impact this statement will have on the Company's
financial position and results of operations.
In September 2001, the Emerging Issues Task Force ("EITF") issued EITF
01-09 "Accounting for Consideration Given by a Vendor to a
Customer/Reseller". EITF 01-09 primarily establishes accounting standards
for the classification, recognition and measurement of consideration given
by a vendor to a reseller. The provisions of EITF 01-09 are effective for
fiscal years beginning after December 15, 2001. The adoption of EITF 01-09,
effective January 1, 2002, did not have a material impact on the Company's
financial position or results of operations, but it did require certain
costs that were previously classified as an expense to be reflected as an
offset to equipment revenue. For the nine months ended September 30, 2001,
approximately $0.6 million of expense has been reclassified as an offset to
equipment revenue to conform with the current period presentation.
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13 and
Technical Corrections as of April 2002". SFAS 145 rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt" and SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking Fund Requirements". It
also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers". It amends SFAS No. 13, "Accounting for Leases", to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions.
It also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability
under changed conditions. Management is currently evaluating the impact
this statement will have on the Company's financial position and results of
operations.
6
TRITON PCS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(3) LOSS ON THE DISPOSAL OF ASSETS
In the third quarter of 2002, the Company incurred a loss of $2.6 million
as the result of management making the decision not to complete the
construction of certain cell sites. This charge is included in depreciation
expense on the Statements of Operations and Comprehensive Loss.
(4) ACCOUNTING FOR INTANGIBLE ASSETS
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". With the adoption of SFAS No. 142, FCC licenses, which
are categorized as an asset with an indefinite life, are no longer subject
to amortization. As an asset with an indefinite life, the licenses are
subject to at least an annual assessment for impairment. All of the
Company's FCC licenses are aggregated for the purpose of performing the
impairment test as they are operated as a single asset, and, as such, are
essentially inseparable from one another. The Company has evaluated these
assets, and based upon a discounted future cash flows model, the FCC
licenses are not impaired. As of January 1, 2002, the Company had recorded
a net asset of approximately $255.7 million for its FCC licenses.
The elimination of FCC license amortization would have reduced net loss by
approximately $1.7 million and $5.2 million for the three and nine months
ended September 30, 2001, respectively, or $0.03 per basic and diluted
share and $0.08 per basic and diluted share, respectively. The pro forma
net loss and earnings per share information below is shown as if the
provisions of SFAS No. 142 were in effect for fiscal 2001.
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
PRO FORMA ACTUAL PRO FORMA ACTUAL
(Dollars in thousands, except per share amounts) 2001 2002 2001 2002
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
NET LOSS:
Reported net loss $ (46,960) $ (35,535) $ (138,495) $ (103,461)
Add back: FCC license amortization 1,736 -- 5,207 --
----------- ----------- ----------- -----------
Adjusted net loss $ (45,224) $ (35,535) $ (133,288) $ (103,461)
----------- ----------- ----------- -----------
BASIC AND DILUTED EARNINGS PER SHARE:
Reported net loss $ (0.72) $ (0.54) $ (2.14) $ (1.57)
FCC license amortization 0.03 -- 0.08 --
----------- ----------- ----------- -----------
Adjusted net loss $ (0.69) $ (0.54) $ (2.06) $ (1.57)
----------- ----------- ----------- -----------
(5) EMPLOYEE STOCK PURCHASE PLAN
Triton maintains an Employee Stock Purchase Plan (the "Plan") pursuant to
which employees may purchase shares of Triton's Class A common stock. Under
the terms of the Plan, the Stock Plan Committee establishes offering
periods during each calendar year in 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) eighty-five percent (85%) of
the fair market value of the Class A common stock on the first business day
of each offering period; or (ii) eighty-five percent (85%) of the fair
market value of the Class A common stock on the last business day of the
offering period. Triton issued 9,650 shares of Class A common stock, at a
per share price of $24.95, in January 2002; 33,831 shares of Class A common
stock, at a per share price of $8.66, in April 2002; 64,255 shares of Class
A common stock, at a per share price of $3.32, in July 2002; and 94,968
shares of Class A common stock, at a per share price of $1.78, in October
2002, pursuant to the Plan.
(6) STOCK COMPENSATION
On May 1, 2002, Triton granted 622,185 shares of restricted Class A common
stock to management employees. Of the total grant, 50,000 shares of
restricted Class A common stock were issued from a common stock trust
established for grants of common stock to management, employees and
independent directors (the "Trust"). The remaining shares were issued under
Triton's 1999 Stock Incentive Plan (the "Stock Incentive Plan"). All of
these
7
TRITON PCS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
shares are subject to five-year vesting provisions. Deferred compensation
of approximately $5.2 million was recorded based on the market value at the
date of grant. Also, on May 1, 2002, Triton granted 212,435 shares of
restricted Class A common stock to employees. These shares of restricted
Class A common stock were issued under the Stock Incentive Plan and are
subject to four-year vesting provisions. Deferred compensation of
approximately $1.8 million was recorded based on the market value at the
date of grant.
During the nine months ended September 30, 2002, certain employees, who
resigned their employment with the Company, forfeited approximately $3.7
million of deferred compensation and in doing so returned 16,947 shares of
restricted Class A common stock to the Trust and forfeited another 102,247
shares of restricted Class A common stock, which were issued under the
Stock Incentive Plan.
Triton has entered into Director Stock Award Agreements with its four
directors considered to be independent by management - Scott I. Anderson,
John D. Beletic, Arnold L. Chavkin and Rohit M. Desai. Each independent
director received an award of 11,250 shares of Class A common stock for
service on the Board of Directors and an additional 6,250 shares for
service on each of the audit committee and the compensation committee.
Accordingly, Mr. Anderson and Mr. Beletic each received total awards of
17,500 shares under agreements dated as of June 24, 2002, recognizing their
service on the audit committee and the compensation committee,
respectively, and Mr. Chavkin and Mr. Desai each received a total award of
23,750 shares under agreements dated as of July 1, 2002, recognizing their
service on both committees. Each award vests in equal installments over a
five-year period, with the first installment vesting on June 1, 2003. Upon
each director's termination of service as a member of Triton's Board of
Directors for any reason, the director has agreed to forfeit any unvested
shares, subject to the exception that if the director is not nominated to
serve as a member of the Board of Directors when his term expires or if
nominated, does not receive the requisite vote to be elected, the director
will be deemed to have served on the Board of Directors as of the vesting
date closest to the relevant annual meeting of Triton's stockholders.
(7) LICENSE PURCHASES
The Company has acquired, or has entered into agreements to acquire,
additional spectrum as part of its current network overlay to offer
GSM/GPRS services.
During the second quarter of 2002, Triton consummated two license purchase
agreements for an aggregate purchase price of approximately $22.6 million.
First, Virginia PCS Alliance, L.L.C. disaggregated its personal
communications services C block licenses for the Charlottesville, Virginia
and Winchester, Virginia basic trading areas by selling the Company 10 MHz
of spectrum in each market. Second, AT&T Wireless PCS, LLC partitioned and
disaggregated its broadband personal communications services A block
license for the Atlanta major trading area by selling the Company 20 MHz of
spectrum for Bulloch County, Georgia and Screven County, Georgia.
On July 15, 2002, Triton entered into a definitive agreement to acquire a
10 MHz personal communications services license in Fayetteville, North
Carolina from Northcoast Communications, LLC. The transaction was approved
by the FCC on October 11, 2002, and is expected to close in the fourth
quarter of 2002.
On July 25, 2002, Triton entered into a definitive agreement to acquire
personal communications services licenses in Richmond, Norfolk and Roanoke,
Virginia from AT&T Wireless PCS, LLC for $65.0 million. The three 10 MHz A
block licenses for the Richmond, Norfolk and Roanoke basic trading areas
cover approximately 3.7 million people. The transaction was approved by the
FCC on October 8, 2002, and is expected to close in the fourth quarter of
2002.
On September 30, 2002, Triton acquired nine personal communications
services licenses in several markets in the Company's territory from
Lafayette Communications Company, L.L.C. ("Lafayette"), an entity in which
the Company holds a 39% interest, for an aggregate purchase price of
approximately $25.0 million.
8
TRITON PCS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(8) CREDIT FACILITY
Triton PCS, Inc. ("Triton PCS"), a wholly owned subsidiary of Triton, and
Triton are parties to a bank credit facility. On February 20, 2002, Triton
PCS and Triton entered into a second amendment to the second amended and
restated 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 and Triton entered into a third amendment to
the second amended and restated 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. The Tranche E commitment expires March 8, 2003, if not
drawn prior to that date. If drawn, Triton PCS must repay 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.
As of September 30, 2002, the Company had $175.6 million of outstanding
borrowings under its bank credit facility.
(9) SUBSEQUENT EVENTS
On October 16, 2002, Triton PCS and Triton entered into a fourth amendment
to the second amended and restated credit agreement to provide greater
flexibility in the total leverage and interest coverage covenant
requirements. No other material terms or conditions of the credit agreement
were changed, and the Company did not incur any fees related to this
transaction. In exchange for the covenant changes, the Company agreed to
reduce the facility by $50.0 million. The commitment reduction consisted of
a $30.0 million repayment of outstanding borrowings and a $20.0 million
reduction in unfunded commitments. Giving effect to the commitment
reduction, the total senior credit facility is approximately $425.6
million, of which approximately $145.6 million is funded and approximately
$280.0 million is unfunded.
Triton has also agreed to acquire nine additional FCC licenses from
Lafayette. The purchase price will be satisfied through the retirement of
debt that Lafayette owes to Triton.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In this section, the terms "Triton," "we," "our" and similar terms refer
collectively to Triton PCS Holdings, Inc., Triton PCS, Inc., and their
consolidated subsidiaries. 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.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q and in future filings by us with the Securities and
Exchange Commission, in our press releases and in oral statements made with the
approval of an authorized executive officer of Triton, statements concerning
possible or assumed future results of operations of Triton and those preceded
by, followed by or that include the words "may," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or the negative of such terms and other comparable terminology
(including confirmations by an authorized executive officer of Triton or any
such expressions made by a third party with respect to Triton) are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Readers are cautioned not to place
undue reliance on any such forward-looking statements, each of which speaks only
as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. For a
discussion of certain risks and uncertainties that could affect our results of
operations, liquidity and capital resources, see the "Risk Factors" section of
the Triton PCS, Inc. prospectus dated April 26, 2002, as filed with the
Securities and Exchange Commission on that date. We have no obligation to
release publicly the result of any revisions which may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
OVERVIEW
We are a leading provider of wireless communications services in the
southeastern United States. Our wireless communications licenses cover
approximately 13.6 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 megahertz, or MHz, of authorized
frequencies covering 11.3 million potential customers within defined areas of
our region in exchange for an equity position in Triton. 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 transaction 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. 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
areas.
We have successfully launched personal communications services in all of our 37
markets. Our extensive network in these markets includes seven switches and more
than 2,180 cell sites. 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
September 30, 2002, our subscriber base has grown from 33,844 subscribers to
796,486 subscribers. Roaming minutes generated by non-Triton subscribers since
January 1999 have increased from approximately 0.7 million minutes per month to
a high, in August 2002, of approximately 95.0 million minutes per month. Roaming
minutes for the third quarter of 2002 were approximately 271.2 million, which
represents a 57.1% increase over the third quarter of 2001.
10
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2001
Subscribers
Net subscriber additions were 32,961 for the three months ended September 30,
2002, bringing our total subscribers to 796,486 as of September 30, 2002, an
increase of 28.9% over our subscriber total as of September 30, 2001. The
increase in subscribers was primarily due to continued demand for our digital
service offerings and pricing plans. During the three months ended September 30,
2002, 100% of our gross subscriber additions were post-pay on a one or two year
service contract.
Churn
Subscriber churn was 2.2% and 2.0% for the three months ended September 30, 2002
and 2001, 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 retention efforts.
Average Revenue Per User
Average revenue per user was $58.02 and $60.01 for the three months ended
September 30, 2002 and 2001, respectively. We continue to focus on attracting
new high-value customers with our compelling rate plans, exceptional customer
service and extensive network. The decrease was primarily the result of changes
and additions to the rate plans we offer.
Revenues
Total revenue increased 30.8% to $194.7 million for the three months ended
September 30, 2002, from $148.8 million for the three months ended September 30,
2001. Service revenue for the three months ended September 30, 2002 was $135.8
million, an increase of $29.7 million, or 28.0%, compared to $106.1 million for
the three months ended September 30, 2001. The increase in service revenue was
due primarily to growth in subscribers. Equipment revenue was $8.5 million for
the three months ended September 30, 2002, an increase of $1.7 million, or
25.0%, compared to $6.8 million for the three months ended September 30, 2001.
The equipment revenue increase was due primarily to an increase in the average
revenue per unit sold.
Roaming revenue was $50.4 million for the three months ended September 30, 2002,
an increase of $14.5 million, or 40.4%, compared to $35.9 million for the three
months ended September 30, 2001. The increase in roaming revenue was due to
increased roaming minutes of use resulting from the expansion of our network,
the implementation of new roaming agreements with such carriers as Cingular
Wireless and the overall subscriber growth in the wireless industry.
Cost of Service and Equipment
Cost of service was $56.5 million for the three months ended September 30, 2002,
an increase of $9.3 million, or 19.7%, compared to $47.2 million for the three
months ended September 30, 2001. The increase was related to the higher volume
of traffic on our network driven by subscriber growth and higher roaming minutes
of use. Cost of service as a percentage of revenue, excluding equipment revenue,
was 30.4% and 33.3% for the three months ended September 30, 2002 and 2001,
respectively. The decrease of 2.9% was primarily attributable to increased
leverage on fixed interconnect and cell site costs.
Cost of equipment was $15.9 million for the three months ended September 30,
2002, a decrease of $2.3 million, or 12.6%, compared to $18.2 million for the
three months ended September 30, 2001. The decrease in cost of equipment was
primarily attributable to a lower average cost per handset driven by a
combination of lower handset prices and a change in the mix of equipment sold.
Selling and Marketing Expense
Selling and marketing expense was $28.3 million for the three months ended
September 30, 2002, an increase of $2.3 million, or 8.8%, compared to $26.0
million for the three months ended September 30, 2001. The increase was
primarily due to increased advertising and promotional spending related to the
launch of Triton's new service offering, the "SunCom UnPlan", and promotional
incentives offered to sales associates and agent distributors.
11
Cost per Gross Addition
Beginning July 1, 2002, we changed our method of calculating cost per gross
addition, or CPGA. Retail customer service expenses and handset subsidies
incurred specifically for existing subscribers and not related to new subscriber
additions, both previously part of the calculation of CPGA, are instead
classified as general and administrative expenses. Prior period amounts have
been reclassified to conform with the current period presentation. The
reclassification of these costs did not impact operating expenses, EBITDA or
income (loss) from continuing operations.
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2002
---------------------- ----------------------
CURRENTLY PREVIOUSLY CURRENTLY PREVIOUSLY
CALCULATED CALCULATED CALCULATED CALCULATED
---------- ---------- ---------- ----------
CPGA $ 405 $ 417 $ 418 $ 438
General and administrative expense as a % of
total revenue, excluding equipment revenue 26.4% 25.6% 23.3% 22.4%
General and Administrative Expense
General and administrative expense was $43.4 million for the three months ended
September 30, 2002, an increase of $5.9 million, or 15.7%, compared to $37.5
million for the three months ended September 30, 2001. The increase was related
to expansion of the number of customer care representatives to support our
customer growth, and certain other expenses related to customer care and
retention. General and administrative expenses as a percentage of revenue,
excluding equipment revenue, were 23.3% and 26.4% for the three months ended
September 30, 2002 and 2001, respectively. The decrease of 3.1% was primarily
attributable to increased customer care efficiency and increased leverage on
other fixed costs.
EBITDA Excluding Amortization of Non-Cash Compensation
EBITDA excluding amortization of non-cash compensation represents operating loss
plus depreciation and amortization expense and non-cash compensation expense,
which we refer to as EBITDA. 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) or
to cash flows from operating activities as determined in accordance with United
States GAAP, or as a measure of liquidity. EBITDA was $50.5 million and $19.8
million for the three months ended September 30, 2002 and 2001, respectively.
The increase of $30.7 million resulted primarily from the items discussed above.
Non-cash Compensation Expense
Non-cash compensation expense was $5.4 million for the three months ended
September 30, 2002, an increase of $0.3 million, or 5.9%, compared to $5.1
million for the three months ended September 30, 2001. The increase was
attributable to the vesting of an increased number of restricted shares of Class
A common stock awarded to management in prior periods.
Depreciation and Amortization Expense
Depreciation and amortization expense was $35.7 million for the three months
ended September 30, 2002, an increase of $3.2 million, or 9.8%, compared to
$32.5 million for the three months ended September 30, 2001. The increase
relates primarily to increased depreciation expense due to the growth in the
depreciable asset base resulting from capital expenditures, partially offset by
the effect of ceasing amortization on our FCC licenses, which was approximately
$1.7 million for the three months ended September 30, 2001, in accordance with
SFAS No. 142, "Goodwill and Other Intangible Assets". In addition, there was a
$2.6 million loss recognized in connection with management's decision not to
complete the construction of certain cell sites.
12
Interest Income and Expense
Interest and other expense was $43.4 million, net of capitalized interest of
$1.0 million, for the three months ended September 30, 2002. Interest and other
expense was $31.1 million, net of capitalized interest of $1.5 million, for the
three months ended September 30, 2001. The increase of $12.3 million, or 39.5%,
relates partially to interest expense on our November 2001 private placement of
$400.0 million aggregate principal amount of 8 3/4% senior subordinated notes,
offset partially by a decrease of interest expense on our bank credit facility.
The aggregate interest expense of these debt instruments increased from $10.9
million for the three months ended September 30, 2001 to $15.5 million for the
three months ended September 30, 2002. Interest and other expense also increased
as the result of higher accretion of interest of $1.3 million on our May 1998
private placement of $512.0 million aggregate principal amount of 11% senior
subordinated discount notes.
For the three months ended September 30, 2002, there was also a $6.1 million
loss recognized as the result of the change in fair value of our interest rate
swap derivative instruments, which did not qualify as hedges. These interest
rate swaps do not qualify as hedges as the result of the repayment of previously
matched variable rate debt in November of 2001 with proceeds from our 8 3/4%
notes offering.
We had a weighted average interest rate of 9.70% for the three months ended
September 30, 2002, on our average borrowings under our bank credit facility and
our average obligation for the senior subordinated debt, as compared with the
9.23% weighted average interest rate for the three months ended September 30,
2001.
Interest and other income was $1.6 million for the three months ended September
30, 2002, a decrease of $3.1 million, or 66.0%, compared to $4.7 million for the
three months ended September 30, 2001. The decrease was due primarily to the
combination of lower average interest rates on lower average cash balances.
Net Loss
Net loss was $32.5 million and $44.2 million for the three months ended
September 30, 2002 and 2001, respectively. The net loss decrease of $11.7
million resulted primarily from the items discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2001
Subscribers
Net subscriber additions were 110,833 for the nine months ended September 30,
2002, bringing our total subscribers to 796,486 as of September 30, 2002, an
increase of 28.9% over our subscriber total as of September 30, 2001. The
increase in subscribers was primarily due to continued demand for our digital
service offerings and pricing plans. During the nine months ended September 30,
2002, 100% of our gross subscriber additions were post-pay on a one or two year
service contract.
Churn
Subscriber churn was 2.1% and 1.9% for the nine months ended September 30, 2002
and 2001, 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 retention efforts.
Average Revenue Per User
Average revenue per user was $57.36 and $59.54 for the nine months ended
September 30, 2002 and 2001, respectively. We continue to focus on attracting
new high-value customers with our compelling rate plans, exceptional customer
service and extensive network. The decrease was primarily the result of changes
and additions to the rate plans we offer.
Revenues
Total revenue increased 35.1% to $537.6 million for the nine months ended
September 30, 2002 from $397.8 million for the nine months ended September 30,
2001. Service revenue for the nine months ended September 30, 2002 was $382.7
million, an increase of $97.8 million, or 34.3%, compared to $284.9 million for
the nine months ended September 30, 2001. The increase in service revenue was
due primarily to growth in subscribers. Equipment revenue was $23.8 million for
the nine months ended September 30, 2002, an increase of $4.9 million, or 25.9%,
compared to
13
$18.9 million for the nine months ended September 30, 2001. The equipment
revenue increase was due primarily to an increase in the average revenue per
unit sold.
Roaming revenue was $131.0 million for the nine months ended September 30, 2002,
an increase of $37.0 million, or 39.4%, compared to $94.0 million for the nine
months ended September 30, 2001. The increase in roaming revenue was due to
increased roaming minutes of use resulting from the expansion of our network,
the implementation of new roaming agreements with such carriers as Cingular
Wireless and the overall subscriber growth in the wireless industry.
Cost of Service and Equipment
Cost of service was $157.4 million for the nine months ended September 30, 2002,
an increase of $30.0 million, or 23.5%, compared to $127.4 million for the nine
months ended September 30, 2001. The increase was related to the higher volume
of traffic on our network driven by subscriber growth and higher roaming minutes
of use. Cost of service as a percentage of revenue, excluding equipment revenue,
was 30.6% and 33.6% for the nine months ended September 30, 2002 and 2001,
respectively. The decrease of 3.0% was primarily attributable to increased
leverage on fixed interconnect and cell site costs.
Cost of equipment was $51.1 million for the nine months ended September 30,
2002, a decrease of $0.4 million, or 0.8%, compared to $51.5 million for the
nine months ended September 30, 2001.
Selling and Marketing Expense
Selling and marketing expense was $78.5 million for the nine months ended
September 30, 2002, an increase of $3.4 million, or 4.5%, compared to $75.1
million for the nine months ended September 30, 2001. The increase was primarily
due to promotional incentives offered to sales associates and agent distributors
and an increase in advertising and promotional spending related to the launch of
Triton's new service offering, the "SunCom UnPlan".
Cost per Gross Addition
Beginning July 1, 2002, we changed our method of calculating CPGA. Retail
customer service expenses and handset subsidies incurred specifically for
existing subscribers and not related to new customer additions, both previously
part of the calculation of CPGA, are instead classified as general and
administrative expenses. Prior period amounts have been reclassified to conform
with the current period presentation. The reclassification of these costs did
not impact operating expenses, EBITDA or income (loss) from continuing
operations.
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2002
---------------------- ----------------------
CURRENTLY PREVIOUSLY CURRENTLY PREVIOUSLY
CALCULATED CALCULATED CALCULATED CALCULATED
---------- ---------- ---------- ----------
CPGA $ 406 $ 418 $ 427 $ 448
General and administrative expense as a % of
total revenue, excluding equipment revenue 26.0% 25.1% 23.0% 22.0%
General and Administrative Expense
General and administrative expense was $118.2 million for the nine months ended
September 30, 2002, an increase of $19.9 million, or 20.2%, compared to $98.3
million for the nine months ended September 30, 2001. The increase was related
to expansion of the number of customer care representatives to support our
customer growth, and certain other expenses related to customer care and
retention. General and administrative expenses as a percentage of revenue,
excluding equipment revenue, were 23.0% and 26.0% for the nine months ended
September 30, 2002 and 2001, respectively. The decrease of 3.0% was primarily
attributable to increased customer care efficiency and increased leverage on
other fixed costs.
EBITDA Excluding Amortization of Non-Cash Compensation
EBITDA excluding amortization of non-cash compensation represents operating loss
plus depreciation and amortization expense and non-cash compensation expense,
which we refer to as EBITDA. 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
14
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) or to cash flows from operating activities as determined
in accordance with United States GAAP, or as a measure of liquidity. EBITDA was
$132.5 million and $45.5 million for the nine months ended September 30, 2002
and 2001, respectively. The increase of $87.0 million resulted primarily from
the items discussed above.
Non-cash Compensation Expense
Non-cash compensation expense was $16.0 million for the nine months ended
September 30, 2002, an increase of $4.2 million, or 35.6%, compared to $11.8
million for the nine months ended September 30, 2001. The increase was
attributable to the vesting of an increased number of restricted shares of Class
A common stock awarded to management in prior periods.
Depreciation and Amortization Expense
Depreciation and amortization expense was $100.3 million for the nine months
ended September 30, 2002, an increase of $7.6 million, or 8.2%, compared to
$92.7 million for the nine months ended September 30, 2001. The increase relates
primarily to increased depreciation expense due to the growth in the depreciable
asset base resulting from capital expenditures, partially offset by the effect
of ceasing amortization on our FCC licenses, which was approximately $5.2
million for the nine months ended September 30, 2001, in accordance with SFAS
No. 142, "Goodwill and Other Intangible Assets". In addition, there was a $2.6
million loss related to management's decision not to complete construction of
certain cell sites during the nine months ended September 30, 2002.
Interest Income and Expense
Interest and other expense was $115.7 million, net of capitalized interest of
$3.2 million, for the nine months ended September 30, 2002. Interest and other
expense was $87.4 million, net of capitalized interest of $4.9 million, for the
nine months ended September 30, 2001. The increase of $28.3 million, or 32.4%,
relates primarily to increases of interest expense on our January 2001 private
placement of $350.0 million aggregate principal amount of 9 3/8% senior
subordinated notes and our November 2001 private placement of $400.0 million
aggregate principal amount of 8 3/4% senior subordinated notes, offset partially
by a decrease of interest expense on our bank credit facility. The aggregate
interest expense of these debt instruments increased from $54.1 million for the
nine months ended September 30, 2001 to $70.8 million for the nine months ended
September 30, 2002. Interest and other expense also increased $3.8 million due
to the accretion of interest on our May 1998 private placement of $512.0 million
aggregate principal amount of 11% senior subordinated discount notes and a
decrease in capitalized interest of $1.8 million for the nine months ended
September 30, 2002.
For the nine months ended September 30, 2002, there was also a $5.3 million loss
recognized as the result of the change in fair value of our interest rate swap
derivative instruments, which did not qualify as hedges. These interest rate
swaps do not qualify as hedges as the result of the repayment of previously
matched variable rate debt in November of 2001 with proceeds from our 8 3/4%
notes offering.
We had a weighted average interest rate of 9.68% for the nine months ended
September 30, 2002, on our average borrowings under our bank credit facility and
our average obligation for the senior subordinated debt, as compared with the
9.46% weighted average interest rate for the nine months ended September 30,
2001.
Interest and other income was $5.0 million for the nine months ended September
30, 2002, a decrease of $10.9 million, or 68.6%, compared to $15.9 million for
the nine months ended September 30, 2001. The decrease was due primarily to the
combination of lower average interest rates on lower average cash balances.
Net Loss
Net loss was $94.5 million and $130.4 million for the nine months ended
September 30, 2002 and 2001, respectively. The net loss decrease of $35.9
million resulted primarily from the items discussed above.
15
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, we had $276.3 million in cash and cash equivalents, as
compared to $371.1 million in cash and cash equivalents at December 31, 2001.
Net working capital was $236.9 million as of September 30, 2002 and $283.3
million as of December 31, 2001.
Net Cash Provided by Operating Activities
The $52.5 million of cash provided by operating activities during the nine month
period ended September 30, 2002 was the result of our net loss of $94.5 million
and $26.7 million of cash used by changes in working capital and other long-term
assets, offset by $173.7 million of depreciation and amortization, accretion of
interest, loss in equity investment, non-cash compensation, bad debt expense and
loss on non-hedging interest rate swap derivative instruments.
Net Cash Used in Investing Activities
The $135.6 million of cash used by investing activities during the nine month
period ended September 30, 2002 was primarily related to $106.5 million of
capital expenditures associated with our network expansion and the acquisition
of FCC licenses for $43.1 million, partially offset by the net repayment of
$13.9 million of senior loans by Lafayette Communications Company, L.L.C., an
entity in which we hold a 39% interest. For a more detailed description of
completed and pending FCC license acquisitions for 2002, refer to footnotes (7)
and (9) in Item 1, Financial Statements. The capital expenditures were made
primarily to expand and enhance our wireless network in order to increase
capacity and to satisfy subscriber needs and competitive requirements. We
continue to upgrade our network to support future technological advances.
Net Cash Used in Financing Activities
The $11.7 million of cash used by financing activities during the nine month
period ended September 30, 2002 was primarily related to our principal payments
of $9.4 million on our credit facility, $1.5 million for deferred financing
costs and $1.6 million for principal payments under capital lease obligations.
Liquidity
We believe that cash on hand and available credit facility borrowings will be
sufficient to meet our projected capital requirements. However, it is possible
that additional financing may be needed. Our credit facility, as amended on
October 16, 2002, will permit us, subject to various terms and conditions,
including compliance with specified leverage ratios, to borrow up to $425.6
million to finance working capital requirements, capital expenditures, permitted
acquisitions and other corporate purposes. Our borrowings under this facility
are subject to customary terms and conditions. Giving effect to the credit
facility amendment, $145.6 million of the facility is funded and $280.0 million
is unfunded.
INFLATION
We do not believe that inflation has had a material impact on our operations.
16
ITEM 3. 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 September 30, 2002, our outstanding
debt can be categorized as follows (dollars in thousands):
Fixed interest rates:
Senior subordinated notes................ $1,206,039
Subject to interest rate fluctuations:
Bank credit facility..................... $ 175,625
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 September 30, 2002, 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. A 100 basis
point fluctuation in market rates would not have a material effect on our
overall financial condition.
In November 2001, we used the net proceeds from the sale of our 8 3/4% notes to
repay term borrowings under our credit facility. As a result, a portion of our
interest rate swaps were no longer matched with variable rate indebtedness and,
therefore, those interest rate swaps were deemed to be non-hedging derivative
instruments. Borrowings under our credit facility since November 2001 and in
the future will be matched with these existing interest rate swap agreements,
thereby reducing the notional amount deemed to be non-hedging derivative
instruments.
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.
ITEM 4. CONTROLS AND PROCEDURES
The Chief Executive Officer and the Chief Financial Officer of Triton (its
principal executive officer and principal financial officer respectively), as
well as Triton's Chief Operating Officer, its Senior Vice President of
Operations and its Controller have concluded, based on their evaluation as of a
date within 90 days prior to the date of the filing of this report, Triton's
disclosure controls and procedures: are effective to ensure that information
required to be disclosed by Triton in the reports filed or submitted by it under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms; and include controls and procedures designed to ensure that information
required to be disclosed by Triton in such reports is accumulated and
communicated to the company's management, including the Chief Executive Officer
and the Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
There were no significant changes in Triton's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
such evaluation.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 of 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 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).
4.6 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).
18
4.7 Indenture, dated as of November 14, 2001, among Triton PCS, Inc.,
the Guarantors party 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).
4.8 First Amended and Restated Stockholders' Agreement, dated as of
October 27, 1999, among AT&T Wireless PCS, L.L.C., Triton PCS
Holdings, Inc., the cash equity investors party thereto, the
management stockholders party thereto and the independent
directors party thereto (incorporated by reference to Exhibit
10.47 to the Form 10-Q of Triton PCS Holdings, Inc. for the
quarter ended September 30, 1999).
4.9 Amendment No. 1 to First Amended and Restated Stockholders'
Agreement, dated as of April 4, 2002, among AT&T Wireless PCS,
L.L.C., Triton PCS Holdings, Inc., the cash equity investors
party thereto, the management stockholders party thereto and the
independent directors party thereto (incorporated by reference to
Exhibit 4.9 to the Form 10-Q of Triton PCS Holdings, Inc. for the
quarter ended June 30, 2002).
4.10 Investors Stockholders' Agreement, dated as of February 4, 1998,
among CB Capital Investors, L.P., J.P. Morgan Investment
Corporation, Ninety 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).
4.11 Amendment No. 1 to Investors Stockholders' Agreement, dated as of
October 27, 1999, among CB Capital Investors, L.P., J.P. Morgan
Investment Corporation, Ninety 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).
10.1 Fourth Amendment, dated as of October 16, 2002, 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 JPMorgan Chase Bank, as
administrative agent.
+10.2 Amendment No. 4 to Network Membership License Agreement, dated as
of October 22, 2002, by and between AT&T Corp. and Triton PCS
Operating Company L.L.C.
+10.3 Roaming Agreement Supplement for GSM and/or GPRS, by and between
AT&T Wireless Services, Inc. and Triton PCS Operating Company
L.L.C.
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(B) REPORTS ON FORM 8-K
None.
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment, and the omitted portions have been filed separately
with the Securities and Exchange Commission.
19
SIGNATURES
Pursuant to the requirements 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.
TRITON PCS HOLDINGS, INC.
Date: November 12, 2002 By: /s/ Michael E. Kalogris
-------------------------------------
Michael E. Kalogris
Chief Executive Officer
(principal executive officer)
Date: November 12, 2002 By: /s/ David D. Clark
-------------------------------------
David D. Clark
Executive Vice President and
Chief Financial Officer
(principal financial officer)
20
CERTIFICATION
I, Michael E. Kalogris, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triton PCS Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ Michael E. Kalogris
-----------------------------------
Name: Michael E. Kalogris
Title: Chief Executive Officer
21
CERTIFICATION
I, David D. Clark, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triton PCS Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ David D. Clark
-------------------------------
Name: David D. Clark
Title: Chief Financial Officer
22
CERTIFICATION
I, Steven R. Skinner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triton PCS Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ Steven R. Skinner
--------------------------------------------
Name: Steven R. Skinner
Title: President and Chief Operating Officer
23
CERTIFICATION
I, William A. Robinson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triton PCS Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ William A. Robinson
------------------------------------------
Name: William A. Robinson
Title: Senior Vice President of Operations
24
CERTIFICATION
I, Andrew M. Davies, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Triton PCS Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ Andrew M. Davies
-------------------------------------
Name: Andrew M. Davies
Title: Vice President and Controller
25