FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of: MAY , 2001
------------
[TRICOM LOGO]
TRICOM, S.A.
(Translation of registrant's name into English)
AVENIDA LOPE DE VEGA NO. 95, SANTO DOMINGO, DOMINICAN REPUBLIC
(Address of principal executives offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_________
TRICOM, S.A.
QUARTERLY REPORT
FOR THE
FIRST QUARTER
ENDED
MARCH 31, 2001
TABLE OF CONTENTS
PAGE
GENERAL INTRODUCTION..............................................................................................1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS................................................................................2
Consolidated Balance Sheet as of December 31, 2000 and March 31, 2001 (unaudited)............................2
Consolidated Statement of Operations for the Three months period ended March 31, 2000 and
2001 (unaudited).............................................................................................4
Consolidated Statements of Cash Flows for the Three months period ended March 31, 2000 and
2001 (unaudited).............................................................................................5
Notes to Financial Statements................................................................................6
ITEM 2. INFORMATION ON THE COMPANY..........................................................................7
ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION..............11
ITEM 4. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................................16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................................................17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..........................................................17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................17
ITEM 5. OTHER INFORMATION..................................................................................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 20-f AND FORM 6-K.....................................................18
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GENERAL INTRODUCTION
UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO (i) THE "COMPANY"
OR "TRICOM" REFER TO TRICOM, S.A. AND ITS CONSOLIDATED SUBSIDIARIES AND THEIR
RESPECTIVE OPERATIONS, AND INCLUDE TRICOM'S PREDECESSORS, AND (ii) "GFN" REFERS
TO GFN CORPORATION LTD. AND ITS DIRECT AND INDIRECT SUBSIDIARIES, OTHER THAN THE
COMPANY AND ITS SUBSIDIARIES, AND INCLUDE GFN'S PREDECESSORS.
PRESENTATION OF CERTAIN FINANCIAL INFORMATION
The Company prepares its consolidated financial statements in conformity
with generally accepted accounting principles in the United States. The Company
adopted the United States dollar as its functional currency effective January 1,
1997.
In this Quarterly Report references to "$," "US$" or "U.S. dollars" are to
United States dollars, and references to "Dominican pesos" or "RD$" are to
Dominican pesos. This Quarterly Report contains translations of certain
Dominican peso amounts into U.S. dollars at specified rates solely for the
convenience of the reader. These translations should not be construed as
representations that the Dominican peso amounts actually represent such U.S.
dollar amounts or could be converted into U.S. dollars at the rate indicated.
The average of prices of one U.S. dollar quoted by certain private commercial
banks (the "Private Market Rate") as reported by Banco Central de la Republica
Dominicana (the "Central Bank") on March 30, 2001 was RD$16.89 = US$1.00, the
closest date of the most recent financial information included in this Quarterly
Report. The Federal Reserve Bank of New York does not report a noon buying rate
for Dominican pesos. On May 16, 2001, the Private Market Rate was RD$16.84 =
US$1.00.
FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report, which are not historical
facts, are forward-looking statements that involve risks and uncertainties.
Management cautions the reader that these forward-looking statements are only
predictions; actual events or results may differ materially as a result of risks
facing the Company. Such risks include, but are not limited to, the following
factors: competition; declining rates for international long distance traffic;
reliance on resellers; our inability to minimize credit risks; customer churn;
rapid technological change; rejection of our concession agreement in the
Dominican Republic; cellular fraud; our ability to implement our business plan
on schedule, including our Central American strategy; social, political and
economic conditions in our existing and target markets; our significant capital
expenditure and working capital requirements and our need to finance such
expenditures; the effect of our indebtedness on our ability to fund expansion
and remain competitive and of restrictions contained in such indebtedness;
concerns about health risks associated with wireless equipment; our inability to
manage effectively our rapid expansion; our inability to obtain licenses or
concessions in markets outside the Dominican Republic; the continued growth of
the Dominican and Central American economies, demand for telecommunication
services in the Dominican Republic and Central America and moderation of
inflation; and the continuation of a favorable political, economic and
regulatory environment in each of the Dominican Republic and Central America.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN US$)
DECEMBER 31, MARCH 31,
----------------- -----------------
2000 2001
ASSETS (UNAUDITED)
------
Current assets:
Cash on hand and in banks $ 18,199,552 13,657,922
Accounts receivable:
Customers 21,970,677 20,750,125
Carriers 8,729,886 7,240,842
Related parties 1,663,396 623,775
Officers and employees 556,577 476,116
Other 1,601,119 458,112
----------------- -----------------
34,521,655 29,548,970
Allowance for doubtful accounts (2,394,903) (2,341,453)
----------------- -----------------
Accounts receivable, net 32,126,752 27,207,517
Inventories, net 9,541,093 10,040,928
Prepaid expenses 7,947,531 5,017,969
Deferred income taxes 801,008 990,826
----------------- -----------------
Total current assets 68,615,936 56,915,162
----------------- -----------------
Investments 3,289,459 3,606,178
Property and equipment, net 586,223,900 607,815,079
Other assets at cost, net of amortization 24,310,564 26,549,170
----------------- -----------------
$ 682,439,859 694,885,589
================= =================
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TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(IN US$)
DECEMBER 31, MARCH 31,
----------------- -----------------
2000 2001
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable:
Borrowed funds - banks $ 82,131,865 100,395,742
Borrowed funds - related parties 31,410,612 28,267,123
Current portion of long-term debt 3,213,939 2,639,637
----------------- -----------------
116,756,416 131,302,502
----------------- -----------------
Current portion of capital leases 5,308,310 4,990,644
Accounts payable:
Carriers 13,835,276 10,978,399
Related parties 2,093,385 106,602
Suppliers 21,653,727 28,176,371
Other 242,582 457,623
----------------- -----------------
37,824,970 39,718,995
Other liabilities 19,990,490 19,269,069
Accrued expenses 14,035,182 10,822,890
----------------- -----------------
Total current liabilities 193,915,368 206,104,100
----------------- -----------------
Reserve for severance indemnities 9,727 10,584
Deferred income tax 974,867 1,097,546
Capital leases, excluding current portion 15,520,965 14,655,409
Long-term debt, excluding current portion 261,222,759 263,937,534
----------------- -----------------
Total liabilities 471,643,686 485,805,173
----------------- -----------------
Shareholders' equity:
Class A Common Stock at par value RD$10:
Authorized 55,000,000 shares; 9,700,000 shares
issued at December 31, 2000 and March 31, 2001 6,210,025 6,210,025
Class B Stock at par value RD$10: Authorized
25,000,000 shares at December 31, 2000 and
March 31 2001; 19,144,544 issued at December 31,
2000 and March 31, 2001 12,595,095 12,595,095
Additional paid-in-capital 159,981,808 160,254,547
Retained earnings 34,033,002 32,044,506
Other comprehensive income-foreign currency
translation (2,023,757) (2,023,757)
----------------- -----------------
Shareholders equity, net 210,796,173 209,080,416
----------------- -----------------
$ 682,439,859 694,885,589
================= =================
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TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS PERIOD ENDED MARCH 31, 2000 AND 2001
2000 2001
(UNAUDITED) (UNAUDITED)
OPERATING REVENUES:
Toll 6,551,984 7,466,507
International settlement 17,992,204 19,660,445
Local service 12,194,025 16,670,052
Cellular 8,709,247 8,853,455
Paging 475,013 309,774
Sale of equipment 1,119,534 1,442,216
Installation and activation fees 3,151,672 2,998,051
Other 36,056 48,878
-----------------------------------------
TOTAL OPERATING REVENUES 50,229,735 57,449,378
OPERATING COSTS:
Satellite connections and carrier 14,139,422 15,992,002
Network depreciation 6,067,401 9,968,894
Expense in lieu of income taxes 2,881,694 3,318,981
General and administrative expenses 13,779,370 16,868,766
Amortization expenses - 156,583
Depreciation expense 1,485,333 2,101,978
Other 1,048,650 1,657,571
-----------------------------------------
TOTAL OPERATING COSTS 39,401,870 50,064,775
OPERATING INCOME 10,827,865 7,384,603
OTHER INCOME (EXPENSES):
Interest expense (7,979,096) (9,712,593)
Interest income 203,888 287,522
Foreign exchange gain (loss) (350,762) (247,815)
Other, net (46,156) 283,648
-----------------------------------------
OTHER EXPENSES, NET (8,172,126) (9,389,238)
-----------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 2,655,739 (2,004,635)
Income taxes, net (130,250) 16,139
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,525,489 (1,988,496)
Cumulative effect of accounting change for installation and activation
revenues (note 2) (16,452,799) -
-----------------------------------------
NET LOSS (13,927,310) (1,988,496)
=========================================
EBITDA 21,262,293 22,931,039
=========================================
EARNINGS (LOSS) PER SHARE:
Earnings before cumulative effect of accounting change 0.10 (0.07)
Cumulative effect of change in accounting (0.66) -
-----------------------------------------
Net loss per share (0.56) (0.07)
=========================================
AVERAGE NUMBER OF COMMON SHARES USED IN CALCULATION 24,844,544 28,844,544
=========================================
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TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN US$)
MARCH 31, MARCH 31,
----------------- ----------------
2000 2001
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss $ (13,927,310) (1,988,496)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Allowance for doubtful accounts 185,803 518,737
Deferred income tax (benefit) provision (130,250) (16,139)
Depreciation and amortization 7,552,734 12,227,455
Cumulative effect of accounting change for
installation and activation revenues (note 2) 16,452,799 -
Non-cash consulting expenses - 272,739
Expense for severance indemnities 48,707 280,435
Net changes in assets and liabilities:
Accounts and notes receivable (2,939,446) 4,400,498
Inventories (914,357) (499,835)
Long-term accounts receivable 22,619 -
Other assets (433,583) (2,395,189)
Prepaid expenses 837,304 2,929,562
Accounts payable (8,560,921) 1,894,025
Accrued expenses (2,524,768) (3,212,292)
Other liabilities 1,207,344 (772,421)
Reserve for severance indemnities (56,354) (279,578)
---------------- ----------------
Total adjustments 10,747,631 15,347,997
---------------- ----------------
Net cash provided by (used in) operating activities (3,179,679) 13,359,501
================ ================
Cash flows from investing activities:
Acquisition (cancellation) of investments (116,395) (316,719)
Acquisition of property and equipment (20,642,255) (33,662,051)
---------------- ----------------
Net cash used in investing activities (20,758,650) (33,978,770)
Cash flows from financing activities:
Borrowed funds from banks 10,542,562 18,263,877
Borrowed funds to related parties 13,667,361 (3,143,489)
Payments of long-term debt (41,835) (574,302)
Capital lease payments (907,410) (1,183,222)
Proceeds from issuance of long-term debt - 2,714,775
---------------- ----------------
Net cash provided by financing activities 23,260,678 16,077,639
Net increase in cash and cash equivalents (677,651) (4,541,630)
Cash and cash equivalents at beginning of the period 13,459,566 18,199,552
Cash and cash equivalents at end of period $ 12,781,915 13,657,922
================ ================
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization $ 7,979,096 9,712,592
Capital lease obligations incurred 2,979,096 -
Expense in lieu of income tax paid 2,881,694 3,318,981
================ ================
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TRICOM, S.A. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The Company considers that all adjustments (all of which are normal
recurring accruals) necessary for a fair statement of financial position and
results of operations for these periods have been made; however, results for
such interim periods are subject to audit. Results for such interim periods are
not necessarily indicative of results for a full year.
NOTE 2 - ADOPTION OF SAB-101
Effective January 1 2000, the Company adopted the Staff Accounting Bulletin
(SAB 101) "Revenue Recognition" issued by the Securities and Exchange Commission
(SEC). The adoption of SAB 101 resulted in a change in the revenue recognition
policy regarding installation and activation revenues. Such change required the
Company to recognize net revenues from installation and activation over the
average service life based on the experience of the Company (35 months). This
change in the revenue recognition method required the Company to recognize a
cumulative effect of accounting change in net revenues from installations and
activations for $16,452,799, which is presented as a separate item in the
accompanying consolidated statements of operations.
NOTE 3 - CALCULATION OF EBITDA
EBITDA consists of earnings (loss) before interest expense, income taxes,
depreciation and amortization. EBITDA is commonly used in the telecommunications
industry to analyze companies on the basis of operating performance, leverage
and liquidity. However, it does not purport to represent cash generated or used
by operating activities and should not be considered in isolation or as a
substitute for a measure of performance in accordance with generally accepted
accounting principles.
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ITEM 2. INFORMATION ON THE COMPANY
COMPANY OVERVIEW
TRICOM is a leading integrated communications service provider in the
Dominican Republic. Through the country's only 100% digital local access
network, a wireless network covering approximately 85% of the population and our
submarine fiber optic cable systems, we offer local, long distance, mobile,
Internet and broadband data transmission services. Through TRICOM USA, we own
switching facilities in New York and Puerto Rico, providing us with end-to-end
connectivity, and are one of the few foreign long distance carriers that has a
United States licensed subsidiary.
SERVICE OFFERINGS
Our service offerings include:
o Local service;
o Mobile services;
o International long distance; and
o Broadband data transmission and Internet.
LOCAL SERVICE
We are a competitive local exchange carrier and had 156,327 local access
lines in service at March 31, 2000. Our local access network covers areas with
approximately 85% of the population of Santo Domingo, Santiago and nine
additional cities.
All of our basic telephone service customers have access to a range of
value-added services, including call forwarding, three-way calling, call
waiting, caller ID and voice mail applications. In addition to local service, we
provide direct-dialed, collect and operator-assisted international and domestic
long distance services and Internet access to our residential and corporate
customers.
We offer our customers broad flexibility in assembling customized packages
of services, which provide our customers with cost savings and enhanced control
over their consumption of telephone services. Customers may choose from a menu
of services, including domestic and international long distance services, local
service and value-added services. They also may bundle their local access
service with cellular or PCS, paging and Internet services. Service packages
permit customers to preset their monthly bills based upon, for example, local
service minutes as well as long distance minutes and specified destinations.
Customers are responsible for paying for usage levels in excess of preset
package amounts, at regular per minute rates. We believe that providing
customers with such budgeting capability increases consumer confidence in using
telecommunications services, consequently allowing for increased service
penetration, higher levels of customer satisfaction and lower incidence of
delinquent payments.
We have accelerated our local access network expansion program by deploying
a wireless local loop. The wireless local loop consists of receivers that are
installed at a customer's house, and digital switches. The receiver is connected
by cable to a standard telephone jack that connects to a standard telephone. The
receiver is powered by the customer's home power supply and also contains a
battery that allows operation to continue for up to approximately 24 hours of
standby and eight hours of talk time in the event of a power outage. The
wireless local loop offers voice quality as clear as telephones connected by
wirelines.
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We also sell fully integrated turnkey and PABX systems and components. We
are an exclusive distributor in the Dominican Republic for Mitel and Comdial
equipment, two leading manufacturers of private branch exchanges and key
telephone systems. We are also a leading provider of computer telephony
integration systems in the Dominican Republic.
MOBILE SERVICES
Our mobile network covers approximately 85% of the Dominican Republic's
population. We currently offer both cellular and PCS service. Based on
information available to us, there were approximately 655,000 analog and PCS
cellular subscribers in the Dominican Republic at December 31, 2000. At March
31, 2001, we had 286,506 cellular and PCS subscribers, representing
approximately 44% of the Dominican mobile telephony market.
Our cellular and PCS subscriber base grew by 62% during 2000. We attribute
a substantial portion of this growth to our prepaid cellular and PCS card, the
Amigo card. At March 31, 2001, prepaid cellular and PCS subscribers accounted
for 52% of the entire cellular and PCS market of the Dominican Republic, based
on information available to us, and 94% of our cellular and PCS subscribers. Our
Amigo card program has expanded our cellular and PCS customer base because it
offers cellular and PCS service to individuals who would not satisfy our current
credit policies and because it appeals to customers who prefer to budget their
cellular and PCS telephone spending.
We have offered PCS service since April 1999. This technology provides for
added security and privacy compared with traditional analog systems, and it also
offers greater capacity. PCS customers are able to receive all of the benefits
related to a digital service, including digital messaging, caller ID and
voicemail. Our PCS network covers areas with approximately 65% of the population
in the Dominican Republic and is less extensive than our analog network. We
offer a dual-band service, allowing customers to use seamlessly their mobile
phones nationwide over both digital and analog networks.
We also have entered into arrangements with major consumer electronics
retailers and a network of independent cellular and PCS dealers to offer our
cellular and PCS services in conjunction with their sale of handsets. As a
result of our arrangements with major electronics retailers for the sale by them
of handsets in conjunction with subscriptions for our services, we sold handsets
to less than 15% of our new subscribers in 2000. We do not subsidize or provide
credit on the sale of cellular and PCS handsets.
We have provided paging services since April 1995. At March 31, 2001, we
provided paging services to 20,277 subscribers, representing approximately 19%
of the Dominican paging market according to market information available to us.
In 1999 we stopped soliciting new paging subscribers. We believe that the
success of our prepaid cellular and PCS program has contributed to the decline
of paging as a significant part of our business because customers have replaced
paging services with prepaid cellular services.
INTERNATIONAL LONG DISTANCE
In the Dominican Republic, we provide international long distance services
to our local access, cellular and PCS customers. In addition, we offer prepaid
calling cards for international long distance, the Efectiva and Conexion cards
that can be used from any telephone in the Dominican Republic. We operate
telephone centers that provide access to telephone services to individual
customers who either does not have telephone services in their own homes or who
are attracted by the competitive pricing of the telephone centers. The centers
offer a wide range of telephone services, including bill payments and sales of
service in addition to long distance.
In the United States, our subsidiary TRICOM USA provides international
carrier services primarily to resellers, which account for an increasing share
of international long distance traffic between the United States and the
Dominican Republic. We continue to expand our footprint in the United States and
throughout the region by deploying an advanced communications infrastructure. In
March 2001, we deployed our latest international gateway switch in Miami,
Florida. The new switch will reduce our cost structure by providing end-to-end
correspondence for inbound and outbound international traffic between the
Dominican Republic, Puerto Rico and our facilities-based
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long-distance carrier operations in the United States. At the same time, we will
be able to better serve our existing customer base as well as expand our service
base throughout the United States.
Through our switching facilities in the United States, we have been able to
provide resellers with an alternate channel for sending international long
distance traffic. In addition, by controlling the origination, transport and
termination of international long distance traffic between the United States and
the Dominican Republic, we believe that we are able to send and receive such
traffic at a lower cost to us than by exchanging traffic with traditional
international carriers.
Each year since the initiation of TRICOM USA's operations, we have derived
a greater percentage of international revenues from resellers. During 2000,
resellers originated approximately 45% of the international long distance
minutes from the United States to the Dominican Republic that we received.
Minutes delivered by resellers may fluctuate significantly. While we enter into
agreements with resellers, they are not required to provide to us any amount of
traffic. The price per minute charged by us to a reseller is negotiated as often
as dictated by the market. At March 31, 2001, we received traffic from
approximately 38 resellers.
TRICOM USA also markets a number of prepaid cards to ethnic communities in
New York, New Jersey, Rhode Island, Massachusetts, Illinois, California, Saint
Thomas, Puerto Rico and Canada. Each prepaid card is assigned a unique
identification number and a face value ranging from $2 to $20. The prepaid
card's dollar balance is reduced by the cost of each call. TRICOM USA sells the
cards to distributors that resell the cards to retail outlets.
BROADBAND DATA TRANSMISSION AND INTERNET
We provide broadband data transmission services to 119 of the 400 largest
business customers in the Dominican Republic based on assets, through several
means of delivery including fiber optic cable and digital wireless
point-to-point radio links. In addition, we provide these large customers with
data circuits Internet access, private networks and frame relay services with
branches in the different cities in the country. We recently increased
transmission capacity to provide larger bandwidths and with the commercial
launch of the xDSL and VSAT services, data services are expected to have a
strong growth.
In the Dominican Republic we are the second largest ISP. We provide
Internet connectivity to the residential and corporate markets through
traditional dial-up connections, dedicated lines and VSATs, with speeds ranging
from 56 Kbps to 2 Mbps. During 2000, we deployed our xDSL and wireless broadband
delivery solutions. Our PCS and paging services are now fully integrated with
our Internet service, offering short messaging services, including email and
digital messaging through our website, www.tricom.net.
In March 2000, we entered into a five-year $25 million contract with the
Dominican Republic Department of Education to provide broadbased satellite
Internet access and Intranet services to every public high school in the
Dominican Republic. We have been utilizing Intellicom's, a wholly-owned
subsidiary of SoftNet Systems, state-of-the-art content caching technology and
comprehensive family of value-added services to deliver fast and efficient
end-user access to the Internet.
CENTRAL AMERICA MOBILE SERVICES
STRATEGIC FOCUS
We have targeted markets in Central America in which we intend to offer
mobile services using Motorola's iDEN technology. These services include digital
mobile telephone services, mobile dispatching, two way messaging, push to talk
and one to many connection. We believe that Central America is an attractive
market to target as one congruous telecommunications region for the following
reasons:
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o First entrant provider of Motorola's iDEN services in Central America;
o High overall economic growth and strong demand in the wireless sector;
o Close intra-regional business practices; and
o Logical extension of our existing network
Our objective is to provide roaming throughout the region
using a unified platform. This will allow us to achieve cost savings in
network build out. Our undersea fiber optic facilities provide
connections between each of our targeted markets and our support
systems in the Dominican Republic. To date, we have obtained rights to
frequencies in El Salvador and Guatemala, and have acquired a majority
interest in a company that owns frequencies in Panama. We also will
consider offering services in two other countries, Costa Rica and
Honduras.
In April 2001, we executed an agreement to purchase a majority
interest in a Panamanian radio trunking services company, Cellular
Communications of Panama, S.A. ("Cellcom") for approximately $8.1
million. The acquisition will enable TRICOM to provide nationwide
advanced mobile radio services in Panama using Motorola's iDEN
technology. In the process, we have also acquired specialized mobile
radio frequencies covering a population of approximately 2.8 million
people and are currently deploying a digital network in Panama City and
Colon, the two largest cities in Panama, and in important commercial
and transportation corridors in other parts of the country. To date, we
have invested approximately $26 million in this deployment, primarily
for the purchase of a mobile switching office (MSO), enhanced base
transceiver stations (EBTS) and site acquisition and construction.
Completion of the network build out in Panama is scheduled for the
fourth quarter of 2001.
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ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
REVENUE RECOGNITION
We derive our operating revenues primarily from toll revenues,
international settlement revenues, cellular and PCS services, local services,
the sale of equipment and installations. The components of each of these
services are as follows:
Toll revenues are amounts we receive from our customers in the
Dominican Republic for international and domestic long distance calls,
as well as interconnection charges received from Codetel, the incumbent
local service provider and other carriers, for calls that originate in
or transit its network but terminate in our network. Toll revenues are
generated by residential and commercial customers, calling card users,
cellular and PCS subscribers and retail telephone centers, and large
corporate accounts. Toll revenues are recognized as they are billed to
customers, except for revenues from prepaid calling cards which are
recognized as the calling cards are used or expire.
International revenues represent amounts recognized by us for
termination of traffic from foreign telecommunications carriers to the
Dominican Republic either on our own network or on Codetel's network,
including revenues derived from our U.S. based international long
distance pre-paid calling cards.
Local service revenues consist of monthly fees, local measured service
and local measured charges for value-added services, including call
forwarding, three-way calling, call waiting and voice mail, as well as
calls made to cellular users under the calling-party-pays system and
revenues from other miscellaneous local access services.
Cellular and PCS revenues represent fees received for mobile cellular
and PCS services, including interconnection charges for calls incoming
to our cellular and PCS subscribers from other companies' subscribers.
Cellular and PCS revenues do not include fees received for
international long distance calls generated by our cellular and PCS
subscribers. Cellular and PCS fees consist of fixed monthly fees, per
minute usage charges and additional charges for value-added services,
including call waiting, call forwarding, three-way calling and voice
mail, and for other miscellaneous cellular and PCS services.
Paging revenues consist of fixed monthly charges for nationwide service
and use of paging equipment and activation fees. Beginning in 1999, we
determined that paging will not play a major role in our future
marketing programs.
Revenues from the sale of equipment consist of sales fees for customer
premise equipment, including private branch exchanges and key telephone
systems, residential telephones, cellular and PCS handsets and paging
units.
Installation revenues consist of fees we charge for installing local
access lines, private branch exchanges and key telephone systems as
well as fees for activating cellular phones and PCS. Beginning on
January 1, 2000, we have recognized these revenues over the estimated
period in which, based on our experience, we retain such clients,
approximately 35 months. In prior periods, we recognized these revenues
when they were collected.
Other revenues consist of revenues that are not generated from our core
businesses, including commissions received for providing package
handling services for a courier and commissions received for collection
services for utility companies.
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The following table sets forth the percentage contribution of each category
of revenues to total operating revenues for the period indicated:
THREE MONTHS
ENDED
MARCH 31,
2000 2001
---- ----
Toll............................................... 13.0% 13.0%
International ..................................... 35.8 34.2
Local service...................................... 24.3 29.0
Cellular and PCS................................... 17.3 15.4
Paging............................................. 0.9 0.5
Sale of equipment.................................. 2.2 2.5
Installation and activation fees................... 6.3 5.2
Other.............................................. 0.1 0.1
- ----------------
Note: Percentages may not add up to 100% due to rounding.
The following table sets forth certain items in the statements of
operations expressed as a percentage of total operating revenues for the period
indicated:
THREE MONTHS
ENDED
MARCH 31,
2000 2001
---- ----
Operating costs.................................... 78.4% 87.1%
Operating income................................... 21.6 12.9
Interest expense, net.............................. (15.5) (16.4)
Other income (expenses)............................ (16.3) (16.3)
Earnings (loss) before cumulative effect of accounting
change............................................. 5.0 (3.5)
EBITDA............................................. 42.3 39.9
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE SAME PERIOD IN 2000
OPERATING REVENUES. Our total operating revenues increased 14.4% to US$57.5
million for the three-month period ended March 31, 2001 from US$50.2 million for
the three-month period ended March 31, 2000. This growth resulted primarily from
increases in revenues generated by the Company's local service and international
business segments.
TOLL. Toll revenues increased 14.0% to $7.5 million in the first quarter of
2001 from $6.6 million in the first quarter of 2000, primarily as a result of
higher domestic long distance traffic and increased interconnection charges
derived from the growth of our customer base. Domestic long distance minutes
increased by 20.5% to 12.6 million minutes during the first quarter of 2001 from
10.4 million minutes during the first quarter of 2000. The average price per
domestic long distance minute declined to $0.16 in the first quarter of 2001
from $0.19 in the first quarter of 2000. The increase in domestic long distance
minutes resulted from higher traffic volume from cellular and PCS subscribers
and retail telephone centers. Interconnection revenues increased to $2.0 million
in the first quarter of 2001 from $1.6 million in the first quarter of 2000, as
a result of a larger proportion of Codetel's and other carrier's traffic
terminating in our network.
INTERNATIONAL. International revenues grew 9.3% to $19.7 million in the
first quarter of 2001 from $18.0 million in the first quarter of 2000. This
increase was due primarily to the growth of inbound traffic volume received from
our U.S. based international carrier, TRICOM USA. Inbound minutes increased by
38.2% to 151.0
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million minutes in the first quarter of 2001 from 109.3 million during the first
quarter of 2000. TRICOM USA accounted for 82% of our total inbound minutes in
the first quarter of 2001 compared to 62.5% in the same period of 2000. Total
international long distance minutes increased 36.3% to 160.1 million minutes in
the first quarter of 2001 from 117.4 million minutes in the first quarter of
2000.
The increase in international revenues was achieved despite the continued
trend of decreasing settlement rates for traffic between the United States and
the Dominican Republic. Our average settlement rate was $0.10 per minute during
the first quarter of 2000 and $0.05 per minute during the first quarter of 2001.
International revenues in the first quarter decreased by 22% from international
revenues in the fourth quarter of 2000 as a result of the ceasing of operations
of several of our corresponding resellers during the first three months of the
year.
LOCAL SERVICE. Local service revenues grew 36.7% to $16.7 million in the
first quarter of 2001 from $12.2 million for the first quarter of 2000. The
continued growth in the number of local lines in service resulted in increased
local service revenues for the period. In the first quarter of 2001, we added
8,015 net local access lines compared to 5,624 net local access lines added in
the first quarter of 2000. Our local service subscriber base grew to 156,327
local access lines in service at March 31, 2001 compared to 124,550 local access
lines in service at March 31, 2000. In addition, local service revenues include
Internet service revenues, which increased to $1.6 million in the first quarter
of 2001 from $203,000 in the first quarter of 2000.
As a result of a higher number of lines in service, measured local service
revenues increased by 29.1% to $3.0 million in the first quarter of 2001 from
$2.3 million in the first quarter of 2000. Revenues from monthly fees increased
by 24.5% to $9.8 million in the first quarter of 2001 from $7.8 million in the
first quarter of 2000. Our average monthly churn rate for local service was 2.4%
in the first quarter of 2001 compared to 2.3% in the first quarter of 2000. We
calculate our average monthly churn rate by dividing the number of subscribers
disconnected during a given period by the sum of subscribers at the beginning of
each month during such period.
CELLULAR AND PCS. Our cellular and PCS revenues increased slightly to $8.8
million in the first quarter of 2001 from $8.7 million in the first quarter of
2000. At March 31, 2001, we had 286,506 cellular and PCS subscribers compared to
190,258 at March 31, 2000. As a result of a higher average subscriber base,
airtime minutes increased 23.0% to 49.0 million in the first quarter of 2001
from 39.9 million in the first quarter of 2000. The average price per airtime
minute declined to $0.20 in the first quarter of 2001 from $0.24 in the first
quarter of 2000.
We attribute the growth of our subscriber base to the continued success of
our prepaid cellular program. At March 31, 2001, prepaid customers accounted for
94% of our total subscriber base, generating approximately 68% of our total
airtime minutes and 70% of total cellular and PCS revenues in first quarter of
2001. Prepaid revenues increased by 26.1% to $6.1 million in the first quarter
of 2001 from $4.8 million in the first quarter of 2000. Our average monthly
churn rate for cellular and PCS services increased to 8.3% in the first quarter
of 2001 from 1.7% in the first quarter of 2000 reflecting primarily our decision
in the first quarter to disconnect 69,000 marginal revenue generating prepaid
customers by shortening the expiration of our prepaid cards to 30 days.
PAGING. Paging revenues decreased 34.8% to $310,000 in the first quarter of
2001 from $475,000 in the first quarter of 2000, primarily as a result of the
Company's decision to focus on having new customers move away from paging
services and into prepaid cellular services. At March 31, 2001, we had 20,277
paging subscribers compared to 26,809 paging subscribers at March 31, 2000. Our
average monthly churn rate for paging services decreased to 2.5% in the first
quarter of 2001 from 3.5% in the first quarter of 2000
SALE OF EQUIPMENT. Revenues from the sale and lease of equipment increased
28.8% to $1.4 million in the first quarter of 2001 from $1.1 million in the
first quarter of 2000, primarily as a result of higher sales of customer premise
equipment and cellular and PCS handsets.
INSTALLATION AND ACTIVATION FEES. Installation revenues decreased 4.9% to
$3.0 million during the first quarter of 2001 from $3.2 million during the first
quarter of 2000. The Company added 89,512 combined gross local access lines and
cellular subscribers, the highest quarterly gross subscriber additions to date.
The decrease in installation revenues during the first quarter was due to an
aggressive promotional marketing strategy including lowered subscriber
activation fees for local and wireless services, designed to capture a
significant share of the market growth.
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OPERATING COSTS. Major components of operating costs are:
o satellite connections and carrier costs, which include amounts owed to
foreign carriers for the use of their networks for termination of
outbound traffic and payments for international satellite circuit
leases;
o interconnection costs, which are access charges paid primarily to
Codetel; and payments for international satellite circuit leases;
o depreciation of network equipment and leased terminal equipment, and
non-network depreciation expense;
o expenses in lieu of income tax; and
o general and administrative expenses, which include salaries and other
compensation to personnel, non-network depreciation, maintenance
expenses, marketing expenses and other related costs.
Our operating costs increased to $50.1 million in first quarter of 2001
from $39.4 million in the first quarter of 2000. These results reflect higher
network depreciation expenses resulting from the Company's capital investment
and domestic and international network expansion programs; increased general and
administrative expenses primarily from higher commissions and personnel
compensation; and increased satellite connection and carrier costs associated
with higher volumes of international traffic. As a percentage of revenues,
operating costs increased to 87.1% in the first quarter of 2001 from 78.4% in
the first quarter of 2000.
SATELLITE CONNECTIONS AND CARRIER COSTS. Satellite connections and
carrier costs increased by 13.1% to $16.0 million in the first quarter of 2001
from $14.1 million in the first quarter of 2000, primarily as a result of higher
interconnection and facilities costs. Interconnection costs increased by 12.3%
to $6.7 million in the first quarter of 2001 from $6.0 million in the first
quarter of 2000, the result of a higher volume of inbound traffic terminating in
Codetel's network. Facility costs increased 42.5% to $1.6 million in the first
quarter of 2001 from $1.1 million in the first quarter of 2000.
NETWORK DEPRECIATION AND DEPRECIATION EXPENSE. Network depreciation
increased 64.3% to $10.0 million in the first quarter of 2001 from $6.1 million
in the first quarter of 2000, as a result of the Company's continued capital
investment and domestic and international network expansion programs.
Depreciation expense with respect to other fixed assets grew 41.5% to $2.1
million in the first quarter of 2001 from $1.5 million in the first quarter of
2000.
EXPENSE IN LIEU OF INCOME TAXES. We make payments to the Dominican
government in lieu of income tax equal to 10% of gross domestic revenues, after
deducting charges for access to the local network, plus 10% of net international
revenues. Expense in lieu of income taxes also includes a tax of 2% on
international settlement revenues collected. Expense in lieu of income taxes
during the first quarter of 2001 increased by 15.2% to $3.3 million from $2.9
million in the first quarter of 2000 reflecting the increase in revenues derived
from our domestic and international businesses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased 22.4% to $16.9 million in the first quarter of 2001 from $13.8 million
in the first quarter of 2000. The increase in the amount of general
administrative expenses reflected the greater amount of commissions paid to
wholesale distributors of prepaid cards as a result of higher revenues from
sales of the cards in the U.S. and increased personnel costs due to a higher
employee headcount. At March 31, 2001, we had 1,677 employees compared to 1,528
employees at March 31, 2000. As a percentage of total operating revenues,
general and administrative expenses increased to 29.4% in the first quarter of
2001 compared to 27.4% in the first quarter of 2000.
OTHER COSTS. Other costs which consist of the cost of sale from local,
wireless and prepaid services increased by 58.1% to $1.7 million in the first
quarter of 2001 from $1.0 million in the first quarter of 2000, primarily as a
result of higher cost of sale from prepaid cards and cellular and PCS handsets.
OPERATING INCOME. Operating income decreased to $7.4 million in the
first quarter of 2001 compared to $10.8 million in the first quarter of 2000,
primarily as a result of the sequential decrease in international revenues
-14-
during the first quarter of 2001 coupled with higher depreciation expenses
related to our local and international network expansion. Operating income as a
percentage of total operating revenues decreased to 12.9% in the first quarter
of 2001 from 21.6% in the first quarter of 2000.
OTHER INCOME (EXPENSES). Other expenses increased to $9.4 million in
the first quarter of 2001 from $8.2 million in the first quarter of 2000
reflecting increased interest expenses resulting from higher levels of
short-term borrowings and vendor financing, to support the Company's capital
investment program.
NET EARNINGS (LOSS). Loss before cumulative effect or accounting change
totaled $2.0 million, or $0.07 per share, in the first quarter of 2001 compared
to earnings of $2.5 million, or $0.10 per share, in the first quarter of 2000.
Including the $16.5 million cumulative effect of accounting change for the
adoption of SAB 101, we had a net loss of $13.9 million, or $0.56 per share, in
the first quarter of 2000.
EBITDA. Earnings before interest and other income, taxes and
depreciation and amortization increased by 7.8% to $22.9 million in the first
quarter of 2001 from $21.3 million in the first quarter of 2000. We calculate
earnings before interest and other income and expenses, taxes and depreciation
and amortization prior to the deduction of payments to the government in lieu of
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Substantial capital is required to expand and operate our
telecommunications networks. For the first three months of the year, we made
capital expenditures of $33.7 million for the installation of additional local
access lines, enhancement of our cellular and PCS network in the Dominican
Republic, expansion of international facilities and other network improvements.
Expansion of international facilities included the installation of a switch in
Miami, Florida and investments related to our Central America expansion. We
currently anticipate making capital expenditures of approximately $133 million
in 2001 for increasing capacity and coverage in our local access and mobile
networks, expanding our international facilities to support increased traffic
volume, expanding our local network and other international expansion and for
the implementation of our Central American strategy, primarily in Panama. In
Central America, capital expenditures will consist of investments in a mobile
switching office in Panama and enhanced base transceiver stations and mobile
backhaul for Panama, Guatemala and El Salvador. However, the amounts to be
invested for these purposes will depend upon a number of factors, including
primarily the demand for our services.
In addition, as we expand our operations into new areas we will be required
to support increased working capital and capital expenditure needs. We have
satisfied our working capital requirements and funded capital expenditures from
cash generated from operations, short and long-term borrowings, trade finance,
capital leases, vendor financing and equity and debt issuances. We believe our
cash generated by operations and borrowings available to us will be sufficient
to fund our expected capital expenditures through the end of 2001. We frequently
evaluate potential acquisitions and joint venture investments. Acquisitions or
investments may require us to obtain additional financing. There can be no
assurance that additional funding sources will be available to us on terms,
which we find acceptable, or at all.
Net cash provided by operating activities was $13.4 million for the first
three months of 2001 compared to a cash deficit of $3.2 million for the first
three months of 2000. We had net accounts receivable of $27.2 million and $32.1
million at March 31, 2001 and December 31, 2000, respectively. Our indebtedness
was approximately $414.9 million at March 31, 2001, of which $200.0 million was
our 11 3/8% senior notes due 2004, $78.6 million was in long-term borrowings and
capital leases, with maturities ranging from two to six years, and $136.3
million was short-term bank loans, telecommunications equipment financings,
trade financings and current portion of capital leases and of long-term debt. At
March 31, 2001, our U.S. dollar borrowings, other than the 11 3/8% senior notes
due 2004, had interest rates ranging from 8.16% per annum to 12.25% per annum,
and our peso borrowings had interest rates ranging from 24% per annum to 28% per
annum. At March 31, 2001, our U.S. dollar borrowings, other than the 11 3/8%
senior notes due 2004, totaled $199.5 million and our peso borrowings totaled
$15.4 million.
We have credit facilities, which, in the aggregate, permit us to borrow up
to $272.4 million. At March 31, 2001, there was $214.9 million outstanding under
these facilities. We had approximately $57.5 million available for borrowing
under these facilities, of which $23.7 million was under facilities with
maturities of less than one year. At
-15-
March 31, 2001, we had $82.3 million of short-term and long-term, credit
facilities with Dominican banks and institutions and $190.1 million of U.S.
dollar-denominated credit facilities with international banks.
At March 31, 2001, our current liabilities exceeded our current assets by
$149.1 million. This reflects our short-term borrowings in the Dominican
Republic with related companies, local and international banks. Dominican banks
lend on a short-term basis in order to negotiate interest rates should market
conditions change, without necessarily demanding the repayment of credit
facilities. It is our belief that the existence of negative working capital does
not affect adversely the continuity of our business.
We will seek additional credit facilities with international banks to
refinance our short-term credit facilities. During 2000, we obtained the
approval of credit guarantees from Export-Import Bank of the United States of up
to $56 million for loans to be made by The International Bank of Miami, N.A. to
be used for purchases of communications equipment and material from Motorola and
other U.S. suppliers. At March 31, 2001, the amount of $23.0 million has been
disbursed under these facilities. The credit guarantees will be repayable over a
five-year period.
ITEM 4. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion about market risks to certain financial
instruments includes "forward-looking" statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.
We are exposed to market risks from adverse changes in interest rates and
foreign exchange rates. We do not hold or issue financial instruments for
trading purposes.
INTEREST RATE RISK
Our interest expense is sensitive to changes in the general level of
interest rates in the United States and in the Dominican Republic. At March 31,
2001, we had outstanding $200 million aggregate principal amount of senior
notes. The senior notes bear interest at 11 3/8% per annum and mature in the
year 2004. The fair value of such senior notes was approximately $186 million
and $190 million at December 31, 2000 and March 31, 2001, respectively.
Our primary exposure to market risk for changes in interest rates relates
to our short-term borrowings from Dominican banks. At December 31, 2000 and
March 31, 2001, we had $199.8 million and $214.9 million, respectively, of
short-term and long-term borrowings, including trade finance, outstanding from
Dominican and international banks, mostly denominated in U.S. dollars. During
the first quarter of 2001, our short-term and long-term U.S. dollar denominated
borrowings bore interest at rates ranging from 8.16% per annum to 12.25% per
annum. During the first quarter of 2001, our short-term and long-term Dominican
peso denominated borrowings bore interest at rates ranging from 24% to 28% per
annum. A 10% increase in the average rate for our variable rate debt would have
decreased our net income for the first quarter of 2001 by approximately
$515,000.
FOREIGN EXCHANGE RISKS
We are subject to currency exchange risks. During the first quarter of
2001, we generated revenues of $19.7 million in U.S. dollars and $37.7 million
in Dominican pesos. In addition, at March 31, 2000, we had $199.5 million of
U.S. dollar-denominated debt outstanding, excluding the $200.0 million principal
amount of the 113/8% senior notes due 2004.
-16-
Dominican foreign exchange regulations require us and other
telecommunications companies to convert all U.S. dollar revenues into Dominican
pesos at the official exchange rate, and to purchase US dollars at the private
market exchange rate. Although the official exchange rate now fluctuates and is
tied to the private market rate, the official exchange rate tends to be lower
than the private market rate. During the first quarter of 2001, the average
official exchange rate was RD$16.65 per $1.00 while the average private market
rate was RD$16.86 per $1.00.
Our functional currency is the U.S. dollar and, as a result, we must
translate the value of Dominican peso-denominated assets into U.S. dollars when
compiling our financial statements. This translation can create foreign exchange
gains or losses depending upon fluctuations in the relative value of the
Dominican peso against the U.S. dollar. During the first quarter of 2001, we
recognized an approximate $248,000 foreign exchange loss. If the Dominican peso
had devalued by an additional 10% against the U.S. dollar on average in 2000,
then we would have realized an additional foreign exchange loss of approximately
$24,800.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 1999, a Dominican company, DCS International S.A., and two
individual plaintiffs whom in our belief are officers or employees of DCS, sued
us before Dominican courts for alleged losses and damages of up to approximately
RD$200 million ($12 million) resulting from the imprisonment by Dominican
authorities of two of the individuals for 15 days. The plaintiffs alleged that
their imprisonment was the result of an investigation by the local district
attorney and the police that we instigated following an irregular increase in
telephonic traffic at certain telephone numbers. We requested that the court
dismiss the action because of lack of jurisdiction. The court granted our motion
to dismiss and ruled that the plaintiffs should cover the costs of the
proceedings. The plaintiffs have resubmitted the action before the proper court
and, after numerous requests and hearings before the Court, the case is now
pending decision from the Judge of the Civil and Commercial Court Room of the
Third Circumscription of the Court of First Instance of the National District of
Santo Domingo. After consulting with legal counsel, we believe that this matter
will not have a material adverse effect on our results of operations and
financial position.
There are no other legal proceedings to which we are a party, other than
routine litigation incidental to our business which is not otherwise material to
our business or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-17-
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 20-F AND FORM 6-K
(a) Exhibits.
None.
(b) Reports on Form 20-F. The Company filed with the Securities
and Exchange Commission a Report on Form 20-F on May 10, 2001
reporting the Company's results of operations for the year
ended December 31, 2000.
(c) None.
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRICOM, S.A
Dated: May 23, 2001 By: /s/ CARL CARLSON
------------------------------
Carl Carlson
Executive Vice President
and Member of the
Office of the President
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