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: August 15, 2001
---------------
[GRAPHIC OMITTED][GRAPHIC OMITTED]
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
SECOND QUARTER
ENDED
JUNE 30, 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 June 30, 2001 (unaudited)............................2
Consolidated Statement of Operations for the Three and Six Months ended
June 30, 2000 and 2001 (unaudited)..........................................................................4
Consolidated Statements of Cash Flows for the Six Months ended June 30, 2000 and 2001 (unaudited)...........5
Supplemental Schedule for the Three and Six Months ended June 30, 2000 and 2001 (unaudited).................6
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..............8
ITEM 4. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................................15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.........................................................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................15
ITEM 5. OTHER INFORMATION.................................................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K..................................................................15
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GENERAL INTRODUCTION
UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO THE "COMPANY" OR
"TRICOM" REFER TO TRICOM, S.A. AND ITS CONSOLIDATED SUBSIDIARIES AND THEIR
RESPECTIVE OPERATIONS, AND INCLUDE TRICOM'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 June 29, 2001 was RD$16.85 = US$1.00, the
date closest to the 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 August 8, 2001, the Private Market Rate
was RD$16.84 = US$1.00.
FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report, which are not historical
facts, are forward-looking statements that involve risks and uncertainties.
Management cautions the reader that these forward-looking statements are only
predictions; actual events or results may differ materially as a result of risks
facing the Company. Such risks include, but are not limited to, the following
factors: competition; declining rates for international long distance traffic;
reliance on resellers; our inability to minimize credit risks; customer churn;
rapid technological change; rejection of our concession agreement in the
Dominican Republic; cellular fraud; our ability to implement our business plan
on schedule, including our Central American strategy; social, political and
economic conditions in our existing and target markets; our significant capital
expenditure and working capital requirements and our need to finance such
expenditures; the effect of our indebtedness on our ability to fund expansion
and remain competitive and of restrictions contained in such indebtedness;
concerns about health risks associated with wireless equipment; our inability to
manage effectively our rapid expansion; our inability to obtain licenses or
concessions in markets outside the Dominican Republic; the continued growth of
the Dominican and Central American economies; demand for telecommunication
services in the Dominican Republic and Central America; moderation of inflation
and the continuation of a favorable political, economic and regulatory
environment in each of the Dominican Republic and Central America.
-1-
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN US$)
DECEMBER 31, JUNE 30,
----------------- -----------------
2000 2001
ASSETS (UNAUDITED)
------
Current assets:
Cash on hand and in banks $ 18,199,552 41,515,757
Accounts receivable:
Customers 21,970,677 20,098,682
Carriers 8,729,886 5,574,826
Related parties 1,663,396 198,985
Officers and employees 556,577 577,300
Other 1,601,119 1,153,543
----------------- -----------------
34,521,655 27,603,336
Allowance for doubtful accounts (2,394,903) (2,686,677)
----------------- -----------------
Accounts receivable, net 32,126,752 24,916,659
Inventories, net 9,541,093 9,968,948
Prepaid expenses 7,947,531 6,007,522
Deferred income taxes 801,008 990,826
----------------- -----------------
Total current assets 68,615,936 83,399,712
----------------- -----------------
Investments 3,289,459 3,698,601
Property and equipment, net 586,223,900 626,603,680
Other assets at cost, net of amortization 24,310,564 30,075,520
----------------- -----------------
$ 682,439,859 743,777,513
================= =================
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TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(IN US$)
DECEMBER 31, JUNE 30,
----------------- -----------------
2000 2001
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable:
Borrowed funds - banks $ 82,131,865 107,367,216
Borrowed funds - related parties 31,410,612 30,145,809
Current portion of long-term debt 3,213,939 1,843,052
----------------- -----------------
116,756,416 139,356,077
----------------- -----------------
Current portion of capital leases 5,308,310 3,041,872
Accounts payable:
Carriers 13,835,276 8,937,377
Related parties 2,093,385 113,694
Suppliers 21,653,727 24,336,333
Other 242,582 693,653
----------------- -----------------
37,824,970 34,081,057
Other liabilities 19,990,490 19,944,609
Accrued expenses 14,035,182 16,216,789
----------------- -----------------
Total current liabilities 193,915,368 212,640,404
----------------- -----------------
Reserve for severance indemnities 9,727 34,659
Deferred income tax 974,867 1,097,546
Minority interest - 5,246,279
Capital leases, excluding current portion 15,520,965 14,655,409
Long-term debt, excluding current portion 261,222,759 263,954,119
----------------- -----------------
Total liabilities 471,643,686 497,628,416
----------------- -----------------
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 June 30, 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 June 30, 2001; 19,144,544
issued at December 31, 2000 and June 30, 2001 12,595,095 12,595,095
Additional paid-in-capital 159,981,808 162,181,134
Additional investment of capital - 40,000,000
Retained earnings 34,033,002 27,186,600
Other comprehensive income-foreign currency translation (2,023,757) (2,023,757)
----------------- -----------------
Shareholders' equity, net 210,796,173 246,149,097
----------------- -----------------
$ 682,439,859 743,777,513
================= =================
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TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN US$)
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
----------------------------------------------------------------
2000 2001 2000 2001
----------------------------------------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
OPERATING REVENUES:
Toll 6,848,357 6,979,595 13,400,341 14,446,102
International 18,966,002 19,930,105 36,958,206 39,590,550
Local service 12,052,232 15,559,279 24,053,725 30,377,075
Data and Internet 279,922 2,025,884 472,454 3,878,140
Cellular & PCS 8,580,313 9,191,934 17,289,560 18,045,389
Paging 436,911 279,645 911,924 589,419
Sale of equipment 2,487,700 743,957 3,607,234 2,186,173
Installation and activation fees 3,401,291 3,987,075 6,552,963 6,985,126
Other 28,676 325,596 64,732 374,474
----------------------------------------------------------------
TOTAL OPERATING REVENUES 53,081,404 59,023,070 103,311,139 116,472,448
OPERATING COSTS:
Satellite connections and carrier 15,178,067 15,657,340 29,317,489 31,649,342
Network depreciation 6,808,019 10,878,412 12,875,420 20,847,306
Expense in lieu of income taxes 2,616,698 3,161,286 5,498,392 6,480,267
General and administrative expenses 16,299,653 19,427,318 30,079,023 36,296,084
Amortization expenses 526,767 158,795 526,767 315,378
Depreciation expense 1,582,154 2,489,142 3,067,487 4,591,120
Other 1,395,264 1,123,155 2,443,914 2,780,726
----------------------------------------------------------------
TOTAL OPERATING COSTS 44,406,622 52,895,448 83,808,492 102,960,223
OPERATING INCOME 8,674,782 6,127,622 19,502,647 13,512,225
OTHER INCOME (EXPENSES):
Interest expense (7,815,203) (10,100,081) (15,794,299) (19,812,674)
Interest income 1,050,246 581,235 1,254,134 868,757
Foreign exchange gain (loss) 15,533 (14,620) (335,229) (262,435)
Other, net (69,017) 257,921 (115,173) 541,569
----------------------------------------------------------------
OTHER EXPENSES, NET (6,818,441) (9,275,545) (14,990,567) (18,664,783)
----------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES, CUMULATIVE
EFFECT OF ACCOUNTING CHANGE AND MINORITY INTEREST 1,856,341 (3,147,923) 4,512,080 (5,152,558)
Income taxes, net (140,568) (117,000) (270,818) (100,861)
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE AND MINORITY INTEREST 1,715,773 (3,264,923) 4,241,262 (5,253,419)
Cumulative effect of accounting change - - (16,452,799) -
EARNINGS (LOSS) BEFORE MINORITY INTEREST 1,715,773 (3,264,923) (12,211,537) (5,253,419)
Minority interest - 60,026 - 60,026
----------------------------------------------------------------
NET EARNINGS (LOSS) 1,715,773 (3,204,897) (12,211,537) (5,193,393)
================================================================
EBITDA 20,208,420 22,815,257 41,470,713 45,746,296
================================================================
Earnings (loss) per common share:
Earnings (loss) before cumulative effect of
accounting change 0.06 (0.11) 0.16 (0.18)
Cumulative effect of accounting change - - (0.62) -
----------------------------------------------------------------
Earning (loss) per common share 0.06 (0.11) (0.46) (0.18)
================================================================
AVERAGE NUMBER OF COMMON SHARES USED IN CALCULATION 28,361,028 28,844,544 26,602,786 28,844,544
================================================================
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TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN US$)
JUNE 30, JUNE 30,
------------------ ------------------
2000 2001
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net earnings (loss) US$ (12,211,537) (5,193,393)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Allowance for doubtful accounts 2,701,168 3,186,987
Cumulative effect of accounting change for installation and
activation revenues (note 1) 16,452,799 -
Deferred income tax (benefit) provision - (67,139)
Depreciation and amortization 15,942,906 25,438,426
Expense for severance indemnities 330,926 -
Minority interest - (60,026)
Non-cash consulting expenses 273,000 546,319
Net changes in assets and liabilities:
Accounts and notes receivable (15,494,291) 4,023,107
Inventories 1,933,605 (427,855)
Prepaid expenses 2,456,189 1,940,009
Long-term accounts receivable 88,988 -
Other assets (49,768) (5,764,956)
Accounts payable 6,521,366 (3,743,913)
Other liabilities 3,501,356 (45,881)
Accrued expenses 4,029,718 2,181,606
Reserve for severance indemnities (358,975) 24,931
--------------- ---------------
Total adjustments 38,328,987 27,231,615
--------------- ---------------
Net cash provided by (used in) operating activities 26,117,450 22,038,222
=============== ===============
Cash flows from investing activities:
Acquisition (cancellation) of investments (191,610) (409,142)
Acquisition of property and equipment (67,808,090) (65,818,206)
--------------- ---------------
Net cash used in investing activities (67,999,700) (66,227,348)
Cash flows from financing activities:
Borrowed funds from banks 10,631,743 25,235,351
Borrowed funds (paid to) from related parties 22,228,706 (1,264,802)
Capital lease payments (1,361,623) (2,266,439)
Issuance of common stock 66,867,484 40,000,000
Minority interest - 5,306,305
Payments of long-term debt (220,788) (2,236,444)
Proceeds from issuance of long term debt - 2,731,360
--------------- ---------------
Net cash provided by financing activities 98,145,522 67,505,331
Effect of exchange rate changes on cash - -
Net increase in cash and cash equivalents 56,263,272 23,316,205
Cash and cash equivalents at beginning of the period 13,459,566 18,199,552
--------------- ---------------
Cash and cash equivalents at end of period US$ 69,722,838 41,515,757
=============== ===============
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization US$ (15,794,299) (19,812,674)
Capital lease obligations incurred 7,003,348 -
Expense in lieu of income tax paid (5,432,337) (6,480,267)
================== ==================
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TRICOM, S.A. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE
(IN US$)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
---------------------------------------- -----------------------------------------
PRE-SAB 101 POST-SAB 101 PRE-SAB 101 POST-SAB 101
Installation and activation fees 4,367,370 3,401,291 8,270,564 6,552,963
Total operating revenues 54,047,483 53,081,404 105,028,740 103,311,139
Operating income 9,640,861 8,674,782 21,220,248 19,502,647
Net earnings (loss) 2,822,420 1,715,773 6,190,258 (12,211,537)
EBITDA 21,174,499 20,208,420 43,188,314 41,470,713
Earnings per common share 0.09 0.06 0.23 (0.46)
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
RECENT DEVELOPMENTS
Cable System Acquisition
On July 16, 2001, we announced that we entered into a definitive agreement
to acquire Telecable Nacional, C. por A., the largest multi-channel system
operator in the Dominican Republic's pay-TV market. The transaction will be
valued at approximately $1,130 per subscriber equivalent or $63.7 million,
payable $41.8 million in cash and with 3,375,000 shares of our Class A common
stock. The transaction is subject to customary closing conditions, including the
receipt of regulatory and third party consents, and is expected to close in
September 2001.
Telecable is the leader of the Dominican cable TV market with a 43% market
share, serving approximately 52,000 residential subscribers with approximately
150,000 homes passed and an additional 8,000 commercial customers. Telecable
operates primarily in the capital city of Santo Domingo, where it has a 90%
market share, and the resort cities of Puerto Plata and La Romana. Approximately
70% of Telecable's cable network has been recently upgraded to 750 MHz; and it
is expected that the network will be fully upgraded by 2002. For the year ended
December 31, 2000, Telecable had revenues of approximately $17.0 million,
earnings before taxes of approximately $2.9 million and earnings before
interest, taxes, depreciation and amortization of approximately $5.5 million.
Rights Offering to Shareholders
On July 25, 2001, we announced that our Board of Directors had authorized
and set certain terms for a Rights Offering to holders of our common stock and
ADSs. GFN Corporation, one of our major shareholders, has committed to provide
to us $40 million in additional equity. The purpose of the Rights Offering is to
provide all current shareholders with the opportunity to buy more shares on the
same basis as GFN Corporation. The Rights Offering will involve the offer of
newly issued ADSs for a maximum aggregate amount of approximately $100 million.
Our Board of Directors will determine the subscription price of the ADSs and the
number of ADSs to be offered at a later date. We will use any proceeds generated
from the exercise of rights in this Rights Offering for general corporate
purposes, including to fund, in part, our acquisition of Telecable and for
working capital.
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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. Residential and
commercial customers, calling card users, cellular and PCS subscribers
and retail telephone centers, and large corporate accounts generate
toll revenues. 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 prepaid 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.
Data and Internet revenues consist of fixed monthly fees received from
our residential and corporate customers for high speed broadband data
transmission and Internet connectivity services, including traditional
dial-up connections, dedicated lines, private networks, frame relay,
xDSL and VSAT services. These revenues were included as part of local
service revenues until the second quarter of 2001.
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 would 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.
-8-
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.
The following table sets forth the percentage contribution of each category
of revenues to total operating revenues for the period indicated:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2000 2001 2000 2001
---- ---- ---- ----
Toll............................................... 12.9% 11.8% 13.0% 12.4%
International ..................................... 35.7 33.8 35.8 34.0
Local service...................................... 22.7 26.4 23.3 26.1
Data and Internet.................................. 0.5 3.4 0.5 3.3
Cellular and PCS................................... 16.2 15.6 16.7 15.5
Paging............................................. 0.8 0.5 0.9 0.5
Sale and lease of equipment........................ 4.7 1.3 3.5 1.9
Installations...................................... 6.4 6.8 6.3 6.0
Other.............................................. 0.1 0.6 0.1 0.3
- ----------------
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 SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2000 2001 2000 2001
---- ---- ---- ----
Operating costs.................................... 83.7% 89.6% 81.1% 88.4%
Operating income................................... 16.3 10.4 18.9 11.6
Interest expense, net.............................. (12.7) (16.1) (14.1) (16.3)
Other income (expenses)............................ (12.8) (15.7) (14.5) (16.0)
Earnings before cumulative effect of accounting change 3.2 (5.5) 4.1 (4.5)
Net earnings....................................... 3.2 (5.4) (11.8) (4.5)
EBITDA............................................. 38.1 38.7 40.1 39.3
THREE AND SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SAME PERIOD IN 2000
OPERATING REVENUES. Our total operating revenues increased 11.2% to US$59.0
million for the three-month period ended June 30, 2001 from US$53.1 million for
the three-month period ended June 30, 2000. Revenues increased 12.7% to $116.5
million for the six-month period ended June 30, 2001 from $103.3 million for the
six-month period ended June 30, 2000. This growth resulted primarily from
increases in revenues generated by the Company's local service, data and
Internet, as well as international business segments.
TOLL. Toll revenues increased 1.9% to $7.0 million during the 2001 second
quarter from $6.8 million for the 2000 second quarter, and grew by 7.8% to $14.4
million during the first six months of 2001 compared to $13.4 million during the
first six months of 2000, primarily as a result of higher interconnection
charges and a higher
-9-
volume of domestic long distance traffic. Revenues derived from interconnection
charges increased 11.6% to $1.9 million during the 2001 second quarter from $1.7
million for the 2000 second quarter, and grew by 19.6% to $3.9 million during
the first six months of 2001 compared to $3.3 million during the first six
months of 2000.
Domestic long distance minutes increased by 12.8% to 12.6 million minutes
during the 2001 second quarter from 11.2 million minutes during the 2000 second
quarter, and grew by 16.5% to 25.2 million minutes during the first half of the
year compared to 21.6 million during the first half of 2000. Outbound
international minutes increased by 16.2% to 9.3 million in the 2001 second
quarter from 8 million minutes during the 2000 second quarter, and grew by 13.9%
to 18.3 million minutes in the first six months of 2001 compared to 16.1 million
during the first six months of 2000, reflecting increased traffic volume from
our cellular and PCS customers.
INTERNATIONAL. International revenues increased 5.1% to $20.0 million
during the 2001 second quarter from $19.0 million for the 2000 second quarter,
and grew by 7.1% to $39.6 million during the first six months of 2001 compared
to $36.9 million during the first six months of 2000. This increase was due
principally to the growth of inbound traffic volume received from our U.S. based
international carrier, TRICOM USA. Inbound minutes increased by 36.2% to 178.8
million minutes in the 2001 second quarter from 131.2 million during the 2000
second quarter, and by 37.1% to 330.0 million minutes in the first half of 2001
compared to 240.5 million minutes in the first half of 2000. TRICOM USA
accounted for 83.3% of our total inbound minutes in the 2001 second quarter
compared to 63.8% in the same period last year. Total international minutes
increased by 35.1% to 188.0 million minutes in the 2001 second quarter from
139.2 million during the 2000 second quarter, and by 35.7% to 348.1 million
minutes in the first half of 2001 compared to 256.7 million minutes in the first
half 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 $0.05 per minute during
the 2001 second quarter compared to $0.10 per minute during the 2000 second
quarter. During the first half of 2001, our international inbound minutes slowed
as a consequence of several of our corresponding reseller carriers filing for
protection under U.S. bankruptcy laws. Our claims on these entities total
approximately $1.5 million. We took steps to recapture the traffic mainly
through our retail prepaid program in the United States. Lower settlement rates
however, affected our overall revenue growth.
LOCAL SERVICE. Local service revenues increased 29.1% to $15.6 million
during the 2001 second quarter from $12.1 million for the 2000 second quarter,
and grew by 26.3% to $30.4 million during the first six months of 2001 compared
to $24.1 million during the first six months of 2000. The continued growth in
the number of local lines in service resulted in increased local service
revenues for the period. In the second quarter of 2001, we added 5,084 net local
access lines compared to 6,784 net local access lines added in the second
quarter of 2000. Our local service subscriber base grew to 161,411 local access
lines in service at June 30, 2001 compared to 148,312 local access lines in
service at June 30, 2000.
As a result of a higher number of lines in service, measured local service
revenues increased by 26.3% to $3.2 million in the 2001 second quarter from $2.5
million in the 2000 second quarter, and by 27.7% to $6.2 million in the first
half of 2001 compared to $4.9 million in the first half of 2000. Revenues from
monthly fees increased by 28.6% to $10.1 million in the 2001 second quarter from
$7.9 million in the 2000 second quarter, and by 26.5% to $19.9 million in the
first half of 2001 compared to $15.7 million in the first half of 2000. Our
average monthly churn rate for local service was 2.6% in the 2001 second quarter
compared to 2.3% in the 2000 second quarter. 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.
DATA AND INTERNET. Data and Internet revenues increased 623.7% to $2.0
million during the 2001 second quarter from $280,000 for the 2000 second
quarter, and grew by 721% to $3.9 million during the first six months of 2001
compared to $472,000 during the first six months of 2000. The continued
growth in the number of data and Internet subscribers resulted in increased
revenues for the period. Our data and Internet subscriber base grew to 7,790
at June 30, 2001 compared to 5,589 at June 30, 2000. Revenues from monthly
fees increased by 486.4% to $1.6 million in the 2001 second quarter from
$275,000 in the 2000 second quarter, and by 578.4% to $3.2 million in the
first half of 2001 compared to $476,000 in the first half of 2000.
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CELLULAR AND PCS. Our cellular and PCS revenues increased 7.1% to $9.2
million in the 2001 second quarter from $8.6 million in the 2000 second quarter,
and grew by 4.4% to $18.0 million during the first six months of 2001 compared
to $17.3 million during the first six months of 2000. At June 30, 2001, we had
302,613 cellular and PCS subscribers compared to 284,991 at June 30, 2000. As a
result of a higher average subscriber base, airtime minutes increased 26.3% to
49.7 million in the 2001 second quarter from 39.3 million in the 2000 second
quarter, and grew by 24.6% to 98.7 million during the first six months of 2001
compared to 79.2 million during the first six months of 2000. The average price
per airtime minute declined to $0.21 in the 2001 second quarter from $0.26 in
the 2000 second quarter.
We attribute the growth of our subscriber base to the continued success of
our prepaid cellular program. At June 30, 2001, prepaid customers accounted for
94% of our total subscriber base, generating approximately 72% of our total
airtime minutes and 91% of total cellular and PCS revenues in 2001 second
quarter. Prepaid revenues increased by 18.7% to $8.4 million in the 2001 second
quarter from $7.0 million in the 2000 second quarter, and by 15.3% to $15.5
million during the first six months of 2001 compared to $13.4 million during the
first six months of 2000. Our average monthly churn rate for cellular and PCS
services increased to 4.3% in the 2001 second quarter from 1.4% in the 2000
second quarter reflecting primarily our decision in the second quarter to
disconnect 35,000 marginal revenue generating prepaid customers.
PAGING. Paging revenues decreased 36.0% to $280,000 in the 2001 second
quarter from $437,000 in the 2000 second quarter, and by 35.4% to $589,000
during the first six months of 2001 compared to $912,000 during the first six
months 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 June 30, 2001, we had 18,879 paging subscribers compared to 21,622
paging subscribers at June 30, 2000. Our average monthly churn rate for paging
services decreased to 2.7% in the 2001 second quarter from 5.9% in the 2000
second quarter.
SALE OF EQUIPMENT. Revenues from the sale and lease of equipment decreased
70.1% to $744,000 in the 2001 second quarter from $2.5 million in the 2000
second quarter, and decreased by 39.4% to $2.2 million during the first six
months of 2001 compared to $3.6 million during the first six months of 2000,
primarily as a result of lower sales of private branch exchanges and key
telephone systems and cellular and PCS handsets.
INSTALLATION AND ACTIVATION FEES. Installation revenues increased 17.2% to
$4.0 million during the 2001 second quarter from $3.4 million during the 2000
second quarter, and increased by 6.6% to $7.0 million during the first six
months of 2001 compared to $6.6 million during the first six months of 2000. The
Company added 70,725 combined gross local access lines and cellular subscribers
in the 2001 second quarter compared 44,748 in the 2000 second quarter. The
decrease in installation revenues was due primarily 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.
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 $52.9 million in 2001 second quarter
from $44.4 million in the 2000 second quarter. These results reflect higher
network depreciation expenses resulting from the Company's capital
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investment and domestic and international network expansion programs and
increased general and administrative expenses primarily from higher commissions
and personnel compensation. As a percentage of revenues, operating costs
increased to 89.6% in the 2001 second quarter from 83.7% in the 2000 second
quarter, and to 88.4% during the first six months of 2001 compared to 81.1%
during the first six months of 2000.
SATELLITE CONNECTIONS AND CARRIER COSTS. Satellite connections and
carrier costs increased by 3.2% to $15.7 million in the 2001 second quarter from
$15.2 million in the 2000 second quarter, and by 8.0% to $31.7 million during
the first six months of 2001 compared to $29.3 million during the first six
months of 2000, primarily as a result of higher interconnection costs.
Interconnection costs increased by 5.7% to $7.1 million in the 2001 second
quarter from $6.7 million in the 2000 second quarter, and by 8.8% to $13.8
million during the first six months of 2001 compared to $12.7 million during the
first six months of 2000, as the result of a higher volume of inbound traffic
terminating in other networks.
NETWORK DEPRECIATION AND DEPRECIATION EXPENSE. Network depreciation
increased 59.8% to $10.9 million in the 2001 second quarter from $6.8 million in
the 2000 second quarter, and by 61.9% to $20.8 million during the first six
months of 2001 compared to $12.9 million during the first six months 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 57.3% to $2.5 million in the 2001 second quarter from
$1.6 million in the 2000 second quarter, and by 49.7% to $4.6 million during the
first six months of 2001 compared to $3.1 million during the first six months 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 2001 second quarter increased by 20.8% to $3.2 million from $2.6
million in the 2000 second quarter, and by 17.9% to $6.5 million during the
first six months of 2001 compared to $5.5 million during the first six months of
2000, reflecting the increase in revenues derived from our domestic and
international businesses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased 19.2% to $19.4 million in the 2001 second quarter from $16.3 million
in the 2000 second quarter, and by 20.7% to $36.3 million during the first six
months of 2001 compared to $30.1 million during the first six months 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 compensation costs. At June 30, 2001, we had 1,495 employees compared
to 1,514 employees at June 30, 2000. As a percentage of total operating
revenues, general and administrative expenses increased to 32.9% in the 2001
second quarter compared to 30.7% in the 2000 second quarter.
OTHER COSTS. Other costs, which consist of the cost of sale from
local, wireless and prepaid services, decreased by 19.5% to $1.1 million in
the 2001 second quarter from $1.3 million in the 2000 second quarter, and
increased by 13.8% to $2.8 million during the first six months of 2001
compared to $2.4 million during the first six months of 2000, primarily as a
result of higher cost of sale from prepaid cards.
OPERATING INCOME. Operating income decreased to $6.1 million in the
2001 second quarter compared to $8.7 million in the 2000 second quarter, and by
30.7% to $13.5 million during the first six months of 2001 compared to $19.5
million during the first six months of 2000, primarily as a result of higher
network and fixed asset depreciation expenses related to our ongoing local and
international network expansion programs.
OTHER INCOME (EXPENSES). Other expenses increased to $9.3 million in
the 2001 second quarter from $6.8 million in the 2000 second quarter, and by
24.5% to $18.7 million during the first six months of 2001 compared to $15.0
million during the first six months 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 $3.2 million, or $0.11 per share, in the 2001 second quarter compared to
earnings of $1.7 million, or $0.06 per share, in the 2000 second quarter.
Including the $16.5 million cumulative effect of accounting change for the
adoption of SAB 101, we had a
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net loss of $12.2 million, or $0.46 per share, in the 2000 second quarter. Loss
before cumulative effect or accounting change totaled $5.2 million for the
six-month period ended June 30, 2001, or $0.18 per share, compared to earnings
of $4.2 million, or $0.16 per share, for the six-month period ended June 30,
2000.
EBITDA. Earnings before interest and other income, taxes and
depreciation and amortization increased by 12.9% to $22.8 million in the 2001
second quarter from $20.2 million in the 2000 second quarter, and by 10.3% to
$45.7 million during the first six months of 2001 compared to $41.5 million
during the first six months 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 six months of the year, we made
capital expenditures of $65.8 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 totaling approximately $123.8
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 $26.1 million and $22.0
million during the six months ended June 30, 2000 and June 30, 2001,
respectively. We had net accounts receivable of $32.1 million and $24.9 million
at December 31, 2000 and June 30, 2001, respectively. Our indebtedness was
approximately $421.0 million at June 30, 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 $142.4
million was short-term bank loans, telecommunications equipment financings,
trade financings and current portion of capital leases and of long-term debt. At
June 30, 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 13% per annum, and
our peso borrowings had interest rates ranging from 19% per annum to 26% per
annum. At June 30, 2001, our U.S. dollar borrowings, other than the 11 3/8%
senior notes due 2004, totaled $201.3 million and our peso borrowings totaled
$19.7 million.
We have credit facilities, which, in the aggregate, permit us to borrow up
to $285.3 million. At June 30, 2001, there was $221.0 million outstanding under
these facilities. We had approximately $64.3 million available for borrowing
under these facilities, of which $27.9 million was under facilities with
maturities of less than one year. At June 30, 2001, we had approved $89.3
million of short-term and long-term credit facilities with Dominican banks and
institutions and $196.0 million of U.S. dollar-denominated credit facilities
with international banks.
At June 30, 2001, our current liabilities exceeded our current assets by
$129.2 million. This reflects our short-term borrowings 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-
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term credit facilities. During 2000, we obtained the approval of credit
guarantees from Export-Import Bank of the United States of up to $56.0 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 June 30, 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 June 30,
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 $187 million at December 31, 2000 and June 30, 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 June
30, 2001, we had $199.8 million and $221.0 million, respectively, of short-term
and long-term borrowings, including trade finance, outstanding from Dominican
and international banks, mostly denominated in U.S. dollars. At June 30, 2001,
our short-term and long-term U.S. dollar-denominated borrowings bore interest at
rates ranging from 8.16% per annum to 13% per annum. At June 30, 2001, our
short-term and long-term Dominican peso-denominated borrowings bore interest at
rates ranging from 19% to 26% per annum. A 10% increase in the average rate for
our variable rate debt would have decreased our net income for the 2001 second
quarter by approximately $1,052,200.
FOREIGN EXCHANGE RISKS
We are subject to currency exchange risks. During the 2001 second quarter,
we generated revenues of $19.9 million in U.S. dollars and $39.1 million in
Dominican pesos. In addition, at June 30, 2000, we had $201.3 million of U.S.
dollar-denominated debt outstanding, excluding the $200.0 million principal
amount of the 11 3/8% senior notes due 2004.
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 U.S. 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 six months
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 2001 second quarter, we
recognized an approximate $14,600 foreign exchange loss. If the Dominican peso
had devalued by an additional 10% against the U.S. dollar on average in 2001,
we would have realized an additional foreign exchange loss of approximately
$26,240.
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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 (US$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 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 granted our motion to dismiss
and ruled that the plaintiffs should cover the costs of the proceedings. The
plaintiffs have decided to appeal the ruling and resubmitted the action before
the proper court, and the case is now pending decision from the Civil Appellate
Court 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 that 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.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K
(a) Exhibits.
None.
(b) Reports on Form 6-K.
None.
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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: August 15, 2001 By: S/ CARL CARLSON
---------------
Carl Carlson
Executive Vice President
and Member of the
Office of the President
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