<Page>
FORM 6-K/A
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: DECEMBER 19, 2002
[TRICOM(R) 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-_________
<Page>
TRICOM, S.A.
AMENDED
QUARTERLY REPORT
FOR THE
THIRD QUARTER
ENDED
SEPTEMBER 30, 2002
ii
<Page>
This Amendment to the Quarterly Report for the Third Quarter ended
September 30, 2002 is being made to correct the amounts previously reported as
long term and short debt. The amount of long term debt originally was reported
as $359,150,448 and, as revised, is reported as $337,924,363. The amount of
short-term debt, including current portion of capital leases, originally was
reported as $108,576,262 and, as revised, is reported as $130,842,962. In
addition, selling, general and administrative amounts reported in this Amendment
to the Quarterly Report for the Third Quarter ended September 30, 2002 have
increased from the amounts previously reported by us to account for amortization
expenses, primarily related to radio and cellular and PCS frequencies, deferred
commissions, and other intangible assets, previously included as a separate line
items in the Third Quarter Report. This Amendment presents selling, general and
administrative expenses in the same manner as in our annual audited financial
statements.
iii
<Page>
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
GENERAL INTRODUCTION.............................................................1
PART I 3
FINANCIAL INFORMATION............................................................3
ITEM 1. FINANCIAL STATEMENTS..................................................3
ITEM 2. Information on the Company...........................................10
ITEM 3. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.........................11
ITEM 4. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........23
PART II 24
OTHER INFORMATION...............................................................24
ITEM 1. LEGAL PROCEEDINGS....................................................24
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................25
ITEM 5. OTHER INFORMATION....................................................25
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K.....................................25
</Table>
iv
<Page>
GENERAL INTRODUCTION
UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO "TRICOM," "US" OR
"WE" REFER TO TRICOM, S.A. AND ITS CONSOLIDATED SUBSIDIARIES AND THEIR
RESPECTIVE OPERATIONS, AND INCLUDE TRICOM'S PREDECESSORS.
PRESENTATION OF CERTAIN FINANCIAL INFORMATION
We prepare our consolidated financial statements in conformity with
generally accepted accounting principles in the United States. We adopted the
United States dollar as our functional currency effective January 1, 1997 and
maintain our books and records in dollars.
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. The rates we used to translate Dominican
peso-denominated accounts at the period-end were RD$17.05 at December 31, 2001
and RD$18.99 at September 30, 2002. 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, or the Private Market Rate, as reported by Banco Central de la Republica
Dominicana, or the Central Bank, on September 30, 2002 was RD$18.99 = US$1.00,
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 December 16, 2002, the Private Market Rate was RD$20.80
= 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 us. Such risks include, but are not limited to, the following factors:
- the effect of our substantial indebtedness on our ability to fund
operations and our competitive position;
- our ability to generate cash flow from operations to meet our
debt service requirements;
- our dependence on high interest short-term borrowings in the
Dominican financial markets;
- possibility of substantial payment to the Dominican tax service
affecting the ability to fund our operations and requiring us to
obtain additional financing;
- not achieving our objectives of improving operating and cash flow
margins and sustaining revenue growth;
- greater market share and resources by our principal competitor in
the Dominican Republic;
- competition in Dominican markets for local, long distance,
wireless, internet and data services with multinational
telecommunications providers;
- disconnection of a substantial portion of our subscriber base and
a new focus on higher margin customers not producing desired
results;
- the effect of litigation in Panama initiated by competitor;
- declining rates for international long distance traffic;
- our reliance in the U.S. long distance markets on resellers, many
of which have been adversely affected by intensified competition
and decreased demand;
- our inability to minimize customer credit risks;
- customer churn;
- rapid technological change;
- fraudulent or pirated use of our wireless and cable television
services;
- our dependence on third parties for television programming;
<Page>
- the possible effect of interruptions in cable service;
- vulnerability of our computer network to viruses, hackers and
other disruptions;
- the effect of objections filed with Dominican regulatory
authorities to our purchase of certain cable television
operations;
- volatility in the Panama market;
- the inability of our sole supplier to maintain our iDEN network
in Panama;
- concerns about health risks associated with wireless equipment;
- adverse effects to our financial condition due to downturns in
the Dominican economy;
- poverty, social unrest and shortages in the Dominican Republic
affecting the use of telecommunications services;
- inability to enforce claims based on U.S. Securities laws in the
Dominican Republic;
- our dependence on continued growth of the Dominican economy,
demand for telecommunication services in the Dominican Republic
and moderation of inflation; and
- the volatility and depreciation of the Dominican peso against the
U.S. dollar reducing our cash available to repay our indebtedness
or fund our operations.
2
<Page>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN US$)
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
--------------- ----------------
2001 2002
(UNAUDITED)
ASSETS
Current assets:
Cash on hand and in banks $ 12,576,050 $ 7,143,132
Accounts receivable:
Customers 27,537,952 29,734,487
Carriers 4,168,187 2,942,574
Related parties 5,191,359 678,580
Officers and employees 687,355 1,118,144
Other 1,010,801 2,134,165
--------------- ----------------
38,595,654 36,607,950
Allowance for doubtful accounts (4,097,001) (7,107,658)
--------------- ----------------
Accounts receivable, net 34,498,653 29,500,292
Inventories, net 7,054,100 6,112,112
Investments 15,200,000 13,522,815
Prepaid expenses 5,850,267 2,433,506
Deferred income taxes 1,624,637 946,968
--------------- ----------------
Total current assets 76,803,707 59,658,825
--------------- ----------------
Mortgage investments 3,968,711 486,682
Property and equipment, net 685,916,632 687,544,862
Other assets at cost, net of amortization 26,214,053 27,448,130
Goodwill and intangible assets, net of amortization 36,511,523 36,511,523
--------------- ----------------
$ 829,414,626 $ 811,650,022
=============== ================
</Table>
3
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(IN US$)
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
--------------- ----------------
2001 2002
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable:
Borrowed funds - banks $ 86,872,001 $ 41,144,696
Borrowed funds - related parties 27,076,366 43,744,287
Commercial paper 29,242,556 16,471,936
Current portion of long-term debt 30,493,532 28,441,428
--------------- ----------------
173,684,455 129,802,347
--------------- ----------------
Current portion of capital leases - related party 6,643,766 1,040,615
Accounts payable:
Carriers 8,831,981 9,825,780
Related parties 6,868,834 282,904
Suppliers 17,543,401 18,102,693
Other 3,881,848 866,137
--------------- ----------------
37,126,064 29,077,514
Other liabilities 14,644,012 16,683,676
Accrued expenses 20,272,800 20,460,647
--------------- ----------------
Total current liabilities 252,371,097 197,064,799
--------------- ----------------
Reserve for severance indemnities 1,639,718 1,053,755
Deferred income tax 2,172,814 1,658,358
Commercial paper 1,153,759 45,597,566
Capital leases, excluding current portion - related party 11,213,000 14,531,321
Long-term debt, excluding current portion 305,459,748 337,924,363
--------------- ----------------
Total liabilities 574,010,136 597,830,162
--------------- ----------------
Minority interest 1,870,833 -
Shareholders' equity:
Class A Common Stock at par value RD$10: Authorized 55,000,000 shares;
24,245,920 shares issued at December 31, 2001 and September 30, 2002 14,753,134 14,753,134
Class B Stock at par value RD$10: Authorized 25,000,000 shares
at December 31, 2001 and September 30, 2002; 19,144,544 issued at
December 31, 2001 and September 30, 2002 12,595,095 12,595,095
Additional paid-in-capital 217,290,020 217,290,020
Retained (loss) earnings 10,919,165 (28,794,632)
Other comprehensive income-foreign currency translation (2,023,757) (2,023,757)
--------------- ----------------
Shareholders equity, net 253,533,657 213,819,860
--------------- ----------------
$ 829,414,626 $ 811,650,022
=============== ================
</Table>
4
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN US$)
<Table>
<Caption>
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2001 2002 2001 2002
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
OPERATING REVENUES:
Toll revenues $ 7,769,767 $ 7,281,413 $ 22,215,869 $ 21,036,788
International revenues 21,272,185 21,812,650 60,862,735 65,155,992
Local service 15,987,408 16,810,289 46,364,483 51,046,301
Cellular & PCS 10,182,725 9,323,048 28,228,114 28,299,772
Data and Internet 2,146,784 2,994,531 6,024,925 8,072,423
Paging 242,855 143,143 832,273 494,988
Sale of equipment 465,846 481,000 2,652,019 1,721,585
Installation and activation fees 2,405,657 793,574 9,390,783 3,298,383
Cable revenues - 5,856,373 - 16,852,246
Other 180,860 82,386 555,334 416,342
------------- ------------- ------------- -------------
TOTAL OPERATING REVENUES 60,654,087 65,578,407 177,126,535 196,394,820
OPERATING COSTS:
Transport and access charges 17,821,403 19,707,960 49,470,744 57,266,462
Cable programming cost - 1,904,152 - 4,672,743
Network depreciation 11,617,289 13,656,006 32,464,595 39,624,363
Expense in lieu of income taxes 2,522,431 1,564,867 9,002,698 6,246,766
Selling, general and administrative expenses,
including non-network depreciation expense of
$2,761,356 and $3,321,065 for the three months ended
September 30, 2001 and 2002, respectively, and
$7,352,477 and $9,611,225 for the nine months ended
September 30, 2001 and 2002, respectively. 25,199,900 27,418,752 66,402,482 83,025,694
Cost of equipment sold 382,548 510,992 2,178,545 1,191,648
Other 487,960 159,919 1,472,688 1,436,822
------------- ------------- ------------- -------------
TOTAL OPERATING COSTS 58,031,531 64,922,648 160,991,752 193,464,498
OPERATING INCOME 2,622,556 655,759 16,134,783 2,930,322
OTHER INCOME (EXPENSES):
Interest expense (8,682,346) (17,247,946) (28,495,020) (46,919,070)
Interest income 665,045 365,368 1,533,802 1,334,087
Foreign currency exchange gain (loss) (26,850) 654,984 (289,285) 702,420
Gain (loss) on sale of land - - - 1,284,310
Other, net (26,159) 715,291 515,410 (280,022)
------------- ------------- ------------- -------------
OTHER EXPENSES, NET (8,070,310) (15,512,303) (26,735,093) (43,878,275)
------------- ------------- ------------- -------------
EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST (5,447,754) (14,856,544) (10,600,310) (40,947,913)
Income taxes (150,000) (316,422) (250,861) (636,717)
EARNINGS (LOSS) BEFORE MINORITY INTEREST (5,597,754) (15,172,966) (10,851,171) (41,584,670)
Minority interest 95,021 259,865 155,047 1,870,833
------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ (5,502,733) $ (14,913,101) $ (10,696,124) $ (39,713,837)
============= ============= ============= =============
Earnings (loss) per common share:
Earnings (loss) before minority interest (0.19) (0.35) (0.37) (0.92)
Minority interest 0.00 0.01 0.00 0.00-
------------- ------------- ------------- -------------
Earning (loss) per common share $ (0.19) $ (0.34) $ (0.37) $ (0.92)
============= ============= ============= =============
NUMBER OF COMMON SHARES USED IN CALCULATION 28,844,544 43,390,464 28,844,544 43,390,464
============= ============= ============= =============
</Table>
5
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
IN US$
<Table>
<Caption>
NINE MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------------------------
2001 2002
--------------- ---------------
(UNAUDITED)
Cash flows from operating activities:
Net earnings (loss) $ (10,696,124) $ (39,713,797)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Allowance for doubtful accounts 5,173,937 5,893,869
Amortization of debt issue cost - 2,078,417
Amortization of radio frequency rights - 465,338
Deferred income tax, net (67,139) 163,213
Depreciation 39,817,072 49,235,588
Gain on sale of assets - -
Expense for severance indemnities 1,070,374 1,474,840
Minority interest (155,047) (1,870,833)
Loss (gain) on sale of fixed assets, net - (1,284,310)
Value of consulting services received in exchange
for stock warrants 752,987 -
Net changes in assets and liabilities:
Accounts payable (8,998,679) (8,048,550)
Accounts receivable (3,679,003) (895,508)
Accrued expenses 2,051,308 187,847
Inventories 388,478 (1,011,124)
Other assets (9,047,818) (3,777,832)
Other liabilities (1,618,006) 2,039,664
Prepaid expenses 4,218,965 3,416,761
Reserve for severance indemnities (1,033,948) (2,060,803)
--------------- ---------------
Total adjustments 31,044,417 46,006,577
--------------- ---------------
Net cash provided by operating activities $ 20,348,293 $ 6,292,780
=============== ===============
Cash flows from investing activities:
Acquisition of property and equipment (96,083,468) (52,654,969)
Cancellation (acquisition) of investments (698,730) 5,159,214
Proceeds from sale of land - 5,028,573
--------------- ---------------
Net cash used in investing activities (96,782,198) (42,467,182)
Cash flows from financing activities:
Borrowed funds from banks 36,602,673 -
Principal payments to banks - (26,404,587)
Proceeds from issuance of commercial paper 14,234,905 31,673,187
Borrowed funds from related parties 29,931,765 22,479,879
Principal payments to related parties (35,577,626) (5,811,868)
Capital lease payments (3,264,593) (2,284,830)
Deposit for acquisition of common stocks 40,000,000 -
Proceeds from issuance of long-term debt 11,961,530 34,367,892
Minority interest 4,507,131 -
Payments of long-term debt (2,061,541) (23,278,189)
--------------- ---------------
Net cash provided by financing activities 96,334,244 30,741,484
Net increase (decrease) in cash on hand and in banks 19,900,339 (5,432,918)
Cash on hand and in banks at beginning of the year 18,199,552 12,576,050
--------------- ---------------
Cash on hand and in banks at end of the year $ 38,099,891 $ 7,143,132
=============== ===============
Supplementary information:
Interest paid (net of capitalization) $ (31,740,635) $ (47,278,737)
=============== ===============
</Table>
6
<Page>
TRICOM, S.A. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
We consider 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 - GUARANTEE SUBSIDIARIES FINANCIAL INFORMATION
Our 11-3/8% Senior Notes due 2004 are guaranteed fully, unconditionally and
jointly and severally by each of our restricted subsidiaries, as defined in the
indenture for the Senior Notes, each of which is wholly owned by us.
Summarized condensed consolidated financial information of TRICOM, S.A.
(Parent Company), the subsidiaries guarantors on a combined basis (GFN
Comunicaciones, TRICOM Centroamerica, S.A., Call Tel, TRICOM USA and
subsidiaries, Tricom Latinoamerica, S.A., Tricom, S.A. - Panama- and TCN
Dominicana, S.A.), and the subsidiary not guarantor (Tricom Panama, S.A. -
formerly Cellular Communications of Panama, S.A.) at December 31, 2001 and
September 30, 2002 for Balance Sheet Data and for the nine month periods ended
September 30, 2001 and 2002 for Statement of Operations and Cash Flow Data is as
follows:
BALANCE SHEET DATA AT DECEMBER 31, 2001:
<Table>
<Caption>
Tricom, S.A. Subsidiaries Subsidiaries Not Consolidating Total
Parent Co. Guarantors Guarantor Adjustments Consolidated
-------------- -------------- ---------------- -------------- --------------
ASSETS
Current assets:
Cash on hand and in banks $ 11,200,148 $ 1,182,280 $ 193,622 $ - $ 12,576,050
Accounts receivable, net 87,640,800 17,706,131 835,546 (71,683,824) 34,498,653
Other current assets 27,076,558 2,287,371 365,075 - 29,729,004
-------------- -------------- ---------------- -------------- --------------
Total current assets 125,917,506 21,175,782 1,394,243 (71,683,824) 76,803,707
Property, plant and equipment, net 581,160,158 100,344,145 4,412,329 - 685,916,632
Other non-current assets 84,173,618 16,452,492 799,973 (34,731,796) 66,694,287
-------------- -------------- ---------------- -------------- --------------
Total assets $ 791,251,282 $ 137,972,419 $ 6,606,545 $ (106,415,620) $ 829,414,626
============== ============== ================ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable $ 158,259,504 $ 15,424,951 $ - $ - $ 173,684,455
Current portion of capital leases 6,643,766 - - - 6,643,766
Accounts payable 33,536,089 72,631,604 2,642,195 (71,683,824) 37,126,064
Other current liabilities 25,986,347 8,790,651 139,814 - 34,916,812
-------------- -------------- ---------------- -------------- --------------
Total current liabilities 224,425,706 96,847,206 2,782,009 (71,683,824) 252,371,097
Other non-current liabilities 313,291,919 8,340,609 6,511 - 321,639,039
-------------- -------------- ---------------- -------------- --------------
Total liabilities 537,717,625 105,187,815 2,788,520 (71,683,824) 574,010,136
Minority interest - - - 1,870,833 1,870,833
Stockholders' equity 253,533,657 32,784,604 3,818,025 (36,602,629) 253,533,657
-------------- -------------- ---------------- -------------- --------------
Total liabilities and stockholder's equity $ 791,251,282 $ 137,972,419 $ 6,606,545 $ (106,415,620) $ 829,414,626
============== ============== ================ ============== ==============
</Table>
7
<Page>
BALANCE SHEET DATA AT SEPTEMBER 30, 2002:
<Table>
<Caption>
Tricom, S.A. Subsidiaries Subsidiaries Not Consolidating Total
Parent Co. Guarantors Guarantor Adjustments Consolidated
-------------- -------------- ---------------- -------------- --------------
ASSETS
Current assets:
Cash on hand and in banks $ 5,101,176 $ 1,840,918 $ 201,038 $ - $ 7,143,132
Accounts receivable, net 108,185,919 20,473,799 694,158 (99,853,584) 29,500,292
Other current assets 19,719,304 2,796,387 499,710 23,015,401
-------------- -------------- ---------------- -------------- --------------
Total current assets 133,006,399 25,111,104 1,394,906 (99,853,584) 59,658,835
Property, plant and equipment, net 569,870,130 112,441,426 5,233,306 - 687,544,862
Other non-current assets 73,454,564 13,019,453 791,185 (22,818,867) 64,446,335
-------------- -------------- ---------------- -------------- --------------
Total assets $ 776,331,093 $ 150,571,983 $ 7,419,397 $ (122,672,451) $ 811,650,022
============== ============== ================ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable $ 121,710,686 $ 7,852,033 $ 239,628 $ - $ 129,802,347
Current portion of capital leases 1,040,615 - - - 1,040,615
Accounts payable 18,296,542 102,582,460 8,052,096 (99,853,584) 29,077,514
Other current liabilities 28,105,927 8,400,796 637,600 - 37,144,323
-------------- -------------- ---------------- -------------- --------------
Total current liabilities 169,153,770 118,835,289 8,929,324 (99,853,584) 197,064,799
Other non-current liabilities 393,357,463 7,407,900 - - 400,765,363
-------------- -------------- ---------------- -------------- --------------
Total liabilities 562,511,233 126,243,189 8,929,324 (99,853,584) 597,835,162
Minority interest - - - - -
Stockholders' equity 213,819,860 24,328,794 (1,509,927) (22,818,867) 213,819,860
-------------- -------------- ---------------- -------------- --------------
Total liabilities and stockholder's equity $ 776,331,093 $ 150,571,983 $ 7,419,397 $ (122,672,451) $ 811,650,022
============== ============== ================ ============== ==============
</Table>
STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2001:
<Table>
<Caption>
Tricom, S.A. Subsidiaries Subsidiaries Not Consolidating Total
Parent Co. Guarantors Guarantor Adjustments Consolidated
-------------- -------------- ---------------- -------------- --------------
Operating revenues $ 136,370,277 $ 55,522,747 $ 424,404 $ (15,190,893) $ 177,126,535
Operating costs (123,628,643) (51,778,728) (775,274) 15,190,893 (160,991,752)
Operating income 12,741,634 3,744,019 (350,870) - 16,134,783
-------------- -------------- ---------------- -------------- --------------
Other expense, net (23,437,758) (824,117) 34,448 (2,507,666) (26,735,093)
Earnings (loss) before income taxes and
minority interest (10,696,124) 2,919,902 (316,422) (2,507,666) (10,600,310)
Income taxes - (250,861) - - (250,861)
Minority interest - - - 155,047 155,047
-------------- -------------- ---------------- -------------- --------------
Net earnings (loss) $ (10,696,124) $ 2,669,041 $ (316,422) $ (2,352,619) $ (10,696,124)
============== ============== ================ ============== ==============
</Table>
8
<Page>
STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002:
<Table>
<Caption>
Tricom, S.A. Subsidiaries Subsidiaries Not Consolidating Total
Parent Co. Guarantors Guarantor Adjustments Consolidated
-------------- -------------- ---------------- -------------- --------------
Operating revenues $ 141,694,643 $ 77,500,927 $ 1,359,299 $ (24,160,049) $ 196,394,820
Operating costs (130,332,747) (80,935,467) (6,356,293) 24,160,049 (193,464,458)
-------------- -------------- ---------------- -------------- --------------
Operating income 11,361,896 (3,434,540) (4,996,994) - 2,930,362
Other expense, net (50,865,932) (501,071) (330,960) 7,819,688 (43,878,275)
Earnings (loss) before income taxes
and minority interest (39,504,036) (3,935,611) (5,327,954) 7,819,688 (40,947,913)
Income taxes (209,761) (426,956) - - (636,717)
Minority interest - - - 1,870,833 1,870,833
-------------- -------------- ---------------- -------------- --------------
Net earnings (loss) $ (39,713,797) $ (4,362,567) $ (5,327,954) $ 9,690,521 $ (39,713,797)
============== ============== ================ ============== ==============
</Table>
CASH FLOW DATA FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2001:
<Table>
<Caption>
Tricom, S.A. Subsidiaries Subsidiaries Not Consolidating Total
Parent Co. Guarantors Guarantor Adjustments Consolidated
-------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
operating activities $ 16,381,683 $ 3,232,136 $ (6,437,566) $ 7,172,040 $ 20,348,293
Net cash used in investing activities (54,945,109) (32,597,802) (2,183,398) (7,055,889) (96,782,198)
Net cash provided by financing activities 57,951,258 29,778,708 8,720,429 (116,151) 96,334,244
Effect of exchange rate changes on
cash on hand and in banks - - - -
-------------- -------------- ---------------- -------------- --------------
Net increase (decrease) in cash on
hand and in banks 19,387,832 413,042 99,465 - 19,900,339
Cash on hand and in banks at
beginning of the period 17,241,951 957,601 - - 18,199,552
-------------- -------------- ---------------- -------------- --------------
Cash on hand and in banks at the
end of the period $ 36,629,783 $ 1,370,643 $ 99,465 $ - $ 38,099,891
============== ============== ================ ============== ==============
</Table>
CASH FLOW DATA FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002:
<Table>
<Caption>
Tricom, S.A. Subsidiaries Subsidiaries Not Consolidating Total
Parent Co. Guarantors Guarantor Adjustments Consolidated
-------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
operating activities $ (21,809,222) $ 32,721,072 $ 1,444,010 $ (6,063,080) $ 6,292,780
Net cash used in investing activities (28,707,000) (13,525,277) (1,676,222) 1,441,317 (42,467,182)
Net cash provided by financing activities 44,417,250 (18,537,157) 239,628 4,621,763 30,741,484
Effect of exchange rate changes on
cash on hand and in banks - - - - -
-------------- -------------- ---------------- -------------- --------------
Net increase (decrease) in cash on
hand and in banks (6,098,972) 658,638 7,416 - (5,432,918)
Cash on hand and in banks at
beginning of the period 11,200,148 1,182,280 193,622 - 12,576,050
-------------- -------------- ---------------- -------------- --------------
Cash on hand and in banks at the
end of the period $ 5,101,176 $ 1,840,918 $ 201,038 $ - $ 7,143,132
============== ============== ================ ============== ==============
</Table>
9
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ITEM 2. INFORMATION ON THE COMPANY
OVERVIEW
We are a full service communications services provider in the Dominican
Republic. We offer local, long distance, mobile, cable television, and broadband
data transmission and Internet services. Our wireless network covers
approximately 90% of the population in the Dominican Republic. Our network
providing local service is 100% digital, the only such network in the Dominican
Republic. Telecommunication networks that employ digital technology can transmit
higher quality signals at lower cost. We also own interests in undersea fiber
optic cable networks that connect and transmit telecommunications signals
between Central America, the Caribbean, the United States and Europe. Fiber
optic cable is composed of glass strands and transmits telecommunications
signals in the form of light. Through our subsidiary, TRICOM USA, Inc., we own
telecommunication-switching facilities in New York, Florida and Puerto Rico.
Using these facilities, we originate, transport and terminate international
long-distance traffic. We believe that we are one of the few Latin American
based long distance carriers that is licensed by the U.S. Federal Communications
Commission to own and operate switching facilities in the United States.
Through our subsidiary, TCN Dominicana, S.A., we are the largest cable
television operator in the Dominican Republic based on our number of subscribers
and homes passed. At September 30, 2002, our cable network served 71,081
subscribers, including 62,035 basic subscribers, 8,413 commercial rooms and 633
subscribers for digital audio programming and other services, with approximately
170,000 homes passed. At that date, approximately 40% of our network had
bi-directional capability and approximately 70% operated at 750MHz. This enables
us to provide a variety of multimedia and telecommunications services, including
high speed Internet access, interactive programming services and
television-based Internet access services.
We have offered digital mobile integrated services in Panama since April
2002 and, at September 30, 2002, we had approximately 5,000 subscribers. Our
services include two-way radio and paging services using iDEN(R) technology. Our
network covers Panama City and Colon, the two largest cities in Panama, and
important transportation corridors in other parts of the country. Through a 51%
owned joint venture, we own frequency rights for 107 channels of 25 MHz each.
These frequencies give us access to nationwide coverage, covering a population
of approximately 2.8 million people. We also own radio frequency rights in
Guatemala and El Salvador that would allow us to operate our iDEN(R) network
using switches deployed in Panama. We currently do not intend to develop a
network in either Guatemala or El Salvador.
RECENT DEVELOPMENTS
NEW BASIS FOR DETERMINING INCOME TAX
From 1996 through September 1, 2002, we have made payments in lieu of
income tax to the Dominican government in accordance with the terms of our
concession agreement. These payments equal 10% of gross domestic revenues, after
deducting charges for access to the local network, plus 10% of net international
revenues.
On June 4, 2002, a Presidential decree modified the tax system imposed on
all telecommunication providers in the Dominican Republic by concession
agreements (including by our 1996 concession agreement) in favor of the payment
of a tax equal to the greater of 25% of net taxable income and 1.5% of gross
revenues, which is the tax regime applicable to Dominican corporate taxpayers.
We began paying income taxes on this basis on September 1, 2002.
Telecommunication providers in the Dominican Republic are required to adopt
the current Dominican corporate tax regime effective January 1, 2003. Effective
September 1, 2002, telecommunication providers in the Dominican Republic were
allowed to elect to continue making payments in lieu of income tax to the
Dominican government through December 31, 2002.
For 1999, 2000 and 2001, we made payments in lieu of income taxes of $12.8
million, $10.2 million and $12.6 million, respectively. Had we paid taxes for
these years on the same basis as all Dominican corporate taxpayers, our
10
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taxes would have been $5.5 million for 1999, $3.4 million for 2000 and $3.7
million for 2002, an aggregate tax payment savings of approximately $23 million,
but without taking into account additional payments that we would have been
required to make with respect to withholding requirements, for among other
things, services provided to us by non-Dominican venders from which our
concession agreement exempted us, but to which we will now be subject. For the
nine months ended September 30, 2001 and 2002 our taxes, on the same basis as
all Dominican corporate taxpayers would have been approximately $1.7 million and
$2.0 million.
Our concession agreement also exempted us from the requirement to withhold
5% on interest paid or credited to the accounts of financial institutions
located abroad, and 25% on other payments abroad, excluding payments to foreign
suppliers for goods and equipment imported to the Dominican Republic. This
exemption also was eliminated by Presidential decree. We are required by the
terms of various financings with non-Dominican lenders, including by our 11 3/8%
Senior Notes due 2004, to pay the amount of the withholding tax on behalf of the
lenders or holders, as applicable, so that the net amount they receive after
such withholding or deduction will not be less than the amount such lenders or
holders would have received if such taxes had not been withheld. For each of
1999, 2000, and 2001, this would have resulted in additional payments with
respect to the 11 3/8% Senior Notes due 2004 of $1.14 million and approximately
$474,000, $942,000 and $1.08 million, respectively, with respect to other
borrowings, or approximately $5.9 million in the aggregate. For the nine months
ended September 30, 2001 and 2002, this would have resulted in aggregate
additional payments of approximately $1.6 million and $1.8 million.
APPOINTMENT OF NEW CHIEF FINANCIAL OFFICER
On July 31, 2002, we announced the selection of Ramon Tarrago as our new
Chief Financial Officer. Mr. Tarrago replaces Carlos Vargas, who will now serve
as vice president of Telecable Nacional Dominicana, our cable television
wholly-owned subsidiary.
Mr. Tarrago joined us in 1992 as Director of Finance. He has also worked as
vice president and head of our International Business Division since its
inception in 1995. Before joining us, Mr. Tarrago held positions in the
corporate banking unit at the Dominican Republic branch of Citibank and at the
International Finance Corporation of the World Bank in Washington, D.C. Mr.
Tarrago holds both a BA in economics from Universidad Nacional Pedro Henriquez
Urena and an MBA, with a concentration in finance, from the Virginia Polytechnic
Institute and State University.
ITEM 3. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
REVENUE OVERVIEW
We derive our operating revenues primarily from toll revenues,
international revenues, local services, cellular and PCS services, data and
Internet services, paging services, the sale of equipment, installations and
cable television services. 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 their
networks 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. Traffic is based on the
minutes that the foreign telecommunications companies have
terminated in the Dominican telecommunications network,
either on our own network or on another carrier's network,
including revenues derived from our U.S.-based international
long distance prepaid calling cards.
11
<Page>
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 voicemail, as well as calls made to cellular
users under the calling-party-pays system and revenues from
other miscellaneous local access services. "Calling party"
refers to the person who originates the phone call. "Calling
party pays" is a wireless telephony payment structure in
which the calling party is billed for interconnection
access, and the recipient is not billed for the airtime
charges corresponding to that call. In the Dominican
Republic, the calling party pays. Local measured service
includes monthly phone line rental for a specified number of
minutes within a defined area, plus a charge for additional
minutes.
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 voicemail, and for other miscellaneous cellular
and PCS 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,
digital subscriber lines, or xDSLs, that provide
high-bandwidth transmission of voice and data over regular
telephone lines and very small aperture terminals, or VSATs,
relatively small satellite antennas used for high speed
satellite-based single to multiple point data transmissions,
including for the Internet.
Paging revenues consist of fixed monthly charges for
nationwide service and use of paging equipment and
activation fees. Since 1999, paging has not played a role in
our marketing programs and paging revenues have declined.
Revenues from the sale of equipment consist of sales fees
for customer premise equipment, including private automatic
branch exchanges, which are small versions of a phone
company's central switching system often used by private
companies, 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 and PCS phones. Beginning with January 1, 2000, we
have recognized these revenues over the estimated period in
which, based on our experience, we retain such clients.
Initially we estimated this period as 35 months. Effective
October 2, 2001, we revised this period to 24 months, based
on our experience with clients. In prior periods, we
recognized these revenues when they were collected.
Cable television revenues consist of monthly fees derived
from basic programming, expanded basic programming, premium
services, digital music services, Internet access,
installation fees and revenues from advertising sales to
national advertisers on non-broadcast channels we carry over
our cable communications systems. Cable television revenues,
including installation fees, are recognized when the service
is provided.
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 each category of revenues as a percentage of
total operating revenues for the period indicated:
12
<Page>
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ---------------
2001 2002 2001 2002
------- ------ ------ ------
Toll revenues....................................... 12.8% 11.1% 12.5% 10.7%
International revenues ............................. 35.1 33.3 34.4 33.2
Local service....................................... 26.4 25.6 26.2 26.0
Cellular and PCS.................................... 16.8 14.2 15.9 14.4
Data and Internet................................... 3.5 4.6 3.4 4.1
Paging.............................................. 0.4 0.2 0.5 0.3
Sale and lease of equipment......................... 0.8 0.7 1.5 0.9
Installation and activation fees.................... 4.0 1.2 5.3 1.7
Cable revenues...................................... - 8.9 - 8.6
Other............................................... 0.3 0.1 0.3 0.2
</Table>
- ----------
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:
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
2001 2002 2001 2002
------ ------ ------ ------
Operating costs..................................... 95.7% 99.0% 90.9% 98.5%
Operating income ................................... 4.3 1.0 9.1 1.5
Interest expense, net............................... (13.2) (25.7) (15.2) (23.2)
Other income (expenses)............................. (13.3) (23.7) (15.1) (22.3)
Earnings (loss) before income taxes and minority
interest............................................ (9.0) (22.7) (6.0) (20.8)
Net earnings (loss)................................. (9.1) (22.7) (6.0) (20.2)
EBITDA.............................................. 32.5 30.5 36.9 30.7
</Table>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE SAME PERIODS IN
2001
OPERATING REVENUES. Our total operating revenues increased 8.1% to $65.6
million during the 2002 third quarter from $60.7 million for the 2001 third
quarter. Total operating revenues increased 10.9% to $196.4 million for the
nine-month period ended September 30, 2002 from $177.1 million for the
nine-month period ended September 30, 2001. Cable television, data and Internet,
local, and international long distance services were the primary contributors to
overall revenue growth during the 2002 nine month period. Excluding revenues
from cable television services, which we acquired in October 26, 2001, our total
revenues were $59.7 million for the 2001 third quarter, a decrease of $1 million
from total revenues from the 2001 third quarter, and $179.5 million for the 2002
nine-month period, an increase of $2.4 million from the 2001 nine month period.
Revenue growth was offset, in part, by lower installation and activation
revenues primarily as a result of lower average installation fees, as well as
decreases in toll and cellular and PCS revenues
TOLL. Toll revenues decreased 6.3% to $7.3 million during the 2002 third
quarter from $7.8 million for the 2001 third quarter, and decreased by 5.3% to
$21.0 million during the first nine months of 2002 compared to $22.2 million
during the first nine months of 2001. The decrease in toll revenues resulted
from decreases in revenues derived from outbound international long distance
minutes offset, in part, by increases in access charges and domestic long
distance revenues.
Revenues from outbound international calls decreased by 21.8% to $2.8
million during the 2002 third quarter from $3.5 million during the 2001 third
quarter, and by 20.2% to $8.3 million during the first nine months of 2002 from
$10.4 million during the first nine months of 2001, primarily as a result of a
decrease in the price per minute for outbound international calls for
residential and commercial customers and a decrease in outbound long distance
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<Page>
traffic volume. The average price per minute for residential and commercial
customers' outbound international calls declined to $.34 during the first nine
months of 2002 from $.47 during the first nine months of 2001. Outbound
international minutes decreased by 3.2% to 9.0 million minutes in the 2002 third
quarter from 9.3 million minutes during the 2001 third quarter, and decreased by
3.5% to 26.7 million minutes during the first nine months of 2002 from 27.6
million minutes during the first nine months of 2001, reflecting decreased
traffic volume from calling cards and cellular and PCS customers.
Domestic long distance revenues increased 53.1% to $2.1 million during the
2002 third quarter from $1.4 million during the 2001 third quarter, and
increased 57.8% to $6.2 million during the first nine months of 2002 from $3.9
million during the first nine months of 2001. Domestic long distance minutes
increased by 14.0% to 14.9 million minutes during the 2002 third quarter from
13.1 million minutes during the 2001 third quarter, and increased 7.7% to 41.2
million minutes during the first nine months of 2002 from 38.3 million minutes
during the first nine months of 2001. The increase in domestic long distance
minutes resulted from higher traffic volume from our retail call centers.
Pending regulatory proposals that would divide the Dominican Republic into five
zones and provide that intra-zone calls are local could have the effect of
decreasing rates for some calls, if the regulations are adopted.
Revenues from access charges increased 3.5% to $2.3 million during the 2002
third quarter from $2.2 million in the 2001 third quarter, and increased 14.5%
to $7.0 million during the first nine months of 2002 compared to $6.1 during the
first nine months of 2001. The increase in access charges reflects the growth in
our local access subscriber base since the 2001 third quarter and in the
Dominican telephony market, as well as our success in attracting higher usage
customers. We currently expect to disconnect a substantial number of lines in
service at September 30, 2002 during the fourth quarter of 2002, which could
result in us receiving less revenues from access charges.
INTERNATIONAL. Our international revenues increased 2.5% to $21.8 million
during the 2002 third quarter from $21.3 million in the 2001 third quarter, and
increased 7.1% to $65.2 million during the first nine months of 2002 compared to
$60.9 million during the first nine months of 2001, primarily as the result of
higher inbound traffic derived from our U.S.-based international long distance
operations, offset in part by lower international long distance prepaid card
traffic volume. The international revenue increase was achieved despite lower
settlement rates for traffic between the United States and the Dominican
Republic. Our average settlement rate was $.052 per minute during the first nine
months of 2002 compared to $.040 per minute during the first nine months of
2001. Inbound minutes increased by 44.8% to 277.5 million minutes during the
2002 third quarter from 191.6 million minutes in the 2001 third quarter, and
increased by 40.9% to 734.6 million minutes during the first nine months of 2002
from 521.4 million minutes during the first nine months of 2001.
Total minutes from our U.S.-based international long distance prepaid cards
decreased by 29.8% to 38.3 million minutes in the 2002 third quarter from 54.6
million during the 2001 third quarter, and remained stable at 149.6 million
minutes during the first nine months of 2002 compared to 149.2 million minutes
during the first nine months of 2001. Revenues from our U.S. based international
long distance prepaid calling decreased by 37.4% to $5.1 million in the 2002
third quarter from $8.2 million in the 2001 third quarter, and decreased by 8.3%
to $21.4 million during the first nine months of 2002 compared to $23.3 million
during the first nine months of 2001. Lower prepaid card sales primarily
resulted from competitive pressures and poor results from a third party
distributor that had exclusive rights to distribute our product in the
northeastern U.S. We now have several distributors in the region.
LOCAL SERVICE. Local service revenues increased 5.1% to $16.8 million
during the 2002 third quarter from $16.0 million in the 2001 third quarter, and
increased 10.1% to $51.0 million during the first nine months of 2002 compared
to $46.4 million during the first nine months of 2001, primarily as the result
of the continued growth in the number of lines in service. At September 30,
2002, we had 179,124 lines in service compared to 169,893 lines in service at
September 30, 2001, a 5.4% increase in lines.
As a result of a higher number of lines in service, revenues derived from
cellular calls under the calling-party-pays system increased by 25.9% to $2.2
million in the 2002 third quarter from $1.7 million in the 2001 third quarter,
and increased by 34.3% to $6.2 million during the first nine months of 2002
compared to $4.6 million during the first nine months of 2001. Measured local
service revenues increased by 10.9% to $3.6 million in the 2002 third quarter
from $3.3 million in the 2001 third quarter, and increased by 13.5% to $10.8
million during the first nine months of 2002 from $9.5 million during the first
nine months of 2001.
14
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Revenues from monthly fees decreased by 0.4% to $10.8 million in the 2002
third quarter from $10.9 million in the 2001 third quarter, and increased by
4.2% to $33.9 million during the first nine months of 2002 compared to $32.6
million during the first nine months of 2001. Our average monthly churn rate for
local service subscribers increased to 3.3% in the 2002 third quarter compared
to 1.6% in the 2001 third quarter, and decreased to 2.0% during the first nine
months of 2002 compared to 2.2% during the first nine months of 2001. 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.
During the 2002 third quarter, we undertook a number of steps to improve
the profile of our local service customer portfolio, mainly the disconnection of
lower usage users, resulting in a reduction in the number of lines in service at
September 30, 2002 from the number at June 30, 2002. We currently expect to
disconnect a substantial number of our lines in service at September 30, 2002
during the fourth quarter of 2002. As a result, we may have fewer lines in
service at December 31, 2002, which could result in lower revenues from monthly
fees, access charges and measured local service.
By disconnecting low usage customers, we believe we can better use our
network to provide services to and concentrate our sales efforts on, higher
usage residential and corporate customers. In addition to increasing the average
revenue per user, we believe we can increase service offerings to higher usage
customers and ultimately increase our revenues and profitability. We anticipate
that local service churn rate will remain relatively high while we continue our
policy of disconnecting lower usage customers.
CELLULAR AND PCS. Our cellular and PCS revenues decreased 8.4% to $9.3
million in the 2002 third quarter from $10.2 million in the 2001 third quarter,
and remained stable at $28.3 million during the first nine months of 2002
compared to $28.2 million during the first nine months of 2001. The decrease in
third quarter cellular and PCS revenues resulted from an approximate 26%
decrease in the average price per minute during the 2002 third quarter,
reflecting increased price competition in the market. For the 2002 nine month
period declines in average price per minute were offset by increased minutes of
use.
At September 30, 2002, we had 410,918 cellular and PCS subscribers compared
to 332,436 at September 30, 2001. As a result of a higher average subscriber
base, total minutes of usage increased 11.5% to 59.7 million minutes in the 2002
third quarter from 53.5 million minutes in the 2001 third quarter, and increased
10.0% to 167.5 million minutes during the first nine months of 2002 from 152.2
million minutes during the first nine months of 2001.
At September 30, 2002, approximately 5% of our subscriber base consisted of
customers that purchase cellular and PCS services pursuant to fixed-term
contracts and the remaining 95% of customers that purchase their services in
advance, primarily through prepaid calling cards. Prepaid customers include both
those who can receive and make outgoing calls and those who are only able to
receive incoming calls. We believe that our postpaid subscribers seek the
convenience of uninterrupted mobile service and access to high quality customer
service and are willing to pay monthly fees for additional value-added services.
In contrast to postpaid subscribers, prepaid customers typically generate low
levels of usage, access a limited number of value-added services, and often are
unwilling to make a fixed financial commitment or do not have the credit profile
to purchase postpaid plan cellular and PCS services.
Prepaid cellular and PCS services generated approximately 62% of our total
minutes of use and 67% of total cellular and PCS revenues in the 2002 third
quarter compared to approximately 68% of our total minutes of use and 72% of our
total cellular and PCS revenues in the 2001 third quarter. For the first nine
months of 2002, prepaid cellular and PCS services generated approximately 68% of
our total minutes of use and approximately 71% of our total cellular and PCS
revenues, compared to 68% of our total minutes of use and 74% of our total
cellular and PCS revenues during the first nine months of 2001.
At September 30, 2002, we had approximately 150,000 "incoming calls only"
subscribers, all of whom are prepaid subscribers. The substantial majority of
"incoming calls only" subscribers generate little or no traffic. We currently
anticipate voluntarily disconnecting a substantial number of our "incoming calls
only" cellular and PCS subscribers in the fourth quarter of 2002, which could
result in lower airtime and access charge revenues.
15
<Page>
Our average monthly churn rate for cellular and PCS services increased to
4.6% in the 2002 third quarter from 3.0% in the 2001 third quarter, and
decreased to 4.3% during the first nine months of 2002 compared to 5.1% during
the first nine months of 2001. We anticipate that the cellular and PCS services
churn rate to increase while we continue our policy of disconnecting lower usage
"incoming calls only" prepaid subscribers.
DATA AND INTERNET. Data and Internet service increased 39.5% to $3.0
million in the 2002 third quarter from $2.1 million in the 2001 third quarter,
and increased by 34.0% to $8.1 million during the first nine months of 2002 from
$6.0 million during the first nine months of 2001, primarily as the result of
the continued growth in the number of data and Internet subscribers. The number
of our data and Internet subscribers increased 23.3% to 10,611 at September 30,
2002 from 8,606 at September 30, 2001. Revenues from monthly fees increased by
25.7% to $2.2 million in the 2002 third quarter from $1.7 million in the 2001
third quarter, and increased by 18.4% to $5.9 million during the first nine
months of 2002 compared to $4.9 million during the first nine months of 2001.
PAGING. Paging revenues decreased 41.1% to approximately $143,000 in the
2002 third quarter from $243,000 in the 2001 third quarter, and decreased 40.5%
to $495,000 during the first nine months of 2002 from $832,000 during the first
nine months of 2001, primarily as a result of our decision to focus on migrating
new customers away from paging services and into prepaid cellular services. At
September 30, 2002, we had 9,457 paging subscribers compared to 17,878 paging
subscribers at September 30, 2001. Our average monthly churn rate for paging
services remained stable at approximately 2.0% in the 2002 third quarter and
2001 third quarter, and increased to 2.9% during the first nine months of 2002
compared to 2.4% during the first nine months of 2001.
SALE OF EQUIPMENT. Revenues from the sale of equipment increased 3.3% to
$481,000 in the 2002 third quarter from $466,000 in the 2001 third quarter, and
decreased 35.1% to $1.7 million during the first nine months of 2002 compared to
$2.7 million during the first nine months of 2001, primarily as a result of
lower sales of customer premise equipment and cellular and PCS handsets. We have
entered into arrangements for the distribution of cellular and PCS services
through major electronics retailers. These arrangements have decreased equipment
sales revenues but we believe added subscribers and contribute to increase
cellular and PCS service revenues.
INSTALLATION AND ACTIVATION FEES. Installation and activation decreased
67.0% to $794,000 in the 2002 third quarter from $2.4 million in the 2001 third
quarter, and decreased 64.9% to $3.3 million during the first nine months of
2002 compared to $9.4 million during the first nine months of 2001. The decrease
reflects lower installation fees charged for local access lines and mobile
services. In addition, installation and activation revenues for the 2001 periods
include fees deferred from previous periods in accordance with SEC Staff
Accounting Bulletin 101. Most fees so deferred have been recognized before 2002
and such fees have decreased since 2001. (See "Critical Accounting Policies").
CABLE. In the fourth quarter of 2001, we acquired the shares of TCN
Dominicana, S.A., a wholly-owned subsidiary of Telecable Nacional, C. por A.,
that owns and operates the largest multi-channel system in the Dominican
Republic's pay-TV market, including the concession granted by the Dominican
government to operate a cable system. Revenues from cable television services
totaled $5.9 million in the third quarter and totaled $16.9 million during the
first nine months of 2002.
At September 30, 2002, we had 71,081 cable subscribers, including 62,035
basic subscribers, and 7,692 commercial rooms, which include commercial
establishments (for example, hotels) or multiple dwelling units (for example,
any apartment building or hospital), for which we receive a bulk rate for basic
cable service offered by us. Programming services revenues totaled $4.2 million
in the 2002 third quarter and totaled $12.1 million during the first nine months
of 2002. Advertising revenues totaled $1.6 million in the 2002 third quarter and
totaled $4.5 million during the first nine months of 2002.
OPERATING COSTS. Major components of operating costs are:
- transport and access charges (formerly referred to as satellite
connection and carrier costs), which include amounts paid to
foreign carriers for our use of their networks for termination of
outbound traffic and interconnection costs, which are access
charges paid primarily to Codetel, and payments for international
satellite circuit leases;
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- programming costs, which are amounts paid to programming
providers for licenses to broadcast on our cable television
network basic and premium programming and other content;
- depreciation of network and non-network equipment and leased
terminal equipment;
- expenses in lieu of income tax; and
- selling, general and administrative expenses, which include
salaries and other compensation to personnel, building occupancy
and maintenance expenses, marketing expenses, commissions and
other related costs.
Our operating costs increased 11.9% to $64.9 million in the 2002 third
quarter from $58.0 million in the 2001 third quarter, and increased 20.2% to
$193.5 million during the first nine months of 2002 from $161.0 million during
the first nine months of 2001. These results reflect higher selling, general and
administrative expenses, as well as increased network and non-network
depreciation expenses resulting from a higher depreciable capital base as a
result of our capital investment and domestic and international network
expansion programs. The increase in operating costs and expenses also reflects
higher transport and access charges costs, as well as the integration of our
cable television operations and the launch of operations in Panama. As a
percentage of revenues, operating costs increased to 99.0% in the 2002 third
quarter from 95.7% in the 2001 third quarter, and increased to 98.5% during the
first nine months of 2002 from 90.9% during the first nine months of 2001.
TRANSPORT AND ACCESS CHARGES. Transport and access charges costs increased
by 10.6% to $19.7 million in the 2002 third quarter from $17.8 million in the
2001 third quarter, and increased by 15.8% to $57.3 million during the first
nine months of 2002 from $49.5 million during the first nine months of 2001,
primarily as a result of increased interconnection costs and higher outbound
carrier costs. Interconnection costs increased by 32.2% to $9.5 million during
the 2002 third quarter from $7.2 million during the 2001 third quarter, and
increased by 25.8% to $25.7 million during the first nine months of 2002 from
$20.5 million during the first nine months of 2001, as the result of a higher
volume of traffic terminating in other networks. Outbound carrier costs
decreased by 9.5% to $7.3 million in the 2002 third quarter from $8.1 million in
the 2001 third quarter, and increased by 10.4% to $23.3 million during the first
nine months of 2002 from $21.1 million during the first nine months of 2001,
reflecting higher volume of outbound international calls terminating in non-U.S.
destinations.
PROGRAMMING COSTS. Programming costs totaled $1.9 million in the 2002 third
quarter and totaled $4.7 million during the first nine months of 2002, primarily
related to fees paid to providers for signals and programming content.
NETWORK DEPRECIATION AND NON-NETWORK DEPRECIATION EXPENSE. Network
depreciation increased 17.5% to $13.7 million in the 2002 third quarter from
$11.6 million in the 2001 third quarter, and increased 22.1% to $39.6 million
during the first nine months of 2002 from $32.5 million during the first nine
months of 2001, as a result of a higher depreciable asset base due to the
continued investments in our local and international networks, including
telecommunications equipment and facilities. Non-network depreciation expense
with respect to other fixed assets increased 20.3% to $3.3 million during the
2002 third quarter from $2.8 million during the 2001 third quarter, and
increased 30.7% to $9.6 million during the first nine months of 2002 from $7.4
million during the first nine months of 2001.
EXPENSE IN LIEU OF INCOME TAXES. In the past, we made 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. Beginning September 1,
2002, in accordance with Presidential decree No. 405-02, we no longer pay taxes
in lieu of income tax but pay the tax imposed on all Dominican corporations: a
tax equal to the greater of 25% of net taxable income or 1.5% of gross revenues.
Expense in lieu of income taxes during the 2002 third quarter decreased by
38.0% to $1.6 million from $2.5 million in the 2001 third quarter, and decreased
by 30.6% to $6.2 million during the first nine months of 2002 from $9.0 million
during the first nine months of 2001.
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SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses, excluding non-network depreciation expense, increased 4.5% to $23.3
million in the 2002 third quarter from $22.3 million in the 2001 third quarter,
and increased 24.3% to $73.4 million during the first nine months of 2002 from
$59.1 million during the first nine months of 2001. The amount of selling,
general and administrative expenses reflects increased marketing and advertising
expenses, higher provision for uncollectible accounts, occupancy costs, and
other related expenses. These increases were offset in part by lower commissions
paid to wholesale distributors of prepaid cards, and lower salaries and other
personnel compensation costs during the third quarter, as a result of a
reduction in the number of employees. Selling, general and administrative
amounts have increased from the amounts previously reported by us to account for
amortization expenses, primarily related to radio and cellular and PCS
frequencies, deferred commissions, and other intangible assets, previously
included as a separate line items in our interim reports. Amortization expenses
increased to $2.0 million in the 2002 third quarter from $465,000 in the 2001
third quarter, and to $2.0 million during the first nine months of 2002 from
$474,000 during the first nine months of 2001.
Marketing expenses decreased to $1.6 million in the 2002 third quarter from
$3.0 million in the 2001 third quarter, and increased to $6.0 million during the
first nine months of 2002 from $4.7 million during the first nine months of
2001. Expenses for the provision of uncollectible accounts increased to $2.2
million in the 2002 third quarter from $1.9 million in the 2001 third quarter,
and increased to $6.2 million during the first nine months of 2002 from $2.9
million during the first nine months of 2001, primarily as a result of a higher
number of contract local service, cellular and PCS and basic and premium cable
subscribers. Occupancy costs increased to $2.0 million in the 2002 third quarter
from $1.8 million in the 2001 third quarter, and increased to $5.9 million
during the first nine months of 2002 from $4.9 million during the first nine
months of 2001.
Other expenses, which include, among others insurance, legal expenses,
maintenance and repair of vehicles and equipment and other professional
services, increased to $7.4 million in the 2002 third quarter from $6.1 million
in the 2001 third quarter, and increased to $20.9 million during the first nine
months of 2002 from $16.0 million during the first nine months of 2001. Salaries
and other compensation to personnel decreased to $7.1 million in the 2002 third
quarter from $7.4 million in the 2001 third quarter, and totaled $22.4 million
during the first nine months of 2002 compared to $22.2 million during the first
nine months of 2001. At September 30, 2002, we had 1,489 employees compared to
1,491 employees at September 30, 2001.
As a percentage of total operating revenues, selling, general and
administrative expenses, excluding non-network depreciation expense, decreased
to 35.5% in the 2002 third quarter compared to 36.7% in the 2001 third quarter,
and increased to 37.4% during the first nine months of 2002 compared to 33.3%
during the first nine months of 2001.
COST OF EQUIPMENT AND OTHER COSTS. Cost of equipment sold, which consists
of the cost of sale of customer premise equipment, including private branch
exchanges and key telephone systems, as well as cellular and PCS handsets,
increased by 33.6% to $511,000 in the 2002 third quarter from $383,000 in the
2001 third quarter, and decreased by 45.3% to $1.2 million during the first nine
months of 2002 from $2.2 million during the first nine months of 2001. Other
costs, which consist of the cost of sale of prepaid services, decreased to
$160,000 in the 2002 third quarter from $488,000 in the 2001 third quarter, and
decreased to $1.4 million during the first nine months of 2002 from $1.5 million
during the first nine months of 2001.
OPERATING INCOME. Operating income decreased to $656,000 in the 2002 third
quarter compared to $2.6 million in the 2001 third quarter, and decreased to
$2.9 million during the first nine months of 2002 compared to $16.1 million
during the first nine months of 2001. Operating income as a percentage of total
operating revenues decreased to 1.0% in the 2002 third quarter from 4.3% in the
2001 third quarter, and decreased to 1.5% during the first nine months of 2002
from 9.1% during the first nine months of 2001.
OTHER INCOME (EXPENSES). Other expenses increased to $15.5 million in the
2002 third quarter from $8.1 million in the 2001 third quarter, and increased to
$43.9 million during the first nine months of 2002 from $26.7 million during the
first nine months of 2001, reflecting increased interest expenses resulting from
higher average aggregate amount of outstanding debt. Interest increased to $17.2
million in the 2002 third quarter from $8.7 million in the 2001 third quarter,
and increased to $46.9 million during the first nine months of 2002 from $28.5
million during the first nine months of 2001. Interest expense also has
increased because the amount of interest capitalized
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has decreased with the decrease in capital expenditures. During the first nine
months of 2002, we incurred debt primarily to purchase network and
telecommunications equipment.
NET EARNINGS (LOSS). Net loss totaled $14.9 million, or $.34 cents per
share, in the 2002 third quarter compared to a net loss of $5.5 million, or $.19
cents per share, in the 2001 third quarter. For the first nine months of 2002,
net loss totaled $39.7 million, or $.92 cents per share, compared to a net loss
of $10.7 million, or $.37 cents per share, during the first nine months of 2001.
EBITDA. Earnings before interest and other income, taxes and depreciation
and amortization increased by 1.6% to $20.0 million in the 2002 third quarter
from $19.7 million in the 2001 third quarter, and decreased by 7.7% to $60.4
million during the first nine months of 2002 from $65.4 million during the first
nine months of 2001. 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.
ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("SFAS 141") and
No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires
all business combinations initiated after September 30, 2001 to be accounted for
using the purchase method. Under SFAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of SFAS 142 apply to goodwill and intangible assets acquired after
September 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, we adopted SFAS 142 effective January 1, 2002. As of
December 31, 2001, and September 30, 2002, the composition of goodwill and
intangible assets totaled $36.5 million, primarily related to the acquisitions
of TCN Dominicana, S.A. and of Cellular Communications of Panama, S.A.
(subsequently renamed TRICOM Panama, S.A.) during 2001.
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION
During the year ended December 31, 2000, we adopted the U.S. Securities and
Exchange Commission's Staff Accounting Bulletin No. 101 concerning the
recognition of revenue. This pronouncement provides that we recognize net
revenues from installations and activations over the period in which we retain
our clients. At the time we adopted SAB 101, we charged activation and
installation fees to subscribers for cellular and PCS services and for local
access lines. In preparing our financial statements for the year ended December
31, 2000, we estimated that the average service life for our customers that we
charged activation and installation fees was 35 months. We based our estimate of
average service life on our experience during the preceding five years, which
included periods in which we were initiating and developing these service
offerings.
Effective October 1, 2001, we updated our estimate of the average service
life for our customers from 35 to 24 months. We based our revision on our
experience during the preceding three years, which we regarded as more
representative of current market conditions. The number of mobile subscribers
and subscribers for local access lines increased substantially during that
period. We also face increased competition, particularly in the mobile markets
in which there have been new market entrants since 2000, which have captured
significant market share. As a result of these and other factors, our average
monthly disconnection or churn rate increased during 2001. We expect these
factors to continue to affect our ability to retain customers. As revised, for
2000 and 2001, we recognized revenue of $8,940,040 and $7,512,759 associated
with the accounting change from the adoption of SAB 101.
Based upon recent market trends to reduce activation fees for mobile and
local service, we anticipate that our activation fees and deferred revenue may
decrease in the future. In addition, in October 2001, we acquired TCN
Dominicana, the largest operator of cable television systems in the Dominican
Republic, which we operate under the
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name Telecable. Telecable did not consistently charge fees for the installation
and activation of cable service before we acquired it. We currently charge new
subscribers approximately $45, which includes a one-time installation fee and
the first month of service. Given current market conditions, we do not foresee
charging installation fees in the future. We do not have sufficient experience
to determine the average customer service life for cable subscribers. We
recognized revenues from cable activation fees for the nine months ended
September 30, 2002 in the aggregate of approximately $185,000.
LONG-LIVED ASSETS
The Company's long-lived assets include property and equipment, in service,
under construction or development and held for disposal, as well as goodwill and
identifiable intangible assets to be held and used.
Property and equipment in service is stated at historical costs. Costs
associated directly with network construction, service installations and
development of business support systems and interest expense incurred during the
construction period are capitalized. Depreciation is calculated on a
straight-line basis over the estimated useful lives of assets. The estimated
useful life of telecommunications networks is 15 years and 3 to 10 years for
furniture fixtures, equipment and other. These useful lives are determined based
on historical usage with consideration given to technological changes, trends in
the industry and other economic factors that could impact the network
architecture and asset utilization. Assets held for disposal or sale is stated
at the estimated proceeds from the sale, less costs to sell.
The Company provides for the impairment of long-lived assets, including
goodwill, pursuant to SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-Lived Assets to be Disposed of", which requires that
long-lived assets and certain identifiable intangible held and used by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of an assets may not be recoverable. Such events
include, but are not limited to, a significant decrease in market value of an
asset, a significant adverse change in the business climate that could affect
the value of an asset or a current period operating or cash flow loss combined
with a history of operating or cash flow losses. An impairment loss is
recognized when estimated undiscounted future cash flows, before interest,
expected to be generated by the assets are less than its carrying value.
We adopted the provisions of SFAS No. 142 on January 1, 2002. SFAS No. 142
no longer requires the amortization of goodwill and indefinite-lived intangible
assets. Instead, these assets must be reviewed annually (or more frequently
under certain conditions) for impairment in accordance with this statement. In
accordance with the new rules, starting January 1, 2002, we are no longer
amortizing goodwill, acquired intangible assets, which we determined, have an
indefinite life. The Company's amortization of goodwill for the year ended
December 31, 2001 totaled approximately $47,000. Currently, we do not believe
that the provisions of SFAS 142 will have a significant effect on our results of
operations and financial position.
EFFECTS OF INFLATION
The annual inflation rate in the Dominican Republic was 5.1% for 1999, 9.0%
for 2000 and 4.4% for 2001. The effects of inflation on our operations have not
been significant.
LIQUIDITY AND CAPITAL RESOURCES
Substantial capital is required to operate and expand our
telecommunications networks. For the first nine months of 2002, we made capital
expenditures of $52.7 million for the installation of additional local access
lines, enhancement of our cellular and PCS network, expansion of international
facilities and other network improvements, primarily in the Dominican Republic.
The amount expended represents a significant reduction from expenditures in
prior years, including $91.6 million in the first nine months of 2001. This
reflects our previously announced program to reduce capital expenditures by
optimizing the use of our existing network, while minimizing new capital needs
and conserving cash. We currently anticipate making capital expenditures of
approximately $60 million in 2002 to increase capacity and coverage in our local
access and mobile networks, continue deployment of cable television set-top
boxes as well as the rollout of our bi-directional cable network to support the
deployment of
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digital and interactive services, expand our international facilities to support
increased traffic volume, expand our local network, other international
expansion and to deploy our iDEN(R) based network in Panama. However, the
amounts to be invested for these purposes, particularly in Panama, will depend
upon a number of factors, including primarily the demand for our services and
the outcome of pending litigation against our Panamanian subsidiary.
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, current cash and
borrowings available to us will be sufficient to fund our expected capital
expenditures through the end of 2002. We frequently evaluate potential
acquisitions and joint venture investments, although we do not currently
contemplate any acquisitions and our 11?% senior notes due 2004 limit the amount
that we can invest in joint ventures. Acquisitions, investments or potential
debt repayments 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 $20.3 million for the first
nine months of 2001 compared to $6.3 million for the first nine months of 2002.
We had net accounts receivable of $34.5 million at December 31, 2001 and $29.5
million at September 30, 2002, respectively. Our allowance for doubtful accounts
increased to $7.1 million at September 30, 2002 from $4.1 million at December
31, 2001, primarily as a result of higher number of contract local service,
cellular and PCS, and basic and premium cable subscribers.
Our indebtedness was approximately $528.9 million at September 30, 2002,
compared to $498.2 million at December 31, 2001, of which $200.0 million was our
senior notes, $198.1 million was long-term borrowings and capital leases, with
maturities ranging from fifteen months to six years, and $130.8 million was
short-term bank loans, commercial paper, short-term telecommunications equipment
trade financings and current portion of capital leases and of long-term debt. At
September 30, 2002, our U.S. dollar borrowings and commercial paper, other than
our 11?% notes due 2004, had interest rates ranging from 4.62% per annum to
14.93% per annum, and our Dominican peso borrowings and commercial paper had
interest rates ranging from 15% per annum to 32% per annum. At September 30,
2002, our U.S. dollar borrowings, other than the senior notes, totaled $289.8
million and our peso borrowings totaled $39.1 million.
At September 30, 2002, we had approximately $20.7 million in cash and
investments. In addition, we had credit facilities, which, in the aggregate,
permit us to borrow up to $289.1 million. At September 30, 2002, there was
$266.8 million outstanding under these facilities. We had approximately $22.3
million available for borrowing under these facilities, of which $18.5 million
was under facilities with maturities of less than one year.
At September 30, 2002, we had $87.4 million of short-term and long-term
approved credit facilities with Dominican banks and institutions and $201.7
million of U.S. dollar-denominated approved credit facilities with international
banks and financial institutions as compared to $93.5 million and $246.7
million, respectively, at December 31, 2001. In addition, at September 30, 2002,
the Company had in place a $74 million dollar-denominated and peso-denominated
commercial paper program in the Dominican Republic. At September 30, 2002, we
had outstanding $62.1 million under such program. The proceeds from the issuance
of commercial paper have been used to finance the purchase of telecommunications
related assets.
At September 30, 2002, our current liabilities exceeded our current assets
by $137.4 million compared to $175.6 million at December 31, 2001. 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. In the third quarter of 2002, we restructured
approximately $8.0 million of our short-term debt to long-term debt, extending
the maturity of such debt with a financial institution for a period of three
years, with an interest rate of 11% per annum with respect to dollar denominated
borrowings and 28% per annum with respect to peso denominated borrowings. We
will seek additional credit facilities with international banks to refinance our
short-term credit facilities.
Our credit facilities in the Dominican Republic do not contain financial
covenants. One loan with General Electric Capital Corporation of Puerto Rico,
which had an outstanding principal amount of $5.6 million at December
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31, 2001, and $3.8 million at September 30, 2002, contains two financial
covenants that require us to maintain a minimum cash flow coverage ratio
(defined as net income plus depreciation minus preferred dividends divided by
current maturity of long term debt) and EBITDA coverage ratio (defined as
earnings before interest, taxes, depreciation and amortization divided by
current maturity of long term debt plus interest expense). We failed to comply
with these covenants at December 31, 2001. GE Capital waived such non-compliance
and amended the loan agreement to eliminate the application of the covenants
altogether to the three months periods ended March 31, 2002 and June 30, 2002
and to change the ratios for periods ending after June 30, 2002. At September
30, 2002, we were not in compliance with the GE Capital financial covenants. GE
Capital has waived our non-compliance and agreed to waive any future
non-compliance until December 31, 2003.
The following table contains certain information concerning the Company's
material contractual obligations at September 30, 2002 (in millions of dollars).
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
-------------------------------------------------------------------
LESS THAN 1 AFTER
CONTRACTUAL CASH OBLIGATIONS TOTAL YEAR 1 - 3 YEARS 4 - 5 YEARS 5 YEARS
--------- -------------------------------------------------------
Short-term debt $ 101.4 101.4 - - -
Long-term debt 411.9 28.4 322.8 59.6 1.1
Capital lease obligations 15.6 1.0 9.4 5.2 -
Operating leases - - - - -
Unconditional purchase obligations - - - - -
Other long-term obligations - - - - -
-------- ----- ----- ---- ---
TOTAL CONTRACTUAL CASH OBLIGATIONS $ 528.9 130.8 332.2 64.8 1.1
======== ===== ===== ==== ===
</Table>
At December 31, 2001, our 11 3/8 % senior notes due 2004 were rated B1
(with a stable outlook) by Moody's Investors Service ("Moody's") and B+ (with a
positive outlook) by Standard & Poor's ("S&P"). On March 26, 2002, S&P
reaffirmed its B+ rating of our 11 3/8 % senior notes due 2004 and lowered its
outlook from positive to stable. On April 30, 2002, Moody's lowered the rating
of our 11 3/8 % senior notes due 2004 to B3 and lowered its outlook from stable
to negative. On May 31, 2002, S&P lowered the rating of our 11 3/8 % senior
notes due 2004 to B and lowered its outlook from stable to negative. On December
2, 2002, Moody's lowered the rating of our senior notes to Caa2. Our rating also
has been placed on review for possible further downgrade. Our domestic
commercial paper program is not rated by either Moody's or S&P.
In connection with the offering of our 11 3/8 % senior notes due 2004, our
principal shareholders, a subsidiary of GFN Corporation, Ltd., and Motorola,
Inc., entered into voting arrangements with the trustee under the indenture with
respect to the notes. The agreements provided for the grant to the trustee of
proxies giving it the right to vote all shares of common stock upon the
occurrence of specified events of default. GFN and Motorola had the right to
terminate the voting agreements, in certain events, including the Dominican
Republic becoming bound by the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, which occurred during 2002. GFN and
Motorola exercised their rights to terminate the voting agreements.
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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 RISKS
Our interest expense is sensitive to changes in the general level of
interest rates in the United States and in the Dominican Republic. At September
30, 2002, we had outstanding $200 million aggregate principal amount of senior
notes. The senior notes bear interest at fixed rate of 11 3/8% per annum and
mature in the year 2004. The fair value of the senior notes was approximately
$120 million at September 30, 2002. The senior notes are U.S. dollar
denominated.
Our primary exposure to market risk for changes in interest rates relates
to our short-term borrowings from Dominican banks. Primary exposure is based on
the potential of short-term interest rate variation, not on exposure to changes
in fair market value of our long-term debt. At September 30, 2002, we had $328.9
million outstanding of short-term and long-term borrowings, other than our
senior notes but including trade finance, of which $289.8 million was U.S.
dollar denominated, and the remaining $39.1 million was Dominican peso
denominated. Of the $289.8 million of U.S. dollar dominated debt, $51.1 million
was borrowed from Dominican banks, $55.5 million was commercial paper
outstanding issued in Dominican markets, while the remaining $183.1 million was
borrowed from international banks, including branches in the Dominican Republic.
Of the total $328.9 million outstanding, $305.2 million had fixed interest
rates, while the remaining $23.7 million had variable interest rates. At
September 30, 2002, our short-term and long-term U.S. dollar denominated
borrowings and commercial paper bore interest at rates ranging from 4.62% per
annum to 14.93% per annum. At September 30, 2002, our short-term and long-term
Dominican peso denominated borrowings and commercial paper bore interest at
rates ranging from 15% per annum to 32% per annum. A 10% increase in the average
rate for our variable rate debt would have increased our loss for the nine
months ended September 30, 2002 by approximately $1.8 million.
FOREIGN EXCHANGE RISKS
We are subject to currency exchange risks. During the first nine months of
2002, we generated revenues of $65.2 million in U.S. dollars and $131.2 million
in Dominican pesos. In addition, at September 30, 2002, we had $289.8 million of
U.S. dollar-denominated debt outstanding, excluding the $200.0 million principal
amount of the 11?% senior notes due 2004.
The impact of changes in foreign exchange rates is determined by measuring
the effect of percentage changes in the range of rates during the year for our
Dominican peso denominated assets and liabilities. The model reflects the
weighted average change in exchange rates as resulting in the same percentage
change in foreign exchange gains or losses.
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 regulations now provide that the official
exchange rate fluctuates and will be tied to the private market rate, the
official exchange rate tends to be lower than the private market rate. During
the first nine months of 2002, the average official exchange buying rate was
RD$17.41 per $1.00 while the average private market rate was RD$17.87 per $1.00.
For most of 2002, the Central Bank has maintained the average official exchange
buying rate at RD$17.56 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.
23
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dollar. During the first nine months of 2002, we recognized an approximate
$702,000 foreign exchange gain. If the Dominican peso had devalued by an
additional 10% against the U.S. dollar on average in the nine months ended
September 30, 2002, then we would have realized an additional foreign exchange
gain of approximately $70,200.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
DOMINICAN TAX ASSESSMENT
In June 2002, we received notice from the Dominican Tax Service claiming
that we owed additional amounts in respect of taxes in lieu of income taxes for
the period from January 1, 1999 through June 30, 2001 (the last day through
which Dominican tax authorities have audited our tax payments) and for
withholding tax on our investment in our wholly-owned subsidiary, TRICOM
Latinoamerica and on certain other payments.
The Service claims that we miscalculated the tax in lieu of income tax
payable under our concession agreement. Pursuant to the concession agreement, we
had the obligation to pay, within the first ten days of each month (1) 10% of
gross domestic revenues collected by us during the preceding month for telephone
services, telegraph services, paging services, cellular services, local,
national and international call services, as well as for any data transmission
or broadcast services and other related telecommunications services minus access
charges paid to other carriers for interconnection and (2) 10% of net settlement
revenues collected from foreign correspondent carriers for the use of our
network for termination of international long distance calls. The service claims
that this tax was required to be calculated based upon accrued revenues not
collections and seeks RD$98.8 million ($5.3 million), plus penalties and
interest. Beginning September 1, 2002, in accordance with Presidential Decree
No. 405-02, we no longer pay taxes in lieu of income tax but will pay the tax
imposed on all Dominican corporations.
The Service also claims that we were required to withhold and pay to the
tax service 25% of the amount of our investment in TRICOM Latinoamerica,
approximately $35 million. The 25% withholding tax generally applies to payments
from Dominican source income for services to non-Dominican vendors and to
certain dividends. The Service seeks RD$168.1 million ($9.0 million), plus
penalties and interest, with respect to this claim.
We contested the notice with the Service, answering that we fully complied
with our concession agreement in calculating the tax based on collections rather
than accrued revenues and that there is no required withholding tax on
investments in a wholly owned subsidiary. On August 27, 2002, the Service
rejected substantially all of our response and calculated our aggregate
liability on the two claims, including penalties and interest, as RD$668.3
million ($35.5 million). However, the Service agreed to drop claims for
withholding tax on other payments to non Dominican service providers. Through
December 2000, Dominican tax law imposed penalties for delinquent tax payments
equal to 25% of such delinquent payments for the first month and 5% of the
payments for each additional month in which payment is not made. In January
2001, the penalties were reduced to 10% for the first month and 4% for each
additional month. Interest on delinquent payments accrues at the rate of 2.58%
per month. Penalties cease to accrue on the date of notice from the Service.
Interest continues to accrue until the delinquent tax is paid or the claim is
resolved.
We appealed the Tax Service determination to the Ministry of Finance and
both we and the Tax Service have the right to appeal any determination by the
Ministry of Finance to the tax courts. We believe that we have complied with our
tax obligations and do not believe that we will be required to pay a substantial
amount in assessments, penalties and interest.
Except as previously reported, 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.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K
(a) Exhibits.
None.
(b) Reports on Form 6-K. The Company filed with the Securities and
Exchange Commission Reports on Form 6-K on August 21, 2002 reporting
the Company's results of operations for the three months ended June
30, 2002.
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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: December 18, 2002 By: /s/ Carl Carlson
----------------
Carl Carlson
Executive Vice President
and Member of the
Office of the President
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