- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q (Mark One) [X]Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2000 or [_]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . ---------------- Commission File number: 000-27901 TeleCorp Wireless, Inc. (Exact name of registrant as specified in its charter) Delaware TeleCorp PCS, Inc. 54-1988007 (State or other jurisdiction of (Former Name or Former Address, (I.R.S. Employer of incorporation or organization) if Changed Since Last Report) Identification No.) and the following former subsidiary: Commission file number: 333-36154 TeleCorp PCS, Inc. (Exact name of registrant as specified in its charter) Delaware TeleCorp-Tritel Holding Company 54-1872248 (State or other jurisdiction of (Former Name or Former Address, I.R.S. Employer incorporation or organization) if Changed Since Last Report) Identification No.) and the following subsidiary of Telecorp Wireless, Inc.: Commission file number: 333-43596 TeleCorp Communications, Inc. (Exact name of registrant as specified in its charter) Delaware 52-2105807 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1010 N. Glebe Road, Suite 800 Arlington, VA 22201 (703) 236-1100 (Address of principal executive offices) ---------------- The former name of TeleCorp Wireless, Inc. was TeleCorp PCS, Inc. The former name of TeleCorp PCS, Inc. was TeleCorp-Tritel Holding Company. For the quarterly period ended September 30, 2000, TeleCorp PCS, Inc. was a wholly- owned subsidiary of TeleCorp Wireless, Inc. Currently, TeleCorp Wireless, Inc. is a wholly-owned subsidiary of TeleCorp PCS, Inc. The Registrants meet the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes [X] No [_] . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 9, 2000, the outstanding shares of each class of Telecorp Wireless, Inc. common stock are as follows: Class A Common Stock, $.01 par value per share................. 87,778,618 Class C Common Stock, $.01 par value per share................. 283,813 Class D Common Stock, $.01 par value per share................. 851,429 Voting Preference Common Stock, $.01 par value per share....... 3,090 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Index Page ---- PART I Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000 (unaudited)................................ 1 Consolidated Statements of Operations for the three months ended September 30, 1999 (unaudited) and 2000 (unaudited) and for the nine months ended September 30, 1999 and 2000 (unaudited)................................................... 2 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 2000 (unaudited)....................... 3 Notes to Consolidated Financial Statements..................... 4 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations..................................... 22 Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 28 PART II Other Information Item 6. Exhibits....................................................... 30 i Part I--Financial Information Item 1. Financial Statements TELECORP WIRELESS, INC. CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share data) December 31, September 30, 1999 2000 ------------ ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents......................... $ 182,330 $ 317,503 Short-term investments............................ -- 127,464 Accounts receivable, net.......................... 23,581 48,871 Inventory......................................... 15,802 15,856 Prepaid expenses and other current assets......... 3,828 6,817 --------- ----------- Total current assets............................ 225,541 516,511 Property and equipment, net......................... 400,450 641,585 PCS licenses and microwave relocation costs, net.... 267,682 276,124 Intangible assets--AT&T agreements, net............. 37,908 32,542 Deferred financing costs, net....................... 19,577 32,044 Other assets........................................ 1,044 34,780 --------- ----------- Total assets.................................... $ 952,202 $ 1,533,586 ========= =========== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.................................. $ 38,903 $ 40,379 Accrued expenses.................................. 51,977 134,154 Long-term debt, current portion................... 1,361 31,093 Microwave relocation obligation, current portion.. 36,122 21,025 Accrued interest.................................. 1,387 12,745 Deferred revenue.................................. 1,709 2,231 --------- ----------- Total current liabilities....................... 131,459 241,627 Long-term debt...................................... 639,210 1,224,769 Microwave relocation obligation..................... 2,365 16,576 Accrued expenses and other liabilities.............. 6,541 13,136 --------- ----------- Total liabilities............................... 779,575 1,496,108 --------- ----------- Mandatorily redeemable preferred stock, issued 382,539 and 383,339 shares, respectively; and outstanding, 382,539 and 383,173 shares, respectively, (liquidation preference $412,390 as of September 30, 2000, unaudited).................. 360,182 384,421 Preferred stock subscriptions receivable............ (97,001) (59,542) --------- ----------- Total mandatorily redeemable preferred stock, net............................................ 263,181 324,879 --------- ----------- Commitments and contingencies Stockholders' equity (deficit): Series F preferred stock, par value $.01 per share, 14,912,778 shares issued and outstanding (liquidation preference $1 as of September 30, 2000, unaudited)................................. 149 149 Common stock, par value $.01 per share issued 85,592,221 and 89,083,691 shares, respectively; and outstanding 85,592,221 and 88,979,103 shares, respectively..................................... 856 890 Additional paid-in capital........................ 267,442 304,783 Deferred compensation............................. (42,811) (29,038) Common stock subscriptions receivable............. (191) -- Accumulated other comprehensive income............ -- 1,679 Accumulated deficit............................... (315,999) (565,864) --------- ----------- Total stockholders' equity (deficit)............ (90,554) (287,401) --------- ----------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)............................... $ 952,202 $ 1,533,586 ========= =========== The accompanying notes are an integral part of these consolidated financial statements 1 TELECORP WIRELESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except per share data) For the three months For the nine months ended September 30, ended September 30, ------------------------ ----------------------- 1999 2000 1999 2000 ----------- ----------- ---------- ----------- (unaudited) (unaudited) (unaudited) Revenue: Service.................... $ 12,705 $ 64,272 $ 18,937 $ 152,328 Roaming.................... 9,455 18,307 18,942 44,458 Equipment.................. 4,673 9,312 10,322 22,562 ---------- ----------- ---------- ----------- Total revenue............ 26,833 91,891 48,201 219,348 ---------- ----------- ---------- ----------- Operating expenses: Cost of revenue............ 12,980 27,473 23,087 67,906 Operations and development (including non-cash stock compensation of $0, $302, $0 and $1,073)............ 10,427 14,043 25,925 39,578 Selling and marketing (including non-cash stock compensation of $0, $413, $0 and $972).............. 18,795 43,689 39,720 118,455 General and administrative (including non-cash stock compensation of $0, $3,214, $0 and $28,767)... 16,502 31,429 38,943 105,776 Depreciation and amortization.............. 18,308 32,387 34,799 82,770 ---------- ----------- ---------- ----------- Total operating expenses................ 77,012 149,021 162,474 414,485 ---------- ----------- ---------- ----------- Operating loss........... (50,179) (57,130) (114,273) (195,137) Other (income) expense: Interest expense........... 17,340 29,726 34,447 63,989 Interest income and other.. (1,727) (5,364) (4,645) (9,261) ---------- ----------- ---------- ----------- Net loss................. (65,792) (81,492) (144,075) (249,865) Accretion of mandatorily re- deemable preferred stock.... (7,064) (8,292) (16,960) (24,181) ---------- ----------- ---------- ----------- Net loss attributable to com- mon equity.................. $ (72,856) $ (89,784) $ (161,035) $ (274,046) ========== =========== ========== =========== Net loss attributable to common equity per share-- basic and diluted........... $ (0.88) $ (0.88) $ (2.30) $ (2.72) ========== =========== ========== =========== Weighted average common equity shares outstanding-- basic and diluted........... 82,331,434 101,532,484 70,089,141 100,789,980 ========== =========== ========== =========== The accompanying notes are an integral part of these consolidated financial statements. 2 TELECORP WIRELESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) For the nine months ended September 30, ----------------------- 1999 2000 ---------- ----------- (unaudited) Cash flows from operating activities: Net loss................................................ $ (144,075) $ (249,865) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization......................... 34,799 82,770 Non-cash compensation expense related to stock option grants and restricted stock awards................... -- 30,812 Non-cash interest expense............................. 20,995 36,510 Bad debt expense...................................... 1,022 8,482 Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable................................... (17,924) (25,290) Inventory............................................. (11,347) (54) Prepaid expenses and other current assets............. 914 (2,989) Other assets.......................................... (423) (339) Accounts payable...................................... 11,138 (12,905) Accrued expenses and other liabilities................ 16,001 21,931 Accrued interest...................................... (947) 11,358 Deferred revenue...................................... 1,133 522 ---------- ---------- Net cash used in operating activities............... (88,714) (99,057) ---------- ---------- Cash flows from investing activities: Expenditures for property and equipment................. (245,528) (234,058) Expenditures for property and equipment; Black Label Wireless, Inc. ........................................ -- (15,752) Purchase of short-term investments...................... -- (130,740) Proceeds from the sale of short-term investments........ -- 5,001 Expenditures for acquisition of PCS licenses; Black Label Wireless, Inc. .................................. -- (12,166) Capitalized interest on network under development and PCS licenses........................................... (4,478) (2,712) Expenditures for microwave relocation................... (5,679) (5,398) Purchase of PCS licenses................................ (72,390) (733) Deposit on PCS licenses................................. (43,647) (12,368) Partial refund of deposit on PCS licenses............... 11,361 9,607 Purchase of intangibles--AT&T agreements................ (16,145) -- Capitalized Tritel acquisition costs.................... -- (10,214) ---------- ---------- Net cash used in investing activities............... (376,506) (409,533) ---------- ---------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock.................................................. 64,521 -- Receipt of preferred stock subscriptions receivable..... 3,740 37,650 Direct issuance costs from sale of mandatorily redeemable preferred stock............................. (2,500) -- Proceeds from sale of common stock and series F preferred stock........................................ 21,724 41,869 Proceeds from long-term debt............................ 397,635 550,000 Proceeds from long-term debt; Black Label Wireless, Inc. ........................................ -- 29,422 Payments of deferred financing costs.................... (10,999) (14,159) Payments on long term debt.............................. (40,224) (1,019) ---------- ---------- Net cash provided by financing activities........... 433,897 643,763 ---------- ---------- Net (decrease) increase in cash and cash equivalents...... (31,323) 135,173 Cash and cash equivalents at the beginning of period...... 111,733 182,330 ---------- ---------- Cash and cash equivalents at the end of period............ $ 80,410 $ 317,503 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 3 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) 1. Organization and Business TeleCorp Holding Corp., Inc. was incorporated in the State of Delaware on July 29, 1996 (date of inception). TeleCorp Holding Corp., Inc. was formed to participate in the Federal Communications Commission's (FCC) Auction of F-Block Personal Communications Services licenses in April 1997. TeleCorp Holding Corp., Inc. successfully obtained licenses in the New Orleans, Memphis, Beaumont and Little Rock Basic Trading Areas (BTAs). TeleCorp Holding Corp., Inc. qualified as a Designated Entity and Very Small Business under Part 24 of the rules of the FCC applicable to broadband PCS. TeleCorp PCS, Inc. was incorporated in the State of Delaware on November 14, 1997 by the controlling stockholders of TeleCorp Holding Corp., Inc. Upon completion of the 1998 AT&T transaction, TeleCorp Holding Corp., Inc. became a wholly-owned subsidiary of TeleCorp PCS, Inc. The Company is the largest AT&T Wireless PCS, LLC (AT&T Wireless) affiliate in the United States, in terms of licensed population, with licenses covering markets where approximately 17 million people reside. The Company provides wireless personal communication services, or PCS, in selected markets in the south-central and northeast United States and in Puerto Rico, encompassing eight of the 100 largest metropolitan areas in the United States. Under the terms of the strategic alliance with AT&T Wireless and certain of its affiliates (collectively, AT&T), the Company is AT&T's exclusive provider of wireless mobility services in its licensed markets, using equal emphasis co- branding with AT&T subject to AT&T's right to resell services on the Company's network. The Company has the right to use the AT&T brand name and logo together with the SunCom brand name and logo, giving equal emphasis to each in its covered markets. The Company is AT&T's preferred roaming partner for digital customers in the Company's markets. Additionally, the Company's relationship with AT&T Wireless and AT&T Wireless' roaming partners provides coast-to-coast coverage to its customers. 2. Merger with Tritel, Inc. In anticipation of the merger of TeleCorp PCS, Inc. and Tritel, Inc. (Tritel), a new holding company, TeleCorp-Tritel Holding Company (Holding Company), was formed in accordance with that certain Agreement and Plan of Reorganization and Contribution, as amended, dated as of February 28, 2000, among TeleCorp PCS, Inc., Tritel and AT&T Wireless Services, Inc (see Note 14). The merger was consummated on November 13, 2000. Each of TeleCorp PCS, Inc. and Tritel merged with newly formed subsidiaries of Holding Company. Holding Company was renamed TeleCorp PCS, Inc. and the newly formed subsidiary formerly known as TeleCorp PCS, Inc. was renamed TeleCorp Wireless, Inc. TeleCorp Wireless Inc. is hereafter referred to as the Company. 3. Black Label Wireless, Inc. On July 14, 2000, Black Label Wireless, Inc. (Black Label), a company wholly owned by Messrs. Sullivan and Vento, entered into a credit agreement with Lucent Technologies, Inc. (Lucent), under which Lucent agreed to lend Black Label up to $175,000. Black Label intends to use the proceeds of loans under the credit agreement to develop the network related to the licenses being acquired by the Company in the contribution and the exchange agreement with AT&T Wireless (see Note 14). Upon consummation of the merger, Black Label intends to transfer its assets to the Company and the Company intends to satisfy Black Label's indebtedness to Lucent. Black Label is considered by the Company to be a special purpose entity and the Company has included all of Black Label's activities in its consolidated financial statements. The obligations under the Black Label credit agreement must be repaid by July 14, 2001. Additionally, if the obligations under the credit agreement are assumed by the Company, the commitments under credit agreement shall immediately terminate and all obligations due under the credit agreement shall immediately become due and payable. 4 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 4. Basis of Presentation Unaudited Interim Financial Information The accompanying unaudited consolidated financial statements and related footnotes have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods. Operating results for the three and nine months ended September 30, 2000 are not necessarily indicative of results that may be expected for the year ending December 31, 2000. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries and special purposes entity acting on the Company's behalf. All significant inter-company accounts and transactions have been eliminated in consolidation. Short-term Investments Short-term investments consist of high grade commercial paper with original maturities greater than three months but less than one year. Management determines the appropriate classification of its investments at the time of purchase. Investments for which the Company does not have the intent or ability to hold to maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income in stockholders' equity. Cost of securities sold is determined on a specific identification basis. 5. Accounts Receivable Accounts receivable consists of the following: December 31, September 30, 1999 2000 ------------ ------------- (unaudited) Accounts receivable............................... $26,203 $51,799 Allowance for doubtful accounts................... (2,622) (2,928) ------- ------- $23,581 $48,871 ======= ======= 6. Inventory Inventory consists of the following: December 31, September 30, 1999 2000 ------------ ------------- (unaudited) Handsets.......................................... $15,090 $14,538 Accessories....................................... 712 1,318 ------- ------- $15,802 $15,856 ======= ======= 5 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) ($ IN THOUSANDS) 7. PROPERTY AND EQUIPMENT Property and equipment consists of the following: DECEMBER 31, SEPTEMBER 30, 1999 2000 ------------ ------------- (UNAUDITED) Wireless network........ $364,491 $604,479 Network under development............ 21,758 71,214 Computer equipment...... 16,888 25,051 Internal use software... 21,648 27,274 Leasehold improvements.. 12,011 17,207 Furniture, fixtures, office equipment and other.................. 10,904 16,761 -------- -------- 447,700 761,986 Accumulated depreciation........... (47,250) (120,401) -------- -------- $400,450 $641,585 ======== ======== Depreciation expense for the three months ended September 30, 1999 and 2000 was $15,938 and $29,075, respectively. Depreciation expense for the nine months ended September 30, 1999 and 2000 was $29,179 and $73,151, respectively. 8. LONG-TERM DEBT Long-term debt consists of the following: DECEMBER 31, SEPTEMBER 30, 1999 2000 ------------ ------------- (UNAUDITED) Senior subordinated notes........................ $ -- $ 450,000 Senior subordinated discount notes............... 354,291 385,510 Senior credit facilities......................... 225,000 325,000 Lucent notes payable............................. 43,504 46,584 Black Label Wireless, Inc. credit agreement...... -- 29,657 U.S. Government financing........................ 17,776 19,111 -------- ---------- 640,571 1,255,862 Less: current portion............................ 1,361 31,093 -------- ---------- $639,210 $1,224,769 ======== ========== Senior Credit Facility On June 5, 2000, the Company borrowed $65,000 on the Tranche A term loan. On July 14, 2000, the Company borrowed $35,000 on the Tranche A term loan. The total principal outstanding on the Tranche A term loan was $100,000 as of September 30, 2000. Interest on the Tranche A loan was 8.84% at September 30, 2000. Senior Subordinated Notes On July 14, 2000, the Company completed the issuance and sale of 10 5/8% Senior Subordinated Notes (Subordinated Notes) with an aggregate principal amount of $450,000. The Subordinated Notes mature July 15, 2010 and the Company is required to pay interest semi-annually beginning on January 15, 2001. Offering expenses consisting of underwriting, printing, legal and accounting fees totaled approximately $13,000 which have been recorded as deferred finance costs and will be amortized over the life of the Subordinated Notes. 6 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) The Subordinated Notes are subject to optional redemption, allowing the Company on or after July 15, 2005, to redeem some or all of the Subordinated Notes together with accrued and unpaid interest at redemption prices. The Company also has the option until July 15, 2003, to redeem up to 35% of the original aggregate principal amount of these notes with the net proceeds of certain types of qualified equity offerings at a redemption price equal to 110.625% of the principal amount as long as at least 65% of the original aggregate principal amount of the notes remains outstanding immediately after redemption. If the Company experiences a change of control at any time on or prior to July 15, 2005, the Company has the option to redeem all of the Subordinated Notes at par plus a premium. If the Company has not previously redeemed the Subordinated Notes and if the Company experiences a change in control after July 15, 2005, the note holders may require the Company to make an offer to repurchase all of the Subordinated Notes, at a price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. The Company is required to comply with certain financial covenants outlined in the indenture agreement. The Subordinated Notes are not collateralized. The Subordinated Notes are subordinate to all of the Company's existing and future senior debt, rank equally with all existing senior subordinated debt and rank senior to all existing and future subordinated debt. The Subordinated Notes are guaranteed by the Company's wholly owned subsidiary, TeleCorp Communications, Inc. Lucent Senior Subordinated Notes On July 14, 2000, TeleCorp PCS, Inc. (formerly TeleCorp-Tritel Holding Company or Holding Company) entered into a commitment letter with Lucent. Under the terms of the commitment letter, Lucent agreed that following the merger of the Company and Tritel with subsidiaries of TeleCorp PCS, Inc., Lucent will purchase from TeleCorp PCS, Inc., should TeleCorp PCS, Inc. issue, senior subordinated discount notes (Lucent Notes) with gross proceeds up to $350,000. The gross proceeds borrowed on the Lucent Notes plus any amount outstanding under the Black Label Wireless, Inc. Credit Agreement (see below) cannot at any time exceed $350,000. If issued, the Lucent Notes will mature 10 years from the date of issuance, unless previously redeemed by TeleCorp PCS, Inc. As interest accrues, it will be added to the principal as an increase to interest expense and to the carrying value of the notes for five years from the date of issuance. After five years, interest on the Lucent Notes will become payable semi-annually. The Lucent Notes will not be collaterized. The Lucent Notes would be senior subordinated unsecured obligations of TeleCorp PCS, Inc., ranking equivalent in right of payment to all of the TeleCorp PCS, Inc.'s future senior subordinated debt. The Lucent Notes would be subordinate in right of payment to any future senior debt incurred by TeleCorp PCS, Inc. or its guarantor subsidiaries but senior in right of payment to any future subordinated debt incurred by TeleCorp PCS, Inc. or any of its guarantor subsidiaries. Black Label Wireless, Inc. Credit Agreement On July 14, 2000, Black Label, a company wholly owned by Messrs. Sullivan and Vento, entered into a credit agreement with Lucent, under which Lucent agreed to lend Black Label up to $175,000. Black Label intends to use the proceeds of loans under the credit agreement to develop the network related to the licenses being acquired by the Company in the contribution and the exchange agreements (see Note 14). The obligations under the Black Label credit agreement must be repaid by July 14, 2001. Additionally, if the obligations under the credit agreement are assumed by the Company, the commitments under the credit agreement shall immediately terminate and all obligations due under the credit agreement shall immediately become due and payable. 7 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) As of September 30, 2000, $29,657 was included in current portion of long- term debt related to the Black Label credit agreement including $235 of accrued interest. Interest accrues at a weighted average rate based on LIBOR plus 2% on the date each tranche is drawn. The weighted average interest rate was 8.62% at September 30, 2000. 9. Preferred Stock Subscriptions Receivable On July 17, 2000, the Company received $37,650 from certain of its initial institutional investors related to the preferred stock subscriptions receivable. 10. Concurrent Offering In an offering concurrent with the Company's initial public offering, the Company issued 2,245,000 shares of Class A common stock to AT&T Wireless Services, Inc. (AT&T Wireless) for $18.65 per share. The Company's proceeds for the concurrent offering of $41,869 were received on January 18, 2000. 11. Acquisitions On April 7, 2000, the Company completed its acquisition of TeleCorp LMDS, Inc. (TeleCorp LMDS) through an exchange of all of the outstanding stock of TeleCorp LMDS for 878,400 shares of the Company's Class A common stock valued at $45,896 on the closing date. TeleCorp LMDS had no operations and its only assets were local multipoint distribution service licenses. By acquiring TeleCorp LMDS, TeleCorp gained local multipoint distribution service licenses covering 1100 MHz of airwaves in the Little Rock, Arkansas basic trading area and 150 MHz of airwaves in each of the Beaumont, Texas; New Orleans, Louisiana; San Juan and Mayaguez, Puerto Rico; and U.S. Virgin Islands basic trading areas. TeleCorp LMDS's stockholders were Mr. Vento, Mr. Sullivan and three of the Company's initial investors. As Mr. Vento and Mr. Sullivan have voting control of the Company and TeleCorp LMDS, the acquisition was accounted for as an acquisition between companies under common control and recorded at historical cost. The licenses acquired have been recorded by the Company at $2,707, which represents the historical cost of TeleCorp LMDS. On April 11, 2000, the Company completed its acquisition of the 15% of Viper Wireless, Inc. (Viper Wireless) that it did not already own from Mr. Vento and Mr. Sullivan in exchange for an aggregate of 323,372 shares of the Company's Class A common stock and 800 shares of its Series E preferred stock. The Company acquired 85% of Viper Wireless on March 1, 1999 in exchange for $32,286 contributed by AT&T and certain of the Company's other initial investors for additional shares of the Company's preferred and common stock. Viper Wireless used the proceeds to participate in the Federal Communications Commission's reauction of PCS licenses. Viper Wireless was granted six PCS licenses in the reauction. In connection with the completion of the acquisition, the Company recognized compensation expense of $15,297 based on the fair value of the Class A common stock and Series E mandatorily redeemable preferred stock at the closing date. On April 27, 2000, the Company completed its acquisition of 15 MHz PCS licenses in the Lake Charles, Louisiana basic trading area from Gulf Telecom, LLC (Gulf Telecom). As consideration for the PCS licenses, the Company paid Gulf Telecom $262 in cash, assumed approximately $2,433, less a discount of $401, in Federal Communications Commission debt related to the license and reimbursed Gulf Telecom $471 for interest it paid to the Federal Communications Commission on the debt related to the license from June 1998 through March 2000. The entire purchase price has been allocated to the acquired licenses. On May 10, 2000, the Company was notified by the FCC that it was the high bidder on certain FCC licenses offered in the FCC's 39 GHz Band Auction. As consideration for the licenses, the Company paid the FCC $12,368. Each of the licenses purchased exists within areas where the Company and Tritel currently hold licenses or where the Company will hold licenses after the completion of the contribution and exchange with AT&T Wireless. 8 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 12. TeleCorp PCS, Inc. (formerly known as Telecorp-Tritel Holding Company) TeleCorp PCS, Inc. was formed on April 28, 2000 in connection with the Tritel merger with the Company and the AT&T exchange and contribution. Prior to the consummation of the merger on November 13, 2000 TeleCorp PCS, Inc. was a wholly-owned subsidiary of the Company. To date, TeleCorp PCS, Inc. has not conducted any activities other than those incident to its formation. The business of TeleCorp PCS, Inc. will be the combined businesses currently conducted by the Company and Tritel. Summarized financial statements of TeleCorp PCS, Inc. as of September 30, 2000 are as follows: TELECORP PCS, INC. BALANCE SHEET ($ in thousands, excepts per share data) September 30, 2000 ------------------ ASSETS Total current assets......................................... $ -- --------- Total assets................................................. -- ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Total current liabilities.................................... -- --------- Total liabilities............................................ -- --------- Stockholders equity (deficit): Common stock, par value $.01 per share 1,000 shares authorized, issued and outstanding........................ -- Total stockholders' equity (deficit)......................... -- --------- Total liabilities and stockholders' equity (deficit)......... $ -- ========= TELECORP PCS, INC. STATEMENTS OF OPERATIONS For the period For the three April 28, 2000 months ended, (date of inception) September 30, 2000 to September 30, 2000 ------------------ --------------------- Total revenue.......................... $ -- $ -- --------- ---------- Total operating expenses............... -- -- --------- ---------- Operating loss......................... -- -- --------- ---------- Net loss............................... $ -- $ -- ========= ========== 9 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) TELECORP PCS, INC. STATEMENT OF CASH FLOWS For the period April 28, 2000 (date of inception) to September 30, 2000 --------------------- Net cash used in operating activities.................... $ -- --------- Net cash used in investing activities.................... -- --------- Net cash used in financing activities.................... -- --------- Cash and cash equivalents at the beginning of period..... -- --------- Cash and cash equivalents at the end of period........... $ -- ========= 13. Subsidiary Guarantee On April 23, 1999, the Company completed the issuance and sale of 11 5/8% Senior Subordinated Discount Notes. The Notes are fully and unconditionally guaranteed on a joint and several basis by TeleCorp Communications, Inc. (TCI), one of the Company's wholly-owned subsidiaries. On July 14, 2000, the Company completed the issuance and sale of the 10 5/8% Subordinated Notes. The Subordinated Notes are fully and unconditionally guaranteed on a joint and several basis by TCI. Consolidating financial statements of TeleCorp Wireless, Inc., TCI, the guarantor, the non-guarantor subsidiaries of TCI, non-guarantor subsidiaries of TeleCorp Wireless, Inc. and Black Label as of December 31, 1999 and September 30, 2000 and for the three and nine months ended September 30, 1999 and 2000 have been included on the following pages. The special purpose entity, Black Label, and all its activities are presented separately in the following consolidating financial statements. Certain amounts in the 1999 consolidating financial statements have been reclassified to conform with the presentations of the consolidating financial statements as of September 30, 2000 and for the three and nine months ended September 30, 2000. These reclassifications are eliminated upon consolidation and do not impact the Company's consolidated financial statements. 10 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Balance Sheet as of December 31, 1999: TeleCorp Communications, Inc. --------------------------------------------------- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated -------------- ---------- ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents..... $ 182,330 $ -- $ -- $ -- $ -- Short-term investments..... -- -- -- -- -- Accounts receivable, net............. -- 23,581 -- -- 23,581 Inventory....... -- 15,802 -- -- 15,802 Prepaid expenses and other current assets.. -- 1,608 2,220 -- 3,828 ----------- --------- --------- -------- --------- Total current assets.......... 182,330 40,991 2,220 -- 43,211 Property and equipment, net... -- 182,235 218,215 -- 400,450 PCS licenses and microwave relocation costs, net.............. -- -- -- -- -- Intangible assets--AT&T agreements, net.. 37,908 -- -- -- -- Deferred financing costs, net.............. 19,577 -- -- -- -- Other assets..... -- 1,044 -- -- 1,044 Intercompany receivables...... 858,279 -- 42,970 (42,970) -- ----------- --------- --------- -------- --------- Total assets.... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705 =========== ========= ========= ======== ========= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable......... $ -- $ 12,318 $ 26,585 $ -- $ 38,903 Accrued expenses........ -- 48,960 3,017 -- 51,977 Long-term debt, current portion......... -- -- -- -- -- Microwave relocation obligation, current portion......... -- -- -- -- -- Accrued interest........ 521 -- -- -- -- Deferred revenue......... -- 1,709 -- -- 1,709 ----------- --------- --------- -------- --------- Total current liabilities..... 521 62,987 29,602 -- 92,589 Long-term debt... 622,795 -- -- -- -- Microwave relocation obligation....... -- -- -- -- -- Accrued expenses and other liabilities...... -- -- 6,541 -- 6,541 Intercompany payables......... -- 463,434 227,262 (42,970) 647,726 ----------- --------- --------- -------- --------- Total liabilities..... 623,316 526,421 263,405 (42,970) 746,856 ----------- --------- --------- -------- --------- Mandatorily redeemable preferred stock.. 360,182 -- -- -- -- Preferred stock subscriptions receivable....... (97,001) -- -- -- -- ----------- --------- --------- -------- --------- Total mandatorily redeemable preferred stock, net............. 263,181 -- -- -- -- ----------- --------- --------- -------- --------- Commitments and contingencies TeleCorp Wireless, Inc. ---------------------------------------------- Non-Guarantor Black Subsidiaries Label Eliminations Consolidated ------------- ------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents..... $ -- $ -- $ -- $ 182,330 Short-term investments..... -- -- -- -- Accounts receivable, net............. -- -- -- 23,581 Inventory....... -- -- -- 15,802 Prepaid expenses and other current assets.. -- -- -- 3,828 ------------- ------ ------------ ------------ Total current assets.......... -- -- -- 225,541 Property and equipment, net... -- -- -- 400,450 PCS licenses and microwave relocation costs, net.............. 267,682 -- -- 267,682 Intangible assets--AT&T agreements, net.. -- -- -- 37,908 Deferred financing costs, net.............. -- -- -- 19,577 Other assets..... -- -- -- 1,044 Intercompany receivables...... 5,702 -- (863,981) -- ------------- ------ ------------ ------------ Total assets.... $273,384 $ -- $(863,981) $ 952,202 ============= ====== ============ ============ LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable......... $ -- $ -- $ -- $ 38,903 Accrued expenses........ -- -- -- 51,977 Long-term debt, current portion......... 1,361 -- -- 1,361 Microwave relocation obligation, current portion......... 36,122 -- -- 36,122 Accrued interest........ 866 -- -- 1,387 Deferred revenue......... -- -- -- 1,709 ------------- ------ ------------ ------------ Total current liabilities..... 38,349 -- -- 131,459 Long-term debt... 16,415 -- -- 639,210 Microwave relocation obligation....... 2,365 -- -- 2,365 Accrued expenses and other liabilities...... -- -- -- 6,541 Intercompany payables......... 216,255 -- (863,981) -- ------------- ------ ------------ ------------ Total liabilities..... 273,384 -- (863,981) 779,575 ------------- ------ ------------ ------------ Mandatorily redeemable preferred stock.. -- -- -- 360,182 Preferred stock subscriptions receivable....... -- -- -- (97,001) ------------- ------ ------------ ------------ Total mandatorily redeemable preferred stock, net............. -- -- -- 263,181 ------------- ------ ------------ ------------ Commitments and contingencies Stockholders' equity (deficit): Series F preferred stock........... 149 -- -- -- -- Common stock.... 856 -- -- -- -- Additional paid- in capital...... 267,442 -- -- -- -- Deferred compensation.... (42,811) -- -- -- -- Common stock subscriptions receivable...... (191) -- -- -- -- Accumulated other comprehensive income.......... -- -- -- -- -- Accumulated deficit......... (13,848) (302,151) -- -- (302,151) ----------- --------- --------- -------- --------- Total stockholders' equity (deficit)....... 211,597 (302,151) -- -- (302,151) ----------- --------- --------- -------- --------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)....... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705 =========== ========= ========= ======== ========= Stockholders' equity (deficit): Series F preferred stock........... -- -- -- 149 Common stock.... -- -- -- 856 Additional paid- in capital...... -- -- -- 267,442 Deferred compensation.... -- -- -- (42,811) Common stock subscriptions receivable...... -- -- -- (191) Accumulated other comprehensive income.......... -- -- -- -- Accumulated deficit......... -- -- -- (315,999) ------------- ------ ------------ ------------ Total stockholders' equity (deficit)....... -- -- -- (90,554) ------------- ------ ------------ ------------ Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)....... $273,384 $ -- $(863,981) $ 952,202 ============= ====== ============ ============ 11 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Balance Sheet as of September 30, 2000 (unaudited): TeleCorp Communications, Inc. -------------------------------------------------- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated -------------- ---------- ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents.... $ 315,979 $ -- $ -- $ -- $ -- Short-term investments.... 127,464 -- -- -- -- Accounts receivable, net............ -- 48,871 -- -- 48,871 Inventory...... -- 15,856 -- -- 15,856 Prepaid expenses and other current assets......... -- 4,227 2,590 -- 6,817 ---------- -------- -------- --------- --------- Total current assets...... .. 443,443 68,954 2,590 -- 71,544 Property and equipment, net.. -- 281,557 319,383 -- 600,940 PCS licenses and microwave relocation costs, net...... -- -- -- -- -- Intangible assets--AT&T agreements, net............. 32,542 -- -- -- -- Deferred financing costs, net............. 32,044 -- -- -- -- Intercompany receivables..... 1,300,115 -- 106,233 (106,233) -- Other assets.... 618 40 725 -- 765 ---------- -------- -------- --------- --------- Total assets .. $1,808,762 $350,551 $428,931 $(106,233) $ 673,249 ========== ======== ======== ========= ========= LIABILITIES, MANDATORILY REDEEMBLEAPREFERRED STOCK AND SOCKHOLDERS'TEQUITY (DEFICIT) Current liabilities: Accounts payable........ $ -- $ 10,110 $ 8,480 $ -- $ 18,590 Accrued expenses....... -- 84,619 34,247 -- 118,866 Long-term debt, current portion........ -- -- -- -- -- Microwave relocation obligation, current portion........ -- -- -- -- -- Accrued interest....... 12,398 -- -- -- -- Deferred revenue........ -- 2,231 -- -- 2,231 ---------- -------- -------- --------- --------- Total current liabilities. .. 12,398 96,960 42,727 -- 139,687 Long-term debt.. 1,206,870 -- -- -- -- Microwave relocation obligation...... -- -- -- -- -- Intercompany payables........ -- 805,607 373,068 (106,233) 1,072,442 Accrued expenses and other liabilities..... -- -- 13,136 -- 13,136 ---------- -------- -------- --------- --------- Total liabilities. .. 1,219,268 902,567 428,931 (106,233) 1,225,265 ---------- -------- -------- --------- --------- Mandatorily redeemable preferred stock........... 384,421 -- -- -- -- Preferred stock subscriptions receivable...... (59,542) -- -- -- -- ---------- -------- -------- --------- --------- Total mandatorily redeemable preferred stock, net.. .. 324,879 -- -- -- -- ---------- -------- -------- --------- --------- Commitments and contingencies TeleCorp Wireless, Inc. ------------------------------------------------ Non-Guarantor Black Subsidiaries Label Eliminations Consolidated ------------- ------- ------------- ------------ ASSETS Current assets: Cash and cash equivalents.... $ -- $ 1,524 $ -- $ 317,503 Short-term investments.... -- -- -- 127,464 Accounts receivable, net............ -- -- -- 48,871 Inventory...... -- -- -- 15,856 Prepaid expenses and other current assets......... -- -- -- 6,817 ------------- ------- ------------- ------------ Total current assets...... .. -- 1,524 -- 516,511 Property and equipment, net.. -- 40,645 -- 641,585 PCS licenses and microwave relocation costs, net...... 276,124 -- -- 276,124 Intangible assets--AT&T agreements, net............. -- -- -- 32,542 Deferred financing costs, net............. -- -- -- 32,044 Intercompany receivables..... -- -- (1,300,115) -- Other assets.... 10,214 23,183 -- 34,780 ------------- ------- ------------- ------------ Total assets .. $286,338 $65,352 $(1,300,115) $1,533,586 ============= ======= ============= ============ LIABILITIES, MANDATORILY REDEEMBLEAPREFERRED STOCK AND SOCKHOLDERS'TEQUITY (DEFICIT) Current liabilities: Accounts payable........ $ -- $21,789 $ -- $ 40,379 Accrued expenses....... 9,894 5,394 -- 134,154 Long-term debt, current portion........ 1,436 29,657 -- 31,093 Microwave relocation obligation, current portion........ 12,513 8,512 -- 21,025 Accrued interest....... 347 -- -- 12,745 Deferred revenue........ -- -- -- 2,231 ------------- ------- ------------- ------------ Total current liabilities. .. 24,190 65,352 -- 241,627 Long-term debt.. 17,899 -- -- 1,224,769 Microwave relocation obligation...... 16,576 -- -- 16,576 Intercompany payables........ 227,673 -- (1,300,115) -- Accrued expenses and other liabilities..... -- -- -- 13,136 ------------- ------- ------------- ------------ Total liabilities. .. 286,338 65,352 (1,300,115) 1,496,108 ------------- ------- ------------- ------------ Mandatorily redeemable preferred stock........... -- -- -- 384,421 Preferred stock subscriptions receivable...... -- -- -- (59,542) ------------- ------- ------------- ------------ Total mandatorily redeemable preferred stock, net.. .. -- -- -- 324,879 ------------- ------- ------------- ------------ Commitments and contingencies Stockholders' equity (deficit): Series F preferred stock.......... 149 -- -- -- -- Common stock... 890 -- -- -- -- Additional paid-in capital........ 304,783 -- -- -- -- Deferred compensation... (29,038) -- -- -- -- Common stock subscriptions receivable..... -- -- -- -- -- Accumulated other comprehensive income......... 1,679 -- -- -- -- Accumulated deficit........ (13,848) (552,016) -- -- (552,016) ---------- -------- -------- --------- --------- Total stockholders' equity (deficit)...... 264,615 (552,016) -- -- (552,016) ---------- -------- -------- --------- --------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)...... $1,808,762 $350,551 $428,931 $(106,233) $ 673,249 ========== ======== ======== ========= ========= Stockholders' equity (deficit): Series F preferred stock.......... -- -- -- 149 Common stock... -- -- -- 890 Additional paid-in capital........ -- -- -- 304,783 Deferred compensation... -- -- -- (29,038) Common stock subscriptions receivable..... -- -- -- -- Accumulated other comprehensive income......... -- -- -- 1,679 Accumulated deficit........ -- -- -- (565,864) ------------- ------- ------------- ------------ Total stockholders' equity (deficit)...... -- -- -- (287,401) ------------- ------- ------------- ------------ Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)...... $286,338 $65,352 $(1,300,115) $1,533,586 ============= ======= ============= ============ 12 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the three months ended September 30, 1999 (unaudited): TeleCorp Communications, Inc. TeleCorp Wireless, Inc. --------------------------------------------------- --------------------------------- TeleCorp Guarantor Non-Guarantor Non-Guarantor Black Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Label Eliminations -------------- ---------- ------------- ------------ ------------ ------------- ------ ------------ Revenue: Service........... $ -- $ 12,705 $ -- $ -- $ 12,705 $ -- $ -- $ -- Roaming........... -- 9,455 -- -- 9,455 -- -- -- Equipment......... -- 4,673 -- -- 4,673 -- -- -- Intercompany...... 1,818 -- 12,830 (12,830) -- 2,072 -- (3,890) -------- --------- ------ ------- --------- ----- ------ ------- Total revenue... 1,818 26,833 12,830 (12,830) 26,833 2,072 -- (3,890) -------- --------- ------ ------- --------- ----- ------ ------- Operating expenses: -- Cost of revenue... -- 29,700 -- (12,830) 16,870 -- -- (3,890) Operations and development....... -- 6,393 4,034 -- 10,427 -- -- -- Selling and marketing......... -- 18,795 -- -- 18,795 -- -- -- General and administrative.... -- 16,502 -- -- 16,502 -- -- -- Depreciation and amortization...... 1,818 6,757 8,796 -- 15,553 937 -- -- -------- --------- ------ ------- --------- ----- ------ ------- Total operating expenses........ 1,818 78,147 12,830 (12,830) 78,147 937 -- (3,890) -------- --------- ------ ------- --------- ----- ------ ------- Operating income (loss).......... -- (51,314) -- -- (51,314) 1,135 -- -- Other (income) expense: Interest expense........... 16,205 14,478 -- -- 14,478 1,135 -- (14,478) Interest income and other......... (16,205) -- -- -- -- -- -- 14,478 -------- --------- ------ ------- --------- ----- ------ ------- Net loss........ -- (65,792) -- -- (65,792) -- -- -- Accretion of mandatorily redeemable preferred stock.... (7,064) -- -- -- -- -- -- -- -------- --------- ------ ------- --------- ----- ------ ------- Net loss attributable to common equity...... $ (7,064) $ (65,792) $ -- $ -- $ (65,792) $ -- $ -- $ -- ======== ========= ====== ======= ========= ===== ====== ======= Consolidated ------------ Revenue: Service........... $ 12,705 Roaming........... 9,455 Equipment......... 4,673 Intercompany...... -- ------------ Total revenue... 26,833 ------------ Operating expenses: Cost of revenue... 12,980 Operations and development....... 10,427 Selling and marketing......... 18,795 General and administrative.... 16,502 Depreciation and amortization...... 18,308 ------------ Total operating expenses........ 77,012 ------------ Operating income (loss).......... (50,179) Other (income) expense: Interest expense........... 17,340 Interest income and other......... (1,727) ------------ Net loss........ (65,792) Accretion of mandatorily redeemable preferred stock.... (7,064) ------------ Net loss attributable to common equity...... $(72,856) ============ 13 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the three months ended September 30, 2000 (unaudited): TeleCorp Communications, Inc. -------------------------------------------------- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated -------------- ---------- ------------- ------------ ------------ Revenue: Service........... $ -- $ 64,272 $ -- $ -- $ 64,272 Roaming........... -- 18,307 -- -- 18,307 Equipment......... -- 9,312 -- -- 9,312 Intercompany...... 5,718 -- 26,325 (26,325) -- -------- -------- ------- -------- -------- Total revenue... 5,718 91,891 26,325 (26,325) 91,891 -------- -------- ------- -------- -------- Operating expenses: Cost of revenue... -- 57,313 -- (26,325) 30,988 Operations and development....... 302 7,794 6,249 -- 14,043 Selling and marketing......... 413 43,689 -- -- 43,689 General and administrative.... 3,214 31,429 -- -- 31,429 Depreciation and amortization...... 1,789 9,208 20,076 -- 29,284 -------- -------- ------- -------- -------- Total operating expenses........ 5,718 149,433 26,325 (26,325) 149,433 -------- -------- ------- -------- -------- Operating income (loss).......... -- (57,542) -- -- (57,542) Other (income) expense: Interest expense........... 29,314 23,950 -- -- 23,950 Interest income and other......... (29,314) -- -- -- -- -------- -------- ------- -------- -------- Net loss........ -- (81,492) -- -- (81,492) Accretion of mandatorily redeemable preferred stock.... (8,292) -- -- -- -- -------- -------- ------- -------- -------- Net loss attributable to common equity...... $ (8,292) $(81,492) $ -- $ -- $(81,492) ======== ======== ======= ======== ======== TeleCorp Wireless, Inc. ---------------------------------------------- Non-Guarantor Black Subsidiaries Label Eliminations Consolidated ------------- ------ ------------ ------------ Revenue: Service........... $ -- $ -- $ -- $ 64,272 Roaming........... -- -- -- 18,307 Equipment......... -- -- -- 9,312 Intercompany...... 1,726 -- (7,444) -- ------------- ------ ------------ ------------ Total revenue... 1,726 -- (7,444) 91,891 ------------- ------ ------------ ------------ Operating expenses: Cost of revenue... -- -- (3,515) 27,473 Operations and development....... -- -- (302) 14,043 Selling and marketing......... -- -- (413) 43,689 General and administrative.... -- -- (3,214) 31,429 Depreciation and amortization...... 1,314 -- -- 32,387 ------------- ------ ------------ ------------ Total operating expenses........ 1,314 -- (7,444) 149,021 ------------- ------ ------------ ------------ Operating income (loss).......... 412 -- -- (57,130) Other (income) expense: Interest expense........... 412 -- (23,950) 29,726 Interest income and other......... -- -- 23,950 (5,364) ------------- ------ ------------ ------------ Net loss........ -- -- -- (81,492) Accretion of mandatorily redeemable preferred stock.... -- -- -- (8,292) ------------- ------ ------------ ------------ Net loss attributable to common equity...... $ -- $ -- $ -- $(89,784) ============= ====== ============ ============ 14 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the nine months ended September 30, 1999 (unaudited): TeleCorp Communications, Inc. TeleCorp Wireless, Inc. --------------------------------------------------- --------------------------------- TeleCorp Guarantor Non-Guarantor Non-Guarantor Black Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Label Eliminations -------------- ---------- ------------- ------------ ------------ ------------- ------ ------------ Revenue: Service........... $ -- $ 18,937 $ -- $ -- $ 18,937 $ -- $ -- $ -- Roaming........... -- 18,942 -- -- 18,942 -- -- -- Equipment......... -- 10,322 -- -- 10,322 -- -- -- Intercompany...... 3,899 -- 26,008 (26,008) -- 3,408 -- (7,307) -------- --------- ------- -------- --------- ------ ------ -------- Total revenue... 3,899 48,201 26,008 (26,008) 48,201 3,408 -- (7,307) -------- --------- ------- -------- --------- ------ ------ -------- Operating expenses: Cost of revenue... -- 56,402 -- (26,008) 30,394 -- -- (7,307) Operations and development...... -- 16,108 9,817 -- 25,925 -- -- -- Selling and marketing........ -- 39,720 -- -- 39,720 -- -- -- General and administrative... -- 38,943 -- -- 38,943 -- -- -- Depreciation and amortization..... 3,899 13,134 16,191 -- 29,325 1,575 -- -- -------- --------- ------- -------- --------- ------ ------ -------- Total operating expenses....... 3,899 164,307 26,008 (26,008) 164,307 1,575 -- (7,307) -------- --------- ------- -------- --------- ------ ------ -------- Operating income (loss)......... -- (116,106) -- -- (116,106) 1,833 -- -- Other (income) expense: Interest expense.. 32,614 27,969 -- -- 27,969 1,833 -- (27,969) Interest income and other........ (32,614) -- -- -- -- -- -- 27,969 -------- --------- ------- -------- --------- ------ ------ -------- Net loss........ -- (144,075) -- -- (144,075) -- -- -- Accretion of mandatorily redeemable preferred stock.... (16,960) -- -- -- -- -- -- -- -------- --------- ------- -------- --------- ------ ------ -------- Net loss attributable to common equity...... $(16,960) $(144,075) $ -- $ -- $(144,075) $ -- $ -- $ -- ======== ========= ======= ======== ========= ====== ====== ======== Consolidated ------------ Revenue: Service........... $ 18,937 Roaming........... 18,942 Equipment......... 10,322 Intercompany...... -- ------------ Total revenue... 48,201 ------------ Operating expenses: Cost of revenue... 23,087 Operations and development...... 25,925 Selling and marketing........ 39,720 General and administrative... 38,943 Depreciation and amortization..... 34,799 ------------ Total operating expenses....... 162,474 ------------ Operating income (loss)......... (114,273) Other (income) expense: Interest expense.. 34,447 Interest income and other........ (4,645) ------------ Net loss........ (144,075) Accretion of mandatorily redeemable preferred stock.... (16,960) ------------ Net loss attributable to common equity...... $(161,035) ============ 15 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the nine months ended September 30, 2000 (unaudited): TeleCorp Communications, Inc. --------------------------------------------------- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated -------------- ---------- ------------- ------------ ------------ Revenue: Service........... $ -- $ 152,328 $ -- $ -- $ 152,328 Roaming........... -- 44,458 -- -- 44,458 Equipment......... -- 22,562 -- -- 22,562 Intercompany...... 36,178 -- 63,273 (63,273) -- -------- --------- ------ -------- --------- Total revenue... 36,178 219,348 63,273 (63,273) 219,348 -------- --------- ------ -------- --------- Operating expenses: Cost of revenue... -- 141,655 -- (63,273) 78,382 Operations and development...... 1,073 21,520 18,058 -- 39,578 Selling and marketing........ 972 118,455 -- -- 118,455 General and administrative... 28,767 105,776 -- -- 105,776 Depreciation and amortization..... 5,366 28,734 45,215 -- 73,949 -------- --------- ------ -------- --------- Total operating expenses....... 36,178 416,140 63,273 (63,273) 416,140 -------- --------- ------ -------- --------- Operating income (loss)......... -- (196,792) -- -- (196,792) Other (income) expense: Interest expense.. 62,334 53,073 -- -- 53,073 Interest income and other........ (62,334) -- -- -- -- -------- --------- ------ -------- --------- Net loss........ -- (249,865) -- -- (249,865) Accretion of mandatorily redeemable preferred stock.... (24,181) -- -- -- -- -------- --------- ------ -------- --------- Net loss attributable to common equity...... $(24,181) $(249,865) $ -- $ -- $(249,865) ======== ========= ====== ======== ========= TeleCorp Wireless, Inc. ---------------------------------------------- Non-Guarantor Black Subsidiaries Label Eliminations Consolidated ------------- ------ ------------ ------------ Revenue: Service........... $ -- $ -- $ -- $ 152,328 Roaming........... -- -- -- 44,458 Equipment......... -- -- -- 22,562 Intercompany...... 5,110 -- (41,288) -- ------------- ------ ------------ ------------ Total revenue... 5,110 -- (41,288) 219,348 ------------- ------ ------------ ------------ Operating expenses: Cost of revenue... -- -- (10,476) 67,906 Operations and development...... -- -- (1,073) 39,578 Selling and marketing........ -- -- (972) 118,455 General and administrative... -- -- (28,767) 105,776 Depreciation and amortization..... 3,455 -- -- 82,770 ------------- ------ ------------ ------------ Total operating expenses....... 3,455 -- (41,288) 414,485 ------------- ------ ------------ ------------ Operating income (loss)......... 1,655 -- -- (195,137) Other (income) expense: Interest expense.. 1,655 -- (53,073) 63,989 Interest income and other........ -- -- 53,073 (9,261) ------------- ------ ------------ ------------ Net loss........ -- -- -- (249,865) Accretion of mandatorily redeemable preferred stock.... -- -- -- (24,181) ------------- ------ ------------ ------------ Net loss attributable to common equity...... $ -- $ -- $ -- $(274,046) ============= ====== ============ ============ 16 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Cash Flows for the nine months ended September 30, 1999 (unaudited): TeleCorp Communications, Inc. TeleCorp Wireless, Inc. ---------------------------------------------------- --------------------------------- TeleCorp Guarantor Non-Guarantor Non-Guarantor Black Wireless, Inc. Subsidiary Subsidiaries Consolidated Subsidiaries Label Eliminations Consolidated -------------- ---------- ------------- ------------ ------------- ------ ------------ ------------- Cash flows from operating activities: Net loss........... $ -- $(144,075) $ -- $(144,075) $ -- $ -- $ -- $(144,075) Adjustment to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization...... 3,899 13,134 16,191 29,325 1,575 -- -- 34,799 Non-cash compensation expense related to stock option grants and restricted stock awards............ -- -- -- -- -- -- -- -- Non-cash interest expense........... -- 20,735 -- 20,735 260 -- -- 20,995 Bad debt expense.. -- 1,022 -- 1,022 -- -- -- 1,022 Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable........ -- (17,924) -- (17,924) -- -- -- (17,924) Intercompany receivables....... (452,084) -- -- -- -- -- 452,084 -- Inventory......... -- (11,347) -- (11,347) -- -- -- (11,347) Prepaid expenses and other current assets............ -- 878 36 914 -- -- -- 914 Other assets...... -- (706) 283 (423) -- -- -- (423) Accounts payable.. -- 4,456 6,682 11,138 -- -- -- 11,138 Accrued expenses and other liabilities....... -- 7,680 8,321 16,001 -- -- -- 16,001 Accrued interest.. (1,114) -- -- -- 167 -- -- (947) Deferred revenue.. -- 1,133 -- 1,133 -- -- -- 1,133 Intercompany payables.......... -- 232,613 110,894 343,507 108,577 -- (452,084) -- --------- --------- --------- --------- -------- ------ --------- --------- Net cash (used in) provided by operating activities........ (449,299) 107,599 142,407 250,006 110,579 -- -- (88,714) --------- --------- --------- --------- -------- ------ --------- --------- Cash flows from investing activities: Expenditures for property and equipment......... -- (103,121) (142,407) (245,528) -- -- -- (245,528) Expenditures for property and equipment; Black Label Wireless, Inc. ............. -- -- -- -- -- -- -- -- Purchase of short- term investments.. -- -- -- -- -- -- -- -- Proceeds from the sale of short-term investments....... -- -- -- -- -- -- -- -- Expenditures for acquisition of PCS licenses; Black Label Wireless.... -- -- -- -- -- -- -- -- Capitalized interest on network under development and PCS licenses...... -- (4,478) -- (4,478) -- -- -- (4,478) Expenditures for microwave relocation........ -- -- -- -- (5,679) -- -- (5,679) Purchase of PCS licenses.......... -- -- -- -- (72,390) -- -- (72,390) Deposit on PCS licenses.......... -- -- -- -- (43,647) -- -- (43,647) Partial refund of deposit on PCS licenses.......... -- -- -- -- 11,361 -- -- 11,361 Purchase of intangibles-AT&T agreements........ (16,145) -- -- -- -- -- -- (16,145) Capitalized Tritel acquisition costs............. -- -- -- -- -- -- -- -- --------- --------- --------- --------- -------- ------ --------- --------- Net cash used in investing activities........ (16,145) (107,599) (142,407) (250,006) (110,355) -- -- (376,506) --------- --------- --------- --------- -------- ------ --------- --------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock... 64,521 -- -- -- -- -- -- 64,521 Receipt of preferred stock subscription receivable........ 3,740 -- -- -- -- -- -- 3,740 Direct issuance costs from sale of mandatorily redeemable preferred stock... (2,500) -- -- -- -- -- -- (2,500) Proceeds from sale of common stock and series F preferred stock... 21,724 -- -- -- -- -- -- 21,724 Proceeds from long-term debt.... 397,635 -- -- -- -- -- -- 397,635 Proceeds from long-term debt, Black Label Wireless, Inc. ... -- -- -- -- -- -- -- -- Payments of deferred financing costs............. (10,999) -- -- -- -- -- -- (10,999) Payments on long- term debt......... (40,000) -- -- -- (224) -- -- (40,224) --------- --------- --------- --------- -------- ------ --------- --------- Net cash provided by (used in) financing activities........ 434,121 -- -- -- (224) -- -- 433,897 --------- --------- --------- --------- -------- ------ --------- --------- Net decrease in cash and cash equivalents........ (31,323) -- -- -- -- -- -- (31,323) Cash and cash equivalents at the beginning of period............. 111,733 -- -- -- -- -- -- 111,733 --------- --------- --------- --------- -------- ------ --------- --------- Cash and cash equivalents at the end of period...... $ 80,410 $ -- $ -- $ -- $ -- $ -- $ -- $ 80,410 ========= ========= ========= ========= ======== ====== ========= ========= 17 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Cash Flows for the nine months ended September 30, 2000 (unaudited): TeleCorp Communications, Inc. TeleCorp Wireless, Inc. ---------------------------------------------------- ----------------------------------- TeleCorp Guarantor Non-Guarantor Non-Guarantor Black Wireless, Inc. Subsidiary Subsidiaries Consolidated Subsidiaries Label Eliminations Consolidated -------------- ---------- ------------- ------------ ------------- ------- ------------ ------------- Cash flows from operating activities: Net loss......... $ -- $ (249,865) $ -- $ (249,865) $ -- $ -- $ -- $ (249,865) Adjustment to reconcile net loss to cash (used in) provided by operating activities: Depreciation and amortization.... 5,366 28,734 45,215 73,949 3,455 -- -- 82,770 Noncash compensation expense related to stock option grants and restricted stock awards.......... -- 30,812 -- 30,812 -- -- -- 30,812 Noncash interest expense......... -- 36,120 -- 36,120 390 -- -- 36,510 Bad debt expense......... -- 8,482 -- 8,482 -- -- -- 8,482 Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable...... -- (25,290) -- (25,290) -- -- -- (25,290) Inventory....... -- (54) -- (54) -- -- -- (54) Intercompany receivables..... (371,559) -- -- - -- -- 371,559 -- Prepaid expenses and other current assets.. -- (2,619) (370) (2,989) -- -- -- (2,989) Other assets.... (618) 1,004 (725) 279 -- -- -- (339) Accounts payable......... -- (5,408) (7,497) (12,905) -- -- -- (12,905) Accrued expenses and other liabilities..... -- 9,487 12,444 21,931 -- -- -- 21,931 Accrued interest........ 10,839 -- -- -- 519 -- -- 11,358 Deferred revenue......... -- 522 -- 522 -- -- -- 522 Intercompany payables........ -- 276,113 79,665 355,778 15,761 20 (371,559) -- -------- ---------- --------- ---------- ------- ------- --------- ---------- Net cash (used in) provided by operating activities...... (355,972) 108,038 128,732 236,770 20,125 20 -- (99,057) -------- ---------- --------- ---------- ------- ------- --------- ---------- Cash flows from investing activities: Expenditures for property and equipment....... -- (105,326) (128,732) (234,058) -- -- -- (234,058) Expenditures for property and equipment; Black Label Wireless, Inc............. -- -- -- -- -- (15,752) -- (15,752) Purchase of short-term investments..... (130,740) -- -- -- -- -- -- (130,740) Proceeds from the sale of short-term investments..... 5,001 -- -- -- -- -- -- 5,001 Expenditures for the acquisition of PCS licenses; Black Label Wireless, Inc... -- -- -- -- -- (12,166) -- (12,166) Capitalized interest on network under development and PCS licenses.... -- (2,712) -- -- -- -- -- (2,712) Expenditures for microwave relocation...... -- -- -- -- (5,398) -- -- (5,398) Purchase of PCS licenses........ -- -- -- -- (733) -- -- (733) Deposit on PCS licenses........ -- -- -- -- (12,368) -- -- (12,368) Partial refund of deposit on PCS licenses.... -- -- -- -- 9,607 -- -- 9,607 Purchase of intangibles -- AT&T agreements...... -- -- -- -- -- -- -- -- Capitalized Tritel acquisition costs........... -- -- -- -- (10,214) -- -- (10,214) -------- ---------- --------- ---------- ------- ------- --------- ---------- Net cash used in investing activities...... (125,739) (108,038) (128,732) (236,770) (19,106) (27,918) -- (409,533) -------- ---------- --------- ---------- ------- ------- --------- ---------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock........... -- -- -- -- -- -- -- -- Receipt of preferred stock subscription receivable...... 37,650 -- -- -- -- -- -- 37,650 Direct issuance costs from sale of mandatorily redeemable preferred stock........... -- -- -- -- -- -- -- -- Proceeds from sale of common stock and series F preferred stock........... 41,869 -- -- -- -- -- -- 41,869 Proceeds from long-term debt.. 550,000 -- -- -- -- -- -- 550,000 Proceeds from long-term debt, Black Label Wireless, Inc... -- -- -- -- -- 29,422 -- 29,422 Payments of deferred financing costs........... (14,159) -- -- -- -- -- -- (14,159) Payments on long-term debt.. -- -- -- -- (1,019) -- -- (1,019) -------- ---------- --------- ---------- ------- ------- --------- ---------- Net cash provided by (used in) financing activities...... 615,360 -- -- -- (1,019) 29,422 -- 643,763 -------- ---------- --------- ---------- ------- ------- --------- ---------- Net increase in cash and cash equivalents...... 133,649 -- -- -- -- 1,524 -- 135,173 Cash and cash equivalents at the beginning of period........... 182,330 -- -- -- -- -- -- 182,330 -------- ---------- --------- ---------- ------- ------- --------- ---------- Cash and cash equivalents at the end of period........... $315,979 $ -- $ -- $ -- $ -- $ 1,524 $ -- $ 317,503 ======== ========== ========= ========== ======= ======= ========= ========== 18 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 14. Subsequent Events Tritel Merger and Contribution and Exchange with AT&T Wireless On February 28, 2000, the Company agreed to merge with Tritel through a merger of each of the Company and Tritel with wholly-owned subsidiaries of TeleCorp PCS, Inc. The Company and Tritel are the surviving entities of the merger. The merger was consummated on November 13, 2000. The merger resulted in the exchange of 100% of the outstanding common and preferred stock of the Company and Tritel for common and preferred stock of TeleCorp PCS, Inc. TeleCorp PCS, Inc. is controlled by its voting preference common stockholders. Both the Company and Tritel are subsidiaries of TeleCorp PCS, Inc. This transaction will be accounted for using the purchase method of accounting. The purchase price for Tritel has been determined based on the fair value of the shares of TeleCorp PCS, Inc. issued to the former shareholders of Tritel plus cash, the fair value associated with the conversion of outstanding Tritel options and warrants to TeleCorp PCS, Inc. options and warrants, liabilities assumed, and merger related costs. The fair value of the shares issued have been determined based on the existing market price for the Company's class A common stock, which is publicly traded, and, for those shares that do not have a readily available market price, through valuation by an investment banking firm. The purchase price for this transaction will be allocated to the assets acquired based on their estimated fair values. The excess of the purchase price over the assets acquired will be recorded as goodwill and amortized over 20 years. In connection with the Company's merger with Tritel, AT&T agreed to contribute certain assets and rights to the Company. This contribution resulted in the Company acquiring various assets in exchange for the consideration issued as follows: The Company acquired: . $20,000 cash from AT&T Wireless Services Inc. (AT&T Wireless Services). . The right to acquire all of the common and preferred stock of Indus, Inc. (Indus). . The right to acquire additional wireless properties and assets from Airadigm Communications, Inc. (Airadigm) . The two year extension and expansion of the AT&T network membership licenses agreement to cover all people in TeleCorp PCS, Inc.'s markets. Consideration issued: . 9,272,740 shares of class A common stock of TeleCorp PCS, Inc. to AT&T Wireless Services. Separately, AT&T Wireless and the Company consummated on November 13, 2000, the Asset Exchange Agreement pursuant to which the Company agreed to exchange certain assets with AT&T Wireless, among other consideration. The Company received certain consideration in exchange for assets as follows: The Company acquired: . $80,000 in cash from AT&T Wireless. . AT&T Wireless's existing 10 MHZ PCS licenses in the areas covering part of the Wisconsin market, in addition to adjacent licenses. . AT&T Wireless's existing 10 MHZ PCS licenses in Fort Dodge and Waterloo, Iowa. . The right to acquire additional wireless properties from Polycell Communications, Inc. (Polycell) and ABC Wireless, L.L.C. (ABC Wireless). 19 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consideration issued: . The Company's New England market segment to AT&T Wireless. . Cash to Polycell and cash to ABC Wireless. Further, AT&T agreed to extend the term of the roaming agreement and to expand the geographic coverage of the AT&T operating agreements with the Company to include the new markets, either through amending the Company's existing agreements or by entering into new agreements with TeleCorp PCS, Inc. on substantially the same terms as the Company's existing agreements. In addition, the Company has granted AT&T Wireless a "right of first refusal" with respect to certain markets transferred by AT&T Wireless Services or AT&T Wireless, triggered in the event of a sale of the Company to a third party. These transactions will be accounted for as an asset purchase and disposition and recorded at fair value. The purchase price will be determined based on cash paid, the fair value of the Class A common stock issued, and the fair value of the assets relinquished. The purchase price will be proportionately allocated to the noncurrent assets acquired based on their estimated fair values. A gain will be recognized as the difference between the fair value of the New England assets disposed and their net book value. Pending Licenses Acquisition from Airadigm Communications, Inc. In connection with the right attained from AT&T Wireless Services, Inc. (see Note above), the Company and Telephone Data Systems (TDS) have entered into an agreement to collectively purchase the assets of Airadigm Communications, Inc. Airadigm is a wireless provider based in Little Chute, Wisconsin and owns C- block FCC licenses in Wisconsin and Iowa. Airadigm filed for Chapter 11 bankruptcy protection in July 1999. Under the terms of the collective plan of financial reorganization approved by the U.S. Bankruptcy Court on November 1, 2000, the Company and TDS plan to provide the funding to meet Airadigm's debt obligations. The Company will receive disaggregated licenses for its consideration. The sale of Airadigm's licenses is contingent upon reinstatement of those licenses by the FCC and receipt of FCC approval for the transfer of the licenses to the Company designee. Pending Licenses Acquisition from Pegasus PCS Partners, L.L.C. On September 20, 2000, the Company agreed to purchase from Pegasus PCS Partners,L.L.C. a 15 MHz C Block PCS license in the Mayaguez, Puerto Rico basic trading area for $18,000. Pending Licenses Acquisition from Lewis and Clark Communications, L.L.C. On November 1, 2000, the Company agreed to purchase from Lewis and Clark Communications, L.L.C. a 20 MHz C Block PCS license in each of the Burlington, IA; Marshalltown, IA; Mason City, IA; Ottumwa, IA and Fort Dodge, IA basic trading areas for an aggregate purchase price of $10,920. Tower Sale-Lease-Back and Build-to-Suit Agreements On September 15, 2000 the Company entered into a purchase agreement, pursuant to which the Company will sell and transfer to SBA Communications Corporation (SBA) 275 of its towers and related assets. The purchase price is approximately $90,100, reflecting a price of approximately $328 per site. At closing, the Company has agreed to provide SBA with an additional 200 towers under a separate master design build-to-suit agreement. 20 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) At closing, the Company also has agreed to enter into a master lease agreement with SBA under which the Company has agreed to pay monthly rent of $1.2 per tower for the continued use of the space that the Company occupied on the towers prior to the sale and $1.3 per tower for space obtained under the build-to-suit agreement. The initial term of the lease is for five years and the monthly rental amount is subject to certain escalation clauses after the initial term. The Company anticipates that these agreements will close in 2001. Black Label Wireless, Inc. Credit Agreement Subsequent to September 30, 2000, Black Label borrowed an additional $34,555 as of October 31, 2000 under its $175,000 credit agreement. 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General You should read the following discussion in conjunction with (1) our accompanying unaudited consolidated financial statements and notes thereto and (2) our audited consolidated financial statements, notes thereto and management's discussion and analysis of financial condition and results of operations as of and for the year ended December 31, 1999 included in our annual report on Form 10-K for such period. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward- looking statements that are based on current expectations, estimates, and projections. Such forward-looking statements reflect management's good-faith evaluation of information currently available. However, because such statements are based upon, and therefore can be influenced by, a number of external variables over which management has no, or incomplete, control, they are not, and should not be read as being guarantees of future performance or of actual future results; nor will they necessarily prove to be accurate indications of the times at or by which any such performance or result will be achieved. Accordingly, actual outcomes and results may differ materially from those expressed in such forward-looking statements. Overview The Company is the largest AT&T Wireless affiliate in the United States in terms of licensed population, with licenses covering approximately 17 million people. It provides wireless personal communication services, or PCS, in selected markets in the south-central and northeast United States and in Puerto Rico, encompassing eight of the 100 largest metropolitan areas in the United States. Commencing with the launch of operations in the New Orleans market in February 1999, TeleCorp successfully launched its services in 37 markets by September 30, 2000. As of September 30, 2000, the Company had more than 405,000 customers and its networks covered approximately 81% of the population where it held licenses. Under the terms of the strategic alliance the Company has with AT&T, the Company is AT&T's exclusive provider of wireless mobility services in its licensed markets, using equal emphasis co-branding with AT&T subject to AT&T's right to resell services on the Company's network. TeleCorp PCS, Inc., currently the Company's parent and prior to November 14, 2000, the Company's wholly-owned subsidiary, has not conducted any activities other than those incident to its formation. Revenue The Company derives its revenue from the following sources: Service. The Company sells wireless personal communications services. The various types of service revenue associated with personal communications services for the Company's customers include monthly recurring access charges and monthly non-recurring airtime charges for local, long distance and roaming airtime used in excess of pre-subscribed usage. The Company's customers' charges are rate plan dependent, based on the number of pooled minutes included in their plans. Service revenue also includes monthly non-recurring airtime usage associated with the Company's prepaid customers and non-recurring activation and de-activation service charges. Roaming. The Company charges monthly, non-recurring, per minute fees to other wireless companies whose customers use its network facilities to place and receive wireless calls. Equipment. The Company sells wireless PCS handsets and accessories that are used by its customers in connection with its wireless services. Service revenue constituted the Company's largest component of revenue during the nine months ended September 30, 2000 at 70%. Roaming revenue and equipment revenue represented 20% and 10% of total revenue, respectively. The Company expects that as its customer base grows, service revenue will become an even larger percentage of revenue, while roaming revenue and equipment revenue are expected to decline as a percentage of total revenue. Roaming minutes on the Company's network are expected to increase as AT&T and other carriers increase the number of customers on their networks. Under the Company's reciprocal 22 roaming agreement with AT&T Wireless, its largest roaming partner, the amount the Company will receive and pay per roaming minute will decline for each of the next several years. The wireless industry is experiencing a general trend towards offering rate plans containing larger buckets of minutes. This trend is expected to result in decreases in gross revenue per minute. The Company has autonomy in determining its pricing plans. The Company has developed its pricing plans to be competitive and to emphasize the advantages of its service. The Company may discount its pricing from time to time in order to obtain additional customers or in response to downward pricing in the market for wireless communications services. Operating expenses The Company's operating expenses consist of the following: Cost of revenue . Equipment. The Company purchases PCS handsets and accessories from third party vendors to resell to its customers for use in connection with its services. The cost of handsets is, and is expected to remain, higher than the resale price to the customer. The Company records as cost of revenue an amount approximately equal to its revenue on equipment sales. The Company records the excess cost of handsets as a selling and marketing expense. The Company does not manufacture any of this equipment. . Roaming. The Company pays fees to other wireless communications companies based on airtime usage of its customers on other communications networks. It is expected that reciprocal roaming rates charged between the Company and other carriers will decrease. The Company does not have any significant minimum purchase requirements other than its obligation to purchase at least 15 million roaming minutes from July 1999 to January 2002 from another wireless provider in Puerto Rico relating to customers roaming outside the Company's coverage area. The Company believes it will be able to meet this minimum requirement. . Clearinghouse. The Company pays fees to an independent clearinghouse for processing its call data records and performing monthly inter-carrier financial settlements for all charges that the Company pays to other wireless companies when the Company's customers use other companies' networks, and that other wireless companies pay to the Company when their customers use its network. The Company does not have any significant minimum purchase requirements. These fees are based on the number of call data records processed in a month. . Variable interconnect. The Company pays monthly charges associated with the connection of the Company's network with other carriers' networks. These fees are based on minutes of use by the Company's customers. These fees are known as interconnection. The Company does not have any significant minimum purchase requirements. . Variable long distance. The Company pays monthly usage charges to other communications companies for long distance service provided to its customers. These variable charges are based on our customers' usage, applied at pre-negotiated rates with the other carriers. We do not have any significant minimum purchase requirements other than an obligation to AT&T Wireless to purchase a minimum number of minutes of traffic annually over a specified time period and a specified number of dedicated voice and data leased lines in order for us to retain preferred pricing rates. We believe we will be able to meet these minimum requirements. Operations and development. The Company's operations and development expense includes engineering operations and support, field technicians, network implementation support, product development, engineering management and non- cash stock compensation related to employees whose salaries are recorded within operations and development. This expense also includes monthly recurring charges directly associated with the maintenance and operations of the network facilities and equipment. Operations and development expense is expected to increase as the Company expands its coverage and operations and adds customers. In future periods, the Company expects that this expense will decrease as a percentage of total revenue. 23 Selling and marketing. The Company's selling and marketing expense includes brand management, external communications, sales training, and all costs associated with retail distribution, direct, indirect, third party and telemarketing sales (primarily salaries, commissions and retail store rent) and non-cash stock compensation related to employees whose salaries are included within selling and marketing. The Company also records the excess cost of handsets over the resale price as a cost of selling and marketing. Selling and marketing expense is expected to increase as the Company expands its coverage and adds customers. In future periods, the Company expects that this expense will decrease as a percentage of total revenue. General and administrative. The Company's general and administrative expense includes customer support, billing, information technology, finance, accounting and legal services and non-cash stock compensation related to employees whose salaries are included within general and administrative. Although the Company expects general and administrative expense to increase in future periods, the Company expects this expense will decrease as a percentage of total revenues. Depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method, generally over three to fifteen years, based upon estimated useful lives. Leasehold improvements are amortized over the lesser of the useful lives of the assets or the term of the lease. Network development costs incurred to ready our network for use are capitalized. Amortization of network development costs begins when the network equipment is ready for its intended use and will be amortized over its estimated useful life ranging from five to fifteen years. The Company began amortizing the cost of the PCS licenses, microwave relocation costs, and capitalized interest in the first quarter of 1999, when PCS services commenced in some of its basic trading areas. Microwave relocation entails transferring business and public safety companies from radio airwaves that overlap with the portion of the airwaves covered by the Company's business to other portions of the airwaves. Amortization of PCS licenses and microwave relocation is calculated using the straight-line method over 40 years. The AT&T agreements are amortized on a straight-line basis over the related contractual terms, which range from three to fifteen years. Amortization of the AT&T exclusivity agreement, long distance agreement and the intercarrier roamer services agreement began once wireless services were available to the Company's customers. Amortization of the network membership license agreement began on July 17, 1998, the date of the finalization of the initial AT&T transaction. Non-cash Stock Compensation. The Company periodically issues restricted stock awards and stock option grants to its employees. Upon reaching a measurement date, the Company records deferred compensation equal to the difference between the exercise price and the fair value of the stock award. Deferred compensation is amortized to compensation expense over the related vesting period. During the three and nine months ended September 30, 2000, we recorded $3.9 million and $30.8 million, respectively, of non-cash stock compensation related to these awards and grants that has been included in operating expenses. Other income (expense) Interest expense. Interest expense consists of interest due on the Company's senior credit facilities, senior subordinated discount notes, senior subordinated notes, vendor financing, and debt owed to the U.S. government related to its licenses, net of amounts capitalized. Interest income and other. Interest income consists of interest earned on the Company's cash and cash equivalents and short-term investments. Results of operations Nine months ended September 30, 2000 compared to nine months ended September 30, 1999 Subscribers. Net additions were 263,213 and 75,723 for the nine months ended September 30, 2000 and 1999, respectively. Total PCS subscribers were 405,444 and 75,723 as of September 30, 2000 and 1999, respectively. The increase in net additions and total PCS subscribers over the same period in 1999 was primarily due to launching 20 additional markets from the period October 1, 1999 to September 30, 2000. 24 Revenue. Revenue for the nine months ended September 30, 2000 and 1999 was $219.3 million and $48.2 million, respectively. Service revenue was $152.3 million and $18.9 million for the nine months ended September 30, 2000 and 1999, respectively. The increase in service revenue of $133.4 million was due primarily to the addition of approximately 330,000 subscribers from October 1, 1999 to September 30, 2000 and the launch of 20 additional markets. Roaming revenue was $44.5 million and $18.9 million for the nine months ended September 30, 2000 and 1999, respectively. The increase in roaming revenue of $25.6 million was due primarily to the construction of 608 cell sites in conjunction with the launching of 20 additional markets between October 1, 1999 and September 30, 2000. Equipment revenue was $22.6 million and $10.3 million for the nine months ended September 30, 2000 and 1999, respectively. The equipment revenue increase of $12.3 million over the same period in 1999 was due primarily to the sales of handsets and related accessories in connection with significantly increased gross additions in the first nine months of 2000. Costs of revenue. Cost of revenue was $67.9 million and $23.1 million for the nine months ended September 30, 2000 and 1999, respectively. The increase in cost of revenue of $44.8 million over the same period in 1999 was due primarily to additional roaming expenses in connection with the Company's increased subscriber base and increases in equipment costs due to significantly increased gross additions in the first nine months of 2000. Operations and development. Operations and development costs were $39.6 million and $25.9 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $13.7 million over the same period in 1999 was primarily due to the development and growth of infrastructure and staffing related to the support of our network and our network operation center. Selling and marketing. Selling and marketing costs were $118.5 million and $39.7 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $78.8 million over the same period in 1999 was primarily due to the cost of acquiring the significantly increased gross additions in the first nine months of 2000 associated with the increased market base in 2000, including advertising and promotion costs, commissions and the excess cost of handsets over the retail price. General and administrative. General and administrative expenses were $105.8 million and $38.9 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $66.9 million over the same period in 1999 was primarily due to the development and growth of infrastructure and staffing related to information technology, customer care and other administrative functions incurred in conjunction with managing the corresponding growth in our subscriber base and launching the additional markets, as well as $28.8 million in non-cash stock compensation. Depreciation and amortization. Depreciation and amortization expenses were $82.8 million and $34.8 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $48.0 million over the same period in 1999 relates primarily to depreciation of the Company's fixed assets as well as the amortization on its PCS licenses and the AT&T operating agreements related to the Company's markets launched between October 1, 1999 and September 30, 2000. Interest Expense. Interest expense was $64.0 million, net of capitalized interest of $2.7 million, for the nine months ended September 30, 2000. Interest expense was $34.4 million, net of capitalized interest of $4.5 million, for the nine months ended September 30, 1999. The increase of $29.6 million over the same period in 1999 relates primarily to a full nine months of interest expense on the Company's senior subordinated discount notes which were issued in April of 1999, interest expense on the Company's 10 5/8% senior subordinated notes issued in July of 2000, additional Lucent and FCC debt issued throughout the first nine months of 1999, and $100 million of additional senior credit facility drawn in June and July of 2000. Interest Income. Interest income was $9.3 million and $4.6 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $4.7 million over the same period in 1999 was due primarily to larger cash and cash equivalents and short-term investment balances due to the $450 million senior subordinated notes offering in July of 2000. 25 Three months ended September 30, 2000 compared to three months ended September 30, 1999 Subscribers. Net additions were 85,562 and 44,753 for the three months ended September 30, 2000 and 1999, respectively. Total PCS subscribers were 405,444 and 75,723 as of September 30, 2000 and 1999, respectively. The increase in net additions and total PCS subscribers over the same period in 1999 was primarily due to launching 20 additional markets from the period October 1, 1999 to September 30, 2000. Revenue. Revenue for the quarter ended September 30, 2000 was $91.9 million compared to $26.8 million. Service revenue was $64.3 million and $12.7 million for the three months ended September 30, 2000 and 1999, respectively. The increase in service revenue of $51.6 million was due primarily to the addition of approximately 330,000 subscribers from October 1, 1999 to September 30, 2000 and the launch of 20 additional markets. Roaming revenue was $18.3 million and $9.5 million for the three months ended September 30, 2000 and 1999, respectively. The increase in roaming revenue of $8.8 million was due primarily to the construction of 608 cell sites in conjunction with the launching of 20 additional markets between October 1, 1999 and September 30, 2000. Equipment revenue was $9.3 million and $4.7 million for the three months ended September 30, 2000 and 1999, respectively. The equipment revenue increase of $4.6 million over the same period in 1999 was due primarily to the sale of handsets and related accessories in connection with the significantly increased gross additions in the three month period ended September 30, 2000. Costs of revenue. Cost of revenue was $27.5 million and $13.0 million for the three months ended September 30, 2000 and 1999, respectively. The increase in cost of revenue of $14.5 million over the same period in 1999 was due primarily to additional roaming expenses in connection with the Company's increased subscriber base and increases in equipment costs due to significantly increased gross additions in the first nine months of 2000. Operations and development. Operations and development costs were $14.0 million and $10.4 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $3.6 million over the same period in 1999 was primarily due to the development and growth of infrastructure and staffing related to the support of our network and our network operation center. Selling and marketing. Selling and marketing costs were $43.7 million and $18.8 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $24.9 million over the same period in 1999 was primarily due to the cost of acquiring the significantly increased gross additions in the three months ended September 30, 2000 associated with the increased market base in 2000, including advertising and promotion costs, commissions and the excess cost of handsets over the retail price. General and administrative. General and administrative expenses were $31.4 million and $16.5 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $14.9 million over the same period in 1999 was primarily due to the development and growth of infrastructure and staffing related to information technology, customer care and other administrative functions incurred in conjunction with managing the corresponding growth in our subscriber base and launching the additional markets, as well as $3.0 million in non-cash stock compensation. Depreciation and amortization. Depreciation and amortization expenses were $32.4 million and $18.3 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $14.1 million over the same period in 1999 relates primarily to depreciation of the Company's fixed assets as well as the amortization on its PCS licenses and the AT&T operating agreements related to the Company's markets launched between October 1, 1999 and September 30, 2000. Interest expense. Interest expense was $29.7 million, net of capitalized interest of $0.9 million, for the three months ended September 30, 2000. Interest expense was $17.3 million, net of capitalized interest of $0.3 million, for the three months ended September 30, 1999. The increase of $12.4 million over the same period in 1999 relates primarily to interest expense on the Company's $450 million 10 5/8 senior subordinated notes which were issued in July of 2000 and an additional $100 million traunche A term loan of the senior credit facility borrowed in June and July of 2000. 26 Interest income. Interest income was $5.4 million and $1.7 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $3.7 million over the same period in 1999 was due primarily to larger cash and cash equivalents and short-term investment balances due to the $450 million senior subordinated notes offering in July of 2000. Liquidity and capital resources December 31, September 30, 1999 2000 ------------ ------------- ($ in thousands) Cash and cash equivalents and short-term investments................................... $182,330 $444,967 Working capital................................ $ 94,082 $274 884 Current assets to current liabilities.......... 1.72 2.14 Debt to total capitalization................... 0.79 0.97 Cash and cash equivalents totaled approximately $317.5 million at September 30, 2000, as compared to approximately $182.3 million at December 31, 1999. This net increase was the result of $99.1 million of cash used in operating activities and $409.5 million of cash used in investing activities, offset by cash provided by financing activities of $643.8 million during the nine months ended September 30, 2000. Cash used in operating activities resulted from a net loss of $249.9 million that was partially offset by non- cash charges of $158.6 million. Cash used in investing activities resulted primarily from cash outlays for capital expenditures, required for the development and construction of our network, of $234.1 million, purchases of short term investments of $130.7 million, and Black Label Wireless, Inc. costs of $27.9 million. Cash provided by financing activities consisted primarily of proceeds from long term debt of $550.0 million, proceeds from the sale of common stock to AT&T of $41.9 million, and receipt of preferred stock subscriptions receivable of $37.7 million. At September 30, 2000, the Company had available bank and vendor credit facilities of $456 million. During the same period ended September 30, 1999, the Company had a net decrease in cash of $31.3 million as a result of $88.7 million of cash used in operating activities and $376.5 million of cash used in investing activities, offset by cash provided by financing activities of $433.9 million. Cash used in operating activities resulted from a net loss of $144.1 million that was partially offset by non-cash charges of $56.8 million. Cash used in investing activities resulted primarily from cash outlays for capital expenditures required for the development and construction of our network of $245.5 million, purchases on PCS licenses of $72.4 million and deposits of PCS licenses of $43.6 million. Cash provided by financing activities was the result of proceeds from long term debt and mandatorily redeemable preferred stock of $397.6 million and $64.5 million, respectively, offset partially by payments on long term debt of $40.2 million. New accounting pronouncements In July 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 137, "Deferral of the Effective Date of FAS 133" which defers the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is currently evaluating the full impact of this statement to determine the impact on its financial position and results of operations. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin (SAB) Number 101, "Revenue Recognition in Financial Statements." This bulletin will become effective for the Company no later than the quarter ending December 31, 2000. This bulletin establishes more clearly defined revenue recognition criteria than previously existing accounting pronouncements, and specifically addresses revenue recognition requirements for nonrefundable fees, such as activation fees, collected by a company upon entering into an arrangement with a customer, such as an arrangement to provide telecommunications services. The Company is currently evaluating the full impact of this bulletin to determine the impact on its financial position and results of operations. 27 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates which could impact results of operations. The Company manages interest rate risk through a combination of fixed and variable rate debt. At September 30, 2000 the Company had the following debt instruments outstanding: . $450.0 million of 10 5/8% senior subordinated notes, due 2010; . $100 million of tranche A and $225 million of tranche B notes under the Company's Senior Credit facility, which carried a weighted average rate of 8.84% and 9.12%, respectively; . $385.5 million carrying value ($575 million at maturity) of the 11 5/8% senior subordinated discount notes, due 2009; . $21.6 million debt to the Federal Communications Commission, due in quarterly installments from 2000 to 2007 bearing a rate of between 6.125%-7.0%, discounted to yield between 10.25%-11.8% ($19.1 million discounted); . $46.6 million of vendor financing debt which carried a rate of 8.5%. . $29.7 million of debt under the Black Label Wireless, Inc. credit agreement which carried a rate of 8.6%. The Company's senior subordinated notes, senior subordinated discount notes, Federal Communications Commission debt and vendor financing debt, are fixed interest rate debt securities and as a result are less sensitive to market rate fluctuations. However, the Company's tranche A and tranche B term loans outstanding under the senior credit facility and other amounts available to the Company under its senior credit facility agreements and the Black Label Wireless, Inc. credit agreement are variable interest rate debt securities. The Company uses interest rate swaps to hedge the effects of fluctuations in interest rates on its senior credit facilities. These transactions meet the requirements for hedge accounting, including designation and correlation. These interest rate swaps are managed in accordance with the Company's policies and procedures. The Company did not enter into these transactions for trading purposes. The resulting gains or losses, measured by quoted market prices, are accounted for as part of the transactions being hedged, except that losses not expected to be recovered upon the completion of hedged transactions are expensed. Gains or losses associated with interest rate swaps are computed as the difference between the interest expense per the amount hedged using the fixed rate compared to a floating rate over the term of the swap agreement. As of September 30, 2000, the Company had entered into six interest rate swap agreements totaling $225 million to convert the Company's variable rate debt to fixed rate debt. The interest rate swaps had no material impact on the Company's consolidated financial statements as of and for the year ended December 31, 1999 or as of and for the nine months ended September 30, 2000. 28 The following table provides information about our market risk exposure associated with the company's variable rate debt at maturity value of the debt and the market risk exposure associated the interest rate swaps at September 30, 2000: EXPECTED MATURITY ------------------------------------------------------ FAIR 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE ----- ----- ---- ----- ----- ---------- -------- ------ ($ IN MILLIONS) LIABILITIES: Long-Term Debt: Face value of long-term fixed rate debt (a)... $ 0.3 $ 1.4 $1.6 $ 3.9 $ 4.1 $1,108(b) $1,119.3 $906.9(c) Average interest rate (d)................... 6.2% 6.2% 6.2% 6.6% 6.6% 11.0% Face value of tranche A variable rate debt.... $ -- $ -- $5.0 $10.0 $25.0 $ 60.0 $ 100.0 $100.0(f) Average interest rate (e)................... 0.0% 0.0% 8.8% 8.8% 8.8% 8.8% Face value of tranche B variable rate debt.... $ -- $ -- $1.2 $ 2.2 $ 2.2 $219.4 $ 225.0 $225.0(f) Average interest rate (e)................... 0.0% 0.0% 9.1% 9.1% 9.1% 9.1% Face value of Black La- bel variable rate debt.................. $29.7 $ -- $-- $ -- $ -- $ -- $ 29.7 $ -- Average interest rate.. 8.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% INTEREST RATE DERIVATIVES: Interest rate swaps: Variable to fixed (g).. $ 225 $ 225 $225 $ 225 Average pay rate (h)... 5.24% 5.24% 5.24% 5.24% -- -- Average receive rate (h)................... 6.77% 6.77% 6.77% 6.77% -- -- - -------- (a) Fixed rate debt consists of the FCC government debt, 11 5/8% senior subordinated discount notes, 10 5/8% senior subordinated notes, and vendor financing. (b) The vendor financing debt may be redeemed in full by January 2001. However, if the vendor financing is not redeemed, the interest rate will increase by 1.5% per annum on January 1, 2001 and shall not exceed 12.125%. For the purposes of this table, the Company assumes the debt will not be redeemed and therefore the future principal amount in 2009 includes all unpaid interest through May 2004 and totals $72.7 million. After May 2004, interest is payable semi-annually on the vendor financing debt until maturity. This total balance for all payments subsequent to 2004 also includes the future principal payment of $575 million of 11 5/8% senior subordinated discount notes in 2009, $450 million of 10 5/8% senior subordinated notes in 2010 and $10.3 million of FCC debt due in quarterly installments through 2007. (c) The fair value is based on (1) the carrying value of the FCC debt of $19.1 million, (2) the carrying value of the vendor financing of $46.6 million, (3) the $386.7 million market value of the 11 5/8% senior subordinated discount notes as of September 30, 2000 priced at 11.6%, and (4) the $454.5 million market value of the 10 5/8 senior subordinated notes priced at a 1% premium on September 30, 2000. (d) Average interest rate is calculated as the weighted average rate related to the repayments of debt instruments in the year indicated of maturity. (e) The interest rate of the variable debt securities may and is expected to vary before maturity. The amount indicated is the current rate as of September 30, 2000. (f) The fair value of variable rate debt instruments is expected to approximate carrying value. (g) Represents the total notional amount of the six swap agreements related to the tranche B senior credit facility. (h) The average pay rate and average receive rate are based on the September 30, 2000 rate of variable rate Tranche B debt less the fixed yield of 8.24%. These amounts may change due to fluctuations in the variable rate debt. The current swaps expire in 2003. The Company is exposed to the impact of interest rate changes on our short- term cash investments, consisting of U.S. Treasury obligations and other investments in respect of institutions with the highest credit ratings, all of which have maturities of three months or less. These short-term investments carry a degree of interest rate risk. The Company believes that the impact of a 10% increase or decline in current interest rates would not be material to its investment income. The Company is not exposed to fluctuations in currency exchange rates since its operations are entirely within the United States and its territories and all of the Company's services are invoiced in U.S. dollars. 29 Part II--Other Information Item 6. Exhibits Exhibit No. Description ----------- ----------- 3.1.1 Amended and Restated Certificate of Incorporation of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.). 3.1.2 Certificate of Amendment of Certificate of Incorporation of TeleCorp PCS, Inc. changing the name of TeleCorp PCS, Inc. to TeleCorp Wireless, Inc. 3.1.3* Certificate of Incorporation of TeleCorp Operating Company, Inc. 3.1.4* Certificate of Amendment of the Certificate of Incorporation of TeleCorp Operating Company, Inc. changing the name of TeleCorp Operating Company, Inc. to TeleCorp Communications, Inc. 3.1.5** Certificate of Incorporation of TeleCorp-Tritel Holding Company. 3.1.6*** Certificate of Amendment of Certificate of Incorporation of TeleCorp-Tritel Holding Company changing the name of TeleCorp- Tritel Holding Company to TeleCorp PCS, Inc. 3.2.1 By-Laws of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.). 3.2.2** Amended and Restated By-Laws of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.). 3.2.3* By-Laws of TeleCorp Communications, Inc. 4.1**** Indenture, dated as of July 14, 2000, among TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee. 4.2*** Stockholders' Agreement, dated as of November 13, 2000, among AT&T Wireless, PCS, LLC, Cash Equity Investors, Management Stockholders, Other Stockholders and TeleCorp PCS, Inc. 10.1**** Commitment Letter, dated July 14, 2000, between Lucent Technologies Inc. and TeleCorp-Tritel Holding Company related to Senior Subordinated Discount Notes Due 2010. 10.2**** Credit Agreement, dated as of July 14, 2000, among Black Label Wireless, Inc., the financial institutions from time to time parties thereto, as Lenders, and Lucent Technologies Inc., as Agent for the Lenders. 10.3**** Letter Agreement, dated as of July 14, 2000, among Black Label Wireless, Inc., Lucent Technologies Inc., as Agent and Lucent Technologies Inc., as Lender. 10.4***** Amendment No. 8 to the General Agreement for Purchase of Personal Communication Systems and Services, dated as of July 1, 2000, between TeleCorp PCS, Inc. and Lucent Technologies Inc. 10.5***** Tenth Amendment, dated as of July 17, 2000, to the TeleCorp Credit Agreement, among TeleCorp PCS, Inc., the Lenders and The Chase Manhattan Bank. 10.6* Purchase Agreement, dated July 11, 2000, among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc. 30 Exhibit No. Description ----------- ----------- 10.7***** Consent Pursuant to Section 6.2(a) of the Agreement and Plan of Reorganization and Contribution, dated as of July 10, 2000, by Tritel, Inc. to TeleCorp PCS, Inc. 10.8***** Exchange and Registration Rights Agreement, dated July 14, 2000, among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee. 27.1 Financial Data Schedule - -------- * Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-81313) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp Communications, Inc. ** Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-49792) of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.). *** Incorporated by reference to the TeleCorp PCS, Inc. (f/k/a TeleCorp-Tritel Holding Company) Current Report on Form 8-K filed on November 13, 2000. **** Incorporated by reference to the TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.) Quarterly Report filed on Form 10-Q on August 11, 2000. ***** Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-43596) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp Communications, Inc. 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TeleCorp Wireless, Inc. /s/ Thomas H. Sullivan Dated: November 14, 2000 By: _________________________________ Thomas H. Sullivan, President, Treasurer, and Secretary (as a duly authorized officer and principal financial officer) Former Subsidiary TeleCorp PCS, Inc. /s/ Thomas H. Sullivan Dated: November 14, 2000 By: _________________________________ Thomas H. Sullivan, Executive Vice President-Chief Financial Officer (as a duly authorized officer and principal financial officer) Subsidiary TeleCorp Communications, Inc. /s/ Thomas H. Sullivan Dated: November 14, 2000 By: _________________________________ Thomas H. Sullivan, President, Secretary and Treasurer (as a duly authorized officer and principal financial officer) 32 EXHIBIT INDEX - ------------- Exhibit No. Description - ----------- ----------- 3.1.1 Amended and Restated Certificate of Incorporation of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.). 3.1.2 Certificate of Amendment of Certificate of Incorporation of TeleCorp PCS, Inc. changing the name of TeleCorp PCS, Inc. to TeleCorp Wireless, Inc. 3.1.3* Certificate of Incorporation of TeleCorp Operating Company, Inc. 3.1.4* Certificate of Amendment of the Certificate of Incorporation of TeleCorp Operating Company, Inc. changing the name of TeleCorp Operating Company, Inc. to TeleCorp Communications, Inc. 3.1.5** Certificate of Incorporation of TeleCorp-Tritel Holding Company. 3.1.6*** Certificate of Amendment of Certificate of Incorporation of TeleCorp- Tritel Holding Company changing the name of TeleCorp-Tritel Holding Company to TeleCorp PCS, Inc. 3.2.1 Third Amended and Restated By-Laws of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.). 3.2.2** Amended and Restated By-Laws of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.). 3.2.3* By-Laws of TeleCorp Communications, Inc. 4.1**** Indenture, dated as of July 14, 2000, among TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee. 4.2*** Stockholders' Agreement, dated as of November 13, 2000, among AT&T Wireless, PCS, LLC, Cash Equity Investors, Management Stockholders, Other Stockholders and TeleCorp PCS, Inc. 10.1**** Commitment Letter, dated July 14, 2000, between Lucent Technologies Inc. and TeleCorp-Tritel Holding Company related to Senior Subordinated Discount Notes Due 2010. 10.2**** Credit Agreement, dated as of July 14, 2000, among Black Label Wireless, Inc., the financial institutions from time to time parties thereto, as Lenders, and Lucent Technologies Inc., as Agent for the Lenders. 10.3**** Letter Agreement, dated as of July 14, 2000, among Black Label Wireless, Inc., Lucent Technologies Inc., as Agent and Lucent Technologies Inc., as Lender. 10.4***** Amendment No. 8 to the General Agreement for Purchase of Personal Communication Systems and Services, dated as of July 1, 2000, between TeleCorp PCS, Inc. and Lucent Technologies Inc. 10.5***** Tenth Amendment, dated as of July 17, 2000, to the TeleCorp Credit Agreement, among TeleCorp PCS, Inc., the Lenders and The Chase Manhattan Bank. 10.6* Purchase Agreement, dated July 11, 2000, among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc. 10.7***** Consent Pursuant to Section 6.2(a) of the Agreement and Plan of Reorganization and Contribution, dated as of July 10, 2000, by Tritel, Inc. to TeleCorp PCS, Inc. 10.8***** Exchange and Registration Rights Agreement, dated July 14, 2000, among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee. 27.1 Financial Data Schedule. _______________________________________________________ * Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-81313) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp Communications, Inc. ** Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-49792) of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.). *** Incorporated by reference to the TeleCorp PCS, Inc. (f/k/a TeleCorp- Tritel Holding Company) Current Report on Form 8-K filed on November 13, 2000. **** Incorporated by reference to the TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.) Quarterly Report filed on Form 10-Q on August 11, 2000. ***** Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-43596) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp Communications, Inc.