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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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: 0027901
TeleCorp Wireless, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1988007
(State or other (I.R.S. Employer
jurisdiction Identification No.)
ofincorporation or
organization)
and the following subsidiary of TeleCorp Wireless, Inc.:
Commission file number 333-43596-01
TeleCorp Communications, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2105807
(State or other (I.R.S. Employer
jurisdiction Identification No.)
ofincorporation or
organization)
-----------------
1010 N. Glebe Road, Suite 800
Arlington, VA 22201
(Address of principal executive offices)
(703) 236-1100
(Registrant's telephone number, including area code)
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 [_]
As of November 14, 2001, the Registrant had 1,000 shares of common stock
outstanding.
The Registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets
the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q
and is therefore filing this Form 10-Q with the reduced disclosure format.
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INDEX
Page
----
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2000 and September 30, 2001 (unaudited). 3
Consolidated Statements of Operations and Comprehensive Loss for the three months ended
September 30, 2000 (unaudited) and 2001 (unaudited) and for the nine months ended
September 30, 2000 (unaudited) and 2001 (unaudited).................................. 4
Consolidated Condensed Statements of Cash Flows for the nine months ended September 30,
2000 (unaudited) and 2001 (unaudited)................................................ 5
Notes to Consolidated Financial Statements............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 23
PART II Other Information
Item 1. Legal Proceedings...................................................................... 23
Item 2. Changes in Securities and Use of Proceeds.............................................. 23
Item 3. Defaults Upon Senior Securities........................................................ 23
Item 4. Submission of Matters to a Vote of Security Holders.................................... 23
Item 5. Other Information...................................................................... 23
Item 6. Exhibits and Reports on Form 8-K....................................................... 23
2
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
TELECORP WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
December 31, September 30,
2000 2001
------------ -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 228,758 $ 19,858
Short-term investments........................................................ 34,189 --
Accounts receivable, net...................................................... 44,792 88,118
Inventory, net................................................................ 23,680 7,483
Prepaid expenses and other current assets..................................... 9,024 26,474
---------- ----------
Total current assets...................................................... 340,443 141,933
Property and equipment, net...................................................... 655,218 773,150
PCS licenses and microwave relocation costs, net................................. 668,472 715,232
Intangible assets--AT&T agreements, net.......................................... 174,775 157,224
Other assets..................................................................... 37,849 36,730
---------- ----------
Total assets.............................................................. $1,876,757 $1,824,269
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................................................. $ 45,819 $ 32,648
Accrued expenses and other.................................................... 151,918 133,298
Microwave relocation obligation, current portion.............................. 21,232 14,655
Long-term debt, current portion............................................... 1,459 1,528
Accrued interest.............................................................. 25,801 15,397
---------- ----------
Total current liabilities................................................. 246,229 197,526
Long-term debt................................................................... 1,288,628 1,513,962
Accrued expenses and other....................................................... 22,056 58,455
---------- ----------
Total liabilities......................................................... 1,556,913 1,769,943
---------- ----------
Commitments and contingencies
Stockholder's equity:
Common stock, par value $.01 per share, 3,000 shares authorized, 1,000 shares
issued and outstanding...................................................... -- --
Additional paid-in capital.................................................... 765,291 772,068
Deferred compensation......................................................... (24,445) (22,105)
Due from TeleCorp PCS......................................................... (89,174) (51,314)
Accumulated other comprehensive income (loss)................................. 958 (8,545)
Accumulated deficit........................................................... (332,786) (635,778)
---------- ----------
Total stockholder's equity................................................ 319,844 54,326
---------- ----------
Total liabilities and stockholder's equity................................ $1,876,757 $1,824,269
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
TELECORP WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($ in thousands)
For the three months For the nine months ended
ended September 30, September 30,
---------------------- ------------------------
2000 2001 2000 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Service............................................... $ 64,272 $ 103,207 $ 152,328 $ 260,493
Roaming............................................... 18,307 21,193 44,458 56,791
Equipment............................................. 9,312 12,427 22,562 30,264
-------- --------- --------- ---------
Total revenue..................................... 91,891 136,827 219,348 347,548
-------- --------- --------- ---------
Operating expenses:
Cost of revenue....................................... 27,473 41,063 67,906 103,248
Operations and development (including non-cash stock
compensation of $302, $136, $1,073 and $503)........ 14,043 17,082 39,578 50,809
Selling and marketing (including non-cash stock
compensation of $413, $307, $972 and $974).......... 43,689 47,664 118,455 137,050
General and administrative (including non-cash stock
compensation of $3,214, $2,298, $28,767 and $7,763). 31,429 44,194 105,776 120,951
Depreciation and amortization......................... 32,387 49,775 82,770 140,840
-------- --------- --------- ---------
Total operating expenses.......................... 149,021 199,778 414,485 552,898
-------- --------- --------- ---------
Operating loss.................................... (57,130) (62,951) (195,137) (205,350)
Other income (expense):
Interest expense...................................... (29,726) (33,852) (63,989) (102,250)
Interest income and other............................. 5,364 225 9,261 4,608
-------- --------- --------- ---------
Net loss.......................................... $(81,492) $ (96,578) $(249,865) $(302,992)
Other comprehensive loss, net of tax..................... -- (6,592) -- (9,503)
-------- --------- --------- ---------
Comprehensive loss................................ $(81,492) $(103,170) $(249,865) $(312,495)
======== ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
TELECORP WIRELESS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
For the nine months ended
September 30,
------------------------
2000 2001
- - ----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net cash used in operating activities........................................ $ (99,057) $(187,591)
--------- ---------
Cash flows from investing activities:
Expenditures for property and equipment...................................... (249,810) (287,221)
Purchase of short-term investments........................................... (130,740) (7,929)
Proceeds from the sale of short-term investments............................. 5,001 42,118
Capitalized interest......................................................... (2,712) (5,110)
Proceeds from sale of property and equipment................................. -- 85,805
Expenditures for microwave relocation........................................ (5,398) (5,515)
Purchase of PCS licenses, Black Label Wireless, Inc.......................... (12,166) --
Purchase of PCS licenses..................................................... (733) (55,628)
Payment of FCC deposit on PCS licenses....................................... (12,368) --
Partial refund of deposit on PCS licenses.................................... 9,607 --
Payment of Tritel acquisition costs.......................................... (10,214) (20,247)
--------- ---------
Net cash used in investing activities.................................... (409,533) (253,727)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock........................................... 41,869 --
Proceeds from long-term debt................................................. 579,422 185,000
Receipt of mandatorily redeemable preferred stock subscription receivable of
TeleCorp PCS............................................................... 37,650 48,701
Payments on long term debt................................................... (1,019) (1,066)
Payments of debt issuance costs.............................................. (14,159) (217)
--------- ---------
Net cash provided by financing activities................................ 643,763 232,418
--------- ---------
Net increase (decrease) in cash and cash equivalents............................ 135,173 (208,900)
Cash and cash equivalents at the beginning of period............................ 182,330 228,758
--------- ---------
Cash and cash equivalents at the end of period.................................. $ 317,503 $ 19,858
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
5
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
1. Summary of Significant Accounting Policies
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, 2001 are not necessarily indicative of results that
may be expected for the year ending December 31, 2001.
Reclassifications
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform with the presentation of the consolidated financial
statements as of and for the three and nine months ended September 30, 2001.
Consolidation
The consolidated financial statements include the accounts of TeleCorp
Wireless, Inc. (the Company) and its wholly-owned subsidiaries, which include,
among others, TeleCorp Communications, Inc., TeleCorp LLC and TeleCorp Holding.
All intercompany accounts and transactions have been eliminated in
consolidation.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141, requires, among other matters, that purchase accounting be applied to
business combinations initiated after June 30, 2001 and the separate
recognition of intangible assets apart from goodwill if they meet either the
contractual legal or separability criteria. The adoption of SFAS No. 141 had no
effect on the consolidated financial position, results of operations, or cash
flows of the Company. SFAS No. 142 addresses the accounting treatment and
reporting for acquired goodwill and other intangible assets acquired
individually or with a group of assets (but not those acquired in a business
combination) and addresses how goodwill and other intangible assets are
accounted for after initial acquisition. The Company intends to adopt SFAS No.
142 as of January 1, 2002, as required, and as of July 1, 2001 for goodwill and
intangible assets acquired after June 30, 2001 (for the nonamortization and
amortization provisions of the Statement). The Company is in the process of
determining the effect of adopting this standard. At this time, no assurance
can be given that material amounts of intangible assets will not need to be
adjusted upon adoption of SFAS No. 142 in 2002 as a "cumulative effect of
change in accounting principle".
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The Company intends to adopt SFAS
No. 144, which supercedes SFAS No. 121, "Impairment of Long-Lived Assets", and
portions of APB Opinion No. 30, as of January 1, 2002. The statement provides
guidance on the recognition and measurement of impairment of long-lived assets
to be held and used and assets to be disposed. The Company is in the process of
determining the effects of adopting this standard.
2. Derivative Instruments and Hedging Activities
The Company's activities expose it to market risks that are related to the
effects of changes in interest rates. This financial exposure is monitored and
managed by the Company as an integral part of its overall risk-management
program. The Company's risk-management program focuses on the unpredictability
of interest rates and seeks to reduce the potentially adverse effects that the
volatility of these rates may have on its future cash flows.
6
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
By using derivative financial instruments to hedge exposures to changes in
interest rates, the Company exposes itself to credit risk and market risk.
Credit risk is the risk that the counterparty might fail to fulfill its
performance obligations under the terms of the derivative contract. When the
fair value of a derivative contract is positive, the counterparty owes the
Company, which creates repayment risk for the Company. When the fair value of a
derivative contract is negative, the Company owes the counterparty and,
therefore, does not assume repayment risk. The Company minimizes its credit (or
repayment) risk in derivative instruments by (1) entering into transactions
with high-quality counterparties whose credit ratings are AA/Aa or higher, (2)
limiting the amount of its exposure to each counterparty, and (3) monitoring
the financial condition of its counterparties. The Company also maintains a
policy of requiring that all derivative contracts be governed by an
International Swaps and Derivatives Association Master Agreement and, depending
on the nature of the derivative transaction, also be governed by bilateral
collateral arrangements.
Market risk is the risk that the value of a financial instrument might be
adversely affected by a change in interest rates. The Company manages the
market risk associated with interest rate contracts by establishing and
monitoring parameters that limit the types and degree of market risk that may
be undertaken.
Cash Flow Hedges
The Company uses interest rate swaps to convert a portion of its
variable-rate debt to fixed-rate debt. The resulting cost of funds is lower
than it would have been had fixed-rate borrowings been issued directly. The
level of fixed-rate debt, after the effects of interest rate swaps have been
considered, is currently maintained at 69% of the total Company variable-rate
senior credit facility debt.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities", on January
1, 2001. In accordance with the adoption of SFAS No. 133, the Company recorded
as of January 1, 2001 an asset of $2,443 which represents an estimated fair
value of the derivative instruments along with an after-tax unrealized gain of
$2,443 in Other Comprehensive Income, which is a component of stockholder's
equity, as a cumulative effect of accounting change.
SFAS No. 133 requires the Company to carry all derivative financial
instruments on the balance sheet at fair value. Changes in fair value of
designated, qualified and effective cash flow hedges are deferred and recorded
as a component of Other Comprehensive Income until the hedged transactions
occur and are recognized in earnings. The ineffective portion and changes
related to amounts excluded from the effectiveness assessment of a hedging
derivative's change in fair value are immediately reported as "loss on
derivatives". The Company assesses, both at the inception of the hedge and on
an on-going basis, whether the derivatives are highly effective. Hedge
accounting is prospectively discontinued when hedge instruments are no longer
highly effective.
The Company recognized an unrealized loss for the three and nine months
ended September 30, 2001 in Other Comprehensive Loss of $6,592 and $10,988,
respectively, and a related liability as of September 30, 2001 of $8,545. All
components of each derivative's gain or loss were included in the assessment of
hedge effectiveness. In addition, after discontinuing certain of its cash flow
hedges, the Company determined that it was probable that certain forecasted
transactions would occur by the end of the originally specified time period.
7
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
3. Accrued Expenses and Other
Accrued expenses and other consist of the following:
December 31, September 30,
2000 2001
------------ -------------
(unaudited)
Property and equipment......................... $ 63,723 $ 28,582
Sales and property taxes....................... 32,653 33,792
Payroll and related liabilities................ 12,834 15,150
Accrued operational expenses................... 38,705 34,728
Deferred gain on sale of property and equipment -- 40,616
Microwave relocation obligation, long-term..... 15,736 15,736
Accrued liability of loss on derivatives....... -- 8,545
Other liabilities.............................. 10,323 14,604
-------- --------
173,974 191,753
Less: non-current portion...................... 22,056 58,455
-------- --------
$151,918 $133,298
======== ========
4. Long-term Debt
Long-term debt consists of the following:
December 31, September 30,
2000 2001
------------ -------------
(unaudited)
Senior credit facility............ $ 325,000 $ 510,000
Senior subordinated notes......... 450,000 450,000
Senior subordinated discount notes 396,572 431,525
Vendor financing.................. 47,443 50,950
U.S. Government financing......... 71,072 73,015
---------- ----------
1,290,087 1,515,490
Less current portion.............. 1,459 1,528
---------- ----------
$1,288,628 $1,513,962
========== ==========
Senior Credit Facility
On April 5, 2001, the Company drew $35,000 from its Senior Credit Facility
Tranche C term loan. Interest on the Tranche C loan was 6.83% at September 30,
2001.
On July 6, 2001, the Company drew $50,000 from its Senior Credit Facility
Tranche A term loan. Interest on the Tranche A loan was 6.32% at September 30,
2001.
On August 9 and September 10, 2001, the Company drew $50,000 and $50,000,
respectively, from its Senior Credit Facility revolver. Interest on the
revolver loan was 6.08% at September 30, 2001.
5. Other Comprehensive Loss
Other comprehensive loss for the three and nine months ended September 30,
2000 and 2001 consists of the following:
For the three For the nine
months ended months ended
September 30, September 30,
------------ ------------
2000 2001 2000 2001
---- ---- ---- ----
(unaudited) (unaudited)
Reclassification of gains realized on sale of securities $ -- $ -- $ -- $ (958)
Unrealized holding losses from interest rate swaps...... -- (6,592) -- (8,545)
---- ------- ---- -------
Other comprehensive loss................................ $ -- $(6,592) $ -- $(9,503)
==== ======= ==== =======
8
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
6. Sale of Telecommunication Towers
On March 16, May 17, June 29, July 17, and September 19, 2001, the Company
completed the sales and transfer to SBA Communications Corporation (SBA) of a
total of 262 towers and related assets for an aggregate purchase price of
$85,805, reflecting a price of approximately $328 per site. Concurrently with
the initial sale, the Company entered into a master lease agreement with SBA
for the continued use of the space that the Company occupied on the towers
prior to each sale. The Company recognized a deferred gain on the sale which
will be recognized ratably over the five-year term of the related operating
lease-back.
7. Acquisitions
On February 5, 2001, the Company purchased a 15 MHz C-Block PCS license in
the Mayaguez, Puerto Rico basic trading area for $18,000 in cash.
On April 5, 2001, the Company purchased D-block licenses in Cedar Rapids and
Iowa City, Iowa for an aggregate purchase price of $13,117 in cash.
On June 18, 2001, the Company purchased E-block licenses in Cedar Rapids,
Iowa for an aggregate purchase price of $7,000 in cash.
On August 30, 2001, the Company purchased C-block licenses in various
locations in Iowa for an aggregate purchase price of $10,920 in cash. The
licenses cover the following locations in Iowa: Burlington, Ottumwa, Mason
City, Marshall Town, and Fort Dodge.
On August 31, 2001, the Company purchased C-block licenses in Sioux City,
Iowa for an aggregate purchase price of $8,562. As consideration for the
licenses, the Company paid $6,257 in cash and assumed approximately $2,305,
including $13 of accrued interest, in U.S. Government financing related to the
licenses.
8. Related Parties
The Company engages in transactions with its affiliate company Tritel, Inc.
(Tritel), each of which is a wholly-owned subsidiary of TeleCorp PCS, Inc.
(TeleCorp PCS). These transactions include shared management and operational
personnel, shared telecommunications assets, reciprocal roaming revenue and
expense agreements, and joint purchasing arrangements. Due to certain covenants
contained in the Company's various indentures, the Company tracks and settles
these amounts in cash monthly at the estimated fair value of the underlying
transaction. For the three and nine months ended September 30, 2001, the
Company recognized an expense reduction of $1,515 and $4,426, respectively,
related to personnel shared with Tritel. In addition, for the three and nine
months ended September 30, 2001, the Company recognized rental revenue of $54
and $162, respectively, related to telecommunications assets shared with
Tritel. Charges for roaming revenues and expenses provided between companies
for the three months ended September 30, 2001 were $1,302 and $2036,
respectively, and for the nine months ended September 30, 2001 were $3,002 and
$4,742, respectively. As of September 30, 2001, the Company had a receivable
from Tritel of $70 included in other current assets.
During the nine months ended September 30, 2001, the Company received
$48,701 in cash related to mandatorily redeemable preferred stock subscriptions
receivable of TeleCorp PCS. The Company also paid certain liabilities on its
parent behalf totaling $15,532. As of September 30, 2001, the Company's balance
due from parent totaled $51,314.
9
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
9. Subsidiary Guarantees
On April 23, 1999, the Company completed the issuance and sale of 11 5/8%
Senior Subordinated Discount Notes (the 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 its 10 5/8%
Senior Subordinated Notes. The Senior Subordinated Notes are also 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 subsidiary of TCI, and the non-guarantor
subsidiaries of TeleCorp Wireless, Inc. as of December 31, 2000 and September
30, 2001 and for the three and nine months ended September 30, 2000 and 2001
have been included on the following pages.
Consolidating Balance Sheet as of December 31, 2000:
TeleCorp Communications, Inc.
----------------------------------
TeleCorp TCI- Non-
Wireless, Guarantor Guarantor
Inc. Subsidiary Subsidiary Consolidated
---------- ---------- ---------- ------------
ASSETS
Current assets:
Cash and cash equivalents.................. $ 228,758 $ -- $ -- $ --
Short-term investments..................... 34,189 -- -- --
Accounts receivable, net................... -- 44,792 -- 44,792
Inventory.................................. -- 23,680 -- 23,680
Prepaid expenses and other current
assets.................................... 111 5,992 2,921 8,913
---------- -------- ------- --------
Total current assets.................... 263,058 74,464 2,921 77,385
Property and equipment, net................... -- 655,218 -- 655,218
PCS licenses and microwave relocation
costs, net................................... -- -- -- --
Intangible assets--AT&T agreements,
net.......................................... 174,775 -- -- --
Other assets.................................. 33,355 45 938 983
Investments in subsidiaries................... 1,092,175 1,320 (1,320) --
---------- -------- ------- --------
Total assets............................ $1,563,363 $731,047 $ 2,539 $733,586
========== ======== ======= ========
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................... $ -- $ 45,819 $ -- $ 45,819
Accrued expenses and other................. -- 151,433 485 151,918
Microwave relocation obligation,
current portion........................... -- -- -- --
Long-term debt, current portion............ -- -- -- --
Accrued interest........................... 24,505 310 -- 310
---------- -------- ------- --------
Total current liabilities............... 24,505 197,562 485 198,047
Long-term debt................................ 1,219,014 -- -- --
Accrued expenses and other.................... -- -- 1,930 1,930
---------- -------- ------- --------
Total liabilities....................... 1,243,519 197,562 2,415 199,977
---------- -------- ------- --------
Commitments and contingencies
Stockholder's equity (deficit)................ 319,844 533,485 124 533,609
---------- -------- ------- --------
Total liabilities and stockholder's
equity (deficit)....................... $1,563,363 $731,047 $ 2,539 $733,586
========== ======== ======= ========
TeleCorp Wireless, Inc.
--------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.................. $ -- $ -- $ 228,758
Short-term investments..................... -- -- 34,189
Accounts receivable, net................... -- -- 44,792
Inventory.................................. -- -- 23,680
Prepaid expenses and other current
assets.................................... -- -- 9,024
-------- ----------- ----------
Total current assets.................... -- -- 340,443
Property and equipment, net................... -- -- 655,218
PCS licenses and microwave relocation
costs, net................................... 668,472 -- 668,472
Intangible assets--AT&T agreements,
net.......................................... -- -- 174,775
Other assets.................................. 3,511 -- 37,849
Investments in subsidiaries................... -- (1,092,175) --
-------- ----------- ----------
Total assets............................ $671,983 $(1,092,175) $1,876,757
======== =========== ==========
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................... $ -- $ -- $ 45,819
Accrued expenses and other................. -- -- 151,918
Microwave relocation obligation,
current portion........................... 21,232 -- 21,232
Long-term debt, current portion............ 1,459 -- 1,459
Accrued interest........................... 986 -- 25,801
-------- ----------- ----------
Total current liabilities............... 23,677 -- 246,229
Long-term debt................................ 69,614 -- 1,288,628
Accrued expenses and other.................... 20,126 -- 22,056
-------- ----------- ----------
Total liabilities....................... 113,417 -- 1,556,913
-------- ----------- ----------
Commitments and contingencies
Stockholder's equity (deficit)................ 558,566 (1,092,175) 319,844
-------- ----------- ----------
Total liabilities and stockholder's
equity (deficit)....................... $671,983 $(1,092,175) $1,876,757
======== =========== ==========
10
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Balance Sheet as of September 30, 2001 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
---------------------------------- --------------------------------------
TeleCorp TCI- Non- Non-
Wireless, Guarantor Guarantor Guarantor
Inc Subsidiary Subsidiary Consolidated Subsidiaries Eliminations Consolidated
---------- ---------- ---------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents......... $ 19,858 $ -- $ -- $ -- $ -- $ -- $ 19,858
Accounts receivable, net.......... -- 88,118 -- 88,118 -- -- 88,118
Inventory......................... -- 7,483 -- 7,483 -- -- 7,483
Prepaid expenses and other
current assets................... 16 22,617 3,841 26,458 -- -- 26,474
---------- -------- ------ -------- -------- ----------- ----------
Total current assets........... 19,874 118,218 3,841 122,059 -- -- 141,933
Property and equipment, net.......... -- 773,150 -- 773,150 -- -- 773,150
PCS licenses and microwave
relocation costs, net............... -- -- -- -- 715,232 -- 715,232
Intangible assets--AT&T agreements,
net................................. 157,224 -- -- -- -- -- 157,224
Other assets......................... 30,346 401 2,351 2,752 3,632 -- 36,730
Investment in subsidiaries........... 1,311,955 4,395 -- 4,395 -- (1,316,350) --
---------- -------- ------ -------- -------- ----------- ----------
Total assets................... $1,519,399 $896,164 $6,192 $902,356 $718,864 $(1,316,350) $1,824,269
========== ======== ====== ======== ======== =========== ==========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................. $ -- $ 32,648 $ -- $ 32,648 $ -- $ -- $ 32,648
Accrued expenses and other........ 8,545 124,449 304 124,753 -- -- 133,298
Microwave relocation obligation,
current portion.................. -- -- -- -- 14,655 -- 14,655
Long-term debt, current portion... -- -- -- -- 1,528 -- 1,528
Accrued interest.................. 14,053 310 -- 310 1,034 -- 15,397
---------- -------- ------ -------- -------- ----------- ----------
Total current liabilities...... 22,598 157,407 304 157,711 17,217 -- 197,526
Long-term debt....................... 1,442,475 -- -- -- 71,487 -- 1,513,962
Accrued expenses and other........... -- 37,663 1,493 39,156 19,299 -- 58,455
---------- -------- ------ -------- -------- ----------- ----------
Total liabilities.............. 1,465,073 195,070 1,797 196,867 108,003 -- 1,769,943
---------- -------- ------ -------- -------- ----------- ----------
Commitments and contingencies
Stockholder's equity (deficit)....... 54,326 701,094 4,395 705,489 610,861 (1,316,350) 54,326
---------- -------- ------ -------- -------- ----------- ----------
Total liabilities and
stockholder's equity
(deficit)..................... $1,519,399 $896,164 $6,192 $902,356 $718,864 $(1,316,350) $1,824,269
========== ======== ====== ======== ======== =========== ==========
11
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the three months ended September 30,
2000 (unaudited):
TeleCorp Communications, Inc.
-----------------------------------------------------
TeleCorp TCI- Non-
Wireless, Guarantor Guarantor
Inc Subsidiary Subsidiary Eliminations Consolidated
---------- ----------- ----------- ------------- -------------
Revenue:
Service.................... $ -- $ 64,272 $ -- $ -- $ 64,272
Roaming.................... -- 18,307 -- -- 18,307
Equipment.................. -- 9,312 -- -- 9,312
Intercompany............... 1,789 -- 6,249 (6,249) --
---------- ----------- ----------- ------------- -------------
Total revenue........... 1,789 91,891 6,249 (6,249) 91,891
---------- ----------- ----------- ------------- -------------
Operating expenses:
Cost of revenue............ -- 37,237 -- (6,249) 30,988
Operations and
development............... -- 7,794 6,249 -- 14,043
Selling and marketing...... -- 43,689 -- -- 43,689
General and
administrative............ -- 31,429 -- -- 31,429
Depreciation and
amortization.............. 1,789 29,284 -- -- 29,284
---------- ----------- ----------- ------------- -------------
Total operating
expenses............... 1,789 149,433 6,249 (6,249) 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 -- -- -- --
Equity in net loss of
subsidiaries.............. (81,492) -- -- -- --
---------- ----------- ----------- ------------- -------------
Net (loss) income....... $ (81,492) $ (81,492) $ -- $ -- $ (81,492)
========== =========== =========== ============= =============
TeleCorp Wireless, Inc.
-------------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
------------- ------------- -------------
Revenue:
Service.................... $ -- $ -- $ 64,272
Roaming.................... -- -- 18,307
Equipment.................. -- -- 9,312
Intercompany............... 1,726 (3,515) --
------------- ------------- -------------
Total revenue........... 1,726 (3,515) 91,891
------------- ------------- -------------
Operating expenses:
Cost of revenue............ -- (3,515) 27,473
Operations and
development............... -- -- 14,043
Selling and marketing...... -- -- 43,689
General and
administrative............ -- -- 31,429
Depreciation and
amortization.............. 1,314 -- 32,387
------------- ------------- -------------
Total operating
expenses............... 1,314 (3,515) 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
Equity in net loss of
subsidiaries.............. -- 81,492 --
------------- ------------- -------------
Net (loss) income....... $ -- $ 81,492 $ (81,492)
============= ============= =============
12
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the three months ended September 30,
2001 (unaudited):
TeleCorp Communications, Inc.
----------------------------------------------
TeleCorp TCI- Non-
Wireless, Guarantor Guarantor
Inc. Subsidiary Subsidiary Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
Revenue:
Service............................. $ -- $103,120 $ 87 $ -- $103,207
Roaming............................. -- 21,193 -- -- 21,193
Equipment........................... -- 12,427 -- -- 12,427
Intercompany........................ 5,850 -- 7,906 (7,906) --
--------- -------- ------ ------- --------
Total revenue.................... 5,850 136,740 7,993 (7,906) 136,827
--------- -------- ------ ------- --------
Operating expenses:
Cost of revenue..................... -- 60,382 -- (7,906) 52,476
Operations and development.......... -- 9,176 7,906 -- 17,082
Selling and marketing............... -- 47,664 -- -- 47,664
General and administrative.......... -- 44,194 -- -- 44,194
Depreciation and amortization....... 5,850 39,901 -- -- 39,901
--------- -------- ------ ------- --------
Total operating expenses......... 5,850 201,317 7,906 (7,906) 201,317
--------- -------- ------ ------- --------
Operating income (loss).......... -- (64,577) 87 -- (64,490)
Other income (expense):
Interest expense.................... (32,313) (32,088) -- -- (32,088)
Interest income and other........... 32,313 -- -- -- --
Equity in net loss of subsidiaries.. (96,578) -- -- -- --
--------- -------- ------ ------- --------
Net (loss) income................ (96,578) (96,665) 87 -- (96,578)
--------- -------- ------ ------- --------
Other comprehensive loss, net of tax... (6,592) -- -- -- --
--------- -------- ------ ------- --------
Comprehensive (loss) income...... $(103,170) $(96,665) $ 87 $ -- $(96,578)
========= ======== ====== ======= ========
TeleCorp Wireless, Inc.
-------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
------------ ------------ ------------
Revenue:
Service............................. $ -- $ -- $ 103,207
Roaming............................. -- -- 21,193
Equipment........................... -- -- 12,427
Intercompany........................ 5,563 (11,413) --
------- -------- ---------
Total revenue.................... 5,563 (11,413) 136,827
------- -------- ---------
Operating expenses:
Cost of revenue..................... -- (11,413) 41,063
Operations and development.......... -- -- 17,082
Selling and marketing............... -- -- 47,664
General and administrative.......... -- -- 44,194
Depreciation and amortization....... 4,024 -- 49,775
------- -------- ---------
Total operating expenses......... 4,024 (11,413) 199,778
------- -------- ---------
Operating income (loss).......... 1,539 -- (62,951)
Other income (expense):
Interest expense.................... (1,539) 32,088 (33,852)
Interest income and other........... -- (32,088) 225
Equity in net loss of subsidiaries.. -- 96,578 --
------- -------- ---------
Net (loss) income................ -- 96,578 (96,578)
------- -------- ---------
Other comprehensive loss, net of tax... -- -- (6,592)
------- -------- ---------
Comprehensive (loss) income...... $ -- $ 96,578 $(103,170)
======= ======== =========
13
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the nine months ended September 30,
2000 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
---------------------------------------------- -------------------------------------
TeleCorp TCI- Non- Non-
Wireless, Guarantor Guarantor Guarantor
Inc. Subsidiary Subsidiary Eliminations Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ---------- ------------ ------------ ------------ ------------ ------------
Revenue:
Service................. $ -- $ 152,328 $ -- $ -- $ 152,328 $ -- $ -- $ 152,328
Roaming................. -- 44,458 -- -- 44,458 -- -- 44,458
Equipment............... -- 22,562 -- -- 22,562 -- -- 22,562
Intercompany............ 5,366 -- 18,058 (18,058) -- 5,110 (10,476) --
--------- --------- ------- -------- --------- ------- -------- ---------
Total revenue........ 5,366 219,348 18,058 (18,058) 219,348 5,110 (10,476) 219,348
--------- --------- ------- -------- --------- ------- -------- ---------
Operating expenses:
Cost of revenue......... -- 96,440 -- (18,058) 78,382 -- (10,476) 67,906
Operations and
development............ -- 21,520 18,058 -- 39,578 -- -- 39,578
Selling and
marketing.............. -- 118,455 -- -- 118,455 -- -- 118,455
General and
administrative......... -- 105,776 -- -- 105,776 -- -- 105,776
Depreciation and
amortization........... 5,366 73,949 -- -- 73,949 3,455 -- 82,770
--------- --------- ------- -------- --------- ------- -------- ---------
Total operating
expenses............ 5,366 416,140 18,058 (18,058) 416,140 3,455 (10,476) 414,485
--------- --------- ------- -------- --------- ------- -------- ---------
Operating income
(loss).............. -- (196,792) -- -- (196,792) 1,655 -- (195,137)
Other income (expense):
Interest expense........ (62,334) (53,073) -- -- (53,073) (1,655) 53,073 (63,989)
Interest income and
other.................. 62,334 -- -- -- -- -- (53,073) 9,261
Equity in net loss of
subsidiaries........... (249,865) -- -- -- -- -- 249,865 --
--------- --------- ------- -------- --------- ------- -------- ---------
Net (loss)
income.............. $(249,865) $(249,865) $ -- $ -- $(249,865) $ -- $249,865 $(249,865)
========= ========= ======= ======== ========= ======= ======== =========
14
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the nine months ended September 30,
2001 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
---------------------------------------------- -------------------------------------
TeleCorp TCI- Non- Non-
Wireless, Guarantor Guarantor Guarantor
Inc. Subsidiary Subsidiary Eliminations Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ---------- ------------ ------------ ------------ ------------ ------------
Revenue:
Service..................... $ -- $ 259,768 $ 725 $ -- $ 260,493 $ -- $ -- $ 260,493
Roaming..................... -- 56,791 -- -- 56,791 -- -- 56,791
Equipment................... -- 30,264 -- -- 30,264 -- -- 30,264
Intercompany................ 17,550 -- 19,530 (19,530) -- 15,014 (32,564) --
--------- --------- ------- -------- --------- ------- -------- ---------
Total revenue............ 17,550 346,823 20,255 (19,530) 347,548 15,014 (32,564) 347,548
--------- --------- ------- -------- --------- ------- -------- ---------
Operating expenses:
Cost of revenue............. 155,342 -- (19,530) 135,812 -- (32,564) 103,248
Operations and
development................ -- 31,279 19,530 -- 50,809 -- -- 50,809
Selling and marketing....... -- 137,050 -- -- 137,050 -- -- 137,050
General and
administrative............. -- 120,951 -- -- 120,951 -- -- 120,951
Depreciation and
amortization............... 17,550 112,904 -- -- 112,904 10,386 -- 140,840
--------- --------- ------- -------- --------- ------- -------- ---------
Total operating
expenses................ 17,550 557,526 19,530 (19,530) 557,526 10,386 (32,564) 552,898
--------- --------- ------- -------- --------- ------- -------- ---------
Operating income
(loss).................. -- (210,703) 725 -- (209,978) 4,628 -- (205,350)
Other income (expense):
Interest expense............ (97,622) (93,014) -- -- (93,014) (4,628) 93,014 (102,250)
Interest income and
other...................... 97,622 -- -- -- -- -- (93,014) 4,608
Equity in net loss of
subsidiaries.................. (302,992) -- -- -- -- -- 302,992 --
--------- --------- ------- -------- --------- ------- -------- ---------
Net (loss)
income.................. (302,992) (303,717) 725 -- (302,992) -- 302,922 (302,992)
Other comprehensive loss, net
of tax........................ (9,503) -- -- -- -- -- -- (9,503)
--------- --------- ------- -------- --------- ------- -------- ---------
Comprehensive (loss)
income.................. $(312,495) $(303,717) $ 725 $ -- $(302,992) $ -- $302,922 $(312,495)
========= ========= ======= ======== ========= ======= ======== =========
15
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Condensed Statement of Cash Flows for the nine months ended
September 30, 2000 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
--------------------------------- ----------------------------------------
TeleCorp TCI- Non- Non-
Wireless, Guarantor Guarantor Guarantor Black Label
Inc. Subsidiary Subsidiary Consolidated Subsidiaries Wireless, Inc. Eliminations
--------- ---------- ---------- ------------ ------------ -------------- ------------
Cash flows from operating
activities:
Net cash provided by (used
in) operating activities.... $(355,972) $ 236,770 $ -- $ 236,770 $ 20,125 $ 20 $ --
Cash flows from investing
activities:
Expenditures for property
and equipment............... -- (234,058) -- (234,058) -- (15,752) --
Capitalized interest......... -- (2,712) -- (2,712) -- -- --
Purchase of short-term
investments, net............ (125,739) -- -- -- -- -- --
Expenditures for
microwave relocation........ -- -- -- -- (5,398) -- --
Purchase of PCS licenses,
Black Label Wireless,
Inc......................... -- -- -- -- -- (12,166) --
Purchase of PCS licenses..... -- -- -- -- (733) -- --
Deposit on PCS licenses,
net......................... -- -- -- -- (2,761) -- --
Payment of Tritel
acquisition costs........... -- -- -- -- (10,214) -- --
--------- --------- ---- --------- -------- -------- ----
Net cash used in
investing activities..... (125,739) (236,770) -- (236,770) (19,106) (27,918) --
Cash flows from financing
activities:
Proceeds from sale of
common
stock....................... 41,869 -- -- -- -- -- --
Proceeds from receipt of
preferred stock
subscription receivable..... 37,650 -- -- -- -- -- --
Proceeds from long-term
debt........................ 550,000 -- -- -- -- 29,422 --
Payments on long-term
debt........................ -- -- -- -- (1,019) -- --
Payments of debt issuance
costs....................... (14,159) -- -- -- -- -- --
--------- --------- ---- --------- -------- -------- ----
Net cash provided by
(used in) financing
activities............... 615,360 -- -- -- (1,019) 29,422 --
--------- --------- ---- --------- -------- -------- ----
Net decrease in cash and cash
equivalents.................... 133,649 -- -- -- -- 1,524 --
Cash and cash equivalents at the
beginning of period............ 182,330 -- -- -- -- -- --
--------- --------- ---- --------- -------- -------- ----
Cash and cash equivalents at the
end of period.................. $ 315,979 $ -- $ -- $ -- $ -- 1,524 $ --
========= ========= ==== ========= ======== ======== ====
Consolidated
------------
Cash flows from operating
activities:
Net cash provided by (used
in) operating activities.... $ (99,057)
Cash flows from investing
activities:
Expenditures for property
and equipment............... 249,810
Capitalized interest......... (2,712)
Purchase of short-term
investments, net............ (125,739)
Expenditures for
microwave relocation........ (5,398)
Purchase of PCS licenses,
Black Label Wireless,
Inc......................... (12,166)
Purchase of PCS licenses..... (733)
Deposit on PCS licenses,
net......................... (2,761)
Payment of Tritel
acquisition costs........... (10,214)
---------
Net cash used in
investing activities..... (409,533)
Cash flows from financing
activities:
Proceeds from sale of
common
stock....................... 41,869
Proceeds from receipt of
preferred stock
subscription receivable..... 37,650
Proceeds from long-term
debt........................ 579,422
Payments on long-term
debt........................ (1,019)
Payments of debt issuance
costs....................... (14,159)
---------
Net cash provided by
(used in) financing
activities............... 643,763
---------
Net decrease in cash and cash
equivalents.................... 135,173
Cash and cash equivalents at the
beginning of period............ 182,330
---------
Cash and cash equivalents at the
end of period.................. $ 317,503
=========
16
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Condensed Statement of Cash Flows for the nine months ended
September 30, 2001 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
--------------------------------- -------------------------------------
TeleCorp TCI- Non- Non-
Wireless, Guarantor Guarantor Guarantor
Inc. Subsidiary Subsidiary Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ---------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net cash provided by (used in)
operating activities.................. $(476,573) $ 226,773 $ -- $ 226,773 $ 62,209 $ -- $(187,591)
--------- --------- ---- --------- -------- ---- ---------
Cash flows from investing activities:
Expenditures for property and
equipment............................. -- (287,221) -- (287,221) -- -- (287,221)
Purchase of short-term investments..... (7,929) -- -- -- -- -- (7,929)
Proceeds from sale of short-term
investments........................... 42,118 -- -- -- -- -- 42,118
Capitalized interest................... -- (5,110) -- (5,110) -- -- (5,110)
Proceeds from sale of property and
equipment............................. -- 85,805 -- 85,805 -- -- 85,805
Expenditures for microwave
relocation............................ -- -- -- -- (5,515) -- (5,515)
Purchase of PCS licenses............... -- -- -- -- (55,628) -- (55,628)
Payment of Tritel acquisition costs.... -- (20,247) -- (20,247) -- -- (20,247)
--------- --------- ---- --------- -------- ---- ---------
Net cash provided by (used in)
investing activities............... 34,189 (226,773) -- (226,773) (61,143) -- (253,727)
--------- --------- ---- --------- -------- ---- ---------
Cash flows from financing activities:
Proceeds from long-term debt........... 185,000 -- -- -- -- -- 185,000
Receipt of preferred stock
subscription receivable............... 48,701 -- -- -- -- -- 48,701
Payments on long-term debt............. -- -- -- -- (1,066) -- (1,066)
Payments of debt issuance costs........ (217) -- -- -- -- -- (217)
--------- --------- ---- --------- -------- ---- ---------
Net cash provided by (used in)
financing activities............... 233,484 -- -- -- (1,066) -- 232,418
--------- --------- ---- --------- -------- ---- ---------
Net decrease in cash and cash equivalents. (208,900) -- -- -- -- -- (208,900)
Cash and cash equivalents at the beginning
of period................................ 228,758 -- -- -- -- -- 228,758
--------- --------- ---- --------- -------- ---- ---------
Cash and cash equivalents at the end of
period................................... $ 19,858 $ -- $ -- $ -- $ -- $ -- $ 19,858
========= ========= ==== ========= ======== ==== =========
17
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
10. Subsequent Event
On October 7, 2001, TeleCorp PCS, Inc. (TeleCorp), the parent of the
Company, entered into a definitive Agreement and Plan of Merger (the Merger
Agreement) with AT&T Wireless Services, Inc. and TL Acquisition Corp., a direct
wholly-owned subsidiary of AT&T Wireless (the Merger Sub). Pursuant to the
Merger Agreement, the Merger Sub shall be merged with and into TeleCorp with
TeleCorp continuing as the surviving corporation and becoming a wholly-owned
subsidiary of AT&T Wireless (the Merger). The Merger is subject to, among other
things, regulatory approval and approval by TeleCorp's stockholders and is
expected to be consummated in the first half of 2002.
If the Merger is completed, other than shares owned by dissenting
stockholders which are not Class A common shares and shares owned directly by
AT&T Wireless Services, Inc.:
. each issued and outstanding share of TeleCorp's common stock will be
converted into and become exchangeable for 0.9 of a share of AT&T Wireless
common stock;
. each issued and outstanding share of TeleCorp's series C and series E
preferred stock will be converted into and become exchangeable for a share
of AT&T Wireless preferred stock that is substantially identical to the
share of TeleCorp preferred stock;
. each issued and outstanding share of TeleCorp's series A convertible
preferred stock will be converted into and become exchangeable for 82.9849
shares of AT&T Wireless common stock;
. each issued and outstanding share of TeleCorp's series B preferred stock
will be converted into and become exchangeable for 81.2439 shares of AT&T
Wireless common stock;
. each issued and outstanding share TeleCorp's series D preferred stock will
be converted into and become exchangeable for 27.6425 shares of AT&T
Wireless common stock; and
. each issued and outstanding share of TeleCorp's series F and G preferred
stock will be converted into and become exchangeable for 0.9 of a share of
AT&T Wireless common stock.
18
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) the
Company's accompanying unaudited Consolidated Financial Statements and notes
thereto included in this report on Form 10-Q and (2) the Company's 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, 2000 included in the Company's Annual Report on Form
10-K for such period. This 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. The Company does not intend to update any such
forward-looking statements.
Overview
The Company is an AT&T Wireless affiliate in the United States providing
digital wireless personal communications services, or PCS, to a licensed
service area covering approximately 23 million people. As of September 30,
2001, the Company had launched service in 38 markets having approximately 19
million people and representing approximately 83% of the population where the
Company holds licenses in the United States and Puerto Rico. As of September
30, 2001, the Company served more than 601,900 customers. Under the terms of
the strategic alliance the Company has with AT&T Wireless the Company is AT&T
Wireless's exclusive provider of wireless mobility services on the Company's
network. The Company is a wholly owned subsidiary of TeleCorp PCS, Inc.
On October 7, 2001, TeleCorp PCS, Inc. (TeleCorp), the parent of the
Company, entered into a definitive Agreement and Plan of Merger (the Merger
Agreement) with AT&T Wireless Services, Inc. and TL Acquisition Corp., a direct
wholly-owned subsidiary of AT&T Wireless (the Merger Sub). Pursuant to the
Merger Agreement, the Merger Sub shall be merged with and into TeleCorp with
TeleCorp continuing as the surviving corporation and becoming a wholly-owned
subsidiary of AT&T Wireless (the Merger). The Merger is subject to, among other
things, regulatory approval and approval by TeleCorp's stockholders and is
expected to be consummated in the first half of 2002.
If the Merger is completed, other than shares owned by dissenting
stockholders which are not Class A common shares and shares owned directly by
AT&T Wireless Services, Inc.:
. each issued and outstanding share of TeleCorp's common stock will be
converted into and become exchangeable for 0.9 of a share of AT&T Wireless
common stock;
. each issued and outstanding share of TeleCorp's series C and series E
preferred stock will be converted into and become exchangeable for a share
of AT&T Wireless preferred stock that is substantially identical to the
share of TeleCorp preferred stock;
. each issued and outstanding share of TeleCorp's series A convertible
preferred stock will be converted into and become exchangeable for 82.9849
shares of AT&T Wireless common stock;
. each issued and outstanding share of TeleCorp's series B preferred stock
will be converted into and become exchangeable for 81.2439 shares of AT&T
Wireless common stock;
. each issued and outstanding share of TeleCorp's series D preferred stock
will be converted into and become exchangeable for 27.6425 shares of AT&T
Wireless common stock; and
19
. each issued and outstanding share of TeleCorp's series F and G preferred
stock will be converted into and become exchangeable for 0.9 of a share of
AT&T Wireless common stock.
Results of Operations
Three months ended September 30, 2001 compared to three months ended
September 30, 2000
Subscribers
Net additions were 44,176 and 85,562 for the three months ended September
30, 2001 and 2000, respectively. Total PCS subscribers were 601,947 and 405,444
as of September 30, 2001 and 2000, respectively. The increase in total PCS
subscribers over the same period in 2000 was primarily due to launching
additional markets from the period October 1, 2000 to September 30, 2001.
Revenue
Revenue for the three months ended September 30, 2001 and 2000 was $136.8
million and $91.9 million, respectively. Service revenue was $103.2 million and
$64.3 million for the three months ended September 30, 2001 and 2000,
respectively. The increase in service revenue of $38.9 million was due to the
addition of approximately 197,000 subscribers from October 1, 2000 to September
30, 2001 and to the launch of additional markets. Roaming revenue was $21.2
million and $18.3 million for the three months ended September 30, 2001 and
2000, respectively. The increase in roaming revenue of $2.9 million was due
primarily to additional cell sites being added since the three months ended
September 30, 2000. Equipment revenue was $12.4 million and $9.3 million for
the three months ended September 30, 2001 and 2000, respectively. The equipment
revenue increase of $3.1 million over 2000 was due primarily to the sales of
handsets and related accessories in connection with the significant growth in
gross additions during the three months ended September 30, 2001.
Cost of revenue
Cost of revenue was $41.1 million and $27.5 million for the three months
ended September 30, 2001 and 2000, respectively. The increase in cost of
revenue of $13.6 million over the same period in 2000 was due primarily to
additional roaming, interconnection and long distance expenses in connection
with the Company's increased subscriber base and increases in equipment costs
due in connection with the growth in gross customer additions during the three
months ended September 30, 2001.
Operations and development
Operations and development expense was $17.1 million and $14.0 million for
the three months ended September 30, 2001 and 2000, respectively. The increase
of $3.1 million over the same period in 2000 was primarily due to the
development and growth of infrastructure and staffing and maintenance related
to the support of the Company's network and network operations center.
Selling and marketing
Selling and marketing expense was $47.7 million and $43.7 million for the
three months ended September 30, 2001 and 2000, respectively. The increase of
$4.0 million over the same period in 2000 was primarily due to the cost of
acquiring the increased number of new subscribers. Costs associated with the
Company's increased market base included advertising and promotion costs,
commissions and the excess cost of handsets over the retail price.
General and administrative
General and administrative expense was $44.2 million and $31.4 million for
the three months ended September 30, 2001 and 2000, respectively. The increase
of $12.8 million over the same period in 2000 was primarily due to the
development and growth of infrastructure and staffing related to information
technology,
20
customer care and other administrative functions incurred in conjunction with
managing the corresponding growth in the Company's subscriber base and
launching the additional markets.
Depreciation and amortization
Depreciation and amortization expense was $49.8 million and $32.4 million
for the three months ended September 30, 2001 and 2000, respectively. The
increase of $17.4 million over the same period in 2000 relates primarily to
depreciation of the Company's property and equipment as well as the
amortization of its PCS licenses and the AT&T and AT&T Wireless operating
agreements related to the Company's markets launched between October 1, 2000
and September 30, 2001.
Interest expense
Interest expense was $33.9 million, net of capitalized interest of $2.3
million, for the three months ended September 30, 2001. Interest expense was
$29.7 million, net of capitalized interest of $0.9 million, for the three
months ended September 30, 2000. The increase of $4.2 million over the same
period in 2000 relates primarily to additional FCC debt issued throughout 2000
and $185 million of additional senior credit facility drawn during 2001.
Interest income and other
Interest income and other was $0.2 million and $5.4 million for the three
months ended September 30, 2001 and 2000, respectively. The decrease of $5.2
million from the same period in 2000 was due primarily to lower average daily
cash and short-term investment balances during the three months ended September
30, 2001.
Results of Operations
Nine months ended September 30, 2001 compared to nine months ended September
30, 2000
Subscribers
Net additions were 141,197 and 263,213 for the nine months ended September
30, 2001 and 2000, respectively. Total PCS subscribers were 601,947 and 405,444
as of September 30, 2001 and 2000, respectively. The increase in total PCS
subscribers over the same period in 2000 was primarily due to launching
additional markets from the period October 1, 2000 to September 30, 2001.
Revenue
Revenue for the nine months ended September 30, 2001 and 2000 was $347.5
million and $219.3 million, respectively. Service revenue was $260.5 million
and $152.3 million for the nine months ended September 30, 2001 and 2000,
respectively. The increase in service revenue of $108.2 million was due to the
addition of approximately 197,000 subscribers from October 1, 2000 to September
30, 2001 and to the launch of additional markets. Roaming revenue was $56.8
million and $44.5 million for the nine months ended September 30, 2001 and
2000, respectively. The increase in roaming revenue of $12.3 million was due
primarily to additional cell sites being added since the nine months ended
September 30, 2000. Equipment revenue was $30.3 million and $22.6 million for
the nine months ended September 30, 2001 and 2000, respectively. The equipment
revenue increase of $7.7 million over 2000 was due primarily to the sales of
handsets and related accessories in connection with the significant growth in
gross additions during the nine months ended September 30, 2001.
Cost of revenue
Cost of revenue was $103.2 million and $67.9 million for the nine months
ended September 30, 2001 and 2000, respectively. The increase in cost of
revenue of $35.3 million over the same period in 2000 was due primarily to
additional roaming, interconnection and long distance expenses in connection
with the Company's increased subscriber base and increases in equipment costs
in connection with the growth in gross additions during the nine months ended
September 30, 2001.
21
Operations and development
Operations and development expense was $50.8 million and $39.6 million for
the nine months ended September 30, 2001 and 2000, respectively. The increase
of $11.2 million over the same period in 2000 was primarily due to the
development and growth of infrastructure and staffing and maintenance related
to the support of the Company's network and network operations center.
Selling and marketing
Selling and marketing expense was $137.1 million and $118.5 million for the
nine months ended September 30, 2001 and 2000, respectively. The increase of
$18.6 million over the same period in 2000 was primarily due to the cost of
acquiring the increased number of new subscribers. Costs associated with the
Company's increased market base included advertising and promotion costs,
commissions and the excess cost of handsets over the retail price.
General and administrative
General and administrative expense was $121.0 million and $105.8 million for
the nine months ended September 30, 2001 and 2000, respectively. The increase
of $15.2 million over the same period in 2000 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 the Company's subscriber
base and launching the additional markets.
Depreciation and amortization
Depreciation and amortization expense was $140.8 million and $82.8 million
for the nine months ended September 30, 2001 and 2000, respectively. The
increase of $58.0 million over the same period in 2000 relates primarily to
depreciation of the Company's property and equipment as well as the
amortization of its PCS licenses and the AT&T and AT&T Wireless operating
agreements related to the Company's markets launched between October 1, 2000
and September 30, 2001.
Interest expense
Interest expense was $102.3 million, net of capitalized interest of $5.1
million, for the nine months ended September 30, 2001. Interest expense was
$64.0 million, net of capitalized interest of $2.7 million, for the nine months
ended September 30, 2000. The increase of $38.3 million over the same period in
2000 relates primarily to interest expense on the Company's 10 5/8% senior
subordinated notes issued in July 2000, additional FCC debt issued throughout
2000, and $185 million of additional senior credit facility drawn during 2001.
Interest income and other
Interest income and other was $4.6 million and $9.3 million for the nine
months ended September 30, 2001 and 2000, respectively. The decrease of $4.7
million over the same period in 2000 was due primarily to lower average daily
cash and short-term investment balances during the nine months ended September
30, 2001.
Forward Looking Statements: Cautionary Statements
Statements in this quarterly report expressing the Company's expectations
and beliefs regarding its future results or performance are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, which statements involve a number of risks and uncertainties. In
particular, certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical facts constitute forward-looking statements. Although the Company
believes that the expectations expressed in such forward-looking statements are
based on reasonable assumptions within the bounds of its knowledge of its
business, the Company's actual future results may differ significantly from
those stated in any forward-looking statements. Factors that may cause or
contribute to such differences include, but are not limited to, the risks
described in the Annual Report on Form 10-K filed by TeleCorp PCS, Inc. for the
fiscal year ended December 31, 2000.
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Intentionally omitted as the registrant is a wholly-owned subsidiary of
TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction
H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the
reduced disclosure format.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Items 2, 3, and 4.
Intentionally omitted as the registrant is a wholly-owned subsidiary of
TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction
H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the
reduced disclosure format.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
- ------- -----------
10.1* Master Services Agreement, dated September 5, 2001, between Convergys Information Management
Group Inc., TeleCorp Communications, Inc. and Tritel Communications, Inc.
- --------
* Incorporated by reference to the TeleCorp PCS, Inc. Form 10-Q filed with the
Securities and Exchange Commission on November 14, 2001. Portions of this
exhibit have been omitted pursuant to a request for confidential treatment.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 14, 2001
TELECORP WIRELESS, INC.
By: /S/ THOMAS H. SULLIVAN
--------------------------------------------
Thomas H. Sullivan
President, Treasurer and Secretary
(Duly Authorized and Principal Financial and
Accounting Officer)
Date: November 14, 2001
SUBSIDIARY OF TELECORP WIRELESS, INC.
TELECORP COMMUNICATIONS, INC.
By: /S/ THOMAS H. SULLIVAN
--------------------------------------------
Thomas H. Sullivan
President, Treasurer and Secretary
(Duly Authorized and Principal Financial and
Accounting Officer)
24