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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 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: 333-43596
TeleCorp Wireless, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1988007
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation 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 jurisdiction of (I.R.S. Employer Identification No.)
incorporation 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 August 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 June 30, 2001 (unaudited)...... 3
Consolidated Statements of Operations and Comprehensive Loss for the three months ended
June 30, 2000 (unaudited) and 2001 (unaudited) and for the six months ended June 30,
2000 (unaudited) and 2001 (unaudited)................................................ 4
Consolidated Condensed Statements of Cash Flows for the six months ended June 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............................. 22
PART II Other Information
Item 1. Legal Proceedings...................................................................... 22
Item 2. Changes in Securities and Use of Proceeds.............................................. 22
Item 3. Defaults Upon Senior Securities........................................................ 22
Item 4. Submission of Matters to a Vote of Security Holders.................................... 22
Item 5. Other Information...................................................................... 22
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, June 30,
2000 2001
------------ -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 228,758 $ 6,499
Short-term investments........................................... 34,189 --
Accounts receivable, net......................................... 44,792 64,686
Inventory, net................................................... 23,680 12,814
Prepaid expenses and other current assets........................ 9,024 42,098
---------- ----------
Total current assets......................................... 340,443 126,097
Property and equipment, net......................................... 655,218 719,394
PCS licenses and microwave relocation costs, net.................... 668,472 699,729
Intangible assets--AT&T agreements, net............................. 174,775 163,074
Other assets........................................................ 37,849 38,136
---------- ----------
Total assets................................................. $1,876,757 $1,746,430
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................. $ 45,819 $ 42,959
Accrued expenses and other....................................... 151,918 141,891
Microwave relocation obligation, current portion................. 21,232 15,407
Long-term debt, current portion.................................. 1,459 1,534
Accrued interest................................................. 25,801 27,888
---------- ----------
Total current liabilities.................................... 246,229 229,679
Long-term debt...................................................... 1,288,628 1,348,654
Accrued expenses and other.......................................... 22,056 52,407
---------- ----------
Total liabilities............................................ 1,556,913 1,630,740
---------- ----------
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....................................... 689,659 696,515
Deferred compensation............................................ (24,445) (24,924)
Due from TeleCorp PCS............................................ (13,542) (14,748)
Accumulated other comprehensive income (loss).................... 958 (1,953)
Accumulated deficit.............................................. (332,786) (539,200)
---------- ----------
Total stockholder's equity................................... 319,844 115,690
---------- ----------
Total liabilities and stockholder's equity................... $1,876,757 $1,746,430
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
TELECORP WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($ in thousands)
For the three months For the six months
ended June 30, ended June 30,
---------------------- ----------------------
2000 2001 2000 2001
- - ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Service.............................................. $ 51,119 $ 85,403 $ 88,056 $ 157,286
Roaming.............................................. 14,699 19,447 26,151 35,598
Equipment............................................ 6,193 8,599 13,250 17,837
-------- --------- --------- ---------
Total revenue.................................... 72,011 113,449 127,457 210,721
-------- --------- --------- ---------
Operating expenses:
Cost of revenue...................................... 21,407 33,842 40,433 62,185
Operations and development (including non-cash stock
compensation of $564, $165, $771 and $367)......... 14,569 16,692 25,535 33,727
Selling and marketing (including non-cash stock
compensation of $427, $322, $559 and $667)......... 40,141 44,995 74,766 89,386
General and administrative (including non-cash
stock compensation of $20,815, $2,712, $25,553
and $5,465)........................................ 47,071 40,566 74,347 76,757
Depreciation and amortization........................ 26,915 48,630 50,383 91,065
-------- --------- --------- ---------
Total operating expenses......................... 150,103 184,725 265,464 353,120
-------- --------- --------- ---------
Operating loss................................... (78,092) (71,276) (138,007) (142,399)
Other income (expense):
Interest expense..................................... (17,273) (35,790) (34,263) (68,398)
Interest income and other............................ 1,491 1,130 3,897 4,383
-------- --------- --------- ---------
Net loss......................................... $(93,874) $(105,936) $(168,373) $(206,414)
Other comprehensive loss, net of tax.................... -- (223) -- (2,911)
-------- --------- --------- ---------
Comprehensive loss............................... $(93,874) $(106,159) $(168,373) $(209,325)
======== ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
TELECORP WIRELESS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
For the six months ended
June 30,
-----------------------
2000 2001
- - ----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net cash used in operating activities.................................... $(123,533) $(129,099)
--------- ---------
Cash flows from investing activities:
Expenditures for property and equipment...................................... (109,117) (176,324)
Purchase of short-term investments........................................... -- (7,929)
Proceeds from the sale of short-term investments............................. -- 42,169
Capitalized interest......................................................... (1,798) (2,830)
Proceeds from sale of property and equipment................................. -- 71,988
Expenditures for microwave relocation........................................ (4,279) (4,762)
Purchase of PCS licenses..................................................... (733) (38,203)
Payment of FCC deposit on PCS licenses....................................... (12,368) --
Payment of Tritel acquisition costs.......................................... (8,409) (21,430)
--------- ---------
Net cash used in investing activities.................................... (136,704) (137,321)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock........................................... 41,869 --
Proceeds from long-term debt................................................. 65,000 35,000
Receipt of mandatorily redeemable preferred stock subscription receivable of
TeleCorp PCS............................................................... -- 10,999
Payments on long term debt................................................... (675) (704)
Payments of debt issuance costs.............................................. (64) (1,134)
--------- ---------
Net cash provided by financing activities................................ 106,130 44,161
--------- ---------
Net decrease in cash and cash equivalents....................................... (154,107) (222,259)
Cash and cash equivalents at the beginning of period............................ 182,330 228,758
--------- ---------
Cash and cash equivalents at the end of period.................................. $ 28,223 $ 6,499
========= =========
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 six months
ended June 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 six months ended June 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". The
Company intends to adopt SFAS No. 141, which requires, among other matters,
that purchase accounting to be applied to business combinations initiated after
June 30, 2001 by a for-profit organization. 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.
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.
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.
6
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
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 six months ended
June 30, 2001 in Other Comprehensive Loss of $149 and $4,396, respectively, and
a related liability as of June 30, 2001 of $1,953. 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.
3. Accrued Expenses and Other
Accrued expenses and other consist of the following:
December 31, June 30,
2000 2001
------------ -----------
(unaudited)
Property and equipment......................... $ 63,723 $ 44,557
Sales and property taxes....................... 32,653 34,763
Payroll and related liabilities................ 12,834 12,832
Accrued operational expenses................... 38,705 35,715
Deferred gain on sale of property and equipment -- 38,466
Microwave relocation obligation, long-term..... 15,736 15,736
Other liabilities.............................. 10,323 12,229
-------- --------
173,974 194,298
Less: non-current portion...................... 22,056 52,407
-------- --------
$151,918 $141,891
======== ========
7
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
4. Long-term Debt
Long-term debt consists of the following:
December 31, June 30,
2000 2001
------------ -----------
(unaudited)
Senior credit facility............................... $ 325,000 $ 360,000
Senior subordinated notes............................ 450,000 450,000
Senior subordinated discount notes................... 396,572 419,620
Vendor financing..................................... 47,443 49,723
U.S. Government financing............................ 71,072 70,845
---------- ----------
1,290,087 1,350,188
Less current portion................................. 1,459 1,534
---------- ----------
$1,288,628 $1,348,654
========== ==========
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 7.85% at June 30, 2001.
5. Other Comprehensive Loss
Other comprehensive loss for the three and six months ended June 30, 2001
and 2000 consists of the following:
For the three
months
ended June 30,
-------------
2000 2001
---- --------
(unaudited)
Reclassification of gains realized on sale of securities..... $-- $ (74)
Unrealized holding losses from interest rate swaps........... -- (149)
--- -----
Other comprehensive loss..................................... $-- $(223)
=== =====
For the six
months
ended June 30,
-------------
2000 2001
---- -------
(unaudited)
Reclassification of gains realized on sale of securities.... $-- $ (958)
Unrealized holding losses from interest rate swaps.......... -- (1,953)
--- -------
Other comprehensive loss.................................... $-- $(2,911)
=== =======
6. Sale of Towers
On March 16, 2001, the Company completed the sale and transfer to SBA
Communications Corporation (SBA) of 203 towers and related assets for an
aggregate purchase price of $66,483, reflecting a price of approximately $328
per site. Concurrent with the sale, the Company entered into a master lease
agreement with SBA for the continued use of the space that the Company occupied
on the towers prior to the sale. The Company recognized a deferred gain on the
sale which will be recognized ratably over the five-year term of the related
operating lease-back.
8
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
On May 17 and June 29, 2001, the Company completed the sale and transfer to
SBA of a total of 35 towers and related assets for an aggregate purchase price
of $11,463, reflecting a price of approximately $328 per site. Concurrent with
the 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 the
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.
8. Related Parties
The Company engages in transactions with its affiliate company Tritel Inc.
(Tritel), which is also 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 six months ended June 30, 2001, the Company
recognized a net benefit of $1,456 and $2,911, respectively, related to
personnel shared with Tritel. In addition, for the three and six months ended
June 30, 2001, the Company recognized rental revenue of $54 and $108,
respectively, related to telecommunications assets shared with Tritel. Charges
for roaming revenues and expenses provided between companies for the three
months ended June 30, 2001 were $946 and $1,527, respectively, and for the six
months ended June 30, 2001 were $1,701 and $2,706, respectively. As of June 30,
2001, the Company had a receivable from Tritel of $8,944 included in other
current assets.
9. Subsidiary Guarantees
On April 23, 1999, the Company completed the issuance and sale of 11 5/8%
Senior Subordinated Discount Notes (the Notes). The Notes are fully and
unconditionally guaranteed on a joint and several basis by TeleCorp
Communications, Inc. (TCI), one of the Company's wholly-owned subsidiaries. On
July 14, 2000, the Company completed the issuance and sale of its 10 5/8%
Senior Subordinated Notes. The Senior Subordinated Notes are also fully and
unconditionally guaranteed on a joint and several basis by TCI.
Consolidating financial statements of TeleCorp Wireless, Inc., TCI, the
guarantor, the non-guarantor subsidiary of TCI, and the non-guarantor
subsidiaries of TeleCorp Wireless, Inc. as of December 31, 2000 and June 30,
2001 and for the three and six months ended June 30, 2000 and 2001 have been
included on the following pages.
9
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
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):
Additional paid-in capital, net............................. 676,117 532,165 1,444 533,609
Deferred compensation....................................... (24,445) -- -- --
Accumulated other comprehensive income...................... 958 -- -- --
(Accumulated deficit) Retained earnings..................... (332,786) 1,320 (1,320) --
---------- -------- ------- --------
Total 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):
Additional paid-in capital, net............................. 558,566 (1,092,175) 676,117
Deferred compensation....................................... -- -- (24,445)
Accumulated other comprehensive income...................... -- -- 958
(Accumulated deficit) Retained earnings..................... -- -- (332,786)
-------- ----------- ----------
Total 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 June 30, 2001 (unaudited):
TeleCorp Communications, Inc.
----------------------------------
TeleCorp TCI- Non-
Wireless, Guarantor Guarantor
Inc. Subsidiary Subsidiary Consolidated
---------- ---------- ---------- ------------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 6,499 $ -- $ -- $ --
Accounts receivable, net.................................... -- 64,686 -- 64,686
Inventory................................................... -- 12,814 -- 12,814
Prepaid expenses and other current assets................... 61 38,816 3,221 42,037
---------- -------- ------ --------
Total current assets..................................... 6,560 116,316 3,221 119,537
Property and equipment, net.................................... -- 719,394 -- 719,394
PCS licenses and microwave relocation costs, net............... -- -- -- --
Intangible assets--AT&T agreements, net........................ 163,074 -- -- --
Other assets................................................... 32,028 464 2,043 2,507
Investment in subsidiaries..................................... 1,221,895 638 (638) --
---------- -------- ------ --------
Total assets............................................. $1,423,557 $836,812 $4,626 $841,438
========== ======== ====== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................ $ -- $ 42,959 $ -- $ 42,959
Accrued expenses and other.................................. 1,953 139,656 282 139,938
Microwave relocation obligation, current portion............ -- -- -- --
Long-term debt, current portion............................. -- -- -- --
Accrued interest............................................ 26,571 310 -- 310
---------- -------- ------ --------
Total current liabilities................................ 28,524 182,925 282 183,207
Long-term debt................................................. 1,279,343 -- -- --
Accrued expenses and other..................................... -- 31,787 1,463 33,250
---------- -------- ------ --------
Total liabilities........................................ 1,307,867 214,712 1,745 216,457
---------- -------- ------ --------
Commitments and contingencies
Stockholder's equity (deficit):
Additional paid-in capital, net............................. 681,767 621,462 3,519 624,981
Deferred compensation....................................... (24,924) -- -- --
Accumulated other comprehensive loss........................ (1,953) -- -- --
(Accumulated deficit) Retained earnings..................... (539,200) 638 (638) --
---------- -------- ------ --------
Total stockholder's equity (deficit)..................... 115,690 622,100 2,881 624,981
---------- -------- ------ --------
Total liabilities and stockholder's equity (deficit)..... $1,423,557 $836,812 $4,626 $841,438
========== ======== ====== ========
TeleCorp Wireless, Inc.
-------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................... $ -- $ -- $ 6,499
Accounts receivable, net.................................... -- -- 64,686
Inventory................................................... -- -- 12,814
Prepaid expenses and other current assets................... -- -- 42,098
-------- ----------- ----------
Total current assets..................................... -- -- 126,097
Property and equipment, net.................................... -- -- 719,394
PCS licenses and microwave relocation costs, net............... 699,729 -- 699,729
Intangible assets--AT&T agreements, net........................ -- -- 163,074
Other assets................................................... 3,601 -- 38,136
Investment in subsidiaries..................................... -- (1,221,895) --
-------- ----------- ----------
Total assets............................................. $703,330 $(1,221,895) $1,746,430
======== =========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................ $ -- $ -- $ 42,959
Accrued expenses and other.................................. -- -- 141,891
Microwave relocation obligation, current portion............ 15,407 -- 15,407
Long-term debt, current portion............................. 1,534 -- 1,534
Accrued interest............................................ 1,007 -- 27,888
-------- ----------- ----------
Total current liabilities................................ 17,948 -- 229,679
Long-term debt................................................. 69,311 -- 1,348,654
Accrued expenses and other..................................... 19,157 -- 52,407
-------- ----------- ----------
Total liabilities........................................ 106,416 -- 1,630,740
-------- ----------- ----------
Commitments and contingencies
Stockholder's equity (deficit):
Additional paid-in capital, net............................. 596,914 (1,221,895) 681,767
Deferred compensation....................................... -- -- (24,924)
Accumulated other comprehensive loss........................ -- -- (1,953)
(Accumulated deficit) Retained earnings..................... -- -- (539,200)
-------- ----------- ----------
Total stockholder's equity (deficit)..................... 596,914 (1,221,895) 115,690
-------- ----------- ----------
Total liabilities and stockholder's equity (deficit)..... $703,330 $(1,221,895) $1,746,430
======== =========== ==========
11
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the three months ended June 30, 2000
(unaudited):
TeleCorp Communications, Inc.
----------------------------------------------------
TeleCorp
Wireless, TCI-Guarantor Non-Guarantor
Inc. Subsidiary Subsidiary Eliminations Consolidated
--------- ------------- ------------- ------------ ------------
Revenue:
Service............................. $ -- $ 51,119 $ -- $ -- $ 51,119
Roaming............................. -- 14,699 -- -- 14,699
Equipment........................... -- 6,193 -- -- 6,193
Intercompany........................ 1,788 -- 6,860 (6,860) --
-------- -------- ------ ------- --------
Total revenue.................... 1,788 72,011 6,860 (6,860) 72,011
-------- -------- ------ ------- --------
Operating expenses:
Cost of revenue..................... -- 32,006 -- (6,860) 25,146
Operations and development.......... -- 7,709 6,860 -- 14,569
Selling and marketing............... -- 40,141 -- -- 40,141
General and administrative.......... -- 47,071 -- -- 47,071
Depreciation and amortization....... 1,788 23,791 -- -- 23,791
-------- -------- ------ ------- --------
Total operating expenses......... 1,788 150,718 6,860 (6,860) 150,718
-------- -------- ------ ------- --------
Operating income (loss).......... -- (78,707) -- -- (78,707)
Other income (expense):
Interest expense.................... (16,658) (15,167) -- -- (15,167)
Interest income and other........... 16,658 -- -- -- --
Equity in net loss of subsidiaries.. (93,874) -- -- -- --
-------- -------- ------ ------- --------
Net (loss) income................ $(93,874) $(93,874) $ -- $ -- $(93,874)
======== ======== ====== ======= ========
TeleCorp Wireless, Inc.
--------------------------------------
Non-Guarantor
Subsidiaries Eliminations Consolidated
------------- ------------ ------------
Revenue:
Service............................. $ -- $ -- $ 51,119
Roaming............................. -- -- 14,699
Equipment........................... -- -- 6,193
Intercompany........................ 1,951 (3,739) --
------ -------- --------
Total revenue.................... 1,951 (3,739) 72,011
------ -------- --------
Operating expenses:
Cost of revenue..................... -- (3,739) 21,407
Operations and development.......... -- -- 14,569
Selling and marketing............... -- -- 40,141
General and administrative.......... -- -- 47,071
Depreciation and amortization....... 1,336 -- 26,915
------ -------- --------
Total operating expenses......... 1,336 (3,739) 150,103
------ -------- --------
Operating income (loss).......... 615 -- (78,092)
Other income (expense):
Interest expense.................... (615) 15,167 (17,273)
Interest income and other........... -- (15,167) 1,491
Equity in net loss of subsidiaries.. -- 93,874 --
------ -------- --------
Net (loss) income................ $ -- $ 93,874 $(93,874)
====== ======== ========
12
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the three months ended June 30, 2001
(unaudited):
TeleCorp Communications, Inc.
----------------------------------------------
TCI- Non-
TeleCorp Guarantor Guarantor
Wireless, Inc. Subsidiary Subsidiary Eliminations Consolidated
-------------- ---------- ---------- ------------ ------------
Revenue:
Service............................. $ -- $ 85,171 $ 232 $ -- $ 85,403
Roaming............................. -- 19,447 -- -- 19,447
Equipment........................... -- 8,599 -- -- 8,599
Intercompany........................ 5,850 -- 6,069 (6,069) --
--------- --------- ------ ------- ---------
Total revenue.................... 5,850 113,217 6,301 (6,069) 113,449
--------- --------- ------ ------- ---------
Operating expenses:
Cost of revenue..................... -- 51,309 -- (6,069) 45,240
Operations and development.......... -- 10,623 6,069 -- 16,692
Selling and marketing............... -- 44,995 -- -- 44,995
General and administrative.......... -- 40,566 -- -- 40,566
Depreciation and amortization....... 5,850 38,775 -- -- 38,775
--------- --------- ------ ------- ---------
Total operating expenses......... 5,850 186,268 6,069 (6,069) 186,268
--------- --------- ------ ------- ---------
Operating income (loss).......... -- (73,051) 232 -- (72,819)
Other income (expense):
Interest expense.................... (34,247) (33,117) -- -- (33,117)
Interest income and other........... 34,247 -- -- -- --
Equity in net loss of subsidiaries.. (105,936) -- -- -- --
--------- --------- ------ ------- ---------
Net (loss) income................ (105,936) (106,168) 232 -- (105,936)
--------- --------- ------ ------- ---------
Other comprehensive loss, net of tax... (233) -- -- -- --
--------- --------- ------ ------- ---------
Comprehensive (loss) income...... $(106,159) $(106,168) $ 232 $ -- $(105,936)
========= ========= ====== ======= =========
TeleCorp Wireless, Inc.
-------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
------------ ------------ ------------
Revenue:
Service............................. $ -- $ -- $ 85,403
Roaming............................. -- -- 19,447
Equipment........................... -- -- 8,599
Intercompany........................ 5,548 (11,398) --
------- -------- ---------
Total revenue.................... 5,548 (11,398) 113,449
------- -------- ---------
Operating expenses:
Cost of revenue..................... -- (11,398) 33,842
Operations and development.......... -- -- 16,692
Selling and marketing............... -- -- 44,995
General and administrative.......... -- -- 40,566
Depreciation and amortization....... 4,005 -- 48,630
------- -------- ---------
Total operating expenses......... 4,005 (11,398) 184,725
------- -------- ---------
Operating income (loss).......... 1,543 -- (71,276)
Other income (expense):
Interest expense.................... (1,543) 33,117 (35,790)
Interest income and other........... -- (33,117) 1,130
Equity in net loss of subsidiaries.. -- 105,936 --
------- -------- ---------
Net (loss) income................ -- 105,936 (105,936)
------- -------- ---------
Other comprehensive loss, net of tax... -- -- (233)
------- -------- ---------
Comprehensive (loss) income...... $ -- $105,936 $(106,159)
======= ======== =========
13
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the six months ended June 30, 2000
(unaudited):
TeleCorp Communications, Inc.
----------------------------------------------
TCI- Non-
TeleCorp Guarantor Guarantor
Wireless, Inc. Subsidiary Subsidiary Eliminations Consolidated
-------------- ---------- ---------- ------------ ------------
Revenue:
Service............................. $ -- $ 88,056 $ -- $ -- $ 88,056
Roaming............................. -- 26,151 -- -- 26,151
Equipment........................... -- 13,250 -- -- 13,250
Intercompany........................ 3,577 -- 11,809 (11,809) --
--------- --------- ------- -------- ---------
Total revenue.................... 3,577 127,457 11,809 (11,809) 127,457
--------- --------- ------- -------- ---------
Operating expenses:
Cost of revenue..................... -- 59,203 -- (11,809) 47,394
Operations and development.......... -- 13,726 11,809 -- 25,535
Selling and marketing............... -- 74,766 -- -- 74,766
General and administrative.......... -- 74,347 -- -- 74,347
Depreciation and amortization....... 3,577 44,665 -- -- 44,665
--------- --------- ------- -------- ---------
Total operating expenses......... 3,577 266,707 11,809 (11,809) 266,707
--------- --------- ------- -------- ---------
Operating income (loss).......... -- (139,250) -- -- (139,250)
Other income (expense):
Interest expense.................... (33,020) (29,123) -- -- (29,123)
Interest income and other........... 33,020 -- -- -- --
Equity in net loss of subsidiaries.. (168,373) -- -- -- --
--------- --------- ------- -------- ---------
Net (loss) income................ $(168,373) $(168,373) $ -- $ -- $(168,373)
========= ========= ======= ======== =========
TeleCorp Wireless, Inc.
-------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
------------ ------------ ------------
Revenue:
Service............................. $ -- $ -- $ 88,056
Roaming............................. -- -- 26,151
Equipment........................... -- -- 13,250
Intercompany........................ 3,384 (6,961) --
------- -------- ---------
Total revenue.................... 3,384 (6,961) 127,457
------- -------- ---------
Operating expenses:
Cost of revenue..................... -- (6,961) 40,433
Operations and development.......... -- -- 25,535
Selling and marketing............... -- -- 74,766
General and administrative.......... -- -- 74,347
Depreciation and amortization....... 2,141 -- 50,383
------- -------- ---------
Total operating expenses......... 2,141 (6,961) 265,464
------- -------- ---------
Operating income (loss).......... 1,243 -- (138,007)
Other income (expense):
Interest expense.................... (1,243) 29,123 (34,263)
Interest income and other........... -- (29,123) 3,897
Equity in net loss of subsidiaries.. -- 168,373 --
------- -------- ---------
Net (loss) income................ $ -- $168,373 $(168,373)
======= ======== =========
14
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the six months ended June 30, 2001
(unaudited):
TeleCorp Communications, Inc.
----------------------------------------------
TeleCorp TCI- Non-
Wireless, Guarantor Guarantor
Inc. Subsidiary Subsidiary Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
Revenue:
Service............................. $ -- $ 156,648 $ 638 $ -- $ 157,286
Roaming............................. -- 35,598 -- -- 35,598
Equipment........................... -- 17,837 -- -- 17,837
Intercompany........................ 11,700 -- 11,624 (11,624) --
--------- --------- ------- -------- ---------
Total revenue.................... 11,700 210,083 12,262 (11,624) 210,721
--------- --------- ------- -------- ---------
Operating expenses:
Cost of revenue..................... 94,960 -- (11,624) 83,336
Operations and development.......... -- 22,103 11,624 -- 33,727
Selling and marketing............... -- 89,386 -- -- 89,386
General and administrative.......... -- 76,757 -- -- 76,757
Depreciation and amortization....... 11,700 73,003 -- -- 73,003
--------- --------- ------- -------- ---------
Total operating expenses......... 11,700 356,209 11,624 (11,624) 356,209
--------- --------- ------- -------- ---------
Operating income (loss).......... -- (146,126) 638 -- (145,488)
Other income (expense):
Interest expense.................... (65,309) (60,926) -- -- (60,926)
Interest income and other........... 65,309 -- -- -- --
Equity in net loss of subsidiaries.. (206,414) -- -- -- --
--------- --------- ------- -------- ---------
Net (loss) income................ (206,414) (207,052) 638 -- (206,414)
Other comprehensive loss, net of tax... (2,911) -- -- -- --
--------- --------- ------- -------- ---------
Comprehensive (loss) income...... $(209,325) $(207,052) $ 638 $ -- $(206,414)
========= ========= ======= ======== =========
TeleCorp Wireless, Inc.
-------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
------------ ------------ ------------
Revenue:
Service............................. $ -- $ -- $ 157,286
Roaming............................. -- -- 35,598
Equipment........................... -- -- 17,837
Intercompany........................ 9,451 (21,151) --
------- -------- ---------
Total revenue.................... 9,451 (21,151) 210,721
------- -------- ---------
Operating expenses:
Cost of revenue..................... -- (21,151) 62,185
Operations and development.......... -- -- 33,727
Selling and marketing............... -- -- 89,386
General and administrative.......... -- -- 76,757
Depreciation and amortization....... 6,362 -- 91,065
------- -------- ---------
Total operating expenses......... 6,362 (21,151) 353,120
------- -------- ---------
Operating income (loss).......... 3,089 -- (142,399)
Other income (expense):
Interest expense.................... (3,089) 60,926 (68,398)
Interest income and other........... -- (60,926) 4,383
Equity in net loss of subsidiaries.. -- 206,414 --
------- -------- ---------
Net (loss) income................ -- 206,414 (206,414)
Other comprehensive loss, net of tax... -- -- (2,911)
------- -------- ---------
Comprehensive (loss) income...... $ -- $206,414 $(209,325)
======= ======== =========
15
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Condensed Statement of Cash Flows for the six months ended June
30, 2000 (unaudited):
TeleCorp Communications, Inc.
---------------------------------
TCI- Non-
TeleCorp Guarantor Guarantor
Wireless,Inc. Subsidiary Subsidiary Consolidated
------------- ---------- ---------- ------------
Cash flows from operating activities:
Net cash provided by (used in) operating activities..... $(248,544) $ 110,915 $ -- $ 110,915
Cash flows from investing activities:
Expenditures for property and equipment..................... -- (109,117) -- (109,117)
Capitalized interest........................................ -- (1,798) -- (1,798)
Expenditures for microwave relocation....................... -- -- -- --
Purchase of PCS licenses.................................... -- -- -- --
Purchases of intangibles.................................... (12,368) -- -- --
Payment of Tritel acquisition costs......................... -- -- -- --
--------- --------- ----- ---------
Net cash used in investing activities................... (12,368) (110,915) -- (110,915)
Cash flows from financing activities:
Proceeds from sale of common stock......................... 41,869 -- -- --
Proceeds from long-term debt................................ 65,000 -- -- --
Payments on long-term debt.................................. -- -- -- --
Payments of debt issuance costs............................. (64) -- -- --
--------- --------- ----- ---------
Net cash provided by (used in) financing activities..... 106,805 -- -- --
Net decrease in cash and cash equivalents..................... (154,107) -- -- --
Cash and cash equivalents at the beginning of period.......... 182,330 -- --
--------- --------- ----- ---------
Cash and cash equivalents at the end of period................ $ 28,223 $ -- $ -- $ --
========= ========= ===== =========
TeleCorp Wireless, Inc.
-------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
------------ ------------ ------------
Cash flows from operating activities:
Net cash provided by (used in) operating activities..... $ 14,096 $-- $(123,533)
Cash flows from investing activities:
Expenditures for property and equipment..................... -- -- (109,117)
Capitalized interest........................................ -- -- (1,798)
Expenditures for microwave relocation....................... (4,279) -- (4,279)
Purchase of PCS licenses.................................... (733) (733)
Purchases of intangibles.................................... -- -- (12,368)
Payment of Tritel acquisition costs......................... (8,409) -- (8,409)
-------- --- ---------
Net cash used in investing activities................... (13,421) -- (136,704)
Cash flows from financing activities:
Proceeds from sale of common stock......................... -- -- 41,869
Proceeds from long-term debt................................ -- -- 65,000
Payments on long-term debt.................................. (675) -- (675)
Payments of debt issuance costs............................. -- -- (64)
-------- --- ---------
Net cash provided by (used in) financing activities..... (675) -- 106,130
Net decrease in cash and cash equivalents..................... -- -- (154,107)
Cash and cash equivalents at the beginning of period.......... -- -- 182,330
-------- --- ---------
Cash and cash equivalents at the end of period................ $ -- $ -- $ 28,223
======== === =========
16
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Condensed Statement of Cash Flows for the six months ended June
30, 2001 (unaudited):
TeleCorp Communications, Inc.
------------------------------------
TCI-
TeleCorp Guarantor Non-Guarantor
Wireless, Inc. Subsidiary Subsidiary Consolidated
- - -------------- ---------- ------------- ------------
Cash flows from operating activities:
Net cash provided by (used in) operating activities..... $(301,364) $ 128,596 $-- $ 128,596
--------- --------- --- ---------
Cash flows from investing activities:
Expenditures for property and equipment.................... -- (176,324) -- (176,324)
Purchase of short-term investments......................... (7,929) -- -- --
Proceeds from sale of short-term investments............... 42,169 -- -- --
Capitalized interest....................................... -- (2,830) -- (2,830)
Proceeds from sale of property and equipment............... -- 71,988 -- 71,988
Expenditures for microwave relocation...................... -- -- -- --
Purchase of PCS licenses................................... -- -- -- --
Payment of Tritel acquisition costs........................ -- (21,430) -- (21,430)
--------- --------- --- ---------
Net cash provided by (used in) investing activities..... 34,240 (128,596) -- (128,596)
--------- --------- --- ---------
Cash flows from financing activities:
Proceeds from long-term debt............................... 35,000 -- -- --
Receipt of preferred stock subscription receivable......... 10,999 -- -- --
Payments on long-term debt................................. -- -- -- --
Payments of debt issuance costs............................ (1,134) -- -- --
--------- --------- --- ---------
Net cash provided by (used in) financing activities..... 44,865 -- -- --
--------- --------- --- ---------
Net decrease in cash and cash equivalents..................... (222,259) -- -- --
Cash and cash equivalents at the beginning of period.......... 228,758 -- -- --
--------- --------- --- ---------
Cash and cash equivalents at the end of period................ $ 6,499 $ -- $-- $ --
========= ========= === =========
TeleCorp Wireless, Inc.
-------------------------------------
Non-
Guarantor
Subsidiaries Eliminations Consolidated
- - ------------ ------------ ------------
Cash flows from operating activities:
Net cash provided by (used in) operating activities..... $ 43,669 $-- $(129,099)
-------- --- ---------
Cash flows from investing activities:
Expenditures for property and equipment.................... -- -- (176,324)
Purchase of short-term investments......................... -- -- (7,929)
Proceeds from sale of short-term investments............... -- -- 42,169
Capitalized interest....................................... -- -- (2,830)
Proceeds from sale of property and equipment............... -- -- 71,988
Expenditures for microwave relocation...................... (4,762) -- (4,762)
Purchase of PCS licenses................................... (38,203) -- (38,203)
Payment of Tritel acquisition costs........................ -- -- (21,430)
-------- --- ---------
Net cash provided by (used in) investing activities..... (42,965) -- (137,321)
-------- --- ---------
Cash flows from financing activities:
Proceeds from long-term debt............................... -- -- 35,000
Receipt of preferred stock subscription receivable......... -- -- 10,999
Payments on long-term debt................................. (704) -- (704)
Payments of debt issuance costs............................ -- -- (1,134)
-------- --- ---------
Net cash provided by (used in) financing activities..... (704) -- 44,161
-------- --- ---------
Net decrease in cash and cash equivalents..................... -- -- (222,259)
Cash and cash equivalents at the beginning of period.......... -- -- 228,758
-------- --- ---------
Cash and cash equivalents at the end of period................ $ -- $-- $ 6,499
======== === =========
17
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
10. Subsequent Event
Senior Credit Facility
On July 6, 2001, the Company drew $50,000 from its Senior Credit Facility
Tranche A term loan.
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 June 30, 2001, the
Company had launched service in 38 markets having approximately 16 million
people and representing approximately 70% of the population where the Company
holds licenses in the United States and Puerto Rico. As of June 30, 2001, the
Company served more than 557,000 customers. 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 on the Company's network. The Company is a wholly
owned subsidiary of TeleCorp PCS, Inc.
Results of Operations
Three months ended June 30, 2001 compared to three months ended June 30, 2000
Subscribers
Net additions were 41,327 and 91,545 for the three months ended June 30,
2001 and 2000, respectively. Total PCS subscribers were 557,771 and 319,882 as
of June 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 July 1, 2000 to June 30, 2001.
Revenue
Revenue for the three months ended June 30, 2001 and 2000 was $113.4 million
and $72.0 million, respectively. Service revenue was $85.4 million and $51.1
million for the three months ended June 30, 2001 and 2000, respectively. The
increase in service revenue of $34.3 million was due to the addition of 237,889
subscribers from July 1, 2000 to June 30, 2001 and to the launch of 10
additional markets. Roaming revenue was $19.4 million and $14.7 million for the
three months ended June 30, 2001 and 2000, respectively. The increase in
roaming revenue of $4.7 million was due primarily to additional cell sites
being added since the three months ended June 30, 2000. Equipment revenue was
$8.6 million and $6.2 million for the three months ended June 30, 2001 and
2000, respectively. The equipment revenue increase of $2.4 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 June 30, 2001.
Cost of revenue
Cost of revenue was $33.8 million and $21.4 million for the three months
ended June 30, 2001 and 2000, respectively. The increase in cost of revenue of
$12.4 million over the same period in 2000 was due primarily to
19
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 significant growth in gross additions during the
three months ended June 30, 2001.
Operations and development
Operations and development expense was $16.7 million and $14.6 million for
the three months ended June 30, 2001 and 2000, respectively. The increase of
$2.1 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 $45.0 million and $40.1 million for the
three months ended June 30, 2001 and 2000, respectively. The increase of $4.9
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 $40.6 million and $47.1 million for
the three months ended June 30, 2001 and 2000, respectively. Excluding non-cash
stock compensation from the general and administrative expense, the costs
increased $11.6 million over the same period in 2000 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 $48.6 million and $26.9 million
for the three months ended June 30, 2001 and 2000, respectively. The increase
of $21.7 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 operating agreements related to the Company's markets
launched between July 1, 2000 and June 30, 2001.
Interest expense
Interest expense was $35.8 million, net of capitalized interest of $1.3
million, for the three months ended June 30, 2001. Interest expense was $17.3
million, net of capitalized interest of $1.2 million, for the three months
ended June 30, 2000. The increase of $18.5 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 $135 million of additional senior credit facility drawn during 2000
and 2001.
Interest income and other
Interest income and other was $1.1 million and $1.5 million for the three
months ended June 30, 2001 and 2000, respectively. The decrease of $0.4 million
from the same period in 2000 was due primarily to lower average daily cash and
short-term investment balances for the current quarter.
20
Results of Operations
Six months ended June 30, 2001 compared to six months ended June 30, 2000
Subscribers
Net additions were 97,021 and 177,651 for the six months ended June 30, 2001
and 2000, respectively. Total PCS subscribers were 557,771 and 319,882 as of
June 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 July 1, 2000 to June 30, 2001.
Revenue
Revenue for the six months ended June 30, 2001 and 2000 was $210.7 million
and $127.5 million, respectively. Service revenue was $157.3 million and $88.1
million for the six months ended June 30, 2001 and 2000, respectively. The
increase in service revenue of $69.2 million was due to the addition of 237,889
subscribers from July 1, 2000 to June 30, 2001 and to the launch of ten
additional markets. Roaming revenue was $35.6 million and $26.2 million for the
six months ended June 30, 2001 and 2000, respectively. The increase in roaming
revenue of $9.4 million was due primarily to additional cell sites being added
since the six months ended June 30, 2000. Equipment revenue was $17.8 million
and $13.3 million for the six months ended June 30, 2001 and 2000,
respectively. The equipment revenue increase of $4.5 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 six months ended June 30,
2001.
Cost of revenue
Cost of revenue was $62.2 million and $40.4 million for the six months ended
June 30, 2001 and 2000, respectively. The increase in cost of revenue of $21.8
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 significant growth in gross additions during the six months ended June 30,
2001.
Operations and development
Operations and development expense was $33.7 million and $25.5 million for
the six months ended June 30, 2001 and 2000, respectively. The increase of $8.2
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 $89.4 million and $74.8 million for the
six months ended June 30, 2001 and 2000, respectively. The increase of $14.6
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 $76.8 million and $74.3 million for
the six months ended June 30, 2001 and 2000, respectively. The increase of $2.5
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.
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Depreciation and amortization
Depreciation and amortization expense was $91.1 million and $50.4 million
for the six months ended June 30, 2001 and 2000, respectively. The increase of
$40.7 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 operating agreements related to the Company's markets
launched between July 1, 2000 and June 30, 2001.
Interest expense
Interest expense was $68.4 million, net of capitalized interest of $2.8
million, for the six months ended June 30, 2001. Interest expense was $34.3
million, net of capitalized interest of $1.8 million, for the six months ended
June 30, 2000. The increase of $34.1 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 $135 million of additional senior credit facility drawn during 2000
and 2001.
Interest income and other
Interest income and other was $4.4 million and $3.9 million for the six
months ended June 30, 2001 and 2000, respectively. The increase of $0.5 million
over the same period in 2000 was due primarily to larger cash and short-term
investment balances that resulted from the $450 million senior subordinated
notes offering in July 2000.
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.
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.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
4.1*. First Amendment to the Amended and Restated Note Purchase Agreement, dated as of April 4, 2001,
between TeleCorp Wireless, Inc. and Lucent Technologies Inc.
* Incorporated by reference to the Form 10-Q of TeleCorp Wireless, Inc. for
the quarter ended March 31, 2001, filed on May 15, 2001.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated April 3, 2001,
reporting events under Item 9.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELECORP WIRELESS, INC.
Date: August 14, 2001
/S/ THOMAS H. SULLIVAN
By: --------------------------------------------
Thomas H. Sullivan
President, Treasurer and Secretary
(Principal Financial and Accounting Officer)
SUBSIDIARY OF TELECORP WIRELESS, INC.
Date: August 14, 2001
TELECORP COMMUNICATIONS, INC.
/S/ THOMAS H. SULLIVAN
By: --------------------------------------------
Thomas H. Sullivan
President, Treasurer and Secretary
(Principal Financial and Accounting Officer)
24