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 JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from____________ to______________
333-06609-01
Commission file number________333-06609-02___________
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 48-1165245
DELAWARE 43-1746537
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4900 Main Street, Kansas City, Missouri, 64112
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(816) 559-1000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 1, 1998, Sprint Spectrum Finance Corporation had Common Stock
outstanding of 100 shares.
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
Page
Number
-----------
Part I - Financial Information......................................... 1 - 21
Item 1a. Financial Statements - Sprint Spectrum L.P................. 1 - 7
Consolidated Condensed Balance Sheets............................. 1
Consolidated Condensed Statements of Operations................... 2
Consolidated Condensed Statements of Cash Flows................... 3
Notes to Consolidated Condensed Financial Statements.............. 4 - 7
Item 1b. Financial Statements - Sprint Spectrum Finance Corporation. 8 - 11
Condensed Balance Sheets.......................................... 8
Condensed Statements of Operations................................ 9
Condensed Statements of Cash Flows................................ 10
Notes to Condensed Financial Statements........................... 11
Item 2a. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Sprint Spectrum L.P................... 12 - 20
Item 2b. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Sprint Spectrum Finance Corporation... 21
Part II - Other Information
Item 1. Legal Proceedings........................................... 22 - 23
Item 2. Changes in Securities....................................... 23
Item 3. Defaults On Senior Securities............................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 24
Item 5. Other Information........................................... 24
Item 6. Exhibits and Reports on Form 8-K............................ 24 - 25
Signature.............................................................. 26 - 27
Exhibits
PART I.
Item 1a.
SPRINT SPECTRUM L.P.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
June 30, December 31,
1998 1997
------------- -------------
- -------------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 78,043 $ 36,821
Accounts receivable, net............................ 126,495 96,318
Receivable from affiliates.......................... 63,834 105,156
Inventory........................................... 120,359 96,907
Prepaid expenses and other assets................... 41,210 25,353
------------- -------------
Total current assets.............................. 429,941 360,555
INVESTMENT IN PCS LICENSES, net........................ 2,059,200 2,085,836
PROPERTY, PLANT AND EQUIPMENT, net..................... 3,414,104 3,132,664
MICROWAVE RELOCATION COSTS, net........................ 268,131 250,397
OTHER ASSETS, net...................................... 91,407 101,465
============= =============
TOTAL ASSETS........................................... $ 6,262,783 $ 5,930,917
============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.................................... $ 237,414 $ 305,524
Payable to affiliates............................... - 1,190
Accrued interest.................................... 76,860 45,851
Accrued expenses.................................... 292,149 227,890
Current maturities of long-term debt ............... 11,694 11,380
------------- -------------
Total current liabilities......................... 618,117 591,835
CONSTRUCTION OBLIGATIONS............................... 397,492 705,280
LONG TERM DEBT......................................... 4,615,130 3,101,539
OTHER NONCURRENT LIABILITIES........................... 70,779 48,975
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED SUBSIDIARY.... 5,000 5,000
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital................................... 3,437,565 3,437,565
Accumulated deficit................................. (2,881,300) (1,959,277)
------------- -------------
Total partners' capital........................... 556,265 1,478,288
============= =============
TOTAL LIABILITIES AND PARTNERS' CAPITAL................ $ 6,262,783 $ 5,930,917
============= =============
See notes to consolidated condensed financial statements.
PART I.
Item 1a.
SPRINT SPECTRUM L.P.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -------------------------
1998 1997 1998 1997
- -------------------------------------- ------------ ------------ ------------- ----------
OPERATING REVENUES..................... $ 192,294 $ 25,386 $ 336,104 $ 34,853
OPERATING EXPENSES:
Cost of revenues.................... 205,311 88,294 374,196 136,121
Selling, general and administrative. 223,014 148,504 447,596 266,576
Depreciation and amortization....... 149,856 66,300 264,527 100,682
------------ ------------ ------------- ----------
Total operating expenses.......... 578,181 303,098 1,086,319 503,379
LOSS FROM OPERATIONS................... (385,887) (277,712) (750,215) (468,526)
OTHER INCOME (EXPENSE):
Interest, net ...................... (98,342) (11,705) (175,649) (10,897)
Other income........................ 1,996 1,753 3,841 2,875
------------ ------------ ------------- ----------
Total other income (expense)...... (96,346) (9,952) (171,808) (8,022)
============ ============ ============= ==========
NET LOSS............................... $ (482,233) $ (287,664) $ (922,023) $(476,548)
============ ============ ============= ==========
See notes to consolidated condensed financial statements.
PART I.
Item 1a.
SPRINT SPECTRUM L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Six Months Ended
June 30,
-----------------------------
1998 1997
- -------------------------------------------------------------- -------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $ (922,023) $ (476,548)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 264,527 100,682
Amortization of debt discount and issuance costs......... 26,508 22,615
Changes in assets and liabilities:
Receivables............................................ 14,006 (29,541)
Inventory.............................................. (23,452) (11,824)
Prepaid expenses and other assets...................... (12,164) (8,664)
Accounts payable and accrued expenses.................. 25,968 (3,552)
Other non current liabilities.......................... 21,804 8,917
-------------- -------------
Net cash used in operating activities................ (604,826) (397,915)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (516,145) (1,202,946)
Microwave relocation costs................................. (23,781) (80,035)
-------------- -------------
Net cash used in investing activities................ (539,926) (1,282,981)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions...................................... - 175,000
Net borrowing under revolving credit agreement............. 760,000 390,000
Proceeds from issuance of long-term debt................... 737,030 766,128
Change in construction obligations......................... (307,788) 452,206
Payments on long-term debt................................. (3,268) (40,023)
Debt issuance costs........................................ - (20,000)
-------------- -------------
Net cash provided by financing activities............ 1,185,974 1,723,311
-------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS........................ 41,222 42,415
CASH AND CASH EQUIVALENTS, Beginning of period................ 36,821 49,988
-------------- -------------
CASH AND CASH EQUIVALENTS, End of period...................... $ 78,043 $ 92,403
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of amount capitalized.................. $ 63,137 $ 27
NON-CASH INVESTING AND FINANCING ACTIVITIES:
- Accrued interest of $46.2 million and $78.2 million
related to vendor financing was converted to long-term debt
during the three and six months ended June 30, 1998,
respectively.
See notes to consolidated condensed financial statements.
PART I.
Item 1a.
SPRINT SPECTRUM L.P.
Notes to Consolidated Condensed Financial Statements (Unaudited)
The information contained in this Form 10-Q for the three and six month interim
periods ended June 30, 1998 and 1997 has been prepared in accordance with
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of
management, all adjustments considered necessary, consisting only of normal
recurring accruals, to present fairly the consolidated financial position,
results of operations, and cash flows for such interim periods have been made
(See Note 1).
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The results of operations for the
three and six months ended June 30, 1998 are not necessarily indicative of the
operating results that may be expected for the year ended December 31, 1998.
These unaudited consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the 1997 Annual Report on Form 10-K filed by Sprint Spectrum L.P.
and Sprint Spectrum Finance Corporation.
1. Organization
Sprint Spectrum L.P. (the "Company") is a limited partnership formed in Delaware
on March 28, 1995, by Sprint Spectrum Holding Company, L.P. ("Holdings") and
MinorCo, L.P. ("MinorCo") both of which were formed by Sprint Enterprises, L.P.,
TCI Spectrum Holdings, Inc., Cox Telephony Partnership and Comcast Telephony
Services (together the "Partners"). The Partners are subsidiaries of Sprint
Corporation ("Sprint"), Tele-Communications, Inc. ("TCI"), Cox Communications,
Inc. ("Cox"), and Comcast Corporation ("Comcast" and together with Sprint, TCI
and Cox, the "Parents"), respectively. The Partnership and certain other
affiliated partnerships offer services as Sprint PCS.
The partners of the Company have the following ownership interests as of June
30, 1998 and 1997:
Sprint Spectrum Holding Company, L.P. (general partner)....greater than 99%
MinorCo, L.P. (limited partner)................................less than 1%
The Company is consolidated with its subsidiaries, WirelessCo, L.P.
("WirelessCo"), Sprint Spectrum Equipment Company, L.P. ("EquipmentCo"), Sprint
Spectrum Realty Company, L.P. ("RealtyCo") and Sprint Spectrum Finance
Corporation ("FinCo"). WirelessCo was formed on October 24, 1994 to develop,
operate and manage an integrated wireless business. On May 15, 1996, EquipmentCo
was formed to lease or own wireless communication network equipment, and
RealtyCo was formed to lease or own real property on which wireless
communication facilities are to be located. On May 20, 1996, FinCo was formed to
be a co-obligor of the senior notes and senior discount notes.
Sprint Recapitalization - Sprint has entered into a restructuring agreement with
TCI, Comcast and Cox (the "Cable Parents") to restructure Sprint's wireless PCS
operations (the "PCS Restructuring") subject to Sprint stockholder and FCC
approvals. If the PCS Restructuring occurs as planned, Sprint will acquire the
joint venture interests of TCI, Comcast and Cox in Sprint PCS and the joint
venture interest of TCI and Cox in PhillieCo Partners I, L.P. and PhillieCo
Partners II, L.P. In exchange for these joint venture interests, Sprit will
issue to TCI, Comcast, and Cox a newly created class of Sprint common stock (the
"PCS Stock"). The PCS Stock will be
intended to reflect separately the performance of these joint ventures and
Sprint's other PCS interests. The operations will be referred to as the PCS
Group.
Deadlock Event - The proposed budget for fiscal year 1998 has not been approved
by the Holdings partnership board, which resulted in the occurrence of a
"Deadlock Event" as of January 1, 1998 under the Amended and Restated Agreement
of Limited Partnership of MajorCo, L.P. (renamed Sprint Spectrum Holding
Company, L.P.) dated January 31, 1996 (the "Holdings Partnership Agreement").
Holdings is the sole general partner of Sprint Spectrum L.P. Under the Holdings
Partnership Agreement, if one of the Partners refers the budget issue to the
chief executive officers of the Parents for resolution pursuant to specified
procedures and the issue remains unresolved, buy/sell provisions would be
triggered which may result in the purchase by one or more of the Partners of the
interest of the other Partners, or, in certain circumstances, the liquidation of
Holdings and it subsidiaries. Discussions among the Partners about restructuring
their interests in Holdings, in lieu of triggering such buy/sell procedures,
have resulted in the Partners entering into a restructuring agreement dated May
26, 1998. See "Sprint Recapitalization" above for a discussion of the
restructuring agreement between the Partners.
2. Summary of Significant Accounting Policies
Basis of Presentation - The assets, liabilities, results of operations and cash
flows of entities in which the Company has a controlling interest have been
consolidated. All significant intercompany accounts and transactions have been
eliminated.
Accounts Receivable - Accounts receivable are net of an allowance for doubtful
accounts of approximately $20.8 million and $9.0 million at June 30, 1998 and
December 31, 1997 respectively.
Investment in PCS Licenses - During 1994 and 1995, the Federal Communications
Commission ("FCC") auctioned PCS licenses in specific geographic service areas.
The FCC grants licenses for terms of up to ten years, and generally grants
renewals if the licensee has complied with its license obligations. The Company
believes it will be able to secure renewal of the PCS licenses used by its
subsidiaries. PCS licenses are amortized over 40 years once placed in service.
Accumulated amortization for PCS licenses totaled approximately $71.6 million
and $45.0 million as of June 30, 1998 and December 31, 1997, respectively.
Microwave Relocation Costs - The Company has also incurred costs associated with
microwave relocation in the construction of the PCS network. Microwave
relocation costs are amortized over 40 years, consistent with the PCS licenses.
Accumulated amortization for microwave relocation costs totaled approximately
$8.4 million and $5.2 million as of June 30, 1998 and December 31, 1997,
respectively.
Intangible Assets - The ongoing value and remaining useful life of intangible
assets are subject to periodic evaluation. The Company currently expects the
carrying amounts to be fully recoverable. Impairments of intangibles and
long-lived assets are assessed based on an undiscounted cash flow methodology.
Capitalized Interest - Interest costs associated with the construction of
capital assets (including the PCS licenses) incurred during the period of
construction are capitalized. The total interest capitalized for the six months
ended June 30, 1998 and 1997 was approximately $22.1 million and $70.4 million,
respectively.
Debt Issuance Costs - Included in other assets are costs associated with
obtaining financing. Such costs are capitalized and amortized to interest
expense over the term of the related debt instruments using the effective
interest method. Accumulated amortization at June 30, 1998 and December 31, 1997
totaled approximately $19.6 million and $13.3 million, respectively.
Income Taxes - The Company has not provided for federal or state income taxes
since such taxes are the responsibility of the individual Partners.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassification - Certain reclassifications have been made to the 1997
consolidated condensed financial statements to conform to the 1998 statement
presentation.
3. Long-Term Debt and Borrowing Arrangements
Bank Credit Facility - The Company entered into an agreement with The Chase
Manhattan Bank ("Chase") as agent for a group of lenders for a $2 billion bank
credit facility dated October 2, 1996. The proceeds of this facility are to be
used to finance working capital needs, subscriber acquisition costs, capital
expenditures and other general Company purposes.
The facility consists of a revolving credit commitment of $1.7 billion and a
$300 million term loan commitment. In December 1997, certain terms relating to
the financial and operating conditions were amended. As of June 30, 1998 the
term loans have a weighted average interest rate of 8.19%. As of June 30, 1998,
$1.4 billion had been drawn under the revolving credit facility at a weighted
average interest rate of 8.21% with $300.0 million remaining immediately
available. Commitment fees for the revolving portion of the agreement are
payable quarterly based on average unused revolving commitments.
Vendor Financing - As of October 2, 1996, the Company entered into financing
agreements with Northern Telecom Inc. ("Nortel") and Lucent Technologies Inc.
("Lucent", and together with Nortel, the "Vendors") for multiple drawdown term
loan facilities totaling $1.3 billion and $1.8 billion, respectively. The
proceeds of such facilities are to be used to finance the purchase of goods and
services provided by the Vendors. Additionally, the commitments allow for the
conversion of accrued interest into additional principal. Such conversions do
not reduce the availability under the commitments. Interest accruing on the debt
outstanding at March 31, 1999, can be converted into additional principal
through February 8, 2000 and March 30, 2000, for Lucent and Nortel,
respectively.
On April 30, 1997 and November 20, 1997, the Company amended the terms of its
financing agreement with Nortel. The amendments provide for a syndication of the
financing commitment between Nortel, several banks and other vendors (the
"Nortel Lenders") and the modification of certain operating and financial
covenants. As of June 30, 1998, $835.2 million, including converted accrued
interest of $46.1 million, had been borrowed at an interest rate of 8.84% with
$510.9 million remaining available under the first phase.
On May 29 and December 15, 1997, the Company amended the terms of its financing
agreement with Lucent. The amendment provides for a syndication of the financing
commitment between Lucent, Sprint and other banks and vendors (the "Lucent
Lenders") and the modification of certain operating and financial covenants. The
Lucent Lenders have committed to financing up to an aggregate of $1.8 billion,
with Sprint financing up to $300 million. As of June 30, 1998, the Company had
borrowed approximately $1.5 billion, including converted accrued interest of
$83.8 million, at a weighted average interest rate of 8.76% with $383.8 million
remaining available.
Certain amounts included under Construction Obligations on the consolidated
condensed balance sheets may be financed under the Vendors' financing
agreements.
5. Contingencies and Commitments
Procurement Contract- On May 8, 1998, the Company amended its procurement and
services agreement with Lucent. The amendment provides for an additional pricing
structure for certain equipment, software and engineering services purchased by
the Company from Lucent after January 1, 1998. Significant original contract
provisions, including but not limited to, the length of the contract and the
payment terms, have not been amended. The minimum commitment under the amendment
is approximately $353 million.
Litigation - The Company is involved in various legal proceedings incidental to
the conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the outcome
of such proceedings, individually and in the aggregate, will not have a material
adverse effect on the Company's financial condition or results of operations.
Part I.
Item 1b.
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
CONDENSED BALANCE SHEETS
June 30, December 31,
1998 1997
---------------------------------------------------------- ---------- ----------
(Unaudited)
ASSETS
Receivable from parent..................................... $ - $ -
---------- ----------
TOTAL ASSETS............................................... $ - $ -
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Payable to parent.......................................... $ 1,497 $ 1,497
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value; 1,000 shares authorized;
100 shares issued and outstanding.................. 100 100
Accumulated deficit...................................... (1,597) (1,597)
---------- ----------
Total stockholders' equity.......................... (1,497) (1,497)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...............
$ - $ -
========== ==========
See notes to condensed financial statements.
Part I.
Item 1b.
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Operating Revenues.... $ - $ - $ - $ -
Operating Expenses.... - - - -
---------- ---------- ---------- ----------
Net Loss.............. $ - $ - $ - $ -
========== ========== ========== ==========
See notes to condensed financial statements.
Part I.
Item 1b.
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30, 1998 June 30, 1997
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in
operating activities:
Net loss............................................ $ - $ -
Changes in assets and liabilities:
Receivable from parent........................... - -
Payable to parent................................ - -
-------------- ---------------
Net cash used in operating activities.......... - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock............................... - -
-------------- --------------
Net cash provided by financing activities...... - -
-------------- --------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS....................................... - -
CASH AND CASH EQUIVALENTS, Beginning of Period........... - -
============== ==============
CASH AND CASH EQUIVALENTS, End of Period................. $ - $ -
============== ==============
See notes to condensed financial statements.
Part I.
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The information contained in this Form 10-Q for the three and six month interim
period ended June 30, 1998 and 1997 has been prepared in accordance with
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of
management, all adjustments considered necessary, consisting only of normal
recurring accruals, to present fairly the consolidated financial position,
results of operations, and cash flows for such interim periods have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The results of operations for the three and six
months ended June 30, 1998 are not necessarily indicative of the operating
results that may be expected for the year ended December 31, 1998. These
unaudited condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in the 1997 Annual Report on
Form 10-K filed by Sprint Spectrum L.P. and Sprint Spectrum Finance Corporation.
1. Organization
Sprint Spectrum Finance Corporation ("FinCo"), a Delaware corporation, was
formed on May 21, 1996 and is a wholly-owned subsidiary of Sprint Spectrum L.P.
(the "Partnership"). FinCo was formed to be a co-obligor of $250 million in
senior notes and $500 million in senior discount notes. FinCo pays a management
fee to the Partnership based on actual expenses paid by the Partnership of
behalf of FinCo. The losses generated by the management fee incurred by FinCo
will be funded by the Partnership.
The Partnership contributed $100 to FinCo on May 21, 1996 in exchange for 100
shares of common stock.
PART I.
Item 2a.
SPRINT SPECTRUM L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with Sprint
Spectrum L.P.'s consolidated condensed financial statements and notes thereto.
The term "Company" refers to Sprint Spectrum L.P. and its subsidiaries,
including FinCo, WirelessCo, RealtyCo, and EquipmentCo.
The Company includes certain estimates, projections and other forward-looking
statements in its reports as well as in presentations to analysts and others and
in other material disseminated to the public. There can be no assurances of
future performance and actual results may differ materially from those in the
forward-looking statements. Factors which could cause actual results to differ
materially from estimates or projections contained in forward-looking statements
include:
- the establishment of a market for new digital personal communications
services ("PCS");
- the introduction of competitive service plans and pricing and other effects
of vigorous competition in the markets in which the Company currently
operates or intends to market its services;
- the impact of technological change which may diminish the value of existing
equipment which may, in turn, result in the need to incur additional costs
to upgrade previously sold communications equipment;
- the cost of entering new markets necessary to provide services;
- the impact of any unusual items resulting from ongoing evaluations of the
Company's business strategies;
- the impact of changes brought about by possible restructuring of partners'
ownership interests;
- the effects of unanticipated delays or problems with the development of
technologies and systems used by the Company;
- requirements imposed on the Company and its competitors by the Federal
Communications Commission ("FCC") and state regulatory commissions under
the Telecommunications Act of 1996;
- the possibility of one or more of the markets in which the Company will
compete being impacted by variations in political, economic or other
factors over which the Company has no control;
- the effects of unanticipated delays resulting from zoning or other disputes
with municipalities; and
- unexpected results in litigation.
General
License and Network Coverage - The Company owns 30 PCS licenses granted in the
FCC's A Block and B Block PCS auction, which concluded in March 1995. These
licenses allow the Company to provide service to 30 major trading areas ("MTAs")
covering approximately 155.9 million Pops. The Company has also affiliated and
expects to continue to affiliate with other PCS providers. Pursuant to
management and affiliation agreements, each affiliated PCS service provider will
use the Sprint(R) and Sprint PCSSM brand names, trademarks of Sprint
Communications Company L.P. ("Sprint Communications").
In 1997 the Company commenced service in all of the MTAs in which it owns a
license and expects to continue to incur additional construction costs as it
expands coverage in existing license areas. Additionally, the Company will
require substantial working capital to fund initial operating activities,
including the up-front customer acquisition costs. The extent to which the
Company is able to generate operating revenue and earnings is dependent on a
number of business factors, including maintaining existing financing, generating
operating revenues, and attaining profitable levels of market demand for the
Company's products and services.
Affiliations - The Company currently affiliates with or provides management
services to entities in which the Partners have an ownership interest. The
Company has an affiliation agreement with American PCS, L.P. ("APC"), a
subsidiary of Holdings, which, through subsidiaries, owns a PCS license for and
operates both a broadband CDMA (code division multiple access) network and GSM
(global system for mobile communications) network in the Washington
D.C./Baltimore area MTA, which covers approximately 8.3 million Pops. APC
launched CDMA service at the end of the first quarter of 1998. The Company also
affiliates with Cox Communications PCS, L.P. ("Cox PCS"), a limited partnership,
in which Holdings is managing partner and has a 59.2% ownership interest. Cox
PCS owns a PCS license for the Los Angeles-San Diego MTA covering approximately
21.0 million Pops.
The Company provides management services to SprintCom, Inc. ("SprintCom") and
PhillieCo, L.P. ("PhillieCo"). SprintCom, a wholly-owned subsidiary of Sprint,
participated in the FCC's D and E Block auction which ended January 14, 1997,
and was awarded licenses for 139 of 493 BTAs, covering approximately 74.9
million Pops, all of which are geographic areas not covered by the Company's
owned PCS licenses or licenses owned by APC, Cox PCS or PhillieCo. PhillieCo is
a limited partnership organized by and among subsidiaries of Sprint, TCI and Cox
that owns a PCS license for the Philadelphia MTA covering approximately 9.2
million Pops.
In June 1998, the Company also entered into various management agreements with
other companies pursuant to which such other companies (each a "Manager") will
build networks in portions of the Company's licensed coverage area and then
affiliate the Manager's network with the Company's network. These Manager
networks will be built using the same technological standards as those of the
Company, and the Managers will use the Sprint PCS brand name to market their
services and will be required to maintain certain quality standards to be
established by the Company. The Company entered into 11 additional agreements in
July and intends to continue to enter into additional management agreements as a
means of expanding its existing network.
Sprint Recapitalization - Sprint has entered into a restructuring agreement with
TCI, Comcast and Cox (the "Cable Parents") to restructure Sprint's wireless PCS
operations (the "PCS Restructuring") subject to Sprint stockholder and FCC
approvals. If the PCS Restructuring occurs as planned, Sprint will acquire the
joint venture interest of TCI, Comcast and Cox in Sprint PCS and the joint
venture interest of TCI and Cox in PhillieCo Partners I, L.P. and PhillieCo
Partners II, L.P. In exchange for these joint venture interests, Sprint will
issue to TCI, Comcast and Cox a newly created class of Sprint common stock (the
"PCS Stock"). The PCS Stock will be intended to reflect separately the
performance of these joint ventures and Sprint's other PCS interests. The
operations will be referred to as the PCS Group.
Roaming - The Company has entered into roaming agreements with various analog
cellular providers throughout the United States and Canada. Additionally, the
Company has negotiated roaming arrangements with other CDMA PCS carriers who
provide service in geographic areas not currently covered by the CDMA network of
Sprint Spectrum and its affiliates. As a result, Sprint Spectrum customers with
dual-mode handsets capable of transmitting over cellular and CDMA PCS
frequencies have the ability to roam automatically in areas where Sprint
Spectrum service is not available and where there are roaming agreements.
Continuing Risk Factors
Year 2000 Issue - The "Year 2000" affects the Company's installed computer
systems, network elements, software applications, and other business systems
that have time sensitive programs that may not properly reflect
or recognize the year 2000. Because many computers and computer applications
define dates by the last two digits of the year, "00" may not be properly
identified as the year 2000. This error could result in miscalculations or
system errors. The Year 2000 issue may also affect the systems and applications
of the Company's customers, vendors or resellers.
The Company is undertaking an inventory and assessment of its compute systems,
network elements, software applications and other business systems. It is
planning that Year 2000 compliance for these critical business systems will be
achieved in 1999.. The Company is also contacting others with whom they conduct
business to receive the appropriate warranties and assurances that those third
parties are or will be Year 2000 compliant. The total cost of modifications and
conversions is not known at this time; however, it is not expected to be
material to the Company's financial position and is being expensed as incurred.
In addition the Company uses publicly available services that are acquired
without contract (e.g., global positioning system timing signal) that may be
subject to the Year 2000 issue. While the Company believes these systems will be
Year 2000 compliant, the Company has no contractual or other right to compel
compliance.
If compliance is not achieved in a timely manner, the Year 2000 issue could have
a material adverse effect on the Company's operations. However, the Company is
focusing on identifying and addressing all aspects of its operations that may be
affected by the Year 2000 issue and is addressing the most critical applications
first. The Company intends to develop and implement, if necessary, appropriate
contingency plans to mitigate to the extent possible any Year 2000
noncompliance.
Deadlock Event - A proposed budget for fiscal year 1998 has not been approved by
the Holdings partnership board, which resulted in the occurrence of a "Deadlock
Event" as of January 1, 1998 under the Holdings Partnership Agreement. Holdings
is the sole general partner of Sprint Spectrum L.P. Under the Holdings
Partnership Agreement, if one of the Partners refers the budget issue to the
chief executive officers of the Parents for resolution pursuant to specified
procedures and the issue remains unresolved, buy/sell provisions would be
triggered which may result in the purchase by one or more of the Partners of the
interest of the other Partners, or, in certain circumstances, the liquidation of
Holdings and it subsidiaries. Discussions among the Partners about restructuring
their interests in Holdings, in lieu of triggering such buy/sell procedures,
have resulted in the Partners entering into a restructuring agreement dated May
26, 1998. See "Sprint Recapitalization" above for a discussion of the
restructuring agreement between the Partners.
Business Plan - To the extent the Sprint recapitalization is not approved, the
Company's business plan will require additional capital financing prior to the
end of 1998. Sources of funding for the Company's further financing requirements
may include additional vendor financing, public offerings or private placements
of equity and/or debt securities, commercial bank loans and/or capital
contributions from Holdings or the Partners. There can be no assurance that any
additional financing can be obtained on a timely basis and on terms acceptable
to the Company and its Partners and within limitations contained in the Notes,
the agreements governing the Secured Financing and any new financing
arrangements. Failure to obtain any such financing could result in the delay or
abandonment of the Company's development and expansion plans and expenditures,
the failure to meet regulatory requirements or other potential adverse
consequences.
Liquidity and Capital Resources
The continued expansion of the Company's PCS network and the marketing and
distribution of the Company's PCS products and services will continue to require
substantial capital. The Company currently estimates that its capital
expenditures through 1999 will total approximately $1.8 to $2.0 billion. Actual
amounts of the funds required may vary materially from these estimates and
additional funds would be required in the event of
significant departures from the current business plan, unforeseen delays, cost
overruns, unanticipated expenses, regulatory changes, engineering design changes
and other technological risks.
The Company's primary uses of cash historically has been to fund the initial
operating losses, capital expenditures and the acquisition of PCS licenses.
Operating losses before depreciation and amortization were $485.7 million and
$367.8 million for the six months ended June 30, 1998 and 1997, respectively.
Capital expenditures totaled $516.1 million and $1,202.9 million for the six
months ended June 30, 1998 and 1997, respectively. Capital expenditures were
incurred primarily to fund the buildout of the Company's network. The Company
spent $2.1 billion to acquire the PCS licenses.
Historically, the sources of funds for the Company were principally long-term
debt, capital contributions and vendor financing arrangements. Long-term debt,
including vendor financings and construction obligations, totaled $5.0 billion
and $3.8 billion at June 30, 1998 and December 31, 1997, respectively. The
Company has used vendor financing arrangements to fund the purchase of the
equipment and software manufactured by the vendors as well as a substantial part
of the construction labor and ancillary equipment (e.g., towers, antennae)
required to construct the Company's PCS network. These facilities serve as a
primary financing source for the buildout of the network.
To the extent the Sprint recapitalization is not approved, the Company currently
has limited sources of funds to meet its capital requirements and has relied
upon capital contributions, advances from Holdings, third party debt and public
debt. The Amended and Restated Capital Contribution Agreement (the "Amended
Agreement") dated October 2, 1996 between the Company and the Partners provided
for $3.2 billion in capital contributions. As of March 31, 1998 the Partners had
fulfilled their obligation under the Amended Agreement. Further capital
contributions may be made by the Partners to Holdings which may, in turn,
contribute capital to the Company. However, the Partners are not obligated to
make additional capital contributions, and there can be no assurance that such
contributions will be made. In October 1996 and as amended in December 1997, the
Company entered into a credit agreement with The Chase Manhattan Bank, as
administrative agent for a group of lenders, for a $2.0 billion senior secured
credit facility (the "Bank Facility"). The proceeds of the Bank Facility are to
be used to finance working capital needs, subscriber acquisition costs, capital
expenditures and other general purposes of the Company. The Bank Facility
consists of a $300 million term loan commitment and a revolving credit
commitment of $1.7 billion. As of June 30, 1998, $300 million under the term
loan and $1.4 billion under the revolving credit facility had been borrowed with
$300 million remaining available.
Also in October 1996, the Company entered into credit agreements for up to an
aggregate of $3.1 billion of senior secured multiple drawdown term loan
facilities from two of its network infrastructure equipment vendors. As amended
in April and November 1997, the Nortel facility provides $1.3 billion in senior
secured loans. The Lucent facility, as amended in May and December 1997,
provides $1.8 billion in senior secured loans (together the "Vendor Financing"
and together with the Bank Facility, the "Secured Financing"). The Company is
using the proceeds from the Vendor Financing to fund the purchase of the
equipment and software manufactured by the vendors as well as a substantial part
of the construction and ancillary equipment (e.g., towers, antennae, cable)
required to construct the Company's PCS network. These facilities serve as the
primary financing mechanism for the buildout and continued expansion of the
network. The Company has borrowed $2.3 billion, including $130.0 million in
accrued converted interest, under such facilities at June 30, 1998, of which
$300 million was syndicated to Sprint.
The Bank Credit Facility agreement and the Vendor Financing agreements contain
certain restrictive financial and operating covenants, including, among other
requirements, maximum debt ratios (including debt to total capitalization),
limitations on capital expenditures, limitations on additional indebtedness and
limitations on
dividends and other payment restrictions affecting certain restricted
subsidiaries. The loss of the right to use the Sprint trademark, the termination
or non-renewal of any FCC license that reduces population coverage below
specified limits, or changes in controlling interest in the Company, as defined,
among other provisions, constitute events of default.
Borrowings under the Secured Financing are secured by the Company's interest in
WirelessCo, RealtyCo and EquipmentCo and certain other personal and real
property (the "Shared Lien"). The Shared Lien equally and ratably secures the
Bank Facility and the Vendor Financing. The Secured Financing is jointly and
severally guaranteed by WirelessCo, RealtyCo and EquipmentCo and is non-recourse
to the Partners and the Parents.
In August 1996, Sprint Spectrum L.P. and FinCo issued $250 million aggregate
principal amount of the 11% Senior Notes and $500 million aggregate principal
amount at maturity of 12 1/2% Senior Discount Notes (together, the "Notes").
FinCo was formed solely to be a co-obligor of the Notes. FinCo has only nominal
assets and no operations or revenues, and Sprint Spectrum L.P. will be
responsible for payment of the Notes.
The Senior Discount Notes were issued at a discount to their aggregate principal
amount at maturity and generated proceeds of approximately $273 million. The
proceeds of approximately $509 million from the issuance of the Notes (net of
approximately $14 million of underwriting discounts, commissions, and offering
expenses) were used to fund capital expenditures, including the buildout of the
nationwide PCS network, to fund working capital requirements, to fund operating
losses and for other partnership purposes. Sprint purchased, and continues to
hold, approximately $183 million principal amount at maturity of the Senior
Discount Notes. The Notes contain certain restrictive covenants, including,
among other requirements limitations on additional indebtedness, limitations on
restricted payments, limitations on liens, and limitations on dividends and
other payment restrictions affecting restricted subsidiaries.
For the six months ended June 30, 1998, the Company used cash of approximately
$605.0 million in operating activities, which consisted of the operating loss of
$922.0 million less depreciation and amortization of $291.0 million and net
changes in working capital and other noncurrent liabilities of $26.2 million.
Cash used in investing activities totaled $539.9 million, consisting of capital
expenditures and microwave relocation costs. Cash provided by financing
activities totaled $1.2 billion, consisting of the proceeds from vendor
financing, the revolving credit agreement, and the change in construction
obligations.
In connection with the restructuring and recapitalization, Sprint and the Cable
Parents have agreed to loan up to $400 million, based on respective ownership
interests, to fund the capital requirements of Holdings and its affiliates,
including the Company, from the date of the signing of the PCS Restructuring
Agreement through the closing date. These loans may be repaid from the proceeds
of an anticipated initial public offering ("IPO") by Sprint, but only to the
extent the net proceeds of the IPO exceed $500 million. In the event the loans
remain outstanding after the IPO, the remaining balance will be converted into
10-year preferred stock convertible into PCS stock.
Subsequent to the restructuring, Sprint intends to borrow funds and then
allocate the borrowings to the PCS Group depending upon its capital structure
and funding needs. Sprint will lend to the PCS Group at rates of interest and
with terms consistent with which the PCS Group could raise funds on their own
without the support of Sprint.
Seasonality
The wireless industry, including the Company, has experienced a trend of
generating a significantly higher number of subscriber additions and handset
sales in the fourth quarter of each year as compared to the other three fiscal
quarters. A number of factors contribute to the trend, including the increasing
use of retail distribution, which is dependent on the year-end holiday shopping
season, the timing of new product and service announcements and introductions,
competitive pricing pressures and aggressive marketing and sales promotions.
There can be no assurances that strong fourth quarter results for subscriber
additions and handset sales will continue for the wireless industry or the
Company. The Company's fourth quarter subscriber additions and handset sales
could be adversely impacted by a variety of reasons, including the Company's
inability to match or beat pricing plans offered by competitors, the failure to
adequately promote the Company's products, services and pricing plans or the
failure to have an adequate supply or selection of handsets. If fourth quarter
results of the Company fail to significantly improve upon subscriber additions
and handset sales from year's previous quarters, the Company's results for the
year could be materially adversely affected.
Results of Operations
For the Three and Six Months Ended June 30, 1998
Operating Revenues
Revenues and cost of revenues have increased for the second quarter and six
months ended June 30, 1998 compared to the same periods in 1997 due to increases
in the number of markets launched and in the number of subscribers. Revenues
include service and the sales of handsets and accessory equipment through
multiple distribution channels (including Sprint PCS retail stores,
telemarketing, and business channels) and to third party vendors. Cost of
revenues consists principally of handset and accessory costs, interconnection
costs and switch and cell site expenses, including site rental and utilities.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses for the second
quarter of 1998 were $223.0 million compared to $148.5 million for the second
quarter of 1997. For the six months ended June 30, 1998, selling, general and
administrative expenses increased to $447.6 million from $266.6 million. For the
six months ended June 30, 1998, selling expenses were $132.1 million, compared
to $43.3 million for the same period in 1997. For the second quarter of 1998,
selling expenses increased to $82.7 million from $30.2 million in the second
quarter of 1997. Such costs include participation with Sprint in an NFL
sponsorship, development and production expenses associated with advertisements
in various media (i.e., television, radio, print), the development of printed
brochures to promote the Company's products and services, and sales incentive
programs. The Company expects selling expenses will continue to increase as the
Company expands its sales and marketing activities.
General and administrative expenses for the second quarter increased $22.0
million over the same period in 1997. For the six months ended June 30, 1998,
general and administrative expenses were $315.5 million, compared to $223.3
million for the comparable period in 1997. These increases are due principally
to increases in salary and related benefits, computer equipment and related
expenses and professional and consulting fees. Salaries and benefits, computer
equipment and related expenses increased due to an increase in employee
headcount. These additional employees have been added over the last year to
support the continued growth of the Company. Professional and consulting fees
increased due to the use of consultants and other experts to assist with the
continuing development and enhancement of the Company's information systems,
continued rollout and tailoring of employee training, and various other
projects.
Depreciation and Amortization
Depreciation and amortization expense for the second quarter of 1998 was $149.9
million compared to $66.3 million for the same period in the prior year. For the
six months ended June 30, 1998, depreciation and amortization expense increased
$163.8 million over the same period in 1997 as network equipment in launched
markets has been placed in service and amortization of PCS licenses and
microwave relocation costs in those same markets commenced.
Other Income/Expense:
Interest Expense
Interest expense increased to $99.1 million for the three months ended June 30,
1998, versus $12.1 million for the same period in 1997. For the six months ended
June 30, 1998, interest expense was $177.3 million, compared to $12.2 million
for the same period in 1997. The balance of the Company's construction accounts
eligible for interest capitalization declined during the period as markets
launched commercial service and equipment was placed in service. Additionally,
interest expense continues to increase as borrowings increase.
Other Income
The Company participates in affiliation agreements with PhillieCo, APC and Cox
PCS. For the three and six months ended June 30, 1998, aggregate fees of $2.0
million and $3.9 million, respectively, earned under these agreements are shown
in other income.
For the Three and Six Months Ended June 30, 1997
Operating Revenues
The Company commenced initial commercial operations for its PCS services in
certain MTAs late in the fourth quarter of 1996 and, as a result, had generated
minimal operating revenues. Cost of service consisted principally of switch and
cell site expenses, including site rental, utilities and access charges. Prior
to service launch, such costs were incurred during the network buildout and
testing phases. As markets launched, costs were incurred to provide service in
the related markets.
Selling Expenses
The Company's selling expenses for the second quarter of 1997 were $30.2 million
compared to $0.9 million for the second quarter of 1996. For the six months
ended June 30, 1997, selling expenses increased to $43.3 million from $0.9
million for the same six months of 1996. These increases were due to costs
incurred in preparation of and during the initial commercial service launch in
various markets. Such costs included participation with Sprint in an NFL
sponsorship, development and production expenses associated with advertisements
in various media (i.e., television, radio, print), and the development of
printed brochures to promote the Company's products and services.
General and Administrative
General and administrative expenses for the second quarter increased from $42.5
million in 1996 to $118.3 million in 1997. General and administrative expenses
for the six months ended June 30, 1996 and 1997 were $73.2 million and $223.3
million, respectively. Increases for both the three and six month periods were
due principally to increases in salary and related benefits, computer equipment
and related expenses and professional and consulting fees. Salaries and
benefits, computer equipment and related expenses increased due to an increase
in employee headcount. Professional and consulting fees increased due to the use
of consultants and other experts to assist with the continuing development and
enhancement of the Company's sophisticated information systems, continued
rollout and tailoring of training programs for the Company's sales force, and
various other projects.
Depreciation and Amortization
Depreciation and amortization expense for the second quarter of 1997 was $66.3
million compared to $0.4 million for the same period in the prior year.
Depreciation and amortization expense of $100.7 million for the six months ended
June 30, 1997, was an increase from $0.6 million for the same period in 1996 as
certain network equipment was placed in service and amortization of PCS licenses
and microwave relocation costs in the launched markets commenced.
Other Income/Expense
Interest Income/Expense
Interest income decreased from $1.0 million for the three months ended June 30,
1996 to $0.4 million for the three months ended June 30, 1997 as the average
daily invested cash balance decreased during the comparative periods due to the
receipt in the prior year of partner equity contributions in advance of capital
and operational requirements. Interest income increased from $0.9 million for
the six months ended June 30, 1996 to $1.3 million
for the six months ended June 30, 1997 as the Company borrowed funds
during the first quarter of the current year in accordance with the terms of the
loan agreements resulting in excess cash balances.
Interest expense increased to $12.1 and $12.2 million for the three and six
months ended June 30, 1997, respectively, as the Company's construction
activities declined during the period as markets launched commercial service,
resulting in the capitalization of less than 100% of the interest expense
incurred during the period. Additionally, interest expense continues to increase
as borrowings increase.
Other Income
Equity in loss of unconsolidated partnership for the three and six months ended
June 30, 1996 represents the Company's share of the losses in APC before the
ownership interest was transferred to Holdings on August 31, 1996. The Company
retained the rights and obligations under the affiliation agreement with APC. In
addition, the Company participates in an affiliation agreement with Cox PCS.
Fees earned under these agreements of $1.8 million and $2.9 million for the
three and six months ended June 30, 1997, respectively, are shown in other
income.
PART I.
Item 2b.
SPRINT SPECTRUM FINANCE CORPORATION
(A Wholly-Owned Subsidiary of Sprint Spectrum L.P.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Sprint Spectrum Finance Corporation ("FinCo"), a Delaware corporation, was
formed on May 21, 1996 and is a wholly-owned subsidiary of Sprint Spectrum L.P.
FinCo has nominal assets, does not conduct any operations and was formed to be a
co-obligor of the securities issued by the Company. Certain institutional
investors who might otherwise be limited in their ability to invest in
securities issued by partnerships by reasons of the legal investment laws in
their states of organization or their charter documents, may be able to invest
in the Company's securities because FinCo is a co-obligor. Accordingly, a
discussion of the results of operations, liquidity and capital resources of
FinCo are not presented.
PART II.
Other Information
Item 1. Legal Proceedings
Sewell, et al. v. Sprint PCS Limited Partnership, a/k/a Sprint Spectrum
L.P., et al., Circuit Court in Baltimore City, Maryland (Civil Action No.
S-97-3044). In July 1997, a class action complaint was filed against Sprint
Spectrum L.P. and American PCS, L.P., asserting common law and statutory claims
of misrepresentation and breaches of contract and warranty. The plaintiffs claim
the defendants misled customers into buying Sprint SpectrumSM handsets and
services on the basis that they were compatible with or operable on the Sprint
PCSSM network, and failed to disclose that the technology behind the Sprint
SpectrumSM network was inferior to the technology behind the Sprint PCSSM
network. The plaintiffs are seeking compensatory and punitive damages, and
attorneys' fees. The plaintiffs' class was certified by the court on June 29,
1998.
Copacino, et al. v. Sprint Spectrum L.P., et al., United States
District Court for the District of Columbia, Case No. 98-1180. In July 1998, a
class action complaint was filed against Sprint Spectrum L.P. asserting common
law and statutory claims of misrepresentation and breaches of contract and
warranty. The responsive pleading by Sprint Spectrum L.P. is not yet due. The
plaintiffs claim the defendants misled customers into buying Sprint Spectrum SM
handsets and services on the basis that the Sprint SpectrumSM service would be
expanded to include national coverage or would be linked to the Sprint PCSSM
system. The plaintiffs are seeking injunctive relief, punitive damages, and
attorneys fees.
Andrew Blum, et al. vs. Sprint Spectrum L.P., United States District
Court for the Southern District of Florida (removed) Case No. 97-7157-CIV. Suit
was filed August 28, 1997 in Florida state court and was removed to federal
court. Plaintiff moved to certify the class on September 27, 1997. Following
limited discovery, Sprint Spectrum L.P. opposed the motion and plaintiffs moved
to withdraw their motion to certify the class on March 11, 1998. Plaintiff moved
to amend the complaint on May 8, 1998 (including withdrawal of the original
class representative and the substitution of additional representatives), which
motion was granted on June 15, 1998.
The suit alleges that Sprint Spectrum L.P. knew, or should have known,
at the time it promoted high-minute usage plans in July and August 1997, that
such promotions would generate usage demand that would exceed capacity of its
network, resulting in blocked or dropped calls. Plaintiff seeks to represent a
class of subscribers in four South Florida counties who subscribed to service
between July 1, 1997 to December 31, 1997. The suit seeks a refund of the
purchase price of telephone handsets and all amounts paid for service,
unspecified compensatory and punitive damages, attorneys' fees and other
unspecified relief.
Rick Cortez, et al. vs. Sprint Spectrum L.P. et al., United States
District Court for the Southern District of Texas, Case No. M-97-259 Suit was
filed in state court on September 24, 1997 and removed to federal court.
Plaintiff moved to remand and to amend the suit, which motions have been heard
and are under advisement.
The suit is against Sprint Spectrum L.P. and the salesperson who
allegedly sold plaintiff the telephone. Plaintiff alleges that Sprint Spectrum
L.P. began promoting its service through various advertisements, touting
clarity, fewer dropped calls and coverage in the Rio Grande
Valley, which plaintiff alleges were false, complaining of excessive dropped and
blocked calls. Claims are based on common law fraud, negligent
misrepresentation, breach of warranty and breach of contract. Plaintiff seeks to
represent a nationwide class of subscribers. Suit seeks unspecified damages,
pre-judgment interest, punitive damages and attorneys' fees.
Camille U. and Joseph Chiarella v. Sprint Spectrum L.P., et al., Civil
District Court for the Parish of Orleans, No. 97-19338. Suit filed October 31,
1997. Exceptions to plaintiff's claims were filed and several were sustained.
Plaintiff filed an amended petition. Exceptions to the amended petition were
filed on July 10, 1998.
Plaintiff alleges that Sprint Spectrum L.P., its owners and
distributors began promoting its service through various advertisements and
direct solicitations, touting clarity, fewer dropped calls and coverage in the
New Orleans, which plaintiff alleges were false, complaining of excessive
dropped and blocked calls. Plaintiff seeks to represent a statewide class of
subscribers.
Sam Nacify v Sprint Spectrum L.P., United States District Court for the
Southern District of California at Los Angeles, Case No. 98-4093 CBM. Suit filed
in state court April 1, 1998 and removed to federal court. Plaintiffs moved to
remand, which motion is scheduled to be heard July 27, 1998.
The suit is brought by a Cox Communications PCS, L.P. customer alleging
that he was induced to buy a handset and sign up for service based on offers of
large numbers of included minutes for a low monthly recurring charge, that he
experienced numerous dropped calls and blocked calls and that coverage is not as
represented due to popularity of promotions, resulting in lack of capacity.
Claims made are for violation of the California Consumer Legal Remedies Act,
common law fraud and breach of contract. Plaintiff seeks to represent class of
customers in California. Suit seeks restitution, attorneys' fees, prejudgment
interest, injunctive relief and other unspecified relief.
Edward Ho, et al. v. Sprint Spectrum L.P., United States District
Court for the Southern District of California City of Los Angeles, Case No.
BC 192668. Suit was served June 22, 1998.
The class is alleged to be those who bought 1,000 minute plans and 500
minute plans in California in the fall of 1997. The suit claims that the system
did not work as represented (frequent dropped calls, non-functioning voice
mail). Breach of implied warranty, common law and the California Consumer Legal
Remedies Act fraud and negligent misrepresentation claims are made. Relief
sought is injunctive, unspecified compensatory and punitive damages and
attorneys' fees.
Item 2. Changes in Securities
There were no reportable events during the quarter ended June 30, 1998.
Item 3. Defaults On Senior Securities
There were no reportable events during the quarter ended June 30, 1998.
Item 4. Submission of Matters to Votes of Security Holders
There were no reportable events during the quarter ended June 30, 1998.
Item 5. Other Information
There were no reportable events during the quarter ended June 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
3.1 Certificate of Limited Partnership of Sprint Spectrum L.P.
(incorporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on June 21, 1996).
3.2 Amended and Restated Agreement of Limited Partnership of MajorCo,
L.P. (renamed Sprint Spectrum Holding Company, L.P.) dated January
31, 1996, among Sprint Spectrum L.P. (renamed Sprint Enterprises,
L.P.), TCI Network Services, Comcast Telephony Services, and Cox
Telephony Partnership (incorporated by reference to Form S-1
Registration Statement, Registration No. 333-06609, filed on June
21, 1996).
3.3 Agreement of Limited Partnership of MajorCo Sub, L.P. (renamed
Sprint Spectrum L.P.), dated as of March 28, 1995, among MajorCo,
L.P. and MinorCo, L.P. (incorporated by reference to Form S-1
Registration Statement, Registration No. 333-06609, filed on June
21, 1996).
4.1 Senior Note Indenture, dated August 23, 1996, between Sprint
Spectrum L.P., Sprint Spectrum Finance Corporation, and The Bank of
New York, as Trustee (incorporated by reference to Form 10-Q, filed
on November 12, 1996).
4.2 Form of Senior Note (included in Exhibit 4.1).
4.3 Senior Discount Note Indenture, dated August 23, 1996, between
Sprint Spectrum L.P., Sprint Spectrum Finance Corporation, and The
Bank of New York, as Trustee (incorporated by reference to Form
10-Q, filed on November 12, 1996).
4.4 Form of Senior Discount Note (included in Exhibit 4.3).
10.1 Amendment No. 2 dated May 8, 1998 to Amended and Restated
Procurement and Services Contract dated October 9, 1996, between
Lucent Technologies Inc. and Sprint Spectrum Equipment Company,
L.P. as amended by Amendment No. 1 dated February 27, 1997. The
omitted portions indicated by brackets have been separately filed
with the Securities and Exchange Commission pursuant to a request
for confidential treatment under Rule 24b-2 of the Securities and
Exchange Act of 1934, as amended.
10.2 Revised Amendment No. 1., dated June 22, 1998, to the Sprint
Spectrum L.P. 1997 Long-Term Incentive Compensation Plan.
27 Financial data schedule
(b) Reports on Form 8-K
A report on Form 8-K concerning the restructuring of the partnership
interests in Sprint Spectrum Holding Company, L.P. was filed on June 4,
1998
SIGNATURE
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.
SPRINT SPECTRUM L.P.
(Registrant)
By /s/Robert M. Neumeister, Jr.
Robert M. Neumeister, Jr.
Chief Financial Officer
Dated: August 12, 1998
SIGNATURE
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.
SPRINT SPECTRUM FINANCE CORPORATION
(Registrant)
By /s/Robert M. Neumeister, Jr.
Robert M. Neumeister, Jr.
Vice President and Treasurer
Dated: August 12, 1998