UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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 Identification No.)
of incorporation or organization)
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 November 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 SEPTEMBER 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............................................22-24
Item 2. Changes in Securities........................................ 24
Item 3. Defaults On Senior Securities................................ 24
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)
September 30, December 31,
1998 1997
------------- -------------
- ------------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 96,040 $ 36,821
Accounts receivable, net........................... 131,972 96,318
Receivable from affiliates......................... 91,970 105,156
Inventory.......................................... 162,682 96,907
Prepaid expenses and other assets.................. 37,896 25,353
------------- -------------
Total current assets............................. 520,560 360,555
INVESTMENT IN PCS LICENSES, net....................... 2,045,883 2,085,836
PROPERTY, PLANT AND EQUIPMENT, net.................... 3,580,420 3,132,664
MICROWAVE RELOCATION COSTS, net....................... 272,963 250,397
OTHER ASSETS, net..................................... 88,090 101,465
============= =============
TOTAL ASSETS.......................................... $ 6,507,916 $ 5,930,917
============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable................................... $ 269,500 $ 305,524
Payable to affiliates.............................. 1,648 1,190
Accrued interest................................... 63,251 45,851
Accrued expenses................................... 321,480 227,890
Current maturities of long-term debt .............. 11,858 11,380
------------- -------------
Total current liabilities........................ 667,737 591,835
CONSTRUCTION OBLIGATIONS.............................. 462,653 705,280
LONG TERM DEBT, net................................... 5,001,107 3,101,539
OTHER NONCURRENT LIABILITIES.......................... 80,603 48,975
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED SUBSIDIARY... 5,000 5,000
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital.................................. 3,690,314 3,437,565
Accumulated deficit................................ (3,399,498) (1,959,277)
------------- -------------
Total partners' capital.......................... 290,816 1,478,288
============= =============
TOTAL LIABILITIES AND PARTNERS' CAPITAL............... $ 6,507,916 $ 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 Nine Months Ended
September 30, September 30,
-------------------------- -------------------------------
1998 1997 1998 1997
- --------------------------------------- ------------ ------------ ---------------- ------------
OPERATING REVENUES..................... $ 246,448 $ 72,534 $ 582,552 $ 107,387
OPERATING EXPENSES:
Cost of revenues.................... 233,379 166,010 607,575 302,131
Selling, general and administrative. 251,919 205,172 699,515 471,748
Depreciation and amortization....... 167,314 84,054 431,841 184,736
------------ ------------ ---------------- ------------
Total operating expenses.......... 652,612 455,236 1,738,931 958,615
LOSS FROM OPERATIONS................... (406,164) (382,702) (1,156,379) (851,228)
OTHER INCOME (EXPENSE):
Interest, net ...................... (111,609) (39,243) (287,258) (50,140)
Other income (expense).............. (425) 1,031 3,416 3,906
------------ ------------ ---------------- ------------
Total other income (expense)...... (112,034) (38,212) (283,842) (46,234)
============ ============ ================ ============
NET LOSS............................... $ (518,198) $ (420,914) $ (1,440,221) $ (897,462)
============ ============ ================ ============
See notes to consolidated condensed financial statements.
PART I.
Item 1a.
SPRINT SPECTRUM L.P.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Nine Months Ended
September 30,
-------------------------------
1998 1997
- ----------------------------------------------------------------- --------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $ (1,440,221) $ (897,462)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................... 431,841 184,736
Amortization of debt discount and issuance costs............ 40,147 35,328
Changes in assets and liabilities:
Receivables............................................... (19,204) (81,876)
Inventory................................................. (65,775) (7,826)
Prepaid expenses and other assets......................... (8,631) (8,984)
Accounts payable and accrued expenses..................... 79,324 167,972
Other noncurrent liabilities.............................. 31,628 13,488
Other, net................................................ 2,161 -
--------------- --------------
Net cash used in operating activities................... (948,730) (594,624)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... (840,780) (1,567,924)
Microwave relocation costs.................................... (30,755) (96,852)
--------------- --------------
Net cash used in investing activities................... (871,535) (1,664,776)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions......................................... 252,750 455,000
Net borrowing under revolving credit agreement................ 960,000 370,000
Proceeds from issuance of long-term debt...................... 914,242 1,327,553
Change in construction obligations............................ (242,627) 149,906
Payments on long-term debt.................................... (4,881) (1,490)
Debt issuance costs........................................... - (20,000)
--------------- --------------
Net cash provided by financing activities............... 1,879,484 2,280,969
--------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS........................... 59,219 21,569
CASH AND CASH EQUIVALENTS, Beginning of period................... 36,821 49,988
--------------- --------------
CASH AND CASH EQUIVALENTS, End of period......................... $ 96,040 $ 71,577
=============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of amount capitalized..................... $ 116,110 $ 12,226
NON-CASH INVESTING AND FINANCING ACTIVITIES:
- Accrued interest of $139.0 million and $24.8 million related
to vendor financing was converted to long-term debt during
each of the nine months ended September 30, 1998 and 1997,
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 nine month interim
periods ended September 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 nine months ended September 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 Company
and certain other affiliated partnerships offer services as Sprint PCS.
The partners of the Company have the following ownership interests as of
September 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, Sprint will
issue to TCI, Comcast, and Cox a newly created class of Sprint common stock (the
"PCS Stock"). The PCS Stock is
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 its 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 $17.2 million and $9.0 million at September 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 $84.9 million
and $45.0 million as of September 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 the remaining life of the PCS licenses.
Accumulated amortization for microwave relocation costs totaled approximately
$10.1 million and $5.2 million as of September 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 nine months
ended September 30, 1998 and 1997 was approximately $26.8 million and $87.2
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 September 30, 1998 and December 31,
1997 totaled approximately $22.8 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 September 30, 1998
the term loans have a weighted average interest rate of 8.20%. As of September
30, 1998, $1.6 billion had been drawn under the revolving credit facility at a
weighted average interest rate of 8.19% with $100.0 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 September 30, 1998, $856.3 million, including converted accrued
interest of $67.2 million, had been borrowed at an interest rate of 8.78% with
$510.9 million remaining available.
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 September 30, 1998, the Company
had borrowed approximately $1.7 billion, including converted accrued interest of
$123.5 million, at a weighted average interest rate of 8.70% with $252.8 million
remaining available.
Certain amounts included under Construction Obligations on the consolidated
condensed balance sheets may be financed under the Vendors' financing
agreements.
4. 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
September 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 Nine Months Ended
September 30, September 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)
Nine Months Ended Nine Months Ended
September 30, 1998 September 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.
Item 1b.
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 nine month interim
periods ended September 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 nine
months ended September 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 impact of the Year 2000 issue and any related noncompliance;
- 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 PCS(R) 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 revenues 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 and its affiliates 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 and
affiliates entered into additional agreements in the third quarter and intend 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 is 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 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 of its computer systems, network
elements, software applications and other business systems. These inventories
are targeted to be completed by year end 1998. Once an item is identified
through the inventory process, its Year 2000 impact is assessed and a plan is
developed to address any required renovation. The Company is using both internal
and external resources to identify, correct or reprogram, and test its systems
for Year 2000 compliance. The Company is planning that Year 2000 compliance for
these critical systems will be achieved in 1999. The Company is also contacting
others with whom it conducts 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. The Company relies on the third-party vendors for a
significant number of its important operating and computer system functions and
therefore is highly dependent on such third-party vendors for the remediation of
network elements, computer systems, software applications and other business
systems. 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 by
Sprint shareholders, 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 debt and 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 11% Senior Notes and 12 1/2% Senior Discount 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. 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 $724.5 million and
$666.5 million for the nine months ended September 30, 1998 and 1997,
respectively. Capital expenditures totaled $840.8 million and $1,567.9 million
for the nine months ended September 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 primary sources of funds for the Company have been long-term
public debt, bank facilities, vendor financing arrangements and capital
contributions. Long-term debt, including vendor financing and construction
obligations, totaled $5.5 billion and $3.8 billion at September 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
certain 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
September 30, 1998, $300 million under the term loan and $1.6 billion under the
revolving credit facility had been borrowed with $100 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 $2.5 billion,
including $165.0 million in accrued converted interest, under such facilities at
September 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 due 2006 and $500 million aggregate
principal amount at maturity of 12 1/2% Senior Discount Notes due 2006
(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 nine months ended September 30, 1998, the Company used cash of
approximately $948.7 million in operating activities, which consisted of the
operating loss of $1.4 billion less depreciation and amortization of $471.9
million and net changes in working capital and other noncurrent liabilities of
$19.5 million. Cash used in investing activities totaled $871.5 million,
consisting of capital expenditures and microwave relocation costs. Cash provided
by financing activities totaled $1.9 billion, consisting of the proceeds from
vendor financing, the revolving credit agreement, capital contributions, 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 interest rates and on
other terms and conditions substantially equivalent to those 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 the year's previous quarters, the Company's results for
the year could be materially adversely affected.
Results of Operations
For the Three and Nine Months Ended September 30, 1998
Operating Revenues
Revenues and cost of revenues have increased for the third quarter and nine
months ended September 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 third quarter
of 1998 were $251.9 million compared to $205.2 million for the third quarter of
1997. For the nine months ended September 30, 1998, selling, general and
administrative expenses increased to $699.5 million from $471.7 million. For the
nine months ended September 30, 1998, selling expenses were $218.9 million,
compared to $106.7 million for the same period in 1997. For the third quarter of
1998, selling expenses increased to $86.8 million from $64.2 million in the
third 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 third quarter increased $24.1
million over the same period in 1997. For the nine months ended September 30,
1998, general and administrative expenses were $480.6 million, compared to
$365.0 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 third quarter of 1998 was $167.3
million compared to $84.1 million for the same period in the prior year. For the
nine months ended September 30, 1998, depreciation and amortization expense
increased $247.1 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 $112.7 million for the three months ended
September 30, 1998, versus $41.2 million for the same period in 1997. For the
nine months ended September 30, 1998, interest expense was $290.0 million,
compared to $53.4 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 continued to increase as borrowings increased.
Other Income
The Company participates in affiliation agreements with PhillieCo, APC and Cox
PCS. For the three and nine months ended September 30, 1998, aggregate fees of
$0.7 million and $4.6 million, respectively, earned under these agreements are
shown in other income.
For the Three and Nine Months Ended September 30, 1997
Operating Revenues/Margin
The Company emerged from the development stage in the third quarter of 1997,
and, as a result, the majority of the year-to-date service revenue was generated
in the third quarter. Equipment revenues reflected the sales of handsets and
accessory equipment through Sprint PCS channels (including Sprint PCS retail
stores, telemarketing, and business channels) and to third party vendors. The
negative margin from equipment sales resulted principally from the Company's
subsidy of handsets. 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.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses for the third quarter
of 1997 were $205.2 million compared to $82.0 million for the third quarter of
1996. For the nine months ended September 30, 1997, selling, general and
administrative expenses increased to $471.7 million from $156.2 million for the
same nine months of 1996. The Company's selling expenses for the third quarter
of 1997 were $64.2 million compared to $7.7 million for the third quarter of
1996. For the nine months ended September 30, 1997, selling expenses increased
to $106.7 million for $8.7 million for the same nine months of 1996. These
increases were due to costs incurred during the initial commercial service
launch in various markets and to costs incurred in conjunction with local and
national advertising for existing markets. 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), and the
development of printed brochures to promote the Company's products and services.
The Company expects selling expenses will continue to increase as the Company
expands its sales and marketing activities.
General and administrative expenses for the third quarter increased from $74.3
million in 1996 to $141.0 million in 1997. General and administrative expenses
for the nine months ended September 30, 1996 and 1997 were $147.5 million and
$365.0 million, respectively. Increases for both the three and nine 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 employee training, and various other
projects.
Depreciation and Amortization
Depreciation and amortization expense for the third quarter of 1997 was $84.1
million compared to $1.2 million for the same period in the prior year.
Depreciation and amortization expense of $184.7 million for the nine months
ended September 30, 1997, was an increase from $1.8 million for the same period
in 1996 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 Income/Expense
Interest income decreased from $3.5 million for the three months ended September
30, 1996 to $1.9 million for the three months ended September 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 decreased from $4.5
million for the nine months ended September 30, 1996 to $3.2 million for the
nine months ended September 30, 1997.
Interest expense increased to $41.2 million for the three months ended September
30, 1997, versus $0.1 million for the same period in 1996. For the nine months
ended September 30, 1997, interest expense increased to $53.4 million from $0.4
million for the same period in 1996. 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 continued to increase as borrowings increased.
Other Income
Equity in loss of unconsolidated partnership for the three and nine months ended
September 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 $1.0 million and $3.9 million,
respectively for the three and nine months ended September 30, 1997 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 Spectrum(R) handsets and
services on the basis that they were compatible with or operable on the Sprint
PCS(R) network, and failed to disclose that the technology behind the Sprint
Spectrum(R) network was inferior to the technology behind the Sprint PCS(R)
network. The plaintiffs are seeking compensatory and punitive damages, and
attorneys' fees. The plaintiffs' class was certified by the court on June 29,
1998. Sprint Spectrum L.P. filed a motion to stay further proceedings pending a
decision by the Maryland Court of Appeals on another class certifications case,
but this motion was denied on October 8, 1998. Merits discovery in the case is
proceeding.
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. On October 2, 1998, Sprint Spectrum L.P. filed a motion for more
definite statement asking plaintiffs to further define their claims. The
plaintiffs claim the defendants misled customers into buying Sprint Spectrum(R)
handsets and services on the basis that the Sprint Spectrum(R) service would be
expanded to include national coverage or would be linked to the Sprint PCS(R)
system. The plaintiffs are seeking injunctive relief, punitive damages, and
attorneys' fees.
Andrew Blum, et al. [Goetz] 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, 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. Suit
was remanded to state court on September 28, 1998.
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 phones 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 filed and several sustained. Plaintiff in
the process of filing an amended petition.
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. Case has been
remanded to state court by agreement of the parties.
The suit is 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 and 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 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
California Consumer Legal Remedies Act fraud and negligent misrepresentation
claims are made. Relief sought is injunctive, unspecified compensatory and
punitive damages and attorneys' fees.
Joseph Chazanow, et al. v. Sprint Spectrum L.P., et al., Los Angeles
Superior Court removed to the United States District Court for the Central
District of California, Case No. CV-98-7102 R(MCX). Original suit filed June 14,
1998. Plaintiffs desire to certify a class action complaint asserting false
advertising, misrepresentation, fraud and defective equipment, focusing on the
pre-November 27, 1997 promotions when Sprint PCS services were launched in
plaintiffs' area. Plaintiffs claim they were misled primarily through
advertising that seamless coverage would be available by a specific date.
Plaintiffs allege they were required to make substantial expenditures in order
to make their initial handset investment operational.
The suit seeks permanent injunctive relief, actual and punitive damages and
attorneys' fees.
Item 2. Changes in Securities
There were no reportable events during the quarter ended September 30,
1998.
Item 3. Defaults On Senior Securities
There were no reportable events during the quarter ended September 30,
1998.
Item 4. Submission of Matters to Votes of Security Holders
There were no reportable events during the quarter ended September 30,
1998.
Item 5. Other Information
There were no reportable events during the quarter ended September 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).
27 Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
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/ William J. Gunter
William J. Gunter
Chief Financial Officer
Dated: November 2, 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/ William J. Gunter
William J. Gunter
Vice President and Treasurer
Dated: November 2, 1998