-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G1siojh/lx+n/fvOqCka1HfLL8JHojo4m9FS703hKmpAASq24fQnbJiIf/lL6lKq JdAksVdoFk+gp8qkdyFNLA== 0000950130-01-505355.txt : 20020410 0000950130-01-505355.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950130-01-505355 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELECORP WIRELESS INC CENTRAL INDEX KEY: 0001089341 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 541872248 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27901 FILM NUMBER: 1788266 BUSINESS ADDRESS: STREET 1: 1010 N GLEBE ROAD STREET 2: SUITE 800 CITY: ARLINGTON STATE: VA ZIP: 22201 BUSINESS PHONE: 7032361100 MAIL ADDRESS: STREET 1: 1010 N GLEBE ROAD STREET 2: SUITE 800 CITY: ARLINGTON STATE: VA ZIP: 22201 FORMER COMPANY: FORMER CONFORMED NAME: TELECORP PCS INC DATE OF NAME CHANGE: 19990622 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELECORP COMMUNICATIONS INC CENTRAL INDEX KEY: 0001092935 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 522105807 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-43596-01 FILM NUMBER: 1788267 BUSINESS ADDRESS: STREET 1: 1010 N GLEBE ROAD STREET 2: SUITE 800 CITY: ARLINGTON STATE: VA ZIP: 22201 BUSINESS PHONE: 7032361100 MAIL ADDRESS: STREET 1: 1010 N GLEBE ROAD STREET 2: SUITE 800 CITY: ARLINGTON STATE: VA ZIP: 22201 10-Q 1 d10q.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 0027901 TeleCorp Wireless, Inc. (Exact name of registrant as specified in its charter) DELAWARE 54-1988007 (State or other (I.R.S. Employer jurisdiction Identification No.) ofincorporation or organization) and the following subsidiary of TeleCorp Wireless, Inc.: Commission file number 333-43596-01 TeleCorp Communications, Inc. (Exact name of registrant as specified in its charter) DELAWARE 52-2105807 (State or other (I.R.S. Employer jurisdiction Identification No.) ofincorporation or organization) ----------------- 1010 N. Glebe Road, Suite 800 Arlington, VA 22201 (Address of principal executive offices) (703) 236-1100 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of November 14, 2001, the Registrant had 1,000 shares of common stock outstanding. The Registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEX
Page ---- PART I Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 2000 and September 30, 2001 (unaudited). 3 Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2000 (unaudited) and 2001 (unaudited) and for the nine months ended September 30, 2000 (unaudited) and 2001 (unaudited).................................. 4 Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2000 (unaudited) and 2001 (unaudited)................................................ 5 Notes to Consolidated Financial Statements............................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 23 PART II Other Information Item 1. Legal Proceedings...................................................................... 23 Item 2. Changes in Securities and Use of Proceeds.............................................. 23 Item 3. Defaults Upon Senior Securities........................................................ 23 Item 4. Submission of Matters to a Vote of Security Holders.................................... 23 Item 5. Other Information...................................................................... 23 Item 6. Exhibits and Reports on Form 8-K....................................................... 23
2 PART I--FINANCIAL INFORMATION Item 1. Financial Statements. TELECORP WIRELESS, INC. CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share data)
December 31, September 30, 2000 2001 ------------ ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents..................................................... $ 228,758 $ 19,858 Short-term investments........................................................ 34,189 -- Accounts receivable, net...................................................... 44,792 88,118 Inventory, net................................................................ 23,680 7,483 Prepaid expenses and other current assets..................................... 9,024 26,474 ---------- ---------- Total current assets...................................................... 340,443 141,933 Property and equipment, net...................................................... 655,218 773,150 PCS licenses and microwave relocation costs, net................................. 668,472 715,232 Intangible assets--AT&T agreements, net.......................................... 174,775 157,224 Other assets..................................................................... 37,849 36,730 ---------- ---------- Total assets.............................................................. $1,876,757 $1,824,269 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.............................................................. $ 45,819 $ 32,648 Accrued expenses and other.................................................... 151,918 133,298 Microwave relocation obligation, current portion.............................. 21,232 14,655 Long-term debt, current portion............................................... 1,459 1,528 Accrued interest.............................................................. 25,801 15,397 ---------- ---------- Total current liabilities................................................. 246,229 197,526 Long-term debt................................................................... 1,288,628 1,513,962 Accrued expenses and other....................................................... 22,056 58,455 ---------- ---------- Total liabilities......................................................... 1,556,913 1,769,943 ---------- ---------- Commitments and contingencies Stockholder's equity: Common stock, par value $.01 per share, 3,000 shares authorized, 1,000 shares issued and outstanding...................................................... -- -- Additional paid-in capital.................................................... 765,291 772,068 Deferred compensation......................................................... (24,445) (22,105) Due from TeleCorp PCS......................................................... (89,174) (51,314) Accumulated other comprehensive income (loss)................................. 958 (8,545) Accumulated deficit........................................................... (332,786) (635,778) ---------- ---------- Total stockholder's equity................................................ 319,844 54,326 ---------- ---------- Total liabilities and stockholder's equity................................ $1,876,757 $1,824,269 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 TELECORP WIRELESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS ($ in thousands)
For the three months For the nine months ended ended September 30, September 30, ---------------------- ------------------------ 2000 2001 2000 2001 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue: Service............................................... $ 64,272 $ 103,207 $ 152,328 $ 260,493 Roaming............................................... 18,307 21,193 44,458 56,791 Equipment............................................. 9,312 12,427 22,562 30,264 -------- --------- --------- --------- Total revenue..................................... 91,891 136,827 219,348 347,548 -------- --------- --------- --------- Operating expenses: Cost of revenue....................................... 27,473 41,063 67,906 103,248 Operations and development (including non-cash stock compensation of $302, $136, $1,073 and $503)........ 14,043 17,082 39,578 50,809 Selling and marketing (including non-cash stock compensation of $413, $307, $972 and $974).......... 43,689 47,664 118,455 137,050 General and administrative (including non-cash stock compensation of $3,214, $2,298, $28,767 and $7,763). 31,429 44,194 105,776 120,951 Depreciation and amortization......................... 32,387 49,775 82,770 140,840 -------- --------- --------- --------- Total operating expenses.......................... 149,021 199,778 414,485 552,898 -------- --------- --------- --------- Operating loss.................................... (57,130) (62,951) (195,137) (205,350) Other income (expense): Interest expense...................................... (29,726) (33,852) (63,989) (102,250) Interest income and other............................. 5,364 225 9,261 4,608 -------- --------- --------- --------- Net loss.......................................... $(81,492) $ (96,578) $(249,865) $(302,992) Other comprehensive loss, net of tax..................... -- (6,592) -- (9,503) -------- --------- --------- --------- Comprehensive loss................................ $(81,492) $(103,170) $(249,865) $(312,495) ======== ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 TELECORP WIRELESS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ($ in thousands)
For the nine months ended September 30, ------------------------ 2000 2001 - - ----------- ----------- (unaudited) (unaudited) Cash flows from operating activities: Net cash used in operating activities........................................ $ (99,057) $(187,591) --------- --------- Cash flows from investing activities: Expenditures for property and equipment...................................... (249,810) (287,221) Purchase of short-term investments........................................... (130,740) (7,929) Proceeds from the sale of short-term investments............................. 5,001 42,118 Capitalized interest......................................................... (2,712) (5,110) Proceeds from sale of property and equipment................................. -- 85,805 Expenditures for microwave relocation........................................ (5,398) (5,515) Purchase of PCS licenses, Black Label Wireless, Inc.......................... (12,166) -- Purchase of PCS licenses..................................................... (733) (55,628) Payment of FCC deposit on PCS licenses....................................... (12,368) -- Partial refund of deposit on PCS licenses.................................... 9,607 -- Payment of Tritel acquisition costs.......................................... (10,214) (20,247) --------- --------- Net cash used in investing activities.................................... (409,533) (253,727) --------- --------- Cash flows from financing activities: Proceeds from sale of common stock........................................... 41,869 -- Proceeds from long-term debt................................................. 579,422 185,000 Receipt of mandatorily redeemable preferred stock subscription receivable of TeleCorp PCS............................................................... 37,650 48,701 Payments on long term debt................................................... (1,019) (1,066) Payments of debt issuance costs.............................................. (14,159) (217) --------- --------- Net cash provided by financing activities................................ 643,763 232,418 --------- --------- Net increase (decrease) in cash and cash equivalents............................ 135,173 (208,900) Cash and cash equivalents at the beginning of period............................ 182,330 228,758 --------- --------- Cash and cash equivalents at the end of period.................................. $ 317,503 $ 19,858 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) 1. Summary of Significant Accounting Policies Unaudited Interim Financial Information The accompanying unaudited consolidated financial statements and related footnotes have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods. Operating results for the three and nine months ended September 30, 2001 are not necessarily indicative of results that may be expected for the year ending December 31, 2001. Reclassifications Certain amounts in the 2000 consolidated financial statements have been reclassified to conform with the presentation of the consolidated financial statements as of and for the three and nine months ended September 30, 2001. Consolidation The consolidated financial statements include the accounts of TeleCorp Wireless, Inc. (the Company) and its wholly-owned subsidiaries, which include, among others, TeleCorp Communications, Inc., TeleCorp LLC and TeleCorp Holding. All intercompany accounts and transactions have been eliminated in consolidation. Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141, requires, among other matters, that purchase accounting be applied to business combinations initiated after June 30, 2001 and the separate recognition of intangible assets apart from goodwill if they meet either the contractual legal or separability criteria. The adoption of SFAS No. 141 had no effect on the consolidated financial position, results of operations, or cash flows of the Company. SFAS No. 142 addresses the accounting treatment and reporting for acquired goodwill and other intangible assets acquired individually or with a group of assets (but not those acquired in a business combination) and addresses how goodwill and other intangible assets are accounted for after initial acquisition. The Company intends to adopt SFAS No. 142 as of January 1, 2002, as required, and as of July 1, 2001 for goodwill and intangible assets acquired after June 30, 2001 (for the nonamortization and amortization provisions of the Statement). The Company is in the process of determining the effect of adopting this standard. At this time, no assurance can be given that material amounts of intangible assets will not need to be adjusted upon adoption of SFAS No. 142 in 2002 as a "cumulative effect of change in accounting principle". In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company intends to adopt SFAS No. 144, which supercedes SFAS No. 121, "Impairment of Long-Lived Assets", and portions of APB Opinion No. 30, as of January 1, 2002. The statement provides guidance on the recognition and measurement of impairment of long-lived assets to be held and used and assets to be disposed. The Company is in the process of determining the effects of adopting this standard. 2. Derivative Instruments and Hedging Activities The Company's activities expose it to market risks that are related to the effects of changes in interest rates. This financial exposure is monitored and managed by the Company as an integral part of its overall risk-management program. The Company's risk-management program focuses on the unpredictability of interest rates and seeks to reduce the potentially adverse effects that the volatility of these rates may have on its future cash flows. 6 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, does not assume repayment risk. The Company minimizes its credit (or repayment) risk in derivative instruments by (1) entering into transactions with high-quality counterparties whose credit ratings are AA/Aa or higher, (2) limiting the amount of its exposure to each counterparty, and (3) monitoring the financial condition of its counterparties. The Company also maintains a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement and, depending on the nature of the derivative transaction, also be governed by bilateral collateral arrangements. Market risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company manages the market risk associated with interest rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Cash Flow Hedges The Company uses interest rate swaps to convert a portion of its variable-rate debt to fixed-rate debt. The resulting cost of funds is lower than it would have been had fixed-rate borrowings been issued directly. The level of fixed-rate debt, after the effects of interest rate swaps have been considered, is currently maintained at 69% of the total Company variable-rate senior credit facility debt. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", on January 1, 2001. In accordance with the adoption of SFAS No. 133, the Company recorded as of January 1, 2001 an asset of $2,443 which represents an estimated fair value of the derivative instruments along with an after-tax unrealized gain of $2,443 in Other Comprehensive Income, which is a component of stockholder's equity, as a cumulative effect of accounting change. SFAS No. 133 requires the Company to carry all derivative financial instruments on the balance sheet at fair value. Changes in fair value of designated, qualified and effective cash flow hedges are deferred and recorded as a component of Other Comprehensive Income until the hedged transactions occur and are recognized in earnings. The ineffective portion and changes related to amounts excluded from the effectiveness assessment of a hedging derivative's change in fair value are immediately reported as "loss on derivatives". The Company assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives are highly effective. Hedge accounting is prospectively discontinued when hedge instruments are no longer highly effective. The Company recognized an unrealized loss for the three and nine months ended September 30, 2001 in Other Comprehensive Loss of $6,592 and $10,988, respectively, and a related liability as of September 30, 2001 of $8,545. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. In addition, after discontinuing certain of its cash flow hedges, the Company determined that it was probable that certain forecasted transactions would occur by the end of the originally specified time period. 7 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 3. Accrued Expenses and Other Accrued expenses and other consist of the following:
December 31, September 30, 2000 2001 ------------ ------------- (unaudited) Property and equipment......................... $ 63,723 $ 28,582 Sales and property taxes....................... 32,653 33,792 Payroll and related liabilities................ 12,834 15,150 Accrued operational expenses................... 38,705 34,728 Deferred gain on sale of property and equipment -- 40,616 Microwave relocation obligation, long-term..... 15,736 15,736 Accrued liability of loss on derivatives....... -- 8,545 Other liabilities.............................. 10,323 14,604 -------- -------- 173,974 191,753 Less: non-current portion...................... 22,056 58,455 -------- -------- $151,918 $133,298 ======== ========
4. Long-term Debt Long-term debt consists of the following:
December 31, September 30, 2000 2001 ------------ ------------- (unaudited) Senior credit facility............ $ 325,000 $ 510,000 Senior subordinated notes......... 450,000 450,000 Senior subordinated discount notes 396,572 431,525 Vendor financing.................. 47,443 50,950 U.S. Government financing......... 71,072 73,015 ---------- ---------- 1,290,087 1,515,490 Less current portion.............. 1,459 1,528 ---------- ---------- $1,288,628 $1,513,962 ========== ==========
Senior Credit Facility On April 5, 2001, the Company drew $35,000 from its Senior Credit Facility Tranche C term loan. Interest on the Tranche C loan was 6.83% at September 30, 2001. On July 6, 2001, the Company drew $50,000 from its Senior Credit Facility Tranche A term loan. Interest on the Tranche A loan was 6.32% at September 30, 2001. On August 9 and September 10, 2001, the Company drew $50,000 and $50,000, respectively, from its Senior Credit Facility revolver. Interest on the revolver loan was 6.08% at September 30, 2001. 5. Other Comprehensive Loss Other comprehensive loss for the three and nine months ended September 30, 2000 and 2001 consists of the following:
For the three For the nine months ended months ended September 30, September 30, ------------ ------------ 2000 2001 2000 2001 ---- ---- ---- ---- (unaudited) (unaudited) Reclassification of gains realized on sale of securities $ -- $ -- $ -- $ (958) Unrealized holding losses from interest rate swaps...... -- (6,592) -- (8,545) ---- ------- ---- ------- Other comprehensive loss................................ $ -- $(6,592) $ -- $(9,503) ==== ======= ==== =======
8 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 6. Sale of Telecommunication Towers On March 16, May 17, June 29, July 17, and September 19, 2001, the Company completed the sales and transfer to SBA Communications Corporation (SBA) of a total of 262 towers and related assets for an aggregate purchase price of $85,805, reflecting a price of approximately $328 per site. Concurrently with the initial sale, the Company entered into a master lease agreement with SBA for the continued use of the space that the Company occupied on the towers prior to each sale. The Company recognized a deferred gain on the sale which will be recognized ratably over the five-year term of the related operating lease-back. 7. Acquisitions On February 5, 2001, the Company purchased a 15 MHz C-Block PCS license in the Mayaguez, Puerto Rico basic trading area for $18,000 in cash. On April 5, 2001, the Company purchased D-block licenses in Cedar Rapids and Iowa City, Iowa for an aggregate purchase price of $13,117 in cash. On June 18, 2001, the Company purchased E-block licenses in Cedar Rapids, Iowa for an aggregate purchase price of $7,000 in cash. On August 30, 2001, the Company purchased C-block licenses in various locations in Iowa for an aggregate purchase price of $10,920 in cash. The licenses cover the following locations in Iowa: Burlington, Ottumwa, Mason City, Marshall Town, and Fort Dodge. On August 31, 2001, the Company purchased C-block licenses in Sioux City, Iowa for an aggregate purchase price of $8,562. As consideration for the licenses, the Company paid $6,257 in cash and assumed approximately $2,305, including $13 of accrued interest, in U.S. Government financing related to the licenses. 8. Related Parties The Company engages in transactions with its affiliate company Tritel, Inc. (Tritel), each of which is a wholly-owned subsidiary of TeleCorp PCS, Inc. (TeleCorp PCS). These transactions include shared management and operational personnel, shared telecommunications assets, reciprocal roaming revenue and expense agreements, and joint purchasing arrangements. Due to certain covenants contained in the Company's various indentures, the Company tracks and settles these amounts in cash monthly at the estimated fair value of the underlying transaction. For the three and nine months ended September 30, 2001, the Company recognized an expense reduction of $1,515 and $4,426, respectively, related to personnel shared with Tritel. In addition, for the three and nine months ended September 30, 2001, the Company recognized rental revenue of $54 and $162, respectively, related to telecommunications assets shared with Tritel. Charges for roaming revenues and expenses provided between companies for the three months ended September 30, 2001 were $1,302 and $2036, respectively, and for the nine months ended September 30, 2001 were $3,002 and $4,742, respectively. As of September 30, 2001, the Company had a receivable from Tritel of $70 included in other current assets. During the nine months ended September 30, 2001, the Company received $48,701 in cash related to mandatorily redeemable preferred stock subscriptions receivable of TeleCorp PCS. The Company also paid certain liabilities on its parent behalf totaling $15,532. As of September 30, 2001, the Company's balance due from parent totaled $51,314. 9 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 9. Subsidiary Guarantees On April 23, 1999, the Company completed the issuance and sale of 11 5/8% Senior Subordinated Discount Notes (the Notes). The Notes are fully and unconditionally guaranteed on a joint and several basis by TeleCorp Communications, Inc. (TCI), one of the Company's wholly-owned subsidiaries. On July 14, 2000, the Company completed the issuance and sale of its 10 5/8% Senior Subordinated Notes. The Senior Subordinated Notes are also fully and unconditionally guaranteed on a joint and several basis by TCI. Consolidating financial statements of TeleCorp Wireless, Inc., TCI, the guarantor, the non-guarantor subsidiary of TCI, and the non-guarantor subsidiaries of TeleCorp Wireless, Inc. as of December 31, 2000 and September 30, 2001 and for the three and nine months ended September 30, 2000 and 2001 have been included on the following pages. Consolidating Balance Sheet as of December 31, 2000:
TeleCorp Communications, Inc. ---------------------------------- TeleCorp TCI- Non- Wireless, Guarantor Guarantor Inc. Subsidiary Subsidiary Consolidated ---------- ---------- ---------- ------------ ASSETS Current assets: Cash and cash equivalents.................. $ 228,758 $ -- $ -- $ -- Short-term investments..................... 34,189 -- -- -- Accounts receivable, net................... -- 44,792 -- 44,792 Inventory.................................. -- 23,680 -- 23,680 Prepaid expenses and other current assets.................................... 111 5,992 2,921 8,913 ---------- -------- ------- -------- Total current assets.................... 263,058 74,464 2,921 77,385 Property and equipment, net................... -- 655,218 -- 655,218 PCS licenses and microwave relocation costs, net................................... -- -- -- -- Intangible assets--AT&T agreements, net.......................................... 174,775 -- -- -- Other assets.................................. 33,355 45 938 983 Investments in subsidiaries................... 1,092,175 1,320 (1,320) -- ---------- -------- ------- -------- Total assets............................ $1,563,363 $731,047 $ 2,539 $733,586 ========== ======== ======= ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable........................... $ -- $ 45,819 $ -- $ 45,819 Accrued expenses and other................. -- 151,433 485 151,918 Microwave relocation obligation, current portion........................... -- -- -- -- Long-term debt, current portion............ -- -- -- -- Accrued interest........................... 24,505 310 -- 310 ---------- -------- ------- -------- Total current liabilities............... 24,505 197,562 485 198,047 Long-term debt................................ 1,219,014 -- -- -- Accrued expenses and other.................... -- -- 1,930 1,930 ---------- -------- ------- -------- Total liabilities....................... 1,243,519 197,562 2,415 199,977 ---------- -------- ------- -------- Commitments and contingencies Stockholder's equity (deficit)................ 319,844 533,485 124 533,609 ---------- -------- ------- -------- Total liabilities and stockholder's equity (deficit)....................... $1,563,363 $731,047 $ 2,539 $733,586 ========== ======== ======= ========
TeleCorp Wireless, Inc. -------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents.................. $ -- $ -- $ 228,758 Short-term investments..................... -- -- 34,189 Accounts receivable, net................... -- -- 44,792 Inventory.................................. -- -- 23,680 Prepaid expenses and other current assets.................................... -- -- 9,024 -------- ----------- ---------- Total current assets.................... -- -- 340,443 Property and equipment, net................... -- -- 655,218 PCS licenses and microwave relocation costs, net................................... 668,472 -- 668,472 Intangible assets--AT&T agreements, net.......................................... -- -- 174,775 Other assets.................................. 3,511 -- 37,849 Investments in subsidiaries................... -- (1,092,175) -- -------- ----------- ---------- Total assets............................ $671,983 $(1,092,175) $1,876,757 ======== =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable........................... $ -- $ -- $ 45,819 Accrued expenses and other................. -- -- 151,918 Microwave relocation obligation, current portion........................... 21,232 -- 21,232 Long-term debt, current portion............ 1,459 -- 1,459 Accrued interest........................... 986 -- 25,801 -------- ----------- ---------- Total current liabilities............... 23,677 -- 246,229 Long-term debt................................ 69,614 -- 1,288,628 Accrued expenses and other.................... 20,126 -- 22,056 -------- ----------- ---------- Total liabilities....................... 113,417 -- 1,556,913 -------- ----------- ---------- Commitments and contingencies Stockholder's equity (deficit)................ 558,566 (1,092,175) 319,844 -------- ----------- ---------- Total liabilities and stockholder's equity (deficit)....................... $671,983 $(1,092,175) $1,876,757 ======== =========== ==========
10 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Balance Sheet as of September 30, 2001 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. ---------------------------------- -------------------------------------- TeleCorp TCI- Non- Non- Wireless, Guarantor Guarantor Guarantor Inc Subsidiary Subsidiary Consolidated Subsidiaries Eliminations Consolidated ---------- ---------- ---------- ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents......... $ 19,858 $ -- $ -- $ -- $ -- $ -- $ 19,858 Accounts receivable, net.......... -- 88,118 -- 88,118 -- -- 88,118 Inventory......................... -- 7,483 -- 7,483 -- -- 7,483 Prepaid expenses and other current assets................... 16 22,617 3,841 26,458 -- -- 26,474 ---------- -------- ------ -------- -------- ----------- ---------- Total current assets........... 19,874 118,218 3,841 122,059 -- -- 141,933 Property and equipment, net.......... -- 773,150 -- 773,150 -- -- 773,150 PCS licenses and microwave relocation costs, net............... -- -- -- -- 715,232 -- 715,232 Intangible assets--AT&T agreements, net................................. 157,224 -- -- -- -- -- 157,224 Other assets......................... 30,346 401 2,351 2,752 3,632 -- 36,730 Investment in subsidiaries........... 1,311,955 4,395 -- 4,395 -- (1,316,350) -- ---------- -------- ------ -------- -------- ----------- ---------- Total assets................... $1,519,399 $896,164 $6,192 $902,356 $718,864 $(1,316,350) $1,824,269 ========== ======== ====== ======== ======== =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable.................. $ -- $ 32,648 $ -- $ 32,648 $ -- $ -- $ 32,648 Accrued expenses and other........ 8,545 124,449 304 124,753 -- -- 133,298 Microwave relocation obligation, current portion.................. -- -- -- -- 14,655 -- 14,655 Long-term debt, current portion... -- -- -- -- 1,528 -- 1,528 Accrued interest.................. 14,053 310 -- 310 1,034 -- 15,397 ---------- -------- ------ -------- -------- ----------- ---------- Total current liabilities...... 22,598 157,407 304 157,711 17,217 -- 197,526 Long-term debt....................... 1,442,475 -- -- -- 71,487 -- 1,513,962 Accrued expenses and other........... -- 37,663 1,493 39,156 19,299 -- 58,455 ---------- -------- ------ -------- -------- ----------- ---------- Total liabilities.............. 1,465,073 195,070 1,797 196,867 108,003 -- 1,769,943 ---------- -------- ------ -------- -------- ----------- ---------- Commitments and contingencies Stockholder's equity (deficit)....... 54,326 701,094 4,395 705,489 610,861 (1,316,350) 54,326 ---------- -------- ------ -------- -------- ----------- ---------- Total liabilities and stockholder's equity (deficit)..................... $1,519,399 $896,164 $6,192 $902,356 $718,864 $(1,316,350) $1,824,269 ========== ======== ====== ======== ======== =========== ==========
11 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the three months ended September 30, 2000 (unaudited): TeleCorp Communications, Inc. ----------------------------------------------------- TeleCorp TCI- Non- Wireless, Guarantor Guarantor Inc Subsidiary Subsidiary Eliminations Consolidated ---------- ----------- ----------- ------------- ------------- Revenue: Service.................... $ -- $ 64,272 $ -- $ -- $ 64,272 Roaming.................... -- 18,307 -- -- 18,307 Equipment.................. -- 9,312 -- -- 9,312 Intercompany............... 1,789 -- 6,249 (6,249) -- ---------- ----------- ----------- ------------- ------------- Total revenue........... 1,789 91,891 6,249 (6,249) 91,891 ---------- ----------- ----------- ------------- ------------- Operating expenses: Cost of revenue............ -- 37,237 -- (6,249) 30,988 Operations and development............... -- 7,794 6,249 -- 14,043 Selling and marketing...... -- 43,689 -- -- 43,689 General and administrative............ -- 31,429 -- -- 31,429 Depreciation and amortization.............. 1,789 29,284 -- -- 29,284 ---------- ----------- ----------- ------------- ------------- Total operating expenses............... 1,789 149,433 6,249 (6,249) 149,433 ---------- ----------- ----------- ------------- ------------- Operating income (loss)................. -- (57,542) -- -- (57,542) Other income (expense): Interest expense........... (29,314) (23,950) -- -- (23,950) Interest income and other.. 29,314 -- -- -- -- Equity in net loss of subsidiaries.............. (81,492) -- -- -- -- ---------- ----------- ----------- ------------- ------------- Net (loss) income....... $ (81,492) $ (81,492) $ -- $ -- $ (81,492) ========== =========== =========== ============= =============
TeleCorp Wireless, Inc. ------------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------- ------------- ------------- Revenue: Service.................... $ -- $ -- $ 64,272 Roaming.................... -- -- 18,307 Equipment.................. -- -- 9,312 Intercompany............... 1,726 (3,515) -- ------------- ------------- ------------- Total revenue........... 1,726 (3,515) 91,891 ------------- ------------- ------------- Operating expenses: Cost of revenue............ -- (3,515) 27,473 Operations and development............... -- -- 14,043 Selling and marketing...... -- -- 43,689 General and administrative............ -- -- 31,429 Depreciation and amortization.............. 1,314 -- 32,387 ------------- ------------- ------------- Total operating expenses............... 1,314 (3,515) 149,021 ------------- ------------- ------------- Operating income (loss)................. 412 -- (57,130) Other income (expense): Interest expense........... (412) 23,950 (29,726) Interest income and other.. -- (23,950) 5,364 Equity in net loss of subsidiaries.............. -- 81,492 -- ------------- ------------- ------------- Net (loss) income....... $ -- $ 81,492 $ (81,492) ============= ============= =============
12 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the three months ended September 30, 2001 (unaudited):
TeleCorp Communications, Inc. ---------------------------------------------- TeleCorp TCI- Non- Wireless, Guarantor Guarantor Inc. Subsidiary Subsidiary Eliminations Consolidated --------- ---------- ---------- ------------ ------------ Revenue: Service............................. $ -- $103,120 $ 87 $ -- $103,207 Roaming............................. -- 21,193 -- -- 21,193 Equipment........................... -- 12,427 -- -- 12,427 Intercompany........................ 5,850 -- 7,906 (7,906) -- --------- -------- ------ ------- -------- Total revenue.................... 5,850 136,740 7,993 (7,906) 136,827 --------- -------- ------ ------- -------- Operating expenses: Cost of revenue..................... -- 60,382 -- (7,906) 52,476 Operations and development.......... -- 9,176 7,906 -- 17,082 Selling and marketing............... -- 47,664 -- -- 47,664 General and administrative.......... -- 44,194 -- -- 44,194 Depreciation and amortization....... 5,850 39,901 -- -- 39,901 --------- -------- ------ ------- -------- Total operating expenses......... 5,850 201,317 7,906 (7,906) 201,317 --------- -------- ------ ------- -------- Operating income (loss).......... -- (64,577) 87 -- (64,490) Other income (expense): Interest expense.................... (32,313) (32,088) -- -- (32,088) Interest income and other........... 32,313 -- -- -- -- Equity in net loss of subsidiaries.. (96,578) -- -- -- -- --------- -------- ------ ------- -------- Net (loss) income................ (96,578) (96,665) 87 -- (96,578) --------- -------- ------ ------- -------- Other comprehensive loss, net of tax... (6,592) -- -- -- -- --------- -------- ------ ------- -------- Comprehensive (loss) income...... $(103,170) $(96,665) $ 87 $ -- $(96,578) ========= ======== ====== ======= ========
TeleCorp Wireless, Inc. ------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------ ------------ ------------ Revenue: Service............................. $ -- $ -- $ 103,207 Roaming............................. -- -- 21,193 Equipment........................... -- -- 12,427 Intercompany........................ 5,563 (11,413) -- ------- -------- --------- Total revenue.................... 5,563 (11,413) 136,827 ------- -------- --------- Operating expenses: Cost of revenue..................... -- (11,413) 41,063 Operations and development.......... -- -- 17,082 Selling and marketing............... -- -- 47,664 General and administrative.......... -- -- 44,194 Depreciation and amortization....... 4,024 -- 49,775 ------- -------- --------- Total operating expenses......... 4,024 (11,413) 199,778 ------- -------- --------- Operating income (loss).......... 1,539 -- (62,951) Other income (expense): Interest expense.................... (1,539) 32,088 (33,852) Interest income and other........... -- (32,088) 225 Equity in net loss of subsidiaries.. -- 96,578 -- ------- -------- --------- Net (loss) income................ -- 96,578 (96,578) ------- -------- --------- Other comprehensive loss, net of tax... -- -- (6,592) ------- -------- --------- Comprehensive (loss) income...... $ -- $ 96,578 $(103,170) ======= ======== =========
13 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the nine months ended September 30, 2000 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. ---------------------------------------------- ------------------------------------- TeleCorp TCI- Non- Non- Wireless, Guarantor Guarantor Guarantor Inc. Subsidiary Subsidiary Eliminations Consolidated Subsidiaries Eliminations Consolidated --------- ---------- ---------- ------------ ------------ ------------ ------------ ------------ Revenue: Service................. $ -- $ 152,328 $ -- $ -- $ 152,328 $ -- $ -- $ 152,328 Roaming................. -- 44,458 -- -- 44,458 -- -- 44,458 Equipment............... -- 22,562 -- -- 22,562 -- -- 22,562 Intercompany............ 5,366 -- 18,058 (18,058) -- 5,110 (10,476) -- --------- --------- ------- -------- --------- ------- -------- --------- Total revenue........ 5,366 219,348 18,058 (18,058) 219,348 5,110 (10,476) 219,348 --------- --------- ------- -------- --------- ------- -------- --------- Operating expenses: Cost of revenue......... -- 96,440 -- (18,058) 78,382 -- (10,476) 67,906 Operations and development............ -- 21,520 18,058 -- 39,578 -- -- 39,578 Selling and marketing.............. -- 118,455 -- -- 118,455 -- -- 118,455 General and administrative......... -- 105,776 -- -- 105,776 -- -- 105,776 Depreciation and amortization........... 5,366 73,949 -- -- 73,949 3,455 -- 82,770 --------- --------- ------- -------- --------- ------- -------- --------- Total operating expenses............ 5,366 416,140 18,058 (18,058) 416,140 3,455 (10,476) 414,485 --------- --------- ------- -------- --------- ------- -------- --------- Operating income (loss).............. -- (196,792) -- -- (196,792) 1,655 -- (195,137) Other income (expense): Interest expense........ (62,334) (53,073) -- -- (53,073) (1,655) 53,073 (63,989) Interest income and other.................. 62,334 -- -- -- -- -- (53,073) 9,261 Equity in net loss of subsidiaries........... (249,865) -- -- -- -- -- 249,865 -- --------- --------- ------- -------- --------- ------- -------- --------- Net (loss) income.............. $(249,865) $(249,865) $ -- $ -- $(249,865) $ -- $249,865 $(249,865) ========= ========= ======= ======== ========= ======= ======== =========
14 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the nine months ended September 30, 2001 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. ---------------------------------------------- ------------------------------------- TeleCorp TCI- Non- Non- Wireless, Guarantor Guarantor Guarantor Inc. Subsidiary Subsidiary Eliminations Consolidated Subsidiaries Eliminations Consolidated --------- ---------- ---------- ------------ ------------ ------------ ------------ ------------ Revenue: Service..................... $ -- $ 259,768 $ 725 $ -- $ 260,493 $ -- $ -- $ 260,493 Roaming..................... -- 56,791 -- -- 56,791 -- -- 56,791 Equipment................... -- 30,264 -- -- 30,264 -- -- 30,264 Intercompany................ 17,550 -- 19,530 (19,530) -- 15,014 (32,564) -- --------- --------- ------- -------- --------- ------- -------- --------- Total revenue............ 17,550 346,823 20,255 (19,530) 347,548 15,014 (32,564) 347,548 --------- --------- ------- -------- --------- ------- -------- --------- Operating expenses: Cost of revenue............. 155,342 -- (19,530) 135,812 -- (32,564) 103,248 Operations and development................ -- 31,279 19,530 -- 50,809 -- -- 50,809 Selling and marketing....... -- 137,050 -- -- 137,050 -- -- 137,050 General and administrative............. -- 120,951 -- -- 120,951 -- -- 120,951 Depreciation and amortization............... 17,550 112,904 -- -- 112,904 10,386 -- 140,840 --------- --------- ------- -------- --------- ------- -------- --------- Total operating expenses................ 17,550 557,526 19,530 (19,530) 557,526 10,386 (32,564) 552,898 --------- --------- ------- -------- --------- ------- -------- --------- Operating income (loss).................. -- (210,703) 725 -- (209,978) 4,628 -- (205,350) Other income (expense): Interest expense............ (97,622) (93,014) -- -- (93,014) (4,628) 93,014 (102,250) Interest income and other...................... 97,622 -- -- -- -- -- (93,014) 4,608 Equity in net loss of subsidiaries.................. (302,992) -- -- -- -- -- 302,992 -- --------- --------- ------- -------- --------- ------- -------- --------- Net (loss) income.................. (302,992) (303,717) 725 -- (302,992) -- 302,922 (302,992) Other comprehensive loss, net of tax........................ (9,503) -- -- -- -- -- -- (9,503) --------- --------- ------- -------- --------- ------- -------- --------- Comprehensive (loss) income.................. $(312,495) $(303,717) $ 725 $ -- $(302,992) $ -- $302,922 $(312,495) ========= ========= ======= ======== ========= ======= ======== =========
15 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Condensed Statement of Cash Flows for the nine months ended September 30, 2000 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. --------------------------------- ---------------------------------------- TeleCorp TCI- Non- Non- Wireless, Guarantor Guarantor Guarantor Black Label Inc. Subsidiary Subsidiary Consolidated Subsidiaries Wireless, Inc. Eliminations --------- ---------- ---------- ------------ ------------ -------------- ------------ Cash flows from operating activities: Net cash provided by (used in) operating activities.... $(355,972) $ 236,770 $ -- $ 236,770 $ 20,125 $ 20 $ -- Cash flows from investing activities: Expenditures for property and equipment............... -- (234,058) -- (234,058) -- (15,752) -- Capitalized interest......... -- (2,712) -- (2,712) -- -- -- Purchase of short-term investments, net............ (125,739) -- -- -- -- -- -- Expenditures for microwave relocation........ -- -- -- -- (5,398) -- -- Purchase of PCS licenses, Black Label Wireless, Inc......................... -- -- -- -- -- (12,166) -- Purchase of PCS licenses..... -- -- -- -- (733) -- -- Deposit on PCS licenses, net......................... -- -- -- -- (2,761) -- -- Payment of Tritel acquisition costs........... -- -- -- -- (10,214) -- -- --------- --------- ---- --------- -------- -------- ---- Net cash used in investing activities..... (125,739) (236,770) -- (236,770) (19,106) (27,918) -- Cash flows from financing activities: Proceeds from sale of common stock....................... 41,869 -- -- -- -- -- -- Proceeds from receipt of preferred stock subscription receivable..... 37,650 -- -- -- -- -- -- Proceeds from long-term debt........................ 550,000 -- -- -- -- 29,422 -- Payments on long-term debt........................ -- -- -- -- (1,019) -- -- Payments of debt issuance costs....................... (14,159) -- -- -- -- -- -- --------- --------- ---- --------- -------- -------- ---- Net cash provided by (used in) financing activities............... 615,360 -- -- -- (1,019) 29,422 -- --------- --------- ---- --------- -------- -------- ---- Net decrease in cash and cash equivalents.................... 133,649 -- -- -- -- 1,524 -- Cash and cash equivalents at the beginning of period............ 182,330 -- -- -- -- -- -- --------- --------- ---- --------- -------- -------- ---- Cash and cash equivalents at the end of period.................. $ 315,979 $ -- $ -- $ -- $ -- 1,524 $ -- ========= ========= ==== ========= ======== ======== ====
Consolidated ------------ Cash flows from operating activities: Net cash provided by (used in) operating activities.... $ (99,057) Cash flows from investing activities: Expenditures for property and equipment............... 249,810 Capitalized interest......... (2,712) Purchase of short-term investments, net............ (125,739) Expenditures for microwave relocation........ (5,398) Purchase of PCS licenses, Black Label Wireless, Inc......................... (12,166) Purchase of PCS licenses..... (733) Deposit on PCS licenses, net......................... (2,761) Payment of Tritel acquisition costs........... (10,214) --------- Net cash used in investing activities..... (409,533) Cash flows from financing activities: Proceeds from sale of common stock....................... 41,869 Proceeds from receipt of preferred stock subscription receivable..... 37,650 Proceeds from long-term debt........................ 579,422 Payments on long-term debt........................ (1,019) Payments of debt issuance costs....................... (14,159) --------- Net cash provided by (used in) financing activities............... 643,763 --------- Net decrease in cash and cash equivalents.................... 135,173 Cash and cash equivalents at the beginning of period............ 182,330 --------- Cash and cash equivalents at the end of period.................. $ 317,503 =========
16 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Condensed Statement of Cash Flows for the nine months ended September 30, 2001 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. --------------------------------- ------------------------------------- TeleCorp TCI- Non- Non- Wireless, Guarantor Guarantor Guarantor Inc. Subsidiary Subsidiary Consolidated Subsidiaries Eliminations Consolidated --------- ---------- ---------- ------------ ------------ ------------ ------------ Cash flows from operating activities: Net cash provided by (used in) operating activities.................. $(476,573) $ 226,773 $ -- $ 226,773 $ 62,209 $ -- $(187,591) --------- --------- ---- --------- -------- ---- --------- Cash flows from investing activities: Expenditures for property and equipment............................. -- (287,221) -- (287,221) -- -- (287,221) Purchase of short-term investments..... (7,929) -- -- -- -- -- (7,929) Proceeds from sale of short-term investments........................... 42,118 -- -- -- -- -- 42,118 Capitalized interest................... -- (5,110) -- (5,110) -- -- (5,110) Proceeds from sale of property and equipment............................. -- 85,805 -- 85,805 -- -- 85,805 Expenditures for microwave relocation............................ -- -- -- -- (5,515) -- (5,515) Purchase of PCS licenses............... -- -- -- -- (55,628) -- (55,628) Payment of Tritel acquisition costs.... -- (20,247) -- (20,247) -- -- (20,247) --------- --------- ---- --------- -------- ---- --------- Net cash provided by (used in) investing activities............... 34,189 (226,773) -- (226,773) (61,143) -- (253,727) --------- --------- ---- --------- -------- ---- --------- Cash flows from financing activities: Proceeds from long-term debt........... 185,000 -- -- -- -- -- 185,000 Receipt of preferred stock subscription receivable............... 48,701 -- -- -- -- -- 48,701 Payments on long-term debt............. -- -- -- -- (1,066) -- (1,066) Payments of debt issuance costs........ (217) -- -- -- -- -- (217) --------- --------- ---- --------- -------- ---- --------- Net cash provided by (used in) financing activities............... 233,484 -- -- -- (1,066) -- 232,418 --------- --------- ---- --------- -------- ---- --------- Net decrease in cash and cash equivalents. (208,900) -- -- -- -- -- (208,900) Cash and cash equivalents at the beginning of period................................ 228,758 -- -- -- -- -- 228,758 --------- --------- ---- --------- -------- ---- --------- Cash and cash equivalents at the end of period................................... $ 19,858 $ -- $ -- $ -- $ -- $ -- $ 19,858 ========= ========= ==== ========= ======== ==== =========
17 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 10. Subsequent Event On October 7, 2001, TeleCorp PCS, Inc. (TeleCorp), the parent of the Company, entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with AT&T Wireless Services, Inc. and TL Acquisition Corp., a direct wholly-owned subsidiary of AT&T Wireless (the Merger Sub). Pursuant to the Merger Agreement, the Merger Sub shall be merged with and into TeleCorp with TeleCorp continuing as the surviving corporation and becoming a wholly-owned subsidiary of AT&T Wireless (the Merger). The Merger is subject to, among other things, regulatory approval and approval by TeleCorp's stockholders and is expected to be consummated in the first half of 2002. If the Merger is completed, other than shares owned by dissenting stockholders which are not Class A common shares and shares owned directly by AT&T Wireless Services, Inc.: . each issued and outstanding share of TeleCorp's common stock will be converted into and become exchangeable for 0.9 of a share of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series C and series E preferred stock will be converted into and become exchangeable for a share of AT&T Wireless preferred stock that is substantially identical to the share of TeleCorp preferred stock; . each issued and outstanding share of TeleCorp's series A convertible preferred stock will be converted into and become exchangeable for 82.9849 shares of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series B preferred stock will be converted into and become exchangeable for 81.2439 shares of AT&T Wireless common stock; . each issued and outstanding share TeleCorp's series D preferred stock will be converted into and become exchangeable for 27.6425 shares of AT&T Wireless common stock; and . each issued and outstanding share of TeleCorp's series F and G preferred stock will be converted into and become exchangeable for 0.9 of a share of AT&T Wireless common stock. 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General You should read the following discussion in conjunction with (1) the Company's accompanying unaudited Consolidated Financial Statements and notes thereto included in this report on Form 10-Q and (2) the Company's audited Consolidated Financial Statements, notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K for such period. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are based on current expectations, estimates, and projections. Such forward-looking statements reflect management's good-faith evaluation of information currently available. However, because such statements are based upon, and therefore can be influenced by, a number of external variables over which management has no, or incomplete, control, they are not, and should not be read as being guarantees of future performance or of actual future results; nor will they necessarily prove to be accurate indications of the times at or by which any such performance or result will be achieved. Accordingly, actual outcomes and results may differ materially from those expressed in such forward-looking statements. The Company does not intend to update any such forward-looking statements. Overview The Company is an AT&T Wireless affiliate in the United States providing digital wireless personal communications services, or PCS, to a licensed service area covering approximately 23 million people. As of September 30, 2001, the Company had launched service in 38 markets having approximately 19 million people and representing approximately 83% of the population where the Company holds licenses in the United States and Puerto Rico. As of September 30, 2001, the Company served more than 601,900 customers. Under the terms of the strategic alliance the Company has with AT&T Wireless the Company is AT&T Wireless's exclusive provider of wireless mobility services on the Company's network. The Company is a wholly owned subsidiary of TeleCorp PCS, Inc. On October 7, 2001, TeleCorp PCS, Inc. (TeleCorp), the parent of the Company, entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with AT&T Wireless Services, Inc. and TL Acquisition Corp., a direct wholly-owned subsidiary of AT&T Wireless (the Merger Sub). Pursuant to the Merger Agreement, the Merger Sub shall be merged with and into TeleCorp with TeleCorp continuing as the surviving corporation and becoming a wholly-owned subsidiary of AT&T Wireless (the Merger). The Merger is subject to, among other things, regulatory approval and approval by TeleCorp's stockholders and is expected to be consummated in the first half of 2002. If the Merger is completed, other than shares owned by dissenting stockholders which are not Class A common shares and shares owned directly by AT&T Wireless Services, Inc.: . each issued and outstanding share of TeleCorp's common stock will be converted into and become exchangeable for 0.9 of a share of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series C and series E preferred stock will be converted into and become exchangeable for a share of AT&T Wireless preferred stock that is substantially identical to the share of TeleCorp preferred stock; . each issued and outstanding share of TeleCorp's series A convertible preferred stock will be converted into and become exchangeable for 82.9849 shares of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series B preferred stock will be converted into and become exchangeable for 81.2439 shares of AT&T Wireless common stock; . each issued and outstanding share of TeleCorp's series D preferred stock will be converted into and become exchangeable for 27.6425 shares of AT&T Wireless common stock; and 19 . each issued and outstanding share of TeleCorp's series F and G preferred stock will be converted into and become exchangeable for 0.9 of a share of AT&T Wireless common stock. Results of Operations Three months ended September 30, 2001 compared to three months ended September 30, 2000 Subscribers Net additions were 44,176 and 85,562 for the three months ended September 30, 2001 and 2000, respectively. Total PCS subscribers were 601,947 and 405,444 as of September 30, 2001 and 2000, respectively. The increase in total PCS subscribers over the same period in 2000 was primarily due to launching additional markets from the period October 1, 2000 to September 30, 2001. Revenue Revenue for the three months ended September 30, 2001 and 2000 was $136.8 million and $91.9 million, respectively. Service revenue was $103.2 million and $64.3 million for the three months ended September 30, 2001 and 2000, respectively. The increase in service revenue of $38.9 million was due to the addition of approximately 197,000 subscribers from October 1, 2000 to September 30, 2001 and to the launch of additional markets. Roaming revenue was $21.2 million and $18.3 million for the three months ended September 30, 2001 and 2000, respectively. The increase in roaming revenue of $2.9 million was due primarily to additional cell sites being added since the three months ended September 30, 2000. Equipment revenue was $12.4 million and $9.3 million for the three months ended September 30, 2001 and 2000, respectively. The equipment revenue increase of $3.1 million over 2000 was due primarily to the sales of handsets and related accessories in connection with the significant growth in gross additions during the three months ended September 30, 2001. Cost of revenue Cost of revenue was $41.1 million and $27.5 million for the three months ended September 30, 2001 and 2000, respectively. The increase in cost of revenue of $13.6 million over the same period in 2000 was due primarily to additional roaming, interconnection and long distance expenses in connection with the Company's increased subscriber base and increases in equipment costs due in connection with the growth in gross customer additions during the three months ended September 30, 2001. Operations and development Operations and development expense was $17.1 million and $14.0 million for the three months ended September 30, 2001 and 2000, respectively. The increase of $3.1 million over the same period in 2000 was primarily due to the development and growth of infrastructure and staffing and maintenance related to the support of the Company's network and network operations center. Selling and marketing Selling and marketing expense was $47.7 million and $43.7 million for the three months ended September 30, 2001 and 2000, respectively. The increase of $4.0 million over the same period in 2000 was primarily due to the cost of acquiring the increased number of new subscribers. Costs associated with the Company's increased market base included advertising and promotion costs, commissions and the excess cost of handsets over the retail price. General and administrative General and administrative expense was $44.2 million and $31.4 million for the three months ended September 30, 2001 and 2000, respectively. The increase of $12.8 million over the same period in 2000 was primarily due to the development and growth of infrastructure and staffing related to information technology, 20 customer care and other administrative functions incurred in conjunction with managing the corresponding growth in the Company's subscriber base and launching the additional markets. Depreciation and amortization Depreciation and amortization expense was $49.8 million and $32.4 million for the three months ended September 30, 2001 and 2000, respectively. The increase of $17.4 million over the same period in 2000 relates primarily to depreciation of the Company's property and equipment as well as the amortization of its PCS licenses and the AT&T and AT&T Wireless operating agreements related to the Company's markets launched between October 1, 2000 and September 30, 2001. Interest expense Interest expense was $33.9 million, net of capitalized interest of $2.3 million, for the three months ended September 30, 2001. Interest expense was $29.7 million, net of capitalized interest of $0.9 million, for the three months ended September 30, 2000. The increase of $4.2 million over the same period in 2000 relates primarily to additional FCC debt issued throughout 2000 and $185 million of additional senior credit facility drawn during 2001. Interest income and other Interest income and other was $0.2 million and $5.4 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $5.2 million from the same period in 2000 was due primarily to lower average daily cash and short-term investment balances during the three months ended September 30, 2001. Results of Operations Nine months ended September 30, 2001 compared to nine months ended September 30, 2000 Subscribers Net additions were 141,197 and 263,213 for the nine months ended September 30, 2001 and 2000, respectively. Total PCS subscribers were 601,947 and 405,444 as of September 30, 2001 and 2000, respectively. The increase in total PCS subscribers over the same period in 2000 was primarily due to launching additional markets from the period October 1, 2000 to September 30, 2001. Revenue Revenue for the nine months ended September 30, 2001 and 2000 was $347.5 million and $219.3 million, respectively. Service revenue was $260.5 million and $152.3 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in service revenue of $108.2 million was due to the addition of approximately 197,000 subscribers from October 1, 2000 to September 30, 2001 and to the launch of additional markets. Roaming revenue was $56.8 million and $44.5 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in roaming revenue of $12.3 million was due primarily to additional cell sites being added since the nine months ended September 30, 2000. Equipment revenue was $30.3 million and $22.6 million for the nine months ended September 30, 2001 and 2000, respectively. The equipment revenue increase of $7.7 million over 2000 was due primarily to the sales of handsets and related accessories in connection with the significant growth in gross additions during the nine months ended September 30, 2001. Cost of revenue Cost of revenue was $103.2 million and $67.9 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in cost of revenue of $35.3 million over the same period in 2000 was due primarily to additional roaming, interconnection and long distance expenses in connection with the Company's increased subscriber base and increases in equipment costs in connection with the growth in gross additions during the nine months ended September 30, 2001. 21 Operations and development Operations and development expense was $50.8 million and $39.6 million for the nine months ended September 30, 2001 and 2000, respectively. The increase of $11.2 million over the same period in 2000 was primarily due to the development and growth of infrastructure and staffing and maintenance related to the support of the Company's network and network operations center. Selling and marketing Selling and marketing expense was $137.1 million and $118.5 million for the nine months ended September 30, 2001 and 2000, respectively. The increase of $18.6 million over the same period in 2000 was primarily due to the cost of acquiring the increased number of new subscribers. Costs associated with the Company's increased market base included advertising and promotion costs, commissions and the excess cost of handsets over the retail price. General and administrative General and administrative expense was $121.0 million and $105.8 million for the nine months ended September 30, 2001 and 2000, respectively. The increase of $15.2 million over the same period in 2000 was primarily due to the development and growth of infrastructure and staffing related to information technology, customer care and other administrative functions incurred in conjunction with managing the corresponding growth in the Company's subscriber base and launching the additional markets. Depreciation and amortization Depreciation and amortization expense was $140.8 million and $82.8 million for the nine months ended September 30, 2001 and 2000, respectively. The increase of $58.0 million over the same period in 2000 relates primarily to depreciation of the Company's property and equipment as well as the amortization of its PCS licenses and the AT&T and AT&T Wireless operating agreements related to the Company's markets launched between October 1, 2000 and September 30, 2001. Interest expense Interest expense was $102.3 million, net of capitalized interest of $5.1 million, for the nine months ended September 30, 2001. Interest expense was $64.0 million, net of capitalized interest of $2.7 million, for the nine months ended September 30, 2000. The increase of $38.3 million over the same period in 2000 relates primarily to interest expense on the Company's 10 5/8% senior subordinated notes issued in July 2000, additional FCC debt issued throughout 2000, and $185 million of additional senior credit facility drawn during 2001. Interest income and other Interest income and other was $4.6 million and $9.3 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $4.7 million over the same period in 2000 was due primarily to lower average daily cash and short-term investment balances during the nine months ended September 30, 2001. Forward Looking Statements: Cautionary Statements Statements in this quarterly report expressing the Company's expectations and beliefs regarding its future results or performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve a number of risks and uncertainties. In particular, certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts constitute forward-looking statements. Although the Company believes that the expectations expressed in such forward-looking statements are based on reasonable assumptions within the bounds of its knowledge of its business, the Company's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, the risks described in the Annual Report on Form 10-K filed by TeleCorp PCS, Inc. for the fiscal year ended December 31, 2000. 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk. Intentionally omitted as the registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the reduced disclosure format. PART II--OTHER INFORMATION Item 1. Legal Proceedings. None. Items 2, 3, and 4. Intentionally omitted as the registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the reduced disclosure format. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit No. Description - ------- ----------- 10.1* Master Services Agreement, dated September 5, 2001, between Convergys Information Management Group Inc., TeleCorp Communications, Inc. and Tritel Communications, Inc.
- -------- * Incorporated by reference to the TeleCorp PCS, Inc. Form 10-Q filed with the Securities and Exchange Commission on November 14, 2001. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 14, 2001 TELECORP WIRELESS, INC. By: /S/ THOMAS H. SULLIVAN -------------------------------------------- Thomas H. Sullivan President, Treasurer and Secretary (Duly Authorized and Principal Financial and Accounting Officer) Date: November 14, 2001 SUBSIDIARY OF TELECORP WIRELESS, INC. TELECORP COMMUNICATIONS, INC. By: /S/ THOMAS H. SULLIVAN -------------------------------------------- Thomas H. Sullivan President, Treasurer and Secretary (Duly Authorized and Principal Financial and Accounting Officer)
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