10-Q 1 d10q.txt QUARTERLY REPORT -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 333-43596 TeleCorp Wireless, Inc. (Exact name of registrant as specified in its charter) DELAWARE 54-1988007 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) and the following subsidiary of TeleCorp Wireless, Inc.: Commission file number 333-43596-01 TeleCorp Communications, Inc. (Exact name of registrant as specified in its charter) DELAWARE 52-2105807 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ----------------- 1010 N. Glebe Road, Suite 800 Arlington, VA 22201 (Address of principal executive offices) (703) 236-1100 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of August 14, 2001, the Registrant had 1,000 shares of common stock outstanding. The Registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Index
Page ---- PART I Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 (unaudited)...... 3 Consolidated Statements of Operations and Comprehensive Loss for the three months ended June 30, 2000 (unaudited) and 2001 (unaudited) and for the six months ended June 30, 2000 (unaudited) and 2001 (unaudited)................................................ 4 Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2000 (unaudited) and 2001 (unaudited)..................................................... 5 Notes to Consolidated Financial Statements............................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 22 PART II Other Information Item 1. Legal Proceedings...................................................................... 22 Item 2. Changes in Securities and Use of Proceeds.............................................. 22 Item 3. Defaults Upon Senior Securities........................................................ 22 Item 4. Submission of Matters to a Vote of Security Holders.................................... 22 Item 5. Other Information...................................................................... 22 Item 6. Exhibits and Reports on Form 8-K....................................................... 23
2 PART I--Financial Information Item 1. Financial Statements. TELECORP WIRELESS, INC. CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share data)
December 31, June 30, 2000 2001 ------------ ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents........................................ $ 228,758 $ 6,499 Short-term investments........................................... 34,189 -- Accounts receivable, net......................................... 44,792 64,686 Inventory, net................................................... 23,680 12,814 Prepaid expenses and other current assets........................ 9,024 42,098 ---------- ---------- Total current assets......................................... 340,443 126,097 Property and equipment, net......................................... 655,218 719,394 PCS licenses and microwave relocation costs, net.................... 668,472 699,729 Intangible assets--AT&T agreements, net............................. 174,775 163,074 Other assets........................................................ 37,849 38,136 ---------- ---------- Total assets................................................. $1,876,757 $1,746,430 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable................................................. $ 45,819 $ 42,959 Accrued expenses and other....................................... 151,918 141,891 Microwave relocation obligation, current portion................. 21,232 15,407 Long-term debt, current portion.................................. 1,459 1,534 Accrued interest................................................. 25,801 27,888 ---------- ---------- Total current liabilities.................................... 246,229 229,679 Long-term debt...................................................... 1,288,628 1,348,654 Accrued expenses and other.......................................... 22,056 52,407 ---------- ---------- Total liabilities............................................ 1,556,913 1,630,740 ---------- ---------- Commitments and contingencies Stockholder's equity: Common stock, par value $.01 per share, 3,000 shares authorized, 1,000 shares issued and outstanding............................ -- -- Additional paid-in capital....................................... 689,659 696,515 Deferred compensation............................................ (24,445) (24,924) Due from TeleCorp PCS............................................ (13,542) (14,748) Accumulated other comprehensive income (loss).................... 958 (1,953) Accumulated deficit.............................................. (332,786) (539,200) ---------- ---------- Total stockholder's equity................................... 319,844 115,690 ---------- ---------- Total liabilities and stockholder's equity................... $1,876,757 $1,746,430 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 TELECORP WIRELESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS ($ in thousands)
For the three months For the six months ended June 30, ended June 30, ---------------------- ---------------------- 2000 2001 2000 2001 - ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue: Service.............................................. $ 51,119 $ 85,403 $ 88,056 $ 157,286 Roaming.............................................. 14,699 19,447 26,151 35,598 Equipment............................................ 6,193 8,599 13,250 17,837 -------- --------- --------- --------- Total revenue.................................... 72,011 113,449 127,457 210,721 -------- --------- --------- --------- Operating expenses: Cost of revenue...................................... 21,407 33,842 40,433 62,185 Operations and development (including non-cash stock compensation of $564, $165, $771 and $367)......... 14,569 16,692 25,535 33,727 Selling and marketing (including non-cash stock compensation of $427, $322, $559 and $667)......... 40,141 44,995 74,766 89,386 General and administrative (including non-cash stock compensation of $20,815, $2,712, $25,553 and $5,465)........................................ 47,071 40,566 74,347 76,757 Depreciation and amortization........................ 26,915 48,630 50,383 91,065 -------- --------- --------- --------- Total operating expenses......................... 150,103 184,725 265,464 353,120 -------- --------- --------- --------- Operating loss................................... (78,092) (71,276) (138,007) (142,399) Other income (expense): Interest expense..................................... (17,273) (35,790) (34,263) (68,398) Interest income and other............................ 1,491 1,130 3,897 4,383 -------- --------- --------- --------- Net loss......................................... $(93,874) $(105,936) $(168,373) $(206,414) Other comprehensive loss, net of tax.................... -- (223) -- (2,911) -------- --------- --------- --------- Comprehensive loss............................... $(93,874) $(106,159) $(168,373) $(209,325) ======== ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 TELECORP WIRELESS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ($ in thousands)
For the six months ended June 30, ----------------------- 2000 2001 - ----------- ----------- (unaudited) (unaudited) Cash flows from operating activities: Net cash used in operating activities.................................... $(123,533) $(129,099) --------- --------- Cash flows from investing activities: Expenditures for property and equipment...................................... (109,117) (176,324) Purchase of short-term investments........................................... -- (7,929) Proceeds from the sale of short-term investments............................. -- 42,169 Capitalized interest......................................................... (1,798) (2,830) Proceeds from sale of property and equipment................................. -- 71,988 Expenditures for microwave relocation........................................ (4,279) (4,762) Purchase of PCS licenses..................................................... (733) (38,203) Payment of FCC deposit on PCS licenses....................................... (12,368) -- Payment of Tritel acquisition costs.......................................... (8,409) (21,430) --------- --------- Net cash used in investing activities.................................... (136,704) (137,321) --------- --------- Cash flows from financing activities: Proceeds from sale of common stock........................................... 41,869 -- Proceeds from long-term debt................................................. 65,000 35,000 Receipt of mandatorily redeemable preferred stock subscription receivable of TeleCorp PCS............................................................... -- 10,999 Payments on long term debt................................................... (675) (704) Payments of debt issuance costs.............................................. (64) (1,134) --------- --------- Net cash provided by financing activities................................ 106,130 44,161 --------- --------- Net decrease in cash and cash equivalents....................................... (154,107) (222,259) Cash and cash equivalents at the beginning of period............................ 182,330 228,758 --------- --------- Cash and cash equivalents at the end of period.................................. $ 28,223 $ 6,499 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) 1. Summary of Significant Accounting Policies Unaudited Interim Financial Information The accompanying unaudited consolidated financial statements and related footnotes have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods. Operating results for the three and six months ended June 30, 2001 are not necessarily indicative of results that may be expected for the year ending December 31, 2001. Reclassifications Certain amounts in the 2000 consolidated financial statements have been reclassified to conform with the presentation of the consolidated financial statements as of and for the three and six months ended June 30, 2001. Consolidation The consolidated financial statements include the accounts of TeleCorp Wireless, Inc. (the Company) and its wholly-owned subsidiaries, which include, among others, TeleCorp Communications, Inc., TeleCorp LLC and TeleCorp Holding. All intercompany accounts and transactions have been eliminated in consolidation. Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". The Company intends to adopt SFAS No. 141, which requires, among other matters, that purchase accounting to be applied to business combinations initiated after June 30, 2001 by a for-profit organization. The Company intends to adopt SFAS No. 142 as of January 1, 2002, as required, and as of July 1, 2001 for goodwill and intangible assets acquired after June 30, 2001 (for the nonamortization and amortization provisions of the Statement). The Company is in the process of determining the effect of adopting this standard. 2. Derivative Instruments and Hedging Activities The Company's activities expose it to market risks that are related to the effects of changes in interest rates. This financial exposure is monitored and managed by the Company as an integral part of its overall risk-management program. The Company's risk-management program focuses on the unpredictability of interest rates and seeks to reduce the potentially adverse effects that the volatility of these rates may have on its future cash flows. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty might fail to fulfill its performance obligations under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, does not assume repayment risk. The Company minimizes its credit (or repayment) risk in derivative instruments by (1) entering into transactions with high-quality counterparties whose credit ratings are AA/Aa or higher, (2) limiting the amount of its exposure to each counterparty, and (3) monitoring the financial condition of its counterparties. The Company also maintains a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement and, depending on the nature of the derivative transaction, also be governed by bilateral collateral arrangements. 6 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Market risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company manages the market risk associated with interest rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Cash Flow Hedges The Company uses interest rate swaps to convert a portion of its variable-rate debt to fixed-rate debt. The resulting cost of funds is lower than it would have been had fixed-rate borrowings been issued directly. The level of fixed-rate debt, after the effects of interest rate swaps have been considered, is currently maintained at 69% of the total Company variable-rate senior credit facility debt. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", on January 1, 2001. In accordance with the adoption of SFAS No. 133, the Company recorded as of January 1, 2001 an asset of $2,443 which represents an estimated fair value of the derivative instruments along with an after-tax unrealized gain of $2,443 in Other Comprehensive Income, which is a component of stockholder's equity, as a cumulative effect of accounting change. SFAS No. 133 requires the Company to carry all derivative financial instruments on the balance sheet at fair value. Changes in fair value of designated, qualified and effective cash flow hedges are deferred and recorded as a component of Other Comprehensive Income until the hedged transactions occur and are recognized in earnings. The ineffective portion and changes related to amounts excluded from the effectiveness assessment of a hedging derivative's change in fair value are immediately reported as "loss on derivatives". The Company assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives are highly effective. Hedge accounting is prospectively discontinued when hedge instruments are no longer highly effective. The Company recognized an unrealized loss for the three and six months ended June 30, 2001 in Other Comprehensive Loss of $149 and $4,396, respectively, and a related liability as of June 30, 2001 of $1,953. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. In addition, after discontinuing certain of its cash flow hedges, the Company determined that it was probable that certain forecasted transactions would occur by the end of the originally specified time period. 3. Accrued Expenses and Other Accrued expenses and other consist of the following:
December 31, June 30, 2000 2001 ------------ ----------- (unaudited) Property and equipment......................... $ 63,723 $ 44,557 Sales and property taxes....................... 32,653 34,763 Payroll and related liabilities................ 12,834 12,832 Accrued operational expenses................... 38,705 35,715 Deferred gain on sale of property and equipment -- 38,466 Microwave relocation obligation, long-term..... 15,736 15,736 Other liabilities.............................. 10,323 12,229 -------- -------- 173,974 194,298 Less: non-current portion...................... 22,056 52,407 -------- -------- $151,918 $141,891 ======== ========
7 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 4. Long-term Debt Long-term debt consists of the following:
December 31, June 30, 2000 2001 ------------ ----------- (unaudited) Senior credit facility............................... $ 325,000 $ 360,000 Senior subordinated notes............................ 450,000 450,000 Senior subordinated discount notes................... 396,572 419,620 Vendor financing..................................... 47,443 49,723 U.S. Government financing............................ 71,072 70,845 ---------- ---------- 1,290,087 1,350,188 Less current portion................................. 1,459 1,534 ---------- ---------- $1,288,628 $1,348,654 ========== ==========
Senior Credit Facility On April 5, 2001, the Company drew $35,000 from its Senior Credit Facility Tranche C term loan. Interest on the Tranche C loan was 7.85% at June 30, 2001. 5. Other Comprehensive Loss Other comprehensive loss for the three and six months ended June 30, 2001 and 2000 consists of the following:
For the three months ended June 30, ------------- 2000 2001 ---- -------- (unaudited) Reclassification of gains realized on sale of securities..... $-- $ (74) Unrealized holding losses from interest rate swaps........... -- (149) --- ----- Other comprehensive loss..................................... $-- $(223) === =====
For the six months ended June 30, ------------- 2000 2001 ---- ------- (unaudited) Reclassification of gains realized on sale of securities.... $-- $ (958) Unrealized holding losses from interest rate swaps.......... -- (1,953) --- ------- Other comprehensive loss.................................... $-- $(2,911) === =======
6. Sale of Towers On March 16, 2001, the Company completed the sale and transfer to SBA Communications Corporation (SBA) of 203 towers and related assets for an aggregate purchase price of $66,483, reflecting a price of approximately $328 per site. Concurrent with the sale, the Company entered into a master lease agreement with SBA for the continued use of the space that the Company occupied on the towers prior to the sale. The Company recognized a deferred gain on the sale which will be recognized ratably over the five-year term of the related operating lease-back. 8 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) On May 17 and June 29, 2001, the Company completed the sale and transfer to SBA of a total of 35 towers and related assets for an aggregate purchase price of $11,463, reflecting a price of approximately $328 per site. Concurrent with the sale, the Company entered into a master lease agreement with SBA for the continued use of the space that the Company occupied on the towers prior to the sale. The Company recognized a deferred gain on the sale which will be recognized ratably over the five-year term of the related operating lease-back. 7. Acquisitions On February 5, 2001, the Company purchased a 15 MHz C-Block PCS license in the Mayaguez, Puerto Rico basic trading area for $18,000 in cash. On April 5, 2001, the Company purchased D-block licenses in Cedar Rapids and Iowa City, Iowa for an aggregate purchase price of $13,117 in cash. On June 18, 2001, the Company purchased E-block licenses in Cedar Rapids, Iowa for an aggregate purchase price of $7,000 in cash. 8. Related Parties The Company engages in transactions with its affiliate company Tritel Inc. (Tritel), which is also a wholly-owned subsidiary of TeleCorp PCS, Inc. (TeleCorp PCS). These transactions include shared management and operational personnel, shared telecommunications assets, reciprocal roaming revenue and expense agreements, and joint purchasing arrangements. Due to certain covenants contained in the Company's various indentures, the Company tracks and settles these amounts in cash monthly at the estimated fair value of the underlying transaction. For the three and six months ended June 30, 2001, the Company recognized a net benefit of $1,456 and $2,911, respectively, related to personnel shared with Tritel. In addition, for the three and six months ended June 30, 2001, the Company recognized rental revenue of $54 and $108, respectively, related to telecommunications assets shared with Tritel. Charges for roaming revenues and expenses provided between companies for the three months ended June 30, 2001 were $946 and $1,527, respectively, and for the six months ended June 30, 2001 were $1,701 and $2,706, respectively. As of June 30, 2001, the Company had a receivable from Tritel of $8,944 included in other current assets. 9. Subsidiary Guarantees On April 23, 1999, the Company completed the issuance and sale of 11 5/8% Senior Subordinated Discount Notes (the Notes). The Notes are fully and unconditionally guaranteed on a joint and several basis by TeleCorp Communications, Inc. (TCI), one of the Company's wholly-owned subsidiaries. On July 14, 2000, the Company completed the issuance and sale of its 10 5/8% Senior Subordinated Notes. The Senior Subordinated Notes are also fully and unconditionally guaranteed on a joint and several basis by TCI. Consolidating financial statements of TeleCorp Wireless, Inc., TCI, the guarantor, the non-guarantor subsidiary of TCI, and the non-guarantor subsidiaries of TeleCorp Wireless, Inc. as of December 31, 2000 and June 30, 2001 and for the three and six months ended June 30, 2000 and 2001 have been included on the following pages. 9 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Balance Sheet as of December 31, 2000:
TeleCorp Communications, Inc. ---------------------------------- TeleCorp TCI- Non- Wireless, Guarantor Guarantor Inc. Subsidiary Subsidiary Consolidated ---------- ---------- ---------- ------------ ASSETS Current assets: Cash and cash equivalents................................... $ 228,758 $ -- $ -- $ -- Short-term investments...................................... 34,189 -- -- -- Accounts receivable, net.................................... -- 44,792 -- 44,792 Inventory................................................... -- 23,680 -- 23,680 Prepaid expenses and other current assets................... 111 5,992 2,921 8,913 ---------- -------- ------- -------- Total current assets..................................... 263,058 74,464 2,921 77,385 Property and equipment, net.................................... -- 655,218 -- 655,218 PCS licenses and microwave relocation costs, net............... -- -- -- -- Intangible assets--AT&T agreements, net........................ 174,775 -- -- -- Other assets................................................... 33,355 45 938 983 Investments in subsidiaries.................................... 1,092,175 1,320 (1,320) -- ---------- -------- ------- -------- Total assets............................................. $1,563,363 $731,047 $ 2,539 $733,586 ========== ======== ======= ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable............................................ $ -- $ 45,819 $ -- $ 45,819 Accrued expenses and other.................................. -- 151,433 485 151,918 Microwave relocation obligation, current portion............ -- -- -- -- Long-term debt, current portion............................. -- -- -- -- Accrued interest............................................ 24,505 310 -- 310 ---------- -------- ------- -------- Total current liabilities................................ 24,505 197,562 485 198,047 Long-term debt................................................. 1,219,014 -- -- -- Accrued expenses and other..................................... -- -- 1,930 1,930 ---------- -------- ------- -------- Total liabilities........................................ 1,243,519 197,562 2,415 199,977 ---------- -------- ------- -------- Commitments and contingencies Stockholder's equity (deficit): Additional paid-in capital, net............................. 676,117 532,165 1,444 533,609 Deferred compensation....................................... (24,445) -- -- -- Accumulated other comprehensive income...................... 958 -- -- -- (Accumulated deficit) Retained earnings..................... (332,786) 1,320 (1,320) -- ---------- -------- ------- -------- Total stockholder's equity (deficit)..................... 319,844 533,485 124 533,609 ---------- -------- ------- -------- Total liabilities and stockholder's equity (deficit)..... $1,563,363 $731,047 $ 2,539 $733,586 ========== ======== ======= ========
TeleCorp Wireless, Inc. ------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents................................... $ -- $ -- $ 228,758 Short-term investments...................................... -- -- 34,189 Accounts receivable, net.................................... -- -- 44,792 Inventory................................................... -- -- 23,680 Prepaid expenses and other current assets................... -- -- 9,024 -------- ----------- ---------- Total current assets..................................... -- -- 340,443 Property and equipment, net.................................... -- -- 655,218 PCS licenses and microwave relocation costs, net............... 668,472 -- 668,472 Intangible assets--AT&T agreements, net........................ -- -- 174,775 Other assets................................................... 3,511 -- 37,849 Investments in subsidiaries.................................... -- (1,092,175) -- -------- ----------- ---------- Total assets............................................. $671,983 $(1,092,175) $1,876,757 ======== =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable............................................ $ -- $ -- $ 45,819 Accrued expenses and other.................................. -- -- 151,918 Microwave relocation obligation, current portion............ 21,232 -- 21,232 Long-term debt, current portion............................. 1,459 -- 1,459 Accrued interest............................................ 986 -- 25,801 -------- ----------- ---------- Total current liabilities................................ 23,677 -- 246,229 Long-term debt................................................. 69,614 -- 1,288,628 Accrued expenses and other..................................... 20,126 -- 22,056 -------- ----------- ---------- Total liabilities........................................ 113,417 -- 1,556,913 -------- ----------- ---------- Commitments and contingencies Stockholder's equity (deficit): Additional paid-in capital, net............................. 558,566 (1,092,175) 676,117 Deferred compensation....................................... -- -- (24,445) Accumulated other comprehensive income...................... -- -- 958 (Accumulated deficit) Retained earnings..................... -- -- (332,786) -------- ----------- ---------- Total stockholder's equity (deficit)..................... 558,566 (1,092,175) 319,844 -------- ----------- ---------- Total liabilities and stockholder's equity (deficit)..... $671,983 $(1,092,175) $1,876,757 ======== =========== ==========
10 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Balance Sheet as of June 30, 2001 (unaudited):
TeleCorp Communications, Inc. ---------------------------------- TeleCorp TCI- Non- Wireless, Guarantor Guarantor Inc. Subsidiary Subsidiary Consolidated ---------- ---------- ---------- ------------ ASSETS Current assets: Cash and cash equivalents................................... $ 6,499 $ -- $ -- $ -- Accounts receivable, net.................................... -- 64,686 -- 64,686 Inventory................................................... -- 12,814 -- 12,814 Prepaid expenses and other current assets................... 61 38,816 3,221 42,037 ---------- -------- ------ -------- Total current assets..................................... 6,560 116,316 3,221 119,537 Property and equipment, net.................................... -- 719,394 -- 719,394 PCS licenses and microwave relocation costs, net............... -- -- -- -- Intangible assets--AT&T agreements, net........................ 163,074 -- -- -- Other assets................................................... 32,028 464 2,043 2,507 Investment in subsidiaries..................................... 1,221,895 638 (638) -- ---------- -------- ------ -------- Total assets............................................. $1,423,557 $836,812 $4,626 $841,438 ========== ======== ====== ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable............................................ $ -- $ 42,959 $ -- $ 42,959 Accrued expenses and other.................................. 1,953 139,656 282 139,938 Microwave relocation obligation, current portion............ -- -- -- -- Long-term debt, current portion............................. -- -- -- -- Accrued interest............................................ 26,571 310 -- 310 ---------- -------- ------ -------- Total current liabilities................................ 28,524 182,925 282 183,207 Long-term debt................................................. 1,279,343 -- -- -- Accrued expenses and other..................................... -- 31,787 1,463 33,250 ---------- -------- ------ -------- Total liabilities........................................ 1,307,867 214,712 1,745 216,457 ---------- -------- ------ -------- Commitments and contingencies Stockholder's equity (deficit): Additional paid-in capital, net............................. 681,767 621,462 3,519 624,981 Deferred compensation....................................... (24,924) -- -- -- Accumulated other comprehensive loss........................ (1,953) -- -- -- (Accumulated deficit) Retained earnings..................... (539,200) 638 (638) -- ---------- -------- ------ -------- Total stockholder's equity (deficit)..................... 115,690 622,100 2,881 624,981 ---------- -------- ------ -------- Total liabilities and stockholder's equity (deficit)..... $1,423,557 $836,812 $4,626 $841,438 ========== ======== ====== ========
TeleCorp Wireless, Inc. ------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents................................... $ -- $ -- $ 6,499 Accounts receivable, net.................................... -- -- 64,686 Inventory................................................... -- -- 12,814 Prepaid expenses and other current assets................... -- -- 42,098 -------- ----------- ---------- Total current assets..................................... -- -- 126,097 Property and equipment, net.................................... -- -- 719,394 PCS licenses and microwave relocation costs, net............... 699,729 -- 699,729 Intangible assets--AT&T agreements, net........................ -- -- 163,074 Other assets................................................... 3,601 -- 38,136 Investment in subsidiaries..................................... -- (1,221,895) -- -------- ----------- ---------- Total assets............................................. $703,330 $(1,221,895) $1,746,430 ======== =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable............................................ $ -- $ -- $ 42,959 Accrued expenses and other.................................. -- -- 141,891 Microwave relocation obligation, current portion............ 15,407 -- 15,407 Long-term debt, current portion............................. 1,534 -- 1,534 Accrued interest............................................ 1,007 -- 27,888 -------- ----------- ---------- Total current liabilities................................ 17,948 -- 229,679 Long-term debt................................................. 69,311 -- 1,348,654 Accrued expenses and other..................................... 19,157 -- 52,407 -------- ----------- ---------- Total liabilities........................................ 106,416 -- 1,630,740 -------- ----------- ---------- Commitments and contingencies Stockholder's equity (deficit): Additional paid-in capital, net............................. 596,914 (1,221,895) 681,767 Deferred compensation....................................... -- -- (24,924) Accumulated other comprehensive loss........................ -- -- (1,953) (Accumulated deficit) Retained earnings..................... -- -- (539,200) -------- ----------- ---------- Total stockholder's equity (deficit)..................... 596,914 (1,221,895) 115,690 -------- ----------- ---------- Total liabilities and stockholder's equity (deficit)..... $703,330 $(1,221,895) $1,746,430 ======== =========== ==========
11 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the three months ended June 30, 2000 (unaudited):
TeleCorp Communications, Inc. ---------------------------------------------------- TeleCorp Wireless, TCI-Guarantor Non-Guarantor Inc. Subsidiary Subsidiary Eliminations Consolidated --------- ------------- ------------- ------------ ------------ Revenue: Service............................. $ -- $ 51,119 $ -- $ -- $ 51,119 Roaming............................. -- 14,699 -- -- 14,699 Equipment........................... -- 6,193 -- -- 6,193 Intercompany........................ 1,788 -- 6,860 (6,860) -- -------- -------- ------ ------- -------- Total revenue.................... 1,788 72,011 6,860 (6,860) 72,011 -------- -------- ------ ------- -------- Operating expenses: Cost of revenue..................... -- 32,006 -- (6,860) 25,146 Operations and development.......... -- 7,709 6,860 -- 14,569 Selling and marketing............... -- 40,141 -- -- 40,141 General and administrative.......... -- 47,071 -- -- 47,071 Depreciation and amortization....... 1,788 23,791 -- -- 23,791 -------- -------- ------ ------- -------- Total operating expenses......... 1,788 150,718 6,860 (6,860) 150,718 -------- -------- ------ ------- -------- Operating income (loss).......... -- (78,707) -- -- (78,707) Other income (expense): Interest expense.................... (16,658) (15,167) -- -- (15,167) Interest income and other........... 16,658 -- -- -- -- Equity in net loss of subsidiaries.. (93,874) -- -- -- -- -------- -------- ------ ------- -------- Net (loss) income................ $(93,874) $(93,874) $ -- $ -- $(93,874) ======== ======== ====== ======= ========
TeleCorp Wireless, Inc. -------------------------------------- Non-Guarantor Subsidiaries Eliminations Consolidated ------------- ------------ ------------ Revenue: Service............................. $ -- $ -- $ 51,119 Roaming............................. -- -- 14,699 Equipment........................... -- -- 6,193 Intercompany........................ 1,951 (3,739) -- ------ -------- -------- Total revenue.................... 1,951 (3,739) 72,011 ------ -------- -------- Operating expenses: Cost of revenue..................... -- (3,739) 21,407 Operations and development.......... -- -- 14,569 Selling and marketing............... -- -- 40,141 General and administrative.......... -- -- 47,071 Depreciation and amortization....... 1,336 -- 26,915 ------ -------- -------- Total operating expenses......... 1,336 (3,739) 150,103 ------ -------- -------- Operating income (loss).......... 615 -- (78,092) Other income (expense): Interest expense.................... (615) 15,167 (17,273) Interest income and other........... -- (15,167) 1,491 Equity in net loss of subsidiaries.. -- 93,874 -- ------ -------- -------- Net (loss) income................ $ -- $ 93,874 $(93,874) ====== ======== ========
12 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the three months ended June 30, 2001 (unaudited):
TeleCorp Communications, Inc. ---------------------------------------------- TCI- Non- TeleCorp Guarantor Guarantor Wireless, Inc. Subsidiary Subsidiary Eliminations Consolidated -------------- ---------- ---------- ------------ ------------ Revenue: Service............................. $ -- $ 85,171 $ 232 $ -- $ 85,403 Roaming............................. -- 19,447 -- -- 19,447 Equipment........................... -- 8,599 -- -- 8,599 Intercompany........................ 5,850 -- 6,069 (6,069) -- --------- --------- ------ ------- --------- Total revenue.................... 5,850 113,217 6,301 (6,069) 113,449 --------- --------- ------ ------- --------- Operating expenses: Cost of revenue..................... -- 51,309 -- (6,069) 45,240 Operations and development.......... -- 10,623 6,069 -- 16,692 Selling and marketing............... -- 44,995 -- -- 44,995 General and administrative.......... -- 40,566 -- -- 40,566 Depreciation and amortization....... 5,850 38,775 -- -- 38,775 --------- --------- ------ ------- --------- Total operating expenses......... 5,850 186,268 6,069 (6,069) 186,268 --------- --------- ------ ------- --------- Operating income (loss).......... -- (73,051) 232 -- (72,819) Other income (expense): Interest expense.................... (34,247) (33,117) -- -- (33,117) Interest income and other........... 34,247 -- -- -- -- Equity in net loss of subsidiaries.. (105,936) -- -- -- -- --------- --------- ------ ------- --------- Net (loss) income................ (105,936) (106,168) 232 -- (105,936) --------- --------- ------ ------- --------- Other comprehensive loss, net of tax... (233) -- -- -- -- --------- --------- ------ ------- --------- Comprehensive (loss) income...... $(106,159) $(106,168) $ 232 $ -- $(105,936) ========= ========= ====== ======= =========
TeleCorp Wireless, Inc. ------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------ ------------ ------------ Revenue: Service............................. $ -- $ -- $ 85,403 Roaming............................. -- -- 19,447 Equipment........................... -- -- 8,599 Intercompany........................ 5,548 (11,398) -- ------- -------- --------- Total revenue.................... 5,548 (11,398) 113,449 ------- -------- --------- Operating expenses: Cost of revenue..................... -- (11,398) 33,842 Operations and development.......... -- -- 16,692 Selling and marketing............... -- -- 44,995 General and administrative.......... -- -- 40,566 Depreciation and amortization....... 4,005 -- 48,630 ------- -------- --------- Total operating expenses......... 4,005 (11,398) 184,725 ------- -------- --------- Operating income (loss).......... 1,543 -- (71,276) Other income (expense): Interest expense.................... (1,543) 33,117 (35,790) Interest income and other........... -- (33,117) 1,130 Equity in net loss of subsidiaries.. -- 105,936 -- ------- -------- --------- Net (loss) income................ -- 105,936 (105,936) ------- -------- --------- Other comprehensive loss, net of tax... -- -- (233) ------- -------- --------- Comprehensive (loss) income...... $ -- $105,936 $(106,159) ======= ======== =========
13 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the six months ended June 30, 2000 (unaudited):
TeleCorp Communications, Inc. ---------------------------------------------- TCI- Non- TeleCorp Guarantor Guarantor Wireless, Inc. Subsidiary Subsidiary Eliminations Consolidated -------------- ---------- ---------- ------------ ------------ Revenue: Service............................. $ -- $ 88,056 $ -- $ -- $ 88,056 Roaming............................. -- 26,151 -- -- 26,151 Equipment........................... -- 13,250 -- -- 13,250 Intercompany........................ 3,577 -- 11,809 (11,809) -- --------- --------- ------- -------- --------- Total revenue.................... 3,577 127,457 11,809 (11,809) 127,457 --------- --------- ------- -------- --------- Operating expenses: Cost of revenue..................... -- 59,203 -- (11,809) 47,394 Operations and development.......... -- 13,726 11,809 -- 25,535 Selling and marketing............... -- 74,766 -- -- 74,766 General and administrative.......... -- 74,347 -- -- 74,347 Depreciation and amortization....... 3,577 44,665 -- -- 44,665 --------- --------- ------- -------- --------- Total operating expenses......... 3,577 266,707 11,809 (11,809) 266,707 --------- --------- ------- -------- --------- Operating income (loss).......... -- (139,250) -- -- (139,250) Other income (expense): Interest expense.................... (33,020) (29,123) -- -- (29,123) Interest income and other........... 33,020 -- -- -- -- Equity in net loss of subsidiaries.. (168,373) -- -- -- -- --------- --------- ------- -------- --------- Net (loss) income................ $(168,373) $(168,373) $ -- $ -- $(168,373) ========= ========= ======= ======== =========
TeleCorp Wireless, Inc. ------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------ ------------ ------------ Revenue: Service............................. $ -- $ -- $ 88,056 Roaming............................. -- -- 26,151 Equipment........................... -- -- 13,250 Intercompany........................ 3,384 (6,961) -- ------- -------- --------- Total revenue.................... 3,384 (6,961) 127,457 ------- -------- --------- Operating expenses: Cost of revenue..................... -- (6,961) 40,433 Operations and development.......... -- -- 25,535 Selling and marketing............... -- -- 74,766 General and administrative.......... -- -- 74,347 Depreciation and amortization....... 2,141 -- 50,383 ------- -------- --------- Total operating expenses......... 2,141 (6,961) 265,464 ------- -------- --------- Operating income (loss).......... 1,243 -- (138,007) Other income (expense): Interest expense.................... (1,243) 29,123 (34,263) Interest income and other........... -- (29,123) 3,897 Equity in net loss of subsidiaries.. -- 168,373 -- ------- -------- --------- Net (loss) income................ $ -- $168,373 $(168,373) ======= ======== =========
14 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the six months ended June 30, 2001 (unaudited):
TeleCorp Communications, Inc. ---------------------------------------------- TeleCorp TCI- Non- Wireless, Guarantor Guarantor Inc. Subsidiary Subsidiary Eliminations Consolidated --------- ---------- ---------- ------------ ------------ Revenue: Service............................. $ -- $ 156,648 $ 638 $ -- $ 157,286 Roaming............................. -- 35,598 -- -- 35,598 Equipment........................... -- 17,837 -- -- 17,837 Intercompany........................ 11,700 -- 11,624 (11,624) -- --------- --------- ------- -------- --------- Total revenue.................... 11,700 210,083 12,262 (11,624) 210,721 --------- --------- ------- -------- --------- Operating expenses: Cost of revenue..................... 94,960 -- (11,624) 83,336 Operations and development.......... -- 22,103 11,624 -- 33,727 Selling and marketing............... -- 89,386 -- -- 89,386 General and administrative.......... -- 76,757 -- -- 76,757 Depreciation and amortization....... 11,700 73,003 -- -- 73,003 --------- --------- ------- -------- --------- Total operating expenses......... 11,700 356,209 11,624 (11,624) 356,209 --------- --------- ------- -------- --------- Operating income (loss).......... -- (146,126) 638 -- (145,488) Other income (expense): Interest expense.................... (65,309) (60,926) -- -- (60,926) Interest income and other........... 65,309 -- -- -- -- Equity in net loss of subsidiaries.. (206,414) -- -- -- -- --------- --------- ------- -------- --------- Net (loss) income................ (206,414) (207,052) 638 -- (206,414) Other comprehensive loss, net of tax... (2,911) -- -- -- -- --------- --------- ------- -------- --------- Comprehensive (loss) income...... $(209,325) $(207,052) $ 638 $ -- $(206,414) ========= ========= ======= ======== =========
TeleCorp Wireless, Inc. ------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------ ------------ ------------ Revenue: Service............................. $ -- $ -- $ 157,286 Roaming............................. -- -- 35,598 Equipment........................... -- -- 17,837 Intercompany........................ 9,451 (21,151) -- ------- -------- --------- Total revenue.................... 9,451 (21,151) 210,721 ------- -------- --------- Operating expenses: Cost of revenue..................... -- (21,151) 62,185 Operations and development.......... -- -- 33,727 Selling and marketing............... -- -- 89,386 General and administrative.......... -- -- 76,757 Depreciation and amortization....... 6,362 -- 91,065 ------- -------- --------- Total operating expenses......... 6,362 (21,151) 353,120 ------- -------- --------- Operating income (loss).......... 3,089 -- (142,399) Other income (expense): Interest expense.................... (3,089) 60,926 (68,398) Interest income and other........... -- (60,926) 4,383 Equity in net loss of subsidiaries.. -- 206,414 -- ------- -------- --------- Net (loss) income................ -- 206,414 (206,414) Other comprehensive loss, net of tax... -- -- (2,911) ------- -------- --------- Comprehensive (loss) income...... $ -- $206,414 $(209,325) ======= ======== =========
15 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Condensed Statement of Cash Flows for the six months ended June 30, 2000 (unaudited):
TeleCorp Communications, Inc. --------------------------------- TCI- Non- TeleCorp Guarantor Guarantor Wireless,Inc. Subsidiary Subsidiary Consolidated ------------- ---------- ---------- ------------ Cash flows from operating activities: Net cash provided by (used in) operating activities..... $(248,544) $ 110,915 $ -- $ 110,915 Cash flows from investing activities: Expenditures for property and equipment..................... -- (109,117) -- (109,117) Capitalized interest........................................ -- (1,798) -- (1,798) Expenditures for microwave relocation....................... -- -- -- -- Purchase of PCS licenses.................................... -- -- -- -- Purchases of intangibles.................................... (12,368) -- -- -- Payment of Tritel acquisition costs......................... -- -- -- -- --------- --------- ----- --------- Net cash used in investing activities................... (12,368) (110,915) -- (110,915) Cash flows from financing activities: Proceeds from sale of common stock......................... 41,869 -- -- -- Proceeds from long-term debt................................ 65,000 -- -- -- Payments on long-term debt.................................. -- -- -- -- Payments of debt issuance costs............................. (64) -- -- -- --------- --------- ----- --------- Net cash provided by (used in) financing activities..... 106,805 -- -- -- Net decrease in cash and cash equivalents..................... (154,107) -- -- -- Cash and cash equivalents at the beginning of period.......... 182,330 -- -- --------- --------- ----- --------- Cash and cash equivalents at the end of period................ $ 28,223 $ -- $ -- $ -- ========= ========= ===== =========
TeleCorp Wireless, Inc. ------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated ------------ ------------ ------------ Cash flows from operating activities: Net cash provided by (used in) operating activities..... $ 14,096 $-- $(123,533) Cash flows from investing activities: Expenditures for property and equipment..................... -- -- (109,117) Capitalized interest........................................ -- -- (1,798) Expenditures for microwave relocation....................... (4,279) -- (4,279) Purchase of PCS licenses.................................... (733) (733) Purchases of intangibles.................................... -- -- (12,368) Payment of Tritel acquisition costs......................... (8,409) -- (8,409) -------- --- --------- Net cash used in investing activities................... (13,421) -- (136,704) Cash flows from financing activities: Proceeds from sale of common stock......................... -- -- 41,869 Proceeds from long-term debt................................ -- -- 65,000 Payments on long-term debt.................................. (675) -- (675) Payments of debt issuance costs............................. -- -- (64) -------- --- --------- Net cash provided by (used in) financing activities..... (675) -- 106,130 Net decrease in cash and cash equivalents..................... -- -- (154,107) Cash and cash equivalents at the beginning of period.......... -- -- 182,330 -------- --- --------- Cash and cash equivalents at the end of period................ $ -- $ -- $ 28,223 ======== === =========
16 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Condensed Statement of Cash Flows for the six months ended June 30, 2001 (unaudited):
TeleCorp Communications, Inc. ------------------------------------ TCI- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiary Consolidated - -------------- ---------- ------------- ------------ Cash flows from operating activities: Net cash provided by (used in) operating activities..... $(301,364) $ 128,596 $-- $ 128,596 --------- --------- --- --------- Cash flows from investing activities: Expenditures for property and equipment.................... -- (176,324) -- (176,324) Purchase of short-term investments......................... (7,929) -- -- -- Proceeds from sale of short-term investments............... 42,169 -- -- -- Capitalized interest....................................... -- (2,830) -- (2,830) Proceeds from sale of property and equipment............... -- 71,988 -- 71,988 Expenditures for microwave relocation...................... -- -- -- -- Purchase of PCS licenses................................... -- -- -- -- Payment of Tritel acquisition costs........................ -- (21,430) -- (21,430) --------- --------- --- --------- Net cash provided by (used in) investing activities..... 34,240 (128,596) -- (128,596) --------- --------- --- --------- Cash flows from financing activities: Proceeds from long-term debt............................... 35,000 -- -- -- Receipt of preferred stock subscription receivable......... 10,999 -- -- -- Payments on long-term debt................................. -- -- -- -- Payments of debt issuance costs............................ (1,134) -- -- -- --------- --------- --- --------- Net cash provided by (used in) financing activities..... 44,865 -- -- -- --------- --------- --- --------- Net decrease in cash and cash equivalents..................... (222,259) -- -- -- Cash and cash equivalents at the beginning of period.......... 228,758 -- -- -- --------- --------- --- --------- Cash and cash equivalents at the end of period................ $ 6,499 $ -- $-- $ -- ========= ========= === =========
TeleCorp Wireless, Inc. ------------------------------------- Non- Guarantor Subsidiaries Eliminations Consolidated - ------------ ------------ ------------ Cash flows from operating activities: Net cash provided by (used in) operating activities..... $ 43,669 $-- $(129,099) -------- --- --------- Cash flows from investing activities: Expenditures for property and equipment.................... -- -- (176,324) Purchase of short-term investments......................... -- -- (7,929) Proceeds from sale of short-term investments............... -- -- 42,169 Capitalized interest....................................... -- -- (2,830) Proceeds from sale of property and equipment............... -- -- 71,988 Expenditures for microwave relocation...................... (4,762) -- (4,762) Purchase of PCS licenses................................... (38,203) -- (38,203) Payment of Tritel acquisition costs........................ -- -- (21,430) -------- --- --------- Net cash provided by (used in) investing activities..... (42,965) -- (137,321) -------- --- --------- Cash flows from financing activities: Proceeds from long-term debt............................... -- -- 35,000 Receipt of preferred stock subscription receivable......... -- -- 10,999 Payments on long-term debt................................. (704) -- (704) Payments of debt issuance costs............................ -- -- (1,134) -------- --- --------- Net cash provided by (used in) financing activities..... (704) -- 44,161 -------- --- --------- Net decrease in cash and cash equivalents..................... -- -- (222,259) Cash and cash equivalents at the beginning of period.......... -- -- 228,758 -------- --- --------- Cash and cash equivalents at the end of period................ $ -- $-- $ 6,499 ======== === =========
17 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) 10. Subsequent Event Senior Credit Facility On July 6, 2001, the Company drew $50,000 from its Senior Credit Facility Tranche A term loan. 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General You should read the following discussion in conjunction with (1) the Company's accompanying unaudited Consolidated Financial Statements and notes thereto included in this report on Form 10-Q and (2) the Company's audited Consolidated Financial Statements, notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations as of and for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K for such period. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are based on current expectations, estimates, and projections. Such forward-looking statements reflect management's good-faith evaluation of information currently available. However, because such statements are based upon, and therefore can be influenced by, a number of external variables over which management has no, or incomplete, control, they are not, and should not be read as being guarantees of future performance or of actual future results; nor will they necessarily prove to be accurate indications of the times at or by which any such performance or result will be achieved. Accordingly, actual outcomes and results may differ materially from those expressed in such forward-looking statements. The Company does not intend to update any such forward-looking statements. Overview The Company is an AT&T Wireless affiliate in the United States providing digital wireless personal communications services, or PCS, to a licensed service area covering approximately 23 million people. As of June 30, 2001, the Company had launched service in 38 markets having approximately 16 million people and representing approximately 70% of the population where the Company holds licenses in the United States and Puerto Rico. As of June 30, 2001, the Company served more than 557,000 customers. Under the terms of the strategic alliance the Company has with AT&T, the Company is AT&T's exclusive provider of wireless mobility services on the Company's network. The Company is a wholly owned subsidiary of TeleCorp PCS, Inc. Results of Operations Three months ended June 30, 2001 compared to three months ended June 30, 2000 Subscribers Net additions were 41,327 and 91,545 for the three months ended June 30, 2001 and 2000, respectively. Total PCS subscribers were 557,771 and 319,882 as of June 30, 2001 and 2000, respectively. The increase in total PCS subscribers over the same period in 2000 was primarily due to launching additional markets from the period July 1, 2000 to June 30, 2001. Revenue Revenue for the three months ended June 30, 2001 and 2000 was $113.4 million and $72.0 million, respectively. Service revenue was $85.4 million and $51.1 million for the three months ended June 30, 2001 and 2000, respectively. The increase in service revenue of $34.3 million was due to the addition of 237,889 subscribers from July 1, 2000 to June 30, 2001 and to the launch of 10 additional markets. Roaming revenue was $19.4 million and $14.7 million for the three months ended June 30, 2001 and 2000, respectively. The increase in roaming revenue of $4.7 million was due primarily to additional cell sites being added since the three months ended June 30, 2000. Equipment revenue was $8.6 million and $6.2 million for the three months ended June 30, 2001 and 2000, respectively. The equipment revenue increase of $2.4 million over 2000 was due primarily to the sales of handsets and related accessories in connection with the significant growth in gross additions during the three months ended June 30, 2001. Cost of revenue Cost of revenue was $33.8 million and $21.4 million for the three months ended June 30, 2001 and 2000, respectively. The increase in cost of revenue of $12.4 million over the same period in 2000 was due primarily to 19 additional roaming, interconnection and long distance expenses in connection with the Company's increased subscriber base and increases in equipment costs due in connection with the significant growth in gross additions during the three months ended June 30, 2001. Operations and development Operations and development expense was $16.7 million and $14.6 million for the three months ended June 30, 2001 and 2000, respectively. The increase of $2.1 million over the same period in 2000 was primarily due to the development and growth of infrastructure and staffing and maintenance related to the support of the Company's network and network operations center. Selling and marketing Selling and marketing expense was $45.0 million and $40.1 million for the three months ended June 30, 2001 and 2000, respectively. The increase of $4.9 million over the same period in 2000 was primarily due to the cost of acquiring the increased number of new subscribers. Costs associated with the Company's increased market base included advertising and promotion costs, commissions and the excess cost of handsets over the retail price. General and administrative General and administrative expense was $40.6 million and $47.1 million for the three months ended June 30, 2001 and 2000, respectively. Excluding non-cash stock compensation from the general and administrative expense, the costs increased $11.6 million over the same period in 2000 due to the development and growth of infrastructure and staffing related to information technology, customer care and other administrative functions incurred in conjunction with managing the corresponding growth in the Company's subscriber base and launching the additional markets. Depreciation and amortization Depreciation and amortization expense was $48.6 million and $26.9 million for the three months ended June 30, 2001 and 2000, respectively. The increase of $21.7 million over the same period in 2000 relates primarily to depreciation of the Company's property and equipment as well as the amortization of its PCS licenses and the AT&T operating agreements related to the Company's markets launched between July 1, 2000 and June 30, 2001. Interest expense Interest expense was $35.8 million, net of capitalized interest of $1.3 million, for the three months ended June 30, 2001. Interest expense was $17.3 million, net of capitalized interest of $1.2 million, for the three months ended June 30, 2000. The increase of $18.5 million over the same period in 2000 relates primarily to interest expense on the Company's 10 5/8% senior subordinated notes issued in July 2000, additional FCC debt issued throughout 2000, and $135 million of additional senior credit facility drawn during 2000 and 2001. Interest income and other Interest income and other was $1.1 million and $1.5 million for the three months ended June 30, 2001 and 2000, respectively. The decrease of $0.4 million from the same period in 2000 was due primarily to lower average daily cash and short-term investment balances for the current quarter. 20 Results of Operations Six months ended June 30, 2001 compared to six months ended June 30, 2000 Subscribers Net additions were 97,021 and 177,651 for the six months ended June 30, 2001 and 2000, respectively. Total PCS subscribers were 557,771 and 319,882 as of June 30, 2001 and 2000, respectively. The increase in total PCS subscribers over the same period in 2000 was primarily due to launching additional markets from the period July 1, 2000 to June 30, 2001. Revenue Revenue for the six months ended June 30, 2001 and 2000 was $210.7 million and $127.5 million, respectively. Service revenue was $157.3 million and $88.1 million for the six months ended June 30, 2001 and 2000, respectively. The increase in service revenue of $69.2 million was due to the addition of 237,889 subscribers from July 1, 2000 to June 30, 2001 and to the launch of ten additional markets. Roaming revenue was $35.6 million and $26.2 million for the six months ended June 30, 2001 and 2000, respectively. The increase in roaming revenue of $9.4 million was due primarily to additional cell sites being added since the six months ended June 30, 2000. Equipment revenue was $17.8 million and $13.3 million for the six months ended June 30, 2001 and 2000, respectively. The equipment revenue increase of $4.5 million over 2000 was due primarily to the sales of handsets and related accessories in connection with the significant growth in gross additions during the six months ended June 30, 2001. Cost of revenue Cost of revenue was $62.2 million and $40.4 million for the six months ended June 30, 2001 and 2000, respectively. The increase in cost of revenue of $21.8 million over the same period in 2000 was due primarily to additional roaming, interconnection and long distance expenses in connection with the Company's increased subscriber base and increases in equipment costs in connection with the significant growth in gross additions during the six months ended June 30, 2001. Operations and development Operations and development expense was $33.7 million and $25.5 million for the six months ended June 30, 2001 and 2000, respectively. The increase of $8.2 million over the same period in 2000 was primarily due to the development and growth of infrastructure and staffing and maintenance related to the support of the Company's network and network operations center. Selling and marketing Selling and marketing expense was $89.4 million and $74.8 million for the six months ended June 30, 2001 and 2000, respectively. The increase of $14.6 million over the same period in 2000 was primarily due to the cost of acquiring the increased number of new subscribers. Costs associated with the Company's increased market base included advertising and promotion costs, commissions and the excess cost of handsets over the retail price. General and administrative General and administrative expense was $76.8 million and $74.3 million for the six months ended June 30, 2001 and 2000, respectively. The increase of $2.5 million over the same period in 2000 was primarily due to the development and growth of infrastructure and staffing related to information technology, customer care and other administrative functions incurred in conjunction with managing the corresponding growth in the Company's subscriber base and launching the additional markets. 21 Depreciation and amortization Depreciation and amortization expense was $91.1 million and $50.4 million for the six months ended June 30, 2001 and 2000, respectively. The increase of $40.7 million over the same period in 2000 relates primarily to depreciation of the Company's property and equipment as well as the amortization of its PCS licenses and the AT&T operating agreements related to the Company's markets launched between July 1, 2000 and June 30, 2001. Interest expense Interest expense was $68.4 million, net of capitalized interest of $2.8 million, for the six months ended June 30, 2001. Interest expense was $34.3 million, net of capitalized interest of $1.8 million, for the six months ended June 30, 2000. The increase of $34.1 million over the same period in 2000 relates primarily to interest expense on the Company's 10 5/8% senior subordinated notes issued in July 2000, additional FCC debt issued throughout 2000, and $135 million of additional senior credit facility drawn during 2000 and 2001. Interest income and other Interest income and other was $4.4 million and $3.9 million for the six months ended June 30, 2001 and 2000, respectively. The increase of $0.5 million over the same period in 2000 was due primarily to larger cash and short-term investment balances that resulted from the $450 million senior subordinated notes offering in July 2000. Forward Looking Statements: Cautionary Statements Statements in this quarterly report expressing the Company's expectations and beliefs regarding its future results or performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve a number of risks and uncertainties. In particular, certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts constitute forward-looking statements. Although the Company believes that the expectations expressed in such forward-looking statements are based on reasonable assumptions within the bounds of its knowledge of its business, the Company's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, the risks described in the Annual Report on Form 10-K filed by TeleCorp PCS, Inc. for the fiscal year ended December 31, 2000. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Intentionally omitted as the registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the reduced disclosure format. PART II--Other Information Item 1. Legal Proceedings. None. Items 2, 3, and 4. Intentionally omitted as the registrant is a wholly-owned subsidiary of TeleCorp PCS, Inc. and meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form 10-Q with the reduced disclosure format. Item 5. Other Information. None. 22 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit Number Description ------ ----------- 4.1*. First Amendment to the Amended and Restated Note Purchase Agreement, dated as of April 4, 2001, between TeleCorp Wireless, Inc. and Lucent Technologies Inc.
* Incorporated by reference to the Form 10-Q of TeleCorp Wireless, Inc. for the quarter ended March 31, 2001, filed on May 15, 2001. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated April 3, 2001, reporting events under Item 9. 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. TELECORP WIRELESS, INC. Date: August 14, 2001
/S/ THOMAS H. SULLIVAN By: -------------------------------------------- Thomas H. Sullivan President, Treasurer and Secretary (Principal Financial and Accounting Officer)
SUBSIDIARY OF TELECORP WIRELESS, INC. Date: August 14, 2001 TELECORP COMMUNICATIONS, INC.
/S/ THOMAS H. SULLIVAN By: -------------------------------------------- Thomas H. Sullivan President, Treasurer and Secretary (Principal Financial and Accounting Officer)
24