<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X]Quarterly Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2000
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: 000-27901
TeleCorp Wireless, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware TeleCorp PCS, Inc. 54-1988007
(State or other jurisdiction of (Former Name or Former Address, (I.R.S. Employer
of incorporation or organization) if Changed Since Last Report) Identification No.)
</TABLE>
and the following former subsidiary:
Commission file number: 333-36154
TeleCorp PCS, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware TeleCorp-Tritel Holding Company 54-1872248
(State or other jurisdiction of (Former Name or Former Address, I.R.S. Employer
incorporation or organization) if Changed Since Last Report) Identification No.)
</TABLE>
and the following subsidiary of Telecorp Wireless, Inc.:
Commission file number: 333-43596
TeleCorp Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-2105807
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1010 N. Glebe Road, Suite 800
Arlington, VA 22201
(703) 236-1100
(Address of principal executive offices)
----------------
The former name of TeleCorp Wireless, Inc. was TeleCorp PCS, Inc. The former
name of TeleCorp PCS, Inc. was TeleCorp-Tritel Holding Company. For the
quarterly period ended September 30, 2000, TeleCorp PCS, Inc. was a wholly-
owned subsidiary of TeleCorp Wireless, Inc. Currently, TeleCorp Wireless, Inc.
is a wholly-owned subsidiary of TeleCorp PCS, Inc.
The Registrants meet the conditions set forth in General Instruction
(H)(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the
reduced disclosure format.
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 [_] .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 9, 2000, the outstanding shares of each class of Telecorp
Wireless, Inc. common stock are as follows:
<TABLE>
<S> <C>
Class A Common Stock, $.01 par value per share................. 87,778,618
Class C Common Stock, $.01 par value per share................. 283,813
Class D Common Stock, $.01 par value per share................. 851,429
Voting Preference Common Stock, $.01 par value per share....... 3,090
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
Index
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and
September 30, 2000 (unaudited)................................ 1
Consolidated Statements of Operations for the three months
ended September 30, 1999 (unaudited) and 2000 (unaudited) and
for the nine months ended September 30, 1999 and 2000
(unaudited)................................................... 2
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 2000 (unaudited)....................... 3
Notes to Consolidated Financial Statements..................... 4
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations..................................... 22
Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 28
PART II Other Information
Item 6. Exhibits....................................................... 30
</TABLE>
i
<PAGE>
Part I--Financial Information
Item 1. Financial Statements
TELECORP WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 182,330 $ 317,503
Short-term investments............................ -- 127,464
Accounts receivable, net.......................... 23,581 48,871
Inventory......................................... 15,802 15,856
Prepaid expenses and other current assets......... 3,828 6,817
--------- -----------
Total current assets............................ 225,541 516,511
Property and equipment, net......................... 400,450 641,585
PCS licenses and microwave relocation costs, net.... 267,682 276,124
Intangible assets--AT&T agreements, net............. 37,908 32,542
Deferred financing costs, net....................... 19,577 32,044
Other assets........................................ 1,044 34,780
--------- -----------
Total assets.................................... $ 952,202 $ 1,533,586
========= ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 38,903 $ 40,379
Accrued expenses.................................. 51,977 134,154
Long-term debt, current portion................... 1,361 31,093
Microwave relocation obligation, current portion.. 36,122 21,025
Accrued interest.................................. 1,387 12,745
Deferred revenue.................................. 1,709 2,231
--------- -----------
Total current liabilities....................... 131,459 241,627
Long-term debt...................................... 639,210 1,224,769
Microwave relocation obligation..................... 2,365 16,576
Accrued expenses and other liabilities.............. 6,541 13,136
--------- -----------
Total liabilities............................... 779,575 1,496,108
--------- -----------
Mandatorily redeemable preferred stock, issued
382,539 and 383,339 shares, respectively; and
outstanding, 382,539 and 383,173 shares,
respectively, (liquidation preference $412,390 as
of September 30, 2000, unaudited).................. 360,182 384,421
Preferred stock subscriptions receivable............ (97,001) (59,542)
--------- -----------
Total mandatorily redeemable preferred stock,
net............................................ 263,181 324,879
--------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Series F preferred stock, par value $.01 per
share, 14,912,778 shares issued and outstanding
(liquidation preference $1 as of September 30,
2000, unaudited)................................. 149 149
Common stock, par value $.01 per share issued
85,592,221 and 89,083,691 shares, respectively;
and outstanding 85,592,221 and 88,979,103 shares,
respectively..................................... 856 890
Additional paid-in capital........................ 267,442 304,783
Deferred compensation............................. (42,811) (29,038)
Common stock subscriptions receivable............. (191) --
Accumulated other comprehensive income............ -- 1,679
Accumulated deficit............................... (315,999) (565,864)
--------- -----------
Total stockholders' equity (deficit)............ (90,554) (287,401)
--------- -----------
Total liabilities, mandatorily redeemable
preferred stock and stockholders'
equity (deficit)............................... $ 952,202 $ 1,533,586
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
1
<PAGE>
TELECORP WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------------ -----------------------
1999 2000 1999 2000
----------- ----------- ---------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Service.................... $ 12,705 $ 64,272 $ 18,937 $ 152,328
Roaming.................... 9,455 18,307 18,942 44,458
Equipment.................. 4,673 9,312 10,322 22,562
---------- ----------- ---------- -----------
Total revenue............ 26,833 91,891 48,201 219,348
---------- ----------- ---------- -----------
Operating expenses:
Cost of revenue............ 12,980 27,473 23,087 67,906
Operations and development
(including non-cash stock
compensation of $0, $302,
$0 and $1,073)............ 10,427 14,043 25,925 39,578
Selling and marketing
(including non-cash stock
compensation of $0, $413,
$0 and $972).............. 18,795 43,689 39,720 118,455
General and administrative
(including non-cash stock
compensation of $0,
$3,214, $0 and $28,767)... 16,502 31,429 38,943 105,776
Depreciation and
amortization.............. 18,308 32,387 34,799 82,770
---------- ----------- ---------- -----------
Total operating
expenses................ 77,012 149,021 162,474 414,485
---------- ----------- ---------- -----------
Operating loss........... (50,179) (57,130) (114,273) (195,137)
Other (income) expense:
Interest expense........... 17,340 29,726 34,447 63,989
Interest income and other.. (1,727) (5,364) (4,645) (9,261)
---------- ----------- ---------- -----------
Net loss................. (65,792) (81,492) (144,075) (249,865)
Accretion of mandatorily re-
deemable preferred stock.... (7,064) (8,292) (16,960) (24,181)
---------- ----------- ---------- -----------
Net loss attributable to com-
mon equity.................. $ (72,856) $ (89,784) $ (161,035) $ (274,046)
========== =========== ========== ===========
Net loss attributable to
common equity per share--
basic and diluted........... $ (0.88) $ (0.88) $ (2.30) $ (2.72)
========== =========== ========== ===========
Weighted average common
equity shares outstanding--
basic and diluted........... 82,331,434 101,532,484 70,089,141 100,789,980
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
TELECORP WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
-----------------------
1999 2000
---------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (144,075) $ (249,865)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 34,799 82,770
Non-cash compensation expense related to stock option
grants and restricted stock awards................... -- 30,812
Non-cash interest expense............................. 20,995 36,510
Bad debt expense...................................... 1,022 8,482
Changes in cash flow from operations resulting from
changes in assets and liabilities:
Accounts receivable................................... (17,924) (25,290)
Inventory............................................. (11,347) (54)
Prepaid expenses and other current assets............. 914 (2,989)
Other assets.......................................... (423) (339)
Accounts payable...................................... 11,138 (12,905)
Accrued expenses and other liabilities................ 16,001 21,931
Accrued interest...................................... (947) 11,358
Deferred revenue...................................... 1,133 522
---------- ----------
Net cash used in operating activities............... (88,714) (99,057)
---------- ----------
Cash flows from investing activities:
Expenditures for property and equipment................. (245,528) (234,058)
Expenditures for property and equipment; Black Label
Wireless, Inc. ........................................ -- (15,752)
Purchase of short-term investments...................... -- (130,740)
Proceeds from the sale of short-term investments........ -- 5,001
Expenditures for acquisition of PCS licenses; Black
Label Wireless, Inc. .................................. -- (12,166)
Capitalized interest on network under development and
PCS licenses........................................... (4,478) (2,712)
Expenditures for microwave relocation................... (5,679) (5,398)
Purchase of PCS licenses................................ (72,390) (733)
Deposit on PCS licenses................................. (43,647) (12,368)
Partial refund of deposit on PCS licenses............... 11,361 9,607
Purchase of intangibles--AT&T agreements................ (16,145) --
Capitalized Tritel acquisition costs.................... -- (10,214)
---------- ----------
Net cash used in investing activities............... (376,506) (409,533)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable preferred
stock.................................................. 64,521 --
Receipt of preferred stock subscriptions receivable..... 3,740 37,650
Direct issuance costs from sale of mandatorily
redeemable preferred stock............................. (2,500) --
Proceeds from sale of common stock and series F
preferred stock........................................ 21,724 41,869
Proceeds from long-term debt............................ 397,635 550,000
Proceeds from long-term debt; Black Label
Wireless, Inc. ........................................ -- 29,422
Payments of deferred financing costs.................... (10,999) (14,159)
Payments on long term debt.............................. (40,224) (1,019)
---------- ----------
Net cash provided by financing activities........... 433,897 643,763
---------- ----------
Net (decrease) increase in cash and cash equivalents...... (31,323) 135,173
Cash and cash equivalents at the beginning of period...... 111,733 182,330
---------- ----------
Cash and cash equivalents at the end of period............ $ 80,410 $ 317,503
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
1. Organization and Business
TeleCorp Holding Corp., Inc. was incorporated in the State of Delaware on
July 29, 1996 (date of inception). TeleCorp Holding Corp., Inc. was formed to
participate in the Federal Communications Commission's (FCC) Auction of F-Block
Personal Communications Services licenses in April 1997. TeleCorp Holding
Corp., Inc. successfully obtained licenses in the New Orleans, Memphis,
Beaumont and Little Rock Basic Trading Areas (BTAs). TeleCorp Holding Corp.,
Inc. qualified as a Designated Entity and Very Small Business under Part 24 of
the rules of the FCC applicable to broadband PCS.
TeleCorp PCS, Inc. was incorporated in the State of Delaware on November 14,
1997 by the controlling stockholders of TeleCorp Holding Corp., Inc. Upon
completion of the 1998 AT&T transaction, TeleCorp Holding Corp., Inc. became a
wholly-owned subsidiary of TeleCorp PCS, Inc.
The Company is the largest AT&T Wireless PCS, LLC (AT&T Wireless) affiliate
in the United States, in terms of licensed population, with licenses covering
markets where approximately 17 million people reside. The Company provides
wireless personal communication services, or PCS, in selected markets in the
south-central and northeast United States and in Puerto Rico, encompassing
eight of the 100 largest metropolitan areas in the United States.
Under the terms of the strategic alliance with AT&T Wireless and certain of
its affiliates (collectively, AT&T), the Company is AT&T's exclusive provider
of wireless mobility services in its licensed markets, using equal emphasis co-
branding with AT&T subject to AT&T's right to resell services on the Company's
network. The Company has the right to use the AT&T brand name and logo together
with the SunCom brand name and logo, giving equal emphasis to each in its
covered markets. The Company is AT&T's preferred roaming partner for digital
customers in the Company's markets. Additionally, the Company's relationship
with AT&T Wireless and AT&T Wireless' roaming partners provides coast-to-coast
coverage to its customers.
2. Merger with Tritel, Inc.
In anticipation of the merger of TeleCorp PCS, Inc. and Tritel, Inc.
(Tritel), a new holding company, TeleCorp-Tritel Holding Company (Holding
Company), was formed in accordance with that certain Agreement and Plan of
Reorganization and Contribution, as amended, dated as of February 28, 2000,
among TeleCorp PCS, Inc., Tritel and AT&T Wireless Services, Inc (see Note 14).
The merger was consummated on November 13, 2000. Each of TeleCorp PCS, Inc. and
Tritel merged with newly formed subsidiaries of Holding Company. Holding
Company was renamed TeleCorp PCS, Inc. and the newly formed subsidiary formerly
known as TeleCorp PCS, Inc. was renamed TeleCorp Wireless, Inc. TeleCorp
Wireless Inc. is hereafter referred to as the Company.
3. Black Label Wireless, Inc.
On July 14, 2000, Black Label Wireless, Inc. (Black Label), a company wholly
owned by Messrs. Sullivan and Vento, entered into a credit agreement with
Lucent Technologies, Inc. (Lucent), under which Lucent agreed to lend Black
Label up to $175,000. Black Label intends to use the proceeds of loans under
the credit agreement to develop the network related to the licenses being
acquired by the Company in the contribution and the exchange agreement with
AT&T Wireless (see Note 14). Upon consummation of the merger, Black Label
intends to transfer its assets to the Company and the Company intends to
satisfy Black Label's indebtedness to Lucent. Black Label is considered by the
Company to be a special purpose entity and the Company has included all of
Black Label's activities in its consolidated financial statements.
The obligations under the Black Label credit agreement must be repaid by
July 14, 2001. Additionally, if the obligations under the credit agreement are
assumed by the Company, the commitments under credit agreement shall
immediately terminate and all obligations due under the credit agreement shall
immediately become due and payable.
4
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
4. Basis of Presentation
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, 2000 are not necessarily indicative of results that
may be expected for the year ending December 31, 2000.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries and special purposes entity acting on the Company's
behalf. All significant inter-company accounts and transactions have been
eliminated in consolidation.
Short-term Investments
Short-term investments consist of high grade commercial paper with original
maturities greater than three months but less than one year. Management
determines the appropriate classification of its investments at the time of
purchase. Investments for which the Company does not have the intent or ability
to hold to maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported as a component of accumulated other comprehensive income in
stockholders' equity. Cost of securities sold is determined on a specific
identification basis.
5. Accounts Receivable
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
Accounts receivable............................... $26,203 $51,799
Allowance for doubtful accounts................... (2,622) (2,928)
------- -------
$23,581 $48,871
======= =======
</TABLE>
6. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
Handsets.......................................... $15,090 $14,538
Accessories....................................... 712 1,318
------- -------
$15,802 $15,856
======= =======
</TABLE>
5
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
Wireless network........ $364,491 $604,479
Network under
development............ 21,758 71,214
Computer equipment...... 16,888 25,051
Internal use software... 21,648 27,274
Leasehold improvements.. 12,011 17,207
Furniture, fixtures,
office equipment and
other.................. 10,904 16,761
-------- --------
447,700 761,986
Accumulated
depreciation........... (47,250) (120,401)
-------- --------
$400,450 $641,585
======== ========
</TABLE>
Depreciation expense for the three months ended September 30, 1999 and 2000
was $15,938 and $29,075, respectively. Depreciation expense for the nine months
ended September 30, 1999 and 2000 was $29,179 and $73,151, respectively.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
Senior subordinated notes........................ $ -- $ 450,000
Senior subordinated discount notes............... 354,291 385,510
Senior credit facilities......................... 225,000 325,000
Lucent notes payable............................. 43,504 46,584
Black Label Wireless, Inc. credit agreement...... -- 29,657
U.S. Government financing........................ 17,776 19,111
-------- ----------
640,571 1,255,862
Less: current portion............................ 1,361 31,093
-------- ----------
$639,210 $1,224,769
======== ==========
</TABLE>
Senior Credit Facility
On June 5, 2000, the Company borrowed $65,000 on the Tranche A term loan. On
July 14, 2000, the Company borrowed $35,000 on the Tranche A term loan. The
total principal outstanding on the Tranche A term loan was $100,000 as of
September 30, 2000. Interest on the Tranche A loan was 8.84% at September 30,
2000.
Senior Subordinated Notes
On July 14, 2000, the Company completed the issuance and sale of 10 5/8%
Senior Subordinated Notes (Subordinated Notes) with an aggregate principal
amount of $450,000. The Subordinated Notes mature July 15, 2010 and the Company
is required to pay interest semi-annually beginning on January 15, 2001.
Offering expenses consisting of underwriting, printing, legal and accounting
fees totaled approximately $13,000 which have been recorded as deferred finance
costs and will be amortized over the life of the Subordinated Notes.
6
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
The Subordinated Notes are subject to optional redemption, allowing the
Company on or after July 15, 2005, to redeem some or all of the Subordinated
Notes together with accrued and unpaid interest at redemption prices. The
Company also has the option until July 15, 2003, to redeem up to 35% of the
original aggregate principal amount of these notes with the net proceeds of
certain types of qualified equity offerings at a redemption price equal to
110.625% of the principal amount as long as at least 65% of the original
aggregate principal amount of the notes remains outstanding immediately after
redemption. If the Company experiences a change of control at any time on or
prior to July 15, 2005, the Company has the option to redeem all of the
Subordinated Notes at par plus a premium. If the Company has not previously
redeemed the Subordinated Notes and if the Company experiences a change in
control after July 15, 2005, the note holders may require the Company to make
an offer to repurchase all of the Subordinated Notes, at a price equal to 101%
of the principal amount, plus accrued and unpaid interest, if any, to the date
of repurchase.
The Company is required to comply with certain financial covenants outlined
in the indenture agreement. The Subordinated Notes are not collateralized. The
Subordinated Notes are subordinate to all of the Company's existing and future
senior debt, rank equally with all existing senior subordinated debt and rank
senior to all existing and future subordinated debt. The Subordinated Notes are
guaranteed by the Company's wholly owned subsidiary, TeleCorp Communications,
Inc.
Lucent Senior Subordinated Notes
On July 14, 2000, TeleCorp PCS, Inc. (formerly TeleCorp-Tritel Holding
Company or Holding Company) entered into a commitment letter with Lucent. Under
the terms of the commitment letter, Lucent agreed that following the merger of
the Company and Tritel with subsidiaries of TeleCorp PCS, Inc., Lucent will
purchase from TeleCorp PCS, Inc., should TeleCorp PCS, Inc. issue, senior
subordinated discount notes (Lucent Notes) with gross proceeds up to $350,000.
The gross proceeds borrowed on the Lucent Notes plus any amount outstanding
under the Black Label Wireless, Inc. Credit Agreement (see below) cannot at any
time exceed $350,000. If issued, the Lucent Notes will mature 10 years from the
date of issuance, unless previously redeemed by TeleCorp PCS, Inc. As interest
accrues, it will be added to the principal as an increase to interest expense
and to the carrying value of the notes for five years from the date of
issuance. After five years, interest on the Lucent Notes will become payable
semi-annually. The Lucent Notes will not be collaterized. The Lucent Notes
would be senior subordinated unsecured obligations of TeleCorp PCS, Inc.,
ranking equivalent in right of payment to all of the TeleCorp PCS, Inc.'s
future senior subordinated debt. The Lucent Notes would be subordinate in right
of payment to any future senior debt incurred by TeleCorp PCS, Inc. or its
guarantor subsidiaries but senior in right of payment to any future
subordinated debt incurred by TeleCorp PCS, Inc. or any of its guarantor
subsidiaries.
Black Label Wireless, Inc. Credit Agreement
On July 14, 2000, Black Label, a company wholly owned by Messrs. Sullivan
and Vento, entered into a credit agreement with Lucent, under which Lucent
agreed to lend Black Label up to $175,000. Black Label intends to use the
proceeds of loans under the credit agreement to develop the network related to
the licenses being acquired by the Company in the contribution and the exchange
agreements (see Note 14).
The obligations under the Black Label credit agreement must be repaid by
July 14, 2001. Additionally, if the obligations under the credit agreement are
assumed by the Company, the commitments under the credit agreement shall
immediately terminate and all obligations due under the credit agreement shall
immediately become due and payable.
7
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
As of September 30, 2000, $29,657 was included in current portion of long-
term debt related to the Black Label credit agreement including $235 of accrued
interest. Interest accrues at a weighted average rate based on LIBOR plus 2% on
the date each tranche is drawn. The weighted average interest rate was 8.62% at
September 30, 2000.
9. Preferred Stock Subscriptions Receivable
On July 17, 2000, the Company received $37,650 from certain of its initial
institutional investors related to the preferred stock subscriptions
receivable.
10. Concurrent Offering
In an offering concurrent with the Company's initial public offering, the
Company issued 2,245,000 shares of Class A common stock to AT&T Wireless
Services, Inc. (AT&T Wireless) for $18.65 per share. The Company's proceeds for
the concurrent offering of $41,869 were received on January 18, 2000.
11. Acquisitions
On April 7, 2000, the Company completed its acquisition of TeleCorp LMDS,
Inc. (TeleCorp LMDS) through an exchange of all of the outstanding stock of
TeleCorp LMDS for 878,400 shares of the Company's Class A common stock valued
at $45,896 on the closing date. TeleCorp LMDS had no operations and its only
assets were local multipoint distribution service licenses. By acquiring
TeleCorp LMDS, TeleCorp gained local multipoint distribution service licenses
covering 1100 MHz of airwaves in the Little Rock, Arkansas basic trading area
and 150 MHz of airwaves in each of the Beaumont, Texas; New Orleans, Louisiana;
San Juan and Mayaguez, Puerto Rico; and U.S. Virgin Islands basic trading
areas. TeleCorp LMDS's stockholders were Mr. Vento, Mr. Sullivan and three of
the Company's initial investors. As Mr. Vento and Mr. Sullivan have voting
control of the Company and TeleCorp LMDS, the acquisition was accounted for as
an acquisition between companies under common control and recorded at
historical cost. The licenses acquired have been recorded by the Company at
$2,707, which represents the historical cost of TeleCorp LMDS.
On April 11, 2000, the Company completed its acquisition of the 15% of Viper
Wireless, Inc. (Viper Wireless) that it did not already own from Mr. Vento and
Mr. Sullivan in exchange for an aggregate of 323,372 shares of the Company's
Class A common stock and 800 shares of its Series E preferred stock. The
Company acquired 85% of Viper Wireless on March 1, 1999 in exchange for $32,286
contributed by AT&T and certain of the Company's other initial investors for
additional shares of the Company's preferred and common stock. Viper Wireless
used the proceeds to participate in the Federal Communications Commission's
reauction of PCS licenses. Viper Wireless was granted six PCS licenses in the
reauction. In connection with the completion of the acquisition, the Company
recognized compensation expense of $15,297 based on the fair value of the Class
A common stock and Series E mandatorily redeemable preferred stock at the
closing date.
On April 27, 2000, the Company completed its acquisition of 15 MHz PCS
licenses in the Lake Charles, Louisiana basic trading area from Gulf Telecom,
LLC (Gulf Telecom). As consideration for the PCS licenses, the Company paid
Gulf Telecom $262 in cash, assumed approximately $2,433, less a discount of
$401, in Federal Communications Commission debt related to the license and
reimbursed Gulf Telecom $471 for interest it paid to the Federal Communications
Commission on the debt related to the license from June 1998 through March
2000. The entire purchase price has been allocated to the acquired licenses.
On May 10, 2000, the Company was notified by the FCC that it was the high
bidder on certain FCC licenses offered in the FCC's 39 GHz Band Auction. As
consideration for the licenses, the Company paid the FCC $12,368. Each of the
licenses purchased exists within areas where the Company and Tritel currently
hold licenses or where the Company will hold licenses after the completion of
the contribution and exchange with AT&T Wireless.
8
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
12. TeleCorp PCS, Inc. (formerly known as Telecorp-Tritel Holding Company)
TeleCorp PCS, Inc. was formed on April 28, 2000 in connection with the
Tritel merger with the Company and the AT&T exchange and contribution. Prior to
the consummation of the merger on November 13, 2000 TeleCorp PCS, Inc. was a
wholly-owned subsidiary of the Company. To date, TeleCorp PCS, Inc. has not
conducted any activities other than those incident to its formation. The
business of TeleCorp PCS, Inc. will be the combined businesses currently
conducted by the Company and Tritel. Summarized financial statements of
TeleCorp PCS, Inc. as of September 30, 2000 are as follows:
TELECORP PCS, INC.
BALANCE SHEET
($ in thousands, excepts per share data)
<TABLE>
<CAPTION>
September 30, 2000
------------------
<S> <C>
ASSETS
Total current assets......................................... $ --
---------
Total assets................................................. --
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Total current liabilities.................................... --
---------
Total liabilities............................................ --
---------
Stockholders equity (deficit):
Common stock, par value $.01 per share 1,000 shares
authorized, issued and outstanding........................ --
Total stockholders' equity (deficit)......................... --
---------
Total liabilities and stockholders' equity (deficit)......... $ --
=========
</TABLE>
TELECORP PCS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period
For the three April 28, 2000
months ended, (date of inception)
September 30, 2000 to September 30, 2000
------------------ ---------------------
<S> <C> <C>
Total revenue.......................... $ -- $ --
--------- ----------
Total operating expenses............... -- --
--------- ----------
Operating loss......................... -- --
--------- ----------
Net loss............................... $ -- $ --
========= ==========
</TABLE>
9
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
TELECORP PCS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
April 28, 2000
(date of inception)
to September 30, 2000
---------------------
<S> <C>
Net cash used in operating activities.................... $ --
---------
Net cash used in investing activities.................... --
---------
Net cash used in financing activities.................... --
---------
Cash and cash equivalents at the beginning of period..... --
---------
Cash and cash equivalents at the end of period........... $ --
=========
</TABLE>
13. Subsidiary Guarantee
On April 23, 1999, the Company completed the issuance and sale of 11 5/8%
Senior Subordinated Discount 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 the 10 5/8% Subordinated Notes. The
Subordinated Notes are 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 subsidiaries of TCI, non-guarantor subsidiaries of
TeleCorp Wireless, Inc. and Black Label as of December 31, 1999 and September
30, 2000 and for the three and nine months ended September 30, 1999 and 2000
have been included on the following pages. The special purpose entity, Black
Label, and all its activities are presented separately in the following
consolidating financial statements.
Certain amounts in the 1999 consolidating financial statements have been
reclassified to conform with the presentations of the consolidating financial
statements as of September 30, 2000 and for the three and nine months ended
September 30, 2000. These reclassifications are eliminated upon consolidation
and do not impact the Company's consolidated financial statements.
10
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Balance Sheet as of December 31, 1999:
<TABLE>
<CAPTION>
TeleCorp Communications, Inc.
---------------------------------------------------
TeleCorp Guarantor Non-Guarantor
Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated
-------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents..... $ 182,330 $ -- $ -- $ -- $ --
Short-term
investments..... -- -- -- -- --
Accounts
receivable,
net............. -- 23,581 -- -- 23,581
Inventory....... -- 15,802 -- -- 15,802
Prepaid expenses
and other
current assets.. -- 1,608 2,220 -- 3,828
----------- --------- --------- -------- ---------
Total current
assets.......... 182,330 40,991 2,220 -- 43,211
Property and
equipment, net... -- 182,235 218,215 -- 400,450
PCS licenses and
microwave
relocation costs,
net.............. -- -- -- -- --
Intangible
assets--AT&T
agreements, net.. 37,908 -- -- -- --
Deferred
financing costs,
net.............. 19,577 -- -- -- --
Other assets..... -- 1,044 -- -- 1,044
Intercompany
receivables...... 858,279 -- 42,970 (42,970) --
----------- --------- --------- -------- ---------
Total assets.... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705
=========== ========= ========= ======== =========
LIABILITIES,
MANDATORILY
REDEEMABLE
PREFERRED STOCK
AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current
liabilities:
Accounts
payable......... $ -- $ 12,318 $ 26,585 $ -- $ 38,903
Accrued
expenses........ -- 48,960 3,017 -- 51,977
Long-term debt,
current
portion......... -- -- -- -- --
Microwave
relocation
obligation,
current
portion......... -- -- -- -- --
Accrued
interest........ 521 -- -- -- --
Deferred
revenue......... -- 1,709 -- -- 1,709
----------- --------- --------- -------- ---------
Total current
liabilities..... 521 62,987 29,602 -- 92,589
Long-term debt... 622,795 -- -- -- --
Microwave
relocation
obligation....... -- -- -- -- --
Accrued expenses
and other
liabilities...... -- -- 6,541 -- 6,541
Intercompany
payables......... -- 463,434 227,262 (42,970) 647,726
----------- --------- --------- -------- ---------
Total
liabilities..... 623,316 526,421 263,405 (42,970) 746,856
----------- --------- --------- -------- ---------
Mandatorily
redeemable
preferred stock.. 360,182 -- -- -- --
Preferred stock
subscriptions
receivable....... (97,001) -- -- -- --
----------- --------- --------- -------- ---------
Total
mandatorily
redeemable
preferred stock,
net............. 263,181 -- -- -- --
----------- --------- --------- -------- ---------
Commitments and
contingencies
<CAPTION>
TeleCorp Wireless, Inc.
----------------------------------------------
Non-Guarantor Black
Subsidiaries Label Eliminations Consolidated
------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents..... $ -- $ -- $ -- $ 182,330
Short-term
investments..... -- -- -- --
Accounts
receivable,
net............. -- -- -- 23,581
Inventory....... -- -- -- 15,802
Prepaid expenses
and other
current assets.. -- -- -- 3,828
------------- ------ ------------ ------------
Total current
assets.......... -- -- -- 225,541
Property and
equipment, net... -- -- -- 400,450
PCS licenses and
microwave
relocation costs,
net.............. 267,682 -- -- 267,682
Intangible
assets--AT&T
agreements, net.. -- -- -- 37,908
Deferred
financing costs,
net.............. -- -- -- 19,577
Other assets..... -- -- -- 1,044
Intercompany
receivables...... 5,702 -- (863,981) --
------------- ------ ------------ ------------
Total assets.... $273,384 $ -- $(863,981) $ 952,202
============= ====== ============ ============
LIABILITIES,
MANDATORILY
REDEEMABLE
PREFERRED STOCK
AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current
liabilities:
Accounts
payable......... $ -- $ -- $ -- $ 38,903
Accrued
expenses........ -- -- -- 51,977
Long-term debt,
current
portion......... 1,361 -- -- 1,361
Microwave
relocation
obligation,
current
portion......... 36,122 -- -- 36,122
Accrued
interest........ 866 -- -- 1,387
Deferred
revenue......... -- -- -- 1,709
------------- ------ ------------ ------------
Total current
liabilities..... 38,349 -- -- 131,459
Long-term debt... 16,415 -- -- 639,210
Microwave
relocation
obligation....... 2,365 -- -- 2,365
Accrued expenses
and other
liabilities...... -- -- -- 6,541
Intercompany
payables......... 216,255 -- (863,981) --
------------- ------ ------------ ------------
Total
liabilities..... 273,384 -- (863,981) 779,575
------------- ------ ------------ ------------
Mandatorily
redeemable
preferred stock.. -- -- -- 360,182
Preferred stock
subscriptions
receivable....... -- -- -- (97,001)
------------- ------ ------------ ------------
Total
mandatorily
redeemable
preferred stock,
net............. -- -- -- 263,181
------------- ------ ------------ ------------
Commitments and
contingencies
Stockholders'
equity (deficit):
Series F
preferred
stock........... 149 -- -- -- --
Common stock.... 856 -- -- -- --
Additional paid-
in capital...... 267,442 -- -- -- --
Deferred
compensation.... (42,811) -- -- -- --
Common stock
subscriptions
receivable...... (191) -- -- -- --
Accumulated
other
comprehensive
income.......... -- -- -- -- --
Accumulated
deficit......... (13,848) (302,151) -- -- (302,151)
----------- --------- --------- -------- ---------
Total
stockholders'
equity
(deficit)....... 211,597 (302,151) -- -- (302,151)
----------- --------- --------- -------- ---------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)....... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705
=========== ========= ========= ======== =========
Stockholders'
equity (deficit):
Series F
preferred
stock........... -- -- -- 149
Common stock.... -- -- -- 856
Additional paid-
in capital...... -- -- -- 267,442
Deferred
compensation.... -- -- -- (42,811)
Common stock
subscriptions
receivable...... -- -- -- (191)
Accumulated
other
comprehensive
income.......... -- -- -- --
Accumulated
deficit......... -- -- -- (315,999)
------------- ------ ------------ ------------
Total
stockholders'
equity
(deficit)....... -- -- -- (90,554)
------------- ------ ------------ ------------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)....... $273,384 $ -- $(863,981) $ 952,202
============= ====== ============ ============
</TABLE>
11
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Balance Sheet as of September 30, 2000 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc.
--------------------------------------------------
TeleCorp Guarantor Non-Guarantor
Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated
-------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 315,979 $ -- $ -- $ -- $ --
Short-term
investments.... 127,464 -- -- -- --
Accounts
receivable,
net............ -- 48,871 -- -- 48,871
Inventory...... -- 15,856 -- -- 15,856
Prepaid
expenses and
other current
assets......... -- 4,227 2,590 -- 6,817
---------- -------- -------- --------- ---------
Total current
assets...... .. 443,443 68,954 2,590 -- 71,544
Property and
equipment, net.. -- 281,557 319,383 -- 600,940
PCS licenses and
microwave
relocation
costs, net...... -- -- -- -- --
Intangible
assets--AT&T
agreements,
net............. 32,542 -- -- -- --
Deferred
financing costs,
net............. 32,044 -- -- -- --
Intercompany
receivables..... 1,300,115 -- 106,233 (106,233) --
Other assets.... 618 40 725 -- 765
---------- -------- -------- --------- ---------
Total assets .. $1,808,762 $350,551 $428,931 $(106,233) $ 673,249
========== ======== ======== ========= =========
LIABILITIES,
MANDATORILY
REDEEMBLEAPREFERRED STOCK AND
SOCKHOLDERS'TEQUITY
(DEFICIT)
Current
liabilities:
Accounts
payable........ $ -- $ 10,110 $ 8,480 $ -- $ 18,590
Accrued
expenses....... -- 84,619 34,247 -- 118,866
Long-term debt,
current
portion........ -- -- -- -- --
Microwave
relocation
obligation,
current
portion........ -- -- -- -- --
Accrued
interest....... 12,398 -- -- -- --
Deferred
revenue........ -- 2,231 -- -- 2,231
---------- -------- -------- --------- ---------
Total current
liabilities. .. 12,398 96,960 42,727 -- 139,687
Long-term debt.. 1,206,870 -- -- -- --
Microwave
relocation
obligation...... -- -- -- -- --
Intercompany
payables........ -- 805,607 373,068 (106,233) 1,072,442
Accrued expenses
and other
liabilities..... -- -- 13,136 -- 13,136
---------- -------- -------- --------- ---------
Total
liabilities. .. 1,219,268 902,567 428,931 (106,233) 1,225,265
---------- -------- -------- --------- ---------
Mandatorily
redeemable
preferred
stock........... 384,421 -- -- -- --
Preferred stock
subscriptions
receivable...... (59,542) -- -- -- --
---------- -------- -------- --------- ---------
Total
mandatorily
redeemable
preferred
stock, net.. .. 324,879 -- -- -- --
---------- -------- -------- --------- ---------
Commitments and
contingencies
<CAPTION>
TeleCorp Wireless, Inc.
------------------------------------------------
Non-Guarantor Black
Subsidiaries Label Eliminations Consolidated
------------- ------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ -- $ 1,524 $ -- $ 317,503
Short-term
investments.... -- -- -- 127,464
Accounts
receivable,
net............ -- -- -- 48,871
Inventory...... -- -- -- 15,856
Prepaid
expenses and
other current
assets......... -- -- -- 6,817
------------- ------- ------------- ------------
Total current
assets...... .. -- 1,524 -- 516,511
Property and
equipment, net.. -- 40,645 -- 641,585
PCS licenses and
microwave
relocation
costs, net...... 276,124 -- -- 276,124
Intangible
assets--AT&T
agreements,
net............. -- -- -- 32,542
Deferred
financing costs,
net............. -- -- -- 32,044
Intercompany
receivables..... -- -- (1,300,115) --
Other assets.... 10,214 23,183 -- 34,780
------------- ------- ------------- ------------
Total assets .. $286,338 $65,352 $(1,300,115) $1,533,586
============= ======= ============= ============
LIABILITIES,
MANDATORILY
REDEEMBLEAPREFERRED STOCK AND
SOCKHOLDERS'TEQUITY
(DEFICIT)
Current
liabilities:
Accounts
payable........ $ -- $21,789 $ -- $ 40,379
Accrued
expenses....... 9,894 5,394 -- 134,154
Long-term debt,
current
portion........ 1,436 29,657 -- 31,093
Microwave
relocation
obligation,
current
portion........ 12,513 8,512 -- 21,025
Accrued
interest....... 347 -- -- 12,745
Deferred
revenue........ -- -- -- 2,231
------------- ------- ------------- ------------
Total current
liabilities. .. 24,190 65,352 -- 241,627
Long-term debt.. 17,899 -- -- 1,224,769
Microwave
relocation
obligation...... 16,576 -- -- 16,576
Intercompany
payables........ 227,673 -- (1,300,115) --
Accrued expenses
and other
liabilities..... -- -- -- 13,136
------------- ------- ------------- ------------
Total
liabilities. .. 286,338 65,352 (1,300,115) 1,496,108
------------- ------- ------------- ------------
Mandatorily
redeemable
preferred
stock........... -- -- -- 384,421
Preferred stock
subscriptions
receivable...... -- -- -- (59,542)
------------- ------- ------------- ------------
Total
mandatorily
redeemable
preferred
stock, net.. .. -- -- -- 324,879
------------- ------- ------------- ------------
Commitments and
contingencies
Stockholders'
equity
(deficit):
Series F
preferred
stock.......... 149 -- -- -- --
Common stock... 890 -- -- -- --
Additional
paid-in
capital........ 304,783 -- -- -- --
Deferred
compensation... (29,038) -- -- -- --
Common stock
subscriptions
receivable..... -- -- -- -- --
Accumulated
other
comprehensive
income......... 1,679 -- -- -- --
Accumulated
deficit........ (13,848) (552,016) -- -- (552,016)
---------- -------- -------- --------- ---------
Total
stockholders'
equity
(deficit)...... 264,615 (552,016) -- -- (552,016)
---------- -------- -------- --------- ---------
Total
liabilities,
mandatorily
redeemable
preferred
stock and
stockholders'
equity
(deficit)...... $1,808,762 $350,551 $428,931 $(106,233) $ 673,249
========== ======== ======== ========= =========
Stockholders'
equity
(deficit):
Series F
preferred
stock.......... -- -- -- 149
Common stock... -- -- -- 890
Additional
paid-in
capital........ -- -- -- 304,783
Deferred
compensation... -- -- -- (29,038)
Common stock
subscriptions
receivable..... -- -- -- --
Accumulated
other
comprehensive
income......... -- -- -- 1,679
Accumulated
deficit........ -- -- -- (565,864)
------------- ------- ------------- ------------
Total
stockholders'
equity
(deficit)...... -- -- -- (287,401)
------------- ------- ------------- ------------
Total
liabilities,
mandatorily
redeemable
preferred
stock and
stockholders'
equity
(deficit)...... $286,338 $65,352 $(1,300,115) $1,533,586
============= ======= ============= ============
</TABLE>
12
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the three months ended September 30,
1999 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
--------------------------------------------------- ---------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor Black
Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Label Eliminations
-------------- ---------- ------------- ------------ ------------ ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 12,705 $ -- $ -- $ 12,705 $ -- $ -- $ --
Roaming........... -- 9,455 -- -- 9,455 -- -- --
Equipment......... -- 4,673 -- -- 4,673 -- -- --
Intercompany...... 1,818 -- 12,830 (12,830) -- 2,072 -- (3,890)
-------- --------- ------ ------- --------- ----- ------ -------
Total revenue... 1,818 26,833 12,830 (12,830) 26,833 2,072 -- (3,890)
-------- --------- ------ ------- --------- ----- ------ -------
Operating expenses: --
Cost of revenue... -- 29,700 -- (12,830) 16,870 -- -- (3,890)
Operations and
development....... -- 6,393 4,034 -- 10,427 -- -- --
Selling and
marketing......... -- 18,795 -- -- 18,795 -- -- --
General and
administrative.... -- 16,502 -- -- 16,502 -- -- --
Depreciation and
amortization...... 1,818 6,757 8,796 -- 15,553 937 -- --
-------- --------- ------ ------- --------- ----- ------ -------
Total operating
expenses........ 1,818 78,147 12,830 (12,830) 78,147 937 -- (3,890)
-------- --------- ------ ------- --------- ----- ------ -------
Operating income
(loss).......... -- (51,314) -- -- (51,314) 1,135 -- --
Other (income)
expense:
Interest
expense........... 16,205 14,478 -- -- 14,478 1,135 -- (14,478)
Interest income
and other......... (16,205) -- -- -- -- -- -- 14,478
-------- --------- ------ ------- --------- ----- ------ -------
Net loss........ -- (65,792) -- -- (65,792) -- -- --
Accretion of
mandatorily
redeemable
preferred stock.... (7,064) -- -- -- -- -- -- --
-------- --------- ------ ------- --------- ----- ------ -------
Net loss
attributable to
common equity...... $ (7,064) $ (65,792) $ -- $ -- $ (65,792) $ -- $ -- $ --
======== ========= ====== ======= ========= ===== ====== =======
<CAPTION>
Consolidated
------------
<S> <C>
Revenue:
Service........... $ 12,705
Roaming........... 9,455
Equipment......... 4,673
Intercompany...... --
------------
Total revenue... 26,833
------------
Operating expenses:
Cost of revenue... 12,980
Operations and
development....... 10,427
Selling and
marketing......... 18,795
General and
administrative.... 16,502
Depreciation and
amortization...... 18,308
------------
Total operating
expenses........ 77,012
------------
Operating income
(loss).......... (50,179)
Other (income)
expense:
Interest
expense........... 17,340
Interest income
and other......... (1,727)
------------
Net loss........ (65,792)
Accretion of
mandatorily
redeemable
preferred stock.... (7,064)
------------
Net loss
attributable to
common equity...... $(72,856)
============
</TABLE>
13
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the three months ended September 30,
2000 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc.
--------------------------------------------------
TeleCorp Guarantor Non-Guarantor
Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated
-------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 64,272 $ -- $ -- $ 64,272
Roaming........... -- 18,307 -- -- 18,307
Equipment......... -- 9,312 -- -- 9,312
Intercompany...... 5,718 -- 26,325 (26,325) --
-------- -------- ------- -------- --------
Total revenue... 5,718 91,891 26,325 (26,325) 91,891
-------- -------- ------- -------- --------
Operating expenses:
Cost of revenue... -- 57,313 -- (26,325) 30,988
Operations and
development....... 302 7,794 6,249 -- 14,043
Selling and
marketing......... 413 43,689 -- -- 43,689
General and
administrative.... 3,214 31,429 -- -- 31,429
Depreciation and
amortization...... 1,789 9,208 20,076 -- 29,284
-------- -------- ------- -------- --------
Total operating
expenses........ 5,718 149,433 26,325 (26,325) 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) -- -- -- --
-------- -------- ------- -------- --------
Net loss........ -- (81,492) -- -- (81,492)
Accretion of
mandatorily
redeemable
preferred stock.... (8,292) -- -- -- --
-------- -------- ------- -------- --------
Net loss
attributable to
common equity...... $ (8,292) $(81,492) $ -- $ -- $(81,492)
======== ======== ======= ======== ========
<CAPTION>
TeleCorp Wireless, Inc.
----------------------------------------------
Non-Guarantor Black
Subsidiaries Label Eliminations Consolidated
------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ -- $ -- $ 64,272
Roaming........... -- -- -- 18,307
Equipment......... -- -- -- 9,312
Intercompany...... 1,726 -- (7,444) --
------------- ------ ------------ ------------
Total revenue... 1,726 -- (7,444) 91,891
------------- ------ ------------ ------------
Operating expenses:
Cost of revenue... -- -- (3,515) 27,473
Operations and
development....... -- -- (302) 14,043
Selling and
marketing......... -- -- (413) 43,689
General and
administrative.... -- -- (3,214) 31,429
Depreciation and
amortization...... 1,314 -- -- 32,387
------------- ------ ------------ ------------
Total operating
expenses........ 1,314 -- (7,444) 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)
------------- ------ ------------ ------------
Net loss........ -- -- -- (81,492)
Accretion of
mandatorily
redeemable
preferred stock.... -- -- -- (8,292)
------------- ------ ------------ ------------
Net loss
attributable to
common equity...... $ -- $ -- $ -- $(89,784)
============= ====== ============ ============
</TABLE>
14
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the nine months ended September 30,
1999 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
--------------------------------------------------- ---------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor Black
Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Label Eliminations
-------------- ---------- ------------- ------------ ------------ ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 18,937 $ -- $ -- $ 18,937 $ -- $ -- $ --
Roaming........... -- 18,942 -- -- 18,942 -- -- --
Equipment......... -- 10,322 -- -- 10,322 -- -- --
Intercompany...... 3,899 -- 26,008 (26,008) -- 3,408 -- (7,307)
-------- --------- ------- -------- --------- ------ ------ --------
Total revenue... 3,899 48,201 26,008 (26,008) 48,201 3,408 -- (7,307)
-------- --------- ------- -------- --------- ------ ------ --------
Operating expenses:
Cost of revenue... -- 56,402 -- (26,008) 30,394 -- -- (7,307)
Operations and
development...... -- 16,108 9,817 -- 25,925 -- -- --
Selling and
marketing........ -- 39,720 -- -- 39,720 -- -- --
General and
administrative... -- 38,943 -- -- 38,943 -- -- --
Depreciation and
amortization..... 3,899 13,134 16,191 -- 29,325 1,575 -- --
-------- --------- ------- -------- --------- ------ ------ --------
Total operating
expenses....... 3,899 164,307 26,008 (26,008) 164,307 1,575 -- (7,307)
-------- --------- ------- -------- --------- ------ ------ --------
Operating income
(loss)......... -- (116,106) -- -- (116,106) 1,833 -- --
Other (income)
expense:
Interest expense.. 32,614 27,969 -- -- 27,969 1,833 -- (27,969)
Interest income
and other........ (32,614) -- -- -- -- -- -- 27,969
-------- --------- ------- -------- --------- ------ ------ --------
Net loss........ -- (144,075) -- -- (144,075) -- -- --
Accretion of
mandatorily
redeemable
preferred stock.... (16,960) -- -- -- -- -- -- --
-------- --------- ------- -------- --------- ------ ------ --------
Net loss
attributable to
common equity...... $(16,960) $(144,075) $ -- $ -- $(144,075) $ -- $ -- $ --
======== ========= ======= ======== ========= ====== ====== ========
<CAPTION>
Consolidated
------------
<S> <C>
Revenue:
Service........... $ 18,937
Roaming........... 18,942
Equipment......... 10,322
Intercompany...... --
------------
Total revenue... 48,201
------------
Operating expenses:
Cost of revenue... 23,087
Operations and
development...... 25,925
Selling and
marketing........ 39,720
General and
administrative... 38,943
Depreciation and
amortization..... 34,799
------------
Total operating
expenses....... 162,474
------------
Operating income
(loss)......... (114,273)
Other (income)
expense:
Interest expense.. 34,447
Interest income
and other........ (4,645)
------------
Net loss........ (144,075)
Accretion of
mandatorily
redeemable
preferred stock.... (16,960)
------------
Net loss
attributable to
common equity...... $(161,035)
============
</TABLE>
15
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the nine months ended September 30,
2000 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc.
---------------------------------------------------
TeleCorp Guarantor Non-Guarantor
Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated
-------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 152,328 $ -- $ -- $ 152,328
Roaming........... -- 44,458 -- -- 44,458
Equipment......... -- 22,562 -- -- 22,562
Intercompany...... 36,178 -- 63,273 (63,273) --
-------- --------- ------ -------- ---------
Total revenue... 36,178 219,348 63,273 (63,273) 219,348
-------- --------- ------ -------- ---------
Operating expenses:
Cost of revenue... -- 141,655 -- (63,273) 78,382
Operations and
development...... 1,073 21,520 18,058 -- 39,578
Selling and
marketing........ 972 118,455 -- -- 118,455
General and
administrative... 28,767 105,776 -- -- 105,776
Depreciation and
amortization..... 5,366 28,734 45,215 -- 73,949
-------- --------- ------ -------- ---------
Total operating
expenses....... 36,178 416,140 63,273 (63,273) 416,140
-------- --------- ------ -------- ---------
Operating income
(loss)......... -- (196,792) -- -- (196,792)
Other (income)
expense:
Interest expense.. 62,334 53,073 -- -- 53,073
Interest income
and other........ (62,334) -- -- -- --
-------- --------- ------ -------- ---------
Net loss........ -- (249,865) -- -- (249,865)
Accretion of
mandatorily
redeemable
preferred stock.... (24,181) -- -- -- --
-------- --------- ------ -------- ---------
Net loss
attributable to
common equity...... $(24,181) $(249,865) $ -- $ -- $(249,865)
======== ========= ====== ======== =========
<CAPTION>
TeleCorp Wireless, Inc.
----------------------------------------------
Non-Guarantor Black
Subsidiaries Label Eliminations Consolidated
------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ -- $ -- $ 152,328
Roaming........... -- -- -- 44,458
Equipment......... -- -- -- 22,562
Intercompany...... 5,110 -- (41,288) --
------------- ------ ------------ ------------
Total revenue... 5,110 -- (41,288) 219,348
------------- ------ ------------ ------------
Operating expenses:
Cost of revenue... -- -- (10,476) 67,906
Operations and
development...... -- -- (1,073) 39,578
Selling and
marketing........ -- -- (972) 118,455
General and
administrative... -- -- (28,767) 105,776
Depreciation and
amortization..... 3,455 -- -- 82,770
------------- ------ ------------ ------------
Total operating
expenses....... 3,455 -- (41,288) 414,485
------------- ------ ------------ ------------
Operating income
(loss)......... 1,655 -- -- (195,137)
Other (income)
expense:
Interest expense.. 1,655 -- (53,073) 63,989
Interest income
and other........ -- -- 53,073 (9,261)
------------- ------ ------------ ------------
Net loss........ -- -- -- (249,865)
Accretion of
mandatorily
redeemable
preferred stock.... -- -- -- (24,181)
------------- ------ ------------ ------------
Net loss
attributable to
common equity...... $ -- $ -- $ -- $(274,046)
============= ====== ============ ============
</TABLE>
16
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Cash Flows for the nine months ended September 30,
1999 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
---------------------------------------------------- ---------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor Black
Wireless, Inc. Subsidiary Subsidiaries Consolidated Subsidiaries Label Eliminations Consolidated
-------------- ---------- ------------- ------------ ------------- ------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss........... $ -- $(144,075) $ -- $(144,075) $ -- $ -- $ -- $(144,075)
Adjustment to
reconcile net loss
to net cash (used
in) provided by
operating
activities:
Depreciation and
amortization...... 3,899 13,134 16,191 29,325 1,575 -- -- 34,799
Non-cash
compensation
expense related to
stock option
grants and
restricted stock
awards............ -- -- -- -- -- -- -- --
Non-cash interest
expense........... -- 20,735 -- 20,735 260 -- -- 20,995
Bad debt expense.. -- 1,022 -- 1,022 -- -- -- 1,022
Changes in cash
flow from
operations
resulting from
changes in assets
and liabilities:
Accounts
receivable........ -- (17,924) -- (17,924) -- -- -- (17,924)
Intercompany
receivables....... (452,084) -- -- -- -- -- 452,084 --
Inventory......... -- (11,347) -- (11,347) -- -- -- (11,347)
Prepaid expenses
and other current
assets............ -- 878 36 914 -- -- -- 914
Other assets...... -- (706) 283 (423) -- -- -- (423)
Accounts payable.. -- 4,456 6,682 11,138 -- -- -- 11,138
Accrued expenses
and other
liabilities....... -- 7,680 8,321 16,001 -- -- -- 16,001
Accrued interest.. (1,114) -- -- -- 167 -- -- (947)
Deferred revenue.. -- 1,133 -- 1,133 -- -- -- 1,133
Intercompany
payables.......... -- 232,613 110,894 343,507 108,577 -- (452,084) --
--------- --------- --------- --------- -------- ------ --------- ---------
Net cash (used in)
provided by
operating
activities........ (449,299) 107,599 142,407 250,006 110,579 -- -- (88,714)
--------- --------- --------- --------- -------- ------ --------- ---------
Cash flows from
investing
activities:
Expenditures for
property and
equipment......... -- (103,121) (142,407) (245,528) -- -- -- (245,528)
Expenditures for
property and
equipment; Black
Label Wireless,
Inc. ............. -- -- -- -- -- -- -- --
Purchase of short-
term investments.. -- -- -- -- -- -- -- --
Proceeds from the
sale of short-term
investments....... -- -- -- -- -- -- -- --
Expenditures for
acquisition of PCS
licenses; Black
Label Wireless.... -- -- -- -- -- -- -- --
Capitalized
interest on
network under
development and
PCS licenses...... -- (4,478) -- (4,478) -- -- -- (4,478)
Expenditures for
microwave
relocation........ -- -- -- -- (5,679) -- -- (5,679)
Purchase of PCS
licenses.......... -- -- -- -- (72,390) -- -- (72,390)
Deposit on PCS
licenses.......... -- -- -- -- (43,647) -- -- (43,647)
Partial refund of
deposit on PCS
licenses.......... -- -- -- -- 11,361 -- -- 11,361
Purchase of
intangibles-AT&T
agreements........ (16,145) -- -- -- -- -- -- (16,145)
Capitalized Tritel
acquisition
costs............. -- -- -- -- -- -- -- --
--------- --------- --------- --------- -------- ------ --------- ---------
Net cash used in
investing
activities........ (16,145) (107,599) (142,407) (250,006) (110,355) -- -- (376,506)
--------- --------- --------- --------- -------- ------ --------- ---------
Cash flows from
financing
activities:
Proceeds from sale
of mandatorily
redeemable
preferred stock... 64,521 -- -- -- -- -- -- 64,521
Receipt of
preferred stock
subscription
receivable........ 3,740 -- -- -- -- -- -- 3,740
Direct issuance
costs from sale of
mandatorily
redeemable
preferred stock... (2,500) -- -- -- -- -- -- (2,500)
Proceeds from sale
of common stock
and series F
preferred stock... 21,724 -- -- -- -- -- -- 21,724
Proceeds from
long-term debt.... 397,635 -- -- -- -- -- -- 397,635
Proceeds from
long-term debt,
Black Label
Wireless, Inc. ... -- -- -- -- -- -- -- --
Payments of
deferred financing
costs............. (10,999) -- -- -- -- -- -- (10,999)
Payments on long-
term debt......... (40,000) -- -- -- (224) -- -- (40,224)
--------- --------- --------- --------- -------- ------ --------- ---------
Net cash provided
by (used in)
financing
activities........ 434,121 -- -- -- (224) -- -- 433,897
--------- --------- --------- --------- -------- ------ --------- ---------
Net decrease in
cash and cash
equivalents........ (31,323) -- -- -- -- -- -- (31,323)
Cash and cash
equivalents at the
beginning of
period............. 111,733 -- -- -- -- -- -- 111,733
--------- --------- --------- --------- -------- ------ --------- ---------
Cash and cash
equivalents at the
end of period...... $ 80,410 $ -- $ -- $ -- $ -- $ -- $ -- $ 80,410
========= ========= ========= ========= ======== ====== ========= =========
</TABLE>
17
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Cash Flows for the nine months ended September
30, 2000 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp Wireless, Inc.
---------------------------------------------------- -----------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor Black
Wireless, Inc. Subsidiary Subsidiaries Consolidated Subsidiaries Label Eliminations Consolidated
-------------- ---------- ------------- ------------ ------------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss......... $ -- $ (249,865) $ -- $ (249,865) $ -- $ -- $ -- $ (249,865)
Adjustment to
reconcile net
loss to cash
(used in)
provided by
operating
activities:
Depreciation and
amortization.... 5,366 28,734 45,215 73,949 3,455 -- -- 82,770
Noncash
compensation
expense related
to stock option
grants and
restricted stock
awards.......... -- 30,812 -- 30,812 -- -- -- 30,812
Noncash interest
expense......... -- 36,120 -- 36,120 390 -- -- 36,510
Bad debt
expense......... -- 8,482 -- 8,482 -- -- -- 8,482
Changes in cash
flow from
operations
resulting from
changes in assets
and liabilities:
Accounts
receivable...... -- (25,290) -- (25,290) -- -- -- (25,290)
Inventory....... -- (54) -- (54) -- -- -- (54)
Intercompany
receivables..... (371,559) -- -- - -- -- 371,559 --
Prepaid expenses
and other
current assets.. -- (2,619) (370) (2,989) -- -- -- (2,989)
Other assets.... (618) 1,004 (725) 279 -- -- -- (339)
Accounts
payable......... -- (5,408) (7,497) (12,905) -- -- -- (12,905)
Accrued expenses
and other
liabilities..... -- 9,487 12,444 21,931 -- -- -- 21,931
Accrued
interest........ 10,839 -- -- -- 519 -- -- 11,358
Deferred
revenue......... -- 522 -- 522 -- -- -- 522
Intercompany
payables........ -- 276,113 79,665 355,778 15,761 20 (371,559) --
-------- ---------- --------- ---------- ------- ------- --------- ----------
Net cash (used
in) provided by
operating
activities...... (355,972) 108,038 128,732 236,770 20,125 20 -- (99,057)
-------- ---------- --------- ---------- ------- ------- --------- ----------
Cash flows from
investing
activities:
Expenditures for
property and
equipment....... -- (105,326) (128,732) (234,058) -- -- -- (234,058)
Expenditures for
property and
equipment; Black
Label Wireless,
Inc............. -- -- -- -- -- (15,752) -- (15,752)
Purchase of
short-term
investments..... (130,740) -- -- -- -- -- -- (130,740)
Proceeds from
the sale of
short-term
investments..... 5,001 -- -- -- -- -- -- 5,001
Expenditures for
the acquisition
of PCS licenses;
Black Label
Wireless, Inc... -- -- -- -- -- (12,166) -- (12,166)
Capitalized
interest on
network under
development and
PCS licenses.... -- (2,712) -- -- -- -- -- (2,712)
Expenditures for
microwave
relocation...... -- -- -- -- (5,398) -- -- (5,398)
Purchase of PCS
licenses........ -- -- -- -- (733) -- -- (733)
Deposit on PCS
licenses........ -- -- -- -- (12,368) -- -- (12,368)
Partial refund
of deposit on
PCS licenses.... -- -- -- -- 9,607 -- -- 9,607
Purchase of
intangibles --
AT&T
agreements...... -- -- -- -- -- -- -- --
Capitalized
Tritel
acquisition
costs........... -- -- -- -- (10,214) -- -- (10,214)
-------- ---------- --------- ---------- ------- ------- --------- ----------
Net cash used in
investing
activities...... (125,739) (108,038) (128,732) (236,770) (19,106) (27,918) -- (409,533)
-------- ---------- --------- ---------- ------- ------- --------- ----------
Cash flows from
financing
activities:
Proceeds from
sale of
mandatorily
redeemable
preferred
stock........... -- -- -- -- -- -- -- --
Receipt of
preferred stock
subscription
receivable...... 37,650 -- -- -- -- -- -- 37,650
Direct issuance
costs from sale
of mandatorily
redeemable
preferred
stock........... -- -- -- -- -- -- -- --
Proceeds from
sale of common
stock and series
F preferred
stock........... 41,869 -- -- -- -- -- -- 41,869
Proceeds from
long-term debt.. 550,000 -- -- -- -- -- -- 550,000
Proceeds from
long-term debt,
Black Label
Wireless, Inc... -- -- -- -- -- 29,422 -- 29,422
Payments of
deferred
financing
costs........... (14,159) -- -- -- -- -- -- (14,159)
Payments on
long-term debt.. -- -- -- -- (1,019) -- -- (1,019)
-------- ---------- --------- ---------- ------- ------- --------- ----------
Net cash
provided by
(used in)
financing
activities...... 615,360 -- -- -- (1,019) 29,422 -- 643,763
-------- ---------- --------- ---------- ------- ------- --------- ----------
Net increase in
cash and cash
equivalents...... 133,649 -- -- -- -- 1,524 -- 135,173
Cash and cash
equivalents at
the beginning of
period........... 182,330 -- -- -- -- -- -- 182,330
-------- ---------- --------- ---------- ------- ------- --------- ----------
Cash and cash
equivalents at
the end of
period........... $315,979 $ -- $ -- $ -- $ -- $ 1,524 $ -- $ 317,503
======== ========== ========= ========== ======= ======= ========= ==========
</TABLE>
18
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
14. Subsequent Events
Tritel Merger and Contribution and Exchange with AT&T Wireless
On February 28, 2000, the Company agreed to merge with Tritel through a
merger of each of the Company and Tritel with wholly-owned subsidiaries of
TeleCorp PCS, Inc. The Company and Tritel are the surviving entities of the
merger. The merger was consummated on November 13, 2000. The merger resulted in
the exchange of 100% of the outstanding common and preferred stock of the
Company and Tritel for common and preferred stock of TeleCorp PCS, Inc.
TeleCorp PCS, Inc. is controlled by its voting preference common stockholders.
Both the Company and Tritel are subsidiaries of TeleCorp PCS, Inc.
This transaction will be accounted for using the purchase method of
accounting. The purchase price for Tritel has been determined based on the fair
value of the shares of TeleCorp PCS, Inc. issued to the former shareholders of
Tritel plus cash, the fair value associated with the conversion of outstanding
Tritel options and warrants to TeleCorp PCS, Inc. options and warrants,
liabilities assumed, and merger related costs. The fair value of the shares
issued have been determined based on the existing market price for the
Company's class A common stock, which is publicly traded, and, for those shares
that do not have a readily available market price, through valuation by an
investment banking firm. The purchase price for this transaction will be
allocated to the assets acquired based on their estimated fair values. The
excess of the purchase price over the assets acquired will be recorded as
goodwill and amortized over 20 years.
In connection with the Company's merger with Tritel, AT&T agreed to
contribute certain assets and rights to the Company. This contribution resulted
in the Company acquiring various assets in exchange for the consideration
issued as follows:
The Company acquired:
. $20,000 cash from AT&T Wireless Services Inc. (AT&T Wireless
Services).
. The right to acquire all of the common and preferred stock of Indus,
Inc. (Indus).
. The right to acquire additional wireless properties and assets from
Airadigm Communications, Inc. (Airadigm)
. The two year extension and expansion of the AT&T network membership
licenses agreement to cover all people in TeleCorp PCS, Inc.'s
markets.
Consideration issued:
. 9,272,740 shares of class A common stock of TeleCorp PCS, Inc. to
AT&T Wireless Services.
Separately, AT&T Wireless and the Company consummated on November 13, 2000,
the Asset Exchange Agreement pursuant to which the Company agreed to exchange
certain assets with AT&T Wireless, among other consideration.
The Company received certain consideration in exchange for assets as
follows:
The Company acquired:
. $80,000 in cash from AT&T Wireless.
. AT&T Wireless's existing 10 MHZ PCS licenses in the areas covering
part of the Wisconsin market, in addition to adjacent licenses.
. AT&T Wireless's existing 10 MHZ PCS licenses in Fort Dodge and
Waterloo, Iowa.
. The right to acquire additional wireless properties from Polycell
Communications, Inc. (Polycell) and ABC Wireless, L.L.C. (ABC
Wireless).
19
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consideration issued:
. The Company's New England market segment to AT&T Wireless.
. Cash to Polycell and cash to ABC Wireless.
Further, AT&T agreed to extend the term of the roaming agreement and to
expand the geographic coverage of the AT&T operating agreements with the
Company to include the new markets, either through amending the Company's
existing agreements or by entering into new agreements with TeleCorp PCS, Inc.
on substantially the same terms as the Company's existing agreements. In
addition, the Company has granted AT&T Wireless a "right of first refusal" with
respect to certain markets transferred by AT&T Wireless Services or AT&T
Wireless, triggered in the event of a sale of the Company to a third party.
These transactions will be accounted for as an asset purchase and
disposition and recorded at fair value. The purchase price will be determined
based on cash paid, the fair value of the Class A common stock issued, and the
fair value of the assets relinquished. The purchase price will be
proportionately allocated to the noncurrent assets acquired based on their
estimated fair values. A gain will be recognized as the difference between the
fair value of the New England assets disposed and their net book value.
Pending Licenses Acquisition from Airadigm Communications, Inc.
In connection with the right attained from AT&T Wireless Services, Inc. (see
Note above), the Company and Telephone Data Systems (TDS) have entered into an
agreement to collectively purchase the assets of Airadigm Communications, Inc.
Airadigm is a wireless provider based in Little Chute, Wisconsin and owns C-
block FCC licenses in Wisconsin and Iowa. Airadigm filed for Chapter 11
bankruptcy protection in July 1999. Under the terms of the collective plan of
financial reorganization approved by the U.S. Bankruptcy Court on November 1,
2000, the Company and TDS plan to provide the funding to meet Airadigm's debt
obligations. The Company will receive disaggregated licenses for its
consideration. The sale of Airadigm's licenses is contingent upon reinstatement
of those licenses by the FCC and receipt of FCC approval for the transfer of
the licenses to the Company designee.
Pending Licenses Acquisition from Pegasus PCS Partners, L.L.C.
On September 20, 2000, the Company agreed to purchase from Pegasus PCS
Partners,L.L.C. a 15 MHz C Block PCS license in the Mayaguez, Puerto Rico basic
trading area for $18,000.
Pending Licenses Acquisition from Lewis and Clark Communications, L.L.C.
On November 1, 2000, the Company agreed to purchase from Lewis and Clark
Communications, L.L.C. a 20 MHz C Block PCS license in each of the Burlington,
IA; Marshalltown, IA; Mason City, IA; Ottumwa, IA and Fort Dodge, IA basic
trading areas for an aggregate purchase price of $10,920.
Tower Sale-Lease-Back and Build-to-Suit Agreements
On September 15, 2000 the Company entered into a purchase agreement,
pursuant to which the Company will sell and transfer to SBA Communications
Corporation (SBA) 275 of its towers and related assets. The purchase price is
approximately $90,100, reflecting a price of approximately $328 per site. At
closing, the Company has agreed to provide SBA with an additional 200 towers
under a separate master design build-to-suit agreement.
20
<PAGE>
TELECORP WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
At closing, the Company also has agreed to enter into a master lease
agreement with SBA under which the Company has agreed to pay monthly rent of
$1.2 per tower for the continued use of the space that the Company occupied on
the towers prior to the sale and $1.3 per tower for space obtained under the
build-to-suit agreement. The initial term of the lease is for five years and
the monthly rental amount is subject to certain escalation clauses after the
initial term. The Company anticipates that these agreements will close in 2001.
Black Label Wireless, Inc. Credit Agreement
Subsequent to September 30, 2000, Black Label borrowed an additional $34,555
as of October 31, 2000 under its $175,000 credit agreement.
21
<PAGE>
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) our
accompanying unaudited consolidated financial statements and notes thereto and
(2) our 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, 1999 included in our
annual report on Form 10-K for such period. 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.
Overview
The Company is the largest AT&T Wireless affiliate in the United States in
terms of licensed population, with licenses covering approximately 17 million
people. It provides wireless personal communication services, or PCS, in
selected markets in the south-central and northeast United States and in Puerto
Rico, encompassing eight of the 100 largest metropolitan areas in the United
States. Commencing with the launch of operations in the New Orleans market in
February 1999, TeleCorp successfully launched its services in 37 markets by
September 30, 2000. As of September 30, 2000, the Company had more than 405,000
customers and its networks covered approximately 81% of the population where it
held licenses. 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 in
its licensed markets, using equal emphasis co-branding with AT&T subject to
AT&T's right to resell services on the Company's network. TeleCorp PCS, Inc.,
currently the Company's parent and prior to November 14, 2000, the Company's
wholly-owned subsidiary, has not conducted any activities other than those
incident to its formation.
Revenue
The Company derives its revenue from the following sources:
Service. The Company sells wireless personal communications services. The
various types of service revenue associated with personal communications
services for the Company's customers include monthly recurring access charges
and monthly non-recurring airtime charges for local, long distance and roaming
airtime used in excess of pre-subscribed usage. The Company's customers'
charges are rate plan dependent, based on the number of pooled minutes included
in their plans. Service revenue also includes monthly non-recurring airtime
usage associated with the Company's prepaid customers and non-recurring
activation and de-activation service charges.
Roaming. The Company charges monthly, non-recurring, per minute fees to
other wireless companies whose customers use its network facilities to place
and receive wireless calls.
Equipment. The Company sells wireless PCS handsets and accessories that are
used by its customers in connection with its wireless services.
Service revenue constituted the Company's largest component of revenue
during the nine months ended September 30, 2000 at 70%. Roaming revenue and
equipment revenue represented 20% and 10% of total revenue, respectively. The
Company expects that as its customer base grows, service revenue will become an
even larger percentage of revenue, while roaming revenue and equipment revenue
are expected to decline as a percentage of total revenue. Roaming minutes on
the Company's network are expected to increase as AT&T and other carriers
increase the number of customers on their networks. Under the Company's
reciprocal
22
<PAGE>
roaming agreement with AT&T Wireless, its largest roaming partner, the amount
the Company will receive and pay per roaming minute will decline for each of
the next several years.
The wireless industry is experiencing a general trend towards offering rate
plans containing larger buckets of minutes. This trend is expected to result in
decreases in gross revenue per minute.
The Company has autonomy in determining its pricing plans. The Company has
developed its pricing plans to be competitive and to emphasize the advantages
of its service. The Company may discount its pricing from time to time in order
to obtain additional customers or in response to downward pricing in the market
for wireless communications services.
Operating expenses
The Company's operating expenses consist of the following:
Cost of revenue
. Equipment. The Company purchases PCS handsets and accessories from third
party vendors to resell to its customers for use in connection with its
services. The cost of handsets is, and is expected to remain, higher
than the resale price to the customer. The Company records as cost of
revenue an amount approximately equal to its revenue on equipment sales.
The Company records the excess cost of handsets as a selling and
marketing expense. The Company does not manufacture any of this
equipment.
. Roaming. The Company pays fees to other wireless communications
companies based on airtime usage of its customers on other
communications networks. It is expected that reciprocal roaming rates
charged between the Company and other carriers will decrease. The
Company does not have any significant minimum purchase requirements
other than its obligation to purchase at least 15 million roaming
minutes from July 1999 to January 2002 from another wireless provider in
Puerto Rico relating to customers roaming outside the Company's coverage
area. The Company believes it will be able to meet this minimum
requirement.
. Clearinghouse. The Company pays fees to an independent clearinghouse for
processing its call data records and performing monthly inter-carrier
financial settlements for all charges that the Company pays to other
wireless companies when the Company's customers use other companies'
networks, and that other wireless companies pay to the Company when
their customers use its network. The Company does not have any
significant minimum purchase requirements. These fees are based on the
number of call data records processed in a month.
. Variable interconnect. The Company pays monthly charges associated with
the connection of the Company's network with other carriers' networks.
These fees are based on minutes of use by the Company's customers. These
fees are known as interconnection. The Company does not have any
significant minimum purchase requirements.
. Variable long distance. The Company pays monthly usage charges to other
communications companies for long distance service provided to its
customers. These variable charges are based on our customers' usage,
applied at pre-negotiated rates with the other carriers. We do not have
any significant minimum purchase requirements other than an obligation
to AT&T Wireless to purchase a minimum number of minutes of traffic
annually over a specified time period and a specified number of
dedicated voice and data leased lines in order for us to retain
preferred pricing rates. We believe we will be able to meet these
minimum requirements.
Operations and development. The Company's operations and development expense
includes engineering operations and support, field technicians, network
implementation support, product development, engineering management and non-
cash stock compensation related to employees whose salaries are recorded within
operations and development. This expense also includes monthly recurring
charges directly associated with the maintenance and operations of the network
facilities and equipment. Operations and development expense is expected to
increase as the Company expands its coverage and operations and adds customers.
In future periods, the Company expects that this expense will decrease as a
percentage of total revenue.
23
<PAGE>
Selling and marketing. The Company's selling and marketing expense includes
brand management, external communications, sales training, and all costs
associated with retail distribution, direct, indirect, third party and
telemarketing sales (primarily salaries, commissions and retail store rent) and
non-cash stock compensation related to employees whose salaries are included
within selling and marketing. The Company also records the excess cost of
handsets over the resale price as a cost of selling and marketing. Selling and
marketing expense is expected to increase as the Company expands its coverage
and adds customers. In future periods, the Company expects that this expense
will decrease as a percentage of total revenue.
General and administrative. The Company's general and administrative expense
includes customer support, billing, information technology, finance, accounting
and legal services and non-cash stock compensation related to employees whose
salaries are included within general and administrative. Although the Company
expects general and administrative expense to increase in future periods, the
Company expects this expense will decrease as a percentage of total revenues.
Depreciation and amortization. Depreciation of property and equipment is
computed using the straight-line method, generally over three to fifteen years,
based upon estimated useful lives. Leasehold improvements are amortized over
the lesser of the useful lives of the assets or the term of the lease. Network
development costs incurred to ready our network for use are capitalized.
Amortization of network development costs begins when the network equipment is
ready for its intended use and will be amortized over its estimated useful life
ranging from five to fifteen years. The Company began amortizing the cost of
the PCS licenses, microwave relocation costs, and capitalized interest in the
first quarter of 1999, when PCS services commenced in some of its basic trading
areas. Microwave relocation entails transferring business and public safety
companies from radio airwaves that overlap with the portion of the airwaves
covered by the Company's business to other portions of the airwaves.
Amortization of PCS licenses and microwave relocation is calculated using the
straight-line method over 40 years. The AT&T agreements are amortized on a
straight-line basis over the related contractual terms, which range from three
to fifteen years. Amortization of the AT&T exclusivity agreement, long distance
agreement and the intercarrier roamer services agreement began once wireless
services were available to the Company's customers. Amortization of the network
membership license agreement began on July 17, 1998, the date of the
finalization of the initial AT&T transaction.
Non-cash Stock Compensation. The Company periodically issues restricted
stock awards and stock option grants to its employees. Upon reaching a
measurement date, the Company records deferred compensation equal to the
difference between the exercise price and the fair value of the stock award.
Deferred compensation is amortized to compensation expense over the related
vesting period. During the three and nine months ended September 30, 2000, we
recorded $3.9 million and $30.8 million, respectively, of non-cash stock
compensation related to these awards and grants that has been included in
operating expenses.
Other income (expense)
Interest expense. Interest expense consists of interest due on the Company's
senior credit facilities, senior subordinated discount notes, senior
subordinated notes, vendor financing, and debt owed to the U.S. government
related to its licenses, net of amounts capitalized.
Interest income and other. Interest income consists of interest earned on
the Company's cash and cash equivalents and short-term investments.
Results of operations
Nine months ended September 30, 2000 compared to nine months ended September
30, 1999
Subscribers. Net additions were 263,213 and 75,723 for the nine months ended
September 30, 2000 and 1999, respectively. Total PCS subscribers were 405,444
and 75,723 as of September 30, 2000 and 1999, respectively. The increase in net
additions and total PCS subscribers over the same period in 1999 was primarily
due to launching 20 additional markets from the period October 1, 1999 to
September 30, 2000.
24
<PAGE>
Revenue. Revenue for the nine months ended September 30, 2000 and 1999 was
$219.3 million and $48.2 million, respectively. Service revenue was $152.3
million and $18.9 million for the nine months ended September 30, 2000 and
1999, respectively. The increase in service revenue of $133.4 million was due
primarily to the addition of approximately 330,000 subscribers from October 1,
1999 to September 30, 2000 and the launch of 20 additional markets. Roaming
revenue was $44.5 million and $18.9 million for the nine months ended September
30, 2000 and 1999, respectively. The increase in roaming revenue of $25.6
million was due primarily to the construction of 608 cell sites in conjunction
with the launching of 20 additional markets between October 1, 1999 and
September 30, 2000. Equipment revenue was $22.6 million and $10.3 million for
the nine months ended September 30, 2000 and 1999, respectively. The equipment
revenue increase of $12.3 million over the same period in 1999 was due
primarily to the sales of handsets and related accessories in connection with
significantly increased gross additions in the first nine months of 2000.
Costs of revenue. Cost of revenue was $67.9 million and $23.1 million for
the nine months ended September 30, 2000 and 1999, respectively. The increase
in cost of revenue of $44.8 million over the same period in 1999 was due
primarily to additional roaming expenses in connection with the Company's
increased subscriber base and increases in equipment costs due to significantly
increased gross additions in the first nine months of 2000.
Operations and development. Operations and development costs were $39.6
million and $25.9 million for the nine months ended September 30, 2000 and
1999, respectively. The increase of $13.7 million over the same period in 1999
was primarily due to the development and growth of infrastructure and staffing
related to the support of our network and our network operation center.
Selling and marketing. Selling and marketing costs were $118.5 million and
$39.7 million for the nine months ended September 30, 2000 and 1999,
respectively. The increase of $78.8 million over the same period in 1999 was
primarily due to the cost of acquiring the significantly increased gross
additions in the first nine months of 2000 associated with the increased market
base in 2000, including advertising and promotion costs, commissions and the
excess cost of handsets over the retail price.
General and administrative. General and administrative expenses were $105.8
million and $38.9 million for the nine months ended September 30, 2000 and
1999, respectively. The increase of $66.9 million over the same period in 1999
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 our
subscriber base and launching the additional markets, as well as $28.8 million
in non-cash stock compensation.
Depreciation and amortization. Depreciation and amortization expenses were
$82.8 million and $34.8 million for the nine months ended September 30, 2000
and 1999, respectively. The increase of $48.0 million over the same period in
1999 relates primarily to depreciation of the Company's fixed assets as well as
the amortization on its PCS licenses and the AT&T operating agreements related
to the Company's markets launched between October 1, 1999 and September 30,
2000.
Interest Expense. Interest expense was $64.0 million, net of capitalized
interest of $2.7 million, for the nine months ended September 30, 2000.
Interest expense was $34.4 million, net of capitalized interest of $4.5
million, for the nine months ended September 30, 1999. The increase of $29.6
million over the same period in 1999 relates primarily to a full nine months of
interest expense on the Company's senior subordinated discount notes which were
issued in April of 1999, interest expense on the Company's 10 5/8% senior
subordinated notes issued in July of 2000, additional Lucent and FCC debt
issued throughout the first nine months of 1999, and $100 million of additional
senior credit facility drawn in June and July of 2000.
Interest Income. Interest income was $9.3 million and $4.6 million for the
nine months ended September 30, 2000 and 1999, respectively. The increase of
$4.7 million over the same period in 1999 was due primarily to larger cash and
cash equivalents and short-term investment balances due to the $450 million
senior subordinated notes offering in July of 2000.
25
<PAGE>
Three months ended September 30, 2000 compared to three months ended September
30, 1999
Subscribers. Net additions were 85,562 and 44,753 for the three months ended
September 30, 2000 and 1999, respectively. Total PCS subscribers were 405,444
and 75,723 as of September 30, 2000 and 1999, respectively. The increase in net
additions and total PCS subscribers over the same period in 1999 was primarily
due to launching 20 additional markets from the period October 1, 1999 to
September 30, 2000.
Revenue. Revenue for the quarter ended September 30, 2000 was $91.9 million
compared to $26.8 million. Service revenue was $64.3 million and $12.7 million
for the three months ended September 30, 2000 and 1999, respectively. The
increase in service revenue of $51.6 million was due primarily to the addition
of approximately 330,000 subscribers from October 1, 1999 to September 30, 2000
and the launch of 20 additional markets. Roaming revenue was $18.3 million and
$9.5 million for the three months ended September 30, 2000 and 1999,
respectively. The increase in roaming revenue of $8.8 million was due primarily
to the construction of 608 cell sites in conjunction with the launching of 20
additional markets between October 1, 1999 and September 30, 2000. Equipment
revenue was $9.3 million and $4.7 million for the three months ended September
30, 2000 and 1999, respectively. The equipment revenue increase of $4.6 million
over the same period in 1999 was due primarily to the sale of handsets and
related accessories in connection with the significantly increased gross
additions in the three month period ended September 30, 2000.
Costs of revenue. Cost of revenue was $27.5 million and $13.0 million for
the three months ended September 30, 2000 and 1999, respectively. The increase
in cost of revenue of $14.5 million over the same period in 1999 was due
primarily to additional roaming expenses in connection with the Company's
increased subscriber base and increases in equipment costs due to significantly
increased gross additions in the first nine months of 2000.
Operations and development. Operations and development costs were $14.0
million and $10.4 million for the three months ended September 30, 2000 and
1999, respectively. The increase of $3.6 million over the same period in 1999
was primarily due to the development and growth of infrastructure and staffing
related to the support of our network and our network operation center.
Selling and marketing. Selling and marketing costs were $43.7 million and
$18.8 million for the three months ended September 30, 2000 and 1999,
respectively. The increase of $24.9 million over the same period in 1999 was
primarily due to the cost of acquiring the significantly increased gross
additions in the three months ended September 30, 2000 associated with the
increased market base in 2000, including advertising and promotion costs,
commissions and the excess cost of handsets over the retail price.
General and administrative. General and administrative expenses were $31.4
million and $16.5 million for the three months ended September 30, 2000 and
1999, respectively. The increase of $14.9 million over the same period in 1999
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 our
subscriber base and launching the additional markets, as well as $3.0 million
in non-cash stock compensation.
Depreciation and amortization. Depreciation and amortization expenses were
$32.4 million and $18.3 million for the three months ended September 30, 2000
and 1999, respectively. The increase of $14.1 million over the same period in
1999 relates primarily to depreciation of the Company's fixed assets as well as
the amortization on its PCS licenses and the AT&T operating agreements related
to the Company's markets launched between October 1, 1999 and September 30,
2000.
Interest expense. Interest expense was $29.7 million, net of capitalized
interest of $0.9 million, for the three months ended September 30, 2000.
Interest expense was $17.3 million, net of capitalized interest of
$0.3 million, for the three months ended September 30, 1999. The increase of
$12.4 million over the same period in 1999 relates primarily to interest
expense on the Company's $450 million 10 5/8 senior subordinated notes which
were issued in July of 2000 and an additional $100 million traunche A term loan
of the senior credit facility borrowed in June and July of 2000.
26
<PAGE>
Interest income. Interest income was $5.4 million and $1.7 million for the
three months ended September 30, 2000 and 1999, respectively. The increase of
$3.7 million over the same period in 1999 was due primarily to larger cash and
cash equivalents and short-term investment balances due to the $450 million
senior subordinated notes offering in July of 2000.
Liquidity and capital resources
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
($ in thousands)
<S> <C> <C>
Cash and cash equivalents and short-term
investments................................... $182,330 $444,967
Working capital................................ $ 94,082 $274 884
Current assets to current liabilities.......... 1.72 2.14
Debt to total capitalization................... 0.79 0.97
</TABLE>
Cash and cash equivalents totaled approximately $317.5 million at
September 30, 2000, as compared to approximately $182.3 million at December 31,
1999. This net increase was the result of $99.1 million of cash used in
operating activities and $409.5 million of cash used in investing activities,
offset by cash provided by financing activities of $643.8 million during the
nine months ended September 30, 2000. Cash used in operating activities
resulted from a net loss of $249.9 million that was partially offset by non-
cash charges of $158.6 million. Cash used in investing activities resulted
primarily from cash outlays for capital expenditures, required for the
development and construction of our network, of $234.1 million, purchases of
short term investments of $130.7 million, and Black Label Wireless, Inc. costs
of $27.9 million. Cash provided by financing activities consisted primarily of
proceeds from long term debt of $550.0 million, proceeds from the sale of
common stock to AT&T of $41.9 million, and receipt of preferred stock
subscriptions receivable of $37.7 million.
At September 30, 2000, the Company had available bank and vendor credit
facilities of $456 million.
During the same period ended September 30, 1999, the Company had a net
decrease in cash of $31.3 million as a result of $88.7 million of cash used in
operating activities and $376.5 million of cash used in investing activities,
offset by cash provided by financing activities of $433.9 million. Cash used in
operating activities resulted from a net loss of $144.1 million that was
partially offset by non-cash charges of $56.8 million. Cash used in investing
activities resulted primarily from cash outlays for capital expenditures
required for the development and construction of our network of $245.5 million,
purchases on PCS licenses of $72.4 million and deposits of PCS licenses of
$43.6 million. Cash provided by financing activities was the result of proceeds
from long term debt and mandatorily redeemable preferred stock of $397.6
million and $64.5 million, respectively, offset partially by payments on long
term debt of $40.2 million.
New accounting pronouncements
In July 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Deferral of the Effective
Date of FAS 133" which defers the effective date of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
is currently evaluating the full impact of this statement to determine the
impact on its financial position and results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) Number 101, "Revenue Recognition in Financial
Statements." This bulletin will become effective for the Company no later than
the quarter ending December 31, 2000. This bulletin establishes more clearly
defined revenue recognition criteria than previously existing accounting
pronouncements, and specifically addresses revenue recognition requirements for
nonrefundable fees, such as activation fees, collected by a company upon
entering into an arrangement with a customer, such as an arrangement to provide
telecommunications services. The Company is currently evaluating the full
impact of this bulletin to determine the impact on its financial position and
results of operations.
27
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates which
could impact results of operations. The Company manages interest rate risk
through a combination of fixed and variable rate debt.
At September 30, 2000 the Company had the following debt instruments
outstanding:
. $450.0 million of 10 5/8% senior subordinated notes, due 2010;
. $100 million of tranche A and $225 million of tranche B notes under the
Company's Senior Credit facility, which carried a weighted average rate
of 8.84% and 9.12%, respectively;
. $385.5 million carrying value ($575 million at maturity) of the 11 5/8%
senior subordinated discount notes, due 2009;
. $21.6 million debt to the Federal Communications Commission, due in
quarterly installments from 2000 to 2007 bearing a rate of between
6.125%-7.0%, discounted to yield between 10.25%-11.8% ($19.1 million
discounted);
. $46.6 million of vendor financing debt which carried a rate of 8.5%.
. $29.7 million of debt under the Black Label Wireless, Inc. credit
agreement which carried a rate of 8.6%.
The Company's senior subordinated notes, senior subordinated discount notes,
Federal Communications Commission debt and vendor financing debt, are fixed
interest rate debt securities and as a result are less sensitive to market rate
fluctuations. However, the Company's tranche A and tranche B term loans
outstanding under the senior credit facility and other amounts available to the
Company under its senior credit facility agreements and the Black Label
Wireless, Inc. credit agreement are variable interest rate debt securities.
The Company uses interest rate swaps to hedge the effects of fluctuations in
interest rates on its senior credit facilities. These transactions meet the
requirements for hedge accounting, including designation and correlation. These
interest rate swaps are managed in accordance with the Company's policies and
procedures. The Company did not enter into these transactions for trading
purposes. The resulting gains or losses, measured by quoted market prices, are
accounted for as part of the transactions being hedged, except that losses not
expected to be recovered upon the completion of hedged transactions are
expensed. Gains or losses associated with interest rate swaps are computed as
the difference between the interest expense per the amount hedged using the
fixed rate compared to a floating rate over the term of the swap agreement. As
of September 30, 2000, the Company had entered into six interest rate swap
agreements totaling $225 million to convert the Company's variable rate debt to
fixed rate debt. The interest rate swaps had no material impact on the
Company's consolidated financial statements as of and for the year ended
December 31, 1999 or as of and for the nine months ended September 30, 2000.
28
<PAGE>
The following table provides information about our market risk exposure
associated with the company's variable rate debt at maturity value of the debt
and the market risk exposure associated the interest rate swaps at
September 30, 2000:
<TABLE>
<CAPTION>
EXPECTED MATURITY
------------------------------------------------------ FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
----- ----- ---- ----- ----- ---------- -------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES:
Long-Term Debt:
Face value of long-term
fixed rate debt (a)... $ 0.3 $ 1.4 $1.6 $ 3.9 $ 4.1 $1,108(b) $1,119.3 $906.9(c)
Average interest rate
(d)................... 6.2% 6.2% 6.2% 6.6% 6.6% 11.0%
Face value of tranche A
variable rate debt.... $ -- $ -- $5.0 $10.0 $25.0 $ 60.0 $ 100.0 $100.0(f)
Average interest rate
(e)................... 0.0% 0.0% 8.8% 8.8% 8.8% 8.8%
Face value of tranche B
variable rate debt.... $ -- $ -- $1.2 $ 2.2 $ 2.2 $219.4 $ 225.0 $225.0(f)
Average interest rate
(e)................... 0.0% 0.0% 9.1% 9.1% 9.1% 9.1%
Face value of Black La-
bel variable rate
debt.................. $29.7 $ -- $-- $ -- $ -- $ -- $ 29.7 $ --
Average interest rate.. 8.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
INTEREST RATE
DERIVATIVES:
Interest rate swaps:
Variable to fixed (g).. $ 225 $ 225 $225 $ 225
Average pay rate (h)... 5.24% 5.24% 5.24% 5.24% -- --
Average receive rate
(h)................... 6.77% 6.77% 6.77% 6.77% -- --
</TABLE>
--------
(a) Fixed rate debt consists of the FCC government debt, 11 5/8% senior
subordinated discount notes, 10 5/8% senior subordinated notes, and vendor
financing.
(b) The vendor financing debt may be redeemed in full by January 2001. However,
if the vendor financing is not redeemed, the interest rate will increase by
1.5% per annum on January 1, 2001 and shall not exceed 12.125%. For the
purposes of this table, the Company assumes the debt will not be redeemed
and therefore the future principal amount in 2009 includes all unpaid
interest through May 2004 and totals $72.7 million. After May 2004,
interest is payable semi-annually on the vendor financing debt until
maturity.
This total balance for all payments subsequent to 2004 also includes the
future principal payment of $575 million of 11 5/8% senior subordinated
discount notes in 2009, $450 million of 10 5/8% senior subordinated notes
in 2010 and $10.3 million of FCC debt due in quarterly installments through
2007.
(c) The fair value is based on (1) the carrying value of the FCC debt of $19.1
million, (2) the carrying value of the vendor financing of $46.6 million,
(3) the $386.7 million market value of the 11 5/8% senior subordinated
discount notes as of September 30, 2000 priced at 11.6%, and (4) the $454.5
million market value of the 10 5/8 senior subordinated notes priced at a 1%
premium on September 30, 2000.
(d) Average interest rate is calculated as the weighted average rate related to
the repayments of debt instruments in the year indicated of maturity.
(e) The interest rate of the variable debt securities may and is expected to
vary before maturity. The amount indicated is the current rate as of
September 30, 2000.
(f) The fair value of variable rate debt instruments is expected to approximate
carrying value.
(g) Represents the total notional amount of the six swap agreements related to
the tranche B senior credit facility.
(h) The average pay rate and average receive rate are based on the
September 30, 2000 rate of variable rate Tranche B debt less the fixed
yield of 8.24%. These amounts may change due to fluctuations in the
variable rate debt. The current swaps expire in 2003.
The Company is exposed to the impact of interest rate changes on our short-
term cash investments, consisting of U.S. Treasury obligations and other
investments in respect of institutions with the highest credit ratings, all of
which have maturities of three months or less. These short-term investments
carry a degree of interest rate risk. The Company believes that the impact of a
10% increase or decline in current interest rates would not be material to its
investment income.
The Company is not exposed to fluctuations in currency exchange rates since
its operations are entirely within the United States and its territories and
all of the Company's services are invoiced in U.S. dollars.
29
<PAGE>
Part II--Other Information
Item 6. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1.1 Amended and Restated Certificate of Incorporation of TeleCorp PCS,
Inc. (renamed TeleCorp Wireless, Inc.).
3.1.2 Certificate of Amendment of Certificate of Incorporation of
TeleCorp PCS, Inc. changing the name of TeleCorp PCS, Inc. to
TeleCorp Wireless, Inc.
3.1.3* Certificate of Incorporation of TeleCorp Operating Company, Inc.
3.1.4* Certificate of Amendment of the Certificate of Incorporation of
TeleCorp Operating Company, Inc. changing the name of TeleCorp
Operating Company, Inc. to TeleCorp Communications, Inc.
3.1.5** Certificate of Incorporation of TeleCorp-Tritel Holding Company.
3.1.6*** Certificate of Amendment of Certificate of Incorporation of
TeleCorp-Tritel Holding Company changing the name of TeleCorp-
Tritel Holding Company to TeleCorp PCS, Inc.
3.2.1 By-Laws of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.).
3.2.2** Amended and Restated By-Laws of TeleCorp-Tritel Holding Company
(renamed TeleCorp PCS, Inc.).
3.2.3* By-Laws of TeleCorp Communications, Inc.
4.1**** Indenture, dated as of July 14, 2000, among TeleCorp PCS, Inc.,
TeleCorp Communications, Inc. and Bankers Trust Company, as
Trustee.
4.2*** Stockholders' Agreement, dated as of November 13, 2000, among AT&T
Wireless, PCS, LLC, Cash Equity Investors, Management
Stockholders, Other Stockholders and TeleCorp PCS, Inc.
10.1**** Commitment Letter, dated July 14, 2000, between Lucent
Technologies Inc. and TeleCorp-Tritel Holding Company related to
Senior Subordinated Discount Notes Due 2010.
10.2**** Credit Agreement, dated as of July 14, 2000, among Black Label
Wireless, Inc., the financial institutions from time to time
parties thereto, as Lenders, and Lucent Technologies Inc., as
Agent for the Lenders.
10.3**** Letter Agreement, dated as of July 14, 2000, among Black Label
Wireless, Inc., Lucent Technologies Inc., as Agent and Lucent
Technologies Inc., as Lender.
10.4***** Amendment No. 8 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of July 1, 2000,
between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.5***** Tenth Amendment, dated as of July 17, 2000, to the TeleCorp Credit
Agreement, among TeleCorp PCS, Inc., the Lenders and The Chase
Manhattan Bank.
10.6* Purchase Agreement, dated July 11, 2000, among Chase Securities,
Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc.,
TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.7***** Consent Pursuant to Section 6.2(a) of the Agreement and Plan of
Reorganization and Contribution, dated as of July 10, 2000, by
Tritel, Inc. to TeleCorp PCS, Inc.
10.8***** Exchange and Registration Rights Agreement, dated July 14, 2000,
among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc
Securities, Inc., TeleCorp PCS, Inc., TeleCorp Communications,
Inc. and Bankers Trust Company, as Trustee.
27.1 Financial Data Schedule
</TABLE>
--------
* Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-81313) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and
TeleCorp Communications, Inc.
** Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-49792) of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS,
Inc.).
*** Incorporated by reference to the TeleCorp PCS, Inc. (f/k/a TeleCorp-Tritel
Holding Company) Current Report on Form 8-K filed on November 13, 2000.
**** Incorporated by reference to the TeleCorp PCS, Inc. (renamed TeleCorp
Wireless, Inc.) and TeleCorp-Tritel Holding Company (renamed TeleCorp PCS,
Inc.) Quarterly Report filed on Form 10-Q on August 11, 2000.
***** Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-43596) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.)
and TeleCorp Communications, Inc.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TeleCorp Wireless, Inc.
/s/ Thomas H. Sullivan
Dated: November 14, 2000 By: _________________________________
Thomas H. Sullivan,
President, Treasurer, and
Secretary
(as a duly authorized officer and
principal financial officer)
Former Subsidiary
TeleCorp PCS, Inc.
/s/ Thomas H. Sullivan
Dated: November 14, 2000 By: _________________________________
Thomas H. Sullivan,
Executive Vice President-Chief
Financial Officer
(as a duly authorized officer and
principal financial officer)
Subsidiary
TeleCorp Communications, Inc.
/s/ Thomas H. Sullivan
Dated: November 14, 2000 By: _________________________________
Thomas H. Sullivan,
President, Secretary and
Treasurer
(as a duly authorized officer and
principal financial officer)
32
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
3.1.1 Amended and Restated Certificate of Incorporation of TeleCorp PCS,
Inc. (renamed TeleCorp Wireless, Inc.).
3.1.2 Certificate of Amendment of Certificate of Incorporation of TeleCorp
PCS, Inc. changing the name of TeleCorp PCS, Inc. to TeleCorp
Wireless, Inc.
3.1.3* Certificate of Incorporation of TeleCorp Operating Company, Inc.
3.1.4* Certificate of Amendment of the Certificate of Incorporation of
TeleCorp Operating Company, Inc. changing the name of TeleCorp
Operating Company, Inc. to TeleCorp Communications, Inc.
3.1.5** Certificate of Incorporation of TeleCorp-Tritel Holding Company.
3.1.6*** Certificate of Amendment of Certificate of Incorporation of TeleCorp-
Tritel Holding Company changing the name of TeleCorp-Tritel Holding
Company to TeleCorp PCS, Inc.
3.2.1 Third Amended and Restated By-Laws of TeleCorp PCS, Inc. (renamed
TeleCorp Wireless, Inc.).
3.2.2** Amended and Restated By-Laws of TeleCorp-Tritel Holding Company
(renamed TeleCorp PCS, Inc.).
3.2.3* By-Laws of TeleCorp Communications, Inc.
4.1**** Indenture, dated as of July 14, 2000, among TeleCorp PCS, Inc.,
TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee.
4.2*** Stockholders' Agreement, dated as of November 13, 2000, among AT&T
Wireless, PCS, LLC, Cash Equity Investors, Management Stockholders,
Other Stockholders and TeleCorp PCS, Inc.
10.1**** Commitment Letter, dated July 14, 2000, between Lucent Technologies
Inc. and TeleCorp-Tritel Holding Company related to Senior
Subordinated Discount Notes Due 2010.
10.2**** Credit Agreement, dated as of July 14, 2000, among Black Label
Wireless, Inc., the financial institutions from time to time parties
thereto, as Lenders, and Lucent Technologies Inc., as Agent for the
Lenders.
10.3**** Letter Agreement, dated as of July 14, 2000, among Black Label
Wireless, Inc., Lucent Technologies Inc., as Agent and Lucent
Technologies Inc., as Lender.
10.4***** Amendment No. 8 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of July 1, 2000,
between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.5***** Tenth Amendment, dated as of July 17, 2000, to the TeleCorp Credit
Agreement, among TeleCorp PCS, Inc., the Lenders and The Chase
Manhattan Bank.
<PAGE>
10.6* Purchase Agreement, dated July 11, 2000, among Chase Securities,
Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp
PCS, Inc. and TeleCorp Communications, Inc.
10.7***** Consent Pursuant to Section 6.2(a) of the Agreement and Plan of
Reorganization and Contribution, dated as of July 10, 2000, by
Tritel, Inc. to TeleCorp PCS, Inc.
10.8***** Exchange and Registration Rights Agreement, dated July 14, 2000,
among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc
Securities, Inc., TeleCorp PCS, Inc., TeleCorp Communications, Inc.
and Bankers Trust Company, as Trustee.
27.1 Financial Data Schedule.
_______________________________________________________
* Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-81313) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.)
and TeleCorp Communications, Inc.
** Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-49792) of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS,
Inc.).
*** Incorporated by reference to the TeleCorp PCS, Inc. (f/k/a TeleCorp-
Tritel Holding Company) Current Report on Form 8-K filed on November 13,
2000.
**** Incorporated by reference to the TeleCorp PCS, Inc. (renamed TeleCorp
Wireless, Inc.) and TeleCorp-Tritel Holding Company (renamed TeleCorp
PCS, Inc.) Quarterly Report filed on Form 10-Q on August 11, 2000.
***** Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-43596) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.)
and TeleCorp Communications, Inc.
