<PAGE>
FILED PURSUANT TO RULE NO. 424(b)(3)
REGISTRATION NOS. 333-81313, 333-81313-01
SUPPLEMENT DATED AUGUST 11, 2000 TO THE PROSPECTUS OF TELECORP PCS, INC. AND
TELECORP COMMUNICATIONS, INC. DATED AND FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 2000.
TeleCorp PCS, Inc.
Three and Six Month June 2000 Consolidated Financial Information
<PAGE>
Financial Statements
TELECORP PCS, INC.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 182,330 $ 28,223
Accounts receivable, net............................ 23,581 36,514
Inventory........................................... 15,802 20,604
Prepaid expenses and other current assets........... 3,828 6,344
--------- ---------
Total current assets.............................. 225,541 91,685
Property and equipment, net........................... 400,450 531,034
PCS licenses and microwave relocation costs, net...... 267,682 277,275
Intangible assets--AT&T agreements, net............... 37,908 34,330
Deferred financing costs, net......................... 19,577 18,647
Other assets.......................................... 1,044 13,626
--------- ---------
Total assets...................................... $ 952,202 $ 966,597
========= =========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 38,903 $ 6,654
Accrued expenses.................................... 51,977 110,876
Microwave relocation obligation, current portion.... 36,122 21,973
Long-term debt, current portion..................... 1,361 1,415
Accrued interest.................................... 1,387 1,555
Deferred revenue.................................... 1,709 2,617
--------- ---------
Total current liabilities......................... 131,459 145,090
Long-term debt........................................ 639,210 728,129
Microwave relocation obligation....................... 2,365 8,128
Accrued expenses and other liabilities................ 6,541 9,538
--------- ---------
Total liabilities................................. 779,575 890,885
--------- ---------
Mandatorily redeemable preferred stock, issued 382,539
and 383,339 shares, respectively; and outstanding,
382,539 and 383,173 shares, respectively,
(liquidation preference $404,779 as of June 30, 2000,
unaudited)........................................... 360,182 376,129
Preferred stock subscriptions receivable.............. (97,001) (97,001)
--------- ---------
Total mandatorily redeemable preferred stock,
net.............................................. 263,181 279,128
--------- ---------
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 June 30, 2000,
unaudited)......................................... 149 149
Common stock, par value $.01 per share issued
85,592,221 and 89,047,531 shares, respectively; and
outstanding 85,592,221 and 88,942,943 shares,
respectively....................................... 856 890
Additional paid-in capital.......................... 267,442 313,107
Deferred compensation............................... (42,811) (32,999)
Common stock subscriptions receivable............... (191) (191)
Accumulated deficit................................. (315,999) (484,372)
--------- ---------
Total stockholders' equity (deficit).............. (90,554) (203,416)
--------- ---------
Total liabilities, mandatorily redeemable
preferred stock and stockholders'
equity (deficit)................................. $ 952,202 $ 966,597
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
S-1
<PAGE>
TELECORP PCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
------------------------ ------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Service................. $ 5,728 $ 51,119 $ 6,232 $ 88,056
Roaming................. 7,609 14,699 9,487 26,151
Equipment............... 3,791 6,193 5,649 13,250
---------- ----------- ---------- -----------
Total revenue......... 17,128 72,011 21,368 127,457
---------- ----------- ---------- -----------
Operating expenses:
Cost of revenue......... 7,423 21,407 10,107 40,433
Operations and
development............ 7,796 14,569 15,498 25,535
Selling and marketing... 13,070 40,141 20,925 74,766
General and
administrative......... 12,262 47,071 22,441 74,347
Depreciation and
amortization........... 13,727 26,915 16,491 50,383
---------- ----------- ---------- -----------
Total operating
expenses............. 54,278 150,103 85,462 265,464
---------- ----------- ---------- -----------
Operating loss........ (37,150) (78,092) (64,094) (138,007)
Other (income) expense:
Interest expense........ 10,787 17,273 17,107 34,263
Interest income and
other.................. (1,947) (1,491) (2,918) (3,897)
---------- ----------- ---------- -----------
Net loss.............. (45,990) (93,874) (78,283) (168,373)
Accretion of mandatorily
redeemable preferred
stock.................... (5,629) (8,156) (9,896) (15,889)
---------- ----------- ---------- -----------
Net loss attributable to
common equity............ $ (51,619) $ (102,030) $ (88,179) $ (184,262)
========== =========== ========== ===========
Net loss attributable to
common equity per share--
basic and diluted........ $ (0.64) $ (1.01) $ (1.39) $ (1.84)
========== =========== ========== ===========
Weighted average common
equity shares outstand-
ing--basic and diluted... 80,234,406 101,247,896 63,293,065 100,414,647
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
S-2
<PAGE>
TELECORP PCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
-----------------------
1999 2000
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ (78,283) $ (168,373)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 16,491 50,383
Noncash compensation expense related to stock
option grants and restricted stock awards......... 365 26,883
Noncash interest expense........................... 9,126 23,349
Bad debt expense................................... 159 5,639
Changes in cash flow from operations resulting from
changes in assets and liabilities:
Accounts receivable................................ (12,337) (12,933)
Inventory.......................................... (6,955) (4,802)
Prepaid expenses and other current assets.......... 994 (2,516)
Other assets....................................... (1,155) (4,173)
Accounts payable................................... 18,559 (32,249)
Accrued expenses and other liabilities............. 2,131 (5,817)
Accrued interest................................... (411) 168
Deferred revenue................................... 705 908
--------- ----------
Net cash used in operating activities............ (50,611) (123,533)
--------- ----------
Cash flows from investing activities:
Expenditures for network under development, wireless
network and property and equipment.................. (203,235) (109,117)
Capitalized interest on network under development and
PCS licenses........................................ (4,153) (1,798)
Expenditures for microwave relocation................ (5,137) (4,279)
Purchase of PCS licenses............................. (72,188) (733)
Deposit on PCS licenses.............................. (28,878) (12,368)
Partial refund of deposit on PCS licenses............ 11,361 --
Purchase of intangibles--AT&T agreements............. (16,145) --
Capitalized Tritel acquisition costs................. -- (8,409)
--------- ----------
Net cash used in investing activities............ (318,375) (136,704)
--------- ----------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable
preferred stock..................................... 60,411 --
Receipt of preferred stock subscription receivable... 3,740 --
Direct issuance costs from sale of mandatorily
redeemable preferred stock.......................... (2,500) --
Proceeds from sale of common stock and series F
preferred stock..................................... 5 41,869
Proceeds from long-term debt......................... 397,635 65,000
Payments of deferred financing costs................. (10,600) (64)
Payments on long term debt........................... (40,000) (675)
--------- ----------
Net cash provided by financing activities............ 408,691 106,130
--------- ----------
Net increase (decrease) in cash and cash
equivalents......................................... 39,705 (154,107)
Cash and cash equivalents at the beginning of period... 111,733 182,330
--------- ----------
Cash and cash equivalents at the end of period......... $ 151,438 $ 28,223
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
S-3
<PAGE>
TELECORP PCS, 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, Little Rock, and New England Basic Trading Areas (BTAs). TeleCorp
Holding Corp., Inc. qualifies as a Designated Entity and Very Small Business
under Part 24 of the rules of the FCC applicable to broadband PCS.
TeleCorp PCS, Inc. (TeleCorp) was incorporated in the State of Delaware on
November 14, 1997 by the controlling stockholders of TeleCorp Holding Corp.,
Inc. TeleCorp Holding Corp., Inc. became a wholly-owned subsidiary of TeleCorp,
and TeleCorp and TeleCorp Holding Corp., Inc. are hereafter referred to as the
Company. 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 16.7 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. 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 data includes all adjustments of a
normal recurring nature necessary for a fair statement of the results for the
interim periods. Operating results for the three and six months ended June 30,
2000 are not necessarily indicative of results that may be expected for the
year ending December 31, 2000.
3. Accounts Receivable
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
Accounts receivable................................. $26,203 $38,795
Allowance for doubtful accounts..................... (2,622) (2,281)
------- -------
$23,581 $36,514
======= =======
</TABLE>
S-4
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
4. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
Handsets............................................ $15,090 $18,907
Accessories......................................... 712 1,697
------- -------
$15,802 $20,604
======= =======
</TABLE>
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
Wireless network................................... $364,491 $509,816
Network under development.......................... 21,758 33,076
Computer equipment................................. 16,888 23,636
Internal use software.............................. 21,648 24,953
Leasehold improvements............................. 12,011 15,847
Furniture, fixtures, office equipment and other.... 10,904 15,032
-------- --------
447,700 622,360
Accumulated depreciation........................... (47,250) (91,326)
-------- --------
$400,450 $531,034
======== ========
</TABLE>
Depreciation expense for the three months ended June 30, 1999 and 2000 was
$11,179 and $23,770, respectively. Depreciation expense for the six months
ended June 30, 1999 and 2000 was $13,241 and $44,076, respectively.
6. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
Senior subordinated discount notes.................. $354,291 $374,877
Senior credit facilities............................ 225,000 290,000
Lucent notes payable................................ 43,504 45,353
U.S. Government financing........................... 17,776 19,314
-------- --------
640,571 729,544
Less: current portion............................... 1,361 1,415
-------- --------
$639,210 $728,129
======== ========
</TABLE>
S-5
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Senior Credit Facility
On June 5, 2000, the Company borrowed $65,000 on the Tranche A term loan.
Interest on the Tranche A loan was 8.62% at June 30, 2000.
7. 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.
8. 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 $471 for interest it paid to the Federal Communications
Commission on the debt related to the license from June 1998 through March
2000. The entire purchase price has been allocated to the acquired licenses.
9. Tritel Merger and Contribution and Exchange with AT&T Wireless
On February 28, 2000, the Company agreed to merge with Tritel, Inc. (Tritel)
through a merger of each of the Company and Tritel into a newly formed
subsidiary of a new holding company, TeleCorp-Tritel Holding Company (Holding
Company). The merger will result in exchange of 100% of the outstanding common
and preferred stock of the Company and Tritel for common and preferred stock of
the newly formed entity, to be called TeleCorp PCS, Inc. The new entity will be
controlled by the Company's voting preference common stockholders. Both the
Company and Tritel will become subsidiaries of the Holding Company.
S-6
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
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 the new Holding Company that will be issued to the
former shareholders of Tritel plus cash, the fair value associated with the
conversion of outstanding Tritel options and warrants to Holding Company
options and warrants, liabilities assumed, and merger related costs. The fair
value of the shares to be issued have been determined based on the existing
market price of 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.
The proposed merger has been unanimously approved by the Company's and
Tritel's board of directors, with three of the Company's directors abstaining.
In addition, shareholders with greater than 50% of the voting power of each
company have agreed to vote in favor of the merger. The merger is subject to
regulatory approval and other conditions and is expected to close in the fourth
quarter of 2000.
In connection with the Company's merger with Tritel, AT&T has agreed to
contribute certain assets and rights to the Company. This contribution will
result in the Company acquiring various assets in exchange for the
consideration issued as follows:
The Company acquires:
. $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 Holding Company's markets.
Consideration issued:
. 9,272,740 shares of class A common stock of Holding Company to AT&T
Wireless Services.
Separately, AT&T Wireless and the Company entered into an Asset Exchange
Agreement pursuant to which the Company has agreed to exchange certain assets
with AT&T Wireless, among other consideration.
The Company is receiving certain consideration in exchange for assets as
follows:
The Company acquires:
. $80,000 in cash from AT&T Wireless.
. AT&T Wireless 10 MHZ PCS licenses in the areas covering part of the
Wisconsin market, in addition to adjacent licenses.
. AT&T Wireless's existing 10 MHZ PCS licenses in Fort Dodge, and
Waterloo, Iowa.
. The right to acquire additional wireless properties from Polycell
Communications, Inc. (Polycell) and ABC Wireless, L.L.C. (ABC
Wireless).
Consideration issued:
. The Company's New England Market Segment to AT&T Wireless.
. Cash and / or class A common stock to Polycell and cash to ABC
Wireless.
S-7
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Further, AT&T has agreed to extend the term of the roaming agreement and to
expand the geographic coverage of the AT&T operating agreements with TeleCorp
to include the new markets, either through amending TeleCorp's existing
agreements or by entering into new agreements with Holding Company on
substantially the same terms as TeleCorp's existing agreements. In addition,
TeleCorp 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 is recognized as the difference between the fair
value of the New England assets disposed and their net book value. These
transactions are also subject to regulatory approval and other conditions and
are expected to close in the fourth quarter of 2000. The failure of these
transactions to occur does not prevent the Tritel merger from occurring.
S-8
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
10. Telecorp-Tritel Holding Company
Holding Company was formed on April 28, 2000 in order to give effect to the
Tritel merger with the Company and the AT&T exchange and contribution. Holding
Company currently is a wholly-owned subsidiary of the Company. To date, the
Holding Company has not conducted any activities other than those incident to
its formation. Upon completion of the merger, TeleCorp and Tritel will become
wholly owned subsidiaries of Holding Company. The business of Holding Company
will be the combined businesses currently conducted by TeleCorp and Tritel.
Summarized financial statements of Holding Company are as follows:
TELECORP-TRITEL HOLDING COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
June 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)........ $ --
=========
TELECORP-TRITEL HOLDING COMPANY
STATEMENT OF OPERATIONS
<CAPTION>
For the period
April 28, 2000
(date of inception)
to June 30, 2000
-------------------
<S> <C>
Total revenue............................................... $ --
---------
Total operating expenses.................................... --
---------
Operating loss.............................................. --
---------
Net loss.................................................... $ --
=========
TELECORP-TRITEL HOLDING COMPANY
STATEMENT OF CASH FLOWS
<CAPTION>
For the period
April 28, 2000
(date of inception)
to June 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>
S-9
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
11. 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., one
of the Company's wholly-owned subsidiaries. Consolidating financial statements
of TeleCorp, TeleCorp Communications, Inc., the guarantor, the non-guarantor
subsidiaries of TeleCorp Communications, Inc. and the non-guarantor
subsidiaries of TeleCorp as of December 31, 1999 and June 30, 2000, for the
year ended December 31, 1999 and for the three and six months ended June 30,
1999 and 2000 have been included on the following pages.
Certain amounts in the 1999 consolidating financial statements have been
reclassified to conform with the presentations of the consolidating financial
statements as of June 30, 2000 and for the three and six months ended June 30,
2000. These reclassifications are eliminated upon consolidation and do not
impact the Company's consolidated financial statements.
S-10
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Balance Sheet as of December 31, 1999:
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
--------------------------------------------------- ---------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
----------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents..... $ 182,330 $ -- $ -- $ -- $ -- $ -- $ -- $ 182,330
Accounts
receivable,
net............. -- 23,581 -- -- 23,581 -- -- 23,581
Inventory....... -- 15,802 -- -- 15,802 -- -- 15,802
Prepaid expenses
and other
current assets.. -- 1,608 2,220 -- 3,828 -- -- 3,828
----------- --------- --------- -------- --------- -------- --------- ---------
Total current
assets.......... 182,330 40,991 2,220 -- 43,211 -- -- 225,541
Property and
equipment, net... -- 182,235 218,215 -- 400,450 -- -- 400,450
PCS licenses and
microwave
relocation costs,
net.............. -- -- -- -- -- 267,682 -- 267,682
Intangible
assets--AT&T
agreements, net.. 37,908 -- -- -- -- -- -- 37,908
Deferred
financing costs,
net.............. 19,577 -- -- -- -- -- -- 19,577
Other assets..... -- 1,044 -- -- 1,044 -- -- 1,044
Intercompany
receivables...... 858,279 -- 42,970 (42,970) -- 5,702 (863,981) --
----------- --------- --------- -------- --------- -------- --------- ---------
Total assets.... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705 $273,384 $(863,981) $ 952,202
=========== ========= ========= ======== ========= ======== ========= =========
LIABILITIES,
MANDATORILY
REDEEMABLE
PREFERRED STOCK
AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current
liabilities:
Accounts
payable......... $ -- $ 12,318 $ 26,585 $ -- $ 38,903 $ -- $ -- $ 38,903
Accrued
expenses........ -- 48,960 3,017 -- 51,977 -- -- 51,977
Microwave
relocation
obligation,
current
portion......... -- -- -- -- -- 36,122 -- 36,122
Long-term debt,
current
portion......... -- -- -- -- -- 1,361 -- 1,361
Accrued
interest........ 521 -- -- -- -- 866 -- 1,387
Deferred
revenue......... -- 1,709 -- -- 1,709 -- -- 1,709
----------- --------- --------- -------- --------- -------- --------- ---------
Total current
liabilities..... 521 62,987 29,602 -- 92,589 38,349 -- 131,459
Long-term debt... 622,795 -- -- -- -- 16,415 -- 639,210
Microwave
relocation
obligation....... -- -- -- -- -- 2,365 -- 2,365
Accrued expenses
and other........ -- -- 6,541 -- 6,541 -- -- 6,541
Intercompany
payables......... -- 463,434 227,262 (42,970) 647,726 216,255 (863,981) --
----------- --------- --------- -------- --------- -------- --------- ---------
Total
liabilities..... 623,316 526,421 263,405 (42,970) 746,856 273,384 (863,981) 779,575
----------- --------- --------- -------- --------- -------- --------- ---------
Mandatorily
redeemable
preferred stock.. 360,182 -- -- -- -- -- -- 360,182
Preferred stock
subscriptions
receivable....... (97,001) -- -- -- -- -- -- (97,001)
----------- --------- --------- -------- --------- -------- --------- ---------
Total
mandatorily
redeemable
preferred stock,
net............. 263,181 -- -- -- -- -- -- 263,181
----------- --------- --------- -------- --------- -------- --------- ---------
Commitments and
contingencies
Stockholders'
equity (deficit):
Series F
preferred
stock........... 149 -- -- -- -- -- -- 149
Common stock.... 856 -- -- -- -- -- -- 856
Additional paid-
in capital...... 267,442 -- -- -- -- -- -- 267,442
Deferred
compensation.... (42,811) -- -- -- -- -- -- (42,811)
Common stock
subscriptions
receivable...... (191) -- -- -- -- -- -- (191)
Accumulated
deficit......... (13,848) (302,151) -- -- (302,151) -- -- (315,999)
----------- --------- --------- -------- --------- -------- --------- ---------
Total
stockholders'
equity
(deficit)....... 211,597 (302,151) -- -- (302,151) -- -- (90,554)
----------- --------- --------- -------- --------- -------- --------- ---------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)....... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705 $273,384 $(863,981) $ 952,202
=========== ========= ========= ======== ========= ======== ========= =========
</TABLE>
S-11
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Balance Sheet as of June 30, 2000 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc.
---------------------------------------------------
TeleCorp Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated
---------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 28,223 $ -- $ -- $ -- $ --
Accounts
receivable, net.. -- 36,514 -- -- 36,514
Inventory........ -- 20,604 -- -- 20,604
Prepaid expenses
and other current
assets........... -- 4,759 1,585 -- 6,344
---------- --------- -------- -------- ----------
Total current
assets........ .. 28,223 61,877 1,585 -- 63,462
Property and
equipment, net.... -- 249,111 281,923 -- 531,034
PCS licenses and
microwave
relocation costs,
net............... -- -- -- -- --
Intangible
assets--AT&T
agreements, net... 34,330 -- -- -- --
Deferred financing
costs, net........ 18,647 -- -- -- --
Other assets...... -- 5,217 -- -- 5,217
Intercompany
receivables....... 1,176,496 -- 79,918 (79,918) --
---------- --------- -------- -------- ----------
Total assets.. .. $1,257,696 $ 316,205 $363,426 $(79,918) $ 599,713
========== ========= ======== ======== ==========
LIABILITIES,
MANDATORILY
REDEEABLEMPREFERRED STOCK AND
TOCKHOLDERS'SEQUITY
(DEFICIT)
Current
liabilities:
Accounts
payable.......... $ -- $ 6,654 $ -- $ -- $ 6,654
Accrued
expenses......... -- 75,297 35,579 -- 110,876
Microwave
relocation
obligation,
current portion.. -- -- -- -- --
Long-term debt,
current portion.. -- -- -- -- --
Accrued
interest......... 1,230 -- -- -- --
Deferred
revenue.......... -- 2,617 -- -- 2,617
---------- --------- -------- -------- ----------
Total current
liabilities... .. 1,230 84,568 35,579 -- 120,147
Long-term debt.... 710,230 -- -- -- --
Microwave
relocation
obligation........ -- -- -- -- --
Accrued expenses
and other......... -- -- 9,538 -- 9,538
Intercompany
payables.......... -- 702,161 318,309 (79,918) 940,552
---------- --------- -------- -------- ----------
Total
liabilities... .. 711,460 786,729 363,426 (79,918) 1,070,237
---------- --------- -------- -------- ----------
Mandatorily
redeemable
preferred stock... 376,129 -- -- -- --
Preferred stock
subscriptions
receivable........ (97,001) -- -- -- --
---------- --------- -------- -------- ----------
Total
mandatorily
redeemable
preferred stock,
net........... .. 279,128 -- -- -- --
---------- --------- -------- -------- ----------
Commitments and
contingencies
<CAPTION>
TeleCorp PCS, Inc.
----------------------------------------
Non-Guarantor
Subsidiaries Eliminations Consolidated
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ -- $ -- $ 28,223
Accounts
receivable, net.. -- -- 36,514
Inventory........ -- -- 20,604
Prepaid expenses
and other current
assets........... -- -- 6,344
------------- ------------- ------------
Total current
assets........ .. -- -- 91,685
Property and
equipment, net.... -- -- 531,034
PCS licenses and
microwave
relocation costs,
net............... 277,275 -- 277,275
Intangible
assets--AT&T
agreements, net... -- -- 34,330
Deferred financing
costs, net........ -- -- 18,647
Other assets...... 8,409 -- 13,626
Intercompany
receivables....... 9,086 (1,185,582) --
------------- ------------- ------------
Total assets.. .. $294,770 $(1,185,582) $ 966,597
============= ============= ============
LIABILITIES,
MANDATORILY
REDEEABLEMPREFERRED STOCK AND
TOCKHOLDERS'SEQUITY
(DEFICIT)
Current
liabilities:
Accounts
payable.......... $ -- $ -- $ 6,654
Accrued
expenses......... -- -- 110,876
Microwave
relocation
obligation,
current portion.. 21,973 -- 21,973
Long-term debt,
current portion.. 1,415 -- 1,415
Accrued
interest......... 325 -- 1,555
Deferred
revenue.......... -- -- 2,617
------------- ------------- ------------
Total current
liabilities... .. 23,713 -- 145,090
Long-term debt.... 17,899 -- 728,129
Microwave
relocation
obligation........ 8,128 -- 8,128
Accrued expenses
and other......... -- -- 9,538
Intercompany
payables.......... 245,030 (1,185,582) --
------------- ------------- ------------
Total
liabilities... .. 294,770 (1,185,582) 890,885
------------- ------------- ------------
Mandatorily
redeemable
preferred stock... -- -- 376,129
Preferred stock
subscriptions
receivable........ -- -- (97,001)
------------- ------------- ------------
Total
mandatorily
redeemable
preferred stock,
net........... .. -- -- 279,128
------------- ------------- ------------
Commitments and
contingencies
Stockholders'
equity (deficit):
Series F
preferred stock.. 149 -- -- -- --
Common stock..... 890 -- -- -- --
Additional paid-
in capital....... 313,107 -- -- -- --
Deferred
compensation..... (32,999) -- -- -- --
Common stock
subscriptions
receivable....... (191) -- -- -- --
Accumulated
deficit.......... (13,848) (470,524) -- -- (470,524)
---------- --------- -------- -------- ----------
Total
stockholders'
equity
(deficit)........ 267,108 (470,524) -- -- (470,524)
---------- --------- -------- -------- ----------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)........ $1,257,696 $ 316,205 $363,426 $(79,918) $ 599,713
========== ========= ======== ======== ==========
Stockholders'
equity (deficit):
Series F
preferred stock.. -- -- 149
Common stock..... -- -- 890
Additional paid-
in capital....... -- -- 313,107
Deferred
compensation..... -- -- (32,999)
Common stock
subscriptions
receivable....... -- -- (191)
Accumulated
deficit.......... -- -- (484,372)
------------- ------------- ------------
Total
stockholders'
equity
(deficit)........ -- -- (203,416)
------------- ------------- ------------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)........ $294,770 $(1,185,582) $ 966,597
============= ============= ============
</TABLE>
S-12
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the three months ended June 30, 1999
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
--------------------------------------------------- ---------------------------------------
TeleCorp
PCS, Guarantor Non-Guarantor Non-Guarantor
Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 5,728 $ -- $ -- $ 5,728 $ -- $ -- $ 5,728
Roaming........... -- 7,609 -- -- 7,609 -- -- 7,609
Equipment......... -- 3,791 -- -- 3,791 -- -- 3,791
Intercompany...... 1,558 -- 7,709 (7,709) -- 924 (2,482) --
-------- --------- ------ ------- --------- ----- ------- ---------
Total revenue... 1,558 17,128 7,709 (7,709) 17,128 924 (2,482) 17,128
-------- --------- ------ ------- --------- ----- ------- ---------
Operating expenses:
Cost of revenue... -- 17,614 -- (7,709) 9,905 -- (2,482) 7,423
Operations and
development....... -- 6,337 1,459 -- 7,796 -- -- 7,796
Selling and
marketing......... -- 13,070 -- -- 13,070 -- -- 13,070
General and
administrative.... 365 11,897 -- -- 11,897 -- -- 12,262
Depreciation and
amortization...... 1,193 5,788 6,250 -- 12,038 496 -- 13,727
-------- --------- ------ ------- --------- ----- ------- ---------
Total operating
expenses........ 1,558 54,706 7,709 (7,709) 54,706 496 (2,482) 54,278
-------- --------- ------ ------- --------- ----- ------- ---------
Operating income
(loss).......... -- (37,578) -- -- (37,578) 428 -- (37,150)
Other (income)
expense:
Interest
expense........... 10,359 8,412 -- -- 8,412 428 (8,412) 10,787
Interest income
and other......... (10,359) -- -- -- -- -- 8,412 (1,947)
-------- --------- ------ ------- --------- ----- ------- ---------
Net loss........ -- (45,990) -- -- (45,990) -- -- (45,990)
Accretion of
mandatorily
redeemable
preferred stock.... (5,629) -- -- -- -- -- -- (5,629)
-------- --------- ------ ------- --------- ----- ------- ---------
Net loss
attributable to
common equity...... $ (5,629) $ (45,990) $ -- $ -- $ (45,990) $ -- $ -- $ (51,619)
======== ========= ====== ======= ========= ===== ======= =========
</TABLE>
S-13
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the three months ended June 30, 2000
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
-------------------------------------------------- ---------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 51,119 $ -- $ -- $ 51,119 $ -- $ -- $ 51,119
Roaming........... -- 14,699 -- -- 14,699 -- -- 14,699
Equipment......... -- 6,193 -- -- 6,193 -- -- 6,193
Intercompany...... 23,594 -- 20,562 (20,562) -- 1,951 (25,545) --
-------- -------- ------- -------- -------- ------ -------- ---------
Total revenue... 23,594 72,011 20,562 (20,562) 72,011 1,951 (25,545) 72,011
-------- -------- ------- -------- -------- ------ -------- ---------
Operating expenses:
Cost of revenue... -- 45,708 -- (20,562) 25,146 -- (3,739) 21,407
Operations and
development....... 564 7,709 6,860 -- 14,569 -- (564) 14,569
Selling and
marketing......... 427 40,141 -- -- 40,141 -- (427) 40,141
General and
administrative.... 20,815 47,071 -- -- 47,071 -- (20,815) 47,071
Depreciation and
amortization...... 1,788 10,089 13,702 -- 23,791 1,336 -- 26,915
-------- -------- ------- -------- -------- ------ -------- ---------
Total operating
expenses........ 23,594 150,718 20,562 (20,562) 150,718 1,336 (25,545) 150,103
-------- -------- ------- -------- -------- ------ -------- ---------
Operating income
(loss).......... -- (78,707) -- -- (78,707) 615 -- (78,092)
Other (income)
expense:
Interest
expense........... 16,658 15,167 -- -- 15,167 615 (15,167) 17,273
Interest income
and other......... (16,658) -- -- -- -- -- 15,167 (1,491)
-------- -------- ------- -------- -------- ------ -------- ---------
Net loss........ -- (93,874) -- -- (93,874) -- -- (93,874)
Accretion of
mandatorily
redeemable
preferred stock.... (8,156) -- -- -- -- -- -- (8,156)
-------- -------- ------- -------- -------- ------ -------- ---------
Net loss
attributable to
common equity...... $ (8,156) $(93,874) $ -- $ -- $(93,874) $ -- $ -- $(102,030)
======== ======== ======= ======== ======== ====== ======== =========
</TABLE>
S-14
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the six months ended June 30, 1999
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
-------------------------------------------------- ---------------------------------------
TeleCorp
PCS, Guarantor Non-Guarantor Non-Guarantor
Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 6,232 $ -- $ -- $ 6,232 $ -- $ -- $ 6,232
Roaming........... -- 9,487 -- -- 9,487 -- -- 9,487
Equipment......... -- 5,649 -- -- 5,649 -- -- 5,649
Intercompany...... 2,446 -- 13,178 (13,178) -- 1,336 (3,782) --
-------- -------- ------- -------- -------- ------ -------- --------
Total revenue... 2,446 21,368 13,178 (13,178) 21,368 1,336 (3,782) 21,368
-------- -------- ------- -------- -------- ------ -------- --------
Operating expenses:
Cost of revenue... -- 27,067 -- (13,178) 13,889 -- (3,782) 10,107
Operations and
development...... -- 9,715 5,783 -- 15,498 -- -- 15,498
Selling and
marketing........ -- 20,925 -- -- 20,925 -- -- 20,925
General and
administrative... 365 22,076 -- -- 22,076 -- -- 22,441
Depreciation and
amortization..... 2,081 6,377 7,395 -- 13,772 638 -- 16,491
-------- -------- ------- -------- -------- ------ -------- --------
Total operating
expenses....... 2,446 86,160 13,178 (13,178) 86,160 638 (3,782) 85,462
-------- -------- ------- -------- -------- ------ -------- --------
Operating income
(loss)......... -- (64,792) -- -- (64,792) 698 -- (64,094)
Other (income)
expense:
Interest expense.. 16,409 13,491 -- -- 13,491 698 (13,491) 17,107
Interest income
and other........ (16,409) -- -- -- -- -- 13,491 (2,918)
-------- -------- ------- -------- -------- ------ -------- --------
Net loss........ -- (78,283) -- -- (78,283) -- -- (78,283)
Accretion of
mandatorily
redeemable
preferred stock.... (9,896) -- -- -- -- -- -- (9,896)
-------- -------- ------- -------- -------- ------ -------- --------
Net loss
attributable to
common equity...... $ (9,896) $(78,283) $ -- $ -- $(78,283) $ -- $ -- $(88,179)
======== ======== ======= ======== ======== ====== ======== ========
</TABLE>
S-15
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the six months ended June 30, 2000
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
--------------------------------------------------- ---------------------------------------
TeleCorp
PCS, Guarantor Non-Guarantor Non-Guarantor
Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 88,056 $ -- $ -- $ 88,056 $ -- $ -- $ 88,056
Roaming........... -- 26,151 -- -- 26,151 -- -- 26,151
Equipment......... -- 13,250 -- -- 13,250 -- -- 13,250
Intercompany...... 30,460 -- 36,948 (36,948) -- 3,384 (33,844) --
-------- --------- ------ -------- --------- ------ -------- ---------
Total revenue... 30,460 127,457 36,948 (36,948) 127,457 3,384 (33,844) 127,457
-------- --------- ------ -------- --------- ------ -------- ---------
Operating expenses:
Cost of revenue... -- 84,342 -- (36,948) 47,394 -- (6,961) 40,433
Operations and
development...... 771 13,726 11,809 -- 25,535 -- (771) 25,535
Selling and
marketing........ 559 74,766 -- -- 74,766 -- (559) 74,766
General and
administrative... 25,553 74,347 -- -- 74,347 -- (25,553) 74,347
Depreciation and
amortization..... 3,577 19,526 25,139 -- 44,665 2,141 -- 50,383
-------- --------- ------ -------- --------- ------ -------- ---------
Total operating
expenses....... 30,460 266,707 36,948 (36,948) 266,707 2,141 (33,844) 265,464
-------- --------- ------ -------- --------- ------ -------- ---------
Operating income
(loss)......... -- (139,250) -- -- (139,250) 1,243 -- (138,007)
Other (income)
expense:
Interest expense.. 33,020 29,123 -- -- 29,123 1,243 (29,123) 34,263
Interest income
and other........ (33,020) -- -- -- -- -- 29,123 (3,897)
-------- --------- ------ -------- --------- ------ -------- ---------
Net loss........ -- (168,373) -- -- (168,373) -- -- (168,373)
Accretion of
mandatorily
redeemable
preferred stock.... (15,889) -- -- -- -- -- -- (15,889)
-------- --------- ------ -------- --------- ------ -------- ---------
Net loss
attributable to
common equity...... $(15,889) $(168,373) $ -- $ -- $(168,373) $ -- $ -- $(184,262)
======== ========= ====== ======== ========= ====== ======== =========
</TABLE>
S-16
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Cash Flows for the six months ended June 30, 1999
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
--------------------------------------------------- ----------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss......... $ -- $ (78,283) $ -- $ -- $ (78,283) $ -- $ -- $ (78,283)
Adjustment to
reconcile net
loss to net cash
(used in)
provided by
operating
activities:
Depreciation and
amortization.... 2,081 6,377 7,395 -- 13,772 638 -- 16,491
Noncash
compensation
expense related
to stock option
grants and
restricted stock
awards.......... -- 365 -- -- 365 -- -- 365
Noncash interest
expense......... 8,978 -- -- -- -- 148 -- 9,126
Bad debt
expense......... -- 159 -- -- 159 -- -- 159
Changes in cash
flow from
operations
resulting from
changes in
assets and
liabilities:
Accounts
receivable...... -- (12,337) -- -- (12,337) -- -- (12,337)
Inventory....... -- (6,955) -- -- (6,955) -- -- (6,955)
Intercompany
receivables..... (363,590) -- -- -- -- -- 363,590 --
Prepaid expenses
and other
current assets.. -- 1,095 (101) -- 994 -- -- 994
Other assets.... -- (599) (556) -- (1,155) -- -- (1,155)
Accounts
payable......... -- 8,537 10,022 -- 18,559 -- -- 18,559
Accrued
expenses........ -- 980 1,151 -- 2,131 -- -- 2,131
Accrued
interest........ (310) -- -- -- -- (101) -- (411)
Deferred
revenue......... -- 705 -- -- 705 -- -- 705
Intercompany
payables........ -- 177,498 91,935 -- 269,433 94,157 (363,590) --
--------- --------- --------- ------ --------- -------- --------- ---------
Net cash (used
in) provided by
operating
activities...... (352,841) 97,542 109,846 -- 207,388 94,842 -- (50,611)
--------- --------- --------- ------ --------- -------- --------- ---------
Cash flows from
investing
activities:
Expenditures for
network under
development,
wireless network
and property and
equipment....... -- (93,389) (109,846) -- (203,235) -- -- (203,235)
Capitalized
interest on
network under
development and
PCS licenses.... -- (4,153) -- -- (4,153) -- -- (4,153)
Expenditures for
microwave
relocation...... -- -- -- -- -- (5,137) -- (5,137)
Purchase of PCS
licenses........ -- -- -- -- -- (72,188) -- (72,188)
Deposit on PCS
licenses........ -- -- -- -- -- (28,878) -- (28,878)
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) (97,542) (109,846) -- (207,388) (94,842) -- (318,375)
--------- --------- --------- ------ --------- -------- --------- ---------
Cash flows from
financing
activities:
Proceeds from
sale of
mandatorily
redeemable
preferred
stock........... 60,411 -- -- -- -- -- -- 60,411
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........... 5 -- -- -- -- -- -- 5
Proceeds from
long-term debt.. 397,635 -- -- -- -- -- -- 397,635
Payments of
deferred
financing
costs........... (10,600) -- -- -- -- -- -- (10,600)
Payments on
long-term debt.. (40,000) -- -- -- -- -- -- (40,000)
--------- --------- --------- ------ --------- -------- --------- ---------
Net cash
provided by
financing
activities...... 408,691 -- -- -- -- -- -- 408,691
--------- --------- --------- ------ --------- -------- --------- ---------
Net increase in
cash and cash
equivalents...... 39,705 -- -- -- -- -- -- 39,705
Cash and cash
equivalents at
the beginning of
period........... 111,733 -- -- -- -- -- -- 111,733
--------- --------- --------- ------ --------- -------- --------- ---------
Cash and cash
equivalents at
the end of
period........... $ 151,438 $ -- $ -- $ -- $ -- $ -- $ -- $ 151,438
========= ========= ========= ====== ========= ======== ========= =========
</TABLE>
S-17
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Cash Flows for the six months ended June 30, 2000
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
-------------------------------------- ---------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ $ -- $ (168,373) $ -- $ (168,373) $ -- $ -- $ (168,373)
Adjustment to reconcile
net loss to cash (used
in) provided by
operating activities:
Depreciation and
amortization........... 3,577 19,526 25,139 44,665 2,141 -- 50,383
Noncash compensation
expense related to
stock option grants and
restricted stock
awards................. -- 26,883 -- 26,883 -- -- 26,883
Noncash interest
expense................ 23,092 -- -- -- 257 -- 23,349
Bad debt expense....... -- 5,639 -- 5,639 -- -- 5,639
Changes in cash flow
from operations
resulting from changes
in assets and
liabilities:
Accounts receivable.... -- (12,933) -- (12,933) -- -- (12,933)
Inventory.............. -- (4,802) -- (4,802) -- -- (4,802)
Intercompany
receivables............ (275,780) -- -- -- -- 275,780 --
Prepaid expenses and
other current assets... -- (3,151) 635 (2,516) -- -- (2,516)
Other assets........... -- (4,173) -- (4,173) -- -- (4,173)
Accounts payable....... -- (5,664) (26,585) (32,249) -- -- (32,249)
Accrued expenses....... -- (2,456) (3,361) (5,817) -- -- (5,817)
Accrued interest....... 567 -- -- -- (399) -- 168
Deferred revenue....... -- 908 -- 908 -- -- 908
Intercompany payables.. -- 199,497 64,186 263,683 12,097 (275,780) --
--------- ---------- -------- ---------- ------- --------- ----------
Net cash (used in)
provided by operating
activities............. (248,544) 50,901 60,014 110,915 14,096 -- (123,533)
--------- ---------- -------- ---------- ------- --------- ----------
Cash flows from
investing activities:
Expenditures for
network under
development, wireless
network and property
and equipment.......... -- (49,103) (60,014) (109,117) -- -- (109,117)
Capitalized interest on
network under
development and
wireless network....... -- (1,798) -- (1,798) -- -- (1,798)
Expenditures for
microwave relocation... -- -- -- -- (4,279) -- (4,279)
Purchase of PCS
licenses............... -- -- -- -- (733) -- (733)
Deposit on PCS
licenses............... -- -- -- -- -- -- --
Purchase of
intangibles -- AT&T
agreements............. (12,368) -- -- -- -- -- (12,368)
Capitalized Tritel
acquisition costs...... -- -- -- -- (8,409) -- (8,409)
--------- ---------- -------- ---------- ------- --------- ----------
Net cash used in
investing activities... (12,368) (50,901) (60,014) (110,915) (13,421) -- (136,704)
--------- ---------- -------- ---------- ------- --------- ----------
Cash flows from
financing activities:
Proceeds from sale of
mandatorily redeemable
preferred stock........ -- -- -- -- -- -- --
Receipt of preferred
stock subscription
receivable............. -- -- -- -- -- -- --
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................... 65,000 -- -- -- -- -- 65,000
Payments of deferred
financing costs........ (64) -- -- -- -- -- (64)
Payments on long-term
debt................... -- -- -- -- (675) -- (675)
--------- ---------- -------- ---------- ------- --------- ----------
Net cash provided by
(used in) financing
activities............. 106,805 -- -- -- (675) -- 106,130
--------- ---------- -------- ---------- ------- --------- ----------
Net decrease in cash and
cash equivalents........ (154,107) -- -- -- -- -- (154,107)
Cash and cash
equivalents at the
beginning of period..... 182,330 -- -- -- -- -- 182,330
--------- ---------- -------- ---------- ------- --------- ----------
Cash and cash
equivalents at the end
of period............... $ 28,223 $ -- $ -- $ -- $ -- $ -- $ 28,223
========= ========== ======== ========== ======= ========= ==========
</TABLE>
S-18
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
12. Subsequent Events
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. 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, the note holders may require the Company to make an offer to
repurchase all of the Subordinated Notes after July 15, 2005, 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 Notes
On July 14, 2000, Holding Company entered into a commitment letter with
Lucent Technologies Inc. (Lucent). Under the terms of the commitment letter,
Lucent agreed that following the merger of TeleCorp and Tritel into
subsidiaries of Holding Company, Lucent will purchase from Holding Company,
should Holding Company issue, Senior Subordinated Discount Notes (Lucent Notes)
with gross proceeds up to $350,000. The Lucent Notes mature 10 years from the
date of issuance, unless previously redeemed by the Holding Company. 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 are not collaterized. The Lucent Notes would be
senior subordinated unsecured obligations of the Holding Company, ranking
equivalent in right of payment to all of the Holding Company's future senior
subordinated debt. The Lucent Notes would be subordinate in right of payment to
any future senior debt incurred by the Holding Company or its guarantor
subsidiaries but senior in right of payment to any future subordinated debt
incurred by Holding Company or any of its guarantor subsidiaries.
Black Label Wireless, Inc. Credit Agreement
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, under which Lucent agreed to lend Black Label up to $175,000. Black
Label intends to use the proceeds of loans under the credit agreement to
develop the network related to the licenses being acquired from AT&T Wireless
in the Contribution and the Exchange. Upon consummation of the merger, Black
Label intends to transfer its assets to the Company and the Company intends to
satisfy Black Label's indebtedness to Lucent. Black Label is considered by the
Company to be a special purpose entity and the Company will include all of
Black Label's activities in its consolidated financial statements.
S-19
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
The obligations under the Black Label credit agreement must be repaid upon
the later to occur of the date six months after the consummation of the merger
of TeleCorp and Tritel and related AT&T transactions and 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.
Senior Credit Facility
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
July 14, 2000.
Preferred Stock Subscription Receivable
On July 17, 2000, the Company received $37,650 from certain of its initial
institutional investors related to the preferred stock subscriptions
receivable.
S-20
<PAGE>
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 16.7 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 32 markets by
June 30, 2000. As of June 30, 2000, the Company had more than 319,000 customers
and its networks covered approximately 79% 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.
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 six months ended June 30, 2000 at 69%. Roaming revenue and equipment
revenue represented 21% 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. 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 roaming agreement with AT&T Wireless,
its
S-21
<PAGE>
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 our
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 noncash
stock compensation related to employees whose salaries are recorded within
S-22
<PAGE>
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 gross revenue.
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
noncash 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 gross revenue.
General and administrative. The Company's general and administrative expense
includes customer support, billing, information technology, finance, accounting
and legal services and noncash 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 gross revenues.
Depreciation and amortization. Depreciation of property and equipment is
computed using the straight-line method, generally over three to ten 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.
Noncash 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 six months ended June 30, 2000, we recorded $21.8 million and
$26.9 million, respectively, of noncash 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, 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.
S-23
<PAGE>
Results of operations
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Subscribers. Net additions were 177,651 and 30,970 for the six months ended
June 30, 2000 and 1999, respectively. Total PCS subscribers were 319,882 and
30,970 as of June 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 17 additional markets from the period July 1, 1999 to June 30,
2000.
Revenue. Revenue for the six months ended June 30, 2000 and 1999 was $127.5
million and $21.4 million, respectively. Service revenue was $88.0 million and
$6.2 million for the six months ended June 30, 2000 and 1999, respectively. The
increase in service revenue of $81.8 million was due primarily to the addition
of approximately 289,000 subscribers from July 1, 1999 to June 30, 2000 and the
launch of 17 additional markets. Roaming revenue was $26.2 million and $9.5
million for the six months ended June 30, 2000 and 1999, respectively. The
increase in roaming revenue of $16.7 million was due primarily to the
construction of 490 cell sites in conjunction with the launching of 17
additional markets between July 1, 1999 and June 30, 2000. Equipment revenue
was $13.3 million and $5.6 million for the six months ended June 30, 2000 and
1999, respectively. The equipment revenue increase of $7.7 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 six months of 2000.
Costs of revenue. Cost of revenue was $40.4 million and $10.1 million for
the six months ended June 30, 2000 and 1999, respectively. The increase in cost
of revenue of $30.3 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 six months of 2000.
Operations and development. Operations and development costs were $25.5
million and $15.5 million for the six months ended June 30, 2000 and 1999,
respectively. The increase of $10.0 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 $74.8 million and
$20.9 million for the six months ended June 30, 2000 and 1999, respectively.
The increase of $53.9 million over the same period in 1999 was primarily due to
the excess cost of handsets over our retail price on the significantly
increased gross additions in the first six months of 2000 and advertising and
promotion costs associated with the increased market base in 2000.
General and administrative. General and administrative expenses were $74.3
million and $22.4 million for the six months ended June 30, 2000 and 1999,
respectively. The increase of $51.9 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.
Depreciation and amortization. Depreciation and amortization expenses were
$50.4 million and $16.5 million for the six months ended June 30, 2000 and
1999, respectively. The increase of $33.9 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 July 1, 1999 and June 30, 2000.
Interest Expense. Interest expense was $34.3 million, net of capitalized
interest of $1.8 million, for the six months ended June 30, 2000. Interest
expense was $17.1 million, net of capitalized interest of $4.2 million, for the
six months ended June 30, 1999. The increase of $17.2 million over the same
period in 1999 relates
S-24
<PAGE>
primarily to a full six months of interest expense on the Company's senior
subordinated discount notes which were issued in April of 1999 and additional
Lucent and FCC debt issued throughout the first six months of 1999.
Interest Income. Interest income was $3.9 million and $2.9 million for the
six months ended June 30, 2000 and 1999, respectively. The increase of $1.0
million over the same period in 1999 was due primarily to more interest on
increased cash balances.
Three months ended June 30, 2000 compared to three months ended June 30, 1999
Subscribers. Net additions were 91,545 and 22,165 for the three months ended
June 30, 2000 and 1999, respectively. Total PCS subscribers were 319,882 and
30,970 as of June 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 17 additional markets from the period July 1, 1999 to June 30,
2000.
Revenue. Revenue for the quarter ended June 30, 2000 was $72.0 million
compared to 17.1 million. Service revenue was $51.1 million and $5.7 million
for the three months ended June 30, 2000 and 1999, respectively. The increase
in service revenue of $45.4 million was due primarily to the addition of
approximately 289,000 subscribers from July 1, 1999 to June 30, 2000 and the
launch of 17 additional markets. Roaming revenue was $14.7 million and $7.6
million for the three months ended June 30, 2000 and 1999, respectively. The
increase in roaming revenue of $7.1 million was due primarily to the
construction of 490 cell sites in conjunction with the launching of 17
additional markets between July 1, 1999 and June 30, 2000. Equipment revenue
was $6.2 million and $3.8 million for the three months ended June 30, 2000 and
1999, respectively. The equipment revenue increase of $2.4 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 June 30, 2000.
Costs of revenue. Cost of revenue was $21.4 million and $7.4 million for the
three months ended June 30, 2000 and 1999, respectively. The increase in cost
of revenue of $14.0 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 three months of 2000.
Operations and development. Operations and development costs were $14.6
million and $7.8 million for the three months ended June 30, 2000 and 1999,
respectively. The increase of $6.8 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 $40.1 million and
$13.1 million for the three months ended June 30, 2000 and 1999, respectively.
The increase of $27.0 million over the same period in 1999 was primarily due to
the excess cost of handsets over our retail price on the significantly
increased gross additions in the three months ended June 30, 2000 and
advertising and promotion costs associated with the increased market base in
2000.
General and administrative. General and administrative expenses were $47.1
million and $12.3 million for the three months ended June 30, 2000 and 1999,
respectively. The increase of $34.8 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.
Depreciation and amortization. Depreciation and amortization expenses were
$26.9 million and $13.7 million for the three months ended June 30, 2000 and
1999, respectively. The increase of $13.2 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 July 1, 1999 and June 30, 2000.
S-25
<PAGE>
Interest expense. Interest expense was $17.3 million, net of capitalized
interest of $1.2 million, for the three months ended June 30, 2000. Interest
expense was $10.8 million, net of capitalized interest of $2.9 million, for the
three months ended June 30, 1999. The increase of $6.5 million over the same
period in 1999 relates primarily to a full three months of interest expense on
the Company's senior subordinated discount notes which were issued in April of
1999 and additional Lucent and FCC debt issued throughout the second quarter of
1999.
Interest income. Interest income was $1.5 million and $1.9 million for the
three months ended June 30, 2000 and 1999, respectively. The decrease of $0.4
million over the same period in 1999 was due primarily to less interest on
decreased cash balances.
Liquidity and capital resources
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ --------
($ in thousands)
<S> <C> <C>
Cash and cash equivalents............................ $182,330 $ 28,223
Working capital...................................... $ 94,082 $(53,405)
Current assets to current liabilities................ 1.72 0.63
Debt to total capitalization......................... 0.79 0.91
</TABLE>
Cash and cash equivalents totaled approximately $28.2 million at June 30,
2000, as compared to approximately $182.3 million at December 31, 1999. This
decrease was the result of $123.5 million of cash used in operating activities
and $136.7 million of cash used in investing activities, offset by cash
provided by financing activities of $106.1 million during the six months ended
June 30, 2000. Cash used in operating activities resulted from a net loss of
$168.4 million that was partially offset by non-cash charges of $106.3 million.
Cash used in investing activities resulted primarily from cash outlays for
capital expenditures, required for the development and construction of our
network, of $109.1 million, deposits on PCS licenses of $12.4 million, and
capitalized Tritel acquisition costs of $8.4 million. Cash provided by
financing activities consisted primarily of proceeds from long term debt of
$65.0 million and proceeds from the sale of common stock to AT&T of $41.9
million.
During the same period ended June 30, 1999, the Company had a net increase
in cash of $39.7 million as a result of $50.6 million of cash used in operating
activities and $318.4 million of cash used in investing activities, offset by
cash provided by financing activities of $408.7 million. Cash used in operating
activities resulted from a net loss of $78.3 million that was partially offset
by non-cash charges of $26.1 million. Cash used in investing activities
resulted primarily from cash outlays for capital expenditures required for the
development and construction of our network of $203.2 million, purchases on PCS
licenses of $72.2 million, deposits of PCS licenses of $28.9 million and the
purchase of AT&T agreements of $16.1 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 $60.4 million, respectively,
offset partially by payments on long term debt and deferred financing costs of
$40.0 million and $10.6 million, respectively.
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 in the process of determining the effect of adopting this standard.
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
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<PAGE>
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.
In March 2000, the FASB issued Interpretation (FIN) No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and,
among other issues, clarifies the following: the definition of an employee for
purposes of applying APB Opinion No. 25; the criteria for determining whether a
plan qualifies as a non-compensatory plan; the accounting consequence of
various modifications to the terms of previously fixed stock options or awards;
and the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN
44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company does not expect the application of FIN 44 to have
a material impact on its financial position or results of operations.
S-27
