Filed by AT&T Wireless Services, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: TeleCorp PCS, Inc.
Commission File No. 000-31941
ON OCTOBER 23, 2001 AT&T WIRELESS ISSUED THE FOLLOWING PRESS RELEASE:
[AT&T WIRELESS LOGO]
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NEWS RELEASE
FOR MORE INFORMATION CONTACT:
David Caouette
425-580-8278
david.caouette@attws.com
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AT&T WIRELESS SERVICES REPORTS THIRD QUARTER
TOTAL REVENUE INCREASE OF 25 PERCENT
Net Mobility Subscriber Additions of 748,000
Mobility EBITDA Rises 53.8 Percent
Company to Exit Fixed Wireless Business
For Immediate Release: Tuesday, October 23, 2001
-------------------------------------------------
Redmond, WA -- AT&T Wireless (NYSE: AWE) said today that its total
consolidated revenue grew to $3.502 billion for the third quarter, an increase
of 25.1 percent compared to the same quarter in 2000. The company's operating
income plus depreciation and amortization (EBITDA) totaled $718 million for the
third quarter, an increase of 52.3 percent compared to the year-ago quarter.
Total capital expenditures were $1.2 billion for the third quarter.
Services revenue for its mobility business increased 29.1 percent to
$3.239 billion in the third quarter compared to $2.508 billion for the year-ago
quarter. Total revenue for its mobility business increased 24.9 percent to
$3.496 billion. The company also reported 748,000 net subscriber additions and
strong double-digit growth in EBITDA.
"For the seventh consecutive quarter, AT&T Wireless has delivered strong
growth in network coverage, customers and revenues," said AT&T Wireless Chairman
and CEO John D. Zeglis. "This continues the company's rapid growth since AT&T
Wireless announced plans to become a tracking stock in December of 1999. In that
time, we've grown our consolidated coverage from a total population of 114
million to 166 million, an increase of 46 percent. With the completion of our
acquisition of TeleCorp PCS next year, our consolidated covered markets will
increase to 198 million. Since the end of 1999, we've increased our subscriber
base by nearly 80 percent and, we've added over $1.25 billion more in quarterly
services revenue. Our senior leadership team has built a strong track record,
and that same team is committed to continuing to deliver growth in the quarters
ahead. We have the strategy, people, resources and focus to make it happen."
The third quarter 29.1 percent increase in services revenue for the
mobility business can be primarily attributed to continued subscriber growth and
increased usage, partially offset by lower average revenue per user (ARPU). For
full-year 2001, the company said it continues to anticipate mobility services
revenue growth to be in the range of 30 - 35 percent.
Minutes of use per subscriber reached a record level of 389 average
minutes per subscriber per month in the third quarter, an increase from 348
minutes in the year-ago quarter and 383 minutes in the second quarter of 2001.
ARPU was $63.60, a decrease of 7.2 percent from the year-ago quarter but
comparable to the $63.80 reported for the second quarter of this year. The
decline from the prior year quarter was due primarily to competitive pricing and
expansion into a broader base of consumer segments.
Consolidated subscriber net additions for the mobility business totaled
748,000, which was comparable to the year-ago quarter. Total consolidated
subscribers were 17.1 million at the end of the third quarter, representing a
35.5 percent increase from the prior year, including subscribers associated with
acquisitions that occurred subsequent to the third quarter of 2000. In the
fourth quarter, the company said it expects consolidated net subscriber
additions to be in the range of 900,000 - 1 million, and it continues to
anticipate subscriber growth of about 20 percent for full-year 2001.
Net subscriber additions in the third quarter, including affiliates and a
partnership market, totaled 960,000. At the end of the third quarter, total
subscribers, including affiliates and a partnership market, were 19.7 million.
AT&T Wireless mobility EBITDA was $803 million, an increase of 53.8
percent from the comparable year-ago quarter. The EBITDA growth includes the
results of acquisitions that occurred during 2000, as well as the impact of a
continued focus on cost reductions. Given the strong subscriber growth, the
increase was partially offset by higher customer acquisition, network, customer
care and billing costs. For full-year 2001, AT&T Wireless said it continues to
expect mobility EBITDA growth in the mid-60 percent range.
EBITDA margin (as a percent of services revenue) for the mobility
business increased to 24.8 percent for the third quarter, a 400 basis point
increase from the 20.8 percent margin for the year-ago quarter. "Thanks to a
concerted effort our EBITDA margin continues to improve," said Mohan Gyani,
president of AT&T Wireless' mobility services business. "Our success can be
attributed to moving more minutes onto our own network and reducing off-network
roaming costs. We also see benefits from the attractive roaming rates we've
negotiated. And, just as important, we have aggressively cut unnecessary
internal costs and limited discretionary spending throughout the business. We're
taking every opportunity to beneficially influence margin."
Churn for the quarter was 3.1 percent, an increase from 2.9 percent in
both the third quarter of 2000 and the second quarter of 2001. The increase can
be primarily attributed to pre-paid churn, which represented 50 basis points.
Churn relating to post-
paid customers was 2.6 percent in the third quarter, a decrease from 2.8 percent
in the year-ago quarter and comparable to the second quarter of 2001.
AT&T Wireless Services reported third quarter net income available to
common shareowners of $77 million, an increase from the $21 million loss
reported for the year-ago quarter. Earnings per diluted share (EPS) were $0.03
cents, an increase from a negative $0.01 cent for the third quarter of 2000. The
increase is primarily attributable to higher EBITDA, income tax benefits
recorded during the quarter, income associated with the mark-to-market
adjustments on the warrants held by NTT DoCoMo, and the elimination of preferred
stock dividends paid to AT&T in the prior year quarter. These increases were
partially offset by an increase in depreciation and amortization expenses
resulting from a larger asset base, and interest expense associated with the
$6.5 billion Senior Notes offering in March 2001. EPS was calculated in
accordance with generally accepted accounting principles (GAAP).
Fixed Wireless Decision
-----------------------
The company also announced that in the past week it decided to exit the
fixed wireless business over the next several months. When AT&T Wireless became
an independent company this past summer, it committed to maintaining a strong
balance sheet and financial flexibility. At that time, the company said its
fixed wireless business -- while not aligned with its core strategy -- had the
potential to deliver value to shareowners, provided it met key financial targets
going forward. In the third quarter, the fixed wireless unit did not meet its
financial targets. In addition, capital markets are under increased pressure and
the company determined that the fixed wireless business would require
significant additional capital to gain the scale necessary for long-term
success.
It is important to note, the company said, that the fixed wireless
technology works and AT&T Wireless successfully built a business that provides a
wireless first mile connection to customers' homes, enabling voice and broadband
services.
"This is the right decision, given our strategic priorities and the
additional capital our fixed wireless business would require going forward,"
Zeglis said. "We are committed to a phased exit that will ensure a high level of
support for affected customers. We'll work closely with customers during this
transition period. And, we'll offer affected employees support in finding other
employment, inside or outside our company."
AT&T Wireless is in the process of finalizing its plans and anticipates
taking fourth quarter pre-tax charges of approximately $1.3 billion, associated
with its exit from the fixed wireless business.
TeleCorp PCS Announcement
-------------------------
On October 8, AT&T Wireless announced that it would acquire TeleCorp PCS
(NASDAQ: TLCP) in an all-stock transaction valued at approximately $4.7 billion.
AT&T Wireless will acquire the 77 percent of the company it does not already own
for
AT&T Wireless common stock currently valued at approximately $2.4 billion
and assume $2.1 billion in net debt and approximately $221 million in preferred
securities.
The boards of directors of both companies have approved the transaction
and TeleCorp PCS shareowners representing a majority of the voting power have
committed to vote in favor of the acquisition.
AT&T Wireless said it will offer TeleCorp PCS shareowners 0.9 shares of
AT&T Wireless common stock for each share of TeleCorp PCS common stock. AT&T
Wireless, which currently owns 23 percent of TeleCorp PCS, will issue
approximately 146 million additional common shares to acquire the remaining
outstanding TeleCorp PCS common shares. Following the close of the acquisition,
AT&T Wireless would have approximately 2.68 billion common shares outstanding.
The transaction is structured to be tax-free to TeleCorp PCS shareowners.
"This move is all about achieving a great strategic fit at just the right
time," Zeglis said. "With TeleCorp, we can roll out AT&T Wireless-branded
services to 32 million more people across 14 states. That includes 16 of the top
100 U.S. markets, eight of the top 50 markets and more than 900,000 existing
TeleCorp customers. Before long, we will be offering millions of potential new
customers all of AT&T Wireless' popular local, regional and national offers.
J.D. Power and Associates Survey
--------------------------------
"On September 26, just as our third quarter was about to close, J.D. Power
and Associates released its 2001 U.S. Wireless Industry Services Study and AT&T
Wireless did exceptionally well," Gyani said. "The survey ranked AT&T Wireless
highest in overall customer satisfaction in 13 of the 20 markets where we were
evaluated - making us the best performer of all the national wireless carriers.
We're pleased that our commitment to always put customer first is reflected in
this year's survey results."
ABOUT AT&T WIRELESS
AT&T Wireless (NYSE: AWE) is the largest independently traded wireless carrier
in the United States, following our split from AT&T on July 9, 2001. We operate
one of the largest digital wireless networks in North America. With more than
17.1 million subscribers, and full-year 2000 revenues exceeding $10.4 billion,
AT&T Wireless is committed to being among the first to deliver the next
generation of wireless products and services. Today, we offer customers
high-quality mobile wireless communications services, voice or data, to
businesses or consumers, in the U.S. and internationally. AT&T Wireless Customer
Advantage is our commitment to ensure that customers have the right equipment,
the right calling plan, and the right customer services options -- today and
tomorrow. For more information, please visit us at www.attwireless.com.
The foregoing may contain "forward-looking statements" which are based on
management's beliefs as well as on a number of assumptions concerning future
events made by and information currently available to management.
Readers are cautioned not to put undue reliance on such forward-looking
statements, which are not a guarantee of performance and are subject to a number
of uncertainties and other factors, many of which are outside AT&T Wireless'
control, that could cause actual results to differ materially from such
statements.
For a more detailed description of the factors that could cause such a
difference, please see AT&T Wireless' filings with the Securities and Exchange
Commission. AT&T Wireless disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
NOTE TO FINANCIAL MEDIA:
AT&T Wireless executives will discuss the company's performance in
two-way conference calls for financial analysts at 8:00 a.m. - PT
(11:00 a.m. ET). Reporters are invited to listen to the call. To
access the call, U.S. callers should dial 847-944-7132. The
conference call will also be webcast on the AT&T Wireless Investor
Relations website at www.att.com/wirelessir.
The 3Q Earnings Commentary will be available at www.att.com/wirelessir at
approximately 7:00 a.m. PT on October 23.
A replay of the conference call will be available at 11:00 a.m. PT (2:00 p.m.
ET) on Tuesday, October 23 until midnight on Friday, October 26. To access the
replay, please visit http://www.att.com/wirelessir, or U.S. callers should dial
320-365-3844, access code 607778.
AT&T Wireless Services, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
In millions, except per share amounts
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2001 2000 Change 2001 2000 Change
REVENUE
Services $ 3,245 $ 2,509 29.3% $ 9,303 $ 6,741 38.0%
Equipment 257 290 (11.7%) 791 733 7.8%
Total revenue 3,502 2,799 25.1% 10,094 7,474 35.1%
OPERATING EXPENSES
Costs of services 1,125 831 35.2% 3,035 2,253 34.7%
Costs of equipmen 503 550 (8.6%) 1,471 1,386 6.1%
Selling, general
and administrative 1,156 946 22.2% 3,388 2,459 37.8%
Depreciation
and amortization 703 445 58.4% 1,915 1,216 57.7%
Total operating expenses 3,487 2,772 25.8% 9,809 7,314 34.1%
OPERATING INCOME 15 27 (46.7%) 285 160 77.1%
Other income 114 72 58.1% 327 313 4.6%
Interest expense 105 4 n/m 287 73 292.7%
INCOME BEFORE INCOME TAXES
AND NET EQUITY EARNINGS
FROM INVESTMENTS 24 95 (75.2%) 325 400 (18.8%)
Provision for income taxes 3 76 (96.2%) 159 176 (9.4%)
Net equity earnings
from investments 56 2 n/m 174 23 684.9%
NET INCOME 77 21 259.7% 340 247 37.6%
Dividend requirements
on preferred stock
held by AT&T, net - 42 n/m 76 88 (13.2%)
NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREOWNERS $ 77 $ (21) 477.9% $ 264 $ 159 65.8%
NET INCOME (LOSS) PER
COMMON SHARE
BASIC $ 0.03 $ (0.01) $ 0.10 $ 0.06
DILUTED $ 0.03 $ (0.01) $ 0.10 $ 0.06
WEIGHTED AVERAGE SHARES
TO COMPUTE NET INCOME
(LOSS) PER COMMON SHARE
BASIC 2,530 2,530 2,530 2,530
DILUTED 2,532 2,530 2,532 2,532
ON OCTOBER 23, 2001 AT&T WIRELESS MADE THE FOLLOWING EARNINGS COMMENTARY
AVAILABLE ON ITS WEBSITE:
[AT&T WIRELESS LOGO]
AT&T WIRELESS SERVICES EARNINGS COMMENTARY
October 23, 2001
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AT&T WIRELESS SERVICES HIGHLIGHTS:
o CONSOLIDATED SUBSCRIBER NET ADDITIONS totaled 748 thousand in the third
quarter, a 12.0% increase over 2Q01 and a 0.3% decrease from the prior year
quarter. Total ending consolidated subscribers grew 35.5% over the prior year
quarter to 17.1 million, including the subscribers associated with
acquisitions that closed subsequent to the third quarter of 2000.
o SERVICES REVENUE for the third quarter for AT&T Wireless Services' Mobility
business increased 29.1% on a reported basis to $3,239 million, compared with
3Q00, and increased 3.7% from the second quarter.
o AVERAGE REVENUE PER USER (ARPU) for the third quarter was $63.60, down
slightly from 2Q01 ARPU of $63.80 and down 7.2% from the prior year quarter.
The decline from the prior year quarter resulted from competitive pricing
pressures and expansion into a broader base of consumer segments.
o EBITDA* for the Mobility business was $803 million in the third quarter, an
increase of $281 million, or 53.8%, from 3Q00. EBITDA margin (EBITDA as a
percentage of Services revenue) for the Mobility business increased to 24.8%
for the third quarter, up from 20.8% in the year-ago quarter. Total AT&T
Wireless Services EBITDA for the third quarter was $718 million, an increase
of $246 million, or 52.3%, over the year-ago quarter.
o MINUTES OF USE (MOU) reached a record level of 389 average minutes per
subscriber per month in the third quarter, up from 348 in 3Q00 and 383 in
2Q01.
o COST PER GROSS ADDITION (CPGA) in the third quarter was $333, a 7.2% decrease
from the prior year quarter and comparable to 2Q01 CPGA of $332.
o CHURN for the quarter was 3.1%, an increase from 2.9% in both 3Q00 and 2Q01.
Churn relating to post-paid programs was 2.6% in 3Q01, down from 2.8% in the
prior year quarter and comparable to the rate in 2Q01.
o AT&T Wireless has decided to exit the FIXED WIRELESS business, which will
result in estimated fourth quarter pre-tax charges of approximately $1.3
billion.
* EBITDA is defined as operating income plus depreciation and amortization.
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RECENT NEWS:
TeleCorp Acquisition
On October 8, 2001, AT&T Wireless announced that it will acquire its largest
affiliate, TeleCorp PCS, in an all-stock transaction valued at $4.7 billion.
AT&T Wireless will acquire the 77 percent of the company it does not already own
for $2.4 billion and assume $2.1 billion in net debt and approximately $221
million in preferred securities. TeleCorp shareowners will receive 0.9 share of
AT&T Wireless for each share of TeleCorp common stock, resulting in the issuance
of approximately 146 million additional AT&T Wireless common shares. The
transaction is expected to close in the first half of 2002, following approval
from Telecorp PCS shareowners and approvals from the Federal Communications
Commission and Department of Justice.
With this strategic transaction, AT&T Wireless will be adding markets covering a
population of about 32 million in 14 states -- primarily in the Southeast and
Midwest, including such markets as New Orleans, Nashville, Memphis and
Louisville -- as well as the commonwealth of Puerto Rico. TeleCorp's territory
covers 16 of the top 100 U.S. markets, eight of the top 50 markets and more than
900,000 existing customers. Following the transaction's close, AT&T Wireless
will roll out AT&T Wireless-branded services, including local, regional and
national offers, to these new markets. The new markets will also be included as
part of AT&T Wireless' integrated build-out of a world-standard, next-generation
network.
[AT&T WIRELESS LOGO]
AWE EARNINGS COMMENTARY THIRD QUARTER 2001
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FIXED WIRELESS EXIT
In October, AT&T Wireless made the decision to move forward with plans to close
the Fixed Wireless operations. This decision is expected to result in pre-tax
charges of approximately $1.3 billion during the fourth quarter, reflecting a
write-down of the assets and the impact of a phased exit plan. The total amount
includes estimated cash charges of approximately $300 million. The phased exit
strategy will be finalized and implemented over the next several months to
ensure that customer service remains at the highest levels for the approximately
47,000 customers currently using this service.
AT&T WIRELESS EXPANDS NEXT GENERATION GSM/GPRS SERVICE
In October, AT&T Wireless announced that the enhanced voice and high-speed data
services of its "next generation" GSM/GPRS wireless network are now available to
all customers in Las Vegas, Phoenix and Portland (OR). The service is also
available to all customers in Seattle. In July, AT&T Wireless became the first
United States carrier to offer customers advanced wireless data services when it
launched its new GSM (Global System for Mobile Communications) / GPRS (General
Packet Radio Service) service for business customers in Seattle.
AT&T Wireless' GSM/GPRS network provides individual users and business customers
high-quality voice calls and access to the wireless web at data speeds faster
than those currently available on many wireless networks.
J.D. POWER AND ASSOCIATES SURVEY
According to the J.D. Power and Associates 2001 U.S. Wireless Industry Services
Study released on September 26, 2001, AT&T Wireless performed particularly well
in meeting customer expectations in 2001. The survey results reported that AT&T
Wireless ranks highest in overall customer satisfaction in 13 of the 20 markets
in which the company was evaluated, largely by demonstrating a competitive
advantage in customer service, corporate capability and call quality. The 2001
U.S. Wireless Industry Services Study is based on responses from 14,492
households in 25 of the largest U.S. markets. Headquartered in Agoura Hills,
Calif., J.D. Power and Associates is a global marketing information services
firm operating in key business sectors including market research, forecasting,
consulting, training and customer satisfaction. The firm's quality and
satisfaction measurements are based on actual responses from millions of
consumers annually.
This document contains certain "forward-looking statements," which are based on
management's beliefs, as well as on a number of assumptions concerning future
events made by management and information currently available to management.
Readers are cautioned not to put undue reliance on such forward-looking
statements, which are not a guarantee of performance and are subject to a number
of uncertainties and other factors, many of which are outside AT&T Wireless
Services' control, that could cause actual results to differ materially from
such statements. For a more detailed description of the factors that could cause
such a difference, please see AT&T Wireless Services' filings with the
Securities and Exchange Commission. AT&T Wireless Services disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise. This
document also contains certain information such as EBIT and EBITDA that are not
presented in accordance with generally accepted accounting principles. This
information is presented solely to provide additional information to further
understand the results of AT&T Wireless Services.
October 23, 2001
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AWE EARNINGS COMMENTARY THIRD QUARTER 2001
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INCOME STATEMENT DISCUSSION
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--------------------------------------
AT&T WIRELESS SERVICES (IN MILLIONS, 3Q01 3Q00 Yr/Yr% 2Q01 Seq. %
EXCEPT PER SHARE AMOUNTS - UNAUDITED) --------------------------------------
REVENUE
Services $3,245 $2,509 29.3% $3,127 3.8%
Equipment 257 290 (11.7%) 253 1.3%
TOTAL REVENUE 3,502 2,799 25.1% 3,380 3.6%
OPERATING EXPENSES
Costs of services 1,125 831 35.2% 989 13.8%
Costs of equipment sales 503 550 (8.6%) 478 4.9%
Selling, general and administrative 1,156 946 22.2% 1,148 0.8%
Depreciation and amortization 703 445 58.4% 636 10.5%
TOTAL OPERATING EXPENSES 3,487 2,772 25.8% 3,251 7.2%
Other income 114 72 58.1% 129 (12.1%)
Interest expense 105 4 n/m 135 (22.0%)
INCOME BEFORE INCOME TAXES AND NET
EQUITY EARNINGS FROM INVESTMENTS 24 95 (75.2%) 123 (80.9%)
Provision for income taxes 3 76 (96.2%) 77 (96.3%)
Net equity earnings from 56 2 n/m 217 (74.2%)
investment
NET INCOME 77 21 259.7% 263 (70.9%)
Dividend requirements on - 42 n/m 34 n/m
preferred stock held by AT&T, net
NET INCOME (LOSS) AVAILABLE TO COMMON $77 $(21) 477.9% $229 (66.5%)
SHAREOWNERS
NET INCOME (LOSS) PER SHARE:
BASIC $ 0.03 ($0.01) $ 0.09
DIIUTED $ 0.03 ($0.01) $ 0.09
WEIGHTED AVERAGE SHARES TO COMPUTE NET
INCOME (LOSS) PER SHARE:
BASIC 2,530 2,530 2,530
DILUTED 2,532 2,530 2,532
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REVENUE
-------
Total reported revenue for AT&T Wireless Services grew to $3,502 million in the
third quarter, an increase of $703 million, or 25.1%, compared with the prior
year quarter. Services revenue grew to $3,245 million, up $736 million, or
29.3%, from 3Q00. This increase was driven by strong growth in Mobility Services
subscribers, including subscribers associated with acquisitions that closed
subsequent to 3Q00, and was partially offset by a decline in ARPU. Equipment
revenue decreased $33 million, or 11.7%, to $257 million, compared with 3Q00
primarily due to a decrease in the average revenue per item, partially offset by
an increase in quantities shipped during 3Q01 versus 3Q00.
COSTS OF SERVICES increased to $1,125 million, up $294 million, or 35.2%, from
the year-ago quarter. This growth was the result of an increase in the
subscriber base and the related increased minutes of use, increased costs
associated with expansion of AT&T Wireless Services' network, and an increase in
the provision for uncollectibles.
COSTS OF EQUIPMENT SALES decreased to $503 million, lower by $47 million, or
8.6%, than in the year-ago quarter. This decrease resulted from the decrease in
the average cost of items shipped, partially offset by an increase in quantities
shipped during the third quarter of 2001 versus the prior year quarter.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) expenses totaled $1,156 million in
the third quarter, an increase of $210 million, or 22.2%, compared with 3Q00.
This increase was primarily attributable to higher marketing and selling
October 23, 2001
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AWE EARNINGS COMMENTARY THIRD QUARTER 2001
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costs, including advertising and commissions, associated with the increase in
gross consolidated subscriber additions compared with the prior year quarter. In
addition, growth in the wireless subscriber customer base resulted in an
increase in customer care and billing related expenses.
DEPRECIATION AND AMORTIZATION increased to $703 million, up $258 million, or
58.4%, from the prior year quarter. This increase resulted primarily from an
increase in depreciation expense associated with the growth in AT&T Wireless
Services' depreciable asset base. The growth in the asset base resulted from
capital expenditures and property, plant and equipment associated with
acquisitions closed subsequent to the third quarter of 2000. Additionally,
effective January 1, 2001, AT&T Wireless Services shortened the depreciable
lives of certain wireless communications equipment.
OTHER INCOME for 3Q01 totaled $114 million, compared with $72 million in the
prior year quarter. This increase was due primarily to a $56 million
mark-to-market adjustment, which was recorded during 3Q01 related to fair value
adjustments associated with warrants to purchase AT&T Wireless' common stock
that are held by NTT DoCoMo. Partially offsetting the impact of the
mark-to-market adjustment was a decrease in interest income during 3Q01 versus
3Q00. This decrease resulted from a lower rate of interest earned during 3Q01,
compared with 3Q00, partially offset by a higher level of cash and cash
equivalents during 3Q01 compared with the Note receivable balance held by AT&T
during 3Q00.
INTEREST EXPENSE was $105 million in the third quarter, an increase of $101
million compared with the prior year quarter, due to interest expense related to
the $6.5 billion Senior Notes offering that occurred in March 2001. This
increase was slightly offset by the elimination of interest paid to AT&T on
intercompany debt. AT&T Wireless Services repaid its $1.8 billion of
intercompany debt to AT&T in June 2001.
PROVISION FOR INCOME TAXES for 3Q01 was $3 million versus $76 million in the
prior year quarter. The annual effective income tax rate for 2001, excluding net
equity earnings, is estimated to be 48.9%. The 2001 annual effective income tax
rate is impacted by goodwill amortization and reserve adjustments associated
with the split-off. The effective income tax rate for 3Q00 was 79.2% and was
affected by goodwill associated with acquisitions that closed during 2000.
NET EQUITY EARNINGS FROM INVESTMENTS totaled $56 million, including a tax
benefit of $121 million, for the third quarter of 2001, versus $2 million, net
of a tax provision of $4 million, for the third quarter of the prior year. Net
equity earnings, excluding the tax impacts, decreased $71 million in 3Q01 versus
3Q00. This decrease was primarily due to a decrease from the prior year in
equity earnings from AB Cellular. AT&T Wireless Services' equity interest in AB
Cellular was redeemed in December 2000 in exchange for the Los Angeles market.
Additionally, amortization of excess net book value increased associated with
international equity investments acquired subsequent to the third quarter of
2000.
DIVIDEND REQUIREMENTS ON PREFERRED STOCK HELD BY AT&T, NET decreased to zero in
the third quarter, down from $42 million in the third quarter of 2000. The
preferred stock was redeemed by AT&T during the second quarter of 2001.
NET INCOME (LOSS) PER SHARE for the third quarter of 2001 was $0.03 compared
with ($0.01) in the prior year quarter. The increase is primarily attributable
to higher EBITDA, income tax benefits recorded during the quarter, income
associated with the mark-to-market adjustments on the warrants held by NTT
DoCoMo, and the elimination of preferred stock dividends paid to AT&T in the
prior year quarter. These increases were partially offset by an increase in
depreciation and amortization expenses resulting from a larger asset base, and
interest expense associated with the $6.5 billion Senior Notes offering in March
2001.
SEE APPENDIX I FOR THE AT&T WIRELESS SERVICES CONSOLIDATED INCOME STATEMENTS.
October 23, 2001
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AWE EARNINGS COMMENTARY THIRD QUARTER 2001
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BALANCE SHEET DISCUSSION
TOTAL ASSETS increased to $42,831 million at September 30, 2001, higher by
$7,529 million, or 21.3%, than at December 31, 2000. Total assets at the end of
third quarter included $4.9 billion of cash and cash equivalents which
represented the remaining proceeds from the $6.5 billion Senior Notes offering
in March 2001, as well as the $6.1 billion of net proceeds allocated from AT&T
associated with the January 2001 DoCoMo transaction. Additionally, property,
plant and equipment increased as a result of capital expenditures made during
2001, and investments in unconsolidated subsidiaries increased due to cash
payments made associated with the purchase of an additional interest in Rogers
Wireless and the purchase of preferred securities from Dobson.
TOTAL LIABILITIES were $14,697 million at September 30, 2001, an increase of
$4,313 million, or 41.5%, compared with December 31, 2000. The increase was
primarily attributable to the $6.5 billion Senior Notes offering which occurred
in March 2001. Partially offsetting this increase were decreases in the
short-term debt due to AT&T, which was repaid in January 2001, and the long-term
debt due to AT&T, which was repaid in June 2001.
PREFERRED STOCK HELD BY AT&T decreased to zero at September 30, 2001, from $3.0
billion at December 31, 2000, as the preferred stock was redeemed during June
2001.
MANDATORILY REDEEMABLE COMMON STOCK totaling $7,664 million at the end of third
quarter represents the fair value as of split-off date of the AT&T Wireless
common shares held by NTT DoCoMo. These shares are presented as mandatorily
redeemable common stock due to certain redemption rights held by NTT DoCoMo. NTT
DoCoMo may require the repurchase of its investment at NTT DoCoMo's original
purchase price, plus interest, if AT&T Wireless fails to meet specified
technological milestones.
SHAREOWNERS' EQUITY was $20,425 million at September 30, 2001, a decrease of
$1,452 million, or 6.6%, from December 31, 2000, primarily due to the
reclassification of common shares held by NTT DoCoMo to Mandatorily Redeemable
Common Stock. Effective with the split-off in July 2001, AT&T Wireless Services'
common shares ($0.01 par value) outstanding totaled 2.53 billion, including 406
million shares held by NTT DoCoMo. Additionally, AT&T Wireless began
accumulating retained earnings in conjunction with the split-off.
SEE APPENDIX II FOR THE AT&T WIRELESS SERVICES CONSOLIDATED BALANCE SHEETS.
AT&T WIRELESS MOBILITY
----------------------
The AT&T Wireless Mobility business is composed of domestic wireless voice and
data services in the 850 megahertz (MHz) cellular markets and 1900 MHz Personal
Communications Services (PCS) markets, the aviation communications business, and
the earnings and losses associated with equity investments in domestic wireless
communications ventures and partnerships.
October 23, 2001
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---------------------------------------
WIRELESS MOBILITY SUMMARY 3Q01 3Q00 Yr/Yr % 2Q01 Seq. %
FINANCIAL HIGHLIGHTS ($M) ---------------------------------------
-------------------------
Services revenue $3,239 $2,508 29.1% $3,123 3.7%
Equipment revenue 257 290 (11.7%) 253 1.3%
Total Revenue 3,496 2,798 24.9% 3,376 3.5%
EBITDA $803 $522 53.8% $858 (6.5%)
EBITDA Margin 24.8% 20.8% 400 b.p. 27.5% (270 b.p.)
Capital Expenditures $1,055 $810 30.2% $978 7.9%
Subscribers (K)
---------------
Consolidated Markets 17,120 12,631 35.5% 16,416 4.3%
Net Additions 748 750 (.3%) 668 12.0%
Total Average Revenue Per
User (ARPU) $63.60 $68.50 (7.2%) $63.80 (0.3%)
Average Minutes of Use Per
Sub. Per Mo. (MOU) 389 348 11.8% 383 1.6%
Total Cost Per Gross Addition
(CPGA) $333 $359 (7.2%) $332 0.3%
Total Average Monthly Churn 3.1% 2.9% 20 b.p. 2.9% 20 b.p.
--------------------------------------------------------------------------------
SUBSCRIBERS for AT&T Wireless' Mobility business continued to experience strong
growth during the third quarter of 2001. Net consolidated subscriber additions
totaled 748 thousand in the third quarter, a 12.0% increase over 2Q01 and a 0.3%
decrease from the prior year third quarter. Net subscriber additions in the
quarter, including those from the partnership market and affiliates, totaled 960
thousand. Total ending consolidated subscribers grew 35.5% to 17.1 million,
including the subscribers associated with acquisitions that closed subsequent to
the third quarter of 2000. During the third quarter, AT&T Wireless reduced its
subscriber balance by approximately 45,000 subscribers associated with the
discontinuation of service in Beaumont, TX, and the decision to cancel a
reseller's prepaid program in the San Diego market acquired last fall. Total
ending subscribers, including the partnership market and affiliates at the end
of third quarter 2001, rose to 19.7 million. Churn for the quarter was 3.1%, an
increase from 2.9% in both 3Q00 and 2Q01. Churn relating to post-paid programs
was 2.6% in 3Q01, down from 2.8% in the prior year quarter and unchanged from
the level in 2Q01.
REVENUE for the third quarter was $3,496 million, an increase of 24.9% compared
with 3Q00. Services revenue totaled $3,239 million for the quarter, reflecting
growth of 29.1% over the same quarter of 2000. This increase resulted from
continued subscriber growth, the impact of which was partially offset by a
decline in ARPU. Equipment revenue was $257 million in the third quarter, a
decline of 11.7% compared with the prior year quarter.
AVERAGE REVENUE PER USER (ARPU) across all of AT&T Wireless' Mobility markets
was $63.60 in 3Q01, a decrease of 7.2% from the year-ago quarter and down
slightly from 2Q01. The decline from the prior year quarter resulted from
competitive pricing pressures and expansion into a broader base of consumer
segments.
EBITDA was $803 million in 3Q01, an increase of 53.8% from the year-ago quarter.
The growth in EBITDA from the prior year included the results of acquisitions
that occurred during 2000, as well as a continued focus on cost reductions. This
EBITDA growth was partially offset by higher customer acquisition costs
associated with the increase in consolidated gross subscriber additions,
increased network costs attributable to the growth in subscribers and their
related minutes of use, and increased customer care and billing related expenses
to support growth in the subscriber base. The EBITDA decline from 2Q01 resulted
from higher sales and marketing costs associated with the increase in net
subscriber additions in 3Q01 versus 2Q01. EBITDA margin (EBITDA as a percentage
of Services revenue) for the Mobility business increased to 24.8% for the third
quarter, up from 20.8% in the year-ago quarter.
CAPITAL EXPENDITURES for the quarter were $1,055 million, an increase of 30.2%
from the year-ago quarter. While initial build-out of next generation services
continued during the third quarter, the capital expenditures in the Mobility
October 23, 2001
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business were primarily related to capacity upgrades and improvements to network
quality for the existing TDMA network.
FIXED WIRELESS
--------------
The information below reflects the results associated with AT&T Wireless
Services' Fixed Wireless business. As discussed above, AT&T Wireless has decided
to exit the Fixed Wireless business, which will result in estimated fourth
quarter charges of approximately $1.3 billion on a pre-tax basis.
--------------------------------------------------------------------------------
---------------------------------------
FIXED WIRELESS SUMMARY 3Q01 3Q00 Yr/Yr% 2Q01 Seq. %
---------------------- ---------------------------------------
Financial Highlights ($M)
-------------------------
Total Revenue $6 $1 n/m $4 50.8%
EBITDA $(83) $(49) (69.4%) $(90) 8.1%
Capital Expenditures $98 $110 (11.0%) $121 (18.7%)
Subscribers
-----------
Consolidated Subscribers 47,709 6,158 n/m 32,023 49.0%
--------------------------------------------------------------------------------
EBITDA was a loss of $83 million in 3Q01, compared with a loss of $49 million
the year-ago quarter, and a loss of $90 million in 2Q01. The decline in EBITDA
in 3Q01 versus the prior year quarter was primarily due to higher network
related expenses to support growth in the subscriber base. Additionally, sales
and marketing expenses increased as a result of the higher level of customer
additions in the current year quarter.
CAPITAL EXPENDITURES were $98 million in 3Q01, a decrease of 11.0% from the
year-ago quarter.
CORPORATE AND OTHER, INCLUDING INTERNATIONAL
--------------------------------------------
The Corporate and Other segment of AT&T Wireless Services primarily comprises
the earnings and losses associated with equity interests in international
wireless communications ventures and partnerships.
EBITDA for the Corporate and Other group was a loss of $2 million in 3Q01 versus
a loss of $1 million in the prior year quarter. These results were primarily
driven by losses associated with AT&T Wireless' International division.
October 23, 2001
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APPENDIX I -- INCOME STATEMENTS (AS REPORTED)
AT&T Wireless Services, Inc. and Subsidiaries
Consolidated Income Statements
In millions, except per share amounts
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2001 2000 Change 2001 2000 Change
---- ---- ------ ---- ---- ------
REVENUE
Services $ 3,245 $ 2,509 29.3% $ 9,303 $ 6,741 38.0%
Equipment 257 290 (11.7%) 791 733 7.8%
Total revenue 3,502 2,799 25.1% 10,094 7,474 35.1%
OPERATING EXPENSES
Costs of services 1,125 831 35.2% 3,035 2,253 34.7%
Costs of equipment sales 503 550 (8.6%) 1,471 1,386 6.1%
Selling, general and administrative 1,156 946 22.2% 3,388 2,459 37.8%
Depreciation and amortization 703 445 58.4% 1,915 1,216 57.7%
Total operating expenses 3,487 2,772 25.8% 9,809 7,314 34.1%
OPERATING INCOME 15 27 (46.7%) 285 160 77.1%
Other income 114 72 58.1% 327 313 4.6%
Interest expense 105 4 n/m 287 73 292.7%
INCOME BEFORE INCOME TAXES AND
NET EQUITY EARNINGS FROM
INVESTMENTS 24 95 (75.2%) 325 400 (18.8%)
Provision for income taxes 3 76 (96.2%) 159 176 (9.4%)
Net equity earnings from investments 56 2 n/m 174 23 684.9%
NET INCOME 77 21 259.7% 340 247 37.6%
Dividend requirements on preferred stock held
by AT&T, net - 42 n/m 76 88 (13.2%)
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREOWNERS $ 77 $ (21) 477.9% $ 264 $ 159 65.8%
NET INCOME (LOSS) PER COMMON SHARE
BASIC $ 0.03 $(0.01) $ 0.10 $ 0.06
DILUTED $ 0.03 $(0.01) $ 0.10 $ 0.06
WEIGHTED AVERAGE SHARES TO COMPUTE
NET INCOME (LOSS) PER COMMON SHARE
BASIC 2,530 2,530 2,530 2,530
DILUTED 2,532 2,530 2,532 2,532
October 23, 2001
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APPENDIX II -- BALANCE SHEETS
AT&T Wireless Services, Inc. and Subsidiaries
Consolidated Balance Sheets
In millions, except per share amounts (Unaudited)
September 30, December 31,
2001 2000 Change
---- ---- ------
ASSETS
Cash and cash equivalents $ 4,875 $ 62 n/m
Accounts receivable, less allowances
of $195 and $193 2,125 1,892 12.3%
Inventories 134 335 (59.9%)
Income tax receivable 83 118 (29.5%)
Deferred income taxes 172 93 85.5%
Prepaid expenses and other current
assets 192 82 133.8%
TOTAL CURRENT ASSETS 7,581 2,582 193.7%
Property, plant and equipment, net
of accumulated depreciation of
$4,968 and $4,743 11,796 9,892 19.2%
Licensing costs, net of accumulated
amortization of $2,041 and $1,761 13,382 13,627 (1.8%)
Investments in and advances to
unconsolidated subsidiaries 4,125 3,385 21.8%
Goodwill, net of accumulated
amortization of $342 and $241 4,798 4,696 2.2%
Other assets, net of accumulated
amortization of $424 and $264 1,149 1,120 2.6%
TOTAL ASSETS $ 42,831 $ 35,302 21.3%
LIABILITIES
Accounts payable $ 791 $ 1,080 (26.7%)
Payroll and benefit-related liabilities 354 432 (18.0%)
Due on demand notes payable 89 109 (18.3%)
Short-term debt due to AT&T - 638 n/m
Other current liabilities 1,706 1,395 22.3%
TOTAL CURRENT LIABILITIES 2,940 3,654 (19.5%)
Long-term debt due to AT&T - 1,800 n/m
Long-term debt due to others 6,488 - n/m
Deferred income taxes 4,843 4,659 3.9%
Other long-term liabilities 426 271 57.3%
TOTAL LIABILITIES 14,697 10,384 41.5%
MINORITY INTEREST 45 41 8.6%
PREFERRED STOCK HELD BY AT&T - 3,000 n/m
MANDATORILY REDEEMABLE COMMON STOCK
($.01 par value, 406 shares outstanding
as of 9/30/01) 7,664 - n/m
SHAREOWNERS' EQUITY
Common stock ($ .01 par value, 2,124 shares
outstanding as of 9/30/01) 21 - n/m
Additional paid-in capital 20,417 - n/m
Shareowners' net investment - 21,885 n/m
Retained earnings 77 - n/m
Accumulated other comprehensive loss (90) (8) 982.6%
TOTAL SHAREOWNERS' EQUITY 20,425 21,877 (6.6%)
TOTAL LIABILITIES AND SHAREOWNERS'
EQUITY $ 42,831 $ 35,302 21.3%
October 23, 2001
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CONTACT INFORMATION
THIS DOCUMENT IS PROVIDED AS A PART OF THE ONGOING INVESTOR RELATIONS
COMMUNICATION PROGRAM OF AT&T Wireless. FOR FURTHER INFORMATION, PLEASE CALL ANY
OF THE FOLLOWING MEMBERS OF THE IR TEAM:
Holly Ash Vice President - Investor Relations (425) 580-1833
Bhavin Shah Director - Investor Relations (425) 580-8066
Shannyn Sandler Director - Investor Relations Communications (425) 580-1678
Karin Van Vleet Director - Shareowner Services (425) 580-5924
VISIT THE AT&T WIRELESS INVESTOR RELATIONS HOME PAGE AT
http://www.att.com/wirelessir
FOR AT&T WIRELESS FINANCIAL AND STOCK-RELATED INFORMATION.
---------------------------------------------
OUR MAILING ADDRESS: | PLEASE NOTE: |
| ------------ |
AT&T WIRELESS Investor Relations | PLEASE PROVIDE YOUR E-MAIL ADDRESS IF YOU|
7277 164th Ave NE | WISH TO BE ON OUR E-MAIL LIST. (WE DO NOT|
Redmond, WA 98052 | FAX THE EARNINGS COMMENTARY.) |
| |
| THE COMMENTARY, AND OTHER INFORMATION |
DISTRIBUTION LIST CHANGES: | ABOUT AT&T WIRELESS, IS ALSO AVAILABLE ON|
| OUR INVESTOR RELATIONS WEBSITE AT: |
| |
| http://www.att.com/wirelessir |
---------------------------------------------
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----------------------------------------------------------------------------
October 23, 2001
Page 10
The foregoing press release and earnings commentary contain "forward-looking
statements," which are based on management's beliefs, as well as on a number of
assumptions made by management concerning future events and information
currently available to management. Investors and security holders are cautioned
not to put undue reliance on such forward-looking statements, which are not a
guarantee of performance and are subject to a number of uncertainties and other
factors, many of which are outside AT&T Wireless' control, that could cause
actual results to differ materially from such statements. For a more detailed
description of the factors that could cause such a difference, please see the
company's filings with the Securities and Exchange Commission ("SEC"). AT&T
Wireless disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. This information is presented solely to provide additional
information to further understand the results of the company.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS
REGARDING THE BUSINESS COMBINATION TRANSACTION REFERENCED IN THE FOREGOING
INFORMATION, WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT
INFORMATION. Investors and security holders may obtain a free copy of the proxy
statement/prospectus (when it becomes available) and other documents filed by
AT&T Wireless and TeleCorp with the SEC at the SEC's web site at www.sec.gov.
The proxy statement/prospectus and these other documents may also be obtained
free of charge from AT&T Wireless, by directing a request to 7277 164th Avenue
NE, Building 1, Redmond, Washington 98052, Attn: Investor Relations, or from
TeleCorp, by directing a request to 1010 N. Glebe Road, Suite 800, Arlington, VA
22201, Attn: Investor Relations.
TeleCorp and its officers and directors may be deemed to be participants in the
solicitation of proxies from TeleCorp's shareholders with respect to these
transactions. Information regarding such officers and directors is included in
TeleCorp's proxy statement for its 2001 annual meeting of shareholders filed
with the SEC on April 20, 2001. This document is available free of charge at the
SEC's web site at www.sec.gov or from TeleCorp as described above.