AT&T WIRELESS SERVICES INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)

[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to ________________.

Commission File Number 1-16567

AT&T WIRELESS SERVICES, INC.
(Exact name of registrant as specified in its charter)


DELAWARE (State of Incorporation)		91-1379052 (IRS Employer Identification No.)

7277 — 164TH AVENUE NE, BUILDING 1
REDMOND, WASHINGTON 98052
(Address of principal executive offices)

(425) 580-6000
(Registrant’s telephone number)

Indicated by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

As of July 31, 2002, 2,707,621,612 shares of Common Stock were outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 10.7
EXHIBIT 10.8
EXHIBIT 10.9
EXHIBIT 10.10
EXHIBIT 99.1

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION		1
	Item 1. Financial Statements	1
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	41
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings	42
	Item 2. Changes in Securities and Use of Proceeds	42
	Item 3. Defaults Upon Senior Securities	42
	Item 4. Submission of Matters to a Vote of Security Holders	42
	Item 5. Other Information	42
	Item 6. Exhibits and Reports on Form 8-K	42

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)


		FOR THE THREE MONTHS						FOR THE SIX MONTHS
		ENDED JUNE 30,						ENDED JUNE 30,

		2002			2001			2002			2001

REVENUE
Services		$	3,625		$	3,123		$	6,980		$	6,052
Equipment			285			253			541			534

Total revenue			3,910			3,376			7,521			6,586
OPERATING EXPENSES
Costs of services (excluding depreciation of $523 and $367 for the three months ended June 30, and $1,013 and $704 for the six months ended June 30, which is included below)			1,166			932			2,214			1,819
Costs of equipment sales			529			477			1,082			967
Selling, general and administrative			1,196			1,112			2,386			2,160
Depreciation and amortization			684			595			1,326			1,148

Total operating expenses			3,575			3,116			7,008			6,094

OPERATING INCOME			335			260			513			492
Other income (expense)			7			129			(24	)		212
Interest expense			195			135			310			182

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND NET EQUITY (LOSSES) EARNINGS FROM INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES			147			254			179			522
Provision for income taxes			57			128			69			241
Net equity (losses) earnings from investments in unconsolidated subsidiaries, net of tax			(93	)		217			(135	)		118

(LOSS) INCOME FROM CONTINUING OPERATIONS			(3	)		343			(25	)		399
Loss from operations of discontinued business (net of tax benefit of $49 and $84 for the three and six months ended June 30, 2001)			—			(80	)		—			(136	)
Gain on disposal of discontinued business (net of tax provision of $16 and $24 for the three and six months ended June 30, 2002)			27			—			39			—

INCOME (LOSS) FROM DISCONTINUED OPERATIONS			27			(80	)		39			(136	)
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE			24			263			14			263
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (net of tax benefit of $103)			—			—			(166	)		—

NET INCOME (LOSS)			24			263			(152	)		263
Accretion of mandatorily redeemable preferred stock			5			—			7			—
Dividend requirements on preferred stock held by AT&T, net			—			34			—			76

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS		$	19		$	229		$	(159	)	$	187

INCOME (LOSS) PER BASIC AND DILUTED SHARE:
Income (loss) from continuing operations available to common shareholders		$	—		$	0.12		$	(0.01	)	$	0.13
Income (loss) from discontinued operations			0.01			(0.03	)		0.01			(0.06	)
Cumulative effect of change in accounting principle			—			—			(0.06	)		—

Net income (loss) available to common shareholders		$	0.01		$	0.09		$	(0.06	)	$	0.07

WEIGHTED AVERAGE SHARES USED TO COMPUTE INCOME (LOSS) PER SHARE:
	Basic		2,706			2,530			2,663			2,530
	Diluted		2,706			2,532			2,663			2,532

The accompanying notes are an integral part of these consolidated condensed financial statements.

AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)


	AT			AT
	JUNE 30,			DECEMBER 31,
	2002			2001

ASSETS
Cash and cash equivalents	$	3,788		$	3,352
Accounts receivable, less allowances of $268 and $239		2,006			2,026
Inventories		307			307
Income tax receivable		247			210
Deferred income taxes		183			222
Prepaid expenses and other current assets		257			180

TOTAL CURRENT ASSETS		6,788			6,297
Property, plant and equipment, net of accumulated depreciation of $6,344 and $5,232		13,674			12,496
Licensing costs		15,142			13,100
Investments in and advances to unconsolidated subsidiaries		3,403			3,672
Goodwill		7,396			4,712
Other assets, net of accumulated amortization of $643 and $493		1,182			1,357
Assets of discontinued operations		36			88

TOTAL ASSETS	$	47,621		$	41,722

LIABILITIES
Accounts payable	$	454		$	1,035
Payroll and benefit-related liabilities		362			409
Due on demand notes payable		—			88
Other current liabilities		2,052			1,900

TOTAL CURRENT LIABILITIES		2,868			3,432
Long-term debt due to others		10,785			6,617
Deferred income taxes		3,984			4,352
Other long-term liabilities		270			330

TOTAL LIABILITIES		17,907			14,731
COMMITMENTS AND CONTINGENCIES (NOTES (j) AND (k))
MINORITY INTEREST		49			46
MANDATORILY REDEEMABLE PREFERRED STOCK, $0.01 par value, 1,000 shares authorized, .233 shares issued and outstanding ($264 liquidation value)		141			—
MANDATORILY REDEEMABLE COMMON STOCK, $0.01 par value, 406 shares issued and outstanding ($10,444 redemption value)		7,664			7,664
SHAREHOLDERS’ EQUITY
Common stock, $0.01 par value, 10,000 shares authorized, 2,300 and 2,125 shares issued and outstanding		23			21
Additional paid-in capital		23,198			20,515
Accumulated deficit		(1,302	)		(1,150	)
Accumulated other comprehensive loss		(59	)		(105	)

TOTAL SHAREHOLDERS’ EQUITY		21,860			19,281

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	47,621		$	41,722

The accompanying notes are an integral part of these consolidated condensed financial statements.

AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(IN MILLIONS)
(UNAUDITED)


													ACCUMULATED			TOTAL
	COMMON				ADDITIONAL						SHAREHOLDERS'		OTHER			SHARE-
	SHARES		COMMON		PAID-IN			ACCUMULATED			NET		COMPREHENSIVE			HOLDERS'
	OUTSTANDING		STOCK		CAPITAL			DEFICIT			INVESTMENT		(LOSS) INCOME			EQUITY

Balance at December 31, 2001		2,125	$	21	$	20,515		$	(1,150	)	$	—	$	(105	)	$	19,281
Net loss									(152	)							(152	)
Issuance of AT&T Wireless Services common stock and stock options for TeleCorp PCS, Inc. acquisition		146		2		2,280											2,282
Proceeds from AT&T Wireless Services common stock issued to DoCoMo		27				382											382
Proceeds from AT&T Wireless Services common stock issued for employee plans		2				28											28
Accretion of mandatorily redeemable preferred stock						(7	)										(7	)
Other comprehensive income														46			46

Balance at June 30, 2002		2,300	$	23	$	23,198		$	(1,302	)	$	—	$	(59	)	$	21,860

Balance at December 31, 2000		2,123	$	—	$	—		$	—		$	21,885	$	(8	)	$	21,877
Net income available to common shareholders												187					187
Proceeds attributed from DoCoMo investment, net of costs												6,139					6,139
Proceeds from AT&T Wireless Group tracking stock shares issued for employee plans												54					54
Transfers from AT&T, net												16					16
Other comprehensive loss														(64	)		(64	)

Balance at June 30, 2001		2,123	$	—	$	—		$	—		$	28,281	$	(72	)	$	28,209


	FOR THE THREE MONTHS						FOR THE SIX MONTHS
	ENDED JUNE 30,						ENDED JUNE 30,

	2002			2001			2002			2001

SUMMARY OF TOTAL COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	24		$	263		$	(152	)	$	263
Net revaluation of investments (net of taxes of $(5) and $8 for the three and six months ended June 30, 2002, and $7 for the three and six months ended June 30, 2001)		(5	)		12			15			12
Net revaluation of financial instruments (net of taxes of $(2) and $0 for the three and six months ended June 30, 2002, and $(2) and $(43) for the three and six months ended June 30, 2001)		(5	)		(4	)		(1	)		(74	)
Net foreign currency translation adjustments (net of taxes of $26 and $19 for the three and six months ended June 30, 2002, and $(1) for the three and six months ended June 30, 2001)		43

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