UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (Mark One) | ||
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended September 30, 2002 | ||
| OR | ||
| [ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the transition period from ________________to ________________. | ||
Commission File Number 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 October 31, 2002, 2,709,050,456 shares of Common Stock were outstanding.
TABLE OF CONTENTS
| PART I — FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements | 3 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 55 | ||
| Item 4. | Controls and Procedures | 55 | ||
| PART II — OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 56 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 56 | ||
| Item 3. | Defaults Upon Senior Securities | 56 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 56 | ||
| Item 5. | Other Information | 56 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 56 | ||
2
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 NINE MONTHS | |||||||||||||||||
| ENDED SEPTEMBER 30, | ENDED SEPTEMBER 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
REVENUE |
||||||||||||||||||
Services |
$ | 3,765 | $ | 3,239 | $ | 10,745 | $ | 9,291 | ||||||||||
Equipment |
298 | 257 | 839 | 791 | ||||||||||||||
Total revenue |
4,063 | 3,496 | 11,584 | 10,082 | ||||||||||||||
OPERATING EXPENSES |
||||||||||||||||||
Costs of services (excluding depreciation of $548 and
$376 for the three months ended September 30, and $1,561
and $1,080 for the nine months ended September 30, which
is included below) |
1,173 | 1,079 | 3,387 | 2,898 | ||||||||||||||
Costs of equipment sales |
620 | 501 | 1,702 | 1,468 | ||||||||||||||
Selling, general and administrative |
1,200 | 1,115 | 3,586 | 3,275 | ||||||||||||||
Depreciation and amortization |
703 | 658 | 2,029 | 1,806 | ||||||||||||||
Impairment of licensing costs |
1,329 | — | 1,329 | — | ||||||||||||||
Total operating expenses |
5,025 | 3,353 | 12,033 | 9,447 | ||||||||||||||
OPERATING (LOSS) INCOME |
(962 | ) | 143 | (449 | ) | 635 | ||||||||||||
Other (expense) income |
(164 | ) | 114 | (188 | ) | 326 | ||||||||||||
Interest expense |
180 | 105 | 490 | 287 | ||||||||||||||
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND NET EQUITY (LOSSES) EARNINGS FROM INVESTMENTS
IN UNCONSOLIDATED SUBSIDIARIES |
(1,306 | ) | 152 | (1,127 | ) | 674 | ||||||||||||
(Benefit) provision for income taxes |
(139 | ) | 52 | (70 | ) | 293 | ||||||||||||
Net equity (losses) earnings from investments in
unconsolidated subsidiaries, net of tax |
(882 | ) | 56 | (1,017 | ) | 174 | ||||||||||||
(LOSS) INCOME FROM CONTINUING OPERATIONS |
(2,049 | ) | 156 | (2,074 | ) | 555 | ||||||||||||
Loss from operations of discontinued business (net of tax
benefit of $49 and $133 for the three and nine months
ended September 30, 2001) |
— | (79 | ) | — | (215 | ) | ||||||||||||
Gain on disposal of discontinued business (net of tax
provision of $5 and $29 for the three and nine months
ended September 30, 2002) |
8 | — | 47 | — | ||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS |
8 | (79 | ) | 47 | (215 | ) | ||||||||||||
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE |
(2,041 | ) | 77 | (2,027 | ) | 340 | ||||||||||||
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (net of tax benefit of $103) |
— | — | (166 | ) | — | |||||||||||||
NET (LOSS) INCOME |
(2,041 | ) | 77 | (2,193 | ) | 340 | ||||||||||||
Accretion of mandatorily redeemable preferred stock |
6 | — | 13 | — | ||||||||||||||
Dividend requirements on preferred stock held by AT&T, net |
— | — | — | 76 | ||||||||||||||
NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS |
$ | (2,047 | ) | $ | 77 | $ | (2,206 | ) | $ | 264 | ||||||||
(LOSS) INCOME PER BASIC AND DILUTED SHARE: |
||||||||||||||||||
(Loss) income from continuing operations available to
common shareholders |
$ | (0.76 | ) | $ | 0.06 | $ | (0.77 | ) | $ | 0.19 | ||||||||
(Loss) income from discontinued operations |
— | (0.03 | ) | 0.01 | (0.09 | ) | ||||||||||||
Cumulative effect of change in accounting principle |
— | — | (0.06 | ) | — | |||||||||||||
Net (loss) income available to common shareholders |
$ | (0.76 | ) | $ | 0.03 | $ | (0.82 | ) | $ | 0.10 | ||||||||
WEIGHTED AVERAGE SHARES USED TO COMPUTE
(LOSS) INCOME PER SHARE: |
||||||||||||||||||
Basic |
2,708 | 2,530 | 2,678 | 2,530 | ||||||||||||||
Diluted |
2,708 | 2,532 | 2,678 | 2,532 | ||||||||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
| AT | AT | |||||||
| SEPTEMBER 30, | DECEMBER 31, | |||||||
| 2002 | 2001 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 3,751 | $ | 3,352 | ||||
Accounts receivable, less allowances of $275 and $239 |
2,194 | 2,026 | ||||||
Inventories |
210 | 307 | ||||||
Income tax receivable |
44 | 210 | ||||||
Deferred income taxes |
— | 222 | ||||||
Prepaid expenses and other current assets |
305 | 180 | ||||||
TOTAL CURRENT ASSETS |
6,504 | 6,297 | ||||||
Property, plant and equipment, net of accumulated depreciation of $6,784 and $5,232 |
14,329 | 12,496 | ||||||
Licensing costs |
13,994 | 13,100 | ||||||
Investments in and advances to unconsolidated subsidiaries |
2,411 | 3,672 | ||||||
Goodwill |
7,177 | 4,712 | ||||||
Other assets, net of accumulated amortization of $729 and $493 |
1,369 | 1,357 | ||||||
Assets of discontinued operations |
— | 88 | ||||||
TOTAL ASSETS |
$ | 45,784 | $ | 41,722 | ||||
LIABILITIES |
||||||||
Accounts payable |
$ | 754 | $ | 1,035 | ||||
Payroll and benefit-related liabilities |
427 | 409 | ||||||
Due on demand notes payable |
— | 88 | ||||||
Other current liabilities |
1,927 | 1,900 | ||||||
TOTAL CURRENT LIABILITIES |
3,108 | 3,432 | ||||||
Long-term debt due to others |
11,033 | 6,617 | ||||||
Deferred income taxes |
3,667 | 4,352 | ||||||
Other long-term liabilities |
287 | 330 | ||||||
TOTAL LIABILITIES |
18,095 | 14,731 | ||||||
COMMITMENTS AND CONTINGENCIES (NOTES (k) AND (l)) |
||||||||
MINORITY INTEREST |
51 | 46 | ||||||
MANDATORILY REDEEMABLE PREFERRED STOCK, $0.01 par value, 1,000 shares authorized, .233
shares issued and outstanding ($268 liquidation value) |
146 | — | ||||||
MANDATORILY REDEEMABLE COMMON STOCK, $0.01 par value, 406 shares issued and outstanding
($10,599 redemption value) |
7,664 | 7,664 | ||||||
SHAREHOLDERS’ EQUITY |
||||||||
Common stock, $0.01 par value, 10,000 shares authorized, 2,302 and 2,125 shares issued and
outstanding |
23 | 21 | ||||||
Additional paid-in capital |
23,204 | 20,515 | ||||||
Accumulated deficit |
(3,343 | ) | (1,150 | ) | ||||
Accumulated other comprehensive loss |
(56 | ) | (105 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY |
19,828 | 19,281 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 45,784 | $ | 41,722 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
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 |
(2,193 | ) | (2,193 | ) | |||||||||||||||||||||||||
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 |
4 | 40 | 40 | ||||||||||||||||||||||||||
Accretion of mandatorily
redeemable preferred
stock |
(13 | ) | (13 | ) | |||||||||||||||||||||||||
Other comprehensive income |
49 | 49 | |||||||||||||||||||||||||||
Balance at September 30, 2002 |
2,302 | $ | 23 | $ | 23,204 | $ | (3,343 | ) | $ | — | $ | (56 | ) | $ | 19,828 | ||||||||||||||
Balance at December 31, 2000 |
2,123 | $ | — | $ | — | $ | — | $ | 21,885 | $ | (8 | ) | $ | 21,877 | |||||||||||||||
Net income available to
common shareholders |
77 | 187 | 264 | ||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||
Proceeds from AT&T Wireless
Services common stock issued
for employee plans |
4 | 4 | |||||||||||||||||||||||||||
Recapitalization effective
with AT&T Wireless Services
split-off |
21 | 20,413 | (20,457 | ) | (23 | ) | |||||||||||||||||||||||
Reclassification of
mandatorily redeemable
common stock and warrants
held by DoCoMo |
(7,824 | ) | (7,824 | ) | |||||||||||||||||||||||||
Net transfers from former
parent AT&T, Corp. |
16 | 16 | |||||||||||||||||||||||||||
Other comprehensive loss |
(82 | ) | (82 | ) | |||||||||||||||||||||||||
Balance at September 30, 2001 |
2,123 | $ | 21 | $ | 20,417 | $ | 77 | $ | — | $ | (90 | ) | $ | 20,425 | |||||||||||||||