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 March 31, 2003


		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		91-1379052
(State of Incorporation)		(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		[ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2):


Yes		[X]		No		[ ]

As of April 30, 2003, 2,711,881,292 shares of the registrant’s 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
	ITEM 4. CONTROLS AND PROCEDURES
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
EXHIBIT 99.1
EXHIBIT 99.2

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			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			44
Item 4. Controls and Procedures			44
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			45
Item 2. Changes in Securities and Use of Proceeds			45
Item 3. Defaults Upon Senior Securities			45
Item 4. Submission of Matters to a Vote of Security Holders			45
Item 5. Other Information			45
Item 6. Exhibits and Reports on Form 8-K			45

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
		ENDED MARCH 31,

		2003		2002

REVENUE
Services		$	3,743	$	3,355
Equipment			205		256

Total revenue			3,948		3,611
OPERATING EXPENSES
Costs of services (excluding depreciation of $576 and $490 included below)			1,114		1,048
Costs of equipment sales			469		553
Selling, general, and administrative			1,255		1,190
Depreciation and amortization			735		642

Total operating expenses			3,573		3,433

OPERATING INCOME			375		178
Other expense			30		31
Interest expense			184		115

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND NET EQUITY EARNINGS (LOSSES) FROM INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES			161		32
Provision for income taxes			46		12
Net equity earnings (losses) from investments in unconsolidated subsidiaries, net of tax			27		(42	)

INCOME (LOSS) FROM CONTINUING OPERATIONS			142		(22	)
INCOME FROM DISCONTINUED OPERATIONS (net of tax provision of $8)			—		12

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE			142		(10	)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (net of tax benefit of $103)			—		(166	)

NET INCOME (LOSS)			142		(176	)
Accretion of mandatorily redeemable preferred stock			7		2

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS		$	135	$	(178	)

INCOME (LOSS) PER BASIC AND DILUTED SHARE:
	Income (loss) income from continuing operations available to common shareholders	$	0.05	$	(0.01	)
	Income from discontinued operations		—		—
	Cumulative effect of change in accounting principle		—		(0.06	)

	Net income (loss) available to common shareholders	$	0.05	$	(0.07	)

WEIGHTED AVERAGE SHARES USED TO COMPUTE INCOME (LOSS) PER SHARE:
	Basic		2,711		2,618
	Diluted		2,712		2,618

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
	MARCH 31,			DECEMBER 31,
	2003			2002

ASSETS
Cash and cash equivalents	$	3,563		$	2,353
Accounts receivable, less allowances of $238 and $240		2,020			2,215
Inventories		247			325
Income tax receivable		—			56
Prepaid expenses and other current assets		396			332

TOTAL CURRENT ASSETS		6,226			5,281
Property, plant, and equipment, net of accumulated depreciation and amortization of $8,490 and $7,810		15,979			16,263
Licensing costs		13,947			13,959
Investments in and advances to unconsolidated subsidiaries		2,270			2,225
Goodwill		7,199			7,199
Other assets, net of accumulated amortization of $282 and $251		606			879

TOTAL ASSETS	$	46,227		$	45,806

LIABILITIES
Accounts payable	$	612		$	780
Payroll and benefit-related liabilities		332			465
Advertising and promotion accruals		222			173
Business tax accruals		365			375
Other current liabilities		1,235			1,300

TOTAL CURRENT LIABILITIES		2,766			3,093
Long-term debt		11,077			11,057
Deferred income taxes		3,901			3,788
Other long-term liabilities		321			308

TOTAL LIABILITIES		18,065			18,246
COMMITMENTS AND CONTINGENCIES (NOTES (i) AND (j))
MINORITY INTEREST		45			48
MANDATORILY REDEEMABLE PREFERRED STOCK, $0.01 par value, 1,000 shares authorized, .233 shares issued and outstanding (liquidation values of $277 and $273)		158			151
MANDATORILY REDEEMABLE COMMON STOCK, $0.01 par value, 406 shares issued and outstanding (redemption values of $10,903 and $10,748)		7,664			7,664
SHAREHOLDERS’ EQUITY
Common stock, $0.01 par value, 10,000 shares authorized, 2,305 and 2,303 shares issued and outstanding		23			23
Additional paid-in capital		23,670			23,667
Receivable from former parent, AT&T		(25	)		(461	)
Accumulated deficit		(3,332	)		(3,474	)
Accumulated other comprehensive loss		(41	)		(58	)

TOTAL SHAREHOLDERS’ EQUITY		20,295			19,697

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	46,227		$	45,806

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			Receivable						Other			Share-
	Shares		Common		Paid-in			From Former			Accumulated			Comprehensive			Holders’
	Outstanding		Stock		Capital			Parent, AT&T			Deficit			Loss			Equity

Balance at December 31, 2002		2,303	$	23	$	23,667		$	(461	)	$	(3,474	)	$	(58	)	$	19,697
Net income												142						142
Proceeds from AT&T Wireless Services common stock issued for employee plans and other		2				10												10
Cash received from former parent, AT&T									436									436
Accretion of mandatorily redeemable preferred stock						(7	)											(7	)
Other comprehensive income															17			17

Balance at March 31, 2003		2,305	$	23	$	23,670		$	(25	)	$	(3,332	)	$	(41	)	$	20,295

Balance at December 31, 2001		2,125	$	21	$	20,515		$	—		$	(1,150	)	$	(105	)	$	19,281
Net loss												(176	)					(176	)
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 and other		1				20												20
Accretion of mandatorily redeemable preferred stock						(2	)											(2	)
Other comprehensive income															13			13

Balance at March 31, 2002		2,299	$	23	$	23,195		$	—		$	(1,326	)	$	(92	)	$	21,800


	FOR THE THREE MONTHS
	ENDED MARCH 31,

	2003			2002

SUMMARY OF TOTAL COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	142		$	(176	)
Net revaluation of investments (net of tax of $13)		—			20
Net revaluation of financial instruments (net of taxes of $0 and $2)		(33	)		4
Net foreign currency translation adjustments (net of taxes of $0 and $(7))		50			(11	)

TOTAL COMPREHENSIVE INCOME (LOSS)	$	159		$	(163	)

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

AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)


		FOR THE THREE MONTHS
		ENDED MARCH 31,

		2003			2002

OPERATING ACTIVITIES
Net income (loss)		$	142		$	(176	)
Deduct: Income from discontinued operations			—			12

Net income (loss), excluding discontinued operations			142			(188	)
Adjustments to reconcile net income (loss), excluding discontinued operations, to net cash provided by operating activities of continuing operations:
	Cumulative effect of change in accounting principle, net of tax		—			166
	Loss on early extinguishment of debt		—			10
	Loss from impairments of cost method unconsolidated subsidiaries		—			57
	Net losses on sale/exchange of assets, businesses, and investments in unconsolidated subsidiaries		35			—
	Depreciation and amortization		735			642
	Amortization of debt premium/discount, interest accretion, and deferred financing fees		19			8
	Deferred income taxes		82			(35	)
	Net equity (earnings) losses from investments in unconsolidated subsidiaries		(27	)		44
	Provision for uncollectible receivables		137			159
	Proceeds received from termination of interest rate swap agreements		245			—
	Decrease (increase) in accounts receivable		59			(53	)
	Decrease in inventories		78			43
	Decrease in accounts payable		(88	)		(210	)
	Net change in other operating assets and liabilities		(142	)		(530	)

NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS			1,275			113
INVESTING ACTIVITIES
	Capital expenditures and other additions		(501	)		(1,031	)
	Net acquisitions of licenses		—			(35	)
	Distributions and sales of unconsolidated subsidiaries		5			3
	Contributions, advances, and purchases of unconsolidated subsidiaries		(2	)		(383	)
	Acquisitions of consolidated businesses, including cash acquired		(5	)		230
	Issuance of long-term note receivable to unconsolidated subsidiary		—			(100	)

NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS			(503	)		(1,316	)
FINANCING ACTIVITIES
	Repayment of debt due to others		—			(978	)
	Proceeds from AT&T Wireless Services common stock issued		7			405
	Cash received from former parent, AT&T		436			—
	Other financing activities, net		(5	)		—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS			438			(573	)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS			—			8

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			1,210			(1,768	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			2,353			3,352

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	3,563		$	1,584

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