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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(MARK ONE)

OR

For the Transition Period from                                   to                                  

COMMISSION FILE NUMBER 000-29667

T-MOBILE USA, INC.

(425) 378-4000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate 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 o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     This registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

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T-MOBILE USA, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003

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T-MOBILE USA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)

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T-MOBILE USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(dollars in thousands)
(unaudited)

See accompanying notes to condensed consolidated financial statements.

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T-MOBILE USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)

See accompanying notes to condensed consolidated financial statements.

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T-MOBILE USA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION

     T-Mobile USA, Inc. (“T-Mobile,” “we” or “us”), formerly known as VoiceStream Wireless Corporation (“VoiceStream”), provides personal communications services (“PCS”) under the T-Mobile brand primarily in major urban markets in the United States using the Global System for Mobile Communications, or GSM, technology. T-Mobile is the brand name under which most of Deutsche Telekom AG’s (“Deutsche Telekom”) principal wireless subsidiaries operate. In 2001, we were acquired by Deutsche Telekom, which subsequently transferred its ownership in us to T-Mobile International AG & Co. K.G. (“T-Mobile International”), a wholly-owned subsidiary of Deutsche Telekom and the holding company for Deutsche Telekom’s principal wireless operations in Europe and the United States. Upon consummation of the merger, our common shares were deregistered and delisted from NASDAQ, and are no longer publicly traded. The merger and related transfer are hereafter referred to as the “T-Mobile merger.”

     Simultaneous with the T-Mobile merger, Deutsche Telekom also acquired 100% of the common shares of Powertel, Inc. (“Powertel”), a GSM service provider in the southeastern United States. Following the closing of the Powertel merger, Deutsche Telekom transferred all of its Powertel common shares to T-Mobile International. Powertel now provides and bills for its services under the T-Mobile brand name. Powertel’s wireless network is fully integrated with ours such that, from a customer’s perspective, its services are indistinguishable from ours (see Note 6 for a description of certain cost sharing agreements).

     We rely on funding from T-Mobile International, Deutsche Telekom or its affiliates to fund our operating losses and meet our working capital, capital expenditure, debt service and other obligations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Consolidation and basis of presentation

     The interim condensed consolidated financial statements (“interim financial statements”) of T-Mobile include the accounts of all majority and minority-owned subsidiaries that are either controlled by T-Mobile or for which accounting principles generally accepted in the United States (“GAAP”) require consolidation. Affiliates that are 20 percent to 50 percent owned are generally accounted for using the equity method. Affiliates that are less than 20 percent owned and for which control does not otherwise exist are generally accounted for under the cost method.

     We have prepared the interim financial statements pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations for interim reporting. These rules and regulations allow certain information required under GAAP to be condensed or omitted, provided that the interim financial statements, when read in conjunction with our annual audited financial statements included in our most recent Form 10-K, provide a fair presentation of our interim financial position, results of operations and cash flows. The interim financial statements presented herein are unaudited; however, we believe that the interim financial statements reflect all adjustments necessary for a fair presentation of our financial position, results of operations and cash flows. Such adjustments include those of a normal, recurring nature. The results for interim periods are not necessarily indicative of expected operating results for the full fiscal year or any future periods.

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     Asset retirement obligations

     On January 1, 2003, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.” This Standard requires entities to record the fair value of future liabilities for contractual obligations associated with the retirement of tangible long-lived assets as an increase in the carrying amount of the related asset if a reasonable estimate of fair value can be made. Over time, the liability is accreted to its present value, and the capitalized cost is depreciated over its estimated useful life.

     We have certain contractual obligations that fall within the scope of SFAS No. 143, principally related to network assets located on leased premises. We currently have approximately 15,000 microwave, cell and switching equipment sites with leases expiring between 2003 and 2018. These leases generally have terms of five years with renewal options of up to five additional five-year terms. The majority of these leases contain contractual obligations that include a responsibility to remove improvements on the leased sites upon termination of the lease.

     We have not recorded these asset retirement obligations because the fair value of their eventual settlement cannot presently be reasonably estimated. We, along with the industry in general, have limited historical experience terminating leases at our sites and therefore have limited historical information on which to base an estimate of future retirement costs. Public resistance to building new sites combined with expectations for continued growth in the total number of wireless customers in the United States and the expanded range of wireless services used by these customers has led to expectations that future new sites will become increasingly scarce. These factors make it difficult to assess when site leases will be terminated, if ever, and whether third parties will enforce the contractual obligations for remediation of our sites when leases are terminated.

     Stock-based compensation plans

     We account for our stock-based compensation plans under the intrinsic value provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Under APB No. 25, when stock options are granted with an exercise price equal to the market value of the underlying common stock on the date of grant, no compensation expense is recorded. Stock-based compensation expense for the three months ended March 31, 2003 and 2002 is primarily the result of deferred compensation related to unvested options that existed at the date of the T-Mobile merger. On January 1, 2003, we adopted SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of SFAS No. 123.” Adoption of this Standard did not have a material impact on our interim financial statements.

     Recently issued accounting standards

     We currently apply the provisions of Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”, to account for revenue arrangements with multiple deliverables, which we adopted during the year ended December 31, 2000. These types of arrangements include such transactions as the sale of wireless service with an accompanying handset. In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, which affects revenue arrangements entered into by us in fiscal periods beginning after June 15, 2003. The EITF requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria and generally requires that arrangement consideration be allocated among the separate units of accounting based on their relative fair values. Revenue recognition is then considered separately for each unit of accounting. We are currently assessing the impact of this EITF on our financial position, results of operations and cash flows.

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     In February 2003, we adopted Financial Accounting Standards Board (“FASB”) Interpretation Number (“FIN”) 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Adoption of this Interpretation did not have a material impact on our interim financial statements.

     In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the accounting guidance on derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities that fall within the scope of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 amends SFAS No. 133 and certain other existing pronouncements, which will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. We are currently assessing the impact of this Statement on our financial position, results of operations and cash flows.

     Use of Estimates

     The preparation of the accompanying interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingencies at the date of the interim financial statements. The more significant estimates include service revenues earned but not yet billed, the allowance for doubtful accounts, the estimated useful lives of our wireless communications equipment and other long-lived assets and fair value measurements related to goodwill, intangible assets, impairment charges, stock-based compensation and asset retirement obligations. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from such estimates if our assumptions prove invalid or conditions change.

     Reclassifications

     Certain of the comparative figures in the prior period interim financial statements have been reclassified to conform to current period presentation. Net operating results have not been affected by these reclassifications.

3. INVESTMENTS

     Network Infrastructure Venture with Cingular (“GSM Facilities”)

     At March 31, 2003 and December 31, 2002, we held an economic interest of approximately 25% in a joint venture with Cingular Wireless LLC (“Cingular”) to share in the ownership and operation of GSM network infrastructure in most of California, parts of Nevada and the New York City market (“GSM Facilities”). We recorded equity in net losses of unconsolidated affiliates of $19.1 million and $18.9 million for the three months ended March 31, 2003 and 2002, respectively, related principally to our share of the unreimbursed non-cash expenses of GSM Facilities. T-Mobile’s allocation of GSM Facilities’ capital expenditures totaled $113.6 million and $40.3 million for the three months ended March 31, 2003 and 2002, respectively. At March 31, 2003 and December 31, 2002 we had payables to GSM facilities of $69.2 million and $151.9 million, respectively, primarily related to capital expenditures. Our investment in GSM Facilities is reported net of the future funding obligation. Each partner’s future contributions will be based on incremental network usage, and therefore our economic interest percentage may vary over time.

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4. OTHER INTANGIBLE ASSETS

     Other intangible assets

     Amortization expense

     The following table presents current and expected amortization expense for other identifiable intangible assets for the three months ended March 31, 2003, the remainder of the year ending December 31, 2003 and the subsequent four years:

(dollars in thousands)

5. COMMITMENTS AND CONTINGENCIES

     Commitments

     We have committed to purchase PCS equipment from various suppliers. At March 31, 2003, there was approximately $410 million remaining under these commitments for equipment that has not yet been delivered. We expect to fulfill these purchase commitments by February 2006.

     We have various other purchase commitments for materials, supplies and other items incidental to the ordinary course of business, which are neither significant individually nor in the aggregate. Such commitments are not at prices in excess of current market value.

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     Contingencies

     Western Wireless

     On May 3, 1999, Western Wireless Corporation (“Western Wireless”) distributed its entire 80.1% interest in our common shares to its stockholders. Prior to this “spin-off,” Western Wireless obtained a favorable ruling from the IRS indicating that the spin-off would not result in the recognition of a gain or taxable income to Western Wireless or its stockholders. However, Western Wireless could still recognize a gain upon the spin-off, notwithstanding the favorable IRS ruling, if it is determined that the spin-off was part of a “prohibited plan,” that is, a plan or series of related transactions in which one or more persons acquire, directly or indirectly, 50% or more of our stock. Acquisitions of 50% or more of our stock occurring during the four-year period beginning two years before the spin-off could give rise to a rebuttable presumption that the spin-off was part of a prohibited plan. Subsequent business combinations, including the T-Mobile merger, have qualified as tax-free reorganizations. Although it is not assured, we believe that the spin-off, these business combinations and certain investments by Hutchison Telecommunications PCS (USA) Limited and Sonera Corporation were not pursuant to a “prohibited plan”.

     We have agreed to indemnify Western Wireless on an after-tax basis for any taxes, penalties, interest and various other expenses incurred by Western Wireless if it is required to recognize such a gain. The amount of such gain that Western Wireless would recognize would be equal to the difference between the fair market value of our common shares at the time of the spin-off and Western Wireless’ adjusted tax basis in such shares at the time. The estimated range of our possible liability, not including interest and penalties, if any, is from zero to $400 million.

6. RELATED PARTY TRANSACTIONS

     Following the T-Mobile merger, employees of Powertel, a wholly-owned subsidiary of T-Mobile International, became employees of T-Mobile. While Powertel’s results are not consolidated with ours, we provide management and other services to Powertel. We are reimbursed by Powertel for the compensation and benefit costs of our employees working on Powertel business. We perform centralized services and functions for Powertel including accounting and other administrative functions and we are reimbursed for these services in a manner that intends to reflect the relative time and associated costs devoted to Powertel activities. Powertel was charged $12.4 million and $14.8 million for the costs of these centralized services and functions for the three months ended March 31, 2003 and 2002, respectively. At March 31, 2003 and December 31, 2002, we had long-term receivables from Powertel of $340.4 million and $349.4 million, respectively. The receivable is a result of the charges, as discussed above, transfers in the ordinary course of business, including fixed assets and inventory, and our funding of a credit facility repayment on behalf of Powertel in the first quarter of 2002. The total receivable from Powertel is included in investments in and advances to unconsolidated affiliates in our condensed consolidated balance sheets.

     We rely on funding from T-Mobile International, Deutsche Telekom or its affiliates to meet our working capital, capital expenditure, debt service and other obligations. We had long-term notes payable to T-Mobile International and Deutsche Telekom of $7.4 billion and $7.0 billion at March 31, 2003 and December 31, 2002, respectively. We recorded interest expense of $114.7 million and $57.8 million for the three months ended March 31, 2003 and 2002, respectively, related to our long-term notes payable to T-Mobile International and Deutsche Telekom.

     T-Mobile is party to agreements with Cingular and GSM Facilities related to the sharing of network operations expenses. We were charged net operating expenses based on our network usage of $40.8 million and $15.2