UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 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.
| 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2):
Yes [X] No [ ]
As of July 31, 2003, 2,713,224,680 shares of the registrant’s 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 | 17 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 49 | ||
| Item 4. | Controls and Procedures | 49 | ||
| PART II — OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 50 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 50 | ||
| Item 3. | Defaults Upon Senior Securities | 50 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 50 | ||
| Item 5. | Other Information | 51 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 51 | ||
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 SIX MONTHS | ||||||||||||||||
| ENDED JUNE 30, | ENDED JUNE 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
REVENUE |
|||||||||||||||||
Services |
$ | 3,939 | $ | 3,625 | $ | 7,682 | $ | 6,980 | |||||||||
Equipment |
219 | 285 | 424 | 541 | |||||||||||||
Total revenue |
4,158 | 3,910 | 8,106 | 7,521 | |||||||||||||
OPERATING EXPENSES |
|||||||||||||||||
Costs of services (excluding depreciation of $541
and $523 for the three months ended June 30, and
$1,117 and $1,013 for the six months ended June 30, which is included below) |
1,190 | 1,166 | 2,304 | 2,214 | |||||||||||||
Costs of equipment sales |
473 | 529 | 942 | 1,082 | |||||||||||||
Selling, general, and administrative |
1,309 | 1,196 | 2,564 | 2,386 | |||||||||||||
Depreciation and amortization |
735 | 684 | 1,470 | 1,326 | |||||||||||||
Total operating expenses |
3,707 | 3,575 | 7,280 | 7,008 | |||||||||||||
OPERATING INCOME |
451 | 335 | 826 | 513 | |||||||||||||
Other income (expense) |
50 | 7 | 20 | (24 | ) | ||||||||||||
Interest expense |
207 | 195 | 391 | 310 | |||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND NET EQUITY (LOSSES) EARNINGS FROM
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES |
294 | 147 | 455 | 179 | |||||||||||||
Provision for income taxes |
57 | 57 | 103 | 69 | |||||||||||||
Net equity (losses) earnings from investments in
unconsolidated subsidiaries, net of tax |
(9 | ) | (93 | ) | 18 | (135 | ) | ||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS |
228 | (3 | ) | 370 | (25 | ) | |||||||||||
INCOME FROM DISCONTINUED OPERATIONS (net of tax
provision of $16 and $24 for the three and six
months ended June 30, 2002) |
— | 27 | — | 39 | |||||||||||||
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE |
228 | 24 | 370 | 14 | |||||||||||||
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (net of tax benefit of $103) |
— | — | — | (166 | ) | ||||||||||||
NET INCOME (LOSS) |
228 | 24 | 370 | (152 | ) | ||||||||||||
Accretion of mandatorily redeemable preferred stock |
6 | 5 | 13 | 7 | |||||||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS |
$ | 222 | $ | 19 | $ | 357 | $ | (159 | ) | ||||||||
INCOME (LOSS) PER BASIC AND DILUTED SHARE: |
|||||||||||||||||
Income (loss) from continuing operations available
to common shareholders |
$ | 0.08 | $ | — | $ | 0.13 | $ | (0.01 | ) | ||||||||
Income from discontinued operations |
— | 0.01 | — | 0.01 | |||||||||||||
Cumulative effect of change in accounting principle |
— | — | — | (0.06 | ) | ||||||||||||
Net income (loss) available to common shareholders |
$ | 0.08 | $ | 0.01 | $ | 0.13 | $ | (0.06 | ) | ||||||||
WEIGHTED AVERAGE SHARES USED TO COMPUTE INCOME
(LOSS) PER SHARE: |
|||||||||||||||||
Basic |
2,712 | 2,706 | 2,711 | 2,663 | |||||||||||||
Diluted |
2,714 | 2,706 | 2,713 | 2,663 | |||||||||||||
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 | ||||||||||
| JUNE 30, | DECEMBER 31, | ||||||||||
| 2003 | 2002 | ||||||||||
ASSETS |
|||||||||||
Cash and cash equivalents |
$ | 4,628 | $ | 2,353 | |||||||
Accounts receivable, less allowances of $249 and $240 |
2,232 | 2,215 | |||||||||
Inventories |
211 | 325 | |||||||||
Income tax receivable |
— | 56 | |||||||||
Deferred income taxes |
276 | — | |||||||||
Prepaid expenses and other current assets |
406 | 332 | |||||||||
TOTAL CURRENT ASSETS |
7,753 | 5,281 | |||||||||
Property, plant, and equipment, net of accumulated depreciation and
amortization of $8,878 and $7,810 |
15,824 | 16,263 | |||||||||
Licensing costs |
14,600 | 13,959 | |||||||||
Investments in and advances to unconsolidated subsidiaries |
1,844 | 2,225 | |||||||||
Goodwill |
7,278 | 7,199 | |||||||||
Other assets, net of accumulated amortization of $313 and $251 |
577 | 879 | |||||||||
TOTAL ASSETS |
$ | 47,876 | $ | 45,806 | |||||||
LIABILITIES |
|||||||||||
Accounts payable |
$ | 710 | $ | 780 | |||||||
Payroll and benefit-related liabilities |
425 | 465 | |||||||||
Advertising and promotion accruals |
158 | 173 | |||||||||
Business tax accruals |
387 | 375 | |||||||||
Other current liabilities |
1,316 | 1,300 | |||||||||
TOTAL CURRENT LIABILITIES |
2,996 | 3,093 | |||||||||
Long-term debt |
11,168 | 11,057 | |||||||||
Deferred income taxes |
4,872 | 3,788 | |||||||||
Other long-term liabilities |
341 | 308 | |||||||||
TOTAL LIABILITIES |
19,377 | 18,246 | |||||||||
COMMITMENTS AND CONTINGENCIES (NOTES (j) AND (k))
|
|||||||||||
MINORITY INTEREST |
82 | 48 | |||||||||
MANDATORILY REDEEMABLE PREFERRED STOCK, $0.01 par value,
1,000 shares authorized, .233 shares issued and outstanding
(liquidation values of $282 and $273) |
164 | 151 | |||||||||
MANDATORILY REDEEMABLE COMMON STOCK, $0.01 par value,
406 shares issued and outstanding (redemption values of $11,057 and $10,748) |
7,664 | 7,664 | |||||||||
SHAREHOLDERS’ EQUITY |
|||||||||||
Common stock, $0.01 par value, 10,000 shares authorized, 2,306 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 |
(3,104 | ) | (3,474 | ) | |||||||
Accumulated other comprehensive income (loss) |
25 | (58 | ) | ||||||||
TOTAL SHAREHOLDERS’ EQUITY |
20,589 | 19,697 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 47,876 | $ | 45,806 | |||||||
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 | Receivable | Other | Share- | ||||||||||||||||||||||||
| Shares | Common | Paid-in | From Former | Accumulated | Comprehensive | Holders’ | ||||||||||||||||||||||
| Outstanding | Stock | Capital | Parent, AT&T | Deficit | Income (Loss) | Equity | ||||||||||||||||||||||
Balance at December 31, 2002 |
2,303 | $ | 23 | $ | 23,667 | $ | (461 | ) | $ | (3,474 | ) | $ | (58 | ) | $ | 19,697 | ||||||||||||
Net income |
370 | 370 | ||||||||||||||||||||||||||
Proceeds from AT&T Wireless Services
common stock issued for employee
plans and other |
3 | 16 | 16 | |||||||||||||||||||||||||
Cash received from former parent,
AT&T |
436 | 436 | ||||||||||||||||||||||||||
Accretion of mandatorily redeemable
preferred stock |
(13 | ) | (13 | ) | ||||||||||||||||||||||||
Other comprehensive income |
83 | 83 | ||||||||||||||||||||||||||
Balance at June 30, 2003 |
2,306 | $ | 23 | $ | 23,670 | $ | (25 | ) | $ | (3,104 | ) | $ | 25 | $ | 20,589 | |||||||||||||
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 and other |
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 | |||||||||||||
| FOR THE THREE MONTHS | FOR THE SIX MONTHS | |||||||||||||||
| ENDED JUNE 30, | ENDED JUNE 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
SUMMARY OF TOTAL COMPREHENSIVE INCOME (LOSS): |
||||||||||||||||
Net income (loss) |
$ | 228 | $ | 24 | $ | 370 | $ | (152 | ) | |||||||
Net revaluation of investments (net of taxes of $(5) and $8 for the three and six months ended
June 30, 2002) |
— | (5 | ) | — | 15 | |||||||||||
Net revaluation of financial instruments (net of taxes of $34 for the three and six months ended
June 30, 2003, and $(2) and $0 for the three and six months ended June 30, 2002) |
36 | (5 | ) | 3 | (1 | ) | ||||||||||
Net foreign currency translation adjustments (net of taxes of $54 for the three and six months
ended June 30, 2003, and $26 and $19 for the three and six months ended June 30, 2002) |
30 | 43 | 80 | 32 | ||||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) |
$ | 294 | $ | 57 | $ | 453 | $ | (106 | ) | |||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
AT&T WIRELESS SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
| FOR THE SIX MONTHS | |||||||||
| ENDED JUNE 30, | |||||||||
| 2003 | 2002 | ||||||||
OPERATING ACTIVITIES |
|||||||||
Net income (loss) |
$ | 370 | $ | (152 | ) | ||||
Deduct: Income from discontinued operations |
— | 39 | |||||||
Net income (loss), excluding discontinued operations |
370 | (191 | ) | ||||||
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 | |||||||
Losses on early extinguishments of debt |
— | 20 | |||||||
Losses from impairments of cost method unconsolidated subsidiaries |
— | ||||||||