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 September 30, 2003
| OR |
| o | 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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2):
Yes x No o
As of October 31, 2003, 2,714,479,448 shares of the registrant’s Common Stock were outstanding.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION |
3 | |||
Item 1. Financial Statements |
3 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
52 | |||
Item 4. Controls and Procedures |
52 | |||
PART II — OTHER INFORMATION |
53 | |||
Item 1. Legal Proceedings |
53 | |||
Item 2. Changes in Securities and Use of Proceeds |
53 | |||
Item 3. Defaults Upon Senior Securities |
53 | |||
Item 4. Submission of Matters to a Vote of Security Holders |
53 | |||
Item 5. Other Information |
53 | |||
Item 6. Exhibits and Reports on Form 8-K |
53 |
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, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
REVENUE |
|||||||||||||||||
Services |
$ | 4,073 | $3,765 | $ | 11,755 | $ | 10,745 | ||||||||||
Equipment |
301 | 298 | 725 | 839 | |||||||||||||
Total revenue |
4,374 | 4,063 | 12,480 | 11,584 | |||||||||||||
OPERATING EXPENSES |
|||||||||||||||||
Costs of services (excluding depreciation of $655
and $548 for the three months ended September 30,
and $1,772 and $1,561 for the nine months ended
September 30, which is included below) |
1,267 | 1,173 | 3,571 | 3,387 | |||||||||||||
Costs of equipment sales |
495 | 620 | 1,437 | 1,702 | |||||||||||||
Selling, general, and administrative |
1,321 | 1,200 | 3,885 | 3,586 | |||||||||||||
Depreciation and amortization |
841 | 703 | 2,311 | 2,029 | |||||||||||||
Impairment of licensing costs |
83 | 1,329 | 83 | 1,329 | |||||||||||||
Total operating expenses |
4,007 | 5,025 | 11,287 | 12,033 | |||||||||||||
OPERATING INCOME (LOSS) |
367 | (962 | ) | 1,193 | (449 | ) | |||||||||||
Other income (expense) |
16 | (164 | ) | 36 | (188 | ) | |||||||||||
Interest expense |
202 | 180 | 593 | 490 | |||||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND NET EQUITY (LOSSES) EARNINGS FROM
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES |
181 | (1,306 | ) | 636 | (1,127 | ) | |||||||||||
Provision (benefit) for income taxes |
9 | (139 | ) | 112 | (70 | ) | |||||||||||
Net equity (losses) earnings from investments in
unconsolidated subsidiaries, net of tax |
(16 | ) | (882 | ) | 2 | (1,017 | ) | ||||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS |
156 | (2,049 | ) | 526 | (2,074 | ) | |||||||||||
INCOME FROM DISCONTINUED OPERATIONS (net of tax
provision of $5 and $29 for the three and nine
months ended September 30, 2002) |
— | 8 | — | 47 | |||||||||||||
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE |
156 | (2,041 | ) | 526 | (2,027 | ) | |||||||||||
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (net of tax benefit of $103) |
— | — | — | (166 | ) | ||||||||||||
NET INCOME (LOSS) |
156 | (2,041 | ) | 526 | (2,193 | ) | |||||||||||
Accretion of mandatorily redeemable preferred stock |
— | 6 | 13 | 13 | |||||||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS |
$ | 156 | $ | (2,047 | ) | $ | 513 | $ | (2,206 | ) | |||||||
INCOME (LOSS) PER BASIC AND DILUTED SHARE: |
|||||||||||||||||
Income (loss) from continuing operations available
to common shareholders |
$ | 0.06 | $ | (0.76 | ) | $ | 0.19 | $ | (0.77 | ) | |||||||
Income from discontinued operations |
— | — | — | 0.01 | |||||||||||||
Cumulative effect of change in accounting principle |
— | — | — | (0.06 | ) | ||||||||||||
Net income (loss) available to common shareholders |
$ | 0.06 | $ | (0.76 | ) | $ | 0.19 | $ | (0.82 | ) | |||||||
WEIGHTED AVERAGE SHARES USED TO COMPUTE INCOME
(LOSS) PER SHARE: |
|||||||||||||||||
Basic |
2,713 | 2,708 | 2,712 | 2,678 | |||||||||||||
Diluted |
2,718 | 2,708 | 2,714 | 2,678 | |||||||||||||
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, | ||||||||||
| 2003 | 2002 | ||||||||||
ASSETS |
|||||||||||
Cash and cash equivalents |
$ | 4,205 | $ | 2,353 | |||||||
Short-term investments |
132 | — | |||||||||
Accounts receivable, less allowances of $277 and $240 |
2,328 | 2,215 | |||||||||
Inventories |
215 | 325 | |||||||||
Income tax receivable |
— | 56 | |||||||||
Deferred income taxes |
277 | — | |||||||||
Prepaid expenses and other current assets |
408 | 332 | |||||||||
TOTAL CURRENT ASSETS |
7,565 | 5,281 | |||||||||
Property, plant, and equipment, net of accumulated
depreciation and amortization of $9,313 and $7,810 |
16,069 | 16,263 | |||||||||
Licensing costs |
14,426 | 13,959 | |||||||||
Investments in and advances to unconsolidated subsidiaries |
1,816 | 2,225 | |||||||||
Goodwill |
7,311 | 7,199 | |||||||||
Other assets, net of accumulated amortization of $345 and $251 |
569 | 879 | |||||||||
TOTAL ASSETS |
$ | 47,756 | $ | 45,806 | |||||||
LIABILITIES |
|||||||||||
Accounts payable |
$ | 988 | $ | 780 | |||||||
Payroll and benefit-related liabilities |
499 | 465 | |||||||||
Advertising and promotion accruals |
137 | 173 | |||||||||
Business tax accruals |
312 | 375 | |||||||||
Interest payable on long-term debt |
158 | 245 | |||||||||
Other current liabilities |
1,143 | 1,055 | |||||||||
TOTAL CURRENT LIABILITIES |
3,237 | 3,093 | |||||||||
Long-term debt |
10,607 | 11,057 | |||||||||
Mandatorily redeemable preferred stock (liquidation value of
$286 as of September 30, 2003) |
171 | — | |||||||||
Deferred income taxes |
4,867 | 3,788 | |||||||||
Other long-term liabilities |
385 | 308 | |||||||||
TOTAL LIABILITIES |
19,267 | 18,246 | |||||||||
| COMMITMENTS AND CONTINGENCIES
(NOTES (j) AND (k)) MINORITY INTEREST |
84 | 48 | |||||||||
MANDATORILY REDEEMABLE PREFERRED STOCK, $0.01 par value,
1,000 shares authorized, .233 shares issued and outstanding
(liquidation value of $273 as of December 31, 2002) |
— | 151 | |||||||||
MANDATORILY REDEEMABLE COMMON STOCK, $0.01 par value, 406
shares issued and outstanding (redemption values of $11,214
and $10,748) |
7,664 | 7,664 | |||||||||
SHAREHOLDERS’ EQUITY |
|||||||||||
Common stock, $0.01 par value, 10,000 shares authorized,
2,308 and 2,303 shares issued and outstanding |
23 | 23 | |||||||||
Additional paid-in capital |
23,680 | 23,667 | |||||||||
Receivable from former parent, AT&T |
(25 | ) | (461 | ) | |||||||
Accumulated deficit |
(2,948 | ) | (3,474 | ) | |||||||
Accumulated other comprehensive income (loss) |
11 | (58 | ) | ||||||||
TOTAL SHAREHOLDERS’ EQUITY |
20,741 | 19,697 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 47,756 | $ | 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 |
526 | 526 | ||||||||||||||||||||||||||
Proceeds from AT&T Wireless Services
common stock issued for employee
plans and other |
5 | 26 | 26 | |||||||||||||||||||||||||
Cash received from former parent,
AT&T |
436 | 436 | ||||||||||||||||||||||||||
Accretion of mandatorily redeemable
preferred stock |
(13 | ) | (13 | ) | ||||||||||||||||||||||||
Other comprehensive income |
69 | 69 | ||||||||||||||||||||||||||
Balance at September 30, 2003 |
2,308 | $ | 23 | $ | 23,680 | $ | (25 | ) | $ | (2,948 | ) | $ | 11 | $ | 20,741 | |||||||||||||
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 and other |
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 | |||||||||||||
| FOR THE THREE MONTHS | FOR THE NINE MONTHS | |||||||||||||||
| ENDED SEPTEMBER 30, | ENDED SEPTEMBER 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
SUMMARY OF TOTAL COMPREHENSIVE INCOME (LOSS): |
||||||||||||||||
Net income (loss) |
$ | 156 | $ | (2,041 | ) | $ | 526 | $ | (2,193 | ) | ||||||
Net revaluation of investments (net of taxes of $5 and $13 for the three and nine months
ended September 30, 2002) |
— | 5 | — | 20 | ||||||||||||
Net revaluation of financial instruments (net of taxes of $2 and $(32) for the three and
nine months ended September 30, 2003, and $1 and $1 for the three and nine months ended
September 30, 2002) |
3 | 4 | 6 | 3 | ||||||||||||
Net foreign currency translation adjustments (net of taxes of $(11) and $43 for the three
and nine months ended September 30, 2003, and $(2) and $17 for the three and nine months
ended September 30, 2002) |
(17 | ) | (6 | ) | 63 | 26 | ||||||||||
TOTAL COMPREHENSIVE INCOME (LOSS) |
$ | 142 | $ | (2,038 | ) | $ | 595 | $ | (2,144 | ) | ||||||
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 NINE MONTHS | |||||||||
| ENDED SEPTEMBER 30, | |||||||||
| 2003 | 2002 | ||||||||
OPERATING ACTIVITIES |
|||||||||
Net income (loss) |
$ | 526 | $ | (2,193 | ) | ||||
Deduct: Income from discontinued operations |
— | 47 | |||||||