SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 12, 2001
AT&T WIRELESS SERVICES, INC.
| Delaware | 001-16567 | 91-1379052 | ||
| (State or Other Jurisdiction of Incorporation) | (Commission File No.) | (IRS Employer Identification No.) |
7277-164th Ave. NE, Building 1, Redmond, Washington 98052
(425) 580-6000
Item 2. Acquisition or Disposition of Assets.
On December 12, 2001, the board of directors of AT&T Wireless Services, Inc. (the “Company”) approved plans to exit the Company’s fixed wireless business. The Company previously announced its intention to exit the fixed wireless business in October 2001. The Company intends to pursue an orderly wind up of its fixed wireless operations The Company currently anticipates that its decision to exit the fixed wireless business will result in fourth quarter pre-tax charges of approximately $1.3 billion, reflecting a write-down of the assets of the fixed wireless business and the impact of phased exit charges. The decision to exit a business involves special risks and uncertainties, some of which may not be foreseeable or within the Company’s control, such as unforeseen severance costs, contractual liabilities, disputes with customers, suppliers, vendors, terminated employees, or a buyer of the fixed wireless business or certain assets.
In addition, the Company faces a number of other uncertainties and risks relating to our exit from the fixed wireless business including the following:
| • | the Company may not be able to sell or otherwise monetize any part of the assets of the fixed wireless business on attractive terms or at all; | ||
| • | the time it takes the Company and the costs the Company incurs to exit from the fixed wireless business may be affected by regulatory concerns and other matters; | ||
| • | the Company’s implementation of the exit strategy may disrupt other operations and distract management from other needs of the Company’s business; and | ||
| • | perceived uncertainties as to the Company’s future direction may result in the loss of employees or business partners. |
Such unforeseen costs and uncertainties could have a material adverse effect on the Company’s business, financial condition and results of operations.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information.
| Page | ||||
|
PRO FORMA FINANCIAL STATEMENTS
|
||||
|
Unaudited Pro Forma Condensed Combined Financial
Statements
|
F-2 | |||
|
Unaudited Pro Forma Condensed Combined Balance
Sheet at September 30, 2001
|
F-3 | |||
|
Unaudited Pro Forma Condensed Combined Statement
of Operations for the nine months ended September 30, 2001
|
F-4 | |||
|
Unaudited Pro Forma Condensed Combined Statement
of Operations for the year ended December 31, 2000
|
F-5 | |||
|
Unaudited Pro Forma Condensed Combined Statement
of Operations for the year ended December 31, 1999
|
F-6 | |||
|
Unaudited Pro Forma Condensed Combined Statement
of Operations for the year ended December 31, 1998
|
F-7 | |||
|
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements
|
F-8 | |||
F-1
AT&T WIRELESS SERVICES, INC. AND SUBSIDIARIES
The unaudited pro forma condensed combined financial statements set forth below for AT&T Wireless Services, Inc. and subsidiaries gives effect to:
| • | the exit from the fixed wireless business as if such event had been completed on January 1, 1998 for statement of operations purposes, and at September 30, 2001 for balance sheet purposes; | |
| • | the settlement of all intercompany obligations between AT&T and AT&T Wireless Services in accordance with the separation and distribution agreement between AT&T and AT&T Wireless Services as if such event had been completed on January 1, 2000 for statement of operations purposes; and | |
| • | the $6.5 billion debt offering of Senior Notes of AT&T Wireless Services which occurred on March 1, 2001 as if such event had been completed on January 1, 2000 for statement of operations purposes. |
On December 12, 2001, AT&T Wireless Services’ board of directors approved a plan to exit the fixed wireless business. AT&T Wireless Services anticipates that this decision will result in pre-tax charges during the fourth quarter of approximately $1.3 billion, reflecting a write-down of the assets and the impact of phased exit charges. As a result of this decision, AT&T Wireless Services will report the results of Fixed Wireless as Discontinued Operations, in accordance with Accounting Principles Board (APB) Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (APB 30).
The pro forma adjustments included herein are based on available information and certain assumptions that management believes are reasonable and are described in the accompanying notes to the pro forma financial statements. The unaudited pro forma condensed combined financial statements do not necessarily represent what AT&T Wireless Services’ financial position or results of operations would have been had these items occurred on such dates or to project AT&T Wireless Services’ financial position or results of operations at or for any future date or period. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma financial information have been made. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of AT&T Wireless Services.
F-2
AT&T WIRELESS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
At September 30, 2001
| Fixed Wireless | Pro Forma | |||||||||||
| AT&T Wireless | Pro Forma | AT&T Wireless | ||||||||||
| Services(1) | Adjustments(2) | Services | ||||||||||
| (In millions, except per share amounts) | ||||||||||||
|
Assets:
|
||||||||||||
|
Cash and cash equivalents
|
$ | 4,875 | $ | $ | 4,875 | |||||||
|
Accounts receivable, net
|
2,125 | (6 | ) | 2,119 | ||||||||
|
Other current assets
|
581 | (7 | ) | 574 | ||||||||
|
Total Current Assets
|
7,581 | (13 | ) | 7,568 | ||||||||
|
Property, plant and equipment, net
|
11,796 | (897 | ) | 10,899 | ||||||||
|
Licensing costs, net
|
13,382 | (192 | ) | 13,190 | ||||||||
|
Investments in and advances to unconsolidated
subsidiaries
|
4,125 | 4,125 | ||||||||||
|
Goodwill, net
|
4,798 | (52 | ) | 4,746 | ||||||||
|
Other assets, net
|
1,149 | (31 | ) | 1,118 | ||||||||
|
Assets from discontinued operations
|
— | 1,185 | 185 | |||||||||
| (1,000 | )(3) | |||||||||||
|
Total Assets
|
$ | 42,831 | $ | (1,000 | ) | $ | 41,831 | |||||
|
Liabilities:
|
||||||||||||
|
Accounts payable
|
$ | 791 | $ | 791 | ||||||||
|
Payroll and benefit-related liabilities
|
354 | 354 | ||||||||||
|
Due on demand notes payable
|
89 | 89 | ||||||||||
|
Other current liabilities
|
1,706 | 300 | (3) | 2,006 | ||||||||
|
Total Current Liabilities
|
2,940 | 300 | 3,240 | |||||||||
|
Long-term debt
|
6,488 | 6,488 | ||||||||||
|
Deferred income taxes
|
4,843 | (497 | )(6) | 4,346 | ||||||||
|
Other long-term liabilities
|
426 | 426 | ||||||||||
|
Total Liabilities
|
14,697 | (197 | ) | 14,500 | ||||||||
|
Minority Interest
|
45 | 45 | ||||||||||
|
Mandatorily redeemable common stock
|
7,664 | 7,664 | ||||||||||
|
Shareowner’s Equity:
|
||||||||||||
|
Common stock, $0.01 par value, 10,000 shares
authorized, 2,124 shares issued and outstanding
|
21 | 21 | ||||||||||
|
Additional paid-in capital
|
20,417 | 20,417 | ||||||||||
|
Retained earnings (accumulated deficit)
|
77 | (1,300 | )(3) | (726 | ) | |||||||
| 497 | (6) | |||||||||||
|
Accumulated other comprehensive loss
|
(90 | ) | (90 | ) | ||||||||
|
Total Shareowner’s Equity
|
20,425 | (803 | ) | 19,622 | ||||||||
|
Total Liabilities and Shareowner’s
Equity
|
$ | 42,831 | $ | (1,000 | ) | $ | 41,831 | |||||
See Notes To Unaudited Pro Forma AT&T Wireless Services, Inc. and Subsidiaries
F-3
AT&T WIRELESS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
For the Nine Months Ended September 30, 2001
| AT&T | Fixed Wireless | Other Pro | Pro Forma | ||||||||||||||
| Wireless | Pro Forma | Forma | AT&T Wireless | ||||||||||||||
| Services(1) | Adjustments(2) | Adjustments | Services | ||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||
|
Revenue
|
$ | 10,094 | $ | (12 | ) | $ | $ | 10,082 | |||||||||
|
Operating expenses
|
|||||||||||||||||
|
Costs of services
|
3,035 | (140 | ) | 2,895 | |||||||||||||
|
Costs of equipment sales
|
1,471 | 1,471 | |||||||||||||||
|
Selling, general and administrative
|
3,388 | (113 | ) | 3,275 | |||||||||||||
|
Depreciation and amortization
|
1,915 | (109 | ) | 1,806 | |||||||||||||
|
Total operating expenses
|
9,809 | (362 | ) | 9,447 | |||||||||||||
|
Operating income
|
285 | 350 | 635 | ||||||||||||||
|
Other income (loss)
|
327 | (1 | ) | 326 | |||||||||||||
|
Interest expense
|
287 | (70 | )(4) | 311 | |||||||||||||
| 94 | (5) | ||||||||||||||||
|
Income (loss) before income taxes and net
equity earnings from investments
|
325 | 349 | (24 | ) | 650 | ||||||||||||
|
Provision (benefit) for income taxes
|
159 | 133 | (9 | )(6) | 283 | ||||||||||||
|
Net equity earnings from investments
|
174 | 174 | |||||||||||||||
|
Net income (loss)
|
340 | 216 | (15 | ) | 541 | ||||||||||||
|
Dividend requirements on preferred stock held by
AT&T, net
|
76 | (76 | )(4) | — | |||||||||||||
|
Net income available to common
shareowners
|
$ | 264 | $ | 216 | $ | 61 | $ | 541 | |||||||||
|
Net income per share:
|
|||||||||||||||||
|
Basic
|
$ | 0.10 | $ | 0.09 | $ | 0.02 | $ | 0.21 | |||||||||
|
Diluted
|
$ | 0.10 | $ | 0.09 | $ | 0.02 | $ | 0.21 | |||||||||
|
Weighted average shares used to compute net
income per share:
|
|||||||||||||||||
|
Basic
|
2,530 | 2,530 | |||||||||||||||
|
Diluted
|
2,532 | 2,532 | |||||||||||||||
See Notes To Unaudited Pro Forma AT&T Wireless Services, Inc. and Subsidiaries
F-4
AT&T WIRELESS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
For the Year Ended December 31, 2000
| AT&T | Fixed Wireless | Other | Pro Forma | ||||||||||||||
| Wireless | Pro Forma | Pro Forma | AT&T Wireless | ||||||||||||||
| Services(1) | Adjustments(2) | Adjustments | Services | ||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||
|
Revenue
|
$ | 10,448 | $ | (2 | ) | $ | $ | 10,446 | |||||||||
|
Operating expenses
|
|||||||||||||||||
|
Costs of services
|
3,169 | (152 | ) | 3,017 | |||||||||||||
|
Costs of equipment sales
|
2,041 | 2,041 | |||||||||||||||
|
Selling, general and administrative
|
3,590 | (78 | ) | 3,512 | |||||||||||||
|
Depreciation and amortization
|
1,686 | (47 | ) | 1,639 | |||||||||||||
|
Total operating expenses
|
10,486 | (277 | ) | 10,209 | |||||||||||||
|
Operating (loss) income
|
(38 | ) | 275 | 237 | |||||||||||||
|
Other income
|
534 | 534 | |||||||||||||||
|
Interest expense
|
85 | (196 | )(4) | 419 | |||||||||||||
| 530 | (5) | ||||||||||||||||
|
Income (loss) before income taxes and net
equity earnings from investments
|
411 | 275 | (334 | ) | 352 | ||||||||||||
|
Provision (benefit) for income taxes
|
141 | 105 | (128 | )(6) | 118 | ||||||||||||
|
Net equity earnings from investments
|
388 | 388 | |||||||||||||||
|
Net income (loss)
|
658 | 170 | (206 | ) | 622 | ||||||||||||
|
Dividend requirements on preferred stock held by
AT&T, net
|
130 | (130 | )(4) | — | |||||||||||||
|
Net income (loss) available to common
shareowners
|
$ | 528 | $ | 170 | $ | (76 | ) | $ | 622 | ||||||||
|
Net income (loss) per share:
|
|||||||||||||||||
|
Basic
|
$ | 0.21 | $ | 0.07 | $ | (0.03 | ) | $ | 0.25 | ||||||||
|
Diluted
|
$ | 0.21 | $ | 0.07 | $ | (0.03 | ) | $ | 0.25 | ||||||||
|
Weighted average shares used to compute net
income (loss) per share:
|
|||||||||||||||||
|
Basic
|
2,530 | 2,530 | |||||||||||||||
|
Diluted
|
2,532 | 2,532 | |||||||||||||||
See Notes To Unaudited Pro Forma AT&T Wireless Services, Inc. and Subsidiaries
F-5
AT&T WIRELESS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
| Fixed Wireless | Pro Forma | ||||||||||||
| AT&T Wireless | Pro Forma | AT&T Wireless | |||||||||||
| Services(1) | Adjustments(2) | Services | |||||||||||
| (In millions, except per share amounts) | |||||||||||||
|
Revenue
|
$ | 7,627 | $ | $ | 7,627 | ||||||||
|
Operating expenses
|
|||||||||||||
|
Costs of services
|
2,580 | (50 | ) | 2,530 | |||||||||
|
Costs of equipment sales
|
1,266 | 1,266 | |||||||||||
|
Selling, general and administrative
|
2,663 | (22 | ) | 2,641 | |||||||||
|
Depreciation and amortization
|
1,253 | (22 | ) | 1,231 | |||||||||
|
Asset impairment and restructuring charges
|
531 | (3 | ) | 528 | |||||||||
|
Total operating expenses
|
8,293 | (97 | ) | 8,196 | |||||||||
|
Operating (loss) income
|
(666 | ) | 97 | (569 | ) | ||||||||
|
Other income
|
122 | 122 | |||||||||||
|
Interest expense
|
136 | 136 | |||||||||||
|
(Loss) income before income taxes and net
equity losses from investments
|
(680 | ) | 97 | (583 | ) | ||||||||
|
(Benefit) provision for income taxes
|
(294 | ) | 37 | (257 | ) | ||||||||
|
Net equity losses from investments
|
(19 | ) | (19 | ) | |||||||||
|
Net (loss) income
|
(405 | ) | 60 | (345 | ) | ||||||||
|
Dividend requirements on preferred stock held by
AT&T, net
|
56 | 56 | |||||||||||
|
Net (loss) income available to common
shareowners
|
$ | (461 | ) | $ | 60 | $ | (401 | ) | |||||
|
Net (loss) income per share:
|
|||||||||||||
|
Basic
|
$ | (0.18 | ) | $ | 0.02 | $ | (0.16 | ) | |||||
|
Diluted
|
$ | (0.18 | ) | $ | 0.02 | $ | (0.16 | ) | |||||
|
Weighted average shares used to compute net
(loss) income per share:
|
|||||||||||||
|
Basic
|
2,530 | 2,530 | |||||||||||
|
Diluted
|
2,530 | 2,530 | |||||||||||
See Notes To Unaudited Pro Forma AT&T Wireless Services, Inc. and Subsidiaries
F-6
AT&T WIRELESS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
| Fixed Wireless | Pro Forma | ||||||||||||
| AT&T Wireless | Pro Forma | AT&T Wireless | |||||||||||
| Services(1) | Adjustments(2) | Services | |||||||||||
| (In millions, except per share amounts) | |||||||||||||
|
Revenue
|
$ | 5,406 | $ | $ | 5,406 | ||||||||
|
Operating expenses
|
|||||||||||||
|
Costs of services
|
1,428 | (32 | ) | 1,396 | |||||||||
|
Costs of equipment sales
|
1,000 | 1,000 | |||||||||||
|
Selling, general and administrative
|
2,122 | (17 | ) | 2,105 | |||||||||
|
Depreciation and amortization
|
1,079 | (15 | ) | 1,064 | |||||||||
|
Asset impairment and restructuring charges
|
120 | 120 | |||||||||||
|
Total operating expenses
|
5,749 | (64 | ) | 5,685 | |||||||||
|
Operating (loss) income
|
(343 | ) | 64 | (279 | ) | ||||||||
|
Other income
|
650 | ||||||||||||
|
Interest expense
|
120 | 650 | |||||||||||
| 120 | |||||||||||||
|
Income before income taxes and net equity
earnings from investments
|
187 | 64 | 251 | ||||||||||
|
Provision for income taxes
|
59 | 25 | 84 | ||||||||||
|
Net equity earnings from investments
|
36 | 36 | |||||||||||
|
Net income
|
164 | 39 | 203 | ||||||||||
|
Dividend requirements on preferred stock held by
AT&T, net
|
56 | 56 | |||||||||||
|
Net income available to common
shareowners
|
$ | 108 | $ | 39 | $ | 147 | |||||||
|
Net income per share:
|
|||||||||||||
|
Basic
|
$ | 0.04 | $ | 0.02 | $ | 0.06 | |||||||
|
Diluted
|
$ | 0.04 | $ | 0.02 | $ | 0.06 | |||||||
|
Weighted average shares used to compute net
income per share:
|
|||||||||||||
|
Basic
|
2,530 | 2,530 | |||||||||||
|
Diluted
|
2,532 | 2,532 | |||||||||||
See Notes To Unaudited Pro Forma AT&T Wireless Services, Inc. and Subsidiaries
F-7
AT&T WIRELESS SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| 1. | This column reflects the historical consolidated results of operations and financial position of AT&T Wireless Services, Inc. and subsidiaries. |
| 2. | The adjustments presented deduct the historical results of operations and the historical financial position of the fixed wireless business from AT&T Wireless Services. |
| 3. | This adjustment represents the estimated pretax charge of $1.3 billion that will be recorded during the fourth quarter of 2001, associated with the decision to exit the fixed wireless business. Due to the fact that this charge is a one-time, non-recurring charge, its effect has not been included as a pro forma adjustment to the statement of operations, however it has been included as a pro forma adjustment to the balance sheet. The $1.3 billion represents an estimated $1.0 billion of asset write-downs and $300 million associated with exit costs. |
| 4. | The adjustments presented eliminate the amounts of interest expense related to the intercompany short-term and long-term debt and dividends on preferred stock to AT&T as if the intercompany short-term and long-term debt and preferred stock had been repaid as of January 1, 2000 for statement of operations purposes. |
| 5. | Gives effect to the March 1, 2001 private placement of $6.5 billion in Senior Notes as if such private placement occurred on January 1, 2000 for statement of operations purposes. The notes included $1.0 billion paying interest at 7.350% due in 2006, $3.0 billion paying interest at 7.875% due in 2011, and $2.5 billion paying interest at 8.750% due in 2031. |
| 6. | Reflects the federal statutory and blended state tax effects on the pro forma adjustments. |
F-8
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AT&T WIRELESS SERVICES, INC | |||
| | |||
| Dated: December 20, 2001 | By | /s/ Benjamin F. Stephens | |
| Benjamin F. Stephens Assistant Secretary |
|||