<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 3, 2000
BELL ATLANTIC CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 1-8606 23-2259884
<S> <C> <C>
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
1095 Avenue of the Americas
New York, New York 10036
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 395-2121
Not applicable
(Former name or former address, if changed since last report)
<PAGE>
Bell Atlantic Corporation hereby files Amendment No. 1 to its Form 8-K (date of
report: April 3, 2000) filed with the Securities and Exchange Commission on
April 17, 2000.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Businesses Acquired
The audited financial statements of Vodafone AirTouch PLC - U.S.
Cellular and Paging Operations for the year ended December 31, 1999 and
the notes thereto and the report of Deloitte & Touche LLP, independent
auditors, are filed as Exhibit 99.1 to this Form 8-K/A and are
incorporated herein by reference.
The audited financial statements of PrimeCo Personal Communications,
L.P. as of and for the year ended December 31, 1999 and the notes
thereto and the report of PricewaterhouseCoopers LLP, independent
accountants, are filed as Exhibit 99.2 to this Form 8-K/A and are
incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma combined condensed balance sheet of Bell
Atlantic as of December 31, 1999, and the unaudited pro forma combined
condensed statement of income of Bell Atlantic for the year ended
December 31, 1999, are filed as Exhibit 99.3 to this Form 8-K/A and are
incorporated herein by reference.
The unaudited pro forma combined condensed balance sheet of Bell
Atlantic and GTE Corporation as of December 31, 1999 and the unaudited
pro forma combined condensed statement of income of Bell Atlantic and
GTE for the year ended December 31, 1999, are filed as Exhibit 99.4 to
this Form 8-K/A and are incorporated herein by reference.
(c) Exhibits
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of PricewaterhouseCoopers LLP
99.1 Financial statements of Vodafone AirTouch PLC - U.S. Cellular
and Paging Operations as of and for the year ended December 31,
1999
99.2 Financial statements of PrimeCo Personal Communications, L.P. as
of and for the year ended December 31, 1999
99.3 Unaudited pro forma combined condensed financial statements of
Bell Atlantic as of and for the year ended December 31, 1999
99.4 Unaudited pro forma combined condensed financial statements of
Bell Atlantic and GTE as of and for the year ended December 31,
1999
<PAGE>
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.
BELL ATLANTIC CORPORATION
By: /s/Doreen A. Toben
----------------------------------
Doreen A. Toben
Vice President - Controller
Date: May 11, 2000
<PAGE>
Exhibits Exhibit Index
-------- -------------
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of PricewaterhouseCoopers LLP
99.1 Financial statements of Vodafone AirTouch PLC - U.S. Cellular
and Paging Operations as of and for the year ended December 31,
1999
99.2 Financial statements of PrimeCo Personal Communications, L.P. as
of and for the year ended December 31, 1999
99.3 Unaudited pro forma combined condensed financial statements of
Bell Atlantic as of and for the year ended December 31, 1999
99.4 Unaudited pro forma combined condensed financial statements of
Bell Atlantic and GTE as of and for the year ended December 31,
1999
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Bell Atlantic Corporation
New York, New York
We consent to the incorporation by reference in the registration statements of
Bell Atlantic Corporation on Form S-4 (File No. 333-30800), Form S-8 (File No.
333-66785), Form S-8 (File No. 333-66459), Form S-8 (File No. 333-66349), Form
S-3 (File No. 33-49085), Form S-3 (File No. 333-48083), Form S-3 (File No.
33-30642), Form S-3 (File No. 33-8451), Form S-8 (File No. 33-10377), Form S-8
(File No. 33-10378), Form S-8 (File No. 33-58681), Form S-8 (File No. 33-58683),
Form S-8 (File No. 333-00409), Form S-8 (File No. 33-36551), Form S-3 (File No.
33-62393), Form S-4 (File No. 333-11573), Form S-8 (File No. 333-33747), Form
S-8 (File No. 333-41593), Form S-3 (File No. 333-42801), Form S-8 (File No.
333-45985), Form S-8 (File No. 333-75553), Form S-8 (File No. 333-81619), and
Form S-3 (File No. 333-78121-01), of our report dated April 21, 2000, on the
combined financial statements of Vodafone AirTouch Plc - U.S. Cellular and
Paging Operations as of December 31, 1999, and the combined statements of
operations, changes in stakeholder's equity and cash flows for the six months
ended December 31, 1999 and the six months ended June 30, 1999 appearing
elsewhere in this Form 8-K.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
May 1, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements of Bell Atlantic Corporation on Form S-8 (File No. 333-66785), Form
S-8 (File No. 333-66459), Form S-8 (File No. 333-66349), Form S-3 (File
No.33-49085), Form S-3 (File No. 333-48083), Form S-3 (File No. 33-30642), Form
S-3 (File No. 33-8451), Form S-8 (File No. 33-10377), Form S-8 (File
No.33-10378), Form S-8 (File No. 33-58681), Form S-8 (File No. 33-58683), Form
S-8 (File No.333-00409), Form S-8 (File No. 33-36551), Form S-3 (File No.
33-62393), Form S-4 (File No. 333-11573), Form S-8 (File No. 333-33747), Form
S-8 (File No. 333-41593), Form S-3 (File No. 333-42801), Form S-8 (File No.
333-45985), Form S-8 (File No. 333-75553), Form S-8 (File No. 333-81619), Form
S-4 (File No. 333-30800) and Form S-3 (File No.333-78121-01) of our report dated
February 14, 2000, relating to the consolidated financial statements of PrimeCo
Personal Communications, L.P. as of December 31, 1999 and for the year then
ended, which report is included in this Form 8-K.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
May 11, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the registration
statement on Form F-4/S-4 (File No. 333-30800) of Nuevo Grupo Iusacell, S.A. DE
C.V. and Bell Atlantic Corporation of our report dated February 14, 2000, except
for Note 24 as to which the date is March 22, 2000, relating to the consolidated
financial statements and consolidated financial statement schedule of Bell
Atlantic Corporation, which appears in Bell Atlantic Corporation's Annual Report
on Form 10-K for the year ended December 31, 1999.
/s/ PricewaterhouseCoopers LLP
New York, New York
May 11, 2000
<PAGE>
EXHIBIT 99.1
COMBINED FINANCIAL STATEMENTS FOR
VODAFONE AIRTOUCH PLC
U.S. CELLULAR AND PAGING OPERATIONS
================================================================================
1 Independent Auditors' Report
- --------------------------------------------------------------------------------
2 Combined Statements of Operations for the six months ended December 31,
1999 and June 30, 1999
- --------------------------------------------------------------------------------
3 Combined Balance Sheet as of December 31, 1999
- --------------------------------------------------------------------------------
4 Combined Statements of Changes in Stakeholder's Equity for the six months
ended December 31, 1999 and June 30, 1999
- --------------------------------------------------------------------------------
5 Combined Statements of Cash Flows for the six months ended December 31,
1999 and June 30, 1999
- --------------------------------------------------------------------------------
6 Notes to Combined Financial Statements
================================================================================
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stakeholder of U.S. Cellular and Paging Operations:
We have audited the accompanying combined balance sheet of Vodafone AirTouch Plc
- - U.S. Cellular and Paging Operations (the "Companies") as of December 31, 1999,
and the combined statements of operations, changes in stakeholder's equity and
cash flows for the six months ended December 31, 1999 and the six months ended
June 30, 1999. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note A to the financial statements, the balance sheet of the
Companies include the net assets acquired by Vodafone in its purchase of
AirTouch Communications Inc. ("AirTouch") on June 30, 1999, after giving effect
to the allocation of Vodafone's purchase price to AirTouch's net assets. The
related statements of operations and retained earnings and cash flows for the
six months ended December 31, 1999 reflect the results of operations and the
cash flows of AirTouch subsequent to such acquisition after giving effect to the
allocation of Vodafone's purchase price to AirTouch's net assets.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Companies as of December 31,
1999, and the results of their operations and their cash flows for the six
months ended December 31, 1999 and the six months ended June 30, 1999 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
San Francisco, California
April 21, 2000
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Combined Statements of Operations
- -----------------------------------------------------------------------------------------------------------------------
Vodafone AirTouch Plc - U.S. Cellular and Paging Operations
========================================================================================================================
For the 6 Months Ended
-----------------------------------------
December 31 June 30
-----------------------------------------
(Dollars in millions) 1999 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 2,749 $ 2,549
- ------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of revenues 796 653
Selling and customer operations expenses 864 776
General, administrative, and other expenses 209 212
Depreciation and amortization expenses 943 491
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,812 2,132
- ------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (63) 417
Equity in net income (loss) of unconsolidated wireless systems (80) 8
Minority interests in net income of consolidated wireless systems (40) (39)
Interest:
Expense (16) (32)
Income 3 5
Miscellaneous income (expense) 20 (1)
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (176) 358
Income tax expense (benefit) (57) 173
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to stakeholder $ (119) $ 185
========================================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Combined Financial
Statements.
- 2 -
<PAGE>
- --------------------------------------------------------------------------------
Combined Balance Sheet
- --------------------------------------------------------------------------------
Vodafone AirTouch Plc - U.S. Cellular and Paging Operations
<TABLE>
<CAPTION>
=========================================================================================================================
December 31
------------------------------
(Dollars in millions) 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 0
Accounts receivable (net of allowance for uncollectibles of $83) 610
Inventories 102
Other receivables 61
Other current assets 130
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 903
Property, plant, and equipment, net 4,058
Investments in unconsolidated wireless systems 6,755
Intangible assets, net 33,558
Deferred charges and other noncurrent assets 22
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 45,296
=========================================================================================================================
Liabilities and Stakeholder's Equity
Current liabilities:
Accounts payable, trade $ 302
Due to related parties 475
Other current liabilities 588
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,365
- -------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 12,226
Deferred credits and other noncurrent liabilities 14
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 13,605
- -------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interests in consolidated wireless systems 235
- -------------------------------------------------------------------------------------------------------------------------
Stakeholder's equity:
Paid-in capital 31,575
Accumulated deficit (119)
- -------------------------------------------------------------------------------------------------------------------------
Total stakeholder's equity 31,456
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stakeholder's equity $ 45,296
=========================================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Combined Financial
Statements.
-3-
<PAGE>
- --------------------------------------------------------------------------------
Combined Statements of Changes in Stakeholder's Equity
- --------------------------------------------------------------------------------
Vodafone AirTouch Plc - U.S. Cellular and Paging Operations
<TABLE>
<CAPTION>
======================================================================================================================
Retained Earnings
(Accumulated
(Dollars in millions) Paid-In Capital Deficit) Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1999 balances $ 10,250 $ (46) $ 10,204
Tax benefits - employee compensation 6 6
Other 3 3
Net income 185 185
- -----------------------------------------------------------------------------------------------------------------------
June 30, 1999, balances 10,259 139 10,398
Purchase accounting adjustments (Note F) 20,998 (139) 20,859
Tax benefits - employee compensation 316 316
Other 2 2
Net loss (119) (119)
- -----------------------------------------------------------------------------------------------------------------------
December 31, 1999, balances $ 31,575 $ (119) $ 31,456
=======================================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Combined Financial
Statements.
-4-
<PAGE>
- -------------------------------------------------------------------------------
Combined Statements of Cash Flows
- -------------------------------------------------------------------------------
Vodafone AirTouch Plc - U.S. Cellular and Paging Operations
<TABLE>
<CAPTION>
=========================================================================================================================
For the 6 Months Ended
-------------------------------------------
December 31 June 30
-------------------------------------------
(Dollars in millions) 1999 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net (loss) income applicable to stakeholder $ (119) $ 185
Adjustments to reconcile net (loss) income applicable to stakeholder
for items currently not affecting operating cash flows:
Depreciation and amortization expenses 943 491
Equity in net (income) loss of unconsolidated wireless systems 80 (8)
Distributions received from equity investees 83 60
Minority interests in net income of consolidated wireless systems 40 39
Deferred income tax benefit (155) (5)
Changes in assets and liabilities:
Accounts receivable, net (22) (20)
Other current assets and receivables (36) (44)
Deferred charges and other noncurrent assets (1) 1
Accounts payable and other current liabilities 50 (23)
Deferred credits and other liabilities (1) 8
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 862 684
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) investing activities:
Investments in unconsolidated wireless systems (24) (217)
Proceeds from sale of wireless systems 0 40
Additions to property, plant, and equipment (487) (426)
Proceeds from sale of property, plant, and equipment 0 5
Other investing activities (17) 10
- -------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities (528) (588)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Distributions to minority interests of consolidated wireless systems, net (35) ( 23)
Decrease in amounts due to related parties (300) (67)
Other financing activities 1 (6)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows used in financing activities (334) (96)
- -------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 0 0
Beginning cash and cash equivalents 0 0
- -------------------------------------------------------------------------------------------------------------------------
Ending cash and cash equivalents $ 0 $ 0
========================================================================================================================-=
Supplemental information:
Income taxes paid $ 7 $ 17
Noncash investing activities:
Exchange of property, plant and equipment $ 67 $ -
=========================================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Combined Financial
Statements.
-5-
<PAGE>
- --------------------------------------------------------------------------------
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
A. Summary of Significant Accounting Policies
Basis of Presentation
- ---------------------
Vodafone AirTouch Plc - U.S. Cellular and Paging operations comprise AirTouch
Cellular and AirTouch Paging business units (collectively referred to herein as
the "Companies"). AirTouch Cellular ("Cellular"), along with its subsidiaries,
unconsolidated partnerships and corporations, and AirTouch Paging along with its
wholly owned subsidiaries provide wireless telecommunications services in the
United States. The majority of the revenues are provided by the U.S. cellular
operations.
The Combined Financial Statements include the accounts of the Companies, their
subsidiaries, and partnerships in which the Companies have direct controlling
interests. AirTouch Communications, Inc. ("AirTouch), a subsidiary of Vodafone
AirTouch Plc ("Vodafone"), is the sole stakeholder of the U.S. Cellular and
Paging operations. These operations are organized under a variety of legal forms
primarily a combination of partnerships and incorporated entities. All
significant intercompany balances and transactions have been eliminated.
In June 1999, the U.S. and international operations of AirTouch were acquired by
Vodafone. As a result, all net assets acquired were adjusted to their fair
values in accordance with APB Opinion No. 16, "Business Combinations." Effective
July 1, 1999, the Companies' combined balance sheets reflect this new basis for
all assets and liabilities. See Note F, "Partnerships and Acquisitions -
Vodafone AirTouch Merger," for further information.
The Combined Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applicable in the United
States. Certain amounts have been reclassified to conform to Vodafone's
accounting policies. Conformity with GAAP requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition
- -------------------
Operating revenues primarily consist of charges to customers for monthly access
charges, cellular airtime usage, long distance, roamer charges, and rental
income from pagers. Revenues are recognized as services are provided. Also
included in operating revenues are equipment sales which are recognized upon
delivery of equipment to customers. Unbilled revenues, resulting from wireless
services provided from the billing cycle date to the end of each period, are
estimated and recorded as receivables. Unearned monthly access charges relating
to periods after each accounting period end are deferred.
Income Taxes
- ------------
The Companies join in filing consolidated federal income tax returns with
AirTouch for all taxable periods in which a consolidated return is permitted or
required. Under the joint consolidated income tax agreement, the Companies
compute their current and deferred income tax liabilities on a stand-alone
basis.
Deferred income taxes are recorded based on the enacted tax law and rates for
the periods in which the taxes are expected to be paid. Deferred income taxes
are provided for items when there is a temporary difference in recording such
items for financial reporting and income tax reporting.
Employee Benefits
- -----------------
The Companies' combined financial statements include pension and post retirement
benefit charges based on allocations from AirTouch. The allocations are
primarily based on levels of compensation and years of service of employees. The
charges include current and prior service obligations.
Cash Equivalents
- ----------------
Cash equivalents are short-term, highly liquid, held-to-maturity investments
with original maturities of 90 days or less from the date of purchase.
Inventories
- -----------
Inventories are stated at cost or the lower of cost or market. Cost is
determined using either the first-in, first-out or average method. Market is
determined using replacement cost in accordance with industry standards.
-6-
<PAGE>
- --------------------------------------------------------------------------------
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Property, Plant, and Equipment
- ------------------------------
All property, plant, and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful life of the
asset. Leasehold improvements are amortized over the shorter of their estimated
useful lives or the term of the related lease. Land is not depreciated. Gains
and losses on disposals are included in income at amounts equal to the
difference between the net book value of the disposed assets and the proceeds
received upon disposal. Expenditures for replacements and betterments are
capitalized, while expenditures for maintenance and repairs are charged against
earnings as incurred. Assets under construction are not depreciated until placed
in service. Interest cost incurred during the construction period is
capitalized, as discussed below in "Capitalized Interest".
Intangible Assets
- -----------------
The Companies use modeling techniques on new acquisitions and long-range
business plans, revised annually, to assess whether a revision of the existing
estimated useful lives of intangible assets is necessary.
Goodwill. The excess of the purchase price paid over the fair value of net
assets acquired in business combinations is recorded as goodwill and is
amortized over its expected useful period, generally 40 years, using the
straight-line method.
FCC licenses. The Federal Communications Commission ("FCC") issues cellular
licenses that enable U.S. cellular carriers to provide service in specific
Cellular Geographic Service Areas. A cellular license is issued conditionally
for ten years. Historically, the FCC has routinely granted license renewals to
licensees that have complied with applicable rules, policies, and the
Communications Act of 1934, as amended. Cellular believes it has complied and
intends to continue to comply with these standards.
The Companies amortize FCC licenses for U.S. cellular and paging operations and
those acquired through business combinations using the straight-line method over
40 years.
Other intangible assets. Other intangible assets primarily include subscriber
lists and favorable lease agreements. These intangible assets are amortized on a
straight-line basis over their economic useful lives which range from two to 30
years.
Valuation of Long-Lived Assets
- ------------------------------
The Companies periodically evaluate the carrying value of long-lived assets and
certain identifiable intangibles for impairment, when events and circumstances
indicate that the book value of an asset may not be recoverable. An impairment
loss is recognized whenever the review demonstrates that the book value of a
long-lived asset is not recoverable.
Investments in Unconsolidated Wireless Systems
- ----------------------------------------------
Cellular uses the equity method of accounting for investments in all markets in
which it has significant influence but does not have a direct controlling
interest. Cellular uses the cost method of accounting for limited partnership
interests and other unconsolidated wireless system investments in which it has a
minor interest and does not exercise significant influence.
Capitalized Interest
- --------------------
The Companies capitalize interest related to the construction of significant
additions to property, plant, and equipment. The Companies amortize these costs
over the related assets' estimated useful lives. Interest capitalized during the
six months ended December 31, 1999 and June 30,1999 was not material.
Advertising Expense
- -------------------
The Companies primarily expense advertising costs as incurred. Advertising
expense was $108 million for the six months ended December 31,1999, and $98
million for the six months ended June 30, 1999.
B. Accounting Changes
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133
requires the recognition of all derivatives as either assets or liabilities and
the measurement of those instruments at fair value. The implementation of SFAS
No. 133 will have no impact on the Companies' financial position or results of
operations. In June 1999, the FASB
-7-
<PAGE>
- --------------------------------------------------------------------------------
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," which
defers the effective date of SFAS No. 133 to January 1, 2001.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 requires certain
disclosures by employers that sponsor defined benefit pension plans and defined
benefit postretirement plans. The implementation of SFAS No. 132 did not have an
impact on the Companies' financial position or results of operations. See Note
J, "Employee Benefits" for further information.
Effective for the first quarter of 1998 the Companies implemented the provisions
of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components
in a full set of financial statements. The implementation of SFAS No. 130 did
not have an impact on the Companies' financial position or results of
operations. Comprehensive income for the Companies consists of net income (loss)
only.
C. Property, Plant, and Equipment
Property, plant, and equipment consisted of:
<TABLE>
<CAPTION>
==================================================================================================
December 31
----------------------
Depreciable
(Dollars in millions) Lives (Years) 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Land - $ 64
Buildings and leasehold improvements 15 - 40 568
Cellular plant and equipment 5 - 15 2,470
Pagers, paging terminals, and other paging equipment 3 - 15 155
Other equipment and furniture 2 - 7 548
Construction in progress - 551
- --------------------------------------------------------------------------------------------------
4,356
Less: accumulated depreciation 298
- --------------------------------------------------------------------------------------------------
Property, plant and equipment, net $ 4,058
==================================================================================================
</TABLE>
Related depreciation expense for the six months ended December 31, 1999 was $298
million based on new asset bases arising from the Merger, as discussed in Note
F, "Partnerships and Acquisitions - Vodafone AirTouch Merger." Depreciation
expense for the six months ended June 30, 1999 was $319 million.
Sources of Supplies
- -------------------
The Companies attempt to maintain multiple vendors for required network
supplies, which are important to their operations. Currently, such supplies are
acquired from only a few sources. If the suppliers are unable to meet the
Companies' network equipment needs, the Companies could experience delays and
increased costs or losses of potential customers, thereby, adversely affecting
the operating results.
Sublease of Communications Towers
- ---------------------------------
In August 1999, AirTouch signed a definitive agreement with American Tower
Corporation ("ATC") for the sublease of all unused space on approximately 2,100
of Cellular's communications towers, in exchange for $800 million plus a
five-year warrant to purchase 3 million ATC shares at $22 per share. The
transaction is being closed in phases starting in the first quarter of 2000
after obtaining the necessary consents. During the first quarter of 2000,
AirTouch received approximately $449 million for closing 1,180 towers, pursuant
to its agreement with ATC. In addition, ATC will manage, maintain and remarket
the tower space not being used by Cellular. In February 2000, AirTouch also
signed a definitive agreement with Spectrasite Holdings, Inc. ("Spectrasite")
for the sublease of unused space on approximately 430 of Cellular's
communications towers in exchange for $155 million. This transaction is expected
to close in stages over the next six to nine months.
-8-
<PAGE>
- --------------------------------------------------------------------------------
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
AirTouch also entered into exclusive three-year build-to-suit agreements with
ATC and Spectrasite that are estimated to produce new communications towers in
strategic locations.
D. Financial Instruments
Concentrations of Credit Risk
- -----------------------------
Financial instruments that potentially subject the Companies to concentrations
of credit risk are trade receivables. Due to the large volume and diversity of
the Companies' customer base, concentrations of credit risk with respect to
trade receivables are limited.
Fair Values
- -----------
The Companies' financial instruments recorded on the balance sheet primarily
include accounts and notes receivable and accounts payable. Due to the short
maturity of these instruments, carrying amounts approximate fair values. All
other financial instruments are insignificant.
E. Investments in Unconsolidated Wireless Systems
Cellular's investments in unconsolidated wireless systems primarily include
investments at equity of $6,753 million.
================================================================================
Percentage of Ownership
------------------------------
December 31
------------------------------
1999
- --------------------------------------------------------------------------------
Equity Investments
CMT Partners 50.0%
Nevada RSA2 Ltd. Partnership 50.0%
PrimeCo Personal Communications, L.P. 50.0%
TOMCOM, L.P. 50.0%
Centel Cellular Company of Nevada
Limited Partnership 27.8%
================================================================================
Condensed combined financial information for unconsolidated wireless systems
accounted for under the equity method:
================================================================================
December 31
-----------------------
(Dollars in millions) 1999
- --------------------------------------------------------------------------------
Current assets $ 313
Noncurrent assets 3,268
Current liabilities (636)
Noncurrent liabilities and minority interest (268)
- --------------------------------------------------------------------------------
Total partners' and stockholder's capital 2,677
Other partners' and stockholder's share of capital 1,415
- --------------------------------------------------------------------------------
Company's share of capital 1,262
Goodwill and other intangible items 5,491
- --------------------------------------------------------------------------------
Equity investments in unconsolidated wireless systems $ 6,753
================================================================================
-9-
<PAGE>
- --------------------------------------------------------------------------------
Notes to Combined Dinancial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
For the 6 Months Ended
-------------------------------------------------
December 31 June 30
-------------------------------------------------
(Dollars in millions) 1999 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues or equity in net income of partnership $ 815 $ 791
Operating income (loss) 20 (4)
- ------------------------------------------------------------------------------------------------------------------------
Net income 20 28
Other partners' and stockholder's share of net income 10 13
- ------------------------------------------------------------------------------------------------------------------------
Company's share of net income 10 15
Amortization of intangibles and other adjustments (90) (7)
- ------------------------------------------------------------------------------------------------------------------------
Equity in net income (loss) of unconsolidated wireless systems $ (80) $ 8
========================================================================================================================
</TABLE>
F. Partnerships and Acquisitions
Vodafone AirTouch Merger
- ------------------------
On June 30, 1999 (the "Closing date"), AirTouch completed its merger with
Vodafone and became a wholly owned subsidiary of Vodafone (the "Merger"). Under
the terms of the Merger, owners of AirTouch common stock received five Vodafone
ordinary shares in the form of 0.5 of a Vodafone American Depository Share and
$9 in cash, without interest, for each share of AirTouch common stock held at
closing. As a result of the Merger, Vodafone was renamed "Vodafone AirTouch
Plc."
In accordance with SEC Staff Accounting Bulletin No. 70, "Push Down Basis of
Accounting Required in Certain Limited Circumstances," (SAB No. 70), the
Combined Balance Sheet at December 31, 1999 reflects the new basis of accounting
arising from the Merger. Under the purchase method of accounting, the purchase
price is allocated to the assets acquired and liabilities assumed based on their
estimated fair values on the Closing date. The purchase price allocated to the
Companies at the Closing date was $31.3 billion. The purchase price allocation
is set out in the table below.
================================================================================
Estimated Fair Values
----------------------------
June 30
----------------------------
(Dollars in millions) 1999
- --------------------------------------------------------------------------------
Net assets acquired $ 3,131
Identifiable intangible assets
Licenses 23,073
Customer lists 2,819
Purchased goodwill 2,316
- --------------------------------------------------------------------------------
Total allocated purchase price $ 31,339
================================================================================
A deferred income tax liability of approximately $12.0 billion was also
recorded. The excess of the aggregate purchase price over the estimated fair
value of the net assets acquired, plus the deferred tax liability, resulted in
total goodwill of approximately $14.3 billion. Certain amounts of identifiable
intangible assets, their related deferred tax liabilities and goodwill have been
allocated to equity investments. These amounts are reflected in the balance
sheet within "Investments in unconsolidated wireless systems."
CommNet Cellular Inc. ("CommNet")
- ---------------------------------
In July 1999 Vodafone announced it had entered into an agreement to acquire the
entire issued share capital of CommNet for a total consideration of
approximately $1,364 million, being $764 million in cash and assumed debt of
approximately $600 million. On September 30, 1999, CommNet's total assets were
approximately $487 million and total liabilities were approximately $791
million. For the year ended September 30, 1999, CommNet had revenues of
approximately $211 million and operating income of approximately $66 million.
The transaction, which is not significant in respect to Cellular's operations,
closed in January 2000. Cellular accounts for this transaction under the
purchase method of accounting. Total intangible assets of approximately $1,427
million, which include primarily customer lists, FCC licenses and goodwill, will
be amortized over their estimated useful lives ranging from 4.5 to 40 years.
Goodwill includes an amount of $158 million, resulting from the recognition of
deferred tax liability. CommNet is included in the U.S. cellular operations
contributed to Verizon Wireless. See "Wireless Alliance with Bell Atlantic"
below.
-10-
<PAGE>
- --------------------------------------------------------------------------------
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Wireless Alliance with Bell Atlantic
- ------------------------------------
On April 3, 2000, Vodafone and Bell Atlantic Corp. combined their U.S. Cellular,
PCS, and paging businesses. This venture, Verizon Wireless, will offer
nationwide wireless services. Currently, Vodafone has an interest of
approximately 65% in Verizon Wireless, but voting control rests with Bell
Atlantic Corp. Pursuant to an agreement dated September 21, 1999, GTE's U.S.
wireless operations will be contributed to the venture when its merger with Bell
Atlantic Corp. is completed. This merger with GTE is targeted to close in the
second quarter of 2000. After the GTE wireless operations have been contributed,
Vodafone's interest in the joint venture will be 45%.
G. Intangible Assets
Intangible assets consisted of:
================================================================================
December 31
-------------------------
(Dollars in millions) 1999
- --------------------------------------------------------------------------------
Goodwill $ 12,234
FCC licenses 19,462
Other 2,507
- --------------------------------------------------------------------------------
$ 34,203
Less: accumulated amortization 645
- --------------------------------------------------------------------------------
$ 33,558
================================================================================
H. Related Party Transactions
The Companies and their affiliates have entered into agreements related to their
respective businesses. The Companies provided wireless services to its parent
and other affiliates. The amount of revenues recorded for such services is not
material.
The Companies obtained certain administrative services from AirTouch during the
six months ended June 30, 1999. Effective July 1, 1999 such services were
provided by Vodafone. Service costs specifically attributable to the Companies
are directly charged to the Companies. Other service costs and corporate charges
are allocated proportionately.
AirTouch manages a centralized cash account for its subsidiary companies.
Interest is paid based on the Companies' prorated share of the account.
The Companies recorded general and administrative expenses and interest expenses
for services provided by affiliates in the amount of $41 million and $50 million
for the six months ended December 31, 1999, and June 30, 1999, respectively.
Balance due to affiliates was $475 million at December 31, 1999 and is recorded
in amounts due to related parties in the accompanying balance sheet.
-11-
<PAGE>
- --------------------------------------------------------------------------------
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
I. Income Taxes
The Companies are included in the consolidated tax return of AirTouch. See Note
A, "Summary of Significant Accounting Policies." The components of income tax
(benefit) expense for both of the periods below were:
================================================================================
For the 6 Months Ended
----------------------------------------
December 31 June 30
----------------------------------------
(Dollars in millions) 1999 1999
- --------------------------------------------------------------------------------
Current:
Federal $ 77 $ 138
State and other taxes 21 40
- --------------------------------------------------------------------------------
Total current 98 178
- --------------------------------------------------------------------------------
Deferred:
Federal (114) 4
State and other taxes (41) (9)
- --------------------------------------------------------------------------------
Total deferred (155) (5)
- --------------------------------------------------------------------------------
Total income taxes $ (57) $ 173
================================================================================
Significant components of the combined deferred tax liabilities and assets were:
================================================================================
December 31
----------------
(Dollars in millions) 1999
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Amortization $ 9,935
Depreciation 507
Investments in U.S. partnerships 1,814
- --------------------------------------------------------------------------------
Total 12,256
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforward (64)
Accruals deductible when paid (42)
Accounts receivable (9)
Other (12)
- --------------------------------------------------------------------------------
Total (127)
Less: valuation allowance 0
- --------------------------------------------------------------------------------
Total, net (127)
- --------------------------------------------------------------------------------
Total deferred taxes $ 12,129
- --------------------------------------------------------------------------------
Current $ (97)
Noncurrent 12,226
- --------------------------------------------------------------------------------
Net deferred tax liabilities recorded in Combined Balance Sheet $ 12,129
================================================================================
The Companies believe it is more likely than not that they will generate future
taxable income sufficient to fully realize future benefits from the net deferred
tax assets of $127 million. The Companies generated a net operating loss ("NOL")
of $182 million during the 12-month period ended December 31, 1999. The NOL
carryforward period expires in 2019.
-12-
<PAGE>
- -------------------------------------------------------------------------------
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
The differences each period between the statutory federal income tax rate and
the effective income tax rate were:
===============================================================================
For the 6 Months Ended
- -------------------------------------------------------------------------------
December 31 June 30
--------------------------
(Dollars in millions) 1999 1999
- -------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit 7.7% 5.8%
Nondeductible amortization (11.7%) 7.2%
Other 1.4% 0.3%
- -------------------------------------------------------------------------------
Effective income tax rate 32.4% 48.3%
===============================================================================
J. Employee Benefits
Defined Contribution Plan
- -------------------------
The Companies sponsor a defined contribution plan (the "Retirement Plan"), which
covers substantially all full-time employees. The Companies base their
contributions to the Retirement Plan on a percentage of pay and on matching a
portion of employee contributions. The related expense was $27 million for the
six months ended December 31, 1999 and $27 million for the six months ended June
30, 1999.
Defined Benefit Pension Plan and Other Post Retirement Benefits
- ---------------------------------------------------------------
The Companies maintain defined benefit plans (the "Pension Plans"). Individuals
who were employees at December 31, 1986, and transferees from Pacific Telesis
Group, receive pension, death, and survivor benefits based on a percentage of
their final five-year average pay and years of service. In 1986, the Companies
discontinued the accrual of service credit for the Pension Plans' participants.
Thus, pension benefits only increase as a participant's compensation increases.
The Pension Plans' assets are primarily composed of mutual and index funds.
The Companies provide medical and dental benefits for eligible retired employees
and their eligible dependents and also provide life insurance benefits to
eligible retired employees (the "Postretirement Plan"). The Companies retain the
right, subject to existing agreements and applicable legal requirements, to
amend or eliminate these postretirement benefits. The accrued postretirement
benefit obligation, which is principally unfunded, was recorded in the
Companies' Combined Balance Sheets.
-13-
<PAGE>
- --------------------------------------------------------------------------------
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
The plans' assets and obligations were:
<TABLE>
<CAPTION>
Defined Benefit Pension Plans Other Postretirement Benefits
------------------------------------------------------------------------
For the 6 Months Ended For the 6 Months Ended
------------------------------------------------------------------------
December 31 June 30 December 31 June 30
------------------------------------------------------------------------
(Dollars in millions) 1999 1999 1999 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes in benefit obligation:
Benefit obligation at beginning of period 47.9 59.4 19.3 19.8
Service cost 0.1 0.1 1.6 1.5
Interest cost 1.8 1.8 0.7 0.7
Amendments 1.3 - - -
Actuarial (gain) loss 5.4 (13.5) 7.5 (2.7)
- ---------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of period 56.5 47.8 29.1 19.3
- ---------------------------------------------------------------------------------------------------------------------------
Changes in plans' assets:
Fair value of assets at beginning of period 70.9 73.4 0.1 0.1
Actual return on plans' assets 2.3 (2.5) - -
- ---------------------------------------------------------------------------------------------------------------------------
Fair value of assets at end of period 73.2 70.9 0.1 0.1
- ---------------------------------------------------------------------------------------------------------------------------
Funded status:
Benefit obligation (56.5) (47.8) (29.1) (19.3)
Fair value of plans' assets 73.2 70.9 0.1 0.1
Unrecognized transition obligation (asset) (1.2) (1.3) - -
Unamortized prior service cost 1.4 - 1.5 1.5
Unrecognized net actuarial (gain) loss (12.0) (18.5) (4.3) (11.7)
- ---------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost 4.9 3.3 (31.8) (29.4)
- ---------------------------------------------------------------------------------------------------------------------------
Weighted-average actuarial assumptions:
Discount rate:
Net periodic cost 6.5% 6.5% 6.5% 6.5%
Benefit obligation 8.0% 7.5% 8.0% 7.5%
Rate of compensation increase 5.5% 5.5% 5.5% 5.5%
Expected long-term return on plan assets 8.5% 8.5% 8.5% 8.5%
Components of net periodic benefit cost:
Service cost 0.1 0.1 1.6 1.6
Interest cost 1.9 1.9 0.7 0.7
Expected return on plans' assets (3.2) (3.1) - -
Amortization of transition obligation (asset) (0.1) (0.1) - -
Amortization of unrecognized prior service cost - - 0.1 0.1
Amortization of unrecognized net (gains) losses (0.1) (0.1) - -
Recognized settlement (gain) loss - (1.1) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost (income) (1.4) (2.4) 2.4 2.4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
- -------------------------------------------------------------------------------
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
The estimates of the other postretirement benefits also include an escalation
factor for anticipated increases in health care costs. The escalation rate was
6.5% in 1999 and decreases to 5% by 2002; it remains at that level thereafter. A
one-percentage-point change in health care cost trend rates would have the
following effects:
================================================================================
For the 6 Months Ended
------------------------
December 31 June 30
------------------------
(Dollars in millions) 1999 1999
- --------------------------------------------------------------------------------
1% Increase
- -----------
Effect on total service and interest cost components $ 1 $ 1
Effect on postretirement benefit obligation $ 6 $ 4
1% Decrease
- -----------
Effect on total service and interest cost component - -
Effect on postretirement benefit obligation $(5) $ (3)
================================================================================
K. Commitments and Contingencies
Contingencies
- -------------
The Companies are parties to various legal proceedings in the ordinary course of
business. The Companies believe that the ultimate outcome of these matters will
not have a material adverse impact on its financial position or results of
operations.
Lease Commitments
- -----------------
The Companies lease various facilities and equipment under noncancelable lease
arrangements. Most leases contain renewal options for varying periods. Related
rent expense was $53 million, and $52 million for the six months ended December
31, 1999 and June 30, 1999, respectively.
At December 31, 1999, future minimum lease payments under noncancelable
operating leases with an initial term of one year or more were:
(Dollars in millions)
===============================================================================
2000 $ 95
2001 80
2002 70
2003 62
2004 59
Thereafter 209
- --------------------------------------------------------------
Total minimum lease payments $ 575
===============================================================================
Other Commitments
- -----------------
At December 31, 1999, the Companies were committed to spend $469 million for the
acquisition of property, plant, and equipment and purchases of cellular
equipment and other items.
-15-
<PAGE>
- -------------------------------------------------------------------------------
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
L. Other Current Liabilities
Other current liabilities consisted of:
================================================================================
December 31
---------------------------
(Dollars in millions) 1999
- --------------------------------------------------------------------------------
Accrued liabilities $259
Advanced billing and customer deposits 160
Sales and property taxes payable 71
Accrued compensation and benefits 79
Other 19
- --------------------------------------------------------------------------------
Total other current liabilities $588
================================================================================
-16-
<PAGE>
EXHIBIT 99.2
PRIMECO PERSONAL COMMUNICATIONS, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
for the year ended December 31, 1999
<PAGE>
Report of Independent Accountants
To the Partners of PrimeCo Personal Communications, L.P.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, partners' capital and of cash flows
present fairly, in all material respects, the financial position of PrimeCo
Personal Communications, L.P. at December 31, 1999 and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 14, 2000
1
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS December 31,1999
----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 24,934
Accounts receivable, trade, net of allowance for doubtful
accounts of $23,012 74,085
Accounts receivable, other 32,274
Inventory 67,081
Prepaid expenses 9,416
Other 890
----------
Total current assets 208,680
PCS Licenses, net of accumulated amortization of $85,437 993,766
Microwave relocation, net of accumulated amortization of $14,281 164,090
Property, plant and equipment, net 1,490,552
Construction in progress 159,363
Other 5,182
----------
Total assets $3,021,633
==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current installments of capital leases $ 39,347
Accounts payable and accrued expenses 433,564
Microwave relocation obligations 9,563
Accrued compensation 17,498
Taxes, other than income 35,077
----------
Total current liabilities 535,049
Capital lease obligations, noncurrent 220,545
Microwave relocation obligations, noncurrent 1,018
Minority interest in consolidated partnerships 125,664
Other noncurrent liabilities 37,428
Commitments and contingencies (Notes 4, 5 and 8)
Partners' capital 2,101,929
----------
Total liabilities and partners' capital $3,021,633
==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Revenues and sales:
Service revenues $ 697,274
Product sales 129,258
Other 14,123
-----------
Total revenues and sales 840,655
-----------
Costs and expenses:
Cost of service 18,495
Cost of products sold 125,230
Operating expenses 747,126
Depreciation and amortization 244,351
-----------
Total costs and expenses 1,135,202
-----------
Loss from operations (294,547)
Interest expense, less capitalized interest of $1,665 (15,505)
Interest income 1,177
Other income (expense) (2,992)
Gain (loss) on disposal of assets 22,965
-----------
Loss before minority interest in
losses of consolidated partnerships (288,902)
Minority interest in losses of consolidated
partnerships 14,257
-----------
Net loss $ (274,645)
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
for the year ended December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
PCSCO Partnership PCS Nucleus, L.P. Total Partners'
-------------------------- ---------------------------
General Limited General Limited Capital
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 394,702 592,052 394,702 592,052 1,973,508
Partner contributions 96,660 144,990 96,660 144,990 483,300
Partner distributions (16,046) (24,071) (16,046) (24,071) (80,234)
Net loss (54,929) (82,394) (54,929) (82,393) (274,645)
------------ ------------ ------------ ------------ -----------
Balance, December 31, 1999 $ 420,387 $ 630,577 $ 420,387 $ 630,578 $ 2,101,929
============ =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended December 31, 1999
(Dollars in thousands)
1999
----------
Cash flows from operating activities:
Net loss $(274,645)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 244,351
Bad debt expense 24,427
Gain on disposal of assets (22,965)
Minority interest in losses of consolidated partnerships (14,257)
Changes in assets and liabilities:
Accounts receivable, trade (47,700)
Inventory (6,571)
Prepaid assets 4,443
Other assets 13,757
Accounts payable and accrued expenses 81,591
Accrued compensation (5,443)
Taxes, other than income 10,487
Other noncurrent liabilities 11,438
----------
Net cash provided by operating activities 18,913
----------
Cash flows from investing activities:
Payments for microwave relocation (4,775)
Recoveries of microwave relocation costs 9,997
Proceeds from sale of property and equipment 2,252
Additions to property, plant and equipment (253,965)
Proceeds from sale of MTA 84,233
----------
Net cash used in investing activities (162,258)
----------
Cash flows from financing activities:
Partner contributions 483,300
Partner distributions (80,234)
Repayments to partners, net (3,141)
Proceeds from minority interest owners 30,784
Proceeds from capital leases 1,283
Reductions of capital leases (36,767)
Payment of note payable to vendor (189,577)
Decrease in overdraft payable to bank (47,644)
----------
Net cash provided by financing activities 158,004
----------
Increase in cash and cash equivalents 14,659
Cash and cash equivalents, beginning of period 10,275
----------
Cash and cash equivalents, end of period $ 24,934
==========
Supplemental disclosure in Note 11
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. Organization and Activities:
---------------------------
PrimeCo Personal Communications, L.P., formerly PCS PrimeCo, L.P.,
("PrimeCo" or "the Partnership") was formed on October 20, 1994 as a
Delaware limited partnership for the purpose of acquiring licenses issued
by the Federal Communications Commission ("FCC") pursuant to Subpart E of
Part 24 of the FCC Rules ("PCS License") and to design, build, own and
operate broadband personal communications services ("PCS Business"). The
Partnership will continue through 2014 unless dissolved by the Partners
under dissolution provisions outlined in the partnership agreement.
PCSCO Partnership (a wholly owned affiliate of Bell Atlantic Corporation)
and PCS Nucleus, L.P. (a wholly owned affiliate of AirTouch Communications,
Inc.), collectively, the "Partners," each hold a 20% general and 30%
limited interest in the Partnership.
On May 8, 1995, PrimeCo entered into three limited partnership agreements
("MTA Partnerships") with Texas Utilities Communications, Inc. ("TUC") for
the purpose of operating PCS Businesses in the Dallas-Ft. Worth, San
Antonio and Houston major trading areas ("Texas MTAs"). PrimeCo holds a
majority interest of 80% in each MTA partnership comprised of 1% general
partner and 79% limited partner interest. TUC holds a 20% minority
ownership interest in each of the Texas MTAs.
The consolidated financial statements include the accounts of PrimeCo and
the Texas MTAs. The 20% interest of the Texas MTAs and the losses therefrom
have been reflected as "Minority interest in consolidated partnerships" and
"Minority interest in losses of consolidated partnerships." Significant
intercompany balances and transactions have been eliminated in
consolidation.
2. Summary of Significant Accounting Policies:
------------------------------------------
The following is a summary of significant accounting policies:
Cash and Cash Equivalents
-------------------------
Cash equivalents consist primarily of highly liquid investments with
minimal interest rate risk and original maturities of 90 days or less at
the date of acquisition. The balance is stated at cost, which approximates
fair value and is principally concentrated in institutional money market
accounts. Book overdrafts are classified with accounts payable.
6
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Inventory
---------
Inventory consists of handsets and related accessories. Inventories
purchased for resale are carried at the lower of cost (determined using
weighted average) or market. Market is determined using replacement cost in
accordance with industry standards.
Licenses and Microwave Relocation
---------------------------------
PCS Licenses include costs incurred to acquire FCC licenses on frequency
blocks A and B in the 1850-1990 MHz radio frequency bands.
The PCS licenses are issued conditionally for ten years. Historically, the
FCC has granted license renewals providing the licensees have complied with
applicable rules, policies and the Communications Act of 1934, as amended.
PrimeCo believes it has complied with and intends to continue to comply
with these rules and policies.
Microwave relocation includes costs incurred to relocate incumbent
microwave links affecting PrimeCo's licensed frequencies.
PrimeCo amortizes the cost of the PCS Licenses and microwave relocation
costs on a straight-line basis over a 40 year life.
Revenue Recognition
-------------------
PrimeCo records service revenues for the amount of communications services
rendered, primarily measured by billable minutes of traffic in addition to
a monthly charge for access and features, after deducting a reserve for
fraudulent unauthorized use or subscriber fraud.
Equipment sales consist of revenues from the sales of digital phones and
related accessories. Such sales are not considered a primary part of
PrimeCo's personal communications business. Upon shipment of products to
unaffiliated customers, PrimeCo recognizes sales and related costs and
expenses. PrimeCo has established programs which, under specified
conditions, enable customers to return products.
Customer accounts are monitored through an aging process that addresses the
customer credit class and number of days the balance is outstanding. A
reserve for uncollectible accounts is recorded based on historical accounts
receivable agings and write-offs and is further evaluated as a percentage
of recorded revenues. When a customer account is determined uncollectible,
it is written-off.
7
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at cost. These costs include
cell site acquisition, site development, network and switch hardware,
capitalized interest, and engineering and overhead. Depreciation is
recorded on a straight-line basis over the following estimated useful
lives: buildings, 20 years, plant and other equipment, 3 to 15 years.
Leasehold improvements are depreciated over the shorter of the remaining
term of the lease or the estimated useful life of the improvement. When
depreciable assets are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the respective accounts, and
any gains or losses on disposition are recognized in income. Repair and
maintenance costs are charged to expense when incurred; significant
renewals and betterments are capitalized.
Software Development Costs
--------------------------
Specific expenditures directly related to development projects for
internal-use software are capitalized and amortized over their estimated
useful life. Costs incurred in the preliminary project stage of development
(prior to technological feasibility) are expensed as incurred.
Initial operating systems software is capitalized and amortized over the
life of the related hardware. Initial network application software is
capitalized and amortized over three years.
Capitalized computer software of approximately $306.6 million at December
31, 1999 is recorded in property, plant and equipment. PrimeCo amortized
computer software costs of approximately $38.8 million for the year ended
December 31, 1999.
Foreign Currency
----------------
PrimeCo has entered into forward exchange contracts to hedge foreign
currency transactions. PrimeCo's forward exchange contracts do not subject
PrimeCo to risk from exchange rate movements because gains and losses on
such contracts offset losses and gains, respectively, on the Japanese yen
denominated portion of its capital lease obligations. PrimeCo had
approximately $126 million of foreign exchange contracts outstanding
relating to foreign currency denominated capital lease obligations at
December 31, 1999. The forward exchange contracts generally require PrimeCo
to exchange U.S. dollars for foreign currencies at maturity, at rates
agreed to at inception of the contracts.
8
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Credit risk associated with concentrations can arise when changes in
economic, industry or geographic factors affect groups of counterparties
with similar characteristics, whose aggregate credit exposure is
significant to PrimeCo's total credit exposure. The current volatility in
the Asian markets creates an unfavorable environment for the counterparties
to the exchange contracts to fulfill their obligations to deliver the
contracted currencies. Accordingly, PrimeCo could be at risk for any
currency related fluctuations if the counterparties do not contractually
comply. Should the counterparties not comply, the ultimate impact, if any,
will be a function of the difference in cost of acquiring yen at the time
of delivery versus the contractually agreed upon price.
The aggregate hedge receivable and capital lease payable as of December 31,
1999 is $8.7 million. The associated gain on the hedging activities, which
has been netted in the statements of operations against capital lease
losses for the year ended December 31, 1999 is $12.0 million.
Income Taxes
------------
The results of operations of PrimeCo will be included in the income tax
returns of the partners. Accordingly, no provision for income taxes is
recorded in the accompanying financial statements.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities on the date of the
financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Advertising Costs
-----------------
Advertising costs included in operating expenses are expensed as incurred.
Advertising expenses totaled approximately $277 million in 1999. These
costs include handset subsidy expenses of $147 million.
9
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Property, Plant and Equipment:
-----------------------------
Property, plant and equipment consists of the following at December 31,
1999:
1999
----------------
(Dollars in thousands)
Land, buildings and leasehold improvements $ 45,175
Network equipment 1,699,091
Data processing 188,203
Furniture and fixtures 38,323
----------------
1,970,792
Accumulated depreciation and amortization (480,240)
----------------
Total $ 1,490,552
================
Network equipment with a cost of approximately $348 million at December 31,
1999 is subject to capital lease obligations.
4. Leases:
------
Capital Leases
--------------
PrimeCo entered into a series of sale/leaseback transactions for a portion
of its network equipment. The sale/leasebacks were accounted for as
financings, wherein the property remains on the books and a capital lease
obligation is recorded for the proceeds received. The underlying amounts
due under these leases have been guaranteed by the partners. There was no
gain or loss associated with the transactions. Future minimum payments
under these and other capital lease obligations, a portion of which are
payable in Japanese yen, less imputed interest, are as follows:
10
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
(Dollars in thousands)
Years:
<S> <C>
2000 $ 48,459
2001 48,490
2002 51,595
2003 61,675
2004 85,188
Thereafter 40,859
-----------------
Total minimum lease payments 336,266
Less: imputed interest (76,374)
-----------------
Present value of minimum lease payments 259,892
Less: current installments (39,347)
-----------------
Long-term capital lease obligations at December 31, 1999 $ 220,545
=================
</TABLE>
Operating Leases
----------------
PrimeCo also has various operating leases, primarily related to rentals
for towers, sites, stores and offices. At December 31, 1999, the
aggregate minimum rental commitments under noncancelable operating
leases for the periods shown are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Years:
<S> <C>
2000 48,840
2001 47,888
2002 43,628
2003 39,573
2004 38,262
Thereafter 86,619
----------------
Total $ 304,810
================
</TABLE>
Rental expense was approximately $54.4 million in 1999.
11
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Commitments and Contingencies:
-----------------------------
Litigation
----------
PrimeCo is involved in various claims and legal proceedings of a nature
considered normal to its business. Management believes that these will not
have a material effect on the Partnership's operating results or financial
position.
Vendor Agreements
-----------------
PrimeCo has an agreement with its equipment supplier with regards to
equipment costs, payment terms and available credits. This equipment
supplier is the primary provider for the Partnership's network equipment.
Vendor credits were made available to PrimeCo based upon the volume of
equipment purchased in accordance with the agreements. PrimeCo has an
estimated minimum purchase commitment of $185.2 million to be paid during
2000. The vendor's sole remedy in the case of non-compliance is a reduction
in 2000 and thereafter of purchase discounts.
PrimeCo has also entered into agreements with several companies to provide
PrimeCo with products and services to be used in its normal operations. The
minimum payments for these agreements are approximately $13.0 million in
2000, $4.3 million in 2001, and $4.5 million in 2002.
Microwave Relocation Costs
--------------------------
The FCC requires PCS License holders to compensate incumbents for
relocating to new frequencies. PrimeCo has incurred approximately $196.3
million in aggregate microwave relocation costs as of December 31, 1999.
PrimeCo is legally entitled to partial recoveries of these amounts in the
future as other PCS providers establish service requiring clearance of the
same microwave links; however, the aggregate recovery cannot be reasonably
estimated. Amounts received with respect to these recoveries are recorded
as a reduction to the related asset account.
Recoverability of Assets and Network Expansion
----------------------------------------------
The realization of PrimeCo's assets is dependent upon continued financial
support from its partners and successful implementation of its business
strategy. PrimeCo will continue to incur significant expenditures in
connection with expanding and improving its coverage areas. The Partners
have committed $380 million in funding for 2000 capital and operating
expenditures. In addition, they have provided letters of support to the
12
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Partnership which ensure, up to the respective partners proportionate share
of ownership, that financial support necessary to meet all cash flow
requirements will be provided to PrimeCo for the twelve-month period ending
January 1, 2001.
On September 21, 1999, the Partners of PrimeCo entered into an agreement
that contemplates, among other things, the combination of certain assets,
including the assets of PrimeCo. At this time, management is unable to
predict the precise effect of this agreement on PrimeCo.
6. Related Party Transactions:
--------------------------
During 1999 each partner paid certain costs on behalf of PrimeCo. Such
payments amounted to approximately $4.1 million at December 31, 1999.
7. Employee Benefits:
-----------------
Effective September 1, 1995, the Partnership established a defined
contribution profit sharing employee savings plan under Section 401(k) of
the Internal Revenue Code (the "401(k) Plan") for all employees of PrimeCo.
PrimeCo received a favorable determination letter confirming the 401(k)
Plan's qualification from the Internal Revenue Service during 1996.
Employees may elect to contribute up to 16% of their annual compensation.
PrimeCo will match employee contributions up to 4% of compensation and, at
its discretion, may elect to make additional contributions under the profit
sharing provisions of the 401(k) Plan. Total expenses related to the 401(k)
Plan for the year ended December 31, 1999 were approximately $3.4 million.
8. Short term borrowing and Credit Facilities:
------------------------------------------
Effective March 18, 1998, PrimeCo entered into a discretionary $16 million
line of credit with The Chase Manhattan Bank. The line of credit was
increased to $20 million on September 30, 1998. The line of credit expired
December 31, 1999; an application to extend until December 31, 2000 is
pending. As of December 31, 1999, no amount is outstanding.
Mellon Bank, NA issued a discretionary $5 million line of credit effective
January 23, 1997, to PrimeCo. As of January 2000, the line of credit was
cancelled.
13
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
On December 18, 1998, PrimeCo entered into a short term note payable with
one of its primary vendors. There was approximately $190 million
outstanding on the note as of December 31, 1998, with a 6% interest rate.
The note was paid in full in January 1999.
9. Fair Value of Financial Instruments:
-----------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
. Amounts payable related to foreign currency forward contracts, which
are used to hedge foreign commitments, are recorded at fair value
based on currency exchange rates in effect at the balance sheet date;
. Capital lease and microwave relocation obligations approximate fair
value based on interest rates for similar transactions.
10. Sale of MTA:
-----------
On January 25, 1999, PrimeCo sold, to an unrelated third party, the PCS
license with respect to the Hawaii MTA, and other specified assets relating
to the business of building out, owning, operating, and maintaining a PCS
system in the Hawaii MTA, and providing PCS services to customers therein.
The total proceeds were $72.5 million, plus reimbursement of certain costs,
including all capital expenditures and operating expenses since January 1,
1998, of approximately $12 million. A gain on the sale of $25.2 million was
recognized, which included the reimbursement for 1998 operating expenses.
14
<PAGE>
PRIMECO PERSONAL COMMUNICATIONS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. Supplemental Data to Consolidated Statements of Cash Flows:
----------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
December 31,
(Dollars in thousands) 1999
------------------
<S> <C>
Interest paid was as follows:
Interest paid $ 20,376
==================
Noncash investing activities were as follows:
Additions to property, plant and equipment $ 115,524
==================
Note payable to vendor in exchange for equipment $ -
==================
Reductions and credits to property, plant and
equipment $ 12,133
==================
Additions to microwave relocation
obligations $ 2,523
==================
Additions to (reductions of) microwave relocation
receivables $ 4,736
==================
</TABLE>
12. Subsequent Events:
-----------------
The TUC 20% minority ownership interests in the Texas MTAs were purchased
by two limited liability companies which are wholly owned subsidiaries of
the Partners. This transaction closed on January 6, 2000.
15
<PAGE>
EXHIBIT 99.3
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On April 3, 2000, Bell Atlantic Corporation (Bell Atlantic) and Vodafone
AirTouch plc (Vodafone AirTouch) consummated their previously announced
agreement to combine their U.S. wireless assets. Vodafone AirTouch contributed
its U.S. wireless assets (including its 50% ownership of PrimeCo Personal
Communications, L.P.) and approximately $4 billion of liabilities to an existing
Bell Atlantic partnership (Cellco Partnership, now doing business as Verizon
Wireless) in exchange for a 65.1% interest in Verizon Wireless, and Bell
Atlantic retained a 34.9% interest. For accounting purposes, Bell Atlantic will
consolidate the Cellco Partnership because it controls its operations and
financial policies.
The following unaudited pro forma combined condensed financial statements
reflect Bell Atlantic's acquisition of Vodafone AirTouch's U.S. wireless
businesses using the purchase method of accounting and should be read in
conjunction with the historical consolidated or combined financial statements
and accompanying notes of Vodafone AirTouch PLC - U.S. Cellular and Paging
Operations and PrimeCo Personal Communications, L.P. (PrimeCo). The Unaudited
Pro Forma Combined Condensed Balance Sheet gives effect to the acquisition as if
it had occurred on December 31, 1999 and the Unaudited Combined Condensed
Statement of Income gives effect to the acquisition as if it had occurred on
January 1, 1999. In these statements, the allocation of the purchase price to
the assets acquired and liabilities assumed, based on their respective fair
values has been made on the basis of preliminary estimates. The final
determination of these fair values could result in purchase accounting
adjustments, which may impact Bell Atlantic's results of operations and
financial position.
The unaudited pro forma financial information has not been adjusted to reflect
the exchange of certain wireless interests with ALLTEL Corporation, which was
effected to eliminate certain regulatory conflicts relating to our wireless
operations and which closed on April 1, 2000. The ALLTEL transaction will not
have a material effect on the results of continuing operations or financial
position of Bell Atlantic. As a result of this transaction, Bell Atlantic
expects to record a one-time pre-tax gain, subject to a final determination of
the fair value of the assets involved, of approximately $800 million in the
second quarter of 2000.
The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the acquisition had been
completed at the dates indicated. The information does not necessarily indicate
the future operating results or financial position of Bell Atlantic.
It is anticipated that, upon completion of Bell Atlantic's merger with GTE
Corporation (GTE), the combined company will contribute its interest in the U.S.
wireless assets of GTE and increase its interest in Verizon Wireless to 55%.
This proposed transaction has not been reflected in the unaudited pro forma
combined condensed financial statements contained in this Exhibit 99.3.
Cautionary Statement Concerning Forward-Looking Statements
This pro forma financial information contains forward-looking statements. These
statements are based on our estimates and assumptions and are subject to risks
and uncertainties. Forward-looking statements include the information concerning
our possible or assumed future results of operations. Forward-looking statements
also include those preceded or followed by the words "anticipates," "believes,"
"estimates," "hopes" or similar expressions. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
The following important factors could affect future results and could cause
those results to differ materially from those expressed in the forward-looking
statements:
. the ability of Verizon Wireless to combine operations and obtain revenue
enhancements and cost savings;
. materially adverse changes in economic conditions in the markets served by
Verizon Wireless;
. material changes in available technology;
. the extent, timing, success, and overall effects of competition;
. the timing of the completion of the merger with GTE; and
. the ability of Verizon Wireless to combine operations and obtain revenue
enhancements and cost savings following the addition of the U.S. wireless
assets of GTE.
1
<PAGE>
EXHIBIT 99.3
Bell Atlantic Corporation
Pro Forma Combined Condensed Balance Sheet
December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Adjusted Pro Forma
Historical Vodafone PrimeCo Pro Forma Combined
(Dollars in Millions) Bell Atlantic AirTouch (Note 1) Adjustments Bell Atlantic
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 1,936 $ 23 $ 1,959
Receivables, net 7,025 $ 610 73 $ (10) (4) 7,698
Other current assets 1,635 293 66 1,994
--------------------------------------------------------------------
10,596 903 162 (10) 11,651
--------------------------------------------------------------------
Plant, property and equipment, net 39,299 4,058 1,078 44,435
Investments in unconsolidated businesses 6,275 6,755 (5,677) (2) 7,353
Intangible assets, net 2,168 33,558 661 4,523 (2) 34,669
(6,241) (5)
Other assets 4,276 22 4 4,302
--------------------------------------------------------------------
Total assets $62,614 $45,296 $1,905 $ (7,405) $102,410
====================================================================
Liabilities and Shareowners' Investment
Current liabilities
Debt maturing within one year $5,455 $ 475 $ 29 $ 5,959
Accounts payable and accrued liabilities 6,465 302 359 $ (10) (4) 7,116
Other current liabilities 1,547 588 47 2,182
--------------------------------------------------------------------
13,467 1,365 435 (10) 15,257
--------------------------------------------------------------------
Long-term debt 18,463 160 3,591 (5) 22,214
--------------------------------------------------------------------
Employee benefit obligations 9,326 9,326
--------------------------------------------------------------------
Deferred income taxes 3,892 12,226 (10,376) (5) 9,142
3,400 (9)
--------------------------------------------------------------------
Deferred credits and other liabilities 1,128 14 30 1,172
--------------------------------------------------------------------
Minority interest, including a portion subject
to redemption requirements 458 235 126 23,500 (5) 24,319
--------------------------------------------------------------------
Shareowners' investment
Common stock (1,576,246,325 shares) 158 158
Contributed capital 13,550 31,456 1,154 (1,154) (2) 18,650
(31,456) (5)
8,500 (5)
(3,400) (9)
Reinvested earnings 2,806 2,806
Accumulated other comprehensive income 450 450
--------------------------------------------------------------------
16,964 31,456 1,154 (27,510) 22,064
Less common stock in treasury, at cost 640 640
Less deferred compensation - employee
stock ownership plans 444 444
--------------------------------------------------------------------
Total shareowners' investment 15,880 31,456 1,154 (27,510) 20,980
--------------------------------------------------------------------
Total liabilities and shareowners' investment $62,614 $45,296 $1,905 $ (7,405) $102,410
====================================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
2
<PAGE>
EXHIBIT 99.3
Bell Atlantic Corporation
Pro Forma Combined Condensed Statement of Income
For the Twelve Months ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Adjusted Pro Forma
Historical Vodafone PrimeCo Pro Forma Combined
(Dollars in Millions, Except Per Share Amounts) Bell Atlantic AirTouch (Note 1) Adjustments Bell Atlantic
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $33,174 $5,298 $ 486 $(127) (4) $38,831
Operating expenses 24,679 4,944 687 (127) (4) 30,990
807 (7)
----------------------------------------------------------------------
Operating income 8,495 354 (201) (807) 7,841
Income (loss) from unconsolidated businesses 143 (72) 268 (3) 339
Other income and (expense), net 135 27 23 185
Interest expense 1,263 48 12 231 (8) 1,554
Mark-to-market adjustment for exchangeable
notes (664) (664)
Provision for income taxes 2,557 116 (415) (9) 2,258
Minority interest income (expense) (81) (79) 14 92 (6) (54)
----------------------------------------------------------------------
Income from continuing operations $ 4,208 $ 66 $(176) $(263) $ 3,835
======================================================================
Basic Earnings Per Common Share
Income from continuing operations per
common share $ 2.72 $ 2.47
----------------------------------------------------------------------
Weighted-average shares outstanding
(in millions) 1,553 1,553
----------------------------------------------------------------------
Diluted Earnings Per Common Share
Income from continuing operations per
common share $ 2.66 $ 2.42
----------------------------------------------------------------------
Weighted-average shares - diluted
(in millions) 1,583 1,583
----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements
3
<PAGE>
EXHIBIT 99.3
Bell Atlantic Corporation
Notes To Unaudited Pro Forma Combined Condensed Financial Statements
(Dollars In Millions)
Pro Forma Adjustments
(1) The following represents the historical results of operations and
financial position of PrimeCo, adjusted for the effect of the removal of
the results of operations and financial position for the Houston, Richmond
and Chicago Major Trading Areas (MTA's) which were not part of this
purchase acquisition.
PrimeCo Personal Communications, L.P.
Pro Forma Condensed Consolidated Balance Sheet
December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Houston/Richmond/
(Dollars in Millions) Historical PrimeCo Chicago MTA's Adjusted PrimeCo
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 25 $ (2) $ 23
Receivables, net 106 (33) 73
Other current assets 77 (11) 66
----------------------------------------------------------------
208 (46) 162
----------------------------------------------------------------
Plant, property and equipment, net 1,650 (572) 1,078
Intangible assets, net 1,158 (497) 661
Other assets 5 (1) 4
----------------------------------------------------------------
Total assets $3,021 $(1,116) $1,905
================================================================
Liabilities and Shareowners' Investment
Current liabilities
Debt maturing within one year $ 39 $ (10) $ 29
Accounts payable and accrued liabilities 434 (75) 359
Other current liabilities 62 (15) 47
----------------------------------------------------------------
535 (100) 435
----------------------------------------------------------------
Long-term debt 220 (60) 160
----------------------------------------------------------------
Deferred credits and other liabilities 38 (8) 30
----------------------------------------------------------------
Minority interest 126 -- 126
----------------------------------------------------------------
Shareowners' investment
Contributed capital 2,102 (948) 1,154
----------------------------------------------------------------
Total shareowners' investment 2,102 (948) 1,154
----------------------------------------------------------------
Total liabilities and shareowners' investment $3,021 $(1,116) $1,905
================================================================
</TABLE>
4
<PAGE>
EXHIBIT 99.3
Bell Atlantic Corporation
Notes To Unaudited Pro Forma Combined Condensed Financial Statements
(Dollars In Millions)
PrimeCo Personal Communications, L.P.
Pro Forma Condensed Consolidated Statement of Income
For the Twelve Months ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Houston/Richmond/
(Dollars in Millions) Historical PrimeCo Chicago MTA's Adjusted PrimeCo
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 841 $(355) $ 486
Operating expenses 1,135 (448) 687
------------------------------------------------------------------
Operating income (294) 93 (201)
Other income and (expense), net 21 2 23
Interest expense 16 (4) 12
Minority interest income, net 14 -- 14
------------------------------------------------------------------
Income (loss) from continuing operations $(275) $ 99 $(176)
==================================================================
</TABLE>
(2) This adjustment eliminates Bell Atlantic's and Vodafone AirTouch's
historical equity investments in PrimeCo, as adjusted. PrimeCo, as
adjusted, becomes a wholly owned subsidiary of Verizon Wireless and will be
consolidated in the financial statements of Bell Atlantic. Costs included
in the equity investment balances in excess of PrimeCo's net assets are
recorded as an increase to intangible assets.
(3) This adjustment eliminates the equity loss associated with Bell Atlantic's
and Vodafone AirTouch's proportionate share of the results of operations
for PrimeCo for the year ended December 31, 1999, while retaining the
equity loss associated with Bell Atlantic's interest in Houston, Richmond
and Chicago MTA's, which Bell Atlantic will retain on the equity method.
(4) This entry reflects the elimination of certain intercompany roaming
revenues, expenses, receivables and payables between Vodafone AirTouch,
Bell Atlantic and PrimeCo, as adjusted.
(5) These adjustments give effect to the purchase method of accounting for the
acquisition of the U.S. cellular and paging operations of Vodafone
AirTouch, including Vodafone AirTouch's 50% ownership interest in PrimeCo,
as adjusted, and its contribution of an additional $3.6 billion of debt.
The estimate of the purchase price of $32 billion is preliminary, and is
subject to change upon the results of an independent third party appraisal
of the fair value of the domestic wireless assets and liabilities of
Vodafone AirTouch, as well as the identification of certain intangible
assets. The excess consideration of $8.5 billion, over Bell Atlantic's
carrying value in the Cellco Partnership, has been included as an
adjustment to equity in the consolidated financial statements. Also $23.5
billion has been included to account for the minority interest.
(6) This entry records Vodafone AirTouch's minority interest in the earnings of
Verizon Wireless, as adjusted by the pro forma entries.
(7) This entry represents the depreciation and amortization expense in 1999 for
the assets acquired less the expense amounts already reflected in the
historical financial statements of Vodafone AirTouch and PrimeCo. This
depreciation and amortization expense is based on a preliminary assessment
of the value of the acquired assets and estimated asset lives ranging from
5 to 40 years, and will be revised when we receive the results of an
independent third party appraisal of the fair value of the domestic
wireless assets and liabilities of Vodafone AirTouch and PrimeCo.
(8) This adjustment reflects the recognition of incremental interest expense on
the additional borrowings assumed from Vodafone AirTouch. Interest expense
for 1999 was calculated using an interest rate of 6.43%.
(9) These adjustments reflect the tax effect of the $8.5 billion adjustment to
equity and the pro forma income statement adjustments.
5
<PAGE>
EXHIBIT 99.4
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma financial statements that follow are for GTE Corporation
(GTE) and Bell Atlantic Corporation (Bell Atlantic) for the year ended December
31, 1999 in connection with the proposed merger of GTE and Bell Atlantic, taking
into account the combination of Bell Atlantic and Vodafone AirTouch plc
(Vodafone AirTouch) U.S. wireless assets (the "wireless transaction"). You may
find the unaudited pro forma financial statements as of and for the year ended
December 31, 1999 for the combination of Bell Atlantic and Vodafone AirTouch
U.S. wireless assets are included in Exhibit 99.3 to this Report on Form 8-K/A.
Pro forma financial information for earlier years has been previously filed with
the Securities and Exchange Commission. Bell Atlantic has supplied all
information contained in Exhibits 99.3 and 99.4 to this Report on Form 8-K/A
relating to Bell Atlantic and GTE has supplied all information relating to GTE.
The following unaudited pro forma combined condensed financial statements are
presented assuming that the merger of GTE and Bell Atlantic will be accounted
for as a pooling of interests. Under this method of accounting, the companies
are treated as if they had always been combined for accounting and financial
reporting purposes. These unaudited pro forma financial statements have been
prepared from, and should be read in conjunction with, the historical
consolidated financial statements and accompanying notes of GTE and Bell
Atlantic, which are included in the companies' Annual Reports on Form 10-K for
the year ended December 31, 1999. The unaudited pro forma financial information
is presented for illustration purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
merger had been completed at the dates indicated. The information does not
necessarily indicate the future operating results or financial position of the
combined company.
We prepared the following unaudited pro forma financial data by adding or
combining the historical amounts of each company (in the case of Bell Atlantic,
taking into account the effect of the wireless transaction as presented in
Exhibit 99.3) and adjusting the combined amounts for significant differences in
accounting methods used by each company. These adjustments are described in the
accompanying notes to the financial statements. We prepared the unaudited pro
forma combined balance sheet by combining the balance sheets of GTE and Bell
Atlantic (in the case of Bell Atlantic, taking into account the effect of the
wireless transaction as presented in Exhibit 99.3) at December 31, 1999. The
unaudited pro forma combined condensed statement of income gives effect to the
merger as if it had occurred at the beginning of the earliest period presented.
The terms of the merger specify that each share of GTE common stock will be
converted into the right to receive 1.22 shares of combined company common
stock. This exchange ratio was used in computing certain of the pro forma
adjustments and in computing share and per share amounts in the accompanying
unaudited pro forma financial information.
The unaudited pro forma financial data does not include (a) any dispositions
made, consideration received or costs incurred in connection with actions taken
with respect to certain overlapping wireless properties as a result of
regulatory or contractual issues associated with the GTE merger or the wireless
transaction or (b) the proposed initial public offering of a substantial portion
of GTE's internetworking business, Genuity Inc.
Cautionary Statement Concerning Forward-Looking Statements
This pro forma financial information contains forward-looking statements. These
statements are based on our estimates and assumptions and are subject to risks
and uncertainties. Forward-looking statements include the information concerning
our possible or assumed future results of operations. Forward-looking statements
also include those preceded or followed by the words "anticipates," "believes,"
"estimates," "hopes" or similar expressions. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
The following important factors could affect future results and could cause
those results to differ materially from those expressed in the forward-looking
statements:
. materially adverse changes in economic conditions in the markets served by
us or by companies in which we have substantial investments;
. material changes in available technology;
. the final outcome of federal, state, and local regulatory initiatives and
proceedings, including arbitration proceedings, and judicial review of
those initiatives and proceedings, pertaining to, among other matters, the
terms of interconnection, access charges, universal service, and unbundled
network element and resale rates;
1
<PAGE>
. the extent, timing, success, and overall effects of competition from others
in the local telephone and toll service markets;
. the timing and profitability of our entry into the in-region long distance
market;
. the timing of, and regulatory or other conditions associated with, the
completion of the merger with GTE and our ability to combine operations and
obtain revenue enhancements and cost savings following the merger; and
. the ability of Verizon Wireless, the entity created by the wireless
transaction, to combine operations and obtain revenue enhancements and cost
savings.
2
<PAGE>
EXHIBIT 99.4
Combined Company
Pro Forma Combined Condensed Balance Sheet
December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Combined Historical Pro Forma Pro Forma
(Dollars in Millions) Bell Atlantic GTE Adjustments Combined
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 1,959 $ 1,132 $ 3,091
Receivables, net 7,698 5,058 12,756
Net assets held for sale 1,802 1,802
Other current assets 1,994 1,451 $(232) (3b)
65 (3e) 3,278
------------------------------------------------------------
11,651 9,443 (167) 20,927
------------------------------------------------------------
Plant, property and equipment, net 44,435 23,233 (166) (3d) 67,502
Investments in unconsolidated businesses 7,353 3,932 11,285
Intangible assets, net 34,669 6,492 41,161
Other assets 4,302 7,732 12,034
------------------------------------------------------------
Total assets $102,410 $50,832 $(333) $152,909
============================================================
Liabilities and Shareowners' Investment
Current liabilities
Debt maturing within one year $ 5,959 $ 9,608 $ 15,567
Accounts payable and accrued liabilities 7,116 5,782 12,898
Other current liabilities 2,182 945 $ 143 (3b) 3,270
------------------------------------------------------------
15,257 16,335 143 31,735
------------------------------------------------------------
Long-term debt 22,214 13,957 36,171
------------------------------------------------------------
Employee benefit obligations 9,326 4,418 13,744
------------------------------------------------------------
Deferred income taxes 9,142 3,406 (63) (3e) 12,485
------------------------------------------------------------
Deferred credits and other liabilities 1,172 623 1,795
------------------------------------------------------------
Minority interest, including a portion subject to
redemption requirements 24,319 1,266 25,585
------------------------------------------------------------
Shareowners' investment
Common stock (2,756,484,606 shares) 158 50 68 (3a) 276
Contributed capital 18,650 8,680 (2,095) (3a) 25,235
Reinvested earnings 2,806 4,953 (310) (3b)
(103) (3d) 7,346
Accumulated other comprehensive income (loss) 450 (376) 74
------------------------------------------------------------
22,064 13,307 (2,440) 32,931
Less common stock in treasury, at cost 640 2,027 (2,027) (3a) 640
Less deferred compensation - employee
stock ownership plans 444 453 897
------------------------------------------------------------
Total shareowners' investment 20,980 10,827 (413) 31,394
------------------------------------------------------------
Total liabilities and shareowners' investment $102,410 $50,832 $(333) $152,909
============================================================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements.
3
<PAGE>
EXHIBIT 99.4
Combined Company
Pro Forma Combined Condensed Statement Of Income
For the Twelve Months ended December 31, 1999
(Unaudited)
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<CAPTION>
Pro Forma
Combined Historical Pro Forma Pro Forma
(Dollars in Millions, Except Per Share Amounts) Bell Atlantic GTE Adjustments Combined
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<S> <C> <C> <C> <C>
Operating revenues $38,831 $25,336 $64,167
Operating expenses 30,990 18,000 $(36) (3d) 48,954
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Operating income 7,841 7,336 36 15,213
Income from unconsolidated businesses 339 432 771
Other income and (expense), net 185 61 246
Interest expense 1,554 1,353 2,907
Mark-to-market adjustment for exchangeable notes (664) -- (664)
Provision for income taxes 2,258 2,291 14 (3e) 4,563
Minority interest income (expense) (54) (122) -- (176)
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Income from continuing operations $ 3,835 $ 4,063 $ 22 $ 7,920
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Basic Earnings Per Common Share
Income from continuing operations per
common share $ 2.47 $ 4.18 -- $ 2.89
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Weighted-average shares outstanding (in millions) 1,553 972 214 (3c) 2,739
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Diluted Earnings Per Common Share
Income from continuing operations per
common share $ 2.42 $ 4.15 -- $ 2.85
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Weighted-average shares - diluted (in millions) 1,583 979 215 (3c) 2,777
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See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements.
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Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Note 1 - Reclassifications
Reclassifications have been made to the historical financial statements to
conform to the presentation expected to be used by the combined company.
Note 2 - Exchange Ratio
The terms of the merger agreement specify that each outstanding share of GTE
common stock will be converted into 1.22 shares of combined company common
stock. This exchange ratio was used in computing share and per share amounts in
the accompanying pro forma financial information.
Note 3 - Pro Forma Adjustments
(a) A pro forma adjustment has been made to reflect the issuance of 1,180
million shares of combined company common stock in exchange for all
outstanding shares of GTE common stock as per the exchange ratio stated in
Note 2, above. The adjustment also reflects the cancellation of shares of
GTE treasury stock, but does not reflect the impact of fractional shares.
(b) A pro forma adjustment has been made to reflect direct incremental
merger-related costs. Amounts anticipated to be incurred (approximately
$143 million) have been shown as an increase to "Other current
liabilities." Amounts incurred through December 31, 1999 by GTE and Bell
Atlantic (approximately $232 million) have been shown as a reduction to
"Other current assets." The after-tax cost of this anticipated charge
(approximately $310 million) has been reflected as a reduction in
"Reinvested earnings."
(c) Pro forma adjustments have been made to the number of weighted average
shares outstanding used in the calculation of basic and diluted earnings
per share. The number of weighted average shares outstanding reflects the
conversion of shares and share equivalents of GTE common stock into
combined company common stock in accordance with the merger agreement.
(d) Pro forma adjustments have been made to conform GTE's accounting policies
for certain computer software costs to Bell Atlantic's policies.
(e) Pro forma adjustments have been made for the estimated tax effects of the
adjustments discussed in (b) and (d) above.
(f) There are no significant intercompany transactions between GTE and Bell
Atlantic.
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