<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 1-12342
_____________
AIRTOUCH COMMUNICATIONS, INC.
<TABLE>
<S> <C>
A DELAWARE CORPORATION I.R.S. EMPLOYER NUMBER 94-3213132
</TABLE>
ONE CALIFORNIA STREET
SAN FRANCISCO, CA 94111
(415) 658-2000
_____________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
------- -------
At April 30, 1995, 494,273,822 shares of common stock were outstanding.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Condensed Consolidated Statements of Income . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . 6
Supplementary Selected Proportionate Financial Data . . . . . . . . . . . . 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 10
REPORT OF INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . 15
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the 3 Months Ended
March 31,
----------------------
1995 1994
------- -------
<S> <C> <C>
Operating Revenues
Wireless services and other revenues $ 339.2 $ 256.6
Cellular and paging equipment sales 28.0 19.6
------- -------
Operating Revenues 367.2 276.2
------- -------
Operating Expenses
Cost of revenues 43.6 33.8
Cost of cellular and paging equipment sales 33.1 18.9
Selling and customer operations 108.5 72.0
General, administrative, and other 78.1 72.1
Depreciation and amortization 49.9 45.5
------- -------
Total Operating Expenses 313.2 242.3
------- -------
Operating Income 54.0 33.9
Interest expense (3.9) (1.6)
Minority interests in net income of consolidated
wireless systems (8.9) (6.3)
Equity in net income (loss) of unconsolidated
wireless systems:
Domestic 35.4 26.4
International (6.4) (4.0)
Interest income 12.1 12.8
Miscellaneous expense (8.5) (4.5)
------- -------
Income before income taxes 73.8 56.7
Income taxes 38.5 29.2
------- -------
Net Income $35.3 $27.5
======= =======
Net income per share $0.07 $0.06
======= =======
Weighted average shares outstanding (in millions) 494.1 492.5
======= =======
</TABLE>
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
3
<PAGE> 4
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 446.7 $ 429.0
Accounts receivable, net of allowance for uncollectibles
of $14.1 and $10.1 in 1995 and 1994, respectively 179.3 173.3
Held-to-maturity investments 77.2 310.1
Available-for-sale securities -- 101.3
Other receivables 54.9 128.2
Due from affiliates 26.2 25.9
Other current assets 88.1 98.5
-------- --------
Total Current Assets 872.4 1,266.3
-------- --------
Property, plant, and equipment 1,645.2 1,560.7
Less: accumulated depreciation 622.5 585.4
-------- --------
Net property, plant, and equipment 1,022.7 975.3
-------- --------
Investments in unconsolidated wireless systems 2,002.1 1,697.9
Intangible assets, net 498.6 470.5
Deferred charges and other noncurrent assets 69.6 78.0
-------- --------
Total Assets $4,465.4 $4,488.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 160.0 $ 202.9
Short-term borrowings 10.5 80.0
Other current liabilities 162.7 246.9
-------- --------
Total Current Liabilities 333.2 529.8
-------- --------
Long-term debt 127.4 120.2
Deferred income taxes 202.5 209.2
Deferred credits 141.6 39.4
-------- --------
Total Liabilities 804.7 898.6
-------- --------
Commitments and contingencies
Minority interests in consolidated wireless systems 134.1 129.8
-------- --------
Stockholders' Equity:
Preferred stock ($.01 par value; 50,000,000 shares authorized;
no shares issued or outstanding) -- --
Common stock ($.01 par value; 1,100,000,000 shares authorized;
494,388,191 shares issued and 494,265,231 shares outstanding
at March 31, 1995; 493,915,064 shares issued and 493,792,104
shares outstanding at December 31, 1994) 4.9 4.9
Additional paid-in capital 3,741.3 3,730.4
Accumulated deficit (254.7) (290.0)
Cumulative translation adjustment 19.1 11.1
Other 16.0 3.2
-------- --------
Total Stockholders' Equity 3,526.6 3,459.6
-------- --------
Total Liabilities and Stockholders' Equity $4,465.4 $4,488.0
======== ========
</TABLE>
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
4
<PAGE> 5
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
For the 3 Months Ended
March 31,
------------------------
1995 1994
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<S> <C> <C>
Cash From (Used For) Operating Activities:
Net income $ 35.3 $ 27.5
Adjustments to reconcile net income for items currently
not affecting operating cash flows:
Depreciation and amortization 49.9 45.5
Deferred income taxes 4.3 (2.5)
Minority interests in net income of consolidated
wireless systems 8.9 6.3
Equity in net income of unconsolidated wireless systems (29.0) (22.4)
Distributions received from equity investments 19.7 13.9
Changes in assets and liabilities:
Accounts receivable, net (5.4) 0.4
Other current assets and receivables 80.3 (9.2)
Deferred charges and other noncurrent assets (22.7) (7.8)
Accounts payable and other current liabilities (125.5) --
Deferred credits and other liabilities 8.5 (33.9)
------- -------
Cash From Operating Activities 24.3 17.8
------- -------
Cash From (Used For) Investing Activities:
Additions to property, plant, and equipment, net (92.5) (78.5)
Investment in unconsolidated wireless systems (199.3) (0.9)
Maturities (purchase) of held-to-maturity investments 232.9 (250.4)
Maturities of available-for-sale securities 121.8 --
Other investing activities (11.8) (2.4)
------- -------
Cash From (Used For) Investing Activities 51.1 (332.2)
------- -------
Cash From (Used For) Financing Activities:
Retirement of notes and obligations payable -- (2.6)
Distributions to minority interests in consolidated
wireless systems (4.6) (7.0)
Contributions from minority interests in consolidated
wireless systems -- 34.7
Decrease in short-term borrowings (69.4) --
Proceeds from issuing long-term debt 1.8 8.8
Proceeds from shares issued under incentive plans 10.3 --
Other financing activities 3.6 5.4
------- -------
Cash From (Used For) Financing Activities (58.3) 39.3
------- -------
Effect of exchange rate changes on Cash and Cash Equivalents 0.6 --
Increase (Decrease) In Cash and Cash Equivalents 17.7 (275.1)
Beginning Cash and Cash Equivalents 429.0 646.7
------- -------
Ending Cash and Cash Equivalents $ 446.7 $ 371.6
======= =======
</TABLE>
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
5
<PAGE> 6
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION
AirTouch Communications, Inc. and its subsidiaries (the "Company")
provide wireless telecommunications services in the United States,
Europe, and Asia. The Company is a holding company and its principal
subsidiaries are AirTouch Cellular, AirTouch Paging, AirTouch
International, and AirTouch Teletrac. These subsidiaries principally
provide cellular, paging, and vehicle location services.
The Condensed Consolidated Financial Statements include the accounts of
the Company and its subsidiaries and partnerships in which the Company
has controlling interests. Entities in which the Company has significant
influence but does not have a controlling interest are shown in the
Condensed Consolidated Financial Statements using the equity method of
accounting. All significant intercompany balances and transactions have
been eliminated. Certain prior period items have been reclassified to
conform with the 1995 format; however, these reclassifications did not
affect previously reported net income or accumulated deficit.
The Condensed Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles and are
presented in accordance with the rules and regulations of the Securities
and Exchange Commission applicable to interim financial information.
Accordingly, certain footnote disclosures have been condensed or omitted.
The Company recommends that these interim financial statements be read in
conjunction with the financial statements presented in the Company's 1994
Annual Report.
In the Company's opinion, the Condensed Consolidated Financial
Statements include all adjustments necessary to present fairly the
financial position and results of operations for each interim period
presented. All such adjustments are normal recurring adjustments. The
Condensed Consolidated Financial Statements have been reviewed by Coopers
& Lybrand, independent accountants, and their report is included herein.
B. CHANGE IN ACCOUNTING ESTIMATE
The Company recently completed a review of the estimated service lives
of certain domestic and international cellular telecommunications
equipment. As a result, the Company extended the estimated service lives
of such equipment from seven to ten years. The change was made to
reflect more accurately the estimated periods that such assets will
remain in service and was effective January 1, 1995. The new ten year
depreciation period is consistent with current industry standards. This
change increased net income by approximately $5.2 million for the three
months ended March 31, 1995, and increased earnings per share by
approximately $0.01 per share.
C. EARNINGS PER SHARE
Earnings per share were computed using weighted average common shares
outstanding totaling 494,088,455 for the three months ended March 31,
1995, and 492,500,000 for the three months ended March 31, 1994.
6
<PAGE> 7
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
D. INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
The Company's investments in unconsolidated wireless systems increased
approximately $304 million from December 31, 1994. The increase
primarily consisted of $212 million of capital contributions and
investments in international and domestic ventures and $82 million in
foreign currency translation gain on certain international investments
due to the weakening of the Dollar.
Summary Financial Information
Condensed operating results for the Company's significant equity
investments are as follows:
<TABLE>
<CAPTION>
For the 3 Months Ended
March 31,
-----------------------
1995 1994
------ ------
(Dollars in millions)
<S> <C> <C>
NEW PAR
Operating revenues $146.9 $116.0 (a)
Operating income $ 36.8 $ 21.3 (a)
Net income $ 37.2 $ 21.6
Mannesmann Mobilfunk GmbH
Net revenues $305.9 $171.1
Operating income (loss) $ 74.5 $ (2.9)
Net income (loss) $ 38.0 $ (4.3)
CMT Partners
Operating revenues $ 95.8 $ 76.9
Operating income $ 32.2 $ 30.9
Net income $ 36.1 $ 33.1
</TABLE>
-----------------
(a) Revised from previously issued financial statements to
conform to 1995 presentation.
E. CONTINGENCIES
A class action complaint was filed in November 1993 naming the Company as
general partner for Los Angeles SMSA Limited Partnership. In April 1995,
Los Angeles Cellular Telephone Company ("LACTC") was named as a necessary
party to the action. The plaintiff alleges that LACTC and the Company
conspired to fix the price of wholesale and retail cellular service in
the Los Angeles market. The plaintiff alleges damages for the class "in
a sum in excess of $100 million." The Company has answered the complaint
and intends to defend itself vigorously. The Company is attempting to
consolidate this case with several other class actions (see below) making
identical allegations. In addition, two other non-class action antitrust
cases making similar allegations are pending. In April 1995, a Federal
class action complaint filed in Los Angeles was dismissed on a motion for
summary judgment, and is being appealed. The Company does not believe
that these proceedings will have a material adverse effect on the
Company's financial position.
7
<PAGE> 8
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In three separate class action complaints filed during October and
November 1994 in San Diego (2) and San Francisco, all brought by the same
counsel, plaintiffs allege similar facts and circumstances as the
complaint described in the previous paragraph. The Company does not
believe that these proceedings will have a material adverse effect on the
Company's financial position.
The Company is party to various other legal proceedings in the ordinary
course of business. Although the ultimate resolution of these
proceedings cannot be ascertained, management does not believe they will
have a materially adverse effect on the results of operations or
financial position of the Company.
In the ordinary course of business, the Company has issued various
letters of responsibility and letters of support for performance
guarantees, refundable security deposits and credit facilities of certain
subsidiaries and affiliates. These letters of responsibility and letters
of support provide varying degrees of recourse to the Company, but in the
aggregate they would not have a material adverse impact on the Company's
financial position or results of operations. Separately, as of March 31,
1995, the Company guaranteed approximately $9.0 million owed by a third
party. The Company believes that the likelihood of having to pay under
the guarantee is remote. A subsidiary of the Company guarantees the
liabilities of a third party, for which the subsidiary is indemnified by
minority stockholders unaffiliated with the Company. The Company
provided a letter supporting the commercial paper program entered into by
Telecel Comunicacoes Pessoais, S.A. If certain loan covenants are not
met, the Company may be liable for its proportionate share of the loans,
approximately $7.8 million. The Company believes that the possibility it
will be required to pay under these various arrangements is remote.
F. SUBSEQUENT EVENTS
The Company was recently notified by the California State Attorney
General that no suit will be brought against the Company with respect to
the investigation by the Attorney General of the pricing of cellular
telephone service in the Los Angeles market.
In 1993, Congress passed legislation prohibiting state and local
governments from regulating the rates for commercial mobile radio
services, including cellular service. States with rate regulation in
place on June 1, 1993, including California, were given the opportunity
to petition the Federal Communications Commission ("FCC") for
continuation of such authority. The California Public Utilities
Commission ("CPUC") filed such a petition with the FCC. The statute
requires states to demonstrate that market conditions fail to protect
consumers from unjust and unreasonable rates, or unjustly and
unreasonably discriminatory rates. On May 11, 1995 the FCC denied the
CPUC's petition, finding that the CPUC failed to meet the statutory
standard. The FCC's order is effective on or before August 8, 1995.
8
<PAGE> 9
SUPPLEMENTARY SELECTED PROPORTIONATE FINANCIAL DATA
The following table is not required by generally accepted accounting principles
("GAAP") or intended to replace the Condensed Consolidated Financial Statements
prepared in accordance with GAAP. It is presented to provide supplemental
data. However, because significant assets of the Company are not consolidated,
the Company believes that proportionate financial and operating data facilitate
the understanding and assessment of its consolidated financial statements. The
following proportionate accounting table reflects the relative weight of the
Company's ownership interests in its domestic and international systems and
excludes certain investments for which the Company does not receive timely
detailed income statements.
<TABLE>
<CAPTION>
For the 3 Months Ended
March 31,
--------------------------
1995 1994
------- -------
(Dollars in millions)
<S> <C> <C>
TOTAL COMPANY
Total proportionate net operating revenues (1) $553.8 $370.7
Total proportionate operating income (1) $ 94.3 $ 48.2
Total proportionate operating cash flow (1) & (2) $188.8 $117.7
DOMESTIC CELLULAR OPERATING RESULTS
Service and other revenues $334.6 $257.7
Equipment sales 22.8 18.2
Cost of equipment sales (31.3) (18.3)
------ ------
Net operating revenues 326.1 257.6
------ ------
Cost of revenues 34.2 30.1
Selling, general, administrative and other expenses 142.6 108.8
Depreciation expense 39.9 39.1
Amortization expense 5.4 5.1
------ ------
Total costs and expenses 222.1 183.1
------ ------
Operating income $104.0 $ 74.5
====== ======
Operating cash flow (2) $149.3 $118.7
====== ======
</TABLE>
(1) Total proportionate results do not include certain international and
insignificant domestic cellular investments for which the Company does
not receive detailed income statements on a timely basis. The net
loss associated with the international investments was approximately
$12.2 million for the three months ended March 31, 1995.
(2) Operating cash flow is defined as operating income plus depreciation
and amortization and is not the same as cash flow from operating
activities in the Company's Condensed Consolidated Statements of Cash
Flows. Proportionate operating cash flow represents the Company's
ownership interest in the respective entities multiplied by the
entities' operating cash flows and does not represent cash available
to the Company.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion is intended to assist in the understanding and
assessment of significant changes and trends related to the results of
operations and financial condition of AirTouch Communications, Inc., together
with its consolidated subsidiaries and partnerships (the "Company"). This
discussion and analysis should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes, the Company's 1994
Annual Report to Stockholders, and Form 10-K for the year ended December 31,
1994.
Under generally accepted accounting principles ("GAAP"), the Company reports
revenues and expenses in its consolidated income statement for each subsidiary
and partnership in which it has a controlling interest. The Company uses the
equity method to account for the operating results of entities over which the
Company has significant influence but in which it does not have a controlling
interest. A discussion of the Company's domestic cellular results of
operations on a proportionate basis follows the GAAP presentation in
"Proportionate Results of Domestic Cellular Operations." Proportionate
accounting is not required by GAAP or intended to replace the Condensed
Consolidated Financial Statements prepared in accordance with GAAP.
RESULTS OF OPERATIONS
The following discussion compares the Company's results of operations for the
three months ended March 31, 1995, and 1994.
WIRELESS SERVICES AND OTHER REVENUES. Wireless services and other revenues
consist of revenues from cellular, paging, vehicle location and other services.
Such revenues increased $82.6 million for the first quarter of 1995 over the
prior year period primarily as a result of a $61.2 million increase in domestic
cellular revenues. Domestic cellular subscribers increased 47.0% mainly due to
continued subscriber growth particularly in the consumer market during the last
half of 1994. The rapid increase in new cellular customers is largely the
result of increased demand in the consumer segment of the market. Consumer
customers typically subscribe to lower usage plans than business customers, and
as a result increases in cellular service revenues have not kept pace with
subscriber growth. Average revenue per domestic cellular subscriber declined
11.6% for the first quarter of 1995 over the prior year period. Additionally,
payments to other carriers for unbillable roaming fraud continue to reduce
revenues. Because a high percentage of new subscribers are consumer users, the
Company expects that average revenue per subscriber will follow the industry
trend and continue to decline as the Company adds new subscribers.
CELLULAR AND PAGING EQUIPMENT. Equipment sales revenue consists of revenues
from sales of cellular telephones and pagers. Equipment sales are not a
primary part of the Company's cellular and paging businesses. Equipment sales
increased $8.4 million for the first quarter of 1995 over the prior year
period. The Company faces competitive pressure to sell telephone handsets at
or below cost, which resulted in a negative equipment margin in the first
quarter of 1995. The Company believes, however, that reduced prices for
equipment have contributed significantly to subscriber growth, particularly in
the consumer market. Additionally, equipment write downs and other adjustments
contributed to the negative margin in the first quarter of 1995. The Company
expects contribution margins of equipment sales to remain negative as it
responds to competitive market pressure.
COST OF REVENUES. These costs primarily consist of interconnection charges
with wireline telephone companies for cellular and paging operations, other
network related expenses, and equipment costs for credit-card verification
terminals. Costs associated with credit-card verification terminals amounted
to 5.5% and 3.8% of the cost of revenues in the first quarter of 1995 and 1994,
respectively. Cost of revenues as a percentage of wireless services and other
revenues was 12.3% and 12.8% for the first quarter of 1995 and 1994,
respectively, after eliminating amounts related to credit-card verification
terminals. The decline reflects effective cost management and technical
efficiencies obtained by taking advantage of lower cost traffic configurations,
as well as economies of scale for the fixed and variable components of
interconnection costs (including certain rate reductions). Cost of revenues is
expected to continue to decline as a percentage of wireless services and other
revenues.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
SELLING AND CUSTOMER OPERATIONS EXPENSES. These expenses primarily consist of
compensation to sales channels, salaries, and related benefits for sales and
customer service personnel, and billing, advertising, and promotional expenses.
Such expenses increased $36.5 million in the first quarter of 1995 over the
prior year period. As a percentage of operating revenues, these expenses
increased from 26.0% in the first quarter of 1994 to 29.5% during the 1995
period. The increase is primarily due to subscriber growth programs
established during the second half of 1994 to attract new domestic cellular
subscribers, and are primarily for commissions paid for new cellular
subscribers, and advertising and other promotional expenses associated with new
marketing efforts. Additionally, customer operations were expanded to support
the increased number of subscribers. The Company expects the increase in
customer operations expenses to grow less rapidly once its new customer support
system is fully operational. Deployment of the customer support system is
being phased in each of the Company's managed markets, and is expected to be
completed by early 1996. However, selling and customer operations expenses are
expected to increase as a percentage of operating revenues as the Company
continues its promotional programs and marketing efforts to increase the number
of subscribers.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES. These expenses primarily consist
of salaries, wages and related benefits for general and administrative
personnel, international license application costs, and other overhead
expenses. Such expenses increased $6.0 million in the first quarter of 1995
over the prior year period. The increase primarily relates to the additional
expenses for certain corporate functions previously provided by Pacific Telesis
Group ("Telesis"). General, administrative, and other expenses declined as a
percentage of operating revenues from 26.1% in the first quarter of 1994 to
21.3% during the 1995 period. On April 1, 1994, the Company was spun-off from
Telesis.
DEPRECIATION AND AMORTIZATION. These charges primarily consist of depreciation
expense on the Company's domestic cellular and paging networks, as well as
amortization of intangibles such as Federal Communications Commission ("FCC")
license costs and goodwill. Depreciation and amortization increased $4.4
million for the first quarter of 1995 over the prior year period. However,
depreciation and amortization declined as a percentage of operating revenues
from 16.5% in the first quarter of 1994 to 13.6% during the 1995 period.
Depreciation expense was reduced by approximately $7 million due to a change in
the estimate of useful lives for certain cellular assets from seven to ten
years effective January 1, 1995. This reduction is expected to be consistent
in each of the remaining quarters of 1995. Depreciation and amortization are
expected to continue to decline as a percentage of operating revenues.
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED WIRELESS SYSTEMS
DOMESTIC. Domestic equity earnings increased $9.0 million for the first
quarter of 1995 over the prior year period primarily as a result of the
increased earnings of CMT Partners and New Par, partially offset by the
development expenses incurred by the Company's personal communications services
("PCS") ventures. A portion of the increased earnings of CMT Partners and New
Par resulted from the effect of extending the depreciable lives of certain
assets from seven to ten years effective January 1, 1995.
INTERNATIONAL. Equity losses for international unconsolidated wireless systems
increased $2.4 million for the first quarter of 1995 over the prior year
period. While the profitability of Mannesmann Mobilfunk GmbH ("MMO") and
operations in Belgium increased, and losses from operations in Portugal
decreased, losses from operations in Japan together with approximately $10.2
million of equity losses from start-up joint ventures in Italy, South Korea and
Spain, resulted in an increase in equity losses. A portion of the increased
earnings of MMO resulted from the effect of extending the depreciable lives of
certain assets from seven to ten years effective January 1, 1995.
MISCELLANEOUS INCOME (EXPENSE). Miscellaneous expense primarily consists of
unrealized losses on foreign currency fluctuations of economic hedges caused by
a decline in value of the Dollar. A majority of the unrealized loss is due to
the mismatch in the book value of an equity investment (resulting from start-up
losses) in relation to the value of qualifying hedges. The remainder of the
unrealized loss is due to the Yen denominated obligations, used to acquire
certain Japanese investments, which do not qualify for hedge accounting
treatment.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
TELETRAC. Teletrac reported pre-tax losses of $6.1 million and $9.0 million
for the three months ended March 31, 1995 and 1994, respectively. In its
current mode of operations, the Company does not expect Teletrac's operations
to be profitable for the foreseeable future. The Company intends to further
pursue cost containment measures to minimize Teletrac's operating losses. The
Company has no plans to expand Teletrac's operations and is evaluating various
alternatives, including disposition of the business. Teletrac must file with
the FCC by May 23, 1995, a list of markets it intends to build-out, if any, in
order to maintain the licenses it holds for markets in which systems have not
yet been constructed. Licenses not built-out by April 1996 will be forfeited.
PROPORTIONATE RESULTS OF DOMESTIC CELLULAR OPERATIONS
The following table is unaudited and is not required by GAAP or intended to
replace the Condensed Consolidated Financial Statements prepared in accordance
with GAAP. It is presented to provide supplemental data. Because significant
assets of the Company are not consolidated, the Company believes that
proportionate financial and operating data facilitate the understanding and
assessment of its Condensed Consolidated Financial Statements. The following
proportionate accounting table reflects the relative weight of the Company's
ownership interests in its consolidated domestic cellular subsidiaries and in
New Par (Ohio/Michigan), Cellular Communications, Inc. (Ohio/Michigan), and
CMT Partners (California, Texas, Missouri, and Kansas).
SELECTED PROPORTIONATE DOMESTIC CELLULAR OPERATING DATA
OPERATING RESULTS (For the Three Months Ended March 31, 1995 and 1994)
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994
- --------------------- ---- ----
<S> <C> <C>
Service and other revenues $ 334.6 $ 257.7
Equipment sales 22.8 18.2
Cost of equipment sales (31.3) (18.3)
------- -------
Net operating revenues 326.1 257.6
------- -------
Cost of revenues 34.2 30.1
Selling and customer operations 113.7 81.3
General, administrative and other 28.9 27.5
Depreciation and amortization 45.3 44.2
------- -------
Total operating expenses 222.1 183.1
------- -------
Operating income $ 104.0 $ 74.5
======= =======
Operating cash flow(1) $ 149.3 $ 118.7
======= =======
Capital expenditures, excluding acquisitions $ 63.0 $ 50.8
======= =======
OPERATING DATA (March 31,1995 and 1994)
(Amounts in thousands) 1995 1994
- ---------------------- ---- ----
POPs(2) 35,390 34,889
Proportionate cellular subscribers(3) 1,664 1,131
- --------------------------------------------------------------------------------
</TABLE>
See footnotes
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Footnotes:
(1) Operating cash flow is defined as operating income plus depreciation and
amortization and is not the same as cash flow from operating activities in
the Company's Condensed Consolidated Statements of Cash Flows.
Proportionate operating cash flow represents the Company's ownership
interest in the respective domestic cellular entities multiplied by the
entities' operating cash flows. As such, proportionate operating cash flow
does not represent cash available to the Company.
(2) POPs are the estimated market population multiplied by the Company's
ownership interest in the cellular system in that market.
(3) Cellular subscriber data includes only those cellular systems that are
included in the operating results shown in Selected Proportionate Domestic
Cellular Operating Data multiplied by the Company's ownership interest.
Data from certain cellular systems is excluded because the data is not
available on a timely basis and is insignificant.
Cellular service and other revenues increased 29.8% for the first quarter of
1995 over the prior year period. The increase is attributable to 47.1% growth
in the number of subscribers, which is the result of growth programs employed
to penetrate the consumer market during 1994. However, increases in cellular
service and other revenues have not kept pace with subscriber growth because of
declining average revenue per subscriber, resulting from the change in customer
mix between the business and consumer segments of the subscriber base. The
Company expects that average revenue per subscriber will follow the industry
trend and continue to decline as the Company adds new subscribers.
Equipment sales revenue consists of revenues from sales of cellular telephones
and increased 25.3% for the first quarter of 1995 over the prior year period.
The Company faces competitive pressure to sell telephone handsets at or below
cost, which resulted in a negative equipment margin in the first quarter of
1995. The Company believes, however, that reduced prices for equipment have
contributed significantly to subscriber growth, particularly in the consumer
market. Additionally, equipment write downs and other adjustments contributed
to the negative margin in the first quarter of 1995. The Company expects
contribution margins of equipment sales to remain negative as it responds to
competitive market pressure.
Cost of revenues increased 13.6% for the first quarter of 1995 over the prior
year period. However, the cost of revenues declined as a percentage of net
operating revenues from 11.7% in the first quarter of 1994 to 10.5% during the
1995 period. The decrease reflects economies of scale of fixed and variable
network costs which are spread over a larger subscriber base, technical
efficiencies, and continuing cost containment efforts in each of the Company's
markets.
Selling and customer operations expenses increased 39.9% for the first quarter
of 1995 over the prior year period. These expenses increased as a percentage
of net operating revenues from 31.6% in the first quarter of 1994 to 34.9%
during the 1995 period. This reflects an increase in sales commissions,
advertising, promotional expenses, and billing expenses associated with the
increased number of domestic cellular subscribers.
COMPETITION AND REGULATION
The Company's domestic operations are highly regulated and its results of
operations may be significantly affected by new regulatory developments. In
addition, the offering of cellular and paging services in the Company's
domestic and international markets is continuing to be increasingly
competitive. See Item 1, "Business" in the Company's 1994 Form 10-K for an
extensive discussion of these matters.
CONTINGENCIES
The Company is party to various legal proceedings including certain antitrust
litigation. See Note E, "Contingencies," in the Notes to Condensed
Consolidated Financial Statements.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company defines liquidity as its ability to generate resources to finance
business expansion, construct capital assets, and pay its current obligations.
The Company requires substantial capital to expand and operate its existing
wireless systems, to construct new wireless systems, and to acquire interests
in existing wireless systems. During the three month period ended March 31,
1995, the Company made capital expenditures of $95.5 million for additions to
its cellular and paging networks and other capital improvements primarily to
increase capacity and to support rapid customer growth. Other investments
included $187.1 million of capital contributions to unconsolidated wireless
systems, and $12.2 million for the cost of acquiring interests in wireless
systems. These expenditures included: additional investment in Globalstar,
contributions to cellular ventures in Italy, South Korea, and Spain; new and
additional investments in Canada and Germany; and payment for PCS broadband and
narrowband licenses.
The Company will be required to make substantial expenditures in connection
with its efforts to expand its wireless business. At March 31, 1995, the
Company was committed to spend approximately $160 million for the acquisition
of property, plant, and equipment. In addition to these commitments and
including the expenditures described in the preceding paragraph, the Company
expects to make capital expenditures of approximately $920 million during 1995
and 1996 to increase the capacity of the existing analog network and to deploy
digital technology. The Company expects to make capital contributions to its
existing international and domestic joint ventures, including the recently
acquired PCS broadband licenses and the associated market build-out, of
approximately $880 million through the end of 1996. In March 1995, PCS
PrimeCo, in which the Company, U S WEST, Bell Atlantic and NYNEX are partners,
was the high bidder for eleven PCS broadband licenses for Major Trading Areas
in the FCC's auction. The Company's share of the cost of the licenses is
approximately $277 million. Also, approximately $720 million will be spent for
the purchase of additional CCI shares as described below.
Under the terms of a merger agreement with Cellular Communications, Inc.
("CCI"), the Company is obligated to purchase up to 10.04 million CCI shares in
October 1995 at $60 per share, and to purchase from CCI shares or stock options
representing in the aggregate approximately 2.4 million shares at a price of
$60 per share, less the exercise price in the case of stock options (the
"Mandatory Redemption Obligation" or "MRO"). The Company's funding obligation
in connection with the MRO will not exceed $720 million. To support the MRO
obligation, the Company has a revolving line of credit for $600 million. A
$600 million irrevocable letter of credit has been issued under the credit
facility for the benefit of CCI and expires in 1996. In addition, beginning in
August 1996, the Company may be obligated to make payments to CCI stockholders
in the event that the Company does not elect to purchase CCI's interest in New
Par at an appraised value.
The amount of cash available, including cash and cash equivalents, investments
in securities, available unused financial arrangements, off balance sheet
financing, and cash from 1995 operations, will not be sufficient to fund the
Company's capital needs. Further, the Company does not expect its operations
to generate sufficient cash to meet its capital requirements for the next
several years. The Company is in the process of negotiating a revolving credit
facility which is expected to be finalized by mid-1995. The amount of the
facility is expected to be sufficient to meet the Company's cash requirements
for the remainder of the year. The Company is also considering raising
additional funds through public or private sales of debt or equity securities.
14
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of AirTouch Communications, Inc.:
We have reviewed the condensed consolidated balance sheet of AirTouch
Communications, Inc. and Subsidiaries as of March 31, 1995 and the related
condensed consolidated statements of income for the three-month period ended
March 31, 1995 and 1994 and cash flows for the three-month period ended March
31, 1995 and 1994. These financial statements are the responsibility of
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have also reviewed the Supplementary Selected Proportionate Financial Data
for the three-month period ended March 31, 1995 and 1994 presented on page 9.
As described on page 9, the Supplementary Selected Proportionate Financial Data
have been prepared by management to present relevant financial information that
is not provided by the condensed consolidated financial statements and is not
intended to be a presentation in accordance with generally accepted accounting
principles.
Based on our review, we are not aware of any material modifications that
should be made to the Supplementary Selected Proportionate Financial Data
referred to above for them to be in conformity with the basis of accounting
described on page 9.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of AirTouch Communications, Inc. and
Subsidiaries as of December 31, 1994, and the related consolidated statements
of income, cash flows, and stockholders' equity for the year then ended (not
presented herein); and in our report dated March 13, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1994 is presented fairly, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
May 11, 1995
15
<PAGE> 16
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company uses consolidation and proportionate principles of accounting to
present certain financial information. Proportionate financial information is
not required by generally accepted accounting principles ("GAAP") or intended
to replace the Condensed Consolidated Financial Statements prepared in
accordance with GAAP. Under GAAP, the Company consolidates the entities in
which it has a controlling interest, and uses the equity method to account for
entities when the Company has significant influence but does not have a
controlling interest. In contrast, proportionate accounting reflects the
Company's relative ownership interests in operating revenues and expenses for
both its consolidated and equity method entities.
SELECTED SUPPLEMENTAL FINANCIAL DATA (1)
<TABLE>
- -----------------------------------------------------------------------------------
TOTAL COMPANY
<CAPTION>
For the 3 Months Ended
March 31,
----------------------
1995 1994
------ ------
(Dollars in millions)
<S> <C> <C>
Consolidated capital expenditures, excluding
acquisitions and capital calls (GAAP basis) $ 95.5 $ 68.3
Total proportionate net operating revenues $553.8 $370.7
Total proportionate operating income $ 94.3 $ 48.2
Total proportionate operating cash flow (2) $188.8 $117.7
</TABLE>
<TABLE>
<CAPTION>
March 31,
----------------------
1995 1994
-------- -------
(in thousands)
<S> <C> <C>
Total proportionate cellular POPs (3) 100,065 75,290
Total proportionate cellular subscribers (4) 2,109 1,322
Total proportionate paging units in service (4) 1,760 1,375
- -----------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
OTHER INFORMATION
(continued)
DOMESTIC CELLULAR OPERATIONS - PROPORTIONATE
<TABLE>
<CAPTION>
For the 3 Months Ended
March 31,
----------------------
1995 1994
------ ------
(Dollars in millions)
<S> <C> <C>
Domestic Operating Results
Service and other revenues $334.6 $257.7
Equipment sales 22.8 18.2
Cost of equipment sales (31.3) (18.3)
------ ------
Net operating revenues 326.1 257.6
------ ------
Cost of revenues 34.2 30.1
Selling and customer operations 113.7 81.3
General, administrative, and other expenses 28.9 27.5
Depreciation expense 39.9 39.1
Amortization expense 5.4 5.1
------ ------
Total costs and expenses 222.1 183.1
------ ------
Operating income $104.0 $ 74.5
====== ======
Operating cash flow (2) $149.3 $118.7
Operating cash flow margin 45.8% 46.1%
Capital expenditures, excluding acquisitions $ 63.0 $ 50.8
</TABLE>
<TABLE>
<CAPTION>
March 31,
----------------------
1995 1994
------ ------
(in thousands)
<S> <C> <C>
Operating Data
Total POPs, domestic (3) 35,390 34,889
Proportionate subscribers, domestic 1,664 1,131
- ------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
OTHER INFORMATION
(continued)
DOMESTIC PAGING OPERATIONS (5)
<TABLE>
<CAPTION>
For the 3 Months Ended
March 31,
----------------------
1995 1994
------ ------
(Dollars in millions)
<S> <C> <C>
Domestic Operating Results
Service and other revenues $50.9 $42.5
Equipment sales 11.3 9.1
Cost of equipment sales (9.7) (8.1)
----- -----
Net operating revenues 52.5 43.5
Total operating expenses before depreciation
and amortization 35.2 28.5
Depreciation and amortization 9.7 8.6
----- -----
Operating income $ 7.6 $ 6.4
====== ======
Operating cash flow (2) $17.3 $15.0
Operating cash flow margin 33.0% 34.5%
Capital expenditures, excluding acquisitions $13.3 $11.6
</TABLE>
<TABLE>
<CAPTION>
March 31,
--------------------
1995 1994
----- -----
(in thousands)
<S> <C> <C>
Operating Data
Units in service 1,634 1,264
- ---------------------------------------------------------------------------------
</TABLE>
INTERNATIONAL OPERATIONS
<TABLE>
<CAPTION>
For the 3 Months Ended
March 31,
----------------------
1995 1994
------- --------
(Dollars in millions)
<S> <C> <C>
Cellular Operating Results
Income / (loss) (6) $(11.6) $(8.3)
Impact of start-ups on income / (loss) (7) $(10.2) $(2.1)
</TABLE>
<TABLE>
<CAPTION>
March 31,
---------------------
1995 1994
------ ------
(in thousands)
<C> <C>
Operating Data
Proportionate cellular POPs 64,675 40,401
Proportionate cellular subscribers (4) 445 191
Proportionate paging units in service (4) 126 111
- --------------------------------------------------------------------------------
</TABLE>
See footnotes
18
<PAGE> 19
OTHER INFORMATION
(continued)
Footnotes:
(1) Because significant assets of the Company are not consolidated, the
Company believes that proportionate financial and operating data
facilitate the understanding and assessment of its results. Unlike
consolidation accounting, proportionate accounting is not in accordance
with generally accepted accounting principles. Proportionate accounting
reflects the relative weight of the Company's ownership interests in its
domestic and international systems and excludes certain minority
investments for which the Company does not receive timely financial and
operating data.
(2) Operating cash flow is defined as operating income plus depreciation and
amortization and is not the same as cash flow from operating activities in
the Company's Condensed Consolidated Statements of Cash Flows.
Proportionate operating cash flow represents the Company's ownership
interest in the respective entities' operating cash flows. As such,
proportionate operating cash flow does not represent cash available to the
Company.
(3) POPs are the estimated market population multiplied by the Company's
ownership interest in that market and includes markets in which the
networks are under construction.
(4) Reflects total subscribers of all cellular systems and total units in
service of all paging systems outside the United States in which the
Company owns an interest multiplied by the Company's ownership interest.
(5) Domestic paging is wholly owned by the Company.
(6) Represents the Company's share of income or loss (after foreign taxes
where applicable) for international cellular systems including Germany,
Portugal, Belgium, Sweden, Japan, South Korea, Italy, and Spain.
(7) Represents the Company's share of income or loss (after foreign taxes
where applicable) for international cellular systems which have not yet
completed twelve months of commercial service, as follows:
1st Qtr 1995: Italy, South Korea, and Spain
4th Qtr 1994: Italy, South Korea, and Japan
1st Qtr 1994: Japan
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibits identified below are incorporated herein by reference as
exhibits hereto.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
15 Letter re unaudited interim financial information
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the period.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AIRTOUCH COMMUNICATIONS, INC.
By: /s/ Mohan S. Gyani
-------------------------
Mohan S. Gyani
Vice President, Finance and Treasurer
(Principal Accounting Officer)
Date: May 12, 1995
21
<PAGE> 22
Exhibit Index
<TABLE>
<S> <C>
Ex 15 Letter Re Unaudited Interim
Financial Information
Ex 27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 15
May 12, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: AirTouch Communications, Inc.
Registration Statements on Form S-8
Ladies and Gentlemen:
We are aware that our report dated May 11, 1995 on our review of interim
financial information of AirTouch Communications, Inc. and Subsidiaries ("the
Company") for the period ended March 31, 1995 and included in the Company's
quarterly report on Form 10-Q for the quarterly period then ended is
incorporated by reference in the registration statements of the Company on Form
S-8 relating to the AirTouch Communications, Inc. Retirement Plan, AirTouch
Communications, Inc. Employee Stock Purchase Plan and AirTouch Communications,
Inc. 1993 Long Term Stock Incentive Plan. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statements prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 446,700
<SECURITIES> 77,200
<RECEIVABLES> 193,400
<ALLOWANCES> 14,100
<INVENTORY> 0
<CURRENT-ASSETS> 872,400
<PP&E> 1,645,200
<DEPRECIATION> 622,500
<TOTAL-ASSETS> 4,465,400
<CURRENT-LIABILITIES> 333,200
<BONDS> 127,400
<COMMON> 4,900
0
0
<OTHER-SE> 3,521,700
<TOTAL-LIABILITY-AND-EQUITY> 4,465,400
<SALES> 28,000
<TOTAL-REVENUES> 367,200
<CGS> 33,100
<TOTAL-COSTS> 313,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,900
<INCOME-PRETAX> 73,800
<INCOME-TAX> 38,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,300
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
