<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
COMMISSION FILE NUMBER 1-12342
AIRTOUCH COMMUNICATIONS, INC.
A DELAWARE CORPORATION I.R.S. EMPLOYER NUMBER 94-3213132
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, 1996, 499,205,212 shares of common stock were outstanding.
<PAGE> 2
AIRTOUCH COMMUNICATIONS, INC.
INDEX TO REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
PART I -- FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Statements of Income.................................................. 3
Consolidated Balance Sheets........................................................ 4
Consolidated Statements of Cash Flows.............................................. 5
Notes to Consolidated Financial Statements......................................... 6
Selected Proportionate Operating Data.............................................. 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................... 11
REPORT OF INDEPENDENT ACCOUNTANTS...................................................... 21
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................................... 22
ITEM 2. CHANGES IN SECURITIES.................................................................. 22
ITEM 5. OTHER INFORMATION...................................................................... 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................................... 25
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements
of Income
AirTouch Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31
----------------------------
(Dollars in millions, except per share amounts) 1996 1995
----------------------------
<S> <C> <C>
Operating revenues(a) $ 448.9 $ 373.9
----------------------------
Operating expenses:
Cost of revenues(a) 103.0 83.4
Selling and customer operations expenses 138.3 108.5
General, administrative, and other expenses 93.3 78.1
Depreciation and amortization expenses 65.0 49.9
----------------------------
Total operating expenses 399.6 319.9
----------------------------
Operating income 49.3 54.0
Equity in net income (loss) of unconsolidated wireless systems:
Domestic 56.1 35.4
International ( 7.1) ( 6.4)
Minority interests in net (income) loss of consolidated wireless systems ( 8.5) ( 8.9)
Interest:
Expense ( 8.4) ( 3.9)
Income 4.5 12.1
Foreign exchange gain (loss) 1.7 ( 7.8)
Miscellaneous income (expense) 6.0 ( 0.7)
----------------------------
Income before income taxes 93.6 73.8
Income taxes 41.4 38.5
----------------------------
Net income $ 52.2 $ 35.3
============================
Net income per share $ 0.10 $ 0.07
============================
Weighted average shares outstanding (in thousands) 498,837 494,088
============================
</TABLE>
(a) Presentation for 1995 has been restated to conform to current year
presentation. See Note A.
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE> 4
Consolidated Balance Sheets
AirTouch Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
-------------------------------
(Dollars in millions) 1996 1995
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38.4 $ 82.9
Accounts receivable, net of allowance for uncollectibles of
$23.2 and $21.2, respectively 217.0 232.4
Other receivables 83.2 103.6
Due from affiliates 24.4 21.0
Other current assets 54.4 66.3
-------------------------------
Total current assets 417.4 506.2
Property, plant, and equipment, net 1,334.9 1,320.2
Investments in unconsolidated wireless systems 3,201.7 3,076.3
Intangible assets, net 582.5 605.7
Deferred charges and other noncurrent assets 249.9 139.5
-------------------------------
Total assets $ 5,786.4 $ 5,647.9
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 118.0 $ 171.4
Other current liabilities 351.0 316.3
-------------------------------
Total current liabilities 469.0 487.7
Long-term debt 1,000.2 892.4
Deferred income taxes 254.8 258.6
Deferred credits 93.1 106.0
-------------------------------
Total liabilities 1,817.1 1,744.7
-------------------------------
Commitments and contingencies
Minority interests in consolidated wireless systems 157.0 152.5
-------------------------------
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;
499,097,030 shares issued and 498,974,070 shares outstanding
at March 31, 1996; 498,692,430 shares issued and 498,569,470
shares outstanding at December 31, 1995) 5.0 5.0
Additional paid-in capital 3,887.1 3,877.2
Accumulated deficit ( 105.9) ( 158.1)
Cumulative translation adjustment 15.9 17.1
Other 10.2 9.5
-------------------------------
Total stockholders' equity 3,812.3 3,750.7
-------------------------------
Total liabilities and stockholders' equity $ 5,786.4 $ 5,647.9
===============================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
4
<PAGE> 5
Consolidated Statements
of Cash Flows
AirTouch Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31
--------------------------
(Dollars in millions) 1996 1995
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 52.2 $ 35.3
Adjustments to reconcile net income for items currently
not affecting operating cash flows:
Depreciation, amortization, and other non cash charges 65.8 49.9
Equity in net income of unconsolidated wireless systems ( 49.0) ( 29.0)
Distributions received from equity investments 27.1 19.7
Deferred income taxes 8.6 4.3
Minority interests in net income (loss) of consolidated wireless systems 8.5 8.9
Gain on sale of assets and telecommunications interests ( 6.9) ( 0.8)
Changes in assets and liabilities:
Accounts receivable, net 9.9 ( 5.4)
Other current assets and receivables 28.7 80.3
Deferred charges and other noncurrent assets 20.0 ( 22.7)
Accounts payable and other current liabilities ( 113.0) ( 125.5)
Deferred credits and other liabilities ( 0.1) 9.3
--------------------------
Cash flows from operating activities 51.8 24.3
--------------------------
Cash flows from investing activities:
Investment in unconsolidated wireless systems ( 122.4) ( 199.3)
Additions to property, plant, and equipment, net ( 35.0) ( 92.5)
Maturity of held-to-maturity investments -- 232.9
Maturity of available-for-sale securities -- 121.8
Purchase of CCI options pursuant to merger agreement ( 107.7) --
Other investing activities ( 10.3) ( 11.8)
--------------------------
Cash flows from investing activities ( 275.4) 51.1
--------------------------
Cash flows from financing activities:
(Decrease) increase in short-term borrowings 7.8 ( 69.4)
(Decrease) increase in long-term debt ( 542.5) 1.8
Proceeds from issuing commercial paper 705.0 --
Distributions to minority interests in consolidated wireless systems ( 4.8) ( 4.6)
Proceeds from shares issued 11.7 10.3
Other financing activities 2.3 3.6
--------------------------
Cash flows from financing activities 179.5 ( 58.3)
--------------------------
Effect of exchange rate changes on cash and cash equivalents ( 0.4) 0.6
--------------------------
Net change in cash and cash equivalents ( 44.5) 17.7
Beginning cash and cash equivalents 82.9 429.0
--------------------------
Ending cash and cash equivalents $ 38.4 $ 446.7
==========================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
5
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AirTouch Communications, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
A. Basis of Presentation
AirTouch Communications, Inc. and its subsidiaries provide wireless
telecommunications services in the United States, Europe, and Asia. AirTouch
Communications, Inc. (the "Company") is a holding company and its principal
subsidiaries are AirTouch Cellular, AirTouch Paging, and AirTouch
International. These subsidiaries principally provide cellular and paging
services. The majority of the Company's revenues are provided by its domestic
cellular operations.
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries and partnerships in which the Company has controlling
interests. All significant intercompany balances and transactions have been
eliminated.
Certain prior period items have been reclassified to conform with the 1996
format. Most significantly, in the fourth quarter of 1995, the Company
classified the costs of its domestic cellular roaming fraud as an operating
expense. These costs had previously been recorded as an offset to operating
revenues. The reclassifications did not have an effect on previously reported
operating income, net income, or accumulated deficit.
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applicable in the United
States and are presented in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC") 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 Consolidated Financial Statements presented in the
Company's 1995 Annual Report to Stockholders.
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 those estimates.
In the Company's opinion, the 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 Consolidated Financial Statements have been reviewed
by the Company's independent accountants and their report is included herein.
With respect to the unaudited consolidated financial information of the Company
for the three-month period ended March 31, 1996 included in this Form 10-Q,
Price Waterhouse LLP reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report dated May 10, 1996 appearing herein, states that
they did not audit and they do not express an opinion on the unaudited
consolidated financial information. Price Waterhouse LLP has not carried out
any significant or additional audit tests beyond those which would have been
necessary if their report had not been included. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Price Waterhouse LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933 ("Act") for their report on the unaudited consolidated financial
information because that report is not a "report" or a "part" of this Form 10-Q
prepared or certified by Price Waterhouse LLP within the meaning of Sections 7
and 11 of the Act.
6
<PAGE> 7
AirTouch Communications, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
B. Significant Changes since December 31, 1995
ACCOUNTING CHANGES
Effective January 1, 1996, the Company implemented the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Under SFAS No. 121, the Company is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss should be recognized whenever the review demonstrates that
the book value of a long-lived asset is not recoverable. The implementation of
SFAS No. 121 did not have an impact on the Company's financial condition or
results of operations.
DEFERRED CHARGES AND OTHER NONCURRENT ASSETS
Deferred charges and other noncurrent assets have increased $110.4 million,
approximately 79%, since December 31, 1995, primarily because of the Company's
purchase of options representing approximately 2.4 million shares of Cellular
Communications, Inc. ("CCI") stock. The January 1996 option purchase was for an
aggregate consideration of approximately $107.7 million, an amount equal to the
aggregate consideration paid by CCI for cancellation of its employee
replacement options pursuant to the 1990 Merger Agreement. The option purchase
did not affect the Company's percentage ownership of the outstanding stock of
CCI or its results of operations.
COMMERCIAL PAPER PROGRAM
In March 1996, the Company initiated a commercial paper program consisting of
the sale of discounted notes that are exempt from registration under the
Securities Act of 1933. The Company's Board of Directors has authorized the
issuance of commercial paper in amounts necessary to finance the Company's
working capital requirements, provided that the amount outstanding under the
commercial paper program, together with all indebtedness incurred under the $2
billion long-term revolving credit facility, does not in aggregate exceed $2
billion. The Company obtained A-2 and P-2 prime commercial paper ratings from
Standard & Poor's Corporation and Moody's Investor Service, respectively. These
ratings may be revised or withdrawn by the rating agencies at any time. At
March 31, 1996, borrowings of $705.0 million were payable to holders of
commercial paper and were classified as long-term debt because these borrowings
are supported by the Company's long-term revolving credit facility.
C. Investments in Unconsolidated Wireless Systems
Interests owned in cellular and other telecommunications systems of
unconsolidated wireless systems are as follows:
<TABLE>
<CAPTION>
March 31 December 31
(Dollars in millions) 1996 1995
----------------------------
<S> <C> <C>
Investments at equity $ 3,131.9 $ 3,006.5
Investments at cost 69.8 69.8
----------------------------
$ 3,201.7 $ 3,076.3
============================
</TABLE>
The Company's equity in net income of significant equity investees was $82.7
million and $46.1 million for the three months ended March 31, 1996 and 1995,
respectively. The Company's equity in net income of these investees differs
from its proportionate share of their reported net income in the table below
primarily due to adjustments required by the equity method of accounting.
Condensed operating results for the Company's significant equity investments
are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
(Dollars in millions) 1996 1995
----------------------
<S> <C> <C>
Mannesmann Mobilfunk GmbH
Operating revenues(a) $ 554.4 $ 354.1
Operating income $ 148.0 $ 74.5
Net income $ 66.8 $ 38.0
</TABLE>
(continued)
7
<PAGE> 8
AirTouch Communications, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
(Dollars in millions) 1996 1995
----------------------
<S> <C> <C>
New Par
Operating revenues(a) $ 177.5 $ 148.5
Operating income(a) $ 58.5 $ 36.8
Net income $ 59.0 $ 37.2
CMT Partners
Operating revenues(a) $ 125.3 $ 100.1
Operating income $ 45.7 $ 32.2
Net income $ 52.5 $ 36.1
CCI
Equity in net income of joint venture $ 29.8 $ 18.6
Operating income (loss)(a) $( 34.0) $ 14.2
Net income (loss) $( 27.2) $ 7.3
</TABLE>
(a) Restated to conform to the Company's basis of presentation.
D. 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 alleged LACTC and the Company conspired to fix the
price of wholesale and retail cellular service in the Los Angeles market. The
plaintiff alleged damages for the class "in a sum in excess of $100 million."
The Company has answered the complaint and is defending itself vigorously. This
case has been consolidated for purposes of discovery with two other class
actions making identical price-fixing allegations. The case was removed to
federal court, and on April 15, 1996, the federal court granted plaintiff's
motion to remand the case to state court. The Company does not believe that
these proceedings will have a material adverse effect on the Company's
financial position.
In three separate class action complaints filed during October and November
1994 in San Diego (2) and San Francisco (1), all brought by the same counsel,
plaintiffs also allege price-fixing by the two cellular carriers in each
market. In late 1995, the California Court of Appeals reversed a state trial
court decision dismissing the remaining plaintiff in a suit originally brought
by a U S WEST Inc. ("U S WEST") agent against U S WEST and the Company in 1990.
The Company does not believe that these proceedings will have a material
adverse effect on the Company's financial position.
In September 1995, a class action lawsuit was brought on behalf of all the
Company's cellular customers nationwide regarding customer notification of the
Company's practice with respect to billing for fractional minutes of service.
No dispositive motions have been filed in the proceeding and discovery has not
yet begun.
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 material adverse
effect on the results of operations or financial position of the Company.
In the ordinary course of business, the Company has issued letters of
responsibility and letters of support for performance guarantees, refundable
security deposits and credit facilities of certain subsidiaries and affiliates
providing varying degrees of recourse to the Company. At March 31, 1996, the
Company's proportionate share under such arrangements was $149.5 million. The
Company believes it is remote that it will be required to pay under these
various arrangements.
8
<PAGE> 9
AirTouch Communications, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
E. Subsequent Events
In April 1996, the Company entered into a merger agreement (the "1996 Merger
Agreement") with CCI to acquire the shares of CCI's capital stock that it does
not already own (approximately 60%) as an alternative to the transaction set
forth in the Company's original 1990 agreement with CCI. Pursuant to the 1996
Merger Agreement, CCI will merge into a wholly owned subsidiary of the Company.
The merger consideration will consist of approximately 72% in AirTouch
preferred securities and 28% in cash. Stockholders of CCI may elect to receive
securities or cash, subject to proration. The actual percentage of the
securities and cash exchanged for outstanding CCI stock to be acquired may be
adjusted at the time of merger, if necessary, to maintain tax-deferred
treatment for CCI stockholders. Total consideration to be paid by the Company
is anticipated to be approximately $1.65 billion, including the assumption of
approximately $200 million in net debt. The transaction will be recorded using
the purchase method of accounting for business combinations. The merger, which
is subject to regulatory approvals, CCI stockholder approval, and other
conditions, is expected to close in August. The acquisition of CCI is expected
to dilute the Company's earnings available to common stockholders over the next
several years as a result of the payment of dividends on preferred securities
issued to CCI stockholders, the amortization of acquired identifiable
intangible assets and goodwill, interest on debt issued or assumed in
connection with the transaction, and other factors. The extent of such dilution
is expected to be material. Unless the merger is approved and completed, the
appraisal process will commence in August 1996 in accordance with the 1990
Merger Agreement. In connection with the merger, the Company has filed a
Registration Statement on Form S-4 with the SEC on May 3, 1996 (Reg. No.
333-03107).
9
<PAGE> 10
AirTouch Communications, Inc. And Subsidiaries
Selected Proportionate Operating Data (UNAUDITED)
The following table is not required by GAAP and is not intended to replace the
Consolidated Financial Statements prepared in accordance with GAAP. It is
presented to provide supplemental data. Because significant assets of the
Company are not consolidated and because of the substantial effect of the
formation of certain joint ventures on the comparability of the Company's
consolidated financial results, the Company believes that proportionate
financial and operating data facilitates the understanding and assessment of
its Consolidated Financial Statements.
Under GAAP, the Company consolidates the entities in which it has a controlling
interest and uses the equity method to account for entities over which 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. For example, domestic cellular proportionate results
present the Company's share -- its percentage ownership -- for all significant
domestic cellular operations, including those joint ventures and partnerships
where the Company does not own more than 50 percent. Similarly, total
proportionate results show the Company's share of all its significant worldwide
operations.
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
(Dollars in millions) 1996 1995
<S> <C> <C>
TOTAL COMPANY(1)
Total net operating revenues(a) $ 801.4 $ 562.8
Total operating income $ 113.0 $ 86.4
Total operating cash flow(2) $ 244.8 $ 182.0
==========================
DOMESTIC CELLULAR OPERATIONS
Service and other revenues(a) $ 434.1 $ 343.5
Equipment sales 18.7 22.8
Cost of equipment sales ( 39.3) ( 31.3)
--------------------------
Net operating revenues 413.5 335.0
--------------------------
Cost of revenues(a) 49.4 43.1
Selling and customer operations expenses 143.6 113.7
General, administrative, and other expenses 33.8 28.9
Depreciation and amortization expenses 58.9 45.3
--------------------------
Total costs and expenses 285.7 231.0
--------------------------
Operating income $ 127.8 $ 104.0
==========================
Operating cash flow(2) $ 186.7 $ 149.3
==========================
</TABLE>
(a) Presentation for 1995 has been restated to conform to current year
presentation. See Note A, "Basis of Presentation," to the Consolidated
Financial Statements.
(1) Reflects results of systems in which the Company owns an interest,
multiplied by the Company's ownership interest, exclusive of cost-based
investments and certain equity-based investments that are not material to
the information presented.
(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 Consolidated Statements of Cash Flows. Proportionate operating
cash flow represents the Company's ownership interests in the respective
entities' operating cash flows. As such, proportionate operating cash flow
does not represent cash available to the Company.
10
<PAGE> 11
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
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" or
"AirTouch"). This discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes, the Company's 1995
Annual Report to Stockholders, and the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, including Item 1, "Business" therein.
Private Securities Litigation Reform Act Safe Harbor Statement. In addition to
historical information, management's discussion and analysis includes certain
forward-looking statements regarding events and financial trends which may
affect the Company's future operating results and financial position. Such
statements are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially. Such
factors include, but are not limited to: a change in economic conditions in the
Company's markets which adversely affects the level of demand for wireless
services; greater-than-anticipated competition resulting in price reductions,
new product offerings, or higher customer acquisition costs;
better-than-expected customer growth necessitating increased investment in
network capacity; increased cellular fraud; the impact of new business
opportunities requiring significant initial investments; the impact of
deployment of new technologies on capital spending; and the risk that
technologies will not be developed according to anticipated schedules, or
perform according to expectations. These and other risks and uncertainties
related to the business are described in detail in Item 1, "Business," of the
Company's 1995 Form 10-K under "Investment Considerations," which is
incorporated by reference herein. Readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Under generally accepted accounting principles ("GAAP"), the Company reports
revenues and expenses in its Consolidated Statements of Income 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 in
which the Company has significant influence, but does not have a controlling
interest.
A discussion of the Company's results of operations on a proportionate basis
follows the discussion of the GAAP-basis consolidated operating results in
"Proportionate Results of Operations." Proportionate accounting is not required
by GAAP or intended to replace the Consolidated Financial Statements prepared
in accordance with GAAP.
BUSINESS ENVIRONMENT
CCI ACQUISITION
In April 1996, the Company entered into a merger agreement (the "1996 Merger
Agreement") with Cellular Communications, Inc. ("CCI") to acquire the shares of
CCI's capital stock that it does not already own (approximately 60%) as an
alternative to the transaction set forth in the Company's original 1990
agreement with CCI. Pursuant to the 1996 Merger Agreement, CCI will merge into
a wholly owned subsidiary of the Company. The merger, which is subject to
regulatory approvals, CCI stockholder approval, and other conditions, is
expected to close in August. The merger consideration will consist of
approximately 72% in AirTouch preferred securities and 28% in cash.
Stockholders of CCI may elect to receive securities or cash, subject to
proration. The actual percentage of the securities or cash exchanged for
outstanding CCI stock may be adjusted at the time of the merger, if necessary,
to maintain tax-deferred treatment for CCI stockholders. Total consideration to
be paid by the Company is anticipated to be approximately $1.65 billion,
including the assumption of approximately $200 million in net debt. The
transaction will be recorded using the purchase method of accounting for
business combinations.
Upon consummation of the merger, AirTouch will own 100% of CCI and New Par, the
equally owned joint venture between the Company and CCI that operates cellular
properties in Michigan and Ohio. Accordingly, subsequent to the merger, the
Company will consolidate the operating results of CCI and New Par. Such
operating results are currently reported using the equity method of accounting.
11
<PAGE> 12
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
The acquisition of CCI is expected to dilute the Company's earnings available
to common stockholders over the next few years as a result of the payment of
dividends on preferred securities issued to CCI stockholders, the amortization
of acquired identifiable intangible assets and goodwill, interest on debt
issued or assumed in connection with the transaction, and other factors. The
extent of such dilution is expected to be material.
U S WEST JOINT VENTURE
The Company and U S WEST Inc. ("U S WEST") plan to combine their domestic
cellular properties into a joint venture ("WMC"). The Company and U S WEST are
currently seeking to obtain the necessary regulatory and other approvals and
consents necessary to contribute their respective cellular properties to WMC
pursuant to the second phase of their merger agreement. The Company and U S
WEST also plan to contribute their respective interests in their equally owned
Personal Communications Services ("PCS") partnership ("PCS Partnership") to
WMC. The PCS Partnership holds a 50% interest in PrimeCo Personal
Communications ("PrimeCo"), formerly PCS PrimeCo, L.P. The timing of the
contribution of the PCS Partnership is at U S WEST's discretion and will occur
at the closing of the second phase or at a later date selected by U S WEST, but
in no event later than mid-1998. The initial ownership interests of the Company
and U S WEST in WMC at the commencement of the second phase of the merger will
depend, among other things, upon the timing of the contribution of the parties'
respective domestic cellular properties, the ability of the Company and U S
WEST to contribute each of their respective domestic cellular properties, and
the timing of the contribution of the PCS Partnership. Some of the cellular
interests of the Company and U S WEST, including their general partner
interests in Los Angeles and Seattle, respectively, are subject to consent
provisions in connection with certain transactions. In addition, other
partnership interests may under certain circumstances be subject to rights of
first refusal provisions in favor of third parties. For further information
related to the contribution of the parties' domestic cellular properties, see
the discussion contained in the third and fourth paragraphs of the introduction
under the heading "Pro Forma Condensed Combined Financial Statements" in the
Company's Registration Statement on Form S-4 (Reg. No. 333-03107). See Item 1,
"Business-Domestic Cellular-Joint Ventures-WMC Partners," in the Company's 1995
Form 10-K and management's discussion and analysis in the Company's 1995 Annual
Report to Stockholders. The Company anticipates that the second phase of the
merger will occur in the fourth quarter of 1996 or the first quarter of 1997.
CONTINGENCIES
The Company is party to various legal proceedings, including certain antitrust
litigation. See Note D, "Contingencies," to the Consolidated Financial
Statements. For an extensive discussion of legal matters, see Item 1, "Legal
Proceedings," in Part II of this Report on Form 10-Q and Item 3 , "Legal
Proceedings," in the Company's 1995 Form 10-K.
RESULTS OF OPERATIONS
The following discussions compare the results of operations for the quarter
ended March 31, 1996 to the quarter ended March 31, 1995. The operating results
for the quarters ended March 31, 1996 and 1995 are not necessarily indicative
of operating results in future quarters. The following comparative information
should be read in conjunction with the Consolidated Financial Statements and
Notes for each period discussed, as well as the information presented in the
other sections of management's discussion and analysis.
DOMESTIC AND INTERNATIONAL OPERATIONS
Consolidated operating revenues and expenses principally include domestic
cellular operations in the Company's six consolidated markets, domestic paging
operations, and the international operations of the Company's Swedish cellular
subsidiary, NordicTel Holdings A.B. ("NordicTel"). The Company's six domestic
consolidated cellular markets are Los Angeles, Sacramento, Atlanta, San Diego,
Wichita, and Topeka.
OPERATING REVENUES AND EXPENSES
Operating revenues include cellular and paging service revenues and equipment
sales. Cellular service revenues primarily consist of air time charges, access
fees, and in-bound roaming charges. Paging service revenues primarily consist
of paging service charges and rentals of paging units in the United States.
Equipment sales consist of revenues from sales of cellular telephones and
pagers. Equipment sales are not a primary part of the Company's cellular or
paging businesses. Rather, the Company offers cellular and paging equipment at
competitive prices, which are usually at or below cost, in order to market its
cellular and paging services.
12
<PAGE> 13
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
Operating expenses include: cost of revenues; cost of equipment sales; selling
and customer operations expenses; general, administrative, and other expenses;
and depreciation and amortization expenses. Cost of revenues primarily consists
of interconnection fees charged by wireline telephone companies for cellular and
paging operations, costs of roaming fraud, and other network-related expenses.
Interconnection costs have fixed and variable components. The variable component
of interconnection costs, which fluctuates in relation to the level of cellular
calls and paging transmissions, consists of per-minute fees charged by wireline
phone companies for cellular calls or paging transmissions originating or
terminating on their networks. Selling and customer operations expenses
primarily consist of compensation to sales channels, salaries, wages, and
related benefits for sales and customer service personnel, and billing,
advertising, and promotional expenses. General, administrative, and other
expenses primarily consist of salaries, wages and related benefits for general
and administrative personnel, international license application costs, bad debt,
and other overhead expenses. Depreciation and amortization primarily consist of
depreciation expense on the Company's cellular and paging networks, as well as
amortization of intangibles such as wireless license costs and goodwill.
CONSOLIDATED RESULTS
<TABLE>
<S> <C> <C>
For the Three Months Ended March 31
-------------------------------------------------------------
Change
.......................
(Dollars in millions) 1996 %(a) 1995 %(a) $ %
-------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Wireless services and other revenues:
Cellular service(b) $340.9 75.9 $278.3 74.4 $62.6 22.5
Paging service 66.0 14.7 51.6 13.8 14.4 27.9
Other revenues 12.9 2.9 16.0 4.3 (3.1) (19.4)
-------------------------------------------------------
419.8 93.5 345.9 92.5 73.9 21.4
Cellular and paging equipment sales 29.1 6.5 28.0 7.5 1.1 3.9
-------------------------------------------------------
Operating revenues 448.9 100.0 373.9 100.0 75.0 20.1
-------------------------------------------------------
Operating expenses:
Cost of revenues(b) 57.2 12.7 50.3 13.5 6.9 13.7
Cost of cellular and paging equipment
sales 45.8 10.2 33.1 8.9 12.7 38.4
Selling and customer operations expenses 138.3 30.8 108.5 29.0 29.8 27.5
General, administrative, and other
expenses 93.3 20.8 78.1 20.9 15.2 19.5
Depreciation and amortization expenses 65.0 14.5 49.9 13.3 15.1 30.3
-------------------------------------------------------
Total operating expenses 399.6 89.0 319.9 85.6 79.7 24.9
-------------------------------------------------------
Operating income 49.3 11.0 54.0 14.4 (4.7) (8.7)
Equity in net income (loss) of
unconsolidated wireless systems:
Domestic 56.1 35.4 20.7 58.5
International (7.1) (6.4) (0.7) 10.9
Minority interests in net (income) loss of
consolidated wireless systems (8.5) (8.9) 0.4 (4.5)
Interest:
Expense (8.4) (3.9) (4.5) 115.4
Income 4.5 12.1 (7.6) (62.8)
Foreign exchange gain (loss) 1.7 (7.8) 9.5 (121.8)
Miscellaneous income (expense) 6.0 (0.7) 6.7 (957.1)
-------------------------------------------------------
Income before income taxes 93.6 73.8 19.8 26.8
Income taxes 41.4 38.5 2.9 7.5
-------------------------------------------------------
Net income $52.2 $35.3 $16.9 47.9
-------------------------------------------------------
</TABLE>
(a) Percentage of operating revenues.
13
<PAGE> 14
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
(b) Presentation for 1995 has been restated to conform to the current year
presentation. See Note A, "Basis of Presentation," to the Consolidated
Financial Statements.
INTERNATIONAL OPERATIONS
Consolidated international results during the three months ended March 31, 1996
comprised 9.8% and 14.2% of operating revenues and operating expenses,
respectively, as compared to 7.9% and 12.3% of operating revenues and operating
expenses, respectively, during the three months ended March 31, 1995.
OPERATING REVENUES
The increase in cellular service revenues resulted primarily from a 35.8%
increase in the Company's domestic customer base, partially offset by a 13.0%
decrease in the corresponding average revenue per customer. The Company
achieved growth in the consumer markets through advertising and by continuing
to offer incentive programs such as waived service establishment charges,
discounted monthly access fees, discounted and free cellular handsets, free air
time, and reduced or fixed rates for off-peak usage and roaming. For example,
the Company experienced significant success with its Companion Plans, which
offer existing customers reduced monthly access fees on one- and two-year
cellular service contracts for additional cellular telephone numbers. The
decline in average revenue per customer was primarily attributable to continued
success in penetrating the consumer markets and, to a lesser extent, increased
levels of roaming subsidies offered by the Company to its customers on
pass-through roaming charges assessed by other carriers. Consumer usage
patterns contribute to declines in average revenue per customer because
consumers typically make fewer telephone calls than business customers and
often place many of their calls during lower-rate, off-peak calling periods.
Discounts associated with customer incentive programs also contributed to
declines in average revenue per customer. The Company expects the shift toward
consumer markets to follow industry trend and continue to result in declining
average revenue per customer.
The increase in paging service revenues resulted from growth in existing paging
markets, as well as the acquisition of Message Center Beepers, Inc. ("Message
Center") in mid-December 1995.
CELLULAR AND PAGING EQUIPMENT SALES AND COST OF SALES
Negative equipment margins increased from $5.1 million during the three months
ended March 31, 1995 to $16.7 million during the three months ended March 31,
1996, due primarily to competitive pressures which required the Company to
offer customers heavily discounted or free cellular equipment. In that regard,
on April 5, 1995, the California Public Utilities Commission ("CPUC") lifted
its restrictions on the bundling of cellular service and equipment. Prior to
the lifting of such restrictions, cellular carriers in California were
prohibited from requiring customers to activate service in order to receive
discounts on cellular equipment. This change in state regulation contributed
significantly to further increases in domestic marketing of discounted cellular
equipment. The Company expects cellular equipment sales to continue to generate
negative margins for the foreseeable future. However, the Company believes that
reduced prices for cellular equipment contributed significantly to customer
growth during the first quarter of 1996, particularly in the consumer markets.
OPERATING EXPENSES
Increases in cost of revenues were primarily attributable to higher variable
interconnection and network costs resulting from increased usage associated
with customer growth, partially offset by the effects of scale and cost
containment efforts. As a percentage of wireless services and other revenues,
cost of revenues decreased from 14.5% during the three months ended March 31,
1995 to 13.6% during the three months ended March 31, 1996. The Company
anticipates that the cost of revenues will continue to decline as a percentage
of operating revenues as customers are added to existing networks.
The increase in selling and customer operations expenses was primarily
attributable to increased selling expenses associated with a 41.1% increase in
the gross number of customers added to the Company's consolidated domestic
cellular networks and, to a lesser extent, moderate increases in customer
operations expenses necessary to support growth in the customer base. Despite
expansion of customer operations functions, including the establishment of
fraud departments in most markets, domestic customer operations costs remained
relatively stable as a percentage of domestic cellular operating revenues,
reflecting increased benefits of economies of scale. Although aggregate selling
expenses increased due to strong customer growth, the average acquisition cost
per gross customer added to domestic cellular networks decreased by 13.3%
during the first quarter of 1996 as compared to the same quarter last year. The
decline in the average acquisition cost was attributable to improved
performance of lower-costs sales channels and to increased usage of customer
incentive programs such as discounted or free cellular service and
14
<PAGE> 15
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
telephones. Including the impact of negative equipment margins, which are not
recorded as a selling expense, the same domestic cellular average acquisition
cost per gross customer added remained relatively flat. The Company's
international consolidated cellular market also experienced increases in
selling and customer operations expenses, associated primarily with
strong customer growth.
The increase in general, administrative, and other expenses resulted primarily
from moderate expansion of administrative functions necessary to support
cellular and paging customer growth, the addition of administrative functions
associated with Message Center, increases in bad debt expenses, and
individually insignificant one-time items, including settlement of certain
litigation and costs associated with deployment of the new customer support
system. However, the impact of one-time items was offset by increasing
economies of scale and other efficiencies gained through the operation of WMC,
which caused general, administrative, and other expenses to remain flat at
approximately 21% of operating revenues.
Increases in depreciation and amortization primarily reflect increased
investment in property, plant, and equipment and intangible assets, including
assets acquired in connection with the acquisition of Message Center. The
increase in depreciation and amortization as a percentage of operating revenues
resulted primarily from significant capital investments during 1995 for the
build-out and expansion of wireless networks, partial deployment of the new
customer support system, and the installation of new fraud prevention and
detection equipment. The increase is also attributable to amortization of
identifiable intangible assets and goodwill associated with the acquisition of
Message Center, as well as higher depreciation of Message Center's assets
relative to the corresponding revenue stream.
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED WIRELESS SYSTEMS
Domestic. Equity earnings increased primarily as a result of growth in each of
the customer bases of New Par and CMT Partners, partially offset by declines in
average revenue per customer. A portion of the increase also was attributable
to the purchase of an additional 24% interest in CCI, the Company's 50% partner
in New Par.
International. The increase in international equity losses resulted primarily
from increased costs associated with start-up entities, which include Italy,
Spain, India, and Poland, as well as increased operating losses in Japan. The
increased losses generated by start-up systems, as well as higher operating
losses in Japan, resulted from costs associated with network build-outs and
rapid customer growth. These increases in start-up and operating losses were
partially offset by improved operating results in existing systems, primarily
Germany. Increased earnings in Germany were due primarily to significant
expansion of the customer base, as well as a 2.1% increase in the Company's
ownership interest.
OTHER INCOME (EXPENSE)
The increase in interest expense reflects higher debt balances during the three
months ended March 31, 1996 as compared to the same period during 1995,
partially offset by increased capitalization of interest during the first
quarter of 1996. Similarly, the decrease in interest income reflects lower cash
balances available for investment during the three months ended March 31, 1996
as compared to the same period during the prior year.
Foreign exchange gain (loss) varied from the prior year's loss as a result of
strengthening of the U.S. dollar and gains recorded on mismatched foreign
currency hedging instruments. The increase in miscellaneous income (expense)
was attributable to the net gain on the disposition of certain international
telecommunications interests.
INCOME TAXES
The decrease in the effective tax rate from 52.2% to 44.2% was primarily
attributable to the net book gain on the disposition of certain international
telecommunications interests, which had minimal net tax implications, a foreign
tax benefit recorded for NordicTel, and a decrease in non-deductible equity
losses relative to book income before taxes.
15
<PAGE> 16
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
PROPORTIONATE RESULTS OF OPERATIONS
The following tables for domestic and international proportionate cellular
operations are not required by GAAP or intended to replace the Consolidated
Financial Statements prepared in accordance with GAAP. The tables are presented
to provide supplemental data. Because significant assets of the Company are not
consolidated, the Company believes that proportionate financial and operating
data facilitates the understanding and assessment of its Consolidated Financial
Statements. The following proportionate accounting tables reflect the relative
weight of the Company's ownership interests in its domestic and international
systems. Data from certain systems is excluded because the data is not
available on a timely basis and is not material to the information
presented.
DOMESTIC CELLULAR
<TABLE>
<CAPTION>
For the Three Months Ended March 31
.................................................................
Change
....................
OPERATING RESULTS (Dollars in millions) 1996 %(a) 1995 %(a) $ %
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues(b) $434.1 105.0 $343.5 102.5 $90.6 26.4
Equipment sales 18.7 4.5 22.8 6.8 (4.1) (18.0)
Cost of equipment sales (39.3) (9.5) (31.3) (9.3) (8.0) 25.6
------------------------------------------------------------
Net operating revenues 413.5 100.0 335.0 100.0 78.5 23.4
------------------------------------------------------------
Cost of revenues(b) 49.4 12.0 43.1 13.0 6.3 14.6
Selling and customer operations expenses 143.6 34.7 113.7 33.9 29.9 26.3
General, administrative, and other
expenses 33.8 8.2 28.9 8.6 4.9 17.0
Depreciation and amortization expenses 58.9 14.2 45.3 13.5 13.6 30.0
------------------------------------------------------------
Total costs and expenses 285.7 69.1 231.0 69.0 54.7 23.7
------------------------------------------------------------
Operating income $127.8 30.9 $104.0 31.0 $23.8 22.9
============================================================
Operating cash flow $186.7 $149.3 $37.4 25.1
Operating cash flow margin(c) 45.2% 44.6% 1.3
Capital expenditures, excluding
acquisitions $55.8 $63.0 $(7.2) (11.4)
OPERATING DATA (In thousands)
------------------------------------------------------------
Total POPs 37,798 35,390 2,408 6.8
Subscribers 2,392 1,664 728 43.8
Subscriber net adds in period, excluding
acquisitions 130 104 26 25.0
============================================================
</TABLE>
(a) Percentage of net operating revenues.
(b) Presentation for 1995 has been restated to conform to the current year
presentation. See Note A, "Basis of Presentation," to the Consolidated
Financial Statements.
(c) If net losses on equipment sales were reclassified as operating expenses,
operating cash flow margins would be 43.0% and 43.5% for the three months
ended March 31, 1996 and 1995, respectively.
ACQUISITION OF ADDITIONAL INTEREST IN CCI
In October 1995, the Company purchased an additional 24% interest in CCI, its
50% partner in New Par. Accordingly, as a result of this acquisition, the
Company's proportionate share of New Par's operating results increased to
reflect its additional 12% interest. This increase in the Company's ownership
interest in CCI and the related indirect increase in its interest in New Par
was responsible for 5.7 and 6.0 percentage points of the increase in domestic
cellular proportionate net operating revenues and operating expenses,
respectively.
SERVICE AND OTHER REVENUES
The increase in service and other revenues resulted from a 43.8% increase in
customers, partially offset by a 10.5% decline in the corresponding average
revenue per customer. The Company achieved growth in the consumer markets
through advertising and by continuing to offer incentive programs such as waived
service establishment charges, discounted monthly access fees, discounted and
free cellular handsets, free air time, and reduced or fixed rates for off-peak
usage and roaming. For example, the Company experienced significant success with
its Companion Plans, which offer existing customers reduced monthly access fees
on one- and two-year cellular service contracts for additional cellular
telephone numbers. The decline in average revenue per customer was primarily
attributable to continued success in penetrating the consumer markets and, to a
lesser extent, increased levels of roaming subsidies offered by the Company to
its customers on pass-through roaming charges assessed by other carriers.
Consumer usage patterns contribute to declines in average revenue per customer
because consumers typically make fewer telephone calls than business customers
and often place many of their calls during lower-rate, off-peak calling periods.
Discounts associated with customer incentive programs also contributed to
declines in average revenue per customer. The Company expects the shift toward
consumer markets to follow industry trend and continue to result in declining
average revenue per customer.
16
<PAGE> 17
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
EQUIPMENT SALES AND COST OF SALES
Negative equipment margins increased from $8.5 million during the three months
ended March 31, 1995 to $20.6 million during the three months ended March 31,
1996, due primarily to competitive pressures which required the Company to
offer customers heavily discounted or free cellular equipment, as well as the
lifting of CPUC regulations prohibiting the bundling of discounted equipment
with cellular service. The Company expects cellular equipment sales to continue
to generate negative margins for the foreseeable future. However, the Company
believes that reduced prices for cellular equipment contributed significantly
to customer growth during the first quarter of 1996, particularly in the
consumer markets.
OPERATING EXPENSES
Increases in cost of revenues were primarily attributable to higher variable
interconnection and network costs resulting from increased usage associated
with customer growth, partially offset by the effects of scale and
containment efforts. As a percentage of service and other revenues, cost of
revenues decreased from 12.5% during the three months ended March 31, 1995 to
11.4% during the three months ended March 31, 1996, reflecting the benefits of
increasing economies of scale. The Company anticipates that the cost of
revenues will continue to decline as a percentage of operating revenues as
customers are added to existing networks.
The increase in selling and customer operations expenses was primarily
attributable to increased selling expenses associated with a 36.3% increase in
the gross number of customers added to domestic cellular networks and, to a
lesser extent, moderate increases in customer operations expenses. As a
percentage of net operating revenues, customer operations expenses increased
slightly during the three months ended March 31, 1996 as compared to the three
months ended March 31, 1995, reflecting the expansion of customer operations
functions necessary to support growth in the customer base, including the
establishment of cellular fraud groups in most domestic markets, partially
offset by increasing benefits of economies of scale. Although aggregate selling
expenses increased due to strong customer growth, the average acquisition cost
per gross customer added to domestic cellular networks decreased by 7.6% during
the first quarter of 1996 as compared to the same quarter last year. The
decline in the average acquisition cost was attributable to improved
performance of lower-costs sales channels and to increased usage of customer
incentive programs such as discounted or free cellular service and telephones.
Including the impact of negative equipment margins, which are not recorded as a
selling expense, the same domestic cellular average acquisition cost per gross
customer added increased by 1.1%.
The increase in general, administrative, and other expenses resulted primarily
from moderate expansion of administrative functions necessary to support
customer growth, increases in bad debt expenses, favorable settlement of
certain litigation, and costs associated with deployment of the new customer
support system. However, as a percentage of operating revenues, general,
administrative, and other expenses declined due to economies of scale and
other efficiencies gained through the operation of WMC.
Increases in depreciation and amortization primarily reflect increased
investments in property, plant, and equipment, and intangible assets. Higher
depreciation and amortization as a percentage of net operating revenues
resulted primarily from increased amortization expense associated with the
Company's purchase of an additional 24.0% interest in CCI during October 1995,
as well as from significant capital investments during 1995 for build-out and
expansion of wireless networks, partial deployment of the new customer support
system, and the installation of new fraud prevention and detection
equipment.
17
<PAGE> 18
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
INTERNATIONAL CELLULAR
<TABLE>
<CAPTION>
For the Three Months Ended March 31
----------------------------------------------------------------
Change
-----------------------
OPERATING RESULTS (Dollars in millions) 1996 %(a) 1995(c) %(a) $ %
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing operations:
Net operating revenues $303.8 100.0 $160.3 100.0 $143.5 89.5
Operating income $25.6 8.4 $10.4 6.5 $15.2 146.2
Operating cash flow $76.3 25.1 $43.9 27.4 $32.4 73.8
Income/ (loss) $4.7 ($1.4) $6.1
Start-up systems:
Income/ (loss) ($19.7) ($10.2) ($9.5)
Total cellular income/(loss) ($15.0) ($11.6) ($3.4)
OPERATING DATA (In thousands)
-------------------------------------------------------------
Total POPs(b) 112,904 64,675 48,229 74.6
Subscribers 955 445 510 114.6
Subscriber net adds in period, excluding
acquisitions 158 56 102 182.1
=============================================================
</TABLE>
(a) Percentage of net operating revenues.
(b) The increase in international cellular POPs as of March 31, 1996 as compared
to March 31, 1995 was due primarily to the addition of 36,943 and 7,491 POPs
for recently formed ventures in India and Poland, respectively.
(c) Certain data has been restated to include effects of the Company's interests
in Italy, South Korea, and Spain.
NET OPERATING REVENUES
Existing Operations. The increase in net operating revenues was due primarily to
the 108.5% increase in proportionate customers as compared to March 31, 1995.
Aggregate average revenue per customer in the Company's international markets
decreased slightly during the three months ended March 31, 1996 as compared to
the three months ended March 31, 1995, due primarily to increased penetration
of consumer markets.
OPERATING INCOME
Existing Operations. The increase in proportionate operating income resulted
primarily from improved profitability of operations in Germany, partially offset
by increased operating losses in Japan. Improved operating results in Germany
resulted primarily from the expanding customer base, an increase in the
Company's ownership interest of 2.1%, and economies of scale achieved as
customers were added to the existing network. Increased losses in Japan were
attributable to a higher level of acquisition costs associated with rapid
customer growth.
TOTAL CELLULAR INCOME (LOSS)
Existing Operations. The improvement in net income (loss) from existing
international systems was due primarily to increased profitability of operations
in Germany, partially offset by increased operating losses in Japan. Improved
operations in Germany were due primarily to the expanding customer base and an
increase in the Company's ownership interest of 2.1%. Increased losses in Japan
resulted from acquisition costs associated with rapid customer growth.
Start-up Systems. The increased losses resulted primarily from start-up systems
in Spain and Italy, which commenced operations in the fourth quarter of 1995,
and, to a lesser extent, initial losses associated with start-up systems in
India and Poland.
18
<PAGE> 19
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
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 operate and expand its existing
wireless systems, to construct new wireless systems, and to acquire interests
in existing wireless systems.
FIRST QUARTER 1996 CAPITAL EXPENDITURES
During the three months ended March 31, 1996, the Company incurred capital
expenditures of $35.0 million for additions to property, plant, and equipment
for its consolidated domestic and international cellular and paging networks,
as well as other capital expenditures, primarily to increase cellular and
paging network capacity and to support customer growth. The Company invested an
additional $122.4 million as capital contributions to unconsolidated wireless
systems to fund the build-out of cellular networks. In addition, during January
1996, the Company purchased options for 2.4 million shares of stock in CCI for
an aggregate cost of $107.7 million, an amount equal to the aggregate
consideration paid by CCI for cancellation of its employee replacement options
pursuant to the 1990 Merger Agreement between the Company and CCI.
FUNDING OF FIRST QUARTER 1996 CAPITAL NEEDS
The Company did not generate sufficient cash from operations to meet its
capital requirements during the first quarter of 1996. Additional funding needs
for the first quarter of 1996 were satisfied primarily by proceeds from
borrowings under the Company's $2 billion long-term revolving credit facility
and its commercial paper program (see "Future Capital Funding" and Note B,
"Significant Changes since December 31, 1995-Commercial Paper Program," to the
Consolidated Financial Statements). During the three months ended March 31,
1996, the Company received proceeds of $705 million from the issuance of
commercial paper, of which $539 million was used to satisfy obligations under
the Company's $2 billion long-term revolving credit facility. The remaining
proceeds of $166 were used primarily to fund capital contributions to
unconsolidated wireless systems.
FUTURE CAPITAL EXPENDITURES
Consolidated Expenditures. The Company will continue to be required to make
substantial expenditures in connection with its efforts to expand its wireless
business. Domestic and international capital requirements for 1996 are expected
to exceed $1 billion. The Company expects to incur additional capital
expenditures in connection with the deployment of its Code Division Multiple
Access ("CDMA") digital cellular sites in Los Angeles. In addition to capital
expenditures related to such deployment in the Los Angeles market, the Company
plans to incur significant capital expenditures to expand its existing analog
and digital networks and to construct and deploy new digital networks. The
Company expects its investment in digital technology to continue to increase,
and eventually surpass and replace the investment in analog technology.
However, both analog and digital technology standards are expected to coexist
for the foreseeable future. Accordingly, both technologies are expected to
continue to serve the existing and future customer base for the foreseeable
future.
At March 31, 1996, the Company was committed to spend approximately $43 million
for the acquisition of property, plant, and equipment for its consolidated
subsidiaries. In addition to these commitments, the Company plans to make
additional capital expenditures of approximately $403 million during 1996 to
increase the capacity of its existing domestic analog networks and to deploy
digital technology. At March 31, 1996, the Company had also committed to spend
approximately $34 million for the purchase of cellular handsets.
Unconsolidated Wireless Systems. As of March 31, 1996, the Company was
committed to make capital contributions of $12 million to its unconsolidated
wireless systems. In addition to these commitments, the Company plans to make
additional capital contributions of approximately $319 million during 1996 to
its existing international and domestic joint ventures, including contributions
to PrimeCo for the construction of its PCS networks. The majority of PrimeCo's
networks are expected to be operational by the fourth quarter of 1996.
Acquisition of CCI. Under the 1996 Merger Agreement, AirTouch will acquire the
outstanding stock of CCI in exchange for AirTouch preferred stock and cash at a
price of $55 per share. Pursuant to the 1996 Merger Agreement, the merger
consideration will consist of approximately 72% in AirTouch preferred
securities and 28% in cash. Funding for the cash requirements of the
acquisition will be obtained through borrowings under the Company's $2 billion
revolving credit facility; through the Company's commercial paper program; from
debt which may be issued from time to time under AirTouch's Registration
Statement on Form S-3 (Reg. No. 33-62787), which registered $2 billion in
various forms of debt and equity securities (the "Shelf"), or through a
transaction exempt from registration under the Securities Act of 1933; or a
combination of one or more of the foregoing. The balance of the CCI stock will
be acquired with a combination of preferred securities ("Class B" and "Class
C"), which will be registered under the Securities Act of 1933 on the Company's
Registration Statement on Form S-4 (Reg. No. 333-03107). The Class B and Class C
preferred stock will bear dividends at the rate of 6.00% and 4.25% per annum,
respectively. Under the terms of the 1996 Merger Agreement, no more than $500
million aggregate face amount of the Class B will be issued as part of such
combination of preferred securities.
19
<PAGE> 20
AirTouch Communications, Inc. And Subsidiaries
Management's Discussion and Analysis
FUTURE CAPITAL FUNDING
In March 1996, the Company initiated a commercial paper program consisting of
the sale of discounted notes that are exempt from registration under the
Securities Act of 1933. The Company's Board of Directors has authorized the
issuance of commercial paper in amounts necessary to finance the Company's
working capital requirements, provided that the amount outstanding under the
commercial paper program, together with all indebtedness incurred under the $2
billion long-term revolving credit facility, does not in the aggregate exceed
$2 billion. The Company obtained A-2 and P-2 prime commercial paper ratings
from Standard & Poor's Corporation and Moody's Investor Service, respectively.
These ratings may be revised or withdrawn by the rating agencies at any time.
Except for funds required in connection with the acquisition of CCI, working
capital raised by the sale of commercial paper and borrowings under the
Company's $2 billion revolving credit facility are currently expected to be
sufficient to meet the Company's cash requirements through the end of 1996 and
to cover the additional capital needs of CCI subsequent to the acquisition.
Financing under the Shelf is also available to the Company. However, management
anticipates that additional external financing may be necessary to fund
expansion and operations beyond 1996. Accordingly, the Company will need to
raise additional funds through borrowings or public or private sales of debt or
equity securities. The Company believes that it will be able to access the
capital markets on terms and in amounts adequate to meet its objectives.
However, given the possibility of changes in market conditions or other
occurrences, there can be no certainty that such funding will be available in
quantities or on terms favorable to the Company.
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of AirTouch Communications, Inc.:
We have reviewed the accompanying Consolidated Balance Sheet of AirTouch
Communications, Inc. and subsidiaries ("Company") as of March 31, 1996 and the
related Consolidated Statements of Income and of Cash Flows for the three-month
period then ended. These Consolidated Financial Statements are the
responsibility of the Company's 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 primarily of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
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 accompanying Consolidated Financial Statements for them to be in
conformity with generally accepted accounting principles. The Consolidated
Financial Statements of the Company for the three-month period ended March 31,
1995 were reviewed by other accountants whose report dated May 11, 1995 stated
that they were not aware of any material modifications that should be made to
those financial statements in order for them to be in conformity with generally
accepted accounting principles.
Our review was made for the purpose of expressing limited assurance on the
Consolidated Financial Statements taken as a whole. The Selected Proportionate
Operating Data ("Proportionate Data") for the three months ended March 31, 1996
appearing on page 10 is presented for additional analysis and is not a required
part of the basic financial statements. As discussed on page 10, the
Proportionate Data has been prepared by the Company to present financial
information that, in the opinion of management, is not provided by financial
statements prepared in conformity with generally accepted accounting
principles. Such Proportionate Data, prepared on the basis of presentation
described on page 10, has been subjected to the inquiry and analytical
procedures applied in the review of the basic financial statements. Based on
our review, we are not aware of any material modifications that should be made
to such information in relation to the basic Consolidated Financial Statements
taken as a whole. The Proportionate Data, determined on the basis of
presentation described on page 10, for the three months ended March 31, 1995,
was reviewed by other independent accountants whose report dated May 11, 1995,
indicated that they were not aware of any material modifications that
should be made to such information.
We previously audited in accordance with generally accepted auditing standards,
the Consolidated Balance Sheet as of December 31, 1995, and the related
Consolidated Statements of Income, of Stockholders' Equity, and of Cash Flows
for the year then ended (not presented herein), and in our report dated
February 23, 1996 we expressed an unqualified opinion on those Consolidated
Financial Statements. In our opinion, the information set forth in the
accompanying Consolidated Balance Sheet information as of December 31, 1995, is
fairly stated in all material respects in relation to the Consolidated Balance
Sheet from which it has been derived.
/s/ Price Waterhouse LLP
San Francisco, California
May 10, 1996
21
<PAGE> 22
AirTouch Communications, Inc. and Subsidiaries
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CERTAIN LITIGATION RELATED TO THE CCI MERGER
Since April 8, 1996, seven lawsuits have been filed in Delaware Chancery Court,
in and for New Castle County, and one lawsuit has been filed in the Supreme
Court of the State of New York, County of New York, naming as defendants CCI,
AirTouch, and CCI's directors. Certain of the lawsuits also name as a defendant
one member of the Partnership Committee which manages New Par who is not a CCI
director. Each lawsuit purports to be a class action brought on behalf of all
CCI common and convertible preferred stockholders and alleges that the
consideration to be paid the class under the 1996 Merger Agreement is
inadequate. The Delaware Chancery Court has granted plaintiffs' motion to
consolidate the Delaware cases. CCI and its directors (other than Messrs. Cox
and Gyani) have filed an answer in the consolidated proceeding.
Plaintiffs contend that the director defendants have breached their fiduciary
duties to CCI stockholders and that AirTouch, as an approximately 40%
stockholder of CCI, has breached fiduciary duties owed to CCI's minority
stockholders. One or more complaints also allege that those defendants who are
members of the Partnership Committee which manages New Par owe plaintiffs
fiduciary duties which are also breached by the 1996 Merger Agreement. In
addition, plaintiffs allege that actions taken under the 1996 Merger Agreement
violated certain contractual rights owing under the 1990 Merger Agreement. The
complaints seek an injunction against the Merger, rescission of the Merger, if
consummated, unspecified damages, attorneys' fees, and other relief.
Both CCI and AirTouch believe that these lawsuits are without merit and they
and the other named defendants intend to oppose vigorously these lawsuits.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 5. OTHER INFORMATION
The Company uses consolidation and proportionate principles of accounting to
present certain financial information. The following proportionate table is not
required by GAAP and is not intended to replace the Consolidated Financial
Statements prepared in accordance with GAAP. It is presented to provide
supplemental data. Because significant assets of the Company are not
consolidated and because of the substantial effect of the formation of certain
joint ventures on the comparability of the Company's consolidated financial
results, the Company believes that proportionate financial and operating data
facilitates the understanding and assessment of its Consolidated Financial
Statements.
Under GAAP, the Company consolidates the entities in which it has a controlling
interest and uses the equity method to account for entities over which 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. For example, domestic cellular proportionate results
present the Company's share -- its percentage ownership -- for all significant
domestic cellular operations, including those joint ventures and partnerships
where the Company does not own more than 50 percent. Similarly, total
proportionate results show the Company's share of all its significant worldwide
operations.
(continued)
22
<PAGE> 23
AirTouch Communications, Inc. and Subsidiaries
Selected Proportionate Operating Data (1)
TOTAL COMPANY
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995(b)
--------------------------
<S> <C> <C>
OPERATING RESULTS (Dollars in millions)
Total net operating revenues(a) $ 801.4 $ 562.8
Total operating income $ 113.0 $ 86.4
Total operating cash flow (2) $ 244.8 $ 182.0
</TABLE>
<TABLE>
<CAPTION>
March 31
--------------------------
1996 1995
--------------------------
<S> <C> <C>
OPERATING DATA (In thousands)
Total cellular POPs(3) 165,002 113,365
Total cellular subscribers 3,347 2,109
Cellular subscribers net adds in period,
excluding acquisitions 288 160
Total paging units in service 2,614 1,760
Paging units in service net adds,
excluding acquisitions and disposals 147 113
</TABLE>
DOMESTIC CELLULAR OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------
OPERATING RESULTS (Dollars in millions) 1996 1995
---------------------------
<S> <C> <C>
Service and other revenues(a) $ 434.1 $ 343.5
Equipment sales 18.7 22.8
Cost of equipment sales ( 39.3) ( 31.3)
---------------------------
Net operating revenues 413.5 335.0
---------------------------
Cost of revenues(a) 49.4 43.1
Selling and customer operations expenses 143.6 113.7
General, administrative, and other expenses 33.8 28.9
Depreciation and amortization expenses 58.9 45.3
---------------------------
Total costs and expenses 285.7 231.0
---------------------------
Operating income $ 127.8 $ 104.0
==========================
Operating cash flow(2) $ 186.7 $ 149.3
Operating cash flow margin(c) 45.2% 44.6%
Capital expenditures, excluding acquisitions $ 55.8 $ 63.0
</TABLE>
<TABLE>
<CAPTION>
March 31
---------------------------
OPERATING DATA (In thousands) 1996 1995
---------------------------
<S> <C> <C>
Total POPs(3) 37,798 35,390
Subscribers 2,392 1,664
Subscriber net adds in period,
excluding acquisitions 130 104
</TABLE>
(continued)
23
<PAGE> 24
AirTouch Communications, Inc. and Subsidiaries
DOMESTIC PAGING OPERATIONS(4)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
OPERATING RESULTS (Dollars in millions) 1996 1995
--------------------------
<S> <C> <C>
Service and other revenues $ 69.0 $ 50.9
Equipment sales 12.9 11.3
Cost of equipment sales ( 11.4) (9.7)
--------------------------
Net operating revenues 70.5 52.5
--------------------------
Total operating expenses before
depreciation and amortization expenses 49.0 35.6
Depreciation and amortization expenses 14.7 9.7
--------------------------
Operating income $ 6.8 $ 7.2
==========================
Operating cash flow(2) $ 21.5 $ 16.9
Operating cash flow margin 30.5% 32.2%
Capital expenditures, excluding acquisitions $ 27.2 $ 13.3
</TABLE>
<TABLE>
<CAPTION>
March 31
--------------------------
OPERATING DATA (In thousands) 1996 1995
--------------------------
<S> <C> <C>
Units in service 2,468 1,634
Units in service net adds in period,
excluding acquisitions 131 109
</TABLE>
INTERNATIONAL OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
CELLULAR OPERATING RESULTS (Dollars in millions) 1996 1995(b)
--------------------------
<S> <C> <C>
Existing operations: (5)
Net operating revenues $ 303.8 $ 160.3
Operating income $ 25.6 $ 10.4
Operating cash flow (2) $ 76.3 $ 43.9
Income / (loss) $ 4.7 $ (1.4)
Start-up systems:(6)
Income / (loss) $ ( 19.7) $ (10.2)
Total cellular income / (loss) $ ( 15.0) $ (11.6)
</TABLE>
<TABLE>
<CAPTION>
March 31
--------------------------
OPERATING DATA (In thousands) 1996 1995
--------------------------
<S> <C> <C>
Cellular POPs(3) 112,904 64,675
Cellular subscribers 955 445
Subscriber net adds in period,
excluding acquisitions 158 56
Paging units in service 146 126
</TABLE>
Footnotes:
(a) Presentation for 1995 has been restated to classify roaming fraud as an
operating expense in conformity with the current year presentation.
(b) Certain data has been restated to include effects of the Company's interests
in Italy, South Korea, and Spain.
(continued)
24
<PAGE> 25
AirTouch Communications, Inc. and Subsidiaries
(c) If net losses on equipment sales were reclassified as operating expenses,
operating cash flow margins would be 43.0% and 43.5% for the three months
ended March 31, 1996 and 1995, respectively.
(1) Reflects results, total subscribers of all cellular systems, and total units
in service of all paging systems in which the Company owns an interest,
multiplied by the Company's ownership interest, exclusive of cost-based
investments and certain equity-based investments that are not material to
the information presented.
(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 Consolidated Statements of Cash Flows. Proportionate operating
cash flow represents the Company's ownership interests 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 a licensee operating in that market and includes
markets in which the networks are under construction and the markets of
certain cost-based investments not included in proportionate operating
results. Total Company cellular POPs include 14,300 and 13,300 personal
communications services POPs at March 31, 1996 and March 31, 1995,
respectively; international cellular POPs (and therefore total Company
cellular POPs) include 7,491 POPs at March 31, 1996 for Poland where the
Company's consortium was awarded a national cellular license in February
1996.
(4) Domestic paging is wholly owned by the Company; therefore, proportionate
information reflects 100% of the subsidiary's GAAP-basis operating results.
(5) Represents the Company's share of income or loss (after foreign taxes where
applicable) for international cellular systems which have completed 12
months of commercial service, as follows:
1st Quarter 1996 and 1995: Germany, Portugal, Sweden, Belgium, and Japan
(6) Effective January 1, 1996, start-up systems represent the Company's share of
income or loss (after foreign taxes where applicable) for international
cellular systems which did not provide commercial service for the full 12
months of any preceding calendar year, as follows:
1st Quarter 1996: Italy, South Korea, Spain, India, and Poland
Prior to January 1, 1996, start-up systems represent the Company's share of
income or loss (after foreign taxes where applicable) for international
cellular systems which have not yet completed 12 months of commercial
service, as follows:
1st Quarter 1995: Italy, South Korea, and Spain
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>
15.1 Letter of Price Waterhouse LLP Re: Unaudited Financial Information
15.2 Letter of Coopers & Lybrand L.L.P. Re: Unaudited Financial Information
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
Date of Report: February 1, 1996
25
<PAGE> 26
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
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: May 13, 1996
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
15.1 Letter of Price Waterhouse LLP Re: Unaudited Financial Information
15.2 Letter of Coopers & Lybrand L.L.P. Re: Unaudited Financial Information
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT NUMBER 15.1
May 10, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that AirTouch Communications, Inc. has included our report dated
May 10, 1996 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Company's Report on Form 10-Q for the quarter ended
March 31, 1996 which is incorporated by reference in the Registration
Statements on Form S-8 (No. 33-57083, No. 33-57077 and No. 33-57081) and in the
Prospectus constituting part of the Registration Statement on Form S-3 (No.
33-62787) and which will be incorporated by reference in the Prospectus
constituting part of the Registration Statement on Form S-4 (No. 333-03107)
which was filed on May 3, 1996. We are also aware of our responsibilities
under the Securities Act of 1933.
Yours very truly,
/s/ Price Waterhouse LLP
<PAGE> 1
EXHIBIT NUMBER 15.2
May 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: AirTouch Communications, Inc.
Registration Statements on Forms S-8, S-3, and S-4
Ladies and Gentlemen:
We are aware that our report dated May 11, 1995 on our review of interim
financial information of AirTouch Communications, Inc. for the period ended
March 31, 1995, and included in the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1996 is incorporated by reference in the
Registration Statements on Form S-8 (No. 33-57083, No. 33-57077, and No.
33-57081) and in the Prospectus constituting part of the Registration Statement
on Form S-3 (No. 33-62787) and which will be incorporated by reference in the
Prospectus constituting part of the Registration Statement on Form S-4 (No.
333-03107) which was filed on May 3, 1996. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered 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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 38,400
<SECURITIES> 0
<RECEIVABLES> 240,200
<ALLOWANCES> 23,200
<INVENTORY> 0
<CURRENT-ASSETS> 417,400
<PP&E> 2,134,600
<DEPRECIATION> 799,700
<TOTAL-ASSETS> 5,786,400
<CURRENT-LIABILITIES> 469,000
<BONDS> 1,000,200
<COMMON> 5,000
0
0
<OTHER-SE> 3,807,300
<TOTAL-LIABILITY-AND-EQUITY> 5,786,400
<SALES> 29,100
<TOTAL-REVENUES> 448,900
<CGS> 45,800
<TOTAL-COSTS> 399,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,400
<INCOME-PRETAX> 93,600
<INCOME-TAX> 41,400
<INCOME-CONTINUING> 52,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,200
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
