<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report: July 2, 1996
AirTouch Communications, Inc.
Delaware 1-12342 94-3213132
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
One California Street, San Francisco, California 94111
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 658-2000
1
<PAGE> 2
Item 5. Other Events.
This Current Report on Form 8-K is filed in connection with AirTouch
Communications, Inc.'s obligations under Rule 3-05 and Article 11 of Regulation
S-X, including such obligations arising in connection with its Registration
Statement on Form S-3 (No. 33-62787).
In addition, certain information set forth in the Exhibits to this Current
Report on Form 8-K supercedes certain information set forth in AirTouch's
Prospectus Supplement--Subject to Completion--dated July 2, 1996:
-- Exhibit 12.2 supercedes the pro forma ratio information set forth under
"Ratios of Earnings to Fixed Charges"
-- Exhibit 99.3 supercedes the information set forth under "Pro Forma
Condensed Combined Financial Statements"
-- Exhibit 99.4 supercedes the information set forth under
"Capitalization"
<PAGE> 3
Item 7. Financial Statements and Exhibits
(c) Exhibits.
Exhibit 12.1 Statements re Computation of Ratios
Exhibit 12.2 Statements re Computation of Ratios
Exhibit 23.1 Consent of Arthur Andersen LLP (U S WEST NewVector Group, Inc.
and subsidiaries)
Exhibit 99.1 U S WEST NewVector Group, Inc. Consolidated Condensed
Financial Statements for the First Quarters ended March 31,
1996 and 1995
Exhibit 99.2 U S WEST NewVector Group, Inc. Financial Statements as of
December 31, 1995 and 1994 together with Auditors' Report
Exhibit 99.3 Pro Forma Condensed Combined Financial Statements
Exhibit 99.4 Capitalization Table
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
AIRTOUCH COMMUNICATIONS, INC.
By: /s/ Mohan S. Gyani
-------------------------
Mohan S. Gyani
Executive Vice President and
Chief Financial Officer
Date: July 2, 1996
<PAGE> 5
Exhibit Index
Exhibit 12.1 Statement re Computation of Ratios
Exhibit 12.2 Statements re Computation of Ratios
Exhibit 23.1 Consent of Arthur Andersen LLP (U S WEST NewVector Group, Inc.
and subsidiaries)
Exhibit 99.1 U S WEST NewVector Group, Inc. Consolidated Condensed
Financial Statements for the First Quarters ended March 31, 1996
and 1995
Exhibit 99.2 U S WEST NewVector Group, Inc. Financial Statements as of
December 31, 1995 and 1994 together with Auditors' Report
Exhibit 99.3 Pro Forma Condensed Combined Financial Statements
Exhibit 99.4 Capitalization Table
5
<PAGE> 1
EXHIBIT 12.1
AIRTOUCH
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------
1996 1995 1994 1993 1992 1991
------------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Reported pre-tax income before cumulative
effect of accounting change.............. $ 93.6 $245.0 $206.4 $107.9 $ 14.4 $ 92.9
Add back:
Minority interests in the income of
consolidated wireless systems........ 8.5 36.5 16.3 46.4 45.5 45.2
Equity in net losses, net of income, of
less-than-fifty-percent-owned
unconsolidated wireless systems...... 2.7 28.2 11.2 29.8 30.4 14.4
Distributed income of
less-than-fifty-percent-owned
unconsolidated wireless systems...... 0.0 1.7 1.1 8.7 7.8 0.0
Fixed charges included in reported
pre-tax income....................... 13.3 32.6 24.5 34.5 64.3 46.8
------ ------ ------ ------ ------ ------
Total............................. $118.1 $344.0 $259.5 $227.3 $162.4 $199.3
====== ====== ====== ====== ====== ======
FIXED CHARGES
Total interest on debt..................... $ 17.3 $ 28.2 $ 10.7 $ 25.8 $ 56.5 $ 49.2
1/3 operating rental expense.............. 4.9 19.6 14.2 12.4 11.4 9.2
------ ------ ------ ------ ------ ------
Total............................. $ 22.2 $ 47.8 $ 24.9 $ 38.2 $ 67.9 $ 58.4
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES......... 5.3 7.2 10.4 6.0 2.4 3.4
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 12.2
Page 1 of 2
AIRTOUCH
COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(Dollars in millions) Pro Forma
Pro Forma Pro Forma CCI Merger
PRO FORMA EARNINGS as if Notes CCI and
Sold(1) Merger Phase II
------- --------- ---------
<S> <C> <C> <C>
Pre-tax income $ 215.4 $ 163.9 $ 129.2
Add back:
Minority interests in the income (loss) of
consolidated wireless systems 36.5 37.4 (19.9)
Equity in net losses of less-than-
fifty-percent-owned unconsolidated
wireless systems 28.2 26.3 35.9
Distributed income of less-than-
fifty-percent-owned unconsolidated
wireless systems 1.7 1.7 1.7
Fixed charges included in reported
pre-tax income 62.2 129.5 126.5
------- ------- -------
Total $ 344.0 $ 358.8 $ 273.4
------- ------- -------
PRO FORMA FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Total interest on debt $ 57.8 $ 123.8 $ 118.6
1/3 operating rental expense 19.6 20.9 23.1
Preferred stock dividends(4) - 128.7 154.1
------- ------- -------
Total $ 77.4 $ 273.4 $ 295.8
------- ------- -------
PRO FORMA RATIO OF EARNINGS TO
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 4.4 1.3 N/A(5)
======= ======= =======
</TABLE>
See accompanying notes.
<PAGE> 2
EXHIBIT 12.2
Page 2 of 2
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
(Dollars in millions) Pro Forma
Pro Forma Pro Forma CCI and
PRO FORMA EARNINGS as if Notes CCI Phase II
Sold(1) Merger(2) Merger(3)
------- --------- ---------
<S> <C> <C> <C>
Pre-tax income $ 92.0 $ 77.8 $ 71.1
Add back:
Minority interests in the income of
consolidated wireless systems 8.5 8.7 (7.6)
Equity in net losses of less-than-
fifty-percent-owned unconsolidated
wireless systems 2.7 - 7.1
Distributed income of less-than-
fifty-percent-owned unconsolidated
wireless systems - - -
Fixed charges included in reported
pre-tax income 14.9 27.5 28.2
------- ------- -------
Total $ 118.1 $ 114.0 $ 98.8
------- ------- -------
PRO FORMA FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Total interest on debt $ 18.9 $ 31.1 $ 31.3
1/3 operating rental expense 4.9 5.3 5.8
Preferred stock dividends(4) - 28.2 29.6
------- ------- -------
Total $ 23.8 $ 64.6 $ 66.7
------- ------- -------
PRO FORMA RATIO OF EARNINGS TO
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 5.0 1.8 1.5
======= ======= =======
</TABLE>
(1) Adjusted to reflect issuance of $500 million principal amount of debt
bearing interest at an assumed interest rate of 7%.
(2) Adjusted to reflect consummation of acquisition of Cellular Communications,
Inc., as described in AirTouch's Registrations Statement on Form S-4 (No.
333-03107).
(3) Adjusted to reflect the consummation of the second phase of the Company's
transaction with U S WEST, Inc., as described in Item 1, "Business" of the
Company's Annual Report on Form 10-K for the period ended December 31,
1995, as amended (File No. 1-12342).
(4) Pro forma preferred stock dividends of $13.7 million for the three months
ended March 31, 1996 and $54.7 million for the year ended December 31, 1995
have been increased to the amount of pro forma pre-tax earnings which would
be required to cover such dividends based on the effective income tax rate
for the periods presented.
(5) Pro forma earnings do not cover pro forma combined fixed charges and
preferred stock dividends by $22.4 million.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-K, into AirTouch Communications, Inc.'s
previously filed Registration Statements File Nos. 33-62787, 33-57083,
33-57077, 33-57081 and 33-64553.
ARTHUR ANDERSEN LLP
Denver, Colorado
June 28, 1996
<PAGE> 1
EXHIBIT 99.1
U S WEST NEWVECTOR GROUP, INC.
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE FIRST QUARTERS ENDED MARCH 31, 1996 AND 1995
H-2
<PAGE> 2
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ -- $ --
Trade accounts receivable, net................................... 128,565 142,210
Federal income taxes receivable from affiliate................... 2,259 12,315
Other............................................................ 40,305 42,853
---------- ------------
Total current assets..................................... 171,129 197,378
---------- ------------
Property, plant and equipment, net................................. 810,089 805,947
Other non-current assets:
Intangible assets, net........................................... 437,608 440,320
Investments and other............................................ 10,518 11,741
---------- ------------
Total other non-current assets........................... 448,126 452,061
---------- ------------
Total Assets............................................. $1,429,344 $1,455,386
========= ==========
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities:
Notes payable.................................................... $ 13,125 $ 13,125
Trade accounts payable........................................... 127,575 163,056
Accounts payable to affiliate.................................... 46,867 31,389
Accrued taxes.................................................... 49,919 34,567
Other current liabilities........................................ 59,172 59,990
---------- ------------
Total current liabilities................................ 296,658 302,127
Notes payable to affiliate......................................... -- 553,098
Other liabilities.................................................. 26,398 26,304
---------- ------------
Total liabilities........................................ 323,056 881,529
---------- ------------
Minority interests in consolidated partnerships.................... 72,718 71,599
Shareowner's equity:
Common stock, no par, 43,000,000 shares authorized, one share
issued and outstanding........................................ -- --
Additional paid-in capital....................................... 1,056,342 550,523
Accumulated deficit.............................................. (22,772) (48,265)
---------- ------------
Total shareowner's equity................................ 1,033,570 502,258
---------- ------------
Total Liabilities and Shareowner's Equity................ $1,429,344 $1,455,386
========= ==========
</TABLE>
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
H-3
<PAGE> 3
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
REVENUES:
Cellular service................................................. $239,211 $185,462
Cellular equipment............................................... 24,699 16,730
-------- --------
Total revenues........................................... 263,910 202,192
-------- --------
OPERATING REVENUES:
Cellular service................................................. 37,330 30,941
Cellular equipment............................................... 32,761 17,893
Selling, general and administrative.............................. 109,846 92,330
Depreciation and amortization.................................... 33,945 28,075
-------- --------
Total operating expenses................................. 213,882 169,239
-------- --------
Operating income................................................... 50,028 32,953
-------- --------
OTHER INCOME (EXPENSE):
Interest expense................................................. (1,004) (6,313)
Other income (expense), net...................................... (217) 6,079
Minority interests in income of consolidated partnerships........ (6,015) (5,133)
Equity in income (losses) of unconsolidated partnerships......... 356 (205)
-------- --------
Total other expense...................................... (6,880) (5,572)
-------- --------
Income before income taxes......................................... 43,148 27,381
Income tax provision............................................... (17,655) (12,050)
-------- --------
NET INCOME............................................... $ 25,493 $ 15,331
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
H-4
<PAGE> 4
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................................... $ 25,493 $ 15,331
Adjustments to net income
Depreciation and amortization..................................... 33,945 28,075
Bad debt provision................................................ 6,205 5,044
Minority interests in income of consolidated partnerships......... 6,015 5,133
Equity in (income) losses of unconsolidated partnerships.......... (356) 205
Income taxes...................................................... 23,118 12,113
Changes in operating assets and liabilities:
Accounts receivable............................................. 8,078 6,089
Accounts payable and accrued liabilities........................ (11,631) (20,436)
Other........................................................... 1,324 7,119
-------- --------
Cash provided by operating activities........................ 92,191 58,673
-------- --------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment....................... (54,767) (60,167)
Cellular acquisitions................................................ -- (20,555)
Other................................................................ (307) 2,413
-------- --------
Cash used for investing activities........................... (55,074) (78,309)
-------- --------
FINANCING ACTIVITIES:
Capital contributions from limited partners.......................... 1,264 4,241
Capital distributions to limited partners............................ (4,896) --
Proceeds from issuance of affiliate debt............................. -- 121,710
Principal payments on affiliate and other debt....................... (634) (98,385)
Dividends and other return of capital to U S WEST, Inc............... (32,851) (7,930)
-------- --------
Cash provided by (used for) financing activities............. (37,117) 19,636
-------- --------
CASH
Change............................................................... -- --
Beginning balance.................................................... -- --
-------- --------
Ending balance....................................................... $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Condensed
Financial Statements.
H-5
<PAGE> 5
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS -- UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated condensed financial statements have been
prepared by U S WEST NewVector Group, Inc. and subsidiaries (the "Company")
pursuant to the interim reporting rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally accompanying financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
SEC rules and regulations. In the opinion of the Company's management, the
consolidated condensed financial statements include all adjustments, consisting
of only normal recurring adjustments, necessary to present fairly the financial
information set forth therein. It is suggested that these consolidated condensed
financial statements be read in conjunction with the Company's 1995 consolidated
financial statements and notes thereto included in AirTouch Communications'
current report on Form 8-K dated July 2, 1996 (File No. 1-12342).
Certain prior year presentations have been reclassified to conform to the
current year presentation.
(2) RECAPITALIZATION OF DEBT
Borrowings under the Company's credit facility with U S WEST were replaced
with equity on January 1, 1996, when U S WEST contributed capital of $553,098 to
the Company.
H-6
<PAGE> 1
EXHIBIT 99.2
U S WEST NEWVECTOR GROUP, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
H-7
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREOWNER OF U S WEST NEWVECTOR GROUP, INC.:
We have audited the accompanying consolidated balance sheets of U S WEST
NewVector Group, Inc. (a Colorado corporation and wholly owned subsidiary of U S
WEST, Inc.) and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in shareowner's equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of U S WEST NewVector Group,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Denver, Colorado
February 12, 1996
H-8
<PAGE> 3
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ -- $ --
Trade accounts receivable, net of allowance for doubtful accounts
of $23,302 and $17,144, respectively........................... 142,210 108,090
Inventories....................................................... 23,912 18,375
Deferred tax asset................................................ 9,800 8,477
Federal income taxes receivable from affiliate.................... 12,315 --
Other............................................................. 9,141 14,784
--------- ---------
Total current assets......................................... 197,378 149,726
--------- ---------
Property, plant and equipment, at cost.............................. 1,178,768 972,982
Less accumulated depreciation and amortization.................... (372,821) (334,444)
--------- ---------
Property, plant and equipment, net........................... 805,947 638,538
--------- ---------
Other non-current assets:
Goodwill, net of accumulated amortization......................... 337,563 347,442
Operating licenses and other intangible assets, net of accumulated
amortization................................................... 102,757 112,821
Taxes receivable from affiliate................................... -- 31,439
Investments and other............................................. 11,741 11,216
--------- ---------
Total other non-current assets............................... 452,061 502,918
--------- ---------
TOTAL ASSETS................................................. $1,455,386 $1,291,182
========= =========
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities:
Notes payable..................................................... $ 13,125 $ --
Trade accounts payable............................................ 163,056 97,674
Accounts payable to affiliate..................................... 31,389 30,779
Accrued liabilities:
Employee compensation.......................................... 26,203 25,767
Taxes.......................................................... 34,567 25,292
Other.......................................................... 14,212 14,617
Deferred revenue.................................................. 15,844 11,436
Other current liabilities......................................... 7,302 5,149
--------- ---------
Total current liabilities.................................... 305,698 210,714
Notes payable....................................................... 13,125
Notes payable to affiliate.......................................... 553,098 448,103
Other liabilities................................................... 22,733 24,191
--------- ---------
Total liabilities............................................ 881,529 696,133
--------- ---------
Minority interests in consolidated partnerships..................... 71,599 84,013
Shareowner's equity:
Common stock, no par, 43,000,000 shares authorized, one share
issued and outstanding......................................... -- --
Additional paid-in capital........................................ 550,523 620,994
Accumulated deficit............................................... (48,265) (109,958)
--------- ---------
Total shareowner's equity.................................... 502,258 511,036
--------- ---------
TOTAL LIABILITIES AND SHAREOWNER'S EQUITY.................... $1,455,386 $1,291,182
========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
H-9
<PAGE> 4
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Cellular service.......................................... $845,493 $624,174 $442,890
Cellular equipment........................................ 95,755 119,594 63,534
-------- -------- --------
Total revenues......................................... 941,248 743,768 506,424
-------- -------- --------
OPERATING EXPENSES:
Cellular service.......................................... 125,768 88,796 58,198
Cellular equipment........................................ 118,432 122,064 63,645
Selling, general and administrative....................... 428,892 353,074 259,240
Depreciation and amortization............................. 121,014 97,394 93,211
Loss on disposition of cellular equipment................. -- -- 75,000
-------- -------- --------
Total operating expenses............................... 794,106 661,328 549,294
-------- -------- --------
Operating income (loss)..................................... 147,142 82,440 (42,870)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (26,759) (23,299) (26,670)
Other income (expense), net............................... 5,636 6 (1,416)
Minority interests in (income) losses of consolidated
partnerships........................................... (23,898) (15,849) 1,136
Equity in income (losses) of unconsolidated
partnerships........................................... 1,332 (19) (922)
-------- -------- --------
Total other expense.................................... (43,689) (39,161) (27,872)
-------- -------- --------
Income (loss) from continuing operations before income
taxes..................................................... 103,453 43,279 (70,742)
Income tax (provision) benefit.............................. (41,760) (20,669) 20,527
-------- -------- --------
Income (loss) from continuing operations.................... 61,693 22,610 (50,215)
Income from operations of discontinued paging segment, net
of tax.................................................... -- 2,930 3,878
Gain on sale of paging segment, net of tax.................. -- 41,504 --
-------- -------- --------
NET INCOME (LOSS)...................................... $ 61,693 $ 67,044 $(46,337)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Finanical
Statements.
H-10
<PAGE> 5
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITION TOTAL
--------------------- PAID-IN ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1992.................... 1 $ 182,467 $441,084 $(130,665) $ 492,886
Recapitalization.................. -- (182,467) 182,467 -- --
Equity infusion................... -- -- 90,000 -- 90,000
Transfer of assets to affiliate...... -- -- (14,067) -- (14,067)
Net loss.......................... -- -- -- (46,337) (46,337)
--------- --------- --------- --------- ---------
Balance,
December 31, 1993.................... 1 -- 699,484 (177,002) 522,482
Dividends......................... -- -- (78,490) -- (78,490)
Net income........................ -- -- -- 67,044 67,044
--------- --------- --------- --------- ---------
BALANCE,
December 31, 1994.................... 1 -- 620,994 (109,958) 511,036
Dividends......................... -- -- (70,471) -- (70,471)
Net income........................ -- -- -- 61,693 61,693
--------- --------- --------- --------- ---------
DECEMBER 31, 1995.................... 1 $ -- $550,523 $ (48,265) $ 502,258
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
H-11
<PAGE> 6
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations............... $ 61,693 $ 22,610 $ (50,215)
Adjustments to income (loss) from continuing
operations:
Depreciation and amortization....................... 121,014 97,394 93,211
Bad debt provision.................................. 22,369 12,408 5,263
Loss on disposition of cellular equipment........... -- -- 75,000
Gain on sale of cellular interests.................. -- (100) --
Loss on sale of property............................ 479 639 861
Minority interests in income (losses) of
consolidated partnerships......................... 23,898 15,849 (1,136)
Equity in (income) losses of unconsolidated
partnerships...................................... (1,332) 19 922
Deferred income taxes............................... 7,741 19,168 (20,527)
Changes in operating assets and liabilities:
Accounts receivable............................... (49,731) (48,018) (30,514)
Accounts payable and accrued liabilities.......... 30,343 21,468 37,850
Other............................................. 8,477 (6,130) 6,514
Net cash provided by discontinued paging segment.... -- 3,716 7,225
--------- --------- ---------
Cash provided by operating activities.......... 224,951 139,023 124,454
--------- --------- ---------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment......... (242,222) (264,368) (140,773)
Cellular acquisitions.................................. (29,905) (1,004) (27,682)
Proceeds from sale or exchange of cellular interests... 7,508 634 --
Proceeds from sale of paging interests................. -- 142,716 --
Investment in unconsolidated partnerships.............. -- -- (2,652)
(Advances to) receipts from unconsolidated
partnerships........................................ (748) (3,694) 1,153
Other.................................................. -- 2,683 (3,631)
--------- --------- ---------
Cash used for investing activities............. (265,367) (123,033) (173,585)
--------- --------- ---------
FINANCING ACTIVITIES:
Capital contributions from limited partners............ 11,941 2,559 4,484
Capital distributions to limited partners.............. (6,049) (1,823) (768)
Proceeds from issuance of affiliate debt............... 520,770 462,431 267,654
Principal payments on affiliate debt................... (415,775) (400,667) (222,239)
Dividends.............................................. (70,471) (78,490) --
--------- --------- ---------
Cash provided by (used for) financing
activities................................... 40,416 (15,990) 49,131
--------- --------- ---------
CASH:
Change................................................. -- -- --
Beginning balance...................................... -- -- --
--------- --------- ---------
Ending balance......................................... $ -- $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
H-12
<PAGE> 7
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND OPERATIONS
U S WEST NewVector Group, Inc. and subsidiaries (the Company) is a wholly
owned subsidiary of U S WEST, Inc. (U S WEST).
The Company is engaged in operating cellular telephone systems in 13
western and midwestern states. During 1995 and 1994, the Company filed renewal
applications for Federal Communications Commission (FCC) licenses in several of
the Company's major cellular Metropolitan Statistical Area (MSA) markets. The
license renewal applications filed in 1994 have been approved, while the 1995
applications are still pending.
(2) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its majority owned subsidiaries and partnerships over which it exercises
management control. Investments in entities in which the Company has a minority
interest and does not exercise management control are accounted for using the
equity method. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company's paging operations are presented as
discontinued operations in the consolidated financial statements (see Note 11
for disposition of paging segment). Certain prior year presentations have been
reclassified to conform to the current year presentation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
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.
REVENUE RECOGNITION
The Company earns cellular service revenue by providing access to the
cellular network (access revenue) and for use of the network (airtime revenue).
Access revenue is billed one month in advance and is recognized in the following
month when service is provided. Airtime revenue is recognized in the month when
service is provided.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out (FIFO) basis. Inventories consist primarily of cellular mobile
telephone equipment and accessories.
INCOME TAX (PROVISION) BENEFIT
The income tax (provision) benefit consists of an amount for taxes
currently payable/receivable and an amount for tax consequences deferred to
future periods, reflected at current income tax rates.
For Federal income tax purposes, the Company's operations are included in a
consolidated tax return filed by U S WEST. The allocation of income tax
consequences to the Company is calculated under a tax allocation agreement with
U S WEST which provides that benefits or liabilities created by the Company will
be allocated to the extent the benefits are usable or additional liabilities are
incurred in the U S WEST
H-13
<PAGE> 8
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
consolidated tax return. The Company records an income tax receivable for tax
benefits of operating losses, or an income tax payable for tax provision on
operating income, reflected in the consolidated return of U S WEST. At December
31, 1995 and 1994, the Company had outstanding tax receivables from U S WEST of
$12,315 and $31,439, respectively.
For state income tax purposes inside the 14 states in which U S WEST
operates, the Company's operations are included in combined tax returns filed by
U S WEST. For years when the Company has pretax income, the allocation of state
income tax consequences to the Company is calculated under a tax allocation
agreement with U S WEST which provides that liabilities created by the Company
will be allocated to the extent additional liabilities are incurred in the U S
WEST combined returns. For years when the Company has pretax losses, any tax
benefit resulting from the filing of combined state income tax returns inside
the U S WEST 14-state region are generally retained by U S WEST. State income
taxes on a combined basis for states outside the U S WEST 14-state region are
allocated to the Company based on its contribution to the total U S WEST
presence in those states.
Income tax expense for the year ended December 31, 1995, computed by the
Company on a stand-alone basis, is not materially different from the expense
recorded in the financial statements.
Cash paid to U S WEST for taxes during the years ended December 31, 1995
and 1994 was $39,115 and $1,501, respectively. No cash was paid for taxes in
1993.
PROPERTY, PLANT AND EQUIPMENT
The Company's investment in property, plant and equipment is stated at cost
less accumulated depreciation. Interest incurred during the construction period
is capitalized and amortized over the life of the underlying asset. Interest
capitalized during 1995, 1994 and 1993 was $12,363, $7,230 and $4,667,
respectively.
The cost of constructed assets includes purchased materials, contracted
services, internal labor and applicable overhead.
Depreciation is calculated on a straight-line basis over the following
estimated useful lives:
<TABLE>
<S> <C>
Cellular systems.............................................. 3 to 20 years
Data processing, furniture and other equipment................ 3 to 5 years
</TABLE>
Depreciation expense in 1995, 1994 and 1993 was $108,645, $84,336 and
$79,331, respectively.
Leasehold improvements and assets held by the Company under capital lease
obligations are depreciated over the lease terms, which range from two to ten
years.
Betterments, renewals and extraordinary repairs that extend the life of an
asset are capitalized. All other repairs and maintenance are expensed when
incurred. The cost and accumulated depreciation applicable to assets retired are
removed from the accounts and any gain or loss on disposition is recognized in
income.
GOODWILL, OPERATING LICENSES AND OTHER INTANGIBLE ASSETS
Intangible assets are recorded when the cost of acquired companies exceeds
the fair value of their tangible assets. The excess costs, primarily FCC
operating licenses and goodwill, are amortized by the straight-line method over
40 years. The assets are evaluated, with other related assets, for impairment
using a discounted cash flow methodology.
H-14
<PAGE> 9
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
As of December 31, 1995 and 1994, accumulated amortization on goodwill was
$42,548 and $33,171, respectively and accumulated amortization on operating
licenses and other intangible assets was $12,889 and $28,399, respectively.
Amortization expense for the years ended December 31, 1995, 1994 and 1993, was
$12,369, $13,058 and $13,880, respectively.
RECOVERABILITY OF LONG-LIVED AND INTANGIBLE ASSETS
In 1996, the Company will adopt Statement of Financial Accounting Standard
No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived
assets and associated intangibles be written down to fair value whenever an
impairment review indicates that the carrying value cannot be recovered on an
undiscounted cash flow basis. SFAS No. 121 also requires that a company no
longer record depreciation expense on assets held for sale. The Company expects
that the adoption of SFAS No. 121 will not have a material effect on its
financial position or results of operations.
(3) PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Cellular systems............................................. $ 869,174 $693,672
Data processing, furniture and other equipment............... 161,388 142,554
Construction in progress..................................... 148,206 136,756
---------- --------
$1,178,768 $972,982
========== ========
</TABLE>
During the years ended December 31, 1995, 1994 and 1993, the Company
replaced substantially all of its cellular network equipment, consisting
primarily of cell site electronics and switching equipment, in certain of its
major markets. In 1993, the Company recorded a pretax loss of $75,000 to record
the equipment at its net realizable value.
VENDOR CONCENTRATIONS
The Company utilizes Motorola as its primary vendor for infrastructure
equipment and cellular mobile telephone equipment and accessories. In addition,
Motorola provides ongoing technological support for the infrastructure
equipment. As a result, the Company receives significant discounts on the
purchase of such equipment from Motorola. Approximately 75% of the Company's
major cellular MSA markets' infrastructures are comprised of Motorola equipment.
(4) INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
As of December 31, 1995, the Company had investments in partnerships
representing four MSA and eight Rural Statistical Area (RSA) cellular systems
which are managed by other cellular operators. These cellular investments, which
are accounted for using the equity method, amounted to $6,204 and $8,829 at
December 31, 1995 and 1994, respectively.
H-15
<PAGE> 10
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
(5) DEBT AND CREDIT ARRANGEMENTS
CREDIT FACILITIES WITH AFFILIATE
The following shows the Company's credit facilities with U S WEST as of
December 31:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Available credit facilities.................................. $ 600,000 $560,000
Amounts borrowed............................................. 553,098 448,103
--------- --------
Available credit............................................. $ 46,902 $111,897
========= ========
</TABLE>
During 1995, the maximum borrowed under the Company's credit facilities was
$553,098. The weighted average month-end balance of the debt outstanding was
$498,744, $398,924 and $386,229 for the years ended December 31, 1995, 1994 and
1993, respectively and the weighted average interest rate was 7.51%, 7.57% and
7.68% for the same periods, respectively. Interest expense related to these
credit facilities, net of amounts capitalized, was $25,142, $22,484 and $25,316
in 1995, 1994 and 1993, respectively. Borrowings under the credit facility
accrued interest at 7.5% and were replaced with equity on January 1, 1996, when
U S WEST contributed capital of $553,098 to the Company.
OTHER
Cash paid for interest, net of amounts capitalized, was $26,062, $23,002
and $27,458 for 1995, 1994 and 1993, respectively.
CAPITAL LEASES
Future minimum payments under a capital lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1996.............................................................. $2,872
1997.............................................................. 2,154
------
Total minimum future lease payments............................... 5,026
Less: interest costs............................................ (371)
------
NET CAPITALIZED LEASE OBLIGATION.................................. $4,655
======
</TABLE>
FAIR VALUES
The fair values of the Company's financial instruments, including debt, are
not significantly different from recorded values, primarily as a result of
relatively short-term, market-based interest rate structures.
H-16
<PAGE> 11
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
(6) OPERATING LEASES
The Company has entered into certain operating leases which are
noncancelable and relate to office facilities, equipment and real estate with
terms ranging from 1 to 9 years. Rent expense under the operating leases was
$21,737, $20,775 and $19,053 for 1995, 1994 and 1993, respectively. Minimum
future lease payments as of December 31, 1995 under the leases described above
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
<S> <C>
1996...................................................................... $24,621
1997...................................................................... 19,371
1998...................................................................... 15,395
1999...................................................................... 11,517
2000...................................................................... 5,710
Thereafter................................................................ 545
-------
TOTAL MINIMUM FUTURE LEASE PAYMENTS....................................... $77,159
=======
</TABLE>
(7) SHAREOWNER'S EQUITY
In 1993, the stated value of common stock was reduced to one dollar and the
excess was transferred to paid-in capital in accordance with a shareowner's
resolution. Also during 1993, a capital contribution of $90,000 was made to the
Company in the form of a reduction of debt payable to a subsidiary of U S WEST.
In addition, $14,067 of prepaid supplier credits were transferred to U S WEST
Communications, an affiliate of the Company. This asset transfer was recorded at
net book value, which approximated market value.
The Company issues dividends quarterly to U S WEST based on net income
adjusted for the amortization of intangibles.
(8) INCOME TAXES
The components of the income tax (provision) benefit are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
FEDERAL:
Current............................................... $ (50,441) $ (7,547) $ 9,707
Deferred.............................................. 12,687 (10,720) 9,668
--------- --------- ---------
Total federal...................................... (37,754) (18,267) 19,375
--------- --------- ---------
STATE:
Current............................................... (6,574) (1,858) (709)
Deferred.............................................. 2,568 (544) 1,861
--------- --------- ---------
Total state........................................ (4,006) (2,402) 1,152
--------- --------- ---------
TOTAL INCOME TAX (PROVISION) BENEFIT.................. $ (41,760) $ (20,669) $ 20,527
========= ========= =========
</TABLE>
H-17
<PAGE> 12
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
The effective tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax
rate............................ 35.0% 35.0% 35.0%
State income taxes, net of
federal effect............... 2.5 3.1 1.2
Goodwill amortization........... 3.4 8.8 (4.8)
Other........................... (.5 ) .9 (2.4)
---- ---- ----
EFFECTIVE TAX RATE.............. 40.4% 47.8% 29.0%
==== ==== ====
</TABLE>
The cumulative balance sheet effects of deferred tax consequences are:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Asset revaluation............................................ $ 22,221 $ 22,221
Asset reserves............................................... 4,761 8,724
Gain on dispositions......................................... 45,665 7,418
OPEB and pension............................................. 4,952 5,401
Credit losses................................................ 5,795 5,402
Amortization................................................. -- 1,439
Other........................................................ 7,137 5,593
-------- --------
Deferred tax assets........................................ 90,531 56,198
-------- --------
Depreciation................................................. (60,882) (44,611)
Amortization................................................. (2,082) --
Capitalized construction costs............................... (13,291) (8,887)
Deferred leases.............................................. -- (1,542)
Other........................................................ (68) (2,205)
-------- --------
Deferred tax liabilities................................... (76,323) (57,245)
-------- --------
NET DEFERRED TAX ASSET (LIABILITY)........................... $ 14,208 $ (1,047)
======== ========
</TABLE>
Federal legislation was enacted which increased the corporate tax rate from
34% to 35%, effective January 1, 1993.
(9) EMPLOYEE BENEFITS
The Company's employees participate in various U S WEST benefit plans that
provide certain health care and life insurance benefits for retired employees.
The Company recorded annual postretirement medical and life insurance costs of
$3,152, $3,700 and $3,005 for the years ended December 31, 1995, 1994 and 1993,
respectively. (These costs are included in selling, general and administrative
expense.) U S WEST uses the projected unit credit method for the determination
of postretirement medical costs.
The Company participates in the U S WEST Pension Plan (the Plan), which
covers substantially all full-time employees. Benefits under the Plan are based
on a final-pay formula. The Company recognizes as its net pension cost the
amount determined by the Plan's administrator. The assets of the Plan are held
in a trust and are not segregated or otherwise restricted for benefits of the
Company or any other participating entity. Based on the actuarial valuations of
the Plan, the fair value of net assets available for Plan benefits exceeded
H-18
<PAGE> 13
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
the actuarial present value of the vested and nonvested accumulated Plan
benefits at January 1, 1995, 1994 and 1993. Future anticipated benefit increases
have been reflected in the actuarial assumptions.
The annual pension expense for 1995 and 1994 was $229 and $485,
respectively. In 1993, return on plan assets exceeded the annual service and
interest costs resulting in a net pension credit of $2,745. The Company uses the
aggregate cost method for funding purposes. No funding was required in 1995,
1994 or 1993.
(10) EXCHANGE AND ACQUISITIONS OF CELLULAR INTERESTS
In July, 1995 the Company exchanged cellular properties, representing 2.7
million potential customers (POPs), for cellular properties representing 3.2
million POPs. No gain or loss was recognized on the exchange.
In addition, acquisitions were completed for aggregate monetary
consideration of $29,905, and $1,004 during 1995 and 1994, respectively, and
acquisitions were completed for aggregate monetary and non-monetary
consideration of approximately $30,000 during 1993. The results of operations
for these acquisitions have been included in the Company's consolidated
financial results since their respective acquisition dates. The purchase method
of accounting was used to record these acquisitions.
These transactions did not materially impact the Company's results of
operations.
(11) DISPOSITION OF PAGING SEGMENT
Effective June 30, 1994, the Company completed the sale of its paging
segment, resulting in a gain of $41,504, net of related taxes of $27,018. Income
for the discontinued paging segment for the six months ended June 30, 1994 and
for the year ended December 31, 1993, is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1994 1993
-------- --------
<S> <C> <C>
Revenues...................................................... $ 28,471 $ 54,374
Costs and expenses............................................ (23,182) (46,636)
Income tax provision.......................................... (2,359) (3,860)
-------- --------
INCOME FROM OPERATIONS OF DISCONTINUED PAGING SEGMENT......... $ 2,930 $ 3,878
======== ========
</TABLE>
(12) OTHER RELATED PARTY TRANSACTIONS
CASH MANAGEMENT
U S WEST manages a centralized cash account for its affiliated companies.
Interest is earned based upon the Company's prorated share of the account.
REVENUES
The Company had sales of cellular service and equipment to U S WEST
affiliates of $17,321, $14,096 and $11,375 during 1995, 1994 and 1993,
respectively. The charges for these services are generally based upon prevailing
market rates.
H-19
<PAGE> 14
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
PURCHASES
The Company purchases services from U S WEST and certain of its
subsidiaries. These services include telecommunications, general management and
other centralized services (primarily research and development, cash management,
legal and personnel support). The cost of these services to the Company is
determined based upon arm's-length prices or, in certain cases, tariffed rates,
or fully distributed costs. The Company's operations include charges of $55,380,
$45,519 and $46,659 for 1995, 1994 and 1993, respectively, in relation to these
services. The related payables for these services were $5,812 and $8,767 at
December 31, 1995 and 1994, respectively.
(13) PARTNERSHIP WITH AIRTOUCH
In July 1994, U S WEST signed an agreement with AirTouch Communications,
Inc. ("AirTouch") to combine their domestic cellular properties into a
partnership in a multi-phased transaction. During Phase I, which commenced on
November 1, 1995, the partners are operating their cellular properties
separately; accordingly, Phase I had no immediate financial accounting
presentation impact. In the next phase, (Phase II), the partners will combine
their domestic properties into a partnership, subject to obtaining certain
authorizations. The parties are seeking to obtain regulatory and other approvals
and to satisfy other conditions precedent to entering into Phase II. The recent
passage of the Telecommunications Act of 1996 has removed significant regulatory
barriers to completion of Phase II. The initial interests in the partnership at
the commencement of Phase II depends, among other things, on the timing of the
Phase II closing, the ability of the parties to combine their domestic
properties, and the status of AirTouch's proposed acquisition of other cellular
properties. Currently, management expects the initial interests in the
partnership will be approximately 74% AirTouch and 26% U S WEST.
H-20
<PAGE> 1
EXHIBIT 99.3
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1996 combines (1) the historical consolidated balance sheets of
AirTouch and subsidiaries and CCI and subsidiaries as if the CCI Merger had been
effective on that date and after giving effect to the purchase method of
accounting and other merger-related adjustments described in the accompanying
explanatory notes, and (2) the second phase of the AirTouch/U S WEST joint
venture described in the accompanying explanatory notes ("Phase II"), assuming
Phase II occurred on that date, and (A) all of the domestic cellular interests
owned by each of AirTouch and U S WEST, including those subject to regulatory
and other approvals, were contributed at such time to the joint venture, and (B)
U S WEST did not cause the contribution of the PCS Partnership to the joint
venture at such time. The unaudited Pro Forma Condensed Combined Statements of
Income present the combined results of operations of (1) AirTouch and CCI as if
the CCI Merger had been effective at the beginning of each period after giving
effect to the purchase method of accounting and other merger-related adjustments
described in the accompanying explanatory notes, and (2) Phase II of the
AirTouch/U S WEST joint venture as if Phase II had been effective at the
beginning of each period as described in the accompanying explanatory notes.
The Pro Forma Condensed Combined Financial Statements and accompanying
explanatory notes reflect the application of the purchase method of accounting
for the CCI Merger. Under the purchase method of accounting, the purchase price
will be allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the effective time of the CCI Merger (the "Effective
Time"). As described in the accompanying notes, estimates of the fair values of
CCI and subsidiaries' assets and liabilities have been combined with recorded
values of the assets and liabilities of AirTouch. However, changes to
adjustments included in the Pro Forma Condensed Combined Financial Statements
are expected as valuations/appraisals of assets and liabilities are completed,
and additional information becomes available. Although the Company cannot
ascertain what these changes would be, such changes could be material. In
addition, the results of operations of CCI subsequent to March 31, 1996 will
affect allocation of the purchase price. Accordingly, actual amounts will differ
from those set forth in the Pro Forma Condensed Combined Financial Statements.
Contingent payments, if any, associated with AirTouch's 6.00% Class B
Mandatorily Convertible Preferred Stock, Series 1996 will not affect the
aggregate purchase price, since the contingency is based on changes in the
volume-weighted average trading price of such preferred stock.
The equity method of accounting was applied for Phase II of the joint
venture. Despite having majority ownership, the equity method of accounting will
be required for the joint venture under generally accepted accounting principles
and it will not be consolidated because AirTouch will not control the joint
venture. Under the joint venture agreement, AirTouch is required to obtain
concurrence from U S WEST, or the Independent Member as defined in the
agreement, with respect to approval of the joint venture's budgets and business
plans, capital contributions in excess of certain levels, acquisition or
disposition of assets with fair market value in excess of certain levels, and
any distributions not contemplated in an approved budget. The equity method of
accounting requires recognition of AirTouch's share of the financial condition
and operating results of the AirTouch/U S WEST joint venture on one line in the
Pro Forma Condensed Combined Balance Sheet and in the Pro Forma Condensed
Combined Statement of Income, respectively. The contribution of net assets to
the AirTouch/U S WEST joint venture will be recorded on a historical basis. The
actual interests at the time of the Phase II closing or at a given point in time
thereafter of AirTouch and U S WEST in the capital, income (loss) and cash flows
of the joint venture will depend on a number of factors, the outcomes of which
are subject to significant uncertainties and contingencies. These factors
include, among other things, the timing of the actual closing of Phase II, the
ability of the parties to contribute certain of their domestic cellular
interests to the joint venture (and the timing of such contributions), the
ability of the parties to restructure the allocation of profits and losses and
the distribution of cash and property of the joint venture in the event that
they are unable to contribute all of their domestic cellular interests to the
joint venture at the closing of Phase II (and the manner in which any such
restructuring is implemented, see discussion below), the timing of the parties'
contribution of their PCS Partnership to the joint venture (and the value of the
PCS Partnership at the time of such contribution), and the timing of the closing
of the CCI Merger. The closing of
2
<PAGE> 2
Phase II is conditioned upon the satisfaction of certain conditions, including
the ability of AirTouch and U S WEST to contribute at least 60% of their
respective domestic cellular interests to the joint venture, measured on the
basis of the adjusted POPs represented by such interests and, in the case of
AirTouch, excluding New Par. AirTouch anticipates that Phase II will occur in
the fourth quarter of 1996 or the first quarter of 1997.
Some of the cellular interests of AirTouch 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. The foregoing
provisions may or may not result in certain of the parties' properties not being
contributed to the AirTouch/U S WEST joint venture. In addition, a limited
partner in U S WEST's majority-owned Seattle system has initiated litigation
challenging the arrangements between AirTouch and U S WEST as they relate to the
Seattle property and the parties' joint venture. To the extent any such
properties have not been contributed to the joint venture at the time of the
Phase II closing, however, AirTouch and U S WEST are obligated throughout the
life of the joint venture to continue to use reasonable efforts to effect to the
maximum extent possible such contribution. In addition, AirTouch and U S WEST
have agreed that, in the event that either is unable to contribute all of its
domestic cellular interests to the joint venture, the parties, to the extent
feasible (including with respect to obligations to third parties), will (for a
five-year period following the Phase II closing) restructure, among other
things, the allocation of profits and losses and the distribution of cash and
property of the joint venture or, to the extent such a restructuring is not
feasible, to otherwise implement a compensation mechanism, in each case, to
provide each party with the same economic result (taking into account all tax
consequences) such party would have obtained if all of the parties' domestic
cellular interests had been contributed to the joint venture at the Phase II
closing. AirTouch and U S WEST have not yet determined whether any such
restructuring is feasible, or how any such restructuring or other compensation
mechanism would be implemented.
As a result of the uncertainties and contingencies surrounding Phase II,
AirTouch cannot predict the actual interest which it will have upon the closing
of Phase II in the capital, income (loss) or cash flow of the joint venture, or
the degree to which its domestic cellular operations will be deconsolidated, and
such interest and manner of accounting presentation could differ materially from
the pro forma information presented below. AirTouch nevertheless believes it is
reasonable to use the above-described assumption that all cellular properties
are contributed to the joint venture in the pro forma presentation because of
(i) the continuing obligations of AirTouch and U S WEST to attempt to effect
such contribution, and (ii) the fact that such an assumption reflects the most
conservative expected result (i.e., full deconsolidation) for the purposes of
AirTouch's financial statement reporting of all of AirTouch's domestic cellular
properties.
The Pro Forma Condensed Combined Financial Statements are intended for
informational purposes only and are not necessarily indicative of the future
financial position or future results of operations of the combined company or
the financial position or the results of operations of the combined company that
would have actually occurred had the Merger and Phase II of the AirTouch/U S
WEST joint venture been in effect as of the date or for the periods presented.
The Pro Forma Condensed Combined Financial Statements and the accompanying
notes should be read in conjunction with and are qualified in their entirety by
the Consolidated Financial Statements, including accompanying notes, of AirTouch
and CCI included in the Annual Report on Form 10-K for the year ended December
31, 1995, as amended and the Consolidated Financial Statements of U S WEST
NewVector Group included in this current report on Form 8-K, date of report
July 2, 1996.
3
<PAGE> 3
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
AIRTOUCH/ PRO FORMA
AS REPORTED PRO FORMA U S WEST CCI MERGER
---------------------------- CCI CCI JOINT VENTURE AND
AIRTOUCH CCI NEW PAR ADJUSTMENTS MERGER ADJUSTMENTS PHASE II
-------- ------ -------- ----------- --------- ------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets.......................... $ 417.4 $203.3 $ 156.8 $ (7.0)(1) $ (207.0)(a)
(101.3)(2) $ 669.2 (156.8)(c) $ 305.4
Property, plant, and equipment, net..... 1,334.9 1.9 476.7 1,813.5 (866.5)(a)
(476.7)(c) 470.3
Investments in unconsolidated wireless
systems............................... 3,201.7 458.5 1,507.0(1) 941.5(a)
107.7(3) 4,016.2(c)
(3,418.4)(4) 1,856.5 6,814.2
Intangible assets, net.................. 582.5 410.0 2,149.3(4) (157.6)(a)
879.4(5) 4,021.2 (3,438.7)(c) 424.9
Deferred charges and other noncurrent
assets................................ 249.9 30.1 30.1 (107.7)(3) 202.4 (58.6)(a)
(30.1)(c) 113.7
-------- ------ -------- --------- -------- --------- --------
Total assets................... $5,786.4 $693.8 $1,073.6 $ 1,009.0 $8,562.8 $ (434.3) $8,128.5
======== ====== ======== ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities..................... $ 469.0 $ 12.0 $ 80.5 $ 561.5 $ (177.9)(a)
(80.5)(c) $ 303.1
Long-term obligations................... 1,000.2 358.7 $ 420.0(1)
(93.4)(2) 1,685.5 (1.4)(a) 1,684.1
Deferred income taxes................... 254.8 33.6 879.4(5) 1,167.8 1,167.8
Deferred credits........................ 93.1 3.9 97.0 (11.9)(a)
(3.9)(c) 81.2
-------- ------ -------- --------- -------- --------- --------
Total liabilities.............. 1,817.1 404.3 84.4 1,206.0 3,511.8 (275.6) 3,236.2
-------- ------ -------- --------- -------- --------- --------
Minority interests in consolidated
wireless systems...................... 157.0 1.7 158.7 (157.0)(a)
(1.7)(c) 0.0
-------- ------ -------- --------- -------- --------- --------
Stockholders' equity:
6.00% Class B Mandatorily Convertible
Preferred Stock, Series 1996........ 500.0(1) 500.0 500.0
4.25% Class C Convertible Preferred
Stock, Series 1996.................. 580.0(1) 580.0 580.0
Common stock.......................... 5.0 5.0 5.0
Additional paid-in capital............ 3,887.1 3,887.1 3,887.1
Accumulated deficit................... (105.9 ) (105.9 ) (105.9)
Cumulative translation adjustment..... 15.9 15.9 15.9
Other................................. 10.2 10.2 10.2
Stockholders' equity -- CCI........... 289.5 (7.9)(2)
(281.6)(4) 0.0
Partners' capital -- New Par.......... 987.5 (987.5)(4) 0.0
-------- ------ -------- --------- -------- --------- --------
Total stockholders' equity..... 3,812.3 289.5 987.5 (197.0) 4,892.3 0.0 4,892.3
-------- ------ -------- --------- -------- --------- --------
Total liabilities and
stockholders'
equity....................... $5,786.4 $693.8 $1,073.6 $ 1,009.0 $8,562.8 $ (434.3) $8,128.5
======== ====== ======== ========= ======== ========= ========
</TABLE>
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
4
<PAGE> 4
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
AIRTOUCH/ PRO FORMA
AS REPORTED PRO FORMA U S WEST CCI MERGER
------------------------------ CCI CCI JOINT VENTURE AND
AIRTOUCH CCI(*) NEW PAR(*) ADJUSTMENTS MERGER ADJUSTMENTS PHASE II
-------- ------ ---------- ----------- --------- ------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............ $ 448.9 $ 0.0 $177.5 $ 626.4 $ (321.5)(b)
(177.5)(d) $ 127.4
-------- ------ ------- -------- --------- --------
Operating expenses:
Cost of revenues............ 103.0 34.0 137.0 (65.0)(b)
(34.0)(d) 38.0
Selling and customer
operations expenses....... 138.3 52.6 190.9 (93.7)(b)
(52.6)(d) 44.6
General, administrative, and
other expenses............ 93.3 63.4 9.2 $ (61.7)(11) 104.2 (43.2)(b)
(9.2)(d) 51.8
Depreciation and
amortization expenses..... 65.0 0.4 23.2 (2.6)(6) (38.8)(b)
27.3(8) 113.3 (47.9)(d) 26.6
-------- ------ ------- ------- -------- --------- --------
Total operating expenses...... 399.6 63.8 119.0 (37.0) 545.4 (384.4) 161.0
-------- ------ ------- ------- -------- --------- --------
Operating income (loss)....... 49.3 (63.8) 58.5 37.0 81.0 (114.6) (33.6)
Equity in net income (loss) of
unconsolidated wireless
systems:
Domestic.................... 56.1 29.8 (64.1)(7) 21.8 68.0(b)
34.3(d)
(1.9)(e)
(3.5)(f) 118.7
International............... (7.1 ) (7.1) (7.1)
Minority interests in net
(income) loss of
consolidated wireless
systems..................... (8.5 ) (0.2) (8.7) 16.1(b)
0.2(d) 7.6
Interest:
Income...................... 4.5 1.9 2.4 8.8 (3.1)(b)
(2.4)(d) 3.3
Expense..................... (8.4 ) (6.3) (7.5)(9) (22.2) (0.2)(b) (22.4)
Miscellaneous income
(expense)................... 7.7 (3.1) (0.4) 4.2 0.4(d) 4.6
-------- ------ ------- ------- -------- --------- --------
Income (loss) before
extraordinary item and
income taxes................ 93.6 (41.5) 60.3 (34.6) 77.8 (6.7) 71.1
Income taxes.................. 41.4 (14.3) 1.3 11.7(10) 40.1 (1.3)(d)
(0.6)(g) 38.2
-------- ------ ------- ------- -------- --------- --------
Income (loss) before
extraordinary item.......... $ 52.2 $(27.2) $ 59.0 $ (46.3) 37.7 (4.8) 32.9
======== ====== ======= =======
Preferred dividends........... 13.7 13.7
-------- --------- --------
Income attributable to common
stockholders................ $ 24.0 $ (4.8) $ 19.2
======== ========= ========
Income before
extraordinary item per
share....................... $ 0.10 $ 0.05 $ 0.04
======== ======== ========
Weighted average shares
outstanding (in
thousands).................. 498,837 498,837 498,837
======== ======== ========
</TABLE>
- ---------------
(*) Conformed to AirTouch's Statement of Income presentation.
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
5
<PAGE> 5
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
AIRTOUCH/ PRO FORMA
AS REPORTED PRO FORMA U S WEST CCI MERGER
------------------------------ CCI CCI JOINT VENTURE AND
AIRTOUCH CCI(*) NEW PAR(*) ADJUSTMENTS MERGER ADJUSTMENTS PHASE II
-------- ------ ---------- ----------- --------- ------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............ $1,618.6 $ 0.0 $660.3 $2,278.9 $(1,188.7)(b)
(660.3)(d) $ 429.9
-------- ------ ------- -------- --------- --------
Operating expenses:
Cost of revenues............ 372.9 133.4 506.3 (231.0)(b)
(133.4)(d) 141.9
Selling and customer
operations expenses....... 524.7 204.4 729.1 (380.6)(b)
(204.4)(d) 144.1
General, administrative, and
other expenses............ 392.4 13.6 38.4 444.4 (159.6)(b)
(38.4)(d) 246.4
Depreciation and
amortization expenses..... 215.8 2.2 86.4 $ (10.2)(6) (127.6)(b)
110.0(8) 404.2 (186.2)(d) 90.4
-------- ------ ------- ------- -------- --------- --------
Total operating expenses...... 1,505.8 15.8 462.6 99.8 2,084.0 (1,461.2) 622.8
-------- ------ ------- ------- -------- --------- --------
Operating income (loss)....... 112.8 (15.8) 197.7 (99.8) 194.9 (387.8) (192.9)
Equity in net income (loss) of
unconsolidated wireless
systems:
Domestic.................... 188.2 101.3 (207.1)(7) 82.4 242.4(b)
100.5(d)
(17.5)(e)
(12.9)(f) 394.9
International............... (35.9 ) (35.9 ) (35.9)
Minority interests in net
(income) loss of
consolidated wireless
systems..................... (36.5 ) (0.9) (37.4 ) 56.4(b)
0.9(d) 19.9
Interest:
Income...................... 34.9 15.1 8.8 58.8 (12.3)(b)
(8.8)(d) 37.7
Expense..................... (13.0 ) (27.5) (0.1) (68.0)(9) (108.6 ) 5.1(b)
0.1(d) (103.4)
Miscellaneous income
(expense)................... (5.5 ) 16.1 (0.9) 9.7 (1.7)(b)
0.9(d) 8.9
-------- ------ ------- ------- -------- --------- --------
Income before extraordinary
item and income taxes....... 245.0 89.2 204.6 (374.9) 163.9 (34.7) 129.2
Income taxes.................. 113.1 31.3 4.3 (54.4)(10) 94.3 (4.3)(d)
(6.7)(g) 83.3
-------- ------ ------- ------- -------- --------- --------
Income before extraordinary
item........................ $ 131.9 $ 57.9 $200.3 $(320.5) 69.6 (23.7) 45.9
======== ====== ======= =======
Preferred dividends........... 54.7 54.7
-------- --------- --------
Income (loss) attributable to
common stockholders......... $ 14.9 $ (23.7) $ (8.8)
======== ========= ========
Income (loss) before
extraordinary item per
share....................... $ 0.27 $ 0.03 $ (0.02)
======== ======== ========
Weighted average shares
outstanding (in
thousands).................. 494,925 494,925 494,925
======== ======== ========
</TABLE>
- ---------------
(*) Conformed to AirTouch's Statement of Income presentation.
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
6
<PAGE> 6
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
CCI MERGER PRO FORMA
Basis of Presentation. The 1996 Merger Agreement provides that at the
Effective Time, and subject to election and allocation procedures, each share of
CCI stock outstanding immediately prior to the Effective Time will be converted
into the right to receive either (i) $55.00 in cash, (ii) a fraction of a share
of the Company's 6.00% Class B Mandatorily Convertible Preferred Stock, Series
1996 (the "AirTouch Class B Preferred Stock"), and a fraction of a share of the
Company's 4.25% Class C Convertible Preferred Stock, Series 1996 (the "AirTouch
Class C Preferred Stock") (such fractional shares of securities being referred
to together as a "Unit") or (iii) a combination of cash and a fraction of a
Unit. Approximately 28% of the CCI stock not held by AirTouch will be converted
into the right to receive cash, and approximately 72% will be converted into the
right to receive Units. The total number of shares of CCI stock to be converted
into the right to receive Units and cash may be adjusted in order to maintain
the tax-free nature of the transaction.
Under the 1996 Merger Agreement, the aggregate amount of AirTouch Class B
Preferred Stock to be issued in the CCI Merger (without regard to the conversion
of CCI convertible debt (the "CCI Convertible Notes") or the exercise of options
to purchase CCI stock ("CCI Options"), in each case after the Effective Time)
may not exceed (i) $500 million divided by (ii) the volume-weighted average
trading price of AirTouch's common stock over the fifteen trading day period
ending on the second calendar day preceding the date on which the proxy
statement is mailed to CCI stockholders (the quotient of (i) and (ii), the
"Class B Maximum"). In the event that the number of shares of AirTouch Class B
Preferred Stock to be issued in the CCI Merger would exceed the Class B Maximum,
the composition of each Unit will be adjusted to increase the amount of AirTouch
Class C Preferred Stock contained in a Unit and decrease the amount of AirTouch
Class B Preferred Stock.
Under the 1996 Merger Agreement, CCI Convertible Notes will be assumed by a
subsidiary of AirTouch at the Effective Time. Each holder of CCI Options may
exercise such options before the Effective Time, subject to certain election
procedures, or after, subject to certain conversion procedures.
Pro forma income before extraordinary item per share is calculated based on
income before extraordinary item after deducting dividends of $54.7 million and
$13.7 million for the year ended December 31, 1995 and the three months ended
March 31, 1996, respectively, for AirTouch Class B Preferred Stock and AirTouch
Class C Preferred Stock, and on weighted average shares of 494.9 million and
498.8 million as of December 31, 1995 and March 31, 1996, respectively. The
effect of convertible preferred stock, using the "if converted" method, is not
considered since the effect of such shares is anti-dilutive. The effect of CCI
Options and the CCI Convertible Notes has not been considered since the impact
is immaterial.
In the unaudited Pro Forma Condensed Combined Balance Sheet, (1)
outstanding CCI Options have not been considered in the pro forma presentation
since their impact is immaterial, (2) CCI Convertible Notes are assumed to not
convert into CCI stock prior to the Effective Time and (3) amounts presented
assume that 28% of the outstanding CCI stock would be exchanged for cash and
that the Class B Maximum will be issued. Although there could be other possible
combinations of cash and preferred stock as provided by the 1996 Merger
Agreement, any combination other than the one assumed would not have a
materially different impact from that shown by these Pro Forma Condensed
Combined Financial Statements. Because the AirTouch Class C Preferred Stock can
be redeemed for cash or converted into shares of common stock at the option of
AirTouch, it is not considered to be mandatorily redeemable for financial
reporting purposes.
The purchase price, exclusive of expenses related thereto and the
assumption of net CCI indebtedness, for the CCI Merger is summarized below (in
millions of dollars):
<TABLE>
<S> <C>
Cash................................................................ $ 420
Price for maximum AirTouch Class B Preferred Stock.................. 500
Price for AirTouch Class C Preferred Stock.......................... 580
------
Purchase price...................................................... $1,500
======
</TABLE>
For purposes of the Pro Forma Condensed Combined Statement of Income for
the year ended December 31, 1995, the mandatory redemption offer pursuant to the
1990 Merger Agreement ("MRO") is assumed to have occurred concurrently with the
CCI Merger although it actually occurred in late October
7
<PAGE> 7
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
1995. For purposes of the Pro Forma Condensed Combined Statement of Income for
the three months ended March 31, 1996, the AirTouch Replacement Option payment
(as defined in the 1990 Merger Agreement) is assumed to have occurred
concurrently with the CCI Merger although actually it occurred on January 4,
1996 (see Note 11).
The CCI Merger will be accounted for by AirTouch under the purchase method
of accounting in accordance with APB Opinion No. 16, and accordingly, this
method of accounting has been applied in the Pro Forma Condensed Combined
Financial Statements. The acquisition of CCI stock pursuant to the 1990 Merger
Agreement was accounted for using the equity method of accounting.
Under the purchase method of accounting, the purchase price will be
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the Effective Time. Estimates of the fair values of CCI
and its subsidiaries' assets and liabilities have been combined with recorded
values of the assets and liabilities of AirTouch and subsidiaries in the
unaudited Pro Forma Condensed Financial Combined Statements. However, changes to
adjustments included in the Pro Forma Condensed Combined Financial Statements
are expected as valuations/appraisals of assets and liabilities are completed,
and additional information becomes available. Although AirTouch cannot ascertain
what the changes to pro forma adjustments will be, such changes could be
material. In addition, the results of operations of CCI subsequent to March 31,
1996 will affect the allocation of the purchase price. Accordingly, actual
amounts will differ from those in the Pro Forma Condensed Combined Financial
Statements. Contingent payments, if any, associated with AirTouch Class B
Preferred Stock will not affect the aggregate purchase price, since the
contingency is based on changes in the volume-weighted average trading price of
AirTouch Class B Preferred Stock.
CCI Merger Pro Forma Adjustments
1. Records the CCI Merger assuming the estimated professional fees of $7
million (primarily legal, investment bankers' and accountants' fees) related
to the CCI Merger were paid using available cash. For Pro Forma Condensed
Combined Financial Statement purposes, the as-reported values on CCI's
Balance Sheet other than its investment in New Par have been estimated to
approximate fair value.
2. Applies CCI's reported cash balances toward payment of its estimated merger
fees and the reduction of its long-term debt.
3. Reclassifies AirTouch Replacement Option payment made on January 4, 1996
from deferred charges.
4. Eliminates AirTouch's equity investment reflecting its equity interest in
CCI pursuant to the 1990 Merger Agreement and CCI's investment in New Par.
In addition, this entry allocates the full amount of the excess purchase
price over the as-reported amounts on CCI's and New Par's Consolidated
Balance Sheets to identifiable intangibles of New Par. Under the purchase
method of accounting, the purchase price is based on the total cost of all
equity acquired pursuant to the 1990 Merger Agreement and the 1996 Merger
Agreement.
<TABLE>
<CAPTION>
MARCH 31,
AGGREGATE PURCHASE PRICE 1996
------------------------------------------------------------------------- ---------
<S> <C>
(1) Pursuant to 1996 Merger Agreement (after adjustments).............. $1,614.7
(2) Pursuant to 1990 Merger Agreement.................................. 810.7
---------
Total cost of acquisition................................................ 2,425.4
Less: Net assets acquired (net of adjustments)........................... 276.1
---------
Excess purchase price.................................................... $2,149.3
=======
</TABLE>
5. Records the deferred tax liability related to identifiable intangible assets
other than goodwill and corresponding adjustment to goodwill (see entry 8).
The Company is required to recognize deferred tax liabilities for the
temporary differences between the initial assigned values to the
identifiable intangible assets and their tax bases. The deferred tax
liability will be amortized over the estimated useful lives of the relevant
identifiable intangible assets. Goodwill is considered a residual and no
related deferred tax liability is recognized.
6. Adjusts New Par's as-reported depreciation expense to extend the lives of
certain domestic cellular telecommunications equipment from seven years to
ten years, to conform to AirTouch's useful lives.
8
<PAGE> 8
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
7. Reverses AirTouch's equity in net income of CCI and New Par and CCI's equity
in net income of New Par for the year ended December 31, 1995 and the three
months ended March 31, 1996.
8. Records the amortization expense for identifiable intangible assets and
goodwill. For purposes of calculating the amortization of intangibles, the
Company has preliminarily estimated that approximately $191 million relates
to subscriber lists and $1,951.3 million relates to FCC licenses.
Amortization periods for subscriber lists and FCC licenses are five and
forty years, respectively.
9. Records interest expense incurred on $420 million of borrowings related to
the CCI Merger and $710.4 million of borrowings related to the MRO and
option payment, based on assumed average interest rates of 7.00% and 6.33%,
respectively. The Company expects to face interest rates of approximately
7%, based on its long-term debt rating and Treasury yield, when the Company
issues fixed rate debt in the third or fourth quarter of 1996. The Company
anticipates using some of the proceeds from this debt issue to fund the CCI
Merger. The rate of 6.33% represents average LIBOR for 1995 plus 30 basis
points. Interest on the amount used to fund the MRO is based on the terms of
the Company's unsecured $2 billion, five-year revolving credit facility. The
effect of a 1/8% change in interest rates on interest expense to pro forma
net income of the Company is immaterial.
10. Records net income tax effects on the relevant pro forma items arising from
the CCI acquisition at the combined statutory rate of 41.05%. Pro forma
adjustments to the Condensed Combined Statements of Income include interest,
depreciation and amortization expenses. Except for amortization of goodwill,
these adjustments were tax effected at the statutory rate to produce net tax
expense of $54.4 million and $11.7 million for the year ended December 31,
1995 and the three months ended March 31, 1996, respectively.
11. Reverses compensation expense recorded by CCI in connection with
cancellation of stock options, which options were acquired by AirTouch.
PHASE II OF AIRTOUCH/U S WEST JOINT VENTURE PRO FORMA
Basis of Presentation. In July 1994, AirTouch and U S WEST entered into an
agreement to combine their domestic cellular properties into a joint venture in
a multi-phased transaction. Phase I of the transaction commenced on November 1,
1995, and had no immediate financial accounting presentation impact. In Phase
II, the partners will combine their domestic properties into a joint venture,
subject to obtaining certain required consents and authorizations. AirTouch
believes that Phase II is a probable transaction. The most significant effect of
Phase II is the deconsolidation of AirTouch's domestic cellular interests and
the use of the equity method of accounting for its investment in the joint
venture.
The Pro Forma Condensed Combined Financial Statements assume that all of
AirTouch's domestic cellular properties (including the properties acquired in
the Merger) are contributed to the joint venture at the beginning of Phase II.
Similarly, all domestic cellular properties of U S WEST are assumed to be
contributed to the joint venture. The Pro Forma Condensed Combined Financial
Statements exclude the PCS Partnership since its inclusion is solely at the
option of U S WEST and could occur as late as mid-1998, and the effect of the
contribution to the relative ownership interest of the partners is not readily
determinable. The assumed ownership interests for AirTouch and U S WEST
approximate 74% and 26%, respectively, pursuant to a computation set forth in
the joint venture agreement.
9
<PAGE> 9
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
The following is selected pro forma financial information as of December
31, 1995 and March 31, 1996 and the periods then ended for the AirTouch/U S WEST
joint venture:
AIRTOUCH/U S WEST JOINT VENTURE
SUMMARY PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
OPERATING RESULTS
Operating revenues................................... $2,790.2 $ 762.9
Operating income..................................... $ 534.9 $ 164.6
Net income from operations........................... $ 562.1 $ 173.2
BALANCE SHEET
Total assets......................................... $6,893.3 $6,806.3
Total partners' capital.............................. $5,939.4 $6,084.0
</TABLE>
Pro forma net income per share is calculated based on income before
extraordinary items after deducting dividends of $54.7 million and $13.7 million
for AirTouch Class B Preferred Stock and AirTouch Class C Preferred Stock, and
assumes 494.9 million and 498.8 million weighted average shares outstanding as
of December 31, 1995 and March 31, 1996, respectively. The effect of convertible
preferred stock and convertible debt, using the "if converted" method, is not
considered since the effect of such shares is anti-dilutive. The CCI options
have not been considered in pro forma presentation since their impact is
immaterial.
Phase II Pro Forma Adjustments
a. Converts AirTouch's as reported investment in domestic cellular net
assets (before the CCI transaction) contributed to the joint venture to
the equity method of accounting.
b. Converts to the equity method of accounting AirTouch's as reported
domestic cellular consolidated 1995 and first quarter 1996 results of
operations.
c. Converts to the equity method of accounting AirTouch's interest in New
Par's as reported net assets (after the CCI Merger), including the
related intangibles.
d. Converts to the equity method of accounting AirTouch's interest in New
Par's 1995 and first quarter 1996 as reported results of operations,
including the amortization of intangibles arising from the CCI Merger.
e. Reduces AirTouch's as reported income in its domestic cellular
properties to reflect its ownership interest in the joint venture.
f. Adjusts AirTouch's share of the joint venture's net income for the
amortization of the implied goodwill (the difference between book value
of AirTouch's net assets (after the CCI Merger) contributed to the joint
venture and AirTouch's proportionate share of the pro forma combined net
assets of the joint venture at December 31, 1995 and March 31, 1996).
The amortization period for implied goodwill is 40 years.
10
<PAGE> 10
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Book value of assets contributed by AirTouch................... $4,910.5 $5,065.4
Book value of assets contributed by U S WEST................... 1,028.9 1,018.6
------------ ---------
Combined book values contributed............................... $5,939.4 $6,084.0
========== =======
AirTouch's share of combined book values @ 74%................. 4,395.2 4,502.2
Book value of the Company's contribution....................... 4,910.5 5,065.4
------------ ---------
Implied goodwill............................................... $ 515.3 $ 563.2
========== =======
Annual amortization expense.................................... $ 12.9 $ 14.1
==========
---------
Quarterly amortization expense................................. $ 3.5
=======
</TABLE>
g. Records net income tax effects on the relevant pro forma items arising
from Phase II at the statutory rate of 41.05%.
11
<PAGE> 1
EXHIBIT 99.4
CAPITALIZATION
The following table sets forth the capitalization and cash of the Company
(i) at March 31, 1996, (ii) as adjusted to give effect to the sale of the Notes
and the application of the estimated net proceeds therefrom as set forth under
"Use of Proceeds," and (iii) pro forma, as so adjusted, as if the CCI Merger had
been effective as of March 31, 1996. This table should be read in conjunction
with the Consolidated Financial Statements of the Company and related notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, as amended, and the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, and the Pro Forma Condensed Combined
Financial Statements included in this Current Report on Form 8-K, date of
report July 2, 1996.
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
AS CCI
ACTUAL ADJUSTED MERGER(1)
-------- -------- ------------
<S> <C> <C> <C>
(in millions)
Cash and cash equivalents.................................. $ 38.4 $ 38.4 $ 68.4
======= ======= ==========
Short-term obligations..................................... 84.3 84.3 84.3
-------- -------- ----------
Long-term obligations:
Bank debt and commercial paper........................... 992.0 492.0 1,177.3(2)
% Notes due and % Notes due........................ -- 500.0 500.0
Capital lease obligations................................ 8.2 8.2 8.2
-------- -------- ----------
Total long-term obligations........................... 1,000.2 1,000.2 1,685.5
-------- -------- ----------
Minority interests in consolidated wireless systems........ 157.0 157.0 158.7
-------- -------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value:
50,000,000 shares authorized; no shares issued and
outstanding(3):
6.00% Class B Mandatorily Convertible Preferred
Stock, Series 1996 (24,000,000 shares authorized)... -- -- 500.0
4.25% Class C Convertible Preferred Stock, Series
1996 (19,000,000 shares authorized)................. -- -- 580.0
Common Stock, $0.01 par value:
1,100,000,000 shares authorized; 499,097,030 shares
issued and 498,974,070 shares outstanding........... 5.0 5.0 5.0
Additional paid-in capital............................... 3,887.1 3,887.1 3,887.1
Accumulated deficit...................................... (105.9) (105.9) (105.9)
Cumulative translation adjustment........................ 15.9 15.9 15.9
Other.................................................... 10.2 10.2 10.2
-------- -------- ----------
Total stockholders' equity............................ 3,812.3 3,812.3 4,892.3
-------- -------- ----------
Total capitalization....................................... $5,053.8 $5,053.8 $6,820.8
======= ======= ==========
</TABLE>
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(1) The contribution of U S WEST's and the Company's cellular properties to the
AirTouch/U S WEST joint venture will have minimal effect on the Company's
capitalization. Accordingly, no separate capitalization reflecting such
contribution is provided.
(2) Includes assumption of CCI's Zero Coupon Convertible Notes.
(3) No shares of preferred stock were outstanding at March 31, 1996. The number
of shares of Class B Mandatorily Convertible Preferred Stock and Class C
Convertible Preferred Stock issuable in the CCI Merger depends on a pricing
period that has not yet ended and, accordingly, is not presented.
2
