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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.
COMMISSION FILE NUMBER 1-12342
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AIRTOUCH COMMUNICATIONS, INC.
A DELAWARE CORPORATION I.R.S. EMPLOYER NUMBER 94-3213132
ONE CALIFORNIA STREET
SAN FRANCISCO, CA 94111
(415) 658-2000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
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COMMON STOCK, $.01 PAR VALUE, WITH NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None.
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Based on the composite closing sales price on March 22, 1996, the aggregate
market value of all voting stock held by nonaffiliates was approximately $15.7
billion. At March 22, 1996, 498,628,011 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated Parts of this Form 10-K:
1995 Annual Report to Stockholders - Part II
1996 Proxy Statement - Part III
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TABLE OF CONTENTS
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PART I
<TABLE>
<S> <C>
ITEM 1 Business..................................................................
ITEM 2 Properties................................................................
ITEM 3 Legal Proceedings.........................................................
ITEM 4 Submission of Matters to a Vote of Security Holders.......................
Executive Officers of the Registrant......................................
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder Matters.....
ITEM 6 Selected Financial Data...................................................
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................
ITEM 8 Financial Statements and Supplementary Data...............................
ITEM 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.....................................
PART III
ITEM 10 Directors and Executive Officers of the Registrant........................
ITEM 11 Executive Compensation....................................................
ITEM 12 Security Ownership of Certain Beneficial Owners and Management............
ITEM 13 Certain Relationships and Related Transactions............................
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K...........
</TABLE>
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Unless the context otherwise requires, references to the "Company" herein
include AirTouch Communications, Inc. and entities over which it has or shares
operational control.
This Form 10-K includes trademarks or service marks of the Company and of other
companies that are the property of their respective owner. TalkAlong is a
trademark of U S WEST, Inc.
Proportionate customer data is obtained, for each system over which the Company
has or shares operational control, by multiplying (i) the aggregate number of
customers of such system by (ii) the Company's ownership interest in the
licensee operating such system. Proportionate customer data does not include
information with respect to the Company's cost-based investments or certain
equity-based investments that are not material to the Company's operating
results or financial condition taken as a whole.
The term "POPs" means the population of a licensed market (based on population
estimates for such market) multiplied by the Company's ownership interest in a
licensee operating in that market as of the date specified, and includes
networks under construction and the markets of certain cost-based investments
not included in proportionate results.
Private Securities Litigation Reform Act Safe Harbor Statement: When used in
this Report, the words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially. For a discussion of such risks, see "Business-Investment
Considerations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which
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speak only as of the date hereof. The Company undertakes no obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
AirTouch Communications, Inc. is one of the world's leading wireless
telecommunications companies, with significant cellular interests in the United
States, Europe and Asia. The Company's proportionate worldwide cellular and
broadband PCS interests represented 164.9 million POPs and more than 3 million
customers at December 31, 1995. In the United States, the Company has
approximately 52 million proportionate cellular and broadband PCS POPs. The
Company controls or shares control over cellular systems in ten of the 30
largest cellular markets, including Los Angeles, San Francisco, San Diego,
Detroit and Atlanta, and through PCS PrimeCo, L.P., shares control over 11 major
broadband PCS markets. Internationally, the Company had 112.9 million cellular
POPs as of December 31, 1995, and held significant ownership interests, with
board representation and substantial operating influence, in national cellular
systems operating in Germany, Japan, Portugal, Sweden, Belgium, Italy, Spain and
Madras, India, and in systems under construction in South Korea and Madhya
Pradesh, India. In February 1996, the Company's consortium was awarded one of
two new national cellular licenses in Poland. Based on industry surveys, the
Company is also among the largest providers of paging services in the United
States, with approximately 2.3 million units in service at December 31, 1995.
The following table sets forth the Company's cellular and broadband PCS POPs and
proportionate customers at December 31, 1995.
<TABLE>
<CAPTION>
PROPORTIONATE
POPS(1) CUSTOMERS(2)
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(IN MILLIONS) (IN THOUSANDS)
<S> <C> <C>
Domestic Cellular:
Southern California 15.8 *
San Francisco Bay Area 3.1 *
Sacramento Valley 1.8 *
Michigan/Ohio(3) 11.2 *
Georgia and Kansas/Missouri 5.1 *
Other domestic interests .7 *
-----
Domestic Cellular Subtotal 37.7 2,262
----- =====
Domestic Broadband PCS 14.3 --
-----
Domestic Total 52.0 2,262
===== =====
International Cellular:(4)
Belgium 2.5 59
Germany 28.4 507
India 36.9 *
Italy 6.8 7
Japan 13.0 108
Poland 7.5 --
Portugal 2.3 39
Sweden 4.5 75
South Korea 4.8 --
Spain 6.2 2
----- -----
International Total 112.9 797
----- -----
Worldwide Total 164.9 3,059
===== =====
</TABLE>
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* Not disclosed.
(1) "POPs" means the population of a licensed market (based on population
estimates for such market) multiplied by the Company's ownership
interest in a licensee operating in such market as of the date
specified. Includes networks under construction and markets of certain
cost-based investments not included in proportionate financial results.
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(2) Proportionate customer data does not include customers to systems where
the Company accounts for its investment on a cost basis. For a list of
such systems, see "Domestic Cellular" and "International Cellular."
Proportionate data also excludes information for certain equity-based
investments that are not material to the Company's operating results or
financial condition taken as a whole.
(3) POPs and proportionate customers for the Michigan/Ohio region reflect
both the Company's 50% interest in a partnership with Cellular
Communications, Inc. and the Company's ownership of approximately 37.6%
of the outstanding common stock of CCI at December 31, 1995.
(4) Includes POPs for South Korea, Madhya Pradesh and certain regions of
Japan, where the systems have not yet commenced operations. Includes
POPs for Poland, where the Company's consortium was awarded a national
cellular license in February 1996.
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INVESTMENT CONSIDERATIONS
The following factors, in addition to the other information contained elsewhere
herein, should be considered carefully in evaluating the Company and its
business.
COMPETITION
The sale of cellular and paging services in each of the Company's markets has
become increasingly competitive. In the United States, where the Company
previously had one cellular competitor in each market, the Company in the near
future will face up to eight wireless competitors due to the introduction of
broadband personal communications services ("PCS") on frequencies recently
auctioned by the Federal Communications Commission ("FCC") and specialized
mobile radio ("SMR") services on existing SMR frequencies. PCS providers have
already begun service in select markets in the United States, and competitors
are expected to begin offering PCS services in most of the Company's markets
between late 1996 and early 1997. One SMR operator is currently offering digital
SMR service in the Los Angeles and San Francisco markets and has announced plans
to construct a nationwide system with its partners that would offer service in
several of the Company's other cellular markets. Depending on voice quality,
system reliability, system coverage, product offerings, marketing techniques and
pricing, such services may be competitive with the Company's cellular service.
The Telecommunications Act of 1996 may have removed certain restrictions on the
ability of the Company's competitors to offer as a single package a variety of
services, such as wireless voice and data, paging, long-distance, local landline
and cable services, some of which the Company does not currently provide.
Increased competition could result in pricing pressure, which contributes to
lower revenues per customer, and higher customer acquisition costs resulting in
lower profit margins. See also "Business-Domestic Cellular-Competition" and
"Business-Paging-Competition."
There is also significant competition in the Company's international markets.
For example, the Company's ventures in Germany and Sweden currently face
competition from two other providers, as will its venture in Poland once it
commences service. In Japan there are as many as four cellular licensees and
three Personal Handy Phone licensees in certain regions. Government-operated
cellular systems in these and other countries have become increasingly
competitive with privately operated systems. In addition, it is expected that
additional licenses will be issued in many of the markets in which the Company
and its ventures provide services. For instance, it is expected that the German
government will issue an additional 1800 MHz cellular license in 1997 or 1998.
See also "Business-International Cellular-Competition."
TECHNOLOGY
The operations of the Company and its joint ventures depend in part upon the
successful deployment of continuously evolving wireless communications
technologies. The Company licenses technologies from a number of vendors and
makes significant capital expenditures in connection with the deployment of
such technologies. There can be no assurance that such technologies will be
developed according to anticipated schedules, that they will perform according
to expectations, or that they will achieve commercial acceptance. The Company
may be required to make more capital expenditures than is currently expected if
vendors fail to meet anticipated schedules, if a technology's performance falls
short of expectations, or if commercial acceptance is not achieved.
REGULATION
The licensing, construction, operation, sale and acquisition of wireless
systems, as well as the number of competitors permitted in each market, are
regulated in the United States by the FCC and by its counterparts in other
countries. In addition, certain aspects of the Company's domestic wireless
operations may be subject to public utility regulation in the state in which
service is provided and to local regulation. Frequently, regulatory consent is
necessary for the change in ownership of licenses. The siting and construction
of transmitter towers, antennas and equipment shelters are often subject to
state or local zoning, land use and other local regulation. The California
Public Utilities Commission ("CPUC") is investigating whether California
cellular carriers have complied with rules regarding the filing of applications
and permits to locate and construct cell sites, although no formal allegations
of wrongdoing have been made against the Company. However, no assurance can be
given that the outcome of such investigation or other regulatory determinations
or changes by federal, state or foreign governmental authorities will not have
an adverse effect on the Company's business. In connection with the
Telecommunications Act of 1996, the FCC is
6
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expected to conduct more than 80 rulemaking proceedings during 1996. The outcome
of these proceedings could have a material effect on regulation governing the
Company's operations.
The Company's international and domestic wireless licenses are granted for
specific periods of time. The most significant domestic cellular and paging
licenses are granted for a period of ten years. The Company believes that each
of its expiring domestic licenses will be renewed based upon its prior
experience with expired licenses and upon FCC rules establishing a presumption
in favor of licensees that have substantially complied with their regulatory
obligations during the initial license period. However, there can be no
assurance that any domestic or international license will be renewed. See
"Business-Regulation."
FUTURE FUNDING REQUIREMENTS
The Company expects that its existing domestic cellular operations will require
significant amounts of capital in 1996 and future years, as will the
construction of the 11 PCS systems by PCS PrimeCo, L.P. ("PCS PrimeCo"), the
Company's PCS partnership with Bell Atlantic Corporation ("Bell Atlantic"),
NYNEX Corporation ("NYNEX") and U S WEST, Inc. ("U S WEST"). In addition, the
construction of cellular systems in international markets where the Company's
consortia have been awarded licenses within the past several years will require
substantial capital contributions by the Company. The Company also has certain
obligations to purchase the remaining equity in Cellular Communications, Inc.
("CCI") or alternatively to pay a "make-whole" amount to CCI. See
"Business-Domestic Cellular-Joint Ventures-New Par." To meet its financing
needs, the Company currently has a $2 billion committed revolving credit
facility, has the ability to sell commercial paper in aggregate amounts
available for borrowing under the committed revolving credit facility, and has
filed with the Securities and Exchange Commission a registration statement for
potential debt and/or equity proceeds of $2 billion. While the Company will
apply its operating cash flow and borrowings under its existing credit
facilities to the commitments described above, these obligations, as well as any
additional obligations arising from the Company's pursuit of acquisitions and
other new opportunities, will require the Company to seek additional sources of
financing in the next few years. The Company believes that it will be able to
access these sources on terms and in amounts that will be adequate to accomplish
its objectives, although there can be no assurance that such will be the case.
The Company's senior unsecured long-term debt has been assigned an implied
rating of BBB+ by Standard & Poor's Ratings Group and a rating of Baa2 by
Moody's Investors Service, Inc., and its commercial paper has been assigned a
rating of A-2 by Standard & Poor's and P-2 by Moody's, based in part upon each
agency's respective analysis of the expected future financial performance of the
Company. These ratings may be revised or withdrawn by the rating agency at any
time, and there can be no assurance that the Company will be able to maintain
such ratings. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
DILUTION OF OPERATING RESULTS
Over the past several years, the Company's consortia were awarded digital
cellular licenses in India, Italy, Japan, Poland, South Korea and Spain, and the
Company is continuing to pursue new opportunities in international markets. In
March 1995, PCS PrimeCo was awarded eleven 30 MHz licenses in the FCC's
broadband PCS auctions for a licence cost of approximately $1.1 billion. The
Company's indirect interest in PCS PrimeCo is currently 25%, but will increase
upon the contribution by U S WEST and the Company of their respective interests
in PCS PrimeCo to their joint venture, WMC Partners, L.P. See "Business-Domestic
Cellular-Joint Ventures-WMC Partners." As a result of costs associated with the
foregoing international and domestic system deployments, the Company's
investments will incur losses which will, at least in the near term, have a
dilutive effect on the Company's earnings.
ANTITRUST PROCEEDINGS
The Company believes that its cellular pricing and marketing practices were and
are in compliance with antitrust laws. The Company, however, is a defendant in a
number of class action complaints with respect to its Los Angeles, San Francisco
and San Diego operations, which allege that the Company conspired to fix retail
and wholesale cellular prices. The Company does not believe that the class
actions, if adversely decided, would have a material adverse effect on its
financial condition. No assurance can be given as to the foregoing, however, or
that an any disposition of these proceedings, if adverse to the Company, might
not materially adversely affect the Company's results of operations in the year
of such disposition. See Item 3, "Legal Proceedings."
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CCI TRANSACTION
Concurrent with the formation in 1991 of an equally owned joint venture with CCI
("New Par"), the Company purchased 5% of the equity in CCI, agreed to purchase
additional equity in CCI, and obtained the right to acquire all of CCI's
remaining equity in stages over the next several years. Pursuant to that
transaction, in October 1995 and January 1996, the Company purchased 10.04
million shares of CCI stock and options to acquire an additional 2.4 million
shares, bringing the Company's ownership interest in CCI to approximately 37.6%
of the outstanding stock. The Company also has the right (but not the
obligation) over a 12-month period pursuant to an appraisal process commencing
in August 1996 to purchase the remainder of CCI (but excluding any assets and
related liabilities other than CCI's interest in New Par unless otherwise agreed
by the partners) at a price that reflects the appraised private market value of
CCI (excluding such assets and related liabilities) at that time. In the event
the Company does not exercise such right, New Par effectively terminates, with
the Company receiving the assets it contributed and CCI becoming obligated to
sell its assets, including those relating to the joint venture, to a third
party. If New Par's assets (and related liabilities) are sold within a specified
period (not to exceed two years) at less than the appraised price, the Company
will be obligated to effect a "make-whole" payment to CCI's stockholders to the
extent of any shortfall. The Company's exercise of its rights to purchase
additional equity in CCI will depend upon the Company's evaluation of the market
for CCI's stock, CCI's business prospects and financial condition, other
investment opportunities available to the Company, prospects for the Company's
business, general economic conditions and other factors. No assurance can be
given that the Company's investment in CCI will be favorable to the Company or
that any sale of the joint venture assets, if required, will be consummated at a
price that will eliminate the Company's make-whole obligation. See
"Business-Domestic Cellular-Joint Ventures-New Par."
IMPLICATIONS OF LICENSEE OWNERSHIP STRUCTURE
The Company holds most of its domestic cellular properties and its domestic
broadband PCS properties through partnership interests, a number of which are
controlling interests. Upon the contribution of certain of the Company's
domestic cellular properties to its joint venture with U S WEST, control over
such properties will, to a certain extent, be shared with U S WEST. See
"Business-Domestic Cellular-Joint Ventures-WMC Partners." In addition, the
Company's interests in international wireless licenses are held almost
exclusively through foreign entities in which the Company is a significant, but
not controlling, owner. Under the governing documents for certain of these
partnerships and corporations, certain key matters such as the approval of
business plans and decisions as to the timing and amount of cash distributions
may not be approved without the consent of the Company's partners, or may be
approved without the consent of the Company. Although the Company has not been
materially impeded by the nature of its wireless ownership interests from
pursuing its corporate objectives, no assurance can be given that it will not
experience difficulty in this regard in the future. The Company may enter into
similar arrangements as it participates in consortia "formed" or "organized" to
pursue additional wireless opportunities.
FLUCTUATIONS IN THE VALUE OF WIRELESS LICENSES
A substantial portion of the Company's assets consists of interests in entities
holding cellular licenses, the value of which will depend significantly upon the
success of the operations of such entities and the growth and future direction
of the cellular industry generally. Values of licenses also have been affected
by fluctuations in the level of supply and demand for such licenses. In
addition, the infrequency with which licenses are traded or sold may increase
the difficulty of establishing values for the Company's license interests. Any
transfer of control of an entity holding a domestic license is subject to prior
FCC (and possibly state regulatory) approval. Analogous governmental approvals
are required for transfers of interests in foreign licenses. Where licenses are
held by partnerships or foreign corporations, transfers of ownership interests
in such entities are often subject to contractual restrictions.
The Company believes that future international cellular opportunities will arise
primarily through awards by developing countries, where operating and political
risks may be greater and potential returns lower than in countries in which the
Company currently has investments. In addition, investment returns from
acquisitions of interests in existing entities holding wireless licenses or from
licenses acquired through auctions may be lower than those resulting from the
Company's early license awards because of the substantial purchase prices
required to acquire such interests.
EXCHANGE RATE FLUCTUATIONS
Foreign currency exchange rates are increasingly material to the Company's
results of operations. The Company evaluates the risk of significant exchange
rate volatility and its ability to hedge as part of its decision whether to
8
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pursue an international opportunity. A significant weakening against the dollar
of the currency of a country where the Company generates revenues or earnings
may adversely affect the Company's results, while any weakening of the dollar
against such currency could have an adverse effect if the Company is obligated
to make significant foreign currency denominated capital investments in such
country. The Company attempts to mitigate the effect of foreign currency
fluctuations through the use of foreign currency contracts and foreign
denominated credit arrangements. There can be no assurance that the Company will
be successful in its foreign currency hedging efforts.
RADIO FREQUENCY EMISSIONS CONCERNS
Media reports have suggested that certain radio frequency ("RF") emissions from
portable cellular telephones might be linked to cancer. The Company has
collected and reviewed relevant scientific information and, based on such
information, is not aware of any credible evidence linking the usage of portable
cellular telephones with cancer. The FCC currently has a rulemaking proceeding
pending to update the guidelines and methods it uses for evaluating RF emissions
in radio equipment, including cellular telephones. While the proposal would
impose more restrictive standards on RF emissions from low-power devices such as
portable cellular telephones, it is anticipated that all cellular telephones
currently marketed and in use will comply with those standards. The
Telecommunications Act of 1996 requires that the FCC complete action in that
rulemaking proceeding within 180 days after February 7, 1996. Additional
concerns have been expressed about the safety of emissions from cellular
facilities which transmit calls to customers' telephone handsets. The Company's
facilities are licensed by the FCC and comply with the exposure levels set by
the FCC. The Telecommunications Act of 1996 provides that state and local
governments may not regulate the placement, construction or modification of
personal wireless service facilities on the basis of the environmental effects
of RF emissions as long as such facilities comply with the FCC's regulations
concerning such emissions. However, local authorities still have jurisdiction
over zoning and permitting of such facilities.
FRAUD
The cellular industry continues to be subject to fraudulent activity. Cloning,
which is one form of such fraud, refers to the use of scanners and other
electronic devices to illegally obtain telephone numbers and electronic serial
numbers during cellular transmission. These stolen telephone and serial number
combinations can be programmed into a cellular phone and used to obtain
fraudulent access to cellular networks. Roaming fraud occurs when a phone
programmed with a number stolen from the Company's customer is used to place
fraudulent calls from another carrier's market, resulting in a roaming fee
charged to the Company that cannot be collected from the customer. The Company
is working to reduce the negative impacts of fraud through investment in new
technologies and the deployment of other measures. In its own markets the
Company has had significant success in detecting and reducing fraudulent usage
of numbers stolen from the Company's customers. However, the Company continues
to experience significant levels of roaming fraud. The cost of cellular fraud
could have a significant impact on the Company's operating results for the
foreseeable future.
ECONOMIC FLUCTUATIONS
The Company's performance is affected by the general condition of the economy,
with demand for wireless services and the amount of cellular use tending to
decline when economic growth and retail activity decline. It is not possible for
the Company to accurately predict economic fluctuations and the impact of such
fluctuations on its performance.
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DOMESTIC CELLULAR
The Company is one of the largest providers of cellular services in the United
States, with interests in some of the most attractive cellular markets based
upon total population and demographic characteristics. The Company's United
States cellular interests represented over 37 million POPs and more than 2.2
million proportionate customers at December 31, 1995. The Company has or shares
operational control over cellular systems in Los Angeles, San Francisco, San
Diego, Atlanta, Detroit, Cleveland, San Jose, Sacramento, Cincinnati and Kansas
City. These cities represent ten of the 30 largest cellular markets in the
United States.
Prior to the broadband PCS auctions, the FCC licensed only two cellular systems
in each market. One license was initially reserved for applicants affiliated
with a company engaged in the wireline telephone business (the "wireline
licensee") and the other was initially reserved for a non-wireline licensee.
Through FCC license applications and grants, the Company acquired controlling
interests in wireline licensees in San Diego, the greater Los Angeles area,
including Oxnard and Ventura, and the greater Sacramento area, including
Stockton and Reno. Following the FCC's initial license awards, the Company
acquired additional cellular interests throughout the United States. In
evaluating acquisition opportunities, the Company considers the attractiveness
of the market for cellular services, the Company's ability to control or
significantly influence the operations of the system and the opportunity to
create regional networks through integration with the Company's existing systems
or by acquiring licenses in adjacent markets.
The following table sets forth as of December 31, 1995 by region (i) the markets
in which the Company owns an interest in a cellular system, (ii) whether each
such system is the wireline or non-wireline licensee, (iii) the total population
of the market served by such system, (iv) the Company's percentage ownership in
the operator of the system, and (v) the Company's POPs based on its percentage
ownership.
<TABLE>
<CAPTION>
WIRELINE/ TOTAL INDIRECT COMPANY'S
NON- POPULATION(1) OWNERSHIP POPS
MARKET WIRELINE (IN THOUSANDS) PERCENTAGE (IN THOUSANDS)
------ -------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Southern California Region
Los Angeles (4)(6) ............... WL 14,767 84.00% 12,404
San Diego (4)(6) ................. WL 2,671 100.00% 2,671
Oxnard/Ventura (4)(6) ............ WL 711 50.00% 356
Las Vegas, NV (3) ................ WL 983 27.79% 273
Santa Barbara (5) ................ WL 382 10.00% 38
San Luis Obispo (5) .............. WL 226 10.00% 23
------ ------
Subtotal ......................... 19,740 15,765
------ ------
San Francisco Bay Area Region
San Francisco/Oakland (3)(6) ..... NWL 3,863 47.00% 1,816
San Jose (3)(6) .................. NWL 1,570 47.00% 738
Vallejo (3)(6) ................... NWL 492 50.00% 246
Santa Rosa (3)(6) ................ NWL 416 40.18% 167
Salinas/Monterey (3)(6) .......... NWL 353 42.96% 152
------ ------
Subtotal 6,694 3,119
------ ------
Sacramento Valley Region
Sacramento (4)(6) ................ WL 1,467 49.88% 732
Stockton (4)(6) .................. WL 528 49.88% 263
Modesto (4)(6) ................... WL 416 49.88% 208
Reno, NV (4)(6) .................. WL 288 49.88% 144
Chico (4)(6) ..................... WL 195 49.88% 97
Redding (4)(6) ................... WL 164 48.43% 79
Yuba City (4)(6) ................. WL 139 49.88% 69
</TABLE>
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<TABLE>
<CAPTION>
WIRELINE/ TOTAL INDIRECT
NON- POPULATION(1) OWNERSHIP POPS
MARKET WIRELINE (IN THOUSANDS) PERCENTAGE (IN THOUSANDS)
------ -------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Sacramento Valley Region (continued)
Storey, NV (4)(6)................... WL 108 49.88% 54
Tehama (4)(6)....................... WL 97 49.88% 49
Sierra (4)(6)....................... WL 91 49.88% 45
Lander, NV (3)...................... WL 50 50.00% 25
Modoc (4)(6)........................ WL 59 25.00% 15
Mineral, NV (4)(6).................. WL 30 50.00% 15
White Pine, NV (4)(6)............... WL 13 100.00% 13
Del Norte (5)....................... WL 208 5.60% 12
Fresno (5).......................... WL 744 1.10% 8
Bakersfield (5)..................... WL 617 1.10% 7
Visalia/Tulare (5).................. WL 352 1.10% 4
----- -----
Subtotal 5,566 1,839
----- -----
Michigan/Ohio Region (2)
Detroit, MI (3)(6).................. NWL 4,602 68.43% 3,149
Cleveland, OH (3)(6)................ NWL 1,842 68.43% 1,261
Cincinnati, OH (3)(6)............... NWL 1,513 68.43% 1,036
Columbus, OH (3)(6)................. NWL 1,302 68.43% 891
Dayton, OH (3)(6)................... NWL 852 68.43% 583
Toledo, OH/MI (3)(6)................ NWL 794 68.43% 543
Grand Rapids, MI (3)(6)............. NWL 735 68.43% 503
Akron, OH (3)(6).................... NWL 682 68.43% 467
Flint, MI (3)(6).................... NWL 506 68.43% 346
Lansing, MI (3)(6).................. NWL 499 68.43% 341
Saginaw/Bay City, MI (3)(6)......... NWL 403 68.43% 276
Canton, OH (3)(6)................... NWL 405 68.43% 277
Hamilton/Middletown, OH (3)(6)...... NWL 318 68.15% 217
Lorain/Elyria, OH (3)(6)............ NWL 281 68.43% 192
Lima, OH (3)(6)..................... NWL 222 68.43% 152
Mercer, OH (3)(6)................... NWL 224 68.43% 153
Muskegon, MI (3)(6)................. NWL 188 67.12% 126
Springfield, OH (3)(6).............. NWL 186 61.06% 114
Clinton, OH (3)(6).................. NWL 173 68.43% 118
Mansfield, OH (3)(6)................ NWL 127 68.43% 87
Ashtabula, OH (3)(6)................ NWL 103 68.43% 70
Morrow, OH(3)(6).................... NWL 448 68.43% 306
----- -----
Subtotal 16,405 11,208
----- -----
Georgia Region
Atlanta (4)(6)...................... NWL 3,111 100.00% 3,111
Chattooga (4)(6).................... NWL 205 100.00% 205
Athens (4)(6)....................... NWL 169 86.84% 147
Jasper (4)(6)....................... NWL 123 100.00% 123
----- -----
Subtotal 3,608 3,586
----- -----
Kansas/Missouri Region
Kansas City, KS/MO (3)(6)........... NWL 1,518 50.00% 759
Wichita, KS (4)(6).................. NWL 480 100.00% 480
Topeka, KS (4)(6)................... NWL 200 78.01% 156
St. Joseph, MO (3)(6)............... NWL 98 43.50% 43
Lawrence, KS (3)(6)................. NWL 90 50.00% 45
----- -----
Subtotal 2,386 1,483
----- -----
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
WIRELINE/ TOTAL INDIRECT
NON- POPULATION(1) OWNERSHIP POPS
MARKET WIRELINE (IN THOUSANDS) PERCENTAGE (IN THOUSANDS)
------ -------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Other
Dallas/Fort Worth, TX (3) ......... NWL 4,344 17.00% 739
------ ------
Subtotal 4,344 739
------ ------
TOTAL 58,743 37,739
====== ======
</TABLE>
- --------------
(1) 1995 Donnelly Marketing Information Service population estimates.
(2) The Company's ownership percentage and POPs for the Michigan/Ohio
region reflect both the Company's 50% ownership interest in New Par and
the Company's ownership of approximately 37.6% of the outstanding
equity in CCI at December 31, 1995.
(3) Accounted for under the equity method.
(4) Accounted for under the consolidation method.
(5) Accounted for under the cost method.
(6) Operating results are included in the proportionate cellular operating
results presented in Item 6, "Selected Financial Data," and in Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-Proportionate Results of Operations."
MARKETING
The Company aggressively markets its cellular services in its managed markets,
which are Los Angeles, San Diego, Sacramento and Atlanta, under the AirTouch
Cellular name through its own sales force and arrangements with independent
agents, as well as through newspaper, television, and radio advertising and
telemarketing via toll-free telephone numbers. In certain markets, the Company's
cellular service is sold through resellers who, pursuant to FCC requirements,
are allowed to purchase blocks of cellular telephone numbers and access to
cellular services at wholesale rates for resale to the public. Agents are
independent contractors who solicit customers for the Company's cellular
service, and typically include specialized cellular stores, automobile dealers,
specialized electronics stores and department stores. The Company generally pays
its agents a commission for each customer who uses the Company's service for a
specified period and makes residual payments to the agent based on the
customer's ongoing service charges. The Company has been taking steps to align
sales costs with revenues by emphasizing residual payments to agents over
upfront commissions and utilizing Company controlled distribution channels such
as direct sales and telemarketing. The Company has increasingly targeted the
consumer market with special promotions and pricing plans and by expanding into
consumer electronics stores and other mass-market distribution channels.
The Company's systems in the San Francisco Bay Area, Michigan/Ohio and Kansas
market cellular service under the Cellular One brand name. In addition, the
Company's Georgia regional network is part of SouthReach(R), a service offered
with three other cellular operators in the southeastern United States.
On March 20, 1996, the Company and U S WEST announced that U S WEST Cellular
will assume the AirTouch Cellular brand in May 1996, throughout its 12-state
service area. U S WEST Cellular properties cover 20 million people including
the major cellular markets of Seattle, Portland, Denver, Phoenix,
Minneapolis/St. Paul and Salt Lake City. After the brand introduction, the
AirTouch Cellular brand will cover most states west of the Mississippi.
SERVICES
In addition to providing high quality wireless telephone service, in most
markets the Company makes custom calling services such as voice mail, call
forwarding, call waiting, three way calling, no-answer and busy transfer
available to customers. In 1994, the Company introduced display messaging, a
service that allows a cellular phone to receive and store voice mail messages,
short alphanumeric messages and pages even if the handset is in use or switched
off, and AirTouch 411 Connect(SM), an enhanced directory assistance service that
enables callers to be connected to the party whose number was requested without
hanging up and redialing. In 1995, the Company introduced AirTouch Voice Mail
Alert!(SM), which notifies cellular customers when they have a new message
waiting to be heard. In its Sacramento market, the Company introduced
TalkAlong(TM), an affordable and attractively packaged cellular phone sold at
local retail outlets that can be activated by a single call to the Company.
12
<PAGE> 13
The Company charges its customers for service activation, monthly access,
per-minute airtime and custom calling features, and generally offers a variety
of pricing options, most of which combine a fixed monthly access fee and
per-minute charges. The Company pays the local telephone service company
directly for interconnection of cellular telephone calls with the wireline
telephone network. Customers are billed directly by their selected long-distance
carrier or by the Company, which provides the billing service for a fee to the
long-distance carrier. In late 1994, the Company began offering its own
long-distance service in its Los Angeles, Sacramento, San Diego and Atlanta
markets.
The Company maintains a customer service department in each of its cellular
markets for billing and service inquiries. Using a toll free telephone number,
customers are able to report any problems and obtain up-to-date information with
respect to their accounts. Through the use of sophisticated monitoring
equipment, these technicians are able to check the performance of the cellular
network.
TECHNOLOGY
The Company is an industry leader in cellular technology. The Company's Los
Angeles network was the first to introduce cell site sectorization and
overlay/underlay techniques which simultaneously provide increased coverage in
high traffic areas and umbrella coverage of difficult terrain. In 1991, the
Company became the first to deploy microcells, which make use of low power
antennas located significantly farther from cell sites than permitted by earlier
technology, thereby allowing coverage inside buildings, in canyons and tunnels
and in other areas that are difficult or impossible to serve with conventional
cellular technology. Microcell technology also includes a fast hand-off
capability, which is valuable in downtown settings where a greater number of
antennas allows the network to operate efficiently in high traffic areas at
lower power settings.
The Company has also developed advanced network design and management tools. The
Company's proprietary software predicts cell site coverage, which is critical in
engineering new cellular networks and in making design improvements to existing
systems. Other proprietary software developed by the Company detect and analyze
system problems, allowing the Company to react quickly, often before the problem
noticeably affects service quality.
Currently, in most markets the radio transmission between the cellular telephone
and the cell site is an analog transmission, and both the cellular telephone and
the transmitting equipment are designed to send and receive voice signals
exclusively in this mode. The Company believes that recently developed digital
technology will offer many advantages over analog technology, including
substantially increased capacity, greater call privacy, lower operating costs,
reduced susceptibility to fraud and the opportunity to provide improved data
transmissions. The Company expects that the transition by customers who prefer
digital service will occur over a number of years, and that cellular systems
will maintain transmitting equipment to serve both formats for the foreseeable
future. Manufacturers currently offer dual-mode cellular telephones capable of
sending and receiving both analog and digital transmissions.
The Company has selected Code Division Multiple Access ("CDMA") as its digital
technology. The Company was an early proponent of CDMA research and worked with
Qualcomm Incorporated ("QUALCOMM") and others to develop this technology. The
Company expects to introduce CDMA service on a commercial basis in portions of
its Los Angeles market, focusing first on transferring high-usage customers to
the CDMA network. Motorola is providing CDMA network infrastructure equipment.
The Company and Motorola are working together to conclude final optimization of
CDMA to ensure that it meets the Company's high standards for commercial
introduction. PCS PrimeCo will also deploy CDMA technology, and the Company's
three PCS partners, Bell Atlantic, NYNEX, and U S WEST have also chosen CDMA
as their digital cellular standard.
CMT Partners, the Company's joint venture with AT&T Wireless Services, Inc.
("AT&T Wireless," successor in interest to McCaw Cellular Communications, Inc.
("McCaw")), introduced digital cellular service based on Time Division
Multiple Access ("TDMA") technology in the San Francisco Bay Area in October
1993.
COMPETITION
The cellular services industry in the United States is highly competitive.
Cellular systems compete principally on the basis of network quality, customer
service, price and coverage area. Currently, the Company's chief competition in
each market is from the other cellular carrier. In certain markets, the Company
also competes at the retail level with resellers. The Company believes that its
technological expertise, emphasis on quality and customer service, large
coverage areas, and development of new products and services make it a strong
competitor.
13
<PAGE> 14
The Company will face greater competition in the near future. In 1995, the FCC
issued broadband PCS licenses for Blocks A and B, and expects to auction the
remaining four broadband PCS blocks during 1996. The entrance of PCS licensees
into the Company's cellular markets, anticipated to occur in 1996 and 1997, is
expected to provide significant competition for the Company's existing cellular
networks. Broadband PCS service is expected to be similar to current cellular
technology in providing "anytime, anywhere" voice and data services to mobile
users, although PCS may offer additional features not available from analog
cellular carriers today. The Company has formed an alliance with Bell Atlantic,
NYNEX and U S WEST to provide PCS service. See "Business-Domestic Cellular-Joint
Ventures-PCS PrimeCo."
The FCC has permitted SMR system operators to construct digital mobile
communications systems on existing SMR frequencies in many metropolitan areas
throughout the United States. These multi-site configuration systems will offer
interconnected mobile telephone service and, depending on voice quality and
system reliability, may compete with the Company's cellular services. One SMR
operator is currently offering digital SMR service in the Los Angeles and San
Francisco markets and has announced plans to construct a nationwide system with
its partners that would offer service in several of the Company's other cellular
markets.
AT&T's entry into the wireless market through the acquisition of McCaw may
increase the competition that the Company faces in Los Angeles and Sacramento,
where its cellular operations compete with the former McCaw operations now owned
by AT&T Wireless. These operations may be able to use the AT&T brand name,
sales, customer service and distribution channels. The Company and AT&T Wireless
jointly operate cellular systems in San Francisco, San Jose, Dallas, Kansas City
and certain other markets through CMT Partners. See "Business-Domestic
Cellular-Joint Ventures-CMT Partners."
For further discussion of competition, see "Business-Investment
Considerations-Competition."
JOINT VENTURES
NEW PAR. In August 1991, the Company and CCI formed New Par, to which CCI
contributed its cellular systems, located primarily in Ohio, and the Company
contributed its cellular systems in Michigan and Ohio. New Par is equally owned
by CCI and the Company and is governed by a four-person committee, with two
members appointed by each company.
In connection with the formation of New Par, the Company and CCI entered into an
agreement (the "Merger Agreement") under which the Company purchased 5% of the
equity in CCI, agreed to purchase additional equity in CCI and obtained the
right to acquire all of CCI's remaining equity in stages over time. Pursuant to
the Merger Agreement, in October 1995, the Company purchased 10.04 million
shares of stock of CCI at $60 per share for a total of $602.4 million, and
options to purchase 10,700 shares for approximately $0.3 million. As of December
31, 1995, the Company's ownership interest in CCI was approximately 37.6% of the
outstanding stock. Also pursuant to the Merger Agreement, in January 1996, the
Company purchased additional options representing approximately 2.4 million
shares of CCI stock for an aggregate consideration of approximately $107.7
million. The option purchase did not affect the Company's percentage ownership
of the outstanding stock of CCI. The average exercise price of the Company's
options acquired in 1995 and 1996 is approximately $15 per share. Under the
Merger Agreement, the Company has the right to increase its ownership in CCI to
up to 49% through open market purchases, privately negotiated transactions, or
otherwise.
Pursuant to a process commencing in August 1996, the Company has the right, by
causing CCI to redeem all of its redeemable stock not held by the Company (the
"Redemption"), to acquire CCI, including its interests in New Par and such other
CCI assets and related liabilities as the Company and CCI may agree upon, at a
price per share that reflects the appraised private market value of New Par (and
such other CCI assets and related liabilities as the Company and CCI agree shall
be retained by the Company) determined in accordance with an appraisal process
set forth in the Merger Agreement. Prior to determining whether to cause the
Redemption, the Company has the opportunity to evaluate up to three different
appraisal values over a 12-month period pursuant to an appraisal process that
begins in August 1996. The Company will finance any Redemption by providing to
CCI any necessary funds.
In the event that the Company does not exercise its right to cause the
Redemption, CCI is obligated to commence promptly a process to sell itself (and,
if directed by the Company, the Company's interest in New Par). In the event
that the Company does not direct CCI to sell the Company's interest in New Par,
such partnership will dissolve and the assets will be returned to the
contributing partners. Alternatively, CCI may purchase the Company's interest in
CCI or in CCI and New Par, as the case may be, at a price based upon their
appraised values determined in
14
<PAGE> 15
accordance with the Merger Agreement. If CCI or its interest in New Par is sold
within certain specified time periods, not to exceed two years, for a price less
than the appraised private market value, the Company is obligated to pay to all
CCI stockholders a specified percentage of such shortfall.
The amount and timing of any acquisition of additional equity interests in CCI
will depend upon the Company's evaluation of the market for the CCI stock, CCI's
business, prospects and financial condition, other investment opportunities
available to the Company, prospects for the Company's own business, general
economic conditions, money and stock market conditions and other developments,
as well as the Company's rights and obligations under the Merger Agreement.
CMT PARTNERS. In September 1993, the Company and AT&T Wireless (at the time,
McCaw) formed CMT Partners, an equally owned partnership that holds interests in
cellular systems operating in San Francisco, San Jose, Dallas/Ft. Worth, Kansas
City and certain adjacent suburban areas. In a related transaction, the Company
purchased McCaw's Wichita and Topeka systems. CMT Partners is governed by a
four-person committee consisting of two members from each company. CMT Partners
has a fifteen year term, ending in 2008, which may be extended or shortened
under certain circumstances. Upon dissolution of CMT Partners its assets will be
sold unless either the Company or AT&T Wireless elects to have the assets
distributed in kind to the partners.
WMC PARTNERS. In July 1994, the Company and U S WEST entered into an agreement
to combine their domestic cellular properties into a partnership known as WMC
Partners, L.P. ("WMC") in a multi-phased transaction. WMC is governed by an
eight-member committee consisting of four representatives of the Company
(including the president) and three of U S WEST, with an independent member to
cast tie-breaking votes in certain deadlock situations. Voting in the
partnership committee is in proportion to the partners' percentage interests,
and supermajority votes are required in connection with certain matters,
including the approval of business plans.
During the initial phase of the transaction ("Phase I"), which commenced on
November 1, 1995, WMC began providing certain support services to both
companies' domestic cellular and PCS operations, which will continue to be owned
and operated separately by the individual partners throughout Phase I.
In the next phase ("Phase II"), the partners will contribute their existing
domestic cellular properties to WMC, subject to obtaining required consents and
authorizations. Pursuant to the joint venture agreement, this contribution will
occur following the lifting of certain restrictions imposed by the Modification
of Final Judgment ("MFJ") (or earlier, at the Company's option), but in no
event later than July 25, 1998. The Telecommunications Act of 1996 provided
sufficient relief from the restrictions imposed by the MFJ for Phase II to
occur, and the parties are seeking to obtain regulatory and other approvals and
to satisfy other conditions precedent to entering into Phase II. The Company
and U S WEST currently expect that their initial interests in WMC at the
commencement of Phase II will be approximately 70% and 30%, respectively.
However, the actual initial interests of the Company and U S WEST in WMC at the
commencement of Phase II will depend, among other things, upon the timing of
the Phase II closing, the ability of the parties to contribute their domestic
cellular properties to WMC, the timing of the parties' contribution of their
PCS partnership to WMC (and the value of the PCS partnership), and the status
of the Company's transaction with CCI. Subsequent to the closing of Phase II,
each partner will deconsolidate for financial reporting purposes the operations
contributed by it to WMC, using instead the equity method of accounting to
report their respective percentage interests in subsequent operating results of
WMC. The Company could experience near-term earnings dilution in connection
with the contribution of its cellular properties to WMC. The extent of such
dilution, which could be material, will depend upon the relative profitability
of the Company's and U S WEST's respective operations subsequent to the
contribution of such operations.
Concurrent with the formation of WMC, the parties' formed an equally owned
partnership to pursue new PCS opportunities. The partnership is a partner in PCS
PrimeCo. The companies' PCS partnership also will be contributed to WMC. The
timing of such contribution is at U S WEST's discretion and will occur either at
the closing of Phase II or a date selected by U S WEST no later than mid-1998.
The Company expects the PCS partnership to make significant capital investments
for the build-out of PCS markets and to experience substantial operating losses
associated with the start-up phase of the PCS business, which is expected to
last several years. Upon the contribution of the PCS partnership to WMC, the
Company's share of capital investments and operating losses related to the PCS
partnership will increase from 50% to its percentage ownership of WMC. See
"Business-Domestic Cellular-Joint Ventures-PCS PrimeCo."
U S WEST has the right, which is exercisable after (i) the commencement of Phase
II, (ii) the contribution of the PCS partnership, and (iii) the completion of
the Company's transaction with CCI have occurred and expires on July
15
<PAGE> 16
25, 2004, to exchange its interest in WMC for up to 19.9% of the Company's
common stock outstanding at the time of the exchange. Any such exchange would be
made at a ratio reflecting the appraised private market value of U S WEST's
interest in WMC and the appraised public market value of the shares of the
Company's common stock to be acquired by U S WEST in the exchange. In the event
that the value of U S WEST's interest in WMC determined by such appraisals would
result in the issuance to U S WEST of more than 19.9% of the Company's then
outstanding common stock, U S WEST is entitled to receive the excess in the form
of non-voting preferred stock. The Company has amended its stockholder rights
agreement so that U S WEST will not be deemed to be an "Acquiring Person," as
defined therein, by reason of its rights in connection with the exchange.
U S WEST also has the right, exercisable between July 25, 1999, and July 25,
2009, to exchange its interest in WMC for common stock of the Company to be held
by a trust for purposes of systematic sale to the public. Any such exchange
would be made at a ratio reflecting the appraised private market value of U S
WEST's interest in WMC and an average trading price of the Company's common
stock during a period prior to U S WEST's exercise of the right.
The Company has the right to cause the exchange to occur either (a) after full
relief from certain operational restrictions placed on Bell Operating Companies
or July 25, 2004, whichever is later, if there is a deadlock with U S WEST
regarding the management of WMC or (b) at any time after such relief has been
obtained, if at such time U S WEST holds less than a 5% interest in WMC.
Upon the exercise by U S WEST of its right to exchange its interest in WMC for
capital stock of the Company, U S WEST will be entitled to certain governance
rights (including representation on the Company's Board of Directors), as well
as registration rights. U S WEST is subject to certain standstill restrictions
with respect to the Company through July 25, 2004, unless such restrictions are
earlier terminated or suspended.
On March 20, 1996, the Company and U S WEST announced that U S WEST Cellular
will assume the AirTouch Cellular brand in May 1996, throughout its 12-state
service area. U S WEST Cellular properties cover 20 million people including
the major cellular markets of Seattle, Portland, Denver, Phoenix,
Minneapolis/St. Paul and Salt Lake City.
PCS PRIMECO. In October 1994, the joint venture between the Company and U S WEST
("ATI/USW") joined with the joint venture between Bell Atlantic and NYNEX
("BA/NYN") to form a partnership to jointly pursue PCS opportunities, called PCS
PrimeCo. PCS PrimeCo is owned equally by ATI/USW and BA/NYN, and is governed by
a board composed of three members from each of ATI/USW and BA/NYN. In March
1995, PCS PrimeCo was awarded eleven 30 MHz PCS licenses covering over 57
million POPs in the Chicago, Dallas, Tampa, Houston, Miami, New Orleans,
Milwaukee, Richmond, San Antonio, Jacksonville and Honolulu markets with bids of
approximately $1.1 billion. The acquired markets complement the existing
domestic cellular franchises of the partners. PCS PrimeCo is in the process of
constructing PCS systems in the 11 markets. The Company has already contributed
its share of the PCS license costs and of certain buildout expenses.
Additionally, the Company expects to continue to make significant capital
contributions to PCS PrimeCo and to experience substantial operating losses
associated with the start-up phase of the PCS business, which is expected to
last several years. Currently, the Company has a 25% indirect interest in PCS
PrimeCo, through an interest in its PCS partnership with U S WEST. The Company's
interest in PCS PrimeCo, and accordingly its share of capital contributions and
losses, will increase upon the contribution of the Company's PCS partnership
with U S WEST to WMC. See "Domestic Cellular-Joint Ventures-WMC Partners."
Either ATI/USW or BA/NYN may cause PCS PrimeCo to be dissolved on October 20,
2001, and any PCS properties owned by it to be allocated between them according
to agreed criteria. Bell Atlantic and NYNEX each are subject to certain
standstill restrictions with respect to the Company through October 20, 2001,
unless such restrictions are earlier terminated or suspended.
TOMCOM. Concurrent with the formation of PCS PrimeCo, ATI/USW and BA/NYN formed
another partnership called TOMCOM, L.P. TOMCOM was formed to develop technical
and service standards for the partners' wireless properties, pursue national
marketing strategies, develop information technology, create a national
distribution strategy and implement joint purchasing arrangements. TOMCOM is
governed by a board composed of three members from each of ATI/USW and BA/NYN.
16
<PAGE> 17
Unlike the Company's joint venture with U S WEST, the agreements with BA/NYN do
not provide for a merger of cellular properties. Accordingly, each of ATI/USW
and BA/NYN will continue to hold such properties separately.
17
<PAGE> 18
INTERNATIONAL CELLULAR
The Company has been highly successful in obtaining significant interests in
cellular licenses in some of the world's most attractive markets. The Company's
international cellular interests represented over 112.9 million POPs and 797,000
proportionate customers at December 31, 1995. The following table summarizes the
Company's international cellular investments:
OVERVIEW OF INTERNATIONAL CELLULAR VENTURES
(ALL INFORMATION AS OF 12/31/95 UNLESS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
COUNTRY/VENTURE MARKET SERVICE TOTAL AIRTOUCH TOTAL
POPULATION INITIATION DATE VENTURE INTEREST(1) LICENSEES
(IN MILLIONS) CUSTOMERS IN MARKET
<S> <C> <C> <C> <C> <C>
Germany/Mannesmann Mobilfunk 81.6 6/92 1,457,000 34.8% 3
Portugal/Telecel 9.9 10/92 170,000 23.0%(2) 2
Sweden/NordicTel(3) 8.8 9/92(4) 147,000 51.1% 3
Belgium/Belgacom Mobile 10.1 1/94(4) 235,000 25.0% 2
Spain/Airtel 39.2 10/95 16,000 16.0%(5) 2
Italy/Omnitel-Pronto Italia 58.2 10/95 60,000 11.7%(6) 2
Japan
Tokyo Digital Phone 42.2 4/94 * 15.0% 7(8)
Kansai Digital Phone 20.6 5/94 * 13.0% 7(8)
Central Digital Phone 14.4 7/94 * 13.0% 7(8)
---------
787,000
Japan
Digital TU-KA(7) 46.3 -- -- 4.5% 7(8)
South Korea/Shinsegi 44.9 -- -- 10.7% 2
India - Madras/RPG Cellular Services Limited 6.7 9/95 * 20.0% 2
India - Madhya Pradesh/CCIL 72.7 -- -- 49.0% 2
Poland/Polkomtel(9) 38.8 -- -- 19.3% 3
</TABLE>
* Not disclosed.
(1) Exclusive of any options, warrants or other rights to increase
ownership.
(2) Under an agreement with other shareholders, the Company funds Telecel
as if it held a 38.89% interest. Amounts funded in excess of the
Company's actual interest are in the form of interest-free convertible
loans.
(3) Through a wholly-owned subsidiary named NordicTel Dk (Dk), NordicTel
formerly owned 20% of Danish GSM operator Dansk Mobiltelefon ("DMT").
When the Company became the principal owner of NordicTel, certain DMT
shareholders claimed the move violated the DMT joint venture agreement
and could trigger a transfer to them of Dk's interest in DMT. The issue
is in arbitration.
(4) The Company acquired its interest after commercial launch. In Belgium,
reflects launch of digital system only. Analog system was launched in
January 1987.
(5) Reflects increase from 15.8% to 16% in February 1996.
(6) Indirect ownership interest through Pronto-Italia S.p.A.
(7) Includes Kyushu, Chugoku, Tohoku, Hokkaido, Hokuriku and Shikoku
regions. Customers will not be disclosed in proportionate customers
because the Company accounts for these investments on a cost basis.
(8) Includes up to three licensees operating limited mobility Personal
Handyphone Services.
(9) License awarded in February 1996.
18
<PAGE> 19
1995 INTERNATIONAL HIGHLIGHTS
In 1995, the Company increased its ownership interests in its German and Italian
ventures. In India, it acquired an interest in a company licensed to provide
cellular service in Madras, and its consortium won a license to provide service
in the telecom circle in the Madhya Pradesh region. The Company acquired
ownership interests in Japanese Digital TU-KA consortia owning licenses to
operate in the Tohoku, Hokkaido, Hokuriku, and Shikoku markets. In February
1996, the Polish government awarded Polkomtel, a consortium in which the Company
has a 19.3% interest, one of two new national cellular licenses. Poland has a
population of approximately 38.8 million people. As a result of February's
award, there will be three cellular service providers in Poland.
OWNERSHIP RIGHTS AND OBLIGATIONS
The structure of the Company's international cellular interests typically
reflects government preferences or requirements that local owners hold at least
a majority interest in their telecommunications licenses. However, in
structuring its international investments, the Company attempts to obtain
operating influence through board representation, the right to appoint certain
key members of management and consent rights with respect to significant
matters, including amounts of capital contributions, incurrence of recourse debt
and fundamental corporate transactions. In addition, the Company tries to assure
its ability to maintain a position of influence in the company by obtaining
rights of first refusal on future sales and issuances of equity. The particular
governance rights of the Company vary from venture to venture, and are often
dependent upon the size of the Company's investment relative to other investors.
The Company currently has the majority interest in its Swedish venture, the
largest ownership interest in its Spanish venture, the second largest ownership
interest in its German and Italian ventures and in three of its Japanese
ventures, and the third largest ownership interest in its Portuguese and Korean
ventures. In Belgium, the Company is the sole private partner in a joint venture
with the state-owned telecommunications company.
COMPETITION
While competition varies from market to market, in general competition is
increasing in every international market in which the Company's ventures
operate. In most markets, the government-operated cellular system represents at
least one competitor, and countries are increasingly offering third and fourth
cellular licenses in each market. In Japan, there are as many as seven wireless
licensees in certain markets. The Company expects that the German government
will issue an additional 1800 MHz cellular license in 1998, and that the Swedish
government may issue a license to construct a nationwide broadband PCS network
in the near future, bringing the total number of wireless networks to four. In
addition, in 1998 telecommunications regulation in the European Union ("EU")
will be significantly liberalized, enabling a broader group of companies to gain
wider access to the telecommunications industry. See "Business-Investment
Considerations-Competition."
TECHNOLOGY
LEAD TECHNOLOGICAL PARTNER. The Company usually plays the lead role in the
design and construction of the cellular networks for the ventures in which it
has ownership interests. For example, the Company has taken the technical lead
in the construction of the digital cellular systems in Germany, Portugal,
Belgium, Italy, and Spain, as well as for the networks under construction in
South Korea, India (Madhya Pradesh) and Poland, and was integrally involved in
the design and construction of three of the systems in Japan. In each of those
markets, the Company has appointed the director of engineering, who is
responsible for network construction and technical operations.
GSM. The Company's cellular systems in Europe and India conform to the GSM
digital cellular standard. Developed by a standards body within the European
Telecommunications Standards Institute with substantial input from the Company's
engineers, the GSM standard is a wide-band TDMA standard substantially different
from United States TDMA technology and has been adopted by more than 50
countries worldwide, including all those in the EU and others such as Australia,
New Zealand, Singapore, Hong Kong and South Africa. The Company's German
venture, Mannesmann Mobilfunk GmbH, was the first GSM system to offer commercial
service. An employee of one of the Company's European subsidiaries currently
holds the position of Deputy Chairman of the GSM MOU Association, an
organization with 156 members representing 86 countries that oversees GSM
technical standards and promotes the use of GSM throughout the world.
The GSM standard allows users to place and receive calls on any GSM cellular
telephone while traveling in all countries utilizing the standard. A subscriber
identification module ("SIM") card, which contains a microchip
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<PAGE> 20
identifying the customer, is necessary in order to utilize GSM cellular service.
By inserting the SIM card into any GSM telephone, customers can make calls from
the telephone and have the calls billed directly to them. The card also allows
the subscriber's home GSM system to locate the subscriber on any GSM network
throughout the world. In addition to these conveniences, the SIM card can reduce
fraud significantly, because each subscriber has a unique personal
identification number that must be used in conjunction with the card.
JAPAN DIGITAL CELLULAR STANDARD. The technology utilized by the Company's
Japanese ventures represents Japan's entry into second-generation cellular
communications. The Japan Digital Cellular standard uses narrowband Japanese
TDMA technology and allows enhanced roaming potential and expanded supplementary
services potential. To provide service to customers away from their home
regions, certain of the Company's Japanese ventures are implementing automatic
roaming throughout their combined coverage areas. Customers of any of the
companies will be able to initiate and receive calls anywhere within the
combined coverage area. Two separate digital system frequencies will be utilized
throughout Japan: the 800 MHz band and the 1500 MHz band.
KOREAN CDMA. The Company's cellular venture in South Korea is employing CDMA
technology, developed by Samsung under a license from Qualcomm.
NEW OPPORTUNITIES
The Company constantly evaluates opportunities to increase its ownership in its
existing international ventures, especially where contractual rights of first
refusal provide the Company with favorable opportunities. The Company also plans
to continue pursuing opportunities to acquire new interests in wireless systems
throughout the world. The Company believes that its proven technical, operating
and marketing expertise make it a highly desired participant in consortia formed
to pursue new international opportunities and has been a significant factor in
the success of the subsequent license applications by its consortia.
The Company measures each international investment against such criteria as
demographic factors, the degree of economic, political and regulatory stability,
the quality of local partners and the degree to which the Company would control
or meaningfully participate in management. Until recently, the Company's primary
focus in pursuing licenses had been Western Europe and Asia because the Company
believes that these regions provide the highest potential for value creation;
however, the Company has increasingly been considering opportunities in other
parts of the world. The Company is currently considering pursuing licenses in
Taiwan and Brazil, and expects to pursue other opportunities in the future. The
pursuit of new international wireless telecommunications opportunities is
expected to remain highly competitive, especially in light of the trend toward
the "auctioning" of new wireless licenses in international markets, as opposed
to merit-based selection criteria.
DOMESTIC PAGING
The Company offers local, regional, statewide, and nationwide paging services
under the AirTouch Paging or Message Center USA brand name in over 167 markets
in 29 states, including many of the largest metropolitan areas in the United
States, such as Atlanta, Austin, Boston, Chicago, Cincinnati, Cleveland,
Columbus, Dallas/Fort Worth, Denver, Detroit, El Paso, Fresno, Hartford,
Houston, Indianapolis, Jacksonville, Kansas City, Las Vegas, Los Angeles,
Louisville, Miami, New York, Orlando, Philadelphia, Phoenix, Portland, Reno,
Sacramento, Salt Lake City, St. Louis, San Antonio, San Diego, the San Francisco
Bay Area, Seattle, Tampa/St. Petersburg, Tucson, and Washington, D.C. As of
December 31, 1995, the Company had over 2.4 million paging units in service,
including 349,000 paging units acquired from Message Center Beepers. Based upon
industry surveys, the Company was among the largest providers of paging services
in the United States. The Company's growth strategy is to expand into new
markets through start-ups or acquisitions, to increase its share in existing
markets by providing superior customer service, to refine its mix of
distribution channels, and to provide new narrowband PCS services. As part of
this strategy, during the fourth quarter of 1995, the Company completed its
acquisition of Message Center Beepers, a privately held paging company with
operations predominately in the Northeastern United States.
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SERVICES
The Company currently offers numeric display, alphanumeric, tone-only and tone
and voice paging service. More than 85% of the Company's customers use numeric
display units, which alert the customer and then display a short message,
usually a telephone number entered by the calling party. The Company's paging
revenues consist primarily of monthly charges for paging service and equipment
rental.
The Company also offers, under the name AirTouch America(R), nationwide
coverage on its own private carrier paging frequencies through an inter-carrier
agreement with other paging providers and as a reseller of nationwide common
carrier paging services. In addition, the Company offers a voice retrieval
service called AirTalkSM, which allows callers to leave voice messages instead
of telephone numbers. The Company offers, in certain markets, AirTouch News
CastSM, which provides updated news, financial reports, and weather and sports
information.
In 1994, the Company acquired one nationwide 50/12.5 KHz narrowband PCS license
and three regional 50/12.5 KHz licenses covering the Northeast, Central and
Western regions of the United States. Narrowband PCS may include advanced two -
way acknowledgement paging, data messaging, electronic mail, facsimile
transmissions and voice paging. The Company is currently evaluating different
technology platforms from different suppliers to provide the infrastructure and
customer equipment for its narrowband PCS services. The Company expects to
introduce two-way acknowledgement paging in certain markets in 1996.
MARKETING
The Company utilizes a decentralized marketing approach, tailored to each
market, to promote and sell its paging services. In all of its markets, the
Company relies on both direct and indirect sales channels. The Company conducts
its direct marketing through its sales, service and customer service
representatives, who are located in the Company's local offices in each market.
The Company's indirect sales channels generally consist of resellers, who
purchase paging services from the Company in bulk quantities at a wholesale
monthly rate, and agents and retailers, who sell only pagers and refer
purchasers to the Company for service at the Company's rates. The Company
typically pays agents and retailers a commission for such referrals.
COMPETITION
The Company's paging operations face intense competition from local or regional
carriers as well as from carriers with a broad nationwide presence. Paging
systems compete primarily on the basis of system reliability, geographic
coverage, customer service and price. The Company believes that its extensive
experience in the paging business and emphasis on cost control and customer
service make it an effective paging competitor. Competition is expected to
intensify when narrowband PCS offerings become available in the Company's paging
markets. In addition, in 1995, long-distance carriers Sprint and MCI entered the
paging market as resellers and the paging industry began to consolidate rapidly
with smaller paging carriers being acquired by larger paging carriers. The
largest carrier now has well over 6 million units in service and the second
largest has over 4 million units in service.
INTERNATIONAL PAGING
PORTUGAL
Through Telecel, the Company owns a 23% interest in Telechamada-Servico de
Chamada de Pessoas, S.A. ("Telechamada"), Portugal's first nationwide private
paging company. Telechamada offers numeric and alphanumeric paging services and
began service in October 1992, the same date that Telecel's nationwide cellular
service became available. At December 31, 1995, Telechamada had approximately
35,000 customers.
SPAIN
The Company holds a 17.5% indirect interest in Sistelcom-Telemensaje, S.A.,
which was awarded a nationwide paging license by the Spanish government in
August 1992. Sistelcom-Telemensaje offers tone-only, numeric and alphanumeric
paging services.
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THAILAND
The Company provides nationwide paging service in Thailand through a 49%
interest in PerCom Service Limited ("PerCom"), which has served all of
Thailand's major population centers since February 1991, and through a wholly
owned subsidiary that has provided service in Bangkok since 1987. These
companies operate together under the name PacLink and jointly serve
approximately 113,900 customers as of December 31, 1995.
FRANCE
The Company has an 18.5% interest in Infomobile, S.A., which offers commercial
paging services in Paris and is constructing a nationwide paging network that
will utilize the European radio messaging standard, ERMES. The Company has
agreed to sell its interest in Infomobile to Bouygues, S.A., Infomobile's
majority shareholder. The transaction is expected to close in March 1996.
OTHER SERVICES
TELETRAC. In January 1996, the Company sold its vehicle location and fleet
tracking services business.
GLOBALSTAR. The Company holds a 6.4% interest in Globalstar, L.P.
("Globalstar"), a joint venture led by Loral Space and Communications
Corporation and Qualcomm that will construct and operate a satellite-based
network utilizing CDMA technology to offer communications services on a
worldwide basis. The initial satellite launches are expected to take place in
1997 and 1998, with initial service expected to begin in late 1998. Full
coverage is expected by 1999. The Company has exclusive service provider status
in the United States, Austria, Belgium, the Caribbean, Indonesia, Japan,
Malaysia, The Netherlands, Portugal and Switzerland. The Company is currently in
negotiations to obtain co-exclusive provider status in Canada and Mexico. In
1995, the Company initiated formation of a venture with Sime Darby to provide
Globalstar services in Malaysia.
INTERNATIONAL LONG DISTANCE
The Company presently holds a 10% interest in International Digital
Communications ("IDC"). IDC provides long-distance telephone service between
Japan and over 90 international destinations, including the United States, to
business and residential customers. IDC also offers private leased circuit
services within Japan. In 1991, IDC began offering service over a 5,200 mile
undersea fiber optic cable, the first such cable to connect Japan directly with
the U.S. mainland.
AIR-TO-GROUND
The Company also provides air-to-ground telephone services for general aviation
customers, allowing customers to place calls over the public switched telephone
network while in an airplane, in Elmira, New York, New York City, Atlanta,
Denver, Houston, Phoenix, Seattle and Spokane.
INVESTMENT IN QUALCOMM
The Company owns 400,000 shares of common stock of QUALCOMM, a publicly held
developer of digital mobile communications technology. The Company also holds
warrants to purchase approximately 780,000 additional shares of QUALCOMM common
stock at an exercise price of $5.50 per share, expiring in November 1998.
EMPLOYEES
At December 31, 1995, the Company and its wholly owned subsidiaries had
approximately 6,650 employees. None of the Company's domestic employees are
represented by a labor organization, although employees of certain international
subsidiaries are represented by unions or trade organizations. Management
considers its relations with the Company's employees to be good.
REGULATION
The Company is subject to federal and state regulation as a provider of cellular
and paging services. In addition, the international cellular and paging
operations in which the Company has interests are also subject to regulation.
See "Business-Investment Considerations-Regulation."
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RECENT DOMESTIC DEVELOPMENTS
Telecommunications Legislation. On February 8, 1996, President Clinton signed
the Telecommunications Act of 1996 (the "Act") into law. The new law
fundamentally changes the domestic rules and regulations under which all
providers of telecommunications services operate. In connection with the
implementation of the Act, the FCC is expected to conduct more than 80 rule
making proceedings during 1996.
The Act affects the Company in a number of ways. First, the Act eliminates the
restrictions set forth in the Modification of Final Judgment ("MFJ") on the
operations of Bell Operating Companies ("BOCs") and replaces them with specific
statutory requirements. The Act settles a claim made by the U.S. Department of
Justice during 1995 that AirTouch was subject to restrictions imposed on BOCs
under the MFJ because the new statutory definition of a BOC excludes entities
such as AirTouch. Accordingly, the Company is not currently subject to the new
statutory restrictions placed on BOCs by the Act. However, WMC is deemed an
affiliate of a BOC by virtue of U S WEST's ownership interest. The Act permits
commercial mobile radio service ("CMRS") affiliates of BOCs, such as WMC, to
offer long-distance service immediately upon enactment and exempts CMRS
operators from equal access requirements otherwise imposed on local telephone
companies, allowing the Company and WMC to sell long-distance services without
having to advertise for their competitors. As a result, the legislation removes
a major obstacle to consummating the second phase of the WMC joint venture.
However, as a BOC affiliate, WMC is subject to restrictions regarding the
provision of long-distance services other than in connection with CMRS. See
"Business-Domestic Cellular-Joint Ventures-WMC Partners."
The Act also modifies requirements for local telephone companies to provide
interconnection services to cellular carriers, which could impact the cost to
the Company of such service. The Company is unable to quantify the impact on its
operations of the changes resulting from the Act.
Federal Preemption of State Regulation. The Company's cellular, paging and PCS
licenses are issued and regulated by the FCC. In August 1995, the FCC preempted
state regulation of cellular rates and market entry, pursuant to the Omnibus
Budget Reconciliation Act of 1993. Because states are preempted from regulating
cellular rates, much of the state regulation to which the Company was previously
subject has been rendered void. Effective January 1, 1996, the Company's paging
services are no longer subject to tariffs, surcharges and user fees levied by
the California Public Utilities Commission ("CPUC") as a result of an amendment
to the California Public Utilities Code. The Company continues to be subject to
state regulation of "terms and conditions" of cellular service other than rates.
The Company does not anticipate that such state regulation will interfere with
efficient operation of its wireless businesses.
California Bundling Restrictions. In 1995, the CPUC removed its prohibition on
the bundling of cellular equipment with carrier service. Previously, cellular
service providers in California were prohibited from requiring that customers
activate service to receive discounts on cellular equipment.
Paging Application Suspension. On February 9, 1996, the FCC released a Notice of
Proposed Rulemaking ("NPRM") on market area licensing for all commercial mobile
radio paging licenses. As part of that NPRM, the FCC temporarily ceased
processing new applications for CMRS paging facilities, except those new
applications for facilities completely located within the existing interference
contour of a CMRS paging licensee. This suspension may last through 1996 and may
require the Company to use its nationwide frequencies to expand and start up new
markets. The NPRM also seeks to auction market area CMRS paging licenses, with
the incumbent licensees being allowed to continue operating their existing
systems.
INTERNATIONAL
The Company's international cellular and paging operations provide services
pursuant to the terms of licenses granted by the telecommunications agency or
similar supervisory authority in the various countries. Such agencies typically
also promulgate and enforce regulations regarding the construction and operation
of network equipment. Other regulations commonly encountered in international
markets include legal restrictions on the percentage ownership of
telecommunications licensees by foreign entities such as the Company, and
transfer restrictions or governmental approval requirements regarding changes in
the ownership of such licensees.
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ITEM 2. PROPERTIES.
For each market served by the Company's cellular operations, the Company
maintains at least one sales or administrative office and many transmitter and
antenna sites. Some of the facilities are leased and some are owned. The Company
also maintains both owned and leased sales and administrative facilities for its
paging services. The Company believes that its facilities are suitable for its
current business and that additional facilities will be available to satisfy its
foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
In November 1993, four class action complaints were filed, three in Orange
County Superior Court and one in the United States District Court for the
Central District of California, naming, among others, the Company, and alleging
that the Company, as general partner of Los Angeles SMSA Limited Partnership,
and Los Angeles Cellular Telephone Company conspired to fix the prices of retail
and wholesale cellular radio services in the Los Angeles market. The complaints
seek damages for the class "in a sum in excess of $100,000,000." The federal
suit has been dismissed and the three state cases have been consolidated for
purposes of discovery. The case has been removed to federal court. The other
cases have been stayed pending resolution of a 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 1994, two class action complaints were filed, one in San Diego County
Superior Court and one in the United States District Court for the Southern
District of California, alleging that the Company and U S WEST conspired to fix
the prices of retail and wholesale cellular radio services in the San Diego
market. The state case has been stayed pending the outcome of the federal case.
Discovery is taking place and a class has been agreed to for certification. 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 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 1994, a class action complaint was filed in San Francisco Superior Court
alleging that Bay Area Cellular Telephone Company, in which the Company has an
indirect interest, and GTE Mobilnet conspired to fix the prices of retail and
wholesale cellular radio services in the San Francisco Bay Area market. This
action is still in the preliminary pleading phase. The Company intends to defend
itself vigorously and does not expect that these proceedings will have a
material adverse effect on its financial condition.
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 believes the lawsuit to be without merit.
The Company is party to various other legal proceedings in the ordinary course
of business. Although the ultimate resolution of these various other 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1995.
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EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information concerning the persons who serve as
executive officers of the Company. The executive officers serve at the pleasure
of the Board of Directors and are subject to removal at any time.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
---- --- -------------------------
<S> <C> <C>
Sam Ginn 59 Chairman of the Board and Chief Executive Officer
C. Lee Cox 55 Vice Chairman of the Board
Arun Sarin 41 Vice Chairman of the Board
Mohan S. Gyani 44 Executive Vice President and Chief Financial Officer
Margaret G. Gill 56 Senior Vice President, Legal, External Affairs and Secretary
Dwight Jasmann 60 Vice President, Human Resources and Corporate Services
</TABLE>
Mr. Ginn has been Chairman of the Board and Chief Executive Officer of the
Company since December 1993. He was Chairman of the Board, President and Chief
Executive Officer of Pacific Telesis Group from 1988 to April 1994 and became a
director of Pacific Telesis Group in 1983. He was Chairman of the Board of
Pacific Bell from 1988 to April 1994. Mr. Ginn is also a director of Chevron
Corporation, Safeway Inc., Transamerica Corporation, and Hewlett-Packard
Company.
Mr. Cox was named Vice Chairman of the Board in November 1994, and has been
President and Chief Executive Officer of AirTouch Cellular since November 1990.
He was President and Chief Operating Officer of the Company from December 1993
to November 1994. He was President and Chief Executive Officer of the Company
from 1987 to December 1993, was a director of the Company from 1987 to April
1993 and became a director again in January 1994. He was a director and a Group
President of Pacific Telesis Group from 1988 to April 1994. Mr. Cox is a
director of Cellular Communications, Inc. and Pacific Gas & Electric Company.
Mr. Sarin became Vice Chairman of the Board in August 1995, and has been
President and Chief Executive Officer of AirTouch International since May 1995.
He was Senior Vice President, Corporate Strategy/Development and International
Operations until August 1995, and was also responsible for Human Resources
through 1994. He was Vice President, Organization Design of Pacific Telesis
Group from March 1993 to April 1994. Mr. Sarin joined Pacific Telesis Group in
1984 and held a variety of positions there until the spin-off of the Company in
April 1994.
Mr. Gyani became Executive Vice President and Chief Financial Officer of the
Company in September 1995. From November 1993 until that time he was Vice
President, Finance and Treasurer of the Company. He was Vice President and
Treasurer of Pacific Telesis Group from March 1993 to November 1993. From
February 1992 to March 1993 he was Vice President and Controller at Pacific
Bell. From November 1991 to February 1992 he was Vice President Financial
Assurance for Pacific Bell. From April 1989 to November 1991 he was Assistant
Treasurer at Pacific Telesis Group. Mr. Gyani is a director of Cellular
Communications, Inc.
Mrs. Gill became Senior Vice President, Legal, External Affairs and Secretary of
the Company in January 1994. She had been a partner in the law firm of Pillsbury
Madison & Sutro since 1973 and was the head of the firm's Corporate and
Securities Group. Mrs. Gill is a director of Consolidated Freightways, Inc.
Mr. Jasmann has been Vice President, Human Resources and Corporate Services
since January 1995. He was an international telecommunications consultant from
1993 to 1994. From 1987 to 1992 he was President and Managing Director for AT&T
Asia/Pacific Communications Services, Inc. Mr. Jasmann is a director of Elcotel,
Inc.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Part of the information required by this Item is set forth in the Company's 1995
Annual Report to Stockholders on page 65, which portions are incorporated herein
by reference.
The Company currently intends to retain future earnings for the development of
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company's future dividend policy will be
determined by its Board of Directors on the basis of various factors, including
the Company's results of operation, financial condition, capital requirements
and investment opportunities.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in the Company's 1995 Annual
Report to Stockholders on pages 18 through 20, which portions are incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this Item is set forth in the Company's 1995 Annual
Report to Stockholders on pages 21 through 37, which portions are incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in the Company's 1995 Annual
Report to Stockholders on pages 38 through 64, which portions are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required by this Item is set forth in the Company's Current
Report on Form 8-K: Date of Report: June 30, 1995, which is incorporated herein
in its entirety by reference.
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<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is set forth under "Executive Officers of
the Registrant" at the end of Part I of this report and under the headings
"Class II-Nominees for Election", "Class III-Directors Continuing in Office
Until the 1997 Annual Meeting of Stockholders" and "Class I-Directors Continuing
in Office Until the 1998 Annual Meeting of Stockholders" on pages 2 through 4
and "Compliance with Section 16(a) of the Exchange Act" on page 21 of the
Company's 1996 Proxy Statement, which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth under the headings "Director
Compensation" on page 5 and "Executive Compensation" and "Employment Contracts
and Termination of Employment or Change-in-Control Arrangements" on pages 9
through 19 of the Company's 1996 Proxy Statement, which are incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth on pages 7 and 8 of the
Company's 1996 Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the heading "Certain
Relationships and Related Transactions" on pages 19 and 20 of the Company's 1996
Proxy Statement, which are incorporated herein by reference.
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<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements:
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
The financial statements required by this Item are set forth in the
Company's 1995 Annual Report to Stockholders on pages 38 through 64,
which portions are incorporated herein by reference.
CMT PARTNERS
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income and Changes in Partners' Equity -
For the year ended December 31, 1995 and 1994 and the four-month
period from September 1, 1993 (inception) to December 31, 1993
Consolidated Statements of Cash Flows - For the year ended December
31, 1995 and 1994 and the four-month period from September 1,
1993 (inception) to December 31, 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules
Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts and Reserves
MANNESMANN MOBILFUNK GMBH
Independent Auditors' Report
Balance Sheets - December 31, 1995 and 1994
Statements of Income - Years ended December 31, 1995, 1994, and 1993
Statements of Capital Subscribers' Equity - Years ended December 31,
1995, 1994, and 1993
Statements of Cash Flows - Years ended December 31, 1995, 1994, and
1993
Notes to Financial Statements
NEW PAR
Report of Independent Auditors
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - Years ended December 31, 1995,
1994, and 1993
Consolidated Statement of Partners' Capital - Years ended December
31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows - Years ended December 31,
1995, 1994, and 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
CELLULAR COMMUNICATIONS, INC.
The financial statements required by this Item are incorporated
herein by reference to the Cellular Communications, Inc. Annual
Report on Form 10-K for the period ended December 31, 1995, Item 8
and Item 14(a) and (d), File No. 1-10789.
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<PAGE> 29
2. Financial Statement Schedules:
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
Schedule II -- Valuation and Qualifying Accounts and Reserves
Schedules other than those listed above are omitted because they are
either not required or not applicable, or the required information
is presented in the Consolidated Financial Statements.
3. Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated by reference as exhibits hereto.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on September 19,
1994 (Exhibit 3.i to the Company's Form 8-K - Date of Report:
December 15, 1994, File No. 1-12342)
3.2 Designation, Preferences and Rights of Series A Participating
Preferred Stock of the Company, as filed with the Secretary of
State of the State of Delaware on December 15, 1994 (Exhibit
3.2 to the Company's Form 8-B, File No. 1-12342, filed January
27, 1995)
3.3 Amended By-laws of the Company as of February 8, 1996
4.1 Form of Common Stock certificate (Exhibit 4.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994, File No. 1-12342))
4.2 Rights Agreement between the Company and The Bank of New York,
Rights Agent, dated as of September 19, 1994 (Exhibit 4 to the
Company's Current Report on Form 8-K - Date of Report:
December 15, 1994, File No. 1-12342)
10.1 Joint Venture Agreement between Mannesmann Kienzle GmbH,
Pacific Telesis Netherlands B.V., Cable and Wireless plc, DG
Bank Deutsch Genossenschaftsbank and Lyonnaise des Eaux SA
dated June 30, 1989 (Exhibit 10.43 to the Company's
Registration Statement on Form S-1, Registration No. 33-68012,
filed August 27, 1993)
10.2 Amended and Restated Plan of Merger and Joint Venture
Organization by and among the Company, CCI, CCI Newco, Inc.
and CCI Newco Sub, Inc. dated as of December 14, 1990 (Exhibit
1 to the Company's Statement on Schedule 13D filed on February
18, 1992, File No. 1-12342)
10.3 Termination Agreement by and among Pacific Telesis Group, the
Company, CCI and Cellular Communications of Ohio, Inc. dated
December 11, 1992 (Exhibit 5 to Amendment No. 28 to the
Company's Statement on Schedule 13D filed on December 12,
1992, File No. 1-12342)
10.4 Separation Agreement by and between the Company and Pacific
Telesis Group, dated as of October 7, 1993 (Exhibit 10.1 to
the Company's Registration Statement on Form S-1, Registration
No. 33-68012, filed August 27, 1993)
10.5 Amendment No. 1 to Separation Agreement between the Company
and Pacific Telesis Group, dated November 2, 1993 (Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1993, File No. 1-12342)
10.6 Amendment No. 2 to Separation Agreement between the Company
and Pacific Telesis Group, dated as of March 25, 1994 (Exhibit
10.6 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1994, File No. 1-12342)
10.7 Amendment No. 3 to Separation Agreement between the Company
and Pacific Telesis Group, dated as of April 1, 1994 (Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1994, File No. 1-12342)
10.8 Amendment No. 4 to Separation Agreement between the Company
and Pacific Telesis Group dated as of March 21, 1995
10.9 Agreement on Retirement and Relocation Benefits between Mr.
Christensen and the Company, dated as of March 31, 1994
(Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the period ended December 31, 1994, File No. 1-12342)
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<PAGE> 30
10.10 Amended and Restated Joint Venture Organization Agreement
dated as of September 30, 1995 between the Company and U S
WEST Inc. (Exhibit 2.1 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1995, File No.
1-12342)
10.11 Amended and Restated Agreement of Limited Partnership of WMC
Partners, L.P. dated as of September 30, 1995 by and between
the Company and U S WEST Inc. (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1995, File No. 1-12342)
10.12 Amended and Restated Agreement of Limited Partnership of PCS
Nucleus, L. P. dated as of September 30, 1995 by and between
the Company and U S WEST Inc. (Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1995, File No. 1-12342)
10.13 Amended and Restated Investment Agreement dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No.
1-12342)
10.14 Amended and Restated Agreement of Exchange dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No.
1-12342)
10.15 Amended and Restated Trust Agreement of Exchange dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No.
1-12342)
10.16 Agreement of Limited Partnership dated as of October 20, 1994
between CELLCO Partnership and WMC Partners, L.P. (Exhibit
10.1 to the Company's Form 8-K - Date of Report: October 20,
1994, File No. 1-12342)
10.17 Agreement of Limited Partnership dated as of October 20, 1994
of PCS PrimeCo, L.P. (Exhibit 10.2 to the Company's Form 8-K -
Date of Report: October 20, 1994, File No. 1-12342)
10.18 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications, Inc. and Bell Atlantic Corporation
(Exhibit 10.3 to the Company's Form 8-K - Date of Report:
October 20, 1994, File No. 1-12342)
10.19 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications and NYNEX Corporation (Exhibit 10.4 to
the Company's Form 8-K - Date of Report: October 20, 1994,
File No. 1-12342)
10.20 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications and CELLCO Partnership (Exhibit 10.5
to the Company's Form 8-K - Date of Report: October 20, 1994,
File No. 1-12342)
10.21 Credit Agreement between the Company, Bank of America National
Trust and Savings Association and The Other Financial
Institutions Party Thereto dated July 20, 1995 (Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1995, File No. 1-12342)
10.22 Amended and Restated Partnership Agreement dated as of
September 1, 1993 by and between Members of the PacTel Group
and Members of the McCaw Group (Exhibit 28(a) to McCaw
Cellular Communications, Inc. Current Report on Form 8-K for
the period ended October 1, 1991, File No. 0-16051)
10.23 Representative Employment Agreement for Messrs. Ginn, Cox,
Sarin and Gyani and Mrs. Gill (Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the period ended December 31,
1994, File No. 1-12342)
10.24 Representative Employment Agreement for other officers of the
Company (Exhibit 10.23 to the Company's Annual Report on Form
10-K for the period ended December 31, 1994)
10.25 Form of Indemnity Agreement between the Company and each of
its directors and certain officers (Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1994, File No. 1-12342)
10.26 Trust Agreement No. 1 for AirTouch Communications, Inc.
Supplemental Executive Pension Plan Benefits (Exhibit 10.25 to
the Company's Annual Report on Form 10-K for the period ended
December 31, 1994, File No. 1-12342)
10.27 AirTouch Communications, Inc. Deferred Compensation Plan
(Exhibit 10.26 to the Company's Form 10-K for the period ended
December 31, 1994, File No. 1-12342)
10.28 AirTouch Communications, Inc. Deferred Compensation Plan for
Nonemployee Directors (Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the period ended December 31, 1993,
File No. 1-12342)
30
<PAGE> 31
10.29 AirTouch Communications, Inc. Supplemental Executive Pension
Plan (Exhibit 10.12 to the Company's Annual Report on Form
10-K for the period ended December 31, 1993, File No. 1-12342)
10.30 AirTouch Communications, Inc. Executive Life Insurance Plan
(Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the period ended December 31, 1993, File No. 1-12342)
10.31 AirTouch Communications, Inc. Executive Long-Term Disability
Plan (Exhibit 10.14 to the Company's Annual Report on Form
10-K for the period ended December 31, 1994, File No. 1-12342)
10.32 Description of the Company's Business Travel Accident
Insurance for Non-Employee Directors (Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1994, File No. 1-12342)
10.33 AirTouch Communications, Inc. 1993 Long Term Stock Incentive
Plan Amended and Restated as of December 15, 1994
10.34 Description of the Executive Financial Counseling Program
13 1995 Annual Report to Security Holders - Financial Section
21 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Coopers & Lybrand LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of KPMG Deutsche Treuhand-Gesellschaft
23.5 Consent of Coopers & Lybrand LLP - Re: CMT Partners
23.6 Consent of Ernst & Young LLP - Re: New Par
24 Power of Attorney
27 Financial Data Schedule
99.1 The Company's Current Report on Form 8-K: Date of Report: June
30, 1995, File No. 1-12342
99.2 Coopers & Lybrand LLP Report of Independent Accountants on the
Company's consolidated financial statements for each of the
two years in the period ended December 31, 1994
99.3 Annual Report on Form 11-K for the AirTouch Communications,
Inc. Retirement Plan for the year 1995 (To be filed as an
amendment hereto within 180 days of the end of the period
covered by this report)
99.4 Cellular Communications, Inc. financial statements for each of
the three years in the period ended December 31, 1995
(Cellular Communications, Inc. Annual Report on Form 10-K for
the period ended December 31, 1995, Item 8 and Item 14(a) and
(d), File No. 1-10789)
(b) Reports on Form 8-K:
Date of Report: June 30, 1995
Date of Report: September 20, 1995
Date of Report: October 10, 1995
31
<PAGE> 32
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
Date: March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title
- ---------- -----
<S> <C>
Sam Ginn * Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Mohan S. Gyani * Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
C. Lee Cox * Vice Chairman of the Board
Arun Sarin Vice Chairman of the Board
Carol Bartz * Director
James R. Harvey * Director
Paul Hazen * Director
Donald G. Fisher * Director
Arthur Rock * Director
Charles R. Schwab * Director
George P. Shultz * Director
</TABLE>
* By: /s/ Mohan S. Gyani
--------------------------------------------
Mohan S. Gyani, Attorney-in-fact
Executive Vice President and Chief Financial Officer
Date: March 26, 1996
32
<PAGE> 33
INDEX TO
SEPARATE FINANCIAL STATEMENTS OF SIGNIFICANT ENTITIES NOT
CONSOLIDATED AND AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
CMT PARTNERS
Report of Independent Accountants............................................ S-3
Consolidated Balance Sheets - December 31, 1995 and 1994 .................... S-4
Consolidated Statements of Income and Changes in Partners' Equity - for the
years ended December 31, 1995 and 1994 and the four-month period
from September 1, 1993 (inception) to December 31, 1993 ................... S-5
Consolidated Statements of Cash Flows - for the years ended
December 31, 1995 and 1994 and the four-month period
from September 1, 1993 (inception) to December 31, 1993 ................... S-6
Notes to Financial Statements................................................ S-7
Financial Statement Schedules
Report of Independent Accountants.......................................... S-15
Schedule II - Valuation and Qualifying Accounts and Reserves .............. S-16
MANNESMANN MOBILFUNK GMBH
Independent Auditors' Report................................................. S-18
Balance Sheets - December 31, 1995 and 1994.................................. S-19
Statements of Income (Loss) - Years ended December 31, 1995, 1994 and 1993 .. S-21
Statements of Capital Subscribers' Equity - Years ended
December 31, 1995, 1994, and 1993.......................................... S-22
Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 ..... S-23
Notes to Financial Statements................................................ S-24
NEW PAR
Report of Independent Auditors............................................... S-36
Consolidated Balance Sheets - December 31, 1995 and 1994 .................... S-37
Consolidated Statements of Income - Years ended
December 31, 1995, 1994 and 1993........................................... S-38
Consolidated Statements of Partners' Capital - Years ended
December 31, 1995, 1994 and 1993........................................... S-39
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993........................................... S-40
Notes to Consolidated Financial Statements................................... S-41
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts............................ S-53
CCI
The financial statements required by this Item are incorporated herein by
reference to the Cellular Communications, Inc. Annual Report on Form 10-K for
the period ended December 31, 1995, Item 8 and Item 14 (a) and (d), File
No. 1-10789.
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
Financial Statement Schedules
Reports of Independent Accountants.......................................... X-1
Schedule II - Valuation and Qualifying Accounts and Reserves ............... X-3
</TABLE>
S-1
<PAGE> 34
CMT PARTNERS
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1995 and 1994 and
for the four-month period from September 1, 1993 (inception)
to December 31, 1993
S-2
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of CMT Partners:
We have audited the accompanying consolidated balance sheets of CMT Partners
(the Partnership) as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in partners' equity and cash flows for the years
ended December 31, 1995 and 1994, and for the four-month period from September
1, 1993 (inception) to December 31, 1993. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit. We did not audit
the financial statements of Kansas Combined Cellular, which statements reflect
total assets of 14% and 13% as of December 31, 1995 and 1994, respectively, and
total revenues of 16%, 12%, and 13% for the years ended December 31, 1995 and
1994, and for the four-month period from September 1, 1993 (inception) to
December 31, 1993, respectively. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to the amounts included for Kansas Combined Cellular, is based solely on the
report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of CMT Partners as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for the years ended December 31, 1995 and 1994, and for the four-month period
from September 1, 1993 (inception) to December 31, 1993 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 1, 1996
S-3
<PAGE> 36
CMT PARTNERS
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,317 $ 2,150
Accounts receivable:
Trade accounts receivable, net of allowance for doubtful accounts
of $4,424 and $3,135 in 1995 and 1994, respectively 80,129 59,441
Other accounts receivable, net of allowance for doubtful accounts
of $1,265 and $93 in 1995 and 1994, respectively 25,126 18,190
Due from affiliates 210 3,466
Inventory 12,205 5,028
Other 4,961 1,059
-------- ---------
Total current assets 123,948 89,334
Property and equipment, net of accumulated depreciation of $189,143
and $150,693 in 1995 and 1994, respectively 224,798 189,986
Unconsolidated investment 104,574 105,423
Intangibles, net of accumulated amortization of $34,368 and $30,502 in
1995 and 1994, respectively 73,864 76,464
-------- ---------
$527,184 $ 461,207
======== =========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable $ 21,814 $ 18,201
Accrued expenses 30,557 28,306
Other current liabilities 5,699 3,251
-------- ---------
Total current liabilities 58,070 49,758
-------- ---------
Minority interests 14,226 13,158
-------- ---------
Commitments and contingencies (Note 8).
Partners' equity 454,888 398,291
-------- ---------
Total partners' equity 454,888 398,291
-------- ---------
$527,184 $ 461,207
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE> 37
CMT PARTNERS
CONSOLIDATED STATEMENTS OF INCOME AND
CHANGES IN PARTNERS' EQUITY
for the years ended December 31, 1995 and 1994,
and the four-month period from September 1, 1993 (inception)
to December 31, 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues $ 515,010 $ 404,209 $110,848
Expenses:
Cost of revenues 120,242 78,700 20,102
Selling, general and administrative 193,304 154,849 45,380
Depreciation and amortization 50,319 41,835 19,615
--------- --------- --------
363,865 275,384 85,097
--------- --------- --------
Operating income 151,145 128,825 25,751
Earnings in unconsolidated investment 24,651 18,363 4,178
Minority interests (7,799) (6,955) (1,662)
--------- --------- --------
Net income 167,997 140,233 28,267
Partners' equity, beginning of period 398,291 349,458 361,191
Distributions to partners (111,400) (104,200) (32,000)
Contribution from partners -- 12,800 4,800
Contribution receivable from partner -- -- (12,800)
--------- --------- --------
Partners' equity, end of period $ 454,888 $ 398,291 $349,458
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE> 38
CMT PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995 and 1994,
and the four-month period from September 1, 1993 (inception)
to December 31, 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 167,997 $ 140,233 $ 28,267
--------- --------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 50,319 41,835 19,615
Minority interest 7,799 6,955 1,662
Earnings in unconsolidated investment (24,651) (18,363) (4,178)
Loss on disposition of property and equipment 1,171 1,644 25
Changes in assets and liabilities:
Trade accounts receivable, net (20,688) (23,191) (2,917)
Other accounts receivable, net (6,936) (12,409) (2,352)
Inventory (7,177) (2,093) --
Other current assets (3,902) (537) (1,153)
Accounts payable 3,613 10,547 1,771
Accrued expenses 2,251 4,301 7,035
Other current liabilities 2,448 (583) 37
--------- --------- --------
4,247 8,106 19,545
--------- --------- --------
Net cash provided by operating activities 172,244 148,339 47,812
--------- --------- --------
Cash flows from investing activities:
Purchase of property and equipment (82,436) (69,585) (17,864)
Contributions to unconsolidated investment -- (5,099) (4,800)
Distributions from unconsolidated investment 25,500 13,600 --
(Increase) decrease in other assets (1,266) 245 (658)
--------- --------- --------
Net cash used for investing activities (58,202) (60,839) (23,322)
--------- --------- --------
Cash flows from financing activities:
Distributions to partners of CMT (111,400) (104,200) (32,000)
Distributions to minority partners (6,731) (4,980) (2,100)
Due to (from) affiliates, net 3,256 (585) (4,645)
Partners' contribution -- 12,800 4,800
--------- --------- --------
Net cash used for financing activities (114,875) (96,965) (33,945)
--------- --------- ---------
Net decrease in cash (833) (9,465) (9,455)
Cash and cash equivalents, beginning of period 2,150 11,615 21,070
--------- --------- ---------
Cash and cash equivalents, end of period $ 1,317 $ 2,150 $ 11,615
========= ========= =========
</TABLE>
Supplemental disclosure of noncash activities:
As of December 31, 1993, $12.8 million of the initial contribution from
a partner was outstanding. The amount of the contribution was paid by
the partner in 1994.
The accompanying notes are an integral part of these financial statements.
S-6
<PAGE> 39
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
CMT Partners (the Partnership) was formed on September 1, 1993 (inception)
pursuant to the Amended and Restated Partnership Agreement dated as of
September 1, 1993 between subsidiaries of AirTouch Communications, Inc.
(ATI), formerly PacTel Corporation, and subsidiaries of AT&T Wireless
Services, Inc. (AT&TWS), formerly McCaw Cellular Communications, Inc.
(MCCI). The Partnership is a Delaware general partnership equally owned by
ATI and AT&TWS through the following contributions:
<TABLE>
<CAPTION>
CONTRIBUTIONS
TO
GENERAL PARTNERS CMT PARTNERS
<S> <C>
AirTouch Communications, Inc.:
Bay Area Cellular Telephone Company (BACTC) 61.099%
Interest in A Block licensee in Dallas-Fort Worth, TX (D/FW) 33.915%
AT&T Wireless Services, Inc.:
Cagal Cellular Communications Corporation (Cagal) 80.370%
Salinas Cellular Telephone Company (Salinas) 85.930%
Napa Cellular Telephone Company (Napa) 99.999%
Net operating assets of A Block licensee in
Kansas City, MO (Kansas City) 100.000%
St. Joseph CellTel Co (St. Joseph) 87.000%
Net operating assets of A Block licensee in
Lawrence, KS (Lawrence) 100.000%
BACTC 32.900%
</TABLE>
The initial contributions were accounted for at the net book value of the
assets and liabilities of the entities. Each of the entities holds a
license or licenses from the Federal Communication Commission (FCC) and
state authorities to operate cellular telephone systems in Metropolitan
Statistical Areas (MSAs) as listed below:
<TABLE>
<CAPTION>
<S> <C>
Bay Area Cellular Telephone Company San Francisco/San Jose, CA
Metroplex Dallas-Fort Worth, TX
Cagal Cellular Communications Corporation Santa Rosa, CA
Salinas Cellular Telephone Company Salinas, CA
Napa Cellular Telephone Company Napa/Vallejo, CA
Net operating assets of A Block licensee Kansas City, MO
St. Joseph CellTel Co St. Joseph, MO
Net operating assets of A Block licensee Lawrence, KS
</TABLE>
Continued
S-7
<PAGE> 40
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of the Partnership include the
accounts of all significant ownership interests which include the
accounts of BACTC, Combined Suburban Cellular (CSC), and Kansas
Combined Cellular (KCC). CSC is comprised of the Cagal, Salinas and
Napa cellular markets. KCC is comprised of the Kansas City, St. Joseph,
and Lawrence cellular markets.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities 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:
Cellular air time and access charges are recorded as revenue when
earned. Sales of equipment and related services are recorded when the
goods and services are delivered.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of investments with original
maturities of less than three months. The carrying amount approximates
fair value because of the short maturity of those instruments.
ALLOCATION OF PROFITS AND LOSSES:
In general, profits and losses incurred by the Partnership are
allocated to the partners pro rata in accordance with their partnership
ownership percentage.
Continued
S-8
<PAGE> 41
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
INVENTORY:
Inventory consists of cellular phones and related equipment. Inventory
is stated at the lower of cost or replacement cost. Gains and losses on
the sale of cellular equipment are recognized at the time of sale.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the assets.
DEPRECIABLE LIFE
Cellular equipment 3 - 7 years
Cellular towers/shelters 5 - 15 years
Other 3 - 7 years
Leasehold improvements are amortized using the straight-line method
over the shorter of the lease term or the estimated useful life of the
asset. When property and equipment are retired or sold, the cost and
accumulated depreciation of dispositions are removed from the accounts,
and any gain or loss is reflected in income.
Repairs and maintenance costs are charged to expense when incurred.
Renewals and betterments are capitalized and depreciated over the
remaining useful lives of the assets.
INTANGIBLES:
Intangible assets primarily represent costs incurred in the acquisition
and development of the cellular licenses and acquisition of subscriber
lists. The costs of the cellular licenses are being amortized over 40
years using the straight-line method. The costs of the subscribers
lists are being amortized over three years using the straight-line
method.
INCOME TAXES:
The income or loss of CMT Partners and its consolidated subsidiaries
are included in the tax returns of the individual partners.
Accordingly, no provision has been made for income taxes for these
entities in the financial statements.
Continued
S-9
<PAGE> 42
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
MINORITY INTERESTS:
Minority interests represent equity interests held by entities other
than CMT Partners for the general partnerships serving the St. Joseph,
BACTC and Salinas markets and the corporation serving the Cagal market.
RECLASSIFICATIONS:
Certain items in the financial statements for the four-month period
from September 1, 1993 (inception) to December 31, 1993 and for the
year ended and as of December 31, 1994 have been reclassified to
conform to the 1994 and 1995 presentation. These reclassifications have
no effect on previously reported net income or partners' equity.
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
(in thousands)
<S> <C> <C>
Land $ 1,724 $ 1,454
Cellular property and equipment 333,375 276,259
Administrative assets 50,184 33,511
--------- ---------
385,283 311,224
Less accumulated depreciation and amortization (189,143) (150,693)
--------- ---------
196,140 160,531
Cellular system under construction 28,658 29,455
--------- ---------
$ 224,798 $ 189,986
========= =========
</TABLE>
Administrative assets primarily consist of office furniture and fixtures,
including leasehold improvements and computer equipment.
Continued
S-10
<PAGE> 43
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
4. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1995 1994
(in thousands)
<S> <C> <C>
Accrued commissions $ 7,065 $ 5,718
Accrued employee benefits 5,945 5,019
Other 17,547 17,569
------- -------
$30,557 $28,306
======= =======
</TABLE>
5. UNCONSOLIDATED INVESTMENT:
The unconsolidated investment represents an investment in Dallas-Fort
Worth Signal Partnership which owns approximately 34% of Metroplex, the A
Block licensee in Dallas-Fort Worth, Texas. Accordingly, the investment
has been accounted for by the equity method of accounting. The purchase
price in excess of the Partnership's share of net assets is $71.5
million and is being amortized over 40 years. The financial information
of Metroplex at December 31, 1995, 1994 and 1993 and for the years ended
December 31, 1995 and 1994 and for the four-month period from September 1,
1993 (inception) to December 31, 1993 are shown below:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Current assets $ 31,000 $ 52,279 $ 35,816
Noncurrent assets 145,253 125,900 94,176
-------- -------- --------
Total assets $176,253 $178,179 $129,992
======== ======== ========
Current liabilities $ 34,888 $ 39,596 $ 24,564
-------- -------- --------
Total liabilities $ 34,888 $ 39,596 $ 24,564
======== ======== ========
Total equity $141,365 $138,583 $105,428
======== ======== ========
Revenue $210,445 $173,718 $ 49,715
======== ======== ========
Net income $ 77,782 $ 58,156 $ 14,384
======== ======== ========
</TABLE>
Continued
S-11
<PAGE> 44
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
6. TRANSACTIONS WITH RELATED PARTIES:
The Partnership and its affiliated companies have entered into several
transactions and agreements related to their respective businesses. The
following represents the material transactions between the Partnership and
its affiliated companies.
DUE FROM AFFILIATES:
Included in the amount due from affiliates at December 31, 1995 and
1994 is $0 and $2,959,000, respectively, which is due from AT&TWS. This
amount is due on demand and no interest is charged on the amount.
Included in the amount due from affiliates at December 31, 1995 is
$206,000 which is due from ATI.
TECHNICAL, ADMINISTRATIVE AND MARKETING SERVICES:
The Partnership entered into a service agreement (the Agreement) with
AT&TWS to provide certain services to CSC and KCC markets. The costs
charged pursuant to the Agreement are generally determined using an
allocation method. Substantially all of the services under the
Agreements were terminated during 1994, and CMT Partners began
providing these services to its affiliated markets.
CELLULAR EQUIPMENT PURCHASES:
The Partnership purchased cellular electronic equipment from AT&T Corp.
comprising approximately 2% of total capital expenditures for the
period from September 19, 1994 through December 31, 1994. For the year
ended December 31, 1995, purchases of cellular electronic equipment
from AT&T Corp. were approximately 15% of total capital expenditures.
LONG DISTANCE:
Prior to September 1, 1993, CSC, and KCC served as providers for its
customers' InterLATA long distance services. Effective with the
formation of CMT Partners on September 1, 1993, CSC, KCC, and two
interexchange carriers (Interexchange Carriers), both of which are
wholly owned subsidiaries of AT&TWS, entered into Agreements under
which the Interexchange Carriers provide InterLATA long distance
services for CSC and KCC customers. CMT Partners may have been subject
to certain restrictions regarding the provision of InterLATA services
pursuant to the Modified Final Judgment and the AT&T Corp. consent
decree. Such restrictions were superseded by the Telecommunications Act
of 1996.
CSC and KCC provide billing and collection functions on behalf of the
Interexchange Carriers at $.42 per customer account. The Interexchange
Carriers are responsible for the wholesale cost of the InterLATA long
distance services and any other expense incurred by the Interexchange
Carriers in operating their business.
Continued
S-12
<PAGE> 45
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
6. TRANSACTIONS WITH RELATED PARTIES, continued:
INTERCONNECTION:
BACTC contracted with Pacific Bell, an affiliate of ATI during 1993 and
for the first three months of 1994, for interconnection services
essential to the operation of its cellular network. The costs pursuant
to this contract accounted for 4% and 7% of the total operating costs
for the four-month period ended December 31, 1993 and for the first
three months of 1994, respectively.
7. EMPLOYEE CONTRIBUTION AND PROFIT SHARING PLAN:
Employees of CMT Partners and its subsidiaries participate in a
contributory profit-sharing plan referred to as the Cellular One Section
401(k) and Profit Sharing Plan (the Plan), formerly known as the Bay Area
Cellular Telephone Company 401(k) and Profit Sharing Plan, which qualifies
as a cash or deferred arrangement under Section 401(k) of the Internal
Revenue Code. Upon formation of CMT Partners, employees of the markets
contributed by AT&TWS may elect to participate in the Plan at any time.
Otherwise, these employees may maintain their contributions in AT&TWS's
401 (k) plan.
The Plan allows participating employees to elect to contribute up to 15%
of their monthly salaries, to a maximum of $9,240 annually for 1995 and
1994 and $8,994 annually for 1993. The Plan sponsor, CMT Partners,
contributes to the Plan, on behalf of each participating employee, an
amount equal to 50% of the employee's contribution, not to exceed 5% of
the participant's salary. Contributions are invested in six different
funds. Under the 401(k) Plan, participants are at all times fully vested.
Under the profit sharing plan, CMT Partners contributes a discretionary
percentage of each eligible employee's salary. Employees vest in the
profit sharing plan over five years. CMT Partners recorded a payable and
related expense of 5% of eligible salaries. CMT Partners contributed
$2,164,064, $2,023,757 and $398,000 to the 401(k) and profit sharing plan
for 1995 and 1994 and the four-month period ended December 31, 1993,
respectively.
Continued
S-13
<PAGE> 46
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS:
Future minimum payments required under operating leases and agreements
that have an initial or remaining noncancelable lease term in excess of
one year at December 31, 1995 are summarized below:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 (in thousands)
-----------------------
<S> <C>
1996 $ 9,175
1997 8,288
1998 7,010
1999 3,689
2000 2,898
Thereafter 5,064
-------
$36,124
=======
</TABLE>
Rental expense for operating leases was $9,244,000, $7,562,000, and
$2,047,000 for 1995 and 1994, and for the four-month period ended
December 31, 1993.
LITIGATION:
The Partnership is a party to certain litigation in the ordinary course
of business and is also a party to routine filings with the FCC, state
regulatory authorities and other proceedings which management believes
are immaterial to the Partnership.
9. LINE OF CREDIT:
On July 15, 1994, the Partnership entered into a Revolving Line of
Credit Note (the line of credit) with Wells Fargo Bank. The line of credit
allows for borrowings up to $10,000,000 of which no borrowings were
outstanding at December 31, 1994. The terms of the line of credit provide
that interest on all advances will accrue at the lesser of a variable rate
equal to the Prime Rate or .90% above the LIBOR rate. The line of credit
agreement expired June 15, 1995.
S-14
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of CMT Partners:
Our report on the consolidated financial statements of CMT Partners is included
as an exhibit to the AirTouch Communications, Inc. (ATI) Form 10-K. In
connection with our audit of such financial statements, we have audited the
related financial statement schedule listed in the index as an exhibit of ATI
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 1, 1996
S-15
<PAGE> 48
CMT PARTNERS
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(dollars in thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND END OF
PERIOD EXPENSES DEDUCTIONS (a) PERIOD
------------ ---------- -------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts $3,228 $19,378 $16,917 $5,689
Year ended December 31, 1994:
Allowance for doubtful accounts $1,576 $ 8,107 $ 6,455 $3,228
For the four-month period from
September 1, 1993 (inception) to
December 31, 1993:
Allowance for doubtful accounts $1,583 $ 792 $ 799 $1,576
</TABLE>
- --------------------
(a) Amounts in this column reflect items written off, net of recoveries.
S-16
<PAGE> 49
MANNESMANN MOBILFUNK GMBH
Table of Contents
Independent Auditors' Report
Balance Sheets as of December 31, 1995 and 1994
Statements of Income (Loss) for the Years ended December 31, 1995, 1994 and 1993
Statements of Capital Subscribers' Equity for the Years ended December 31,
1995, 1994 and 1993
Statements of Cash Flows for the Years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
S-17
<PAGE> 50
Independent Auditors' Report
The Board of Directors and Capital Subscribers
Mannesmann Mobilfunk GmbH
We have audited the accompanying balance sheets of Mannesmann Mobilfunk GmbH as
of December 31, 1995 and 1994, and the related statements of income, capital
subscribers' equity, and cash flows for each of the years in the three-year
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 German auditing
standards which, in all material respects, are similar to auditing standards
generally accepted in the United States. 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 Mannesmann Mobilfunk GmbH at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995, in
conformity with accounting principles generally accepted in the United States.
As discussed in notes 1 and 7 to the financial statements, the Company changed
its method of accounting for income taxes in 1995 to adopt the consensus reached
by the Emerging Issues Task Force of the Financial Accounting Standards Board in
Issue No. 95-10.
Dusseldorf, Germany, February 23, 1996
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Scheffler /s/ Haas
Wirtschaftsprufer Wirtschaftsprufer
S-18
<PAGE> 51
MANNESMANN MOBILFUNK GMBH
Balance Sheets
December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Assets 1995 1995 1994
------ ---- ---- ----
U.S. Dollars Deutsch- Deutsch-
(Note 1) marks marks
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 3) $ 37,557 DM 54,007 30,548
Accounts receivable,
less allowance for doubtful accounts of
DM 27,660 in 1995 and DM 18,215 in 1994 288,099 414,286 269,882
Due from affiliated companies (notes 4 and 7) 37,292 53,626 13,897
Inventories of affiliated products, parts
and related supplies (note 5) 25,337 36,435 23,008
Prepaid expenses 15,122 21,745 14,875
Other current assets 6,909 9,935 5,794
Deferred tax asset (note 7) 73,364 105,498 --
---------- --------- ---------
Total current assets 483,680 695,532 358,004
---------- --------- ---------
Property, plant and equipment (notes 4 and 6):
Telecommunications equipment 1,925,663 2,769,103 2,289,931
Equipment in course of construction 37,703 54,217 49,602
Other equipment 77,568 111,543 88,813
---------- --------- ---------
2,040,934 2,934,863 2,428,346
Less accumulated depreciation 566,252 814,270 544,313
---------- --------- ---------
Net property, plant, and equipment 1,474,682 2,120,593 1,884,033
Other assets, at cost, less accumulated amortization
of DM 39,389 in 1995 and DM 67,509 in 1994 32,149 46,230 61,424
Deferred tax asset (note 7) -- -- 88,580
Due from affiliated company (notes 4 and 7) -- -- 122,283
---------- --------- ---------
$1,990,511 DM 2,862,355 2,514,324
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
S-19
<PAGE> 52
MANNESMANN MOBILFUNK GMBH
Balance Sheets (Continued)
December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Liabilities and Capital Subscribers' Equity 1995 1995 1994
------------------------------------------ ---- ---- ----
U.S. Dollars Deutsch- Deutsch-
(Note 1) marks marks
<S> <C> <C> <C>
Current liabilities:
Due to banks $ 94,228 DM 135,500 72,021
Accounts payable 241,163 346,794 310,371
Accrued expenses 38,700 55,650 36,238
Due to affiliated companies (note 4) 168,338 242,070 6,921
---------- --------- ---------
Total current liabilities 542,429 780,014 425,551
Long-term debt (note 11) -- -- 720,000
Long-term debt due to affiliated company
(notes 4 and 11) 69,541 100,000 --
Pension liabilities (note 8) 6,132 8,818 7,098
Other non-current liabilities 8,029 11,545 7,450
Deferred income taxes (note 7) 181,810 261,443 --
---------- --------- ---------
Total liabilities 807,941 1,161,820 1,160,089
---------- --------- ---------
Commitments (note 12)
Capital subscribers' equity:
Subscribed capital (note 9) 281,641 405,000 405,000
Additional capital 844,924 1,215,000 1,215,000
---------- --------- ---------
1,126,565 1,620,000 1,620,000
Retained earnings (deficit) 56,005 80,535 (265,775)
---------- --------- ---------
Total capital subscribers' equity 1,182,570 1,700,535 1,354,225
---------- --------- ---------
$1,990,511 DM 2,862,355 2,514,324
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
S-20
<PAGE> 53
MANNESMANN MOBILFUNK GMBH
Statements of Income (Loss)
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1995 1994 1993
----------- --------- --------- --------
U.S.Dollars Deutsch- Deutsch- Deutsch-
(Note 1) marks marks marks
<S> <C> <C> <C> <C>
Net revenues $1,888,846 2,716,160 1,744,165 901,201
---------- --------- --------- --------
Operating costs and expenses:
Cost of services and products,including
DM 3,318, DM 5,924 and DM 2,583
with related parties in 1995, 1994
and 1993, respectively (note 4) 641,934 923,101 697,764 474,077
Selling, general and administrative
expenses, including DM 74,354, DM
56,548 and DM 46,302 with related
parties in 1995, 1994 and 1993,
respectively (note 4) 561,414 807,314 510,904 403,134
Depreciation and amortization 212,288 305,270 309,139 206,229
---------- --------- --------- --------
Operating income (loss) 473,210 680,475 226,358 (182,239)
Other income (expense):
Interest income 2,229 3,205 2,851 6,587
Interest expense (note 6) (23,216) (33,384) (40,584) (9,969)
Other, net 11,077 15,929 3,256 1,294
---------- --------- --------- --------
(9,910) (14,250) (34,477) (2,088)
Income (loss) before income taxes and
cumulative effect of change in
accounting principle 463,300 666,225 191,881 (184,327)
Income tax (expense) benefit (note 7) (266,490) (383,212) (84,889) 66,728
--------- --------- --------- --------
Income (loss) before cumulative effect of
change in accounting principle 196,810 283,013 106,992 (117,599)
Cumulative effect at January 1, 1995, of
change in accounting for income taxes
(note 7) 44,018 63,297 -- --
--------- --------- --------- --------
Net income (loss) $ 240,828 DM 346,310 106,992 (117,599)
========= ========= ========= ========
Pro forma net income (loss) assuming the
new change in accounting for income
taxes had been applied retroactively $ 196,810 DM 283,013 81,511 (84,742)
========= ========= ========= ========
</TABLE>
See accompanying notes to financial statements.
S-21
<PAGE> 54
MANNESMANN MOBILFUNK GMBH
Statements of Capital Subscribers' Equity
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Retained Capital
Subscribed Additional Unpaid Earnings Subscribers'
Capital Capital Capital (Deficit) Equity
------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1992 DM 405,000 1,215,000 (285,000) (255,168) 1,079,832
Net loss - - - (117,599) (117,599)
Payment of unpaid capital - - 285,000 - 285,000
-------- --------- -------- -------- ---------
Balances at
December 31, 1993 405,000 1,215,000 - (372,767) 1,247,233
Net income - - - 106,992 106,992
-------- --------- -------- -------- ---------
Balances at
December 31, 1994 405,000 1,215,000 - (265,775) 1,354,225
Net income - - - 346,310 346,310
-------- --------- -------- -------- ---------
Balances at
December 31,
1995 DM 405,000 1,215,000 - 80,535 1,700,535
======== ========= ======== ======== =========
Balances at
December 31, 1995
(U.S. Dollars) $281,641 844,924 - 56,005 1,182,570
(Note 1) ======== ========= ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
S-22
<PAGE> 55
MANNESMANN MOBILFUNK GMBH
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1995 1994 1993
---- ---- ---- ----
U.S. Dollars Deutsch- Deutsch- Deutsch-
(Note 1) marks marks marks
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $240,828 DM 346,310 106,992 (117,599)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Cumulative effect of change in
accounting principle (44,018) (63,297) -- --
Income tax expense (benefit) 266,490 383,212 84,889 (66,728)
Depreciation and amortization 212,288 305,270 309,139 207,520
Allowance for doubtful accounts 6,711 9,651 7,991 7,884
(Gain) loss on sale of equipment 723 1,039 6,150 2,664
Provision for pension costs 1,249 1,796 1,383 1,092
Provision for other costs 2,848 4,095 3,100 2,000
Changes in operating assets and liabilities
Accounts receivable (106,989) (153,849) (111,137) (119,071)
Due from affiliated companies 4,982 7,164 1,680 13,570
Inventories (9,337) (13,427) (3,708) (10,371)
Prepaid expenses (4,777) (6,870) (4,079) (5,621)
Other current assets (3,023) (4,347) (3,966) (1,281)
Accounts payable 25,329 36,423 (12,262) 52,139
Accrued expenses 13,499 19,412 27,056 1,722
Due to affiliated companies (1,042) (1,499) (8,355) 1,898
Pension liabilities (53) (76) (541) 183
--------- -------- -------- --------
Net cash provided by (used in) operating activities 605,708 871,007 404,332 (29,998)
--------- -------- -------- --------
Cash flows from investing activities:
Proceeds from sale of equipment and other assets 10,750 15,458 10,538 6,734
Capital expenditures,
including interest capitalized (377,573) (542,949) (689,178) (811,009)
Increase in other assets (128) (184) (365) (272)
--------- -------- -------- --------
Net cash used in investing activities (366,951) (527,675) (679,005) (804,547)
--------- -------- -------- --------
Cash flows from financing activities:
Proceeds from contributed capital -- -- -- 285,000
Proceeds from issuance of long-term debt -- -- 280,000 440,000
Proceeds from a loan by an affiliated company 69,541 100,000 -- --
Increase in due to affiliated company 164,567 236,648 -- --
Increase (decrease) in due to banks 44,144 63,479 (5,627) 77,648
Repayment of long-term debt (500,695) (720,000) -- --
--------- -------- -------- --------
Net cash (used for) provided by financing activities (222,443) (319,873) 274,373 802,648
--------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents 16,314 23,459 (300) (31,897)
Cash and cash equivalents at beginning of year 21,243 30,548 30,848 62,745
--------- -------- -------- --------
Cash and cash equivalents at end of year $ 37,557 DM 54,007 30,548 30,848
========= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
S-23
<PAGE> 56
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
Years ended December 31, 1995, 1994 and 1993
(All amounts in thousands of Deutschmarks)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Mannesmann Mobilfunk GmbH was incorporated on September 11, 1989. At
December 31, 1995 Mannesmann AG, held a controlling interest of
65.23%, and AirTouch Communications, Inc. held an interest of 34.77%.
The Company's primary business is the construction, manufacture and
operation of a private mobile cellular network ("D2") within Germany.
It is conducted under a licence agreement with the Federal Postal and
Telecommunications Ministry expiring at the end of 2009.
Commercial activities commenced in mid 1992 and by the end of 1995 the
Company had about 1,450,000 subscribers.
(b) BASIS OF PRESENTATION
In order to conform with accounting principles generally accepted in
the United States, certain adjustments are reflected in the financial
statements which are not recorded in the German books of account.
These adjustments relate primarily to capitalization of own payroll
and related costs associated with the design and construction of
telecommunications equipment, depreciation and amortization, and
accounting for income taxes.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid monetary instruments with
original maturities of three months or less to be cash equivalents.
(d) INVENTORIES
Inventories are stated at the lower of average cost or market.
S-24
<PAGE> 57
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
calculated on both the straight-line and declining balance methods
over the estimated useful lives of the assets as follows :
<TABLE>
<CAPTION>
Classification Useful lives Method
<S> <C> <C> <C>
Telecommunications equipment:
D2 infrastructure center 10 10% straight-line
Switching locations 15 6.67% straight-line
Base station equipment- poles 10 30% declining balance
- components 20 5% straight-line
Transmission and message
switching technology 10 10% straight-line
Other equipment:
Data processing equipment 4 30% declining balance
Office equipment 10 30% declining balance
Measuring instruments 5 30% declining balance
Vehicles 5 30% declining balance
</TABLE>
To the extent permissible under tax laws, systematic depreciation is
computed according to the declining balance method at a rate of up to
30%. Wherever straight-line depreciation results in higher charges,
this method is used. For telecommunication equipment generally the
straight-line method is used.
Certain equipment installed at third party locations for rental
periods less than the above useful lives are depreciated over the
corresponding terms of the agreements.
(f) OTHER ASSETS
Other assets are stated at cost. They consist mainly of computer
software, patents, rights and concessions which are being amortized
over periods ranging from three to eight years on a straight-line
basis.
(g) INCOME TAXES
Income taxes are recognized during the year in which transactions
enter into the determination of financial statement income. Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
In July 1995, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus in Issue No. 95-10 that
addresses the accounting for tax benefits of future tax credits,
arising from the difference between the German corporate tax rate of
45% applicable to undistributed profits and 30% applicable to
distributed income, that will be realized when the previously taxed
income is distributed. The Task Force concluded that the tax benefits
of the tax credits should be recognized as a reduction of income tax
expense in the period the tax credits are included in the enterprise's
tax return and that the enterprise should measure the tax effects of
temporary differences using the tax rate for undistributed income.
Prior to 1995, the Company applied a combined net income tax rate,
which reflected the lower corporate tax rate, to its income and loss
before income taxes on the basis that profits would be
S-25
<PAGE> 58
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
distributed in the future in accordance with the dividend policy
agreed by the capital subscribers. This approach resulted in a lower
net deferred tax asset being reported than otherwise would have been
the case had the higher corporate tax rate been applied, due to the
recognized benefits of primarily the net operating loss carry forwards
incurred by the Company during its development phase.
Effective January 1, 1995, the Company adopted the consensus reached
in Issue No. 95-10 and has reported the cumulative effect of that
change in the method of accounting for income taxes in the 1995
statement of income.
(h) PENSION PLANS
The Company has defined benefit plans limited to its management group
and a small minority of its employees transferred with continuing
pension rights from other Mannesmann AG group companies. The benefits
are based on years of service and recent compensation. The accumulated
benefit obligation is determined based on annual actuarial
calculations and recorded as a liability in the balance sheet with a
corresponding charge to income. The liability is not funded but
represented by the Company's assets.
(i) FINANCIAL STATEMENT TRANSLATION
The financial statements are expressed in Deutschmarks and, solely for
the convenience of the reader, have been translated into United States
dollars at the rate of DM 1.438 to U.S. $1, the Reuters year-end
closing rate quotation (New York time - U.S.A.) on December 29, 1995.
(j) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities 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.
(2) CHANGE IN ACCOUNTING ESTIMATE
The Company recently completed a review of the estimated useful lives of
its cellular telecommunications equipment. As a result, the Company
extended the estimated useful lives of its transmission and message
switching technology from eight to ten years. The change was made to
reflect more accurately the estimated period that such assets will remain
in service and was effective January 1, 1995. The new ten year depreciation
period is consistent with current industry standards. The change increased
net income for the year ended December 31, 1995 by DM 29,724 (net of
deferred income taxes of DM 40,247).
(3) CASH AND CASH EQUIVALENTS
This caption includes cash equivalents representing time deposits for
amounts maturing within periods of between one day and three months. The
balances at December 31, 1995 and 1994 are DM 20,000 and DM 24,000
respectively.
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of the investments.
S-26
<PAGE> 59
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
(4) RELATED PARTY TRANSACTIONS
The Company has significant business transactions with its main capital
subscribers, Mannesmann AG and AirTouch Communications, Inc. and their
respective group companies. Such transactions are normally concluded within
a range of terms similar to those made with non-related parties.
The significant balances and transactions with these related parties are
shown separately in the balance sheet and statement of income (loss). In
addition, purchases of property, plant and equipment from related parties
during the years stated are shown below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Purchases included under property
plant and equipment DM 6,878 15,174 30,050
</TABLE>
The amount shown as due to affiliated companies at December 31, 1995
includes interest bearing balances due to Mannesmann AG. At year end DM
36,648 is payable under an intercompany current account arrangement on
which interest is fixed monthly in advance on the basis of FIBOR plus 0.5%
for payable balances and minus 2% for receivable balances. Also outstanding
at year-end is a one year loan of DM 200,000 at a fixed rate of interest of
5.13133% repayable on June 28, 1996.
The fair value of the current account facility at December 31, 1995, is
considered to approximate the carrying amount as the interest rate was
fixed on the basis of the year-end closing quotation plus an arm's length
margin.
The fair value of the loan on December 31, 1995 is estimated to be DM
200,857 compared to the carrying amount of DM 200,000, since the year end
rate of interest of 4.275% (FIBOR of 3.9% plus 0.375%) is lower than the
fixed rate of 5.13133% applicable until repayment in mid 1996.
(5) INVENTORIES
This caption includes stocks of affiliated products, parts and related
supplies. The balances at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Mobile telephones DM 20,370 12,253
Spare parts 9,094 7,734
Subscriber identification module cards 6,721 2,383
Other trade goods 250 638
------ ------
DM 36,435 23,008
====== ======
</TABLE>
(6) INTEREST COST
The Company commenced capitalization of interest cost during 1993
commensurate with the drawdown of its credit facility, subsequently
replaced in 1995 by financing from Mannesmann AG, for continuing expansion
of the infrastructure for its private mobile cellular network. The
following is a summary of interest cost incurred and subject to
capitalization during 1995, 1994 and 1993:
S-27
<PAGE> 60
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest cost capitalized DM 2,470 4,092 2,980
Interest cost charged to income 33,384 40,584 9,969
------ ------ ------
DM 35,854 44,676 12,949
====== ====== ======
</TABLE>
Interest capitalized has been included in the telecommunications equipment
component of property, plant and equipment.
The Company paid interest of DM 43,147, DM 48,213 and DM 2,301 in 1995,
1994 and 1993 respectively.
(7) INCOME TAXES
As discussed in note 1, the Company adopted the consensus reached in Issue
No. 95-10 of the Emerging Issues Task Force as of January 1, 1995. The
cumulative effect of this change in accounting for income taxes of DM
63,297 was determined as of January 1, 1995 and has been reported
separately in the statement of income for the year ended December 31, 1995.
As a result of applying this change, the income from continuing operations
for the year ended December 31, 1995 was decreased by DM 88,474.
Total income taxes for the years ended December 31, 1995, 1994 and 1993
were allocated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income (loss) from continuing operations DM (383,212) (84,889) 66,728
Cumulative effect of change in
accounting for income taxes 63,297 -- --
-------- ------- ------
DM (319,915) (84,889) 66,728
======== ======= ======
</TABLE>
Income tax (expense) benefit attributable to income (loss) from continuing
operations for the years ended December 31, 1995, 1994 and 1993, relating
solely to deferred income taxes, consists of various types of taxes as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
German trade tax DM (117,922) (33,963) 32,626
German corporate tax (246,769) (47,376) 21,735
German solidarity surcharge tax (18,521) (3,550) 12,367
-------- ------- ------
DM (383,212) (84,889) 66,728
======== ======= ======
</TABLE>
S-28
<PAGE> 61
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
The respective rates for the above types of taxes and their application for
the years ended December 31, 1995, 1994 and 1993 are analyzed as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income before income taxes 100.0% 100.0% 100.0%
German trade tax gross rate of 17.7% for
1995, 1994 and 1993 applied to
income before income taxes (17.7%) (17.7%) (17.7%)
------ ------ ------
82.3% 82.3% 82.3%
German corporate tax gross rate of 45% for
1995 and 30% for 1994 and 1993
applied to income after German trade tax,
a net rate of 37.04% for 1995 and 24.69%
for 1994 and 1993 (37.04%) (24.69%) (24.69%)
------ ------ ------
45.26% 57.61% 57.61%
German solidarity surcharge tax gross rate of
7.5%, announced in 1993 effective 1995,
applied to German corporate tax net rate of
37.04% for 1995, a net rate of 2.78% and
24.69% for 1994 and 1993, a net rate of 1.85% (2.78%) (1.85%) (1.85%)
------ ------ ------
Income after income taxes 42.48% 55.76% 55.76%
------ ------ ------
German trade tax net rate 17.70% 17.70% 17.70%
German corporate tax net rate 37.04% 24.69% 24.69%
German solidarity surcharge tax net rate 2.78% 1.85% 1.85%
------ ------ ------
Combined German income tax rate 57.52% 44.24% 44.24%
====== ====== ======
</TABLE>
As noted above, the impact of applying a change in accounting for income
taxes using the higher German corporate tax gross rate of 45% in 1995 has
resulted in the combined income tax rate increasing to 57.52% in 1995 from
44.24% in 1994 and 1993.
Income tax (expense) benefit attributable to income (loss) from continuing
operations was DM (383,212), DM (84,889) and DM 66,728 for the years ended
December 31, 1995, 1994 and 1993 respectively, and differed from the amount
computed by applying the above combined German income tax rate of 57.52%
for 1995 and 44.24% for 1994 and 1993 to pretax income (loss) from
continuing operations as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax (expense) benefit DM (383,212) (84,889) 81,546
Adjustments to deferred tax assets and
liabilities for enacted changes in tax laws
from 47.3% to 44.24% with the effect of
reducing the combined German income tax rate -- -- (14,818)
-------- ------- ------
DM (383,212) (84,889) 66,728
======== ======= ======
</TABLE>
S-29
<PAGE> 62
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
The significant components of the deferred income tax (expense) benefits
attributable to the income (loss) from continuing operations for the years
ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Tax effect of the German fiscal basis
income (loss) from continuing operations (244,994) (89,833) 97,017
Tax effect of the temporary differences attributable
to items expensed for tax purposes but capitalized
as property, plant and equipment and partly
depreciated for reporting purposes 1,037 4,062 (16,353)
Tax effect of temporary difference attributable
to a loan commitment fee expensed for tax
purposes but deferred as other assets and partly
amortized in 1994 and 1993, but fully amortized
in 1995 upon extinguishment of debt for
reporting purposes 3,440 882 882
Tax effect of the temporary difference attributable
to the change in accounting estimate to extend
the depreciating period of certain property,
plant and equipment for reporting purposes (40,247) -- --
Tax effect of temporary difference attributable
to the application of special accelerated depreciation
to property, plant and equipment acquired in 1991
through 1993 in the former East Germany for
tax purposes (102,448) -- --
Adjustments to deferred tax assets and liabilities
for enacted changes in tax laws and rates -- -- (14,818)
-------- ------- ------
Net tax (expense) benefit (383,212) (84,889) 66,728
======== ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31,1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards DM 152,391 305,638
Less amount due from affiliated company for realization
of the benefit of net operating loss carryforwards
for German trade tax purposes (46,893) (122,283)
------- --------
Total deferred tax assets DM 105,498 183,355
======= =======
</TABLE>
S-30
<PAGE> 63
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment due to differences
in capitalization and related depreciation (261,443) (92,129)
Loan commitment fee -- (2,646)
-------- -------
Total deferred tax liabilities DM (261,443) (94,775)
-------- -------
Classified as follows:
Deferred tax asset (gross), current DM 105,498 --
======== =========
Deferred tax asset (net), non-current DM -- 88,580
======== =========
Deferred tax liability (gross), non-current DM (261,443) --
======== =========
</TABLE>
The amount due from affiliated company and the deferred tax asset (gross)
are reclassified as current in 1995, because the net operating loss
carryforward is virtually certain to be fully utilized in 1996. In 1994,
the timing of the realization of such assets was determined to be beyond
one year and accordingly they were classified as non-current.
No valuation allowance for the deferred tax asset at December 31, 1995 and
1994 has been recognized. The net operating loss carryforward, amounting to
DM 264,936 at December 31, 1995 is available indefinitely.
Due to its controlling interest of more than 50%, Mannesmann AG has
included the income (loss) from continuing operations of the Company for
German trade tax purposes in its consolidated tax return under an agreement
common to all its majority owned subsidiaries within the German fiscal
jurisdiction. Under this agreement Mannesmann AG charges or credits the
Company for the German trade tax payable or receivable arising from the
income (loss) from continuing operations. At the gross rate of 17.7% for
German trade tax applicable to each of the years ended December 31, 1995,
1994 and 1993, the respective balances with Mannesmann AG of DM 46,893, DM
122,283 and DM 158,224, representing the realization of the benefits of net
operating loss carryforwards, are shown under the balance sheet caption as
an amount due from affiliated company. This group arrangement is not
applicable to German corporate tax and, from 1995, to German solidarity
surcharge tax, which is assessed on an individual legal entity basis
without the benefit of group relief.
(8) PENSION PLANS
The Company has two defined benefit pension plans. The first covers all of
its 75 member management group (1994 - 80 members and 1993 - 73 members).
The second covers only 38 of its employee group (1994 - 40 employees
and 1993 - 45 employees) representing those employees transferred with
continuing pension rights from other Mannesmann AG group companies.
Beginning January 1, 1995 approximately 1,900 of the remaining employees
are covered by a defined contribution plan funded externally with an
insurance company. The remaining employees totalling about 900 at the end
of 1995 (about 2,400 and 2,100 at the end of 1994 and 1993 respectively)
are not presently covered by such plans. All personnel are covered by a
German state pension scheme under a defined contribution plan funded
equally by the employer and the employee.
S-31
<PAGE> 64
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
The pension liabilities shown in the balance sheet result directly from
independent actuarial calculations based on the situation of the two
defined benefit plans at the end of each year in accordance with German tax
and commercial rules. Due to the relatively insignificant amount of such
pension liabilities given the small number of employees covered, together
with the short periods of prior service, the Company considers that any
potential adjustment or additional disclosures, that would be required had
Statement of Financial Accounting Standards No 87, Employers' Accounting
for Pensions, been applied, would not be material.
As noted above, the pension liabilities shown in the balance sheet
represent the actuarial present value of accumulated benefit obligations.
Projected benefit obligations and increases in compensation levels are not
considered. The pension liabilities under these plans are not funded but
considered to be represented by the Company's assets.
The pension costs charged to income for 1995, 1994 and 1993 are DM 3,389,
DM 1,383 and DM 1,076 respectively.
The discount rate assumed in the actuarial valuations for each of the years
ended December 31, 1995, 1994 and 1993 is 6%.
(9) SUBSCRIBED CAPITAL
Subscribed capital is represented by whole sum subscription amounts on a
proportional basis to the various investing parties. The respective amounts
of proportional subscriptions directly reflect the percentage of respective
ownership and related voting and dividend rights.
(10) RESTRICTIONS ON RETAINED EARNINGS
The payment of dividends from retained earnings is restricted to the extent
of available retained earnings per the German books of account. At December
31, 1995 there is an accumulated deficit of DM 264,936 per the German books
of account.
(11) LONG-TERM DEBT
During 1995 the Company extinguished its debt under its unsecured credit
facility negotiated with a banking consortium and replaced it with
financing from its affiliated company, Mannesmann AG. The unamortized
portion of the loan commitment fee of DM 5,980 relating to the former
credit facility was charged to income in 1995.
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Due to affiliated company, payable on June 30, 1997 at a fixed
rate of interest of 5.675% 100,000 --
Various drawings and related tranches at variable rates
of interest between 5.9% and 7.4%, under a flexible
repayment schedule with final maturity exercisable
between June 30, 1995 and December 30, 2001 -- 720,000
------- -------
Total long-term debt DM 100,000 720,000
======= =======
</TABLE>
S-32
<PAGE> 65
MANNESMANN MOBILFUNK GMBH
Notes to Financial Statements
The fair value of the long-term debt at December 31, 1995 is estimated to
be DM 102,100 compared to the carrying amount of DM 100,000 since the year
end rate of interest of 4.275% (FIBOR of 3.9% plus 0.375%) is lower than
the fixed rate of 5.675% applicable until repayment in mid 1997.
(12) COMMITMENTS
The Company is obligated under various noncancelable operating leases,
primarily of a long-term nature, for the main administrative building, base
stations and sales offices. The rental expense charged to income during
1995, 1994 and 1993 was DM 65,922, DM 51,769 and DM 40,739, respectively.
Future minimum lease payments under noncancelable leases (with initial or
remaining lease terms in excess of one year) are:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1996 32,967
1997 34,020
1998 21,325
1999 21,160
2000 20,635
2001 and beyond 36,492
-------
Total minimum lease payments DM 166,599
=======
</TABLE>
S-33
<PAGE> 66
Audited Consolidated Financial Statements
New Par (A Partnership)
Years ended December 31, 1995, 1994 and 1993
with Report of Independent Auditors
S-34
<PAGE> 67
New Par (A Partnership)
Audited Financial Statements
Years ended December 31, 1995, 1994, and 1993
Contents
Report of Independent Auditors .......................................... S-36
Audited Consolidated Financial Statements
Consolidated Balance Sheets ............................................. S-37
Consolidated Statements of Income ....................................... S-38
Consolidated Statement of Partners' Capital ............................. S-39
Consolidated Statements of Cash Flows ................................... S-40
Notes to Consolidated Financial Statements .............................. S-41
Schedule II -- Valuation and Qualifying Accounts ........................ S-53
S-35
<PAGE> 68
Report of Independent Auditors
The Partnership Committee
New Par
We have audited the accompanying consolidated balance sheets of New Par as of
December 31, 1995 and 1994, and the related consolidated statements of income,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the accompanying financial statement
schedule (Schedule II--Valuation and Qualifying Accounts). These financial
statements and schedule are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New Par
at December 31, 1995 and 1994, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
February 16, 1996
S-36
<PAGE> 69
NEW PAR (A PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 30,703,000 $ 33,461,000
Accounts receivable--trade, less allowance for
doubtful accounts of $8,188,000 (1995) and
$5,265,000 (1994) 92,753,000 65,799,000
Financing receivables, net 22,293,000 20,774,000
Due from affiliates 15,000 14,000
Telephone equipment inventory 13,427,000 16,142,000
Prepaid expenses and other current assets 3,385,000 2,796,000
-----------------------------
Total current assets 162,576,000 138,986,000
Property, plant and equipment, net 463,877,000 352,218,000
License acquisition costs, net 413,149,000 356,034,000
Other assets, net of accumulated amortization of
$8,955,000 (1995) and $6,437,000 (1994) 32,609,000 27,741,000
-----------------------------
Total assets $1,072,211,000 $874,979,000
=============================
Liabilities and partners' capital
Current liabilities:
Accounts payable $ 29,858,000 $ 25,482,000
Accrued expenses 23,520,000 17,603,000
Distribution payable to partners 28,748,000 26,133,000
Due to affiliates 1,774,000 1,226,000
Property and other taxes payable 12,900,000 15,790,000
Commissions payable 14,861,000 14,207,000
Deferred revenue 13,373,000 13,968,000
-----------------------------
Total current liabilities 125,034,000 114,409,000
Other liabilities 3,905,000 593,000
Commitments and contingent liabilities
Minority interests 1,486,000 556,000
Partners' capital 941,786,000 759,421,000
-----------------------------
Total liabilities and partners' capital $1,072,211,000 $874,979,000
=============================
</TABLE>
See accompanying notes.
S-37
<PAGE> 70
NEW PAR (A PARTNERSHIP)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Revenues
Cellular service $673,872,000 $498,077,000 $390,181,000
Telephone equipment sales, rental and other 85,181,000 80,861,000 45,668,000
-----------------------------------------
759,053,000 578,938,000 435,849,000
Costs and expenses
Cost of telephone equipment sold 74,343,000 61,986,000 28,037,000
Operating expenses 146,593,000 106,544,000 85,575,000
Selling, general and administrative expenses 252,360,000 211,182,000 148,248,000
Restructuring charges - - 648,000
Depreciation expense 59,092,000 45,648,000 39,796,000
Amortization expense 14,165,000 13,491,000 12,950,000
Depreciation of rental telephones 13,193,000 22,525,000 28,496,000
-----------------------------------------
559,746,000 461,376,000 343,750,000
-----------------------------------------
Operating income 199,307,000 117,562,000 92,099,000
Other income (expense):
Interest and other income 6,286,000 2,367,000 1,100,000
Interest expense (62,000) (95,000) (124,000)
-----------------------------------------
Income before provision for income taxes and
minority interests 205,531,000 119,834,000 93,075,000
Provision for income taxes (4,269,000) (4,424,000) (522,000)
-----------------------------------------
Income before minority interests 201,262,000 115,410,000 92,553,000
Minority interests (930,000) (534,000) -
-----------------------------------------
Net income $200,332,000 $114,876,000 $ 92,553,000
=========================================
</TABLE>
See accompanying notes.
S-38
<PAGE> 71
NEW PAR (A PARTNERSHIP)
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
AirTouch CCI
Group Group Total
----------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 $363,661,500 $251,728,500 $615,390,000
Capital contributions -- 29,714,000 29,714,000
Distribution payable (17,832,000) (17,832,000) (35,664,000)
Net income for the year ended
December 31, 1993 46,276,500 46,276,500 92,553,000
----------------------------------------
Balance, December 31, 1993 392,106,000 309,887,000 701,993,000
Distribution payable (28,724,000) (28,724,000) (57,448,000)
Net income for the year ended
December 31, 1994 57,438,000 57,438,000 114,876,000
----------------------------------------
Balance, December 31, 1994 420,820,000 338,601,000 759,421,000
Capital contributions 33,000,000 33,000,000 66,000,000
Distribution payable (41,983,500) (41,983,500) (83,967,000)
Net income for the year ended
December 31, 1995 100,166,000 100,166,000 200,332,000
----------------------------------------
Balance, December 31, 1995 $512,002,500 $429,783,500 $941,786,000
========================================
</TABLE>
See accompanying notes.
S-39
<PAGE> 72
NEW PAR (A PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 200,332,000 $ 114,876,000 $ 92,553,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 86,450,000 81,664,000 81,242,000
Provision for losses on accounts and financing receivables 12,104,000 17,236,000 16,877,000
Loss on sale of property, plant and equipment 5,732,000 5,433,000 3,534,000
Provision for rental telephone losses 163,000 142,000 4,426,000
Deferred compensation 401,000 171,000 --
Minority interests 930,000 534,000 --
Change in operating assets and liabilities:
Accounts receivable (36,918,000) (30,336,000) (24,533,000)
Financing receivables, including noncurrent (3,665,000) (27,669,000) (6,338,000)
Due from affiliates (1,000) 35,000 58,000
Telephone equipment inventory 2,744,000 (7,993,000) 76,000
Prepaid expenses and other current assets (583,000) (930,000) (41,000)
Other assets (5,789,000) (4,026,000) (4,278,000)
Accounts payable (2,054,000) 8,448,000 4,460,000
Accrued expenses 4,677,000 3,697,000 (3,703,000)
Due to affiliates 548,000 (587,000) 556,000
Property and other taxes payable (2,890,000) 4,835,000 (645,000)
Commissions payable 654,000 4,886,000 2,422,000
Deferred revenues (595,000) 2,902,000 2,180,000
Other liabilities 3,483,000 422,000 --
-------------------------------------------
Net cash provided by operating activities 265,723,000 173,740,000 168,846,000
INVESTING ACTIVITIES
Purchase of property, plant and equipment (178,672,000) (123,376,000) (104,288,000)
Proceeds from sale of property, plant and equipment 623,000 649,000 1,035,000
Purchase of cellular license interests (75,080,000) (100,000) (27,000)
-------------------------------------------
Net cash (used in) investing activities (253,129,000) (122,827,000) (103,280,000)
FINANCING ACTIVITIES
Capital distributions (81,352,000) (54,297,000) (35,000,000)
Capital contributions 66,000,000 -- --
-------------------------------------------
Net cash (used in) financing activities (15,352,000) (54,297,000) (35,000,000)
-------------------------------------------
Increase (decrease) in cash and cash equivalents (2,758,000) (3,384,000) 30,566,000
Cash and cash equivalents at beginning of period 33,461,000 36,845,000 6,279,000
-------------------------------------------
Cash and cash equivalents at end of period $ 30,703,000 $ 33,461,000 $ 36,845,000
===========================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 144,000 $ 63,000 $ 76,000
Income taxes paid $ 2,585,000 $ 3,889,000 $ 944,000
Supplemental Disclosures of Noncash Investing Activities:
Cellular license interests contributed by Cellular
Communications, Inc. $ -- $ -- $ 28,207,000
Purchases of property, plant and equipment included in
current liabilities $ 16,281,000 $ 9,491,000 $ 10,800,000
Supplemental Disclosures of Noncash Financing Activities:
Distribution payable to partners $ 28,748,000 $ 26,133,000 $ 22,982,000
</TABLE>
See accompanying notes.
S-40
<PAGE> 73
New Par (A Partnership)
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1. ORGANIZATION
New Par owns and operates cellular telephone systems primarily in Michigan and
Ohio, and in portions of Indiana and Kentucky. New Par's principal line of
business is the provision of cellular telephone service. New Par also sells,
installs and repairs cellular telephones and accessories, resells paging service
and sells pagers and accessories.
New Par was formed on August 1, 1991 pursuant to the Amended and Restated
Agreement and Plan of Merger and Joint Venture Organization dated as of December
14, 1990 between AirTouch Communications, Inc. ("AirTouch") (formerly PacTel
Corporation), Cellular Communications, Inc. ("CCI"), CCI Newco, Inc. and CCI
Newco Sub, Inc. (the "Merger Agreement"). New Par is a Delaware general
partnership equally owned by AirTouch and CCI through the following
wholly-owned, indirect corporate subsidiaries:
<TABLE>
<CAPTION>
Percentage
Ownership of
GENERAL PARTNERS New Par
- ---------------- ------------
<S> <C>
THE AIRTOUCH GROUP
AirTouch Cellular of Michigan 27.74%
AirTouch Cellular of Ohio 18.18
AirTouch Cellular of Saginaw, Inc. 2.64
AirTouch Cellular of Lima, Inc. 1.44
------------
50.00
THE CCI GROUP
Cellular Communications of Cleveland, Inc. 12.52
Cellular Communications of Cincinnati, Inc. 11.22
Cellular Communications of Columbus, Inc. 7.94
Cellular Communications of Dayton, Inc. 5.19
Cellular Communications of Akron, Inc. 4.14
Cellular Communications of Canton, Inc. 2.29
Cellular Communications of Hamilton, Inc. 1.98
Lorain/Elyria Cellular Telephone Company 1.86
E&J Mobile Radio Service, Inc. .97
Cellular Communications of Mansfield, Inc. .87
Midwest Mobilephone of Cincinnati, Inc. .81
Star-Cel, Inc. .21
------------
50.00
------------
100.00%
============
</TABLE>
S-41
<PAGE> 74
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
In 1996, AirTouch Cellular of Ohio, AirTouch Cellular of Saginaw, Inc. and
AirTouch Cellular of Lima, Inc. were merged into AirTouch Cellular Of Michigan.
Each wholly-owned, indirect corporate subsidiary of AirTouch and CCI initially
contributed to New Par its interests in the General Partnerships (see below).
The initial contributions were accounted for at the net book value of the assets
and liabilities of the General Partnerships. Each of these partnerships, among
other assets, holds a license or licenses from the Federal Communications
Commission ("FCC") and state authorities to operate cellular telephone systems
in Cellular Geographic Service Areas as listed below. New Par owns 100% of the
partnership interests in each partnership, except as noted.
GENERAL PARTNERSHIP SERVICE AREA
- ---------------------------------------- -----------------------
Detroit Cellular Telephone Company Detroit, MI
Northern Ohio Cellular Telephone Company Cleveland, OH
Lorain/Elyria, OH
Mansfield, OH
Ashtabula, OH
Southern Ohio Telephone Company Cincinnati, OH
Clinton, OH
Columbus Cellular Telephone Company Columbus, OH
Mercer, OH
Morrow, OH
Dayton Cellular Telephone Company Dayton, OH
Toledo Cellular Telephone Company Toledo, OH
Lima, OH
Grand Rapids Cellular Telephone Company Grand Rapids, MI
Akron Cellular Telephone Company Akron, OH
Flint Cellular Telephone Company Flint, MI
Saginaw, MI
Lansing Cellular Telephone Company Lansing, MI
Canton Cellular Telephone Company Canton, OH
Hamilton Cellular Telephone Company Hamilton/Middletown, OH
Springfield Cellular Telephone Company Springfield, OH
Muskegon Cellular Partnership (a) Muskegon, MI
S-42
<PAGE> 75
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
(a) New Par is a 38.91% general partner in the Muskegon partnership. AirTouch
Cellular of Michigan is a 40.5% general partner. The remaining 20.59%
interests are owned by unaffiliated entities.
Each of the above General Partnerships owns 100% of the FCC license in the
Service Area, except for Hamilton/Middletown and Springfield in which the
applicable partnership owns 99.6% and 89.23% of the FCC license, respectively.
New Par owns 100% of Cellular One Sales and Service Company, which operates New
Par's sales and service center business.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of New Par, its
wholly-owned partnerships, and partnerships in which New Par's interest is
greater than 50%. Significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, deposits in interest-bearing accounts
and short term highly liquid investments purchased with a maturity of three
months or less.
TELEPHONE EQUIPMENT INVENTORY
Telephone equipment inventory, which consists of telephones and accessories, is
stated at the lower of cost (first-in, first-out method) or market.
S-43
<PAGE> 76
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on long-lived assets when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets' carrying amount. New Par adopted Statement No. 121 in 1995,
which had no significant impact on the consolidated results of operations and
financial position.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives are as follows: building - 25 years, operating plant and equipment
- - 7 to 25 years, rental telephones - 3 years and office furniture, computer and
other equipment - 3 to 5 years.
LICENSE ACQUISITION COSTS
Deferred cellular license costs include costs incurred to design cellular
telephone systems for specific geographic areas, select and acquire sites to
place equipment for such systems, demographic and traffic pattern studies, legal
and organization costs, and costs incurred in connection with the preparation
and filing of FCC license applications. These costs are amortized by the
straight-line method from the commencement of operations over the life of the
Partnership's initial license period (ten years).
In connection with the purchase of license interests, the excess of purchase
price paid over the fair market value of tangible assets acquired is amortized
by the straight-line method over 40 years.
OTHER ASSETS
Other assets includes deferred consulting, legal and interconnection costs,
prepaid rent and the long-term portion of financing receivables. The deferred
costs are amortized on a straight-line basis over 3, 5 and 15 years. Prepaid
rent is charged to expense on a straight-line basis over the life of the various
leases.
S-44
<PAGE> 77
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Service revenue is recognized at the time the cellular service is rendered.
Telephone equipment sales are recorded when the equipment is shipped to the
customer. Telephone rental revenue is billed and recognized on a monthly basis.
INCOME TAXES
No provision has been made for federal income taxes since such taxes, if any,
are the responsibility of the individual partners. Provision has been made for
state and local income taxes assessed on partnership income which is a liability
of the Partnership.
ALLOCATION OF INCOME
Pursuant to the New Par Partnership Agreement, income is allocated to the
General Partners in proportion to their respective percentage ownership of New
Par.
FAIR VALUE OF FINANCIAL INSTRUMENTS
New Par's financial instruments consist primarily of cash and cash equivalents,
accounts receivable, financing receivables, due from affiliates, accounts
payable, accrued expenses, distribution payable to partners, due to affiliates,
property and other taxes payable, and commissions payable. The terms and short
term nature of these assets and liabilities result in their carrying value
approximating fair value.
RECLASSIFICATIONS
Certain of the 1994 amounts have been reclassified to conform to the 1995
presentation.
S-45
<PAGE> 78
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
3. LICENSE ACQUISITION COSTS
License acquisition costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------------------------
<S> <C> <C>
Deferred cellular license costs $ 3,418,000 $ 3,418,000
Excess of purchase price paid over the fair
market value of tangible assets acquired 499,699,000 430,938,000
------------------------------
503,117,000 434,356,000
Accumulated amortization 89,968,000 78,322,000
------------------------------
$413,149,000 $356,034,000
==============================
</TABLE>
In July 1995, New Par acquired the operating and cellular system assets of the
Ohio 6 Rural Service Area for $75,080,000 including expenses. The AirTouch Group
and the CCI Group each contributed $33,000,000 in connection with this
acquisition. The acquisition has been accounted for as a purchase and,
accordingly, the net assets and results of operations of the Ohio 6 RSA have
been included in the consolidated financial statements from the date of
acquisition. The excess of the purchase price paid over the fair market value of
the tangible assets acquired of $68,761,000 has been classified as license
acquisition costs.
The unaudited pro forma consolidated results of operations for the years ended
December 31, 1995 and 1994 assuming this acquisition occurred as of January 1,
1994, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------------
<S> <C> <C>
Total revenues $761,619,000 $582,321,000
Net income 202,596,000 115,923,000
</TABLE>
In 1994, New Par wrote-off $152,000 of fully amortized costs and paid $100,000
in connection with its interim operating authority from the FCC for two Ohio
Rural Service Areas.
S-46
<PAGE> 79
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
3. LICENSE ACQUISITION COSTS (CONTINUED)
In August 1991, a subsidiary of CCI ("CCI RSA") acquired the Mercer, Ohio FCC
license. This license was contributed to one of the General Partnerships in
accordance with the New Par Partnership Agreement. The contribution was
initially recorded at CCI RSA's cost through December 31, 1991 of $1,315,000.
During 1993, CCI RSA incurred an additional $19,575,000 upon the receipt of a
favorable determination with respect to certain FCC matters. The additional cost
was recorded as a contribution in 1993.
In 1993, a subsidiary of CCI contributed the Ashtabula, Ohio FCC license and the
related assets and liabilities to one of the General Partnerships in accordance
with the New Par Partnership Agreement. The contribution was recorded at
$10,139,000, of which $8,632,000 was for the FCC license and $1,507,000 was for
other assets, net of liabilities.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------------
<S> <C> <C>
Land $ 11,249,000 $ 10,062,000
Building 14,325,000 13,721,000
Operating plant and equipment 521,033,000 394,903,000
Rental telephones 60,572,000 85,008,000
Office furniture, computer and other equipment 105,358,000 79,654,000
Construction-in-progress 31,137,000 14,207,000
-----------------------------
743,674,000 597,555,000
Allowance for depreciation 279,602,000 244,935,000
Allowance for unreturned rental telephones 195,000 402,000
-----------------------------
$463,877,000 $352,218,000
=============================
</TABLE>
5. FINANCING RECEIVABLES
New Par provides financing for the purchase of cellular telephones by its
customers in the form of noninterest bearing, 12 and 24 month installment
contracts. Financing receivables are recorded net of a discount which is
calculated based on an imputed interest rate of prime plus 1% at inception. The
effective interest rate as of December 31, 1995 and 1994 was 9.5%.
S-47
<PAGE> 80
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
5. FINANCING RECEIVABLES (CONTINUED)
Financing receivables consists of the following:
<TABLE>
<CAPTION>
December 31
1995 1994
-------------------------
<S> <C> <C>
Financing receivables $25,410,000 $22,110,000
Less: unamortized discount 2,220,000 621,000
Less: allowance for doubtful accounts 897,000 715,000
-------------------------
Total current 22,293,000 20,774,000
Financing receivables 15,071,000 13,139,000
Less: unamortized discount 1,058,000 621,000
Less: allowance for doubtful accounts 532,000 631,000
-------------------------
Total noncurrent 13,481,000 11,887,000
-------------------------
$35,774,000 $32,661,000
=========================
</TABLE>
6. RELATED PARTY TRANSACTIONS
Due from affiliates consists of the following:
<TABLE>
<CAPTION>
December 31
1995 1994
---------------------
<S> <C> <C>
CCI and subsidiaries $ 6,000 $ --
CCPR Services, Inc. 4,000 8,000
Cellular Communications International, Inc. -- 3,000
International CableTel Incorporated 5,000 3,000
---------------------
$15,000 $14,000
=====================
</TABLE>
Due to affiliates consists of the following:
<TABLE>
<CAPTION>
December 31
1995 1994
------------------------
<S> <C> <C>
AirTouch and affiliates $1,660,000 $851,000
CCI and subsidiaries -- 184,000
OCOM Corporation 114,000 191,000
------------------------
$1,774,000 $1,226,000
========================
</TABLE>
S-48
<PAGE> 81
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Pursuant to the New Par Partnership Agreement, the CCI Group is responsible for
appointing and employing New Par's chief executive officer and half of the next
level executives and the AirTouch Group is responsible for appointing and
employing the other half of the next level executives. For the year ended
December 31, 1995, New Par was charged $1,231,000 and $1,205,000 for payroll and
benefits by AirTouch affiliates and CCI, respectively, of which $232,000 and
$2,204,000 are included in operating expenses and selling, general and
administrative expenses, respectively. For the year ended December 31, 1994, New
Par was charged $1,215,000 and $1,099,000 for payroll and benefits by AirTouch
affiliates and CCI, respectively, of which $228,000 and $2,086,000 are included
in operating expenses and selling, general and administrative expenses,
respectively. For the year ended December 31, 1993, New Par was charged $779,000
and $816,000 for payroll and benefits by AirTouch affiliates and CCI,
respectively, of which $176,000 and $1,419,000 are included in operating
expenses and selling, general and administrative expenses, respectively.
In connection with the Merger Agreement, CCI distributed its wholly-owned
subsidiary OCOM Corporation ("OCOM") to its shareholders on July 31, 1991. OCOM
owns the long distance and microwave operations formerly owned by the
partnerships that CCI contributed to New Par. Most of CCI's officers and
directors are officers and directors of OCOM. New Par provides billing and
collection services to OCOM for the long distance telephone service OCOM sells
to certain of New Par's subscribers. OCOM operates the microwave transmission
service between the cell sites and switches contributed by CCI. For the years
ended December 31, 1995, 1994 and 1993, OCOM charged New Par $3,985,000,
$4,273,000, and $4,043,000, respectively, for microwave transmission services
which is included in operating expenses.
S-49
<PAGE> 82
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
7. LEASES
Leases for office space, sales and service centers and cell sites extend through
2039. Total rent expense for the years ended December 31, 1995, 1994 and 1993
under operating leases was $7,541,000, $6,786,000 and $5,608,000, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1996 $ 7,215,000
1997 6,554,000
1998 5,983,000
1999 5,361,000
2000 4,734,000
Thereafter 32,776,000
-----------
$62,623,000
===========
</TABLE>
8. DEFERRED COMPENSATION
In 1994, New Par granted stock appreciation rights to executives and certain
employees entitling them to receive cash in an amount equivalent to any excess
of the market value of a stated number of shares of AirTouch and CCI stock over
a stated grant price. The rights were granted at $24 per share for the AirTouch
shares and $44 per share for the CCI shares. The rights vest based on the
increase in the market value over the grant price. Vested rights may be
exercised for cash after August 6, 1996.
As of December 31, 1995, rights based on 154,000 shares of AirTouch and 154,000
shares of CCI were outstanding. Based on the December 31, 1995 market value of
AirTouch and CCI shares, the cash value of the rights in August 1996 would be
$760,000. New Par recognized $449,000 and $171,000 of compensation expense in
1995 and 1994, respectively, related to the stock appreciation rights.
S-50
<PAGE> 83
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
9. PENSION PLAN
New Par has a defined contribution plan covering all employees who have
completed six months of service and worked over 500 hours. New Par's matching
and discretionary contributions are determined annually. Participants can make
salary deferral contributions of 1% to 16% of annual compensation not to exceed
the maximum allowed by law. New Par's expense for the years ended December 31,
1995, 1994 and 1993 was $4,988,000, $3,352,000 and $3,186,000, respectively.
10. COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1995, New Par had purchase commitments of approximately
$52,696,000 primarily for operating equipment, computer equipment and cellular
telephones and accessories.
In June 1995, New Par extended through May 1996 a one year $5,000,000 unsecured
revolving credit agreement with a bank for working capital and any other proper
business purpose. New Par did not obtain funds under this agreement during 1995.
The terms of the agreement include a commitment fee of .25% per annum.
There are various legal proceedings pending against New Par in the ordinary
course of business. Management believes the aggregate liabilities, if any,
arising from such proceedings would not have a material adverse effect on New
Par's consolidated financial position.
11. AIRTOUCH AND CCI RELATIONSHIP
In December 1995, a subsidiary of CCI, Cellular Communications of Ohio, Inc.,
(the parent of the CCI Group) entered into a loan agreement which places certain
restrictions on New Par. These restrictions are as follows: (i) New Par's
indebtedness must be non-recourse to its partners, and (ii) New Par may not have
indebtedness outstanding that exceeds an aggregate of $20,000,000 at any one
time.
S-51
<PAGE> 84
New Par (A Partnership)
Notes to Consolidated Financial Statements (continued)
11. AIRTOUCH AND CCI RELATIONSHIP (CONTINUED)
Pursuant to the Merger Agreement, at specified times from August 1996 through
January 1998, AirTouch has the right to buy the shares of CCI it does not own at
an appraised value, subject to certain adjustments. If AirTouch does not
exercise this right, it will determine whether New Par should be dissolved or
AirTouch's interest in New Par and CCI should be sold as a whole. Upon such
determination, CCI must promptly commence a process to sell CCI, although in
lieu of any sales to a third party, CCI may purchase AirTouch's CCI shares and,
in certain circumstances, its interest in New Par at their appraised values. Any
decision by CCI to buy out AirTouch or any irrevocable election by CCI not to
effect a sale pursuant to the above sale process would require the approval of
CCI stockholders. In the event that either CCI or CCI's interest in New Par is
sold to a third party for less than the appraised value of CCI's interest in New
Par, AirTouch may be required to pay a "make-whole" amount, subject to certain
downward adjustments, to the other CCI stockholders.
12. PARTNERS' CAPITAL
New Par is required to make cash distributions of a portion of estimated federal
taxable income on a quarterly basis, subject to the amount of cash available
including cash borrowable by New Par. Such distributions shall be made to the
partners in proportion to their respective ownership percentages. As of December
31, 1995 and 1994, there was approximately $28,748,000 and $26,133,000,
respectively, payable to the partners for the estimated federal taxable income
distribution. During 1995, 1994 and 1993, New Par distributed $81,352,000,
$54,297,000 and $35,000,000, respectively, pursuant to this requirement. New Par
must also distribute the amount, if any, that exceeds 120% of the amount
required for estimated federal income tax distributions, plus cash reasonably
contemplated as being necessary for the cash payment of New Par's operating
expenses (net of receipts), debt service, contingencies, budgeted capital
expenditures and working capital requirements within 45 days after each quarter.
Such distributions are to be made to the partners in proportion to their
respective ownership percentages.
S-52
<PAGE> 85
New Par (A Partnership)
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------
Additions
------------------------
Charged
Balance at Charged to to Other Balance at
Beginning Costs and Accounts Deductions End of
Description of Period Expenses Describe Describe Period
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful
accounts receivable $5,265,000 $11,552,000 $ -- $ (8,629,000)(1) $8,188,000
===========================================================================
Allowance for doubtful
financing receivables $1,346,000 $ 552,000 $ -- $ (469,000)(2) $1,429,000
============================================================================
Allowance for unreturned
rental telephones $ 402,000 $ 163,000 $ -- $ (370,000)(2) $ 195,000
============================================================================
Year ended December 31, 1994:
Allowance for doubtful
accounts receivable $4,382,000 $15,890,000 $ -- $(15,007,000)(2) $5,265,000
============================================================================
Allowance for doubtful
financing receivables $ -- $ 1,346,000 $ -- $ -- $1,346,000
============================================================================
Allowance for unreturned
rental telephones $2,248,000 $ 142,000 $ -- $ (1,988,000)(2) $ 402,000
============================================================================
Year ended December 31, 1993:
Allowance for doubtful
accounts receivable $4,431,000 $16,877,000 $ -- $(16,926,000)(2) $4,382,000
============================================================================
Allowance for unreturned
rental telephones $ 701,000 $ 4,426,000 $ -- $ (2,879,000)(2) $2,248,000
============================================================================
</TABLE>
(1) Uncollectible accounts written off, net of recoveries and $13,000
allowance for doubtful accounts as of acquisition date of the Ohio 6 Rural
Service Area assets acquired.
(2) Uncollectible accounts written off, net of recoveries.
S-53
<PAGE> 86
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the Commission, are
incorporated by reference as exhibits hereto.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on September 19,
1994 (Exhibit 3.i to the Company's Form 8-K - Date of Report:
December 15, 1994, File No. 1-12342)
3.2 Designation, Preferences and Rights of Series A Participating
Preferred Stock of the Company, as filed with the Secretary of
State of the State of Delaware on December 15, 1994 (Exhibit
3.2 to the Company's Form 8-B, File No. 1-12342, filed January
27, 1995)
3.3 Amended By-laws of the Company as of February 8, 1996
4.1 Form of Common Stock certificate (Exhibit 4.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994, File No. 1-12342))
4.2 Rights Agreement between the Company and The Bank of New York,
Rights Agent, dated as of September 19, 1994 (Exhibit 4 to the
Company's Current Report on Form 8-K - Date of Report:
December 15, 1994, File No. 1-12342)
10.1 Joint Venture Agreement between Mannesmann Kienzle GmbH,
Pacific Telesis Netherlands B.V., Cable and Wireless plc, DG
Bank Deutsch Genossenschaftsbank and Lyonnaise des Eaux SA
dated June 30, 1989 (Exhibit 10.43 to the Company's
Registration Statement on Form S-1, Registration No. 33-68012,
filed August 27, 1993)
10.2 Amended and Restated Plan of Merger and Joint Venture
Organization by and among the Company, CCI, CCI Newco, Inc.
and CCI Newco Sub, Inc. dated as of December 14, 1990 (Exhibit
1 to the Company's Statement on Schedule 13D filed on February
18, 1992, File No. 1-12342)
10.3 Termination Agreement by and among Pacific Telesis Group, the
Company, CCI and Cellular Communications of Ohio, Inc. dated
December 11, 1992 (Exhibit 5 to Amendment No. 28 to the
Company's Statement on Schedule 13D filed on December 12,
1992, File No. 1-12342)
10.4 Separation Agreement by and between the Company and Pacific
Telesis Group, dated as of October 7, 1993 (Exhibit 10.1 to
the Company's Registration Statement on Form S-1, Registration
No. 33-68012, filed August 27, 1993)
10.5 Amendment No. 1 to Separation Agreement between the Company
and Pacific Telesis Group, dated November 2, 1993 (Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1993, File No. 1-12342)
10.6 Amendment No. 2 to Separation Agreement between the Company
and Pacific Telesis Group, dated as of March 25, 1994 (Exhibit
10.6 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1994, File No. 1-12342)
10.7 Amendment No. 3 to Separation Agreement between the Company
and Pacific Telesis Group, dated as of April 1, 1994 (Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1994, File No. 1-12342)
10.8 Amendment No. 4 to Separation Agreement between the Company
and Pacific Telesis Group dated as of March 21, 1995
10.9 Agreement on Retirement and Relocation Benefits between Mr.
Christensen and the Company, dated as of March 31, 1994
(Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the period ended December 31, 1994, File No. 1-12342)
<PAGE> 87
10.10 Amended and Restated Joint Venture Organization Agreement
dated as of September 30, 1995 between the Company and U S
WEST Inc. (Exhibit 2.1 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1995, File No.
1-12342)
10.11 Amended and Restated Agreement of Limited Partnership of WMC
Partners, L.P. dated as of September 30, 1995 by and between
the Company and U S WEST Inc. (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1995, File No. 1-12342)
10.12 Amended and Restated Agreement of Limited Partnership of PCS
Nucleus, L. P. dated as of September 30, 1995 by and between
the Company and U S WEST Inc. (Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1995, File No. 1-12342)
10.13 Amended and Restated Investment Agreement dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No.
1-12342)
10.14 Amended and Restated Agreement of Exchange dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No.
1-12342)
10.15 Amended and Restated Trust Agreement of Exchange dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No.
1-12342)
10.16 Agreement of Limited Partnership dated as of October 20, 1994
between CELLCO Partnership and WMC Partners, L.P. (Exhibit
10.1 to the Company's Form 8-K - Date of Report: October 20,
1994, File No. 1-12342)
10.17 Agreement of Limited Partnership dated as of October 20, 1994
of PCS PrimeCo, L.P. (Exhibit 10.2 to the Company's Form 8-K -
Date of Report: October 20, 1994, File No. 1-12342)
10.18 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications, Inc. and Bell Atlantic Corporation
(Exhibit 10.3 to the Company's Form 8-K - Date of Report:
October 20, 1994, File No. 1-12342)
10.19 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications and NYNEX Corporation (Exhibit 10.4 to
the Company's Form 8-K - Date of Report: October 20, 1994,
File No. 1-12342)
10.20 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications and CELLCO Partnership (Exhibit 10.5
to the Company's Form 8-K - Date of Report: October 20, 1994,
File No. 1-12342)
10.21 Credit Agreement between the Company, Bank of America National
Trust and Savings Association and The Other Financial
Institutions Party Thereto dated July 20, 1995 (Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1995, File No. 1-12342)
10.22 Amended and Restated Partnership Agreement dated as of
September 1, 1993 by and between Members of the PacTel Group
and Members of the McCaw Group (Exhibit 28(a) to McCaw
Cellular Communications, Inc. Current Report on Form 8-K for
the period ended October 1, 1991, File No. 0-16051)
10.23 Representative Employment Agreement for Messrs. Ginn, Cox,
Sarin and Gyani and Mrs. Gill (Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the period ended December 31,
1994, File No. 1-12342)
10.24 Representative Employment Agreement for other officers of the
Company (Exhibit 10.23 to the Company's Annual Report on Form
10-K for the period ended December 31, 1994)
10.25 Form of Indemnity Agreement between the Company and each of
its directors and certain officers (Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1994, File No. 1-12342)
10.26 Trust Agreement No. 1 for AirTouch Communications, Inc.
Supplemental Executive Pension Plan Benefits (Exhibit 10.25 to
the Company's Annual Report on Form 10-K for the period ended
December 31, 1994, File No. 1-12342)
<PAGE> 88
10.27 AirTouch Communications, Inc. Deferred Compensation Plan
(Exhibit 10.26 to the Company's Form 10-K for the period
ended December 31, 1994, File No. 1-12342)
10.28 AirTouch Communications, Inc. Deferred Compensation Plan for
Nonemployee Directors (Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the period ended December 31, 1993,
File No. 1-12342)
10.29 AirTouch Communications, Inc. Supplemental Executive Pension
Plan (Exhibit 10.12 to the Company's Annual Report on Form
10-K for the period ended December 31, 1993, File No. 1-12342)
10.30 AirTouch Communications, Inc. Executive Life Insurance Plan
(Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the period ended December 31, 1993, File No. 1-12342)
10.31 AirTouch Communications, Inc. Executive Long-Term Disability
Plan (Exhibit 10.14 to the Company's Annual Report on Form
10-K for the period ended December 31, 1994, File No. 1-12342)
10.32 Description of the Company's Business Travel Accident
Insurance for Non-Employee Directors (Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1994, File No. 1-12342)
10.33 AirTouch Communications, Inc. 1993 Long Term Stock Incentive
Plan Amended and Restated as of December 15, 1994
10.34 Description of the Executive Financial Counseling Program
13 1995 Annual Report to Security Holders - Financial Section
21 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Coopers & Lybrand LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of KPMG Deutsche Treuhand-Gesellschaft
23.5 Consent of Coopers & Lybrand LLP - Re: CMT Partners
23.6 Consent of Ernst & Young LLP - Re: New Par
24 Power of Attorney
27 Financial Data Schedule
99.1 The Company's Current Report on Form 8-K: Date of Report: June
30, 1995, File No. 1-12342
99.2 Coopers & Lybrand LLP Report of Independent Accountants on the
Company's consolidated financial statements for each of the
two years in the period ended December 31, 1994
99.3 Annual Report on Form 11-K for the AirTouch Communications,
Inc. Retirement Plan for the year 1995 (To be filed as an
amendment hereto within 180 days of the end of the period
covered by this report)
99.4 Cellular Communications, Inc. financial statements for each of
the three years in the period ended December 31, 1995
(Cellular Communications, Inc. Annual Report on Form 10-K for
the period ended December 31, 1995, Item 8 and Item 14(a) and
(d), File No. 1-10789)
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BY-LAWS
OF
AIRTOUCH COMMUNICATIONS, INC.
(as of February 8, 1996)
ARTICLE I
Principal Office
Section 1. The principal executive office for the transaction of the
business of the Corporation is hereby fixed and located at One California
Street, San Francisco, California 94111. The board of directors may change said
principal executive office from one location to another.
ARTICLE II
Meetings of Stockholders
Section 1. All meetings of the stockholders shall be held at any place
within or without the State of California which may be designated by the board
of directors. In the absence of any such designation, stockholders' meetings
shall be held at the principal executive office of the Corporation.
Section 2. The annual meeting of the stockholders of the Corporation
shall be held on such date and at such time as shall be determined by the board
of directors (but not more than 13 months after the date of the preceding annual
meeting). At such meeting, directors shall be elected and any other proper
business may be transacted which is within the powers of the stockholders.
Written notice of each annual meeting shall be given to each stockholder
entitled to vote either personally or by United States mail or other means of
written communication (which includes, without limitation and wherever used in
these By-Laws, telegraphic and facsimile communication), charges prepaid,
addressed to each stockholder at the address appearing on the books of the
Corporation, or given by the stockholder to the Corporation for the purpose of
notice.
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All such notices shall be given to each stockholder entitled thereto not
less than 10 days nor more than 60 days before each annual meeting, except as
otherwise required by law. Any such notice shall be deemed to have been given at
the time when delivered personally or deposited in the United States mail or
delivered to a common carrier for transmission to the recipient or actually
transmitted by the person giving the notice by electronic means to the recipient
or sent by other means of written communication.
Such notices shall state:
(a) the place, date and hour of the meeting;
(b) those matters which the board, at the time of the mailing of
the notice, intends to present for action by the stockholders;
(c) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by management for
election; and
(d) such other matters, if any, as may be expressly required by
law.
Section 3. Special meetings of the stockholders for the purpose of
taking any action permitted to be taken by the stockholders under the General
Corporation Law of the State of Delaware and the certificate of incorporation of
this Corporation, may be called only by the chairman of the board, the chief
executive officer or the president, or by any executive vice president, senior
vice president or vice president, or by the board of directors.
Upon request in writing delivered either in person or by registered or
certified mail, return receipt requested, to the chairman, chief executive
officer, president or secretary by any person entitled to call a special meeting
of stockholders, it shall be the duty of such chairman, chief executive officer,
president or secretary forthwith to cause to be given to the stockholders
entitled thereto notice of such meeting to be held on a date not less than 20
nor more than 90 days after the receipt of such request, as such officer may
fix. If such notice is not given within 40 days after the delivery of or mailing
of such request, the persons calling the meeting may fix the time of meeting and
give notice thereof as in the manner hereinafter provided, or cause such notice
to be given by any designated representative.
Except where express provision is made by statute, notice of such
special meetings shall be given in the same manner and contain the same
statements as required for annual meetings of stockholders. Notice of any
special meeting shall also specify the
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purpose or purposes of such meeting and no other business may be transacted at
such meeting.
Section 4. The presence in person or by proxy of the holders of a
majority in voting power of the outstanding shares of stock entitled to vote at
the meeting shall constitute a quorum for the transaction of business. The
stockholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum. In the absence of a quorum, any meeting of
stockholders may be adjourned from time to time by the vote of a majority in
voting power of the outstanding shares represented at the meeting either in
person or by proxy, but no other business may be transacted except as provided
in the preceding sentence.
Section 5. In any election of directors, the candidates receiving the
highest number of votes of the shares entitled to be voted for them up to the
number of directors to be elected by such shares are elected.
Section 6. To be properly brought before the annual meeting, business
must be either (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a stockholder
of record. In addition to any other applicable requirements, for business to be
properly brought before the annual meeting by a stockholder, the stockholder
must have given timely notice in writing to the Secretary of the Corporation of
the stockholder's intention to bring such business before the meeting. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, addressed to the attention
of the Secretary of the Corporation, within the time specified in the federal
proxy rules for timely submission of a stockholder proposal for inclusion of
such proposal in the proxy statement of the Corporation or, if not within such
time, then not less than 75 days prior to the meeting provided, however, that in
the event that less than 90 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received by the earlier of (a) the close of business on the
15th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made, whichever first occurs,
and (b) two days prior to the date of the meeting. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual
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meeting, (ii) the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business. Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 6; provided, however,
that nothing in this Section 6 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual meeting.
The Chairman of the board of directors shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 6, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 7. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors. Nominations of
persons for election to the board of directors at the annual meeting, by or at
the direction of the board of directors, may be made by any Nominating Committee
or person appointed by the board of directors; nominations may also be made at
the annual meeting by any stockholder of record of the Corporation entitled to
vote for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 7. Such nominations, other than those made
by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation of such
stockholder's intention to make such nomination at the meeting. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation addressed to the attention of the
Secretary of the Corporation not less than 75 days prior to the meeting;
provided, however, that, in the case of an annual meeting and in the event that
less than 90 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the earlier of (a) the close of business on the 15th
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs, or (b) two days
prior to the date of the meeting. Such stockholder's notice to the Secretary
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or employment
of the person, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the person, (iv) a statement as to
the person's citizenship, and (b) as to the
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stockholder giving the notice, (i) the name and record address of the
stockholder and (ii) the class, series and number of shares of capital stock of
the Corporation which are beneficially owned by the stockholder. The Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed nominee to serve as director of the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein.
In connection with any annual meeting, the Chairman of the board of
directors shall, if the facts warrant, determine and declare to the meeting that
a nomination was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
ARTICLE III
Board of Directors
Section 1. Subject to the provisions of the General Corporation Law of
the State of Delaware and any limitations in the certificate of incorporation
and these By-Laws as to action to be authorized or approved by the stockholders,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the board of directors shall have the
following powers:
First: To conduct, manage and control the affairs and business
of the Corporation and to make such rules and regulations therefor,
not inconsistent with law or with the articles of incorporation or with
the By-Laws, as they may deem best;
Second: To elect and remove at pleasure the officers, agents
and employees of the Corporation, prescribe their duties and fix their
compensation;
Third: To authorize the issue of shares of stock of the
Corporation from time to time upon such terms as may be lawful;
Fourth: To borrow money and incur indebtedness for the purposes
of the Corporation and to cause to be executed and delivered therefor,
in the
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corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and
securities therefor; and
Fifth: To alter, repeal or amend, from time to time, and at any
time, these By-Laws and any and all amendments of the same, and from
time to time, and at any time, to make and adopt such new and additional
By-Laws as may be necessary and proper, subject to the power of the
stockholders to adopt, amend or repeal such By-Laws, or to revoke the
delegation of authority of the directors, as provided by law or by
Article VI of these By-Laws.
ARTICLE IV
Meetings of Directors
Section 1. Regular meetings of the board of directors shall be held at
any place within or without the State of California that has been designated
from time to time by the board of directors. In the absence of such designation,
regular meetings shall be held at the principal executive office of the
Corporation, except as provided in Section 2 of this Article. Special meetings
of the board of directors may be held at any place within or without the State
of California which has been designated in the notice of the meeting, or, if not
designated in the notice or if there is no notice, at the principal executive
office of the Corporation.
Section 2. Immediately following each annual meeting of the stockholders
there shall be a regular meeting of the board of directors of the Corporation at
the place of said annual meeting or at such other place as shall have been
designated by the board of directors for the purpose of organization, election
of officers and the transaction of other business. Other regular meetings of the
board of directors shall be held without call on such date and time as may be
fixed by the board of directors; provided, however, that should any such day
fall on a legal holiday, then said meeting shall be held at the same time on the
next business day thereafter ensuing which is not a legal holiday. Notice of
regular meetings of the directors is hereby dispensed with and no notice
whatever of any such meeting need be given, provided that notice of any change
in the time or place of regular meetings shall be given to all of the directors
in the same manner as notice for special meetings of the board of directors.
Section 3. Special meetings of the board of directors for any purpose or
purposes may be called at any time by the chairman of the board, chief executive
officer or president or, if the chairman of the board, chief executive officer
and the president are
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all absent or are unable or refuse to act, by any two directors. Notice of the
time and place of special meetings shall be delivered personally or by telephone
to each director, or sent by first-class mail or telegram or facsimile
transmission, charges prepaid, addressed to him or her at his or her home or
office address as they appear upon the records of the Corporation or, if not so
shown on the records and not readily ascertainable, at the place at which the
meetings of the directors are regularly held. In case such notice is mailed, it
shall be deposited in the United States mail at least four days prior to the
time of the holding of the meeting. In case such notice is telegraphed or sent
by facsimile transmission, it shall be delivered to a common carrier for
transmission to the director or actually transmitted by the person giving the
notice by electronic means to the director at least 48 hours prior to the time
of the holding of the meeting. In case such notice is delivered personally or by
telephone as above provided, it shall be so delivered at least eight hours prior
to the time of the holding of the meeting. Any notice given personally, by
facsimile or by telephone may be communicated to either the director or to a
person at the office of the director whom the person giving the notice has
reason to believe will promptly communicate it to the director. Such deposit in
the mail, delivery to a common carrier, transmission by electronic means or
delivery, personally or by telephone, as above provided, shall be due, legal and
personal notice to such directors. The notice need not specify the place of the
meeting if the meeting is to be held at the principal executive office of the
Corporation, and need not specify the purpose of the meeting.
Section 4. Presence of a majority of the then authorized number of
directors at a meeting of the board of directors constitutes a quorum for the
transaction of business, except as hereinafter provided. Members of the board
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors,
provided that any action taken is approved by at least a majority of the
required quorum for such meeting. A majority of the directors present, whether
or not a quorum is present, may adjourn any meeting to another time and place.
If the meeting is adjourned for more than 24 hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
Section 5. Notice of a meeting need not be given to any director who
signs a waiver of notice or consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice to
such director. All such waivers,
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consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 6. Any action required or permitted to be taken by the board of
directors may be taken without a meeting if all members of the board shall
individually or collectively consent in writing to such action, and such written
consent or consents shall be filed with the minutes of the proceedings of the
board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
Section 7. The provisions of this Article IV shall also apply, with
necessary changes in points of detail, to committees of the board of directors,
if any, and to actions by such committees (except (i) for the first sentence of
Section 2 of this Article IV, which shall not apply, (ii) that special meetings
of a committee may also be called at any time by any member of the committee and
(iii) that any committee may by resolution adopt provisions governing notice of
committee meetings that are different from the provisions of Section 3 of this
Article IV), unless otherwise provided by these By-Laws or by the resolution of
the board of directors designating such committees. For such purpose, references
to "the board" or "the board of directors" shall be deemed to refer to each such
committee and references to "directors" or "members of the board" shall be
deemed to refer to members of the committee. Committees of the board of
directors may be designated, and shall be subject to the limitations on their
authority, as provided in Section 141(c) of the General Corporation Law of the
State of Delaware. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
ARTICLE V
Officers
Section 1. The officers of the Corporation shall be a chairman of the
board, chief executive officer or a president, or all of the foregoing, a
secretary, a chief financial officer and a treasurer. The Corporation may also
have, at the discretion of the board of directors, one or more executive vice
presidents, senior vice presidents and vice presidents, a general counsel, a
treasurer, one or more assistant secretaries, one or more assistant treasurers,
and such other officers as may be designated from time to time by the board of
directors. Any number of offices may be held by the same person. The officers
shall be elected by the board of directors and shall hold office at the pleasure
of such board.
Chairman of the Board
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Section 2. The chairman of the board, if there be such officer, shall,
if present, preside at all meetings of the board of directors and exercise and
perform such other powers and duties as may be from time to time assigned to him
or her by the board of directors or prescribed by the By-Laws. If there is not a
chief executive officer, the chairman of the board shall, in addition, be the
general manager and chief executive officer of the Corporation and shall have
the powers and duties prescribed in Section 4 of Article V of these By-Laws.
Vice Chairman of the Board
Section 3. Each Vice Chairman of the Board of Directors, if any, shall
perform such duties as may from time to time be delegated to him by the Chairman
of the Board or as may be assigned by the Board of Directors.
Chief Executive Officer
Section 4. Subject to such powers and duties, if any, as may be
prescribed by these By-Laws or the board of directors for the chairman of the
board, if there be such officer, the chief executive officer shall, subject to
the control of the board of directors, have general supervision, direction and
control of the business and officers of the Corporation. He or she shall preside
at all meetings of the stockholders and, in the absence of the chairman of the
board, or if there be none, at all meetings of the board of directors. He or she
shall have all the powers and shall perform all of the duties which are
ordinarily inherent in the office of chief executive officer of a Corporation,
and he or she shall have such further powers and shall perform such further
duties as may be prescribed for him or her by the board of directors.
President
Section 5. In the absence or disability of the chief executive officer,
or if there be none, the president shall perform all of the duties of the chief
executive officer, and when so acting shall have all of the powers of and be
subject to all of the restrictions upon the chief executive officer. The
president shall have such other duties as from time to time may be prescribed
for him by the board of directors.
Executive Vice Presidents, Senior Vice Presidents and Vice Presidents
Section 6. In the absence or disability or refusal to act of the
president, the executive vice presidents, senior vice presidents and vice
presidents in order of their
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rank as fixed by the board of directors or, if not ranked, the executive vice
president, senior vice president or vice president designated by the president
or the board of directors, shall perform all of the duties of the president and
when so acting shall have all the powers of and be subject to all the
restrictions upon the president. The executive vice presidents, senior vice
presidents and vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them, respectively, by
the board of directors or the By-Laws.
Secretary
Section 7. The secretary shall keep or cause to be kept at the principal
executive office of the Corporation or such other place as the board of
directors may order, a book of minutes of all proceedings of the stockholders,
the board of directors and committees of the board, with the time and place of
holding, whether regular or special, and if special how authorized, the notice
thereof given, the names of those present at directors' and committee meetings,
and the number of shares present or represented at stockholders' meetings. The
secretary shall keep or cause to be kept at the principal executive office or at
the office of the Corporation's transfer agent a record of stockholders or a
duplicate record of stockholders showing the names of the stockholders and their
addresses, the number of shares and classes of shares held by each, the number
and date of certificates issued for the same and the number and date of
cancellation of every certificate surrendered for cancellation. The secretary or
an assistant secretary or, if they are absent or unable or refuse to act, any
other officer of the Corporation, shall give or cause to be given notice of all
the meetings of the stockholders, the board of directors and committees of the
board required by the By-Laws or by law to be given, and he or she shall keep
the seal of the Corporation, if any, in safe custody and shall have such other
powers and perform such other duties as may be prescribed by the board of
directors or by the By-Laws.
Assistant Secretaries
Section 8. It shall be the duty of the assistant secretaries to assist
the secretary in the performance of his or her duties and generally to perform
such other duties as may be delegated to them by the board of directors.
Chief Financial Officer
Section 9. The chief financial officer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of account of
the Corporation. He or she shall receive and deposit all moneys and other
valuables belonging to the
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Corporation in the name and to the credit of the Corporation and shall disburse
the same only in such manner as the board of directors or the appropriate
officers of the Corporation may from time to time determine, shall render to the
chief executive officer and the board of directors, whenever they request it, an
account of all his or her transactions as chief financial officer and of the
financial condition of the Corporation, and shall perform such further duties as
the board of directors may require.
Treasurer and Assistant Treasurers
Section 10. The treasurer of the Corporation shall have such duties as
may be specified by the chief financial officer to assist the chief financial
officer in the performance of his or her duties. It shall be the duty of the
assistant treasurers to assist the treasurer in the performance of his or her
duties and generally to perform such other duties as may be delegated to them by
the board of directors.
General Counsel
Section 11. In the absence or disability or refusal to act of the senior
vice president-legal (if any), the general counsel shall perform all of the
duties of the senior vice president-legal and when so acting shall have all of
the powers of and be subject to all of the restrictions upon the senior vice
president-legal. The general counsel shall have such other powers and perform
such other duties as from time to time may be prescribed for him or her by the
board of directors, the By-Laws, or the senior vice president-legal (if any).
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ARTICLE VI
Amendments
Section 1. New By-Laws may be adopted, or these By-Laws may be amended
or repealed, by the affirmative vote of the holders of shares representing as
least 66-2/3% of the combined voting power of the outstanding shares of capital
stock of the Corporation entitled to vote, except as otherwise provided by law
or by the certificate of incorporation or these By-Laws.
Section 2. Subject to the right of stockholders as provided in Section 1
of this Article to adopt, amend or repeal By-Laws, and except as otherwise
provided by law or by the certificate of incorporation, By-Laws, other than a
by-law or amendment thereof changing the authorized maximum or minimum number of
directors, may be adopted, amended or repealed by the affirmative vote of at
least 66-2/3% of the directors of the Corporation then in office, which shall
include the affirmative vote of at least one director of each class of the board
of directors if the board shall then be divided into classes.
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EXHIBIT 10.8
AMENDMENT NO. 4
TO
SEPARATION AGREEMENT
THIS AMENDMENT NO. 4, dated March 21, 1995, is between PACIFIC TELESIS GROUP
("Telesis") and AIRTOUCH COMMUNICATIONS, INC. on behalf of itself and on behalf
of AIRTOUCH COMMUNICATIONS OF CALIFORNIA ("PacTel").
WHEREAS, there is currently in full force and effect between the Parties a
Separation Agreement, effective October 7, 1993, as modified by Amendments No.
1 dated November 2, 1993, No. 2 dated March 25, 1994 and No. 3 dated April 1,
1994 (the "Agreement"); and
WHEREAS, the Parties wish to make certain additional clarifications to the
Agreement;
THEREFORE, the Parties agree that the Agreement is hereby amended as follows:
1. Section 5.4.c of Appendix C (Intellectual Property) is amended to read as
follows:
"c. The license term of the Licensed Marks will expire two years after
the Separation Date. If PacTel adopts the New Name prior to two years
after the Separation Date, then until September 1, 1995 and except as
provided below, PacTel will be permitted to use the tagline "the new
name for PacTel" in connection with the New Name. PacTel will cease all
use of the word "PacTel" in taglines as of 12:01 a.m. on September 1,
1995.
Notwithstanding the above, PacTel agrees to cease using the tagline
"the new name for PacTel", as of 12:01 a.m. on April 15, 1995, in
connection with the following:
<PAGE> 2
(1) All advertising including, but not limited to, print, radio,
television, any electronic media (including, but not limited to, online
services), outdoor and direct mail, but excluding collateral and
product packaging; provided, however, that PacTel shall change its
yellow pages advertising and other such advertising that can only be
changed annually at the first available opportunity after April 15,
1995;
(2) all correspondence, including letterhead, envelopes and business
cards, reports, filings, newsletters, brochures, presentation
materials, fax cover sheets and other communications sent to the
financial community including, but not limited to, brokers, analysts
and portfolio managers, individual investors and regulatory agencies;
and
(3) all communications with shareowners including, but not limited to,
quarterly and annual reports, proxy statements, correspondence and the
like.
The parties agree that PacTel shall cease using the tagline "the new
name for PacTel" in connection with collateral and product packaging as
of 12:01 a.m. on September 1, 1995.
Nothing in this provision shall require PacTel to recover leased
equipment from customers in order to remove the Licensed Marks provided
that PacTel uses reasonable measures to remove the Licensed Marks
before leased equipment is re-leased by PacTel to PacTel's lease
customers after PacTel has adopted its New Name."
2. PacTel shall use its best efforts to comply with the terms of this Amendment
No. 4, it being understood that isolated, inadvertent uses after the above dates
of documents, such as a piece of letterhead containing the tagline, shall not
constitiute a breach of this Amendment No. 4 or the Agreement.
3. Except as expressly amended by this Amendment No. 4, the provisions of the
Agreement shall continue in full force and effect.
(Signature page follows)
<PAGE> 3
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 4 to be executed
PACIFIC TELESIS GROUP AIRTOUCH COMMUNICATIONS, INC.
on behalf of itself and on behalf of
AIRTOUCH COMMUNICATIONS OF
CALIFORNIA
By: /s/ Phil Quigley By: /s/ Sam Ginn
-------------------------- ---------------------------
Title: Chairman, President Title: Chairman of the Board and CEO
and CEO
Date Signed: March 29, 1995 Date Signed: March , 1995
<PAGE> 1
EXHIBIT 10.33
AIRTOUCH COMMUNICATIONS, INC.
1993 LONG-TERM STOCK INCENTIVE PLAN
(Second Amendment and Restatement Effective as of December 15, 1994)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1. INTRODUCTION............................................. 1
ARTICLE 2. ADMINISTRATION........................................... 1
2.1 Committee Composition......................................... 1
2.2 Committee Responsibilities.................................... 2
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.............................. 2
3.1 Basic Limitation.............................................. 2
3.2 Additional Shares............................................. 2
3.3 Dividend Equivalents.......................................... 2
ARTICLE 4. ELIGIBILITY.............................................. 2
4.1 General Rules................................................. 2
4.2 Outside Directors............................................. 2
4.3 Incentive Stock Options....................................... 3
4.4 Grants Related to Spin-Off.................................... 3
ARTICLE 5. OPTIONS.................................................. 4
5.1 Stock Option Agreement........................................ 4
5.2 Number of Shares.............................................. 4
5.3 Exercise Price................................................ 4
5.4 Exercisability and Term....................................... 4
5.5 Effect of Change in Control................................... 5
5.6 Modification or Assumption of Options......................... 5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6. PAYMENT FOR OPTION SHARES.............................. 5
6.1 General Rule................................................ 5
6.2 Surrender of Stock.......................................... 5
6.3 Exercise/Sale............................................... 5
6.4 Exercise/Pledge............................................. 5
6.5 Promissory Note............................................. 6
6.6 Other Forms of Payment...................................... 6
ARTICLE 7. STOCK APPRECIATION RIGHTS.............................. 6
7.1 SAR Agreement............................................... 6
7.2 Number of Shares............................................ 6
7.3 Exercise Price.............................................. 6
7.4 Exercisability and Term..................................... 6
7.5 Effect of Change in Control................................. 6
7.6 Exercise of SARs............................................ 7
7.7 Modification or Assumption of SARs.......................... 7
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS...................... 7
8.1 Time, Amount and Form of Awards............................. 7
8.2 Payment for Awards.......................................... 7
8.3 Vesting Conditions.......................................... 7
8.4 Form and Time of Settlement of Stock Units.................. 8
8.5 Death of Recipient.......................................... 8
8.6 Creditors' Rights............................................ 8
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 9. VOTING AND DIVIDEND RIGHTS............................. 8
9.1 Restricted Shares........................................... 8
9.2 Stock Units................................................. 8
ARTICLE 10. PROTECTION AGAINST DILUTION............................ 9
10.1 Adjustments................................................. 9
10.2 Reorganizations............................................. 9
ARTICLE 11. AWARDS UNDER OTHER PLANS............................... 9
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES............... 9
12.1 Effective Date.............................................. 9
12.2 Elections to Receive NSOs or Stock Units.................... 10
12.3 Number and Terms of NSOs.................................... 10
12.4 Number and Terms of Stock Units............................. 10
ARTICLE 13. LIMITATION ON RIGHTS................................... 10
13.1 Retention Rights............................................ 10
13.2 Stockholders' Rights........................................ 10
13.3 Regulatory Requirements..................................... 10
ARTICLE 14. LIMITATION ON PAYMENTS................................. 11
14.1 Basic Rule.................................................. 11
14.2 Reduction of Payments....................................... 11
14.3 Overpayments and Underpayments.............................. 11
14.4 Related Corporations........................................ 12
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 15. WITHHOLDING TAXES...................................... 12
15.1 General..................................................... 12
15.2 Share Withholding........................................... 12
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS....................... 12
16.1 General..................................................... 12
16.2 Trusts...................................................... 12
ARTICLE 17. FUTURE OF THE PLAN..................................... 13
17.1 Term of the Plan............................................ 13
17.2 Amendment or Termination.................................... 13
ARTICLE 18. DEFINITIONS............................................ 13
ARTICLE 19. EXECUTION.............................................. 17
</TABLE>
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AIRTOUCH COMMUNICATIONS, INC.
1993 LONG-TERM STOCK INCENTIVE PLAN
(Second Amendment and Restatement
Effective as of December 15, 1994)
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the board of directors of the Company's
predecessor on June 25, 1993, and most recently approved by the majority
stockholder of the Company's predecessor on February 16, 1994. The Plan was most
recently amended and restated on May 16, 1995, effective as of December 15,
1994.
The purpose of the Plan is to promote the long-term success of the
Company and the creation of stockholder value by (a) encouraging Key Employees
to focus on critical long-range objectives, (b) encouraging the attraction and
retention of Key Employees with exceptional qualifications and (c) linking Key
Employees directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, Options (which may constitute incentive stock
options or nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist of two or more disinterested directors of
the Company, who shall be appointed by the Board. A member of the Board shall be
deemed to be "disinterested" only if he or she satisfies (a) such requirements
as the Securities and Exchange Commission may establish for disinterested
administrators acting under plans intended to qualify for exemption under Rule
16b-3 (or its successor) under the Exchange Act and (b) such requirements as the
Internal Revenue Service may establish for outside directors acting under plans
intended to qualify for exemption under section 162(m)(4)(C) of the Code. An
Outside Director shall not fail to be "disinterested" solely because he or she
receives the NSO grants described in Section 4.2 or makes an election under
Article 12. The Board may also appoint one or more separate committees of the
Board, each composed of one or more directors of the Company who need not be
disinterested, who may administer the Plan with respect to Key Employees who are
not considered officers or directors of the Company under section 16 of the
Exchange Act, may grant Awards under the Plan to such Key Employees and may
determine all terms of such Awards.
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2.2 Committee Responsibilities. The Committee shall (a) select the Key
Employees who are to receive Awards under the Plan, (b) determine the type,
number, vesting requirements and other features and conditions of such Awards,
(c) interpret the Plan and (d) make all other decisions relating to the
operation of the Plan. The Committee may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Restricted Shares, Stock Units, Options and SARs awarded under the Plan shall
not exceed 24,000,000. The limitation of this Section 3.1 shall be subject to
adjustment pursuant to Article 10.
3.2 Additional Shares. If Stock Units, Options or SARs are forfeited or
if Options or SARs terminate for any other reason before being exercised, then
such Stock Units, Options or SARs shall again become available for Awards under
the Plan. If SARs are exercised, then only the number of Common Shares (if any)
actually issued in settlement of such SARs shall reduce the number available
under Section 3.1 and the balance shall again become available for Awards under
the Plan. If Restricted Shares are forfeited before any dividends have been paid
with respect to such Restricted Shares, then such Restricted Shares shall again
become available for Awards under the Plan.
3.3 Dividend Equivalents. Any dividend equivalents distributed under
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be eligible for
designation as Participants by the Committee. Key Employees who are Outside
Directors shall only be eligible for the grant of the NSOs described in Section
4.2 and for making an election described in Article 12.
4.2 Outside Directors. Any other provision of the Plan notwithstanding,
the participation of Outside Directors in the Plan shall be subject to the
following restrictions:
(a) Outside Directors shall receive no Awards except as described
in this Section 4.2 and Article 12.
(b) Each Outside Director who first becomes a member of the Board
on or after February 25, 1994, shall receive a one-time grant of an NSO
covering
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10,000 Common Shares (subject to adjustment under Article 10). Such NSO
shall be granted on the date when such Outside Director first joins the
Board.
(c) Upon the conclusion of each regular annual meeting of the
Company's stockholders in 1995 and subsequent years, each Outside
Director who will continue serving as a member of the Board after such
meeting shall receive an NSO covering 1,000 Common Shares (subject to
adjustment under Article 10). The foregoing notwithstanding, an Outside
Director shall not receive a grant under this Subsection (c) if he or
she has received a grant under Subsection (b) above earlier in the same
calendar year.
(d) All NSOs granted to an Outside Director under this Section 4.2
shall become exercisable in full on the first anniversary of the date
of grant. Such NSOs shall also become exercisable in full in the event
of (i) the termination of such Outside Director's service because of
death or total and permanent disability or (ii) a Change in Control
with respect to the Company.
(e) The Exercise Price under all NSOs granted to an Outside
Director under this Section 4.2 shall be equal to 100% of the Fair
Market Value of a Common Share on the date of grant, payable in one of
the forms described in Sections 6.1, 6.2, 6.3 and 6.4.
(f) All NSOs granted to an Outside Director under this Section 4.2
shall terminate on the earliest of (i) the 10th anniversary of the date
of grant, (ii) the date three months after the termination of such
Outside Director's service for any reason other than death, total and
permanent disability or Retirement, (iii) the date 12 months after the
termination of such Outside Director's service because of death or (iv)
the date 36 months after the termination of such Outside Director's
service because of total and permanent disability or Retirement.
(g) NSOs granted under Subsection (b) above shall also terminate 30
days after the date of grant unless the Outside Director demonstrates
to the Company's satisfaction that he or she beneficially owned Common
Shares with a Fair Market Value of $100,000 or more on any date within
30 days after the date of grant.
4.3 Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
4.4 Grants Related to Spin-Off. Any other provision of this Article 4
notwithstanding, pursuant to a written agreement between the Company's
predecessor and Pacific
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Telesis Group, Awards under the Plan may be made to any individual in order to
supplement or replace stock options or long-term incentive awards which were
granted to such individual under a plan of Pacific Telesis Group or of the
Company's predecessor and which are subject to adjustment in connection with the
distribution of Common Shares to the shareholders of Pacific Telesis Group.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a cash payment
or in consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that new Options will be granted automatically to
the Optionee when he or she exercises the prior Options.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Options granted to any
Optionee in a single calendar year shall in no event cover more than 500,000
Common Shares, subject to adjustment in accordance with Article 10.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than the par
value of the Common Shares subject to such NSO. In the case of an NSO, a Stock
Option Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed 10 years from the date of grant. A
Stock Option Agreement may provide for accelerated exercisability in the event
of the Optionee's death, disability or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. Options may be awarded in combination
with SARs, and such an Award may provide that the Options will not be
exercisable unless the related SARs are forfeited. NSOs may also be awarded in
combination with Restricted Shares or Stock Units, and such an Award may provide
that the NSOs will not be exercisable unless the related Restricted Shares or
Stock Units are forfeited.
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5.5 Effect of Change in Control. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company. If the Committee finds
that there is a reasonable possibility that, within the succeeding six months, a
Change in Control will occur with respect to the Company, then the Committee at
its sole discretion may determine that any or all outstanding Options shall
become fully exercisable as to all Common Shares subject to such Options.
5.6 Modification or Assumption of Options. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment
may be made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for more than six
months. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for
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a loan, and to deliver all or part of the loan proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
payment may be made with a full-recourse promissory note; provided that the par
value of the Common Shares shall be paid in cash.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 10. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than 500,000 Common
Shares, subject to adjustment in accordance with Article 10.
7.3 Exercise Price. Each SAR Agreement shall specify the Exercise
Price. An SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may
also be awarded in combination with Options, Restricted Shares or Stock Units,
and such an Award may provide that the SARs will not be exercisable unless the
related Options, Restricted Shares or Stock Units are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or at any subsequent time, but not later than six months
before the expiration of such NSO. An SAR granted under the Plan may provide
that it will be exercisable only in the event of a Change in Control.
7.5 Effect of Change in Control. The Committee may determine, at the
time of granting an SAR or thereafter, that such SAR shall become fully
exercisable as to all Common
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Shares subject to such SAR in the event that a Change in Control occurs with
respect to the Company. If the Committee finds that there is a reasonable
possibility that, within the succeeding six months, a Change in Control will
occur with respect to the Company, then the Committee at its sole discretion may
determine that any or all outstanding SARs shall become fully exercisable as to
all Common Shares subject to such SARs.
7.6 Exercise of SARs. The exercise of an SAR shall be subject to the
restrictions imposed by Rule 16b-3 (or its successor) under the Exchange Act, if
applicable. If, on the date when an SAR expires, the Exercise Price under such
SAR is less than the Fair Market Value on such date but any portion of such SAR
has not been exercised or surrendered, then such SAR shall automatically be
deemed to be exercised as of such date with respect to such portion. Upon
exercise of an SAR, the Optionee (or any person having the right to exercise the
SAR after his or her death) shall receive from the Company (a) Common Shares,
(b) cash or (c) a combination of Common Shares and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of Common Shares
received upon exercise of SARs shall, in the aggregate, be equal to the amount
by which the Fair Market Value (on the date of surrender) of the Common Shares
subject to the SARs exceeds the Exercise Price.
7.7 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
8.1 Time, Amount and Form of Awards. Awards under the Plan may be
granted in the form of Restricted Shares, in the form of Stock Units, or in any
combination of both. Restricted Shares or Stock Units may also be awarded in
combination with NSOs or SARs, and such an Award may provide that the Restricted
Shares or Stock Units will be forfeited in the event that the related NSOs or
SARs are exercised.
8.2 Payment for Awards. To the extent that an Award is granted in the
form of newly issued Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to provide consideration to the
Company in the form of cash or services rendered in an amount equal to the par
value of such Restricted Shares. To the extent that an Award is granted in the
form of Restricted Shares from the Company's treasury or in the form of Stock
Units, no consideration shall be required of the Award recipients.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock Units
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. A Stock Award Agreement may
provide for accelerated vesting in the event of the Participant's death,
disability or retirement or other events. The Committee may
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determine, at the time of making an Award or thereafter, that such Award shall
become fully vested in the event that a Change in Control occurs with respect to
the Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both. The actual number of Stock Units eligible for settlement
may be larger or smaller than the number included in the original Award, based
on predetermined performance factors. Methods of converting Stock Units into
cash may include (without limitation) a method based on the average Fair Market
Value of Common Shares over a series of trading days. Vested Stock Units may be
settled in a lump sum or in installments. The distribution may occur or commence
when all vesting conditions applicable to the Stock Units have been satisfied or
have lapsed, or it may be deferred to any later date. The amount of a deferred
distribution may be increased by an interest factor or by dividend equivalents.
Until an Award of Stock Units is settled, the number of such Stock Units shall
be subject to adjustment pursuant to Article 10.
8.5 Death of Recipient. Any Stock Units Award that becomes payable
after the recipient's death shall be distributed to the recipient's beneficiary
or beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
8.6 Creditors' Rights. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
9.1 Restricted Shares. The holders of Restricted Shares awarded under
the Plan shall have the same voting, dividend and other rights as the Company's
other stockholders. A Stock Award Agreement, however, may require that the
holders of Restricted Shares invest any cash dividends received in additional
Restricted Shares. Such additional Restricted Shares shall be subject to the
same conditions and restrictions as the Award with respect to which the
dividends were paid. Such additional Restricted Shares shall not reduce the
number of Common Shares available under Article 3.
9.2 Stock Units. The holders of Stock Units shall have no voting
rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan
may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Common Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
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Settlement of dividend equivalents may be made in the form of cash, in the form
of Common Shares, or in a combination of both. Prior to distribution, any
dividend equivalents which are not paid shall be subject to the same conditions
and restrictions as the Stock Units to which they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 Adjustments. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off
or a similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of (a) the number of Options,
SARs, Restricted Shares and Stock Units available for future Awards under
Article 3, (b) the limitations set forth in Sections 5.2 and 7.2, (c) the number
of NSOs to be granted to Outside Directors under Section 4.2, (d) the number of
Stock Units included in any prior Award which has not yet been settled, (e) the
number of Common Shares covered by each outstanding Option and SAR, or (f) the
Exercise Price under each outstanding Option and SAR. Except as provided in this
Article 10, a Participant shall have no rights by reason of any issue by the
Company of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.
10.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options, SARs, Restricted Shares and
Stock Units shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting and
accelerated expiration, or for settlement in cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
12.1 Effective Date. No provision of this Article 12 shall be effective
unless and until the Board has determined to implement such provision.
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12.2 Elections to Receive NSOs or Stock Units. An Outside Director may
elect to receive his or her annual retainer payments and meeting fees from the
Company in the form of cash, NSOs, Stock Units, or a combination thereof. Such
NSOs and Stock Units shall be issued under the Plan. An election under this
Article 12 shall be filed with the Company on the prescribed form. The election
shall apply only to annual retainers and meeting fees payable at least six
months after such form has been received by the Company. The election may be
amended or canceled by filing a new form with the Company, but the new form
shall apply only to annual retainers and meeting fees payable at least six
months after it has been received by the Company.
12.3 Number and Terms of NSOs. The number of NSOs to be granted to
Outside Directors in lieu of annual retainers and meeting fees that would
otherwise be paid in cash shall be calculated in a manner determined by the
Board. The terms of such NSOs shall also be determined by the Board.
12.4 Number and Terms of Stock Units. The number of Stock Units to be
granted to Outside Directors shall be calculated by dividing the amount of the
annual retainer or the meeting fee that would otherwise be paid in cash by the
arithmetic mean of the Fair Market Values of a Common Share on the 10
consecutive trading days ending with the date when such retainer or fee is
payable. The terms of such Stock Units shall be determined by the Board.
ARTICLE 13. LIMITATION ON RIGHTS.
13.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent, a Subsidiary or an Affiliate.
The Company and its Parents and Subsidiaries reserve the right to terminate the
service of any employee, consultant or director at any time, with or without
cause, subject to applicable laws, the Company's certificate of incorporation
and by-laws and a written employment agreement (if any).
13.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Articles 8, 9 and 10.
13.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
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ARTICLE 14. LIMITATION ON PAYMENTS.
14.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company to or for the benefit of a Participant, whether paid or payable (or
transferred or transferable) pursuant to the terms of this Plan or otherwise (a
"Payment"), would be nondeductible by the Company for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
section 280G of the Code, then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount; provided that the
Committee, at the time of making an Award under this Plan or at any time
thereafter, may specify in writing that such Award shall not be so reduced and
shall not be subject to this Article 14. For purposes of this Article 14, the
"Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of section 280G of the Code.
14.2 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 14, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 14 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
14.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which
Page 11
<PAGE> 17
he or she shall repay to the Company, together with interest at the applicable
federal rate provided in section 7872(f)(2) of the Code; provided, however, that
no amount shall be payable by the Participant to the Company if and to the
extent that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly be
paid or transferred by the Company to or for the benefit of the Participant,
together with interest at the applicable federal rate provided in section
7872(f)(2) of the Code.
14.4 Related Corporations. For purposes of this Article 14, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 15. WITHHOLDING TAXES.
15.1 General. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
15.2 Share Withholding. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued at
their Fair Market Value on the date when taxes otherwise would be withheld in
cash. Any payment of taxes by assigning Common Shares to the Company may be
subject to restrictions, including any restrictions required by rules of the
Securities and Exchange Commission.
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.
16.1 General. Except as provided in Article 15, an Award granted under
the Plan shall not be anticipated, assigned, attached, garnished, optioned,
transferred or made subject to any creditor's process, whether voluntarily,
involuntarily or by operation of law. An Option or SAR may be exercised during
the lifetime of the Optionee only by him or her or by his or her guardian or
legal representative. Any act in violation of this Article 16 shall be void.
However, this Article 16 shall not preclude a Participant from designating a
beneficiary who will receive any outstanding Awards in the event of the
Participant's death, nor shall it preclude a transfer of Awards by will or by
the laws of descent and distribution.
16.2 Trusts. Neither this Article 16 nor any other provision of the
Plan shall preclude a Participant from transferring or assigning Restricted
Shares to (a) the trustee of a trust that is revocable by such Participant
alone, both at the time of the transfer or assignment and at all times
thereafter prior to such Participant's death, or (b) the trustee of any other
trust to the extent approved in advance by the Committee in writing. A transfer
or assignment of Restricted Shares from such trustee to any person other than
such Participant shall be permitted only to the extent
Page 12
<PAGE> 18
approved in advance by the Committee in writing, and Restricted Shares held by
such trustee shall be subject to all of the conditions and restrictions set
forth in the Plan and in the applicable Stock Award Agreement, as if such
trustee were a party to such Agreement.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as set forth herein, shall become
effective on December 15, 1994. The Plan shall remain in effect until it is
terminated under Section 17.2, except that no ISOs shall be granted after
February 15, 2004.
17.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan, except that the provisions of Section 4.2
relating to the amount, price and timing of Option grants to Outside Directors
shall not be amended more than once in any six-month period after the IPO. The
Company's Vice President - Human Resources with the approval of the Senior Vice
President - Legal and External Affairs and Secretary, is authorized to make
minor or administrative changes to the Plan. An amendment of the Plan shall be
subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules. No Awards shall be granted
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Award previously granted under the
Plan.
ARTICLE 18. DEFINITIONS.
18.1 "Affiliate" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
18.2 "Award" means any award of an Option, an SAR, a Restricted Share
or a Stock Unit under the Plan.
18.3 "Board" means the Company's Board of Directors, as constituted
from time to time.
18.4 "Change in Control" means the occurrence of any of the following
events:
(a) Both:
(i) Any "person" (as defined below) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing at least 20% of the total voting power represented by
the Company's then outstanding voting securities; and
Page 13
<PAGE> 19
(ii) The beneficial ownership by such person of
securities representing such percentage has not been approved by a
majority of the "continuing directors" (as defined below); or
(b) Any "person" (as defined below) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 50% of
the total voting power represented by the Company's then outstanding
voting securities; or
(c) A change in the composition of the Board occurs, as a result of
which fewer than two-thirds of the incumbent directors are directors
who either:
(i) Had been directors of the Company on the "look-back
date" (as defined below) (the "original directors"); or
(ii) Were elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the
aggregate of the original directors who were still in office at the
time of the election or nomination and the directors whose election
or nomination was previously so approved (the "continuing
directors"); or
(d) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, if such merger
or consolidation would result in the voting securities of the Company
outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) 50% or less of the total voting power represented by
the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(e) The stockholders of the Company approve (i) a plan of complete
liquidation of the Company or (ii) an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
For purposes of Subsections (a) and (b) above, the term "person" shall
have the same meaning as when used in sections 13(d) and 14(d) of the Exchange
Act but shall exclude (i) a trustee or other fiduciary holding securities under
an employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the common stock of the
Company.
For purposes of Subsection (c) above, the term "look-back date" shall
mean the later of (i) April 1, 1994, or (ii) the date 24 months prior to the
date of the event that may constitute a Change in Control.
Page 14
<PAGE> 20
Any other provision of this Section 18.4 notwithstanding, the term
"Change in Control" shall not include either of the following events, if
undertaken at the election of the Company:
(i) A transaction, the sole purpose of which is to change the state
of the Company's incorporation; or
(ii) A transaction, the result of which is to sell all or
substantially all of the assets of the Company to another corporation
(the "surviving corporation"); provided that the surviving corporation
is owned directly or indirectly by the stockholders of the Company
immediately following such transaction in substantially the same
proportions as their ownership of the Company's common stock
immediately preceding such transaction; and provided, further, that the
surviving corporation expressly assumes this Plan and all outstanding
Awards.
18.5 "Code" means the Internal Revenue Code of 1986, as amended.
18.6 "Committee" means a committee of the Board, as described in
Article 2.
18.7 "Common Share" means one share of the common stock of the Company.
18.8 "Company" means AirTouch Communications, Inc., a Delaware
corporation.
18.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
18.10 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
18.11 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date
in question but were not classified as a national market issue, then
the Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted by the Nasdaq
system for such date;
(b) If the Common Shares were traded over-the-counter on the date
in question and were classified as a national market issue, then the
Fair Market Value shall be equal to the last-transaction price quoted
by the Nasdaq system for such date;
Page 15
<PAGE> 21
(c) If the Common Shares were traded on a stock exchange on the
date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions report
for such date; and
(d) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
18.12 "IPO" means the initial public offering of the Company's common
stock pursuant to a Registration Statement on Form S-1 that has been declared
effective by the Securities and Exchange Commission.
8.13 "ISO" means an incentive stock option described in section 422(b)
of the Code.
18.14 "Key Employee" means (a) a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate, (b) an Outside Director and (c) a
consultant or adviser who provides services to the Company, a Parent, a
Subsidiary or an Affiliate as an independent contractor. Service as an Outside
Director, or as an independent contractor shall be considered employment for all
purposes of the Plan, except as provided in Sections 4.2 and 4.3.
18.15 "NSO" means an employee stock option not described in sections
422 or 423 of the Code.
18.16 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase one Common Share.
18.17 "Optionee" means an individual or estate who holds an Option or
SAR.
18.18 "Outside Director" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent, a Subsidiary or an Affiliate.
18.19 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
18.20 "Participant" means an individual or estate who holds an Award.
18.21 "Plan" means this AirTouch Communications, Inc. 1993 Long-Term
Stock Incentive Plan, as amended from time to time.
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<PAGE> 22
18.22 "Restricted Share" means a Common Share awarded under the Plan.
18.23 "Retirement" means that an Outside Director's service terminates
after he or she has served for three or more years as a member of the Board
and/or as a member of the board of directors of Pacific Telesis Group.
18.24 "SAR" means a stock appreciation right granted under the Plan.
18.25 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
18.26 "Stock Award Agreement" means the agreement between the Company
and the recipient of a Restricted Share or Stock Unit which contains the terms,
conditions and restrictions pertaining to such Restricted Share or Stock Unit.
18.27 "Stock Option Agreement" means the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
18.28 "Stock Unit" means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.
18.29 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
ARTICLE 19. EXECUTION.
To record the amendment and restatement of the Plan by the Board, the
Company has caused its duly authorized officers to affix the corporate name and
seal hereto.
AIRTOUCH COMMUNICATIONS, INC.
By
----------------------------------
Page 17
<PAGE> 1
EXHIBIT 10.34
EXECUTIVE FINANCIAL COUNSELING PROGRAM
General Description of Services
The Company offers a financial counseling program to executives. Participants
may select from two financial counseling firms utilized by the Company: The
AYCO Company and Asset Management Group. The executive is then assigned a
counselor from the chosen firm who works with the executive over time to provide
services including:
COMPANY PROVIDED BENEFITS PLANNING
ESTATE PLANNING
INSURANCE PLANNING
INVESTMENT PLANNING
INCOME TAX PLANNING
In addition to the above services, the Program covers the cost of personal
income tax preparation.
<PAGE> 1
Exhibit 13
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA,
MANAGEMENT'S DISCUSSION & ANALYSIS,
AND FINANCIAL STATEMENTS
2 SELECTED FINANCIAL DATA
2 Selected Five-Year Consolidated Data
3 Selected Five-Year Proportionate Data
6 MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
27 CONSOLIDATED FINANCIAL STATEMENTS
27 Report of Management
28 Report of Independent Accountants
29 Consolidated Statements of Income
for the years ended December 31, 1995, 1994, and 1993
30 Consolidated Balance Sheets
as of December 31, 1995 and 1994
31 Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1994, and 1993
32 Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994, and 1993
34 Notes to Consolidated Financial Statements
58 Selected Proportionate Results of Operations
<PAGE> 2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FIVE-YEAR CONSOLIDATED DATA
- --------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31
----------------------------------------------------------------
(Dollars in millions, except per share amounts) 1995 1994(a) 1993(b) 1992 1991(c)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenues (d) $1,618.6 $1,246.9 $1,057.7 $ 880.2 $ 781.1
Operating income $ 112.8 $ 72.6 $ 128.2 $ 95.9 $ 136.6
Equity in net income (loss) of unconsolidated
wireless systems:
Domestic $ 188.2 $ 125.4 $ 70.4 $ 41.1 $ 15.5
International $ (35.9) $ (14.7) $ (37.5) $ (38.5) $ (21.4)
Interest:
Income $ 34.9 $ 54.7 $ 12.0 $ 13.3 $ 13.8
Expense $ (13.0) $ (10.3) $ (22.1) $ (52.9) $ (37.6)
Income (loss) from operations $ 131.9 $ 98.1 $ 40.1 $ (10.1) $ 43.1
Per share data:
Income (loss) from operations $ 0.27 $ 0.20 $ 0.09 $ (0.02) $ 0.10
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------
BALANCE SHEET DATA (Dollars in millions) 1995 1994(a) 1993(b) 1992 1991(c)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in unconsolidated
wireless systems $3,076.3 $1,697.9 $1,154.5 $ 935.4 $ 676.6
Total assets $5,647.9 $4,488.0 $4,076.7 $2,371.1 $1,900.1
Long-term obligations (e) $ 906.4 $ 130.1 $ 78.9 $ 257.3 $ 276.0
Total stockholders' equity $3,750.7 $3,459.6 $3,337.3 $ 752.1 $ 635.2
Working capital (deficit) $ 18.5 $ 736.5 $1,346.8 $ (698.4) $ (426.3)
Capital expenditures, excluding acquisitions
and capital calls (f) $ 530.3 $ 408.7 $ 225.9 $ 231.0 $ 230.2
================================================================================================================================
</TABLE>
(a) Prior to April 1, 1994, AirTouch Communications, Inc. and its subsidiaries
(the "Company") was an 86.1% owned subsidiary of Pacific Telesis Group
("Telesis"). On April 1, 1994, the Company was spun off from Telesis.
(b) In December 1993 the Company completed a public offering of 68,500,000
shares of newly issued common stock for proceeds of $1,489.2 million. In
addition, in September 1993 the Company entered into a joint venture with
AT&T Wireless, formerly McCaw Cellular Communications, Inc., ("CMT
Partners") and contributed net cellular assets totaling $206.0 million. The
effect of the formation of CMT Partners on the Company's Consolidated
Financial Statements was a reduction in the individual asset, liability,
and income statement accounts and the reporting of income and expense
associated with these assets in the line item entitled "Equity in net
income (loss) of unconsolidated wireless systems: Domestic." See Note E,
"Investments in Unconsolidated Wireless Systems," to the Consolidated
Financial Statements for further information.
(c) In 1991 the Company entered into a joint venture with Cellular
Communications, Inc. ("New Par") and contributed net cellular assets
totaling $330.0 million. The effect of the formation of New Par on the
Company's Consolidated Financial Statements was a reduction in the
individual asset, liability, and income statement accounts and the
reporting of income and expense associated with these assets in the line
item entitled "Equity in net income (loss) of unconsolidated wireless
systems: Domestic." See Note E, "Investments in Unconsolidated Wireless
Systems," to the Consolidated Financial Statements for further information.
(d) Presentation for 1994 has been restated to conform to current year
presentation. See Note A, "Summary of Significant Accounting Policies -
Basis of Presentation," to the Consolidated Financial Statements.
(e) Includes the current portion of long-term debt.
(f) For the year ended December 31.
2
<PAGE> 3
SELECTED FIVE-YEAR PROPORTIONATE DATA
The following table is not required by generally accepted accounting principles
("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
year-to-year 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>
TOTAL COMPANY (1)
- ---------------------------------------------------------------------------------------------------------------------------------
PROPORTIONATE For the Year Ended December 31
OPERATING RESULTS (Dollars in millions) 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total net operating revenues (a) $2,605.2 $1,791.8 $1,226.1 $ 873.2 $ 687.0
Total operating income $ 296.7 $ 171.5 $ 97.6 $ 11.3 $ 98.8
Total operating cash flow (2) $ 702.3 $ 506.1 $ 351.5 $ 191.5 $ 223.9
<CAPTION>
PROPORTIONATE December 31
OPERATING DATA (In thousands) 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total cellular POPs (3) 164,908 99,508 75,290 69,468 57,551
Total cellular subscribers 3,059 1,948 1,206 779 558
Cellular subscriber net adds in period,
excluding acquisitions 974 713 409 221 140
Total paging units in service 2,474 1,647 1,269 899 669
Paging units in service net adds in period,
excluding acquisitions 477 378 348 230 136
</TABLE>
<TABLE>
<CAPTION>
PROPORTIONATE CELLULAR OPERATIONS (1)
- ---------------------------------------------------------------------------------------------------------------------------------
DOMESTIC CELLULAR For the Year Ended December 31
OPERATING RESULTS (Dollars in millions) 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues (a) $1,523.3 $1,160.1 $ 892.0 $ 699.4 $ 564.6
Equipment sales 78.9 74.6 40.2 24.8 19.3
Cost of equipment sales (125.6) (82.0) (42.2) (23.9) (18.4)
--------------------------------------------------------------------------------------------------------------------------
Net operating revenues 1,476.6 1,152.7 890.0 700.3 565.5
--------------------------------------------------------------------------------------------------------------------------
Cost of revenues (a) 188.4 136.5 116.3 98.7 80.0
Selling and customer operations (4) 544.0 415.2 297.2 -- --
General, administrative, and other expenses (4) 139.0 122.0 96.9 322.5 238.6
Depreciation and amortization expenses 189.2 185.7 164.7 124.1 93.7
--------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,060.6 859.4 675.1 545.3 412.3
--------------------------------------------------------------------------------------------------------------------------
Operating income $ 416.0 $ 293.3 $ 214.9 $ 155.0 $ 153.2
==========================================================================================================================
Operating cash flow (2) $ 605.2 $ 479.0 $ 379.6 $ 279.1 $ 246.9
Operating cash flow margin (b) 41.0% 41.6% 42.7% 39.9% 43.7%
Capital expenditures, excluding acquisitions $ 475.0 $ 296.7 $ 198.4 $ 199.8 $ 159.6
</TABLE>
See footnotes.
3
<PAGE> 4
<TABLE>
<CAPTION>
DOMESTIC CELLULAR December 31
OPERATING DATA (In thousands) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total POPs (3) 37,739 35,390 34,889 34,121 32,560
Subscribers 2,262 1,560 1,046 744 558
Subscriber net adds in period, excluding
acquisitions 591 514 286 186 140
<CAPTION>
INTERNATIONAL CELLULAR For the Year Ended December 31
OPERATING RESULTS (Dollars in millions) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing operations (5):
Net operating revenues $ 841.0 $ 352.8 $ 88.3 __ __
Operating income (loss) $ 62.7 $ 10.0 $ (17.3) __ __
Operating cash flow (2) $ 203.7 $ 87.4 $ 6.5 __ __
Income (loss) $ (0.5) $ (13.2) $ (18.9) __ __
Start-up systems (6):
Income (loss) $ (51.6) $ (26.1) $ (20.9) __ __
Total income (loss) $ (52.1) $ (39.3) $ (39.8) __ __
<CAPTION>
INTERNATIONAL CELLULAR December 31
OPERATING DATA (In thousands) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total POPs (3) 112,869 64,118 40,401 35,347 24,991
Subscribers 797 388 160 35 __
Subscriber net adds in period, excluding
acquisitions 383 199 123 35 __
<CAPTION>
DOMESTIC PAGING OPERATIONS (7)
OPERATING RESULTS For the Year Ended December 31
(Dollars in millions) --------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues $ 219.4 $ 183.5 $ 145.7 $ 113.5 $ 92.6
Equipment sales 45.5 43.4 35.2 22.2 9.7
Cost of equipment sales (39.5) (38.0) (31.9) (19.2) (7.4)
---------------------------------------------------------------------------------------------------------
Net operating revenues 225.4 188.9 149.0 116.5 94.9
---------------------------------------------------------------------------------------------------------
Total operating expenses before depreciation and
amortization 150.8 122.5 98.7 74.0 56.2
Depreciation and amortization expenses 42.8 36.8 30.6 26.3 23.4
---------------------------------------------------------------------------------------------------------
Operating income $ 31.8 $ 29.6 $ 19.7 $ 16.2 $ 15.3
=========================================================================================================
Operating cash flow (2) $ 74.6 $ 66.4 $ 50.3 $ 42.5 $ 38.7
Operating cash flow margin 33.1% 35.2% 33.8% 36.5% 40.8%
Capital expenditures, excluding acquisitions $ 72.0 $ 61.3 $ 53.4 $ 42.9 $ 34.8
<CAPTION>
December 31
--------------------------------------------------
OPERATING DATA (In thousands) 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Units in service 2,338 1,525 1,167 821 601
Units in service net adds in period, excluding
acquisitions 463 358 324 220 127
================================================================================================================
</TABLE>
See footnotes.
4
<PAGE> 5
Footnotes:
(a) Presentation for 1994 has been restated to conform to current year
presentation. See Note A, "Summary of Significant Accounting Policies -
Basis of Presentation," to the Consolidated Financial Statements.
(b) If net losses on equipment sales were reclassified as operating expenses,
operating cash flow margins would be 39.7%, 41.3%, 42.6%, 39.9%, and 43.7%
for the years 1995, 1994, 1993, 1992, and 1991, respectively.
(1) Reflects proportionate 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 Consolidated Financial Statements taken as a whole.
(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. In 1995, total Company cellular POPs included 14,300 personal
communications services ("PCS") POPs; international cellular POPs (and
therefore total Company cellular POPs) included 36,943 POPs for recently
formed ventures in India and 7,469 POPs for Poland where the Company's
consortium was awarded a national cellular license in February 1996.
(4) For periods prior to 1993, selling and customer operations expenses were
reported on a combined basis with general, administrative, and other
expenses.
(5) Represents the Company's share of operating results (after foreign taxes
where applicable) for international cellular systems which have completed
12 months of commercial service, as follows:
1995: Germany, Portugal, Sweden, Belgium, and Japan
1994: Germany, Portugal, Sweden, and Belgium (6 months)
1993: Germany (6 months), Portugal (3 months), and Sweden
(3 months)
(6) Represents 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:
1995: Italy, South Korea, Spain, and India (4 months)
1994: Japan, Italy (3 months), and South Korea (3 months)
1993: Japan, Germany (6 months), and Portugal (9 months)
(7) Domestic paging is wholly owned by the Company; therefore, proportionate
information reflects 100% of the subsidiary's GAAP-basis operating results.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & 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.
Private Securities Litigation Reform Act Safe Harbor Statement. In addition to
historical information, this Annual Report includes certain forward-looking
statements regarding events and financial trends which may affect the Company's
future operating results and financial position. Such statements represent the
Company's reasonable judgment on the future and 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; and the impact
of deployment of new technologies on capital spending. 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."
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.
See Note A, "Summary of Significant Accounting Policies," to the Consolidated
Financial Statements.
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
GOVERNMENT REGULATION
The Company's domestic and international operations are subject to varying
degrees of regulation. Changes in domestic or international regulation of the
telecommunications industry could have a significant effect on the Company's
future financial position or results of operations. The following discussion
highlights significant regulatory developments related to the Company's
operations. For an extensive discussion of regulation, see Item 1, "Business,"
in the Company's 1995 Form 10-K.
Telecommunications Act of 1996. On February 8, 1996, President Clinton signed
the Telecommunications Act of 1996 (the "Act") into law. The new law
fundamentally changes the domestic rules and regulations under which all
providers of telecommunications services operate. In connection with the
implementation of the Act, the Federal Communications Commission ("FCC") is
expected to conduct more than 80 rule making proceedings during 1996.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
The Act affects the Company in a number of ways, including the following. First,
the Act eliminates the restrictions set forth in the Modification of Final
Judgment ("MFJ") on the operations of Bell Operating Companies ("BOC") and
replaces them with specific statutory requirements. The Act settles a claim made
by the U.S. Department of Justice during 1995 that AirTouch remained subject to
the MFJ because the new statutory definition of a BOC excludes entities such as
AirTouch. In addition, the Company is not currently subject to the new statutory
restrictions placed on BOCs by the Act.
Under the Act, however, WMC Partners, L.P. ("WMC"), which is jointly owned by
the Company and U S WEST Inc. ("U S WEST"), is deemed an affiliate of a BOC by
virtue of U S WEST's ownership interest and is therefore subject to certain
provisions and restrictions set forth in the Act. The legislation permits
commercial mobile radio services ("CMRS") affiliates of BOCs, such as WMC, to
offer long distance service immediately upon enactment and exempts CMRS
operators from equal access requirements otherwise imposed on local telephone
companies, allowing the Company and WMC to sell long distance services without
having to advertise for their competitors. As a result, the legislation removes
a major obstacle to consummating the second phase of the WMC joint venture
between the Company and U S WEST, specifically, the combination of their
domestic cellular and personal communications services ("PCS") properties.
However, as a BOC affiliate, WMC is subject to certain restrictions regarding
the provisions of long distance services other than in connection with CMRS. See
"Start-up Operations and Joint Ventures - U S WEST Joint Venture."
The Act also modifies requirements for local telephone companies to provide
interconnection services to wireless carriers, which could impact the cost to
the Company of such service. The Company is unable to quantify the impact on its
operations of the changes resulting from the Act.
CELLULAR FRAUD
The incidence and cost of cellular "cloning" and "roaming" fraud continue to be
of concern to the Company, as well as to the cellular industry in general.
Cloning fraud refers to the use of scanners and other electronic devices to
illegally obtain telephone numbers and electronic serial numbers during cellular
transmissions. These stolen telephone and serial number combinations can be
programmed into a cellular phone and used to obtain fraudulent access to
cellular networks. Roaming fraud occurs when a cellular phone programmed with a
telephone number stolen from one of the Company's customers is used to place
calls from another carrier's market, resulting in a roaming fee charged to the
Company that cannot be collected from a customer. The Company monitors
fraudulent usage of its networks and excludes related billings from cellular
service revenues and receivables. As compared to 1994, the Company experienced
substantial increases in costs related to cellular fraud. Unbillable roaming
fees increased from $11.5 million during 1994 to $28.3 million during 1995. The
cost of cellular fraud could have a significant impact on the Company's
operating results for the foreseeable future.
The Company continues to invest in new technologies and deploys other measures
to detect, quantify and prevent cellular fraud. For example, using sophisticated
equipment and other preventative measures during 1995, the Company achieved
significant success in detecting and reducing fraudulent usage in its managed
markets of telephone numbers stolen from the Company; however, the Company
continues to experience significant increases in the incidence of roaming fraud.
Fraud has not been a significant issue in the Company's international markets.
START-UP OPERATIONS AND JOINT VENTURES
Start-up Operations. In connection with the network build-out of 11 broadband
PCS licenses and certain new international licenses, the Company will incur
significant start-up expenses during 1996 and 1997 that are expected to have a
dilutive effect on the Company's future earnings. The 11 broadband PCS licenses
were acquired in March of 1995 by PCS PrimeCo, L.P. ("PCS
7
<PAGE> 8
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
PrimeCo"), in which the Company has an indirect 25% interest. The dilutive
effect of PCS PrimeCo on the Company's earnings, which could be material, is
expected to increase upon contribution by U S WEST and the Company of their
respective indirect interests in PCS PrimeCo to their joint venture, WMC. See "U
S WEST Joint Venture" and "Liquidity and Capital Resources." The PCS licenses
acquired by PCS PrimeCo include market coverage of Chicago, Dallas, Tampa,
Houston, Miami, New Orleans, Milwaukee, Richmond, San Antonio, Jacksonville, and
Honolulu. PCS PrimeCo's networks are expected to be operational by the fourth
quarter of 1996.
International start-up ventures expected to dilute future earnings include
Poland, Spain, Italy, South Korea, and India. The Company estimates that
international start-up losses during 1996 will be approximately $100 million.
See "Liquidity and Capital Resources."
U S WEST Joint Venture. As discussed in Note E, "Investments in Unconsolidated
Wireless Systems - WMC Partners," to the Consolidated Financial Statements, the
Company and U S WEST plan to combine their domestic cellular properties into a
partnership known as WMC. Under the venture's first phase, which commenced on
November 1, 1995, WMC began providing certain support services to both
companies' domestic cellular operations. During the first phase of the
transaction, the cellular properties of each party will continue to be owned
separately by each individual partner. In the second phase, the partners will
contribute their respective domestic cellular properties to WMC, subject to the
receipt of any required consents and authorizations. This contribution will
occur following the lifting of certain restrictions imposed by the MFJ, but in
no event later than July 25, 1998. The Act provided sufficient relief from the
MFJ for the second phase of the transaction to occur, and the parties are
seeking to obtain the necessary regulatory and other approvals and to satisfy
other required conditions. Upon commencement of the second phase, the Company
will deconsolidate for financial reporting purposes its domestic cellular
operations contributed to WMC, using instead the equity method of accounting to
report its interests in subsequent operating results. Accordingly, subsequent
to the second phase, the Company's consolidated operating revenues and expenses
will consist primarily of the results of NordicTel Holdings A.B. ("NordicTel"),
domestic paging, and any consolidated domestic cellular operations which are not
contributed to WMC during the second phase. The Company could experience
near-term earnings dilution in connection with the contribution of its cellular
properties to WMC. The extent of such dilution, which could be material, will
depend upon the relative profitability of the Company's and U S WEST's
respective operations subsequent to the contribution of such operations.
Concurrent with the formation of WMC, the parties formed an equally owned
partnership ("PCS Partnership") to pursue new PCS opportunities, which in turn
acquired a 50% interest in PCS PrimeCo. The PCS Partnership will also be
contributed to WMC. The timing of such contribution is at U S WEST's discretion
and will occur either at the closing of the second phase or a date selected by U
S WEST, but no later than mid-1998. The Company anticipates that the PCS
Partnership will be required to make significant capital contributions for the
build-out of PCS markets and that it will experience substantial operating
losses associated with the start-up phase of the PCS business, which is expected
to last several years. Upon contribution of the PCS Partnership to WMC, the
Company's relative share of PCS capital investments and operating losses related
to the PCS Partnership will increase from 50% to its percentage ownership of
WMC. See Item 1, "Business-Domestic Cellular-Joint Ventures-WMC Partners," in
the Company's 1995 Form 10-K.
The Company cannot precisely assess the future impact of its joint venture with
U S WEST on the Company's results of operations due to the uncertain timing of
the second phase of the transaction and the uncertain timing of the contribution
of the PCS Partnership to WMC. The Company anticipates that the second phase
will occur in the fourth quarter of 1996 or in early 1997.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
FOREIGN CURRENCY AND INTEREST RATE RISKS
The Company engages in risk management activities to hedge foreign currency
denominated investments and firm capital commitments. The Company does not
engage in speculative foreign exchange activities. Every hedge has an
identifiable underlying exposure such that a potential gain or loss on a hedging
position is offset by a corresponding loss or gain on an underlying exposure.
The Company invests in ventures in Germany, Sweden, Portugal, Spain, France,
Japan, South Korea, Belgium, Italy, Poland, India, and Thailand. Such
investments primarily take the form of equity interests in foreign joint
ventures and are viewed as long-term assets valued in the local currency,
translated into United States dollars and reported in the Company's financial
statements. The Company hedges a portion of these investments with long-dated
forward contracts and foreign currency denominated loans. Generally, the
currencies in which the Company has foreign exchange forward contracts have
numerous market makers to provide ample depth for hedging activities. These
hedges are in accordance with the Company's objective to offset the United
States dollar values of foreign currency denominated assets with foreign
currency denominated liabilities. The accounting treatment is described in Note
D, "Financial Instruments," to the Consolidated Financial Statements. At
December 31, 1995, the Company did not have in place any hedges of firm
commitments.
Virtually all of the Company's hedges qualify as hedges under accounting rules.
Non-qualifying hedges consist either of a cost method investment that does not
qualify for hedge accounting or mismatches between the hedge instruments and the
hedged investments due to equity losses of the joint ventures during start-up.
All gains and losses pertaining to hedges that do not qualify for hedge
accounting are included in net income.
The Company enters into interest rate swap agreements to manage its exposure to
fluctuations in interest rates and to minimize the Company's cost of funds.
Existing swap agreements are primarily used to effectively convert existing
variable rate debt to a fixed rate and to reduce the interest rate risk of
anticipated borrowings.
CONTINGENCIES
The Company is party to various legal proceedings, including certain antitrust
litigation. See Note M, "Commitments and Contingencies," to the Consolidated
Financial Statements. For an extensive discussion of legal matters, see 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 year ended
December 31, 1995 to the year ended December 31, 1994 and the year ended
December 31, 1994 to the year ended December 31, 1993. The operating results for
each of the years ended December 31, 1995, 1994 and 1993 are not necessarily
indicative of operating results in future periods. 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. The Company's six domestic consolidated markets are Los
Angeles, Sacramento, Atlanta, San Diego, Wichita, and Topeka.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
OPERATING REVENUES AND EXPENSES
Operating revenues include cellular and paging service revenues and equipment
sales. Cellular service revenues primarily consist of air time, 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.
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, consists of per-minute fees charged by wireline phone companies for
cellular calls originating and 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 FCC license
costs and goodwill.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31 Change
--------------------------------------------------- -----------------
(Dollars in millions) 1995 %(a) 1994 %(a) Amount %
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wireless services and other revenues:
Cellular service (b) $1,221.2 75.4 $ 896.4 71.9 $ 324.8 36.2
Paging service 219.8 13.6 188.0 15.1 31.8 16.9
Other revenues 69.3 4.3 66.1 5.3 3.2 4.8
-------- ----- -------- ----- ------
1,510.3 93.3 1,150.5 92.3 359.8 31.3
Cellular and paging
equipment sales 108.3 6.7 96.4 7.7 11.9 12.3
-------- ----- -------- ----- ------
Operating revenues 1,618.6 100.0 1,246.9 100.0 371.7 29.8
-------- ----- -------- ----- ------
Operating expenses:
Cost of revenues (b) 231.9 14.3 167.4 13.4 64.5 38.5
Cost of cellular and paging equipment sales 141.0 8.7 99.2 8.0 41.8 42.1
Selling and customer operations expenses 524.7 32.4 389.8 31.3 134.9 34.6
General, administrative, and other expenses 392.4 24.2 312.6 25.1 79.8 25.5
Depreciation and amortization expenses 215.8 13.4 205.3 16.4 10.5 5.1
-------- ----- -------- ----- ------
Total operating expenses 1,505.8 93.0 1,174.3 94.2 331.5 28.2
-------- ----- -------- ----- ------
Operating income 112.8 7.0 72.6 5.8 40.2 55.4
Equity in net income (loss) of unconsolidated
wireless systems:
Domestic 188.2 125.4 62.8 50.1
International (35.9) (14.7) (21.2) 144.2
Minority interests in net (income) loss of
consolidated wireless systems (36.5) (16.3) (20.2) 123.9
Interest:
Income 34.9 54.7 (19.8) (36.2)
Expense (13.0) (10.3) (2.7) 26.2
Foreign exchange gain (loss) 3.3 (3.5) 6.8 (194.3)
Miscellaneous expense (8.8) (1.5) (7.3) 486.7
-------- -------- ------
Income before income taxes 245.0 206.4 38.6 18.7
Income taxes 113.1 108.3 4.8 4.4
-------- -------- ------
Net income $ 131.9 $ 98.1 $ 33.8 34.5
======== ========= ======
================================================================================================================================
</TABLE>
(a) Percentage of operating revenues.
(b) Presentation for 1994 has been restated to conform to the current year
presentation. See Note A, "Summary of Significant Accounting Policies -
Basis of Presentation," to the Consolidated Financial Statements.
INTERNATIONAL OPERATIONS
Consolidated international results during 1995 comprised 9.4% and 13.6% of
operating revenues and operating expenses, respectively, as compared to 6.6% and
10.9% of operating revenues and operating expenses, respectively, during 1994.
CELLULAR SERVICE REVENUES
Increases in domestic cellular revenues resulted primarily from a 35.8% increase
in the number of cellular customers, partially offset by a 9.3% decline in
average revenue per customer. Customer growth was achieved through advertising,
customer incentive programs, and continued increases in the number of
distribution points. Customer incentive programs included offers of free or
low-cost handsets, waived service or access fees, and fixed monthly fees for
off-peak usage and roaming. Significant customer growth during late 1994 also
contributed to the degree of increased revenues during 1995. The decline in
average revenue per customer resulted from continued success in penetrating the
consumer market segments. The consumer market continues to be the fastest
growing segment of the Company's customer base. Consumer customers typically use
their cellular telephones less than business customers and often place many of
their calls during off-peak, lower-rate periods, resulting in lower average
revenue per customer. However, the increase in off-peak usage results in revenue
growth from higher utilization of the Company's
11
<PAGE> 12
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
networks without additional capital investment to expand capacity. Competitive
pricing pressures and such customer incentive programs as waived charges and
fixed-fee usage contributed to further decline 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.
PAGING SERVICE REVENUES
Excluding revenues of $1.4 million from Message Center Beepers, Inc., acquired
in mid-December of 1995, consolidated paging service revenues increased 16.2%.
This increase reflected a 30.4% increase in domestic paging units in service,
partially offset by a 9.3% decrease in domestic average revenue per paging unit.
Growth in domestic paging units in service resulted from increased penetration
in existing and new geographic markets through successful direct, retail, and
reseller pager sales programs. The continuing decline in average revenue per
paging unit is attributable to continued competitive pricing pressures,
a continuing shift from leased pagers to customer-owned pagers, and a
substantial shift in customer growth from higher-revenue direct and retail
channels to lower-revenue reseller distribution channels. The addition of Circle
K Stores to the Company's retail distribution points during the fourth quarter
of 1995 is expected to have a positive effect on average revenue per paging unit
during 1996. However, the Company anticipates that overall average revenue per
paging unit will follow industry trend and continue to decline as new units are
added. Paging's start-up operations in Cincinnati, Cleveland, Columbus, Chicago,
El Paso, Indianapolis, Washington D.C./Baltimore, and Denver did not have a
significant impact on revenues during 1995.
CELLULAR AND PAGING EQUIPMENT SALES AND COST OF SALES
Despite significant increases in the volume of equipment sold, domestic sales
decreased approximately $0.5 million during 1995, as compared to 1994, due 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 removed its prohibition on the bundling
of cellular equipment with carrier service. Previously, cellular service
providers in California were prohibited from requiring customers to activate
service to receive discounts on cellular equipment. This change in state
regulation contributed significantly to increases in domestic marketing of
discounted and free cellular equipment. Negative margins on consolidated
equipment sales increased from 2.9% during 1994 to 30.2% during 1995. 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 1995, particularly in the consumer markets.
The effect of discounted and free cellular equipment in the Company's domestic
markets was partially offset by a $12.4 million increase in international
equipment sales. Increases in international equipment sales were primarily
attributable to an $11.4 million increase in NordicTel's cellular equipment
sales.
COST OF REVENUES
The 38.5% increase in consolidated costs of revenues is consistent with
increases in wireless services and other revenues and primarily reflects
increases in variable cellular interconnection costs. As a percentage of
wireless services and other revenues, cost of revenues increased from 14.6%
during 1994 to 15.4% during 1995, due primarily to incremental fixed costs
associated with expansion of facilities and networks required to support
customer growth and significant increases in fraudulent roaming and
interconnection charges.
The Company is currently in the process of deploying its Code Division Multiple
Access ("CDMA") network in Los Angeles. The Company also plans to deploy digital
technology in certain of its other domestic markets. Digital networks offer much
greater call capacity than analog networks and cost less to maintain.
Accordingly, the Company anticipates that its digital cellular networks will
contribute to lower costs as a percentage of revenues subsequent to their
deployment.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
SELLING AND CUSTOMER OPERATIONS EXPENSES
Increased expenses were due primarily to the addition of customer operations
personnel necessary to support customer growth, increased marketing expenses for
advertising and other promotional programs, higher compensation to sales
channels associated with customer growth, and increased costs associated with
detecting and preventing fraud.
The small increase in selling and customer operations expense as a percentage of
operating revenues was primarily attributable to expansion of domestic and
international customer operations functions necessary to support cellular and
paging customer growth. As a percentage of operating revenues, selling expenses
remained relatively stable despite significant additions of consumer customers
which typically generate lower revenues per customer. Stable selling expenses
were due in part to increased sales through lower-cost direct sales channels
(Company sales staff and Company-owned retail stores) and the use of competitive
customer incentive programs such as discounted or free cellular equipment,
reduced or waived access fees, and flat-rate fees for off-peak usage and
roaming. Customer incentive programs contribute to reduced revenues per customer
and increased negative equipment margins, as opposed to increased selling
expenses. The Company's average acquisition cost per gross customer added to its
domestic cellular networks increased by only 3.6% during 1995 reflecting
slightly higher sales and marketing costs. However, including the effect of
negative equipment margins, the same average acquisition cost per gross
customer increased by 14.2%.
In an effort to enhance productivity and improve customer service effectiveness,
the Company plans to complete deployment of its new customer support system in
each of the Company's domestic managed markets by early 1997. The new system is
expected to reduce customer operations expense on a per customer basis once it
becomes fully operational and further economies of scale are achieved. In
addition to the new system, the Company plans to reduce selling costs per
customer by continuing to add direct distribution points.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES
The increase in general, administrative, and other expenses during 1995 was
primarily attributable to moderate expansion of domestic and international
administrative functions necessary to support customer growth, bad debt expense
associated with increases in revenues, and a one-time charge for the impairment
of AirTouch Teletrac's ("Teletrac") assets during the third quarter of 1995.
Excluding the one-time charge of approximately $25.0 million for the impairment
of Teletrac's assets, general, administrative, and other expenses as a
percentage of operating revenues decreased from 25.1% during 1994 to 22.7%
during 1995 reflecting economies of scale associated with customer growth.
General, administrative, and other expenses are expected to continue to decline
as a percentage of operating revenues due to further economies of scale derived
from customer growth.
DEPRECIATION AND AMORTIZATION
Increases in depreciation and amortization expenses resulted primarily from
increased capital investments in property, plant, and equipment and intangible
assets, partially offset by reduced depreciation for domestic cellular
operations. Domestic cellular depreciation and amortization decreased due to
changes in the estimated useful lives of certain analog cellular assets from
seven to ten years beginning January 1, 1995. This change in estimated useful
lives reduced depreciation expense for the year by approximately $29.3 million.
The Company expects to incur significant capital expenditures in connection with
the deployment of its CDMA digital cellular sites in Los Angeles. The Company
may also be required to expand analog capacity in Los Angeles to accommodate
customer growth prior to the deployment of CDMA. In addition to capital
expenditures related to such deployment in the Los Angeles market, the
13
<PAGE> 14
\ MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
Company plans to incur significant capital expenditures for the construction and
deployment of other digital cellular networks. Accordingly, depreciation and
amortization expenses are expected to increase as these networks become
operational. However, depreciation and amortization is expected to continue to
decline as a percentage of operating revenues because of the addition of
customers to new and existing networks.
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 and increases in the estimated
useful lives of certain cellular assets, partially offset by declines in average
revenue per customer. A portion of the increase also was attributable to the
incremental increase of the Company's interest in Cellular Communications, Inc.
("CCI"), its 50% partner in New Par.
International. The increase in equity losses during 1995 reflected losses
associated with the first full year of operations for the Company's investments
in Japan and start-up losses in Italy and Spain, offset by substantial increases
in profitable operations of Mannesmann Mobilfunk GmbH ("MMO") (Germany) and, to
a lesser extent, improved operating results of Belgacom Mobile (Belgium) and
Telecel (Portugal). The Company acquired its interest in Belgacom Mobile during
1994. The increases in losses of Japan and the start-ups resulted from costs
associated with network build-out and rapid customer growth. The Company's
earnings from MMO increased due to significant customer growth, a 2.13% increase
in the Company's interest acquired in October 1995, and the extension of
depreciable lives for certain cellular assets from seven to ten years, effective
January 1, 1995.
International equity losses were partially offset by tax benefits of $39.8
million and $27.3 million in 1995 and 1994, respectively. The majority of these
tax benefits are attributable to the Company's share of the net operating loss
carryforwards ("NOLs") of its three cellular networks in Japan. These tax
benefits are recorded in "Equity in net income (loss) of unconsolidated wireless
systems: International" on the Consolidated Statements of Income. The tax
benefits were recorded as an asset that represents future benefits the
joint ventures will receive by deducting the NOLs from future taxable income. At
December 31, 1995, the Company's proportionate share of deferred tax assets of
its international equity subsidiaries was approximately $108.5 million, which
was offset by a valuation allowance of $36.9 million. While the Company believes
that it is more likely than not that the deferred tax assets will be fully
realized, there can be no assurance that this will happen as certain factors
beyond the control of the joint ventures and the Company, such as deteriorating
local economic conditions and increasing competition, can affect future timing
and amounts of taxable income.
MINORITY INTERESTS IN NET (INCOME) LOSS OF CONSOLIDATED WIRELESS SYSTEMS
The increase for 1995 resulted from increased earnings of the Company's Los
Angeles and Sacramento cellular operations.
INTEREST INCOME AND EXPENSE
Interest income was primarily derived from the earnings on investments in
held-to-maturity and available-for-sale securities and other short-term
instruments. The decrease in interest income during 1995 resulted from a
significant reduction in cash balances available for investment due to the use
of the 1993 initial public offering ("IPO") proceeds and other cash balances for
acquisitions and capital expenditures. See "Liquidity and Capital Resources."
The consolidated increase in interest expense of $2.7 million resulted from
significant borrowings during the fourth quarter of 1995, partially offset by
capitalization of interest associated with the construction of certain cellular
networks. See "Liquidity and Capital Resources."
14
<PAGE> 15
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
INCOME TAXES
The Company's effective income tax rates for 1995 and 1994 were 46.2% and 52.5%,
respectively. The effective tax rate decreased during 1995 due primarily to
foreign income tax benefits recognized for NordicTel and the write-down of
Teletrac's assets, partially offset by the effect of equity losses of
unconsolidated wireless systems. See Note N, "Teletrac," to the Consolidated
Financial Statements for information regarding Teletrac, and see Note J, "Income
Taxes," to the Consolidated Financial Statements for a detailed reconciliation
of the statutory rates to effective tax rates.
During 1995, the Company recognized a $13.3 million deferred tax benefit related
to losses of one of its foreign consolidated subsidiaries. At December 31, 1995,
the Company had consolidated deferred tax assets of $98.7 million and deferred
tax liabilities of $297.1 million. A valuation allowance of $25.5 million was
provided for consolidated deferred tax assets. Although there can be no
assurances, the Company believes that it is more likely than not that it will
generate future taxable income sufficient to fully realize future benefits from
the remaining deferred tax assets.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31 Change
----------------------------------------------- ------------------
(Dollars in millions) 1994 %(b) 1993 (a) %(b) Amount %
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wireless services and other revenues:
Cellular service (c) $ 896.4 71.9 $661.7 71.2 $234.7 35.5
Paging service 188.0 15.1 148.7 16.0 39.3 26.4
Other revenues 66.1 5.3 50.9 5.5 15.2 29.9
-------- ----- ------ ----- ------
1,150.5 92.3 861.3 92.7 289.2 33.6
Cellular and paging
equipment sales 96.4 7.7 68.2 7.3 28.2 41.3
------- ----- ------ ----- ------
Operating revenues 1,246.9 100.0 929.5 100.0 317.4 34.1
------- ----- ------ ----- ------
Operating expenses:
Cost of revenues (c) 167.4 13.4 127.7 13.7 39.7 31.1
Cost of cellular and paging equipment sales 99.2 8.0 67.5 7.3 31.7 47.0
Selling and customer operations expenses 389.8 31.3 263.1 28.3 126.7 48.2
General, administrative, and other expenses 312.6 25.1 235.9 25.4 76.7 32.5
Depreciation and amortization expenses 205.3 16.4 159.5 17.1 45.8 28.7
-------- ----- ------ ----- ------
Total operating expenses 1,174.3 94.2 853.7 91.8 320.6 37.6
-------- ----- ------ ----- ------
Operating income 72.6 5.8 75.8 8.2 (3.2) (4.2)
Equity in net income (loss) of unconsolidated
wireless systems:
Domestic 125.4 101.7 23.8 23.4
International (14.7) (37.5) 22.7 (60.7)
Minority interests in net (income) loss of
consolidated wireless systems (16.3) (25.5) 9.2 (36.1)
Interest:
Income 54.7 11.4 43.3 379.8
Expense (10.3) (21.3) 11.0 (51.6)
Foreign exchange loss (3.5) (3.4) (0.1) 2.9
Miscellaneous income (expense) (1.5) 6.7 (8.2) (122.4)
-------- ------ ------
Income before income taxes and cumulative
effect of accounting change 206.4 107.9 98.5 91.3
Income taxes 108.3 67.8 40.5 59.7
-------- ----- ------
Income before cumulative effect of accounting
change 98.1 40.1 58.0 144.6
Cumulative effect of accounting change for other
postretirement benefits, net of income tax
benefit of $3.5 -- (5.6) 5.6 (100.0)
-------- ------ ------
Net income $ 98.1 $ 34.5 $ 63.6 184.3
======== ====== ======
==================================================================================================================================
</TABLE>
(a) Adjusted to give effect to the adoption of the equity method of accounting
for CMT Partners; see "CMT Partners and NordicTel."
(b) Percentage of operating revenues.
(c) Presentation for 1994 has been restated to conform to the current year
presentation. See Note A, "Summary of Significant Accounting Policies -
Basis of Presentation," to the Consolidated Financial Statements.
CMT PARTNERS AND NORDICTEL
While net income is comparable, consolidated cellular service revenues and
operating expenses for 1994 are not comparable to 1993. Prior to the formation
of CMT Partners, the Company's partnership with AT&T Wireless (formerly McCaw
Cellular Communications, Inc.), on September 1, 1993, the San Francisco/San Jose
cellular system was consolidated. Once formed, the Company used the equity
method of accounting to report CMT Partners' results. Hereafter, the discussions
are based on 1993 amounts as adjusted to give retroactive effect to the adoption
of equity accounting for CMT Partners.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
Additionally, the comparability of operating revenues and operating expenses was
affected by NordicTel which was acquired in October 1993. In 1993, operations
for NordicTel were included in the Consolidated Financial Statements for three
months, while in 1994 operations were included for the entire year. NordicTel is
the most significant consolidated international subsidiary. The remaining
consolidated balances are primarily attributable to domestic cellular and paging
operations.
CELLULAR SERVICE REVENUES
The number of domestic customers grew by 49.3%, while the average revenue per
customer declined by 8.9% from 1993 to 1994. NordicTel comprised 3.2% of
cellular revenues in 1994.
The increase in cellular service revenues in 1994 was primarily due to continued
domestic customer growth in the Company's six consolidated markets. The growth
was achieved through advertising, increasing the number of distribution points,
new sales channels and the availability of low-cost handsets and service plans
designed to meet the needs of less frequent users.
The increase in cellular service revenues did not keep pace with customer growth
primarily because of declining average revenue per customer. The change in
customer mix from the business to consumer segments of the customer base was the
primary reason average revenue per customer declined during 1994.
PAGING SERVICE REVENUES
Increases in paging service revenues resulted primarily from a 30.7% increase in
the number of domestic paging units in service in 1994 as compared to the
previous year. The increases in domestic paging units in service reflect
increased penetration and expansion of existing geographic markets, primarily
through successful retail and reseller pager sales programs and an acquisition
of new paging operations in 1993.
The effect of growth in paging units in service on 1994 revenues was partially
offset by a decrease in the average revenue per paging unit. Declines in average
revenue per paging unit were primarily attributable to lower contract prices
resulting from competitive pressures and a decline in pager rental fees
associated with growth in customer-owned and maintained paging units.
CELLULAR AND PAGING EQUIPMENT SALES AND COST OF SALES
The increase in equipment sales in 1994 was attributable to the availability of
low-cost handsets. However, 1994 revenues from the increased number of handsets
sold were offset by a declining selling price resulting from the sale of
cellular telephones at or below cost in order to meet competition.
COST OF REVENUES
The increase in consolidated costs of revenues is consistent with overall
increases in wireless services and other revenues and primarily reflects
increases in variable cellular interconnection costs which increase in relation
to the level of cellular calls. Excluding cost of revenues not associated with
wireless services, cost of revenues as a percentage of wireless services and
other revenues declined from 14.2% during 1993 to 13.0% during 1994. The decline
reflects economies of scale associated with the fixed portion of network and
interconnection costs, as well as effective cost management and technical
efficiencies, partially offset by costs related to paging system capacity
expansion and the effects of acquiring NordicTel. NordicTel comprised 4.3% and
0.3% of cost of revenues for 1994 and 1993, respectively.
SELLING AND CUSTOMER OPERATIONS EXPENSES
NordicTel comprised 7.7% and 1.3% of selling and customer operations expenses
for 1994 and 1993, respectively. The 1994 increase reflected aggressive growth
strategies employed primarily during the second half of the year to attract new
domestic cellular customers. As a result, the Company experienced increases in
commissions paid for new cellular customers, and advertising
17
<PAGE> 18
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
and other promotional expenses associated with new marketing efforts. However,
the acquisition cost per gross domestic cellular customer added to the Company's
networks declined by 10.9% from 1993 to 1994.
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES
NordicTel comprised 6.2% and 0.8% of general, administrative, and other expenses
for 1994 and 1993, respectively.
On April 1, 1994, the Company was spun off (the "spin-off") from Pacific Telesis
Group ("Telesis"). Approximately 5% of general, administrative, and other
expenses in 1994 related to additional expenses for certain corporate functions
previously provided by Telesis. Other increases from 1993 to 1994 were primarily
due to costs related to research and development, the costs associated with
developing and acquiring foreign licenses, an increase in bad debt expense due
to the larger customer base, expenses for NordicTel, and legal expenses for
defending several antitrust suits brought against the Company and other cellular
operators. The increases were partially offset by higher billing of shared joint
costs for developing and acquiring foreign licenses with international joint
ventures, and capitalized license costs. Additionally, cost containment efforts
at Teletrac included reducing staff by 30% to approximately 200 employees.
In 1993, the Company provided approximately $9.2 million ($5.0 million after
tax) in reserve for spin-off related expenses. The reserve was substantially
utilized during 1994. Costs incurred related to expenditures for changing the
Company's corporate identity, for physical assets, and for legal and other
expenses associated with the spin-off. Other increases were for start-up
expenses related to the development of wireless data services. This, combined
with the costs of supporting the Company's growth, including entry into new
business opportunities, caused the general, administrative, and other expenses
to increase as a percentage of operating revenues.
DEPRECIATION AND AMORTIZATION
NordicTel comprised 8.4% and 1.3% of depreciation and amortization for 1994 and
1993, respectively. As a percentage of operating revenues, the decline between
1994 and 1993 was primarily the result of economies of scale as more customers
were added to the existing network. The increase in the amount of depreciation
and amortization expense in both 1994 and 1993 mainly reflects increased capital
investment in the Company's domestic cellular and paging networks.
EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED WIRELESS SYSTEMS
Domestic. Domestic equity earnings increased in 1994 and 1993 primarily as a
result of the increased earnings of CMT Partners and New Par.
International. The improvement for international unconsolidated wireless systems
was primarily due to the reduction of equity losses in 1994 as compared to 1993.
The improvement was attributable to the profitability of MMO and reduced losses
in Portugal, partially offset by losses from Japanese operations, losses from
Belgium operations acquired during the year, and by the costs of start-up joint
ventures which acquired new licenses in Italy and South Korea.
The international equity losses were partially offset by tax benefits of $27.3
million and $20.7 million in 1994 and 1993, respectively.
MINORITY INTERESTS IN NET (INCOME) LOSS OF CONSOLIDATED WIRELESS SYSTEMS
The decrease for 1994 was primarily the result of operating losses incurred by
NordicTel.
INTEREST INCOME AND EXPENSE
Interest expense in 1994 was primarily due to debt incurred by NordicTel and
AirTouch International. The debt outstanding for NordicTel was $97.5 million and
$50.1 million at December 31, 1994 and 1993, respectively. See Note G, "Debt and
Credit Facilities - Long-term
18
<PAGE> 19
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
Debt," to the Consolidated Financial Statements. In 1993, the Company used the
$1,179.8 million of equity contributions received from Telesis to substantially
eliminate its indebtedness to a Telesis subsidiary, PacTel Capital Resources.
In 1994, interest income was primarily attributable to the earnings on
investments of held-to-maturity and available-for-sale securities purchased with
the proceeds of the Company's IPO in December 1993.
INCOME TAXES
The Company's effective tax rates for 1994 and 1993 were 52.5% and 62.8%,
respectively. The effective tax rates for such periods were primarily
affected by the international equity losses of unconsolidated wireless systems,
which are not deductible in determining the Company's taxable income. See Note
J, "Income Taxes," to the Consolidated Financial Statements for a detailed
reconciliation of the effective tax rates to statutory rates.
PROPORTIONATE RESULTS OF OPERATIONS
The following table is not required by GAAP or 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, 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 Consolidated
Financial Statements taken as a whole.
SELECTED PROPORTIONATE OPERATING DATA (1)
TOTAL COMPANY
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------------------------------------
OPERATING RESULTS 1995 1994 Change 1993 Change
------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
(Dollars in millions)
Total net operating revenues (a) $2,605.2 $1,791.8 45.4 % $1,226.1 46.1 %
Total operating income $ 296.7 $ 171.5 73.0 % $ 97.6 75.7 %
Total operating cash flow (2) $ 702.3 $ 506.1 38.8 % $ 351.5 44.0 %
<CAPTION>
December 31
-------------------------------------------------------------
OPERATING DATA (In thousands) 1995 1994 Change 1993 Change
------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Total cellular POPs (3) 164,908 99,508 65.7 % 75,290 32.2 %
Total cellular subscribers 3,059 1,948 57.0 % 1,206 61.5 %
Cellular subscriber net adds in period,
excluding acquisitions 974 713 36.6 % 409 74.3 %
Total paging units in service 2,474 1,647 50.2 % 1,269 29.8 %
Paging units in service net adds,
excluding acquisitions 477 378 26.2 % 348 8.6 %
</TABLE>
See footnotes.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
DOMESTIC CELLULAR OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------------------------------------------------
OPERATING RESULTS 1995 1994 Change 1993 Change
--------- --------- ------ --------- ------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Service and other revenues (a) $1,523.3 $1,160.1 31.3 % $ 892.0 30.1 %
Equipment sales 78.9 74.6 5.8 % 40.2 85.6 %
Cost of equipment sales (125.6) (82.0) 53.2 % (42.2) 94.3 %
-------- -------- ---------
Net operating revenues 1,476.6 1,152.7 28.1 % 890.0 29.5 %
-------- -------- ---------
Cost of revenues (a) 188.4 136.5 38.0 % 116.3 17.4 %
Selling and customer operations 544.0 415.2 31.0 % 297.2 39.7 %
General, administrative, and
other expenses 139.0 122.0 13.9 % 96.9 25.9 %
Depreciation and amortization
expenses 189.2 185.7 1.9 % 164.7 12.8 %
-------- -------- ---------
Total operating expenses 1,060.6 859.4 23.4 % 675.1 27.3 %
-------- -------- ---------
Operating income $ 416.0 $ 293.3 41.8 % $ 214.9 36.5 %
======== ======== =========
Operating cash flow (2) $ 605.2 $ 479.0 26.3 % $ 379.6 26.2 %
Operating cash flow margin (b) 41.0% 41.6% (1.4)% 42.7% (2.6)%
Capital expenditures, excluding
acquisitions $ 475.0 $ 296.7 60.1 % $ 198.4 49.5 %
<CAPTION>
December 31
-------------------------------------------------------------------------
OPERATING DATA (In thousands) 1995 1994 Change 1993 Change
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Total POPs (3) 37,739 35,390 6.6 % 34,889 1.4 %
Subscribers 2,262 1,560 45.0 % 1,046 49.1 %
Subscriber net adds in period,
excluding acquisitions 591 514 15.0 % 286 79.7 %
</TABLE>
INTERNATIONAL CELLULAR OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------------------
OPERATING RESULTS 1995 1994 Change 1993 Change
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(Dollars in millions)
Existing operations (4):
Net operating revenues $841.0 $352.8 138.4 % $ 88.3 299.5 %
Operating income (loss) $ 62.7 $ 10.0 527.0 % $(17.3) ___
Operating cash flow (2) $203.7 $ 87.4 133.1 % $ 6.5 ___
Income (loss) $ (0.5) $(13.2) 96.2 % $(18.9) 30.2 %
Start-up systems (5):
Income (loss) $(51.6) $(26.1) (97.7)% $(20.9) (24.9)%
Total income (loss) $(52.1) $(39.3) (32.6)% $(39.8) 1.3 %
</TABLE>
See footnotes.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------
OPERATING DATA (In thousands) 1995 1994 Change 1993 Change
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total POPs (3) 112,869 64,118 76.0 % 40,401 58.7 %
Subscribers 797 388 105.4 % 160 142.5 %
Subscriber net adds in period,
excluding acquisitions 383 199 92.5 % 123 61.8 %
</TABLE>
Footnotes:
(a) Presentation for 1994 has been restated to conform to the current year
presentation. See Note A, "Summary of Significant Accounting Policies -
Basis of Presentation," to the Consolidated Financial Statements.
(b) If net losses on equipment sales were reclassified as operating expenses,
operating cash flow margins would be 39.7%, 41.3%, and 42.6%, for the years
1995, 1994, and 1993, respectively.
(1) Reflects proportionate 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 Consolidated Financial Statements taken as a whole.
(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. In 1995, total Company cellular POPs included 14,300 PCS POPs;
international cellular POPs (and therefore total Company cellular POPs)
included 36,943 POPs for recently formed ventures in India and 7,469 POPs
for Poland where the Company's consortium was awarded a national cellular
license in February 1996.
(4) Represents the Company's share of operating results (after foreign taxes
where applicable) for international cellular systems which have completed
12 months of commercial service, as follows:
1995: Germany, Portugal, Sweden, Belgium, and Japan
1994: Germany, Portugal, Sweden, and Belgium (6 months)
1993: Germany (6 months), Portugal (3 months), and Sweden
(3 months)
(5) Represents 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:
1995: Italy, South Korea, Spain, and India (4 months)
1994: Japan, Italy (3 months), and South Korea (3 months)
1993: Japan, Germany (6 months), and Portugal (9 months)
TOTAL COMPANY
Proportionate Company operating results for 1995, 1994, and 1993 reflect a
significant growth trend over the three-year period; however, the rates of
growth declined slightly as the customer base expanded, a trend which is likely
to continue. The Company expects that in 1996 growth in cellular subscribers
will exceed the one million net adds experienced during 1995 but will result in
21
<PAGE> 22
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
a lower growth rate of approximately 33%. Increases in net operating revenues
over the three-year period reflect the continued strong growth in customers.
This growth was partly offset by declining average revenue per customer largely
due to the Company's increased penetration of the domestic consumer market with
its typically lower usage. Increases in operating income during the three-year
period reflect the significant customer growth, economies of scale, and cost
containment efforts. The impact of these factors on income is diluted somewhat
by increased selling costs to generate gains, declining average revenue per
customer, increasing roaming fraud losses, and the costs of start-up. The
slightly lower rate of increase in operating income in 1995 over 1994 accounts
for the lower rate of increase in operating cash flow for the same period. Total
Company operating cash flow for 1996 is expected to approach one billion dollars
as a result of scale and scope and improved international operating results.
DOMESTIC CELLULAR
Increases in operating income are attributable to growth in the number of
customers from 1994 to 1995 and from 1993 to 1994, respectively.
Cellular service and other revenues increased steadily from 1993 to 1995. In
1995, growth strategies were directed at the consumer market from as many varied
points of presence as possible to attract new domestic customers. In 1994, a
similar growth strategy directed at the consumer market was in effect throughout
the year for CMT Partners and New Par, and during the second half of the year
for the Company's consolidated markets. In 1993, fixed-term discount plans and
various promotional programs contributed to the increase in customer growth.
Increases in cellular service revenues have not kept pace with customer growth
because of declining average revenue per customer, which decreased 8.7% from
1994 to 1995 and 10.7% from 1993 to 1994. These declines are primarily due to
increased penetration of consumer segments of the population base. Increased
penetration into the consumer cellular market is due primarily to the
availability of low-cost handsets and service plans designed to meet the needs
of less frequent users. New consumer customers typically use their phones less
often and place many of their calls during off-peak, lower-rate periods, which
generates lower average revenue per customer than business customers. However,
the increase in off-peak usage results in revenue growth from higher
utilization of the Company's networks without additional capital investment to
expand capacity. The Company expects that average revenue per customer will
follow the industry trend, and continue to decline as new consumer customers
are added.
Equipment sales consist of revenues from sales of cellular telephones. Such
sales are not a primary part of the Company's cellular business. Equipment sales
increased 5.8% in 1995 over 1994 and 85.6% in 1994 over 1993, primarily due to
higher volumes of sales from retail sales locations in managed markets, and from
direct sales as part of the New Par growth initiative to increase the customer
base. During 1995, as a result of the lifting of the prohibition on bundling
within California, competitive responses involved the inclusion of free or
low-cost phone equipment in promotions. The competitive pressure to sell
telephone handsets at or below cost resulted in negative equipment margins in
each year of the three-year period. The Company believes, however, that reduced
prices for equipment have contributed significantly to customer growth,
particularly in the consumer market. The Company expects contribution margins of
equipment sales to remain negative as it responds to increasing competitive
market pressure.
Cost of revenues increased as a percentage of net operating revenues from 11.8%
in 1994 to 12.8% in 1995, reflecting increased roaming fraud losses during 1995,
particularly in the Company's consolidated markets. The negative impact of
roaming fraud was partially offset by the effects of economies of scale,
technical efficiencies, and cost containment efforts in each of the Company's
markets. These positive factors account for the decrease in cost of revenues as
a percentage of net operating revenues from 13.1% in 1993 to 11.8% in 1994.
Technical costs have increased at a slower pace than customer growth.
22
<PAGE> 23
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
Selling and customer operations expenses as a percentage of net operating
revenues were 36.8%, 36.0%, and 33.4% in 1995, 1994, and 1993, respectively. The
1995 increase over 1994 expenses was primarily due to growth in the customer
base resulting from marketing programs to attract new customers and included
commissions paid for new cellular customers, advertising, and other promotional
expenses associated with such programs. The increase also included the cost of
expanded customer operations to support the increased number of customers. These
costs were partially offset by cost containment efforts and economies of scale,
primarily in the area of billing costs. Similarly, in 1994 the increase over
1993 reflects an increase in sales commissions, advertising, promotional
expenses, and billing costs associated with the increased number of domestic
cellular customers, offset by the effects of cost containment initiatives. The
Company expects that customer operations expenses will decline on a per-customer
basis in its managed markets once its new customer support system is fully
deployed in 1997.
Although the Company is actively managing its selling expenses, competitive
market pressures in certain markets continue to influence the Company's ability
to reduce the cost for each additional new customer. The Company experienced a
1.6% increase in acquisition costs per gross add from 1994 to 1995, compared to
a 9.2% decrease from 1993 to 1994. The cost of acquiring a new customer,
including losses on equipment, increased 11.2% from 1994 to 1995, compared to a
7.8% decrease from 1993 to 1994.
General, administrative, and other expenses as a percentage of net operating
revenues were 9.4%, 10.6%, and 10.9% in 1995, 1994, and 1993, respectively. The
declining trend in these percentages reflects the Company's ongoing efforts to
contain costs across all markets. The dollar increase between 1995 and 1994 was
primarily attributable to increased expenses associated with the research and
development of customer support systems, process engineering, and information
technology transition. Such expenses included employee-related costs,
facilities, and office expenses. The dollar increase between 1994 and 1993 is
primarily attributable to additional expenses for certain corporate functions
provided by Telesis prior to the spin-off of the Company on April 1, 1994.
Depreciation and amortization expenses as a percentage of net operating revenues
were 12.8%, 16.1%, and 18.5% in 1995, 1994, and 1993, respectively. The
declining trend in these percentages reflects the Company's significant increase
in customer growth that allows the increase of capital expenditures in its
cellular systems to be spread over a larger customer base. In 1995, the very
slight dollar increase in depreciation expense reflects the effect of additional
capital expenditures nearly offset by the effect of extending the depreciation
period for certain cellular equipment from seven to ten years. In addition,
amortization expense increased due to the amortization of goodwill arising from
the October 1995 purchase of additional CCI shares (See Note E, "Investments in
Unconsolidated Wireless Systems," to the Consolidated Financial Statements). In
1994, the increase in depreciation expense reflected CMT Partners' completion of
its initial phase for the deployment of time division multiple access ("TDMA")
digital technology in the San Francisco Bay Area.
INTERNATIONAL CELLULAR
The significant growth in the net operating revenues of existing cellular
operations between 1995, 1994, and 1993 reflects continuing expansion of the
international customer base due to growth across all cellular markets, the
successful launch of start-ups into existing commercial operations, and
acquisitions. The number of customers at December 31, 1995 was nearly five times
the number of customers at year-end 1993. The Company's ventures are classified
as existing operations after completing 12 months of commercial service as
described in footnotes 4 and 5 to the Selected Proportionate Operating Data
schedules.
Operating income for existing cellular operations realized a significant
improvement for 1995 over 1994 due to strong customer growth in the Company's
interests in Belgium, Germany, and Portugal, achieving improved scale. This
improvement was partially offset by the increased
23
<PAGE> 24
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
depreciation and amortization expenses caused by expanding system capacity and
the cost of strong customer growth in Japan. The improvement in operating income
for 1994 over 1993 primarily resulted from the effect of comparing ongoing
results in 1994 to initial results in 1993, the first year in which the
start-ups were launched into existing commercial operations.
The improvement in operating cash flows for the three-year period from 1993 to
1995 reflects the improved operating results of existing operations in
successive years.
Aggregated existing operations were nearly at break-even for the year 1995. This
result reflects the improved operating results of our existing operations in
1995 over 1994 as these operations gained greater scale. The aggregate losses
for 1994 and 1993 indicate that break-even scale was not yet achieved in the
earlier years.
Losses for the cellular start-up systems increased in 1995 as compared to 1994,
reflecting increased start-up activity as the Company continued to develop
international opportunities. Losses for cellular start-up systems will continue
to dilute 1996 earnings. In 1995 start-up systems included India, Italy, South
Korea and Spain, while in 1994 start-ups primarily consisted of the Company's
equity investments in Japan. In 1993, start-ups consisted of Japan, Germany
during the first half of the year, and Portugal during the first nine months of
the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company defines liquidity as its ability to generate resources to finance
business expansion, construct capital assets, and pay its current obligations.
The Company requires substantial capital to expand and operate its existing
wireless systems, to construct new wireless systems, and to acquire interests in
existing wireless systems.
1995 CAPITAL EXPENDITURES
During the year ended December 31, 1995, the Company incurred capital
expenditures of $484.2 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 rapid customer growth. The Company invested an
additional $484.7 million as capital contributions to unconsolidated wireless
systems to fund license purchases and the build-out of cellular networks. Of
this amount, approximately $282.4 million was contributed to PCS PrimeCo
primarily to fund the purchase of its 11 broadband PCS licenses. In addition,
the Company invested $779.4 million in acquisitions of new or additional
interests in unconsolidated wireless systems. Significant components of
investments in unconsolidated wireless systems included the purchase of
additional interests in CCI and MMO.
FUNDING OF 1995 CAPITAL NEEDS
The Company did not generate sufficient cash from operations to meet its capital
requirements during 1995. As described below, additional funding needs for the
year ended December 31, 1995 were satisfied primarily by cash from the
liquidation of investments and proceeds from borrowings under the Company's $2
billion credit facility.
During 1995, the Company generated $322.2 million in cash from operations and
received $396.4 million in proceeds from the maturity and sale of certain
investments and securities.
In July 1995, the Company obtained an unsecured $2 billion, five-year revolving
credit facility to fund its capital requirements. See Note G, "Debt and Credit
Facilities," to the Consolidated Financial Statements. During 1995, the Company
borrowed $664.6 million under the facility.
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
24
<PAGE> 25
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
capital requirements for 1996 are expected to exceed $1 billion. The Company
expects to incur significant capital expenditures in connection with the
deployment of its CDMA digital cellular sites in Los Angeles. The Company may
also be required to expand analog capacity in Los Angeles to accommodate
customer growth prior to the deployment of CDMA. 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 December 31, 1995, the Company was committed to spend approximately $39
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 $557 million during
1996 to increase the capacity of its existing domestic analog networks and to
deploy digital technology. At December 31, 1995, the Company had also committed
to spend approximately $93 million for the purchase of cellular handsets.
Unconsolidated Wireless Systems. As of December 31, 1995, the Company was
committed to make capital contributions of $89.0 million to its unconsolidated
wireless systems. The Company was also committed to purchase options for 2.4
million shares of stock in CCI for an aggregate cost of $107.7 million. In
addition, the Company may be obligated to make a payment to CCI stockholders
in the event that the Company does not elect to purchase CCI's interest in New
Par at a value determined in an appraisal process. See Note E, "Investments in
Unconsolidated Wireless Systems - Cellular Communications, Inc.," to the
Consolidated Financial Statements and Item 1, "Business-Domestic
Cellular-Joint Ventures-New Par," inthe Company's Form 10-K for the year ended
December 31, 1995.
In addition to these commitments, the Company plans to make capital
contributions of approximately $242 million during 1996 to its existing
international and domestic joint ventures, including contributions to PCS
PrimeCo for the construction of its newly acquired broadband PCS licenses. PCS
PrimeCo's networks are expected to be operational by the fourth quarter of
1996.
FUTURE CAPITAL FUNDING
On March 14, 1996, the Company initiated a commercial paper program which
consists of the sale of short-term notes exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2). 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
aggregate principal amount outstanding does not exceed amounts available for
borrowing under the Company's $2 billion revolving credit facility. 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. During March 1996, the
Company issued approximately $710 million in commercial paper under this
program.
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.
However, management expects that the Company will require additional external
financing if and when the Company exercises its right to acquire the remaining
shares of CCI pursuant to certain agreements with CCI. Management also
anticipates that additional external financing will 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. In September 1995, the Company filed a registration
25
<PAGE> 26
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
statement with the Securities and Exchange Commission for $2 billion in various
forms of debt and 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.
26
<PAGE> 27
REPORT OF MANAGEMENT
To the Stockholders of AirTouch Communications, Inc.:
FINANCIAL STATEMENTS
The management of AirTouch Communications, Inc. and its subsidiaries prepared
the accompanying Consolidated Financial Statements and is responsible for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis and are
not misstated as a result of material fraud or error. The Consolidated Financial
Statements include amounts based on management's best estimates and judgments,
where necessary. Management also prepared the other information in this annual
report and is responsible for its accuracy and consistency with the Consolidated
Financial Statements.
The Company's 1995 Consolidated Financial Statements have been audited by Price
Waterhouse LLP, independent accountants, whose appointment has been recommended
by the Board of Directors for ratification by the Company's stockholders. The
Company's 1994 and 1993 Consolidated Financial Statements were audited by
Coopers & Lybrand L.L.P., independent accountants. Management has made available
to Price Waterhouse LLP and Coopers & Lybrand L.L.P., all of the Company's
financial records and related data, as well as the minutes of meetings of the
Board of Directors. Furthermore, management believes that all of the
representations made to Price Waterhouse LLP and Coopers & Lybrand L.L.P.
during their audits were valid and appropriate.
INTERNAL CONTROL SYSTEM
AirTouch Communications, Inc. and its subsidiaries maintain a system of internal
controls over financial reporting, one of the purposes of which is to provide
reasonable assurance to the Company's management and Board of Directors
regarding the preparation of reliable published financial statements. The Audit
Committee of the Board of Directors is responsible for overseeing the Company's
financial reporting process on behalf of the Board. During 1995, the Audit
Committee met regularly with management, internal audit and the independent
accountants to review internal controls, accounting, auditing, and financial
reporting matters.
The system of internal controls contains self-monitoring mechanisms, and actions
are taken to correct deficiencies as they are identified. Even an effective
internal control system, no matter how well designed, has inherent limitations -
including the possibility of the circumvention or overriding of controls - and
therefore can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, internal
control system effectiveness may vary over time.
The Company assessed its internal control system in its consolidated operations
throughout the year ended December 31, 1995 in relation to criteria for
effective internal control over financial reporting described in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). To assess the internal
control systems in its unconsolidated partnerships and corporations, management
relied on reports issued by various external public accountants who performed
audits of those entities, where such reports were available. Based on these
assessments, the Company believes that, as of December 31, 1995, its overall
system of internal control over financial reporting was effective.
/s/ Sam Ginn
Sam Ginn
Chairman and Chief Executive Officer
/s/ Mohan Gyani
Mohan Gyani
Executive Vice President and Chief Financial Officer
February 23, 1996
27
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of AirTouch Communications, Inc.:
In our opinion, the accompanying Consolidated Balance Sheet and the related
Consolidated Statements of Income, of Stockholders' Equity, and of Cash Flows
present fairly, in all material respects, the financial position of AirTouch
Communications, Inc. and its subsidiaries at December 31, 1995, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. The
Consolidated Financial Statements of AirTouch Communications, Inc. for each
of the two years in the period ended December 31, 1994 were audited by other
independent accountants whose report dated March 13, 1995, indicated the extent
of their reliance on the report of other independent accountants insofar as it
related to amounts included in the financial statements for Mannesmann Mobilfunk
GmbH, an investment of the Company accounted for using the equity method of
accounting (see Note E), and included an explanatory paragraph that described
the change, effective January 1, 1993, in the method of accounting for
postretirement benefits discussed in Note B.
Our audit was made for the purpose of forming an opinion on the Consolidated
Financial Statements taken as a whole. The Selected Proportionate Results of
Operations (Proportionate Data) for the year ended December 31, 1995 appearing
on page 58 is presented for additional analysis and is not a required part of
the basic financial statements. As discussed on page 58, this 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. The Proportionate Data
reflects selected operating data of the Company's consolidated and
unconsolidated investments using the proportionate method of accounting and is
not a presentation in accordance with generally accepted accounting principles.
Such Proportionate Data, determined on the basis of presentation described on
page 58 has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the Consolidated Financial Statements taken as
a whole. The Proportionate Data, determined on the basis of presentation
described on page 58, for each of the two years in the period ended December 31,
1994 appearing on page 58 was audited by other independent accountants whose
report dated March 13, 1995, indicated the extent of their reliance on the
report of other accountants insofar as it related to financial information
included in the Proportionate Data for Mannesmann Mobilfunk GmbH, and expressed
an unqualified opinion on that Proportionate Data.
/s/ PRICE WATERHOUSE LLP
San Francisco, California
February 23, 1996
28
<PAGE> 29
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended December 31
----------------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating revenues (a) $1,618.6 $1,246.9 $1,057.7
-------- -------- --------
Operating expenses:
Cost of revenues (a) 372.9 266.6 213.7
Selling and customer operations expenses 524.7 389.8 291.3
General, administrative, and other expenses 392.4 312.6 250.3
Depreciation and amortization expenses 215.8 205.3 174.2
-------- -------- --------
Total operating expenses 1,505.8 1,174.3 929.5
-------- -------- --------
Operating income 112.8 72.6 128.2
Equity in net income (loss) of unconsolidated
wireless systems:
Domestic 188.2 125.4 70.4
International (35.9) (14.7) (37.5)
Minority interests in net (income) loss of consolidated
wireless systems (36.5) (16.3) (46.4)
Interest:
Income 34.9 54.7 12.0
Expense (13.0) (10.3) (22.1)
Foreign exchange gain (loss) 3.3 (3.5) (3.4)
Miscellaneous income (expense) (8.8) (1.5) 6.7
-------- -------- --------
Income before income taxes and cumulative
effect of accounting change 245.0 206.4 107.9
Income taxes 113.1 108.3 67.8
-------- -------- --------
Income before cumulative effect of accounting change 131.9 98.1 40.1
Cumulative effect of accounting change for other
postretirement benefits, net of income tax benefit of $3.5
(Note B) ___ ___ (5.6)
-------- -------- --------
Net income $ 131.9 $ 98.1 $ 34.5
======== ======== ========
Per share amounts:
Income before cumulative effect of accounting change $ 0.27 $ 0.20 $ 0.09
Cumulative effect of accounting change ___ ___ (0.01)
-------- -------- --------
Net income $ 0.27 $ 0.20 $ 0.08
======== ======== ========
Weighted average shares outstanding (in thousands) 494,925 493,351 429,630
======== ======== =======
</TABLE>
(a) Presentation for 1994 has been restated to conform to current year
presentation. See Note A.
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
29
<PAGE> 30
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<TABLE>
<CAPTION>
December 31
---------------------
1995 1994
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 82.9 $ 429.0
Accounts receivable, net of allowance for uncollectibles of
$21.2 and $10.1 in 1995 and 1994, respectively 232.4 173.3
Held-to-maturity investments -- 310.1
Available-for-sale securities -- 101.3
Other receivables 103.6 128.2
Due from affiliates 21.0 25.9
Other current assets 66.3 98.5
-------- --------
Total current assets 506.2 1,266.3
Property, plant, and equipment, net 1,320.2 975.3
Investments in unconsolidated wireless systems 3,076.3 1,697.9
Intangible assets, net 605.7 470.5
Deferred charges and other noncurrent assets 139.5 78.0
-------- --------
Total assets $5,647.9 $4,488.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 171.4 $ 133.9
Short-term borrowings -- 80.0
Other current liabilities 316.3 315.9
-------- --------
Total current liabilities 487.7 529.8
Long-term debt 892.4 120.2
Deferred income taxes 258.6 209.2
Deferred credits 106.0 39.4
-------- --------
Total liabilities 1,744.7 898.6
-------- --------
Commitments and contingencies
Minority interests in consolidated wireless systems 152.5 129.8
-------- --------
Stockholders' equity:
Preferred stock ($.01 par value; 50,000,000 shares authorized; no shares
issued or outstanding) -- --
Common stock ($.01 par value; 1,100,000,000 shares authorized;
498,692,430 shares issued and 498,569,470 shares outstanding at
December 31, 1995; 493,915,064 shares issued and 493,792,104 shares
outstanding at December 31, 1994) 5.0 4.9
Additional paid-in capital 3,877.2 3,745.3
Accumulated deficit (158.1) (290.0)
Cumulative translation adjustment 17.1 11.1
Other 9.5 (11.7)
-------- --------
Total stockholders' equity 3,750.7 3,459.6
-------- --------
Total liabilities and stockholders' equity $5,647.9 $4,488.0
======== ========
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
30
<PAGE> 31
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
<TABLE>
<CAPTION>
Common Stock Additional Accu- Cumulative
------------------- Paid-in mulated Translation
Shares Amount Capital Deficit Adjustment Other Total
------- -------- ------- ------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 424.0 $4.2 $1,051.2 $(308.8) $ 5.5 $ __ $ 752.1
Net income 34.5 34.5
Dividends paid to Telesis (113.6) (113.6)
Equity infusion by Telesis 1,179.8 1,179.8
Shares issued under initial
stock offering 68.5 0.7 1,488.5 1,489.2
Foreign currency translation loss (4.7) (4.7)
----- ---- -------- ------- ----- ------ --------
Balances at December 31, 1993 492.5 4.9 3,719.5 (387.9) 0.8 __ 3,337.3
Net income 98.1 98.1
Share additions under
incentive programs 1.3 25.8 25.8
Foreign currency translation gain 10.1 10.1
Minimum pension liability (0.6) (0.6)
Unearned compensation (16.4) (16.4)
Compensation expense 1.5 1.5
Unrealized holding gain on
available-for-sale
securities, net 3.8 3.8
Other (0.2) 0.2 __
----- ---- -------- ------- ----- ------ --------
Balances at December 31, 1994 493.8 4.9 3,745.3 (290.0) 11.1 (11.7) 3,459.6
Net income 131.9 131.9
Share additions under
incentive programs 1.7 39.9 39.9
Shares issued for acquisition 3.2 0.1 93.7 93.8
Treasury share additions through
incentive plan forfeitures, net of
shares reissued under incentive
programs (0.1) (1.8) (1.8)
Foreign currency translation gain 6.0 6.0
Unearned compensation (7.8) (7.8)
Compensation expense 5.8 5.8
Unrealized holding gain on
noncurrent available-for-sale
securities, net 23.2 23.2
Other 0.1 0.1
----- ---- -------- ------- ----- ------ --------
Balances at December 31, 1995 498.6 $5.0 $3,877.2 $(158.1) $17.1 $ 9.5 $3,750.7
===== ==== ======== ======= ===== ====== ========
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
31
<PAGE> 32
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 131.9 $ 98.1 $ 34.5
Adjustments to reconcile net income for items currently
not affecting operating cash flows:
Depreciation, amortization, and other noncash
charges 221.6 206.8 174.2
Deferred income taxes 24.3 (28.5) 23.9
Minority interests in net income (loss) of consolidated
wireless systems 36.5 16.3 46.4
Equity in net income of unconsolidated wireless
systems (152.3) (110.7) (32.9)
Distributions received from equity investments 104.0 80.3 42.2
(Gain) loss on sale of assets (4.3) (1.1) 3.4
Cumulative effect of accounting change for
postretirement costs -- -- 9.1
Changes in assets and liabilities:
Accounts receivable, net (51.1) (35.1) (30.4)
Other current assets and receivables 53.1 (167.1) 130.5
Deferred charges and other noncurrent assets (32.6) (51.1) (1.3)
Accounts payable and other current liabilities (6.1) 130.1 18.7
Deferred credits and other liabilities (2.8) (20.4) 28.3
--------- ------- ---------
Cash flows from operating activities 322.2 117.6 446.6
--------- ------- ---------
Cash flows from investing activities:
Investment in unconsolidated wireless systems (1,264.1) (502.3) (386.9)
Additions to property, plant, and equipment (484.2) (383.4) (216.8)
Maturity (purchase) of held-to-maturity investments 310.1 504.0 (814.0)
Maturity (purchase) of available-for-sale securities 86.3 (110.9) --
Decrease in short-term borrowings from
Telesis affiliate -- (0.3) (773.1)
Loan repayments from Telesis affiliate -- -- 106.5
Issuance of loan to Telesis affiliate -- -- (6.8)
Retirement of long-term debt from Telesis affiliate -- -- (234.5)
Other investing activities (9.7) 21.3 (28.9)
--------- ------- ---------
Cash flows from investing activities (1,361.6) (471.6) (2,354.5)
--------- ------- ---------
</TABLE>
(Continued on next page)
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
32
<PAGE> 33
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Continued from previous page)
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Cash flows from financing activities:
(Decrease) increase in short-term borrowings (86.0) 77.8 (2.6)
Proceeds from issuing long-term debt 766.5 45.9 13.8
Contributions from minority interests in consolidated
wireless systems 6.2 36.7 2.8
Distributions to minority interests in consolidated
wireless systems (20.7) (32.0) (30.3)
Retirement of notes and obligations payable (7.8) (5.5) (1.0)
Proceeds from shares issued 32.1 9.4 1,489.2
Equity infusion by Telesis -- -- 1,179.8
Dividends paid to Telesis -- -- (113.6)
Other financing activities 2.7 (0.1) (0.1)
------- ------- --------
Cash flows from financing activities 693.0 132.2 2,538.0
------- ------- --------
Effect of exchange rate changes on cash and cash equivalents 0.3 4.1 (0.5)
------- ------- --------
Net change in cash and cash equivalents (346.1) (217.7) 629.6
Beginning cash and cash equivalents 429.0 646.7 17.1
------- ------- --------
Ending cash and cash equivalents $ 82.9 $ 429.0 $ 646.7
======= ======= ========
Supplemental cash flow information:
Cash payments for:
Interest, net of amounts capitalized $ 4.4 $ 9.4 $ 26.4
Income taxes $ 108.1 $ 151.2 $ 51.5
Noncash transactions:
Unearned compensation $ 7.8 $ 16.4 --
Stock issued for acquisition $ 93.8 -- --
Contribution of assets to CMT Partners at book value -- -- $ 206.0
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
subsidiary, AirTouch Cellular.
Prior to April 1, 1994, the Company was an 86.1% owned subsidiary of Pacific
Telesis Group ("Telesis"), a reporting company under the Securities Exchange Act
of 1934. In April 1994, Telesis distributed to its stockholders all of the
common stock of the Company owned by Telesis (the "spin-off"). In 1993, the
Company provided a reserve of $9.2 million ($5.0 million after taxes) for
anticipated incremental costs directly attributable to the spin-off and, as of
December 31, 1994, the Company had substantially utilized this reserve.
Management believes that the Consolidated Financial Statements of the Company
for the years ended December 31, 1994 and 1993 reasonably reflect the historical
relationships with Telesis and its affiliates and reflect all of the Company's
costs of doing business. Management believes there would not have been any
material difference from the amounts presented in the 1994 and 1993 historical
financial statements had the Company operated on a stand-alone basis.
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 1995 format; however, these reclassifications did not affect previously
reported net income or accumulated deficit.
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. Prior periods have been
reclassified to conform to the new presentation. 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. 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.
CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid, held-to-maturity investments
with original maturities of 90 days or less from the date of purchase.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Held-to-maturity investments were debt securities that the Company had the
positive intent and ability to hold to maturity. The Company's held-to-maturity
investments were carried at amortized cost and consisted principally of highly
liquid debt securities with contractual maturities in excess of three months.
Available-for-sale investments are debt and equity securities not classified as
either held-to-maturity or trading securities. The Company's current
available-for-sale investments were carried at fair value and consisted
principally of highly liquid debt securities issued by the U.S. Treasury and
other U.S. Government corporations and agencies and generally had contractual
maturities in excess of three months.
34
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Results of operations for foreign investments are translated using average
exchange rates during the period, while assets and liabilities are translated
using end-of-period rates. The resulting exchange gains or losses are
accumulated in the "Cumulative translation adjustment" account (the "CTA
account"), a component of stockholders' equity. All significant gains and losses
resulting from foreign currency transactions are included in operations.
FINANCIAL INSTRUMENTS
The Company is exposed to market risks arising from foreign currency and
interest rate fluctuations. The Company enters into foreign currency hedging
activities to reduce currency exposures to its long-term investments in foreign
subsidiaries and international joint ventures. The Company hedges a portion of
these investments with long-dated forward contracts and foreign currency
denominated loans. In addition, the Company enters into forward exchange
contracts to reduce exposures of firm capital commitments denominated in foreign
currencies. The Company does not hold or issue financial instruments for trading
or speculative purposes. The Company enters into interest rate swap agreements
to manage its exposure to fluctuations in interest rates and to minimize the
Company's cost of funds. Swap agreements are primarily used to effectively
convert existing variable rate debt to fixed rate and to reduce the interest
rate risk for future borrowings.
Foreign currency hedges. Gains or losses associated with forward foreign
exchange contracts that qualify as accounting hedges for net foreign investments
("qualifying hedges") are recorded in the CTA account, with a corresponding
adjustment to a deferred asset or liability account. Gains and losses from
foreign currency denominated debt qualifying as a hedge are recorded in the CTA
account, with the corresponding adjustment to the carrying value of the debt.
For forward foreign exchange contracts and foreign currency denominated debt
that are not qualifying hedges, gains or losses are recorded in "Foreign
exchange gain (loss)" in the Consolidated Statements of Income.
Gains and losses related to qualifying hedges of firm commitments are deferred
and are recognized as adjustments of carrying amounts when the hedged
transactions occur.
Interest rate hedges. Under an interest rate swap, the Company agrees with
another party to exchange interest payments at specified intervals over a
defined term. Interest payments are calculated by reference to the notional
amount based on the fixed and variable terms of the swap agreement. The net
interest received or paid as part of the interest rate swap is accounted for as
an adjustment to interest expense. The Company amortizes the fair value of a
forward interest rate swap used to hedge future borrowings over the term of the
related debt when incurred.
PROPERTY, PLANT, AND EQUIPMENT
Assets of businesses purchased are recorded at their fair values at the date of
acquisition. All other property, plant, and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the related assets'
estimated useful lives ranging from three to forty years except land, which is
not depreciated. Gains and losses on disposals are included in income at amounts
equal to the difference between the net book value of the disposed assets and
the proceeds received upon disposal. Expenditures for replacements and
betterments are capitalized, while expenditures for maintenance and repairs are
charged against earnings as incurred.
INTANGIBLE ASSETS
The Company uses modeling techniques on new acquisitions and long-range business
plans, revised annually, to assess whether a revision of the existing estimated
useful lives of intangible assets is necessary.
FCC and international licenses. The Federal Communications Commission ("FCC")
issues cellular licenses that enable domestic cellular carriers to provide
service in specific Cellular Geographic Service Areas. A cellular license is
issued conditionally for ten years. Historically, the FCC has routinely granted
license renewals providing the licensees have complied with applicable rules,
policies, and the Communications Act of 1934, as amended. The Company believes
it has complied and intends to
35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continue to comply with these standards and is amortizing the related costs
using the straight-line method over 40 years.
FCC licenses for domestic paging operations are amortized on a straight-line
basis over 40 years. FCC licenses acquired by the Company through business
combinations are generally stated at appraised values as of the date of
acquisition and amortized using the straight-line method over 40 years.
International licenses for the Company's international cellular and paging
operations are amortized on a straight-line basis over the expected term of the
licenses, which are generally up to 20 years.
Subscriber lists. Subscriber lists acquired through business combinations are
generally stated at appraised values as of the date of acquisition. Amortization
is computed using the straight-line method over estimated average customer
service length, typically 36 to 40 months.
Goodwill. The excess of the purchase price paid over the fair value of net
assets acquired in business combinations is recorded as goodwill and is
amortized over a period, generally 40 years, using the straight-line method.
INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
The equity method is used to account for all domestic cellular markets and
international consortia in which the Company has significant influence but is
not the controlling or managing general partner, even though the ownership
percentage may be less than 20%. Limited partnership interests in which the
Company has a very minor interest and virtually no influence are accounted for
using the cost method. Joint ventures in which the Company does not have
significant influence are accounted for using the cost method.
EARNINGS PER SHARE
Earnings per share is calculated by using weighted average common shares
outstanding. The dilutive effect of common stock equivalents is determined using
the treasury stock method. However, common stock equivalents do not have a
significant impact on earnings per share.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Deferred
income taxes are provided to reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. Until March 31, 1994,
the Company was included in the consolidated federal and combined state income
tax returns of Telesis.
CAPITALIZED INTEREST
The Company capitalizes interest applicable to the expenditures for construction
of significant additions to property, plant, and equipment and on start-up
investments in unconsolidated wireless systems until their principal operations
commence. These costs are amortized over the related assets' estimated useful
lives. Total interest was $28.2 million, $10.7 million, and $25.8 million for
1995, 1994, and 1993, respectively, of which $15.2 million, $0.4 million, and
$3.7 million was capitalized in 1995, 1994, and 1993, respectively.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expense was
$80.3 million, $74.4 million, and $48.4 million for 1995, 1994, and 1993,
respectively.
B. ACCOUNTING CHANGES
TO BE ADOPTED
In March 1995, the Financial Accounting Standards Board ("FASB") issued
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-
36
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Effective January 1, 1996, the Company intends to adopt SFAS No. 121, consistent
with the required adoption period. The Company does not expect the
implementation to have a material impact on its financial condition or its
results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Under SFAS No. 123, the Company has a choice of adopting a fair
value-based method of accounting for employee stock-based compensation plans, as
established by SFAS No. 123, or retaining the intrinsic value-based method
prescribed under Accounting Principles Board Opinion ("APB") No. 25, provided
certain pro forma disclosures are made. The Company intends to retain the
intrinsic value-based method of accounting for employee stock-based compensation
plans as prescribed by APB No. 25 and adopt the pro forma disclosure provisions
of SFAS No. 123 effective January 1, 1996. Implementation will not have an
impact on the Company's financial condition or its results of operations.
ADOPTED
Effective January 1, 1994, the Company adopted the provisions of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Implementation did not materially impact the Company's financial condition or
its results of operations.
Effective January 1, 1993, the Company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions." The
implementation of SFAS No. 106 required the Company to record a one-time
after-tax transition obligation of $5.6 million ($9.1 million pre-tax) in the
first quarter of 1993.
C. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
December 31
Depreciable ----------------------
(Dollars in millions) Lives (Years) 1995 1994
------------- -------- --------
<S> <C> <C> <C>
Land ___ $ 9.5 $ 8.5
Buildings and leasehold
improvements 5 - 40 232.4 148.2
Cellular plant and equipment 5 - 15 1,042.1 814.2
Pagers, paging terminals, and
other paging equipment 3 - 15 240.8 181.4
Other equipment and furniture 3 - 7 386.4 247.2
Construction in progress ___ 176.4 161.2
-------- --------
2,087.6 1,560.7
Less: accumulated depreciation
and amortization 767.4 585.4
-------- --------
$1,320.2 $ 975.3
======== ========
</TABLE>
Depreciation and amortization expense relating to property, plant, and equipment
for the years ended December 31, 1995, 1994, and 1993 was $196.4 million, $184.0
million, and $161.7 million, respectively. In the first quarter of 1995, the
Company completed a review of the estimated service lives of certain domestic
and international cellular telecommunications equipment. As a result, the
Company and certain of its equity investees extended the estimated service lives
of such equipment from seven to ten years. The change was made to reflect more
accurately the estimated periods that such assets will remain in service and was
effective January 1, 1995. The new ten-year depreciation period is consistent
with
37
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
current industry standards. The change increased net income by $26.3 million,
$.05 per share, for the year ended 1995.
D. FINANCIAL INSTRUMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES
At December 31, 1995, the Company's available-for-sale investment portfolio
totaled $51.9 million and was classified as a noncurrent asset and included in
"Deferred charges and other noncurrent assets." This amount represents the
Company's investment in shares of common stock and warrants to purchase shares
of common stock. Sales in 1995 of the Company's available-for-sale securities
resulted in immaterial gross losses.
At December 31, 1994, the Company's available-for-sale investment portfolio,
carried at fair value, consisted of $101.3 million included in current assets
and $9.6 million included in "Deferred charges and other noncurrent assets." The
portfolio included in current assets consisted of debt securities issued by the
U.S. Treasury and other U.S. Government corporations and agencies. The portion
included in "Deferred charges and other noncurrent assets" consisted of the
Company's investment in shares of common stock.
There were no held-to-maturity investments at December 31, 1995. The Company's
held-to-maturity investment portfolio at December 31, 1994 consisted principally
of highly liquid debt instruments with contractual maturities in excess of three
months. The $310.1 million held-to-maturity investment portfolio, carried at
amortized cost which approximated fair value, consisted of $181.6 million in
U.S. Government debt securities, $89.1 million in state and local government
debt securities, $34.8 million in auction rate reset type securities, and $4.6
million in accrued interest. Auction rate reset type securities are shares in
variable rate preferred municipal funds with contractual reset periods greater
than 90 days.
MARKET RISK MANAGEMENT
As of December 31, 1995 and 1994, the Company had outstanding forward exchange
contracts principally denominated in Escudo, Belgian Franc, Deutschmark, Krona,
Peseta, Won, and Yen. These contracts had face amounts totaling $721.5 million
and $638.4 million as of December 31, 1995 and 1994, respectively, with
maturities through 2002. The amounts exchanged are calculated on the basis of
the face amounts of the financial instruments.
In October 1995, the Company entered into a cross-currency swap, expiring in
1997, to hedge the currency and interest rate risk from a Deutschmark ("Mark")
179 million borrowing. The swap converts Mark-denominated variable rate coupons,
indexed to the London Interbank Offered Rate ("LIBOR"), to dollar-denominated
fixed interest rate payments.
In November 1995, the Company entered into an interest rate swap, expiring in
2005, to convert the interest rate on $150 million of borrowings under the
Company's unsecured $2 billion credit facility to a fixed rate from a variable
rate indexed to LIBOR. This swap also reduces the interest rate risk of
anticipated borrowings.
At December 31, 1995, the notional amounts of the cross-currency and the
interest rate swaps were $124.6 million and $150.0 million, respectively. The
related fixed interest rates as of that date were 4.83% and 6.34%, respectively.
CONCENTRATION OF CREDIT RISK
The off-balance-sheet risk in outstanding forward foreign exchange contracts and
interest rate swaps involves both the risk of a counterparty not performing
under the terms of the contract and the risk associated with changes in market
value. The Company monitors its positions, the credit ratings of counterparties,
and the level of contracts the Company enters with any one party. The
counterparties to these contracts are major financial institutions. The Company
has a policy of entering into contracts with parties that have at least an "AA-"
(or equivalent) credit rating as well as other stringent qualifications and,
given the high level of credit quality of its derivative counterparties, the
Company does not believe it
38
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
necessary to obtain collateral arrangements. The Company believes that losses
from counterparty nonperformance on settlements of these transactions would not
have any material adverse effect upon the Company's financial position or
results of operations. The Company does not have any significant exposure to any
individual counterparty.
Financial instruments that potentially subject the Company to concentrations of
credit risk are trade receivables and interest-bearing investments. Due to the
large volume and diversity of the Company's customer base, concentrations of
credit risk with respect to trade receivables are limited. The Company avoided
concentrations of credit risk in its interest-bearing investment portfolio at
December 31, 1994 by investing in securities issued by the U.S. Government and
its agencies, and by limiting other investments in interest-bearing securities
to those rated in the highest category by nationally recognized statistical
rating agencies.
FAIR VALUE
The Company uses available market information and appropriate valuation methods
to determine fair value amounts.
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------
1995 1994
--------------------------- -------------------------
Carrying Estimated Carrying Estimated
(Dollars in millions) Value Fair Value Value Fair Value
---------- ------------ -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Held-to-maturity investments -- -- $310.1 $310.1
Available-for-sale securities $ 51.9 $ 51.9 $110.9 $110.9
Investments at cost $ 69.8 N/A $ 52.8 N/A
Off-balance-sheet financial
instruments -- -- -- $ 19.2
Financial liabilities:
Current obligations $ 14.0 $ 14.0 $ 89.9 $ 89.9
Deposit liabilities $ 38.4 $ 38.4 $ 31.6 $ 31.6
Long-term debt, including leases $892.4 $892.4 $120.2 $120.2
Off-balance-sheet financial
instruments -- $ 70.3 -- $ 19.5
</TABLE>
N/A Not available
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Held-to-maturity investments, current obligations, and deposit liabilities: due
to the short-term character of the securities and obligations, carrying amounts
are a reasonable approximation of fair value.
Available-for-sale securities: carrying amounts are valued at quoted market
prices.
Investments at cost: it is not practicable to estimate the fair value of the
Company's cost-based investments because quoted market prices are not available
and, since certain of these ventures are in the start-up mode, other valuation
techniques are not appropriate. At December 31, 1995, the Company's ownership
interest in these ventures' assets and stockholders' equity was approximately
$145.0 million and $23.0 million, respectively. In addition, the Company's
ownership interest in 1995 revenues and net income was approximately $56.0
million and $3.0 million, respectively.
Long-term debt, including leases: interest rates that are currently available to
the Company for issuance of debt with similar terms and remaining maturities are
used to estimate fair value for debt issues that are not quoted on an exchange.
Off-balance-sheet financial instruments: fair values of forward exchange
contracts and interest rate swaps are based upon the current value in the market
for transactions with similar terms and adjusted for
39
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the holding period. The Company has letters of responsibility and letters of
support for various credit facilities and financing activities of certain of its
subsidiaries and affiliates (see Note M, "Commitments and Contingencies -
Other," for further information). Fair value is based on estimated fees to enter
into similar arrangements.
E. INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
Interests owned in cellular and other telecommunications systems of
unconsolidated wireless systems are as follows:
<TABLE>
<CAPTION>
December 31
--------------------
(Dollars in millions) 1995 1994
-------- --------
<S> <C> <C>
Investments at equity $3,006.5 $1,645.1
Investments at cost 69.8 52.8
-------- --------
$3,076.3 $1,697.9
======== ========
</TABLE>
<TABLE>
<CAPTION>
Percentage of Ownership
-----------------------
December 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
COST INVESTMENTS
Domestic:
GTE Mobilnet of Santa Barbara
Limited Partnership
(Santa Barbara, California) 10.0% 10.0%
Globalstar, L.P. 6.4% 8.3%
Cal-One Cellular Limited
Partnership (Eureka, California) 5.6% 5.6%
Fresno MSA Limited Partnership
(Fresno, California) 1.1% 1.1%
International:
International Digital
Communications, Inc. (Japan) 10.0% 10.0%
Digital TU-KA Chugoku Co.,
Ltd. (Japan) 4.5% 4.5%
Digital TU-KA Kyushu Co.,
Ltd. (Japan) 4.5% 4.5%
Digital TU-KA Tohoku Co.,
Ltd. (Japan) 4.5% --
Digital TU-KA Hokkaido Co.,
Ltd. (Japan) 4.5% --
Digital TU-KA Hokuriku Co.,
Ltd. (Japan) 4.5% --
Digital TU-KA Shikoku Co.,
Ltd. (Japan) 4.5% --
</TABLE>
40
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Percentage of Ownership
-----------------------
December 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
EQUITY INVESTMENTS
Domestic:
New Par (Ohio/Michigan) 50.0% 50.0%
CMT Partners (California,
Texas, Missouri, and Kansas) 50.0% 50.0%
Nevada RSA2 Ltd. Partnership
(Lander, Nevada) 50.0% 50.0%
Muskegon Cellular Partnership
(Muskegon, Michigan) 40.5% 40.5%
Cellular Communications, Inc.
(Ohio/Michigan) 37.6% 13.4%
TOMCOM, L.P. (a) 35.0% 35.0%
Centel Cellular Company
of Nevada Limited Partnership
(Las Vegas, Nevada) 27.8% 27.8%
PCS PrimeCo, L.P.(a) 25.0% 25.0%
Tucson Cellular Telephone
Company (Tucson, Arizona) -- 5.9%
International:
Cellular Communications India Ltd. (India) 49.0% --
Mannesmann Mobilfunk
GmbH (Germany) 34.8% 32.7%
Belgacom Mobile (Belgium) 25.0% 25.0%
Telecel Comunicacoes
Pessoais, S.A. (Portugal) 23.0% 23.0%
Telechamada-Servico de Pessoas,
S.A. (Portugal) (a) 23.0% 23.0%
RPG Cellular Services Limited (India) 20.0% --
Polkomtel (Poland) 19.3% --
Infomobile (formerly Omnicom)
(France) 18.5% 18.5%
Sistelcom-Telemensaje, S.A. (Spain) (a) 17.5% 17.5%
Airtel, S.A. (Spain) (b) 15.8% 15.8%
Tokyo Digital Phone Co. (Japan) 15.0% 15.0%
Kansai Digital Phone Co. (Japan) 13.0% 13.0%
Central Japan Digital
Phone Co. (Japan) 13.0% 13.0%
Omnitel-Pronto Italia, S.p.A. (Italy) (a) 11.7% 10.2%
Shinsegi Mobile Communication
Co., Ltd. (South Korea) 10.7% 11.3%
</TABLE>
(a) Indirect ownership through partially owned venture.
(b) In February 1996, ownership interest increased to 16.0%.
41
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's investment in Cellular Communications, Inc. ("CCI"), which
represents the only equity method investment for which a quoted market price is
available, had a market value of $782.2 million at December 31, 1995 and $304.0
million at December 31, 1994. The Company has an obligation to either purchase
additional shares of CCI at a price reflecting private market value or pay the
CCI stockholders a "make-whole" payment. See "Cellular Communications, Inc."
discussion below.
The Company expects to purchase either an additional 5% or, under certain
circumstances, may be obligated to purchase an additional 10% interest in its
Spain cellular consortium. The purchase is expected to occur in 1998. The
purchase of the full 10% interest could require an investment of as much as $200
million.
Condensed combined financial information for unconsolidated wireless systems
accounted for under the equity method is summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------------------------------
1995 1994 1993
---------------------- ----------------------- ---------------------
Inter- Inter- Inter-
(Dollars in millions) Domestic national Domestic national Domestic national
-------- -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues/equity in net
income of joint venture $1,281.3 $3,683.9 $1,166.0 $1,401.0 $722.1 $ 527.7
Operating income (loss) $ 420.4 $ (496.8) $ 297.7 $ (251.2) $197.2 $(222.8)
Net income (loss) $ 411.0 $ (539.2) $ 284.9 $ (155.4) $188.4 $(140.2)
Other partners' and stockholders'
share of net income (loss) 213.0 (519.7) 153.7 (144.7) 110.4 (103.5)
-------- -------- -------- -------- ------ -------
Company's share of
net income (loss) 198.0 (19.5) 131.2 (10.7) 78.0 (36.7)
Amortization of goodwill and
other intangible items (a) (9.8) (16.4) (5.8) (4.0) (7.6) (0.8)
-------- -------- -------- -------- ------ -------
Equity in net income (loss) of
unconsolidated wireless systems $ 188.2 $ (35.9) $ 125.4 $ (14.7) $ 70.4 $ (37.5)
======== ======== ======== ========= ====== =======
</TABLE>
(a) Goodwill and other intangible items are amortized primarily over 40 years.
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------
1995 1994
------------------------------ -------------------------------
(Dollars in millions) Domestic International Domestic International
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Current assets $ 494.8 $ 1,419.0 $ 448.5 $ 978.8
Noncurrent assets 3,160.1 4,736.7 1,605.6 2,952.7
Current liabilities (329.3) (2,105.3) (168.5) (819.7)
Noncurrent liabilities (441.0) (1,790.2) (380.1) (1,620.0)
-------- --------- --------- ---------
Total partners' and stockholders' capital 2,884.6 2,260.2 1,505.5 1,491.8
Other partners' and stockholders'
share of capital 1,776.2 1,677.2 777.3 1,103.1
-------- --------- --------- ---------
Company's share of capital 1,108.4 583.0 728.2 388.7
Goodwill and other intangible items 817.2 497.9 191.6 336.6
-------- --------- --------- ---------
Equity investments in unconsolidated
wireless systems $1,925.6 $ 1,080.9 $ 919.8 $ 725.3
======== ========= ========= =========
</TABLE>
42
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International equity losses were partially offset by tax benefits of $39.8
million and $27.3 million in 1995 and 1994, respectively. The majority of these
tax benefits are attributable to the Company's share of the net operating loss
carryforwards ("NOLs") of its three cellular networks in Japan. These tax
benefits are recorded in "Equity in net income (loss) of unconsolidated wireless
systems: International" on the Consolidated Statements of Income. The tax
benefits were recorded as an asset that represents future benefits the joint
ventures will receive by deducting the NOLs from future taxable income. At
December 31, 1995, the Company's proportionate share of deferred tax assets of
its international equity subsidiaries was $108.5 million, which was offset by a
valuation allowance of $36.9 million. While the Company believes that it is more
likely than not that the deferred tax assets will be fully realized, there can
be no assurance that this will happen as certain factors beyond the control of
the joint ventures and the Company, such as deteriorating local economic
conditions and increasing competition, can affect future timing and amounts of
taxable income.
SUMMARY FINANCIAL INFORMATION
Condensed financial information for the Company's significant equity investments
are as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31
-----------------------------------------------------
(Dollars in millions) 1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Mannesmann Mobilfunk GmbH
Operating revenues $ 1,888.8 $ 1,126.0 $ 518.5
Operating income (loss) $ 473.2 $ 146.1 $ (104.8)
Net income (loss) $ 240.8 $ 69.1 $ (67.7)
New Par
Operating revenues (a) $ 660.3 $ 523.2 $ 435.8
Operating income $ 199.3 $ 117.6 $ 92.1
Net income $ 200.3 $ 114.9 $ 92.6
CMT Partners
Operating revenues (a) $ 443.1 $ 345.7 $ 110.8 (b)
Operating income $ 151.1 $ 128.8 $ 25.7 (b)
Net income $ 168.0 $ 140.2 $ 28.3 (b)
CCI
Equity in net income of joint venture $ 101.3 $ 59.0 $ 47.7
Operating income (a) $ 85.3 $ 40.8 $ 29.7
Net income $ 50.8 $ 17.7 $ 19.9
</TABLE>
(a) Restated to conform to the Company's basis of presentation.
(b) For the four-month period from September 1, 1993 (inception) to December
31, 1993.
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31
---------------------------
(Dollars in millions) 1995 1994
--------- ----------
<S> <C> <C>
Mannesmann Mobilfunk GmbH
Current assets $ 483.7 $ 231.1
Noncurrent assets 1,506.8 1,392.1
Current liabilities (542.4) (274.7)
Noncurrent liabilities (265.5) (474.2)
--------- ---------
Total partners' and stockholders' capital $ 1,182.6 $ 874.3
========= =========
New Par
Current assets $ 162.6 $ 139.0
Noncurrent assets 909.6 736.0
Current liabilities (125.0) (114.4)
Noncurrent liabilities (3.9) (0.6)
--------- ---------
943.3 760.0
Minority interests (1.5) (0.6)
--------- ---------
Total partners' and stockholders' capital $ 941.8 $ 759.4
========= =========
CMT Partners
Current assets $ 124.0 $ 89.3
Noncurrent assets 403.2 371.9
Current liabilities (58.1) (49.8)
--------- ---------
469.1 411.4
Minority interests (14.2) (13.1)
--------- ---------
Total partners' and stockholders' capital $ 454.9 $ 398.3
========= =========
CCI
Current assets $ 158.9 $ 185.3
Noncurrent assets 475.7 428.3
Current liabilities (10.9) (16.9)
Noncurrent liabilities (370.1) (358.4)
--------- ---------
Total partners' and stockholders' capital $ 253.6 $ 238.3
========= =========
</TABLE>
WMC PARTNERS
In July 1994, the Company and U S WEST Inc. ("U S WEST") entered into an
agreement to combine their domestic cellular properties into a partnership known
as WMC Partners, L.P. ("WMC") in a multi-phased transaction.
During the initial phase of the transaction ("Phase I"), which commenced on
November 1, 1995, WMC began providing certain support services to both
companies' domestic cellular and PCS operations, which will continue to be owned
and operated separately by the individual partners throughout Phase I.
In the next phase ("Phase II"), the partners will contribute their domestic
cellular properties to WMC, subject to obtaining required consents and
authorizations. Pursuant to the joint venture agreement, this contribution will
occur following the lifting of certain restrictions imposed by the Modification
of Final Judgment (the "MFJ") (or earlier, at the Company's option), but in no
event later than July 25, 1998. The Telecommunications Act of 1996 provided
sufficient relief from the restriction imposed by the MFJ for Phase II to occur.
The parties are seeking to obtain regulatory and other approvals and to satisfy
other conditions precedent to entering into Phase II. The initial interests of
the Company and U S WEST in the WMC at the commencement of Phase II will depend,
among other things, upon the timing of the Phase II closing, the ability of the
parties to contribute their domestic cellular properties, the timing of the
parties' contribution of their PCS Partnership to the WMC (and the value of the
PCS Partnership), and the status of the Company's transaction with CCI.
44
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Simultaneous with the formation of WMC, the parties formed an equally owned
partnership ("PCS Partnership") to pursue new opportunities in personal
communications services ("PCS"). The PCS Partnership is a partner in PCS
PrimeCo, L.P. ("PCS PrimeCo"), see "Bell Atlantic/NYNEX Mobile." The PCS
Partnership also will be contributed to WMC. The timing of such contribution is
at U S WEST's discretion and will occur either at the closing of Phase II or a
date selected by U S WEST no later than mid-1998. The Company expects the PCS
Partnership to make significant capital investments for the build-out of PCS
markets and to experience substantial operating losses associated with the start
up phase of the PCS business, which is expected to last several years. Upon the
contribution of the PCS Partnership to WMC, the Company's share of capital
investments and operating losses related to the PCS Partnership will increase
from 50% to its percentage ownership of WMC.
U S WEST has the right, which is exercisable after (a) the commencement of Phase
II, (b) the contribution of the PCS Partnership, and (c) the completion of the
Company's transaction with CCI have occurred, but expiring on July 25, 2004, to
exchange its interest in WMC for up to 19.9% of the Company's common stock
outstanding at the time of the exchange. Any such exchange would be made at a
ratio reflecting the appraised private market value of U S WEST's interest in
WMC and the appraised public market value of the shares of the Company's common
stock to be acquired by U S WEST in the exchange. In the event that the value of
U S WEST's interest in WMC determined by such appraisals would result in the
issuance to U S WEST of more than 19.9% of the Company's then outstanding common
stock, U S WEST is entitled to receive the excess in the form of non-voting
preferred stock. The Company has amended its shareholder rights agreement so
that U S WEST will not be deemed to be an "Acquiring Person," as defined
therein, by reason of its rights in connection with the exchange.
U S WEST also has the right, exercisable between July 25, 1999, and July 25,
2009, to exchange its interest in WMC for common stock of the Company to be held
by a trust for purposes of systematic sale to the public. Any such exchange
would be made at a ratio reflecting the appraised private market value of U S
WEST's interest in WMC and an averaged trading price of the Company's common
stock during a period prior to U S WEST's exercise of the right.
The Company has the right to cause the exchange to occur either (a) after the
later of full relief from certain operational restrictions placed on Bell
Operating Companies and July 25, 2004, if there is a deadlock with U S WEST
regarding the management of WMC or (b) at any time after such relief has been
obtained, if at such time U S WEST holds less than 5% interest in WMC.
Upon the exercise by U S WEST of its right to exchange its interest in WMC for
capital stock of the Company, U S WEST will be entitled to certain governance
rights (including representation on the Company's Board of Directors) as well as
registration rights. U S WEST is subject to certain standstill restrictions with
respect to the Company through July 25, 2004, unless such restrictions are
earlier terminated or suspended.
BELL ATLANTIC/NYNEX MOBILE
In October 1994, the Company and U S WEST ("ATI/USW") joined with Bell Atlantic
Corporation and NYNEX Corporation ("BA/NYN") to form a partnership called PCS
PrimeCo to jointly pursue PCS opportunities. PCS PrimeCo is owned equally by
ATI/USW and BA/NYN, and is governed by a board composed of three members from
each of ATI/USW and BA/NYN. In March 1995, PCS PrimeCo was awarded eleven 30 MHz
PCS licenses covering over 57 million POPs with bids of approximately $1.1
billion. The acquired markets complement the existing domestic cellular
franchises of the partners. PCS PrimeCo is in the process of constructing PCS
systems in the 11 markets. The Company has already contributed its share of the
PCS license costs and of certain build-out expenses, and expects to continue to
make significant capital contributions to PCS PrimeCo and to experience
substantial operating losses associated with the start up phase of the PCS
business, which is expected to last several years. Currently, the Company has a
25% indirect interest in PCS PrimeCo through an interest in its PCS Partnership
with U S WEST. The Company's interest in PCS PrimeCo and, accordingly, its share
of capital contributions and losses will increase upon the contribution of the
Company's PCS Partnership with U S WEST to WMC.
45
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Either ATI/USW or BA/NYN may cause PCS PrimeCo to be dissolved on October 20,
2001, and any PCS properties owned by it to be allocated between them according
to agreed upon criteria. Bell Atlantic and NYNEX each are subject to certain
standstill restrictions with respect to the Company through October 20, 2001,
unless such restrictions are earlier terminated or suspended.
Concurrent with the formation of PCS PrimeCo, ATI/USW and BA/NYN formed
another partnership called TOMCOM, L.P. ("TOMCOM"). TOMCOM was formed to develop
technical and service standards for the partners' wireless properties, pursue
national marketing strategies, develop information technology, create a national
distribution strategy, and implement joint purchasing arrangements. TOMCOM is
governed by a board composed of three members from each of ATI/USW and BA/NYN.
Unlike the Company's joint venture with U S WEST, the agreements with BA/NYN do
not provide for a merger of cellular properties. Accordingly, each of ATI/USW
and BA/NYN will continue to hold such properties separately.
CELLULAR COMMUNICATIONS, INC.
The Company's operations in Ohio and Michigan are conducted through New Par, a
general partnership owned equally by the Company and CCI, formed in 1991.
In connection with the formation of New Par, the Company and CCI entered into an
agreement (the "Merger Agreement") under which the Company purchased 5% of the
equity in CCI, agreed to purchase additional equity in CCI and obtained the
right to acquire all of CCI's remaining equity in stages over time. Pursuant to
the Merger Agreement, in October 1995, the Company purchased 10.04 million
shares of stock of CCI at a per share price of $60, for a total of $602.4
million, and options to purchase 10,700 shares for approximately $0.3 million.
As of December 31, 1995, the Company's ownership interest in CCI was
approximately 37.6% of the outstanding stock. Also pursuant to the Merger
Agreement, in January 1996, the Company purchased additional options
representing approximately 2.4 million shares of CCI stock for an aggregate
consideration of approximately $107.7 million. The option purchase did not
affect the Company's percentage ownership of the outstanding stock of CCI. The
average exercise price of the Company's options acquired in 1995 and 1996 is
approximately $15 per share. Under the Merger Agreement, the Company has the
right to increase its ownership in CCI to up to 49% through open market
purchases, privately negotiated transactions, or otherwise.
Pursuant to a process commencing in August 1996, the Company has the right, by
causing CCI to redeem all of its redeemable stock not held by the Company (the
"Redemption"), to acquire CCI, including its interests in New Par and such other
CCI assets and related liabilities as the Company and CCI may agree upon, at a
price per share that reflects the appraised private market value of New Par (and
such other CCI assets and related liabilities as the Company and CCI agree shall
be retained) determined in accordance with an appraisal process set forth in the
Merger Agreement. The Company has the opportunity to evaluate up to three
different appraisal values over a 12-month period pursuant to an appraisal
process that begins in August 1996, prior to determining whether to cause the
Redemption. The Company will finance any Redemption by providing to CCI any
necessary funds.
In the event that the Company does not exercise its right to cause the
Redemption, CCI is obligated to commence promptly a process to sell itself (and,
if directed by the Company, the Company's interest in New Par). In the event
that the Company does not direct CCI to sell the Company's interest in New Par,
such partnership will dissolve and the assets will be returned to the
contributing partner. CCI may, in the alternative, purchase the Company's
interest in CCI or CCI and New Par, as the case may be, at a price based upon
their appraised values determined in accordance with the Merger Agreement. If
CCI or its interest in New Par is sold within certain specified time periods not
to exceed two years for a price less than the appraised private market value,
the Company is obligated to pay to all CCI stockholders a specified percentage
of such shortfall.
The amount and timing of any additional acquisition of any additional equity
interests in CCI will depend upon the Company's evaluation of the market for the
CCI stock, CCI's business, prospects and financial condition, other investment
opportunities available to the Company, prospects for the Company's own
46
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
business, general economic conditions, money and stock market conditions, and
other developments, as well as the Company's rights and obligations under the
Merger Agreement.
CMT PARTNERS
In September 1993, the Company and AT&T Wireless - at the time, McCaw Cellular
Communications, Inc. ("McCaw") - formed CMT Partners, an equally-owned
partnership that holds interests in cellular systems operating in San Francisco,
San Jose, Dallas/Ft. Worth, Kansas City and certain adjacent suburban areas. In
a related transaction, the Company purchased the Wichita and Topeka systems from
McCaw.
F. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31
-----------
(Dollars in millions) 1995 1994
---- ----
<S> <C> <C>
FCC and international licenses, at cost, less
accumulated amortization of $49.4 and $43.6
for 1995 and 1994, respectively $212.7 $186.1
Goodwill, at cost, less accumulated amortization of
$25.0 and $16.4 for 1995 and 1994,
respectively 376.0 272.4
Other intangible assets, at cost, less accumulated
amortization of $24.5 and $15.5 for 1995 and
1994, respectively 17.0 12.0
------ ------
$605.7 $470.5
====== ======
</TABLE>
The increase in goodwill of $103.6 million in 1995 is primarily related to the
fourth quarter acquisition of a privately-held paging company. Amortization
expense relating to intangible assets for the years ended December 31, 1995,
1994, and 1993 was $19.4 million, $21.3 million, and $12.5 million,
respectively.
G. DEBT AND CREDIT FACILITIES
SHORT-TERM DEBT
The Company had no short-term borrowings at December 31, 1995. Short-term
borrowings at December 31, 1994 were $80.0 million and consisted of unsecured
bank loans with a weighted average interest rate of 6.7%.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
-----------
(Dollars in millions) 1995 1994
---- ----
<S> <C> <C>
Revolving credit facility, due 1997 $ 60.2 $ 52.5
Revolving credit facility, due 1999 38.8 45.0
Revolving credit facility, due 2000 664.6 --
Bank promissory note 28.7 29.8
Preference share debt 105.3 --
Various other notes and obligations 8.8 2.8
------ ------
906.4 130.1
Less: portion due within one year 14.0 9.9
------ ------
$892.4 $120.2
====== ======
</TABLE>
In December 1995, the Company guaranteed a seven-year loan in the amount of
$105.3 million by an international banking consortium to a European special
purpose entity ("ESPE"). The loan is also secured by redeemable preference
shares for the same amount, issued to the ESPE by NordicTel Holdings A.B.
47
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
("NordicTel"), a 51% owned subsidiary of the Company. The Company has
consolidated the ESPE. The debt bears interest at Stockholm Interbank Offered
Rate ("STIBOR") plus a margin. At December 31, 1995, the interest rate of these
facilities was 8.75%. Interest payments are conditional on receipt of dividends
on the preference shares and in certain situations can be deferred until the
accrued interest represents 65% of the principal.
The Company has revolving credit facilities which support cellular equipment
purchases by NordicTel. Borrowings bear interest at STIBOR plus a margin. At
December 31, 1995, the weighted average interest rate of these facilities was
9.23%. Borrowings are collateralized by certain of the equipment purchased
thereunder and by shares of a wholly-owned subsidiary of NordicTel. In addition,
NordicTel is restricted in making distributions or interest payments on its
common stock or stockholders' contributions.
The bank promissory note represents a note with a Japanese bank. The note is due
in 1997 with options to extend for two additional years. The note bears interest
at the Euroyen rate plus a margin which is dependent upon the Company's Standard
and Poor's rating. At December 31, 1995, the interest rate was 0.82%.
Annual maturities of long-term debt are as follows: 1996, $14.0 million; 1997,
$75.6 million; 1998, $13.9 million; 1999, $30.0 million; 2000, $665.4 million;
2001 and thereafter, $107.5 million.
REVOLVING LINES OF CREDIT
In July 1995, the Company obtained for general corporate purposes, an unsecured
$2 billion, five-year revolving credit facility (the "Facility") from a
syndicate of banks. The interest rate under the Facility is LIBOR plus an
applicable margin based on the Company's long-term senior unsecured debt rating.
The commitment fee on the available balance will also be determined with
reference to the Company's credit rating. Drawings under the Facility are
available in US dollars or selected foreign currencies, however, drawings of
foreign currencies may not exceed the US dollar equivalent of $300 million.
Borrowings against the Facility totaled $664.6 million at December 31, 1995.
The Company has various other lines of credit with certain banks. At December
31, 1995 and 1994, the total unused amount under all lines of credit was
$1,419.9 million and $130.0 million, respectively.
At December 31, 1995, the Company was in compliance with all covenants
associated with its debt and credit facilities.
H. CAPITAL STOCK
In December 1993, the Company completed a public offering of 68.5 million shares
of newly issued common stock for proceeds of $1,489.2 million, net of
underwriting discounts and direct stock issuance costs.
In addition to the common shares outstanding, a subsidiary of the Company owns
122,960 shares of the Company's common stock. Because the accounting treatment
for subsidiary-held shares is similar to that for treasury stock, the
subsidiary-held shares are not considered outstanding.
PREFERRED STOCK
Of the 50 million authorized shares of preferred stock, 6.0 million shares have
been designated as Series A Participating Preferred Stock. There are no
outstanding shares of Series A Participating Preferred Stock. The remaining
authorized preferred stock may be issued in one or more series, and the Board of
Directors is authorized to designate the series and fix the relative rights,
preferences, and limitations of the respective series without any further vote
or action of the stockholders.
STOCKHOLDER RIGHTS PLAN
The Company's stockholder rights plan (the "Rights Plan") provides for the
distribution of rights ("Rights") to holders of outstanding shares of common
stock. Except as set forth below, each Right, when
48
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exercisable, entitles the stockholder to purchase from the Company one
one-hundredth of a share of Series A Participating Preferred Stock at a price of
$80 per share, subject to adjustment.
The Rights are not currently exercisable, but would become exercisable if
certain events occurred related to a person or group ("Acquiring Person")
acquiring or attempting to acquire 10% or more of the Company's common stock. In
the event that the Rights become exercisable, each holder of a Right (other than
an Acquiring Person) would be entitled to purchase, for the exercise price then
in effect, shares of the Company's common stock having a market value at the
time of such transaction of two times the exercise price for each Right.
The Board of Directors, at its option, may at any time after a person becomes an
Acquiring Person (but not after the acquisition by such person of 50% or more of
the outstanding common stock) exchange on behalf of the Company all or part of
the then outstanding and exercisable Rights for shares of common stock at an
exchange ratio of one share of common stock for each Right.
At any time prior to the earlier of the occurrence of either (i) a person
becoming an Acquiring Person or (ii) the expiration of the Rights, the Company
may redeem the Rights in whole, but not in part, at a price of $0.01 per Right.
I. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Company has a Long-Term Stock Incentive Plan (the "Plan"), under which it
has reserved 24.0 million shares of common stock. Awards to eligible employees
under the Plan can take the form of incentive ("ISOs") or non-qualified ("NSOs")
stock options, stock appreciation rights ("SARs"), restricted stock, stock units
or a combination of these forms. Each award has specific terms, including
vesting provisions, at the discretion of the Company.
The Plan requires that the exercise price be equal to the fair market value of
the stock at the grant date for ISOs and at the discretion of the Company for
NSOs. The exercise price may be paid in cash, stock already owned by the holder,
or a combination. SARs may be settled in cash or stock at the discretion of the
Company. The settlement of SARs issued in conjunction with NSOs requires the
related unexercised NSOs to be canceled. Restricted stock is held in escrow
until the vesting provisions are satisfied, although such shares have full
voting and other rights. Stock units represent shares of common stock. Holders
of stock units are not required to pay for such units and have no voting or
other rights as a stockholder. Although the Company does not currently pay
dividends, stock units may have dividend rights at the Company's discretion.
Settlement of stock unit awards may be in cash, shares, or a combination at the
discretion of the Company.
Notwithstanding the general vesting provisions of restricted stock awards, early
vesting can occur for certain awards, if the Company's initial public offering
stock price ($23 per share) is doubled within a specified period of time.
Compensation expense for NSOs issued at prices less than fair market value at
the grant date, Restricted Stock, and Stock Units is measured at the grant date
and charged to income over the vesting period. Compensation for vested SARs is
recorded at amounts equal to the excess of the current stock price over the fair
market value of the stock at the grant date until exercised.
49
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes award activity:
<TABLE>
<CAPTION>
Exercise Price
Shares Range Per Share
------ ---------------
<S> <C> <C>
Options and SARs granted 6,369,662 $ 8.51 - $24.00
Restricted stock granted 840,075 N/A
Stock units granted 201,773 N/A
Options exercised (256,315) $ 8.51 - $18.90
Awards forfeited (120,792) $20.38 - $28.50
----------
Shares issuable under
outstanding awards at
December 31, 1994 7,034,403 $ 8.51 - $28.50
Stock options granted 7,158,965 $25.88 - $32.25
Restricted stock granted 284,618 N/A
Stock units granted 7,465 N/A
Options exercised (506,802) $ 8.51 - $20.88
Awards forfeited (328,697) $12.09 - $30.25
Restricted stock issued (925,277) N/A
Stock units issued (106,346) N/A
----------
Shares issuable under
outstanding awards at
December 31, 1995 12,618,329 $10.72 - $32.25
==========
</TABLE>
N/A Not applicable
There were options to purchase 3.2 million shares of common stock exercisable at
December 31, 1995, and 9.6 million shares available for future awards.
In addition, the Company granted SARs, which are not a part of the Plan, to an
investment firm that advised Telesis and the Company at the time of the
spin-off. The Company and Telesis each granted SARs covering 350,000 shares of
their respective common stock. The exercise price for the Company's shares is
$20 per share for one half the shares and $24 per share for the remaining shares
($30 per share and $36 per share, respectively, for the Telesis shares). The
SARs are exercisable through April 1997. The SARs may be exercised as to the
Telesis shares or the Company's shares in any order; however, once SARs with an
aggregate value of $6 million have been exercised, the remaining rights are
canceled. At December 31, 1995, SARs with respect to 250,000 shares of the
Company's common stock (representing $2.1 million in value) had been exercised.
The Company has accrued the excess of fair market value over the exercise price
for the remaining shares applicable to the Company.
The Company also has an Employee Stock Purchase Plan ("ESPP") under which it has
reserved 2.4 million shares of common stock. The purpose of the plan is to
provide employees with the opportunity to increase their interest in the success
of the Company by purchasing stock from the Company on favorable terms and
paying for such purchases through payroll deductions. Stock purchases under the
ESPP were 358,301 shares and 136,480 shares for 1995 and 1994, respectively.
50
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. INCOME TAXES
The components of income tax expense for each year ended December 31 are as
follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 77.6 $ 92.6 $48.8
State and other taxes 10.5 18.9 7.8
Foreign 0.7 1.3 1.6
------ ------ -----
Total current 88.8 112.8 58.2
------ ------ -----
Deferred:
Federal 23.0 (2.5) 8.5
Change in federal enacted tax rate -- -- 4.4
State and other taxes 14.6 (2.0) (3.3)
Foreign (13.3) -- --
------ ------ -----
Total deferred 24.3 (4.5) 9.6
------ ------ -----
Total income taxes $113.1 $108.3 $67.8
====== ====== =====
</TABLE>
The domestic and foreign components of income (loss) before taxes for each year
ended December 31 are as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic $305.5 $247.6 $148.2
Foreign (60.5) (41.2) (40.3)
------ ------ ------
Income before income taxes and
cumulative effect of accounting
change $245.0 $206.4 $107.9
====== ====== ======
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
December 31
-----------
(Dollars in millions) 1995 1994
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $130.4 $121.6
Domestic equity investments 89.2 66.7
Unrealized gains 18.3 3.1
Currency translation adjustment 13.3 8.8
Other 45.9 12.5
------ ------
297.1 212.7
------ ------
Deferred tax assets:
Foreign tax benefits in consolidated
subsidiaries 38.8 10.5
Equity investments -- 18.5
Accruals deductible when paid 25.8 20.5
Organization and start-up costs 10.9 --
Other 23.2 2.1
------ ------
98.7 51.6
Less: valuation allowance 25.5 10.5
------ ------
73.2 41.1
------ ------
Total deferred taxes recorded in
consolidated balance sheets $223.9 $171.6
====== ======
Current $(21.3) $(33.8)
Noncurrent 245.2 205.4
------ ------
Net deferred tax liabilities $223.9 $171.6
====== ======
</TABLE>
51
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net change in the valuation allowance for deferred tax assets was an
increase of $15.0 million related to benefits arising from foreign net operating
loss carryforwards of consolidated subsidiaries. Although there can be no
assurances, the Company believes that it is more likely than not that it will
generate future taxable income sufficient to fully realize future benefits from
the net deferred tax assets of $73.2 million.
At December 31, 1995, the Company had $137.1 million in net operating loss
carryforwards for foreign tax reporting purposes. Of this amount, $118.9 million
can be carried forward indefinitely. The remaining carryforwards expire at
various dates through 2003.
The reasons for differences each year between the statutory federal income tax
rate and the effective income tax rate are provided in the following
reconciliations:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
Equity in net income (loss)
of certain unconsolidated
wireless systems 9.6 7.0 11.5
State income taxes, net of federal
tax benefit 6.7 5.3 3.7
Partner share of tax benefit 0.5 2.6 --
Nondeductible amortization 1.7 1.5 3.0
Tax on international income (5.2) 0.7 1.5
Tax exempt interest (0.9) (2.4) --
Change in deferred taxes due to tax
rate change -- -- 4.1
Net effect of Teletrac asset write-down (4.5) -- --
Other 3.3 2.8 4.0
---- ---- ----
Effective income tax rate 46.2% 52.5% 62.8%
==== ==== ====
</TABLE>
At December 31, 1995, $11.6 million of deferred tax liabilities relating to
$32.3 million of cumulative unrepatriated earnings on consolidated foreign
subsidiaries and equity investments in unconsolidated foreign wireless systems
were excluded from recognition under SFAS No. 109, "Accounting for Income
Taxes," because such earnings are intended to be reinvested indefinitely.
At December 31, 1995, deferred tax liabilities relating to items which were
credited directly to stockholders' equity totaled $31.6 million.
In August 1993, the U.S. Government enacted the Omnibus Budget Reconciliation
Act of 1993 which incorporated new business tax provisions. These included an
increase in the corporate tax rate from 34% to 35% retroactive to January 1,
1993. The Company's adjustment for this change reduced net income by $4.4
million in 1993.
K. EMPLOYEE BENEFITS
DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan, the AirTouch Communications
Retirement Plan ("Retirement Plan"), which covers substantially all full-time
employees. The Company's contributions to the Retirement Plan are based on a
combination of percentage of pay and on matching a portion of employee
contributions. The cost recognized for the Retirement Plan was $17.0 million,
$16.3 million, and $12.9 million for 1995, 1994, and 1993, respectively.
52
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEFINED BENEFIT PENSION PLAN
The Company maintains a defined benefit plan, the AirTouch Communications
Employee Pension Plan ("Pension Plan"), under which individuals who were
employees at December 31, 1986, and transferees from Telesis, receive pension,
death, and survivor benefits based on a percentage of their final five-year
average pay and years of service. The accrual of service credit was discontinued
in 1986 for Pension Plan participants. Thus, pension benefits only increase as a
participant's compensation increases.
In 1993, the Pension Plan was amended to include 130 employees of a joint
venture of Telesis. Also in 1993, 85% of such employees elected early retirement
or termination benefits. This was accounted for as a plan curtailment in
accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Plans and for Termination Benefits," and
resulted in a one-time $3.0 million net gain. Irrespective of this gain, the
Company recognized pension income of $6.1 million, $3.7 million, and $2.7
million for 1995, 1994, and 1993, respectively, using discount rates of 9.0%,
7.5%, and 8.5% for 1995, 1994, and 1993, respectively.
The Pension Plan assets in excess of projected benefit obligations were $50.2
million and $47.3 million as of December 31, 1995 and 1994, respectively. The
prepaid pension costs were $30.6 million and $24.7 million as of December 31,
1995 and 1994, respectively. On January 1, 1987, the Company adopted SFAS 87,
"Employers' Accounting for Pensions," at which time there was a $10.2 million
excess of the fair value of the Pension Plan's assets over projected benefit
obligations. This excess is being recognized through amortization over 17 years.
The assets of the Pension Plan are primarily composed of common stocks, U.S.
Government and corporate obligations, and index funds. The Pension Plan's
projected benefit obligations for employee service to date reflect the Company's
expectations of the effects of future salary progressions of 5.5% per year. As
of December 31, 1995 and 1994, the actuarial present value of the plan's
accumulated benefit obligations, which does not anticipate future salary
increases, was $33.3 million and $22.1 million, respectively. Of these amounts,
$28.4 million and $19.0 million, respectively, were vested. The assumptions used
in computing the present values of benefit obligations include a discount rate
of 7.25% and 9.0% for December 31, 1995 and 1994, respectively. An 8.5%
long-term rate of return on assets was assumed in calculating pension costs in
1995 and 1994.
OTHER POSTRETIREMENT BENEFITS
The Company provides health care benefits for retired employees and their
eligible dependents and provides life insurance benefits to retired employees.
Employees become eligible for these benefits upon retirement with eligibility
for a service pension under the Pension Plan or attainment of "retirement
status" under the Retirement Plan. Substantially all retirees and their
dependents are covered under the Company's plans for medical, dental, and life
insurance benefits. Approximately 95 retirees and dependents were eligible to
receive benefits as of January 1, 1995. As is the case with all of the Company's
benefit plans and programs, the Company retains the right to amend or terminate
these benefits.
A discount rate of 7.25% and 9.0% was used to measure the accumulated
postretirement benefit obligation ("APBO") at December 31, 1995 and 1994,
respectively. As of December 31, 1995 and 1994, the APBO was $16.0 million and
$14.9 million, respectively. The postretirement benefit plans' assets were less
than the accumulated benefit obligations by $15.3 million and $8.8 million as of
December 31, 1995 and 1994, respectively. At December 31, 1995, the
postretirement benefit plans were principally unfunded.
A discount rate of 9.0%, 7.5%, and 8.5% was assumed in calculating the 1995,
1994, and 1993, net periodic postretirement benefit cost, respectively. The
postretirement benefit cost was $1.3 million, $3.7 million, and $2.0 million for
1995, 1994, and 1993, respectively.
An 8.0% annual increase in health care costs is assumed in 1996. The rate of
increase is assumed to decline to an ultimate 5.0% by the year 2002. Should the
health care cost trend rate increase by 1% each
53
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
year, the 1995 impact would increase the APBO by $2.9 million and the aggregate
of the service and interest cost components of the net period cost by $0.4
million.
L. TRANSACTIONS WITH FORMER AFFILIATES
SEPARATION AND TRANSITION AGREEMENTS
Prior to the spin-off, the Company and Telesis entered into a separation
agreement that provided for complete separation of all properties after the
spin-off as well as transition agreements that disengaged the affairs of the
Company and Telesis in an orderly manner.
The separation agreement provided that the Company would join in filing
consolidated federal income tax returns with Telesis for all taxable periods in
which the parties were required or permitted to file a consolidated return. In
each taxable period, the Company paid Telesis an amount equal to the Company's
share of the consolidated tax liability based on the Company's separate taxable
income and an amount equal to the Company's contribution to Telesis' state tax
liability. If the Company reported a net operating loss for any such year,
Telesis paid an amount equal to its reduction in tax liability attributable to
such loss. A similar method of allocation was applied to state income taxes
filed pursuant to a combined return.
The separation agreement also provided for the transfer of a limited number of
employees' and retirees' accounts and for indemnification against certain
claims. Telesis and the Company have exchanged such payroll data, service
records, tax-related information, and other employee information necessary for
the effective administration of Company benefit plans and compliance with
governmental reporting requirements.
In general, the separation agreement allocated non-tax liabilities that become
certain after the spin-off according to the origin of the claim and acts by, or
benefits to, Telesis or the Company.
FINANCIAL AND ADMINISTRATIVE SERVICES
Prior to the spin-off, the Company obtained certain administrative services and
other additional services from Telesis and its affiliates ("former affiliates").
Service costs that were specifically attributable to the Company were directly
charged to the Company by Telesis. Other service costs and corporate charges
were allocated proportionately among former affiliates, including the Company.
In the ordinary course of business, the Company participated with former
affiliates in the following transactions prior to the spin-off:
<TABLE>
<CAPTION>
For the
Three Months For the Year
Ended March 31 Ended December 31
(Dollars in millions) 1994 1993
-------------- -----------------
<S> <C> <C>
Provided by the Company:
Revenues from cellular services $ 0.6 $ 2.7
Revenues from paging services $ 0.4 $ 1.7
Provided to the Company:
Expenses from telephone services $ 5.5 $28.5
Expenses from administrative,
research and development, and
insurance services $ 6.0 $16.3
Expenses from lending services -- $19.6
</TABLE>
54
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
M. COMMITMENTS AND CONTINGENCIES
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 has been removed to
federal court. The other cases have been stayed pending resolution of a motion
to remand the case to state court. In addition, two non-class action antitrust
cases brought by cellular agents making similar allegations were settled for
immaterial amounts. In April 1995, a federal class action complaint filed in Los
Angeles was dismissed on a motion for summary judgment. The dismissal was upheld
on appeal. 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, 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 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 believes the lawsuit to be without merit.
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.
LEASE COMMITMENTS
The Company leases various facilities and equipment under noncancelable lease
arrangements. Most leases contain renewal options for varying periods. Rent
expense under all operating leases was $50.3 million, $35.3 million, and $33.3
million in 1995, 1994, and 1993, respectively.
Future minimum lease payments under noncancelable operating leases with an
initial term of one year or more are as follows at December 31, 1995:
<TABLE>
<CAPTION>
(Dollars in millions)
- -----------------------------------------------
<S> <C>
1996 $ 62.1
1997 55.9
1998 50.5
1999 44.7
2000 36.2
Thereafter 73.6
- -----------------------------------------------
Total minimum lease payments $323.0
===============================================
</TABLE>
OTHER
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 December 31, 1995, the
Company's
55
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
proportionate share under such arrangements was $151.8 million. The Company
believes it is remote that it will be required to pay under these various
arrangements.
At December 31, 1995, the Company was committed to spend $220.8 million for the
acquisition of property, plant, and equipment, purchases of cellular equipment,
and capital contributions to unconsolidated wireless systems.
N. TELETRAC
AirTouch Teletrac ("Teletrac"), the Company's vehicle location and fleet
tracking services business (including International Teletrac Systems) reported
pre-tax losses of $25.9 million, $26.1 million, and $41.6 million for each of
the years ended December 31, 1995, 1994 and 1993, respectively. During the third
quarter of 1995, the Company recorded a pre-tax charge of approximately $25
million primarily related to the write-down of its investment in Teletrac to net
realizable value. The write-down was taken because of Teletrac's continuing
operating losses, despite ongoing cost containment measures, and the Company's
assessment that the cash flows from Teletrac would be insufficient to support
the carrying value of Teletrac's assets. On January 17, 1996, the Company sold
substantially all of Teletrac's assets to Teletrac, Inc., a Delaware corporation
and an unrelated party.
O. ADDITIONAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
December 31
-----------
(Dollars in millions) 1995 1994
---- ----
<S> <C> <C>
Selected "Other Current Liabilities":
Accrued compensation $84.8 $84.5
Various reserves and accruals $48.0 $10.7
Advance billings and customer deposits $38.4 $31.6
Deferred gain $30.4 $31.9
Accrued taxes payable $21.9 $54.4
</TABLE>
P. QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 First Second Third Fourth
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $373.9(a) $403.4(a) $414.7(a) $426.6
Operating income (loss) $ 54.0 $ 34.6 $ 29.5 $ (5.3)
Net income $ 35.3 $ 38.7 $ 46.7 $ 11.2
Per share data:
Net income $ 0.07 $ 0.08 $ 0.09 $ 0.02
- --------------------------------------------------------------------------------
<CAPTION>
1994 First Second Third Fourth
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $277.6(a) $301.9(a) $319.7(a) $347.7(a)
Operating income (loss) $ 33.9 $ 28.6 $ 16.1 $ (6.0)
Net income $ 27.5 $ 33.1 $ 34.4 $ 3.1
Per share data:
Net income $ 0.06 $ 0.07 $ 0.07 $ 0.01
================================================================================
</TABLE>
The operating loss in the fourth quarter of 1995 was primarily driven by
negative equipment margins associated with high volume holiday promotion
programs occurring in all domestic cellular markets.
56
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The operating loss in the fourth quarter of 1994 was primarily driven by
increased operating expenses, principally due to increased selling expenses for
commissions, advertising and other promotional expenses that were associated
with the rapid growth of domestic cellular subscribers.
(a) Varies from the amount previously reported on Forms 10-Q and 1994 Form 10-K
because domestic cellular roaming fraud losses have been reclassified from
operating revenues to operating expenses. As discussed in Note A, "Summary
of Significant Accounting Policies -- Basis of Presentation," the
reclassification did not affect previously reported operating income, net
income, or accumulated deficit. A reconciliation of previously reported
amounts is as follows:
<TABLE>
<CAPTION>
Domestic
Operating Cellular Operating
Revenues as Roaming Revenues
Previously Fraud as
(Dollars in millions) Reported Losses Restated
-------- ------ --------
<S> <C> <C> <C>
Quarter ended March 31, 1995 $367.2 $6.7 $373.9
Quarter ended June 30, 1995 $395.1 $8.3 $403.4
Quarter ended September 30, 1995 $407.2 $7.5 $414.7
Quarter ended March 31, 1994 $276.2 $1.4 $277.6
Quarter ended June 30, 1994 $300.2 $1.7 $301.9
Quarter ended September 30, 1994 $317.8 $1.9 $319.7
Quarter ended December 31, 1994 $341.2 $6.5 $347.7
</TABLE>
57
<PAGE> 58
SELECTED PROPORTIONATE RESULTS OF OPERATIONS
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 year-to-year 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>
For the Year Ended December 31
------------------------------
(Dollars in millions) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
TOTAL COMPANY (1)
Net operating revenues (3) $2,605.2 $1,791.8 $1,226.1
Operating income $ 296.7 $ 171.5 $ 97.6
Operating cash flow (2) $ 702.3 $ 506.1 $ 351.5
DOMESTIC CELLULAR
OPERATING RESULTS
Service and other revenues (3) $1,523.3 $1,160.1 $ 892.0
Equipment sales 78.9 74.6 40.2
Cost of equipment sales (125.6) (82.0) (42.2)
-------- -------- --------
Net operating revenues 1,476.6 1,152.7 890.0
-------- -------- --------
Cost of revenues (3) 188.4 136.5 116.3
Selling and customer operations 544.0 415.2 297.2
General, administrative, and other
expenses 139.0 122.0 96.9
Depreciation and amortization
expenses 189.2 185.7 164.7
-------- -------- --------
Total operating expenses 1,060.6 859.4 675.1
-------- -------- --------
Operating income $ 416.0 $ 293.3 $ 214.9
======== ======== ========
Operating cash flow (2) $ 605.2 $ 479.0 $ 379.6
======== ======== ========
</TABLE>
(1) Reflects proportionate results exclusive of cost-based investments and
certain equity-based investments that are not material to the Consolidated
Financial Statements taken as a whole.
(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) Presentation for 1994 has been restated to conform to current year
presentation. See Note A, "Summary of Significant Accounting Policies -
Basis of Presentation," to the Consolidated Financial Statements.
58
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of AirTouch Communications, Inc.
Our audit of the consolidated financial statements referred to in our report
dated February 23, 1996 appearing on page 39 of the 1995 Annual Report to
Stockholders of AirTouch Communications, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
San Francisco, California
February 23, 1996
X-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of AirTouch Communications, Inc.:
Our report on the December 31, 1994 and 1993 consolidated financial statements
of AirTouch Communications, Inc. (AirTouch) is included as an exhibit to the
Form 10-K of AirTouch. In connection with our audit of such financial
statements, we have audited the related financial statement schedule listed in
Item 14(a) of AirTouch's Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers and Lybrand L.L.P.
San Francisco, California
March 13, 1995
X-2
<PAGE> 61
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Deductions period
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts $10.1 $56.0 $44.9(a) $21.2
Deferred tax valuation allowance $10.5 $28.3 $13.3(b) $25.5
Other $ 3.2 $40.1 $ 3.5 $39.8
Year ended December 31, 1994:
Allowance for doubtful accounts $ 9.2 $33.8 $32.9(a) $10.1
Deferred tax valuation allowance $ 4.8 $ 5.7 -- $10.5
Other $ 5.3 -- $ 2.1 $ 3.2
Year ended December 31, 1993:
Allowance for doubtful accounts $10.0 $23.8 $24.6(a) $ 9.2
Deferred tax valuation allowance $ 3.0 $ 1.8 -- $ 4.8
Other $ 1.7 $ 5.7 $ 2.1 $ 5.3
</TABLE>
(a) Amounts reflect items written-off, net of recoveries.
(b) Amount reflects realization of tax benefit.
X-3
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
AIRTOUCH COMMUNICATIONS, INC. (DELAWARE)
AirTouch Communications - Washington, D.C. Inc. (Delaware)
AirTouch Communications Deutschland GmbH (Germany)
AIRTOUCH INTERNATIONAL (CALIFORNIA)
AirTouch Korea, Ltd. (Korea)
AirTouch Engineering Limited (Thailand)
AirTouch Belgium, S.A. (Belgium)
AirTouch Espana, S.A. (Spain)
AirTouch International GmbH (Germany)
AirTouch Netherlands B.V. (Netherlands)
NordicTel Holdings A.B. (Sweden)
A.B. Europolitan (Sweden)
Europolitan Stores, A.B. (Sweden)
Percom Service Ltd. (Thailand)
Pronto Italia, S.p.A. (Italy)
AirTouch International (Mauritius) Limited (India)
AirTouch (Thailand) Ltd. (Thailand)
AirTouch Japan Company Limited (Japan)
Central Japan Digital Phone Co., Ltd. (Japan)
International Digital Communications, Inc. (Japan)
Kansai Digital Phone Co., Ltd. (Japan)
Tokyo Digital Phone Co., Ltd. (Japan)
AirTouch Development Corporation (California)
AirTouch Satellite Services, Inc. (Delaware)
AirTouch Technical Services (California)
AirTouch Services (California)
AirTouch PCS, Inc. (Delaware)
AirTouch PCS Holding, Inc. (Delaware)
AirTouch WMC, Inc. (Delaware)
<PAGE> 2
AIRTOUCH CELLULAR (CALIFORNIA)
AIRTOUCH CELLULAR OF NEVADA (NEVADA)
AirTouch Cellular of Arizona (Nevada)
AirTouch Cellular of Georgia (Nevada)
Athens Cellular, Inc. (Delaware)
AirTouch Cellular of Kansas (Nevada)
Topeka Cellular Telephone Company, Inc. (Delaware)
AirTouch Cellular of Michigan (Nevada)
AirTouch Cellular of Texas (Nevada)
AIRTOUCH PAGING (NEVADA)
AirTouch Paging of Kentucky, Inc. (Kentucky)
AirTouch Paging of Virginia, Inc. (Virginia)
AirTouch Paging of California (California)
AirTouch Paging of Ohio, Inc. (Delaware)
AirTouch Paging of Texas (Nevada)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-62787) and
in the Registration Statements on Form S-8 (Nos. 33-57083, 33-57077, 33-57081
and 33-64553) of AirTouch Communications, Inc. of our report dated February 23,
1996 appearing on page 39 of the Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
listed in Item 14(a) of this Form 10-K, which appears in this Form 10-K.
PRICE WATERHOUSE LLP
San Francisco, California
March 26, 1996
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 33-62787) and in the Registration Statements on Form S-8 (Nos.
33-57083, 33-57077, 33-57081 and 33-64553) of AirTouch Communications, Inc. of
our reports dated March 13, 1995, on our audits of the consolidated financial
statements and financial statement schedule of AirTouch Communications, Inc. as
of December 31, 1994, and for the years ended December 31, 1994 and 1993, which
reports are included in AirTouch Communications Inc. Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
San Francisco, California
March 26, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 33-62787) and in the Registration Statements on Form S-8
(Nos. 33-57083, 33-57077, 33-57081 and 33-64553) of AirTouch Communications,
Inc. of our report dated February 16, 1996, relating to the consolidated
financial statements and schedule of Cellular Communications, Inc. included in
its Annual Report (Form 10-K) for the year ended December 31, 1995.
Ernst & Young LLP
New York, New York
March 26, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-62787) and
in the Registration Statements on Form S-8 (Nos. 33-57083, 33-57077, 33-57081
and 33-64553) of AirTouch Communications, Inc. of our report dated February 23,
1996 relating to the financial statements of Mannesman Mobilfunk GmbH, which
appears in AirTouch Communications Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1995.
Dusseldorf, Germany, March 26, 1996
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Scheffler Haas
Wirtschaftsprufer Wirtschaftsprufer
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 33-62787) and in the Registration Statements on Form S-8 (Nos.
33-57083, 33-57077, 33-57081 and 33-64553) of AirTouch Communications, Inc. of
our reports dated February 1, 1996, on our audits of the consolidated financial
statements and financial statement schedule of CMT Partners as of December 31,
1995 and 1994, and for the years ended December 31, 1995 and 1994 and for the
four-month period ended December 31, 1993, which reports are included in
AirTouch Communications Inc. Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
San Francisco, California
March 26, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-62787) of AirTouch Communications, Inc. and in the related
Prospectus and in the Registration Statements (Forms S-8 Nos. 33-57081 and
33-64553, No. 33-57077, and No. 33-57083) pertaining to the AirTouch
Communications, Inc. 1993 Long-Term Stock Incentive Plan, the AirTouch
Communications, Inc. Employee Stock Purchase Plan, and the AirTouch
Communications, Inc. Retirement Plan, of our report dated February 16, 1996,
with respect to the consolidated financial statements and schedule of New Par,
included in the Annual Report (Form 10-K) of AirTouch Communications Inc. for
the year ended December 31, 1995.
Ernst & Young LLP
Columbus, Ohio
March 26, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, AIRTOUCH COMMUNICATIONS, INC., a Delaware corporation (the
"Corporation"), proposes to file with the Securities and Exchange Commission
(the "SEC"), under the provisions of the Securities Act of 1934, as amended, an
Annual Report on Form 10-K; and
WHEREAS, each of the undersigned is an officer or director, or both, of the
Corporation as indicated below under his/her name;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Sam
Ginn, C. Lee Cox, Margaret G. Gill, Mohan S. Gyani, Arun Sarin, and each of
them, his/her attorneys for him/her in his/her stead, in his/her capacity as an
officer, director, or both, of the Corporation, to execute and file such Annual
Report on Form 10-K, and any and all amendments, modifications or supplements
thereto, and any exhibits thereto, and granting to each of said attorneys full
power and authority to sign and file any and all other documents and to perform
and do all and every act and thing whatsoever requisite and necessary to be done
as fully, to all intents and purposes, as he/she might or could do if personally
present at the doing thereof, and hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof in
connection with effecting the filing of the Annual Report on Form 10-K.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 8th day
of February, 1996.
/s/ Sam Ginn /s/ C. Lee Cox
Sam Ginn C. Lee Cox
Chairman of the Board and Vice Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
/s/ Mohan S. Gyani /s/ Arun Sarin
Mohan S. Gyani Arun Sarin
Executive Vice President and Vice Chairman of the Board
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Carol Bartz /s/ Donald G. Fisher
Carol Bartz Donald G. Fisher
Director Director
/s/ James R. Harvey /s/ Paul Hazen
James R. Harvey Paul Hazen
Director Director
/s/ Arthur Rock /s/ Charles R. Schwab
Arthur Rock Charles R. Schwab
Director Director
/s/ George P. Shultz
George P. Shultz
Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 82,900
<SECURITIES> 0
<RECEIVABLES> 253,600
<ALLOWANCES> 21,200
<INVENTORY> 0
<CURRENT-ASSETS> 506,200
<PP&E> 2,087,600
<DEPRECIATION> 767,400
<TOTAL-ASSETS> 5,647,900
<CURRENT-LIABILITIES> 487,700
<BONDS> 892,400
0
0
<COMMON> 5,000
<OTHER-SE> 3,745,700
<TOTAL-LIABILITY-AND-EQUITY> 5,647,900
<SALES> 108,300
<TOTAL-REVENUES> 1,618,600
<CGS> 141,000
<TOTAL-COSTS> 1,505,800
<OTHER-EXPENSES> 8,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> 245,000
<INCOME-TAX> 113,100
<INCOME-CONTINUING> 131,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,900
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
<PAGE> 1
EXHIBIT 99.1
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: June 30, 1995
AirTouch Communications, Inc.
<TABLE>
<S> <C> <C>
Delaware 1-12342 94-3213132
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
</TABLE>
One California Street, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 658-2000
<PAGE> 2
Item 4. Changes in Registrant's Certifying Accountant.
(a)(i) The Company has chosen not to extend the engagement of Coopers
& Lybrand L.L.P. effective July 1, 1995 as the Company's
independent auditors. To effect an orderly transition Coopers
& Lybrand L.L.P. will provide services to the Company
in connection with the Company's Quarterly Report
on Form 10-Q for the quarter ending June 30, 1995.
(ii) The reports of Coopers & Lybrand L.L.P. on the Company's
consolidated financial statements for each of the two fiscal
years ended December 31, 1993 and December 31, 1994, contained
no adverse opinion or disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope, or
accounting principles.
(iii) The decision to change independent auditors was recommended by
the Company's Audit Committee and approved by the Board of
Directors.
(iv) During the Company's two most recent fiscal years and through
the date of this report, the Company has had no disagreements
with Coopers & Lybrand L.L.P. on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement(s), if not
resolved to the satisfaction of Coopers & Lybrand L.L.P.,
would have caused them to make reference thereto in their
report on the consolidated financial statement of the Company
for such years.
(v) During the Company's two most recent fiscal years and through
the date of this report, the Company has had no reportable
events as defined in Item 304 (1) (v) of Regulation S-K.
(vi) The Company has requested that Coopers & Lybrand L.L.P.
furnish it with a letter addressed to the Securities and
Exchange Commission stating whether it agrees with the above
statements. A copy of that letter dated July 6, 1995 is
filed as Exhibit 16 to this Form 8-K.
(b) The Company engaged Price Waterhouse LLP as its new
independent auditor effective July 1, 1995.
During the Company's two fiscal years ended December 31, 1993
and December 31, 1994 and through the date of engagement of
Price Waterhouse LLP, the Company has not consulted with
Price Waterhouse LLP regarding any of the matters specified
in Item 304(a)(2) of Regulation S-K.
Item 7. Financial Statements and Exhibits
(c) Exhibits
16. Letter from Coopers & Lybrand L.L.P. to the Securities
and Exchange Commission dated July 6, 1995.
<PAGE> 3
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/ Lydell L. Christensen
-----------------------------------
Lydell L. Christensen
Executive Vice President and
Chief Financial Officer
Date: July 7, 1995
<PAGE> 4
INDEX TO EXHIBITS
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Exhibit
Number Description
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16 Letter from Coopers & Lybrand L.L.P.
to the Securities and Exchange Commission
dated July 6, 1995
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Exhibit 16
Coopers & Lybrand L.L.P.
333 Market Street
San Francisco, CA 94105-2119
July 6, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
We have read the statements made by AirTouch Communications, Inc. (copy
attached), which we understand will be filed with the Commission, pursuant to
Item 4 of Form 8-K, as part of the Company's Form 8-K report for the month of
July, 1995. We agree with the statements concerning our Firm in such Form 8-K.
By: /s/ Coopers & Lybrand L.L.P.
---------------------------------
Coopers & Lybrand L.L.P.
<PAGE> 1
Exhibit 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of AirTouch Communications, Inc.:
We have audited the accompanying consolidated balance sheet of AirTouch
Communications, Inc. and Subsidiaries (the "Company") as of December 31, 1994
and the related consolidated statements of income, stockholder's equity, and
cash flows for each of the two years in the period ended December 31, 1994.
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 did not audit the 1994 and 1993 financial statements of
Mannesmann Mobilfunk GmbH ("MMO"), an equity investee of the Company, which
statements reflect total assets of $1,623,192,000 as of December 31, 1994 and
net income (loss) of $69,072,000 and ($67,655,000) for the years ended
December 31, 1994 and 1993, respectively. Those statements were audited by
other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to the amounts included for MMO, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of AirTouch
Communications, Inc. and Subsidiaries as of December 31, 1994 and the
consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note B, in 1993 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
We have also audited the Supplementary Selected Proportionate Financial Data
for each of the two years in the period ended December 31, 1994, presented on
page 64, certain of which data includes amounts derived from financial
statements of MMO, which statements are audited by other auditors as stated
above. As described on Page 64, the Supplementary Selected Proportionate
Financial Data have been prepared by management to present relevant financial
information that is not provided by the consolidated financial statements and
is not intended to be a presentation in accordance with generally accepted
accounting principles.
In our opinion, the Supplementary Selected Proportionate Financial Data
referred to above presents fairly, in all material respects, the information
set forth therein on the basis of accounting described on Page 64.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
March 13, 1995
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