<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report: August 16, 1996
AirTouch Communications, Inc.
Delaware 1-12342 94-3213132
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
One California Street, San Francisco, California 94111
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 658-2000
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Item 7. Financial Statements and Exhibits.
This Item 7 and the accompanying Exhibit Index amend and restate in
their entireties the corresponding items in AirTouch's Form 8-K, Date of Report:
August 16, 1996.
(a) Financial Statements of Business Acquired. The financial statements
of CCI for the year ended December 31, 1995, have been previously reported by
AirTouch and were filed as Exhibit 99.4 to AirTouch's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 1-12342). The financial
statements of CCI for the period ended March 31, 1996 are incorporated herein
by reference to Item 1 of CCI's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 (File. No. 1-10789). The financial statements of CCI for
the period ended June 30, 1996 are incorporated by reference to Item 1 of CCI's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 (File No.
1-10789).
(b) Pro Forma Financial Information. The pro forma financial
information required by Article 11 of Regulation S-X is incorporated by
reference to Exhibit 99.5 to this Form 8-K/A-1.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated as of April 5, 1996, among AirTouch
Communications, Inc., Cellular Communications, Inc. and AirTouch
Cellular, as amended and restated as of July 12, 1996 (incorporated by
reference to Exhibit 2.1 to AirTouch's Registration Statement on Form
S-4 (Reg. No. 333-03107).*
99.1 Press Release dated August 16, 1996.*
99.2 Financial Statements of Cellular Communications, Inc. for the quarter
ended March 31, 1996 (incorporated by reference to Item 1 of Cellular
Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 (File No. 1-10789)).*
99.3 Financial Statements of Cellular Communications, Inc. for the period
ended June 30, 1996 (incorporated by reference to Item 1 of Cellular
Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 (File No. 1-10789)).
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99.4 Financial Statements of U S WEST NewVector Group for the period ended
June 30, 1996.
99.5 AirTouch Communications, Inc. pro forma condensed combined financial
statements.
* Previously filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AIRTOUCH COMMUNICATIONS, INC.
By: /s/ Mohan S. Gyani
---------------------------
Mohan S. Gyani
Executive Vice President
and Chief Financial Officer
Date: October 1, 1996
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Exhibit Index
2.1 Agreement and Plan of Merger dated as of April 5, 1996, among AirTouch
Communications, Inc., Cellular Communications, Inc. and AirTouch
Cellular, as amended and restated as of July 12, 1996 (incorporated by
reference to Exhibit 2.1 to AirTouch's Registration Statement on Form
S-4 (Reg. No. 333-03107).*
99.1 Press Release dated August 16, 1996.*
99.2 Financial Statements of Cellular Communications, Inc. for the quarter
ended March 31, 1996 (incorporated by reference to Item 1 of Cellular
Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 (File No. 1-10789)).*
99.3 Financial Statements of Cellular Communications, Inc. for the period
ended June 30, 1996 (incorporated by reference to Item 1 of Cellular
Communications, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 (File No. 1-10789)).
99.4 Financial Statements of U S WEST NewVector Group for the period ended
June 30, 1996.
99.5 AirTouch Communications, Inc. pro forma condensed combined financial
statements.
* Previously filed.
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EXHIBIT 99.4
U S WEST NEWVECTOR GROUP, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1996
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U S West NewVector Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1996 (unaudited) and December 31, 1995 (audited)
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ --
Trade accounts receivable, net 144,153 142,210
Federal income taxes receivable from affiliate 2,259 12,315
Other 39,906 42,853
---------- ----------
Total current assets 186,318 197,378
---------- ----------
Property, plant and equipment, net 824,362 805,947
---------- ----------
Other non-current assets:
Goodwill, operating licenses and
other intangible assets, net 433,120 440,320
Investments and other 9,077 11,741
---------- ----------
Total other non-current assets 442,197 452,061
---------- ----------
TOTAL ASSETS $1,452,877 $1,455,386
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
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U S WEST NewVector Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30, 1996 (unaudited) and December 31, 1995 (audited)
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995
---------- -----------
<S> <C> <C>
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities:
Notes payable $ -- $ 13,125
Trade accounts payable 125,542 163,056
Accounts payable to affiliate 54,237 31,389
Accrued taxes 37,348 34,567
Other current liabilities 75,043 59,990
---------- ----------
Total current liabilities 292,170 302,127
Notes payable to affiliate -- 553,098
Other liabilities 21,187 26,304
---------- ----------
Total liabilities 313,357 881,529
---------- ----------
Minority interests in consolidated partnerships 74,299 71,599
---------- ----------
Shareowner's equity:
Common stock, no par, 43,000,000 shares authorized, one
share issued and outstanding -- --
Additional paid-in capital 1,056,586 550,523
Accumulated earnings (deficit) 8,635 (48,265)
---------- ----------
Total shareowner's equity 1,065,221 502,258
---------- ----------
TOTAL LIABILITIES AND SHAREOWNER'S EQUITY $1,452,877 $1,455,386
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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U S WEST NewVector Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three And Six Months Ended June 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Cellular service $266,685 $207,197 $505,896 $392,659
Cellular equipment 23,466 20,670 48,165 37,400
-------- -------- -------- --------
Total revenues 290,151 227,867 554,061 430,059
-------- -------- -------- --------
OPERATING EXPENSES:
Cellular service 35,887 29,560 73,217 60,501
Cellular equipment 32,510 24,087 65,271 41,980
Selling, general and administrative 126,215 102,567 236,061 194,897
Depreciation and amortization 36,239 28,746 70,184 56,821
-------- -------- -------- --------
Total operating expenses 230,851 184,960 444,733 354,199
-------- -------- -------- --------
Operating income 59,300 42,907 109,328 75,860
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (211) (6,679) (1,215) (12,992)
Other income (expense), net (108) 1,278 (325) 7,357
Minority interests in income of
consolidated partnerships (6,522) (8,117) (12,537) (13,250)
Equity in income (losses) of
unconsolidated partnerships (193) (205) 163 (410)
-------- -------- -------- --------
Total other expense (7,034) (13,723) (13,914) (19,295)
-------- -------- -------- --------
Income before income taxes 52,266 29,184 95,414 56,565
Income tax provision (20,859) (12,492) (38,514) (24,542)
-------- -------- -------- --------
NET INCOME $ 31,407 $ 16,692 $ 56,900 $ 32,023
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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U S WEST NewVector Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 56,900 $ 32,023
Adjustments to net income:
Depreciation and amortization 70,184 56,821
Bad debt provision 13,897 10,891
Minority interests in income
of consolidated partnerships 12,537 13,250
Equity in (income) losses of unconsolidated
partnerships (163) 410
Deferred income taxes 15,868 23,963
Changes in operating assets and liabilities:
Accounts receivable (17,910) (10,905)
Accounts payable and accrued liabilities 7,673 (184)
Other (4,451) 29,351
--------- ---------
Cash provided by operating activities 154,535 155,620
--------- ---------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (106,559) (122,271)
Cellular acquisitions -- (32,345)
Proceeds from sale or exchange of cellular interests 1,105 4,608
Advances to unconsolidated partnerships (105) (1,238)
Other (495) 2,075
--------- ---------
Cash used for investing activities (106,054) (149,171)
--------- ---------
FINANCING ACTIVITIES:
Capital contributions from limited partners 1,264 4,241
Capital distributions to limited partners (10,197) (4,419)
Proceeds from issuance of affiliate debt -- 239,632
Principal payments on affiliate debt -- (218,562)
Principal payments on other debt (14,358)
Equity infusion from affiliate 12,588 --
Dividends paid to affiliate (37,778) (27,341)
--------- ---------
Cash used for financing activities (48,481) (6,449)
--------- ---------
CASH:
Change -- --
Beginning balance -- --
--------- ---------
Ending balance $ -- $ --
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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U S WEST NewVector Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1996
(Dollars in Thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements have been prepared by U S
WEST NewVector Group, Inc. and subsidiaries (the "Company") pursuant to the
interim reporting rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
accompanying financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. In the opinion of the Company's management, the Condensed
Consolidated Financial Statements include all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the financial
information set forth therein. It is suggested that these Condensed Consolidated
Financial Statements be read in conjunction with the Company's 1995 Consolidated
Financial Statements and notes thereto included in AirTouch Communications,
Inc.'s Form 8-K dated July 2, 1996.
Certain prior year presentations have been reclassified to conform to the
current year presentation.
(2) RECAPITALIZATION OF DEBT
Borrowings under the Company's credit facility with U S WEST, Inc. ("U S
WEST") were replaced with equity on January 1, 1996, when U S WEST contributed
capital of $553,098 to the Company.
(3) AIRTOUCH JOINT VENTURE
During 1994, the Company signed a definitive agreement with AirTouch
Communications, Inc. ("AirTouch") to combine their domestic cellular operations.
The initial equity ownership of this cellular joint venture is expected to be
approximately 74% AirTouch and 26% U S WEST. These initial ownership percentages
may be subject to change based upon provisions contained within the U S WEST /
AirTouch Joint Venture Agreement. The combination will take place in two phases.
During Phase I, which commenced on November 1, 1995, the two companies are
operating their cellular properties separately. A Wireless Management Company
("WMC") has been formed and is providing centralized services to both companies
on a contract basis. In Phase II, AirTouch and the Company will each contribute
their domestic cellular assets to the WMC. Contribution of certain non-wholly
owned assets is subject to obtaining partnership approvals. The recent passage
of the Telecommunications Act of 1996 has removed significant regulatory
barriers to completion of Phase II of the business combination. The Company
expects that Phase II closing could take place by the end of 1996 or early 1997.
5
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EXHIBIT 99.5
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as
of June 30, 1996 combines (1) the historical consolidated balance sheets of
AirTouch and subsidiaries and Cellular Communications, Inc.(" CCI") and
subsidiaries as if the acquisition of all of CCI's capital stock that AirTouch
did not already own (approximately 62%) (the "CCI Merger") had been effective on
that date (the CCI Merger closed on August 16, 1996) and after giving effect to
the purchase method of accounting and other merger-related adjustments described
in the accompanying explanatory notes, and (2) the second phase of the
AirTouch/U S WEST joint venture described in the accompanying explanatory notes
("Phase II"), assuming Phase II occurred on that date, and (A) all of the
domestic cellular interests owned by each of AirTouch and U S WEST, including
those subject to regulatory and other approvals, were contributed at such time
to the joint venture, and (B) U S WEST did not cause the contribution of the
personal communications services partnership equally owned by AirTouch and U S
WEST, (the "PCS Partnership"), to the joint venture at such time. The unaudited
Pro Forma Condensed Combined Statements of Income present the combined results
of operations of (1) AirTouch and CCI as if the CCI Merger had been effective at
the beginning of each period after giving effect to the purchase method of
accounting and other merger-related adjustments described in the accompanying
explanatory notes, and (2) Phase II of the AirTouch/U S WEST joint venture as if
Phase II had been effective at the beginning of each period as described in the
accompanying explanatory notes.
The Pro Forma Condensed Combined Financial Statements and accompanying
explanatory notes reflect the application of the purchase method of accounting
for the CCI Merger. Under the purchase method of accounting, the purchase price
will be allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the effective time of the CCI Merger (the "Effective
Time"). As described in the accompanying notes, estimates of the fair values of
CCI and subsidiaries' assets and liabilities have been combined with recorded
values of the assets and liabilities of AirTouch. However, changes to
adjustments included in the Pro Forma Condensed Combined Financial Statements
are expected as valuations/appraisals of assets and liabilities are completed,
and additional information becomes available. Although the Company cannot
ascertain what these changes would be, such changes could be material. In
addition, the results of operations of CCI subsequent to June 30, 1996 will
affect allocation of the purchase price. Accordingly, actual amounts will differ
from those set forth in the Pro Forma Condensed Combined Financial Statements.
Contingent payments, if any, associated with AirTouch's 6% Class B Mandatorily
Convertible Preferred Stock, Series 1996 will not affect the aggregate purchase
price, since the contingency is based on changes in the volume-weighted average
trading price of such preferred stock.
The equity method of accounting was applied for Phase II of the
AirTouch/U S WEST joint venture. Despite having majority ownership, the equity
method of accounting will be required for the joint venture under generally
accepted accounting principles and it will not be consolidated because AirTouch
is required to obtain concurrence from U S WEST, or the Independent Member as
defined in the agreement, with respect to approval of the joint venture's
budgets and business plans, capital contributions in excess of certain levels,
acquisition or disposition of assets with fair market value in excess of certain
levels, and any distributions not contemplated in an approved budget. The equity
method of accounting requires recognition of AirTouch's share of the financial
condition and operating results of the AirTouch/U S WEST joint venture on one
line in the Pro Forma Condensed Combined Balance Sheet and in the Pro Forma
Condensed Combined Statement of Income, respectively. The contribution of net
assets to the AirTouch/U S WEST joint venture will be recorded on a historical
basis. The actual interests of AirTouch and U S WEST in the capital, income
(loss) and cash flows of the joint venture will depend on a number of factors,
the outcomes of which are subject to significant uncertainties and
contingencies, and the individual or aggregate effect of which cannot currently
be reliably estimated. These factors include, among other things, the timing of
the actual closing of Phase II, the ability of the parties to contribute certain
of their domestic cellular interests to the joint venture (and the timing of
such contributions), the ability of the parties to restructure the allocation of
profits and losses and the distribution of cash and property of the joint
venture in the event that they are unable to contribute all of their domestic
cellular interests to the joint venture at the closing of Phase II (and
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<PAGE> 2
the manner in which any such restructuring is implemented, see discussion
below), and the timing of the parties' contribution of their PCS Partnership to
the joint venture (and the value of the PCS Partnership at the time of such
contribution). The closing of Phase II is conditioned upon the satisfaction of
certain conditions, including the ability of AirTouch and U S WEST to contribute
at least 60% of their respective domestic cellular interests to the joint
venture, measured on the basis of the adjusted POPS represented by such
interests and, in the case of AirTouch, excluding New Par. AirTouch anticipates
that Phase II will occur in the fourth quarter of 1996 or the first quarter of
1997.
Some of the cellular interests of AirTouch and U S WEST, including
their general partner interests in Los Angeles and Seattle, respectively, are
subject to consent provisions in connection with certain transactions. In
addition, other partnership interests may, under certain circumstances, be
subject to rights of first refusal provisions in favor of third parties. The
foregoing provisions may or may not result in certain of the parties' properties
not being contributed to the AirTouch/U S WEST joint venture. In addition, a
limited partner in the U S WEST majority-owned Seattle system has initiated
litigation challenging the arrangements between AirTouch and U S WEST as they
relate to the Seattle property and the parties' joint venture. To the extent any
such properties have not been contributed to the joint venture at the time of
the Phase II closing, however, AirTouch and U S WEST are obligated throughout
the life of the joint venture to continue to use reasonable efforts to effect to
the maximum extent possible such contribution. In addition, AirTouch and U S
WEST have agreed that, in the event that either is unable to contribute all of
its domestic cellular interests to the joint venture, the parties, to the extent
feasible (including with respect to obligations to third parties), will (for a
five-year period following the Phase II closing) restructure, among other
things, the allocation of profits and losses and the distribution of cash and
property of the joint venture or, to the extent such a restructuring is not
feasible, to otherwise implement a compensation mechanism, in each case, to
provide each party with the same economic result (taking into account all tax
consequences) such party would have obtained if all of the parties' domestic
cellular interests had been contributed to the joint venture at the Phase II
closing. AirTouch and U S WEST have not yet determined whether any such
restructuring is feasible, or how any such restructuring or other compensation
mechanism would be implemented.
As a result of the uncertainties and contingencies surrounding Phase II,
AirTouch cannot predict the actual interest which it will have upon the closing
of Phase II in the capital, income (loss) or cash flow of the joint venture, or
the degree to which its domestic cellular operations will be deconsolidated, and
such interest and manner of accounting presentation could differ materially from
the pro forma information presented below. AirTouch nevertheless believes it is
reasonable to use the above-described assumption that all cellular properties
are contributed to the joint venture in the pro forma presentation because of
(i) the continuing obligations of AirTouch and U S WEST to attempt to effect
such contribution, and (ii) the fact that such an assumption reflects the most
conservative expected result (i.e., full deconsolidation) for the purposes of
AirTouch's financial statement reporting of all of AirTouch's domestic cellular
properties.
The Pro Forma Condensed Combined Financial Statements are intended for
informational purposes only and are not necessarily indicative of the future
financial position or future results of operations of the combined company or
the financial position or the results of operations of the combined company that
would have actually occurred had the Merger and Phase II of the AirTouch/U S
WEST joint venture been in effect as of the date or for the periods presented.
The Pro Forma Condensed Combined Financial Statements and the
accompanying notes should be read in conjunction with and are qualified in their
entirety by the Consolidated Financial Statements, including accompanying notes,
of AirTouch and CCI included in their respective Forms 10-K and Forms 10-Q for
the periods ended March 31, 1996 and June 30, 1996, and the Consolidated
Financial Statements of U S WEST NewVector Group filed as Exhibits 99.1 and 99.2
to AirTouch's Report on Form 8-K dated July 2, 1996 and as Exhibit 99.4 to this
Form 8-K.
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PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
AirTouch/ Pro Forma
As Reported Pro Forma U S WEST CCI Merger
---------------------------- CCI CCI Joint Venture and
AirTouch CCI New Par Adjustments Merger Adjustments Phase II
-------- ------ -------- ----------- -------- ------------- ----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets $ 412.8 $228.6 $ 148.9 $ (8.0)(1)
(118.5)(2) $ (211.6)(a)
$ 663.8 (148.9)(c) $ 303.3
Property, plant, and equipment, net 1,371.1 1.9 493.8 (897.2)(a)
1,866.8 (493.8)(c) 475.8
Investments in unconsolidated
wireless systems 3,300.3 456.5 1,458.0 (1) 1,053.4 (a)
107.7 (3) 3,913.5 (c)
(3,368.0)(4) 1,954.5 6,921.4
Intangible assets, net 570.6 406.9 2,079.9 (4) (156.5)(a)
850.5 (5) 3,907.9 (3,337.3)(c) 414.1
Deferred charges and other
noncurrent assets 280.4 30.1 28.9 (107.7)(3) 231.7 (159.9)(a)
(28.9)(c) 42.9
-------- ------ -------- --------- -------- --------- --------
Total assets $5,935.2 $717.1 $1,078.5 $ 893.9 $8,624.7 $ (467.2) $8,157.5
======== ====== ======== ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 510.0 $ 10.5 $ 89.7 $ 610.2 $ (194.8)(a)
(89.7)(c) $ 325.7
Long-term obligations 1,031.8 361.8 $ 393.0 (1)
(113.9)(2) 1,672.7 (1.6)(a) 1,671.1
Deferred income taxes 261.0 35.2 850.5 (5) 1,146.7 1,146.7
Deferred credits 74.4 3.8 78.2 (12.6)(a)
(3.8)(c) 61.8
-------- ------ -------- --------- -------- --------- --------
Total liabilities 1,877.2 407.5 93.5 1,129.6 3,507.8 (302.5) 3,205.3
-------- ------ -------- --------- -------- --------- --------
(162.8)(a)
Minority interests in consolidated
wireless systems 169.4 1.9 171.3 (1.9)(c) 6.6
-------- ------ -------- --------- -------- --------- --------
Stockholders' equity:
6.00% Class B Mandatorily
Convertible Preferred Stock,
Series 1996 500.0 (1) 500.0 500.0
4.25% Class C Convertible
Preferred Stock, Series 1996 540.0 (1) 540.0 540.0
Common stock 5.0 5.0 5.0
Additional paid-in capital 3,895.3 17.0 (1) 3,912.3 3,912.3
Accumulated deficit (44.7) (44.7) (44.7)
Cumulative translation
adjustment 12.4 12.4 12.4
Other 20.6 20.6 20.6
Stockholders' equity - CCI 309.6 (4.6)(2)
(305.0)(4)
Partners' capital - New Par 983.1 (983.1)(4)
-------- ------ -------- --------- -------- --------- --------
Total stockholders' equity 3,888.6 309.6 983.1 (235.7) 4,945.6 4,945.6
-------- ------ -------- --------- -------- --------- --------
Total liabilities and
stockholders' equity $5,935.2 $717.1 $1,078.5 $ 893.9 $8,624.7 $ (467.2) $8,157.5
======== ====== ======== ========= ======== ========= ========
</TABLE>
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
3
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PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
AirTouch/
As Reported Pro Forma U S WEST CCI Merger
----------------------------- CCI CCI Joint Venture and
AirTouch CCI(*) New Par(*) Adjustments Merger Adjustments Phase II
-------- ------ ---------- ----------- --------- ------------- --------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 930.2 $374.6 $1,304.8 $(666.0)(b)
(374.6)(d) $ 264.2
-------- ------ -------- ------- --------
Operating expenses:
Cost of revenues 205.6 69.7 275.3 (76.3)(b)
(69.7)(d) 129.3
Selling and customer operations
expenses 291.4 103.5 394.9 (200.0)(b)
(103.5)(d) 91.4
General, administrative, and
other expenses 187.9 $ 64.4 20.1 $ (61.7)(11) 210.7 (84.2)(b)
(20.1)(d) 106.4
Depreciation and amortization
expenses 133.1 0.8 46.8 (6.4)(6) (78.5)(b)
53.4 (8) 227.7 (93.8)(d) 55.4
-------- ------ ------ ------- -------- ------- -------
Total operating expenses 818.0 65.2 240.1 (14.7) 1,108.6 (726.1) 382.5
-------- ------ ------ ------- -------- ------- -------
Operating income (loss) 112.2 (65.2) 134.5 14.7 196.2 (314.5) (118.3)
Equity in net income (loss) of
unconsolidated wireless systems:
Domestic 114.6 68.3 (142.9)(7) 40.0 196.9 (b)
88.5 (d)
(4.2)(e)
(6.4)(f) 314.8
International (16.5) (16.5) (16.5)
Minority interests in net (income)
loss of consolidated wireless
systems (34.3) (0.4) (34.7) 35.0 (b)
Interest: 0.4 (d) 0.7
Income 6.3 4.2 4.9 15.4 (4.0)(b)
(4.9)(d) 6.5
Expense (17.0) (12.5) (14.7)(9) (44.2) (0.9)(b) (45.1)
Miscellaneous income (expense) 11.3 (5.1) (0.6) 5.6 0.6 (d) 6.2
-------- ------ ------ ------- -------- ------- --------
Income (loss) before extraordinary
item and income taxes 176.6 (10.3) 138.4 (142.9) 161.8 (13.5) 148.3
Income taxes 63.2 (2.8) 2.9 3.0 (10) 66.3 (2.9)(d)
(1.4)(g) 62.0
-------- ------ ------ ------- -------- ------- --------
Income (loss) before extraordinary
item $ 113.4 $ (7.5) $135.5 $(145.9) 95.5 (9.2) 86.3
======== ====== ====== =======
Preferred dividends 26.8 26.8
-------- ------- --------
Income attributable to common
stockholders $ 68.7 $ (9.2) $ 59.5
======== ======= ========
Income before extraordinary item
per share $ 0.23 $ 0.14 $ 0.12
======== ======== ========
Weighted average shares outstanding
(in thousands) 499,080 499,080 499,080
======== ======== ========
<CAPTION>
</TABLE>
(*) Conformed to AirTouch's Statement of Income presentation.
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
4
<PAGE> 5
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
AirTouch/ Pro Forma
As Reported Pro Forma U S WEST CCI Merger
------------------------------ CCI CCI Joint Venture and
AirTouch CCI(*) New Par(*) Adjustments Merger Adjustments Phase II
-------- ----- --------- ----------- --------- ------------ ----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $1,618.6 $660.3 $2,278.9 $(1,188.7)(b)
(660.3)(d) $ 429.9
-------- ------ -------- --------- --------
Operating expenses:
Cost of revenues 372.9 133.4 506.3 (231.0)(b)
(133.4)(d) 141.9
Selling and customer operations
expenses 524.7 204.4 729.1 (380.6)(b)
(204.4)(d) 144.1
General, administrative, and
other expenses 392.4 $ 13.6 38.4 444.4 (159.6)(b)
(38.4)(d) 246.4
Depreciation and amortization
expenses 215.8 2.2 86.4 $ (10.2)(6) (127.6)(b)
106.7 (8) 400.9 (182.9)(d) 90.4
-------- ------ ------ ------- -------- --------- --------
Total operating expenses 1,505.8 15.8 462.6 96.5 2,080.7 (1,457.9) 622.8
-------- ------ ------ ------- -------- --------- --------
Operating income (loss) 112.8 (15.8) 197.7 (96.5) 198.2 (391.1) (192.9)
Equity in net income (loss) of
unconsolidated wireless systems:
Domestic 188.2 101.3 (207.1)(7) 82.4 242.4 (b)
103.8 (d)
(18.4)(e)
(12.2)(f) 398.0
International (35.9) (35.9) (35.9)
Minority interests in net (income)
loss of consolidated wireless
systems (36.5) (0.9) (37.4) 56.4 (b)
0.9 (d) 19.9
Interest:
Income 34.9 15.1 8.8 58.8 (12.3)(b)
(8.8)(d) 37.7
Expense (13.0) (27.5) (0.1) (67.8)(9) (108.4) 5.1 (b)
0.1 (d) (103.2)
Miscellaneous income (expense) (5.5) 16.1 (0.9) 9.7 (1.7)(b)
0.9 (d) 8.9
-------- ------ ------ ------- -------- --------- --------
Income before extraordinary item
and income taxes 245.0 89.2 204.6 (371.4) 167.4 (34.9) 132.5
Income taxes 113.1 31.3 4.3 (53.3)(10) 95.4 (4.3)(d)
(7.0)(g) 84.1
-------- ------ ------ ------- -------- --------- --------
Income before extraordinary item $ 131.9 $ 57.9 $200.3 $(318.1) 72.0 (23.6) 48.4
======== ====== ====== ========
Preferred dividends 53.5 53.5
-------- --------- --------
Income (loss) attributable to
common stockholders $ 18.5 $ (23.6) $ (5.1)
======== ========= ========
Income (loss) before extraordinary
item per share $ 0.27 $ 0.04 $ (0.01)
======== ======== ========
Weighted average shares outstanding
(in thousands) 494,925 494,925 494,925
======== ======== ========
<CAPTION>
</TABLE>
(*) Conformed to AirTouch's Statement of Income presentation.
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
5
<PAGE> 6
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
CCI MERGER PRO FORMA
Basis of Presentation. On August 16, 1996, AirTouch completed its
acquisition of Cellular Communications, Inc., pursuant to the Agreement and Plan
of Merger dated as of April 5, 1996, as amended and restated as of July 12, 1996
(the "1996 Merger Agreement"). In the aggregate, AirTouch paid approximately
$393 million in cash and issued approximately 17.24 million shares of the
Company's 6% Class B Mandatorily Convertible Preferred Stock, Series 1996, (the
"AirTouch Class B Preferred Stock") and approximately 11.07 million shares of
the Company's 4.25% Class C Convertible Preferred Stock, Series 1996 (the
"AirTouch Class C Preferred Stock"). The cash portion and the preferred
securities portion represented approximately 27.18% and 72.82%, respectively, of
the purchase price for the 26,303,078 shares of CCI stock outstanding at the
closing. In addition, the CCI Zero Coupon Convertible Subordinated Notes due
1999 (the "CCI Convertible Notes") were assumed by a subsidiary of AirTouch at
the closing.
Also pursuant to the 1996 Merger Agreement, employee and director options to
purchase CCI stock that were outstanding at the closing were converted into
AirTouch options to purchase an aggregate of 1,924,001 shares of AirTouch stock,
16,875 shares of AirTouch Class B Preferred Stock, and 10,837 shares of AirTouch
Class C Preferred Stock.
Pro forma income before extraordinary item per share is calculated
based on income before extraordinary item after deducting dividends of $53.5
million and $26.8 million for the year ended December 31, 1995 and the six
months ended June 30, 1996, respectively, for AirTouch Class B Preferred Stock
and AirTouch Class C Preferred Stock, and on weighted average shares of 494.9
million and 499.1 million as of December 31, 1995 and June 30, 1996,
respectively. The effect of convertible preferred stock, using the "if
converted" method, is not considered since the effect of such shares is
anti-dilutive. The effect of AirTouch options and the CCI Convertible Notes has
not been considered since the impact is immaterial.
In the unaudited Pro Forma Condensed Combined Balance Sheet, because
the AirTouch Class C Preferred Stock can be redeemed for cash or converted into
shares of common stock at the option of AirTouch, it is not considered to be
mandatorily redeemable for financial reporting purposes.
The purchase price, exclusive of expenses related thereto and the
assumption of net CCI indebtedness, for the CCI Merger is summarized below (in
millions of dollars):
<TABLE>
<S> <C>
Cash ................................... $ 393
AirTouch Class B Preferred Stock ....... 500
AirTouch Class C Preferred Stock ....... 540
AirTouch Stock Options ................. 17
------
Purchase price ......................... $1,450
======
</TABLE>
For purposes of this Pro Forma Condensed Combined Statement of Income
for the year ended December 31, 1995, the mandatory redemption offer pursuant to
the Amended and Restated Agreement and Plan of Merger and Joint Venture
Organization (the "1990 Merger Agreement") dated as of December 14, 1990 (the
"MRO") is assumed to have occurred concurrently with the CCI Merger although it
actually occurred in late October 1995. For purposes of the Pro Forma Condensed
Combined Statement of Income for the six months ended June 30, 1996, the
AirTouch Replacement Option payment (as defined in the 1990 Merger Agreement) is
assumed to have occurred concurrently with the CCI Merger although actually it
occurred on January 4, 1996 (see Note 11).
The CCI Merger will be accounted for by AirTouch under the purchase
method of accounting in accordance with APB Opinion No. 16, and accordingly,
this method of accounting has been applied in the Pro Forma Condensed Combined
Financial Statements. The acquisition of CCI stock pursuant to the 1990 Merger
Agreement was accounted for using the equity method of accounting.
6
<PAGE> 7
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Under the purchase method of accounting, the purchase price will be
allocated to the assets acquired and liabilities assumed based on their
estimated fair values. Estimates of the fair values of CCI and its subsidiaries'
assets and liabilities have been combined with recorded values of the assets and
liabilities of AirTouch and subsidiaries in the unaudited Pro Forma Condensed
Combined Financial Statements. However, changes to adjustments included in the
Pro Forma Condensed Combined Financial Statements are expected as
valuations/appraisals of assets and liabilities are completed, and additional
information becomes available. Although AirTouch cannot ascertain what the
changes to pro forma adjustments will be, such changes could be material. In
addition, the results of operations of CCI subsequent to June 30, 1996 will
affect the allocation of the purchase price. Accordingly, actual amounts will
differ from those in the Pro Forma Condensed Combined Financial Statements.
Contingent payments, if any, associated with the AirTouch Class B Preferred
Stock will not affect the aggregate purchase price, since the contingency is
based on changes in the volume weighted average trading price of AirTouch Class
B Preferred Stock.
CCI Merger Pro Forma Adjustments
1. Records the Merger and the estimated professional fees of $8 million
(primarily legal, investment bankers' and accountants' fees) related to
the CCI Merger. For Pro Forma Condensed Combined Financial Statement
purposes, the as-reported values on CCI's balance sheet other than its
investment in New Par have been estimated to approximate fair value.
2. Applies CCI's reported cash balances toward payment of its estimated
merger fees and the reduction of its long-term debt.
3. Reclassifies AirTouch Replacement Option payment made on January 4,
1996 from deferred charges.
4. Eliminates AirTouch's equity investment reflecting its equity interest
in CCI pursuant to the 1990 Merger Agreement and CCI's investment in
New Par. In addition, this entry allocates the full amount of the
excess purchase price over the as-reported amounts on CCI's and New
Par's Consolidated Balance Sheets to identifiable intangibles of New
Par. Under the purchase method of accounting, the purchase price is
based on the total cost of all equity acquired pursuant to the 1990
Merger Agreement and the 1996 Merger Agreement.
<TABLE>
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
Aggregate Purchase Price
(1) Pursuant to 1996 Merger Agreement (after adjustments) $1,565.7
(2) Pursuant to 1990 Merger Agreement .................... 811.5
--------
Total cost of acquisition ................................ 2,377.2
Less: Net assets acquired (net of adjustments) ........... 297.3
--------
Excess Purchase Price .................................... $2,079.9
========
</TABLE>
5. Records the deferred tax liability related to identifiable intangible
assets other than goodwill and corresponding adjustment to goodwill
(see Note 8). AirTouch is required to recognize deferred tax
liabilities for the temporary differences between the initial assigned
values to the identifiable intangible assets and their tax bases. The
deferred tax liability will be amortized over the estimated useful
lives of the relevant identifiable intangible assets. Goodwill is
considered a residual and no related deferred tax liability is
recognized.
6. Adjusts New Par's as reported depreciation expense to extend the lives
of certain domestic cellular telecommunications equipment from seven
years to ten years, to conform to AirTouch's useful lives.
7
<PAGE> 8
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
7. Reverses AirTouch's equity in net income of CCI and New Par and CCI's equity
in net income of New Par for the year ended December 31, 1995 and the six
months ended June 30, 1996.
8. Records the amortization expense for identifiable intangible assets and
goodwill. For purposes of calculating the amortization of intangibles,
AirTouch has preliminarily estimated that approximately $191 million relates
to subscriber list and $1,880.9 million relates to FCC licenses.
Amortization periods for subscriber lists and FCC licenses are five and
forty years, respectively.
9. Records interest expense incurred on $393 million of borrowings related to
the Merger and $710.4 million of borrowings related to the MRO and option
payment, based on assumed average interest rates of 7.43% and 6.33%,
respectively, for the year ended December 31, 1995, and 7.43% and 5.65%,
respectively, for the six months ended June 30, 1996. During July 1996,
AirTouch issued 7-1/8% Notes due 2001 and 7-1/2% Notes due 2006 with net
proceeds to AirTouch of approximately $642.9 million. AirTouch indirectly
used some of the proceeds from the issuance of these notes to fund the CCI
Merger. The rate of 7.43% represents the weighted average effective interest
rate on these Notes. The rates of 6.33% and 5.65% represent average variable
interest rates for the year of 1995 and for the six months ended June 30,
1996, respectively, on AirTouch's unsecured $2 billion, five-year revolving
credit facility and the commercial paper program supported by such facility.
The effect of a 1/8% change in interest rates on interest expense to pro
forma net income of AirTouch is immaterial.
10. Records net income tax effects on the relevant pro forma items arising from
the CCI acquisition at the combined statutory rate of 41.05%. Pro forma
adjustments to the Condensed Combined Statements of Income include interest,
MRO compensation expense recorded by CCI (see Note 11), depreciation and
amortization expenses. Except for amortization of goodwill, these
adjustments were tax effected at the statutory rate to produce net tax
(benefit) expense of $(53.3) million and $3.0 million for the year ended
December 31, 1995 and the six months ended June 30, 1996, respectively.
11. Reverses compensation expense recorded by CCI in connection with
cancellation of stock options, which options were acquired by AirTouch.
Phase II of AirTouch/U S WEST Joint Venture Pro Forma
Basis of Presentation. In July 1994, AirTouch and U S WEST entered into
an agreement to combine their domestic cellular properties into a joint venture
in a multi-phased transaction. Phase I of the transaction commenced on November
1, 1995, and had no immediate financial accounting presentation impact. In Phase
II, the partners will combine their domestic properties into a joint venture,
subject to obtaining certain required consents and authorizations. AirTouch
believes that Phase II is a probable transaction. The most significant effect of
Phase II is the deconsolidation of AirTouch's domestic cellular interests and
the use of the equity method of accounting for its investment in the joint
venture.
The Pro Forma Condensed Combined Financial Statements assume that all
of AirTouch's domestic cellular properties (including the properties acquired in
the Merger) are contributed to the joint venture at the beginning of Phase II.
Similarly, all domestic cellular properties of U S WEST are assumed to be
contributed to the joint venture. The Pro Forma Condensed Combined Financial
Statements exclude the PCS Partnership since its inclusion is solely at the
option of U S WEST and could occur as late as mid-1998, and the effect of the
contribution to the relative ownership interest of the partners is not readily
determinable. The assumed ownership interests for AirTouch and U S WEST
approximate 74% and 26%, respectively, pursuant to a computation set forth in
the joint venture agreement.
8
<PAGE> 9
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
The following is selected pro forma financial information as of
December 31, 1995 and June 30, 1996 and the periods then ended for the
AirTouch/U S WEST joint venture:
AIRTOUCH/U S WEST JOINT VENTURE
SUMMARY PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1995 1996
-------- --------
<S> <C> <C>
OPERATING RESULTS
Operating revenues ..................... $2,790.2 $1,594.7
Operating income ....................... $ 538.2 $ 423.8
Net income from operations ............. $ 565.4 $ 383.1
BALANCE SHEET
Total assets ........................... $6,741.0 $6,874.9
Total partners' capital ................ $5,841.1 $6,020.1
</TABLE>
Pro forma net income per share is calculated based on income before
extraordinary items after deducting dividends of $53.5 million and $26.8 million
for AirTouch Class B Preferred Stock and AirTouch Class C Preferred Stock, and
assumes 494.9 million and 499.1 million weighted average shares outstanding as
of December 31, 1995 and June 30, 1996, respectively. The effect of convertible
preferred stock and convertible debt, using the "if converted" method, is not
considered since the effect of such shares is anti-dilutive. The AirTouch
options have not been considered in pro forma presentation since their impact is
immaterial.
Phase II Pro Forma Adjustments
a. Converts AirTouch's as reported investment in domestic cellular net
assets (before the CCI transaction) contributed to the joint venture to
the equity method of accounting.
b. Converts to the equity method of accounting AirTouch's as reported
domestic cellular consolidated results of operations for 1995 and the
first six months of 1996.
c. Converts to the equity method of accounting AirTouch's interest in New
Par's as reported net assets (after the CCI Merger), including the
related intangibles.
d. Converts to the equity method of accounting AirTouch's interest in New
Par's as reported results of operations for 1995 and the first six
months of 1996, including the amortization of intangibles arising from
the CCI Merger.
e. Reduces AirTouch's as reported income in its domestic cellular
properties to reflect its ownership interest in the joint venture.
f. Adjusts AirTouch's share of the joint venture's net income for the
amortization of the implied goodwill (the difference between book value
of AirTouch's net assets (after the CCI Merger) contributed to the
joint venture and AirTouch's proportionate share of the pro forma
combined net assets of the joint venture at December 31, 1995 and June
30, 1996). The amortization period for implied goodwill is 40 years.
9
<PAGE> 10
EXPLANATORY NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1995 1996
-------- --------
<S> <C> <C>
Book value of assets contributed by AirTouch ................. $4,812.2 $4,966.9
Book value of assets contributed by U S West ................. 1,028.9 1,053.2
-------- --------
Combined book values contributed ............................. $5,841.1 $6,020.1
======== ========
AirTouch's share of combined book values at 74% .............. 4,322.4 4,454.9
Book value of AirTouch's contribution ........................ 4,812.2 4,966.9
-------- --------
Implied goodwill ............................................ $ 489.8 $ 512.0
======== ========
Annual amortization expense .................................. $ 12.2 $ 12.8
======== ========
Amortization expense for six months .......................... $ 6.4
========
</TABLE>
g. Records net income tax effects on the relevant pro forma items arising from
Phase II at the statutory rate of 41.05%.
10
