<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: April 6, 1998
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
<PAGE> 2
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 Current Report on Form
8-K, Date of Report: April 6, 1998.
(a) Financial Statements of Business Acquired.
The financial statements of U S WEST NewVector Group, Inc. for the
period ended December 31, 1997 are incorporated by reference to Exhibit 99.2 to
this Form 8-K/A-1.
(b) Pro Forma Financial Information.
The pro forma financial information required by Article 11 of
Regulation S-X is incorporated by reference to Exhibit 99.3 to this Form
8-K/A-1.
(c) Exhibits.
Exhibit 3.1 Certificate of Designation, Preferences and Rights of
5.143% Class D Cumulative Preferred Stock.*
Exhibit 3.2 Certificate of Designation, Preferences and Rights of
5.143% Class E Cumulative Preferred Stock*
Exhibit 10 Investment Agreement*
Exhibit 23.1 Consent of Arthur Andersen LLP
Exhibit 99.1 Press Release dated April 6, 1998.*
Exhibit 99.2 Financial Statements of U S WEST NewVector Group, Inc.
as of December 31, 1997.
Exhibit 99.3 AirTouch Communications, Inc. pro forma condensed
combined financial statements.
* Previously filed
2
<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/ MOHAN S. GYANI
-----------------------------------
Mohan S. Gyani
Executive Vice President and
Chief Financial Officer
Date: April 22, 1998
3
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Exhibits Index
Exhibit 3.1 Certificate of Designation, Preferences and Rights of 5.143%
Class D Cumulative Preferred Stock.*
Exhibit 3.2 Certificate of Designation, Preferences and Rights of 5.143%
Class E Cumulative Preferred Stock*
Exhibit 10 Investment Agreement*
Exhibit 23.1 Consent of Arthur Andersen LLP
Exhibit 99.1 Press Release dated April 6, 1998.*
Exhibit 99.2 Financial Statements of U S WEST NewVector Group, Inc. as of
December 31, 1997.
Exhibit 99.3 AirTouch Communications, Inc. pro forma condensed combined
financial statements.
* Previously filed
4
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 8-K as it relates to U S WEST
NewVector Group, Inc. and subsidiaries, into AirTouch Communications, Inc.'s
previously filed Registration Statement File Nos. 033-57077, 033-57081,
033-57083, 033-64553, 333-10389, 333-17891, 333-36339, 033-62787 and 333-50541.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 17, 1998
<PAGE> 1
Exhibit 99.2
U S WEST NEWVECTOR GROUP, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
TOGETHER WITH AUDIT REPORT
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREOWNER OF U S WEST NEWVECTOR GROUP, INC.:
We have audited the accompanying consolidated balance sheets of U S WEST
NewVector Group, Inc. (a Colorado corporation and wholly owned subsidiary of U S
WEST, Inc.) and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in shareowner's equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U S WEST NewVector Group, Inc.
and Subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 12, 1998
1
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U S WEST NewVector Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ --
Trade accounts receivable, net of allowance for doubtful accounts
of $37,891 and $30,691, respectively 227,846 174,017
Inventories 24,028 10,462
Deferred tax asset 18,732 16,026
Federal income taxes receivable from affiliate 18,156 3,858
Other 11,140 11,486
----------- -----------
Total current assets 299,902 215,849
----------- -----------
Property, plant and equipment, at cost 1,646,325 1,422,647
Less accumulated depreciation and amortization (663,144) (504,695)
----------- -----------
Property, plant and equipment, net 983,181 917,952
----------- -----------
Other non-current assets:
Goodwill, net of accumulated amortization 318,546 328,055
FCC operating licenses, net of
accumulated amortization 96,292 99,087
Equity investments and other 9,405 9,106
----------- -----------
Total other non-current assets 424,243 436,248
----------- -----------
TOTAL ASSETS $ 1,707,326 $ 1,570,049
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
2
<PAGE> 4
U S WEST NewVector Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1997 and 1996
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities:
Notes payable $ -- $ --
Trade accounts payable 209,392 224,288
Accounts payable to affiliate 38,415 55,544
Accrued liabilities:
Employee compensation 36,021 37,568
Taxes 33,701 31,210
Other 32,064 9,652
Deferred revenue 20,178 17,734
Other current liabilities 4,293 6,167
---------- ----------
Total current liabilities 374,064 382,163
Commitments and contingencies (Note 6)
Non-current liabilities:
Note payable to affiliate 900,000 --
Deferred taxes 33,922 13,337
Other liabilities 24,482 23,922
---------- ----------
Total non-current liabilities 958,404 37,259
Total liabilities 1,332,468 419,422
---------- ----------
Minority interests in consolidated partnerships 81,718 86,472
---------- ----------
Shareowner's equity:
Common stock, no par, 43,000,000 shares authorized, one
share issued and outstanding -- --
Additional paid-in capital 293,140 1,064,155
Retained earnings -- --
---------- ----------
Total shareowner's equity 293,140 1,064,155
---------- ----------
TOTAL LIABILITIES AND SHAREOWNER'S EQUITY $1,707,326 $1,570,049
========== ==========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE> 5
U S WEST NewVector Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Cellular service $ 1,275,651 $ 1,077,984 $ 845,493
Cellular equipment 152,165 105,328 95,755
----------- ----------- -----------
Total revenues 1,427,816 1,183,312 941,248
----------- ----------- -----------
OPERATING EXPENSES:
Cellular service 141,951 150,881 125,768
Cellular equipment 202,440 156,448 118,432
Selling, general and administrative 550,114 485,951 428,892
Depreciation and amortization 177,684 146,929 121,014
----------- ----------- -----------
Total operating expenses 1,072,189 940,209 794,106
----------- ----------- -----------
Operating income 355,627 243,103 147,142
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (6,376) (989) (26,759)
Minority interests in income of
consolidated partnerships (41,690) (28,141) (23,898)
Equity in income of unconsolidated
partnerships 3,004 7,209 1,332
Other income (expense), net 1,739 (4,116) 5,636
----------- ----------- -----------
Total other expense (43,323) (26,037) (43,689)
----------- ----------- -----------
Net income before income taxes 312,304 217,066 103,453
Income tax provision (122,061) (85,983) (41,760)
----------- ----------- -----------
NET INCOME $ 190,243 $ 131,083 $ 61,693
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
4
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U S WEST NewVector Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNER'S EQUITY
Years Ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------- Paid-In Retained Shareowner's
Shares Amount Capital Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 1 $ -- $ 620,994 $ (109,958) $ 511,036
Return of capital dividends -- -- (70,471) -- (70,471)
Net income -- -- -- 61,693 61,693
----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1995 1 -- 550,523 (48,265) 502,258
Equity infusions 569,457 -- 569,457
Return of capital dividends (55,825) -- (55,825)
Dividends -- -- -- (82,818) (82,818)
Net income -- -- -- 131,083 131,083
----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1996 1 -- 1,064,155 -- 1,064,155
Equity infusions -- -- 134,675 -- 134,675
Return of capital dividends -- -- (5,690) -- (5,690)
Return of capital dividend
issued as promissory note -- -- (900,000) -- (900,000)
Dividends -- -- -- (190,243) (190,243)
Net income -- -- -- 190,243 190,243
----------- ----------- ----------- ----------- -----------
DECEMBER 31, 1997 1 $ -- $ 293,140 $ -- $ 293,140
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
5
<PAGE> 7
U S WEST NewVector Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 190,243 $ 131,083 $ 61,693
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 177,684 146,929 121,014
Bad debt provision 35,189 24,757 22,369
Gain on sale of cellular interests (4,336) -- --
Loss on disposition of property 4,767 4,219 479
Minority interests in income of consolidated
partnerships 41,690 28,141 23,898
Equity in income of unconsolidated
partnerships (3,004) (7,209) (1,332)
Deferred income taxes 13,114 11,518 (15,255)
Changes in operating assets and liabilities:
Accounts receivable (90,429) (63,358) (49,731)
Accounts payable and accrued liabilities 28,241 67,058 30,343
Inventories (13,566) 13,450 (5,537)
Other (15,862) 13,225 37,010
--------- --------- ---------
Cash provided by operating activities 363,731 369,813 224,951
--------- --------- ---------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (266,080) (234,491) (242,222)
Cellular acquisitions -- -- (29,905)
Proceeds from sale of cellular interests 8,047 1,105 7,508
Receipts from / (advances to) unconsolidated
partnerships 2,551 443 (748)
Other 1,349 (150) --
--------- --------- ---------
Cash used for investing activities (254,133) (233,093) (265,367)
--------- --------- ---------
FINANCING ACTIVITIES:
Capital contributions from limited partners 150 1,624 11,941
Capital distributions to limited partners (39,818) (13,628) (6,049)
Proceeds from issuance of affiliate debt -- -- 520,770
Principal payments on affiliate debt -- -- (415,775)
Principal payments on other debt -- (17,468) --
Equity infusions from parent 126,540 15,958 --
Dividends and return of capital (196,470) (123,206) (70,471)
--------- --------- ---------
Cash (used for) provided by financing
activities (109,598) (136,720) 40,416
--------- --------- ---------
CASH:
Change -- -- --
Beginning balance -- -- --
--------- --------- ---------
Ending balance $ -- $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
6
<PAGE> 8
(1) ORGANIZATION AND OPERATIONS
U S WEST NewVector Group, Inc. and subsidiaries (the Company) is a wholly
owned subsidiary of U S WEST, Inc. (U S WEST), a Delaware corporation.
The Company is engaged in operating cellular telephone systems in 12 western
and midwestern states. During 1997 and 1996, the Company filed renewal
applications for Federal Communications Commission (FCC) licenses in several of
the Company's major cellular Metropolitan Statistical Area (MSA) markets. All
such license renewal applications have been approved.
(2) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its majority owned subsidiaries and partnerships over which it exercises
management control. Investments in entities in which the Company has a minority
interest and does not exercise management control are accounted for using the
equity method. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior year presentations have been
reclassified to conform to the current year presentation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company earns cellular service revenue by providing access to the
cellular network (access revenue) and for use of the network (airtime revenue).
Access revenue is billed one month in advance and is
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recognized in the following month when service is provided. As of December 31,
1997 and 1996 the amount of deferred revenue included in accounts receivable was
$20,178 and $17,734, respectively. Airtime revenue is recognized in the month
when service is provided.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out (FIFO) basis. Inventories consist primarily of cellular mobile
telephone equipment and accessories.
INCOME TAX PROVISION
The income tax provision consists of an amount for taxes currently
payable/receivable and an amount for tax consequences deferred to future
periods, reflected at current income tax rates.
For Federal income tax purposes, the Company's operations are included in a
consolidated tax return filed by U S WEST. The allocation of income tax
consequences to the Company is calculated under a tax allocation agreement with
U S WEST which provides that benefits or liabilities created by the Company will
be allocated to the extent the benefits are usable or additional liabilities are
incurred in the U S WEST consolidated tax return. The Company records an income
tax receivable for tax benefits of operating losses, or an income tax payable
for the tax provision on operating income, reflected in the consolidated return
of U S WEST. Due to overpayments of estimated taxes made in earlier quarters of
the respective years, at December 31, 1997 and 1996 the Company had outstanding
tax receivables from U S WEST of $18,156 and $3,858, respectively.
For state income tax purposes inside the 12 states in which both the Company
and U S WEST operate, the Company's operations are included in combined tax
returns filed by U S WEST. For years when the Company has pretax income, the
allocation of state income tax consequences to the Company is calculated under a
tax allocation agreement with U S WEST which provides that liabilities created
by the Company will be allocated to the extent additional liabilities are
incurred in the U S WEST combined returns. For years when the Company has pretax
losses, any tax benefit resulting from the filing of combined state income tax
returns inside the U S WEST 12-state region are generally retained by U S WEST.
State income
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taxes on a combined basis for states outside the U S WEST 12-state region are
allocated to the Company based on its contribution to the total U S WEST
presence in those states.
Income tax expense for the years ended December 31, 1997, 1996 and 1995,
computed by the Company on a stand-alone basis, is not materially different from
the expense recorded in the financial statements.
Cash paid to U S WEST for taxes during the years ended December 31, 1997,
1996 and 1995 was $125,573, $72,208 and $39,115, respectively.
PROPERTY, PLANT AND EQUIPMENT
The Company's investment in property, plant and equipment is stated at cost
less accumulated depreciation. Interest incurred during the construction period
is capitalized and amortized over the life of the underlying asset to the extent
the Company has borrowed funds outstanding. Interest capitalized during 1997,
1996 and 1995 was $1,295, $0 and $12,363, respectively.
The Company manages the construction of the majority of its network assets.
The cost of these assets includes purchased materials, contracted services,
internal labor and applicable overhead. Purchased materials inventories are
included in construction in process balances, and as of December 31, 1997 and
1996 were $7,387 and $17,654, respectively, net of obsolescence reserves.
Depreciation is calculated on a straight-line basis over the following
estimated useful lives:
Cellular systems 5 to 15 years
Data processing, furniture and other equipment 3 to 5 years
Depreciation expense in 1997, 1996 and 1995 was $165,364, $134,250 and
$108,645, respectively.
Leasehold improvements and assets held by the Company under capital lease
obligations are depreciated over the lease terms, which range from two to ten
years.
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<PAGE> 11
Betterments, renewals and extraordinary repairs that extend the life of an
asset are capitalized. All other repairs and maintenance are expensed when
incurred. The cost and accumulated depreciation applicable to assets retired are
removed from the accounts and any gain or loss on disposition is recognized in
income.
The Company periodically reviews the carrying value of its long-lived assets
(including property, goodwill, operating licenses and intangibles) whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. If the estimated future cash inflows attributable to the asset,
less estimated future cash outflows, is less than the carrying amount, an
impairment loss is recognized.
GOODWILL, OPERATING LICENSES AND OTHER INTANGIBLE ASSETS
Intangible assets are recorded when the cost of acquired companies exceeds
the fair value of their tangible assets. The excess costs, primarily FCC
operating licenses and goodwill, are amortized by the straight-line method over
40 years.
As of December 31, 1997 and 1996, accumulated amortization on goodwill was
$61,565 and $52,057, respectively and accumulated amortization on operating
licenses and other intangible assets was $18,855 and $16,043, respectively.
Amortization expense for the years ended December 31, 1997, 1996 and 1995, was
$12,320, $12,679 and $12,369, respectively.
ADVERTISING COSTS
Costs related to advertising and other promotional expenditures are expensed
as incurred. Advertising costs totaled $61,978, $48,198 and $33,194 for the
years ended December 31, 1997, 1996 and 1995, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Position (`SOP') 98-1, `Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use', was issued in March 1998. SOP
98-1, among other things, requires that certain costs of internal use software,
whether purchased or developed internally, be capitalized and amortized over the
estimated useful life of the software. Adoption of
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SOP 98-1 is required as of January 1, 1999, but earlier adoption is allowed.
The Company is currently evaluating the impact of SOP 98-1.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements in order to present them on a basis consistent with that of the
current year.
(3) PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cellular systems $1,282,699 $1,045,288
Data processing, furniture and other equipment 207,875 188,567
Construction in progress 155,751 188,792
---------- ----------
$1,646,325 $1,422,647
========== ==========
</TABLE>
1998 budgeted capital expenditures for the Company are approximately
$285,000. In order to ensure availability of equipment to meet infrastructure
build plans, and to obtain favorable pricing, the Company enters into various
purchase commitment arrangements for infrastructure materials.
VENDOR CONCENTRATIONS
The Company utilizes Motorola as its primary vendor for infrastructure
equipment and cellular mobile telephone equipment and accessories. In addition,
Motorola provides ongoing technological support for the infrastructure
equipment. As a result, the Company receives significant discounts on the
purchase of such equipment from Motorola.
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<PAGE> 13
Approximately 75% of the Company's major cellular MSA markets' infrastructures
are comprised of Motorola equipment.
CHANGEOUT OF NETWORK EQUIPMENT
During the fourth quarter of 1997, the Company accelerated depreciation
associated with certain infrastructure equipment that is scheduled for early
replacement. The equipment is located in 14 markets representing 3.4 million
POPs. Such equipment had a net book value of $11,004 at December 31, 1997.
Additional depreciation expense of $4,067 was recognized during the quarter. It
is estimated that the replacement will be completed by mid-1999.
(4) INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
As of December 31, 1997, the Company had investments in partnerships
representing four MSA and eight Rural Service Area (RSA) cellular systems which
are managed by other cellular operators. These cellular investments, which are
accounted for using the equity method, amounted to $7,302 and $7,018 at December
31, 1997 and 1996, respectively.
Investments in which the Company has an ownership interest of at least 20
percent but not more than 50 percent are accounted for under the equity method.
(5) DEBT AND CREDIT ARRANGEMENTS
NOTE PAYABLE TO AFFILIATE
Effective November 21, 1997 the Company declared a $900,000 dividend to U S
WEST. Such dividend will be paid upon maturity of a $900,000 note payable to U S
WEST due November 21, 2002. The note bears interest at a floating rate equal to
the average rate of interest on the aggregate of certain third party
indebtedness of U S WEST Capital Funding, Inc., a wholly owned subsidiary of U S
WEST. As of December 31, 1997 the effective interest rate on the note was
approximately 7.42%, and interest expense of $5,901, net of capitalized interest
of $1,295, was recognized in 1997 in conjunction with this note. As of December
31, 1997 the fair value
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<PAGE> 14
of the note was approximately $940,000, computed using a discounted future cash
flow methodology based upon current interest rates.
Borrowings as of December 31, 1995 under the Company's credit facility with
U S WEST of $553,098 were replaced with equity on January 1, 1996 when U S WEST
contributed capital of $553,098 to the Company in a non-cash transaction.
Subsequent cash requirements were funded through additional capital infusions.
Interest expense related to this credit facility with U S WEST, net of amounts
capitalized of $0 and $12,363, was $0 and $25,142 in 1996 and 1995,
respectively.
OTHER
Cash paid for interest, net of amounts capitalized, was $507, $4,570 and
$26,062 for 1997, 1996 and 1995, respectively.
13
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CAPITAL LEASES
Future minimum payments under a capital lease are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
1998 $ 2,749
1999 2,075
-------
Total minimum future lease payments 4,824
Less: interest costs (382)
=======
NET CAPITALIZED LEASE OBLIGATION $ 4,442
=======
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into certain operating leases which are
noncancellable and relate to office facilities, equipment and real estate with
terms ranging from 1 to 8 years. Rent expense under the operating leases was
$25,284, $24,280 and $21,737 for 1997, 1996 and 1995, respectively. Minimum
future lease payments as of December 31, 1997 under the leases described above
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
1998 $25,729
1999 20,812
2000 16,960
2001 11,400
2002 5,762
Thereafter 911
=======
TOTAL MINIMUM FUTURE LEASE PAYMENTS $81,574
=======
</TABLE>
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<PAGE> 16
(7) SHAREOWNER'S EQUITY
Subsequent to the capital contribution of $553,098 received by the Company on
January 1, 1996, which replaced its line of credit with U S WEST, any required
funding has taken place through periodic equity infusions. In periods where the
Company has generated excess cash flow, an equity distribution is provided to
U S WEST. For the years ended December 31, 1997 and 1996 equity infusions were
$134,675 and $569,457, respectively.
The Company pays quarterly dividends to U S WEST based on net income adjusted
for the amortization of intangibles.
(8) INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
FEDERAL:
Current $ 96,968 $ 66,406 $ 50,441
Deferred 11,355 11,083 (12,687)
-------- -------- --------
Total federal 108,323 77,489 37,754
-------- -------- --------
STATE:
Current 11,979 8,059 6,574
Deferred 1,759 435 (2,568)
-------- -------- --------
Total state 13,738 8,494 4,006
-------- -------- --------
TOTAL INCOME TAX PROVISION $122,061 $ 85,983 $ 41,760
======== ======== ========
</TABLE>
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<PAGE> 17
The effective tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
effect 2.9 2.5 2.5
Goodwill amortization 1.1 1.6 3.4
Other .1 .5 (.5)
---- ---- ----
EFFECTIVE TAX RATE 39.1% 39.6% 40.4%
==== ==== ====
</TABLE>
The cumulative balance sheet effects of deferred tax consequences are:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Asset revaluation $ 22,221 $ 22,221
Asset reserves 5,563 12,081
Gain on dispositions 39,934 40,503
OPEB and pension 7,625 6,364
Credit losses 9,773 10,470
Other 4,716 4,223
--------- ---------
Deferred tax assets 89,832 95,862
--------- ---------
Depreciation (87,474) (76,425)
Amortization (6,522) (4,633)
Capitalized construction costs (11,008) (12,097)
Other (18) (18)
--------- ---------
Deferred tax liabilities (105,022) (93,173)
--------- ---------
NET DEFERRED TAX (LIABILITY) ASSET (15,190) 2,689
--------- ---------
LESS AMOUNT CLASSIFIED AS CURRENT ASSET 18,732 16,026
--------- ---------
NET NON-CURRENT DEFERRED TAX LIABILITY $ (33,922) $ (13,337)
========= =========
</TABLE>
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<PAGE> 18
(9) EMPLOYEE BENEFITS
The Company participates in the defined benefit pension plans sponsored by
U S WEST, which covers substantially all full-time employees. Benefits under the
plan are based on a final-pay formula. The assets of the plan are held in trust
and are not segregated or otherwise restricted to benefits of the Company or any
other participating entity. The Company uses the aggregate cost method for
funding purposes. No funding was required in 1997, 1996 or 1995. Based on
actuarial valuations of the plan, the fair value of net assets available for
plan benefits exceeded the actuarial present value of the plan's projected
benefit obligation at December 31, 1997, 1996 and 1995. Future anticipated
benefit increases have been reflected in the actuarial assumptions.
U S WEST uses the projected unit credit method for determining pension costs.
U S WEST's pension cost allocation policy is to: 1) offset total U S WEST
service cost, interest cost and amortization by the return on plan assets; and
2) allocate the remaining net pension cost to the Company based on the ratio of
actuarially determined service cost of the Company to the total service cost of
plan participants. Net pension (benefit) cost allocated to the Company for 1997,
1996 and 1995 was $(896), $400 and $229, respectively. Pension assets,
calculated on an accumulated postretirement obligation basis, will be
transferred from the U S WEST Pension Plan to AirTouch upon merger.
The Company's employees participate in various U S WEST - sponsored plans
that provide certain health care and life insurance benefits to retired
employees. The assets of the plans are held in trust and are not segregated or
otherwise restricted to benefits of the Company or any other participating
entity. The Company's annual funding amount is based on cash requirements. At
December 31, 1997 and 1996, the fair value of plan assets represented 55% and
53%, respectively, of the accumulated postretirement benefit obligation.
Anticipated future benefit changes have been reflected in postretirement benefit
calculations. The accumulated postretirement obligation attributed to the
Company was $20,428 and $15,679 at December 31, 1997 and 1996, respectively.
U S WEST uses the projected unit credit method for determination of
postretirement medical and life costs. Service and interest costs are allocated
to the Company based on the ratio of the Company's
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<PAGE> 19
accumulated postretirement benefit obligation to the plans total accumulated
postretirement benefit obligation. Since the funding of postretirement benefit
costs is voluntary, return on assets is attributed to the Company based on
historical funding. Net postretirement costs recognized by the Company for 1997,
1996 and 1995 were $3,375, $3,380 and $3,152, respectively. These costs are
included in selling, general and administrative expense.
A defined contribution savings plan is maintained for all employees who have
completed at least one year of service. Under the plan, participating employees
may contribute up to 16% of their pretax salary, but not more than statutory
limits. The Company matches, in U S WEST Communications and Media Group stock,
up to a maximum of 5% of a participant's earnings. The Company's matching
contributions to the savings plan were $3,760, $3,007 and $2,946 in 1997, 1996
and 1995, respectively.
18
<PAGE> 20
(10) ACQUISITIONS AND DISPOSITIONS OF CELLULAR INTERESTS
In October 1997 the Company sold its interest in Arizona RSA 5 to Dobson
Communications Corporation (Dobson) for $6,989 and recognized a pre-tax gain of
$3,421 on the transaction. The Company continues to perform management and
billing services for the market under a services agreement with Dobson.
Also in 1997, the Company sold its interest in Iowa RSA 11 for $1,058 and
recognized an after pre-tax gain of $915 on the transaction.
During 1996 the Company received $1,105 as part of the partition of a market
which occurred during 1995. Acquisitions were completed for aggregate monetary
consideration of $29,905 during 1995. The results of these acquisitions have
been included in the Company's consolidated financial results since their
respective acquisition dates. The purchase method of accounting was used to
record these acquisitions.
In July 1995 the Company exchanged cellular properties, representing 2.7
million potential customers (POPs), for cellular properties representing 3.2
million POPs. No gain or loss was recognized on the exchange. Cash of $7,508 was
received as part of the transaction.
The pro forma impact of the acquisitions described above is not materially
different from the Company's historical results of operations. Accordingly, no
proforma disclosures of the impact of these transactions have been made.
(11) OTHER RELATED PARTY TRANSACTIONS
CASH MANAGEMENT
U S WEST manages a centralized cash account for its affiliated companies.
Interest is earned based upon the Company's prorated share of the account.
REVENUES
The Company had sales of cellular service and equipment to U S WEST
affiliates of $12,812, $16,749 and $17,321 during 1997, 1996 and 1995,
19
<PAGE> 21
respectively. The charges for these services are generally based upon prevailing
market rates.
PURCHASES
The Company purchases services from U S WEST and certain of its subsidiaries.
These services are primarily telecommunications related. The costs of these
services to the Company are determined based upon tariffs. The Company's
operations include charges of $39,644, $48,340 and $55,380 for 1997, 1996 and
1995, respectively, in relation to these services. The related payables for
these services were $7,747 and $3,283 at December 31, 1997 and 1996,
respectively.
(12) AIRTOUCH MERGER
On January 29, 1998, U S WEST entered into an Agreement and Plan of Merger
(the `AirTouch Merger Agreement') pursuant to which U S WEST agreed to sell its
domestic wireless business to AirTouch Communications, Inc (`AirTouch') in a
tax-efficient transaction. The domestic wireless business includes cellular
communication services provided by the Company and a 25% interest in PrimeCo
Personal Communications, L.P, a provider of PCS services. Pursuant to the
AirTouch Merger Agreement, AirTouch will acquire these cellular and PCS
interests. Consideration under the AirTouch Merger Agreement totals
approximately $5.7 billion, subject to certain closing adjustments.
U S WEST expects to consummate the AirTouch Merger in the second quarter of
1998, subject to the receipt of certain regulatory and other third party
approvals. The approval of U S WEST's stockholders is not required to consummate
the AirTouch transaction.
Previously in 1994, U S WEST had entered into an agreement with AirTouch to
combine their domestic cellular properties into a joint venture in a
multi-phased transaction. The AirTouch Merger Agreement has been entered into in
lieu of such joint venture. During Phase I of the venture, which commenced on
November 1, 1995, the partners operated their cellular properties separately. A
Wireless Management Company was formed and has provided services to both
companies on a contract basis. The Company recorded charges of $10,033, $12,600
and $1,000 in relation to these services in 1997, 1996 and 1995, respectively.
The related payables for these services as of December 31, 1997 and 1996 were
$12,000 and $12,600.
20
<PAGE> 1
Exhibit 99.3
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.
The following unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1997 combines (1) the historical consolidated balance sheets
of AirTouch and subsidiaries and US WEST NewVector Group, Inc. and subsidiaries
("NewVector") as if the merger had been effective on that date, and after giving
effect to the purchase method of accounting and other merger-related adjustments
described in the accompanying explanatory notes, and (2) U S WEST Media Group's
("Media's") interest in PrimeCo Personal Communications, L.P. ("PrimeCo") as if
the interest was acquired on that date, and after giving effect to related
adjustments described in the accompanying explanatory notes. The unaudited Pro
Forma Condensed Combined Statement of Income presents the combined results of
operations of AirTouch, NewVector and Media's interest in PrimeCo as if the
merger was effective on January 1, 1997, and after giving effect to the purchase
method of accounting and other merger-related adjustments 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 merger of NewVector and the purchase of Media's interest in
PrimeCo. The purchase method of accounting requires the purchase price to be
allocated to the assets acquired and liabilities assumed based on their
estimated fair values on April 6, 1998 (the "Effective Date"). As described in
the accompanying explanatory notes, estimates of the fair values of NewVector's
assets and liabilities and Media's interest in PrimeCo have been combined with
recorded values of the assets and liabilities of AirTouch. The interest in
PrimeCo has been accounted for under the equity method which requires
recognition of (1) AirTouch's acquired share of the net assets of PrimeCo,
together with related identifiable intangibles and goodwill on one line in the
Pro Forma Condensed Combined Balance Sheet, and (2) operating results of
PrimeCo, together with related amortization expense, on one line in the Pro
Forma Condensed Combined Statement of Income.
Changes to adjustments 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 those changes would be, such changes could be material.
The financial results of NewVector and PrimeCo after December 31, 1997 will
affect the allocation of the purchase price. As a result, actual amounts will
differ from those stated in the Pro Forma Condensed Combined Financial
Statements.
These 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
1
<PAGE> 2
had the transaction described herein been in effect as of the date or for the
periods presented.
The Pro Forma Condensed Combined Financial Statements and
accompanying notes should be read in conjunction with and are qualified in their
entirety by the Consolidated Financial Statements, including accompanying notes,
of AirTouch, included in its Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-12342, and of NewVector, attached hereto as
Exhibit No. 99.2.
2
<PAGE> 3
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
UNAUDITED
<TABLE>
<CAPTION>
As Reported
--------------------- Pro Forma Pro Forma
New Adjust- NewVector
(Dollars in millions) AirTouch Vector ments Merger
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets $ 722 $ 300 $ (12) (1) $ 1,010
Property, plant, and equipment, net 2,539 983 3,522
Investments in unconsolidated wireless systems 2,068 9 840 (1) 2,917
12 (1)
4,295 (1)
(415) (1)
Intangible assets, net 3,297 415 1,216 (2) 8,820
Deferred charges and other noncurrent assets 344 344
-------- -------- -------- --------
Total assets $ 8,970 $ 1,707 $ 5,936 $ 16,613
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 976 $ 374 $ 1,350
Long-term debt 1,362 900 $ 450 (1) 2,712
Deferred income taxes 711 34 1,216 (2) 1,961
Deferred credits and other liabilities 86 24 110
-------- -------- -------- --------
Total liabilities 3,135 1,332 1,666 6,133
-------- -------- -------- --------
Minority interests in consolidated wireless systems 306 82 388
-------- -------- -------- --------
Redeemable preferred stocks
5.143% Mandatorily Redeemable Class D 825 (1) 825
5.143% Mandatorily Redeemable Class E 825 (1) 825
-------- -------- --------
1,650 1,650
-------- -------- --------
Stockholders' equity:
Preferred stock and additional paid-in capital
6% Class B Mandatorily Convertible 500 500
4.25% Class C Convertible 541 541
Common stock and additional paid in capital 4,079 2,913 (1) 6,992
Retained earnings 415 415
Cumulative translation adjustment (32) (32)
Other 26 26
Stockholder's equity - NewVector 293 (293) (1)
-------- -------- -------- --------
Total stockholders' equity 5,529 293 2,620 8,442
-------- -------- -------- --------
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 8,970 $ 1,707 $ 5,936 $ 16,613
======== ======== ======== ========
</TABLE>
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
3
<PAGE> 4
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
UNAUDITED
<TABLE>
<CAPTION>
As Reported
----------------------- Pro Forma Pro Forma
New Adjust- NewVector
AirTouch Vector ments Merger
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(Dollars in millions, except per share amounts)
Operating revenues $ 3,594 $ 1,428 $ 5,022
--------- --------- ---------
Operating expenses:
Cost of revenues 846 344 1,190
Selling and customer operations expenses 990 321 1,311
General, administrative, and other expenses 503 229 732
Depreciation and amortization expenses 549 178 219 (3) 946
--------- --------- --------- ---------
Total operating expenses 2,888 1,072 219 4,179
--------- --------- --------- ---------
Operating income 706 356 (219) 843
Equity in net income (loss) of (112)(4)
unconsolidated wireless systems 200 3 (10)(5) 81
Minority interests in net (income) loss
of consolidated wireless systems (119) (42) (161)
Interest income 18 18
Interest expense (90) (6) (78)(6) (174)
Foreign exchange gain 8 8
Miscellaneous income (expense) (9) 1 (8)
--------- --------- --------- ---------
Income before income taxes and
preferred dividends 714 312 (419) 607
Income tax expense (benefit) 266 122 (146)(7) 242
--------- --------- --------- ---------
Income before preferred dividends 448 190 (273) 365
Preferred dividends 54 85 (8) 139
--------- --------- --------- ---------
Net income (loss) applicable to
common stockholders $ 394 $ 190 $ (358) $ 226
========= ========= ========= =========
Net income (loss) applicable to common stockholders - per share:
Basic and Diluted $ 0.78 $ 0.40
========= =========
Weighted average shares
outstanding (in thousands) 503,883 563,330
========= =========
</TABLE>
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
4
<PAGE> 5
Basis of Presentation. On the Effective Date, AirTouch acquired
NewVector and Media's interest in PrimeCo pursuant to the Agreement and Plan of
Merger dated as of January 29, 1998 among U S WEST, Inc., Media, NewVector, U S
WEST PCS Holdings, Inc. ("Holdings") and AirTouch (the "Agreement"), filed as
Exhibit 2.1 to AirTouch's Current Report on Form 8-K, Date of Report: January
29, 1998. On the Effective Date, NewVector and Holdings (the wholly owned
subsidiary of Media that held Media's interest in PrimeCo) merged into AirTouch,
with AirTouch surviving (the "Merger").
In the Merger, Media received approximately 59.4 million shares of
AirTouch's common stock, par value $0.01 per share (the "Common Stock") having
an approximate fair value of $2.9 billion based on the closing price of $49 on
the Effective Date. Media also received 825,000 shares of AirTouch's 5.143%
Class E Cumulative Preferred Stock, Series 1998 and 825,000 shares of its 5.143%
Class D Cumulative Preferred Stock, Series 1998 (together, the "Preferred
Stock"). The Preferred Stock has an aggregate value of $1.65 billion with a
liquidation amount of $1,000 per share. The dividend on the Preferred Stock was
based on the interest rate for 30 year Treasury Bonds on the Effective Date,
minus 0.67%. Finally, in the Merger, AirTouch assumed $1.35 billion of debt
associated with the acquired businesses. AirTouch immediately refinanced such
debt through the issuance of commercial paper.
In accordance with APB Opinion No. 16, "Business Combinations," the
purchase price recorded is based on the fair value of the common and preferred
stock issued at the Effective Date. Pro forma net income applicable to common
stockholders per share is calculated based on income after deducting dividends
for the Preferred Stock totaling $85 million for the year ended December 31,
1997 on a weighted average number of shares of approximately 563.3 million as of
December 31, 1997.
In these unaudited Pro forma Condensed Combined Financial
Statements, the Purchase Price includes estimates for certain post closing
adjustments. Although the total consideration may vary according to the effects
of finalizing such post closing adjustments, the final purchase price is not
expected to have a materially different effect from that shown in these Pro
Forma Condensed Combined Financial Statements.
The purchase price, exclusive of expenses related thereto and the
assumption of NewVector and PrimeCo debt totaling $1.35 billion, for the
acquisition of NewVector and Media's interest in PrimeCo is summarized below (in
millions of dollars):
<TABLE>
<S> <C>
Value of Common Stock.................................................... $ 2,913
Value of Preferred Stock ................................................. 1,650
---------
Total purchase price ..................................................... $ 4,563
=========
</TABLE>
5
<PAGE> 6
The acquisition of NewVector and Media's interest in PrimeCo is
accounted for by AirTouch under the purchase method of accounting in accordance
with APB Opinion No. 16, "Business Combinations," and the acquired PrimeCo
interest is accounted for under the equity method in accordance with APB Opinion
No. 18, "The Equity Method of Accounting for Investments in Common Stock."
Accordingly these methods of accounting have been applied in the Pro Forma
Condensed Combined Financial Statements.
Under the purchase method of accounting, the purchase price is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the Effective Date. Estimates of the fair values of
NewVector's 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. Under the equity method of
accounting, the purchase price of Media's interest in PrimeCo is allocated in a
similar manner to the purchase method described above. Also, AirTouch recognizes
its acquired share of the financial condition, together with related
identifiable intangibles and goodwill, on one line in the Pro Forma Condensed
Combined Balance Sheet, and its share of operating results of PrimeCo, together
with related amortization expense, on one line in the Pro Forma Condensed
Combined Statement of Income.
The allocation of the purchase price as reflected in the Pro Forma
Condensed Combined Financial Statements is preliminary. Accordingly, changes are
expected as valuations/appraisals of assets and liabilities are completed, and
additional information becomes available. Although AirTouch cannot ascertain
what those changes would be, such changes could be material. The financial
results of NewVector and PrimeCo after December 31, 1997 will affect the
allocation of the purchase price. As a result, actual amounts will differ from
those stated in the Pro Forma Condensed Combined Financial Statements.
Pro Forma Adjustments
1. Records the Merger assuming estimated professional fees of $12 million
(primarily legal, investment bankers' and accountants' fees) related to
the Merger are being paid from AirTouch's available cash. For Pro Forma
Financial Statement purposes, as-reported amounts for NewVector's and
PrimeCo's net assets have been estimated to approximate fair value.
This entry includes $840 million for the combined purchase price and
debt assumed related to the acquired interest in PrimeCo. In addition,
the entry allocates the full amount of the excess purchase price over
adjusted net assets acquired of NewVector to identifiable intangible
assets and goodwill. The excess purchase price related to the acquired
interest in PrimeCo was allocated to goodwill for purposes of
determining AirTouch's equity in PrimeCo's results of operations.
6
<PAGE> 7
AGGREGATE PURCHASE PRICE
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
NewVector PrimeCo Total
====== ====== ======
<S> <C> <C> <C>
Total purchase price .......................................... $4,173 $ 390 $4,563
PLUS: Net deficit (after adjustments, including debt assumed) 122 25 147
--------------------------------------
Excess Purchase Price ......................................... $4,295 $ 415 $4,710
======================================
</TABLE>
2. Records the deferred tax liability related to identifiable intangible
assets, and a corresponding adjustment to goodwill (see Note 3).
AirTouch is required to record deferred tax liabilities for the
temporary differences between the initial assigned values to the
identifiable intangible assets and their tax bases. The deferred tax
liabilities will be amortized over the useful lives of the related
identifiable intangible assets. Goodwill is considered a residual for
which no related deferred tax liability is recorded.
3. Records the amortization expense for NewVector identifiable intangible
assets and goodwill. For purposes of calculating the amortization of
intangibles, management has preliminarily estimated that approximately
$413 million relates to customer lists and $2,574 relates to FCC
licenses. The remaining excess purchase price of $1,308 million was
allocated to goodwill, together with $12 million related to Merger fees
and $1,216 million related to deferred tax liability on identifiable
intangibles. The amortization period for customer lists is four years
and is forty years for FCC licenses and goodwill.
4. Records AirTouch's acquired share of PrimeCo's net loss for the year
ended December 31, 1997 under the equity method of accounting.
5. Records the amortization expense on goodwill for the acquisition of
Media's share of PrimeCo. Management has preliminarily estimated that
all the excess purchase price be allocated to goodwill. PrimeCo is in
its start-up phase and management preliminarily estimates that the book
value of its net assets, including its licenses, approximates fair
value. The amortization period for goodwill is forty years.
6. Records interest expense accrued on $1,350 million of borrowings
related to the Merger, based on assumed average interest rates of 6.6%
on estimated fixed-rate borrowings of $800 million and 5.67% on
estimated variable-rate borrowings of $550 million. AirTouch borrowed
under its commercial paper program to refinance the debt of $1,350
million assumed in the Merger. AirTouch anticipates using the proceeds
from future debt issues totaling approximately $800 million to retire a
portion of the commercial paper. These debt issues under its
Registration Statement on Form S-3 (Reg. No. 33-62787) are planned for
later in 1998. AirTouch expects an effective interest rate on such debt
of approximately 6.6%, based on its long-term debt rating and current
Treasury yield. The rate of 5.67% represents the average
7
<PAGE> 8
interest rate experienced by AirTouch for commercial paper during 1997.
The effect of a 1/8% change in interest rates on interest expense to
pro forma net income of AirTouch is immaterial.
7. Records the income tax effects on the relevant pro forma adjustments
arising from the Merger at the combined statutory rate of 40.7%.
Relevant pro forma adjustments to the Condensed Combined Statement of
Income include interest, amortization expenses and equity in the losses
of PrimeCo. Except for the amortization of goodwill, these adjustments
were tax effected at the statutory rate resulting in a net tax benefit
of $146 million for the year ended December 31, 1997.
8. Records the dividends on the Class D and Class E Preferred Stock of $85
million for the year ended December 31, 1997. The dividend is based on
a rate of 5.143%, representing interest on 30-year Treasury Bond on
April 6, 1998, less 0.67% per annum, pursuant to the Agreement.
8
