<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to __________
COMMISSION FILE NUMBER 1-12342
AIRTOUCH COMMUNICATIONS, INC.
A DELAWARE CORPORATION I.R.S. EMPLOYER NUMBER 94-3213132
ONE CALIFORNIA STREET
SAN FRANCISCO, CA 94111
(415) 658-2000
-------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
At April 30, 1998, 572,421,404 shares of common stock were outstanding.
<PAGE> 2
AIRTOUCH COMMUNICATIONS, INC.
INDEX TO REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
PART I -- FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Statements of Income.............................. 3
Consolidated Balance Sheets.................................... 4
Consolidated Statements of Cash Flows.......................... 5
Notes to Consolidated Financial Statements..................... 6
Selected Proportionate Financial Data ......................... 8
Selected Proportionate Operating Data ......................... 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................... 11
REPORT OF INDEPENDENT ACCOUNTANTS ................................. 17
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ...................................................... 18
ITEM 2. CHANGES IN SECURITIES .................................................. 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ........................................ 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................... 18
ITEM 5. OTHER INFORMATION ...................................................... 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ....................................... 18
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
============================================================================================
(Unaudited)
Three Months Ended
March 31
------------------------
(Dollars in millions, except per share information) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 958 $ 836
- --------------------------------------------------------------------------------------------
Operating expenses:
Cost of revenues 201 177
Selling and customer operations expenses 261 208
General, administrative, and other expenses 118 107
Depreciation and amortization expenses 144 136
- --------------------------------------------------------------------------------------------
Total operating expenses 724 628
- --------------------------------------------------------------------------------------------
Operating income 234 208
Equity in net income (loss) of unconsolidated wireless systems:
U.S. (4) (2)
International 81 10
Minority interests in net (income) loss of consolidated
wireless systems (42) (39)
Interest:
Expense (19) (26)
Income 6 5
Miscellaneous income (expense) (10) 3
- --------------------------------------------------------------------------------------------
Income before income taxes and preferred dividends 246 159
Income taxes 79 82
- --------------------------------------------------------------------------------------------
Income before preferred dividends 167 77
Preferred dividends 14 13
- --------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 153 $ 64
============================================================================================
Net income applicable to common stockholders - per share
Basic and diluted $ 0.30 $ 0.13
============================================================================================
Weighted average shares outstanding (in thousands) 509,424 502,811
============================================================================================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
=======================================================================================================================
(Unaudited)
MARCH 31 December 31
(Dollars in millions) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35 $ 1
Accounts receivable (net of allowance for uncollectibles of $41 and $44, respectively) 445 472
Inventories 84 106
Other receivables 139 44
Due from related parties 52 48
Other current assets 113 51
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 868 722
Property, plant, and equipment, net 2,597 2,539
Investments in unconsolidated wireless systems 2,382 2,068
Intangible assets, net 3,279 3,297
Deferred charges and other noncurrent assets 275 344
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 9,401 $ 8,970
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 208 $ 244
Current portion of long-term debt 46 57
Other current liabilities 584 675
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 838 976
Long-term debt 1,488 1,362
Deferred income taxes 731 711
Deferred credits 89 86
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 3,146 3,135
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interests in consolidated wireless systems 337 306
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock and additional paid-in capital ($.01 par value; 50 million
shares authorized):
Series A (6 million shares authorized, no shares issued or outstanding) -- --
6.00% Class B Mandatorily Convertible (24 million shares authorized;
17.2 million shares issued and outstanding; liquidation value of $500) 500 500
4.25% Class C Convertible (19 million shares authorized, 11.1 million shares issued
and outstanding; liquidation value of $554) 541 541
Common stock and additional paid-in capital ($.01 par value; 1.1 billion shares authorized,
513.2 million shares issued and 512.6 million shares outstanding [net of
0.5 million treasury shares at cost of $12 ] at March 31, 1998, 506.1
million shares issued and 505.5 million shares
outstanding [net of 0.5 million treasury shares at cost of $11] at December 31, 1997) 4,343 4,079
Retained earnings 568 415
Accumulated other comprehensive income (6) 1
Deferred compensation (28) (7)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,918 5,529
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 9,401 $ 8,970
=======================================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
======================================================================================================
(Unaudited)
Three Months Ended
March 31
------------------
(Dollars in millions) 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Income before preferred dividends $ 167 $ 77
Adjustments to reconcile income before preferred dividends
for items currently not affecting operating cash flows:
Depreciation, amortization, and other non cash charges 145 138
Equity in net (income) loss of unconsolidated wireless systems (77) (8)
Distributions received from equity investees 16 106
Minority interests in net income (loss) of consolidated wireless systems 42 39
Deferred income tax (benefit) expense 7 (10)
Loss (gain) on sale of assets and telecommunications interests (1) 1
Changes in assets and liabilities:
Accounts receivable, net 25 (11)
Other current assets and receivables (49) (3)
Deferred charges and other noncurrent assets 3 (32)
Accounts payable and other current liabilities (140) (23)
Deferred credits and other liabilities 4 3
- ------------------------------------------------------------------------------------------------------
Cash flows from operating activities 142 277
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investments in unconsolidated wireless systems (137) (75)
Additions to property, plant, and equipment (171) (140)
Proceeds from sale of property, plant, and equipment 3 3
Maturity of available-for-sale securities -- 5
Other investing activities -- 1
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities (305) (206)
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuing long-term debt and commercial paper 211 246
Retirement of long-term debt and commercial paper (72) (262)
Distributions to minority interests of consolidated wireless systems (9) (15)
Contributions from minority interests of consolidated wireless systems 2 5
Proceeds from common shares issued 81 9
Payment of preferred stock dividends (13) (13)
Other financing activities (2) (1)
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities 198 (31)
- ------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (1) (5)
- ------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 34 35
Beginning cash and cash equivalents 1 28
- ------------------------------------------------------------------------------------------------------
Ending cash and cash equivalents $ 35 $ 63
======================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
5
<PAGE> 6
AirTouch Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
A. BASIS OF PRESENTATION
The unaudited Consolidated Financial Statements of AirTouch Communications, Inc.
(the "Company") furnished herein have been reviewed by independent accountants
and reflect all adjustments which are, in the opinion of the Company, necessary
to present fairly the financial position and results of operations for each
interim period presented. All such adjustments are normal recurring adjustments.
The Company recommends that these interim financial statements be read in
conjunction with the Consolidated Financial Statements and accompanying Notes
presented in the Company's 1997 Annual Report on Form 10-K.
With respect to the unaudited consolidated financial information of the Company
as of and for the three-month periods ended March 31, 1998 and 1997 included
herein, Price Waterhouse LLP reported that they have applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate report dated May 4, 1998 appearing herein, states that
they did not audit and they do not express an opinion on the unaudited
consolidated financial information. Price Waterhouse LLP has not carried out any
significant or additional audit tests beyond those which would have been
necessary if their report had not been included. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Price Waterhouse LLP is not
subject to the liability provisions of Section 11 of the Securities Act of 1933
(the "Act") for their report on the unaudited consolidated financial information
because that report is not a "report" or a "part" of this Form 10-Q prepared or
certified by Price Waterhouse LLP within the meaning of Sections 7 and 11 of the
Act.
B. CHANGES FROM DECEMBER 31, 1997
Effective with the issuance of these financial statements, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," consistent with the required adoption period. For the
Company, comprehensive income includes income before preferred dividends,
unrealized gain (loss) on available-for-sale securities, cumulative translation
adjustments, and minimum pension liability adjustments. The Company's total
comprehensive income was $160 million and $52 million for the three-month
periods ended March 31, 1998 and 1997, respectively. The implementation of SFAS
No. 130 did not have an impact on the Company's financial position or results of
operation.
C. INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
The Company's investments in unconsolidated wireless systems consist of the
following:
<TABLE>
<CAPTION>
================================================================================
MARCH 31 December 31
(Dollars in millions) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Investments at equity $2,268 $1,958
Investments at cost 114 110
- --------------------------------------------------------------------------------
$2,382 $2,068
================================================================================
</TABLE>
The Company's equity in net income of significant equity investees (Mannesmann
Mobilfunk GmbH and CMT Partners) was $107 million and $75 million for the three
months ended March 31, 1998 and 1997, respectively. The Company's equity in net
income of these investees differs from its proportionate share of their reported
net income in the table below primarily due to amortization of intangibles and
other adjustments. Condensed operating results for the Company's significant
equity investments are as follows:
<TABLE>
<CAPTION>
================================================================================
Three Months Ended
March 31
---------------------
(Dollars in millions) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Mannesmann Mobilfunk GmbH
Operating revenues $878 $740
Operating income $365 $252
Net income $157 $108
CMT Partners
Operating revenues $134 $139
Operating income $ 54 $ 53
Net income $ 58 $ 57
================================================================================
</TABLE>
D. MEDIAONE GROUP MERGER
On April 6, 1998, the Company completed the transaction to acquire the U.S.
cellular business and the 25% PrimeCo Personal Communications, L.P. interest
(the "Acquired Businesses") of MediaOne Group (formerly U S WEST Media Group).
The
6
<PAGE> 7
AirTouch Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
acquisition was structured as a tax-free merger in which the subsidiaries of
MediaOne Group owning the Acquired Businesses merged into the Company, which is
the surviving corporation. In the merger, the Company issued approximately 59.4
million shares of common stock having a fair market value of about $2.9 billion
and approximately $1.6 billion of dividend-bearing preferred stock with a 5.143%
coupon. The Company also assumed approximately $1.4 billion of debt associated
with the Acquired Businesses. Additionally, the Company has granted MediaOne
Group registration rights with respect to the common stock and preferred stock
issued in the merger.
E. CONTINGENCIES
The Company has been a defendant in various antitrust lawsuits filed in both
state and federal courts. In 1993, a class action complaint was filed in Orange
County Superior Court alleging price fixing in the Los Angeles cellular market.
A parallel class action filed in Orange County Superior Court in 1994 was stayed
pending the resolution of the 1993 case. In 1997, a settlement of the 1993 case
was approved by the Court. In 1994, two class action complaints also alleging
price fixing were filed against the Company, one in San Diego County Superior
Court and one in the U.S. District Court. The state case was dismissed and a
settlement of the federal case has been reached but has not yet been approved by
the Court. Also in 1994, a class action complaint was filed against the Company
in San Francisco County Superior Court alleging price fixing. In 1996, an almost
identical class action complaint was filed against the Company in Alameda County
Superior Court. The two cases were assigned to a single judge for coordination.
In 1998, a settlement of these cases was approved by the Court. In the aggregate
these settlements will not have a material adverse effect on the Company's
financial position or results of operations.
The Company is party to various other legal proceedings in the ordinary course
of business. Although the ultimate resolution of these various other proceedings
cannot be ascertained, management does not expect that they will have a material
adverse effect on the Company's financial position or results of operations.
In the ordinary course of business, the Company has issued letters of
responsibility and letters of support for performance guarantees, refundable
security deposits, and credit facilities of certain subsidiaries and affiliates
providing varying degrees of recourse to the Company. At March 31, 1998, the
Company's proportionate share under such arrangements was $153 million. The
Company believes it is remote that it will be required to pay under these
various arrangements.
F. SUBSEQUENT EVENTS
On April 29, 1998, the Company issued $500 million of 6.65% notes due May 1,
2008. The Company used the proceeds from the sale of the notes to retire
commercial paper issued in connection with its acquisition of MediaOne Group.
7
<PAGE> 8
AirTouch Communications, Inc. and Subsidiaries
SELECTED PROPORTIONATE FINANCIAL DATA (UNAUDITED) (1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Three Months Ended
March 31
---------------------
(Dollars in millions) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL COMPANY
Service and other revenues $ 1,355 $ 1,113
Operating expenses before depreciation and amortization expenses (2) 808 700
Depreciation and amortization expenses 216 188
Operating income 331 225
Interest and other income (expenses) (34) (24)
- ----------------------------------------------------------------------------------------------
Income before income taxes and preferred dividends 297 201
Income taxes 130 124
- ----------------------------------------------------------------------------------------------
Income before preferred dividends 167 77
Preferred dividends 14 13
- ----------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 153 $ 64
==============================================================================================
Operating cash flow (3) $ 547 $ 413
Operating cash flow margin (4) 40.4% 37.1%
==============================================================================================
U.S. CELLULAR OPERATIONS
Service and other revenues $ 621 $ 562
Cost of revenues 63 57
Selling and customer operations expenses (2) 225 197
General, administrative, and other expenses 36 36
Depreciation and amortization expenses 102 95
- ----------------------------------------------------------------------------------------------
Operating income $ 195 $ 177
==============================================================================================
Operating cash flow (3) $ 297 $ 272
Operating cash flow margin (4) 47.8% 48.4%
==============================================================================================
INTERNATIONAL OPERATIONS
Service and other revenues $ 626 $ 470
Operating expenses before depreciation and amortization expenses (2) 370 321
Depreciation and amortization expenses 81 64
- ----------------------------------------------------------------------------------------------
Operating income $ 175 $ 85
==============================================================================================
Operating cash flow (3) $ 256 $ 149
Operating cash flow margin (4) 40.9% 31.7%
==============================================================================================
U.S. PAGING OPERATIONS (5)
Service and other revenues (6) $ 89 $ 79
Operating expenses before depreciation and amortization expenses 59 54
Depreciation and amortization expenses 19 18
- ----------------------------------------------------------------------------------------------
Operating income $ 11 $ 7
==============================================================================================
Operating cash flow (3) $ 30 $ 25
Operating cash flow margin (4) 33.7% 31.6%
==============================================================================================
U.S. PCS OPERATIONS (7)
Service and other revenues $ 19 $ 3
Operating expenses before depreciation and amortization expenses 38 25
Depreciation and amortization expenses 11 8
- ----------------------------------------------------------------------------------------------
Operating income (loss) $ (30) $ (30)
==============================================================================================
Operating cash flow (3) $ (19) $ (22)
Operating cash flow margin (4) (100.0)% (733.3)%
==============================================================================================
</TABLE>
8
<PAGE> 9
AirTouch Communications, Inc. and Subsidiaries
Footnotes:
(1) This table is not required by GAAP and is not intended to replace the
Consolidated Financial Statements prepared in accordance with GAAP. It is
presented to provide supplemental data. Because significant assets of the
Company are not reported on a consolidated basis, the Company believes
that proportionate financial data facilitates the understanding and
assessment of its Consolidated Financial Statements. Under GAAP, the
Company consolidates the entities in which it has a controlling interest
and uses the equity method to account for entities over which the Company
has significant influence but does not have a controlling interest. In
contrast, proportionate accounting reflects the Company's relative
ownership interests in operating revenues and expenses for both its
consolidated and equity-method entities, exclusive of cost-based
investments and certain equity-method investments that are not material.
For example, U.S. cellular operations proportionate results present the
Company's share -- its percentage ownership -- for all significant U.S.
cellular operations, including those entities where the Company does not
own more than 50%. Similarly, Total Company proportionate results show
the Company's share of all its significant worldwide operations.
(2) Includes net losses on equipment sold to acquire and retain customers.
(3) Operating cash flow is defined as operating income plus depreciation and
amortization and is not the same as cash flow from operating activities
in the Company's Consolidated Statements of Cash Flows. Proportionate
operating cash flow represents the Company's ownership interests in the
respective entities' operating cash flows. As such, proportionate
operating cash flow does not represent cash available to the Company.
(4) Operating cash flow margin is calculated by dividing "Operating cash
flow" by "Service and other revenues."
(5) U.S. Paging Operations, which are wholly owned by the Company, include
operations in Canada.
(6) Includes any gain or loss on equipment sales.
(7) PCS data relates to PrimeCo Personal Communications, L.P. ("PrimeCo"), a
U.S. personal communications service ("PCS") business in which the
Company has a 25% interest as of March 31, 1998. Because PrimeCo does not
own 100% of all its markets, the Company's March 31, 1998 overall
effective ownership in these markets is slightly less.
9
<PAGE> 10
AirTouch Communications, Inc. and Subsidiaries
SELECTED PROPORTIONATE OPERATING DATA (UNAUDITED) (1)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in millions and operating March 31
---------------------
data in thousands, except per unit data) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
TOTAL COMPANY
Cellular and PCS POPs (2)(3)(4) 180,759 178,367
Cellular and PCS subscribers (2)(4) 8,270 5,487
Paging units in service (4)(5) 3,228 2,960
Total proportionate customers (4) 11,498 8,447
Cellular and PCS subscriber net adds in period,
excluding acquisitions (2) 655 341
Capital expenditures and capital calls,
excluding acquisitions (6) $ 265 $ 164
Proportionate capital expenditures (7) $ 314 $ 273
- -------------------------------------------------------------------------
U.S. CELLULAR OPERATIONS
Cellular POPs (3)(4) 44,092 43,364
Cellular subscribers (4) 4,560 3,550
Cellular subscriber net adds in period,
excluding acquisitions 171 147
Monthly average revenue per unit $ 46.71 $ 53.95
Monthly cash cost per unit $ 24.37 $ 27.84
Proportionate capital expenditures (7) $ 120 $ 66
- -------------------------------------------------------------------------
INTERNATIONAL OPERATIONS
Cellular POPs (3)(4) 122,438 120,774
Cellular subscribers (4) 3,589 1,910
Cellular subscriber net adds in period,
excluding acquisitions 455 176
Monthly average revenue per unit $ 62.06 $ 85.96
Monthly cash cost per unit $ 36.68 $ 58.71
Proportionate capital expenditures (7) $ 155 $ 158
- -------------------------------------------------------------------------
U.S. PAGING OPERATIONS (8)
Total paging units in service (4) 3,140 2,923
Paging units in service net adds in period,
excluding acquisitions 38 73
Capital expenditures (6) $ 18 $ 18
- -------------------------------------------------------------------------
U.S. PCS OPERATIONS (2)
PCS POPs (2)(3)(4) 14,229 14,229
PCS subscribers (2)(4) 121 27
PCS subscriber net adds in period,
excluding acquisitions (2) 29 18
Monthly average revenue per unit $ 59.86 $ 62.43
Monthly cash cost per unit $ 119.72 $ 520.25
=========================================================================
</TABLE>
Footnotes:
(1) Reflects operating data of systems and total units in service of paging
systems in which the Company owns an interest, multiplied by the
Company's ownership interest, exclusive of cost-based investments and
certain equity-based investments that are not material to the information
presented.
(2) PCS data relates to PrimeCo Personal Communications, L.P. ("PrimeCo"), a
U.S. personal communications service ("PCS") business in which the
Company has a 25% interest as of March 31, 1998. Because PrimeCo does not
own 100% of all its markets, the Company's March 31, 1998 overall
effective ownership in these markets is slightly less.
(3) POPs are the estimated market population multiplied by the Company's
ownership interest in a licensee operating in that market and includes
markets in which the networks are under construction and the markets of
certain cost-based investments not included in proportionate operating
results.
(4) As of the period ended.
(5) Includes paging units in service in the U.S. and Internationally.
(6) Reflects GAAP-basis operating data, in millions, for the three months
ended March 31.
(7) Proportionate capital expenditures are expenditures for property, plant,
and equipment of each system in which the Company owns an interest
multiplied by the Company's ownership interest.
(8) U.S. Paging Operations, which are wholly owned by the Company, include
operations in Canada.
10
<PAGE> 11
AirTouch Communications, Inc. and Subsidiaries
Management's Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis for AirTouch Communications, Inc.,
together with its subsidiaries and partnerships (collectively, the "Company" or
"AirTouch"), focuses on material changes in financial condition from December
31, 1997 and in results of operations with respect to the quarter ended March
31, 1998 and the quarter ended March 31, 1997. This discussion and analysis
should be read in conjunction with management's discussion and analysis included
in the Company's 1997 Annual Report on Form 10-K and with the Company's
Consolidated Financial Statements and accompanying Notes included herein.
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends which may affect the Company's future operating results and financial
position. Such forward-looking statements are often identified by the words
"estimate," "project," "intend," "plan," "expect," "believe," or similar
expressions. Such statements are subject to risks and uncertainties that could
cause the Company's actual results and financial position to differ materially.
Such factors include, but are not limited to: a change in economic conditions in
the various markets served by the Company's operations which would adversely
affect the level of demand for wireless services; greater-than-anticipated
competitive activity requiring reduced pricing and/or new product offerings or
resulting in higher customer selling costs; greater-than-expected growth in
customers and usage driving increased investment in network capacity; the level
of fraudulent activity; the impact of new business opportunities requiring
significant up-front investments; the impact on capital spending from the
deployment of new technologies; and the possibility that technologies will not
perform according to expectations or that vendors' performance will not meet
Company requirements. These and other risks and uncertainties related to the
business are described in detail in the Company's 1997 Annual Report on Form
10-K under the heading "Investment Considerations." Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
MEDIAONE GROUP MERGER
On April 6, 1998, the Company and MediaOne Group ("MediaOne"), formerly U S WEST
Media Group, announced that they had completed merging MediaOne's U.S. cellular
and PCS interests into AirTouch. In the merger, AirTouch issued approximately
59.4 million shares of AirTouch common stock having a fair market value of about
$2.9 billion and approximately $1.6 billion in AirTouch dividend-bearing
preferred stock. AirTouch assumed approximately $1.4 billion of debt associated
with the acquired business. For a discussion of funding related to the MediaOne
merger, see "Liquidity and Capital Resources - Funding of Future Requirements".
Additionally, AirTouch has granted MediaOne registration rights with respect to
the common stock and preferred stock issued in the merger, as described in the
Amended and Restated Investment Agreement between AirTouch and MediaOne filed
as Exhibit 10 to AirTouch's Current Report on Form 8-K/A-1 dated April 6, 1998.
Earnings per share dilution resulting from the merger, primarily due to the
amortization of acquisition intangibles, incremental interest expense, preferred
dividends, and common shares issued, is expected to reach approximately $0.40
per share in 1999 and decline thereafter. The Company plans to pursue cost
savings to mitigate this dilution; however, there can be no assurance that such
plans will successfully mitigate any dilution.
For a more detailed discussion of the MediaOne merger and for pro forma
financial statements at December 31, 1997 and the year then ended which present
the combined results of operations, including merger-related adjustments, as if
the merger was effective on January 1, 1997, please see the Company's Current
Report on Form 8-K/A-1 dated April 6, 1998.
RESULTS OF OPERATIONS
The following discussions compare the results of operations for the quarter
ended March 31, 1998 to the quarter ended March 31, 1997. Because the Company's
merger with MediaOne occurred subsequent to the first quarter of 1998, the
impact of the MediaOne merger is not included in the discussions below. The
operating results of the periods discussed below are not necessarily indicative
of operating results in future periods.
Consolidated Operations
Consolidated operating revenues increased 15% while consolidated operating
income rose 13% primarily as a result of substantial subscriber growth in the
Company's U.S. and international cellular markets.
11
<PAGE> 12
AirTouch Communications, Inc. and Subsidiaries
Management's Discussion and Analysis
Increases in equity in net income of unconsolidated international wireless
systems is primarily attributable to continued growth in the subscriber base by
the wireless systems operated by the Company's equity investees.
The net change in miscellaneous income (expense) was primarily related to
foreign currency exchange losses and reflects the unfavorable changes in foreign
currency exchange rates compared to the U.S. Dollar.
Excluding the effect of equity in net income of unconsolidated international
wireless systems and the effect of foreign consolidated entities, the effective
tax rates were approximately 40% and 45% for the three-month periods ended March
31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
U.S. Cellular Operations
- -------------------------------------------------------------------------------
Three
Months Ended
March 31
------------------
(Dollars in millions) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Service and other revenues $ 617 $ 557
Equipment sales 30 28
- -------------------------------------------------------------------------------
Operating revenues 647 585
- -------------------------------------------------------------------------------
Operating expenses before depreciation
and amortization expenses 359 316
Depreciation and amortization expenses 98 94
- -------------------------------------------------------------------------------
Operating income 190 175
Equity in net income (loss) of
unconsolidated wireless systems 30 30
Minority interests in net (income) loss
of consolidated wireless systems (21) (24)
Other (income) expense included in
equity income and minority interests (a) (4) (4)
- -------------------------------------------------------------------------------
U.S. cellular operating contribution
to net income (b) $ 195 $ 177
===============================================================================
</TABLE>
(a) Represents income taxes and non-operating expenses or income included in
equity in net income (loss) of unconsolidated wireless systems and in
minority interests in net (income) loss of consolidated wireless systems.
(b) Represents the Company's share of combined operating income of consolidated
and unconsolidated U.S. cellular operations, net of the interests of
minority and equity partners (equal to proportionate operating income
presented on page 14).
The improvement in the Company's U.S. cellular operating revenues was primarily
the result of a 26% increase in subscribers. Continued customer growth in U.S.
cellular's consolidated markets was primarily achieved through advertising and
by continuing to offer competitive incentive programs such as waived service
establishment charges, discounted monthly access fees, discounted cellular
handsets, discounted air time packages, promotional air time credits at the
beginning of service contracts, options to purchase bundled minutes of use at
fixed monthly rates, and reduced or fixed rates for off-peak usage and roaming.
Year-over-year revenue improvement associated with the increase in subscribers
was partially offset by a 12% decline in revenue per minute of use (excluding
revenue from equipment sales) primarily attributable to continued penetration of
consumer markets and to rate reductions and discounts offered to new and
existing customers in response to increasing competition. In addition, average
revenue per customer (excluding revenue from equipment sales) declined 12%.
Consumer usage patterns contributed to declines in average revenue per customer
because consumers typically use their telephones more during lower-rate,
off-peak calling periods. The Company anticipates increasing competitive
pressure to result in continuing price declines and reduced customer growth
rates in the near term and possibly in future years, which could reduce revenues
of its U.S. cellular operations compared to current revenue levels. The Company
expects the shift toward consumer markets and such increasing competitive
pressures to continue to result in declines in average revenue per customer and
revenue per minute of use. However, the Company believes that, over time,
declining prices and other factors may lead to increases in per subscriber usage
as customers shift their calling from landline to wireless networks.
U.S. cellular operating margins remained relatively constant year-over-year,
going from 29.9% in 1997 to 29.4% in 1998. Operating cash flow margins
(operating margins excluding the effect of depreciation and amortization
expenses) moved slightly downward from 46.0% during 1997 to 44.5% during 1998.
The stability in operating margins despite a decline in revenue per minute of
use resulted from a decline of 10% in the cash cost per minute of use (including
the loss on equipment sales). Decreases in average revenue per customer were
partially offset by decreases in the average cash costs per customer (including
the loss on equipment sales) of 10%. Decreases in cash costs resulted from
several factors, including increased economies of scale, reductions in roaming
fraud, a reduction in interconnection rates, declines in handset costs and
reductions in handset subsidies offered to customers, and a shift to lower cost
sales channels. The Company continues to focus on improving customer service and
on its customer incentive programs designed to retain existing customers.
Retaining customers is significantly less expensive than replacing customers who
discontinue service.
12
<PAGE> 13
AirTouch Communications, Inc. and Subsidiaries
Management's Discussion and Analysis
Depreciation and amortization expenses increased 4% during 1998 primarily due to
depreciation of larger property, plant, and equipment balances associated with
digital cellular deployment across all consolidated markets.
U.S. cellular operations' equity in net income (loss) of unconsolidated wireless
systems remained constant and primarily reflects the operating results of CMT
Partners, the Company's partnership which operates cellular properties primarily
in the San Francisco Bay Area.
U.S. Paging Operations
All U.S. paging markets are wholly owned by the Company.
<TABLE>
<CAPTION>
===============================================================================
Three
Months Ended
March 31
------------------
(Dollars in millions) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Service and other revenues $ 88 $ 79
Equipment sales 10 9
- -------------------------------------------------------------------------------
Operating revenues 98 88
- -------------------------------------------------------------------------------
Operating expenses before depreciation
and amortization expenses 68 63
Depreciation and amortization expenses 19 18
- -------------------------------------------------------------------------------
Operating income $ 11 $ 7
===============================================================================
Operating cash flow (a) $ 30 $ 25
Operating cash flow margin (b) 30.6% 28.4%
===============================================================================
</TABLE>
(a) See Footnote 3 on page 9.
(b) See Footnote 4 on page 9.
Operating revenues increased 11% primarily due to a 7% increase in paging units
in service and a 3% increase in the average revenue per unit in service.
Operating cash flow margins (operating margins excluding the effect of
depreciation and amortization) increased from 28.4% to 30.6% due to increased
service and other revenues, partially offset by moderate increases in network
operating costs necessary to serve the expanded customer base.
International Operations
<TABLE>
<CAPTION>
===============================================================================
Three
Months Ended
March 31
------------------
(Dollars in millions) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Service and other revenues $ 198 $ 151
Equipment sales 15 12
- -------------------------------------------------------------------------------
Operating revenues 213 163
- -------------------------------------------------------------------------------
Operating expenses before depreciation
and amortization expenses 134 104
Depreciation and amortization expenses 25 21
- -------------------------------------------------------------------------------
Operating income 54 38
Equity in net income (loss) of
unconsolidated wireless systems 81 10
Minority interests in net (income) loss
of consolidated wireless systems (22) (15)
Other (income) expense included in
equity income and minority interests (a) 62 52
- -------------------------------------------------------------------------------
International operating contribution
to net income (b) $ 175 $ 85
===============================================================================
</TABLE>
(a) Represents income taxes and non-operating expenses or income included in
equity in net income (loss) of unconsolidated wireless systems and in
minority interests in net (income) loss of consolidated wireless systems.
(b) Represents the Company's share of combined operating income of consolidated
and unconsolidated international operations, net of the interests of
minority and equity partners (equal to proportionate operating income
presented on page 14).
International operating revenues increased 31% over the first quarter of 1997
primarily due to an increase of approximately 100% in Europolitan's and
Telecel's combined subscribers. The increase in operating revenues associated
with the increase in subscribers was partially offset by a 33% decrease in
Europolitan's and Telecel's combined average revenue per customer and
unfavorable changes in foreign exchange rates compared to the U.S. Dollar. If
foreign exchange rates had remained constant, operating revenues would have
increased by 46%. Operating margins improved 2.1 percentage points in 1998
primarily from substantial subscriber growth and a 38% decline in the combined
cash cost per customer achieved as Europolitan's and Telecel's operations
continued to gain operating scale. If foreign exchange rates had remained
constant, the operating margin would have increased 3.1 percentage points.
The significant improvement in equity in net income of international
unconsolidated wireless systems was primarily due to strong operating results
achieved by the Company's equity investees in Europe. Improved results in these
wireless systems resulted primarily from increasing economies of scale and
continued subscriber growth, partially offset by overall declines
13
<PAGE> 14
AirTouch Communications, Inc. and Subsidiaries
Management's Discussion and Analysis
in the average revenue per customer. Equity income increases were partially
offset by unfavorable movements in foreign currency exchange rates.
Proportionate Results of Operations
Proportionate basis operating results are included as supplementary information
only and are not prepared in accordance with generally accepted accounting
principles ("GAAP"). Proportionate presentation is a pro rata consolidation
which reflects the Company's share of revenues and expenses in both its
consolidated and unconsolidated wireless systems, net of interests of minority
and equity partners. Proportionate results are calculated by multiplying the
Company's ownership interest in each wireless system by each system's total
operating results, whereas the presentation prepared in accordance with GAAP
requires consolidation of wireless systems controlled by the Company and the
equity method of accounting for wireless systems in which the Company has
significant influence but not a controlling interest.
Net income under either GAAP or proportionate presentation is the same.
Proportionate presentation is not required by GAAP, nor is it intended to
replace the consolidated operating results prepared and presented in accordance
with GAAP. However, since significant wireless systems are not consolidated,
proportionate information is provided as supplemental data to facilitate a more
detailed understanding and assessment of consolidated operating results prepared
and presented in accordance with GAAP.
U.S. Cellular Operations (Proportionate Basis)
<TABLE>
<CAPTION>
===============================================================================
Three
Months Ended
March 31
------------------
(Dollars in millions) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Service and other revenues $ 621 $ 562
- -------------------------------------------------------------------------------
Cost of revenues 63 57
Selling and customer
operations expenses (a) 225 197
General, administrative, and
other expenses 36 36
Depreciation and amortization expenses 102 95
- -------------------------------------------------------------------------------
Operating income $ 195 $ 177
===============================================================================
Operating cash flow (b) $ 297 $ 272
Operating cash flow margin (c) 47.8% 48.4%
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
International Operations (Proportionate Basis)
===============================================================================
Three
Months Ended
March 31
-------------------
(Dollars in millions) 1998 1997
===============================================================================
<S> <C> <C>
Service and other revenues (d) $ 626 $ 470
Operating expenses before depreciation
and amortization expenses (a) 370 321
Depreciation and amortization expenses 81 64
- -------------------------------------------------------------------------------
Operating income $ 175 $ 85
===============================================================================
Operating cash flow (b)(d) $ 256 $ 149
Operating cash flow margin (c) 40.9% 31.7%
===============================================================================
</TABLE>
(a) See Footnote 2 on page 9.
(b) See Footnote 3 on page 9.
(c) See Footnote 4 on page 9.
(d) If foreign exchange rates had remained constant, service and other revenues
and operating cash flow would have increased 48% and 91%, respectively.
CONTINGENCIES
The Company is party to various legal proceedings, including certain antitrust
litigation. See Note E, "Contingencies," to the Consolidated Financial
Statements.
Year 2000 Compliance
The Company is still in the process of completing its plan to remedy the Year
2000 issue. See the Company's 1997 Annual Report on Form 10-K for a complete
discussion and analysis of the Company's Year 2000 issue. As of March 31, 1998,
costs incurred to correct Year 2000 issues have not been material to the
Company's operating results or financial position. However, the total estimated
cost has not yet been quantified. Total costs could be material to the Company's
results of operations or financial position in future reporting periods.
Market Risk
Please see the Company's 1997 Annual Report on Form 10-K for a complete
discussion and analysis of the Company's market risks. These risks include
unfavorable movements in interest rates, foreign currency exchange rates, and
equity prices. At March 31, 1998, there have been no material changes to the
market risks described at December 31, 1997. Additionally, the Company does not
anticipate any near-term changes in the nature of its market risk exposures or
in management's objectives and strategies with respect to managing such
exposures.
14
<PAGE> 15
AirTouch Communications, Inc. and Subsidiaries
Management's Discussion and Analysis
LIQUIDITY AND CAPITAL RESOURCES
The Company defines liquidity as its ability to generate resources to finance
business expansion, construct capital assets, and pay its current obligations.
The Company requires substantial capital to operate and expand its existing
wireless systems, to construct new wireless systems, and to acquire interests in
existing wireless systems.
Capital Spending, Debt Service, and Dividend Requirements for the First Quarter
of 1998
The Company spent $171 million during the first quarter of 1998 for additions to
property, plant, and equipment primarily to increase cellular and paging network
system capacity. The Company invested an additional $137 million during the
first quarter of 1998 in its unconsolidated wireless systems to fund the
expansion and build-out of cellular and PCS networks and to purchase interests
in certain cellular systems. The Company also paid $13 million during the first
quarter of 1998 for preferred dividends.
Funding of Capital Spending, Debt Service, and Dividend Requirements for the
First Quarter of 1998
Cash flows from operations of $142 million, proceeds from the issuance of
commercial paper and other long-term debt, and proceeds from the exercise of
stock options were the primary sources utilized to fund capital requirements,
preferred dividends, debt service, and net distributions to minority partners.
Future Funding Requirements
The Company will continue to be required to make substantial expenditures in
connection with its efforts to expand its existing wireless business and,
potentially, to pursue opportunities to expand into new markets. For the
remainder of 1998, U.S. and international requirements for capital expenditures,
contributions to existing wireless systems, and potential acquisitions of
additional wireless systems are expected to be approximately $1.4 billion,
including the impact of the MediaOne merger, net of anticipated dividends from
consolidated foreign entities.
Consolidated Expenditures
The Company plans to incur significant capital expenditures in its consolidated
U.S. markets to expand its existing analog and Code Division Multiple Access
("CDMA") digital wireless networks and to construct and deploy new digital
wireless networks to meet current and future capacity requirements resulting
from both subscriber growth and increased network use by existing customers. The
Company now offers CDMA digital cellular service in all of its managed U.S.
cellular markets.
The Company expects its annual capital expenditures for digital technology to
continue to be greater than its annual capital expenditures for analog
technology for the foreseeable future.
The Company plans to maintain and, as required, expand its analog networks and
to offer dual-mode (analog/CDMA digital), dual-band (cellular/PCS frequencies)
handsets in each of its U.S. digital markets to facilitate the greatest possible
roaming capabilities for its customers.
At March 31, 1998, excluding the impact of the MediaOne merger, the Company's
existing U.S. and international operations were committed to spend approximately
$286 million for the acquisition of property, plant, and equipment and
approximately $147 million for the purchase of cellular handsets, pagers, and
other items. For the remainder of 1998 the Company plans to make additional
capital expenditures of approximately $600 million, including the impact of the
MediaOne merger, to increase the capacity of its existing wireless networks and
to continue deployment of CDMA digital technology.
In addition, the Federal Communications Commission ("FCC") has recently adopted
rules requiring carriers such as the Company to provide customers in the U.S.
with local number portability, the ability for customers to retain their
telephone numbers if they choose to switch landline or wireless carriers.
Providing this functionality will result in additional capital requirements and
operating expenses in future years. FCC rules require the Company to provide
certain local number portability services by December 31, 1998 and to provide
complete local number portability services by June 30, 1999. The Company and
certain wireless industry groups have petitioned the FCC for a delay in the June
30, 1999 implementation date. The Company has not yet fully assessed the cost of
complying with the FCC's number portability rules; such costs could be material
to the Company's results of operations or financial position in future reporting
periods.
The Company will also be required to upgrade its wireless networks in the U.S.
to provide certain functionality to authorized law enforcement agencies. In this
regard, the FCC has adopted rules requiring wireless carriers to electronically
provide "Emergency 911" authorities with the physical location of wireless
callers requesting emergency assistance. In addition, new U.S. Federal laws
pursuant to the Communications Assistance Law Enforcement Act ("CALEA") will
require the Company to provide law enforcement agencies with certain network
functionality and other assistance in criminal
15
<PAGE> 16
AirTouch Communications, Inc. and Subsidiaries
Management's Discussion and Analysis
investigations, including digital wiretapping capabilities. The FCC rules
concerning "Emergency 911" services and CALEA both require the responsible
government agencies to reimburse the Company for its costs incurred to upgrade
its networks and to provide on-going assistance to law enforcement agencies;
however, the Company can provide no assurance that all such costs will be
recoverable.
Unconsolidated Wireless Systems
As of March 31, 1998, commitments for capital contributions to existing
unconsolidated wireless systems were not significant. However, the Company plans
to make additional capital contributions of approximately $265 million,
including the impact of the MediaOne merger, during the remainder of 1998 to
certain of its existing U.S. and international unconsolidated wireless systems,
including contributions to PrimeCo to fund its operating losses and the
continuing build-out of its CDMA PCS networks.
On March 4, 1998, the Company announced that a consortium, of which it is a
member, was named the winner of a nationwide cellular service license in Egypt.
The consortium bid $516 million for the license, of which the Company's share is
expected to be approximately $155 million. In addition to the license cost, the
Company could be required to begin funding operations of the Egyptian venture
during 1998. The Company continually evaluates opportunities to increase its
ownership interests in its existing international wireless systems and to
acquire interests in new international wireless licenses, either of which could
result in incremental capital commitments.
Financing Sources
The Company has a commercial paper program in place which consists of discounted
notes that are exempt from registration under the Securities Act of 1933. The
Company's Board of Directors authorized the issuance of commercial paper in
amounts necessary to finance the Company's working capital requirements,
provided that the amount outstanding under the commercial paper program,
together with all indebtedness incurred under the Company's $2 billion long-term
revolving credit facility (the "Facility"), does not in the aggregate exceed $2
billion. In addition to its Facility and commercial paper program, the Company
may obtain any required financing under its Registration Statement on Form S-3
(Reg. No. 33-62787), which registered $2 billion in various forms of debt and
equity securities (the "Shelf"). As of March 31, 1998, there have been three
debt issues pursuant to the Shelf totaling $900 million which remain
outstanding.
Funding of Future Requirements
In connection with the MediaOne merger completed on April 6, 1998, the Company
issued preferred stock of approximately $1.6 billion with a dividend rate of
5.143%. In addition, the Company assumed approximately $1.4 billion of debt from
MediaOne. The Company immediately refinanced the debt with proceeds obtained
from issuing commercial paper. This commercial paper was partially retired with
proceeds obtained from a $500 million issuance of 6.65% notes issued in April,
1998, making the total debt outstanding under the Shelf $1.4 billion.
The Company anticipates cash flows from operations to be its primary source of
funding for capital requirements of its existing operations, debt service, and
preferred dividends through the end of 1998, including the Company's incremental
debt service and preferred dividend obligations resulting from the MediaOne
merger. However, should additional funding be required due to award of one or
more new international cellular licenses, new investment opportunities, other
unanticipated events, or the repurchase of AirTouch common or preferred stock,
the Company may raise the required funds through borrowings or public or private
sales of debt or equity securities. Such funding may be obtained through
borrowings under the Facility; through the Company's commercial paper program;
from additional securities which may be issued from time to time under the
Shelf; through the issuance of securities in a transaction exempt from
registration under the Securities Act of 1933; or a combination of one or more
of the foregoing. The Company believes, that in the event of such requirements,
it will be able to access the capital markets on terms and in amounts adequate
to meet its objectives. However, given the possibility of changes in market
conditions or other occurrences, there can be no certainty that such funding
will be available in quantities or on terms favorable to the Company.
16
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AIRTOUCH COMMUNICATIONS, INC.:
We have reviewed the accompanying Consolidated Balance Sheets of AirTouch
Communications, Inc. and subsidiaries ("Company") as of March 31, 1998 and the
related Consolidated Statements of Income and of Cash Flows for the three-month
periods ended March 31, 1998 and 1997. These Consolidated Financial Statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists primarily of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying Consolidated Financial Statements for them to be in
conformity with generally accepted accounting principles.
Our reviews were made for the purpose of expressing limited assurance on the
Consolidated Financial Statements taken as a whole. The Selected Proportionate
Financial Data ("Proportionate Financial Data") for the three-month periods
ended March 31, 1998 and 1997 appearing on page 8 is presented for additional
analysis and is not a required part of the basic financial statements. As
discussed in the Footnotes to the Proportionate Financial Data, the
Proportionate Financial Data has been prepared by the Company to present
financial information that, in the opinion of management, is not provided by
financial statements prepared in conformity with generally accepted accounting
principles. Such Proportionate Financial Data, prepared on the basis of
presentation described in the Footnotes to the Proportionate Financial Data, has
been subjected to the inquiry and analytical procedures applied in the review of
the basic financial statements. Based on our reviews, we are not aware of any
material modifications that should be made to such information in relation to
the basic Consolidated Financial Statements taken as a whole.
We previously audited in accordance with generally accepted auditing standards,
the Consolidated Balance Sheet as of December 31, 1997, and the related
Consolidated Statements of Income, of Stockholders' Equity, and of Cash Flows
for the year then ended (not presented herein), and in our report dated March 2,
1998 we expressed an unqualified opinion on those Consolidated Financial
Statements. In our opinion, the information set forth in the accompanying
Consolidated Balance Sheet information as of December 31, 1997, is fairly stated
in all material respects in relation to the Consolidated Balance Sheet from
which it has been derived.
/s/ Price Waterhouse LLP
San Francisco, California
May 4, 1998
17
<PAGE> 18
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Footnote E, "Contingencies", in the Notes to Consolidated Financial
Statements
ITEM 2. CHANGES IN SECURITIES
On January 30, 1998 and February 27, 1998, the Company issued an aggregate
of 4,511,369 unregistered shares of Common Stock to United States Cellular
Investment Company, United States Cellular Corporation, Arizona Telephone
Company and Southwestern Telephone Company as consideration for the
acquisition of a 7.015% limited partner's interest in the Seattle SMSA
Limited Partnership; a 36.5% limited partner's interest in Colorado RSA
No. 3; a 19.4444% general partner's interest and a 1.8519% limited
partner's interest in Coconino, Arizona RSA Limited Partnership; a 33.34%
general partner's interest in Yuma, Arizona RSA Limited Partnership; and a
51% general partner's interest in La Paz Cellular of Arizona Limited
Partnership, and the underlying 8.33% general partner's interest and 25%
limited partner's interest in Yuma, Arizona RSA Limited Partnership. The
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibits identified below are incorporated herein by reference as exhibits
hereto.
Exhibit
Number Description
------ -----------
15.1 Letter of Price Waterhouse LLP Re: Unaudited Interim
Financial Information
27 Financial Data Schedule
(b) Reports on Form 8-K:
Date of Report: January 29, 1998
Item 5. Other Events and Item 7. Exhibits
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AIRTOUCH COMMUNICATIONS, INC.
By: /s/ Mohan S. Gyani
-------------------------
Mohan S. Gyani
Executive Vice President and
Chief Financial Officer
Date: May 12, 1998
19
<PAGE> 1
Exhibit 15.1
May 12, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that AirTouch Communications, Inc. has included our report dated
May 4, 1998 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Company's Report on Form 10-Q for the quarter ended
March 31, 1998 which is incorporated by reference in the Registration Statements
on Form S-8 (Nos. 33-57077, 33-57081, 33-57083, 33-64553, 333-10389, 333-17891,
333-36339, and 333-50541) and the Prospectus constituting part of the
Registration Statement on Form S-3 (No. 33-62787). We are also aware of our
responsibilities under the Securities Act of 1933.
Yours very truly,
/s/ PRICE WATERHOUSE LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 35,000
<SECURITIES> 0
<RECEIVABLES> 486,000
<ALLOWANCES> 41,000
<INVENTORY> 84,000
<CURRENT-ASSETS> 868,000
<PP&E> 4,299,000
<DEPRECIATION> 1,702,000
<TOTAL-ASSETS> 9,401,000
<CURRENT-LIABILITIES> 838,000
<BONDS> 1,488,000
0
1,041,000
<COMMON> 4,343,000
<OTHER-SE> 590,000
<TOTAL-LIABILITY-AND-EQUITY> 9,401,000
<SALES> 55,000
<TOTAL-REVENUES> 958,000
<CGS> 82,000
<TOTAL-COSTS> 724,000
<OTHER-EXPENSES> 10,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,000
<INCOME-PRETAX> 246,000
<INCOME-TAX> 79,000
<INCOME-CONTINUING> 167,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 153,000
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
