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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
COMMISSION FILE NUMBER 1-12342
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AIRTOUCH COMMUNICATIONS, INC.
A DELAWARE CORPORATION I.R.S. EMPLOYER NUMBER 94-3213132
ONE CALIFORNIA STREET
SAN FRANCISCO, CA 94111
(415) 658-2000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
COMMON STOCK, $.01 PAR VALUE, WITH NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS PACIFIC EXCHANGE
6.00% CLASS B MANDATORILY NEW YORK STOCK EXCHANGE
CONVERTIBLE PREFERRED STOCK,
SERIES 1996
4.25% CLASS C CONVERTIBLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, SERIES 1996
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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /
Based on the composite closing sales price on March 20, 1998, the aggregate
market value of all voting stock held by nonaffiliates was approximately
$25.7 billion. At March 20, 1998, 512,231,022 of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated Parts of this Form 10-K:
1997 Annual Report to Stockholders - Part II
1998 Proxy Statement - Part III
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TABLE OF CONTENTS
PART I
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ITEM 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 15
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . 16
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder Matters. . . . 18
ITEM 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . 18
ITEM 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . 18
ITEM 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . 19
PART III
ITEM 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . 20
ITEM 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . 20
ITEM 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . 20
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . 21
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Unless the context otherwise requires, references to "AirTouch" or the
"Company" include AirTouch Communications, Inc. and entities over which it has
or shares operational control.
When used in this Form 10-K, "cellular service" refers to wireless service
operating at the 800 MHz band in the United States and South Korea and at the
900 MHz band in Europe, and "broadband personal communications service" or
"PCS" refers to wireless service operating at the 1900 MHz band in the United
States and South Korea and at the 1800 MHz band in Europe. The Company
considers the functionality of both services to be similar despite the
different bands at which they operate.
This Form 10-K includes trademarks or service marks of the Company and of other
companies that are the property of their respective owners.
Proportionate customer data is obtained, for each system over which the Company
has or shares operational control, by multiplying (i) the aggregate number of
customers of such system by (ii) the Company's ownership interest in the
licensee operating such system. Proportionate customer data does not include
information with respect to the Company's cost-based investments or with
respect to certain equity-based investments that are not material to the
proportionate information presented.
The term "POPs" means the population of a licensed market (based on population
estimates for such market) multiplied by the Company's ownership interest in a
licensee operating in that market as of the date specified, and include
networks under construction and the markets of certain equity-based and
cost-based investments not included in proportionate operating results.
Private Securities Litigation Reform Act Safe Harbor Statement: When used in
this Report, the words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially. For a discussion of such risks, see
"Business-Investment Considerations." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
AirTouch Communications, Inc. is one of the world's leading wireless
telecommunications companies, with significant wireless interests in the United
States, Europe and Asia. The Company's worldwide cellular and personal
communications service ("PCS") interests represented 180 million POPs and 10.7
million proportionate customers at December 31, 1997. In the United States,
the Company had approximately 58 million proportionate cellular and PCS POPs
and 4.4 million proportionate customers as of the end of 1997. The Company
controls or shares control over cellular systems in ten of the 30 largest
cellular markets, including Los Angeles, San Francisco, San Diego, Detroit,
Atlanta, Cleveland, San Jose, Sacramento, Cincinnati and Kansas City, and
through PrimeCo Personal Communications, L.P. ("PrimeCo"), shares control over
11 PCS markets in over 20 major cities. Internationally, as of December 31,
1997, the Company had over 122 million cellular POPs and 3.1 million
proportionate customers, and held significant ownership interests, with board
representation and significant operating influence, in cellular systems
operating in Belgium, Germany, India (Madras and Madhya Pradesh), Italy, Japan,
Poland, Portugal, Romania, South Korea, Spain and Sweden. Based on industry
surveys, the Company is also among the largest providers of paging services in
the United States, with approximately 3.1 million units in service at December
31, 1997.
The Company's objective is to be the premier provider of wireless
telecommunications services worldwide while creating world class employee
satisfaction and outstanding return to stockholders. To achieve its objective,
the Company uses the scale and scope of its wireless operations to increase
marketing effectiveness and achieve operating cost savings and efficiencies;
pursues wireless licenses in new countries; selectively increases its ownership
interests in existing wireless markets; and pursues other value-creating
opportunities around the world. The Company believes that a shared set of
strong values, across all employees, is essential to the implementation of the
Company's strategy and to its success as an enterprise. Those values include:
the sharing of best practices, operating ethically and with integrity, and
relentlessly pursuing continuous improvement. The Company's current employee
goals are to deliver world class performance by: ranking first in customer
loyalty in every market, ranking in the top 10% of companies in employee
satisfaction, and achieving a "stretch" goal of an average annual growth in
proportionate operating cash flow of 25% or exceeding a $65 stock price by end
of year 2000. No assurance can be given that the Company will meet its
employee goals.
The Company believes that its focus on wireless offers the best opportunity for
value creation, however, in light of the continuing evolution of
telecommunications technology and customer requirements, the Company
continuously evaluates the possibility of expanding its operations into lines
of business beyond its historical base of high mobility wireless services where
such expansion would enhance or complement existing wireless services.
INVESTMENT CONSIDERATIONS
Competition. The sale of wireless services has become increasingly
competitive. In the U.S., the Company faces up to eight wireless competitors
in each of its cellular markets due to the introduction of PCS on frequencies
auctioned by the FCC in 1995 and 1996 and enhanced specialized mobile radio
("ESMR") services on existing ESMR frequencies. PCS, which is an entirely
digital service, is highly competitive with the Company's cellular service.
PCS providers first introduced their service in some of the Company's U.S.
markets in late 1996, and in the remainder of the Company's markets during
1997. In its PCS markets, the Company also faces competition from incumbent
cellular service providers. The Company currently offers digital cellular
service in all of its managed markets in the U.S. One ESMR operator is
currently offering digital ESMR service in all of the Company's U.S. managed
markets and is deploying a national ESMR system. The Telecommunications Act of
1996 removed certain restrictions on the ability of the Company's competitors
to offer as a single package a variety of services, such as wireless voice and
data, paging, long-distance, local landline and cable services, some of which
the Company does not currently provide. The Company also faces intense
competition in each of its paging markets.
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As the Company expands, an increasing number of customers for cellular service
in the U.S. come from the consumer segment. Increased penetration of this
segment has led to declining average revenue per customer, as consumers tend to
make calls during lower-rate, off-peak calling periods. More recently,
increased pricing pressures in the form of rate reductions and discounts
offered to new and existing customers as a result of increased competition in
the Company's U.S. markets have further contributed to lower revenue per
customer. The Company will continue to face price declines from competitors in
the U.S. in the near term which, along with declining rates of growth in
customers, could adversely affect revenues.
There is also significant competition in the Company's international markets.
Germany and Sweden currently have four licensees per market, and a third mobile
license is being introduced in each of Belgium, Poland, and Portugal in 1998.
Additional licenses are also expected to be awarded in Italy, Spain, and
Romania pursuant to governmental policy. South Korea has licensed a total of
five mobile operators and Japan a total of seven operators per market.
Technology. The operations of the Company and its ventures depend in part upon
the successful deployment of continuously evolving wireless communications
technologies. The Company uses technologies from a number of vendors and makes
significant capital expenditures in connection with the deployment of such
technologies. There can be no assurance that such technologies will be
developed according to anticipated schedules, that they will perform according
to expectations or that they will achieve commercial acceptance. The Company
may be required to make additional capital expenditures if vendors' performance
fails to meet Company requirements, if a technology's performance falls short
of expectations or if commercial acceptance is not achieved, which could also
result in a reduction in net income due to recognition of impairment of any
equipment or assets.
License Renewal. The Company's international and U.S. wireless licenses are
granted for specific periods of time. The most significant U.S. cellular and
paging licenses are granted for a period of ten years. The Company believes
that each of its expiring U.S. licenses will be renewed based upon its prior
experience with expired licenses and upon FCC rules establishing a presumption
in favor of licensees that have substantially complied with their regulatory
obligations during the license period. The terms of the licenses granted to
the Company's international ventures and conditions for license renewal vary
from country to country. In some countries, there is no specified mechanism
for license renewal, and accordingly it is not certain what criteria will be
used by the governments of those countries to determine whether the licenses
should be renewed. There can be no assurance that any U.S. or international
license will be renewed.
Future Funding Requirements. The Company's existing capital obligations, as
well as any additional obligations arising from the Company's pursuit of
acquisitions and other new opportunities, may require the Company to seek
additional sources of financing in the next few years. The Company may seek
such financing in the form of equity or debt. The Company's senior unsecured
long-term debt has been assigned a rating of BBB+ by Standard & Poor's Ratings
Group and a rating of Baa2 by Moody's Investors Service, Inc. and its
commercial paper has been assigned a rating of A-2 by Standard & Poor's and P-2
by Moody's, based in part upon each agency's respective analysis of the
expected future financial performance of the Company. These ratings may be
revised or withdrawn by the rating agency at any time, and there can be no
assurance that the Company will be able to maintain such ratings.
Losses from Startup Operations. In the past few years, the Company's consortia
were awarded digital cellular licenses in Madhya Pradesh, India and Romania,
and most recently named the winner of a license in Egypt, and the Company is
continuing to pursue selected opportunities in international markets. In March
1995, PrimeCo was awarded eleven 30 MHz licenses in the FCC's broadband PCS
auctions for a license cost of approximately $1.1 billion. The Company's
indirect interest in PrimeCo is currently 25%, but will increase to 50% upon
the closing of the U S WEST Transaction. As a Globalstar service provider, the
Company is responsible for constructing gateways in the U.S. and through
consortia in certain foreign countries. As a result of costs associated with
the foregoing system deployments, the Company's startup investments will incur
losses which could, at least in the near term, have a dilutive effect on the
Company's earnings. See "United States Cellular Operations-Joint Ventures-U S
WEST Transaction; PrimeCo Personal Communications."
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Dilution from U S WEST Transaction. On January 29, 1998, the Company and U S
WEST announced a definitive agreement to merge the U.S. cellular and PCS
interests of U S WEST Media Group (hereinafter "US WEST") into AirTouch. See
"United States Cellular Operations-Joint Ventures-U S WEST Transaction" for a
description of that transaction. The Company will experience earnings per
share dilution from the acquisition, primarily due to the amortization of
acquisition intangibles, incremental interest expense, preferred dividends and
common shares issued, which is expected to peak at approximately $0.40 per
share in the first full year following the transaction and to decline
thereafter.
Antitrust Proceedings. The Company believes that its cellular and paging
pricing and marketing practices were and are in compliance with antitrust laws.
However, the Company was and is a defendant in certain class action complaints
and complaints filed by individual agents with respect to its Los Angeles, San
Francisco and San Diego cellular operations which allege that the Company
conspired to fix retail and wholesale cellular prices. The Company has reached
settlements in each of the class action proceedings which in the aggregate will
not have a material adverse effect on the Company's financial condition or
results of operations. No assurance can be given however, that any disposition
of the remaining proceedings, if adverse to the Company, might not have a
material adverse effect on the Company's results of operations in the year of
such disposition.
Implications of Licensee Ownership Structure. The Company holds most of its
U.S. cellular properties and PCS properties through partnership interests, a
number of which are controlling interests. In addition, other than Europolitan
in Sweden and Telecel in Portugal, the Company's interests in international
wireless licenses are held through foreign entities in which the Company is a
significant, but not controlling, owner. Under the governing documents for
certain of these partnerships and corporations, certain key matters such as the
approval of business plans and decisions as to the timing and amount of cash
distributions require the consent of the Company's partners or may be approved
without the consent of the Company. Although the Company has not been
materially constrained by the nature of its wireless ownership interests from
pursuing its corporate objectives, no assurance can be given that it will not
experience difficulty in this regard in the future. The Company may enter into
similar arrangements as it participates in consortia formed to pursue
additional opportunities.
Exchange Rate Fluctuations. Foreign currency exchange rates may be material to
the Company's results of operations. The Company evaluates the risk of
significant exchange rate volatility and its ability to hedge against such
volatility as part of its decision whether to pursue an international
opportunity. A significant weakening against the dollar of the currency of a
country where the Company generates revenues or earnings may adversely affect
the Company's results, while any weakening of the dollar against such currency
could have an adverse effect if the Company is obligated to make significant
foreign currency denominated capital investments in such country. The Company
attempts to mitigate the effect of foreign currency fluctuations through the
use of foreign currency contracts and foreign currency denominated credit
arrangements. There can be no assurance that the Company will be successful in
its foreign currency hedging efforts.
Fraud. The cellular industry continues to be subject to fraudulent activity.
The Company is working to reduce the negative impacts of fraud in its U.S.
markets, through the deployment of new technologies and other measures
including Fraud Detection Profiler, RF Fingerprinting, Authentication, Roamer
Verification and precision roaming. The cost of fraud, including the
development and deployment of anti-fraud technologies, will have an impact on
the Company's operating results for the foreseeable future.
The Year 2000 Issue. Many of the Company's computerized systems are affected
by the year 2000 issue which refers to the inability of certain computer
systems to correctly process dates after December 31, 1999. The Company also
has numerous computerized interfaces with third parties and is vulnerable to
failure of third parties to adequately address their year 2000 issues. System
failures resulting from this issue could cause significant disruption to the
Company's operations, including the ability to provide certain wireless
services and correctly bill customers resulting in the potential for revenue
loss and increased costs. The Company is evaluating alternative solutions with
respect to its major systems affected by this issue. The Company currently
expects all of its major systems to be corrected by early 1999. Total costs
could be material to the Company's results of operations or financial position
in future periods. The Company has identified significant third party
computerized interfaces and will work with such parties to take any corrective
action during 1998 and 1999. The Company believes that liability
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for failures of wireless handsets and pagers as a result of the year 2000 issue
lies largely with the manufacturers. The Company could, however, experience a
loss of service revenues and other costs in the event of such product failures,
which it would likely seek to recover from the manufacturers. There can be no
assurance that the Company will meet its objectives with regard to its own or
third parties' systems.
UNITED STATES CELLULAR OPERATIONS
The Company is one of the largest providers of cellular services in the U.S.,
with interests in some of the most attractive cellular markets based upon total
population and demographic characteristics. The Company's U.S. cellular
interests represented 43 million POPs and 4.3 million proportionate customers
at December 31, 1997. The Company has or shares operational control over
cellular systems in Los Angeles, San Francisco, San Diego, Atlanta, Detroit,
Cleveland, San Jose, Sacramento, Cincinnati and Kansas City. These cities
represent ten of the 30 largest cellular markets in the U.S. The Company has
management control over the systems operating in Los Angeles, San Diego, the
Sacramento Valley, Atlanta and the Great Lakes market (Detroit, Cleveland,
Cincinnati, Columbus and other markets in Michigan and Ohio).
The following table sets forth the Company's U.S. cellular POPs by geographic
area at December 31, 1997.
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GEOGRAPHIC POPS(2)
REGION(1) (IN MILLIONS)
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Michigan and Ohio 16.4
Southern California 16.0
Georgia 3.7
San Francisco Bay Area 3.2
Sacramento Valley 1.9
Kansas/Missouri 1.5
Other United States interests .1
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United States cellular total 42.8
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(1) Does not indicate coverage of entire geographic area.
(2) Based on Paul Kagan Associates Inc. "1996 Cellular/PCS POPs Book"
population estimate.
MARKETING
The Company aggressively markets its cellular services in its managed markets
under the AirTouch Cellular name. Marketing is conducted through its own sales
force and arrangements with independent agents, as well as through newspaper,
television, radio advertising and via toll-free telephone numbers. In certain
markets, the Company's cellular service is sold through resellers who, pursuant
to FCC requirements, are allowed to purchase blocks of cellular telephone
numbers and to access cellular services at wholesale rates for resale to the
public. Agents are independent contractors who solicit customers for the
Company's cellular service and typically include specialized cellular stores,
automobile dealers, specialized electronics stores and department stores. The
Company generally pays its agents a commission for each customer who uses the
Company's service for a specified period and makes residual or account
management payments to the agent based on the customer's ongoing service
charges. The Company has been taking steps to align sales costs with revenues
by emphasizing residual or account management payments to agents over upfront
commissions and using Company-controlled distribution channels such as direct
sales and toll-free telephone numbers. The Company has increasingly targeted
the consumer market with special promotions and pricing plans and by expanding
into consumer electronics stores and other mass-market distribution channels.
In May 1996, U S WEST's cellular business assumed the AirTouch Cellular brand
name throughout most of its 12-state service area. U S WEST cellular properties
cover 20 million people including the major cellular markets of Seattle,
Portland, Denver, Phoenix, Minneapolis/St. Paul and Salt Lake City. The
AirTouch Cellular brand now covers most states west of the Mississippi. See
"--Joint Ventures; U S WEST Transaction."
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The Company's systems in the San Francisco Bay Area, Kansas and Missouri market
cellular service under the CellularOne(R) brand name.
SERVICES
The Company maintains a customer service department in each of its managed
cellular markets for billing and service inquiries. In most markets the
Company offers custom calling services such as voice mail, call forwarding,
call waiting, three way calling, no-answer and busy transfer. The Company also
offers a variety of other enhanced features, including display messaging, which
allows a cellular phone to receive and store voice mail messages, short
alphanumeric messages and pages even if the handset is in use or switched off,
and enhanced directory assistance, which enables callers to be connected to the
party whose number was requested without hanging up and redialing. In many
markets, the Company has introduced a service called AirTouch Prepaid
Cellular(TM), which features a pre-paid cellular calling card, no monthly
service charge, no contract commitment, and no billings. The Company provides
digital service under the name Powerband(SM) in all of its managed markets.
Powerband(SM) is digital cellular service based on the Code Division Multiple
Access ("CDMA") technology and offers customers a variety of enhanced features.
The Company charges its customers for service activation, monthly access,
per-minute airtime and custom calling features, and generally offers a variety
of pricing options, most of which combine a fixed monthly access fee and
per-minute charges. The Company pays the local telephone service company
directly for interconnection of cellular networks with the wireline telephone
network. In 1996 and early 1997, the Company executed new interconnection
agreements with the major local carriers in its managed markets that have
resulted in significant savings on interconnect costs. Customers are billed
directly by their selected long-distance carrier or by the Company, which
provides the billing service for a fee to the long-distance carrier. The
Company offers long-distance service to its cellular customers in its managed
markets as a reseller.
TECHNOLOGY
The Company offers both analog and digital cellular service in all of its
managed markets. The Company believes that digital cellular technology offers
many advantages over analog technology, including substantially increased
capacity, greater call privacy, enhanced services, lower operating costs,
reduced susceptibility to fraud and the opportunity to provide improved data
transmissions. However, the Company expects that analog and digital
technologies will continue to coexist for the foreseeable future due to
continued demand for analog service and the fact that analog networks provide
the only common roaming platform currently available throughout the U.S.
Further, digital handsets currently cost more than analog handsets. Some
manufacturers currently offer dual-mode cellular telephones capable of sending
and receiving both analog and certain digital transmissions, thereby
facilitating roaming by digital users. However, no manufacturers currently
offer dual-mode cellular telephones capable of receiving transmissions from
multiple digital technologies.
The Company has selected CDMA as its digital technology in the U.S. The
Company was an early proponent of CDMA research and worked with QUALCOMM and
others to develop this technology. CDMA commercial service is currently
available in all of the Company's managed markets. PrimeCo has deployed CDMA
technology, and the Company's PrimeCo partners, Bell Atlantic and U S WEST,
have also chosen CDMA as their digital cellular standard.
CMT Partners, the Company's equally controlled partnership with AT&T,
introduced digital cellular service based on Time Division Multiple Access
("TDMA") technology in the San Francisco Bay Area in October 1993.
COMPETITION
The cellular services industry in the U.S. is highly competitive. Cellular
systems compete principally on the basis of network quality, customer service,
price and coverage area. The Company believes that its technological expertise,
emphasis on quality and customer service, large coverage areas, and development
of new products and
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services make it a strong competitor. For further discussion of competition,
see "Business-Investment Considerations-Competition."
JOINT VENTURES
CMT PARTNERS. In September 1993, the Company and AT&T Wireless (at the time,
McCaw) formed CMT Partners, an equally controlled partnership that holds
interests in cellular systems operating in San Francisco, San Jose, Dallas/Ft.
Worth, Kansas City and certain adjacent suburban areas. In a related
transaction, the Company purchased McCaw's Wichita and Topeka systems. CMT
Partners is governed by a four-person committee consisting of two members from
each company. CMT Partners has a fifteen year term, ending in 2008, which may
be extended by either partner or shortened under certain circumstances. Upon
dissolution of CMT Partners its assets will be sold unless either the Company or
AT&T Wireless elects to have the assets distributed in kind to the partners.
U S WEST TRANSACTION. On January 29, 1998, the Company entered into an
agreement to acquire the U.S. cellular business and 25% PrimeCo interest (the
"Acquired Businesses") of U S WEST Media Group ("Media"), representing
approximately 2.4 million cellular customers in 12 states and approximately
92,000 PrimeCo customers, as of December 31, 1997. The acquisition is
structured as a tax-free merger in which the subsidiaries of Media owning the
Acquired Businesses will merge into the Company, which will be the surviving
corporation. In the merger, the Company will issue shares of common stock
having a value (the "Common Value") of between $2.685 billion and $2.735
billion (depending on the volume weighted average common stock trading price
over the thirty trading days ending on the fifth trading day prior to closing
(the "Determination Price")) and shares of Class D Cumulative Preferred Stock
and Class E Cumulative Preferred Stock having an aggregate value of
approximately $1.6 billion and will assume approximately $1.4 billion of debt
associated with the Acquired Businesses. The number of shares of common stock
to be issued will be determined by dividing the Common Value by the
Determination Price, subject to a minimum price of $40 and a maximum price of
$45. Accordingly, the Company will issue between approximately 60.8 million
and 67.1 million shares of common stock. In the event that any of Media's
cellular interests are not transferred to the Company, the amount of stock to
be issued and the amount of debt to be assumed will be reduced appropriately.
The Company's earnings per share dilution from the acquisition, primarily due
to the amortization of acquisition intangibles, incremental interest expense,
preferred dividends and common shares issued, is expected to peak at
approximately $0.40 per share in the first full year following the transaction
and to 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. Closing of the acquisition, which is
subject to Hart-Scott-Rodino clearance and certain other approvals, is expected
by mid-1998. If consummated, the transaction will replace the parties'
multi-phased joint venture announced in 1994. If the transaction is not
consummated, the parties will revert to the prior joint venture transaction
described in "Business--United States Cellular Operations--Joint Ventures--U S
WEST Transaction" of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
PRIMECO PERSONAL COMMUNICATIONS. In October 1994, the PCS partnership between
the Company and U S WEST, formed in July 1994 as part of the original joint
venture transaction (the "PCS Partnership"), joined with Bell Atlantic, (and
Nynex, which has since merged with Bell Atlantic) to form a partnership to
jointly pursue PCS opportunities, called PrimeCo Personal Communications, L.P.
PrimeCo is owned equally by the PCS Partnership and Bell Atlantic and is
governed by a board composed of three members from each of the PCS Partnership
and Bell Atlantic. In March 1995, PrimeCo was awarded eleven 30 MHz PCS
licenses now covering approximately 61 million POPs in the Chicago, Dallas,
Tampa, Houston, Miami, New Orleans, Milwaukee, Richmond, San Antonio,
Jacksonville and Honolulu markets with bids of approximately $1.1 billion. The
acquired markets complement the existing U.S. cellular franchises of the
partners. PrimeCo began providing service in November 1996 and as of December
31, 1997, PrimeCo had over 380,000 customers and provided service in more than
20 major cities. The Company expects to continue to make significant capital
contributions to PrimeCo and to experience substantial operating losses
associated with the start-up phase of the PCS business, which is expected to
last several years. Currently, the Company has a 25% indirect interest in
PrimeCo, through the PCS Partnership with U S WEST. The Company's interest in
PrimeCo, and accordingly its share of capital contributions and losses, will
increase to 50% upon the consummation of the U S WEST Transaction. See
"-- U.S. West Transaction."
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Either the PCS Partnership or Bell Atlantic may cause PrimeCo to be dissolved
on October 20, 2001, and any PCS properties owned by it are to be allocated
between them according to agreed upon criteria. In addition, Bell Atlantic is
subject to certain standstill restrictions with respect to the Company through
October 20, 2001, unless such restrictions are earlier terminated or suspended.
TOMCOM. Concurrent with the formation of PrimeCo, AirTouch, U S WEST and Bell
Atlantic (and Nynex) formed another partnership called TOMCOM, L.P. TOMCOM was
formed to develop technical and service standards for the partners' wireless
properties, pursue national marketing strategies, develop information
technology, create a national distribution strategy and implement joint
purchasing arrangements. TOMCOM is governed by a board composed of two members
from AirTouch, one from U S WEST, and three members from Bell Atlantic.
Unlike the Company's transaction with U S WEST, the TOMCOM agreement with Bell
Atlantic does not provide for a merger of cellular properties.
9
<PAGE> 10
INTERNATIONAL CELLULAR OPERATIONS
The Company's international cellular interests represented 122 million POPs and
3.1 million proportionate customers at December 31, 1997.
OVERVIEW OF INTERNATIONAL CELLULAR VENTURES
(ALL INFORMATION AS OF 12/31/97 UNLESS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
TOTAL
LICENSEES
MARKET SERVICE OR
POPULATION INITIATION TOTAL VENTURE AIRTOUCH OPERATORS
COUNTRY/VENTURE (IN MILLIONS)(1) DATE CUSTOMERS INTEREST(2) IN MARKET
<S> <C> <C> <C> <C> <C>
Belgium/Belgacom Mobile 10.1 1/94(3) 690,000 25.0% 2
Germany/Mannesmann Mobilfunk 81.9 6/92 3,542,000 34.8% 4
GMBH
India
Madhya Pradesh/CCIL 72.7 2/97 5,000 49.0% 2
Madras/RPG Cellcom Limited 6.7 9/95 19,000 20.0% 2
Italy/Omnitel-Pronto Italia S.p.A. 57.3 10/95 2,460,000 15.5%(4) 2
Japan
Tokyo Digital Phone Company Ltd. 42.2 4/94 * 15.0% 7
Kansai Digital Phone Company Ltd. 20.6 5/94 * 13.0% 7
Central Japan Digital Phone 14.4 7/94 * 13.0% 7
---------
Company Ltd. 2,265,000
Digital TU-KA(5) 46.3 1/96-2/97 1,596,000 4.5% 7
Poland/Polkomtel S.A. 38.5 10/96 300,000 19.3% 3
Portugal/Telecel S.A. 9.9 10/92 745,000 50.9% 3
Romania/MobiFon S.A. 23.2 4/97 >110,000 10%(6) 3
Sweden/Europolitan Holdings AB 8.8 9/92(3) 424,000 51.1% 4
South Korea/Shinsegi Telecomm Ltd. 45.6 4/96 1,124,000 10.7% 5
Spain/Airtel Movil S.A. 39.2 10/95 1,150,000 21.7% 2
</TABLE>
* Not disclosed
(1) Based on Paul Kagan Associates Inc. "1996 Cellular/PCS POPs Book"
population estimates.
(2) Exclusive of any options, warrants or other rights to increase
ownership.
(3) The Company acquired its interest after commercial launch. In Belgium,
reflects launch of digital system only; analog system was launched in
January 1987.
(4) Indirect ownership interest through Pronto-Italia S.p.A. The Company
holds an option to acquire an additional 6.2% indirect interest in
Omnitel-Pronto Italia.
(5) Includes Kyushu, Chugoku, Tohoku, Hokkaido, Hokuriku and Shikoku
regions. Customers will not be disclosed in proportionate customers
because the Company accounts for these investments on a cost basis.
(6) The Company holds an option to purchase an additional 10%.
10
<PAGE> 11
OWNERSHIP RIGHTS AND OBLIGATIONS
The structure of the Company's international cellular interests typically
reflects government preferences or requirements that local owners hold at least
a majority interest in their telecommunications licenses. In structuring its
international investments, the Company attempts to obtain operating influence
through board representation, the right to appoint certain key members of
management and consent rights with respect to significant matters, including
amounts of capital contributions, incurrence of recourse debt and fundamental
corporate transactions. In addition, the Company tries to assure its ability
to maintain a position of influence in the company by obtaining rights of first
refusal on future sales by other partners and issuances of equity by the
venture. The particular governance rights of the Company vary from venture to
venture, and are often dependent upon the size of the Company's investment
relative to other investors. The Company currently has the majority interest
in its Portuguese and Swedish ventures, the largest ownership interest in its
Spanish venture, the second largest ownership interest in three of its Japanese
ventures and the third largest ownership interest in its Korean and Italian
ventures. In Germany, the Company is the only shareholder in addition to the
majority shareholder, Mannesmann A.G., and in Belgium, the Company is the sole
partner in a joint venture with a telecommunications company a majority of
which is state owned.
COMPETITION
While competition varies from market to market, in general competition is
increasing in every international market in which the Company's ventures
operate. See "Business-Investment Considerations-Competition."
TECHNOLOGY
LEAD TECHNOLOGICAL PARTNER. The Company usually plays the lead role in the
design, construction, operation and maintenance of the cellular networks for
the ventures in which it has ownership interests. For example, the Company has
taken the technical lead in the development of the digital systems in Belgium,
Germany, India (Madras and Madhya Pradesh), Italy, Poland, Portugal, Romania,
South Korea and Spain, and was integrally involved in the design and
construction of three of the systems in Japan. In most of those markets, the
Company has appointed the chief technical officer, who is responsible for
network construction and technical operations.
GSM. The Company's cellular systems in Europe and India conform to the GSM
digital cellular standard. Developed by a standards body within the European
Telecommunications Standards Institute with substantial input from the
Company's engineers, the GSM standard is a wide-band TDMA standard
substantially different from U.S. TDMA technology and has been adopted in more
than 110 countries worldwide, including all those in the EU and others such as
Australia, New Zealand, Singapore, Hong Kong and South Africa. The Company's
German venture, Mannesmann Mobilfunk GmbH, was the first GSM system to offer
commercial service. One of the Company's employees currently holds the position
of Chairman of the GSM MOU Association, an organization with 256 members
representing 227 GSM networks that oversees GSM technical standards and promotes
the use and evolution of GSM throughout the world.
JAPAN DIGITAL CELLULAR STANDARD. The technology utilized by the Company's
Japanese ventures represents Japan's entry into second-generation cellular
communications. The Japan Digital Cellular standard uses narrowband Japanese
TDMA technology and allows enhanced roaming potential and expanded
supplementary services potential. To provide service to customers away from
their home regions, all of the Company's Japanese ventures are implementing
automatic roaming throughout their combined coverage areas. Customers of any
of the companies will be able to initiate and receive calls anywhere within the
combined coverage area.
KOREAN CDMA. The Company's cellular venture in South Korea employs CDMA
technology, developed by Samsung, Lucent and Hyundai under a license from
QUALCOMM.
11
<PAGE> 12
NEW OPPORTUNITIES
The Company constantly evaluates opportunities to increase its ownership in its
existing international ventures, especially where contractual rights of first
refusal provide the Company with favorable opportunities. The Company also
plans to continue pursuing selected opportunities to acquire new interests in
wireless systems throughout the world. The Company believes that its proven
technical, operating and marketing expertise make it a highly desired
participant in consortia formed to pursue new international opportunities and
that such expertise has been a significant factor in the success of the
subsequent license applications by its consortia.
The Company measures each international investment against criteria such as
demographic factors, the degree of economic, political and regulatory
stability, the quality of local partners and the degree to which the Company
would control or meaningfully participate in management. Until recently, the
Company's primary focus in pursuing licenses had been Europe and Asia; however,
the Company has increasingly been considering opportunities in other parts of
the world. The Company is currently pursuing a license in Switzerland, and
expects to pursue other opportunities in the future. The pursuit of new
international wireless telecommunications opportunities is expected to remain
highly competitive and may introduce a greater degree of political and currency
risk as new opportunities are concentrated in developing economies. The trend
toward awarding new licenses on the basis of an auction rather than on
merit-based selection criteria may limit the Company's ability to win new
licenses, particularly if competing bidders place a higher value on the license
or have less stringent return requirements than the Company.
PAGING
The Company offers local, regional, statewide, and nationwide paging services
under the AirTouch Paging brand name in over 170 markets in 32 states and the
District of Columbia. As of December 31, 1997, the Company had 3.1 million
paging units in service. Based upon industry surveys, the Company is among the
largest providers of paging services in the U.S. The Company's growth strategy
is to provide new services, including narrowband PCS, to provide superior
customer service, to refine its distribution channels, and to expand into new
geographic markets through start-ups or acquisitions.
SERVICES AND MARKETING
The Company currently offers numeric display, alphanumeric, tone-only, tone and
voice paging and advanced narrowband PCS services, such as acknowledgment and
two-way paging. The Company offers, under the name AirTouch America(R),
nationwide one-way coverage on its own nationwide frequencies and as a reseller
of other carrier's nationwide services. The Company offers several enhanced
services, including voice mail, Internet paging origination, and news
information services such as ESPN.To.Go. In 1997, the Company also started to
sell cellular phones and services through its paging companies as an agent for
its cellular markets.
The Company's paging revenues consist primarily of monthly charges for paging
service, enhanced services and equipment rental. The Company utilizes a
decentralized marketing strategy that is tailored to each market to promote and
sell its equipment and services. In all of its markets, to sell its paging
services the Company primarily relies on its direct and retail sales channels
and is deemphasizing its reseller sales channel.
In 1994, the Company acquired one nationwide 50/12.5 KHz narrowband PCS license
and three regional 50/12.5 KHz licenses covering the Northeast, Central and
Western regions of the U.S. Narrowband PCS may include acknowledgment and
two-way paging, data messaging, wireless electronic mail delivery, wireless
facsimile messages and voice paging. The Company is currently evaluating
different technology platforms from different suppliers to provide the
infrastructure and customer equipment for its narrowband PCS services. The
Company expects to conduct trials of its own narrowband PCS systems in certain
markets in 1998. The Company is already reselling certain narrowband PCS
services, such as acknowledgment and two-way paging, offered by another
narrowband PCS licensee to meet customer needs and to test market acceptance of
the services. Under its narrowband PCS licenses the Company is required to
construct systems serving 37.5% of the population of the license area within 5
years of the initial license grant date and 75% of the population of the license
area within 10 years.
12
<PAGE> 13
COMPETITION
The Company's paging operations face intense competition from other paging
carriers and other wireless services, such as broadband PCS and digital
cellular. Paging companies compete primarily on the basis of customer service,
geographic coverage, system reliability, and price. Long distance carriers,
broadband PCS, and cellular carriers have also entered the market either as
resellers or as carriers providing bundled two-way wireless voice services and
messaging on their own networks. The Company believes that its extensive
experience in the paging business and emphasis on customer service and cost
control make it an effective paging competitor. Price competition is expected
to intensify as the growth of the industry slows, but the Company in 1997 was
able to selectively raise prices in certain markets.
INTERNATIONAL
Through Telecel, the Company owns a 50.9% interest in Telechamada-Servicio de
Chamada de Pessoas, S.A., a Portuguese paging company. The Company also holds
a 17.5% indirect interest in Sistelcom-Telemensaje, S.A., a Spanish paging
company. The Company also owns a 48.5% interest in Northstar Paging Holdings
Ltd. which holds, through its wholly owned subsidiary Northstar Paging Ltd.,
two nationwide one-way paging channels in Canada on the same frequencies as the
Company holds in the U.S. The Company also owns a wholly owned subsidiary in
Canada, AirTouch Paging Canada Ltd., which resells the paging services of
Northstar Paging Ltd.
OTHER SERVICES
As the Company continuously evaluates opportunities that would enhance or
complement existing wireless services, some areas of possible expansion could
include: wireless local loop (the construction and operation of dedicated
wireless networks designed to compete directly with or substitute for wireline
networks); international long-distance service for the Company's wireless
subscribers; and international wireline long-distance services that complement
the Company's wireless properties. Any decision by the Company to enter any of
these lines of business will depend on the Company's evaluation of its ability
to create value by employing the assets or expertise of its wireless
operations, including networks and customer bases, as well as the standalone
attractiveness of the opportunity.
ARCOR. In March 1997, the Company, through a consortim, acquired a 2.25%
indirect interest in Mannesmann Arcor K.G. ("Arcor"), Germany's second largest
wireline telecommunications company. The consortium is led by Mannesmann A.G.
(the "Consortium") and has a 49.8% interest in Arcor. Deutsche Bahn, Germany's
railway company, holds the other 50.2% of Arcor. The Company has an option to
increase its 4.5% interest in the Consortium to 9% by 2000 and the Consortium
has an option to increase its interest in Arcor to 74.9% by 1999. The company
and Mannesmann A.G. currently jointly own Mannesmann Mobilfunk GmbH ("MMO"),
Germany's leading cellular operator. MMO plans to resell Arcor long distance
service beginning in 1998, and Arcor has plans to resell MMO's cellular
service.
GLOBALSTAR. The Company holds a 5.7% interest in Globalstar, L.P.
("Globalstar"), a limited partnership led by Loral Space & Communications
Corporation Ltd. ("Loral") and QUALCOMM that will construct and operate a 48
satellite LEO constellation utilizing CDMA technology to offer wireless
communications services in virtually every populated area of the world where
Globalstar service is authorized by the local telecommunication regulatory
authorities. The first four satellites were successfully launched into space
in February 1998. Initial service is expected to begin with 44 satellites in
the first quarter of 1999 with the full constellation of 48 satellites and full
commercial service expected to be available in the latter part of the year. As
one of Globalstar's founding service providers, the Company received exclusive
service provider rights and responsibility to seek licenses, operate gateways,
and distribute services in the U.S., the Caribbean and eastern Asia (Indonesia,
Japan, Malaysia). In addition, the Company has entered into agreements with
Loral to provide Globalstar service in Canada and Mexico. Joint ventures with
local partners have been established in both Mexico (Telefonica Autrey, S.A. de
C.V.) and Canada (Canadian Satellite Communications, Inc.) to assist in the
development of the Globalstar service in these countries.
INTERNATIONAL LONG DISTANCE. The Company presently holds a 10% interest in
International Digital Communications, Inc. ("IDC"). IDC provides long-distance
telephone service between Japan and 178 other
13
<PAGE> 14
countries, including the United States, to business and residential customers.
IDC also offers private leased circuit services between Japan and 57 other
countries. In 1991, IDC began offering service over a 5,200 mile undersea
fiber optic cable, the first such cable to connect Japan directly with the U.S.
mainland.
EMPLOYEES
At December 31, 1997, the Company and its wholly owned subsidiaries had
approximately 8,800 employees. None of the Company's employees are represented
by a labor organization, although employees of certain international
subsidiaries and joint ventures are represented by labor or trade
organizations. Management considers its relations with the Company's employees
to be good.
REGULATION
UNITED STATES
General. The Company's U.S. cellular, paging and PCS licenses are issued and
regulated by the FCC. In addition, the Company's U.S. wireless operations are
subject to public utility regulation in the states in which service is provided
and to local regulations. States are preempted from regulating cellular and
paging rates and market entry but may regulate certain other terms and
conditions of service. The Company does not anticipate that state regulation
will interfere with efficient operation of its wireless businesses. The
location and construction of wireless service facilities are also often subject
to state or local zoning, land use and other local regulation and fees.
Telecommunications Act of 1996 and FCC Implementation. This Act, which
fundamentally changed the rules and regulations under which all U.S. providers
of telecommunications services operate, did not impose rate regulation on
wireless operators. Among other things, the Act modified certain requirements
for interconnection between local telephone companies and commercial mobile
radio service carriers and established requirements for wireline number
portability. The Company executed new cellular interconnection agreements with
the major local carriers in its managed markets that resulted in substantial
savings on the Company's interconnect costs in 1997. The FCC extended number
portability requirements to wireless carriers following the passage of the Act.
Number portability is the ability for customers to retain telephone numbers if
they change landline or wireless carriers. FCC rules require carriers, such as
the Company, to provide certain number portability services by December 31,
1998, and complete local number portability services by June 30, 1999. The
Company and certain wireless industry groups have petitioned the FCC for delay
in the June 30, 1999, implementation date.
Paging Market Area Licensing. In February 1997, the FCC issued an order
significantly altering the manner in which paging licenses will be offered in
future, from the "site" or transmitter by transmitter licenses previously
awarded, to "market area" licenses which will be auctioned beginning in late
1998. Previously awarded "site" licenses are not affected.
INTERNATIONAL
The Company's international cellular and paging operations provide services
pursuant to the terms of licenses granted by the telecommunications agency or
similar supervisory authority in the various countries. Such agencies
typically also promulgate and enforce regulations regarding the construction
and operation of network equipment. Other regulations commonly encountered in
international markets include legal restrictions on the percentage ownership of
telecommunications licensees by foreign entities such as the Company, and
transfer restrictions or governmental approval requirements regarding changes
in the ownership of such licensees.
ITEM 2. PROPERTIES.
For each market served by the Company's cellular operations, the Company or its
venture maintains at least one sales or administrative office and many
transmitter and antenna sites. Some of the facilities are leased and some are
owned. The Company also maintains both owned and leased sales and
administrative facilities for its paging
14
<PAGE> 15
services. The Company believes that its facilities are suitable for its
current business and that additional facilities are expected to be available to
satisfy its foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to various 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 results of operations or financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1997.
15
<PAGE> 16
EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information concerning the persons who serve as
executive officers of the Company. The executive officers serve at the
pleasure of the Board of Directors and are subject to removal at any time.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
---- --- -------------------------
<S> <C> <C>
Sam Ginn 60 Chairman of the Board and Chief Executive Officer
Arun Sarin 43 President and Chief Operating Officer
Mohan S. Gyani 46 Executive Vice President and Chief Financial Officer
Margaret G. Gill 58 Senior Vice President, Legal, External Affairs and Secretary
Brian R. Jones 47 Senior Vice President
Michael Miron 42 Vice President, Corporate Strategy and Development
F. Craig Farrill 45 Vice President, Strategic Technology
John C. Riding* 59 Vice President, Human Resources and Corporate Services
</TABLE>
*Mr. Riding will retire from the Company effective June 1, 1998.
Mr. Ginn has been Chairman of the Board and Chief Executive Officer of the
Company since December 1993. He was Chairman of the Board, President and Chief
Executive Officer of Pacific Telesis Group from 1988 to April 1994 and became a
director of Pacific Telesis Group in 1983. He was Chairman of the Board of
Pacific Bell from 1988 to April 1994. Mr. Ginn is also a director of Chevron
Corporation, Safeway Inc., Transamerica Corporation, and Hewlett-Packard
Company.
Mr. Sarin became President and Chief Operating Officer in February 1997. He
became a director of the Company in July 1995 and was Vice Chairman of the
Board from July 1995 through January 1997. He and was President and Chief
Executive Officer of AirTouch International from May 1995 through January 1997.
He was Senior Vice President, Corporate Strategy/Development and International
Operations until August 1995, and was also responsible for Human Resources
through 1994. He was Vice President, Organization Design of Pacific Telesis
Group from March 1993 to April 1994.
Mr. Gyani became Executive Vice President and Chief Financial Officer of the
Company in September 1995. From November 1993 until that time he was Vice
President, Finance and Treasurer of the Company. He was Vice President and
Treasurer of Pacific Telesis Group from March 1993 to November 1993.
Mrs. Gill became Senior Vice President, Legal, External Affairs and Secretary
of the Company in January 1994. Prior to joining the Company, she was a
partner in the law firm of Pillsbury Madison & Sutro and was the head of the
firm's Corporate and Securities Group. Mrs. Gill is a director of CNF
Transportation Inc.
Mr. Jones will become Senior Vice President, Human Resources and Corporate
Strategy in April 1998. He was named Senior Vice President, Competitive
Readiness in June 1997 and from February 1997 until June he was President,
AirTouch Cellular. From March 1992 until February 1997 he was Executive Vice
President of AirTouch Cellular and General Manager of the Los Angeles market.
From 1990 to 1992 he was President of the Company's subsidiary operating in
Michigan.
Mr. Miron has been Vice President, Corporate Strategy and Development since
April 1996. Prior to joining the Company, Mr. Miron was Managing Director,
Strategic Planning and Analysis at Salomon Brothers Inc.
16
<PAGE> 17
Mr. Farrill became Vice President, Strategic Technology of the Company in June
1996. From June 1991 until that time he served as Vice President of
Technology, Planning and Development of the Company.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange ("NYSE")
and the Pacific Exchange. Below are the high and low sales prices of the
Common Stock as reported on the NYSE for the periods shown.
Stock Trading -- Common
<TABLE>
<CAPTION>
1996 High Low
--------------------------------------------------------- ---- ---
<S> <C> <C>
First Quarter 33-5/8 25-5/8
Second Quarter 33-1/8 27-5/8
Third Quarter 29-5/8 25
Fourth Quarter 28-3/8 24-7/8
1997 High Low
--------------------------------------------------------- ---- ---
First Quarter 29-1/2 22-7/8
Second Quarter 29-1/4 22
Third Quarter 38-1/8 27
Fourth Quarter 42 33
</TABLE>
The number of holders of record of the Company's Common Stock as of March
20, 1998 was 545,649.
The Company currently intends to retain future earnings for the development of
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company's future dividend policy will be
determined by its Board of Directors on the basis of various factors, including
the Company's results of operation, financial condition, capital requirements
and investment opportunities.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in the Company's 1997 Annual
Report to Stockholders on pages 12 through 15, which portions are
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this Item is set forth in the Company's 1997 Annual
Report to Stockholders on pages 16 through 27, which portions are
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth in the Company's 1997 Annual
Report to Stockholders on pages 24 through 25, which portions are
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in the Company's 1997 Annual
Report to Stockholders on pages 28 through 55, which portions are
incorporated herein by reference, and in Part IV of this Form 10-K.
18
<PAGE> 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disagreements with accountants on any accounting or financial disclosure
occurred during the Company's two most recent fiscal years or any subsequent
interim period.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is set forth under "Executive Officers of
the Registrant" at the end of Part I of this report and under the headings
"Nominees for Election", "Directors Up for Election in 1999," "Directors Up for
Election in 2000" on pages 1 through 3 and "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 18 in the Company's 1998 Proxy Statement, which
sections are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth under the headings "Director
Compensation" on pages 13 and 14 and "Executive Compensation" on page 6 and
"Employment Contracts and Termination of Employment or Change-in-Control
Arrangements" on pages 9 and 10 in the Company's 1998 Proxy Statement, which
sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth under the headings "Security
Ownership of Certain Beneficial Owners" on page 17 and "Security Ownership of
Management" on pages 4 and 5 in the Company's 1998 Proxy Statement, which
sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the heading "Certain
Relationships and Related Transactions" on pages 14 and 15 in the Company's
1998 Proxy Statement, which section is incorporated herein by reference.
20
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements:
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
The financial statements required by this Item are set forth
in the Company's 1997 Annual Report to Stockholders on pages
28 through 55, which portions are incorporated herein by
reference.
CMT PARTNERS
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income and Changes in Partners'
Equity - For the years ended December 31, 1997, 1996,
and 1995
Consolidated Statements of Cash Flows - For the years ended
December 31, 1997, 1996, and 1995
Notes to Financial Statements
Financial Statement Schedule
Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts and Reserves
Report of Independent Public Accountants (Kansas Combined
Cellular)
MANNESMANN MOBILFUNK GMBH
Independent Auditors' Report
Balance Sheets - December 31, 1997 and 1996
Statements of Income - Years ended December 31, 1997, 1996
and 1995
Statements of Capital Subscribers' Equity - Years ended
December 31, 1997, 1996 and 1995
Statements of Cash Flows - Years ended December 31, 1997, 1996
and 1995
Notes to Financial Statements
NEW PAR
The financial statements required by this Item are
incorporated herein by reference to the Company's Annual
Report on Form 10- K for the period ended December 31, 1995,
pages S-34 to S-53, File No. 1-12342.
CELLULAR COMMUNICATIONS, INC.
The financial statements required by this Item are
incorporated herein by reference to the Cellular
Communications, Inc. Annual Report on Form 10-K for the
period ended December 31, 1995, Item 8 and Item 14(a) and (d),
File No. 1-10789.
21
<PAGE> 22
2. Financial Statement Schedules:
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants (Price Waterhouse LLP)
Schedule II -- Valuation and Qualifying Accounts and Reserves
Schedules other than those listed above are omitted because
they are either not required or not applicable, or the
required information is presented in the Consolidated
Financial Statements or in the other financial statements
listed under Item 14(a)(1) above.
3. Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated by reference as exhibits hereto.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Merger Among US WEST Media Group,
Inc., US WEST NewVector Group, Inc. and the Company dated as
of January 29, 1998 (Exhibit 2.1 to the Company's Current
Report on Form 8-K - Date of Report: January 29, 1998, File
No. 1- 12342)
3.1 Certificate of Incorporation of the Company, as filed with
the Secretary of State of the State of Delaware on September
19, 1994 (Exhibit 3.1 to the Company's Current Report on
Form 8-K - Date of Report: December 15, 1994, File No.
1-12342)
3.2 Designation, Preferences and Rights of Series A
Participating Preferred Stock of the Company, as filed with
the Secretary of State of the State of Delaware on December
15, 1994 (Exhibit 3.2 to the Company's Form 8-B, File No.
1-12342, filed January 27, 1995)
3.3 Amended By-laws of the Company as of June 13, 1996 (Exhibit
3 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996, File No. 1-12342)
3.4 Certificate of Designation, Preferences and Rights of Class
B Preferred Stock, Series 1996 (Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12342)
3.5 Certificate of Designation, Preferences and Rights of Class
C Preferred Stock, Series 1996 (Exhibit 4.4 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 1-12342)
4.1 Form of Common Stock certificate (Exhibit 4.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 1-12342)
4.2 Rights Agreement between the Company and The Bank of New
York, Rights Agent, dated as of September 19, 1994 (Exhibit
4 to the Company's Current Report on Form 8-K - Date of
Report: December 15, 1994, File No. 1-12342)
4.3 Amendment No. 1 to Rights Agreement between the Company and
The Bank of New York, Rights Agent, dated as of January 29,
1998
4.4 Indenture dated as of July 16, 1996 between the Company and
The First National Bank of Chicago, as trustee (Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996, File No. 1-12342)
4.5 First Supplemental Indenture dated as of July 16, 1996
between the Company and The First National Bank of Chicago,
as trustee (Exhibit 4.1 to the Company's Current Report on
Form 8-K, Date of Report: July 3, 1996, File No. 1-12342)
4.6 Second Supplemental Indenture dated as of July 16, 1996
between the Company and The First National Bank of Chicago,
as trustee (Exhibit 4.1 to the Company's Current Report on
Form 8-K, Date of Report: July 11, 1996, File No. 1-12342)
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
4.7 Third Supplemental Indenture dated as of October 7, 1996
between the Company and The First National Bank of Chicago,
as trustee (Exhibit 4.1 to the Company's Current Report on
Form 8-K: Date of Report: October 2, 1996, File No. 1-12342)
10.1 Joint Venture Agreement between Mannesmann Kienzle GmbH,
Pacific Telesis Netherlands B.V., Cable and Wireless plc, DG
Bank Deutsch Genossenschaftsbank and Lyonnaise des Eaux SA
dated June 30, 1989 (Exhibit 10.43 to the Company's
Registration Statement on Form S-1, Registration No.
33-68012)
10.2 Agreement and Plan of Merger dated as of April 5, 1996, as
amended and restated as of July 12, 1996 among CCI, the
Company, and AirTouch Cellular (Exhibit 2.1 to the Company's
Registration Statement on Form S-4, Registration No. 333-
03107)
10.3 Separation Agreement by and between the Company and Pacific
Telesis Group, dated as of October 7, 1993 (Exhibit 10.1 to
the Company's Registration Statement on Form S-1,
Registration No. 33-68012)
10.4 Amendment No. 1 to Separation Agreement between the Company
and Pacific Telesis Group, dated November 2, 1993 (Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, File No. 1-12342)
10.5 Amendment No. 2 to Separation Agreement between the Company
and Pacific Telesis Group, dated as of March 25, 1994
(Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, File No. 1-12342)
10.6 Amendment No. 3 to Separation Agreement between the Company
and Pacific Telesis Group, dated as of April 1, 1994
(Exhibit 10.7 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, File No. 1-12342)
10.7 Amendment No. 4 to Separation Agreement between the Company
and Pacific Telesis Group, dated as of March 21, 1995
(Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 1-12342)
10.8 Amended and Restated Joint Venture Organization Agreement
dated as of September 30, 1995 between the Company and U S
WEST Inc. (Exhibit 2.1 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1995, File No.
1- 12342)
10.9 Amended and Restated Agreement of Limited Partnership of WMC
Partners, L.P. dated as of September 30, 1995 by and between
the Company and U S WEST Inc. (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1995, File No. 1-12342)
10.10 First Amendment to Amended and Restated Agreement of Limited
Partnership of WMC Partners, L.P. dated as of April 16, 1996
between the Company and U S WEST Inc. (Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996, File No. 1-12342)
10.11 Amended and Restated Agreement of Limited Partnership of PCS
Nucleus, L. P. dated as of September 30, 1995 by and between
the Company and U S WEST Inc. (Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1995, File No. 1-12342)
10.12 First Amendment to Amended and Restated Agreement of Limited
Partnership of PCS Nucleus, L.P. dated as of April 16, 1996
between the Company and U S WEST Inc. (Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996, File No. 1-12342)
10.13 Amended and Restated Investment Agreement dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No.
1-12342)
10.14 First Amendment to Amended and Restated Investment Agreement
dated as of April 16, 1996 between the Company and U S WEST
Inc. (Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1996, File No. 1-12342)
10.15 Amended and Restated Agreement of Exchange dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No.
1-12342)
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C>
10.16 First Amendment to Amended and Restated Agreement of
Exchange dated as of April 16, 1996 between the Company and
U S WEST Inc. (Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1996, File
No. 1-12342)
10.17 Amended and Restated Trust Agreement of Exchange dated as of
September 30, 1995 by and between the Company and U S WEST
Inc. (Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995, File No. 1-
12342)
10.18 First Amendment to Amended and Restated Trust Agreement of
Exchange dated as of April 16, 1996 between the Company and
U S WEST Inc. (Exhibit 10.6 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1996, File
No. 1- 12342)
10.19 Agreement of Limited Partnership dated as of October 20,
1994 between CELLCO Partnership and WMC Partners, L.P.
(Exhibit 10.1 to the Company's Current Report on Form 8-K -
Date of Report: October 20, 1994, File No. 1-12342)
10.20 Agreement of Limited Partnership dated as of October 20,
1994 of PrimeCo, L.P. (Exhibit 10.2 to the Company's Current
Report on Form 8-K - Date of Report: October 20, 1994, File
No. 1-12342)
10.21 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications, Inc. and Bell Atlantic Corporation
(Exhibit 10.3 to the Company's Current Report on Form 8-K -
Date of Report: October 20, 1994, File No. 1-12342)
10.22 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications and NYNEX Corporation (Exhibit 10.4
to the Company's Current Report on Form 8-K - Date of
Report: October 20, 1994, File No. 1-12342)
10.23 Standstill Agreement dated as of October 20, 1994 between
AirTouch Communications and CELLCO Partnership (Exhibit 10.5
to the Company's Current Report on Form 8-K - Date of
Report: October 20, 1994, File No. 1-12342)
10.24 Credit Agreement between the Company, Bank of America
National Trust and Savings Association and The Other
Financial Institutions Party Thereto dated July 20, 1995
(Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1995, File No. 1-12342)
10.25 Amended and Restated Partnership Agreement dated as of
September 1, 1993 by and between Members of the PacTel Group
and Members of the McCaw Group (Exhibit 28(a) to McCaw
Cellular Communications, Inc. Current Report on Form 8-K for
the period ended October 1, 1991, File No. 0-16051)
10.26 Representative Employment Agreement for Messrs. Sarin,
Gyani, Jones, Farrill and Golm and Mrs. Gill
10.27 Representative Employment Agreement for other officers of
the Company
10.28 Form of Indemnity Agreement between the Company and each of
its directors and certain officers (Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 1-12342)
10.29 Trust Agreement No. 1 for AirTouch Communications, Inc.
Supplemental Executive Pension Plan Benefits (Exhibit 10.25
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, File No. 1-12342)
10.30 AirTouch Communications Deferred Compensation Plan (Exhibit
10.26 to the Company's Form 10-K for the year ended December
31, 1994, File No. 1-12342)
10.31 AirTouch Communications Deferred Compensation Plan for
Nonemployee Directors (Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
File No. 1-12342)
10.32 AirTouch Communications Supplemental Executive Pension Plan
- Second Amendment and Restatement Effective as of April 1,
1994 (Exhibit 10.32 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, File No. 1-12342)
10.33 AirTouch Communications Executive Life Insurance Plan
(Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 1-12342)
10.34 AirTouch Communications Executive Long-Term Disability Plan
(Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, File No. 1-12342)
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
10.35 Description of the Company's Business Travel Accident
Insurance for Non-Employee Directors (Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 1-12342)
10.36 AirTouch Communications, Inc. 1993 Long-Term Stock Incentive
Plan - Amendment and Restatement Effective as of December
12, 1996 (Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1997, File No.
1-12342)
10.37 Description of the Executive Financial Counseling Program
(Exhibit 10.34 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, File No. 1-12342)
10.38 Consulting Agreement with Executive Officer (Exhibit 10.38
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 1-12342)
10.39 Employment Agreement between the Company and Mr. Ginn dated
as of June 12, 1997
13 1997 Annual Report to Security Holders - Financial Section
21 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP (CCI)
23.3 Consent of KPMG Deutsche Treuhand-Gesellschaft (Mannesmann
Mobilfunk GmbH)
23.4 Consent of Coopers & Lybrand LLP (CMT Partners)
23.5 Consent of Ernst & Young LLP (New Par)
23.6 Consent of Arthur Andersen LLP (Kansas Combined Cellular)
24 Power of Attorney
27 Financial Data Schedule
99.1 Cellular Communications, Inc. financial statements for each
of the three years in the period ended December 31, 1995
(Cellular Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1995, Item 8 and Item 14(a)
and (d), File No. 1-10789)
99.2 New Par financial statements for each of the three years in
the period ended December 31, 1995 (the Company's Annual
Report on Form 10-K for the year ended December 31, 1995,
page S-34 to S-53, File No. 1-12342)
</TABLE>
(b) Reports on Form 8-K:
Date of Report: October 29, 1997
Item 7. Financial Statements and Exhibits
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AIRTOUCH COMMUNICATIONS, INC.
By: /s/ Mohan S. Gyani
------------------------------------
Mohan S. Gyani
Executive Vice President and Chief Financial Officer
Date: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE
- ---------- -----
Sam Ginn * Chairman of the Board and Chief Executive
Officer
(Principal Executive Officer)
Mohan S. Gyani * Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Arun Sarin * President and Chief Operating Officer
and Director
C. Lee Cox * Director
Carol Bartz * Director
Michael D. Boskin* Director
Paul Hazen * Director
Donald G. Fisher * Director
Arthur Rock * Director
Charles R. Schwab * Director
George P. Shultz * Director
Chang Lin Tien * Director
* By: /s/ Mohan S. Gyani
----------------------------------
Mohan S. Gyani, Attorney-in-fact
Executive Vice President and Chief Financial Officer
Date: March 20, 1998
26
<PAGE> 27
INDEX TO
SEPARATE FINANCIAL STATEMENTS OF
SIGNIFICANT ENTITIES NOT CONSOLIDATED
AND
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE
CMT PARTNERS ........................................................... S - 2
Report of Independent Accountants .................................... S - 3
Consolidated Balance Sheets - December 31, 1997 and 1996 ............. S - 4
Consolidated Statements of Income and Changes in Partners' Equity -
for the years ended December 31, 1997, 1996, and 1995 .............. S - 5
Consolidated Statements of Cash Flows - for the years ended
December 31, 1997, 1996, and 1995 ................................. S - 6
Notes to Financial Statements ........................................ S - 7
Financial Statement Schedule
Report of Independent Accountants .................................. S - 14
Schedule II -- Valuation and Qualifying Accounts and Reserves ...... S - 15
Report of Independent Public Accountants (Kansas Combined Cellular) .. S - 16
MANNESMANN MOBILFUNK GMBH .............................................. S - 17
Independent Auditors' Report ......................................... S - 18
Balance Sheets - December 31, 1997 and 1996 .......................... S - 19
Statements of Income - Years ended December 31, 1997, 1996 and 1995 . S - 21
Statements of Capital Subscribers' Equity - Years ended
December 31, 1997, 1996 and 1995 ................................... S - 22
Statements of Cash Flows - Years ended December 31, 1997,
1996 and 1995....................................................... S - 23
Notes to Financial Statements ........................................ S - 24
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
Financial Statement Schedule
Report of Independent Accountants (Price Waterhouse LLP)............ X - 1
Schedule II -- Valuation and Qualifying Accounts and Reserves....... X - 2
S-1
<PAGE> 28
CMT PARTNERS
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
S-2
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of CMT Partners:
We have audited the accompanying consolidated balance sheets of CMT Partners
(the Partnership) as of December 31, 1997 and 1996 and the related consolidated
statements of income and changes in partners' equity and cash flows for the
years ended December 31, 1997, 1996, and 1995. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
For the years ended December 31, 1996 and 1995, we did not audit the financial
statements of Kansas Combined Cellular, which statements reflect (in thousands)
total assets of $78,229 as of December 31, 1996 and total revenues of $87,180
and $78,472, for the years ended December 31, 1996 and 1995, respectively.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
Kansas Combined Cellular, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of CMT Partners as of
December 31, 1997 and 1996 and the consolidated results of their operations and
their cash flows for the years ended December 31, 1997, 1996, and 1995 in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 23, 1998
S-3
<PAGE> 30
CMT PARTNERS
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,697 $ 16,518
Accounts receivable:
Trade accounts receivable, net of allowance for doubtful 75,673 75,812
accounts of $7,184 and $9,406 in 1997 and 1996,
respectively
Equipment accounts receivable, net of allowance for 14,441 27,032
doubtful accounts of $549 and $1,747 in 1997 and 1996,
respectively
Other 2,092 3,224
Other current assets 11,480 10,043
Total current assets 105,383 132,629
Property and equipment, net of accumulated depreciation of 335,197 265,455
$279,430 and $237,924 in 1997 and 1996, respectively
Unconsolidated investment, net of accumulated amortization of 131,862 129,984
$7,745 and $5,957 in 1997 and 1996, respectively
Intangible assets, net of accumulated amortization of $40,273 69,770 73,024
and $37,468 in 1997 and 1996, respectively
-------- --------
$642,213 $601,092
======== ========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable $ 1,772 $ 17,783
Accrued expenses 59,561 47,663
Other current liabilities 30,449 14,396
-------- --------
Total current liabilities 91,782 79,842
-------- --------
Minority interests 13,560 14,667
-------- --------
Commitments and contingencies (Note 8)
Partners' equity 536,871 506,583
-------- --------
Total partners' equity 536,871 506,583
-------- --------
$642,213 $601,092
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE> 31
CMT PARTNERS
CONSOLIDATED STATEMENTS OF INCOME AND
CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenues $ 643,483 $ 605,193 $ 515,010
--------- --------- ---------
Expenses:
Cost of revenues 117,653 133,394 120,242
Selling, general and administrative 245,968 234,982 193,304
Depreciation and amortization 68,955 57,696 50,319
--------- --------- ---------
432,576 426,072 363,865
--------- --------- ---------
Operating income 210,907 179,121 151,145
Earnings in unconsolidated investment 30,771 28,810 24,651
Minority interests (13,297) (9,826) (7,799)
--------- --------- ---------
Net income 228,381 198,105 167,997
Partners' equity, beginning of period 506,583 454,888 398,291
Distributions to partners (198,093) (146,410) (111,400)
Contribution from partners -- -- --
--------- --------- ---------
Partners' equity, end of period $ 536,871 $ 506,583 $ 454,888
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE> 32
CMT PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 228,381 $ 198,105 $ 167,997
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 68,955 57,696 50,319
Minority interest 10,281 9,826 7,799
Earnings in unconsolidated investment (30,771) (28,810) (24,651)
Loss on disposition of property and equipment 198 347 1,171
Changes in assets and liabilities:
Accounts receivable, net 13,862 (2,211) (27,624)
Other current assets 483 7,123 (11,079)
Accounts payable (16,011) (4,031) 3,613
Accrued expenses 6,077 17,106 2,251
Other current liabilities 16,053 8,697 2,448
--------- --------- ---------
69,127 65,743 4,247
--------- --------- ---------
Net cash provided by operating activities 297,508 265,246 172,244
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (135,150) (98,700) (82,436)
Proceeds from sale of property, plant and equipment 156 -- --
Distributions from unconsolidated investment 28,893 3,400 25,500
(Increase) decrease in other assets 3,253 840 (1,266)
--------- --------- ---------
Net cash used for investing activities (102,848) (94,460) (58,202)
--------- --------- ---------
Cash flows from financing activities:
Distributions to partners of CMT (198,093) (146,410) (111,400)
Distributions to minority partners (11,388) (9,385) (6,731)
Due to (from) affiliates, net -- 210 3,256
Net cash used for financing activities (209,481) (155,585) (114,875)
--------- --------- ---------
Net increase (decrease) in cash (14,821) 15,201 (833)
Cash and cash equivalents, beginning of period 16,518 1,317 2,150
--------- --------- ---------
Cash and cash equivalents, end of period $ 1,697 $ 16,518 $ 1,317
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-6
<PAGE> 33
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
CMT Partners (the Partnership) was formed on September 1, 1993 (inception)
pursuant to the Amended and Restated Partnership Agreement dated as of
September 1, 1993 between subsidiaries of AirTouch Communications, Inc.
(ATI), formerly PacTel Corporation, and subsidiaries of AT&T Wireless
Services, Inc. (AT&TWS), formerly McCaw Cellular Communications, Inc.
(MCCI). The Partnership is a Delaware general partnership equally owned by
ATI and AT&TWS through the following contributions:
<TABLE>
<CAPTION>
RELATIVE
CONTRIBUTIONS
TO CMT PARTNERS
GENERAL PARTNERS UPON FORMATION
---------------- --------------
<S> <C>
AirTouch Communications, Inc.:
Bay Area Cellular Telephone Company (BACTC) 61.099%
Interest in A Block licensee in Dallas-Fort Worth, TX (D/FW) 33.915%
AT&T Wireless Services, Inc.:
Cagal Cellular Communications Corporation (Cagal) 80.370%
Salinas Cellular Telephone Company (Salinas) 85.930%
Napa Cellular Telephone Company (Napa) 99.999%
Net operating assets of A Block licensee in Kansas City, MO 100.00%
(Kansas City)
St. Joseph CellTel Co (St. Joseph) 87.00%
Net operating assets of A Block licensee in Lawrence, KS (Lawrence) 100.00%
BACTC 32.90%
</TABLE>
The initial contributions were accounted for at the net book value of the
assets and liabilities of the entities. Each of the entities holds a
license or licenses from the Federal Communication Commission (FCC) and
state authorities to operate cellular telephone systems in Metropolitan
Statistical Areas (MSAs) as listed below:
Bay Area Cellular Telephone Company San Francisco/San Jose, CA
Metroplex Telephone Company Dallas-Fort Worth, TX
Cagal Cellular Communications Corporation Santa Rosa, CA
Salinas Cellular Telephone Company Salinas, CA
Napa Cellular Telephone Company Napa/Vallejo, CA
Net operating assets of A Block licensee Kansas City, MO
St. Joseph CellTel Co St. Joseph, MO
Net operating assets of A Block licensee Lawrence, KS
S-7
<PAGE> 34
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of the Partnership include the
accounts of all significant ownership interests which include the
accounts of BACTC, Combined Suburban Cellular (CSC), and Kansas Combined
Cellular (KCC). CSC is comprised of the Cagal, Salinas and Napa cellular
markets. KCC is comprised of the Kansas City, St. Joseph, and Lawrence
cellular markets.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION:
Cellular air time and access charges are recorded as revenue when
earned. Sales of equipment and related services are recorded when the
goods and services are delivered.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of investments with original
maturities of less than three months. The carrying amount approximates
fair value because of the short maturity of those instruments.
ALLOCATION OF PROFITS AND LOSSES:
In general, profits and losses incurred by the Partnership are allocated
to the partners pro rata in accordance with their partnership ownership
percentage.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the assets.
<TABLE>
<CAPTION>
DEPRECIABLE LIFE
----------------
<S> <C>
Cellular equipment 3 to 7 years
Cellular towers/shelters 5 to 15 years
Other 3 to 7 years
</TABLE>
Leasehold improvements are amortized using the straight-line method over
the shorter of the lease term or the estimated useful life of the asset.
S-8
<PAGE> 35
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
PROPERTY AND EQUIPMENT:
When property and equipment are retired or sold, the cost and
accumulated depreciation of dispositions are removed from the accounts,
and any gain or loss is reflected in income.
Repairs and maintenance costs are charged to expense when incurred.
Renewals and betterments are capitalized and depreciated over the
remaining useful lives of the assets.
INTANGIBLES:
Intangible assets represent the contributed goodwill from AT&T Wireless
Services, Inc. and AirTouch Communications, Inc. The contributed
goodwill is being amortized over forty years using the straight-line
method. The Company periodically evaluates the recoverability of its
goodwill using various criteria, including projected future earnings. If
necessary, goodwill is written down to its estimated recoverable value.
INCOME TAXES:
The income or loss of CMT Partners and its consolidated subsidiaries are
included in the tax returns of the individual partners. Accordingly, no
provision has been made for income taxes for these entities in the
financial statements.
MINORITY INTERESTS:
Minority interests represent equity interests held by entities other
than CMT Partners for the general partnerships serving the St. Joseph,
BACTC and Salinas markets and the corporation serving the Cagal market.
RECLASSIFICATIONS:
Certain items in the financial statements have been reclassified to
conform to the 1997 presentation. These reclassifications have no effect
on previously reported net income or partners' equity.
S-9
<PAGE> 36
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Land $ 1,752 $ 1,752
Cellular property and equipment 493,632 395,515
Administrative assets 76,087 65,068
--------- ---------
571,471 462,335
Less accumulated depreciation and amortization (279,430) (237,924)
--------- ---------
292,041 224,411
Cellular system under construction 43,156 41,044
--------- ---------
$ 335,197 $ 265,455
========= =========
</TABLE>
Administrative assets primarily consist of office furniture and fixtures,
including leasehold improvements and computer equipment. Fully depreciated
assets in use at December 31, 1997 and 1996 amounted to $110,759,186 and
$93,267,248, respectively.
4. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Accrued commissions $ 7,899 $ 9,791
Accrued benefits 12,944 5,690
Accrued network and inventory 14,926 8,926
purchases
Accrued operating expenses 15,926 14,650
Other accrued expenses 7,866 8,606
-------- ---------
Total accrued expenses $ 59,561 $ 47,663
======== =========
</TABLE>
S-10
<PAGE> 37
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
5. UNCONSOLIDATED INVESTMENT:
The unconsolidated investment represents an investment in Dallas-Fort Worth
Signal Partnership which owns approximately 34% of Metroplex Telephone
Company, the A Block licensee in Dallas-Fort Worth, Texas. The purchase
price in excess of the Partnership's share of net assets is $61.8 million
and is being amortized over 40 years. The financial information of
Metroplex Telephone Company at December 31, 1997, 1996 and 1995 and for the
years ended December 31, 1997, 1996 and 1995 are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Current assets $ 53,974 $ 43,504 $ 37,346
Noncurrent assets 203,260 202,385 146,194
---------- ----------- ----------
Total assets $ 257,234 $ 245,889 $ 183,540
========== =========== ==========
Current liabilities $ 21,292 $ 24,579 $ 42,174
---------- ----------- ----------
Total liabilities $ 21,292 $ 24,579 $ 42,174
========== =========== ==========
Total equity $ 235,942 $ 221,310 $ 141,366
========== =========== ==========
Revenue $ 284,049 $ 275,780 $ 224,213
========== =========== ==========
Net income $ 99,088 $ 89,944 $ 77,781
========== =========== ==========
</TABLE>
6. TRANSACTIONS WITH RELATED PARTIES:
The Partnership and its affiliated companies have entered into several
transactions and agreements related to their respective businesses. The
following represents the material transactions between the Partnership and
its affiliated companies:
TRANSACTIONS WITH AT&T CORPORATION:
The Partnership purchased cellular electronic equipment from AT&T Corp.
comprising approximately 15% of total capital expenditures for the
period from January 1, 1996 through December 31, 1996. For the year
ended December 31, 1997, purchases of cellular electronic equipment from
AT&T Corp. was approximately .04% of total capital expenditures.
S-11
<PAGE> 38
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
7. EMPLOYEE CONTRIBUTION AND PROFIT SHARING PLAN:
Employees of CMT Partners and its subsidiaries participate in a
contributory profit-sharing plan referred to as the Cellular One Section
401(k) and Profit Sharing Plan (the Plan), formerly known as the Bay Area
Cellular Telephone Company 401(k) and Profit Sharing Plan, which qualifies
as a cash or deferred arrangement under Section 401(k) of the Internal
Revenue Code. Upon formation of CMT Partners, employees of the markets
contributed by AT&TWS may elect to participate in the Plan at any time.
Otherwise, these employees may maintain their contributions in AT&TWS's
401(k) plan.
The Plan allows participating employees to elect to contribute up to 15% of
their monthly salaries, to a maximum as prescribed by the Internal Revenue
Service. The Plan sponsor, CMT Partners, contributes to the Plan, on behalf
of each participating employee, an amount equal to 50% of the employee's
contribution, not to exceed 5% of the participant's salary. Contributions
are invested in six different funds. Under the 401(k) Plan, participants
are at all times fully vested. Under the profit sharing plan, CMT Partners
contributes a discretionary percentage of each eligible employee's salary.
Employees vest in the profit sharing plan over five years. CMT Partners
contributed $4,495,683, $2,212,511, and $2,164,064 to the 401(k) and profit
sharing plan for 1997, 1996, and 1995.
8. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS:
Future minimum payments required under operating leases and agreements
that have an initial or remaining noncancelable lease term in excess of
one year at December 31, 1997 are summarized below:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 (in thousands)
<S> <C>
1998 $ 13,479
1999 9,028
2000 8,311
2001 5,687
2002 2,939
Thereafter 7,995
---------
$ 47,440
=========
</TABLE>
Rental expense for operating leases was $14,094,724, $11,667,476, and
$9,244,000 for the years ended December 31 1997, 1996, and 1995,
respectively.
S-12
<PAGE> 39
CMT PARTNERS
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES:
LITIGATION:
In 1994, a class action complaint was filed against the Partnership in
San Francisco County Superior Court alleging price fixing. In 1996, an
almost identical class action complaint was against the Partnership in
Alameda County Superior Court. The two cases were assigned to a single
judge for coordination. In late 1997, a settlement was reached in these
cases which the court has preliminarily approved. In the aggregate these
settlements will not have a material effect on the Company's financial
position or results of operations.
On July 18, 1997, the federal district court approved a stipulation of
settlement, resolving several class actions brought against the Company,
affiliates of the Company and ATTWS. The plaintiff class includes all
persons who owned minority equity interests in the Company during the
period defined in the settlement agreement. The settlement agreement,
when effective, will cap, reduce and/or eliminate, until at least the
year 2004, certain fees and charges the Company pays to affiliates of
the Company. It will require ATTWS to create a common fund to be
distributed to all class members and from which the fees of class
counsel will be paid. Several class members have filed an appeal
challenging the order approving the settlement agreement. By its terms
the settlement agreement will not become effective unless and until the
federal district court's order is affirmed and becomes final after all
appeals and reviews are concluded. Management contends that the federal
district court properly approved the stipulation of settlement and
intends to defend the federal district court's order on appeal. It is
too early to reasonably predict the outcome of the appeal.
The Partnership is a party to certain litigation in the ordinary course
of business and is also a party to routine filings with the FCC, state
regulatory authorities and other proceedings which management believes
are immaterial to the Partnership.
9. LINE OF CREDIT:
The Partnership has a revolving line of credit with a bank that allows for
borrowings up to $10,000,000. Interest on all advances on the line of
credit accrue at the lesser of a variable rate equal to .50% below the
prime rate or the LIBOR rate plus .90%. The line of credit agreement
expires September 15, 1999.
S-13
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of CMT Partners:
Our report on the consolidated financial statements of CMT Partners is included
as an exhibit to the AirTouch Communications, Inc. (ATI) Form 10-K. In
connection with our audit of such financial statements, we have audited the
related financial statement schedule listed in the index as an exhibit of ATI
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 23, 1998
S-14
<PAGE> 41
CMT PARTNERS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND END OF
PERIOD EXPENSES DEDUCTIONS(a) PERIOD
------ -------- ------------- ------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful $11,153 $ 9,673 $ 6,145 $ 7,661
accounts
Year ended December 31, 1996:
Allowance for doubtful $ 5,689 $22,728 $17,264 $11,153
accounts
Year ended December 31, 1995:
Allowance for doubtful $ 3,228 $19,378 $16,917 $ 5,689
accounts
</TABLE>
(a) Amounts in this column reflect items written off, net of recoveries.
S-15
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CMT Partners:
We have audited the balance sheet of Kansas Combined Cellular, (a division of
CMT Partners, a Delaware general partnership) as of December 31, 1996, and the
related statements of operations and changes in partners' capital and cash
flows for each of the two years in the period ended December 31, 1996, not
presented separately herein. 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 opinions.
In our opinion, the financial statements referred to above, not presented
separately herein, present fairly, in all material respects, the financial
position of Kansas Combined Cellular as of December 31, 1996, and the results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Kansas City, Missouri,
January 24, 1997
S-16
<PAGE> 43
MANNESMANN MOBILFUNK GMBH
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Independent Auditors' Report
Balance Sheets as of December 31, 1997 and 1996
Statements of Income for the Years
ended December 31, 1997, 1996 and 1995
Statements of Capital Subscribers' Equity for the Years
ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the Years
ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
S-17
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND CAPITAL SUBSCRIBERS
MANNESMANN MOBILFUNK GMBH
We have audited the accompanying balance sheets of Mannesmann Mobilfunk GmbH as
of December 31, 1997 and 1996, and the related statements of income, capital
subscribers' equity, and cash flows for each of the years in the three-year
period ended December 31, 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 German auditing
standards which, in all material respects, are similar to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mannesmann Mobilfunk GmbH at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1997, in
conformity with accounting principles generally accepted in the United States.
As discussed in notes 1 and 8 to the financial statements, the Company changed
its method of accounting for income taxes in 1995 to adopt the consensus reached
by the Emerging Issues Task Force of the Financial Accounting Standards Board in
Issue No. 95-10.
Dusseldorf, Germany,
February 16, 1998
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Scheffler /s/ Haas
Wirtschaftsprufer Wirtschaftsprufer
S-18
<PAGE> 45
MANNESMANN MOBILFUNK GMBH
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
A S S E T S
<TABLE>
<CAPTION>
1997 1997 1996
------------ -------- ---------
U.S. Dollars Deutsch- Deutsch-
(note 1) marks marks
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 2) 6,728 11,948 58,006
Accounts receivable, less allowance
for doubtful accounts of DM 73,942
in 1997 and DM 52,422 in 1996 439,787 781,018 639,328
Due from affiliated companies (note 3) 13,573 24,104 219,404
Inventories of products, parts
and related supplies (note 4) 39,818 70,713 39,839
Prepaid expenses 16,129 28,643 26,049
Other current assets 11,232 19,947 30,057
---------- ---------- ----------
Total current assets 527,267 936,373 1,012,683
---------- ---------- ----------
Property, plant and equipment:
Telecommunications equipment 2,384,437 4,234,522 3,449,765
Equipment in course of construction 50,419 89,539 63,942
Other equipment 108,484 192,656 163,503
---------- ---------- ----------
2,543,340 4,516,717 3,677,210
Less accumulated depreciation (909,945) (1,615,972) (1,171,612)
---------- ---------- ----------
Net property, plant, and equipment 1,633,395 2,900,745 2,505,598
Other assets, at cost, less accumulated
amortization of DM 59,195 in 1997
and DM 45,142 in 1996 22,901 40,671 41,956
---------- ---------- ----------
2,183,563 3,877,789 3,560,237
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
S-19
<PAGE> 46
MANNESMANN MOBILFUNK GMBH
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
L I A B I L I T I E S A N D C A P I T A L
S U B S C R I B E R S ' E Q U I T Y
<TABLE>
<CAPTION>
1997 1997 1996
--------- --------- ---------
U.S. Dollars Deutsch- Deutsch-
marks marks
(note 1)
<S> <C> <C> <C>
Current liabilities:
Due to banks -- -- 45,000
Accounts payable 346,374 615,126 411,347
Income taxes payable 127,847 227,044 37,482
Accrued expenses 95,598 169,773 115,159
Due to affiliated companies (note 3) 54,419 96,642 106,972
--------- --------- ---------
Total current liabilities 624,238 1,108,585 715,960
Pension liabilities (note 6) 7,881 13,995 9,853
Other non-current liabilities (note 7) 30,759 54,625 38,400
Deferred income taxes (note 8) 325,183 577,492 457,455
--------- --------- ---------
Total liabilities 988,061 1,754,697 1,221,668
--------- --------- ---------
Commitments (note 9)
Capital subscribers' equity:
Subscribed capital (note 10) 228,054 405,000 405,000
Additional capital 684,160 1,215,000 1,215,000
--------- --------- ---------
912,214 1,620,000 1,620,000
Retained earnings (note 11) 283,288 503,092 718,569
--------- --------- ---------
Total capital subscribers' equity 1,195,502 2,123,092 2,338,569
--------- --------- ---------
2,183,563 3,877,789 3,560,237
========= ========= =========
</TABLE>
See accompanying notes to financial statements
S-20
<PAGE> 47
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1997 1996 1995
---------- ---------- ---------- ----------
U.S. Dollars Deutsch- Deutsch- Deutsch-
marks marks marks
(note 1)
<S> <C> <C> <C> <C>
Net revenues 3,146,527 5,587,918 4,208,796 2,716,160
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of services and products, including
DM 2,791, DM 3,508 and DM 3,318 with
related parties in 1997, 1996 and 1995
respectively (note 3) 938,136 1,666,037 1,231,311 923,101
Selling, general and administrative expenses,
including DM 57,488, DM 95,305 and
DM 74,354 with related parties in 1997,
1996 and 1995 respectively (note 3) 733,612 1,302,821 1,277,337 807,314
Depreciation and amortization 270,252 479,941 390,775 305,270
---------- ---------- ---------- ----------
Operating income 1,204,527 2,139,119 1,309,373 680,475
Other income (expense):
Interest income, including DM 7,078
with related parties in 1997 8,789 15,609 4,059 3,205
Interest expense, including DM 1,216,
DM 2,510 and DM 9,678 with related
parties in 1997, 1996 and 1995 respectively (2,905) (5,159) (5,335) (33,384)
Other, net 13,505 23,983 21,253 15,929
---------- ---------- ---------- ----------
19,389 34,433 19,977 (14,250)
Income before income taxes and cumulative
effect of change in accounting principle 1,223,916 2,173,552 1,329,350 666,225
Income taxes (note 8) (570,325) (1,012,840) (691,316) (383,212)
---------- ---------- ---------- ----------
Income before cumulative effect of change
in accounting principle 653,591 1,160,712 638,034 283,013
Cumulative effect at January 1, 1995, of change
in accounting for income taxes (note 8) -- -- -- 63,297
---------- ---------- ---------- ----------
Net income 653,591 1,160,712 638,034 346,310
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
S-21
<PAGE> 48
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CAPITAL SUBSCRIBERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Retained Capital
Subscribed Additional Earnings Subscribers'
Capital Capital (Deficit) Equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 DM 405,000 1,215,000 (265,775) 1,354,225
Net income -- -- 346,310 346,310
---------- ---------- ---------- ----------
Balances at December 31, 1995 405,000 1,215,000 80,535 1,700,535
Net income -- -- 638,034 638,034
---------- ---------- ---------- ----------
Balances at December 31, 1996 405,000 1,215,000 718,569 2,338,569
Net income -- -- 1,160,712 1,160,712
Dividends declared -- -- (1,376,189) (1,376,189)
---------- ---------- ---------- ----------
Balances at December 31, 1997 DM 405,000 1,215,000 503,092 2,123,092
========== ========== ========== ==========
Balances at December 31, 1997 (note 1) $ 228,054 684,160 283,288 1,195,502
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
S-22
<PAGE> 49
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1997 1996 1995
---------- ---------- ---------- ----------
U.S. Dollars Deutsch- Deutsch- Deutsch-
(note 1) marks marks marks
<S> <C> <C> <C> <C>
Net cash provided by operating
activities (note 14) 1,325,285 2,353,574 1,104,778 871,007
---------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment
and other assets 4,518 8,023 5,207 15,458
Capital expenditures,
including interest capitalized (498,493) (885,273) (779,808) (542,949)
Increase in other assets (16) (28) (195) (184)
---------- ---------- ---------- ----------
Net cash used in investing activities (493,991) (877,278) (774,796) (527,675)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from a loan by an
affiliated company -- -- -- 100,000
Increase (decrease) in due to
affiliated company (56,965) (101,165) (235,483) 236,648
Increase (decrease) in due to banks (25,339) (45,000) (90,500) 63,479
Repayment of long-term debt -- -- -- (720,000)
Dividends paid (774,925) (1,376,189) -- --
---------- ---------- ---------- ----------
Net cash used for financing activities (857,229) (1,522,354) (325,983) (319,873)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (25,935) (46,058) 3,999 23,459
Cash and cash equivalents at
beginning of year 32,663 58,006 54,007 30,548
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of year 6,728 11,948 58,006 54,007
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
S-23
<PAGE> 50
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS OF DEUTSCHMARKS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Mannesmann Mobilfunk GmbH was incorporated on September 11, 1989. At December
31, 1997 Mannesmann AG, held a controlling interest of 65.23%, and AirTouch
(Europe) B.V. & Co. Dienstleistungs- und Beteiligungs-KG held an interest of
34.77%.
The Company's primary business is the construction, manufacture and operation of
a private mobile cellular network ("D2") within Germany. It is conducted under a
licence agreement with the Federal Postal and Telecommunications Ministry
expiring at the end of 2009.
Commercial activities commenced in mid 1992 and by the end of 1997 the Company
had about 3,500,000 subscribers.
(b) BASIS OF PRESENTATION
In order to conform with accounting principles generally accepted in the United
States, certain adjustments are reflected in the financial statements which are
not recorded in the German books of account. These adjustments relate primarily
to capitalization of own payroll and related costs associated with the design
and construction of telecommunications equipment, depreciation and amortization,
pension liabilities and accounting for income taxes.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid monetary instruments with original
maturities of three months or less to be cash equivalents.
S-24
<PAGE> 51
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
(d) INVENTORIES
Inventories are stated at the lower of average cost or market.
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is calculated on
both the straight-line and declining balance methods over the estimated useful
lives of the assets as follows :
<TABLE>
<CAPTION>
Years Percentage Method
----- ---------- ------
<S> <C> <C> <C>
Telecommunications equipment:
D2 infrastructure center 10 10% straight-line
Switching locations 15 6.67% straight-line
Base station equipment
- poles 10 30% declining balance
- components 20 5% straight-line
Transmission and message switching
technology 10 10% straight-line
Other equipment:
Data processing equipment 4 30% declining balance
Office equipment 10 30% declining balance
Measuring instruments 5 30% declining balance
Vehicles 5 30% declining balance
</TABLE>
Certain equipment installed at third party locations for rental periods less
than the above useful lives are depreciated over the corresponding terms of the
agreements.
(f) OTHER ASSETS
Other assets are stated at cost. They consist mainly of computer software,
patents, rights and concessions which are being amortized over periods ranging
from three to eight years on a straight-line basis.
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
S-25
<PAGE> 52
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
In July 1995, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus in Issue No. 95-10 that addresses the
accounting for tax benefits of future tax credits, arising from the difference
between the German corporate tax rate of 45% applicable to undistributed profits
and 30% applicable to distributed income, that will be realized when the
previously taxed income is distributed. The Task Force concluded that the tax
benefits of the tax credits should be recognized as a reduction of income tax
expense in the period the tax credits are included in the enterprise's tax
return and that the enterprise should measure the tax effects of temporary
differences using the tax rate for undistributed income.
Prior to 1995, the Company applied a combined net income tax rate, which
reflected the lower corporate tax rate, to its income and loss before income
taxes on the basis that profits would be distributed in the future in accordance
with the dividend policy agreed by the capital subscribers. This approach
resulted in a lower net deferred tax asset being reported than otherwise would
have been the case had the higher corporate tax rate been applied, due to the
recognized benefits of primarily the net operating loss carry forwards incurred
by the Company during its development phase.
Effective January 1, 1995, the Company adopted the consensus reached in Issue
No. 95-10 and has reported the cumulative effect of that change in the method of
accounting for income taxes in the 1995 statement of income.
Accordingly, under this consensus, the benefit of the tax credit arising from
the declaration of dividend distributions, to be included in the tax return for
1997 and 1996, is being recognized as a reduction of income tax expense in the
1997 and 1996 statements of income.
(h) PENSION PLANS
The Company has defined benefit plans limited to its management group. The
benefits are based on years of service and recent compensation. The accumulated
benefit obligation is determined based on annual actuarial calculations and
recorded as a liability in the balance sheet with a corresponding charge to
income. The liability is not funded but represented by the Company's assets.
S-26
<PAGE> 53
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(j) FINANCIAL STATEMENT TRANSLATION
The financial statements are expressed in Deutschmarks and, solely for the
convenience of the reader, have been translated into United States dollars at
the rate of DM 1.7759 to U.S. $ 1, the closing rate quotation on December 31,
1997.
(2) CASH AND CASH EQUIVALENTS
This caption includes cash equivalents representing time deposits for amounts
maturing within periods of between one day and three months. Included in the
balance at December 31, 1996 is a time deposit of DM 20,000.
(3) RELATED PARTY TRANSACTIONS
The Company has significant business transactions with its main capital
subscribers, Mannesmann AG and AirTouch (Europe) B.V. & Co. Dienstleistungs- und
Beteiligungs-KG and their respective group companies. Such transactions are
normally concluded within a range of terms similar to those made with
non-related parties.
The significant balances and transactions with these related parties are shown
separately in the balance sheet and statement of income. In addition, purchases
of property, plant and equipment from related parties during the years stated
are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Purchases included under property
plant and equipment DM 10,828 3,802 6,878
====== ===== =====
</TABLE>
S-27
<PAGE> 54
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
The amounts shown as due to and from affiliated companies at December 31, 1997
and 1996 include interest bearing balances due to and from Mannesmann AG. For
intercompany current account arrangements interest is fixed on an arms length
basis. Also outstanding at each year-end are various loans receivable and
payable at fixed rates of interest as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Loans receivable DM 0 200,000
====== =======
Loans payable DM 0 100,000
====== =======
</TABLE>
(4) INVENTORIES
This caption includes stocks of products, parts and related supplies. The
balances at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Mobile telephones DM 52,096 21,917
Subscriber identification module cards 10,103 9,238
Spare parts 7,691 7,851
Other trade goods 823 833
------- -------
DM 70,713 39,839
======= =======
</TABLE>
(5) INTEREST COST
The Company capitalizes interest related to the continuing expansion of the
infrastructure for its private mobile cellular network. The following is a
summary of interest cost incurred during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
Interest cost capitalized DM 1,752 3,336 2,470
Interest cost charged to income 5,159 5,335 33,384
------ ------ ------
Total interest cost incurred DM 6,911 8,671 35,854
====== ====== ======
</TABLE>
Interest capitalized has been included in the telecommunications equipment
component of property, plant and equipment.
S-28
<PAGE> 55
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
(6) PENSION PLANS
The Company has a defined benefit pension plan covering all of its 74 member
management group (1996 and 1995 - 75 members).
Of the remaining 5,693 employees at the end of 1997 (1996 - 4,724), 2,839 (1996
- - 2,614) are covered by a defined contribution plan funded externally with an
insurance company, and 2,854 (1996 - 2,110) are not presently covered by such
plans. All personnel are covered by a German state pension scheme under a
defined contribution plan funded equally by the employer and the employee.
In addition to the foregoing plans, the Company introduced in 1997 a deferred
compensation plan for senior employees. This is equivalent to a defined
contribution plan under which the employees may elect to defer part of their
current compensation until retirement age in return for a lump sum or a pension
payment. The Company accrues its obligation for such deferred compensation, and
related simple interest at a fixed rate of 6%, as part of its pension cost.
Under a continuing tax deductible scheme, the Company also accrues a nominal
amount payable upon death in service to all its employees, other than those
covered by separate arrangements under the management group plan.
The pension liabilities and costs of the defined benefit plan referred to above
result directly from independent actuarial calculations based on the situation
at the end of each year.
Up to and including December 31, 1996, such valuations were made in accordance
with German tax and commercial rules. This approach was adopted because the
Company considered, given the small number of employees covered, together with
the short periods of prior service, that any potential adjustment or additional
disclosures, that would be required had Statement of Financial Accounting
Standards No 87, Employers' Accounting for Pensions, been applied, would not be
material.
However, for the year ending December 31, 1997, the valuation was also made for
purposes of presenting the financial statements in accordance with the foregoing
statement in accordance with accounting principles generally accepted in the
United States.
S-29
<PAGE> 56
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
The following table sets forth the plan's funded status and amounts recognized
in the Company's balance sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation DM 7,708 6,986
======= =======
Accumulated benefit obligation DM 11,148 9,761
======= =======
Projected benefit obligation DM 12,696 11,298
Plan assets at fair value -- --
------- -------
Projected benefit obligation in excess of plan assets 12,696 11,298
Unrecognized net loss (65) --
Unrecognized obligation arising from the different
German and United States accounting bases at
December 31, 1996, recognized for an updated
adjusted amount of DM 1,938 at December 31, 1997 -- (2,089)
------- -------
Pension liability for the defined benefit plan DM 12,631 9,209
Deferred compensation plan 572 --
Death in service scheme 792 644
------- -------
Total per balance sheet DM 13,995 9,853
======= =======
</TABLE>
The pension liability of the defined benefit plan is not specifically funded but
considered to be represented by the Company's assets in general, and accordingly
the plan assets at fair value are shown as nil.
The pension liabilities for the deferred compensation plan and death in service
scheme are similarly unfunded.
The elements of pension cost charged to income for 1997 are as follows:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Service cost - benefits earned during the year
Defined benefit plan DM 926
Deferred compensation plan 579
Death in service plan 148
Interest cost
Defined benefit plan 733
Deferred compensation plan 18
Adjustment to recognize the cumulative effect of restating pension
obligations from the German to the United States bases of
accounting at December 31, 1997
Defined benefit plan 1,938
Other pension costs of the insurance and German state
funded schemes 2,195
-----
Total pension cost for 1997 DM 6,537
=====
</TABLE>
S-30
<PAGE> 57
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
The pension costs charged to income for 1996 and 1995 are DM 3,207 and DM 3,389
respectively.
Assumptions used in accounting for the defined benefit plan under the projected
unit credit method as of December 31, 1997 and, in respect of the vested,
accumulated and projected benefit obligations disclosed above, as of December
31, 1996 were:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Discount rates 6.5% 6.5%
Rates of increase in compensation levels 2.5% 2.5%
Rates of increase in payments to retirees
due to inflation 1.5% 1.5%
</TABLE>
However, the pension liability for the defined benefit plan included in the
balance sheet at December 31, 1996 is based on the 6% discount rate in
accordance with German tax and commercial rules.
(7) OTHER NON-CURRENT LIABILITIES
This represents a provision for site restoration costs expected to be incurred
upon expiration of the respective leases.
(8) INCOME TAXES
As discussed in note 1, the Company adopted the consensus reached in Issue No.
95-10 of the Emerging Issues Task Force as of January 1, 1995. The cumulative
effect of this change in accounting for income taxes of DM 63,297 was determined
as of January 1, 1995 and has been reported separately in the statement of
income for the year ended December 31, 1995. As a result of applying this
change, the income from continuing operations for the year ended December 31,
1995 was decreased by DM 88,474.
Total income taxes for the years ended December 31, 1997, 1996 and 1995 were
allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income DM 1,012,840 691,316 383,212
Cumulative effect of change in
accounting for income taxes -- -- (63,297)
--------- --------- ---------
DM 1,012,840 691,316 319,915
========= ========= =========
</TABLE>
S-31
<PAGE> 58
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
Income tax expense attributable to income for the years ended December 31, 1997,
1996 and 1995 consists of various types of taxes as follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
Year ended December 31, 1997
<S> <C> <C> <C>
German trade tax DM 350,700 37,952 388,652
German corporate tax 504,282 77,804 582,086
German solidarity surcharge tax 37,821 4,281 42,102
------- ------- ---------
DM 892,803 120,037 1,012,840
======= ======= =========
Year ended December 31, 1996
German trade tax DM 139,500 107,210 246,710
German corporate tax 189,221 224,354 413,575
German solidarity surcharge tax 14,192 16,839 31,031
------- ------- -------
DM 342,913 348,403 691,316
======= ======= =======
Year ended December 31, 1995
German trade tax DM -- 117,922 117,922
German corporate tax -- 246,769 246,769
German solidarity surcharge tax -- 18,521 18,521
------- ------- -------
DM -- 383,212 383,212
======= ======= =======
</TABLE>
The respective rates for the above types of taxes and their application for the
years ended December 31, 1997, 1996 and 1995 are analyzed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -----
% % %
<S> <C> <C> <C>
Income before income taxes 100 100 100
German trade tax gross average rate of 18.0% for 1997,
and 17.7% for 1996 and 1995 applied to income before
income taxes (18.0) (17.7) (17.7)
------ ------ ------
82.0 82.3 82.3
German corporate tax gross rate for undistributed income of
45% for 1997, 1996 and 1995 applied to income after
German trade tax, a net rate of 36.9% for 1997 and
37.04% for 1996 and 1995 (36.9) (37.04) (37.04)
------ ------ ------
45.1 45.26 45.26
German solidarity surcharge tax gross rate of 5.5%, announced
in 1997 effective 1998, and 7.5% for 1996 and 1995 applied
to German corporate tax rate of 36.9 for 1997,
and 37.04% for 1996 and 1995, a net rate of 2.03% for
1997, and 2.78% for 1996 and 1995 (2.03) (2.78) (2.78)
------ ------ ------
Income after income taxes 43.07 42.48 42.48
====== ====== ======
German trade tax net rate 18.00 17.70 17.70
German corporate tax net rate 36.90 37.04 37.04
German solidarity surcharge tax net rate 2.03 2.78 2.78
------ ------ ------
Combined German income tax rate 56.93 57.52 57.52
====== ====== ======
</TABLE>
Income tax expense attributable to income was DM 1,012,840, DM 691,316 and DM
383,212 for the years ended December 31, 1997, 1996 and 1995, respectively, and
differed from the amount computed by applying the above combined German income
tax rate of 56.93% for 1997 and 57.52% for 1996 and 1995 to pretax income as a
result of the following:
S-32
<PAGE> 59
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense DM 1,237,403 764,642 383,212
Adjustment to reflect net effect of lower German
corporate tax rate applicable to the declared
dividend distribution (214,286) (80,612) --
Adjustment to deferred tax liability for the
enacted reduction in the solidarity surcharge
tax rate and the higher average trade tax rate (4,692) -- --
Adjustments to German book basis income for
net effect of permanent differences attributable
to certain non taxable income and non
deductible expense in computing the German
fiscal basis income (5,585) 7,286 --
--------- ------- -------
DM 1,012,840 691,316 383,212
========= ======= =======
</TABLE>
The significant components of the income tax expense attributable to the income
for the years ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Current German fiscal basis tax expense DM 892,803 342,913 --
Deferred tax expense attributable to the
realization of the benefit of net operating loss
carryforwards -- 152,391 244,994
Tax effect of the temporary differences between
the financial statement carrying amounts of
existing assets and liabilities and their
respective tax bases 120,037 196,012 138,218
--------- ------- -------
Net tax expense DM 1,012,840 691,316 383,212
========= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax liabilities at December 31,1997 and 1996 are presented
below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment due to differences
in capitalization and related depreciation DM 578,595 457,455
Pension liabilities due to adoption of
United States basis of accounting (1,103) --
-------- --------
Total deferred tax liabilities DM 577,492 457,455
======== ========
</TABLE>
(9) COMMITMENTS
The Company is obligated under various noncancelable operating leases, primarily
of a long-term nature, for the main administrative building, base stations and
sales offices. The rental expense charged to income during 1997, 1996 and 1995
was DM 128,793, DM 88,059 and DM 65,922, respectively.
S-33
<PAGE> 60
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
Future minimum lease payments under noncancelable leases (with initial or
remaining lease terms in excess of one year) are:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1998 DM 62,404
1999 58,509
2000 53,245
2001 51,566
2002 49,224
2003 and beyond 82,057
-------
Total minimum lease payments DM 357,005
=======
</TABLE>
(10) SUBSCRIBED CAPITAL
Subscribed capital is represented by whole sum subscription amounts on a
proportional basis to the investing parties. The respective amounts of
proportional subscriptions directly reflect the percentage of respective
ownership and related voting and dividend rights.
(11) RESTRICTIONS ON RETAINED EARNINGS
The payment of dividends from retained earnings is restricted to the extent of
available retained earnings per the German books of account. At December 31,
1997 there are retained earnings of DM 12,484 per the German books of account,
after payment of dividends during the year aggregating DM 1,376,189.
(12) FINANCIAL INSTRUMENTS
The fair values of all the Company's financial instruments at December 31,
1997 and 1996 approximate the carrying amounts either because of the short-term
maturity of these instruments or because of the insignificant movement in
interest rates compared to those fixed for amounts due and from related parties
over their relatively short terms.
The Company has no involvement with derivative financial instruments.
(13) ADVERTISING COSTS
The advertising costs directly charged to income during 1997, 1996 and 1995 were
DM 71,448, DM 65,824 and DM 61,116 respectively.
S-34
<PAGE> 61
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
(14) RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
The reconciliation of net income to net cash provided by operating activities
for the years ended December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1997 1996 1995
---------- ---------- ---------- ----------
U.S. Dollars Deutsch- Deutsch- Deutsch-
(note 1) marks marks marks
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income 653,591 1,160,712 638,034 346,310
Adjustments to reconcile net income
to net cash provided by
operating activities:
Cumulative effect of change in
accounting principle -- -- -- (63,297)
Deferred income taxes 67,592 120,037 348,403 383,212
Depreciation and amortization 270,252 479,941 390,775 305,270
Allowance for doubtful accounts 12,118 21,520 24,762 9,651
Loss on sale of equipment 1,957 3,475 3,290 1,039
Provision for pension costs 2,447 4,345 1,885 1,796
Provision for other costs 9,136 16,225 26,855 4,095
Changes in operating assets and
liabilities:
Accounts receivable (91,903) (163,210) (249,804) (153,849)
Due from affiliated companies 109,972 195,300 (212,671) 7,164
Inventories (17,385) (30,874) (3,404) (13,427)
Prepaid expenses (1,461) (2,594) (4,304) (6,870)
Other current assets 5,693 10,110 (20,122) (4,347)
Accounts payable 114,747 203,779 64,553 36,423
Income taxes payable 106,741 189,562 37,482 --
Accrued expenses 30,753 54,614 59,509 19,412
Due to affiliated companies 51,149 90,835 385 (1,499)
Pension liabilities (114) (203) (850) (76)
---------- ---------- ---------- ----------
Net cash provided by operating
activities 1,325,285 2,353,574 1,104,778 871,007
========== ========== ========== ==========
</TABLE>
The Company paid DM 2,161, DM 4,836 and DM 40,677 for interest (net of amounts
capitalized) and DM 703,241, DM 305,431 and DM - for income taxes in 1997, 1996
and 1995 respectively.
S-35
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of AirTouch Communications, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 2, 1998 appearing on page 29 of the 1997 Annual Report to
Stockholders of AirTouch Communications, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the Financial Statement Schedule listed in
Item 14(a) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ Price Waterhouse LLP
San Francisco, California
March 2, 1998
X-1
<PAGE> 63
AirTouch Communications, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
(Dollars in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------------------------------- --------- --------------------- ----------- ---------
Balance Charged Charged Balance
at to to at
beginning costs and other end
Description of period expenses accounts Deductions of period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts $61 $114 $(5)(a) $126(b) $44
Deferred tax valuation allowance $ 2 $ 5 $ 7
Other loss reserves and allowances $21 $ 28 $ 29 $20
Year ended December 31, 1996:
Allowance for doubtful accounts $21 $ 62 $37(c) $ 59(b) $61
Deferred tax valuation allowance $26 $ 6 $ 30(d) $ 2
Other loss reserves and allowances $40 $ 18 $ 2(c) $ 39 $21
Year ended December 31, 1995:
Allowance for doubtful accounts $10 $ 56 $ 45(b) $21
Deferred tax valuation allowance $11 $ 28 $ 13(d) $26
Other loss reserves and allowances $ 3 $ 40 $ 3 $40
</TABLE>
- ----------
(a) Represents foreign currency exchange gains or (losses) recorded in the
"Cumulative translation adjustment" account, a component of
stockholders' equity.
(b) Amounts reflect items written-off, net of recoveries.
(c) Amounts reflect allowances acquired through acquisitions, net of
dispositions.
(d) Amounts reflect realization of tax benefit.
X-2
<PAGE> 1
EXHIBIT 4.3
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
THIS AMENDMENT NO. 1, dated as of January 29, 1998, is entered into
between AIRTOUCH COMMUNICATIONS, Inc. a Delaware corporation (the "Company"),
and THE BANK OF NEW YORK, a New York corporation (the "Rights Agent"),
W I T N E S S E T H:
Whereas the Company and U S West, Inc., a Colorado corporation ("USW")
propose to enter into an Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which, among other things, USW will have the right to acquire shares
of capital stock of the Company; and
Whereas in connection with the Merger Agreement, the Company and USW
propose to enter into an Amended and Restated Investment Agreement (the
"Investment Agreement") pursuant to which USW will agree to certain restrictions
relating to its ownership of capital stock of the Company; and
Whereas the Board of Directors has determined that the Merger Agreement
and the Investment Agreement are in the best of interests of the Company and its
shareholders; and
Whereas the Board of Directors has determined that it is in the best
interests of the Company and its shareholders that certain amendments be made to
Section 1(a) of the Rights Agreement, dated as of September 19, 1994 between the
Company and the Rights Agent (the "Rights Agreement") to exempt USW from the
definition of "Acquiring Person" thereunder under certain circumstances; and
Whereas the Board of Directors has determined that such amendments may
be in accordance with Section 27 of the Rights Agreement:
N o w, T h e r e f o r e, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Definition of Acquiring Person. Section 1(a) of the Rights
Agreement is hereby amended to read in full as follows:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is
-1-
<PAGE> 2
hereinafter defined) of securities representing 10% or more of the shares of
Common Stock then outstanding or who was such a Beneficial Owner at any time
after the date of the Merger, whether or not such Person continues to be the
Beneficial Owner of securities representing 10% or more of the outstanding
shares of Common Stock. Notwithstanding the foregoing, (i) in no event shall a
person who or which, together with all Affiliates and Associates of such Person,
is the Beneficial Owner of less than 10% of the Company's outstanding shares of
Common Stock become an Acquiring Person solely as a result of a reduction of the
number of shares of outstanding Common Stock including repurchases of
outstanding Common Stock by the Company, which reduction increases the
percentage of outstanding shares of Common Stock beneficially owned by such
Person (provided that any subsequent increase in the amount of Common Stock
beneficially owned by such Person, together with all Affiliates and Associates
of such Person, without the prior approval of the Company shall cause such
Person to be an Acquiring Person); (ii) the term Acquiring Person shall not mean
(A) the Company, (B) any subsidiary of the Company (as such term is hereinafter
defined), (C) any employee benefit plan of the Company or any of its
subsidiaries, (D) any entity holding securities of the Company organized,
appointed or established by the Company or any of its subsidiaries for or
pursuant to the terms of any such plan, (E) U S WEST, Inc., a Colorado
corporation, or its Affiliates or Associates (collectively, "USW"), solely as a
result of USW having become the Beneficial Owner of shares of Common Stock
pursuant to the Amended and Restated Agreement of Exchange dated as of September
30, 1995, between the Company and USW, provided that USW shall be in substantial
compliance (as determined by the Board of Directors of the Company at its
discretion) with the terms of the Amended and Restated Investment Agreement
dated as of September 30, 1995 between the Company and USW, as amended from time
to time (the "First Investment Agreement"), and further provided that upon
termination of Section 5.1 of the First Investment Agreement, USW does not
become the Beneficial Owner of any
-2-
<PAGE> 3
additional shares of Common Stock (other than pursuant to stock dividends, stock
subdivisions and the like), or (F) USW, solely as a result of USW having become
the Beneficial Owner of shares of Common Stock pursuant to the Agreement and
Plan of Merger dated as of January 29, 1998, between the Company and USW,
provided that USW shall be in substantial compliance (as determined by the Board
of Directors of the Company at its discretion) with the terms of the Amended and
Restated Investment Agreement dated as of January 29, 1998 (the "Second
Investment Agreement") between the Company and USW, as amended from time to
time, and further provided that upon termination of Section 4.1 of the Second
Investment Agreement, USW does not become the Beneficial Owner of any additional
shares of Common Stock (other than pursuant to stock dividends, stock
subdivisions and the like); and (iii) no Person shall be deemed to be an
Acquiring Person if (A) within five business days after such Person would
otherwise have become an Acquiring Person (but for the operation of this clause
(iii)), such Person notifies the Board of Directors that such Person did so
inadvertently and within two business days after such notification, such Person
is the Beneficial Owner of less than 10% of the outstanding shares of Common
Stock or (B) by reason of such Person's Beneficial Ownership of 10% or more of
the outstanding shares of Common Stock on the date hereof if prior to the Record
Date, such Person notifies the Board of Directors that such Person is no longer
the Beneficial Owner of 10% or more of the then outstanding shares of Common
Stock.
-3-
<PAGE> 4
Section 2. Counterparts. This Amendment No. 1 may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, but all such counterparts together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
Attest: AIRTOUCH COMMUNICATIONS
/s/ KRISTINA VEACO /s/ MOHAN S. GYANI
- ----------------------------- ------------------------------
Executive Vice President
and
Assistant Secretary Chief Financial Officer
Title _______________________ Title ________________________
Attest: THE BANK OF NEW YORK
/s/ KEVIN BRENNAN /s/ EDWARD I. TIMMONS
- ----------------------------- ------------------------------
Vice President Vice President
Title _______________________ Title ________________________
-4-
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the __th day of ________________, 19__, by
and between ______________ (the "Employee") and AIRTOUCH
COMMUNICATIONS, INC., a Delaware corporation (the "Corporation").
For ease of reference, this Agreement is divided into the following parts,
which begin on the pages indicated:
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION
AND BENEFITS DURING EMPLOYMENT (Sections 1-5,
beginning on page 1)
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR
CONSTRUCTIVE TERMINATION NOT OCCURRING WITHIN THREE
YEARS AFTER A CHANGE IN CONTROL (Sections 6-8,
beginning on page 6)
THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR
CONSTRUCTIVE TERMINATION OCCURRING WITHIN THREE YEARS
AFTER A CHANGE IN CONTROL (Sections 9-12, beginning
on page 9)
FOURTH PART: PARACHUTE PAYMENTS
(Sections 13-14, beginning on page 12)
FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS,
SIGNATURE PAGE (Sections 15-17, beginning on page 14)
-1-
<PAGE> 2
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND
BENEFITS DURING EMPLOYMENT
SECTION 1: TERM OF EMPLOYMENT
(a) Basic Rule. The Corporation agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the
Corporation, from June 12, 1997, until the earliest of:
(1) The date of the Employee's death; or
(2) The date when the Employee's employment terminates pursuant to
Subsection (b), (c), (d) or (e) below.
(b) Early Termination or Resignation. The Corporation may terminate the
Employee's employment for any reason by giving the Employee not less
than 30 days' advance notice in writing. The Employee may terminate
the Employee's employment for any reason by giving the Corporation not
less than 30 days' advance notice in writing.
(c) Termination for Cause. The Corporation may terminate the Employee's
employment at any time for Cause shown by giving the Employee not less
than 30 days' advance notice in writing. For all purposes under this
Agreement, "Cause" shall mean (1) a willful failure by the Employee to
substantially perform the Employee's duties under this Agreement,
other than a failure resulting from the Employee's complete or partial
incapacity due to physical or mental illness or impairment, (2) a
willful act by the Employee that constitutes gross misconduct and that
is injurious to the Corporation, (3) a willful breach by the Employee
of a material provision of this Agreement or (4) a material and
willful violation of a federal or state law or regulation applicable
to the business of the Corporation. No act, or failure to act, by the
Employee shall be considered "willful" unless committed without good
faith and without a reasonable belief that the act or omission was in
the Corporation's best interest.
(d) Termination for Disability. The Corporation may terminate the
Employee's employment for Disability by giving the Employee not less
than six months' advance notice in writing. For all purposes under
this Agreement, "Disability" shall mean that the Employee, at the time
notice is given, has been unable to perform the Employee's duties
under this Agreement for a period of not less than six consecutive
months as the result of the Employee's incapacity due to physical or
mental illness. In the event that the Employee resumes the
performance of substantially all of the Employee's duties under this
Agreement before the termination of the Employee's employment under
this Section becomes effective, the notice of termination shall
automatically be deemed to have been revoked.
(e) Notice. For all purposes under this Section 1, the employment
relationship shall terminate on the date specified in the notice of
termination. Any waiver of notice
-2-
<PAGE> 3
shall be valid only if it is made in writing and expressly refers to
the applicable notice requirement of this Section 1. If the
Corporation specifies a termination date that is earlier than the
minimum advance notice date required under Subsection (b), (c) or (d)
(as applicable), then the Employee is entitled to pay and benefits in
lieu of the omitted period of advance notice.
(f) Termination of Agreement. This Agreement shall expire when all
obligations of the parties hereunder have been satisfied.
(1) In General. In addition, except as described in Paragraph 2
below, either the Corporation or the Employee may terminate
this Agreement for any reason, and without affecting the
Employee's status as an employee, by giving the other party
one year's advance notice in writing.
(2) After a Change In Control. If a Change in Control occurs, the
Corporation may not provide notice of termination of this
Agreement under Paragraph (1) above within the two-year period
after the Change In Control. In other words, in this case,
the effective date of the termination of the Agreement may be
no earlier than three years after the Change in Control. For
all purposes under this Agreement, the term "Corporation"
shall include any successor to the Corporation's business
and/or assets that executes and delivers the assumption
agreement described in Subsection 16(a) of this Agreement or
that becomes bound by this Agreement by operation of law.
A termination of this Agreement pursuant to this Subsection (f) shall
be effective for all purposes at the end of the notice period, except
that such termination shall not effect the payment or provision of
compensation or benefits under this Agreement on account of a
termination of employment occurring prior to the termination of this
Agreement.
SECTION 2: DUTIES AND SCOPE OF EMPLOYMENT
(a) Position. The Corporation agrees to employ the Employee for the term
of employment under this Agreement in the position of
___________________ (as such position was defined in terms of
responsibilities and compensation as of the effective date of this
Agreement) or in another position offering comparable compensation,
either with the Corporation, a Subsidiary, an Affiliate or a Joint
Venture. The Corporation, Subsidiary, Affiliate or Joint Venture
directly employing the Employee is referred to in this Agreement as
the "Employing Entity," and the Corporation, its Subsidiaries,
Affiliates and Joint Ventures are referred to, in the aggregate, in
this Agreement as the "AirTouch Group."
For all purposes under this Agreement, the terms "Affiliate,"
"Subsidiary" and "Joint Venture" shall mean the following:
(1) "Affiliate" shall mean any entity other than a Subsidiary, if
the Corporation and/or one or more Subsidiaries own(s) not
less than 50% of such entity.
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(2) "Subsidiary" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning
with the Corporation, if each of the corporations other than
the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such
chain.
(3) "Joint Venture" shall mean any entity (other than a Subsidiary
or Affiliate) in which the Corporation and/or one or more
Subsidiaries and/or one or more Affiliates has a direct or
indirect ownership interest.
(b) Obligations. During the term of employment under this Agreement, the
Employee shall devote the Employee's full business efforts and time to
the Employing Entity and the AirTouch Group. The foregoing shall not
preclude the Employee from engaging in appropriate civic, charitable
or religious activities or from devoting a reasonable amount of time
to private investments or from serving on the boards of directors of
other entities, as long as such activities and service do not
interfere or conflict with the Employee's responsibilities to the
Employing Entity and the AirTouch Group.
SECTION 3: BASE COMPENSATION
During the term of employment under this Agreement, the Corporation agrees to
pay (itself or through the Employing Entity) the Employee as compensation for
services a base salary at the annual rate of $___,___, or at such higher rate
as the Corporation's Compensation and Personnel Committee of the Board of
Directors may determine from time to time. Such salary shall be payable in
accordance with the standard payroll procedures of the Employing Entity. Once
the Corporation's Compensation and Personnel Committee of the Board of
Directors has increased such salary, it thereafter shall not be reduced;
provided, however, that if a Change in Control has not occurred, such salary
(including any increases) may be reduced by the Corporation if (1) the Employee
commits an act or omission that meets the definition of Cause, as defined in
Section 1(c), or (2) the Employee and all other officers of the Corporation who
are parties to written employment agreements containing substantially the same
provisions as this Agreement have their salaries (including any increases)
reduced by the same percentage amount for the same time period. The annual
compensation specified in this Section 3, together with any increases in such
compensation that the Compensation and Personnel Committee of the Board of
Directors of the Corporation may grant from time to time, and together with any
reductions made in accordance with this Section 3, is referred to in this
Agreement as "Base Compensation."
SECTION 4: EMPLOYEE BENEFITS
(a) In General. During the term of employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit
plans and executive compensation programs maintained by the Employing
Entity, including (without limitation) pension plans, savings or
profit-sharing plans, deferred compensation plans, supplemental
retirement or excess-benefit plans, stock option, incentive or other
bonus plans, life, disability, health, accident and other insurance
programs, paid vacations, and similar plans or programs, subject in
each case to the
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generally applicable terms and conditions of the plan or program in
question and to the discretion and determinations of any person,
committee or entity administering such plan or program.
(b) Accelerated Vesting in Incentive Awards in Case of a Change in Control
of the Corporation. If, during the term of this Agreement, a Change
in Control (as defined in Section 12) occurs with respect to the
Corporation, then each of the incentive awards heretofore or hereafter
granted to the Employee by the members of the AirTouch Group or their
delegates shall become fully vested, fully exercisable or fully
payable, as the case may be, any contrary provisions of such awards or
the applicable plan notwithstanding. The term "incentive award" shall
include, without limitation, all awards under the AirTouch
Communications, Inc. 1993 Long-Term Stock Incentive Plan, all other
awards with respect to equity or derivative securities of the AirTouch
Group, and all cash incentive awards.
(c) Accelerated Vesting in Supplemental Pension Benefits in Case of a
Change in Control of the Corporation. If, during the term of this
Agreement, a Change in Control (as defined in Section 12) occurs with
respect to the Corporation, then all of the Employee's supplemental
pension benefits shall become fully vested, any contrary provisions of
the applicable plan notwithstanding. The term "supplemental pension
benefit" shall include, without limitation, all retirement benefits
provided under a plan or program of the AirTouch Group that is not
intended to qualify under section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
SECTION 5: BUSINESS EXPENSES AND TRAVEL
During the term of employment under this Agreement, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with the Employee's duties hereunder. The
Employing Entity shall reimburse the Employee for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with generally applicable policies.
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SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION NOT OCCURRING WITHIN THREE YEARS AFTER A
CHANGE IN CONTROL
SECTION 6: TERMINATIONS NOT RELATING TO A CHANGE IN CONTROL
This Second Part of the Agreement, consisting of Sections 6 through 8,
describes the benefits and compensation, if any, payable in case of termination
of employment that does not occur within three years after a Change in Control
(as defined in Section 12). The Third Part of the Agreement, consisting of
Sections 9 through 12, describes benefits and compensation, if any, payable in
case of termination occurring within three years after a Change in Control. If
benefits and compensation are payable under this Second Part, then no benefits
and compensation are payable under the Third Part.
SECTION 7: INVOLUNTARY TERMINATION WITHOUT CAUSE OR DISABILITY
In the event that, during the term of this Agreement, the Corporation or
Employing Entity terminates the Employee's employment with the AirTouch Group
for any reason other than Cause or Disability, and such termination does not
occur within three years after a Change in Control, then, after executing the
release of claims described in Section 7(e), the Employee shall be entitled to
receive the following payments and benefits:
(a) Severance (1-1/2 x payment). The Corporation shall pay to the
Employee in a lump sum, not less than 31 days nor more than 120 days
following the date of the employment termination, an amount equal to
the following:
(1) One and one-half times the Employee's Base Compensation in
effect on the date of the employment termination; plus
(2) 150% of the target Team Award under the AirTouch
Communications Short-Term Incentive Plan, for the Employee's
position as of the date of the termination.
Any other provision of this Agreement or of the AirTouch
Communications Short-Term Incentive Plan notwithstanding, after the
amount described in this Subsection (a) has been paid to the Employee,
the Employee shall have no further interest in such Short-Term
Incentive Plan.
(b) Eighteen Months of Life Insurance and Health Plan Coverage. The
coverage described in this Subsection (b) shall be provided for a
"Continuation Period" beginning on the date when the employment
termination is effective and ending on the earlier of (1) the 18-month
anniversary of the date when the employment termination is effective
or (2) the date of the Employee's death. During the Continuation
Period, the Employee (and, where applicable, the Employee's
dependents) shall be entitled to continue participation in the basic
and supplemental group term life insurance plan and in the health care
plan for employees maintained by the Employing Entity as if the
Employee were still an employee of the Employing Entity, but only if
the Employee does not elect any
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continuation coverage under Part 6 of Title I of the Employee
Retirement Income Security Act of 1974, as amended. Where applicable,
the Employee's compensation for purposes of such plans shall be deemed
to be equal to the Employee's compensation (as defined in such plans)
in effect on the date of the employment termination. To the extent
that the Corporation finds it undesirable to cover the Employee under
the group life insurance and health plans of the AirTouch Group, the
Corporation shall provide the Employee (at its own expense) with the
same level of coverage under individual policies.
(c) Incentive Programs. The period (the "Extension Period") beginning on
the date when the termination of employment is effective and ending on
the earlier of (1) the one-year anniversary of the date when the
employment termination is effective or (2) the date of the Employee's
death shall be counted as employment with the Corporation for purposes
of vesting in each of the incentive awards heretofore or hereafter
granted to the Employee by the members of the AirTouch Group or their
delegates, any contrary provisions of such awards or the applicable
plan notwithstanding. The term "incentive award" shall include,
without limitation, all awards under the AirTouch Communications, Inc.
1993 Long-Term Stock Incentive Plan, all other awards with respect to
equity or derivative securities of the AirTouch Group, and all cash
incentive awards, other than the Team Award. This Subsection shall
not be construed to require any member of the AirTouch Group to grant
any new awards to the Employee during the Extension Period. The
parties understand and agree that the Extension Period also counts as
employment with the Corporation for purposes of determining the
expiration date of any incentive award granted by any member of the
AirTouch Group or its delegate and held by the Employee when
employment terminates.
(d) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with
professional financial counseling services comparable in scope and
value to the financial counseling services made available to the
Employee immediately prior to such termination of employment.
(e) Release of Claims. As a condition to the receipt of the payments and
benefits described in this Section 7, the Employee shall be required
to execute a release of all claims arising out of the Employee's
employment or the termination thereof including, but not limited to,
any claim of discrimination under state or federal law.
(f) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section 7, nor
shall any such payment or benefit be reduced by any earnings or
benefits that the Employee may receive from any other source.
SECTION 8: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
not within three years after a Change in Control, and the termination is not
described in Section 7,
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then the Employee is entitled only to the compensation, benefits and
reimbursements payable under the terms of Sections 3, 4 and 5 of this
Agreement for the period preceding the effective date of the termination. The
payments under this Agreement shall fully discharge all responsibilities of the
AirTouch Group to the Employee upon termination of the Employee's employment.
This Section 8 applies, without limitation, to any termination of employment
initiated by the Employee, termination of employment caused by the Employee's
death or Disability, termination of the Employee for Cause, and any
constructive termination.
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THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
SECTION 9: TERMINATIONS RELATING TO A CHANGE IN CONTROL
This Third Part of the Agreement, consisting of Sections 9 through 12,
describes the benefits and compensation, if any, payable in case of termination
of employment that occurs within three years after a Change in Control (as
defined in Section 12). The Second Part of the Agreement, consisting of
Sections 6 through 8, describes benefits and compensation, if any, payable in
case of termination that does not occur within three years after a Change in
Control. If benefits and compensation are payable under this Third Part, then
no benefits and compensation are payable under the Second Part.
SECTION 10: INVOLUNTARY ACTUAL OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE
In the event that, during the term of this Agreement and within three years
after a Change in Control, the Employee's employment terminates in a Qualifying
Termination, as defined in Subsection (a), the Employee shall be entitled to
receive the payments and benefits described in Subsections (b), (c), (d) and
(e).
(a) Qualifying Termination. A Qualifying Termination occurs if:
(1) The Corporation or Employing Entity terminates the Employee's
employment with the AirTouch Group for any reason including,
without limitation, Cause or Disability;
(2) The Employee separates from employment with the AirTouch Group
in response to a "Constructive Termination," which means a
material reduction in salary or benefits, a material change in
responsibilities, or a requirement to relocate, except for
office relocations that would not increase the Employee's
one-way commute distance by more than 40 miles; or
(3) During the term of this Agreement and during the 13th full
calendar month after the occurrence of a Change in Control,
the Employee voluntarily separates from employment with the
AirTouch Group for any reason.
(b) Severance (3x payment). The Corporation shall pay to the Employee in
a lump sum, not less than 31 days nor more than 120 days following the
date of the employment termination, an amount equal to the following:
(1) Three times the Employee's Base Compensation in effect on the
date of the employment termination; plus
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(2) 300% of the target Team Award under the AirTouch
Communications Short-Term Incentive Plan, for the Employee's
position as of the date of the termination.
Any other provision of this Agreement or of the AirTouch
Communications Short-Term Incentive Plan notwithstanding, after the
amount described in this Subsection (b) has been paid to the Employee,
the Employee shall have no further interest in such Short-Term
Incentive Plan.
(c) Three Years of Life Insurance and Health Plan Coverage. The coverage
described in this Subsection (c) shall be provided for a "Continuation
Period" beginning on the date when the employment termination is
effective and ending on the earlier of (1) the third anniversary of
the date when the employment termination is effective or (2) the date
of the Employee's death. During the Continuation Period, the Employee
(and, where applicable, the Employee's dependents) shall be entitled
to continue participation in the basic and supplemental group term
life insurance plan and in the health care plan for employees
maintained by the Employing Entity as if the Employee were still an
employee of the Employing Entity, but only if the Employee does not
elect any continuation coverage under Part 6 of Title I of the
Employee Retirement Income Security Act of 1974, as amended. Where
applicable, the Employee's compensation for purposes of such plans
shall be deemed to be equal to the Employee's compensation (as defined
in such plans) in effect on the date of the employment termination.
To the extent that the Corporation finds it undesirable to cover the
Employee under the group life insurance and health plans of the
AirTouch Group, the Corporation shall provide the Employee (at its own
expense) with the same level of coverage under individual policies.
(d) Incentive Programs. The period (the "Extension Period") beginning on
the date when the termination of employment is effective and ending on
the earlier of (1) the one-year anniversary of the date when the
employment termination is effective or (2) the date of the Employee's
death shall be counted as employment with the Corporation for purposes
of determining the expiration date of any incentive award granted by
any member of the AirTouch Group or its delegate and held by the
Employee when employment terminates, any contrary provisions of such
awards or the applicable plan notwithstanding. The term "incentive
award" shall include, without limitation, all awards under the
AirTouch Communications, Inc. 1993 Long-Term Stock Incentive Plan, all
other awards with respect to equity or derivative securities of the
AirTouch Group, and all cash incentive awards other than the Team
Award. This Subsection shall not be construed to require any member
of the AirTouch Group to grant any new awards to the Employee during
the Extension Period.
(e) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with
professional financial counseling services comparable in scope and
value to the financial counseling services made available to the
Employee immediately prior to the Change in Control.
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(f) Penalty for Late or Refused Payment. If the Corporation refuses or
fails to timely pay or provide the compensation and benefits specified
in this Section 10 upon demand as provided in Section 17(c), and if
such refusal or failure is not corrected within 10 business days after
the Employee provides written notice to the Corporation concerning the
refusal or failure, then the Corporation shall pay immediately to the
Employee an additional amount equal to 50% of the Employee's Base
Compensation. This provision shall apply only once.
(g) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section 10, nor
shall any such payment or benefit be reduced by any earnings or
benefits that the Employee may receive from any other source.
SECTION 11: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
within three years after a Change in Control, and the termination is not
described in Section 10, then the Employee is entitled only to the
compensation, benefits and reimbursements payable under the terms of Sections
3, 4 and 5 of this Agreement for the period preceding the effective date of
the termination. The payments under this Agreement shall fully discharge all
responsibilities of the AirTouch Group to the Employee upon termination of the
Employee's employment. This Section 11 applies, without limitation, to any
termination of employment initiated by the Employee (except an
Employee-initiated termination that is described in Paragraph (2) or (3) of
Section 10(a)), a termination of employment caused by the Employee's death, or
any constructive termination that does not meet the requirements of a
"Constructive Termination" defined in Paragraph (2) of Section 10(a).
SECTION 12: DEFINITION OF CHANGE IN CONTROL
For all purposes under this Agreement, "Change in Control" shall mean a "Change
in Control" of the Corporation, as defined in the AirTouch Communications, Inc.
1993 Long-Term Stock Incentive Plan (or the successor to such plan).
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FOURTH PART: PARACHUTE PAYMENTS
SECTION 13: GROSS-UP PAYMENT.
In the event it is determined that any payment or distribution of any type to
or for the benefit of the Employee, pursuant to this Agreement or otherwise, by
the Corporation or any member of the AirTouch Group, any Person who acquires
ownership or effective control of the Corporation or any member of the AirTouch
Group, or ownership of a substantial portion of the assets of the Corporation
or any member of the AirTouch Group (within the meaning of section 280G of the
Code and the regulations thereunder) or any affiliate of such Person (the
"Total Payments") would be subject to the excise tax imposed by section 4999 of
the Code or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that,
after payment by the Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Total Payments.
SECTION 14: DETERMINATION BY ACCOUNTANT
All mathematical determinations and determinations as to whether any of the
Total Payments are "parachute payments" (within the meaning of section 280G of
the Code), in each case which determinations are required to be made under this
Section 14, including whether a Gross-Up Payment is required, the amount of
such Gross-Up Payment, and amounts relevant to the last sentence of this
Section 14, shall be made by an independent accounting firm selected by the
Employee from amount the largest six accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide to the Corporation and
to the Employee its determination (the "Determination"), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment and any
other relevant matter, within five days after termination of the Employee's
employment, if applicable, or at such earlier time as is requested by the
Corporation or the Employee (if the Employee reasonably believes that any of
the Total Payments may be subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with a written statement that such Accounting Firm has concluded that
no Excise Tax is payable (including the reasons therefor) and that the Employee
has substantial authority not to report any Excise Tax on the Employee's
federal income tax return. If a Gross-Up Payment is determined to be payable,
it shall be paid to the Employee within five days after the Determination is
delivered to the Corporation or the Employee. Any determination by the
Accounting Firm shall be binding upon the Corporation and the Employee, absent
manifest error.
As a result of uncertainty in the application of section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments not made by the Corporation and members of the
AirTouch Group should have been made ("Underpayment"), or that Gross-Up
Payments were made by the
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Corporation and members of the AirTouch Group that should not have been made
("Overpayments"). In either such event, the Accounting Firm shall determine
the amount of the Underpayment or Overpayment that has occurred. In the case
of an Underpayment, the Corporation promptly shall pay, or cause to be paid,
the amount of such Underpayment to or for the benefit of the Employee. In the
case of an Overpayment, the Employee shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established by, the Corporation, and otherwise reasonably cooperate
with the Corporation to correct such Overpayment; provided, however, that (1)
Employee shall not in any event be obligated to return to the Corporation an
amount greater than the net after-tax portion of the Overpayment that he has
retained or recovered as a refund from the applicable taxing authorities and
(2) this provision shall be interpreted in a manner consistent with the intent
of Section 13, which is to make the Employee whole, on an after-tax basis, from
the application of the Excise Tax, it being understood that the correction of
an Overpayment may result in the Employee repaying to the Corporation an amount
that is less than the Overpayment.
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FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE
PAGE
SECTION 15: CONFIDENTIAL INFORMATION
(a) Acknowledgement. The Corporation and the Employee acknowledge that
the services to be performed by the Employee under this Agreement are
unique and extraordinary and that, as a result of the Employee's
employment, the Employee will be in a relationship of confidence and
trust with the Corporation and will come into possession of
"Confidential Information" (1) owned or controlled by the AirTouch
Group, (2) in the possession of the AirTouch Group and belonging to
third parties or (3) conceived, originated, discovered or developed,
in whole or in part, by the Employee. As used herein "Confidential
Information" includes trade secrets and other confidential or
proprietary business, technical, personnel or financial information,
whether or not the Employee's work product, in written, graphic, oral
or other tangible or intangible forms, including but not limited to
specifications, samples, records, data, computer programs, drawings,
diagrams, models, customer names, business or marketing plans,
studies, analyses, projections and reports, communications by or to
attorneys (including attorney-client privileged communications), memos
and other materials prepared by attorneys or under their direction
(including attorney work product), and software systems and processes.
Any information that is not readily available to the public shall be
considered to be a trade secret and confidential and proprietary, even
if it is not specifically marked as such, unless the Corporation
advises the Employee otherwise in writing.
(b) Nondisclosure. The Employee agrees that the Employee will not,
without the prior written consent of the Corporation, directly or
indirectly use or disclose Confidential Information to any person,
during or after the Employee's employment, except as may be necessary
in the ordinary course of performing the Employee's duties under this
Agreement. The Employee will keep the Confidential Information in
strictest confidence and trust. This Section 15 shall apply
indefinitely, both during and after the term of this Agreement.
(c) Surrender Upon Termination. The Employee agrees that in the event of
the termination of the Employee's employment for any reason, the
Employee will immediately deliver to the Corporation (and/or other
members of the AirTouch Group, as applicable) all property belonging
to the AirTouch Group, including all documents and materials of any
nature pertaining to the Employee's work with the AirTouch Group, and
will not take with the Employee any documents or materials of any
description, or any reproduction thereof of any description,
containing or pertaining to any Confidential Information. It is
understood that the Employee is free to use information that is in the
public domain (not as a result of a breach of this Agreement).
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SECTION 16: SUCCESSORS
(a) Corporation's Successors. The Corporation shall require any successor
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all
of the Corporation's business and/or assets, by an agreement in
substance and form satisfactory to the Employee, to assume this
Agreement and to agree expressly to perform this Agreement in the same
manner and to the same extent as the Corporation would be required to
perform it in the absence of a succession. The Corporation's failure
to obtain such agreement prior to the effectiveness of a succession
shall be a breach of this Agreement and shall entitle the Employee to
all of the compensation and benefits to which the Employee would have
been entitled hereunder if the Corporation had involuntarily
terminated the Employee's employment without Cause or Disability, on
the date when such succession becomes effective.
(b) Employee's Successors. This Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
SECTION 17: MISCELLANEOUS PROVISIONS
(a) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of
the Corporation (other than the Employee). No waiver by either party
of any breach of, or of compliance with, any condition or provision of
this Agreement by the other party shall be considered a waiver of any
other condition or provision or of the same condition or provision at
another time.
(b) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) that are not
expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof. In
addition, the Employee hereby acknowledges and agrees that this
Agreement supersedes in its entirety any employment agreement between
the Employee and the Corporation in effect immediately prior to the
effective date of this Agreement. As of the effective date of this
Agreement, such employment agreement shall terminate without any
further obligation by either party thereto, and the Employee hereby
relinquishes any further rights that the Employee may have had under
such prior employment agreement.
(c) Presumption. Subject to the provisions of Section 13, the Corporation
shall make or cause to be made a payment described in this Agreement
upon receiving written notice from the Employee describing such
payment, referring to the provision of this Agreement under which such
payment is claimed and certifying that all conditions for such
payment, as set forth in this Agreement, have been satisfied. The
information so furnished to the Corporation by the
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Employee shall be presumed to be correct, subject to rebuttal by the
Corporation after payment. After making the payment claimed by the
Employee, the Corporation may seek a refund of such payment in
accordance with Subsection (h) below. This Subsection (c) shall not
be used to cause a payment to be made at a time earlier than provided
in this Agreement.
(d) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the
case of the Employee, mailed notices shall be addressed to the
Employee at the home address that the Employee most recently
communicated to the Corporation in writing. In the case of the
Corporation, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of
its Secretary.
(e) No Setoff. There shall be no right of setoff or counterclaim, with
respect to any claim, debt or obligation, against payments to the
Employee under this Agreement.
(f) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of California, irrespective of California's choice-of-law
principles.
(g) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in
full force and effect.
(h) Arbitration. Except as otherwise provided in Section 13, any dispute
or controversy arising out of the Employee's employment or the
termination thereof, including, but not limited to, any claim of
discrimination under state or federal law, shall be settled
exclusively by arbitration in San Francisco, California, in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The foregoing notwithstanding, a dispute or controversy
over whether Cause exists for the termination of an Employee, whether
such termination occurred within three years after a Change in
Control, or a dispute or controversy over whether a Constructive
Termination has occurred, shall be arbitrated by a three-member panel
of the outside directors of the Corporation, with the selection of the
panel to be made by the Chairman, as of one year prior to the Change
in Control, of the Corporation's Board of Directors. If three such
individuals are unwilling to serve as arbitrators, the preceding
sentence shall be inapplicable, and all disputes and controversies
shall be subject to arbitration in accordance with the rules of the
American Arbitration Association, as provided above in this
Subsection. For purposes of this Subsection, "outside directors"
shall mean members of the Board of Directors of the Corporation, as
such Board of Directors was constituted one year prior to the Change
in Control, who were not employees of the Corporation or another
member of the AirTouch Group one year prior to the Change in Control.
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(i) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (i) shall be void.
(j) Employment at Will; Limitation of Remedies. The Corporation and the
Employee acknowledge that the Employee's employment is at will, as
defined under applicable law. If the Employee's employment terminates
for any reason, the Employee shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided by
this Agreement.
(k) Employment Taxes. All payments made pursuant to this Agreement shall
be subject to withholding of applicable taxes.
(l) Benefit Coverage Non-Additive. In the event that the Employee is
entitled to life insurance and health plan coverage under more than
one provision hereunder, only one provision shall apply, and neither
the periods of coverage nor the amounts of benefits shall be additive.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Corporation by its duly authorized officer, as of the day and year
first above written.
_______________________________
Employee
AIRTOUCH COMMUNICATIONS, INC.
By _____________________________
John C. Riding
Its Vice President, Human
Resources and Corporate Services
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EXHIBIT 10.27
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the _____ day of ____________, 199_, by
and between ___________ (the "Employee") and AIRTOUCH COMMUNICATIONS, INC., a
Delaware corporation (the "Corporation").
For ease of reference, this Agreement is divided into the following parts,
which begin on the pages indicated:
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION
AND BENEFITS DURING EMPLOYMENT (Sections 1-5,
beginning on page 1)
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR
CONSTRUCTIVE TERMINATION NOT OCCURRING WITHIN THREE
YEARS AFTER A CHANGE IN CONTROL (Sections 6-8,
beginning on page 6)
THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR
CONSTRUCTIVE TERMINATION OCCURRING WITHIN THREE YEARS
AFTER A CHANGE IN CONTROL (Sections 9-12, beginning
on page 8)
FOURTH PART: PARACHUTE PAYMENTS
(Sections 13-16, beginning on page 11)
FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS,
SIGNATURE PAGE (Sections 17-19, beginning on page 14)
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FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION
AND BENEFITS DURING EMPLOYMENT
SECTION 1: TERM OF EMPLOYMENT
(a) Basic Rule. The Corporation agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the
Corporation, from _____________ ___, 199_, until the earliest of:
(1) The date of the Employee's death; or
(2) The date when the Employee's employment terminates pursuant to
Subsection (b), (c), (d) or (e) below.
(b) Early Termination or Resignation. The Corporation may terminate the
Employee's employment for any reason by giving the Employee not less
than 30 days' advance notice in writing. The Employee may terminate
the Employee's employment for any reason by giving the Corporation not
less than 30 days' advance notice in writing.
(c) Termination for Cause. The Corporation may terminate the Employee's
employment at any time for Cause shown by giving the Employee notice
in writing and paying the Employee pay and benefits in lieu of advance
notice to the extent that notice of termination was not given at least
30 days in advance. For all purposes under this Agreement, "Cause"
shall mean (1) a willful failure by the Employee to substantially
perform the Employee's duties under this Agreement, other than a
failure resulting from the Employee's complete or partial incapacity
due to physical or mental illness or impairment, (2) a willful act by
the Employee that constitutes gross misconduct and that is injurious
to the Corporation, (3) a willful breach by the Employee of a material
provision of this Agreement or (4) a material and willful violation of
a federal or state law or regulation applicable to the business of the
Corporation. No act, or failure to act, by the Employee shall be
considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was in the Corporation's
best interest.
(d) Termination for Disability. The Corporation may terminate the
Employee's employment for Disability by giving the Employee not less
than six months' advance notice in writing. For all purposes under
this Agreement, "Disability" shall mean that the Employee, at the time
notice is given, has been unable to perform the Employee's duties
under this Agreement for a period of not less than six consecutive
months as the result of the Employee's incapacity due to physical or
mental illness. In the event that the Employee resumes the
performance of substantially all of the Employee's duties under this
Agreement before the termination of the Employee's employment under
this Section becomes effective, the notice of termination shall
automatically be deemed to have been revoked.
(e) Notice. For all purposes under this Section 1, the employment
relationship shall terminate on the date specified in the notice of
termination. Any waiver of notice
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<PAGE> 3
shall be valid only if it is made in writing and expressly refers to
the applicable notice requirement of this Section 1. If the
Corporation specifies a termination date that is earlier than the
minimum advance notice date required under Subsection (b), (c) or (d)
(as applicable), then the Employee is entitled to pay and benefits in
lieu of the omitted period of advance notice.
(f) Termination of Agreement. This Agreement shall expire when all
obligations of the parties hereunder have been satisfied.
(1) In General. In addition, except as described in Paragraph 2
below, either the Corporation or the Employee may terminate
this Agreement for any reason, and without affecting the
Employee's status as an employee, by giving the other party
one year's advance notice in writing.
(2) After a Change In Control. If a Change in Control occurs, the
Corporation may not provide notice of termination of this
Agreement under Paragraph (1) above within the two-year period
after the Change In Control. In other words, in this case,
the effective date of the termination of the Agreement may be
no earlier than three years after the Change in Control. For
all purposes under this Agreement, the term "Corporation"
shall include any successor to the Corporation's business
and/or assets that executes and delivers the assumption
agreement described in Subsection 18(a) of this Agreement or
that becomes bound by this Agreement by operation of law.
A termination of this Agreement pursuant to this Subsection (f) shall
be effective for all purposes at the end of the notice period, except
that such termination shall not effect the payment or provision of
compensation or benefits under this Agreement on account of a
termination of employment occurring prior to the termination of this
Agreement.
SECTION 2: DUTIES AND SCOPE OF EMPLOYMENT
(a) Position. The Corporation agrees to employ the Employee for the term
of employment under this Agreement in the position of
___________________ (as such position was defined in terms of
responsibilities and compensation as of the effective date of this
Agreement) or in another position offering comparable compensation,
either with the Corporation, a Subsidiary, an Affiliate or a Joint
Venture. The Corporation, Subsidiary, Affiliate or Joint Venture
directly employing the Employee is referred to in this Agreement as
the "Employing Entity," and the Corporation, its Subsidiaries,
Affiliates and Joint Ventures are referred to, in the aggregate, in
this Agreement as the "AirTouch Group."
For all purposes under this Agreement, the terms "Affiliate,"
"Subsidiary" and "Joint Venture" shall mean the following:
(1) "Affiliate" shall mean any entity other than a Subsidiary, if
the Corporation and/or one or more Subsidiaries own(s) not
less than 50% of such entity.
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<PAGE> 4
(2) "Subsidiary" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning
with the Corporation, if each of the corporations other than
the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such
chain.
(3) "Joint Venture" shall mean any entity (other than a Subsidiary
or Affiliate) in which the Corporation and/or one or more
Subsidiaries and/or one or more Affiliates has a direct or
indirect ownership interest.
(b) Obligations. During the term of employment under this Agreement, the
Employee shall devote the Employee's full business efforts and time to
the Employing Entity and the AirTouch Group. The foregoing shall not
preclude the Employee from engaging in appropriate civic, charitable
or religious activities or from devoting a reasonable amount of time
to private investments or from serving on the boards of directors of
other entities, as long as such activities and service do not
interfere or conflict with the Employee's responsibilities to the
Employing Entity and the AirTouch Group.
SECTION 3: BASE COMPENSATION
During the term of employment under this Agreement, the Corporation agrees to
pay (itself or through the Employing Entity) the Employee as compensation for
services a base salary at the annual rate of $___,___, or at such higher rate
as the Corporation's Compensation and Personnel Committee of the Board of
Directors may determine from time to time. Such salary shall be payable in
accordance with the standard payroll procedures of the Employing Entity. Once
the Corporation's Compensation and Personnel Committee of the Board of
Directors has increased such salary, it thereafter shall not be reduced;
provided, however, that if a Change in Control has not occurred, such salary
(including any increases) may be reduced by the Corporation if (1) the Employee
commits an act or omission that meets the definition of Cause, as defined in
Section 1(c), or (2) the Employee and all other officers of the Corporation who
are parties to written employment agreements containing substantially the same
provisions as this Agreement have their salaries (including any increases)
reduced by the same percentage amount for the same time period. The annual
compensation specified in this Section 3, together with any increases in such
compensation that the Compensation and Personnel Committee of the Board of
Directors of the Corporation may grant from time to time, and together with any
reductions made in accordance with this Section 3, is referred to in this
Agreement as "Base Compensation."
SECTION 4: EMPLOYEE BENEFITS
(a) In General. During the term of employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit
plans and executive compensation programs maintained by the Employing
Entity, including (without limitation) pension plans, savings or
profit-sharing plans, deferred compensation plans, supplemental
retirement or excess-benefit plans, stock option, incentive or other
bonus plans, life, disability, health, accident and other insurance
programs, paid vacations, and similar plans or programs, subject in
each case to the generally applicable terms and conditions of the plan
or program in question and
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<PAGE> 5
to the discretion and determinations of any person, committee or
entity administering such plan or program.
(b) Accelerated Vesting in Incentive Awards in Case of a Change in Control
of the Corporation. If, during the term of this Agreement, a Change
in Control (as defined in Section 12) occurs with respect to the
Corporation, then each of the incentive awards heretofore or hereafter
granted to the Employee by the members of the AirTouch Group or their
delegates shall become fully vested, fully exercisable or fully
payable, as the case may be, any contrary provisions of such awards or
the applicable plan notwithstanding. The term "incentive award" shall
include, without limitation, all awards under the AirTouch
Communications, Inc. 1993 Long-Term Stock Incentive Plan, all other
awards with respect to equity or derivative securities of the AirTouch
Group, and all cash incentive awards.
(c) Accelerated Vesting in Supplemental Pension Benefits in Case of a
Change in Control of the Corporation. If, during the term of this
Agreement, a Change in Control (as defined in Section 12) occurs with
respect to the Corporation, then all of the Employee's supplemental
pension benefits shall become fully vested, any contrary provisions of
the applicable plan notwithstanding. The term "supplemental pension
benefit" shall include, without limitation, all benefits under the
AirTouch Communications Supplemental Executive Pension Plan and all
other retirement benefits provided under a plan or program of the
AirTouch Group that is not intended to qualify under section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 5: BUSINESS EXPENSES AND TRAVEL
During the term of employment under this Agreement, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with the Employee's duties hereunder. The
Employing Entity shall reimburse the Employee for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with generally applicable policies.
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<PAGE> 6
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION NOT OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
SECTION 6: TERMINATIONS NOT RELATING TO A CHANGE IN CONTROL
This Second Part of the Agreement, consisting of Sections 6 through 8,
describes the benefits and compensation, if any, payable in case of termination
of employment that does not occur within three years after a Change in Control
(as defined in Section 12). The Third Part of the Agreement, consisting of
Sections 9 through 12, describes benefits and compensation, if any, payable in
case of termination occurring within three years after a Change in Control. If
benefits and compensation are payable under this Second Part, then no benefits
and compensation are payable under the Third Part.
SECTION 7: INVOLUNTARY TERMINATION WITHOUT CAUSE OR DISABILITY
In the event that, during the term of this Agreement, the Corporation or
Employing Entity terminates the Employee's employment with the AirTouch Group
for any reason other than Cause or Disability, and such termination does not
occur within three years after a Change in Control, then, after executing the
release of claims described in Section 7(d), the Employee shall be entitled to
receive the following payments and benefits:
(a) Severance (1x payment). The Corporation shall pay to the Employee in
a lump sum, not less than 31 days nor more than 120 days following the
date of the employment termination, an amount equal to the following:
(1) One times the Employee's Base Compensation in effect on the
date of the employment termination; plus
(2) 100% of the target Team Award under the AirTouch
Communications Short-Term Incentive Plan, for the Employee's
position as of the date of the termination.
Any other provision of this Agreement or of the AirTouch
Communications Short-Term Incentive Plan notwithstanding, after the
amount described in this Subsection (a) has been paid to the Employee,
the Employee shall have no further interest in such Short-Term
Incentive Plan.
(b) One Year of Life Insurance and Health Plan Coverage. The coverage
described in this Subsection (b) shall be provided for a "Continuation
Period" beginning on the date when the employment termination is
effective and ending on the earlier of (1) the first anniversary of
the date when the employment termination is effective or (2) the date
of the Employee's death. During the Continuation Period, the Employee
(and, where applicable, the Employee's dependents) shall be entitled
to continue participation in the basic and supplemental group term
life insurance plan and in the health care plan for employees
maintained by the Employing Entity as if the Employee were still an
employee of the Employing Entity, but only if the Employee does not
elect any continuation coverage under Part 6 of Title I of the
Employee Retirement Income Security Act of 1974, as
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amended. Where applicable, the Employee's compensation for purposes
of such plans shall be deemed to be equal to the Employee's
compensation (as defined in such plans) in effect on the date of the
employment termination. To the extent that the Corporation finds it
undesirable to cover the Employee under the group life insurance and
health plans of the AirTouch Group, the Corporation shall provide the
Employee (at its own expense) with the same level of coverage under
individual policies.
(c) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with
professional financial counseling services comparable in scope and
value to the financial counseling services made available to the
Employee immediately prior to such termination of employment.
(d) Release of Claims. As a condition to the receipt of the payments and
benefits described in this Section 7, the Employee shall be required
to execute a release of all claims arising out of the Employee's
employment or the termination thereof including, but not limited to,
any claim of discrimination under state or federal law.
(e) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section 7, nor
shall any such payment or benefit be reduced by any earnings or
benefits that the Employee may receive from any other source.
SECTION 8: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
not within three years after a Change in Control, and the termination is not
described in Section 7, then the Employee is entitled only to the compensation,
benefits and reimbursements payable under the terms of Sections 3, 4 and 5 of
this Agreement for the period preceding the effective date of the termination.
The payments under this Agreement shall fully discharge all responsibilities of
the AirTouch Group to the Employee upon termination of the Employee's
employment. This Section 8 applies, without limitation, to any termination of
employment initiated by the Employee, termination of employment caused by the
Employee's death or Disability, termination of the Employee for Cause, and any
constructive termination.
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<PAGE> 8
THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
SECTION 9: TERMINATIONS RELATING TO A CHANGE IN CONTROL
This Third Part of the Agreement, consisting of Sections 9 through 12,
describes the benefits and compensation, if any, payable in case of termination
of employment that occurs within three years after a Change in Control (as
defined in Section 12). The Second Part of the Agreement, consisting of
Sections 6 through 8, describes benefits and compensation, if any, payable in
case of termination that does not occur within three years after a Change in
Control. If benefits and compensation are payable under this Third Part, then
no benefits and compensation are payable under the Second Part.
SECTION 10: INVOLUNTARY ACTUAL OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE
In the event that, during the term of this Agreement and within three years
after a Change in Control, the Employee's employment terminates in a Qualifying
Termination, as defined in Subsection (a), the Employee shall be entitled to
receive the payments and benefits described in Subsections (b), (c) and (d).
(a) Qualifying Termination. A Qualifying Termination occurs if the
Corporation or Employing Entity terminates the Employee's employment
with the AirTouch Group for any reason including, without limitation,
Cause or Disability. A Qualifying Termination also includes a
"Constructive Termination," which means a material reduction in salary
or benefits, a material change in responsibilities, or a requirement
to relocate, except for office relocations that would not increase the
Employee's one-way commute distance by more than 40 miles.
(b) Severance (2x payment). The Corporation shall pay to the Employee in
a lump sum, not less than 31 days nor more than 120 days following the
date of the employment termination, an amount equal to the following:
(1) Two times the Employee's Base Compensation in effect on the
date of the employment termination; plus
(2) 200% of the target Team Award under the AirTouch
Communications Short-Term Incentive Plan, for the Employee's
position as of the date of the termination.
Any other provision of this Agreement or of the AirTouch
Communications Short-Term Incentive Plan notwithstanding, after the
amount described in this Subsection (b) has been paid to the Employee,
the Employee shall have no further interest in such Short-Term
Incentive Plan.
(c) Two Years of Life Insurance and Health Plan Coverage. The coverage
described in this Subsection (c) shall be provided for a "Continuation
Period" beginning on the date when the employment termination is
effective and ending on the earlier of (1) the second anniversary of
the date when the employment
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<PAGE> 9
termination is effective or (2) the date of the Employee's death.
During the Continuation Period, the Employee (and, where applicable,
the Employee's dependents) shall be entitled to continue participation
in the basic and supplemental group term life insurance plan and in
the health care plan for employees maintained by the Employing Entity
as if the Employee were still an employee of the Employing Entity, but
only if the Employee does not elect any continuation coverage under
Part 6 of Title I of the Employee Retirement Income Security Act of
1974, as amended. Where applicable, the Employee's compensation for
purposes of such plans shall be deemed to be equal to the Employee's
compensation (as defined in such plans) in effect on the date of the
employment termination. To the extent that the Corporation finds it
undesirable to cover the Employee under the group life insurance and
health plans of the AirTouch Group, the Corporation shall provide the
Employee (at its own expense) with the same level of coverage under
individual policies.
(d) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with
professional financial counseling services comparable in scope and
value to the financial counseling services made available to the
Employee immediately prior to the Change in Control.
(e) Penalty for Late or Refused Payment. If the Corporation refuses or
fails to timely pay or provide the compensation and benefits specified
in this Section 10 upon demand as provided in Section 19(c), and if
such refusal or failure is not corrected within 10 business days after
the Employee provides written notice to the Corporation concerning the
refusal or failure, then the Corporation shall pay immediately to the
Employee an additional amount equal to 50% of the Employee's Base
Compensation. This provision shall apply only once.
(f) No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit contemplated by this Section 10, nor
shall any such payment or benefit be reduced by any earnings or
benefits that the Employee may receive from any other source.
SECTION 11: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
within three years after a Change in Control, and the termination is not
described in Section 10, then the Employee is entitled only to the
compensation, benefits and reimbursements payable under the terms of Sections
3, 4 and 5 of this Agreement for the period preceding the effective date of
the termination. The payments under this Agreement shall fully discharge all
responsibilities of the AirTouch Group to the Employee upon termination of the
Employee's employment. This Section 11 applies, without limitation, to any
termination of employment initiated by the Employee (except an
Employee-initiated termination in response to a "Constructive Termination," as
defined in Section 10(a)), termination of employment caused by the Employee's
death, and any constructive termination that does not meet the requirements of
a "Constructive Termination" defined in Section 10(a).
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SECTION 12: DEFINITION OF CHANGE IN CONTROL
For all purposes under this Agreement, "Change in Control" shall mean a "Change
in Control" of the Corporation, as defined in the AirTouch Communications, Inc.
Long-Term Stock Incentive Plan (or the successor to such plan).
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FOURTH PART: PARACHUTE PAYMENTS
SECTION 13: GENERAL RULE ON LIMITATION ON PAYMENTS
Any provision of this Agreement to the contrary notwithstanding, in the event
that the independent auditors retained by the Corporation most recently prior
to a Change in Control (the "Auditors") determine that any payment or transfer
by the AirTouch Group to or for the benefit of the Employee, whether paid or
payable (or transferred or transferable) pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be nondeductible by the Corporation
or any member of the AirTouch Group for federal income tax purposes because of
section 280G of the Code, then the aggregate present value of all Payments
shall be reduced (but not below zero) to the Reduced Amount. For purposes of
this Section 13, the "Reduced Amount" shall be the amount, expressed as a
present value, that maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Corporation or any
member of the AirTouch Group because of section 280G of the Code.
SECTION 14: REDUCTION OF PAYMENTS
If the Auditors determine that any Payment would be nondeductible by the
Corporation or any member of the AirTouch Group because of section 280G of the
Code, then the Corporation, within five business days after being notified by
the Auditors, shall give the Employee notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount. The Employee may then
elect, in the Employee's sole discretion, which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall advise the
Corporation in writing of this election within thirty (30) days of receipt of
notice. If no such election is made by the Employee within such thirty (30)
day period, then the Corporation may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Employee promptly of such election. For purposes of this Section 14, present
values shall be determined in accordance with section 280G(d)(4) of the Code.
All determinations made by the Auditors under this Section 14 shall be binding
upon the Corporation and the Employee and shall be made within 60 days of the
date of the employment termination.
SECTION 15: OVERPAYMENTS AND UNDERPAYMENTS
As a result of uncertainty in the application of section 280G of the Code at
the time of an initial determination by the Auditors hereunder, it is possible
that Payments will have been made by the AirTouch Group that should not have
been made (an "Overpayment") or that additional Payments that will not have
been made by the Corporation could have been made (an "Underpayment"),
consistent in each case with the calculation of the Reduced Amount hereunder.
In the event that the Auditors, based upon the assertion of a deficiency by the
Internal Revenue Service against the Corporation, a member of the AirTouch
Group or the Employee that the Auditors believe has a high probability of
success, determine that an Overpayment has been made, such Overpayment shall be
treated for all purposes as a loan to the Employee that the Employee shall
repay to the Corporation (or the appropriate member of the AirTouch Group),
together with interest
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<PAGE> 12
at the applicable federal rate provided for in section 7872(f)(2)(A) of the
Code; provided, however, that no amount shall be so payable by the Employee if
and to the extent that such payment would not reduce the amount that is subject
to taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly
be paid or transferred by the Corporation to or for the benefit of the
Employee, together with interest at the applicable federal rate provided for in
section 7872(f)(2)(A) of the Code.
SECTION 16: COMPENSATION AND PERSONNEL COMMITTEE'S ABILITY TO WAIVE
LIMITATIONS
At any time, and in its sole discretion, the Corporation's Compensation and
Personnel Committee of the Board of Directors may elect to waive, in whole or
in part, the reduction of a Payment, notwithstanding the determination that
such Payment will be nondeductible by the Corporation (or other member of the
AirTouch Group) for federal income tax purposes because of section 280G of the
Code.
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FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE
PAGE
SECTION 17: CONFIDENTIAL INFORMATION
(a) Acknowledgement. The Corporation and the Employee acknowledge that
the services to be performed by the Employee under this Agreement are
unique and extraordinary and that, as a result of the Employee's
employment, the Employee will be in a relationship of confidence and
trust with the Corporation and will come into possession of
"Confidential Information" (1) owned or controlled by the AirTouch
Group, (2) in the possession of the AirTouch Group and belonging to
third parties or (3) conceived, originated, discovered or developed,
in whole or in part, by the Employee. As used herein "Confidential
Information" includes trade secrets and other confidential or
proprietary business, technical, personnel or financial information,
whether or not the Employee's work product, in written, graphic, oral
or other tangible or intangible forms, including but not limited to
specifications, samples, records, data, computer programs, drawings,
diagrams, models, customer names, business or marketing plans,
studies, analyses, projections and reports, communications by or to
attorneys (including attorney-client privileged communications), memos
and other materials prepared by attorneys or under their direction
(including attorney work product), and software systems and processes.
Any information that is not readily available to the public shall be
considered to be a trade secret and confidential and proprietary, even
if it is not specifically marked as such, unless the Corporation
advises the Employee otherwise in writing.
(b) Nondisclosure. The Employee agrees that the Employee will not,
without the prior written consent of the Corporation, directly or
indirectly use or disclose Confidential Information to any person,
during or after the Employee's employment, except as may be necessary
in the ordinary course of performing the Employee's duties under this
Agreement. The Employee will keep the Confidential Information in
strictest confidence and trust. This Section 17 shall apply
indefinitely, both during and after the term of this Agreement.
(c) Surrender Upon Termination. The Employee agrees that in the event of
the termination of the Employee's employment for any reason, the
Employee will immediately deliver to the Corporation (and/or other
members of the AirTouch Group, as applicable) all property belonging
to the AirTouch Group, including all documents and materials of any
nature pertaining to the Employee's work with the AirTouch Group, and
will not take with the Employee any documents or materials of any
description, or any reproduction thereof of any description,
containing or pertaining to any Confidential Information. It is
understood that the Employee is free to use information that is in the
public domain (not as a result of a breach of this Agreement).
SECTION 18: SUCCESSORS
(a) Corporation's Successors. The Corporation shall require any successor
(whether direct or indirect and whether by purchase, lease, merger,
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consolidation, liquidation or otherwise) to all or substantially all
of the Corporation's business and/or assets, by an agreement in
substance and form satisfactory to the Employee, to assume this
Agreement and to agree expressly to perform this Agreement in the same
manner and to the same extent as the Corporation would be required to
perform it in the absence of a succession. The Corporation's failure
to obtain such agreement prior to the effectiveness of a succession
shall be a breach of this Agreement and shall entitle the Employee to
all of the compensation and benefits to which the Employee would have
been entitled hereunder if the Corporation had involuntarily
terminated the Employee's employment without Cause or Disability, on
the date when such succession becomes effective.
(b) Employee's Successors. This Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
SECTION 19: MISCELLANEOUS PROVISIONS
(a) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of
the Corporation (other than the Employee). No waiver by either party
of any breach of, or of compliance with, any condition or provision of
this Agreement by the other party shall be considered a waiver of any
other condition or provision or of the same condition or provision at
another time.
(b) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) that are not
expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof. In
addition, the Employee hereby acknowledges and agrees that this
Agreement supersedes in its entirety any employment agreement between
the Employee and the Corporation in effect immediately prior to the
effective date of this Agreement. As of the effective date of this
Agreement, such employment agreement shall terminate without any
further obligation by either party thereto, and the Employee hereby
relinquishes any further rights that the Employee may have had under
such prior employment agreement.
(c) Presumption. Subject to the provisions of Section 13, the Corporation
shall make or cause to be made a payment described in this Agreement
upon receiving written notice from the Employee describing such
payment, referring to the provision of this Agreement under which such
payment is claimed and certifying that all conditions for such
payment, as set forth in this Agreement, have been satisfied. The
information so furnished to the Corporation by the Employee shall be
presumed to be correct, subject to rebuttal by the Corporation after
payment. After making the payment claimed by the Employee, the
Corporation may seek a refund of such payment in accordance with
Subsection (h) below. This Subsection (c) shall not be used to cause
a payment to be made at a time earlier than provided in this
Agreement.
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(d) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the
case of the Employee, mailed notices shall be addressed to the
Employee at the home address that the Employee most recently
communicated to the Corporation in writing. In the case of the
Corporation, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of
its Secretary.
(e) No Setoff. There shall be no right of setoff or counterclaim, with
respect to any claim, debt or obligation, against payments to the
Employee under this Agreement.
(f) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of California, irrespective of California's choice-of-law
principles.
(g) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in
full force and effect.
(h) Arbitration. Except as otherwise provided in Section 13, any dispute
or controversy arising out of the Employee's employment or the
termination thereof, including, but not limited to, any claim of
discrimination under state or federal law, shall be settled
exclusively by arbitration in San Francisco, California, in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The foregoing notwithstanding, a dispute or controversy
over whether Cause exists for the termination of an Employee, whether
such termination occurred within three years after a Change in
Control, or a dispute or controversy over whether a Constructive
Termination has occurred, shall be arbitrated by a three-member panel
of the outside directors of the Corporation, with the selection of the
panel to be made by the Chairman, as of one year prior to the Change
in Control, of the Corporation's Board of Directors. If three such
individuals are unwilling to serve as arbitrators, the preceding
sentence shall be inapplicable, and all disputes and controversies
shall be subject to arbitration in accordance with the rules of the
American Arbitration Association, as provided above in this
Subsection. For purposes of this Subsection, "outside directors"
shall mean members of the Board of Directors of the Corporation, as
such Board of Directors was constituted one year prior to the Change
in Control, who were not employees of the Corporation or another
member of the AirTouch Group one year prior to the Change in Control.
(i) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (i) shall be void.
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(j) Employment at Will; Limitation of Remedies. The Corporation and the
Employee acknowledge that the Employee's employment is at will, as
defined under applicable law. If the Employee's employment terminates
for any reason, the Employee shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided by
this Agreement.
(k) Employment Taxes. All payments made pursuant to this Agreement shall
be subject to withholding of applicable taxes.
(l) Benefit Coverage Non-Additive. In the event that the Employee is
entitled to life insurance and health plan coverage under more than
one provision hereunder, only one provision shall apply, and neither
the periods of coverage nor the amounts of benefits shall be additive.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Corporation by its duly authorized officer, as of the day and year
first above written.
_______________________________
Employee
AIRTOUCH COMMUNICATIONS, INC.
By _____________________________
John C. Riding
Its Vice President, Human Resources
and Corporate Services
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EXHIBIT 10.39
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 12th day of June, 1997 by and between
SAM GINN ("Employee") and AIRTOUCH COMMUNICATIONS, INC., a Delaware corporation
(the "Corporation").
For ease of reference, this Agreement is divided into the following parts, which
begin on the pages indicated:
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS
DURING EMPLOYMENT (Sections 1-5, beginning on page 1)
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION NOT OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL (Sections 6-8, beginning on page 6)
THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
(Sections 9-12, beginning on page 9)
FOURTH PART: PARACHUTE PAYMENTS
(Sections 13-14, beginning on page 12)
FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE
PAGE (Sections 15-17, beginning on page 14)
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FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS
DURING EMPLOYMENT
SECTION 1: TERM OF EMPLOYMENT
(a) Basic Rule. The Corporation agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the
Corporation, from June 12, 1997, until the earliest of:
(1) The date of the Employee's death; or
(2) The date when the Employee's employment terminates pursuant to
Subsection (b), (c), (d) or (e) below.
(b) Early Termination or Resignation. The Corporation may terminate the
Employee's employment for any reason by giving the Employee not less
than 30 days' advance notice in writing. The Employee may terminate the
Employee's employment for any reason by giving the Corporation not less
than 30 days' advance notice in writing.
(c) Termination for Cause. The Corporation may terminate the Employee's
employment at any time for Cause shown by giving the Employee not less
than 30 days' advance notice in writing. For all purposes under this
Agreement, "Cause" shall mean (1) a willful failure by the Employee to
substantially perform the Employee's duties under this Agreement, other
than a failure resulting from the Employee's complete or partial
incapacity due to physical or mental illness or impairment, (2) a
willful act by the Employee that constitutes gross misconduct and that
is injurious to the Corporation, (3) a willful breach by the Employee of
a material provision of this Agreement or (4) a material and willful
violation of a federal or state law or regulation applicable to the
business of the Corporation. No act, or failure to act, by the Employee
shall be considered "willful" unless committed without good faith and
without a reasonable belief that the act or omission was in the
Corporation's best interest.
(d) Termination for Disability. The Corporation may terminate the Employee's
employment for Disability by giving the Employee not less than six
months' advance notice in writing. For all purposes under this
Agreement, "Disability" shall mean that the Employee, at the time notice
is given, has been unable to perform the Employee's duties under this
Agreement for a period of not less than six consecutive months as the
result of the Employee's incapacity due to physical or mental illness.
In the event that the Employee resumes the performance of substantially
all of the Employee's duties under this Agreement before the termination
of the Employee's employment under this Section becomes effective, the
notice of termination shall automatically be deemed to have been
revoked.
(e) Notice. For all purposes under this Section 1, the employment
relationship shall terminate on the date specified in the notice of
termination. Any waiver of notice
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<PAGE> 3
shall be valid only if it is made in writing and expressly refers to the
applicable notice requirement of this Section 1. If the Corporation
specifies a termination date that is earlier than the minimum advance
notice date required under Subsection (b), (c) or (d) (as applicable),
then the Employee is entitled to pay and benefits in lieu of the omitted
period of advance notice.
(f) Termination of Agreement. This Agreement shall expire when all
obligations of the parties hereunder have been satisfied.
(1) In General. In addition, except as described in Paragraph 2
below, either the Corporation or the Employee may terminate this
Agreement for any reason, and without affecting the Employee's
status as an employee, by giving the other party one year's
advance notice in writing.
(2) After a Change In Control. If a Change in Control occurs, the
Corporation may not provide notice of termination of this
Agreement under Paragraph (1) above within the two-year period
after the Change In Control. In other words, in this case, the
effective date of the termination of the Agreement may be no
earlier than three years after the Change in Control. For all
purposes under this Agreement, the term "Corporation" shall
include any successor to the Corporation's business and/or
assets that executes and delivers the assumption agreement
described in Subsection 16(a) of this Agreement or that becomes
bound by this Agreement by operation of law.
A termination of this Agreement pursuant to this Subsection (f) shall be
effective for all purposes at the end of the notice period, except that
such termination shall not effect the payment or provision of
compensation or benefits under this Agreement on account of a
termination of employment occurring prior to the termination of this
Agreement.
SECTION 2: DUTIES AND SCOPE OF EMPLOYMENT
(a) Position. The Corporation agrees to employ the Employee for the term of
employment under this Agreement in the position of Chairman and Chief
Executive Officer of AirTouch Communications, Inc., reporting to the
Corporation's Board of Directors (as such position was defined in terms
of responsibilities and compensation as of the effective date of this
Agreement). The Corporation, Subsidiary, Affiliate or Joint Venture
directly employing the Employee is referred to in this Agreement as the
"Employing Entity," and the Corporation, its Subsidiaries, Affiliates
and Joint Ventures are referred to, in the aggregate, in this Agreement
as the "AirTouch Group."
For all purposes under this Agreement, the terms "Affiliate,"
"Subsidiary" and "Joint Venture" shall mean the following:
(1) "Affiliate" shall mean any entity other than a Subsidiary, if
the Corporation and/or one or more Subsidiaries own(s) not less
than 50% of such entity.
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<PAGE> 4
(2) "Subsidiary" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with
the Corporation, if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
(3) "Joint Venture" shall mean any entity (other than a Subsidiary
or Affiliate) in which the Corporation and/or one or more
Subsidiaries and/or one or more Affiliates has a direct or
indirect ownership interest.
(b) Obligations. During the term of employment under this Agreement, the
Employee shall devote the Employee's full business efforts and time to
the Employing Entity and the AirTouch Group. The foregoing shall not
preclude the Employee from engaging in appropriate civic, charitable or
religious activities or from devoting a reasonable amount of time to
private investments or from serving on the boards of directors of other
entities, as long as such activities and service do not interfere or
conflict with the Employee's responsibilities to the Employing Entity
and the AirTouch Group.
SECTION 3: BASE COMPENSATION
During the term of employment under this Agreement, the Corporation agrees to
pay (itself or through the Employing Entity) the Employee as compensation for
services a base salary at the annual rate of $835,000, or at such higher rate as
the Corporation's Compensation and Personnel Committee of the Board of Directors
may determine from time to time. Such salary shall be payable in accordance with
the standard payroll procedures of the Employing Entity. Once the Corporation's
Compensation and Personnel Committee of the Board of Directors has increased
such salary, it thereafter shall not be reduced; provided, however, that if a
Change in Control has not occurred, such salary (including any increases) may be
reduced by the Corporation if (1) the Employee commits an act or omission that
meets the definition of Cause, as defined in Section 1(c), or (2) the Employee
and all other officers of the Corporation who are parties to written employment
agreements containing substantially the same provisions as this Agreement have
their salaries (including any increases) reduced by the same percentage amount
for the same time period. The annual compensation specified in this Section 3,
together with any increases in such compensation that the Compensation and
Personnel Committee of the Board of Directors of the Corporation may grant from
time to time, and together with any reductions made in accordance with this
Section 3, is referred to in this Agreement as "Base Compensation."
SECTION 4: EMPLOYEE BENEFITS
(a) In General. During the term of employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit plans
and executive compensation programs maintained by the Employing Entity,
including (without limitation) pension plans, savings or profit-sharing
plans, deferred compensation plans, supplemental retirement or
excess-benefit plans, stock option, incentive or other bonus plans,
life, disability, health, accident and other insurance programs, paid
vacations, and similar plans or programs, subject in each case to the
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<PAGE> 5
generally applicable terms and conditions of the plan or program in
question and to the discretion and determinations of any person,
committee or entity administering such plan or program.
(b) Accelerated Vesting in Incentive Awards in Case of a Change in Control
of the Corporation. If, during the term of this Agreement, a Change in
Control (as defined in Section 12) occurs with respect to the
Corporation, then each of the incentive awards heretofore or hereafter
granted to the Employee by the members of the AirTouch Group or their
delegates shall become fully vested, fully exercisable or fully payable,
as the case may be, any contrary provisions of such awards or the
applicable plan notwithstanding. The term "incentive award" shall
include, without limitation, all awards under the AirTouch
Communications, Inc. 1993 Long-Term Stock Incentive Plan, all other
awards with respect to equity or derivative securities of the AirTouch
Group, and all cash incentive awards.
(c) Accelerated Vesting in Supplemental Pension Benefits in Case of a Change
in Control of the Corporation. If, during the term of this Agreement, a
Change in Control (as defined in Section 12) occurs with respect to the
Corporation, then all of the Employee's supplemental pension benefits
shall become fully vested, any contrary provisions of the applicable
plan notwithstanding. The term "supplemental pension benefit" shall
include, without limitation, all retirement benefits provided under a
plan or program of the AirTouch Group that is not intended to qualify
under section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
SECTION 5: BUSINESS EXPENSES AND TRAVEL
During the term of employment under this Agreement, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with the Employee's duties hereunder. The
Employing Entity shall reimburse the Employee for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with generally applicable policies.
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<PAGE> 6
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION NOT OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
SECTION 6: TERMINATIONS NOT RELATING TO A CHANGE IN CONTROL
This Second Part of the Agreement, consisting of Sections 6 through 8, describes
the benefits and compensation, if any, payable in case of termination of
employment that does not occur within three years after a Change in Control (as
defined in Section 12). The Third Part of the Agreement, consisting of Sections
9 through 12, describes benefits and compensation, if any, payable in case of
termination occurring within three years after a Change in Control. If benefits
and compensation are payable under this Second Part, then no benefits and
compensation are payable under the Third Part.
SECTION 7: INVOLUNTARY TERMINATION WITHOUT CAUSE OR DISABILITY
In the event that, during the term of this Agreement, the Corporation or
Employing Entity terminates the Employee's employment with the AirTouch Group
for any reason other than Cause or Disability, and such termination does not
occur within three years after a Change in Control, then, after executing the
release of claims described in Section 7(e), the Employee shall be entitled to
receive the following payments and benefits:
(a) Severance (2x payment). The Corporation shall pay to the Employee in a
lump sum, not less than 31 days nor more than 120 days following the
date of the employment termination, an amount equal to the following:
(1) Two times the Employee's Base Compensation in effect on the date
of the employment termination; plus
(2) 200% of the target Team Award under the AirTouch Communications
Short-Term Incentive Plan, for the Employee's position as of the
date of the termination.
Any other provision of this Agreement or of the AirTouch Communications
Short-Term Incentive Plan notwithstanding, after the amount described in
this Subsection (a) has been paid to the Employee, the Employee shall
have no further interest in such Short-Term Incentive Plan.
(b) Two Years of Life Insurance and Health Plan Coverage. The coverage
described in this Subsection (b) shall be provided for a "Continuation
Period" beginning on the date when the employment termination is
effective and ending on the earlier of (1) the two-year anniversary of
the date when the employment termination is effective or (2) the date of
the Employee's death. During the Continuation Period, the Employee (and,
where applicable, the Employee's dependents) shall be entitled to
continue participation in the basic and supplemental group term life
insurance plan and in the health care plan for employees maintained by
the Employing Entity as if the Employee were still an employee of the
Employing Entity, but only if the Employee does not elect any
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<PAGE> 7
continuation coverage under Part 6 of Title I of the Employee Retirement
Income Security Act of 1974, as amended. Where applicable, the
Employee's compensation for purposes of such plans shall be deemed to be
equal to the Employee's compensation (as defined in such plans) in
effect on the date of the employment termination. To the extent that the
Corporation finds it undesirable to cover the Employee under the group
life insurance and health plans of the AirTouch Group, the Corporation
shall provide the Employee (at its own expense) with the same level of
coverage under individual policies.
(c) Incentive Programs. The period (the "Extension Period") beginning on the
date when the termination of employment is effective and ending on the
earlier of (1) the one-year anniversary of the date when the employment
termination is effective or (2) the date of the Employee's death shall
be counted as employment with the Corporation for purposes of vesting in
each of the incentive awards heretofore or hereafter granted to the
Employee by the members of the AirTouch Group or their delegates, any
contrary provisions of such awards or the applicable plan
notwithstanding. The term "incentive award" shall include, without
limitation, all awards under the AirTouch Communications, Inc. 1993
Long-Term Stock Incentive Plan, all other awards with respect to equity
or derivative securities of the AirTouch Group, and all cash incentive
awards, other than the Team Award. This Subsection shall not be
construed to require any member of the AirTouch Group to grant any new
awards to the Employee during the Extension Period. The parties
understand and agree that the Extension Period also counts as employment
with the Corporation for purposes of determining the expiration date of
any incentive award granted by any member of the AirTouch Group or its
delegate and held by the Employee when employment terminates.
(d) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with professional
financial counseling services comparable in scope and value to the
financial counseling services made available to the Employee immediately
prior to such termination of employment.
(e) Release of Claims. As a condition to the receipt of the payments and
benefits described in this Section 7, the Employee shall be required to
execute a release of all claims arising out of the Employee's employment
or the termination thereof including, but not limited to, any claim of
discrimination under state or federal law.
(f) No Mitigation. The Employee shall not be required to mitigate the amount
of any payment or benefit contemplated by this Section 7, nor shall any
such payment or benefit be reduced by any earnings or benefits that the
Employee may receive from any other source.
SECTION 8: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
not within three years after a Change in Control, and the termination is not
described in Section 7,
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then the Employee is entitled only to the compensation, benefits and
reimbursements payable under the terms of Sections 3, 4 and 5 of this Agreement
for the period preceding the effective date of the termination. The payments
under this Agreement shall fully discharge all responsibilities of the AirTouch
Group to the Employee upon termination of the Employee's employment. This
Section 8 applies, without limitation, to any termination of employment
initiated by the Employee, termination of employment caused by the Employee's
death or Disability, termination of the Employee for Cause, and any constructive
termination.
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THIRD PART: COMPENSATION AND BENEFITS IN CASE OF ACTUAL OR CONSTRUCTIVE
TERMINATION OCCURRING WITHIN THREE YEARS AFTER A CHANGE IN CONTROL
SECTION 9: TERMINATIONS RELATING TO A CHANGE IN CONTROL
This Third Part of the Agreement, consisting of Sections 9 through 12, describes
the benefits and compensation, if any, payable in case of termination of
employment that occurs within three years after a Change in Control (as defined
in Section 12). The Second Part of the Agreement, consisting of Sections 6
through 8, describes benefits and compensation, if any, payable in case of
termination that does not occur within three years after a Change in Control. If
benefits and compensation are payable under this Third Part, then no benefits
and compensation are payable under the Second Part.
SECTION 10: INVOLUNTARY ACTUAL OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE
In the event that, during the term of this Agreement and within three years
after a Change in Control, the Employee's employment terminates in a Qualifying
Termination, as defined in Subsection (a), the Employee shall be entitled to
receive the payments and benefits described in Subsections (b), (c), (d) and
(e).
(a) Qualifying Termination. A Qualifying Termination occurs if:
(1) The Corporation or Employing Entity terminates the Employee's
employment with the AirTouch Group for any reason including,
without limitation, Cause or Disability;
(2) The Employee separates from employment with the AirTouch Group
in response to a "Constructive Termination," which means a
material reduction in salary or benefits, a material change in
responsibilities, or a requirement to relocate, except for
office relocations that would not increase the Employee's
one-way commute distance by more than 40 miles; or
(3) During the term of this Agreement and during the 13th full
calendar month after the occurrence of a Change in Control, the
Employee voluntarily separates from employment with the AirTouch
Group for any reason.
(b) Severance (3x payment). The Corporation shall pay to the Employee in a
lump sum, not less than 31 days nor more than 120 days following the
date of the employment termination, an amount equal to the following:
(1) Three times the Employee's Base Compensation in effect on the
date of the employment termination; plus
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(2) 300% of the target Team Award under the AirTouch Communications
Short-Term Incentive Plan, for the Employee's position as of the
date of the termination.
Any other provision of this Agreement or of the AirTouch Communications
Short-Term Incentive Plan notwithstanding, after the amount described in
this Subsection (b) has been paid to the Employee, the Employee shall
have no further interest in such Short-Term Incentive Plan.
(c) Three Years of Life Insurance and Health Plan Coverage. The coverage
described in this Subsection (c) shall be provided for a "Continuation
Period" beginning on the date when the employment termination is
effective and ending on the earlier of (1) the third anniversary of the
date when the employment termination is effective or (2) the date of the
Employee's death. During the Continuation Period, the Employee (and,
where applicable, the Employee's dependents) shall be entitled to
continue participation in the basic and supplemental group term life
insurance plan and in the health care plan for employees maintained by
the Employing Entity as if the Employee were still an employee of the
Employing Entity, but only if the Employee does not elect any
continuation coverage under Part 6 of Title I of the Employee Retirement
Income Security Act of 1974, as amended. Where applicable, the
Employee's compensation for purposes of such plans shall be deemed to be
equal to the Employee's compensation (as defined in such plans) in
effect on the date of the employment termination. To the extent that the
Corporation finds it undesirable to cover the Employee under the group
life insurance and health plans of the AirTouch Group, the Corporation
shall provide the Employee (at its own expense) with the same level of
coverage under individual policies.
(d) Incentive Programs. The period (the "Extension Period") beginning on the
date when the termination of employment is effective and ending on the
earlier of (1) the one-year anniversary of the date when the employment
termination is effective or (2) the date of the Employee's death shall
be counted as employment with the Corporation for purposes of
determining the expiration date of any incentive award granted by any
member of the AirTouch Group or its delegate and held by the Employee
when employment terminates, any contrary provisions of such awards or
the applicable plan notwithstanding. The term "incentive award" shall
include, without limitation, all awards under the AirTouch
Communications, Inc. 1993 Long-Term Stock Incentive Plan, all other
awards with respect to equity or derivative securities of the AirTouch
Group, and all cash incentive awards, other than the Team Award. This
Subsection shall not be construed to require any member of the AirTouch
Group to grant any new awards to the Employee during the Extension
Period.
(e) Financial Counseling. For a one-year period after termination of
employment, the Corporation shall provide the Employee with professional
financial counseling services comparable in scope and value to the
financial counseling services made available to the Employee immediately
prior to the Change in Control.
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(f) Penalty for Late or Refused Payment. If the Corporation refuses or fails
to timely pay or provide the compensation and benefits specified in this
Section 10 upon demand as provided in Section 17(c), and if such refusal
or failure is not corrected within 10 business days after the Employee
provides written notice to the Corporation concerning the refusal or
failure, then the Corporation shall pay immediately to the Employee an
additional amount equal to 50% of the Employee's Base Compensation. This
provision shall apply only once.
(g) No Mitigation. The Employee shall not be required to mitigate the amount
of any payment or benefit contemplated by this Section 10, nor shall any
such payment or benefit be reduced by any earnings or benefits that the
Employee may receive from any other source.
SECTION 11: OTHER TERMINATIONS UNDER THIS PART
If termination of employment, actual or constructive, occurs at a time that is
within three years after a Change in Control, and the termination is not
described in Section 10, then the Employee is entitled only to the compensation,
benefits and reimbursements payable under the terms of Sections 3, 4 and 5 of
this Agreement for the period preceding the effective date of the termination.
The payments under this Agreement shall fully discharge all responsibilities of
the AirTouch Group to the Employee upon termination of the Employee's
employment. This Section 11 applies, without limitation, to any termination of
employment initiated by the Employee (except an Employee-initiated termination
that is described in Paragraph (2) or (3) of Section 10(a)), a termination of
employment caused by the Employee's death, or any constructive termination that
does not meet the requirements of a "Constructive Termination" defined in
Paragraph (2) of Section 10(a).
SECTION 12: DEFINITION OF CHANGE IN CONTROL
For all purposes under this Agreement, "Change in Control" shall mean a "Change
in Control" of the Corporation, as defined in the AirTouch Communications, Inc.
1993 Long-Term Stock Incentive Plan (or the successor to such plan).
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FOURTH PART: PARACHUTE PAYMENTS
SECTION 13: GROSS-UP PAYMENT.
In the event it is determined that any payment or distribution of any type to or
for the benefit of the Employee, pursuant to this Agreement or otherwise, by the
Corporation or any member of the AirTouch Group, any Person who acquires
ownership or effective control of the Corporation or any member of the AirTouch
Group, or ownership of a substantial portion of the assets of the Corporation or
any member of the AirTouch Group (within the meaning of section 280G of the Code
and the regulations thereunder) or any affiliate of such Person (the "Total
Payments") would be subject to the excise tax imposed by section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are collectively referred to
as the "Excise Tax"), then the Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that, after payment
by the Employee of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Employee retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Total Payments.
SECTION 14: DETERMINATION BY ACCOUNTANT
All mathematical determinations and determinations as to whether any of the
Total Payments are "parachute payments" (within the meaning of section 280G of
the Code), in each case which determinations are required to be made under this
Section 14, including whether a Gross-Up Payment is required, the amount of such
Gross-Up Payment, and amounts relevant to the last sentence of this Section 14,
shall be made by an independent accounting firm selected by the Employee from
amount the largest six accounting firms in the United States (the "Accounting
Firm"). The Accounting Firm shall provide to the Corporation and to the Employee
its determination (the "Determination"), together with detailed supporting
calculations regarding the amount of any Gross-Up Payment and any other relevant
matter, within five days after termination of the Employee's employment, if
applicable, or at such earlier time as is requested by the Corporation or the
Employee (if the Employee reasonably believes that any of the Total Payments may
be subject to the Excise Tax). If the Accounting Firm determines that no Excise
Tax is payable by the Employee, it shall furnish the Employee with a written
statement that such Accounting Firm has concluded that no Excise Tax is payable
(including the reasons therefor) and that the Employee has substantial authority
not to report any Excise Tax on the Employee's federal income tax return. If a
Gross-Up Payment is determined to be payable, it shall be paid to the Employee
within five days after the Determination is delivered to the Corporation or the
Employee. Any determination by the Accounting Firm shall be binding upon the
Corporation and the Employee, absent manifest error.
As a result of uncertainty in the application of section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments not made by the Corporation and members of the
AirTouch Group should have been made ("Underpayment"), or that Gross-Up Payments
were made by the
-12-
<PAGE> 13
Corporation and members of the AirTouch Group that should not have been made
("Overpayments"). In either such event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the Corporation promptly shall pay, or cause to be paid, the
amount of such Underpayment to or for the benefit of the Employee. In the case
of an Overpayment, the Employee shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including the filing
of returns and claims for refund), follow reasonable instructions from, and
procedures established by, the Corporation, and otherwise reasonably cooperate
with the Corporation to correct such Overpayment; provided, however, that (1)
Employee shall not in any event be obligated to return to the Corporation an
amount greater than the net after-tax portion of the Overpayment that he has
retained or recovered as a refund from the applicable taxing authorities and (2)
this provision shall be interpreted in a manner consistent with the intent of
Section 13, which is to make the Employee whole, on an after-tax basis, from the
application of the Excise Tax, it being understood that the correction of an
Overpayment may result in the Employee repaying to the Corporation an amount
that is less than the Overpayment.
-13-
<PAGE> 14
FIFTH PART: TRADE SECRETS, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE
SECTION 15: CONFIDENTIAL INFORMATION
(a) Acknowledgement. The Corporation and the Employee acknowledge that the
services to be performed by the Employee under this Agreement are unique
and extraordinary and that, as a result of the Employee's employment,
the Employee will be in a relationship of confidence and trust with the
Corporation and will come into possession of "Confidential Information"
(1) owned or controlled by the AirTouch Group, (2) in the possession of
the AirTouch Group and belonging to third parties or (3) conceived,
originated, discovered or developed, in whole or in part, by the
Employee. As used herein "Confidential Information" includes trade
secrets and other confidential or proprietary business, technical,
personnel or financial information, whether or not the Employee's work
product, in written, graphic, oral or other tangible or intangible
forms, including but not limited to specifications, samples, records,
data, computer programs, drawings, diagrams, models, customer names,
business or marketing plans, studies, analyses, projections and reports,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or
under their direction (including attorney work product), and software
systems and processes. Any information that is not readily available to
the public shall be considered to be a trade secret and confidential and
proprietary, even if it is not specifically marked as such, unless the
Corporation advises the Employee otherwise in writing.
(b) Nondisclosure. The Employee agrees that the Employee will not, without
the prior written consent of the Corporation, directly or indirectly use
or disclose Confidential Information to any person, during or after the
Employee's employment, except as may be necessary in the ordinary course
of performing the Employee's duties under this Agreement. The Employee
will keep the Confidential Information in strictest confidence and
trust. This Section 15 shall apply indefinitely, both during and after
the term of this Agreement.
(c) Surrender Upon Termination. The Employee agrees that in the event of the
termination of the Employee's employment for any reason, the Employee
will immediately deliver to the Corporation (and/or other members of the
AirTouch Group, as applicable) all property belonging to the AirTouch
Group, including all documents and materials of any nature pertaining to
the Employee's work with the AirTouch Group, and will not take with the
Employee any documents or materials of any description, or any
reproduction thereof of any description, containing or pertaining to any
Confidential Information. It is understood that the Employee is free to
use information that is in the public domain (not as a result of a
breach of this Agreement).
-14-
<PAGE> 15
SECTION 16: SUCCESSORS
(a) Corporation's Successors. The Corporation shall require any successor
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of
the Corporation's business and/or assets, by an agreement in substance
and form satisfactory to the Employee, to assume this Agreement and to
agree expressly to perform this Agreement in the same manner and to the
same extent as the Corporation would be required to perform it in the
absence of a succession. The Corporation's failure to obtain such
agreement prior to the effectiveness of a succession shall be a breach
of this Agreement and shall entitle the Employee to all of the
compensation and benefits to which the Employee would have been entitled
hereunder if the Corporation had involuntarily terminated the Employee's
employment without Cause or Disability, on the date when such succession
becomes effective.
(b) Employee's Successors. This Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
SECTION 17: MISCELLANEOUS PROVISIONS
(a) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the
Corporation (other than the Employee). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another
time.
(b) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) that are not
expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. In addition, the
Employee hereby acknowledges and agrees that this Agreement supersedes
in its entirety any employment agreement between the Employee and the
Corporation in effect immediately prior to the effective date of this
Agreement. As of the effective date of this Agreement, such employment
agreement shall terminate without any further obligation by either party
thereto, and the Employee hereby relinquishes any further rights that
the Employee may have had under such prior employment agreement.
(c) Presumption. Subject to the provisions of Section 13, the Corporation
shall make or cause to be made a payment described in this Agreement
upon receiving written notice from the Employee describing such payment,
referring to the provision of this Agreement under which such payment is
claimed and certifying that all conditions for such payment, as set
forth in this Agreement, have been satisfied. The information so
furnished to the Corporation by the
-15-
<PAGE> 16
Employee shall be presumed to be correct, subject to rebuttal by the
Corporation after payment. After making the payment claimed by the
Employee, the Corporation may seek a refund of such payment in
accordance with Subsection (h) below. This Subsection (c) shall not be
used to cause a payment to be made at a time earlier than provided in
this Agreement.
(d) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the
case of the Employee, mailed notices shall be addressed to the Employee
at the home address that the Employee most recently communicated to the
Corporation in writing. In the case of the Corporation, mailed notices
shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(e) No Setoff. There shall be no right of setoff or counterclaim, with
respect to any claim, debt or obligation, against payments to the
Employee under this Agreement.
(f) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State
of California, irrespective of California's choice-of-law principles.
(g) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full
force and effect.
(h) Arbitration. Except as otherwise provided in Section 13, any dispute or
controversy arising out of the Employee's employment or the termination
thereof, including, but not limited to, any claim of discrimination
under state or federal law, shall be settled exclusively by arbitration
in San Francisco, California, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction. The
foregoing notwithstanding, a dispute or controversy over whether Cause
exists for the termination of an Employee, whether such termination
occurred within three years after a Change in Control, or a dispute or
controversy over whether a Constructive Termination has occurred, shall
be arbitrated by a three-member panel of the outside directors of the
Corporation, with the selection of the panel to be made by the Chairman,
as of one year prior to the Change in Control, of the Corporation's
Board of Directors. If three such individuals are unwilling to serve as
arbitrators, the preceding sentence shall be inapplicable, and all
disputes and controversies shall be subject to arbitration in accordance
with the rules of the American Arbitration Association, as provided
above in this Subsection. For purposes of this Subsection, "outside
directors" shall mean members of the Board of Directors of the
Corporation, as such Board of Directors was constituted one year prior
to the Change in Control, who were not employees of the Corporation or
another member of the AirTouch Group one year prior to the Change in
Control.
-16-
<PAGE> 17
(i) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (i) shall be void.
(j) Employment at Will; Limitation of Remedies. The Corporation and the
Employee acknowledge that the Employee's employment is at will, as
defined under applicable law. If the Employee's employment terminates
for any reason, the Employee shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided by this
Agreement.
(k) Employment Taxes. All payments made pursuant to this Agreement shall be
subject to withholding of applicable taxes.
(l) Benefit Coverage Non-Additive. In the event that the Employee is
entitled to life insurance and health plan coverage under more than one
provision hereunder, only one provision shall apply, and neither the
periods of coverage nor the amounts of benefits shall be additive.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Corporation by its duly authorized officer, as of the day and year first
above written.
--------------------------------
Sam Ginn
AIRTOUCH COMMUNICATIONS, INC.
By _____________________________
John C. Riding
Its Vice President, Human Resources
and Corporate Services
-17-
<PAGE> 1
EXHIBIT 13
Financial Section
2 SELECTED FINANCIAL DATA
2 Selected Five-Year Consolidated Data
3 Selected Five-Year Proportionate Data
7 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
21 CONSOLIDATED FINANCIAL STATEMENTS
21 Report of Management
22 Report of Independent Accountants
23 Consolidated Statements of Income for
the years ended December 31, 1997, 1996, and 1995
24 Consolidated Balance Sheets as of December 31, 1997 and 1996
25 Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996, and 1995
26 Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996, and 1995
27 Notes to Consolidated Financial Statements
46 Selected Proportionate Financial Data
-1-
<PAGE> 2
Selected Financial Data - Consolidated
SELECTED FIVE-YEAR CONSOLIDATED DATA
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended December 31
--------------------------------------------------------------------
OPERATING RESULTS 1997(a) 1996(a) 1995 1994(b) 1993(b)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 3,594 $ 2,252 $ 1,619 $ 1,247 $ 1,058
Operating income $ 706 $ 281 $ 113 $ 73 $ 129
Equity in net income of unconsolidated wireless $ 200 $ 133 $ 152 $ 110 $ 32
systems
Interest:
Expense $ (90) $ (52) $ (13) $ (10) $ (22)
Income $ 18 $ 14 $ 35 $ 55 $ 12
Income from operations (c) $ 448 $ 199 $ 132 $ 98 $ 41
Preferred dividends $ 54 $ 20 $ -- $ -- $ --
Net income applicable to common stockholders $ 394 $ 179 $ 132 $ 98 $ 35
Per share data:
Income from operations (c)
Basic and diluted $ 0.89 $ 0.40 $ 0.27 $ 0.20 $ 0.09
Net income applicable to common stockholders
Basic and diluted $ 0.78 $ 0.36 $ 0.27 $ 0.20 $ 0.08
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------
BALANCE SHEET DATA 1997 1996(a) 1995 1994(b) 1993(b)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in unconsolidated wireless systems $ 2,068 $ 1,992 $ 3,076 $ 1,698 $ 1,155
Intangible assets, net $ 3,297 $ 3,409 $ 606 $ 471 $ 413
Total assets $ 8,970 $ 8,524 $ 5,648 $ 4,488 $ 4,077
Long-term debt, including current portion $ 1,419 $ 1,669 $ 906 $ 130 $ 79
Total stockholders' equity $ 5,529 $ 5,062 $ 3,751 $ 3,459 $ 3,337
Working capital (deficit) $ (254) $ (120) $ 19 $ 736 $ 1,347
Capital expenditures and capital calls,
excluding acquisitions (d) $ 1,023 $ 903 $ 1,015 $ 494 $ 304
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In December 1996, AirTouch Communications, Inc. and its subsidiaries
(the "Company") obtained a controlling interest in Telecel
Communicacoes Pessoias, S.A. ("Telecel"). The Company consolidated
Telecel's Balance Sheet as of December 31, 1996 and began consolidating
Telecel's results of operations on January 1, 1997. In August 1996, the
Company completed its acquisition of Cellular Communications, Inc. See
Note F, "Partnerships and Acquisitions," to the Consolidated Financial
Statements for further information.
(b) Prior to April 1, 1994, the Company was an 86.1% owned subsidiary of
Pacific Telesis Group ("Telesis"). On April 1, 1994, the Company was
spun off from Telesis. Prior to December 3, 1993, the Company was 100%
owned by Telesis.
(c) Income before preferred dividends (1997 and 1996) and cumulative effect
of accounting changes (1993).
(d) For the year ended December 31.
-2-
<PAGE> 3
Selected Financial Data - Proportionate
SELECTED FIVE-YEAR PROPORTIONATE DATA
- --------------------------------------------------------------------------------
The following table is not required by generally accepted accounting principles
("GAAP") and is not intended to replace the Consolidated Financial Statements
prepared in accordance with GAAP. It is presented to provide supplemental data.
Because significant assets of the Company are not consolidated and because of
the substantial effect of the formation of certain entities on the year-to-year
comparability of the Company's consolidated financial results, the Company
believes that proportionate financial and operating data facilitates the
understanding and assessment of its Consolidated Financial Statements.
Under GAAP, the Company consolidates the entities in which it has a controlling
interest and uses the equity method to account for entities over which the
Company has significant influence but does not have a controlling interest. In
contrast, proportionate accounting reflects the Company's relative ownership
interests in operating revenues and expenses for both its consolidated and
equity-method entities. For example, U.S. cellular proportionate results present
the Company's share - its percentage ownership - for all significant U.S.
cellular operations, including those corporations and partnerships where the
Company does not own more than 50 percent. Similarly, total proportionate
results show the Company's share of all its significant worldwide operations.
TOTAL COMPANY (1)
- --------------------------------------------------------------------------------
(Dollars in millions and operating data in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------------------------------------
PROPORTIONATE FINANCIAL DATA 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues $4,907 $3,925 $2,679 $1,799 $1,228
Operating expenses before
depreciation and amortization expenses (2) 3,171 2,801 1,976 1,293 876
Depreciation and amortization expenses 789 603 406 334 254
- -------------------------------------------------------------------------------------------------------------------
Operating income $ 947 $ 521 $ 297 $ 172 $ 98
- -------------------------------------------------------------------------------------------------------------------
Operating cash flow (3) $1,736 $1,124 $ 703 $ 506 $ 352
Operating cash flow margin (4) 35.4% 28.6% 26.2% 28.1% 28.7%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------
PROPORTIONATE OPERATING DATA 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellular and PCS POPs (5) (6) 180,032 178,317 164,908 99,508 75,290
Cellular and PCS subscribers (5) 7,536 5,146 3,059 1,948 1,206
Cellular and PCS subscriber net adds in period,
excluding acquisitions (5) 2,336 1,625 974 713 409
Paging units in service 3,188 2,886 2,474 1,647 1,269
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See footnotes beginning on page 6.
-3-
<PAGE> 4
Selected Financial Data - Proportionate
U.S. CELLULAR OPERATIONS
- --------------------------------------------------------------------------------
(Dollars in millions, except per unit data and operating data in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31
--------------------------------------------------------------
PROPORTIONATE FINANCIAL DATA 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues $2,363 $1,984 $1,523 $1,160 $ 892
Cost of revenues 236 222 188 136 116
Selling and customer operations expenses (2) 902 781 591 423 299
General, administrative, and other expenses 169 160 139 122 97
Depreciation and amortization expenses 388 292 189 186 165
- -----------------------------------------------------------------------------------------------------------------
Operating income $ 668 $ 529 $ 416 $ 293 $ 215
- -----------------------------------------------------------------------------------------------------------------
Operating cash flow (3) $1,056 $ 821 $ 605 $ 479 $ 380
Operating cash flow margin (4) 44.7% 41.4% 39.7% 41.3% 42.6%
</TABLE>
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------
PROPORTIONATE OPERATING DATA 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellular POPs (6) 43,364 43,364 37,739 35,390 34,889
Cellular subscribers 4,309 3,403 2,262 1,560 1,046
Cellular subscriber net adds in period,
excluding acquisitions 906 770 591 514 286
Monthly average revenue per unit $ 53 $ 61 $ 70 $ 78 $ 83
Monthly cash cost per unit $ 29 $ 36 $ 42 $ 46 $ 48
Capital expenditures and capital calls,
excluding acquisitions (GAAP Basis) $ 466 $ 340 $ 406 $ 231 $ 145
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
INTERNATIONAL OPERATIONS
- -------------------------------------------------------------------------------
(Dollars in millions, except per unit data and operating data in
thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31
-----------------------------------------------------------------
PROPORTIONATE FINANCIAL DATA 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues $2,181 $1,640 $ 918 $ 435 $ 175
Operating expenses before
depreciation and amortization expenses (2) 1,452 1,319 794 405 205
Depreciation and amortization expenses 283 226 154 96 48
- ---------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 446 $ 95 $ (30) $ (66) $ (78)
- ---------------------------------------------------------------------------------------------------------------------
Operating cash flow (3) $ 729 $ 321 $ 124 $ 30 $ (30)
Operating cash flow margin (4) 33.4% 19.6% 13.5% 6.9% (17.1)%
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------
PROPORTIONATE OPERATING DATA 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellular POPs (6) 122,439 120,724 112,869 64,118 40,401
Cellular subscribers 3,135 1,734 797 388 160
Cellular subscriber net adds in period,
excluding acquisitions 1,347 846 383 199 123
Monthly average revenue per unit $ 79 $ 115 $ 139 $ 152 $ 150
Monthly cash cost per unit $ 53 $ 92 $ 120 $ 142 $ 175
Capital expenditures and capital calls,
excluding acquisitions (GAAP Basis) $ 264 $ 318 $ 229 $ 148 $ 92
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See footnotes beginning on page 6.
-4-
<PAGE> 5
Selected Financial Data - Proportionate
U.S. PAGING OPERATIONS (7)
- --------------------------------------------------------------------------------
(Dollars in millions and operating data in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31
-----------------------------------------------------
FINANCIAL DATA 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues (8) $330 $297 $226 $189 $149
Operating expenses before
depreciation and amortization expenses 222 209 151 122 99
Depreciation and amortization expenses 74 64 43 37 31
- -----------------------------------------------------------------------------------------------------
Operating income $ 34 $ 24 $ 32 $ 30 $ 19
- -----------------------------------------------------------------------------------------------------
Operating cash flow (3) $108 $ 88 $ 75 $ 67 $ 50
Operating cash flow margin (4) 32.7% 29.6% 33.2% 35.4% 33.6%
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
OPERATING DATA 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Paging units in service 3,101 2,850 2,338 1,525 1,167
Paging units in service net adds in period,
excluding acquisitions 246 512 463 358 324
Capital expenditures and capital calls,
excluding acquisitions (GAAP Basis) $ 67 $ 98 $ 72 $ 61 $ 53
- -----------------------------------------------------------------------------------------------------
</TABLE>
U.S. PCS OPERATIONS (5)(9)
- --------------------------------------------------------------------------------
(Dollars in millions, except per unit data and operating data in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31
-----------------------------------------------------
PROPORTIONATE FINANCIAL DATA 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service and other revenues $ 33 $ 1 $-- $-- $--
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
PROPORTIONATE OPERATING DATA 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PCS POPs (5)(6) 14,229 14,229 14,300 -- --
PCS subscribers (5) 92 9 -- -- --
PCS subscriber net adds in period,
excluding acquisitions (5) 83 9 -- -- --
Monthly average revenue per unit $ 60 N.M. $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------
</TABLE>
See footnotes beginning on page 6.
-5-
<PAGE> 6
Selected Financial Data - Proportionate
Footnotes:
N.M. Information not meaningful
(1) Reflects financial and operating data of 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) 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) PCS data relates to PrimeCo Personal Communications, L.P. ("PrimeCo"), a
U.S. personal communications services ("PCS") business in which the
Company has a 25% interest.
(6) POPs are the estimated market population multiplied by the Company's
ownership interest in a licensee operating in that market. Includes
markets of certain cost-based and equity-based investments not included in
proportionate operating results.
(7) U.S. Paging Operations, which are wholly owned by the Company, include
operations in Canada.
(8) Includes any gain or loss on equipment sales.
(9) Operations began in the fourth quarter of 1996.
-6-
<PAGE> 7
Management's Discussion & Analysis
Financial Condition & Results of Operations
GENERAL
Management's discussion and analysis is intended to assist in the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of AirTouch Communications, Inc., together
with its subsidiaries and partnerships (collectively, the "Company" or
"AirTouch"). This discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and accompanying Notes.
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
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 acquisition 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 pending acquisition of U S WEST Media Group's cellular
properties and its interest in PrimeCo Personal Communications, L.P. in the
U.S.; 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.
BASIS OF PRESENTATION
CONSOLIDATION VS. THE EQUITY METHOD
In accordance with generally accepted accounting principles ("GAAP"), the
Company consolidates revenues and expenses of each subsidiary and partnership in
which the Company has a controlling interest. The Company uses the equity method
to record the operating results of entities in which the Company has significant
influence, but does not have a controlling interest. Consolidated operating
revenues and expenses during 1997, 1996, and 1995 principally included six U.S.
cellular markets, all U.S. paging markets, and Europolitan Holdings AB
("Europolitan"), the Company's cellular system in Sweden (formerly NordicTel
Holdings AB or "NordicTel"). On December 31, 1996, AirTouch consolidated Telecel
Communicacoes Pessoais, S.A. ("Telecel"), its cellular system in Portugal,
subsequent to acquiring a controlling interest and, accordingly, Telecel's
results were included in consolidated results for the year ended December 31,
1997. The six U.S. cellular markets included in consolidated revenues and
expenses during 1997, 1996, and 1995 were Los Angeles, Sacramento, Atlanta, San
Diego, Wichita, and Topeka. In addition, the Company began consolidating the
results of its Great Lakes Market (cellular properties in Michigan and Ohio,
including Detroit, Cleveland and Columbus) on August 16, 1996, the date on which
AirTouch completed its acquisition of the remaining capital stock of Cellular
Communications, Inc. ("CCI") that it did not already own. For further
information regarding this acquisition, see "Cellular Communications, Inc.
Merger."
GAAP VS. PROPORTIONATE PRESENTATION
Tables presenting results of operations on a proportionate basis are included as
supplementary information in the discussion and analysis of results of
operations for the Company's U.S. cellular and international operations.
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
-7-
<PAGE> 8
Management's Discussion & Analysis
Financial Condition & Results of Operations
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.
COMPOSITION OF OPERATING REVENUES AND EXPENSES
Operating revenues include cellular and paging service revenues, as well as
equipment sales. Cellular service revenues primarily consist of charges for air
time use, monthly network access fees, and in-bound roaming charges (in-bound
roaming refers to use of the Company's wireless networks by customers of other
cellular carriers). Paging service revenues primarily consist of paging service
charges and rentals of paging units in the United States. Equipment sales
consist of revenues from sales of cellular telephones, pagers, and accessories.
Equipment sales are not a primary part of the Company's cellular or paging
businesses. Rather, the Company offers cellular and paging equipment at
competitive prices, which are often at or below cost, as an incentive for new
customers to subscribe to its cellular and paging services. The Company also
offers discounted or free equipment as an incentive for certain existing
customers to remain a subscriber to its wireless services. For purposes of
proportionate presentation, the Company reflects the net loss on sales of
cellular telephones as a selling and customer operations expense.
Operating expenses include: cost of revenues; cost of equipment sales; selling
and customer operations expenses; general, administrative, and other expenses;
and depreciation and amortization expenses. Cost of revenues primarily consists
of cellular and paging network operating costs, interconnection fees assessed by
local exchange carriers, and costs of cellular roaming fraud. Interconnection
costs have fixed and variable components. The fixed component of interconnection
costs consists of monthly flat-rate fees for facilities leased from local
exchange carriers. The variable component of interconnection costs, which
fluctuates in relation to the level of cellular calls and paging messages,
consists of per-minute use fees charged by local exchange carriers for cellular
calls or paging messages terminating on their networks. Selling and customer
operations expenses primarily consist of compensation to sales channels;
salaries, wages, and related benefits for sales and customer service personnel;
and billing, advertising, and promotional expenses. General, administrative, and
other expenses primarily consist of salaries, wages, and related benefits for
general and administrative personnel, international license application costs,
bad debt, and other overhead expenses. Depreciation and amortization primarily
consists of depreciation recorded for the Company's cellular and paging networks
and amortization of intangibles such as wireless license costs, subscriber
lists, and goodwill.
RESULTS OF OPERATIONS
The following discussions compare the results of operations for the year ended
December 31, 1997 to the year ended December 31, 1996 and the results of
operations for the year ended December 31, 1996 to the year ended December 31,
1995. The operating results of these periods are not necessarily indicative of
operating results in future periods. The following comparative information
should be read in conjunction with the Consolidated Financial Statements and
accompanying Notes for each period discussed, as well as the information
presented in all other sections of management's discussion and analysis.
1997 VS. 1996
CONSOLIDATED RESULTS OF OPERATIONS
Improvements in consolidated operating income resulted primarily from increases
in the operating income of U.S. cellular and international operations. As
indicated in the U.S. cellular and international operations' discussions, the
increase in consolidated operating income resulted from consolidation during
1997 of the Great Lakes market and Telecel, as well as substantial subscriber
growth in U.S. and international cellular markets.
The decrease in U.S. equity in net income (loss) of unconsolidated wireless
systems was attributable to consolidation of the Great Lakes market beginning
August 16, 1996 (see "Cellular Communications, Inc. Merger") and increased
operating losses of PrimeCo
-8-
<PAGE> 9
Management's Discussion & Analysis
Financial Condition & Results of Operations
Personal Communications, L.P. ("PrimeCo") associated with the start-up phase of
the personal communications services ("PCS") business. Decreases due to
consolidation of the Great Lakes market and increased losses of PrimeCo were
partially offset by improved operating results of CMT Partners, AirTouch's
cellular joint venture operating primarily in the San Francisco Bay Area. The
improvements in international equity in net income (loss) of unconsolidated
wireless systems were due primarily to improved profitability resulting from
substantial growth in the subscriber base and, secondarily, to favorable
adjustments resulting from changes in estimates based on the Company's
assessment of various tax positions recorded in 1997.
The increases in interest expense resulted from higher average debt balances and
a reduction in capitalized interest as the related assets under construction
were placed in service.
The decrease in miscellaneous income was primarily attributable to a $56 million
gain recorded during 1996 for the sale of Dansk Mobiltelefon AB ("DMT"), an
investment held by Europolitan. Net of minority interest and taxes, the sale of
DMT resulted in a $6 million increase in consolidated net income.
Excluding the effect of equity in net income (loss) of unconsolidated
international wireless systems, foreign income tax rate differences and minority
interest for consolidated international operations, and a 1996 reduction in the
valuation allowance related to consolidated international operations, the
effective tax rates were approximately 43% and 44% for the years ended December
31, 1997 and 1996, respectively.
Year 2000 Compliance
Information and Operational Systems. Many of the Company's computerized systems
are affected by the year 2000 issue, which refers to the inability of such
systems to properly process dates beyond December 31, 1999. The Company also has
numerous computerized interfaces with third parties and is vulnerable to failure
of such third parties to adequately address their year 2000 issues. System
failures resulting from this issue could cause significant disruption to the
Company's operations, including the Company's ability to provide certain
wireless services and correctly bill customers, resulting in potential revenue
loss and increased costs. The Company is currently evaluating alternative
solutions with respect to its mission critical systems, which include wireless
network, billing, and customer care systems. The Company is also evaluating
alternatives for numerous other less significant systems. The Company plans for
all mission critical systems to be year 2000 compliant by early 1999. The
Company has identified its major computerized interfaces with third parties and
will work with such parties to take any necessary corrective action during 1998
and 1999; however, the Company cannot provide any assurance that all significant
third parties will implement timely corrective action necessary on their part to
prevent disruption of AirTouch's operations. As of December 31, 1997, costs
incurred to correct year 2000 issues have not been material to the Company's
operating results or financial position. Since the Company has not yet completed
its plans for all affected systems, the total estimated cost for upgrading or
replacing all affected systems has not been quantified. Total costs could be
material to the Company's results of operations or financial position in future
reporting periods. Based on preliminary assessments, the Company currently
believes that it will be able to obtain the internal and external resources
necessary to complete timely upgrades or replacements of its mission critical
systems, thereby preventing significant operational disruptions.
Products Sold. Management believes that the original manufacturers of handsets
and pagers are primarily liable for failures of such products. However, in the
event of such product failures, the Company could experience service revenue
loss and be required to incur additional costs to furnish customers with
replacement equipment on a temporary or permanent basis to prevent further
service revenue loss. In such situations, the Company believes it would have
legal recourse against the original manufacturer of the product.
-9-
<PAGE> 10
Management's Discussion & Analysis
Financial Condition & Results of Operations
U.S. CELLULAR OPERATIONS
================================================================================
U.S. Cellular Operating Results (GAAP Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31
-------------------------------------
Actual Pro
---------------------- Forma
(c)
(Dollars in millions) 1997 1996 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service and other revenues $ 2,351 $ 1,634 $ 2,092
Equipment sales 125 60 81
- --------------------------------------------------------------------------------
Operating revenues 2,476 1,694 2,173
- --------------------------------------------------------------------------------
Operating expenses
before depreciation and
amortization expenses 1,452 1,055 1,301
Depreciation and
amortization expenses 381 240 350
- --------------------------------------------------------------------------------
Operating income 643 399 522
Equity in net income (loss) of
unconsolidated wireless systems 121 200 105
Minority interests in net (income)
loss of consolidated wireless
systems (70) (71) (71)
Other (income) expense included
in equity income and minority
interests (a) (26) 1 (23)
- --------------------------------------------------------------------------------
U.S. cellular operating contribution
to net income (b) $ 668 $ 529 $ 533
================================================================================
</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 16).
(c) Adjusted to present results as if the Great Lakes market had been
wholly owned and consolidated during the year ended December 31, 1996.
Cellular Communications, Inc. Merger. Effective August 16, 1996, AirTouch
acquired the remaining 63% of CCI's capital stock that it did not already own.
As a result of the acquisition, AirTouch now owns 100% of CCI and New Par, the
equally owned partnership between the Company and CCI that operated cellular
properties in Michigan and Ohio prior to the merger. Accordingly, the operating
results of CCI and New Par (referred to elsewhere in management's discussion and
analysis as the "Great Lakes" market) are reflected in equity earnings at the
Company's ownership interest prior to the merger and in consolidated results at
100% thereafter. Since the actual results of operations for the years ended
December 31, 1997 and 1996 are not comparable, pro forma results for the year
ended December 31, 1996 are included in the preceding table to reflect results
as if the Great Lakes market had been wholly owned and consolidated during all
of 1996.
U.S. Cellular Operations - 1997 vs. Pro Forma 1996.
The improvement in U.S. cellular consolidated operating revenues during the year
ended December 31, 1997, was due to an approximate 30% increase in total minutes
of use attributable primarily to a 26% increase in subscribers, partially offset
by an approximate 14% decline in average revenue per minute of use. The average
revenue per customer declined approximately 13% comparing the year ended
December 31, 1997 to the year ended December 31, 1996. The Company achieved
customer growth in its consolidated markets 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.
The declines in average revenue per customer and average revenue per minute of
use were 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. 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. Declines in average
revenue per customer and average revenue per minute of use were partially offset
by a slight increase in minutes of use per customer during 1997, as compared to
the prior year. 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 in the
Company's U.S. cellular business 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
average revenue per minute of use. However, the Company believes, that over
time, declining prices and other factors will result in migration of minutes of
use from landline systems to the Company's wireless systems.
U.S. cellular operating margins increased from 24% during 1996 to 26% during
1997. Operating cash flow
-10-
<PAGE> 11
Management's Discussion & Analysis
Financial Condition & Results of Operations
margins (operating margins excluding the effect of depreciation and amortization
expenses) increased from 40% during 1996 to 41% during 1997. Improvements in
operating margins despite a 14% decline in average revenue per minute of use
resulted from a greater decline of 16% in the average cash cost per minute of
use (including the loss on equipment sales). The average revenue per customer
declined 13%, while the average cash cost per customer (including the loss on
equipment sales) declined 15%. Declining cash costs per customer and per minute
of use reflect the Company's continuing efforts to reduce cash costs more
rapidly than the related declines in average revenue per customer and average
revenue per minute of use. Decreases in average 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 in customer acquisitions to
lower-cost direct sales channels. The Company has also reduced the rate at which
customers discontinue service ("churn") by continually improving customer
service and increasing its focus on customer incentive programs designed to
retain existing customers, which is significantly less expensive than replacing
customers who discontinue service. Depreciation and amortization increased 9%,
due primarily to depreciation of significantly larger property, plant, and
equipment balances associated with analog network expansion and digital cellular
deployment across all consolidated markets.
The improvement in U.S. cellular equity in net income (loss) of unconsolidated
wireless systems resulted from improved operating results of CMT Partners, the
Company's partnership which operates cellular properties primarily in the San
Francisco Bay Area. Consistent with the Company's consolidated U.S. markets, CMT
Partners achieved increased earnings through substantial customer growth and
significant reductions in the average cash cost per customer, partially offset
by declines in average revenue per customer.
Other Matters Affecting U.S. Cellular Operations
U S WEST Transaction. On January 29, 1998, the Company and U S WEST, Inc. ("U S
WEST") entered into a definitive agreement for AirTouch to acquire U S WEST
Media Group's domestic wireless business, including U S WEST Media Group's
interest in PrimeCo (the "1998 Agreement"). Earnings per share dilution
resulting from the 1998 Agreement, primarily due to the amortization of
acquisition intangibles, incremental interest expense, preferred dividends, and
common shares issued is expected to reach $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. The 1998 Agreement, which is expected to close by mid-1998, is
subject to Hart-Scott-Rodino clearance and other government approvals.
Shareholder approvals are not required. For a discussion of funding of this
acquisition, see "Liquidity and Capital Resources-Future Funding
Requirements-Acquisitions." In the event that the 1998 Agreement is not
consummated, the parties will revert to their 1994 agreement as described in the
Company's Form 10-K for the year ended December 31, 1996 under "Business--Joint
Ventures--U S WEST Transaction". For a more detailed description of the terms of
this transaction, see Note F, "Partnerships and Acquisitions-U S WEST
Transaction," to the Consolidated Financial Statements.
U.S. PAGING OPERATIONS
All U.S. paging markets are wholly owned by the Company.
================================================================
U.S. Paging Operating Results (GAAP Basis)
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31
------------------
(Dollars in millions) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Service and other revenues $330 $293
Equipment sales 39 50
- --------------------------------------------------------------
Operating revenues 369 343
- --------------------------------------------------------------
Operating expenses before depreciation
and amortization expenses 261 255
Depreciation and amortization expenses 74 64
- --------------------------------------------------------------
Operating income $ 34 $ 24
==============================================================
Operating cash flow (a) $108 $ 88
Operating cash flow margin (b) 29.3% 25.7%
==============================================================
</TABLE>
(a) See Footnote (d) on page 47.
(b) Operating cash flow margins in the GAAP presentation above differ from
the same margins presented in "Selected Proportionate Financial Data"
because costs of equipment sales are included in operating expenses in
this presentation in accordance with GAAP, rather than being presented
as a reduction to service and other revenues as is done in the
proportionate presentation for U.S. paging.
Operating revenues increased approximately 8%, due primarily to a 9% increase in
paging units in service, partially offset by an approximate 3% decline in the
average revenue per unit in service. Increased revenues associated with
subscriber growth were also offset by declines in pager sales attributable to
-11-
<PAGE> 12
Management's Discussion & Analysis
Financial Condition & Results of Operations
decreases in the number of units in service added. Operating cash flow margins
(operating margins excluding the effect of depreciation and amortization)
increased from 26% to 29%, due to increased service and other revenues and lower
costs of paging equipment sales attributable to declines in units in service
added, partially offset by moderate increases in network operating costs
necessary to serve the expanded customer base. Increased service and other
revenues resulted from growth in paging units in service, a shift from paging
service sold at wholesale rates through resellers to service sold directly by
the Company or through retail sales channels, and retail service price increases
in selected markets. Increased depreciation and amortization resulted from
expansion of paging networks and higher depreciation of more expensive leased
alphanumeric pagers, which comprised a larger percentage of leased pagers during
1997.
INTERNATIONAL OPERATIONS
================================================================================
International Operating Results (GAAP Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31
----------------------------------
Pro
Actual Forma
------------------ (c)
(Dollars in millions) 1997 1996 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Service and other revenues $ 685 $ 190 $ 521
Equipment sales 66 22 62
- -----------------------------------------------------------------------------
Operating revenues 751 212 583
- -----------------------------------------------------------------------------
Operating expenses
before depreciation and
amortization expenses 551 239 479
Depreciation and
amortization expenses 85 34 68
- -----------------------------------------------------------------------------
Operating income (loss) 115 (61) 36
Equity in net income (loss) of
unconsolidated wireless
systems 199 (18) (42)
Minority interests in net (income)
loss of consolidated wireless
systems (49) (24) (49)
Other (income) expense included
in equity income and minority
interests (a) 181 198 155
- -----------------------------------------------------------------------------
International operating contribution
to net income (b) $ 446 $ 95 $ 100
=============================================================================
</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 (loss) presented on page 16).
(c) Adjusted to present results for the year ended December 31, 1996 as if
(1) Telecel had been consolidated and the Company's ownership interest
in Telecel had been 51% and (2) the Company's 1997 ownership interests
in its unconsolidated wireless systems had been the ownership interests
during the corresponding periods of 1996.
International Investment Ownership Increases. Actual consolidated international
operating results presented in the preceding table for the year ended December
31, 1996 reflect the operations of Europolitan, the Company's 51%-owned cellular
system in Sweden. On December 31, 1996, the Company consolidated Telecel, its
cellular system in Portugal, subsequent to acquiring a 51% controlling interest
and, accordingly, consolidated international operating results presented in the
preceding table for the year ended December 31, 1997 reflect the operations of
both Telecel and Europolitan. Operating results for other international markets
are reflected in equity in net income (loss) of unconsolidated wireless systems
during all periods presented. Since the actual results of operations for each
period are not comparable, pro forma results for the year ended December 31,
1996 are included in the preceding table to reflect results as described in
footnote (c) to the preceding table.
International Operations - 1997 vs. Pro Forma 1996. The increase in operating
revenues resulted primarily from an 80% increase in Europolitan and Telecel's
combined average subscribers, partially offset by a 25% decrease in Europolitan
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 46%. Operating
margins improved from 6% during 1996 to 15% during 1997, due primarily to
substantial subscriber growth and rapidly declining cash costs per customer
achieved as Europolitan and Telecel's operations continued to gain operating
scale. If foreign exchange rates had remained constant, operating income would
have increased 344%.
Improvement in equity in net income (loss) of unconsolidated wireless systems
was due to improved operating results in Europe and Japan. Improved results in
these wireless systems resulted primarily from increasing economies of scale and
continued subscriber growth, partially offset by overall declines in the average
revenue per customer. In
-12-
<PAGE> 13
Management's Discussion & Analysis
Financial Condition & Results of Operations
addition, the Company recognized certain favorable adjustments resulting from
changes in estimates based on the Company's assessment of various tax positions.
Improvements were also partially offset by unfavorable movements in all foreign
currency exchange rates.
Other Matters Affecting International Operations
Foreign Currencies. The Company engages in risk management activities to hedge
foreign currency denominated investments and firm capital commitments. The
Company does not engage in speculative foreign exchange activities.
The Company's foreign exposures primarily take the form of equity investments in
foreign wireless systems and are viewed as long-term assets valued in the local
currency, translated into United States dollars and reported in the Company's
financial statements. The Company hedges a portion of these investments with
forward foreign currency exchange contracts and foreign currency denominated
loans. These hedges are in accordance with the Company's objective to offset the
United States dollar values of foreign currency denominated assets with foreign
currency denominated liabilities. The accounting treatment is described in Note
A, "Summary of Significant Accounting Policies-Financial Instruments," to the
Consolidated Financial Statements.
Virtually all of the Company's economic hedges qualify as hedges under
accounting rules. Non-qualifying hedges relate to cost method investments that
do not qualify for hedge accounting or mismatches between the hedge instruments
and the hedged investments due to equity losses of foreign wireless systems
during start-up. All gains and losses pertaining to hedges that do not qualify
for hedge accounting are included in net income.
Deferred Taxes. International equity in net income (loss) of unconsolidated
wireless systems included tax benefits of $30 million and $10 million in 1997
and 1996, respectively. These tax benefits are recorded in "Equity in net income
(loss) of unconsolidated wireless systems" on the Consolidated Statements of
Income. The tax benefits were recorded as an asset that represents future
benefits the international unconsolidated wireless systems will receive by
deducting the net operating losses from future taxable income. At December 31,
1997, the Company's proportionate share of deferred tax assets of its
international equity investees was approximately $161 million, which was offset
by a valuation allowance of approximately $84 million. While the Company
believes that it is more likely than not that the net deferred tax assets will
be fully realized, there can be no assurance this will happen as certain factors
beyond the control of the equity investees and the Company, such as
deteriorating local economic conditions and increasing competition, can affect
future timing and amounts of taxable income.
1996 VS. 1995
CONSOLIDATED RESULTS OF OPERATIONS
Consolidated operating income improved $168 million or 149%, due primarily to
improvements of $109 million and $28 million in operating income of U.S.
cellular and international operations, respectively. The remaining increase in
consolidated operating income of $31 million was primarily attributable to the
absence of AirTouch Teletrac (a radio vehicle location service subsidiary sold
on January 17, 1996) during most of 1996 and a $25 million loss reserve recorded
for AirTouch Teletrac in 1995. Equity in net income (loss) of unconsolidated
wireless systems decreased $19 million due primarily to the consolidation of the
Great Lakes market beginning August 16, 1996 (see "Cellular Communications, Inc.
Merger") and increased operating losses of PrimeCo associated with the start-up
phase of the PCS business. Such decreases were largely offset by improvements in
the operating results of international cellular systems and CMT Partners (the
Company's partnership which operates cellular properties primarily in the San
Francisco Bay Area).
The increase in interest expense resulted from higher debt balances. Similarly,
the decrease in interest income resulted from lower cash balances available for
investment. The increase in miscellaneous income was primarily attributable to a
$56 million gain on the sale of DMT, an investment held by Europolitan. Net of
minority interest and taxes, the sale of DMT resulted in a $6 million increase
in consolidated net income.
Excluding the effect of equity in net income (loss) of unconsolidated
international wireless systems, foreign income tax rate differences and minority
interest for consolidated international operations, a 1996 reduction in the
valuation allowance related to consolidated international operations, and 1995
tax benefits related to the tax loss on the sale of AirTouch Teletrac, the
effective tax rates were approximately
-13-
<PAGE> 14
Management's Discussion & Analysis
Financial Condition & Results of Operations
44% and 45% for the years ended December 31, 1996 and 1995, respectively.
U.S. CELLULAR OPERATIONS
================================================================================
U.S. Cellular Operating Results (GAAP Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31
----------------------
(Dollars in millions) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Service and other revenues $ 1,634 $ 1,145
Equipment sales 60 44
- ---------------------------------------------------------------------------
Operating revenues 1,694 1,189
- ---------------------------------------------------------------------------
Operating expenses before depreciation
and amortization expenses 1,055 771
Depreciation and amortization expenses 240 128
- ---------------------------------------------------------------------------
Operating income 399 290
Equity in net income (loss) of unconsolidated
wireless systems 200 197
Minority interests in net (income) loss of
consolidated wireless systems (71) (56)
Other (income) expense included in equity
income and minority interests (a) 1 (15)
- ---------------------------------------------------------------------------
U.S. cellular operating contribution
to net income (b) $ 529 $ 416
===========================================================================
</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 16).
Cellular Communications, Inc. Merger. Effective August 16, 1996, AirTouch
acquired the remaining 63% of CCI's capital stock that it did not already own.
As a result of the acquisition, AirTouch now owns 100% of CCI and New Par, the
equally owned partnership between the Company and CCI that operated cellular
properties in Michigan and Ohio prior to the merger. Accordingly, the operating
results of CCI and New Par (referred to elsewhere in management's discussion and
analysis as the "Great Lakes" market) are reflected in equity earnings at the
Company's ownership interest prior to the merger and in consolidated results at
100% thereafter. Since the actual results of operations for the years ended
December 31, 1996 and 1995 are not comparable, the following discussion of
operating revenues and operating income excludes the consolidated operating
results of the Great Lakes market for the period from August 16, 1996, the date
of acquisition, through December 31, 1996.
Excluding the operating results of the Great Lakes market during 1996, U.S.
cellular consolidated operating revenues increased 16%, due primarily to a 30%
increase in subscribers, partially offset by a 14% decrease in the average
revenue per cellular customer. The Company achieved customer growth in its
consolidated markets through advertising and by continuing to offer incentive
programs such as waived service establishment charges, discounted monthly access
fees, discounted cellular handsets, free or discounted air time packages, and
reduced or fixed rates for off-peak usage and roaming. The decline in average
revenue per customer was primarily attributable to continued success in
penetrating the consumer markets and to rate reductions and discounts associated
with customer incentive programs and marketing promotions. Consumer usage
patterns contributed to declines in average revenue per customer because
consumers typically place and receive fewer calls than commercial customers and
often use their telephones more during lower-rate, off-peak calling periods.
Excluding the operating results of the Great Lakes market during 1996, U.S.
cellular operating income increased 18% and operating margins were consistent at
approximately 24%. Operating cash flow margins (operating margin excluding the
effect of depreciation and amortization expenses) increased from 35% to 37%.
Stable margins despite declining average revenue per customer resulted primarily
from a 19% decline in the average cash cost per customer (including the loss on
equipment sales) in the Company's consolidated markets, which reflects the
Company's continuing efforts to reduce cash costs faster than the related
declines in average revenue per customer. Decreases in average cash costs
resulted from several factors, including increased economies of scale,
significant reductions in roaming fraud, declines in handset costs, a shift in
customer acquisitions to lower-cost direct sales channels, and some reduction in
interconnection rates. The Company has also reduced the rate at which customers
discontinue service by increasing its focus on customer incentive programs
designed to retain existing customers, which is significantly less expensive
than replacing customers that discontinue service. The aforementioned cost
reductions were partially offset by increases in personnel, billing, facilities,
and certain other costs necessary to serve the expanded customer base. Excluding
operating results of the Great Lakes market during 1996, depreciation and
amortization increased by approximately 31%, due primarily to depreciation of
significantly larger property, plant, and equipment balances associated
-14-
<PAGE> 15
Management's Discussion & Analysis
Financial Condition & Results of Operations
with analog network expansion and digital cellular deployment across various
consolidated markets.
Equity in net income of U.S. cellular properties increased 2%, reflecting a 16%
increase in the net income of CMT Partners, partially offset by the effect of
consolidation of the Great Lakes market beginning August 16, 1996. Prior to its
consolidation, approximately 69% of the net income of the Great Lakes market was
reflected in equity in net income (loss) of unconsolidated wireless systems (see
"Cellular Communications, Inc. Merger").
U.S. PAGING OPERATIONS
All U.S. paging markets are wholly owned by the Company.
================================================================================
U.S. Paging Operating Results (GAAP Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31
------------------
(Dollars in millions) 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Service and other revenues $293 $220
Equipment sales 50 45
- ---------------------------------------------------------------
Operating revenues 343 265
- ---------------------------------------------------------------
Operating expenses before depreciation
and amortization expenses 255 190
Depreciation and amortization expenses 64 43
- ---------------------------------------------------------------
Operating income $ 24 $ 32
===============================================================
Operating cash flow (a) $ 88 $ 75
Operating cash flow margin (b) 25.7% 28.3%
===============================================================
</TABLE>
(a) See Footnote (d) on page 47.
(b) Operating cash flow margins in the GAAP presentation above differ from
the same margins presented in "Selected Proportionate Financial Data"
because costs of equipment sales are included in operating expenses in
this presentation in accordance with GAAP, rather than being presented
as a reduction to service and other revenues as is done in the
proportionate presentation for U.S. paging.
Operating revenues increased 29%, due primarily to the acquisition of Message
Center Beepers, Inc. ("Message Center") in mid-December 1995 and to a 22%
increase in paging units in service in existing and start-up paging markets.
Operating income declined 25% and operating margins decreased from 12% to 7%.
Operating cash flow margins (operating margins excluding the effect of
depreciation and amortization) decreased from 28% to 26%. The decline in the
operating cash flow margin resulted primarily from significant operating costs
incurred in initiating service in start-up markets. Increased depreciation and
amortization associated with the expansion of paging networks and amortization
of intangibles acquired in connection with Message Center, combined with
increased cash costs in start-up markets, resulted in the more significant
decline in the overall operating margin.
INTERNATIONAL OPERATIONS
================================================================================
International Operating Results (GAAP Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31
--------------------
(Dollars in millions) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Service and other revenues $ 190 $ 133
Equipment sales 22 19
- -----------------------------------------------------------------------
Operating revenues 212 152
- -----------------------------------------------------------------------
Operating expenses before depreciation
and amortization expenses 239 214
Depreciation and amortization expenses 34 27
- -----------------------------------------------------------------------
Operating loss (61) (89)
Equity in net income (loss) of unconsolidated
wireless systems (18) (36)
Minority interests in net (income) loss of
consolidated wireless systems (24) 20
Other (income) expense included in equity
income and minority interests (a) 198 75
- -----------------------------------------------------------------------
International operating contribution
to net income (b) $ 95 $ (30)
=======================================================================
</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 (loss) presented on page 16).
The 40% increase in operating revenues resulted primarily from substantial
subscriber growth in Europolitan's markets. Operating losses declined 32% and
negative operating margins improved from 59% to 29%, due primarily to rapidly
declining cash costs per customer achieved as Europolitan's operations gained
scale.
Equity losses decreased 50% due to significant improvement in existing
operations in Germany, Portugal, Belgium, and Japan partially offset by
increased losses of start-up operations in Spain, South Korea, Italy, and
Poland. Improved results of existing operations resulted from increasing scale
and continued subscriber growth, partially offset by slight declines in the
average revenue per customer. Higher start-up losses were attributable to
acquisition costs associated with rapid subscriber growth.
International equity in net income (loss) of unconsolidated wireless systems
included tax
-15-
<PAGE> 16
Management's Discussion & Analysis
Financial Condition & Results of Operations
benefits of $10 million and $40 million in 1996 and 1995, respectively. These
tax benefits are recorded in "Equity in net income (loss) of unconsolidated
wireless systems" on the Consolidated Statements of Income. The tax benefits
were recorded as an asset that represents future benefits the equity investees
will receive by deducting the net operating losses from future taxable income.
PROPORTIONATE RESULTS OF OPERATIONS
Proportionate information for the Company's U.S. cellular and international
operations is presented as supplemental information only. Proportionate results
are a pro rata consolidation of the Company's share of all U.S. cellular and
international operating revenues and expenses, net of the interests of minority
and equity partners. Since significant U.S. cellular and international
operations are not consolidated, the Company believes proportionate information
facilitates a more detailed understanding of the Company's operating results
prepared and presented in accordance with GAAP.
================================================================================
U.S. Cellular Operating Results (Proportionate Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31
-----------------------------------
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Service and other revenues $2,363 $1,984 $1,523
- -------------------------------------------------------------------------
Cost of revenues 236 222 188
Selling and customer operations
expenses (a) 902 781 591
General, administrative, and
other expenses 169 160 139
Depreciation and amortization
expenses 388 292 189
- -------------------------------------------------------------------------
Operating income $ 668 $ 529 $ 416
- -------------------------------------------------------------------------
Operating cash flow (b) $1,056 $ 821 $ 605
Operating cash flow margin (c) 44.7% 41.4% 39.7%
=========================================================================
</TABLE>
(a) See Footnote (c) on page 47.
(b) See Footnote (d) on page 47.
(c) See Footnote (e) on page 47.
================================================================================
International Operating Results (Proportionate Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31
---------------------------------
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Service and other revenues(a) $2,181 $1,640 $ 918
- -------------------------------------------------------------------------
Operating expenses before
depreciation and amortization
expenses (b) 1,452 1,319 794
Depreciation and amortization
expenses 283 226 154
- -------------------------------------------------------------------------
Operating income (loss) $ 446 $ 95 $ (30)
- -------------------------------------------------------------------------
Operating cash flow (a)(c) $ 729 $ 321 $ 124
Operating cash flow margin (d) 33.4% 19.6% 13.5%
==========================================================================
</TABLE>
(a) If foreign exchange rates had remained constant, service and other
revenues and operating cash flow would have increased 51% and 163%,
respectively, comparing 1997 to 1996 and 87% and 189%, respectively,
comparing 1996 to 1995.
(b) See Footnote (c) on page 47.
(c) See Footnote (d) on page 47.
(d) See Footnote (e) on page 47.
CONTINGENCIES
The Company is party to various legal proceedings, including certain antitrust
litigation. See Note M, "Commitments and Contingencies," to the Consolidated
Financial Statements.
MARKET RISK
INTEREST AND FOREIGN EXCHANGE RATE RISKS
The Company is exposed to risks of unfavorable movements in interest and foreign
currency exchange rates. In certain cases, the Company enters into derivative
financial instrument contracts to manage its exposure to such risks. With
respect to foreign currency exchange rate risk, the Company enters into forward
foreign currency exchange contracts ("forward contracts") to hedge its net
investment in its international wireless systems and to manage risks associated
with firm capital commitments denominated in foreign currencies. With respect to
interest rate risks, the Company attempts to mitigate its exposure to interest
rate changes and to minimize its costs of funds using interest rate swaps. In
general interest rate swaps are used to convert variable-rate debt to fixed-rate
debt and to reduce interest rate risk associated with future borrowings. The
Company does not enter any such arrangements for purposes of trading or
speculation. 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.
-16-
<PAGE> 17
Management's Discussion & Analysis
Financial Condition & Results of Operations
As of December 31, 1997, the Company's financial instruments that are subject to
interest and foreign currency exchange rate risks included long-term debt with
an aggregate fair value of $1.4 billion and forward contracts with an aggregate
positive market value of $60 million. The long-term debt was denominated in U.S.
Dollars, Swedish Krona, German Deutschmarks, Japanese Yen, and Portuguese
Escudos. The forward contracts were denominated in German Deutschmarks, Japanese
Yen, Belgian Francs, Spanish Pesetas, Italian Lira, Korean Won, Portuguese
Escudos, and Swedish Krona. Long-term debt held in the U.S. and denominated in
U.S. Dollars totaled approximately $1 billion, which included $900 million in
public debt bearing interest at fixed rates between 7.0% and 7.5% and $70
million in commercial paper bearing interest at a variable money market rate.
Long-term debt held in the U.S. also included $180 million denominated in German
Deutschmarks bearing interest at a weighted average Deutschmark interest rate of
3.87%. In addition, as of December 31, 1997, Europolitan and Telecel also held
various long-term debt instruments totaling $148 million and $55 million,
respectively, all of which were denominated in their domestic currencies. The
remaining long-term debt consisted of individually insignificant, fixed-rate
instruments predominantly denominated in U.S. Dollars. See Note H, "Debt and
Credit Facilities," to the Consolidated Financial Statements for further
detailed information concerning the Company's debt instruments and credit
facilities.
The Company uses a statistical modeling technique known as "value-at-risk"
("VAR") to compute required disclosures of the maximum probable loss, within a
certain confidence level, in the fair value of its financial instruments subject
to interest and foreign currency exchange rate risks. VAR may be calculated
using several types of models. The Company uses the "variance/co-variance"
model, which calculates VAR based on the actual historical volatility of the
related interest and foreign exchange rates and the actual historical
correlation of such rates with one another. The Company's calculations were
based on the actual correlation of such rates observed during the preceding
year, a 95% confidence level, and a one-year holding period for each financial
instrument (except for those instruments maturing prior to December 31, 1998).
The model was applied to all of the Company's debt instruments and forward
contracts. With respect to foreign exchange rate risk, the VAR for the Company's
debt instruments and forward contracts was $18 million and $49 million,
respectively. With respect to interest rate risk, the VAR for the Company's debt
instruments and forward contracts was $58 million and $53 million, respectively.
VAR amounts are statistical estimates representing the maximum probable loss in
fair value that the Company could incur given a certain confidence level (i.e.,
with 95% certainty, the value of the instruments included in the VAR model is
not likely to decline more than the VAR amounts shown above due to movements in
the relevant market rates). VAR amounts do not represent actual losses which
will be incurred by the Company. In addition, although changes in market rates
may adversely impact the fair value of the Company's debt instruments, market
rate changes will have an immaterial impact on earnings or cash flows since the
majority of the Company's existing debt bears interest at fixed rates. Further,
potential changes in the fair value of forward contracts will be offset by
changes in the fair value of the underlying asset hedged by the forward
contract.
EQUITY PRICE RISK
The Company also holds a $55 million cost-based, available-for-sale investment
in common stock and warrants for common stock of QUALCOMM, Inc. ("QUALCOMM"), a
publicly traded company in the U.S. In accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the investment in common stock of QUALCOMM is reported at
its market value in the Company's financial statements. The Company's investment
in QUALCOMM is subject to equity price risks. A 10% decline in the price of
QUALCOMM stock would result in a $6 million decrease in the fair value of the
Company's investment.
In addition to QUALCOMM, the Company holds certain cost-based investments in
Globalstar L.P. (a satellite-based wireless communications partnership), a
German landline telephone company, a Japanese long distance company, certain
smaller U.S. cellular properties, and certain Japanese cellular properties. As
of December 31, 1997, investment balances for these entities totaled $110
million and were reported in "Investments in unconsolidated wireless systems,"
in the Company's Consolidated Balance Sheets. These investments also expose the
Company to risk of loss; however, it is not practicable to estimate the fair
value of these investments as quoted market prices are not available and
alternative information which might be relevant to estimating such fair value is
not readily available to the Company. Accordingly, it is not practicable to
provide information concerning sensitivity to relevant market rates for these
investments.
-17-
<PAGE> 18
Management's Discussion & Analysis
Financial Condition & Results of Operations
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.
1997 CAPITAL SPENDING, DEBT SERVICE, AND DIVIDEND REQUIREMENTS
During 1997, the Company incurred capital expenditures of $683 million for
additions to property, plant, and equipment for its consolidated wireless
networks and other capital expenditures, primarily to increase cellular and
paging network capacity and to expand customer operations functions necessary to
support customer growth. The Company invested an additional $445 million in its
unconsolidated wireless systems to fund the expansion and build-out of cellular
and PCS networks and to increase its interest in certain systems. In addition to
capital funding, the Company elected to retire $179 million of long-term debt in
the U.S. prior to its maturity. The Company also paid $54 million in preferred
dividends and reduced its net commercial paper and debt position approximately
$42 million.
FUNDING OF 1997 CAPITAL SPENDING, DEBT SERVICE, AND DIVIDEND REQUIREMENTS
Cash flows from operations of $1.3 billion, combined with beginning cash
balances, proceeds from the issuance of common stock, and net proceeds from
other investing and financing activities, were sufficient to fund net debt
retirement, capital requirements, preferred dividend obligations, 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. U.S. and
international requirements for capital expenditures and contributions to
unconsolidated wireless systems for existing operations are expected to be
approximately $1.1 billion during 1998.
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's 1997 capital expenditures for digital technology surpassed 1997
capital expenditures for analog technology, and the Company expects annual
digital spending to continue to be greater than annual analog spending for the
foreseeable future. Digital networks enable significant increases in the
Company's cellular network capacity and allow the Company to offer additional
services and features comparable to those available on digital networks
operating at PCS frequencies. Accordingly, the Company anticipates that a
significant portion of its future U.S. wireless network traffic will migrate to
digital service as customers take advantage of enhanced digital features such as
superior voice quality, longer handset battery life, and improved security.
However, both analog and digital technologies are expected to coexist for the
foreseeable future due to continued demand for analog service and the fact that
analog networks provide the only common roaming platform currently available
throughout the United States.
Management believes that a viable analog market will continue to exist for the
foreseeable future to serve consumers and other customers who do not desire
digital features or who do not wish to purchase new digital handsets. With
respect to roaming capabilities, the Company believes that a significant portion
of its digital and analog customer base, as well as customers of other carriers
who roam on the Company's networks, will continue to require access to
nationwide analog networks in the United States. Accordingly, 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 December 31, 1997, the Company was committed to spend approximately $236
million for the acquisition of property, plant, and equipment for its existing
consolidated operations. In addition to these commitments, the Company plans to
make additional capital expenditures of approximately $633 million during 1998
to increase the capacity of its existing wireless networks and to continue
deployment of CDMA digital technology. At December 31, 1997, the Company had
also committed to spend approximately $157 million for the purchase of cellular
handsets, pagers, and other items.
-18-
<PAGE> 19
Management's Discussion & Analysis
Financial Condition & Results of Operations
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 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 December 31, 1997, the Company was committed to make capital contributions
of approximately $21 million to its existing unconsolidated wireless systems. In
addition to these commitments, the Company plans to make additional capital
contributions of approximately $228 million during 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 is also pursuing a cellular service license in
Switzerland, which may result in further capital requirements 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.
ACQUISITIONS
On January 29, 1998, the Company and U S WEST entered into a definitive
agreement for AirTouch to acquire U S WEST Media Group's domestic wireless
business, including U S WEST Media Group's interest in PrimeCo, in exchange for
approximately $4.3 billion in AirTouch common and preferred stock and the
assumption by AirTouch of $1.4 billion of U S WEST Media Group's long-term debt,
for a total purchase price of approximately $5.7 billion. The number of AirTouch
common shares to be issued in connection with the 1998 Agreement is expected to
be between 60.8 and 67.1 million shares, depending on the volume weighted
average trading price of AirTouch common stock during the thirty trading days
ending five trading days prior to closing. The transaction is structured so as
to qualify as a tax-free reorganization for U.S. Federal tax purposes. For a
more detailed description of the terms of this transaction, see Note F,
"Partnerships and Acquisitions-U S WEST Transaction," to the Consolidated
Financial Statements.
OTHER REQUIREMENTS
In October 1997, the Company's Board of Directors authorized the repurchase of
up to $1 billion of AirTouch common and preferred stock. The Company plans to
buy shares on the open market from time to time, based on market conditions.
FINANCING SOURCES
In March 1996, the Company initiated a commercial paper program consisting of
the sale of discounted notes that are exempt from registration under the
Securities Act of 1933. The Company's Board of
-19-
<PAGE> 20
Management's Discussion & Analysis
Financial Condition & Results of Operations
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 December 31, 1997, there have been three debt
issues pursuant to the Shelf which remain outstanding. On July 16, 1996, the
Company issued long-term debt pursuant to the Shelf in the form of $250 million
in 7.125% Notes and $400 million in 7.50% Notes, maturing in July 2001 and July
2006, respectively. Interest on the Notes is payable semi-annually on January 15
and July 15, commencing in 1997. In addition, on October 2, 1996, the Company
issued additional long-term debt pursuant to the Shelf in the form of $250
million in 7.00% Notes, maturing in October 2003. The Notes require semi-annual
interest payments due on April 1 and October 1, commencing in 1997.
FUNDING OF FUTURE REQUIREMENTS
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 pending
acquisition of U S WEST Media Group's domestic wireless business. However,
should additional funding be required due to award of one or more new
international cellular licenses, new investment opportunities, repurchase of
AirTouch common or preferred stock, or other unanticipated events, 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.
-20-
<PAGE> 21
Report of Management
To the Stockholders of AirTouch Communications, Inc.:
FINANCIAL STATEMENTS
The management of AirTouch Communications, Inc. and its subsidiaries prepared
the accompanying Consolidated Financial Statements and is responsible for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles in the United States applied on a
consistent basis and are not misstated as a result of material fraud or error.
The Consolidated Financial Statements include amounts based on management's best
estimates and judgments, where necessary. Management also prepared the other
information in this annual report and is responsible for its accuracy and
consistency with the Consolidated Financial Statements.
The Company's Consolidated Financial Statements have been audited by Price
Waterhouse LLP, independent accountants. Management has made available to Price
Waterhouse LLP all of the Company's financial records and related data, as well
as the minutes of meetings of the Board of Directors. Furthermore, management
believes that all of the representations made to Price Waterhouse LLP during
their audits were valid and appropriate.
INTERNAL CONTROL SYSTEM
AirTouch Communications, Inc. and its subsidiaries maintain a system of internal
controls over financial reporting, one of the purposes of which is to provide
reasonable assurance to the Company's management and Board of Directors
regarding the preparation of reliable published financial statements. The Audit
and Investment Committee of the Board of Directors is responsible for overseeing
the Company's financial reporting process on behalf of the Board.
During 1997, the Audit and Investment Committee met regularly with management,
internal audit, and the independent accountants to review internal controls,
accounting, auditing, and financial reporting matters.
The system of internal controls contains self-monitoring mechanisms, and actions
are taken to correct deficiencies as they are identified. Even an effective
internal control system, no matter how well designed, has inherent limitations -
including the possibility of the circumvention or overriding of controls - and
therefore can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, internal
control system effectiveness may vary over time.
The Company assessed its internal control system in its consolidated operations
throughout the year ended December 31, 1997. Criteria for effective internal
control over financial reporting described in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") were considered in management's control process assessments.
To assess the internal control systems in its unconsolidated partnerships and
corporations, management relied on reports issued by the Company's internal
audit group and various external public accountants who performed audits of
those entities, where such reports were available. Management believes that, as
of December 31, 1997, its overall system of internal control over financial
reporting was operating effectively.
/s/ Sam Ginn
Chairman and Chief Executive Officer
/s/ Mohan Gyani
Executive Vice President and Chief Financial Officer
March 2, 1998
-21-
<PAGE> 22
Report of Independent Accountants
To the Board of Directors and Stockholders of AirTouch Communications, Inc.:
In our opinion, the accompanying Consolidated Balance Sheets and the related
Consolidated Statements of Income, of Stockholders' Equity and of Cash Flows
present fairly, in all material respects, the financial position of AirTouch
Communications, Inc. and subsidiaries at 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. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Our audits were made for the purpose of forming an opinion on the Consolidated
Financial Statements taken as a whole. The Selected Proportionate Financial Data
(Proportionate Financial Data) for each of the three years in the period ended
December 31, 1997, appearing on page 46 is presented for additional analysis and
is not a required part of the basic financial statements. As discussed on page
47, this 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. The Proportionate Financial Data reflects selected
operating data of the Company's consolidated and unconsolidated investments
using the proportionate method of accounting and is not a presentation in
accordance with generally accepted accounting principles. Such Proportionate
Financial Data for each of the three years in the period ended December 31,
1997, determined on the basis of presentation described on page 47, has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the Consolidated Financial Statements taken as a whole.
/s/ PRICE WATERHOUSE LLP
San Francisco, California
March 2, 1998
-22-
<PAGE> 23
Consolidated Statements of Income
AirTouch Communications, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
--------------------------------------
(Dollars in millions, except per share information) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 3,594 $ 2,252 $ 1,619
- ----------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of revenues 846 521 373
Selling and customer operations expenses 990 705 525
General, administrative, and other expenses 503 394 392
Depreciation and amortization expenses 549 351 216
- ----------------------------------------------------------------------------------------------------------
Total operating expenses 2,888 1,971 1,506
- ----------------------------------------------------------------------------------------------------------
Operating income 706 281 113
Equity in net income (loss) of unconsolidated wireless systems:
U.S. 1 151 188
International 199 (18) (36)
Minority interests in net (income) loss of consolidated wireless
systems (119) (95) (36)
Interest:
Expense (90) (52) (13)
Income 18 14 35
Foreign exchange gain 8 6 3
Miscellaneous income (expense) (9) 61 (9)
- ----------------------------------------------------------------------------------------------------------
Income before income taxes and preferred dividends 714 348 245
Income taxes 266 149 113
- ----------------------------------------------------------------------------------------------------------
Income before preferred dividends 448 199 132
Preferred dividends 54 20 --
- ----------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 394 $ 179 $ 132
==========================================================================================================
Net income applicable to common stockholders - per share
Basic and diluted $ 0.78 $ 0.36 $ 0.27
==========================================================================================================
Weighted average shares outstanding (in thousands) 503,883 500,051 494,925
==========================================================================================================
</TABLE>
The accompanying Notes are an integral part of
the Consolidated Financial Statements.
-23-
<PAGE> 24
Consolidated Balance Sheets
AirTouch Communications, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31
--------------------
(Dollars in millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1 $ 28
Accounts receivable (net of allowance for uncollectibles of $44 and $61, respectively) 472 416
Inventories 106 55
Other receivables 44 33
Due from related parties 48 34
Other current assets 51 58
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 722 624
Property, plant, and equipment, net 2,539 2,322
Investments in unconsolidated wireless systems 2,068 1,992
Intangible assets, net 3,297 3,409
Deferred charges and other noncurrent assets 344 177
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 8,970 $ 8,524
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 244 $ 200
Current portion of long-term debt 57 16
Other current liabilities 675 528
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 976 744
Long-term debt 1,362 1,653
Deferred income taxes 711 693
Deferred credits 86 104
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,135 3,194
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interests in consolidated wireless systems 306 268
- ---------------------------------------------------------------------------------------------------------------------------------
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,
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, 502.6 million shares issued and 502.3 million shares
outstanding [net of 0.2 million treasury shares at cost of $4] at December 31, 1996) 4,079 3,987
Retained earnings 415 21
Cumulative translation adjustment (32) 3
Other 26 10
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,529 5,062
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 8,970 $ 8,524
=================================================================================================================================
</TABLE>
The accompanying Notes are an integral part of the
Consolidated Financial Statements
-24-
<PAGE> 25
Consolidated Statements of Stockholders' Equity
AirTouch Communications, Inc. and Subsidiaries
================================================================================
<TABLE>
<CAPTION>
Class B Class C
Preferred Preferred Common Retained Cumulative
Stock (a) Stock (a) Stock (a) Earnings Translation
(Dollars in millions) and APIC and APIC and APIC (Deficit) Adjustment
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 balances $ -- $ -- $ 3,750 $ (290) $ 11
Net income 132
Shares issued under incentive and
employee benefits programs 40
Shares issued for acquisition 94
Treasury share additions from
incentive plan forfeitures, net of shares
reissued under incentive programs (2)
Foreign currency translation gain 6
Unearned compensation
Compensation expense
Unrealized holding gain on noncurrent
available-for-sale securities, net
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 balances -- -- 3,882 (158) 17
Income before preferred dividends 199
Preferred stock dividends (b) (20)
Preferred stock issued 500 541
Stock options issued for CCI merger 17
Shares issued under incentive and
employee benefits programs 90
Treasury share additions from
incentive plan forfeitures, net of shares
reissued under incentive programs (2)
Foreign currency translation loss (14)
Unearned compensation
Compensation expense
Unrealized holding loss on noncurrent
available-for-sale securities, net
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 balances 500 541 3,987 21 3
Income before preferred dividends 448
Preferred stock dividends (b) (54)
Shares issued under incentive and
employee benefits programs 99
Treasury share additions, principally from
incentive plan forfeitures, net of shares
reissued under incentive programs (7)
Foreign currency translation loss ( 35)
Unearned compensation
Compensation expense
Unrealized holding gain on noncurrent
available-for-sale securities, net
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 balances $ 500 $ 541 $ 4,079 $ 415 $ (32)
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(Dollars in millions) Other Total
- -----------------------------------------------------------------------
<S> <C> <C>
December 31, 1994 balances $ (11) $ 3,460
Net income 132
Shares issued under incentive and
employee benefits programs 40
Shares issued for acquisition 94
Treasury share additions from
incentive plan forfeitures, net of shares
reissued under incentive programs (2)
Foreign currency translation gain 6
Unearned compensation ( 8) (8)
Compensation expense 6 6
Unrealized holding gain on noncurrent
available-for-sale securities, net 23 23
- -----------------------------------------------------------------------
December 31, 1995 balances 10 3,751
Income before preferred dividends 199
Preferred stock dividends (b) (20)
Preferred stock issued 1,041
Stock options issued for CCI merger 17
Shares issued under incentive and
employee benefits programs 90
Treasury share additions from
incentive plan forfeitures, net of shares
reissued under incentive programs (2)
Foreign currency translation loss (14)
Unearned compensation (13) (13)
Compensation expense 16 16
Unrealized holding loss on noncurrent
available-for-sale securities, net (3) (3)
- -----------------------------------------------------------------------
December 31, 1996 balances 10 5,062
Income before preferred dividends 448
Preferred stock dividends (b) (54)
Shares issued under incentive and
employee benefits programs 99
Treasury share additions, principally from
incentive plan forfeitures, net of shares
reissued under incentive programs (7)
Foreign currency translation loss (35)
Unearned compensation (14) (14)
Compensation expense 21 21
Unrealized holding gain on noncurrent
available-for-sale securities, net 9 9
- -----------------------------------------------------------------------
December 31, 1997 balances $ 26 $ 5,529
=======================================================================
</TABLE>
(a) See Note I, "Capital Stock," to the Consolidated Financial Statements
for changes in the number of shares.
(b) Class B Preferred dividends are $1.74 per share per annum and Class C
Preferred dividends are $2.125 per share per annum. For 1996, preferred
stock was outstanding from August 16, 1996 through December 31, 1996.
The accompanying Notes are an integral part of
the Consolidated Financial Statements.
-25-
<PAGE> 26
Consolidated Statements of Cash Flows
AirTouch Communications, Inc. and Subsidiaries
================================================================================
<TABLE>
<CAPTION>
For the Year Ended December 31
--------------------------------
(Dollars in millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income before preferred dividends $ 448 $ 199 $ 132
Adjustments to reconcile income before preferred dividends
for items currently not affecting operating cash flows:
Depreciation, amortization, and other noncash charges 561 358 222
Equity in net (income) loss of unconsolidated wireless systems (200) (133) (152)
Distributions received from equity investees 383 140 104
Minority interests in net income (loss) of consolidated wireless systems 119 95 36
Deferred income tax (benefit) expense 75 33 24
Loss (gain) on sale of assets and telecommunications interests 2 (60) (4)
Changes in assets and liabilities:
Accounts receivable, net (69) (7) (52)
Other current assets and receivables (87) 24 53
Deferred charges and other noncurrent assets 9 61 (33)
Accounts payable and other current liabilities 91 26 (6)
Deferred credits and other liabilities 3 39 (2)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 1,335 775 322
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investments in unconsolidated wireless systems (445) (857) (1,264)
Proceeds from sale of wireless systems -- 131 4
Additions to property, plant, and equipment (683) (480) (502)
Proceeds from sale of property, plant , and equipment 16 25 18
Maturity of available-for-sale securities 7 11 86
Maturity of held-to-maturity investments -- -- 310
Other investing activities 8 (5) (14)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities (1,097) (1,175) (1,362)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuing long-term debt and commercial paper 406 2,323 767
Retirement of long-term debt and commercial paper (627) (1,991) (8)
Distributions to minority interests of consolidated wireless systems (71) (56) (21)
Contributions from minority interests of consolidated wireless systems 5 1 6
Proceeds from common shares issued 83 80 32
Increase (decrease) in short-term borrowings -- -- (86)
Payment of preferred stock dividends (54) (7) --
Other financing activities (2) (4) 4
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities (260) 346 694
- ---------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (5) (1) --
- ---------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (27) (55) (346)
Beginning cash and cash equivalents 28 83 429
- ---------------------------------------------------------------------------------------------------------------------
Ending cash and cash equivalents $ 1 $ 28 $ 83
=====================================================================================================================
Supplemental information:
Cash payments for:
Interest, net of amounts capitalized $ 94 $ 22 $ 4
Income taxes $ 154 $ 54 $ 108
Noncash financing activities:
Preferred stock and options issued for CCI merger (a) $ -- $ 1,057 $ --
Common stock issued for paging acquisition $ -- $ -- $ 94
=====================================================================================================================
</TABLE>
(a) See Note F, "Partnerships and Acquisitions - CCI Merger," for
additional noncash information.
The accompanying Notes are an integral part of
the Consolidated Financial Statements.
-26-
<PAGE> 27
Notes to Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
AirTouch Communications, Inc., a holding company, together with its
subsidiaries, unconsolidated partnerships, and corporations (collectively
referred to herein as the "Company"), provide wireless telecommunications
services in the United States, Europe, and Asia. The principal business units of
AirTouch Communications, Inc. are AirTouch Cellular, AirTouch Paging, and
AirTouch International. These business units principally provide cellular and
paging services. The majority of the Company's revenues are provided by its U.S.
cellular operations, AirTouch Cellular.
The Consolidated Financial Statements include the accounts of the Company, its
subsidiaries, and partnerships in which the Company has a direct controlling
interest. All significant intercompany balances and transactions have been
eliminated. Certain prior period items have been reclassified to conform with
the 1997 format; however, these classifications did not effect previously
reported net income.
On December 31, 1996, the Company consolidated Telecel Communicacoes Pessoias,
S.A. ("Telecel"), its cellular system in Portugal, subsequent to obtaining a
controlling interest. Accordingly, Telecel's Balance Sheet was consolidated in
the Company's Consolidated Balance Sheet as of December 31, 1996. On January 1,
1997, the Company began consolidating Telecel's results of operations.
Effective August 16, 1996, the Company completed its acquisition of Cellular
Communications, Inc. ("CCI"). Prior to the merger, the Company owned
approximately 37% of the outstanding capital stock of CCI and the Company and
CCI each held a 50% interest in New Par, a partnership that owned and operated
cellular systems located principally in Michigan and Ohio. The Company used the
equity method of accounting to report the results of both CCI and New Par prior
to the merger on August 16, 1996. Since the merger, CCI and New Par have been
consolidated in the Company's Consolidated Financial Statements. See Note F,
"Partnerships and Acquisitions - CCI Merger," for further information.
Effective January 17, 1996, the Company sold its vehicle location and fleet
tracking services business, AirTouch Teletrac ("Teletrac"). In 1995, the Company
recorded a pre-tax charge of approximately $25 million primarily related to the
write-down of its investment in Teletrac to net realizable value. For the year
ended December 31, 1995, Teletrac reported a pre-tax loss of $26 million.
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applicable in the United
States. Conformity with GAAP requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents
Cash equivalents are short-term, highly liquid, held-to-maturity investments
with original maturities of 90 days or less from the date of purchase.
Inventories
Inventories held for sale are valued at lower of cost or market. Costs are based
on either the first-in, first-out, or average methods. Market is determined
using replacement cost in accordance with industry standards.
Foreign Currency Translation and Transactions
Results of operations for international investments are translated using average
exchange rates during the period, while assets and liabilities are translated
using end-of-period rates. The resulting exchange gains or losses are
accumulated in the "Cumulative translation adjustment" account (the "CTA
account"), a component of stockholders' equity. All gains and losses resulting
from foreign currency transactions are included in operations.
Financial Instruments
The Company is exposed to market risks arising from foreign currency and
interest rate fluctuations. The Company enters into foreign currency hedging
activities to reduce currency exposures to its long-term investments in
international wireless systems. The Company hedges a portion of these
investments with long-dated forward foreign currency exchange contracts
("forward contracts"). In addition, the Company enters into forward contracts to
reduce exposures of firm capital commitments denominated in foreign currencies.
The Company also enters into interest rate swap agreements to manage its
exposure to fluctuations in interest rates in an effort to minimize the
Company's cost of funds. Swap agreements are primarily used to effectively
convert existing variable rate debt to fixed rate and to reduce the interest
rate risk for future borrowings. The Company does not hold
-27-
<PAGE> 28
Notes to Consolidated Financial Statements
or issue financial instruments for trading or speculative purposes.
Foreign currency hedges. Under a forward contract, the Company undertakes to
exchange an agreed upon amount of a foreign currency for equivalent U.S. dollars
at a specified rate at a stated future date. Gains or losses associated with
forward contracts that are designated and effective as economic hedges
("qualifying hedges") of net foreign investments are recorded in the CTA
account, a separate component of stockholders' equity, with a corresponding
adjustment to a deferred asset or liability account. Cash flows resulting from
such hedges are reported in the Statements of Cash Flows in investing
activities. Gains and losses upon termination of net investment hedges are
recorded in the CTA account. Gains and losses related to qualifying hedges of
firm commitments are deferred and are recognized as adjustments of carrying
amounts when the hedged transactions occur. Cash flows resulting from these
hedges are reported in the Statements of Cash Flows in the same category as the
cash flows from the items being hedged. Gains or losses on forward contracts
that do not qualify as hedges are recorded in "Foreign exchange gain (loss)" in
the Consolidated Statements of Income.
Interest rate hedges. Under an interest rate swap, the Company agrees with
another party to exchange interest payments at specified intervals over a
defined term. Interest payments are calculated by reference to the notional
amount of the instrument based on the fixed and variable terms of the swap
agreement. The net interest received or paid as part of the interest rate swap
is accounted for as an adjustment to interest expense. The Company amortizes the
fair value of forward interest rate swaps used to hedge future borrowings over
the term of the related debt when incurred. Cash flows resulting from such
hedges are reported in the Statements of Cash Flows in operating activities.
Also, gains or losses on termination of interest rate swaps are deferred and
amortized over the remaining term of the related debt.
Property, Plant, and Equipment
Assets of businesses purchased are recorded at their fair values at the date of
acquisition. All other property, plant, and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful life of the asset. Land is not depreciated. Gains and losses on disposals
are included in income at amounts equal to the difference between the net book
value of the disposed assets and the proceeds received upon disposal.
Expenditures for replacements and betterments are capitalized, while
expenditures for maintenance and repairs are charged against earnings as
incurred. Assets under construction are not depreciated until placed into
service. Interest cost incurred during the construction period is capitalized,
as discussed below in "Capitalized Interest."
Intangible Assets
The Company uses modeling techniques on new acquisitions and long-range business
plans, revised annually, to assess whether a revision of the existing estimated
useful lives of intangible assets is necessary.
FCC licenses. The Federal Communications Commission ("FCC") issues cellular
licenses that enable U.S. cellular carriers to provide service in specific
Cellular Geographic Service Areas. A cellular license is issued conditionally
for ten years. Historically, the FCC has routinely granted license renewals
providing the licensees have complied with applicable rules, policies, and the
Communications Act of 1934, as amended. The Company believes it has complied and
intends to continue to comply with these standards and is amortizing the related
costs using the straight-line method over 40 years.
FCC licenses for U.S. paging operations are amortized on a straight-line basis
over 40 years. FCC licenses acquired by the Company through business
combinations are generally stated at appraised values as of the date of
acquisition and amortized using the straight-line method over 40 years.
International licenses. Licenses for the Company's international cellular and
paging operations are amortized on a straight-line basis over the expected term
of the licenses, which are up to 30 years.
Subscriber lists. Subscriber lists acquired through business combinations are
generally stated at appraised values as of the date of acquisition. Amortization
is computed using the straight-line method over estimated average customer
service length, typically two to five years.
Goodwill. The excess of the purchase price paid over the fair value of net
assets acquired in business combinations is recorded as goodwill and is
amortized over its expected useful period, generally 40 years, using the
straight-line method.
Investments in Unconsolidated Wireless Systems
The equity method is used to account for investments in all U.S. cellular
markets and international markets in
-28-
<PAGE> 29
Notes to Consolidated Financial Statements
which the Company has significant influence but does not have controlling
interest, including those investments in which the Company's ownership
percentage may be less than 20%. Limited partnership interests and other
unconsolidated wireless system investments in which the Company has a minor
interest and does not exercise significant influence are accounted for using the
cost method.
Earnings Per Share
Basic earnings per share is calculated based on net income after deducting
dividends on preferred stock divided by the weighted average common shares
outstanding. Diluted earnings per share is calculated based on net income after
deducting dividends on preferred stock divided by the sum of the weighted
average common shares outstanding and any common stock equivalents. Common stock
equivalents are determined using the treasury stock method. Convertible
preferred stock and convertible debt, using the "if converted" method, had an
anti-dilutive impact on earnings per share and were not included in the
calculation of diluted earnings per share.
Capitalized Interest
The Company capitalizes interest which is applicable to the construction of
significant additions to property, plant, and equipment and on start-up
investments in unconsolidated wireless systems accounted for under the equity
method of accounting until their principal operations commence. These costs are
amortized over the related assets' estimated useful lives. Total interest
incurred was $103 million, $83 million, and $28 million for 1997, 1996, and
1995, respectively, of which $13 million, $31 million, and $15 million was
capitalized in 1997, 1996, and 1995, respectively.
Advertising Expense
The Company primarily expenses advertising costs as incurred. Advertising
expense was $178 million in 1997, $107 million in 1996, and $80 million in 1995.
B. ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information," and SFAS No. 130, "Reporting
Comprehensive Income."
SFAS No. 131 establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information in interim reports. SFAS No. 130 establishes standards for reporting
and displaying comprehensive income and its components in a full set of
financial statements. The Company intends to adopt SFAS No. 131 effective with
the issuance of its December 31, 1998 financial statements and SFAS No. 130
effective with the issuance of its first quarter 1998 financial statements,
consistent with the required adoption periods. The implementation of SFAS No.
131 and SFAS No. 130 will not have an impact on the Company's financial position
or results of operations.
Effective with the issuance of the 1997 financial statements, the Company
implemented the provisions of SFAS No. 128, "Earnings Per Share." Under SFAS
No. 128, the Company is required to replace the traditional earnings per share
("EPS") disclosures with a dual presentation of "Basic" and "Diluted" EPS.
Implementation of SFAS No. 128 did not have an impact on the Company's financial
position or results of operations or on previously reported EPS.
Effective January 1, 1996, the Company implemented the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Under SFAS No. 121, the Company is required to review
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the book value of an asset may
not be recoverable. An impairment loss would be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable. The
implementation of SFAS No. 121 did not have an impact on the Company's financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." Under SFAS No. 123, the Company had a
choice of adopting a fair value based method of accounting for employee
stock-based compensation plans, as established by SFAS No. 123, or retaining the
intrinsic value-based method prescribed under Accounting Principles Board
Opinion ("APB") No. 25, provided certain pro forma disclosures were made.
Effective January 1, 1996, the Company chose to retain the intrinsic value-based
method of accounting for employee stock-based compensation plans as prescribed
by APB No. 25 and adopted the pro forma disclosure provisions of SFAS No. 123,
which did not have an impact on the Company's financial position or its results
of operations.
-29-
<PAGE> 30
Notes to Consolidated Financial Statements
C. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31
Depreciable -------------------
(Dollars in millions) Lives (Years) 1997 1996(a)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Land -- $ 29 $ 29
Buildings and
leasehold improvements 5 - 50 214 205
Cellular plant and equipment 5 - 15 2,878 2,435
Pagers, paging terminals,
and other paging equipment 3 - 15 303 292
Other equipment and furniture 2 - 10 542 540
Construction in progress -- 194 196
- ---------------------------------------------------------------------
4,160 3,697
Less: accumulated depreciation 1,621 1,375
- ---------------------------------------------------------------------
$2,539 $2,322
=====================================================================
</TABLE>
(a) Certain items have been reclassified to conform with the 1997
presentation.
Depreciation expense relating to property, plant, and equipment was $429 million
in 1997, $295 million in 1996, and $196 million in 1995. During 1995 the Company
completed a review of the estimated service lives of certain U.S. and
international cellular telecommunications equipment. As a result, the Company
and certain of its equity investees extended the estimated service lives of such
equipment from seven to ten years. The change was made to reflect more
accurately the estimated periods that such assets will remain in service and was
effective January 1, 1995. The ten-year depreciation period is consistent with
current industry standards. The change increased net income by $26 million or
$.05 per share for both basic and diluted for the year ended 1995.
D. FINANCIAL INSTRUMENTS
Market Risk Management
As of December 31, 1997 and 1996, the Company had outstanding forward foreign
currency exchange contracts principally denominated in Lira, Escudos, Belgian
Francs, Deutschmarks, Krona, Pesetas, Won, and Yen. These contracts had face
amounts totaling $814 million, and $821 million as of December 31, 1997 and
1996, respectively, with maturities through 2004. The amounts exchanged are
calculated on the basis of the face amounts of the financial instruments.
As of December 31, 1997, the Company was not a party to any interest rate or
other swaps. However, in February 1998, the Company entered into several forward
interest rate swaps with an aggregate notional amount of $500 million to
effectively lock in interest rates for certain future debt issues.
Concentration of Credit Risk
The off-balance-sheet risk in outstanding forward foreign currency exchange
contracts and interest rate swaps involves both the risk of a counterparty not
performing under the terms of the contract and the risk associated with changes
in market value. The Company monitors its positions, the credit ratings of
counterparties, and the level of contracts the Company enters into with any one
party. The counterparties to these contracts are major financial institutions.
The Company has a policy of entering into contracts with parties that have at
least an "AA-" (or equivalent) credit rating as well as other stringent
qualifications and, given the high level of credit quality of its derivative
counterparties, the Company does not believe it necessary to obtain collateral
arrangements. The Company believes that the probability of losses from
counterparty nonperformance on settlements of these transactions is remote and
that any such nonperformance would not have any material adverse effect upon the
Company's financial position or results of operations. The Company does not have
any significant exposure to any individual counterparty.
Financial instruments that potentially subject the Company to concentrations of
credit risk are trade receivables and interest-bearing investments. Due to the
large volume and diversity of the Company's customer base, concentrations of
credit risk with respect to trade receivables are limited. The Company avoids
concentrations of credit risk in its interest-bearing investment portfolio by
investing in securities issued by the U.S. Government and its agencies, and by
limiting other investments in interest-bearing securities to instruments which
are highly rated by nationally recognized statistical rating agencies. As of
December 31, 1997, the Company held no significant interest-bearing investments.
-30-
<PAGE> 31
Notes to Consolidated Financial Statements
Fair Value
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
1997 1996
--------------------- -----------------------
Carrying Estimated Carrying Estimated
(Dollars in millions) Value Fair Value Value Fair Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Noncurrent assets $ 61 $ 61 $ 49 $ 49
Investments at cost $ 110 N/A $ 72 N/A
Forward foreign currency exchange contracts $ 86 $ 60 $ -- $ --
Financial liabilities:
Current obligations $ 57 $ 57 $ 16 $ 16
Long-term debt, including leases $1,362 $1,393 $1,653 $1,672
Forward foreign currency exchange contracts $ -- $ -- $ 24 $ 48
Off-balance-sheet financial instruments $ -- $ 5 $ -- $ 4
=======================================================================================================
</TABLE>
N/A - Not available
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Noncurrent assets: represents an investment in shares and warrants of common
stock and is recorded at quoted market prices.
Investments at cost: it is not practicable to estimate the fair value of the
Company's cost-based investments because quoted market prices are not available
and, since certain of these ventures are in a start-up phase, other valuation
techniques are not appropriate. Further, alternative information which might be
pertinent to estimating the fair value of such investments is not readily
available to the Company.
Current obligations: due to the short-term character of the securities and
obligations, carrying amounts are a reasonable approximation of fair value.
Long-term debt, including leases: interest rates that are currently available to
the Company for issuance of debt with similar terms and remaining maturities are
used to estimate fair value for debt issues that are not quoted on an exchange.
Forward foreign currency exchange contracts: forward foreign currency exchange
contracts are based on the current value in the market for transactions with
similar terms adjusted for the holding period.
Off-balance-sheet financial instruments: off-balance-sheet instruments include
interest rate swaps and financial guarantees issued by the Company. Fair values
of interest rate swaps are based on the current value in the market for
transactions with similar terms adjusted for the holding period. Fair value of
financial guarantees issued by the Company is based on estimated fees to enter
into similar arrangements. Such guarantees issued by the Company include letters
of responsibility and letters of support for various credit facilities and
financing activities of certain of its subsidiaries and affiliates (see Note M,
"Commitments and Contingencies - Other," for further information).
-31-
<PAGE> 32
Notes to Consolidated Financial Statements
E. INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
The Company's investments in unconsolidated wireless systems consist of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
--------------------------
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Investments at equity $1,958 $1,920
Investments at cost 110 72
- --------------------------------------------------------------------------------
$2,068 $1,992
================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage of Ownership
December 31
----------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
EQUITY INVESTMENTS
U.S.:
CMT Partners (California, Texas, Missouri, and Kansas) 50.0% 50.0%
Nevada RSA2 Ltd. Partnership (Lander, Nevada) 50.0% 50.0%
TOMCOM, L.P. (a) 35.0% 35.0%
Centel Cellular Company of Nevada Limited
Partnership (Las Vegas, Nevada) 27.8% 27.8%
PrimeCo Personal Communications, L.P. (a) 25.0% 25.0%
International:
Telechamada-Servicio de Pessoais, S.A. (Portugal) (a) 50.9% 50.9%
Cellular Communications India Ltd. (India) 49.0% 49.0%
Northstar Paging Holdings Ltd. (Canada) 48.5% 00.0%
Mannesmann Mobilfunk GmbH (Germany) 34.8% 34.8%
Belgacom Mobile (Belgium) 25.0% 25.0%
Globalstar de Mexico, S. de R. L. de C.V. (Mexico) (a) 24.6% 24.6%
Globalstar Canada Company (Canada) (a) 23.4% 00.0%
Airtel Movil, S.A. (Spain) 21.7% 16.7%
RPG Cellular Services Limited (India) 20.0% 20.0%
Polkomtel S.A. (Poland) 19.3% 19.3%
Sistelcom-Telemensaje, S.A. (Spain) (a) 17.5% 17.5%
Omnitel-Pronto Italia, S.p.A. (Italy) (a) 15.5% 15.5%
Tokyo Digital Phone Co. (Japan) 15.0% 15.0%
Kansai Digital Phone Co. (Japan) 13.0% 13.0%
Central Japan Digital Phone Co. (Japan) 13.0% 13.0%
Shinsegi Mobile Telecommunication Co., Ltd. (South Korea) 10.7% 10.7%
MobiFon S A (Romania) 10.0% 10.0%
COST INVESTMENTS
U.S.:
GTE Mobilnet of Santa Barbara Limited Partnership 10.0% 10.0%
Globalstar, L.P. 5.7% 6.4%
Cal-One Cellular Limited Partnership 5.6% 5.6%
Fresno MSA Limited Partnership 1.1% 1.1%
International:
Japan:
International Digital Communications, Inc. 10.0% 10.0%
Digital TU-KA (b) 4.5% 4.5%
Germany:
Mannesmann Arcor (a) 2.2% 0.0%
================================================================================
</TABLE>
(a) Indirect ownership through partially owned venture.
(b) Includes Chugoku, Kyushu, Tohoku, Hokkaido, Hokuriku, and Shikoku
regions.
-32-
<PAGE> 33
Notes to Consolidated Financial Statements
The Company has options to purchase additional interests, ranging from 6% to
10%, in several of its international cellular consortia. The Company expects the
purchases to occur in 1999.
Condensed combined financial information for unconsolidated wireless systems
accounted for under the equity method is summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31 (a)
----------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------
United Inter- United Inter- United Inter-
(Dollars in millions) States national States national States national
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues/equity in net
income of partnership $ 899 $ 8,886 $ 1,168 $ 7,419 $ 1,281 $ 3,684
Operating income (loss) $ (232) $ 1,225 $ 190 $ (251) $ 420 $ (497)
==========================================================================================================================
Net income (loss) $ (238) $ 330 $ 205 $ (760) $ 411 $ (539)
Other partners' and stockholders'
share of net income (loss) (243) 107 59 (764) 213 (519)
- --------------------------------------------------------------------------------------------------------------------------
Company's share of
net income (loss) 5 223 146 4 198 (20)
Amortization of intangibles
and other adjustments (4) (24) 5 (22) (10) (16)
- --------------------------------------------------------------------------------------------------------------------------
Equity in net income (loss) of
unconsolidated wireless systems $ 1 $ 199 $ 151 $ (18) $ 188 $ (36)
==========================================================================================================================
</TABLE>
(a) Includes results of operations for Telecel for 1996 and 1995. Telecel's
results of operations have been consolidated beginning January 1997.
Also, includes results of operations for CCI and New Par through August
15 for 1996 and the entire year for 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
December 31
-----------------------------------------------------
1997 1996
-----------------------------------------------------
United United
(Dollars in millions) States International States International
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $ 249 $ 1,863 $ 270 $ 2,440
Noncurrent assets 3,093 8,271 2,652 7,055
Current liabilities (466) (4,006) (552) (3,309)
Noncurrent liabilities and minority interest (345) (4,139) (362) (3,774)
- --------------------------------------------------------------------------------------------------------
Total partners' and stockholders' capital 2,531 1,989 2,008 2,412
Other partners' and stockholders'
share of capital 1,785 1,349 1,376 1,696
- --------------------------------------------------------------------------------------------------------
Company's share of capital 746 640 632 716
Goodwill and other intangible items 72 500 76 496
- --------------------------------------------------------------------------------------------------------
Equity investments in unconsolidated
wireless systems $ 818 $ 1,140 $ 708 $ 1,212
========================================================================================================
</TABLE>
International equity in net income (losses) include tax benefits of $30 million,
$10 million, and $40 million in 1997, 1996, and 1995, respectively. These tax
benefits are recorded in "Equity in net income (loss) of unconsolidated wireless
systems" in the Consolidated Statements of Income. The tax benefits were
recorded as an asset that represents future benefits the entities will receive
by deducting the net operating losses from future taxable income. At December
31, 1997 and 1996, the Company's proportionate share of deferred tax assets of
its international equity subsidiaries was $161 million and $172 million,
respectively, which was offset by related proportionate valuation allowances of
$84 million and $103 million, respectively.
While the Company believes that it is more likely than not that the net deferred
tax assets will be fully realized, there can be no assurance that this will
happen as certain factors beyond the control of the entities and the Company,
such as deteriorating local economic
-33-
<PAGE> 34
Notes to Consolidated Financial Statements
conditions and increasing competition, can affect future timing and amounts of
taxable income.
F. PARTNERSHIPS AND ACQUISITIONS
U S WEST Transaction
On January 29, 1998, the Company entered into an agreement to acquire the U.S.
cellular business and the 25% PrimeCo Personal Communications, L.P. interest
(the "Acquired Businesses") of U S WEST Media Group ("Media"). The acquisition
is structured as a tax-free merger in which the subsidiaries of Media owning the
Acquired Businesses will merge into the Company, which will be the surviving
corporation. In the merger, the Company will issue shares of common stock having
a value (the "Common Value") of between $2.685 billion and $2.735 billion
(depending on the volume weighted average common stock trading price during the
thirty trading days ending on the fifth trading day prior to closing (the
"Determination Price")) and shares of Class D Cumulative Preferred Stock and
Class E Cumulative Preferred Stock having an aggregate value of approximately
$1.6 billion and will assume approximately $1.4 billion of debt associated with
the Acquired Businesses. The number of shares of common stock to be issued will
be determined by dividing the Common Value by the Determination Price, subject
to a minimum price of $40 and a maximum price of $45. Accordingly, the Company
will issue between approximately 60.8 million and 67.1 million shares of common
stock. In the event that any of Media's cellular interests are not transferred
to the Company, the amount of stock to be issued and the amount of debt to be
assumed will be reduced appropriately. Closing of the acquisition, which is
subject to Hart-Scott-Rodino clearance and certain other approvals, is expected
by mid-1998. If consummated, the transaction will replace the parties'
multi-phased joint venture announced in 1994. If the transaction is not
consummated, the parties will revert to the prior multi-phased joint venture
transaction.
PrimeCo Personal Communications, L.P.
In October 1994, the Company and U S WEST ("ATI/USW") joined with Bell Atlantic
Corporation (formerly Bell Atlantic Corporation and NYNEX Corporation) ("BA") to
form a partnership to jointly pursue personal communications services ("PCS")
opportunities called PrimeCo Personal Communications, L.P. ("PrimeCo"). PrimeCo
is owned equally by ATI/USW and BA, and is governed by a board composed of three
members from each of ATI/USW and BA. In March 1995, PrimeCo was awarded eleven
30 MHz PCS licenses with bids of approximately $1.1 billion. The acquired
markets complement the existing U.S. cellular franchises of the partners.
PrimeCo launched service in November 1996. The Company has already contributed
its share of the PCS license costs and of certain build-out expenses, and
expects to continue to make significant capital contributions to PrimeCo and to
experience substantial operating losses associated with the start-up phase of
the PCS business, which is expected to last several years. Currently, the
Company has a 25% indirect interest in PrimeCo through an interest in its PCS
Partnership with U S WEST.
Either ATI/USW or BA may cause PrimeCo to be dissolved on October 20, 2001, and
any PCS properties owned by it to be allocated between them according to agreed
upon criteria. Bell Atlantic is subject to certain standstill restrictions with
respect to the Company through October 20, 2001, unless such restrictions are
earlier terminated or suspended.
TOMCOM
Concurrent with the formation of PrimeCo, ATI/USW and BA formed another
partnership called TOMCOM, L.P. ("TOMCOM"). TOMCOM was formed to develop
technical and service standards for the partners' wireless properties, pursue
national marketing strategies, develop information technology, create a national
distribution strategy, and implement joint purchasing arrangements. TOMCOM is
governed by a board composed of three members from each of ATI/USW and BA.
Unlike the Company's transaction with U S WEST, the agreements with BA do not
provide for a merger of cellular properties. Accordingly, each of ATI/USW and BA
will continue to hold such properties separately.
CCI Merger
Effective August 16, 1996, the Company completed its acquisition of the
approximately 63% of CCI's outstanding stock that it did not already own. The
cost to the Company for the August 1996 acquisition was approximately $1.6
billion including liabilities assumed less cash and cash equivalents acquired.
The merger consideration consisted of $1.04 billion in AirTouch preferred
securities, $393 million in cash, AirTouch stock options valued at approximately
$17 million, and assumption of $217 million of Zero Coupon Convertible
Subordinated Notes Due 1999.
The merger has been accounted for using the purchase method of accounting and,
accordingly, the purchase price has been allocated to the net assets acquired
based upon their appraised
-34-
<PAGE> 35
Notes to Consolidated Financial Statements
fair values. The excess of the purchase price over the final appraised fair
values of net assets acquired was $1.086 billion and has been recorded as
goodwill, which is being amortized on a straight-line basis over 40 years. The
following cash and noncash entries were recorded in connection with the merger:
<TABLE>
<CAPTION>
- -------------------------------------------------
(Dollars in millions)
- -------------------------------------------------
<S> <C>
Fair value of assets acquired $ 2,326
Liabilities assumed 867
Fair value of preferred stock
and stock options issued 1,057
- -------------------------------------------------
Cash paid, including acquisition costs 402
Less: cash acquired 221
- -------------------------------------------------
Net cash paid $ 181
=================================================
</TABLE>
Pro Forma Summary. The following unaudited pro forma summary presents the
Company's consolidated results of operations as if the merger occurred at the
beginning of the respective periods, after giving effect to certain adjustments
including amortization of goodwill and other intangibles, increased interest
expense from debt issued to fund the merger, deduction for preferred stock
dividends, and related income tax effects. These pro forma results are not
necessarily indicative of those that would have occurred had the merger taken
place at the beginning of the respective periods.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Year Ended
December 31
-----------------------
(Dollars in millions, except per share amounts) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $2,731 $2,279
Net income applicable to common
stockholders $ 125 $ 15
Net income applicable to common
stockholders - per share
Basic and diluted $ 0.25 $ 0.03
- --------------------------------------------------------------------------------
</TABLE>
G. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
------------------------
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
FCC and international licenses $1,544 $1,508
Goodwill 1,926 1,958
Other intangible assets 177 173
- --------------------------------------------------------------------------------
3,647 3,639
Less: accumulated amortization 350 230
- --------------------------------------------------------------------------------
$3,297 $3,409
================================================================================
</TABLE>
Amortization expense relating to intangible assets was $120 million for 1997,
$56 million for 1996, and $20 million for 1995.
H. DEBT AND CREDIT FACILITIES
Long-term debt consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
-----------------------
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. borrowings:
Notes, 7.5% due 2006 (a) $ 398 $ 398
Notes, 7.125% due 2001 250 250
Notes, 7.0% due 2003 250 250
Revolving credit facility 180 117
Commercial paper 70 196
Zero coupon notes -- 179
Other 30 2
Europolitan borrowings 148 169
Telecel borrowings 55 64
Other foreign currency borrowings 23 26
Capital leases 15 18
- --------------------------------------------------------------------------------
1,419 1,669
Less: portion due within one year 57 16
- --------------------------------------------------------------------------------
$1,362 $1,653
================================================================================
</TABLE>
(a) Net of discount
The Company is in compliance with all covenants associated with its debt and
credit facilities. Annual maturities of long-term debt are as follows: 1998, $57
million; 1999, $73 million; 2000, $328 million; 2001, $252 million; 2002, $59
million; 2003 and thereafter, $650 million.
U.S. Borrowings
Notes. In 1996 the Company issued long-term notes payable totaling $900 million
and utilized the proceeds to meet general corporate requirements and its cash
obligations in connection with the CCI acquisition. The debt was issued in three
tranches to establish a debt portfolio of staggered maturities. Interest on the
Notes is payable semi-annually.
-35-
<PAGE> 36
Notes to Consolidated Financial Statements
Revolving credit facility. The Company has a $2 billion multi-currency revolving
credit facility with a syndicate of banks which expires in July 2000 (the
"Facility"). Borrowings under the Facility are unsecured, bear interest at the
London Interbank Offered Rate ("LIBOR") plus a margin which is based on the
Company's debt rating, and are available in U.S. Dollars or selected foreign
currencies. However, foreign currency borrowings may not exceed $300 million. A
commitment fee, also based on the Company's credit rating, is paid on the unused
portion of the Facility. Borrowings outstanding under the Facility during 1997
were denominated in Deutschmarks, and the weighted average balance outstanding
during the year was $120 million. Borrowings outstanding at December 31, 1997
consist of 320 million Deutschmarks ($180 million) and have a weighted average
Deutschmark interest rate of 3.87%. The amount available for borrowing under the
Facility is $1.75 billion at December 31, 1997. Commercial paper borrowings are
supported by the Facility and are deducted from the Facility in determining
amounts available for borrowing.
Commercial paper. The Company's commercial paper program consists of discounted
notes that are exempt from registration under the Securities Act of 1933. Under
the terms of the program any amounts outstanding, together with all indebtedness
incurred under the Facility, can not in aggregate exceed $2 billion. The Company
obtained A-2 and P-2 prime commercial paper ratings from Standard and Poor's
Corporation and Moody's Investor Service, respectively. These ratings may be
revised or withdrawn by the rating agencies at any time. Commercial paper
borrowings are classified as long-term debt because these borrowings are
supported by the Facility. During 1997, the weighted average interest rate of
commercial paper borrowings was 5.67% and the average amount outstanding was
$244 million.
Zero coupon notes. In conjunction with its acquisition of CCI, the Company
assumed the obligations relating to CCI's $217 million Zero Coupon Convertible
Subordinated Notes Due 1999. The Company redeemed the Zero Coupon Notes on
January 27, 1997 for an aggregate redemption price of $181 million.
Europolitan Borrowings
The Company's cellular subsidiary in Sweden, Europolitan Holdings AB (formerly
known as NordicTel Holdings AB), has borrowings outstanding under two long-term
revolving credit facilities. One credit agreement is a 200 million Krona ($26
million) revolving credit facility due in December 1999 (the "1999 Revolver").
Borrowings under the 1999 Revolver are collateralized by Europolitan Holdings
AB's equity shares in its wholly owned operating subsidiary. At December 31,
1997, the effective interest rate of the 1999 Revolver is 4.55% and the amount
outstanding is 144 million Krona ($20 million). The other credit facility is a
1.4 billion Krona ($181 million) multi-currency revolving credit facility with a
syndicate of financial institutions which is due in November, 2000 (the
"Europolitan Revolver"). Borrowings under the Europolitan Revolver bear interest
at LIBOR plus a margin. The Europolitan Revolver is guaranteed by the Company.
At December 31, 1997, the effective interest rate of the Europolitan Revolver is
5.02% and the amount outstanding is 550 million Krona ($71 million). A
commitment fee is paid on the unused portion of the Europolitan Revolver. Also
outstanding at December 31, 1997 is a $57 million borrowing under a long-term
credit arrangement with an international banking consortium. This borrowing was
retired in January 1998 with funds obtained from the Europolitan Revolver.
Telecel Borrowings
Telecel issued bonds due in 1998 and 1999 and utilized the proceeds to finance
infrastructure development. At December 31, 1997, the weighted average interest
rate of these bonds is 5.84% and the amount outstanding is 10 billion Escudos
($55 million). Telecel maintains various revolving credit facilities which
provide for borrowings of up to 3.25 billion Escudos ($18 million). No
borrowings were outstanding under these revolving credit facilities during 1997
or 1996.
-36-
<PAGE> 37
Notes to Consolidated Financial Statements
I. CAPITAL STOCK
The following table summarizes changes in the number of equity security shares
outstanding:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Class B Class C
Preferred Preferred Common
(In millions) Stock Stock Stock
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding at
December 31, 1994 (a) -- -- 493.8
Merger, paging company -- -- 3.2
Incentive programs and
Employee Benefits plans -- -- 1.7
Treasury stock activity (b) -- -- (0.1)
- ---------------------------------------------------------------------------------
Shares outstanding at
December 31, 1995 (a) -- -- 498.6
Merger, CCI 17.2 11.1 --
Incentive programs and
Employee Benefits plans -- -- 3.8
Treasury stock activity (b) -- -- (0.1)
- ---------------------------------------------------------------------------------
Shares outstanding at
December 31, 1996 (a) 17.2 11.1 502.3
Incentive programs and
Employee Benefits plans -- -- 3.5
Treasury stock activity (b) -- -- (0.3)
- ---------------------------------------------------------------------------------
Shares outstanding at
December 31, 1997 (a) 17.2 11.1 505.5
=================================================================================
</TABLE>
(a) In addition to the common shares outstanding, a subsidiary of the
Company owns 122,960 shares of the Company's common stock; because the
accounting treatment for subsidiary-held shares is similar to that for
treasury stock, the subsidiary-held shares are not considered
outstanding.
(b) Primarily composed of treasury stock additions from incentive plan
forfeitures, net of shares reissued under incentive programs.
Preferred Stock
Of the 50 million authorized shares of preferred stock, 6 million shares have
been designated as Series A Participating Preferred Stock. There are no
outstanding shares of Series A Participating Preferred Stock. In connection with
the acquisition of CCI described in Note F, the Company's Board of Directors
authorized the creation of 24 million shares of 6.00% Class B Mandatorily
Convertible Preferred Stock, Series 1996 (the "Class B Preferred") and 19
million shares of 4.25% Class C Convertible Preferred Stock, Series 1996 (the
"Class C Preferred"). Both the Class B Preferred and Class C Preferred (the
"Preferred Shares") have a par value of $0.01 per share.
Holders of the Preferred Shares are entitled to receive dividends in preference
to, and in priority over, any dividends upon any shares of the Company ranking
junior to the Preferred Shares as to dividends, but subject to the rights of
holders of shares of the Company having a preference and a priority over the
payment of dividends on the Preferred Shares. Holders of Class B Preferred are
entitled to receive cumulative preferential dividends at the rate of $1.74 per
share per annum, payable quarterly in arrears, and holders of Class C Preferred
are entitled to receive cumulative preferential dividends at the rate of $2.125
per share per annum, also payable quarterly in arrears.
Each share of Class B Preferred mandatorily converts into Company common stock
on August 16, 1999 (or earlier if the Company is a party to a merger or
consolidation in which the Company is not the surviving or continuing
corporation or if the Company transfers its property as an entirety or
substantially as an entirety). Each share of Class B Preferred mandatorily
converts into between 0.806 and one share of Company common stock, depending
upon the trading price of the Company common stock at the time of conversion.
Each Class B Preferred share is also convertible at the option of the holder at
any time into 0.806 of a share of Company common stock. Class B Preferred shares
are not redeemable by the Company. In the event of liquidation, whether
voluntary or involuntary, the holders of Class B Preferred are entitled to
receive a liquidation preference equal to $29.00 per share plus all accrued and
unpaid dividends. The holders of Class B Preferred shares are entitled to vote
on any matter coming before any meeting in which the common stockholders are
entitled to vote, on the basis of four-fifths of a vote for each Class B
Preferred share held.
The Class C Preferred shares will mature on August 16, 2016, and the holders
will be entitled to receive cash equal to $50.00 per share plus an amount equal
to all accrued and unpaid dividends. Class C Preferred shares are convertible at
the option of the holder into 1.379 shares of the Company's common stock,
subject to certain adjustments. The Class C Preferred is not redeemable by the
Company prior to August 16, 1999. Thereafter under certain circumstances the
Class C Preferred may be converted into shares of common stock through August
16, 2006, and thereafter until maturity may be redeemed for cash or converted
into shares of common stock at the option of the Company. Therefore, for
financial reporting purposes, these shares are not considered to be mandatorily
redeemable. In the event of liquidation, either voluntary or involuntary, the
Class C Preferred holders are entitled to a liquidation preference equal to
$50.00 per share plus accrued and unpaid dividends. The holders of Class C
-37-
<PAGE> 38
Notes to Consolidated Financial Statements
Preferred are not entitled to vote unless the Class C Preferred dividends are in
arrears and unpaid for six quarterly dividend periods, and in certain other
circumstances, in which case holders of Class C Preferred are entitled to
certain rights to vote for the election of two directors.
Both the Class B Preferred and Class C Preferred are subject to certain
anti-dilution adjustments. For Delaware law purposes, the stated capital
attributable to the Preferred Shares is $0.01 per share.
Stockholder Rights Plan
The Company's stockholder rights plan (the "Rights Plan") provides for the
distribution of rights ("Rights") to holders of outstanding shares of common
stock. Except as set forth below, each Right, when exercisable, entitles the
stockholder to purchase from the Company one one-hundredth of a share of Series
A Participating Preferred Stock at a price of $80.00 per share, subject to
adjustment.
The Rights are not currently exercisable, but would become exercisable if
certain events occurred related to a person or group ("Acquiring Person")
acquiring or attempting to acquire 10% or more of the Company's common stock. In
the event that the Rights become exercisable, each holder of a Right (other than
an Acquiring Person) would be entitled to purchase, for the exercise price then
in effect, shares of the Company's common stock having a market value at the
time of such transaction of two times the exercise price for each Right.
The Board of Directors, at its option, may at any time after a person becomes an
Acquiring Person (but not after the acquisition by such person of 50% or more of
the outstanding common stock) exchange on behalf of the Company all or part of
the then outstanding and exercisable Rights for shares of common stock at an
exchange ratio of one share of common stock for each Right.
At any time prior to the earlier of the occurrence of either (i) a person
becoming an Acquiring Person or (ii) the expiration of the Rights, the Company
may redeem the Rights in whole, but not in part, at a price of $0.01 per Right.
Stock Repurchase
The Company's Board of Directors has authorized the repurchase of up to $1
billion of Company common and preferred stock. Accordingly, based on market
conditions, the Company intends to occasionally buy its shares on the open
market. As of December 31, 1997, the Company had repurchased 7,000 common shares
under this program.
J. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Company has a Long-Term Stock Incentive Plan (the "Plan") under which it has
reserved 49 million shares of common stock. Awards to eligible employees under
the Plan can take the form of incentive ("ISOs") or non-qualified ("NSOs") stock
options, stock appreciation rights ("SARs"), restricted stock, stock units, or a
combination of these forms. The options granted to date have a term of up to ten
years and generally vest over three to four years of continuous employment and,
in some cases, require that certain stock performance conditions be met before
vesting.
The Plan requires that the exercise price be equal to the fair market value of
the stock at the grant date for ISOs and at the discretion of the Company for
NSOs. The exercise price may be paid in cash, stock already owned by the holder,
or a combination. SARs may be settled in cash or stock at the discretion of the
Company. The settlement of SARs issued in conjunction with NSOs requires the
related unexercised NSOs to be canceled. Restricted stock is held in escrow
until the vesting provisions are satisfied, although such shares have full
voting and other rights. Stock units represent shares of common stock. Holders
of stock units are not required to pay for such units and have no voting or
other rights as a stockholder. Although the Company does not currently pay
dividends on its common stock, stock units may have dividend rights at the
Company's discretion. Settlement of stock unit awards may be in cash, shares, or
a combination at the discretion of the Company.
During 1996, the terms of certain restricted stock awards for those employees
not eligible to receive stock options were amended to provide early vesting if
certain 1997 business goals were achieved. These 1997 business goals were met
and the restricted stock awards were vested and released as of March 2, 1998.
In February 1998, the Company's Board of Directors approved a new restricted
stock incentive program for those employees not eligible to receive stock
options. Vesting will occur at the earlier of (i) meeting certain targets
related to the Company's common stock price or proportionate operating cash flow
or (ii) March 2, 2005. Approximately 675,000 shares were issued under this award
on March 2, 1998.
For purposes of the following pro forma disclosures required by SFAS No. 123,
the estimated fair value of options is amortized to expense over the option's
-38-
<PAGE> 39
Notes to Consolidated Financial Statements
vesting period. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option valuation model. The Black-Scholes model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition, option
valuation models, such as the Black-Scholes model, require the input of highly
subjective assumptions including the expected stock price volatility which are
subject to change from time to time. For this reason, and because the SFAS No.
123 fair value-based method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation costs are
not necessarily indicative of costs to be expected in future years.
The following pro forma information has been prepared as if the Company had
accounted for its employee stock options using the fair value-based method of
accounting established by SFAS No. 123:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Year Ended
(Dollars in millions, except per share December 31
amounts) -----------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income applicable to
common stockholders:
As reported $ 394 $ 179 $ 132
Pro forma (a) $ 357 $ 154 $ 128
Net income applicable to common
stockholders - per share:
Basic and diluted:
As reported $ 0.78 $ 0.36 $ 0.27
Pro forma (a) $ 0.71 $ 0.31 $ 0.26
================================================================================
</TABLE>
(a) Based on the following assumptions for grants in 1997, 1996, and 1995,
respectively: risk-free weighted average interest rates of 6.2%, 6.0%,
and 5.4%; volatility factors of the expected market price of the
Company's common stock of 29.8%, 29.0%, and 29.0%; and weighted average
expected option lives of 4.9 years, 4.3 years, and 4.1 years.
Total compensation recognized under APB No. 25 was $21 million, $11 million, and
$3 million for 1997, 1996, and 1995, respectively.
-39-
<PAGE> 40
Notes to Consolidated Financial Statements
There were 23 million shares available for future employee awards at December
31, 1997. The following table summarizes employee award activity:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 21,377,935 $ 27.62 12,618,329 $ 25.63 7,034,403 $ 18.52
Stock options granted 2,746,983 $ 26.29 10,176,998 $ 29.48 7,158,965 $ 30.61
Restricted stock granted 79,237 -- 813,210 -- 284,618 --
Stock units granted 418,333 -- 59,532 -- 7,465 --
Options exercised (2,018,949) $ 22.07 (585,251) $ 16.26 (506,802) $ 16.06
Awards forfeited (1,458,410) $ 32.52 (645,387) $ 28.61 (328,697) $ 20.98
Restricted stock issued (79,397) -- (1,012,346) -- (925,277) --
Stock units issued (30,449) -- (47,150) -- (106,346) --
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 21,035,283 $ 27.07 21,377,935 $ 27.62 12,618,329 $ 25.63
- ---------------------------------------------------------------------------------------------------------------------------------
Options exercisable 9,053,724 $ 25.75 5,822,319 $ 23.27 3,195,121 $ 17.61
=================================================================================================================================
</TABLE>
Summary information concerning outstanding and exercisable employee stock awards
as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.00 - $ 0.00(a) 452,013 9.0 yrs $ 0.00 -- $ 0.00
$ 12.09 - $ 22.63 3,194,553 3.4 yrs $ 19.34 2,884,788 $19.23
$ 23.00 - $ 32.75 14,939,030 5.7 yrs $ 27.26 5,524,039 $28.28
$ 33.28 - $ 59.85 2,449,687 7.9 yrs $41.00 644,897 $33.30
- ---------------------------------------------------------------------------------------------
21,035,283 9,053,724
=============================================================================================
</TABLE>
(a) Relates to stock units granted under a fixed plan which does not
require the holders to pay for such units.
-40-
<PAGE> 41
Notes to Consolidated Financial Statements
Exercise prices of some options differ from the market price of the stock on the
grant date. The following table summarizes options by those that have exercise
prices equal to, greater than, or less than the market price on the grant date.
The weighted average fair values below have been determined using the
Black-Scholes model.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Exercise Price Exercise Price Exercise Price
Equal To Greater Than Less Than
Market Price (a) Market Price (a) Market Price (a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997:
Options granted 2,746,983 -- --
Weighted average exercise price $ 26.29 -- --
Weighted average fair value $ 9.59 -- --
1996:
Options granted 8,503,618 1,673,380 --
Weighted average exercise price $ 26.13 $ 46.52 --
Weighted average fair value $ 7.79 $ 8.62 --
1995:
Options granted 6,088,415 1,070,550 --
Weighted average exercise price $ 30.14 $ 33.28 --
Weighted average fair value $ 8.69 $ 12.16 --
=============================================================================================
</TABLE>
(a) Represents the closing market price of the Company's common stock as
quoted on the grant date.
In connection with the Company's acquisition of CCI described in Note F, options
to purchase CCI stock were converted into options to purchase 1,924,001 shares
of Company common stock (the "CCI Options"). At the time of conversion, the CCI
Options had a weighted average exercise price of $20.24 per share and a weighted
average fair value of $8.59 per share. There were 329,530 CCI Options
outstanding and exercisable at December 31, 1997.
At the time of its spin-off from Pacific Telesis Group ("Telesis"), the Company
granted SARs, which were not a part of the Plan, to an investment firm that
advised Telesis and the Company. The Company and Telesis each granted SARs
covering 350,000 shares of their respective common stock. The SARs expired in
April 1997. As of December 31, 1997, 325,000 SARs had been exercised.
The Company also has an Employee Stock Purchase Plan ("ESPP") under which it has
reserved 2.4 million shares of common stock. The purpose of the ESPP is to
provide employees with the opportunity to increase their interest in the success
of the Company by purchasing stock from the Company on favorable terms and
paying for such purchases through payroll deductions. Stock purchases under the
ESPP were 580,953 shares, 429,981 shares, and 358,301 shares for 1997, 1996, and
1995, respectively. The weighted average fair value of the ESPP purchases was
estimated at $5.88 per share in 1997, $5.78 per share in 1996, and $5.85 per
share in 1995 based upon the Black-Scholes model using the following assumptions
for 1997, 1996, and 1995, respectively: risk-free weighted average interest
rates of 5.5%, 5.1%, and 5.7%, volatility factors of the expected market price
of the Company's common stock of 33.9%, 29.7%, and 27.8%, and an expected life
of 90 days for all years.
-41-
<PAGE> 42
Notes to Consolidated Financial Statements
K. INCOME TAXES
The components of income tax expense for each of the three years in the period
ended December 31 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 80 $ 90 $ 78
State and other taxes 57 26 10
Foreign 54 -- 1
- --------------------------------------------------------------
Total current 191 116 89
- --------------------------------------------------------------
Deferred:
Federal 78 49 23
State and other taxes (8) -- 14
Foreign 5 (16) (13)
- --------------------------------------------------------------
Total deferred 75 33 24
- --------------------------------------------------------------
Total income taxes $ 266 $ 149 $ 113
==============================================================
</TABLE>
The domestic and foreign components of income (loss) before income taxes and
preferred dividends for each year ended December 31 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
U.S. operations $ 423 $ 405 $ 306
International operations 291 (57) (61)
- ----------------------------------------------------------------
Income before income taxes
and preferred dividends $ 714 $ 348 $ 245
================================================================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
----------------------
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Amortization $ 474 $ 447
Depreciation 192 114
Investments in U.S. partnerships 79 138
Unrealized gains 28 17
Other 28 38
- --------------------------------------------------------------------------------
801 754
- --------------------------------------------------------------------------------
Deferred tax assets:
Foreign tax benefits in consolidated
subsidiaries 20 24
Accruals deductible when paid 22 34
Organization and start-up costs 1 6
Accounts receivable 19 11
Currency translation adjustment 34 4
Other 32 34
- --------------------------------------------------------------------------------
128 113
Less: valuation allowance 7 2
- --------------------------------------------------------------------------------
121 111
Total deferred taxes recorded in
Consolidated Balance Sheets $ 680 $ 643
================================================================================
Current $ (17) $ (24)
Noncurrent 697 667
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ 680 $ 643
================================================================================
</TABLE>
Although there can be no assurances, the Company believes that it is more likely
than not that it will generate future taxable income sufficient to fully realize
future benefits from the net deferred tax assets of $121 million.
At December 31, 1997, the Company had $46 million in net operating loss
carryforwards for foreign tax reporting purposes, substantially all of which can
be carried forward indefinitely.
The reasons for differences each year between the statutory federal income tax
rate and the effective income tax rate are provided in the following
reconciliation:
-42-
<PAGE> 43
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income
tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes
resulting from:
Equity in net income (loss)
of certain unconsolidated
wireless systems (9.8) (0.2) 9.6
State income taxes, net of
federal tax benefit 4.3 4.3 6.7
Nondeductible amortization 2.1 3.2 1.7
Tax impact of foreign
income 3.8 (0.9) (5.2)
Other 1.9 1.5 (1.6)
- ----------------------------------------------------------------------------------
Effective income tax rate 37.3% 42.9% 46.2%
==================================================================================
</TABLE>
At December 31, 1997, $68 million of deferred tax liabilities, related to $454
million of cumulative unrepatriated earnings on consolidated foreign
subsidiaries and equity investments in unconsolidated foreign wireless systems,
were excluded from recognition under SFAS No. 109, "Accounting for Income
Taxes," because such earnings are intended to be reinvested indefinitely.
For each the years ended, December 31, 1997, 1996, and 1995, consolidated net
deferred tax liabilities increased (decreased) by $(27) million, $(17) million,
and $6 million, respectively, due to amounts recorded directly to the currency
translation adjustment component of stockholders' equity. For each the years
ended, December 31, 1997, 1996, and 1995, consolidated net deferred tax
liabilities also increased (decreased) by $5 million, $(2) million, and $15
million, respectively, due to amounts recorded directly to other components of
stockholders' equity.
L. EMPLOYEE BENEFITS
Defined Contribution Plan
The Company sponsors a defined contribution plan (the "Retirement Plan") which
covers substantially all full-time employees. The Company's contributions to the
Retirement Plan are based on a percentage of pay and on matching a portion of
employee contributions. The cost recognized for the Retirement Plan was $30
million in 1997, $24 million in 1996, and $17 million in 1995.
Defined Benefit Pension Plan
The Company maintains a defined benefit plan (the "Pension Plan") under which
individuals who were employees at December 31, 1986, and transferees from
Pacific Telesis Group, receive pension, death, and survivor benefits based on a
percentage of their final five-year average pay and years of service. The
accrual of service credit was discontinued in 1986 for Pension Plan
participants. Thus, pension benefits only increase as a participant's
compensation increases.
The Pension Plan's actual return on assets exceeds its periodic pension cost and
therefore the Company's Consolidated Statements of Income include pension income
of $7 million in 1997, $5 million in 1996, and $6 million in 1995. The Pension
Plan's net funded status exceeds its projected benefit obligation and therefore
the Company's Consolidated Balance Sheets include a net pension asset of $42
million at December 31, 1997 and $35 million at December 31, 1996. The
assumptions used in estimating the Pension Plan's projected benefit obligation
include a discount rate of 7.0%, a compensation increase rate of 5.5%, and a
long-term rate of return on Pension Plan assets of 8.5%. The assets of the
Pension Plan are primarily composed of publicly traded mutual and index funds.
Other Postretirement Benefits
The Company provides medical and dental benefits for eligible retired employees
and their eligible dependents and also provides life insurance benefits to
eligible retired employees (the "Postretirement Plan"). The Company retains the
right, subject to existing agreements and applicable legal requirements, to
amend or eliminate these postretirement benefits.
The net periodic postretirement benefit expense for the Postretirement Plan was
$3 million for 1997, $2 million for 1996, and $1 million for 1995. The accrued
postretirement benefit obligation, which is principally unfunded, recorded in
the Company's Consolidated Balance Sheets was $21 million at December 31, 1997
and $18 million at December 31, 1996. The assumptions used in estimating the
accumulated postretirement benefit obligation include a discount rate of 7.0%, a
compensation increase rate of 5.5%, and a long-term rate of return on
Postretirement Plan assets of 8.5%. The estimates also include an escalation
factor for anticipated increases in health care costs. The escalation rate
begins at 7.0% in 1998, gradually decreases to 5.0% by the year 2002, and
remains at that level thereafter. A 1% increase in these health care cost trend
rates would increase the accumulated postretirement benefit obligation by $4
million.
-43-
<PAGE> 44
Notes to Consolidated Financial Statements
M. COMMITMENTS AND CONTINGENCIES
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 was reached in
the case which has been approved by the Court. In 1994, two class action
complaints were filed against the Company, one in San Diego County Superior
Court and one in the U.S. District Court also alleging price fixing. The state
case was dismissed and a tentative settlement has been reached in the federal
case, which 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 late 1997, a settlement was
reached in these cases which the court has preliminarily approved. 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.
Lease Commitments
The Company leases various facilities and equipment under noncancelable lease
arrangements. Most leases contain renewal options for varying periods. Rent
expense under all operating leases was $83 million, $76 million, and $50 million
in 1997, 1996, and 1995, respectively.
Future minimum lease payments under noncancelable operating leases with an
initial term of one year or more are as follows at December 31, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------
(Dollars in millions)
- ---------------------------------------
<S> <C>
1998 $ 81
1999 73
2000 62
2001 41
2002 29
Thereafter 132
- ---------------------------------------
Total minimum lease payments $ 418
- ---------------------------------------
</TABLE>
Other
In the ordinary course of business, the Company has issued letters of
responsibility and letters of support for performance guarantees, refundable
security deposits, and credit facilities of certain subsidiaries and affiliates
providing varying degrees of recourse to the Company. At December 31, 1997, the
Company's proportionate share under such arrangements was $403 million. The
Company believes the probability it will be required to pay under these various
arrangements is remote.
At December 31, 1997, the Company was committed to spend $414 million for the
acquisition of property, plant, and equipment, purchases of cellular equipment
and other items, and capital contributions to unconsolidated wireless systems.
-44-
<PAGE> 45
Notes to Consolidated Financial Statements
N. ADDITIONAL FINANCIAL INFORMATION
Other Current Liabilities
- --------------------------------------------------------------------------------
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------
December 31
-----------------
(Dollars in millions) 1997 1996
<S> <C> <C>
- -----------------------------------------------------
Accrued expenses $ 161 $ 92
Accrued compensation and benefits 138 116
Accrued liabilities 110 22
Taxes payable 78 69
Deferred revenue 61 43
Interest payable 35 39
Other accounts payable 28 67
Other 64 80
- -----------------------------------------------------
$ 675 $ 528
====================================================
</TABLE>
Information About Foreign Operations
Selected consolidated financial data for the Company's domestic and foreign
operations is presented below. Operating revenues represent sales to
unaffiliated customers, and there were no sales or transfers between domestic
and foreign operations. Assets maintained for general corporate purposes are
primarily included within U.S. operations.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
U.S. operations $ 2,843 $ 2,040 $ 1,467
International operations 751 212 152
- --------------------------------------------------------------------------------
$ 3,594 $ 2,252 $ 1,619
- --------------------------------------------------------------------------------
Operating income (loss):
U.S. operations $ 591 $ 342 $ 202
International operations 115 (61) (89)
- --------------------------------------------------------------------------------
$ 706 $ 281 $ 113
- --------------------------------------------------------------------------------
Identifiable assets:
U.S. operations $ 5,662 $ 5,493 $ 2,007
International operations 1,240 1,039 565
Investments in unconsol-
idated wireless systems 2,068 1,992 3,076
- --------------------------------------------------------------------------------
$ 8,970 $ 8,524 $ 5,648
- --------------------------------------------------------------------------------
</TABLE>
O. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
- ------------------------------------------------------------------------------------------------------
1997 First Second Third Fourth
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $836 $901 $916 $941
Operating income $208 $199 $215 $ 84
Income before preferred dividends $ 77 $119 $141 $111
Preferred dividends $ 13 $ 13 $ 14 $ 14
Net income applicable to common stockholders $ 64 $106 $127 $ 97
Net income applicable to common stockholders - per share:
Basic and diluted $0.13 $0.21 $0.25 $0.19
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996 First Second Third Fourth
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $449 $481 $601 $721
Operating income $ 49 $ 63 $106 $ 63
Income before preferred dividends $ 52 $ 61 $ 59 $ 27
Preferred dividends $ -- $ -- $ 7 $ 13
Net income applicable to common stockholders $ 52 $ 61 $ 52 $ 14
Net income applicable to common stockholders - per share:
Basic and diluted $0.10 $0.12 $0.10 $0.03
======================================================================================================
</TABLE>
-45-
<PAGE> 46
Selected Proportionate Financial Data(a)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
For the Year Ended December 31
-----------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL COMPANY (b)
Service and other revenues $4,907 $3,925 $2,679
Operating expenses before depreciation and amortization expenses (c) 3,171 2,801 1,976
Depreciation and amortization expenses 789 603 406
- --------------------------------------------------------------------------------------------------------------
Operating income $ 947 $ 521 $ 297
- --------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 394 $ 179 $ 132
Operating cash flow (d) $1,736 $1,124 $ 703
Operating cash flow margin (e) 35.4% 28.6% 26.2%
==============================================================================================================
U.S. CELLULAR OPERATIONS
Service and other revenues $2,363 $1,984 $1,523
Cost of revenues 236 222 188
Selling and customer operations expenses (c) 902 781 591
General, administrative, and other expenses 169 160 139
Depreciation and amortization expenses 388 292 189
- --------------------------------------------------------------------------------------------------------------
Operating income $ 668 $ 529 $ 416
- --------------------------------------------------------------------------------------------------------------
Operating cash flow (d) $1,056 $ 821 $ 605
Operating cash flow margin (e) 44.7% 41.4% 39.7%
==============================================================================================================
INTERNATIONAL OPERATIONS
Service and other revenues $2,181 $1,640 $ 918
Operating expenses before depreciation and amortization expenses (c) 1,452 1,319 794
Depreciation and amortization expenses 283 226 154
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 446 $ 95 $ (30)
- --------------------------------------------------------------------------------------------------------------
Operating cash flow (d) $ 729 $ 321 $ 124
Operating cash flow margin (e) 33.4% 19.6% 13.5%
==============================================================================================================
U.S. PAGING OPERATIONS (f)
Service and other revenues (g) $ 330 $ 297 $ 226
Operating expenses before depreciation and amortization expenses 222 209 151
Depreciation and amortization expenses 74 64 43
- --------------------------------------------------------------------------------------------------------------
Operating income $ 34 $ 24 $ 32
- --------------------------------------------------------------------------------------------------------------
Operating cash flow (d) $ 108 $ 88 $ 75
Operating cash flow margin (e) 32.7% 29.6% 33.2%
==============================================================================================================
U.S. PCS OPERATIONS (h)
Service and other revenues $ 33 $ 1 $ --
==============================================================================================================
</TABLE>
-46-
<PAGE> 47
Selected Proportionate Financial Data
Footnotes:
(a) 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 consolidated, the Company believes that
proportionate financial and operating data facilitates the
understanding and assessment of its Consolidated Financial Statements.
Under GAAP, the Company consolidates the entities in which it has a
direct controlling interest and uses the equity method to account for
entities over which the Company has significant influence but does not
have a direct controlling interest. In contrast, proportionate
accounting reflects the Company's relative ownership interests in
operating revenues and expenses for both its consolidated and equity
method entities. For example, U.S. cellular 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 percent. Similarly, total
proportionate results show the Company's share of all its significant
worldwide operations. Certain prior period data has been reclassified
and restated to conform to the current year presentation.
(b) Reflects results of 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.
(c) Includes net losses on equipment sold to acquire and retain customers.
(d) 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.
(e) Operating cash flow margin is calculated by dividing "Operating cash
flow" by "Service and other revenues."
(f) U.S. Paging Operations, which are wholly owned by the Company, include
operations in Canada.
(g) Includes any gain or loss on equipment sales.
(h) PCS data relates to PrimeCo Personal Communications, L.P. ("PrimeCo"),
a U.S. personal communications services ("PCS") business in which the
Company has a 25% interest. Operations began in the fourth quarter of
1996.
47
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
AIRTOUCH COMMUNICATIONS, INC.
AirTouch International (California)
AirTouch Thailand Ltd. (Thailand)
AirTouch International GmbH (Germany)
AirTouch Taiwan, Inc. (Delaware)
AirTouch Asia, Inc. (Delaware)
AirTouch California, Inc. (Delaware)
AirTouch International Holdings, Inc. (Delaware)
AirTouch Limited, Inc. (Delaware)
AirTouch Germany, Inc. (Delaware)
AirTouch Belgium, S.A. (Belgium)
AirTouch Cayman Holdings Unlimited
(Cayman Islands, British West Indies)
AirTouch Espana, S.A. (Spain)
AirTouch (Europe) B.V. (Netherlands)
AirTouch (Europe) Deinstleistungs-und Beteiligungs-B.V. &
Co. KG (Germany)
AirTouch International (Mauritius) Limited (Port Louis,
Mauritius)
AirTouch Japan Company Limited (Japan)
AirTouch Netherlands B.V. (Netherlands)
AirTouch Netherlands II B.V.( Netherlands)
India Wireless Holdings Limited (India)
NordicTel Holdings, AB (Sweden)
A.B. Europolitan (Sweden)
Europolitan Stores A.B. (Sweden)
Telecel - Comunicacoes Pessoais, SA (Portugal)
Zahan Communications (Mauritius) Limited (Mauritius)
AirTouch Communications Deutschland GmbH (Germany)
AirTouch Development Corporation (California)
AirTouch Satellite Services, Inc. (Delaware)
AirTouch PCS, Inc. (Delaware)
AirTouch PCS Holding, Inc. (Delaware)
AirTouch WMC, Inc. (Delaware)
AirTouch Cellular, Inc. (Delaware)
New Par (Delaware)
<PAGE> 2
AirTouch Cellular (California)
AirTouch Cellular of Nevada (Nevada)
AirTouch Paging (Nevada)
AirTouch Paging of California (California)
AirTouch Paging of Ohio, Inc. (Delaware)
AirTouch Paging of Texas (Nevada)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 33-62787)
and Form S-4 (333-03107) and in the Registration Statements on Form S-8 (Nos.
33-57083, 33-57077, 33-57081, 33-64553, 333-10389, 333-17891 and 333-36339) of
AirTouch Communications, Inc. of our report dated March 2, 1998 appearing on
page 29 of the Annual Report to Stockholders which is incorporated by reference
in this Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule listed in Item
14(a) of this Form 10-K, which appears on page X-1 of this Form 10-K.
/s/ Price Waterhouse LLP
San Francisco, California
March 20, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 33-62787); Registration Statement on Form S-4 (No. 333-03107)
and in the Registration Statements on Form S-8 (Nos. 33-57083, 33-57077,
33-57081, 33-64553, 333-10389, 333-17891, and 333-36339) of AirTouch
Communications, Inc. of our report dated February 16, 1996, relating to the
consolidated financial statements and schedule of Cellular Communications, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1995.
/s/ Ernst & Young LLP
New York, New York
March 20, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-62787), in
the Registration Statement on Form S-4 (No. 333-03107) and in the Registration
Statements on Form S-8 (Nos. 33-57083, 33-57077, 33-57081, 33-64553,
333-10389, 333-17891, and 333-36339) of AirTouch Communications, Inc. of our
report dated February 16, 1998 relating to the financial statements of
Mannesmann Mobilfunk GmbH, which appears in AirTouch Communications Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1997.
Dusseldorf, Germany, March 19, 1998
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ Scheffler /s/ Haas
Wirtschaftsprufer Wirtschaftsprufer
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Form S-3 (No. 33-62787), Registration Statement on Form S-4 (No. 333-03107)
and in the Registration Statements on Form S-8 (Nos. 33-57083, 33-57077,
33-57081, 33-64553, 333-10389, and 333-17891) of AirTouch Communications, Inc.
of our reports dated February 23, 1998, on our audits of the consolidated
financial statements and financial statement schedule of CMT Partners as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and
1995, which reports are included in AirTouch Communications Inc. Annual Report
on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
March 19, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 33-62787 and S-4 No. 333-03107) of AirTouch Communications, Inc.
and in the Registration Statements (Forms S-8 Nos. 33-57081, 33-64553 and
333-17891, No. 33-57077, Nos. 33-57083 and 333-36339, and No. 333-10389)
pertaining to the AirTouch Communications, Inc. 1993 Long-Term Stock Incentive
Plan, the AirTouch Communications, Inc. Employee Stock Purchase Plan, the
AirTouch Communications, Inc. Retirement Plan, and the CCI Agreement and Plan
of Merger (to be issued upon exercise of outstanding options of CCI) of our
report dated February 16, 1996, with respect to the consolidated financial
statements and schedule of New Par, (A Partnership), incorporated by reference
in the Annual Report (Form 10-K) of AirTouch Communications Inc. for the year
ended December 31, 1997.
/s/ Ernst & Young LLP
Columbus, Ohio
March 19, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
report dated January 24, 1997, on the financial statements of Kansas Combined
Cellular in this Form 10-K and to the incorporation of our report included in
this Form 10-K, in the Registration Statement on Form S-3 (No. 33-62787),
Registration Statement on Form S-4 (No. 333-03107) and Registration Statements
on Form S-8 (Nos. 33-57083, 33-57077, 33-57081, 33-64553, 333-10389, 333-17891,
and 333-36339), of AirTouch Communications, Inc. It should be noted that we
have not audited any financial statements of Kansas Combined Cellular
subsequent to December 31, 1996, nor performed any procedures subsequent to the
date of our report.
/s/ Arthur Andersen LLP
Kansas City, Missouri,
March 19, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
WHEREAS, AIRTOUCH COMMUNICATIONS, INC., a Delaware corporation (the
"Corporation"), proposes to file with the Securities and Exchange Commission
(the "SEC"), under the provisions of the Securities Act of 1934, as amended, an
Annual Report on Form 10-K; and
WHEREAS, each of the undersigned is an officer or director, or both, of the
Corporation as indicated below under his/her name;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints Sam
Ginn, Margaret G. Gill, Mohan S. Gyani, Arun Sarin, and each of them, his/her
attorneys for him/her in his/her stead, in his/her capacity as an officer,
director, or both, of the Corporation, to execute and file such Annual Report on
Form 10-K, and any and all amendments, modifications or supplements thereto, and
any exhibits thereto, and granting to each of said attorneys full power and
authority to sign and file any and all other documents and to perform and do all
and every act and thing whatsoever requisite and necessary to be done as fully,
to all intents and purposes, as he/she might or could do if personally present
at the doing thereof, and hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof in
connection with effecting the filing of the Annual Report on Form 10-K.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this 12th day
of February, 1998.
<TABLE>
<S> <C>
/s/ SAM GINN /s/ DONALD G. FISHER
- ------------------------------------------ ----------------------------------------
Sam Ginn Donald G. Fisher
Chairman of the Board and Chief Executive Officer Director
(Principal Executive Officer)
/s/ ARUN SARIN /s/ PAUL HAZEN
- ------------------------------------------ ----------------------------------------
Arun Sarin Paul Hazen
President, Chief Operating Officer and Director Director
/s/ MOHAN S. GYANI /s/ CHARLES R. SCHWAB
- ------------------------------------------ ----------------------------------------
Mohan S. Gyani Charles R. Schwab
Executive Vice President and Chief Financial Officer Director
(Principal Financial and Accounting Officer)
/s/ C. LEE COX /s/ ARTHUR ROCK
- ------------------------------------------ ----------------------------------------
C. Lee Cox Arthur Rock
Director Director
/s/ CAROL BARTZ /s/ GEORGE P. SHULTZ
- ------------------------------------------ ----------------------------------------
Carol Bartz George P. Shultz
Director Director
/s/ MICHAEL J. BOSKIN /s/ CHANG-LIN TIEN
- ------------------------------------------ ----------------------------------------
Michael J. Boskin Chang-Lin Tien
Director Director
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