<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report: May 28, 1998
AirTouch Communications, Inc.
Delaware 1-12342 94-3213132
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
One California Street, San Francisco, California 94111
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 658-2000
<PAGE> 2
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The financial statements of U S WEST NewVector Group, Inc. for the three
month period ended March 31, 1998 are incorporated by reference to Exhibit 99.1
to this Form 8-K.
(b) Pro forma financial information.
The pro forma financial information required by Article 11 of Regulation
S-X is incorporated by reference to Exhibit 99.2 to this Form 8-K.
(c) Exhibits.
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 99.1 U S WEST NewVector Group, Inc. and Subsidiaries Condensed
Consolidated Financial Statements for the Three Months Ended
March 31, 1998.
Exhibit 99.2 Pro Forma Condensed Combined Financial Statements for the
Three Months Ended March 31, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AIRTOUCH COMMUNICATIONS, INC.
By: /s/ MOHAN S. GYANI
-----------------------------------------
Mohan S. Gyani
Executive Vice President and
Chief Financial Officer
Date: May 28, 1998
<PAGE> 3
Exhibits Index
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 99.1 U S WEST NewVector Group, Inc. and Subsidiaries Condensed
Consolidated Financial Statements for the Three Months Ended
March 31, 1998.
Exhibit 99.2 Pro Forma Condensed Combined Financial Statements for the
Three Months Ended March 31, 1998.
<PAGE> 1
Exhibit 12
AIRTOUCH COMMUNICATIONS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
---------------------
1998 1998
---------- --------
Pro Forma
NewVector
Merger (1)
----------
<S> <C> <C>
EARNINGS
Pre-tax income $ 219 $ 246
Add back:
Minority interests in net income of
consolidated wireless systems 52 42
Equity in net (income) loss of
less-than-fifty-percent-owned
unconsolidated wireless systems (86) (51)
Distributed income of less-than-
fifty-percent-owned unconsolidated
wireless systems 2 2
Fixed charges included in reported
pre-tax income 53 27
----- -----
Total $ 240 $ 266
===== =====
FIXED CHARGES
Total interest on debt $ 50 $ 24
1/3 operating rental expense 11 8
Preferred stock dividends (2) 51 20
----- -----
Total fixed charges $ 112 $ 52
===== =====
RATIO OF EARNINGS TO
FIXED CHARGES 2.1 5.1
===== =====
</TABLE>
(1) Adjusted to reflect the consummation of the merger of the U.S. cellular
and PCS interests of US WEST Media Group, Inc., pursuant to the Agreement
and Plan of Merger dated January 29, 1998.
(2) Preferred stock dividends of $35 million (including pro forma amount of
$21 million) and $14 million for the quarter ended March 31, 1998 were
increased to amounts of pre-tax earnings that would be required to cover
such dividends based on the effective income tax rates for the periods
presented.
<PAGE> 1
Exhibit 99.1
U S WEST NEWVECTOR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<PAGE> 2
U S WEST NewVector Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1998 (unaudited) and December 31, 1997
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
1998 December 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Trade accounts receivable, net $ 175,610 $ 227,846
Federal income taxes receivable from affiliate -- 18,156
Other 48,937 53,900
---------- ----------
Total current assets 224,547 299,902
---------- ----------
Property, plant and equipment, net 998,792 983,181
---------- ----------
Other non-current assets:
Goodwill, net 316,169 318,546
Operating licenses and other intangibles, net 95,594 96,292
Investments and other 10,074 9,405
---------- ----------
Total other non-current assets 421,837 424,243
---------- ----------
TOTAL ASSETS $1,645,176 $1,707,326
========== ==========
</TABLE>
The accompanying notes are an integral part of
the Condensed Consolidated Financial Statements.
1
<PAGE> 3
U S WEST NewVector Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
March 31, 1998 (unaudited) and December 31, 1997
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
1998 December 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities:
Trade accounts payable $ 165,062 $ 209,392
Accounts payable to affiliate 9,566 38,415
Accrued taxes 35,755 33,701
Federal income taxes payable to affiliate 24,279 --
Other current liabilities 92,198 92,556
---------- ----------
Total current liabilities 326,860 374,064
Note payable to affiliate 900,000 900,000
Other liabilities 24,534 58,404
---------- ----------
Total liabilities 1,251,394 1,332,468
---------- ----------
Minority interests in consolidated partnerships 92,220 81,718
---------- ----------
Shareowner's equity:
Common stock, no par, 43,000,000 shares authorized, one
share issued and outstanding -- --
Additional paid-in capital 301,562 293,140
Accumulated earnings -- --
---------- ----------
Total shareowner's equity 301,562 293,140
---------- ----------
TOTAL LIABILITIES AND SHAREOWNER'S EQUITY $1,645,176 $1,707,326
========== ==========
</TABLE>
The accompanying notes are an integral part of
the Condensed Consolidated Financial Statements.
2
<PAGE> 4
U S WEST NewVector Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended March 31, 1998 and 1997 (unaudited)
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, March 31,
1998 1997
(UNAUDITED) (unaudited)
---------- ----------
<S> <C> <C>
REVENUES:
Cellular service $ 317,827 $ 302,656
Cellular equipment 23,222 27,955
--------- ---------
Total revenues 341,049 330,611
--------- ---------
OPERATING EXPENSES:
Cellular service 37,836 40,376
Cellular equipment 32,819 38,676
Selling, general and administrative 131,932 114,645
Depreciation and amortization 51,162 42,448
--------- ---------
Total operating expenses 253,749 236,145
--------- ---------
Operating income 87,300 94,466
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (14,140) 31
Minority interests in income of
consolidated partnerships (10,175) (10,274)
Equity in income of
unconsolidated partnerships 762 --
Other income 7,079 160
--------- ---------
Total other expense (16,474) (10,083)
--------- ---------
Income before income taxes 70,826 84,383
Income tax provision (24,319) (33,688)
--------- ---------
NET INCOME $ 46,507 $ 50,695
========= =========
</TABLE>
The accompanying notes are an integral part of
the Condensed Consolidated Financial Statements.
3
<PAGE> 5
U S WEST NewVector Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31, 1998 and 1997 (unaudited)
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, March 31,
1998 1997
(UNAUDITED) (unaudited)
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 46,507 $ 50,695
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 51,162 42,448
Bad debt provision 12,926 9,228
Other (2,806) --
Minority interests in income of
consolidated partnerships 10,175 10,274
Equity in income of unconsolidated
partnerships (762) --
Deferred income taxes 42,116 33,453
Changes in operating assets and liabilities:
Accounts receivable 39,310 (25,991)
Accounts payable and accrued liabilities (48,705) (35,134)
Inventories 10,602 328
Other (5,769) 1,972
--------- --------
Cash provided by operating activities 154,756 87,273
--------- --------
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (90,413) (96,694)
Proceeds from sale of cellular interests -- 1,064
Receipts from unconsolidated
partnerships 317 1,138
--------- --------
Cash used for investing activities (90,096) (94,492)
--------- --------
FINANCING ACTIVITIES:
Capital distributions to limited partners -- (6,472)
Equity (return) infusions from parent (38,085) 40,803
Dividends paid and return of capital (26,575) (27,112)
--------- --------
Cash (used for) provided by financing
activities (64,660) 7,219
--------- --------
CASH:
Change -- --
Beginning balance -- --
--------- --------
Ending balance $ -- $ --
========= ========
</TABLE>
The accompanying notes are an integral part of
the Condensed Consolidated Financial Statements.
4
<PAGE> 6
U S WEST NewVector Group, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1998 (unaudited)
(Dollars In Thousands)
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements have been prepared by U S WEST
NewVector Group, Inc. and subsidiaries (the "Company"), a wholly owned
subsidiary of U S WEST, Inc. (U S WEST) and include the accounts of the Company,
its majority owned subsidiaries and partnerships over which it exercises
management control. Investments in entities in which the Company has a minority
interest and does not exercise management control are accounted for using the
equity method. All significant intercompany accounts and transactions have been
eliminated.
The Condensed Consolidated Financial Statements have been prepared by the
Company pursuant to the interim reporting rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally accompanying financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. In the opinion of the Company's
management, the Condensed Consolidated Financial Statements include all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial information set forth therein. It is suggested that
these Condensed Consolidated Financial Statements be read in conjunction with
the 1997 U S WEST NewVector Group, Inc. Consolidated Financial Statements and
notes thereto included in AirTouch Communications, Inc.'s Form 8-K/A-1, date of
Report: April 6, 1998, as amended.
Certain prior year presentations have been reclassified to conform to the
current year presentation.
(2) SUBSEQUENT EVENT
AIRTOUCH MERGER
Effective April 6, 1998 the transaction contemplated in the Agreement and Plan
of Merger (the 'AirTouch Merger Agreement') dated January 29, 1998 was
completed. Pursuant to this Agreement, U S WEST transferred its domestic
wireless business to AirTouch Communications, Inc. ('AirTouch') in a tax-free
merger. The domestic wireless business included the Company and a 25% interest
in PrimeCo Personal Communications, L.P, a provider of PCS services.
Consideration under the AirTouch Merger Agreement totaled approximately $5.9
billion and included the assumption and repayment by AirTouch of $900 million
of affiliate debt.
Previously in 1994, U S WEST had entered into an agreement with AirTouch to
combine their domestic cellular properties into a joint venture in a
multi-phased transaction. The AirTouch Merger Agreement replaced such joint
venture.
<PAGE> 7
U S WEST NewVector Group, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1998 (unaudited)
(Dollars In Thousands)
(3) NEW ACCOUNTING STANDARD
STATEMENT OF POSITION 98-5
Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-Up
Activities", was issued in April 1998. SOP 98-5 requires, among other things,
that the costs related to start-up activities of a new entity, facility, product
or service be expensed. Adoption of SOP 98-5 is required as of January 1, 1999,
but earlier adoption is allowed. The effect of adopting SOP 98-5 is under
evaluation.
<PAGE> 1
Exhibit 99.2
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as of March
31, 1998 combines (1) the historical consolidated balance sheets of AirTouch and
subsidiaries and US WEST NewVector Group, Inc. ("NewVector") and subsidiaries
as if the merger of NewVector into AirTouch had been effective on that date,
and after giving effect to the purchase method of accounting and other
merger-related adjustments described in the accompanying explanatory notes, and
(2) US WEST Media Group, Inc.'s ("Media") interest in PrimeCo as if the interest
had been acquired on that date, and after giving effect to related adjustments
described in the accompanying explanatory notes. The unaudited Pro Forma
Condensed Combined Statement of Income presents the combined results of
operations of AirTouch, NewVector and Media's interest in PrimeCo as if the
merger had been effective on January 1, 1998, and after giving effect to the
purchase method of accounting and other merger-related adjustments described in
the accompanying explanatory notes.
The Pro Forma Condensed Combined Financial Statements and accompanying
explanatory notes reflect the application of the purchase method of accounting
to the merger of NewVector into AirTouch. The purchase method of accounting
requires the acquisition price to be allocated to the assets acquired and
liabilities assumed based on their estimated fair values on April 6, 1998 (the
"Effective Date"). As described in the accompanying explanatory notes, estimates
of the fair values of NewVector's assets and liabilities and Media's interest in
PrimeCo have been combined with recorded values of the assets and liabilities of
AirTouch. The interest in PrimeCo has been accounted for under the equity method
which requires recognition of (1) AirTouch's acquired share of the net assets of
PrimeCo, together with related identifiable intangibles and goodwill on one line
in the Pro Forma Condensed Combined Balance Sheet, and (2) operating results of
PrimeCo, together with related amortization expense, on one line in the Pro
Forma Condensed Combined Statement of Income.
Changes to adjustments in the Pro Forma Condensed Combined Financial Statements
are expected as valuations/appraisals of assets and liabilities are completed
and additional information becomes available. Although AirTouch cannot ascertain
what those changes will be, such changes could be material. The financial
results of NewVector and PrimeCo after March 31, 1998 will affect the allocation
of the purchase price. As a result, actual impacts and amounts will differ from
those stated in the Pro Forma Condensed Combined Financial Statements.
These Pro Forma Condensed Combined Financial Statements are intended for
informational purposes only and are not necessarily indicative of the future
financial position or future results of operations of the combined company or
the financial position or the results of operations of the combined company that
would have actually occurred
<PAGE> 2
had the transaction described herein been in effect as of the date or for the
periods presented.
The Pro Forma Condensed Combined Financial Statements and accompanying notes
should be read in conjunction with and are qualified in their entirety by the
Consolidated Financial Statements, including accompanying notes, of AirTouch,
included in its Annual Report on Form 10-K for the year ended December 31, 1997,
File No. 1-12342, and of NewVector, attached as Exhibit 99.2 to AirTouch's
Current Report on Form 8-K/A-1, Date of Report: April 6, 1998, File No. 1-12342;
and by the Consolidated Financial Statements of AirTouch included in its
quarterly report on Form 10-Q for the period ended March 31, 1998, File No.
1-12342 and of NewVector attached hereto as Exhibit 99.1.
<PAGE> 3
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
As Reported Pro.Forma
--------------------- Pro Forma NewVector
(Dollars in millions) AirTouch NewVector Adjustments Merger
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets $ 868 $ 224 $ (12)(1) $ 1,080
Property, plant, and equipment, net 2,597 999 3,596
Investments in unconsolidated wireless systems 2,382 10 840 (1) 3,232
12 (1)
4,283 (1)
(412)(1)
Intangible assets, net 3,279 412 1,216 (2) 8,790
Deferred charges and other noncurrent assets 275 275
------- ------- ------- --------
Total assets $ 9,401 $ 1,645 $ 5,927 $ 16,973
======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 838 $ 327 $ 1,165
Long-term debt 1,488 900 $ 450 (1) 2,838
Deferred income taxes 731 1,216 (2) 1,947
Deferred credits and other liabilities 89 24 113
------- ------- ------- --------
Total liabilities 3,146 1,251 1,666 6,063
------- ------- ------- --------
Minority interests in consolidated wireless systems 337 92 429
------- ------- ------- --------
Redeemable preferred stocks
5.143% Class D Cumulative Preferred Stock, Series 1998 825 (1) 825
5.143% Class E Cumulative Preferred Stock, Series 1998 825 (1) 825
------- --------
1,650 1,650
------- --------
Stockholders' equity:
Preferred stock and additional paid-in capital
6% Class B Mandatorily Convertible
Preferred Stock, Series 1996 500 500
4.25% Class C Convertible Preferred Stock,
Series 1996 541 541
Common stock and additional paid-in capital 4,343 2,913 (1) 7,256
Retained earnings 568 568
Accumulated other comprehensive income (6) (6)
Deferred compensation (28) (28)
Stockholder's equity - NewVector 302 (302)(1)
------- ------- ------- --------
Total stockholders' equity 5,918 302 2,611 8,831
------- ------- ------- --------
Total liabilities and stockholders' equity $ 9,401 $ 1,645 $ 5,927 $ 16,973
======= ======= ======= ========
</TABLE>
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
<PAGE> 4
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
As Reported Pro Forma
-------------------- Pro Forma NewVector
AirTouch NewVector Adjustments Merger
-------- --------- ------------ ---------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 958 $ 341 $ 1,299
-------- ----- -------
Operating expenses:
Cost of revenues 201 71 272
Selling and customer operations expenses 261 69 330
General, administrative, and other expenses 118 63 181
Depreciation and amortization expenses 144 51 $ 55 (3) 250
-------- ----- ----- --------
Total operating expenses 724 254 55 1,033
-------- ----- ----- --------
Operating income 234 87 (55) 266
Equity in net income (loss) of (34) (4)
unconsolidated wireless systems 77 1 (2) (5) 42
Minority interests in net (income) loss
of consolidated wireless systems (42) (10) (52)
Interest income 6 6
Interest expense (19) (14) (7) (6) (40)
Miscellaneous income (expense) (10) 7 (3)
-------- ----- ----- --------
Income before income taxes and preferred
dividends 246 71 (98) 219
Income tax expense (benefit) 79 24 (34) (7) 69
-------- ----- ----- --------
Income before preferred dividends 167 47 (64) 150
Preferred dividends 14 21 (8) 35
======== ===== ===== ========
Net income (loss) applicable to common
stockholders $ 153 $ 47 ($ 85) $ 115
======== ===== ===== ========
Net income (loss) applicable to common
stockholders - per share:
Basic and diluted $ 0.30 $ 0.20
======== ========
Weighted average shares outstanding
(in thousands) 509,424 568,871
======== ========
</TABLE>
See Explanatory Notes to the Pro Forma Condensed Combined Financial Statements.
<PAGE> 5
Basis of Presentation. On the Effective Date, AirTouch acquired NewVector and
Media's interest in PrimeCo pursuant to the Agreement and Plan of Merger dated
as of January 29, 1998 among U S WEST, Inc., Media, NewVector, U S WEST PCS
Holdings, Inc. ("Holdings") and AirTouch (the "Agreement"), filed as Exhibit 2.1
to AirTouch's Current Report on Form 8-K, Date of Report: January 29, 1998. On
the Effective Date, NewVector and Holdings (the wholly owned subsidiary of Media
that held Media's interest in PrimeCo) merged into AirTouch, with AirTouch
surviving.
In the merger, AirTouch issued approximately 59.4 million shares of AirTouch's
Common Stock with an approximate fair value of $2.9 billion based on the closing
price of $49 on the Effective Date. AirTouch also issued 825,000 shares of
AirTouch's 5.143 % Class D Cumulative Preferred Stock, Series 1998 and 825,000
shares of its 5.143% Class E Cumulative Preferred Stock, Series 1998 (together,
the "Preferred Stock") having an aggregate value of approximately $1.65 billion
with a liquidation amount of $1,000 per share. The dividend on the Preferred
Stock was based on the interest rate for 30-year Treasury Bonds on the Effective
Date, minus 0.67% per annum. Finally, in the merger, AirTouch assumed $1.35
billion of debt associated with the acquired businesses, which it refinanced
through the issuance of commercial paper and debt issues under its shelf
Registration Statement.
In accordance with APB Opinion No. 16, "Business Combinations," the purchase
price recorded is based on the fair value of the Common Stock and Preferred
Stock issued pursuant to the merger as of the Effective Date. Pro forma net
income applicable to common stockholders per share is calculated based on income
after deducting dividends for the Preferred Stock totaling $21 million for the
quarter ended March 31, 1998 on a weighted average number of shares of
approximately 568.9 million as of March 31, 1998.
In these unaudited Pro Forma Condensed Combined Financial Statements, the
purchase price includes estimates for certain post closing adjustments. Although
the total consideration may vary according to the effects of finalizing such
post closing adjustments, the final purchase price is not expected to have a
materially different effect from that shown in these Pro Forma Condensed
Combined Financial Statements.
The purchase price for the acquisition of NewVector and Media's interest in
PrimeCo, exclusive of expenses related thereto and the assumption of NewVector
and PrimeCo debt totaling $1.35 billion, is summarized below (in millions of
dollars):
<TABLE>
<S> <C>
Value of Common Stock..................................... $ 2,913
Value of Preferred Stock.................................. 1,650
--------
Total purchase price...................................... $ 4,563
========
</TABLE>
The acquisition of NewVector and Media's interest in PrimeCo is accounted for by
AirTouch under the purchase method of accounting in accordance with APB Opinion
No.
<PAGE> 6
16, "Business Combinations," and the acquired PrimeCo interest is accounted
for under the equity method in accordance with APB Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock." Accordingly these methods
of accounting have been applied in the Pro Forma Condensed Combined Financial
Statements.
Under the purchase method of accounting, the purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair values at
the Effective Date. Estimates of the fair values of NewVector's assets and
liabilities have been combined with recorded values of the assets and
liabilities of AirTouch and subsidiaries in the unaudited Pro Forma Condensed
Combined Financial Statements. Under the equity method of accounting, the
purchase price of Media's interest in PrimeCo is allocated in a similar manner
to the purchase method described above. Also, AirTouch recognizes its acquired
share of the financial condition of PrimeCo, together with related identifiable
intangibles and goodwill, on one line in the Pro Forma Condensed Combined
Balance Sheet, and its share of operating results of PrimeCo, together with
related amortization expense, on one line in the Pro Forma Condensed Combined
Statement of Income.
The allocation of the purchase price as reflected in the Pro Forma Condensed
Combined Financial Statements is preliminary. Accordingly, changes are expected
as valuations and appraisals of assets and liabilities are completed, and
additional information becomes available. Although AirTouch cannot ascertain
what those changes would be, such changes could be material. The financial
results of NewVector and PrimeCo after March 31, 1998 will affect the
allocation of the purchase price. As a result, actual amounts will differ from
those stated in the Pro Forma Condensed Combined Financial Statements.
Pro Forma Adjustments
1. Records the merger assuming estimated professional fees of $12 million
(primarily legal, investment bankers' and accountants' fees) related to
the merger are paid from AirTouch's available cash. For Pro Forma
Financial Statement purposes, as-reported amounts for NewVector's and
PrimeCo's net assets have been estimated to approximate fair value. This
entry includes $840 million for the combined purchase price and debt
assumed related to the acquired interest in PrimeCo. In addition, the
entry allocates the full amount of the excess purchase price over adjusted
net assets acquired of NewVector to identifiable intangible assets and
goodwill. The excess purchase price related to the acquired interest in
PrimeCo was allocated to goodwill for purposes of determining AirTouch's
equity in PrimeCo's results of operations.
<PAGE> 7
AGGREGATE PURCHASE PRICE
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
NewVector PrimeCo Total
--------- ------- -----
<S> <C> <C> <C>
Total purchase price .......................... $4,173 $ 390 $4,563
PLUS: Net deficit (assets) (after adjustments,
including debt assumed) ....................... 110 (30) 80
--------------------------------
Excess purchase price ......................... $4,283 $ 360 $4,643
================================
</TABLE>
2. Records the deferred tax liability related to identifiable intangible
assets, and a corresponding adjustment to goodwill (see Note 3). AirTouch
is required to record deferred tax liabilities for the temporary
differences between the initial assigned values to the identifiable
intangible assets and their tax bases. The deferred tax liabilities will
be amortized over the useful lives of the related identifiable intangible
assets. Goodwill is considered a residual for which no related deferred
tax liability is recorded.
3. Records the amortization expense for NewVector's identifiable intangible
assets and goodwill. For purposes of calculating the amortization of
intangibles, management has preliminarily estimated that approximately
$413 million of identifiable intangibles relates to customer lists and
$2,574 million relates to FCC licenses. The remaining excess purchase
price of $1,296 million was allocated to goodwill, together with $12
million related to merger fees and $1,216 million related to deferred
tax liability on identifiable intangibles. The amortization period for
customer lists is four years and is forty years for FCC licenses and
goodwill.
4. Records AirTouch's acquired share of PrimeCo's net loss for the quarter
ended March 31, 1998 under the equity method of accounting.
5. Records the amortization expense on goodwill for the acquisition of
Media's share of PrimeCo. Management has preliminarily estimated that all
the excess purchase price be allocated to goodwill. PrimeCo is in its
start-up phase and management preliminarily estimates that the book value
of its net assets, including its licenses, approximates fair value. The
amortization period for goodwill is forty years.
6. Records interest expense accrued on $1,350 million of borrowings related
to the merger, based on assumed average interest rates of 6.6% on
estimated fixed-rate borrowings of $800 million and 5.67% on estimated
variable-rate borrowings of $550 million. AirTouch borrowed under its
commercial paper program to refinance the debt of $1,350 million assumed
in the merger. On April 29, 1998, AirTouch issued $500 million of 6.65%
Notes due May 1, 2008 and used the proceeds to retire a portion of such
commercial paper. AirTouch anticipates issuing more fixed rate debt
totaling approximately $300 million to retire an additional portion of the
remaining commercial paper outstanding. These debt issues under its
Registration Statement on Form S-3 (Reg. No. 33-62787) are planned for
later in 1998. AirTouch expects an
<PAGE> 8
aggregate effective interest rate on these borrowings of approximately
6.6%, based on its long-term debt rating and current Treasury yield net of
the impact of certain interest rate hedges. The rate of 5.67% represents
the average interest rate experienced by AirTouch for commercial paper
during 1997. The average rate in the first quarter of 1998 was not
significantly different. The effect of a 1/8 % change in interest rates
on interest expense to pro forma net income of AirTouch is immaterial.
7. Records the income tax effects on the relevant pro forma adjustments
arising from the merger at the combined statutory rate of 40.7%. Relevant
pro forma adjustments to the Pro Forma Condensed Combined Statement of
Income include interest, amortization expenses and equity in the losses
of PrimeCo. Except for the amortization of goodwill, these adjustments
were tax-effected at the statutory rate resulting in a net tax benefit
of $34 million for the quarter ended March 31, 1998.
8. Records the dividends on the Preferred Stock of $21 million for the
quarter ended March 31, 1998. The dividend is based on a rate of 5.143%,
representing the interest rate on the 30-year Treasury Bond on the
Effective Date, minus 0.67% per annum, pursuant to the Agreement.
