ITEM 1. BUSINESS
GENERAL
AirTouch Communications, Inc. is one of the largest wireless telecommunication services companies in the world based on the 40 million total wireless customers served by the Company and its ventures as of December 31, 1998. Through its operations in the United States, Europe, Asia and North Africa, the Company provides a full range of wireless telecommunications services, including cellular, PCS and paging, and in the future will also provide global satellite communications.
The Company's principal objective is to be the premier provider of wireless telecommunication services worldwide. To achieve its objective the Company focuses on profitable growth of its existing operations and pursues other value-creating opportunities around the world, including new wireless licenses and ownership increases in existing markets.
The cellular and PCS licenses of the Company and its ventures cover more than 724 million people around the world in 13 countries on four continents. Based on its ownership percentages, the Company's cellular and PCS interests represented approximately 235.9 million POPs and, together with paging customers, 17.6 million proportionate customers as of December 31, 1998.
BUSINESS STRATEGY
The Company's principal objective is to be the premier provider of wireless telecommunication services worldwide. The Company believes that the following elements of its business strategy will enable it to meet that objective:
o Focus on Wireless. By concentrating on wireless telecommunication services, the Company has invested its capital in a proven industry that is expected to grow dramatically on a worldwide basis. The Company believes that the knowledge and experience developed by its senior management team through extensive involvement in the industry since its inception in 1983 give it an advantage as an operator and in identifying and pursuing new value-creating wireless opportunities.
o Global Presence. With investments in the United States, Europe, Asia and North Africa, the Company has a diverse global presence that limits its risks from negative market conditions in any one region. Its global reach also enables the Company to identify emerging trends and share best practices across its many ventures.
o Scale Advantages. The Company and its ventures served a total of 40 million customers as of December 31, 1998. The scale of the Company's operations has contributed to cost savings and operational efficiencies that generate competitive advantages. The Company is able to reduce its costs per customer by spreading expenses over a large subscriber base and by consolidating headquarters services and certain shared operational functions. In addition, by purchasing infrastructure and handsets jointly with its partners, the Company has been able to obtain favorable pricing from manufacturers.
o Core Competencies. As competition increases worldwide, AirTouch's advantages lie in the execution of the basic components of its business:
- World class customer care. The Company's focus on providing customers with world class customer care gives AirTouch a competitive advantage in subscriber retention. AirTouch uses a variety of proactive outreach efforts designed to minimize churn (customers leaving the system) in the face of growing competition.
- Extensive distribution channels. As an early entrant into the wireless market AirTouch has developed extensive direct and indirect distribution channels to sell its services in its U.S. and international markets. The Company's strategy is to increase the proportion of its sales made through direct channels, where the Company is better able to control and reduce selling costs.
- Quality products and services. The Company offers competitive products and pricing plans. In the United States, its combined analog and digital network and the availability of dual-mode handsets provide the advantage of extensive coverage and nationwide roaming capabilities. The Company offers analog and digital products that appeal to different market segments.
- Network expertise. With operations throughout the world, the Company has engineered cellular networks using every major wireless technology, including different digital standards as well as analog. AirTouch built the world's first commercial GSM network, which commenced service in Germany in 1992, and was a pioneer in the development of CDMA-digital technology. The Company has also developed many patented tools for detecting and preventing cellular fraud and for enhancing analog capacity.
- Profitable growth. The Company focuses on profitably attracting new subscribers and retaining existing customers. Its cost containment and efficiencies of scale have helped it to reduce cash costs per customer faster than declines in the average revenue per customer, resulting in total Company proportionate operating cash flow margins of 37.4% (on a pro forma basis for the MediaOne acquisition) for the year ended December 31, 1998.
o Efficient Management Structure. In the United States, the Company's efficient management structure makes AirTouch an agile competitor in an increasingly competitive industry. Decisions about matters that immediately impact customers, such as sales and customer service, are kept close to customers, while decisions in areas where the Company can most realize the benefits of the scale of its operations, such as purchasing, technology and product development, are being increasingly centralized. Although the Company generally has minority interests in its international ventures, it plays an active role, with board representation and the right to appoint key management positions and participate in key business decisions.
o Strict Financial Investment Criteria. The Company's strong financial performance is due in part to its financial discipline and structured approach to new opportunities and ventures. Each potential investment is measured against a strict set of financial criteria to determine whether the investment offers an opportunity for value creation.
RECENT DEVELOPMENTS
On January 15, 1999, AirTouch announced a definitive agreement to merge with Vodafone Group Plc, which is also a leading international wireless telecommunication services company. Under the terms of the definitive agreement, which has been unanimously approved by each company's Board of Directors, owners of AirTouch common stock will be entitled to receive five Vodafone ordinary shares (in the form of 0.5 of a Vodafone American Depository Share) and $9 in cash, without interest, for each share of AirTouch common stock held at closing, subject to rebalancing between stock and cash under certain circumstances. The Company believes that a combination with Vodafone is consistent with its objective of being the world's premier international wireless communications company.
The merger is subject to the approval of the stockholders of Vodafone and AirTouch, customary government and regulatory authority approvals and the receipt of opinions from tax counsel that the stock portion of the merger consideration will be tax-free to the U.S. holders of AirTouch common stock. The merger is expected to close in the third quarter of 1999. For more details of the merger, please see the Company's Current Report on Form 8-K filed January 19, 1999.
DESCRIPTION OF PRINCIPAL BUSINESSES
The Company's operations are divided into three principal businesses: U.S. Cellular and PCS, International Cellular and Paging:
U.S. CELLULAR AND PCS OPERATIONS
The Company is one of the largest providers of cellular and PCS services in the United States. The Company's U.S. cellular and PCS interests represented approximately 97 million POPs and over 8.3 million proportionate customers as of December 31, 1998, and include some of the most attractive cellular markets based upon population size and demographic characteristics.
The Company controls or shares control over cellular and PCS systems operating in 22 of the 30 largest metropolitan statistical areas in the United States.
OVERVIEW OF UNITED STATES CELLULAR & PCS OPERATIONS (ALL INFORMATION AS OF DECEMBER 31, 1998 UNLESS OTHERWISE INDICATED)
(1) MSA refers to metropolitan statistical area. There are 306 MSAs in the United States, as determined by Rand McNally and adopted by the FCC to establish cellular service areas. MSA 1997 population figures and rank are from the 1998 Paul Kagan Associates, Inc. Cellular Telephone Atlas.
(2) MTS refers to metropolitan trading area. There are 51 MTAs in the United States, as determined by Rand McNally and adopted by the FCC to establish PCS service areas. MTA 1997 population figures and rank are from the Paul Kagan Associates, Inc. 1998 Cellular/PCS POP Book.
(3) In January 1999, PrimeCo sold the Honolulu MTA license and system to Sprintcom.
(4) PrimeCo's ownership percentage of Texas MTAs reflects its partnership with Texas Utilities. Because PrimeCo does not own 100% of these markets, the Company's proportionate share of these markets is 40%.
RECENT DEVELOPMENTS IN U.S. CELLULAR AND PCS BUSINESS
On April 6, 1998, the Company completed its acquisition of MediaOne Group's U.S. cellular and PCS interests. The Company acquired NewVector, which held MediaOne Group's U.S. cellular business, including the Minneapolis, Phoenix, Seattle, Denver and Portland cellular markets, and MediaOne Group's 25% interest in PrimeCo. As a result of the transaction, the Company added 2.5 million proportionate U.S. wireless customers and 35 million proportionate POPs. The total value of the transaction was approximately $5.9 billion. The Company issued approximately 59.4 million shares of Common Stock valued at $2.9 billion on the date of the transaction and $1.65 billion of preferred stock and assumed $1.35 billion of debt.
U.S. CELLULAR OPERATIONS
Marketing
The Company markets its cellular services under the AirTouch Cellular name, with the exception of its systems in the San Francisco Bay Area, Kansas and Missouri, which market service under the CellularOne brand name. The Company sells its service directly to customers through its own sales force, telemarketing centers and the Internet and indirectly through arrangements with independent agents such as consumer electronic stores, specialized cellular stores, automobile dealers and department and other retail stores. 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. The Company's costs for attracting new customers (referred to as "selling costs") primarily consist of advertising and marketing costs, costs of direct distribution, including costs related to the Company's stores, compensation paid to independent agents or to its own sales force and handset subsidies. The Company has been taking steps to align selling costs with revenues by emphasizing residual or account management payments to agents over upfront commissions and by increasing the proportion of sales through Company-controlled direct distribution channels, which have historically been less costly. Average proportionate selling costs per new customer for the year ended December 31, 1998 were about $308 on a pro forma basis for the MediaOne acquisition.
Products and Services
The Company offers analog service in all of its markets and offers digital service in most markets. In most of its 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 prepaid cellular calling program with no monthly service charge, no contract commitment, and no billings. The Company maintains a customer service department in each of its managed cellular markets for billing and service inquiries. The majority of the Company's customers elect to receive long-distance service from the Company, which it offers as a
reseller. Alternatively, customers can select a long-distance provider and be billed directly by that carrier.
The Company has a variety of pricing plans that differ from market to market. Certain pricing plans feature a fixed monthly access fee and per minute charges while others offer a fixed monthly price for a bundle of minutes with per minute charges for excess minutes. Most of the Company's new customers select pricing plans that require them to sign a service contract for one or more years. The Company believes that one of its competitive strengths lies in its ability to offer customers choice through service and handset pricing that appeal to different market segments. Customers seeking safety and convenience are attracted to the low monthly access fees and inexpensive handsets generally available with analog service. To meet the needs of higher volume users, the Company offers digital service with rate plans that include higher monthly access fees and bundles of lower-priced minutes. The Company believes that its pricing plans are generally competitive with those being offered by other providers in the markets in which they are applicable.
One recent trend in the U.S. wireless industry is to offer one rate price plans, which include roaming and, in some plans, long distance at no extra charge. In response to these programs, in 1998, in many of its markets the Company has begun offering simplified pricing plans targeted at customers who roam in which customers can pay a single rate for all roaming minutes or use minutes included in their bundles for roaming. In some cases, the cost to the Company of customer roaming is greater than the amount charged to the customer. As the Company and other wireless operators seek to maintain the profitability of these simplified pricing plans, it is likely that reciprocal roaming rates between wireless operators will be negotiated down. Although lower roaming rates will decrease the revenues the Company receives from customers roaming into its markets, the expenses it pays for its customers who roam will also decrease. The Company is focused on lowering the cost of roaming by proactively renegotiating roaming agreements and maximizing roaming activity with its partners. In addition, the Company expects that anticipated technological developments, including handsets that can more easily be programmed with preferred roaming carriers and tri-mode handsets that will allow roaming between the Company's cellular and PCS networks, will help the Company manage its roaming costs.
Network
The Company offers analog service in all of its markets and offers digital service in most markets. The Company's digital service is based on Code Division Multiple Access ("CDMA") technology, except in the San Francisco Bay Area, where it is based on Time Division Multiple Access ("TDMA") technology. In the fourth quarter of 1998 greater than 40% of the Company's peak minutes were carried on its digital networks. Because the Company offers dual-mode cellular telephones capable of sending and receiving both analog and certain digital transmissions, the Company's analog and digital cellular customers can roam to virtually any cellular market in the United States.
The Company believes that digital cellular technology offers certain advantages over analog technology, including substantially increased capacity, greater call privacy, superior voice quality, enhanced services, 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 United States. The Company expects the majority of its capital expenditures in the future to be spent on its digital networks.
Cost Structure
The Company's cash costs consist primarily of costs for attracting new customers, as described above under "Marketing," customer service and billing costs, fees paid to the local telephone service company for interconnection of cellular networks with the wireline telephone network, the net cost of AirTouch customers roaming to other networks, and general and administrative costs. The Company attempts to decrease its cash costs per customer at a rate equal to or greater than declines in average revenue per customer. The Company has taken the following steps to decrease cash costs:
o increased the scale of its operations through acquisitions, allowing the Company to consolidate common functions and spread costs over a larger customer base;
o negotiated handset and infrastructure contracts jointly with partners, resulting in lower prices;
o executed new interconnection agreements with the major local carriers in its markets, resulting in significant savings on interconnect costs; and
o managed churn and associated selling costs by taking proactive steps to retain customers, including changing customer rate plans and offering free handsets.
As a result of these and other cost saving efforts, the Company reduced its average monthly pro forma proportionate cash cost per customer to $24.35 for the year ended December 31, 1998, a 13.9% decline from 1997.
In addition, ongoing investments by the Company in its networks are necessary in order to increase coverage and capacity. These expenditures are reflected as depreciation expense. In the future, the Company believes the majority of such expenditures will be directed towards increasing digital coverage and capacity.
Joint Ventures
CMT Partners. In September 1993, the Company and AT&T Wireless (at the time, McCaw Cellular Communications Inc.) formed CMT Partners, an equally owned 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 15 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.
TOMCOM. The Company and Bell Atlantic are partners in TOMCOM, L.P., a partnership 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 AirTouch and three members from Bell Atlantic.
U.S. PCS OPERATIONS
The Company and Bell Atlantic Mobile are equal partners in PrimeCo Personal Communications, L.P., which owns ten 30 MHz PCS licenses covering approximately 62 million POPs in the Chicago, Dallas, Tampa, Houston, Miami, New Orleans, Milwaukee, Richmond, San Antonio, and Jacksonville MTAs. In January 1999, PrimeCo sold its Honolulu MTA market to Sprintcom, Inc. The PrimeCo markets complement the existing U.S. cellular franchises of the partners. PrimeCo began providing service in November 1996 and as of December 31, 1998, PrimeCo had over 902,000 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 operating losses associated with the start-up phase of the PCS business.
PrimeCo's success as a competitor depends on the same factors as that of the Company's United States cellular operations. PrimeCo's operations are structured in a manner similar to those of the Company's United States cellular businesses with respect to marketing, products and services and cost structure. PrimeCo initiated service in late 1996 and has not yet achieved the critical size to enable it to achieve all of the economies of scale that the Company's cellular business currently enjoys. PrimeCo, a 100% CDMA digital network, has recently introduced dual-mode handsets that enable customers to roam on a nationwide basis on analog cellular networks.
Either the Company or Bell Atlantic may cause PrimeCo to be dissolved on October 20, 2001, and if dissolution occurs the PrimeCo properties will be allocated between them according to agreed criteria. In addition, if AirTouch's merger with Vodafone is completed, Bell Atlantic will have the right to cause the early dissolution of PrimeCo. 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.
On July 28, 1998, Bell Atlantic and GTE Corp. announced that they had entered into an agreement to merge. Both the TOMCOM and PrimeCo partnership agreements contain a number of restrictions on the partners' activities outside the partnerships. One restriction prohibits either partner from acquiring a cellular, ESMR or PCS system in a service area where the other partner has an interest and requires that the acquiring partner dispose of the conflicting property within six months. GTE currently owns interests in several wireless markets that overlap with markets in which the Company has ownership interests, including markets owned by PrimeCo. Both the TOMCOM and PrimeCo agreements contain restrictions on transfer of partnership interests and prohibit partners from withdrawing from the partnerships. In January 1999, Bell Atlantic sued AirTouch in federal court seeking preliminary and injunctive relief from the provisions of the agreement limiting the partners' competitive activities. The Company has filed a counterclaim
against Bell Atlantic for violations of the partnership agreements. See "Item 3.
ITEM 3. 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 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 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. The plaintiffs are alleging price fixing in the Los Angeles cellular market. In 1994, a parallel class action complaint, filed in Orange County Superior Court, was stayed pending the resolution of the 1993 case. In 1997, the Court approved a settlement of the 1993 case. Three plaintiffs have filed an appeal challenging the adequacy of the settlement.
In 1994, two class action complaints also alleging price fixing were filed against the Company, one in San Diego County Superior Court and one in the U.S. District Court. The state case was dismissed. A settlement of the federal court case was approved on November 28, 1998. 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 consolidated and the court approved a settlement of the case in 1998. One plaintiff has filed an appeal. The Company believes that the ultimate outcome of these matters, in the aggregate, will not have a material adverse impact on its financial position or results of operations.
In July 1998, customers filed a complaint in Sacramento County Superior Court against the Company and other cellular and PCS carriers challenging the legality of certain billing practices and claiming that the practices are not adequately disclosed in the California markets. This case was subsequently dismissed with prejudice. The plaintiffs have filed a notice of appeal. In August 1998, a complaint was filed against PrimeCo, an unconsolidated subsidiary of the Company, in the Cook County Chancery Court. Plaintiffs are challenging the legality of certain billing practices and claiming that the practices are not adequately disclosed. The plaintiffs are seeking an unspecified amount of monetary damages and revisions of PrimeCo's billing practices. Also, in August 1998, a second complaint was filed against PrimeCo in the Cook County Chancery Court alleging certain deficiencies in PrimeCo's network performance. The plaintiffs are seeking an unspecified amount of monetary damages. These cases are in the preliminary phase. The Company is not currently able to assess the impact, if any, of these cases on its financial position or results of operations.
In December 1998, a complaint was filed against the Company and other cellular service providers in the Sacramento County Superior Court on behalf of all individuals subscribing to service in the Sacramento area. Plaintiffs claim that the defendants conspired to fix prices for cellular services. The plaintiffs are seeking injunctive relief and damages in excess of $100
million. This case is in the preliminary phase and the Company is not currently able to assess the impact, if any, of this case on its financial position or results of operations.
On January 6, 1999, a class action was filed against the Company in the Federal District Court for the Central District of California alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. 78j and 78t and Rule 10b-5. The action was filed on behalf of individuals who sold AirTouch common stock or call options or purchased put options on January 4, 1999. Plaintiffs claim the Company's press release of January 3, 1999, was false and misleading because it confirmed the Company was in merger discussions with Bell Atlantic but did not disclose that it was in discussions with Vodafone. This case is in the preliminary phase and the Company is not currently able to assess the impact, if any, on its financial position or results of operations.
Bell Atlantic filed an action against the Company on January 15, 1999, in the Federal District Court for the Northern District of California seeking an injunction to void clauses of the TOMCOM, L.P. and PrimeCo partnership agreements which restrict the partners' ability to compete against the partnerships. The Company has filed a counterclaim against Bell Atlantic for violations of the partnership agreements. The case is in the preliminary phase and the Company is not currently able to assess the impact, if any, on its financial position or results of operations.
The Company is party to various other legal proceedings in the ordinary course of business. The Company believes that the ultimate outcome of these matters will not have a material adverse impact on its financial position or results of operations.
ITEM 4.
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, 1998.
PART II
ITEM 5.
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.
The number of holders of record of the Company's Common Stock as of March 15, 1999 was 496,417.
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.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in the Company's 1998 Annual Report to Stockholders under "Selected Financial Data," which portions are incorporated herein by reference.
ITEM 7.
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 1998 Annual Report to Stockholders under "Management's Discussion and Analysis," which portions are incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth in the Company's 1998 Annual Report
to Stockholders under "Management's Discussion and Analysis - Market Risk," which portions are incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The audited financial statements for the year ended December 31, 1998, as required by this Item, are set forth in the Company's 1998 Annual Report to Stockholders which portions are incorporated herein by reference in Part IV of this Form 10-K.
ITEM 9.
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.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item will be incorporated by reference to the Company's Proxy Statement for 1999 or will be set forth in an amendment to this Form 10-K as permitted by General Instruction G(3) to Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item will be incorporated by reference to the Company's Proxy Statement for 1999 or will be set forth in an amendment to this Form 10-K as permitted by General Instruction G(3) to Form 10-K
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be incorporated by reference to the Company's Proxy Statement for 1999 or will be set forth in an amendment to this Form 10-K as permitted by General Instruction G(3) to Form 10-K
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be incorporated by reference to the Company's Proxy Statement for 1999 or will be set forth in an amendment to this Form 10-K as permitted by General Instruction G(3) to Form 10-K
PART IV
ITEM 14.
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 audited financial statements for the year ended December 31, 1998, as required by this Item, are set forth in the Company's 1998 Annual Report to Stockholders, which portions are incorporated herein by reference.
CMT PARTNERS
The financial statements required by this Item are incorporated by reference to the Company's Annual Report on Form 10-K for the period ended December 31, 1997, pages S-2 to S-14, File No. 1-12342.
MANNESMANN MOBILFUNK GMBH
Independent Auditors' Report Balance Sheets - December 31, 1998 and 1997 Statements of Income - Years ended December 31, 1998, 1997 and Statements of Capital Subscribers' Equity - Years ended December 31, 1998, 1997 and 1996 Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996 Notes to Financial Statements
2. Financial Statement Schedules:
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Accounts (PricewaterhouseCoopers 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.
EXHIBIT NUMBER DESCRIPTION ------- -----------
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) 2.2 Agreement and Plan of Merger among Vodafone Group Plc, AirTouch Communications, Inc. and Apollo Merger Sub, Inc. dated as of January 15, 1999 (Exhibit 2.1 to the Company's Current Report on Form 8-K - Date of Report: January 19, 1999, 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) 3.6 Certificate of Designation, Preferences and Rights of Class D Preferred Stock, Series 1998 (Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998, File No. 1-12342) 3.7 Certificate of Designation, Preferences and Rights of Class E Preferred Stock, Series 1998 (Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998, 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 (Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-12342) 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) 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 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) 10.2 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) 10.3 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) 10.4 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) 10.5 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) 10.6 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) 10.7 Representative Employment Agreement for Messrs. Sarin, Gyani, Jones and Farrill and Mrs. Gill (Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, File No. 1-12342)
10.8 Representative Employment Agreement for other officers of the Company (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, File No. 1-12342) 10.9 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) 10.10 Trust Agreementfor AirTouch Communications, Inc. Executive Benefits (Second Amendment and Restatement Effective as of October 31, 1994) 10.11 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) 10.12 AirTouch Communications Deferred Compensation Plan for Nonemployee Directors (Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, File No. 1-12342) 10.13 Trust Agreement for AirTouch Communications Deferred Compensation Plan (Amended and Restated Effective as of December 1, 1994) 10.14 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) 10.15 Amendment No. 1 to the AirTouch Communications, Inc. Supplemental Executive Pension Plan Second Amendment and Restatement Effective as of April 1, 1994 (Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, File No. 1-12342) 10.16 AirTouch Communications Executive Life Insurance Plan 10 (Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, File No. 1-12342) 10.17 AirTouch Communications Executive Long-Term Disability Plan (Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, File No. 1-12342) 10.18 AirTouch Communications Estate Deferral Program (Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, File No. 1-12342) 10.19 AirTouch Communications Incentive Plan (Amended and Restated Effective as of January 1, 1998)
10.20 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) 10.21 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) 10.22 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) 10.23 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) 10.24 Employment Agreement between the Company and Mr. Ginn (Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, File No. 1-12342) 10.25 Amended and Restated Investment Agreement dated April 6, 1998 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 June 30, 1998, File No. 1-12342) 13 1998 Annual Report to Stockholders - Financial Section 21 Subsidiaries of the Registrant 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consent of KPMG Deutsche Treuhand-Gesellschaft (Mannesmann Mobilfunk GmbH) 23.3 Consent of Arthur Andersen LLP (Kansas Combined Cellular) 24 Power of Attorney 27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
Item 7. Financial Statements and Exhibits
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 29, 1999
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 29, 1999
MANNESMANN MOBILFUNK GMBH
FINANCIAL STATEMENTS
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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, 1998 and 1997, and the related statements of income, capital subscribers' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States.
Dusseldorf, Germany, February 16, 1999
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft
Scheffler Haas Wirtschaftsprufer Wirtschaftsprufer
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MANNESMANN MOBILFUNK GMBH
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 (IN THOUSANDS)
ASSETS
See accompanying notes to financial statements. S-3
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
See accompanying notes to financial statements. S-4
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CAPITAL SUBSCRIBERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
See accompanying notes to financial statements. S-5
MANNESMANN MOBILFUNK GMBH
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
See accompanying notes to financial statements. S-6
MANNESMANN MOBILFUNK GMBH
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (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, 1998 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 license 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 1998 the Company had about 5,900,000 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.
(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 :
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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.
(h) PENSION PLANS
On January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 132, Employers' Disclosures about Pension and Other Postretirement Benefits. SFAS No. 132 revises employer's disclosures about pension and other postretirement benefit plans. SFAS No. 132 does not change the method of accounting for such 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.
(i) COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net income and a minimum pension liability adjustment and is presented in the statements of capital subscribers' equity and comprehensive income. The Statement requires only additional disclosures in the financial statements; it does not affect the Company's financial position or results of operations. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130.
(j) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage its foreign exchange risk for firm commitments. They are not used for trading but are strictly for hedging purposes.
(k) 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.
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(L) 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 1.6630 to U.S. $1, the closing rate quotation on December 31, 1998.
(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.
(3) RELATED PARTY TRANSACTIONS
The Company has significant business transactions with its 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 sheets and statements of income. In addition, purchases of property, plant and equipment from related parties during the years stated are shown below:
(4) INVENTORIES
This caption includes stocks of products, parts and related supplies. The balances at December 31, 1998 and 1997 are as follows:
(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 1998, 1997 and 1996:
Interest capitalized has been included in the telecommunications equipment component of property, plant and equipment.
(6) PENSION PLANS
The Company has a defined benefit pension plan covering all of its 76 current and former member management group (1997 -- 74 members and 1996 -- 75 members).
Of the remaining employees, at the end of 1998 7,174 (1997 -- 5,693), 2,839 (1997 - 2,839) are covered by a defined contribution plan funded externally with an insurance company, and 4,335 (1997 -- 2,854) are
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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.
For the years ending December 31, 1998 and 1997, such valuations were made on the basis of accounting principles generally accepted in the United States. Up to and including December 31, 1996, they were made on the basis of German tax and commercial rules, because the Company considered, given the small number of employees covered together with the short periods of prior service, that the differences in the bases would not be material in terms of potential adjustments or disclosures.
The following table sets forth the changes in benefit obligation and funded status of the defined benefit plan, for which there are no plan assets at fair value as such, because they are deemed to be represented by the Company's assets in general:
The pension liabilities for the deferred compensation plan and death in service are similarly unfunded.
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The combined accrued liabilities for all plans per the balance sheets at December 31, 1998 and 1997 are as follows:
The net periodic benefit cost recognized for the deferred benefit plan for the years ended December 31, 1998, 1997 and, based on a German basis of accounting, 1996, is as follows:
The combined pension cost for all plans charged to income for the years ended December 31, 1998, 1997 and 1996 are as follows:
(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
Total income taxes for the years ended December 31, 1998, 1997 and 1996 of DM 1,365,517, DM 1,012,840 and DM 691,316 respectively were allocated entirely to income from continuing operations.
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Income tax expense attributable to income for the years ended December 31, 1998, 1997 and 1996 consists of various types of taxes as follows:
Income tax expense attributable to income was DM 1,365,517, DM 1,012,840 and DM 691,316 for the years ended December 31, 1998, 1997 and 1996, respectively, and differed from the amount computed by applying the above combined German income tax rate of 56.93% for 1998, 57.67% for 1997 and 57.52% for 1996 to pretax income as a result of the following:
The significant components of the income tax expense attributable to the income for the years ended December 31, 1998, 1997 and 1996 are as follows:
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The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities at December 31, 1998 and 1997 are presented below:
(9) LEASE 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 1998, 1997 and 1996 was DM 171,372, DM 128,793 and DM 88,059, respectively.
Future minimum lease payments under noncancelable leases (with initial or remaining lease terms in excess of one year) are:
(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, 1998 there are retained earnings of DM 169,492 per the German books of account, after payment of dividends during the year aggregating DM 1,250,000.
(12) DERIVATIVE FINANCIAL INSTRUMENTS
At December 31, 1998, the Company was a party to several foreign currency forward contracts with due dates ranging from January 15, 1999 to May 15, 2001. The contracts entitle the Company to receive from Mannesmann AG a total of USD 56,999 in exchange for a total of DM 91,397.
No other derivative financial instruments are used by the Company.
At December 31, 1997, the Company had no derivative financial instruments.
The fair value of the foreign currency forward contracts, based on forward rates at December 31, 1998 in relation to the various due dates, was an unrealized gain of DM 2,718.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of all the Company's financial instruments recorded on the balance sheet at December 31, 1998 and 1997 approximate the carrying amounts because of the short-term maturity of these instruments.
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(14) ADVERTISING COSTS
The advertising costs directly charged to income during 1998, 1997 and 1996 were DM 93,353, DM 71,448 and DM 65,824 respectively.
(15) 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, 1998, 1997 and 1996 follows:
The Company paid DM 2,622, DM 2,161 and DM 4,836 for interest (net of amounts capitalized) and DM 1,175,920, DM 703,241 and DM 305,431 for income taxes in 1998, 1997 and 1996 respectively.
The above provision for pension costs excludes the additional minimum liability of DM 1,497 and the amount for deferred income taxes excludes the related tax effect of DM 852, recognized on a net-basis as DM 645 directly in equity as other comprehensive income.
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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 1, 1999, appearing on page 35 of the 1998 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/ PricewaterhouseCoopers LLP
San Francisco, California March 1, 1999
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AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (DOLLARS IN MILLIONS)
- --------------- (a) Amounts reflect allowances acquired through acquisitions, net of disposition.
(b) Amounts reflect items written-off, net of recoveries.
(c) Amounts reflect realization of tax benefit.
(d) Represent foreign currency exchange gains or (losses) recorded in the "Cumulative translation adjustment" account, a component of "Accumulated other comprehensive income" in Stockholders' Equity.
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