<PAGE>   1
                                                                     Exhibit 13

                 AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES

                            SELECTED FINANCIAL DATA,
                       MANAGEMENT'S DISCUSSION & ANALYSIS,
                            AND FINANCIAL STATEMENTS

           2  SELECTED FINANCIAL DATA
                  2  Selected Five-Year Consolidated Data

                  3  Selected Five-Year Proportionate Data

           6  MANAGEMENT'S DISCUSSION & ANALYSIS OF
                FINANCIAL CONDITION & RESULTS OF OPERATIONS

          27  CONSOLIDATED FINANCIAL STATEMENTS

                 27  Report of Management

                 28  Report of Independent Accountants

                 29  Consolidated Statements of Income
                       for the years ended December 31, 1995, 1994, and 1993

                 30  Consolidated Balance Sheets
                       as of December 31, 1995 and 1994

                 31  Consolidated Statements of Stockholders' Equity
                       for the years ended December 31, 1995, 1994, and 1993

                 32  Consolidated Statements of Cash Flows
                       for the years ended December 31, 1995, 1994, and 1993

                 34  Notes to Consolidated Financial Statements

                 58  Selected Proportionate Results of Operations


<PAGE>   2
SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
SELECTED FIVE-YEAR CONSOLIDATED DATA
--------------------------------------------------------------------------------------------------------------------------------
                                                                                 For the Year Ended December 31
                                                                ----------------------------------------------------------------
(Dollars in millions, except per share amounts)                   1995         1994(a)       1993(b)        1992          1991(c)
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>           <C>           <C>           <C>
OPERATING RESULTS
    Operating revenues (d)                                      $1,618.6      $1,246.9      $1,057.7      $  880.2      $  781.1
    Operating income                                            $  112.8      $   72.6      $  128.2      $   95.9      $  136.6
    Equity in net income (loss) of unconsolidated
      wireless systems:
        Domestic                                                $  188.2      $  125.4      $   70.4      $   41.1      $   15.5
        International                                           $  (35.9)     $  (14.7)     $  (37.5)     $  (38.5)     $  (21.4)
    Interest:
      Income                                                    $   34.9      $   54.7      $   12.0      $   13.3      $   13.8
      Expense                                                   $  (13.0)     $  (10.3)     $  (22.1)     $  (52.9)     $  (37.6)
    Income (loss) from operations                               $  131.9      $   98.1      $   40.1      $  (10.1)     $   43.1
    Per share data:
      Income (loss) from operations                             $   0.27      $   0.20      $   0.09      $  (0.02)     $   0.10

--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                           December 31
                                                                ----------------------------------------------------------------
BALANCE SHEET DATA (Dollars in millions)                          1995         1994(a)       1993(b)        1992          1991(c)
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>           <C>           <C>           <C>
    Investments in unconsolidated
       wireless systems                                         $3,076.3      $1,697.9      $1,154.5      $  935.4      $  676.6
    Total assets                                                $5,647.9      $4,488.0      $4,076.7      $2,371.1      $1,900.1
    Long-term obligations (e)                                   $  906.4      $  130.1      $   78.9      $  257.3      $  276.0
    Total stockholders' equity                                  $3,750.7      $3,459.6      $3,337.3      $  752.1      $  635.2

    Working capital (deficit)                                   $   18.5      $  736.5      $1,346.8      $ (698.4)     $ (426.3)
    Capital expenditures, excluding acquisitions
       and capital calls (f)                                    $  530.3      $  408.7      $  225.9      $  231.0      $  230.2
================================================================================================================================
</TABLE>

(a)  Prior to April 1, 1994, AirTouch Communications, Inc. and its subsidiaries
     (the "Company") was an 86.1% owned subsidiary of Pacific Telesis Group
     ("Telesis").  On April 1, 1994, the Company was spun off from Telesis.

(b)  In December 1993 the Company completed a public offering of 68,500,000
     shares of newly issued common stock for proceeds of $1,489.2 million.  In
     addition, in September 1993 the Company entered into a joint venture with
     AT&T Wireless, formerly McCaw Cellular Communications, Inc., ("CMT
     Partners") and contributed net cellular assets totaling $206.0 million. The
     effect of the formation of CMT Partners on the Company's Consolidated
     Financial Statements was a reduction in the individual asset, liability,
     and income statement accounts and the reporting of income and expense
     associated with these assets in the line item entitled "Equity in net
     income (loss) of unconsolidated wireless systems: Domestic."  See Note E,
     "Investments in Unconsolidated Wireless Systems," to the Consolidated
     Financial Statements for further information.

(c)  In 1991 the Company entered into a joint venture with Cellular
     Communications, Inc. ("New Par") and contributed net cellular assets
     totaling $330.0 million. The effect of the formation of New Par on the
     Company's Consolidated Financial Statements was a reduction in the
     individual asset, liability, and income statement accounts and the
     reporting of income and expense associated with these assets in the line
     item entitled "Equity in net income (loss) of unconsolidated wireless
     systems: Domestic." See Note E, "Investments in Unconsolidated Wireless
     Systems," to the Consolidated Financial Statements for further information.

(d)  Presentation for 1994 has been restated to conform to current year
     presentation.  See Note A, "Summary of Significant Accounting Policies -
     Basis of Presentation," to the Consolidated Financial Statements.

(e)  Includes the current portion of long-term debt.

(f)  For the year ended December 31.

                                       2

<PAGE>   3
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 joint ventures 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, domestic cellular proportionate results
present the Company's share - its percentage ownership - for all significant
domestic cellular operations, including those joint ventures 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.

<TABLE>
<CAPTION>
TOTAL COMPANY (1)
---------------------------------------------------------------------------------------------------------------------------------
    PROPORTIONATE                                                                  For the Year Ended December 31
    OPERATING RESULTS (Dollars in millions)                     1995          1994            1993            1992          1991
    -----------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>             <C>             <C>           <C>
    Total net operating revenues (a)                          $2,605.2      $1,791.8        $1,226.1        $ 873.2       $ 687.0
    Total operating income                                    $  296.7      $  171.5        $   97.6        $  11.3       $  98.8
    Total operating cash flow (2)                             $  702.3      $  506.1        $  351.5        $ 191.5       $ 223.9

<CAPTION>
    PROPORTIONATE                                                                       December 31
    OPERATING DATA (In thousands)                                1995          1994            1993           1992          1991
    -----------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>             <C>             <C>          <C>
    Total cellular POPs (3)                                    164,908        99,508          75,290         69,468        57,551
    Total cellular subscribers                                   3,059         1,948           1,206            779           558
    Cellular subscriber net adds in period,      
       excluding acquisitions                                      974           713             409            221           140
    Total paging units in service                                2,474         1,647           1,269            899           669
    Paging units in service net adds in period,
       excluding acquisitions                                      477           378             348            230           136
</TABLE>

<TABLE>
<CAPTION>
PROPORTIONATE CELLULAR OPERATIONS (1)
---------------------------------------------------------------------------------------------------------------------------------
    DOMESTIC CELLULAR                                                               For the Year Ended December 31
    OPERATING RESULTS (Dollars in millions)                     1995           1994            1993          1992           1991
    -----------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>             <C>            <C>            <C>
    Service and other revenues (a)                            $1,523.3       $1,160.1       $  892.0       $  699.4       $ 564.6
    Equipment sales                                               78.9           74.6           40.2           24.8          19.3
    Cost of equipment sales                                     (125.6)         (82.0)         (42.2)         (23.9)        (18.4)
    --------------------------------------------------------------------------------------------------------------------------
    Net operating revenues                                     1,476.6        1,152.7          890.0          700.3         565.5
    --------------------------------------------------------------------------------------------------------------------------
    Cost of revenues (a)                                         188.4          136.5          116.3           98.7          80.0
    Selling and customer operations (4)                          544.0          415.2          297.2             --            --
    General, administrative, and other expenses (4)              139.0          122.0           96.9          322.5         238.6
    Depreciation and amortization expenses                       189.2          185.7          164.7          124.1          93.7
    --------------------------------------------------------------------------------------------------------------------------
    Total operating expenses                                   1,060.6          859.4          675.1          545.3         412.3
    --------------------------------------------------------------------------------------------------------------------------
    Operating income                                          $  416.0       $  293.3       $  214.9       $  155.0       $ 153.2
    ==========================================================================================================================
    Operating cash flow (2)                                   $  605.2       $  479.0       $  379.6       $  279.1       $ 246.9
    Operating cash flow margin (b)                               41.0%          41.6%          42.7%          39.9%         43.7%
    Capital expenditures, excluding acquisitions              $  475.0       $  296.7       $  198.4       $  199.8       $ 159.6
</TABLE>

See footnotes.

                                       3
<PAGE>   4
<TABLE>
<CAPTION>
    DOMESTIC CELLULAR                                                               December 31
    OPERATING DATA (In thousands)                                1995      1994        1993      1992      1991
    ------------------------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>         <C>       <C>       <C>
    Total POPs (3)                                              37,739    35,390      34,889    34,121    32,560
    Subscribers                                                  2,262     1,560       1,046       744       558
    Subscriber net adds in period, excluding
       acquisitions                                                591       514         286       186       140

<CAPTION>
    INTERNATIONAL CELLULAR                                                For the Year Ended December 31
    OPERATING RESULTS (Dollars in millions)                      1995      1994        1993      1992      1991
    ------------------------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>        <C>        <C>        <C>
    Existing operations (5):
       Net operating revenues                                 $  841.0   $ 352.8     $  88.3        __        __
       Operating income (loss)                                $   62.7   $  10.0     $ (17.3)       __        __
       Operating cash flow (2)                                $  203.7   $  87.4     $   6.5        __        __
       Income (loss)                                          $   (0.5)  $ (13.2)    $ (18.9)       __        __
    Start-up systems (6):
       Income (loss)                                          $  (51.6)  $ (26.1)    $ (20.9)       __        __
    Total income (loss)                                       $  (52.1)  $ (39.3)    $ (39.8)       __        __

<CAPTION>
    INTERNATIONAL CELLULAR                                                          December 31
    OPERATING DATA (In thousands)                               1995       1994        1993      1992      1991
    ------------------------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>          <C>       <C>       <C>
    Total POPs (3)                                             112,869    64,118      40,401    35,347    24,991
    Subscribers                                                    797       388         160        35        __
    Subscriber net adds in period, excluding
       acquisitions                                                383       199         123        35        __

<CAPTION>
    DOMESTIC PAGING OPERATIONS (7)
    OPERATING RESULTS                                                     For the Year Ended December 31
    (Dollars in millions)                                      --------------------------------------------------
                                                                  1995     1994        1993      1992      1991
    ------------------------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>         <C>       <C>       <C>
    Service and other revenues                                $  219.4   $ 183.5     $ 145.7   $ 113.5   $  92.6
    Equipment sales                                               45.5      43.4        35.2      22.2       9.7
    Cost of equipment sales                                      (39.5)    (38.0)      (31.9)    (19.2)     (7.4)
    ---------------------------------------------------------------------------------------------------------
    Net operating revenues                                       225.4     188.9       149.0     116.5      94.9
    ---------------------------------------------------------------------------------------------------------
    Total operating expenses before depreciation and         
       amortization                                              150.8     122.5        98.7      74.0      56.2
    Depreciation and amortization expenses                        42.8      36.8        30.6      26.3      23.4
    ---------------------------------------------------------------------------------------------------------
    Operating income                                          $   31.8   $  29.6     $  19.7   $  16.2   $  15.3
    =========================================================================================================
    Operating cash flow (2)                                   $   74.6   $  66.4     $  50.3   $  42.5   $  38.7
    Operating cash flow margin                                   33.1%     35.2%       33.8%     36.5%     40.8%
    Capital expenditures, excluding acquisitions              $   72.0   $  61.3     $  53.4   $  42.9   $  34.8

<CAPTION>
                                                                                    December 31
                                                              --------------------------------------------------
    OPERATING DATA (In thousands)                                1995      1994        1993      1992      1991
    ------------------------------------------------------------------------------------------------------------
<S>                                                            <C>         <C>         <C>       <C>        <C>
    Units in service                                             2,338     1,525       1,167       821       601
    Units in service net adds in period, excluding
       acquisitions                                                463       358         324       220       127
================================================================================================================
</TABLE>

See footnotes.

                                       4

<PAGE>   5
Footnotes:

(a)  Presentation for 1994 has been restated to conform to current year
     presentation.  See Note A, "Summary of Significant Accounting Policies -
     Basis of Presentation," to the Consolidated Financial Statements.

(b)  If net losses on equipment sales were reclassified as operating expenses,
     operating cash flow margins would be 39.7%, 41.3%, 42.6%, 39.9%, and 43.7%
     for the years 1995, 1994, 1993, 1992, and 1991, respectively.

(1)  Reflects proportionate results, total subscribers of all cellular systems,
     and total units in service of all paging systems in which the Company owns
     an interest, multiplied by the Company's ownership interest, exclusive of
     cost-based investments and certain equity-based investments that are not
     material to the Consolidated Financial Statements taken as a whole.

(2)  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.

(3)  POPs are the estimated market population multiplied by the Company's
     ownership interest in a licensee operating in that market and includes
     markets in which the networks are under construction and the markets of
     certain cost-based investments not included in proportionate operating
     results. In 1995, total Company cellular POPs included 14,300 personal
     communications services ("PCS") POPs; international cellular POPs (and
     therefore total Company cellular POPs) included 36,943 POPs for recently
     formed ventures in India and 7,469 POPs for Poland where the Company's
     consortium was awarded a national cellular license in February 1996.

(4)  For periods prior to 1993, selling and customer operations expenses were
     reported on a combined basis with general, administrative, and other
     expenses.

(5)  Represents the Company's share of operating results (after foreign taxes
     where applicable) for international cellular systems which have completed
     12 months of commercial service, as follows:

                   1995: Germany, Portugal, Sweden, Belgium, and Japan
                   1994: Germany, Portugal, Sweden, and Belgium (6 months)
                   1993: Germany (6 months), Portugal (3 months), and Sweden
                         (3 months)

(6)  Represents the Company's share of income or loss (after foreign taxes where
     applicable) for international cellular systems which have not yet completed
     12 months of commercial service, as follows:

                   1995: Italy, South Korea, Spain, and India (4 months)
                   1994: Japan, Italy (3 months), and South Korea (3 months)
                   1993: Japan, Germany (6 months), and Portugal (9 months)

(7)  Domestic paging is wholly owned by the Company; therefore, proportionate
     information reflects 100% of the subsidiary's GAAP-basis operating results.


                                       5
<PAGE>   6
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

GENERAL

The following discussion 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 consolidated subsidiaries and partnerships (the "Company" or
"AirTouch"). This discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes.

Private Securities Litigation Reform Act Safe Harbor Statement. In addition to
historical information, this Annual Report includes certain forward-looking
statements regarding events and financial trends which may affect the Company's
future operating results and financial position. Such statements represent the
Company's reasonable judgment on the future and 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 Company's markets which adversely affects
the level of demand for wireless services; greater-than-anticipated competition
resulting in price reductions, new product offerings, or higher customer
acquisition costs; better-than-expected customer growth necessitating increased
investment in network capacity; increased cellular fraud; the impact of new
business opportunities requiring significant initial investments; and the impact
of deployment of new technologies on capital spending. These and other risks and
uncertainties related to the business are described in detail in Item 1,
"Business," of the Company's 1995 Form 10-K under "Investment Considerations."
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.

Under generally accepted accounting principles ("GAAP"), the Company reports
revenues and expenses in its Consolidated Statements of Income for each
subsidiary and partnership in which it has a controlling interest. The Company
uses the equity method to account for the operating results of entities in which
the Company has significant influence, but does not have a controlling interest.
See Note A, "Summary of Significant Accounting Policies," to the Consolidated
Financial Statements.

A discussion of the Company's results of operations on a proportionate basis
follows the discussion of the GAAP-basis consolidated operating results in
"Proportionate Results of Operations." Proportionate accounting is not required
by GAAP or intended to replace the Consolidated Financial Statements prepared in
accordance with GAAP.

BUSINESS ENVIRONMENT

GOVERNMENT REGULATION
The Company's domestic and international operations are subject to varying
degrees of regulation. Changes in domestic or international regulation of the
telecommunications industry could have a significant effect on the Company's
future financial position or results of operations. The following discussion
highlights significant regulatory developments related to the Company's
operations. For an extensive discussion of regulation, see Item 1, "Business,"
in the Company's 1995 Form 10-K.

Telecommunications Act of 1996. On February 8, 1996, President Clinton signed
the Telecommunications Act of 1996 (the "Act") into law. The new law
fundamentally changes the domestic rules and regulations under which all
providers of telecommunications services operate. In connection with the
implementation of the Act, the Federal Communications Commission ("FCC") is
expected to conduct more than 80 rule making proceedings during 1996.

                                       6
<PAGE>   7
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

The Act affects the Company in a number of ways, including the following. First,
the Act eliminates the restrictions set forth in the Modification of Final
Judgment ("MFJ") on the operations of Bell Operating Companies ("BOC") and
replaces them with specific statutory requirements. The Act settles a claim made
by the U.S. Department of Justice during 1995 that AirTouch remained subject to
the MFJ because the new statutory definition of a BOC excludes entities such as
AirTouch. In addition, the Company is not currently subject to the new statutory
restrictions placed on BOCs by the Act.

Under the Act, however, WMC Partners, L.P. ("WMC"), which is jointly owned by
the Company and U S WEST Inc. ("U S WEST"), is deemed an affiliate of a BOC by
virtue of U S WEST's ownership interest and is therefore subject to certain
provisions and restrictions set forth in the Act. The legislation permits
commercial mobile radio services ("CMRS") affiliates of BOCs, such as WMC, to
offer long distance service immediately upon enactment and exempts CMRS
operators from equal access requirements otherwise imposed on local telephone
companies, allowing the Company and WMC to sell long distance services without
having to advertise for their competitors. As a result, the legislation removes
a major obstacle to consummating the second phase of the WMC joint venture
between the Company and U S WEST, specifically, the combination of their
domestic cellular and personal communications services ("PCS") properties.
However, as a BOC affiliate, WMC is subject to certain restrictions regarding
the provisions of long distance services other than in connection with CMRS. See
"Start-up Operations and Joint Ventures - U S WEST Joint Venture."

The Act also modifies requirements for local telephone companies to provide
interconnection services to wireless carriers, which could impact the cost to
the Company of such service. The Company is unable to quantify the impact on its
operations of the changes resulting from the Act.

CELLULAR FRAUD
The incidence and cost of cellular "cloning" and "roaming" fraud continue to be
of concern to the Company, as well as to the cellular industry in general.
Cloning fraud refers to the use of scanners and other electronic devices to
illegally obtain telephone numbers and electronic serial numbers during cellular
transmissions. These stolen telephone and serial number combinations can be
programmed into a cellular phone and used to obtain fraudulent access to
cellular networks. Roaming fraud occurs when a cellular phone programmed with a
telephone number stolen from one of the Company's customers is used to place
calls from another carrier's market, resulting in a roaming fee charged to the
Company that cannot be collected from a customer. The Company monitors
fraudulent usage of its networks and excludes related billings from cellular
service revenues and receivables. As compared to 1994, the Company experienced
substantial increases in costs related to cellular fraud. Unbillable roaming
fees increased from $11.5 million during 1994 to $28.3 million during 1995. The
cost of cellular fraud could have a significant impact on the Company's
operating results for the foreseeable future.

The Company continues to invest in new technologies and deploys other measures
to detect, quantify and prevent cellular fraud. For example, using sophisticated
equipment and other preventative measures during 1995, the Company achieved
significant success in detecting and reducing fraudulent usage in its managed
markets of telephone numbers stolen from the Company; however, the Company
continues to experience significant increases in the incidence of roaming fraud.

Fraud has not been a significant issue in the Company's international markets.

START-UP OPERATIONS AND JOINT VENTURES
Start-up Operations. In connection with the network build-out of 11 broadband
PCS licenses and certain new international licenses, the Company will incur
significant start-up expenses during 1996 and 1997 that are expected to have a
dilutive effect on the Company's future earnings. The 11 broadband PCS licenses
were acquired in March of 1995 by PCS PrimeCo, L.P. ("PCS


                                       7
<PAGE>   8
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

PrimeCo"), in which the Company has an indirect 25% interest. The dilutive
effect of PCS PrimeCo on the Company's earnings, which could be material, is
expected to increase upon contribution by U S WEST and the Company of their
respective indirect interests in PCS PrimeCo to their joint venture, WMC. See "U
S WEST Joint Venture" and "Liquidity and Capital Resources." The PCS licenses
acquired by PCS PrimeCo include market coverage of Chicago, Dallas, Tampa,
Houston, Miami, New Orleans, Milwaukee, Richmond, San Antonio, Jacksonville, and
Honolulu.  PCS PrimeCo's networks are expected to be operational by the fourth
quarter of 1996.

International start-up ventures expected to dilute future earnings include
Poland, Spain, Italy, South Korea, and India.  The Company estimates that
international start-up losses during 1996 will be approximately $100 million.
See "Liquidity and Capital Resources."

U S WEST Joint Venture. As discussed in Note E, "Investments in Unconsolidated
Wireless Systems - WMC Partners," to the Consolidated Financial Statements, the
Company and U S WEST plan to combine their domestic cellular properties into a
partnership known as WMC. Under the venture's first phase, which commenced on
November 1, 1995, WMC began providing certain support services to both
companies' domestic cellular operations.  During the first phase of the
transaction, the cellular properties of each party will continue to be owned
separately by each individual partner.  In the second phase, the partners will
contribute their respective domestic cellular properties to WMC, subject to the
receipt of any required consents and authorizations.  This contribution will
occur following the lifting of certain restrictions imposed by the MFJ, but in
no event later than July 25, 1998.  The Act provided sufficient relief from the
MFJ for the second phase of the transaction to occur, and the parties are
seeking to obtain the necessary regulatory and other approvals and to satisfy
other required conditions.  Upon commencement of the second phase, the Company
will deconsolidate for financial reporting purposes its domestic cellular
operations contributed to WMC, using instead the equity method of accounting to
report its interests in subsequent operating results.  Accordingly, subsequent
to the second phase, the Company's consolidated operating revenues and expenses
will consist primarily of the results of NordicTel Holdings A.B. ("NordicTel"),
domestic paging, and any consolidated domestic cellular operations which are not
contributed to WMC during the second phase.  The Company could experience
near-term earnings dilution in connection with the contribution of its cellular
properties to WMC.  The extent of such dilution, which could be material, will
depend upon the relative profitability of the Company's and U S WEST's
respective operations subsequent to the contribution of such operations.

Concurrent with the formation of WMC, the parties formed an equally owned
partnership ("PCS Partnership") to pursue new PCS opportunities, which in turn
acquired a 50% interest in PCS PrimeCo. The PCS Partnership will also be
contributed to WMC. The timing of such contribution is at U S WEST's discretion
and will occur either at the closing of the second phase or a date selected by U
S WEST, but no later than mid-1998. The Company anticipates that the PCS
Partnership will be required to make significant capital contributions for the
build-out of PCS markets and that it will experience substantial operating
losses associated with the start-up phase of the PCS business, which is expected
to last several years. Upon contribution of the PCS Partnership to WMC, the
Company's relative share of PCS capital investments and operating losses related
to the PCS Partnership will increase from 50% to its percentage ownership of
WMC. See Item 1, "Business-Domestic Cellular-Joint Ventures-WMC Partners," in
the Company's 1995 Form 10-K.

The Company cannot precisely assess the future impact of its joint venture with
U S WEST on the Company's results of operations due to the uncertain timing of
the second phase of the transaction and the uncertain timing of the contribution
of the PCS Partnership to WMC. The Company anticipates that the second phase
will occur in the fourth quarter of 1996 or in early 1997.

                                       8
<PAGE>   9
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS


FOREIGN CURRENCY AND INTEREST RATE RISKS
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. Every hedge has an
identifiable underlying exposure such that a potential gain or loss on a hedging
position is offset by a corresponding loss or gain on an underlying exposure.

The Company invests in ventures in Germany, Sweden, Portugal, Spain, France,
Japan, South Korea, Belgium, Italy, Poland, India, and Thailand. Such
investments primarily take the form of equity interests in foreign joint
ventures 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 long-dated
forward contracts and foreign currency denominated loans. Generally, the
currencies in which the Company has foreign exchange forward contracts have
numerous market makers to provide ample depth for hedging activities. 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
D, "Financial Instruments," to the Consolidated Financial Statements. At
December 31, 1995, the Company did not have in place any hedges of firm
commitments.

Virtually all of the Company's hedges qualify as hedges under accounting rules.
Non-qualifying hedges consist either of a cost method investment that does not
qualify for hedge accounting or mismatches between the hedge instruments and the
hedged investments due to equity losses of the joint ventures during start-up.
All gains and losses pertaining to hedges that do not qualify for hedge
accounting are included in net income.

The Company enters into interest rate swap agreements to manage its exposure to
fluctuations in interest rates and to minimize the Company's cost of funds.
Existing swap agreements are primarily used to effectively convert existing
variable rate debt to a fixed rate and to reduce the interest rate risk of
anticipated borrowings.

CONTINGENCIES
The Company is party to various legal proceedings, including certain antitrust
litigation. See Note M, "Commitments and Contingencies," to the Consolidated
Financial Statements. For an extensive discussion of legal matters, see Item 3,
"Legal Proceedings," in the Company's 1995 Form 10-K.

RESULTS OF OPERATIONS

The following discussions compare the results of operations for the year ended
December 31, 1995 to the year ended December 31, 1994 and the year ended
December 31, 1994 to the year ended December 31, 1993. The operating results for
each of the years ended December 31, 1995, 1994 and 1993 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 Notes for each period discussed, as well as the information
presented in the other sections of management's discussion and analysis.

DOMESTIC AND INTERNATIONAL OPERATIONS
Consolidated operating revenues and expenses principally include domestic
cellular operations in the Company's six consolidated markets, domestic paging
operations, and the international operations of the Company's Swedish cellular
subsidiary, NordicTel. The Company's six domestic consolidated markets are Los
Angeles, Sacramento, Atlanta, San Diego, Wichita, and Topeka.

                                       9
<PAGE>   10
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS


OPERATING REVENUES AND EXPENSES
Operating revenues include cellular and paging service revenues and equipment
sales. Cellular service revenues primarily consist of air time, access fees, and
in-bound roaming charges. 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 and pagers.
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 usually at or below cost, in order to market its
cellular and paging services.

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 interconnection fees charged by wireline telephone companies for cellular and
paging operations, costs of roaming fraud, and other network-related expenses.
Interconnection costs have fixed and variable components. The variable component
of interconnection costs, which fluctuates in relation to the level of cellular
calls, consists of per-minute fees charged by wireline phone companies for
cellular calls originating and 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 consist of depreciation expense on the Company's cellular
and paging networks, as well as amortization of intangibles such as FCC license
costs and goodwill.


                                       10
<PAGE>   11
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                  For the Year Ended December 31                     Change
                                                      ---------------------------------------------------      -----------------
(Dollars in millions)                                    1995         %(a)            1994          %(a)       Amount        %
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>             <C>            <C>          <C>         <C>
Wireless services and other revenues:                                                                    
  Cellular service (b)                                $1,221.2        75.4          $  896.4         71.9       $  324.8      36.2
  Paging service                                         219.8        13.6             188.0         15.1           31.8      16.9
  Other revenues                                          69.3         4.3              66.1          5.3            3.2       4.8
                                                      --------       -----          --------        -----         ------    
                                                       1,510.3        93.3           1,150.5         92.3          359.8      31.3

Cellular and paging
  equipment sales                                        108.3         6.7              96.4          7.7           11.9      12.3
                                                      --------       -----          --------        -----         ------
Operating revenues                                     1,618.6       100.0           1,246.9        100.0          371.7      29.8 
                                                      --------       -----          --------        -----         ------

Operating expenses:
  Cost of revenues (b)                                   231.9        14.3             167.4         13.4           64.5      38.5
  Cost of cellular and paging equipment sales            141.0         8.7              99.2          8.0           41.8      42.1
  Selling and customer operations expenses               524.7        32.4             389.8         31.3          134.9      34.6
  General, administrative, and other expenses            392.4        24.2             312.6         25.1           79.8      25.5
  Depreciation and amortization expenses                 215.8        13.4             205.3         16.4           10.5       5.1
                                                      --------       -----          --------        -----         ------
Total operating expenses                               1,505.8        93.0           1,174.3         94.2          331.5      28.2
                                                      --------       -----          --------        -----         ------
Operating income                                         112.8         7.0              72.6          5.8           40.2      55.4
Equity in net income (loss) of unconsolidated
  wireless systems:
   Domestic                                              188.2                         125.4                        62.8      50.1
   International                                         (35.9)                        (14.7)                      (21.2)    144.2
Minority interests in net (income) loss of
  consolidated wireless systems                          (36.5)                        (16.3)                      (20.2)    123.9
Interest:                                                          
  Income                                                  34.9                          54.7                       (19.8)    (36.2)
  Expense                                                (13.0)                        (10.3)                       (2.7)     26.2
Foreign exchange gain (loss)                               3.3                          (3.5)                        6.8    (194.3)
Miscellaneous expense                                     (8.8)                         (1.5)                       (7.3)    486.7
                                                      --------                      --------                      ------
Income before income taxes                               245.0                         206.4                        38.6      18.7
Income taxes                                             113.1                         108.3                         4.8       4.4
                                                      --------                      --------                      ------
Net income                                            $  131.9                     $    98.1                      $ 33.8      34.5
                                                      ========                     =========                      ======
================================================================================================================================
</TABLE>

(a)  Percentage of operating revenues.
(b)  Presentation for 1994 has been restated to conform to the current year
     presentation. See Note A, "Summary of Significant Accounting Policies -
     Basis of Presentation," to the Consolidated Financial Statements.

INTERNATIONAL OPERATIONS
Consolidated international results during 1995 comprised 9.4% and 13.6% of
operating revenues and operating expenses, respectively, as compared to 6.6% and
10.9% of operating revenues and operating expenses, respectively, during 1994.

CELLULAR SERVICE REVENUES
Increases in domestic cellular revenues resulted primarily from a 35.8% increase
in the number of cellular customers, partially offset by a 9.3% decline in
average revenue per customer. Customer growth was achieved through advertising,
customer incentive programs, and continued increases in the number of
distribution points. Customer incentive programs included offers of free or
low-cost handsets, waived service or access fees, and fixed monthly fees for
off-peak usage and roaming. Significant customer growth during late 1994 also
contributed to the degree of increased revenues during 1995. The decline in
average revenue per customer resulted from continued success in penetrating the
consumer market segments. The consumer market continues to be the fastest
growing segment of the Company's customer base. Consumer customers typically use
their cellular telephones less than business customers and often place many of
their calls during off-peak, lower-rate periods, resulting in lower average
revenue per customer. However, the increase in off-peak usage results in revenue
growth from higher utilization of the Company's


                                       11
<PAGE>   12
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

networks without additional capital investment to expand capacity. Competitive
pricing pressures and such customer incentive programs as waived charges and
fixed-fee usage contributed to further decline in average revenue per customer.
The Company expects the shift toward consumer markets to follow industry trend
and continue to result in declining average revenue per customer.

PAGING SERVICE REVENUES
Excluding revenues of $1.4 million from Message Center Beepers, Inc., acquired
in mid-December of 1995, consolidated paging service revenues increased 16.2%.
This increase reflected a 30.4% increase in domestic paging units in service,
partially offset by a 9.3% decrease in domestic average revenue per paging unit.
Growth in domestic paging units in service resulted from increased penetration
in existing and new geographic markets through successful direct, retail, and
reseller pager sales programs. The continuing decline in average revenue per
paging unit is attributable to continued competitive pricing pressures,
a continuing shift from leased pagers to customer-owned pagers, and a
substantial shift in customer growth from higher-revenue direct and retail
channels to lower-revenue reseller distribution channels. The addition of Circle
K Stores to the Company's retail distribution points during the fourth quarter
of 1995 is expected to have a positive effect on average revenue per paging unit
during 1996. However, the Company anticipates that overall average revenue per
paging unit will follow industry trend and continue to decline as new units are
added. Paging's start-up operations in Cincinnati, Cleveland, Columbus, Chicago,
El Paso, Indianapolis, Washington D.C./Baltimore, and Denver did not have a
significant impact on revenues during 1995.

CELLULAR AND PAGING EQUIPMENT SALES AND COST OF SALES
Despite significant increases in the volume of equipment sold, domestic sales
decreased approximately $0.5 million during 1995, as compared to 1994, due to
competitive pressures which required the Company to offer customers heavily
discounted or free cellular equipment. In that regard, on April 5, 1995, the
California Public Utilities Commission removed its prohibition on the bundling
of cellular equipment with carrier service. Previously, cellular service
providers in California were prohibited from requiring customers to activate
service to receive discounts on cellular equipment. This change in state
regulation contributed significantly to increases in domestic marketing of
discounted and free cellular equipment. Negative margins on consolidated
equipment sales increased from 2.9% during 1994 to 30.2% during 1995. The
Company expects cellular equipment sales to continue to generate negative
margins for the foreseeable future. However, the Company believes that reduced
prices for cellular equipment contributed significantly to customer growth
during 1995, particularly in the consumer markets.

The effect of discounted and free cellular equipment in the Company's domestic
markets was partially offset by a $12.4 million increase in international
equipment sales. Increases in international equipment sales were primarily
attributable to an $11.4 million increase in NordicTel's cellular equipment
sales.

COST OF REVENUES
The 38.5% increase in consolidated costs of revenues is consistent with
increases in wireless services and other revenues and primarily reflects
increases in variable cellular interconnection costs. As a percentage of
wireless services and other revenues, cost of revenues increased from 14.6%
during 1994 to 15.4% during 1995, due primarily to incremental fixed costs
associated with expansion of facilities and networks required to support
customer growth and significant increases in fraudulent roaming and
interconnection charges.

The Company is currently in the process of deploying its Code Division Multiple
Access ("CDMA") network in Los Angeles. The Company also plans to deploy digital
technology in certain of its other domestic markets. Digital networks offer much
greater call capacity than analog networks and cost less to maintain.
Accordingly, the Company anticipates that its digital cellular networks will
contribute to lower costs as a percentage of revenues subsequent to their
deployment.


                                       12
<PAGE>   13
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

SELLING AND CUSTOMER OPERATIONS EXPENSES
Increased expenses were due primarily to the addition of customer operations
personnel necessary to support customer growth, increased marketing expenses for
advertising and other promotional programs, higher compensation to sales
channels associated with customer growth, and increased costs associated with
detecting and preventing fraud.

The small increase in selling and customer operations expense as a percentage of
operating revenues was primarily attributable to expansion of domestic and
international customer operations functions necessary to support cellular and
paging customer growth. As a percentage of operating revenues, selling expenses
remained relatively stable despite significant additions of consumer customers
which typically generate lower revenues per customer. Stable selling expenses
were due in part to increased sales through lower-cost direct sales channels
(Company sales staff and Company-owned retail stores) and the use of competitive
customer incentive programs such as discounted or free cellular equipment,
reduced or waived access fees, and flat-rate fees for off-peak usage and
roaming. Customer incentive programs contribute to reduced revenues per customer
and increased negative equipment margins, as opposed to increased selling
expenses. The Company's average acquisition cost per gross customer added to its
domestic cellular networks increased by only 3.6% during 1995 reflecting 
slightly higher sales and marketing costs. However, including the effect of 
negative equipment margins, the same average acquisition cost per gross 
customer increased by 14.2%.

In an effort to enhance productivity and improve customer service effectiveness,
the Company plans to complete deployment of its new customer support system in
each of the Company's domestic managed markets by early 1997. The new system is
expected to reduce customer operations expense on a per customer basis once it
becomes fully operational and further economies of scale are achieved. In
addition to the new system, the Company plans to reduce selling costs per
customer by continuing to add direct distribution points.

GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES
The increase in general, administrative, and other expenses during 1995 was
primarily attributable to moderate expansion of domestic and international
administrative functions necessary to support customer growth, bad debt expense
associated with increases in revenues, and a one-time charge for the impairment
of AirTouch Teletrac's ("Teletrac") assets during the third quarter of 1995.

Excluding the one-time charge of approximately $25.0 million for the impairment
of Teletrac's assets, general, administrative, and other expenses as a
percentage of operating revenues decreased from 25.1% during 1994 to 22.7%
during 1995 reflecting economies of scale associated with customer growth.
General, administrative, and other expenses are expected to continue to decline
as a percentage of operating revenues due to further economies of scale derived
from customer growth.

DEPRECIATION AND AMORTIZATION
Increases in depreciation and amortization expenses resulted primarily from
increased capital investments in property, plant, and equipment and intangible
assets, partially offset by reduced depreciation for domestic cellular
operations. Domestic cellular depreciation and amortization decreased due to
changes in the estimated useful lives of certain analog cellular assets from
seven to ten years beginning January 1, 1995. This change in estimated useful
lives reduced depreciation expense for the year by approximately $29.3 million.

The Company expects to incur significant capital expenditures in connection with
the deployment of its CDMA digital cellular sites in Los Angeles. The Company
may also be required to expand analog capacity in Los Angeles to accommodate
customer growth prior to the deployment of CDMA. In addition to capital
expenditures related to such deployment in the Los Angeles market, the


                                       13
<PAGE>   14
\                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

Company plans to incur significant capital expenditures for the construction and
deployment of other digital cellular networks. Accordingly, depreciation and
amortization expenses are expected to increase as these networks become
operational. However, depreciation and amortization is expected to continue to
decline as a percentage of operating revenues because of the addition of
customers to new and existing networks.

EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED WIRELESS SYSTEMS
Domestic. Equity earnings increased primarily as a result of growth in each of
the customer bases of New Par and CMT Partners and increases in the estimated
useful lives of certain cellular assets, partially offset by declines in average
revenue per customer. A portion of the increase also was attributable to the
incremental increase of the Company's interest in Cellular Communications, Inc.
("CCI"), its 50% partner in New Par.

International. The increase in equity losses during 1995 reflected losses
associated with the first full year of operations for the Company's investments
in Japan and start-up losses in Italy and Spain, offset by substantial increases
in profitable operations of Mannesmann Mobilfunk GmbH ("MMO") (Germany) and, to
a lesser extent, improved operating results of Belgacom Mobile (Belgium) and
Telecel (Portugal). The Company acquired its interest in Belgacom Mobile during
1994. The increases in losses of Japan and the start-ups resulted from costs
associated with network build-out and rapid customer growth. The Company's
earnings from MMO increased due to significant customer growth, a 2.13% increase
in the Company's interest acquired in October 1995, and the extension of
depreciable lives for certain cellular assets from seven to ten years, effective
January 1, 1995.

International equity losses were partially offset by tax benefits of $39.8
million and $27.3 million in 1995 and 1994, respectively. The majority of these
tax benefits are attributable to the Company's share of the net operating loss
carryforwards ("NOLs") of its three cellular networks in Japan. These tax
benefits are recorded in "Equity in net income (loss) of unconsolidated wireless
systems: International" on the Consolidated Statements of Income. The tax
benefits were recorded as an asset that represents future benefits the
joint ventures will receive by deducting the NOLs from future taxable income. At
December 31, 1995, the Company's proportionate share of deferred tax assets of
its international equity subsidiaries was approximately $108.5 million, which
was offset by a valuation allowance of $36.9 million. While the Company believes
that it is more likely than not that the deferred tax assets will be fully
realized, there can be no assurance that this will happen as certain factors
beyond the control of the joint ventures and the Company, such as deteriorating
local economic conditions and increasing competition, can affect future timing
and amounts of taxable income.

MINORITY INTERESTS IN NET (INCOME) LOSS OF CONSOLIDATED WIRELESS SYSTEMS
The increase for 1995 resulted from increased earnings of the Company's Los
Angeles and Sacramento cellular operations.

INTEREST INCOME AND EXPENSE
Interest income was primarily derived from the earnings on investments in
held-to-maturity and available-for-sale securities and other short-term
instruments. The decrease in interest income during 1995 resulted from a
significant reduction in cash balances available for investment due to the use
of the 1993 initial public offering ("IPO") proceeds and other cash balances for
acquisitions and capital expenditures. See "Liquidity and Capital Resources."

The consolidated increase in interest expense of $2.7 million resulted from
significant borrowings during the fourth quarter of 1995, partially offset by
capitalization of interest associated with the construction of certain cellular
networks.  See "Liquidity and Capital Resources."


                                       14
<PAGE>   15
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS


INCOME TAXES
The Company's effective income tax rates for 1995 and 1994 were 46.2% and 52.5%,
respectively. The effective tax rate decreased during 1995 due primarily to
foreign income tax benefits recognized for NordicTel and the write-down of
Teletrac's assets, partially offset by the effect of equity losses of
unconsolidated wireless systems. See Note N, "Teletrac," to the Consolidated
Financial Statements for information regarding Teletrac, and see Note J, "Income
Taxes," to the Consolidated Financial Statements for a detailed reconciliation
of the statutory rates to effective tax rates.

During 1995, the Company recognized a $13.3 million deferred tax benefit related
to losses of one of its foreign consolidated subsidiaries. At December 31, 1995,
the Company had consolidated deferred tax assets of $98.7 million and deferred
tax liabilities of $297.1 million. A valuation allowance of $25.5 million was
provided for consolidated deferred tax assets. 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 remaining deferred tax assets.



                                       15
<PAGE>   16
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                    For the Year Ended December 31                      Change
                                                            -----------------------------------------------       ------------------
(Dollars in millions)                                         1994         %(b)        1993 (a)      %(b)       Amount         %
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>         <C>          <C>         <C>          <C>
Wireless services and other revenues:                                                                          
  Cellular service (c)                                      $  896.4        71.9        $661.7       71.2       $234.7       35.5
  Paging service                                               188.0        15.1         148.7       16.0         39.3       26.4
  Other revenues                                                66.1         5.3          50.9        5.5         15.2       29.9
                                                            --------       -----        ------      -----       ------
                                                             1,150.5        92.3         861.3       92.7        289.2       33.6
Cellular and paging                                                                                            
 equipment sales                                                96.4         7.7          68.2        7.3         28.2       41.3
                                                             -------       -----        ------      -----       ------
Operating revenues                                           1,246.9       100.0         929.5      100.0        317.4       34.1
                                                             -------       -----        ------      -----       ------

Operating expenses:
  Cost of revenues (c)                                         167.4        13.4         127.7       13.7         39.7       31.1
  Cost of cellular and paging equipment sales                   99.2         8.0          67.5        7.3         31.7       47.0
  Selling and customer operations expenses                     389.8        31.3         263.1       28.3        126.7       48.2
  General, administrative, and other expenses                  312.6        25.1         235.9       25.4         76.7       32.5
  Depreciation and amortization expenses                       205.3        16.4         159.5       17.1         45.8       28.7
                                                            --------       -----        ------      -----       ------
Total operating expenses                                     1,174.3        94.2         853.7       91.8        320.6       37.6
                                                            --------       -----        ------      -----        ------
Operating income                                                72.6         5.8          75.8        8.2         (3.2)      (4.2)
Equity in net income (loss) of unconsolidated                                                                     
  wireless systems:
    Domestic                                                   125.4                     101.7                    23.8       23.4
    International                                              (14.7)                    (37.5)                   22.7      (60.7)
Minority interests in net (income) loss of
   consolidated wireless systems                               (16.3)                    (25.5)                    9.2      (36.1)
Interest:
  Income                                                        54.7                      11.4                    43.3      379.8
  Expense                                                      (10.3)                    (21.3)                   11.0      (51.6)
Foreign exchange loss                                           (3.5)                     (3.4)                   (0.1)       2.9
Miscellaneous income (expense)                                  (1.5)                      6.7                    (8.2)    (122.4)
                                                            --------                    ------                  ------
Income before income taxes and cumulative                    
  effect of accounting change                                  206.4                     107.9                    98.5       91.3
Income taxes                                                   108.3                      67.8                    40.5       59.7
                                                            --------                    -----                   ------
Income before cumulative effect of accounting
  change                                                        98.1                      40.1                    58.0      144.6
Cumulative effect of accounting change for other
  postretirement benefits, net of income tax                                                                     
  benefit of $3.5                                                 --                      (5.6)                    5.6     (100.0)
                                                            --------                    ------                  ------
Net income                                                  $   98.1                    $ 34.5                  $ 63.6      184.3
                                                            ========                    ======                  ======
==================================================================================================================================
</TABLE>

(a)  Adjusted to give effect to the adoption of the equity method of accounting
     for CMT Partners; see "CMT Partners and NordicTel."
(b)  Percentage of operating revenues.
(c)  Presentation for 1994 has been restated to conform to the current year
     presentation.  See Note A, "Summary of Significant Accounting Policies -
     Basis of Presentation," to the Consolidated Financial Statements.

CMT PARTNERS AND NORDICTEL
While net income is comparable, consolidated cellular service revenues and
operating expenses for 1994 are not comparable to 1993. Prior to the formation
of CMT Partners, the Company's partnership with AT&T Wireless (formerly McCaw
Cellular Communications, Inc.), on September 1, 1993, the San Francisco/San Jose
cellular system was consolidated. Once formed, the Company used the equity
method of accounting to report CMT Partners' results. Hereafter, the discussions
are based on 1993 amounts as adjusted to give retroactive effect to the adoption
of equity accounting for CMT Partners.



                                       16
                                                                       
<PAGE>   17
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

Additionally, the comparability of operating revenues and operating expenses was
affected by NordicTel which was acquired in October 1993. In 1993, operations
for NordicTel were included in the Consolidated Financial Statements for three
months, while in 1994 operations were included for the entire year. NordicTel is
the most significant consolidated international subsidiary. The remaining
consolidated balances are primarily attributable to domestic cellular and paging
operations.

CELLULAR SERVICE REVENUES
The number of domestic customers grew by 49.3%, while the average revenue per
customer declined by 8.9% from 1993 to 1994. NordicTel comprised 3.2% of
cellular revenues in 1994.

The increase in cellular service revenues in 1994 was primarily due to continued
domestic customer growth in the Company's six consolidated markets. The growth
was achieved through advertising, increasing the number of distribution points,
new sales channels and the availability of low-cost handsets and service plans
designed to meet the needs of less frequent users.

The increase in cellular service revenues did not keep pace with customer growth
primarily because of declining average revenue per customer. The change in
customer mix from the business to consumer segments of the customer base was the
primary reason average revenue per customer declined during 1994.

PAGING SERVICE REVENUES
Increases in paging service revenues resulted primarily from a 30.7% increase in
the number of domestic paging units in service in 1994 as compared to the
previous year. The increases in domestic paging units in service reflect
increased penetration and expansion of existing geographic markets, primarily
through successful retail and reseller pager sales programs and an acquisition
of new paging operations in 1993.

The effect of growth in paging units in service on 1994 revenues was partially
offset by a decrease in the average revenue per paging unit. Declines in average
revenue per paging unit were primarily attributable to lower contract prices
resulting from competitive pressures and a decline in pager rental fees
associated with growth in customer-owned and maintained paging units.

CELLULAR AND PAGING EQUIPMENT SALES AND COST OF SALES
The increase in equipment sales in 1994 was attributable to the availability of
low-cost handsets. However, 1994 revenues from the increased number of handsets
sold were offset by a declining selling price resulting from the sale of
cellular telephones at or below cost in order to meet competition.

COST OF REVENUES
The increase in consolidated costs of revenues is consistent with overall
increases in wireless services and other revenues and primarily reflects
increases in variable cellular interconnection costs which increase in relation
to the level of cellular calls. Excluding cost of revenues not associated with
wireless services, cost of revenues as a percentage of wireless services and
other revenues declined from 14.2% during 1993 to 13.0% during 1994. The decline
reflects economies of scale associated with the fixed portion of network and
interconnection costs, as well as effective cost management and technical
efficiencies, partially offset by costs related to paging system capacity
expansion and the effects of acquiring NordicTel. NordicTel comprised 4.3% and
0.3% of cost of revenues for 1994 and 1993, respectively.

SELLING AND CUSTOMER OPERATIONS EXPENSES
NordicTel comprised 7.7% and 1.3% of selling and customer operations expenses
for 1994 and 1993, respectively. The 1994 increase reflected aggressive growth
strategies employed primarily during the second half of the year to attract new
domestic cellular customers. As a result, the Company experienced increases in
commissions paid for new cellular customers, and advertising


                                       17
<PAGE>   18
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

and other promotional expenses associated with new marketing efforts. However,
the acquisition cost per gross domestic cellular customer added to the Company's
networks declined by 10.9% from 1993 to 1994.

GENERAL, ADMINISTRATIVE, AND OTHER EXPENSES

NordicTel comprised 6.2% and 0.8% of general, administrative, and other expenses
for 1994 and 1993, respectively.

On April 1, 1994, the Company was spun off (the "spin-off") from Pacific Telesis
Group ("Telesis"). Approximately 5% of general, administrative, and other
expenses in 1994 related to additional expenses for certain corporate functions
previously provided by Telesis. Other increases from 1993 to 1994 were primarily
due to costs related to research and development, the costs associated with
developing and acquiring foreign licenses, an increase in bad debt expense due
to the larger customer base, expenses for NordicTel, and legal expenses for
defending several antitrust suits brought against the Company and other cellular
operators. The increases were partially offset by higher billing of shared joint
costs for developing and acquiring foreign licenses with international joint
ventures, and capitalized license costs. Additionally, cost containment efforts
at Teletrac included reducing staff by 30% to approximately 200 employees.

In 1993, the Company provided approximately $9.2 million ($5.0 million after
tax) in reserve for spin-off related expenses. The reserve was substantially
utilized during 1994. Costs incurred related to expenditures for changing the
Company's corporate identity, for physical assets, and for legal and other
expenses associated with the spin-off. Other increases were for start-up
expenses related to the development of wireless data services. This, combined
with the costs of supporting the Company's growth, including entry into new
business opportunities, caused the general, administrative, and other expenses
to increase as a percentage of operating revenues.

DEPRECIATION AND AMORTIZATION
NordicTel comprised 8.4% and 1.3% of depreciation and amortization for 1994 and
1993, respectively. As a percentage of operating revenues, the decline between
1994 and 1993 was primarily the result of economies of scale as more customers
were added to the existing network. The increase in the amount of depreciation
and amortization expense in both 1994 and 1993 mainly reflects increased capital
investment in the Company's domestic cellular and paging networks.

EQUITY IN NET INCOME (LOSS) OF UNCONSOLIDATED WIRELESS SYSTEMS
Domestic.  Domestic equity earnings increased in 1994 and 1993 primarily as a
result of the increased earnings of CMT Partners and New Par.

International. The improvement for international unconsolidated wireless systems
was primarily due to the reduction of equity losses in 1994 as compared to 1993.
The improvement was attributable to the profitability of MMO and reduced losses
in Portugal, partially offset by losses from Japanese operations, losses from
Belgium operations acquired during the year, and by the costs of start-up joint
ventures which acquired new licenses in Italy and South Korea.

The international equity losses were partially offset by tax benefits of $27.3
million and $20.7 million in 1994 and 1993, respectively.

MINORITY INTERESTS IN NET (INCOME) LOSS OF CONSOLIDATED WIRELESS SYSTEMS
The decrease for 1994 was primarily the result of operating losses incurred by
NordicTel.

INTEREST INCOME AND EXPENSE
Interest expense in 1994 was primarily due to debt incurred by NordicTel and
AirTouch International. The debt outstanding for NordicTel was $97.5 million and
$50.1 million at December 31, 1994 and 1993, respectively. See Note G, "Debt and
Credit Facilities - Long-term


                                       18
<PAGE>   19
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

Debt," to the Consolidated Financial Statements. In 1993, the Company used the
$1,179.8 million of equity contributions received from Telesis to substantially
eliminate its indebtedness to a Telesis subsidiary, PacTel Capital Resources.

In 1994, interest income was primarily attributable to the earnings on
investments of held-to-maturity and available-for-sale securities purchased with
the proceeds of the Company's IPO in December 1993.

INCOME TAXES
The Company's effective tax rates for 1994 and 1993 were 52.5% and 62.8%,
respectively.  The effective tax rates for such periods were primarily
affected by the international equity losses of unconsolidated wireless systems,
which are not deductible in determining the Company's taxable income.  See Note
J, "Income Taxes," to the Consolidated Financial Statements for a detailed
reconciliation of the effective tax rates to statutory rates.

PROPORTIONATE RESULTS OF OPERATIONS
The following table is not required by GAAP or 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. The following proportionate accounting tables
reflect the relative weight of the Company's ownership interests in its domestic
and international systems. Data from certain systems is excluded because the
data is not available on a timely basis and is not material to the Consolidated
Financial Statements taken as a whole.

                   SELECTED PROPORTIONATE OPERATING DATA (1)

TOTAL COMPANY

<TABLE>
<CAPTION>
                                                                           For the Year Ended December 31
                                                        -------------------------------------------------------------
OPERATING RESULTS                                        1995          1994         Change        1993         Change
                                                        -------       -------       ------       -------       ------
<S>                                                     <C>           <C>           <C>          <C>           <C>
  (Dollars in millions)
  Total net operating revenues (a)                      $2,605.2      $1,791.8       45.4 %       $1,226.1       46.1 %
  Total operating income                                $  296.7      $  171.5       73.0 %       $   97.6       75.7 %
  Total operating cash flow (2)                         $  702.3      $  506.1       38.8 %       $  351.5       44.0 %

<CAPTION>
                                                                                 December 31
                                                        -------------------------------------------------------------
OPERATING DATA (In thousands)                            1995          1994         Change        1993         Change
                                                        -------       -------       ------       -------       ------
<S>                                                     <C>           <C>          <C>           <C>           <C>
  Total cellular POPs (3)                                164,908        99,508       65.7 %         75,290       32.2 %
  Total cellular subscribers                               3,059         1,948       57.0 %          1,206       61.5 %
  Cellular subscriber net adds in period,
      excluding acquisitions                                 974           713       36.6 %            409       74.3 %
  Total paging units in service                            2,474         1,647       50.2 %          1,269       29.8 %
  Paging units in service net adds,
      excluding acquisitions                                 477           378       26.2 %            348        8.6 %
</TABLE>
See footnotes.


                                       19
<PAGE>   20
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

DOMESTIC CELLULAR OPERATIONS
<TABLE>
<CAPTION>
                                                                           For the Year Ended December 31
                                                      -------------------------------------------------------------------------
OPERATING RESULTS                                        1995             1994           Change           1993           Change
                                                      ---------        ---------         ------        ---------         ------
  (Dollars in millions)
<S>                                                   <C>             <C>              <C>          <C>               <C>
  Service and other revenues (a)                    $1,523.3          $1,160.1         31.3 %      $   892.0         30.1 %
  Equipment sales                                       78.9              74.6          5.8 %           40.2         85.6 %
  Cost of equipment sales                             (125.6)            (82.0)        53.2 %          (42.2)        94.3 %
                                                    --------          --------                     ---------
  Net operating revenues                             1,476.6           1,152.7         28.1 %          890.0         29.5 %
                                                    --------          --------                     ---------
  Cost of revenues (a)                                 188.4             136.5         38.0 %          116.3         17.4 % 
  Selling and customer operations                      544.0             415.2         31.0 %          297.2         39.7 %
  General, administrative, and
       other expenses                                  139.0             122.0         13.9 %           96.9         25.9 %
  Depreciation and amortization
       expenses                                        189.2             185.7          1.9 %          164.7         12.8 %
                                                    --------          --------                     ---------
  Total operating expenses                           1,060.6             859.4         23.4 %          675.1         27.3 %
                                                    --------          --------                     ---------
  Operating income                                  $  416.0          $  293.3         41.8 %      $   214.9         36.5 %
                                                    ========          ========                     =========

  Operating cash flow (2)                           $  605.2          $  479.0         26.3 %      $   379.6         26.2 %
  Operating cash flow margin (b)                        41.0%             41.6%        (1.4)%           42.7%        (2.6)%
  Capital expenditures, excluding
      acquisitions                                  $  475.0          $  296.7         60.1 %      $   198.4         49.5 %

<CAPTION>
                                                                                      December 31
                                                      -------------------------------------------------------------------------
OPERATING DATA (In thousands)                          1995             1994             Change        1993           Change
                                                      ------           ------            ------       -------         ------
<S>                                                   <C>              <C>           <C>             <C>            <C>
  Total POPs (3)                                      37,739            35,390          6.6 %         34,889          1.4 %
  Subscribers                                          2,262             1,560         45.0 %          1,046         49.1 %
  Subscriber net adds in period,                                                         
      excluding acquisitions                             591               514         15.0 %            286         79.7 %
</TABLE>

INTERNATIONAL CELLULAR OPERATIONS
<TABLE>
<CAPTION>
                                                                          For the Year Ended December 31
                                                     ---------------------------------------------------------------------
OPERATING RESULTS                                      1995              1994          Change           1993         Change
                                                     -------           -------         -------        -------        -------
<S>                                                  <C>                <C>           <C>            <C>           <C>
(Dollars in millions)
Existing operations (4):
 Net operating revenues                               $841.0            $352.8        138.4 %         $ 88.3        299.5 %
 Operating income (loss)                              $ 62.7            $ 10.0        527.0 %         $(17.3)         ___
 Operating cash flow (2)                              $203.7            $ 87.4        133.1 %         $  6.5          ___
 Income (loss)                                        $ (0.5)           $(13.2)        96.2 %         $(18.9)        30.2 %

Start-up systems (5):
        Income (loss)                                 $(51.6)           $(26.1)       (97.7)%         $(20.9)       (24.9)%
Total income (loss)                                   $(52.1)           $(39.3)       (32.6)%         $(39.8)         1.3 %
</TABLE>
See footnotes.


                                       20
<PAGE>   21
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                      December 31
                                             ---------------------------------------------------------------
OPERATING DATA (In thousands)                  1995          1994        Change          1993        Change
                                             -------       -------       -------       -------       -------
<S>                                          <C>            <C>         <C>           <C>           <C>
        Total POPs (3)                       112,869        64,118        76.0 %        40,401        58.7 %
        Subscribers                              797           388       105.4 %           160       142.5 %
        Subscriber net adds in period,
            excluding acquisitions               383           199        92.5 %           123        61.8 %
</TABLE>


Footnotes:

(a)  Presentation for 1994 has been restated to conform to the current year
     presentation.  See Note A, "Summary of Significant Accounting Policies -
     Basis of Presentation," to the Consolidated Financial Statements.

(b)  If net losses on equipment sales were reclassified as operating expenses,
     operating cash flow margins would be 39.7%, 41.3%, and 42.6%, for the years
     1995, 1994, and 1993, respectively.

(1)  Reflects proportionate results, total subscribers of all cellular systems,
     and total units in service of all paging systems in which the Company owns
     an interest, multiplied by the Company's ownership interest, exclusive of
     cost-based investments and certain equity-based investments that are not
     material to the Consolidated Financial Statements taken as a whole.

(2)  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.

(3)  POPs are the estimated market population multiplied by the Company's
     ownership interest in a licensee operating in that market and includes
     markets in which the networks are under construction and the markets of
     certain cost-based investments not included in proportionate operating
     results.  In 1995, total Company cellular POPs included 14,300 PCS POPs;
     international cellular POPs (and therefore total Company cellular POPs)
     included 36,943 POPs for recently formed ventures in India and 7,469 POPs
     for Poland where the Company's consortium was awarded a national cellular
     license in February 1996.

(4)  Represents the Company's share of operating results (after foreign taxes
     where applicable) for international cellular systems which have completed
     12 months of commercial service, as follows:

                  1995: Germany, Portugal, Sweden, Belgium, and Japan
                  1994: Germany, Portugal, Sweden, and Belgium (6 months)
                  1993: Germany (6 months), Portugal (3 months), and Sweden
                        (3 months)

(5)  Represents the Company's share of income or loss (after foreign taxes where
     applicable) for international cellular systems which have not yet completed
     12 months of commercial service, as follows:

                  1995:  Italy, South Korea, Spain, and India (4 months)
                  1994:  Japan, Italy (3 months), and South Korea (3 months)
                  1993:  Japan, Germany (6 months), and Portugal (9 months)

TOTAL COMPANY
Proportionate Company operating results for 1995, 1994, and 1993 reflect a
significant growth trend over the three-year period; however, the rates of
growth declined slightly as the customer base expanded, a trend which is likely
to continue. The Company expects that in 1996 growth in cellular subscribers
will exceed the one million net adds experienced during 1995 but will result in


                                       21
<PAGE>   22
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

a lower growth rate of approximately 33%. Increases in net operating revenues
over the three-year period reflect the continued strong growth in customers.
This growth was partly offset by declining average revenue per customer largely
due to the Company's increased penetration of the domestic consumer market with
its typically lower usage. Increases in operating income during the three-year
period reflect the significant customer growth, economies of scale, and cost
containment efforts. The impact of these factors on income is diluted somewhat
by increased selling costs to generate gains, declining average revenue per
customer, increasing roaming fraud losses, and the costs of start-up. The
slightly lower rate of increase in operating income in 1995 over 1994 accounts
for the lower rate of increase in operating cash flow for the same period. Total
Company operating cash flow for 1996 is expected to approach one billion dollars
as a result of scale and scope and improved international operating results.

DOMESTIC CELLULAR
Increases in operating income are attributable to growth in the number of
customers from 1994 to 1995 and from 1993 to 1994, respectively.

Cellular service and other revenues increased steadily from 1993 to 1995. In
1995, growth strategies were directed at the consumer market from as many varied
points of presence as possible to attract new domestic customers. In 1994, a
similar growth strategy directed at the consumer market was in effect throughout
the year for CMT Partners and New Par, and during the second half of the year
for the Company's consolidated markets. In 1993, fixed-term discount plans and
various promotional programs contributed to the increase in customer growth.
Increases in cellular service revenues have not kept pace with customer growth
because of declining average revenue per customer, which decreased 8.7% from
1994 to 1995 and 10.7% from 1993 to 1994. These declines are primarily due to
increased penetration of consumer segments of the population base. Increased
penetration into the consumer cellular market is due primarily to the
availability of low-cost handsets and service plans designed to meet the needs
of less frequent users. New consumer customers typically use their phones less
often and place many of their calls during off-peak, lower-rate periods, which 
generates lower average revenue per customer than business customers. However, 
the increase in off-peak usage results in revenue growth from higher 
utilization of the Company's networks without additional capital investment to 
expand capacity. The Company expects that average revenue per customer will 
follow the industry trend, and continue to decline as new consumer customers 
are added.

Equipment sales consist of revenues from sales of cellular telephones. Such
sales are not a primary part of the Company's cellular business. Equipment sales
increased 5.8% in 1995 over 1994 and 85.6% in 1994 over 1993, primarily due to
higher volumes of sales from retail sales locations in managed markets, and from
direct sales as part of the New Par growth initiative to increase the customer
base. During 1995, as a result of the lifting of the prohibition on bundling
within California, competitive responses involved the inclusion of free or
low-cost phone equipment in promotions. The competitive pressure to sell
telephone handsets at or below cost resulted in negative equipment margins in
each year of the three-year period. The Company believes, however, that reduced
prices for equipment have contributed significantly to customer growth,
particularly in the consumer market. The Company expects contribution margins of
equipment sales to remain negative as it responds to increasing competitive
market pressure.

Cost of revenues increased as a percentage of net operating revenues from 11.8%
in 1994 to 12.8% in 1995, reflecting increased roaming fraud losses during 1995,
particularly in the Company's consolidated markets. The negative impact of
roaming fraud was partially offset by the effects of economies of scale,
technical efficiencies, and cost containment efforts in each of the Company's
markets. These positive factors account for the decrease in cost of revenues as
a percentage of net operating revenues from 13.1% in 1993 to 11.8% in 1994.
Technical costs have increased at a slower pace than customer growth.


                                       22
<PAGE>   23
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

Selling and customer operations expenses as a percentage of net operating
revenues were 36.8%, 36.0%, and 33.4% in 1995, 1994, and 1993, respectively. The
1995 increase over 1994 expenses was primarily due to growth in the customer
base resulting from marketing programs to attract new customers and included
commissions paid for new cellular customers, advertising, and other promotional
expenses associated with such programs. The increase also included the cost of
expanded customer operations to support the increased number of customers. These
costs were partially offset by cost containment efforts and economies of scale,
primarily in the area of billing costs. Similarly, in 1994 the increase over
1993 reflects an increase in sales commissions, advertising, promotional
expenses, and billing costs associated with the increased number of domestic
cellular customers, offset by the effects of cost containment initiatives. The
Company expects that customer operations expenses will decline on a per-customer
basis in its managed markets once its new customer support system is fully
deployed in 1997.

Although the Company is actively managing its selling expenses, competitive
market pressures in certain markets continue to influence the Company's ability
to reduce the cost for each additional new customer. The Company experienced a
1.6% increase in acquisition costs per gross add from 1994 to 1995, compared to
a 9.2% decrease from 1993 to 1994. The cost of acquiring a new customer,
including losses on equipment, increased 11.2% from 1994 to 1995, compared to a
7.8% decrease from 1993 to 1994.

General, administrative, and other expenses as a percentage of net operating
revenues were 9.4%, 10.6%, and 10.9% in 1995, 1994, and 1993, respectively. The
declining trend in these percentages reflects the Company's ongoing efforts to
contain costs across all markets. The dollar increase between 1995 and 1994 was
primarily attributable to increased expenses associated with the research and
development of customer support systems, process engineering, and information
technology transition. Such expenses included employee-related costs,
facilities, and office expenses. The dollar increase between 1994 and 1993 is
primarily attributable to additional expenses for certain corporate functions
provided by Telesis prior to the spin-off of the Company on April 1, 1994.

Depreciation and amortization expenses as a percentage of net operating revenues
were 12.8%, 16.1%, and 18.5% in 1995, 1994, and 1993, respectively. The
declining trend in these percentages reflects the Company's significant increase
in customer growth that allows the increase of capital expenditures in its
cellular systems to be spread over a larger customer base. In 1995, the very
slight dollar increase in depreciation expense reflects the effect of additional
capital expenditures nearly offset by the effect of extending the depreciation
period for certain cellular equipment from seven to ten years. In addition,
amortization expense increased due to the amortization of goodwill arising from
the October 1995 purchase of additional CCI shares (See Note E, "Investments in
Unconsolidated Wireless Systems," to the Consolidated Financial Statements). In
1994, the increase in depreciation expense reflected CMT Partners' completion of
its initial phase for the deployment of time division multiple access ("TDMA")
digital technology in the San Francisco Bay Area.

INTERNATIONAL CELLULAR
The significant growth in the net operating revenues of existing cellular
operations between 1995, 1994, and 1993 reflects continuing expansion of the
international customer base due to growth across all cellular markets, the
successful launch of start-ups into existing commercial operations, and
acquisitions. The number of customers at December 31, 1995 was nearly five times
the number of customers at year-end 1993. The Company's ventures are classified
as existing operations after completing 12 months of commercial service as
described in footnotes 4 and 5 to the Selected Proportionate Operating Data
schedules.

Operating income for existing cellular operations realized a significant
improvement for 1995 over 1994 due to strong customer growth in the Company's
interests in Belgium, Germany, and Portugal, achieving improved scale. This
improvement was partially offset by the increased



                                       23
<PAGE>   24
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

depreciation and amortization expenses caused by expanding system capacity and
the cost of strong customer growth in Japan. The improvement in operating income
for 1994 over 1993 primarily resulted from the effect of comparing ongoing
results in 1994 to initial results in 1993, the first year in which the
start-ups were launched into existing commercial operations.

The improvement in operating cash flows for the three-year period from 1993 to
1995 reflects the improved operating results of existing operations in
successive years.

Aggregated existing operations were nearly at break-even for the year 1995. This
result reflects the improved operating results of our existing operations in
1995 over 1994 as these operations gained greater scale. The aggregate losses
for 1994 and 1993 indicate that break-even scale was not yet achieved in the
earlier years.

Losses for the cellular start-up systems increased in 1995 as compared to 1994,
reflecting increased start-up activity as the Company continued to develop
international opportunities. Losses for cellular start-up systems will continue
to dilute 1996 earnings. In 1995 start-up systems included India, Italy, South
Korea and Spain, while in 1994 start-ups primarily consisted of the Company's
equity investments in Japan. In 1993, start-ups consisted of Japan, Germany
during the first half of the year, and Portugal during the first nine months of
the year.

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 expand and operate its existing
wireless systems, to construct new wireless systems, and to acquire interests in
existing wireless systems.

1995 CAPITAL EXPENDITURES
During the year ended December 31, 1995, the Company incurred capital
expenditures of $484.2 million for additions to property, plant, and equipment
for its consolidated domestic and international cellular and paging networks, as
well as other capital expenditures, primarily to increase cellular and paging
network capacity and to support rapid customer growth. The Company invested an
additional $484.7 million as capital contributions to unconsolidated wireless
systems to fund license purchases and the build-out of cellular networks. Of
this amount, approximately $282.4 million was contributed to PCS PrimeCo
primarily to fund the purchase of its 11 broadband PCS licenses. In addition,
the Company invested $779.4 million in acquisitions of new or additional
interests in unconsolidated wireless systems. Significant components of
investments in unconsolidated wireless systems included the purchase of
additional interests in CCI and MMO.

FUNDING OF 1995 CAPITAL NEEDS
The Company did not generate sufficient cash from operations to meet its capital
requirements during 1995. As described below, additional funding needs for the
year ended December 31, 1995 were satisfied primarily by cash from the
liquidation of investments and proceeds from borrowings under the Company's $2
billion credit facility.

During 1995, the Company generated $322.2 million in cash from operations and
received $396.4 million in proceeds from the maturity and sale of certain
investments and securities.

In July 1995, the Company obtained an unsecured $2 billion, five-year revolving
credit facility to fund its capital requirements. See Note G, "Debt and Credit
Facilities," to the Consolidated Financial Statements. During 1995, the Company
borrowed $664.6 million under the facility.

FUTURE CAPITAL EXPENDITURES
Consolidated Expenditures. The Company will continue to be required to make
substantial expenditures in connection with its efforts to expand its wireless
business. Domestic and international


                                       24
<PAGE>   25
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

capital requirements for 1996 are expected to exceed $1 billion. The Company
expects to incur significant capital expenditures in connection with the 
deployment of its CDMA digital cellular sites in Los Angeles. The Company may 
also be required to expand analog capacity in Los Angeles to accommodate 
customer growth prior to the deployment of CDMA. In addition to capital
expenditures related to such deployment in the Los Angeles market, the Company
plans to incur significant capital expenditures to expand its existing analog
and digital networks and to construct and deploy new digital networks. The
Company expects its investment in digital technology to continue to increase,
and eventually surpass and replace the investment in analog technology.
However, both analog and digital technology standards are expected to coexist
for the foreseeable future. Accordingly, both technologies are expected to
continue to serve the existing and future customer base for the foreseeable
future.

At December 31, 1995, the Company was committed to spend approximately $39
million for the acquisition of property, plant, and equipment for its
consolidated subsidiaries. In addition to these commitments, the Company plans
to make additional capital expenditures of approximately $557 million during
1996 to increase the capacity of its existing domestic analog networks and to
deploy digital technology. At December 31, 1995, the Company had also committed
to spend approximately $93 million for the purchase of cellular handsets.

Unconsolidated Wireless Systems. As of December 31, 1995, the Company was
committed to make capital contributions of $89.0 million to its unconsolidated
wireless systems. The Company was also committed to purchase options for 2.4 
million shares of stock in CCI for an aggregate cost of $107.7 million. In 
addition, the Company may be obligated to make a payment to CCI stockholders 
in the event that the Company does not elect to purchase CCI's interest in New 
Par at a value determined in an appraisal process. See Note E, "Investments in 
Unconsolidated Wireless Systems - Cellular Communications, Inc.," to the 
Consolidated Financial Statements and Item 1, "Business-Domestic 
Cellular-Joint Ventures-New Par," inthe Company's Form 10-K for the year ended 
December 31, 1995.

In addition to these commitments, the Company plans to make capital
contributions of approximately $242 million during 1996 to its existing
international and domestic joint ventures, including contributions to PCS
PrimeCo for the construction of its newly acquired broadband PCS licenses. PCS
PrimeCo's networks are expected to be operational by the fourth quarter of
1996.

FUTURE CAPITAL FUNDING
On March 14, 1996, the Company initiated a commercial paper program which
consists of the sale of short-term notes exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2). The Company's Board of
Directors has authorized the issuance of commercial paper in amounts necessary
to finance the Company's working capital requirements, provided that the
aggregate principal amount outstanding does not exceed amounts available for
borrowing under the Company's $2 billion revolving credit facility. The Company
obtained A-2 and P-2 prime commercial paper ratings from Standard & Poor's
Corporation and Moody's Investor Service, respectively. These ratings may be
revised or withdrawn by the rating agencies at any time. During March 1996, the
Company issued approximately $710 million in commercial paper under this
program.

Working capital raised by the sale of commercial paper and borrowings under the
Company's $2 billion revolving credit facility are currently expected to be
sufficient to meet the Company's cash requirements through the end of 1996.
However, management expects that the Company will require additional external
financing if and when the Company exercises its right to acquire the remaining
shares of CCI pursuant to certain agreements with CCI. Management also
anticipates that additional external financing will be necessary to fund
expansion and operations beyond 1996. Accordingly, the Company will need to
raise additional funds through borrowings or public or private sales of debt or
equity securities. In September 1995, the Company filed a registration


                                       25
<PAGE>   26
                       MANAGEMENT'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

statement with the Securities and Exchange Commission for $2 billion in various
forms of debt and equity securities. The Company believes that 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.



                                       26
<PAGE>   27
                              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 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 1995 Consolidated Financial Statements have been audited by Price
Waterhouse LLP, independent accountants, whose appointment has been recommended
by the Board of Directors for ratification by the Company's stockholders. The
Company's 1994 and 1993 Consolidated Financial Statements were audited by
Coopers & Lybrand L.L.P., independent accountants. Management has made available
to Price Waterhouse LLP and Coopers & Lybrand L.L.P., 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 and Coopers & Lybrand L.L.P.
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
Committee of the Board of Directors is responsible for overseeing the Company's
financial reporting process on behalf of the Board. During 1995, the Audit
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, 1995 in relation to 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"). To assess the internal
control systems in its unconsolidated partnerships and corporations, management
relied on reports issued by various external public accountants who performed
audits of those entities, where such reports were available. Based on these
assessments, the Company believes that, as of December 31, 1995, its overall
system of internal control over financial reporting was effective.

/s/ Sam Ginn

Sam Ginn
Chairman and Chief Executive Officer

/s/ Mohan Gyani

Mohan Gyani
Executive Vice President and Chief Financial Officer

February 23, 1996

                                       27
<PAGE>   28
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of AirTouch Communications, Inc.:

In our opinion, the accompanying Consolidated Balance Sheet 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 its subsidiaries at December 31, 1995, and the results
of their operations and their cash flows for the year then ended 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 audit. We conducted our
audit 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
audit provides a reasonable basis for the opinion expressed above. The
Consolidated Financial Statements of AirTouch Communications, Inc. for each
of the two years in the period ended December 31, 1994 were audited by other
independent accountants whose report dated March 13, 1995, indicated the extent
of their reliance on the report of other independent accountants insofar as it
related to amounts included in the financial statements for Mannesmann Mobilfunk
GmbH, an investment of the Company accounted for using the equity method of
accounting (see Note E), and included an explanatory paragraph that described
the change, effective January 1, 1993, in the method of accounting for
postretirement benefits discussed in Note B.

Our audit was made for the purpose of forming an opinion on the Consolidated
Financial Statements taken as a whole. The Selected Proportionate Results of
Operations (Proportionate Data) for the year ended December 31, 1995 appearing
on page 58 is presented for additional analysis and is not a required part of
the basic financial statements. As discussed on page 58, this Proportionate 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 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 Data, determined on the basis of presentation described on
page 58 has been subjected to the auditing procedures applied in the audit 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. The Proportionate Data, determined on the basis of presentation
described on page 58, for each of the two years in the period ended December 31,
1994 appearing on page 58 was audited by other independent accountants whose
report dated March 13, 1995, indicated the extent of their reliance on the
report of other accountants insofar as it related to financial information
included in the Proportionate Data for Mannesmann Mobilfunk GmbH, and expressed
an unqualified opinion on that Proportionate Data.

/s/ PRICE WATERHOUSE LLP

San Francisco, California
February 23, 1996


                                       28
<PAGE>   29
                 AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
                (Dollars in millions, except per share amounts)

<TABLE>
<CAPTION>
                                                                                    For the Year Ended December 31
                                                                        ----------------------------------------------------
                                                                          1995                  1994                 1993
                                                                        --------              --------              --------

<S>                                                                     <C>                   <C>                   <C>
Operating revenues (a)                                                  $1,618.6              $1,246.9              $1,057.7
                                                                        --------              --------              --------

Operating expenses:
  Cost of revenues (a)                                                     372.9                 266.6                 213.7
  Selling and customer operations expenses                                 524.7                 389.8                 291.3
  General, administrative, and other expenses                              392.4                 312.6                 250.3
  Depreciation and amortization expenses                                   215.8                 205.3                 174.2
                                                                        --------              --------              --------
Total operating expenses                                                 1,505.8               1,174.3                 929.5
                                                                        --------              --------              --------
Operating income                                                           112.8                  72.6                 128.2
Equity in net income (loss) of unconsolidated
  wireless systems:
   Domestic                                                                188.2                 125.4                  70.4
   International                                                           (35.9)                (14.7)                (37.5)
Minority interests in net (income) loss of consolidated
  wireless systems                                                         (36.5)                (16.3)                (46.4)
Interest:
   Income                                                                   34.9                  54.7                  12.0
   Expense                                                                 (13.0)                (10.3)                (22.1)
Foreign exchange gain (loss)                                                 3.3                  (3.5)                 (3.4)
Miscellaneous income (expense)                                              (8.8)                 (1.5)                  6.7
                                                                        --------              --------              --------
Income before income taxes and cumulative
  effect of accounting change                                              245.0                 206.4                 107.9
Income taxes                                                               113.1                 108.3                  67.8
                                                                        --------              --------              --------
Income before cumulative effect of accounting change                       131.9                  98.1                  40.1
Cumulative effect of accounting change for other
  postretirement benefits, net of income tax benefit of $3.5
  (Note B)                                                                   ___                   ___                  (5.6)
                                                                        --------              --------              --------
Net income                                                              $  131.9              $   98.1              $   34.5
                                                                        ========              ========              ========

Per share amounts:
  Income before cumulative effect of accounting change                  $   0.27              $   0.20              $   0.09
  Cumulative effect of accounting change                                     ___                   ___                 (0.01)
                                                                        --------              --------              --------
Net income                                                              $   0.27              $   0.20              $   0.08
                                                                        ========              ========              ========

Weighted average shares outstanding (in thousands)                       494,925               493,351               429,630
                                                                        ========              ========               =======
</TABLE>

(a) Presentation for 1994 has been restated to conform to current year 
    presentation.  See Note A.

         The accompanying Notes are an integral part of the Consolidated
Financial Statements.


                                       29
<PAGE>   30
                 AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                              (Dollars in millions)

<TABLE>
<CAPTION>
                                                                                     December 31
                                                                                ---------------------
                                                                                 1995          1994
                                                                                -------      --------
<S>                                                                             <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                      $  82.9      $  429.0
  Accounts receivable, net of allowance for uncollectibles of
   $21.2 and $10.1 in 1995 and 1994, respectively                                  232.4         173.3
  Held-to-maturity investments                                                        --         310.1
  Available-for-sale securities                                                       --         101.3
  Other receivables                                                                103.6         128.2
  Due from affiliates                                                               21.0          25.9
  Other current assets                                                              66.3          98.5
                                                                                --------      --------
Total current assets                                                               506.2       1,266.3
                                                                         
Property, plant, and equipment, net                                              1,320.2         975.3
Investments in unconsolidated wireless systems                                   3,076.3       1,697.9
Intangible assets, net                                                             605.7         470.5
Deferred charges and other noncurrent assets                                       139.5          78.0
                                                                                --------      --------
Total assets                                                                    $5,647.9      $4,488.0
                                                                                ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable - trade                                                      $  171.4       $ 133.9
  Short-term borrowings                                                               --          80.0
  Other current liabilities                                                        316.3         315.9
                                                                                --------      --------
Total current liabilities                                                          487.7         529.8

Long-term debt                                                                     892.4         120.2
Deferred income taxes                                                              258.6         209.2
Deferred credits                                                                   106.0          39.4
                                                                                --------      --------
Total liabilities                                                                1,744.7         898.6
                                                                                --------      --------

Commitments and contingencies

Minority interests in consolidated wireless systems                                152.5         129.8
                                                                                --------      --------

Stockholders' equity:
  Preferred stock ($.01 par value; 50,000,000 shares authorized; no shares
    issued or outstanding)                                                            --            --
  Common stock ($.01 par value; 1,100,000,000 shares authorized;
    498,692,430 shares issued and 498,569,470 shares outstanding at
    December 31, 1995; 493,915,064 shares issued and 493,792,104 shares
    outstanding at December 31, 1994)                                                5.0           4.9
  Additional paid-in capital                                                     3,877.2       3,745.3
  Accumulated deficit                                                             (158.1)       (290.0)
  Cumulative translation adjustment                                                 17.1          11.1
  Other                                                                              9.5         (11.7)
                                                                                --------      --------
Total stockholders' equity                                                       3,750.7       3,459.6
                                                                                --------      --------

Total liabilities and stockholders' equity                                      $5,647.9      $4,488.0
                                                                                ========      ========
</TABLE>


         The accompanying Notes are an integral part of the Consolidated
Financial Statements.


                                       30
<PAGE>   31
                 AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  (In millions)

<TABLE>
<CAPTION>

                                            Common Stock       Additional      Accu-    Cumulative
                                         -------------------    Paid-in       mulated   Translation
                                         Shares      Amount     Capital       Deficit   Adjustment    Other         Total
                                         -------    --------    -------       -------   ----------    -----         -----
<S>                                       <C>        <C>       <C>           <C>          <C>        <C>          <C>
Balances at December 31, 1992             424.0      $4.2      $1,051.2      $(308.8)     $ 5.5      $   __       $  752.1
Net income                                                                      34.5                                  34.5
Dividends paid to Telesis                                                     (113.6)                               (113.6)
Equity infusion by Telesis                                      1,179.8                                            1,179.8
Shares issued under initial
  stock offering                           68.5       0.7       1,488.5                                            1,489.2
Foreign currency translation loss                                                          (4.7)                      (4.7)
                                          -----      ----      --------      -------      -----      ------       --------
Balances at December 31, 1993             492.5       4.9       3,719.5       (387.9)       0.8          __        3,337.3
Net income                                                                      98.1                                  98.1
Share additions under
  incentive programs                        1.3                    25.8                                               25.8
Foreign currency translation gain                                                          10.1                       10.1
Minimum pension liability                                                                              (0.6)          (0.6)
Unearned compensation                                                                                 (16.4)         (16.4)
Compensation expense                                                                                    1.5            1.5
Unrealized holding gain on
  available-for-sale
  securities, net                                                                                       3.8            3.8
Other                                                                           (0.2)       0.2                         __
                                          -----      ----      --------      -------      -----      ------       --------
Balances at December 31, 1994             493.8       4.9       3,745.3       (290.0)      11.1       (11.7)       3,459.6
Net income                                                                     131.9                                 131.9
Share additions under
  incentive programs                        1.7                    39.9                                               39.9
Shares issued for acquisition               3.2       0.1          93.7                                               93.8
Treasury share additions through
  incentive plan forfeitures, net of
  shares reissued under incentive
  programs                                 (0.1)                   (1.8)                                              (1.8)
Foreign currency translation gain                                                           6.0                        6.0
Unearned compensation                                                                                  (7.8)          (7.8)
Compensation expense                                                                                    5.8            5.8
Unrealized holding gain on
  noncurrent available-for-sale
  securities, net                                                                                      23.2           23.2
Other                                                               0.1                                                0.1
                                          -----      ----      --------      -------      -----      ------       --------
Balances at December 31, 1995             498.6      $5.0      $3,877.2      $(158.1)     $17.1      $  9.5       $3,750.7
                                          =====      ====      ========      =======      =====      ======       ========
</TABLE>

         The accompanying Notes are an integral part of the Consolidated
Financial Statements.


                                       31
<PAGE>   32
                 AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Dollars in millions)

<TABLE>
<CAPTION>
                                                                      For the Year Ended December 31
                                                                   -------------------------------------
                                                                      1995         1994          1993
                                                                   ---------     --------       --------
<S>                                                                <C>            <C>          <C>
Cash flows from operating activities:
  Net income                                                       $   131.9      $  98.1      $    34.5
  Adjustments to reconcile net income for items currently
    not affecting operating cash flows:
      Depreciation, amortization, and other noncash
        charges                                                        221.6        206.8          174.2
      Deferred income taxes                                             24.3        (28.5)          23.9
      Minority interests in net income (loss) of consolidated             
        wireless systems                                                36.5         16.3           46.4
      Equity in net income of unconsolidated wireless
        systems                                                       (152.3)      (110.7)         (32.9)
      Distributions received from equity investments                   104.0         80.3           42.2
      (Gain) loss on sale of assets                                     (4.3)        (1.1)           3.4
      Cumulative effect of accounting change for
        postretirement costs                                              --           --            9.1
      Changes in assets and liabilities:
        Accounts receivable, net                                       (51.1)       (35.1)         (30.4)
        Other current assets and receivables                            53.1       (167.1)         130.5
        Deferred charges and other noncurrent assets                   (32.6)       (51.1)          (1.3)
        Accounts payable and other current liabilities                  (6.1)       130.1           18.7
        Deferred credits and other liabilities                          (2.8)       (20.4)          28.3
                                                                   ---------      -------      ---------
Cash flows from operating activities                                   322.2        117.6          446.6
                                                                   ---------      -------      ---------

Cash flows from investing activities:
  Investment in unconsolidated wireless systems                     (1,264.1)      (502.3)        (386.9)
  Additions to property, plant, and equipment                         (484.2)      (383.4)        (216.8)
  Maturity (purchase) of held-to-maturity investments                  310.1        504.0         (814.0)
  Maturity (purchase) of available-for-sale securities                  86.3       (110.9)            --
  Decrease in short-term borrowings from
    Telesis affiliate                                                     --         (0.3)        (773.1)
  Loan repayments from Telesis affiliate                                  --           --          106.5
  Issuance of loan to Telesis affiliate                                   --           --           (6.8)
  Retirement of long-term debt from Telesis affiliate                     --           --         (234.5)
  Other investing activities                                            (9.7)        21.3          (28.9)
                                                                   ---------      -------      ---------
Cash flows from investing activities                                (1,361.6)      (471.6)      (2,354.5)
                                                                    ---------      -------      ---------
</TABLE>

                                                        (Continued on next page)

         The accompanying Notes are an integral part of the Consolidated
Financial Statements.


                                       32
<PAGE>   33
                 AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Dollars in millions)

(Continued from previous page)

<TABLE>
<CAPTION>
                                                                          For the Year Ended December 31
                                                                       ---------------------------------
                                                                         1995        1994          1993
                                                                       -------      -------       ------
<S>                                                                   <C>          <C>          <C>
Cash flows from financing activities:
  (Decrease) increase in short-term borrowings                          (86.0)       77.8          (2.6)
  Proceeds from issuing long-term debt                                  766.5        45.9          13.8
  Contributions from minority interests in consolidated
    wireless systems                                                      6.2        36.7           2.8
  Distributions to minority interests in consolidated
    wireless systems                                                    (20.7)      (32.0)        (30.3)
  Retirement of notes and obligations payable                            (7.8)       (5.5)         (1.0)
  Proceeds from shares issued                                            32.1         9.4       1,489.2
  Equity infusion by Telesis                                               --          --       1,179.8
  Dividends paid to Telesis                                                --          --        (113.6)
  Other financing activities                                              2.7        (0.1)         (0.1)
                                                                      -------     -------      --------
Cash flows from financing activities                                    693.0       132.2       2,538.0
                                                                      -------     -------      --------
Effect of exchange rate changes on cash and cash equivalents              0.3         4.1          (0.5)
                                                                      -------     -------      --------
Net change in cash and cash equivalents                                (346.1)     (217.7)        629.6
Beginning cash and cash equivalents                                     429.0       646.7          17.1
                                                                      -------     -------      --------
Ending cash and cash equivalents                                      $  82.9     $ 429.0      $  646.7
                                                                      =======     =======      ========
Supplemental cash flow information:
  Cash payments for:
    Interest, net of amounts capitalized                              $   4.4     $   9.4      $   26.4
    Income taxes                                                      $ 108.1     $ 151.2      $   51.5
  Noncash transactions:
    Unearned compensation                                             $   7.8     $  16.4            --
    Stock issued for acquisition                                      $  93.8          --            --
    Contribution of assets to CMT Partners at book value                   --          --      $  206.0
</TABLE>



         The accompanying Notes are an integral part of the Consolidated
Financial Statements.


                                       33
<PAGE>   34
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
AirTouch Communications, Inc. and its subsidiaries provide wireless
telecommunications services in the United States, Europe, and Asia.  AirTouch
Communications, Inc. (the "Company") is a holding company and its principal
subsidiaries are AirTouch Cellular, AirTouch Paging, and AirTouch International.
These subsidiaries principally provide cellular and paging services.  The
majority of the Company's revenues are provided by its domestic cellular
subsidiary, AirTouch Cellular.

Prior to April 1, 1994, the Company was an 86.1% owned subsidiary of Pacific
Telesis Group ("Telesis"), a reporting company under the Securities Exchange Act
of 1934. In April 1994, Telesis distributed to its stockholders all of the
common stock of the Company owned by Telesis (the "spin-off"). In 1993, the
Company provided a reserve of $9.2 million ($5.0 million after taxes) for
anticipated incremental costs directly attributable to the spin-off and, as of
December 31, 1994, the Company had substantially utilized this reserve.
Management believes that the Consolidated Financial Statements of the Company
for the years ended December 31, 1994 and 1993 reasonably reflect the historical
relationships with Telesis and its affiliates and reflect all of the Company's
costs of doing business. Management believes there would not have been any
material difference from the amounts presented in the 1994 and 1993 historical
financial statements had the Company operated on a stand-alone basis.

The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries and partnerships in which the Company has controlling
interests. All significant intercompany balances and transactions have been
eliminated. Certain prior period items have been reclassified to conform with
the 1995 format; however, these reclassifications did not affect previously
reported net income or accumulated deficit.

In the fourth quarter of 1995, the Company classified the costs of its domestic
cellular roaming fraud as an operating expense. These costs had previously been
recorded as an offset to operating revenues. Prior periods have been
reclassified to conform to the new presentation. The reclassifications did not
have an effect on previously reported operating income, net income, or
accumulated deficit.

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.

INVESTMENTS IN DEBT AND EQUITY SECURITIES
Held-to-maturity investments were debt securities that the Company had the
positive intent and ability to hold to maturity. The Company's held-to-maturity
investments were carried at amortized cost and consisted principally of highly
liquid debt securities with contractual maturities in excess of three months.

Available-for-sale investments are debt and equity securities not classified as
either held-to-maturity or trading securities. The Company's current
available-for-sale investments were carried at fair value and consisted
principally of highly liquid debt securities issued by the U.S. Treasury and
other U.S. Government corporations and agencies and generally had contractual
maturities in excess of three months.


                                       34
<PAGE>   35
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Results of operations for foreign 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 significant 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 foreign
subsidiaries and international joint ventures. The Company hedges a portion of
these investments with long-dated forward contracts and foreign currency
denominated loans. In addition, the Company enters into forward exchange
contracts to reduce exposures of firm capital commitments denominated in foreign
currencies. The Company does not hold or issue financial instruments for trading
or speculative purposes. The Company enters into interest rate swap agreements
to manage its exposure to fluctuations in interest rates and 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.

Foreign currency hedges. Gains or losses associated with forward foreign
exchange contracts that qualify as accounting hedges for net foreign investments
("qualifying hedges") are recorded in the CTA account, with a corresponding
adjustment to a deferred asset or liability account. Gains and losses from
foreign currency denominated debt qualifying as a hedge are recorded in the CTA
account, with the corresponding adjustment to the carrying value of the debt.
For forward foreign exchange contracts and foreign currency denominated debt
that are not qualifying hedges, gains or losses are recorded in "Foreign
exchange gain (loss)" in the Consolidated Statements of Income.

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.

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 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 a
forward interest rate swap used to hedge future borrowings over the term of the
related debt when incurred.

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 related assets'
estimated useful lives ranging from three to forty years except land, which 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.

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 and international licenses. The Federal Communications Commission ("FCC")
issues cellular licenses that enable domestic 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


                                       35
<PAGE>   36
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

continue to comply with these standards and is amortizing the related costs
using the straight-line method over 40 years.

FCC licenses for domestic 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 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 generally up to 20 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 36 to 40 months.

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 a period, generally 40 years, using the straight-line method.

INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS
The equity method is used to account for all domestic cellular markets and
international consortia in which the Company has significant influence but is
not the controlling or managing general partner, even though the ownership
percentage may be less than 20%. Limited partnership interests in which the
Company has a very minor interest and virtually no influence are accounted for
using the cost method. Joint ventures in which the Company does not have
significant influence are accounted for using the cost method.

EARNINGS PER SHARE
Earnings per share is calculated by using weighted average common shares
outstanding. The dilutive effect of common stock equivalents is determined using
the treasury stock method. However, common stock equivalents do not have a
significant impact on earnings per share.

INCOME TAXES
The Company uses the liability method of accounting for income taxes. Deferred
income taxes are provided to reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. Until March 31, 1994,
the Company was included in the consolidated federal and combined state income
tax returns of Telesis.

CAPITALIZED INTEREST
The Company capitalizes interest applicable to the expenditures for construction
of significant additions to property, plant, and equipment and on start-up
investments in unconsolidated wireless systems until their principal operations
commence. These costs are amortized over the related assets' estimated useful
lives. Total interest was $28.2 million, $10.7 million, and $25.8 million for
1995, 1994, and 1993, respectively, of which $15.2 million, $0.4 million, and
$3.7 million was capitalized in 1995, 1994, and 1993, respectively.

ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expense was
$80.3 million, $74.4 million, and $48.4 million for 1995, 1994, and 1993,
respectively.

B.  ACCOUNTING CHANGES

TO BE ADOPTED
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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-


                                       36
<PAGE>   37
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.

Effective January 1, 1996, the Company intends to adopt SFAS No. 121, consistent
with the required adoption period. The Company does not expect the
implementation to have a material impact on its financial condition or its
results of operations.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation."  Under SFAS No. 123, the Company has 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 are made.  The Company intends to retain the
intrinsic value-based method of accounting for employee stock-based compensation
plans as prescribed by APB No. 25 and adopt the pro forma disclosure provisions
of SFAS No. 123 effective January 1, 1996.  Implementation will not have an
impact on the Company's financial condition or its results of operations.

ADOPTED
Effective January 1, 1994, the Company adopted the provisions of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Implementation did not materially impact the Company's financial condition or
its results of operations.

Effective January 1, 1993, the Company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions." The
implementation of SFAS No. 106 required the Company to record a one-time
after-tax transition obligation of $5.6 million ($9.1 million pre-tax) in the
first quarter of 1993.

C.  PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                     December 31
                                          Depreciable        ----------------------
(Dollars in millions)                    Lives (Years)         1995          1994
                                         -------------       --------      --------

<S>                                        <C>             <C>           <C>
Land                                         ___             $    9.5      $    8.5
Buildings and leasehold
    improvements                            5 - 40              232.4         148.2
Cellular plant and equipment                5 - 15            1,042.1         814.2
Pagers, paging terminals, and
    other paging equipment                  3 - 15              240.8         181.4
Other equipment and furniture               3 -  7              386.4         247.2
Construction in progress                     ___                176.4         161.2
                                                             --------      --------
                                                              2,087.6       1,560.7
Less: accumulated depreciation
    and amortization                                            767.4         585.4
                                                             --------      --------
                                                             $1,320.2      $  975.3
                                                             ========      ========
</TABLE>

Depreciation and amortization expense relating to property, plant, and equipment
for the years ended December 31, 1995, 1994, and 1993 was $196.4 million, $184.0
million, and $161.7 million, respectively. In the first quarter of 1995, the
Company completed a review of the estimated service lives of certain domestic
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 new ten-year depreciation period is consistent
with



                                       37

<PAGE>   38
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

current industry standards. The change increased net income by $26.3 million,
$.05 per share, for the year ended 1995.

D.  FINANCIAL INSTRUMENTS

INVESTMENTS IN DEBT AND EQUITY SECURITIES
At December 31, 1995, the Company's available-for-sale investment portfolio
totaled $51.9 million and was classified as a noncurrent asset and included in
"Deferred charges and other noncurrent assets." This amount represents the
Company's investment in shares of common stock and warrants to purchase shares
of common stock. Sales in 1995 of the Company's available-for-sale securities
resulted in immaterial gross losses.

At December 31, 1994, the Company's available-for-sale investment portfolio,
carried at fair value, consisted of $101.3 million included in current assets
and $9.6 million included in "Deferred charges and other noncurrent assets." The
portfolio included in current assets consisted of debt securities issued by the
U.S. Treasury and other U.S. Government corporations and agencies.  The portion
included in "Deferred charges and other noncurrent assets" consisted of the
Company's investment in shares of common stock.

There were no held-to-maturity investments at December 31, 1995. The Company's
held-to-maturity investment portfolio at December 31, 1994 consisted principally
of highly liquid debt instruments with contractual maturities in excess of three
months. The $310.1 million held-to-maturity investment portfolio, carried at
amortized cost which approximated fair value, consisted of $181.6 million in
U.S. Government debt securities, $89.1 million in state and local government
debt securities, $34.8 million in auction rate reset type securities, and $4.6
million in accrued interest. Auction rate reset type securities are shares in
variable rate preferred municipal funds with contractual reset periods greater
than 90 days.

MARKET RISK MANAGEMENT
As of December 31, 1995 and 1994, the Company had outstanding forward exchange
contracts principally denominated in Escudo, Belgian Franc, Deutschmark, Krona,
Peseta, Won, and Yen. These contracts had face amounts totaling $721.5 million
and $638.4 million as of December 31, 1995 and 1994, respectively, with
maturities through 2002. The amounts exchanged are calculated on the basis of
the face amounts of the financial instruments.

In October 1995, the Company entered into a cross-currency swap, expiring in
1997, to hedge the currency and interest rate risk from a Deutschmark ("Mark")
179 million borrowing. The swap converts Mark-denominated variable rate coupons,
indexed to the London Interbank Offered Rate ("LIBOR"), to dollar-denominated
fixed interest rate payments.

In November 1995, the Company entered into an interest rate swap, expiring in
2005, to convert the interest rate on $150 million of borrowings under the
Company's unsecured $2 billion credit facility to a fixed rate from a variable
rate indexed to LIBOR. This swap also reduces the interest rate risk of
anticipated borrowings.

At December 31, 1995, the notional amounts of the cross-currency and the
interest rate swaps were $124.6 million and $150.0 million, respectively. The
related fixed interest rates as of that date were 4.83% and 6.34%, respectively.

CONCENTRATION OF CREDIT RISK
The off-balance-sheet risk in outstanding forward foreign 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 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


                                       38
<PAGE>   39
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

necessary to obtain collateral arrangements. The Company believes that losses
from counterparty nonperformance on settlements of these transactions 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 avoided
concentrations of credit risk in its interest-bearing investment portfolio at
December 31, 1994 by investing in securities issued by the U.S. Government and
its agencies, and by limiting other investments in interest-bearing securities
to those rated in the highest category by nationally recognized statistical
rating agencies.

FAIR VALUE
The Company uses available market information and appropriate valuation methods
to determine fair value amounts.

<TABLE>
<CAPTION>
                                                                  December 31
                                             --------------------------------------------------------
                                                     1995                            1994
                                             ---------------------------    -------------------------
                                             Carrying        Estimated      Carrying        Estimated
(Dollars in millions)                           Value       Fair Value         Value       Fair Value
                                             ----------     ------------    --------       ----------
<S>                                          <C>            <C>             <C>            <C>
Financial assets:
   Held-to-maturity investments                     --             --        $310.1          $310.1
   Available-for-sale securities                $ 51.9         $ 51.9        $110.9          $110.9
   Investments at cost                          $ 69.8            N/A        $ 52.8             N/A
   Off-balance-sheet financial
      instruments                                   --             --            --          $ 19.2
Financial liabilities:
   Current obligations                          $ 14.0         $ 14.0        $ 89.9          $ 89.9
   Deposit liabilities                          $ 38.4         $ 38.4        $ 31.6          $ 31.6
   Long-term debt, including leases             $892.4         $892.4        $120.2          $120.2
   Off-balance-sheet financial
       instruments                                  --         $ 70.3            --          $ 19.5
</TABLE>
N/A   Not available

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:

Held-to-maturity investments, current obligations, and deposit liabilities: due
to the short-term character of the securities and obligations, carrying amounts
are a reasonable approximation of fair value.

Available-for-sale securities:  carrying amounts are valued 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 the start-up mode, other valuation
techniques are not appropriate. At December 31, 1995, the Company's ownership
interest in these ventures' assets and stockholders' equity was approximately
$145.0 million and $23.0 million, respectively. In addition, the Company's
ownership interest in 1995 revenues and net income was approximately $56.0
million and $3.0 million, respectively.

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.

Off-balance-sheet financial instruments: fair values of forward exchange
contracts and interest rate swaps are based upon the current value in the market
for transactions with similar terms and adjusted for


                                       39
<PAGE>   40
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the holding period. The Company has 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). Fair value is based on estimated fees to enter
into similar arrangements.

E.  INVESTMENTS IN UNCONSOLIDATED WIRELESS SYSTEMS

Interests owned in cellular and other telecommunications systems of
unconsolidated wireless systems are as follows:

<TABLE>
<CAPTION>
                                                           December 31
                                                      --------------------
 (Dollars in millions)                                  1995        1994
                                                      --------    --------
<S>                                                   <C>         <C>
Investments at equity                                 $3,006.5    $1,645.1
Investments at cost                                       69.8        52.8
                                                      --------    --------
                                                      $3,076.3    $1,697.9
                                                      ========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                      Percentage of Ownership
                                                      -----------------------
                                                            December 31
                                                      -----------------------
                                                         1995         1994
                                                      ---------     ---------
<S>                                                   <C>           <C>
COST INVESTMENTS
   Domestic:
      GTE Mobilnet of Santa Barbara
        Limited Partnership
        (Santa Barbara, California)                      10.0%          10.0%
      Globalstar, L.P.                                    6.4%           8.3%
      Cal-One Cellular Limited
        Partnership (Eureka, California)                  5.6%           5.6%
      Fresno MSA Limited Partnership
        (Fresno, California)                              1.1%           1.1%

   International:
      International Digital
        Communications, Inc. (Japan)                     10.0%          10.0%
      Digital TU-KA Chugoku Co.,
        Ltd. (Japan)                                      4.5%           4.5%
      Digital TU-KA Kyushu Co.,
        Ltd. (Japan)                                      4.5%           4.5%
      Digital TU-KA Tohoku Co.,
        Ltd. (Japan)                                      4.5%           --
      Digital TU-KA Hokkaido Co.,
        Ltd. (Japan)                                      4.5%           --
      Digital TU-KA Hokuriku Co.,
        Ltd. (Japan)                                      4.5%           --
      Digital TU-KA Shikoku Co.,
        Ltd. (Japan)                                      4.5%           --
</TABLE>


                                       40
<PAGE>   41
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                      Percentage of Ownership
                                                      -----------------------
                                                            December 31
                                                      -----------------------
                                                         1995         1994
                                                      ---------     ---------
<S>                                                   <C>           <C>
EQUITY INVESTMENTS
   Domestic:
      New Par (Ohio/Michigan)                            50.0%          50.0%
      CMT Partners (California,
        Texas, Missouri, and Kansas)                     50.0%          50.0%
      Nevada RSA2 Ltd. Partnership
        (Lander, Nevada)                                 50.0%          50.0%
      Muskegon Cellular Partnership
        (Muskegon, Michigan)                             40.5%          40.5%
      Cellular Communications, Inc.
        (Ohio/Michigan)                                  37.6%          13.4%
      TOMCOM, L.P. (a)                                   35.0%          35.0%
      Centel Cellular Company
        of Nevada Limited Partnership
        (Las Vegas, Nevada)                              27.8%          27.8%
      PCS PrimeCo, L.P.(a)                               25.0%          25.0%
      Tucson Cellular Telephone
        Company (Tucson, Arizona)                         --             5.9%

   International:
      Cellular Communications India Ltd. (India)         49.0%           --
      Mannesmann Mobilfunk
        GmbH (Germany)                                   34.8%          32.7%
      Belgacom Mobile (Belgium)                          25.0%          25.0%
      Telecel Comunicacoes
        Pessoais, S.A. (Portugal)                        23.0%          23.0%
      Telechamada-Servico de Pessoas,
        S.A. (Portugal) (a)                              23.0%          23.0%
      RPG Cellular Services Limited (India)              20.0%           --
      Polkomtel (Poland)                                 19.3%           --
      Infomobile (formerly Omnicom)
        (France)                                         18.5%          18.5%
      Sistelcom-Telemensaje, S.A. (Spain) (a)            17.5%          17.5%
      Airtel, S.A. (Spain) (b)                           15.8%          15.8%
      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%
      Omnitel-Pronto Italia, S.p.A. (Italy) (a)          11.7%          10.2%
      Shinsegi Mobile Communication
        Co., Ltd. (South Korea)                          10.7%          11.3%
</TABLE>
(a)  Indirect ownership through partially owned venture.
(b)  In February 1996, ownership interest increased to 16.0%.


                                       41
<PAGE>   42
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's investment in Cellular Communications, Inc. ("CCI"), which
represents the only equity method investment for which a quoted market price is
available, had a market value of $782.2 million at December 31, 1995 and $304.0
million at December 31, 1994. The Company has an obligation to either purchase
additional shares of CCI at a price reflecting private market value or pay the
CCI stockholders a "make-whole" payment. See "Cellular Communications, Inc."
discussion below.

The Company expects to purchase either an additional 5% or, under certain
circumstances, may be obligated to purchase an additional 10% interest in its
Spain cellular consortium. The purchase is expected to occur in 1998. The
purchase of the full 10% interest could require an investment of as much as $200
million.

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
                                          ---------------------------------------------------------------------------------
                                                  1995                          1994                             1993
                                          ----------------------        -----------------------       ---------------------
                                                          Inter-                         Inter-                      Inter-
(Dollars in millions)                     Domestic      national        Domestic       national       Domestic     national
                                          --------      --------        --------     ----------       --------     -------
<S>                                       <C>           <C>             <C>           <C>               <C>        <C>
Operating revenues/equity in net
    income of joint venture                $1,281.3     $3,683.9        $1,166.0      $1,401.0          $722.1     $ 527.7
Operating income (loss)                    $  420.4     $ (496.8)       $  297.7      $ (251.2)         $197.2     $(222.8)

Net income (loss)                          $  411.0     $ (539.2)       $  284.9      $ (155.4)         $188.4     $(140.2)
Other partners' and stockholders'
    share of net income (loss)                213.0       (519.7)          153.7        (144.7)          110.4      (103.5)
                                           --------     --------        --------      --------          ------     -------
Company's share of
    net income (loss)                         198.0        (19.5)          131.2         (10.7)           78.0       (36.7)
Amortization of goodwill and
    other intangible items (a)                 (9.8)       (16.4)           (5.8)         (4.0)           (7.6)       (0.8)
                                           --------     --------        --------      --------          ------     -------
Equity in net income (loss) of
    unconsolidated wireless systems        $  188.2     $  (35.9)       $  125.4      $  (14.7)         $ 70.4     $ (37.5)
                                           ========     ========        ========      =========         ======     =======
</TABLE>

(a) Goodwill and other intangible items are amortized primarily over 40 years.

<TABLE>
<CAPTION>
                                                                                December 31
                                                    ------------------------------------------------------------------
                                                             1995                                  1994
                                                    ------------------------------     -------------------------------
(Dollars in millions)                               Domestic         International     Domestic          International
                                                    --------         -------------     --------          -------------
<S>                                                 <C>               <C>               <C>                <C>
Current assets                                      $  494.8          $ 1,419.0         $   448.5          $   978.8
Noncurrent assets                                    3,160.1            4,736.7           1,605.6            2,952.7
Current liabilities                                   (329.3)          (2,105.3)           (168.5)            (819.7)
Noncurrent liabilities                                (441.0)          (1,790.2)           (380.1)          (1,620.0)
                                                    --------          ---------         ---------          ---------
Total partners' and stockholders' capital            2,884.6            2,260.2           1,505.5            1,491.8
Other partners' and stockholders'
   share of capital                                  1,776.2            1,677.2             777.3            1,103.1
                                                    --------          ---------         ---------          ---------
Company's share of capital                           1,108.4              583.0             728.2              388.7
Goodwill and other intangible items                    817.2              497.9             191.6              336.6
                                                    --------          ---------         ---------          ---------
Equity investments in unconsolidated
   wireless systems                                 $1,925.6          $ 1,080.9         $   919.8          $   725.3
                                                    ========          =========         =========          =========
</TABLE>


                                       42
<PAGE>   43
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

International equity losses were partially offset by tax benefits of $39.8
million and $27.3 million in 1995 and 1994, respectively. The majority of these
tax benefits are attributable to the Company's share of the net operating loss
carryforwards ("NOLs") of its three cellular networks in Japan. These tax
benefits are recorded in "Equity in net income (loss) of unconsolidated wireless
systems: International" on the Consolidated Statements of Income. The tax
benefits were recorded as an asset that represents future benefits the joint
ventures will receive by deducting the NOLs from future taxable income. At
December 31, 1995, the Company's proportionate share of deferred tax assets of
its international equity subsidiaries was $108.5 million, which was offset by a
valuation allowance of $36.9 million. While the Company believes that it is more
likely than not that the deferred tax assets will be fully realized, there can
be no assurance that this will happen as certain factors beyond the control of
the joint ventures and the Company, such as deteriorating local economic
conditions and increasing competition, can affect future timing and amounts of
taxable income.

SUMMARY FINANCIAL INFORMATION
Condensed financial information for the Company's significant equity investments
are as follows:

<TABLE>
<CAPTION>
                                                                    For the Year Ended December 31
                                                       -----------------------------------------------------
(Dollars in millions)                                      1995                  1994                 1993
                                                       ----------            ----------            ---------
<S>                                                    <C>                   <C>                   <C>
Mannesmann Mobilfunk GmbH
    Operating revenues                                 $  1,888.8            $  1,126.0            $   518.5
    Operating income (loss)                            $    473.2            $    146.1            $  (104.8)
    Net income (loss)                                  $    240.8            $     69.1            $   (67.7)
New Par
    Operating revenues (a)                             $    660.3            $    523.2            $   435.8
    Operating income                                   $    199.3            $    117.6            $    92.1
    Net income                                         $    200.3            $    114.9            $    92.6

CMT Partners
    Operating revenues (a)                             $    443.1            $    345.7            $   110.8 (b)
    Operating income                                   $    151.1            $    128.8            $    25.7 (b)
    Net income                                         $    168.0            $    140.2            $    28.3 (b)
CCI
    Equity in net income of joint venture              $    101.3            $     59.0            $    47.7
    Operating income (a)                               $     85.3            $     40.8            $    29.7
    Net income                                         $     50.8            $     17.7            $    19.9
</TABLE>


(a)  Restated to conform to the Company's basis of presentation.
(b)  For the four-month period from September 1, 1993 (inception) to December
     31, 1993.


                                       43
<PAGE>   44
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                               December 31
                                                       ---------------------------
(Dollars in millions)                                     1995             1994
                                                       ---------        ----------
<S>                                                    <C>              <C>
Mannesmann Mobilfunk GmbH
    Current assets                                     $   483.7         $   231.1
    Noncurrent assets                                    1,506.8           1,392.1
    Current liabilities                                   (542.4)           (274.7)
    Noncurrent liabilities                                (265.5)           (474.2)
                                                       ---------         ---------
    Total partners' and stockholders' capital          $ 1,182.6         $   874.3
                                                       =========         =========

New Par
    Current assets                                     $   162.6         $   139.0
    Noncurrent assets                                      909.6             736.0
    Current liabilities                                   (125.0)           (114.4)
    Noncurrent liabilities                                  (3.9)             (0.6)
                                                       ---------         ---------
                                                           943.3             760.0
    Minority interests                                      (1.5)             (0.6)
                                                       ---------         ---------
    Total partners' and stockholders' capital          $   941.8         $   759.4
                                                       =========         =========

CMT Partners
    Current assets                                     $   124.0         $    89.3
    Noncurrent assets                                      403.2             371.9
    Current liabilities                                    (58.1)            (49.8)
                                                       ---------         ---------
                                                           469.1             411.4
    Minority interests                                     (14.2)            (13.1)
                                                       ---------         ---------
    Total partners' and stockholders' capital          $   454.9         $   398.3
                                                       =========         =========

CCI
    Current assets                                     $   158.9         $   185.3
    Noncurrent assets                                      475.7             428.3
    Current liabilities                                    (10.9)            (16.9)
    Noncurrent liabilities                                (370.1)           (358.4)
                                                       ---------         ---------
    Total partners' and stockholders' capital          $   253.6         $   238.3
                                                       =========         =========
</TABLE>

WMC PARTNERS

In July 1994, the Company and U S WEST Inc. ("U S WEST") entered into an
agreement to combine their domestic cellular properties into a partnership known
as WMC Partners, L.P. ("WMC") in a multi-phased transaction.

During the initial phase of the transaction ("Phase I"), which commenced on
November 1, 1995, WMC began providing certain support services to both
companies' domestic cellular and PCS operations, which will continue to be owned
and operated separately by the individual partners throughout Phase I.

In the next phase ("Phase II"), the partners will contribute their domestic
cellular properties to WMC, subject to obtaining required consents and
authorizations. Pursuant to the joint venture agreement, this contribution will
occur following the lifting of certain restrictions imposed by the Modification
of Final Judgment (the "MFJ") (or earlier, at the Company's option), but in no
event later than July 25, 1998. The Telecommunications Act of 1996 provided
sufficient relief from the restriction imposed by the MFJ for Phase II to occur.
The parties are seeking to obtain regulatory and other approvals and to satisfy
other conditions precedent to entering into Phase II. The initial interests of
the Company and U S WEST in the WMC at the commencement of Phase II will depend,
among other things, upon the timing of the Phase II closing, the ability of the
parties to contribute their domestic cellular properties, the timing of the
parties' contribution of their PCS Partnership to the WMC (and the value of the
PCS Partnership), and the status of the Company's transaction with CCI.


                                       44
<PAGE>   45
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Simultaneous with the formation of WMC, the parties formed an equally owned
partnership ("PCS Partnership") to pursue new opportunities in personal
communications services ("PCS"). The PCS Partnership is a partner in PCS
PrimeCo, L.P. ("PCS PrimeCo"), see "Bell Atlantic/NYNEX Mobile." The PCS
Partnership also will be contributed to WMC. The timing of such contribution is
at U S WEST's discretion and will occur either at the closing of Phase II or a
date selected by U S WEST no later than mid-1998. The Company expects the PCS
Partnership to make significant capital investments for the build-out of PCS
markets and to experience substantial operating losses associated with the start
up phase of the PCS business, which is expected to last several years. Upon the
contribution of the PCS Partnership to WMC, the Company's share of capital
investments and operating losses related to the PCS Partnership will increase
from 50% to its percentage ownership of WMC.

U S WEST has the right, which is exercisable after (a) the commencement of Phase
II, (b) the contribution of the PCS Partnership, and (c) the completion of the
Company's transaction with CCI have occurred, but expiring on July 25, 2004, to
exchange its interest in WMC for up to 19.9% of the Company's common stock
outstanding at the time of the exchange. Any such exchange would be made at a
ratio reflecting the appraised private market value of U S WEST's interest in
WMC and the appraised public market value of the shares of the Company's common
stock to be acquired by U S WEST in the exchange. In the event that the value of
U S WEST's interest in WMC determined by such appraisals would result in the
issuance to U S WEST of more than 19.9% of the Company's then outstanding common
stock, U S WEST is entitled to receive the excess in the form of non-voting
preferred stock. The Company has amended its shareholder rights agreement so
that U S WEST will not be deemed to be an "Acquiring Person," as defined
therein, by reason of its rights in connection with the exchange.

U S WEST also has the right, exercisable between July 25, 1999, and July 25,
2009, to exchange its interest in WMC for common stock of the Company to be held
by a trust for purposes of systematic sale to the public. Any such exchange
would be made at a ratio reflecting the appraised private market value of U S
WEST's interest in WMC and an averaged trading price of the Company's common
stock during a period prior to U S WEST's exercise of the right.

The Company has the right to cause the exchange to occur either (a) after the
later of full relief from certain operational restrictions placed on Bell
Operating Companies and July 25, 2004, if there is a deadlock with U S WEST
regarding the management of WMC or (b) at any time after such relief has been
obtained, if at such time U S WEST holds less than 5% interest in WMC.

Upon the exercise by U S WEST of its right to exchange its interest in WMC for
capital stock of the Company, U S WEST will be entitled to certain governance
rights (including representation on the Company's Board of Directors) as well as
registration rights. U S WEST is subject to certain standstill restrictions with
respect to the Company through July 25, 2004, unless such restrictions are
earlier terminated or suspended.

BELL ATLANTIC/NYNEX MOBILE

In October 1994, the Company and U S WEST ("ATI/USW") joined with Bell Atlantic
Corporation and NYNEX Corporation ("BA/NYN") to form a partnership called PCS
PrimeCo to jointly pursue PCS opportunities. PCS PrimeCo is owned equally by
ATI/USW and BA/NYN, and is governed by a board composed of three members from
each of ATI/USW and BA/NYN. In March 1995, PCS PrimeCo was awarded eleven 30 MHz
PCS licenses covering over 57 million POPs with bids of approximately $1.1
billion. The acquired markets complement the existing domestic cellular
franchises of the partners. PCS PrimeCo is in the process of constructing PCS
systems in the 11 markets. 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 PCS 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 PCS PrimeCo through an interest in its PCS Partnership
with U S WEST. The Company's interest in PCS PrimeCo and, accordingly, its share
of capital contributions and losses will increase upon the contribution of the
Company's PCS Partnership with U S WEST to WMC.

                                       45
<PAGE>   46
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Either ATI/USW or BA/NYN may cause PCS 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 and NYNEX each are subject to certain
standstill restrictions with respect to the Company through October 20, 2001,
unless such restrictions are earlier terminated or suspended.

Concurrent with the formation of PCS PrimeCo, ATI/USW and BA/NYN 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/NYN.

Unlike the Company's joint venture with U S WEST, the agreements with BA/NYN do
not provide for a merger of cellular properties. Accordingly, each of ATI/USW
and BA/NYN will continue to hold such properties separately.

CELLULAR COMMUNICATIONS, INC.

The Company's operations in Ohio and Michigan are conducted through New Par, a
general partnership owned equally by the Company and CCI, formed in 1991.

In connection with the formation of New Par, the Company and CCI entered into an
agreement (the "Merger Agreement") under which the Company purchased 5% of the
equity in CCI, agreed to purchase additional equity in CCI and obtained the
right to acquire all of CCI's remaining equity in stages over time. Pursuant to
the Merger Agreement, in October 1995, the Company purchased 10.04 million
shares of stock of CCI at a per share price of $60, for a total of $602.4
million, and options to purchase 10,700 shares for approximately $0.3 million.
As of December 31, 1995, the Company's ownership interest in CCI was
approximately 37.6% of the outstanding stock. Also pursuant to the Merger
Agreement, in January 1996, the Company purchased additional options
representing approximately 2.4 million shares of CCI stock for an aggregate
consideration of approximately $107.7 million. The option purchase did not
affect the Company's percentage ownership of the outstanding stock of CCI. The
average exercise price of the Company's options acquired in 1995 and 1996 is
approximately $15 per share. Under the Merger Agreement, the Company has the
right to increase its ownership in CCI to up to 49% through open market
purchases, privately negotiated transactions, or otherwise.

Pursuant to a process commencing in August 1996, the Company has the right, by
causing CCI to redeem all of its redeemable stock not held by the Company (the
"Redemption"), to acquire CCI, including its interests in New Par and such other
CCI assets and related liabilities as the Company and CCI may agree upon, at a
price per share that reflects the appraised private market value of New Par (and
such other CCI assets and related liabilities as the Company and CCI agree shall
be retained) determined in accordance with an appraisal process set forth in the
Merger Agreement. The Company has the opportunity to evaluate up to three
different appraisal values over a 12-month period pursuant to an appraisal
process that begins in August 1996, prior to determining whether to cause the
Redemption. The Company will finance any Redemption by providing to CCI any
necessary funds.

In the event that the Company does not exercise its right to cause the
Redemption, CCI is obligated to commence promptly a process to sell itself (and,
if directed by the Company, the Company's interest in New Par). In the event
that the Company does not direct CCI to sell the Company's interest in New Par,
such partnership will dissolve and the assets will be returned to the
contributing partner. CCI may, in the alternative, purchase the Company's
interest in CCI or CCI and New Par, as the case may be, at a price based upon
their appraised values determined in accordance with the Merger Agreement. If
CCI or its interest in New Par is sold within certain specified time periods not
to exceed two years for a price less than the appraised private market value,
the Company is obligated to pay to all CCI stockholders a specified percentage
of such shortfall.

The amount and timing of any additional acquisition of any additional equity
interests in CCI will depend upon the Company's evaluation of the market for the
CCI stock, CCI's business, prospects and financial condition, other investment
opportunities available to the Company, prospects for the Company's own

                                       46
<PAGE>   47
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

business, general economic conditions, money and stock market conditions, and
other developments, as well as the Company's rights and obligations under the
Merger Agreement.

CMT PARTNERS

In September 1993, the Company and AT&T Wireless - at the time, McCaw Cellular
Communications, Inc. ("McCaw") - 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 the Wichita and Topeka systems from
McCaw.


F.  INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                 December 31
                                                                 -----------
(Dollars in millions)                                           1995       1994
                                                                ----       ----
<S>                                                            <C>        <C>   
FCC and international licenses, at cost, less
    accumulated amortization of $49.4 and $43.6
    for 1995 and 1994, respectively                            $212.7     $186.1
Goodwill, at cost, less accumulated amortization of                       
    $25.0 and $16.4 for 1995 and 1994,                                   
    respectively                                                376.0      272.4
Other intangible assets, at cost, less accumulated                        
    amortization of $24.5 and $15.5 for 1995 and                          
    1994, respectively                                           17.0       12.0
                                                               ------     ------
                                                               $605.7     $470.5
                                                               ======     ======
</TABLE>

The increase in goodwill of $103.6 million in 1995 is primarily related to the
fourth quarter acquisition of a privately-held paging company. Amortization
expense relating to intangible assets for the years ended December 31, 1995,
1994, and 1993 was $19.4 million, $21.3 million, and $12.5 million,
respectively.

G.  DEBT AND CREDIT FACILITIES

SHORT-TERM DEBT
The Company had no short-term borrowings at December 31, 1995. Short-term
borrowings at December 31, 1994 were $80.0 million and consisted of unsecured
bank loans with a weighted average interest rate of 6.7%.

LONG-TERM DEBT
Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                               December 31
                                                               -----------
(Dollars in millions)                                      1995            1994
                                                           ----            ----

<S>                                                       <C>             <C>   
Revolving credit facility, due 1997                       $ 60.2          $ 52.5
Revolving credit facility, due 1999                         38.8            45.0
Revolving credit facility, due 2000                        664.6              --
Bank promissory note                                        28.7            29.8
Preference share debt                                      105.3              --
Various other notes and obligations                          8.8             2.8
                                                          ------          ------
                                                           906.4           130.1
Less: portion due within one year                           14.0             9.9
                                                          ------          ------
                                                          $892.4          $120.2
                                                          ======          ======
</TABLE>                                                              

In December 1995, the Company guaranteed a seven-year loan in the amount of
$105.3 million by an international banking consortium to a European special
purpose entity ("ESPE"). The loan is also secured by redeemable preference
shares for the same amount, issued to the ESPE by NordicTel Holdings A.B.

                                       47
<PAGE>   48
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

("NordicTel"), a 51% owned subsidiary of the Company. The Company has
consolidated the ESPE. The debt bears interest at Stockholm Interbank Offered
Rate ("STIBOR") plus a margin. At December 31, 1995, the interest rate of these
facilities was 8.75%. Interest payments are conditional on receipt of dividends
on the preference shares and in certain situations can be deferred until the
accrued interest represents 65% of the principal.

The Company has revolving credit facilities which support cellular equipment
purchases by NordicTel. Borrowings bear interest at STIBOR plus a margin. At
December 31, 1995, the weighted average interest rate of these facilities was
9.23%. Borrowings are collateralized by certain of the equipment purchased
thereunder and by shares of a wholly-owned subsidiary of NordicTel. In addition,
NordicTel is restricted in making distributions or interest payments on its
common stock or stockholders' contributions.

The bank promissory note represents a note with a Japanese bank. The note is due
in 1997 with options to extend for two additional years. The note bears interest
at the Euroyen rate plus a margin which is dependent upon the Company's Standard
and Poor's rating. At December 31, 1995, the interest rate was 0.82%.

Annual maturities of long-term debt are as follows: 1996, $14.0 million; 1997,
$75.6 million; 1998, $13.9 million; 1999, $30.0 million; 2000, $665.4 million;
2001 and thereafter, $107.5 million.

REVOLVING LINES OF CREDIT
In July 1995, the Company obtained for general corporate purposes, an unsecured
$2 billion, five-year revolving credit facility (the "Facility") from a
syndicate of banks. The interest rate under the Facility is LIBOR plus an
applicable margin based on the Company's long-term senior unsecured debt rating.
The commitment fee on the available balance will also be determined with
reference to the Company's credit rating. Drawings under the Facility are
available in US dollars or selected foreign currencies, however, drawings of
foreign currencies may not exceed the US dollar equivalent of $300 million.
Borrowings against the Facility totaled $664.6 million at December 31, 1995.

The Company has various other lines of credit with certain banks. At December
31, 1995 and 1994, the total unused amount under all lines of credit was
$1,419.9 million and $130.0 million, respectively.

At December 31, 1995, the Company was in compliance with all covenants
associated with its debt and credit facilities.


H. CAPITAL STOCK

In December 1993, the Company completed a public offering of 68.5 million shares
of newly issued common stock for proceeds of $1,489.2 million, net of
underwriting discounts and direct stock issuance costs.

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.

PREFERRED STOCK
Of the 50 million authorized shares of preferred stock, 6.0 million shares have
been designated as Series A Participating Preferred Stock. There are no
outstanding shares of Series A Participating Preferred Stock. The remaining
authorized preferred stock may be issued in one or more series, and the Board of
Directors is authorized to designate the series and fix the relative rights,
preferences, and limitations of the respective series without any further vote
or action of the stockholders.

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 

                                       48
<PAGE>   49
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.


I.  STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

The Company has a Long-Term Stock Incentive Plan (the "Plan"), under which it
has reserved 24.0 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. Each award has specific terms, including
vesting provisions, at the discretion of the Company.

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, 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.

Notwithstanding the general vesting provisions of restricted stock awards, early
vesting can occur for certain awards, if the Company's initial public offering
stock price ($23 per share) is doubled within a specified period of time.

Compensation expense for NSOs issued at prices less than fair market value at
the grant date, Restricted Stock, and Stock Units is measured at the grant date
and charged to income over the vesting period. Compensation for vested SARs is
recorded at amounts equal to the excess of the current stock price over the fair
market value of the stock at the grant date until exercised.




                                       49
<PAGE>   50
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table summarizes award activity:

<TABLE>
<CAPTION>
                                                                 Exercise Price
                                                 Shares          Range Per Share
                                                 ------          ---------------
<S>                                            <C>               <C>         
Options and SARs granted                        6,369,662        $ 8.51 - $24.00
Restricted stock granted                          840,075                    N/A
Stock units granted                               201,773                    N/A
Options exercised                                (256,315)       $ 8.51 - $18.90
Awards forfeited                                 (120,792)       $20.38 - $28.50
                                               ----------        
Shares issuable under
  outstanding awards at
  December 31, 1994                             7,034,403        $ 8.51 - $28.50
Stock options granted                           7,158,965        $25.88 - $32.25
Restricted stock granted                          284,618                    N/A
Stock units granted                                 7,465                    N/A
Options exercised                                (506,802)       $ 8.51 - $20.88
Awards forfeited                                 (328,697)       $12.09 - $30.25
Restricted stock issued                          (925,277)                   N/A
Stock units issued                               (106,346)                   N/A
                                               ----------        
Shares issuable under
  outstanding awards at
  December 31, 1995                            12,618,329        $10.72 - $32.25
                                               ==========        
</TABLE>

N/A Not applicable

There were options to purchase 3.2 million shares of common stock exercisable at
December 31, 1995, and 9.6 million shares available for future awards.

In addition, the Company granted SARs, which are not a part of the Plan, to an
investment firm that advised Telesis and the Company at the time of the
spin-off. The Company and Telesis each granted SARs covering 350,000 shares of
their respective common stock. The exercise price for the Company's shares is
$20 per share for one half the shares and $24 per share for the remaining shares
($30 per share and $36 per share, respectively, for the Telesis shares). The
SARs are exercisable through April 1997. The SARs may be exercised as to the
Telesis shares or the Company's shares in any order; however, once SARs with an
aggregate value of $6 million have been exercised, the remaining rights are
canceled. At December 31, 1995, SARs with respect to 250,000 shares of the
Company's common stock (representing $2.1 million in value) had been exercised.
The Company has accrued the excess of fair market value over the exercise price
for the remaining shares applicable to the Company.

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 plan 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 358,301 shares and 136,480 shares for 1995 and 1994, respectively.




                                       50
<PAGE>   51
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

J.  INCOME TAXES

The components of income tax expense for each year ended December 31 are as
follows:

<TABLE>
<CAPTION>
(Dollars in millions)                              1995        1994       1993
                                                   ----        ----       ----
<S>                                               <C>         <C>         <C>  
Current:
    Federal                                       $ 77.6      $ 92.6      $48.8
    State and other taxes                           10.5        18.9        7.8
    Foreign                                          0.7         1.3        1.6
                                                  ------      ------      -----
    Total current                                   88.8       112.8       58.2
                                                  ------      ------      -----
Deferred:                                                            
    Federal                                         23.0        (2.5)       8.5
    Change in federal enacted tax rate                --          --        4.4
    State and other taxes                           14.6        (2.0)      (3.3)
    Foreign                                        (13.3)         --         --
                                                  ------      ------      -----
    Total deferred                                  24.3        (4.5)       9.6
                                                  ------      ------      -----
Total income taxes                                $113.1      $108.3      $67.8
                                                  ======      ======      =====
</TABLE>                                                               

The domestic and foreign components of income (loss) before taxes for each year
ended December 31 are as follows:

<TABLE>
<CAPTION>
(Dollars in millions)                           1995         1994         1993
                                                ----         ----         ----
<S>                                            <C>          <C>          <C>   
Domestic                                       $305.5       $247.6       $148.2
Foreign                                         (60.5)       (41.2)       (40.3)
                                               ------       ------       ------
Income before income taxes and                                          
   cumulative effect of accounting                                      
   change                                      $245.0       $206.4       $107.9
                                               ======       ======       ======
</TABLE>                                                               

Significant components of the Company's deferred tax liabilities and assets are
as follows:

<TABLE>
<CAPTION>
                                                                December 31
                                                                -----------
(Dollars in millions)                                        1995         1994
                                                             ----         ----
<S>                                                         <C>          <C>   
Deferred tax liabilities:
   Depreciation and amortization                            $130.4       $121.6
   Domestic equity investments                                89.2         66.7
   Unrealized gains                                           18.3          3.1
   Currency translation adjustment                            13.3          8.8
   Other                                                      45.9         12.5
                                                            ------       ------
                                                             297.1        212.7
                                                            ------       ------
Deferred tax assets:                                                    
   Foreign tax benefits in consolidated                                 
     subsidiaries                                             38.8         10.5
   Equity investments                                           --         18.5
   Accruals deductible when paid                              25.8         20.5
   Organization and start-up costs                            10.9           --
   Other                                                      23.2          2.1
                                                            ------       ------
                                                              98.7         51.6
Less: valuation allowance                                     25.5         10.5
                                                            ------       ------
                                                              73.2         41.1
                                                            ------       ------
Total deferred taxes recorded in                                        
   consolidated balance sheets                              $223.9       $171.6
                                                            ======       ======
                                                                        
Current                                                     $(21.3)      $(33.8)
Noncurrent                                                   245.2        205.4
                                                            ------       ------
Net deferred tax liabilities                                $223.9       $171.6
                                                            ======       ======
</TABLE>                                                               

                                       51
<PAGE>   52
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The net change in the valuation allowance for deferred tax assets was an
increase of $15.0 million related to benefits arising from foreign net operating
loss carryforwards of consolidated subsidiaries. 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 $73.2 million.

At December 31, 1995, the Company had $137.1 million in net operating loss
carryforwards for foreign tax reporting purposes. Of this amount, $118.9 million
can be carried forward indefinitely. The remaining carryforwards expire at
various dates through 2003.

The reasons for differences each year between the statutory federal income tax
rate and the effective income tax rate are provided in the following
reconciliations:

<TABLE>
<CAPTION>
                                                     1995       1994       1993
                                                     ----       ----       ----
<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                                 9.6        7.0       11.5
  State income taxes, net of federal
     tax benefit                                      6.7        5.3        3.7
  Partner share of tax benefit                        0.5        2.6         --
  Nondeductible amortization                          1.7        1.5        3.0
  Tax on international income                        (5.2)       0.7        1.5
  Tax exempt interest                                (0.9)      (2.4)        --
  Change in deferred taxes due to tax
     rate change                                       --         --        4.1
  Net effect of Teletrac asset write-down            (4.5)        --         --
  Other                                               3.3        2.8        4.0
                                                     ----       ----       ---- 
Effective income tax rate                            46.2%      52.5%      62.8%
                                                     ====       ====       ==== 
</TABLE>

At December 31, 1995, $11.6 million of deferred tax liabilities relating to
$32.3 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.

At December 31, 1995, deferred tax liabilities relating to items which were
credited directly to stockholders' equity totaled $31.6 million.

In August 1993, the U.S. Government enacted the Omnibus Budget Reconciliation
Act of 1993 which incorporated new business tax provisions. These included an
increase in the corporate tax rate from 34% to 35% retroactive to January 1,
1993. The Company's adjustment for this change reduced net income by $4.4
million in 1993.


K.  EMPLOYEE BENEFITS

DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan, the AirTouch Communications
Retirement Plan ("Retirement Plan"), which covers substantially all full-time
employees. The Company's contributions to the Retirement Plan are based on a
combination of percentage of pay and on matching a portion of employee
contributions. The cost recognized for the Retirement Plan was $17.0 million,
$16.3 million, and $12.9 million for 1995, 1994, and 1993, respectively.




                                       52
<PAGE>   53
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DEFINED BENEFIT PENSION PLAN
The Company maintains a defined benefit plan, the AirTouch Communications
Employee Pension Plan ("Pension Plan"), under which individuals who were
employees at December 31, 1986, and transferees from Telesis, 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.

In 1993, the Pension Plan was amended to include 130 employees of a joint
venture of Telesis. Also in 1993, 85% of such employees elected early retirement
or termination benefits. This was accounted for as a plan curtailment in
accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Plans and for Termination Benefits," and
resulted in a one-time $3.0 million net gain. Irrespective of this gain, the
Company recognized pension income of $6.1 million, $3.7 million, and $2.7
million for 1995, 1994, and 1993, respectively, using discount rates of 9.0%,
7.5%, and 8.5% for 1995, 1994, and 1993, respectively.

The Pension Plan assets in excess of projected benefit obligations were $50.2
million and $47.3 million as of December 31, 1995 and 1994, respectively. The
prepaid pension costs were $30.6 million and $24.7 million as of December 31,
1995 and 1994, respectively. On January 1, 1987, the Company adopted SFAS 87,
"Employers' Accounting for Pensions," at which time there was a $10.2 million
excess of the fair value of the Pension Plan's assets over projected benefit
obligations. This excess is being recognized through amortization over 17 years.

The assets of the Pension Plan are primarily composed of common stocks, U.S.
Government and corporate obligations, and index funds. The Pension Plan's
projected benefit obligations for employee service to date reflect the Company's
expectations of the effects of future salary progressions of 5.5% per year. As
of December 31, 1995 and 1994, the actuarial present value of the plan's
accumulated benefit obligations, which does not anticipate future salary
increases, was $33.3 million and $22.1 million, respectively. Of these amounts,
$28.4 million and $19.0 million, respectively, were vested. The assumptions used
in computing the present values of benefit obligations include a discount rate
of 7.25% and 9.0% for December 31, 1995 and 1994, respectively. An 8.5%
long-term rate of return on assets was assumed in calculating pension costs in
1995 and 1994.

OTHER POSTRETIREMENT BENEFITS
The Company provides health care benefits for retired employees and their
eligible dependents and provides life insurance benefits to retired employees.
Employees become eligible for these benefits upon retirement with eligibility
for a service pension under the Pension Plan or attainment of "retirement
status" under the Retirement Plan. Substantially all retirees and their
dependents are covered under the Company's plans for medical, dental, and life
insurance benefits. Approximately 95 retirees and dependents were eligible to
receive benefits as of January 1, 1995. As is the case with all of the Company's
benefit plans and programs, the Company retains the right to amend or terminate
these benefits.

A discount rate of 7.25% and 9.0% was used to measure the accumulated
postretirement benefit obligation ("APBO") at December 31, 1995 and 1994,
respectively. As of December 31, 1995 and 1994, the APBO was $16.0 million and
$14.9 million, respectively. The postretirement benefit plans' assets were less
than the accumulated benefit obligations by $15.3 million and $8.8 million as of
December 31, 1995 and 1994, respectively. At December 31, 1995, the
postretirement benefit plans were principally unfunded.

A discount rate of 9.0%, 7.5%, and 8.5% was assumed in calculating the 1995,
1994, and 1993, net periodic postretirement benefit cost, respectively. The
postretirement benefit cost was $1.3 million, $3.7 million, and $2.0 million for
1995, 1994, and 1993, respectively.

An 8.0% annual increase in health care costs is assumed in 1996. The rate of
increase is assumed to decline to an ultimate 5.0% by the year 2002. Should the
health care cost trend rate increase by 1% each 

                                       53
<PAGE>   54
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

year, the 1995 impact would increase the APBO by $2.9 million and the aggregate
of the service and interest cost components of the net period cost by $0.4
million.


L.  TRANSACTIONS WITH FORMER AFFILIATES

SEPARATION AND TRANSITION AGREEMENTS
Prior to the spin-off, the Company and Telesis entered into a separation
agreement that provided for complete separation of all properties after the
spin-off as well as transition agreements that disengaged the affairs of the
Company and Telesis in an orderly manner.

The separation agreement provided that the Company would join in filing
consolidated federal income tax returns with Telesis for all taxable periods in
which the parties were required or permitted to file a consolidated return. In
each taxable period, the Company paid Telesis an amount equal to the Company's
share of the consolidated tax liability based on the Company's separate taxable
income and an amount equal to the Company's contribution to Telesis' state tax
liability. If the Company reported a net operating loss for any such year,
Telesis paid an amount equal to its reduction in tax liability attributable to
such loss. A similar method of allocation was applied to state income taxes
filed pursuant to a combined return.

The separation agreement also provided for the transfer of a limited number of
employees' and retirees' accounts and for indemnification against certain
claims. Telesis and the Company have exchanged such payroll data, service
records, tax-related information, and other employee information necessary for
the effective administration of Company benefit plans and compliance with
governmental reporting requirements.

In general, the separation agreement allocated non-tax liabilities that become
certain after the spin-off according to the origin of the claim and acts by, or
benefits to, Telesis or the Company.

FINANCIAL AND ADMINISTRATIVE SERVICES
Prior to the spin-off, the Company obtained certain administrative services and
other additional services from Telesis and its affiliates ("former affiliates").
Service costs that were specifically attributable to the Company were directly
charged to the Company by Telesis. Other service costs and corporate charges
were allocated proportionately among former affiliates, including the Company.

In the ordinary course of business, the Company participated with former
affiliates in the following transactions prior to the spin-off:

<TABLE>
<CAPTION>

                                                For the        
                                              Three Months       For the Year
                                             Ended March 31   Ended December 31
(Dollars in millions)                             1994               1993
                                             --------------   -----------------
<S>                                          <C>              <C>  
Provided by the Company:                                       
       Revenues from cellular services            $ 0.6              $ 2.7
       Revenues from paging services              $ 0.4              $ 1.7
Provided to the Company:                                           
       Expenses from telephone services           $ 5.5              $28.5
       Expenses from administrative,                               
           research and development, and                           
           insurance services                     $ 6.0              $16.3
       Expenses from lending services                --              $19.6
</TABLE>




                                       54
<PAGE>   55
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


M.  COMMITMENTS AND CONTINGENCIES

CONTINGENCIES
A class action complaint was filed in November 1993 naming the Company as
general partner for Los Angeles SMSA Limited Partnership. In April 1995, Los
Angeles Cellular Telephone Company ("LACTC") was named as a necessary party to
the action. The plaintiff alleged LACTC and the Company conspired to fix the
price of wholesale and retail cellular service in the Los Angeles market. The
plaintiff alleged damages for the class "in a sum in excess of $100 million."
The Company has answered the complaint and is defending itself vigorously.
This case has been consolidated for purposes of discovery with two other class
actions making identical price-fixing allegations. The case has been removed to
federal court. The other cases have been stayed pending resolution of a motion
to remand the case to state court. In addition, two non-class action antitrust
cases brought by cellular agents making similar allegations were settled for
immaterial amounts. In April 1995, a federal class action complaint filed in Los
Angeles was dismissed on a motion for summary judgment. The dismissal was upheld
on appeal. The Company does not believe that these proceedings will have a
material adverse effect on the Company's financial position.

In three separate class action complaints filed during October and November
1994, San Diego (2) and San Francisco (1), all brought by the same counsel,
plaintiffs also allege price-fixing by the two cellular carriers in each market.
In late 1995, the California Court of Appeals reversed a state trial court
decision dismissing the remaining plaintiff in a suit originally brought by a U
S WEST agent against U S WEST and the Company in 1990. The Company does not
believe that these proceedings will have a material adverse effect on the
Company's financial position.

In September 1995, a class action lawsuit was brought on behalf of all the
Company's cellular customers nationwide regarding customer notification of the
Company's practice with respect to billing for fractional minutes of service. No
dispositive motions have been filed in the proceeding and discovery has not yet
begun. The Company believes the lawsuit to be without merit.

The Company is party to various other legal proceedings in the ordinary course
of business. Although the ultimate resolution of these proceedings cannot be
ascertained, management does not believe they will have a material adverse
effect on the results of operations or financial position of the Company.

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 $50.3 million, $35.3 million, and $33.3
million in 1995, 1994, and 1993, respectively.

Future minimum lease payments under noncancelable operating leases with an
initial term of one year or more are as follows at December 31, 1995:

<TABLE>
<CAPTION>
(Dollars in millions)
-----------------------------------------------
<S>                                      <C>   
1996                                     $ 62.1
1997                                       55.9
1998                                       50.5
1999                                       44.7
2000                                       36.2
Thereafter                                 73.6
-----------------------------------------------
Total minimum lease payments             $323.0
===============================================
</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, 1995, the
Company's 


                                       55
<PAGE>   56
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

proportionate share under such arrangements was $151.8 million. The Company
believes it is remote that it will be required to pay under these various
arrangements.

At December 31, 1995, the Company was committed to spend $220.8 million for the
acquisition of property, plant, and equipment, purchases of cellular equipment,
and capital contributions to unconsolidated wireless systems.


N.  TELETRAC

AirTouch Teletrac ("Teletrac"), the Company's vehicle location and fleet
tracking services business (including International Teletrac Systems) reported
pre-tax losses of $25.9 million, $26.1 million, and $41.6 million for each of
the years ended December 31, 1995, 1994 and 1993, respectively. During the third
quarter of 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. The write-down was taken because of Teletrac's continuing
operating losses, despite ongoing cost containment measures, and the Company's
assessment that the cash flows from Teletrac would be insufficient to support
the carrying value of Teletrac's assets. On January 17, 1996, the Company sold
substantially all of Teletrac's assets to Teletrac, Inc., a Delaware corporation
and an unrelated party.


O.  ADDITIONAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                  December 31
                                                                  -----------
(Dollars in millions)                                          1995        1994
                                                               ----        ----
<S>                                                            <C>         <C>  
Selected "Other Current Liabilities":
   Accrued compensation                                        $84.8       $84.5
   Various reserves and accruals                               $48.0       $10.7
   Advance billings and customer deposits                      $38.4       $31.6
   Deferred gain                                               $30.4       $31.9
   Accrued taxes payable                                       $21.9       $54.4
</TABLE>


P.  QUARTERLY FINANCIAL DATA (UNAUDITED)

(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1995                              First       Second        Third      Fourth   
--------------------------------------------------------------------------------
<S>                             <C>          <C>          <C>          <C>      
Operating revenues              $373.9(a)    $403.4(a)    $414.7(a)    $426.6   
Operating income (loss)         $ 54.0       $ 34.6       $ 29.5       $ (5.3)  
Net income                      $ 35.3       $ 38.7       $ 46.7       $ 11.2   
Per share data:                                                                 
    Net income                  $ 0.07       $ 0.08       $ 0.09       $ 0.02   
--------------------------------------------------------------------------------
<CAPTION>                                                                       
1994                              First       Second        Third      Fourth   
--------------------------------------------------------------------------------
<S>                             <C>          <C>          <C>          <C>      
Operating revenues              $277.6(a)    $301.9(a)    $319.7(a)    $347.7(a)
Operating income (loss)         $ 33.9       $ 28.6       $ 16.1       $ (6.0)  
Net income                      $ 27.5       $ 33.1       $ 34.4       $  3.1  
Per share data:                                                                 
    Net income                  $ 0.06       $ 0.07       $ 0.07       $ 0.01  
================================================================================
</TABLE>


The operating loss in the fourth quarter of 1995 was primarily driven by
negative equipment margins associated with high volume holiday promotion
programs occurring in all domestic cellular markets.


                                       56
<PAGE>   57
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The operating loss in the fourth quarter of 1994 was primarily driven by
increased operating expenses, principally due to increased selling expenses for
commissions, advertising and other promotional expenses that were associated
with the rapid growth of domestic cellular subscribers.

(a)  Varies from the amount previously reported on Forms 10-Q and 1994 Form 10-K
     because domestic cellular roaming fraud losses have been reclassified from
     operating revenues to operating expenses. As discussed in Note A, "Summary
     of Significant Accounting Policies -- Basis of Presentation," the
     reclassification did not affect previously reported operating income, net
     income, or accumulated deficit. A reconciliation of previously reported
     amounts is as follows:

<TABLE>
<CAPTION>
                                                            Domestic
                                               Operating    Cellular   Operating
                                              Revenues as    Roaming   Revenues 
                                              Previously     Fraud        as
          (Dollars in millions)                Reported      Losses    Restated
                                               --------      ------    --------
<S>                                           <C>           <C>        <C>   
          Quarter ended March 31, 1995           $367.2       $6.7      $373.9
          Quarter ended June 30, 1995            $395.1       $8.3      $403.4
          Quarter ended September 30, 1995       $407.2       $7.5      $414.7
                                                                      
          Quarter ended March 31, 1994           $276.2       $1.4      $277.6
          Quarter ended June 30, 1994            $300.2       $1.7      $301.9
          Quarter ended September 30, 1994       $317.8       $1.9      $319.7
          Quarter ended December 31, 1994        $341.2       $6.5      $347.7
</TABLE>




                                       57
<PAGE>   58
SELECTED PROPORTIONATE RESULTS OF OPERATIONS

The following 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 and because of the substantial effect of the
formation of certain joint ventures 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, domestic cellular proportionate results
present the Company's share - its percentage ownership - for all significant
domestic cellular operations, including those joint ventures 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.

<TABLE>
<CAPTION>
                                                For the Year Ended December 31
                                                ------------------------------
(Dollars in millions)                            1995        1994        1993
                                                 ----        ----        ----
<S>                                            <C>         <C>         <C>     
TOTAL COMPANY (1)
   Net operating revenues (3)                  $2,605.2    $1,791.8    $1,226.1
   Operating income                            $  296.7    $  171.5    $   97.6
   Operating cash flow (2)                     $  702.3    $  506.1    $  351.5
                                                                      
DOMESTIC CELLULAR                                                     
OPERATING RESULTS                                                     
   Service and other revenues (3)              $1,523.3    $1,160.1    $  892.0
   Equipment sales                                 78.9        74.6        40.2
   Cost of equipment sales                       (125.6)      (82.0)      (42.2)
                                               --------    --------    --------
   Net operating revenues                       1,476.6     1,152.7       890.0
                                               --------    --------    --------
                                                                      
   Cost of revenues (3)                           188.4       136.5       116.3
   Selling and customer operations                544.0       415.2       297.2
   General, administrative, and other                                 
       expenses                                   139.0       122.0        96.9
   Depreciation and amortization                                      
       expenses                                   189.2       185.7       164.7
                                               --------    --------    --------
                                                                      
   Total operating expenses                     1,060.6       859.4       675.1
                                               --------    --------    --------
                                                                      
   Operating income                            $  416.0    $  293.3    $  214.9
                                               ========    ========    ========
                                                                      
   Operating cash flow (2)                     $  605.2    $  479.0    $  379.6
                                               ========    ========    ========
</TABLE>

(1)  Reflects proportionate results exclusive of cost-based investments and
     certain equity-based investments that are not material to the Consolidated
     Financial Statements taken as a whole.

(2)  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.

(3)  Presentation for 1994 has been restated to conform to current year
     presentation. See Note A, "Summary of Significant Accounting Policies -
     Basis of Presentation," to the Consolidated Financial Statements.


                                       58
<PAGE>   59
                      REPORT OF INDEPENDENT ACCOUNTANTS ON

                          FINANCIAL STATEMENT SCHEDULE


To the Board of Directors of AirTouch Communications, Inc.

Our audit of the consolidated financial statements referred to in our report
dated February 23, 1996 appearing on page 39 of the 1995 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.



PRICE WATERHOUSE LLP

San Francisco, California
February 23, 1996

                                     X-1
<PAGE>   60


            REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of AirTouch Communications, Inc.:

Our report on the December 31, 1994 and 1993 consolidated financial statements
of AirTouch Communications, Inc. (AirTouch) is included as an exhibit to the
Form 10-K of AirTouch. In connection with our audit of such financial
statements, we have audited the related financial statement schedule listed in
Item 14(a) of AirTouch's 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 and Lybrand L.L.P.

San Francisco, California

March 13, 1995   



                                     X-2
                                     
<PAGE>   61
                 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 at  Charged to              Balance at
                                    beginning   costs and                  end of
Description                         of period    expenses  Deductions      period
-----------                        ----------  ----------  ----------  ----------
<S>                                <C>         <C>         <C>         <C>  
Year ended December 31, 1995:                                          
 Allowance for doubtful accounts        $10.1       $56.0    $44.9(a)       $21.2
 Deferred tax valuation allowance       $10.5       $28.3    $13.3(b)       $25.5
 Other                                  $ 3.2       $40.1    $ 3.5          $39.8
                                                                            
Year ended December 31, 1994:                                               
 Allowance for doubtful accounts        $ 9.2       $33.8    $32.9(a)       $10.1
 Deferred tax valuation allowance       $ 4.8       $ 5.7       --          $10.5
 Other                                  $ 5.3          --    $ 2.1          $ 3.2
                                                                            
Year ended December 31, 1993:                                               
 Allowance for doubtful accounts        $10.0       $23.8    $24.6(a)       $ 9.2
 Deferred tax valuation allowance       $ 3.0       $ 1.8       --          $ 4.8
 Other                                  $ 1.7       $ 5.7    $ 2.1          $ 5.3
</TABLE>                                                                   




(a)  Amounts reflect items written-off, net of recoveries.
(b)  Amount reflects realization of tax benefit.

                                     X-3