<PAGE>   1
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                                      1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
 
                         COMMISSION FILE NUMBER 1-12342
                                ---------------
 
                         AIRTOUCH COMMUNICATIONS, INC.
 
A DELAWARE CORPORATION                         I.R.S. EMPLOYER NUMBER 94-3213132
 
                             ONE CALIFORNIA STREET
                            SAN FRANCISCO, CA 94111
                                 (415) 658-2000
                                ---------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
            Title of each class                      Name of each exchange on which registered
--------------------------------------------        --------------------------------------------
<S>                                                 <C>
     COMMON STOCK, $.01 PAR VALUE, WITH                       NEW YORK STOCK EXCHANGE
      PREFERRED STOCK PURCHASE RIGHTS                          PACIFIC STOCK EXCHANGE
         6.00% CLASS B MANDATORILY
        CONVERTIBLE PREFERRED STOCK,                          NEW YORK STOCK EXCHANGE
                SERIES 1996
         4.25% CLASS C CONVERTIBLE                            NEW YORK STOCK EXCHANGE
        PREFERRED STOCK, SERIES 1996
</TABLE>
 
Securities registered pursuant to Section 12(g) of the Act: None.
 
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
                                  YES X     NO
                                       --
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
 
Based on the composite closing sales price on March 19, 1997, the aggregate
market value of all voting stock held by nonaffiliates was approximately $12.9
billion. At March 19, 1997, 502,947,400 shares of common stock were outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the following documents are incorporated by reference into the
indicated Parts of this Form 10-K:
 
               1996 Annual Report to Stockholders - Part II
               1997 Proxy Statement - Part III
<PAGE>   2
 
                               TABLE OF CONTENTS
                               ------------------
 
<TABLE>
<S>           <C>                                                                             <C>
                                              PART I
ITEM 1        Business....................................................................       1
ITEM 2        Properties..................................................................      14
ITEM 3        Legal Proceedings...........................................................      14
ITEM 4        Submission of Matters to a Vote of Security Holders.........................      15
 
                                             PART II
ITEM 5        Market for Registrant's Common Equity and Related Stockholder Matters.......      17
ITEM 6        Selected Financial Data.....................................................      17
ITEM 7        Management's Discussion and Analysis of Financial Condition
                and Results of Operations.................................................      17
ITEM 8        Financial Statements and Supplementary Data.................................      17
ITEM 9        Changes in and Disagreements with Accountants on Accounting and Financial
               Disclosure.................................................................      17
 
                                             PART III
ITEM 10       Directors and Executive Officers of the Registrant..........................      18
ITEM 11       Executive Compensation......................................................      18
ITEM 12       Security Ownership of Certain Beneficial Owners and Management..............      18
ITEM 13       Certain Relationships and Related Transactions..............................      18
 
                                             PART IV
ITEM 14       Exhibits, Financial Statement Schedules and Reports on Form 8-K.............      19
</TABLE>
 
Unless the context otherwise requires, references to "AirTouch" or the "Company"
include AirTouch Communications, Inc. and entities over which it has or shares
operational control.
 
When used in this Form 10-K, "cellular service" refers to wireless service
operating at the 800 MHz band in the United States and South Korea and at the
900 MHz band in Europe, and "broadband personal communications service" or "PCS"
refers to wireless service operating at the 1900 MHz band in the United States
and South Korea and at the 1800 MHz band in Europe. The Company considers the
functionality of both services to be similar despite the different bands at
which they operate.
 
This Form 10-K includes trademarks or service marks of the Company and of other
companies that are the property of their respective owner.
 
Proportionate customer data is obtained, for each system over which the Company
has or shares operational control, by multiplying (i) the aggregate number of
customers of such system by (ii) the Company's ownership interest in the
licensee operating such system. Proportionate customer data does not include
information with respect to the Company's cost-based investments or with respect
to certain equity-based investments that are not material to the proportionate
information presented.
 
The term "POPs" means the population of a licensed market (based on population
estimates for such market) multiplied by the Company's ownership interest in a
licensee operating in that market as of the date specified, and include networks
under construction and the markets of certain equity-based and cost-based
investments not included in proportionate operating results.
 
Private Securities Litigation Reform Act Safe Harbor Statement: When used in
this Report, the words "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially. For a discussion of such risks, see Business-Investment
Considerations. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
<PAGE>   3
 
                                     PART I
 
ITEM 1.  BUSINESS.
 
OVERVIEW
 
AirTouch Communications, Inc. is one of the world's leading wireless
telecommunications companies, with significant wireless interests in the United
States, Europe and Asia. The Company's worldwide cellular and broadband personal
communications service ("PCS") interests represented over 178 million POPs and
more than 5 million proportionate customers at December 31, 1996. In the United
States, the Company had approximately 58 million proportionate cellular and
broadband PCS POPs and over 3.4 million proportionate customers as of the end of
1996. The Company controls or shares control over cellular systems in ten of the
30 largest cellular markets, including Los Angeles, San Francisco, San Diego,
Detroit and Atlanta, and through PrimeCo Personal Communications, L.P.
("PrimeCo"), shares control over 11 major broadband PCS markets.
Internationally, as of December 31, 1996, the Company had over 120 million
cellular and broadband PCS POPs and more than 1.7 million proportionate
customers, and held significant ownership interests, with board representation
and significant operating influence, in cellular systems operating in Belgium,
Germany, India (Madras and Madhya Pradesh), Italy, Japan, Poland, Portugal,
Romania, Sweden, South Korea and Spain. Based on industry surveys, the Company
is also among the largest providers of paging services in the United States,
with approximately 2.9 million units in service at December 31, 1996.
 
The Company's objective is to be the premier provider of wireless
telecommunications services worldwide. To achieve its objective, the Company
seeks to expand its scale and scope in its wireless operations in order to
increase marketing effectiveness and achieve operating cost savings and
efficiencies; pursues wireless licenses in new countries; selectively increases
ownership interests in existing wireless markets; and pursues other
value-creating opportunities around the world.
 
In response to the continuing evolution of telecommunications technology and
customer requirements, the Company is evaluating the possibility of expanding
its operations into lines of business beyond its historical base of high
mobility wireless services where such expansion would enhance or complement
existing wireless services. Areas of possible expansion could include: wireless
local loop (the construction and operation of dedicated wireless networks
designed to compete directly with or substitute for wireline networks);
international long-distance service for the Company's wireless subscribers; and
international wireline long-distance services that complement the Company's
wireless properties. Any decision by the Company to enter any of these lines of
business will depend on the Company's evaluation of its ability to create value
by employing the assets or expertise of its wireless operations, including
networks and customer bases, as well as the standalone attractiveness of the
opportunity.
 
INVESTMENT CONSIDERATIONS
 
COMPETITION
 
The sale of cellular and paging services in each of the Company's markets has
become increasingly competitive. In the United States, where the Company
previously had one cellular competitor in each market, the Company in the near
future could face up to eight wireless competitors due to the introduction of
broadband PCS on frequencies auctioned by the FCC in 1995 and 1996 and
specialized mobile radio ("SMR") services on existing SMR frequencies. Broadband
PCS providers began service in some of the Company's markets in the United
States in late 1996, and competitors are expected to begin offering broadband
PCS in the remainder of the Company's markets during 1997. Broadband PCS is
expected to be highly competitive with the Company's cellular service. Broadband
PCS providers will offer digital service, which may be more attractive to
certain customers than analog service. The Company currently offers digital
cellular service in two of its managed markets in the United States and has
plans to offer digital cellular service in all of its United States managed
markets by 1998. One SMR operator is currently offering digital SMR service in
many of the Company's United States markets and has begun to deploy a nationwide
SMR system. Depending on features such as voice quality, system reliability and
coverage, marketing and pricing, SMR service may be competitive with the
Company's United States cellular service. The Telecommunica-
 
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<PAGE>   4
 
tions Act of 1996 may have removed certain restrictions on the ability of the
Company's competitors to offer as a single package a variety of services, such
as wireless voice and data, paging, long-distance, local landline and cable
services, some of which the Company does not currently provide. Increased
competition could result in pricing pressure, which contributes to lower
revenues per customer, and in higher customer acquisition costs, resulting in
lower profit margins. While the Company's average revenues per customer declined
in 1996, the Company managed to reduce operating cash costs at an equal or
greater rate. However, as competition intensifies, there can be no assurance
that the Company will be able to continue to match revenue declines with
reductions in operating cash costs.
 
There is also significant competition in the Company's international markets.
For example, in Poland there are three wireless competitors. In Germany and
Sweden, recent license awards will bring the total number of competitors in each
of those markets to four. In Japan there are as many as four digital cellular
licensees and three Personal Handy Phone licensees in certain regions. In South
Korea, the government has recently issued three new PCS licenses, bringing the
total number of licensees in that market to five. Government-operated cellular
systems in these and other countries have become increasingly competitive with
privately operated systems. It is expected that additional licenses will be
issued in many of the markets in which the Company and its ventures provide
services. For instance, it is expected that the Portuguese government will issue
an additional cellular or broadband PCS license in 1997 or 1998. In addition,
subject to certain exceptions, European Community Directive 96/2 prohibits
member states from refusing to allocate licenses for broadband PCS spectrum
after January 1, 1998, which may result in the entrance of new competitors to
the European markets in which the Company's ventures operate. In 1998
telecommunications regulation in the European Union ("EU") will be significantly
liberalized, enabling a broader group of companies to gain wider access to the
telecommunications industry. Certain countries, including Portugal and Greece,
have received EU authorization to delay certain aspects of liberalization beyond
1998.
 
TECHNOLOGY
 
The operations of the Company and its ventures depend in part upon the
successful deployment of continuously evolving wireless communications
technologies. The Company uses technologies from a number of vendors and makes
significant capital expenditures in connection with the deployment of such
technologies. There can be no assurance that such technologies will be developed
according to anticipated schedules, that they will perform according to
expectations or that they will achieve commercial acceptance. The Company may be
required to make more capital expenditures than currently expected if vendors
fail to meet anticipated schedules, if a technology's performance falls short of
expectations or if commercial acceptance is not achieved.
 
LICENSE RENEWAL
 
The Company's international and United States wireless licenses are granted for
specific periods of time. The most significant United States cellular and paging
licenses are granted for a period of ten years. The Company believes that each
of its expiring United States licenses will be renewed based upon its prior
experience with expired licenses and upon FCC rules establishing a presumption
in favor of licensees that have substantially complied with their regulatory
obligations during the initial license period. The terms of the licenses granted
to the Company's international ventures and conditions for license renewal vary
from country to country. In some countries, there is no specified mechanism for
license renewal, and accordingly it is not certain what criteria will be used by
the governments of those countries to determine whether the licenses should be
renewed. There can be no assurance that any United States or international
license will be renewed.
 
FUTURE FUNDING REQUIREMENTS
 
The Company's existing capital obligations, as well as any additional
obligations arising from the Company's pursuit of acquisitions and other new
opportunities, may require the Company to seek additional sources of financing
in the next few years. The Company may seek such financing in the form of equity
or debt. The Company's senior unsecured long-term debt has been assigned a
rating of BBB+ by Standard & Poor's Ratings Group and a rating of Baa2 by
Moody's Investors Service, Inc. and its commercial paper has been
 
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<PAGE>   5
 
assigned a rating of A-2 by Standard & Poor's and P-2 by Moody's, based in part
upon each agency's respective analysis of the expected future financial
performance of the Company. These ratings may be revised or withdrawn by the
rating agency at any time, and there can be no assurance that the Company will
be able to maintain such ratings.
 
LOSSES FROM STARTUP OPERATIONS
 
Over the past several years, the Company's consortia were awarded digital
cellular licenses in India, Italy, Japan, Poland, Romania, South Korea and
Spain, and the Company is continuing to pursue selected opportunities in
international markets. In March 1995, PrimeCo was awarded eleven 30 MHz licenses
in the FCC's broadband PCS auctions for a license cost of approximately $1.1
billion. The Company's indirect interest in PrimeCo is currently 25%, but will
increase upon the contribution by U S WEST and the Company of their respective
interests in PrimeCo to their cellular partnership. As a result of costs
associated with the foregoing international and United States system
deployments, the Company's startup investments will incur losses which will, at
least in the near term, have a dilutive effect on the Company's earnings. See
"United States Cellular Operations -- Joint Ventures -- U S WEST Transaction;
PrimeCo Personal Communications."
 
DILUTION FROM U S WEST TRANSACTION
 
The Company and U S WEST have entered into a transaction to combine their United
States cellular properties and their jointly owned PCS assets into a partnership
(the "Cellular Partnership"). See "United States Cellular Operations -- Joint
Ventures -- U S WEST Transaction" for a description of that transaction. The
Company could experience earnings dilution in connection with the contribution
of its and U S WEST's cellular and PCS properties to the Cellular Partnership.
The extent of such dilution, which could be material, will depend on the
relative profitability of the Company's and U S WEST's respective operations
subsequent to their contribution to the partnership. U S WEST has the right to
exchange its interest in the Cellular Partnership 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 the Cellular Partnership 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 the
Cellular Partnership 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 which is redeemable at any time following issuance, at the option of U S
WEST, for cash or, at the option of the Company, for the Company's common stock.
The Company expects that an issuance of its shares as described above would
result in per share earnings dilution.
 
ANTITRUST PROCEEDINGS
 
The Company believes that its cellular and paging pricing and marketing
practices were and are in compliance with antitrust laws. However, the Company
is a defendant in a number of class action complaints with respect to its Los
Angeles, San Francisco and San Diego cellular operations which allege that the
Company conspired to fix retail and wholesale cellular prices. The Company does
not believe that these proceedings will have a material adverse effect on the
Company's financial condition. No assurance can be given as to the foregoing,
however, or that any disposition of these proceedings, if adverse to the
Company, might not have a material adverse affect on the Company's results of
operations in the year of such disposition. See "Legal Proceedings."
 
IMPLICATIONS OF LICENSEE OWNERSHIP STRUCTURE
 
The Company holds most of its United States cellular properties and broadband
PCS properties through partnership interests, a number of which are controlling
interests. Upon the contribution of certain of the Company's United States
cellular properties to the Cellular Partnership with U S WEST, U S WEST will
have certain governance rights in the Cellular Partnership. In addition, most of
the Company's interests in international wireless licenses are held through
foreign entities in which the Company is a significant, but not controlling,
owner. Under the governing documents for certain of these partnerships and
corporations, certain
 
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<PAGE>   6
 
key matters such as the approval of business plans and decisions as to the
timing and amount of cash distributions require the consent of the Company's
partners or may be approved without the consent of the Company. Although the
Company has not been materially constrained by the nature of its wireless
ownership interests from pursuing its corporate objectives, no assurance can be
given that it will not experience difficulty in this regard in the future. The
Company may enter into similar arrangements as it participates in consortia
formed to pursue additional opportunities.
 
EXCHANGE RATE FLUCTUATIONS
 
Foreign currency exchange rates are increasingly material to the Company's
results of operations. The Company evaluates the risk of significant exchange
rate volatility and its ability to hedge against such volatility as part of its
decision whether to pursue an international opportunity. A significant weakening
against the dollar of the currency of a country where the Company generates
revenues or earnings may adversely affect the Company's results, while any
weakening of the dollar against such currency could have an adverse effect if
the Company is obligated to make significant foreign currency denominated
capital investments in such country. The Company attempts to mitigate the effect
of foreign currency fluctuations through the use of foreign currency contracts
and foreign denominated credit arrangements. There can be no assurance that the
Company will be successful in its foreign currency hedging efforts.
 
FRAUD
 
The cellular industry continues to be subject to fraudulent activity. Cloning,
which is one form of such fraud, refers to the use of scanners and other
electronic devices to illegally obtain telephone numbers and electronic serial
numbers during cellular transmission. The 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 phone
programmed with a number stolen from one of the Company's customers is used to
place fraudulent calls from another carrier's market, resulting in a roaming fee
charged to the Company that cannot be collected from the customer. Cloning is
present primarily in the Company's United States markets. The Company is working
to reduce the negative impacts of fraud through the deployment of new
technologies and other measures. In its own markets, the Company has had
significant success in detecting and limiting fraudulent usage of numbers stolen
from the Company's customers. However, the Company continues to experience
significant levels of roaming fraud in its United States cellular markets. The
cost of cellular fraud could have a significant impact on the Company's
operating results for the foreseeable future.
 
UNITED STATES CELLULAR OPERATIONS
 
The Company is one of the largest providers of cellular services in the United
States, with interests in some of the most attractive cellular markets based
upon total population and demographic characteristics. The Company's United
States cellular interests represented over 43 million POPs and more than 3.4
million proportionate customers at December 31, 1996. The Company has or shares
operational control over cellular systems in Los Angeles, San Francisco, San
Diego, Atlanta, Detroit, Cleveland, San Jose, Sacramento, Cincinnati and Kansas
City. These cities represent ten of the 30 largest cellular markets in the
United States. The Company has management control over the systems operating in
Los Angeles, San Diego, the Sacramento Valley, Atlanta and the Great Lakes
market (Detroit, Cleveland, Cincinnati, Columbus and other markets in Michigan
and Ohio).
 
                                        4
<PAGE>   7
 
The following table sets forth the Company's United States cellular POPs by
geographic area at December 31, 1996.
 
<TABLE>
<CAPTION>
                              GEOGRAPHIC REGION(1)
--------------------------------------------------------------------------------   POPS(2)
                                                                                --------------
                                                                                (IN MILLIONS)
<S>                                                                             <C>
Michigan and Ohio...............................................................      16.4
Southern California.............................................................      16.0
Georgia.........................................................................       3.7
San Francisco Bay Area..........................................................       3.2
Sacramento Valley...............................................................       1.9
Kansas/Missouri.................................................................       1.5
Other United States interests...................................................        .7
                                                                                     ----
United States cellular total....................................................      43.4
                                                                                     ====
</TABLE>
 
---------------
(1) Does not indicate coverage of entire geographic area.
 
(2) Population numbers obtained from Paul Kagan Associates Inc. "1996
    Cellular/PCS POP Book" population estimates.
 
MARKETING
 
The Company aggressively markets its cellular services in its managed markets
under the AirTouch Cellular name through its own sales force and arrangements
with independent agents, as well as through newspaper, television, and radio
advertising and telemarketing via toll-free telephone numbers. In certain
markets, the Company's cellular service is sold through resellers who, pursuant
to FCC requirements, are allowed to purchase blocks of cellular telephone
numbers and to access cellular services at wholesale rates for resale to the
public. Agents are independent contractors who solicit customers for the
Company's cellular service, and typically include specialized cellular stores,
automobile dealers, specialized electronics stores and department stores. The
Company generally pays its agents a commission for each customer who uses the
Company's service for a specified period and makes residual payments to the
agent based on the customer's ongoing service charges. The Company has been
taking steps to align sales costs with revenues by emphasizing residual payments
to agents over upfront commissions and utilizing Company controlled distribution
channels such as direct sales and telemarketing. The Company has increasingly
targeted the consumer market with special promotions and pricing plans and by
expanding into consumer electronics stores and other mass-market distribution
channels.
 
The Company's systems in the San Francisco Bay Area, Kansas and Missouri market
cellular service under the CellularOne(R) brand name.
 
In May 1996, U S WEST Cellular assumed the AirTouch Cellular brand name
throughout most of its 12-state service area. U S WEST Cellular properties cover
20 million people including the major cellular markets of Seattle, Portland,
Denver, Phoenix, Minneapolis/St. Paul and Salt Lake City. The AirTouch Cellular
brand now covers most states west of the Mississippi. See "-- Joint Ventures; U
S WEST Transaction."
 
SERVICES
 
The Company maintains a customer service department in each of its managed
cellular markets for billing and service inquiries. In most markets the Company
offers custom calling services such as voice mail, call forwarding, call
waiting, three way calling, no-answer and busy transfer. The Company also offers
a variety of other enhanced features, including display messaging, which allows
a cellular phone to receive and store voice mail messages, short alphanumeric
messages and pages even if the handset is in use or switched off, and enhanced
directory assistance, which enables callers to be connected to the party whose
number was requested without hanging up and redialing. In Sacramento, the
Company has introduced a service called the Answer(TM), which features a
pre-paid cellular calling card, no monthly service charge, no contract
commitment, and no
 
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<PAGE>   8
 
billings. In 1996, the Company introduced Powerband(SM) in its Los Angeles and
San Diego markets. Powerband(SM) is digital cellular service based on the Code
Division Multiple Access ("CDMA") technology and offers customers a variety of
enhanced features. The Company plans to introduce Powerband(SM) in all of its
managed markets by 1998.
 
The Company charges its customers for service activation, monthly access,
per-minute airtime and custom calling features, and generally offers a variety
of pricing options, most of which combine a fixed monthly access fee and
per-minute charges. The Company pays the local telephone service company
directly for interconnection of cellular networks with the wireline telephone
network. In 1996 and early 1997, the Company executed new interconnection
agreements with the major local carriers in its managed markets that are
expected to result in significant savings on interconnect costs in 1997.
Customers are billed directly by their selected long-distance carrier or by the
Company, which provides the billing service for a fee to the long-distance
carrier. The Company offers long-distance service to its cellular customers in
its managed markets as a reseller.
 
RESELLER SERVICES
 
The Company intends to commence reselling cellular service in the San Francisco
Bay Area under the name AirTouch Cellular in 1997. The Company is currently a
partner with AT&T Wireless Services, Inc. ("AT&T Wireless," successor in
interest to McCaw Cellular Communications, Inc. ("McCaw")), in CMT Partners,
which offers cellular service in the San Francisco region. See "-- Joint
Ventures; CMT Partners." The Company intends to resell the cellular services of
CMT Partners. The Company may pursue opportunities to resell cellular service
under the AirTouch Cellular name in other strategic markets where that brand
name is not currently present. In addition, the Company may explore
opportunities to resell other related telecommunications services if it
determines that they would enhance its current cellular offerings. The Company
already resells long-distance service in connection with cellular service in its
managed markets.
 
TECHNOLOGY
 
Currently, in most of the Company's cellular markets the radio transmission
between the cellular telephone and the cell site is an analog transmission, and
both the cellular telephone and the transmitting equipment are designed to send
and receive voice signals exclusively in this mode. The Company believes that
digital cellular technology offers many advantages over analog technology,
including substantially increased capacity, greater call privacy, lower
operating costs, reduced susceptibility to fraud and the opportunity to provide
improved data transmissions. However, the Company expects that analog and
digital technologies will continue to coexist for the foreseeable future due to
continued demand for analog service and the fact that analog networks provide
the only common roaming platform currently available throughout the United
States. Manufacturers currently offer dual-mode cellular telephones capable of
sending and receiving both analog and digital transmissions, thereby
facilitating roaming by digital users. However, no manufacturers currently offer
dual-mode cellular telephones capable of receiving transmissions from multiple
digital technologies.
 
The Company has selected CDMA as its United States digital technology. The
Company was an early proponent of CDMA research and worked with Qualcomm
Incorporated ("QUALCOMM") and others to develop this technology. The Company
introduced CDMA service on a commercial basis in May 1996 in portions of its Los
Angeles market, focusing first on transferring high-usage customers to the CDMA
network. CDMA commercial service was introduced in San Diego in November 1996.
PrimeCo has deployed CDMA technology, and the Company's three PrimeCo partners,
Bell Atlantic, NYNEX and U S WEST, have also chosen CDMA as their digital
cellular standard.
 
CMT Partners introduced digital cellular service based on Time Division Multiple
Access ("TDMA") technology in the San Francisco Bay Area in October 1993.
 
COMPETITION
 
The cellular services industry in the United States is highly competitive.
Cellular systems compete principally on the basis of network quality, customer
service, price and coverage area. The Company believes that its
 
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<PAGE>   9
 
technological expertise, emphasis on quality and customer service, large
coverage areas, and development of new products and services make it a strong
competitor. For further discussion of competition, see "Business -- Investment
Considerations -- Competition."
 
JOINT VENTURES
 
CCI MERGER.  In April 1996, the Company and Cellular Communications, Inc.
("CCI") entered into a merger agreement pursuant to which the Company agreed to
acquire the 63% of CCI's stock that it did not already own in an alternative
transaction to that set forth in a 1990 merger agreement between the parties.
The Company completed its acquisition of CCI on August 16, 1996. The acquisition
cost to the Company was approximately $1.6 billion including liabilities less
cash and cash equivalents acquired. The merger consideration consisted of
$1,040.3 million in AirTouch convertible preferred securities, $393.3 million in
cash, and AirTouch stock options valued at approximately $17.0 million.
Preferred securities issued in connection with the acquisition consisted of
17,237,394 shares of 6.00% Class B Mandatorily Convertible Preferred Securities,
Series 1996 and 11,069,958 shares of 4.25% Class C Convertible Preferred
Securities, Series 1996.
 
CMT PARTNERS.  In September 1993, the Company and AT&T Wireless (at the time,
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 McCaw's Wichita and Topeka systems. CMT Partners is governed by a
four-person committee consisting of two members from each company. CMT Partners
has a fifteen year term, ending in 2008, which may be extended by either partner
or shortened under certain circumstances. Upon dissolution of CMT Partners its
assets will be sold unless either the Company or AT&T Wireless elects to have
the assets distributed in kind to the partners.
 
U S WEST TRANSACTION.  In July 1994, the Company and U S WEST, Inc. ("U S WEST")
entered into an agreement to combine their United States cellular properties in
a multi-phased transaction. During the initial phase of the transaction ("Phase
I"), the companies formed a jointly owned management company to provide support
services to both companies' United States cellular operations, which remain
separately owned and operated throughout Phase I. The parties are currently in
Phase I of the transaction. In May 1996, U S WEST began providing cellular
services under the AirTouch Cellular brand name throughout most of its 12 state
service area.
 
In the second phase of the transaction ("Phase II"), the parties will combine
certain of their United States cellular properties in a partnership (the
"Cellular Partnership"). The closing of Phase II is conditioned upon the
satisfaction of certain conditions, including the ability of AirTouch and U S
WEST to contribute at least 60% of their respective United States cellular
interests to the Cellular Partnership, measured on the basis of the adjusted
POPs represented by such interests and, in the case of AirTouch, excluding POPs
of the Great Lakes markets. Although the Company and U S WEST are currently
seeking to obtain the regulatory and other approvals and consents necessary to
enter into Phase II, the Company does not believe that Phase II will commence
prior to mid-1997. Under the terms of the parties' agreement, Phase II must
occur by July 25, 1998, if all closing conditions have been satisfied. If all
closing conditions to Phase II have not been satisfied by July 25, 2004, the
agreement will terminate.
 
As part of the 1994 transaction, the companies also formed an equally owned PCS
partnership (the "PCS Partnership"), which is a 50% partner in PrimeCo. The
Company and U S WEST plan to contribute their respective interests in the PCS
Partnership to the Cellular Partnership. The timing of such contribution is at U
S WEST's discretion and will occur either at the commencement of Phase II or at
a later 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 to PrimeCo for the buildout of its PCS markets and that it
will continue to 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 the Cellular Partnership, 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 the
Cellular Partnership.
 
                                        7
<PAGE>   10
 
If the Company and U S WEST were to contribute all of their United States
cellular properties (but not their interests in the PCS Partnership) at the
commencement of Phase II, the Company would own approximately 74% of the
Cellular Partnership and U S WEST would own approximately 26%. However, the
actual ownership interest of the Company and U S WEST in the Cellular
Partnership at the commencement of Phase II of the transaction or at any given
point in time thereafter will depend, among other things, on the ability of the
companies to contribute their respective United States cellular properties, the
timing of the contributions of such properties, and the timing and value of the
PCS Partnership contribution. Some of the cellular interests of AirTouch and U S
WEST, including their general partner interests in Los Angeles and Seattle,
respectively, are subject to consent provisions in connection with certain
transactions. In addition, other partnership interests may, under certain
circumstances, be subject to rights of first refusal provisions in favor of
third parties. Such provisions may result in certain of the parties' properties
not being contributed to the Cellular Partnership. No assurance can be given
that any necessary consents will be obtained or that rights of first refusal
will not be exercised. A Washington state court has ruled that by entering into
the transaction with AirTouch, U S WEST has withdrawn as general partner of its
Seattle partnership, entitling the limited partners to attempt to secure
unanimous consent to a substitute general partner to purchase U S WEST's
partnership interest. The court has also ruled that U S WEST must allow the
other limited partners the opportunity to exercise their rights of first refusal
with respect to U S WEST's limited partner interest in the Seattle partnership.
U S WEST has indicated its intention to appeal the court's order. The Washington
court order does not prohibit the parties from proceeding to Phase II of their
transaction without the Seattle market. In February 1997, litigation was
initiated to resolve similar issues with respect to U S WEST's interests in
partnerships that provide cellular service in Tucson, Duluth, Olympia and other
rural service area markets.
 
In the third phase of the transaction ("Phase III"), U S WEST has the right to
exchange its interest in the Cellular Partnership for up to 19.9% of the
Company's common stock outstanding at the time of the exchange, which right is
exercisable after (i) the commencement of Phase II and (ii) the contribution of
the PCS Partnership. This right expires on July 25, 2004. Any such exchange
would be made at a ratio reflecting the appraised private market value of U S
WEST's interest in the Cellular Partnership and the appraised public market
value of the shares of the Company's capital stock to be acquired by U S WEST in
the exchange. In the event that the value of U S WEST's interest in the Cellular
Partnership 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
which is redeemable at any time following issuance, at the option of U S WEST,
for cash or, at the option of the Company, for the Company's common stock. The
Company has amended its stockholder rights agreement so that U S WEST will not
be deemed to be an Acquiring Person, as defined therein, by reason of the
exchange.
 
U S WEST also has the right, exercisable between July 25, 1999, and July 25,
2009, to exchange its interest in the Cellular Partnership 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 the Cellular Partnership and an average
trading price of the Company's common stock during a period prior to U S WEST's
exercise of the right. U S WEST has the right to cause the exchange to occur
either (a) after full relief from certain operational restrictions placed on
Bell Operating Companies or July 25, 2004, whichever is later, if there is a
deadlock with U S WEST regarding the management of the Cellular Partnership or
(b) at any time after such relief has been obtained, if at such time U S WEST
holds less than a 5% interest in the Cellular Partnership.
 
If U S WEST exercises its right to exchange its interest in the Cellular
Partnership for capital stock of the Company, U S WEST will be entitled to
representation on the Company's Board of Directors and will be subject to
certain voting restrictions. U S WEST is subject to certain standstill
restrictions with respect to the Company through July 24, 2004, unless such
restrictions are earlier terminated or suspended. U S WEST is also prohibited
from selling, exchanging, transferring or otherwise disposing of the Company's
common stock received in Phase III (or any interest therein) prior to July 25,
1999 (except for transfers to direct or indirect wholly-owned subsidiaries of U
S WEST), and thereafter is subject to certain transfer restrictions and rights
of first refusal and is entitled to certain registration rights.
 
                                        8
<PAGE>   11
 
The Company could experience earnings dilution in connection with the
contribution of its and U S WEST's United States cellular properties to the
Cellular Partnership. The extent of such dilution, which could be material, will
depend on the properties contributed and the relative profitability of the
Company's and U S WEST's respective operations subsequent to the contributions
of such operations. Also, subsequent to the commencement of Phase II, the
Company and U S WEST will each deconsolidate for financial reporting purposes
the operations they contribute to the Cellular Partnership, using instead the
equity method of accounting to report their respective percentage interests in
subsequent operating results of the Cellular Partnership. The Company also
expects that an issuance of its shares at Phase III would result in per share
earnings dilution. The Company cannot precisely assess the future impact of its
transaction with U S WEST on the Company's results of operations due to, among
other things, uncertainty surrounding: the timing of Phase II; the parties'
ability to contribute certain of their cellular properties to the Cellular
Partnership; the timing of the contribution of the PCS Partnership to the
Cellular Partnership; and the occurrence and timing of Phase III. The Company is
currently exploring how best to resolve these uncertainties and achieve the
objectives of the transaction.
 
PRIMECO PERSONAL COMMUNICATIONS.  In October 1994, the PCS Partnership between
the Company and U S WEST joined with a partnership between Bell Atlantic and
NYNEX ("BA/NYN ) to form a partnership to jointly pursue PCS opportunities,
called PrimeCo Personal Communications, L.P. PrimeCo is owned equally by the PCS
Partnership and BA/NYN, and is governed by a board composed of three members
from each of the PCS Partnership and BA/NYN. In March 1995, PrimeCo was awarded
eleven 30 MHz PCS licenses covering over 57 million POPs in the Chicago, Dallas,
Tampa, Houston, Miami, New Orleans, Milwaukee, Richmond, San Antonio,
Jacksonville and Honolulu markets with bids of approximately $1.1 billion. The
acquired markets complement the existing United States cellular franchises of
the partners. PrimeCo began providing service in 16 cities in November 1996 and
continues to develop and expand its PCS systems in its 11 markets. As of
December 31, 1996, PrimeCo had over 37,000 customers. The Company has already
contributed its share of the PCS license costs and of certain buildout expenses.
Additionally, the Company expects to continue to make significant capital
contributions to PrimeCo and to experience substantial operating losses
associated with the start-up phase of the PCS business, which is expected to
last several years. Currently, the Company has a 25% indirect interest in
PrimeCo, through an interest in its PCS Partnership with U S WEST. The Company's
interest in PrimeCo, and accordingly its share of capital contributions and
losses, will increase upon the contribution by the Company and U S WEST of their
respective interests in the PCS Partnership to the Cellular Partnership. "See
United States Cellular -- Joint Ventures -- U S WEST Transaction."
 
Either the PCS Partnership or BA/NYN may cause PrimeCo to be dissolved on
October 20, 2001, and any PCS properties owned by it to be allocated between
them according to agreed 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.
 
TOMCOM.  Concurrent with the formation of PrimeCo, AirTouch and U S WEST and
Bell Atlantic and NYNEX formed another partnership called TOMCOM, L.P. TOMCOM
was formed to develop technical and service standards for the partners' wireless
properties, pursue national marketing strategies, develop information
technology, create a national distribution strategy and implement joint
purchasing arrangements. TOMCOM is governed by a board composed of three members
from an AirTouch/U S WEST partnership and three members from a Bell
Atlantic/NYNEX partnership.
 
Unlike in the Company's transaction with U S WEST, the agreements with Bell
Atlantic and NYNEX do not provide for a merger of cellular properties.
Accordingly, each of the AirTouch/U S WEST partnership and the Bell
Atlantic/NYNEX partnership will continue to hold such properties separately.
 
                                        9
<PAGE>   12
 
INTERNATIONAL CELLULAR OPERATIONS
 
The Company's international cellular interests represented over 120 million POPs
and 1.7 million proportionate customers at December 31, 1996.
 
              OVERVIEW OF INTERNATIONAL CELLULAR AND PCS VENTURES
          (ALL INFORMATION AS OF 12/31/96 UNLESS OTHERWISE INDICATED)
 
<TABLE>
<CAPTION>
                                    MARKET
                                  POPULATION         SERVICE          TOTAL                   TOTAL
                                      (IN          INITIATION        VENTURE     AIRTOUCH   LICENSEES
        COUNTRY/VENTURE          MILLIONS)(1)         DATE          CUSTOMERS   INTEREST(2) IN MARKET
-----------------------------------------------   -------------     ----------  ----------  ---------
<S>                             <C>               <C>               <C>         <C>         <C>
Belgium/Belgacom Mobile.........       10.1              1/94(3)      410,000      25.0%        2
Germany/Mannesmann Mobilfunk....       81.5              6/92       2,313,000      34.8%        4
India -- Madhya Pradesh/CCIL....       72.7              2/97               *      49.0%        2
India -- Madras/RPG Cellcom
  Limited.......................        6.7              9/95          11,000      20.0%        2
Italy/Omnitel-Pronto Italia.....       57.5             10/95         713,000      15.5%(4)     2
Japan
  Tokyo Digital Phone Company...       42.2              4/94               *      15.0%        7
  Kansai Digital Phone
     Company....................       20.6              5/94               *      13.0%        7
  Central Japan Digital Phone
     Company....................       14.4              7/94               *      13.0%        7
                                                                    ---------
                                                                    1,845,000
Japan
  Digital TU-KA(5)..............       46.3         1/96-2/97         532,000       4.5%        7
Poland/Polkomtel................       38.9             10/96          49,050      19.3%        3
Portugal/Telecel................       10.5             10/92         331,000      50.9%        2
Romania/MobiFon.................       22.7              3/97              --      10.0%(6)     3
Sweden/NordicTel Holdings.......        8.9              9/92(3)      281,000      51.1%        4
South Korea/Shinsegi............       45.6              4/96         290,000      10.7%        5
Spain/Airtel....................       39.3             10/95         652,000      16.7%(7)     2
</TABLE>
 
---------------
  * Not disclosed
 
(1) Based on population estimates from a variety of leading publications.
 
(2) Exclusive of any options, warrants or other rights to increase ownership.
 
(3) The Company acquired its interest after commercial launch. In Belgium,
    reflects launch of digital system only; analog system was launched in
    January 1987.
 
(4) Indirect ownership interest through Pronto-Italia S.p.A. The Company holds
    an option to acquire an additional 6.2% indirect interest in Omnitel-Pronto
    Italia.
 
(5) Includes Kyushu, Chugoku, Tohoku, Hokkaido, Hokuriku and Shikoku regions.
    Customers will not be disclosed in proportionate customers because the
    Company accounts for these investments on a cost basis.
 
(6) The Company holds an option to purchase an additional 10%.
 
(7) The Company expects to purchase either an additional 5% or, under certain
    circumstances, may be obligated to purchase an additional 10% interest in
    Airtel. The purchase is expected to occur in 1998.
 
1996 INTERNATIONAL HIGHLIGHTS AND RECENT DEVELOPMENTS
 
In 1996, the Company increased its ownership interests in its Italian and
Spanish ventures. In February 1996, the Polish government awarded Polkomtel, a
consortium in which the Company has a 19.3% interest, one of two new national
GSM licenses. Polkomtel launched service in October. In November 1996, the
Romanian government awarded the consortium in which the Company has a 10%
interest a national cellular license. In late 1996, the Company increased its
ownership in Telecel, its Portuguese venture, to 50.9%, and Telecel became a
publicly traded company when one of its shareholders sold 39.1% of the
outstanding shares of
 
                                       10
<PAGE>   13
 
Telecel in a public offering. Telecel's shares are listed on the Lisbon Stock
Exchange and are quoted on the SEAQ International.
 
See Note E to the Company's consolidated financial statements for the year ended
December 31, 1996 for a description of certain of the Company's operating
results by geographic area.
 
On March 20, 1997, the Company signed an agreement to acquire an ownership
interest in a consortium involved in wireline telecommunications in Germany. The
consortium is led by Mannesmann A.G. ("Mannesmann"), which will own 55.5%. The
Company will have a 4.5% interest in the consortium with an option to increase
its interest to 9% by 2000. The consortium in turn owns a 49.8% interest in
Mannesmann Arcor K.G. ("Arcor"), Germany's second largest wireline
telecommunications company, and has an option to increase its interest in Arcor
to 74.9% by 1999. Deutsche Bahn, Germany's railway company, holds the other
50.2% of Arcor. The Company and Mannesmann jointly own Mannesmann Mobilfunk
GmbH, Germany's leading cellular operator.
 
OWNERSHIP RIGHTS AND OBLIGATIONS
 
The structure of the Company's international cellular interests typically
reflects government preferences or requirements that local owners hold at least
a majority interest in their telecommunications licenses. In structuring its
international investments, the Company attempts to obtain operating influence
through board representation, the right to appoint certain key members of
management and consent rights with respect to significant matters, including
amounts of capital contributions, incurrence of recourse debt and fundamental
corporate transactions. In addition, the Company tries to assure its ability to
maintain a position of influence in the Company by obtaining rights of first
refusal on future sales and issuances of equity. The particular governance
rights of the Company vary from venture to venture, and are often dependent upon
the size of the Company's investment relative to other investors. The Company
currently has the majority interest in its Portuguese and Swedish ventures, the
largest ownership interest in its Spanish venture, the second largest ownership
interest in three of its Japanese ventures, and the third largest ownership
interest in its Korean and Italian ventures. In Germany, the Company is the only
shareholder in addition to the majority shareholder, Mannesmann A.G., and in
Belgium, the Company is the sole partner in a joint venture with a
telecommunications company a majority of which is state owned.
 
COMPETITION
 
While competition varies from market to market, in general competition is
increasing in every international market in which the Company's ventures
operate. See "Business -- Investment Considerations -- Competition."
 
TECHNOLOGY
 
LEAD TECHNOLOGICAL PARTNER.  The Company usually plays the lead role in the
design, construction and maintenance of the cellular networks for the ventures
in which it has ownership interests. For example, the Company has taken the
technical lead in the development of the digital systems in Belgium, Germany,
India (Madras and Madhya Pradesh), Italy, Poland, Portugal, Sweden, South Korea
and Spain, as well as for the network under construction in Romania, and was
integrally involved in the design and construction of three of the systems in
Japan. In each of those markets, the Company has appointed the chief technical
officer, who is responsible for network construction and technical operations.
 
GSM.  The Company's cellular systems in Europe and India conform to the GSM
digital cellular standard. Developed by a standards body within the European
Telecommunications Standards Institute with substantial input from the Company's
engineers, the GSM standard is a wide-band TDMA standard substantially different
from United States TDMA technology and has been adopted in more than 109
countries worldwide, including all those in the EU and others such as Australia,
New Zealand, Singapore, Hong Kong and South Africa. The Company's German
venture, Mannesmann Mobilfunk GmbH, was the first GSM system to offer commercial
service. One of the Company's European employees currently holds the position of
Chairman of
 
                                       11
<PAGE>   14
 
the GSM MOU Association, an organization with 229 members representing 109
countries that oversees GSM technical standards and promotes the use and
evolution of GSM throughout the world.
 
JAPAN DIGITAL CELLULAR STANDARD.  The technology utilized by the Company's
Japanese ventures represents Japan's entry into second-generation cellular
communications. The Japan Digital Cellular standard uses narrowband Japanese
TDMA technology and allows enhanced roaming potential and expanded supplementary
services potential. To provide service to customers away from their home
regions, all of the Company's Japanese ventures are implementing automatic
roaming throughout their combined coverage areas. Customers of any of the
companies will be able to initiate and receive calls anywhere within the
combined coverage area.
 
KOREAN CDMA.  The Company's cellular venture in South Korea employs CDMA
technology, developed by Samsung, Lucent and Hyundai under a license from
QUALCOMM.
 
NEW OPPORTUNITIES
 
The Company constantly evaluates opportunities to increase its ownership in its
existing international ventures, especially where contractual rights of first
refusal provide the Company with favorable opportunities. The Company also plans
to continue pursuing selected opportunities to acquire new interests in wireless
systems throughout the world. The Company believes that its proven technical,
operating and marketing expertise make it a highly desired participant in
consortia formed to pursue new international opportunities and that such
expertise has been a significant factor in the success of the subsequent license
applications by its consortia.
 
The Company measures each international investment against such criteria as
demographic factors, the degree of economic, political and regulatory stability,
the quality of local partners and the degree to which the Company would control
or meaningfully participate in management. Until recently, the Company's primary
focus in pursuing licenses had been Western Europe and Asia because the Company
believes that these regions provide the highest potential for value creation;
however, the Company has increasingly been considering opportunities in other
parts of the world. The Company is currently pursuing licenses in Brazil and in
Greece, and expects to pursue other opportunities in the future. The pursuit of
new international wireless telecommunications opportunities is expected to
remain highly competitive. The trend toward awarding new licenses on the basis
of an auction rather than on merit-based selection criteria may limit the
Company's ability to win new licenses, particularly if competing bidders place a
higher value on the license or have less stringent return requirements than the
Company.
 
PAGING
 
The Company offers local, regional, statewide, and nationwide paging services
under the AirTouch Paging brand name in over 170 markets in 32 states. As of
December 31, 1996, the Company had approximately 2.9 million paging units in
service. Based upon industry surveys, the Company was among the largest
providers of paging services in the United States. The Company's growth strategy
is to expand into new markets through start-ups or acquisitions, to increase its
share in existing markets by providing superior customer service, to refine its
mix of distribution channels, and to provide new narrowband PCS services.
 
SERVICES AND MARKETING
 
The Company currently offers numeric display, alphanumeric, tone-only, and tone
and voice paging service. The Company offers, under the name AirTouch
America(R), nationwide coverage on its own nationwide frequencies and as a
reseller of nationwide common carrier paging services. The Company offers
several enhanced features, including voice mail retrieval, Internet paging
origination, and news information services. The Company's paging revenues
consist primarily of monthly charges for paging service and equipment rental.
The Company utilizes a decentralized marketing approach that is tailored to each
market to promote and sell its paging services. In all of its markets, the
Company relies on both direct and indirect sales channels.
 
                                       12
<PAGE>   15
 
In 1994, the Company acquired one nationwide 50/12.5 KHz narrowband PCS license
and three regional 50/12.5 KHz licenses covering the Northeast, Central and
Western regions of the United States. Narrowband PCS may include advanced two
way acknowledgment paging, data messaging, electronic mail, facsimile
transmissions and voice paging. The Company is currently evaluating different
technology platforms from different suppliers to provide the infrastructure and
customer equipment for its narrowband PCS services. The Company expects to
conduct trials of narrowband PCS in certain markets in 1997. The Company under
its narrowband PCS licenses is required to construct systems serving 37.5% of
the population of the license area within 5 years of the initial license grant
date and 75% of the population of the license area within 10 years.
 
COMPETITION
 
The Company's paging operations face intense competition from other paging
carriers and other wireless services. Paging systems compete primarily on the
basis of system reliability, geographic coverage, customer service and price.
The Company believes that its extensive experience in the paging business and
emphasis on customer service and cost control make it an effective paging
competitor. Competition is expected to intensify in 1997 when some of the
Company's competitors begin offering narrowband PCS in the Company's paging
markets. Long-distance carriers, such as AT&T, Sprint and MCI, have also entered
the paging market as resellers. In addition, the paging industry has experienced
consolidation, with paging carriers being acquired by other larger paging
carriers. The largest carrier now has approximately 9 million units in service
and the second largest has over 4 million units in service.
 
PAGING MARKET AREA LICENSING
 
On February 24, 1997, the FCC issued a Report and Order providing for market
area licensing on all exclusive paging channels to be awarded via auction. The
FCC will cease accepting any new paging license applications. The Company was
formally awarded three nationwide paging licenses which will not be subject to
auction. Even if the Company is not awarded market area licenses for its
existing markets, the Company will continue to hold its existing paging
authorizations and will be permitted to add new facilities inside its existing
geographic contours but will not be permitted to expand coverage outside
existing areas.
 
INTERNATIONAL
 
Through Telecel, the Company owns a 50.9% interest in Telechamada-Servico de
Chamada de Pessoas, S.A., a Portuguese paging company. The Company also holds a
17.5% indirect interest in Sistelcom-Telemensaje, S.A., a Spanish paging
company.
 
OTHER SERVICES
 
TELETRAC.  In January 1996, the Company sold its vehicle location and fleet
tracking services business.
 
GLOBALSTAR.  The Company holds a 6.4% interest in Globalstar, L.P.
("Globalstar"), a limited partnership led by Loral Space & Communications
Corporation Ltd. ("Loral") and QUALCOMM that will construct and operate a
satellite-based network utilizing CDMA technology to offer communications
services on a worldwide basis. The initial satellite launches are expected to
take place in late 1997 and 1998, with initial operations expected to begin in
late 1998 and commercial service expected to commence in 1999. The Company has
exclusive service provider status in the United States, Austria, Belgium, the
Caribbean, Indonesia, Japan, Malaysia, The Netherlands, Portugal and
Switzerland. In 1995, the Company initiated formation of a venture with Sime
Darby to provide Globalstar services in Malaysia. In 1996, the Company initiated
formation of a venture with Intidaya Sistelindomitra to provide Globalstar
services in Indonesia. The Company has entered into agreements with Loral to
provide Globalstar service in Canada and Mexico. The Company and Loral have
selected Telefonica Autrey, S.A. de C.V. as their partner to develop Globalstar
service in Mexico and Canadian Satellite Communications, Inc. as their partner
to develop service in Canada.
 
INTERNATIONAL LONG DISTANCE.  The Company presently holds a 10% interest in
International Digital Communications ("IDC"). IDC provides long-distance
telephone service between Japan and 178 other countries, including the United
States, to business and residential customers. IDC also offers private leased
 
                                       13
<PAGE>   16
 
circuit services between Japan and 57 other countries. In 1991, IDC began
offering service over a 5,200 mile undersea fiber optic cable. For the fiscal
year ended March 31, 1997, IDC had gross revenues of approximately $600 million.
 
EMPLOYEES
 
At December 31, 1996, the Company and its wholly owned subsidiaries had
approximately 8,800 employees. None of the Company's United States employees are
represented by a labor organization, although employees of certain international
subsidiaries are represented by unions or trade organizations. Management
considers its relations with the Company's employees to be good.
 
REGULATION
 
UNITED STATES
 
GENERAL.  The Company's United States cellular, paging and PCS licenses are
issued and regulated by the FCC. In addition, certain aspects of the Company's
United States wireless operations may be subject to public utility regulation in
the state in which service is provided and to local regulations. States are
preempted from regulating cellular and paging rates and market entry, but may
regulate certain other terms and conditions of cellular and paging service. The
Company does not anticipate that such state regulation will interfere with
efficient operation of its wireless businesses. The location and construction of
wireless service facilities are also often subject to state or local zoning,
land use and other local regulation and fees.
 
TELECOMMUNICATIONS LEGISLATION.  The Telecommunications Act of 1996 (the "Act")
fundamentally changed the rules and regulations under which all United States
providers of telecommunications services operate. The Act preserved the
regulatory environment for wireless operators by not imposing rate regulation.
The Act modifies requirements for local telephone companies to provide
interconnection services to commercial mobile radio service carriers. In late
1996 and early 1997, the Company executed new cellular interconnection
agreements with the major local carriers in its managed markets that are
expected to result in substantial savings on the Company's interconnect costs in
1997. The FCC is expected to issue rules pursuant to the Act establishing
mechanisms pursuant to which telecommunications providers would subsidize
telephone service for rural and low-income customers, also known as universal
service.
 
INTERNATIONAL
 
The Company's international cellular and paging operations provide services
pursuant to the terms of licenses granted by the telecommunications agency or
similar supervisory authority in the various countries. Such agencies typically
also promulgate and enforce regulations regarding the construction and operation
of network equipment. Other regulations commonly encountered in international
markets include legal restrictions on the percentage ownership of
telecommunications licensees by foreign entities such as the Company, and
transfer restrictions or governmental approval requirements regarding changes in
the ownership of such licensees.
 
ITEM 2.  PROPERTIES.
 
For each market served by the Company's cellular operations, the Company or its
venture maintains at least one sales or administrative office and many
transmitter and antenna sites. Some of the facilities are leased and some are
owned. The Company also maintains both owned and leased sales and administrative
facilities for its paging services. The Company believes that its facilities are
suitable for its current business and that additional facilities will be
available to satisfy its foreseeable needs.
 
ITEM 3.  LEGAL PROCEEDINGS.
 
In November 1993, a class action complaint was filed on behalf of the Company's
cellular customers in Orange County Superior Court naming, among others, the
Company. This complaint alleges certain facts, including a similarity in the
pricing structures of the two defendant cellular carriers, which plaintiffs
contend are circumstantial evidence that the Company, as general partner of Los
Angeles SMSA Limited Partnership,
 
                                       14
<PAGE>   17
 
and Los Angeles Cellular Telephone Company conspired to fix the prices of retail
and wholesale cellular radio services in the Los Angeles market. The complaints
seek damages for the class "in a sum in excess of $100,000,000." A similar agent
case was settled for an immaterial amount. Trial has been set for July 7, 1997.
The Company does not believe that this proceeding will have a material adverse
effect on the Company's financial position or results of operations.
 
In 1994, two class action complaints were filed on behalf of the Company's
cellular customers, one in San Diego County Superior Court and one in the United
States District Court for the Southern District of California, alleging that
there is circumstantial evidence that the Company and U S West colluded to fix
the prices of retail and wholesale cellular radio services in the San Diego
market by setting their initial basic rates for cellular service at nearly
identical levels and having similar basic rates thereafter. Plaintiffs estimate
the damages to the class at between $46 million and $69 million. The state case
has been stayed pending the outcome of the federal case. A class has been
certified and the defendants motion for summary judgment was heard in November
1996. Two additional cases, one in Orange County and one in San Diego, have been
brought by a number of individual agents against the Company and others. Each
contains allegations similar to those in the San Diego and Orange County price
fixing cases, and also allegations of various business torts and monopolization.
One case seeks damages of approximately $80 million and the other approximately
$50 million. The Company is vigorously defending these suits and does not
believe that these proceedings will have a material adverse effect on the
Company's financial position or results of operations.
 
In 1994, a class action complaint was filed on behalf of the Company's cellular
customers in San Francisco County Superior Court alleging certain facts,
including a similarity in the pricing structures of the two competitors, which
plaintiffs contend is circumstantial evidence of a tacit conspiracy between Bay
Area Cellular Telephone Company, in which the Company has an indirect interest,
and GTE Mobilnet to fix the prices of retail and wholesale cellular radio
services in the San Francisco Bay Area market. A class has been stipulated and
discovery has begun. In 1996, an almost identical class action complaint was
filed by a different plaintiff in Alameda County Superior Court against Bay Area
Cellular Telephone Company, GTE Mobilnet and a number of other companies,
including the Company. It alleges essentially the same facts as the San
Francisco case alleges. The two cases have been assigned to a single judge for
coordination. The Company does not believe that these proceedings will have a
material adverse effect on the Company's financial position or results of
operations.
 
The Company is party to various other legal proceedings in the ordinary course
of business. Although the ultimate resolution of these various other proceedings
cannot be ascertained, management does not expect that they will have a material
adverse effect on the results of operations or financial position of the
Company.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1996.
 
                                       15
<PAGE>   18
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
Set forth below is certain information concerning the persons who serve as
executive officers of the Company. The executive officers serve at the pleasure
of the Board of Directors and are subject to removal at any time.
 
<TABLE>
<CAPTION>
              NAME             AGE                       POSITION AND OFFICES HELD
    -------------------------  ---     -------------------------------------------------------------
    <S>                        <C>     <C>
    Sam Ginn                   60      Chairman of the Board and Chief Executive Officer
    Arun Sarin                 42      President and Chief Operating Officer
    Mohan S. Gyani             45      Executive Vice President and Chief Financial Officer
    Margaret G. Gill           57      Senior Vice President, Legal, External Affairs and Secretary
    Brian R. Jones             46      Senior Vice President; President of AirTouch Cellular
    Michael Miron              41      Vice President, Corporate Strategy and Development
    F. Craig Farrill           44      Vice President, Strategic Technology
    Louis C. Golm              55      Vice President; President of AirTouch International
</TABLE>
 
Mr. Ginn has been Chairman of the Board and Chief Executive Officer of the
Company since December 1993. He was Chairman of the Board, President and Chief
Executive Officer of Pacific Telesis Group from 1988 to April 1994 and became a
director of Pacific Telesis Group in 1983. He was Chairman of the Board of
Pacific Bell from 1988 to April 1994. Mr. Ginn is also a director of Chevron
Corporation, Safeway Inc., Transamerica Corporation, and Hewlett-Packard
Company.
 
Mr. Sarin became President and Chief Operating Officer on February 1, 1997. He
was named Vice Chairman of the Board in August 1995, and was President and Chief
Executive Officer of AirTouch International from May 1995 until February 1,
1997. He was Senior Vice President, Corporate Strategy/Development and
International Operations until August 1995, and was also responsible for Human
Resources through 1994. He was Vice President, Organization Design of Pacific
Telesis Group from March 1993 to April 1994. Mr. Sarin joined Pacific Telesis
Group in 1984 and held a variety of positions there until the spin-off of the
Company in April 1994.
 
Mr. Gyani became Executive Vice President and Chief Financial Officer of the
Company in September 1995. From November 1993 until that time he was Vice
President, Finance and Treasurer of the Company. He was Vice President and
Treasurer of Pacific Telesis Group from March 1993 to November 1993. From
February 1992 to March 1993 he was Vice President and Controller at Pacific
Bell. From November 1991 to February 1992 he was Vice President Financial
Assurance for Pacific Bell.
 
Mrs. Gill became Senior Vice President, Legal, External Affairs and Secretary of
the Company in January 1994. She had been a partner in the law firm of Pillsbury
Madison & Sutro since 1973 and was the head of the firm's Corporate and
Securities Group. Mrs. Gill is a director of CNF Transportation Inc.
 
Mr. Jones became Senior Vice President of the Company and President of AirTouch
Cellular in February 1997. From March 1992 until that time he was Executive Vice
President of AirTouch Cellular and General Manager of the Los Angeles market.
From March 1990 to March 1992 he was President of the Company's subsidiary
operating in Michigan. Prior to joining the Company in 1984, Mr. Jones worked
for AT&T International.
 
Mr. Miron has been Vice President, Corporate Strategy and Development since
April 1996. Prior to joining the Company, Mr. Miron was Managing Director,
Strategic Planning and Analysis at Salomon Brothers Inc. Mr. Miron joined
Salomon Brothers Inc. in 1990.
 
Mr. Farrill became Vice President, Strategic Technology of the Company in June
1996. From June 1991 until that time he served as Vice President of Technology,
Planning and Development of the Company. Prior to joining the Company in 1986,
Mr. Farrill was Vice President of Engineering for Communications Industries,
Inc.
 
Mr. Golm became Vice President in February 1997. From 1994 until that time, he
served as President and Chief Executive Officer of AT&T Japan. From 1991 to
1994, Mr. Golm was Vice President -- Business Network Sales for AT&T Business
Communications Services. Mr. Golm first joined AT&T in 1964.
 
                                       16
<PAGE>   19
 
                                    Part II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
The Company's Common Stock is listed on the New York Stock Exchange and the
Pacific Exchange.
 
Set forth below are the high and low sales prices for the Company's Common Stock
for each full quarterly period within the two most recent fiscal years as
reported on the New York Stock Exchange.
 
          STOCK TRADING--COMMON
 
<TABLE>
<CAPTION>
                                  1995                     HIGH    LOW     CLOSE
                -----------------------------------------  ----    ---     -----
                <S>                                        <C>     <C>     <C>
                First Quarter                              30      25 7/8  27 1/4
                Second Quarter                             29 1/4  23 7/8  28 1/2
                Third Quarter                              35 5/8  28 1/4  30 5/8
                Fourth Quarter                             32 1/4  26 1/4  28 1/8
                12 Months 1995                             35 5/8  23 7/8  28 1/8
</TABLE>
 
<TABLE>
<CAPTION>
                                  1996                     HIGH    LOW     CLOSE
                -----------------------------------------  ----    ---     -----
                <S>                                        <C>     <C>     <C>
                First Quarter                              33 5/8  25 5/8  31 1/8
                Second Quarter                             33 1/8  27 5/8  28 1/4
                Third Quarter                              29 5/8  25      27 5/8
                Fourth Quarter                             28 3/8  24 7/8  25 1/4
                12 Months 1996                             33 5/8  24 7/8  25 1/4
</TABLE>
 
The number of holders of record of the Company's Common Stock as of March 20,
1997 was 630,269.
 
The Company currently intends to retain future earnings for the development of
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company's future dividend policy will be
determined by its Board of Directors on the basis of various factors, including
the Company's results of operation, financial condition, capital requirements
and investment opportunities.
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
The information required by this Item is set forth in the Company's 1996 Annual
Report to Stockholders on pages 12 through 15, which portions are incorporated
herein by reference.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.
 
The information required by this Item is set forth in the Company's 1996 Annual
Report to Stockholders on pages 16 through 25, which portions are incorporated
herein by reference.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
The information required by this Item is set forth in the Company's 1996 Annual
Report to Stockholders on pages 27 through 53, which portions are incorporated
herein by reference, and in Part IV of this Form 10-K.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.
 
The information required by this Item is set forth in the Company's Current
Report on Form 8-K: Date of Report: June 30, 1995, which is incorporated herein
in its entirety by reference.
 
                                       17
<PAGE>   20
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
The information required by this Item is set forth under "Executive Officers of
the Registrant" at the end of Part I of this report and under the headings
"Class III -- Nominees for Election", "Class II -- Directors Continuing in
Office Until the 1998 Annual Meeting of Stockholders," "Class I -- Directors
Continuing in Office Until the 1999 Annual Meeting of Stockholders" and
"Compliance with Section 16(a) of the Exchange Act" in the Company's 1997 Proxy
Statement, which sections are incorporated herein by reference.
 
ITEM 11.  EXECUTIVE COMPENSATION.
 
The information required by this Item is set forth under the headings "Director
Compensation," "Executive Compensation" and "Employment Contracts and
Termination of Employment or Change-in-Control Arrangements" in the Company's
1997 Proxy Statement, which sections are incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
The information required by this Item is set forth under the headings "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of Management"
in the Company's 1997 Proxy Statement, which sections are incorporated herein by
reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
The information required by this Item is set forth under the heading "Certain
Relationships and Related Transactions" in the Company's 1997 Proxy Statement,
which section is incorporated herein by reference.
 
                                       18
<PAGE>   21
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
(a) Documents filed as part of this report:
 
     1. Financial Statements:
 
        AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
 
           The financial statements required by this Item are set forth in the
           Company's 1996 Annual Report to Stockholders on pages 27 through 53,
           which portions are incorporated herein by reference.
 
<TABLE>
<S>                                                                                       <C>
        CMT PARTNERS
               Report of Independent Accountants
               Consolidated Balance Sheets -- December 31, 1996 and 1995
               Consolidated Statements of Income and Changes in Partners' Equity -- For
                the years ended December 31, 1996, 1995 and 1994
               Consolidated Statements of Cash Flows -- For the years ended December 31,
                1996, 1995, and 1994
               Notes to Financial Statements
               Financial Statement Schedule
               Report of Independent Accountants
               Schedule II -- Valuation and Qualifying Accounts and Reserves
               Report of Independent Accountants (Kansas Combined Cellular)
 
        MANNESMANN MOBILFUNK GMBH
               Independent Auditors' Report
               Balance Sheets -- December 31, 1996 and 1995
               Statements of Income -- Years ended December 31, 1996, 1995 and 1994
               Statements of Capital Subscribers' Equity -- Years ended December 31,
                1996, 1995 and 1994
               Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994
               Notes to Financial Statements
</TABLE>
 
        NEW PAR
 
           The financial statements required by this Item are incorporated
           herein by reference to the Company's Annual Report on Form 10-K for
           the period ended December 31, 1995, pages S-34 to S-53, File No.
           1-12342.
 
        CELLULAR COMMUNICATIONS, INC.
 
           The financial statements required by this Item are incorporated
           herein by reference to the Cellular Communications, Inc. Annual
           Report on Form 10-K for the period ended December 31, 1995, Item 8
           and Item 14(a) and (d), File No. 1-10789.
 
      2. Financial Statement Schedules:
 
<TABLE>
<S>                                                                                       <C>
        AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
               Report of Independent Accountants (Price Waterhouse LLP)
               Report of Independent Accountants (Coopers & Lybrand L.L.P.)
               Schedule II -- Valuation and Qualifying Accounts and Reserves
</TABLE>
 
                                       19
<PAGE>   22
 
           Schedules other than those listed above are omitted because they are
           either not required or not applicable, or the required information is
           presented in the Consolidated Financial Statements or in the other
           financial statements listed under Item 14(a)(1) above.
 
      3. Exhibits.
 
Exhibits identified in parentheses below, on file with the Commission, are
incorporated by reference as exhibits hereto.
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                        DESCRIPTION
------     ---------------------------------------------------------------------------------
<C>        <S>
  3.1      Certificate of Incorporation of the Company, as filed with the Secretary of State
           of the State of Delaware on September 19, 1994 (Exhibit 3.1 to the Company's Form
           8-K -- Date of Report: December 15, 1994, File No. 1-12342)
  3.2      Designation, Preferences and Rights of Series A Participating Preferred Stock of
           the Company, as filed with the Secretary of State of the State of Delaware on
           December 15, 1994 (Exhibit 3.2 to the Company's Form 8-B, File No. 1-12342, filed
           January 27, 1995)
  3.3      Amended By-laws of the Company as of June 13, 1996 (Exhibit 3 to the Company's
           Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No.
           1-12342)
  4.1      Form of Common Stock certificate (Exhibit 4.1 to the Company's Annual Report on
           Form 10-K for the year ended December 31, 1994, File No. 1-12342))
  4.2      Rights Agreement between the Company and The Bank of New York, Rights Agent,
           dated as of September 19, 1994 (Exhibit 4 to the Company's Current Report on Form
           8-K -- Date of Report: December 15, 1994, File No. 1-12342)
  4.3      Certificate of Designation, Preferences and Rights of Class B Preferred Stock,
           Series 1996
  4.4      Certificate of Designation, Preferences and Rights of Class C Preferred Stock,
           Series 1996
  4.5      Indenture dated as of July 16, 1996 between the Company and The First National
           Bank of Chicago, as trustee (Exhibit 4.1 to the Company's Quarterly Report on
           Form 10-Q for the period ended June 30, 1996, File No. 1-12342)
  4.6      First Supplemental Indenture dated as of July 16, 1996 between the Company and
           The First National Bank of Chicago, as trustee (Exhibit 4.1 to the Company's
           Current Report on Form 8-K, Date of Report: July 3, 1996, File No. 1-12342)
  4.7      Second Supplemental Indenture dated as of July 16, 1996 between the Company and
           The First National Bank of Chicago, as trustee (Exhibit 4.1 to the Company's
           Current Report on Form 8-K, Date of Report: July 11, 1996, File No. 1-12342)
  4.8      Third Supplemental Indenture dated as of October 7, 1996 between the Company and
           The First National Bank of Chicago, as trustee (Exhibit 4.1 to the Company's
           Current Report on Form 8-K: Date of Report: October 2, 1996, File No. 1-12342)
 10.1      Joint Venture Agreement between Mannesmann Kienzle GmbH, Pacific Telesis
           Netherlands B.V., Cable and Wireless plc, DG Bank Deutsch Genossenschaftsbank and
           Lyonnaise des Eaux SA dated June 30, 1989 (Exhibit 10.43 to the Company's
           Registration Statement on Form S-1, Registration No. 33-68012, filed August 27,
           1993)
 10.2      Agreement and Plan of Merger dated as of April 5, 1996, as amended and restated
           as of July 12, 1996 among CCI, the Company, and AirTouch Cellular (Exhibit 2.1 to
           the Company's Registration Statement on Form S-4, No. 333-03107)
 10.3      Separation Agreement by and between the Company and Pacific Telesis Group, dated
           as of October 7, 1993 (Exhibit 10.1 to the Company's Registration Statement on
           Form S-1, Registration No. 33-68012, filed August 27, 1993)
</TABLE>
 
                                       20
<PAGE>   23
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                        DESCRIPTION
------     ---------------------------------------------------------------------------------
<C>        <S>
 10.4      Amendment No. 1 to Separation Agreement between the Company and Pacific Telesis
           Group, dated November 2, 1993 (Exhibit 10.2 to the Company's Annual Report on
           Form 10-K for the period ended December 31, 1993, File No. 1-12342)
 10.5      Amendment No. 2 to Separation Agreement between the Company and Pacific Telesis
           Group, dated as of March 25, 1994 (Exhibit 10.6 to the Company's Annual Report on
           Form 10-K for the period ended December 31, 1994, File No. 1-12342)
 10.6      Amendment No. 3 to Separation Agreement between the Company and Pacific Telesis
           Group, dated as of April 1, 1994 (Exhibit 10.7 to the Company's Annual Report on
           Form 10-K for the period ended December 31, 1994, File No. 1-12342)
 10.7      Amendment No. 4 to Separation Agreement between the Company and Pacific Telesis
           Group, dated as of March 21, 1995 (Exhibit 10.8 to the Company's Annual Report on
           Form 10-K for the period ended December 31, 1995, File No. 1-12342)
 10.8      Amended and Restated Joint Venture Organization Agreement dated as of September
           30, 1995 between the Company and U S WEST Inc. (Exhibit 2.1 to the Company's
           Quarterly Report on Form 10-Q for the period ended September 30, 1995, File No.
           1-12342)
 10.9      Amended and Restated Agreement of Limited Partnership of WMC Partners, L.P. dated
           as of September 30, 1995 by and between the Company and U S WEST Inc. (Exhibit
           10.1 to the Company's Quarterly Report on Form 10-Q for the period ended
           September 30, 1995, File No. 1-12342)
 10.10     First Amendment to Amended and Restated Agreement of Limited Partnership of WMC
           Partners, L.P. dated as of April 16, 1996 between the Company and U S WEST Inc.
           (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended
           June 30, 1996, File No. 1-12342)
 10.11     Amended and Restated Agreement of Limited Partnership of PCS Nucleus, L. P. dated
           as of September 30, 1995 by and between the Company and U S WEST Inc. (Exhibit
           10.2 to the Company's Quarterly Report on Form 10-Q for the period ended
           September 30, 1995, File No. 1-12342)
 10.12     First Amendment to Amended and Restated Agreement of Limited Partnership of PCS
           Nucleus, L.P. dated as of April 16, 1996 between the Company and U S WEST Inc.
           (Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended
           June 30, 1996, File No. 1-12342)
 10.13     Amended and Restated Investment Agreement dated as of September 30, 1995 by and
           between the Company and U S WEST Inc. (Exhibit 10.3 to the Company's Quarterly
           Report on Form 10-Q for the period ended September 30, 1995, File No. 1-12342)
 10.14     First Amendment to Amended and Restated Investment Agreement dated as of April
           16, 1996 between the Company and U S WEST Inc. (Exhibit 10.4 to the Company's
           Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No.
           1-12342)
 10.15     Amended and Restated Agreement of Exchange dated as of September 30, 1995 by and
           between the Company and U S WEST Inc. (Exhibit 10.4 to the Company's Quarterly
           Report on Form 10-Q for the period ended September 30, 1995, File No. 1-12342)
 10.16     First Amendment to Amended and Restated Agreement of Exchange dated as of April
           16, 1996 between the Company and U S WEST Inc. (Exhibit 10.5 to the Company's
           Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No.
           1-12342)
 10.17     Amended and Restated Trust Agreement of Exchange dated as of September 30, 1995
           by and between the Company and U S WEST Inc. (Exhibit 10.5 to the Company's
           Quarterly Report on Form 10-Q for the period ended September 30, 1995, File No.
           1-12342)
 10.18     First Amendment to Amended and Restated Trust Agreement of Exchange dated as of
           April 16, 1996 between the Company and U S WEST Inc. (Exhibit 10.6 to the
           Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996, File
           No. 1-12342)
</TABLE>
 
                                       21
<PAGE>   24
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                        DESCRIPTION
------     ---------------------------------------------------------------------------------
<C>        <S>
 10.19     Agreement of Limited Partnership dated as of October 20, 1994 between CELLCO
           Partnership and WMC Partners, L.P. (Exhibit 10.1 to the Company's Form
           8-K -- Date of Report: October 20, 1994, File No. 1-12342)
 10.20     Agreement of Limited Partnership dated as of October 20, 1994 of PrimeCo, L.P.
           (Exhibit 10.2 to the Company's Form 8-K -- Date of Report: October 20, 1994, File
           No. 1-12342)
 10.21     Standstill Agreement dated as of October 20, 1994 between AirTouch
           Communications, Inc. and Bell Atlantic Corporation (Exhibit 10.3 to the Company's
           Form 8-K -- Date of Report: October 20, 1994, File No. 1-12342)
 10.22     Standstill Agreement dated as of October 20, 1994 between AirTouch Communications
           and NYNEX Corporation (Exhibit 10.4 to the Company's Form 8-K -- Date of Report:
           October 20, 1994, File No. 1-12342)
 10.23     Standstill Agreement dated as of October 20, 1994 between AirTouch Communications
           and CELLCO Partnership (Exhibit 10.5 to the Company's Form 8-K -- Date of Report:
           October 20, 1994, File No. 1-12342)
 10.24     Credit Agreement between the Company, Bank of America National Trust and Savings
           Association and The Other Financial Institutions Party Thereto dated July 20,
           1995 (Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period
           ended June 30, 1995, File No. 1-12342)
 10.25     Amended and Restated Partnership Agreement dated as of September 1, 1993 by and
           between Members of the PacTel Group and Members of the McCaw Group (Exhibit 28(a)
           to McCaw Cellular Communications, Inc. Current Report on Form 8-K for the period
           ended October 1, 1991, File No. 0-16051)
 10.26     Representative Employment Agreement for Messrs. Ginn, Sarin, Gyani, Jones,
           Farrill and Golm and Mrs. Gill
 10.27     Representative Employment Agreement for other officers of the Company
 10.28     Form of Indemnity Agreement between the Company and each of its directors and
           certain officers (Exhibit 10.24 to the Company's Annual Report on Form 10-K for
           the period ended December 31, 1994, File No. 1-12342)
 10.29     Trust Agreement No. 1 for AirTouch Communications, Inc. Supplemental Executive
           Pension Plan Benefits (Exhibit 10.25 to the Company's Annual Report on Form 10-K
           for the period ended December 31, 1994, File No. 1-12342)
 10.30     AirTouch Communications, Inc. Deferred Compensation Plan (Exhibit 10.26 to the
           Company's Form 10-K for the period ended December 31, 1994, File No. 1-12342)
 10.31     AirTouch Communications, Inc. Deferred Compensation Plan for Nonemployee
           Directors (Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
           period ended December 31, 1993, File No. 1-12342)
 10.32     AirTouch Communications, Inc. Supplemental Executive Pension Plan -- Second
           Amendment and Restatement Effective as of April 1, 1994
 10.33     AirTouch Communications, Inc. Executive Life Insurance Plan (Exhibit 10.13 to the
           Company's Annual Report on Form 10-K for the period ended December 31, 1993, File
           No. 1-12342)
 10.34     AirTouch Communications, Inc. Executive Long-Term Disability Plan (Exhibit 10.14
           to the Company's Annual Report on Form 10-K for the period ended December 31,
           1994, File No. 1-12342)
 10.35     Description of the Company's Business Travel Accident Insurance for Non-Employee
           Directors (Exhibit 10.31 to the Company's Annual Report on Form 10-K for the
           period ended December 31, 1994, File No. 1-12342)
</TABLE>
 
                                       22
<PAGE>   25
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C>      <S>
 10.36   AirTouch Communications, Inc. 1993 Long-Term Stock Incentive Plan -- Second
         Amendment and Restatement Effective as of December 15, 1994 (Exhibit 10.33 to the
         Company's Annual Report on Form 10-K for the period ended December 31, 1995, File
         No. 1-12342)
 10.37   Description of the Executive Financial Counseling Program (Exhibit 10.34 to the
         Company's Annual Report on Form 10-K for the period ended December 31, 1995, File
         No. 1-12342)
 10.38   Consulting Agreement with Executive Officer
 13      1996 Annual Report to Security Holders -- Financial Section
 21      Subsidiaries of the Registrant
 23.1    Consent of Price Waterhouse LLP
 23.2    Consent of Coopers & Lybrand L.L.P.
 23.3    Consent of Ernst & Young LLP (CCI)
 23.4    Consent of KPMG Deutsche Treuhand-Gesellschaft (Mannesmann Mobilfunk GmbH)
 23.5    Consent of Coopers & Lybrand L.L.P. (CMT Partners)
 23.6    Consent of Ernst & Young LLP (New Par)
 23.7    Consent of Arthur Andersen LLP (Kansas Combined Cellular)
 24      Power of Attorney
 27      Financial Data Schedule
 99.1    The Company's Current Report on Form 8-K: Date of Report: June 30, 1995, File No.
         1-12342 (Exhibit 99.1 to the Company's Annual Report on Form 10-K for the period
         ended December 31, 1995)
 99.2    Coopers & Lybrand L.L.P. Report of Independent Accountants on the Company's
         consolidated financial statements for the period ended December 31, 1994
 99.3    Cellular Communications, Inc. financial statements for each of the three years in
         the period ended December 31, 1995 (incorporated by reference to Cellular
         Communications, Inc. Annual Report on Form 10-K for the period ended December 31,
         1995, Item 8 and Item 14(a) and (d), File No. 1-10789)
 99.4    New Par financial statements for each of the three years in the period ended
         December 31, 1995 (incorporated by reference to the Company's Annual Report on Form
         10-K for the period ended December 31, 1995, page S-34 to S-53, File No. 1-12342)
</TABLE>
 
(b) Reports on Form 8-K:
 
        Date of Report: October 4, 1996
 
           Item 7. Financial Statements and Exhibits
 
                                       23
<PAGE>   26
 
                                   SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
 
                                          AIRTOUCH COMMUNICATIONS, INC.
 
                                          By: /s/ MOHAN S. GYANI
                                            ------------------------------------
                                            Mohan S. Gyani
                                            Executive Vice President and
                                            Chief Financial Officer
Date: March 20, 1997
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                 SIGNATURES                                         TITLE
---------------------------------------------   ----------------------------------------------
<C>                                             <S>
                  SAM GINN*                     Chairman of the Board and Chief Executive
---------------------------------------------   Officer (Principal Executive Officer)
                  Sam Ginn
 
             /s/ MOHAN S. GYANI                 Executive Vice President and Chief Financial
---------------------------------------------   Officer (Principal Financial and Accounting
               Mohan S. Gyani                   Officer)
 
                 ARUN SARIN*                    President and Chief Operating Officer and
---------------------------------------------   Director
                 Arun Sarin
 
                 C. LEE COX*                    Vice Chairman of the Board
---------------------------------------------
                 C. Lee Cox
 
               CAROL A. BARTZ*                  Director
---------------------------------------------
               Carol A. Bartz
 
             MICHAEL J. BOSKIN*                 Director
---------------------------------------------
              Michael J. Boskin
 
              DONALD G. FISHER*                 Director
---------------------------------------------
              Donald G. Fisher
 
                 PAUL HAZEN*                    Director
---------------------------------------------
                 Paul Hazen
 
                ARTHUR ROCK*                    Director
---------------------------------------------
                 Arthur Rock
 
             CHARLES R. SCHWAB*                 Director
---------------------------------------------
              Charles R. Schwab
 
              GEORGE P. SHULTZ*                 Director
---------------------------------------------
              George P. Shultz
 
           *By: /s/ MOHAN S. GYANI
---------------------------------------------
 Mohan S. Gyani, Attorney-in-fact Executive
 Vice President and Chief Financial Officer
            Date: March 20, 1997
</TABLE>
 
                                       24
<PAGE>   27
 
                                    INDEX TO
           SEPARATE FINANCIAL STATEMENTS OF SIGNIFICANT ENTITIES NOT
           CONSOLIDATED AND AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
                            FINANCIAL STATEMENT SCHEDULE
 
<TABLE>
<S>                                                                                     <C>
CMT PARTNERS
  Report of Independent Accountants...................................................    S-3
  Consolidated Balance Sheets -- December 31, 1996 and 1995...........................    S-4
  Consolidated Statements of Income and Changes in Partners' Equity -- for the years
     ended December 31, 1996, 1995, and 1994..........................................    S-5
  Consolidated Statements of Cash Flows -- for the years ended December 31, 1996,
     1995, and 1994...................................................................    S-6
  Notes to Financial Statements.......................................................    S-7
  Financial Statement Schedule
     Report of Independent Accountants................................................   S-13
     Schedule II -- Valuation and Qualifying Accounts and Reserves....................   S-14
  Report of Independent Public Accountants (Kansas Combined Cellular).................   S-15
 
MANNESMANN MOBILFUNK GMBH
  Independent Auditors' Report........................................................   S-17
  Balance Sheets -- December 31, 1996 and 1995........................................   S-18
  Statements of Income -- Years ended December 31, 1996, 1995 and 1994................   S-19
  Statements of Capital Subscribers' Equity -- Years ended December 31, 1996, 1995,
     and 1994.........................................................................   S-20
  Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994............   S-21
  Notes to Financial Statements.......................................................   S-22
 
AIRTOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
  Financial Statement Schedule
     Report of Independent Accountants (Price Waterhouse LLP).........................    X-1
     Report of Independent Accountants (Coopers & Lybrand L.L.P.).....................    X-2
     Schedule II -- Valuation and Qualifying Accounts and Reserves....................    X-3
</TABLE>
 
                                       S-1
<PAGE>   28
 
                                  CMT PARTNERS
 
                                ---------------
 
                       CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
 
                                       S-2
<PAGE>   29
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Partners of CMT Partners:
 
We have audited the accompanying consolidated balance sheets of CMT Partners
(the Partnership) as of December 31, 1996 and 1995 and the related consolidated
statements of income and changes in partners' equity and cash flows for the
years ended December 31, 1996, 1995, and 1994. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the financial statements of Kansas Combined Cellular, which statements
reflect (in thousands) total assets of $78,229 and $57,332 as of December 31,
1996 and 1995, respectively, and total revenues of $87,180, $78,472, and
$49,027, for the years ended December 31, 1996, 1995, and 1994, respectively.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for Kansas
Combined Cellular, is based solely on the report of other auditors.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
 
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of CMT Partners as of
December 31, 1996 and 1995 and the consolidated results of their operations and
their cash flows for the years ended December 31, 1996, 1995, and 1994 in
conformity with generally accepted accounting principles.
 
/s/  Coopers & Lybrand L.L.P.
 
San Francisco, California
February 14, 1997
 
                                       S-3
<PAGE>   30
 
                                  CMT PARTNERS
 
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                           1996         1995
                                                                         --------     --------
<S>                                                                      <C>          <C>
  ASSETS
Current assets:
  Cash and cash equivalents............................................  $  5,040     $  1,317
  Accounts receivable:
     Trade accounts receivable, net of allowance for doubtful accounts
      of $9,406 and $4,819 in 1996 and 1995, respectively..............    90,514       79,735
     Other accounts receivable, net of allowance for doubtful accounts
      of $1,747 and $870 in 1996 and 1995, respectively................    27,032       25,520
  Due from affiliates..................................................        --          210
  Inventory............................................................     6,210       12,205
  Other................................................................     3,833        4,961
                                                                         --------     --------
          Total current assets.........................................   132,629      123,948
Property and equipment, net of accumulated depreciation of $237,924 and
  $189,143 in 1996 and 1995, respectively..............................   265,455      224,798
Unconsolidated investment..............................................   129,984      104,574
Intangibles, net of accumulated amortization of $37,468 and $34,368 in
  1996 and 1995, respectively..........................................    73,024       73,864
                                                                         --------     --------
                                                                         $601,092     $527,184
                                                                         ========     ========
  LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
  Accounts payable.....................................................  $ 17,783     $ 21,814
  Accrued expenses.....................................................    47,663       30,557
  Other current liabilities............................................    14,396        5,699
                                                                         --------     --------
          Total current liabilities....................................    79,842       58,070
                                                                         --------     --------
  Minority interests...................................................    14,667       14,226
                                                                         --------     --------
Commitments and contingencies (Note 8).
Partners' equity.......................................................   506,583      454,888
                                                                         --------     --------
          Total partners' equity.......................................   506,583      454,888
                                                                         --------     --------
                                                                         $601,092     $527,184
                                                                         ========     ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       S-4
<PAGE>   31
 
                                  CMT PARTNERS
 
                     CONSOLIDATED STATEMENTS OF INCOME AND
                          CHANGES IN PARTNERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                            1996          1995          1994
                                                          ---------     ---------     ---------
<S>                                                       <C>           <C>           <C>
Revenues................................................  $ 605,193     $ 515,010     $ 404,209
                                                          ---------     ---------     ---------
Expenses:
  Cost of revenues......................................    133,394       120,242        78,700
  Selling, general and administrative...................    234,982       193,304       154,849
  Depreciation and amortization.........................     57,696        50,319        41,835
                                                          ---------     ---------     ---------
                                                            426,072       363,865       275,384
                                                          ---------     ---------     ---------
          Operating income..............................    179,121       151,145       128,825
Earnings in unconsolidated investment...................     28,810        24,651        18,363
Minority interests......................................     (9,826)       (7,799)       (6,955)
                                                          ---------     ---------     ---------
          Net income....................................    198,105       167,997       140,233
Partners' equity, beginning of period...................    454,888       398,291       349,458
Distributions to partners...............................   (146,410)     (111,400)     (104,200)
Contribution from partners..............................         --            --        12,800
                                                          ---------     ---------     ---------
Partners' equity, end of period.........................  $ 506,583     $ 454,888     $ 398,291
                                                          =========     =========     =========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       S-5
<PAGE>   32
 
                                  CMT PARTNERS
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                            1996          1995          1994
                                                          ---------     ---------     ---------
<S>                                                       <C>           <C>           <C>
Cash flows from operating activities:
  Net income............................................  $ 198,105     $ 167,997     $ 140,233
                                                          ---------     ---------     ---------
Adjustments to reconcile net income to net cash provided
  by operating activities:
  Depreciation and amortization.........................     57,696        50,319        41,835
  Minority interest.....................................      9,826         7,799         6,955
  Earnings in unconsolidated investment.................    (28,810)      (24,651)      (18,363)
  Loss on disposition of property and equipment.........        347         1,171         1,644
  Changes in assets and liabilities:
     Trade accounts receivable, net.....................    (10,779)      (20,294)      (23,191)
     Other accounts receivable, net.....................     (1,512)       (7,330)      (12,409)
     Inventory..........................................      5,995        (7,177)       (2,093)
     Other current assets...............................      1,128        (3,902)         (537)
     Accounts payable...................................     (4,031)        3,613        10,547
     Accrued expenses...................................     17,106         2,251         4,301
     Other current liabilities..........................      8,697         2,448          (583)
                                                          ---------     ---------     ---------
                                                             55,663         4,247         8,106
                                                          ---------     ---------     ---------
          Net cash provided by operating activities.....    253,768       172,244       148,339
                                                          ---------     ---------     ---------
Cash flows from investing activities:
  Purchase of property and equipment....................    (98,700)      (82,436)      (69,585)
  Contributions to unconsolidated investment............         --            --        (5,099)
  Distributions from unconsolidated investment..........      3,400        25,500        13,600
  (Increase) decrease in other assets...................        840        (1,266)          245
                                                          ---------     ---------     ---------
          Net cash used for investing activities........    (94,460)      (58,202)      (60,839)
                                                          ---------     ---------     ---------
Cash flows from financing activities:
  Distributions to partners of CMT......................   (146,410)     (111,400)     (104,200)
  Distributions to minority partners....................     (9,385)       (6,731)       (4,980)
  Due to (from) affiliates, net.........................        210         3,256          (585)
  Partners' contribution................................         --            --        12,800
                                                          ---------     ---------     ---------
          Net cash used for financing activities........   (155,585)     (114,875)      (96,965)
                                                          ---------     ---------     ---------
          Net increase (decrease) in cash...............      3,723          (833)       (9,465)
Cash and cash equivalents, beginning of period..........      1,317         2,150        11,615
                                                          ---------     ---------     ---------
Cash and cash equivalents, end of period................  $   5,040     $   1,317     $   2,150
                                                          =========     =========     =========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       S-6
<PAGE>   33
 
                                  CMT PARTNERS
 
                         NOTES TO FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND NATURE OF OPERATIONS:
 
CMT Partners (the Partnership) was formed on September 1, 1993 (inception)
pursuant to the Amended and Restated Partnership Agreement dated as of September
1, 1993 between subsidiaries of AirTouch Communications, Inc. (ATI), formerly
PacTel Corporation, and subsidiaries of AT&T Wireless Services, Inc. (AT&TWS),
formerly McCaw Cellular Communications, Inc. (MCCI). The Partnership is a
Delaware general partnership equally owned by ATI and AT&TWS through the
following contributions:
 
<TABLE>
<CAPTION>
                                                                              CONTRIBUTIONS
                                                                                   TO
                                GENERAL PARTNERS                              CMT PARTNERS
    ------------------------------------------------------------------------  ------------
    <S>                                                                       <C>
    AirTouch Communications, Inc.:
      Bay Area Cellular Telephone Company (BACTC)...........................     61.099%
      Interest in A Block licensee in Dallas-Fort Worth, TX (D/FW)..........     33.915%
    AT&T Wireless Services, Inc.:
      Cagal Cellular Communications Corporation (Cagal).....................     80.370%
      Salinas Cellular Telephone Company (Salinas)..........................     85.930%
      Napa Cellular Telephone Company (Napa)................................     99.999%
      Net operating assets of A Block licensee in Kansas City, MO (Kansas
         City)..............................................................     100.00%
      St. Joseph CellTel Co (St. Joseph)....................................      87.00%
      Net operating assets of A Block licensee in Lawrence, KS (Lawrence)...     100.00%
      BACTC.................................................................      32.90%
</TABLE>
 
The initial contributions were accounted for at the net book value of the assets
and liabilities of the entities. Each of the entities holds a license or
licenses from the Federal Communication Commission (FCC) and state authorities
to operate cellular telephone systems in Metropolitan Statistical Areas (MSAs)
as listed below:
 
<TABLE>
    <S>                                                        <C>
    Bay Area Cellular Telephone Company......................  San Francisco/San Jose, CA
    Metroplex Telephone Company..............................  Dallas-Fort Worth, TX
    Cagal Cellular Communications Corporation................  Santa Rosa, CA
    Salinas Cellular Telephone Company.......................  Salinas, CA
    Napa Cellular Telephone Company..........................  Napa/Vallejo, CA
    Net operating assets of A Block licensee.................  Kansas City, MO
    St. Joseph CellTel Co....................................  St. Joseph, MO
    Net operating assets of A Block licensee.................  Lawrence, KS
</TABLE>
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
Principles of Consolidation:
 
The consolidated financial statements of the Partnership include the accounts of
all significant ownership interests which include the accounts of BACTC,
Combined Suburban Cellular (CSC), and Kansas Combined Cellular (KCC). CSC is
comprised of the Cagal, Salinas and Napa cellular markets. KCC is comprised of
the Kansas City, St. Joseph, and Lawrence cellular markets.
 
Use of Estimates:
 
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
 
                                       S-7
<PAGE>   34
 
                                  CMT PARTNERS
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
Revenue Recognition:
 
Cellular air time and access charges are recorded as revenue when earned. Sales
of equipment and related services are recorded when the goods and services are
delivered.
 
Cash and Cash Equivalents:
 
Cash and cash equivalents consist of investments with original maturities of
less than three months. The carrying amount approximates fair value because of
the short maturity of those instruments.
 
Allocation of Profits and Losses:
 
In general, profits and losses incurred by the Partnership are allocated to the
partners pro rata in accordance with their partnership ownership percentage.
 
Inventory:
 
Inventory consists of cellular phones and related equipment. Inventory is stated
at the lower of cost or replacement cost. Gains and losses on the sale of
cellular equipment are recognized at the time of sale.
 
Property and Equipment:
 
Property and equipment are stated at historical cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
 
<TABLE>
<CAPTION>
                                                                            DEPRECIABLE LIFE
                                                                            ----------------
    <S>                                                                     <C>
    Cellular equipment....................................................     3 - 7 years
    Cellular towers/shelters..............................................    5 - 15 years
    Other.................................................................     3 - 7 years
</TABLE>
 
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or the estimated useful life of the asset. When
property and equipment are retired or sold, the cost and accumulated
depreciation of dispositions are removed from the accounts, and any gain or loss
is reflected in income.
 
Repairs and maintenance costs are charged to expense when incurred. Renewals and
betterments are capitalized and depreciated over the remaining useful lives of
the assets.
 
Intangibles:
 
Intangible assets primarily represent costs incurred in the acquisition and
development of the cellular licenses and acquisition of subscriber lists. The
costs of the cellular licenses are being amortized over 40 years using the
straight-line method. The costs of the subscriber lists are being amortized over
three years using the straight-line method. The Company periodically evaluates
the recoverability of its goodwill using various criteria, including projected
future earnings. If necessary, goodwill is written down to its estimated
recoverable value.
 
Income Taxes:
 
The income or loss of CMT Partners and its consolidated subsidiaries are
included in the tax returns of the individual partners. Accordingly, no
provision has been made for income taxes for these entities in the financial
statements.
 
                                       S-8
<PAGE>   35
 
                                  CMT PARTNERS
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
Minority Interests:
 
Minority interests represent equity interests held by entities other than CMT
Partners for the general partnerships serving the St. Joseph, BACTC and Salinas
markets and the corporation serving the Cagal market.
 
Reclassifications:
 
Certain items in the financial statements have been reclassified to conform to
the 1996 presentation. These reclassifications have no effect on previously
reported net income or partners' equity.
 
Accounting Changes:
 
Effective January 1, 1996, the Partnership implemented the provisions of
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 Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss would be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable. The
implementation of SFAS No. 121 did not have an impact on the Partnership's
financial position or results of operations.
 
3.  PROPERTY AND EQUIPMENT:
 
Property and equipment at December 31, 1996 and 1995 consists of the following:
 
<TABLE>
<CAPTION>
                                                                     1996          1995
                                                                   ---------     ---------
                                                                       (IN THOUSANDS)
    <S>                                                            <C>           <C>
    Land.........................................................  $   1,752     $   1,724
    Cellular property and equipment..............................    395,515       333,375
    Administrative assets........................................     65,068        50,184
                                                                   ---------     ---------
                                                                     462,335       385,283
    Less accumulated depreciation and amortization...............   (237,924)     (189,143)
                                                                   ---------     ---------
                                                                     224,411       196,140
    Cellular system under construction...........................     41,044        28,658
                                                                   ---------     ---------
                                                                   $ 265,455     $ 224,798
                                                                   =========     =========
</TABLE>
 
Administrative assets primarily consist of office furniture and fixtures,
including leasehold improvements and computer equipment.
 
                                       S-9
<PAGE>   36
 
                                  CMT PARTNERS
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  ACCRUED EXPENSES:
 
Accrued expenses consist of the following:
 
<TABLE>
<CAPTION>
                                                                        1996        1995
                                                                       -------     -------
                                                                         (IN THOUSANDS)
    <S>                                                                <C>         <C>
    Accrued commissions..............................................  $ 9,791     $10,881
    Accrued benefits.................................................    5,690       5,945
    Accrued network and inventory purchases..........................    8,926          --
    Accrued operating expenses.......................................   14,650       8,031
    Other accrued expenses...........................................    8,606       5,700
                                                                       -------     -------
              Total accrued expenses.................................  $47,663     $30,557
                                                                       =======     =======
</TABLE>
 
5.  UNCONSOLIDATED INVESTMENT:
 
The unconsolidated investment represents an investment in Dallas-Fort Worth
Signal Partnership which owns approximately 34% of Metroplex Telephone Company,
the A Block licensee in Dallas-Fort Worth, Texas. Accordingly, the investment
has been accounted for by the equity method of accounting. The purchase price in
excess of the Partnership's share of net assets is $71.5 million and is being
amortized over 40 years. The financial information of Metroplex Telephone
Company at December 31, 1996, 1995 and 1994 and for the years ended December 31,
1996, 1995 and 1994 are shown below:
 
<TABLE>
<CAPTION>
                                                           1996         1995         1994
                                                         --------     --------     --------
                                                                   (IN THOUSANDS)
    <S>                                                  <C>          <C>          <C>
    Current assets.....................................  $ 43,504     $ 37,346     $ 47,759
    Noncurrent assets..................................   202,385      146,194      125,899
                                                         --------     --------     --------
              Total assets.............................  $245,889     $183,540     $173,658
                                                         ========     ========     ========
    Current liabilities................................  $ 24,579     $ 42,174     $ 35,073
                                                         --------     --------     --------
              Total liabilities........................  $ 24,579     $ 42,174     $ 35,073
                                                         ========     ========     ========
    Total equity.......................................  $221,310     $141,366     $138,585
                                                         ========     ========     ========
    Revenue............................................  $275,780     $224,213     $190,099
                                                         ========     ========     ========
    Net income.........................................  $ 89,944     $ 77,781     $ 58,156
                                                         ========     ========     ========
</TABLE>
 
6.  TRANSACTIONS WITH RELATED PARTIES:
 
The Partnership and its affiliated companies have entered into several
transactions and agreements related to their respective businesses. The
following represents the material transactions between the Partnership and its
affiliated companies:
 
Technical, Administrative and Marketing Services:
 
The Partnership entered into a service agreement (the Agreement) with AT&TWS to
provide certain services to CSC and KCC markets. The costs charged pursuant to
the Agreement are generally determined using an allocation method. Substantially
all of the services under the Agreements were terminated during 1994, and CMT
Partners began providing these services to its affiliated markets.
 
                                      S-10
<PAGE>   37
 
                                  CMT PARTNERS
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
Cellular Equipment Purchases:
 
The Partnership purchased cellular electronic equipment from AT&T Corp.
comprising approximately 22% of total capital expenditures for the period from
January 1, 1995 through December 31, 1995. For the year ended December 31, 1996,
purchases of cellular electronic equipment from AT&T Corp. was approximately 15%
of total capital expenditures.
 
Long Distance:
 
Effective with the formation of CMT Partners on September 1, 1993, CSC, KCC, and
two interexchange carriers (Interexchange Carriers), both of which are wholly
owned subsidiaries of AT&TWS, entered into Agreements under which the
Interexchange Carriers provide InterLATA long distance services for CSC and KCC
customers. CMT Partners may have been subject to certain restrictions regarding
the provision of InterLATA services pursuant to the Modified Final Judgment and
the AT&T Corp. consent decree. Such restrictions were superseded by the
Telecommunications Act of 1996.
 
CSC and KCC provided billing and collection functions on behalf of the
Interexchange Carriers at $.42 per customer account. The Interexchange Carriers
were responsible for the wholesale cost of the InterLATA long distance services
and any other expense incurred by the Interexchange Carriers in operating their
business. In August 1996, this arrangement ceased as the Partnership (including
CSC and KCC) began reselling long distance services as allowed by the
Telecommunications Act of 1996.
 
Interconnection:
 
BACTC contracted with Pacific Bell, an affiliate of ATI during 1993 and for the
first three months of 1994, for interconnection services essential to the
operation of its cellular network. The costs pursuant to this contract accounted
for 7% of the total operating costs for the first three months of 1994.
 
7.  EMPLOYEE CONTRIBUTION AND PROFIT SHARING PLAN:
 
Employees of CMT Partners and its subsidiaries participate in a contributory
profit-sharing plan referred to as the Cellular One Section 401(k) and Profit
Sharing Plan (the Plan), formerly known as the Bay Area Cellular Telephone
Company 401(k) and Profit Sharing Plan, which qualifies as a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code. Upon formation of
CMT Partners, employees of the markets contributed by AT&TWS may elect to
participate in the Plan at any time. Otherwise, these employees may maintain
their contributions in AT&TWS's 401(k) plan.
 
The Plan allows participating employees to elect to contribute up to 15% of
their monthly salaries, to a maximum as prescribed by the Internal Revenue
Service. The Plan sponsor, CMT Partners, contributes to the Plan, on behalf of
each participating employee, an amount equal to 50% of the employee's
contribution, not to exceed 5% of the participant's salary. Contributions are
invested in six different funds. Under the 401(k) Plan, participants are at all
times fully vested. Under the profit sharing plan, CMT Partners contributes a
discretionary percentage of each eligible employee's salary. Employees vest in
the profit sharing plan over five years. CMT Partners contributed $2,212,511,
$2,164,064, and $2,023,757 to the 401(k) and profit sharing plan for 1996, 1995,
and 1994.
 
                                      S-11
<PAGE>   38
 
                                  CMT PARTNERS
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
8.  COMMITMENTS AND CONTINGENCIES:
 
Lease Commitments:
 
Future minimum payments required under operating leases and agreements that have
an initial or remaining noncancelable lease term in excess of one year at
December 31, 1996 are summarized below:
 
<TABLE>
<CAPTION>
                                                                             (IN THOUSANDS)
    <S>                                                                      <C>
    Year Ending December 31,
      1997...............................................................       $ 11,080
      1998...............................................................         10,133
      1999...............................................................          9,345
      2000...............................................................          5,668
      2001...............................................................          3,445
      Thereafter.........................................................          4,566
                                                                                 -------
                                                                                $ 44,237
                                                                                 =======
</TABLE>
 
Rental expense for operating leases was $11,667,476, $9,244,000, and $7,562,000
for 1996, 1995, and 1994, respectively.
 
Litigation:
 
In 1994, a class action complaint was filed on behalf of the Partnership's
cellular customers in San Francisco County Superior Court alleging certain
facts, including a similarity in the pricing structures of the two competitors,
which plaintiffs contend is circumstantial evidence of an implicit conspiracy
between BACTC and GTE Mobilnet to fix the prices of retail and wholesale
cellular radio services in the San Francisco Bay Area market. A class action
lawsuit has been stipulated and discovery has begun. In 1996, an almost
identical class action complaint was filed by a different plaintiff in Alameda
County Superior Court against BACTC, GTE Mobilnet, and a number of other
companies. It alleges essentially the same facts as the San Francisco case
alleges. The two cases have been assigned to a single judge for coordination.
The Partnership does not believe that these proceedings will have a material
adverse effect on its financial position or results of operations.
 
The Partnership is a party to certain litigation in the ordinary course of
business and is also a party to routine filings with the FCC, state regulatory
authorities and other proceedings which management believes are immaterial to
the Partnership.
 
9.  LINE OF CREDIT:
 
The Partnership has a revolving line of credit with a bank that allows for
borrowings up to $10,000,000. Interest on all advances on the line of credit
accrue at the lesser of a variable rate equal to .50% below the Prime Rate or
 .90% above the LIBOR rate. The line of credit agreement expires August 1, 1998.
 
                                      S-12
<PAGE>   39
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Partners of CMT Partners:
 
Our report on the consolidated financial statements of CMT Partners is included
as an exhibit to the AirTouch Communications, Inc. (ATI) Form 10-K. In
connection with our audit of such financial statements, we have audited the
related financial statement schedule listed in the index as an exhibit of ATI
Form 10-K.
 
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
 
/s/ Coopers & Lybrand L.L.P.
 
San Francisco, California
 
February 14, 1997
 
                                      S-13
<PAGE>   40
 
                                  CMT PARTNERS
 
         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                               BALANCE AT      CHARGED TO                       BALANCE AT
                                              BEGINNING OF      COST AND                          END OF
                                                 PERIOD         EXPENSES      DEDUCTIONS(A)       PERIOD
                                              ------------     ----------     -------------     ----------
<S>                                           <C>              <C>            <C>               <C>
Year ended December 31, 1996:
  Allowance for doubtful accounts...........     $5,689         $ 22,728         $17,264         $ 11,153
 
Year ended December 31, 1995:
  Allowance for doubtful accounts...........     $3,228         $ 19,378         $16,917         $  5,689
 
Year ended December 31, 1994:
  Allowance for doubtful accounts...........     $1,576         $  8,107         $ 6,455         $  3,228
</TABLE>
 
---------------
(a) Amounts in this column reflect items written off, net of recoveries.
 
                                      S-14
<PAGE>   41
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To CMT Partners:
 
We have audited the balance sheets of Kansas Combined Cellular, (a division of
CMT Partners, a Delaware general partnership) as of December 31, 1996 and 1995,
and the related statements of operations and changes in partners' capital and
cash flows for each of the three years in the period ended December 31, 1996,
not presented separately herein. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above, not presented
separately herein, present fairly, in all material respects, the financial
position of Kansas Combined Cellular as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
 
                                          /s/  ARTHUR ANDERSEN LLP
 
Kansas City, Missouri
January 24, 1997
 
                                      S-15
<PAGE>   42
 
                           MANNESMANN MOBILFUNK GMBH
 
                              FINANCIAL STATEMENTS
 
                               TABLE OF CONTENTS
 
<TABLE>
<S>                                                                                     <C>
Independent Auditors' Report..........................................................  S-17
Balance Sheets as of December 31, 1996 and 1995.......................................  S-18
Statements of Income for the Years ended December 31, 1996, 1995 and 1994.............  S-19
Statements of Capital Subscribers' Equity for the Years ended December 31, 1996, 1995
  and 1994............................................................................  S-20
Statements of Cash Flows for the Years ended December 31, 1996, 1995 and 1994.........  S-21
Notes to Financial Statements.........................................................  S-22
</TABLE>
 
                                      S-16
<PAGE>   43
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Capital Subscribers
  Mannesmann Mobilfunk GmbH
 
We have audited the accompanying balance sheets of Mannesmann Mobilfunk GmbH as
of December 31, 1996 and 1995, and the related statements of income, capital
subscribers' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted German auditing
standards which, in all material respects, are similar to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mannesmann Mobilfunk GmbH at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996, in
conformity with accounting principles generally accepted in the United States.
 
As discussed in notes 1 and 9 to the financial statements, the Company changed
its method of accounting for income taxes in 1995 to adopt the consensus reached
by the Emerging Issues Task Force of the Financial Accounting Standards Board in
Issue No. 95-10.
 
Dusseldorf, Germany, February 19, 1997
 
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
 
<TABLE>
        <S>                                   <C>
        /s/ SCHEFFLER                         /s/ HAAS
            Wirtschaftsprufer                    Wirtschaftsprufer
</TABLE>
 
                                      S-17
<PAGE>   44
 
                           MANNESMANN MOBILFUNK GMBH
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                           1996              1996             1995
                                                       -------------     ------------     ------------
                                                       U.S. DOLLARS      DEUTSCHMARKS     DEUTSCHMARKS
                                                         (NOTE 1)
<S>                                                    <C>               <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents (note 2).................       37,380            58,006           54,007
  Accounts receivable, less allowance for doubtful
     accounts of DM 52,422 in 1996 and DM 27,660 in
     1995............................................      411,991           639,328          414,286
  Due from affiliated companies (notes 3 and 9)......      141,387           219,404           53,626
  Inventories of products, parts and related supplies
     (note 4)........................................       25,673            39,839           36,435
  Prepaid expenses...................................       16,786            26,049           21,745
  Other current assets...............................       19,369            30,057            9,935
  Deferred tax asset (note 9)........................           --                --          105,498
                                                         ---------         ---------        ---------
     Total current assets............................      652,586         1,012,683          695,532
                                                         ---------         ---------        ---------
Property, plant and equipment:
  Telecommunications equipment.......................    2,223,073         3,449,765        2,769,103
  Equipment in course of construction................       41,205            63,942           54,217
  Other equipment....................................      105,364           163,503          111,543
                                                         ---------         ---------        ---------
                                                         2,369,642         3,677,210        2,934,863
  Less accumulated depreciation......................     (755,002)       (1,171,612)        (814,270)
                                                         ---------         ---------        ---------
Net property, plant, and equipment...................    1,614,640         2,505,598        2,120,593
Other assets, at cost, less accumulated amortization
  of DM 45,142 in 1996 and DM 39,389 in 1995.........       27,037            41,956           46,230
                                                         ---------         ---------        ---------
                                                         2,294,263         3,560,237        2,862,355
                                                         =========         =========        =========
LIABILITIES AND CAPITAL SUBSCRIBERS' EQUITY
Current liabilities:
  Due to banks.......................................       28,999            45,000          135,500
  Accounts payable...................................      265,077           411,347          346,794
  Income taxes payable...............................       24,154            37,482               --
  Accrued expenses...................................       74,210           115,159           55,650
  Due to affiliated companies (notes 3 and 6)........       68,934           106,972          242,070
                                                         ---------         ---------        ---------
     Total current liabilities.......................      461,374           715,960          780,014
Long-term debt due to affiliated company (notes 3 and
  6).................................................           --                --          100,000
Pension liabilities (note 7).........................        6,350             9,853            8,818
Other non-current liabilities (note 8)...............       24,745            38,400           11,545
Deferred income taxes (note 9).......................      294,790           457,455          261,443
                                                         ---------         ---------        ---------
     Total liabilities...............................      787,259         1,221,668        1,161,820
                                                         ---------         ---------        ---------
Commitments (note 10)
Capital subscribers' equity:
  Subscribed capital (note 11).......................      260,987           405,000          405,000
  Additional capital.................................      782,962         1,215,000        1,215,000
                                                         ---------         ---------        ---------
                                                         1,043,949         1,620,000        1,620,000
  Retained earnings (note 12)........................      463,055           718,569           80,535
                                                         ---------         ---------        ---------
     Total capital subscribers' equity...............    1,507,004         2,338,569        1,700,535
                                                         ---------         ---------        ---------
                                                         2,294,263         3,560,237        2,862,355
                                                         =========         =========        =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      S-18
<PAGE>   45
 
                           MANNESMANN MOBILFUNK GMBH
 
                              STATEMENTS OF INCOME
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                                         
                                                            1996              1996             1995             1994
                                                        -------------     ------------     ------------     ------------
                                                        U.S. DOLLARS      DEUTSCHMARKS     DEUTSCHMARKS     DEUTSCHMARKS
                                                          (NOTE 1)
<S>                                                     <C>               <C>              <C>              <C>
Net revenues..........................................    2,712,203         4,208,796        2,716,160        1,744,165
                                                          ---------         ---------        ---------        ---------
Operating costs and expenses:
  Cost of services and products, including DM 3,508,
     DM 3,318 and DM 5,924 with related parties in
     1996, 1995 and 1994 respectively (note 3)........      793,473         1,231,311          923,101          697,764
  Selling, general and administrative expenses,
     including DM 95,305, DM 74,354 and DM 56,548 with
     related parties in 1996, 1995 and 1994
     respectively (note 3)............................      823,133         1,277,337          807,314          510,904
Depreciation and amortization.........................      251,820           390,775          305,270          309,139
                                                          ---------         ---------        ---------        ---------
  Operating income....................................      843,777         1,309,373          680,475          226,358
Other income (expense):
  Interest income.....................................        2,616             4,059            3,205            2,851
  Interest expense, including DM 2,510, DM 9,678 and
     DM 166 with related parties in 1996, 1995 and
     1994 respectively................................       (3,438)           (5,335)         (33,384)         (40,584)
  Other, net..........................................       13,697            21,253           15,929            3,256
                                                          ---------         ---------        ---------        ---------
                                                             12,873            19,977          (14,250)         (34,477)
  Income before income taxes and cumulative effect of
     change in accounting principle...................      856,650         1,329,350          666,225          191,881
Income taxes (note 9).................................     (445,493)         (691,316)        (383,212)         (84,889)
                                                          ---------         ---------        ---------        ---------
  Income before cumulative effect of change in
     accounting principle.............................      411,157           638,034          283,013          106,992
Cumulative effect at January 1, 1995, of change in
  accounting for income taxes (note 9)................           --                --           63,297               --
                                                          ---------         ---------        ---------        ---------
  Net income..........................................      411,157           638,034          346,310          106,992
                                                          =========         =========        =========        =========
Pro forma net income assuming the new change in
  accounting for income taxes had been applied
  retroactively.......................................      411,157           638,034          283,013           81,511
                                                          =========         =========        =========        =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      S-19
<PAGE>   46
 
                           MANNESMANN MOBILFUNK GMBH
 
                   STATEMENTS OF CAPITAL SUBSCRIBERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                RETAINED      CAPITAL
                                                    SUBSCRIBED    ADDITIONAL    EARNINGS    SUBSCRIBERS'
                                                     CAPITAL       CAPITAL      (DEFICIT)      EQUITY
                                                    ----------    ----------    --------    ------------
<S>                                           <C>   <C>           <C>           <C>         <C>
Balances at December 31, 1993................   DM    405,000      1,215,000    (372,767)     1,247,233
Net income...................................              --             --     106,992        106,992
                                                      -------      ---------    --------      ---------
Balances at December 31, 1994................         405,000      1,215,000    (265,775)     1,354,225
Net income...................................              --             --     346,310        346,310
                                                      -------      ---------    --------      ---------
Balances at December 31, 1995................         405,000      1,215,000      80,535      1,700,535
Net income...................................              --             --     638,034        638,034
                                                      -------      ---------    --------      ---------
Balances at December 31, 1996................   DM    405,000      1,215,000     718,569      2,338,569
                                                      =======      =========    ========      =========
Balances at December 31, 1996 (note 1).......    $    260,987        782,962     463,055      1,507,004
                                                      =======      =========    ========      =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      S-20
<PAGE>   47
 
                           MANNESMANN MOBILFUNK GMBH
 
                            STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                1996           1996            1995            1994
                                                              ---------    ------------    ------------    ------------
                                                                U.S.       DEUTSCHMARKS    DEUTSCHMARKS    DEUTSCHMARKS
                                                               DOLLARS
                                                              (NOTE 1)
<S>                                                           <C>          <C>             <C>             <C>
Cash flows from operating activities:
  Net income.................................................   411,157       638,034         346,310         106,992
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Cumulative effect of change in accounting principle.....        --            --         (63,297)             --
     Deferred income taxes...................................   224,515       348,403         383,212          84,889
     Depreciation and amortization...........................   251,820       390,775         305,270         309,139
     Allowance for doubtful accounts.........................    15,957        24,762           9,651           7,991
     Loss on sale of equipment...............................     2,120         3,290           1,039           6,150
     Provision for pension costs.............................     1,215         1,885           1,796           1,383
     Provision for other costs...............................    17,306        26,855           4,095           3,100
     Changes in operating assets and liabilities
     Accounts receivable.....................................  (160,976)     (249,804)       (153,849)       (111,137)
     Due from affiliated companies...........................  (137,047)     (212,671)          7,164           1,680
     Inventories.............................................    (2,194)       (3,404)        (13,427)         (3,708)
     Prepaid expenses........................................    (2,774)       (4,304)         (6,870)         (4,079)
     Other current assets....................................   (12,967)      (20,122)         (4,347)         (3,966)
     Accounts payable........................................    41,599        64,553          36,423         (12,262)
     Income taxes payable....................................    24,154        37,482              --              --
     Accrued expenses........................................    38,348        59,509          19,412          27,056
     Due to affiliated companies.............................       248           385          (1,499)         (8,355)
     Pension liabilities.....................................      (548)         (850)            (76)           (541)
                                                               --------     ---------        --------        --------
Net cash provided by operating activities....................   711,933     1,104,778         871,007         404,332
                                                               --------     ---------        --------        --------
Cash flows from investing activities:
  Proceeds from sale of equipment and other assets...........     3,355         5,207          15,458          10,538
  Capital expenditures, including interest capitalized.......  (502,518)     (779,808)       (542,949)       (689,178)
  Increase in other assets...................................      (126)         (195)           (184)           (365)
                                                               --------     ---------        --------        --------
Net cash used in investing activities........................  (499,289)     (774,796)       (527,675)       (679,005)
                                                               --------     ---------        --------        --------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt...................        --            --              --         280,000
  Proceeds from a loan by an affiliated company..............        --            --         100,000              --
  Increase (decrease) in due to affiliated company...........  (151,748)     (235,483)        236,648               0
  Increase (decrease) in due to banks........................   (58,319)      (90,500)         63,479          (5,627)
  Repayment of long-term debt................................        --            --        (720,000)             --
                                                               --------     ---------        --------        --------
Net cash (used for) provided by financing activities.........  (210,067)     (325,983)       (319,873)        274,373
                                                               --------     ---------        --------        --------
Net increase (decrease) in cash and cash equivalents.........     2,577         3,999          23,459            (300)
Cash and cash equivalents at beginning of year...............    34,803        54,007          30,548          30,848
                                                               --------     ---------        --------        --------
Cash and cash equivalents at end of year.....................    37,380        58,006          54,007          30,548
                                                               ========     =========        ========        ========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      S-21
<PAGE>   48
 
                           MANNESMANN MOBILFUNK GMBH
 
                         NOTES TO FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                   (ALL AMOUNTS IN THOUSANDS OF DEUTSCHMARKS)
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  (a) Description of Business
 
Mannesmann Mobilfunk GmbH was incorporated on September 11, 1989. At December
31, 1996 Mannesmann AG held a controlling interest of 65.23%, and AirTouch
Communications, Inc. held an interest of 34.77%.
 
The Company's primary business is the construction, manufacture and operation of
a private mobile cellular network ("D2") within Germany. It is conducted under a
license agreement with the Federal Postal and Telecommunications Ministry
expiring at the end of 2009.
 
Commercial activities commenced in mid 1992 and by the end of 1996 the Company
had about 2,300,000 subscribers.
 
  (b) Basis of Presentation
 
In order to conform with accounting principles generally accepted in the United
States, certain adjustments are reflected in the financial statements which are
not recorded in the German books of account. These adjustments relate primarily
to capitalization of own payroll and related costs associated with the design
and construction of telecommunications equipment, depreciation and amortization,
and accounting for income taxes.
 
  (c) Cash and Cash Equivalents
 
The Company considers all highly liquid monetary instruments with original
maturities of three months or less to be cash equivalents.
 
  (d) Inventories
 
Inventories are stated at the lower of average cost or market.
 
  (e) Property, Plant and Equipment
 
Property, plant and equipment are stated at cost. Depreciation is calculated on
both the straight-line and declining balance methods over the estimated useful
lives of the assets as follows:
 
<TABLE>
<CAPTION>
                                                      YEARS     PERCENTAGE           METHOD
                                                      -----     ----------     ------------------
    <S>                                               <C>       <C>            <C>
    Telecommunications equipment:
      D2 infrastructure center......................    10           10%       straight-line
      Switching locations...........................    15         6.67%       straight-line
      Base station equipment
         -- poles...................................    10           30%       declining balance
         -- components..............................    20            5%       straight-line
      Transmission and message switching
         technology.................................    10           10%       straight-line
    Other equipment:
      Data processing equipment.....................     4           30%       declining balance
      Office equipment..............................    10           30%       declining balance
      Measuring instruments.........................     5           30%       declining balance
      Vehicles......................................     5           30%       declining balance
</TABLE>
 
                                      S-22
<PAGE>   49
 
                           MANNESMANN MOBILFUNK GMBH
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
Certain equipment installed at third party locations for rental periods less
than the above useful lives are depreciated over the corresponding terms of the
agreements.
 
  (f) Other Assets
 
Other assets are stated at cost. They consist mainly of computer software,
patents, rights and concessions which are being amortized over periods ranging
from three to eight years on a straight-line basis.
 
  (g) Income Taxes
 
Income taxes are recognized during the year in which transactions enter into the
determination of financial statement income. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
 
In July 1995, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus in Issue No. 95-10 that addresses the
accounting for tax benefits of future tax credits, arising from the difference
between the German corporate tax rate of 45% applicable to undistributed profits
and 30% applicable to distributed income, that will be realized when the
previously taxed income is distributed. The Task Force concluded that the tax
benefits of the tax credits should be recognized as a reduction of income tax
expense in the period the tax credits are included in the enterprise's tax
return and that the enterprise should measure the tax effects of temporary
differences using the tax rate for undistributed income.
 
Prior to 1995, the Company applied a combined net income tax rate, which
reflected the lower corporate tax rate, to its income and loss before income
taxes on the basis that profits would be distributed in the future in accordance
with the dividend policy agreed by the capital subscribers. This approach
resulted in a lower net deferred tax asset being reported than otherwise would
have been the case had the higher corporate tax rate been applied, due to the
recognized benefits of primarily the net operating loss carry forwards incurred
by the Company during its development phase.
 
Effective January 1, 1995, the Company adopted the consensus reached in Issue
No. 95-10 and has reported the cumulative effect of that change in the method of
accounting for income taxes in the 1995 statement of income.
 
Accordingly, under this consensus, the benefit of the tax credit arising from
the declaration of a dividend distribution, to be included in the tax return for
1996, is being recognized as a reduction of income tax expense in the 1996
statement of income.
 
  (h) Pension Plans
 
The Company has defined benefit plans limited to its management group. The
benefits are based on years of service and recent compensation. The accumulated
benefit obligation is determined based on annual actuarial calculations and
recorded as a liability in the balance sheet with a corresponding charge to
income. The liability is not funded but represented by the Company's assets.
 
  (i) Financial Statement Translation
 
The financial statements are expressed in Deutschmarks and, solely for the
convenience of the reader, have been translated into United States dollars at
the rate of DM 1.5518 to U.S. $1, the closing rate quotation on December 31,
1996.
 
                                      S-23
<PAGE>   50
 
                           MANNESMANN MOBILFUNK GMBH
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
  (j) Use of Estimates
 
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
(2) CASH AND CASH EQUIVALENTS
 
This caption includes cash equivalents representing time deposits for amounts
maturing within periods of between one day and three months. The balances at
December 31, 1996 and 1995 are both DM 20,000.
 
(3) RELATED PARTY TRANSACTIONS
 
The Company has significant business transactions with its main capital
subscribers, Mannesmann AG and AirTouch Communications, Inc. and their
respective group companies. Such transactions are normally concluded within a
range of terms similar to those made with non-related parties.
 
The significant balances and transactions with these related parties are shown
separately in the balance sheet and statement of income. In addition, purchases
of property, plant and equipment from related parties during the years stated
are shown below:
 
<TABLE>
<CAPTION>
                                                                  1996      1995       1994
                                                                 ------     -----     ------
    <S>                                                     <C>  <C>        <C>       <C>
    Purchases included under property, plant and
      equipment...........................................  DM    3,802     6,878     15,174
                                                                  =====     =====     ======
</TABLE>
 
The amounts shown as due to and from affiliated companies at December 31, 1996
and 1995 include interest bearing balances due to and from Mannesmann AG. For
intercompany current account arrangements interest is fixed on an arms length
basis. Also outstanding at each year-end are various loans receivable and
payable at fixed rates of interest as follows:
 
<TABLE>
<CAPTION>
                                                                        1996        1995
                                                                      --------     -------
    <S>                                                          <C>  <C>          <C>
    Loans receivable...........................................  DM    200,000          --
                                                                       =======     ======= 
    Loans payable..............................................  DM    100,000     100,000
                                                                       =======     =======
</TABLE>
 
(4) INVENTORIES
 
This caption includes stocks of products, parts and related supplies. The
balances at December 31, 1996 and 1995 are as follows:
 
<TABLE>
<CAPTION>
                                                                         1996        1995
                                                                        -------     ------
    <S>                                                            <C>  <C>         <C>
    Mobile telephones............................................  DM    21,917     20,370
    Subscriber identification module cards.......................         9,238      6,721
    Spare parts..................................................         7,851      9,094
    Other trade goods............................................           833        250
                                                                         ------     ------
                                                                   DM    39,839     36,435
                                                                         ======     ======
</TABLE>
 
                                      S-24
<PAGE>   51
 
                           MANNESMANN MOBILFUNK GMBH
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
(5) INTEREST COST
 
The Company capitalizes interest related to the continuing expansion of the
infrastructure for its private mobile cellular network. The following is a
summary of interest cost incurred and subject to capitalization during 1996,
1995 and 1994:
 
<TABLE>
<CAPTION>
                                                                 1996       1995       1994
                                                                ------     ------     ------
    <S>                                                    <C>  <C>        <C>        <C>
    Interest cost capitalized............................  DM    3,336      2,470      4,092
    Interest cost charged to income......................        5,335     33,384     40,584
                                                                 -----     ------     ------
                                                           DM    8,671     35,854     44,676
                                                                 =====     ======     ======
</TABLE>
 
Interest capitalized has been included in the telecommunications equipment
component of property, plant and equipment.
 
The Company paid interest of DM 8,172, DM 43,147 and DM 48,213 in 1996, 1995 and
1994 respectively.
 
(6) LONG-TERM DEBT
 
There is no long term debt at December 31, 1996, as the amount of a DM 100,000
loan with a fixed interest rate of 5.675% repayable on June 30, 1997, to an
affiliated company, shown as long-term debt at December 31, 1995, has been
reclassified as current.
 
(7) PENSION PLANS
 
The Company has a defined benefit pension plan covering all of its 75 member
management group (1995 - 75 members and 1994 - 80 members).
 
By the end of 1996 approximately 2,600 of the remaining employees are covered by
a defined contribution plan funded externally with an insurance company. The
remaining employees totaling about 2,100 at the end of 1996 (about 900 and 2,400
at the end of 1995 and 1994 respectively) are not presently covered by such
plans. All personnel are covered by a German state pension scheme under a
defined contribution plan funded equally by the employer and the employee.
 
The pension liabilities shown in the balance sheet result directly from
independent actuarial calculations based on the situation of the two defined
benefit plans at the end of each year in accordance with German tax and
commercial rules. Due to the relatively insignificant amount of such pension
liabilities given the small number of employees covered, together with the short
periods of prior service, the Company considers that any potential adjustment or
additional disclosures, that would be required had Statement of Financial
Accounting Standards No 87, Employers' Accounting for Pensions, been applied,
would not be material.
 
As noted above, the pension liabilities shown in the balance sheet represent the
actuarial present value of accumulated benefit obligations. Projected benefit
obligations and increases in compensation levels are not considered. The pension
liabilities under these plans are not funded but considered to be represented by
the Company's assets.
 
The pension costs charged to income for 1996, 1995 and 1994 are DM 3,207, DM
3,389 and DM 1,383 respectively.
 
The discount rate assumed in the actuarial valuations for each of the years
ended December 31, 1996, 1995 and 1994 is 6%.
 
                                      S-25
<PAGE>   52
 
                           MANNESMANN MOBILFUNK GMBH
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
(8) OTHER NON-CURRENT LIABILITIES
 
This represents a provision for site restoration costs expected to be incurred
upon expiration of the respective leases.
 
(9) INCOME TAXES
 
As discussed in note 1, the Company adopted the consensus reached in Issue No.
95-10 of the Emerging Issues Task Force as of January 1, 1995. The cumulative
effect of this change in accounting for income taxes of DM 63,297 was determined
as of January 1, 1995 and has been reported separately in the statement of
income for the year ended December 31, 1995. As a result of applying this
change, the income from continuing operations for the year ended December 31,
1995 was decreased by DM 88,474.
 
Total income taxes for the years ended December 31, 1996, 1995 and 1994 were
allocated as follows:
 
<TABLE>
<CAPTION>
                                                               1996        1995        1994
                                                              -------     -------     ------
    <S>                                                  <C>  <C>         <C>         <C>
    Income.............................................  DM   691,316     383,212     84,889
    Cumulative effect of change in accounting for
      income taxes.....................................            --     (63,297)        --
                                                              -------     -------     ------
                                                         DM   691,316     319,915     84,889
                                                              =======     =======     ======
</TABLE>
 
Income tax expense attributable to income for the years ended December 31, 1996,
1995 and 1994 consists of various types of taxes as follows:
 
<TABLE>
<CAPTION>
                                                             CURRENT     DEFERRED      TOTAL
                                                             -------     --------     -------
    <S>                                                 <C>  <C>         <C>          <C>
    Year ended December 31, 1996
      German trade tax................................  DM   139,500      107,210     246,710
      German corporate tax............................       189,221      224,354     413,575
      German solidarity surcharge tax.................        14,192       16,839      31,031
                                                             -------      -------     -------
                                                        DM   342,913      348,403     691,316
                                                             =======      =======     =======
    Year ended December 31, 1995
      German trade tax................................  DM        --      117,922     117,922
      German corporate tax............................            --      246,769     246,769
      German solidarity surcharge tax.................            --       18,521      18,521
                                                             -------      -------     -------
                                                        DM        --      383,212     383,212
                                                             =======      =======     =======
    Year ended December 31, 1994
      German trade tax................................  DM        --       33,963      33,963
      German corporate tax............................            --       47,376      47,376
      German solidarity surcharge tax.................            --        3,550       3,550
                                                             -------      -------     -------
                                                        DM        --       84,889      84,889
                                                             =======      =======     =======
</TABLE>
 
                                      S-26
<PAGE>   53
 
                           MANNESMANN MOBILFUNK GMBH
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
The respective rates for the above types of taxes and their application for the
years ended December 31, 1996, 1995 and 1994 are analyzed as follows:
 
<TABLE>
<CAPTION>
                                                                1996       1995       1994
                                                               ------     ------     ------
                                                                 %          %          %
    <S>                                                        <C>        <C>        <C>
    Income before income taxes...............................  100.00     100.00     100.00
    German trade tax gross rate of 17.7% for 1996, 1995 and
      1994 applied to income before income taxes.............  (17.70)    (17.70)    (17.70)
                                                               ------     ------     ------
                                                                82.30      82.30      82.30
    German corporate tax gross rate for undistributed income
      of 45% for 1996 and 1995 and for distributed income of
      30% for 1994 applied to income after German trade tax,
      a net rate of 37.04% for 1996 and 1995 and 24.69% for
      1994...................................................  (37.04)    (37.04)    (24.69)
                                                               ------     ------     ------
                                                                45.26      45.26      57.61
    German solidarity surcharge tax gross rate of 7.5%,
      announced in 1993 effective 1995, applied to German
      corporate tax net rate of 37.04% for 1996 and 1995, a
      net rate of 2.78% and 24.69% for 1994, a net rate of
      1.85%..................................................   (2.78)     (2.78)     (1.85)
                                                               ------     ------     ------
    Income after income taxes................................   42.48      42.48      55.76
                                                               ======     ======     ======
 
    German trade tax net rate................................   17.70      17.70      17.70
    German corporate tax net rate............................   37.04      37.04      24.69
    German solidarity surcharge tax net rate.................    2.78       2.78       1.85
                                                               ------     ------     ------
    Combined German income tax rate..........................   57.52      57.52      44.24
                                                               ======     ======     ======
</TABLE>
 
As noted above, the impact of applying a change in accounting for income taxes
using the higher German corporate tax gross rate for undistributed income of 45%
in 1996 and 1995 has resulted in the combined income tax rate increasing to
57.52% in 1996 and 1995 from 44.24% in 1994.
 
Income tax expense attributable to income was DM 691,316, DM 383,212 and DM
84,889 for the years ended December 31, 1996, 1995 and 1994 respectively, and
differed from the amount computed by applying the above combined German income
tax rate of 57.52% for 1996 and 1995 and 44.24% for 1994 to pretax income as a
result of the following:
 
<TABLE>
<CAPTION>
                                                               1996        1995        1994
                                                              -------     -------     ------
    <S>                                                  <C>  <C>         <C>         <C>
    Computed "expected" tax expense....................  DM   764,642     383,212     84,889
    Adjustment to reflect net effect of lower German
      corporate tax rate applicable to the declared
      dividend distribution............................       (80,612)         --         --
    Adjustments to German book basis income for net
      effect of permanent differences attributable to
      certain non taxable income and non deductible
      expense in computing the German fiscal basis
      income...........................................         7,286          --         --
                                                              -------     -------     ------
                                                         DM   691,316     383,212     84,889
                                                              =======     =======     ======
</TABLE>
 
                                      S-27
<PAGE>   54
 
                           MANNESMANN MOBILFUNK GMBH
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
The significant components of the income tax expense attributable to the income
for the years ended December 31, 1996, 1995 and 1994 are as follows:
 
<TABLE>
<CAPTION>
                                                               1996        1995        1994
                                                              -------     -------     ------
    <S>                                                  <C>  <C>         <C>         <C>
    Current German fiscal basis tax expense............  DM   342,913          --         --
    Deferred tax expense attributable to the
      realization of the benefit of net operating loss
      carryforwards....................................       152,391     244,994     89,833
    Tax effect of the temporary differences between the
      financial statement carrying amounts of existing
      assets and liabilities and their respective tax
      bases............................................       196,012     138,218     (4,944)
                                                              -------     -------     ------
    Net tax expense....................................  DM   691,316     383,212     84,889
                                                              =======     =======     ======
</TABLE>
 
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995 are presented below:
 
<TABLE>
<CAPTION>
                                                                         1996        1995
                                                                        -------     -------
    <S>                                                            <C>  <C>         <C>
    Deferred tax assets:
      Net operating loss carryforwards...........................  DM        --     152,391
      Less amount due from affiliated company for realization of
         the benefit of net operating loss carryforwards for
         German trade tax purposes...............................            --     (46,893)
                                                                        -------     -------
              Total deferred tax assets, current.................  DM        --     105,498
                                                                        =======     =======
    Deferred tax liabilities:
      Property, plant and equipment due to differences in
         capitalization and related depreciation.................  DM   457,455     261,443
                                                                        -------     -------
              Total deferred tax liabilities.....................  DM   457,455     261,443
                                                                        =======     =======
</TABLE>
 
The benefit of the net operating loss carryforward at December 31, 1995 was
realized in 1996, as was the reclassified amount due from affiliated company due
to the group relief arrangement applicable to German trade tax.
 
Income taxes paid on account during 1996 are DM 171,416. None were paid in 1995
and 1994.
 
(10) COMMITMENTS
 
The Company is obligated under various noncancelable operating leases, primarily
of a long-term nature, for the main administrative building, base stations and
sales offices. The rental expense charged to income during 1996, 1995 and 1994
was DM 88,059, DM 65,922 and DM 51,769, respectively.
 
Future minimum lease payments under noncancelable leases (with initial or
remaining lease terms in excess of one year) are:
 
<TABLE>
    <S>                                                                      <C>  <C>
    Year ending December 31:
      1997.................................................................  DM     45,692
      1998.................................................................         45,377
      1999.................................................................         45,242
      2000.................................................................         44,716
      2001.................................................................         43,998
      2002 and beyond......................................................         88,954
                                                                                   -------
              Total minimum lease payments.................................  DM    313,979
                                                                                   =======
</TABLE>
 
                                      S-28
<PAGE>   55
 
                           MANNESMANN MOBILFUNK GMBH
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
(11) SUBSCRIBED CAPITAL
 
Subscribed capital is represented by whole sum subscription amounts on a
proportional basis to the investing parties. The respective amounts of
proportional subscriptions directly reflect the percentage of respective
ownership and related voting and dividend rights.
 
(12) RESTRICTIONS ON RETAINED EARNINGS
 
The payment of dividends from retained earnings is restricted to the extent of
available retained earnings per the German books of account. At December 31,
1996 there are retained earnings of DM 376,189 per the German books of account,
all of which have been paid as a dividend on February 4, 1997 following a
resolution by the capital subscribers to that effect on January 30, 1997.
 
(13) FINANCIAL INSTRUMENTS
 
The fair values of all the Company's financial instruments at December 31, 1996
and 1995 approximate the carrying amounts either because of the short-term
maturity of these instruments or because of the insignificant movement in
interest rates compared to those fixed for amounts due and from related parties
over their relatively short terms.
 
The Company has no involvement with derivative financial instruments.
 
(14) ADVERTISING COSTS
 
The advertising costs directly charged to income during 1996, 1995 and 1994 were
DM 65,824, DM 61,116 and DM 14,354 respectively.
 
(15) CHANGE IN ACCOUNTING ESTIMATE
 
Following a review of the estimated useful lives of its cellular
telecommunications equipment, the Company extended the estimated useful lives of
its transmission and message switching technology from eight to ten years. The
change was made to reflect more accurately the estimated period that such assets
will remain in service and was effective January 1, 1995. The new ten year
depreciation period is consistent with current industry standards. The change
increased net income for the year ended December 31, 1995 by DM 29,724 (net of
deferred income taxes of DM 40,247).
 
                                      S-29
<PAGE>   56
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE
 
To the Board of Directors of AirTouch Communications, Inc.
 
Our audits of the consolidated financial statements referred to in our report
dated February 25, 1997 appearing on page 27 of the 1996 Annual Report to
Stockholders of AirTouch Communications, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
 
/s/  Price Waterhouse LLP
 
San Francisco, California
February 25, 1997
 
                                       X-1
<PAGE>   57
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors of AirTouch Communications, Inc.:
 
Our report on the December 31, 1994 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 & Lybrand L.L.P.
 
San Francisco, California
March 13, 1995
 
                                       X-2
<PAGE>   58
 
                 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
-----------------------------------------  ----------   ----------------------------   ----------   ----------
                                                                         CHARGES
                                           BALANCE AT   CHARGED TO     RELATED TO                   BALANCE AT
                                           BEGINNING    COSTS AND     ACQUISITIONS/                   END OF
               DESCRIPTION                 OF PERIOD     EXPENSES    DISPOSITIONS(A)   DEDUCTIONS     PERIOD
-----------------------------------------  ----------   ----------   ---------------   ----------   ----------
<S>                                        <C>          <C>          <C>               <C>          <C>
Year ended December 31, 1996:
  Allowance for doubtful accounts........    $ 21.2       $ 61.6          $37.0          $ 58.7(b)    $ 61.1
  Deferred tax valuation allowance.......    $ 25.5       $  6.7          $  --          $ 29.6       $  2.6
  Other loss reserves and allowances.....    $ 39.8       $ 18.2          $ 1.9          $ 38.5       $ 21.4
Year ended December 31, 1995:
  Allowance for doubtful accounts........    $ 10.1       $ 56.0          $  --          $ 44.9(b)    $ 21.2
  Deferred tax valuation allowance.......    $ 10.5       $ 28.3          $  --          $ 13.3(c)    $ 25.5
  Other loss reserves and allowances.....    $  3.2       $ 40.1          $  --          $  3.5       $ 39.8
Year ended December 31, 1994:
  Allowance for doubtful accounts........    $  9.2       $ 33.8          $  --          $ 32.9(b)    $ 10.1
  Deferred tax valuation allowance.......    $  4.8       $  5.7          $  --          $   --       $ 10.5
  Other loss reserves and allowances.....    $  5.3       $   --          $  --          $  2.1       $  3.2
</TABLE>
 
---------------
(a) Amounts reflect allowances acquired through acquisitions, net of
    dispositions.
 
(b) Amounts reflect items written-off, net of recoveries.
 
(c) Amounts reflect realization of tax benefit.
 
                                       X-3