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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________________
Commission File Number 1-9712
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UNITED STATES CELLULAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 62-1147325
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8410 West Bryn Mawr, Suite 700, Chicago, Illinois 60631
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 399-8900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1994
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Common Shares, $1 par value 45,548,193 Shares
Series A Common Shares, $1 par value 33,005,877 Shares
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THIS CONFORMING PAPER FORMAT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
UNITED STATES CELLULAR CORPORATION
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3RD QUARTER REPORT ON FORM 10-Q
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INDEX
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Page No.
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Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial
Condition 2-14
Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1994 and 1993 15
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1994
and 1993 16
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 17-18
Notes to Consolidated Financial Statements 19-22
Part II. Other Information 23
Signatures 24
- 1 -
PART I. FINANCIAL INFORMATION
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UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
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AND FINANCIAL CONDITION
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RESULTS OF OPERATIONS
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Nine Months Ended 9/30/94 Compared to Nine Months Ended
9/30/93
United States Cellular Corporation (the "Company" or "USM")
owns, operates and invests in cellular markets throughout the
United States. USM owned or had the right to acquire both
majority and minority interests in 208 cellular markets at
September 30, 1994, representing 24,192,000 population
equivalents ("pops"). USM managed the operations of 142
cellular markets at September 30, 1994. The Company expects
to divest two of these markets and manage the operations of
six additional markets in the future. In total, USM expects
to manage 146 markets under agreements currently in place.
Interests in the 62 remaining markets are managed by others.
All 62 of these markets were served by operational systems at
September 30, 1994. The following table is a summary of the
Company's markets and consolidated operations.
- 2 -
UNITED STATES CELLULAR CORPORATION
September 30, September 30,
1994 1993
Majority-Owned, Managed and
Consolidated Markets: (1)
Population equivalents (in
thousands) (2) 18,793 17,682
Total population (in thousands) 20,531 18,290
Customers 364,000 225,400
Market penetration 1.77% 1.23%
Markets in operation 124 111
Cell sites in service 686 444
Average monthly revenue per
customer* $83 $91**
Churn rate per month* 2.2% 2.5%
Marketing cost per net customer
addition* $698 $626
Minority-Owned and Managed Markets: (3)
Population equivalents (in
thousands) (2) 961 1,094
Markets in operation 18 21
Markets to be Managed, Net of
Markets to be Divested: (4)
Population equivalents (in
thousands) (2) 1,031 1,272
Markets 4 10
Total Markets Managed and to be
Managed by USM:
Population equivalents (in
thousands) (2) 20,785 20,048
Markets 146 142
Markets Managed by Others: (5)
Population equivalents (in
thousands) (2) 3,407 3,374
Markets in operation 62 61
Total Markets:
Population equivalents (in
thousands) (2) 24,192 23,422
Markets 208 203
** 1993 average monthly revenue per customer has been restated to conform
to current year presentation.
* For the quarter ended September 30, 1994 and 1993.
- 3 -
(1) Includes two markets managed by third parties in 1994 and
one in 1993.
(2) 1993 Donnelley Marketing Service estimates are used for
both periods. Includes population equivalents relating
to interests which are acquirable in the future.
(3) Includes markets where the Company has the right to
acquire an interest but did not own an interest at the
respective dates (two markets in 1994 and 1993).
(4) Represents markets which are not yet operational or which
are managed by third parties until the Company acquires a
majority interest in the markets.
(5) Represents markets in which the Company owns or has the
right to acquire a minority or other noncontrolling
interest and which are managed by others.
The Company's consolidated results of operations include 100%
of the revenues and expenses of the systems serving
majority-owned and managed markets plus its corporate office
operations. The September 30, 1994 consolidated results of
operations include 124 markets with a total population of 20.5
million, compared to 111 markets with a total population of
18.3 million in 1993.
Investment income includes the Company's share of the net
income or loss of each of the minority-owned and managed
markets and also includes the Company's share of the net
income or loss of each of those markets managed by others for
which the Company follows the equity method of accounting.
USM follows the cost method of accounting for its remaining
interests in markets managed by others. This information is
shown in the table below.
September 30,
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1994 1993
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Minority-owned and Managed 16 19
Managed by Others - Equity Method 16 16
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Total Markets Included in Investment Income 32 35
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Managed by Others - Cost Method 46 46
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Operating results for the first nine months of 1994 primarily
reflect improvement in the Company's more established markets
(those 111 markets consolidated at September 30, 1993), the
acquisition of majority interests in 12 operational markets
and the start-up expenses associated with initiating
operations in one additional majority-owned and managed market
since September 30, 1993. Operating revenues, driven
primarily by increases in customers served, rose $84.8
million, or 56%. Operating expenses rose $66.6 million, or
43%. Operating cash flow increased $33.2 million, or 112%.
The Company changed its financial reporting presentation for
outbound, or pass-through, roamer revenue during the first
quarter of 1994. Pass-through roamer revenue is now treated
as an offset to the expense charged by other cellular carriers
to the Company's markets for this roaming service, and the net
amount is included in system operations expense. Service
revenues and system operations expense for 1993 have been
reclassified for the effect of this change in presentation.
This change in presentation allows more comparability of the
Company's revenues and margins to other companies in the
cellular industry.
Investment and other income increased $2.8 million, or 15%,
due primarily to increases in investment income offset by $4.9
million of gains on sales of cellular interests in 1993.
Investment income increased $7.9 million mostly due to
improved results in markets managed by others. Interest
expense decreased $11.4 million primarily due to a reduction
in the amount owed under a Revolving Credit Agreement with
USM's parent company, Telephone and Data
- 4 -
Systems, Inc. ("TDS"), as a result of the Company's 1993
rights offering. Net income totaled $15.2 million in 1994
compared to a net loss of $14.2 million in 1993, reflecting
improved operating results, increased investment income and
decreased interest expense. On a comparable basis, excluding
the 1993 gains on sales of cellular interests, net income
increased to $15.2 million as compared to a net loss of $19.1
million in 1993.
The Company expects to add 12 markets to consolidated
operations by the end of 1994. The Company currently owns a
minority interest in and manages seven of these markets.
Subject to regulatory approval, the Company expects to acquire
a majority interest in these seven markets and four additional
markets and to begin operations in one market in which it
currently owns a majority interest by the end of 1994.
Management anticipates that operating losses from new markets
and the seasonality of revenue streams and operating expenses
may significantly affect the Company's operating and net
results over the next several quarters.
Operating Revenues
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Operating revenues totaled $236.8 million in 1994, up $84.8
million, or 56%, over 1993. Market acquisitions and start-ups
increased operating revenues $15.8 million, or 10%, in 1994.
This "acquisitions and start-ups" effect is defined as: (i)
the operations of markets added to the consolidated group in
1994 since their respective dates of acquisition, plus (ii)
for any market added to the consolidated group in 1993, the
portion of 1994 operations which correspond to that portion of
1993 prior to the market's addition to the consolidated group.
Service revenues primarily consist of: (i) charges for access,
airtime and value-added services provided to the Company's
local retail customers who use the local systems operated by
the Company; (ii) charges to customers of other systems who
use the Company's cellular systems when roaming ("inbound
roamer"); and (iii) charges for long-distance calls made on
the Company's systems. Service revenues exclude pass-through
roamer revenue as discussed previously. Service revenues for
1993 have been reclassified to conform to current year
presentation. Service revenues totaled $227.1 million in
1994, up $82.2 million, or 57%, over 1993. The increase was
primarily due to the growing number of local retail customers
and the growth in inbound roamer revenue. Acquisitions and
start-ups increased service revenues $15.0 million, or 10%, in
1994. Average monthly service revenue per customer totaled
$81 in 1994 compared to $85 in 1993. The 5% decrease in
average monthly service revenue per customer in 1994 was
primarily a result of the decline in average local minutes of
use per retail customer and a decrease in per customer inbound
roamer revenue. Management anticipates that average monthly
service revenue per customer will continue to decrease as
local minutes of use per customer decline and as the growth
rate of the Company's customer base exceeds the growth rate of
inbound roamer revenue.
Revenue from local customers' usage of USM's systems increased
$50.4 million, or 61%, in 1994. Growth in the number of
customers in the systems serving the Company's consolidated
markets was the primary reason for the increase in local
revenue. The number of customers increased 61% to 364,000 at
September 30, 1994 from 225,400 at September 30, 1993.
Excluding the effect of customers added through acquisitions
during the period, the Company's consolidated markets added
121,400 customers through their marketing channels since
September 30, 1993. Of these net marketing additions, 108,500
were in markets in service and consolidated at September 30,
1993, representing a 48% increase over the 225,400 customers
served at September 30, 1993. While the percentage increase
is expected to be lower in the next several quarters,
management anticipates that the total number of net customer
additions will increase. Acquisitions and start-ups increased
local revenue $7.9 million, or 10%, in 1994.
- 5 -
Average monthly retail revenue per customer declined to $47 in
1994 from $49 in 1993. Monthly local minutes of use per
customer averaged 97 in 1994 compared to 104 in 1993. This
decline in average local minutes of use follows an industry-
wide trend and is believed to be related to the tendency of
the early customers in a market to be the heaviest users. It
also reflects the Company's and the industry's continued
penetration of the consumer market, which tends to include
more lower-usage customers.
Inbound roamer revenue increased $24.4 million, or 48%, in
1994. This increase was attributable to the rise in the
number of customers from other systems using the Company's
systems when roaming. Also contributing were the increased
number of Company-managed systems and cell sites within those
systems. Monthly inbound roamer revenue per customer averaged
$27 in 1994 and $30 in 1993. Acquisitions and start-ups
increased inbound roamer revenue $5.9 million, or 12%, in
1994.
Long-distance revenue increased $6.8 million, or 70%, in 1994
as the volume of long-distance calls billed by the Company
increased. Monthly long-distance revenue per customer
averaged $6 in 1994 and 1993. Acquisitions and start-ups
increased long-distance revenue $1.1 million, or 11%, in 1994.
Equipment sales revenues totaled $9.7 million in 1994, up $2.7
million, or 38%, over 1993. Equipment sales reflect the sale
of 98,200 and 52,700 cellular telephone units in 1994 and
1993, respectively, plus installation and accessories revenue.
The average revenue per unit was $99 in 1994 compared to $134
in 1993. The average revenue per unit decline partially
reflects the Company's decision to reduce sales prices on
cellular telephones to increase the number of customers, to
maintain its market position and to meet competitive prices as
well as to reflect reduced manufacturers' prices. Also,
during the first nine months of 1994, the Company used
promotions based on increased equipment discounting more
frequently than during the same period of 1993. The success
of these promotions led to both an increase in units sold and
a decrease in average equipment sales revenue per unit.
Acquisitions and start-ups increased equipment sales revenues
$747,000, or 11%, in 1994.
Operating Expenses
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Operating expenses totaled $221.2 million in 1994, up $66.6
million, or 43%, over 1993. Market acquisitions and start-ups
increased expenses $21.7 million, or 14%, in 1994.
System operations expenses increased $8.9 million, or 36%, in
1994 as a result of increases in customer usage expenses and
costs associated with operating the Company's increased number
of cellular systems and with the growing number of cell sites
within those systems. System operations expense includes
pass-through roamer revenue as an offset to the expense
charged by other carriers to the Company's markets for this
roaming service. System operations expense for 1993 has been
reclassified to conform to current year presentation. Costs
are expected to continue to increase as the number of cell
sites within the Company's systems grows. Customer usage
expenses represent charges from other telecommunications
service providers for USM's customers' use of their facilities
as well as for the Company's inbound roamer traffic on these
facilities, offset somewhat by pass-through roamer revenue.
These expenses also include local interconnection to the
landline network, toll charges and roamer expenses from the
Company's customers' use of systems other than their local
systems. Customer usage expenses were $14.8 million in 1994
compared to $13.3 million in 1993, and represented 6% of
service revenues in 1994 compared to 9% in 1993. Maintenance,
utility and cell site expenses grew $7.4 million, or 64%, in
1994, primarily reflecting an increase in the number of cell
sites in the systems serving all majority-owned and managed
markets, from 444 in 1993 to 686 in 1994. Acquisitions and
start-ups increased system operations expenses $4.3 million,
or 17%, in 1994.
- 6 -
Marketing and selling expenses increased $17.8 million, or
63%, in 1994. Marketing and selling expenses primarily
consist of salaries, commissions and expenses of field sales
and retail personnel and offices; agent commissions;
promotional expenses; local advertising and public relations
expenses. The 1994 increase was primarily due to a 64% rise
in the number of gross customer activations (excluding
acquisitions and divestitures), from 93,900 in the first nine
months of 1993 to 154,000 in 1994. Cost per gross customer
addition increased less than 1% from $403 in 1993 to $404 in
1994. Excluding acquisitions and divestitures, the Company
added 92,000 net new customers in 1994 compared to 57,200 in
1993, a 61% increase. The churn rate held steady at 2.2% for
the first nine months of 1994, the same as in 1993.
Acquisitions and start-ups increased marketing and selling
expenses $4.2 million, or 15%, in 1994.
Cost of equipment sold increased $9.2 million, or 55%, in
1994. The increase reflects the growth in unit sales related
to both the rise in gross customer activations made through
the Company's direct and retail distribution channels and the
increase in 1994's promotional sales activity which were
discussed previously, offset somewhat by declining
manufacturer prices per unit. The average cost to the Company
of a telephone unit sold, including accessories and
installation, was $263 in 1994 compared to $316 in 1993.
Acquisitions and start-ups increased cost of goods sold $2.3
million, or 14%, in 1994.
General and administrative expenses increased $15.7 million,
or 30%, in 1994. These expenses include the costs of
operating the Company's local business offices and its
corporate expenses. This increase includes the effects of an
increase in the number of consolidated markets, increases in
expenses required to serve the growing customer base in
existing markets and an expansion of both local administrative
office and corporate staff, necessitated by growth in the
Company's business and the start-up of and acquisition of
additional operations. The Company is using an ongoing
clustering strategy to combine local operations wherever
feasible in order to gain operational efficiencies and reduce
its administrative expenses. Of the increase in general and
administrative expenses in 1994, approximately $1.5 million
was specifically due to legal expenses incurred to defend the
Company against claims totaling more than $200 million. The
Company was successful at trial, however, the plaintiffs have
appealed the decision. As a result, the Company will likely
incur additional legal expenses in the future related to this
case. Acquisitions and start-ups increased direct field-
related general and administrative expenses $5.8 million, or
11%, in 1994.
Depreciation expense increased $10.0 million, or 55%, in 1994,
reflecting an increase in the average fixed asset balance of
57% since the third quarter of 1993. Acquisitions and start-
ups increased depreciation expense $1.9 million, or 10%, in
1994.
Amortization of intangibles increased $5.0 million, or 36%, in
1994, primarily due to an increase in license costs as a
result of the acquisition of or the commencement of service in
13 markets since September 30, 1993. License costs related to
consolidated markets increased $183 million, or 22%, since
September 30, 1993. Acquisitions and start-ups increased
amortization of intangibles $3.1 million, or 22%, in 1994.
Operating Income (Loss) before Minority Share
---------------------------------------------
Operating income before minority share totaled $15.6 million
in 1994 compared to a loss of $2.6 million in 1993. The
operating income (loss) margin (as a percent of service
revenues) improved to 7% in 1994 from (2%) in 1993. The 1994
operating income reflects improved results in the more
established markets and increased revenues resulting from
growth in the number of customers served by the Company's
systems, partially offset by costs associated with the growth
of the Company's operations and increased losses on equipment
sales. Acquisitions and start-ups decreased operating income
before minority share by $5.9 million in 1994.
- 7 -
The Company expects service revenues to continue to grow
during the remainder of 1994 and in 1995 as it adds customers
and cell sites to its existing systems, realizes a full year
of revenues from customers and cell sites added in 1993 and
1994, completes acquisitions of operational systems and begins
operations in new markets. Additionally, the Company expects
expenses to increase significantly during the remainder of
1994 and in 1995 as it incurs expenses for markets and cell
sites added in 1993 and 1994, incurs expenses associated with
customer and system growth, acquires existing markets and
initiates service in new markets. Subject to regulatory
approval, at least 12 markets are expected to be added to
consolidated operations before the end of 1994. Of these, 11
markets (seven of which are currently minority-owned and
managed by the Company) were operational at September 30,
1994. The Company expects to acquire a majority interest in
these markets, and to begin operations in one market in which
it currently owns a majority interest, before the end of 1994.
Upon the commencement of operations in the new markets and
upon completion of any related acquisitions, the Company will
begin to amortize the related license costs. The Company
expects that the costs related to acquiring, constructing and
operating new markets may exceed their revenues over the next
few quarters. Additionally, management believes there exists
a seasonality in both service revenues and operating expenses,
especially marketing expenses. As a result, decreased
operating income, or an operating loss, before minority share
could be generated over the next several quarters.
Investment and Other Income
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Investment and other income totaled $21.7 million in 1994 and
$19.0 million in 1993. Investment income was $20.9 million in
1994, a $7.9 million, or 61%, increase over 1993. The
Company's share of the income or loss from the markets managed
by others that are accounted for by the equity method totaled
$20.5 million in 1994 compared to $12.9 million in 1993.
There were 16 such markets in 1994 and 1993. The Company's
share of income from minority-owned markets it manages totaled
$402,000 in 1994 compared to $62,000 in 1993. There were 16
such markets in 1994 and 19 in 1993.
Other income (expense), net was ($991,000) in 1994 and
($244,000) in 1993. In 1994, the Company sold obsolete
equipment obtained in certain acquisitions, recognizing losses
of $614,000.
Gain on sale of cellular interests of $4.9 million in 1993
reflects the sales of two cellular investment interests.
Interest and Income Taxes
-------------------------
Interest expense decreased $11.4 million, or 43%, in 1994, on
a 47% decrease in the average amount of debt outstanding.
Interest expense is primarily related to borrowings under the
Revolving Credit Agreement with TDS and borrowings under a
vendor financing agreement. Borrowings under the Revolving
Credit Agreement bear interest at a floating rate equal to
prime plus 1.5% (for a rate of 9.25% at September 30, 1994)
and are used to finance system construction and working
capital requirements, investments in and advances to entities
in which the Company has a minority interest, and acquisitions
of cellular interests. In the fourth quarter of 1993, the
Company completed a rights offering to its common
shareholders, the proceeds of which were used to repay
approximately $378 million in debt outstanding under the
Revolving Credit Agreement. Interest expense relating to the
Revolving Credit Agreement was $12.0 million in 1994 and $23.3
million in 1993. The average amount of debt outstanding under
the Revolving Credit Agreement was $192.9 million in the first
nine months of 1994 and $409.1 million in 1993. The average
interest rate on such debt was 8.3% in 1994 and 7.6% in 1993.
- 8 -
Most of the borrowings under the vendor financing agreement
bear interest at a rate of 2.3% over the 90-day Commercial
Paper Rate of high-grade, unsecured notes (for a rate of 7.5%
at September 30, 1994). The remainder of such borrowings bear
interest at a rate approximating the prime rate (7.75% at
September 30, 1994). Borrowings under the vendor financing
agreement were used to finance certain of USM's equipment
purchases and construction costs. Interest expense related to
the vendor financing agreement was approximately $2.9 million
in 1994 and $3.0 million in 1993. The average amount of debt
under the vendor financing agreement was $58.1 million in the
first nine months of 1994 and $67.4 million in 1993. The
average interest rate on such debt was 6.6% in 1994 and 5.9%
in 1993.
Continued capital expenditures, investments in and advances to
entities in which the Company has a minority interest, and the
completion of pending acquisitions will require additional
funding over the next few years. These funding requirements
are anticipated to be at least partially met through
additional debt, which will likely result in increased
interest expense as debt balances increase. Additional
borrowings also may be required to fund additional future
acquisitions and their construction and operations. See
"Financial Resources and Liquidity."
Income tax expense was $3.5 million in 1994 and $1.5 million
in 1993. Income tax expense includes the federal income taxes
of consolidated subsidiaries not included in the TDS
consolidated federal income tax return. State income tax
expense in 1994 was primarily related to subsidiaries
generating taxable income after utilization of state net
operating losses. USM is included in a consolidated federal
income tax return with other members of the TDS consolidated
group. TDS and USM are parties to a Tax Allocation Agreement
under which USM is able to carry forward its losses and
credits and use them to offset any current or future income
tax liabilities to TDS. The amount of the federal net
operating loss carryforward available to offset future taxable
income aggregated approximately $148.2 million at December 31,
1993, and expires between 2002 and 2008. The amount of the
state net operating loss carryforward available to offset
future taxable income aggregated approximately $197.1 million
at December 31, 1993, and expires between 1998 and 2008.
Net Income (Loss)
-----------------
Net income totaled $15.2 million in 1994 compared to a net
loss of $14.2 million in 1993. The 1994 improvement resulted
from improved operating results in the established markets,
increased investment income and decreased interest expense,
partially offset by the effects of the addition of new markets
and the 1993 gain on the sale of minority interests. Net
income per share was $.19 in 1994 compared to a net loss per
share of $.26 in 1993, primarily reflecting the improvement in
net income and the increase in weighted average Common and
Series A Common Shares outstanding. The weighted average
number of Common and Series A Common Shares outstanding for
1994 increased 44% over the shares outstanding for 1993
primarily as a result of Common and Series A Common Shares
issued in connection with the 1993 rights offering, Common
Shares issued in connection with acquisitions, and the
inclusion of dilutive common stock equivalents in 1994
weighted average common shares outstanding as a result of the
1994 net income. On a comparable basis, excluding the 1993
gain on sale of cellular interests, net income increased to
$15.2 million from a net loss of $19.1 million in 1993 and net
income per share increased to $.19 from a net loss per share
of $.35 in 1993.
TDS owned an aggregate of 63,879,673 shares of common stock of
the Company at September 30, 1994, representing over 81% of
the combined total of the Company's outstanding Common and
Series A Common Shares and over 96% of their combined voting
power. Assuming the Company's Common Shares are issued in all
instances in which the Company has the choice to issue its
Common Shares or other consideration and assuming all
issuances of the Company's common stock to TDS and third
parties for completed and pending acquisitions and redemptions
- 9 -
of the Company's Preferred Stock and TDS's Preferred Shares
had been completed at September 30, 1994, TDS would have owned
approximately 80% of the total outstanding common stock of the
Company and controlled over 95% of the combined voting power
of both classes of its common stock. In the event TDS's
ownership of the Company falls below 80% of the total value of
all of the outstanding shares of the Company's stock, TDS and
the Company would be deconsolidated for federal income tax
purposes. TDS and the Company have the ability to defer or
prevent deconsolidation, if deferring or preventing
deconsolidation would be advantageous, by delivering TDS
Common Shares and/or cash in lieu of the Company's Common
Shares in connection with certain acquisitions.
Three Months Ended 9/30/94 Compared to Three Months Ended
9/30/93
Operating revenues totaled $89.9 million in the third quarter
of 1994, up $30.0 million, or 50%, over 1993. As the number
of customers and amount of revenue earned continued to grow,
local minutes of use per customer continued to decline.
Average monthly local minutes of use were 99 in the third
quarter of 1994 compared to 107 in 1993. Average monthly
service revenue per customer decreased 8% to $83 in the third
quarter of 1994 compared to $91 in 1993 for reasons generally
the same as the first nine months of 1994. Revenues from
local customers' usage of USM's systems increased $17.5
million, or 56%, in 1994 primarily due to the increased number
of customers served. Average monthly local retail revenue per
customer declined 5% to $47 in the third quarter of 1994
compared to $49 in 1993. Inbound roamer revenue increased
$8.6 million, or 40%, in 1994 due to the increased number of
other carriers' customers using the Company's systems and the
growth in the number of cell sites in those systems. Monthly
inbound roamer revenue per customer averaged $29 in 1994 and
$34 in 1993. Long-distance revenue increased $2.1 million, or
47%, in 1994 as the volume of long-distance calls billed by
the Company increased. Equipment sales revenue reflects sales
of 35,100 cellular telephones in 1994 compared to 28,300 in
1993. The average revenue per unit sold was $93 in 1994 and
$73 in 1993. During the third quarter of 1993, the Company
used specific promotions which were based on increased
equipment discounting. Equipment discounting was also used in
certain promotions in the third quarter of 1994, but not to
the extent it was used in 1993.
Operating expenses totaled $78.8 million in the third quarter
of 1994, up $19.1 million, or 32%, over 1993 for reasons
generally the same as for the first nine months of 1994.
Operating income before minority share was $11.1 million in
1994 compared to $228,000 in 1993. The operating income
margin improved to 13% in 1994 from less than 1% in 1993. The
improvement in operating income was primarily the result of
increased revenues and cost efficiencies, partially offset by
the costs associated with the growth of the Company's
operations and the addition of new markets.
Investment income increased $3.1 million, or 56%, in 1994 due
to improved results in markets managed by others accounted for
by the equity method. Gain on sale of cellular interests in
1993 reflects the sales of investment interests in two
cellular markets.
Net income was $10.8 million in 1994 compared to net loss of
$843,000 in 1993. Net income per share was $.13 in 1994
compared to net loss per share of $.01 in 1993. Weighted
average common shares outstanding increased 43% in 1994. On a
comparable basis, excluding the 1993 gain on sale of cellular
interests, net income increased to $10.8 million from a net
loss of $5.7 million in 1993 and net income per share
increased to $.13 from a net loss per share of $.10 in 1993.
- 10 -
FINANCIAL RESOURCES AND LIQUIDITY
The Company operates a capital- and marketing-intensive
business. Rapid growth in markets operated by the Company and
customers served has caused financing requirements for
acquisitions, construction and operations to exceed internally
generated cash flow. The Company requires capital to complete
acquisitions in process, to fund construction and operating
expenses of the cellular systems it operates, to fund
investments in minority partnership interests in other
cellular markets and to pay principal and interest on its
outstanding debt. Management anticipates that each new
cellular market the Company acquires and places in service
will require significant capital expenditures and will incur
substantial losses during its initial operating stage. The
Company has experienced operating losses and net losses in all
but a few quarters since its inception. The Company has
obtained substantial funds from external sources during the
past several years.
Cash flows from operating activities provided $57.6 million in
1994 and $21.7 million in 1993. Operating cash flow provided
cash totaling $62.7 million in 1994 and $29.5 million in 1993.
The 1994 increase in operating cash flow primarily reflects
improvement in the more mature markets. Acquisitions and
start-ups decreased operating cash flow $853,000, or 3%, in
1994. Cash flows from other operating activities (investment
and other income, interest expense, changes in working capital
and changes in other assets and liabilities) required cash
investments totaling $5.1 million in 1994 and $7.8 million in
1993.
Cash flows from financing activities provided $83.4 million in
1994 and $45.6 million in 1993. Cash flows from financing
activities include cash flows from borrowings under the
Revolving Credit Agreement with TDS, vendor financing
transactions and sales of Common Shares. Borrowings under the
Revolving Credit Agreement with TDS totaling $82.4 million and
$57.4 million provided a majority of the Company's external
financing requirements in 1994 and 1993, respectively.
Cash flows from investing activities required cash investments
totaling $129.3 million in 1994 and $64.7 million in 1993.
Such cash requirements primarily consisted of cash additions
to property, plant, and equipment and cash requirements for
acquisitions and for investments in cellular markets. Cash
expenditures for property, plant and equipment totaled $108.2
million in 1994 (of which $6.5 million relates to 1993
additions), representing the construction of 137 cell sites
and other plant additions. Cash expenditures for property,
plant and equipment totaled $55.1 million in 1993 (of which
$192,000 relates to 1992 additions), representing the
construction of 80 cell sites and other plant additions.
Anticipated capital requirements for 1994 reflect the
Company's construction and system expansion program, funding
of working capital needs, investments in entities in which the
Company has a minority interest, scheduled debt repayments and
pending acquisitions. The Company's consolidated construction
budget for 1994 is approximately $147 million, including
anticipated expenditures for both enhancements to existing
systems and construction of new systems. Of this amount,
planned expenditures for enhancements of existing majority-
owned cellular systems, including additional radio channel
capacity as well as new cell sites, will total about $127
million; anticipated expenditures for construction of
switching offices and digital expansion will total $7 million.
- 11 -
The Company is expanding its operations through acquisitions.
During the first nine months of 1994, the Company completed
the acquisition of controlling interests in nine markets and
several additional minority interests. During the first nine
months of 1993, the Company completed the acquisition of
controlling interests in 19 markets and several additional
minority interests. Some of the markets acquired during 1994
and 1993 were subject to acquisition agreements which were
entered into prior to the year in which the acquisitions were
completed. The following table summarizes the consideration
issued for these acquisitions.
COMPLETED ACQUISITIONS Nine Months Ended September 30,
-------------------------------
1994 1993
---------- ----------
(in millions)
Pops Acquired 1.2 3.3
Total Consideration $138.2 $ 242.0
Details of Total Consideration:
USM Common Shares
Shares Issued 4.3 4.2
Recorded Cost $131.7 $ 108.5
USM Series A Common Shares
Shares Issued -- .1
Recorded Cost $ -- $ .1
USM Common Shares to be issued
in the future (all in 1994)
Shares Issuable -- .4
Recorded Cost $ -- $ 12.2
Revolving Credit Agreement - TDS .3 100.9
Subsidiary Preferred Stock -- 2.9
Cancellation of Notes Receivable 1.4 --
Equity contribution from TDS -- 8.1
Cash $ 4.8 $ 9.3
Of the total 1994 and 1993 consideration, the debt under the
Revolving Credit Agreement and most of the USM Common Shares
were issued to TDS to reimburse TDS for TDS Common Shares
issued and issuable and cash paid to third parties in
connection with 1994 and 1993 acquisitions. Additionally, the
Company had commitments at September 30, 1994, to issue
812,000 Common Shares in 1994 through 1996 related to certain
completed acquisitions. The Company and TDS have the option
to deliver TDS Common Shares and/or cash in lieu of the
Company's Common Shares in connection with certain of these
acquisitions.
The Company has an ongoing acquisition program, the funding
requirements of which may be substantial. The Company
maintains an ongoing acquisition program to seek to maximize
its future potential, including seeking opportunities to
combine operations and achieve increased economies of scale.
These economies of scale include the sharing of market
personnel, equipment and office resources. The Company plans
to continue its acquisition program as long as it is feasible
to acquire cellular interests that fit into its business
objectives.
- 12 -
At September 30, 1994, the Company, or TDS for the benefit of
the Company, had agreements pending to acquire controlling
interests in five markets and one minority interest. The
following table summarizes the consideration to be issued by
USM for these acquisitions if they are completed as planned.
PENDING ACQUISITIONS September 30, 1994
-------------------- ------------------
(in millions)
Pops to be Acquired .9
Estimated Consideration to be Paid $56.4
Details of Consideration:
USM Common Shares
Shares to be Issued 1.9
Estimated Cost at Agreement Date $55.0
Revolving Credit Agreement - TDS .7
Equity Contribution from TDS $ .7
Cellular interests acquired by TDS in these transactions are
expected to be assigned to the Company and at the time this
occurs the Company will reimburse TDS for TDS's consideration
delivered and costs incurred in such acquisitions. Of the
consideration for these pending acquisitions, the USM Common
Shares are to be issued to TDS to reimburse TDS for TDS Common
Shares to be issued and cash to be paid to third parties in
connection with these pending acquisitions.
TDS and USM are parties to a legal proceeding before the
Federal Communications Commission ("FCC") involving a cellular
license in a Wisconsin Rural Service Area. Pending the
resolution of the issues in the Wisconsin proceeding, further
FCC grants to TDS and its subsidiaries will be conditioned on
the outcome of that proceeding. TDS's and USM's ability to
sell or exchange properties with third parties while such
proceeding is pending may be affected. See Note 15 of Notes
to Consolidated Financial Statements, Legal Proceedings (La
Star Application), in the Company's 1993 Annual Report to
Shareholders for a discussion of the proceeding involving the
Wisconsin Rural Service Area and the La Star proceeding. As
discussed in a Current Report on Form 8-K dated March 30,
1994, the FCC's decision in the La Star proceeding was vacated
and remanded to the FCC for further proceedings by a federal
court of appeals. The Company will evaluate what impact the
proceedings in the La Star matter may have on the Wisconsin
proceeding.
Liquidity
---------
The Company anticipates that the aggregate resources required
for the remainder of 1994 will include approximately: (i) $38
million for capital spending; and (ii) $3 million of scheduled
debt repayments. Additionally, the Company anticipates it
will reimburse TDS, as each acquisition is completed, for TDS
Common Shares valued at approximately $54.2 million to be
issued and $1.5 million in cash to be paid by TDS to third
parties in connection with acquisitions anticipated to be
primarily completed by the end of 1994. The reimbursement to
TDS is expected to be in the form of 1.9 million Common Shares
of the Company and borrowings under the Revolving Credit
Agreement totaling $750,000. Not included in the above
amounts are acquisitions that may be
- 13 -
signed during the remainder of 1994. These potential
acquisitions may require substantial funding for both their
acquisition and operation during the remainder of 1994.
At September 30, 1994, the Company had $18 million of cash and
cash equivalents, $15 million remaining under the $250
million Revolving Credit Agreement with TDS as amended
effective November 15, 1993, $4 million of anticipated
minority partner cash distributions, and $1 million of
anticipated minority partner capital contributions.
Additionally, the Company anticipates generating positive cash
flows from operating activities during the remainder of 1994.
Pursuant to the Revolving Credit Agreement, the Company may
borrow up to an aggregate of $250 million from TDS, at an
interest rate equal to 1.5% above the prime rate. The
advances made by TDS under the Revolving Credit Agreement are
unsecured. Interest on the balance due under the Revolving
Credit Agreement is payable quarterly and no principal is
payable until March 31, 1996, subject to acceleration under
certain circumstances, at which time the entire principal
balance then outstanding is scheduled to become due and
payable. The Company may prepay the balance due under the
Revolving Credit Agreement at any time, in whole or in part,
without premium.
The Company anticipates that it may require substantial
funding to acquire cellular markets and build and operate
cellular systems during the remainder of 1994. The timing and
amount of such funding requirements will depend on the timing
of the completion of pending acquisitions, the number of
additional licenses acquired by the Company, the construction
and operational plans for the individual cellular projects,
and other relevant factors. The Company will need to raise
additional capital to meet these requirements. These
additional requirements may be met through additional
borrowings from TDS, the issuance of equity or debt securities
or a combination thereof, vendor financing, bank financing, or
the sale of assets. There can be no assurance that sufficient
funds will be made available to the Company on terms or at
prices acceptable to the Company. If sufficient funding is
not made available to the Company on terms and prices
acceptable to the Company, the Company would have to reduce
its construction, development and acquisition programs. In the
long term, reduction of the Company's construction,
development and acquisition programs would have a negative
impact on the ability of the Company to increase its
consolidated revenues and cash flows.
- 14 -
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Unaudited
---------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1994 1993 1994 1993
--------- -------- -------- --------
(Dollars in thousands, except per share amounts)
OPERATING REVENUES
Service $ 86,675 $ 57,869 $227,101 $ 144,919
Equipment sales 3,251 2,081 9,715 7,051
--------- --------- --------- ---------
Total Operating Revenues 89,926 59,950 236,816 151,970
--------- --------- --------- ---------
OPERATING EXPENSES
System operations 12,086 9,405 33,890 24,941
Marketing and selling 16,058 10,615 46,089 28,249
Cost of equipment sold 8,826 8,252 25,847 16,633
General and administrative 25,052 19,597 68,258 52,607
Depreciation 10,050 6,720 28,192 18,238
Amortization of intangibles 6,759 5,133 18,926 13,894
--------- --------- --------- ---------
Total Operating Expenses 78,831 59,722 221,202 154,562
--------- --------- --------- ---------
OPERATING INCOME (LOSS) BEFORE
MINORITY SHARE 11,095 228 15,614 (2,592)
Minority share of operating income (1,366) (757) (3,680) (2,744)
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 9,729 (529) 11,934 (5,336)
--------- --------- --------- ---------
INVESTMENT AND OTHER INCOME
Investment income 8,609 5,520 20,938 13,009
Amortization of license and deferred
costs related to investments (195) (242) (682) (681)
Interest income 1,168 739 2,474 2,036
Other (expense), net (191) (634) (991) (244)
Gain on sale of cellular interests - 4,851 - 4,851
--------- --------- --------- ---------
Total Investment and Other Income 9,391 10,234 21,739 18,971
--------- --------- --------- ---------
INCOME BEFORE INTEREST
AND INCOME TAXES 19,120 9,705 33,673 13,635
Interest expense - affiliate 5,015 8,818 11,989 23,316
Interest expense - other 1,065 979 2,998 3,084
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 13,040 (92) 18,686 (12,765)
Income tax expense 2,244 751 3,535 1,481
--------- --------- --------- ---------
NET INCOME (LOSS) $ 10,796 $ (843) $ 15,151 $ (14,246)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
AND SERIES A COMMON SHARES (000s) 80,294 56,296 79,493 55,041
NET INCOME (LOSS) PER COMMON SHARE $ .13 $ (.01) $ .19 $ (.26)
========= ========= ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 15 -
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Unaudited
---------
Nine Months Ended
Septmber 30,
-------------------
1994 1993
-------- --------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 15,151 $(14,246)
Add (Deduct) adjustments to reconcile net
income (loss) to net cash provided
by operating activities
Depreciation and amortization 47,800 32,813
Investment income (20,938) (13,009)
Gain on sale of cellular interests - (4,851)
Minority share of operating income 3,680 2,744
Other noncash expense 1,422 1,584
Change in accounts receivable (13,975) (10,875)
Change in accounts payable 4,390 1,133
Change in accrued interest 11,903 23,233
Change in accrued taxes 300 (723)
Change in other assets and liabilities 7,912 3,868
-------- --------
57,645 21,671
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings - 64
Repayment of long-term debt (8,965) (11,979)
Change in Revolving Credit Agreement 82,360 57,376
Common Shares issued 673 241
Minority partner capital contributions (distributions) 9,340 (152)
-------- --------
83,408 45,550
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (108,193) (55,057)
Investments in and advances to minority partnerships (18,925) (16,131)
Distributions from partnerships 11,739 7,941
Proceeds from sale of investment - 6,750
Acquisitions, excluding cash acquired (5,254) (8,177)
Other Investments (8,636) -
-------- --------
(129,269) (64,674)
-------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 11,784 2,547
CASH AND CASH EQUIVALENTS-
Beginning of period 6,274 4,130
-------- --------
End of period $ 18,058 $ 6,677
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 16 -
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
(Unaudited)
September 30, 1994 December 31, 1993
------------------ -----------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 16,924 $ 5,971
Affiliated cash investments 1,134 303
Accounts receivable
Customers 22,155 14,555
Roaming 19,904 13,484
Affiliates 3,233 2,880
Other 4,387 3,714
Inventory 4,337 2,529
Prepaid and other current assets 4,460 2,597
----------- ------------
76,534 46,033
----------- ------------
PROPERTY, PLANT AND EQUIPMENT
In service 413,994 306,118
Less accumulated depreciation 87,930 59,704
----------- ------------
326,064 246,414
----------- ------------
INVESTMENTS
Cellular partnerships - equity 88,262 77,178
Cellular partnerships - cost 14,763 12,926
Licenses, net of amortization 946,622 824,491
Marketable equity securities 19,718 17,584
Notes and interest receivable 12,180 7,701
----------- ------------
1,081,545 939,880
----------- ------------
DEFERRED CHARGES
Deferred start-up costs 4,034 5,000
Other deferred charges 15,775 8,069
----------- ------------
19,809 13,069
----------- ------------
Total Assets $1,503,952 $ 1,245,396
=========== ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 17 -
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
(Unaudited)
September 30, 1994 December 31, 1993
------------------ -----------------
(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt and
preferred stock $ 20,974 $ 12,663
Accounts payable
Affiliates 3,785 4,454
Other 42,254 39,126
Accrued interest, primarily to affiliates 5,008 5,785
Accrued taxes 1,151 829
Customer deposits and deferred revenues 5,536 3,909
Other current liabilities 12,155 7,653
----------- ------------
90,863 74,419
----------- ------------
REVOLVING CREDIT AGREEMENT - TDS 234,973 141,524
----------- ------------
LONG-TERM DEBT, excluding current portion 42,238 51,130
----------- ------------
DEFERRED LIABILITIES AND CREDITS
Income taxes 4,462 2,390
Other 1,247 1,378
----------- ------------
5,709 3,768
----------- ------------
REDEEMABLE PREFERRED STOCK, excluding
current portion 9,597 18,828
----------- ------------
MINORITY INTEREST 28,173 15,599
----------- ------------
COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1 per share 45,545 36,960
Series A Common Shares, par value $1
per share 33,006 33,006
Additional paid in capital 1,083,209 867,947
Common Shares issuable, 811,552 shares
and 4,966,719 shares, respectively 16,538 103,266
Retained (deficit) (85,899) (101,051)
----------- ------------
1,092,399 940,128
----------- ------------
Total Liabilities and Shareholders' Equity $1,503,952 $ 1,245,396
=========== ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 18 -
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the
disclosures are adequate to make the information presented
not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the
consolidated financial statements and the notes thereto
included in the Company's latest annual report on Form 10-
K, as amended with respect to Note 3 of Notes to
Consolidated Financial Statements included therein, and
with respect to certain investments in equity securities,
Note 2 of Notes to Consolidated Financial Statements
included in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994.
The accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only
normal recurring items) necessary to present fairly the
financial position as of September 30, 1994 and December
31, 1993, and the results of operations and cash flows for
the nine months ended September 30, 1994 and 1993. The
results of operations for the nine months ended September
30, 1994 and 1993, are not necessarily indicative of the
results to be expected for the full year.
2. Net Income per Common and Series A Common Share for the
nine months ended September 30, 1994, was computed by
dividing Net Income by the weighted average number of
Common Shares, Series A Common Shares and dilutive common
equivalent shares outstanding during the period. Dilutive
common stock equivalents at September 30, 1994, consist
primarily of dilutive Common Shares issuable and Redeemable
Preferred Stock. Net (Loss) per Common and Series A Common
Share for the nine months ended September 30, 1993, was
computed by dividing Net (Loss) by the weighted average
number of Common Shares and Series A Common Shares
outstanding during the period.
3. Certain of the cellular acquisitions closed during 1993,
1992, 1991 and 1990 require the Company to deliver Common
Shares in the future. The Company is required to issue
Common Shares to third parties as follows:
Common Shares
Issuable
--------------
1994 301,716
1995 331,013
1996 178,823
---------
811,552
=========
- 19 -
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Assuming that acquisitions accounted for as purchases
during the period January 1, 1993, to September 30, 1994,
had taken place on January 1, 1993, pro forma results of
operations would have been as follows:
Nine Months Ended
September 30,
-------------------------------
1994 1993
------------- ------------
(Dollars in thousands,
except per share amounts)
Service Revenues $ 228,991 $ 160,751
Equipment Sales 9,741 7,997
Interest Expense (including cost
to finance acquisitions) 14,995 27,237
Net Income (Loss) 14,037 (25,226)
Income (Loss) per Common Share $ .18 $ (.39)
5. The following summarized unaudited income statements are
the combined summarized income statements of the cellular
system partnerships listed below which are among those
entities accounted for by the Company following the equity
method. The combined summarized income statements were
compiled from financial statements and other information
obtained by the Company as a limited partner of the
cellular limited partnerships as set forth below. The
cellular system partnerships included in the combined
summarized income statements and the Company's ownership
percentage of each cellular system partnership at September
30, 1994, are set forth in the following table.
The
Company's
Limited
Partnership
Cellular System Partnership Interest
------------------------------------ ------------
Los Angeles SMSA Limited Partnership 5.5%
Nashville/Clarksville MSA Limited Partnership 49.0%
Baton Rouge MSA Limited Partnership 52.0%
- 20 -
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1994 1993 1994 1993
--------- --------- --------- --------
(Dollars in thousands)
REVENUES $ 161,608 $ 131,949 $460,057 $ 374,810
EXPENSES
Selling, general and
administrative 87,289 74,502 241,572 221,116
Depreciation and amortization 16,779 13,662 48,140 39,917
--------- --------- --------- ---------
104,068 88,164 289,712 261,033
--------- --------- --------- ---------
OPERATING INCOME 57,540 43,785 170,345 113,777
OTHER INCOME, NET 1,678 1,020 4,487 2,830
--------- --------- --------- ---------
NET INCOME $ 59,218 $ 44,805 $174,832 $ 116,607
========= ========= ========= =========
6. Supplemental Cash Flow Information
The Company acquired certain cellular licenses and
interests during the first nine months of 1994 and 1993.
In conjunction with these acquisitions, the following
assets were acquired, liabilities assumed and Common
Shares issued.
Nine Months Ended
Septmber 30,
-------------------
1994 1993
-------- --------
(Dollars in thousands)
Property, plant and equipment $ 7,897 $ 19,873
Cellular licenses 136,881 244,988
Decrease in equity-method investment
in cellular interests (7,077) (12,721)
Accounts receivable 1,038 2,019
Revolving Credit Agreement - TDS (309) (99,931)
Long-term debt - (11,876)
Accounts payable (826) (2,337)
Other assets and liabilities,
excluding cash acquired (583) (41)
Common Shares issued and issuable (131,767) (120,770)
Subsidiary preferred stock issued - (2,909)
Equity contribution from TDS - (8,118)
-------- --------
Decrease in cash due to acquisitions $ 5,254 $ 8,177
======== ========
- 21 -
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes certain noncash transactions, and interest and
income taxes paid.
Nine Months Ended
Septmber 30,
-------------------
1994 1993
-------- --------
(Dollars in thousands)
Interest paid $ 3,010 $ 2,147
Income taxes paid 1,337 1,836
Accrued interest converted into debt
under the Revolving Credit Agreement 12,681 19,300
Common Shares issued by USM for Conversion
of USM Preferred Stock and TDS Preferred Shares $ 1,497 $ -
- 22 -
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
--------------------------
Townes Telecommunications, Inc., et. al. v. TDS, et. al.
Plaintiffs Townes Telecommunications, Inc. ("Townes"),
Tatum Telephone Company ("Tatum Telephone") and Tatum
Cellular Telephone Company ("Tatum Cellular") filed a
suit in the District Court of Rusk County, Texas, against
both TDS and USM as defendants. Plaintiff Townes alleged
that it entered into an oral agreement with defendants
which established a joint venture to develop cellular
business in certain markets. Townes alleged that defend-
ants usurped a joint venture opportunity and breached
fiduciary duties to Townes by purchasing interests in
nonwireline markets in Texas RSA #11 and the Tyler
(Texas) MSA on their own behalf rather than on behalf of
the alleged joint venture. In its Fifth Amended Original
Petition Townes sought unspecified damages not to exceed
$33 million for usurpation, breach of fiduciary duty,
civil conspiracy, breach of contract and tortious inter-
interference. Townes also sought imposition of a con-
structive trust on defendants' profits from Texas RSA #11
and the Tyler (Texas) MSA and transfer of those interests
to the alleged joint venture. In addition, Townes sought
reasonable attorneys' fees equal to one-third of the
judgment, along with prejudgment interest. Plaintiffs
Tatum Telephone and Tatum Cellular sought a declaration
that transfers by defendants of a 49% interest in Tatum
Cellular violated a five-year restriction on alienation
of Tatum Cellular Shares contained in a written share-
holders' agreement. Tatum Telephone and Tatum Cellular
sought to void the transfers. All plaintiffs together
sought as much as $200 million in punitive damages.
The case went to trial on April 25, 1994. On May 5, 1994
the jury returned a verdict in favor of TDS and USM on
all issues. Plaintiffs thereafter made a motion for a
mistrial which the Court denied on June 17, 1994. On
June 17, the Court also entered judgment on the jury's
verdict in favor of TDS and USM. On July 15, 1994 Plain-
tiffs filed a motion for a new trial. That motion was
denied on August 11, 1994. The Plaintiffs filed an
appeal of the case on September 22, 1994. Defendants in-
tend to vigorously contest any issues raised on appeal.
Item 6. Exhibits and Reports on Form 8-K.
------------------------------------------
(a) Exhibit 11 - Computation of earnings per common
share.
(b) Exhibit 12 - Statement regarding computation of
ratios.
(c) Exhibit 27 - Financial Data Schedule.
(d) Exhibit 99.1 - Unaudited Consolidated
Statements of Operations for the
Twelve Months Ended September 30, 1994
and 1993.
Exhibit 99.2 - Pro Forma Financial Statements.
(e) No reports on Form 8-K were filed during the
quarter ended September 30, 1994.
- 23 -
SIGNATURES
----------
Pursuant to the requirements 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.
UNITED STATES CELLULAR CORPORATION
----------------------------------
(Registrant)
Date November 10, 1994 H. DONALD NELSON
--------------------- ----------------------------------
H. Donald Nelson
President
(Principal Executive Officer)
Date November 10, 1994 KENNETH R. MEYERS
--------------------- ----------------------------------
Kenneth R. Meyers
Vice President - Finance and
Treasurer
(Chief Financial Officer)
Date November 10, 1994 PHILLIP A. LORENZINI
--------------------- ----------------------------------
Phillip A. Lorenzini
Controller
(Principal Accounting Officer)
- 24 -