Back to GetFilings.com
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9712
- --------------------------------------------------------------------------------
UNITED STATES CELLULAR CORPORATION
(Exact name of Registrant as specified in its charter)
- --------------------------------------------------------------------------------
DELAWARE 62-1147325
- ------------------------------ ------------------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or No.)
organization)
8410 WEST BRYN MAWR, SUITE 700, CHICAGO, ILLINOIS 60631
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER: (312) 399-8900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ---------------------------- --------------------------
Common Shares, $1 par value American Stock Exchange
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_
As of March 7, 1994, the aggregate market value of registrant's Common
Shares held by nonaffiliates was approximately $396.6 million (based upon the
closing price of the Common Shares on March 7, 1994, of $27.625, as reported by
the American Stock Exchange).
The number of shares outstanding of each of the registrant's classes of
common stock, as of March 7, 1994, is 43,739,215 Common Shares, $1 par value,
and 33,005,877 Series A Common Shares, $1 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's 1993 Annual Report to
Shareholders and of the registrant's Notice of Annual Meeting of Shareholders
and Proxy Statement for its Annual Meeting of Shareholders to be held May 5,
1994, described in the cross reference sheet and table of contents attached
hereto are incorporated by reference into Parts II and III of this report.
- --------------------------------------------------------------------------------
CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
- ----------------------------------------------------------------------------
PAGE NUMBER
OR REFERENCE (1)
------------
Item 1. Business............................................ 3
Item 2. Properties.......................................... 21
Item 3. Legal Proceedings................................... 21
Item 4. Submission of Matters to a Vote of Security
Holders........................................... 22
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................... 23(2)
Item 6. Selected Financial Data............................. 23(3)
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 23(4)
Item 8. Financial Statements and Supplementary Data......... 23(5)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... 23
Item 10. Directors and Executive Officers of the
Registrant........................................ 24(6)
Item 11. Executive Compensation.............................. 24(7)
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................ 24(8)
Item 13. Certain Relationships and Related Transactions...... 24(9)
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K....................................... 25
- ----------------------------------------------------------------------------
(1) Parenthetical references are to information incorporated by reference from
Exhibit 13, which includes portions of the registrant's Annual Report to
Shareholders for the year ended December 31, 1993 ("Annual Report") and
from the registrant's Notice of Annual Meeting of Shareholders and Proxy
Statement for its Annual Meeting of Shareholders to be held on May 5, 1994
(the "Proxy Statement").
(2) Annual Report section entitled "United States Cellular Stock and Dividend
Information."
(3) Annual Report section entitled "Selected Consolidated Financial Data."
(4) Annual Report section entitled "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
(5) Annual Report sections entitled "Consolidated Statements of Operations,"
"Consolidated Statements of Cash Flows," "Consolidated Balance Sheets,"
"Consolidated Statements of Changes in Common Shareholders' Equity," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants" and "Consolidated Quarterly Income Information (Unaudited)."
(6) Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."
(7) Proxy Statement section entitled "Executive Compensation," except for the
information specified in Item 402(a)(8) of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
(8) Proxy Statement section entitled "Security Ownership of Certain Beneficial
Owners and Management."
(9) Proxy Statement section entitled "Certain Relationships and Related
Transactions."
- --------------------------------------------------------------------------------
[LOGO]
UNITED STATES CELLULAR CORPORATION
8410 WEST BRYN MAWR - CHICAGO, ILLINOIS 60631
TELEPHONE (312) 399-8900
- --------------------------------------------------------------------------------
PART I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
THE COMPANY
United States Cellular Corporation (the "Company") is engaged through
subsidiaries and joint ventures primarily in the development and operation of
and in the acquisition of interests in cellular telephone markets ("cellular
markets"). The Company is a majority-owned subsidiary of Telephone and Data
Systems, Inc. ("TDS"), an Iowa corporation.
The Company acquires, manages, owns, operates and invests in cellular
systems throughout the United States. As of December 31, 1993, the Company owned
or had the right to acquire interests in Metropolitan Statistical Areas ("MSAs")
and Rural Service Areas ("RSAs") representing approximately 23.7 million
population equivalents in a total of 205 markets. The Company is the seventh
largest cellular telephone company in the United States, based on the aggregate
number of population equivalents it owns or has the right to acquire. The
Company's corporate development strategy is to acquire controlling interests in
MSA and RSA licensees in areas adjacent to or in proximity to its other markets
in order to build clusters. The Company anticipates that clustering markets will
expand its cellular service areas while enabling it to achieve marketing and
advertising benefits and to achieve economies in certain capital and operating
costs.
The following table summarizes the status of the Company's interests in
cellular markets at December 31, 1993.
MSA RSA TOTAL
--- --- -----
Owns Majority Interest and
Manages (all operational).... 31 85 116
--- --- -----
Right to Acquire Majority
Interest and Manage
Operational (1)............. 4 10 14
Not operational............. -- 2 2
--- --- -----
4 12 16
--- --- -----
Owns Minority Interest and
Manages (all operational)
(2).......................... 1 11 12
--- --- -----
Total Markets Managed or to be
Managed by the Company....... 36 108 144
--- --- -----
Markets Managed by Others (all
operational) (3)............. 39 22 61
--- --- -----
Total Markets................. 75 130 205
--- --- -----
--- --- -----
- ----------
(1) Five markets are being operated by third parties until the Company
acquires a controlling interest in those markets.
(2) One market is being operated by a third party until the Company acquires
an interest in the market.
(3) Represents markets in which the Company owns or has the right to acquire a
minority or other noncontrolling interest and which are managed by third
parties.
3
The Company served 293,000 customers at December 31, 1993, through 614 cells
in 136 managed markets. The average penetration rate (i.e., the percentage of
total population of a market represented by customers) in the Company-managed
markets was 1.33% at December 31, 1993. The churn rate, or the portion of the
Company's customers discontinuing service each month, averaged 2.3% per month
during the twelve months ended December 31, 1993. The Company's 116
majority-owned and managed ("consolidated") markets served 261,000 customers at
December 31, 1993, through 522 cells. The average penetration rate in the
consolidated markets was 1.35% at December 31, 1993, and the churn rate in all
consolidated markets averaged 2.3% per month for the twelve months ended
December 31, 1993.
The Company, or TDS for the benefit of the Company, has entered into
agreements with third parties to acquire cellular interests which generally
require the issuance of securities of the Company or TDS securities. In
connection with agreements that require the delivery of TDS securities, the
Company reimburses TDS for TDS securities issued to third parties as
consideration for the acquisitions.
If all acquisitions pending at December 31, 1993, are completed as planned,
the Company will issue approximately 3.7 million Common Shares to TDS at or near
the respective closing dates of each of these acquisitions and approximately
49,000 Common Shares to third parties. In addition, approximately 5.0 million
Common Shares are issuable to third parties at December 31, 1993, in connection
with completed acquisitions. At December 31, 1993, the Company also had 197,000
outstanding shares of Preferred Stock, all held by TDS, which are redeemable by
the delivery of 1.2 million Common Shares between 1994 and 1996. Certain TDS
Preferred Shares delivered in connection with the Company's acquisitions are
also redeemable by the delivery of an additional 1.1 million USM Common Shares
between 1994 and 1996. The aggregate of 11.0 million Common Shares committed for
issuance in future years are scheduled to be issued as follows: approximately
6.8 million shares by March 21, 1994, 1.2 million shares in the remainder of
1994, 1.6 million shares in 1995 and 1.4 million shares in 1996.
TDS owned an aggregate of 59,548,450 shares of common stock of the Company
at December 31, 1993, representing over 85% of the combined total of the
Company's outstanding Common and Series A Common Shares and over 97% 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 other issuances of the Company's common
stock to TDS and third parties for completed and pending acquisitions and
redemptions of the Company's Preferred Stock and TDS's Preferred Shares had been
completed at December 31, 1993, TDS would have owned approximately 79.5% 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.
The Company was incorporated in Delaware in 1983. The Company's executive
offices are located at 8410 West Bryn Mawr, Chicago, Illinois 60631. Its
telephone number is 312-399-8900. The Common Shares of the Company are listed on
the American Stock Exchange under the symbol "USM."
Unless the context indicates otherwise: (i) references to the "Company"
refer to United States Cellular Corporation and its subsidiaries; (ii)
references to "MSA" or to a particular city refer to the Metropolitan
Statistical Area, as designated by the U.S. Office of Management and Budget and
used by the Federal Communications Commission ("FCC") in designating
metropolitan cellular market areas; (iii) references to "RSA" refer to the Rural
Service Area, as used by the FCC in designating non-MSA cellular market areas;
(iv) references to cellular "markets" or "systems" refer to MSAs, RSAs or both;
(v) references to "population equivalents" mean the population of a market,
based on 1993 Donnelley Marketing Service Estimates, multiplied by the
percentage interests that the Company owns or has the right to acquire in an
entity licensed, designated to receive a license or expected to receive a
construction permit ("licensee") by the FCC to construct or operate a cellular
system in such market.
4
REGULATORY DEVELOPMENTS
The operations of the Company are subject to FCC and state regulation. The
licenses held by the Company which are granted by the FCC for the use of radio
frequencies are an important component of the overall value of the assets of the
Company. As discussed here, recent Congressional legislation and related FCC
regulatory proceedings may have significant impact on some or all of its
operations by altering FCC and state regulatory responsibilities for mobile
service, the procedures for the award by the FCC of licenses to conduct existing
and new mobile services, the terms and conditions of business relationships
between mobile service providers and Local Exchange Carriers ("LECs") and the
scope of the competitive opportunities available to mobile service providers.
The Omnibus Reconciliation Act of 1993 (the "Budget Act"), which became
effective in August 1993, amended the Communications Act of 1934 (the
"Communications Act") by eliminating legislatively enacted distinctions
affecting FCC and state regulation of common carrier and private carrier mobile
operations and directed the FCC to classify all mobile services, including
cellular, paging, Specialized Mobile Radio ("SMR") and other services under two
categories: Commercial Mobile Radio Services ("CMRS"), subject to common carrier
regulation; or Private Mobile Radio Services ("PMRS"), not subject to common
carrier regulation. At its February 3, 1994 public meeting, the FCC adopted a
decision classifying mobile service offerings as CMRS operations if they include
a service offering to the public, for a fee, which is interconnected to the
public switched network. Cellular, SMR and paging, among other services, will be
classified as CMRS if they fit this definition. In addition, the FCC decision
establishes a regulatory precedent for hybrid CMRS/PMRS regulation of mobile
operations which offer both CMRS service and PMRS service. The Company
anticipates that its service offerings will be classified as CMRS. The FCC
decision also states that it would forebear from requiring that CMRS providers
comply with a number of statutory provisions, otherwise applicable to common
carriers, such as the filing of tariffs. It requires LECs to provide reasonable
and fair interconnection to all CMRS providers, subject to mutual compensation,
reasonable charges for interstate interconnection and reasonable forms of
interconnection. Because the text of the FCC's decision has only recently been
released and addresses many complex and interrelated aspects of regulatory
policy, the impact of these aspects of the FCC proceedings on the Company cannot
be predicted with certainty.
The Budget Act also amended the Communications Act to authorize the FCC to
use a system of competitive bidding to issue initial licenses for the use of
radio frequencies for which there are mutually exclusive applications and where
the principal use of the license will be to offer service in return for
compensation from customers. At its March 8, 1994 public meeting, the FCC
adopted a decision, the text of which has not yet been released, that
establishes generic rules for competitive bidding, defines eligibility criteria
for small businesses, minority-and female-owned businesses and rural telephone
companies which qualify for preferential bidding treatment, as required under
the Budget Act, and describes the bidding mechanisms to be used by businesses
qualifying for preferential treatment in future spectrum auctions. The FCC
deferred adoption of the competitive bidding rules for specific licensing
situations.
Under other amendments to the Communications Act included in the Budget Act,
states will generally be prohibited from regulating the entry of, or the rates
charged by, any CMRS provider. The new law does not, however, prohibit a state
from regulating other terms and conditions of CMRS offerings and permits states
to petition the FCC for authority to continue rate regulation. These new
statutory provisions will take effect in August 1994.
On September 23, 1993, the FCC decided to allocate seven Personal
Communications Services ("PCS") frequency blocks for licensing, in the aggregate
120 Megahertz ("MHz") of spectrum for licensed operations, and an additional 40
MHz for unlicensed operations, including uses such as telephone PBX and wireless
local area network operations. Two 30 MHz frequency blocks will be awarded for
each of the 51 Rand McNally Major Trading Areas, while one 20 MHz and four 10
MHz frequency blocks will be awarded for each of the 492 Rand McNally Basic
Trading Areas. Cellular operators will be permitted to participate in the award
of these new PCS licenses, which will be made via a yet-to-be-defined auction
process, except for licenses reserved for rural, small, minority-and female-
owned businesses and licenses for markets in which such cellular operator owns a
20% or greater interest in a cellular licensee which holds a license covering
10% or more of the population of the
5
respective PCS licensed area. In the latter case, the cellular licensee is
limited to one 10 MHz PCS channel block. Numerous requests for reconsideration
of the FCC's decision have been filed and remain pending before the FCC. In its
March 8, 1994 decision referenced above, the FCC presumptively classified PCS as
CMRS. The FCC has not adopted specific competitive bidding rules for the initial
licensing of PCS spectrum or established a schedule for the commencement of PCS
auctions.
PCS technology is currently under development and is expected to be similar
in some respects to cellular technology. When offered commercially, this
technology is expected to offer increased capacity for wireless two-way and
one-way voice, data and multimedia communications services and is expected to
result in increased competition in the Company's operations. The ability of
these future PCS licensees to complement or compete with existing cellular
licensees is uncertain and may be affected by future FCC rule-making. These and
other future technological developments in the wireless telecommunications
industry and the enhancement of current technologies will likely create new
products and services that are competitive with the services currently offered
by the Company. There can be no assurance that the Company will not be adversely
affected by such technological developments.
CELLULAR TELEPHONE OPERATIONS
THE CELLULAR TELEPHONE INDUSTRY. The cellular telephone industry has been
in existence for approximately eleven years in the United States. Although the
industry is still relatively new, it has grown significantly during this period.
According to the Cellular Telecommunications Industry Association, at December
31, 1993, there were estimated to be over 16 million cellular customer units in
service in the United States, generating nearly $11 billion of revenue per year.
Cellular service is now available throughout the United States. The commercial
feasibility of cellular systems in the United States has not, however, been
proven over a long period of time.
Cellular telephone technology provides high-quality, high-capacity
communications services to in-vehicle cellular telephones and hand-held portable
cellular telephones. Cellular technology is a major improvement over earlier
mobile telephone technologies. Cellular telephone systems are designed to allow
for maximum mobility of the customer. In addition to mobility, cellular
telephone systems provide access through system interconnections to local,
regional, national and world-wide telecommunications networks. Cellular
telephone systems also offer a full range of ancillary services such as
conference calling, call-waiting, call-forwarding, voice mail, facsimile and
data transmission.
Cellular telephone systems divide each service area into smaller geographic
areas or "cells." Each cell is served by radio transmitters and receivers
operating on discrete radio frequencies licensed by the FCC. All of the cells in
a system are connected to a computer-controlled Mobile Telephone Switching
Office ("MTSO"). The MTSO is connected to the conventional ("landline")
telephone network. Each conversation on a cellular phone involves a transmission
over a specific range of radio frequencies from the cellular phone to a
transmitter/receiver at a cell site. The transmission is forwarded from the cell
site to the MTSO and from there may be forwarded to the landline telephone
network to complete the call. As the cellular telephone moves from one cell to
another, the MTSO determines radio signal strength and transfers ("hands off")
the call from one cell to the next. This hand-off is not noticeable to either
party on the phone call.
The Company provides cellular telephone service under licenses granted by
the FCC. The FCC grants only two licenses to provide cellular telephone service
in each market. However, competition for customers includes competing
communications technologies such as conventional landline and mobile telephone,
SMR systems and radio paging. In addition, emerging technologies such as
Enhanced Specialized Mobile Radio ("ESMR"), mobile satellite communication
systems, second generation cordless telephones ("CT-2") and PCS may prove to be
competitive with cellular service in the future in some or all of the markets
where the Company has operations.
The services available to cellular customers and the sources of revenue
available to cellular system operators are similar to those provided by
conventional landline telephone companies. Customers are charged a separate fee
for system access, airtime, long-distance calls, and ancillary services.
Technical standards require that analog cellular telephones be compatible
with all cellular systems in all market areas in the United States. Because of
this compatibility feature, cellular system operators
6
often provide service to customers of other operators' cellular systems while
the customers are temporarily located within the operators' service areas.
Customers using service away from their home system are called "roamers." The
system that provides the service to these roamers will generate usage revenue.
Many operators, including the Company, charge premium rates for this roaming
service.
There are a number of recent technical developments in the cellular
industry. Currently, while most of the MTSOs process information digitally, most
of the radio transmission is done on an analog basis. Digital radio technology
offers advantages, including less transmission noise, greater system capacity,
and potentially lower incremental costs for additional customers. The conversion
from analog to digital radio technology is expected to be an industry-wide
process that will take a number of years.
During 1992, a new transmission technique was approved for implementation by
the cellular industry. Time Division Multiple Access ("TDMA") technology was
selected as one industry standard by the cellular industry and has been deployed
in several markets, including the Company's operations in Tulsa, Oklahoma.
However, another digital technology, Code Division Multiple Access ("CDMA"), is
expected to be in a commercial trial by the end of 1994. The Company expects to
deploy some digital radio channels in other markets in the near future.
The cellular telephone industry is characterized by high initial fixed
costs. Accordingly, if and when revenues less variable costs exceed fixed costs,
incremental revenues should yield an operating profit. The amount of profit, if
any, under such circumstances is dependent on, among other things, prices and
variable marketing costs which in turn are affected by the amount and extent of
competition. Until technological limitations on total capacity are approached,
additional cellular system capacity can normally be added in increments that
closely match demand and at less than the proportionate cost of the initial
capacity.
THE COMPANY'S OPERATIONS. The Company is building a substantial presence in
selected geographic areas throughout the United States where it can efficiently
integrate and manage cellular telephone systems. Its cellular interests include
market clusters in the Northern Florida, Eastern Tennessee/Western North
Carolina, Eastern North Carolina/Virginia, Maine/New Hampshire/Vermont, West
Virginia/Pennsylvania/Maryland, Indiana/Kentucky, Iowa,
Wisconsin/Illinois/Minnesota, Oklahoma, Missouri, Southwestern Texas,
Texas/Oklahoma, Oregon/California and Washington/Idaho areas. See "The Company's
Cellular Interests." The Company has acquired its cellular interests through the
wireline application process (22%), including settlements and exchanges with
other applicants, and through acquisitions (78%), including acquisitions from
TDS and third parties.
Management plans to retain minority interests in certain cellular markets
which it believes will earn a favorable return on investment. Other minority
interests may be traded for interests in markets which enhance the Company's
market clusters or may be sold for cash or other consideration.
CERTAIN CONSIDERATIONS REGARDING CELLULAR TELEPHONE OPERATIONS
Since its inception in 1983, the Company has principally been in a start-up
phase in which its activities have been concentrated significantly on the
acquisition of interests in entities licensed or designated to receive a license
("licensees") from the FCC to provide cellular service and on the construction
and initial operation of cellular systems. The development of a cellular system
is capital-intensive and requires substantial investment prior to and subsequent
to initial operation. The Company has experienced operating losses and net
losses in all but a few quarters since its inception. The Company may incur
operating losses for the next few quarters, and there is no assurance that
future operations, individually or in the aggregate, will be profitable.
The licensing (including renewal of licenses), construction, operation,
sale, interconnection arrangements and acquisition of cellular systems are
regulated by the FCC and various state public utility commissions. Changes in
the regulation of cellular operators or their activities and of other mobile
service providers (such as the decision by the FCC to permit PCS licensees)
could have a material adverse effect on the Company's operations. See "Legal
Proceedings -- La Star Application" for a discussion of certain FCC proceedings
which have suspended the Company's and TDS's licensing authority in a Wisconsin
market pending the outcome of an FCC hearing.
7
The number of population equivalents represented by the Company's cellular
interests bears no direct relationship to the number of potential cellular
customers or the revenues that may be realized from the operation of the related
cellular systems. The fair market value of the Company's cellular interests will
ultimately depend on the success of its operations. There is no assurance that
the value of cellular interests will not be significantly lower in the future
than at present.
While there are numerous cellular systems operating in the United States and
other countries, the industry has only a limited operating history. As a result,
there is uncertainty regarding its future, including, among other factors: (i)
the growth in customers; (ii) the usage and pricing of cellular services; (iii)
the percentage of customers who terminate service each month (the "churn rate");
(iv) the cost of providing cellular services, including the cost of attracting
new customers; and (v) continuing technological advances which may provide
competitive alternatives.
Media reports have suggested that certain radiofrequency ("RF") emissions
from portable cellular telephones might be linked to cancer. The Company has
reviewed relevant scientific information and, based on such information, is not
aware of any credible evidence linking the usage of portable cellular telephones
with cancer. The FCC currently has a rulemaking proceeding pending to update the
guidlines and methods it uses for evaluating RF emissions in radio equipment,
including cellular telephones. While the proposal would impose more restrictive
standards on RF emissions from low-power devices such as portable cellular
telphones, it is anticipated that all cellular telephones currently marketed and
in use will comply with those standards.
CELLULAR SYSTEMS DEVELOPMENT
ACQUISITIONS. During the last three years, the Company has aggressively
expanded its size, particularly in markets which share adjacency, through an
ongoing acquisition program aimed at strengthening the Company's position in the
cellular industry. This growth has resulted primarily from acquisitions of
interests in RSAs and has been based on obtaining interests with rights to
manage the underlying market.
Including transfers of RSA interests from TDS, the Company has nearly
tripled its population equivalents from approximately 8.0 million at December
31, 1988, to approximately 23.7 million at December 31, 1993. Similarly, markets
managed or to be managed by the Company have increased from 33 markets at
December 31, 1988, to 144 markets at December 31, 1993. As of December 31, 1993,
almost 86% of the Company's population equivalents represented interests in
markets the Company manages or expects to manage, compared to 62% at December
31, 1988.
The Company seeks and is currently negotiating for the acquisition of
additional cellular interests and plans to acquire significant additional
cellular interests in markets that complement its developing market clusters and
in other attractive markets. The Company also seeks to acquire minority
interests in markets where it already owns (or has the right to acquire) the
majority interest. At the same time the Company continues to evaluate the
disposition of interests which are not essential to its corporate development
strategy.
The Company will ordinarily make acquisitions using securities or cash or by
exchanging cellular interests it already owns. There is no assurance that the
Company will be able to purchase any additional interests, or that any such
additional interests, if purchased, will be purchased on terms that are
favorable to the Company.
The Company, or TDS for the benefit of the Company, has negotiated
acquisitions of cellular interests from third parties primarily in consideration
for the Company's Common Shares or TDS's Common or Preferred Shares. Cellular
interests acquired by TDS are generally assigned to the Company. At that time,
the Company reimburses TDS for the value of TDS securities issued in such
transactions, generally by issuing Common Shares and Preferred Stock (redeemable
by the delivery of Common Shares) to TDS or by increases to the balance due TDS
under the Company's Revolving Credit Agreement in amounts equal to the value of
TDS capital stock at the time the acquisitions are closed. The fair market value
of the Common Shares and Preferred Stock issued to TDS in connection with these
transactions is equal to the fair market value of the TDS securities issued in
the transactions and is determined at the time the transactions are closed.
8
In cases where the Company's Common Shares are used as consideration in
connection with acquisitions, most of the agreements call for such shares to be
delivered in 1994 and later years. In a limited number of transactions, the
Company has agreed to pay some portion of the purchase price in cash.
COMPLETED ACQUISITIONS. During 1993, the Company completed the acquisition
of controlling interests in 25 markets and several additional minority interests
representing approximately 3.8 million population equivalents for an aggregate
consideration of $284.6 million. The consideration consisted of 5.7 million of
the Company's Common Shares, 75,000 of the Company's Series A Common Shares, an
increase in the debt to TDS under the Revolving Credit Agreement of $101.5
million, $12.7 million in cash, cash paid by TDS of $9.4 million (treated as an
equity contribution to the Company), and the obligation to deliver approximately
140,000 of the Company's Common Shares to third parties in 1994. The debt under
the Revolving Credit Agreement and 5.5 million of the Company's Common Shares
were issued to TDS to reimburse TDS for TDS Common Shares issued and cash paid
to third parties in connection with these acquisitions.
Included in the above transactions is the transfer of a minority interest in
one RSA from TDS, representing 35,000 population equivalents. The consideration
consisted of the issuance of 31,000 of the Company's Common Shares and 75,000 of
the Company's Series A Common Shares to TDS. The Company's Common and Series A
Common Shares have been recorded at TDS's book value of the RSA interests
transferred, rather than the fair market value of the shares, due to the
intercompany nature of the transaction.
PENDING ACQUISITIONS. At December 31, 1993, the Company, or TDS for the
benefit of the Company, had entered into agreements to acquire controlling
interests in nine markets and a minority interest representing approximately 1.2
million population equivalents for an aggregate consideration estimated to be
approximately $128.4 million. If all of the pending acquisitions are completed
as planned, the Company will issue approximately 49,000 of its Common Shares and
will pay approximately $4.5 million in cash. TDS will pay approximately $123.0
million in TDS Common Shares and cash. Any interests acquired by TDS in these
transactions are expected to be assigned to the Company and at that time, the
Company will reimburse TDS for TDS's consideration delivered and costs incurred
in such acquisitions in the form of Common Shares of the Company or increases in
the balance under the Revolving Credit Agreement. Based on the estimated value
of the consideration at the time the agreements were entered into, the Company
expects to reimburse TDS by issuing 3.7 million of the Company's Common Shares
to TDS and by increasing the balance due TDS under the Revolving Credit
Agreement by $400,000.
In addition to the agreements discussed above, the Company has agreements to
acquire interests representing 302,000 population equivalents in three markets.
The consideration for these acquisitions will be determined based on future
appraisals of the fair market values of the interests to be acquired. All
population equivalents acquirable pursuant to these agreements and the
agreements in the previous paragraph are included in the table on pages 11 to
14.
In addition to the acquisitions completed in 1993 and the pending
acquisitions discussed above, the Company had commitments at December 31, 1993
to issue 4.8 million Common Shares in connection with acquisitions completed
prior to 1993. Approximately 3.8 million of these shares were issued in early
1994. The Company also had Preferred Stock outstanding (all of which is held by
TDS) which is redeemable into 1.2 million of the Company's Common Shares in 1994
through 1996. Certain series of TDS Preferred Shares are redeemable into an
additional 1.1 million of the Company's Common Shares in 1994 through 1996.
The Company maintains shelf registration of its Common Shares and Preferred
Stock under the Securities Act of 1933 for issuance specifically in connection
with acquisitions.
CELLULAR INTERESTS AND CLUSTERS
The Company operates clusters of adjacent cellular systems, enabling its
customers to benefit from a larger service area than otherwise possible. The
Company's strategy was initially implemented by filing for licenses to operate
cellular systems in MSAs. Following the MSA lotteries and settlements, the
Company acquired interests in certain additional MSAs through purchases. The
Company has acquired
9
substantial additional population equivalents through the purchase of interests
in RSAs. The Company plans to continue to acquire controlling interests in
cellular licenses to provide service in systems that complement its developing
market clusters and in other attractive systems.
The Company anticipates that clustering markets will expand its cellular
service areas and provide certain economies in its capital and operating costs.
In areas where the Company has clusters of contiguous markets it may offer
wide-area coverage. This would allow uninterrupted service within the area and
allow the customer to make outgoing and receive incoming calls without special
roamer arrangements. Clustering also makes possible greater sharing of
facilities, personnel and other costs and may thereby reduce the costs of
serving each customer. The extent to which these revenue enhancements and
economies of operation will be realized through clustering is dependent upon
market conditions, population sizes of the clusters and engineering
considerations.
The Company's market clusters have grown rapidly. At December 31, 1993,
approximately 87%, or 17.7 million, of the Company's managed population
equivalents were in contiguous markets within market clusters. Additionally, 92%
of the Company's managed markets were adjacent to another Company-managed market
at that time. The Company anticipates continuing to pursue strategic
acquisitions and trades in order to complement its developing market clusters.
The Company has also acquired minority interests in markets where it already
owns, or has the right to acquire, a majority interest. From time to time, the
Company may consider trading or selling some of its cellular interests which do
not fit well with its long-term strategies.
The Company owned or had the right to acquire interests in cellular
telephone systems in 205 markets at December 31, 1993. At December 31, 1993,
approximately 86%, or 20.4 million, of the Company's population equivalents were
in markets that the Company manages or expects to manage. At that date,
approximately 95% of the Company's managed population equivalents were in
markets where cellular service has been initiated and where the Company is
currently operating the system. The following table summarizes the growth in the
Company's population equivalents in recent years and the development status of
these population equivalents.
DECEMBER 31,
-------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ -----
(THOUSANDS OF POPULATION
EQUIVALENTS)(1)
Operational Markets:
Majority-Owned and Managed...................... 18,212 14,268 10,427 5,110 4,060
Minority-Owned and Managed (2).................. 1,139 2,007 1,755 1,291 994
Markets Under Construction and to be Managed: (3)
Majority-Owned.................................. 996 1,811 2,973 4,372 292
Minority-Owned (2).............................. 6 5 122 444 646
------ ------ ------ ------ -----
Total Markets Managed and to be Managed......... 20,353 18,091 15,277 11,217 5,992
Minority Interests in Markets Managed by Others... 3,378 3,474 3,229 3,428 3,244
------ ------ ------ ------ -----
Total........................................... 23,731 21,565 18,506 14,645 9,236
------ ------ ------ ------ -----
------ ------ ------ ------ -----
- ----------
(1) Based on 1993 Donnelley Marketing Services estimates for all years.
(2) Includes markets where the Company has the right to acquire an interest but
does not currently own an interest.
(3) Includes markets which are operational but which are currently managed by
third parties.
The following section details the Company's cellular interests, including
those it owned or had the right to acquire as of December 31, 1993. The table
presented therein lists clusters of markets, including both MSAs and RSAs, that
the Company operates or anticipates operating. The Company's market clusters
show the areas in which the Company is currently focusing its development
efforts. These clusters have been devised with a long-term goal of allowing
delivery of cellular service to areas of economic interest and along corridors
of economic activity.
10
THE COMPANY'S CELLULAR INTERESTS
The table below sets forth certain information with respect to the interests
in cellular markets which the Company owned or had the right to acquire pursuant
to definitive agreements as of December 31, 1993.
PERCENTAGE TOTAL
ACQUIRABLE CURRENT AND
CURRENT UNDER ACQUIRABLE
1993 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
- -------------------------------------------------- ---------- ----------- -------------- ------- -----------
MARKETS MANAGED BY THE COMPANY:
EASTERN NORTH CAROLINA/VIRGINIA:
Northampton (NC 8)............................ 282,000 100.00% 100.00% 282,000
Rockingham (NC 7)............................. 276,000 100.00 100.00 276,000
Harnett (NC 10)............................... 266,000 100.00 100.00 266,000
Greene (NC 13)................................ 235,000 100.00 100.00 235,000
Greenville (NC14)............................. 232,000 100.00 100.00 232,000
Hoke (NC 11).................................. 212,000 100.00 100.00 212,000
Chesterfield (SC 4)........................... 209,000 100.00 100.00 209,000
Bedford (VA 4)................................ 171,000 100.00 100.00 171,000
Sampson (NC 12)............................... 120,000 100.00 100.00 120,000
Chatham (NC 6)................................ 146,000 81.16 81.16 119,000
Camden (NC 9)................................. 117,000 100.00 100.00 117,000
Buckingham (VA 7)............................. 88,000 100.00 100.00 88,000
Bath (VA 5)................................... 62,000 100.00 100.00 62,000
---------- -----------
2,416,000 2,389,000
---------- -----------
WISCONSIN/ILLINOIS/MINNESOTA:
Peoria, IL.................................... 346,000 100.00 100.00 346,000
Jo Daviess (IL 1)............................. 313,000 100.00 100.00 313,000
Vernon (WI 8)(2)*............................. 227,000 100.00 100.00 227,000
Adams (IL 4)(3)*.............................. 216,000 100.00 100.00 216,000
Mercer (IL 3)................................. 204,000 100.00 100.00 204,000
Rochester, MN*................................ 113,000 69.80 30.20% 100.00 113,000
Pierce (WI 5)................................. 92,000 100.00 100.00 92,000
Wausau, WI*................................... 119,000 71.76 71.76 85,000
Trempealeau (WI 6)(3)......................... 81,000 100.00 100.00 81,000
LaCrosse, WI.................................. 99,000 52.08 52.08 52,000
---------- -----------
1,810,000 1,729,000
---------- -----------
EASTERN TENNESSEE/WESTERN NORTH CAROLINA:
Knoxville, TN*................................ 531,000 96.03 96.03 510,000
Henderson (NC 4)(3)*.......................... 271,000 100.00 100.00 271,000
Whitfield (GA 1).............................. 206,000 100.00 100.00 206,000
Asheville, NC*................................ 200,000 100.00 100.00 200,000
Bledsoe (TN 7)(3)*............................ 139,000 96.03 96.03 133,000
Giles (TN 6)*................................. 153,000 80.00 80.00 122,000
Hamblen (TN 4)(3)*............................ 121,000 100.00 100.00 121,000
Lake (TN 1)*.................................. 75,000 16.33 83.67 100.00 75,000
Macon (TN 3)*................................. 323,000 16.67 16.67 54,000
Yancey (NC 2)(3)*............................. 30,000 100.00 100.00 30,000
---------- -----------
2,049,000 1,722,000
---------- -----------
IOWA:
Des Moines, IA................................ 410,000 100.00 100.00 410,000
Davenport, IA-IL.............................. 360,000 97.37 97.37 350,000
Humboldt (IA 10).............................. 182,000 100.00 100.00 182,000
Cedar Rapids, IA.............................. 173,000 83.16 83.16 143,000
Waterloo-Cedar Falls, IA...................... 149,000 73.27 73.27 109,000
Kossuth (IA 14)............................... 108,000 100.00 100.00 108,000
Mitchell (IA 13).............................. 67,000 100.00 100.00 67,000
Mills (IA 1).................................. 62,000 100.00 100.00 62,000
Dubuque, IA................................... 88,000 70.01 70.01 61,000
Audubon (IA 7)................................ 55,000 100.00 100.00 55,000
Union (IA 2).................................. 50,000 100.00 100.00 50,000
Monroe (IA 3)*................................ 90,000 49.00 49.00 44,000
Winneshiek (IA 12)*........................... 115,000 24.50 24.50 28,000
Ida (IA 9)*................................... 63,000 16.67 16.67 11,000
---------- -----------
1,972,000 1,680,000
---------- -----------
11
PERCENTAGE TOTAL
ACQUIRABLE CURRENT AND
CURRENT UNDER ACQUIRABLE
1993 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
- -------------------------------------------------- ---------- ----------- -------------- ------- -----------
MARKETS MANAGED BY THE COMPANY: (CONTINUED)
MAINE/NEW HAMPSHIRE/VERMONT:
Manchester-Nashua, NH......................... 336,000 86.43% 86.43% 291,000
Kennebec (ME 3)............................... 221,000 100.00 100.00 221,000
Coos (NH 1)*.................................. 221,000 100.00 100.00 221,000
Somerset (ME 2)............................... 158,000 100.00 100.00 158,000
Bangor, ME.................................... 148,000 73.33 73.33 108,000
Addison (VT 2)(3)*............................ 105,000 100.00 100.00 105,000
Washington (ME 4)*............................ 85,000 100.00 100.00 85,000
Oxford (ME 1)................................. 82,000 100.00 100.00 82,000
Lewiston-Auburn, ME........................... 103,000 75.06 75.06 78,000
---------- -----------
1,459,000 1,349,000
---------- -----------
WEST VIRGINIA/PENNSYLVANIA/MARYLAND:
Monongalia (WV 3)*............................ 266,000 100.00 100.00 266,000
Greene (PA 9)................................. 187,000 20.00 80.00% 100.00 187,000
Grant (WV 4)*................................. 164,000 100.00 100.00 164,000
Tucker (WV 5)*................................ 129,000 100.00 100.00 129,000
Hagerstown, MD*#.............................. 125,000 100.00 100.00 125,000
Cumberland, MD*............................... 102,000 100.00 100.00 102,000
Wetzel (WV 2)................................. 79,000 100.00 100.00 79,000
Bedford (PA 10)(3)*........................... 50,000 100.00 100.00 50,000
Garrett (MD 1)*............................... 30,000 100.00 100.00 30,000
---------- -----------
1,132,000 1,132,000
---------- -----------
MISSOURI:
Joplin, MO*................................... 138,000 49.67 50.33 100.00 138,000
Columbia, MO*................................. 119,000 100.00 100.00 119,000
Brown (KS 5).................................. 119,000 100.00 100.00 119,000
Stone (MO 15)................................. 103,000 100.00 100.00 103,000
Laclede (MO 16)............................... 92,000 100.00 100.00 92,000
Washington (MO 13)............................ 88,000 100.00 100.00 88,000
Callaway (MO 6)*.............................. 84,000 100.00 100.00 84,000
Madison (AR 1)................................ 70,000 51.00 49.00 100.00 70,000
Linn (MO 5)................................... 68,000 100.00 100.00 68,000
DeKalb (MO 4)................................. 68,000 100.00 100.00 68,000
Schuyler (MO 3)............................... 56,000 100.00 100.00 56,000
Shannon (MO 17)*.............................. 54,000 100.00 100.00 54,000
Atchison (MO 1)............................... 43,000 100.00 100.00 43,000
---------- -----------
1,102,000 1,102,000
---------- -----------
NORTHERN FLORIDA:
Worth (GA 14)................................. 237,000 100.00 100.00 237,000
Gainesville, FL............................... 216,000 100.00 100.00 216,000
Toombs (GA 11)................................ 147,000 100.00 100.00 147,000
Early (GA 13)*................................ 144,000 100.00 100.00 144,000
Walton (FL 10)#............................... 107,000 100.00 100.00 107,000
Putnam (FL 5)................................. 103,000 100.00 100.00 103,000
Jefferson (FL 8).............................. 52,000 100.00 100.00 52,000
Dixie (FL 6).................................. 50,000 100.00 100.00 50,000
Calhoun (FL 9)#............................... 39,000 100.00 100.00 39,000
---------- -----------
1,095,000 1,095,000
---------- -----------
WASHINGTON/IDAHO:
Clark (ID 6).................................. 281,000 100.00 100.00 281,000
Richland-Kennewick-Pasco, WA*................. 164,000 100.00 100.00 164,000
Butte (ID 5).................................. 149,000 100.00 100.00 149,000
Yakima, WA*................................... 202,000 54.55 54.55 110,000
Okanogan (WA 4)............................... 110,000 100.00 100.00 110,000
Umatilla (OR 3)*.............................. 145,000 60.42 60.42 88,000
Pacific (WA 6)*............................... 174,000 49.00 49.00 85,000
Kittitas (WA 5)(3)*........................... 66,000 83.50 83.50 55,000
Hood River (OR 2)*............................ 68,000 27.98 (5.98) 22.00 15,000
Skamania (WA 7)*#............................. 26,000 22.00 22.00 6,000
---------- -----------
1,385,000 1,063,000
---------- -----------
12
PERCENTAGE TOTAL
ACQUIRABLE CURRENT AND
CURRENT UNDER ACQUIRABLE
1993 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
- -------------------------------------------------- ---------- ----------- -------------- ------- -----------
MARKETS MANAGED BY THE COMPANY: (CONTINUED)
INDIANA/KENTUCKY:
Meade (KY 3).................................. 300,000 100.00% 100.00% 300,000
Evansville, IN................................ 316,000 78.13 78.13 247,000
Owen (IN 7)................................... 219,000 100.00 100.00 219,000
Union (KY 2).................................. 126,000 100.00 100.00 126,000
Owensboro, KY................................. 89,000 78.69 78.69 70,000
Warren (IN 5)*................................ 119,000 33.33 33.33 40,000
Miami (IN 4)*................................. 182,000 14.29% 14.29 26,000
---------- -----------
1,351,000 1,028,000
---------- -----------
TEXAS/OKLAHOMA:
Cherokee (TX 11)(4)........................... 275,000 100.00 100.00 275,000
Garvin (OK 9)................................. 197,000 100.00 100.00 197,000
Tyler, TX (4)................................. 158,000 100.00 100.00 158,000
Haskell (OK 10)............................... 82,000 100.00 100.00 82,000
Wichita Falls, TX*............................ 130,000 49.66 1.99 51.65 67,000
Lawton, OK*................................... 112,000 100.00 (48.35) 51.65 58,000
Jackson (OK 8)*............................... 96,000 34.00 17.65 51.65 50,000
Hardeman (TX 5)(3)*........................... 37,000 16.33 35.32 51.65 19,000
Briscoe (TX 4)(3)*............................ 11,000 49.00 2.65 51.65 6,000
Beckham (OK 7)(3)*............................ 10,000 34.00 17.65 51.65 5,000
---------- -----------
1,108,000 917,000
---------- -----------
OREGON/CALIFORNIA:
Coos (OR 5)................................... 247,000 100.00 100.00 247,000
Del Norte (CA 1).............................. 209,000 100.00 100.00 209,000
Medford, OR*.................................. 158,000 100.00 100.00 158,000
Mendocino (CA 9).............................. 139,000 100.00 100.00 139,000
Modoc (CA 2).................................. 59,000 100.00 100.00 59,000
Crook (OR 6)*................................. 177,000 33.33 33.33 59,000
---------- -----------
989,000 871,000
---------- -----------
SOUTHWESTERN TEXAS:
Atascosa (TX 19).............................. 213,000 100.00 100.00 213,000
Edwards (TX 18)............................... 202,000 100.00 100.00 202,000
Laredo, TX.................................... 149,000 91.78 91.78 137,000
Wilson (TX 20)................................ 134,000 100.00 100.00 134,000
Victoria TX................................... 78,000 96.22 96.22 75,000
---------- -----------
776,000 761,000
---------- -----------
OKLAHOMA:
Tulsa, OK*.................................... 780,000 55.06 55.06 429,000
Seminole (OK 6)............................... 214,000 100.00 100.00 214,000
---------- -----------
994,000 643,000
---------- -----------
OTHER OPERATIONS:
Union (PA 8)*................................. 407,000 100.00 100.00 407,000
Jefferson (NY 1).............................. 256,000 54.00 46.00 100.00 256,000
Tuscarawas (OH 7)............................. 253,000 100.00 100.00 253,000
Poughkeepsie, NY.............................. 262,000 81.05 81.05 213,000
Newton (IN 1)+................................ 210,000 100.00 100.00 210,000
Glades (FL 2)+................................ 206,000 100.00 100.00 206,000
Atlantic City, NJ#............................ 327,000 8.74 50.01 58.75 192,000
Kosciusko (IN 2).............................. 163,000 100.00 100.00 163,000
Hawaii (HI 3)................................. 136,000 100.00 100.00 136,000
Fort Pierce, FL (5)*.......................... 271,000 49.00 49.00 133,000
Cheboygan (MI 4)*............................. 128,000 100.00 100.00 128,000
Williamsport, PA*............................. 121,000 100.00 100.00 121,000
Ross (OH 9)*.................................. 243,000 49.00 49.00 119,000
Copiah (MS 9)#................................ 117,000 100.00 100.00 117,000
Williams (OH 1)*.............................. 126,000 75.00 75.00 95,000
Vineland-Millville-Bridgeton, NJ.............. 139,000 67.23 67.23 94,000
St. Cloud, MN*................................ 202,000 14.29 14.29 29,000
---------- -----------
3,567,000 2,872,000
---------- -----------
Total Population Equivalents of Managed
Markets.................................... 23,205,000 20,353,000
---------- -----------
13
PERCENTAGE TOTAL
ACQUIRABLE CURRENT AND
CURRENT UNDER ACQUIRABLE
1993 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
- -------------------------------------------------- ---------- ----------- -------------- ------- -----------
MARKETS MANAGED BY OTHERS:
Los Angeles/Oxnard, CA*....................... 15,281,000 5.50% 5.50% 840,000
Nashville/Clarksville-Hopkinsville, TN-KY*.... 1,200,000 49.00 49.00 588,000
Baton Rouge, LA (6)*.......................... 553,000 52.00 52.00 288,000
Seattle-Everett/Tacoma/Bremerton, WA*......... 2,931,000 6.25 6.25 184,000
Biloxi/Pascagoula, MS*........................ 334,000 49.00 49.00 164,000
Oklahoma City, OK*............................ 963,000 14.60 14.60 141,000
McAllen, TX................................... 419,000 26.20 26.20 110,000
Portsmouth-Dover-Rochester, NH-ME*............ 269,000 40.00 40.00 107,000
Others (Fewer than 100,000 population
equivalents each)............................ 956,000
-----------
Total Population Equivalents of Markets Managed by Others..................................... 3,378,000
-----------
Total Population Equivalents.................................................................. 23,731,000
-----------
-----------
- ------------
* Designates wireline market.
+ Designates non-operational market.
# Designates operational market managed by third parties until the Company
acquires a controlling interest.
(1) Interests under these agreements are expected to be acquired at the various
times specified therein following the satisfaction of customary closing
conditions.
(2) The Company's interest in the license for this market has been set aside by
the FCC. The Company is currently operating the market under interim
operating authority granted by the FCC. See Item 3., "Legal Proceedings --
La Star Application."
(3) This market has been or will be partitioned into more than one licensed
area. The 1993 population, percentage ownership and number of population
equivalents shown is for the licensed area within the market in which the
Company owns or has the right to acquire an interest.
(4) The Company's interests in these markets are the subject of litigation. See
Item 3., "Legal Proceedings -- Townes Telecommunications, Inc. et. al. v.
TDS, et. al."
(5) The Company owns 80% of the entity which owns and operates this market but
has only a 49% interest in the earnings and profits.
(6) Represents a noncontrolling limited partnership interest.
SYSTEM DESIGN AND CONSTRUCTION. The Company designs and constructs its
systems in a manner it believes will permit it to provide high-quality service
to mobile, transportable and portable cellular telephones, generally based on
market and engineering studies which relate to specific markets. Engineering
studies are performed by Company personnel or independent engineering firms. The
Company's switching equipment is digital, which reduces noise and crosstalk and
is capable of interconnecting in a manner which reduces costs of operation.
While digital microwave interconnections are typically made between the MTSO and
cell sites, primarily analog radio transmission is used between cell sites and
the cellular telephones themselves.
In accordance with its strategy of building and strengthening market
clusters, the Company has selected high capacity with service-upgraded digital
cellular switching systems that are capable of serving multiple markets via a
single MTSO. The Company's cellular systems are designed to facilitate the
installation of equipment which will permit microwave interconnection between
the MTSO and each cell site. The Company has implemented such microwave
interconnection in most of the cellular systems it manages. In other systems in
which the Company owns or has an option to purchase a majority interest and
where it is believed to be cost-efficient, such microwave technology will also
be implemented. Otherwise, such systems will rely upon landline telephone
connections or microwave links owned by others to link cell sites with the MTSO.
Although the installation of microwave network interconnection equipment
requires a greater initial capital investment, a microwave network enables a
system operator to avoid the current and future charges associated with leasing
telephone lines from the landline telephone company, while generally improving
system reliability. In addition, microwave facilities can be used to connect
separate cellular systems to allow shared switching, which reduces the aggregate
cost of the equipment necessary to operate both systems.
14
The Company has continued to expand its internal, nationwide seamless
network in 1993 to encompass over 100 markets in the United States. This network
provides automatic call delivery for the Company's customers and handoff between
adjacent markets. The seamless network has also been extended, using IS-41
technology, via links with certain systems operated by several other carriers,
including GTE, US West, Ameritech, BellSouth, Centennial Cellular Corp.,
Southwestern Bell, McCaw Cellular Communications, Vanguard Cellular Systems,
Inc. and others. Additionally, the Company has conducted Signaling System 7
field trials with AT&T and with Independent Telephone Network to determine the
most viable approach to establish a backbone network that will enable the
Company to interface with other national networks.
During 1994, the Company expects to significantly extend the seamless
network for its customers into additional areas in Texas, Arkansas, Indiana,
Idaho, Utah, California, Louisiana, Massachusetts, Washington, Florida and
several other states. Not only will this expanded network increase the area in
which customers can automatically receive incoming calls, but it will also
reduce the incidence of fraud due to the pre-call validation feature of the
IS-41 technology.
Management believes that currently available technologies will allow
sufficient capacity on the Company's networks to meet anticipated demand over
the next few years.
COSTS OF SYSTEM CONSTRUCTION AND FINANCING
Construction of cellular systems is capital-intensive, requiring substantial
investment for land and improvements, buildings, towers, MTSOs, cell site
equipment, microwave equipment, customer equipment, engineering and
installation. The Company, consistent with FCC control requirements, uses
primarily its own personnel to engineer and oversee construction of each
cellular system where it owns or has the right to acquire a controlling
interest. In so doing, the Company expects to improve the overall quality of its
systems and to reduce the expense and time required to make them operational.
The costs (exclusive of license costs) of the operational systems in which
the Company owns or has the right to acquire an interest are generally financed
through capital contributions or intercompany loans to the partnerships or
subsidiaries owning the systems, and through certain vendor financing.
MARKETING AND CUSTOMER SERVICE
The Company's marketing plan is designed to capitalize on its clustering
strategy and to increase revenue by growing the Company's customer base,
increasing customers' usage of cellular service and reducing churn or customer
disconnects. The marketing plan stresses service quality and incorporates
programs aimed at developing and expanding new and existing distribution
channels, stimulating customer usage by offering new and enhanced services and
by increasing the public's awareness and understanding of the cellular services
offered by the Company. Most of the Company's operations market cellular service
under the "United States Cellular"-TM- name and service mark.
The Company's marketing strategy is to develop a local, customer-oriented
operation, the primary goal of which is to provide quality cellular service to
its customers. The Company's marketing program focuses on obtaining customers
who need cellular service, such as business people who, while out of their
offices, need to be in contact with others. The Company plans to follow the same
marketing program in the other systems it expects to manage.
The Company manages each cellular cluster, and in some cases individual
markets, with a local staff, including a manager and customer service
representatives. Sales consultants are typically maintained in each market
within the clusters. Customers are able to report cellular service problems or
concerns 24 hours a day. It is the Company's goal to respond to customers'
concerns and to correct reported service deficiencies within 24 hours of
notification. The Company has established local service centers in order to
repair and maintain most major brands of user equipment.
The Company has relied primarily on its own direct and retail sales channels
to obtain customers for the cellular markets it manages. The Company maintains
an ongoing training program to improve the effectiveness of the sales
consultants and retail associates in obtaining customers as well as maximizing
the sale of high-user packages. These packages commit customers to pay for a
minimum amount of usage at discounted rates per minute, even if usage falls
below the monthly minimum amount. The
15
Company also uses agents, dealers and retailers to obtain customers. Agents and
dealers are independent business people who sell to customers on a commission
basis for the Company. The Company's agents are in the business of selling
cellular telephones, cellular service packages and other related products to
customers. The Company's dealers include car stereo companies and other
companies whose customers are also potential cellular customers. The Company's
retailers include car dealers, major appliance dealers, office supply dealers
and mass merchants.
The Company began to specifically address the fast-growing consumer market
by opening its own retail stores in late 1993. These small facilities are
located in high-traffic areas and are designed to cater to walk-in customers.
The Company plans to open more locations in 1994 to further its presence in the
local markets.
The Company also actively pursues national retail accounts which may
potentially yield new customer additions in multiple markets. The national
account effort is expected to enable the Company to reach segments of the market
other than those accessed by the local sales force. Agreements have been entered
into with such national distributors as Chrysler Corporation, Ford Motor
Company, General Motors, Honda, AT&T, Radio Shack, Best Buy, and Sears, Roebuck
& Co. for certain of the Company's markets. Upon the sale of a cellular
telephone by one of these national distributors, the Company receives, often
exclusively within the territories served, the resulting cellular customer. In
recognition of the needs of these national accounts, the Company initiated a
centralized customer support program. This program allows for customer
activation during peak retail business hours (weekends and evenings) when the
Company's local office might otherwise be closed.
The Company uses a variety of direct mail, billboard, radio, television and
newspaper advertising to stimulate interest by prospective customers in cellular
service and to establish familiarity with the Company's name. Advertising is
directed at gaining customers, increasing usage by existing customers and
increasing the public awareness and understanding of the cellular services
offered by the Company. The Company attempts to select the advertising and
promotion media that are most appealing to the targeted groups of potential
customers in each local market. The Company utilizes local advertising media and
public relations activities and establishes programs to enhance public awareness
of the Company, such as providing telephones and service for public events and
emergency uses.
CUSTOMERS AND SYSTEM USAGE
Company data for 1993 indicate that 52% of the Company's customers use their
cellular telephones primarily for business. Cellular customers come from a wide
range of occupations. They typically include a large proportion of individuals
who work outside of their offices such as people in the construction, real
estate, wholesale and retail distribution businesses, and professionals. Most of
the Company's customers use in-vehicle cellular telephones. However, more
customers (71% of new customers in 1993 compared to 21% in 1988) are selecting
portable and other transportable cellular telephones as these units become more
compact and fully featured as well as more attractively priced.
The Company's cellular systems are used most extensively during normal
business hours between 7:00 am and 6:00 pm. On average, the local retail
customers in the Company's majority-owned and managed systems used their
cellular systems approximately 103 minutes per unit each month and generated
retail revenue of approximately $49 per month during 1993, compared to 121
minutes and $52 per month in 1992. Revenue generated by roamers, together with
local, toll and other revenues, brought the Company's total average monthly
service revenue per customer unit in majority-owned and managed markets to $99
during 1993. Average monthly service revenue per customer unit decreased
approximately 6% during 1993, reflecting primarily the decline in average local
minutes per customer unit. The Company anticipates that average monthly service
revenue per customer unit may continue to decline as retail distribution
channels provide additional consumer customers who generate fewer local minutes
of use and as roamer revenues grow more slowly.
16
Roaming is a service offered by the Company which allows a customer to place
or receive a call in a cellular service area away from the customer's home
market area. The Company has entered into "roaming agreements" with operators of
other cellular systems covering virtually all systems in the United States and
Canada. These agreements offer customers the opportunity to roam in these
systems. These reciprocal agreements automatically pre-register the customers of
the Company's systems in the other carriers' systems. Also, a customer of a
participating system roaming (i.e. travelling) in a Company market where this
arrangement is in effect is able to automatically make and receive calls on the
Company's system. The charge for this service is typically at premium rates and
is billed by the Company to the customer's home system, which then bills the
customer. The Company has entered into agreements with other cellular carriers
to transfer roaming usage at agreed-upon rates. In some instances, based on
competitive factors, the Company may charge a lower amount to its customers than
the amount actually charged to the Company by another cellular carrier for
roaming; however, these services include call delivery and call handoff.
The following table summarizes certain information about customers and
market penetration in the Company's managed operations.
YEAR ENDED OR AT DECEMBER 31,
------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ----------- -----------
Majority-owned and managed markets:
Cellular markets in operation (1)............ 116 92 67 32 25
Total population of markets in service
(000s)...................................... 19,383 15,014 11,481 6,314 5,228
Customer Units:
at beginning of period (2)................. 150,800 97,000 57,300 36,100 13,600
additions during period (2)................ 165,300 88,600 59,800 31,800 28,000
disconnects during period (2).............. 55,100 34,800 20,100 10,600 5,500
at end of period (2)....................... 261,000 150,800 97,000 57,300 36,100
Market penetration at end of period (3)(4)... 1.35% 1.00 % 0.84 % 0.91 % 0.69 %
- ----------
(1) Represents the number of markets in which the Company owned at least a 50%
interest and which it managed, including its reseller operation in
1989-1992. The revenues and expenses of these cellular markets are included
in the Company's consolidated revenues and expenses.
(2) Represents the approximate number of revenue-generating cellular telephones
served by the cellular markets referred to in footnote (1). The revenue
generated by such cellular telephones is included in consolidated revenues.
(3) Computed by dividing the number of customer units at the end of the period
by the total population of markets in service as estimated by Donnelley
Marketing Service for the respective years.
(4) The decrease from 1990 to 1991 is due to the addition of 32 majority-owned
and managed RSAs in 1991. Market penetration for majority-owned and managed
MSAs was 1.48% in 1991 and 1.07% in 1990.
17
The following table summarizes, by cluster, the total population, the
Company's customer units and penetration for the Company's majority-owned and
managed markets that were operational as of December 31, 1993.
POPULATION CUSTOMERS PENETRATION
---------- --------- ------------
Eastern North Carolina/Virginia................... 2,416,000 20,500 0.85%
Wisconsin/Illinois/Minnesota...................... 1,810,000 23,400 1.29%
Eastern Tennessee/Western North Carolina.......... 1,651,000 27,800 1.68%
Iowa.............................................. 1,704,000 31,500 1.85%
Maine/New Hampshire/Vermont....................... 1,459,000 19,700 1.35%
West Virginia/Pennsylvania/Maryland............... 820,000 5,100 0.62%
Missouri.......................................... 964,000 6,700 0.70%
Northern Florida.................................. 951,000 10,400 1.09%
Washington/Idaho.................................. 972,000 8,100 0.83%
Indiana/Kentucky.................................. 1,050,000 15,600 1.49%
Texas/Oklahoma.................................... 742,000 12,400 1.67%
Oregon/California................................. 812,000 8,100 1.00%
Southwestern Texas................................ 776,000 7,100 0.91%
Oklahoma.......................................... 994,000 34,900 3.51%
Other Operations.................................. 2,262,000 29,700 1.31%
---------- --------- ---
19,383,000 261,000 1.35%
---------- --------- ---
---------- --------- ---
CELLULAR TELEPHONES AND INSTALLATION
There are a number of different types of cellular telephones, all of which
are currently compatible with cellular systems nationwide. The Company offers a
full range of vehicle-mounted, transportable, and hand-held portable cellular
telephones. Features offered in some of the cellular telephones include
hands-free calling, repeat dialing, horn alert and others.
The Company has established service and/or installation facilities in many
of its local markets to ensure quality installation and service of the cellular
telephones it sells. These facilities allow the Company to improve its service
by promptly assisting customers who experience equipment problems.
The Company negotiates volume discounts from its cellular telephone
suppliers. The Company discounts cellular telephones in most markets to meet
competition or to stimulate sales by reducing the cost of becoming a cellular
customer. In these instances, where permitted by law, customers are generally
required to sign an extended service contract with the Company. The Company also
cooperates with cellular equipment manufacturers in local advertising and
promotion of cellular equipment.
PRODUCTS AND SERVICES
The Company's customers are able to choose from a variety of packaged
pricing plans which are designed to fit different calling patterns. The
Company's customer bills typically show separate charges for custom-calling
features, airtime in excess of the packaged amount, and toll calls.
Custom-calling features provided by the Company include wide-area call delivery,
call forwarding, call waiting, three-way calling and no-answer transfer. The
Company also offers a voice message service in many of its markets. This
service, which functions like a sophisticated answering machine, allows
customers to receive messages from callers when they are not available to take
calls.
REGULATION
The construction, operation and transfer of cellular systems in the United
States are regulated to varying degrees by the FCC pursuant to the
Communications Act. The FCC has promulgated regulations governing construction
and operation of cellular systems, and licensing and technical standards for the
provision of cellular telephone service.
For licensing purposes, the FCC divided the United States into separate
geographic markets (MSAs and RSAs). In each market, the allocated cellular
frequencies are divided into two equal blocks. During the application process,
the FCC reserved one block of frequencies for nonwireline applicants and
18
another block for wireline applicants. Subject to FCC approval, a cellular
system may be sold to either a wireline or nonwireline entity, but no entity
which controls a cellular system may own an interest in another cellular system
in the same MSA or RSA.
The completion of acquisitions involving the transfer of control of a
cellular system requires prior FCC approval. Acquisitions of minority interests
generally do not require FCC approval. Whenever FCC approval is required, any
interested party may file a petition to dismiss or deny the Company's
application for approval of the proposed transfer.
When the first cell of a cellular system has been constructed, the licensee
is required to notify the FCC that construction has been completed. Immediately
upon this notification, but not before, FCC rules authorize the licensee to
offer commercial service to the public. The licensee is then said to have
"operating authority." Initial operating licenses are granted for ten-year
periods. The FCC must be notified each time an additional cell is constructed.
The FCC's rules also generally require persons or entities holding cellular
construction permits or licenses to coordinate their proposed frequency usage
with other cellular users and licensees in order to avoid electrical
interference between adjacent systems. The height and power of base stations in
the cellular system are regulated by FCC rules, as are the types of signals
emitted by these stations. In addition to regulation by the FCC, cellular
systems are subject to certain Federal Aviation Administration regulations
respecting the siting and construction of cellular transmitter towers and
antennas.
On January 9, 1992, the FCC adopted a Report and Order ("R&O") which
establishes standards for conducting comparative renewal proceedings between a
cellular licensee seeking renewal of its license and challengers filing
competing applications. In the R&O, the FCC: (i) established criteria for
comparing the renewal applicant to challengers, including the standards under
which a "renewal expectancy" will be granted to the applicant seeking license
renewal; (ii) established basic qualifications standards for challengers; and
(iii) provided procedures for preventing possible abuses in the comparative
renewal process. The FCC has concluded that it will award a renewal expectancy
if the licensee has (i) substantially used its spectrum for its intended
purposes; (ii) complied with FCC rules, policies and the Communications Act, as
amended; and (iii) not engaged in substantial relevant misconduct. If a renewal
expectancy is awarded to an existing licensee, that expectancy will be more
significant in the renewal proceeding than any other criterion used to compare
the licensee to challengers. Licenses of the Company's affiliates in Knoxville
and Tulsa will be its first to come up for renewal in 1994. See "Legal
Proceedings -- La Star Application" for a discussion of certain FCC proceedings
which have suspended the Company's and TDS's licensing authority in a Wisconsin
market pending the outcome of an FCC hearing.
The Company conducts and plans to conduct its operations in accordance with
all relevant FCC rules and regulations and would anticipate being able to
qualify for a renewal expectancy. Accordingly, the Company believes that the
regulations will have no significant effect on its operations and financial
condition.
The FCC has also provided that five years after the initial licenses are
granted, unserved areas within markets previously granted to licensees may be
applied for by both wireline and nonwireline entities and by third parties. The
FCC established 1993 filing dates for filing "unserved area" applications in
MSAs in which the five-year period had expired and many unserved area
applications were filed in certain MSAs. The Company's strategy with respect to
system construction in its markets has been and will be to build cells covering
every area within such markets that the Company considers economically feasible
to serve or might conceivably wish to serve and to do so within the five-year
period following issuance of the license.
The Company is also subject to state and local regulation in some instances.
In 1981, the FCC preempted the states from exercising jurisdiction in the areas
of licensing, technical standards and market structure. However, certain states
require cellular system operators to go through a state certification process to
serve communities within their borders. All such certificates can be revoked for
cause. In addition, certain state authorities regulate several aspects of a
cellular operator's business, including the rates it charges its customers and
cellular resellers, the resale of long-distance service to its customers, the
technical arrangements and charges for interconnection with the landline network
and
19
the transfer of interests in cellular systems. The siting and construction of
the cellular facilities, including transmitter towers, antennas and equipment
shelters may also be subject to state or local zoning, land use and other local
regulations. Public utility or public service commissions (or certain of the
commissioners) in several states have expressed an interest in examining whether
the cellular industry should be more closely regulated by such states.
COMPETITION
The Company's only facilities-based competitor for cellular telephone
service in each market is the licensee of the second cellular system in that
market. Competition for customers between the two systems in each market is
principally on the basis of quality of service, price, size of area covered,
services offered, and responsiveness of customer service. The competing entities
in many of the markets in which the Company has an interest have financial
resources which are substantially greater than those of the Company and its
partners in such markets.
The FCC's rules require all operational cellular systems to provide, on a
nondiscriminatory basis, cellular service to resellers which purchase blocks of
mobile telephone numbers from an operational system and then resell them to the
public.
In addition to competition from the other cellular licensee in each market,
there is also competition from, among other technologies, conventional mobile
telephone and SMR systems, both of which are able to connect with the landline
telephone network. The Company believes that conventional mobile telephone
systems and conventional SMR systems are competitively disadvantaged because of
technological limitations on the capacity of such systems. The FCC has recently
given approval, via waivers of its rules, to ESMR, an enhanced SMR system. ESMR
systems may have cells and frequency reuse like cellular, thereby potentially
eliminating any current technological limitation. The first ESMR systems were
implemented in 1993 in Los Angeles. Although less directly a substitute for
cellular service, wireless data services and one-way paging service (and in the
future, two-way paging services) may be adequate for those who do not need full
two-way voice service.
Continuing technological advances in the communications field make it
impossible to predict the extent of additional future competition for cellular
systems. For example, the FCC has allocated radio channels to a mobile satellite
system in which transmissions from mobile units to satellites would augment or
replace transmissions to cell sites, and a consortium to provide such service
has been formed. Such a system is designed primarily to serve the communications
needs of remote locations and a mobile satellite system could provide viable
competition for land-based cellular systems in such areas. It is also possible
that the FCC may in the future assign additional frequencies to cellular
telephone service to provide for more than two cellular telephone systems per
market.
CT-2, second generation cordless telephones, and PCS, personal
communications network services, may prove to be competitive with cellular
service in the future. CT-2 will allow a customer to make a call from a personal
phone as long as the person is within range of a telepoint base station which
connects the call to the public switched telephone network. PCS will be digital,
wireless communications systems which currently are primarily targeted for use
in very densely populated areas. Various CT-2 and PCS trials are in process
throughout the United States. CT-2 and PCS are not anticipated to be significant
sources of competition in the Company's markets in the near future. Similar
technological advances or regulatory changes in the future may make available
other alternatives to cellular service, thereby creating additional sources of
competition.
EMPLOYEES
The Company had 1,785 employees as of February 28, 1994. Of these, 1,491
were based at the various cellular markets operated or managed by the Company
with only 294 based at its corporate office in Chicago, Illinois. None of the
Company's employees is represented by a labor organization. The Company
considers its relationship with its employees to be good.
20
- --------------------------------------------------------------------------------
ITEM 2. PROPERTIES
The property for mobile telephone switching offices and cell sites are
either owned or leased under long-term leases by the Company, one of its
subsidiaries or the partnership or corporation which holds the construction
permit or license. The Company has not experienced major problems with obtaining
zoning approval for cell sites or operating facilities and does not anticipate
any such problems in the future which are or will be material to the Company and
its subsidiaries as a whole. The Company's investment in property is small
compared to its investment in licenses and equipment.
The Company leases approximately 39,000 square feet of office space for its
headquarters in Chicago, Illinois.
The Company considers the properties owned or leased by it and its
subsidiaries to be suitable and adequate for their respective business
operations.
- --------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings before the FCC and
various state and federal courts. In some cases, the litigation involves
disputes regarding rights to certain cellular telephone markets. The more
significant proceedings affecting the Company are described in the following
paragraphs.
LA STAR APPLICATION. Star Cellular Telephone Company, Inc. ("Star
Cellular"), an indirect, wholly owned subsidiary of the Company, is a 49% owner
of La Star Cellular Telephone Company ("La Star"), an applicant for a
construction permit for a cellular system in St. Tammany Parish in the New
Orleans MSA. In June 1992, the FCC affirmed an Administrative Law Judge's order
which had granted the mutually exclusive application of New Orleans CGSA, Inc.
("NOCGSA") and dismissed La Star's application. The ground for the FCC's action
was its finding that Star Cellular, and not the 51% owner, SJI Cellular, Inc.
("SJI"), in fact controlled La Star. La Star, TDS and the Company have appealed
that order to the United States Court of Appeals of the District of Columbia
Circuit and those appeals are pending.
In a footnote to its decision, the FCC stated, in part, that "Questions
regarding the conduct of SJI and [the Company] in this case may be revisited in
light of the relevant findings and conclusions here in future proceedings where
the other interests of these parties have decisional significance." Certain
adverse parties have attempted to use the footnote in the LA STAR decision in a
number of unrelated, contested proceedings which TDS and the Company have
pending before the FCC. In addition, since the LA STAR proceeding, FCC
authorizations in uncontested FCC proceedings have been granted subject to any
subsequent action the FCC may take concerning the LA STAR footnote.
On February 1, 1994, in a proceeding involving a license originally issued
to TDS for a rural service area in Wisconsin, the FCC instituted a hearing to
determine whether in the La Star case the Company had misrepresented facts to,
lacked candor in its dealings with or attempted to mislead the FCC and, if so,
whether TDS possesses the requisite character qualifications to hold that
Wisconsin license. The FCC stated that, pending resolution of the issues in the
Wisconsin proceeding, further grants to TDS and its subsidiaries will be
conditioned on the outcome of that proceeding. TDS was granted interim authority
to continue to operate the Wisconsin system pending completion of the hearing.
An adverse finding in the Wisconsin hearing could result in a variety of
possible sanctions, ranging from a fine to loss of the Wisconsin license, and
could, as stated in the FCC order, be raised and considered in other proceedings
involving TDS and its subsidiaries. TDS and the Company believe they acted
properly in connection with the La Star application and that the findings and
record in the La Star proceeding are not relevant in any other proceeding
involving their FCC license qualifications.
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 the
21
Company as defendants. Plaintiff Townes alleges that it entered into an oral
agreement with defendants which established a joint venture to develop cellular
business in certain markets. Townes alleges that defendants 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 seeks unspecified damages not to exceed
$33 million for usurpation, breach of fiduciary duty, civil conspiracy, breach
of contract and tortious interference. Townes also seeks imposition of a
constructive 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 seeks reasonable attorneys' fees equal to one-third of the
judgment, along with the prejudgment interest. Plaintiffs Tatum Telephone and
Tatum Cellular seek 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 shareholders' agreement. Tatum Telephone
and Tatum Cellular seek to void the transfers. All plaintiffs together seek as
much as $200 million in punitive damages.
Defendants have asserted meritorious defenses to each of the plaintiffs'
claims and are vigorously defending this case. Discovery is ongoing. A jury
trial in this case is set to commence on April 25, 1994.
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of securities holders during the fourth
quarter of 1993.
22
- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated by reference from Exhibit 13, Annual Report section entitled
"United States Cellular Stock and Dividend Information."
- --------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from Exhibit 13, Annual Report section entitled
"Selected Consolidated Financial Data," except for ratios of earnings to fixed
charges, which are incorporated herein by reference from Exhibit 12 to this
Annual Report on Form 10-K.
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated by reference from Exhibit 13, Annual Report section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from Exhibit 13, Annual Report sections entitled
"Consolidated Statements of Operations," "Consolidated Statements of Cash
Flows," "Consolidated Balance Sheets," "Consolidated Statements of Changes in
Common Shareholders' Equity," "Notes to Consolidated Financial Statements,"
"Report of Independent Public Accountants," and "Consolidated Quarterly Income
Information (Unaudited)."
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from Proxy Statement sections entitled "Election
of Directors" and "Executive Officers."
- --------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from Proxy Statement section entitled "Executive
Compensation," except for the information specified in Item 402(a)(8) of
Regulation S-K under the Securities Exchange Act of 1934, as amended.
- --------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from Proxy Statement section entitled "Security
Ownership of Certain Beneficial Owners and Management."
- --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Proxy Statement section entitled "Certain
Relationships and Related Transactions."
24
- --------------------------------------------------------------------------------
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a)(1) Financial Statements
Consolidated Statements of Operations.................................... Annual Report*
Consolidated Balance Sheets.............................................. Annual Report*
Consolidated Statements of Cash Flows.................................... Annual Report*
Consolidated Statements of Changes in Common Shareholders' Equity........ Annual Report*
Notes to Consolidated Financial Statements............................... Annual Report*
Report of Independent Public Accountants................................. Annual Report*
Consolidated Quarterly Income Information (Unaudited).................... Annual Report*
- ----------
* Incorporated by reference from Exhibit 13.
LOCATION
----------
(2) Schedules
Report of Independent Public Accountants on Financial Statement Schedules........................... page 27
II. Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other
Than Related Parties for each of the Three Years in the Period Ended December 31,
1993................................................................................... page 28
IV. Indebtedness of and to Related Parties Not Current for each of the Three Years in the
Period Ended December 31, 1993......................................................... page 29
V. Property, Plant and Equipment for each of the Three Years in the Period Ended December
31, 1993............................................................................... page 30
VI. Reserve for Depreciation for each of the Three Years in the Period Ended December 31,
1993................................................................................... page 33
VIII. Valuation and Qualifying Accounts for each of the Three Years in the Period Ended
December 31, 1993...................................................................... page 36
X. Supplementary Income Statement Information for each of the Three Years in the Period
Ended December 31, 1993................................................................ page 37
Los Angeles SMSA, Nashville/Clarksville MSA and Baton Rouge MSA Limited Partnership
Combined Financial Statements............................................................ page 38
Compilation Report of Independent Public Accountants on Combined Financial Statements.... page 39
Reports of Other Independent Accountants................................................. page 40
Combined Statements of Operations (Unaudited)............................................ page 44
Combined Balance Sheets (Unaudited)...................................................... page 45
Combined Statements of Cash Flows (Unaudited)............................................ page 46
Combined Statements of Changes in Partners' Capital (Unaudited).......................... page 47
Notes to Unaudited Combined Financial Statements......................................... page 48
All other schedules have been omitted because they are not applicable or not
required or because the required information is shown in the financial
statements or notes thereto.
25
(3) Exhibits
The exhibits set forth in the accompanying Index to Exhibits are filed as a
part of this Report. The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an exhibit to this form
pursuant to Item 14(c) of this Report.
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
10.1 Supplemental Benefit Agreement between the Company and H. Donald Nelson.
10.10 Stock Option and Stock Appreciation Rights Plan.
10.11 Summary of 1993 Bonus Program for Senior Corporate Staff of the Comp