SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9712
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UNITED STATES CELLULAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 62-1147325
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8410 West Bryn Mawr, Suite 700, Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 399-8900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x/ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1995
Common Shares, $1 par value 49,935,433 Shares
Series A Common Shares, $1 par value 33,055,877 Shares
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UNITED STATES CELLULAR CORPORATION
3RD QUARTER REPORT ON FORM 10-Q
INDEX
Page No.
Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-14
Consolidated Statements of Operations -
Three Months and Nine Months Ended September 30, 1995
and 1994 15
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 16
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 17-18
Notes to Consolidated Financial Statements 19-22
Part II. Other Information 23
Signatures 24
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PART I. FINANCIAL INFORMATION
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
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Nine Months Ended 9/30/95 Compared to Nine Months Ended 9/30/94
United States Cellular Corporation (the "Company" or "USM") owns, operates and
invests in cellular markets throughout the United States. USM owns or has the
right to acquire both majority and minority interests in 203 cellular markets at
September 30, 1995, representing 24,558,000 population equivalents ("pops"). USM
managed the operations of 149 cellular markets at September 30, 1995. The
Company expects to divest its controlling interests in seven of these markets
and manage the operations of one additional market in the future. In total, USM
expects to manage 143 markets under agreements in place as of September 30,
1995. Interests in the 60 remaining markets are or will be managed by others.
All 60 of these markets were served by operational systems at September 30,
1995. The following table is a summary of the Company's markets and consolidated
operations.
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===============================================================================
UNITED STATES CELLULAR CORPORATION
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At or For the Nine Months Ended
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September 30, September 30,
1995 1994
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Majority-Owned, Managed and
Consolidated Markets: (1)
Population equivalents (in
thousands) (2) 19,911 19,048
Total population (in thousands) 22,210 20,531
Customers 618,000 364,000
Market penetration 2.78% 1.77%
Markets in operation 138 124
Cell sites in service 1,041 686
Average monthly revenue per
customer $ 75 $ 81
Churn rate per month 2.0% 2.2%
Marketing cost per net customer
addition $ 586 $ 676
Minority-Owned and Managed
Markets: (3)
Population equivalents (in
thousands) (2) 522 980
Markets in operation 11 18
Markets to be Managed, Net of
Markets to be Divested: (4)
Population equivalents (in
thousands) (2) 283 1,048
Net Markets to be Acquired
(Divested) -5 4
Total Markets Managed and to be Managed by USM:
Population equivalents (in
thousands) (2) 20,716 21,076
Markets 143 146
Markets Managed by Others: (5)
Population equivalents (in
thousands) (2) 3,842 3,458
Markets in operation 60 62
Total Markets:
Population equivalents (in
thousands) (2) 24,558 24,534
Markets 203 208
===============================================================================
(1) Includes two markets managed by third parties in 1994.
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(2) 1994 Donnelley Marketing Service estimates are used for both periods.
Includes population equivalents relating to interests which are acquirable
in the future.
(3) Includes two markets in 1995 and 1994 where the Company has the right
to acquire an interest but did not own an interest at the respective
dates.
(4) "Markets to be Managed" represents markets which are managed by third
parties until the Company acquires a majority interest in the markets. In
1995, represents the net of one market which will be added to managed
operations and seven markets which are currently majority-owned and
managed and will be divested.
(5) Represents markets in which the Company owns or has the right to acquire a
minority interest and which are managed by others.
The Company's consolidated results of operations include 100% of the revenues
and expenses of the systems serving majority-owned and managed markets plus its
corporate office operations. The September 30, 1995 consolidated results of
operations include 138 markets with a total population of 22.2 million, compared
to 124 markets with a total population of 20.5 million in 1994.
Investment income includes the Company's share of the net income or loss of each
of the minority-owned and managed markets and also includes the Company's share
of the net income or loss of each of those markets managed by others for which
the Company follows the equity method of accounting. USM follows the cost method
of accounting for its remaining interests in markets managed by others. This
information is shown in the table below.
Markets at September 30,
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1995 1994
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Minority-owned and Managed 8 16
Managed by Others - Equity Method 18 16
-- --
Total Markets Included in Investment Income 26 32
== ==
Managed by Others - Cost Method 42 46
== ==
Operating results for the first nine months of 1995 primarily reflect
improvement in the Company's more established markets as well as the acquisition
of majority interests in 27 operational markets and the divestiture of 13
markets since September 30, 1994. Operating revenues, driven primarily by
increases in customers served, rose $118.6 million, or 50%. Operating expenses
rose $97.4 million, or 44%. Operating cash flow increased $38.4 million, or 61%.
Investment and other income increased $85.6 million, due primarily to gains on
the sales of cellular and other investments totaling $77.7 million and an
increase in investment income. Investment income increased $7.7 million in 1995,
mostly due to improved results in markets managed by others. Interest expense
increased $6.2 million primarily as a result of a 32% increase in average debt
balances. Net income totaled $79.9 million in 1995 compared to $15.2 million in
1994, reflecting gains on the sale of cellular interests, improved operating
results, increased investment income and increased interest expense. On a
comparable basis, excluding the effect of the 1995 gains on sales of cellular
and other investments (net of tax), net income increased to $30.8 million in
1995 compared to $15.2 million in 1994.
The Company expects to divest a net of five markets from consolidated operations
by mid- 1996, through the acquisition of majority interests in two operational
markets and the divestiture of seven markets currently majority-owned and
managed by the Company. Of the two majority
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interests to be acquired, both are expected to be acquired by mid-1996 and the
Company currently manages one of the markets.
Management anticipates that the seasonality of revenue streams and operating
expenses may continue to affect the Company's operating and net results on a
quarterly basis.
Operating Revenues
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Operating revenues totaled $355.4 million in 1995, up $118.6 million, or 50%,
over 1994. Market acquisitions increased operating revenues $30.3 million, or
13%, in 1995.
Service revenues primarily consist of: (i) charges for access, airtime and
value-added services provided to the Company's local retail customers who use
the local systems operated by the Company; (ii) charges to customers of other
systems who use the Company's cellular systems when roaming ("inbound roaming");
and (iii) charges for long-distance calls made on the Company's systems. Service
revenues totaled $344.5 million in 1995, up $117.4 million, or 52%, over 1994.
The increase was primarily due to the growing number of local retail customers
and the growth in inbound roaming revenue. Acquisitions increased service
revenues $29.3 million, or 13%, in 1995. Average monthly service revenue per
customer totaled $75 in 1995 compared to $81 in 1994. The 8% decrease in average
monthly service revenue per customer in 1995 was primarily a result of the
decline in average local minutes of use per retail customer and a decrease in
per customer inbound roaming revenue. Management anticipates that average
monthly service revenue per customer will continue to decrease as local minutes
of use per customer declines and as the growth rate of the Company's customer
base exceeds the growth rate of inbound roaming revenue.
Revenue from local customers' usage of USM's systems increased $74.0 million, or
55%, in 1995. Growth in the number of customers in the systems serving the
Company's consolidated markets was the primary reason for the increase in local
revenue. The number of customers increased 70% to 618,000 at September 30, 1995
from 364,000 at September 30, 1994. Excluding the effect of acquisitions and
dispositions, the Company's consolidated markets added 215,000 customers since
September 30, 1994. Of these additions, 147,000 were in markets in service and
consolidated at September 30, 1994, representing a 40% increase over the 364,000
customers served at that date. While the percentage increase is expected to be
lower in future periods, management anticipates that the total number of net
customer additions will increase. Acquisitions increased local revenue $17.0
million, or 13%, in 1995.
Average monthly retail revenue per customer declined to $45 in 1995 from $48 in
1994. Monthly local minutes of use per customer averaged 93 in 1995 compared to
97 in 1994. This decline in average local minutes of use follows an
industry-wide trend and is believed to be related to the tendency of the early
customers in a market to be the heaviest users. It also reflects the Company's
and the industry's continued penetration of the consumer market, which tends to
include more lower-usage customers.
Inbound roaming revenue increased $34.0 million, or 45%, in 1995. This increase
was attributable to the rise in the number of customers from other systems using
the Company's systems when roaming. Also contributing were the increased number
of Company-managed systems and cell sites within those systems. Monthly inbound
roaming revenue per customer averaged $24 in 1995 and $27 in 1994. Acquisitions
increased inbound roaming revenue $10.2 million, or 14%, in 1995.
Long-distance revenue increased $8.4 million, or 51%, in 1995 as the volume of
long-distance calls billed by the Company increased. Monthly long-distance
revenue per customer averaged
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$5 in 1995 compared to $6 in 1994. Acquisitions increased long-distance revenue
$2.2 million, or 14%, in 1995.
Equipment sales revenues totaled $11.0 million in 1995, up $1.2 million, or 13%,
over 1994. Equipment sales reflect the sale of 191,900 and 98,200 cellular
telephone units in 1995 and 1994, respectively, plus installation and
accessories revenue. The average revenue per unit was $57 in 1995 compared to
$99 in 1994. The average revenue per unit decline partially reflects the
Company's decision to reduce sales prices on cellular telephones to increase the
number of customers, to maintain its market position and to meet competitive
prices as well as to reflect reduced manufacturers' prices. Acquisitions
increased equipment sales revenues $937,000, or 10%, in 1995.
Operating Expenses
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Operating expenses totaled $318.6 million in 1995, up $97.4 million, or 44%,
over 1994. Market acquisitions increased expenses $23.9 million, or 11%, in
1995.
System operations expenses increased $18.5 million, or 55%, in 1995 as a result
of increases in customer usage expenses and costs associated with operating the
Company's increased number of cellular systems as well as the growing number of
cell sites within those systems. Costs are expected to continue to increase as
the number of cell sites within the Company's systems grows. Customer usage
expenses represent charges from landline telecommunications service providers
for USM's customers' use of their facilities as well as for the Company's
inbound roaming traffic on these facilities, offset somewhat by pass-through
roaming revenue. These expenses also include local interconnection to the
landline network, toll charges and roaming expenses from the Company's
customers' use of systems other than their local systems. Customer usage
expenses were $25.5 million in 1995 compared to $14.8 million in 1994; these
expenses represented 7% of service revenues in 1995 and 6% in 1994. Maintenance,
utility and cell site expenses grew $7.8 million, or 41%, in 1995, primarily
reflecting an increase in the number of cell sites in the systems serving all
majority-owned and managed markets, from 686 in 1994 to 1,041 in 1995.
Acquisitions increased system operations expenses $5.3 million, or 16%, in 1995.
Marketing and selling expenses increased $23.1 million, or 50%, in 1995.
Marketing and selling expenses primarily consist of salaries, commissions and
expenses of field sales and retail personnel and offices, agent commissions,
promotional expenses, local advertising and public relations expenses. The 1995
increase was primarily due to a 68% rise in the number of gross customer
activations (excluding acquisitions and divestitures), to 259,000 in the first
nine months of 1995 from 154,000 in 1994. Cost per gross customer addition
decreased 8% to $373 in 1995 from $404 in 1994. Excluding acquisitions and
divestitures, the Company added 165,000 net new customers in 1995 compared to
92,000 in 1994, a 79% increase. The churn rate decreased to 2.0% for the first
nine months of 1995 from 2.2% in 1994. Acquisitions increased marketing and
selling expenses $4.7 million, or 10%, in 1995.
Cost of equipment sold increased $12.5 million, or 49%, in 1995. The increase
reflects the growth in unit sales related to the rise in gross customer
activations made through the Company's direct and retail distribution channels,
offset somewhat by falling manufacturer prices per unit. The average cost to the
Company of a telephone unit sold, including accessories and installation, was
$200 in 1995 compared to $263 in 1994. Acquisitions increased cost of goods sold
$3.8 million, or 15%, in 1995.
General and administrative expenses increased $26.0 million, or 38%, in 1995.
These expenses include the costs of operating the Company's local business
offices and its corporate
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expenses. This increase includes the effects of an increase in the number of
consolidated markets, an increase in expenses required to serve the growing
customer base in existing markets and an expansion of both local administrative
office and corporate staff, necessitated by growth in the Company's business and
the acquisition of additional operations. The Company is using an ongoing
clustering strategy to combine local operations wherever feasible in order to
gain operational efficiencies and reduce its administrative expenses.
Acquisitions increased direct field-related general and administrative expenses
$6.3 million, or 9%, in 1995.
Depreciation expense increased $12.4 million, or 44%, in 1995, reflecting an
increase in the average fixed asset balance of 53% since the third quarter of
1994. Acquisitions increased depreciation expense $2.5 million, or 9%, in 1995.
Amortization of intangibles increased $4.8 million, or 25%, in 1995, due both to
a $1.8 million increase in amortization of capitalized information system costs
as well as an increase in license costs as a result of the acquisition of or the
commencement of service in 27 markets since September 30, 1994. License costs
related to consolidated markets increased $26.2 million, or 3%, since September
30, 1994. Acquisitions increased amortization of intangibles $1.4 million, or
7%, in 1995.
Operating Income before Minority Share
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Operating income before minority share totaled $36.9 million in 1995 compared to
$15.6 million in 1994. The operating margin (as a percent of service revenues)
improved to 11% in 1995 from 7% in 1994. The increase in operating income
reflects improved results in the more established markets and increased revenues
resulting from growth in the number of customers served by the Company's
systems, partially offset by costs associated with the growth of the Company's
operations and increased losses on equipment sales. Acquisitions increased
operating income before minority share $6.3 million, or 40%, in 1995.
The Company expects service revenues to continue to grow during the remainder of
1995 and in 1996 as it adds customers and cell sites to its existing systems,
realizes a full year of revenues from customers and cell sites added in 1994 and
1995, and completes acquisitions of operational systems. Additionally, the
Company expects expenses to increase significantly during the remainder of 1995
and in 1996 as it incurs costs for markets and cell sites added in 1994 and
1995, incurs costs associated with customer and system growth and acquires
additional markets. Management believes there exists a seasonality in both
service revenues, which tend to increase more slowly in the first and fourth
quarters, and operating expenses, which tend to be higher in the fourth quarter
due to increased marketing activities and customer growth, which may cause
operating income to vary from quarter to quarter.
Investment and Other Income
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Investment and other income totaled $107.4 million in 1995 and $21.7 million in
1994. Investment income was $28.6 million in 1995, a $7.7 million, or 37%,
increase over 1994, due to improved results in markets managed by others
accounted for by the equity method. The Company's share of the income or loss
from these markets totaled $28.0 million in 1995 compared to $20.5 million in
1994. There were 18 such markets in 1995 and 16 in 1994. The Company's share of
income from minority-owned markets it manages totaled $605,000 in 1995 compared
to $402,000 in 1994. There were eight such markets in 1995 and 16 in 1994.
Gain on sale of cellular and other investments of $77.7 million in 1995 reflects
the sales of the Company's majority interests in five markets, which generated
gains totaling $66.2 million, sales
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of its investment interests in four other markets, which produced aggregate
gains of $9.0 million and sales of its investment in equity securities, which
produced a gain of $2.5 million.
Interest and Income Taxes
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Interest expense increased $6.2 million, or 41%, in 1995, on a 32% increase in
the average amount of debt outstanding. Interest expense is primarily related to
borrowings under the Revolving Credit Agreement with TDS, Liquid Yield OptionTM
Notes ("LYONsTM") (TM Trademark of Merrill Lynch & Co., Inc.) and borrowings
under a vendor financing agreement. The interest rate for borrowings under the
Revolving Credit Agreement for both periods was equal to prime plus 1.5%.
Borrowings under the Revolving Credit Agreement have been used to finance system
construction and working capital requirements, investments in and advances to
entities in which the Company has a minority interest, and acquisitions of
cellular interests. Interest expense relating to the Revolving Credit Agreement
was $10.4 million in 1995 and $12.0 million in 1994. The average amount of debt
outstanding under the Revolving Credit Agreement was $130.0 million in the first
nine months of 1995 and $192.9 million in the first nine months of 1994. The
average interest rate on such debt was 10.6% in 1995 and 8.3% in 1994.
The Company sold $745 million principal amount at maturity of zero coupon
convertible debt in June 1995. This 20-year fixed rate debt is in the form of
LYONs and is subordinated to all senior indebtedness of the Company. See
"Financial Resources and Liquidity -- Liquidity." LYONs accrued interest at 6%
per year, with the accrued interest being added to the principal balance on June
15 and December 15 of each year until maturity. All LYONs originally issued have
remained outstanding since their issue date. Interest expense relating to the
LYONs was $3.4 million in 1995.
The Company has borrowings outstanding under a financing agreement with an
equipment vendor entered into in 1994. All borrowings under the vendor financing
agreement were used to finance certain of USM's equipment purchases and
construction costs. Interest expense related to the vendor financing agreement
was $7.3 million in 1995 and $2.9 million in 1994. The average amount of debt
outstanding under the vendor financing agreement was $109.6 million in the first
nine months of 1995 and $58.1 million in 1994. The average interest rate on such
debt was 8.9% in 1995 and 6.6% in 1994.
Continued capital expenditures and investments in and advances to entities in
which the Company has a minority interest may require additional funding over
the next few years. Such funding requirements are anticipated to be at least
partially met through additional debt, which will likely result in increased
interest expense as debt balances increase. Additional borrowings also may be
required to fund any future acquisitions and their construction and operations.
See "Financial Resources and Liquidity."
Income tax expense was $37.4 million in 1995 and $3.5 million in 1994. Income
tax expense includes the federal income taxes of majority-owned and managed
subsidiaries not included in the TDS consolidated federal income tax return.
State income tax expense in 1995 and 1994 was primarily related to subsidiaries
generating taxable income after utilization of state net operating losses. Also
in 1995, $28.5 million of income tax expense related to the gains on sales of
cellular and other investments. USM is included in a consolidated federal income
tax return with other members of the TDS consolidated group. TDS and USM are
parties to a Tax Allocation Agreement under which USM is able to carry forward
its losses and credits and use them to offset any current or future income tax
liabilities to TDS. The amount of the federal net operating loss carryforward
available to offset future taxable income aggregated approximately $165 million
at December 31, 1994, and expires between 2002 and 2009. The amount of the state
net operating loss carryforward available to offset future taxable income
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aggregated approximately $227 million at December 31, 1994, and expires between
1998 and 2009. Both the federal and state loss carryforwards have been
significantly reduced by the gain on sale of cellular and other investments
during the first nine months of 1995.
Net Income (Loss)
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Net income totaled $79.9 million in 1995 compared to $15.2 million in 1994. The
1995 improvement resulted from gains on the sales of cellular interests,
improved operating results in the established markets and increased investment
income, partially offset by increased income tax expense. Earnings per share was
$.95 in 1995 compared to $.19 in 1994, reflecting both the improvement in net
income and the increase in weighted average Common and Series A Common Shares
outstanding. Weighted average number of Common and Series A Common Shares
outstanding for the first nine months of 1995 increased 5% over the shares
outstanding for 1994 primarily as a result of Common Shares issued in connection
with acquisitions. On a comparable basis, excluding the effect of the 1995 gains
on sales of cellular and other investments (net of tax), net income increased to
$30.8 million in 1995 from $15.2 million in 1994 and earnings per share
increased to $.37 in 1995 from $.19 in 1994.
TDS owned an aggregate of 67,052,931 shares of common stock of the Company at
September 30, 1995, representing 80.8% of the combined total of the Company's
outstanding Common and Series A Common Shares and 95.8% of their combined voting
power. Assuming the Company's Common Shares are issued in all instances in which
the Company has the choice to issue its Common Shares or other consideration and
assuming all issuances of the Company's common stock to TDS and third parties
for completed and pending acquisitions and redemptions of the Company's
Preferred Stock and TDS's Preferred Shares had been completed at September 30,
1995, TDS would have owned 80.1% of the total outstanding common stock of the
Company and controlled 95.6% of the combined voting power of both classes of its
common stock.
Three Months Ended 9/30/95 Compared to Three Months Ended 9/30/94
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Operating revenues totaled $138.6 million in the third quarter of 1995, up $48.6
million, or 54%, over 1994. As the number of customers and amount of revenue
earned continued to grow, local minutes of use per customer continued to
decline. Average monthly local minutes of use totaled 97 in the third quarter of
1995 compared to 99 in 1994. Average monthly service revenue per customer
decreased 8% to $77 in the third quarter of 1995 compared to $83 in 1994 for
reasons generally the same as the first nine months of 1995. Revenues from local
customers' usage of USM's systems increased $30.8 million, or 63%, in 1995
primarily due to the increased number of customers served. Average monthly local
retail revenue per customer declined 3% to $46 in the third quarter of 1995
compared to $47 in 1994. Inbound roaming revenue increased $14.1 million, or
47%, in 1995 due to the increased number of other carriers' customers using the
Company's systems and the growth in the number of cell sites in those systems.
Monthly inbound roaming revenue per customer averaged $25 in 1995 and $29 in
1994. Long-distance revenue increased $3.6 million, or 54%, in 1995 as the
volume of long-distance calls billed by the Company increased. Equipment sales
revenue reflects sales of 72,500 cellular telephones in 1995 compared to 35,100
in 1994. The average revenue per unit sold was $55 in 1995 and $93 in 1994.
Operating expenses totaled $120.6 million in the third quarter of 1995, up $41.8
million, or 53%, over 1994 for reasons generally the same as the first nine
months of 1995.
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Operating income before minority share totaled $18.0 million in 1995 compared to
$11.1 million in 1994. The operating income margin remained at 13% in 1995, the
same as in 1994. The improvement in operating income was primarily the result of
increased revenues and cost efficiencies, partially offset by the costs
associated with the growth of the Company's operations and the addition of new
markets.
Investment income increased $1.6 million, or 18%, in 1995 due to improved
results in markets managed by others accounted for by the equity method. Gain on
sale of cellular and other investments totaled $42.3 million in 1995, resulting
from the sale of the Company's 100% interests in two markets during the quarter.
Income tax expense totaled $30.9 million in 1995 compared to $2.2 million in
1994. The increase was primarily the result of the taxes generated by the above
gains.
Net income totaled $32.3 million in 1995 compared to $10.8 million in 1994.
Earnings per share was $.38 in 1995 and $.13 in 1994. Weighted average common
shares outstanding increased 5% in 1995. On a comparable basis, excluding the
effect of the 1995 gains on sales of cellular and other investments (net of
tax), net income increased to $15.5 million in 1995 from $10.8 million in 1994
and earnings per share increased to $.18 in 1995 from $.13 in 1994.
FINANCIAL RESOURCES AND LIQUIDITY
The Company operates a capital- and marketing-intensive business. Rapid growth
in markets operated by the Company, capital expenditures and customers served
has caused financing requirements for acquisitions, construction and operations
to exceed internally generated cash flow. The Company requires capital to fund
construction and operating expenses of the cellular systems it operates, to fund
investments in minority partnership interests in other cellular markets, to pay
principal and interest on its outstanding debt and to complete acquisitions in
process. The Company has only recently achieved profitability and has previously
incurred significant start-up costs and operating losses. The Company
anticipates increasing growth in cellular units in service and revenues as it
continues its expansion and development programs. Marketing and system
operations expenses associated with this expansion will most likely reduce the
rate of growth in operating cash flow and operating income over the next several
quarters. The Company has obtained substantial funds from external sources
during the past several years.
Cash flows from operating activities provided $80.9 million in 1995 and $57.6
million in 1994. Operating cash flow (operating income before minority share
plus depreciation and amortization) provided cash totaling $101.2 million in
1995 and $62.7 million in 1994. The 1995 increase in operating cash flow
primarily reflects improvement in the more established markets. The change in
deferred taxes in the nine months ended September 30, 1995 was primarily due to
the gain on the sale of cellular and other investments. Acquisitions and
increased operating cash flow $10.2 million, or 16%, in 1995. Cash flows from
other operating activities (investment and other income, interest expense,
changes in working capital and changes in other assets and liabilities) required
cash investments totaling $20.3 million in 1995 and $5.1 million in 1994.
Cash flows from financing activities provided $20.9 million in 1995 and $83.4
million in 1994. Cash flows from financing activities include cash flows from
the sale of LYONs, borrowings under the Revolving Credit Agreement with TDS and
vendor financing transactions. In 1995, the sale of LYONs provided cash totaling
$221.5 million and vendor financing transactions provided $58.7 million. These
were offset by repayments of amounts owed under the Revolving Credit Agreement
with TDS totaling $249.9 million and amounts owed under the vendor financing
agreement totaling $10.5 million. Borrowings under the Revolving Credit
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Agreement with TDS totaling $82.4 million provided a majority of the Company's
external financing requirements in 1994.
Cash flows from investing activities required cash investments totaling $48.6
million in 1995 and $129.3 million in 1994. Such cash requirements primarily
consisted of cash additions to property, plant, and equipment and cash
requirements for acquisitions and for investments in cellular markets. In 1995,
the Company received cash proceeds totaling $141.4 million relating to the sales
of cellular interests in nine markets and the sale of equity securities. Cash
expenditures for property, plant and equipment totaled $158.1 million in 1995
(of which $1.3 million relates to 1994 additions), representing the construction
of 211 cell sites and other plant additions. Cash expenditures for property,
plant and equipment totaled $108.2 million in 1994 (of which $6.5 million
relates to 1993 additions), representing the construction of 137 cell sites and
other plant additions.
Anticipated capital requirements for 1995 reflect the Company's construction and
system expansion program, funding of working capital needs, investments in
entities in which the Company has a minority interest, scheduled debt repayments
and pending acquisitions. The Company's consolidated construction budget for
1995 is approximately $180 million, consisting primarily of new cell sites to
expand and enhance the Company's coverage in its service areas.
The Company continued to expand its operations through acquisitions during the
first nine months of 1995, completing the acquisition of controlling interests
in ten markets and several additional minority interests. During the first nine
months of 1994, the Company completed the acquisition of controlling interests
in ten markets and several additional minority interests. Some of the markets
acquired during 1995 and 1994 were subject to acquisition agreements which were
entered into prior to the year in which the acquisitions were completed. The
following table summarizes the consideration issued for these acquisitions.
-11-
<PAGE>
COMPLETED ACQUISITIONS Nine Months Ended September 30,
-------------------------------
1995 1994
-------- --------
(in millions)
Pops Acquired 1.5 1.2
Total Consideration $ 150.6 $ 138.2
Details of Total Consideration:
USM Common Shares
Shares Issued 3.1 4.3
Recorded Cost $ 98.5 $ 131.7
USM Common Shares to be issued in the future (all in 1995)
Shares Issuable 0.5 --
Recorded Cost $ 14.5 $ --
Revolving Credit Agreement - TDS 14.6 .3
Cancellation of Notes Receivable -- 1.4
Cash $ 23.0 $ 4.8
Of the total 1995 and 1994 consideration, the debt under the Revolving Credit
Agreement and the USM Common Shares (except 417,000 shares issued to third
parties in 1995) were issued to TDS to reimburse TDS for TDS Common Shares
issued and issuable and cash paid to third parties in connection with 1995 and
1994 acquisitions. Additionally, the Company had commitments at September 30,
1995, to issue 928,000 Common Shares in 1995 and 1996 related to certain
completed acquisitions. The Company and TDS have the option to deliver TDS
Common Shares and/or cash in lieu of the Company's Common Shares in connection
with certain of these acquisitions.
The Company is continuing to assess the makeup of its cellular holdings in order
to maximize the benefits derived from clustering its markets. As the number of
opportunities for outright acquisitions has decreased over the last one or two
years, and as the Company's clusters have grown to realize greater economies of
scale, the Company's focus has shifted toward exchanges and divestitures of
managed and investment interests. Recently, the Company has completed exchanges
of controlling interests in its less strategic markets for controlling interests
in markets which better complement its clusters. The Company has also completed
outright divestitures of other less strategic markets. The proceeds from these
divestitures have been used to further the Company's growth.
At September 30, 1995, the Company had agreements pending to exchange a
controlling interest in one market, representing 95,000 population equivalents,
for a controlling interest in another market, representing 154,000 population
equivalents. The Company also had an agreement pending to acquire a controlling
interest in one market, representing 283,000 population equivalents. In
addition, the Company had agreements pending to divest controlling interests in
six other markets and one market partition, representing 612,000 population
equivalents, and to settle litigation related to an investment interest which
was divested earlier in 1995. If these divestitures and the litigation
settlement are completed as planned, the Company will receive cash consideration
totaling approximately $104.7 million.
-12-
<PAGE>
The Company will continue to seek to maximize the benefits of its clustering
strategy, by exchanging markets which are less strategic for markets which add
to its current clusters, by acquiring markets which enhance its clusters and by
divesting other less strategic markets for cash. All of the pending exchange,
acquisition, divestiture and litigation settlement agreements discussed above
are expected to be completed by mid-1996. Certain of the divestitures and the
litigation settlement are expected to generate substantial gains for book and
tax purposes.
Liquidity
- ---------
The Company anticipates that the aggregate resources required for the remainder
of 1995 will include approximately: (i) $25 million for capital spending and
(ii) $2 million of scheduled debt repayments. Not included in the above amounts
are resources that may be required for acquisitions signed during the fourth
quarter of 1995. These potential acquisitions may require funding during the
quarter.
At September 30, 1995, the Company had $59 million of cash and cash equivalents
and affiliated cash investments and $100 million available under the Revolving
Credit Agreement with TDS. Additionally, the Company anticipates generating
additional amounts of positive cash flows from operating activities during the
remainder of 1995.
The Company sold $745 million principal amount at maturity of zero coupon
convertible debt in June 1995. This 20-year fixed rate debt, in the form of
LYONs, is subordinated to all senior indebtedness of the Company. The issue
price of each LYON was $306.46 for each $1,000 principal amount at maturity,
which represents a yield to maturity of 6%. Each LYON is convertible at the
option of the holder at any time on or prior to maturity at a conversion rate of
9.475 Common Shares per LYON. Upon conversion, USM may elect the delivery of its
Common Shares or cash equal to the market value of the Common Shares into which
the LYONs are convertible. Beginning five years after the date of issue, the
LYONs may be redeemed at any time for cash at the option of the Company at
redemption prices equal to the issue price plus accrued original issue discount
through the date of redemption. On the fifth anniversary of the issue date, USM
will purchase LYONs at the option of the holder at the issue price plus accrued
original issue discount through that date. At that time, USM will have the
option of purchasing such LYONs with cash, USM Common Shares or TDS common
equity securities, or any combination thereof.
Most of the net proceeds to the Company of approximately $221 million from the
sale of the LYONs were used to completely repay debt to TDS under the Revolving
Credit Agreement, and the excess proceeds were used for general corporate
purposes. In connection with the sale of the LYONs, on June 29, 1995, the
Company and TDS amended the Revolving Credit Agreement to reduce the available
line of credit thereunder to $100 million and to reduce the interest rate for
borrowings to prime plus 0.75%.
-13-
<PAGE>
The advances made by TDS under the Revolving Credit Agreement are unsecured.
Interest on the balance due under the Revolving Credit Agreement is payable
quarterly and no principal is payable until January 2, 1998, subject to
acceleration under certain circumstances, at which time the entire principal
balance then outstanding is scheduled to become due and payable. The Company may
prepay the balance due under the Revolving Credit Agreement at any time, in
whole or in part, without premium. No borrowings were outstanding under the
Revolving Credit Agreement at September 30, 1995.
The Company's vendor financing agreement was entered into in 1994. This
agreement is an amendment and restatement of a similar 1991 agreement with the
same equipment vendor under which the Company had previous borrowings
outstanding. In addition to the amounts previously borrowed under the 1991
agreement, the Company has new borrowings outstanding as of September 30, 1995
under the 1994 agreement. Borrowings under the 1991 agreement bear interest at a
rate of 2.307% over the 90-day Commercial Paper Rate of high-grade, unsecured
notes (for a rate of 8.1% at September 30, 1995). Borrowings under the 1994
agreement bear interest at a rate of 2.25% over the 90-day Commercial Paper Rate
of high-grade, unsecured notes (for a rate of 8.1% at September 30, 1995).
Borrowings totaling $121.2 million were outstanding under the vendor financing
agreement at September 30, 1995.
The Company anticipates that it may require funding to acquire cellular markets
and build and operate cellular systems in the future. The timing and amount of
such funding requirements will depend on the timing of the completion of any
future acquisitions, the number of additional licenses acquired by the Company,
the construction and operational plans for the individual cellular projects and
other relevant factors. The Company may need to raise additional capital to meet
these requirements. These additional requirements may be met through internally
generated funds, borrowings from TDS, the issuance of additional equity or debt
securities, vendor financing, bank financing, the sale of assets or a
combination of the above. There can be no assurance that sufficient funds will
be made available to the Company on terms or at prices acceptable to the
Company. If sufficient funding is not made available to the Company on terms and
prices acceptable to the Company, the Company may have to reduce its
construction, development and acquisition programs. In the long term, reduction
of these programs may have a negative impact on the ability of the Company to
increase its consolidated revenues and cash flows.
-14-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
OPERATING REVENUES
Service $ 134,554 $ 86,675 $ 344,454 $ 227,101
Equipment sales 4,013 3,251 10,985 9,715
------- --------- --------- ---------
Total Operating Revenues 138,567 89,926 355,439 236,816
------- --------- --------- ---------
OPERATING EXPENSES
System operations 21,972 12,086 52,413 33,890
Marketing and selling 25,571 16,058 69,204 46,089
Cost of equipment sold 14,356 8,826 38,393 25,847
General and administrative 35,131 25,052 94,271 68,258
Depreciation 15,143 10,050 40,595 28,192
Amortization of intangibles 8,427 6,759 23,680 18,926
------- -------- --------- --------
Total Operating Expenses 120,600 78,831 318,556 221,202
------- -------- --------- --------
OPERATING INCOME BEFORE
MINORITY SHARE 17,967 11,095 36,883 15,614
Minority share of
operating income (1,950) (1,366) (5,713) (3,680)
------- -------- --------- --------
OPERATING INCOME 16,017 9,729 31,170 11,934
------- -------- --------- --------
INVESTMENT AND OTHER INCOME
Investment income 10,196 8,609 28,641 20,938
Amortization of licenses and
deferred costs related to
investments (299) (195) (792) (682)
Interest income 1,266 1,168 3,318 2,474
Other (expense), net (238) (191) (1,468) (991)
Gain on sale of cellular and
other investments 42,301 -- 77,660 --
------- ------- --------- -------
Total Investment and
Other Income 53,226 9,391 107,359 21,739
------- ------- --------- --------
INCOME BEFORE INTEREST
AND INCOME TAXES 69,243 19,120 138,529 33,673
Interest expense - affiliate 39 5,015 10,366 11,989
Interest expense - other 6,045 1,065 10,814 2,998
------- ------ --------- --------
INCOME BEFORE INCOME TAXES 63,159 13,040 117,349 18,686
Income tax expense 30,896 2,244 37,399 3,535
------- ------- --------- --------
NET INCOME $ 32,263 $ 10,796 $ 79,950 $ 15,151
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
AND SERIES A COMMON
SHARES (000s) 84,561 80,294 83,846 79,493
EARNINGS PER COMMON
AND SERIES A COMMON SHARE $ .38 $ .13 $ .95 $ .19
========= ========= ========= =========
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-15-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine Months Ended
September 30,
---------------------
1995 1994
-----------------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 79,950 $ 15,151
Add (Deduct) adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 65,067 47,800
Deferred taxes 21,876 1,682
Investment income (28,641) (20,938)
Gain on sale of cellular and other investments (77,660) --
Minority share of operating income 5,713 3,680
Other noncash expense 10,236 1,422
Change in accounts receivable (26,720) (13,975)
Change in accounts payable 1,991 4,390
Change in accrued interest 10,120 11,903
Change in accrued taxes 10,235 300
Change in other assets and liabilities 8,693 6,230
--------- ---------
80,860 57,645
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Long term debt borrowings 58,698 --
Change in Convertible Debentures 221,466 --
Repayment of long-term debt (10,480) (8,965)
Change in Revolving Credit Agreement (249,916) 82,360
Common Shares issued 746 673
Minority partner capital (distributions) contributions 372 9,340
--------- ---------
20,886 83,408
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (158,088) (108,193)
Investments in and advances to minority partnerships (7,153) (18,925)
Distributions from partnerships 7,231 11,739
Proceeds from sale of investment 141,387 --
Acquisitions, excluding cash acquired (26,326) (5,254)
Other Investments (5,628) (8,636)
--------- ---------
(48,577) (129,269)
--------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 53,169 11,784
CASH AND CASH EQUIVALENTS-
Beginning of period 5,800 6,274
---------- ---------
End of period $ 58,969 $ 18,058
========== =========
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-16-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, 1995 December 31, 1994
------------------ -----------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 15,646 $ 4,143
Affiliated cash investments 43,323 1,657
Accounts receivable
Customers 44,232 23,609
Roaming 30,156 18,881
Affiliates 2,195 3,549
Other 1,112 3,150
Inventory 5,602 5,435
Prepaid and other current assets 5,963 4,136
---------- ----------
148,229 64,560
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
In service 632,098 464,132
Less accumulated depreciation 131,318 95,951
---------- ----------
500,780 368,181
---------- ----------
INVESTMENTS
Cellu1ar partnerships - equity 109,795 86,215
Cellu1ar partnerships - cost 11,457 13,280
Licenses, net of amortization 1,024,060 947,399
Marketable equity securities -- 20,145
Notes and interest receivable 15,719 14,535
---------- ----------
1,161,031 1,081,574
---------- ----------
DEFERRED CHARGES
Deferred start-up costs, net of amortization 2,208 3,685
Other deferred charges, net of amortization 27,808 16,787
---------- ----------
30,016 20,472
---------- ----------
Total Assets $1,840,056 $1,534,787
========== ==========
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-17-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
September 30, 1995 December 31, 1994
------------------ -----------------
(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt and
preferred stock $ 18,826 $ 20,804
Notes payable 613 637
Accounts payable
Affiliates 5,392 3,662
Other 52,054 49,114
Accrued interest, primarily to affiliates 1 5,880
Accrued taxes 12,644 2,430
Customer deposits and deferred revenues 8,719 5,933
Other current liabilities 17,776 9,913
------------- -----------
116,025 98,373
------------- -----------
REVOLVING CREDIT AGREEMENT - TDS -- 232,954
------------- -----------
LONG-TERM DEBT, excluding current portion 111,943 57,691
------------- -----------
6% ZERO COUPON CONVERTIBLE DEBENTURES 232,308 --
------------- -----------
DEFERRED LIABILITIES AND CREDITS
Income taxes 27,860 5,017
Other 1,680 3,636
------------- -----------
29,540 8,653
------------- -----------
REDEEMABLE PREFERRED STOCK, excluding
current portion -- 9,597
------------- -----------
MINORITY INTEREST 41,549 33,552
------------- -----------
COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1 per share 49,932 45,584
Series A Common Shares, par value $1 per share 33,006 33,006
Additional paid-in capital 1,205,644 1,083,698
Common Shares issuable, 928,009 shares and
802,802 shares, respectively 24,784 16,337
Retained deficit) (4,708) (84,658)
------------- ----------
1,308,691 1,093,967
------------- ----------
Total Liabilities and Shareholders' Equity $ 1,840,056 $ 1,534,787
============= ===========
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-18-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of September 30, 1995 and
December 31, 1994, and the results of operations and cash flows for the
nine months ended September 30, 1995 and 1994. The results of operations
for the nine months ended September 30, 1995 and 1994, are not necessarily
indicative of the results to be expected for the full year.
2. Earnings per Common and Series A Common Share for the nine months ended
September 30, 1995 and 1994, was computed by dividing Net Income by the
weighted average number of Common Shares, Series A Common Shares and
dilutive common equivalent shares outstanding during the period. Dilutive
common stock equivalents at September 30, 1995 and 1994, consist primarily
of dilutive Common Shares issuable and Redeemable Preferred Stock.
3. Certain of the cellular acquisitions closed during 1992 and 1991 require
the Company to deliver Common Shares in the future. The Company is
required to issue Common Shares to TDS and third parties as follows:
Common Shares
Issuable
-------------
1995 749,186
1996 178,823
--------
928,009
========
-19-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Assuming that acquisitions accounted for as purchases during the period
January 1, 1994, to September 30, 1995, had taken place on January 1,
1994, pro forma results of operations would have been as follows:
Nine Months Ended
September 30,
-------------------
1995 1994
---- ----
(Dollars in thousands,
except per share amounts)
Service Revenues $ 363,745 $ 267,770
Equipment Sales 12,221 11,938
Interest Expense (including cost to
finance acquisitions) 21,356 3,824
Net Income (Loss) 63,942 (3,031)
Income (Loss) per Common Share $ .76 $ (.04)
5. The following summarized unaudited income statements are the combined
summarized income statements of the cellular system partnerships listed
below which are among those entities accounted for by the Company
following the equity method. The combined summarized income statements
were compiled from financial statements and other information obtained by
the Company as a limited partner of the cellular limited partnerships as
set forth below. The cellular system partnerships included in the combined
summarized income statements and the Company's ownership percentage of
each cellular system partnership at September 30, 1995, are set forth in
the following table.
The
Company's
Limited
Partnership
Cellular System Partnership Interest
------------------------------------------ --------------
Los Angeles SMSA Limited Partnership 5.5%
Nashville/Clarksville MSA Limited Partnership 49.0%
Baton Rouge MSA Limited Partnership 52.0%
-20-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------- --------- --------- ----------
(Dollars in thousands)
REVENUES $ 191,808 $161,608 $574,576 $460,057
EXPENSES
Selling, general and
administrative 100,643 87,289 292,290 241,572
Depreciation and amortizati 17,584 16,779 49,417 48,140
---------- -------- -------- --------
118,227 104,068 341,707 289,712
---------- -------- -------- --------
OPERATING INCOME 73,581 57,540 232,869 170,345
OTHER INCOME, NET 1,436 1,678 4,557 4,487
---------- -------- -------- -------
NET INCOME $ 75,017 $ 59,218 $237,426 $174,832
========== ======== ======== ========
6. Supplemental Cash Flow Information
The Company acquired certain cellular licenses and interests during the
first nine months of 1995 and 1994. In conjunction with these
acquisitions, the following assets were acquired, liabilities assumed and
Common Shares issued.
Nine Months Ended
September 30,
------------------
1995 1994
---- ----
(Dollars in thousands)
Property, plant and equipment $ 30,852 $ 7,897
Cellular licenses 130,454 136,881
Decrease in equity-method investment
in cellular interests (5,921) (7,077)
Accounts receivable 4,336 1,038
Revolving Credit Agreement - TDS (15,493) (309)
Accounts payable (3,882) (826)
Other assets and liabilities,
excluding cash acquired (969) (583)
Common Shares issued and issuable (113,051) (131,767)
--------- ---------
Decrease in cash due to acquisitions $ 26,326 $ 5,254
========= =========
-21-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes certain noncash transactions, and interest and
income taxes paid.
Nine Months Ended
September 30,
-----------------
1995 1994
---- ----
(Dollars in thousands)
Interest paid $ 2,842 $ 3,010
Income taxes paid 2,547 1,337
Accrued interest converted into debt
under the Revolving Credit Agreement 14,432 12,681
Common Shares issued by USM for Conversion
of USM Preferred Stock and TDS Preferred Shares $22,236 $ 1,497
7. Contingencies
The Company's material contingencies as of September 30, 1995, include the
collectibility of a $5.5 million note receivable under a long-term
financing agreement with a cellular company and a $9.9 million standby
letter of credit in support of a bank loan to an entity minority-owned by
the Company. For further discussion of these contingencies, see Note 13 of
Notes to Consolidated Financial Statements included in the Company's 1994
Report on Form 10-K for the year ended December 31, 1994.
8. Gain on Sale of Cellular Interests
USM sold its majority interest in five markets, its minority interests in
four markets and an equity investment during the first nine months of
1995. USM recognized $77.7 million on the sales of these non-strategic
cellular interests.
-22-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
La Star and Wisconsin RSA 8 Applications. On September 28, 1995, USM and
TDS announced that on September 27, 1995, a FCC administrative law judge found
both companies fully qualified to be FCC licensees. The decision favorably
resolves candor issues raised in the La Star and Wisconsin RSA 8 matters. A copy
of the news release was filed on Form 8-K on October 3, 1995.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of earnings per common share.
(b) Exhibit 12 - Statement regarding computation of ratios.
(c) Exhibit 27 - Financial Data Schedule.
(d) Exhibit 99.1 - Unaudited Consolidated Statements of Operations for
the Twelve Months Ended September 30, 1995 and 1994.
(e) No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES CELLULAR CORPORATION
(Registrant)
Date November 10, 1995 /s/ H. DONALD NELSON
----------------- -----------------------------------
H. Donald Nelson
President
(Principal Executive Officer)
Date November 10, 1995 /s/ KENNETH R. MEYERS
----------------- ----------------------------------
Kenneth R. Meyers
Vice President-Finance and Treasurer
(Chief Financial Officer)
Date November 10, 1995 /s/ PHILLIP A. LORENZINI
----------------- -----------------------------------
Phillip A. Lorenzini
Controller
(Principal Accounting Officer)
-24-
<PAGE>
Exhibit 11
United States Cellular Corporation
Computation of Earnings Per Common Share and Series A
Common Share (in thousands, except per
share amounts)
Three Months Ended September 30, 1995 1994
- -------------------------------------------------------------------------------
Primary Earnings
Net Income Available to Common $ 32,263 $ 10,796
======== ========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 82,934 78,170
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 77 67
Convertible Preferred Shares 622 1,093
Common Shares Issuable 928 964
-------- ------
Primary Shares 84,561 80,294
======== ======
Primary Earnings per Common Share
Net Income $ .38 $ .13
======== =======
Fully Diluted Earnings*
Net Income Available to Common, as reported $32,263 $10,796
Interest expense eliminated as a result of the pro forma
conversion of Convertible Debentures 2,207 --
-------- -------
Net Income Available to Common, as adjusted $34,470 $10,796
======== =======
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 82,934 78,170
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 93 73
Convertible Preferred Shares 622 1,093
Common Shares Issuable 928 964
Conversion of Convertible Debentures 7,059 --
-------- --------
Fully Diluted Shares 91,636 80,300
======== ========
Fully Diluted Earnings per Common Share
Net Income $ .38 $ .13
======== =======
- --------------
* This calculation is submitted in accordance with Securities Act of 1934
Release No. 9083 although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<PAGE>
Exhibit 11
United States Cellular Corporation
Computation of Earnings Per Common Share and Series A Common Share
(in thousands, except per share amounts)
Nine Months Ended September 30, 1995 1994
- --------------------------------------------------------------------------------
Primary Earnings
Net Income Available to Common $79,950 $15,151
======= =======
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 82,112 76,909
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 68 66
Convertible Preferred Shares 674 1,102
Common Shares Issuable 992 1,416
------- -------
Primary Shares 83,846 79,493
======= =======
Primary Earnings per Common Share
Net Income $ .95 $ .19
======= =======
Fully Diluted Earnings*
Net Income Available to Common, as reported $79,950 $15,151
Interest Expense eliminated as a result of the pro forma
conversion of Convertible Debentures 2,597 --
------- -------
Net Income Available to Common, as adjusted $82,547 $15,151
======= =======
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 82,112 76,909
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 133 74
Convertible Preferred Shares 674 1,102
Common Shares Issuable 992 1,416
Conversion of Convertible Debentures 2,767 --
------- -------
Fully Diluted Shares 86,678 79,501
======= =======
Fully Diluted Earnings per Common Share
Net Income $ .95 $ .19
======= =======
- --------------
* This calculation is submitted in accordance with Securities Act of 1934
Release No. 9083 although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
Exhibit 12
UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Nine Months
Ended
September 30, 1995
----------------------
(Dollars in thousands)
EARNINGS
Income from Continuing Operations before
income taxes $ 117,349
Add (Deduct):
Minority Share of Cellular Losses (106)
Earnings on Equity Method (28,641)
Distributions from Minority Subsidiaries 5,211
Amortization of Capitalized Interest 3
Minority interest in income of majority-owned
subsidiaries that have fixed charges 1,266
---------
95,082
Add fixed charges:
Consolidated interest expense 21,180
Interest Portion (1/3) of Consolidated Rent Expense 1,600
---------
$ 117,862
=========
FIXED CHARGES
Consolidated interest expense $ 21,180
Interest Portion (1/3) of Consolidated Rent Expense 1,600
---------
$ 22,780
=========
RATIO OF EARNINGS TO FIXED CHARGES 5.17
=========
Tax-Effected Preferred Dividends $ --
Fixed Charges 22,780
---------
Fixed Charges and Preferred Dividends $ 22,780
=========
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 5.17
=========
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted form the
Consolidated Financial Statements of United States Cellular Corporation as of
September 30, 1995, and for the nine months then ended, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 58,969
<SECURITIES> 0
<RECEIVABLES> 47,264
<ALLOWANCES> 3,032
<INVENTORY> 5,602
<CURRENT-ASSETS> 148,229
<PP&E> 632,098
<DEPRECIATION> 131,318
<TOTAL-ASSETS> 1,840,056
<CURRENT-LIABILITIES> 116,025
<BONDS> 344,251
<COMMON> 82,938
0
0
<OTHER-SE> 1,225,753
<TOTAL-LIABILITY-AND-EQUITY> 1,840,056
<SALES> 10,985
<TOTAL-REVENUES> 355,439
<CGS> 38,393
<TOTAL-COSTS> 318,556
<OTHER-EXPENSES> (107,359)
<LOSS-PROVISION> 8,047
<INTEREST-EXPENSE> 21,180
<INCOME-PRETAX> 117,349
<INCOME-TAX> 37,399
<INCOME-CONTINUING> 79,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,950
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
Exhibit 99.1
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Twelve Months Ended
September 30,
------------------------
1995 1994
----------- ----------
(Dollars in thousands,
except per share amounts)
OPERATING REVENUES
Service $ 436,002 $ 285,982
Equipment sales 15,025 13,174
--------- ---------
Operating Revenues 451,027 299,156
--------- ---------
OPERATING EXPENSES
System operations 65,392 43,250
Marketing and selling 92,187 61,318
Cost of equipment sold 51,977 34,902
General and administrative 120,206 90,123
Depreciation 51,923 35,619
Amortization of intangibles 30,688 24,394
--------- ---------
Total Operating Expenses 412,373 289,606
--------- ---------
OPERATING INCOME BEFORE MINORITY SHARE 38,654 9,550
Minority share of operating income (7,185) (4,432)
--------- ---------
OPERATING INCOME 31,469 5,118
--------- ---------
INVESTMENT AND OTHER INCOME
Investment income 34,243 24,851
Amortization of licenses and deferred costs
related to investments (1,023) (918)
Interest income 4,224 3,090
Other (expense), net (1,845) (1,662)
Gain on sale of cellular interests 80,981 --
--------- ---------
Total Investment and Other Income 116,580 25,361
--------- ---------
INCOME BEFORE INTEREST AND
INCOME 148,049 30,479
Interest expense - affiliate 16,189 17,741
Interest expense - other 11,887 4,036
--------- ---------
INCOME BEFORE INCOME TAXES 119,973 8,702
Income tax expense 38,781 4,746
--------- ---------
NET INCOME $ 81,192 $ 3,956
========= =========
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES (000s) 83,103 77,187
EARNINGS PER COMMON SHARE
AND SERIES A COMMON SHARE $ .98 $ .05
========= =========
<PAGE>
