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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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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
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Commission File Number 1-9712
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UNITED STATES CELLULAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 62-1147325
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8410 West Bryn Mawr, Suite 700, Chicago, Illinois 60631
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 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 April 28, 2000
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Common Shares, $1 par value 53,584,331 Shares
Series A Common Shares, $1 par value 33,005,877 Shares
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<PAGE>
UNITED STATES CELLULAR CORPORATION
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1ST QUARTER REPORT ON FORM 10-Q
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INDEX
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Page No.
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Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-11
Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999 12
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 13
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 14-15
Notes to Consolidated Financial Statements 16-19
Part II. Other Information 20
Signatures 21
<PAGE>
PART I. FINANCIAL INFORMATION
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UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
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AND FINANCIAL CONDITION
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RESULTS OF OPERATIONS
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Three Months Ended 3/31/00 Compared to Three Months Ended 3/31/99
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United States Cellular Corporation (the "Company" - AMEX symbol: USM) owns,
operates and invests in cellular markets throughout the United States. USM is an
81.3%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS").
USM owned either majority or minority cellular interests in 179 markets at March
31, 2000, representing 26,281,000 population equivalents ("pops"). USM included
the operations of 139 majority-owned and managed cellular markets, representing
24.0 million pops, in consolidated operations ("consolidated markets") as of
March 31, 2000. Minority interests in 34 markets, representing 2.2 million pops,
were accounted for using the equity method and were included in investment
income at that date. All other interests were accounted for using the cost
method. Following is a table of summarized operating data for USM's consolidated
operations.
<TABLE>
<CAPTION>
Three Months Ended or At March 31,
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2000 1999
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<S> <C> <C>
Total market population (in thousands) (1) 25,044 24,683
Customers 2,707,000 2,270,000
Market penetration 10.81% 9.20%
Markets in operation 139 138
Total employees 4,750 4,850
Cell sites in service 2,331 2,106
Average monthly revenue per customer $ 43.48 $ 47.18
Churn rate per month 2.0% 2.1%
Marketing cost per gross customer addition $ 338 $ 319
</TABLE>
[FN]
(1) Calculated using Claritas population estimates for 2000 and 1999,
respectively.
</FN>
The growth in the Company's operating income in the first three months of 2000,
which includes 100% of the revenues and expenses of its consolidated markets
plus its corporate office operations, primarily reflects improvements in the
Company's overall operations compared to the first three months of 1999. The
improvements resulted from growth in the Company's customer base and revenues
coupled with continuing economies of scale. Operating revenues, driven primarily
by a 19% increase in customers served, rose $34.1 million, or 10%, in 2000. Cash
operating expenses rose $11.0 million, or 5%, in 2000. Operating cash flow
(operating income plus depreciation and amortization expense) increased $23.1
million, or 22%, in 2000. Depreciation and amortization expense increased $14.1
million, or 27%, in 2000. Operating income increased $9.0 million, or 17%, in
2000.
Investment and other income increased $23.0 million to $29.0 million in 2000,
due primarily to an increase of $17.9 million in gains on sales of cellular and
other investments in 2000.
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<PAGE>
Net income totaled $47.1 million in 2000, an increase of $19.3 million, or 69%,
from 1999. Diluted earnings per share totaled $0.52 in 2000, an increase of
$.20, or 63%, from 1999. Net income in 2000 was significantly affected by gains
on the sales of cellular and other investments. A summary of the after-tax
effects of gains on net income and diluted earnings per share in each period is
shown below.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
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(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Net income before after-tax effects of gains $ 35,857 $ 27,826
Add: After-tax effects of gains 11,282 --
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Net income as reported $ 47,139 $ 27,826
========== ==========
Earnings per share before after-tax effects
of gains $ 0.40 $ 0.32
Add: After-tax effects of gains 0.12 --
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Diluted earnings per share $ 0.52 $ 0.32
========= ==========
</TABLE>
Operating Revenues
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Operating revenues totaled $360.1 million in 2000, up $34.1 million, or 10%,
over 1999. 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 ("local retail");
(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 $346.0 million in
2000, up $30.8 million, or 10%, over 1999. The increase was primarily due to the
growing number of local retail customers using the Company's systems. Monthly
service revenue per customer declined 8% to $43.48 in 2000 from $47.18 in 1999.
Local retail revenue increased $34.0 million, or 16%, in 2000. Growth in the
Company's customer base was the primary reason for the increase in local retail
revenue. The number of customers increased 19% to 2,707,000 at March 31, 2000
from 2,270,000 at March 31, 1999. Management anticipates that overall growth in
the Company's customer base will continue to slow down in the future, primarily
as a result of an increase in the number of competitors in its markets.
Average monthly local retail revenue per customer declined 3% to $31.11 in 2000
from $31.96 in 1999. Monthly local retail minutes of use per customer was 128 in
2000 and 101 in 1999. The increase in monthly local retail minutes of use was
driven by the Company's focus on designing incentive programs and rate plans to
stimulate overall usage. Average revenue per minute of use decreased as a result
of competitive pressures and these pricing and incentive programs. Management
anticipates that the Company's average local retail revenue per minute of use
will continue to decline in the future, reflecting the continued effect of the
previously mentioned factors.
Inbound roaming revenue increased $2.3 million, or 3%, in 2000. The growth in
inbound roaming revenue in 2000 was affected by an increase in roaming minutes
used on the Company's systems and a decrease in revenue per minute due to the
downward trend in negotiated rates. Both the increase in minutes of use and the
decrease in revenue per minute of use were significantly affected by certain
pricing programs offered by other wireless companies.
-3-
<PAGE>
Wireless customers who sign up for these programs are given price incentives to
roam, and many of those customers travel in the Company's markets, thus driving
an increase in the Company's inbound roaming minutes of use. Management
anticipates that the growth rate in inbound roaming minutes of use will be
slower throughout 2000 due to these pricing programs being present in both
periods of comparison. Additionally, as new wireless operators begin service in
the Company's markets, the Company's roaming partners could switch their
business to these new operators, further slowing growth in inbound roaming
minutes of use. Management also anticipates that average inbound roaming revenue
per minute of use will continue to decline in the future, reflecting the
continued effect of the previously mentioned factors. Monthly inbound roaming
revenue per Company customer averaged $9.21 in 2000 and $10.62 in 1999. The
decrease in monthly inbound roaming revenue per Company customer was
attributable to a smaller increase in inbound roaming revenue than in the
Company's customer base.
Long-distance revenue decreased $6.1 million, or 20%, in 2000. While the volume
of long-distance calls billed by the Company increased, primarily from inbound
roamers using the Company's systems to make long-distance calls, long-distance
revenue declined due to price reductions primarily related to long-distance
charges on roaming minutes of use. These reductions, similar to the price
reductions on roaming airtime charges, are a continuation of the industry trend
toward reduced per minute prices. The price reductions also reduced the growth
in the outbound roaming expense component of system operations expense by
approximately the same amount, resulting in no material effect on the Company's
operating cash flow or operating income. Monthly long-distance revenue per
customer averaged $3.00 in 2000 and $4.49 in 1999.
Equipment sales revenues increased $3.3 million, or 31%, in 2000. The increase
in equipment sales revenues reflected the 16% increase in the number of gross
customer activations, to 266,000 in 2000 from 229,000 in 1999, plus an increase
in the number of higher priced dual- mode units and the volume of accessories
sold. Most of the gross customer activations were produced by the Company's
direct and retail distribution channels, which usually generate sales of
cellular telephone units. The increase in sales of dual-mode units was related
to the growth in the number of the Company's systems providing digital coverage,
which enables the Company to offer its customers more features, better clarity
and increased roaming capabilities. The increase in the volume of accessories
sold reflected an increased emphasis on the sale of accessories at retail prices
in the Company's retail locations.
Operating Expenses
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Operating expenses totaled $298.9 million in 2000, up $25.1 million, or 9%, over
1999. System operations expenses decreased $11.5 million, or 20%, in 2000,
primarily as a result of decreases in customer usage expense related to the
lower cost per minute of use associated with the change in roaming pricing
discussed previously. Costs associated with serving the Company's increased
number of customers and the growing number of cell sites within the Company's
systems increased in 2000.
Customer usage expense represents charges from other telecommunications service
providers for the Company's customers' use of their facilities as well as for
the Company's inbound roaming traffic on these facilities. Also included are
costs related to local interconnection to the landline network, long-distance
charges and expenses incurred by the Company when its customers use systems
other than their local systems ("outbound roaming"). These expenses are offset
somewhat by amounts the Company bills to its customers for outbound roaming.
Customer usage expense decreased $14.0 million, or 34%, in 2000. The decrease in
2000 was primarily due to the $16.1 million decrease in net outbound roaming
expenses. Net outbound
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<PAGE>
roaming expense decreased due to a reduction in cost per minute of use related
to the lower roaming prices in the industry discussed previously. This decrease
was partially offset by the effect of increases in monthly local minutes of use
and inbound roaming minutes of use on the Company's systems. Customer usage
expense represented 8% of service revenues in 2000 and 13% in 1999.
Maintenance, utility and cell site expense increased $2.5 million, or 15%, in
2000. The increase primarily reflected an increase in the number of cell sites
in the Company's systems, to 2,331 in 2000 from 2,106 in 1999.
In total, system operations expenses are expected to continue to decrease
through the first half of 2000, reflecting the continued effects of the changes
in roaming pricing discussed previously. As the effects of these changes become
present in both periods of comparison, system operations expenses are expected
to increase as the number of customers using and the number of cell sites within
the Company's systems grows.
Marketing and selling expenses increased $11.2 million, or 19%, in 2000.
Marketing and selling expenses primarily consist of salaries, commissions and
expenses of field sales and retail personnel and offices; agent expenses;
corporate marketing department salaries and expenses; local advertising; and
public relations expenses. The increase in 2000 was primarily due to the 16%
rise in the number of gross customer activations. Marketing cost per gross
customer activation, which includes marketing and selling expenses and equipment
subsidies, increased 6% to $338 in 2000 from $319 in 1999. The increase in cost
per gross customer activation was primarily driven by increased commissions,
which resulted from an increase in the percentage of gross activations produced
by agents, and an increase in equipment subsidies. The increased equipment
subsidies were primarily driven by the sale of more dual-mode units, which on
average generate greater equipment subsidies than the sale of analog units.
Cost of equipment sold increased $9.2 million, or 36%, in 2000. The increase
reflected the growth in unit sales related to the 16% increase in gross customer
activations as well as the impact of selling more higher cost dual-mode units in
2000.
General and administrative expenses increased $2.2 million, or 3%, in 2000.
These expenses include the costs of operating the Company's local business
offices and its corporate expenses other than the corporate engineering and
marketing departments. The increase includes the effects of increases in
expenses required to serve the growing customer base in the Company's markets
and other expenses incurred related to the growth in the Company's business. The
Company incurred additional costs in 2000 by providing dual-mode phone units to
customers who migrated from analog to digital rate plans. This increase was
partially offset by decreases in consulting expenses and nonincome taxes.
Employee-related expenses increased $4.2 million, or 12%, in 2000, primarily due
to increases in the number of customer service and administrative employees.
Monthly general and administrative expenses per customer decreased 14% to $10.27
in 2000 from $11.90 in 1999. General and administrative expenses represented 24%
of service revenues in 2000 and 25% in 1999.
Operating cash flow increased $23.1 million, or 22%, to $127.2 million in 2000.
The improvement was primarily due to substantial growth in customers and service
revenues and the effects of continued operational efficiencies on cash operating
expenses. Operating cash flow margins (as a percent of service revenues) were
36.8% in 2000 and 33.0% in 1999.
Depreciation expense increased $9.6 million, or 23%, in 2000. The increase
reflects rising average fixed asset balances, which increased 12% in 2000, and a
reduction in the useful lives of certain assets beginning in 2000. Increased
fixed asset balances in 2000 resulted from the
-5-
<PAGE>
addition of new cell sites built to improve coverage and capacity in the
Company's markets and from upgrades to provide digital service in more of the
Company's service areas.
Amortization of intangibles increased $4.5 million, or 44%, in 2000. Beginning
October 1, 1999, the Company's began amortizing capitalized development costs
related to its new billing and information system. Annual amortization of these
billing-related costs is expected to be approximately $17 million.
Operating Income
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Operating income totaled $61.2 million in 2000, a 17% increase over 1999. The
operating income margin was 17.7% in 2000 and 16.5% in 1999. The improvements in
operating income and operating income margin in 2000 reflected increased
revenues resulting from growth in the number of customers served by the
Company's systems and the effect of continued operational efficiencies on total
operating expenses.
The Company expects service revenues to continue to grow during the remainder of
2000; however, management anticipates that average monthly revenue per customer
will decrease as local retail and inbound roaming revenue per minute of use
decline and as the Company further penetrates the consumer market. Additionally,
the Company expects expenses to increase during the remainder of 2000 as it
incurs costs associated with both customer growth and fixed assets added.
Management continues to believe 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. Additionally, competitors licensed to
provide personal communications services ("PCS") have initiated service in
certain of the Company's markets over the past four years. The Company expects
PCS operators to continue deployment of PCS in portions of all of the Company's
clusters throughout 2000 and 2001. The Company has increased its advertising,
particularly brand advertising, since 1997 to promote its brand and distinguish
the Company's service from other wireless communications providers. The
Company's management continues to monitor other wireless communications
providers' strategies to determine how additional competition is affecting the
Company's results. While the effects of additional wireless competition have
slowed customer growth in certain of the Company's markets, the overall effect
on the Company's total customer growth to date has not been material. However,
management anticipates that customer growth will be lower in the future,
primarily as a result of the increase in the number of competitors in its
markets.
Investment and Other Income
- ---------------------------
Investment and other income totaled $29.0 million in 2000 and $5.9 million in
1999. Gain on sale of cellular and other investments totaled $17.9 million in
the first three months of 2000; there were no such gains in the first three
months of 1999. The gain in 2000 was from the sale of the Company's minority
interest in one market.
Investment income was $8.7 million in 2000 compared to $6.6 million in 1999, a
32% increase. Investment income primarily represents the Company's share of net
income from the markets managed by others that are accounted for by the equity
method. The aggregate income from the markets in which the Company had interests
in both 1999 and 2000 increased in 2000.
-6-
<PAGE>
Interest and Income Taxes
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Interest expense totaled $9.4 million in 2000 compared to $9.2 million in 1999.
Interest expense in 2000 was primarily related to Liquid Yield Option Notes
("LYONs") ($4.5 million) and the Company's 7.25% Notes (the "Notes") ($4.6
million). Interest expense in 1999 was primarily related to LYONs ($4.3 million)
and the Notes ($4.6 million).
The LYONs are zero coupon convertible debentures which accrete interest at 6%
annually, but do not require current cash payments of interest. All accreted
interest is added to the outstanding principal balance on June 15 and December
15 of each year.
The Company's $250 million principal amount of Notes are unsecured and become
due in August 2007. Interest on the Notes is payable semi-annually on February
15 and August 15 of each year.
The Company also maintains a revolving credit facility with a series of banks
("Revolving Credit Facility"). The Revolving Credit Facility is a seven-year
facility which was established in 1997. Borrowings under this facility accrue
interest at the London InterBank Offered Rate ("LIBOR") plus 26.5 basis points
(for a rate of 6.4% at March 31, 2000). Interest and principal are due the last
day of the borrowing period, as selected by the borrower, of either seven days
or one, two, three or six months; any borrowings made under the facility are
short-term in nature and automatically renew until they are repaid. The Company
pays facility and administrative fees totaling $710,000 per year in addition to
interest on any borrowings; these fees are recorded as interest expense. Any
borrowings outstanding in August 2004, the termination date of the Revolving
Credit Facility, are due and payable at that time along with any accrued
interest. No borrowings were made during 1999 or 2000.
Income tax expense was $33.6 million in 2000 and $21.0 million in 1999. In 2000,
$6.6 million of income tax expense related to gains on sales of cellular and
other investments. The overall effective tax rates were 42% in 2000 and 43% in
1999. The decrease in 2000's effective tax rate was primarily related to the
nature of the gain on sale of cellular and other investments in 2000.
TDS and the Company are parties to a Tax Allocation Agreement, pursuant to which
the Company is included in a consolidated federal income tax return with other
members of the TDS consolidated group. For financial reporting purposes, the
Company computes federal income taxes as if it were filing a separate return as
its own affiliated group and was not included in the TDS group.
Net Income
- ----------
Net income totaled $47.1 million in 2000 and $27.8 million in 1999. Diluted
earnings per share was $0.52 in 2000 and $0.32 in 1999. Net income and earnings
per share in 2000 included significant after-tax gains on the sales of cellular
and other investments, representing $11.3 million and $0.12 per share. Excluding
the after-tax effect of these gains, net income would have been $35.9 million,
or $0.40 per share, in 2000 and $27.8 million, or $.32 per share, in 1999.
FINANCIAL RESOURCES AND LIQUIDITY
- ---------------------------------
The Company operates a capital- and marketing-intensive business. In recent
years, the Company has generated operating cash flow and received cash proceeds
from divestitures to fund its construction costs and operating expenses. The
Company anticipates further increases in cellular units in service, revenues,
operating cash flow and fixed asset additions in the future.
-7-
<PAGE>
Operating cash flow may fluctuate from quarter to quarter depending on the
seasonality of each of these growth factors.
Cash flows from operating activities provided $121.1 million in 2000 and $98.4
million in 1999. Operating cash flow provided $127.2 million in 2000 and $104.0
million in 1999. Cash flows from other operating activities (investment and
other income, interest expense, income taxes, changes in working capital and
changes in other assets and liabilities) required $6.1 million in 2000 and $5.6
million in 1999. Income taxes and interest paid totaled $15.3 million in 2000
and $13.7 million in 1999.
Cash flows from investing activities required $32.5 million in 2000 and $85.0
million in 1999. Cash required for property, plant and equipment and system
development expenditures totaled $59.8 million in 2000 and $84.7 million in
1999. In both periods, these expenditures were financed with internally
generated cash. These expenditures primarily represent the construction of 31
and 41 cell sites in 2000 and 1999, respectively, plus other plant additions and
costs related to the development of the Company's office systems. In both
periods, other plant additions included significant amounts related to the
replacement of retired assets and the changeout of analog radio equipment for
digital radio equipment. Acquisitions required $8.1 million in 1999. The Company
received net cash proceeds totaling $22.5 million in 2000 related to sales of
cellular and other investments. Cash distributions from cellular entities in
which the Company has an interest provided $5.5 million in 2000 and $5.8 million
in 1999.
Cash flows from financing activities required $52.3 million in 1999 and provided
$891,000 in 1998. In 2000, the Company repurchased a total of 817,300 of its
Common Shares for a total of $56.7 million. Of this amount, $5.2 million was
paid in April 2000 to settle repurchases that occurred at the end of March 2000.
These stock repurchases were made under separate programs authorized by the
Company's Board of Directors. In March 2000, the Board of Directors authorized
the repurchase of up to 1.4 million USM Common Shares. A total of 652,300 common
shares were repurchased under this program as of March 31, 2000. An additional
165,000 USM Common Shares were purchased pursuant to a previously authorized
program to repurchase a limited amount of shares on a quarterly basis, primarily
for use in employee benefit plans.
Anticipated capital requirements for 2000 primarily reflect the Company's
construction and system expansion program. The Company's construction and system
expansion budget for 2000 is approximately $330 million, to expand and enhance
the Company's coverage in its service areas, including the addition of digital
service capabilities to its systems, and to enhance the Company's office
systems.
Acquisitions and Divestitures
- -----------------------------
The Company assesses its cellular holdings on an ongoing basis in order to
maximize the benefits derived from clustering its markets. Over the past few
years, 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 sales of other less
strategic markets, and has purchased controlling interests in markets which
enhance its clusters. The proceeds from any sales have been used to further the
Company's growth.
In the first three months of 2000 and 1999, there were no completed acquisitions
or divestitures of majority interests.
-8-
<PAGE>
In the first three months of 2000, the Company divested a minority interest in
one market representing 114,000 pops for a total consideration of $22.5 million
in cash.
In the first three months of 1999, the Company acquired minority interests in
several markets representing 81,000 pops for a total of $8.5 million in cash.
As of March 31, 2000, the Company had agreements pending to acquire a majority
interest in one market and minority interests in two other markets in which it
currently owns majority interests, representing an aggregate of approximately
164,000 pops, in exchange of $24.8 million in cash and approximately 28,000 USM
Common Shares.
The Company has an agreement pending to divest a majority interest in one
market, representing approximately 144,000 pops, for $54.5 million in cash. The
Company expects all of the pending transactions to be completed by the end of
2000.
Liquidity
- ---------
The Company anticipates that the aggregate resources required for the remainder
of 2000 will include the following:
o approximately $270 million for capital spending;
o $25 million for acquisitions;
o an as yet undetermined amount that may be needed to repurchase USM Common
Shares under the programs authorized by the Company's Board of Directors; and
o an as yet undetermined amount which may be needed to satisfy repurchases of
LYONs by the Company or conversions of LYONs by current holders.
In May 2000, the Company's Board of Directors authorized the repurchase of an
additional 1.4 million USM Common Shares. This program is in addition to the two
programs under which the Company repurchased shares in the first quarter.
The Company's LYONs are convertible, at the option of their holders, at any time
prior to maturity, redemption or purchase, into USM Common Shares at a
conversion rate of 9.475 USM Common Shares per LYON. Upon conversion, the
Company has the option to deliver to holders either USM Common Shares or cash
equal to the market value of the USM Common Shares into which the LYONs are
convertible.
Under the terms of the LYONs, on June 15, 2000, the Company will be required, at
the option of each holder of LYONs, to purchase LYONs for a purchase price of
$411.99 for each LYON (the "Put Value"). Each LYON has a face value of $1,000.00
at maturity. Pursuant to the preceding terms, on May 15, 2000, the Company
commenced a tender offer to purchase the LYONs for cash in the amount of $411.99
for each LYON. Pursuant to the terms of the LYONs, the Company has elected not
to become obligated to offer to purchase the LYONs at their accreted value as of
June 15, 2005.
Based on current market prices for USM Common Shares, the conversion value of
the LYONs is greater than the Put Value. Accordingly, the Company's management
believes it is unlikely the holders of LYONs will exercise their put rights on
June 15, 2000. However, there can be no assurance that the conversion value of
the LYONs will exceed the Put Value on or shortly prior that date. If the
conversion value declines so that it is near or below the Put Value, it is
possible that some or all holders of LYONs may exercise their option to require
the Company to purchase the LYONs.
-9-
<PAGE>
In addition, the Company may, at any time or after June 15, 2000, redeem LYONs
for cash at a price equal to the issue price plus accrued original issue
discount through the date of redemption. However, holders of LYONs must be
notified of such redemption between 30 and 60 days prior to the date of the
redemption. During the period between the date of notice and the redemption
date, as at any other time, any holder of LYONs may exercise his conversion
rights.
The Board of Directors has authorized management to opportunistically repurchase
LYONs in private transactions. U.S. Cellular may also purchase a limited amount
of LYONs in open-market transactions from time to time. U.S. Cellular has not
acquired any Lyons pursuant to this authorization or otherwise.
The Company is generating substantial cash from its operations and anticipates
financing these expenditures primarily with internally generated cash, the $55
million it expects from the completion of a divestiture and short-term
borrowings. The Company had $234 million of cash and cash equivalents at March
31, 2000. Additionally, the entire balance of $500 million under the Company's
Revolving Credit Facility is unused and remains available to meet any short-term
borrowing requirements.
Management believes that the Company's operating cash flows and sources of
external financing, including the above-referenced Revolving Credit Facility,
provide substantial financial flexibility for the Company to meet both its
short- and long-term needs. The Company also currently has access to public and
private capital markets to help meet its long-term financing needs. The Company
anticipates issuing debt and equity securities only when capital requirements
(including acquisitions), financial market conditions and other factors warrant.
Revenue Recognition
- -------------------
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements ("SAB 101")." SAB 101 provides guidance on
the recognition, presentation and disclosure of revenue in financial satements.
On March 24, 2000, the SEC issued Staff Accounting Bulletin No. 101A "Amendment:
Revenue Recognition in Financial Statements". SAB 101A allows companies to defer
the reporting of a change in accounting principle, as required by SAB 101, until
the second quarter of the current fiscal year. Management is currently analyzing
the impact of this bulletin.
Market Risk
- -----------
The Company is subject to market rate risks due to fluctuations in interest
rates and equity markets. All of the Company' existing debt is in the form of
long-term fixed-rate notes with original maturities ranging from seven to 20
years. Accordingly, fluctuations in interest rates can lead to fluctuations in
the fair value of such instruments. The Company has not entered into financial
derivatives to reduce its exposure to interest rate risks. There have been no
material changes to the Company's outstanding debt instruments since December
31, 1999.
The Company maintains a portfolio of available for sale marketable equity
securities which resulted from acquisitions and the sale of non-strategic
assets. The market value of these investments, principally Vodafone AirTouch plc
American Depositary Receipts ("VOD ADRs"), amounted to $597.3 million at March
31, 2000. A hypothetical 10% decrease in the share prices of these investments
would result in a $59.7 million decline in the market value of the investments.
-10-
<PAGE>
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT This Management's Discussion and Analysis of Results of Operations and
Financial Condition and other sections of this Quarterly Report on Form 10-Q
contain statements that are not based on historical fact, including the words
"believes", "anticipates", "intends", "expects" and similar words. These
statements constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, events or developments to be significantly different
from any future results, events or developments expressed or implied by such
forward-looking statements. Such factors include:
o general economic and business conditions, both nationally and in the
regions in which the Company operates;
o technology changes;
o competition;
o changes in business strategy or development plans;
o changes in governmental regulations;
o availability of future financing; and
o changes in growth in cellular customers, penetration rates, churn rates and
roaming rates.
The Company undertakes no obligation to update publicly any forward-looking
statements whether as a result of new information, future events or otherwise.
Readers should evaluate any statements in light of these important factors.
-11-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Unaudited
---------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
------ ------
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
OPERATING REVENUES
Service $ 345,960 $ 315,194
Equipment sales 14,127 10,791
--------- ----------
Total Operating Revenues 360,087 325,985
--------- ----------
OPERATING EXPENSES
System operations 47,184 58,691
Marketing and selling 69,458 58,305
Cost of equipment sold 34,597 25,441
General and administrative 81,687 79,519
Depreciation 51,169 41,616
Amortization of intangibles 14,839 10,299
--------- ----------
Total Operating Expenses 298,934 273,871
--------- ----------
OPERATING INCOME 61,153 52,114
--------- ----------
INVESTMENT AND OTHER INCOME
Investment income 8,725 6,618
Amortization of licenses related to investments (347) (307)
Interest income 3,998 1,199
Other (expense), net (247) (108)
Minority share of income (1,015) (1,483)
Gain on sale of cellular and other investments 17,851 --
--------- ----------
Total Investment and Other Income 28,965 5,919
--------- ----------
INCOME BEFORE INTEREST AND INCOME TAXES 90,118 58,033
Interest expense 9,360 9,216
--------- ---------
INCOME BEFORE INCOME TAXES 80,758 48,817
Income tax expense 33,619 20,991
--------- ----------
NET INCOME $ 47,139 $ 27,826
========= ==========
WEIGHTED AVERAGE COMMON
AND SERIES A COMMON SHARES (000s) 87,599 87,390
BASIC EARNINGS PER COMMON AND
SERIES A COMMON SHARE $ .54 $ .32
========= ==========
DILUTED EARNINGS PER COMMON AND
SERIES A COMMON SHARE $ .52 $ .32
========= ==========
</TABLE>
[FN]
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
</FN>
-12-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Unaudited
---------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
------- --------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 47,139 $ 27,826
Add (Deduct) adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 66,008 51,915
Deferred income tax provision 7,636 5,518
Investment income (8,725) (6,618)
Minority share of income 1,015 1,483
Gain on sale of cellular and other investments (17,851) --
Other noncash expense 7,978 5,035
Change in accounts receivable 22,916 10,715
Change in accounts payable (19,929) (10,393)
Change in accrued interest (4,535) (4,700)
Change in accrued taxes 20,104 14,752
Change in customer deposits and deferred revenue 3,369 213
Change in other assets and liabilities (4,055) 2,684
--------- ---------
121,070 98,430
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (57,401) (76,161)
System development costs (2,430) (8,527)
Investments in and advances (to)/from unconsolidated (730) 1,633
entities
Distributions from unconsolidated entities 5,527 5,775
Proceeds from sale of cellular and other investments 22,500 --
Acquisitions, excluding cash acquired -- (8,131)
Other investing activities 73 372
-------- --------
(32,461) (85,039)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Common Shares (51,523) --
Common Shares issued 474 2,244
Capital distributions to minority partners (1,289) (1,353)
-------- -------
(52,338) 891
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 36,271 14,282
CASH AND CASH EQUIVALENTS-
Beginning of period 197,675 51,975
------- -------
End of period $ 233,946 $ 66,257
========= =========
</TABLE>
[FN]
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
</FN>
-13-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
---------- -----------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents
General funds $ 734 $ 29,169
Affiliated cash equivalents 233,212 168,506
---------- ----------
233,946 197,675
Temporary investments 118 148
Accounts Receivable
Customers, net of allowance 104,643 124,145
Roaming 57,872 61,915
Affiliates 515 15
Other 11,306 9,584
Inventory 29,793 29,999
Note receivable 10,000 10,000
Prepaid expenses 8,609 10,081
Other current assets 5,693 5,221
--------- --------
462,495 448,783
--------- --------
INVESTMENTS
Licenses, net of accumulated amortization 1,150,004 1,156,175
Marketable equity securities 597,266 540,711
Investment in unconsolidated entities,
net of accumulated amortization 120,198 124,573
Notes and interest receivable - long-term 10,793 10,736
Marketable non-equity securities 172 216
--------- ---------
1,878,433 1,832,411
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
In service and under construction 1,627,691 1,579,278
Less accumulated depreciation 553,249 508,273
--------- ---------
1,074,442 1,071,005
--------- ---------
DEFERRED CHARGES
System development costs,
net of accumulated amortization 131,575 135,462
Other, net of accumulated amortization 12,084 12,434
-------- --------
143,659 147,896
-------- --------
Total Assets $3,559,029 $3,500,095
========== ==========
</TABLE>
[FN]
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
</FN>
-14-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable
Affiliates $ 1,820 $ 3,127
Other 123,475 143,967
Customer deposits and deferred revenues 40,251 36,882
Accrued interest 2,529 7,064
Accrued taxes 27,621 7,517
Accrued compensation 14,473 16,555
Other current liabilities 13,193 11,867
--------- --------
223,362 226,979
--------- --------
LONG-TERM DEBT
7.25% unsecured notes 250,000 250,000
6% zero coupon convertible debentures 297,145 296,322
--------- --------
547,145 546,322
--------- --------
DEFERRED LIABILITIES AND CREDITS
Net deferred income tax liability 432,459 401,983
Other 9,415 9,199
-------- --------
441,874 411,182
-------- --------
MINORITY INTEREST 40,697 40,971
-------- --------
COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1 per share 54,863 54,713
Series A Common Shares, par value $1 per share 33,006 33,006
Additional paid-in capital 1,338,083 1,331,274
Treasury Shares, at cost (817,726 shares) (56,722) --
Accumulated other comprehensive income 115,323 81,391
Retained earnings 821,398 774,257
--------- ---------
2,305,951 2,274,641
--------- ---------
Total Liabilities and Shareholders' Equity $ 3,559,029 $ 3,500,095
=========== ===========
</TABLE>
[FN]
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
</FN>
-15-
<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 March 31, 2000 and December
31, 1999, and the results of operations and cash flows for the three
months ended March 31, 2000 and 1999. The results of operations for the
three months ended March 31, 2000 and 1999, are not necessarily indicative
of the results to be expected for the full year.
2. The amounts used in computing Earnings per Common Share and the effect on
income and the weighted average number of Common Series A Common Shares of
dilutive potential common stock are as follows:
Three Months Ended
March 31,
-------------------
2000 1999
-------- -------
(Dollars and Common
Shares in thousands)
Net Income used in Basic Earnings Per Share 47,139 27,826
Interest expense eliminated as a result of the
pro forma conversion of Convertible Debentures 2,571 2,400
------- -------
Net Income used in Diluted Earnings per Share $ 49,710 $ 30,226
======== ========
Basic Weighted average number of Common
Shares used in Earnings Per Share 87,599 87,390
Effect of Dilutive Securities:
Stock Options and Stock Appreciation Rights 447 107
Conversion of Convertible Debentures 6,920 7,059
------- -------
Diluted Weighted Average Number of Common
Shares used in Earnings Per Share 94,966 94,556
======= ========
-16-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Supplemental Cash Flow Information
The Company acquired certain cellular licenses and interests during the
first three months of 1999. In conjunction with these acquisitions, the
following assets were acquired, liabilities assumed and Common Shares
issued.
<TABLE>
Three Months Ended
March 31,
-------------------
1999
---------
(Dollars in thousands)
<S> <C>
Cellular licenses $ 5,464
Minority interest 2,667
-------
Decrease in cash due to acquisitions $ 8,131
========
</TABLE>
The following summarizes certain noncash transactions, and interest and income
taxes paid.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
------------ -----------
(Dollars in thousands)
<S> <C> <C>
Interest paid $ 9,301 $ 9,332
Income taxes paid 3,693 4,376
Noncash interest expense 4,590 4,416
</TABLE>
4. Gain on Sale of Cellular and Other Investments
Gain on sale of cellular and other investments in 2000 primarily reflects
gains recorded on the sale of the Company's minority interest in one
market.
5. Other Comprehensive Income
The Company's Comprehensive Income includes Net Income and Unrealized
Gains from Marketable Equity Securities that are classified as
"available-for-sale". The following table summarizes the Company's
Comprehensive Income.
-17-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
------ -------
(Dollars in thousands)
<S> <C> <C>
Accumulated Other Comprehensive Income
Balance, beginning of period $ 81,391 $ 69,465
Other Comprehensive Income -
Unrealized gains on securities 56,555 102,665
Income Tax effect (22,623) (41,068)
---------- ----------
Net unrealized gains included in
Comprehensive Income 33,932 61,597
--------- ----------
Balance, end of period $ 115,323 $ 131,062
========= ==========
Comprehensive Income
Net Income $ 47,139 $ 27,826
Net unrealized gains on securities 33,932 61,597
--------- ----------
$ 81,071 $ 89,423
========= ==========
</TABLE>
6. Marketable Equity Securities
Marketable equity securities include the Company's investments in equity
securities, primarily AirTouch Communications, Inc. ("AirTouch") common
shares. These securities are classified as available-for-sale and stated
at fair market value.
Information regarding the Company's marketable equity securities is
summarized below.
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- -----------
(Dollars in thousands)
<S> <C> <C>
Available-for-sale Equity Securities
Aggregate Fair Value $ 597,266 $ 540,711
Original Cost 405,061 405,061
--------- ---------
Gross Unrealized Holding Gains 192,205 135,650
Tax Effect 76,882 54,259
--------- --------
Net Unrealized Holding Gains, net of tax $ 115,323 $ 81,391
========= =========
</TABLE>
7. Treasury Shares
As of March 31, 2000, the Company had repurchased a total of 817,726 of
its Common Shares, at an aggregate cost of $56.7 million. The repurchases
were primarily made during
-18-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the first quarter of 2000, under two separate programs authorized by the
Company's Board of Directors. In March 2000, the Board of Directors
authorized the repurchase of up to 1.4 million USM Common Shares. A total
of 652,300 shares were repurchased under this program as of March 31,
2000. An additional 165,000 USM Common Shares were purchased pursuant to a
previously authorized program to repurchase a limited amount of shares on
a quarterly basis, primarily for use in employee benefit plans.
In May 2000, the Board of Directors authorized the repurchase of up to an
additional 1.4 million USM Common Shares.
-19-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings.
- ---------------------------
On April 11, 2000, two affiliates of U.S. Cellular, along with two
unrelated wireless carriers, filed a declaratory judgment action in the United
States District Court for the Northern District of Iowa against the Iowa
Attorney General. This action was in response to the Attorney General's ongoing
investigation of certain wireless industry practices involving wireless service
agreements and related matters. The suit by U.S. Cellular and the other wireless
carriers seeks to have certain state laws declared inapplicable to wireless
service agreements and such practices. In response, the Iowa Attorney General
filed suit in the Iowa State District Court for Polk County against U.S.
Cellular, alleging violations of various state consumer credit and other
consumer protection laws. The Attorney General is seeking injunctive relief,
barring the enforcement of contracts in excess of four months, and related
relief. The Attorney General is also seeking unspecified reimbursements for
customers, statutory fines ($40,000 for certain violations and $5,000 for
others, per violation) as well as fees and costs. This case has since been
removed to the U. S. District Court for the Southern District of Iowa. U.S.
Cellular vigorously denies the allegations of the Iowa Attorney General and
intends to vigorously contest this case.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits:
Exhibit 4 - Amendment dated as of September 25, 1997 to Revolving
Credit Agreement among the Company, BankBoston, N.A. and Toronto
Dominion (Texas), Inc.
Exhibit 10 - Description of terms of offer letter between U.S.
Cellular and John E. Rooney.
Exhibit 11 - Statement regarding computation of per share earnings is
included herein as footnote 2 to the financial statements.
Exhibit 12 - Statement regarding computation of ratios.
Exhibit 27 - Financial Data Schedule.
Exhibit 99.1 - News Release announcing the authorization to
repurchase up to 1.4 million additional Common Shares.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
2000.
-20-
<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 May 15, 2000 /s/ John E. Rooney
----------------- ----------------------------------------------
John E. Rooney
President
(Chief Executive Officer)
Date May 15, 2000 /s/ Kenneth R. Meyers
------------------ ----------------------------------------------
Kenneth R. Meyers
Executive Vice President-Finance and Treasurer
(Chief Financial Officer)
Date May 15, 2000 /s/ John T. Quille
------------------ ----------------------------------------------
John T. Quille
Vice President - Controller
(Principal Accounting Officer)
-21-
<PAGE>
Exhibit 4
AMENDMENT NO. 1
Dated as of September 25, 1997
to that certain
REVOLVING CREDIT AGREEMENT
This AMENDMENT NO. 1 (the "Amendment"), is made as of September 25,
1997, by and among UNITED STATES CELLULAR CORPORATION (the "Borrower"), a
Delaware corporation having its principal place of business at 8410 West Bryn
Mawr Avenue, Suite 700, Chicago, Illinois 60631, the financial institutions
listed on Schedule 1.1(a) to the Credit Agreement (as defined below) (the
"Banks"), BANKBOSTON, N.A., as administrative agent for the Banks (the
"Administrative Agent"), TORONTO DOMINION (TEXAS), INC., as documentation agent
for the Banks, and BANKBOSTON, N.A. and TORONTO DOMINION (TEXAS), INC., as
managing Agents.
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Amendment of Credit Agreement.
------------------------------
(a) Section 1.1 on page 7 of the Credit Agreement defining
"Notes" referencing section 2.9(c) is hereby amended by substituting
therefor the following reference: "2.9(e)".
(b) The last sentence in section 2.9 on page 13 of the Credit
Agreement is hereby amended by substituting therefor the page 13
annexed hereto.
(c) Section 21(b) on page 47 of the Credit Agreement is hereby
amended by substituting therefor the page 47 annexed hereto.
Section 2. Effectiveness.
--------------
This Amendment shall take effect when the Borrower and each of
the Banks shall have executed and delivered to the Agent this Amendment.
Section 3. Substitution.
-------------
Each of the Borrower and the Banks, individually, is directed hereby to
replace pages 13 and 47 of the Credit Agreement with the pages 13 and 47 annexed
hereto respectively.
Section 4. Miscellaneous Provisions.
-------------------------
(a) Except as otherwise expressly provided by this Amendment,
all of the terms, conditions and provisions of the Credit Agreement
shall continue in full force and effect. This Amendment and the Credit
Agreement shall be read and construed as one instrument.
<PAGE>
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT
UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as an agreement under seal of the date first written above.
UNITED STATES CELLULAR CORPORATION
/s/ Kenneth R. Meyers
By: --------------------------------
Name:
Title:
BANKBOSTON, N.A., individually, as
administrative agent and as Co-
Agent
/s/ Julie Jalelian
By: --------------------------------
Name:
Title
TORONTO DOMINION (TEXAS), INC.,
individually, as documentation agent
and as Co- Agent
/s/ Neva Nesbitt
By: --------------------------------
Name:
Title
<PAGE>
Notwithstanding any other provisions of this Agreement and in addition to the
limit set forth above, at no time shall (a) the aggregate principal amount of
all outstanding Swing Line Loans plus the aggregate principal amount of all
Revolving Credit Loans outstanding exceed the Total Commitment then in effect or
(b) the sum of the aggregate outstanding Swing Line Loans plus all outstanding
Revolving Credit Loans made by BankBoston exceed BankBoston's Commitment
Percentage of the Total Commitment then in effect.
(b) Notice of Borrowing. When the Borrower desires the Swing Line
Bank to make a Swing Line Loan, it shall send to the Administrative Agent and
the Swing Line Bank a Loan Request, which shall set forth the principal amount
of the proposed Swing Line Loan and the date on which the proposed Swing Line
Loan would mature (the "Swing Line Loan Maturity Date"), which shall in no event
be later than the Maturity Date. Each such Loan Request must be received by the
Swing Line Bank not later than 12:00 p.m. (Boston time) on the date of the
proposed borrowing. Each Loan Request shall be irrevocable and binding on the
Borrower and shall obligate the Borrower to borrow the Swing Line Loan from the
Swing Line Bank on the proposed Drawdown Date thereof. Upon satisfaction of the
applicable conditions set forth in this Agreement, on the proposed Drawdown Date
the Swing Line Bank shall make the Swing Line Loan available to the Borrower no
later than 3:00 p.m. (Boston time) on the proposed Drawdown Date by crediting
the amount of the Swing Line Loan to the Borrower's account maintained with
LaSalle National Bank, Chicago, ABA #071-000-505, Account #22-2813-9 in the name
of United States Cellular Corporation; provided that the Swing Line Bank shall
not advance any Swing Line Loans after it has received notice from any Bank or
the Administrative Agent that a Default or Event of Default has occurred and
stating that no new Swing Line Loans are to be made until such Default or Event
of Default has been cured or waived in accordance with the provisions of this
Credit Agreement. The Swing Line Bank shall not be obligated to make any Swing
Line Loans at any time when any Bank is a Delinquent Bank unless the Swing Line
Bank has entered into arrangements satisfactory to it to eliminate the Swing
Line Bank's risk with respect to such Delinquent Bank, including by cash
collateralizing such Delinquent Bank's Commitment Percentage of the outstanding
Swing Line Loans and any such additional Swing Line Loans to be made.
(c) Interest on Swing Line Loans. The outstanding amount of each
Swing Line Loan shall bear interest from the Drawdown Date thereof until repaid
in full at the rate per annum equal to the Base Rate from time to time in effect
less one-half of one percent (0.50%), except as otherwise provided in section
3.11, and shall be paid quarterly in arrears on the last day of each calendar
quarter.
(d) Repayment of Swing Line Loans. The Borrower shall repay each
outstanding Swing Line Loan on or prior to the Swing Line Loan Maturity Date
relating thereto. Upon notice by the Swing Line Bank on any Business Day
(whether before or on the Maturity Date), each of the Banks hereby agrees to
make payments to the Administrative Agent, for the account of the Swing Line
Bank, on the next succeeding Business Day following such notice, in an amount
equal to such Bank's Commitment Percentage of the aggregate amount of all Swing
Line Loans outstanding. The parties hereto agree that such payments made to the
Administrative Agent for the pro rata account of the Swing Line Bank shall
constitute Revolving Credit Loans made to the Borrower hereunder, except that
such Loans shall bear interest from the date of such payment to the
Administrative Agent until repaid in full at the per annum rate equal to the
Base Rate from time to time in effect less one-half of one percent (0.50%),
except as otherwise provided for in section 3.11. The proceeds thereof shall be
applied directly to the Swing Line Bank to repay the Swing Line Bank for such
outstanding Swing Line Loans. Each Bank hereby absolutely, unconditionally and
irrevocably agrees to make such Revolving Credit Loans upon one
-13-
<PAGE>
In proving this Credit Agreement it shall not be necessary to produce or account
for more than one such counterpart signed by the party against whom enforcement
is sought.
Section 20. ENTIRE AGREEMENT, ETC. The Loan Documents and any other
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Credit Agreement nor any term hereof may be changed,
waived, discharged or terminated, except as provided in section 22.
Section 21. WAIVER OF JURY TRIAL. The Borrower hereby waives its
right to a jury trial with respect to any action or claim arising out of any
dispute in connection with this Credit Agreement or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of such rights and obligations. The Borrower (a) certifies that no
representative, agent or attorney of any Bank or the Administrative Agent has
represented, expressly or otherwise, that such Bank or the Administrative Agent
would not, in the event of litigation see to enforce the foregoing waivers and
(b) acknowledges that the Banks have been induced to enter into this Credit
Agreement and the other Loan Documents by, among other things, the Borrower's
waivers and certifications contained herein.
Section 22. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise
expressly provided in this Credit Agreement, any consent or approval required or
permitted by this Credit Agreement to be given by the Banks may be given, and
any term of this Credit Agreement or of any other instrument related hereto or
mentioned herein may be amended, and the performance or observance by the
Borrower of any terms of this Credit Agreement or such other instrument or the
continuance of any Default or Even of Default may be waived (either generally or
in a particular instance and either retroactively or prospectively) with, but
only with, the written consent of the Borrower and the written consent of the
Majority Banks. Notwithstanding the foregoing, (I) the term and the amount of
the Commitments of the Banks may not be changed, (ii) the rate of interest on
the Loans and the amount of the Facility Fee hereunder may not be decreased,
(iii) the terms of Section 2.9 may not be changed without the written consent of
the Swing Line Bank and the Majority Banks, and (iv) the terms of this Section
22 may not be changed without the written consent of the Borrower and the
written consent of each of the Banks; the definition of Majority Banks or the
number of Banks required for any consent or approval hereunder may not be
amended without the written consent of each of the Banks; and Section 11 may not
be amended without the written consent of each of the Agents. No waiver shall
extend to or affect any obligation not expressly waived or impair any right
consequent thereon. No course of dealing or delay or omission on the part of any
Bank or Agent in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall
entitle the Borrower to other or further notice or demand in similar or other
circumstances.
Section 23. FCC APPROVAL. Notwithstanding anything to the contrary
contained in this Credit Agreement or in the other Loan Documents, neither the
Administrative Agent nor any Bank will take any action pursuant to this
Agreement or any of the other Loan Documents which would constitute or result in
a change in control of the Borrower or any of its Subsidiaries requiring the
prior approval of the FCC without first obtaining such prior approval of the
FCC. After the occurrence of an Event of Default, the Borrower shall take or
cause to be taken any action which the Administrative Agent may reasonably
request in order to obtain from the FCC such approval as may be necessary to
enable the Administrative Agent to exercise and enjoy the full rights and
benefits granted to the Administrative Agent, for the benefit of the Banks and
the Agents, by this Credit Agreement or any of the other Loan Documents,
including, at the Borrower's cost and expense, the use of the Borrower's
-47-
Exhibit 10
TERMS OF OFFER LETTER BETWEEN
UNITED STATES CELLULAR CORPORATION
AND JOHN E. ROONEY
The following are the material terms of the Offer Letter by United
States Cellular Corporation ("USCC") and accepted by John E. Rooney on March 28,
2000 relating to his employment as President and Chief Executive Officer of
USCC.
o A base salary at the annual rate of $450,000 per year through December 31,
2000, with a performance review following year-end 2000.
o Assuming a start date of April 10th, Mr. Rooney will receive a minimum
prorated (9 months) bonus of $169,000 for 2000, which is based on 50% of
his base pay rate ($450,000 x .5 = $225,000. $225,000 x .75 = $168,750). If
Mr. Rooney and his team exceed business plan objectives, his 2000 bonus
could increase. Starting in 2001, Mr. Rooney's target bonus opportunity
will be 50% of his base salary for the year and be based on USCC's results
for the year versus those targeted in USCC's senior management bonus
program. With superior performance, he will be eligible for bonus awards
significantly above the targeted 50% level.
o Ability to defer salary and/or bonus payments.
o Participation in the USCC Long-Term Incentive Programs as follows:
o A grant of 55,000 USCC stock options, effective on Mr. Rooney's first
day of employment with USCC at a strike price equal to the closing
price of USCC's stock on that date. This grant will vest in 5 equal
annual installments, with the first 20% vesting one year after the date
of the grant.
o An annual grant of USCC restricted stock. The first annual restricted
stock grant effective March 31, 2001, will be for the 2000 performance
year.
o The target number of restricted stock shares for 2000 is that number which
provides the same estimated present value, at the time of the award, as the
present value at Mr. Rooney's start date of one-fifth of his up front stock
option grant. The actual number of restricted shares that Mr. Rooney earns
in any year will be in direct proportion to the percentage of the target
team bonus that is earned under USCC's top management incentive program for
that year. The number of shares earned in any year will range from zero to
whatever percentage above target is earned under this incentive program for
that year.
The restricted stock shares will fully vest three years from the date of
the grant. When they vest, Mr. Rooney can choose to have them paid out in
either stock or cash.
o Accelerated vesting after six years of service. After Mr. Rooney's
sixth anniversary with USCC, all previously granted but unvested
granted stock option and restricted stock awards will fully vest no
later than six months after the date of such sixth anniversary. Stock
option awards and restricted stock awards made after Mr. Rooney's sixth
anniversary date with USCC will fully vest six months after the date
they are granted.
o A seat on the USCC Board.
Exhibit 12
UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Three Months
Ended
March 31, 2000
----------------
(Dollars in thousands)
EARNINGS
Income from Continuing Operations before
income taxes $ 80,758
Add (Deduct):
Minority Share of Cellular Losses (420)
Earnings on Equity Method (8,725)
Distributions from Minority Subsidiaries 5,481
---------
$ 77,094
Add fixed charges:
Consolidated interest expense 9,155
Amortization of debt expense and discount on indebtedness 204
Interest Portion (1/3) of Consolidated Rent Expense 2,319
---------
$ 88,772
=========
FIXED CHARGES
Consolidated interest expense $ 9,155
Amortization of debt expense and discount on indebtedness 204
Interest Portion (1/3) of Consolidated Rent Expense 2,319
---------
$ 11,678
=========
RATIO OF EARNINGS TO FIXED CHARGES 7.60
=========
Tax-Effected Preferred Dividends $ 60
Fixed Charges 11,678
---------
Fixed Charges and Preferred Dividends $ 11,738
=========
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 7.57
=========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNITED STATES CELLULAR CORPORATION AS OF
MARCH 31, 2000, AND FOR THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 233,946
<SECURITIES> 597,438
<RECEIVABLES> 114,606
<ALLOWANCES> 9,963
<INVENTORY> 29,793
<CURRENT-ASSETS> 462,495
<PP&E> 1,627,691
<DEPRECIATION> 553,249
<TOTAL-ASSETS> 3,559,029
<CURRENT-LIABILITIES> 223,362
<BONDS> 547,145
0
0
<COMMON> 87,869
<OTHER-SE> 2,218,082
<TOTAL-LIABILITY-AND-EQUITY> 3,559,029
<SALES> 14,127
<TOTAL-REVENUES> 360,087
<CGS> 34,597
<TOTAL-COSTS> 298,934
<OTHER-EXPENSES> (28,965)
<LOSS-PROVISION> 5,538
<INTEREST-EXPENSE> 9,360
<INCOME-PRETAX> 80,758
<INCOME-TAX> 33,619
<INCOME-CONTINUING> 47,139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,139
<EPS-BASIC> .54
<EPS-DILUTED> .52
</TABLE>
Exhibit 99.1
Contact: Kenneth R. Meyers, Executive Vice President - Finance
(773) 399- 8900 [email protected]
FOR RELEASE: IMMEDIATE
U.S. CELLULAR BOARD OF DIRECTORS AUTHORIZES ADDITIONAL
COMMON STOCK REPURCHASE
May 5, 2000, Chicago, Illinois - United States Cellular Corporation [AMEX:USM]
announced today that its Board of Directors has authorized the repurchase of up
to 1,400,000 additional Common Shares or approximately 1.6% of the shares
outstanding. On May 4, 2000, USM had 53,306,965 Common and 33,005,877 Series A
Common Shares outstanding, or 86,312,842 total shares. The Board authorized USM
management to use its discretion to make the purchases, as market conditions
warrant, on the open market or at negotiated prices in private transactions.
John E. Rooney, President and Chief Executive Officer commented: "We are very
pleased with the success of the current stock repurchase program which we will
complete next week. This new repurchase program is a continuation of our ongoing
efforts to enhance shareholder value. At the same time we retain the financial
flexibility to pursue other strategic opportunities that are available in the
telecommunications industry."
Under a previously announced stock repurchase authorization for 1.4 million
shares announced March 3, 2000 the company purchased 1,288,900 shares for $82.9
million during the period March 7, 2000 through May 4, 2000.
Based in Chicago, USM manages and invests in cellular systems throughout the
United States. As of March 31, 2000 USM managed operational systems serving 145
markets.
Except for historical and factual information presented, other information set
forth in this news release may represent forward-looking statements, including
all statements about USM's plans, beliefs, estimates and expectations. These
statements are based on current estimates and projections, which involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Important factors that may affect
these forward-looking statements include, but are not limited to: changes in the
overall economy; changes in competition in the markets in which USM operates;
advances in telecommunications technology; changes in the regulatory
environment; pending and future litigation; unanticipated changes in growth in
cellular customers, penetration rates, churn rates, roaming rates and the mix of
products and services offered in our markets. Investors are encouraged to
consider these and other risks and uncertainties that are discussed in documents
filed by USM with Securities and Exchange Commission ("SEC").
For more information about U.S. Cellular visit the company web site at:
www.uscellular.com
