<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-16714
CONTEL CELLULAR INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 58-1413513
------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
245 Perimeter Center Parkway, Atlanta, Georgia 30346
------------------------------------------------------------------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 804-3400
================================================================================
<PAGE> 2
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Reference
--------------
Consolidated Statements of Operations . . . . . . . . . . . . 33
Consolidated Statements of Cash Flows . . . . . . . . . . . . 34
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Changes in Stockholders' Equity. . 37
Notes to Consolidated Financial Statements. . . . . . . . . . 38
Report of Independent Public Accountants. . . . . . . . . . . 58-59
32
<PAGE> 3
<TABLE>
CONTEL CELLULAR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share data)
<CAPTION>
For The Years Ended December 31,
1993 1992 1991
------------ ------------ -----------
<S> <C> <C> <C>
Revenues and Sales:
Service revenues $ 346,460 $ 262,479 $ 209,794
Equipment sales 27,554 24,520 25,313
------------ ------------ -----------
374,014 286,999 235,107
Costs and Expenses: ------------ ------------ -----------
Cost of services 44,659 35,870 37,191
Cost of equipment sales 49,449 37,678 37,669
Selling, general and administrative 200,021 167,909 128,728
Depreciation 66,573 54,401 42,060
Amortization of FCC licenses,
goodwill and other intangibles 41,617 41,254 46,368
Merger integration costs - - 11,668
------------ ------------ -----------
402,319 337,112 303,684
------------ ------------ -----------
Operating Loss (28,305) (50,113) (68,577)
------------ ------------ -----------
Interest expense, net 162,907 148,092 157,119
Other (income) expense, net (2,360) 516 328
------------ ------------ -----------
Loss before Minority Interests (188,852) (198,721) (226,024)
Minority interests 841 2,374 2,298
------------ ------------ -----------
Loss from Consolidated Operations (188,011) (196,347) (223,726)
Equity in earnings of unconsolidated partnerships 37,351 29,027 15,687
Gains on sales of partnership interests 48,023 60,806 18,387
------------ ------------ -----------
Loss before Income Taxes (102,637) (106,514) (189,652)
Benefit from income taxes (27,719) (33,453) (70,752)
------------ ------------ -----------
Loss Before Cumulative Effect of
Change in Accounting Principles (74,918) (73,061) (118,900)
Cumulative Effect of Change in Accounting Principles (241) (2,080) -
------------ ------------ -----------
Net Loss $ (75,159) $ (75,141) $ (118,900)
============ ============ ===========
Loss Per Share Before Cumulative
Effect of Change in Accounting Principles $ (0.75) $ (0.73) $ (1.19)
Cumulative Effect of Change in Accounting
Principles Per Share - (0.02) -
------------ ------------ -----------
Net Loss Per Share $ (0.75) $ (0.75) $ (1.19)
============ ============ ===========
Average Common Shares Outstanding 99,949 99,947 99,942
============ ============ ===========
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</FN>
</TABLE>
33
<PAGE> 4
<TABLE>
CONTEL CELLULAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
<CAPTION>
For the Years Ended December 31,
1993 1992 1991
-----------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (75,159) $ (75,141) $ (118,900)
Adjustments to reconcile net loss to net cash
provided from operating activities -
Depreciation 66,573 54,401 42,060
Amortization of FCC licenses, goodwill and other intangibles 41,617 41,254 46,368
Merger integration costs - - 11,668
Gains on sales of partnership interests (48,023) (60,806) (18,387)
Gains on sales of other assets (1,651) - -
Deferred income tax provision 33,152 38,451 63,975
Provision for losses on accounts receivable 6,298 7,528 7,929
Distributed (Undistributed) earnings of unconsolidated partnerships (17,548) (12,258) 1,643
Other, net (6,302) (102) (10,229)
Changes in current assets and current liabilities excluding the
effects of acquisitions and dispositions:
(Increase) in accounts receivable and advances to unconsolidated (24,318) (2,275) (13,196)
partnerships
(Increase)Decrease in taxes receivable/payable - affiliates (9,774) 36,936 17,765
(Increase)Decrease in other current assets (5,559) (134) 2,154
(Increase)Decrease in accrued interest - affiliates (2,392) 6,245 19,639
Increase in other current liabilities 47,702 4,108 4,697
------------------------------------------
Net Cash Provided from Operating Activities 4,616 38,207 57,186
------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (130,042) (183,504) (107,792)
Acquisitions, net of cash acquired (25,887) - (126,937)
Proceeds from sales of partnership interests 60,795 71,252 19,361
Advances to(from) unconsolidated partnerships, net 6,866 (609) (1,775)
Contributions to limited partnerships (13,831) (12,631) (26,363)
Repayment of loan to unconsolidated partnership - - 3,900
Other, net 71 (659) (9,554)
------------------------------------------
Net Cash Used in Investing Activities (102,028) (126,151) (249,160)
------------------------------------------
Cash Flows from Financing Activities:
Proceeds from notes payable - affiliate, net 85,468 79,293 195,034
Proceeds from other long-term obligations 6,512 - -
Payment of other long-term obligations (6,000) - -
Contributions from minority partners 10,047 1,731 4,803
Other, net 22 142 290
------------------------------------------
Net Cash Provided from Financing Activities 96,049 81,166 200,127
------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (1,363) (6,778) 8,153
Cash and Cash Equivalents at Beginning of Year 1,641 8,419 266
------------------------------------------
Cash and Cash Equivalents at End of Year $ 278 $ 1,641 $ 8,419
==========================================
Supplemental Disclosures:
Income taxes (refunded) paid $ (70,960) $ (108,966) $ (153,684)
==========================================
Interest paid $ 168,977 $ 143,791 $ 141,700
==========================================
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
</FN>
</TABLE>
34
<PAGE> 5
<TABLE>
CONTEL CELLULAR INC.
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
<CAPTION>
December 31, December 31,
1993 1992
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 278 $ 1,641
Accounts receivable-trade, net of allowance for doubtful
accounts of $4,674 and $4,356 53,673 35,951
Advances to unconsolidated partnerships 8,039 13,601
Inventories 6,765 3,123
Other 4,616 963
-------------- -------------
73,371 55,279
-------------- -------------
Investments and Other Assets:
FCC licenses, goodwill and other intangibles, net of
accumulated amortization of $157,806 and $116,189 1,287,437 1,306,465
Investments in and advances to unconsolidated partnerships 163,755 144,274
Deferred charges and other 5,630 8,135
-------------- -------------
1,456,822 1,458,874
-------------- -------------
Property and Equipment, at Cost:
Land 20,001 15,171
Buildings and towers 121,993 91,819
Equipment 477,589 365,687
Furniture and fixtures 4,299 4,027
Assets under construction 82,660 81,309
-------------- -------------
706,542 558,013
Accumulated depreciation (183,751) (141,697)
-------------- -------------
522,791 416,316
-------------- -------------
$ 2,052,984 $ 1,930,469
============== =============
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
</FN>
</TABLE>
35
<PAGE> 6
<TABLE>
CONTEL CELLULAR INC.
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
<CAPTION>
December 31, December 31,
1993 1992
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of other long-term obligations $ 6,000 $ 6,000
Accounts payable-construction and trade 60,407 9,095
Accounts payable-affiliates 23,552 14,211
Advance billings and customer deposits 3,638 3,439
Accrued interest - affiliates 37,591 39,983
Accrued taxes - other than income 18,536 10,563
Accrued expenses and other current liabilities 25,054 18,261
-------------- --------------
174,778 101,552
-------------- --------------
Long-term Obligations:
Notes payable - affiliates 1,901,726 1,814,327
Other 36,792 36,280
-------------- --------------
1,938,518 1,850,607
-------------- --------------
Deferred Income Taxes 151,881 114,342
Other Deferred Credits 14,333 18,078
Minority Interests 14,695 11,974
Stockholders' Deficit:
Class A common stock, $1 par value; authorized 100,000,000
shares, issued 10,000,000 shares 10,000 10,000
Class B common stock, $1 par value; authorized 100,000,000
shares, issued 90,000,000 shares 90,000 90,000
Paid-in capital 33,358 33,367
Accumulated deficit (373,305) (298,146)
Class A common stock held in treasury, 51,267 and 52,667 shares, at cost (1,274) (1,305)
-------------- --------------
(241,221) (166,084)
-------------- --------------
$ 2,052,984 $ 1,930,469
============== ==============
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
</FN>
</TABLE>
36
<PAGE> 7
<TABLE>
CONTEL CELLULAR INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(THOUSANDS)
<CAPTION>
CLASS A CLASS B
COMMON COMMON TOTAL
STOCK, STOCK, STOCKHOLDERS'
$1 PAR $1 PAR PAID-IN ACCUMULATED TREASURY EQUITY
VALUE VALUE CAPITAL DEFICIT STOCK (DEFICIT)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1990 $ 10,000 $ 90,000 $ 33,406 $ (104,105) $ (1,776) $ 27,525
NET LOSS - - - (118,900) - (118,900)
ISSUANCE OF RESTRICTED STOCK AND STOCK
UNDER EMPLOYEE STOCK OPTION PLANS - - (18) - 272 254
OTHER - - 36 - - 36
-----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1991 10,000 90,000 33,424 (223,005) (1,504) (91,085)
NET LOSS - - - (75,141) - (75,141)
ISSUANCE OF RESTRICTED STOCK AND STOCK
UNDER EMPLOYEE STOCK OPTION PLANS - - (57) - 199 142
-----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 10,000 90,000 33,367 (298,146) (1,305) (166,084)
NET LOSS - - - (75,159) - (75,159)
ISSUANCE OF RESTRICTED STOCK AND STOCK
UNDER EMPLOYEE STOCK OPTION PLANS - - (9) - 31 22
-----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 $ 10,000 $ 90,000 $ 33,358 $ (373,305) $ (1,274) $ (241,221)
=============================================================================
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
</FN>
</TABLE>
37
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Contel Cellular Inc. (the "Company"), a 90-percent-owned subsidiary of Contel
Corporation ("Contel"), was incorporated in Delaware on September 24, 1980.
The Company, through its subsidiaries or through partnerships, provides or
participates in providing cellular telephone services in various metropolitan
statistical areas ("MSAs") and rural service areas ("RSAs") throughout the
United States. Refer to the "Interests in MSAs and RSAs" following the Notes
to Consolidated Financial Statements for additional information.
On March 14, 1991, in accordance with the terms of a definitive merger
agreement entered into on August 7, 1990, each share of Contel's common stock
was converted into the right to receive 1.27 shares of common stock of GTE
Corporation ("GTE") in a tax-free exchange. The Company's common stock was
not affected by the merger. The Company remains a 90-percent-owned subsidiary
of Contel, which became a wholly owned subsidiary of GTE upon completion of the
merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all wholly owned subsidiaries and
partnerships in which the Company holds a controlling interest. Investments in
partnerships in which the Company does not hold a controlling interest are
accounted for using the equity method of accounting. Significant intercompany
transactions are eliminated in consolidation.
REVENUE RECOGNITION
The Company earns service revenues by providing access to its cellular systems
("access revenue") and for usage of its cellular systems ("airtime revenue").
All customers acquired prior to December 1993 are billed one month in advance
for access revenue. In December 1993, the Company began billing new customers
for access in arrears. Access revenue is recognized when earned. Airtime
revenue, including roaming revenue and long-distance revenue, is recognized
when the service is rendered. Other service revenues are recognized after
services are performed and include connection and installation revenues.
Equipment sales are recognized upon delivery of the equipment to the customer.
DEPRECIATION
The Company records depreciation using the straight-line method over the
estimated useful lives of the assets, which are 20 years for buildings, 15
years for towers, 7 to 10 years for cell and switching equipment, and 3 to 5
years for furniture and fixtures. The Company removes the cost and accumulated
depreciation of retirements from the accounts and recognizes the related gain
or loss upon the disposition or disposal of assets. Gains and losses due to the
disposal of network equipment are not material for 1993, 1992 or 1991.
INTEREST EXPENSE
Interest expense related to construction activity is capitalized as a cost of
construction. Interest capitalized amounted to $2.5 million, $2.6 million and
$2.2 million for 1993, 1992 and 1991, respectively.
INCOME TAXES
Income tax expense is based on reported earnings before income taxes. Deferred
taxes reflect the impact of temporary differences between the amount of assets
and liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. As further described in Note 6, in 1992 the
Company adopted the provision of Statement of Financial Accounting Standards
("FAS") No. 109, "Accounting for Income Taxes". In accordance with FAS 109,
deferred income taxes have been established for all temporary differences
between the book and tax basis of assets and liabilities, including those which
had not been
38
<PAGE> 9
previously recognized. In addition, deferred tax balances are adjusted to
reflect tax rates, based on currently enacted tax laws, that will be in effect
in the years in which the temporary differences are expected to reverse.
NET LOSS PER SHARE
Net loss per share for all years presented was computed using the weighted
average number of shares of Class A and Class B Common Stock outstanding,
adjusted for common stock equivalents.
CASH EQUIVALENTS
The Company considers all highly liquid unrestricted cash investments with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories include cellular telephone equipment held for sale and are valued
at the lower of cost or market. Cost is determined using the specific
identification method. Accessories are expensed when purchased and are not
material in amount.
FCC LICENSES, GOODWILL AND OTHER INTANGIBLES
Costs incurred in connection with the acquisition of partnership interests in
excess of the net tangible assets acquired are capitalized as Federal
Communications Commission ("FCC") license costs, customer base or goodwill and
are amortized on a straight-line basis. FCC license costs and goodwill are
amortized over 40 years, and customer base is amortized over 4 years.
ASSETS UNDER CONSTRUCTION
The Company's network construction expenditures are recorded as assets under
construction until the system or assets are placed in service. When the assets
are placed in service, they are transferred to the appropriate property and
equipment category and depreciated. The Company's construction employees'
salaries, benefits and travel expenses, as well as other related departmental
expenses, are capitalized to assets under construction during the construction
period.
FINANCIAL INSTRUMENTS
The fair values of financial instruments, other than long-term debt, closely
approximate their carrying values. The estimated market value of long-term
debt at December 31, 1993 and 1992, based on either reference to quoted market
prices or an option pricing model, exceeded the carrying value by approximately
$74 million and $29 million, respectively.
PRESENTATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. ACCOUNTING CHANGES
During the fourth quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("FAS 112"). FAS 112 requires the expected cost of postemployment
benefits to be recognized during the years that employees render service.
Prior to adoption, the cost of these benefits was charged to expense on a
pay-as-you-go basis. As a result of adoption, a one-time, non-cash, charge of
$0.2 million (net of deferred tax benefit) was recorded to recognize the annual
cumulative of this change in accounting principle.
During the fourth quarter of 1992, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106") and No. 109,
"Accounting for Income Taxes" ("FAS 109"), retroactive to January 1, 1992.
39
<PAGE> 10
FAS 106 requires the expected cost of postretirement health care and
life insurance benefits to be recognized during the years that employees render
service. Prior to adoption, the cost of these benefits was charged to expense
on a pay-as-you-go basis. The Company elected to adopt FAS 106 on the
immediate recognition basis. As a result, a one-time, non-cash, charge of $2.1
million (net of deferred tax benefits of $1.1 million), or $.02 per share, was
recorded to give effect to past service costs. Refer to Note 7 for further
information regarding postretirement benefits other than pensions.
4. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS
The Company holds non-controlling interests in various MSA and RSA partnerships
(referred to as "Unconsolidated Partnerships") which were formed to provide
cellular telephone services. Unconsolidated Partnerships are accounted for
using the equity method of accounting. Refer to the "Interests in MSAs and
RSAs" following the Notes to Consolidated Financial Statements for a list of
the Company's Unconsolidated Partnership interests. In addition, refer to
Note 5 for information regarding acquisitions and dispositions of ownership
interests.
Combined condensed results of operations and combined net assets of
the Company's Unconsolidated Partnerships are as follows:
<TABLE>
<CAPTION>
(Thousands)
For the Years Ended December 31, 1993 1992 1991
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Results of Operations:
Revenues $ 1,201,815 $ 949,903 $ 785,801
Costs and Expenses (866,504) (694,139) (593,047)
Other Income (Expense) (12,698) 11,546 (4,312)
---------------------------------------------
Net Income 322,613 267,310 188,442
Other Partners' Share of MSA Net Income 283,494 234,921 169,208
---------------------------------------------
Company's Share of MSA Net Income 39,119 32,389 19,234
Company's Share of RSA Net Losses (1,768) (3,362) (3,547)
---------------------------------------------
$ 37,351 $ 29,027 $ 15,687
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(Thousands)
December 31, 1993 1992
- - -----------------------------------------------------------------------------------
<S> <C> <C>
Net Assets:
Current Assets $ 241,167 $ 208,964
Noncurrent Assets 977,474 836,247
Current Liabilities (198,234) (159,678)
Noncurrent Liabilities (6,994) (9,655)
-----------------------------
Net Assets 1,013,413 875,878
Other Partners' Share of MSA Net Assets 866,388 753,105
-----------------------------
Company's Share of MSA Net Assets 147,025 122,773
Other 16,730 21,501
-----------------------------
$ 163,755 $ 144,274
-----------------------------
</TABLE>
40
<PAGE> 11
The managing partner of each of the Unconsolidated Partnerships
generally has the authority to manage, supervise and conduct the affairs of the
partnership, make all decisions appropriate in connection with the business
purposes of the partnership and incur obligations and execute agreements on
behalf of the partnership. Under the terms of the partnership agreements, the
Company is entitled to review and audit the records of the partnership in those
Unconsolidated Partnerships it does not manage.
In certain of the Unconsolidated RSA Partnerships, the Company serves
as the managing partner. In such cases, the Company retains all other rights
and responsibilities of a non-controlling partner. As managing partner, the
Company provides the initial capital, through cash advances, required for
construction expenditures and operating expenses. At December 31, 1993 and
1992, the Company had provided cash advances of $12.7 million and $19.6
million, respectively, of which approximately $4.7 million and $6.0 million,
respectively, represents the Company's proportionate share. The remainder
represents a current receivable from the other partners or the partnerships and
is included in Advances to Unconsolidated Partnerships in the accompanying
consolidated balance sheets.
The financial statements of certain material Unconsolidated
Partnerships were audited by other auditors: Los Angeles SMSA Limited
Partnership (the "Los Angeles Partnership") and Washington D.C. SMSA Limited
Partnership (the "Washington D.C. Partnership") as of December 31, 1993 and
1992 and for the three years ended December 31, 1993; and San Antonio SMSA
Limited Partnership, as of December 31, 1993 and 1992 and for the two years
ended December 31, 1993. The Los Angeles Partnership is the most significant
Unconsolidated Partnership, accounting for a substantial portion of "Equity in
Earnings of Unconsolidated Partnerships" for each year presented.
The amount of undistributed earnings of Unconsolidated Partnerships
included in Accumulated Deficit in the accompanying consolidated balance sheets
was approximately $48.7 million and $31.2 million at December 31, 1993 and
1992, respectively. There were no restricted earnings of Unconsolidated
Partnerships on an aggregate basis at December 31, 1993 or 1992.
On February 14, 1994, PacTel Cellular Inc. ("PacTel") was served an
Orange County Superior Court complaint filed by Autophone, Inc., an agent of
Los Angeles Cellular Telephone Company ("LACTC"). The complaint was filed
against LACTC, the wireline cellular carrier in Los Angeles ("the LA
Partnership"), PacTel and an agent of LACTC. The Company is a limited partner
and owns an 11.2% interest in the LA Partnership. The complaint alleges
violations of California's Cartwright Act and Unfair Practices Act and seeks
unspecified damages.
On October 7, 1993, PacTel was served with an Orange County Superior
Court complaint filed by Goldenwest Cellular Corporation, an agent of LACTC,
the non-wireline cellular carrier in Los Angeles, California. The complaint
was filed against LACTC, the Los Angeles SMSA Limited Partnership, the LA
Partnership, PacTel and an agent of LACTC. The Company is a limited partner
and owns an 11.2% interest in the LA Partnership. The complaint alleges
violations of California's Cartwright Act and Unfair Practices Act and seeks
unspecified damages. The LA Partnership intends to defend itself vigorously in
both complaints, however, the outcome of these matters are uncertain, and
accordingly no provision for any liability has been made in the accompanying
financial statements.
On February 22, 1991, a lawsuit was filed against Bell Atlantic Mobile
Systems, Inc. ("BAMS") by Robert H. Kressin; General Partner, Cellular Phone
Stores Limited Partnership, a former agent of BAMS of Washington, D.C. and
Baltimore, Maryland. BAMS is the parent of BAMS of Washington, Inc., which is
the general partner in the Washington D.C. SMSA Limited Partnership (the
"Partnership"). The Company holds a limited partnership interest of 35.27% in
the Partnership. This suit alleged breach of contract, negligence, antitrust
violations, fraud and other torts and sought compensatory and punitive damages
of over one billion dollars. In April of 1993, this lawsuit was tried before a
jury in the Superior Court for the District of Columbia. On April 19, 1993, a
judgment was entered against BAMS for $11 million in connection with the breach
of contract claim. BAMS filed a motion seeking an appeal of the damages award,
but on January 6, 1994, entered an order with the court agreeing to pay the
plaintiff $11 million. BAMS has notified the Company that approximately 95% of
this award is applicable to the Partnership and was reflected in the financial
statements of the Partnership. The Company recorded its share of the judgment
in the fourth quarter of 1993.
41
<PAGE> 12
5. ACQUISITIONS AND DISPOSITIONS OF PARTNERSHIP INTERESTS
In December 1993, the Company signed a definitive agreement whereby NYNEX
Mobile Communications Company will purchase the Company's interest in the MSA
systems serving Orange County, Poughkeepsie, Binghampton and Elmira, New York;
Manchester, New Hampshire; and Burlington, Vermont. Also included are New
Hampshire RSA 2; Vermont RSAs 2 and 2A; New York RSAs 2 and 3; and Pennsylvania
RSAs 3A and 4A.
On February 27, 1990, the Company purchased the Southeast Properties
from McCaw Cellular Communications Inc. ("McCaw") for approximately $1.32
billion in cash. The acquisition was accounted for as a purchase, and
accordingly, the operations of these properties are included in the
accompanying consolidated financial statements from the date of acquisition.
The acquisition was financed through an interim intercompany loan from Contel
Capital Corporation ("Contel Capital"), a wholly owned subsidiary of Contel.
Refer to Note 10 for additional information regarding this loan.
In April 1991, the Company elected the application of Internal Revenue
Code Section 338(h)(10) (the "338(h)(10) Election") in connection with the
acquisition of the Southeast Properties. A 338(h)(10) election alters the
nature of an acquisition from a stock purchase to an asset purchase for income
tax purposes only. Hence, income tax benefits will be generated from
amortization of certain intangibles that were previously not deductible for
income tax purposes. An adjustment, retroactive to the date of acquisition,
was reflected in the third quarter of 1991 which increased income tax benefits
recorded by $9.5 million. Concurrent with the 338(h)(10) Election, the Company
was required to reimburse McCaw approximately $82.8 million for the applicable
increase in McCaw's income tax liabilities resulting from this election.
Appraisals of the Southeast Properties were completed in the third
quarter of 1991 and adjustments to the purchase price allocation were made at
that time. Three categories of intangibles were identified in the appraisals:
FCC license costs, customer base and goodwill. FCC license costs and goodwill
are amortized over a period of 40 years and the customer base is amortized over
4 years. Resulting adjustments, retroactive to the date of acquisition,
increased amortization expense by $6.0 million in 1991.
42
<PAGE> 13
Acquisition and disposition transactions completed as of December 31,
1993 by the Company are included in the table below.
<TABLE>
<CAPTION>
MSA RSA
Percentage Company Company
Estimated Purchased/ Population Population
Market Population (1) Sold Equivalents Equivalents
<S> <C> <C> <C> <C> <C>
1993
- - ----
Acquisitions: San Francisco, San Jose, Vallejo,
Santa Rosa, Salinas &
Santa Cruz, CA 6,800.2 0.06% 4.3
Tuscaloosa, AL 154.7 2.80% 4.3
New York 3 476.4 2.50% 11.9
Tennessee 6 & 9 202.4 100.00% 202.4
----- -----
Total Acquisitions 8.6 214.3
===== =====
Dispositions: Orange County &
Poughkeepsie, NY 581.5 25.00% 145.4
Rapid City, SD 106.6 100.00% 106.6
Marion & Winston Co.- AL 1 52.1 100.00% 52.1
Arizona 2, 3, 4 & 6 649.4 Various 191.1
Idaho 2 & 3 75.8 Various 17.0
Iowa 2, 7 & 10 286.3 Various 29.8
Minnesota 4, 7, 8, 9, 10 & 11 803.9 Various 61.5
North Dakota 3 92.0 7.69% 7.1
South Dakota 5-B2 & 6-B2 15.4 Various 4.5
Washington 1, 2, 3 & 4 505.5 Various 122.8
----- -----
Total Dispositions 252.0 485.9
===== =====
Total Company Population Equivalents at December 31, 1993 24,089.0
====================================================================================================================
Total Gains on Sales of Partnership Interests for the year ended December 31, 1993 $48,023
====================================================================================================================
1992
- - ----
Acquisitions: Arkansas 1 & 8 94.4 6.22% 5.9
Idaho 2 59.9 3.04% 1.8
Minnesota 11 200.8 0.20% 0.4
----- -----
Total Acquisitions 0.0 8.1
===== =====
Dispositions: Fayetteville & Fort Smith, AR 431.9 Various 322.3
Arkansas 1 & 8 94.4 57.22% 54.0
Idaho 4 & 5 266.1 Various 51.0
Oklahoma 4 183.5 66.67% 122.3
----- -----
Total Dispositions 322.3 227.3
===== =====
Total Company Population Equivalents at December 31, 1992 24,181.8
====================================================================================================================
Total Gains on Sales of Partnership Interests for the year ended December 31, 1992 $60,806
====================================================================================================================
</TABLE>
43
<PAGE> 14
<TABLE>
<CAPTION>
MSA RSA
Percentage Company Company
Estimated Purchased/ Population Population
Market Population (1) Sold Equivalents Equivalents
<S> <C> <C> <C> <C> <C>
1991
- - ----
Acquisitions: Fayetteville, AR 211.4 0.90% 1.9
Arizona 2 & 3 230.5 Various 23.8
California 3 & 4 435.5 Various 27.4
Kentucky 7 156.9 100.00% 156.9
New Mexico 1 272.9 11.11% 30.3
Oregon 5 251.6 33.33% 83.9
Tennessee 1, 3, 5 & 7 1,198.2 Various 1,032.8
----- -------
Total Acquisitions 1.9 1,355.1
===== =======
Dispositions: Asheville, NC 192.7 1.49% 2.9
Savannah, GA 266.0 38.00% 101.1
California 10 85.7 100.00% 85.7
Georgia 2, 3, 4, 8, 11 & 12 784.9 Various 240.9
Kentucky 6 107.5 100.00% 107.5
Missouri 2, 3, 4, 14, 15, 16 & 18 559.8 Various 209.0
Nevada 3 81.8 50.00% 40.9
Texas 7, 9, 12, 13 & 14 280.4 Various 94.0
Utah 1 & 3 160.2 Various 35.9
Washington 5 74.2 18.47% 13.7
----- -------
Total Dispositions 104.0 827.6
===== =======
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Company Population Equivalents at December 31, 1991 24,145.5
====================================================================================================================================
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Gains on Sales of Partnership Interests for the year ended December 31, 1991 $18,387
====================================================================================================================================
<FN>
1) Population figures are reported by the Donnelly marketing population
estimates for counties comprising FCC defined MSAs and RSAs.
</FN>
</TABLE>
44
<PAGE> 15
6. INCOME TAXES
In 1993, 1992 and 1991, the Company was included in the consolidated federal
income tax return of GTE. In accordance with GTE's tax sharing policy, the
Company computes its federal income taxes on a separate company return basis
without regard to separate company utilization of operating losses. GTE
reimburses its subsidiaries for utilization of taxable losses on a quarterly
basis.
The net benefit from income taxes consists of the following:
<TABLE>
<CAPTION>
(Thousands)
For the Years Ended December 31, 1993 1992 1991
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (65,823) $ (74,176) $ (134,791)
State 707 1,200 64
----------------------------------------
(65,116) (72,976) (134,727)
Deferred:
Federal 36,228 39,499 63,998
State 1,169 24 (23)
----------------------------------------
37,397 39,523 63,975
----------------------------------------
$ (27,719) $ (33,453) $ (70,752)
----------------------------------------
</TABLE>
Income tax refunds, net of income taxes paid, totaled $71.0 million,
$109.0 million and $153.7 million for 1993, 1992 and 1991, respectively.
The following is a summary of the items which caused recorded income
taxes to differ from taxes computed using the statutory federal income tax
rate:
<TABLE>
<CAPTION>
(Thousands)
For the Years Ended December 31, 1993 1992 1991
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 34.0% 34.0%
Income tax benefit at statutory rate $(35,923) $(36,215) $(64,482)
Increase (decrease) in tax benefit resulting from:
State income taxes, net of federal tax benefit 1,219 808 27
Amortization of Goodwill 1,755 1,462 (5,107)
Retroactive impact of change in statutory
federal tax rate 3,329 --- ---
Other, net 1,901 492 (1,190)
-------------------------------------
Actual income tax benefit $(27,719) $(33,453) $(70,752)
-------------------------------------
Effective Tax Rate 27.0% 31.4% 37.3%
-------------------------------------
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 was enacted on August 10,
1993 and includes a provision for an increase in the corporate federal income
tax rate by 1% to 35%, retroactive to January 1, 1993. As a result, $3.3
million of additional deferred tax expense was recorded in September, 1993.
45
<PAGE> 16
A summary of the components of the deferred income tax provision is as
follows:
<TABLE>
<CAPTION>
(Thousands)
For the Years Ended December 31, 1993 1992 1991
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization $ 37,902 $ 36,671 $ 69,762
Limited partnership losses 1,990 3,380 ---
Merger integration costs --- 2,408 (2,408)
Other, net (2,495) (2,936) (3,379)
-----------------------------------
$ 37,397 $ 39,523 $ 63,975
-----------------------------------
</TABLE>
Additionally, in 1992, $1.1 million of deferred tax benefits are netted
in Cumulative Effect of Change in Accounting Principles in the accompanying
consolidated statements of operations.
Deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
(Thousands)
December 31, 1993 1992
- - --------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization $ 144,691 $ 106,789
Limited partnership losses 10,812 8,822
Business repositioning --- 3,211
Other, net 2,718 118
------------------------
Total deferred tax liability 158,221 118,940
------------------------
Gains on sale of partnership interests (2,439) (2,439)
Other postretirement benefits (2,704) (1,444)
Other, net (1,339) (715)
------------------------
Total deferred tax assets (6,482) (4,598)
------------------------
151,739 114,342
Less amount classified as other current assets (142) ---
------------------------
Total net deferred tax liability $ 151,881 $ 114,342
========================
</TABLE>
7. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
As of January 1, 1992, all of the Company's employees began participating in
GTE Service Corporation's defined benefit pension plan. The benefits to be
paid under this plan are generally based on years of credited service and
average final earnings. GTE's funding policy, subject to the minimum funding
requirements of employee benefit and tax laws, is to contribute such amounts as
are determined on an actuarial basis to provide the plan with assets sufficient
to meet the benefit obligations of the plan. The assets of the plan consist
primarily of corporate equities, government securities and corporate debt
securities.
The net pension cost included in consolidated operations for 1993 and
1992 included the following components:
<TABLE>
<CAPTION>
(Thousands) 1993 1992
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits earned during the period $ 1,509 $ 1,618
Interest cost on projected benefit obligations 254 15
Actual return on plan assets (11) (8)
Other, net (53) (9)
-----------------------
Net pension cost $ 1,699 $ 1,616
-----------------------
</TABLE>
The expected long-term rate of return on plan assets was 8.25% for 1993 and
1992.
46
<PAGE> 17
The funded status of the plan at December 31, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
(Thousands) 1993 1992
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $ 912 $ 232
Projected benefit obligation (4,860) (1,877)
----------------------
Excess of projected obligation over assets (3,948) (1,645)
Unrecognized net loss 628 24
----------------------
Unfunded pension cost $ (3,320) $ (1,621)
----------------------
</TABLE>
The projected benefit obligations at December 31, 1993 and 1992 include
accumulated benefit obligations of $2.1 million and $0.8 million, respectively
and vested benefit obligations of $0.8 million and $0.4 million, respectively.
Assumptions used to develop the projected benefit obligations for 1993
and 1992 were as follows:
<TABLE>
<CAPTION>
December 31, 1993 1992
- - ----------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.50% 8.00%
Rate of salary progression 5.25% 6.00%
</TABLE>
During 1991, certain of the Company's employees participated in
Contel's defined benefit pension plan. The benefits were based on an
employee's years of service and average earnings for the five highest
consecutive calendar years of compensation during the 10 years immediately
preceding retirement. The Company's policy was to fund pension cost in
accordance with applicable regulations.
The records of the plan were maintained for the total Contel pension
plan but not by subsidiary. The net assets available for benefits exceeded the
projected benefit obligation at December 31, 1991. Total Company pension cost
under this plan for the year 1991 was $0.3 million.
During 1991, the Company also participated in Contel's defined
contribution plan, which was available to employees meeting applicable service
requirements. The Company contributed a percentage of each participant's
compensation to this plan. The total amount contributed in 1991 was $0.9
million.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Substantially all of the Company's management and hourly employees are
covered under postretirement health and life insurance benefit plans. The
health care benefits paid under the Company plans are generally based on
comprehensive hospital, medical and surgical benefit provisions while the life
insurance benefits are presently based on annual earnings at the time of
retirement.
The postretirement benefits cost for the years 1993 and 1992 included
the following components:
<TABLE>
<CAPTION>
(Thousands) 1993 1992
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
Benefits earned during the year $ 939 $ 781
Interest on accumulated postretirement benefit obligations 454 315
Other, net (40) ---
------------------
Postretirement benefit cost $1,353 $1,096
------------------
</TABLE>
No postretirement health care or life insurance benefits were paid
during 1991.
47
<PAGE> 18
The following table sets forth the funded status and the accrued
obligations as of December 31, 1993 and 1992:
<TABLE>
<CAPTION>
(Thousands) 1993 1992
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligations attributable to:
Retirees $ (189) $ (69)
Fully eligible plan participants --- (59)
Other active plan participants (2,765) (3,802)
---------------------
Total accumulated postretirement benefit obligation (2,954) (3,930)
Unrecognized prior service benefit (3,904) ---
Unrecognized net loss 46 ---
---------------------
Accrued postretirement benefit obligation $ (6,812) $ (3,930)
=====================
</TABLE>
The assumed discount rates used to measure the accumulated
postretirement benefit obligation were 7.5% and 8.0% at December 31, 1993 and
1992, respectively. The assumed health care cost trend rates in 1993 and 1992
were 13% and 14%, respectively for pre-65 participants and 9.5% and 10%,
respectively for post-65 retirees, each rate declining on a graduated basis to
an ultimate rate in the year 2004 of 6%. A one-percentage point increase in
the assumed health care cost trend rates for each future year would have
increased 1993 and 1992 postretirement benefit costs by approximately $0.2
million and $0.4 million, respectively and the accumulated postretirement
benefit obligation as of December 31, 1993 and 1992 by approximately $17
thousand and $1.0 million, respectively.
During 1993, the Company made certain changes to its postretirement
health care and life insurance benefits for non-union employees that are
effective January 1, 1995. These changes include, among others, newly
established limits to the Company's annual contribution to postretirement
medical costs and a revised sharing schedule based on a retiree's years of
service. The net effect of these changes reduced the accumulated benefit
obligation at December 31, 1993 by $3.9 million.
8. COMMITMENTS AND CONTINGENCIES
LEASES
Lease expense relates to the lease of office space, tower facilities, real
estate, office equipment and vehicles. Rents charged to expense were $8.8
million, $6.9 million and $5.4 million for 1993, 1992 and 1991, respectively.
At December 31, 1993, future minimum lease payments under noncancelable
operating leases are as follows (thousands):
<TABLE>
<S> <C>
1994 $ 6,122
1995 5,486
1996 4,740
1997 3,224
1998 1,833
Subsequent Years 3,714
-------
$25,119
=======
</TABLE>
CONSTRUCTION AND CAPITAL COMMITMENTS
Capital expenditures for markets controlled and/or managed by the Company are
planned to be approximately $269 million in 1994, and are expected to be funded
with additional borrowings from affiliates, internally generated funds,
contributions from minority partners and net distributions from Unconsolidated
Partnerships.
The Company also intends to fund its share of future capital
requirements of the Unconsolidated Partnerships. The timing and amounts of
such contributions are subject to the future capital requirements as determined
by the managing partner, and therefore cannot be accurately estimated by the
Company.
48
<PAGE> 19
LEGAL AND REGULATORY MATTERS
In January, 1992 the California Public Utilities Commission ("CPUC") commenced
an investigation of all cellular companies operating in the state of California
to determine their compliance with General Order number 159 ("G.O. 159"). The
investigation will address whether cellular utilities have complied with local,
state or federal regulations governing the approval and construction of
cellular sites in the state. The CPUC may advise other agencies of violations
in their jurisdictions. Presently, the Los Angeles Partnership has prepared
and filed the information requested by the CPUC. The CPUC will review the
information and, if violations of G.O. 159 are found, it may assess penalties
against the Los Angeles Partnership.
In addition to the matter discussed in Note 4 related to the resolved
litigation with BAMS, three additional suits are pending against the Company or
its subsidiaries.
Alan Kahn, a shareholder of the company ("Kahn"), filed a shareholder
derivative action against the Company, Contel Corporation, GTE Corporation and
each member of the Company's Board of Directors alleging that certain
transactions between the company and either GTE Corporation or Contel
Corporation are detrimental to the Company. Kahn seeks damages allegedly
suffered by the Company as a result of these transactions and seeks the
reformation of certain transactions. All defendants have filed a motion to
dismiss this action on the grounds that the complaint fails to allege that the
plaintiff was a shareholder at the time of the transactions of which he
complains. The ultimate outcome of this suit is unclear at this time.
On October 5, 1993, Sparky, Inc., d.b.a. Don Cook's Cellular ("Don
Cook's Cellular"), Air Mobile Communications, Inc., Red Monkey Communications,
and Vincent's Communications, Inc. filed a suit against Contel Cellular of
California, Inc., Fresno MSA Limited Partnership, GTE California Corporation
and GTE Mobilnet, Inc. Portions of the original complaint were dismissed with
leave to amend. An amended complaint was filed on February 25, 1994. Don
Cook's Cellular was an agent of the Fresno MSA Limited Partnership until its
contract expired in February 1993. Each of the other plaintiffs was a subagent
of Don Cook's Cellular. The suit alleges breach of contract, fraud and deceit
through affirmative misrepresentations, fraud and deceit through concealment of
material facts, breach of implied covenant of good faith and fair dealing,
discrimination, price fixing, bad faith refusal to consent to assignment,
misappropriation of confidential business information and certain statutory
claims relating to the California Unfair Practices Act. The plaintiffs' are
seeking $5.5 million in damages. The Company believes each defendant has
meritorious defenses to the claims asserted against them and intends to defend
this suit vigorously. The ultimate outcome of this suit is unclear at this
time.
On December 22, 1993, Arthur Garabedian d.b.a. Western Mobile
Telephone Company brought an action on behalf of himself and on behalf of all
persons or entities who have subscribed to cellular radio service in the Los
Angeles Standard Metropolitan Statistical Area against LASMSA Limited
Partnership, Pacific Telesis Group, Pactel Cellular, Pactel Corporation, GTE
Mobilnet, Inc., Contel Cellular Inc. and U.S. Cellular Corporation. The
complaint alleges retail and wholesale price fixing of cellular radio service.
The plaintiff is seeking in excess of $100 million in damages. The Company
believes it has meritorious defenses to the claims asserted against it. The
ultimate outcome of this suit is unclear at the time.
The Company is subject to legal and regulatory matters in the normal
course of business. In the opinion of management, the outcome of such matters,
in addition to the suits mentioned above, will not have a material effect on
the consolidated financial position or the results of operations of the
Company.
LINE OF CREDIT
Refer to Note 10 for additional information regarding the Company's line of
credit arrangements with GTE.
49
<PAGE> 20
9. LONG-TERM OBLIGATIONS
Other long-term obligations are as follows:
<TABLE>
<CAPTION>
(Thousands)
December 31, 1993 1992
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
9% Promissory Notes due January 1999 $ 6,512 $ ---
8% Promissory Notes payable in annual installments from 1994 to 1996 16,000 22,000
Industrial Development Revenue Bonds:
Due 2004, interest rate of 3.9% at December 31, 1993 8,400 8,400
Due 2005, interest rate of 3.9% at December 31, 1993 2,000 2,000
Due 2006, interest rate of 4.3% at December 31, 1993 3,880 3,880
-------------------
$ 36,792 $36,280
===================
</TABLE>
On December 28, 1993, the Company issued long-term promissory notes in the
amount of $6.5 million at a fixed interest rate of 9% in connection with the
acquisition of 100% interest in Tennessee RSA 9. Accrued interest on the
outstanding principal amount of this note shall be paid quarterly on the first
day of January, April, July and October of each year.
In July 1991, the Company issued $28.0 million of 8% long-term promissory
notes in connection with the acquisition of 100% interests in Tennessee RSAs 5
and 7. The notes are guaranteed by GTE and include various covenants, none of
which are expected to restrict future operations. Aggregate annual repayments
of this debt are $6.0 million for each year through 1995 and $10.0 million for
1996.
The Industrial Development Revenue Bonds are floating/fixed-rate bonds
secured by irrevocable letters of credit issued by the Bank of Nova Scotia
which expire on August 1, 1995, unless otherwise extended. The letters of
credit carry a commitment fee of 1/2 of 1% per annum. The Company may, upon
written notice to the bond trustee, convert the interest rate to a fixed market
rate. Until converted to a fixed rate, the bonds bear interest, payable
quarterly, at a rate equal to a variable percentage (ranging from 65% to 71% at
December 31, 1993) of the Trust Company Bank of Atlanta's prime interest rate.
Refer to Note 10 for additional information regarding the notes payable to
affiliate.
10. RELATED PARTY TRANSACTIONS
GENERAL SERVICES
Prior to the merger of GTE and Contel, the Company operated under a general
services agreement with Contel. Subsequent to the merger, a new management
structure was put in place. The Company's field operations, properties and
corporate officers continue to remain separate from those of GTE Mobilnet, Inc.
("Mobilnet"), GTE's wholly owned cellular subsidiary. GTE Mobile
Communications Service Corporation ("GTEMC") consolidated many of the staff and
support functions previously performed separately by the Company and Mobilnet.
On May 1, 1991, the Company entered into an interim services agreement with
GTEMC whereby support for major functions such as accounting, information
management, human resources, legal, marketing and technology planning were
provided to the Company. These services include many of the services formerly
provided by Contel. During 1991, costs for these services were allocated from
GTEMC to the Company under an interim cost allocation methodology. Effective
January 1992, a new methodology to allocate costs to the Company was
implemented. Under this new methodology the costs allocated to the Company did
not differ significantly from the interim methodology in 1991.
50
<PAGE> 21
A new management structure was implemented in January 1993, under
which the GTEMC headquarters structure was functionally eliminated. Certain
functions previously provided by GTEMC, such as marketing and engineering, are
now provided directly by the Company, or by GTE Personal Communication Services
("GTE PCS"), a division of GTE. During 1993, costs for these services were
allocated from GTE PCS to the Company. The costs incurred under the 1993
structure do not differ significantly from the costs allocated to the Company
under the 1992 methodology.
Amounts expensed by the Company for these services were approximately
$45 million, $44 million and $22 million for the years 1993, 1992 and 1991,
respectively. The increase in 1992 was primarily due to the provision of
services by GTEMC for 12 months in 1992 and 8 months in 1991. In management's
opinion, the cost allocation methodology for all periods is reasonable.
In connection with the merger, the Company recorded merger integration
costs of $11.7 million in 1991. These costs represented both direct and
allocated one-time expenses associated with the centralization of services and
the realignment of operations.
CASH MANAGEMENT AND FINANCING
Through December 31, 1991, the Company participated in Contel's internal
banking system known as the Central Depository Account ("CDA") system. On
January 1, 1992, the CDA system was replaced by cash management services
provided by GTE.
Prior to the merger, Contel also provided the Company with a line of
credit through the Centralized Borrowing Pool (the "CBP") of Contel Capital.
Effective March 15, 1991, GTE made available to Contel Capital funds sufficient
to allow Contel Capital to repay the external borrowings that funded the CBP.
However, this change in funding affected Contel Capital only and did not change
any of the terms or provisions of the Company's note to Contel Capital. In
December 1991, the note payable to Contel Capital became payable to GTE. The
note payable is due on demand and the line of credit may be renegotiated at any
time based on the Company's working capital and construction requirements.
Based on the expressed intent and ability of GTE to make funds available to the
Company on a long-term basis, the accompanying consolidated balance sheets
reflect the Notes payable-affiliates as long-term obligations. As of December
31, 1993, outstanding borrowings from GTE under this line of credit were $351.7
million. The interest rate on the borrowings was 6.75% on December 31, 1993.
This rate represents the Prime Rate at December 31, 1993, as quoted in the Wall
Street Journal, plus a .75% per annum fee on the outstanding balance. Prior to
January 1993, the rate was calculated based on GTE's cost of borrowing the
funds, plus 1.5% per annum. Interest expense, which is payable monthly in
arrears, was $19.4 million, $23.5 million and $28.9 million for the years 1993,
1992 and 1991, respectively.
Contel Capital also provided $1.3 billion from a syndicate of banks to
fund the acquisition of the Southeast Properties. On April 5, 1991, Contel
Capital prepaid the interim loan with funds made available from GTE and its
subsidiaries. Upon completion of this refinancing, the Company's $1.3 billion
loan from Contel Capital was replaced with a combination of fixed- and
variable-rate intercompany notes as follows: (i) $700 million at 10.47% payable
to GTE, due March 1, 1998; (ii) $150 million at 9.22% payable to GTE Finance
Corporation, a wholly owned subsidiary of GTE, due February 25, 1993; and (iii)
$450 million due to GTE under the same terms and provisions as borrowings under
GTE's line of credit facility. Included in the interest rates above was an
additional 1.5% per annum, which the Company agreed to pay GTE and GTE Finance
Corporation, for GTE's agreement to become obligated under these financings.
51
<PAGE> 22
On September 25, 1992, the Company refinanced $300 million
variable-rate debt with two $150 million fixed-rate notes, at 8.97% and 8.38%
payable to GTE Finance Corporation, due on September 27, 1999 and September 25,
1997, respectively. Additionally, on December 31, 1992, the Company refinanced
the variable-rate $450 million note mentioned in (iii) above with two $200
million notes, at 8.08% and 8.56% payable to GTE, due on December 31, 1995 and
December 31, 1996, respectively. The remaining $50 million is included in the
intercompany variable-rate debt.
On February 25, 1993, the Company refinanced the $150 million
fixed-rate note mentioned in (ii) above with a $150 million note bearing
interest at 7.71% payable to GTE Finance Corporation, due on February 25, 1997.
Effective June 1992, upon conversion of the short-term, floating-rate debt to
long-term, fixed-rate debt, the Company is charged the comparable Treasury Rate
plus 3.0% per annum. This rate closely approximates rates that would be
charged by non-affiliated commercial lenders to corporations of similar credit
quality for fixed-rate debt. Interest expense under these financings is
payable to GTE semi-annually and amounted to $145.4 million, $121.0 million,
$128.3 million in 1993, 1992 and 1991, respectively. The effective interest
rate under these borrowings was approximately 9.4% at December 31, 1993.
PURCHASES
The Company purchased cellular telephone equipment and accessories during 1993
from GTE PCS, and during 1992 and 1991 from GTEMC, totaling $45.7 million,
$29.6 million, and $20.8 million, respectively, which approximates cost.
TRANSFER OF INTERESTS IN RSA MARKETS
During 1988 and 1989, the Company participated in the FCC's license award
process to provide cellular service in 428 RSAs throughout the country. At
that time, the Company and Contel entered into an agreement whereby other
subsidiaries of Contel were given the right to control or hold interests in RSA
markets where the Company chose not to participate. In 1990, Contel decided to
maintain all cellular interests within one company. Accordingly, in the third
quarter of 1990, Contel transferred, at book value, its interests in 49 RSAs to
the Company. None of the RSAs were operational. The Company agreed that if
any of these RSA interests were sold within a three-year period expiring August
1, 1993, the Company would remit the proceeds of such sales, net of the
Company's investment, to Contel. Accordingly, no gain or loss would be
recognized by the Company in connection with the sale of any such interest.
The Company did not sell any interests in the transferred RSA markets from
January 1, 1993 to August 1, 1993. In 1992, the Company sold interests in two
such RSA markets and remitted to Contel $2.5 million in net proceeds in 1993.
During 1991, the Company sold interests in 12 of the transferred RSA markets
and remitted to Contel $15.9 million in net proceeds.
ACCOUNTS PAYABLE - AFFILIATES
In addition to the affiliated financing agreements disclosed above, the Company
has affiliated accounts payable of $23.6 million for accrued income taxes at
December 31, 1993, and $13.8 million for accrued income taxes and $0.4 million
for accounts payable to a general partner at December 31, 1992.
11. COMMON STOCK
The Company's Class A and Class B Common Stock are identical in all respects
except for the following: 1) The Class A common stockholders are entitled to
one vote per share and the Class B common stockholders are entitled to five
votes per share; 2) the holders of each class of stock will be entitled to
receive stock dividends only of the same class of stock; and, 3) shares of
Class B Common Stock are convertible into Class A Common Stock at the option of
the holder at any time.
Both classes of the common stock have non-cumulative voting rights.
Dividends may be declared and paid to one class only if an equal per share
dividend is declared and paid to the other class. Both classes share equally
on a pro rata basis in the event of liquidation or dissolution. GTE, through
Contel, owns all shares of Class B Common Stock, or 90% of the total number of
shares outstanding and approximately 98% of the combined voting power of both
classes of stock.
The Company also has 3 million authorized shares of preferred stock
(the "Preferred Stock") which may be issued in one or more series at the
discretion of the Board of Directors. The Board of Directors is authorized to
determine the terms, rights,
52
<PAGE> 23
privileges, preferences and restrictions of any unissued series of Preferred
Stock prior to issuance. The Company presently has no plans to issue any
shares of Preferred Stock.
12. STOCK OPTIONS AND RESTRICTED STOCK UNITS
In accordance with the 1987 Key Employee Stock Plan (the "Stock Plan"), the
Company may grant stock options, stock appreciation rights and restricted stock
units related to Class A Common Stock to key employees. The maximum number of
shares of Class A Common Stock reserved for issuance under the Stock Plan is
1,000,000 of which 920,650 shares were available for future grants as of
December 31, 1993.
The following schedule summarizes stock option transactions under the
Stock Plan:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
------ ---------
<S> <C> <C>
Outstanding at January 1, 1991 237,500 $15.31-22.25
(22,333 exercisable)
Granted 100,000 22.81
Exercised (11,000) 15.31
Forfeited (228,800) 15.31-22.81
---------
Outstanding at December 31, 1991 97,700 15.31-22.81
(20,465 exercisable)
Granted 8,250 17.25
Exercised (8,000) 15.31
Forfeited (5,100) 15.31-22.81
---------
Outstanding at December 31, 1992 92,850 15.31-22.81
(53,700 exercisable)
Granted 11,400 14.74-15.25
Exercised (1,000) 15.31
Forfeited (23,900) 15.31-22.81
---------
Outstanding at December 31, 1993 79,350
=========
</TABLE>
Of the 79,350 stock options outstanding at December 31, 1993, 56,550
were exercisable. Included in the total number of options outstanding at
December 31, 1993 are 26,650 shares which include 2/3 tandem stock appreciation
rights. Stock appreciation rights provide the right to surrender all or a
portion of a stock option for cash or additional shares of stock equal to the
excess of fair market value on the date of exercise over the option price. The
2/3 tandem provision requires that for every two shares of stock surrendered
for the appreciation right attached, one share of stock be purchased at the
option price.
53
<PAGE> 24
13. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(Thousands, Except Per Share Data)
1993 Quarters Fourth Third Second First
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and Sales $ 108,752 $ 98,176 $ 89,390 $ 77,696
Operating Loss (15,769) (1,018) (1,966) (9,552)
Loss from Consolidated
Operations (51,758) (43,459) (40,524) (52,270)
Equity in Earnings of
Unconsolidated Partnerships 9,487 12,236 11,153 4,475
Gains on Sales of
Partnership Interests 39,697 8,326 --- ---
Net Loss Before
Cumulative Effect of Change
in Accounting Principle (4,536) (17,061) (19,834) (33,487)
Cumulative Effect of Change
in Accounting Principle (241) --- --- ---
Net Loss (4,777) (17,061) (19,834) (33,487)
Net Loss Per Share (0.05) (0.17) (0.20) (0 .33)
Common Stock Market Price:
High $22.00 $18.75 $16.25 $18.63
Low 15.00 15.50 13.50 13.25
Close 16.38 17.00 15.50 14.75
</TABLE>
<TABLE>
<CAPTION>
(Thousands, Except Per Share Data)
1992 Quarters Fourth Third Second First
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues and Sales $ 79,707 $ 74,248 $ 70,638 $ 62,406
Operating Loss (19,572) (8,293) (10,814) (11,434)
Loss from Consolidated
Operations (58,567) (43,389) (48,002) (46,389)
Equity in Earnings of
Unconsolidated Partnerships 10,944 7,207 6,119 4,757
Gains on Sales of
Partnership Interests 60,806 --- --- ---
Income/(Loss) Before
Cumulative Effect of Change
in Accounting Principles 9,893 (25,554) (29,146) (28,254)
Cumulative Effect of Change
in Accounting Principles --- --- --- (2,080)
Net Income/(Loss) 9,893 (25,554) (29,146) (30,334)
Net Income/(Loss) Per Share 0.10 (0.26) ( 0.29) (0.30)
Common Stock Market Price:
High $19.00 $16.50 $18.50 $23.25
Low 13.25 13.50 13.00 17.25
Close 17.75 14.75 13.50 17.25
</TABLE>
54
<PAGE> 25
14. SUBSEQUENT EVENTS
On October 12, 1994, a partnership in which the Company holds an 11.3% limited
interest, was served a complaint on behalf of users of cellular service in the
San Francisco, California area. The complaint alleges that the California
Partnership has violated the California Business Profession Code by taking
various actions to restrain trade, prevent competition and fix prices. The
plaintiff seeks unspecified treble damages. The ultimate outcome of this suit
as well as the Company's potential financial liability is uncertain at this
time. Accordingly, no provision for any liability that may result has been
made in the accompanying financial statements.
In addition to the two agent lawsuits discussed in Note 4, the Los Angeles SMSA
Limited Partnership (the "L.A. Partnership") has been directly and indirectly
(through the general partner's affiliation with Airtouch Communications) named
in two complaints served by agents. The Company is a limited partner and owns
an 11.2% interest in the L.A. Partnership. The complaints allege violations of
certain provisions of the California Business and Profession Code. In
addition, three complaints have been filed by subscribers on behalf of all
cellular subscribers in the Los Angeles, California area alleging that the L.A.
Partnership engaged in a conspiracy to fix the price of cellular service.
These three complaints are similar to the Garabedian lawsuit discussed in Note
8. The ultimate outcome of these suits as well as the Company's potential
financial liability is uncertain at this time. Accordingly, no provision for
any liability that may result has been made in the accompanying financial
statements.
55
<PAGE> 26
<TABLE>
CONTEL CELLULAR INC.
INTERESTS IN MSAS AND RSAS (1)
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
COMPANY 1993 COMPANY COMPANY 1993 COMPANY
MSA PERCENTAGE ESTIMATED POPULATION MSA PERCENTAGE ESTIMATED POPULATION
MARKET RANK OWNERSHIP POPULATION(2) EQUIVALENTS MARKET RANK OWNERSHIP POPULATION(2) EQUIVALENTS
- - --------------------------------------------------------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONTROLLED NON-CONTROLLED
MSA INTERESTS MSA INTERESTS
Memphis, TN 36 100.00% 1,012.0 1,012.0 Los Angeles, CA 2 11.20% 14,588.1 1,633.9
Louisville, KY 37 100.00% 920.3 920.3 San Francisco, CA 7 11.25% 3,797.0 427.3
Birmingham, AL 41 100.00% 892.2 892.2 Washington, D.C. 8 35.27% 3,761.2 1,326.6
Norfolk, VA 43 95.01% 1,002.7 952.7 Houston, TX 10 4.40% 3,811.9 167.7
Nashville, TN 46 100.00% 1,028.8 1,028.8 Minneapolis, MN 15 30.00% 2,543.8 763.1
Richmond, VA 59 95.01% 777.9 739.1 San Jose, CA 27 11.25% 1,535.8 172.8
Fresno, CA 74 92.00% 720.3 662.7 San Antonio, TX 33 30.00% 1,359.7 407.9
Knoxville, TN 79 94.12% 530.7 499.5 Sacramento, CA 35 0.98% 1,474.1 14.4
El Paso, TX 81 100.00% 637.3 637.3 Jacksonville, FL 51 14.24% 987.9 140.7
Mobile, AL 83 100.00% 500.5 500.5 Greenville, SC 67 10.83% 665.3 72.1
Johnson City, TN 85 100.00% 448.2 448.2 Oxnard, CA 73 11.20% 693.4 77.6
Chattanooga, TN 88 100.00% 443.4 443.4 Austin, TX 75 3.00% 850.2 25.5
Bakersfield, CA 97 92.00% 602.3 554.1 Albuquerque, NM 86 49.00% 575.1 281.8
Davenport, IA 98 100.00% 359.9 359.9 Beaumont, TX 101 4.40% 377.2 16.6
Newport News, VA 104 95.01% 461.1 438.1 Stockton, CA 107 0.98% 513.9 5.0
Lexington, KY 116 100.00% 361.7 361.7 Vallejo, CA 111 11.25% 489.4 55.0
Evansville, IN 119 88.87% 316.1 280.9 Santa Rosa, CA 123 11.25% 408.7 46.0
Binghamton, NY 122 41.00% 307.4 126.0 Santa Barbara, CA 124 39.00% 379.2 147.9
Pensacola, FL 127 100.00% 367.5 367.5 Salinas, CA 126 11.25% 371.3 41.8
Rockford, IL 131 59.00% 296.9 175.2 Modesto, CA 142 0.98% 410.7 4.0
Manchester, NH 133 60.00% 336.3 201.8 Galveston, TX 170 4.40% 231.8 10.2
Visalia, CA 150 92.00% 339.9 312.7 Reno, NV 171 0.98% 276.8 2.7
Roanoke, VA 157 40.00% 235.1 94.0 Santa Cruz, CA 174 11.25% 230.6 25.9
Clarksville, TN 209 100.00% 171.2 171.2 Chico, CA 215 0.98% 194.1 1.9
Tuscaloosa, AL 222 80.36% 158.1 127.0 Anderson, SC 227 10.83% 147.4 16.0
Florence, AL 226 91.09% 135.9 123.8 Redding, CA 254 0.98% 165.0 1.6
Petersburg, VA 235 95.01% 128.3 121.9 Yuba City, CA 274 0.98% 132.8 1.3
Burlington, VT 248 100.00% 139.9 139.9 ----------------------
Anniston, AL 249 100.00% 115.6 115.6 TOTAL NON- 40,972.4 5,887.3
Gadsden, AL 272 90.00% 100.4 90.4 CONTROLLED ======================
Elmira, NY 284 100.00% 95.1 95.1
Las Cruces, NM 285 100.00% 148.3 148.3
Owensboro, KY 293 88.87% 88.9 79.0
---------------------- ----------------------
TOTAL CONTROLLED 14,180.2 13,220.8 TOTAL MSAS 55,152.6 19,108.1
====================== ======================
<FN>
(1) Reflects interests in MSAs and RSAs as of December 31, 1993. Refer to Part
I of the Company's Form 10-K, Management's Discussion and Analysis and
Note 5 of the "Notes to Consolidated Financial Statement's for subsequent
transactions and further information regarding the Company's ownership
interests in MSA and RSA systems.
(2) Population figures are reported by the 1993 Donnelly marketing population
estimates for counties comprising FCC defined MSAs and RSAs.
</FN>
</TABLE>
56
<PAGE> 27
<TABLE>
CONTEL CELLULAR INC.
INTERESTS IN MSAS AND RSAS (1)
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
COMPANY 1993 COMPANY COMPANY 1993 COMPANY
PERCENTAGE ESTIMATED POPULATION PERCENTAGE ESTIMATED POPULATION
MARKET OWNERSHIP POPULATION(2) EQUIVALENTS MARKET OWNERSHIP POPULATION (2) EQUIVALENTS
- - ----------------------------------------------------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONTROLLED NON-CONTROLLED
RSA INTERESTS RSA INTERESTS
California 6 100.00% 28.5 28.5 New Mexico 1 44.44% 245.6 109.1
California 7 100.00% 124.2 124.2 Illinois 8 41.13% 330.7 136.0
California 9 100.00% 139.2 139.2 Illinois 9 41.13% 152.4 62.7
Kentucky 2 100.00% 126.5 126.5 Illinois 2 40.00% 144.9 58.0
Kentucky 7 100.00% 163.0 163.0 California 5 39.00% 222.9 86.9
Kentucky 11 100.00% 168.6 168.6 South Dakota 5 33.33% 12.9 4.3
Tennessee 1 100.00% 293.4 293.4 California 3 27.73% 139.3 38.6
Tennessee 5 100.00% 329.5 329.5 Alabama 1 25.00% 164.7 41.2
Tennessee 6 100.00% 153.0 153.0 South Dakota 6 14.29% 35.5 5.1
Tennessee 7 100.00% 242.7 242.7 California 1 16.67% 209.5 34.9
Tennessee 9 100.00% 64.0 64.0 Iowa 8 16.67% 54.6 9.1
Virginia 7 100.00% 38.0 38.0 New Mexico 6 - II 12.50% 119.7 15.0
Virginia 8 95.01% 82.8 78.7 Illinois 3 11.77% 203.7 24.0
Virginia 9 95.01% 84.8 80.6 Virginia 6 10.00% 208.7 20.9
Virginia 11 95.01% 107.8 102.4 Iowa 1 7.07% 61.6 4.3
Virginia 12 95.01% 32.4 30.8 Minnesota 1 6.60% 50.6 3.3
California 12 92.00% 108.3 99.6 Minnesota 2 6.60% 62.2 4.1
Illinois 1 91.50% 313.3 286.7 Minnesota 3 6.60% 57.3 3.8
Vermont 1 83.27% 204.3 170.1 Minnesota 5 6.60% 202.7 13.4
Vermont 2 83.27% 191.2 159.2 Minnesota 6 6.60% 241.4 15.9
Virginia 5 77.00% 62.3 48.0 Iowa 14 5.56% 108.4 6.0
Texas 10 75.00% 29.1 21.8 Virginia 10 1.00% 225.5 2.3
New Mexico 6 - I 71.43% 59.8 42.8 Pennsylvania 3 0.10% 95.6 0.1
Oregon 5 66.67% 247.1 164.7 Pennsylvania 4 0.10% 96.7 0.1
Virginia 3 51.00% 181.2 92.4 ----------------------
Virginia 4 51.00% 64.7 33.0 TOTAL NON-CONTROLLED 3,447.1 699.1
Tennessee 3 49.00% 323.1 158.3 ======================
----------------------
TOTAL CONTROLLED 3,962.8 3,439.7
======================
<CAPTION>
MANAGED, NON-CONTROLLED
RSA INTERESTS
<S> <C> <C> <C> <C> <C> <C>
Kentucky 1 50.00% 184.8 92.4
New Mexico 3 50.00% 76.6 38.3
North Carolina 1 50.00% 174.1 87.0
New Mexico 5 43.00% 55.1 23.7
Iowa 4 38.10% 155.3 59.2
New Hampshire 2 36.59% 205.8 75.3
Indiana 7 35.00% 218.7 76.5
Indiana 8 35.00% 249.3 87.3
Indiana 9 35.00% 141.0 49.4
New York 2 25.00% 234.3 58.6
New York 3 22.50% 487.0 109.6
California 4 20.83% 333.3 69.4
Iowa 5 14.29% 108.1 15.4
---------------------- ----------------------
TOTAL MANAGED 2,623.4 842.1 TOTAL RSAS 10,033.3 4,980.9
====================== ======================
</TABLE>
57
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
Contel Cellular Inc.:
We have audited the consolidated balance sheets of CONTEL CELLULAR INC. (a
Delaware corporation and majority-owned subsidiary of GTE Corporation) AND
SUBSIDIARIES as of December 31, 1993 and 1992 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of certain
unconsolidated partnerships as described in Note 4 to the financial statements.
The investment in these partnerships is reflected in the accompanying balance
sheets using the equity method of accounting and represented $82,140,000 and
$62,543,000 (or 4% and 3% respectively) of total consolidated assets at
December 31, 1993 and 1992, respectively. The equity in their earnings is
included in the statements of operations and represented $28,024,000,
$20,070,000, and $16,570,000 for the years ended December 31, 1993, 1992, and
1991, respectively. The summarized financial information contained in Note 4
to the consolidated financial statements includes financial information for the
aforementioned partnerships. The financial statements of these unconsolidated
partnerships were audited by other auditors whose reports have been furnished
to us, and our opinion, insofar as it relates to the amounts included for these
unconsolidated partnerships, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements (pages 33 - 57) referred to above present fairly, in all
material respects, the financial position of Contel Cellular Inc. and
subsidiaries as of December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
A report of other auditors referred to above indicates that the Los Angeles
SMSA Limited Partnership is involved in litigation with several agents as
discussed in Note 4 and Note 14 and with cellular subscribers as discussed in
Note 8 and Note 14, the outcome of which cannot presently be determined.
Accordingly, no provision for any liability that may result upon adjudication
has been made in the accompanying financial statements.
58
<PAGE> 29
Page 2
As discussed in Note 14, the cellular partnership in San Francisco, California,
of which the Company holds a non-controlling interest, is involved in
litigation with a class of cellular subscribers, the outcome of which cannot
presently be determined. Accordingly, no provision for any liability that may
result upon adjudication has been made in the accompanying financial
statements.
As discussed in Note 3 to the financial statements, effective January 1, 1992,
the Company changed its method of accounting for postretirement benefits other
than pensions.
/s/ARTHUR ANDERSEN LLP
- - -----------------------------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 25, 1994
(except with respect to the matters discussed in
Note 14, as to which the date is January 25, 1995)
59
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). Financial Statements
The following consolidated financial statements of Contel Cellular Inc.
are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page Reference
--------------
<S> <C>
Consolidated Statements of Operations -
For the Years Ended December 31,
1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Cash Flows -
For the Years Ended December 31,
1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Balance Sheets
December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . 36-36
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) - For the Years
Ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 38-57
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . 58-59
(a)(2). Financial Statement Schedules:
Report of Independent Public Accountants on Schedules . . . . . . . . . . . . . . . *
For the Years Ended December 31, 1993, 1992 and 1991
V - Property and Equipment . . . . . . . . . . . . . . . . . . . . . *
VI - Accumulated Depreciation of Property
and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . *
VIII - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . *
X - Supplementary Income Statement Information . . . . . . . . . . . *
</TABLE>
* These schedules were filed with Form 10-K for the fiscal year end December
31, 1993.
All other schedules are omitted because they are not applicable, not required,
or because the required information is included in the accompanying financial
statements or notes thereto.
60
<PAGE> 31
(a)(3). Exhibits
<TABLE>
<CAPTION>
Exhibit No.
- - -----------
<S> <C>
3(a). Restated Certificate of Incorporation, incorporated by reference from
the Registration Statement on Form S-1 (Registration No. 33-17323).
3(b). By-Laws, incorporated by reference from the Registration Statement on
Form S-1 (Registration No. 33-17323).
4(a). Promissory Note dated April 5, 1991, in the principal amount of
$700,000,000, payable by Contel Cellular Inc. to GTE
Corporation, incorporated by reference from the Annual Report
on Form 10-K for the fiscal year ended December 31, 1990.
4(b). Promissory Note dated April 5, 1991, in the principal amount of
$150,000,000, payable by Contel Cellular Inc. to GTE
Finance Corporation, incorporated by reference from the Annual
Report on Form 10-K for the fiscal year ended December 31,
1990.
4(c). Promissory Note dated January 1, 1991, payable by Contel Cellular Inc.
to GTE Corporation, incorporated by reference from the Annual
Report on Form 10-K for the fiscal year ended December 31,
1991.
4(d). Promissory Note dated September 25, 1992, in the principal amount of
$150,000,000, payable by Contel Cellular Inc. to GTE Finance
Corporation, incorporated by reference from the Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
4(e). Promissory Note dated September 25, 1992, in the principal amount of
$150,000,000, payable by Contel Cellular Inc. to GTE Finance
Corporation, incorporated by reference from the Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
4(f). Promissory Note dated December 31, 1992, in the principal amount of
$200,000,000, payable by Contel Cellular Inc. to GTE
Corporation, incorporated by reference from the Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
4(g). Promissory Note dated December 31, 1992, in the principal amount of
$200,000,000, payable by Contel Cellular Inc. to GTE
Corporation, incorporated by reference from the Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
4(h). Promissory Note dated February 25, 1993, in the principal amount of
$150,000,000, payable by Contel Cellular Inc. to GTE Finance
Corporation, incorporated by reference from the Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
10(a). 1987 Contel Cellular Inc. Key Employee Stock Plan, incorporated by
reference from the Registration Statement on Form S-1
(Registration No. 33-17323). Amendment dated September 9, 1989,
incorporated by reference from the Annual Report on Form 10-K
for the fiscal year ended December 31, 1989.
10(b). Third Restated Competition Agreement between Contel Corporation, GTE
Corporation and Contel Cellular Inc., dated as of March 14,
1991, incorporated by reference from the Annual Report on Form
10-K for the fiscal year ended December 31, 1990.
10(c). Services Agreement between Contel Cellular Inc. and GTE Mobile
Communications Service Corporation dated May 1, 1991,
incorporated by reference from the Annual Report on Form 10-K
for the fiscal year ended Decmeber 31, 1991. First Amendment
to the Services Agreement dated as of September 5, 1991,
incorporated by reference from the Annual Report on Form 10-K
for the fiscal year ended December 31, 1992. Second Amendment
to the Services Agreement dated as of January 1, 1992,
incorporated by reference from the Annual Report on Form 10-K
for the fiscal year ended December 31, 1992. Third Amendment
to the Services Agreement dated March 11, 1993, filed with Form
10-K for the fiscal year ended December 31, 1993.
10(d). Trademark License Agreement between Contel Corporation and Contel
Cellular Inc., dated as of August 29, 1984, incorporated by
referenece from the Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.
10(e). Agreement of Sublease between Contel Corporation and Contel Cellular
Inc., dated as of April 1, 1988, incorporated by reference from
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.
10(f). GTE Corporation Executive Incentive Plan, as amended, incorporated by
reference from the Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.
</TABLE>
61
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit No.
- - -----------
<S> <C>
10(g). GTE Corporation Model Unit Incentive Plan incorporated by reference
from the Annual Report on Form 10-K for the fiscal year ended
December 31, 1991. Amendment to GTE Corporation Model Unit
Incentive Plan, incorporated by reference from the Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
10(h). GTE Corporation Executive Retired Life Insurance Plan, as amended,
incorporated by reference from the Annual Report on Form 10-K
for the fiscal year ended December 31, 1991.
10(i). GTE Corporation Supplemental Executive Retirement Plan, as amended,
incorporated by reference from the Annual Report on Form 10-K
for the fiscal year ended December 31, 1992. Amendment dated
December 30, 1993, filed with Form 10-K.
10(j). GTE Mobile Communications Management Incentive Plan, incorporated by
reference from the Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.
10(k). Purchase Agreement between Contel Cellular Inc. and NYNEX Mobile
Communications Company dated as of December 3, 1993, filed with
Form 10-K for the fiscal year ended December 31, 1993.
21. Subsidiaries of the Registrant, filed with Form 10-K for the fiscal
year ended December 31, 1993.
23(a). Consent of Arthur Andersen & Co., filed herewith.
23(b). Consent of Ernst & Young, filed herewith.
23(c). Consent of Coopers & Lybrand, filed herewith.
99(a). Report of Independent Public Auditors - San Antonio SMSA Limited
Partnership, filed with Form 10-K for the fiscal year ended
December 31, 1993.
99(b). Report of Independent Public Accountants - Los Angeles SMSA Limited
Partnership, filed herewith.
99(c). Report of Independent Public Accountants - Washington D.C. SMSA
Limited Partnership, filed with Form 10-K for the fiscal year
ended December 31, 1993.
(b) Report on Form 8-K:
None
</TABLE>
62
<PAGE> 33
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.
CONTEL CELLULAR INC.
--------------------
(Registrant)
Date: January 25, 1995 By: /s/ Theodore J. Carrier
-----------------------
Theodore J. Carrier
Treasurer and Chief Financial Officer
63
<PAGE> 1
Exhibit 23(a)
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K/A-1 into Contel
Cellular Inc.'s previously filed Registration Statement File No. 33-25735.
/S/ ARTHUR ANDERSEN LLP
- - -----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 24, 1995
<PAGE> 1
Exhibit 23(b)
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S - 8 No. 33-25735) pertaining to the 1987 Key Employee Stock
Plan of Contel Cellular, Inc. of our report dated February 11, 1994, with
respect to the financial statements of San Antonio SMSA Limited Partnership for
the year ended December 31, 1993 and 1992, included in the Annual Report (Form
10-K), as amended by Form 10-K/A-1 of Contel Cellular, Inc. for the year ended
December 31, 1993 (such financial statements are not included separately in
this form 10-K/A-1).
/S/ ERNST AND YOUNG
- - -------------------
ERNST AND YOUNG
Dallas, Texas
January 23, 1995
<PAGE> 1
Exhibit 23(c)
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation, by reference in this Form S-8 Registration
Statement of Contel Cellular Inc. of our report, which includes explanatory
paragraphs relating to contingencies, dated February 4, 1994, except for the
information presented in paragraphs three, five and six of Note 9, as to which
the date is October 17, 1994, on our audits of the financial statements of the
Los Angeles SMSA Limited Partnership as of December 31, 1993 and 1992 and for
the years ended December 31, 1993, 1992 and 1991 which report is included in
this Annual Report on Form 10-K/A-1. The financial statements referred to
above are not included separately in this Annual Report on Form 10-K/A-1.
/S/ COOPERS AND LYBRAND
- - -----------------------
COOPERS AND LYBRAND
Newport Beach, California
January 23, 1995
<PAGE> 3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statement of
Contel Cellular Inc. on Form S-8 (No. 33-25735) of our reports dated March
16, 1994 and March 5, 1993, on our audits of the financial statements of the
Washington D.C. SMSA Limited Partnership as of December 31, 1993 and 1992 and
for the years ended December 31, 1993, 1992 and 1991, which reports are
included in this Annual Report on Form 10-K for the year ended December 31,
1993, to the amended Part II, Item 8 as of and for the year ended December 31,
1993 which is included in this amendment on Form 10-K/A-1. The financial
statements referred to above are not included separately in this amendment
on Form 10-K/A-1.
/S/ COOPERS AND LYBRAND
- - -----------------------
COOPERS AND LYBRAND
New York, New York
January 23, 1995
<PAGE> 1
Exhibit 99(b)
<PAGE> 2
Report of Independent Accountants
To the Partners of
Los Angeles SMSA Limited Partnership
We have audited the accompanying balance sheets of Los Angeles SMSA Limited
Partnership as of December 31, 1993 and 1992, and the related statements of
operations, partners' capital and cash flows for each of the three years in the
period ended December 31, 1993. We have also audited the accompanying
financial statement schedules V, VI, VIII and X. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express and opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall fianacial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Los Angeles SMSA Limited
Partnership as of December 31, 1993 and 1992, and results of its operations and
its cash flows for each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information to be included
therein.
As discussed in Note 9 to the financial statements, the Partnership has been
named in three separate complaints served by cellular agents. The outcome of
these matters is uncertain and, accordingly, no accrual for these matters has
been made in the accompanying financial statements.
In addition, as discussed in Note 9, three class action suits were filed
against the Partnership alleging violations of state and gederal antitrust
laws. The outcome of these matters is uncertain and, accordingly, no accrual
for these matters has been made in the accompanying financial statements.
/S/ COOPERS AND LYBRAND
- - -----------------------
COOPERS AND LYBRAND
Newport Beach, California
February 4, 1994, except for
the information presented
in paragraphs three, five
and six of Note 9, as to
which the date is
October 17, 1994
