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TELEPHONE & DATA SYSTEMS INC /DE/
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Annual Report: 2014 (Form 10-K)
TELEPHONE & DATA SYSTEMS INC /DE/ - Annual Report: 2014 (Form 10-K)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2014
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OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 001-14157
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TELEPHONE AND DATA SYSTEMS, INC.
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(Exact name of Registrant as specified in
its charter)
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Delaware
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36-2669023
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification No.)
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30 North LaSalle Street, Suite 4000,
Chicago, Illinois 60602
(Address of principal executive offices)
(Zip code)
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Registrant’s telephone number, including
area code: (312) 630-1900
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Shares, $.01 par value
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New York Stock Exchange
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6.625% Senior Notes due 2045
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New York Stock Exchange
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6.875% Senior Notes due 2059
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New York Stock Exchange
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7.0% Senior Notes due 2060
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New York Stock Exchange
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5.875% Senior Notes due 2061
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New York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
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Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
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Yes x
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No
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Indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
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Yes
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No x
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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.
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No
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Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
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No
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Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
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Indicate by
check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Indicate by
check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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Yes
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No x
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As of
June 30, 2014, the aggregate market values of the registrant’s Common
Shares, Series A Common Shares and Preferred Shares held by
non-affiliates were approximately $2.5 billion, $2.4 million and $0.8
million, respectively. For purposes hereof, it was assumed that each
director, executive officer and holder of 10% or more of any class of voting
equity security of Telephone and Data Systems, Inc. (“TDS”) is an affiliate.
The June 30, 2014 closing price of the Common Shares was $26.11 as reported by
the New York Stock Exchange. Because trading in the Series A Common
Shares and Preferred Shares is infrequent, the registrant has assumed for
purposes hereof that (i) each Series A Common Share has a market
value equal to one Common Share because the Series A Common Shares are
convertible on a share-for-share basis into Common Shares, (ii) each
nonredeemable Preferred Share has a market value of $100 because each of such
shares had a stated value of $100 when issued, and (iii) each Preferred
Share that is redeemable by the delivery of TDS Common Shares has a value
equal to the value of the number of Common Shares (at $26.11 per share) on
June 30, 2014 that would be required to be delivered upon redemption.
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The number
of shares outstanding of each of the registrant’s classes of common stock, as
of January 31, 2015, is 100,728,000 Common Shares, $.01 par value, and
7,179,000 Series A Common Shares, $.01 par value.
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DOCUMENTS INCORPORATED BY REFERENCE
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Those
sections or portions of the registrant's 2014 Annual Report to Shareholders
(“Annual Report”), filed as Exhibit 13 hereto, and of the registrant’s Notice
of Annual Meeting of Shareholders and Proxy Statement for its 2015 Annual
Meeting of Shareholders (“Proxy Statement”) to be filed on or prior to April
30, 2015, described in the table of contents included herein are incorporated
by reference into Parts II and III of this report.
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Telephone and
Data Systems, Inc.
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Annual Report
on Form 10-K
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For the Period
Ended December 31, 2014
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TABLE OF CONTENTS
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Telephone and Data Systems, Inc.
30 NORTH LASALLE STREET, SUITE 4000,
CHICAGO, ILLINOIS 60602
TELEPHONE (312) 630-1900
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PART I
Item 1. Business
Telephone and Data Systems, Inc. (“TDS”) is a diversified telecommunications company
providing high-quality telecommunications services to approximately 4.8 million
wireless customers and 1.2 million wireline and cable connections at December
31, 2014. TDS conducts its wireless operations through its majority-owned
subsidiary, United States Cellular Corporation (“U.S. Cellular”). As
of December 31, 2014, TDS owned 84% of the combined total of the outstanding
Common Shares and Series A Common Shares of U.S. Cellular and controlled 96% of
the combined voting power of both classes of common stock. TDS provides wireline
services, cable services and hosted and managed services, through its
wholly-owned subsidiary, TDS Telecommunications Corporation (“TDS Telecom”).
TDS’ business segments reflected in this Annual Report on Form
10-K for the year ended December 31, 2014 are U.S. Cellular and TDS Telecom’s
Wireline, Cable and Hosted and Managed Services (“HMS”) operations. TDS
operations also include the majority-owned printing and distribution company,
Suttle-Straus, Inc. (“Suttle-Straus”) and TDS’ wholly-owned subsidiary,
Airadigm Communications, Inc. (“Airadigm”). Suttle-Straus and Airadigm’s
financial results were not significant to TDS’ operations. All of TDS’
segments operate only in the United States, except for HMS, which includes an
insignificant foreign operation. Additional information about TDS’ segments is
incorporated herein by reference from Note 18 — Business Segment Information,
in TDS’ Annual Report to Shareholders, filed as Exhibit 13 hereto.
TDS was incorporated in 1968 and changed its state of
incorporation from Iowa to Delaware in 1998. TDS executive offices are located
at 30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602. TDS’ telephone
number is 312-630-1900.
TDS Common Shares trade under the ticker symbol
“TDS” on the New York Stock Exchange (“NYSE”). U.S. Cellular Common Shares
trade on the NYSE under the ticker symbol “USM.”
Under listing standards of the NYSE, TDS is a “controlled
company” as such term is defined by the NYSE. TDS is a controlled company
because over 50% of the voting power for the election of directors of TDS is
held by the trustees of the TDS Voting Trust.
The
following map represents TDS’ consolidated areas of operations:
U.S. Cellular Operations
Customers, Services and Products
Customers. U.S. Cellular
provides service to postpaid and prepaid customers from a variety of
demographic segments. U.S. Cellular uses a segmentation model to classify
businesses and consumers into logical groupings for developing new products and
services, direct marketing campaigns, and retention efforts. U.S. Cellular
focuses on retail consumers, government, and small-to-mid-size business
customers in vertical industries such as construction, retail, professional
services and real estate. These customers are served primarily through U.S.
Cellular’s retail and direct sales channels.
Services. U.S. Cellular’s postpaid customers are
able to choose from a variety of national plans with voice, messaging and data
usage options and pricing that are designed to fit different customer needs,
usage patterns and budgets. Helping a customer find the right pricing plan is
an important element of U.S. Cellular’s brand positioning. U.S. Cellular
offers Shared Data plans that include unlimited voice minutes and text
messaging combined with a variety of data usage options. Under these plans,
customers can share data usage among all users and devices connected to the
plan. Business rate plans are designed to meet the unique needs of the
business customer. U.S. Cellular’s national plans price all domestic calls as
local calls, regardless of where they are made or received in the United
States, with no long distance or roaming charges. U.S. Cellular also offers
prepaid service plans, which include voice, messaging and data options in a
variety of ways, for a monthly fee. In 2014, unlimited prepaid plans were
launched which provide customers unlimited voice, messaging and data, including
specified amounts of high speed fourth generation Long Term Evolution (“4G LTE”)
data; data usage over the specified limit is provided at lower speeds to ensure
customers are never without data access. U.S. Cellular also expanded its
device installment contract offerings in 2014 as discussed in “Devices and
Products” below.
U.S. Cellular builds customer loyalty by offering high-quality
network services, customer focused support services, effective pricing and
other benefits including rewards points, which can be used to obtain a free wireless
device or to accelerate the timing of a wireless device upgrade, as well as for
other rewards such as additional lines and accessories. Certain available
postpaid plans include Overage Cap, a free service that prevents voice overage
charges from exceeding $50 for a National Single Line Plan or $150 for a Family
Plan.
U.S. Cellular’s portfolio of smartphones, tablets and other
connected devices (see “Devices and Products” below) is a key part of its
strategy to deliver wireless devices which allow customers to stay productive,
entertained and connected on the go, and are backed by U.S. Cellular’s
high-speed networks, including a 4G LTE network, which, as of December 31,
2014, covered 94% of its postpaid customers. U.S. Cellular’s 4G LTE network supports
smartphone messaging, data and internet services that allow customers to access
the web and social network sites, e-mail, text, picture and video message,
utilize turn-by-turn GPS navigation, and browse and download thousands of
applications to customize their wireless devices to fit their lifestyles. U.S.
Cellular also operates a third generation (“3G”) network, which supports
nationwide roaming.
In 2014, U.S. Cellular
launched several new services such as connected home and new international
dialing. Connected home is a professionally configured, self-installed home
security and automation system whereby customers receive professional home
monitoring services. Additional services such as protection against fire and
other emergencies, as well as energy and video monitoring, are also available
to customers with the connected home solution.
In 2014, U.S. Cellular greatly expanded its solutions to
business and government customers, specifically in the areas of asset/fleet
management, monitor and control, mobile automation and business communication,
through offerings in machine to machine, wireless priority services, and mobile
device management. U.S. Cellular will continue to further enhance its advanced
wireless services and connected solutions for consumer and business customers
in 2015 and beyond.
Devices and Products. U.S. Cellular offers a
comprehensive range of wireless devices such as handsets, modems, mobile
hotspots, home phone and tablets for use by its customers. U.S. Cellular
offers wireless devices that are compatible with some or all of its 4G LTE and 3G
networks and all are compliant with the Federal Communications Commission’s (“FCC”)
enhanced wireless 911 (“E-911”) requirements. In addition, U.S. Cellular
offers a wide range of accessories, significantly expanding the breadth of
products offered, from wireless basics such as carrying cases, hands-free
devices, batteries, battery chargers, and memory cards to related consumer
electronics such as headphones, speakers, and Bluetooth keyboards to customers.
U.S. Cellular also sells wireless devices to agents and other third-party
distributors for resale. U.S. Cellular frequently discounts wireless
devices sold to new and current customers and provides discounts on upgraded
wireless devices to current customers, in order to attract new customers or to
retain existing customers by reducing the cost of becoming or remaining a
wireless customer. In 2013, U.S. Cellular began offering customers the option
to purchase certain devices under installment contracts over a period of up to
24 months and, in 2014, began offering financing under installment contracts
for all wireless devices. For certain installment plans, after a specified
period of time, the customer may have the right to upgrade to a new device,
thus enabling customers to more easily access the latest smartphones and
provide a better overall customer experience.
U.S. Cellular continues to offer
several programs which allow the customer to receive a replacement device
through a retail store or through direct mail. U.S. Cellular also has enhanced
its Device Protection+ program in 2014 to include overnight delivery while
continuing to provide customers peace of mind by covering lost and stolen
devices.
During 2014, U.S. Cellular continued to bolster its expanding
smartphone and tablet portfolio with Android wireless devices and tablets such
as the Samsung Galaxy S5, Samsung Galaxy Note 4, LG G3, Motorola Moto X (2nd
Generation), Motorola G, Samsung Galaxy Tab 4, and LG Gpad, and Apple products
such as the iPhone 6, iPhone 6Plus, iPad Air 2, and iPad Mini. U.S. Cellular’s
smartphone offerings play a significant role in driving data service usage and
revenues. The devices offered include a full array of smartphones and
feature phones. In 2014, U.S. Cellular also offered additional products and services
including phone in a box and connected home.
U.S. Cellular purchases wireless devices and accessory
products from a number of manufacturers, including Samsung, Apple, Motorola,
LG, Superior Communications, Kyocera, ZTE, Tessco, and Sierra Wireless. U.S. Cellular
negotiates volume discounts with its suppliers and works with them in promoting
specific equipment in its local advertising. U.S. Cellular does not own significant
product warehousing and distribution infrastructure. Instead, it contracts
with third party providers for substantially all of its product warehousing,
distribution and direct customer fulfillment activities. U.S. Cellular also
contracts with third party providers for services related to its device
replacement programs.
U.S. Cellular continuously monitors the financial condition of
its wireless device and accessory suppliers. Because U.S. Cellular purchases
wireless devices and accessories from numerous suppliers, U.S. Cellular does
not expect the financial condition of any single supplier to affect its ability
to offer a competitive variety of wireless devices and accessories for sale to
customers.
Marketing, Customer Service, and Sales and Distribution
Channels
Marketing and Advertising. U.S. Cellular’s
marketing plan is focused on acquiring, retaining and growing customer
relationships by maintaining an exceptional wireless network, providing
outstanding customer service, and offering high-quality products and services
built around customer needs at fair prices.
U.S. Cellular believes that creating positive relationships
with its customers enhances their wireless experience and builds customer
loyalty. U.S. Cellular currently offers several innovative, customer-centric
programs and services to customers. The Overage Protection service provides
customers peace-of-mind by sending them text message alerts when they come
close to reaching their allowable monthly plan minutes, text messages or data
usage in order to avoid overage charges. With the launch of Shared Data plans
in late 2013, whereby a customer selects the size of the data bucket to share
among all of their lines/devices, U.S. Cellular followed up in 2014 with a
service to allow customers to limit data usage on specific lines – or for the
entire account – thereby providing controls to manage account overages. This
service, Data Usage Controls, allows customers an easy way to split up their
data bucket by line.
U.S. Cellular increases consumer awareness using media
such as television, radio, newspaper, direct mail advertising, the Internet,
social media and sponsorships. U.S. Cellular has achieved its current level of
penetration of its markets through a combination of a strong brand position,
promotional advertising, broad distribution, maintaining a high-quality
wireless network and providing outstanding customer service.
U.S. Cellular’s advertising is directed at increasing the public awareness
and understanding of the wireless services it offers, improving potential
customers’ awareness of the U.S. Cellular brand, attracting and retaining
customers, and increasing existing customers’ usage of U.S. Cellular’s
services. U.S. Cellular attempts to select the advertising and promotional
media that are most appealing to the targeted groups of potential customers in
each local market. U.S. Cellular supplements its advertising with a
focused public relations program that drives store traffic, supports sales of
products and services, and builds brand awareness and preference. The approach
combines national and local media relations in mainstream and social media
channels with market-wide activities, events, and sponsorships. U.S. Cellular
focuses its charitable giving strategy on supporting initiatives relevant to
consumers in its service areas. These initiatives include support of programs
that focus on education, such as Calling All Teachers, which supports schools
and teachers in the communities U.S. Cellular serves.
Customer Service. U.S. Cellular manages customer
retention by focusing on outstanding customer service through the development
of processes that are customer-friendly, extensive training of frontline sales
and support associates and the implementation of retention programs.
U.S. Cellular currently operates four regional customer
care centers with personnel who are responsible for customer service
activities, and a national financial services center with personnel who perform
credit and other customer payment activities. U.S. Cellular also contracts
with third parties that provide additional customer care and financial services
support.
Sales and Distribution Channels. U.S. Cellular
supports a multi-faceted distribution program, including retail sales, direct
sales, third-party national retailers, and independent agents, plus a website
and telesales.
Company retail store locations are
designed to market wireless products and services to the consumer and small
business segments in a setting familiar to these types of customers. As of December
31, 2014, retail sales associates work in approximately 275 U.S.
Cellular-operated retail stores and kiosks. Direct sales consultants market
wireless services to mid-size business customers. Additionally, the
U.S. Cellular website enables customers to activate service and purchase
wireless devices online.
U.S. Cellular maintains an ongoing training program to
improve the effectiveness of retail sales associates and direct sales
consultants by focusing their efforts on obtaining customers by facilitating
the sale of appropriate packages for the customer’s expected usage and
value-added services that meet the individual needs of the customer.
U.S. Cellular has relationships with exclusive and
non-exclusive agents, which are independent businesses that obtain customers
for U.S. Cellular on a commission basis. At December 31, 2014, U.S. Cellular
had contracts with these businesses aggregating over 650 locations.
U.S. Cellular provides additional support and training to its exclusive
agents to increase customer satisfaction and to ensure a consistent customer
experience. U.S. Cellular’s agents are generally in the business of
selling wireless devices, wireless service packages and other related
products. No single agent accounted for 10% or more of U.S. Cellular’s
operating revenues during the past three years.
In 2013 and 2014, U.S. Cellular expanded its distribution
through third-party national and on-line retailers. As of December 2014,
Wal-Mart, Sam’s Club, RadioShack and Dollar General now offer U.S. Cellular
products and services at select retail locations in U.S. Cellular’s service
areas. Further, Amazon offers U.S. Cellular’s postpaid and prepaid services
on-line. U.S. Cellular continues to explore new relationships with additional
third-party retailers as part of its strategy to expand distribution.
U.S. Cellular also markets wireless service through
resellers. The resale business involves the sale of wholesale access and
minutes to independent companies that package and resell wireless services to
end-users. These resellers generally provide prepaid and postpaid services to
subscribers under their own brand names and also provide their own billing and
customer service. U.S. Cellular incurs no direct subscriber acquisition costs related
to reseller customers. At December 31, 2014, U.S. Cellular had approximately 114,000
customers of resellers. For the year ended December 31, 2014, revenues from
resale business were less than 1% of total service revenues.
Seasonality. There is seasonality in operating
expenses, which tend to be higher in the fourth quarter than in the other
quarters due to increased marketing and promotional activities during the
holiday season, which may cause operating income to vary from quarter to
quarter.
Competition
The wireless telecommunication industry is highly
competitive. U.S. Cellular competes directly with several wireless
service providers in each of its markets. In general, there are between two and
four competitors in each wireless market in which U.S. Cellular provides
service, excluding resellers and mobile virtual network operators. In its
footprint, U.S. Cellular competes to varying degrees against each of the
national wireless companies: Verizon Wireless, AT&T Mobility, Sprint, and
to a much lesser extent, T-Mobile USA, in addition to a few smaller regional
carriers in specific pockets of its footprint. Verizon is U.S. Cellular’s
largest competitor, in terms of both customer acquisition opportunities and
customer defection risk in the majority of its markets. However, all of the
national competitors have substantially greater financial, technical,
marketing, sales, purchasing and distribution resources than
U.S. Cellular. Additionally, U.S. Cellular competes with other companies
that use alternative communication technology and services to provide similar
products and services.
Since each of these wireless competitors operates on systems
using spectrum licensed by the FCC and has comparable technology and
facilities, competition among wireless service providers for customers is
principally on the basis of types of products and services, price, size of area
covered, call quality, network speed and responsiveness of customer service.
U.S. Cellular employs a customer satisfaction strategy that includes maintaining
an outstanding wireless network throughout its markets. U.S. Cellular owns and
operates low-band spectrum (less than 1 GHz) that covers the majority of its
footprint and enables more efficient, superior coverage in rural areas
(compared to spectrum above 1 GHz), which strengthens its network quality
positioning.
The use of national advertising and promotional programs by
the top four wireless service providers may be a source of additional
competitive and pricing pressures in all U.S. Cellular markets, even if those
operators do not provide direct service in a particular market. Over the past
year in particular, competition among top carriers has become even more
aggressive, with the top four carriers engaging in rich promotional initiatives
including contract buyouts and limited-time and permanent price reductions
fueled by the rise of equipment installment plans. In addition, in the current
wireless environment, U.S. Cellular’s ability to compete depends on its ability
to continue to offer national voice and data plans. U.S. Cellular provides
wireless services comparable to the national competitors, but the national
wireless companies operate in a wider geographic area and are able to offer no-
or low-cost roaming over a wider area on their own networks than U.S. Cellular can
offer on its network. Although U.S. Cellular offers the same coverage area as
these competitors, U.S. Cellular incurs roaming charges for data sessions and
calls made in portions of the coverage area which are not part of its network,
thereby increasing its cost of operations. U.S. Cellular depends on roaming
agreements with other wireless
carriers to provide
voice and data roaming capabilities in areas not covered by U.S. Cellular’s
network. Similarly, U.S. Cellular provides roaming services on its network to
other wireless carriers’ customers who travel within U.S. Cellular’s coverage
areas.
Convergence of connectivity is taking place on many levels,
including dual-mode wireless devices that act as wireline or wireless devices
depending on location and the incorporation of wireless “hot spot” technology
in wireless devices making internet access seamless regardless of location.
Although less directly a substitute for other wireless services, wireless data
services such as Wi-Fi may be adequate for those who do not need mobile
wide-area roaming or full two-way voice services. Technological advances or
regulatory changes in the future, such as the rollout and consumer adoption of
Wi-Fi calling and Voice over Long Term Evolution (“VoLTE”) capabilities, may
make available other alternatives to wireless service, thereby creating
additional sources of competition that shift consumers’ perceptions and
preferences of network strength, speed and reliability.
U.S. Cellular’s approach in 2015 and in future years will be
to focus on the unique needs and attitudes towards wireless service of its
selected target segments. U.S. Cellular will deliver selected, targeted high
quality products and services at competitive prices and will continue to
differentiate itself by seeking to provide an overall outstanding customer
experience, including a high quality network. U.S. Cellular’s customer-centric
approach, highly reliable network and outstanding customer service, as
evidenced by numerous consumer satisfaction awards based on survey results,
illustrate how U.S. Cellular seeks to differentiate itself from competitors.
U.S. Cellular’s ability to compete successfully in the future, and to meet
growth and return on capital objectives, will depend upon its ability to
anticipate and respond to changes related to new service offerings, consumer
preferences, competitors’ pricing strategies, technology, demographic trends,
economic conditions and its access to adequate spectrum resources.
System Usage
U.S. Cellular’s main sources of revenues are from its own
customers and from customers of competitors who roam on its network. The
interoperability of wireless service enables a customer who is in a wireless
service area other than the customer’s home service area to place or receive a
call or use data in that service area. U.S. Cellular has entered into
reciprocal roaming agreements with operators of other wireless systems covering
virtually all systems with Code Division Multiple Access (“CDMA”) technology in
the United States, Canada and Mexico. Roaming agreements offer customers the
opportunity to roam on these systems. These reciprocal agreements
automatically pre-register the customers of U.S. Cellular’s systems in the
other carriers’ systems. In addition, a customer of a participating system
roaming in a U.S. Cellular market where this arrangement is in effect is
able to make and receive calls or data on U.S. Cellular’s system. The
charge for this service is negotiated as part of the roaming agreement between
U.S. Cellular and the roaming customer’s carrier. U.S. Cellular bills
this charge to the customer’s home carrier, which then may bill the customer.
In many instances, based on competitive factors, carriers, including U.S. Cellular,
may not charge their customers, or charge lower amounts to their customers than
the amounts actually charged by other wireless carriers for roaming. Since
2010, U.S. Cellular has offered nationwide 3G data roaming services, allowing
its customers to access high-speed data across the country.
U.S. Cellular currently is exploring 4G LTE roaming
agreements with operators of other wireless systems. The FCC’s adoption of
mandatory 4G LTE roaming rules, which were upheld by the United States Court of
Appeals for the District of Columbia, may be of assistance in the negotiation
of 4G LTE roaming agreements with other wireless operators in the future.
However, technological challenges currently exist which can limit the
interoperability of 4G LTE wireless devices on other carriers’ networks.
Specifically, wireless devices support certain configurations of spectrum
frequencies and as a result 4G LTE wireless devices offered by carriers are not
necessarily compatible with the networks of other carriers. U.S. Cellular is
working with other carriers, original equipment manufacturers and potential LTE
roaming vendors to mitigate interoperability issues. U.S. Cellular has been
ready to support inbound and outbound LTE roaming with certain carriers who
have compatible networks and devices since the second half of 2014.
In 2015, U.S. Cellular expects to begin user trials of its
Voice over LTE (“VoLTE”) service in selected operating markets. VoLTE
will allow customers to utilize U.S. Cellular’s LTE network for voice and data
services. See also Exhibit 13 to this Form 10-K, Annual Report section
“Regulatory Matters”.
Technology and System Design and Construction
Technology. Wireless telecommunication systems
transmit voice, data, graphics and video through the transmission of signals
over networks of radio towers using radio spectrum licensed by the FCC. Access
to local, regional, national and worldwide telecommunications networks is
provided through system interconnections. A high-quality network, supported by
continued investments in that network, will remain an important factor for
wireless companies to remain competitive.
U.S. Cellular has deployed 4G LTE technology in conjunction
with King Street Wireless L.P. that covered approximately 94% of its postpaid
customers as of December 31, 2014, and anticipates further expansion of 4G LTE
coverage, as well as VoLTE user trials, in 2015. U.S. Cellular continues to
offer services based on 3G technology and CDMA digital technology across its
networks.
Through roaming agreements with other CDMA-based wireless
carriers, U.S. Cellular’s customers may access CDMA service in virtually all
areas of the United States, as well as parts of Canada and Mexico. Another
digital technology, Global System for Mobile
Communication
(“GSM”), has a larger installed base of customers worldwide. Since CDMA
technology currently is not compatible with GSM technology, U.S. Cellular
customers with CDMA-only based wireless devices currently are not able to use
their wireless devices when traveling through areas serviced only by GSM-based
networks. However, both CDMA and GSM technologies are being succeeded by 4G LTE
technology.
System Design and Construction. U.S. Cellular
designs and constructs its systems in a manner it believes will permit it to
provide high-quality service to substantially all types of compatible wireless
devices. Designs are based on engineering studies which relate to specific
markets, in support of the larger network. Such engineering studies are
performed by U.S. Cellular personnel or third-party engineering firms.
Network reliability is given careful consideration and extensive backup
redundancy is employed in many aspects of U.S. Cellular’s network design.
Route diversity, redundant equipment, ring topology and extensive use of
emergency standby power also are used to enhance network reliability and
minimize service disruption from any particular network element failure.
In accordance with its strategy of building and strengthening
its operating market areas, U.S. Cellular has selected high-capacity,
carrier-class digital wireless switching systems that are capable of serving
multiple markets through a single mobile telephone switching office.
Centralized equipment, used for network and data management, is located in
high-availability facilities supported by multiple levels of power and network
redundancy. U.S. Cellular’s systems are designed to incorporate Internet
Protocol (“IP”) packet-based Ethernet technology, which allows for increased
data capacity and a more efficient network. Interconnection between the mobile
telephone switching office and the cell sites utilizes Ethernet technology for
nearly all 4G LTE sites, over fiber or microwave links.
U.S. Cellular believes that currently available technologies
and appropriate capital additions will allow sufficient capacity on its
networks to meet anticipated demand for voice and data services over the next
few years. U.S. Cellular’s continued investment in new licenses will support
future demand for fourth generation broadband services using 4G LTE. Increasing
demand for high-speed data and video services may require the acquisition of
additional spectrum licenses to provide sufficient capacity and throughput.
Construction of wireless systems is capital-intensive,
requiring substantial investment for land and improvements, buildings, towers,
mobile telephone switching offices, cell site equipment, transport equipment,
engineering and installation. U.S. Cellular primarily uses its own personnel
to engineer each wireless system it owns and operates, and engages contractors
to construct the facilities.
The costs (inclusive of the costs to acquire licenses) to
develop the systems which U.S. Cellular operates have historically been
financed primarily through proceeds from debt and equity offerings, with cash
generated by operations, and proceeds from the sales of wireless interests and
other non-strategic assets.
Business Development Strategy
U.S. Cellular groups its
individual markets (geographic service areas as defined by the FCC in which
wireless carriers are licensed, for fixed terms, to provide service) into
broader geographic market areas to offer customers large service areas that
primarily utilize U.S. Cellular’s network. U.S. Cellular’s ownership interests
in wireless licenses include both consolidated and investment interests in
licenses covering portions of 30 states and a total population of 50.9 million
at December 31, 2014.
U.S. Cellular’s business development strategy is to obtain
interests in and access to wireless licenses in its current operating markets
and in areas that are adjacent to or in close proximity to its other wireless
licenses, thereby building contiguous operating market areas with strong
spectrum positions. U.S. Cellular believes that the acquisition of additional
licenses within its current operating markets will enhance its network capacity
to meet its customers’ increased demand for data services. U.S. Cellular anticipates
that grouping its operations into market areas will continue to provide it with
certain economies in its capital and operating costs. U.S. Cellular may
continue to make opportunistic acquisitions or exchanges that further
strengthen its current operating markets or in other attractive markets. U.S.
Cellular seeks to acquire noncontrolling interests in licenses in which it
already owns the majority interest and/or operates the license. From time to
time, U.S. Cellular has divested outright or included in exchanges for other
wireless interests certain consolidated and investment interests that were
considered less essential to its current and expected future operations. As
part of its business development strategy, U.S. Cellular from time to time may
be engaged in negotiations relating to the acquisition, exchange or disposition
of companies, strategic properties or wireless spectrum. See Note 6 —
Acquisitions, Divestitures and Exchanges and Note 8 — Investments in
Unconsolidated Entities in the Notes to Consolidated Financial Statements for a
description of significant acquisitions, divestitures and exchanges in the
years 2012 through 2014.
From time to time, the FCC conducts auctions through which
additional spectrum is made available for the provision of wireless services.
U.S. Cellular may participate as a bidder, or member of a bidding group, in
future auctions, such as the FCC’s upcoming auction of 600MHz broadcast
television spectrum expected to occur in 2016. In general, U.S. Cellular may
not disclose any such participation unless it or such bidding group is
announced as a winning bidder by the FCC.
U.S. Cellular has participated in
certain prior FCC auctions indirectly through its limited partnership
interests. Each entity qualified as a “designated entity” and thereby was
eligible for bidding credits with respect to most licenses purchased in
accordance with the rules defined by the FCC for each auction. In most cases,
the bidding credits resulted in a 25% discount from the gross winning bid.
In January 2015, the FCC released the results of Auction 97.
U.S. Cellular participated in Auction 97 indirectly through its limited
partnership interest in Advantage Spectrum L.P. (“Advantage Spectrum”). See
Note 14 — Variable Interest Entities in the Notes to Consolidated Financial
Statements for additional information.
In 2012, the FCC conducted a
single round, sealed bid, reverse auction to award Mobility Fund Phase I
support to bidders that commit to provide wireless service in areas designated
as unserved by the FCC. U.S. Cellular and several of its subsidiaries were
winning bidders in eligible areas within 10 states. See Note 19 — Supplemental Cash
Flow Disclosures in the Notes to Consolidated Financial Statements for
additional information.
TDS Telecom
Operations
General
TDS
Telecom provides wireline and cable broadband, video and voice services to approximately
1.2 million connections in 36 states. The overall strategy for the wireline and
cable businesses is to own the best pipe in the market in order to capitalize
on data growth and the need for higher broadband speeds. In addition, TDS
Telecom provides a wide range of Information Technology (“IT”) services
including colocation, dedicated hosting, hosted application management, cloud
computing services and planning, engineering, procurement, installation, sales
and management of IT infrastructure hardware solutions. TDS Telecom operates
in three reportable segments: Wireline, Cable and Hosted and Managed Services.
·
TDS Telecom’s wireline strategy is
to focus on broadband offerings and be the preferred communications solutions
provider in its markets for both residential and commercial customers by developing
and delivering high-quality broadband, video and voice products and services
that meet or exceed customers’ needs, and to outperform the competition by
delivering superior customer service.
·
TDS Telecom’s cable strategy is to
expand broadband offerings while leveraging the company’s existing processes,
procedures, shared support teams, commercial expertise, and customer service
focus.
·
Through its hosted and managed
services business, OneNeck IT Solutions, TDS Telecom aims to grow recurring
revenues from mid-market businesses by leveraging core competencies in network
management, IT, customer service and reliability to take advantage of the
growing IT outsourcing marketplace.
Business
Development Strategy
TDS
Telecom seeks to grow its operations through the acquisition of businesses that
support and complement its product and services growth strategy. As part of
this strategy, TDS Telecom may also seek to divest or exchange interests that
are not strategic to its long-term success. See Note 6 — Acquisitions, Divestitures and Exchanges in the Notes
to Consolidated Financial Statements for a description of significant
acquisitions, divestitures and exchanges in the years 2012 through 2014.
While
management believes that it will be successful in making additional
acquisitions, there can be no assurance that TDS or TDS Telecom will be able to
negotiate additional acquisitions on terms acceptable to them or that
regulatory approvals, where required, will be received.
WIRELINE
Wireline
Operations
Wireline
operations are located in a mix of rural, small town and suburban markets, with
the largest concentrations of its customers in the Upper Midwest and the
Southeast. As of December 31, 2014, TDS Telecom operates 111 incumbent local
exchange carriers (“ILEC”) in 27 states and provides telecommunications
services as a competitive local exchange carrier (“CLEC”) in Illinois,
Michigan, Minnesota, and Wisconsin. Wireline operations provide retail
telecommunications services to both residential and commercial customers that
reside within its respective service territories. Wireline also provides
services to wholesale customers, who are primarily interexchange carriers
(companies that provide long-distance telephone and data services between local
exchange areas) that compensate TDS Telecom for the use of its facilities to
originate and terminate their voice and data transmissions.
Wireline
Strategy
The
Wireline residential customer strategy is to provide broadband, video and voice
services through value-added bundling of these services. The commercial focus
is to provide advanced IP-based voice and data services. Wireline is
selectively investing in the continuing transformation of its legacy
circuit-switched network to a highly reliable IP-based broadband network to
economically deploy advanced technologies and new services. Wireline continues
to actively advocate for state and federal regulatory frameworks that enable
its operations to grow and invest profitably and continue to meet customer
expectations for new and improved services.
Wireline
believes that its residential and business customers have a strong preference
to purchase complementary telecommunications services from a single provider.
Wireline has found that by offering and bundling services in customer-friendly
packages, it can build customer loyalty and reduce customer churn. Wireline
offers bundles which include a full array of high-speed data, video and voice
services.
Wireline’s
objective is to be the preferred broadband provider in its ILEC residential
markets. It continues to invest in high-speed data service and as of December
31, 2014, was able to provide this service to 94% of its ILEC physical access
lines. At that date, 63% of the service addresses in its ILEC markets had 10
megabits per second (“Mbps”) or faster service available and 29% of the service
addresses in its ILEC markets had 25 Mbps or faster service available. Where
economically feasible, fiber technology is being
deployed
to provide internet speeds of up to 1 gigabit per second. In selected
residential markets, Wireline leads its marketing and promotional strategies
with its Internet Protocol Television Service (“IPTV”) under the brand TDSTV.
This interactive video offering is intended to counter intensifying competition
for video and broadband services and retain the triple play customer bundles.
In markets where IPTV is not offered, TDS Telecom has partnered with a
satellite TV provider to allow for double and triple play bundling.
Wireline’s
residential customer strategy within its CLEC markets is to provide continuing
service to its current residential customer base with high quality customer
service and competitive pricing, but not to seek any new residential customers
due to their high acquisition costs and due to regulatory changes which have increased
network cost and limited network availability. Therefore, it is expected that
the number of residential customers within the CLEC markets will continue to
decline. There are 15,200 CLEC residential connections remaining at December
31, 2014.
Wireline
has continued to expand its presence in the business broadband market with
hosted-managedIP telephony, high-speed symmetrical dedicated broadband and
point-to-point Ethernet services. ManagedIP delivers business customers a
converged voice and data communications solution to the desktop.
Point-to-point Ethernet provides customers secure and reliable high-speed data
links for two or more locations over TDS Telecom’s internal network, not the
public Internet. The strategy includes leveraging products such as managedIP
and hosted and managed services to all of Wireline’s commercial customers,
differentiating both on service excellence and a superior product portfolio.
Wireline
focuses its commercial marketing on information-intensive industries such as
financial services, health services, real estate, hotels and motels, retail,
education and government. Wireline uses its direct sales force, agents,
digital marketing, targeted mailings, and telemarketing to sell products and
services to commercial markets, which are segmented into tiers based on size
(in terms of connections and revenues) and strategic importance. Different
sales and distribution channels are used to target each segment.
Wireline
Products, Services and Revenue Sources
Wireline
operations generate revenues by providing the following products and services
to commercial and residential customers and carriers:
·
Broadband
services, including fiber-based and digital and other premium and enhanced data
services;
·
IPTV and
satellite video;
·
Voice
services, including local and long-distance telephone service, Voice over
Internet Protocol (“VoIP”) and enhanced local services like voice mail, caller
ID and call forwarding; and
·
Network access
services to interexchange carriers for the origination and termination of
interstate and intrastate long distance phone calls on TDS Telecom’s network
and special access services to carriers and others.
Additional operating data
for Wireline operations is incorporated by reference from Results of Operations
— TDS Telecom, in TDS’ Annual Report to Shareholders, filed as Exhibit 13
hereto.
Residential. Wireline
residential customer operations provide high-speed data products and video
services and local and long-distance telephone service. Video services are
offered through either its own IPTV offering or through a resale agreement with
a satellite provider. TDS Telecom extends the range of its services to
customers through bundling of broadband, video and voice.
Commercial. Wireline
commercial customer operations provide local and long-distance telephone
service, broadband, IP based services, and other services to businesses within
its markets that are typically small to medium sized businesses, but may
include large corporations. Wireline operations provide these commercial
customers with secure and reliable internet access, data connections and
advanced voice service with innovative VoIP features. Wireline operations
address customer needs for increased communications capabilities at reduced
costs by matching these needs to new and existing technologies to create
greater efficiencies and by providing support for these technologies after the
sale. The Wireline flagship product is managedIP, a fully-hosted software and
hardware solution that provides customers with a secure internet connection and
the latest VoIP features and capabilities. ManagedIP is available in markets
covering 87% of all commercial customers at December 31, 2014.
Wholesale. Wireline
operations continue to provide a high level of service to traditional
interexchange carriers. Wireline’s wholesale market focus is on access
revenues, which is the compensation received from the interexchange carriers
for carrying long distance and data traffic on TDS Telecom’s networks.
Universal Service Fund (“USF”) revenues, which support the cost of providing
telecommunication services in high cost areas, are also included in wholesale
service revenues. In 2014, TDS Telecom received $192 million in wholesale
revenues which included approximately $82 million received under all the USF
programs. Recent and proposed regulatory changes may affect the amounts of
Wireline future wholesale revenues. See additional information incorporated by
reference from Exhibit 13 to this Form 10-K, Annual
Report section “Regulatory Matters” and in Risk Factors.
Wireline Technology and System Design
Wireline operates an integrated,
highly-reliable network that consists of central office host and remote sites,
primarily equipped with digital and IP switches. Fiber optic and copper cable
connect the host central offices with remote switches and ultimately with end
customers. Wireline continues to upgrade and expand its telecommunications
network to respond to the needs of its customers for greater bandwidth and
advanced technologies. The network is transitioning from its legacy
circuit-switched network to a highly reliable IP-based broadband network to
facilitate the integration of broadband, video and voice services. Wireline
has pursued a plan to deploy fiber technology, which enables significantly
greater broadband speeds to selected residential subdivisions and to commercial
customers, when the investment is economically justified.
Wireline has developed and deployed an
inter-regional data routing infrastructure using leased fiber capacity which
allows it to reach over 85% of its physical access lines with its
multi-gigabyte core network. This configuration along with the continued
development of an IP network that interconnects substantially all the existing
service territories allows for next generation IP service offerings; namely,
IPTV, managedIP, residential VoIP and least-cost routing as well as
comprehensive IP policy management.
Wireline is also standardizing equipment
and processes to increase efficiency in maintaining its network. Wireline
utilizes centralized monitoring and management of its network to reduce costs
and improve service reliability. Network standardization has supported TDS
Telecom in operating its 24-hours-a-day / 7-days-per-week Network Management
Center, which continuously monitors the network in an effort to proactively
identify and correct network faults prior to any customer impact. In addition,
TDS Telecom anticipates reducing costs through the sharing of best practices
across operations, centralization or standardization of functions and
processes, and deployment of technologies and systems that provide for greater
efficiencies and profitability.
Wireline
Competition
The competitive
environment in the telecommunications industry has changed significantly as a
result of technological advances, customer expectations and changes to
regulation. Wireline continues to seek to develop and maintain an efficient
cost structure to ensure that it can compete with price-based initiatives from
competitors. Wireline is faced with significant challenges, including
competition from cable, VoIP, wireless and other wireline providers as well as
decreases in intercarrier compensation received for the use of TDS Telecom’s
networks. These challenges could have a material adverse effect on the
financial condition, results of operations and cash flows of TDS Telecom.
Wireline has experienced physical access
line losses and access minute declines due to competition from wireless
carriers offering local and nationwide voice and data plans, from cable
providers offering voice and data services via cable modems, and from other
VoIP providers.
Cable companies have developed
technological improvements that have allowed them to extend their competitive
operations beyond major markets and have enabled them to provide a broader
range of voice and data services over their cable networks. Cable companies
have aggressively pursued the bundling of voice communications, data and video
at discounted prices to attract customers from traditional telephone
companies. In addition, cable companies continue to add value to their
internet offerings by increasing speeds at no cost to the customer. Wireline estimates
that 71% of its ILEC access lines face active competition from cable providers
at December 31, 2014. Cable companies
are increasingly targeting both residential and commercial customers.
Wireless telephone service providers
offering feature-rich wireless devices and improved network quality constitute
a significant source of competition. A growing segment of customers have
chosen to completely forego the use of traditional wireline telephone service
and instead rely solely on wireless service for voice communications services.
This trend is more pronounced among residential customers, which comprise
approximately 62% of Wireline connections as of December 31, 2014. Some small businesses have followed the
residential path by choosing wireless service and disconnecting wireline
service.
VoIP technology also has improved and
has led cable, internet and other communications companies to substantially
increase their offerings of VoIP service to commercial and residential
customers. VoIP providers route calls partially or wholly over the Internet,
without the use of ILEC circuit switches and, in the case of cable operators
and CLECs, without the use of ILEC networks to carry their communications
traffic. VoIP providers frequently use existing internet networks to deliver
flat-rate, unlimited nationwide calling plans. These plans are generally
priced below the prices currently charged for traditional ILEC local and
long-distance telephone services.
While TDS Telecom positions itself as a
high-quality telecommunications provider, it is experiencing competition from
Regional Bell Operating Companies (“RBOCs”) in areas where TDS Telecom competes
as a CLEC, other CLECs, cable providers, wireless carriers, VoIP providers and
fiber overbuilders as it seeks to gain and retain customers. In addition, the
RBOCs are continuing to implement technological changes that could impede TDS
Telecom’s access to facilities used to provide CLEC telecommunications
services. To
mitigate this risk TDS Telecom has
implemented and is working on other forms of last mile access alternatives to
deliver services.
CABLE
Cable
Operations
TDS Telecom entered the cable business (“Cable”)
with the acquisition of Baja Broadband (“Baja”) on August 1, 2013. Baja
operates cable systems in markets primarily in Colorado, New Mexico, Texas, and
Utah. Subsequently, on September 1, 2014, TDS acquired substantially all of
the assets of a group of companies operating as BendBroadband, (“Bend”), headquartered
in Bend, Oregon. As part of the agreement, TDS also acquired a Tier III data
center providing colocation and managed services and a cable advertising and broadcast
business. The operations of the data center are included in the HMS segment.
The operations of the cable and the advertising and broadcast businesses are
included in the Cable segment. At December 31, 2014, Cable provides service
to 267,300 total broadband, video and voice connections.
Cable Strategy
Through its Cable operations, TDS Telecom is
expanding broadband services while leveraging its core competencies in network
management and customer focus. The Cable business operates high-quality hybrid
fiber and coaxial cable networks capable of delivering advanced high-speed
data, video, fiber connectivity and voice services to residential and business
customers. The Cable strategy is to operate in markets with the favorable
demographics of a rapidly growing population and diverse business community. Through
investment in plant upgrades, and improvements in programing and customer
service levels, the Company intends to grow its revenue base.
Cable
Products and Services
Residential.
Cable offers advanced broadband, video and voice
services. These services are actively bundled at competitive prices to
encourage cross-selling within our customer base and to attract new customers.
Approximately 56% of residential customers subscribe to a bundle of services.
·
Broadband: DOCSIS 3.0 technology is deployed to
95% of homes passed which allows Cable to offer up to 100Mbps connection
speed. Access to 24/7 technical support and security features are also
provided to broadband customers.
·
Video: Provided over a digital, fiber-optic
platform customers have access to basic service, premium programming and
high-definition television combined with DVR service.
·
Voice: Telephony service uses IP to transport
digitized voice signals over the same private network that brings cable
television and high-speed data services to customers. All residential voice
service customers have access to direct international calling and can subscribe
to various long distance plans.
Commercial.
Business services are delivered over an advanced
digital, fiber-optic platform providing high-speed broadband products,
multi-line phone solutions and video. Cable provides advanced business
services, including data networking, Ethernet, hosting, high speed broadband access
and VoIP services, to small and medium sized businesses. Cable’s commercial
service team works closely with its customers’ IT managers to develop
customized telecommunications solutions and provides rapid implementation
capabilities essential to the needs of the individual business.
Cable
Technology and System Design
Cable’s
telecommunication systems are designed to transmit data, video and voice
services using a broadband hybrid fiber-coaxial network that consists of
optical fiber transport from a headend facility to nodes where coaxial cable is
then used to reach the customer. These fiber rich networks offer substantial
bandwidth capacity and, through the use of DOCSIS 3.0 technology, enable Cable
to offer robust broadband and voice services as well as traditional and two-way
video services. Cable is continuing to connect its markets to the TDS Telecom network
backbone to leverage existing internet connectivity, voice services, and
support systems enhancing reliability and redundancy aimed at building greater dependability
as a service provider.
Cable
Competition
Cable seeks
to be the leading provider of broadband and video services in its targeted
markets. From a broadband perspective, Cable will compete against the
incumbent local telephone providers, which primarily offer DSL-based services.
Cable offers a superior, higher bandwidth data product using its DOCSIS technology.
Video competition is primarily satellite providers, and telephone companies
that offer video services and compete for broadband and voice customers. Other
telecommunications providers, including
Internet-based
VoIP providers and wireless providers may compete directly for both residential
and commercial voice and data service customers. Changes in consumer behavior
and /or new technologies could cause consumers to reduce or cancel their cable
video services and instead seek to obtain video on demand over the internet or
through new technologies. Since cable systems are operated under non-exclusive
franchises, competing cable systems may be built in the same area. Cable
intends to avoid markets served by such over-builders or municipalities which
have constructed their own cable systems or where other ILEC’s provide fiber to
the premise broadband and video service offerings.
HOSTED
AND MANAGED SERVICES
Hosted
and Managed Services Operations
TDS
Telecom’s hosted and managed services (“HMS”) business offers a full suite of
IT solutions including cloud and hosting solutions, managed services,
enterprise resource planning (“ERP”) application management, professional
services, and IT hardware. HMS owns and operates two data centers in Iowa, one
each in Minnesota, Wisconsin and Oregon, and operates two data centers in
Arizona. TDS Telecom’s HMS business was developed through multiple strategic
acquisitions. All of the HMS acquisitions and their operations are
consolidated under a single, unified brand, OneNeck IT Solutions. HMS has been
organized to leverage the trusted advisor relationships of its solutions
provider acquisitions to offer the entire HMS product portfolio to its
customers.
HMS
Strategy
The
goal of TDS Telecom’s HMS operations is to create, deliver and support a
platform of IT products and services tailored for mid-sized business
customers. These businesses typically have not outsourced their IT management
and represent a relatively untapped market seeking a highly trusted provider
relationship. By combining a solutions provider’s status as trusted IT advisor
with data center assets and an expansive product set, HMS intends to build a
growing relationship between the provider and customer. Furthermore, cloud
computing presents an opportunity for growth as it is a transformational tool
that is changing the way businesses buy computing power and IT services. HMS is
positioning itself to grow by building sophisticated sales teams, strong
customer service delivery, extensive engineering talent, and deep ties to
vendors to partner with customers to reduce their risk profiles and create cost
savings.
A
highly sophisticated sales force is critical to success in the hosted and managed
services marketplace. With the complexity of the sales process and the high
level interactions necessary to win customer orders, highly experienced account
executives, sales engineers and support staff are needed to gain the trust of
customers looking to outsource IT functions. HMS continues to enhance its sales
capabilities to be able to deliver products and services in all HMS product
categories in all of its markets.
HMS
has established a support organization capable of meeting mid-market customer
demands for enhanced product offerings. HMS has put in place an integrated,
scalable, service delivery platform intended to exceed the quality commitments
made to customers. HMS is continually improving the efficiency and cost
effectiveness of its service delivery model through standardization and
automation of functions in an effort to improve profitability while maintaining
high customer satisfaction.
HMS
Products and Services
HMS
provides IT equipment and solutions to meet its business customers’ needs
including cloud computing, colocation, hosted application management, hosted
and managed services and planning, engineering, procurement, sales,
installation, and management of IT infrastructure hardware solutions. HMS
operates fault tolerant, continuously maintainable data center facilities.
Value is provided to its customers through experienced teams that manage
mission critical data centers, cloud, and customer infrastructure 24 hours per
day 365 days per year. Statement on Standards for Attestation Engagements 16
(“SSAE 16”) reports, which describe the controls in place at HMS’s facilities,
provide assurances to customers that their data is secure, available, and meet
processing integrity, confidentiality and privacy requirements. Data centers
are the foundation for outsourced IT services, which include hosted and
managed-services, application management and cloud services.
HMS’s
portfolio of hosted and managed services covers servers, voice and data
networks, Microsoft Exchange environments, storage, and service desk
capabilities on equipment located both within HMS data centers and at customer
locations. HMS also has significant expertise in hosted application management,
particularly ERP systems from vendors such as Oracle, Microsoft, Infor and
SAP. These systems can be hosted in HMS data centers, on customer premise or
on the HMS cloud computing infrastructure.
HMS’s
cloud offering, branded ReliaCloud, is an Infrastructure as a Service solution
designed to run traditional business applications in a secure and compliant
operational framework within a cloud environment. ReliaCloud is a complete,
enterprise-class cloud solution that handles scalability and high performance data
management for use in public, private, and hybrid cloud configurations. The
compliant-capable cloud solution is designed for resource intense applications
and databases that require a secure operational framework.
HMS’s solutions provider services include planning,
engineering, procurement, sales, installation, and management of IT
infrastructure solutions from world-class Original Equipment Manufacturers
(“OEMs”). The breadth and depth of technical certifications held by team
members have allowed HMS to achieve the highest levels of partner status with
Cisco Systems, Hewlett-Packard Company, EMC, VMware and Microsoft.
HMS
Customers
HMS’s
customers span multiple industries including healthcare, financial,
manufacturing, retail, and government and are located across the United
States. Regional presences encompass states in the Upper Midwest, Great
Plains, Rocky Mountains, Northwest, and Southwest, and are key to establishing
the locally-known trusted advisor relationships that middle market companies
desire. HMS primarily targets middle market companies that are between 200 and
2,000 employees in size, but also serves smaller customers with sophisticated
IT needs as well as enterprise clients which value the trusted relationships
they have built with HMS over time.
HMS
Competition
The
IT services market is large and complex, with a diverse array of segments in
which performance and market dynamics vary considerably. As a result of these
dynamics, the IT services market is a highly competitive environment. Market
competitors include large diversified telecommunications and technology
companies that primarily target Fortune 500 sized companies as well as smaller
independent companies that provide services for mid-sized business customers.
HMS has positioned itself to not compete head-to-head with these providers, but
rather seeks to fill the gap between large business process outsourcers and
fragmented IT service providers. However, new entrants may emerge and grow
rapidly creating additional sources of competition.
TDS — Regulation
TDS’ operations are subject to federal, state and local
regulation.
Wireless
TDS provides various wireless services, including voice and
data services, pursuant to licenses granted by the FCC. The construction,
operation and transfer of wireless systems in the United States are regulated
to varying degrees by the FCC pursuant to the Communications Act of 1934, as
amended (“Communications Act”). The FCC currently does not require wireless
carriers to comply with a number of statutory provisions otherwise applicable
to common carriers that provide, originate or terminate interstate or
international telecommunications. However, the FCC has promulgated regulations
governing construction and operation of wireless systems, licensing (including
renewal of licenses) and technical standards for the provision of wireless
services under the Communications Act.
Wireless licenses are granted by the FCC based on various geographic
areas. The completion of acquisitions, involving the transfer of control of
all or a portion of a wireless system requires prior FCC approval. The FCC
determines on a case-by-case basis whether an acquisition of wireless licenses
is in the public interest. Wireless licenses are generally granted for a ten
year term or, in some cases, for a fifteen year term. The FCC has established
standards for conducting comparative renewal proceedings between a wireless
license holder seeking renewal of its license and challengers filing competing
applications. All of U.S. Cellular’s licenses for which it applied for renewal
between 1995 and 2014 have been renewed. The FCC is pursuing proceedings to
modify the license renewal process. U.S. Cellular expects to meet the criteria
of any license renewal process.
As part of its data services,
U.S. Cellular provides internet access. As described more fully in Exhibit 13
to this Form 10-K under “Regulatory Matters – FCC Net Neutrality Proposal,”
there are developments and proposals that may result in greater regulation of
wireless data services relating to internet access.
Although the Communications
Act generally pre-empts state and local governments from regulating the entry
of, or the rates charged by, wireless carriers, certain state and local
governments regulate other terms and conditions of wireless services, including
billing, termination of service arrangements, imposition of early termination
fees, advertising, network outages, the use of handsets while driving, zoning
and land use. Further, the Federal Aviation Administration also regulates the
siting, lighting and construction of transmitter towers and antennae.
Wireline
The FCC generally exercises
jurisdiction over all facilities of, and services offered by, TDS Telecom’s ILECs
as telecommunications common carriers, to the extent they provide, originate or
terminate interstate or international telecommunications. State public utility
commissions generally exercise jurisdiction over intrastate telecommunications
facilities and services.
The Communications
Act requires, among other things, that communications common carriers offer
interstate services when requested at just and reasonable rates at terms and
conditions that are non-discriminatory. Maximum
rates for regulated interstate services are prescribed by the FCC, and local
rates paid by end user customers and intrastate access charges paid by carriers
continue to be subject to state commission approval in many states.
TDS Telecom’s CLEC operations
are subject to similar but reduced regulation compared to ILECs.
In addition to traditional
circuit-switched voice service that is fully regulated as a telecommunications
common carrier service, TDS Telecom also provides VoIP, which is currently subject
to less regulation.
In addition to traditional
voice communications and VoIP, TDS Telecom also offers broadband services,
including internet access. As described more fully in Exhibit 13 to this form
10-K under “Regulatory Matters – FCC Net Neutrality Proposal,” there are
developments and proposals that may result in greater regulation of such
services.
Cable
As
a cable multiple systems operator (“MSO”), Cable is subject to regulation by
the FCC, covering matters such as technical operations, administrative
requirements, consumer protection, access by people with disabilities and
content. The operation of cable systems requires the MSO to obtain franchises
from state or local governmental authorities to occupy public rights of way
with network facilities. These franchises typically are nonexclusive and
limited in time, contain various conditions and limitations, and provide for
the payment of fees to the local authority, determined generally as a standard
percentage of gross revenues.
TDS’
Cable operations also provide VoIP and other broadband services, including
internet access. The VoIP and internet regulatory matters and issues described
above under “Wireline” are substantially similar for cable providers, including
proposals that may result in greater regulation of broadband internet services.
HMS
HMS is subject to varying
degrees of regulation in each of the jurisdictions in which it operates.
Federal, state and local laws and regulations, and their interpretation and
enforcement may be applicable and may differ significantly among those
jurisdictions. These regulations and laws may cover taxation, privacy, data
protection, copyrights and other intellectual property, electronic
communications and regulations applicable to electronic products and services.
Additional information
relating to TDS’ regulatory environment is incorporated by reference from
Exhibit 13 to this Form 10-K, Annual Report section “Regulatory Matters” and in
Risk Factors.
TDS—Other Items
Debt Securities
The following securities trade
on the NYSE: TDS’ 6.625% Senior Notes due 2045 trade under the symbol “TDI,”
TDS’ 6.875% Senior Notes due 2059 trade under the symbol “TDE,” TDS’ 7.0%
Senior Notes due 2060 trade under the symbol “TDJ” and TDS’ 5.875% Senior Notes
due 2061 trade under the symbol “TDA.” U.S. Cellular’s 6.95% Senior Notes due
2060 trade under the symbol “UZA.” U.S. Cellular’s 7.25% Senior Notes due 2063
trade under the symbol “UZB.” U.S. Cellular’s 6.7% Senior Notes due 2033 are
traded over the counter and are not listed on any stock exchange.
Employees
TDS had approximately 10,600 full-time
and part-time employees as of December 31, 2014, less than 1% of whom were
represented by labor organizations. TDS considers its relationship with its employees
to be good.
Location and Company
Information
TDS’ website is
http://www.tdsinc.com. TDS files with, or furnishes to, the Securities and
Exchange Commission (“SEC”) annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, as well as various other information.
Anyone may access, free of charge, through the Investor Relations portion of
the website, the TDS annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to such reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practical after such material is
electronically filed with the SEC. The public may read and copy any materials
TDS files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington D.C. 20549. The public may obtain information on the operation of
the Reference Room by calling the SEC at 1-800-732-0330. The public may also
view electronic filings of TDS by accessing SEC filings at http://www.sec.gov.
U.S. Cellular’s website
address is http://www.uscellular.com. U.S. Cellular files with, or furnishes
to, the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, as well as various other information. Investors
may access, free of charge, through the Investor Relations portion of the
website, U.S. Cellular’s annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to such reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practical after such material is filed electronically with the SEC.
The public may read and copy any materials U.S. Cellular files with the SEC at
the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549.
The public may obtain information on the operation of the Reference Room by
calling the SEC at 1-800-732-0330. The public may also view electronic filings
of U.S. Cellular by accessing SEC filings at http://www.sec.gov.
Item 1A. Risk Factors
PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
SAFE HARBOR CAUTIONARY STATEMENT
This Annual Report on Form 10-K, including exhibits,
contains statements that are not based on historical facts and represent
forward-looking statements, as this term is defined in the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of
historical facts, that address activities, events or developments that TDS
intends, expects, projects, believes, estimates, plans or anticipates will or
may occur in the future are forward-looking statements. The words “believes,” “anticipates,”
“estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions
are intended to identify these forward-looking statements, but are not the
exclusive means of identifying them. 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 risks, uncertainties and other factors include those set
forth below under “Risk Factors” in this Form 10-K. Each of the following
risks could have a material adverse effect on TDS; however, such factors are
not necessarily all of the important factors that could cause actual results,
performance or achievements to differ materially from those expressed in, or
implied by, the forward-looking statements contained in this document. Other
unknown or unpredictable factors also could have material adverse effects on
future results, performance or achievements. TDS undertakes no obligation to
update publicly any forward-looking statements whether as a result of new
information, future events or otherwise. You should carefully consider the
following risk factors and other information contained in, or incorporated by
reference into, this Form 10-K to understand the material risks relating
to TDS’ business.
RISK FACTORS
1)
Intense competition in the markets in which TDS operates could adversely
affect TDS’ revenues or increase its costs to compete.
Competition in the telecommunications industry is currently intense
and could intensify further in the future due to the general effects of the economy,
as well as due to multiple wireless industry factors such as increasing market
penetration, decreasing customer churn rates, introduction of new products, new
competitors and changing prices. There is competition in handsets and other
devices; network quality, coverage, speed and technologies; distribution;
pricing; and other categories. TDS’ ability to compete effectively will
depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the telecommunications industry. TDS anticipates
that, in the future, competition may cause the prices for products and services
to continue to decline and the costs to compete to increase. Most of TDS’
competitors are national or global telecommunications companies that are larger
than TDS, possess greater resources, possess more extensive coverage areas and
more spectrum within their coverage areas, and market other services with their
communications services that TDS does not offer. In addition, TDS may face
competition from technologies that may be introduced in the future or from new
entrants into the industry. New technologies, services and products that are
more commercially effective than the technologies, services and products
offered by TDS may be developed. Further, new technologies may be proprietary
such that TDS is not able to adopt such technologies. There can be no
assurance that TDS will be able to compete successfully in this environment.
Sources of competition to TDS’ wireless business typically include
two to four competing wireless telecommunications service providers in each
market, wireline telecommunications service providers, cable companies,
resellers (including mobile virtual network operators), and providers of other
alternate telecommunications services. Many of TDS’ wireless competitors and
other competitors have substantially greater financial, technical, marketing,
sales, purchasing and distribution resources than TDS.
TDS’ competitors offer a wide array of wireless service
offerings and wireless devices. There is increasing complexity associated with
these wireless product and service offerings and the related pricing. Further,
new wireless services and products and pricing structures are frequently
introduced. Multiple events related to new services, products and pricing
offered by TDS’ competitors occurring simultaneously or in close proximity may
impact TDS’ ability to respond to such events and compete effectively.
Sources of competition to TDS’ Wireline business include, but
are not limited to, resellers of local exchange services, interexchange
carriers, Regional Bell Operating Companies (“RBOCs”), satellite transmission
service providers, wireless communications providers, cable companies,
competitive access service providers, competitive local exchange carriers, Voice
over Internet Protocol (“VoIP”) providers and providers using other emerging
technologies. The Wireline CLEC business sources of competition include the
sources identified above as well as the ILEC in each market, which enjoys competitive
advantages, including its wireline connection to virtually all of the customers
and potential customers of Wireline’s CLEC business, its established brand name
and its substantial financial resources. Wireline’s CLEC business is typically
required to discount services to win potential customers. In the future, TDS
expects the number of its physical access lines served to continue to be
adversely affected by wireless and broadband substitution and by cable company
competition.
Some of the
specific risks presented by certain Wireline competitors include:
·
Cable companies – continued deployment of technologies such as
DOCSIS 3.0 and their further evolution that substantially increase data
transfer speeds, and offering these speeds to customers at relatively low prices,
including speed upgrades for no additional charge.
·
Wireless – the trend of customers “substituting” their wireline
connection with a wireless device.
·
RBOCs – continue to be formidable competitors given their full
suite of services, experience and strong financial resources.
·
VoIP providers – are able to offer voice service at a very low
price point.
·
Fiber overbuilders – municipalities or other providers offering
the same or higher data speeds at similar or lower price points.
TDS’ Cable business also provides high-speed internet and
digital voice services, as well as cable television service. With respect to internet
and voice services, Cable’s business faces sources of competition similar to
the Wireline business. With respect to cable television service, cable
operators compete against broadcast television, direct broadcast satellite
providers, on-line video services and may compete against wireline providers
which have begun to upgrade their networks to provide video services in addition
to voice and high-speed internet access services. As a result, the cable
business is highly competitive.
Sources of competition for HMS’s business primarily include
large diversified telecommunications and technology companies, as well as
smaller independent companies that focus on mid-market companies. In addition,
new entrants may emerge and grow rapidly creating additional sources of
competition or companies may begin insourcing IT services. The IT services
market is large and complex, with a diverse array of segments in which
performance and market dynamics vary considerably. As a result of these
dynamics the IT services market is a highly competitive environment. Therefore,
the HMS business is increasingly required to assume greater potential
contractual risk obligations, such as risks relating to the consequences of
data breaches or unauthorized disclosure of confidential customer information,
in order to win new customer engagements. In the event of such incidents, the
HMS business could be materially adversely effected.
If TDS does not adapt to compete effectively in such a highly
competitive environment, such competitive factors could result in product,
service, pricing or cost disadvantages and could have an adverse effect on TDS’
business, financial condition or results of operations.
2) A
failure by TDS to successfully execute its business strategy (including planned
acquisitions, divestitures and exchanges) or allocate resources or capital
could have an adverse effect on TDS’ business, financial condition or results
of operations.
U.S. Cellular is a regional wireless carrier that operates on
a customer satisfaction strategy, seeking to meet customer needs by providing a
comprehensive range of wireless products and services, excellent customer
support, and a high-quality network. U.S. Cellular seeks to operate
controlling interests in wireless licenses in areas adjacent to or in proximity
to its other wireless licenses, thereby building contiguous operating market
areas. U.S. Cellular relies on roaming agreements with other carriers to
provide roaming capability to its customers in areas of the U.S. outside its service areas and to improve coverage within selected areas of U.S.
Cellular’s network footprint. U.S. Cellular pursues a product and technology
strategy which requires it to recognize product and technology advances and
quickly adopt and execute rollouts of such advances. This strategy requires
U.S. Cellular to make timely and effective strategic decisions related to
technological advances and related products and services, and which of these
technological advances to adopt and roll out to its customers.
Further, U.S. Cellular’s strategic decisions related to the adoption
of new technologies are ultimately impacted by such factors as consumer
preferences for technologies and the related services and products, and
original equipment manufacturer (“OEM”) and standard bodies support of such
technologies, including Long-Term Evolution (“LTE”) and VoLTE, among other
factors. If U.S. Cellular’s competitors adopt new technologies faster than
U.S. Cellular, then consumers who are eager to adopt new technologies more
quickly may select U.S. Cellular’s competitors rather than U.S. Cellular as
their service provider. These customers who are early adopters of new
technologies are often customers who generate higher average revenue per unit (“ARPU”),
and to the extent that U.S. Cellular does not attract these types of customers,
U.S. Cellular could be at a competitive disadvantage and have a customer base
that generates lower overall ARPU relative to its competition.
Wireline’s
business seeks to be the preferred telecommunications solutions provider in its
chosen markets for both residential and commercial customers by developing and
delivering high-quality products that meet or exceed customers’ needs and to
outperform the competition by maintaining superior customer service. Wireline’s
residential customer strategy is to provide broadband, video and voice services
through value-added bundling of products and services. The commercial focus is
to provide advanced IP-based voice and data services. Wireline is selectively
investing in the continuing transformation of its legacy circuit-switched network
to a highly reliable IP-based broadband network to economically deploy advanced
technologies and new services. Wireline continues to actively advocate for
state and federal regulatory frameworks that enable its operations to grow and
invest profitably and continue to meet customer expectations for new and
improved services.
Cable’s
business provides broadband, video and voice services. Although similar to Wireline,
the strategies for Cable involve different technical, regulatory, business and
other factors and TDS has limited experience in operating cable companies. In
particular, Cable’s business has significant costs and risks relating to
programming and retransmission. Such costs have been increasing and Cable’s
business may not be able to fully pass these costs on to customers. In
addition, Cable’s business is limited in its ability to obtain programming at
favorable costs and terms due to its small scale. Also, Cable’s business may
be affected by a wide range of regulatory or other issues, including matters
pertaining to set-top boxes, equipment connectivity, content regulation, closed
captioning, pole attachments, privacy, copyright, technical standards, and
municipal entry into video and broadband. Further, changes in consumer
behavior and/or new technologies could cause consumers to reduce or cancel
their cable video services and instead seek to obtain video on demand over the
internet or through new technologies. Cable’s business development strategy
also includes evaluating opportunities for possible further acquisitions of
desirable cable companies on attractive terms to increase the scale of Cable’s
business. There can be no assurance that TDS will be successful in its Cable
business strategy.
HMS’s
business development strategy is to increase its presence in the IT infrastructure
and application outsourcing and solution provider market through organic
growth, expansion or acquisition. HMS’s service platform with coverage across
all of its product categories provides the potential for expansion of current
products and services to additional markets in or near HMS’s current footprint.
HMS may continue to make opportunistic acquisitions of companies that further
strengthen its operating market areas and enter additional attractive markets.
The
successful execution of strategies, the optimal allocation within TDS’
portfolio of assets and optimal capital allocation decisions depend on various
internal and external factors, many of which are not in TDS’ control. TDS’
ability to implement and execute its business strategies and optimally allocate
its assets and capital and, as a result, achieve desired financial results,
could be affected by such factors. Such factors include pricing practices by
competitors, relative scale, purchasing power, roaming and other strategic
agreements, wireless device availability, timing of introduction of wireless
devices and other factors. In addition, there is no assurance that U.S. Cellular’s
or TDS Telecom’s strategies will be successful. Even if TDS executes its
business strategies as intended, such strategies may not be successful in the
long term to profitably sustain growth in revenues or otherwise.
A failure by TDS to execute its business strategies
successfully or to allocate resources or capital optimally could have an adverse
effect on TDS’ businesses, financial condition or results of operations.
3) TDS
offers customers the option to purchase certain devices under installment
contracts, which creates certain risks and uncertainties which could have an
adverse impact on TDS' financial condition or results of operations.
Beginning in the second quarter of 2014, U.S. Cellular
expanded its offerings of equipment installment plans. Such plans offer
customers the option to purchase certain devices under installment contracts
over a period of up to 24 months. TDS expects that sales of devices under
these plans, when compared to sales of devices made under the traditional
subsidy model, will reduce retail service revenue and ARPU but increase
equipment revenue. Such plans also are expected to result in lower cash flows
from operating activities in the near term. However, at this time, TDS does
not have significant experience in these new plans or a sufficient history to
determine how these plans will affect TDS’ business, financial position or
results of operations.
Compared
to equipment sales made under the traditional subsidy model, these equipment
installment plans involve different business risks and accounting
considerations. These plans could adversely impact bad debts expense,
marketing expense, customer churn, cash flows, inventory valuation, and other
financial results and metrics.
4)
Changes in roaming practices or other factors could cause TDS’ roaming
revenues to decline from current levels and/or impact TDS’ ability to service
its customers in geographic areas where TDS does not have its own network,
which could have an adverse effect on TDS’ business, financial condition or
results of operations.
TDS’
revenues include roaming revenues related to the use of TDS’ network by other wireless
carriers’ customers who travel within TDS’ coverage areas. Changes in the
network footprints of carriers due to mergers, acquisitions or network
expansions could have an adverse effect on TDS’ roaming revenues. For
example, consolidation among other carriers which have network footprints that
currently overlap TDS’ network could decrease the amount of roaming revenues
for TDS.
Similarly,
TDS’ wireless customers can access another carrier’s digital system
automatically only if the other carrier allows TDS’ customers to roam on its
network. TDS relies on roaming agreements with other carriers to provide
roaming capability to its customers in areas of the U.S., Mexico and Canada
outside of its service areas and to improve coverage within selected areas of
TDS’ network footprint. Such agreements cover traditional voice services as
well as data services. Although TDS currently has long-term roaming agreements
with certain other carriers, these agreements generally are subject to renewal
and termination if certain events occur. FCC rules and orders impose certain
requirements on wireless carriers to offer certain roaming arrangements to
other carriers. However, carriers frequently disagree on what is required. Also,
at this time, there is no assurance that TDS will be able to enter into
agreements to provide roaming services using 4G LTE or other technologies or
that it will be able to do so on reasonable or cost
effective
terms. In addition, see Exhibit 13 to this Form 10-K, Annual Report section
“Regulatory Matters – FCC Interoperability Order” for further information and
developments.
Some competitors may be able to obtain lower roaming rates
than TDS is able to obtain because they have larger call volumes or may be able
to reduce roaming charges by providing service principally over their own
networks. In addition, the quality of service that a wireless carrier delivers
during a roaming call may be inferior to the quality of service TDS provides,
the price of a roaming call may not be competitive with prices of other
wireless carriers for such call, and TDS’ customers may not be able to use some
of the advanced features, such as voicemail notification or data applications,
that TDS customers enjoy when making calls on TDS’ network. TDS’ rate of
adoption of new technologies, such as those enabling high-speed data services,
could affect its ability to enter into or maintain roaming agreements with
other carriers. In addition, TDS’ wireless technology may not be compatible
with technologies used by other carriers, which may limit the ability of TDS to
enter into voice or data roaming agreements with such other carriers. TDS’
roaming partners could switch their business to new operators or, over time, to
their own networks. Changes in roaming usage patterns, rates for roaming
minutes or data usage or relationships with carriers whose customers generate
roaming minutes or data use on TDS’ network could have an adverse effect on
TDS’ revenues and revenue growth.
To the extent that TDS’ key roaming partners expand their
networks in TDS’ service areas, the roaming arrangements between TDS and these
key roaming partners could become less strategic for the roaming partners.
That is, these key roaming partners will have fewer or less extensive
geographic areas where roaming services are required by their customers and, as
a result, the roaming arrangements could become less critical to serving their
customer base. This presents a risk to TDS in that, to the extent TDS is not
able to enter into economically viable roaming arrangements with key roaming
partners, this could impact TDS’ ability to service its customers in geographic
areas where TDS does not have its own network.
If TDS’ roaming revenues decline, or if TDS is unable to
obtain or maintain roaming agreements with other wireless carriers that contain
pricing and other terms that are competitive and acceptable to TDS, and that
satisfy TDS’ quality and interoperability requirements, its business, financial
condition or results of operations could be adversely affected.
5) A
failure by TDS to obtain access to adequate radio spectrum to meet current or
anticipated future needs and/or to accurately predict future needs for radio
spectrum could have an adverse effect on TDS’ business, financial condition or
results of operations.
TDS’ wireless business depends
on the ability to use portions of the radio spectrum licensed by the FCC. TDS
could fail to obtain access to sufficient spectrum capacity in new or existing critical
markets, whether through FCC auctions or other transactions, in order to meet
the anticipated spectrum requirements associated with increased demand for
existing services, especially increases in customer demand for data services, and
to enable deployment of next-generation services. TDS believes that this increased
demand for data services reflects a trend that will continue for the
foreseeable future; as such, TDS could fail to accurately forecast its future spectrum
requirements considering changes in customer usage patterns, technology
requirements and the expanded demands of new services. Such a failure could have
an adverse impact on the quality of TDS’ services or TDS’ ability to roll out
such future services in some markets, or could require that TDS curtail
existing services in order to make spectrum available for next-generation
services. Spectrum constrained providers could be
effectively capped in increasing market share. As spectrum constrained
providers gain customers, they use up their network capacity. Since they
lack spectrum, they can respond to demand only by adding cell sites, which is
capital intensive, limited by zoning considerations, and ultimately may not be
cost effective. TDS may acquire access to spectrum through a number of
alternatives, including participation in spectrum auctions, partnering on a
non-controlling basis with other auction applicants (“Other Applicants”) and
other acquisitions and exchanges. As required by law, the FCC has conducted
auctions for licenses to use some parts of the radio spectrum. The decision to
conduct auctions, and the determination of what spectrum frequencies will be
made available for auction and the determination of geographic size of licenses,
are made by the FCC pursuant to laws that it administers. The FCC may not be
able to allocate spectrum sufficient to meet the demands of all those wishing
to obtain licenses for new market entry or to expand their spectrum holdings to meet the expanding demand for data services or to
address other spectrum constraints. Due to factors such as geographic
size of licenses and auction bidders that may raise prices beyond acceptable
levels, TDS or Other Applicants may not be successful in FCC auctions in
obtaining the spectrum that either believes is necessary to implement its
business and technology strategies. In addition, newly auctioned spectrum may
not be compatible with existing spectrum, and vendors may not create suitable
products to use such spectrum. Further, access to use spectrum won in FCC auctions
may not be available on a timely basis. Such access is dependent upon the FCC
actually granting licenses won in the various auctions, which can be delayed
for various reasons. Furthermore, newly licensed spectrum may not be available
for immediate use since the radio operations of incumbent users, including in
some cases government agencies, may need to be relocated to other portions of
the radio spectrum, and/or the newly licensed spectrum may be subject to
sharing and coordination obligations for a period of time. TDS also may seek
to acquire radio spectrum through purchases and exchanges with other spectrum
licensees. However, TDS may not be able to acquire sufficient spectrum through
these types of transactions, and TDS may not be able to complete any of these
transactions on favorable terms.
6)
To the extent conducted by the Federal Communications Commission
(“FCC”), TDS is likely to participate in FCC auctions of additional spectrum in
the future as an applicant or as a noncontrolling partner in another auction
applicant and, during certain periods, will be subject to the FCC’s
anti-collusion rules, which could have an adverse effect on TDS.
From time to time, the FCC conducts auctions through which
additional spectrum is made available for the provision of wireless services.
TDS has participated in such auctions in the past and is likely to participate
in other auctions conducted by the FCC in the future as an applicant or as a
non-controlling partner in another auction applicant. FCC anti-collusion
rules place certain restrictions on business communications and
disclosures by participants in an FCC auction. These anti-collusion
rules may restrict the normal conduct of TDS’ business and/or disclosures
by TDS relating to an FCC auction, which could last three to six months or
more. The restrictions could have an adverse effect on TDS’ business,
financial condition or results of operations.
7)
Changes in the regulatory environment or a failure by TDS to timely or
fully comply with any applicable regulatory requirements could adversely affect
TDS’ business, financial condition or results of operations.
TDS’ operations are subject to varying degrees of regulation
by the FCC, state public utility commissions and other federal, state and local
regulatory agencies and legislative bodies. TDS is unable to predict the
future actions of the various regulatory bodies that govern TDS, but such
actions could have adverse effects on TDS’ business. New or amended regulatory
requirements could increase TDS’ costs and divert resources from other
initiatives.
Adverse decisions, increased regulation, or changes to
existing regulation by regulatory bodies could negatively impact TDS’
operations by, among other things, changing the amount that can be charged for
local, intrastate or interstate access rates, increasing TDS’ costs of doing
business, permitting greater competition or limiting TDS’ ability to engage in
certain sales or marketing activities. New regulatory mandates or enforcement
may require unexpected or changed capital investment, lost revenues, changes in
operations or other changes.
Court decisions and rulemakings could have a
substantial impact on TDS’ operations, including rulemakings on intercarrier
access compensation, state and federal universal service, and treatment of VoIP
traffic or unbundled network elements (“UNEs”). Litigation and different
objectives among federal and state regulators could create uncertainty and
delay TDS’ ability to respond to new regulations.
TDS attempts to timely and fully comply with all regulatory
requirements. However, this may not be possible due to various factors. Any
failure by TDS to timely or fully comply with any regulatory requirements could
adversely affect TDS’ financial condition, results of operations or ability to
do business.
For additional information about TDS’ regulatory environment,
including the potential risk to a reduction in the current level of TDS’
revenues as an Eligible Telecommunications Carrier, see “TDS — Regulation” in
this Form 10-K and Exhibit 13 to this Form 10-K, Annual Report section
“Regulatory Matters”.
8)
An inability to attract people of outstanding potential, to develop
their potential through education and assignments, and to retain them by
keeping them engaged, challenged and properly rewarded could have an adverse
effect on TDS' business, financial condition or results of operations.
TDS’ businesses are highly technical and competition for
skilled talent in the telecommunications and IT services industries is
aggressive. Due to competition for qualified management, technical, sales and
other personnel, there can be no assurance that TDS will be able to continue to
attract and/or retain people of outstanding potential for the development of
its business. The loss of the services of existing key personnel as well as
the failure to recruit additional qualified personnel in a timely manner could
have an adverse effect on TDS’ business, financial condition or results of
operations.
9)
TDS’ assets are concentrated primarily in the U.S. telecommunications
industry. As a result, its results of operations may fluctuate based on factors
related primarily to conditions in this industry.
TDS’ assets are concentrated primarily in the U.S.
telecommunications industry and the United States. The U.S. telecommunications industry is facing significant change and an uncertain operating
environment. Although TDS has diversified into HMS and the cable businesses, TDS’
revenue streams continue to be substantially derived from telecommunications
services, including wireless, wireline, broadband and internet services. TDS’
focus on the U.S. telecommunications industry, together with its positioning
relative to larger competitors with greater resources within the industry, may
represent increased risk for investors due to the lack of diversification.
This could have an adverse effect on TDS’ ability to profitably sustain
long-term revenue growth and could have an adverse effect on its business,
financial condition or results of operations.
10) TDS’
lower scale relative to larger competitors could adversely affect its business,
financial condition or results of operations.
There has been a trend in the telecommunications, IT services
and related industries in recent years towards consolidation of service
providers through acquisitions, reorganizations and joint ventures. This trend
could continue, leading to larger competitors over time. TDS has lower scale
efficiencies compared to larger competitors. TDS may be unable to compete
successfully with larger companies that have substantially greater financial,
technical, marketing, sales, purchasing and distribution resources or that
offer more services than TDS, which could adversely affect TDS’ revenues and
costs of doing business. Specifically, TDS’ smaller scale relative to most of
its competitors could have the following impacts, among others:
·
Increased operating costs due to lack of leverage with vendors;
·
Limited opportunities for strategic partnerships as potential partners
are focused on wireless, wireline and cable companies with greater scale;
·
Limited access to content and programming;
·
Limited ability to influence industry standards;
·
Reduced ability to invest in research and development of new
products and services;
·
Vendors may deem TDS non-strategic and not develop or sell
products and services to TDS, particularly where technical requirements differ
from those of larger companies;
·
Limited access to intellectual property; and
·
Other limited opportunities such as for software development or
third party distribution.
TDS’ telecommunications businesses increasingly depend on
access to content for data, music or video services and access to new wireless
devices being developed by vendors. TDS’ ability to obtain such access depends
in part on other parties. If TDS is unable to obtain timely access to new content
or wireless devices being developed by vendors, its business, financial
condition or results of operations could be adversely affected.
As a result of the foregoing, TDS’ lower scale relative to
larger competitors could adversely affect TDS’ business, financial condition or
results of operations.
11) Changes
in various business factors could have an adverse effect on TDS’ business,
financial condition or results of operations.
Changes
in any of several factors could have an adverse effect on TDS’ business,
financial condition or results of operations. These factors include, but are
not limited to:
·
Demand for or usage of services, particularly data services;
·
Customer preferences, including internet speed and type of
wireless devices;
·
Customer perceptions of network quality and performance;
·
The pricing of services;
·
Access to and cost of programming;
·
The overall size and growth rate of TDS’ customer base;
·
Average revenue per customer;
·
Penetration rates;
·
Churn rates;
·
Selling expenses;
·
Net customer acquisition and retention costs;
·
Customers’ ability to pay for services and the potential impact
on bad debts expense;
·
Roaming agreements and rates;
·
Third-party vendor support;
·
The mix of products and services offered by TDS and purchased by
customers; and
·
The costs of providing products and services.
12) Advances or changes in
technology could render certain technologies used by TDS obsolete, could put
TDS at a competitive disadvantage, could reduce TDS’ revenues or could increase
its costs of doing business.
The telecommunications and IT services
industries are experiencing significant changes in technologies and services
expected by customers. In the telecommunications industry, this is evidenced
by evolving industry standards, ongoing improvements in the capacity and
quality of digital technology, shorter development cycles for new services and
products, and enhancements and changes in end-user requirements and
preferences. Widespread deployment of new technologies could cause the
technology used on TDS’ wireless networks and traditional circuit-switched
telephone services to become less competitive or obsolete. Also, high speed
wireless networks (“wireless broadband”) represent a product offering and
opportunity for TDS’ wireless business, but also represent a risk for TDS’ Wireline
and Cable businesses as customers may elect to substitute their wireline
broadband connection for wireless
broadband. Further,
fixed-mobile convergence services that combine wireline broadband services with
mobile services represent a competitive threat. In addition, the IT services
market is characterized by rapidly changing technology and services. Future
technological changes or advancements may enable other technologies to equal or
exceed TDS’ current levels of service and render its system infrastructure
obsolete. TDS may not be able to respond to such changes and implement new
technology on a timely or cost-effective basis, which could reduce its revenues
or increase its costs of doing business. If TDS cannot keep pace with these
technological changes or other changes in the telecommunications or IT services
industries over time, its financial condition, results of operations or ability
to do business could be adversely affected.
13) Complexities
associated with deploying new technologies present substantial risk.
TDS’ wireless business has selected 4G LTE technology as its
approach to address demand for services enabled by fourth generation wireless
technology. The deployment of 4G LTE technology is impacted by a number of
technical challenges.
Manufacturers of wireless devices (“Original Equipment
Manufacturers” or “OEMs”) must design and manufacture equipment that operates
on the frequency bands available to TDS. This may involve software and
hardware support for such bands in wireless device chipsets as well as
band-specific designs for components such as filters. OEMs, chipset
manufacturers, and component manufacturers will likely prioritize the support
of frequency bands that are specified by the largest wireless carriers. Given
TDS’ smaller scale relative to its competitors, certain bands of spectrum
licensed to TDS and its affiliates in certain cases represent a lower priority
for chipset and wireless device manufacturers. As a result, the timing and the
availability of wireless devices to support TDS’ continued 4G LTE roll out could
be negatively impacted. In addition, due to TDS’ relatively smaller scale, the
cost of such equipment could be higher for TDS than for TDS’ competitors.
Additionally, the efficiency of
LTE networks and the peak speeds they can provide are optimized when the
technology is deployed in larger channel bandwidths that, in early releases of LTE,
require larger amounts of contiguous spectrum. To the extent that TDS’
competitors have access to larger contiguous spectrum positions, they may be
able to offer faster speeds or provision their networks more efficiently. In
order for TDS to realize the same LTE data transfer speeds as competitors, it
is important that both network infrastructure and device manufacturers support non-contiguous
spectrum aggregation features for TDS.
Lack of wireless devices available to TDS to support its 4G LTE
network, comparatively smaller spectrum positions for 4G LTE deployments, or
carrier aggregation standards that result in TDS delivering slower 4G LTE data
transfer speeds relative to its competitors, could have an adverse impact on
TDS’ business, financial condition and results of operations.
TDS’ Wireline business is deploying technologically advanced wireline
services including advanced DSL, fiber optic and Very-high-speed digital
subscriber line 2 (“VDSL2”) technologies. A significant amount of the product
development and integration risks are borne by TDS. Further, the simultaneous
rollout of these advanced services and technologies increases the execution
risk. If TDS fails to effectively deploy new technologies and products on a
timely basis, this could have an adverse impact on TDS’ business, financial
condition and results of operations.
Cable’s business is also subject to complexities associated with
deploying new technologies and involves substantial risk, including rapid
technology changes. If Cable’s business does not respond appropriately to
technology changes, its competitive position may be adversely affected.
The HMS business is also continuously evaluating and deploying advances
in technology relating to IT services. If HMS fails to effectively deploy new
technologies and products on a timely basis, this could have an adverse impact
on its business, financial condition and results of operations.
14)
TDS is subject to numerous surcharges and fees from federal,
state and local governments, and the applicability and the amount of these fees
are subject to great uncertainty.
Telecommunications providers pay a
variety of surcharges and fees on their gross revenues from interstate and
intrastate services, including USF fees and common carrier regulatory fees. The
division of services between interstate services and intrastate services,
including the divisions associated with the federal USF fees, is a matter of
interpretation and may in the future be contested by the FCC or state
authorities. The FCC also may change in the future the basis on which federal
USF fees are charged. The Federal government and many states also apply
transaction-based taxes to sales of TDS products and services and to purchases
of telecommunications services from various carriers. In addition, state
regulators and local governments have imposed and may continue to impose
various surcharges, taxes and fees on TDS services. The applicability of these
surcharges and fees to its services is uncertain in many cases and
jurisdictions may contest whether TDS has assessed and remitted those monies
correctly. Periodically state and federal regulators may increase or change
the surcharges and fees TDS currently pays. In some instances TDS passes
through these charges to its customers. However, Congress, the FCC, state
regulatory agencies or state legislatures may limit the ability to pass through
transaction-based tax liabilities, regulatory surcharges and regulatory fees
imposed on TDS to customers. TDS may or may not be able to recover some or all
of those taxes from its customers and the amount of taxes may deter demand for
its services or increase its cost to provide service which could have an
adverse effect on its business, financial condition or operating results.
15) Performance
under device purchase agreements could have a material adverse impact on TDS'
business, financial condition or results of operations.
TDS has
entered into purchase commitments with certain vendors and may enter into
similar purchase commitments with other vendors in the future. If TDS is
unable to sell all of the devices that it is required to purchase under such
agreements, or if it is unable to sell them at the prices it projects, its
business, financial condition or results of operations could be adversely affected.
16) Changes
in TDS’ enterprise value, changes in the market supply or demand for wireless
licenses, wireline or cable markets or IT service providers, adverse
developments in the businesses or the industries in which TDS is involved
and/or other factors could require TDS to recognize impairments in the carrying
value of its licenses, goodwill, franchise rights and/or physical assets.
A large portion of TDS’ assets consists of indefinite-lived intangible
assets in the form of licenses, goodwill and franchise rights. TDS also has
substantial investments in long-lived assets such as property, plant and
equipment. TDS reviews its licenses, goodwill, franchise rights and other
long-lived assets for impairment annually or whenever events or circumstances
indicate that the carrying amount of such assets may not be fully recoverable.
An impairment loss may need to be recognized to the extent the carrying value
of the assets exceeds the fair value of such assets. The amount of any such
impairment loss could be significant and could have an adverse effect on TDS’
reported financial results for the period in which the loss is recognized. The
estimation of fair values requires assumptions by management about factors that
are uncertain including such things as future cash flows and the appropriate
discount rate. Different assumptions for these factors could create materially
different results.
17) Costs,
integration problems or other factors associated with acquisitions,
divestitures or exchanges of properties or licenses and/or expansion of TDS’
businesses could have an adverse effect on TDS’ business, financial condition
or results of operations.
As part of TDS’ operating strategy, TDS from time to time may
be engaged in the acquisition, divestiture or exchange of companies,
businesses, strategic properties, wireless spectrum or other assets. TDS may
change the markets in which it operates and the services that it provides
through such acquisitions, divestitures and/or exchanges. In general, TDS may
not disclose the negotiation of such transactions until a definitive agreement
has been reached. These transactions commonly involve a number of risks,
including:
·
Identification of attractive companies, businesses, properties,
spectrum or other assets for acquisition or exchange, and/or the selection of
TDS’ businesses or assets for divestiture or exchange;
·
Competition for acquisition targets and the ability to acquire or
exchange businesses at reasonable prices;
·
Possible lack of buyers for businesses or assets that TDS desires
to divest and the ability to divest or exchange such businesses or assets at
reasonable prices;
·
Ability to negotiate favorable terms and conditions for
acquisitions, divestitures and exchanges;
·
Significant expenditures associated with acquisitions,
divestitures and exchanges;
·
Legal and regulatory risks associated with new businesses or
markets;
·
Ability to enter markets in which TDS has limited or no direct
prior experience and competitors have stronger positions;
·
Ability to manage businesses that are engaged in activities other
than traditional wireline and wireless service, including cable businesses and
hosted and managed services businesses;
·
Uncertain revenues and expenses associated with acquisitions,
with the result that TDS may not realize the growth in revenues, anticipated
cost structure, profitability, or return on investment that it expects;
·
Difficulty of integrating the technologies, services, products,
operations and personnel of the acquired businesses, or of separating such
matters for divested businesses or assets;
·
Diversion of management’s attention;
·
Disruption of ongoing business;
·
Impact on TDS’ cash and available credit lines for use in
financing future growth and working capital needs;
·
Inability to retain key personnel;
·
Inability to successfully incorporate acquired assets and rights
into TDS’ service offerings;
·
Inability to maintain uniform standards, controls, procedures and
policies;
·
Possible conditions to approval by the FCC, the Federal Trade
Commission and/or the Department of Justice; and
·
Impairment of relationships with employees, customers or vendors.
No assurance can be given that TDS will be successful with
respect to its acquisition, divestiture or exchange strategies or initiatives. If
TDS is not successful with respect to its acquisitions, divestitures or
exchanges, its business, financial condition or results of operations could be
adversely affected.
18) TDS’
investments in unproven technologies may not produce the benefits that TDS expects.
TDS is making investments in various new technologies and
service and product offerings. These investments include technologies for
enhanced data service offerings, IPTV, cable and IT services. TDS expects new
services, products and solutions based on these new technologies to contribute
to future growth in its revenues. However, the markets for some of these
services, products and solutions are still emerging and the overall potential
for these markets remains uncertain. If customer demand for these new
services, products and solutions does not develop as expected, TDS’ business, financial
condition or results of operations could be adversely affected.
19) A
failure by TDS to complete significant network construction and systems
implementation activities as part of its plans to improve the quality,
coverage, capabilities and capacity of its networks and support systems could
have an adverse effect on its operations.
TDS’ business plan includes significant construction
activities and enhancements to its network, support and other systems and
infrastructure. In connection therewith, TDS must, among other things,
continue to:
·
Lease, acquire or otherwise obtain rights to cell and switch
sites, data centers relating to IT services or other facilities;
·
Obtain zoning variances or other local governmental or
third-party approvals or permits for network construction;
·
Complete and update the radio frequency design, including cell
site design, frequency planning and network optimization, for each of TDS’ wireless
markets; and
·
Improve, expand and maintain customer care, network management,
billing and other financial and management systems.
Any difficulties encountered in completing these activities,
as well as problems in vendor equipment availability, technical resources,
system performance or system adequacy, could delay expansion of operations and
product capabilities in new or existing markets or result in increased costs.
Failure to successfully build-out and enhance TDS’ network, support facilities
and other systems and infrastructure in a cost-effective manner, and in a
manner that satisfies customer expectations, could have an adverse effect on
TDS’ business, business prospects, financial condition or results of
operations.
20) Difficulties involving
third parties with which TDS does business, including changes in TDS’
relationships with or financial or operational difficulties of key suppliers or
independent agents and third party national retailers who market TDS’ services,
could adversely affect TDS’ business, financial condition or results of
operations.
TDS has relationships with independent
agents and third party national retailers who market TDS’ services. If such
relationships are seriously harmed or if such parties experience financial
difficulties, including bankruptcy, TDS’ business, financial condition or
results of operations could be adversely affected.
TDS depends upon certain vendors to
provide it with equipment, services or content to continue its network
construction and upgrades and to operate its business. TDS does not have
operational or financial control over such key suppliers and has limited
influence with respect to the manner in which these key suppliers conduct their
businesses. If these key suppliers experience financial difficulties or file
for bankruptcy or experience other operational difficulties, they may be unable
to provide equipment, services or content to TDS on a timely basis or cease to
provide such equipment, services or content or otherwise fail to honor their
obligations to TDS.
Regulations regarding the use of “conflict minerals” mined
from the Democratic Republic of Congo and adjoining countries may affect some
of TDS’ suppliers. These regulations may limit the availability of conflict
free minerals and, as a result, TDS may not be able to obtain products in
sufficient quantities or at competitive prices from its vendors who utilize
such minerals in the manufacture
of products. In such
cases, TDS may be unable to maintain and upgrade its network or provide products
and services to its customers in a competitive manner, or could suffer other
disruptions to its business. In that event, TDS’ business, financial condition
or results of operations could be adversely affected.
In addition,
operation of TDS’ supply chain and management of its inventory require accurate
forecasting of customer growth and demand, which has become increasingly
challenging. If overall demand for wireless devices or the mix of demand
for wireless devices is significantly different than TDS’ expectations, TDS
could face inadequate or excess supplies of particular models of wireless
devices. This could result in lost sales opportunities or an excess
supply of inventory. Either of these situations could adversely affect
TDS’ revenues, costs of doing business, results of operations or financial
condition.
In 2010, U.S. Cellular entered into agreements with a third
party vendor to develop a Billing and Operational Support System (B/OSS). In
2014, U.S. Cellular entered into certain other agreements with such vendor that
rearrange the structure under the original agreements, including arrangements
pursuant to which U.S. Cellular now outsources certain support functions for its
B/OSS to such vendor. Operational problems associated with the B/OSS,
including any failure by the vendor to provide the required level of service
under the outsourcing arrangements, could have adverse effects on TDS’
business, financial condition or results of operations.
21) TDS has
significant investments in entities that it does not control. Losses in the
value of such investments could have an adverse effect on TDS’ financial
condition or results of operations.
TDS has significant investments in entities that it does not
control, including equity investments and interests in certain variable
interest entities. TDS’ interests in such entities do not provide TDS with
control over the business strategy, financial goals, network build-out plans or
other operational aspects of these entities. TDS cannot provide assurance that
these entities will operate in a manner that will increase or maintain the
value of TDS’ investments, that TDS’ proportionate share of income from these investments
will continue at the current level in the future or that TDS will not incur
losses from the holding of such investments. Losses in the values of such
investments or a reduction in income from these investments could adversely
affect TDS’ financial condition or results of operations.
22) A failure by
TDS to maintain flexible and capable telecommunication networks or information
technology, or a material disruption thereof, could have an adverse effect on
TDS’ business, financial condition or results of operations.
TDS relies extensively on its telecommunication networks and
information technology to operate and manage its businesses, process
transactions and summarize and report results. These networks and technology
become obsolete over time and must be upgraded, replaced and/or otherwise
enhanced over time. Enhancements must be more flexible and dependable than
ever before. All of this is capital intensive and challenging. A failure by
TDS to maintain flexible and capable telecommunication networks or information
technology could have an adverse effect on TDS’ business, financial condition
or results of operations.
The increased provision of data services including IPTV has
introduced significant new demands on TDS’ network and has also increased
complexities related to network management. As it relates to Wireline’s
networks, the transition to new IP-based networks from well-established
time-division multiplexing networks requires new support tools and technician
skills. Further, this transition requires the use of more leased facilities
and partnerships which require enhanced network monitoring and controls. The
IP-based networks also generally require more electronics on customers’
premises which introduces more technical risks and makes diagnostics and
repairs more difficult.
Further, the increased provision of data services on TDS’
networks has created an increased level of risk related to quality of service.
This is due to the fact that many customers increasingly rely on data
communications to execute and validate transactions. As a result, redundancy
and geographical diversity of TDS’ network facilities are critical to providing
uninterrupted service. Also, the speed of repair and maintenance procedures in
the event of network interruptions is critical to maintaining customer
satisfaction. TDS’ ability to maintain high quality, uninterrupted service to
its customers is critical, particularly given the increasingly competitive
environment and customers’ ability to choose other service providers.
In addition, TDS’ networks and information technology and the
networks and information technology of vendors on which TDS relies are subject
to damage or interruption due to various events, including power outages,
computer, network and telecommunications failures, computer viruses, security
breaches, hackers and other cyber security risks, catastrophic events, natural
disasters, errors or unauthorized actions by employees and vendors, flawed
conversion of systems, disruptive technologies and technology changes.
23) Cyber-attacks
or other breaches of network or information technology security could have an
adverse effect on TDS' business, financial condition or results of operations.
TDS experiences cyber-attacks of varying degrees on a
regular basis. TDS maintains administrative, technical and physical controls,
as well as other preventative actions, to reduce the risk of security
breaches. Although to date TDS has not experienced a material security breach,
these efforts may be insufficient to prevent a security breach stemming from
future cyber-attacks. If TDS’ or its vendors’ networks and information
technology are not adequately adapted to changes in technology or are damaged
or fail to function properly, and/or if TDS’ or its vendors’ security is
breached or otherwise compromised, TDS could suffer adverse consequences,
including theft, destruction or other loss of critical and private data,
including customer and/or employee data, interruptions or delays in its
operations, inaccurate billings, inaccurate financial reporting, and
significant costs to remedy the problems. If TDS’ or its vendors’ systems
become unavailable or suffer a security breach of customer or other data, TDS
may be required to expend significant resources and take various actions to
address the problems, including notification under data privacy laws and
regulations, may be subject to fines, sanctions and litigation, and its
reputation and operating results could be adversely affected. Such events may
also cause TDS to fail to satisfy service level commitments or trigger
contractual obligations to customers of its IT services. Any material
disruption in TDS’ networks or information technology, including security
breaches, could have an adverse effect on TDS’ business, financial condition or
results of operations.
24) The
market price of TDS’ Common Shares is subject to fluctuations due to a variety
of factors.
Factors that may affect the future market price of TDS’ Common
Shares include:
·
General economic conditions, including conditions in the credit
and financial markets;
·
Industry conditions;
·
Fluctuations in TDS’ quarterly customer additions, churn rate,
revenues, results of operations or cash flows;
·
Variations between TDS’ actual financial and operating results
and those expected by analysts and investors; and
·
Announcements by TDS’ competitors.
Any of these or other factors could adversely affect the
future market price of TDS’ Common Shares, or could cause the future market
price of TDS’ Common Shares to fluctuate from time to time.
25) Changes
in facts or circumstances, including new or additional information, could
require TDS to record charges in excess of amounts accrued in the financial
statements, which could have an adverse effect on TDS’ business, financial
condition or results of operations.
The preparation of financial statements requires TDS to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. TDS bases its estimates on
historical experience and on various other assumptions and information that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities. Actual results may differ from estimates under different
assumptions or conditions. Changes in facts or circumstances, including new or
additional information, could require TDS to record charges in excess of
amounts accrued in the financial statements, if any, which could have an
adverse effect on TDS’ business, financial condition or results of operations.
26) Disruption in
credit or other financial markets, a deterioration of U.S. or global economic
conditions or other events could, among other things, impede TDS’ access to or
increase the cost of financing its operating and investment activities and/or
result in reduced revenues and lower operating income and cash flows, which
would have an adverse effect on TDS’ business, financial condition or results
of operations.
Disruptions in the credit and financial markets, declines in
consumer confidence, increases in unemployment, declines in economic growth and
uncertainty about corporate earnings could have a significant negative impact
on the U.S. and global financial and credit markets and the overall economy.
Such events could have an adverse impact on financial institutions resulting in
limited access to capital and credit for many companies. Furthermore, economic
uncertainties make it very difficult to accurately forecast and plan future
business activities. Changes in economic conditions, changes in financial
markets, deterioration in the capital markets or other factors could have an
adverse effect on TDS’ business, financial condition, revenues, results of
operations and cash flows.
27) Uncertainty
of TDS’ ability to access capital, deterioration in the capital markets, other
changes in market conditions, changes in TDS’ credit ratings or other factors
could limit or restrict the availability of financing on terms and prices
acceptable to TDS, which could require TDS to reduce its construction,
development or acquisition programs.
TDS and its subsidiaries operate
capital-intensive businesses. TDS has used internally-generated funds and has
also obtained substantial funds from external sources to finance the build-out
and enhancement of markets, to fund acquisitions and for general corporate
purposes. TDS also may require substantial additional capital for, among other
uses, acquisitions of providers of wireless or wireline telecommunications
services, cable markets, IT services or other businesses, spectrum license or
system acquisitions, system development and network capacity expansion. There
can be no assurance that sufficient funds will continue to be available to TDS
or its subsidiaries on terms or at prices acceptable to TDS. Changes in TDS’
credit ratings, uncertainty of access to capital for telecommunications
companies, deterioration in the capital markets, reduced regulatory capital at
banks which in turn limits their ability to borrow and lend, other changes in
market conditions or other factors could limit or restrict the availability of
financing on terms and prices acceptable to TDS, which could require TDS to
reduce its construction, development and acquisition programs. Reduction of
TDS’ construction, development and acquisition programs likely would have a
negative impact on TDS’ consolidated revenues, income and cash flows.
28) Settlements,
judgments, restraints on its current or future manner of doing business and/or
legal costs resulting from pending and future litigation could have an adverse
effect on TDS’ business, financial condition or results of operations.
TDS is regularly involved in a number of legal and policy proceedings
before the FCC and various state and federal courts. Such legal and policy proceedings
can be complex, costly, protracted and highly disruptive to business operations
by diverting the attention and energies of management and other key personnel.
The assessment of legal and policy proceedings is a highly
subjective process that requires judgments about future events. Additionally,
amounts ultimately received or paid upon settlement or resolution of litigation
and other contingencies may differ materially from amounts accrued in the
financial statements. Depending on a range of factors, these or similar
proceedings could impose restraints on TDS’ current or future manner of doing
business. Such potential outcomes could have an adverse effect on TDS’
financial condition, results of operations or ability to do business.
29) The
possible development of adverse precedent in litigation or conclusions in
professional studies to the effect that radio frequency emissions from wireless
devices and/or cell sites cause harmful health consequences, including cancer
or tumors, or may interfere with various electronic medical devices such as
pacemakers, could have an adverse effect on TDS’ wireless business, financial
condition or results of operations.
Media reports and certain professional studies have suggested
that certain radio frequency emissions from wireless devices may be linked to
various health problems, including cancer or tumors, and may interfere with
various electronic medical devices, including hearing aids and pacemakers. U.S.
Cellular is a party to and may in the future be a party to lawsuits against
wireless carriers and other parties claiming damages for alleged health
effects, including cancer or tumors, arising from wireless phones or radio
frequency transmitters. Concerns over radio frequency emissions may discourage
use of wireless devices or expose TDS to potential litigation. In addition,
the FCC or other regulatory authorities may adopt regulations in response to
concerns about radio frequency emissions. Any resulting decrease in demand for
wireless services, costs of litigation and damage awards or regulation could have
an adverse effect on TDS’ business, financial condition or results of
operations.
In addition, some studies have indicated that some aspects of
using wireless devices while driving may impair drivers’ attention in certain
circumstances, making accidents more likely. These concerns could lead to
potential litigation relating to accidents, deaths or serious bodily injuries,
any of which could have an adverse effect on TDS’ business, financial condition
or results of operations.
Numerous state and local legislative bodies have enacted or proposed
legislation restricting or prohibiting the use of wireless devices while
driving motor vehicles. These enacted or proposed laws or other similar laws,
if passed, could have the effect of reducing customer usage and/or increasing
costs, which could have an adverse effect on TDS’ business, financial
condition, or results of operations.
30)
Claims of infringement of intellectual property and proprietary
rights of others, primarily involving patent infringement claims, could prevent
TDS from using necessary technology to provide products or services or subject
TDS to expensive intellectual property litigation or monetary penalties, which
could have an adverse effect on TDS’ business, financial condition or results
of operations.
TDS faces possible effects of industry
litigation relating to patents, other intellectual property or otherwise, that
may restrict TDS’ access to devices for sale to customers. If technology that
TDS uses in products or services were determined by a court to infringe a
patent or other intellectual property right held by another person, TDS could
be precluded from using that technology and could be required to pay
significant monetary damages. TDS also may be required to pay significant
royalties to such person to continue to use such technology in the future. The
successful enforcement of any intellectual property rights, or TDS’ inability
to negotiate a license for such rights on acceptable terms, could force TDS to
cease using the relevant technology and offering services incorporating the
technology. Any litigation to determine the validity of claims that TDS’
products or services infringe or may infringe intellectual property rights of
another, regardless of their merit or resolution, could be costly and divert
the effort and attention of TDS’ management and technical personnel. Regardless
of the merits of any specific claim, TDS cannot give assurance that it would
prevail in litigation because of the complex technical issues and inherent
uncertainties in intellectual property litigation. Although TDS generally
seeks to obtain indemnification agreements from vendors that provide it with
technology, there can be no assurance that any claim of infringement will be
covered by an indemnity or that TDS will be able to recover all or any of its
losses and costs under any available indemnity agreements. Any claims of
infringement of intellectual property and proprietary rights of others could
prevent TDS from using necessary technology to provide its services or subject
TDS to expensive intellectual property litigation or monetary penalties, which
could have an adverse effect on TDS’ business, financial condition or results
of operations.
31) Certain
matters, such as control by the TDS Voting Trust and provisions in the TDS
Restated Certificate of Incorporation, may serve to discourage or make more
difficult a change in control of TDS.
The TDS Restated Certificate of Incorporation, as amended, and
the TDS bylaws contain provisions which may serve to discourage or make more
difficult a change in control of TDS without the support of the TDS Voting
Trust and the TDS Board of Directors or without meeting various other
conditions.
The TDS Restated Certificate of Incorporation, as amended,
authorizes the issuance of different series of common stock, which have
different voting rights. The TDS Series A Common Shares have the power to
elect approximately 75% (less one) of the directors and have ten votes per
share in matters other than the election of directors. The TDS Common Shares
(with one vote per share) vote as a separate group only with respect to the
election of 25% (plus one) of the directors. In addition, the total percentage
voting power in matters other than the election of directors of the Series A
Common Shares and Common Shares are fixed, at 56.7% and 43.3%, respectively,
subject to adjustment due to changes in the number of outstanding Series A
Common Shares.
A substantial majority of the outstanding TDS Series A
Common Shares are held in the TDS Voting Trust which expires on June 30,
2035. The TDS Voting Trust was created to facilitate the long-standing
relationships among the trustees’ certificate holders. By virtue of the number
of shares held by them, the voting trustees have the power to elect eight
directors based on the current TDS Board of Directors’ size of twelve
directors, and control a majority of the voting power of TDS with respect to
matters other than the election of directors.
The existence of the TDS Voting Trust is likely to deter any potential
unsolicited or hostile takeover attempts or other efforts to obtain control of
TDS and may make it more difficult for shareholders to sell shares of TDS at
higher than market prices. The trustees of the TDS Voting Trust have advised
TDS that they intend to maintain the ability to keep or dispose of voting
control of TDS.
The TDS Restated Certificate of Incorporation, as amended,
also authorizes the TDS Board of Directors to designate and issue TDS
Undesignated Shares in one or more classes or series of preferred or common
stock from time to time. Generally, no further action or authorization by the
shareholders is necessary prior to the designation or issuance of the
additional TDS Undesignated Shares authorized pursuant to the TDS Restated Certificate
of Incorporation, as amended, unless applicable laws or regulations would
require such approval in a given instance. Such TDS Undesignated Shares could
be issued in circumstances that would serve to preserve control of TDS’ then
existing management.
In addition, the TDS Restated Certificate of Incorporation, as
amended, includes a provision which authorizes the TDS Board of Directors to
consider various factors, including effects on customers, taxes, and the
long-term and short-term interests of TDS, in the context of a proposal or
offer to acquire or merge the corporation, or to sell its assets, and to reject
such offer if the TDS Board of Directors determines that the proposal is not in
the best interests of the corporation based on such factors.
The provisions
of the TDS Restated Certificate of Incorporation, as amended, and the TDS
bylaws and the existence of various classes of capital stock could prevent
shareholders from profiting from an increase in the market value of their
shares as a result of a change in control of TDS by delaying or preventing such
change in control.
32) Any of the foregoing
events or other events could cause revenues, earnings, capital expenditures
and/or any other financial or statistical information to vary from TDS’ forward-looking
estimates by a material amount.
From time to time, TDS may disclose
forward-looking information, including estimates of future service revenues; various
measures of income before income taxes; and/or capital expenditures. Any such
forward-looking information includes consideration of known or anticipated
changes to the extent disclosed, but dynamic market conditions and/or other unknown
or unanticipated events, including but not limited to the risks discussed
above, could cause such estimates to differ materially from the actual amounts.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
U.S. Cellular
U.S. Cellular’s mobile telephone switching offices, cell
sites, call centers and retail stores are located primarily in U.S. Cellular’s
operating markets and are either owned or leased under long-term leases by U.S.
Cellular, one of its subsidiaries, or the partnership, limited liability
company or corporation which holds the license issued by the FCC.
U.S. Cellular leases space
for its corporate offices in Chicago, Bensenville and Wood Dale, Illinois; it
also leases space for its network operations center in Schaumburg, Illinois and
its regional and local market business offices. U.S. Cellular operates four
customer care centers; two of the facilities used in these operations are owned
and two are leased.
TDS Telecom
Wireline owns substantially all of its physical assets
consisting of telephone distribution networks, network electronic equipment and
land and buildings located in its ILEC operating markets. TDS Telecom leases
most of its office space, retail sites, equipment, switching facility
buildings, storage facilities and sales offices used in its CLEC operations.
Cable’s principal physical assets consist of cable
distribution networks, headends, towers and business offices. Cable generally
leases business offices and space on the towers on which equipment is located
while headends are located on owned or leased parcels of land.
HMS’ principal physical assets consist of data centers and
business offices which are either owned or leased.
TDS Telecom leases space for its corporate headquarters
office in Madison, Wisconsin.
Corporate
TDS leases space for its corporate offices in Chicago, Illinois and Middleton, Wisconsin.
General
U.S. Cellular’s cell and transmitter sites and TDS Telecom’s
telephone and cable lines are located on private and public property.
Locations on private land are by virtue of ownership, easements or other
arrangements. U.S. Cellular and TDS Telecom
have not experienced major problems with obtaining zoning approval for cell and
transmitter sites, telephone lines or other operating facilities and do not
anticipate significant problems in this area in future periods.
U.S. Cellular’s and TDS Telecom’s properties, plant and
equipment are maintained in good operating condition and are suitable and
adequate for TDS’ business operations.
As of December 31, 2014, Property, plant and equipment, net
of accumulated depreciation, totaled $2,728.2 million at U.S. Cellular, $787.2
million at Wireline, $187.9 million at Cable, $118.6 million at HMS; and $24.2 million
at Corporate, Airadigm and Suttle-Straus.
Item 3. Legal
Proceedings
TDS is involved or may be involved from time to time in legal
proceedings before the FCC, other regulatory authorities, and/or various state
and federal courts. If TDS believes that a loss arising from such legal
proceedings is probable and can be reasonably estimated, an amount is accrued
in the financial statements for the estimated loss. If only a range of
loss can be determined, the best estimate within that range is accrued; if none
of the estimates within that range is better than another, the low end of the
range is accrued. The assessment of the expected outcomes of legal
proceedings is a highly subjective process that requires judgments about future
events. The legal proceedings are reviewed at least quarterly to
determine the adequacy of accruals and related financial statement
disclosures. The ultimate outcomes of legal proceedings could differ
materially from amounts accrued in the financial statements. See Note 13 — Commitments
and Contingencies in the Notes to Consolidated Financial Statements for further
information.
Item 4. Mine Safety
Disclosures.
Not applicable
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Market, holder, dividend and
performance graph information is incorporated by reference from Exhibit 13 to
this Form 10-K, Annual Report sections entitled “Shareholder Information” and “Consolidated
Quarterly Information (Unaudited).”
Information relating to Issuer
Purchases of Equity Securities is set forth below.
On
August 2, 2013, the Board of Directors of TDS authorized a $250 million stock
repurchase program for TDS Common Shares. Depending on market conditions,
such shares may be repurchased in compliance with Rule 10b-18 of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), pursuant to Rule
10b5-1 under the Exchange Act, or pursuant to accelerated share repurchase
arrangements, prepaid share repurchases, private transactions or as otherwise
authorized. This authorization does not have an expiration date.
TDS
determines whether to repurchase shares from time to time based on many
considerations, including cash needed for other known or possible requirements,
the stock price, market conditions, debt rating considerations, business
forecasts, business plans, macroeconomic conditions, share issuances under
compensation plans, provisions in governing and legal documents and other legal
requirements, and other facts and circumstances. Subject to these
considerations, TDS may approve the repurchase of its shares from time to time
when circumstances warrant.
|
|
|
|
|
|
|
|
|
|
|
Period
|
Total Number of
Shares Purchased
|
|
|
Average Price Paid
per Share
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
|
|
Maximum Dollar
Value of Shares that
may yet be
Purchased Under the
Plans or Programs
|
|
October 1 - 31, 2014
|
244,269
|
|
$
|
23.51
|
|
244,269
|
|
$
|
202,770,127
|
|
November 1 - 30, 2014
|
-
|
|
|
-
|
|
-
|
|
|
202,770,127
|
|
December 1 - 31, 2014
|
67,740
|
|
|
23.01
|
|
67,740
|
|
|
201,211,668
|
|
Total for or as of the end of
the
quarter ended December 31,
2014
|
312,009
|
|
$
|
23.40
|
|
312,009
|
|
$
|
201,211,668
|
The following is additional information
with respect to the Common Shares authorization:
i.
The date the program was announced
was August 2, 2013 by Form 8-K.
ii.
The amount approved was up to $250
million in aggregate purchase price of TDS Common Shares.
iii.
There is no expiration date for
the program.
iv.
The authorization did not expire
during the fourth quarter of 2014.
v.
TDS did not determine to terminate
the foregoing Common Share repurchase program, or cease making further purchases
thereunder, during the fourth quarter of 2014.
Item 6. Selected
Financial Data
Incorporated by reference from Exhibit 13 to this Form
10-K, Annual Report section entitled “Selected Consolidated Financial and
Operating Data,” except for Ratio of earnings to fixed charges, which is
incorporated herein by reference from Exhibit 12 to this Form 10-K.
Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
Incorporated by reference from Exhibit 13 to this Form 10-K,
Annual Report section entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Incorporated by reference from Exhibit 13 to this Form 10-K, Annual
Report section entitled “Market Risk.”
Item 8. Financial
Statements and Supplementary Data
Incorporated by reference from Exhibit 13 to this Form 10-K,
Annual Report sections entitled “Consolidated Statement of Operations,” “Consolidated
Statement of Comprehensive Income,” “Consolidated Statement of Cash Flows,”
“Consolidated Balance Sheet,” “Consolidated Statement of Changes in Equity,”
“Notes to Consolidated Financial Statements,” “Management’s Report on Internal
Control Over Financial Reporting,” “Report of Independent Registered Public
Accounting Firm,” and “Consolidated Quarterly Information (Unaudited).”
Item 9. Changes in
and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls
and Procedures
Evaluation of Disclosure Controls and Procedures
TDS maintains disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) that are designed to ensure that information
required to be disclosed in its reports filed or submitted under the Exchange
Act is processed, recorded, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to TDS’ management, including its principal executive
officer and principal financial officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
As required by SEC Rule 13a-15(b), TDS carried out an
evaluation, under the supervision and with the participation of management,
including its principal executive officer and principal financial officer, of
the effectiveness of the design and operation of TDS’ disclosure controls and
procedures as of the end of the period covered by this Annual Report. Based on
this evaluation, the principal executive officer and principal financial officer
have concluded that TDS’ disclosure controls and procedures were effective as
of December 31, 2014, at the reasonable assurance level.
Management’s Report on Internal Control Over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. TDS’ internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). TDS’
internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the issuer; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the issuer are
being made only in accordance with authorizations of management and, where
required, the board of directors of the issuer; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the issuer’s assets that could have a material effect on
the interim or annual consolidated financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of TDS’
management, including its principal executive officer and principal financial officer,
TDS conducted an evaluation of the effectiveness of its internal control over
financial reporting as of December 31, 2014, based on the criteria established
in the 2013 version of Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Management has concluded that TDS maintained effective internal control over
financial reporting as of December 31, 2014 based on criteria established in
the 2013 version of Internal Control — Integrated Framework issued by
the COSO.
The effectiveness of TDS’ internal control over financial
reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in the firm’s
report which is incorporated by reference into Item 8 of this Annual Report on
Form 10-K from Exhibit 13 filed herewith.
Changes
in Internal Control Over Financial Reporting
There were no changes in TDS’ internal
control over financial reporting during the fourth quarter of 2014 that have
materially affected, or are reasonably likely to materially affect, TDS’
internal control over financial reporting.
Item 9B. Other
Information
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Incorporated by reference from Proxy Statement sections
entitled “Election of Directors,” “Corporate Governance,” “Executive Officers”
and “Section 16(a) Beneficial Ownership Reporting Compliance.”
Item 11. Executive
Compensation
Incorporated by reference from Proxy Statement section
entitled “Executive and Director Compensation.”
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Incorporated by reference from Proxy Statement sections
entitled “Security Ownership of Certain Beneficial Owners and Management” and
“Securities Authorized for Issuance under Equity Compensation Plans.”
Item 13. Certain
Relationships and Related Transactions, and Director Independence
Incorporated by reference from Proxy Statement sections
entitled “Corporate Governance” and “Certain Relationships and Related
Transactions.”
Item 14.
Principal Accountant Fees and Services
Incorporated by reference from Proxy Statement section
entitled “Fees Paid to Principal Accountants.”
PART IV
Item 15. Exhibits and Financial Statement
Schedules
|
(a)
|
The following documents are
filed as a part of this report:
|
|
|
|
|
|
|
|
(1)
|
Financial Statements
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of
Operations
|
Annual Report*
|
|
|
|
Consolidated Statement of
Comprehensive Income
|
Annual Report*
|
|
|
|
Consolidated Statement of Cash
Flows
|
Annual Report*
|
|
|
|
Consolidated Balance Sheet
|
Annual Report*
|
|
|
|
Consolidated Statement of
Changes in Equity
|
Annual Report*
|
|
|
|
Notes to Consolidated Financial
Statements
|
Annual Report*
|
|
|
|
Management’s Report on Internal
Control Over Financial Reporting
|
Annual Report*
|
|
|
|
Report of Independent Registered
Public Accounting Firm
—PricewaterhouseCoopers LLP
|
Annual Report*
|
|
|
|
Consolidated Quarterly
Information (Unaudited)
|
Annual Report*
|
|
|
|
|
|
|
|
|
* Incorporated
by reference from Exhibit 13.
|
|
|
|
(2)
|
Financial Statement Schedules
|
|
|
|
|
|
|
Location
|
|
|
|
Los Angeles SMSA Limited
Partnership Financial Statements
|
S-1
|
|
|
|
|
Report of Independent
Registered Public Accounting Firm — Ernst & Young
|
S-2
|
|
|
|
|
Report of Independent
Registered Public Accounting Firm — Deloitte & Touche LLP
|
S-3
|
|
|
|
|
Balance Sheets
|
S-4
|
|
|
|
|
Statements of Operations
|
S-5
|
|
|
|
|
Statements of Changes in
Partners’ Capital
|
S-6
|
|
|
|
|
Statements of Cash Flows
|
S-7
|
|
|
|
|
Notes to Financial Statements
|
S-8
|
All other schedules have been omitted because they are not
applicable or not required or because the required information is shown in the
financial statements or notes thereto.
(3) Exhibits
The exhibits set forth in the accompanying Index to Exhibits
are filed as a part of this Report. Compensatory plans or arrangements are
identified in the Index to Exhibits with an asterisk.
LOS
ANGELES SMSA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
TDS’ subsidiary, U.S. Cellular, owns a 5.5% limited
partnership interest in the Los Angeles SMSA Limited Partnership and accounts
for such interest by the equity method. The partnership’s financial statements
were obtained by U.S. Cellular as a limited partner.
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Partners of Los Angeles
SMSA
Limited Partnership
We have audited the accompanying
balance sheet of Los Angeles SMSA Limited Partnership (the Partnership) as of
December 31, 2014, and the related statements of income and comprehensive
income, change in partners’ capital and cash flows for the year ended
December 31, 2014. These financial statements are the responsibility of
the Partnership’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit of the
Partnership’s internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
Partnership’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides 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 the Partnership at December 31, 2014, and the results of
its operations and its cash flows for the year ended December 31, 2014, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Certified Public Accountants
Orlando, Florida
February 25, 2015
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Los Angeles SMSA Limited
Partnership:
Basking Ridge, New Jersey
We have audited the
accompanying balance sheets of Los Angeles SMSA Limited Partnership (the
"Partnership") as of December 31, 2013 and 2012, and the related
statements of operations, changes in partners’ capital, and cash flows for each
of the three years in the period ended December 31, 2013. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Partnership is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Partnership's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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, such financial
statements present fairly, in all material respects, the financial position of
the Partnership as of December 31, 2013 and 2012, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2013 in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 28, 2014
|
Los
Angeles SMSA Limited Partnership
|
|
|
|
|
|
|
Balance Sheets - As of December
31, 2014 and 2013
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
Due from affiliate
|
$
|
205,273
|
|
$
|
316,794
|
|
|
Accounts receivable, net of
allowance of $24,136 and $21,600
|
|
529,649
|
|
|
363,069
|
|
|
Unbilled revenue
|
|
24,511
|
|
|
20,070
|
|
|
Prepaid expenses
|
|
13,188
|
|
|
4,357
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
772,621
|
|
|
704,290
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND
EQUIPMENT—Net
|
|
1,715,460
|
|
|
1,581,317
|
|
|
|
|
|
|
|
|
|
|
WIRELESS LICENSES
|
|
79,543
|
|
|
79,543
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
99,652
|
|
|
8,848
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
2,667,276
|
|
$
|
2,373,998
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS'
CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$
|
168,893
|
|
$
|
117,972
|
|
|
Advance billings and customer
deposits
|
|
197,715
|
|
|
152,698
|
|
|
Deferred gain
|
|
4,923
|
|
|
4,923
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
371,531
|
|
|
275,593
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
Deferred gain
|
|
23,950
|
|
|
28,892
|
|
|
Other liabilities
|
|
38,021
|
|
|
34,411
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long term liabilities
|
|
61,971
|
|
|
63,303
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
433,502
|
|
|
338,896
|
|
|
|
|
|
|
|
|
|
|
PARTNERS' CAPITAL
|
|
2,233,774
|
|
|
2,035,102
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND PARTNERS'
CAPITAL
|
$
|
2,667,276
|
|
$
|
2,373,998
|
|
|
|
|
|
|
|
|
|
|
See notes to financial
statements.
|
|
|
|
|
|
|
Los
Angeles SMSA Limited Partnership
|
|
Statements of Income and Comprehensive
Income - Years Ended December 31, 2014, 2013 and 2012
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
OPERATING REVENUE:
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
$
|
4,317,377
|
|
$
|
4,166,296
|
|
$
|
3,920,064
|
|
|
Equipment and other
|
|
851,557
|
|
|
667,963
|
|
|
677,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
5,168,934
|
|
|
4,834,259
|
|
|
4,597,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization)
|
|
863,031
|
|
|
753,438
|
|
|
705,065
|
|
|
Depreciation and amortization
|
|
344,887
|
|
|
337,313
|
|
|
343,565
|
|
|
Cost of equipment
|
|
1,195,874
|
|
|
885,502
|
|
|
948,130
|
|
|
Selling, general and
administrative
|
|
1,470,669
|
|
|
1,445,229
|
|
|
1,375,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
3,874,461
|
|
|
3,421,482
|
|
|
3,372,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
1,294,473
|
|
|
1,412,777
|
|
|
1,225,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME:
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
4,199
|
|
|
1,520
|
|
|
1,051
|
|
|
Other
|
|
-
|
|
|
4,941
|
|
|
4,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
4,199
|
|
|
6,461
|
|
|
5,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME AND COMPREHENSIVE
INCOME
|
$
|
1,298,672
|
|
$
|
1,419,238
|
|
$
|
1,231,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Net Income:
|
|
|
|
|
|
|
|
|
|
|
Limited Partners
|
$
|
779,203
|
|
$
|
851,543
|
|
$
|
738,768
|
|
|
General Partner
|
$
|
519,469
|
|
$
|
567,695
|
|
$
|
492,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial
statements.
|
|
|
|
|
|
|
|
|
|
Los
Angeles SMSA Limited Partnership
|
|
Statements of Changes in
Partners' Capital - Years Ended December 31, 2014, 2013 and 2012
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Partner
|
|
Limited Partners
|
|
|
|
|
|
|
|
AirTouch
Cellular
|
|
AirTouch
Cellular
|
|
Cellco
Partnership
|
|
United States
Cellular
Corporation
|
|
Total Partners'
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—January 1, 2012
|
$
|
753,834
|
|
$
|
797,179
|
|
$
|
229,920
|
|
$
|
103,651
|
|
$
|
1,884,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
(480,000)
|
|
|
(507,600)
|
|
|
(146,400)
|
|
|
(66,000)
|
|
|
(1,200,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
492,512
|
|
|
520,832
|
|
|
150,216
|
|
|
67,720
|
|
|
1,231,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2012
|
|
766,346
|
|
|
810,411
|
|
|
233,736
|
|
|
105,371
|
|
|
1,915,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
(520,000)
|
|
|
(549,900)
|
|
|
(158,600)
|
|
|
(71,500)
|
|
|
(1,300,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
567,695
|
|
|
600,337
|
|
|
173,146
|
|
|
78,060
|
|
|
1,419,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2013
|
|
814,041
|
|
|
860,848
|
|
|
248,282
|
|
|
111,931
|
|
|
2,035,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
(440,000)
|
|
|
(465,300)
|
|
|
(134,200)
|
|
|
(60,500)
|
|
|
(1,100,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
519,468
|
|
|
549,338
|
|
|
158,438
|
|
|
71,428
|
|
|
1,298,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2014
|
$
|
893,509
|
|
$
|
944,886
|
|
$
|
272,520
|
|
$
|
122,859
|
|
$
|
2,233,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial
statements.
|
|
Los
Angeles SMSA Limited Partnership
|
|
Statements of Cash Flows - Years
Ended December 31, 2014, 2013 and 2012
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
1,298,672
|
|
$
|
1,419,238
|
|
$
|
1,231,280
|
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
344,887
|
|
|
337,313
|
|
|
343,565
|
|
|
|
Amortization of deferred gain
|
|
(4,942)
|
|
|
(4,941)
|
|
|
(4,957)
|
|
|
|
Provision for losses on accounts
receivable
|
|
34,370
|
|
|
44,339
|
|
|
37,057
|
|
|
|
Changes in certain assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(200,950)
|
|
|
(68,809)
|
|
|
(69,272)
|
|
|
|
|
Unbilled revenue
|
|
(4,441)
|
|
|
(579)
|
|
|
2,761
|
|
|
|
|
Prepaid expenses
|
|
(8,831)
|
|
|
180
|
|
|
(760)
|
|
|
|
|
Other assets
|
|
(91,809)
|
|
|
(8,193)
|
|
|
19
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
32,591
|
|
|
(15,872)
|
|
|
18,548
|
|
|
|
|
Advance billings and customer
deposits
|
|
45,017
|
|
|
7,849
|
|
|
9,826
|
|
|
|
|
Other liabilities
|
|
3,610
|
|
|
10,447
|
|
|
4,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
1,448,174
|
|
|
1,720,972
|
|
|
1,572,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(487,511)
|
|
|
(371,385)
|
|
|
(322,328)
|
|
|
Fixed asset transfers out
|
|
27,816
|
|
|
23,459
|
|
|
50,152
|
|
|
Change in due from affiliate
|
|
111,521
|
|
|
(73,046)
|
|
|
(100,099)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
(348,174)
|
|
|
(420,972)
|
|
|
(372,275)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Distributions to partners
|
|
(1,100,000)
|
|
|
(1,300,000)
|
|
|
(1,200,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
(1,100,000)
|
|
|
(1,300,000)
|
|
|
(1,200,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH—Beginning of year
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH—End of year
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCASH TRANSACTIONS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals for Capital
Expenditures
|
$
|
31,019
|
|
$
|
12,689
|
|
$
|
11,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial
statements.
|
|
|
|
|
|
|
|
|
Los
Angeles SMSA Limited Partnership
Notes to Financial Statements
– Years Ended December 31, 2014, 2013 and 2012.
(Dollars in Thousands)
1.
ORGANIZATION AND MANAGEMENT
Los
Angeles SMSA Limited Partnership –
Los Angeles SMSA Limited Partnership
(the “Partnership” or “we”) was formed in 1984. The principal activity of the
Partnership is providing cellular service in the Los Angeles metropolitan
service area.
The
partners and their respective ownership percentages as of December 31, 2014,
2013 and 2012 are as follows:
|
|
General Partner
|
|
|
|
|
AirTouch Cellular* (“General
Partner”)
|
40.0%
|
|
|
|
|
|
|
|
Limited Partners:
|
|
|
|
|
AirTouch Cellular*
|
42.3%
|
|
|
|
Cellco Partnership
|
12.2%
|
|
|
|
United States Cellular
Corporation
|
5.5%
|
______________________________
*
AirTouch Cellular is a wholly-owned subsidiary of Verizon Wireless (VAW) LLC (a
wholly-owned subsidiary of Cellco Partnership (“Cellco”) doing business as Verizon
Wireless.
In
accordance with the partnership agreement, Cellco is responsible for managing
the operations of the partnership (See Note 6).
2.
SIGNIFICANT ACCOUNTING
POLICIES
Use of Estimates — We prepare our financial statements using U.S. generally
accepted accounting principles (GAAP), which require management to make
estimates and assumptions that affect reported amounts and disclosures. Actual
results could differ from those estimates.
Examples of significant estimates include: the allowance
for doubtful accounts, the recoverability of property, plant, and equipment,
the recoverability of intangible assets and other long-lived assets, unbilled
revenues, fair values of financial instruments, accrued expenses and
contingencies.
Revenue
Recognition — The Partnership
offers products and services to our customers through bundled arrangements.
These arrangements involve multiple deliverables which may include products,
services, or a combination of products and services.
The
Partnership earns revenue primarily by providing access to and usage of its
network. In general, access revenue is billed one month in advance and
recognized when earned. Usage revenue is generally billed in arrears and
recognized when service is rendered. Equipment sales revenue associated with
the sale of wireless handsets and accessories is generally recognized when the
products are delivered to and accepted by the customer, as this is considered
to be a separate earnings process from providing wireless services. For
agreements involving the resale of third-party services in which we are
considered the primary obligor in the arrangements, we record the revenue gross
at the time of the sale. For equipment sales, we generally subsidize the cost
of wireless devices for plans under our traditional subsidy model. The amount
of this subsidy is generally contingent on the arrangement and terms selected
by the customer. In multiple deliverable arrangements which involve the sale
of equipment and a service contract, the equipment revenue is recognized up to
the amount collected when the wireless device is sold.
In
addition to the traditional subsidy model for equipment sales, we offer new and
existing customers the option to participate in Verizon Edge, a program that
provides eligible wireless customers with the ability to pay for handsets under
an equipment installment plan. Under the Verizon Edge program, customers have
the right to upgrade their handset after a minimum of 30 days, subject to certain
conditions, including making a stated portion of the required device payments,
trading in their handset in good working condition and signing a new contract
with Verizon. Upon upgrade, the outstanding balance of the equipment
installment plan is exchanged for the used handset. This trade-in right is
accounted for as a guarantee obligation.
Verizon
Edge is a multiple-element arrangement typically consisting of the trade-in
right, handset and monthly wireless service. At the inception of the
arrangement, the amount allocable to the delivered units of accounting is
limited to the amount that is not contingent upon the delivery of the monthly
wireless service (the noncontingent amount). The full amount of the trade-in
right’s fair value (not an allocated value) will be recognized as the guarantee
liability and the remaining allocable consideration will be allocated to the
handset. The value of the guarantee liability effectively results in a
reduction to revenue recognized for
the sale of the
handset. The guarantee liability is measured at fair value upon initial
recognition based on assumptions lacking observable pricing inputs including
the probability and timing of the customer upgrading to a new phone, the
customer’s estimated remaining installment balance at the time of trade-in and
the estimated fair value of the phone at the time of trade-in and therefore is
classified within Level 3 of the fair value hierarchy. When the customer
trades-in their used phone, the handset received is recorded to inventory and
measured as the difference between the remaining equipment installment plan
balance at the time of trade-in and the guarantee liability. As a result of
changes in the Verizon Edge program during 2014, and corresponding changes in
related assumptions, the guarantee liability associated with Verizon Edge
agreements under the current program is not material. The guarantee liability
may increase after initial recognition as a result of changes in facts or
assumptions and we will account for any increase in the guarantee liability
with a corresponding decrease to revenue. The subsequent derecognition of the guarantee liability occurs when the guarantor is
released from risk, which will occur at the earlier of the time the trade-in
right is exercised or expires.
Roaming revenue reflects service revenue earned by the
Partnership when customers not associated with the Partnership operate in the
service area of the Partnership and use the Partnership’s network. The roaming
rates with third party carriers associated with those customers are based on
agreements with such carriers. The roaming rates charged by the Partnership to
Cellco are established by Cellco on a periodic basis and may not reflect
current market rates (see Note 6).
Maintenance and Repairs – We charge the cost of
maintenance and repairs, including the cost of replacing minor items not
constituting substantial betterments, principally to Cost of services as these
costs are incurred.
Advertising Costs– Costs for advertising products
and services as well as other promotional and sponsorship costs are charged to
Selling, general and administrative expense in the periods in which they are
incurred.
Operating Expenses – Operating expenses include
expenses incurred directly by the Partnership, as well as an allocation of
selling, general and administrative, and operating costs incurred by Cellco or
its affiliates on behalf of the Partnership. Employees of Cellco provide
services performed on behalf of the Partnership. These employees are not employees
of the Partnership, therefore operating expenses include direct and allocated
charges of salary and employee benefit costs for the services provided to the
Partnership. Cellco believes such allocations, principally based on the
Partnership’s percentage of certain revenue streams, total customers, customer
gross additions or minutes-of-use, are in accordance with the Partnership
Agreement and are a reasonable method of allocating such costs.
Cost of roaming reflects costs incurred by the
Partnership when customers associated with the Partnership operate in a service
area not associated with the Partnership and use a network not associated with
the Partnership. The roaming rates with third party carriers are based on
agreements with such carriers. The roaming rates charged to the Partnership by
Cellco are established by Cellco on a periodic basis and may not reflect
current market rates (see Note 6).
Cost of equipment is recorded upon sale of the related
equipment at Cellco’s cost basis. No inventory of equipment is maintained at
the Partnership.
Retail Stores– The daily operations of all retail stores owned by the
Partnership are managed by Cellco. All fixed assets, liabilities, income
and expenses related to these retail stores are recorded in the financial
statements of the Partnership.
Comprehensive Income– Comprehensive income is the same as net income as
presented in the accompanying statements of income and comprehensive income.
Income Taxes – The Partnership is treated as a
pass through for income tax purposes and, therefore, is not subject to federal,
state or local income taxes. Accordingly, no provision has been recorded for
income taxes in the Partnership’s financial statements. The results of
operations, including taxable income, gains, losses, deductions and credits,
are allocated to and reflected on the income tax Schedules provided to the
respective partners.
The Partnership files federal and state tax returns.
The 2011 through 2014 federal tax years for the Partnership remain subject to
examination by the Internal Revenue Service. The 2011 through 2014 tax years
for the Partnership remain subject to examination by the state tax
jurisdiction. Because the application of tax laws and regulations to many types
of transactions is susceptible to varying interpretations, positions taken
could be changed at a later date upon final determination by taxing authorities.
Due from affiliate – Due from affiliate principally represents the
Partnership’s cash position with Cellco. Cellco manages, on behalf of the
Partnership, all cash, inventory, investing and financing activities of the
Partnership. As such, the changes in due from/to affiliate are reflected as an
investing activity or a financing activity in the statements of cash flows
depending on whether the Partnership is in a net asset or net liability position
with Cellco.
Additionally, administrative and operating costs
incurred by Cellco on behalf of the Partnership, as well as property, plant and
equipment transactions with affiliates, are charged to the Partnership
through this account. Interest income is based on the Applicable Federal Rate
which was approximately 0.3%, 0.2% and 0.2% for the years ended December 31,
2014, 2013 and 2012, respectively. Interest expense is calculated by applying
Cellco’s average cost of borrowing from Verizon Communications, Inc, which was
approximately 5.0%, 7.4% and 7.3% for the years ended December 31, 2014, 2013
and 2012 respectively. Included in interest income, net is interest income of
$1,706, $1,352 and $1,123 for the years ended December 31, 2014, 2013 and 2012,
respectively, related to due from affiliate.
Accounts Receivable and Allowance for Doubtful Accounts – The Partnership maintains allowances for
uncollectible accounts receivable for estimated losses resulting from the
inability of customers to make required payments. Estimates are based on the
aging of the accounts receivable balances
and historical write-off experience, net of recoveries.
Impairment – All of our long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. If any indications are present, we
test for recoverability by comparing the carrying amount of the asset group to
the net undiscounted cash flows expected to be generated from the asset group.
If those net undiscounted cash flows do not exceed the carrying amount, we
perform the next step, which is to determine the fair value of the asset and
record an impairment, if any. We reevaluate the useful life determinations for
these long-lived assets each year to determine whether events and circumstances
warrant a revision in their remaining useful lives.
Property, Plant and Equipment – We record plant, property and equipment at
cost. Plant, property and equipment are generally depreciated on a
straight-line basis.
Leasehold improvements are amortized over the shorter of
the estimated life of the improvement or the remaining term of the related
lease, calculated from the time the asset was placed in service.
When the depreciable assets are retired or otherwise
disposed of, the related cost and accumulated depreciation are deducted from
the property, plant and equipment accounts, and any gains or losses on
disposition are recognized in income. Transfers of property, plant and
equipment between Cellco and affiliates are recorded at net book value on the
date of the transfer and included in due from affiliate.
We capitalize interest associated with the acquisition
or construction of network-related assets. Capitalized interest is reported as
a reduction in interest expense and depreciated as part of the cost of the
network-related assets.
Wireless Licenses – A significant portion of our intangible assets are
wireless licenses that provide our wireless operations with the exclusive right
to utilize designated radio frequency spectrum to provide wireless
communication services. While licenses are issued for only a fixed time,
generally ten years, such licenses are subject to renewal by the Federal
Communications Commission (FCC). License renewals have occurred routinely and
at nominal cost. Moreover, we have determined that there are currently no
legal, regulatory, contractual, competitive, economic or other factors that
limit the useful life of our wireless licenses. As a result, we treat the
wireless licenses as an indefinite-lived intangible asset. We reevaluate the
useful life determination for wireless licenses each year to determine whether
events and circumstances continue to support an indefinite useful life.
Cellco
and the Partnership test their wireless licenses for potential impairment
annually. In 2014 and 2013, Cellco and the Partnership performed a qualitative
assessment to determine whether it is more likely than not that the fair value
of their wireless licenses was less than the carrying amount. As part of the
assessment, we considered several qualitative factors including the business
enterprise value of Cellco, macroeconomic conditions (including changes in
interest rates and discount rates), industry and market considerations (including
industry revenue and EBITDA (Earnings before interest, taxes, depreciation and
amortization) margin projections), the projected financial performance of
Cellco and the Partnership, as well as other factors. The most recent
quantitative assessment of the wireless licenses occurred in 2012 and yielded
no impairment. The quantitative assessment consisted of comparing the estimated
fair value of their wireless licenses to the aggregated carrying amount as of
the test date. Using the quantitative assessment, they evaluated their licenses
on an aggregate basis using a direct value approach. The direct value approach
estimates fair value using a discounted cash flow analysis to estimate what a
marketplace participant would be willing to pay to purchase the aggregated
wireless licenses as of the valuation date.
Interest
expense incurred while qualifying activities are performed to ready wireless
licenses for their intended use is capitalized as part of wireless licenses.
The capitalization period ends when the development is discontinued or
substantially complete and the license is ready for its intended use.
In addition, Cellco believes that under the
Partnership agreement it has the right to allocate, based on a reasonable
methodology, any impairment loss recognized by Cellco for all licenses included
in Cellco’s national footprint. Cellco and the Partnership evaluated their
wireless licenses for potential impairment as of December 15, 2014 and December
15, 2013. These evaluations resulted in no impairment of wireless licenses.
Financial
Instruments – The Partnership’s
trade receivables and payables are short-term in nature, and accordingly, their
carrying value approximates fair value.
Fair Value Measurements– Fair value of financial and non-financial assets
and liabilities is defined as an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. The three-tier hierarchy for inputs
used in measuring fair value, which prioritizes the inputs used in the
methodologies of measuring fair value for assets and liabilities, is as
follows:
Level 1 - Quoted prices in active markets for identical
assets or liabilities
Level 2 - Observable inputs other than quoted prices in
active markets for identical assets and liabilities
Level 3 - No observable pricing inputs in the market
Financial assets and financial liabilities are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurements. Our assessment of the significance
of a particular input to the fair value measurements requires judgment, and may
affect the valuation of the assets and liabilities being measured and their
placement within the fair value hierarchy.
Distributions – The
Partnership is required to make distributions to its partners based upon the
Partnership’s operating results, due to/from affiliate status, and financing
needs as determined by the General Partner at the date of the distribution.
Recent Accounting Standards - In May 2014, the accounting standard update related to the recognition
of revenue from contracts with customers was issued. This standard update
clarifies the principles for recognizing revenue and develops a common revenue
standard for U.S. GAAP and International Financial Reporting Standards. The
standard update intends to provide a more robust framework for addressing
revenue issues; improve comparability of revenue recognition practices across
entities, industries, jurisdictions, and capital markets; and provide more
useful information to users of financial statements through improved disclosure
requirements. Upon adoption of this standard update, we expect that the
allocation and timing of revenue recognition will be impacted. We expect to
adopt this standard update during the first quarter of 2017.
There
are two adoption methods available for implementation of the standard update
related to the recognition of revenue from contracts with customers. Under one
method, the guidance is applied retrospectively to contracts for each reporting
period presented, subject to allowable practical expedients. Under the other
method, the guidance is applied to contracts not completed as of the date of
initial application, recognizing the cumulative effect of the change as an
adjustment to the beginning balance of retained earnings, and also requires
additional disclosures comparing the results to the previous guidance. We are
currently evaluating these adoption methods and the impact that this standard
update will have on our financial statements.
In
January 2015, the accounting standard update related to the reporting of
extraordinary and unusual items was issued. This standard update eliminates the
concept of extraordinary items from U.S. GAAP as part of an initiative to
reduce complexity in accounting standards while maintaining or improving the
usefulness of the information provided to the users of the financial
statements. The presentation and disclosure guidance for items that are unusual
in nature or occur infrequently will be retained and expanded to include items
that are both unusual in nature and infrequent in occurrence. This standard
update is effective as of the first quarter of 2016; however, earlier adoption
is permitted.
Reclassifications – Certain amounts in the 2012 and 2013 financial statements
have been reclassified to conform to the 2014 presentation.
Subsequent Events – Events subsequent to December 31, 2014 have been
evaluated through February 25, 2015, the date the financial statements were issued.
3.
WIRELESS EQUIPMENT
INSTALLMENT PLANS
We offer new and existing customers the option to
participate in Verizon Edge, a program that provides eligible wireless
customers with the ability to pay for their handset over a period of time (an
equipment installment plan) and the right to
upgrade
their handset after a minimum of 30 days, subject to certain conditions,
including making a stated portion of the required device payments, trading in
their handset in good working condition and signing a new contract with
Verizon. The current portion of gross guarantee liability related to this
program, which was approximately $37,602 at December 31, 2014 and was not
material at December 31, 2013, was primarily included in Advance billings and
customer deposits on our balance sheets. The long term portion of gross
guarantee liability related to this program, which was approximately $3,960 at
December 31, 2014 and was not material at December 31, 2013, was primarily
included in Other liabilities on our balance sheets.
At the time of sale, we impute risk adjusted interest on
the receivables associated with Verizon Edge. We record the imputed interest
as a reduction to the related accounts receivable. Interest income, which is
included within Interest income, net on our statements of income and
comprehensive income, is recognized over the financed installment term.
We assess the collectability of our Verizon Edge
receivables based upon a variety of factors, including the credit quality of
the customer base, payment trends and other qualitative factors. The current
portion of our receivables related to Verizon Edge included in Accounts
receivable was $153,460 at December 31, 2014 and was not material at December
31, 2013. The long-term portion of the equipment installment plan receivables
included in Other assets was $79,515 December 31, 2014 and was not material at
December 31, 2013.
The credit profiles of our customers with a Verizon Edge
plan are similar to those of our customers with a traditional subsidized plan.
Customers with a credit profile which carries a higher risk are required to
make a down payment for equipment financed through Verizon Edge.
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consist of the following
as of December 31, 2014 and 2013:
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Land
|
$
|
7,730
|
|
$
|
7,730
|
|
|
Buildings and improvements
(15-40 years)
|
|
725,592
|
|
|
633,840
|
|
|
Wireless plant and equipment
(3-15 years)
|
|
3,753,115
|
|
|
3,483,289
|
|
|
Furniture, fixtures and
equipment (2-10 years)
|
|
65,425
|
|
|
67,981
|
|
|
Leasehold improvements (5 years)
|
|
366,349
|
|
|
327,277
|
|
|
|
|
|
|
|
|
|
|
|
|
4,918,211
|
|
|
4,520,117
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
(3,202,751)
|
|
|
(2,938,800)
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net
|
$
|
1,715,460
|
|
$
|
1,581,317
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
$
|
343,883
|
|
$
|
337,302
|
Capitalized
network engineering costs of $26,564 and $22,242 were recorded during the years
ended December 31, 2014 and 2013, respectively. Construction in progress included
in certain classifications shown above, principally wireless plant and
equipment, amounted to $116,258 and $88,836, as of December 31, 2014 and 2013,
respectively.
Lease
Transactions – Prior to
the acquisition of the Partnership interest by Cellco in 2000, Vodafone Group
Plc (“Vodafone”), then parent company of AirTouch Cellular, entered into
agreements to sublease all of its unused space on up to 430 of its
communications towers (“Sublease Agreement”) to SpectraSite Holdings, Inc.
(“SpectraSite”) in exchange for $155,000. At various closings in 2001 and 2000,
SpectraSite leased 274 communications towers owned and operated by the
Partnership for $98,465. The gain realized on the transaction is being
recognized over the term of the Sublease Agreement. At December 31, 2014 and
2013, the Partnership has $28,873 and $33,815, respectively, recorded as deferred
gain. The Sublease Agreement requires monthly maintenance fees for the
existing physical space used by the Partnership’s cellular equipment. The
Partnership paid $3,944, $8,872 and $11,421 to SpectraSite pursuant to the
Sublease Agreement for the years ended December 31, 2014, 2013 and 2012,
respectively, which is included in cost of service in the accompanying statements
of income and comprehensive Income.
5.
CURRENT LIABILITIES
Accounts
payable and accrued liabilities consist of the following as of December 31, 2014
and 2013:
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
153,147
|
|
$
|
104,654
|
|
|
Accrued liabilities
|
|
15,746
|
|
|
13,318
|
|
|
Accounts payable and accrued
liabilities
|
$
|
168,893
|
|
$
|
117,972
|
Advance
billings and customer deposits consist of the following as of December 31, 2014
and 2013:
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Advance billings
|
$
|
154,098
|
|
$
|
148,328
|
|
|
Customer deposits
|
|
6,015
|
|
|
4,370
|
|
|
Edge guarantee liability
|
|
37,602
|
|
|
-
|
|
|
Advance billings and customer
deposits
|
$
|
197,715
|
|
$
|
152,698
|
6.
TRANSACTIONS WITH
AFFILIATES AND RELATED PARTIES
In
addition to fixed asset purchases (see Note 2), substantially all of service
revenues, equipment and other revenues, cost of service, cost of equipment, and
selling, general and administrative expenses represent transactions processed
by affiliates (Cellco and its related parties) on behalf of the Partnership or
represent transactions with affiliates. These transactions consist of revenues
and expenses that pertain to the Partnership which are processed by Cellco and
directly attributed to or directly charged to the Partnership. They also
include certain revenues and expenses that are processed or incurred by Cellco
which are allocated to the Partnership based on factors such as the
Partnership’s percentage of customers, gross customer additions, or minutes of
use. These transactions do not necessarily represent arm’s length transactions
and may not represent the amount of revenues and costs that would result if the
Partnership operated on a standalone basis. Cellco periodically reviews the
methodology and allocation bases for allocating certain revenues, operating
costs, selling, administrative and general expenses to the Partnership.
Resulting changes, if any, in the methodology and allocation bases have not resulted
in significant changes in the allocated amounts.
Service
revenues - Service revenues include monthly customer billings processed by
Cellco on behalf of the Partnership and roaming revenues relating to customers
of other affiliated markets that are specifically identified to the
Partnership. Service revenue also includes long distance, data, and certain
revenue reductions including revenue concessions that are processed by Cellco
and allocated to the Partnership based on certain factors deemed appropriate by
Cellco.
Equipment
and other revenues - Equipment revenue includes equipment sales processed by
Cellco and specifically identified to the Partnership, as well as certain
handset and accessory revenues, contra-revenues including equipment
concessions, and coupon rebates that are processed by Cellco and allocated to
the Partnership based on certain factors deemed appropriate by Cellco. Other
revenues include switch revenue and other fees and surcharges charged to the
customer that are specifically identified to the Partnership.
Cost
of Service - Cost of service includes roaming costs relating to the
Partnership’s customers roaming in other affiliated markets. Cost of service
also includes cost of telecom, long distance and application content that are
incurred by Cellco and allocated to the Partnership based on certain factors
deemed appropriate by Cellco. The Partnership has also entered into a lease
agreement for the right to use additional spectrum owned by Cellco. See Note 6
for further information regarding this arrangement.
Cost
of equipment - Cost of equipment is recorded at Cellco’s cost basis (see Note
2). Cost of equipment also includes certain costs related to handsets,
accessories and other costs incurred by Cellco and allocated to the Partnership
based on certain factors deemed appropriate by Cellco.
Selling,
general and administrative - Selling, general and administrative expenses
include commissions, customer billing, office telecom, customer care, salaries,
sales and marketing and advertising expenses that are specifically identified
to the Partnership as well as incurred by Cellco and allocated to the
Partnership based on certain factors deemed appropriate by Cellco.
Property, plant and equipment - Property, plant and
equipment includes assets purchased by Cellco and directly charged to the
Partnership as well as assets transferred between Cellco and the Partnership
(see Note 2).
7.
COMMITMENTS
Cellco,
on behalf of the Partnership, and the Partnership itself have entered into
operating leases for facilities, and equipment used in the Partnership’s
operations. Lease contracts include renewal options that include rent expense
adjustments based on the Consumer Price Index as well as annual and
end-of-lease term adjustments. Rent
expense is recorded on a straight-line basis. The noncancellable lease term
used to calculate the amount of the straight-line rent expense is generally
determined to be the initial lease term, including any optional renewal terms
that are reasonably assured. Leasehold improvements related to these operating
leases are amortized over the shorter of their estimated useful lives or the
noncancellable lease term. For the years
ended December 31, 2014, 2013 and 2012, the Partnership incurred a total
of $97,285, $87,643 and $80,178 respectively, as rent expense related to these
operating leases, which was included in cost of service and general and
administrative expenses in the accompanying statements of income and
comprehensive income. Aggregate future
minimum rental commitments under
noncancellable operating leases, excluding renewal options that are not
reasonably assured and remaining tower maintenance fees of $26,274 (See Note 4), for the years shown are as
follows:
|
|
Years
|
|
Amount
|
|
|
|
|
|
|
|
|
2015
|
|
$
|
83,936
|
|
|
2016
|
|
|
68,834
|
|
|
2017
|
|
|
55,917
|
|
|
2018
|
|
|
43,629
|
|
|
2019
|
|
|
31,104
|
|
|
2020 and thereafter
|
|
|
75,546
|
|
|
|
|
|
|
|
|
Total minimum payments
|
|
$
|
358,966
|
The
Partnership has also entered into certain agreements with Cellco, whereas the
Partnership leases certain spectrum from Cellco that overlaps the Los Angeles
metropolitan service area. Total rent expense under these leases amounted to
$110,044 in 2014, $51,699 in 2013 and $51,185 in 2012, respectively.
Based
on the terms of these leases as of December 31, 2014, future spectrum lease
obligations, excluding renewal options that
are not reasonably assured, are expected to be as follows:
|
|
Years
|
|
Amount
|
|
|
|
|
|
|
|
|
2015
|
|
$
|
125,097
|
|
|
2016
|
|
|
125,734
|
|
|
2017
|
|
|
104,294
|
|
|
2018
|
|
|
93,249
|
|
|
2019
|
|
|
82,781
|
|
|
2020 and thereafter
|
|
|
1,026,801
|
|
|
|
|
|
|
|
|
Total minimum payments
|
|
$
|
1,557,956
|
The
General Partner currently expects that the renewal option in the lease will be
exercised.
8.
CONTINGENCIES
Cellco
and the Partnership are subject to lawsuits and other claims including class
actions, product liability, patent infringement, intellectual property,
antitrust, partnership disputes, and claims involving relations with resellers
and agents. Cellco is also currently defending lawsuits filed against it and
other participants in the wireless industry alleging various adverse effects as
a result of wireless phone usage. Various consumer class action lawsuits allege
that Cellco violated certain state consumer protection laws and other statutes
and defrauded customers through misleading billing practices or statements.
These matters may involve indemnification obligations by third parties and/or
affiliated parties covering all or part of any
potential
damage awards against Cellco and the Partnership and/or insurance coverage. All
of the above matters are subject to many uncertainties, and the outcomes are
not currently predictable.
The Partnership may be allocated a portion of the
damages that may result upon adjudication of these matters if the claimants
prevail in their actions. In none of the currently pending matters is the
amount of accrual material. An estimate of the reasonably possible loss or
range of loss in excess of the amounts already accrued to either Cellco or the
Partnership with respect to these matters as of December 31, 2014 cannot be
made at this time due to various factors typical in contested proceedings,
including (1) uncertain damage theories and demands; (2) a less than complete
factual record; (3) uncertainty concerning legal theories and their resolution
by courts or regulators; and (4) the unpredictable nature of the opposing party
and its demands. We continuously monitor these proceedings as they develop and
adjust any accrual or disclosure as needed. We do not expect that the ultimate
resolution of any pending regulatory or legal matter in future periods will
have a material effect on the financial condition of the Partnership, but it
could have a material effect on our results of operations for a given reporting
period.
9.
RECONCILIATION OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS
|
|
|
|
Balance at
Beginning
of the Year
|
|
Additions
Charged to
Operations
|
|
Write-offs
Net of
Recoveries
|
|
Balance at
End
of the Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
$
|
21,600
|
|
$
|
34,370
|
|
$
|
(31,834)
|
|
$
|
24,136
|
|
|
|
2013
|
|
14,205
|
|
|
44,339
|
|
|
(36,944)
|
|
|
21,600
|
|
|
|
2012
|
|
14,076
|
|
|
37,057
|
|
|
(36,928)
|
|
|
14,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
******
|
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) 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.
|
|
TELEPHONE AND DATA SYSTEMS, INC.
|
|
|
|
|
|
|
By:
|
/s/ LeRoy T.
Carlson, Jr.
|
|
|
|
LeRoy T.
Carlson, Jr.
|
|
|
|
President and Chief
Executive Officer
|
|
|
|
(principal executive
officer)
|
|
|
|
|
|
|
By:
|
/s/ Douglas D.
Shuma
|
|
|
|
Douglas D. Shuma
|
|
|
|
Senior Vice
President and Controller
|
|
|
|
(principal
financial officer and principal accounting officer)
|
Dated: February 25, 2015
Power
of Attorney
Each person whose signature appears below constitutes and
appoints LeRoy T. Carlson, Jr. as his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution for him or her
and in his or her name, place, and stead, in any and all capacities to sign any
and all amendments to this Annual Report on Form 10-K under the Securities
Exchange Act of 1934, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do so and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all the said attorney-in fact and agent or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ LeRoy T.
Carlson, Jr.
|
|
Director
|
|
February 25, 2015
|
|
LeRoy T.
Carlson, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Letitia G. Carlson, M.D.
|
|
Director
|
|
February 25, 2015
|
|
Letitia
G. Carlson, M.D.
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Prudence E. Carlson
|
|
Director
|
|
February 25, 2015
|
|
Prudence
E. Carlson
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Walter C.D. Carlson
|
|
Director
|
|
February 25, 2015
|
|
Walter C.D. Carlson
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Clarence A. Davis
|
|
Director
|
|
February 25, 2015
|
|
Clarence A. Davis
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Kenneth R.
Meyers
|
|
Director
|
|
February 25, 2015
|
|
Kenneth R. Meyers
|
|
|
|
|
|
|
|
|
|
|
|
/s/ George W. Off
|
|
Director
|
|
February 25, 2015
|
|
George W. Off
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Christopher D.
O’Leary
|
|
Director
|
|
February 25, 2015
|
|
Christopher D.
O’Leary
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Mitchell H.
Saranow
|
|
Director
|
|
February 25, 2015
|
|
Mitchell H. Saranow
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Gary L.
Sugarman
|
|
Director
|
|
February 25, 2015
|
|
Gary L. Sugarman
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Herbert
S. Wander
|
|
Director
|
|
February 25, 2015
|
|
Herbert
S. Wander
|
|
|
|
|
|
|
|
|
|
|
|
/s/
David A Wittwer
|
|
Director
|
|
February 25, 2015
|
|
David
A. Wittwer
|
|
|
|
|
INDEX TO EXHIBITS
|
Exhibit
Number
|
|
Description of
Documents
|
|
|
|
|
|
3.1
|
|
TDS’ Restated
Certificate of Incorporation, dated January 24, 2012, is hereby incorporated
by reference to Exhibit 3.1 to TDS’ Registration Statement on
Form 8-A/A dated January 24, 2012.
|
|
|
|
|
|
3.2(a)
|
|
TDS Restated Bylaws, as
amended, are hereby incorporated by reference to Exhibit 3.1 to TDS’
Current Report on Form 8‑K dated July 19, 2013.
|
|
|
|
|
|
3.2(b)
|
|
Amendment to Section
2.23 of TDS Restated Bylaws, is hereby incorporated by reference to Exhibit
3.1 to TDS’ Current Report on form 8-K dated August 20, 2014
|
|
|
|
|
|
4.1
|
|
TDS’ Restated
Certificate of Incorporation is hereby incorporated as Exhibit 3.1.
|
|
|
|
|
|
4.2(a)
|
|
TDS Restated Bylaws, as
amended, are hereby incorporated as Exhibit 3.2(a) and 3.2(b).
|
|
|
|
|
|
4.2(b)
|
|
TDS Restated Bylaws, as
amended, are hereby incorporated as Exhibit 4.2.
|
|
|
|
|
|
4.3(a)
|
|
Indenture for Senior
Debt Securities between TDS and The Bank of New York Mellon Trust
Company, N.A., formerly known as The Bank of New York Trust Company, N.A., as
successor to BNY Midwest Trust Company (“BNY”) dated November 1, 2001 is hereby incorporated by reference to
Exhibit 4 to TDS’ Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001.
|
|
|
|
|
|
4.3(b)
|
|
Second Supplemental
Indenture dated May 31, 2002 by and between TDS and BNY making changes
to the First Supplemental Indenture is hereby incorporated by reference to
Exhibit 4.8 to TDS’ Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002.
|
|
|
|
|
|
4.3(c)
|
|
Third Supplemental Indenture dated March 31, 2005 by
and between TDS and BNY, establishing TDS’ 6.625% Senior Notes due 2045, is
hereby incorporated by reference to Exhibit 4.1 to TDS’ Current Report on
Form 8‑K dated March 23, 2005.
|
|
|
|
|
|
4.3(d)
|
|
Fourth Supplemental Indenture dated November 16, 2010 by
and between TDS and BNY, establishing TDS’ 6.875% Senior Notes due 2059, is
hereby incorporated by reference to Exhibit 4.1 to TDS’ Current Report on
Form 8‑K dated November 16, 2010.
|
|
|
|
|
|
4.3(e)
|
|
Fifth Supplemental
Indenture dated March 21, 2011 by and between TDS and BNY, establishing TDS’
7% Senior Notes due 2060, is hereby incorporated by reference to Exhibit 4.1
to TDS’ Current Report on Form 8-K dated March 21, 2011.
|
|
|
|
|
|
4.3(f)
|
|
Sixth Supplemental
Indenture dated November 26, 2012 by and between TDS and BNY, establishing
TDS’ 5.875% Senior Notes due 2061, is hereby incorporated by reference to
Exhibit 4.1 to TDS’ Current Report on Form 8-K dated November 26, 2012.
|
|
|
|
|
|
4.4(a)
|
|
Revolving Credit
Agreement dated December 17, 2010 among TDS and the lenders named therein,
and Bank of America, N.A. as Administrative Agent, is hereby incorporated by
reference to Exhibit 4.1 to TDS’ Current Report on Form 8-K dated December
17, 2010.
|
|
|
|
|
|
4.4(b)
|
|
Third Amendment dated
July 24, 2014 to TDS Revolving Credit Agreement dated December 17, 2010, is
hereby incorporated by reference to Exhibit 4.1 to TDS’ Current Report on
Form 8-K dated July 24, 2014.
|
|
|
|
|
|
4.5(a)
|
|
Revolving Credit
Agreement dated December 17, 2010 among U.S. Cellular and the lenders named
therein, and Toronto Dominion (Texas) LLC as Administrative Agent, is hereby
incorporated by reference to Exhibit 4.1 to U.S. Cellular’s Current Report on
Form 8-K dated December 17, 2010.
|
|
|
|
|
|
4.5(b)
|
|
Third Amendment dated July 24, 2014 to U.S. Cellular
Revolving Credit Agreement dated December 17, 2010, is hereby incorporated by
reference to Exhibit 4.1 to U.S. Cellular’s Current Report on Form 8-K dated
July 24, 2014.
|
|
|
|
|
|
4.6(a)
|
|
Indenture for Senior
Debt Securities dated June 1, 2002 between U.S. Cellular and BNY is
hereby incorporated by reference to Exhibit 4.1 to Form S-3 dated
May 31, 2013 (File No. 333-188971).
|
|
|
|
|
|
4.6(b)
|
|
Form of Third
Supplemental Indenture dated as of December 3, 2003 between U.S.
Cellular and BNY, relating to $444,000,000 of U.S. Cellular’s 6.7% Senior
Notes due 2033, is hereby incorporated by reference to Exhibit 4.1 to
U.S. Cellular’s Current Report on Form 8-K dated December 3, 2003.
|
|
|
|
|
|
4.6(c)
|
|
Form of Fifth
Supplemental Indenture dated as of June 21, 2004 between U.S. Cellular
and BNY, relating to $100,000,000 of U.S. Cellular’s 6.7% Senior Notes due
2033, is hereby incorporated by reference to Exhibit 4.1 to U.S.
Cellular’s Current Report on Form 8-K dated June 21, 2004.
|
|
|
|
|
|
4.6(d)
|
|
Form of Sixth
Supplemental Indenture dated as of May 9, 2011 between U.S. Cellular and BNY,
relating to $342,000,000 of U.S. Cellular’s 6.95% Senior Notes due 2060, is
hereby incorporated by reference to Exhibit 4.1 to U.S. Cellular’s Current
Report on Form 8-K dated May 9, 2011.
|
|
|
|
|
|
4.6(e)
|
|
Form of Seventh
Supplemental Indenture dated as of December 8, 2014 between U.S. Cellular and
BNY, relating to $275,000,000 of U.S. Cellular’s 7.25% Senior Notes due 2063,
is hereby incorporated by reference to Exhibit 2 to U.S. Cellular’s
Registration Statement on Form 8-A dated December 2, 2014.
|
|
|
|
|
|
4.7
|
|
Indenture for
Subordinated Debt Securities between TDS and BNY is hereby incorporated by
reference to Exhibit 4.1 to TDS’ Current Report on Form 8-K dated September
16, 2013.
|
|
|
|
|
|
4.8
|
|
Indenture for
Subordinated Debt Securities between U.S. Cellular and BNY is hereby
incorporated by reference to Exhibit 4.1 to U.S. Cellular’s Current Report on
Form 8-K dated September 16, 2013.
|
|
|
|
|
|
4.9
|
|
Term Loan Credit
Agreement dated as of January 21, 2015, is hereby incorporated by reference
to Exhibit 4.1 to U.S. Cellular’s Current Report on Form 8-K dated January 21,
2015.
|
|
|
|
|
|
9.1
|
|
Amendment and
Restatement (dated April 22, 2005) of Voting Trust Agreement dated
June 30, 1989 is hereby incorporated by reference to the
Exhibit filed on Amendment No. 3 to Schedule 13D dated May 2,
2005 filed by the trustees of such voting trust with respect to TDS Common
Shares.
|
|
|
|
|
|
10.1(a)*
|
|
Salary Continuation
Agreement for LeRoy T. Carlson dated May 20, 1977, as amended
May 22, 1981 and May 25, 1984, is hereby incorporated by reference
to TDS’ Registration Statement on Form S-2, No. 2-92307.
|
|
|
|
|
|
10.1(b)*
|
|
Amendment to Salary
Continuation Agreement for LeRoy T. Carlson is hereby incorporated by
reference to Exhibit 10.4 to TDS’ Current Report on Form 8-K dated November
25, 2008.
|
|
|
|
|
|
10.2(a)*
|
|
TDS Amended and Restated
2004 Long-Term Incentive Plan is hereby incorporated by reference to
Exhibit 10.1 to TDS’ Current Report on Form 8-K dated
April 11, 2005.
|
|
|
|
|
|
10.2(b)*
|
|
First Amendment to TDS
Amended and Restated 2004 Long-Term Incentive Plan is hereby incorporated by
reference to Exhibit 10.3 to TDS’ Current Report on Form 8-K dated
December 10, 2007.
|
|
|
|
|
|
10.2(c)*
|
|
Second Amendment to TDS
Amended and Restated 2004 Long-Term Incentive Plan is hereby incorporated by
reference to Exhibit 10.4 to TDS’ Current Report on Form 8-K dated
December 10, 2007.
|
|
|
|
|
|
10.2(d)*
|
|
Third Amendment to TDS
Amended and Restated 2004 Long-Term Incentive Plan is hereby incorporated by
reference to Exhibit 10.1 to TDS’ Current Report on Form 8-K dated December
22, 2008.
|
|
|
|
|
|
10.3(a)*
|
|
Telephone and Data
Systems, Inc. 2011 Long-Term Incentive Plan is hereby incorporated by
reference to Exhibit B to TDS’ Notice of Annual Meeting of Shareholders and
Proxy Statement dated April 18, 2014.
|
|
|
|
|
|
10.3(b)*
|
|
Amendment No. 1 to
Telephone and Data Systems, Inc. 2011 Long-Term Incentive Plan is hereby
incorporated by reference to Exhibit A to TDS’ Notice of Annual Meeting of
Shareholders and Proxy statement dated April 18, 2014.
|
|
|
|
|
|
10.4(a)*
|
|
TDS Supplemental
Executive Retirement Plan, as amended and restated, effective January 1,
2009 is hereby incorporated by reference to Exhibit 10.1 to TDS’ Current
Report on Form 8-K dated August 27, 2008.
|
|
|
|
|
|
10.4(b)*
|
|
Amendment Number One to
the Telephone and Data Systems, Inc. Supplemental Executive Retirement Plan,
is hereby incorporated by reference to Exhibit 10.2 to Telephone and Data
Systems, Inc.’s Current Report on Form 8-K dated March 15, 2012.
|
|
|
|
|
|
10.4(c)*
|
|
Amendment Number Two to
the Telephone and Data Systems, Inc. Supplemental Executive Retirement Plan,
is hereby incorporated by reference to Exhibit 10.3 to Telephone and Data
Systems, Inc.’s Current Report on Form 8-K dated November 3, 2014.
|
|
|
|
|
|
10.5*
|
|
TDS’ Restated
Compensation Plan for Non-Employee Directors, is hereby incorporated by
reference to Exhibit A to the TDS Notice of Annual Meeting of Shareholders
and Proxy Statement dated April 19, 2013.
|
|
|
|
|
|
10.6*
|
|
TDS Bonus Deferral and
Stock Unit Match Program and Election Form is hereby incorporated by
reference to Exhibit 10.6 to TDS’ Annual Report on Form 10-K for the year
ended December 31, 2012.
|
|
|
|
|
|
10.7*
|
|
U.S. Cellular 2005
Long-Term Incentive Plan, as amended, is hereby incorporated by reference to
Exhibit C to U.S. Cellular’s Notice of Annual Meeting of Shareholders and
Proxy Statement dated April 15, 2009.
|
|
|
|
|
|
10.8*
|
|
U.S. Cellular 2013
Long-Term Incentive Plan, as amended, is hereby incorporated by reference to
Exhibit A to U.S. Cellular’s Notice of Annual Meeting of Shareholders and
Proxy Statement dated April 15, 2013.
|
|
|
|
|
|
10.9(a)*
|
|
U.S. Cellular Executive
Deferred Compensation Interest Account Plan is hereby incorporated by
reference to Exhibit 10.1 to U.S. Cellular’s Current Report on Form 8-K
dated December 10, 2007.
|
|
|
|
|
|
10.9(b)*
|
|
First Amendment to U.S.
Cellular Executive Deferred Compensation Interest Account Plan is hereby
incorporated by reference to Exhibit 10.6 to U.S. Cellular’s Current
Report on Form 8-K dated December 9, 2008.
|
|
|
|
|
|
10.9(c)*
|
|
Second Amendment to U.S.
Cellular Executive Deferred Compensation Interest Account Plan is hereby
incorporated by reference to Exhibit 10.12(c) to U.S. Cellular’s Annual
Report on Form 10-K for the year ended December 31, 2012.
|
|
|
|
|
|
10.9(d)*
|
|
Election Form for
U.S. Cellular Executive Deferred Compensation Interest Account Plan is hereby
incorporated by reference to Exhibit 10.12(d) to U.S. Cellular’s Annual
Report on Form 10-K for the year ended December 31, 2012.
|
|
|
|
|
|
10.10*
|
|
U.S. Cellular Form of Long-Term Incentive Plan Executive Deferred
Compensation Agreement —Phantom Stock Account for officers is hereby
incorporated by reference to Exhibit 10.5 to U.S. Cellular’s Current Report
on Form 8-K dated May 14, 2013.
|
|
|
|
|
|
10.11(a)*
|
|
TDS 2007 Deferred
Compensation Agreement between TDS and Kenneth R. Meyers dated
December 26, 2006 is hereby incorporated by reference to
Exhibit 99.1 to TDS’ Current Report on Form 8-K dated
January 1, 2007.
|
|
|
|
|
|
10.11(b)*
|
|
Amendment to TDS 2007
Deferred Compensation Agreement between TDS and Kenneth R. Meyers is hereby
incorporated by reference to Exhibit 10.4 to TDS Current Report on Form 8-K
dated December 22, 2008.
|
|
|
|
|
|
10.12*
|
|
Form of TDS
Corporate Officer Long-Term Incentive Plan Stock Option Award Agreement is
hereby incorporated by reference to Exhibit 10.1 to TDS’ Current Report
on Form 8-K dated May 10, 2013.
|
|
|
|
|
|
10.13*
|
|
Form of TDS
Corporate Officer Long-Term Incentive Plan Restricted Stock Unit Award
Agreement is hereby incorporated by reference to Exhibit 10.2 to TDS’
Current Report on Form 8-K dated May 10, 2013.
|
|
|
|
|
|
10.14*
|
|
TDS 2014 Officer Bonus Program.
|
|
|
|
|
|
10.15*
|
|
U.S. Cellular 2014 Officer Annual Incentive Plan effective
January 1, 2014 is hereby incorporated by reference to Exhibit 10.1 to U.S.
Cellular’s Current Report on Form 8-K dated August 19, 2014.
|
|
|
|
|
|
10.16
|
|
Guidelines for the
determination of Annual Bonus for President and Chief Executive Officer of
U.S. Cellular are hereby incorporated by reference to Exhibit 10.2 to U.S.
Cellular’s Current Report on Form 8-K dated August 19, 2014.
|
|
|
|
|
|
10.17*
|
|
Amended and Restated
Guidelines for the Determination of Annual Bonus for Chairman Emeritus of TDS
is hereby incorporated by reference to Exhibit 10.2 to TDS’ Current Report on
Form 8-K dated November 18, 2009.
|
|
|
|
|
|
10.18*
|
|
Form of TDS Deferred
Compensation Agreement is hereby incorporated by reference to Exhibit 10.1 to
TDS’ Current Report on Form 8-K dated December 21, 2009.
|
|
|
|
|
|
10.19*
|
|
Change of Election Form
for TDS Deferred Compensation Agreement is hereby incorporated by reference
to Exhibit 10.2 to TDS’ Current Report on Form 8-K dated December 21, 2009.
|
|
|
|
|
|
10.20*
|
|
Pre 2005 Form of Deferred Compensation Agreement used by
TDS Telecommunications Corporation is hereby incorporated by reference to
Exhibit 10.28 to TDS’ Annual Report on Form 10-K for the annual period ended
December 31, 2009.
|
|
|
|
|
|
10.21(a)*
|
|
Post 2004 TDS Telecommunications Corporation Executive
Deferred Compensation Program, as amended and restated effective January 1,
2008 is hereby incorporated by reference to Exhibit 10.29 to TDS’ Annual Report
on Form 10-K for the annual period ended December 31, 2009.
|
|
|
|
|
|
10.21(b)*
|
|
First Amendment to TDS Telecommunications Corporation
Executive Deferred Compensation Program dated October 8, 2008 is hereby
incorporated by reference to Exhibit 10.30 to TDS’ Annual Report on Form 10-K
for the annual period ended December 31, 2009.
|
|
|
|
|
|
10.22*
|
|
Current Initial Election Form and Post 2004 Payment
Election Form for TDS Telecommunications Corporation Executive Deferred
Compensation Program is hereby incorporated by reference to Exhibit 10.31 to
TDS’ Annual Report on Form 10-K for the annual period ended December 31, 2009.
|
|
|
|
|
|
10.23*
|
|
Current Annual Election Form for TDS Telecommunications
Corporation Executive Deferred Compensation Program is hereby incorporated by
reference to Exhibit 10.32 to TDS’ Annual Report on Form 10-K for the annual period
ended December 31, 2009.
|
|
|
|
|
|
10.24*
|
|
Form of U.S. Cellular’s Long-Term Incentive Plan Stock
Option Award Agreement for Kenneth R. Meyers, is hereby incorporated by
reference to Exhibit 10.2 to U.S. Cellular’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2014.
|
|
|
|
|
|
10.25*
|
|
Form of U.S. Cellular Long-Term Incentive Plan Restricted
Stock Unit Award Agreement for Kenneth R. Meyers, is hereby incorporated by
reference to Exhibit 10.1 to U.S. Cellular’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2014.
|
|
|
|
|
|
10.26*
|
|
Letter Agreement dated July 25, 2013 between U.S. Cellular
and Kenneth R. Meyers is hereby incorporated by reference to Exhibit 10.1 to
U.S. Cellular’s Current Report on Form 8-K dated July 25, 2013.
|
|
|
|
|
|
10.27**
|
|
Master Service Agreement
entered into by United States Cellular Corporation and Amdocs Software
Systems Limited on August 17, 2010 to develop a Billing and Operational
Support System (“B/OSS”) with a new point-of-sale system to consolidate
billing on one platform, is hereby incorporated by reference to Exhibit 10.8
to U.S. Cellular’s Quarterly Report on Form 10-Q dated September 30, 2010.
|
|
|
|
|
|
10.28**
|
|
Software License and
Maintenance Agreement entered into by United States Cellular Corporation and
Amdocs Software Systems Limited on August 17, 2010 to develop a Billing and Operational
Support System (“B/OSS”) with a new point-of-sale system to consolidate
billing on one platform, is hereby incorporated by reference to Exhibit 10.9
to U.S. Cellular’s Quarterly Report on Form 10-Q dated September 30, 2010.
|
|
|
|
|
|
10.29***
|
|
Master Statement of Work, dated as of November 25, 2014,
between U.S. Cellular and Amdocs Software Systems, Ltd., is hereby
incorporated by reference from Exhibit 10.26 to
U.S. Cellular’s Annual Report on Form 10-K for the year ended December 31,
2014.
|
|
|
|
|
|
11
|
|
Statement regarding
computation of earnings per share (included in Note 5 — Earnings Per Share in
the Notes to Consolidated Financial Statements in Exhibit 13).
|
|
|
|
|
|
12
|
|
Statement regarding
computation of ratio of earnings to fixed charges for the years ended
December 31, 2014, 2013, 2012, 2011, and 2010.
|
|
|
|
|
|
13
|
|
Incorporated portions of
2014 Annual Report to Shareholders.
|
|
|
|
|
|
21
|
|
Subsidiaries of TDS.
|
|
|
|
|
|
23.1
|
|
Consent of Independent
Registered Public Accounting Firm—PricewaterhouseCoopers LLP.
|
|
|
|
|
|
23.2
|
|
Consent of Independent
Registered Public Accounting Firm—Ernst & Young LLP.
|
|
|
|
|
|
23.3
|
|
Consent of Independent
Registered Public Accounting Firm—Deloitte & Touche LLP.
|
|
|
|
|
|
31.1
|
|
Principal executive officer
certification pursuant to Rule 13a-14 of the Securities Exchange Act of
1934.
|
|
|
|
|
|
31.2
|
|
Principal financial officer
certification pursuant to Rule 13a-14 of the Securities Exchange Act of
1934.
|
|
|
|
|
|
32.1
|
|
Principal executive officer
certification pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code.
|
|
|
|
|
|
32.2
|
|
Principal financial officer
certification pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code.
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension
Schema Document
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation
Linkbase Document
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation
Linkbase Document
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label
Linkbase Document
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension
Definition Linkbase Document
|
|
|
|
|
|
|
|
|
|
* Indicates a management contract or compensatory plan
or arrangement.
|
|
** Portions
of this Exhibit have been omitted and filed separately with the Securities
and Exchange Commission as part of an application for confidential treatment
pursuant to the Securities Exchange Act of 1934, as amended. The application
for confidential treatment has been granted.
|
|
*** Portions
of the Exhibit have been omitted and filed separately with the Securities and
Exchange Commission as part of an application for confidential treatment
pursuant to the Securities Exchange Act of 1934, as amended.
|
