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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8251
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TELEPHONE AND DATA SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Iowa 36-2669023
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30 North LaSalle Street, Chicago, Illinois 60602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 630-1900
Not Applicable
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(Former address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
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Common Shares, $1 par value 52,580,316 Shares
Series A Common Shares, $1 par value 6,927,174 Shares
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TELEPHONE AND DATA SYSTEMS, INC.
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2ND QUARTER REPORT ON FORM 10-Q
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INDEX
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Page No.
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Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-13
Consolidated Statements of Income -
Three Months and Six Months Ended
June 30, 1997 and 1996 14
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 15
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 16-17
Notes to Consolidated Financial Statements 18-21
Part II. Other Information 22-23
Signatures 24
PART I. FINANCIAL INFORMATION
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TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
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AND FINANCIAL CONDITION
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Telephone and Data Systems, Inc. ("TDS" or the "Company") is a diversified
telecommunications company which provides high-quality telecommunications
services to nearly 2.6 million cellular telephone, local telephone, personal
communications service ("PCS") and radio paging customer units. TDS's long-term
business development strategy is to expand its operations through internal
growth and acquisitions, and to explore and develop telecommunications
businesses that management believes utilize TDS's expertise in customer-based
telecommunications.
TDS continued to make substantial progress during the first half of 1997 with
excellent growth in the cellular business, the launch of all six of Aerial's PCS
markets and steady results in the telephone business. Revenues increased 23% as
a result of a 20% increase in customer units to nearly 2.6 million units. The
commencement of PCS operations significantly reduced operating cash flows,
operating income and net income as compared to last year. Strong increases in
cash flow from United States Cellular Corporation and solid growth from TDS
Telecommunications, Inc. were offset by Aerial Communications, Inc.'s start-up
activities resulting in a 3% decline in operating cash flow. Operating income
decreased by 38% primarily due to the PCS start-up activities. Net income to
common declined 83% to $15.5 million as a result of a reduction in gains on the
sale of cellular interests and other investments and on the losses incurred in
the start-up of the PCS markets.
United States Cellular Corporation ("U.S. Cellular"), TDS's 80.9%-owned cellular
subsidiary, continued its rapid growth during the first half of 1997. Customer
units increased 47% to 1,263,000. The increase in customer units drove a 28%
increase in revenues, a 36% increase in operating cash flow and a 57% increase
in operating income.
TDS Telecommunications Corporation ("TDS Telecom"), TDS's wholly owned telephone
subsidiary, continued to provide solid growth with an 18% increase in revenues,
a 12% increase in operating cash flow and a 5% increase in operating income.
Telephone access lines increased by 6% to 500,000.
Aerial Communications, Inc. ("Aerial"), TDS's 82.6%-owned PCS subsidiary,
launched service in all six of its markets in the first half of 1997. Customer
units totaled 28,000 at June 30, 1997. The launching of service resulted in
Aerial's costs being included in operating income in the second quarter of 1997.
Operating cash flow was a negative $45.8 million while operating losses totaled
$51.6 million. PCS development costs, costs incurred prior to the launch of
service, (included in "Investment and Other Income (Expense)") totaled $21.6
million in the first half of 1997 and $13.5 million in 1996.
American Paging, Inc. ("American Paging"), TDS's 82.0%-owned paging subsidiary,
reported a 3% decline in units in service to 780,600 contributing to a 7%
decline in revenues. The decrease in revenues combined with an increase in
operating expenses caused operating losses to increase as compared to 1996.
Customer units increased by 13,200 units in the second quarter of 1997, the
first reported quarterly increase in units since the second quarter of 1996.
-2-
RESULTS OF OPERATIONS
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Six Months Ended 6/30/97 Compared to Six Months Ended 6/30/96
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Telephone and Data Systems, Inc. ("TDS" or the "Company") reported net income
available to common of $15.5 million, or $.25 per share, in the first half of
1997, compared to $92.9 million, or $1.54 per share, in the first half of 1996.
Net income available to common from U.S. Cellular and TDS Telecom increased
59% to $66.6 million, or $1.10 per share, in the first half of 1997, from $41.9
million, or $.70 per share, in the first half of 1996. Aerial's PCS development
and start-up activities reduced net income and earnings per share by $40.2
million, or $.66 per share, in 1997 and $5.6 million, or $.10 per share, in
1996. American Paging's activities reduced net income and earnings per share by
$15.0 million, or $.25 per share, in 1997 and $4.2 million, or $.07 per share in
1996. Net income included gains on the sale of cellular interests and other
investments of $4.0 million, or $.06 per share in 1997 and $60.8 million, or
$1.01 per share in 1996.
The table below summarizes the effects of the business units and gains (along
with the related impact on income taxes and minority interest) on net income
available to common and earnings per share.
Six Months Ended June 30,
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1997 1996
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(Dollars in thousands,
except per share amounts)
Net Income Available to Common
U.S. Cellular and TDS Telecom $ 66,642 $ 41,938
Aerial (40,193) (5,636)
American Paging (14,969) (4,202)
Gains 4,007 60,789
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$ 15,487 $ 92,889
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Earnings Per Share
U.S. Cellular and TDS Telecom $ 1.10 $ .70
Aerial (.66) (.10)
American Paging (.25) (.07)
Gains .06 1.01
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$ .25 $ 1.54
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Operating Revenues increased 23% ($125.4 million) during the first half of 1997
primarily as a result of a 20% increase in customer units served to nearly 2.6
million units at June 30, 1997. U.S. Cellular contributed 71% ($89.1 million)
of the total increase in revenues and most of the increase in customer units,
while TDS Telecom contributed 26% ($33.0 million) of the total increase in
revenues.
U.S. Cellular revenues increased 28% ($89.1 million) in 1997 on a 47% increase
in customer units and strong inbound roaming revenues. Cellular customers
increased to 1,263,000 at June 30, 1997 from 860,000 at June 30, 1996. Total
average monthly service revenue per customer was $56.03 in the first half of
1997 and $64.93 in 1996. Average monthly service revenue per customer continues
to decline due to competitive pressures, incentive programs, consumer market
penetration and roaming revenues increasing at a slower rate than the U.S.
Cellular customer base.
Local retail revenue increased 36% ($68.7 million) in the first half of 1997 due
primarily to the 47% customer growth. Average monthly local retail revenue per
customer was $37.21 in the first half
-3-
of 1997 and $40.85 in 1996. Average local minutes of use per retail customer
increased to 106 in 1997 from 102 in 1996, while average local retail revenue
per minute totaled $.35 in 1997 compared to $.40 in 1996. U.S. Cellular's
increasing use of incentive programs that encourage lower-priced weekend and
off-peak usage, in order to stimulate overall usage, resulted in an increase in
average minutes of use and a lower average revenue per minute of use. Average
revenue per minute also declined due to increased amounts of bill credits given
to customers as incentives to become or remain customers. Inbound roaming
revenue (charges to customers of other systems who use U.S. Cellular's cellular
systems when roaming) increased 17% ($15.2 million) in the first half of 1997.
The growth in roaming revenue is due to a 24% increase in minutes used offset
somewhat by negotiated reductions in roaming rates. Average inbound roaming
revenue per minute totaled $.88 in 1997 and $.93 in 1996. Average monthly
inbound roaming revenue per customer was $14.66 in 1997 compared to $18.63 in
1996. The decrease is related to both the decrease in roaming revenue per
minute and the faster growth of U.S. Cellular's customer base as compared to the
growth of inbound roaming revenues.
Beginning on January 1, 1997, U.S. Cellular changed its income statement
presentation of certain credits for free or reduced-price air time or access
given to customers on their monthly bills. The foregone revenues are now
reported as a reduction of local retail revenue instead of marketing and selling
expense (for new customers) and general and administrative expense (for current
customers). Amounts in the affected revenue and expense categories have been
reclassified for previous years, throughout this Form 10-Q. Operating income
and net income are not affected by this change.
TDS Telecom revenues increased 18% ($33.0 million) in 1997 due to growth in
telephone operations ($22.4 million) and growth in other operations ($10.6
million). Telephone operations revenues increased as a result of the effects of
acquisitions ($8.0 million), recovery of increased costs of providing
long-distance services ($6.4 million), internal access line growth since
June 30, 1996 ($2.8 million), increased network usage ($2.3 million) and
increased sale of customer premise equipment ($2.1 million). The number of
telephone access lines increased 6% to 500,000 at June 30, 1997 from 471,000 at
June 30, 1996. Average monthly revenue per access line increased to $66.99 for
the first half of 1997 from $65.52 in 1996. Other operations include the
revenues of a long-distance provider, a recently acquired cellular interest as
well as TDS Telecom's new business ventures which include an Internet access
provider and a structured wiring business.
Aerial revenues totaled $7.1 million in 1997 consisting primarily of revenues
from units sold to customers ($5.9 million). At June 30, 1997, Aerial had
28,000 customers in service resulting in $1.2 million of service revenue.
American Paging revenues decreased 7% ($3.8 million) in 1997 due primarily to
decreases in the number of paging units in service and the average revenue per
unit. The number of pagers in service decreased 3% to 780,600 in 1997 from
803,500 in 1996. Average revenue per unit decreased 4% to $9.48 in 1997 from
$9.89 in 1996 reflecting competitive pricing declines and a shift in
distribution channel mix towards indirect channels, which typically provide
lower service revenue per unit.
Operating Expenses rose 33% ($155.7 million) in the first half of 1997 due
primarily to added expenses to serve the growing customer base and PCS expenses
attributable to the start-up activities. U.S. Cellular represented 42%
($65.3 million) of the total increase and TDS Telecom represented 20%
($30.5 million) of the increase primarily due to the increase in customers while
Aerial's start-up activities represented 38% ($58.8 million) of the increase.
-4-
U.S. Cellular expenses increased 24% ($65.3 million) during 1997. System
operations expenses increased 32% ($16.9 million) in 1997 as a result of
increases in customer usage expenses and costs associated with the growing
number of cell sites within U.S. Cellular's systems. Customer usage expenses
grew 38% ($11.9 million) as minutes of use increased, primarily related to the
47% increase in customer units and increased roaming usage. Maintenance,
utility and cell site expenses increased 24% ($5.0 million) reflecting primarily
the increase in the number of cell sites to 1,485 in 1997 from 1,185 in 1996.
Marketing and selling expenses incurred to add new customers increased 30%
($26.3 million), including a $4.4 million increase in cost of equipment sold.
Cost per gross customer addition declined to $320 in 1997 from $325 in 1996
while gross customer activations increased to 321,000 in 1997 from 240,000 in
1996. As discussed above, customer bill credits were reclassified from
marketing and selling expenses and general and administrative expenses to local
retail revenue in 1997 and 1996. General and administrative expenses increased
15% ($12.3 million) due to the growing customer base in existing markets and an
expansion of local office and corporate staff necessitated by U.S. Cellular's
growth. Depreciation and amortization increased 19% ($9.8 million) primarily
due to the increase in average fixed assets since June 30, 1996.
TDS Telecom expenses increased 22% ($30.5 million) during 1997 primarily due to
growth in telephone operations ($18.7 million) and growth in other operations
($11.8 million). Telephone operations increased primarily due to the effects of
acquisitions ($6.2 million), increased depreciation and amortization
($5.8 million), growth in internal operations ($4.4 million), and development of
a centralized network management center and new products and services ($2.8
million). Other operations include the expenses of a long-distance provider, a
recently acquired cellular interest as well as TDS Telecom's new business
ventures which include an Internet access provider and a structured wiring
business.
Aerial expenses, included in operating expenses, totaled $58.8 million in the
first half of 1997. Expenses incurred in the first quarter of 1997, prior to
the launch of the first market, are included in PCS Development Costs as part of
Other Income. System operations expenses totaled $4.0 million reflecting the
costs of operating Aerial's network, primarily cell site expenses, landline
interconnection charges and wages. Marketing and selling expenses reflecting an
aggressive advertising campaign that accompanied the launch of service, totaled
$14.9 million while cost of equipment sold totaled $15.0 million. General and
administrative expenses totaled $17.2 million reflecting the expenses associated
with the management and operating teams as well as overhead expenses. Customer
service expenses totaled $1.8 million primarily for the staffing to support the
roll-out of the PCS markets. Depreciation and amortization totaled $5.9
million.
American Paging expenses increased 2% ($1.1 million) in the first half of 1997.
Selling, general and administrative expenses increased 4% ($1.3 million)
primarily due to increases in selling and marketing costs associated with
increased recruiting and training costs related to sales force turnover
($4.1 million), offset somewhat by a decrease in general and administrative
expenses ($2.7 million) primarily related to the decrease in restructuring
costs. During the first half of 1996, American Paging recorded restructuring
expenses of $1.9 million related to subleasing office space, employee severance,
out placement services and consulting services.
-5-
Operating Income decreased 38% ($30.3 million) in the first half of 1997
reflecting the effects of Aerial's start-up activities offset somewhat by strong
(57%) growth in U.S. Cellular's operating results. The strong growth in
cellular operating income is reflected in the cellular margin improvements. TDS
Telecom's margin decreased due primarily to TDS Telecom's new business ventures.
Six Months Ended June 30,
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1997 1996 Change
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(Dollars in thousands)
Operating Income
U.S. Cellular $ 65,599 $ 41,843 $ 23,756
TDS Telecom 51,306 48,848 2,458
Aerial (51,633) -- (51,633)
American Paging (15,540) (10,653) (4,887)
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$ 49,732 $ 80,038 $ (30,306)
=========== =========== ===========
Operating Margins
U.S. Cellular 16.3% 13.4%
TDS Telecom 23.3% 26.1%
Aerial N/M N/M
American Paging (31.8%) (20.3%)
Consolidated 7.3% 14.5%
N/M = Not Meaningful
Management believes there exists a seasonality at U.S. Cellular in both service
revenue, which tend to increase more slowly in the first and fourth quarters,
and operating expenses, which tend to be higher in the fourth quarter due to
increased marketing activities and customer growth. This seasonality may cause
operating income to vary from quarter-to-quarter. Additionally, competitors
licensed to provide PCS services have initiated service in certain of U.S.
Cellular's markets over the past twelve months. U.S. Cellular expects PCS
operators to complete initial deployment of PCS across all of its markets by the
end of 1998. U.S. Cellular's management is monitoring these and other wireless
communications providers' strategies to determine what effect this additional
competition will have on U.S. Cellular's future strategies and results.
Investment and Other Income (Expense) totaled $24.3 million in 1997 and $124.1
million in 1996. Gain on Sale of Cellular Interests and Other Investments
totaled $10.6 million in the first half of 1997 and $128.3 million in 1996 as
the Company has sold or traded certain non-strategic cellular interests and sold
other investments. PCS Development Costs totaled $21.6 million in 1997 and
$13.5 million in 1996. The increase is associated with the costs prior to
launching PCS service in Aerial markets. Effective with the beginning of the
second quarter of 1997, all costs associated with the markets are now being
included in operating income. Cellular Investment Income, the Company's share
of income of cellular markets in which the Company has a minority interest and
follows the equity method of accounting, increased 59% ($13.2 million) in the
first half of 1997 as income from the cellular markets increased. Cellular
investment income is net of amortization of license costs relating to these
minority interests.
-6-
Minority Share of Income includes the minority shareholders' share of U.S.
Cellular's, Aerial's and American Paging's net income or loss, minority
partners' share of U.S. Cellular's operating markets and other minority
shareholders' and partners' share of subsidiaries' net income or loss. The
decrease in 1997 is primarily related to the increase in Aerial's net loss
allocated to its minority shareholders and the decrease in U.S. Cellular's net
income allocated to its minority shareholders caused by the reduction in gains.
Minority shareholders of American Paging are not allocated losses in 1997 as
American Paging's shareholders' equity is negative.
Six Months Ended June 30,
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1997 1996 Change
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(Dollars in thousands)
Minority Share of (Income) Loss
United States Cellular
Minority Shareholders' Share $ (9,563) $ (17,845) $ 8,282
Minority Partners' Share (7,248) (5,421) (1,827)
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(16,811) (23,266) 6,455
Aerial 13,488 809 12,679
American Paging -- 2,422 (2,422)
Telephone Subsidiaries and Other (869) (767) (102)
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$ (4,192) $ (20,802) $ 16,610
========== ========== =========
Interest Expense increased 60% ($12.7 million) in the first half of 1997
primarily due to the increase in short- and long-term debt outstanding.
Interest expense also increased $3.4 million as the Company discontinued
capitalizing interest on broadband PCS licenses upon commencement of PCS
operations.
Income Tax Expense decreased 73% ($65.8 million) in 1997 compared with 1996
primarily due to the decrease in pretax income. The effective income tax rate
was 59% in the first half of 1997 and 49% in 1996.
Certain expenses are not deductible for tax purposes, such as amortization of
intangibles related to tax free acquisitions. The amount of these expenses were
about the same in 1997 and 1996. Pretax income however, is expected to be
substantially lower in 1997. Due to the expected lower pretax income, the
impact of these expenses on the effective income tax rate increased the rate
approximately 10 percentage points when compared to 1996.
Net Income Available to Common decreased $77.4 million to $15.5 million in the
first half of 1997 from $92.9 million in the first half of 1996. Earnings Per
Common Share were $.25 in the first half of 1997 and $1.54 in the first half of
1996.
Net income available to common included significant gains from the sale of
cellular interests and other investments in 1996 as well as significant PCS
development costs in 1997 and 1996 as explained previously.
TDS anticipates that start-up and development of high-quality networks and the
marketing of systems in Aerial's markets will reduce the rate of growth in TDS's
operating and net income from levels which would otherwise be achieved during
the next few years.
-7-
Three Months Ended 6/30/97 Compared to Three Months Ended 6/30/96
Net income available to common was $6.4 million, or $.11 per share, in 1997
compared to $59.5 million, or $.97 per share in 1996. Net income from U.S.
Cellular and TDS Telecom increased 67% to $38.2 million, or $.64 per share in
1997 from $22.9 million, or $.37 per share, in 1996, primarily reflecting growth
in the cellular business. The loss from Aerial's PCS start-up activities totaled
$28.6 million, or $.48 per share, in 1997 and $1.8 million, or $.03 per share in
1996. American Paging's loss reduced net income and earnings per share by $7.2
million, or $.12 per share, in 1997 and $2.1 million, or $.03 per share in 1996.
Net income and earnings per share included gains of $4.0 million, or $.07 per
share, in 1997 and $40.5 million, or $.66 per share, in 1996.
The table below summarizes the effects of the business units and gains
(along with the related impact on income taxes and minority interest) on net
income available to common and earnings per share.
Three Months Ended June 30,
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1997 1996
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(Dollars in thousands,
except per share amounts)
Net Income Available to Common
U.S. Cellular and TDS Telecom $ 38,190 $ 22,855
Aerial (28,639) (1,807)
American Paging (7,207) (2,079)
Gains 4,007 40,481
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$ 6,351 $ 59,450
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Earnings Per Share
U.S. Cellular and TDS Telecom $ .64 $ .37
Aerial (.48) (.03)
American Paging (.12) (.03)
Gains .07 .66
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$ .11 $ .97
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Operating Revenues increased 23% ($66.3 million) during the second quarter of
1997 for reasons generally the same as the first six months. U.S. Cellular
revenues increased 28% ($48.1 million) in 1997. Local retail revenue increased
36% ($36.6 million) in the second quarter of 1997, while inbound roaming revenue
increased 18% ($8.8 million). Average monthly service revenue per customer was
$58.41 in the second quarter of 1997 and $67.43 in 1996. TDS Telecom revenues
increased 13% ($13.1 million) in the second quarter of 1997. Average revenue
per access line increased slightly to $67.03 in the second quarter of 1997 from
$66.72 in 1996. Aerial revenues totaled $7.1 million in the second quarter of
1997 consisting primarily of revenues from units sold to customers
($5.9 million). American Paging revenues decreased 8% ($2.0 million) in 1997.
Average revenue per unit decreased 4% to $9.34 in 1997 from $9.73 in 1996.
Operating Expenses rose 44% ($107.9 million) during the second quarter of 1997
for reasons generally the same as the first six months. U.S. Cellular expenses
increased 26% ($36.0 million). System operations expense increased 32%
($9.2 million). Marketing and selling expenses, including cost of equipment
sold, increased 32% ($14.1 million). Cost per gross customer addition remained
steady at $320 in the second quarter of 1997 and 1996. TDS Telecom expenses
increased 20% ($14.6 million) for reasons generally the same as the first six
months. Aerial's operating expenses were incurred in the second quarter of 1997
as the markets were placed into service. American Paging operating expenses
decreased 5% ($1.5 million) due primarily to the $1.5 million restructuring
charge recorded in 1996.
-8-
Operating Income decreased 85% ($41.6 million) in the second quarter of 1997
reflecting the $51.6 million operating loss from the PCS start-up activities.
U.S. Cellular operating income increased $12.1 million reflecting continued
growth in customers and revenues.
Three Months Ended June 30,
--------------------------------------------
1997 1996 Change
------------ ----------- -----------
(Dollars in thousands)
Operating Income
U.S. Cellular $ 42,154 $ 30,021 $ 12,133
TDS Telecom 24,080 25,627 (1,547)
Aerial (51,633) -- (51,633)
American Paging (7,129) (6,567) (562)
------------ ----------- -----------
$ 7,472 $ 49,081 $ (41,609)
============ =========== ===========
Operating Margins:
U.S. Cellular 19.4% 17.7%
TDS Telecom 21.7% 26.2%
Aerial N/M N/M
American Paging (29.4%) (25.0%)
Consolidated 2.1% 16.7%
N/M = Not Meaningful
Investment and Other Income totaled $29.3 million in 1997 and $81.9 million in
1996. Gain on Sale of Cellular Interests and Other Investments totaled $10.6
million in the second quarter of 1997 compared to $86.5 million in 1996 as the
Company has sold or traded certain non-strategic cellular interests and sold
other investments. PCS Development Costs, costs incurred prior to the
commencement of operations in the PCS markets, totaled $7.8 million in 1996.
Cellular Investment Income increased 51% ($6.0 million), reflecting improvement
in U.S. Cellular's equity-method markets managed by others.
Minority Share of Income decreased 89% ($12.0 million) in the second quarter of
1997 due primarily to the increase in Aerial's net loss allocated to its
minority shareholders and the decrease in U.S. Cellular's net income allocated
to its minority shareholders caused by the reduction in gains.
Three Months Ended June 30,
---------------------------------------
1997 1996 Change
---------- ----------- ----------
(Dollars in thousands)
Minority Share of (Income) Loss
United States Cellular
Minority Shareholders' Share $ (6,042) $ (12,230) $ 6,188
Minority Partners' Share (4,383) (3,309) (1,074)
---------- ----------- ----------
(10,425) (15,539) 5,114
Aerial 9,639 809 8,830
American Paging -- 1,476 (1,476)
Telephone Subsidiaries and Other (647) (181) (466)
---------- ----------- ----------
$ (1,433) $ (13,435) $ 12,002
========== =========== ==========
Interest Expense increased $10.7 million to $19.9 million in the second quarter
of 1997 for reasons generally the same as the first six months.
-9-
Income Tax Expense decreased $52.1 million in 1997 compared with 1996 as pretax
income decreased. The effective income tax rate was 60% in the second quarter
of 1997 and 51% in 1996.
Net Income Available to Common decreased 89% ($53.1 million) to $6.4 million in
the second quarter of 1997 from $59.4 million in 1996. Earnings Per Common
Share were $.11 in 1997 and $.97 in 1996.
FINANCIAL RESOURCES AND LIQUIDITY
TDS and its subsidiaries operate relatively capital-intensive businesses. Rapid
growth has caused expenditures for construction, expansion and acquisition
programs to exceed internally generated cash flow. Accordingly, in recent
years, TDS has obtained substantial funds from external sources to acquire PCS
licenses, to build-out PCS markets, to fund acquisitions and to repurchase
common shares. Although increasing internal cash flow from U.S. Cellular and
steady internal cash flow from TDS Telecom have reduced the need for external
financing, Aerial's development and construction activities will require
significant additional funds from external sources.
Cash Flows From Operating Activities. TDS is generating substantial internal
funds from the rapid growth in customer units and revenues in the U.S. Cellular
and TDS Telecom business units. U.S. Cellular's operating cash flow increased
36% ($33.6 million) while TDS Telecom's operating cash flow increased 12%
($10.7 million). However, due to the start-up of operations at Aerial,
operating cash flow (operating income plus depreciation and amortization)
decreased 3% to $181.5 million in the first half of 1997 from $187.4 million in
1996 as a result of Aerial's $45.8 million negative cash flow. Cash flows for
other operating activities (investment and other income, interest and income tax
expense, and changes in working capital and other assets and liabilities)
required $74.9 million in the first half of 1997 and $101.2 million in 1996.
Six Months Ended June 30,
------------------------------------------
1997 1996 Change
------------ ------------ ------------
(Dollars in thousands)
Operating cash flow
U.S. Cellular $ 127,191 $ 93,594 $ 33,597
TDS Telecom 100,491 89,753 10,738
Aerial (45,750) -- (45,750)
American Paging (395) 4,010 (4,405)
------------ ----------- ------------
181,537 187,357 (5,820)
Other operating activities (74,864) (101,152) 26,288
------------ ------------ ------------
$ 106,673 $ 86,205 $ 20,468
============ ============ ============
Cash Flows from Financing Activities. TDS has used short-term debt to finance
its PCS and radio paging operations, for acquisitions and for general corporate
purposes. TDS has taken advantage of attractive opportunities from time-to-time
to retire short-term debt with the proceeds from long-term debt and equity sales
and sales of non-strategic assets. Cash flows from financing activities totaled
$244.0 million in the first half of 1997 compared to $8.5 million in 1996.
Increases in short-term debt provided most of the Company's external financing
requirements during the first half of 1997. The 1997 borrowings were used
primarily to fund expenditures for PCS construction and development activities
and for stock repurchases. In 1996, Aerial received net proceeds of $195.1
million in an initial public offering. TDS also paid down $163.4 million of
short-term debt in 1996.
In December 1996, the Company authorized the repurchase of up to three million
TDS Common Shares over a period of three years. Through June 30, 1997, TDS has
purchased 1,798,100 TDS
-10-
Common Shares for an aggregate purchase price of $69.9 million. TDS also
purchased 350,000 U.S. Cellular Common Shares for $9.8 million in the first half
of 1997.
Cash Flows From Investing Activities. TDS makes substantial investments each
year to acquire, construct, operate and maintain modern high-quality
communications networks and facilities as a basis for creating long-term value
for shareowners. Cash flows from investing activities required $372.7 million
in the first half of 1997 compared to $72.7 million in 1996, primarily for
additions to property, plant and equipment totaling $393.2 million in 1997 and
$211.8 million in 1996. The increase in property, plant and equipment is
primarily related to Aerial's construction activities. The sales of
non-strategic cellular interests and other investments provided $21.4 million
in 1997 and $183.9 million in 1996.
Property, Plant and Equipment. The primary purpose of TDS's construction and
expansion program is to provide for significant customer growth, to upgrade
service, to expand into new communication areas, and to take advantage of
service-enhancing and cost-reducing technological developments. Additions to
property, plant and equipment totaled $393.2 million in the first half of 1997.
U.S. Cellular had capital expenditures of $161.1 million primarily for cell
sites and equipment. TDS Telecom incurred $54.8 million for telephone plant
and equipment while Aerial incurred $157.7 million primarily for digital and
incremental switching to launch its markets.
Acquisitions. TDS continually reviews attractive opportunities for the
acquisition of additional cellular and telephone companies which add value to
the organization. As the number of opportunities for outright acquisitions of
cellular interests has decreased and as U.S. Cellular's clusters have grown to
realize greater economies of scale, U.S. Cellular's focus has shifted toward
exchanges and sales of non-strategic interests.
In February 1997, U.S. Cellular announced that it had entered into an exchange
agreement with BellSouth Corporation, pursuant to which U.S. Cellular will
receive majority interests in 12 contiguous markets adjacent to its Iowa and
Wisconsin/Illinois clusters. In exchange, U.S. Cellular will transfer its
majority interests in 10 markets, minority interests in 13 markets, pay cash
and incur certain income tax costs, the amounts of which are dependent upon
certain factors. U.S. Cellular will receive majority interests representing
approximately 3.9 million population equivalents ("pops") in the transaction,
and will divest majority interests representing approximately 1.9 million pops
and minority interests representing 1.4 million pops. The transaction is
subject to various regulatory and other approvals.
-11-
LIQUIDITY
TDS anticipates that the aggregate resources required for 1997 will include
approximately $800 million for capital spending, consisting of $300 million for
cellular capital additions, $130 million for telephone capital additions, $345
million for PCS capital additions and $25 million for the radio paging property
and equipment, and $255 million for working capital and operating expenses for
Aerial. The Company anticipates financing these expenditures with internally
generated funds and short-term and intermediate-term financing.
TDS is generating substantial internal funds from the rapid growth in customer
units and revenues. Operating cash flow for the twelve months ended June 30,
1997 increased $22.1 million, or 6%, to $379.9 million from $357.8 million in
1996 despite the $45.8 million negative operating cash flow associated with the
PCS start-up activities.
Twelve Months Ended June 30,
--------------------------------------------
1997 1996 Change
------------- ------------ ------------
(Dollars in thousands)
Operating cash flow
Cellular $ 229,802 $ 166,186 $ 63,616
Telephone 203,063 179,149 23,914
PCS (45,750) -- (45,750)
Radio paging (7,254) 12,460 (19,714)
------------- ------------ ------------
$ 379,861 $ 357,795 $ 22,066
============= ============ ============
U.S. Cellular plans to finance its cellular construction program using primarily
internally generated cash supplemented by short-term and intermediate-term
financing. TDS Telecom plans to finance its construction program using
internally generated cash supplemented by long-term financing from federal
government programs. Aerial plans to finance its construction expenditures and
working capital requirements with short-term and intermediate-term financing,
vendor financing and sales of minority equity interests in its MTAs.
U.S. Cellular filed a shelf Registration Statement on Form S-3 on July 31, 1997
for the sale of up to $400 million of unsecured debt. U.S. Cellular expects to
issue debt securities under the shelf registration during the third quarter of
1997. U.S. Cellular anticipates using the proceeds of the offering for
general corporate purposes, which may include the repayment of indebtedness.
TDS and its subsidiaries have cash and temporary investments totaling $67.8
million and longer-term cash investments totaling $42.8 million at June 30,
1997. These investments are primarily the result of telephone operations'
internally generated cash. While certain regulated telephone subsidiaries' debt
agreements place limits on intercompany dividend payments, these restrictions
are not expected to affect the Company's ability to meet its cash obligations.
TDS and its subsidiaries also have access to a variety of external capital
sources. TDS and its subsidiaries had $645 million of bank lines of credit for
general corporate purposes at June 30, 1997. Unused amounts of such lines
totaled $140 million. These line of credit agreements provide for borrowings at
negotiated rates up to the prime rate. U.S. Cellular is currently engaged in
negotiations regarding a proposed $500 million revolving credit facility,
although no agreement in principle has been reached.
The Company anticipates requiring additional funding to finance Aerial's
expected capital expenditures and working capital requirements, to finance
acquisitions and for general corporate purposes. The timing and amount of such
funding requirements will depend on the timing of Aerial's construction and
operational requirements, the timing of acquisitions, and other relevant
-12-
factors. There can be no assurance that sufficient funds will be available to
the Company on terms or at prices acceptable to the Company. If sufficient
funding is not made available to the Company on terms and prices acceptable to
the Company, the Company would have to reduce its construction, development and
acquisition programs. TDS and its subsidiaries anticipate accessing public and
private capital markets to issue debt and equity securities only when capital
requirements, financial market conditions and other factors warrant.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contain "forward-looking" statements, as defined in the Private
Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about the Company's beliefs and expectations are
forward-looking statements. These statements contain potential risks and
uncertainties and, therefore, actual results may differ materially. TDS
undertakes no obligation to update publicly any forward-looking statements
whether as a result of new information, future events or otherwise.
Important factors that may affect these projections or expectations include,
but are not limited to: changes in the overall economy; changes in competition
in markets in which TDS operates; advances in telecommunications technology;
changes in the telecommunications regulatory environment; pending and future
litigation; availability of future financing; start-up of PCS operations; and
unanticipated changes in growth in cellular customers, penetration rates, churn
rates and the mix of products and services offered in TDS's markets. Readers
should evaluate any statements in light of these important factors.
-13-
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Unaudited
---------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(Dollars in thousands,
except per share amounts)
OPERATING REVENUES
Cellular telephone $ 217,579 $ 169,470 $ 402,163 $ 313,112
Telephone 111,026 97,935 220,040 187,046
PCS 7,143 -- 7,143 --
Radio paging 24,248 26,296 48,828 52,606
--------- --------- --------- ---------
359,996 293,701 678,174 552,764
--------- --------- --------- ---------
OPERATING EXPENSES
Cellular telephone 175,425 139,449 336,564 271,269
Telephone 86,946 72,308 168,734 138,198
PCS 58,776 -- 58,776 --
Radio paging 31,377 32,863 64,368 63,259
--------- --------- --------- ---------
352,524 244,620 628,442 472,726
--------- --------- --------- ---------
OPERATING INCOME 7,472 49,081 49,732 80,038
--------- --------- --------- ---------
INVESTMENT AND OTHER INCOME
Interest and dividend income 3,478 3,947 6,896 6,123
Cellular investment income,
net of license cost
amortization 17,802 11,780 35,403 22,229
PCS development costs -- (7,761) (21,614) (13,507)
Gain on sale of cellular
interests and other
investments 10,598 86,494 10,598 128,252
Other (expense), net (1,129) 879 (2,766) 1,765
Minority share of income (1,433) (13,435) (4,192) (20,802)
--------- --------- --------- ---------
29,316 81,904 24,325 124,060
--------- --------- --------- ---------
INCOME BEFORE INTEREST
AND INCOME TAXES 36,788 130,985 74,057 204,098
Interest expense 19,880 9,137 33,694 20,997
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 16,908 121,848 40,363 183,101
Income tax expense 10,087 62,156 23,925 89,720
--------- --------- --------- ---------
NET INCOME 6,821 59,692 16,438 93,381
Preferred Dividend Requirement (470) (242) (951) (492)
--------- --------- --------- ---------
NET INCOME AVAILABLE TO
COMMON $ 6,351 $ 59,450 $ 15,487 $ 92,889
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES (000s) 60,161 61,259 60,757 60,465
EARNINGS PER COMMON SHARE $ .11 $ .97 $ .25 $ 1.54
========= ========= ========= =========
DIVIDENDS PER COMMON AND
SERIES A COMMON SHARE $ .105 $ .10 $ .21 $ .20
========= ========= ========= =========
The accompanying notes to financial statements are an integral part of these
statements.
-14-
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Unaudited
---------
Six Months Ended
June 30,
-----------------------------
1997 1996
------------- -----------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,438 $ 93,381
Add (Deduct) adjustments to
reconcile net income to net cash
provided by operating activities
Depreciation and amortization 131,806 107,318
Deferred taxes 5,483 23,437
Investment income (37,993) (24,550)
Minority share of income 4,192 20,802
Gain on sale of cellular interests
and other investments (10,598) (128,252)
Noncash interest expense 11,712 8,249
Other noncash expense 11,475 9,989
Change in accounts receivable (26,795) (30,690)
Change in materials and supplies (7,581) 4,646
Change in accounts payable 553 (11,378)
Change in accrued taxes 11,904 16,674
Change in other assets and liabilities (3,923) (3,421)
------------- -----------
106,673 86,205
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings 7,935 6,811
Repayments of long-term debt (20,435) (16,327)
Change in notes payable 346,604 (163,437)
Dividends paid (13,652) (13,046)
Repurchase of Common Shares (68,523) --
Purchase of subsidiary common stock (9,801) --
Proceeds from the issuance of subsidiaries' stock -- 195,118
Other financing activities 1,879 (638)
------------- -----------
244,007 8,481
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (393,232) (211,845)
Investments in and advances to cellular
minority partnerships (6,167) (10,919)
Distributions from partnerships 24,028 10,031
Investments in PCS licenses (5,073) (13,525)
Proceeds from investment sales 21,384 183,896
Change in other investments 3,291 (1,822)
Acquisitions, net of cash acquired (36,606) (925)
Change in temporary investments and
marketable securities 19,628 (27,582)
------------- ------------
(372,747) (72,691)
------------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (22,067) 21,995
CASH AND CASH EQUIVALENTS -
Beginning of period 57,633 55,116
------------- ------------
End of period $ 35,566 $ 77,111
============= ============
The accompanying notes to financial statements are an integral part of these
statements.
-15-
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
(Unaudited)
June 30, 1997 December 31, 1996
--------------- -----------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 35,566 $ 57,633
Temporary investments 32,256 61,664
Accounts receivable from customers
and others 209,512 181,212
Materials and supplies, at average cost,
and other current assets 64,641 45,561
--------------- ---------------
341,975 346,070
--------------- ---------------
INVESTMENTS
Cellular license acquisition costs,
net of amortization 1,108,119 1,088,409
Cellular minority interests 222,117 206,390
PCS license acquisition costs 380,625 382,724
Franchise costs and other costs in
excess of the underlying book
value of subsidiaries, net 179,368 181,845
Other investments 94,757 84,536
--------------- ---------------
1,984,986 1,943,904
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT
Cellular telephone, net 745,671 650,754
Telephone, net 770,662 774,388
PCS, net 486,326 322,723
Radio paging, net 47,846 51,472
Other, net 37,591 29,552
--------------- ---------------
2,088,096 1,828,889
--------------- ---------------
OTHER ASSETS AND DEFERRED CHARGES 91,071 82,106
--------------- ---------------
TOTAL ASSETS $ 4,506,128 $ 4,200,969
=============== ===============
The accompanying notes to financial statements are an integral part of
these statements.
-16-
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
June 30, 1997 December 31, 1996
-------------- -----------------
(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt
and preferred shares $ 38,346 $ 38,197
Notes payable 505,206 160,537
Accounts payable 216,925 205,427
Advance billings and customer deposits 35,191 32,434
Accrued interest 12,173 11,777
Accrued taxes 16,640 3,194
Other current liabilities 51,430 57,701
------------ ------------
875,911 509,267
------------ ------------
DEFERRED LIABILITIES AND CREDITS 223,019 214,906
------------ ------------
LONG-TERM DEBT, excluding current portion 983,364 982,232
------------ ------------
REDEEMABLE PREFERRED SHARES, excluding
current portion 279 280
------------ ------------
MINORITY INTEREST in subsidiaries 430,169 432,343
------------ ------------
NONREDEEMABLE PREFERRED SHARES 28,640 29,000
------------ ------------
COMMON STOCKHOLDERS' EQUITY
Common Shares, par value $1 per share 54,367 54,237
Series A Common Shares,
par value $1 per share 6,922 6,917
Common Shares issuable (10,480 and 30,977
shares, respectively) 499 1,461
Capital in excess of par value 1,660,797 1,661,093
Treasury Shares, at cost (1,796,070 shares) (69,867) --
Retained earnings 312,028 309,233
------------ ------------
1,964,746 2,032,941
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,506,128 $ 4,200,969
============ ============
The accompanying notes to financial statements are an integral part of these
statements.
-17-
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of June 30, 1997 and December
31, 1996, and the results of operations and cash flows for the six months
ended June 30, 1997 and 1996. The results of operations for the six
months ended June 30, 1997 and 1996, are not necessarily indicative of the
results to be expected for the full year.
2. Certain amounts reported in prior periods have been reclassified to
conform to the current period presentation.
3. Earnings per Common Share were computed by dividing Net Income Available
to Common by the weighted average number of common and common equivalent
shares outstanding during the period. Dilutive common stock equivalents
at June 30, 1997 consist of dilutive Common Share options.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" in March 1997
which will become effective in December 1997. Earnings per share would
not change if the SFAS No. 128 was in effect as of January 1, 1996.
4. Supplemental Cash Flow Information
Cash and cash equivalents include cash and those short-term, highly liquid
investments with original maturities of three months or less. Those
investments with original maturities of more than three months to twelve
months are classified as temporary investments. Temporary investments are
stated at cost, which approximates market. Those investments with
original maturities of more than 12 months are classified as marketable
securities and are stated at amortized cost.
-18-
TDS acquired certain cellular licenses, operating companies and telephone
companies in 1997 and 1996. In conjunction with these acquisitions, the
following assets were acquired and liabilities assumed and Common Shares
issued.
Six Months Ended
June 30,
----------------------------
1997 1996
---------- ------------
(Dollars in thousands, except
per share amounts)
Property, plant and equipment $ -- $ 46,883
Cellular licenses 36,719 67,238
Decrease in equity method investment
in cellular interests -- 2,826
Franchise costs -- 21,774
Long-term debt -- (23,267)
Deferred credits -- (5,602)
Other assets and liabilities,
excluding cash and cash equivalents -- 5,208
Minority interest (113) (443)
Common Shares issued and issuable -- (113,658)
USM Stock issued and issuable -- (34)
---------- ------------
Increase in cash due to acquisitions $ 36,606 $ 925
========== ============
The following table summarizes interest and income taxes paid, and other
noncash transactions.
Six Months Ended
June 30,
----------------------------
1997 1996
---------- ------------
(Dollars in thousands)
Interest Paid $ 32,102 $ 26,465
Income Taxes Paid 6,818 39,504
Common Shares issued by TDS for
conversion of TDS Preferred Stock $ 338 $ 4,382
5. Business Segment Information
The following tables summarize business segment information for the three
months and six months ended or at June 30, 1997, and 1996.
-19-
CELLULAR OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
Operating Revenues
Local service $ 139,285 $ 102,713 $ 260,312 $ 191,655
Inbound roaming 57,244 48,485 102,584 87,433
Long-distance and other 21,050 18,272 39,267 34,024
----------- ----------- ----------- -----------
217,579 169,470 402,163 313,112
----------- ----------- ----------- -----------
Operating Expenses
System operations 38,048 28,811 69,277 52,389
Marketing and selling 39,959 27,663 76,999 55,071
Cost of equipment sold 17,763 15,917 35,757 31,390
General and administrative 48,224 40,444 92,939 80,668
Depreciation and amortization 31,431 26,614 61,592 51,751
----------- ----------- ----------- -----------
175,425 139,449 336,564 271,269
----------- ----------- ----------- -----------
Operating Income $ 42,154 $ 30,021 $ 65,599 $ 41,843
=========== =========== =========== ===========
Additions to property, plant
and equipment $ 107,996 $ 55,320 $ 161,058 $ 100,931
Identifiable assets $ 2,279,433 $ 1,991,436 $ 2,279,433 $ 1,991,436
TELEPHONE OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
------------------------- ------------------------
1997 1996 1997 1996
------------ ----------- ----------- ----------
(Dollars in thousands, except per share amounts)
Telephone Operations
Operating Revenues
Local Service $ 30,491 $ 27,316 $ 60,352 $ 52,545
Network access and
long distance 56,717 52,287 113,309 100,793
Miscellaneous 12,650 12,588 24,359 22,252
------------ ----------- ----------- ----------
99,858 92,191 198,020 175,590
------------ ----------- ----------- ----------
Operating Expenses
Network operations 18,099 18,235 35,800 32,312
Depreciation and
amortization 23,811 19,307 47,104 39,444
Customer operations 16,290 13,931 31,187 25,445
Corporate and other 16,643 15,083 31,733 29,900
------------ ----------- ----------- ----------
74,843 66,556 145,824 127,101
------------ ----------- ----------- ----------
Telephone
Operating Income 25,015 25,635 52,196 48,489
------------ ----------- ----------- ----------
Other Operations
Revenues 11,396 5,914 22,480 11,948
Expenses 12,331 5,922 23,370 11,589
------------ ----------- ----------- ----------
Other Operating Income (935) (8) (890) 359
------------ ----------- ----------- ----------
Intercompany Eliminations
Revenues (228) (170) (460) (492)
Expenses (228) (170) (460) (492)
------------ ----------- ----------- ----------
Operating Income $ 24,080 $ 25,627 $ 51,306 $ 48,848
============ =========== =========== ==========
Additions to
property, plant
and equipment $ 30,934 $ 27,220 $ 54,838 $ 54,742
Identifiable assets $ 1,174,508 $ 1,151,179 $ 1,174,508 $ 1,151,179
-20-
PCS OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- --------- ---------- --------
(Dollars in thousands, except per share amounts)
Operating Revenues $ 7,143 $ -- $ 7,143 $ --
---------- --------- ---------- --------
Operating Expenses
Systems operations 4,042 -- 4,042 --
Marketing and selling 14,890 -- 14,890 --
Cost of equipment sold 14,972 -- 14,972 --
General and administrative 17,239 -- 17,239 --
Customer service 1,750 -- 1,750 --
Depreciation 5,161 -- 5,161 --
Amortization 722 -- 722 --
---------- --------- ---------- --------
58,776 -- 58,776 --
---------- --------- ---------- --------
Operating (Loss) $ (51,633) $ -- $ (51,633) $ --
========== ========= ========== ========
Additions to property, plant
and equipment $ 73,094 $ 13,545 $ 157,702 $ 22,455
Identifiable assets $ 814,823 $ 342,647 $ 814,823 $ 342,647
RADIO PAGING OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- --------- --------- ----------
(Dollars in thousands, except per share amounts)
Operating Revenues $ 24,248 $ 26,296 $ 48,828 $ 52,606
---------- --------- --------- ----------
Costs and expenses
Cost of services 6,179 6,826 13,040 12,845
Selling, general and
administrative 15,270 15,781 31,533 30,185
Cost of equipment sold 2,487 2,762 4,650 5,566
Depreciation and amortization 7,441 7,494 15,145 14,663
--------- --------- --------- ----------
31,377 32,863 64,368 63,259
--------- --------- --------- ----------
Operating (Loss) $ (7,129) $ (6,567) $ (15,540) $ (10,653)
========= ========= ========= ==========
Additions to property, plant
and equipment $ 8,518 $ 11,214 $ 11,472 $ 22,028
Identifiable assets $ 147,382 $ 165,438 $ 147,382 $ 165,438
OTHER OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
----------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- -----------
(Dollars in thousands, except per share amounts)
Additions to property, plant
and equipment $ 3,666 $ 8,226 $ 8,162 $ 11,689
Identifiable Assets $ 89,982 $ 116,442 $ 89,982 $ 116,442
-21-
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
At the Annual Meeting of Shareholders of TDS, held on May 16, 1997, the
following number of votes were cast for the matters indicated:
(1) For the election of one Class I director of the Company by the
holders of Common Shares and holders of Preferred Shares
issued before October 31, 1981:
Nominee For Withhold
---------------- ---------- ----------
George W. Off 8,635,100 1,432,881
========== ==========
Martin L. Solomon 31,979,170 1,051,076
========== ==========
(2) For the election of two Class I directors of the Company by
the holders of Series A Common Shares and the holders of
Preferred Shares issued after October 31, 1981:
Nominee For Withhold
------------------- ---------- ---------
Rudolph E. Hornacek 68,984,089 140
========== =========
Donald R. Brown 68,984,089 140
========== =========
(3) Proposal to Ratify the Selection of Arthur Andersen, LLP as
Independent Public Accountants for 1997:
For Against Abstain
----------- --------- -------
Total Votes 111,456,567 366,324 258,962
=========== ========= =======
(4) Shareholder Proposal re: Classified Board:
Broker
For Against Abstain Non-Vote
---------- ---------- ------- --------
Total Votes 35,512,238 75,094,516 606,309 869,420
========== ========== ======= ========
(5) Shareholder Proposal re: Director Independence:
Broker
For Against Abstain Non-Vote
---------- ---------- ------- ---------
Total Votes 34,553,350 75,885,544 774,169 869,420
========== ========== ======= =========
-22-
Item 5. Other Information
- --------------------------
In December 1996, TDS authorized the repurchase of up to 3 million TDS
Common Shares over a period of three years. Through June 30, 1997, TDS
has repurchased 1,798,100 TDS Common Shares for an aggregate purchase
price of $69.9 million. TDS also purchased 350,000 U.S. Cellular
Common Shares for $9.8 million in the first quarter of 1997. The share
repurchases were financed primarily by borrowings under TDS' short-term
lines of credit.
On July 31, 1997, U.S. Cellular announced that it had filed a shelf
registration statement with the Securities and Exchange Commission
covering $400 million of debt securities. The news release issued to
announce this is attached as Exhibit 99.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibit 3.2 - Restated By-laws
(b) Exhibit 11 - Computation of earnings per common share
(c) Exhibit 12 - Statement regarding computation of ratios
(d) Exhibit 27 - Financial Data Schedule
(e) Exhibit 99 - U.S. Cellular news release dated July 31, 1997
(f) Reports on Form 8-K filed during the quarter ended June 30, 1997
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
-23-
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELEPHONE AND DATA SYSTEMS, INC.
---------------------------------
(Registrant)
Date August 12, 1997 MURRAY L. SWANSON
-------------------- ---------------------------------
Murray L. Swanson,
Executive Vice President-Finance
(Chief Financial Officer)
Date August 12, 1997 GREGORY J. WILKINSON
-------------------- ---------------------------------
Gregory J. Wilkinson,
Vice President and Controller
(Principal Accounting Officer)
-24-