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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 September 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
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
Common Shares, $1 par value 52,633,558 Shares
Series A Common Shares, $1 par value 6,933,233 Shares
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TELEPHONE AND DATA SYSTEMS, INC.
3RD QUARTER REPORT ON FORM 10-Q
INDEX
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 Nine Months Ended
September 30, 1997 and 1996 14
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 15
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 16-17
Notes to Consolidated Financial Statements 18-22
Part II. Other Information 23
Signatures 24
PART I. FINANCIAL INFORMATION
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Telephone and Data Systems, Inc. ("TDS" or the "Company") is a diversified
telecommunications company which provides high-quality telecommunications
services to over 2.7 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.
During the first nine months of 1997, U.S. Cellular continued with strong growth
in customers, revenues and earnings, Aerial launched service in all of its
markets, TDS Telecom continued with steady growth and American Paging continued
its turnaround efforts. Revenues increased 24% primarily as a result of a 23%
increase in customer units. The commencement of PCS operations significantly
reduced operating cash flows, operating income and net income as compared to the
first nine months of 1996. Strong increases in cash flow from U.S. Cellular and
solid growth from TDS Telecom were offset by Aerial's start-up activities which
resulted in an 11% decline in operating cash flow and a 62% decline in operating
income. Net income to common declined 79% to $24.0 million as a result of the
losses incurred in the start-up of the PCS markets and smaller gains on the sale
of cellular interests and other investments.
United States Cellular Corporation ("U.S. Cellular"), TDS's 80.9%-owned cellular
subsidiary, continued its rapid growth during the first nine months of 1997.
Customer units increased 44% to 1,357,000. The increase in customer units
resulted in a 29% increase in revenues, a 33% increase in operating cash flow
and a 47% increase in operating income.
TDS Telecommunications Corporation ("TDS Telecom"), TDS's wholly owned telephone
subsidiary, continued to provide solid growth with a 17% increase in revenues, a
10% increase in operating cash flow and a 4% increase in operating income.
Telephone access lines increased by 6% to 506,600.
Aerial Communications, Inc. ("Aerial"), TDS's 82.6%-owned PCS subsidiary,
launched service in all six of its markets between March and June of 1997.
Customer units totaled nearly 65,000 at September 30, 1997. Aerial's revenues
and expenses incurred subsequent to the launching of service have been included
in operating income. Operating cash flow was a negative $96.3 million while
operating loss totaled $116.2 million. Costs incurred prior to the launch of
service, (PCS development costs included in "Investment and Other Income
(Expense)") totaled $21.6 million in 1997 and $24.3 million in 1996.
American Paging, Inc. ("American Paging"), TDS's 82.0%-owned paging subsidiary,
reported a 1% increase in units in service to 792,800. Revenues declined by 9%
primarily as a result of competitive pricing pressures. Operating loss totaled
$24.8 million for the first nine months of 1997.
2
RESULTS OF OPERATIONS
Nine Months Ended 9/30/97 Compared to Nine Months Ended 9/30/96
Telephone and Data Systems, Inc. reported net income available to common of
$24.0 million, or $.40 per share, in the first nine months of 1997, compared to
$115.3 million, or $1.89 per share, in the first nine months of 1996. Net income
available to common from U.S. Cellular and TDS Telecom increased 62% to $114.8
million, or $1.90 per share, in the first nine months of 1997, from $70.7
million, or $1.16 per share, in the first nine months of 1996. Aerial's PCS
development and start-up activities reduced net income and earnings per share by
$79.7 million, or $1.32 per share, in 1997 and $8.7 million, or $.14 per share,
in 1996. American Paging's activities reduced net income and earnings per share
by $23.5 million, or $.39 per share, in 1997 and $10.5 million, or $.17 per
share in 1996. Net income included gains on the sale of cellular interests and
other investments of $12.5 million, or $.21 per share in 1997 and $63.7 million,
or $1.04 per share in 1996.
The table below summarizes the effects of the business units and gains (along
with the related impact of income taxes and minority interest) on net income
available to common and earnings per share.
Nine Months Ended September 30,
-------------------------------
1997 1996
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(Dollars in thousands,
except per share amounts)
Net Income Available to Common
U.S. Cellular and TDS Telecom $ 114,836 $ 70,748
Aerial (79,709) (8,711)
American Paging (23,542) (10,474)
Gains 12,450 63,718
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$ 24,035 $ 115,281
============= =============
Earnings Per Share
U.S. Cellular and TDS Telecom $ 1.90 $ 1.16
Aerial (1.32) (.14)
American Paging (.39) (.17)
Gains .21 1.04
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$ .40 $ 1.89
============= =============
Operating Revenues increased 24% ($209.1 million) during the first nine months
of 1997 primarily as a result of a 23% increase in customer units served to over
2.7 million units at September 30, 1997. U.S. Cellular contributed 67% ($140.8
million) of the total increase in revenues and most of the increase in customer
units, while TDS Telecom contributed 24% ($49.9 million) and Aerial contributed
12% ($25.8 million) of the total increase in revenues.
U.S. Cellular revenues increased 29% ($140.8 million) in 1997 on a 44% increase
in customer units and strong inbound roaming revenues. Cellular customers
increased to 1,357,000 at September 30, 1997 from 940,000 at September 30, 1996.
Total average monthly service revenue per customer was $56.58 in the first nine
months of 1997 and $64.96 in 1996. Average monthly service revenue per customer
continues to decline due to roaming revenues increasing at a slower rate than
the U.S. Cellular customer base, competitive pricing pressures, incentive
programs and consumer market penetration.
Local retail revenue increased 36% ($107.6 million) in the first nine months of
1997 due primarily to the 44% customer growth. Average monthly local retail
revenue per customer was $37.30 in the
3
first nine months of 1997 and $40.54 in 1996. Average local minutes of use per
retail customer decreased slightly to 105 in 1997 from 106 in 1996, while
average local retail revenue per minute totaled $.36 in 1997 compared to $.38 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 and
the increased amounts of bill credits given to customers as incentives to become
or remain customers resulted in the decrease in average monthly local retail
revenue per minute which in turn caused the decrease in average monthly local
retail revenue per customer. Inbound roaming revenue (charges to customers of
other systems who use U.S. Cellular's cellular systems when roaming) increased
17% ($23.9 million) in the first nine months of 1997. The growth in roaming
revenue is due to a 28% increase in minutes used offset somewhat by negotiated
reductions in roaming rates. Average inbound roaming revenue per minute totaled
$.86 in 1997 and $.93 in 1996. Average monthly inbound roaming revenue per
customer was $14.97 in 1997 compared to $18.88 in 1996. The decrease is related
to 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 17% ($49.9 million) in 1997 due to growth in
telephone operations ($32.0 million) and growth in other operations ($17.9
million). Telephone operations revenues increased as a result of the effects of
recovery of increased costs of providing long-distance services ($9.7 million),
acquisitions ($8.1 million), internal access line growth ($4.4 million),
increased network usage ($4.1 million) and increased sale of customer premise
equipment ($3.1 million). The number of telephone access lines increased 6% to
506,600 at September 30, 1997 from 479,700 at September 30, 1996. Average
monthly revenue per access line increased to $67.90 for the first nine months of
1997 from $66.16 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. The increase in other operations revenues is
primarily related to the effects of the acquisition of the cellular interest
($11.2 million) and from the Internet access provider and the structured wiring
business ($5.3 million).
Aerial revenues totaled $25.8 million in 1997 consisting of service revenues of
$12.9 million and equipment sales revenues of $12.9 million for units sold to
retailers, independent agents and customers. At September 30, 1997, Aerial had
nearly 65,000 customers in service. Average revenue per unit was over $70.00 for
the third quarter of 1997, the first full quarter of operations.
American Paging revenues decreased 9% ($7.4 million) in 1997 due to competitive
pricing declines, a decrease in the average number of units in service and lower
equipment sales revenue. Average revenue per unit decreased 6% to $9.31 in 1997
from $9.92 in 1996. As of September 30, 1997, units in service increased to
792,800 from 788,300 a year ago. However, over the past twelve months units in
service reached a low of 767,400 at March 31, 1997 resulting in a decrease in
average number of units in service.
Operating Expenses rose 38% ($284.2 million) in the first nine months of 1997
due primarily to added expenses to serve the growing customer base and expenses
attributable to the Aerial's start-up activities. Aerial's start-up activities
represented 50% ($142.0 million) of the increase while U.S. Cellular represented
37% ($105.2 million) and TDS Telecom represented 16% ($46.9 million), primarily
due to the increase in customers.
4
U.S. Cellular expenses increased 25% ($105.2 million) during 1997. System
operations expenses increased 37% ($29.8 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 46% ($22.1 million) primarily due to increased roaming usage and increased
minutes of use, primarily related to the 44% increase in customer units. Net
outbound roaming usage expense is a result of offering U.S. Cellular's customers
increasingly larger service footprints in which their calls are billed at local
rates. In certain cases these service footprints include other operators'
service areas. U.S. Cellular pays roaming rates to the other carriers for calls
its customers make in these areas, while charging those customers a local rate
which is usually lower than the roaming rate. Maintenance,
utility and cell site expenses increased 24% ($7.7 million) reflecting primarily
the increase in the number of cell sites to 1,556 in 1997 from 1,270 in 1996.
Marketing and selling expenses incurred to add new customers increased 29%
($39.1 million), including a $5.8 million increase in cost of equipment sold.
Cost per gross customer addition declined to $322 in 1997 from $331 in 1996
while gross customer activations increased to 494,000 in 1997 from 373,000 in
1996. General and administrative expenses increased 17% ($20.9 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% ($15.4 million) primarily due to the increase in
average fixed assets since September 30, 1996.
TDS Telecom expenses increased 22% ($46.9 million) during 1997 primarily due to
growth in telephone operations ($26.7 million) and growth in other operations
($20.2 million). Telephone operations increased primarily due to the effects of
growth in internal operations ($10.7 million), increased depreciation and
amortization ($7.1 million) and acquisitions ($6.2 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. The increase in other
operations expenses is primarily related to the effects of the acquisition of
the cellular interest ($10.3 million) and from the Internet access provider and
the structured wiring business ($6.9 million).
Aerial expenses, included in operating expenses, totaled $142.0 million in the
first nine months of 1997. Expenses incurred in the first quarter of 1997 of
$21.6 million, prior to the launch of the first market, are included in PCS
Development Costs as part of Other Income. System operations expenses totaled
$13.9 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 and continued throughout the third quarter, totaled $27.0
million while cost of equipment sold totaled $40.8 million. General and
administrative expenses totaled $33.7 million reflecting the expenses associated
with the management and operating teams as well as overhead expenses. Customer
service expenses totaled $6.8 million primarily for the staffing to support the
PCS markets. Depreciation and amortization totaled $19.8 million.
American Paging expenses decreased 9% ($9.9 million) in the first nine months of
1997. During the first nine months of 1996, American Paging recorded
restructuring expenses of $9.3 million related to subleasing office space,
employee severance, out placement services and consulting services ($4.0
million) and write-offs of certain assets ($5.3 million).
5
Operating Income decreased 62% ($75.1 million) in the first nine months of 1997
reflecting the effects of Aerial's start-up activities offset somewhat by strong
(47%) 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.
Nine Months Ended September 30,
--------------------------------------------------
1997 1996 Change
------------- ------------- --------------
Dollars in thousands)
Operating Income
U.S. Cellular $ 110,511 $ 74,937 $ 35,574
TDS Telecom 76,708 73,711 2,997
Aerial (116,170) -- (116,170)
American Paging (24,845) (27,347) 2,502
------------- ------------- --------------
$ 46,204 $ 121,301 $ (75,097)
============= ============= ==============
Operating Margins
U.S. Cellular 17.4% 15.2%
TDS Telecom 22.6% 25.5%
Aerial N/M N/M
American Paging N/M N/M
Consolidated 4.3% 14.1%
N/M = Not Meaningful
Investment and Other Income (Expense) totaled $67.1 million in 1997 and $136.6
million in 1996. Gain on Sale of Cellular Interests and Other Investments
totaled $24.4 million in the first nine months of 1997 and $136.0 million in
same period of 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 $24.3 million in 1996. Effective with the beginning of
the second quarter of 1997, all costs associated with Aerial's markets are
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 53% ($20.2 million) to $58.4
million in the first nine months of 1997 as income from the cellular markets
increased. Cellular investment income is net of amortization of license costs
relating to these minority interests. Future cellular investment income is
expected to decrease as a result of the recent completion of the exchange
transaction with BellSouth Corporation. See "Financial Resources and Liquidity"
for further discussion of this transaction.
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 (due to the reduction in gains) allocated to its minority shareholders.
Minority shareholders of American Paging are not allocated losses in 1997
because American Paging's shareholders' equity is negative.
Nine Months Ended September 30,
------------------------------------------
1997 1996 Change
---------- ----------- ------------
(Dollars in thousands)
Minority Share of (Income) Loss
United States Cellular
Minority Shareholders' Share $ (16,478) $ (22,914) $ 6,436
Minority Partners' Share (10,271) (8,615) (1,656)
---------- ----------- -----------
(26,749) (31,529) 4,780
Aerial 26,840 2,500 24,340
American Paging -- 5,722 (5,722)
Telephone Subsidiaries and Other (1,526) (1,090) (436)
---------- ----------- -----------
$ (1,435) $ (24,397) $ 22,962
========== =========== ===========
Interest Expense increased 100% ($30.2 million) in the first nine months of 1997
primarily due to the increase in short-term debt outstanding used to fund
Aerial's start-up costs and the recently approved TDS stock repurchase program,
decreased capitalized interest and the increase in long-term debt outstanding at
Aerial and U.S. Cellular.
Income Tax Expense decreased 76% ($84.2 million) in 1997 compared with 1996
primarily due to the decrease in pretax income. The effective income tax rate
was 52% in the first nine months of 1997 and 49% in 1996.
Net Income Available to Common decreased $91.2 million to $24.0 million in the
first nine months of 1997 from $115.3 million in the first nine months 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.
Earnings Per Common Share were $.40 in the first nine months of 1997 and $1.89
in the first nine months of 1996.
Management believes there exists a seasonality at U.S. Cellular in both service
revenues, which tend to increase more slowly in the first and fourth quarters,
and operating expenses, which tend to be higher in the fourth quarter due to
increased marketing activities and customer growth, which may cause operating
income to vary from quarter-to-quarter. Additionally, competitors licensed to
provide PCS services have initiated service in certain of U.S. Cellular's
markets over the past fifteen 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. While the effects of
additional wireless competition have slowed customer growth in certain of U.S.
Cellular's markets, the overall effect on operations to date has not been
material.
TDS anticipates that start-up and development of high-quality networks and the
marketing of
7
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. TDS also expects that American Paging will continue to incur operating
losses in the fourth quarter of 1997 and in 1998.
Three Months Ended 9/30/97 Compared to Three Months Ended 9/30/96
Net income available to common was $8.5 million, or $.14 per share, in 1997
compared to $22.2 million, or $.36 per share in 1996. Net income from U.S.
Cellular and TDS Telecom increased 68% to $48.2 million, or $.80 per share in
1997 from $28.6 million, or $.47 per share, in 1996, primarily reflecting growth
in the cellular business. The loss from Aerial's PCS start-up activities totaled
$39.5 million, or $.66 per share, in 1997 and $3.1 million, or $.06 per share in
1996. American Paging's loss reduced net income and earnings per share by $8.6
million, or $.14 per share, in 1997 and $6.3 million, or $.10 per share in 1996.
Net income and earnings per share included gains of $8.4 million, or $.14 per
share, in 1997 and $2.9 million, or $.05 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 September 30,
---------------------------------
1997 1996
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(Dollars in thousands,
except per share amounts)
Net Income Available to Common
U.S. Cellular and TDS Telecom $ 48,195 $ 28,618
Aerial (39,516) (3,075)
American Paging (8,573) (6,272)
Gains 8,443 2,929
------------- -------------
$ 8,549 $ 22,200
============= =============
Earnings Per Share
U.S. Cellular and TDS Telecom $ .80 $ .47
Aerial (.66) (.06)
American Paging (.14) (.10)
Gains .14 .05
------------- -------------
$ .14 $ .36
============= =============
Operating Revenues increased 27% ($83.6 million) during the third quarter of
1997 for reasons generally the same as the first nine months. U.S. Cellular
revenues increased 29% ($51.7 million) in 1997. Local retail revenue increased
36% ($39.0 million) in the third quarter of 1997, while inbound roaming revenue
increased 17% ($8.7 million). Average monthly service revenue per customer was
$57.56 in the third quarter of 1997 and $65.15 in 1996. TDS Telecom revenues
increased 17% ($16.9 million) in the third quarter of 1997 due to the growth in
telephone operations ($9.5 million) and growth in other operations ($7.4
million). Average monthly revenue per access line increased to $69.69 in the
third quarter of 1997 from $67.13 in 1996. Aerial revenues totaled $18.6 million
in the third quarter of 1997 consisting of service revenues of $11.7 million and
revenue from units sold to customers of $6.9 million. American Paging revenues
decreased 14% ($3.6 million) in 1997. Average monthly revenue per unit decreased
10% to $8.97 in 1997 from $9.96 in 1996.
Operating Expenses rose 48% ($128.4 million) during the third quarter of 1997
for reasons generally the same as the first nine months. U.S. Cellular expenses
increased 27% ($39.9 million). System operations expense increased 47%
($12.9 million). Marketing and selling expenses,
8
including cost of equipment sold, increased 26% ($12.8 million). Cost per gross
customer addition decreased to $328 in the third quarter of 1997 from $341 in
1996. TDS Telecom expenses increased 21% ($16.3 million) due to growth in
telephone operations ($8.0 million) and growth in other operations ($8.3
million) for reasons generally the same as the first nine months. Aerial's
operating expenses totaled $83.2 million as the markets were in service for the
full quarter. American Paging operating expenses decreased 25% ($11.0 million)
due primarily to the $7.0 million restructuring charge recorded in 1996.
Operating Income decreased 109% ($44.8 million) in the third quarter of 1997
reflecting the $64.5 million operating loss from the PCS start-up activities.
U.S. Cellular operating income increased $11.8 million reflecting continued
growth in customers and revenues.
Three Months Ended September 30,
--------------------------------------
1997 1996 Change
---------- ---------- -----------
Dollars in thousands)
Operating Income
U.S. Cellular $ 44,912 $ 33,094 $ 11,818
TDS Telecom 25,402 24,863 539
Aerial (64,537) -- (64,537)
American Paging (9,305) (16,694) 7,389
---------- ---------- ---------
$ (3,528) $ 41,263 $ (44,791)
========== ========== =========
Operating Margins:
U.S. Cellular 19.4% 18.4%
TDS Telecom 21.4% 24.4%
Aerial N/M N/M
American Paging N/M N/M
Consolidated (.9%) 13.4%
N/M = Not Meaningful
Investment and Other Income totaled $42.8 million in 1997 and $12.5 million in
1996. Gain on Sale of Cellular Interests and Other Investments totaled $13.8
million in the third quarter of 1997 compared to $7.8 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 $10.8 million in 1996.
Cellular Investment Income increased 44% ($7.0 million) to $23.0 million,
reflecting improvement in U.S. Cellular's equity-method markets managed by
others.
Minority Share of Income decreased 177% ($6.4 million) in the third quarter of
1997 due primarily to the increase in Aerial's net loss allocated to its
minority shareholders.
Three Months Ended September 30,
--------------------------------------
1997 1996 Change
---------- ---------- ----------
(Dollars in thousands)
Minority Share of (Income) Loss
United States Cellular
Minority Shareholders' Share $ (6,915) $ (5,069) $ (1,846)
Minority Partners' Share (3,023) (3,194) 171
---------- ----------- ---------
(9,938) (8,263) (1,675)
Aerial 13,352 1,691 11,661
American Paging -- 3,299 (3,299)
Telephone Subsidiaries and Other (657) (322) (335)
---------- ----------- ---------
$ 2,757 $ (3,595) $ 6,352
========== =========== ==========
9
Interest Expense increased $17.5 million to $26.9 million in the third quarter
of 1997 for reasons generally the same as the first nine months.
Income Tax Expense decreased $18.4 million to $3.4 million in the third quarter
of 1997 compared with 1996 as pretax income decreased. The effective income tax
rate was 27% in the third quarter of 1997 and 49% in 1996.
Net Income Available to Common decreased 61% ($13.7 million) to $8.5 million in
the third quarter of 1997 from $22.2 million in 1996. Earnings Per Common Share
were $.14 in 1997 and $.36 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 (operating
income plus depreciation and amortization) increased 33% ($51.0 million) in the
first nine months of 1997 compared to the same period in 1997 while TDS
Telecom's operating cash flow increased 10% ($13.3 million). These increases,
however, were offset by Aerial's $96.3 million negative cash flow as a result of
its start-up activities. As a result, operating cash flow decreased 11% to
$258.6 million in the first nine months of 1997 from $291.4 million in the same
period of 1996. 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 $108.9 million in the first nine months
of 1997 and $105.4 million in 1996.
Nine Months Ended September 30,
-------------------------------------------------
1997 1996 Change
------------- ------------- --------------
(Dollars in thousands)
Operating cash flow
U.S. Cellular $ 205,152 $ 154,153 $ 50,999
TDS Telecom 150,949 137,652 13,297
Aerial (96,313) -- (96,313)
American Paging (1,187) (360) (827)
------------- ------------- --------------
258,601 291,445 (32,844)
Other operating activities (108,872) (105,418) (3,454)
------------- ------------- --------------
$ 149,729 $ 186,027 $ (36,298)
============= ============= ==============
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
$339.2 million in the first nine months of 1997 compared to $69.8 million in
1996. Increases in short-term debt and U.S. Cellular's sale of notes provided
most of the financing during 1997. In 1996, most of the financing was from
Aerial's net proceeds of $195.3 million from an initial public offering offset
somewhat by decreases in short-term debt.
Increases in short-term debt of $292.7 million during the first nine months of
1997 were used primarily to fund expenditures for PCS construction and
development activities, stock repurchases
10
and American Paging operating and capital requirements. U.S. Cellular received
$247 million on the sale of 7.25% notes in August 1997. The proceeds were used
to repay notes payable and long-term debt.
Through September 30, 1997, TDS purchased 1,798,100 TDS Common Shares for $69.9
million. In December 1996, the Company authorized the repurchase of up to three
million TDS Common Shares over a period of three years. TDS also purchased
350,000 U.S. Cellular Common Shares for $9.8 million in 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 $499.3 million in
the first nine months of 1997 compared to $198.2 million in 1996, primarily for
additions to property, plant and equipment of $579.1 million in 1997 and $347.7
million in 1996. The sales of non-strategic cellular interests and other
investments provided $53.9 million in 1997 and $212.5 million in 1996 and
distributions from cellular partnerships provided $42.7 million in 1997 and
$15.0 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 increased to $579.1 million in the first nine
months of 1997 from $347.7 million in 1996 primarily related to the increases in
Aerial's and U.S. Cellular's construction expenditures of $152.0 million and
$75.0 million, respectively. U.S. Cellular had capital expenditures of $248.0
million primarily for cell sites, equipment and systems development. TDS Telecom
incurred $96.7 million for central office and outside plant and equipment while
Aerial incurred $203.4 million primarily for cell sites, digital switching and
microwave relocation in 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 October 1997, U.S. Cellular completed the exchange with BellSouth Corporation
it had announced earlier in 1997. Pursuant to the exchange, U.S. Cellular
received majority interests in 12 markets adjacent to its Iowa and
Wisconsin/Illinois clusters. In exchange, U.S. Cellular divested its majority
interests in 10 markets and minority interests in nine markets and paid a net
amount of $87 million in cash. Certain aspects of this transaction are taxable;
the amount of these taxes will be determined by year-end and will be paid in the
first quarter of 1998. No book gain or loss will be recorded on the transaction.
U.S. Cellular has an agreement to sell a majority interest in one market in
which it owned both licenses upon the completion of the exchange agreement. A
waiver from the Federal Communications Commission has been received by U.S.
Cellular to own both licenses until this divestiture is completed.
11
LIQUIDITY
TDS anticipates that the aggregate resources required for 1997 will include
approximately $815 million for capital spending, consisting of $300 million for
cellular capital additions, $130 million for telephone capital additions, $365
million for PCS capital additions, $20 million for radio paging capital
additions, and $255 million for working capital and operating expenses for
Aerial. The Company anticipates financing these expenditures with internally
generated funds, short-term, intermediate-term and long-term financing.
U.S. Cellular plans to finance its cellular construction program using primarily
internally generated cash supplemented by short-term and intermediate-term
financing. U.S. Cellular's operating cash flow totaled $247.2 million for the
twelve months ended September 30, 1997, up 33% ($62.0 million) from 1996. In
August 1997, U.S. Cellular issued $250 million principal amount of 7.25% notes
under a $400 million shelf registration statement, priced to yield 7.33% to
maturity. The proceeds of the offering were used to repay notes payable and
long-term debt. U.S. Cellular had $500 million of bank lines of credit for
general corporate purposes at September 30, 1997, all of which was available.
TDS Telecom plans to finance its construction program using internally generated
cash supplemented by long-term financing from federal government programs.
Operating cash flow totaled $205.6 million for the twelve months ended September
30, 1997, up 13% ($23.0 million) from 1996. At September 30, 1997, TDS Telecom
telephone subsidiaries had $111.5 million in unadvanced loan funds from federal
government programs.
Aerial plans to finance its construction expenditures and working capital
requirements with short-term and intermediate-term financing and vendor
financing. Aerial is currently contemplating a private placement offering in
connection with a refinancing arrangement relating to its existing vendor
financing. The proceeds from the offering are to be paid to Nokia
Telecommunications, Inc. in satisfaction of all outstanding obligations and
future obligations of Aerial. Aerial continues to seek an investment from a
minority equity investor.
TDS and its subsidiaries have cash and temporary investments totaling $74.9
million and longer-term cash investments totaling $36.2 million at September 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 had $644 million of bank lines of credit for general corporate
purposes at September 30, 1997. Unused amounts of such lines totaled $194.5
million. These line of credit agreements provide for borrowings at negotiated
rates up to the prime rate.
TDS filed a shelf Registration Statement on Form S-3 on October 21, 1997 for the
sale of up to $400 million of Trust Originated Preferred Securities(sm)
("TOPrS(sm)")1. TDS expects to issue approximately $150 million of the
securities under the shelf registration during the fourth quarter. The proceeds
from the fourth quarter issuance of the TOPrS is expected to be used to repay
short-term indebtedness.
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
factors. There can be no assurance that sufficient funds will be available to
the Company on terms or at
- --------
1 (sm) "Trust Originated Preferred Securities" and "TOPrS" are service
marks of Merrill Lynch & Co., Inc.
12
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 Nine Months Ended
September 30 September 30,
-------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- ---------
(Dollars in thousands, except per share amounts)
OPERATING REVENUES
Cellular telephone $ 231,959 $ 180,219 $ 634,122 $ 493,331
Telephone 118,660 101,790 338,700 288,836
PCS 18,648 -- 25,791 --
Radio paging 22,930 26,539 71,758 79,145
--------- --------- ---------- ---------
392,197 308,548 1,070,371 861,312
--------- --------- ---------- ---------
OPERATING EXPENSES
Cellular telephone 187,047 147,125 523,611 418,394
Telephone 93,258 76,927 261,992 215,125
PCS 83,185 -- 141,961 --
Radio paging 32,235 43,233 96,603 106,492
--------- --------- ---------- ---------
395,725 267,285 1,024,167 740,011
--------- --------- ---------- ---------
OPERATING INCOME (3,528) 41,263 46,204 121,301
--------- --------- ---------- ---------
INVESTMENT AND OTHER
INCOME (EXPENSE)
Interest and dividend income 3,026 3,925 9,922 10,048
Cellular investment income,
net of license cost
amortization 22,969 15,992 58,372 38,221
PCS development costs -- (10,805) (21,614) (24,312)
Gain on sale of cellular
interests and other
investments 13,767 7,797 24,365 136,049
Other (expense), net 305 (786) (2,461) 979
Minority share of income 2,757 (3,595) (1,435) (24,397)
--------- --------- ---------- ---------
42,824 12,528 67,149 136,588
--------- --------- ---------- ---------
INCOME BEFORE INTEREST
AND INCOME TAXES 39,296 53,791 113,353 257,889
Interest expense 26,885 9,346 60,579 30,343
--------- --------- ---------- ---------
INCOME BEFORE INCOME TAXES 12,411 44,445 52,774 227,546
Income tax expense 3,392 21,776 27,317 111,496
--------- --------- ---------- ---------
NET INCOME 9,019 22,669 25,457 116,050
Preferred Dividend Requirement (470) (469) (1,422) (769)
--------- --------- ---------- ---------
NET INCOME AVAILABLE TO
COMMON $ 8,549 $ 22,200 $ 24,035 $ 115,281
========= ========= ========== =========
WEIGHTED AVERAGE COMMON
SHARES (000s) 59,640 61,321 60,395 60,856
EARNINGS PER COMMON SHARE $ .14 $ .36 $ .40 $ 1.89
========= ========= ========== =========
DIVIDENDS PER COMMON AND
SERIES A COMMON SHARE $ .105 $ .10 $ .315 $ .30
========= ========= ========== =========
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
Nine Months Ended
September 30,
-------------------------
1997 1996
----------- -----------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25,457 $ 116,050
Add (Deduct) adjustments to reconcile net
income to net cash provided by operating
activities
Depreciation and amortization 212,397 170,143
Deferred taxes 2,593 45,122
Investment income (62,754) (40,747)
Minority share of income 1,435 24,397
Gain on sale of cellular interests and other
investments (24,365) (136,049)
Noncash interest expense 17,676 11,952
Other noncash expense 16,618 15,226
Change in accounts receivable (46,389) (27,724)
Change in materials and supplies (29,300) 2,513
Change in accounts payable 16,617 (7,369)
Change in accrued taxes 22,088 11,984
Change in other assets and liabilities (2,344) 529
----------- -----------
149,729 186,027
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings 260,236 8,904
Repayments of long-term debt (115,853) (23,161)
Change in notes payable 292,727 (89,434)
Dividends paid (20,363) (19,639)
Repurchase of Common Shares (69,942) --
Purchase of subsidiary common stock (9,801) --
Proceeds from the issuance of subsidiaries' stock -- 194,262
Other financing activities 2,149 (1,134)
----------- -----------
339,153 69,798
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (579,138) (347,709)
Investments in and advances to cellular
minority partnerships (499) (14,931)
Distributions from partnerships 42,695 14,959
Investments in PCS licenses (5,034) (21,009)
Proceeds from investment sales 53,865 212,549
Change in other investments 1,475 (2,020)
Acquisitions, net of cash acquired (39,169) (33,892)
Change in temporary investments and marketable
securities 26,510 (6,140)
----------- -----------
(499,295) (198,193)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (10,413) 57,632
CASH AND CASH EQUIVALENTS -
Beginning of period 57,633 55,116
----------- -----------
End of period $ 47,220 $ 112,748
=========== ===========
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)
September 30, December 31,
1997 1996
----------- ------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 47,220 $ 57,633
Temporary investments 27,635 61,664
Accounts receivable from customers and others 227,776 181,212
Materials and supplies, at average cost,
and other current assets 80,238 45,561
----------- -----------
382,869 346,070
----------- -----------
INVESTMENTS
Cellular license acquisition costs, net of
amortization 1,085,458 1,088,409
Cellular minority interests 220,776 206,390
PCS license acquisition costs 378,624 382,724
Franchise costs and other costs in excess of
the underlying book value of subsidiaries,
net 178,928 181,845
Other investments 89,006 84,536
----------- -----------
1,952,792 1,943,904
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Cellular telephone, net 792,279 650,754
Telephone, net 787,975 769,361
PCS, net 548,191 322,723
Radio paging, net 47,038 51,472
Other, net 44,604 34,579
----------- -----------
2,220,087 1,828,889
----------- -----------
OTHER ASSETS AND DEFERRED CHARGES 105,323 82,106
----------- -----------
TOTAL ASSETS $ 4,661,071 $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)
September 30, December 31,
1997 1996
------------ ------------
(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt
and preferred shares $ 14,793 $ 38,197
Notes payable 451,329 160,537
Accounts payable 210,962 205,427
Advance billings and customer deposits 33,171 32,434
Accrued interest 8,488 11,777
Accrued taxes 27,081 3,194
Other current liabilities 45,135 57,701
----------- -----------
790,959 509,267
----------- -----------
DEFERRED LIABILITIES AND CREDITS 220,547 214,906
----------- -----------
LONG-TERM DEBT, excluding current portion 1,228,175 982,232
----------- -----------
REDEEMABLE PREFERRED SHARES, excluding
current portion 279 280
----------- -----------
MINORITY INTEREST in subsidiaries 424,615 432,343
----------- -----------
NONREDEEMABLE PREFERRED SHARES 28,217 29,000
----------- -----------
COMMON STOCKHOLDERS' EQUITY
Common Shares, par value $1 per share 54,401 54,237
Series A Common Shares, par value $1 per
share 6,927 6,917
Common Shares issuable (10,480 and 30,977
shares, respectively) 499 1,461
Capital in excess of par value 1,661,892 1,661,093
Treasury Shares, at cost (1,793,358 shares) (69,767) --
Retained earnings 314,327 309,233
----------- -----------
1,968,279 2,032,941
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,661,071 $ 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 September 30, 1997 and
December 31, 1996, and the results of operations and cash flows for the
nine months ended September 30, 1997 and 1996. The results of operations
for the nine months ended September 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
September 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 SFAS No. 128 had been 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.
Nine Months Ended
September 30,
------------------------------
1997 1996
----------- -------------
(Dollars in thousands)
Property, plant and equipment $ -- $ 55,692
Cellular licenses 37,258 94,454
Increase in equity method investment
in cellular interests -- 8,356
Franchise costs -- 12,847
Long-term debt -- (22,979)
Deferred credits -- (7,363)
Other assets and liabilities,
excluding cash and cash equivalents -- 9,613
Minority interest 1,911 (3,036)
Common Shares issued and issuable -- (113,658)
USM Stock issued and issuable -- (34)
------------ ------------
Decrease in cash due to acquisitions $ 39,169 $ 33,892
============ ============
The following table summarizes interest and income taxes paid, and other noncash
transactions.
Nine Months Ended
September 30,
-----------------------------
1997 1996
----------- ------------
(Dollars in thousands)
Interest Paid $ 56,526 $ 44,674
Income Taxes Paid 9,286 65,466
Common Shares issued by TDS for
conversion of TDS Preferred Stock $ 762 $ 4,545
5. Debt Securities
U.S. Cellular filed a shelf Registration Statement on Form S-3 in July
1997 for the sale of up to $400 million of unsecured debt. U.S. Cellular
issued $250 million of 7.25% Notes due August 15, 2007 (the "Notes") under
the shelf registration statement in August 1997. The net proceeds for the
sale of the Notes of approximately $247.0 million was used to repay notes
payable and long-term debt.
6. Subsequent Events
TDS filed a shelf Registration Statement on Form S-3 on October 21, 1997
for the sale of up to $400 million of Trust Originated Preferred
Securities(sm) ("TOPrS(sm)"). TDS expects to issue approximately $150
million of the securities under the shelf registration during the fourth
quarter. The proceeds from the sale of the TOPrS is expected to be used to
repay short-term indebtedness.
In October 1997, U.S. Cellular completed the exchange with BellSouth
Corporation it had announced
19
earlier in 1997. Pursuant to the exchange, U.S. Cellular received majority
interests in 12 markets adjacent to its Iowa and Wisconsin/Illinois
clusters. In exchange, U.S. Cellular divested its majority interests in 10
markets and minority interests in nine markets and paid a net amount of
$87 million in cash. Certain aspects of the transaction are taxable; the
amount of these taxes will be determined by year-end and will be paid in
the first quarter of 1998. No book gain or loss will be recorded on the
transaction.
7. Business Segment Information
The following tables summarize business segment information for the three
months and nine months ended or at September 30, 1997, and 1996.
CELLULAR OPERATIONS
Three Months Ended or at Nine Months Ended or at
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
(Dollars in thousands)
Operating Revenues
Local service $ 147,279 $ 108,296 $ 407,591 $ 299,951
Inbound roaming 60,992 52,256 163,576 139,689
Long-distance and other 23,688 19,667 62,955 53,691
---------- ---------- ----------- ----------
231,959 180,219 634,122 493,331
---------- ---------- ----------- ----------
Operating Expenses
System operations 40,268 27,339 109,545 79,728
Marketing and selling 42,729 31,384 119,728 86,455
Cost of equipment sold 19,716 18,241 55,473 49,631
General and administrative 51,285 42,696 144,224 123,364
Depreciation and
amortization 33,049 27,465 94,641 79,216
---------- ---------- ----------- ----------
187,047 147,125 523,611 418,394
---------- ---------- ----------- ----------
Operating Income $ 44,912 $ 33,094 $ 110,511 $ 74,937
========== ========== =========== ==========
Additions to property, plant
and equipment $ 86,899 $ 71,985 $ 247,957 $ 172,916
Identifiable assets $2,340,079 $2,067,259 $ 2,340,079 $2,067,259
20
TELEPHONE OPERATIONS
Three Months Ended or at Nine Months Ended or at
September 30, September 30,
---------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
(Dollars in thousands)
Telephone Operations
Operating Revenues
Local Service $ 31,031 $ 28,603 $ 91,383 $ 81,148
Network access and
long distance 61,512 54,479 174,821 155,272
Miscellaneous 12,732 12,650 37,091 34,902
---------- ---------- ----------- ----------
105,275 95,732 303,295 271,322
---------- ---------- ----------- ----------
Operating Expenses
Network operations 20,741 19,359 56,541 51,671
Depreciation and
amortization 23,939 22,463 71,043 61,907
Customer operations 16,893 14,515 48,080 39,960
Corporate and other 17,597 14,833 49,330 44,733
---------- ---------- ----------- ----------
79,170 71,170 224,994 198,271
---------- ---------- ----------- ----------
Telephone Operating Income 26,105 24,562 78,301 73,051
---------- ---------- ----------- ----------
Other Operations
Revenues 14,174 6,403 36,654 18,351
Expenses 14,877 6,102 38,247 17,691
---------- ---------- ----------- ----------
Other Operating Income (703) 301 (1,593) 660
---------- ---------- ----------- ----------
Intercompany Eliminations
Revenues (789) (345) (1,249) (837)
Expenses (789) (345) (1,249) (837)
---------- ---------- ----------- ----------
Operating Income $ 25,402 $ 24,863 $ 76,708 $ 73,711
========== ========== =========== ==========
Additions to property, plant
and equipment $ 41,879 $ 36,389 $ 96,717 $ 91,131
Identifiable assets $1,192,035 $1,164,783 $ 1,192,035 $1,164,783
PCS OPERATIONS
Three Months Ended or at Nine Months Ended or at
September 30, September 30,
---------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ----------- ----------
(Dollars in thousands)
Operating Revenues $ 18,648 $ -- $ 25,791 $ --
---------- ---------- ----------- ----------
Operating Expenses
Systems operations 9,815 -- 13,857 --
Marketing and selling 12,113 -- 27,003 --
Cost of equipment sold 25,798 -- 40,770 --
General and administrative 16,478 -- 33,717 --
Customer service 5,007 -- 6,757 --
Depreciation 12,121 -- 17,282 --
Amortization 1,853 -- 2,575 --
---------- ---------- ----------- ----------
83,185 -- 141,961 --
---------- ---------- ----------- ----------
Operating (Loss) $ (64,537) $ -- $ (116,170) $ --
========== ========== =========== ===========
Additions to property, plant
and equipment $ 45,671 $ 28,882 $ 203,374 $ 51,337
Identifiable assets $ 899,580 $ 431,103 $ 899,580 $ 431,103
21
RADIO PAGING OPERATIONS
Three Months Ended or at Nine Months Ended or at
September 30, September 30,
---------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Dollars in thousands)
Operating Revenues $ 22,930 $ 26,539 $ 71,758 $ 79,145
---------- ---------- ---------- ----------
Costs and expenses
Cost of services 7,442 6,573 20,482 19,418
Selling, general and
administrative 14,170 22,142 45,703 52,327
Cost of equipment sold 2,110 2,194 6,760 7,760
Depreciation and
amortization 8,513 12,324 23,658 26,987
---------- ---------- ---------- ----------
32,235 43,233 96,603 106,492
---------- ---------- ---------- ----------
Operating (Loss) $ (9,305) $ (16,694) $ (24,845) $ (27,347)
========== ========== ========== ==========
Additions to property, plant
and equipment $ 2,123 $ 4,302 $ 13,594 $ 26,330
Identifiable assets $ 142,569 $ 158,804 $ 142,569 $ 158,804
OTHER OPERATIONS
Three Months Ended or at Nine Months Ended or at
September 30, September 30,
---------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Dollars in thousands)
Additions to property, plant
and equipment $ 9,335 $ (5,694) $ 17,496 $ 5,995
Identifiable Assets $ 86,809 $ 111,353 $ 86,809 $ 111,353
22
PART II. OTHER INFORMATION
Item 5. Other Information
In December 1996, TDS authorized the repurchase of up to 3.0 million
TDS Common Shares over a period of three years. Through September 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 October 21, 1997, TDS announced that it had filed a shelf
registration statement with the Securities and Exchange Commission
covering $400 million of Trust Originated Preferred Securities(sm). The
news release issued to announce this is attached as Exhibit 99.1.
On November 3, 1997, U.S. Cellular announced the completion of an
exchange transaction with BellSouth Corporation, pursuant to agreements
entered into in February 1997. The news release issued to announce this
is attached as Exhibit 99.2.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 3.1 - Articles of Incorporation, as amended
(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 99.1 - TDS news release dated October 21, 1997
(f) Exhibit 99.2 - U.S. Cellular news release dated November 3, 1997
(g) Reports on Form 8-K filed during the quarter ended September 30,
1997
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
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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 November 13, 1997 /s/ MURRAY L. SWANSON
---------------------------- --------------------------
Murray L. Swanson,
Executive Vice President-Finance
(Chief Financial Officer)
Date November 13, 1997 /s/ GREGORY J. WILKINSON
---------------------------- ---------------------------
Gregory J. Wilkinson,
Vice President and Controller
Principal Accounting Officer)
24