-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GrvFO2BR2xQjNKS7qKj287ROms7pAQSBmLAUOpoLpuJF8bd0bix5EutUVR5wp2i5 jg2LSgBr5TCCihF1cz8dOw== 0000096966-96-000031.txt : 19960814 0000096966-96-000031.hdr.sgml : 19960814 ACCESSION NUMBER: 0000096966-96-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEPHONE & DATA SYSTEMS INC CENTRAL INDEX KEY: 0000096966 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 362669023 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08251 FILM NUMBER: 96610954 BUSINESS ADDRESS: STREET 1: 30 NORTH LASALLE STREET SUITE 400 CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 6088288324 MAIL ADDRESS: STREET 1: 30 NORTH LASALLE STREE SUITE 400 CITY: CHICAGO STATE: IL ZIP: 60602 FORMER COMPANY: FORMER CONFORMED NAME: TELEPHONE SYSTEMS INC STOCK OPTION PLANS DATE OF NAME CHANGE: 19741118 FORMER COMPANY: FORMER CONFORMED NAME: TELEPHONE SYSTEMS INC DATE OF NAME CHANGE: 19740509 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- 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, 1996 -------------------------- 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 - -------------------------------------------------------------------------------- TELEPHONE AND DATA SYSTEMS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Iowa 36-2669023 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 30 North LaSalle Street, Chicago, Illinois 60602 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312) 630-1900 Not Applicable (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 July 31, 1996 Common Shares, $1 par value 54,173,726 Shares Series A Common Shares, $1 par value 6,898,044 Shares - -------------------------------------------------------------------------------- TELEPHONE AND DATA SYSTEMS, INC. 2ND QUARTER REPORT ON FORM 10-Q INDEX Page No. ------- Part I. Financial Information Management's Discussion and Analysis of Results of Operations and Financial Condition 2-15 Consolidated Statements of Income - Three Months and Six Months Ended June 30, 1996 and 1995 16 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 17 Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 18-19 Notes to Consolidated Financial Statements 20-22 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 RESULTS OF OPERATIONS Six Months Ended 6/30/96 Compared to Six Months Ended 6/30/95 CONSOLIDATED Telephone and Data Systems, Inc. ("TDS" or the "Company") reported net income available to common of $92.9 million, or $1.54 per share, in the first half of 1996, compared to $44.8 million, or $.77 per share, in the first half of 1995. Consolidated operating results for the first half of 1996 compared to 1995 primarily reflect: o strong growth in cellular customer units resulting in substantial increases in cellular revenue, operating income and operating cash flow; o steady growth in telephone access lines and revenues; o slower growth in pagers served, flat paging revenue and higher operating costs resulting in an increased paging operating loss; o significant gains and cash proceeds from sales and trades of non- strategic cellular interests and other investments; and o significant increases in PCS development costs as American Portable Telecom, Inc. proceeds to develop and construct its Personal Communications Services networks. Net income available to common for the first half of 1996 and 1995 included significant gains from the sales of non-strategic cellular interests and certain other investments, and increased PCS development costs. Excluding these gains and PCS development costs, along with the related income taxes and minority interest, net income available to common would have been $44.0 million, or $.73 per share, in the first half of 1996, compared to $27.5 million, or $.47 per share, in the first half of 1995. Six Months Ended June 30, 1996 1995 ---- ---- (Dollars in thousands, except per share amounts) Net Income Available to Common As Reported $ 92,889 $ 44,800 Add: PCS Development Costs 7,330 1,391 Less: Effects of Gains (56,256) (18,695) ---------- --------- As Adjusted $ 43,963 $ 27,496 ========== ========= Earnings Per Share As Reported $ 1.54 $ .77 Add: PCS Development Costs .12 .02 Less: Effects of Gains (.93) (.32) ---------- --------- As Adjusted $ .73 $ .47 ========== ========= Operating Revenues increased 27% ($120.3 million) during the first half of 1996 primarily as a result of increases in customer units served. Consolidated cellular telephone, telephone and radio paging customer units increased 25% (18% attributable to cellular telephone) since June 30, 1995. 2 Cellular telephone revenues increased 49% ($105.8 million) in 1996 on a 56% increase in customer units through internal growth and acquisitions, plus a strong increase in inbound roaming revenues. Cellular customers increased to 860,000 at June 30, 1996 from 550,000 at June 30, 1995. Local retail revenue increased 57% ($73.2 million) in the first half of 1996 due primarily to the 56% customer growth. Average monthly local retail revenue per customer declined to $42.89 in the first half of 1996 from $44.63 in 1995 reflecting primarily the use of incentive programs to increase lower-priced weekend and off-peak usage. Average local minutes of use per retail customer increased to 102 in 1996 from 91 in 1995. However, U.S. Cellular's use of incentive programs in 1996 that encourage weekend and off-peak usage, in order to stimulate overall usage, resulted in a lower average revenue per minute of use. Inbound roaming revenue (charges to customers of other systems who use U.S. Cellular's cellular systems when roaming) increased 35% ($22.8 million) in the first half of 1996 due to increased minutes of use. Average monthly inbound roaming revenue per customer declined to $18.63 in 1996 compared to $22.52 in 1995. The decrease is the result of roaming revenue growing at a slower rate than U.S. Cellular's customer base (35% versus 56%) and negotiated reductions in roaming rates. Long-distance and other revenue increased 48% ($8.3 million) in the first half of 1996 primarily due to the increased volume of long-distance calls billed by U.S. Cellular. Average monthly long-distance and other revenue per customer was $5.45 in the first half of 1996 and $6.02 in 1995. Average monthly service revenue per customer was $66.97 in the first half of 1996 and $73.19 in 1995. Equipment sales revenue increased 21% ($1.5 million) in 1996 reflecting the increase in the number of cellular telephone units sold. Telephone revenues increased 8% ($14.6 million) in 1996 as a result of the effects of acquisitions ($5.6 million), recovery of increased costs of providing long-distance services ($3.8 million), increased network usage ($2.5 million), internal access line growth of 5% since June 30, 1995 ($2.3 million) and increased sales of custom calling and advanced features ($1.4 million). The number of telephone access lines increased 13% to 471,000 at June 30, 1996 from 416,000 at June 30, 1995. Average monthly revenue per access line declined slightly to $65.65 for the first half of 1996 from $65.86 in 1995. Radio paging revenues decreased $200,000 in 1996. Service revenue increased 5% ($2.1 million) on a 9% increase in paging units in service. The number of pagers in service increased to 803,500 in 1996 from 738,600 in 1995. Average revenue per unit decreased 8% to $9.89 in 1996 from $10.74 in 1995 reflecting competitive pricing declines. Equipment sales revenue decreased $2.3 million reflecting the slow growth in pager sales. Operating Expenses rose 27% ($103.2 million) in the first half of 1996 due primarily to added expenses to serve the growing customer base. Cellular telephone expenses increased 42% ($82.9 million) during 1996. System operations expenses increased 72% ($21.9 million) in 1996 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 137% ($18.1 million) as minutes of use increased, primarily related to the 56% increase in customer units and increased roaming usage. Also contributing to the increase was $5.4 million of additional costs related to fraudulent use of U.S. Cellular's customers' telephone numbers. U.S. Cellular is implementing procedures in certain markets to combat this fraud, which is primarily related to roaming usage. Maintenance, utility and cell site expenses increased 22% ($3.8 million) reflecting primarily the increase in the number of cell sites to 1,185 in 1996 from 940 in 1995. Marketing and selling expenses incurred to add new customers increased 39% ($26.5 million), including a $7.4 million increase in cost of equipment sold. Cost per gross customer addition declined to $357 in 1996 from $377 in 1995 as gross customer activations increased to 240,000 in 1996 from 161,000 in 1995. General and administrative expenses increased 39% ($23.4 million) due to the expansion of local office and corporate staff 3 necessitated by the Company's growth. Depreciation and amortization increased 27% ($11.0 million) primarily due to the increase in average fixed assets since June 30, 1995. Telephone expenses increased 11% ($13.9 million) during 1996 due to the effects of acquisitions ($4.3 million), growth in internal operations ($3.5 million) and increased depreciation and amortization ($2.7 million). The development of a centralized network management center to provide more effective network monitoring and maintenance and the development of new service offerings caused expenses to increase $3.4 million. These expenditures are expected to begin producing cost efficiencies and new revenues in the third quarter of 1996 and beyond. Operating margin declined to 26.1% in 1996 from 27.9% in 1995 reflecting moderate pricing pressures from regulatory agencies and long-distance providers and the additional 1996 expenditures to develop the network management center and new service offerings. Paging expenses increased 11% ($6.4 million) in 1996. During September 1995, American Paging announced a plan to restructure key operating areas which will extend into the second half of 1996. Upon completion of the plan, American Paging is targeting increased sales through the direct channel, an improved customer mix, a lower level of administrative costs and improved customer service. While slow growth in customer units and revenues was anticipated during the first half of 1996 due to the restructuring activities, the magnitude of the impact was greater than expected. Cost of services increased 24% ($2.7 million) primarily due to the additional customers served and the expansion and upgrading of the transmission systems. Selling, general and administrative expenses increased 9% ($2.4 million), including $1.9 million of restructuring expenses related to subleasing office space, employee severance and outplacement services, and for consulting services. Cost of equipment sold decreased 27% ($2.0 million) as a result of the slow growth in unit sales. Depreciation and amortization increased 30% ($3.4 million) as a result of the increased investment in fixed assets and a $350,000 charge for the accelerated depreciation on certain assets retired as a result of the restructuring. With the completion of the conversion of all back- office operations to the Customer Telecare Center, American Paging is now refocusing its efforts in terms of sales and marketing. Operating Income increased 27% ($17.1 million) in the first half of 1996 due to improved cellular operating results offset somewhat by the decline in paging operating results. Six Months Ended June 30, --------------------------------- 1996 1995 Change ---- ---- ------ (Dollars in thousands) Operating Income Cellular telephone $ 41,843 $ 18,916 $ 22,927 Telephone 48,848 48,104 744 Radio paging (10,653) (4,039) (6,614) --------- --------- --------- $ 80,038 $ 62,981 $ 17,057 ========= ========= ========= Operating Margins Cellular telephone* 13.3% 9.0% Telephone 26.1% 27.9% Radio paging* (22.6%) (9.0%) Consolidated 14.2% 14.2% * Computed on Service Revenues 4 Management anticipates continued growth in consolidated customer units and revenues as the business units continue their expansion and development programs. The rate of revenue growth is expected to be somewhat slower than historical trends as cellular and paging revenue per unit continue to decline. Expenses should increase, driven by customer growth, although at a slower rate than revenues, yielding continued growth in operating income and operating cash flow. Additionally, 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. This seasonality may cause operating income to vary from quarter to quarter. Investment and Other Income totaled $124.1 million in 1996 and $45.8 million in 1995. Gain on Sale of Cellular Interests and Other Investments totaled $128.3 million in the first half of 1996 compared to $36.4 million in 1995 as the Company has sold or traded certain non-strategic cellular interests and sold other investments. PCS Development Costs totaled $13.5 million in 1996 and $900,000 in 1995. American Portable Telecom, Inc. ("American Portable") has been devoting substantially all of its efforts recruiting an experienced management team, developing and executing a business plan, raising capital and designing and constructing its PCS networks. Detailed network design has been completed for the service launch, expected to be early 1997, and for "phase II" coverage, expected to be complete within 12 months of service launch. During the third quarter of 1996, American Portable plans to focus on leasing the remaining cell sites required for launch, completing a substantial portion of site zoning and beginning site construction and installation of cell site electronics. Network construction, which started in mid-second quarter, is expected to continue into the first quarter of 1997. Technical trials are scheduled to begin in the fourth quarter of 1996 with customer trials scheduled to begin this year and conclude in the first quarter of 1997, followed by service launch. The Company expects to incur significant expenditures for the development of PCS activities during 1996 and 1997. 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 24% ($4.3 million ) in the first half of 1996 as income from the cellular markets increased. Cellular investment income is net of amortization of license costs relating to these minority interests. Minority Share of Income, the minority shareholders' share of U.S. Cellular's, American Paging's, and American Portable's net income or loss and other minority shareholders' and partners' share of subsidiaries' net income or loss, increased 67% ($8.3 million) in the first half of 1996 due primarily to the increase in U.S. Cellular's net income. Minority shareholders' share of gains on the sales of cellular interests was $12.4 million and $6.8 million in the first half of 1996 and 1995, respectively. Interest Expense decreased 22% ($6.1 million) in the first half of 1996. The decrease in interest expense was attributable to TDS capitalizing $14.1 million of interest expense associated with expenditures for PCS licenses and capitalized construction costs. Long-term interest expense increased $6.5 million in 1996 as a result of the completion of U.S. Cellular's convertible debt offering in June of 1995. 5 Income Tax Expense increased 149% ($53.8 million) in 1996 compared with 1995. The increase reflects additional income taxes of about $43.8 million due to the 124% increase in pretax income and additional income tax expense of about $10.0 million due to tax gains in excess of book gains associated with the sale of certain cellular interests. The effective income tax rate was 49% in the first half of 1996 and 44% in 1995. The increase in the effective rate reflects the additional income taxes related to the sale of certain cellular interests. Net Income Available to Common increased $48.1 million to $92.9 million in the first half of 1996 from $44.8 million in the first half of 1995. The 1996 increase reflects the additional $37.6 million gain on the sales of cellular interests and other investments and the continued improvement in operating results of the cellular business offset somewhat by increased paging losses and PCS development costs. Earnings Per Common Share were $1.54 in the first half of 1996 and $.77 in the first half of 1995. TDS anticipates that the development of American Portable and its entrance into the PCS business is expected to reduce the rate of growth in TDS's net income from levels which would otherwise be achieved during the next few years. 6 Three Months Ended 6/30/96 Compared to Three Months Ended 6/30/95 CONSOLIDATED Net income available to common for the second quarter of 1996 and 1995 included significant gains from the sales of non-strategic cellular interests and certain other investments, and increased PCS development costs. Excluding these gains and PCS development costs, along with the related income taxes and minority interest, net income available to common would have been $26.7 million, or $.43 per share, in the second quarter of 1996, compared to $13.3 million, or $.23 per share, in the second quarter of 1995. Three Months Ended June 30, --------------------------- 1996 1995 ---- ---- (Dollars in thousands, except per share amounts) Net Income Available to Common As Reported $ 59,450 $ 22,086 Add: PCS Development Costs 3,228 1,125 Less: Effects of Gains (35,941) (9,901) --------- --------- As Adjusted $ 26,737 $ 13,310 ========= ========= Earnings Per Share As Reported $ .97 $ .38 Add: PCS Development Costs .05 .02 Less: Effects of Gains (.59) (.17) --------- --------- As Adjusted $ .43 $ .23 ========= ========= Operating Revenues increased 29% ($66.9 million) during the second quarter of 1996 for reasons generally the same as the first six months. Cellular telephone revenues increased 49% ($57.6 million) in 1996. Local retail revenue increased 56% ($38.6 million) in the second quarter of 1996, while inbound roaming revenue increased 38% ($13.5 million). Average monthly service revenue per customer was $69.58 in the second quarter of 1996 and $74.77 in 1995. Telephone revenues increased 11% ($9.8 million) in the second quarter of 1996. Acquisitions increased telephone revenues by 5% ($4.1 million) in the second quarter of 1996. Average revenue per access line increased slightly to $66.90 in the second quarter of 1996 from $66.47 in 1995. Radio paging revenues decreased 2% ($600,000) in 1996. The service revenue increase of 3% ($600,000) was offset by a 30% ($1.2 million) decrease in equipment sales revenue. Average revenue per unit decreased 8% to $9.73 in 1996 from $10.56 in 1995. Operating Expenses rose 26% ($51.6 million) during the second quarter of 1996 for reasons generally the same as the first six months. Cellular telephone expenses increased 36% ($38.4 million). System operations expense increased 67% ($11.6 million), including $3.7 million of costs related to fraudulent use of U.S. Cellular's customers' telephone numbers. Marketing and selling expenses, including cost of equipment sold, increased 31% ($11.3 million). Cost per gross customer addition declined to $355 in the second quarter of 1996 from $370 in 1995. Telephone expenses increased 15% ($9.2 million). Acquisitions increased telephone expenses by $3.0 million. The development of a centralized network management center to provide more effective network monitoring and maintenance and the development of new service offerings caused expenses to increase $2.4 million. Paging operating expenses increased 14% ($4.0 million). Selling, general and administrative expenses increased 13% ($1.7 million), including $1.5 million of restructuring expenses. Operating Income increased 45% ($15.3 million) in the second quarter of 1996 due to improved cellular operating results offset somewhat by the decline in paging results. 7 Three Months Ended June 30, ----------------------------- 1996 1995 Change ---- ---- ------ (Dollars in thousands) CONSOLIDATED OPERATING INCOME Cellular Telephone Operations $ 30,021 $ 10,852 $ 19,169 Telephone Operations 25,627 24,983 644 Radio Paging Operations (6,567) (2,010) (4,557) --------- --------- --------- $ 49,081 $ 33,825 $ 15,256 ========= ========= ========= Operating Margins: Cellular Telephone* 17.6% 9.6% Telephone 26.2% 28.4% Radio Paging* (28.0%) (8.8%) Consolidated 16.4% 14.6% * Computed on Service Revenues Investment and Other Income totaled $81.9 million in 1996 and $20.4 million in 1995. Gain on Sale of Cellular Interests and Other Investments totaled $86.5 million in the second quarter of 1995 compared to $16.9 million in 1995 as the Company has sold or traded certain non-strategic cellular interests and sold other investments. PCS Development Costs totaled $7.8 million in 1996 and $400,000 in 1995 reflecting activities taking place to design and construct PCS networks. Cellular Investment Income increased 42% ($3.5 million), reflecting improvement in U.S. Cellular's equity-method markets managed by others. Minority Share of Income increased 114% ($7.1 million) in the second quarter of 1996 due primarily to the increase in U.S. Cellular's net income. Minority shareholders' share of gains on the sales of cellular interests were $8.5 million and $3.3 million in the second quarter of 1996 and 1995, respectively. Interest Expense decreased 38% ($5.5 million) in the second quarter of 1996. The decrease in interest expense was attributable to TDS capitalizing $7.6 million of interest expense associated with expenditures for PCS licenses and capitalized construction costs. Long-term interest expense increased $2.9 million in 1996 as a result of the completion of U.S. Cellular's convertible debt offering in June of 1995. Income Tax Expense increased $45.2 million in 1996 compared with 1995 as pretax income increased. The effective income tax rate was 51% in the second quarter of 1996 and 44% in 1995. The increase in the effective rate reflects additional income taxes related to certain sales of cellular interests. Net Income Available to Common increased to $59.4 million in the second quarter of 1996 from $22.1 million in 1995 reflecting the additional $26.0 million gain on the sales of cellular interests and other investments and the continued improvement in operating results of the cellular business offset somewhat by increased paging losses and PCS development costs. Earnings Per Common Share were $.97 in 1996 and $.38 in 1995. 8 Telephone and Data Systems, Inc. is a diversified telecommunications company with established cellular telephone, local telephone and radio paging operations and developing personal communications services operations. Following are operating highlights for each major business unit for the six months ended June 30, 1996 and the operating results for the six months and three months ended June 30, 1996 and 1995. CELLULAR TELEPHONE OPERATIONS TDS provides cellular telephone service through United States Cellular Corporation [AMEX: USM], an 80.6%-owned subsidiary. Consolidated operating results for the first half of 1996 compared to 1995 reflect: o strong growth in customer units to 860,000 units in 130 markets from 550,000 units in 137 markets; o a 49% increase in revenue related to the increase in customer units; and o a 57% increase in operating cash flow and a 121% increase in operating income. TELEPHONE OPERATIONS TDS manages its local landline telephone service through its wholly owned subsidiary TDS Telecommunications Corporation ("TDS Telecom"). At June 30, 1996, TDS Telecom operated 104 telephone companies which served 471,000 access lines in 28 states. Consolidated operating results for the first half of 1996 compared to 1995 reflect: o steady growth in telephone access lines - 5% internal growth and 8% growth due to acquisitions; o an 8% increase in revenue with revenue per access line remaining stable; and o an 11% increase in operating costs including $3.4 million for the development of a centralized network management center and new service offerings. PAGING OPERATIONS TDS manages its radio paging business through American Paging, Inc. [AMEX: APP], an 82.3%-owned subsidiary. APP provides wireless messaging communications to 803,500 subscribers in 21 states and the District of Columbia. Consolidated operating results for the first half of 1996 compared to 1995 reflect: o a 9% growth in pagers served but flat paging revenue; and o an 11% increase in operating costs including $2.2 million from restructuring costs, resulting in an increased operating loss. PCS OPERATIONS TDS manages its broadband personal communications services business through American Portable Telecom, Inc. [NASDAQ: APTI], an 82.8%-owned subsidiary. American Portable's licenses cover the Major Trading Areas of Minneapolis, Tampa-St. Petersburg-Orlando, Houston, Pittsburgh, Kansas City and Columbus and account for approximately 27.3 million population equivalents. Results from the first half of 1996 compared to 1995 reflect significant increases in PCS development costs as American Portable proceeds to develop and construct its PCS network. 9 CELLULAR TELEPHONE OPERATIONS Six Months Ended June 30, --------------------------------------------------------- Change Change Due To Excluding 1996 1995 Change Acquisitions Acquisitions ---- ---- ------ ------------ ------------ (Dollars in thousands) Operating Revenues Local retail $ 201,229 $ 127,991 $ 73,238 $ 14,782 $ 58,456 Inbound roaming 87,433 64,656 22,777 897 21,880 Long-distance 24,589 14,558 10,031 1,325 8,706 Other 970 2,695 (1,725) (1,690) (35) -------- ------- ------- ------ -------- Service Revenues 314,221 209,900 104,321 15,314 89,007 Equipment sales 8,465 6,972 1,493 618 875 -------- ------- ------- ------ -------- 322,686 216,872 105,814 15,932 89,882 -------- ------- ------- ------ -------- Operating Expenses System operations 52,389 30,441 21,948 3,223 18,725 Marketing and selling 62,821 43,633 19,188 5,553 13,635 Cost of equipment sold 31,390 24,037 7,353 3,075 4,278 General and administrative 82,492 59,140 23,352 4,180 19,172 Depreciation and amortization 51,751 40,705 11,046 1,103 9,943 -------- ------- ------ ------ ------ 280,843 197,956 82,887 17,134 65,753 -------- ------- ------ ------ ------ Operating Income $ 41,843 $ 18,916 $ 22,927 $ (1,202) $ 24,129 ======== ======= ====== ====== ====== Consolidated Markets: Market penetration 4.00% 2.45% Churn rate per month 1.9% 2.0% Three Months Ended June 30, --------------------------------------------------------- Change Change Due To Excluding 1996 1995 Change Acquisitions Acquisitions ---- ---- ------ ------------ ------------ (Dollars in thousands) Operating Revenues Local retail $ 107,963 $ 69,339 $ 38,624 $ 7,146 $ 31,478 Inbound roaming 48,485 35,033 13,452 (430) 13,882 Long-distance 13,534 8,035 5,499 605 4,894 Other 547 1,093 (546) (7) (539) -------- ------- ------- ------ ------- Service Revenues 170,529 113,500 57,029 7,314 49,715 Equipment sales 4,191 3,624 567 259 308 -------- ------- ------- ------ ------- 174,720 117,124 57,596 7,573 50,023 -------- ------- ------- ------ ------- Operating Expenses System operations 28,811 17,239 11,572 1,056 10,516 Marketing and selling 31,918 23,711 8,207 2,252 5,955 Cost of equipment sold 15,917 12,838 3,079 1,541 1,538 General and administrative 41,439 31,473 9,966 1,358 8,608 Depreciation and amortization 26,614 21,011 5,603 379 5,224 -------- ------- ------- ------ ------- 144,699 106,272 38,427 6,586 31,841 -------- ------- ------- ------ ------- Operating Income $ 30,021 $ 10,852 $ 19,169 $ 987 $ 18,182 ======== ======= ======= ====== ======= Consolidated Markets: Market penetration 4.00% 2.45% Churn rate per month 1.7% 1.9% 10 TELEPHONE OPERATIONS Six Months Ended June 30, ---------------------------------------------------------- Change Change Due to Excluding 1996 1995 Change Acquisitions Acquisitions ---- ---- ------ ------------ ------------ (Dollars in thousands) Operating Revenues Local service $ 52,545 $ 46,391 $ 6,154 $ 2,027 $ 4,127 Network access and long-distance 100,793 93,657 7,136 2,919 4,217 Miscellaneous 33,708 32,363 1,345 691 654 -------- ------- ------- ------- -------- 187,046 172,411 14,635 5,637 8,998 -------- ------- ------- ------- -------- Operating Expenses Network operations 31,839 25,106 6,733 1,090 5,643 Depreciation and Amortization 39,619 36,953 2,666 1,281 1,385 Customer operations 26,001 23,366 2,635 719 1,916 Corporate and other 40,739 38,882 1,857 1,252 605 -------- ------- ------- ------- -------- 138,198 124,307 13,891 4,342 9,549 -------- ------- ------- ------- -------- Operating Income $ 48,848 $ 48,104 $ 744 $ 1,295 $ (551) ======== ======= ======= ======= ======== Growth in access lines from prior year-end: Acquisitions 32,300 12,900 Internal growth 12,800 10,600 Three Months Ended June 30, --------------------------------------------------------- Change Change Due to Excluding 1996 1995 Change Acquisitions Acquisitions ---- ---- ------ ------------ ------------ (Dollars in thousands) Operating Revenues Local service $ 27,414 $ 23,753 $ 3,661 $ 1,551 $ 2,110 Network access and long-distance 52,287 48,308 3,979 1,975 2,004 Miscellaneous 18,234 16,041 2,193 550 1,643 -------- ------- ------- ------- ------- 97,935 88,102 9,833 4,076 5,757 -------- ------- ------- ------- ------- Operating Expenses Network operations 17,978 12,900 5,078 756 4,322 Depreciation and Amortization 19,482 18,404 1,078 849 229 Customer operations 14,166 11,877 2,289 472 1,817 Corporate and other 20,682 19,938 744 881 (137) -------- ------- ------- ------- ------- 72,308 63,119 9,189 2,958 6,231 -------- ------- ------- ------- ------- Operating Income $ 25,627 $ 24,983 $ 644 $ 1,118 $ (474) ======== ======= ======= ======= ======= Growth in access lines from prior quarter-end: Acquisitions 9,800 0 Internal growth 7,200 6,000 11 RADIO PAGING OPERATIONS Six Months Ended June 30, ----------------------------------------- 1996 1995 Change ----- ---- ------ (Dollars in thousands, except per unit amounts) Revenues Service revenues $ 47,201 $ 45,103 $ 2,098 Equipment sales 5,405 7,680 (2,275) --------- --------- --------- Total Revenue 52,606 52,783 (177) --------- --------- --------- Costs and expenses Cost of services 14,119 11,425 2,694 Selling, general and administrative 28,911 26,534 2,377 Cost of equipment sold 5,566 7,579 (2,013) Depreciation and amortization 14,663 11,284 3,379 --------- --------- --------- 63,259 56,822 6,437 --------- --------- --------- Operating (Loss) $ (10,653) $ (4,039) $ (6,614) ========= ========= ========= Churn rate per month 2.8% 2.4% Marketing cost per gross customer unit addition $ 76 $ 45 Three Months Ended June 30, ---------------------------------------- 1996 1995 Change ---- ---- ------ (Dollars in thousands, except per unit amounts) Revenues Service revenues $ 23,493 $ 22,866 $ 627 Equipment sales 2,803 3,999 (1,196) --------- --------- --------- Total Revenues 26,296 26,865 (569) --------- --------- --------- Costs and expenses Cost of services 7,533 5,973 1,560 Selling, general and administrative 15,074 13,328 1,746 Cost of equipment sold 2,762 3,850 (1,088) Depreciation and amortization 7,494 5,724 1,770 --------- --------- --------- 32,863 28,875 3,988 --------- --------- --------- Operating (Loss) $ (6,567) $ (2,010) $ (4,557) ========= ========= ========= Churn rate per month 2.8% 2.5% Marketing cost per gross customer unit addition $ 92 $ 50 12 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 in recent years. Accordingly, TDS has obtained substantial funds from external sources in the past to finance construction of cellular telephone systems and to fund acquisitions. Although the steady internal cash flow from TDS Telecom and increasing internal cash flow from U.S. Cellular have reduced the need for external financing, the development and construction activities of American Portable will require substantial 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. Operating cash flow (operating income plus depreciation and amortization) increased 22% to $187.4 million in the first half of 1996 from $153.1 million in 1995. The increase represents primarily the 57% ($34.0 million) increase in cellular telephone operating cash flow. Cash flows from other operating activities (investment and other income, interest and income tax expense, and changes in working capital and other assets and liabilities) required $101.2 million in the first half of 1996. Six Months Ended June 30, ------------------------------------ 1996 1995 Change ---- ---- ------ (Dollars in thousands) Operating cash flow Cellular telephone $ 93,594 $ 59,621 $ 33,973 Telephone 89,753 86,199 3,554 Radio paging 4,010 7,245 (3,235) --------- --------- --------- 187,357 153,065 34,292 Other operating activities (101,152) (56,808) (44,344) --------- --------- --------- $ 86,205 $ 96,257 $ (10,052) ========= ========= ========= Cash Flows from Financing Activities. TDS has used short-term debt to finance its cellular telephone, radio paging and PCS operations, for acquisitions and for general corporate purposes. TDS takes advantage of attractive opportunities to retire short-term debt with the proceeds from long-term debt and equity sales. Cash flows from financing activities totaled $8.5 million in the first half of 1996 compared to $373.7 million in 1995. American Portable Telecom sold 12,250,000 common shares for net proceeds, after underwriters fees, totaling $195.3 million in an initial public offering in the second quarter of 1996, providing most of the Company's external financing requirements during the first half of 1996. TDS paid down $163.4 million of short-term debt in the first half of 1996. Increases in long-term debt, primarily $221.5 million received from the sale of convertible debt at U.S. Cellular, $58.7 million from vendor financing and $39.5 million from the sale of TDS medium term notes, and increases in short-term debt provided most of the Company's external financing requirements during the first half of 1995. Cash Flows From Investing Activities. TDS makes substantial investments each year to acquire, construct, operate and maintain modern, high-quality communications networks and facilities. Cash flows from investing activities required $72.7 million in the first half of 1996 compared to $443.6 million in 1995. Additions to property, plant and equipment totaled $213.9 million in 1996 and $168.4 million in 1995. Also in 1995, $312.3 million was expended for broadband and narrowband PCS license purchases. The sales of non-strategic cellular interests and other investments provided $183.9 million in 1996 and $64.6 million in 1995. Property, Plant and Equipment. The primary purpose of TDS's construction and expansion program is to provide for normal growth, to upgrade service, to expand into new communication 13 areas, and to take advantage of service-enhancing and cost-reducing technological developments. Additions to property, plant and equipment totaled $213.9 million in the first half of 1996 consisting of $103.0 million for cellular plant and equipment, $54.7 million for telephone plant and equipment, $22.0 million for radio paging property and equipment, $22.5 million for broadband PCS equipment and $11.7 million for other assets. Acquisitions. TDS seeks to acquire cellular telephone, telephone and paging interests which add value to the organization. During the first half of 1996, the Company purchased controlling interests in one cellular market and four telephone companies. The aggregate consideration for these acquisitions was $114.1 million primarily consisting of 2.6 million TDS Common Shares. TDS is currently negotiating agreements for the acquisition of additional cellular, telephone and paging companies. LIQUIDITY Management believes TDS has sufficient internal and external resources to finance the anticipated requirements of its business development, construction and acquisition programs. TDS is generating substantial internal funds to finance business development and construction programs. Operating cash flow for the twelve months ended June 30, 1996 increased to $357.8 million from $293.1 million in 1995. Twelve Months Ended June 30, ---------------------------------------- 1996 1995 Change ---- ---- ------ (Dollars in thousands) Operating Cash Flow Cellular telephone $ 166,186 $ 107,632 $ 58,554 Telephone 179,149 170,017 9,132 Radio paging 12,460 15,470 (3,010) ---------- ---------- ---------- $ 357,795 $ 293,119 $ 64,676 ========== ========== ========== TDS and its subsidiaries have cash and temporary investments totaling $121 million and longer-term cash investments totaling $43 million at June 30, 1996. 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 $647 million of committed bank lines of credit for general corporate purposes at June 30, 1996 of which $628 million was unused. These line of credit agreements provide for borrowings at negotiated rates up to the prime rate. TDS has $238 million remaining on its universal shelf registration statement which may be used from time to time to issue debt securities and/or Common Shares for cash. TDS and USM have shelf registration statements covering the issuance of equity for acquisitions. In addition, the Company has issued Common Shares for acquisitions pursuant to registration statements filed specifically for particular acquisitions. The Company's property, plant and equipment additions are anticipated to aggregate approximately $420 million for 1996 (excluding PCS construction and development expenditures) consisting of $240 million for cellular capital additions, $125 million for telephone capital additions, $40 million for the radio paging property and equipment and $15 million for other fixed asset expenditures. 14 U.S. Cellular plans to finance its construction program using primarily internally generated cash supplemented by proceeds from the sale of non-strategic assets. TDS Telecom plans to finance its construction program using internally generated cash supplemented by long-term financing from federal government programs. American Paging plans to finance its property and equipment expenditures primarily through internally generated cash and borrowings under TDS's short-term lines of credit. PCS Development. American Portable plans to construct networks in six Major Trading Areas. Management anticipates the construction of the cell sites will begin in the third quarter of 1996. Commercial operations are anticipated to commence in early 1997. American Portable anticipates construction, development and introduction of PCS networks and services will require substantial capital and operating expenditures over the next several years. While construction (including microwave relocation), and other start-up activities may be impacted by many factors, American Portable estimates that the aggregate funds required through December 31, 1998 will total approximately $865 million ($410 million in 1996, $350 million in 1997 and $105 million in 1998). This amount includes an estimated $620 million of capital expenditures for construction of the PCS networks ($365 million in 1996, $210 million in 1997 and $45 million in 1998) and $245 million of estimated working capital requirements. TDS expects American Portable's 1996 capital expenditures and expenditures for start-up and development activities to be financed using a variety of sources, including but not limited to, borrowings under TDS's short-term bank lines of credit, vendor financing and equity investors in American Portable. In March 1996, American Portable selected Nokia Telecommunications, Inc. ("Nokia") as its sole supplier of infrastructure equipment during the initial build out of its PCS networks. Nokia has agreed to provide up to $200 million in financing for equipment purchases in 1996 and 1997. In April of 1996, American Portable sold 12,250,000 of its Common Shares, approximately 17.2% of total outstanding shares, at a price of $17 per share in an initial public offering. The net proceeds from the offering, after underwriting discounts and commissions, was approximately $195 million. TDS anticipates that the development of American Portable and its entrance into the PCS business is expected to reduce the rate of growth in TDS's net income from levels which would otherwise be achieved during the next few years. Management believes TDS's internal cash flows and funds available from cash and cash investments provide substantial financial flexibility. TDS also has substantial lines of credit and longer-term financing commitments to help meet its short- and long-term financing needs. Moreover, TDS and its subsidiaries have access to public and private capital markets and anticipate issuing debt and equity securities when capital requirements (including acquisitions), financial market conditions and other factors warrant. 15 TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Unaudited Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 1996 1995 1996 1995 ---------- ---------- ---------- ---------- (Dollars in thousands, except per share amounts) OPERATING REVENUES Cellular telephone $ 174,720 $ 117,124 $ 322,686 $ 216,872 Telephone 97,935 88,102 187,046 172,411 Radio paging 26,296 26,865 52,606 52,783 ---------- ---------- ---------- ---------- 298,951 232,091 562,338 442,066 ---------- ---------- ---------- ---------- OPERATING EXPENSES Cellular telephone 144,699 106,272 280,843 197,956 Telephone 72,308 63,119 138,198 124,307 Radio paging 32,863 28,875 63,259 56,822 ---------- ---------- ---------- ---------- 249,870 198,266 482,300 379,085 ---------- ---------- ---------- ---------- OPERATING INCOME 49,081 33,825 80,038 62,981 ---------- ---------- ---------- ---------- INVESTMENT AND OTHER INCOME Interest and dividend income 3,947 2,710 6,123 5,805 Cellular investment income, net of license cost amortization 11,780 8,294 22,229 17,966 PCS development costs (7,761) (433) (13,507) (902) Gain on sale of cellular interests and other investments 86,494 16,886 128,252 36,374 Other (expense), net 879 (764) 1,765 (961) Minority share of income (13,435) (6,293) (20,802) (12,455) ---------- ---------- ---------- ---------- 81,904 20,400 124,060 45,827 ---------- ---------- ---------- ---------- INCOME BEFORE INTEREST AND INCOME TAXES 130,985 54,225 204,098 108,808 Interest expense 9,137 14,656 20,997 27,070 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 121,848 39,569 183,101 81,738 Income tax expense 62,156 16,989 89,720 35,965 ---------- ---------- ---------- ---------- NET INCOME 59,692 22,580 93,381 45,773 Preferred Dividend Requirement (242) (494) (492) (973) ---------- ---------- ---------- ---------- NET INCOME AVAILABLE TO COMMON $ 59,450 $ 22,086 $ 92,889 $ 44,800 ========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES (000s) 61,259 58,508 60,465 57,919 EARNINGS PER COMMON SHARE $ .97 $ .38 $ 1.54 $ .77 ========== ========== ========== ========== DIVIDENDS PER COMMON AND SERIES A COMMON SHARE $ .10 $ .095 $ .20 $ .19 ========== ========== ========== ========== The accompanying notes to financial statements are an integral part of these statements. 16 TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited Six Months Ended June 30, 1996 1995 ----- ---- (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 93,381 $ 45,773 Add (Deduct) adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 115,070 96,158 Deferred taxes 23,437 6,672 Investment income (24,550) (20,447) Minority share of income 20,802 12,455 Gain on sale of cellular interests (128,252) (36,374) Noncash interest expense 8,249 2,621 Other noncash expense 2,237 5,968 Change in accounts receivable (30,690) (16,142) Change in accounts payable (20,268) (10,228) Change in accrued taxes 25,565 7,184 Change in accrued interest (169) 1,093 Change in other assets and liabilities 1,393 1,524 ---------- --------- 86,205 96,257 ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Long-term debt borrowings 6,811 325,673 Repayments of long-term debt (16,327) (14,946) Change in notes payable (163,437) 74,643 Proceeds from the issuance of common stock 2,204 5,150 Minority partner capital distributions (2,317) (5,035) Redemption of preferred stock (525) (534) Dividends paid (13,046) (11,946) Proceeds from the issuance of subsidiaries' stock 195,118 665 ---------- --------- 8,481 373,670 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (213,940) (168,364) Investments in and advances to cellular minority partnerships (6,081) (9,332) Distributions from partnerships 10,031 4,905 Investments in PCS licenses (13,525) (312,312) Proceeds from investment sales 183,896 64,603 Change in other investments (4,566) (7,079) Acquisitions, net of cash acquired (925) (45,679) Change in temporary investments and marketable securities (27,581) 29,696 ---------- --------- (72,691) (443,562) ---------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 21,995 26,365 CASH AND CASH EQUIVALENTS - Beginning of period 55,116 24,733 ---------- --------- End of period $ 77,111 $ 51,098 ========== ========= The accompanying notes to financial statements are an integral part of these statements. 17 TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) June 30, 1996 December 31, 1995 ------------- ----------------- (Dollars in thousands) CURRENT ASSETS Cash and cash equivalents $ 77,111 $ 55,116 Temporary investments 44,133 25,735 Accounts receivable from customers and others 188,461 145,344 Materials and supplies, at average cost, and other current assets 37,684 35,015 ---------- ---------- 347,389 261,210 ---------- ---------- INVESTMENTS Cellular limited partnership interests 180,197 158,559 Cellular license acquisition costs, net of amortization 1,073,793 1,075,820 PCS license acquisition costs 370,100 356,561 Franchise costs and other costs in excess of the underlying book value of subsidiaries, net 187,992 168,608 Other investments 117,305 87,726 ---------- ---------- 1,929,387 1,847,274 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT Cellular telephone, net 579,312 530,027 Telephone, net 711,195 657,015 PCS, net 35,302 11,978 Radio paging, net 63,425 59,452 Other, net 40,709 34,938 ---------- ---------- 1,429,943 1,293,410 ---------- ---------- OTHER ASSETS AND DEFERRED CHARGES 60,423 67,188 ---------- ---------- TOTAL ASSETS $3,767,142 $3,469,082 ========== ========== 18 TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) June 30, 1996 December 31, 1995 ------------- ----------------- (Dollars in thousands) CURRENT LIABILITIES Current portion of long-term debt and preferred shares $ 35,513 $ 49,233 Notes payable 22,727 184,320 Accounts payable 85,177 122,886 Advance billings and customer deposits 32,492 27,706 Accrued interest 11,590 11,573 Accrued taxes 35,144 2,525 Other current liabilities 33,950 29,481 ------------ ----------- 256,593 427,724 ------------ ----------- DEFERRED LIABILITIES AND CREDITS 163,382 138,295 ------------ ----------- LONG-TERM DEBT, excluding current portion 882,704 858,857 ------------ ----------- REDEEMABLE PREFERRED SHARES, excluding current portion 359 1,587 ------------ ----------- MINORITY INTEREST in subsidiaries 435,922 328,544 ------------ ----------- NONREDEEMABLE PREFERRED SHARES 29,200 29,710 ------------ ----------- COMMON STOCKHOLDERS' EQUITY Common Shares, par value $1 per share 54,174 51,137 Series A Common Shares, par value $1 per share 6,894 6,893 Common Shares issuable (30,975 and 31,431 shares, respectively) 1,461 1,496 Capital in excess of par value 1,648,791 1,417,513 Retained earnings 287,662 207,326 ------------ ----------- 1,998,982 1,684,365 ------------ ----------- $ 3,767,142 $ 3,469,082 ============ =========== The accompanying notes to financial statements are an integral part of these statements. 19 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, 1996 and December 31, 1995, and the results of operations and cash flows for the six months ended June 30, 1996 and 1995. The results of operations for the six months ended June 30, 1996 and 1995, 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, 1996 consist of dilutive Common Share options. 4. Assuming that acquisitions accounted for as purchases during the period January 1, 1995, to June 30, 1996, had taken place on January 1, 1995, unaudited pro forma results of operations from continuing operations would have been as follows: Six Months Ended June 30, -------------------------- 1996 1995 ---- ---- (Dollars in thousands, except per share amounts) Operating revenues $ 569,655 $ 465,746 Net income 94,461 40,077 Earnings per share $ 1.52 $ .64 20 TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Supplemental Cash Flow Information Cash and cash equivalents includes cash and those short-term, highly liquid investments with original maturities of three months or less. Those investments with original maturities of greater than three months to twelve months are classified as temporary investments. TDS acquired certain cellular licenses, operating companies and telephone companies in 1996 and 1995. In conjunction with these acquisitions, the following assets were acquired and liabilities assumed, and Common Shares and Preferred Shares issued. Six Months Ended June 30, ---------------------------- 1996 1995 ---- ---- (Dollars in thousands, except per share amounts) Property, plant and equipment $ 46,883 $ 45,632 Cellular licenses 67,238 120,909 Increase (decrease) in equity method investment in cellular interests 2,826 (356) Franchise costs 21,774 23,243 Long-term debt (23,267) (8,933) Deferred credits (5,602) (214) Other assets and liabilities, excluding cash and cash equivalents 5,208 1,340 Minority interest (443) (1,515) Common Shares issued and issuable (113,658) (121,864) U.S. Cellular Stock issued and issuable (34) (12,563) ---------- ---------- Decrease in cash due to acquisitions $ 925 $ 45,679 ========== ========== The following table summarizes interest and income taxes paid, and other noncash transactions. Six Months Ended June 30, -------------------------- 1996 1995 ---- ---- (Dollars in thousands, except per share amounts) Interest Paid $ 26,465 $ 25,762 Income Taxes Paid 39,504 20,725 Common Shares issued by TDS for conversion of TDS Preferred Stock $ 4,382 $ 13,534 21 TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Notes Payable In June 1996, the Company signed a five year, unsecured $500 million revolving credit agreement, with an option to extend it one additional year. The agreement bears interest at the Eurodollar Rate plus a margin percentage (.26% as of June 30, 1996) based upon the Company's debt rating. 7. Contingencies The Company's material contingencies as of June 30, 1996, include the collectibility of a $5.5 million note receivable under a long-term financing agreement with a cellular company and a $10.0 million standby letter of credit in support of a bank loan to an entity minority-owned by the Company. For further discussion of these contingencies, see Note 14 of Notes to Consolidated Financial Statements included in the Company's Report on Form 10-K for the year ended December 31, 1995. 8. The following tables summarize business segment identifiable assets at June 30, 1996, and 1995, and business segment construction expenditures for the six months and three months ended June 30, 1996, and 1995. Identifiable Assets June 30, ------------------------ 1996 1995 ---- ---- (Dollars in thousands) Cellular Telephone $ 1,991,436 $ 1,806,216 Telephone 1,151,179 1,041,317 PCS 342,647 289,257 Radio Paging 165,438 149,928 Other 116,442 59,392 ----------- ----------- $ 3,767,142 $ 3,346,110 =========== =========== Additions To Property, Plant and Equipment Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 1996 1995 1996 1995 ------ ----- ---- ---- (Dollars in thousands) Cellular Telephone $ 59,773 $ 60,151 $ 103,025 $ 97,526 Telephone 27,220 23,577 54,742 47,681 PCS 13,545 -- 22,455 -- Radio Paging 11,214 7,840 22,028 16,941 Other 8,227 1,014 11,690 6,216 --------- --------- --------- --------- $ 119,979 $ 92,582 $ 213,940 $ 168,364 ========= ========= ========= ========= 22 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 17, 1996, the following numbers of votes were cast for the matters indicated: 1.a. Election of one Class III Director of the Company by the holders of Common Shares and holders of Preferred Shares issued before October 31, 1981: Broker Nominee For Withhold Non-Vote ------- ----- --------- -------- Herbert S. Wander 45,566,032 1,637,599 -0- 1.b. Election of three Class III Directors of the Company by the holders of Series A Common Shares and the holders of Preferred Shares issued after October 31, 1981: Broker Nominee For Withhold Non-Vote ------- ----- -------- -------- LeRoy T. Carlson 68,045,427 2,227 -0- Walter C. D. Carlson 68,045,427 2,227 -0- Letitia G. C. Carlson 68,045,427 2,227 -0- 2. Proposal to Approve the 1996 Employee Stock Purchase Plan of the Company: Broker For Against Abstain Non-Vote ----- ------- ------- -------- 115,684,830 323,651 242,804 -0- 3. Proposal to Ratify the Selection of Arthur Andersen LLP as Independent Public Accountants for 1996: Broker For Against Abstain Non-Vote ----- ------- ------- -------- 116,106,648 53,180 91,457 -0- Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 11 - Computation of earnings per common share. Exhibit 12 - Statement regarding computation of ratios. Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K filed during the quarter ended June 30, 1996: TDS filed a Current Report on Form 8-K dated May 2, 1996, which reported that its subsidiary, American Portable Telecom, Inc. (NASDAQ: APTI) announced an initial public offering of 12,250,000 Common Shares at a price of $17 per share to the public on April 24, 1996. No other reports on Form 8-K were filed during the quarter ended June 30, 1996. 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 13, 1996 MURRAY L. SWANSON -------------------------- -------------------------- Murray L. Swanson, Executive Vice President-Finance (Chief Financial Officer) Date August 13, 1996 GREGORY J. WILKINSON ------------------------- --------------------------- Gregory J. Wilkinson, Vice President and Controller (Principal Accounting Officer) 24 EX-11 2 EXHIBIT 11 Exhibit 11 Telephone and Data Systems, Inc. Computation of Earnings Per Common Share (in thousands, except per share amounts) Three Months Ended June 30, 1996 1995 - ------------------------------------------------------------------------------- Primary Earnings Net Income $ 59,692 $ 22,580 Dividends on Preferred Shares (242) (494) ----------- ----------- Net Income Available to Common $ 59,450 $ 22,086 =========== =========== Primary Shares Weighted average number of Common and Series A Common Shares Outstanding 60,610 57,712 Additional shares assuming issuance of: Options and Stock Appreciation Rights 177 155 Convertible Preferred Shares 441 610 Common Shares Issuable 31 31 ----------- ----------- Primary Shares 61,259 58,508 =========== =========== Primary Earnings per Common Share Net Income $ .97 $ .38 =========== =========== Fully Diluted Earnings* Net Income $ 59,692 $ 22,580 Dividends on Preferred Shares (45) (345) ----------- ----------- Net Income Available to Common $ 59,647 $ 22,235 =========== =========== Fully Diluted Shares Weighted average number of Common and Series A Common Shares Outstanding 60,610 57,712 Additional shares assuming issuance of: Options and Stock Appreciation Rights 178 156 Convertible Preferred Shares 975 1,105 Common Shares Issuable 31 31 ----------- ----------- Fully Diluted Shares 61,794 59,004 =========== =========== Fully Diluted Earnings per Common Share Net Income $ .97 $ .38 =========== =========== * This calculation is submitted in accordance with Securities Act of 1934 Release No. 9083 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. Exhibit 11 Telephone and Data Systems, Inc. Computation of Earnings Per Common Share (in thousands, except per share amounts) Six Months Ended June 30, 1996 1995 - ------------------------------------------------------------------------------- Primary Earnings Net Income $ 93,381 $ 45,773 Dividends on Preferred Shares (492) (973) ----------- ----------- Net Income Available to Common $ 92,889 $ 44,800 =========== =========== Primary Shares Weighted average number of Common and Series A Common Shares Outstanding 59,822 57,031 Additional shares assuming issuance of: Options and Stock Appreciation Rights 175 162 Convertible Preferred Shares 442 691 Common Shares Issuable 26 35 ----------- ----------- Primary Shares 60,465 57,919 =========== =========== Primary Earnings per Common Share Net Income $ 1.54 $ .77 =========== =========== Fully Diluted Earnings* Net Income $ 93,381 $ 45,773 Dividends on Preferred Shares (209) (761) ----------- ----------- Net Income Available to Common $ 93,172 $ 45,012 =========== =========== Fully Diluted Shares Weighted average number of Common and Series A Common Shares Outstanding 59,822 57,031 Additional shares assuming issuance of: Options and Stock Appreciation Rights 178 154 Convertible Preferred Shares 918 1,016 Common Shares Issuable 26 35 ----------- ----------- Fully Diluted Shares 60,944 58,236 =========== =========== Fully Diluted Earnings per Common Share Net Income $ 1.53 $ .77 =========== =========== * This calculation is submitted in accordance with Securities Act of 1934 Release No. 9083 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. EX-27 3 EXHIBIT 27
5 This schedule contains summary financial information extracted from the consolidated financial statements of Telephone and Data Systems, Inc. as of June 30, 1996 and for the six months then ended, and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1996 JUN-30-1996 77,111 42,727 139,531 5,304 18,513 347,389 2,189,764 759,821 3,767,142 256,593 882,704 61,068 359 29,200 1,937,914 3,737,142 0 562,338 0 482,300 (124,060) 0 20,997 183,101 89,720 93,381 0 0 0 93,381 1.54 1.54
EX-12 4 EXHIBIT 12 Exhibit 12 TELEPHONE AND DATA SYSTEMS, INC. RATIOS OF EARNINGS TO FIXED CHARGES For the Six Months June 30, 1996 (Dollars In Thousands) EARNINGS: Income from Continuing Operations before income taxes $ 183,101 Add (Deduct): Minority Share of Losses (3,449) Earnings on Equity Method 24,550 Distributions from Minority Subsidiaries 10,031 Amortization of Non-Telephone Capitalized Interest 1 Minority interest in majority-owned subsidiaries that have fixed charges 18,613 ------------ 232,847 Add fixed charges: Consolidated interest expense 20,807 Interest Portion (1/3) of Consolidated Rent Expense 3,216 Amortization of debt expense and discount on indebtedness 189 ------------ $ 257,059 ============ FIXED CHARGES: Consolidated interest expense $ 20,807 Capitalized interest 14,109 Interest Portion (1/3) of Consolidated Rent Expense 3,216 Amortization of debt expense and discount on indebtedness 189 ------------ $ 38,321 ============ RATIO OF EARNINGS TO FIXED CHARGES 6.71 ============ Tax-Effected Redeemable Preferred Dividends $ 485 Fixed Charges 38,321 ------------ Fixed Charges and Redeemable Preferred Dividends $ 38,806 ============ RATIO OF EARNINGS TO FIXED CHARGES AND REDEEMABLE PREFERRED DIVIDENDS 6.62 ============ Tax-Effected Preferred Dividends $ 1,137 Fixed Charges 38,321 ------------ Fixed Charges and Preferred Dividends $ 39,458 ============ RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS 6.51 ============ -----END PRIVACY-ENHANCED MESSAGE-----