SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________________________to_____________________
Commission File Number 1-9712
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UNITED STATES CELLULAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 62-1147325
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8410 West Bryn Mawr, Suite 700, Chicago, Illinois 60631
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 399-8900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
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Common Shares, $1 par value 53,188,499 Shares
Series A Common Shares, $1 par value 33,005,877 Shares
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UNITED STATES CELLULAR CORPORATION
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2ND QUARTER REPORT ON FORM 10-Q
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INDEX
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Page No.
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Part I. Financial Information:
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-13
Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1997 and 1996 14
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 15
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 16-17
Notes to Consolidated Financial Statements 18-20
Part II. Other Information 21-22
Signatures 23
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PART I. FINANCIAL INFORMATION
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UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
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AND FINANCIAL CONDITION
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RESULTS OF OPERATIONS
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Six Months Ended 6/30/97 Compared to Six Months Ended 6/30/96
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United States Cellular Corporation (the "Company" - AMEX symbol: USM) owns,
operates and invests in cellular markets throughout the United States. USM owned
either majority or minority cellular interests in 204 markets at June 30, 1997,
representing 25,152,000 population equivalents ("pops"). USM included the
operations of 132 majority-owned and managed cellular markets, representing 20.4
million pops, in consolidated operations ("consolidated markets") as of June 30,
1997. Noncontrolling interests in 62 markets, representing 4.7 million pops,
were accounted for using the equity method and were included in investment
income at that date. All other interests, representing less than 100,000 pops in
the aggregate, were accounted for using the cost method. Following is a table of
summarized operating data for USM's consolidated operations.
Six Months Ended or at June 30,
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1997 1996
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Total market population (in thousands) (1) 21,844 21,483
Customers 1,263,000 860,000
Market penetration 5.78% 4.00%
Markets in operation 132 130
Cell sites in service 1,485 1,185
Average monthly revenue per customer $ 56 $ 65 (2)
Churn rate per month 1.9% 1.9%
Marketing cost per net customer addition $ 540 $ 513 (2)
(1) Calculated using the respective Donnelley Marketing Service estimates for
each year.
(2) Recomputed to show the effect of change in current year presentation of
certain revenues and expenses.
The Company's operating results for the first six months of 1997, which include
100% of the revenues and expenses of its consolidated markets plus its corporate
office operations, primarily reflect improvement in the Company's overall
operations. This improvement resulted from growth in its customer base and
revenues coupled with increasing economies of scale. Operating revenues, driven
by increases in customers served, rose $89.1 million, or 28%. Operating expenses
rose $65.3 million, or 24%. Operating cash flow (operating income before
minority share plus depreciation and amortization expense) increased $33.6
million, or 36%.
Beginning on January 1, 1997, the Company changed its income statement
presentation of certain credits given to customers on their monthly bills.
Customer incentive programs which result in either new or current customers
receiving free or reduced-price airtime or access are now reported as a
reduction of local retail revenue. Prior to January 1, 1997, the Company
reported the foregone revenues resulting from these incentive programs as
marketing and selling expense (for new
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customers) and general and administrative expense (for current customers).
Amounts in the currently affected revenue and expense categories have been
reclassified for previous years, including the 1996 information provided
throughout this Form 10-Q. Operating income and net income are not affected by
this change.
Investment and other income decreased $106.4 million, or 71%, to $43.4 million,
due primarily to the decrease of $116.8 million in gains on the sales of
cellular interests. Interest expense increased $426,000, or 4%, in 1997. Income
tax expense decreased $42.6 million to $39.4 million, as improved operating
results were more than offset by decreased gains on the sale of cellular
interests.
Net income totaled $50.2 million in 1997, a decrease of $42.3 million, or 46%,
from 1996. In both years, net income included gains on sales of cellular
interests. A summary of the after-tax effects of these gains on net income and
earnings per share is shown below.
Six Months Ended June 30,
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1997 1996
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(Dollars in thousands,
except per share amounts)
Net income before after-tax effects of gains $ 47,249 $ 28,241
Add: After-tax effects of gains 2,911 64,201
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Net income as reported $ 50,160 $ 92,442
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Earnings per share before after-tax
effects of gains $ .55 $ .33
Add: After-tax effects of gains .03 .75
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Earnings per share as reported $ .58 $ 1.08
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Operating Revenues
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Operating revenues totaled $402.2 million in 1997, up $89.1 million, or 28%,
over 1996. As explained previously, operating revenues for 1996 have been
reclassified to conform to current period presentation of customer incentive
program credits.
Service revenues primarily consist of: (i) charges for access, airtime and
value-added services provided to the Company's local retail customers who use
the local systems operated by the Company; (ii) charges to customers of other
systems who use the Company's cellular systems when roaming ("inbound roaming");
and (iii) charges for long-distance calls made on the Company's systems. Service
revenues totaled $392.0 million in 1997, up $87.3 million, or 29%, over 1996.
The increase was primarily due to the growing number of local retail customers
and the growth in inbound roaming revenue. The reclassification of customer bill
credits reduced service revenues by $24.5 million, or 6%, in 1997 and $9.6
million, or 3%, in 1996. Average monthly service revenue per customer declined
14% to $56.03 in 1997 from $64.93 in 1996. The reclassification of customer bill
credits reduced average monthly service revenue per customer by $3.50, or 6%, in
1997 and $2.04, or 3%, in 1996.
The 14% decrease in average monthly service revenue per customer was primarily a
result of a
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decrease in average revenue per minute of use from both local retail customers
and inbound roamers. Although average monthly local minutes of use per retail
customer totaled 106 in 1997 compared to 102 in 1996, the Company's increasing
use of incentive programs that encourage weekend and off-peak usage, in order to
stimulate overall usage, resulted in a decrease in average local retail revenue
per minute of use during the year. Also contributing to the decline in average
local retail revenue per minute of use are increased amounts of bill credits
given to new and current customers as incentives to become or remain the
Company's customers. The Company believes that its customer base is growing
faster than that of the industry as a whole, which has a dilutive effect on
inbound roaming revenue per customer. Inbound roaming minutes of use have been
growing at a slower rate than the Company's customer base (24% compared to 47%).
Also, the Company's average inbound roaming revenue per minute of use decreased
during 1997, in line with the ongoing trend toward reduced per minute prices for
roaming negotiated between the Company and other cellular operators.
Local retail revenue increased $68.7 million, or 36%, in 1997. Growth in the
Company's customer base was the primary reason for the increase in local
revenue. The number of customers increased 47% to 1,263,000 at June 30, 1997
from 860,000 at June 30, 1996. The Company added 190,000 net new customers in
the first half of 1997. While the percentage increase in customer additions is
expected to be lower in the future, management anticipates that the Company will
continue to increase its customer base over the next few years. The
reclassification of customer bill credits reduced local retail revenue by $24.5
million, or 9%, in 1997 and $9.6 million, or 5%, in 1996.
Average monthly local retail revenue per customer declined to $37.21 in 1997
from $40.85 in 1996. Monthly local retail minutes of use per customer increased
4% to 106 in 1997. While there was an increase in average local retail minutes
of use from 1996 to 1997, average revenue per minute of use decreased as a
result of the incentive programs stated previously. Average local retail revenue
per minute totaled $.35 in 1997 compared to $.40 in 1996. The decrease in
average monthly local retail revenue per customer is part of an industry-wide
trend and is believed to be related to the tendency of the early customers in a
market to be the heaviest users during peak business hours. It also reflects the
Company's and the industry's continued penetration of the consumer market, which
tends to include fewer peak business hour-usage customers. The reclassification
of customer bill credits reduced average monthly local retail revenue per
customer by $3.50, or 9%, in 1997 and $2.04, or 5%, in 1996.
Inbound roaming revenue increased $15.2 million, or 17%, in 1997. This increase
was attributable to the 24% increase in the number of minutes used by customers
from other wireless systems when roaming in the Company's service areas. Also
contributing were the increased number of cell sites within the Company's
service areas. These effects were offset somewhat by the decrease in average
revenue per minute due to the downward trend in negotiated rates. Average
inbound roaming revenue per minute totaled $.88 in 1997 and $.93 in 1996.
Monthly inbound roaming revenue per Company customer averaged $14.66 in 1997 and
$18.63 in 1996. This decrease is related to both the decrease in roaming revenue
per minute and the faster increase in the Company's customer base as compared to
the growth in inbound roaming revenue.
Long-distance revenue increased $3.7 million, or 15%, in 1997 as the volume of
long-distance calls billed by the Company increased. Monthly long-distance
revenue per customer averaged $4.04 in 1997 and $5.24 in 1996. The decrease in
monthly long-distance revenue per customer is primarily due to the dilution of
the portion of long-distance revenue that comes from inbound roaming customers.
Similar to inbound roaming revenue, this revenue is not growing as fast as the
Company's customer base.
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Equipment sales revenues increased $1.7 million, or 20%, in 1997. Equipment
sales reflect the sale of 251,000 and 177,000 cellular telephone units in 1997
and 1996, respectively, plus installation and accessories revenue. The average
revenue per unit was $41 in 1997 compared to $48 in 1996. The average revenue
per unit decline partially reflects the Company's decision to reduce sales
prices on cellular telephones to stimulate growth in the number of customers, to
maintain its market position and to meet competitive prices as well as to pass
through reduced manufacturers' prices to customers. Also, the Company uses
promotions which are based on increased equipment discounting. The success of
these promotions led to both an increase in units sold and a decrease in average
equipment sales revenue per unit.
Operating Expenses
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Operating expenses totaled $336.6 million in 1997, up $65.3 million, or 24%,
over 1996. As explained previously, operating expenses for 1996 have been
reclassified to conform to current period presentation of customer incentive
program credits. The reclassification of customer bill credits reduced operating
expenses by $24.5 million, or 7%, in 1997 and $9.6 million, or 3%, in 1996.
System operations expenses increased $16.9 million, or 32%, in 1997 as a result
of increases in customer usage expenses and costs associated with serving the
Company's increased number of customers (approximately $13.8 million) and the
growing number of cell sites within the Company's systems (approximately $5.0
million). Expenses related to roaming fraud decreased approximately $1.9 million
during the first half of 1997 compared to the first half of 1996. In total,
system operations costs are expected to continue to increase as the number of
customers using and the number of cell sites within the Company's systems grows.
Customer usage expenses represent charges from other telecommunications service
providers for the Company's customers' use of their facilities as well as for
the Company's inbound roaming traffic on these facilities. Also included are
costs related to local interconnection to the landline network, toll charges and
expenses incurred by the Company when its customers use systems other than their
local systems ("outbound roaming"). These expenses are offset somewhat by
amounts the Company bills to its customers for outbound roaming. Customer usage
expenses increased $11.9 million, or 38%, in 1997. Contributing to the increase
in 1997 were costs related to the increase in minutes used on the Company's
systems and for outbound roaming, partially offset by the reduction in costs
related to fraudulent use of the Company's customers' cellular telephone
numbers. These fraud-related costs totaled $4.8 million in 1997 and $6.7 million
in 1996. The Company continues to implement procedures in its markets to combat
this fraud, which is primarily related to roaming usage. Customer usage expenses
represented 11% of service revenues in 1997 and 10% in 1996. The percentage
increase in 1997 is primarily due to the increase in minutes of use, both on the
Company's systems and for outbound roaming.
Maintenance, utility and cell site expenses increased $5.0 million, or 24%, in
1997, primarily reflecting a 25% increase in the number of cell sites in the
Company's systems to 1,485 in 1997 from 1,185 in 1996.
Marketing and selling expenses increased $21.9 million, or 40%, in 1997.
Marketing and selling expenses primarily consist of salaries, commissions and
expenses of field sales and retail personnel and offices; agent expenses; local
advertising and public relations expenses. The increase was primarily due to a
34% rise in the number of gross customer activations (excluding
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acquisitions and divestitures), to 321,000 in 1997 from 240,000 in 1996. Cost
per gross customer activation, including losses on equipment sales, decreased to
$320 in 1997 from $325 in 1996. The reclassification of customer bill credits
reduced cost per gross addition by $60, or 16%, in 1997 and $32, or 9%, in 1996;
in total, the reclassification reduced marketing and selling expenses by $19.4
million, or 20%, in 1997 and $7.7 million, or 12%, in 1996.
Cost of equipment sold increased $4.4 million, or 14%, in 1997. The increases
reflect the growth in unit sales related to the rise in gross customer
activations made through the Company's direct and retail distribution channels,
offset somewhat by falling manufacturer prices per unit. The average cost to the
Company of a telephone unit sold, including accessories and installation, was
$142 in 1997 compared to $177 in 1996.
General and administrative expenses increased $12.3 million, or 15%, in 1997.
These expenses include the costs of operating the Company's local business
offices and its corporate expenses. The increase includes the effects of
increases in expenses required to serve the growing customer base in existing
markets and an expansion of both local administrative office and corporate
staff, necessitated by growth in the Company's business. The Company is using an
ongoing clustering strategy to combine local operations wherever feasible in
order to gain operational efficiencies and reduce its administrative expenses.
The reclassification of customer bill credits reduced general and administrative
expenses by $5.1 million, or 5%, in 1997 and $1.8 million, or 2%, in 1996.
Operating cash flow increased $33.6 million, or 36%, to $127.2 million in 1997.
The improvement was primarily due to substantial growth in customers and service
revenues and the effects of improved operational efficiencies on cash operating
expenses. Operating cash flow margins were 32.5% in 1997 and 30.7% in 1996; had
the reclassification of customer bill credits not been made, operating cash flow
margins would have been 30.5% in 1997 and 29.8% in 1996.
Depreciation expense increased $9.2 million, or 26%, in 1997. The increase
reflects rising average fixed asset balances, which increased 28% in 1997.
Increased fixed asset balances primarily result from the increase in cell sites
built to improve coverage and capacity in the Company's markets.
Amortization of intangibles increased $670,000, or 4%, in 1997. The increase is
primarily due to increases in deferred information system development costs,
which are amortized over the useful life of the related systems.
Operating Income before Minority Share
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Operating income before minority share totaled $65.6 million in 1997, an
increase of $23.8 million, or 57%, over 1996. The operating income margin (as a
percent of service revenues) was 16.7% in 1997 and 13.7% in 1996; had the
reclassification of customer bill credits not been made, operating income
margins would have been 15.8% in 1997 and 13.3% in 1996. The improvement in
operating income and operating income margin reflects increased revenues
resulting from growth in the number of customers served by the Company's systems
and the effect of improved operational efficiencies on total operating expenses.
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The Company expects service revenues to continue to grow during the remainder of
1997; however, management anticipates that average monthly revenue per customer
will continue to decrease as local retail and inbound roaming revenue per minute
of use decline. Additionally, the Company expects expenses to increase
significantly during the remainder of 1997 as it incurs costs associated with
both customer growth and cell sites added.
Management believes there exists a seasonality 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
personal communications services ("PCS") have initiated service in certain of
the Company's markets over the past twelve months. The Company expects PCS
operators to complete initial deployment of PCS across all of the Company's
markets by the end of 1998. The Company's management is monitoring these and
other wireless communications providers' strategies to determine what effect
this additional competition will have on the Company's future strategies and
results.
Investment and Other Income
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Investment and other income totaled $43.4 million in 1997, a decrease of $106.4
million, or 71%, from 1996. Investment income was $36.4 million in 1997 compared
to $22.3 million in 1996, a 63% increase. Investment income primarily represents
the Company's share of net income from the markets managed by others that are
accounted for by the equity method. Although investment income increased
significantly in the first half of 1997, future investment income will be
negatively impacted by the completion of the pending exchange transaction with
BellSouth Corporation ("BellSouth"). See "Financial Resources and Liquidity" for
further discussion of this transaction.
Gain on sale of cellular interests totaled $8.2 million in 1997, reflecting
gains recorded on the sales of the Company's majority interest in one market
partition and minority interest in one other market. Gain on sale of cellular
interests totaled $125.0 million in 1996, reflecting gains recorded on the sales
of the Company's majority interests in eight markets and a minority interest in
one other market, on cash received in an exchange of markets with another
cellular operator and on cash received from the settlement of two separate legal
matters.
Interest and Income Taxes
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Total interest expense increased $426,000, or 4%, in 1997. Interest expense in
1997 is primarily related to Liquid Yield Option Notes ("LYONs") ($7.5 million),
borrowings under vendor financing agreements ($3.5 million) and borrowings under
the Revolving Credit Agreement with Telephone and Data Systems, Inc. ("TDS"),
the Company's parent organization ($1.0 million). Interest expense in 1996 is
primarily related to LYONs ($7.1 million) and borrowings under vendor financing
agreements ($4.1 million).
The LYONs are zero coupon convertible debentures which accrete interest at 6%
annually, but do not require current cash payments of interest. The average
amount of LYONs outstanding was $253.9 million in the first half of 1997 and
$239.3 million in 1996. The average amount of debt under the vendor financing
agreements was $97.9 million in the first six months of 1997 and $116.8 million
in 1996. The average interest rate on such debt was 7.2% in 1997 and 8.0% in
1996. The average amount of debt outstanding under the Revolving Credit
Agreement was $20.9 million in
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1997; no borrowings were outstanding during the first half of 1996. The average
interest rate on such debt was 9.3% in 1997.
Income tax expense was $39.4 million in 1997 and $82.0 million in 1996. In 1997,
$5.3 million of income tax expense related to the gains on sales of cellular
interests compared to $60.8 million in 1996. The effective tax rates were 44% in
1997 and 47% in 1996. The decrease in 1997's effective tax rate is primarily due
to the decrease in gains on sales of cellular interests from 1996; taxes on
these gains are generally higher than taxes on income from operations. In both
1997 and 1996, state income taxes and gains on sales of cellular interests
increased the effective rate above the statutory rate.
The Company is included in a consolidated federal income tax return with other
members of the TDS consolidated group. For financial reporting purposes, the
Company computes federal income taxes as if it were filing a separate return as
its own affiliated group and was not included in the TDS group. TDS and the
Company are parties to a Tax Allocation Agreement under which the Company is
able to carry forward any losses and credits and use them to offset any current
or future income tax liabilities to TDS.
Net Income
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Net income totaled $50.2 million in 1997 compared to $92.4 million in 1996.
Earnings per share was $0.58 in 1997 and $1.08 in 1996. Net income and earnings
per share in both years included gains on the sales of cellular interests. Net
income, excluding the after-tax effects of such gains, totaled $47.2 million in
1997, a $19.0 million, or 67%, increase over 1996. Earnings per share, excluding
the after-tax effects of such gains, was $.55 in 1997, a $.22, or 67%, increase
over 1996. See "Results of Operations" for a summary of the after-tax effects of
gains on net income and earnings per share.
Three Months Ended 6/30/97 Compared to Three Months Ended 6/30/96
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Operating revenues totaled $217.6 million in the second quarter of 1997, up
$48.1 million, or 28%, over 1996. Average monthly service revenue per customer
decreased 13% to $58.41 in the second quarter of 1997 compared to $67.43 in the
same period of 1996 for reasons generally the same as the first half of 1997.
The reclassification of customer bill credits reduced service revenues by $12.3
million, or 5%, in 1997 and $5.3 million, or 3%, in 1996.
Revenues from local customers' usage of the Company's systems increased $36.6
million, or 36%, in 1997 primarily due to the increased number of customers
served. Average monthly local retail minutes of use per customer totaled 111 in
the second quarter of 1997 compared to 107 in 1996. However, as the number of
customers and amount of revenue earned continued to grow, average revenue per
minute of use continued to decline. As a result, average monthly local retail
revenue per customer declined 9% to $38.31 in the second quarter of 1997
compared to $41.91 in 1996.
Inbound roaming revenue increased $8.8 million, or 18%, in 1997 due to the
increased number of other wireless operators' customers using the Company's
systems and the growth in the number of cell sites within those systems. Monthly
inbound roaming revenue per customer averaged $15.74 in 1997 compared to $19.78
in 1996.
Long-distance revenue increased $1.9 million, or 14%, in 1997 as the volume of
long-distance calls billed by the Company increased. Monthly long-distance
revenue per customer averaged $4.25 in
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1997 and $5.52 in 1996.
Equipment sales revenue reflects sales of 130,000 cellular telephones in 1997
compared to 87,000 in 1996. The average revenue per unit sold was $40 in 1997
and $48 in 1996.
Operating expenses totaled $175.4 million in the second quarter of 1997, up
$36.0 million, or 26%, over 1996. The reclassification of customer bill credits
reduced operating expenses by $12.3 million, or 7%, in 1997 and $5.3 million, or
4%, in 1996.
System operations expenses increased $9.2 million, or 32%, in 1997 as a result
of increased customer usage expenses and costs associated with maintaining 25%
more cell sites than in 1996. Customer usage expenses were $24.3 million in 1997
compared to $17.6 million in 1996, including fraud-related costs of $1.5 million
in 1997 and $4.4 million in 1996; maintenance, utility and cell site expenses
were $13.8 million in 1997 compared to $11.2 million in 1996.
Marketing and selling expenses increased $12.3 million, or 44%, in 1997. The
increase was primarily due to a 33% increase in the number of gross customer
activations (excluding acquisitions and divestitures) to 164,000 in 1997 from
123,000 in 1996. Cost per gross customer activation remained the same at $320
for both 1997 and 1996. The reclassification of customer bill credits reduced
marketing and selling expenses by $9.8 million, or 20%, in 1997 and $4.3
million, or 13%, in 1996.
Cost of equipment sold increased $1.8 million, or 12%, in 1997. The increase
reflects a rise in the number of cellular telephones sold in 1997, partially
offset by a decrease in average cost per telephone sold.
General and administrative expenses increased $7.8 million, or 19%, in 1997,
primarily related to the increase in customers served. The reclassification of
customer bill credits reduced general and administrative expenses by $2.5
million, or 5%, in 1997 and $1.0 million, or 2%, in 1996.
Operating cash flow increased $17.0 million, or 30%, to $73.6 million in 1997,
and operating cash flow margins increased to 34.7% in 1997 from 34.3% in 1996;
had the reclassification of customer bill credits not been made, operating cash
flow margins would have been 32.8% in 1997 and 33.2% in 1996.
Depreciation expense increased $4.6 million, or 25%, in 1997, reflecting a 29%
increase in average fixed asset balances. Amortization of intangibles increased
$220,000, or 3%, in 1997, primarily reflecting increased deferred information
system development costs.
Operating income before minority share totaled $42.2 million in 1997 compared to
$30.0 million in 1996, a 40% increase. The operating income margin improved to
19.8% in 1997 from 18.2% in 1996; had the reclassification of customer bill
credits not been made, operating income margins would have been 18.8% in 1997
and 17.6% in 1996. The improvement in operating income and operating income
margin was primarily the result of increased revenues and improved operational
efficiencies.
Investment income increased $6.0 million, or 50%, in 1997 due to improved
results in markets managed by others accounted for by the equity method. Gain on
sale of cellular and other investments totaled $8.2 million in 1997 and $86.3
million in 1996. Total interest expense increased $629,000, or 11%, in 1997.
Interest expense in 1997 is primarily related to LYONs ($3.8 million),
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borrowings under vendor financing agreements ($1.7 million) and borrowings under
the Revolving Credit Agreement ($1.0 million). Interest expense in 1996 is
primarily related to LYONs ($3.5 million) and borrowings under vendor financing
agreements ($2.0 million). Income tax expense totaled $25.5 million in 1997 and
$57.9 million in 1996. In 1997, $5.3 million of income tax expense related to
gains on sales of cellular interests compared to $42.9 million in 1996.
Net income totaled $31.7 million in 1997 compared to $63.1 million in 1996. Both
net income and earnings per share in 1997 reflect improved operating results and
investment income, but gains on the sales of cellular interests totaled only
$8.2 million compared to $86.3 million in 1996. A summary of the after-tax
effect of these gains on net income and earnings per share is shown below.
Three Months Ended June 30,
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1997 1996
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(Dollars in thousands,
except per share amounts)
Net income before after-tax effects of gains $ 28,781 $ 19,694
Add: After-tax effects of gains 2,911 43,361
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Net income as reported $ 31,692 $ 63,055
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Earnings per share before after-tax effects of gains $ .33 $ .23
Add: After-tax effects of gains .04 .50
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Earnings per share as reported $ .37 $ .73
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FINANCIAL RESOURCES AND LIQUIDITY
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The Company operates a capital and marketing-intensive business. In recent
years, the Company has generated operating cash flow and received cash proceeds
from divestitures to fund most of its construction costs and substantially all
of its operating expenses. The Company anticipates further substantial increases
in cellular units in service, revenues and cell sites as it continues its growth
strategy. Operating cash flow may fluctuate from quarter to quarter depending on
the seasonality of each of these growth factors.
Cash flows from operating activities provided $103.2 million in 1997 and $44.4
million in 1996. Operating cash flow provided $127.2 million in 1997 and $93.6
million in 1996. Cash flows from other operating activities (investment and
other income, interest expense, changes in working capital and changes in other
assets and liabilities) required cash investments totaling $24.0 million in 1997
and $49.2 million in 1996.
Cash flows from financing activities provided $47.2 million in 1997 and $1.2
million in 1996. In 1997, borrowings under the Revolving Credit Agreement,
primarily for acquisitions and to pay income taxes, provided $60.3 million while
repayments of debt under the vendor financing agreements required $11.7 million.
In 1996, issuance of USM Common Shares, primarily to TDS, provided $9.6 million
while repayments of debt under the vendor financing agreements required $10.0
million.
Cash flows from investing activities required $163.0 million in 1997 and
provided $73.6 million in
-10-
<PAGE>
1996. The Company received net cash proceeds totaling $21.4 million in 1997 and
$178.0 million in 1996 related to the sales and exchanges of cellular interests.
Cash required for property, plant and equipment and system development
expenditures totaled $161.1 million in 1997, financed primarily with internally
generated cash, and $100.9 million in 1996, financed primarily with internally
generated funds and proceeds from the sales of cellular interests. These
expenditures primarily represent the construction of 163 and 72 cell sites,
respectively, plus other plant additions and costs related to the development of
the Company's office systems. Acquisitions required $36.6 million in 1997.
Anticipated capital requirements for 1997 primarily reflect the Company's
construction and system expansion program. The Company's construction and system
expansion budget for 1997 is approximately $300 million, primarily for new cell
sites to expand and enhance the Company's coverage in its service areas and for
the enhancement of the Company's office systems.
Acquisitions and Divestitures
- -----------------------------
The Company assesses its cellular holdings on an ongoing basis in order to
maximize the benefits derived from clustering its markets. As the Company's
clusters have grown, the Company's focus has shifted toward exchanges and
divestitures of managed and investment interests. Over the past few years, the
Company has completed exchanges of controlling interests in its less strategic
markets for controlling interests in markets which better complement its
clusters. The Company has also completed outright sales of other less strategic
markets. The proceeds from these sales have been used to further the Company's
growth.
In the first six months of 1997, the Company purchased a majority interest in
one market and several minority interests, representing 246,000 pops. The total
consideration paid in these transactions, in the form of cash financed by
borrowings under the Revolving Credit Agreement, was $36.6 million. In the first
six months of 1996, the Company purchased a majority interest in one market and
several minority interests, representing 308,000 pops, and received a majority
interest in another market through an exchange with another cellular operator.
The total consideration paid for these purchases, primarily in the form of USM
Common Shares issued to TDS to reimburse TDS for the value of TDS Common Shares
issued to third parties, was $43.6 million.
In the first six months of 1997, the Company sold a majority interest in one
market partition and a minority interest in one other market, representing
143,000 pops. The Company received consideration consisting of cash and
receivables totaling $22.7 million from these sales. The minority interest
involved an interest the Company had previously acquired from TDS pursuant to an
agreement between the two companies signed in June 1996. There was no
substantial gain or loss on the divestiture of the interest acquired from TDS.
In the first six months of 1996, the Company sold majority interests in eight
markets and one market partition, plus a minority interest in one other market,
representing 1.1 million pops, and divested a controlling interest in another
market through an exchange. The Company received consideration, consisting of
cash and receivables, totaling $181.0 million both from these sales and from the
exchange. The Company also settled two separate legal matters during the first
six months of 1996, receiving $30.3 million from those transactions. In total,
sales, exchanges and litigation settlements provided the Company with cash and
receivables totaling $211.3 million in the first six months of 1996.
During the first quarter of 1997, the Company announced that it had entered into
an exchange
-11-
<PAGE>
agreement with BellSouth, pursuant to which the Company will receive majority
interests in 12 contiguous markets adjacent to its Iowa and Wisconsin/Illinois
clusters. In exchange, the Company will divest its majority interest in 10
markets and minority interests in 13 markets, pay cash and incur certain income
tax costs, the amounts of which are dependent upon certain factors. The Company
will receive majority interests representing approximately 3.9 million pops in
the transaction, and will divest majority interests representing 1.9 million
pops and minority interests representing approximately 1.4 million pops. The
transaction is subject to certain conditions and various regulatory and other
approvals.
The Company expects that the completion of this transaction will have a positive
effect on its operating cash flow after the transition of operators is complete.
As it includes the divestiture of significant investment interests in exchange
for majority interests, the transaction is also expected to significantly reduce
investment income immediately after it is completed. Management believes the
transaction will be completed by the end of 1997.
Also, pursuant to the agreement entered into in June 1996 under which the
Company acquired certain minority interests from TDS, the Company will acquire
additional interests, representing an additional 104,000 pops, for $17.2 million
in cash. A portion of this cash may be borrowed from TDS under the Revolving
Credit Agreement. Additionally, at June 30, 1997, the Company had an agreement
pending to divest a minority interest in one market, representing 40,000 pops,
for $11.8 million in cash. This interest was acquired by the Company from TDS
pursuant to the agreement referred to previously. The pending acquisition and
divestiture agreements discussed previously are expected to be completed during
1997.
Liquidity
- ---------
The Company anticipates that the aggregate resources required for the remainder
of 1997 will include approximately $139 million for capital spending, $11
million of scheduled debt repayments and $17 million for acquisitions. The
Company may have additional funding obligations in 1997 related to the exchange
transaction with BellSouth when the transaction is completed. The Company is
generating substantial cash from its operations and anticipates financing its
capital spending for 1997 primarily with internally generated cash. The Company
also had $2 million of cash and cash equivalents at June 30, 1997 and expects to
receive approximately $12 million from a pending divestiture. The Company also
has $40 million available under the Revolving Credit Agreement with TDS.
The Company filed a shelf Registration Statement on Form S-3 on July 31, 1997
for the sale of up to $400 million of unsecured debt. The Company expects to
issue debt securities under the shelf registration during the third quarter. The
Company anticipates using the proceeds of the offering for general corporate
purposes, which may include the repayment of indebtedness.
Additionally, the Company is currently engaged in negotiations regarding a
proposed $500 million revolving credit facility, although no agreement in
principle has been reached.
Management believes that the Company's operating cash flows and sources of
external financing, including the debt financing and proposed revolving credit
facility mentioned previously, provide substantial financial flexibility. The
Company also currently has a line of credit with TDS to help meet its short-term
financing needs; this line of credit would be replaced by the proposed revolving
credit facility, if and when that facility is put in place. The Company
currently has access to public and private capital markets to help meet its
long-term financing needs. The Company anticipates
-12-
<PAGE>
issuing debt and equity securities only when capital requirements (including
acquisitions), 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 Results of Operations and Financial
Condition and other sections of this Quarterly Report on Form 10-Q 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; therefore, actual
results may differ materially. The Company 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 the Company 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
the Company's markets. Readers should evaluate any statements in light of these
important factors.
-13-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Unaudited
---------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(Dollars in thousands,
except per share amounts)
OPERATING REVENUES
Service $ 212,394 $ 165,279 $ 391,979 $ 304,647
Equipment sales 5,185 4,191 10,184 8,465
--------- --------- --------- ---------
Total Operating Revenues 217,579 169,470 402,163 313,112
--------- --------- --------- ---------
OPERATING EXPENSES
System operations 38,048 28,811 69,277 52,389
Marketing and selling 39,959 27,663 76,999 55,071
Cost of equipment sold 17,763 15,917 35,757 31,390
General and administrative 48,224 40,444 92,939 80,668
Depreciation 22,722 18,125 44,231 35,060
Amortization of intangibles 8,709 8,489 17,361 16,691
--------- --------- --------- ---------
Total Operating Expenses 175,425 139,449 336,564 271,269
--------- --------- --------- ---------
OPERATING INCOME BEFORE
MINORITY SHARE 42,154 30,021 65,599 41,843
Minority share of operating income (4,383) (3,309) (7,248) (5,421)
--------- --------- --------- ---------
OPERATING INCOME 37,771 26,712 58,351 36,422
--------- --------- --------- ---------
INVESTMENT AND OTHER INCOME
Investment income 18,040 12,025 36,423 22,328
Amortization of licenses related
to investments (536) (288) (1,068) (574)
Interest income 958 3,118 1,583 4,270
Other (expense), net (729) (934) (1,782) (1,267)
Gain on sale of cellular and
other investments 8,237 86,305 8,237 124,996
--------- --------- --------- ---------
Total Investment and Other
Income 25,970 100,226 43,393 149,753
--------- --------- --------- ---------
INCOME BEFORE INTEREST
AND INCOME TAXES 63,741 126,938 101,744 186,175
INTEREST EXPENSE
Interest expense - affiliate 1,014 -- 1,014 --
Interest expense - other 5,564 5,949 11,167 11,755
--------- --------- --------- ---------
Total Interest Expense 6,578 5,949 12,181 11,755
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 57,163 120,989 89,563 174,420
Income tax expense 25,471 57,934 39,403 81,978
--------- --------- --------- ---------
NET INCOME $ 31,692 $ 63,055 $ 50,160 $ 92,442
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
AND SERIES A COMMON SHARES (000s) 86,225 86,166 86,211 85,926
PRIMARY EARNINGS PER COMMON AND
SERIES A COMMON SHARE $ .37 $ .73 $ .58 $ 1.08
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES
ASSUMING FULL DILUTION (000s) 93,290 93,225 93,277 92,987
EARNINGS PER COMMON AND SERIES A
COMMON SHARE ASSUMING FULL DILUTION $ .36 $ .70 $ .58 $ 1.03
========= ========= ========= =========
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-14-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Unaudited
---------
Six Months Ended
June 30,
---------------------------
1997 1996
----------- ------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 50,160 $ 92,442
Add (Deduct) adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 61,592 51,751
Investment income (36,423) (22,328)
Gain on sale of cellular and
other investments (8,237) (124,996)
Minority share of operating income 7,248 5,421
Other noncash expense 11,019 9,109
Change in accounts receivable (17,284) (18,647)
Change in accounts payable 10,432 (21,269)
Change in accrued taxes 7,320 37,014
Change in deferred taxes 12,497 31,812
Change in unearned revenue 4,717 1,824
Change in other assets and liabilities 120 2,289
---------- -----------
103,161 44,422
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Vendor financing borrowings -- 3,922
Repayment of vendor financing (11,718) (9,986)
Change in Revolving Credit Agreement - TDS 60,303 --
Common Shares issued 1,394 9,618
Capital (distributions) to minority partners (2,792) (2,317)
----------- ------------
47,187 1,237
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (144,097) (98,187)
System development costs (16,961) (2,744)
Investments in and advances to investment
entities (6,219) (12,602)
Distributions from investment entities 21,823 10,004
Proceeds from sale of cellular and
other investments 21,384 177,954
Acquisitions, excluding cash acquired (36,606) (872)
Other investments (1,163) --
Change in temporary cash and marketable
non-equity securities (1,208) --
----------- ------------
(163,047) 73,553
----------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (12,699) 119,212
CASH AND CASH EQUIVALENTS-
Beginning of period 14,377 38,404
----------- ------------
End of period $ 1,678 $ 157,616
=========== ============
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-15-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
(Unaudited)
June 30, 1997 December 31, 1996
--------------- -----------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents
General funds $ 1,678 $ 802
Affiliated cash equivalents -- 13,575
-------------- --------------
1,678 14,377
Temporary cash investments 404 --
Accounts receivable
Customers 67,893 58,034
Roaming 37,892 29,742
Affiliates 81 607
Other 8,761 7,568
Inventory 9,835 11,893
Prepaid and other current assets 8,911 6,398
-------------- --------------
135,455 128,619
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT
In service and under construction 980,941 846,005
Less accumulated depreciation 235,270 195,251
-------------- --------------
745,671 650,754
-------------- --------------
INVESTMENTS
Licenses, net of accumulated amortization 1,064,328 1,044,141
Cellular entities 204,030 186,791
Notes and interest receivable 14,315 14,943
Marketable non-equity securities 800 --
-------------- --------------
1,283,473 1,245,875
-------------- --------------
DEFERRED CHARGES
System development costs,
net of accumulated amortization 57,766 44,319
Other, net of accumulated amortization 13,277 16,332
-------------- --------------
71,043 60,651
-------------- --------------
Total Assets $ 2,235,642 $ 2,085,899
============== ==============
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-16-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
(Unaudited)
June 30, 1997 December 31, 1996
------------- -----------------
(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt $ 23,532 $ 23,065
Notes payable 1,375 1,375
Accounts payable
Affiliates 2,577 2,729
Other 74,838 66,638
Accrued taxes 26,321 18,781
Customer deposits and deferred revenues 21,128 16,410
Other current liabilities 16,945 17,456
------------ ------------
166,691 146,454
REVOLVING CREDIT AGREEMENT - TDS 60,303 --
------------ ------------
LONG-TERM DEBT
6% zero coupon convertible debentures 257,610 250,107
Vendor financing, excluding
current portion 68,553 80,589
------------ ------------
326,163 330,696
------------ ------------
DEFERRED LIABILITIES AND CREDITS
Net deferred income tax liability 91,520 78,833
Other 4,985 2,444
------------ ------------
96,505 81,277
------------ ------------
MINORITY INTEREST 55,839 51,270
------------ ------------
COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1 per share 53,177 53,117
Series A Common Shares, par value
$1 per share 33,006 33,006
Additional paid-in capital 1,248,760 1,245,066
Retained earnings 195,173 145,013
------------ ------------
1,530,116 1,476,202
------------ ------------
Total Liabilities and
Shareholders' Equity $ 2,235,642 $ 2,085,899
============ ============
The accompanying notes to consolidated
financial statements are an integral part
of these statements.
-17-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of June 30, 1997 and December 31,
1996, and the results of operations and cash flows for the six months
ended June 30, 1997 and 1996. The results of operations for the six months
ended June 30, 1997 and 1996, are not necessarily indicative of the
results to be expected for the full year.
2. Certain amounts reported in prior periods have been reclassified to
conform to the current period presentation which nets certain customer
promotional and retention expenses against service revenues.
3. Primary earnings per Common and Series A Common Share for the six months
ended June 30, 1997 and 1996, was computed by dividing Net Income by the
weighted average number of Common Shares, Series A Common Shares and
dilutive common equivalent shares outstanding during the period. Dilutive
common stock equivalents at June 30, 1997 and 1996, consist primarily of
dilutive Common Shares issuable and Redeemable Preferred Stock and Common
Share options and stock appreciation rights.
Earnings per Common and Series A Common Share Assuming Full Dilution for
the six months ended June 30, 1997 and 1996, was computed by dividing Net
Income, as adjusted for the interest expense eliminated as a result of the
pro forma conversion of Convertible Debentures, by the weighted average
number of Common Shares, Series A Common Shares and dilutive common
equivalent shares outstanding during the period. Dilutive common stock
equivalents at June 30, 1997 and 1996, consist primarily of dilutive
Convertible Debentures (assuming conversion into Common Shares), Common
Shares issuable, Redeemable Preferred Stock, and Common Share Options and
stock appreciation rights.
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 significantly if the SFAS No. 128 was in effect as of
January 1, 1996.
-18-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Assuming acquisitions accounted for as purchases during the period January
1, 1996, to June 30, 1997, had taken place on January 1, 1996, pro forma
results of operations would have been as follows:
Six Months Ended
June 30,
------------------------------
1997 1996
----------- -----------
(Dollars in thousands,
except per share amounts)
Service Revenues $ 391,979 $ 305,251
Equipment Sales 10,184 8,472
Interest Expense (including cost
to finance acquisitions) 11,259 13,395
Net Income 49,394 93,252
Earnings per Common and Series A Common Share $ .57 $ 1.08
5. Supplemental Cash Flow Information
The Company acquired certain cellular licenses and interests during the
first six months of 1997 and 1996. In conjunction with these acquisitions,
the following assets were acquired, liabilities assumed and Common Shares
issued.
Six Months Ended
June 30,
---------------------------------
1997 1996
------------- --------------
(Dollars in thousands)
Property, plant and equipment $ -- $ 7,069
Cellular licenses 36,719 39,063
Decrease in equity-method investment
in cellular interests -- (2,733)
Accounts receivable 1,332
Accounts payable -- (938)
Other assets and liabilities,
excluding cash acquired (113) (422)
Common Shares issued -- (42,499)
-------------- --------------
Decrease in cash due to acquisitions $ 36,606 $ 872
============== ==============
-19-
<PAGE>
UNITED STATES CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes certain noncash transactions and interest and
income taxes paid.
Six Months Ended
June 30,
---------------------------
1997 1996
----------- -----------
(Dollars in thousands)
Interest paid $ 4,105 $ 3,145
Income taxes paid 22,810 17,310
Noncash interest expense 7,651 8,249
Common Shares issued by USM for conversion
of USM Preferred Stock and TDS Preferred Shares $ -- $ 18,450
6. Contingencies
The Company owns a 5.5% interest in the Los Angeles SMSA Limited
Partnership (the "Partnership"). In November 1993, a class action
complaint was filed on behalf of cellular customers in Orange County
Superior Court naming, among others, the Partnership. These complaints
allege certain facts, including a similarity in the pricing structures
of the two defendant cellular carriers, which plaintiffs contend are
circumstantial evidence that the Partnership and Los Angeles Telephone
Company conspired to fix the prices of retail and wholesale cellular
radio services in the Los Angeles market. The complaint seeks damages
for the class "in a sum in excess of $100 million." A similar agent case
was settled for an immaterial amount. Trial began on July 7, 1997. The
Partnership does not believe that this proceeding will have a material
adverse effect on the Partnership's financial position or results of
operations. For further discussion of this contingency, 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, 1996.
-20-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security-Holders.
- -------------------------------------------------------------
At the Annual Meeting of Shareholders of USM, held on May 14, 1997, the
following numbers of votes were cast for the matters indicated:
1.a. Election of two Class I directors of the Company by the holder of Series
A Common Shares:
Broker
Nominee For Withhold Non-Vote
- -----------------------------------------------------------------------------
H. Donald Nelson 330,058,770 -0- -0-
LeRoy T. Carlson 330,058,770 -0- -0-
2. Proposal to approve the Company's 1997 Employee Stock Purchase Plan:
Broker
For Against Abstain Non-Vote
------------------------------------------------
Series A
Common Shares 330,058,770 -0- -0- -0-
Common Shares 50,157,850 51,091 8,705 -0-
---------- ------ ----- ---
Total 380,216,620 51,091 8,705 -0-
=========== ====== ===== ===
3. Proposal to Ratify the Selection of Arthur Andersen LLP as Independent
Public Accountants for 1997:
Broker
For Against Abstain Non-Vote
------------------------------------------------
Series A
Common Shares 330,058,770 -0- -0- -0-
Common Shares 50,186,083 15,163 16,401 -0-
---------- ------ ------ ---
Total 380,244,853 15,163 16,401 -0-
=========== ====== ====== ===
-21-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 5. Other Information.
- ---------------------------
On July 31, 1997, the Company announced that it had filed a shelf registration
statement with the Securities and Exchange Commission covering $400 million of
debt securities. The news release issued to announce this filing is attached as
Exhibit 99.
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.
Exhibit 99 - News Release dated July 31, 1997.
(b) Reports on Form 8-K filed during the quarter ended June 30, 1997:
No reports on Form 8-K were filed during the quarter ended June 30,
1997.
-22-
<PAGE>
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.
UNITED STATES CELLULAR CORPORATION
----------------------------------
(Registrant)
Date August 8, 1997 H. DONALD NELSON
--------------------- ------------------------------
H. Donald Nelson
President
(Chief Executive Officer)
Date August 8, 1997 KENNETH R. MEYERS
--------------------- -------------------------------
Kenneth R. Meyers
Senior Vice President-Finance and Treasurer
(Chief Financial Officer)
Date August 8, 1997 PHILLIP A. LORENZINI
--------------------- --------------------------------
Phillip A. Lorenzini
Controller
(Principal Accounting Officer)
-23-
<PAGE>
Exhibit 11
United States Cellular Corporation
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Three Months Ended June 30, 1997 1996
- --------------------------------------------------------------------------------
Primary Earnings
Net Income Available to Common $ 31,692 $ 63,055
========== ==========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 86,177 86,085
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 48 81
---------- ----------
Primary Shares 86,225 86,166
========== ==========
Primary Earnings per Common Share
Net Income $ .37 $ .73
========== ==========
Fully Diluted Earnings
Net Income Available to Common, as reported $ 31,692 $ 63,055
Interest expense eliminated as a result of the
pro forma conversion of Convertible Debentures 2,106 1,870
---------- ----------
Net Income Available to Common, as adjusted 33,798 64,925
========== ==========
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 86,177 86,085
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 54 81
Conversion of Convertible Debentures 7,059 7,059
---------- ----------
Fully Diluted Shares 93,290 93,225
========== ==========
Fully Diluted Earnings per Common Share
Net Income $ .36 $ .70
========== ==========
* The 1997 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%.
<PAGE>
Exhibit 11
United States Cellular Corporation
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Six Months Ended June 30, 1997 1996
- --------------------------------------------------------------------------------
Primary Earnings
Net Income Available to Common $ 50,160 $ 92,442
========== ==========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 86,163 85,498
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 48 95
Convertible Preferred Shares -- 102
Common Shares Issuable -- 231
---------- ----------
Primary Shares 86,211 85,926
========== ==========
Primary Earnings per Common Share
Net Income $ .58 $ 1.08
========== ==========
Fully Diluted Earnings
Net Income Available to Common, as reported $ 50,160 $ 92,442
Interest expense eliminated as a result of the
pro forma conversion of Convertible Debentures 4,201 3,739
---------- ----------
Net Income Available to Common, as adjusted 54,361 96,181
========== ==========
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 86,163 85,498
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 55 96
Convertible Preferred Shares -- 103
Common Shares Issuable -- 231
Conversion of Convertible Debentures 7,059 7,059
---------- ----------
Fully Diluted Shares 93,277 92,987
========== ==========
Fully Diluted Earnings per Common Share
Net Income $ .58 $ 1.03
========== ==========
* The 1997 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%.
<PAGE>
Exhibit 12
UNITED STATES CELLULAR CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Six Months
Ended
June 30, 1997
----------------------
(Dollars in thousands)
EARNINGS
Income from Continuing Operations before
income taxes $ 89,563
Add (Deduct):
Minority Share of Cellular Losses (111)
Earnings on Equity Method (36,423)
Distributions from Minority Subsidiaries 21,533
Amortization of Capitalized Interest --
Minority interest in income of majority-owned
subsidiaries that have fixed charges --
-----------------
$ 74,562
Add fixed charges:
Consolidated interest expense 12,181
Deferred debt expense 232
Interest Portion (1/3) of Consolidated
Rent Expense 2,063
-----------------
$ 89,038
FIXED CHARGES
Consolidated interest expense 12,181
Deferred debt expense 232
Interest Portion (1/3) of Consolidated
Rent Expense 2,063
-----------------
$ 14,476
RATIO OF EARNINGS TO FIXED CHARGES 6.15
=================
Tax-Effected Preferred Dividends $ --
Fixed Charges 14,476
-----------------
Fixed Charges and Preferred Dividends $ 14,476
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 6.15
=================
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNITED STATES CELLULAR CORPORATION AS OF
JUNE 30, 1997, AND FOR THE SIX MONTHS THEN ENDED, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 1,678
<SECURITIES> 800
<RECEIVABLES> 71,703
<ALLOWANCES> 3,810
<INVENTORY> 9,835
<CURRENT-ASSETS> 135,455
<PP&E> 980,941
<DEPRECIATION> 235,270
<TOTAL-ASSETS> 2,235,642
<CURRENT-LIABILITIES> 166,691
<BONDS> 326,163
0
0
<COMMON> 86,183
<OTHER-SE> 1,443,933
<TOTAL-LIABILITY-AND-EQUITY> 2,235,642
<SALES> 10,184
<TOTAL-REVENUES> 402,163
<CGS> 35,757
<TOTAL-COSTS> 336,564
<OTHER-EXPENSES> 43,393
<LOSS-PROVISION> 12,122
<INTEREST-EXPENSE> 11,167
<INCOME-PRETAX> 89,563
<INCOME-TAX> 39,403
<INCOME-CONTINUING> 50,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,160
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
Exhibit 99
Contact: Kenneth R. Meyers, Senior Vice President - Finance
United States Cellular Corporation
(773) 399-8900 Chicago
FOR RELEASE: IMMEDIATE
UNITED STATES CELLULAR FILES SHELF REGISTRATION
FOR $400 MILLION OF DEBT SECURITIES
July 31, 1997, Chicago, Illinois - United States Cellular Corporation [AMEX:
USM] announced today that it has filed a shelf registration statement with the
Securities and Exchange Commission ("SEC") covering $400 million of debt
securities. USM is registering the debt securities to enhance its financial
flexibility and to position itself to be able to capitalize on attractive
financing opportunities as they may become available in the marketplace. Any
specific offering under the shelf registration statement may be made in one or
more series and in amounts, at prices and on terms to be determined at the time
of any such sale.
A registration statement relating to these securities has been filed with the
SEC but has not yet become effective. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This press release shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Based in Chicago, USM manages and invests in cellular systems throughout the
United States. As of June 30, 1997, USM managed operational systems serving 141
markets.
USM Internet Home Page:
http://www.uscc.com
<PAGE>
