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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 1-8251
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TELEPHONE AND DATA SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Iowa 36-2669023
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North LaSalle Street, Chicago, Illinois 60602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 630-
1900
Not Applicable
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(Former address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No _______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at April 30, 1994
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Common Shares, $1 par value 46,276,845 Shares
Series A Common Shares, $1 par value 6,883,715 Shares
<PAGE>
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC.
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1ST 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 2-15
Consolidated Statements of Income -
Three Months Ended March 31, 1994 and 1993 16
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 17
Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993 18-19
Notes to Consolidated Financial Statements 20-22
Part II. Other Information 23
Signatures 24
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<PAGE>
PART I. FINANCIAL INFORMATION
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TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
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AND FINANCIAL CONDITION
-----------------------
RESULTS OF OPERATIONS
---------------------
CONSOLIDATED
Telephone and Data Systems, Inc.'s ("TDS" or the
"Company") consolidated results of operations for the first
quarter of 1994 reflect i) rapid growth in cellular and paging
customer units which resulted in substantial increases in
revenues, ii) steady growth in telephone access lines and
revenues, iii) improvements in cellular and paging economies
of scale and cost-containment measures in all three business
units which resulted in improved cash flow, operating results,
and cash and operating margins, iv) increases in interest and
income tax expense and v) an increase in weighted average
shares outstanding due to the Company's continuing acquisition
program. Operating revenues grew 31.9% to $158.8 million in
the first quarter of 1994 over 1993, operating cash flow
increased 34.3% to $56.2 million and operating income rose
45.1% to $22.3 million. Net income before the cumulative
effect of an accounting change rose 50.3% to $10.2 million in
the first quarter of 1994 over 1993. Earnings per share
before the cumulative effect of an accounting change,
reflecting the significantly improved operating results offset
somewhat by an 18.7% increase in weighted average common
shares, grew 28.6% to $.18 in 1994 from $.14 in 1993. Net
income and earnings per share in 1994 were reduced by $723,000
and $.01, respectively, due to TDS's adoption of a new
accounting standard for postemployment benefits.
TDS Telecommunications Corporation ("TDS Telecom") has
acquired two telephone companies since March 31, 1993. These
acquisitions added 2,500 access lines while internal growth
added 16,500 lines. United States Cellular Corporation (AMEX
symbol "USM"), TDS's 81.3%-owned subsidiary, has added 20
markets to consolidated operations since March 31, 1993,
through acquisitions and the initiation of cellular
operations. USM currently provides cellular service through
systems serving 120 majority-owned and managed markets.
American Paging, Inc. (AMEX symbol "APP"), TDS's 82.5%-owned
subsidiary, has acquired one paging system since March 31,
1993, which added approximately 10,700 pagers. APP provides
service to its customers through 38 sales and service
operating centers.
Operating revenues grew 31.9% ($38.4 million) in 1994
primarily as a result of the growth in customers served.
Cellular telephone revenues increased as a result of the 69.2%
customer growth in majority-owned markets which resulted in
increased local retail and access revenue, and increased
roaming revenue, offset somewhat by a 4.0% decline in average
monthly service revenue per unit. Radio paging revenues
increased primarily as a result of the 40.3% growth in the
number of pagers in service offset somewhat by a 12.4% decline
in average monthly service revenue per unit. Telephone
revenues increased primarily due to acquisitions, recovery of
increased costs of providing long-distance services, internal
access line growth and a 6.1% increase in average monthly
revenue per access line.
-2-
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Operating expenses rose 30.0% ($31.5 million) in 1994 as
a result of the continued rapid growth in USM's cellular
telephone operations and the steady growth in TDS Telecom's
and APP's operations. Operating expenses increased in all
three business units, but at a slower rate than revenues due
to increasing economies of scale in the cellular and paging
units and cost-containment measures in all three businesses.
Operating income increased 45.1% to $22.3 million in the
first quarter of 1994 from $15.4 million in 1993. The
increase in telephone operating income was complemented by a
decrease in the cellular telephone operating loss and the
first quarter paging operating income (compared to operating
loss in 1993).
Three Months Ended March 31,
---------------------------------------
1994 1993 Change
----------- ---------- ----------
(Dollars in thousands)
CONSOLIDATED OPERATING INCOME
Telephone Operations $ 22,738 $ 19,502 $ 3,236
Cellular Telephone Operations (1,004) (3,380) 2,376
Radio Paging Operations 570 (746) 1,316
--------- --------- --------
$ 22,304 $ 15,376 $ 6,928
--------- --------- --------
Operating Margins:
Telephone 32.0% 31.5%
Cellular Telephone* (1.6)% (8.6)%
Radio Paging* 3.1% (5.1)%
* Computed on Service Revenues
Investment and other income was unchanged in total at
$5.2 million in 1994 and 1993. Cellular investment income,
net increased $1.1 million to $3.6 million, reflecting
improvement in USM's equity method markets. Minority share of
income decreased $2.0 million in the first quarter of 1994
over 1993, as shown in the following table.
Minority share of (income) loss includes (a) the
minority shareholders' share of USM's net loss, (b) the
minority partners' share of income or loss of the cellular
markets majority-owned by USM and (c) the minority
shareholders' share of income of a telephone company majority-
owned by TDS. The minority shareholders' share of USM's net
loss decreased $1.2 million in the first quarter of 1994 over
1993 due to the improvement in USM's net loss.
MINORITY SHARE OF (INCOME) LOSS
Three Months Ended March 31,
---------------------------------------
1994 1993 Change
----------- ---------- ----------
(Dollars in thousands)
United States Cellular
Minority Shareholders' Share $ 342 $ 1,522 $(1,180)
Minority Partners' Share (1,118) (767) (351)
--------- --------- --------
(776) 755 (1,531)
TDS Telecom (421) -- (421)
--------- --------- --------
$ (1,197) $ 755 $(1,952)
========= ========= ========
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<PAGE>
Interest expense increased 10.3% ($863,000) in 1994. The
increase was primarily due to an increase in long-term
interest expense. Since March 31, 1993, TDS has issued $39.5
million under its Medium-Term Note Program, which was used to
retire higher-cost long- and short-term notes. The Company's
average balance of short-term notes payable decreased to $18.1
million in 1994 from $43.2 million in 1993, resulting in a
decrease in short-term interest expense in the first quarter
of 1994 compared with the first quarter of 1993.
Income tax expense increased 50.0% ($2.7 million) in 1994
compared with 1993 as pretax income increased. The effective
income tax rate was 44% in the first quarter of 1994 and 1993.
State income taxes increased 54.0% ($674,000) in 1994, due
primarily to the increase in pretax income.
Net income before the cumulative effect of a change in
accounting principle improved to $10.2 million in 1994 from
$6.8 million in 1993. Earnings per common share before the
cumulative effect of a change in accounting principle were
$.18 in 1994 and $.14 in 1993. The weighted average number of
common shares outstanding increased 18.7% in 1994. The
increase is primarily due to the issuance of 5.8 million
Common Shares since March 31, 1993 in connection with
acquisitions.
Cumulative effect of accounting changes: Effective
January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting
for Postemployment Benefits." SFAS No. 112 requires employers
to recognize the obligation to provide postemployment benefits
to former or inactive employees after employment but before
retirement. The cumulative effect of the new principle on
years prior to 1994 reduced net income and earnings per share
by $723,000 and $.01, respectively. Effective January 1,
1993, the Company adopted SFAS 109, which requires an asset
and liability approach for financial reporting for income
taxes. The cumulative effect of the new principle on years
prior to 1993 had no effect on net income or earnings per
share.
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<TABLE>
TELEPHONE OPERATIONS
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------
Change Change
Due To Excluding
1994 1993 Change Acquisitions Acquisitions
-------- ------- -------- ---------- ------------
(Dollars in thousands,
except per access
line amounts)
<S> <C> <C> <C> <C> <C>
Operating Revenues
Local Service $19,395 $ 16,972 $ 2,423 $ 645 $ 1,778
Network Access and
Long-Distance 41,803 36,571 5,232 2,181 3,051
Miscellaneous 9,862 8,414 1,448 544 904
------- ------- ------- -------- ----------
71,060 61,957 9,103 3,370 5,733
------- ------- ------- -------- ----------
Operating Expenses
Plant Operations 11,069 9,236 1,833 635 1,198
Depreciation 14,553 12,874 1,679 559 1,120
Amortization 890 833 57 115 (58)
Customer Operations 10,319 8,906 1,413 407 1,006
Corporate and Other 11,491 10,606 885 639 246
------- ------- ------- -------- ----------
48,322 42,455 5,867 2,355 3,512
------- ------- ------- -------- ----------
Operating Income $22,738 $ 19,502 $ 3,236 $ 1,015 $ 2,221
======= ======= ======= ======== ==========
Telephone Revenues as
a Percent of
Total Revenues 44.7% 51.5%
Additions to Property,
Plant and Equipment* $13,585 $ 10,379
Identifiable Assets $825,239 $787,980
Companies 93 92
Access Lines 360,100 341,100
Growth in access lines
from prior
quarter-end:
Acquisitions -- 16,300
Internal growth 3,900 3,100
Average monthly
revenue per access
line $ 66 $ 62
* Does not include cash expenditures (in thousands) of $7,143
and $5,462, respectively, which relate to additions in prior
periods.
</TABLE>
Operating revenues from telephone operations increased
14.7% ($9.1 million) in the first quarter of 1994 compared to
1993. The increase in revenues was primarily due to internal
access line growth, recovery of increased costs of providing
long-distance services and the effects of acquisitions.
The effects of acquisitions increased telephone revenues
5.4% ($3.4 million) in 1994. TDS has acquired two telephone
companies serving 2,500 access lines since March 31, 1993.
Telephone results of operations include the results of these
acquired companies since the respective dates of acquisition.
Local service revenues increased 14.3% ($2.4 million) in
1994 with acquisitions increasing such revenues 3.8%
($645,000). Internal access line growth and sales of
custom-calling and other features increased revenues 5.5%
($926,000). Certain extended area service ("EAS")
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revenues previously reported as network access revenues
increased local service revenues 2.9% ($495,000).
Network access and long-distance revenues increased
14.3% ($5.2 million) in 1994 with acquisitions increasing such
revenues 6.0% ($2.2 million). These revenues increased 4.5%
($1.6 million) due to recovery of increased costs of providing
access to long-distance carriers. Increased usage of the
network generated 3.7% ($1.3 million) of additional network
access and long-distance revenue. These revenues decreased
1.4% ($495,000) in 1994 as certain EAS revenues are now
reported as local service revenues.
Miscellaneous revenues increased 17.2% ($1.4 million) in
1994, with acquisitions increasing such revenues 6.5%
($544,000). Increased message volumes increased miscellaneous
revenues 3.6% ($307,000), higher sales and leases of customer
premise equipment increased these revenues 3.5% ($296,000),
and call plan programming services provided to other carriers
increased these revenues by 2.6% ($217,000).
Operating expenses increased 13.8% ($5.9 million) in
1994. The effects of acquisitions increased expenses 5.5%
($2.4 million).
Plant operations expenses increased 19.8% ($1.8 million)
with acquisitions increasing these expenses 6.8% ($635,000).
The remainder of the increase was primarily due to salary and
work force changes along with the effects of general
inflation. Depreciation expense increased 13.0% ($1.7
million) with acquisitions increasing such expenses 4.3%
($559,000). The remaining increase was due primarily to
increases in plant facilities. Customer operations expenses
increased 15.9% ($1.4 million) with acquisitions increasing
such expenses 4.6% ($407,000). The remaining increase was
primarily due to increases in customer billing and programming
costs and increased marketing activities. Corporate and other
expenses increased 8.3% ($885,000) with acquisitions
increasing such expenses 6.0% ($639,000). The remaining
increase was due primarily to staffing increases and legal and
other costs related to new business development and long-range
planning activities, and general inflation and salary
increases.
Operating income from telephone operations increased
16.6% ($3.2 million) in 1994, with acquisitions increasing
such income 5.2% ($1.0 million). The telephone operating
margin was 32.0% in 1994 compared to 31.5% in 1993. The
increase in operating income reflects additional 1994 revenues
from recovery of increased costs of providing long-distance
services and from growth in access lines and minutes of use.
These increases in revenues were offset somewhat by increased
costs for plant operations, customer billing, and new business
and long-range planning and by increased depreciation. TDS
Telecom's increased operating margin for the first quarter of
1994 may not be sustainable for the remainder of the year.
Increased construction expenditures and seasonality effects
are expected to reduce the operating margin to levels near
30%.
-6-
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<PAGE>
CELLULAR TELEPHONE OPERATIONS
Three Months Ended March 31,
---------------------------------------
1994 1993 Change
----------- ---------- ----------
(Dollars in thousands,
except per unit amounts)
Operating Revenues
Service $ 63,361 $ 39,132 $24,229
Equipment Sales 2,872 2,336 536
--------- --------- --------
66,233 41,468 24,765
--------- --------- --------
Operating Expenses
System Operations 9,730 6,850 2,880
Marketing and Selling 14,054 9,311 4,743
Cost of Equipment Sold 8,009 3,871 4,138
General and Administrative 20,726 15,125 5,601
Depreciation 8,622 5,549 3,073
Amortization 6,096 4,142 1,954
--------- --------- --------
67,237 44,848 22,389
--------- --------- --------
Operating (Loss) $ (1,004) $ (3,380) $ 2,376
========= ========= ========
Cellular Telephone Revenues as a
Percent of Total Revenues 41.7% 34.4%
Additions to Property, Plant
and Equipment* $ 19,398 $ 12,850
Identifiable Assets $1,385,742 $1,043,617
Majority-Owned, Managed and
Consolidated Markets:
Population equivalents (000s) 18,521 16,217
Total population (000s) 19,927 17,338
Customers 294,000 173,800
Market penetration 1.48% 1.00%
Markets in operation 120 101
Cell sites in service 566 362
Average monthly service
revenue per unit $ 76 $ 79**
Churn rate per month 2.3% 2.1%
Marketing cost per net
customer addition $ 711 $ 798
* Does not include cash expenditures (in thousands) of $12,710
and $5,369, respectively, which relate to additions in prior
periods.
** Average monthly revenue per unit amount for 1993 has been
restated to conform to current year presentation.
USM owns, operates and invests in cellular markets. USM
owns or has the right to acquire interests, both majority and
minority, in 205 cellular telephone markets at March 31, 1994,
representing 23,642,000 population equivalents. USM manages
the operations in 139 markets at March 31, 1994, and expects
to manage the operations of four other markets. The remaining
interests in 62 markets are managed by others. USM's
consolidated results of operations include 100% of the
revenues and expenses of the systems serving its majority-
owned and managed markets. The results of operations of 120
markets are included in 1994 consolidated results compared to
101 markets in 1993.
Operating revenues increased 59.7% ($24.8 million) in
1994. The revenue increase is primarily the result of 69.2%
customer growth in the systems serving its majority-owned and
managed markets, growth in roamer revenues and acquisitions.
Acquisitions and start-ups increased revenues 18.3% ($7.6
million). USM changed its financial reporting presentation
for outbound, or pass-through, roamer revenue during the first
quarter of 1994. Pass-through roamer revenue is now treated
as an offset to the expense charged by other cellular carriers
to the Company's markets for this roaming service, and the net
amount is included in system operations
-7-
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<PAGE>
expense. Service revenues and system operations expense for
1993 have been reclassified for the effect of this change in
presentation, which will allow more comparability of USM's
revenues and margins to other companies in the cellular
industry. While the number of customers and amount of
revenues earned continued to grow, average revenue per
customer and monthly local minutes of use per customer
declined. Average monthly service revenues per customer
declined to $76 in 1994 from $79 in 1993. Monthly local
minutes of use averaged 89 in the first three months of 1994
compared to 100 in the same period in 1993. The decline in
average local minutes of use follows an industry-wide trend
and is believed to be related to the tendency of the early
subscribers in a market to be the heaviest users. It also
reflects USM's and the cellular industry's continued
penetration of the consumer market, which tends to include
more lower-usage customers. Management anticipates that
average local minutes of use and average monthly service
revenue per customer will continue to decline as USM adds more
customers.
Service revenues from local customers' usage of USM's
systems increased 62.6% ($14.9 million) in 1994. Growth in
the number of customers in USM's consolidated markets was the
primary reason for the increase in local revenue, offset
somewhat by the decrease in average monthly local minutes of
use. The decrease in average minutes of use resulted in a
decrease in average monthly retail revenue per customer, to
$46 in 1994 from $48 in 1993. Inbound roamer revenues, earned
when customers of other systems use USM's cellular systems
when roaming, increased 57.4% ($7.2 million). The increase is
attributable to an increase in the number of customers from
other systems using USM's systems as well as an increased
number of USM-managed systems and cell sites within those
systems. Monthly roamer revenue per customer averaged $24 in
1994 and $25 in 1993. Long-distance revenues increased 95.4%
($2.1 million) as the volume of long-distance calls billed by
USM increased.
Equipment sales revenue reflects the sale of 28,700 and
11,700 cellular telephone units in 1994 and 1993,
respectively, plus installation and accessories revenue. The
average revenue per telephone unit sold was $100 in 1994
compared to $200 in 1993. The average revenue decline
partially reflects both USM's decision to reduce sales prices
on cellular telephones to stimulate customer growth as well as
reduced manufacturers' prices. Also, during the first quarter
of 1994, the Company used promotions which were based on
increased equipment discounting. The success of these
promotions led to both an increase in units sold and a
decrease in average sales revenue per unit.
Operating expenses increased 49.9% ($22.4 million) in
1994. The increase in expenses was primarily the result of
increased customer activations, acquisitions and increased
depreciation and amortization expense related to increases in
fixed assets and license costs. Acquisitions and start-ups
increased operating expenses 22.8% ($10.2 million) in 1994.
System operations expenses increased 42.0% ($2.9
million) in 1994 as a result of increases in customer usage
expenses and other costs associated with operating USM's
cellular systems. Customer usage expenses represent charges
from other telecommunications service providers for local
interconnection to the landline network, toll charges and
roamer expenses from USM's customers' use of systems other
than their local systems, offset somewhat by increased pass-
through roamer revenue. Customer usage expenses increased
12.7% ($463,000) in 1994. Maintenance, utility and cell site
expenses grew 75.6% ($2.4 million) in 1994, reflecting growth
in the number of cells to 566 in 1994 from 362 in 1993 and in
the number of switches in service, and the effects of
acquisitions and new systems started after March 31, 1993.
-8-
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<PAGE>
Marketing and selling expenses increased 50.9% ($4.7
million) in 1994, due primarily to the increased number of
gross customer activations in 1994 and the effects of
acquisitions. Marketing and selling expenses primarily
consist of salaries, commissions and expenses of field sales
and retail personnel and offices, agent commissions,
promotional expenses, local advertising and public relations
expenses. Management expects that marketing and selling costs
will continue to increase as additional customers are added to
USM's systems.
Cost of equipment sold reflects the increased unit sales
related to the increase in gross customer activations and the
first quarter 1994 promotional sales discussed above, offset
somewhat by falling manufacturers' prices. The average cost
of a telephone unit sold was $279 in 1994 compared to $331 in
1993.
General and administrative expenses increased 37.1%
($5.6 million) in 1994. These expenses include the costs of
operating USM's local business offices and its corporate
expenses. The increase results from the growth in the number
of consolidated markets due to acquisitions as well as the
growth in the customer base in existing systems. USM is using
an ongoing clustering strategy to combine local operations
wherever warranted in order to gain operational efficiencies
and reduce its administrative expenses.
Depreciation expense increased 55.4% ($3.1 million) in
1994, reflecting a 54.4% increase in average fixed assets
since March 31, 1993. Amortization expense, primarily
amortization of license costs, increased 47.2% ($2.0 million)
in 1994. License costs for consolidated operational markets
increased 40.6% ($259 million) since March 31, 1993.
Operating loss was $1.0 million in 1994 compared to $3.4
million in 1993. Operating margin on service revenues, while
still negative, improved to (1.6%) in 1994 from (8.6%) in
1993. The decrease in operating loss was primarily due to
improved results in the more established systems and increased
revenues from growth in the customer base, offset somewhat by
costs associated with the growth of USM's operations and
increased losses on equipment sales. At least 11 additional
markets are expected to be added to consolidated operations by
the end of 1994. The addition of these markets is expected to
increase expenses as USM adds to its technical and
administrative staffs to build and serve the systems. As a
result, USM may generate operating losses over the next
several quarters.
Cellular investment income includes USM's and TDS's
share of the net incomes or losses of cellular markets in
which they have a minority interest and for which they follow
the equity method of accounting, net of amortization of
license costs related to these minority interests.
CELLULAR INVESTMENT INCOME
Net of License Cost Amortization
Three Months Ended March 31,
-------------------------------------
1994 1993 Change
--------- --------- --------
(Dollars in thousands)
Cellular Systems Managed by USM $ (158) $ (413) $ 255
Cellular Systems Managed by Others 3,741 2,865 876
--------- --------- --------
$ 3,583 $ 2,452 $ 1,131
========= ========= ========
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Net loss from cellular telephone operations was $1.5
million in 1994 compared to $7.6 million in 1993. Such net
loss excludes the USM minority shareholders' share of such
losses. Net loss from cellular telephone operations does not
include income tax benefits from inclusion in the TDS
consolidated federal tax return. Under a tax allocation
agreement between TDS and USM, TDS does not reimburse USM
currently for income tax benefits and credits. Instead, such
benefits and credits are carried forward until they can be
used by USM.
TDS owned an aggregate of 62,487,904 shares of common
stock of USM at March 31, 1994, representing over 81% of the
combined total of USM's outstanding Common and Series A Common
Shares and over 96% of their combined voting power. Assuming
USM's Common Shares are issued in all instances in which USM
has the choice to issue its Common Shares or other
consideration and assuming the USM common stock to be issued
to TDS and third parties for completed and pending
acquisitions and Preferred Stock conversions had been
completed at March 31, 1994, TDS would have owned
approximately 79.6% of the total outstanding common stock of
USM and controlled over 95% of the combined voting power of
both classes of its common stock. In the event TDS's
ownership of USM falls below 80% of the total value of all of
the outstanding shares of USM's stock, TDS and USM would be
deconsolidated for federal income tax purposes. TDS and USM
have the ability to defer or prevent deconsolidation, if
deferring or preventing deconsolidation would be advantageous,
by delivering TDS Common Shares and/or cash, in lieu of USM's
Common Shares in connection with certain acquisitions.
RADIO PAGING OPERATIONS
Three Months Ended March 31,
--------------------------------------
1994 1993 Change
----------- ---------- ----------
(Dollars in thousands, except per unit amounts)
Service Operations
Revenues $ 18,139 $ 14,616 $ 3,523
--------- --------- --------
Costs and Expenses
Cost of Services 4,207 3,637 570
Selling and Advertising 3,020 2,644 376
General and Administrative 6,776 5,969 807
Depreciation 3,107 2,556 551
Amortization 602 510 92
--------- --------- --------
17,712 15,316 2,396
--------- --------- --------
Service Operating Income (Loss) 427 (700) 1,127
--------- --------- --------
Equipment Sales
Revenue 3,370 2,359 1,011
Cost of Equipment Sold 3,227 2,405 822
--------- --------- --------
Equipment Sales Income (Loss) 143 (46) 189
--------- --------- --------
Operating Income (Loss) $ 570 $ (746) $ 1,316
========= ========= ========
Radio Paging Revenues as a
Percent of Total Revenues 13.6% 14.1%
Additions to Property and Equipment* $ 7,004 $ 5,486
Identifiable Assets $ 74,907 $ 60,935
Pagers in service 492,300 350,900
Average monthly service revenue
per unit $ 12.69 $ 14.48
Transmitters in service 758 533
Disconnect rate per month 2.8% 2.8%
Marketing cost per net customer
unit addition $ 92 $ 94
* Does not include cash expenditures (in thousands) of $1,474
in 1994 which relate to additions in 1993.
Includes noncash expenditures (in thousands) of $1,492 in
1993.
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Service revenues increased 24.1% ($3.5 million) in the
first quarter of 1994 from 1993, primarily as a result of the
40.3% growth in the number of pagers in service. A net
additional 141,400 pagers have been placed in service since
March 31, 1993. However, a continuing decline in average
revenue per pager has slowed service revenue growth. Average
monthly service revenue per pager declined 12.4% to $12.69 in
the first three months of 1994 from $14.48 in the same period
of 1993. The decline in APP's average service revenue per
pager is consistent with the industry trend. However, APP's
average service revenue per pager remains above the industry
average. Declining average monthly service revenue per pager
is related to competitive factors and a shift toward lower
distribution channels such as resellers and customers
purchasing pagers through retail operations.
Service expenses increased 15.6% ($2.4 million) in 1994
from 1993, primarily as a result of the costs of system
expansion and serving new customers. However, average monthly
operating cost per unit improved 19.3% to $7.68 in 1994 from
$9.52 in 1993 as a result of achieving economies of scale and
operating efficiencies. Cost of services increased 15.7%
($570,000) in 1994 reflecting the additional costs of
providing service to the increased customer base and the costs
of upgrading and expanding the systems to improve system
reliability and coverage. APP's transmitters in service
increased to 758 at March 31, 1994 from 533 at March 31, 1993.
Selling and advertising expense increased 14.2% ($376,000) in
1994 over 1993 on a 25.9% increase in pager sales. Selling
and advertising expense increased at a slower rate than the
rate of growth in pagers in service due to improved
productivity of sales personnel and increased use of lower-
cost distribution channels such as resellers and retail
outlets. General and administrative expense increased 13.5%
($807,000) due primarily to increases in employee-related
costs ($302,000), additional bad debt expense ($264,000) and
additional billing costs due to an enhancement of APP's
customer billing system ($124,000). Depreciation charges
increased 21.6% ($551,000) in 1994 reflecting the increased
investment in pagers and related equipment.
Equipment sales revenue increased 42.9% ($1.0 million)
due to APP's increased emphasis on selling pagers to
customers, particularly through retail stores and resellers.
Cost of equipment sold increased 34.3% ($822,000) also due to
the increased focus on pager sales.
Operating income (loss) was $570,000 in 1994 compared to
($746,000) in 1993. The improvement in operating results
reflects i) rapid growth in revenues due to the growth in the
customer base, offset somewhat by a continuing decline in
average monthly service revenue per unit and ii) increased
operating expenses due to the growth in customer units,
tempered by APP's efforts to reduce costs through process
improvements and economies of scale. APP's use of lower-
revenue distribution channels, while reducing the rate of
revenue growth, is associated with lower customer acquisition
costs.
Net income (loss) from radio paging operations totalled
$12,000 in 1994 and $(892,000) in 1993.
-11-
<PAGE>
<PAGE>
PARENT AND SERVICE COMPANY OPERATIONS
Other income, net includes the gross income of TDS's
computer, engineering and printing service companies and costs
of corporate operations.
Three Months Ended
March 31,
-----------------------
1994 1993
--------- ---------
(Dollars in thousands)
Additions to Property and Equipment* $ 1,729 $ 3,057
Identifiable Assets $ 113,586 $ 56,021
* Does not include cash expenditures (in thousands) of $74 and
$241, respectively, related to additions in prior periods.
FINANCIAL RESOURCES AND LIQUIDITY
---------------------------------
Cash flows from operating activities totalled $41.0
million in the first quarter of 1994 compared to $24.5 million
in 1993. Consolidated operating cash flow (operating income
plus depreciation and amortization) totalled $56.2 million in
1994 compared to $41.8 million in 1993. The 34.3% increase in
operating cash flow reflects improved operating cash flow in
all three of TDS's primary business units.
Three Months Ended March 31,
-------------------------------------
1994 1993 Change
----------- ---------- ----------
(Dollars in thousands)
OPERATING CASH FLOW
Telephone Operations $ 38,181 $ 33,209 $ 4,972
Cellular Telephone Operations 13,714 6,311 7,403
Radio Paging Operations 4,279 2,320 1,959
--------- --------- --------
$ 56,174 $ 41,840 $14,334
========= ========= ========
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
$15.2 million in the first quarter of 1994 compared to $17.4
million in the first quarter of 1993.
Cash flows from financing activities totalled $56.9
million in the first quarter of 1994 compared to $56.8 million
in 1993. Sales of common stock by TDS and APP and long- and
short-term borrowings provided most of the Company's external
financing requirements during the first quarter of 1994.
Long-term debt borrowings, primarily under TDS's Medium-Term
Note Program, provided most of the Company's external
financing requirements during the first quarter of 1993. TDS
has used short-term debt to finance its cellular telephone and
radio paging operations, for acquisitions and for general
corporate purposes. Proceeds from the sale of long-term debt
and equity securities from time to time have retired such
short-term debt.
Cash flows from investing activities required cash of
$62.7 million in the first quarter of 1994 compared to $81.4
million in 1993. Such cash flows primarily consist of
additions to property, plant and equipment requiring the use
of cash, and cash flows for acquisitions and for investments
in cellular telephone partnerships. Cash expenditures for
property, plant and equipment totalled $63.1 million in the
first quarter of 1994 compared to $41.4 million in the first
quarter of 1993. Cash used for acquisitions totalled $4.3
million and $35.1 million in the first quarter of 1994 and
1993, respectively.
-12-
<PAGE>
<PAGE>
Additions to telephone plant and equipment totalled
$13.6 million for the first quarter of 1994. Management
expects that plant and equipment additions will total about
$110 million in 1994, exclusive of acquisitions. This
construction budget includes $45 million for new digital
switches and $47 million for outside plant upgrades such as
the installation of fiber optic cables. The Company plans to
finance its telephone construction programs primarily using
internally generated funds supplemented by long-term financing
obtained under federal government programs.
Additions to cellular telephone plant and equipment
totalled $19.4 million for the first quarter of 1994.
Management expects such cellular telephone expenditures during
1994 to total about $140 million for enhancements of existing
majority-owned systems and for the construction of switching
offices and cell sites. These additions will be financed by a
combination of the Company's short-term bank financing, vendor
financing and sales of USM equity and/or debt securities.
Additions to radio paging property and equipment
totalled $7.0 million for the first quarter of 1994.
Management expects that such property and equipment additions
will total about $25 million in 1994, primarily for the
purchase of pagers. The Company's short-term bank financing
along with radio paging operations' internally generated cash
will finance these property additions.
Other fixed asset additions totalled $1.7 million for
the first quarter of 1994. Management expects that these
additions will total about $10 million in 1994 and will be
financed primarily using short-term bank notes along with
internally generated cash.
Cash flows used for acquisitions, net of cash acquired,
totalled $4.3 million in the first quarter of 1994 compared to
$35.1 million in 1993. During the first quarter of 1994, TDS
purchased controlling interests in six cellular markets and
several minority cellular interests representing a total of
822,000 population equivalents. Some of the entities acquired
during 1994 were subject to acquisition agreements prior to
1994. The aggregate consideration for the acquisitions
completed in 1994 was $98.7 million, consisting of $4.8
million in cash, 1.8 million TDS Common Shares ($90.5
million), cancellation of a note receivable ($1.4 million) and
the obligation to deliver 42,000 TDS Common Shares ($2.0
million) in the future.
TDS's active acquisition program may require substantial
external financing during the remainder of 1994. TDS and its
subsidiaries had agreements pending at March 31, 1994, to
acquire controlling interests in three cellular markets and
minority interests in two markets representing approximately
487,000 population equivalents and two telephone companies for
an aggregate consideration of approximately $88.1 million. If
all of these pending acquisitions are completed as planned,
TDS and/or USM will issue approximately 1.8 million TDS Common
Shares ($85.6 million) and 50,000 USM Common Shares ($984,000)
and will pay approximately $1.5 million in cash. Any cellular
interests acquired by TDS are expected to be assigned to USM,
and at the time this occurs USM will reimburse TDS for TDS's
consideration delivered and costs incurred in such
acquisitions in the form of USM Common Shares, notes payable
and cash. Additionally, USM has commitments to issue 1.0
million of its Common Shares to third parties in 1994 through
1996 in connection with acquisitions closed in prior years.
In addition to the agreements discussed above, USM has
an agreement to acquire a controlling interest in a cellular
market representing 150,000 population equivalents. The
-13-
<PAGE>
<PAGE>
consideration for this acquisition will be determined based on
an appraisal in the future of the fair market value of the
interest to be acquired.
TDS and USM plan to continue to acquire additional
cellular interests in markets that strengthen USM's position,
and are currently negotiating agreements for the acquisition
of additional cellular interests. TDS and APP are also
currently negotiating agreements for the acquisition of
additional telephone and paging companies, respectively.
TDS is a party to a legal proceeding before the Federal
Communications Commission ("FCC") involving its cellular
license in a Wisconsin Rural Service Area. Pending the
resolution of the issues in the Wisconsin proceeding, further
FCC grants to TDS and its subsidiaries will be conditioned on
the outcome of that proceeding. TDS's and USM's ability to
sell or exchange properties with third parties while such
proceeding is pending may be affected. See Note 14 of Notes
to Consolidated Financial Statements, Legal Proceedings (La
Star Application), in the Company's 1993 Annual Report to
Shareholders for a discussion of the proceeding involving the
Wisconsin Rural Service Area and the La Star proceeding. As
disclosed in a Form 8-K dated March 30, 1994, the FCC's
decision in the La Star proceeding was vacated and remanded to
the FCC for further proceedings by a federal court of appeals.
The Company is evaluating what impact the court's decision in
the La Star matter may have on the Wisconsin proceeding.
Liquidity. Management believes that TDS has adequate
internal and external resources to finance its business
development, construction and acquisition programs. TDS and
its subsidiaries had cash and temporary investments totalling
$108 million and longer-term investments totalling $59.5
million at March 31, 1994. 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 had $120 million of bank lines
of credit for general corporate purposes at March 31, 1994,
all of which were committed. Unused amounts of such lines
totalled $97.7 million, all of which were committed. These
line of credit agreements provide for borrowings at negotiated
rates up to the prime rate.
TDS and USM also have access to debt and equity capital
markets, including shelf registration statements to issue
common stock and preferred stock for acquisitions. TDS's
shelf registration statement for Common Shares for
acquisitions had 4.7 million unissued shares at March 31,
1994, including 726,000 shares reserved under definitive
agreements. TDS has a universal shelf registration statement
which may be used from time to time to issue debt securities
and/or Common Shares for cash. At March 31, 1994, $277.6
million remained unused on the universal shelf. Of this
unused amount, $150 million has been allocated to TDS's Series
C Medium-Term Note Program. The remaining $127.6 million may
be used for either debt or equity security issuances. In
February 1994, APP issued 3.5 million Common Shares in an
initial public offering at a price of $14.00 per share. The
$45.6 million proceeds (after underwriting discount) were used
to reduce TDS's short-term debt and for general Corporate
purposes.
Management believes that TDS's internal cash flow 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 meet
its short- and longer-term financing needs. Moreover, TDS,
USM and APP have access to public and private capital markets
and anticipate issuing debt
-14-
<PAGE>
<PAGE>
and equity securities when capital requirements (including
acquisitions), financial market conditions and other factors
warrant.
-15-
<PAGE>
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
----------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------
Unaudited
---------
Three Months Ended
March 31,
------------------------
1994 1993
---------- --------
(Dollars in thousands,
except per share amounts)
OPERATING REVENUES
Telephone $ 71,060 $ 61,957
Cellular telephone 66,233 41,468
Radio paging 21,509 16,975
---------- ----------
158,802 120,400
---------- ----------
OPERATING EXPENSES
Telephone 48,322 42,455
Cellular telephone 67,237 44,848
Radio paging 20,939 17,721
---------- ----------
136,498 105,024
---------- ----------
OPERATING INCOME 22,304 15,376
---------- ----------
INVESTMENT AND OTHER INCOME
Interest and dividend income 2,048 1,778
Minority share of (income) loss (1,197) 755
Cellular investment income, net of
license cost amortization 3,583 2,452
Other income, net 769 184
---------- ----------
5,203 5,169
---------- ----------
INCOME BEFORE INTEREST AND INCOME TAXES 27,507 20,545
Interest expense 9,249 8,386
---------- ----------
INCOME BEFORE INCOME TAXES 18,258 12,159
Income tax expense 8,034 5,356
---------- ----------
NET INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 10,224 6,803
Cumulative effect of accounting
change (Note 2) (723) --
---------- ----------
NET INCOME 9,501 6,803
Preferred Dividend Requirement (564) (596)
---------- ----------
NET INCOME AVAILABLE TO COMMON $ 8,937 $ 6,207
========== ==========
WEIGHTED AVERAGE COMMON SHARES (000s) 52,555 44,261
EARNINGS PER COMMON SHARE:
Before cumulative effect of
accounting change $ .18 $ .14
Cumulative effect of accounting
change (Note 2) (.01) --
---------- ----------
Net Income $ .17 $ .14
========== ==========
DIVIDENDS PER COMMON AND
SERIES A COMMON SHARE $ .09 $ .085
========== ==========
The accompanying notes to financial statements are an integral
part of these statements.
-16-
<PAGE>
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
--------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
Unaudited
------------
Three Months Ended
March 31,
------------------------
1994 1993
---------- --------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,501 $ 6,803
Add (Deduct) adjustments to reconcile net income
to net cash provided by operating activities
Cumulative effect of accounting changes 723 --
Depreciation and amortization 36,606 28,785
Deferred taxes 10,218 1,289
Investment income (5,021) (3,761)
Minority share of income (losses) 1,197 (755)
Other noncash expense 1,106 1,229
Change in accounts receivable (5,265) (3,261)
Change in accounts payable (774) (3,786)
Change in accrued taxes (4,775) 2,911
Change in other assets and liabilities (2,539) (4,987)
---------- ---------
40,977 24,467
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings 6,397 69,910
Repayments of long-term debt (10,274) (13,015)
Change in notes payable 16,041 3,007
Common stock issued 5,532 340
Minority partner capital (distributions)
contributions (658) 732
Redemption of preferred stock (268) (104)
Dividends paid (5,095) (4,184)
Sale of stock by a subsidiary 45,241 80
---------- ---------
56,916 56,766
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (63,117) (41,352)
Investments in and advances to cellular
minority partnerships (3,979) (5,711)
Distributions from partnerships 5,098 4,562
Other investments 2,043 (3,398)
Acquisitions, excluding cash acquired (4,280) (35,135)
Change in temporary investments 1,523 (336)
---------- ---------
(62,712) (81,370)
---------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 35,181 (137)
CASH AND CASH EQUIVALENTS -
Beginning of period 55,666 40,810
---------- ---------
End of period $ 90,847 $40,673
========== =========
The accompanying notes to financial statements are an integral
part of these statements.
-17-
<PAGE>
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
--------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
(Unaudited)
March 31, 1994 December 31, 1993
-------------- -----------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 90,847 $ 55,666
Temporary investments 16,642 17,719
Accounts receivable from customers and others 86,215 80,796
Materials and supplies, at average cost,
and other current assets 27,104 25,375
------------ -------------
220,808 179,556
------------ -------------
INVESTMENTS
Cellular limited partnership interests 100,468 101,210
Cellular license acquisition costs, net 140,777 92,277
Marketable equity securities 19,135 19,368
Other 109,040 115,532
------------ -------------
369,420 328,387
------------ -------------
PROPERTY, PLANT AND EQUIPMENT
Telephone plant and franchise costs, net 636,271 638,848
Cellular telephone plant and
license costs, net 1,069,920 1,014,103
Radio paging, net 54,870 52,945
Other, net 32,445 32,402
------------ -------------
1,793,506 1,738,298
------------ -------------
OTHER ASSETS AND DEFERRED CHARGES 16,852 12,941
------------ -------------
$ 2,400,586 $ 2,259,182
============ =============
The accompanying notes to financial statements
are an integral part of these statements.
-18-
<PAGE>
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
(Unaudited)
March 31, 1994 December 31, 1993
-------------- -----------------
(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt
and preferred shares $ 34,752 $ 24,859
Notes payable 22,350 6,309
Accounts payable 60,704 82,878
Advance billings and customer deposits 18,318 17,273
Accrued interest 4,303 8,968
Accrued taxes 3,240 7,995
Other current liabilities 16,730 15,249
------------ -------------
160,397 163,531
------------ -------------
DEFERRED LIABILITIES AND CREDITS 93,074 90,979
------------ -------------
LONG-TERM DEBT, excluding current portion 510,868 514,442
------------ -------------
REDEEMABLE PREFERRED SHARES, excluding
current portion 15,058 25,632
------------ -------------
MINORITY INTEREST in subsidiaries 243,934 223,480
------------ -------------
NONREDEEMABLE PREFERRED SHARES 16,652 16,833
------------ -------------
COMMON STOCKHOLDERS' EQUITY
Common Shares, par value $1 per share 45,761 43,504
Series A Common Shares, par value $1 per share 6,884 6,881
Common Shares issuable (41,908 and 304,328
shares, respectively) 1,995 15,189
Capital in excess of par value 1,212,207 1,069,022
Retained earnings 93,756 89,689
------------ -------------
1,360,603 1,224,285
------------ -------------
$ 2,400,586 $ 2,259,182
============= =============
The accompanying notes to financial statements
are an integral part of these statements.
-19-
<PAGE>
<PAGE>
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 March 31, 1994 and December 31,
1993, and the results of operations and cash flows for
the three months ended March 31, 1994 and 1993. The
results of operations for the three months ended March
31, 1994 and 1993, are not necessarily indicative of the
results to be expected for the full year. Certain 1993
cellular operating revenues and expenses have been
reclassified to conform to current year presentation.
2. The Company implemented SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities,"
effective January 1, 1994. SFAS No. 115 addresses the
accounting and reporting for investments in equity
securities that have readily determinable fair values and
for all investments in debt securities. Those
investments are to be classified in one of three
categories: a) held-to-maturity securities, reported at
amortized cost; b) trading securities, reported at fair
value; and c) available-for-sale securities, reported at
fair value with unrealized gains and losses excluded from
earnings and reported in a separate component of
shareholders' equity.
Information regarding the Company's securities is
summarized below.
<TABLE>
<CAPTION>
Aggregate Gross Unrealized Gross Unrealized Amortized
Fair Value Holding Gains Holding Losses Cost Basis
--------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Available-for-sale
Equity securities $19,135 $ 441 $ 2,578 $ 21,272
Held-to-maturity--
U.S. Treasury and other
U.S. government corporations
and agencies
Current 8,079 48 --- 8,031
Non-current $57,639 $ --- $ 1,319 $ 58,958
</TABLE>
-20-
<PAGE>
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's debt securities classified as held-to-
maturity have contractual maturities as follows:
Aggregate Amortized
Fair Value Cost Basis
-------- ----------
Within one year $ 8,079 $ 8,031
Over one year through five years 52,893 53,942
Over five years through 10 years $ 4,746 $ 5,016
The Company's net unrealized holding loss on available-
for-sale securities, $1.5 million in the first quarter of
1994, has been included as a reduction of Common
Stockholders' Equity. No sales of these securities have
occurred during the quarter. No sales of or transfers
from securities classified as held-to-maturity have
occurred during the quarter.
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 March
31, 1994, consist of dilutive Common Share options.
4. Assuming that acquisitions accounted for as purchases
during the period January 1, 1993, to March 31, 1994, had
taken place on January 1, 1993, pro forma results of
operations from continuing operations would have been,
for the three months ended March 31, 1994: operating
revenues $159.0 million, net income $9.4 million and
primary earnings per common share $.17 and would have
been, for the three months ended March 31, 1993:
operating revenues $130.1 million, net income $3.7
million and primary earnings per common share $.06.
-21-
<PAGE>
<PAGE>
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 and operating
companies in 1994 and 1993. TDS also acquired two
telephone companies during the first quarter of 1993. In
conjunction with these acquisitions, the following assets
were acquired and liabilities assumed, and Common Shares
and Preferred Shares issued.
Three Months Ended
March 31,
----------------------
1994 1993
--------- -------
(Dollars in thousands)
Property, plant and equipment $ 3,782 $51,530
Cellular licenses 98,061 164,953
Increase (decrease) in equity method
investment in cellular interests (4,154) 5,107
Long-term debt -- (21,907)
Deferred credits (18) (3,339)
Other assets and liabilities,
excluding cash and cash equivalents (1,337) 4,521
Minority interest 711 (12,174)
Common Shares issued and issuable (92,765) (147,560)
Preferred Shares issued -- (3,000)
USM Stock issued and issuable -- (2,996)
---------- ---------
Decrease in cash due to acquisitions $ 4,280 $35,135
========== =========
The following table summarizes interest and income taxes
paid, and other non-cash transactions.
Three Months Ended
March 31,
----------------------
1994 1993
--------- -------
(Dollars in thousands)
Interest paid $ 13,874 $ 10,448
Income taxes paid 4,144 1,526
Common Shares issued by TDS for
conversion of TDS and Subsidiary
Preferred Stock $ 181 $ 364
-22-
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
------------------------------
Item 1. Legal Proceedings
---------------------------
Townes Telecommunications, Inc., et. al. v. TDS et. al. On
May 6, 1994, TDS and USM announced that a Hendersen, Texas
jury rejected all claims made against TDS and USM in
connection with this litigation. A copy of the new release is
attached as an exhibit hereto and incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K.
------------------------------------------
(a) Exhibit 11 - Computation of earnings per common share.
(b) Exhibit 12 - Statement regarding computation of
ratios.
(c) Exhibit 99.1 - Unaudited Consolidated Statements of
Income for the Twelve Months Ended March 31, 1994 and
1993.
Exhibit 99.2 - Pro Forma Financial Information.
Exhibit 99.3 - News release regarding the successful
outcome of the legal proceeding - Townes
Telecommunications, Inc. et. al. v. TDS et. al.
(d) Reports on Form 8-K filed during the quarter ended
March 31, 1994:
TDS filed a Report on Form 8-K dated January 19, 1994,
which describes certain pending acquisitions. The
Report filed the financial statements of two companies
which were pending acquisitions. The Report filed
unaudited consolidated pro forma financial statements
reflecting the effects of the pending acquisitions.
TDS filed a Report on Form 8-K dated February 7, 1994,
which included a press release announcing that a
hearing had been ordered by the Federal Communications
Commission ("FCC") to determine whether USM had
misrepresented facts to, lacked candor in its dealings
with or attempted to mislead the FCC in a proceeding
involving the application of LaStar Cellular Telephone
Company for a certain initial cellular license. The
hearing will also determine whether TDS possesses the
requisite character qualifications to retain its
cellular license in another market.
TDS filed a Report on Form 8-K dated March 30, 1994,
which included a press release announcing that the
U.S. Court of Appeals for the District of Columbia
Circuit vacated an FCC decision holding that USM had
been in control of LaStar Cellular Telephone Company.
The Court remanded the matter to the FCC for further
proceedings.
No other reports on Form 8-K were filed during the
quarter ended March 31, 1994.
-23-
<PAGE>
<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.
TELEPHONE AND DATA SYSTEMS, INC.
---------------------------------
(Registrant)
Date May 12, 1994 /s/ MURRAY L. SWANSON
---------------- ----------------------------
Murray L. Swanson,
Executive Vice President- Finance
Date May 12, 1994 /s/ GREGORY J. WILKINSON
----------------- -----------------------------
Gregory J. Wilkinson,
Vice President and Controller
(Principal Accounting Officer)
-24-
<PAGE>
Exhibit 11
Telephone and Data Systems, Inc.
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Three Months Ended March 31, 1994 1993
---------------------------- ---------- --------
Primary Earnings
Net Income before cumulative effect
of accounting change $10,224 $ 6,803
Dividends on Preferred Shares (564) (596)
-------- --------
Net income before cumulative effect
of accounting change applicable
to Common 9,660 6,207
Cumulative effect of accounting change (723) -
-------- --------
Net Income Available to Common $ 8,937 $ 6,207
======== ========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 52,290 43,976
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 202 284
Convertible Preferred Shares 28 1
Common Shares Issuable 35 -
-------- --------
Primary Shares 52,555 44,261
======== ========
Primary Earnings per Common Share
Net Income before cumulative effect
of accounting change $ .18 $ .14
Cumulative effect of accounting change (.01) -
-------- --------
Net Income $ .17 $ .14
======== ========
Fully Diluted Earnings*
Net Income before cumulative effect
of accounting change $10,224 $ 6,803
Dividends on Preferred Shares (564) (596)
-------- --------
Net income before cumulative effect
of accounting change applicable
to Common 9,660 6,207
Cumulative effect of accounting change (723) -
-------- --------
Net Income Available to Common $ 8,937 $ 6,207
======== ========
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 52,290 43,976
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 206 294
Convertible Preferred Shares 28 1
Common Shares Issuable 35 -
-------- --------
Fully Diluted Shares 52,559 44,271
======== ========
Fully Diluted Earnings per Common Share
Net Income before cumulative effect
of accounting change $ .18 $ .14
Cumulative effect of accounting change (.01) -
-------- ---------
Net Income $ .17 $ .14
======== =========
* 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%.
<PAGE>
Exhibit 12
TELEPHONE AND DATA SYSTEMS, INC.
RATIOS OF EARNINGS TO FIXED CHARGES
For the Three Months March 31, 1994
(Dollars In Thousands)
3/31/94
------------------
EARNINGS:
Income from Continuing Operations before
income taxes $18,258
Add (Deduct):
Minority Share of Losses (368)
Earnings on Equity Method (5,021)
Distributions from Minority Subsidiaries 5,098
Amortization of Non-Telephone Capitalized
Interest 6
Minority interest in majority-owned subsidiaries
that have fixed charges 482
------------
18,455
Add fixed charges:
Consolidated interest expense 9,213
Interest Portion (1/3) of Consolidated Rent Expense 1,228
Amortization of debt expense and discount on
indebtedness 37
------------
$28,933
============
FIXED CHARGES:
Consolidated interest expense $ 9,213
Interest Portion (1/3) of Consolidated Rent Expense 1,228
Amortization of debt expense and discount on indebtedness 37
------------
$10,478
============
RATIO OF EARNINGS TO FIXED CHARGES 2.76
============
Tax-Effected Redeemable Preferred Dividends $ 584
Fixed Charges 10,478
------------
Fixed Charges and Redeemable Preferred Dividends $11,062
============
RATIO OF EARNINGS TO FIXED CHARGES
AND REDEEMABLE PREFERRED DIVIDENDS 2.62
============
Tax-Effected Preferred Dividends $ 1,006
Fixed Charges 10,478
------------
Fixed Charges and Preferred Dividends $11,484
============
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 2.52
============
<PAGE>
Exhibit 99.1
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Unaudited
---------
Twelve Months Ended
March 31,
--------------------
1994 1993
---------- ---------
(Dollars in thousands, except per share amounts)
OPERATING REVENUES
Telephone $ 277,225 $ 241,990
Cellular telephone 239,075 154,869
Radio paging 79,897 59,772
---------- ---------
596,197 456,631
---------- ---------
OPERATING EXPENSES
Telephone 194,879 168,884
Cellular telephone 245,355 168,274
Radio paging 79,302 64,337
---------- ---------
519,536 401,495
---------- ---------
OPERATING INCOME 76,661 55,136
---------- ---------
INVESTMENT AND OTHER INCOME
Interest and dividend income 8,352 7,935
Minority share of income (2,427) (567)
Cellular investment income, net of license cost
amortization 16,835 10,045
Gain on sale of cellular interests 4,970 16,521
Other income, net 430 1,214
---------- ---------
28,160 35,148
---------- ---------
INCOME BEFORE INTEREST AND INCOME TAXES 104,821 90,284
Interest expense 38,329 32,924
---------- ---------
INCOME BEFORE INCOME TAXES 66,492 57,360
Income tax expense 29,175 25,196
---------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 37,317 32,164
Extraordinary item - (769)
Cumulative effect of accounting change (723) -
---------- ---------
NET INCOME 36,594 31,395
Preferred Dividend Requirement (2,353) (2,280)
---------- ---------
NET INCOME AVAILABLE TO COMMON $ 34,241 $ 29,115
========== =========
WEIGHTED AVERAGE COMMON SHARES (000s) 49,332 41,097
EARNINGS PER COMMON SHARE:
Before extraordinary item and
cumulative effect of accounting change $ .71 $ .73
Extraordinary item - (.02)
Cumulative effect of accounting change (.02) -
----------- ----------
Net Income $ .69 $ .71
=========== ==========
DIVIDENDS PER COMMON AND SERIES A
COMMON SHARE $ .345 $ .325
=========== ==========
<PAGE>
Exhibit 99.2
TELEPHONE AND DATA SYSTEMS, INC.
PRO FORMA FINANCIAL INFORMATION
Telephone and Data Systems, Inc. ("TDS"), together
with its majority-owned subsidiaries, TDS Telecommunications
Corporation, United States Cellular Corporation (AMEX symbol
"USM") and American Paging, Inc. (AMEX symbol "APP"), are
referred to in this report as the "Company."
From January 1 through March 31, 1994, the Company
acquired controlling interests in six cellular markets and
several minority cellular interests representing a total of
approximately 822,000 population equivalents. The total
consideration paid for these acquisitions was approximately
$98.7 million, consisting of 1.8 million TDS Common Shares,
the obligation to deliver 42,000 TDS Common Shares in the
future, the cancellation of a note receivable of $1.4 million
and $4.8 million in cash.
As of March 31, 1994, the Company had pending
agreements to acquire two telephone companies and controlling
interests in three cellular markets and minority interests in
two markets representing a total of approximately 487,000
population equivalents. The total consideration to be paid
for the acquisitions described in this paragraph, valued at
the time such agreements were entered into, is approximately
$88.1 million. If these acquisitions are completed as
planned, the Company and/or USM will issue approximately 1.8
million TDS Common Shares, 50,000 USM Common Shares and will
pay approximately $1.5 million in cash.
Pursuant to Rule 3-05 and Rule 11-01 of Regulation
S-X, the completed and pending acquisitions of businesses
described in the foregoing paragraphs are not individually
significant. The following pro forma financial information is
included pursuant to Article 11 of Regulation S-X:
Telephone and Data Systems, Inc. Unaudited Condensed Pro Forma
Consolidated Financial Statements:
Unaudited Condensed Pro Forma Consolidated Balance Sheet
as of March 31, 1994
Unaudited Condensed Pro Forma Consolidated Statement
of Income
for the Three Months Ended March 31, 1994
Unaudited Condensed Pro Forma Consolidated Statement
of Income
for the Year Ended December 31, 1993
Notes to Unaudited Condensed Pro Forma Consolidated
Financial Statements
<PAGE>
<PAGE>
<TABLE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
Condensed Pro Forma Consolidated Balance Sheet
March 31, 1994
Unaudited
---------
(In Thousands)
ASSETS
<CAPTION>
Combined Pro Forma
Completed Adjustments Pro Forma
TDS and Pending Increase TDS
Consolidated (a) Acquisitions (Decrease) Consolidated
------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 220,808 $ 14,172 $ - $ 234,980
---------------------------------------------------------
INVESTMENTS
Cellular limited
partnership interests 100,468 - (658) (1) 99,810
Cellular license
acquisition costs, net 140,777 - - 140,777
Marketable equity securities 19,135 - - 19,135
Other 109,040 3,515 - 112,555
---------------------------------------------------------
369,420 3,515 (658) 372,277
---------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Telephone plant and
franchise costs, net 636,271 32,371 34,512 (1) 703,154
Cellular telephone plant and
license costs, net 1,069,920 2,678 37,781 (1) 1,110,379
Radio paging, net 54,870 - - 54,870
Other, net 32,445 - - 32,445
---------------------------------------------------------
1,793,506 35,049 72,293 1,900,848
---------------------------------------------------------
OTHER ASSETS AND
DEFERRED CHARGES 16,852 2,868 - 19,720
---------------------------------------------------------
$2,400,586 $ 55,604 $71,635 $2,527,825
=========================================================
<FN>
The accompanying notes to condensed pro forma consolidated financial statements
are an integral part of this statement.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
Condensed Pro Forma Consolidated Balance Sheet
March 31, 1994
Unaudited
---------
(In Thousands)
STOCKHOLDERS' EQUITY AND LIABILITIES
<CAPTION>
Combined Pro Forma
Completed Adjustments Pro Forma
TDS and Pending Increase TDS
Consolidated (a) Acquisitions (Decrease) Consolidated
-----------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES $ 160,397 $ 12,042 $ 822(1) $ 173,261
----------------------------------------------------------
DEFERRED LIABILITIES
AND CREDITS 93,074 6,000 - 99,074
----------------------------------------------------------
LONG-TERM DEBT,
excluding current portion 510,868 21,793 - 532,661
---------------------------------------------------------
REDEEMABLE PREFERRED STOCK,
excluding current portion 15,058 - - 15,058
---------------------------------------------------------
MINORITY INTEREST in
subsidiaries 243,934 - 984(1) 244,918
---------------------------------------------------------
NONREDEEMABLE PREFERRED
STOCK 16,652 - - 16,652
---------------------------------------------------------
COMMON STOCKHOLDERS' EQUITY
Common Shares, par
value $1 per share 45,761 114 1,680(1) 47,555
Series A Common Shares,
par value $1 per share 6,884 - - 6,884
Common Shares Issuable 1,995 - - 1,995
Capital in excess of
par value 1,212,207 - 83,804 (1) 1,296,011
Retained earnings 93,756 15,655 (15,655) (1) 93,756
---------------------------------------------------------
1,360,603 15,769 69,829 1,446,201
---------------------------------------------------------
$2,400,586 $ 55,604 $71,635 $2,527,825
=========================================================
<FN>
The accompanying notes to condensed pro forma consolidated financial statements
are an integral part of this statement.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
Condensed Pro Forma Consolidated Statement of Income
For the Three Months Ended March 31, 1994
Unaudited
---------
(In Thousands, except per share amounts)
<CAPTION>
Combined Pro Forma
Completed Adjustments Pro Forma
TDS and Pending Increase TDS
Consolidated Acquisitions(b) (Decrease) Consolidated
------------ -------------- --------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Telephone $ 71,060 $ 9,333 $ - $ 80,393
Cellular telephone 66,233 610 - 66,843
Radio paging 21,509 - 21,509
----------- --------- ------- ------------
Total operating revenues 158,802 9,943 - 168,745
----------- --------- ------- ------------
OPERATING EXPENSES
Telephone 48,322 8,091 217 (3) 56,630
Cellular telephone 67,237 686 400 (3) 68,323
Radio paging 20,939 - 20,939
----------- --------- ------- ------------
Total operating expenses 136,498 8,777 617 145,892
----------- --------- ------- ------------
OPERATING INCOME 22,304 1,166 (617) 22,853
----------- --------- ------- ------------
INVESTMENT AND OTHER
INCOME (EXPENSE)
Interest and dividend
income 2,048 - (9) (5) 2,039
Minority share of income (1,197) - (12) (2) (1,094)
115 (6)
Cellular investment income, net of
license cost amortization 3,583 - - 3,583
Other, net 769 159 - 928
----------- --------- ------- ------------
5,203 159 94 5,456
----------- --------- ------- ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 27,507 1,325 (523) 28,309
Interest expense 9,249 484 (9) (5) 9,792
68 (7)
----------- --------- ------- ------------
INCOME BEFORE INCOME TAXES 18,258 841 (582) 18,517
Income tax expense 8,034 421 (324) (8) 8,131
----------- --------- ------- ------------
NET INCOME(c) 10,224 420 (258) 10,386
Preferred Dividend
Requirement (564) - - (564)
----------- --------- ------- ------------
NET INCOME AVAILABLE
TO COMMON(c) $ 9,660 $ 420 $ (258) $ 9,822
=========== ========= ======= ============
WEIGHTED AVERAGE
COMMON SHARES (000s) 52,555 3,380 55,935
=========== ======= ============
EARNINGS PER COMMON SHARE(c) $ .18 .18
=========== ===========
<FN>
The accompanying notes to condensed pro forma consolidated financial statements
are an integral part of this statement.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
Condensed Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 1993
Unaudited
---------
(In Thousands, except per share amounts)
<CAPTION>
Combined Pro Forma
Completed Adjustments Pro Forma
TDS and Pending Increase TDS
Consolidated(d) Acquisitions (Decrease) Consolidated
--------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Telephone $ 268,122 $ 36,961 $ - $ 305,083
Cellular telephone 214,310 7,302 - 221,612
Radio paging 75,363 - - 75,363
----------- --------- ------- ------------
Total operating revenues 557,795 44,263 - 602,058
----------- --------- ------- ------------
OPERATING EXPENSES
Telephone 189,012 32,251 869 (3) 222,132
Cellular telephone 222,966 7,882 1,827 (3) 232,675
Radio paging 76,084 - - 76,084
----------- --------- ------- ------------
Total operating expenses 488,062 40,133 2,696 530,891
----------- --------- ------- ------------
OPERATING INCOME 69,733 4,130 (2,696) 71,167
----------- --------- ------- ------------
INVESTMENT AND OTHER
INCOME (EXPENSE)
Interest and dividend income 8,082 31 (31) (5) 8,082
Minority share of income (475) - (45) (2) (66)
454 (6)
Cellular investment income, net of
license cost amortization 15,704 - 85 (4) 15,789
Gain on sale of cellular
interests 4,970 - - 4,970
Other, net (155) 4,872 - 4,717
----------- --------- ------- ------------
28,126 4,903 463 33,492
----------- --------- ------- ------------
INCOME BEFORE INTEREST
AND INCOME TAXES 97,859 9,033 (2,233) 104,659
Interest expense 37,466 2,037 (31) (5) 39,857
385 (7)
----------- --------- ------- ------------
INCOME BEFORE INCOME TAXES 60,393 6,996 (2,587) 64,802
Income tax expense 26,497 1,664 (2,501) (8) 25,660
----------- --------- ------- ------------
NET INCOME (c) 33,896 5,332 (86) 39,142
Preferred Dividend
Requirement (2,386) - - (2,386)
----------- --------- ------- ------------
NET INCOME AVAILABLE
TO COMMON (c) $ 31,510 $ 5,332 $ (86) $ 36,756
=========== ========= ======= ============
WEIGHTED AVERAGE COMMON
SHARES (000s) 47,266 3,662 50,928
=========== ======= ============
EARNINGS PER COMMON
SHARE (c) $ .67 $ .72
=========== ============
<FN>
The accompanying notes to condensed pro forma consolidated financial statements
are an integral part of this statement.
</TABLE>
<PAGE>
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC.
NOTES TO CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) Includes the balance sheets of the entities discussed
in the second paragraph of this exhibit.
(b) Includes the income statements of the entities
discussed in the second paragraph of this exhibit prior to the
date of acquisition by the Company, as well as each of the
income statements of the entities for which acquisition by the
Company is pending as of the date of this Form 10-Q.
(c) Net income, net income available to common and
earnings per share are presented prior to extraordinary items
and the cumulative effect of accounting changes.
(d) Cellular operating revenues and expenses for 1993 have
been reclassified to conform to 1994 presentation.
(e) The pro forma adjustments are described in the
following paragraphs:
1) Reflects TDS's acquisition of the telephone and
cellular telephone interests described in the third paragraph
of this exhibit. Also reflects the elimination of the equity
of these interests in purchase transactions and the allocation
of the purchase price in excess of book value (in thousands).
Purchase price (aggregate) $ 88,062
Less: acquired companies' equity at
March 31, 1994 (15,769)
---------
Purchase price to be allocated $ 72,293
=========
Purchase price in excess of book value--
Cellular operations $ 37,781
Telephone operations 34,512
---------
$ 72,293
=========
The pro forma allocations of the purchase prices to the
acquired entities' assets as set forth above are based upon
preliminary estimates of the values of those assets.
2) Reflects the minority shareholders' portion of
acquired companies' net income.
3) Reflects the amortization of assumed costs in excess
of book value. Excess cost amounts are primarily assumed to
be amortized over 40 years.
4) Reflects the elimination of the equity-method losses
of acquired entities which are consolidated in the Pro Forma
Consolidated Statements of Income.
5) Reflects the elimination of intercompany interest
income and interest expense between the Company and an
acquired entity. The acquired entity was previously accounted
for by the equity method of accounting (see Note 4).
6) Reflects the minority shareholders' portion of USM's
net income due to the addition of the cellular entities and
the related pro forma adjustments in (2)-(4) above.
7) Reflects the estimated interest expense incurred as a
result of increases in Notes Payable in connection with the
acquisitions included in the Condensed Pro Forma Consolidated
Statements of Income.
8) Reflects the estimated income tax effects of the pro
forma adjustments in (2)-(4) and (7) above.
<PAGE>
Exhibit 99.3
TDS AND UNITED STATES CELLULAR
SUCCESSFUL IN TEXAS LITIGATION
Chicago, Illinois, May 6, 1994
Telephone and Data Systems, Inc. (AMEX: TDS), and its United
States Cellular Corporation subsidiary (AMEX: USM), announced
that a Henderson, Texas, jury rejected claims totaling more
than $200 million made against the Company and USM. The suit
was filed by Townes Telecommunications, Inc., of Lewisville,
Arkansas, and certain of its affiliates in a Texas State Court
in September, 1991.
TDS Chairman LeRoy T. Carlson, who testified at the trial,
said that "the TDS family of companies, their shareholders and
employees appreciate the jury's recognition of TDS's honesty
and integrity".
Townes had alleged that the Company and USM breached an
alleged oral agreement with Townes, breached an alleged
fiduciary relationship between TDS and Townes, perpetrated a
fraud against Townes and had failed to comply with a first
right of refusal provision of a related shareholders'
agreement. The jury rejected all claims.
TDS is a Chicago-based telecommunications company with
established local telephone, cellular telephone and radio
paging operations. TDS strives to build value for its
shareholders by providing excellent communications services in
attractive, closely related segments of the telecommunications
industry. USM, headquartered in Chicago, manages and invests
in cellular systems throughout the United States.
For additional information, please call Murray L. Swanson TDS
Executive Vice President-Finance at (312) 630-1900.
<PAGE>
