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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8251
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TELEPHONE AND DATA SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Iowa 36-2669023
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30 North LaSalle Street, Chicago, Illinois 60602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 630-1900
Not Applicable
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(Former address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
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Common Shares, $1 par value 52,580,316 Shares
Series A Common Shares, $1 par value 6,927,174 Shares
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<PAGE>
TELEPHONE AND DATA SYSTEMS, INC.
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2ND QUARTER REPORT ON FORM 10-Q
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INDEX
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Page No.
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Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-13
Consolidated Statements of Income -
Three Months and Six Months Ended
June 30, 1997 and 1996 14
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 15
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 16-17
Notes to Consolidated Financial Statements 18-21
Part II. Other Information 22-23
Signatures 24
<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
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Telephone and Data Systems, Inc. ("TDS" or the "Company") is a diversified
telecommunications company which provides high-quality telecommunications
services to nearly 2.6 million cellular telephone, local telephone, personal
communications service ("PCS") and radio paging customer units. TDS's long-term
business development strategy is to expand its operations through internal
growth and acquisitions, and to explore and develop telecommunications
businesses that management believes utilize TDS's expertise in customer-based
telecommunications.
TDS continued to make substantial progress during the first half of 1997 with
excellent growth in the cellular business, the launch of all six of Aerial's PCS
markets and steady results in the telephone business. Revenues increased 23% as
a result of a 20% increase in customer units to nearly 2.6 million units. The
commencement of PCS operations significantly reduced operating cash flows,
operating income and net income as compared to last year. Strong increases in
cash flow from United States Cellular Corporation and solid growth from TDS
Telecommunications, Inc. were offset by Aerial Communications, Inc.'s start-up
activities resulting in a 3% decline in operating cash flow. Operating income
decreased by 38% primarily due to the PCS start-up activities. Net income to
common declined 83% to $15.5 million as a result of a reduction in gains on the
sale of cellular interests and other investments and on the losses incurred in
the start-up of the PCS markets.
United States Cellular Corporation ("U.S. Cellular"), TDS's 80.9%-owned cellular
subsidiary, continued its rapid growth during the first half of 1997. Customer
units increased 47% to 1,263,000. The increase in customer units drove a 28%
increase in revenues, a 36% increase in operating cash flow and a 57% increase
in operating income.
TDS Telecommunications Corporation ("TDS Telecom"), TDS's wholly owned telephone
subsidiary, continued to provide solid growth with an 18% increase in revenues,
a 12% increase in operating cash flow and a 5% increase in operating income.
Telephone access lines increased by 6% to 500,000.
Aerial Communications, Inc. ("Aerial"), TDS's 82.6%-owned PCS subsidiary,
launched service in all six of its markets in the first half of 1997. Customer
units totaled 28,000 at June 30, 1997. The launching of service resulted in
Aerial's costs being included in operating income in the second quarter of 1997.
Operating cash flow was a negative $45.8 million while operating losses totaled
$51.6 million. PCS development costs, costs incurred prior to the launch of
service, (included in "Investment and Other Income (Expense)") totaled $21.6
million in the first half of 1997 and $13.5 million in 1996.
American Paging, Inc. ("American Paging"), TDS's 82.0%-owned paging subsidiary,
reported a 3% decline in units in service to 780,600 contributing to a 7%
decline in revenues. The decrease in revenues combined with an increase in
operating expenses caused operating losses to increase as compared to 1996.
Customer units increased by 13,200 units in the second quarter of 1997, the
first reported quarterly increase in units since the second quarter of 1996.
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<PAGE>
RESULTS OF OPERATIONS
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Six Months Ended 6/30/97 Compared to Six Months Ended 6/30/96
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Telephone and Data Systems, Inc. ("TDS" or the "Company") reported net income
available to common of $15.5 million, or $.25 per share, in the first half of
1997, compared to $92.9 million, or $1.54 per share, in the first half of 1996.
Net income available to common from U.S. Cellular and TDS Telecom increased
59% to $66.6 million, or $1.10 per share, in the first half of 1997, from $41.9
million, or $.70 per share, in the first half of 1996. Aerial's PCS development
and start-up activities reduced net income and earnings per share by $40.2
million, or $.66 per share, in 1997 and $5.6 million, or $.10 per share, in
1996. American Paging's activities reduced net income and earnings per share by
$15.0 million, or $.25 per share, in 1997 and $4.2 million, or $.07 per share in
1996. Net income included gains on the sale of cellular interests and other
investments of $4.0 million, or $.06 per share in 1997 and $60.8 million, or
$1.01 per share in 1996.
The table below summarizes the effects of the business units and gains (along
with the related impact on income taxes and minority interest) on net income
available to common and earnings per share.
Six Months Ended June 30,
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1997 1996
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(Dollars in thousands,
except per share amounts)
Net Income Available to Common
U.S. Cellular and TDS Telecom $ 66,642 $ 41,938
Aerial (40,193) (5,636)
American Paging (14,969) (4,202)
Gains 4,007 60,789
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$ 15,487 $ 92,889
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Earnings Per Share
U.S. Cellular and TDS Telecom $ 1.10 $ .70
Aerial (.66) (.10)
American Paging (.25) (.07)
Gains .06 1.01
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$ .25 $ 1.54
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Operating Revenues increased 23% ($125.4 million) during the first half of 1997
primarily as a result of a 20% increase in customer units served to nearly 2.6
million units at June 30, 1997. U.S. Cellular contributed 71% ($89.1 million)
of the total increase in revenues and most of the increase in customer units,
while TDS Telecom contributed 26% ($33.0 million) of the total increase in
revenues.
U.S. Cellular revenues increased 28% ($89.1 million) in 1997 on a 47% increase
in customer units and strong inbound roaming revenues. Cellular customers
increased to 1,263,000 at June 30, 1997 from 860,000 at June 30, 1996. Total
average monthly service revenue per customer was $56.03 in the first half of
1997 and $64.93 in 1996. Average monthly service revenue per customer continues
to decline due to competitive pressures, incentive programs, consumer market
penetration and roaming revenues increasing at a slower rate than the U.S.
Cellular customer base.
Local retail revenue increased 36% ($68.7 million) in the first half of 1997 due
primarily to the 47% customer growth. Average monthly local retail revenue per
customer was $37.21 in the first half
-3-
<PAGE>
of 1997 and $40.85 in 1996. Average local minutes of use per retail customer
increased to 106 in 1997 from 102 in 1996, while average local retail revenue
per minute totaled $.35 in 1997 compared to $.40 in 1996. U.S. Cellular's
increasing use of incentive programs that encourage lower-priced weekend and
off-peak usage, in order to stimulate overall usage, resulted in an increase in
average minutes of use and a lower average revenue per minute of use. Average
revenue per minute also declined due to increased amounts of bill credits given
to customers as incentives to become or remain customers. Inbound roaming
revenue (charges to customers of other systems who use U.S. Cellular's cellular
systems when roaming) increased 17% ($15.2 million) in the first half of 1997.
The growth in roaming revenue is due to a 24% increase in minutes used offset
somewhat by negotiated reductions in roaming rates. Average inbound roaming
revenue per minute totaled $.88 in 1997 and $.93 in 1996. Average monthly
inbound roaming revenue per customer was $14.66 in 1997 compared to $18.63 in
1996. The decrease is related to both the decrease in roaming revenue per
minute and the faster growth of U.S. Cellular's customer base as compared to the
growth of inbound roaming revenues.
Beginning on January 1, 1997, U.S. Cellular changed its income statement
presentation of certain credits for free or reduced-price air time or access
given to customers on their monthly bills. The foregone revenues are now
reported as a reduction of local retail revenue instead of marketing and selling
expense (for new customers) and general and administrative expense (for current
customers). Amounts in the affected revenue and expense categories have been
reclassified for previous years, throughout this Form 10-Q. Operating income
and net income are not affected by this change.
TDS Telecom revenues increased 18% ($33.0 million) in 1997 due to growth in
telephone operations ($22.4 million) and growth in other operations ($10.6
million). Telephone operations revenues increased as a result of the effects of
acquisitions ($8.0 million), recovery of increased costs of providing
long-distance services ($6.4 million), internal access line growth since
June 30, 1996 ($2.8 million), increased network usage ($2.3 million) and
increased sale of customer premise equipment ($2.1 million). The number of
telephone access lines increased 6% to 500,000 at June 30, 1997 from 471,000 at
June 30, 1996. Average monthly revenue per access line increased to $66.99 for
the first half of 1997 from $65.52 in 1996. Other operations include the
revenues of a long-distance provider, a recently acquired cellular interest as
well as TDS Telecom's new business ventures which include an Internet access
provider and a structured wiring business.
Aerial revenues totaled $7.1 million in 1997 consisting primarily of revenues
from units sold to customers ($5.9 million). At June 30, 1997, Aerial had
28,000 customers in service resulting in $1.2 million of service revenue.
American Paging revenues decreased 7% ($3.8 million) in 1997 due primarily to
decreases in the number of paging units in service and the average revenue per
unit. The number of pagers in service decreased 3% to 780,600 in 1997 from
803,500 in 1996. Average revenue per unit decreased 4% to $9.48 in 1997 from
$9.89 in 1996 reflecting competitive pricing declines and a shift in
distribution channel mix towards indirect channels, which typically provide
lower service revenue per unit.
Operating Expenses rose 33% ($155.7 million) in the first half of 1997 due
primarily to added expenses to serve the growing customer base and PCS expenses
attributable to the start-up activities. U.S. Cellular represented 42%
($65.3 million) of the total increase and TDS Telecom represented 20%
($30.5 million) of the increase primarily due to the increase in customers while
Aerial's start-up activities represented 38% ($58.8 million) of the increase.
-4-
<PAGE>
U.S. Cellular expenses increased 24% ($65.3 million) during 1997. System
operations expenses increased 32% ($16.9 million) in 1997 as a result of
increases in customer usage expenses and costs associated with the growing
number of cell sites within U.S. Cellular's systems. Customer usage expenses
grew 38% ($11.9 million) as minutes of use increased, primarily related to the
47% increase in customer units and increased roaming usage. Maintenance,
utility and cell site expenses increased 24% ($5.0 million) reflecting primarily
the increase in the number of cell sites to 1,485 in 1997 from 1,185 in 1996.
Marketing and selling expenses incurred to add new customers increased 30%
($26.3 million), including a $4.4 million increase in cost of equipment sold.
Cost per gross customer addition declined to $320 in 1997 from $325 in 1996
while gross customer activations increased to 321,000 in 1997 from 240,000 in
1996. As discussed above, customer bill credits were reclassified from
marketing and selling expenses and general and administrative expenses to local
retail revenue in 1997 and 1996. General and administrative expenses increased
15% ($12.3 million) due to the growing customer base in existing markets and an
expansion of local office and corporate staff necessitated by U.S. Cellular's
growth. Depreciation and amortization increased 19% ($9.8 million) primarily
due to the increase in average fixed assets since June 30, 1996.
TDS Telecom expenses increased 22% ($30.5 million) during 1997 primarily due to
growth in telephone operations ($18.7 million) and growth in other operations
($11.8 million). Telephone operations increased primarily due to the effects of
acquisitions ($6.2 million), increased depreciation and amortization
($5.8 million), growth in internal operations ($4.4 million), and development of
a centralized network management center and new products and services ($2.8
million). Other operations include the expenses of a long-distance provider, a
recently acquired cellular interest as well as TDS Telecom's new business
ventures which include an Internet access provider and a structured wiring
business.
Aerial expenses, included in operating expenses, totaled $58.8 million in the
first half of 1997. Expenses incurred in the first quarter of 1997, prior to
the launch of the first market, are included in PCS Development Costs as part of
Other Income. System operations expenses totaled $4.0 million reflecting the
costs of operating Aerial's network, primarily cell site expenses, landline
interconnection charges and wages. Marketing and selling expenses reflecting an
aggressive advertising campaign that accompanied the launch of service, totaled
$14.9 million while cost of equipment sold totaled $15.0 million. General and
administrative expenses totaled $17.2 million reflecting the expenses associated
with the management and operating teams as well as overhead expenses. Customer
service expenses totaled $1.8 million primarily for the staffing to support the
roll-out of the PCS markets. Depreciation and amortization totaled $5.9
million.
American Paging expenses increased 2% ($1.1 million) in the first half of 1997.
Selling, general and administrative expenses increased 4% ($1.3 million)
primarily due to increases in selling and marketing costs associated with
increased recruiting and training costs related to sales force turnover
($4.1 million), offset somewhat by a decrease in general and administrative
expenses ($2.7 million) primarily related to the decrease in restructuring
costs. During the first half of 1996, American Paging recorded restructuring
expenses of $1.9 million related to subleasing office space, employee severance,
out placement services and consulting services.
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<PAGE>
Operating Income decreased 38% ($30.3 million) in the first half of 1997
reflecting the effects of Aerial's start-up activities offset somewhat by strong
(57%) growth in U.S. Cellular's operating results. The strong growth in
cellular operating income is reflected in the cellular margin improvements. TDS
Telecom's margin decreased due primarily to TDS Telecom's new business ventures.
Six Months Ended June 30,
----------------------------------------
1997 1996 Change
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(Dollars in thousands)
Operating Income
U.S. Cellular $ 65,599 $ 41,843 $ 23,756
TDS Telecom 51,306 48,848 2,458
Aerial (51,633) -- (51,633)
American Paging (15,540) (10,653) (4,887)
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$ 49,732 $ 80,038 $ (30,306)
=========== =========== ===========
Operating Margins
U.S. Cellular 16.3% 13.4%
TDS Telecom 23.3% 26.1%
Aerial N/M N/M
American Paging (31.8%) (20.3%)
Consolidated 7.3% 14.5%
N/M = Not Meaningful
Management believes there exists a seasonality at U.S. Cellular in both service
revenue, which tend to increase more slowly in the first and fourth quarters,
and operating expenses, which tend to be higher in the fourth quarter due to
increased marketing activities and customer growth. This seasonality may cause
operating income to vary from quarter-to-quarter. Additionally, competitors
licensed to provide PCS services have initiated service in certain of U.S.
Cellular's markets over the past twelve months. U.S. Cellular expects PCS
operators to complete initial deployment of PCS across all of its markets by the
end of 1998. U.S. Cellular's management is monitoring these and other wireless
communications providers' strategies to determine what effect this additional
competition will have on U.S. Cellular's future strategies and results.
Investment and Other Income (Expense) totaled $24.3 million in 1997 and $124.1
million in 1996. Gain on Sale of Cellular Interests and Other Investments
totaled $10.6 million in the first half of 1997 and $128.3 million in 1996 as
the Company has sold or traded certain non-strategic cellular interests and sold
other investments. PCS Development Costs totaled $21.6 million in 1997 and
$13.5 million in 1996. The increase is associated with the costs prior to
launching PCS service in Aerial markets. Effective with the beginning of the
second quarter of 1997, all costs associated with the markets are now being
included in operating income. Cellular Investment Income, the Company's share
of income of cellular markets in which the Company has a minority interest and
follows the equity method of accounting, increased 59% ($13.2 million) in the
first half of 1997 as income from the cellular markets increased. Cellular
investment income is net of amortization of license costs relating to these
minority interests.
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<PAGE>
Minority Share of Income includes the minority shareholders' share of U.S.
Cellular's, Aerial's and American Paging's net income or loss, minority
partners' share of U.S. Cellular's operating markets and other minority
shareholders' and partners' share of subsidiaries' net income or loss. The
decrease in 1997 is primarily related to the increase in Aerial's net loss
allocated to its minority shareholders and the decrease in U.S. Cellular's net
income allocated to its minority shareholders caused by the reduction in gains.
Minority shareholders of American Paging are not allocated losses in 1997 as
American Paging's shareholders' equity is negative.
Six Months Ended June 30,
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1997 1996 Change
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(Dollars in thousands)
Minority Share of (Income) Loss
United States Cellular
Minority Shareholders' Share $ (9,563) $ (17,845) $ 8,282
Minority Partners' Share (7,248) (5,421) (1,827)
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(16,811) (23,266) 6,455
Aerial 13,488 809 12,679
American Paging -- 2,422 (2,422)
Telephone Subsidiaries and Other (869) (767) (102)
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$ (4,192) $ (20,802) $ 16,610
========== ========== =========
Interest Expense increased 60% ($12.7 million) in the first half of 1997
primarily due to the increase in short- and long-term debt outstanding.
Interest expense also increased $3.4 million as the Company discontinued
capitalizing interest on broadband PCS licenses upon commencement of PCS
operations.
Income Tax Expense decreased 73% ($65.8 million) in 1997 compared with 1996
primarily due to the decrease in pretax income. The effective income tax rate
was 59% in the first half of 1997 and 49% in 1996.
Certain expenses are not deductible for tax purposes, such as amortization of
intangibles related to tax free acquisitions. The amount of these expenses were
about the same in 1997 and 1996. Pretax income however, is expected to be
substantially lower in 1997. Due to the expected lower pretax income, the
impact of these expenses on the effective income tax rate increased the rate
approximately 10 percentage points when compared to 1996.
Net Income Available to Common decreased $77.4 million to $15.5 million in the
first half of 1997 from $92.9 million in the first half of 1996. Earnings Per
Common Share were $.25 in the first half of 1997 and $1.54 in the first half of
1996.
Net income available to common included significant gains from the sale of
cellular interests and other investments in 1996 as well as significant PCS
development costs in 1997 and 1996 as explained previously.
TDS anticipates that start-up and development of high-quality networks and the
marketing of systems in Aerial's markets will reduce the rate of growth in TDS's
operating and net income from levels which would otherwise be achieved during
the next few years.
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<PAGE>
Three Months Ended 6/30/97 Compared to Three Months Ended 6/30/96
Net income available to common was $6.4 million, or $.11 per share, in 1997
compared to $59.5 million, or $.97 per share in 1996. Net income from U.S.
Cellular and TDS Telecom increased 67% to $38.2 million, or $.64 per share in
1997 from $22.9 million, or $.37 per share, in 1996, primarily reflecting growth
in the cellular business. The loss from Aerial's PCS start-up activities totaled
$28.6 million, or $.48 per share, in 1997 and $1.8 million, or $.03 per share in
1996. American Paging's loss reduced net income and earnings per share by $7.2
million, or $.12 per share, in 1997 and $2.1 million, or $.03 per share in 1996.
Net income and earnings per share included gains of $4.0 million, or $.07 per
share, in 1997 and $40.5 million, or $.66 per share, in 1996.
The table below summarizes the effects of the business units and gains
(along with the related impact on income taxes and minority interest) on net
income available to common and earnings per share.
Three Months Ended June 30,
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1997 1996
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(Dollars in thousands,
except per share amounts)
Net Income Available to Common
U.S. Cellular and TDS Telecom $ 38,190 $ 22,855
Aerial (28,639) (1,807)
American Paging (7,207) (2,079)
Gains 4,007 40,481
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$ 6,351 $ 59,450
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Earnings Per Share
U.S. Cellular and TDS Telecom $ .64 $ .37
Aerial (.48) (.03)
American Paging (.12) (.03)
Gains .07 .66
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$ .11 $ .97
=========== ===========
Operating Revenues increased 23% ($66.3 million) during the second quarter of
1997 for reasons generally the same as the first six months. U.S. Cellular
revenues increased 28% ($48.1 million) in 1997. Local retail revenue increased
36% ($36.6 million) in the second quarter of 1997, while inbound roaming revenue
increased 18% ($8.8 million). Average monthly service revenue per customer was
$58.41 in the second quarter of 1997 and $67.43 in 1996. TDS Telecom revenues
increased 13% ($13.1 million) in the second quarter of 1997. Average revenue
per access line increased slightly to $67.03 in the second quarter of 1997 from
$66.72 in 1996. Aerial revenues totaled $7.1 million in the second quarter of
1997 consisting primarily of revenues from units sold to customers
($5.9 million). American Paging revenues decreased 8% ($2.0 million) in 1997.
Average revenue per unit decreased 4% to $9.34 in 1997 from $9.73 in 1996.
Operating Expenses rose 44% ($107.9 million) during the second quarter of 1997
for reasons generally the same as the first six months. U.S. Cellular expenses
increased 26% ($36.0 million). System operations expense increased 32%
($9.2 million). Marketing and selling expenses, including cost of equipment
sold, increased 32% ($14.1 million). Cost per gross customer addition remained
steady at $320 in the second quarter of 1997 and 1996. TDS Telecom expenses
increased 20% ($14.6 million) for reasons generally the same as the first six
months. Aerial's operating expenses were incurred in the second quarter of 1997
as the markets were placed into service. American Paging operating expenses
decreased 5% ($1.5 million) due primarily to the $1.5 million restructuring
charge recorded in 1996.
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<PAGE>
Operating Income decreased 85% ($41.6 million) in the second quarter of 1997
reflecting the $51.6 million operating loss from the PCS start-up activities.
U.S. Cellular operating income increased $12.1 million reflecting continued
growth in customers and revenues.
Three Months Ended June 30,
--------------------------------------------
1997 1996 Change
------------ ----------- -----------
(Dollars in thousands)
Operating Income
U.S. Cellular $ 42,154 $ 30,021 $ 12,133
TDS Telecom 24,080 25,627 (1,547)
Aerial (51,633) -- (51,633)
American Paging (7,129) (6,567) (562)
------------ ----------- -----------
$ 7,472 $ 49,081 $ (41,609)
============ =========== ===========
Operating Margins:
U.S. Cellular 19.4% 17.7%
TDS Telecom 21.7% 26.2%
Aerial N/M N/M
American Paging (29.4%) (25.0%)
Consolidated 2.1% 16.7%
N/M = Not Meaningful
Investment and Other Income totaled $29.3 million in 1997 and $81.9 million in
1996. Gain on Sale of Cellular Interests and Other Investments totaled $10.6
million in the second quarter of 1997 compared to $86.5 million in 1996 as the
Company has sold or traded certain non-strategic cellular interests and sold
other investments. PCS Development Costs, costs incurred prior to the
commencement of operations in the PCS markets, totaled $7.8 million in 1996.
Cellular Investment Income increased 51% ($6.0 million), reflecting improvement
in U.S. Cellular's equity-method markets managed by others.
Minority Share of Income decreased 89% ($12.0 million) in the second quarter of
1997 due primarily to the increase in Aerial's net loss allocated to its
minority shareholders and the decrease in U.S. Cellular's net income allocated
to its minority shareholders caused by the reduction in gains.
Three Months Ended June 30,
---------------------------------------
1997 1996 Change
---------- ----------- ----------
(Dollars in thousands)
Minority Share of (Income) Loss
United States Cellular
Minority Shareholders' Share $ (6,042) $ (12,230) $ 6,188
Minority Partners' Share (4,383) (3,309) (1,074)
---------- ----------- ----------
(10,425) (15,539) 5,114
Aerial 9,639 809 8,830
American Paging -- 1,476 (1,476)
Telephone Subsidiaries and Other (647) (181) (466)
---------- ----------- ----------
$ (1,433) $ (13,435) $ 12,002
========== =========== ==========
Interest Expense increased $10.7 million to $19.9 million in the second quarter
of 1997 for reasons generally the same as the first six months.
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<PAGE>
Income Tax Expense decreased $52.1 million in 1997 compared with 1996 as pretax
income decreased. The effective income tax rate was 60% in the second quarter
of 1997 and 51% in 1996.
Net Income Available to Common decreased 89% ($53.1 million) to $6.4 million in
the second quarter of 1997 from $59.4 million in 1996. Earnings Per Common
Share were $.11 in 1997 and $.97 in 1996.
FINANCIAL RESOURCES AND LIQUIDITY
TDS and its subsidiaries operate relatively capital-intensive businesses. Rapid
growth has caused expenditures for construction, expansion and acquisition
programs to exceed internally generated cash flow. Accordingly, in recent
years, TDS has obtained substantial funds from external sources to acquire PCS
licenses, to build-out PCS markets, to fund acquisitions and to repurchase
common shares. Although increasing internal cash flow from U.S. Cellular and
steady internal cash flow from TDS Telecom have reduced the need for external
financing, Aerial's development and construction activities will require
significant additional funds from external sources.
Cash Flows From Operating Activities. TDS is generating substantial internal
funds from the rapid growth in customer units and revenues in the U.S. Cellular
and TDS Telecom business units. U.S. Cellular's operating cash flow increased
36% ($33.6 million) while TDS Telecom's operating cash flow increased 12%
($10.7 million). However, due to the start-up of operations at Aerial,
operating cash flow (operating income plus depreciation and amortization)
decreased 3% to $181.5 million in the first half of 1997 from $187.4 million in
1996 as a result of Aerial's $45.8 million negative cash flow. Cash flows for
other operating activities (investment and other income, interest and income tax
expense, and changes in working capital and other assets and liabilities)
required $74.9 million in the first half of 1997 and $101.2 million in 1996.
Six Months Ended June 30,
------------------------------------------
1997 1996 Change
------------ ------------ ------------
(Dollars in thousands)
Operating cash flow
U.S. Cellular $ 127,191 $ 93,594 $ 33,597
TDS Telecom 100,491 89,753 10,738
Aerial (45,750) -- (45,750)
American Paging (395) 4,010 (4,405)
------------ ----------- ------------
181,537 187,357 (5,820)
Other operating activities (74,864) (101,152) 26,288
------------ ------------ ------------
$ 106,673 $ 86,205 $ 20,468
============ ============ ============
Cash Flows from Financing Activities. TDS has used short-term debt to finance
its PCS and radio paging operations, for acquisitions and for general corporate
purposes. TDS has taken advantage of attractive opportunities from time-to-time
to retire short-term debt with the proceeds from long-term debt and equity sales
and sales of non-strategic assets. Cash flows from financing activities totaled
$244.0 million in the first half of 1997 compared to $8.5 million in 1996.
Increases in short-term debt provided most of the Company's external financing
requirements during the first half of 1997. The 1997 borrowings were used
primarily to fund expenditures for PCS construction and development activities
and for stock repurchases. In 1996, Aerial received net proceeds of $195.1
million in an initial public offering. TDS also paid down $163.4 million of
short-term debt in 1996.
In December 1996, the Company authorized the repurchase of up to three million
TDS Common Shares over a period of three years. Through June 30, 1997, TDS has
purchased 1,798,100 TDS
-10-
<PAGE>
Common Shares for an aggregate purchase price of $69.9 million. TDS also
purchased 350,000 U.S. Cellular Common Shares for $9.8 million in the first half
of 1997.
Cash Flows From Investing Activities. TDS makes substantial investments each
year to acquire, construct, operate and maintain modern high-quality
communications networks and facilities as a basis for creating long-term value
for shareowners. Cash flows from investing activities required $372.7 million
in the first half of 1997 compared to $72.7 million in 1996, primarily for
additions to property, plant and equipment totaling $393.2 million in 1997 and
$211.8 million in 1996. The increase in property, plant and equipment is
primarily related to Aerial's construction activities. The sales of
non-strategic cellular interests and other investments provided $21.4 million
in 1997 and $183.9 million in 1996.
Property, Plant and Equipment. The primary purpose of TDS's construction and
expansion program is to provide for significant customer growth, to upgrade
service, to expand into new communication areas, and to take advantage of
service-enhancing and cost-reducing technological developments. Additions to
property, plant and equipment totaled $393.2 million in the first half of 1997.
U.S. Cellular had capital expenditures of $161.1 million primarily for cell
sites and equipment. TDS Telecom incurred $54.8 million for telephone plant
and equipment while Aerial incurred $157.7 million primarily for digital and
incremental switching to launch its markets.
Acquisitions. TDS continually reviews attractive opportunities for the
acquisition of additional cellular and telephone companies which add value to
the organization. As the number of opportunities for outright acquisitions of
cellular interests has decreased and as U.S. Cellular's clusters have grown to
realize greater economies of scale, U.S. Cellular's focus has shifted toward
exchanges and sales of non-strategic interests.
In February 1997, U.S. Cellular announced that it had entered into an exchange
agreement with BellSouth Corporation, pursuant to which U.S. Cellular will
receive majority interests in 12 contiguous markets adjacent to its Iowa and
Wisconsin/Illinois clusters. In exchange, U.S. Cellular will transfer its
majority interests in 10 markets, minority interests in 13 markets, pay cash
and incur certain income tax costs, the amounts of which are dependent upon
certain factors. U.S. Cellular will receive majority interests representing
approximately 3.9 million population equivalents ("pops") in the transaction,
and will divest majority interests representing approximately 1.9 million pops
and minority interests representing 1.4 million pops. The transaction is
subject to various regulatory and other approvals.
-11-
<PAGE>
LIQUIDITY
TDS anticipates that the aggregate resources required for 1997 will include
approximately $800 million for capital spending, consisting of $300 million for
cellular capital additions, $130 million for telephone capital additions, $345
million for PCS capital additions and $25 million for the radio paging property
and equipment, and $255 million for working capital and operating expenses for
Aerial. The Company anticipates financing these expenditures with internally
generated funds and short-term and intermediate-term financing.
TDS is generating substantial internal funds from the rapid growth in customer
units and revenues. Operating cash flow for the twelve months ended June 30,
1997 increased $22.1 million, or 6%, to $379.9 million from $357.8 million in
1996 despite the $45.8 million negative operating cash flow associated with the
PCS start-up activities.
Twelve Months Ended June 30,
--------------------------------------------
1997 1996 Change
------------- ------------ ------------
(Dollars in thousands)
Operating cash flow
Cellular $ 229,802 $ 166,186 $ 63,616
Telephone 203,063 179,149 23,914
PCS (45,750) -- (45,750)
Radio paging (7,254) 12,460 (19,714)
------------- ------------ ------------
$ 379,861 $ 357,795 $ 22,066
============= ============ ============
U.S. Cellular plans to finance its cellular construction program using primarily
internally generated cash supplemented by short-term and intermediate-term
financing. TDS Telecom plans to finance its construction program using
internally generated cash supplemented by long-term financing from federal
government programs. Aerial plans to finance its construction expenditures and
working capital requirements with short-term and intermediate-term financing,
vendor financing and sales of minority equity interests in its MTAs.
U.S. Cellular filed a shelf Registration Statement on Form S-3 on July 31, 1997
for the sale of up to $400 million of unsecured debt. U.S. Cellular expects to
issue debt securities under the shelf registration during the third quarter of
1997. U.S. Cellular anticipates using the proceeds of the offering for
general corporate purposes, which may include the repayment of indebtedness.
TDS and its subsidiaries have cash and temporary investments totaling $67.8
million and longer-term cash investments totaling $42.8 million at June 30,
1997. These investments are primarily the result of telephone operations'
internally generated cash. While certain regulated telephone subsidiaries' debt
agreements place limits on intercompany dividend payments, these restrictions
are not expected to affect the Company's ability to meet its cash obligations.
TDS and its subsidiaries also have access to a variety of external capital
sources. TDS and its subsidiaries had $645 million of bank lines of credit for
general corporate purposes at June 30, 1997. Unused amounts of such lines
totaled $140 million. These line of credit agreements provide for borrowings at
negotiated rates up to the prime rate. U.S. Cellular is currently engaged in
negotiations regarding a proposed $500 million revolving credit facility,
although no agreement in principle has been reached.
The Company anticipates requiring additional funding to finance Aerial's
expected capital expenditures and working capital requirements, to finance
acquisitions and for general corporate purposes. The timing and amount of such
funding requirements will depend on the timing of Aerial's construction and
operational requirements, the timing of acquisitions, and other relevant
-12-
<PAGE>
factors. There can be no assurance that sufficient funds will be available to
the Company on terms or at prices acceptable to the Company. If sufficient
funding is not made available to the Company on terms and prices acceptable to
the Company, the Company would have to reduce its construction, development and
acquisition programs. TDS and its subsidiaries anticipate accessing public and
private capital markets to issue debt and equity securities only when capital
requirements, financial market conditions and other factors warrant.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contain "forward-looking" statements, as defined in the Private
Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about the Company's beliefs and expectations are
forward-looking statements. These statements contain potential risks and
uncertainties and, therefore, actual results may differ materially. TDS
undertakes no obligation to update publicly any forward-looking statements
whether as a result of new information, future events or otherwise.
Important factors that may affect these projections or expectations include,
but are not limited to: changes in the overall economy; changes in competition
in markets in which TDS operates; advances in telecommunications technology;
changes in the telecommunications regulatory environment; pending and future
litigation; availability of future financing; start-up of PCS operations; and
unanticipated changes in growth in cellular customers, penetration rates, churn
rates and the mix of products and services offered in TDS's markets. Readers
should evaluate any statements in light of these important factors.
-13-
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Unaudited
---------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(Dollars in thousands,
except per share amounts)
OPERATING REVENUES
Cellular telephone $ 217,579 $ 169,470 $ 402,163 $ 313,112
Telephone 111,026 97,935 220,040 187,046
PCS 7,143 -- 7,143 --
Radio paging 24,248 26,296 48,828 52,606
--------- --------- --------- ---------
359,996 293,701 678,174 552,764
--------- --------- --------- ---------
OPERATING EXPENSES
Cellular telephone 175,425 139,449 336,564 271,269
Telephone 86,946 72,308 168,734 138,198
PCS 58,776 -- 58,776 --
Radio paging 31,377 32,863 64,368 63,259
--------- --------- --------- ---------
352,524 244,620 628,442 472,726
--------- --------- --------- ---------
OPERATING INCOME 7,472 49,081 49,732 80,038
--------- --------- --------- ---------
INVESTMENT AND OTHER INCOME
Interest and dividend income 3,478 3,947 6,896 6,123
Cellular investment income,
net of license cost
amortization 17,802 11,780 35,403 22,229
PCS development costs -- (7,761) (21,614) (13,507)
Gain on sale of cellular
interests and other
investments 10,598 86,494 10,598 128,252
Other (expense), net (1,129) 879 (2,766) 1,765
Minority share of income (1,433) (13,435) (4,192) (20,802)
--------- --------- --------- ---------
29,316 81,904 24,325 124,060
--------- --------- --------- ---------
INCOME BEFORE INTEREST
AND INCOME TAXES 36,788 130,985 74,057 204,098
Interest expense 19,880 9,137 33,694 20,997
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 16,908 121,848 40,363 183,101
Income tax expense 10,087 62,156 23,925 89,720
--------- --------- --------- ---------
NET INCOME 6,821 59,692 16,438 93,381
Preferred Dividend Requirement (470) (242) (951) (492)
--------- --------- --------- ---------
NET INCOME AVAILABLE TO
COMMON $ 6,351 $ 59,450 $ 15,487 $ 92,889
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
SHARES (000s) 60,161 61,259 60,757 60,465
EARNINGS PER COMMON SHARE $ .11 $ .97 $ .25 $ 1.54
========= ========= ========= =========
DIVIDENDS PER COMMON AND
SERIES A COMMON SHARE $ .105 $ .10 $ .21 $ .20
========= ========= ========= =========
The accompanying notes to financial statements are an integral part of these
statements.
-14-
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Unaudited
---------
Six Months Ended
June 30,
-----------------------------
1997 1996
------------- -----------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,438 $ 93,381
Add (Deduct) adjustments to
reconcile net income to net cash
provided by operating activities
Depreciation and amortization 131,806 107,318
Deferred taxes 5,483 23,437
Investment income (37,993) (24,550)
Minority share of income 4,192 20,802
Gain on sale of cellular interests
and other investments (10,598) (128,252)
Noncash interest expense 11,712 8,249
Other noncash expense 11,475 9,989
Change in accounts receivable (26,795) (30,690)
Change in materials and supplies (7,581) 4,646
Change in accounts payable 553 (11,378)
Change in accrued taxes 11,904 16,674
Change in other assets and liabilities (3,923) (3,421)
------------- -----------
106,673 86,205
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings 7,935 6,811
Repayments of long-term debt (20,435) (16,327)
Change in notes payable 346,604 (163,437)
Dividends paid (13,652) (13,046)
Repurchase of Common Shares (68,523) --
Purchase of subsidiary common stock (9,801) --
Proceeds from the issuance of subsidiaries' stock -- 195,118
Other financing activities 1,879 (638)
------------- -----------
244,007 8,481
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (393,232) (211,845)
Investments in and advances to cellular
minority partnerships (6,167) (10,919)
Distributions from partnerships 24,028 10,031
Investments in PCS licenses (5,073) (13,525)
Proceeds from investment sales 21,384 183,896
Change in other investments 3,291 (1,822)
Acquisitions, net of cash acquired (36,606) (925)
Change in temporary investments and
marketable securities 19,628 (27,582)
------------- ------------
(372,747) (72,691)
------------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (22,067) 21,995
CASH AND CASH EQUIVALENTS -
Beginning of period 57,633 55,116
------------- ------------
End of period $ 35,566 $ 77,111
============= ============
The accompanying notes to financial statements are an integral part of these
statements.
-15-
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
(Unaudited)
June 30, 1997 December 31, 1996
--------------- -----------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 35,566 $ 57,633
Temporary investments 32,256 61,664
Accounts receivable from customers
and others 209,512 181,212
Materials and supplies, at average cost,
and other current assets 64,641 45,561
--------------- ---------------
341,975 346,070
--------------- ---------------
INVESTMENTS
Cellular license acquisition costs,
net of amortization 1,108,119 1,088,409
Cellular minority interests 222,117 206,390
PCS license acquisition costs 380,625 382,724
Franchise costs and other costs in
excess of the underlying book
value of subsidiaries, net 179,368 181,845
Other investments 94,757 84,536
--------------- ---------------
1,984,986 1,943,904
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT
Cellular telephone, net 745,671 650,754
Telephone, net 770,662 774,388
PCS, net 486,326 322,723
Radio paging, net 47,846 51,472
Other, net 37,591 29,552
--------------- ---------------
2,088,096 1,828,889
--------------- ---------------
OTHER ASSETS AND DEFERRED CHARGES 91,071 82,106
--------------- ---------------
TOTAL ASSETS $ 4,506,128 $ 4,200,969
=============== ===============
The accompanying notes to financial statements are an integral part of
these statements.
-16-
<PAGE>
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
June 30, 1997 December 31, 1996
-------------- -----------------
(Dollars in thousands)
CURRENT LIABILITIES
Current portion of long-term debt
and preferred shares $ 38,346 $ 38,197
Notes payable 505,206 160,537
Accounts payable 216,925 205,427
Advance billings and customer deposits 35,191 32,434
Accrued interest 12,173 11,777
Accrued taxes 16,640 3,194
Other current liabilities 51,430 57,701
------------ ------------
875,911 509,267
------------ ------------
DEFERRED LIABILITIES AND CREDITS 223,019 214,906
------------ ------------
LONG-TERM DEBT, excluding current portion 983,364 982,232
------------ ------------
REDEEMABLE PREFERRED SHARES, excluding
current portion 279 280
------------ ------------
MINORITY INTEREST in subsidiaries 430,169 432,343
------------ ------------
NONREDEEMABLE PREFERRED SHARES 28,640 29,000
------------ ------------
COMMON STOCKHOLDERS' EQUITY
Common Shares, par value $1 per share 54,367 54,237
Series A Common Shares,
par value $1 per share 6,922 6,917
Common Shares issuable (10,480 and 30,977
shares, respectively) 499 1,461
Capital in excess of par value 1,660,797 1,661,093
Treasury Shares, at cost (1,796,070 shares) (69,867) --
Retained earnings 312,028 309,233
------------ ------------
1,964,746 2,032,941
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,506,128 $ 4,200,969
============ ============
The accompanying notes to financial statements are an integral part of these
statements.
-17-
<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 June 30, 1997 and December
31, 1996, and the results of operations and cash flows for the six months
ended June 30, 1997 and 1996. The results of operations for the six
months ended June 30, 1997 and 1996, are not necessarily indicative of the
results to be expected for the full year.
2. Certain amounts reported in prior periods have been reclassified to
conform to the current period presentation.
3. Earnings per Common Share were computed by dividing Net Income Available
to Common by the weighted average number of common and common equivalent
shares outstanding during the period. Dilutive common stock equivalents
at June 30, 1997 consist of dilutive Common Share options.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" in March 1997
which will become effective in December 1997. Earnings per share would
not change if the SFAS No. 128 was in effect as of January 1, 1996.
4. Supplemental Cash Flow Information
Cash and cash equivalents include cash and those short-term, highly liquid
investments with original maturities of three months or less. Those
investments with original maturities of more than three months to twelve
months are classified as temporary investments. Temporary investments are
stated at cost, which approximates market. Those investments with
original maturities of more than 12 months are classified as marketable
securities and are stated at amortized cost.
-18-
<PAGE>
TDS acquired certain cellular licenses, operating companies and telephone
companies in 1997 and 1996. In conjunction with these acquisitions, the
following assets were acquired and liabilities assumed and Common Shares
issued.
Six Months Ended
June 30,
----------------------------
1997 1996
---------- ------------
(Dollars in thousands, except
per share amounts)
Property, plant and equipment $ -- $ 46,883
Cellular licenses 36,719 67,238
Decrease in equity method investment
in cellular interests -- 2,826
Franchise costs -- 21,774
Long-term debt -- (23,267)
Deferred credits -- (5,602)
Other assets and liabilities,
excluding cash and cash equivalents -- 5,208
Minority interest (113) (443)
Common Shares issued and issuable -- (113,658)
USM Stock issued and issuable -- (34)
---------- ------------
Increase in cash due to acquisitions $ 36,606 $ 925
========== ============
The following table summarizes interest and income taxes paid, and other
noncash transactions.
Six Months Ended
June 30,
----------------------------
1997 1996
---------- ------------
(Dollars in thousands)
Interest Paid $ 32,102 $ 26,465
Income Taxes Paid 6,818 39,504
Common Shares issued by TDS for
conversion of TDS Preferred Stock $ 338 $ 4,382
5. Business Segment Information
The following tables summarize business segment information for the three
months and six months ended or at June 30, 1997, and 1996.
-19-
<PAGE>
CELLULAR OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
Operating Revenues
Local service $ 139,285 $ 102,713 $ 260,312 $ 191,655
Inbound roaming 57,244 48,485 102,584 87,433
Long-distance and other 21,050 18,272 39,267 34,024
----------- ----------- ----------- -----------
217,579 169,470 402,163 313,112
----------- ----------- ----------- -----------
Operating Expenses
System operations 38,048 28,811 69,277 52,389
Marketing and selling 39,959 27,663 76,999 55,071
Cost of equipment sold 17,763 15,917 35,757 31,390
General and administrative 48,224 40,444 92,939 80,668
Depreciation and amortization 31,431 26,614 61,592 51,751
----------- ----------- ----------- -----------
175,425 139,449 336,564 271,269
----------- ----------- ----------- -----------
Operating Income $ 42,154 $ 30,021 $ 65,599 $ 41,843
=========== =========== =========== ===========
Additions to property, plant
and equipment $ 107,996 $ 55,320 $ 161,058 $ 100,931
Identifiable assets $ 2,279,433 $ 1,991,436 $ 2,279,433 $ 1,991,436
TELEPHONE OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
------------------------- ------------------------
1997 1996 1997 1996
------------ ----------- ----------- ----------
(Dollars in thousands, except per share amounts)
Telephone Operations
Operating Revenues
Local Service $ 30,491 $ 27,316 $ 60,352 $ 52,545
Network access and
long distance 56,717 52,287 113,309 100,793
Miscellaneous 12,650 12,588 24,359 22,252
------------ ----------- ----------- ----------
99,858 92,191 198,020 175,590
------------ ----------- ----------- ----------
Operating Expenses
Network operations 18,099 18,235 35,800 32,312
Depreciation and
amortization 23,811 19,307 47,104 39,444
Customer operations 16,290 13,931 31,187 25,445
Corporate and other 16,643 15,083 31,733 29,900
------------ ----------- ----------- ----------
74,843 66,556 145,824 127,101
------------ ----------- ----------- ----------
Telephone
Operating Income 25,015 25,635 52,196 48,489
------------ ----------- ----------- ----------
Other Operations
Revenues 11,396 5,914 22,480 11,948
Expenses 12,331 5,922 23,370 11,589
------------ ----------- ----------- ----------
Other Operating Income (935) (8) (890) 359
------------ ----------- ----------- ----------
Intercompany Eliminations
Revenues (228) (170) (460) (492)
Expenses (228) (170) (460) (492)
------------ ----------- ----------- ----------
Operating Income $ 24,080 $ 25,627 $ 51,306 $ 48,848
============ =========== =========== ==========
Additions to
property, plant
and equipment $ 30,934 $ 27,220 $ 54,838 $ 54,742
Identifiable assets $ 1,174,508 $ 1,151,179 $ 1,174,508 $ 1,151,179
-20-
<PAGE>
PCS OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- --------- ---------- --------
(Dollars in thousands, except per share amounts)
Operating Revenues $ 7,143 $ -- $ 7,143 $ --
---------- --------- ---------- --------
Operating Expenses
Systems operations 4,042 -- 4,042 --
Marketing and selling 14,890 -- 14,890 --
Cost of equipment sold 14,972 -- 14,972 --
General and administrative 17,239 -- 17,239 --
Customer service 1,750 -- 1,750 --
Depreciation 5,161 -- 5,161 --
Amortization 722 -- 722 --
---------- --------- ---------- --------
58,776 -- 58,776 --
---------- --------- ---------- --------
Operating (Loss) $ (51,633) $ -- $ (51,633) $ --
========== ========= ========== ========
Additions to property, plant
and equipment $ 73,094 $ 13,545 $ 157,702 $ 22,455
Identifiable assets $ 814,823 $ 342,647 $ 814,823 $ 342,647
RADIO PAGING OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- --------- --------- ----------
(Dollars in thousands, except per share amounts)
Operating Revenues $ 24,248 $ 26,296 $ 48,828 $ 52,606
---------- --------- --------- ----------
Costs and expenses
Cost of services 6,179 6,826 13,040 12,845
Selling, general and
administrative 15,270 15,781 31,533 30,185
Cost of equipment sold 2,487 2,762 4,650 5,566
Depreciation and amortization 7,441 7,494 15,145 14,663
--------- --------- --------- ----------
31,377 32,863 64,368 63,259
--------- --------- --------- ----------
Operating (Loss) $ (7,129) $ (6,567) $ (15,540) $ (10,653)
========= ========= ========= ==========
Additions to property, plant
and equipment $ 8,518 $ 11,214 $ 11,472 $ 22,028
Identifiable assets $ 147,382 $ 165,438 $ 147,382 $ 165,438
OTHER OPERATIONS
Three Months Ended or at Six Months Ended or at
June 30, June 30,
----------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- -----------
(Dollars in thousands, except per share amounts)
Additions to property, plant
and equipment $ 3,666 $ 8,226 $ 8,162 $ 11,689
Identifiable Assets $ 89,982 $ 116,442 $ 89,982 $ 116,442
-21-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
At the Annual Meeting of Shareholders of TDS, held on May 16, 1997, the
following number of votes were cast for the matters indicated:
(1) For the election of one Class I director of the Company by the
holders of Common Shares and holders of Preferred Shares
issued before October 31, 1981:
Nominee For Withhold
---------------- ---------- ----------
George W. Off 8,635,100 1,432,881
========== ==========
Martin L. Solomon 31,979,170 1,051,076
========== ==========
(2) For the election of two Class I directors of the Company by
the holders of Series A Common Shares and the holders of
Preferred Shares issued after October 31, 1981:
Nominee For Withhold
------------------- ---------- ---------
Rudolph E. Hornacek 68,984,089 140
========== =========
Donald R. Brown 68,984,089 140
========== =========
(3) Proposal to Ratify the Selection of Arthur Andersen, LLP as
Independent Public Accountants for 1997:
For Against Abstain
----------- --------- -------
Total Votes 111,456,567 366,324 258,962
=========== ========= =======
(4) Shareholder Proposal re: Classified Board:
Broker
For Against Abstain Non-Vote
---------- ---------- ------- --------
Total Votes 35,512,238 75,094,516 606,309 869,420
========== ========== ======= ========
(5) Shareholder Proposal re: Director Independence:
Broker
For Against Abstain Non-Vote
---------- ---------- ------- ---------
Total Votes 34,553,350 75,885,544 774,169 869,420
========== ========== ======= =========
-22-
<PAGE>
Item 5. Other Information
- --------------------------
In December 1996, TDS authorized the repurchase of up to 3 million TDS
Common Shares over a period of three years. Through June 30, 1997, TDS
has repurchased 1,798,100 TDS Common Shares for an aggregate purchase
price of $69.9 million. TDS also purchased 350,000 U.S. Cellular
Common Shares for $9.8 million in the first quarter of 1997. The share
repurchases were financed primarily by borrowings under TDS' short-term
lines of credit.
On July 31, 1997, U.S. Cellular announced that it had filed a shelf
registration statement with the Securities and Exchange Commission
covering $400 million of debt securities. The news release issued to
announce this is attached as Exhibit 99.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibit 3.2 - Restated By-laws
(b) Exhibit 11 - Computation of earnings per common share
(c) Exhibit 12 - Statement regarding computation of ratios
(d) Exhibit 27 - Financial Data Schedule
(e) Exhibit 99 - U.S. Cellular news release dated July 31, 1997
(f) Reports on Form 8-K filed during the quarter ended June 30, 1997
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
-23-
<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 August 12, 1997 MURRAY L. SWANSON
-------------------- ---------------------------------
Murray L. Swanson,
Executive Vice President-Finance
(Chief Financial Officer)
Date August 12, 1997 GREGORY J. WILKINSON
-------------------- ---------------------------------
Gregory J. Wilkinson,
Vice President and Controller
(Principal Accounting Officer)
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<PAGE>
<PAGE>
RESTATED AS OF
June 9, 1997
RESTATED
BY-LAWS
OF
TELEPHONE AND DATA SYSTEMS, INC.
ARTICLE I
---------
OFFICES
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The registered office of the corporation required by the Iowa
Business Corporation Act to be continuously maintained in Iowa shall be
initially as provided in the Articles of Incorporation, subject to change from
time to time by resolutions by the board of directors and filing of statement of
said change as required by the Iowa Business Corporation Act.
ARTICLE II
----------
SHAREHOLDERS
------------
Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held on the first Wednesday in May in each year, at the
hour of 10:00 a.m. (or on such other date and time as the board of directors
establishes by resolution), for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on such other day as shall be designated by the board of directors. In the
event of any adjournment of the annual meeting, the board of directors shall
cause the election to be held at a meeting of the shareholders as soon
thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the
shareholders may be called by the principal executive officer, by the board of
directors or as otherwise provided by the Iowa Business Corporation Act.
Section 3. Place of Meetings. The board of directors may
designate any place, either within or without the State of Iowa, as the place of
meeting for any annual meeting or for any special meeting called by the board of
directors. A waiver of notice signed by all shareholders may designate any
place, either within or without the State of Iowa, as the place for the holding
of such meeting. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal office of the corporation.
Section 4. Notice of Meetings. Written or printed notice
stating the place, day and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the
<PAGE>
meeting is called, shall be delivered not less than ten nor more than sixty days
before the date of the meeting, either personally or by mail, by or at the
direction of the principal executive officer, the secretary, or the officer or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid.
Section 5. Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
board of directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
days and, in the case of a meeting of shareholders, not less than ten days,
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
close of business on the day before the first date on which notice of the
meeting is delivered or the date on which the resolution of the board of
directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof, unless the board of directors fixes a new record date, which the board
of directors shall do if the meeting is adjourned to a date more than 120 days
after the date for the original meeting.
Section 6. Voting List. The officer or agent having charge of
the stock transfer books for shares of the corporation shall, after the record
date for a shareholder meeting has been fixed, prepare an alphabetical list of
the names of all of the shareholders of the corporation who are entitled to
notice of such meeting. This voting list must be arranged by voting group and
within each voting group by class or series of shares and must also include the
address of and the number of shares held by each shareholder. Once prepared,
such voting list shall be available for inspection during usual business hours
by any shareholder, beginning two business days after notice is given of the
meeting for which the list was prepared and continuing through such meeting.
Such voting list shall be made available for inspection at the principal office
of the corporation or at a place identified in the meeting notice in the city
where the meeting will be held. A shareholder, or a shareholder's agent or
attorney, is entitled on written demand to inspect and, subject to the
requirements of Section 490.1602 of the Iowa Business Corporation Act, to copy
the voting list, during regular business hours and at the person's expense,
during the period the voting list is available for inspection. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or transfer books or to
vote at any meeting of shareholders.
Section 7. Quorum of Shareholders; Required Vote. Unless the
Articles of Incorporation or the Iowa Business Corporation Act require
otherwise, a majority of the votes entitled to be cast on any matter by a voting
group constitutes a quorum of that voting group for
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<PAGE>
action on that matter. If a quorum exists, action on a matter by a voting group,
other than the election of directors, is approved if the votes cast within the
voting group favoring the action exceed the votes cast opposing the action,
unless the Articles of Incorporation or the Iowa Business Corporation Act
require a greater number of affirmative votes. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a majority of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present
Section 8. Proxies. At all meetings of the shareholders, a
shareholder may vote either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. A proxy is effective
when received by the secretary or other officer or agent authorized to tabulate
votes. A proxy shall not be effective for any action taken at a meeting if it
has been received after the polls for voting on such action have been closed
with respect to such action. No proxy shall be valid after eleven months from
the date of its execution, unless a longer period is expressly provided in the
proxy.
Section 9. Voting of Shares. Subject to the provisions of
Section 10 of this Article, each outstanding share, regardless of class, shall
be entitled to one vote upon each matter submitted to vote at a meeting of
shareholders, except as may be otherwise provided in the Articles of
Incorporation.
Section 10. Voting of Shares by Certain Holders. Neither
treasury shares nor, unless the Articles of Incorporation otherwise provide,
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation is held by this
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.
Subject to the provisions of the foregoing paragraph of this
section, shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the By-Laws of such
corporation may prescribe or, in the absence of such provision, as the board of
directors of such corporation may determine.
Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder, whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
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<PAGE>
Section 11. Informal Action by Shareholders. Unless otherwise
provided in the Articles of Incorporation, any action required by the Iowa
Business Corporation Act to be taken at a meeting of the shareholders, or any
action which may be taken at a meeting of the shareholders, may be taken without
a meeting if one or more consents in writing setting forth the action so taken,
shall be signed by shareholders representing not less than ninety percent of the
votes entitled to be cast at the meeting at which all shares entitled to vote on
the action were present and voted and are delivered to the corporation for
inclusion in the minutes or filing with the corporate records.
Section 12. Voting by Ballot. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
shareholder demand that voting be by ballot.
Section 13. Introduction of Business at a Meeting of
Shareholders. At an annual or special meeting of shareholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been properly brought before an annual or special meeting of
shareholders. To be properly brought before an annual or special meeting of
shareholders, business must be (1) in the case of a special meeting, specified
in the notice of the special meeting (or any supplement thereto) given by the
corporation, or (2) in the case of an annual meeting, properly brought before
the meeting by or at the direction of the board of directors, or otherwise
properly brought before the annual meeting by a shareholder. For business to be
properly brought before an annual meeting of shareholders by a shareholder, the
shareholder must have given timely notice thereof in writing to the President or
Secretary of the corporation. To be timely, a shareholder's notice must be
received at the principal executive offices of the corporation not earlier than
120 calendar days nor later than 90 calendar days in advance of the anniversary
date of the date of the corporation's proxy statement to shareholders in
connection with the most recent preceding annual meeting of shareholders, except
that if the date of the current year's annual meeting has been changed by more
than 30 calendar days from the anniversary date of the most recent preceding
annual meeting, a shareholder proposal shall be received by the corporation not
later than the close of business on the tenth day following the date of public
notice of the date of the current year's annual meeting.
A shareholder's notice shall set forth as to each matter the
shareholder proposes to bring before an annual meeting of shareholders (1) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (2)
the name and address, as they appear on the corporation's books of the
shareholder proposing such business and any other shareholders known by such
shareholder to be supporting such proposal, (3) the class and number of shares
of the corporation which are beneficially owned by such shareholder on the date
of such shareholder's notice and by any other shareholders known by such
shareholder to be supporting such proposal on the date of such shareholder's
notice and (4) any material interest of the shareholder in such proposal.
Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at a meeting of shareholders except in accordance
with the procedures set forth in this Section 13. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that the
business was not properly brought before the meeting in accordance with the
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<PAGE>
procedures prescribed by the By-Laws, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be considered.
Section 14. Nomination of Directors. Only persons nominated in
accordance with the procedures set forth in this section shall be eligible for
election as directors. Nominations of persons for election to the board may be
made at a meeting of shareholders (1) by or at the direction of the board of
directors, or (2) by any shareholder of the corporation entitled to vote for the
election of directors at such meeting who complies with the notice procedures
set forth in this Section 14. Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely notice
in writing to the President or Secretary of the corporation. To be timely, a
shareholder's notice must be received at the principal executive offices of the
corporation not earlier than 120 calendar days nor later than 90 calendar days
in advance of the anniversary date of the date of the corporation's proxy
statement to shareholders in connection with the preceding year's annual meeting
of shareholders, except that if the date of the current year's annual meeting
has been changed by more than 30 calendar days from the anniversary date of the
most recent preceding annual meeting, a nomination shall be received by the
corporation not later than the close of business on the tenth day following the
date of public notice of the date of the current year's annual meeting.
A shareholder's notice shall set forth (1) as to each person
whom the shareholder proposes to nominate for election or reelection as a
director (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the corporation which are beneficially owned by such
person on the date of such shareholder's notice and (d) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); and
(2) as to the shareholder giving the notice (a) the name and address, as they
appear on the corporation's books, of such shareholder and any other
shareholders known by such shareholder to be supporting such nominees and (b)
the class and number of shares of the corporation which are beneficially owned
by such shareholder on the date of such shareholder's notice and by any other
shareholders known by such shareholder to be supporting such nominees on the
date of such shareholder's notice.
No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the By-Laws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
This Section 14 shall not apply to the election of a director
to a directorship which may be filled by the board of directors under the Iowa
Business Corporation Act.
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<PAGE>
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the
corporation shall be managed by its board of directors.
Section 2. Number and Election of Directors. The number of
directors of the corporation shall be twelve. At the first annual meeting of
shareholders the directors shall be divided into three classes, each class to be
as nearly equal in number as possible. The term of office of directors of the
first class shall expire at the first annual meeting of the shareholders
thereafter; that of the second class shall expire at the second annual meeting
of shareholders thereafter; and that of the third class shall expire at the
third annual meeting of shareholders thereafter. At each annual meeting after
such classification, the shareholders shall elect the number of directors equal
to the number of the class whose term expired at the time of such meeting and
each such director shall hold office until the third succeeding annual meeting
of shareholders and until his successor shall have been elected and qualified.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this By-Law, immediately
after, and at the same place as, the annual meeting of shareholders. The board
of directors may provide by resolution the time and place, either within or
without the State of Iowa for the holding of additional regular meetings without
other notice than such resolution.
Section 4. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the Chairman or President or by
a majority of the directors. The person or persons authorized to call special
meetings of the board of directors may fix any place, either within or without
the State of Iowa, as the place for holding any special meeting of the board of
directors called by them.
Section 5. Notice. Notice of any special meeting of the board
of directors or of any committee designated by the board shall be (1) by written
notice mailed to each director at his business address at least three days
previous thereto; (2) by written notice delivered to him at such address by
telegraph, cablegram or other similar form of message delivery at least four
hours before the time at which such meeting is to be held; or (3) by telephone,
telecopy, facsimile or any other similar form of electronic transmission at
least four hours before the time at which such meeting is to be held. If mailed,
such notice shall be deemed to be given when deposited in the United States mail
so addressed and postage prepaid. If notice is by telegram, cablegram or other
similar form of message delivery, or by telephone, telecopy, facsimile or other
similar form of electronic transmission, such notice shall be deemed to be given
when its receipt is acknowledged by a responsible person at the address to which
such notice was directed. The attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or
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<PAGE>
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed
by these By-Laws shall constitute a quorum for the transaction of business;
provided, that if less than a majority of such number of directors are present
at said meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the board of directors.
Section 8. Vacancies. Unless otherwise provided in the
Articles of Incorporation, any vacancy occurring in the board of directors and
any directorship to be filled by reason of an increase in the number of
directors may be filled (1) in the case of a director elected or to be elected
by the holders of Preferred Shares issued before October 31, 1981 and Common
Shares (a "Common Share Director"), by the vote of such shareholders, or (2) in
the case of a director elected or to be elected by the holders of Preferred
Shares issued after October 31, 1981 and Series A Common Shares (a "Series A
Director"), by the vote of such shareholders or (3) in the case of either a
Common Share Director or a Series A Director, by the affirmative vote of a
majority of all of the directors remaining in office even if less than a quorum.
A director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. A director elected by reason of an increase in the
board of directors shall be elected for a term of office continuing until the
next election of directors.
Section 9. Compensation. The board of directors, by the
affirmative vote of a majority of directors then in office, and irrespective of
any personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers, or otherwise. By resolution of the board of directors the
directors may be paid their expenses, if any, of attendance at each meeting of
the board.
Section 10. Presumption of Assent. A director of the
corporation who is present at a meeting of its board of directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered or certified mail to the secretary of
the corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 11. Informal Action by Directors. Any action required
by the Iowa Business Corporation Act to be taken at a meeting of directors of
the corporation, or any action which may be taken at a meeting of the directors
or of a committee of directors, may be taken without a meeting if a consent in
writing setting forth the action so taken, shall be signed by all of the
directors or all of the members of the committee of directors, as the case may
be.
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<PAGE>
Section 12. Executive and Other Committees. The board of
directors, by resolution adopted by a majority of the full board of directors,
may designate from among its members an executive committee or one or more other
committees each of which, to the extent provided in such resolution, shall have
and may exercise all the authority of the board of directors, except that no
such committee shall have the authority to:
(i) authorize distributions;
(ii) approve or propose to shareholders action that the
Iowa Business Corporation Act requires to be approved by shareholders;
(iii) fill vacancies on the board of directors or on any of
its committees;
(iv) amend the Articles of Incorporation pursuant to
Section 490.1002 of the Iowa Business Corporation Act;
(v) adopt, amend or repeal these By-Laws;
(vi) approve a plan of merger not requiring shareholder
approval;
(vii) authorize or approve the reacquisition of shares,
except according to a formula or method prescribed by the board of
directors;
(viii) authorize or approve the issuance or sale or contract
for sale of shares, or determine the designation and and relative
rights, preferences and limitations of a class or series of shares,
except within limits specifically prescribed by the board of directors;
or
(ix) take any other action contrary to any applicable law, the
Articles of Incorporation, these By-Laws or any resolution of this
board of directors.
Neither the designation of any such committee, the delegation
to it of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the board of directors, who
is not a member of the committee in question, with such director's
responsibility to act in good faith, in a manner such director reasonably
believes to be in the best interests of the corporation, and with such care as
an ordinarily prudent person in a like position would use under similar
circumstances.
Section 13. Committee Meetings and Minutes. Each committee may
provide by resolution the time and place of regular committee meetings without
other notice than such resolution. Special committee meetings may be called by
or at the request of any two committee members. Each committee shall keep
regular minutes of its proceedings and shall report the same to the succeeding
meeting of the board of directors.
Section 14. Removal. Any member of any committee of the board
of directors may be removed from such committee (and such committee may be
eliminated) by resolution adopted by a majority of the full board of directors
at any time, with or without notice.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall
consist of a Chairman, a President, one or more Vice Presidents (the number
thereof to be determined by the board of
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<PAGE>
directors), a Secretary and a Treasurer, and such Assistant Treasurers,
Assistant Secretaries, or other officers as may be elected or appointed by the
board of directors. Any two or more offices may be held by the same person.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be. Vacancies
may be filled or new offices created and filled at any meeting of the board of
directors. Each officer shall hold office until his successor shall have been
duly elected and qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided. Election or appointment of
an officer or agent shall not of itself create contract rights.
Section 3. Removal. Any officer or agent may be removed by the
board of directors whenever in its judgment the best interests of the
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term.
Section 5. Chairman. The Chairman shall preside at all
meetings of the shareholders and of the board of directors and shall see that
orders and resolutions of the board of directors are carried into effect. He may
sign bonds, mortgages, certificates for shares and all other contracts and
documents whether or not under the seal of the corporation except in cases where
the signing and execution thereof shall be expressly and exclusively delegated
by law, by the board of directors or by these By-Laws to some other officer or
agent of the corporation. In the absence of the President (including a vacancy
in such office) or in the event of his inability or refusal to act, which
inability shall be determined by the Chairman, the Chairman shall perform the
duties of the principal executive officer and, when so acting, shall have all
the powers of the President.
Section 6. President. The President shall be the principal
executive officer of the corporation and shall, in general, supervise and
control all of the business and affairs of the corporation, subject to the
general powers of the board of directors. In the absence of the Chairman, he
shall preside at all meetings of the shareholders and of the board of directors.
He may sign bonds, mortgages, certificates for shares and all other contracts
and documents whether or not under seal of the corporation except in cases where
the signing and execution thereof shall be expressly and exclusively delegated
by the board of directors or by these By-Laws to some other officer or agent of
the corporation. In general, he shall perform all duties incident to the office
of President and such other duties as may be prescribed by the board of
directors from time to time. He shall have general powers of supervision and
shall be the final arbiter of all differences between officers of the
corporation and his decision as to any matter affecting the corporation shall be
final and binding as between the officers of the corporation subject only to the
Chairman and the board of directors.
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<PAGE>
Section 7. Vice Presidents. In the absence of the Chairman and
the President or in the event of their inability or refusal to act, the Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated or in the absence of any designation, then in
the order of their original election as Vice Presidents) shall perform the
duties of the principal executive officer and, when so acting, shall have all
the powers of and be subject to all the restrictions upon the principal
executive officer. Any Vice President may sign, with the Secretary or an
Assistant Secretary, certificates for shares of the corporation, and shall
perform such other duties as from time to time may be assigned to him by the
President and principal executive officer or by the board of directors.
Section 8. Treasurer. If required by the board of directors,
the Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the board of directors shall determine.
He shall have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for moneys due and
payable to the corporation; and deposit all moneys in the name of the
corporation in such banks, trust companies or other depositaries as shall be
selected in accordance with the provisions of Article V of these By-Laws. He
shall, in general, perform all duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the principal
executive officer or by the board of directors.
Section 9. Secretary. The Secretary shall keep the minutes of
the shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; see that all notices are duly given in accordance
with the provisions of these By-Laws or as required by law; be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all certificates for shares prior to the issue
thereof and to all documents, the execution of which on behalf of the
corporation under its seal is duly authorized in accordance with the provisions
of these By-Laws; keep a register of the post office address of each shareholder
which shall be furnished to the Secretary by such shareholder; sign with the
Chairman, President and principal executive officer, or a Vice President,
certificates for shares of the corporation, the issue of which shall have been
authorized by resolution of the board of directors; have general charge of the
stock transfer books of the corporation; and in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the principal executive officer or by the board of
directors.
Section 10. Assistant Treasurers and Assistant Secretaries.
The Assistant Treasurers shall respectively, if required by the board of
directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the board of directors shall determine. The Assistant
Secretaries as thereunto authorized by the board of directors may sign with the
principal executive officer or a Vice President certificates for shares of the
corporation, the issue of which shall have been authorized by a resolution of
the board of directors. The Assistant Treasurers and Assistant Secretaries, in
general, shall perform such duties as shall be assigned to them by the Treasurer
or the Secretary, respectively, or by the principal executive officer of the
board of directors.
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Section 11. Salaries. The salaries of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the corporation.
ARTICLE V
---------
CONTRACTS, LOANS,
CHECKS AND DEPOSITS
-------------------
Section 1. Contracts. The board of directors may
authorize any officer or agent to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of
the corporation and no evidence of indebtedness shall be issued in its name
unless authorized by the board of directors, the Chairman, the President and
principal executive officer, or any other officer designated by the board of
directors, the Chairman or the President and principal executive officer. Such
authority may be general or confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation, shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to time
be determined by resolution of the board of directors.
Section 4. Deposits. All funds of the corporation not
otherwise employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositories as the board of
directors may select.
ARTICLE VI
----------
CERTIFICATES FOR
SHARES AND THEIR TRANSFER
-------------------------
Section 1. Certificates for Shares. Subject to the provisions
of Section 490.625 of the Iowa Business Corporation Act, certificates
representing shares of the corporation shall be in such form as may be
determined by the board of directors. Such certificates shall be signed by the
Chairman, the President and principal executive officer or a Vice President, and
the Secretary or an Assistant Secretary of the corporation. The signatures of
such officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent, or registered by a registrar, other than the
corporation itself, or an employee of the corporation. All certificates for
shares shall be consecutively numbered or otherwise identified. The name of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, stolen, destroyed or mutilated
-11-
<PAGE>
certificate a new one may be issued therefor upon such terms and indemnity to
the corporation as the board of directors may prescribe.
Section 2. Transfers of Shares Transfers of shares of the
corporation shall be made only on the books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and only
on surrender for cancellation of the certificate for such shares. Except as
otherwise provided by law, the person in whose name shares stand on the books of
the corporation shall be deemed the owner thereof for all purposes as regards
the corporation.
ARTICLE VII
-----------
INDEMNIFICATION OF
DIRECTORS, OFFICERS, AND EMPLOYEES
----------------------------------
The corporation shall indemnify every person made or
threatened to be made a party to any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and any
appeal therein (including any inquiry or investigation which could lead to any
such action, suit or proceeding), by reason of the fact that such person is or
was a director of the corporation or any of its consolidated subsidiaries, or
served any other corporation, partnership, joint venture, other enterprise or
employee benefit plan in any capacity at the request of the board of directors
of this corporation, in the manner and to the extent provided by Part E,
Sections 490.850 et seq., of the Iowa Business Corporation Act and shall
indemnify every person made or threatened to be made a party to any such
pending, threatened or completed action, suit or proceeding, and any appeal
therein (including any inquiry or investigation which could lead to any such
action, suit or proceeding), by reason of the fact that such person is or was an
officer of the corporation or any of its consolidated subsidiaries, or having
served any other corporation as aforesaid. The right of indemnification provided
for in this Article VII shall inure to the benefit of the legal representative
of any such person. The right of indemnity provided herein shall not be
exclusive and the corporation may provide indemnification to any person, by
agreement or otherwise, on such terms and conditions as the board of directors
may approve. Any agreement for indemnification of any director, officer,
employee or other person may provide indemnification rights which are broader or
otherwise different from those set forth herein.
ARTICLE VIII
------------
FISCAL YEAR
-----------
The fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
-12-
<PAGE>
ARTICLE IX
----------
DIVIDENDS
---------
The board of directors may, from time to time, declare and the
corporation may pay dividends on its outstanding shares in the manner and upon
the terms and conditions provided by the Iowa Business Corporation Act.
ARTICLE X
---------
SEAL
----
The board of directors may provide a corporate seal.
ARTICLE XI
----------
WAIVER OF NOTICE
----------------
Whenever any notice is required to be given to any shareholder
or director of the corporation under the provisions of the Iowa Business
Corporation Act or under the provisions of the Articles of Incorporation or
By-Laws of the corporation, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be equivalent to the giving of such notice.
ARTICLE XII
-----------
AMENDMENTS
----------
Section 1. Amendment by the Board of Directors. Except as
otherwise provided in the Iowa Business Corporation Act, the Articles of
Incorporation or any By-Laws adopted by the shareholders, these By-Laws may be
altered, amended or repealed and new By-Laws may be adopted at any meeting of
the board of directors of the corporation by a majority vote of the directors
present at the meeting or by the unanimous written consent of the directors.
Section 2. Amendment by the Shareholders. Not in limitation of
Section 1 of this Article XII, except as otherwise provided in the Iowa Business
Corporation Act or the Articles of Incorporation, these By-Laws may be altered,
amended or repealed and new By-Laws may be adopted by the shareholders.
* * * * *
-13-
<PAGE>
Exhibit 11
Telephone and Data Systems, Inc.
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Three Months Ended June 30, 1997 1996
- --------------------------------------------------------------------------------
Primary Earnings
Net Income $ 6,821 $ 59,692
Dividends on Preferred Shares (470) (242)
--------- ---------
Net Income Available to Common $ 6,351 $ 59,450
========= =========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 60,051 60,610
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 100 177
Convertible Preferred Shares -- 441
Common Shares Issuable 10 31
--------- ---------
Primary Shares 60,161 61,259
========= =========
Primary Earnings per Common Share
Net Income $ .11 $ .97
========= =========
Fully Diluted Earnings*
Net Income $ 6,821 $ 59,692
Dividends on Preferred Shares (470) (45)
--------- ---------
Net Income Available to Common $ 6,351 $ 59,647
========= =========
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 60,051 60,610
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 101 178
Convertible Preferred Shares -- 975
Common Shares Issuable 10 31
--------- ---------
Fully Diluted Shares 60,162 61,794
========= =========
Fully Diluted Earnings per Common Share
Net Income $ .11 $ .97
========= =========
* 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 11
Telephone and Data Systems, Inc.
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Six Months Ended June 30, 1997 1996
- --------------------------------------------------------------------------------
Primary Earnings
Net Income $ 16,438 $ 93,381
Dividends on Preferred Shares (951) (492)
--------- ---------
Net Income Available to Common $ 15,487 $ 92,889
========= =========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding 60,617 59,822
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 121 175
Convertible Preferred Shares -- 442
Common Shares Issuable 19 26
--------- ---------
Primary Shares 60,757 60,465
========= =========
Primary Earnings per Common Share
Net Income $ .25 $ 1.54
========= =========
Fully Diluted Earnings*
Net Income $ 16,438 $ 93,381
Dividends on Preferred Shares (951) (209)
--------- ---------
Net Income Available to Common $ 15,487 $ 93,172
========= =========
Fully Diluted Shares
Weighted average number of Common and Series A
Common Shares Outstanding 60,617 59,822
Additional shares assuming issuance of:
Options and Stock Appreciation Rights 128 178
Convertible Preferred Shares -- 918
Common Shares Issuable 19 26
--------- ---------
Fully Diluted Shares 60,764 60,944
========= =========
Fully Diluted Earnings per Common Share
Net Income $ .25 $ 1.53
========= =========
* 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 Six Months June 30, 1997
(Dollars In Thousands)
EARNINGS:
Income from Continuing Operations before
income taxes $ 40,363
Add (Deduct):
Minority Share of Losses (13,599)
Earnings on Equity Method (34,663)
Distributions from Minority Subsidiaries 24,028
Amortization of Non-Telephone Capitalized
Interest 1
Minority interest in majority-owned subsidiaries
that have fixed charges 10,030
------------
26,160
Add fixed charges:
Consolidated interest expense 33,339
Interest Portion (1/3) of Consolidated Rent Expense 4,450
Amortization of debt expense and discount on
indebtedness 355
------------
$ 64,304
============
FIXED CHARGES:
Consolidated interest expense $ 33,339
Capitalized interest 10,705
Interest Portion (1/3) of Consolidated Rent Expense 4,450
Amortization of debt expense and discount on indebtedness 355
------------
$ 48,849
============
RATIO OF EARNINGS TO FIXED CHARGES 1.32
============
Tax-Effected Redeemable Preferred Dividends $ 138
Fixed Charges 48,849
------------
Fixed Charges and Redeemable Preferred Dividends $ 48,987
============
RATIO OF EARNINGS TO FIXED CHARGES
AND REDEEMABLE PREFERRED DIVIDENDS 1.31
============
Tax-Effected Preferred Dividends $ 2,184
Fixed Charges 48,849
------------
Fixed Charges and Preferred Dividends $ 51,033
============
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 1.26
============
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TELEPHONE AND DATA SYSTEMS, INC. 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 35,566
<SECURITIES> 42,785
<RECEIVABLES> 162,113
<ALLOWANCES> 5,911
<INVENTORY> 39,578
<CURRENT-ASSETS> 341,975
<PP&E> 3,016,005
<DEPRECIATION> 927,909
<TOTAL-ASSETS> 4,506,128
<CURRENT-LIABILITIES> 654,268
<BONDS> 983,364
279
28,640
<COMMON> 61,289
<OTHER-SE> 1,903,457
<TOTAL-LIABILITY-AND-EQUITY> 4,506,128
<SALES> 0
<TOTAL-REVENUES> 678,174
<CGS> 0
<TOTAL-COSTS> 628,442
<OTHER-EXPENSES> (24,325)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,694
<INCOME-PRETAX> 40,363
<INCOME-TAX> 23,925
<INCOME-CONTINUING> 16,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,438
<EPS-PRIMARY> 0.25
<EPS-DILUTED> $ 0.25
</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>
