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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                   _________

                                   FORM 10-K

    /X/       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                 For the Fiscal Year Ended September 30, 1996
                                      OR
    / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                For the Transition Period from             to

                       Commission File Number:  0-18195

                           U.S. LONG DISTANCE CORP.
            (Exact Name of Registrant as Specified in its Charter)

                         DELAWARE                            74-2522103
                 (State of Incorporation)                 (I.R.S. Employer
                                                         Identification No.)

        9311 SAN PEDRO, SUITE 100, SAN ANTONIO, TEXAS           78216
           (Address of Principal Executive Office)           (Zip Code)

                                (210) 525-9009
             (Registrant's Telephone Number, Including Area Code)

       Securities Registered Pursuant to Section 12(b) of the Act:  NONE

          Securities Registered Pursuant to Section 12(g) of the Act:
                      COMMON STOCK, PAR VALUE $0.01 PER SHARE
                               (Title of Class)
                                  ___________

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.  Yes /X/  No / /

     Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  /X/

     The aggregate market value of the Registrant's outstanding Common Stock
held by non-affiliates of the Registrant at December 13, 1996 was $129,312,069.
There were 15,076,381 shares of the Registrant's Common Stock outstanding at
December 13, 1996.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's Definitive Proxy Statement to be filed in 
connection with the 1997 Annual Meeting of Stockholders to be held on 
February 25, 1997, are incorporated by reference in Part III hereof.
                                       
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                           U.S. LONG DISTANCE CORP.

                          ANNUAL REPORT ON FORM 10-K
                 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996

 ITEM                                                                    PAGE
NUMBER                                                                  NUMBER
------                                                                  ------
   -     Index........................................................     2  

                                   PART I
   1.    Business.....................................................     3  
   2.    Properties...................................................    10  
   3.    Legal Proceedings............................................    10  
   4.    Submission of Matters to a Vote of Security Holders..........    10  
                                      
                                  PART II
   5.    Market for the Company's Common Equity and Related 
          Stockholder Matters.........................................    11  
   6.    Selected Financial Data......................................    12  
   7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations..................................    13  
   8.    Financial Statements and Supplementary Data..................    21  
   9.    Changes in and Disagreements with Accountants on Accounting 
          and Financial Disclosure....................................    39  
                                      
                                  PART III
  10.    Directors and Executive Officers of the Company..............    40  
  11.    Executive Compensation.......................................    40  
  12.    Security Ownership of Certain Beneficial Owners and 
          Management..................................................    40  
  13.    Certain Relationships and Related Transactions...............    40  
                                      
                                  PART IV
  14.    Exhibits, Financial Statement Schedules, and Reports on 
          Form 8-K....................................................    41  

         Signatures...................................................    47  

                                      2
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                                    PART I

ITEM 1.  BUSINESS

OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND ITEMS DISCUSSED 
IN THIS ANNUAL REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS THAT 
INVOLVES RISKS AND UNCERTAINTIES.  ACTUAL RESULTS OF U.S. LONG DISTANCE CORP. 
AND ITS SUBSIDIARIES (COLLECTIVELY, THE "COMPANY") MAY DIFFER MATERIALLY FROM 
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.  CERTAIN FACTORS 
THAT COULD CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED WITH THE 
FORWARD-LOOKING STATEMENTS THROUGHOUT THIS REPORT AND ARE SUMMARIZED IN 
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS -FORWARD-LOOKING STATEMENTS-CAUTIONARY LANGUAGE."

     The Company is a fully-integrated long distance communications company. 
From fiscal 1991 through fiscal 1996, the Company's revenues increased at a 
compounded annual rate of 60%, totaling $180.3 million for fiscal 1996.  The 
Company offers an integrated group of communication services including direct 
dial long distance, prepaid calling cards, travel cards, data transmission 
and calling center services.

     The long distance telephone industry has changed significantly since the 
mandated divestiture by American Telephone and Telegraph Co. ("AT&T") of its 
22 local telephone companies in 1984. Regulations mandating equal access to 
the existing telecommunications network led to the creation of hundreds of 
new long distance companies.  Competition now pervades across all categories 
of long distance telephone services, including both domestic and 
international direct dial long distance telephone services, operator assisted 
and calling card services, and 800/888 specialized in-bound long distance 
telephone services. While AT&T and, to a lesser extent, MCI 
Telecommunications Corporation ("MCI") and Sprint Corporation ("Sprint"), 
together dominate the estimated $78 billion long distance telecommunications 
industry, management believes that a growing share of the market is serviced 
by smaller long distance companies such as the Company. Industry sources 
estimate that approximately 80% of the long distance market is shared among 
AT&T, MCI and Sprint.

     The Telecommunications Act of 1996, which was signed into law on 
February 8, 1996, is the first major overhaul of the telecommunications law 
since the divestiture of AT&T.  This act allows telecommunications providers 
such as the Company to provide local telephone services. The local telephone 
service industry is estimated to be a $95 billion industry and is dominated 
by the Regional Bell Operating Companies (RBOCs).  The Company is actively 
pursuing its entrance into the local service industry.  The Company is 
currently certified to offer local service in three states and has 
certification pending in four other states.  The Company has signed an 
interconnection agreement with Southwestern Bell enabling the Company to 
provide local telephone service to business and residential customers in 
Southwestern Bell's five-state service area. Additionally, the 
Telecommunications Act of 1996 allows the RBOCs to compete in the long 
distance industry.  However, the applicant RBOC must first satisfy a 
legislative "checklist" that outlines the steps required for an RBOC to open 
its network to competition on a local basis.

     On July 10, 1996, the Company's Board of Directors approved a plan to 
spin-off the Company's commercial billing clearinghouse and information 
management services business ("Billing Group Business") as a separate public 
company (the "Distribution"). To effect the spin-off, the Board approved the 
distribution of the outstanding shares of common stock of its wholly owned 
subsidiary that owned and operated the Billing Group Business, Billing 
Information Concepts Corp. ("Billing"), to its stockholders. The Distribution 
was tax-free for federal income tax purposes to the stockholders of the 
Company, and the Company will not recognize income, gain or loss as a result 
of the Distribution, except for direct spin-off costs.  The Distribution was 
completed on August 2, 1996.

DIRECT DIAL LONG DISTANCE SERVICES

     The Company is a full-service long distance carrier currently providing 
direct dial long distance services to small and medium-sized commercial 
customers and, to a lesser extent, residential customer accounts. The Company 
was authorized to provide direct dial long distance services to customers in 
47 states at September 30, 1996.  However, the Company focuses its direct 
sales efforts in the West Coast, Pacific Northwest, Southwest and Southeast 
regions of the United States to take advantage of network efficiencies.  In 
addition to its basic "one-plus" service, the Company provides inbound 800 
service, travel and prepaid calling card services, private line services, 
data transmission services, wholesale carrier services and other 
customer-specific products.

     The Company began offering direct dial long distance services following 
its entry into the direct dial long distance business in August 1991 through 
the acquisition of three related direct dial long distance companies in 
Texas. At September 30, 1996, the Company serviced approximately 47,000 
commercial and residential customer accounts.  The Company carried an average 
of 106.5 million minutes per month of long distance traffic during the fiscal 
quarter ended September 30, 1996, as compared to 62.6 million and 44.7 
million during the fiscal quarters ended September 30, 1995 and 1994, 
respectively.  In fiscal 1996, 1995 and 1994, the Company had $119.4 million, 
$84.5 million and $62.8 million, respectively, in direct dial long distance 
revenues, comprising 66%, 59% and 53% of total operating revenues in each 
period, respectively.

                                       3
<PAGE>

INDUSTRY OVERVIEW

     Direct dial long distance revenues industrywide are estimated to be 
approximately $78 billion in 1996, up from approximately $73 billion in 1995. 
AT&T, MCI and Sprint dominate the long distance industry.  Industry sources 
estimate that these companies control a combined market share of 
approximately 80%.  These companies offer comprehensive communications 
services in a wider array of products than other long distance companies and 
typically target national, multi-state business customers and millions of 
residential long distance users through national television and media 
advertising.  The Company believes that over 500 smaller long distance 
companies account for the remaining 20% of the market.  These companies 
typically concentrate on smaller regional and local business customers. 
Competition in the direct dial long distance industry has historically been 
based upon price.   More recently, the focus has been moving towards customer 
service, product design and innovation, customized billing capabilities, 
transmission quality and availability of service.

SALES AND MARKETING

     The Company's direct dial long distance sales personnel are located 
throughout the Company's service area and are responsible for marketing to 
commercial accounts.  The Company supervises sales and marketing efforts from 
its corporate headquarters and utilizes various advertising media to enhance 
its commercial marketing efforts and to attract and retain residential 
customers.  The Company examines the calling profiles of target markets and 
designs long distance services that specifically fill certain demands.  For 
example, the Company issues long distance calling cards customized to include 
a customer's corporate logo and has also customized prepaid calling cards to 
be used as promotional marketing tools.  The Company also directly markets to 
employees of commercial customers for their residential service.  In addition 
to its own sales force, the Company markets its direct dial long distance 
services through authorized agents, other carriers and affinity organizations 
(strategic partnerships).

     The Company currently has an exclusive marketing agreement with Nolan 
Ryan, formerly a player with the Texas Rangers-Registered 
Trademark-professional baseball team and a potential hall of fame candidate, 
who acts as the Company's spokesman for its direct dial long distance 
services and whose picture appears in the Company's advertisements and 
product literature, including prepaid calling cards.

OPERATIONS

     The Company completes calls that are originated when a pre-subscribed 
customer dials "1" plus the area code and number or when a customer selects 
the Company's network through dial-up access to reach any domestic or 
international destination.  All long distance calls placed over the Company's 
network are directed to call destination points by computerized digital 
network switching equipment operating at one of the Company's switching 
centers.  The switching equipment receives a customer's direct dial call, 
verifies the caller's billing status and authorization codes, routes the call 
to the dialed destination, monitors the call's duration and collects other 
information for billing purposes.  The Company's switching equipment selects 
the most cost-efficient transmission circuit or path available prior to 
switching and completing each call. The Company employs state-of-the-art 
digital switching equipment at the Company's switching centers in Houston, 
Texas; Waco, Texas; Seattle, Washington; and Los Angeles, California.  The 
Company has also purchased a digital switch in Atlanta, Georgia, and will 
take possession of it in January 1997.

     To satisfy increasing or anticipated usage of its long distance network 
and to ensure that its network is optimally accessible when network demand is 
heavy, the Company, from time to time, adds circuit capacity at each existing 
switching center by increasing the number of telecommunications ports and 
access lines.  The Company utilizes state of the art Common Channel Signaling 
System 7, which is currently operational for virtually all originating and 
terminating traffic within the Company's markets. This network protocol 
significantly reduces connect time delays and provides additional technical 
capabilities and efficiencies for the routing of calls.

COMPETITIVE ADVANTAGES

     The Company competes with AT&T, MCI and Sprint and numerous local, 
regional and national carriers on the basis of its products and services, 
competitive pricing and local identity.  The Company, generally, prices its 
services up to 20% below AT&T, MCI and Sprint comparable service offerings.  
In addition, by designing long distance products and services that fill 
specific market needs, the Company enhances its ability to compete with AT&T, 
MCI and Sprint and others.

     The Company believes that its emphasis on customer service distinguishes 
itself from many of its competitors. The Company has taken an integrated team 
approach to sales and service by increasing the number of sales support 
representatives in its field offices to maintain responsive service after the 
sale.  The Company recently deployed notebook computers to the sales force to 
enhance marketing presentations and automate the customer order entry 
function.  Additionally, the Company implemented a computerized bulletin 
board service called Advantage Direct, which is similar to the remote access 
service offered to its operator services customers. This service allows 
customers to monitor and evaluate calling patterns and volume by department 
or location. Moreover, in competing with certain regional and local long 
distance carriers, the Company believes it holds a competitive advantage 
within its territory because the Company's regional concentration of traffic 
over its network facilities allows for certain cost efficiencies of a 
national carrier. In addition, the Company believes that its local identity 
in the markets it serves provides an advantage in marketing its services and 

                                      4
<PAGE>

competing with long distance carriers based outside of the target regions.  
Management believes that the Company has developed the expertise in 
information systems necessary to meet the needs of its direct dial long 
distance customers.  For instance, the Company provides an invoice indicating 
call detail in a form that assists customers in controlling and monitoring 
communications costs for various projects or departments.

     The Company employs digital switching equipment utilizing a network 
comprised largely of high quality fiber-optic circuitry to maximize 
communications quality. The Company believes that its use of a digital 
fiber-optic network is particularly advantageous in marketing both its voice 
and data transmission services.  The Company also designs redundant and 
diverse routes to each major service area to ensure service availability.

     The communications industry is ever-changing, and the recently passed 
Telecommunications Act of 1996 is expected to have a major impact on the 
industry's competitive environment.  In essence, the RBOCs will be competing 
with long distance carriers for both domestic and international long distance 
customers.  The Company believes it is prepared to meet this challenge by 
capitalizing on its experienced management team and sales force, personalized 
customer service, quality products and services and competitive pricing 
structures.

STRATEGY AND GROWTH OPPORTUNITIES

     The Company's strategic focus in the direct dial long distance industry 
is to compete with AT&T, MCI and Sprint primarily on the basis of competitive 
pricing, while offering a comparable or higher level of service. Moreover, 
the Company intends to remain focused on small and medium-sized commercial 
customers and will continue its efforts to develop innovative and 
cost-efficient services that meet the needs of its customers.  The Company 
intends to introduce new communications products, such as local service, 
Internet access, paging, frame relay/ISDN and cellular service, over the next 
12 to 18 months.  The introduction of the local service product provides the 
Company the largest opportunity for growth.  The local services industry is 
estimated to be a $95 billion market.  Each of the Company's existing 47,000 
customer accounts are already utilizing this service from the local exchange 
carrier in each locality.  The Company believes that it has the potential to 
capitalize on its relationship with existing customers to bundle the local 
product with its existing products and services.  The bundling of these 
services with long distance service will enhance the Company's product 
offerings and provide new and existing customers with the integrated 
communication services they desire. To a lesser extent, the Company also 
continues to market to residential customers.

     The Company expects to look for opportunities to expand its long 
distance business, both by internal growth and through acquisitions.  The 
primary focus of the Company's acquisition activities is to make additional 
acquisitions that will grow the Company's direct dial long distance business. 
 The Company believes its operator services business affords it the 
opportunity to expand its direct dial long distance business on a more 
cost-effective basis than many of its competitors.  By having a concentration 
of operator services call traffic in a particular geographic region, the 
Company can utilize any long distance facilities it installs or acquires to 
service a ready base of call traffic, thereby lowering the marginal 
transmission costs for any direct dial long distance traffic that the Company 
acquires or develops in that region. The Company believes this cost advantage 
not only improves the potential profitability of both the Company's operator 
services and direct dial long distance services businesses in such region, 
but also expands the number of companies that would be attractive acquisition 
candidates in that region.

     The Company continually evaluates business opportunities, including 
potential acquisitions. One or more of such acquisitions could result in a 
substantial change in the Company's operations and financial condition. The 
success of the Company's acquisition activities will depend, among other 
things, on the availability of acquisition candidates, the availability of 
funds to finance acquisitions and the availability of management resources to 
oversee the operation of acquired businesses.  While the Company has, from 
time to time, had discussions with communications companies, it has no 
agreements or pending negotiations with respect to any acquisition at the 
date of this report that would have a material impact on the Company's 
financial position or results of operations.  There is no assurance that any 
acquisitions will be completed.

OPERATOR SERVICES

     The Company provides operator assisted services for private pay 
telephones, hotels, motels, university dormitories and hospitals. The 
Company's operator services are accessed when calls requiring operator 
assistance and/or alternate billing options are placed from customer 
locations.  Such services involve the use of live and automated operators to 
receive, validate and complete the calls.  The Company processes collect, 
third-party, person-to-person and calling card calls and, generally, shares a 
percentage of call revenues with its customers.

                                     5
<PAGE>

     At September 30, 1996, the Company provided operator services to 
approximately 135,900 hotel, motel, hospital and dormitory rooms.  In 
addition, at September 30, 1996, the Company had service contracts with 
private pay telephone owners covering approximately 61,300 pay telephones. 
The Company carried 7.6 million average monthly minutes of operator services 
traffic during the fourth quarter of fiscal 1996, as compared to 8.3 million 
and 9.1 million average monthly minutes during the fourth quarters of fiscal 
1995 and 1994, respectively.  The Company's operator services revenues 
amounted to $60.9 million, $59.6 million, $54.7 million in fiscal 1996, 1995 
and 1994, respectively.

INDUSTRY OVERVIEW

     Management believes that there are approximately 125 operator services 
providers competing within the long distance communications industry.  AT&T 
continues to dominate the operator services market, supplying operator 
services for traffic originating from both the hospitality and pay telephone 
industries. Additionally, MCI and Sprint provide operator services and are 
considered by management to be major competitors.  Excluding AT&T, MCI, 
Sprint, General Telephone Operating Companies (GTE) and the RBOCs, management 
believes the Company is one of the five largest providers of operator 
services.

     Many operator services providers, including the Company, initially 
focused on the hospitality industry.  More recently, as the private pay 
telephone industry has grown and taken market share from the public pay 
telephone market traditionally served by AT&T, many operator services 
providers gained increased market share by providing service to the owners of 
private and public pay telephones. Competition between the Company and other 
operator services providers is based upon commission programs, quality of 
service, reporting and customer service.

SALES AND MARKETING

     The Company markets its operator services nationally through the 
combined effort of regional sales representatives based in Illinois, Texas, 
Florida and California and a network of agents.  The Company's corporate 
sales force focuses on larger accounts, such as hotel management companies, 
multi-unit franchises, hospital chains, large private pay telephone companies 
and universities.  The Company's agents market the Company's operator 
services on a nationwide basis and typically receive a commission based upon 
the volume of business generated.  The Company also participates in various 
industry trade shows and promotes its operator services through 
advertisements in trade magazines.  The Company customizes its communications 
services to provide, among other things, individualized reports and 
specialized call branding to customers.

OPERATIONS

     The Company owns and operates its own operator center in San Antonio, 
Texas, which employed 311 operators and support staff at September 30, 1996. 
The Company provides live and automated operator services 24 hours per day, 
365 days per year, and features multi-lingual operators versed in Spanish, 
French, German, Japanese and a variety of other languages.  The Company 
maintains a sophisticated emergency call handling system that enables its 
operators to access police, fire and other emergency agencies within the 
jurisdiction of the telephone from which the call is placed.  The Company 
utilizes its own transmission facilities when possible or contracts to use 
facilities of other long distance network providers as necessary.

     The Company switches the majority of its operator assisted calls at its 
four main switching centers.  Many operator assisted calls are transmitted to 
the Company's switching centers via call processing equipment installed at 
customer locations or in customer pay telephone equipment.  This call 
processing equipment is programmed to recognize calls requiring operator 
assistance and to access the Company's network by dialing the Company's 
access number, then passing the call record information to one of the 
switching centers.  The Company validates the authorization code or telephone 
number to be billed and then completes the call, while recording the date, 
destination, duration and time of day for subsequent billing purposes.  At 
September 30, 1996, the Company was authorized to complete international and 
interstate calls placed throughout the United States, as well as intrastate 
calls within 46 states.

COMPETITIVE ADVANTAGES

     Management believes that the Company enjoys several competitive 
advantages over many others in the operator services industry.  By virtue of 
the Company's large call volumes relative to many other operator services 
providers and the cost efficiencies it realizes by routing a large portion of 
its operator services traffic over its own facilities and maintaining its own 
operator center, the Company is able to provide high quality transmission on 
an efficient and economical basis.  Additionally, because it is the source of 
commission payments to its operator services customers, the Company believes 
that its financial stability and history of timely payments allow it to 
compete effectively against many smaller, under-capitalized operator services 
providers. Moreover, the Company's flexible rate options allow it to offer 
customized commission programs to its customers as compared to larger 
operator services providers.

                                      6
<PAGE>

     In 1994, the Company implemented a computerized bulletin board service 
called Stealth that allows its customers to access the system from remote 
locations and obtain customized and sophisticated reporting of calling 
patterns and volumes for each customer location or pay telephone.  This 
advanced reporting system allows the Company's operator services customers to 
analyze their traffic on a daily basis and maximize telecommunications 
revenues by, for example, relocating underutilized telephones.  The Company's 
detailed reporting also allows its customers to reconcile the accuracy or 
integrity of their commissions.  The Company employs a skilled, professional 
staff of customer service employees and technicians, who provide service 24 
hours per day, 365 days per year.

STRATEGY AND GROWTH OPPORTUNITIES

     The Company has developed a strong presence in operator services 
throughout the United States.  Through its direct sales force and agents and 
its participation in state, regional and national trade associations, the 
Company intends to pursue geographic expansion on a nationwide basis.  The 
Company will continue to market its operator services business to both the 
private pay telephone and hospitality industries and present new products and 
services for these markets.

     The Company's existing relationship with operator service customers, who 
typically own or manage numerous private pay telephones or hotels, provides a 
unique opportunity for the Company.  The Company will have the potential to 
provide local access to a large volume of phone lines, yet limited number of 
customers.  These characteristics will allow the Company to quickly and 
efficiently enter the local services market in targeted areas.

CORPORATE SYNERGY

     Management believes that the Company has certain operating advantages 
and cost efficiencies through the integration of its two businesses.  The 
combined traffic volumes of the Company's operator services and direct dial 
long distance businesses operate to lower the Company's transmission costs 
for both of these businesses in geographic regions where the Company operates 
long distance switching equipment.  In addition, the Company's sales force 
can provide integrated long distance solutions by offering both operator 
services and direct dial long distance telephone services and, in the near 
future, local services.   The opportunity to bundle products and services 
strengthens customer relationships and, thus, customer retention.

GOVERNMENT REGULATION

GENERAL

     The Company competes in an industry that, to a large degree, continues 
to be regulated by government agencies. At approximately the same time as the 
required divestiture of the Bell telephone companies by AT&T in 1984, the 
Federal Communications Commission (the "FCC") announced rules that were 
created to foster a self-regulating, interstate telecommunications industry, 
relying upon competitive forces to keep rates and services in check. 
Management believes that the current direct dial marketplace demonstrates 
substantial progress toward the fulfillment of these objectives. For example, 
the cost of a long distance call has significantly declined while the number 
of long distance companies has multiplied. Competition has encouraged these 
direct dial long distance companies to find ever more efficient methods of 
carrying calls.

OPERATOR SERVICES

     On October 15, 1990, President Bush signed into law the Telephone 
Operator Consumer Service Improvement Act of 1990. Congress directed the FCC 
to impose upon the interstate operator services market certain rules and 
regulations designed to increase consumer awareness concerning the operator 
services provider carrying the call, the information the caller can request 
of the operator, and the alternatives available to the consumer for reaching 
other long distance carriers. Operator services providers were required to 
file with the FCC informational tariffs that describe the rules and 
regulations governing the provision of interstate operator assisted 
telecommunications and to include all rates that may apply to an interstate 
call. Furthermore, operator services providers were required to submit, on a 
Congressionally prescribed timetable, certain reports relating to rate 
changes, complaints and costs. Based on these reports, on November 16, 1992, 
the FCC submitted to Congress its "Final Report Pursuant to the Telephone 
Operator Consumer Services Improvement Act of 1990." The purpose of this 
report was to identify whether increased regulatory scrutiny by the FCC was 
required to satisfy Congressional objectives. The FCC determined that 
"...market forces are securing rates and charges that are just and 
reasonable..." and therefore stated "...we conclude that no further action is 
necessary...".

     At September 30, 1996, the Company was authorized to carry intrastate 
operator assisted traffic in 46 states. Authorization is pending approval in 
one other state. State regulatory agencies have the authority to impose their 
own rules and regulations governing the provision of intrastate operator 
services, including regulation of rates. Many states have rules similar if 
not identical to those imposed by the FCC on interstate operator assisted 
calls. At the date of this report, the Company was in material compliance 
with the requirements of each of the individual state regulatory agencies and 
continues to pursue authorization to provide intrastate operator services in 
other 

                                      7
<PAGE>

targeted states. Certain states are expected to introduce or revise their 
rules governing operator services providers within the next year. Currently, 
the Company does not anticipate significant difficulty in complying with the 
new or revised rules.

DIRECT DIAL LONG DISTANCE SERVICES

     The FCC has regulatory jurisdiction over interstate and international 
telecommunications common carriers, like the Company. Under Section 214 of 
the Federal Communications Act, the FCC must certify a communications common 
carrier before it may provide international services. The Company has 
obtained Section 214 authorization to provide international switched services 
by means of resale. The FCC has ruled that "non-dominant" common carriers, 
like the Company, need not apply for Section 214 authorization for the 
provision of domestic U.S. interstate services.

     At September 30, 1996, the Company was authorized to provide intrastate 
long distance service within 47 states. Regulations within each of these 
states, as they pertain to completing direct dial long distance calls for the 
Company's customers within the state, are virtually static and pose no 
foreseeable concern. As the Company expands the geographic scope of its 
direct dial long distance business, it will seek state regulatory approvals 
as necessary to provide intrastate long distance service.

BILLED PARTY PREFERENCE

     Another issue under consideration by the FCC currently is termed "Billed 
Party Preference," or BPP. This term refers to a concept in which any long 
distance call outside the local telephone company's calling area carried from 
a publicly available telephone would be completed over the long distance 
carrier network of the billed party's previously expressed preference. This 
would be accomplished through a local telephone company database system that 
would match every calling card and telephone number to a preferred long 
distance company and then direct all calls accordingly.  In April 1992, the 
FCC tentatively proposed adopting BPP. During the summer of 1992, comments 
from local telephone companies, long distance carriers and other industry 
participants revealed that the cost of imposing BPP could be in excess of 
$1.0 billion and could require hundreds of millions of dollars each year to 
support its operation. The majority of these commentors were in opposition to 
the implementation of BPP. Certain commentors made clear that many technical 
impediments remain to full deployment of BPP.  Other commentors claimed that 
no technology exists that could implement BPP without making call processing 
significantly less convenient for many operator services calls, particularly 
those requiring a live operator.

     In August 1994, industry members responded to a Commission Further 
Notice of Proposed Rulemaking.  The Commission had tentatively concluded, 
based upon their calculation of related cost information previously submitted 
by industry members, that the potential benefits of a BPP system appeared to 
outweigh its costs, although the Commission admitted the financial data it 
used in its study could be outdated.  Once again, industry participants were 
resoundingly opposed to the Commission's proposal, including AT&T and most of 
the RBOCs.  To date, the FCC has taken no further action.

     If such a system were implemented successfully, the unique market niche 
of operator services provider presubscription, such as that of the Company, 
would be rendered virtually ineffectual, as an owner of publicly available 
telephones would be unable to direct operator assisted calls over the network 
of such owner's desired carrier. It is difficult to assess the industry 
support for BPP given the inherent problems described above, and the FCC 
continues to consider implementation of the proposal. In any event, local 
telephone companies have indicated that, if so directed, approximately two to 
four years would be required to reconfigure their networks to BPP's 
specifications. Thus, while BPP remains viable, the Company believes that it 
is not likely to be implemented in the near term.

     On March 9, 1995, the FCC requested industry comment on two proposals it 
had recently received relative to the BPP proceeding.  In an ex-parte 
petition, the National Association of Attorney's General ("NAAG") suggested 
that the FCC modify its current branding requirement such that operator 
service providers ("OSPs") would be required to announce at the beginning of 
each call more specific information for obtaining access to alternate 
carriers (the "NAAG Petition").  Another petition filed by a coalition of 
industry members, including most of the RBOC's two competitive access 
providers, the American Public Communications Counsel ("APCC") and the 
Competitive Telecommunications Association ("CompTel"), recommended that the 
FCC impose certain rate thresholds for interstate operator assisted services, 
which the FCC would presume to be reasonable, and any OSP electing to charge 
rates higher than such threshold would be required to first prove to the FCC 
that such rates are justified based upon the underlying costs of the service 
(the "APCC Rate Cap Proposal").  The NAAG Petition was proposed to remain in 
effect until such time that BPP is adopted and fully implemented.  The APCC 
Rate Cap Proposal was proposed to obviate the need to consider any further 
action regarding BPP.

     In June 1996, the FCC issued a Second Further Notice of Proposed 
Rulemaking (SFNPRM) in this proceeding.  In it, the FCC proposed adopting a 
rule which would require OSPs to announce the rates for certain calls to the 
billed party prior to connecting the call, thereby allowing the billed party 
to disconnect such call without incurring any unwanted charges.  In 
September, the FCC released its Second request for  Comment in the SFNPRM 
soliciting technical and other administrative details to support the proposed 

                                        8
<PAGE>

announcement requirement.  Most commentors objected to the discriminatory 
nature of the proposal, which would have some carriers announcing rates while 
others would not.

     If adopted, the NAAG Petition or any form of modified call branding 
could have a negative effect upon the number of calls completed over OSP 
networks such as the Company's, if end users elect to act upon the additional 
branding announcement regarding rates or access to other carriers.  
Furthermore, additional network time would be consumed without a 
corresponding increase in revenue.  If the APCC Rate Cap Proposal is adopted, 
OSPs such as the company may be immediately required to lower their 
interstate rates until such time as the FCC rules upon an attempt to justify 
higher, existing rates.  OSPs may be required to adjust the amount of 
commission payments made to their subscriber customers as a result of 
implementation of such a proposal, or effect other operational changes to 
offset any reduction in interstate operator services revenue. The Company 
cannot predict when and if any final ruling on either proposal might be 
issued.

MFJ LEGISLATION

     On February 8, 1996, President Clinton signed the Telecommunications Act 
of 1996 into law.  The new law allows the RBOCs to petition their respective 
"in-region" state regulatory agencies to seek authority from the FCC to allow 
the applicant RBOC to provide long distance services.  To obtain this 
authority, each state agency is required to certify to the FCC that the 
applicant RBOC has satisfied a legislative "checklist" that outlines the 
steps required for an RBOC to open its network to competition on a local 
basis. These steps include the provision of competitive network 
interconnection, unbundled access to network elements and other  necessary 
access to poles, ducts, conduits and rights-of-way.  Furthermore, applicant 
RBOCs must provide non-discriminatory access to white pages listings and 
telephone number assignments.  Applicant RBOCs must provide local number 
portability, toll dialing parity and local service resale.  The FCC is 
required to consult with the Department of Justice ("DOJ") to assist in 
determining if an applicant RBOC's entry into the long distance business 
violates any anti-trust standards the DOJ considers appropriate.  Ninety days 
after receiving such an application, the FCC is required to render its 
decision.  RBOCs are required to establish separate subsidiaries through 
which they could first offer in-region long distance services.  RBOCs may 
provide out-of-region long distance services subject to existing laws and 
regulations governing long distance communications.

     To date, no RBOC has requested authority for in-region interLATA 
authority, because the provisions set forth above have not been satisfied by 
any RBOC.  However, many entities have reached interconnection agreements 
with RBOCs to date, including the Company, and many states are impending 
rules governing local competition.  It is reasonable to expect that the 
conditions for RBOC entry will be met in the near future, and carriers in the 
interLATA long distance business today, such as the Company, will encounter 
new, formidable competition.

TEXAS PIU ISSUE

     In a Final Order released in Docket 10127 on April 12, 1993, the Texas 
Public Utility Commission ("PUC") adopted new regulations governing the 
method by which interexchange carriers ("IXCs") such as the Company calculate 
intrastate access charges paid to local telephone companies. These new rules 
required an independent auditor's review and approval of an IXC's methodology 
of determining its own intrastate access usage.  An independent audit by an 
accounting firm verified that the Company's process of calculating PIU is 
reasonable and statistically valid and, as such, no additional PIU or billing 
adjustments are required.

REGULATORY RATE PROCEEDINGS

     During the course of normal operations, a regulated company may, at any 
time, come under specific scrutiny with regard to any of its rates, terms or 
conditions by which such service is rendered by the state or federal 
regulatory agency charged with such oversight responsibility, or by an 
attorney general or other jurisdictional consumer officials.  In such cases, 
a regulated company can be required to, among other things, provide cost 
justification for the charges it imposes on some or all of its services, or 
to address perceived consumer inequities.  After review of such 
justification, the regulatory agency generally has the authority to require a 
carrier to modify the process by which such services are rendered or to 
effect changes to its applicable rate structure.  Consumer officials and 
attorneys general can pursue civil action if their concerns are not 
adequately addressed by the carrier.  The Company operates in several 
jurisdictions in which its tariffs or services may, from time to time, fall 
under such scrutiny at the discretion of the governing regulatory agency or 
other officials.  The Company could therefore be required, as a result of 
such an investigation and subsequent proceeding, to implement changes in its 
rate structure, which could ultimately affect its revenues.  The Company 
cannot predict whether or not any such requirement may be imposed in any 
particular jurisdiction.

EMPLOYEES

     At September 30, 1996, the Company had 602 full-time employees, 
including 15 officers, 224 sales and marketing personnel, 68 network, 
technical and operations personnel, 111 accounting, administrative and 
support personnel and 184 telephone operators and 

                                      9
<PAGE>

customer service representatives and related support personnel. At September 30,
1996, the Company also employed 181 part-time telephone operators and 
customer service representatives. None of the Company's employees are 
represented by a union. The Company believes that its employee relations are 
good.

ITEM 2.  PROPERTIES

     At September 30, 1996, the Company occupied approximately 93,500 square 
feet of space for its corporate offices at 9311 San Pedro, San Antonio, 
Texas, and Billing has assumed the liability for and occupies approximately 
18,000 square feet of space at the same location until April 1, 1997, at 
which time the space reverts back to the Company.  The approximate 111,500 
square feet is leased pursuant to a lease agreement that expires in January 
1999. Additionally, at September 30, 1996, the Company leased approximately 
17,000 square feet of space for its operator services center at 2200 Danbury, 
San Antonio, Texas, and approximately 56,000 square feet in the aggregate for 
26 sales and operations offices throughout Texas, Oklahoma, New Mexico, 
Louisiana, California, Oregon and Washington.  The Company believes that its 
facilities are adequate to meet its current needs.

ITEM 3.  LEGAL PROCEEDINGS

     On December 18, 1996, the Securities and Exchange Commission filed a 
civil injunctive action in the Federal District Court for the District of 
Columbia alleging that Mr. Parris H. Holmes, Jr., Chairman of the Board of 
the Company, failed to file timely twelve reports regarding certain 1991 and 
1992 transactions in the stock of the Company as required by Section 16(a) of 
the Securities Exchange Act of 1934, as amended. Section 16(a) requires 
officers and directors of reporting companies to file monthly reports with 
the Commission regarding their personal transactions in the securities of 
their company. Mr. Holmes settled this action on December 18, 1996, without 
admitting or denying the allegations of the complaint, by consenting to the 
entry of an injunction barring future violations with respect to these 
requirements and paying a civil penalty of $50,000.

     The Commission has conducted an investigation relating to trading in the 
securities of Value-Added Communications, Inc. ("VAC"), an operator services 
provider based in Dallas, Texas, and of the Company (In the Matter of Trading 
in the Securities of Value-Added Communications, Inc. (HO-2765)). A proposed 
merger between the Company and VAC was terminated in February 1993. The 
investigation concerned whether certain persons may have purchased securities 
while in possession of material non-public information or disclosed this 
information to others. The Commission Staff has notified Mr. Holmes of its 
decision to terminate this investigation.

     The Company is involved in various claims, legal actions and regulatory 
proceedings arising in the ordinary course of business.  The Company believes 
it is unlikely that the final outcome of any of the claims or proceedings to 
which the Company is a party would have a material adverse effect on the 
Company's financial position or results of operations; however, due to the 
inherent uncertainty of litigation, there can be no assurance that the 
resolution of any particular claim or proceeding would not have a material 
adverse effect on the Company's results of operations for the fiscal period 
in which such resolution occurred.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the fourth quarter of the fiscal year, no matter was submitted by 
the Company to a vote of its stockholders through the solicitation of proxies 
or otherwise.

                                       10
<PAGE>

                                    PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND
           RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     The  Company's common stock, par value $0.01 per share (the "Common
Stock"), is  quoted on the Nasdaq National Market System under the symbol
"USLD." The table below sets forth the high and low bid prices for the Common
Stock from October 1, 1994, through December 13, 1996, as reported by the
Nasdaq National Market System. These price quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.

                                                     HIGH         LOW
                                                     ----         ---
  Fiscal Year Ended September 30, 1995:
       1st quarter................................. $12 3/4      $ 9 1/4 
       2nd quarter................................. $16          $11 1/2 
       3rd quarter................................. $17 7/8      $14 1/2
       4th quarter................................. $17 3/7      $14 1/2 
  Fiscal Year Ended September 30, 1996:
       1st quarter................................. $15 1/8      $10 7/8   
       2nd quarter................................. $20 1/8      $13       
       3rd quarter(1).............................. $41 1/8(1)   $19 5/8(1)
       4th quarter (Pre-Distribution)(1)........... $39 3/8(1)   $25 1/2(1)
       4th quarter (Post-Distribution)(1).......... $10    (1)   $ 4 3/8(1)
  Fiscal Year Ended September 30, 1997:
      1st quarter (through December 13, 1996)...... $10 1/8      $ 7 1/2  
-------------------
(1)  On May 14, 1996, the Company's Board of Directors approved the spin-off of
Billing.  On August 2, 1996, the Company completed the Distribution of all of
the capital stock of Billing.  The average stock price for the first 10
business days after the distribution date was $6.77 for the Company and $19.36
for Billing.

STOCKHOLDERS

     At December 13, 1996, there were 15,076,381 shares of Common Stock
outstanding, held by 641 holders of record. The last reported sales price of
the Common Stock on December 13, 1996, was $8 13/16 per share.

DIVIDEND POLICY

     The Company has never declared or paid any cash dividends on the Common 
Stock. The Company presently intends to retain all earnings for the operation 
and development of its business and does not anticipate paying any cash 
dividends on the Common Stock in the foreseeable future. Furthermore, certain 
covenants in various credit agreements of the Company prohibit the payment of 
cash dividends on the Common Stock.

                                     11
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The selected financial data presented below are derived from the audited 
Consolidated Financial Statements of the Company. The data presented below 
for the fiscal years ended September 30, 1996, 1995 and 1994 should be read 
in conjunction with the Consolidated Financial Statements, the Notes thereto 
and the other financial information included elsewhere in this report. All 
periods presented reflect the spin-off of Billing as discontinued operations 
as of September 30, 1991.  See Note 3 to the Consolidated Financial 
Statements for further discussion of the spin-off. The Company has never 
declared cash dividends on its Common Stock, nor does it anticipate doing so 
in the foreseeable future.

<TABLE>
<CAPTION>
                                                                            FISCAL YEAR ENDED SEPTEMBER 30,
                                                          -----------------------------------------------------------------
                                                          1996           1995           1994            1993           1992
                                                          ----           ----           ----            ----           ---- 
                                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>            <C>            <C>             <C>            <C>
CONSOLIDATED INCOME STATEMENT DATA:
  Total operating revenues............................... $180,346      $144,050        $117,541        $80,119       $48,050
  Net loss from continuing operations.................... $(13,754)     $ (2,083)       $ (2,475)       $(1,265)      $(1,835)
  Net loss from continuing operations per common share... $  (0.89)     $  (0.14)       $  (0.18)       $ (0.10)      $ (0.16)


                                                                                   SEPTEMBER 30,
                                                          -----------------------------------------------------------------
                                                          1996           1995           1994            1993           1992
                                                          ----           ----           ----            ----           ---- 
                                                                                   (IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:

   Total assets(1) ...................................... $99,244        $86,027        $79,413         $64,835        $36,573
   Long-term obligations, less current portion........... $10,341        $16,168        $16,684         $13,266        $17,603


                                                                                     SEPTEMBER 30,
                                                          -----------------------------------------------------------------
                                                          1996           1995           1994            1993           1992
                                                          ----           ----           ----            ----           ---- 
                                                                                    (IN THOUSANDS)
OPERATING DATA (UNAUDITED):
  Operator services minutes per month(2)................   7,600          8,300          9,100          10,600         4,800
  Pay telephones serviced(3)............................    61.3           60.9           52.0            44.8          15.9
  Rooms serviced(3).....................................   135.9          136.9          122.0           106.0          90.7
  Direct dial long distance minutes per month(2)........ 105,400         62,600         44,700          17,200        10,300
   
</TABLE>
(1) Excludes net assets of discontinued operations.
  
(2) Calculated based upon a monthly average over the fiscal quarter ended on 
    the date indicated.
  
(3) At end of the period.
  
  
                                     12
<PAGE>

ITEM 7.
                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS - CAUTIONARY STATEMENTS

     THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT").  SPECIFICALLY, ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT REGARDING THE
COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND PLANS AND OBJECTIVES OF
MANAGEMENT OF THE COMPANY FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S
MANAGEMENT, AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE
TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECT" AND "INTEND" AND WORDS OR PHRASES OF SIMILAR
IMPORT, AS THEY RELATE TO THE COMPANY OR COMPANY MANAGEMENT, ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEW
OF THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT,
GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, THE OPERATION OF THE
COMPANY'S NETWORKS, TRANSMISSION COSTS, PRODUCT INTRODUCTIONS AND ACCEPTANCE,
TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY PRACTICES, ONE-TIME EVENTS AND OTHER
FACTORS DESCRIBED HEREIN ("CAUTIONARY STATEMENTS").  ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO BE CORRECT.  BASED UPON CHANGING CONDITIONS,
SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR
INTENDED.  ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE APPLICABLE CAUTIONARY STATEMENTS.


GENERAL

     The following is a discussion of the consolidated financial condition and
results of operations of the Company for fiscal 1996, 1995 and 1994. It should
be read in conjunction with the Consolidated Financial Statements of the
Company, the Notes thereto and the other financial information included
elsewhere in this report. For purposes of the following discussion, references
to year periods refer to the Company's fiscal years ended September 30 and
references to quarterly periods refer to the Company's fiscal quarters ended
December 31, March 31, June 30 and September 30.

     On July 10, 1996, the Company's Board of Directors approved a plan to 
spin-off the Company's Billing Group Business as a separate public company. 
To effect the spin-off, the Board approved the distribution of the 
outstanding shares of common stock of its wholly owned subsidiary that owned 
and operated the Billing Group Business, Billing, to the Company's 
stockholders. The Distribution was tax-free for federal income tax purposes 
to the Company's stockholders, and the Company did not recognize income, gain 
or loss as a result of the Distribution except for direct spin-off costs.  
The Distribution was completed on August 2, 1996.

     The accompanying Consolidated Statements of Income reflect the operating
results of Billing as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30. Prior period operating results have been
restated to reflect continuing operations.  The Consolidated Pro Forma
Statements of Income are also included and discussed in a separate
section below.

OVERVIEW

     Revenues grew to $180.3 million in 1996 from $144.1 million in 1995 and
$117.5 million in 1994.  During the five-year period ended September 30, 1996,
revenues grew at a 60% annual compounded rate. The Company's gross profit
margin was 34.3% in 1996, 34.7% in 1995 and 37.9% in 1994. The decrease in
gross margin from 1994 to 1996 was largely due to the growth of lower gross
margin direct dial long distance revenues as a percentage of total revenues.

     The Company's selling, general and administrative ("SG&A") expenses as a
percentage of revenues were 28.1%, 28.9% and 32.8% in 1996, 1995 and 1994,
respectively. The decrease from 1994 to 1996 was primarily the result of
tighter expense controls and increased efficiencies. Depreciation and
amortization expenses as a percentage of revenues were 6.5%, 7.0% and 7.2% in
1996, 1995 and 1994, respectively.

     Net loss from continuing operations of $13.8 million, $2.1 million and 
$2.5 million was reported for 1996, 1995 and 1994, respectively. The Company 
reported net income of $1.4 million, or $0.09 per share, for 1996; $12.0 
million, or $0.83 per share, for 1995; and  $6.1 million, or $0.43 per share, 
for 1994.  Fiscal 1996 results were down compared to 1995 and 1994 due to 
$13.0 million of direct spin-off costs and $2.8 million in restructuring 
charges incurred in fiscal 1996.  As further discussed in the Outlook, the 
Company believes that it has the competitive product offerings, personnel and 
financial resources for continued business success.

                                      13
<PAGE>

RESULTS OF OPERATIONS

     The following table presents certain items in the Consolidated Statements
of Income as a percentage of total operating revenues for the years ended
September 30, 1996, 1995 and 1994:

<TABLE>


                                                    1996         1995         1994
                                                   ----          ----         ----
<S>                                                <C>          <C>          <C>
Operating revenues:                                                                
  Direct dial long distance services..............  66.2%        58.6%        53.5%
  Operator services...............................  33.8         41.4         46.5
                                                   -----        -----        -----
  Total operating revenues........................ 100.0%       100.0%       100.0%
Operating expenses:                                                                
  Cost of services................................  65.7%        65.3%        62.1%
  Selling, general and administrative.............  28.1         28.9         32.8
  Spin-off costs..................................   7.2          0.0          0.0
  Restructuring charges...........................   1.6          0.0          0.0
  Depreciation and amortization...................   6.5          7.0          7.2
                                                   -----        -----        -----
Loss from operations..............................  (9.1)%       (1.2)%       (2.1)%
                                                   -----        -----        -----
                                                   -----        -----        -----
</TABLE>

OPERATING REVENUES

   Revenues in 1996 increased by 25% to $180.3 million 
from $144.1 million in 1995 and by 53% from $117.5 million in 1994. Growth in 
direct dial long distance services revenues accounted for $34.9 million of 
the total increase in revenues from 1995 to 1996.

   DIRECT DIAL LONG DISTANCE SERVICES.  Direct dial long distance services 
revenue increased 41% to $119.4 million in 1996 compared to $84.5 million in 
1995 and 90% compared to $62.8 million in 1994. The increase in revenue is 
primarily attributable to growth in the number of customers serviced. The 
Company believes that there are opportunities for continued expansion, both 
internally and externally through acquisitions, in both of its primary 
businesses.  However, because direct dial long distance services represent 
the largest market in which the Company is active, management believes that 
this business presents the Company with its greatest revenue growth 
opportunity. The Company believes that its base of operator services business 
affords it the opportunity to expand its direct dial long distance business 
on a more cost effective basis than many of its direct dial long distance 
competitors. Accordingly, the Company continues to consider potential 
acquisitions. Acquisition activity is focused primarily on small to 
medium-sized companies that will grow the Company's direct dial long distance 
business. While the Company has, from time to time, had discussions with such 
companies, it has no agreements or pending negotiations with respect to any 
acquisition at the date of this report that would have a material impact on 
the Company's financial position or results of operations.

   OPERATOR SERVICES.  Operator services revenue was $60.9 million in 1996 
compared to $59.6 million in 1995 and $54.7 million in 1994. The Company 
processed 17.5 million operator services calls in 1996 compared to 17.4 
million in 1995 and 17.2 million in 1994.  The Company serviced an average of 
approximately 66,100 pay telephones and 128,300 hospitality rooms per month 
for 1996, compared to an average of approximately 55,200 pay telephones and 
130,300 hospitality rooms per month for 1995 and 48,200 pay telephones and 
103,000 hospitality rooms per month for 1994.  Although the volume of 
operator services calls has increased, the related increase in revenues have 
been, and will continue to be, offset by several factors, including an 
increase in the percentage of pay telephones serviced by the Company located 
in states that impose rate tariff regulations on operator services providers 
and an increasing awareness on the part of the consumer of the ability to 
select a carrier of choice by dialing access codes of other carriers 
("dial-around"). Additionally, changes in federal or state regulations could 
negatively impact revenues of the Company (see Note 15 to the Consolidated 
Financial Statements).

OPERATING EXPENSES

   COST OF SERVICES.  The gross profit margin was 34.3%, 
34.7% and 37.9% during 1996, 1995 and 1994, respectively. The decline in 
gross profit margins from 1994 to 1996 is primarily due to the change in the 
Company's revenue mix. The Company's direct dial long distance services gross 
margins have increased; however, the improvement was offset by an increase in 
the direct dial long distance services revenue as a percentage of total 
revenue.  Such revenues have a lower gross margin than the operator services 
revenue and accounted for 66%, 59% and 54% of revenue during 1996, 1995 and 
1994, respectively. The direct dial long distance services margin has 
increased primarily as a result of continued improvements in networking 
efficiencies and reductions in transmission costs.

   SELLING, GENERAL AND ADMINISTRATIVE.  SG&A expenses for 1996 were $50.7 
million, representing 28.1% of revenues, compared to $41.6 million in 1995, 
or 28.9% of revenues, and $38.5 million in 1994, or 32.8% of revenues.  SG&A 
expenses as a percentage of revenues have continued to decrease as a result 
of tighter expense controls and efforts to streamline the Company's 
operations.


                                     14
<PAGE>

   DIRECT SPIN-OFF COSTS.  Direct spin-off costs represent costs incurred in
connection with the Distribution of Billing. The $13.0 million amount
represents certain professional and filing fees, payments required for
terminating or restructuring employment contracts, tax payments triggered by
the spin-off and non-cash expenses associated with the vesting of stock grants.

   RESTRUCTURING CHARGES. The $2.8 million in restructure charges for 1996
includes costs associated with consolidating customer service, credit and
collection and other support functions; vacating certain office facilities;
terminating certain marketing contracts; writing down excess assets and
providing severance payments.

   DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense was 
$11.8 million, $10.0 million and $8.4 million in 1996, 1995 and 1994, 
respectively. Depreciation and amortization expense as a percentage of 
revenues decreased to 6.5% in 1996 from 7.0% in 1995 and 7.2% in 1994. This 
decrease as a percentage of revenue is primarily attributable to the increase 
in revenues and was achieved despite a charge of $727,000 related to asset 
write-offs in the fourth quarter of fiscal 1996.

LOSS FROM CONTINUING OPERATIONS

   Loss from continuing operations in 1996 increased to $16.5 million from $1.6
million in 1995 and $2.4 million in 1994.  Excluding direct spin-off costs and
restructuring charges, the Company would have reported a loss from continuing
operations of $667,000 in 1996. The continued improvement in operations is
primarily attributable to the decrease in SG&A expenses as a percentage of
revenues, as discussed above, and the increase in revenues.

OTHER EXPENSE, NET

   Net other expense decreased to $628,000 in 1996 from $999,000 and $866,000
in 1995 and 1994, respectively. The decrease is primarily attributable to a
lower level of indebtedness over the past year.

INCOME TAXES

   The Company's effective tax rate is higher than the federal statutory rate
due to the addition of state income taxes and certain deductions taken for
financial reporting purposes which are not deductible for federal income tax
purposes.

NET INCOME

   The Company reported net income of $1.4 million, $12.0 million and $6.1
million in 1996, 1995 and 1994, respectively. The decrease in 1996 is
attributable to the direct spin-off costs and restructuring charges incurred.

EFFECTS OF SPIN-OFF OF BILLING GROUP BUSINESS

     The Consolidated Statements of Income included in this report reflect the
continuing and discontinued operations of the Company for the years ended
September 30, 1996, 1995 and 1994. Included below is supplemental unaudited pro
forma financial information that management believes is important to provide an
understanding of the results of the Company on a stand-alone basis.
Consolidated Pro Forma Statements of Income are presented below for each of the
last four fiscal years as well as for each quarter of fiscal 1996 and 1995.
These unaudited Consolidated Pro Forma Statements of Income are based on the
historical statements of the periods presented adjusted to reflect the items
discussed in the accompanying Notes to the unaudited Consolidated Pro Forma
Financial Statements. The unaudited Consolidated Pro Forma Statements of Income
give effect to the spin-off as if it had occurred on September 30, 1992. The
pro forma adjustments reflect the terms of the spin-off agreements, which are
expected to have a continuing impact on the Company.

     The unaudited consolidated pro forma financial information is presented
for informational purposes only and should be read in conjunction with the
accompanying notes and with the Company's historical Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" set forth herein. The pro forma
financial statements should not be considered indicative of the operating
results which the Company will achieve in the future if it were operated on an
independent, stand-alone basis because, among other things, these statements
are based on historical rather than prospective information and upon certain
assumptions which are subject to change.

     The unaudited Consolidated Pro Forma Statements of Income of the Company
reflect, in management's opinion, all adjustments necessary to fairly state the
pro forma results of operations for the periods presented and to make the
unaudited pro forma statements not misleading.

                                       15


<PAGE>

                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
                  CONSOLIDATED PRO FORMA STATEMENTS OF INCOME

                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
<TABLE>
                                                                FISCAL YEAR ENDED
                                                                  SEPTEMBER 30,
                                                   -----------------------------------------
                                                     1996       1995        1994       1993
<S>                                                -------    --------    --------  --------
 PRO FORMA                                          <C>       <C>         <C>       <C>
 Operating revenues:                                                        
   Direct dial long distance services (A).........  $119,401  $ 84,484    $ 62,834  $ 29,673
   Operator services..............................    60,945    59,566      54,707    50,446
                                                    --------  --------    --------  --------
       Total operating revenues...................   180,346   144,050     117,541    80,119
 Cost of services.................................   118,493    94,038      72,944    47,403
                                                    --------  --------    --------  --------
    Gross profit                                      61,853    50,012      44,597    32,716
 Selling, general and administrative expense (B)..    50,722    41,580      38,541    27,804
 Depreciation and amortization expense............    11,798    10,032       8,424     5,060
                                                    --------  --------    --------  --------
    Loss from operations (C)......................      (667)   (1,600)     (2,358)     (148)
 Other expense, net...............................      (628)     (999)       (865)   (1,561)
                                                    --------  --------    --------  --------
 Loss before income tax benefit...................    (1,295)   (2,599)     (3,233)   (1,709)
 Income tax benefit (D)...........................       544     1,092       1,358       718
                                                    --------  --------    --------  --------
 Net loss before extraordinary items..............      (751)   (1,507)     (1,875)     (991)
 Extraordinary loss...............................         0         0           0      (316)
                                                    --------  --------    --------  --------
 Net loss.........................................  $   (751) $ (1,507)   $ (1,875) $ (1,307)
                                                    --------  --------    --------  --------
                                                    --------  --------    --------  --------
 Net loss per common share........................  $  (0.05) $  (0.10)   $  (0.13) $  (0.11)

 Weighted average common shares and common share
  equivalents outstanding.........................    15,398    14,587      14,069    12,117


                                                                THREE MONTHS ENDED
                                                     -----------------------------------------
                                                     DEC. 31,  MAR. 31,   JUNE 30,   SEPT. 30,
                                                      1995      1996        1996       1996
                                                     ------    --------   --------   ---------
 PRO FORMA
 Operating revenues:
    Direct dial long distance services (A)........   $25,034   $29,046     $31,306   $34,015
    Operator services.............................    14,674    14,609      15,378    16,284
                                                     -------   -------     -------   -------
       Total operating revenues...................    39,708    43,655      46,684    50,299
 Cost of services.................................    26,386    28,875      30,498    32,734
                                                     -------   -------     -------   -------
    Gross profit..................................    13,322    14,780      16,186    17,565
 Selling, general and administrative expense (B)..    11,382    12,929      13,139    13,272
 Depreciation and amortization expense............     2,771     2,938       2,702     3,387
                                                     -------   -------     -------   -------
    Income (loss) from operations (C).............      (831)   (1,087)        345       906
 Other expense, net...............................      (186)     (215)       (159)      (68)
                                                     -------   -------     -------   -------
 Income (loss) before income tax benefit 
  (provision).....................................    (1,017)   (1,302)        186       838
 Income tax benefit (provision) (D)...............       428       547         (79)     (352)
                                                     -------   -------     -------   -------
 Net income (loss)................................   $  (589)  $  (755)    $   107   $   486
                                                     -------   -------     -------   -------
                                                     -------   -------     -------   -------
 Net income (loss) per common share...............   $ (0.04)  $ (0.05)    $  0.01   $  0.03

 Weighted average common shares and common share 
  equivalents outstanding.........................    14,853    15,189      15,715    15,833
</TABLE>

                                      16
<PAGE>

                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
                  CONSOLIDATED PRO FORMA STATEMENTS OF INCOME

                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
<TABLE>
                                                               THREE MONTHS ENDED
                                                    ------------------------------------------
                                                     DEC. 31,  MAR. 31,    JUNE 30,  SEPT. 30,
                                                      1994      1995         1995      1995
                                                    ---------  --------    --------  ---------
<S>                                                  <C>       <C>         <C>       <C>
    
 PRO FORMA                                                                                                                         
 Operating revenues:                                                                                                               
    Direct dial long distance services (A)........   $19,968   $19,896     $21,210   $23,410
    Operator services.............................    12,940    13,075      15,441    18,110
                                                     -------   -------     -------   -------
       Total operating revenues...................    32,908    32,971      36,651    41,520
 Cost of services.................................    21,312    21,619      24,708    26,399
                                                     -------   -------     -------   -------
    Gross profit..................................    11,596    11,352      11,943    15,121
 Selling, general and administrative expense (B)..     9,881     9,624      10,264    11,811
 Depreciation and amortization expense............     2,355     2,428       2,653     2,596
                                                     -------   -------     -------   -------
    Profit (loss) from operations.................      (640)     (700)       (974)      714
 Other expense, net...............................      (275)     (240)       (260)     (224)
                                                     -------   -------     -------   -------
 Income (loss) before income tax benefit 
  (provision).....................................      (915)     (940)     (1,234)      490
 Income tax benefit (provision) (D)...............       384       395         519      (206)
                                                     -------   -------     -------   -------
Net income (loss).................................   $  (531)  $  (545)    $  (715)  $   284
                                                     -------   -------     -------   -------
                                                     -------   -------     -------   -------
 Net income (loss) per common share...............   $ (0.04)  $ (0.04)    $ (0.05)  $  0.02
                                                                                                                                   
 Weighted average common shares and common share                                                                                   
  equivalents outstanding.........................    14,208    14,497      14,759    14,886
</TABLE>


NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS

(A)  The long distance and 800 services provided by the Company to
     Billing have, historically, been eliminated in consolidation.
     The pro forma statements of income reflect an adjustment for
     these long distance and 800 services revenues to achieve arm's
     length pricing consistent with the Telecommunications Agreement
     that has been executed between the Company and Billing.
         
(B)  The billing clearinghouse and information management services
     provided by Billing to the Company have, historically, been
     eliminated in consolidation. The pro forma statements of income
     reflect an adjustment for these billing clearinghouse and
     information management costs to achieve arm's length pricing
     consistent with the Zero Plus-Zero Minus Billing and Information
     Management Services Agreement and the One-Plus Billing and
     Information Management Services Agreement that have been
     executed between Billing and the Company.
       
(C)  In order to reflect the operating results of the Company on
     normalized basis, these unaudited Consolidated Pro Forma
     Statements of Income exclude direct spin-off costs and
     restructuring charges.  Direct spin-off costs were $13.0 million
     and $6.3 million for the year and quarter ended September 30,
     1996, respectively.  Restructuring charges were $2.8 million for
     the year and quarter ended September 30, 1996.
       
(D)  On the unaudited Consolidated Pro Forma Statements of Income,
     the Company reflects a pro forma benefit (provision) for income
     taxes at a 42% tax rate for all periods presented for purposes
     of comparability. Actual tax amounts will be higher in the third
     and fourth quarters of fiscal 1996 due to nondeductibility of
     certain nonrecurring expenses associated with the spin-off and
     restructuring.

                                         17
<PAGE>

OUTLOOK

     The statements contained in this Outlook are based on current 
expectations. These statements are forward looking, and actual results may 
differ materially.

     The industry in which the Company operates is very competitive and is 
characterized by rapid change. In addition, the Company has faced, and 
continues to face, regulatory issues which have affected or which may affect 
operating revenues and operating profit. The continued success of the Company 
is dependent on its ability to adapt to these competitive and regulatory 
changes. In developing strategies to achieve continued growth in operating 
revenues and operating profits, the Company anticipates continuing geographic 
expansion, expanding its product offerings and controlling costs to improve 
gross margins and reduce SG&A expense as a percentage of revenue.

     The Company continues to evaluate and take actions to improve the 
profitability of its existing products, to identify new products to fully 
utilize the Company's existing sales distribution channels and to evaluate 
programs that are expected to increase revenues through partnerships with 
independent sales agents. The Company has implemented, among other things, a 
regionalized approach to pricing, which is expected to improve price 
competitiveness.  Furthermore, management is in the process of expanding 
product offerings to include local access and Internet services, as well as 
frame relay and paging services in selected markets.  The expansion of 
products should increase revenues, as well as strengthen customer 
relationships and increase customer retention.  The Company also plans to 
expand its direct dial long distance services residential customer base in 
selected markets through direct marketing efforts, as well as by offering 
long distance services to employees of commercial customers. To expand its 
footprint nationally over the next several years, management is considering 
and will continue to consider new investments in switching and related 
networking equipment.  The Company has purchased a digital switch in Atlanta, 
Georgia, and will take possession of it in January 1997.  In addition, the 
Company continues to evaluate acquisition candidates in strategic geographic 
areas to expand its market.  However, the Company has no agreement or pending 
negotiations with respect to any acquisition at the date of this report that 
would have a material impact on the Company's financial position or results 
of operations.

     The Company has implemented a number of actions designed to improve 
overall profitability and reduce the Company's cost structure. With regard to 
improving the Company's gross margins, management is focused on maximizing 
network efficiencies by implementing technological improvements and reducing 
unit costs.  In November 1995, the Company joined the Associated 
Communication Companies of America ("ACCA") which provides members with 
opportunities to pool purchasing power to acquire lower transmission rates 
from interexchange carriers through volume discounts and to work in 
partnership with other members to capitalize on resource sharing arrangements 
such as switch partitioning and network sharing.  The Company already has 
realized, from this arrangement, certain benefits during the last half of 
fiscal 1996 and expects continued benefits as the arrangement continues to be 
phased in. Lastly, management has streamlined and reorganized certain 
corporate, administrative and overhead functions to better align its 
infrastructure with the smaller operation that resulted from the spin-off.

     Over the past several years, the Company has undertaken a program of 
developing new products and expanding its existing service offerings, 
geographic focus and network.  In connection with these new products and 
services, the Company has made significant investments in telecommunications 
circuits, switches, equipment and software. These investments, generally, are 
timed to coincide closely with anticipated revenue growth.  In addition, the 
Company continues to increase its sales and marketing, customer support, 
network operations and field services commitments in anticipation of the 
expansion of its customer base in targeted geographic markets. The Company 
expects to continue to expand the breadth and scale of its network and 
related sales and marketing, customer support and operations activities. The 
Company attempts to carefully plan these expansion efforts to minimize the 
effect to profitability; however, they can cause the Company to incur 
significant increases in expenses from time to time in anticipation of 
potential future growth in the Company's customer base and targeted 
geographic markets.

     The Company's future results of operations and the other forward looking 
statements contained in this Outlook, in particular the statements regarding 
revenue growth and reducing cost structure, involve a number of risks and 
uncertainties. In addition to the factors discussed above, other factors that 
could cause actual results to differ materially are the following: business 
conditions and the general economy, competitive factors, acceptance of new 
products and pricing pressures, availability of leased network facilities, 
risk of collection of accounts receivable, technological advancements, 
regulatory factors, litigation and other factors as discussed in the 
cautionary statements.

     The Company believes that it has the competitive product offerings, 
personnel and financial resources for continued business success; however, 
future revenues, costs and profits all are influenced by a number of factors 
and are subject to certain risks and uncertainties, as discussed above.

                                      18
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash balance increased to $8.8 million at September 30, 
1996, from $0 at September 30, 1995.  This increase is attributable to the 
transfer of cash from Billing to the Company pursuant to the spin-off of 
Billing.  Cash has, historically, been managed by a centralized cash 
management department in Billing.  Consequently, cash was not allocated among 
the Company's subsidiaries and was recorded on the balance sheet of Billing. 
Total consolidated cash was $22.9 million at September 30, 1995, none of 
which is reflected on the Company's balance sheet for financial reporting 
purposes. Working capital was $20.1 million at September 30, 1996, compared 
to $11.7 million at September 30, 1995. The Company's current ratio was 1.7:1 
at September 30, 1996, versus 1.5:1 at September 30, 1995.  Additionally, the 
Company's cash flow provided by operations was $1.6 million for fiscal 1996 
and $1.8 million for 1995.  Cash flow provided by operating activities would 
have been $5.8 million had the Company not incurred direct spin-off costs and 
restructuring charges.

     Accounts receivable increased to $35.9 million at September 30, 1996 
from $30.5 million at September 30, 1995. This increase is attributable 
primarily to a higher level of direct dial long distance services revenues in 
the fourth quarter of 1996 compared to the fourth quarter of 1995. Trade 
accounts payable and accrued liabilities increased to $10.9 million and $13.6 
million, respectively, at September 30, 1996 from $10.7 million and $6.7 
million at September 30, 1995. The increases in accounts payable and accrued 
liabilities are due to the overall expansion of the Company's business. 
Prepaids and other current assets increased to $6.0 million at September 30, 
1996 from $4.1 million at September 30, 1995.  This increase is attributable 
to an increase in a receivable from Billing for equipment loans under the 
Company's financing facility pursuant to the spin-off.  The decrease in other 
assets to $4.9 million at September 30, 1996 from $6.5 million at September 
30, 1995 is due to the normal amortization of these assets and a $727,000 
write-down of customer lists associated with certain acquisitions.

     Capital expenditures amounted to approximately $11.0 million during 
1996. These expenditures were related primarily to the purchase of 
telecommunications equipment, computer equipment and software, and office 
furniture. During 1996, the Company financed approximately $3.5 million of 
equipment through long-term borrowings. During 1997, the Company anticipates 
capital expenditures of $18.0 million to $22.0 million to service the 
Company's projected growth. Approximately $10.0 million to $12.0 million of 
these capital expenditures are expected to be purchases of telecommunications 
equipment, approximately $5.0 million to $7.0 million are expected to be 
purchases of computer hardware and software to develop systems to support the 
anticipated growth of the Company's business and the remainder is expected to 
be for purchases of office furniture and equipment. The Company anticipates 
financing these capital expenditures primarily through term notes with 
various lending institutions.  Although line of credit commitments have been 
made by various lenders for equipment purchases, there is no assurance that 
the Company will be able to obtain satisfactory financing for these capital 
expenditures.

   The Company's operations and expansion into new geographic markets will 
continue to require substantial capital investment for the development and 
procurement of transmission facilities and telecommunications and office 
equipment. In addition, any acquisitions that the Company may consummate may 
require substantial capital investment. The Company believes that it has the 
ability to continue to secure long-term equipment financing and that this 
ability, combined with cash flow generated from operations and available 
borrowing capacity under its existing credit facilities, will be sufficient 
to fund capital expenditures, working capital needs and debt repayment 
requirements for the foreseeable future.

     The Company has a revolving credit receivable financing facility which 
allows the Company to borrow against its own direct dial long distance 
services and operator services accounts receivable.  At September 30, 1996, 
the Company had approximately $14.0 million available for borrowing and did 
not have any amounts borrowed under this facility. Any borrowings under this 
facility will bear interest at the prime rate plus .5%.  This facility is 
collateralized by the related accounts receivable and by virtually all of the 
assets of the Company not otherwise pledged as security under other debt 
agreements.

      The Company is a guarantor on a $45.0 million credit receivable 
financing facility for Billing. Under the terms of the Transitional Services 
and Sublease Agreement entered into pursuant to the spin-off, the Company's 
potential liability as guarantor is compensated at the rate of 1% of the 
average annual outstanding balance. At September 30, 1996, Billing had $19.0 
million outstanding under this facility. Both the revolving credit financing 
facility and the guarantee arrangement terminate on December 31, 1996.  The 
Company anticipates executing agreements in the near future which would 
provide the Company with receivable financing facilities exceeding $10.0 
million.

     In fiscal 1996, the Company entered into a $10.0 million equipment 
financing facility with an interest rate float at the 30-day commercial paper 
rate plus 2.70%. No amounts were outstanding under this facility at September 
30, 1996. The agreement provides for a one-year period during which the 
Company may finance up to $10.0 million in equipment on an interest payment 
only basis. Upon completion of this period in September 1997, the note amount 
will convert to a series of term notes with 20% of the total amount borrowed 
due in each of the next five years. Any amounts not due in a given year may 
be prepaid and reborrowed at the Company's discretion.

                                      19
<PAGE>

     The Company  has various fixed rate notes with interest rates ranging 
from 6.75% to 11.0%, due in varying amounts through August 2001. The proceeds 
from the issuance of these notes were used to acquire certain computer and 
telecommunications equipment and office furniture. The loans are secured by 
the assets acquired with the proceeds of such notes.  Certain of these notes 
are also guaranteed by Billing.

     Historically, the Company has obtained financing for capital 
expenditures through term debt agreements and capital lease agreements that 
were guaranteed and cross-collateralized by the Company and Billing.  These 
debt agreements were negotiated based on the strength of the consolidated 
financial statements, earnings and cash flow of the consolidated group.  Most 
of these debt agreements were secured by the assets of all the subsidiaries 
within the consolidated group.  The Company has received from certain lenders 
loan agreement amendments or separate loan agreements whereby the subject 
indebtedness will be secured by only the Company's assets.  In other cases, 
the existing cross guarantees and security arrangements between the Company 
and Billing will remain in place for the duration of the facility.  In this 
regard, the Company and Billing have agreed to pay each other a credit 
support fee.

     The credit facilities discussed above contain various restrictions and 
financial ratio maintenance requirements.  Under one of its credit 
facilities, the Company is required to maintain a quarterly ratio of 
consolidated operating income, as defined in the agreements, to consolidated 
fixed charges of 1.5 to 1.0.  Further, the Company is required to maintain a 
ratio of funded debt, as defined in the agreement, to total capitalization of 
not greater than 60% and total debt to total capitalization of not greater 
than 85%.  Other agreements require the Company to maintain cash flow 
coverage ratios, as defined in the agreements, ranging between 1.25 and 1.40 
and a minimum tangible net worth ranging between $30.0 million and $35.0 
million.  Under one agreement, the Company is prohibited from paying a cash 
dividend on its common stock.  Cross-default provisions of the Company's most 
significant credit facilities may place the Company in default of such 
facilities should it fail to satisfy provisions of certain other loan 
agreements. Under the Company's most significant credit facilities, 
USLD has guaranteed the obligations of its subsidiaries. The Company was 
in compliance with all required covenants at September 30, 1996 and 1995.

   The Company continually evaluates business opportunities, including 
potential acquisitions. The primary focus of the Company's acquisition 
activities is to make additional acquisitions that will grow the Company's 
direct dial long distance business.  One or more of such acquisitions could 
result in a substantial change in the Company's operations and financial 
condition. The success of the Company's acquisition activities will depend, 
among other things, on the availability of acquisition candidates, the 
availability of funds to finance acquisitions and the availability of 
management resources to oversee the operation of acquired businesses. While 
the Company has, from time to time, had discussions with other 
telecommunications companies, it has no agreements or pending negotiations 
with respect to any acquisition at the date of this report that would have a 
material impact on the Company's financial position or results of operations.

     As consideration for any acquisitions, the Company may issue common 
stock, preferred stock, convertible debt or other securities, in addition to 
or in lieu of the payment of cash, that could result in dilution of the 
percentage ownership of public stockholders. The Company does not intend to 
seek stockholder approval for any such acquisitions or security issuances 
unless required by applicable law or regulations.

SEASONALITY

   Approximately 95% of the Company's direct dial long distance revenues is 
generated by commercial customers and, accordingly, the Company experiences 
general decreases in long distance revenues around national holidays when 
commercial traffic is reduced. The Company typically experiences decreases in 
operator services revenues in the fall and winter months as pay telephone 
usage declines due to cold and inclement weather in many parts of the United 
States. As a result of the seasonal variations discussed above, revenue 
reported in the Company's first fiscal quarter ending December 31 (which 
includes the Thanksgiving, Christmas and New Year's Eve holidays), 
historically, has been the lowest level of any quarter of the year. 
Conversely, due to increased traffic from pay telephones during the spring 
and summer months and a lower concentration of national holidays, the Company 
has historically experienced its highest revenue levels in the third and 
fourth quarters of the fiscal year. Because the Company's fixed operating 
expenses do not decrease during the first fiscal quarter, the Company's 
profitability is also, generally, at its lowest level for any quarter of the 
year.

EFFECT OF INFLATION

   Inflation is not a material factor affecting the Company's business.  
Prices charged to the Company for switching equipment and transmission costs 
have not materially changed during the year. General operating expenses such 
as salaries, employee benefits and occupancy costs are, however, subject to 
normal inflationary pressures.

NEW ACCOUNTING STANDARDS

   The Company is not currently, nor does it expect to be, materially 
affected by any new standards recently issued by the Financial Accounting 
Standards Board.

                                     20
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The consolidated financial statements of the Company and the related 
report of the Company's independent public accountants thereon are included 
in this report at the page indicated.

   ITEM                                                                PAGE
   ----                                                                ----
   Report of Independent Public Accountants.........................    22
   Consolidated Balance Sheets at September 30, 1996 and 1995.......    23
   Consolidated Statements of Income for the Years Ended 
    September 30, 1996, 1995 and 1994...............................    24
   Consolidated Statements of Stockholders' Equity for the Years 
    Ended September 30, 1996, 1995 and 1994.........................    25
   Consolidated Statements of Cash Flows for the Years Ended 
    September 30, 1996, 1995 and 1994...............................    26
   Notes to Consolidated Financial Statements.......................    27





                                     21
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
U.S. Long Distance Corp.:

     We have audited the accompanying consolidated balance sheets of U.S. 
Long Distance Corp. (a Delaware corporation) and subsidiaries as of 
September 30, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period 
ended September 30, 1996. These financial statements are the responsibility 
of the Company's management. Our responsibility is to express an opinion on 
these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of U.S. Long 
Distance Corp. and subsidiaries as of September 30, 1996 and 1995, and the 
results of their operations and their cash flows for each of the three years 
in the period ended September 30, 1996, in conformity with generally accepted 
accounting principles.

     As explained in Note 2 to the Consolidated Financial Statements, 
effective October 1, 1993, the Company changed its method of accounting for 
income taxes.

          
                                         /s/ ARTHUR ANDERSEN LLP

San Antonio, Texas
November 14, 1996


                                       22
<PAGE>
                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
                                       
                          CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
                                       
                                    ASSETS
<TABLE>
<CAPTION>
                                                                                                               SEPTEMBER 30,
                                                                                                            ------------------
                                                                                                               1996      1995
                                                                                                               ----      ----
<S>                                                                                                         <C>         <C>       
  Current assets:                                                                                                               
     Cash and cash equivalents..........................................................................    $  8,842    $     0
     Accounts receivable, net of allowances for doubtful accounts of  $2,519 (1996) and $1,938 (1994)...      35,867     30,548
     Prepaids and other.................................................................................       6,002      4,077
                                                                                                            --------    -------
               Total current assets.....................................................................      50,711     34,625
  Property and equipment.................................................................................     58,370     47,800
     Less accumulated depreciation and amortization.....................................................     (28,793)   (19,106)
                                                                                                            --------    -------
               Net property and equipment...............................................................      29,577     28,694
Equipment held under capital leases, net of accumulated depreciation of $1,458 (1996)                                            
 and $1,958 (1995)......................................................................................         282      1,540
Other assets:                                                                                                                   
     Excess of cost over net assets acquired, net of accumulated amortization of $2,065 (1996)                                
      and $1,502 (1995).................................................................................      13,804     14,685
     Other assets, net of accumulated amortization of  $4,892 (1996) and $4,443 (1995)..................       4,870      6,483
     Net assets of discontinued operations (see Note 3).................................................           0     39,083
                                                                                                            --------    -------
          Total assets..................................................................................    $ 99,244   $125,110
                                                                                                            --------    -------
                                                                                                            --------    -------
                                 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:                                                                                    
     Trade accounts payable............................................................................      $10,909   $ 10,748
     Accrued liabilities...............................................................................       13,581      6,684
     Current portion of long-term debt.................................................................        5,854      5,147
     Current portion of obligations under capital leases...............................................          294        372
                                                                                                            --------    -------
               Total current liabilities...............................................................       30,638     22,951
 Other liabilities.....................................................................................           52      3,318
 Long-term debt, less current portion..................................................................       10,146     12,327
 Obligations under capital leases, less current portion................................................          143        523
              
 Payable to Billing Information Concepts Corp., net....................................................            0     17,860
                                                                                                                                
 Commitments and contingencies (See Note 6, 10 and 14)                                                                            
                                                                                                                                  
 Stockholders' equity:                                                                                                            
     Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or                                          
       outstanding at September 30, 1996 or 1995......................................................             0          0
     Common stock, $0.01 par value, 50,000,000 shares authorized; 15,255,977 and 14,281,866                                       
       shares issued and 15,051,876 and 14,094,634 shares outstanding at September 30, 1996 and 1995,                
       respectively...................................................................................           153        143
     Additional paid-in capital......................................................................         54,554     49,304
     Retained earnings................................................................................         5,465     20,473
     Treasury stock...................................................................................        (1,907)    (1,789)
                                                                                                            --------    -------
               Total stockholders' equity.............................................................        58,265     68,131
                                                                                                            --------    -------
               Total liabilities and stockholders' equity.............................................       $99,244   $125,110
                                                                                                            --------    -------
                                                                                                            --------    -------
</TABLE>
                                         
  The accompanying notes are an integral part of these consolidated financial 
                               statements.

                                       23
<PAGE>

                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
                                                                                                        FOR THE YEAR
                                                                                                     ENDED SEPTEMBER 30,
                                                                                             ----------------------------------
                                                                                                 1996         1995       1994
                                                                                                 ----         ----       ----
<S>                                                                                          <C>           <C>         <C>
Operating revenues:                                                                                              
  Direct dial long distance services.....................................................     $ 119,401    $ 84,484    $ 62,834
  Operator services......................................................................        60,945      59,566      54,707
                                                                                              ---------    --------    --------
    Total operating revenues.............................................................       180,346     144,050     117,541
Cost of services.........................................................................       118,493      94,038      72,944
                                                                                              ---------    --------    --------
                                                                                                           
  Gross profit...........................................................................        61,853      50,012      44,597
Selling, general and administrative expense..............................................        50,722      41,580      38,541
Direct spin-off costs....................................................................        12,969           0           0
Restructuring charges....................................................................         2,840           0           0
Depreciation and amortization expense....................................................        11,798      10,032       8,424
                                                                                              ---------    --------    --------

  Loss from continuing operations........................................................       (16,476)     (1,600)     (2,368)
                                                                                                                               
Other income (expense):                                                                                                       
  Interest income........................................................................           894         682         473
  Interest expense.......................................................................        (1,356)     (1,643)     (1,609)
  Other, net.............................................................................          (166)        (38)        270
                                                                                              ---------    --------    --------

    Total other income (expense).........................................................          (628)       (999)       (866)
                                                                                              ---------    --------    --------

Loss from continuing operations before income tax benefit................................       (17,104)     (2,599)     (3,233)
Income tax benefit                                                                                3,350         516         758
                                                                                                                                 
Net loss from continuing operations......................................................       (13,754)     (2,083)     (2,475)
                                                                                                                                
Discontinued operations (Note 3):                                                                                             
  Income from discontinued operations, net of income taxes of $9,292 (1996),                                      
   $8,661 (1995) and $5,038 (1994).......................................................        15,161      14,118       8,565
                                                                                              ---------    --------    --------
                                                                                                                                
Net income...............................................................................     $   1,407    $ 12,035    $  6,090
                                                                                              ---------    --------    --------
                                                                                              ---------    --------    --------
Net income (loss) per common share:
                                                                                              ---------    --------    --------
  Continuing operations..................................................................     $   (0.89)   $  (0.14)   $  (0.18)
  Discontinued operations................................................................          0.98        0.97        0.61 
  Net income per common share............................................................     $    0.09    $   0.83    $   0.43
  Weighted average common shares and common share equivalents                         
   outstanding...........................................................................        15,398      14,587      14,069

</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       24

<PAGE>
                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

             FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                        COMMON STOCK   PREFERRED STOCK  ADDITIONAL
                                       --------------  ---------------   PAID-IN   RETAINED  TREASURY
                                       SHARES  AMOUNT  SHARES  AMOUNT    CAPITAL   EARNINGS   STOCK 
                                       ------  ------  ------  ------    -------   --------   ----- 
<S>                                    <C>     <C>     <C>     <C>       <C>       <C>         <C>   
Balances at September 30, 1993.......  11,913   $119        0      $0    $36,113   $  1,998  $   (93)
Pooling with Telecom West Inc........     270      3        0       0          5        123        0
Exercise of stock options and                                                                       
 warrants............................     113      1        0       0        827          0        0
Issuance of common stock.............     636      6        0       0      5,358          0        0
Issuance of treasury stock...........       0      0        0       0        237          0       66
Purchase of treasury stock...........       0      0        0       0          0          0   (1,637)
Net income...........................       0      0        0       0          0      6,090        0
                                       ------  ------  ------  ------    -------   --------  ------- 
Balances at September 30, 1994.......  12,932    129        0       0     42,540      8,211   (1,664)
                                                                                                    
Pooling with L.D. Network, Inc.......     175      2        0       0          1        227        0
Exercise of stock options and                                                                       
 warrants............................   1,080     11        0       0      4,805          0        0
Issuance of common stock.............     195      2        0       0      2,422          0        0
Retirement of treasury stock.........    (100)    (1)       0       0       (949)         0      950
Purchase of treasury stock...........       0      0        0       0          0          0   (1,075)
Other capital contribution...........       0      0        0       0        485          0        0
Net income...........................       0      0        0       0          0     12,035        0
                                       ------  ------  ------  ------    -------   --------  ------- 
Balances at September 30, 1995.......  14,282    143        0       0     49,304     20,473   (1,789)

Issuance of common stock.............     223      2        0       0      1,210          0        0
Return of escrowed shares............       0      0        0       0          0          0     (118)
Exercise of stock options and                                                                       
 warrants............................     751      8        0       0      3,913          0        0
Other capital contribution...........       0      0        0       0        127          0        0
Spin-off of Billing Information
 Concepts Corp.......................       0      0        0       0          0    (16,415)       0
Net income...........................       0      0        0       0          0      1,407        0
                                       ------  ------  ------  ------    -------   --------  ------- 
Balances at September 30, 1996.......  15,256   $153        0      $0    $54,554   $  5,465  $(1,907)
                                       ------  ------  ------  ------    -------   --------  ------- 
                                       ------  ------  ------  ------    -------   --------  ------- 
</TABLE>
  The accompanying notes are an integral part of these consolidated financial  
                                  statements.

                                       25

<PAGE>
                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)

                                                          FOR THE YEAR   
                                                      ENDED SEPTEMBER 30,
                                              -------------------------------- 
                                                 1996       1995         1994  
                                              ---------   --------    -------- 
Cash flows from operating activities:
  Net loss from continuing operations........ $ (13,754)  $ (2,083)   $ (2,475)
  Adjustments to reconcile net loss from 
   continuing operations to net cash provided 
   by operating activities:
    Depreciation and amortization............    11,798     10,032       8,424
    Provision for losses on accounts 
     receivable..............................     8,388      6,231       5,095
    Deferred compensation....................     4,078        255         220
    Loss on write-down of property and 
     equipment...............................     1,084        171          48
    Changes in current assets and liabilities, 
     net of effects from purchase of direct 
     dial long distance companies:
      Increase in accounts receivable........   (13,001)   (12,882)     (6,535)
      (Increase) decrease in prepaids and 
       other.................................      (766)       600      (1,997)
      Increase (decrease) in accounts payable       161     (4,222)      4,853
      Increase (decrease) in accrued 
       liabilities...........................     6,897      1,869        (300)
      Increase (decrease) in other 
       liabilities...........................    (3,266)     1,843       1,398
                                              ---------   --------    -------- 
Net cash provided by operating activities....     1,619      1,814       8,731
Net cash provided by discontinued operations     16,661      6,549       1,007
Cash flows from investing activities:
  Purchases of property and equipment........   (11,007)    (9,761)     (7,036)
  Acquisition of direct dial long distance 
   companies, net of cash acquired...........         0       (175)       (565)
  Proceeds from sale of assets...............        45        632         179
  Other investing activities.................      (335)       (54)       (880)
                                              ---------   --------    -------- 
Net cash used in investing activities........   (11,297)    (9,358)     (8,302)
Cash flows from financing activities:
     Proceeds from issuance of debt..........     3,500      4,784       7,339
     Payments on debt........................    (5,742)    (5,512)     (4,875)
     Payments on capital leases..............      (458)    (1,267)     (2,544)
     Financing costs.........................         0          0        (267)
     Proceeds from issuance of common stock, 
      net of issuance costs..................     4,559      4,065         470
     Purchase of treasury stock..............         0     (1,075)     (1,559)
                                              ---------   --------    -------- 
Net cash provided by (used in) financing 
 activities..................................     1,859        995      (1,436)
                                              ---------   --------    -------- 
Net increase in cash and cash equivalents....     8,842          0           0
Cash and cash equivalents, beginning of year          0          0           0
                                              ---------   --------    -------- 
Cash and cash equivalents, end of year.......  $  8,842   $      0     $     0
                                              ---------   --------    -------- 
                                              ---------   --------    -------- 

 The accompanying notes are an integral part of these consolidated financial
                                 statements.

                                       26

<PAGE>
                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       SEPTEMBER 30, 1996, 1995 AND 1994

NOTE 1. BUSINESS ACTIVITY

     U.S. Long Distance Corp. ("USLD") was redomesticated from Canada and 
reincorporated under the Delaware Corporation Law Act in the State of 
Delaware, United States of America, in 1987. USLD and its subsidiaries 
(collectively, the "Company") offer an integrated group of communications 
services including direct dial long distance, prepaid calling cards, travel 
cards, data transmission and calling center services. The Company's network 
consists of a highly advanced, digital switching system which provides 
nationwide, largely fiber-optic, access throughout the United States.

     The Company is a full-service long distance carrier currently providing 
direct dial long distance services to small and medium-sized commercial 
customers and, to a lesser extent, residential customers.  In addition, the 
Company provides operator assisted services for private pay telephones, 
hotels, motels, university dormitories and hospitals. In fiscal 1996, direct 
dial long distance services represented approximately two-thirds of the 
Company's revenues, while operator services represented approximately 
one-third of revenues.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the accounts 
of USLD and its wholly owned subsidiaries. All significant intercompany 
accounts and transactions have been eliminated in consolidation. Certain 
current period and prior period amounts have been reclassified for 
comparative purposes.

     On August 2, 1996, the Company completed the spin-off of its billing 
clearinghouse and information management services business, Billing 
Information Concepts Corp. ("Billing"). The spin-off has been accounted for 
as a discontinued operation and, accordingly, the Company restated its 
consolidated financial statements for all periods presented prior to that 
date in accordance with Accounting Principles Board ("APB") Opinion No. 30.  
Financial disclosures for all periods presented reflect that restatement.

     Cash was historically managed by a centralized cash management 
department in Billing. Consequently, cash was not allocated among USLD's 
subsidiaries and was recorded on the balance sheet of Billing. Total 
consolidated cash was $22.9 million at September 30, 1995, none of which is 
reflected on the Company's balance sheet for financial reporting purposes.

     The intercompany payable to Billing has been reported as a separate line 
item in the restated balance sheet under the caption "Payable to Billing, 
net" between the liability and stockholders' equity sections of the balance 
sheet. See further discussion of discontinued operations in Note 3.

ESTIMATES IN THE FINANCIAL STATEMENTS

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
disclosure of contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION POLICIES

     The Company recognizes revenue from its direct dial long distance and 
operator services as such services are performed.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation and amortization 
are computed on a straight-line basis over the estimated useful lives of the 
related assets, which range from three to ten years. Upon disposition, the 
cost and related accumulated depreciation and amortization are removed from 
the accounts and the resulting gain or loss is reflected in other income for 
that period. Expenditures for maintenance and repairs are charged to expense 
as incurred. Direct installation costs and major improvements are capitalized.

                                        27
<PAGE>

EXCESS OF COST OVER NET ASSETS ACQUIRED

     Excess of cost over net assets acquired represents the excess of the 
consideration paid over the fair value of the net assets acquired.  The 
initial acquisition of the direct dial long distance business is being 
amortized using the straight-line method over 40 years, all subsequent 
acquisitions of direct dial long distance businesses are being amortized over 
20 years.  The Company annually assesses the appropriateness of the asset 
valuations and the amortization periods.

OTHER ASSETS

      Other assets include financing costs related to the issuance of 
long-term debt, which have been deferred and are amortized over the life of 
each respective agreement, acquisition costs of direct dial long distance 
customer bases, which are amortized over the expected useful life of the 
customer bases, and costs incurred to acquire operator services agreements, 
which are amortized over the life of each respective contract. In addition, a 
certificate of deposit held as security for an equipment financing facility, 
long-term deposits and the long-term portion of notes receivable have been 
included in other assets.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair value amounts of the Company's financial instruments 
have been determined by the Company using appropriate valuation methodologies 
and approximate their recorded book values at September 30, 1996 and 1995.  
The carrying values of  the Company's cash, receivables, accounts payable, 
debt and all other financial instruments approximate their fair market values.

ADVERTISING EXPENSE

     The Company charges advertising costs to expense as the costs are 
incurred.  Total advertising expense was $1.1 million, $543,000 and $796,000 
for the years ended September 30, 1996, 1995 and 1994, respectively.

INCOME TAXES

     In February 1992, the Financial Accounting Standards Board ("FASB") 
issued Statement of Financial Accounting Standards ("SFAS") No. 109, 
"Accounting for Income Taxes," which the Company adopted effective October 1, 
1993.  Under SFAS No. 109, deferred tax liabilities and assets are recorded 
based on enacted income tax rates that are expected to be in effect in the 
period in which the deferred tax liability or asset is expected to be settled 
or realized.  A change in the tax laws or rates results in adjustments to the 
deferred tax liabilities or assets. The effects of such adjustments are 
required to be included in  income in the period in which the tax laws or 
rates are changed. The adoption of SFAS No. 109 did not have a material 
impact on the Company's financial position or results of operations.  Prior 
to October 1, 1993, the Company accounted for income taxes in accordance with 
the provisions of APB Opinion No. 11, "Accounting for Income Taxes."

NET INCOME (LOSS) PER COMMON SHARE

     Net income (loss) per common share was computed by dividing net income 
(loss) applicable to common stock by the weighted average number of common 
shares and common share equivalents outstanding during the applicable period. 
The weighted average number of shares outstanding during each fiscal year 
differs from the number of shares outstanding at each year end due to assumed 
conversions of options and warrants that were outstanding during the 
respective periods.

                                       28
<PAGE>

STATEMENTS OF CASH FLOWS

     Cash payments and non-cash activities during the periods indicated were 
as follows:

                                                  YEAR ENDED SEPTEMBER 30,
                                                 ---------------------------
                                                  1996      1995       1994
                                                 ------    ------     ------
                                                        (IN THOUSANDS)

     Cash payments for interest ..............   $1,393    $1,685    $ 1,641
     Cash payments for income taxes...........      187       414          0
     Noncash investing and financing 
      activities:
        Assets acquired in connection with 
         acquisitions ........................        0       939     11,560
        Liabilities assumed in connection 
         with acquisitions....................        0       351      4,273
        Common stock issued in connection 
         with acquisitions....................        0       896      4,962
        Capital lease and debt obligations
         incurred.............................    1,159       470        295
        Contingent obligations incurred.......        0         0      1,637
        Tax benefit recognized in connection
         with stock option exercises..........    1,421     1,236        392
        Return of escrowed treasury stock.....      118         0          0
        Reimbursable spin-off costs due 
         from Billing ........................      704         0          0
        Dividend pursuant to spin-off of 
         Billing..............................   34,345         0          0

     For purposes of determining cash flows, the Company considers all 
temporary cash investments purchased with an original maturity of three 
months or less to be cash equivalents.

RECENT ACCOUNTING PRONOUNCEMENTS

     In March 1995, FASB issued SFAS No. 121, "Accounting for the Impairment 
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 
121 requires that long-lived assets be reviewed for impairment whenever 
events or changes in circumstances indicate that the carrying amount of an 
asset may not be recoverable.  In fiscal 1996, the Company determined that 
certain computer equipment, customer lists and goodwill were impaired and, 
accordingly, wrote down these assets by $1.8 million, of which $1.1 million 
is included in restructuring charges and $727,000 is included in depreciation 
and amortization expense.

     In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based 
Compensation."  SFAS No. 123 defines a fair value based method of accounting 
for employee stock options or similar equity instruments.  Under the fair 
value based method, compensation cost is measured at the grant date based on 
the value of the award and is recognized over the service period of the 
award, which is usually the vesting period.  However, SFAS No. 123 also 
allows entities to continue to measure compensation costs using the intrinsic 
value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued 
to Employees."  Entities electing to remain with the accounting prescribed by 
APB Opinion No. 25 must make pro forma disclosures of net income and earnings 
per share as if the fair value based method of SFAS No. 123 had been applied. 
 The accounting and disclosure requirements of SFAS No. 123 are effective for 
transactions entered into in fiscal years that begin after December 15, 1995. 
The Company intends to measure compensation costs in accordance with APB 
Opinion No. 25 and to provide pro forma disclosures of net income and 
earnings per share as if the fair value based method of accounting under SFAS 
No. 123 had been applied. Therefore, management of the Company does not 
anticipate SFAS No. 123 will have a material impact on the Company's 
financial position or results of operations.

     In June 1996, FASB issued SFAS No. 125 "Accounting for Transfers and 
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 
125 provides accounting and reporting standards for, among other things, the 
transfer and servicing of financial assets, such as factoring receivables 
with recourse.  SFAS No. 125 is effective for transfers and servicing of 
financial assets occurring after December 31, 1996, and is to be applied 
prospectively. Earlier or retroactive application is not permitted.  
Management of the Company does not anticipate the adoption of  SFAS No. 125 
will have a material impact on the Company's financial position or results of 
operations.

NOTE 3. DISCONTINUED OPERATIONS

     On August 2, 1996, the Company completed the spin-off of Billing, its 
billing clearinghouse and information management services business. The 
spin-off has been accounted for as a discontinued operation and, accordingly, 
the Company restated its Consolidated Financial Statements for all periods 
presented prior to that date. The spin-off was a tax-free distribution of 
100% of the common stock of Billing to the Company's stockholders.  Revenue 
of the discontinued operations of Billing was $85.8 million, $80.8 million 
and $57.7 million in fiscal 1996, 1995 and 1994, respectively.  Net income of 
the discontinued operations of Billing was $15.2 million, $14.1 million and 
$8.6 million in fiscal 1996, 1995 and 1994, respectively. In connection with 
the spin-off, the 

                                     29
<PAGE>

Company entered into an agreement with Billing under which the intercompany 
payable/receivable balances were forgiven. Additionally, Billing agreed to  
reimburse the Company for direct out-of-pocket expenses associated with the 
spin-off and to transfer cash to the Company to provide the Company a working 
capital balance of $21.5 million at the spin-off date. The net effect of this 
agreement resulted in the Company recording the distribution as a dividend in 
the amount of $16.4 million for financial statement purposes. Direct spin-off 
costs recorded as operating expenses in the year ended September 30, 1996 
were approximately $13.0 million and include professional fees, tax payments 
triggered by the spin-off, payments called for under employment agreements 
and costs associated with accelerated stock grants.

     The summarized components of net assets of discontinued operations at
September 30, 1995 were as follows (in thousands):

                                                                  
     Current assets.......................................   $100,735    
     Property and equipment, net..........................      4,785    
     Other................................................      1,375    
                                                             --------
        Total assets......................................    106,895    

     Accounts payables, accruals and debt.................     60,405    
     Revolving line of credit.............................     23,030    
     Other liabilities and obligations....................      2,237    
                                                             --------
        Total liabilities.................................     85,672    
                                                             --------
     Receivable from the Company..........................    (17,860)    
                                                             --------
        Net assets of discontinued operations.............   $ 39,083    
                                                             --------
                                                             --------

NOTE 4. ACQUISITIONS

     On October 1, 1993, the Company acquired Telecom West Inc. ("TWI"), a 
direct dial long distance company, in exchange for 270,000 shares of its 
common stock. The business combination has been accounted for as a 
pooling-of-interests combination. The accompanying consolidated financial 
statements include the operating results of TWI since the effective date of 
the business combination.  The consolidated financial statements for periods 
prior to the combination have not been restated to include the accounts and 
results of operations of TWI due to the transaction not having a significant 
impact on the Company's prior period financial position or results of 
operations.

     During fiscal 1994, the Company acquired four other separate, 
privately-owned direct dial long distance companies located in Texas and 
California. These acquisitions have been accounted for as purchases and, 
accordingly, the results of operations of each company have been included in 
the Company's consolidated financial statements since the respective dates of 
acquisition. An aggregate of $1.0 million cash and 650,000 shares of the 
Company's common stock were issued in connection with these purchase 
transactions. Total assets acquired and liabilities assumed for these 
acquired companies were approximately $2.8 million and $3.3 million, 
respectively.  The excess of the aggregate purchase price over the fair value 
of aggregate net tangible assets acquired is approximately $8.0 million, of 
which approximately $6.9 million has been recorded as goodwill and is being 
amortized on a straight-line basis over 20 years.  The remaining balance has 
been recorded as the purchase price for customer lists and is being amortized 
on a straight-line basis over five years.

     On October 6, 1994, the Company acquired L.D. Network, Inc. ("LDN"), a 
direct dial long distance company, in exchange for 175,000 shares of its 
common stock. The business combination has been accounted for as a 
pooling-of-interests combination. The accompanying consolidated financial 
statements include the operating results of LDN since October 1, 1994.  The 
consolidated financial statements for periods prior to the combination have 
not been restated to include the accounts and results of operations of LDN 
due to the transaction not having a significant impact on the Company's prior 
period financial position or results of operations.

     In March 1995, the Company acquired the long distance commercial 
customer base of a company and certain assets of another company. These 
acquisitions have been accounted for as purchases and, accordingly, the 
results of operations of each acquisition have been included in the Company's 
consolidated financial statements since the respective effective dates of 
acquisition. Cash of $175,000 and 78,000 shares of the Company's common stock 
were issued in connection with these purchase transactions.  Total assets 
acquired and liabilities assumed for these acquisitions were approximately 
$1.1 million and $280,000, respectively. The excess of the purchase price 
over the fair value of aggregate net tangible assets acquired is 
approximately $1.0 million, of which approximately $316,000 has been recorded 
as goodwill and is being amortized on a straight-line basis over 20 years. 
The remaining balance has been recorded as the purchase price for customer 
lists and is being amortized on a straight-line basis over five years.

                                     30
<PAGE>

     No pro forma financial information with regard to any acquisitions has 
been presented as the acquisitions do not have a significant impact, either 
individually or in the aggregate, on the Company's prior or current period 
financial position or results of operations.  The Company granted certain 
registration rights to the persons receiving its common stock in the 
acquisitions and caused its subsidiaries to enter into employment agreements 
with certain principals of the acquired companies.

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                                          SEPTEMBER 30,
                                                        ----------------
                                                        1996        1995
                                                        ----        ----
                                                          (IN THOUSANDS)
     Communications equipment......................   $ 40,573    $ 33,652
     Furniture, fixtures and equipment.............     15,018      11,437
     Leasehold improvements........................      2,779       2,711
                                                      --------    --------
     Less accumulated depreciation.................    (28,793)    (19,106)
                                                      --------    --------
        Net property and equipment.................   $ 29,577    $ 28,694
                                                      --------    --------
                                                      --------    --------

NOTE 6. DEBT

Long-term debt is comprised of the following:

                                                          SEPTEMBER 30,
                                                        ----------------
                                                        1996        1995
                                                        ----        ----
                                                         (IN THOUSANDS)
     Fixed interest rate term notes.................   $16,000   $17,474
     Less - Current portion.........................     5,854     5,147
                                                       -------   -------
       Long-term debt, less current portion.........   $10,146   $12,327
                                                       -------   -------
                                                       -------   -------

     The Company has a revolving credit receivable financing facility which 
allows the Company to borrow against its own operator services accounts 
receivable and certain direct dial long distance services accounts 
receivable. At September 30, 1996, the Company had approximately $14.0 
million available for borrowing and did not have any amounts borrowed under 
this facility.  At September 30, 1995, the Company did not have any amounts 
borrowed under this facility.  Any borrowings under this facility will bear 
interest at the prime rate plus .5%. This facility is collateralized by the 
related accounts receivable and by virtually all of the assets of the Company 
not otherwise pledged as security under other debt agreements. This financing 
facility terminates on December 31, 1996.

      The Company is a guarantor on a $45.0 million credit receivable 
financing facility for Billing.  Under the terms of the Transitional Services 
and Sublease Agreement discussed further in Note 13, the Company's potential 
liability as guarantor is compensated by Billing at the rate of 1% of the 
average annual outstanding balance. At September 30, 1996, Billing had $19.0 
million outstanding under this facility. The guarantee arrangement terminates 
on December 31, 1996.

     In fiscal 1996, the Company entered into a $10.0 million equipment 
financing facility with an interest rate at the 30-day commercial paper rate, 
as defined in the agreement, plus 2.70%.  No amounts were outstanding under 
this facility at September 30, 1996. The agreement provides for a one-year 
period during which the Company may finance up to $10.0 million in equipment 
on an interest payment only basis.  Upon completion of this period in 
September 1997, the outstanding borrowings will convert to a series of term 
notes with 20% of the total amount borrowed due in each of  the next five 
years. Any amounts not due in a given year may be prepaid and reborrowed at 
the Company's discretion.  A commitment fee of $75,000 was paid in connection 
with this facility.  It is being amortized over five years.

     The Company has various fixed rate notes with interest rates ranging 
from 6.75% to 11.0%, due in varying amounts through August 2001. The proceeds 
from the issuance of these notes were used to acquire certain computer and 
telecommunications equipment and office furniture. The loans are secured by 
the assets acquired with the proceeds of such notes.  Certain of these notes 
are also guaranteed by Billing.

     Historically, the Company has obtained financing for capital 
expenditures through term debt agreements and capital lease agreements that 
were guaranteed and cross-collateralized by the Company and Billing.  These 
debt agreements were negotiated based on the strength of the consolidated 
financial statements, earnings and cash flow of the consolidated group.  Most 
of these debt agreements were secured by the assets of all the subsidiaries 
within the consolidated group.  The Company has received from certain lenders 
loan 

                                       31
<PAGE>

agreement amendments or separate loan agreements whereby the subject 
indebtedness will be secured by only the Company's assets.  In other cases, 
the existing cross guarantees and security arrangements between the Company 
and Billing will remain in place for the duration of the facility.  In this 
regard, the Company and Billing have agreed to pay each other a credit 
support fee of 1% of the average annual  outstanding balance.

     The credit facilities discussed above contain various restrictions and 
financial ratio maintenance requirements.  Under one of its credit 
facilities, the Company is required to maintain a quarterly ratio of 
consolidated operating income, as defined in the agreement, to consolidated 
fixed charges of 1.5 to 1.0.  Further, the Company is required to maintain a 
ratio of funded debt, as defined in the agreement, to total capitalization of 
not greater than 60% and total debt to total capitalization of not greater 
than 85%.  Other agreements require the Company to maintain cash flow 
coverage ratios, as defined in the agreements, ranging between 1.25 and 1.40 
and a minimum tangible net worth ranging between $30.0 million and $35.0 
million.  Under one agreement, the Company is prohibited from paying a cash 
dividend on its common stock.  Cross-default provisions of the Company's most 
significant credit facilities may place the Company in default of such 
facilities should it fail to satisfy provisions of certain other loan 
agreements. Under the Company's most significant credit facilities, USLD has 
guaranteed the obligations of its subsidiaries. The Company was in compliance 
with all required covenants at September 30, 1996 and 1995.

     Scheduled maturities for the years ending September 30, 1997 through 
2001 are as follows (in thousands):

           Year Ending September 30,             
               1997...................................    $ 5,854
               1998...................................      4,960
               1999...................................      2,759
               2000...................................      1,653
               2001...................................        774
                                                          -------
           Total debt.................................    $16,000
                                                          -------
                                                          -------

NOTE 7. LEASES

     The Company leases certain equipment and office space under operating 
leases. Rental expense for fiscal 1996, 1995 and 1994, was $2.5, $2.6 and 
$2.3 million, respectively. Future minimum lease payments under 
non-cancelable operating leases at September 30, 1996, are as follows (in 
thousands):

           Year Ending September 30,               
               1997...................................    $2,231
               1998...................................     1,800
               1999...................................       476
               2000...................................        63
               2001...................................        74
               Thereafter.............................       179
                                                          ------
           Total minimum lease payments...............    $4,823
                                                          ------
                                                          ------

     The Company also leases various computer and telecommunications 
equipment under capital lease arrangements. Future minimum lease payments 
under these capital leases, together with the present value of the net 
minimum lease payments at September 30, 1996, are $437,000 and are due in 
varying amounts through 1999.

NOTE 8. SHARE CAPITAL

     On June 1, 1994, the Company was authorized by its board of directors to 
purchase up to 1,000,000 shares of its outstanding common stock.  Shares were 
purchased from time to time on the open market over the course of the twelve 
months that began June 1, 1994 as market and other relevant conditions 
warranted.  During the twelve-month period ended May 31, 1995, the Company 
purchased an aggregate of 267,500 shares at an average market price of $9.84 
per share.  All of these shares were purchased subsequent to July 1, 1994.  
In November 1994, the Company retired 100,000 shares of treasury stock 
carried at a cost of $950,000. These shares were returned to authorized and 
unissued shares. In November 1995, the escrow agreement relating to the 
Company's acquisition of the long distance commercial customer base of a 
company in March 1995 and pursuant to which 16,869 shares of the Company's 
common stock were held in escrow was terminated.  These 16,869 shares were 
returned to the Company and are being held as treasury shares.  At September 30,
1996, the Company had 204,101 shares of treasury stock, carried at cost.

     Other capital contributions in fiscal 1995 and 1996 are from a director 
of the Company and represent a settlement of certain securities matters. No 
cash dividends were paid on the Company's common stock during fiscal 1996, 
1995 or 1994.

                                        32
<PAGE>

     On December 12, 1995, the Board of Directors adopted the U.S. Long 
Distance Corp. 1995 Employee Restricted Stock Plan (the "Restricted Stock 
Plan"), which provides for the awarding of restricted stock to officers and 
certain key employees of the Company. An aggregate of 500,000 shares of 
common stock are reserved for awards under the Restricted Stock Plan. The 
number of shares of common stock to be awarded to an employee and other terms 
of the award are determined by a committee of disinterested persons who will 
administer the Restricted Stock Plan.  The Restricted Stock Plan provides for 
certain restrictions upon the sale of the stock.  Subsequently, the 
Restricted Stock Plan was amended to allow for immediate vesting at the 
discretion of the committee. In fiscal 1996, 188,000 shares of stock were 
granted under this plan. Compensation expense of $553,000 was recognized upon 
the amortization of deferred compensation and is included in selling, general 
and administrative expense. An additional $3.4 million of compensation 
expense was recognized in fiscal 1996 due to the acceleration of vesting of 
stock grants pursuant to the spin-off of Billing and is included in direct 
spin-off costs. At September 30, 1996, 312,000 shares were available for 
granting  under this plan.

     On April 12, 1996, the Company, upon authorization by its Board of 
Directors, adopted a Shareholder Rights Plan ("Rights Plan") and declared a 
dividend of one preferred share purchase right on each share of its 
outstanding common stock.  The rights will become exercisable if a person or 
group acquires 15% or more of the Company's common stock or announces a 
tender offer, the consummation of which would result in ownership by a person 
or group of 15% or more of the common stock.  These rights, which expire on 
April 12, 2006, entitle stockholders to buy one ten-thousandth of a share of 
a new series of participating preferred shares at a purchase price of $90.00 
per one ten-thousandth of a preferred share. The Rights Plan was designed to 
assure that stockholders receive fair and equal treatment in the event of any 
proposed takeover of the Company.

NOTE 9. STOCK OPTIONS AND STOCK PURCHASE WARRANTS

     The Company has granted stock options to directors, employees and other 
affiliated parties as follows:

                                              NUMBER OF    PRICE RANGE OF SHARES
                                               SHARES           UNDER OPTION
                                               ------           ------------
    Outstanding, September 30, 1993.......    1,252,689  
        Canceled..........................     (141,054)      $1.20   -  $3.59
        Granted...........................      657,850       $2.43   -  $3.59
        Exercised.........................     (112,386)      $0.39   -  $2.53
                                              ---------
    Outstanding, September 30, 1994.......    1,657,099   
        Canceled..........................      (65,264)      $2.03   -  $3.40
        Granted...........................      300,500       $2.43   -  $3.85
        Exercised.........................     (471,861)      $0.39   -  $3.14
                                              ---------
    Outstanding, September 30, 1995.......    1,420,474
        Canceled..........................     (665,144)      $2.20   -  $2.95
        Granted...........................    1,924,700       $2.91   -  $8.48
        Exercised.........................     (281,900)      $2.20   -  $3.08
                                              ---------
    Outstanding, September 30, 1996.......    2,398,130
                                              ---------
                                              ---------

     In connection with the August 2, 1996 spin-off of Billing, further
discussed in Note 3, the Company effected a tax-free distribution of 100% of
the common stock of Billing to the Company's stockholders. Immediately prior to
that distribution, Billing, under its employee stock plans, granted options to
purchase Billing common stock to each holder of an outstanding option to
purchase shares of the Company's common stock under the U.S. Long Distance
Corp. 1990 Employee Stock Option Plan, as amended ("Employee Plan") and the
U.S. Long Distance Corp. 1993 Non-Employee Director Stock Option Plan
("Director Plan"), respectively. In connection with the grant of the Billing
options, the exercise price of the Company's options was adjusted via a formula
adjustment designed to preserve the economic value of the Company's options
existing immediately prior to the distribution. Except for the formula
adjustment, the terms of each of the Company's adjusted option are
substantially the same as those in effect prior to the distribution. The per
share exercise price of the Company's options was adjusted based on the
relative fair market values of the underlying common stock of each of the two
companies, or by a factor of 25.9%. The fair market value per share of common
stock of each company was defined as the average of the last sales price per
share of that common stock on the Nasdaq National Market system for each of the
ten consecutive trading days immediately subsequent to the date of
distribution.

     Stock options to purchase an aggregate of 117,500 shares were 
outstanding at September 30, 1996, were granted outside of any plan and are 
exercisable at prices ranging from $4.38 to $6.38 at varying dates through 
August 23, 2002. Stock options to purchase an aggregate of 65,000 shares were 
outstanding at September 30, 1996, were granted under the provisions of the 
Director Plan and are exercisable at prices ranging from $2.78 to $4.76 per 
share.  The Director Plan options have certain vesting requirements and 
expire at varying dates through February 28, 2001. There were 115,000 shares 
remaining to be issued under the Director Plan at September 30, 

                                       33
<PAGE>

1996. Stock options to purchase an aggregate of  2,215,630 shares were 
outstanding at September 30, 1996, were granted under the provisions of the 
Employee Plan, and are exercisable at prices ranging from $0.39 to $8.48 per 
share. The Employee Plan options, which have certain vesting requirements, 
expire at varying dates through August 22, 2002. The Employee Plan provides 
for the granting of incentive stock options and nonqualified stock options. 
As of September 30, 1996, there were 790,515 shares remaining to be issued 
under the Employee Plan. Options to purchase a total of 1,031,385, 756,524 
and 610,792 shares of common stock were exercisable under all plans at 
September 30, 1996, 1995 and 1994, respectively.

     The excess of the market value of the common stock on the date granted 
over the exercise price of such options results in compensation expense to 
the Company over the vesting period. Approximately $145,000, $255,000 and 
$220,000 of compensation expense was recognized by the Company during fiscal 
1996, 1995 and 1994, respectively. There were no deferred compensation costs 
netted against additional paid-in capital at September 30, 1996 while 
$145,000 was netted against paid-in capital at September 30, 1995.

     Stock warrants to purchase 469,741 shares of common stock were 
outstanding at September 30, 1995. These warrants were issued in connection 
with the sale of the senior subordinated notes in July 1991 and were 
exercisable at $0.01 per share. Warrants to purchase 469,741 and 608,459 
shares of common stock were exercised in fiscal 1996 and 1995, respectively. 
There were no such warrants exercised in fiscal 1994. There were no such 
stock purchase warrants outstanding at September 30, 1996.

     In addition, the Company has granted warrants to purchase 225,000 shares 
of common stock, pursuant to two telecommunications service agreements. The 
exercise price of the warrants was equal to the market value of the Company's 
common stock on the date of grant. Pursuant to the spin-off of Billing, the 
exercise price associated with these warrants was adjusted to $3.24 per 
share. The warrants vest ratably over the contract periods.

NOTE 10. INCOME TAXES

     The income tax benefit is comprised of the following:

                                             YEAR ENDED SEPTEMBER 30,
                                          -------------------------------
                                            1996       1995       1994
                                            ----       ----       ----
                                                  (IN THOUSANDS)
     Current........................      $   119    $ 2,574     $ 1,965
     Deferred.......................        3,231     (2,058)     (1,207)
                                          -------    -------     -------
     Income tax benefit.............      $ 3,350    $   516     $   758
                                          -------    -------     -------
                                          -------    -------     -------

     The income tax benefit for fiscal 1996, 1995 and 1994 differs from the 
amount computed by applying the statutory federal income tax rate of 35% for
fiscal 1996 and 1995 and 34% for fiscal 1994 to loss from continuing 
operations before taxes. The reasons for these differences were as follows:

                                             YEAR ENDED SEPTEMBER 30,
                                           ----------------------------
                                           1996       1995         1994
                                           ----       ----         ----
                                                  (IN THOUSANDS)
     Computed income tax benefit at 
      statutory rate...................   $ 5,986    $   910     $ 1,099
     Increases (reductions) in taxes 
      resulting from:
         State income taxes............      (311)      (146)       (185)
         Amortization of asset 
          valuations in excess of tax..       (98)      (165)        (12)
         Non-deductible expenses 
          related to spin-off..........    (2,455)         0           0
         Other, net....................       228        (83)       (144)
                                          -------    -------     -------
                                          -------    -------     -------
    Income tax benefit.................   $ 3,350    $   516     $   758
                                          -------    -------     -------
                                          -------    -------     -------

                                          34
<PAGE>

The tax effect of significant temporary differences, which comprise the 
deferred tax assets and liabilities, are as follows:

                                                      SEPTEMBER 30,
                                                    -----------------
                                                    1996         1995
                                                    ----         ----
                                                      (IN THOUSANDS)
       Deferred tax assets:   
          Deferred compensation...............    $ 1,713      $      0
          Expense provisions..................      1,460            88
                                                  -------       -------
            Total gross deferred tax assets...      3,173            88
      Deferred tax liabilities: 
          Tax depreciation and amortization 
           in excess of book..................     (2,556)       (2,933)
          Prepaid expenses....................       (262)         (222)
          Other...............................       (407)         (216)
                                                  -------       -------
            Total gross deferred tax 
             liabilities......................     (3,225)       (3,371)
                                                  -------       -------
            Net deferred tax liability........    $   (52)      $(3,283)
                                                  -------       -------
                                                  -------       -------

     The Company has been notified by the Internal Revenue Service ("IRS") 
that a fiscal 1992 transaction between a wholly owned foreign subsidiary 
(Mega Plus Dialing, Inc.) and its U.S. subsidiary (Billing, formerly Zero 
Plus Dialing, Inc.) is proposed to be treated differently by the IRS than 
originally characterized by the Company. The IRS district office has issued a 
report that proposed an assessment of taxes, penalties and interest. The 
assessment has been appealed to the appellate division of the IRS. The 
Company and its tax counsel believe the possibility that the IRS will prevail 
in this matter is remote. Consequently, no accrual for this potential 
liability or any associated taxes, interest or penalties has been made.  
Management of the Company does not anticipate this matter will have a 
material impact on the Company's financial position or results of operations.

     During fiscal 1996, the Company incurred expenses related to the 
spin-off of Billing. Under federal income tax law, expenses incurred for 
effecting a corporate reorganization are non-deductible capital expenditures. 
Approximately $7.0 million of the spin-off expenses were determined to be 
non-deductible, resulting in a reduction of the income tax benefit of 
approximately $2.5 million.

     During fiscal 1996, the Company recognized a tax gain related to the 
liquidation of its wholly owned foreign subsidiary, Mega Plus Dialing, Inc. 
(MPDI).  The gain arose in conjunction with the redemption of common and 
preferred shares of Billing held by MPDI.  The Company paid Canadian federal 
taxes totaling US $3.3 million on the gain.  This tax payment generated a 
foreign tax credit for U.S. federal income tax purposes equal to this amount.

NOTE 11. BENEFIT PLANS

     The Company adopted the U.S. Long Distance Corp. 401(k) Retirement Plan 
("Retirement Plan") effective January 1, 1992. Participation in the 
Retirement Plan is offered to eligible employees of the Company or its 
subsidiaries. Generally, all employees of the Company or its subsidiaries who 
are 21 years of age and who have completed one year of service during which 
they worked at least 1,000 hours are eligible for participation in the 
Retirement Plan.

     The Retirement Plan is a defined contribution plan which allows 
participants to make voluntary salary deferral contributions, on a pretax 
basis, of between 1% and 15% of their compensation in the form of voluntary 
payroll deductions up to a maximum amount as statutorily determined.  In 
fiscal 1996, the Company made matching contributions of 50% of the first 3% 
of the participant's contribution.  In fiscal 1995 and 1994, the Company made 
matching contributions at a percentage determined annually of  25% of the 
first 6% of the participant's contribution.  The Company may, from time to 
time, make additional discretionary contributions. No discretionary 
contributions were made in fiscal 1996 or 1995.  During fiscal 1994, a 
discretionary contribution in the amount of approximately $51,000 was made. 
During fiscal 1996, 1995 and 1994, the Company's contributions totaled 
approximately $162,000, $150,000 and $198,000, respectively.

     The Company adopted the U.S. Long Distance Corp. Executive Compensation 
Deferral Plan ("Executive Plan") and the U.S. Long Distance Corp. Director 
Compensation Deferral Plan ("Director Plan"), effective January 1, 1994. 
Participation in the Executive Plan is offered to selected employees 
occupying management positions who are determined by the Company's board of 
directors, from time to time, to be eligible to participate in the Executive 
Plan. Participation in the Director Plan is offered to individuals occupying 
a position as an outside director.  The Executive and Director Plans are 
defined contribution plans which provide that participants may make voluntary 
contributions, on a pretax basis, of between 1% and 100% of their eligible 
compensation. Under the Executive Plan, the Company made matching 
contributions equal to the lesser of 100% of a participant's contributions or 
an amount determined by a formula established by the plan. Matching 
contributions under the Director Plan were 33% of the participant's 
contributions.  The Company has the right to make matching contributions of a 
different amount or no contributions under both plans. During fiscal 1996, 
1995 and 1994, the Company contributed $114,000, $87,000 and $60,000 to the 
Executive Plan and $75,000, $15,000 and $6,000 to the Director Plan, 
respectively.

                                     35
<PAGE>

     Additionally, the Company adopted the U.S. Long Distance Corp. Executive 
Qualified Disability Plan ("Disability Plan"), effective January 1, 1994.  
The Disability Plan provides long-term disability benefits for certain 
employees occupying management positions through disability insurance 
coverage purchased by the Company and through Company funded payments.  
Benefits under the Disability Plan are provided directly by the Company based 
on definitions contained in the insurance policies.

     The U.S. Long Distance Corp. Employee Stock Purchase Plan (the "ESPP"), 
which was established under the requirements of Section 423 of the Internal 
Revenue Code of 1986, as amended, became effective July 1, 1995.  The ESPP 
enables employees who have completed at least six months of continuous 
service with the Company to purchase shares of the Company's common stock at 
a 15% discount through voluntary payroll deductions.

NOTE 12. RESTRUCTURING CHARGES

      In the fourth quarter of fiscal 1996, the Company recorded 
restructuring charges of $2.8 million. These restructuring charges include 
costs associated with consolidating customer service, credit and collection 
and other support functions, vacating certain office facilities, terminating 
certain marketing contracts, writing down excess assets and providing 
severance payments.

NOTE 13. RELATED PARTY TRANSACTIONS

     For purposes of governing certain ongoing relationships between the 
Company and Billing after the spin-off and to provide for an orderly 
transition, the Company and Billing have entered into certain agreements. 
Such agreements include: (i) the Distribution Agreement, providing for, among 
other things, the spin-off and the division between the Company and Billing 
of certain assets and liabilities and material indemnification provisions; 
(ii) the Benefits Plans and Employment Matters Allocation Agreement, 
providing for certain allocations of responsibilities with respect to benefit 
plans, employee compensation, and labor and employment matters; (iii) the Tax 
Sharing Agreement pursuant to which the Company and Billing agreed to 
allocate tax liabilities that relate to periods prior to and after the 
Distribution Date; (iv) the Transitional Services and Sublease Agreement 
pursuant to which will provide certain services on a temporary basis and 
sublease certain office space to Billing and Billing will provide certain 
services to the Company on a temporary basis; (v) the Zero Plus-Zero Minus 
Billing and Information Management Services Agreement and the One-Plus 
Billing and Information Management Services Agreement pursuant to which 
Billing will provide billing clearinghouse and information management 
services to the Company for an initial period of three years; and (vi) the 
Telecommunications Agreement pursuant to which the Company will provide long 
distance telecommunications services to Billing for an initial period of 
three years; and (vii) the Leasing Agreement, whereby the Company and Billing 
agree to pay certain usage charges. It is the intention of the Company and 
Billing that the Transitional Service and Sublease Agreement, the Zero 
Plus-Zero Minus Billing and Information Management Services Agreement, the 
One-Plus Billing And Information Management Services Agreement, the 
Telecommunications Agreement, and the Leasing Agreement reflect terms and 
conditions similar to those that would have been arrived at by independent 
parties bargaining at arm's length;  however, there can be no assurances that 
such agreements are on terms at least as favorable as could have been 
obtained from unaffiliated third parties.

     The Company and Billing share a common individual on their boards of 
directors. Therefore, the companies are considered related parties for 
financial disclosure purposes. At September 30, 1996 and 1995, the Company 
had accounts receivable from Billing of $1.3 million and $242,000, as well as 
notes receivable of $1.0 million and $0, respectively.  In addition, the 
Company had accounts payable to Billing of $1.1 million and $1.1 million at 
September 30, 1996 and 1995, as well an intercompany payable of $0 and $17.9 
million, respectively.  Operating revenues from Billing were $3.6 million, 
$1.7 million and $924,000 for the years ended September 30, 1996, 1995 and 
1994, respectively. Operating expenses related to Billing were $5.3 million, 
$5.3 million and $5.3 million for the years ended September 30, 1996, 1995 
and 1994, respectively.

     From time to time, the Company has loaned to or was otherwise owed 
amounts from certain officers and directors of the Company. The highest 
amount outstanding of advances to officers and directors during fiscal 1996 
and 1995 was $212,000 and $894,000, respectively. The amount outstanding at 
September 30, 1996 and 1995 was $75,000 and $212,000, respectively.

NOTE 14. COMMITMENTS AND CONTINGENCIES

                                       36
<PAGE>

     The Company is involved in various claims, legal actions and regulatory 
proceedings arising in the ordinary course of business. The Company believes 
it is unlikely that the final outcome of any of the claims or proceedings to 
which the Company is a party would have a material adverse effect on the 
Company's financial position or results of operations; however, due to the 
inherent uncertainty of litigation, there can be no assurance that the 
resolution of any particular claim or proceeding would not have a material 
adverse effect on the Company's results of operations for the fiscal period 
in which such resolution occurred.

     The Company is obligated to pay a minimum of approximately $7.2 million 
during fiscal 1997 for usage charges under service agreements with certain 
long distance carriers.  The Company anticipates exceeding the minimum usage 
volumes with these vendors.

NOTE 15. REGULATORY MATTERS

BILLED PARTY PREFERENCE

     An issue under consideration by the Federal Communications Commission 
(the "FCC") currently is termed Billed Party Preference ("BPP"). This term 
refers to a concept in which any long distance call outside the local 
telephone company's calling area, carried from a publicly available 
telephone, would be completed over the long distance carrier network of the 
billed party's previously expressed preference. This would be accomplished 
through a local telephone company database system that would match every 
calling card and telephone number to a preferred long distance company and 
then direct all calls accordingly.  In April 1992, the FCC tentatively 
proposed adopting BPP. During the summer of 1992, comments from local 
telephone companies, long distance carriers and other industry participants 
revealed that the cost of imposing BPP could be in excess of $1.0 billion and 
could require hundreds of millions of dollars each year to support its 
operation. The majority of these commentors were in opposition to the 
implementation of BPP.  Commentors made clear that many technical impediments 
remain to full deployment of BPP.  Other commentors claimed that no 
technology exists that could implement BPP without making call processing 
significantly less convenient for many operator services calls, particularly 
those requiring a live operator.

     In August 1994, industry members responded to a Commission Further 
Notice of Proposed Rulemaking.  The Commission had tentatively concluded, 
based upon their calculation of related cost information previously submitted 
by industry members, that the potential benefits of a BPP system appeared to 
outweigh its costs, although the Commission admitted the financial data it 
used in its study could be outdated.  Once again, industry participants were 
resoundingly opposed to the Commission's proposal, including AT&T and most of 
the Regional Bell Operating Companies (the "RBOCs").  To date, the FCC has 
taken no further action.

     If such a system were implemented successfully, the unique market niche 
of operator services provider presubscription, such as that of the Company, 
would be rendered virtually ineffectual, as an owner of publicly available 
telephones would be unable to direct operator assisted calls over the network 
of such owner's desired carrier.  In any event, local telephone companies 
have indicated that, if so directed, approximately two to four years would be 
required to reconfigure their networks to BPP's specifications. Thus, while 
BPP remains viable, the Company believes that it is not likely to be 
implemented in the near term.

     On March 9, 1995, the FCC requested industry comment on two proposals it 
had recently received relative to the BPP proceeding.  In an ex-parte 
petition, the National Association of Attorney's General ("NAAG") suggested 
that the FCC modify its current branding requirement such that operator 
service providers ("OSPs") would be required to announce at the beginning of 
each call more specific information for obtaining access to alternate 
carriers (the "NAAG Petition").  Another petition filed by a coalition of 
industry members, including most of the RBOCs, two competitive access 
providers, the American Public Communications Counsel ("APCC") and the 
Competitive Telecommunications Association ("CompTel"), recommended that the 
FCC impose certain rate thresholds for interstate operator assisted services, 
which the FCC would presume to be reasonable, and any OSP electing to charge 
rates higher than such threshold would be required to first prove to the FCC 
that such rates are justified based upon the underlying costs of the service 
(the "APCC Rate Cap Proposal").  The NAAG Petition was proposed to remain in 
effect until such time that BPP is adopted and fully implemented.  The APCC 
Rate Cap Proposal was proposed to obviate the need to consider any further 
action regarding BPP.

     Subsequently, in June 1996, the FCC issued a Second Further Notice of 
Proposed Rulemaking (SFNPRM) in this proceeding.  In it, the FCC proposed 
adopting a rule which would require operator service providers to announce 
the rates for certain calls to the billed party prior to connecting the call, 
thereby allowing the billed party to disconnect such call without incurring 
any unwanted charges.  In September, the FCC released its Second Request for 
Comment in the SFNPRM soliciting technical and other administrative details 
to support the proposed announcement requirement.  Most commentors objected 
to the discriminatory nature of the proposal, which would have some carriers 
announcing rates while others would not.  If any of these proposals are 
adopted by the FCC, the Company's operator service traffic could be 
negatively affected.

                                   37
<PAGE>

MFJ LEGISLATION

     On February 8, 1996, President Clinton signed the Telecommunications Act 
of 1996 into law.  The new law allows the RBOCs to petition their respective 
"in-region" state regulatory agencies to seek authority from FCC to allow the 
applicant RBOC to provide long distance services.  To obtain this authority, 
each state agency is required to certify to the FCC that the applicant RBOC 
has satisfied a legislative "checklist" that outlines the steps required for 
an RBOC to open its network to competition on a local basis.  These steps 
include the provision of competitive network interconnection, unbundled 
access to network elements and other  necessary access to poles, ducts, 
conduits and rights-of-way.  Furthermore, applicant RBOCs must provide 
non-discriminatory access to white pages listings and telephone number 
assignments.  Applicant RBOCs must provide local number portability, toll 
dialing parity and local service resale.  The FCC is required to consult with 
the Department of Justice ("DOJ") to assist in determining if an applicant 
RBOC's entry into the long distance business violates any anti-trust 
standards the DOJ considers appropriate.  Ninety days after receiving such an 
application, the FCC is required to render its decision.  RBOCs are required 
to establish separate subsidiaries through which they could first offer 
in-region long distance services.  RBOCs may provide out-of-region long 
distance services subject to existing laws and regulations governing long 
distance communications.

     To date, no RBOC has requested authority for in-region interLATA 
authority, because the provisions set forth above have not been satisfied by 
any RBOC.  However, many entities have reached interconnection agreements 
with RBOCs to date, including the Company, and many states have adopted rules 
governing local competition.  It is reasonable to expect that the conditions 
for RBOC entry will be met in the near future, and carriers in the interLATA 
long distance business today, such as the Company, will encounter new, 
formidable competition.

TEXAS PIU ISSUE

     In a Final Order released in Docket 10127 on April 12, 1993, the Texas 
Public Utility Commission ("PUC") adopted new regulations governing the 
method by which interexchange carriers ("IXCs") such as the Company calculate 
intrastate access charges paid to local telephone companies. These new rules 
required an independent auditor's review and approval of an IXC's methodology 
of determining its own intrastate access usage.  An independent audit by an 
accounting firm verified that the Company's process of calculating PIU is 
reasonable and statistically valid and, as such, no additional PIU or billing 
adjustments are required.

REGULATORY RATE PROCEEDINGS

     During the course of normal operations, a regulated company may at any 
time come under specific scrutiny with regard to any of its rates, terms or 
conditions by which such service is rendered by the state or federal 
regulatory agency charged with such oversight responsibility, or by an 
attorney general or other jurisdictional consumer officials.  In such cases, 
a regulated company can be required to, among other things, provide cost 
justification for the charges it imposes on some or all of its services, or 
to address perceived consumer inequities.  After review of such 
justification, the regulatory agency generally has the authority to require a 
carrier to modify the process by which such services are rendered or to 
effect changes to its applicable rate structure.  Consumer officials and 
attorneys general can pursue civil action if their concerns are not 
adequately addressed by the carrier.  The Company operates in several 
jurisdictions in which its tariffs or services may, from time to time, fall 
under such scrutiny at the discretion of the governing regulatory agency or 
other officials.  The Company could therefore be required, as a result of 
such an investigation and subsequent proceeding, to implement changes in its 
rate structure, which could ultimately affect its revenues.  The Company 
cannot predict whether or not any such requirement may be imposed in any 
particular jurisdiction.

                                   38
<PAGE>

NOTE 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

 In thousands, except per share amounts 

<TABLE>
                                                             THREE MONTHS ENDED
                                                             ------------------
                                               DECEMBER 31,  MARCH 31,   JUNE 30,   SEPTEMBER 30,
                                                  1995         1996        1996          1996
                                                  ----         ----        ----          ----
<S>                                              <C>          <C>        <C>           <C>
  Operating revenues..........................   $39,708      $43,655    $46,684       $50,299
  Loss from operations........................      (831)      (1,088)    (6,284)       (8,273)
  Net loss from continuing operations.........      (846)      (1,080)    (4,016)       (7,812)
  Income from discontinued operations, net....     3,948        5,021      4,317         1,875
  Net income (loss)...........................     3,102        3,941        301        (5,937)
  
  Net income (loss) per common share:                                                                                              
  Continuing operations.......................   $ (0.06)     $ (0.08)   $ (0.25)      $ (0.50)   
  Discontinued operations.....................      0.27         0.33       0.27          0.11   
  Net income (loss) per common share..........      0.21         0.25       0.02         (0.39)   

                                                             THREE MONTHS ENDED
                                                             ------------------
                                               DECEMBER 31,   MARCH 31,  JUNE 30,   SEPTEMBER 30,
                                                  1994          1995       1995         1995
                                                  ----          ----       ----         ----

  Operating revenues..........................   $32,908      $32,971    $36,651       $41,520
  Income (loss) from operations...............      (641)        (700)      (974)          715
  Net income (loss) from continuing 
   operations.................................      (641)        (663)      (867)           88
  Income from discontinued operations, net....     2,911        3,102      3,921         4,184
  Net income..................................     2,270        2,439      3,054         4,272

  Net income (loss) per common share:                                   
  Continuing operations.......................   $ (0.04)     $ (0.05)   $ (0.06)      $  0.01   
  Discontinued operations.....................      0.20         0.22       0.27          0.28   
  Net income per common share.................      0.16         0.17       0.21          0.29   
</TABLE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
             ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

                                      39
<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The information required by this item is incorporated herein by 
reference from the information under the captions "Election of Directors" 
(Item 1 on proxy), "Management - Directors and Executive Officers," and 
"Section 16(a) Reporting" of the Company's definitive proxy statement to be 
filed pursuant to Regulation 14A with the Securities and Exchange Commission 
relating to its Annual Meeting of Stockholders to be held on February 25, 
1997 (the "Definitive Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item is incorporated herein by 
reference from the information under the caption "Management - Committees, 
Meetings and Compensation of the Board of Directors - Directors' Fees" and 
from the information under the caption "Executive Compensation" of the 
Company's Definitive Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
          OWNERS AND MANAGEMENT

     The information required by this item is incorporated herein by 
reference from the information under the caption "Voting Securities and 
Principal Stockholders" of the Company's Definitive Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated herein by 
reference from the information under the caption "Certain Transactions" of 
the Company's Definitive Proxy Statement.


                                      40
<PAGE>
                                    PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                AND REPORTS ON FORM 8-K

     (a)  DOCUMENTS FILED AS PART OF REPORT

     1.   Financial Statements:

          The consolidated financial statements of the Company and the related
     report of the Company's independent public accountants thereon have been
     filed under Item 8 hereof.

     2.   Financial Statement Schedules:

          The following financial statement schedule and the report of 
     independent public accountants thereon are included in this report at the 
     page indicated. All other schedules for which provision is made in the
     applicable accounting regulations of the Securities and Exchange
     Commission have been omitted because such schedules are not required under
     the related instructions or are inapplicable or because the information
     required is included in the Consolidated Financial Statements or notes
     thereto.

   ITEM                                                                 PAGE
   ----                                                                 ----
    Report of Independent Public Accountants..............................42
    Schedule II - Valuation and Qualifying Accounts.......................43

                                       41

<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
U.S. Long Distance Corp.:

     We have audited, in accordance with generally accepted auditing 
standards, the consolidated financial statements of U.S. Long Distance Corp. 
and subsidiaries and have issued our report thereon dated November 14, 1996. 
Our audit was made for the purpose of forming an opinion on the basic 
financial statements taken as a whole.  Schedule II is the responsibility of 
the Company's management and is presented for purposes of complying with the 
Securities and Exchange Commission's rules and is not part of the basic 
financial statements. This schedule has been subjected to the auditing 
procedures applied in the audit of the basic financial statements and, in our 
opinion, fairly states in all material respects the financial data required 
to be set forth therein in relation to the basic financial statements taken 
as a whole.

                                          /s/ ARTHUR ANDERSEN LLP

San Antonio, Texas
November 14, 1996

                                       42

<PAGE>
                                                                    SCHEDULE II

                   U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              ADDITIONS       
                                                       -----------------------
                                          BALANCE AT   CHARGED TO   CHARGED TO  WRITE-OFFS  BALANCE AT
 FISCAL                                   BEGINNING    COSTS AND      OTHER     CHARGED TO    END OF  
  YEAR             DESCRIPTION            OF PERIOD     EXPENSES     ACCOUNTS    ALLOWANCE    PERIOD  
  ----             -----------            ---------     --------     --------    ---------    ------  
  <S>     <C>                             <C>           <C>          <C>         <C>          <C>
  1994   Allowance for doubtful accounts    $2,861       $5,095         $0        $(5,658)    $2,298  
  1995   Allowance for doubtful accounts    $2,298       $6,231         $0        $(6,591)    $1,938  
  1996   Allowance for doubtful accounts    $1,938       $8,388         $0        $(7,807)    $2,519  
</TABLE>
                                       43

<PAGE>
3.   Exhibits:

    The exhibits listed below are filed as part of or incorporated by 
reference in this report. Where such filing is made by incorporation by 
reference to a previously filed document, such document is identified in 
parentheses. See the Index of Exhibits included with the exhibits filed as 
part of this report.

EXHIBIT
NUMBER                                       DESCRIPTION
-------                                      -----------
  3.1  Restated Certificate of Incorporation (Filed herewith)

  3.2  Bylaws, as amended (Filed herewith)

  4.1  Form of Certificate Evidencing Common Stock (Filed herewith)

  4.2  Amended Letter Agreement dated October 6, 1992, by and between 
       Communications Central, Inc., U.S. Long Distance Corp. and U.S. Long 
       Distance, Inc. (Exhibit 4.7 to Amendment No. 1 to Registration 
       Statement on Form  S-3, SEC File No. 33-71228, dated November 23, 
       1993) as amended by Letter Agreement dated January 11, 1995 (Exhibit 
       4.7 to September 30, 1995, Form 10-K) and as amended by Letter 
       Agreement dated August 21, 1996 (Filed herewith)

  4.3  Agreement dated March 23, 1993 by and between Paytel Northwest, 
       Inc., U.S. Long Distance Corp. and U.S. Long Distance, Inc., as 
       amended by Agreement dated August 23, 1995 (Exhibit 4.8 to September 
       30, 1995, Form 10-K) and as amended by Addendum No. 3 to 
       Telecommunications Services Agreement dated February 22, 1996 (Filed 
       herewith)

  4.4  Rights Agreement by and between the Company and U.S. Trust  Company of 
       Texas, N.A. dated April 12, 1996 (Exhibit 4.1 to Form 8-K filed April 17,
       1996)

 10.1  Amended and Restated Employment Agreement dated November 1, 1993, by and 
       between the Company and Parris H. Holmes, Jr. (Exhibit 10.2 to 
       September 30, 1993, Form 10-K) as amended by the First Amendment to 
       Amended and Restated Employment Agreement dated January 3, 1995 and 
       Second Amendment to Amended and Restated Employment Agreement, dated 
       November 15, 1995 (Exhibit 10.2 to September 30, 1995, Form  10-K) and 
       Agreement Regarding Vesting and Adjustment of Stock Options, dated 
       June 25, 1996, by and between the Company, Billing Information 
       Concepts Corp. and Parris H. Holmes, Jr. (Filed herewith)
       
 10.2  Amended and Restated Employment Agreement, dated November 1, 1993, by 
       and between the Company and Larry M. James as amended by First 
       Amendment to Amended and Restated Employment Agreement dated January 
       3, 1995 and Second Amendment to Amended and Restated Employment dated 
       November 15, 1995, and Agreement Regarding Vesting and Adjustment of 
       Stock Options, dated June 25, 1996, by and between the Company, 
       Billing Information Concepts Corp. and Larry M. James (Filed herewith)
       
 10.3  Amended and Restated Employment Agreement, dated June 25, 1996, by and 
       between the Company and W. Audie Long and Agreement Regarding Vesting 
       and Adjustment of Stock Options, dated June 25, 1996, by and between 
       the Company, Billing Information Concepts Corp. and W. Audie Long 
       (Filed herewith)

 10.4  Form of Employment Agreement by and between the Company and its Vice 
       Presidents (Exhibit 10.4 to September 30, 1993, Form 10-K)

 10.5  1990 Employee Stock Option Plan, as amended (Filed herewith)

 10.6  Form of Option Agreement by and between the Company and its Employees, 
       Under the Employee Stock Option Plan (Exhibit 10.8 to September 30, 
       1992, Form 10-K)

 10.7  Form of Stock Option Agreement for Directors, Key Employees and Advisors 
       of U.S. Long Distance Corp. (Exhibit 4.14 to Registration Statement on 
       Form S-8, SEC File No. 33-41039, dated June 5, 1991)

                                       44
<PAGE>

 10.8  Form of Stock Option Agreement for Key Employees of U.S. Long Distance 
       Corp. (Exhibit 4.15 to Registration Statement on Form S-8, SEC File 
       No. 33-41039, dated June 5, 1991)

 10.9  Amended and Restated Loan and Security Agreement dated May 22, 1991, 
       by and between Zero Plus Dialing, Inc. (currently Billing Information 
       Concepts, Inc.), U.S. Long Distance Corp. and U.S. Long Distance, Inc. 
       and Bell Atlantic TriCon Leasing Corporation ("Bell Atlantic") 
       (currently FINOVA Capital Corporation) (Exhibit 10.10 to September 30, 
       1991, Form 10-K) and related Revolving Credit Note dated May 24, 1991, 
       Term Note dated June 1992, Corporate Guaranties dated May 24, 1991, 
       and First Amendment and Joinder to Amended and Restated Loan and 
       Security Agreement dated December 17, 1992 (Exhibit 10.9 to September 
       30, 1992, Form 10-K)

 10.10 Second Amendment to Amended and Restated Loan and Security Agreement 
       dated April 2, 1993 by and between Zero Plus Dialing, Inc. (currently 
       Billing Information Concepts, Inc.), U.S. Long Distance Corp., U.S. 
       Long Distance, Inc., U.S. Billing, Inc. and Bell Atlantic (currently 
       FINOVA Capital Corporation) (Exhibit 10.11 to September 30, 1993, Form 
       10-K)

 10.11 Third Amendment to Amended and Restated Loan and Security Agreement 
       dated October 1, 1993 by and between Zero Plus Dialing, Inc. 
       (currently Billing Information Concepts, Inc.), U.S. Long Distance 
       Corp., U.S. Long Distance, Inc., U.S. Billing, Inc. and Bell Atlantic 
       (currently FINOVA Capital Corporation) (Exhibit 10.12 to September 30, 
       1993, Form 10-K)

 10.12 Fourth Amendment to Amended and Restated Loan and Security Agreement 
       dated October 1, 1993 by and between Zero Plus Dialing, Inc. 
       (currently Billing Information Concepts, Inc.), U.S. Long Distance 
       Corp., U.S. Long Distance, Inc., U.S. Billing, Inc. and Bell Atlantic 
       (currently FINOVA Capital Corporation) (Exhibit 10.13 to September 30, 
       1993, Form 10-K)

 10.13 Fifth Amendment to Amended and Restated Loan and Security Agreement 
       dated November 16, 1993 by and between Zero Plus Dialing, Inc. 
       (currently Billing Information Concepts, Inc.), U.S. Long Distance 
       Corp., U.S. Long Distance, Inc., U.S. Billing, Inc., USLD Acquisition 
       Corp. d/b/a Telecom West, Inc., STS Telecommunications, Inc. and Bell 
       Atlantic (currently FINOVA Capital Corporation) (Exhibit 10.14 to 
       September 30, 1993, Form 10-K)

 10.14 Sixth Amendment to Amended and Restated Loan and Security Agreement 
       dated December 7, 1993 by and between Zero Plus Dialing, Inc. 
       (currently Billing Information Concepts, Inc.), U.S. Long Distance 
       Corp., U.S. Long Distance, Inc., U.S. Billing, Inc., USLD Acquisition 
       Corp., STS Telecommunications, Inc. and Bell Atlantic (currently 
       FINOVA Capital Corporation) (Exhibit 10.36 to September 30, 1994, Form 
       10-K)

 10.15 Seventh Amendment to Amended and Restated Loan and Security Agreement 
       dated March 17, 1994 by and between Zero Plus Dialing, Inc. (currently 
       Billing Information Concepts, Inc.), U.S. Long Distance Corp., U.S. 
       Long Distance, Inc., U.S. Billing, Inc., USLD Acquisition Corp., 
       California Acquisition Corp., Telecom Acquisition Corp., STS 
       Telecommunications, Inc., Enhanced Services Billing, Inc. and Bell 
       Atlantic (currently FINOVA Capital Corporation) (Exhibit 10.37 to 
       September 30, 1994, Form 10-K)

 10.16 Letter Agreement dated December 2, 1993 by and between Bell Atlantic 
       (currently FINOVA Capital Corporation) and U.S. Long Distance Corp. 
       (Exhibit 10.15 to September 30, 1993, Form 10-K)

 10.17 Office Lease Agreement dated September 29, 1988, by and between U.S. 
       Long Distance, Inc. and Nowlin Building Partnership, Ltd., as amended 
       (Exhibit 10.10 to September 30, 1992, Form 10-K)

 10.18 Agreement of Lease dated September 1, 1992, by and between U.S. Long 
       Distance, Inc. and Multi-Employer Property Trust (Exhibit 10.13 to 
       September 30, 1992, Form 10-K)

 10.19 Loan and Security Agreement dated July 25, 1991, by and between Buyer 
       Acquisition Corporation (NTX) and Bell Atlantic (currently FINOVA 
       Capital Corporation) (Exhibit 10.13 to September 30, 1991, Form 10-K) 
       and related Revolving Credit Note, Term Note, Subordination Agreement 
       and Corporation Guaranties dated July 25, 1991 (Exhibit 10.14 to 
       September 30, 1992, Form 10-K)

 10.20 Loan and Security Agreement Nos. 2882, 2883, 2884 and 2885 by and 
       between U.S. Long Distance Corp. and Charter Financial, Inc. dated 
       August 29, 1996 (Filed herewith)
                                       45
<PAGE>
 10.21 WCMA and Term WCMA Loan and Security Agreement No. 9608340801 by and 
       between U.S. Long Distance, Inc. and Merrill Lynch Business Financial 
       Services Inc. ("Merrill Lynch"), dated as of August 23, 1996, as 
       amended by letter agreement dated November 5, 1996, and Term WCMA 
       Note, dated August 23, 1996, made by U.S. Long Distance, Inc. and 
       payable to Merrill Lynch (Filed herewith)

 10.22 Operator Services Agreement by and between the Company and
       G-Five Corp., dated September 16, 1993 (Exhibit 10.33 to September
       30, 1993, Form 10-K), as amended by Amendment to Operator Services
       Agreement dated August 31, 1995 (Filed herewith)

 10.23 1993 Non-Employee Director Plan of U.S. Long Distance Corp. (Filed 
       herewith)

 10.24 Form of Director Option Agreement by and between the Company and 
       Non-Employee Directors (Filed herewith)

 10.25 Form of Director Fee Option Agreement by and between the Company and 
       Non-Employee Directors (Filed herewith)

 10.26 U.S. Long Distance Corp. Executive Qualified Disability Plan (Exhibit 
       10.42 to September 30, 1994,  Form    10-K)

 10.27 U.S. Long Distance Corp. Executive Compensation Deferral Plan, 
       Restated Effective December 12, 1995 (Filed herewith)

 10.28 U.S. Long Distance Corp. Director Compensation Deferral Plan, Restated 
       Effective December 19, 1995 (Filed herewith)

 10.29 U.S. Long Distance Corp. Employee Stock Purchase Plan (Exhibit 10.44 
       to September 30, 1995, Form 10-K)

 10.30 U.S. Long Distance Corp. Restricted Stock Plan (Exhibit 10.45 to 
       September 30, 1995, Form 10-K)

 10.31 Merrill Lynch Special Prototype Defined Contribution Plan and Adoption 
       Agreement for Merrill Lynch Special Prototype Defined Contribution 
       Plan  (401(k) Plan) (Filed herewith)

 10.32 Distribution Agreement dated as of July 10, 1996 between the Company 
       and Billing Information Concepts Corp. (Exhibit 10.1 to Form 8-K filed 
       August 2, 1996)

 10.33 Benefit Plans and Employment Matters Allocation Agreement dated as of 
       July 10, 1996 between the Company and Billing Information Concepts 
       Corp. (Exhibit 10.2 to Form 8-K filed August 2, 1996)

 10.34 Tax Sharing Agreement dated as of July 10, 1996 between the Company 
       and Billing Information Concepts Corp. (Exhibit 10.3 to Form 8-K filed 
       August 2, 1996)

 10.35 Transitional Services and Sublease Agreement dated as of July 10, 1996 
       between the Company and Billing Information Concepts Corp. (Exhibit 
       10.4 to Form 8-K filed August 2, 1996)

 10.36 Zero Plus-Zero Minus Billing and Information Management Services 
       Agreement dated as of July 10, 1996 between the Company and Billing 
       Information Concepts Corp. (Exhibit 10.5 to Form 8-K filed August 2, 
       1996)

 10.37 Telecommunications Agreement dated as of July 10, 1996 between the 
       Company and Billing Information Concepts Corp. (Exhibit 10.6 to Form 
       8-K filed August 2, 1996)

 11.1  Statement regarding computation of per share earnings (Filed herewith)

 21.1  Subsidiaries of the Company (Filed herewith)

 23.1  Consent of Arthur Andersen LLP (Filed herewith)

 27.1  Financial Data Schedule (Filed herewith)

     (b)  REPORTS ON FORM 8-K

          The Company filed a Report on Form 8-K on August 2, 1996, relating 
to the Distribution of Billing Information Concepts Corp.

                                       46
<PAGE>
                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, as amended, the Registrant has duly caused this report 
to be signed on its behalf by the undersigned, thereunto duly authorized:

                              U.S. LONG DISTANCE CORP.

                              By: /s/ LARRY M. JAMES
                                  --------------------------------
                                  Larry M. James
                                  PRESIDENT AND 
                                  CHIEF EXECUTIVE OFFICER

Date: December 19, 1996

     Pursuant to the requirements of the Securities Exchange Act of 1934, as 
amended, this report has been signed below by the following persons on behalf 
of the Registrant and in the capacities indicated on the 19th day of 
December, 1996.

        SIGNATURE                                   TITLE
        ---------                                   -----
  /s/  PARRIS H. HOLMES, JR.                Chairman of the Board
-----------------------------
       Parris H. Holmes, Jr.


     /s/  LARRY M. JAMES            President and Chief Executive Officer
-----------------------------           (Principal Executive Officer)
          Larry M. James         


   /s/  PHILLIP J. STORIN     Senior Vice President and Chief Financial Officer
-----------------------------    (Principal Financial and Accounting Officer)
        Phillip J. Storin        


    /s/  CHARLES E. AMATO                         Director
-----------------------------
         Charles E. Amato


     /s/  GARY D. BECKER                          Director
-----------------------------
          Gary D. Becker


                                       47