defa14a.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.            )

Filed by the Registrant x

 

Filed by a Party other than the Registrant ¨

 

Check the appropriate box:

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Preliminary Proxy Statement

¨

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

¨

Definitive Proxy Statement

x

Definitive Additional Materials

¨

Soliciting Material Pursuant to §240.14a-12

 

Telephone and Data Systems, Inc.


(Name of Registrant as Specified In Its Charter)

 

 


(Name of Person(s) Filing Proxy Statement, If other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

¨

Fee computed on table below per Exchange Act Rules 14a 6(i)(1) and 0-11.

 

(1)

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(2)

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(3)

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

(2)

Form, Schedule or Registration Statement No.:

 

(3)

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(4)

Date Filed:

 


 

 

 

EXPLANATORY NOTE

 

The purpose of this Schedule 14A is to file a press release issued by Telephone and Data Systems, Inc. (“TDS”) on November 4, 2011, which included certain disclosures relating to the proposals included in TDS’ proxy statement dated August 31, 2011. 

 

2


 
 

NEWS RELEASE  

 

 

As previously announced, TDS will hold a teleconference Nov. 4, 2011 at 9:00 a.m. CDT. Interested parties may listen to the call live by accessing the Investor Relations page of www.teldta.com  

 

Contact:

Jane W. McCahon, Vice President, Corporate Relations

(312) 592-5379; jane.mccahon@teldta.com 

Julie D. Mathews, Manager, Investor Relations

(312) 592-5341; julie.mathews@teldta.com 

 

FOR RELEASE: IMMEDIATE

 

TDS REPORTS THIRD QUARTER 2011 RESULTS

Revenues increase 5 percent; profitability improves

 

 

Note: Comparisons are year over year unless otherwise noted.

 

3Q 2011 Highlights

 

TDS Consolidated

§        Operating revenues increased 5 percent to $1.3 billion.

§        Operating income increased 50 percent to $126.9 million.

§        Diluted earnings per share attributable to TDS shareholders increased to $0.68 from $0.39.

 

U.S. Cellular

§        Smartphones sold, as a percent of total devices sold, increased to 39.9 percent from 23.6 percent; smartphone customers increased to 26.2 percent of postpaid customers from 12.1 percent.

§        Postpaid ARPU (average revenue per unit) increased to $52.41 from $50.82.

§        Service revenues increased 5 percent to $1,036.6 million.

§        Operating income increased 66 percent to $101.6 million.

§        Net loss of 23,000 retail customers, reflecting loss of 34,000 postpaid customers and gain of 11,000 prepaid customers; postpaid customers comprised 95 percent of retail customers.

§        Cell sites in service increased 4 percent to 7,828.

 

TDS Telecom

§        Operating revenues increased 4 percent to $210.8 million.

§        Operating income increased 2 percent to $25.2 million.

§        ILEC triple play penetration increased to 28.5 percent from 24.6 percent.

§        managedIP stations (ILEC and CLEC) grew to 39,400 from 23,400.

 

 


 
 

CHICAGO – Nov. 4, 2011Telephone and Data Systems, Inc. [NYSE:TDS, TDS.S] reported operating revenues of $1,325.4 million for the third quarter of 2011, an increase of 5 percent from $1,266.4 million in the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $71.3 million and $0.68, respectively, for the third quarter of 2011, compared to $41.4 million and $0.39, respectively, in the comparable period one year ago.

 

“U.S. Cellular and TDS Telecom are focused on competing more effectively for new customers,said LeRoy T. Carlson, Jr., TDS president and CEO,  “while continuing to satisfy and retain their current customers. Both companies are also working to improve operational excellence and efficiency.”

 

“U.S. Cellular increased its margins and profitability, through growth in inbound roaming revenue, and through expense control. Average revenue per customer also grew, as more customers chose smartphones and data plans.
 
TDS Telecom had a solid quarter, increasing operating revenues and operating income. ILEC data revenues continued to increase, due mainly to growth in hosted and managed services revenues and high-speed data customers. TDS Telecom also continued to add managedIP stations in its commercial business.

 

“The TDS Board of Directors is currently considering potential changes to our share consolidation proposal and anticipates completing this review process in the near future. Management and the TDS Board of Directors continue to believe that the share consolidation is in the best interests of all TDS shareowners and will simplify TDS' capital structure, improve market liquidity and provide greater financial flexibility.

 

Guidance for year ending Dec. 31, 2011

Guidance for the year ending Dec. 31, 2011, as of Nov. 4, 2011, is provided below, compared to the previous guidance provided on Aug. 8, 2011.  TDS undertakes no duty to update such information, whether as a result of new information, future events, or otherwise.  There can be no assurance that final results will not differ materially from this guidance. 

 

U.S. Cellular

Current Estimates

Previous Estimates (1)

Service revenues

$4,000-$4,100 million

Unchanged

Operating income (3) (4)

$230-$305 million

$210-$285 million

Depreciation, amortization and accretion expenses, and losses on asset

disposals and exchanges and impairment of assets (3)

Approx. $590 million

Unchanged

Adjusted OIBDA (2) (4)

$820-$895 million

$800-$875 million

Capital expenditures (4)

$750-$800 million

Unchanged

TDS Telecom

Operating revenues

$800-$830 million

Unchanged

Operating income (3)

$85-$115 million

Unchanged

Depreciation, amortization and accretion expenses, and losses on asset disposals and impairment of assets (3)

Approx. $185 million

Unchanged

Adjusted OIBDA (2)

$270-$300 million

Unchanged

Capital expenditures (5)

$175-$200 million

Unchanged

 


(1)    The 2011 Estimated Results as disclosed in the TDS Quarterly Report on Form 10-Q for the period ended June 30, 2011.

(2)    Adjusted OIBDA is defined as Operating income excluding the effects of: Depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals and exchanges (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with Cash flows from operating activities, which is a component of the Consolidated statement of cash flows.

(3)    The 2011 Estimated Results do not include any estimate for losses on impairment of assets since these cannot be predicted.

(4)    This guidance is based on U.S. Cellular’s current operations, which include a multi-year deployment of Long-term Evolution (“LTE”) technology commencing in 2011. As customer demand for data services increases, and competitive conditions in the wireless industry evolve, such as the rate of deployment of LTE technology by other carriers, the timing of U.S. Cellular’s deployment of LTE and the timing of other capital expenditures could change. These factors could affect U.S. Cellular’s estimated capital expenditures and operating expenses in 2011.

(5)    The capital expenditure guidance does not include federal grants of $105.1 million awarded to TDS Telecom through the Broadband Stimulus program under the American Recovery and Reinvestment Act for 44 projects to be completed between 2011 and 2015.

 

 

2


 

 

Stock repurchase summary

The following represents repurchases of TDS Common Shares and TDS Special Common Shares.

 

Repurchase Period # Shares Cost (in millions)
2011 (YTD) 748,246 $ 21.5
2010 (full year) 2,394,476 $ 68.1
2009 (full year) 6,374,741 $ 176.6

2008 (full year)

5,861,822 $ 199.6
Total 15,379,285 $ 465.8

Conference call information

TDS will hold a conference call on Nov. 4, 2011 at 9:00 a.m. CDT.

·         Access the live call on the Investor Relations page of www.teldta.com  or at http://www.videonewswire.com/event.asp?id=82599.

·         Access the call by phone at 877/407-8029 (US/Canada), no pass code required

 

Before the call, certain financial and statistical information to be discussed during the call will be posted to the Investor Relations page of www.teldta.com. The call will be archived on the Conference Calls page of www.teldta.com

 

IMPORTANT INFORMATION: The foregoing information is not a solicitation of a proxy from any TDS shareholder.  This is being done only pursuant to a definitive proxy statement.  Additional information relating to the foregoing is included in TDS’ proxy materials filed with the Securities and Exchange Commission (“SEC”) and distributed to shareholders.  INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ SUCH MATERIALS BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Shareholders and other investors may access such materials without charge at the SEC's web site (www.sec.gov) and on the TDS web site (www.teldta.com) in the Investor Relations section on the SEC filings page. In addition, shareholders may obtain free copies of the proxy materials by contacting TDS’ proxy solicitor, MacKenzie Partners at (800) 322-2885.  TDS and its executive officers and directors may be deemed to be participants in the solicitation of proxies from TDS shareholders on behalf of the TDS board of directors in connection with the foregoing.  Information concerning such participants and their respective direct or indirect interests in TDS by security holdings or otherwise is included in TDS’ definitive proxy statement.

 

About TDS

Telephone and Data Systems, Inc. (TDS), a Fortune 500® company, provides wireless, local and long-distance telephone, and broadband services to approximately 7 million customers in 36 states through its business units, U.S. Cellular (wireless) and TDS Telecom (wireline). Founded in 1969 and headquartered in Chicago, TDS employed 12,300 people as of September 30, 2011.

 

Visit www.teldta.com  for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.

 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company’s plans, beliefs, estimates and expectations. These statements are based on current estimates, projections and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: the ability of the company to successfully grow its markets; the overall economy; competition; the access to and pricing of unbundled network elements; the ability to obtain or maintain roaming arrangements with other carriers; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded TDS and U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; uncertainty of access to the capital markets; pending and future litigation; changes in income tax rates, laws, regulations or rulings; acquisitions/divestitures of properties and/or licenses; and changes in customer growth rates, average monthly revenue per unit, churn rates, roaming revenue and terms, the availability of handset devices, or the mix of products and services offered by U.S. Cellular and TDS Telecom. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K used by TDS to furnish this press release to the SEC, which are incorporated by reference herein.

 

For more information about TDS and its subsidiaries, visit:

TDS: www.teldta.com                                                                          

U.S. Cellular: www.uscellular.com 

TDS Telecom: www.tdstelecom.com     

                                                                                    

 

3

                                 


 

 

 

United States Cellular Corporation

Summary Operating Data (Unaudited)

Quarter Ended

9/30/2011

6/30/2011

3/31/2011

12/31/2010

9/30/2010

Total population

Consolidated markets (1)

91,965,000

91,204,000

91,090,000

90,468,000

90,468,000

Consolidated operating markets (1)

46,888,000

46,888,000

46,774,000

46,546,000

46,546,000

Market penetration at end of period

Consolidated markets (2)

6.5

%

6.5

%

6.6

%

6.7

%

6.7

%

Consolidated operating markets (2)

12.7

%

12.7

%

12.9

%

13.0

%

13.1

%

All customers

Total at end of period

5,932,000

5,968,000

6,033,000

6,072,000

6,103,000

Gross additions

299,000

257,000

293,000

327,000

338,000

Net additions (losses)

(36,000

)

(70,000

)

(39,000

)

(31,000

)

(41,000

)

Smartphones sold as a percent of

total devices sold (3)

39.9

%

39.6

%

42.5

%

39.6

%

23.6

%

Retail customers

Total at end of period

5,621,000

5,644,000

5,698,000

5,729,000

5,750,000

Smartphone penetration (3) (4)

26.2

%

23.0

%

20.2

%

16.6

%

12.1

%

Gross additions

284,000

226,000

256,000

292,000

301,000

Net retail additions (losses) (5)

(23,000

)

(58,000

)

(31,000

)

(21,000

)

(25,000

)

Net postpaid additions (losses)

(34,000

)

(41,000

)

(22,000

)

(10,000

)

(25,000

)

Net prepaid additions (losses)

11,000

(17,000

)

(9,000

)

(11,000

)

Service revenue components (000s)

Retail service

$

871,199

$

868,630

$

864,602

$

864,905

$

865,766

Inbound roaming

107,810

82,760

64,386

67,545

72,901

Other

 

57,600

 

 

50,640

 

 

56,125

 

 

59,464

 

 

44,836

 

Total service revenues (000s)

$

1,036,609

$

1,002,030

$

985,113

$

991,914

$

983,503

Total ARPU (6)

$

58.09

$

55.69

$

54.29

$

54.37

$

53.53

Billed ARPU (7)

$

48.82

$

48.27

$

47.65

$

47.41

$

47.12

Postpaid ARPU (8)

$

52.41

$

51.84

$

51.21

$

50.99

$

50.82

Postpaid churn rate (9)

1.5

%

1.4

%

1.4

%

1.5

%

1.6

%

Capital expenditures (000s)

$

248,000

$

162,100

$

95,900

$

203,400

$

124,700

Cell sites in service

7,828

7,770

7,663

7,645

7,524

 


(1)     Used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (2) below.

(2)     Market Penetration is calculated by dividing the number of wireless customers at the end of the period by the total population of consolidated markets and consolidated operating markets, respectively, as estimated by Claritas.

(3)     Smartphones represent wireless devices which run on a Blackberry®, Windows Mobile, or Android operating system.

(4)     Smartphone penetration is calculated by dividing postpaid customers on smartphone service plans by total postpaid customers.

(5)     Includes net postpaid additions (losses) and net prepaid additions (losses).

(6)     Total ARPU - Average monthly service revenue per customer includes retail service, inbound roaming and other service revenues and is calculated by dividing total service revenues by the number of months in the period and by the average total customers during the period.

(7)     Billed ARPU - Average monthly billed revenue per customer is calculated by dividing total retail service revenues by the number of months in the period and by the average total customers during the period. Retail service revenues include revenues attributable to postpaid, prepaid and reseller customers.

(8)     Postpaid ARPU - Average monthly revenue per postpaid customer is calculated by dividing total retail service revenues from postpaid customers by the number of months in the period and by the average postpaid customers during the period.

(9)     Represents the percentage of the retail postpaid customer base that disconnects service each month. This amount represents the average postpaid churn rate for each respective quarterly period.

   

 

4


 
 

TDS Telecom

Summary Operating Data (Unaudited)

Quarter Ended

9/30/2011

6/30/2011

3/31/2011

12/31/2010

9/30/2010

TDS Telecom

ILEC:

Equivalent access lines (1)

762,500

764,600

765,300

767,200

773,800

Physical access lines (2)

490,200

496,300

501,200

507,700

517,000

High-speed data customers (3)

239,000

235,600

231,800

227,700

225,400

Long-distance customers

373,300

373,200

370,600

370,100

370,800

managedIP stations (4)

5,800

5,100

4,300

3,600

3,100

Capital expenditures (000s)

$

51,500

$

39,100

$

22,100

$

55,700

$

33,000

CLEC:

Equivalent access lines (1)

322,600

328,700

331,000

335,400

338,700

High-speed data customers (3)

30,200

31,500

32,300

33,100

33,900

managedIP stations (4)

33,600

30,200

27,200

23,800

20,300

Capital expenditures (000s)

$

4,700

$

6,200

$

4,200

$

6,200

$

5,500

 


(1)     Sum of physical access lines and high-capacity data lines, adjusted to estimate the equivalent number of physical access lines in terms of capacity, plus the number of managedIP stations.

(2)     Individual circuits connecting customers to a telephone company's central office facilities.

(3)     The number of customers provided high-capacity data circuits via various technologies, including DSL, managedIP and dedicated Internet circuit technologies.

(4)     The number of telephone handsets providing communications using packet networking technology.

 

5


 
 

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Three Months Ended September 30,

(Unaudited, dollars and shares in thousands, except per share amounts)

Increase/ (Decrease)

2011

2010 (1)

Amount

Percent

Operating revenues

U.S. Cellular

$

1,110,439

$

1,060,781

$

49,658

5

%

TDS Telecom

210,806

202,030

8,776

4

%

 

All Other (2)

 

4,178

 

 

 

3,605

 

 

 

573

 

 

 

16

%

 

1,325,423

  

 

1,266,416

  

 

59,007

 

5

%

Operating expenses

U.S. Cellular

 

 

Expenses excluding depreciation, amortization and accretion

876,855

 

 

 

854,250

 

 

22,605

 

 

 

3

%

 

 

Depreciation, amortization and accretion

 

141,664

 

 

 

143,191

 

 

 

(1,527

)

 

 

(1

%)

 

 

(Gain) loss on asset disposals and exchanges, net

 

(9,700

)

 

 

1,981

 

 

 

(11,681

)

 

 

>(100

%)

 

1,008,819

 

 

999,422

 

 

9,397

 

1

%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

139,601

133,412

6,189

5

%

Depreciation, amortization and accretion

45,682

43,645

2,037

5

%

 

 

(Gain) loss on asset disposals, net

 

337

 

 

 

390

  

 

 

(53

)

 

 

(14

%)

 

185,620

 

 

177,447

 

 

8,173

 

5

%

All Other (2)

Expenses excluding depreciation and amortization

1,355

2,243

(888

)

(40

%)

Depreciation and amortization

2,693

2,610

83

3

%

 

 

(Gain) loss on asset disposals, net

 

12

 

 

 

7

 

 

 

5

  

 

 

71

%

 

4,060

 

 

4,860

  

 

(800

)

(16

%)

 

 

 

Total operating expenses

 

1,198,499

 

 

 

1,181,729

 

 

 

16,770

  

 

 

1

%

Operating income (loss)

U.S. Cellular

101,620

61,359

40,261

66

%

TDS Telecom

25,186

24,583

603

2

%

 

All Other (2)

 

118

 

 

 

(1,255

)

 

 

1,373

 

 

 

>(100

%)

 

126,924

 

 

84,687

 

 

42,237

 

50

%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

22,053

24,147

(2,094

)

(9

%)

Interest and dividend income

2,199

2,785

(586

)

(21

%)

Gain on investment

12,730

12,730

N/M

Interest expense

(22,258

)

(28,297

)

6,039

21

%

 

Other, net

 

115

 

 

 

(438

)

 

 

553

 

 

 

>(100

%)

Total investment and other income (expense)

 

14,839

 

 

(1,803

)

 

16,642

 

>(100

%)

Income before income taxes

141,763

82,884

58,879

71

%

 

Income tax expense

 

53,545

 

 

 

29,354

 

 

 

24,191

 

 

 

82

%

Net income

88,218

53,530

34,688

65

%

 

Less: Net income attributable to noncontrolling interests, net of tax

 

(16,924

)

 

 

(12,111

)

 

(4,813

)

(40

%)

Net income attributable to TDS shareholders

71,294

41,419

29,875

72

%

 

Preferred dividend requirement

 

(12

)

 

 

(12

)

 

 

 

 

 

 

Net income available to common shareholders

$

71,282

 

$

41,407

 

$

29,875

 

72

%

Basic weighted average shares outstanding

103,487

104,881

(1,394

)

(1

%)

Basic earnings per share attributable to TDS shareholders

$

0.69

$

0.39

$

0.30

77

%

Diluted weighted average shares outstanding

103,806

105,298

(1,492

)

(1

%)

Diluted earnings per share attributable to TDS shareholders

$

0.68

$

0.39

$

0.29

74

%

 


(1)   Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

(2)   Consists of Suttle Straus printing and distribution operations, corporate operations and intercompany eliminations.

 

N/M – Percentage change not meaningful

 

6


 
 

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Nine Months Ended September 30,

(Unaudited, dollars and shares in thousands, except per share amounts)

Increase/ (Decrease)

2011

2010 (1)

Amount

Percent

Operating revenues

U.S. Cellular

$

3,243,713

$

3,114,531

$

129,182

4

%

TDS Telecom

608,618

596,741

11,877

2

%

 

All Other (2)

 

11,413

 

 

 

9,798

 

 

 

1,615

 

 

 

16

%

 

3,863,744

 

 

3,721,070

 

 

142,674

 

4

%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

2,553,409

2,472,758

80,651

3

%

Depreciation, amortization and accretion

431,581

427,831

3,750

1

%

 

 

(Gain) loss on asset disposals and exchanges, net

 

(5,741

)

 

 

8,407

 

 

 

(14,148

)

 

 

>(100

%)

 

2,979,249

 

 

2,908,996

 

 

70,253

 

2

%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

390,216

390,842

(626

)

Depreciation, amortization and accretion

134,362

130,217

4,145

3

%

 

 

(Gain) loss on asset disposals, net

 

758

 

 

 

667

 

 

 

91

 

 

 

14

%

 

525,336

 

 

521,726

 

 

3,610

 

1

%

All Other (2)

Expenses excluding depreciation and amortization

8,040

6,290

1,750

28

%

Depreciation and amortization

7,954

7,997

(43

)

(1

%)

 

 

(Gain) loss on asset disposals, net

 

13

 

 

 

(51

)

 

 

64

 

 

 

>(100

%)

 

16,007

 

 

14,236

 

 

1,771

 

12

%

 

 

 

Total operating expenses

 

3,520,592

 

 

 

3,444,958

 

 

 

75,634

 

 

 

2

%

Operating income (loss)

U.S. Cellular

264,464

205,535

58,929

29

%

TDS Telecom

83,282

75,015

8,267

11

%

All Other (2)

 

(4,594

)

 

(4,438

)

 

(156

)

(4

%)

 

343,152

 

 

276,112

 

67,040

 

24

%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

64,031

75,047

(11,016

)

(15

%)

Interest and dividend income

6,916

7,900

(984

)

(12

%)

Gain on investment

26,103

26,103

N/M

Interest expense

(94,184

)

(86,520

)

(7,664

)

(9

%)

 

Other, net

 

1,501

 

 

 

(2,557

)

 

 

4,058

 

 

 

>(100

%)

 

 

Total investment and other income (expense)

 

4,367

 

 

 

(6,130

)

 

 

10,497

 

 

 

>(100

%)

Income before income taxes

347,519

269,982

77,537

29

%

 

Income tax expense

 

95,264

 

 

 

99,904

 

 

 

(4,640

)

 

 

(5

%)

Net income

252,255

170,078

82,177

48

%

Less: Net income attributable to noncontrolling interests, net of tax

 

(45,503

)

 

(38,373

)

 

(7,130

)

(19

%)

Net income attributable to TDS shareholders

206,752

131,705

75,047

57

%

Preferred dividend requirement

 

(37

)

 

(37

)

 

— 

 

Net income available to common shareholders

$

206,715

 

$

131,668

 

$

75,047

 

57

%

Basic weighted average shares outstanding

103,672

105,443

(1,771

)

(2

%)

Basic earnings per share attributable to TDS shareholders

$

1.99

$

1.25

$

0.74

59

%

Diluted weighted average shares outstanding

104,094

105,800

(1,706

)

(2

%)

Diluted earnings per share attributable to TDS shareholders

$

1.98

$

1.24

$

0.74

60 

%

 


(1)  Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

(2)     Consists of Suttle Straus printing and distribution operations, corporate operations and intercompany eliminations.

 

N/M – Percentage change not meaningful

 

7


 
 

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

September 30,

December 31,

2011 

2010 (1)

Current assets

Cash and cash equivalents

$

599,545

$

368,134

Short-term investments

249,816

402,882

Accounts receivable from customers and others

536,129

512,946

Inventory

153,077

116,330

Net deferred income tax asset

37,132

37,079

Prepaid expenses

80,742

76,935

Income taxes receivable

60,960

64,985

Other current assets

 

17,922

 

17,384

1,735,323

1,596,675

Assets held for sale

60,829

Investments

Licenses

1,493,796

1,460,126

Goodwill

797,084

728,455

Other intangible assets, net

54,291

30,810

Investments in unconsolidated entities

195,872

197,922

Long-term investments

85,676

102,185

Other investments

 

5,189

 

8,988

2,631,908

2,528,486

Property, plant and equipment, net

U.S. Cellular

2,654,494

2,574,522

TDS Telecom

916,458

909,951

Other

 

56,311

 

33,311

3,627,263

3,517,784

Other assets and deferred charges

 

107,237

 

79,623

Total assets

$

8,162,560

$

7,722,568

 


(1)  Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

 

8


 
 

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

September 30,

December 31,

2011

2010 (1)

Current liabilities

Current portion of long-term debt

$

3,554

$

1,711

Accounts payable

416,288

344,355

Customer deposits and deferred revenues

203,367

171,781

Accrued interest

14,678

4,308

Accrued taxes

45,682

46,110

Accrued compensation

76,481

99,020

 

Other current liabilities

 

108,634

 

 

 

144,938

 

868,684

812,223

Liabilities held for sale

858

Deferred liabilities and credits

Net deferred income tax liability

771,049

589,092

Other deferred liabilities and credits

363,291

354,798

Long-term debt

1,528,350

1,499,862

Noncontrolling interests with redemption features

923

855

Equity

TDS shareholders’ equity

Series A Common, Special Common and Common Shares, par value $.01

1,270

1,270

Capital in excess of par value

2,116,063

2,107,929

Special Common and Common Treasury shares, at cost

(754,302

)

(738,695

)

Accumulated other comprehensive loss

(2,923

)

(3,208

)

Retained earnings

 

2,619,055

 

 

2,450,599

 

Total TDS shareholders’ equity

3,979,163

3,817,895

Preferred shares

830

830

Noncontrolling interests

 

649,412

 

 

647,013

 

Total equity

4,629,405

4,465,738

 

 

Total liabilities and equity

$

8,162,560

 

$

7,722,568

 

 


(1)  Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

 

9


 
 

Balance Sheet Highlights

September 30, 2011

(Unaudited, dollars in thousands)

U.S.

Cellular

TDS

Telecom

TDS Corporate

& Other

Intercompany

Eliminations

TDS

Consolidated

Cash and cash equivalents

$

504,952

$

2,925

$

91,668

$

$

599,545

Affiliated cash investments

458,441

(458,441

)

Short-term investments

110,761

 

53,584

 

85,471

 

 

249,816

 

$

615,713

 

$

514,950

 

$

177,139

 

$

(458,441

)

$

849,361 

 

Licenses, goodwill and other intangible assets

$

1,965,712

$

556,051

$

(176,592

)

$

$

2,345,171

Investment in unconsolidated entities

160,374

3,807

41,577

(9,886

)

195,872

Long-term and other investments

49,256

 

1,229

 

40,380

 

 

90,865

 

$

2,175,342

 

$

561,087

 

$

(94,635

)

$

(9,886

)

$

2,631,908

 

Property, plant and equipment, net

$

2,654,494

 

$

916,458

 

$

56,311

 

$

 

$

3,627,263

 

Long-term debt:

Current portion

$

101

$

209

$

3,244

$

$

3,554

Non-current portion

880,411

 

1,828

 

646,111

 

 

1,528,350

 

Total

$

880,512

 

$

2,037

 

$

649,355

 

$

 

$

1,531,904

 

Preferred shares

$

 

$

 

$

830

 

$

 

$

830

 

 

 

 

10


 
 

Telephone and Data Systems, Inc.

Schedule of Cash and Cash Equivalents and Investments

(Unaudited, dollars in thousands)

 

The following table presents TDS’ cash and cash equivalents and investments at September 30, 2011 and December 31, 2010.

 

September 30,

December 31,

2011 

2010 

Cash and cash equivalents

$

599,545 

$

368,134 

Amounts included in short-term investments (1) (2)

Government-backed securities (3)

196,232 

305,612 

Certificates of deposit

53,584 

97,270 

$

249,816 

$

402,882 

Amounts included in long-term investments (1) (4)

Government-backed securities (3)

$

85,676 

$

102,185 

 


(1)     Designated as held-to-maturity investments and recorded at amortized cost in the Consolidated Balance Sheet.

(2)     Maturities are less than twelve months from the respective balance sheet dates.

(3)     Includes U.S. treasuries and corporate notes that are guaranteed under the FDIC’s Temporary Liquidity Guarantee Program.

(4)     At September 30, 2011, maturities range between 13 and 23 months from the balance sheet date.

 

 

11


 
 

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

Nine Months Ended September 30,

(Unaudited, dollars in thousands)

2011

2010 (1)

Cash flows from operating activities

Net income

$

252,255

$

170,078

Add (deduct) adjustments to reconcile net income to net cash flows from operating activities

Depreciation, amortization and accretion

573,897

566,045

Bad debts expense

49,101

61,087

Stock-based compensation expense

27,792

26,055

Deferred income taxes, net

160,436

56,839

Equity in earnings of unconsolidated entities

(64,031

)

(75,047

)

Distributions from unconsolidated entities

52,385

59,519

(Gain) loss on asset disposals and exchanges, net

(4,970

)

9,023

Gain on investment

(26,103

)

Noncash interest expense

17,973

4,143

Other operating activities

1,630

502

Changes in assets and liabilities from operations

Accounts receivable

(69,690

)

(48,891

)

Inventory

(36,387

)

32,571

Accounts payable

69,929

(49,034

)

Customer deposits and deferred revenues

31,191

2,363

Accrued taxes

2,011

 

(42,843

)

Accrued interest

10,519

9,343

Other assets and liabilities

 

(74,673

)

 

(16,973

)

 

973,265

 

 

764,780

 

Cash flows from investing activities

Additions to property, plant and equipment

(643,396

)

(486,138

)

Cash paid for acquisitions and licenses

(105,184

)

(28,264

)

Cash paid for investments

(101,000

)

(433,750

)

Cash received for investments

268,686

40,765

 

Other investing activities

 

(3,703

)

 

 

1,681

 

 

(584,597

)

 

(905,706

)

Cash flows from financing activities

Repayment of long-term debt

(613,933

)

(2,182

)

Issuance of long-term debt

643,700

TDS Common Shares and Special Common Shares reissued for benefit plans, net of tax

 

 

payments

1,402

1,183

U.S. Cellular Common Shares reissued for benefit plans, net of tax payments

1,755

738

Repurchase of TDS Common and Special Common Shares

(21,500

)

(50,543

)

Repurchase of U.S. Cellular Common Shares

(62,294

)

(40,520

)

Dividends paid

(36,496

)

(35,502

)

Payment of debt issuance costs

(21,650

)

Distributions to noncontrolling interests

(1,676

)

(5,828

)

Other financing activities

 

(35,328

)

 

(7,404

)

 

(146,020

)

 

(140,058)

 

Cash classified as held for sale

(11,237

)

Net increase (decrease) in cash and cash equivalents

231,411

(280,984

)

Cash and cash equivalents

Beginning of period

 

368,134

 

 

670,992

 

 

End of period

$

599,545

 

 

$

390,008

 

 


(1)  Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.

 

12


 
 

TDS Telecom Highlights

Three Months Ended September 30,

(Unaudited, dollars in thousands)

Increase (Decrease)

2011

2010

Amount

Percent

Local Telephone Operations

Operating revenues

Voice

$

42,725

$

45,363

$

(2,638

)

(6

%)

Data

47,905

32,473

15,432

48

%

Network access

67,927

69,032

(1,105

)

(2

%)

 

 

Miscellaneous

 

9,730

 

 

 

10,518

 

 

 

(788

)

 

 

(7

%)

 

168,287

 

 

157,386

 

 

10,901

 

7

%

Operating expenses

Cost of services and products

59,528

51,820

7,708

15

%

Selling, general and administrative expenses

43,388

43,195

193

Depreciation, amortization and accretion

40,085

37,528

2,557

7

%

 

 

Loss on asset disposals, net

 

225

 

 

 

312

 

 

 

(87

)

 

 

(28

%)

 

143,226

 

 

132,855

 

 

10,371

 

8

%

Operating income

$

25,061

 

$

24,531

 

$

530

 

2

%

Competitive Local Exchange Carrier Operations

Revenues

$

45,011

$

47,038

$

(2,027

)

(4

%)

Expenses (excluding Depreciation, amortization and accretion)

39,177

40,791

(1,614

)

(4

%)

Depreciation, amortization and accretion

5,597

6,117

(520

)

(9

%)

 

 

Loss on asset disposals, net

 

112

 

 

 

78

 

 

 

34

 

 

 

44

%

 

44,886

 

 

46,986

 

 

(2,100

)

(4

%)

Operating income

$

125

 

$

52

 

$

73

 

>100

%

Intercompany revenues

$

(2,492

)

$

(2,394

)

$

(98

)

(4

%)

Intercompany expenses

 

(2,492

)

 

(2,394

)

 

(98

)

(4

%)

Total TDS Telecom operating income

$

25,186

 

$

24,583

 

$

603

 

2

%

 

 

 

13


 
 

TDS Telecom Highlights

Nine Months Ended September 30,

(Unaudited, dollars in thousands)

Increase (Decrease)

2011

2010

Amount

Percent

Local Telephone Operations

Operating revenues

Voice

$

128,811

$

135,659

$

(6,848

)

(5

%)

Data

121,055

92,764

28,291

30

%

Network access

200,419

203,925

(3,506

)

(2

%)

Miscellaneous

 

29,824

 

 

29,452

 

 

372

 

1

%

 

480,109

 

 

461,800

 

 

18,309

 

4

%

Operating expenses

Cost of services and products

157,051

147,614

9,437

6

%

Selling, general and administrative expenses

124,178

129,099

(4,921

)

(4

%)

Depreciation, amortization and accretion

117,836

111,433

6,403

6

%

 

 

Loss on asset disposals, net

 

568

 

 

 

344

 

 

 

224

 

 

 

65

%

 

399,633

 

 

388,490

 

 

11,143

 

3

%

 

Operating income

$

80,476

 

 

$

73,310

 

 

$

7,166

 

 

 

10

%

Competitive Local Exchange Carrier Operations

Revenues

$

135,935

$

142,106

$

(6,171

)

(4

%)

Expenses (excluding Depreciation, amortization and accretion)

116,413

121,294

(4,881

)

(4

%)

Depreciation, amortization and accretion

16,526

18,784

(2,258

)

(12

%)

 

 

Loss on asset disposals, net

 

190

 

 

 

323

 

 

 

(133

)

 

 

(41

%)

 

133,129

 

 

140,401

 

 

(7,272

)

(5

%)

Operating income

$

2,806

 

$

1,705

 

$

1,101

65

%

Intercompany revenues

$

(7,426

)

$

(7,165

)

$

(261

)

(4

%)

Intercompany expenses

 

(7,426

)

 

(7,165

)

 

(261

)

(4

%)

Total TDS Telecom operating income

$

83,282

 

$

75,015

 

$

8,267

 

11

%

 

 

 

14


 

Telephone and Data Systems, Inc.
Financial Measures and Reconciliation
(Unaudited, dollars in thousands)

Three Months Ended September 30, 2011   U.S. Cellular   TDS Telecom (1)   All Other (2)   Consolidated
Total
Operating revenues   $ 1,110,439     $ 210,806     $ 4,178     $ 1,325,423  
Deduct:
  U.S. Cellular equipment sales revenue     73,830      
  Service revenues     1,036,609      
 
Operating income (loss)     101,620       25,186       118     126,924  
Add (Deduct):

 

Depreciation, amortization and accretion     141,664       45,682       2,693       190,039  
  Loss on impairment of intangible assets    

     

     

     

 
  (Gain) loss on asset disposals and exchanges     (9,700

)

    337       12       (9,351

)

    Adjusted OIBDA (3)   $ 233,584     $ 71,205     $ 2,823     $ 307,612  
 
    Adjusted OIBDA margin (4)     22.5 %     33.8 %    
 
Three Months Ended September 30, 2010   U.S. Cellular (6)   TDS Telecom (1)   All Other (2)   Consolidated
Total (6)
Operating revenues   $ 1,060,781     $ 202,030     $ 3,605     $ 1,266,416  
Deduct:
  U.S. Cellular equipment sales revenue     77,278    
    Service revenues     983,503    
 
Operating income (loss)     61,359       24,583       (1,255 )     84,687  
Add (Deduct):
  Depreciation, amortization and accretion     143,191       43,645       2,610       189,446  
  Loss on impairment of intangible assets    

     

     

     

 
  (Gain) loss on asset disposals and exchanges     1,981       390       7       2,378  
    Adjusted OIBDA (3)   $ 206,531     $ 68,618     $ 1,362      $ 276,511  
 
    Adjusted OIBDA margin (4)     21.0 %     34.0 %    
 
  TDS Consolidated  
Three Months Ended September 30,   2011   2010 (6)  
Cash flows from operating activities   $ 435,602     $ 262,434    
Deduct:  
  Capital expenditures     304,685       168,188    
    Free cash flow (5)   $ 130,917     $ 94,246    

 

15


 

Telephone and Data Systems, Inc.
Financial Measures and Reconciliation
(Unaudited, dollars in thousands)

Nine Months Ended September 30, 2011   U.S. Cellular   TDS Telecom (1)   All Other (2)   Consolidated
Total
Operating revenues   $ 3,243,713     $ 608,618     $ 11,413     $ 3,863,744  
Deduct:
  U.S. Cellular equipment sales revenue     219,961      
  Service revenues     3,023,752      
 
Operating income (loss)     264,464       83,282       (4,594 )     343,152  
Add (Deduct):

 

Depreciation, amortization and accretion     431,581       134,362       7,954       573,897  
  Loss on impairment of intangible assets    

     

     

     

 
  (Gain) loss on asset disposals and exchanges     (5,741

)

    758       13       (4,970

)

    Adjusted OIBDA (3)   $ 690,304     $ 218,402     $ 3,373     $ 912,079  
 
    Adjusted OIBDA margin (4)     22.8 %     35.9 %    
 
Nine Months Ended September 30, 2010   U.S. Cellular (6)   TDS Telecom (1)   All Other (2)   Consolidated
Total (6)
Operating revenues   $ 3,114,531     $ 596,741     $ 9,798     $ 3,721,070  
Deduct:
  U.S. Cellular equipment sales revenue     193,444    
    Service revenues     2,921,087    
 
Operating income (loss)     205,535       75,015       (4,438 )     276,112  
Add (Deduct):
  Depreciation, amortization and accretion     427,831       130,217       7,997       566,045  
  Loss on impairment of intangible assets    

     

     

     

 
  (Gain) loss on asset disposals and exchanges     8,407       667       (51     9,023  
    Adjusted OIBDA (3)   $ 641,773     $ 205,899     $ 3,508      $ 851,180  
 
    Adjusted OIBDA margin (4)     22.0 %     34.5 %    
 
  TDS Consolidated  
Nine Months Ended September 30,   2011   2010 (6)  
Cash flows from operating activities   $ 973,265     $ 764,780    
Deduct:  
  Capital expenditures     643,396       486,138    
    Free cash flow (5)   $ 329,869     $ 278,642    


(1)   Includes ILEC and CLEC intercompany eliminations.

(2)   Consists of a non-reportable segment (Suttle-Straus), corporate operations and, intercompany eliminations between U.S. Cellular, TDS Telecom and corporate investments. Amounts in this column are presented only to reconcile to consolidated totals and may not otherwise be meaningful.

(3)   Adjusted OIBDA is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance.  Adjusted OIBDA is defined as Operating income excluding the effects of: Depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals and exchanges(if any); and the loss on impairment of assets (if any).  This measure also may be commonly referred to by management as operating cash flow.  This measure should not be confused with Cash flows from operating activities, which is a component of the Consolidated Statement of Cash flows. Adjusted OIBDA excludes the net gain or loss on asset disposals and exchanges and loss on impairment of assets, if any, in order to show operating results on a more comparable basis from period to period. TDS does not intend to imply that any of such amounts that are excluded are non-recurring, infrequent or unusual, and accordingly, they may be incurred in the future. TDS believes this measure provides useful information to investors regarding TDS’ financial condition and results of operations because it highlights certain key cash and non-cash items and their impacts on cash flows from operating activities.

(4)   Adjusted OIBDA margin is defined as adjusted OIBDA divided by service revenues (U.S. Cellular) and operating revenues (TDS Telecom).  Equipment revenues are excluded from the denominator of the U.S. Cellular calculation since equipment is generally sold at a net loss, and such net loss is included in adjusted OIBDA as a cost of earning service revenues for purposes of assessing business results. TDS believes that this calculation method is consistent with the method used by certain investors to assess U.S. Cellular’s business results.  Adjusted OIBDA margin may also be commonly referred to by management as operating cash flow margin.

(5)   Free cash flow is defined as cash flows from operating activities minus capital expenditures. Free cash flow is a non-GAAP financial measure.  TDS believes that free cash flow as reported by TDS may be useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations, after consideration of capital expenditures.

(6)   Amounts have been adjusted. See "Revision of Prior Period Amounts" section for additional details.

 

16


 

 
 

Revision of Prior Period Amounts

 

In preparing its financial statements for the nine months ended September 30, 2011, TDS discovered certain errors related to accounting for asset retirement obligations and asset retirement costs. These errors resulted in the overstatement of Total operating expenses, Property, plant and equipment , net and Other deferred liabilities and credits for the first and second quarter 2011 interim financial statements and in the 2010, 2009 and 2008 annual periods reported in the Company’s December 31, 2010 financial statements. The beginning retained earnings balance presented in the December 31, 2010 annual financial statements was also understated as a result of these errors.  In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99 and SAB 108”), TDS evaluated these errors and determined that they were immaterial to each of the reporting periods affected and, therefore, amendments of previously filed reports were not required. However, if the adjustments to correct the cumulative errors had been recorded in the third quarter 2011, TDS believes the impact would have been significant to the third quarter results and would impacted comparisons to prior periods. As permitted by SAB 108, revisions for these immaterial amounts to previously reported annual and quarterly results are reflected in the financial information herein and will be reflected in future filings containing such financial information. In addition, TDS has recorded adjustments to prior-year amounts to correct other immaterial items.

 

The Consolidated Balance Sheet at December 31, 2010 was revised to reflect the cumulative effect of these errors which resulted in an increase to Retained earnings of $4.0 million. In accordance with SAB 108, the Consolidated Balance Sheet, Consolidated Statement of Operations and the Consolidated Statement of Cash Flows have been revised as follows:

 

Consolidated Balance Sheet -- December 31, 2010

As previously

(Dollars in thousands)

reported (1)

Adjustment

Revised

Income taxes receivable

$

64,386

$

599

$

64,985

Total current assets

1,596,076

599

1,596,675

Property, plant and equipment, net

3,558,334

(40,550

)

3,517,784

Total assets

7,762,519

(39,951

)

7,722,568

Accrued interest

2,718

1,590

4,308

Total current liabilities

810,633

1,590

812,223

Net deferred income tax liability

585,468

3,624

589,092

Other deferred liabilities and credits

404,892

(50,094

)

354,798

Retained earnings

2,446,626

3,973

2,450,599

Total TDS shareholders' equity

3,813,922

3,973

3,817,895

Noncontrolling interests

646,057

956

647,013

Total equity

4,460,809

4,929

4,465,738

Total liabilities and equity

7,762,519

(39,951

)

7,722,568

Consolidated Statement of Operations -- Three Months Ended September 30, 2010

As previously

(Dollars in thousands)

reported (2)

Adjustment

Revised

Depreciation, amortization and accretion

$

190,972

$

(1,526

)

$

189,446

Total operating expenses

1,183,255

(1,526

)

1,181,729

Operating income

83,161

1,526

84,687

Income before income taxes

81,358

1,526

82,884

Income tax expense

28,775

579

29,354

Net income

52,583

947

53,530

Net income attributable to noncontrolling interests, net of tax

(11,958

)

(153

)

(12,111

)

Net income attributable to TDS shareholders

40,625

794

41,419

Net income available to common shareholders

40,613

794

41,407

Basic earnings per share attributable to TDS shareholders

0.39

0.39

Diluted earnings per share attributable to TDS shareholders

0.38

0.01

0.39

Consolidated Statement of Operations -- Nine Months Ended September 30, 2010

As previously

(Dollars in thousands)

reported (2)

Adjustment

Revised

Depreciation, amortization and accretion

$

570,619

$

(4,574

)

$

566,045

Total operating expenses

3,449,532

(4,574

)

3,444,958

Operating income

271,538

4,574

276,112

Income before income taxes

265,408

4,574

269,982

Income tax expense

98,167

1,737

99,904

Net income

167,241

2,837

170,078

Net income attributable to noncontrolling interests, net of tax

(37,915

)

(458

)

(38,373

)

Net income attributable to TDS shareholders

129,326

2,379

131,705

Net income available to common shareholders

129,289

2,379

131,668

Basic earnings per share attributable to TDS shareholders

1.23

0.02

1.25

Diluted earnings per share attributable to TDS shareholders

1.22

0.02

1.24

Consolidated Statement of Cash Flows -- Nine Months Ended September 30, 2010

As previously

(Dollars in thousands)

reported (2)

Adjustment

Revised

Net income

$

167,241

$

2,837

$

170,157

Depreciation, amortization and accretion

570,619

(4,574

)

566,045

Deferred income taxes, net

55,102

1,737

56,839

Cash flows from operating activities

764,780

764,780

 


(1)   In Annual Report on Form 10-K for the year ended December 31, 2010, filed on February 25, 2011.

(2)   In Quarterly Report on Form 10-Q for the period ended September 30, 2010, filed on November 4, 2010.

 

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