NEWS RELEASE
As previously announced, TDS will hold a teleconference Nov. 4 at 9:30 a.m. CDT. Interested parties may listen to the call live by accessing the Conference Calls page ofwww.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 2010 RESULTS
Note: Comparisons are year over year unless otherwise noted.
3Q 2010 Highlights
TDS Corporate
§ Operating revenues increased to $1.3 billion.
§ Repurchased 705,000 TDS Special Common Shares for $19.5 million.
§ 12 percent increase in diluted earnings per share attributable to TDS shareholders.
U.S. Cellular
§ Service revenues were $983.5 million.
§ 31 percent increase in data revenues to $228.9 million, representing 23 percent of total service revenues compared to 18 percent in 2009.
§ Retail service ARPU (average revenue per unit) increased to $47.12 from $46.97.
§ A net loss of 25,000 retail postpaid customers and no change in prepaid customers.
§ Retail postpaid churn improved to 1.6 percent from 1.7 percent; postpaid customers comprised 94 percent of retail customers.
§ 5 percent increase in cell sites in service to 7,524.
TDS Telecom
§ Operating revenues increased 3 percent to $202 million.
§ 24 percent increase in ILEC high-speed data revenues, representing 21 percent of ILEC revenues.
§ ILEC equivalent access lines remained stable at 773,800, due in part to acquisitions; ILEC physical access lines decreased 4 percent to 517,000.
§ Managed IP stations (ILEC and CLEC) grew to 23,400 from 11,100.
§ Approved for $123.5 million in the second round of Broadband Stimulus projects during the quarter (receiving $92.6 million in federal grants and providing $30.9 million of its own funds over the next several years).
CHICAGO – Nov. 4, 2010 —Telephone and Data Systems, Inc. [NYSE:TDS, TDS.S]reported operating revenues of $1,266.4 million for the third quarter of 2010, an increase of 1 percent from $1,257.7 million in the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $40.6 million and $0.38, respectively, for the third quarter of 2010, compared to $36.8 million and $0.34, respectively, in the comparable period one year ago.
“TDS’ results improved in the third quarter with strong performance at TDS Telecom,” said LeRoy T. Carlson, Jr., TDS president and CEO. “Both U.S. Cellular and TDS Telecom drove strong data growth. Our businesses operate in very competitive markets, and we’re transforming them through innovation and customer focus for long-term success.
“On October 1, U.S. Cellular launched The Belief ProjectSM, a set of industry-first programs and features that eliminate wireless customers’ most common concerns, and actually reward customers for their loyalty. During the third quarter, significant resources throughout the organization were directed to the successful launch of this important project, and we maintained consistent year-over-year financial results in the midst of this effort. U.S. Cellular anticipates that it will improve its performance over time as it builds awareness about The Belief Project’s comprehensive benefits. The company’s award-winning network and strong smartphone lineup, including several popular Android™-powered devices, complement the attractive new Belief Plans and benefits.
“TDS Telecom’s residential broadband and commercial managed service offerings contributed to strong data revenue growth and improved operating results in the quarter. The company’s strategy to increase broadband market penetration was bolstered by federal broadband stimulus approvals from both the first and second rounds totaling $136 million, which includes $31 million of its owns funds for broadband expansion projects in rural areas. TDS Telecom continues to attract and retain residential customers with bundles of voice, data and video services. And, the company is focusing its commercial sales efforts on its robustmanagedIP product suite.
Guidance
Guidance for the year ending Dec. 31, 2010 as of Nov. 4, 2010 is provided below compared to previous guidance provided on Aug. 5, 2010. There can be no assurance that final results will not differ materially from this guidance.
| | Current guidance | Previous guidance |
U.S. Cellular 2010 guidance as of Nov. 4, 2010 is as follows: | | |
| Service revenue | $3,925-$3,975 million | $3,925-$4,000 million |
| Adjusted OIBDA (1) | $800-$850 million | Unchanged |
| Operating income (2) | $200-$250 million | Unchanged |
| Depreciation, amortization and accretion (2) | Approx. $600 million | Unchanged |
| Capital expenditures | Approx. $600 million | Unchanged |
| | | |
| | Current guidance | Previous guidance |
TDS Telecom (ILEC and CLEC) 2010 guidance as of Nov. 4, 2010 is as follows: | |
| Operating revenues | $785 - $800 million | $760-$790 million |
| Adjusted OIBDA (1) | $265-$280 million | $250-$275 million |
| Operating income (2) | $90 - $105 million | $80-$105 million |
| Depreciation, amortization and accretion (2) | Approx. $175 million | Approx. $170 million |
| Capital expenditures (3) | Approx. $155 million | Unchanged |
(1) Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals (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.
(2) The 2010 estimated results include estimated losses on disposals of assets, but do not include an estimate for losses on impairment of assets, since these cannot be predicted.
(3) The capital expenditure guidance does not include federal grants awarded to TDS Telecom through the Broadband Stimulus programs under the American Recovery and Reinvestment Act.
The 2010 benefits and expenses associated with the Belief Project were incorporated into U.S. Cellular’s 2010 financial guidance from the beginning of the year.
The foregoing guidance represents the views of management as of Nov. 4, 2010 and should not be assumed to be accurate as of any other date. TDS undertakes no legal duty to update such information, whether as a result of new information, future events or otherwise.
2
Stock repurchase summary
The following represents repurchases of TDS Common Shares and TDS Special Common Shares.
| Repurchase Period | | # Shares | | Cost (in millions) |
| 2010 (third quarter) | | 705,000 | | $ | 19.5 |
| 2010 (second quarter) | | 568,297 | | $ | 16.3 |
| 2010 (first quarter) | | 510,902 | | $ | 14.8 |
| 2009 (full year) | | 6,374,741 | | $ | 176.6 |
| 2008 (full year) | | 5,861,822 | | $ | 199.6 |
| Total | | 14,020,762 | | $ | 426.8 |
Conference call information
TDS will hold a conference call on Nov. 4, 2010at 9:30 a.m. CDT.
§ Access the live call on the Conference Calls page ofwww.teldta.com or athttp://www.videonewswire.com/event.asp?id=74003.
§ 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 Conference Calls page ofwww.teldta.com. The call will be archived on the Conference Calls page ofwww.teldta.com.
About TDS
Telephone and Data Systems, Inc. (TDS), a Fortune 500® company, provides wireless, local and long-distance telephone, and broadband services to approximately 7.2 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, 2010.
Visitwww.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; theaccess to and pricing of unbundled network elem ents; 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/divestiture s 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 |
|
Quarter Ended | 9/30/2010 | | 6/30/2010 | | 3/31/2010 | | 12/31/2009 | | 9/30/2009 |
Total population |
| Consolidated markets (1) | | 90,468,000 | | | | 90,468,000 | | | | 90,468,000 | | | | 89,712,000 | | | | 85,118,000 | |
| Consolidated operating markets (1) | | 46,546,000 | | | | 46,546,000 | | | | 46,546,000 | | | | 46,306,000 | | | | 46,306,000 | |
Market penetration at end of period |
| Consolidated markets (2) | | 6.7 | % | | | 6.8 | % | | | 6.8 | % | | | 6.8 | % | | | 7.2 | % |
| Consolidated operating markets (2) | | 13.1 | % | | | 13.2 | % | | | 13.2 | % | | | 13.3 | % | | | 13.2 | % |
All customers |
| Total at end of period | | 6,103,000 | | | | 6,144,000 | | | | 6,147,000 | | | | 6,141,000 | | | | 6,131,000 | |
| Gross additions | | 338,000 | | | | 349,000 | | | | 358,000 | | | | 399,000 | | | | 386,000 | |
| Net additions (losses) | | (41,000 | ) | | | (3,000 | ) | | | 6,000 | | | | 10,000 | | | | (24,000 | ) |
Retail customers |
| Total at end of period | | 5,750,000 | | | | 5,775,000 | | | | 5,768,000 | | | | 5,744,000 | | | | 5,705,000 | |
| Gross additions | | 301,000 | | | | 307,000 | | | | 305,000 | | | | 354,000 | | | | 351,000 | |
| Net retail additions (losses) (3) | | (25,000 | ) | | | 7,000 | | | | 24,000 | | | | 39,000 | | | | (6,000 | ) |
| | Net postpaid additions (losses) | | (25,000 | ) | | | (22,000 | ) | | | (9,000 | ) | | | 26,000 | | | | 8,000 | |
| | Net prepaid additions (losses) | | — | | | | 29,000 | | | | 33,000 | | | | 13,000 | | | | (14,000 | ) |
Service revenues components (000s) |
| Voice and other retail service | $ | 636,912 | | | $ | 648,565 | | | $ | 663,759 | | | $ | 677,107 | | | $ | 690,576 | |
| Data service (6) | | 228,854 | | | | 215,271 | | | | 201,280 | | | | 189,759 | | | | 174,286 | |
| Total retail service | $ | 865,766 | | | $ | 863,836 | | | $ | 865,039 | | | $ | 866,866 | | | $ | 864,862 | |
| Inbound roaming | | 72,901 | | | | 60,902 | | | | 51,942 | | | | 61,728 | | | | 68,767 | |
| Other | | 44,836 | | | | 47,838 | | | | 48,027 | | | | 56,814 | | | | 50,289 | |
Total service revenues (000s) | $ | 983,503 | | | $ | 972,576 | | | $ | 965,008 | | | $ | 985,408 | | | $ | 983,918 | |
| |
| Divided by average customers (000s) | | 6,124 | | | | 6,151 | | | | 6,137 | | | | 6,139 | | | | 6,138 | |
| Divided by three months in each quarter | | 3 | | | | 3 | | | | 3 | | | | 3 | | | | 3 | |
| |
Average monthly revenue per unit (4) | $ | 53.53 | | | $ | 52.71 | | | $ | 52.41 | | | $ | 53.51 | | | $ | 53.43 | |
| Voice and other retail service (4) | $ | 34.66 | | | $ | 35.14 | | | $ | 36.05 | | | $ | 36.77 | | | $ | 37.51 | |
| Data service (4) (6) | $ | 12.46 | | | $ | 11.67 | | | $ | 10.93 | | | $ | 10.30 | | | $ | 9.46 | |
| Total retail service (4) | $ | 47.12 | | | $ | 46.81 | | | $ | 46.98 | | | $ | 47.07 | | | $ | 46.97 | |
| |
| Inbound roaming (4) | $ | 3.97 | | | $ | 3.30 | | | $ | 2.82 | | | $ | 3.35 | | | $ | 3.73 | |
| Other (4) | $ | 2.44 | | | $ | 2.60 | | | $ | 2.61 | | | $ | 3.09 | | | $ | 2.73 | |
Postpaid churn rate (5) | | 1.6 | % | | | 1.4 | % | | | 1.4 | % | | | 1.6 | % | | | 1.7 | % |
Capital expenditures (000s) | $ | 124,700 | | | $ | 133,500 | | | $ | 121,500 | | | $ | 189,000 | | | $ | 128,900 | |
Cell sites in service | | 7,524 | | | | 7,416 | | | | 7,310 | | | | 7,279 | | | | 7,161 | |
(1) Used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively, which is calculated by dividing customers by the total market population (without duplication of population in overlapping markets).
(2) 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) Calculated by adding net postpaid additions (losses) and net prepaid additions (losses).
(4) Calculated by dividing the components of service revenues by the average customers and number of months in the quarter.
(5) Calculated by dividing the total postpaid customer disconnects during the quarter by the average postpaid customer base for the quarter.
(6) Effective for the fourth quarter of 2010, revenues from data products and services will no longer be separately disclosed as the determination of such revenues is increasingly dependent on allocations of bundled service prices to multiple bundled elements.
4
TDS Telecom Summary Operating Data |
| | | | | | | | | | | | | | | |
Quarter Ended | 9/30/2010 | | 6/30/2010 | | 3/31/2010 | | 12/31/2009 | | 9/30/2009 |
TDS Telecom | | | | | | | | | | | | | | |
ILEC | | | | | | | | | | | | | | |
| Equivalent access lines (1) | | 773,800 | | | 779,200 | | | 778,700 | | | 775,900 | | | 772,700 |
| Physical access lines (2) | | 517,000 | | | 525,000 | | | 530,400 | | | 536,300 | | | 539,400 |
| High-speed data customers (3) | | 225,400 | | | 223,200 | | | 217,400 | | | 208,300 | | | 202,100 |
| Long-distance customers | | 370,800 | | | 369,100 | | | 365,600 | | | 362,800 | | | 356,500 |
| Managed IP stations (4) | | 3,100 | | | 2,700 | | | 2,300 | | | 1,900 | | | 1,500 |
| Capital expenditures (000s) | $ | 33,000 | | $ | 28,200 | | $ | 20,200 | | $ | 26,900 | | $ | 23,800 |
CLEC | | | | | | | | | | | | | | |
| Equivalent access lines (1) | | 338,700 | | | 343,100 | | | 349,300 | | | 355,900 | | | 364,100 |
| High-speed data customers (3) | | 33,900 | | | 35,000 | | | 36,000 | | | 36,900 | | | 37,600 |
| Managed IP stations (4) | | 20,300 | | | 17,000 | | | 14,300 | | | 12,000 | | | 9,600 |
| Capital expenditures (000s) | $ | 5,500 | | $ | 5,400 | | $ | 3,200 | | $ | 6,800 | | $ | 4,700 |
(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 managed IP 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 digital subscriber line (“DSL”), managed Internet Protocol (“Managed IP”) 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) |
| | | | 2010 | | 2009 (1) | | Amount | | Percent |
Operating revenues | | | | | | | | | | | | | | |
| U.S. Cellular | $ | 1,060,781 | | | $ | 1,057,295 | | | $ | 3,486 | | | — | |
| TDS Telecom | | 202,030 | | | | 196,542 | | | | 5,488 | | | 3 | % |
| All Other (2) | | 3,605 | | | | 3,900 | | | | (295 | ) | | (8 | )% |
| | | | | 1,266,416 | | | | 1,257,737 | | | | 8,679 | | | 1 | % |
Operating expenses | | | | | | | | | | | | | | |
| U.S. Cellular | | | | | | | | | | | | | | |
| | Expenses excluding depreciation, amortizationand accretion | | 854,250 | | | | 849,610 | | | | 4,640 | | | 1 | % |
| | Depreciation, amortization and accretion | | 144,717 | | | | 146,052 | | | | (1,335 | ) | | (1 | )% |
| | Loss on asset disposals, net | | 1,981 | | | | 2,085 | | | | (104 | ) | | (5 | )% |
| | | | | 1,000,948 | | | | 997,747 | | | | 3,201 | | | — | |
| TDS Telecom | | | | | | | | | | | | | | |
| | Expenses excluding depreciation, amortizationand accretion | | 133,412 | | | | 131,439 | | | | 1,973 | | | 2 | % |
| | Depreciation, amortization and accretion | | 43,645 | | | | 41,746 | | | | 1,899 | | | 5 | % |
| | Loss on asset disposals, net | | 390 | | | | 1,135 | | | | (745 | ) | | (66 | )% |
| | | | | 177,447 | | | | 174,320 | | | | 3,127 | | | 2 | % |
| All Other (2) | | | | | | | | | | | | | | |
| | Expenses excluding depreciation and amortization | | 2,243 | | | | 3,185 | | | | (942 | ) | | (30 | )% |
| | Depreciation and amortization | | 2,610 | | | | 2,915 | | | | (305 | ) | | (10 | )% |
| | Loss on asset disposals, net | | 7 | | | | 51 | | | | (44 | ) | | (86 | )% |
| | | | | 4,860 | | | | 6,151 | | | | (1,291 | ) | | (21 | )% |
| | | | | | | | | | | | | | | | | |
| | | Total operating expenses | | 1,183,255 | | | | 1,178,218 | | | | 5,037 | | | — | |
Operating income (loss) | | | | | | | | | | | | | | |
| U.S. Cellular | | 59,833 | | | | 59,548 | | | | 285 | | | — | |
| TDS Telecom | | 24,583 | | | | 22,222 | | | | 2,361 | | | 11 | % |
| All Other (2) | | (1,255 | ) | | | (2,251 | ) | | | 996 | | | 44 | % |
| | | | | 83,161 | | | | 79,519 | | | | 3,642 | | | 5 | % |
Investment and other income (expense) | | | | | | | | | | | | | | |
| Equity in earnings of unconsolidated entities | | 24,147 | | | | 23,334 | | | | 813 | | | 3 | % |
| Interest and dividend income | | 2,785 | | | | 3,461 | | | | (676 | ) | | (20 | )% |
| Interest expense | | (28,297 | ) | | | (30,854 | ) | | | 2,557 | | | 8 | % |
| Other, net | | (438 | ) | | | 1,030 | | | | (1,468 | ) | | >(100 | )% |
| | | Total investment and other income (expense) | | (1,803 | ) | | | (3,029 | ) | | | 1,226 | | | 40 | % |
Income before income taxes | | 81,358 | | | | 76,490 | | | | 4,868 | | | 6 | % |
| Income tax expense | | 28,775 | | | | 28,331 | | | | 444 | | | 2 | % |
| Less: Net income attributable to noncontrollinginterests, net of tax | | (11,958 | ) | | | (11,384 | ) | | | (574 | ) | | (5 | )% |
Net income attributable to TDS shareholders | | 40,625 | | | | 36,775 | | | | 3,850 | | | 10 | % |
| Preferred dividend requirement | | (12 | ) | | | (13 | ) | | | 1 | | | 8 | % |
Net income available to common shareholders | $ | 40,613 | | | $ | 36,762 | | | $ | 3,851 | | | 10 | % |
| | | | | | | | | | | | | | | | | |
Basic weighted average shares outstanding | | 104,881 | | | | 108,289 | | | | (3,408 | ) | | (3 | )% |
Basic earnings per share attributable toTDS shareholders | $ | 0.39 | | | $ | 0.34 | | | $ | 0.05 | | | 15 | % |
| | | | | | | | | | | | | | | | | |
Diluted weighted average shares outstanding | | 105,298 | | | | 108,565 | | | | (3,267 | ) | | (3 | )% |
Diluted earnings per share attributable toTDS shareholders | $ | 0.38 | | | $ | 0.34 | | | $ | 0.04 | | | 12 | % |
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
(2) Consists of a non-reportable segment (Suttle-Straus printing and distribution operations), corporate operations, intercompany eliminations and corporate investments.
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) |
| | 2010 | | 2009 (1) | | Amount | | Percent |
Operating revenues |
| U.S. Cellular | $ | 3,114,531 | | | $ | 3,153,782 | | | $ | (39,251 | ) | | | (1 | )% |
| TDS Telecom | | 596,741 | | | | 591,804 | | | | 4,937 | | | | 1 | % |
| All Other (2) | | 9,798 | | | | 12,447 | | | | (2,649 | ) | | | (21 | )% |
| | | | | 3,721,070 | | | | 3,758,033 | | | | (36,963 | ) | | | (1 | )% |
Operating expenses |
| U.S. Cellular |
| | Expenses excluding depreciation, amortization and accretion | | 2,472,758 | | | | 2,405,679 | | | | 67,079 | | | | 3 | % |
| | Depreciation, amortization and accretion | | 432,405 | | | | 422,707 | | | | 9,698 | | | | 2 | % |
| | Loss on asset disposals, net | | 8,407 | | | | 8,641 | | | | (234 | ) | | | (3 | )% |
| | | | | 2,913,570 | | | | 2,837,027 | | | | 76,543 | | | | 3 | % |
| TDS Telecom |
| | Expenses excluding depreciation, amortization and accretion | | 390,842 | | | | 397,082 | | | | (6,240 | ) | | | (2 | )% |
| | Depreciation, amortization and accretion | | 130,217 | | | | 125,272 | | | | 4,945 | | | | 4 | % |
| | Loss on asset disposals, net | | 667 | | | | 1,752 | | | | (1,085 | ) | | | (62 | )% |
| | | | | 521,726 | | | | 524,106 | | | | (2,380 | ) | | | — | |
| All Other (2) |
| | Expenses excluding depreciation and amortization | | 6,290 | | | | 14,826 | | | | (8,536 | ) | | | (58 | )% |
| | Depreciation and amortization | | 7,997 | | | | 9,239 | | | | (1,242 | ) | | | (13 | )% |
| | Loss on asset disposals, net | | (51 | ) | | | 69 | | | | (120 | ) | | | >(100 | )% |
| | | | | 14,236 | | | | 24,134 | | | | (9,898 | ) | | | (41 | )% |
| | | | | | | | | | | | | | | | | | |
| | | Total operating expenses | | 3,449,532 | | | | 3,385,267 | | | | 64,265 | | | | 2 | % |
Operating income (loss) |
| U.S. Cellular | | 200,961 | | | | 316,755 | | | | (115,794 | ) | | | (37 | )% |
| TDS Telecom | | 75,015 | | | | 67,698 | | | | 7,317 | | | | 11 | % |
| All Other (2) | | (4,438 | ) | | | (11,687 | ) | | | 7,249 | | | | 62 | % |
| | | | | 271,538 | | | | 372,766 | | | | (101,228 | ) | | | (27 | )% |
Investment and other income (expense) |
| Equity in earnings of unconsolidated entities | | 75,047 | | | | 67,034 | | | | 8,013 | | | | 12 | % |
| Interest and dividend income | | 7,900 | | | | 8,435 | | | | (535 | ) | | | (6 | )% |
| Interest expense | | (86,520 | ) | | | (93,898 | ) | | | 7,378 | | | | 8 | % |
| Other, net | | (2,557 | ) | | | 1,504 | | | | (4,061 | ) | | | >(100 | )% |
| | Total investment and other income (expense) | | (6,130 | ) | | | (16,925 | ) | | | 10,795 | | | | 64 | % |
Income before income taxes | | 265,408 | | | | 355,841 | | | | (90,433 | ) | | | (25 | )% |
| Income tax expense | | 98,167 | | | | 125,412 | | | | (27,245 | ) | | | (22 | )% |
Net income | | 167,241 | | | | 230,429 | | | | (63,188 | ) | | | (27 | )% |
|
| Less: Net income attributable to noncontrollinginterests, net of tax | | (37,915 | ) | | | (53,193 | ) | | | 15,278 | | | | 29 | % |
Net income attributable to TDS shareholders | | 129,326 | | | | 177,236 | | | | (47,910 | ) | | | (27 | )% |
| Preferred dividend requirement | | (37 | ) | | | (38 | ) | | | 1 | | | | 3 | % |
Net income available to common shareholders | $ | 129,289 | | | $ | 177,198 | | | $ | (47,909 | ) | | | (27 | )% |
|
Basic weighted average shares outstanding | | 105,443 | | | | 110,408 | | | | (4,965 | ) | | | (4 | )% |
Basic earnings per share attributable to TDSshareholders | $ | 1.23 | | | $ | 1.60 | | | $ | (0.37 | ) | | | (23 | )% |
|
Diluted weighted average shares outstanding | | 105,800 | | | | 110,633 | | | | (4,833 | ) | | | (4 | )% |
Diluted earnings per share attributable to TDSshareholders | $ | 1.22 | | | $ | 1.60 | | | $ | (0.38 | ) | | | (24 | )% |
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
(2) Consists of a non-reportable segment (Suttle-Straus printing and distribution operations), corporate operations, intercompany eliminations and corporate investments.
7
Telephone and Data Systems, Inc. Consolidated Balance Sheet Highlights (Unaudited, dollars in thousands) |
|
| | | | | | |
ASSETS |
| | | | | | |
| | | | | | |
| September 30, 2010 | | December 31, 2009 (1) |
|
Current assets | | | | | |
| Cash and cash equivalents | $ | 390,008 | | $ | 670,992 |
| Short-term investments | | 389,052 | | | 113,275 |
| Accounts receivable from customers and others | | 504,441 | | | 515,443 |
| Inventory | | 124,417 | | | 156,987 |
| Net deferred income tax asset | | 29,948 | | | 29,874 |
| Prepaid expenses | | 93,406 | | | 94,336 |
| Prepaid taxes | | 50,865 | | | 3,718 |
| Other current assets | | 60,802 | | | 63,046 |
| | | 1,642,939 | | | 1,647,671 |
| | | | | | |
Investments | | | | | |
| Licenses | | 1,453,526 | | | 1,443,025 |
| Goodwill | | 718,635 | | | 707,840 |
| Other intangible assets | | 25,924 | | | 26,589 |
| Investments in unconsolidated entities | | 214,114 | | | 203,799 |
| Long-term investments | | 121,441 | | | — |
| Other investments | | 9,123 | | | 9,785 |
| | | 2,542,763 | | | 2,391,038 |
| | | | | | |
Property, plant and equipment, net | | | | | |
| U.S. Cellular | | 2,553,873 | | | 2,601,338 |
| TDS Telecom | | 859,733 | | | 880,378 |
| Other | | 31,553 | | | 26,129 |
| | | 3,445,159 | | | 3,507,845 |
| | | | | | |
Other assets and deferred charges | | 62,970 | | | 65,759 |
| | | | | | |
Total assets | $ | 7,693,831 | | $ | 7,612,313 |
(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 STOCKHOLDERS’ EQUITY |
| | | | | | | | | | |
| | | | | | | | | | |
| September 30,
2010 | | December 31,
2009 (1) |
|
| | | | | | | | | | |
Current liabilities | | | | | | | |
| Current portion of long-term debt | $ | 1,804 | | | $ | 2,509 | |
| Accounts payable | | 299,039 | | | | 347,348 | |
| Customer deposits and deferred revenues | | 167,659 | | | | 164,451 | |
| Accrued interest | | 21,387 | | | | 12,227 | |
| Accrued taxes | | 81,563 | | | | 62,568 | |
| Accrued compensation | | 87,932 | | | | 93,524 | |
| Other current liabilities | | 98,554 | | | | 117,081 | |
| | | | | 757,938 | | | | 799,708 | |
| | | | | | | | | | |
Deferred liabilities and credits | | | | | | | |
| Net deferred income tax liability | | 566,268 | | | | 517,762 | |
| Other deferred liabilities and credits | | 390,941 | | | | 373,862 | |
| | | | | | | | | | |
Long-term debt | | 1,492,022 | | | | 1,492,908 | |
| | | | | | | | | | |
Noncontrolling interests with redemption features | | 791 | | | | 727 | |
| | | | | | | | | | |
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 | | 2,101,882 | | | | 2,088,807 | |
| | Special Common and Common Treasury shares, at cost | | (724,533 | ) | | | (681,649 | ) |
| | Accumulated other comprehensive loss | | (3,395 | ) | | | (2,710 | ) |
| | Retained earnings | | 2,449,060 | | | | 2,358,580 | |
| | | Total TDS shareholders' equity | | 3,824,284 | | | | 3,764,298 | |
| | | | | | | | | | |
| Preferred shares | | 830 | | | | 832 | |
| Noncontrolling interests | | 660,757 | | | | 662,216 | |
| | | | | | | | | | |
| | Total equity | | 4,485,871 | | | | 4,427,346 | |
| | | | | | | | | | |
Total liabilities and equity | $ | 7,693,831 | | | $ | 7,612,313 | |
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
9
Telephone and Data Systems, Inc. Balance Sheet Highlights September 30, 2010 (Unaudited, dollars in thousands) |
|
|
| |
| | U.S. Cellular | | TDS Telecom | | TDS Corporate & Other | | Intercompany Eliminations | | TDS Consolidated |
Cash and cash equivalents | $ | 269,292 | | $ | 32,095 | | $ | 88,621 | | | $ | — | | | $ | 390,008 |
Affiliated cash investments | | — | | | 363,321 | | | — | | | | (363,321 | ) | | | — |
Short-term investments | | 120,771 | | | 97,510 | | | 170,771 | | | | — | | | | 389,052 |
Notes receivable—affiliates | | — | | | — | | | 9,814 | | | | (9,814 | ) | | | — |
| | $ | 390,063 | | $ | 492,926 | | $ | 269,206 | | | $ | (373,135 | ) | | $ | 779,060 |
| | | | | | | | | | | | | | | | | |
Licenses, goodwill andother intangibles | $ | 1,941,107 | | $ | 449,214 | | $ | (192,236 | ) | | $ | — | | | $ | 2,198,085 |
Investment in unconsolidated entities | | 177,075 | | | 3,807 | | | 40,764 | | | | (7,532 | ) | | | 214,114 |
Long-term and other investments | | 50,263 | | | 1,640 | | | 78,661 | | | | — | | | | 130,564 |
| | $ | 2,168,445 | | $ | 454,661 | | $ | (72,811 | ) | | $ | (7,532 | ) | | $ | 2,542,763 |
| | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | $ | 2,553,873 | | $ | 859,733 | | $ | 31,553 | | | $ | — | | | $ | 3,445,159 |
| | | | | | | | | | | | | | | | | |
Notes payable—affiliates | $ | — | | $ | 9,814 | | $ | 363,321 | | | $ | (373,135 | ) | | $ | — |
| | | | | | | | | | | | | | | | | |
Long-term debt | | | | | | | | | | | | | | | | |
| Current portion | $ | 91 | | $ | 391 | | $ | 1,322 | | | $ | — | | | $ | 1,804 |
| Non-current portion | | 867,790 | | | 1,981 | | | 622,251 | | | | — | | | | 1,492,022 |
| | $ | 867,881 | | $ | 2,372 | | $ | 623,573 | | | $ | — | | | $ | 1,493,826 |
| | | | | | | | | | | | | | | | | |
Preferred shares | $ | — | | $ | — | | $ | 830 | | | $ | — | | | $ | 830 |
10
Telephone and Data Systems, Inc.
Schedule of Cash and Cash Equivalents and Investments
(Unaudited, dollars in thousands)
In an effort to improve investment returns, during the second quarter of 2010, TDS elected to use a portion of its cash balance to directly purchase U.S. treasury securities and securities insured by the Federal Deposit Insurance Corporation (“FDIC”). The maturity dates of such direct investments were staggered in order to maintain cash balances and liquidity at targeted levels. TDS also continues to invest in certificates of deposit that are insured by the FDIC. The following table presents TDS’ cash and cash equivalents; and investments in government-backed securities and certificates of deposit at September 30, 2010 and December 31, 2009.
| September 30, 2010 | | December 31, 2009 |
|
| | | | | | | |
| Cash and cash equivalents | $ | 390,008 | | $ | 670,992 |
| Amounts included in short-term investments (1) (2) | | | | | |
| | Government-backed securities (3) | | 291,292 | | | — |
| | Certificates of deposit (4) | | 97,760 | | | 113,275 |
| | | $ | 389,052 | | $ | 113,275 |
| | | | | | | |
| Amounts included in long-term investments (1) (5) | | | | | |
| | Government-backed securities (3) | $ | 121,441 | | $ | — |
(1) Designated as held-to-maturity investments and are recorded at amortized cost on 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) TDS’ investments in certificates of deposits are insured by the FDIC.
(5) TDS’ long-term investments have maturity dates between November 2011 and December 2012.
11
TDS Telecom Highlights
Three Months Ended September 30,
(Unaudited, dollars in thousands) |
|
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Increase (Decrease) |
| | | | 2010 | | 2009 | | Amount | | Percent |
Local Telephone Operations | | | | | | | | | | | | | | |
| Operating revenues | | | | | | | | | | | | | | |
| | Voice | $ | 45,363 | | | $ | 46,462 | | | $ | (1,099 | ) | | (2 | )% |
| | Data | | 32,473 | | | | 26,166 | | | | 6,307 | | | 24 | % |
| | Network access | | 69,032 | | | | 66,963 | | | | 2,069 | | | 3 | % |
| | Miscellaneous | | 10,518 | | | | 10,068 | | | | 450 | | | 4 | % |
| | | | | 157,386 | | | | 149,659 | | | | 7,727 | | | 5 | % |
| Operating expenses | | | | | | | | | | | | | | |
| | Cost of services and products (excludingDepreciation, amortization and accretionexpense reported below) | | 51,820 | | | | 50,352 | | | | 1,468 | | | 3 | % |
| | Selling, general and administrative expenses | | 43,195 | | | | 41,397 | | | | 1,798 | | | 4 | % |
| | Depreciation, amortization and accretion | | 37,528 | | | | 35,652 | | | | 1,876 | | | 5 | % |
| | Loss on asset disposals, net | | 312 | | | | 1,072 | | | | (760 | ) | | (71 | )% |
| | | | | 132,855 | | | | 128,473 | | | | 4,382 | | | 3 | % |
| | | | | | | | | | | | | | | | | |
| Operating income | $ | 24,531 | | | $ | 21,186 | | | $ | 3,345 | | | 16 | % |
| | | | | | | | | | | | | | | | | |
Competitive Local Exchange Carrier Operations | | | | | | | | | | | | | | |
| | Revenues | $ | 47,038 | | | $ | 49,153 | | | $ | (2,115 | ) | | (4 | )% |
| | | | | | | | | | | | | | | | | |
| | Expenses (excluding Depreciation, amortization and accretion expense reported below) | | 40,791 | | | | 41,960 | | | | (1,169 | ) | | (3 | )% |
| | Depreciation, amortization and accretion | | 6,117 | | | | 6,094 | | | | 23 | | | — | |
| | Loss on asset disposals, net | | 78 | | | | 63 | | | | 15 | | | 24 | % |
| | | | | 46,986 | | | | 48,117 | | | | (1,131 | ) | | (2 | )% |
| | | | | | | | | | | | | | | | | |
| Operating income | $ | 52 | | | $ | 1,036 | | | $ | (984 | ) | | (95 | )% |
| | | | | | | | | | | | | | | | | |
Intercompany revenues | $ | (2,394 | ) | | $ | (2,270 | ) | | $ | (124 | ) | | (5 | )% |
Intercompany expenses | | (2,394 | ) | | | (2,270 | ) | | | (124 | ) | | (5 | )% |
| | | 1 | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | |
Total TDS Telecom operating income | $ | 24,583 | | | $ | 22,222 | | | $ | 2,361 | | | 11 | % |
12
TDS Telecom Highlights
Nine Months Ended September 30,
(Unaudited, dollars in thousands) |
|
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Increase (Decrease) |
| | | | 2010 | | 2009 | | Amount | | Percent |
Local Telephone Operations | | | | | | | | | | | | | | |
| Operating revenues | | | | | | | | | | | | | | |
| | Voice | $ | 135,659 | | | $ | 141,919 | | | $ | (6,260 | ) | | (4 | )% |
| | Data | | 92,764 | | | | 76,717 | | | | 16,047 | | | 21 | % |
| | Network access | | 203,925 | | | | 201,912 | | | | 2,013 | | | 1 | % |
| | Miscellaneous | | 29,452 | | | | 27,506 | | | | 1,946 | | | 7 | % |
| | | | | 461,800 | | | | 448,054 | | | | 13,746 | | | 3 | % |
| Operating expenses | | | | | | | | | | | | | | |
| | Cost of services and products (excluding Depreciation, amortization and accretion expense reported below) | | 147,614 | | | | 146,442 | | | | 1,172 | | | 1 | % |
| | Selling, general and administrative expenses | | 129,099 | | | | 127,509 | | | | 1,590 | | | 1 | % |
| | Depreciation, amortization and accretion | | 111,433 | | | | 107,040 | | | | 4,393 | | | 4 | % |
| | Loss on asset disposals, net | | 344 | | | | 1,493 | | | | (1,149 | ) | | (77 | )% |
| | | | | 388,490 | | | | 382,484 | | | | 6,006 | | | 2 | % |
| | | | | | | | | | | | | | | | | |
| Operating income | $ | 73,310 | | | $ | 65,570 | | | $ | 7,740 | | | 12 | % |
| | | | | | | | | | | | | | | | | |
Competitive Local Exchange Carrier Operations | | | | | | | | | | | | | | |
| | Revenues | $ | 142,106 | | | $ | 150,435 | | | $ | (8,329 | ) | | (6 | )% |
| | | | | | | | | | | | | | | | | |
| | Expenses (excluding Depreciation, amortization and accretion expense reported below) | | 121,294 | | | | 129,816 | | | | (8,522 | ) | | (7 | )% |
| | Depreciation, amortization and accretion | | 18,784 | | | | 18,232 | | | | 552 | | | 3 | % |
| | Loss on asset disposals, net | | 323 | | | | 259 | | | | 64 | | | 25 | % |
| | | | | 140,401 | | | | 148,307 | | | | (7,906 | ) | | (5 | )% |
| | | | | | | | | | | | | | | | | |
| Operating income | $ | 1,705 | | | $ | 2,128 | | | $ | (423 | ) | | (20 | )% |
| | | | | | | | | | | | | | | | | |
Intercompany revenues | $ | (7,165 | ) | | $ | (6,685 | ) | | $ | (480 | ) | | (7 | )% |
Intercompany expenses | | (7,165 | ) | | | (6,685 | ) | | | (480 | ) | | (7 | )% |
| | | 1 | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | |
Total TDS Telecom operating income | $ | 75,015 | | | $ | 67,698 | | | $ | 7,317 | | | 11 | % |
13
Telephone and Data Systems, Inc. |
| | | | | | | | | | |
Consolidated Statement of Cash Flows (Unaudited) |
|
| | | | | | | | | | |
| Nine Months Ended September 30, |
|
| | | | 2010 | | 2009 (1) |
| | | | | | | | | | |
| | | | (Dollars in thousands) | |
Cash flows from operating activities | | | | | | | |
| Net income | $ | 167,241 | | | $ | 230,429 | |
| Add (deduct) adjustments to reconcile net income to net cash flows from operating activities | | | | | | | |
| | | Depreciation, amortization and accretion | | 570,619 | | | | 557,218 | |
| | | Bad debts expense | | 61,087 | | | | 78,941 | |
| | | Stock-based compensation expense | | 26,055 | | | | 24,523 | |
| | | Deferred income taxes, net | | 55,102 | | | | 29,157 | |
| | | Equity in earnings of unconsolidated entities | | (75,047 | ) | | | (67,034 | ) |
| | | Distributions from unconsolidated entities | | 59,519 | | | | 51,668 | |
| | | Loss on asset disposals, net | | 9,023 | | | | 10,462 | |
| | | Other operating activities | | 4,645 | | | | 2,114 | |
| | Changes in assets and liabilities from operations | | | | | | | |
| | | Accounts receivable | | (48,891 | ) | | | (107,254 | ) |
| | | Inventory | | 32,571 | | | | (3,595 | ) |
| | | Accounts payable | | (49,034 | ) | | | (29,401 | ) |
| | | Customer deposits and deferred revenues | | 2,363 | | | | (4,936 | ) |
| | | Accrued taxes | | (42,843 | ) | | | 88,098 | |
| | | Accrued interest | | 9,343 | | | | 9,893 | |
| | | Other assets and liabilities | | (16,973 | ) | | | (70,332 | ) |
| | | | | 764,780 | | | | 799,951 | |
| | | | | | | | | | |
Cash flows from investing activities | | | | | | | |
| Additions to property, plant and equipment | | (486,138 | ) | | | (450,594 | ) |
| Cash paid for acquisitions and licenses | | (28,264 | ) | | | (15,242 | ) |
| Cash paid for investments | | (433,750 | ) | | | (109,055 | ) |
| Cash received for investments | | 40,765 | | | | — | |
| Other investing activities | | 1,681 | | | | 3,335 | |
| | | | | (905,706 | ) | | | (571,556 | ) |
| | | | | | | | | | |
Cash flows from financing activities | | | | | | | |
| Repayment of long-term debt | | (2,182 | ) | | | (2,507 | ) |
| TDS Common Shares and Special Common Shares reissued for benefit plans, net of tax payments | | 1,183 | | | | 1,296 | |
| U.S. Cellular Common Shares reissued for benefit plans, net of tax payments | | 738 | | | | (119 | ) |
| Repurchase of TDS Special Common Shares | | (50,543 | ) | | | (152,918 | ) |
| Repurchase of U.S. Cellular Common Shares | | (40,520 | ) | | | (24,283 | ) |
| Dividends paid | | (35,502 | ) | | | (35,389 | ) |
| Payment of debt issuance costs | | — | | | | (10,074 | ) |
| Distributions to noncontrolling interests | | (5,828 | ) | | | (4,962 | ) |
| Other financing activities | | (7,404 | ) | | | 1,411 | |
| | | | | (140,058 | ) | | | (227,545 | ) |
| | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | (280,984 | ) | | | 850 | |
| | | | | | | | | | |
Cash and cash equivalents | | | | | | | |
| Beginning of period | | 670,992 | | | | 777,309 | |
| End of period | $ | 390,008 | | | $ | 778,159 | |
(1) Amounts have been adjusted. See “Revision of Prior Period Amounts” section for additional details.
14
Telephone and Data Systems, Inc. Financial Measures and Reconciliations (Unaudited, dollars in thousands) |
Three Months Ended September 30, 2010 | | U.S. Cellular | | TDS Telecom (1) | | All Other (2) | | Consolidated Total |
|
| | 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 | | $ | 59,833 | | | $ | 24,583 | | | $ | (1,255 | ) | | $ | 83,161 |
| | Add: | | | | | | | | | | | | | | | |
| | | Depreciation, amortization and accretion | | | 144,717 | | | | 43,645 | | | | 2,610 | | | | 190,972 |
| | | Loss on asset disposals | | | 1,981 | | | | 390 | | | | 7 | | | | 2,378 |
| | | | Adjusted OIBDA (3)(6) | | $ | 206,531 | | | $ | 68,618 | | | $ | 1,362 | | | $ | 276,511 |
| | | | | | | | | | | | | | | | | | | |
| | | | Adjusted OIBDA margin (4) | | | 21.0 | % | | | 34.0 | % | | | | | | | |
| |
Three Months Ended September 30, 2009 | | U.S. Cellular (7) | | TDS Telecom (1) | | All Other (2) | | Consolidated Total (7) |
|
| | Operating revenues | | $ | 1,057,295 | | | $ | 196,542 | | | $ | 3,900 | | | $ | 1,257,737 |
| | Deduct: | | | | | | | | | | | | | | | |
| | | U.S. Cellular equipment sales revenue | | | 73,377 | | | | | | | | | | | | |
| | | | Service revenues | | $ | 983,918 | | | | | | | | | | | | |
| |
| | Operating income | | $ | 59,548 | | | $ | 22,222 | | | $ | (2,251 | ) | | $ | 79,519 |
| | Add: | | | | | | | | | | | | | | | |
| | | Depreciation, amortization and accretion | | | 146,052 | | | | 41,746 | | | | 2,915 | | | | 190,713 |
| | | Loss on asset disposals | | | 2,085 | | | | 1,135 | | | | 51 | | | | 3,271 |
| | | | Adjusted OIBDA (3)(6) | | $ | 207,685 | | | $ | 65,103 | | | $ | 715 | | | $ | 273,503 |
| | | | | | | | | | | | | | | | | | | |
| | | | Adjusted OIBDA margin (4) | | | 21.1 | % | | | 33.1 | % | | | | | | | |
| |
| |
| | TDS Consolidated | |
| Three Months Ended September 30, | | 2010 | | 2009 | |
| | |
| | Cash flows from operating activities | | $ | 262,434 | | | $ | 355,990 | | |
| | Deduct: | | | | | | | | | |
| | | Capital expenditures | | | 168,188 | | | | 159,773 | | |
| | | | Free cash flow (5) | | $ | 94,246 | | | $ | 196,217 | | |
| | |
| See footnotes defined on next page. |
15
Telephone and Data Systems, Inc. Financial Measures and Reconciliations (Unaudited, dollars in thousands) |
Nine Months Ended September 30, 2010 | | U.S. Cellular | | TDS Telecom (1) | | All Other (2) | | Consolidated Total |
|
| | 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 | | $ | 200,961 | | | $ | 75,015 | | | $ | (4,438 | ) | | $ | 271,538 |
| | Add: | | | | | | | | | | | | | | | |
| | | Depreciation, amortization and accretion | | | 432,405 | | | | 130,217 | | | | 7,997 | | | | 570,619 |
| | | Loss on asset disposals | | | 8,407 | | | | 667 | | | | (51 | ) | | | 9,023 |
| | | | Adjusted OIBDA (3)(6) | | $ | 641,773 | | | $ | 205,899 | | | $ | 3,508 | | | $ | 851,180 |
| | | | | | | | | | | | | | | | | | | |
| | | | Adjusted OIBDA margin (4) | | | 22.0 | % | | | 34.5 | % | | | | | | | |
| |
Nine Months Ended September 30, 2009 | | U.S. Cellular (7) | | TDS Telecom (1) | | All Other (2) | | Consolidated Total (7) |
|
| | Operating revenues | | $ | 3,153,782 | | | $ | 591,804 | | | $ | 12,447 | | | $ | 3,758,033 |
| | Deduct: | | | | | | | | | | | | | | | |
| | | U.S. Cellular equipment sales revenue | | | 212,062 | | | | | | | | | | | | |
| | | | Service revenues | | $ | 2,941,720 | | | | | | | | | | | | |
| |
| | Operating income | | $ | 316,755 | | | $ | 67,698 | | | $ | (11,687 | ) | | $ | 372,766 |
| | Add: | | | | | | | | | | | | | | | |
| | | Depreciation, amortization and accretion | | | 422,707 | | | | 125,272 | | | | 9,239 | | | | 557,218 |
| | | Loss on asset disposals | | | 8,641 | | | | 1,752 | | | | 69 | | | | 10,462 |
| | | | Adjusted OIBDA (3)(6) | | $ | 748,103 | | | $ | 194,722 | | | $ | (2,379 | ) | | $ | 940,446 |
| | | | | | | | | | | | | | | | | | | |
| | | | Adjusted OIBDA margin (4) | | | 25.4 | % | | | 32.9 | % | | | | | | | |
| |
| |
| | TDS Consolidated | |
| Nine Months Ended September 30, | | 2010 | | 2009 | |
| | |
| | Cash flows from operating activities | | $ | 764,780 | | | $ | 799,951 | | |
| | Deduct: | | | | | | | | | |
| | | Capital expenditures | | | 486,138 | | | | 450,594 | | |
| | | | Free cash flow (5) | | $ | 278,642 | | | $ | 349,357 | | |
(1) Includes ILEC and CLEC intercompany eliminations.
(2) Consists of a non-reportable segment (Suttle-Straus), corporate operations, 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 (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.
(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 negative margin, and the equipment subsidy is effectively a cost 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 is 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) Adjusted OIBDA excludes the net gain or loss on asset disposals 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.
(7) 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 three months ended March 31, 2010, TDS discovered certain errors related to accounting for operating revenues and sales tax liabilities. The quantification of these errors was subsequently refined during the second quarter of 2010. These errors resulted in the overstatement of operating revenues and understatement of sales tax liabilities for the years ended December 31, 2009, 2008, 2007, and the three months ended March 31, 2010. In addition to recording these adjustments, TDS recorded other adjustments to prior-year amounts to correct other immaterial items. In accordance withSEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99 and SAB 108”), TDS evaluated these errors and determined that they wer e immaterial to each of the reporting periods affected and, therefore, amendment of previously filed reports was not required. However, if the adjustments to correct the cumulative errors had been recorded in the first or second quarter of 2010, TDS believes the impact would have been significant to those respective periods and would impact comparisons to prior periods. As permitted by SAB 108, TDS revised in the current filing its comparative consolidated financial statements for these immaterial amounts. In addition, on August 5, 2010, TDS filed a Current Report on Form 8-K (Items 8.01 and 9.01) with the SEC to revise financial statements and other financial information previously included in its Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the period ended March 31, 2010. Such Form 8-K contains revisions to the December 31, 2009 Consolidated Balance Sheet, originally filed on February 25, 2010 in TDS’ Annual Report on Form 10-K. Als o, in accordance with SAB 108, the Consolidated Balance Sheet, the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows for the following comparative periods have been revised as follows:
| Consolidated Balance Sheet— September 30, 2009 |
| |
| | (Dollars in thousands) | As previously
reported (1) | | Adjustment | | Revised |
| |
| | Accounts receivable from customers and others | $ | 384,213 | | | $ | 3,817 | | | $ | 388,030 | |
| | Prepaid expenses | | 95,677 | | | | 8,413 | | | | 104,090 | |
| | Total current assets | | 1,778,024 | | | | 12,230 | | | | 1,790,254 | |
| | Total assets | | 7,733,175 | | | | 12,230 | | | | 7,745,405 | |
| | Customer deposits and deferred revenues | | 170,493 | | | | (2,241 | ) | | | 168,252 | |
| | Accrued taxes | | 66,661 | | | | 23,193 | | | | 89,854 | |
| | Total current liabilities | | 773,824 | | | | 20,952 | | | | 794,776 | |
| | Other deferred liabilities and credits | | 384,032 | | | | 1,314 | | | | 385,346 | |
| | Total deferred liabilities and credits | | 883,034 | | | | 1,314 | | | | 884,348 | |
| | Retained earnings | | 2,370,595 | | | | (8,218 | ) | | | 2,362,377 | |
| | Total TDS shareholders’ equity | | 3,774,363 | | | | (8,218 | ) | | | 3,766,145 | |
| | Noncontrolling interests | | 679,422 | | | | (1,818 | ) | | | 677,604 | |
| | Total equity | | 4,454,630 | | | | (10,036 | ) | | | 4,444,594 | |
| | Total liabilities and equity | | 7,733,175 | | | | 12,230 | | | | 7,745,405 | |
| |
| |
| Consolidated Statement of Operations— Three Months Ended September 30, 2009 |
| |
| | (Dollars in thousands, except per share amounts) | As previously
reported (1) | | Adjustment | | Revised |
| |
| | Operating revenues | $ | 1,258,742 | | | $ | (1,005 | ) | | $ | 1,257,737 | |
| | Cost of services and products (Excluding Depreciation, amortization and accretion) | | 477,116 | | | | 153 | | | | 477,269 | |
| | Selling, general and administrative expenses | | 507,159 | | | | (194 | ) | | | 506,965 | |
| | Depreciation, amortization and accretion | | 192,247 | | | | (1,534 | ) | | | 190,713 | |
| | Loss on asset disposals, net | | 4,557 | | | | (1,286 | ) | | | 3,271 | |
| | Total operating expenses | | 1,181,079 | | | | (2,861 | ) | | | 1,178,218 | |
| | Operating income | | 77,663 | | | | 1,856 | | | | 79,519 | |
| | Interest expense | | (30,430 | ) | | | (424 | ) | | | (30,854 | ) |
| | Total investment and other income (expense) | | (2,605 | ) | | | (424 | ) | | | (3,029 | ) |
| | Income before income taxes | | 75,058 | | | | 1,432 | | | | 76,490 | |
| | Income tax expense | | 27,793 | | | | 538 | | | | 28,331 | |
| | Net income | | 47,265 | | | | 894 | | | | 48,159 | |
| | Net income attributable to noncontrolling interests, net of tax | | (11,620 | ) | | | 236 | | | | (11,384 | ) |
| | Net income attributable to TDS shareholders | | 35,645 | | | | 1,130 | | | | 36,775 | |
| | Net income available to common shareholders | | 35,632 | | | | 1,130 | | | | 36,762 | |
| | Basic earnings per share attributable to TDS shareholders | | 0.33 | | | | 0.01 | | | | 0.34 | |
| | Diluted earnings per share attributable to TDS shareholders | | 0.33 | | | | 0.01 | | | | 0.34 | |
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| Consolidated Statement of Operations— Nine Months Ended September 30, 2009 |
| |
| | (Dollars in thousands, except per share amounts) | As previously
reported (1) | | Adjustment | | Revised |
| |
| | Operating revenues | $ | 3,757,865 | | | $ | 168 | | | $ | 3,758,033 | |
| | Cost of services and products (Excluding Depreciation, amortization and accretion) | | 1,375,642 | | | | 41 | | | | 1,375,683 | |
| | Selling, general and administrative expenses | | 1,445,920 | | | | (4,016 | ) | | | 1,441,904 | |
| | Depreciation, amortization and accretion | | 558,362 | | | | (1,144 | ) | | | 557,218 | |
| | Loss on asset disposals, net | | 9,469 | | | | 993 | | | | 10,462 | |
| | Total operating expenses | | 3,389,393 | | | | (4,126 | ) | | | 3,385,267 | |
| | Operating income | | 368,472 | | | | 4,294 | | | | 372,766 | |
| | Interest expense | | (92,780 | ) | | | (1,118 | ) | | | (93,898 | ) |
| | Total investment and other income (expense) | | (15,807 | ) | | | (1,118 | ) | | | (16,925 | ) |
| | Income before income taxes | | 352,665 | | | | 3,176 | | | | 355,841 | |
| | Income tax expense | | 121,467 | | | | 3,945 | | | | 125,412 | |
| | Net income | | 231,198 | | | | (769 | ) | | | 230,429 | |
| | Net income attributable to noncontrolling interests, net of tax | | (53,814 | ) | | | 621 | | | | (53,193 | ) |
| | Net income attributable to TDS shareholders | | 177,384 | | | | (148 | ) | | | 177,236 | |
| | Net income available to common shareholders | | 177,346 | | | | (148 | ) | | | 177,198 | |
| | Basic earnings per share attributable to TDS shareholders | | 1.61 | | | | (0.01 | ) | | | 1.60 | |
| | Diluted earnings per share attributable to TDS shareholders | | 1.60 | | | | — | | | | 1.60 | |
|
| Consolidated Statement of Cash Flows— Nine Months Ended September 30, 2009 |
| |
| | (Dollars in thousands) | As previously
reported (1) | | Adjustment | | Revised |
| |
| | Net income | $ | 231,198 | | | $ | (769 | ) | | $ | 230,429 | |
| | Depreciation, amortization and accretion | | 558,362 | | | | (1,144 | ) | | | 557,218 | |
| | Deferred income taxes, net | | 25,935 | | | | 3,222 | | | | 29,157 | |
| | Loss on asset disposals, net | | 9,469 | | | | 993 | | | | 10,462 | |
| | Change in accounts receivable | | (102,137 | ) | | | (5,117 | ) | | | (107,254 | ) |
| | Change in customer deposits and deferred revenues | | (3,609 | ) | | | (1,327 | ) | | | (4,936 | ) |
| | Change in accrued taxes | | 82,267 | | | | 5,831 | | | | 88,098 | |
| | Change in other assets and liabilities | | (68,643 | ) | | | (1,689 | ) | | | (70,332 | ) |
| | Cash flows from operating activities | | 799,951 | | | | — | | | | 799,951 | |
(1) In Quarterly Report on Form 10-Q for the period ended September 30, 2009 filed on November 5, 2009.
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