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TDS Reports Third Quarter 2010 Results

11/04/2010
On Thursday November 4, 2010, 7:58 am

CHICAGO, Nov. 4, 2010 /PRNewswire-FirstCall/ --

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).

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 of www.teldta.com/.

Telephone and Data Systems, Inc. (NYSE:TDS News) 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 Project(SM), 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 own 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 robust managed IP 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.

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, 2010 at 9:30 a.m. CDT.

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

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/


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.




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.




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, amortization and 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, amortization

and 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 noncontrolling interests, 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 to TDS 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 to TDS 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.




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 noncontrolling interests, 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 TDS shareholders

$

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 TDS shareholders

$

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.




Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)









ASSETS




















September 30,


December 31,




2010


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.




Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights


(Unaudited, dollars in thousands)













LIABILITIES AND STOCKHOLDERS' EQUITY




























September 30,



December 31,






2010



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.




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 and other 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





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,


December 31,




2010


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.




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 (excluding


















Depreciation, amortization and accretion


















expense 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)%



































Total TDS Telecom operating income

$

24,583



$

22,222



$

2,361



11%









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)%



































Total TDS Telecom operating income

$

75,015



$

67,698



$

7,317



11%






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.



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 (Deduct):









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.











Telephone and Data Systems, Inc.

Financial Measures and Reconciliation

(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

(Gain) 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)(7)


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 (Deduct):









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.



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 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, 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. Also, 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





























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



















As previously

reported (1)


Adjustment


Revised

(Dollars in thousands)
















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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