TDS Reports Second Quarter 2012 Results

PR Newswire

CHICAGO, Aug. 3, 2012 /PRNewswire/ --

Note: Comparisons are year over year unless otherwise noted.

2Q 2012 Highlights

TDS Consolidated

Operating revenues increased 3 percent to $1,323.2 million.

U.S. Cellular

Smartphones as a percent of total devices sold increased to 51.9 percent from 39.6 percent; smartphone customers increased to 36.8 percent of postpaid customers from 23.1 percent. Postpaid ARPU (average revenue per user) increased 5 percent to $54.42 from $51.84; total ARPU increased 6 percent to $59.05 from $55.69. Service revenues increased 3 percent to $1,029.7 million. Postpaid gross additions increased 9 percent and postpaid churn increased to 1.57 percent, resulting in a net loss of 48,000 postpaid customers. Postpaid customers comprised 94 percent of retail customers. Prepaid gross additions increased 77 percent, driven by the introduction in select Walmart stores of U Prepaid, a new no contract wireless service, and prepaid churn decreased to 6.2 percent, resulting in a net increase of 20,000 prepaid customers. Retail gross additions increased 23 percent; net loss of 28,000 retail customers, compared to a net loss of 58,000 retail customers. Cell sites in service increased 2 percent to 7,932, of which 4,512 are owned towers. 4G LTE network covers 30 percent of customers; expect to reach 58 percent of customers by year end. Investment in the Los Angeles Partnership contributed $19 million to equity in earnings of unconsolidated entities, up from $14 million.

TDS Telecom

Operating revenues increased 5 percent to $208.5 million. ILEC triple play (voice, data and video) penetration increased to 30 percent from 27 percent. managedIP connections (ILEC and CLEC) grew 91 percent to 74,600 from 39,000.

As previously announced, TDS will hold a teleconference Aug. 3, 2012 at 9:30 a.m. CDT. Interested parties may listen to the call live by accessing the Investor Relations page of www.teldta.com.

Telephone and Data Systems, Inc. (NYSE:TDS) reported operating revenues of $1,323.2 million for the second quarter of 2012, an increase of 3 percent from $1,279.6 million in the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $42.3 million and $0.39, respectively, for the second quarter of 2012, compared to $92.0 million and $0.84, respectively, in the comparable period one year ago.

"Both of our primary businesses achieved solid growth in revenues, though higher expenses related mainly to device subsidies, data growth and investment spending caused profitability to decline," said LeRoy T. Carlson, Jr., TDS president and CEO. "U.S. Cellular had a strong increase in gross retail customer additions and grew its net prepaid customer base. Postpaid churn remained elevated, and the company is working to address this. TDS Telecom added ILEC residential broadband and IPTV customers, and commercial managedIP customers, and increased revenues in its hosted and managed services business."

"U.S. Cellular continued to increase average revenue per user through growth in smartphone penetration. To attract more customers, the company expanded the scope of its prepaid distribution through entry into more than 400 Walmart stores, and it is evaluating further opportunities to be where customers most want to shop. U.S. Cellular is offering high-demand devices like the 4G LTE Samsung Galaxy S III on its growing 4G LTE network. To further differentiate itself from competitors and increase consideration, the company launched an innovative marketing campaign, Hello Better, in July that encourages consumers who are frustrated with their providers to switch to U.S. Cellular for a better wireless experience.

"TDS Telecom continued to add high-speed broadband customers and to expand availability of TDS TV. The company added commercial managedIP connections at a rapid pace, increasing 91 percent. Higher revenue from the hosted and managed services business offset decreases in legacy ILEC and CLEC revenue, and we continued to build the HMS business with the acquisition of solutions provider Vital Support Systems in June. Recent reforms to USF and ICC negatively impacted revenue and earnings in the first half of this year. We expect FCC-authorized recovery mechanisms to help offset additional rate changes set to begin in the second half."

Guidance for year ending Dec. 31, 2012

Guidance for the year ending Dec. 31, 2012, as of Aug. 3, 2012, is provided below, compared to the previous guidance provided on May 4, 2012. TDS undertakes no duty to update such information, whether as a result of new information, future events, or otherwise. There can be no assurance that final results will not differ materially from this guidance.

2012 Estimated Results (1)

Previous Estimates (2)

U.S. Cellular

Service revenues

$4,050-$4,150 million

Unchanged

Operating income (3)

$200-$300 million

Unchanged

Depreciation, amortization and accretion expenses,

and net gain or loss on asset disposals and exchanges

and loss on impairment of assets (3)

Approx. $600 million

Unchanged

Adjusted OIBDA (3) (5)

$800-$900 million

Unchanged

Capital expenditures

Approx. $850 million

Unchanged

2012 Estimated Results (4)

Previous Estimates (2)

TDS Telecom Operations

Operating revenues

$850-$880 million

$810-$840 million

Operating income

$50-$70 million

$55-$85 million

Depreciation, amortization and accretion expenses,

and net gain or loss on asset disposals and exchanges

and loss on impairment of assets (3)

Approx. $195 million

Approx. $190 million

Adjusted OIBDA (5)

$245-$265 million

$245-$275 million

Capital expenditures

$170-$190 million

$150-$180 million

(1)

These estimates are based on U.S. Cellular's current plans, which include a multi-year deployment of 4G LTE technology which commenced in 2011. New developments or changing conditions (such as customer net growth, customer demand for data services or possible acquisitions, dispositions or exchanges) could affect U.S. Cellular's plans and, therefore, its 2012 estimated results.

(2)

The 2012 Estimated Results as disclosed in TDS' Quarterly Report on Form 10-Q for the period ended March 31, 2012.

(3)

The 2012 Estimated Results do not include any estimate for unrecognized net gains or losses related to disposals and exchanges of assets or losses on impairment of assets (since such transactions and their effects are uncertain).

(4)

These estimates are based on TDS Telecom's current plans which include a multi-year deployment of IPTV that commenced in 2011. New developments or changing conditions (such as costs to deploy, agreements for content or franchises or possible acquisitions, dispositions or exchanges) could affect TDS Telecom's plans and, therefore, its 2012 estimated results.

(5)

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

Interest expense

Interest expense was down $22 million, primarily due to the write-off of unamortized debt issuance costs in 2011 of $15.4 million, as well as lower interest rates on outstanding debt.

Income taxes

In the quarter, TDS' overall effective tax rate was 39 percent, compared to 9.5 percent. In the second quarter of 2011, income tax expense was reduced by $29.1 million, primarily due to tax benefits from state law changes and other discrete items.

Stock repurchase

TDS did not repurchase any shares during the quarter. TDS determines whether to repurchase shares from time to time based on many considerations, including cash needed for other known or possible requirements, the stock price, market conditions, debt rating considerations, business forecasts, business plans, macroeconomic conditions, share issuances under compensation plans, provisions in governing and legal documents and other legal requirements, and other facts and circumstances. Subject to these considerations, TDS intends to continue to repurchase its shares from time to time when circumstances warrant. To the extent TDS does not complete its existing share authorization by the expiration date in November 2012, it is expected that the TDS board of directors will approve an additional authorization at that time.

Conference call information

TDS will hold a conference call on Aug. 3, 2012 at 9:30 a.m. CDT.

Access the live call on the Investor Relations page of www.teldta.com or at http://www.videonewswire.com/event.asp?id=88721. Access the call by phone at 877/407-8029 (US/Canada), no pass code required.

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

About TDS

Telephone and Data Systems, Inc. (TDS), a Fortune 500 company, provides wireless, local and long-distance telephone, and broadband services to approximately 7 million customers in 36 states through its business units, U.S. Cellular (wireless) and TDS Telecom (wireline). Founded in 1969 and headquartered in Chicago, TDS employed 12,300 people as of June 30, 2012.

Visit www.teldta.comfor 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 manage and 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 on acceptable terms; 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; changes in customer growth rates, average monthly revenue per user, 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 Current Report used by TDS to furnish this press release to the Securities and Exchange Commission ("SEC"), which are incorporated by reference herein.

For more information about TDS and its subsidiaries, visit:TDS: www.teldta.comU.S. Cellular: www.uscellular.comTDS Telecom: www.tdstelecom.com

United States Cellular Corporation

Summary Operating Data (Unaudited)

Quarter Ended

6/30/2012

3/31/2012

12/31/2011

9/30/2011

6/30/2011

Total population

Consolidated markets (1)

92,684,000

92,684,000

91,965,000

91,965,000

91,204,000

Consolidated operating markets (1)

46,966,000

46,966,000

46,888,000

46,888,000

46,888,000

Market penetration at end of period

Consolidated markets (2)

6.3%

6.3%

6.4%

6.5%

6.5%

Consolidated operating markets (2)

12.3%

12.4%

12.6%

12.7%

12.7%

All customers

Total at end of period

5,799,000

5,837,000

5,891,000

5,932,000

5,968,000

Gross additions

290,000

285,000

306,000

299,000

257,000

Net additions (losses)

(38,000)

(49,000)

(41,000)

(36,000)

(70,000)

Smartphones sold as a percent of

total devices sold (3)

51.9%

54.1%

52.5%

39.9%

39.6%

Retail customers

Total at end of period

5,542,000

5,570,000

5,608,000

5,621,000

5,644,000

Smartphone penetration (3) (4)

36.8%

34.4%

30.5%

26.2%

23.1%

Gross additions

277,000

273,000

298,000

284,000

226,000

Net retail additions (losses) (5)

(28,000)

(34,000)

(13,000)

(23,000)

(58,000)

Net postpaid additions (losses)

(48,000)

(38,000)

(20,000)

(34,000)

(41,000)

Net prepaid additions (losses)

20,000

4,000

7,000

11,000

(17,000)

Service revenue components (000s)

Retail service

$

889,219

$

888,527

$

882,091

$

871,199

$

868,630

Inbound roaming

86,363

80,132

93,353

107,810

82,760

Other

54,160

55,161

54,601

57,600

50,640

Total service revenues (000s)

$

1,029,742

$

1,023,820

$

1,030,045

$

1,036,609

$

1,002,030

Total ARPU (6)

$

59.05

$

58.21

$

58.13

$

58.09

$

55.69

Billed ARPU (7)

$

50.99

$

50.52

$

49.78

$

48.82

$

48.28

Postpaid ARPU (8)

$

54.42

$

54.00

$

53.35

$

52.41

$

51.84

Postpaid churn rate (9)

1.6%

1.6%

1.6%

1.5%

1.4%

Capital expenditures (000s)

$

183,200

$

201,300

$

276,400

$

248,000

$

162,100

Cell sites in service

7,932

7,875

7,882

7,828

7,770

(1)

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

(2)

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

(3)

Smartphones represent wireless devices which run on an Android, BlackBerry, or Windows Mobile operating system, excluding tablets.

(4)

Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid customers.

(5)

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

(6)

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

(7)

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

(8)

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

(9)

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

TDS Telecom

Summary Operating Data (Unaudited)

Quarter Ended

6/30/2012

3/31/2012

12/31/2011

9/30/2011

6/30/2011

TDS Telecom

ILEC:

Residential Connections

Physical access lines (1)

360,100

363,500

367,600

373,700

378,500

Broadband connections (2)

222,400

219,500

219,600

220,500

217,600

IPTV customers

5,600

4,900

4,600

4,500

4,300

ILEC Residential Connections

588,100

587,900

591,800

598,700

600,400

Commercial Connections

Physical access lines (1)

111,100

112,600

114,400

116,500

117,800

Broadband connections (2)

18,400

18,200

18,200

17,900

17,600

managedIP connections (3)

13,200

10,800

8,600

6,800

5,800

ILEC Commercial Connections

142,700

141,600

141,200

141,200

141,200

CLEC:

Residential Connections

Physical access lines (1)

27,900

29,600

31,800

33,900

36,700

Broadband connections (2)

9,500

10,100

11,000

11,700

12,800

CLEC Residential Connections

37,400

39,700

42,800

45,600

49,500

Commercial Connections

Physical access lines (1)

145,100

151,100

157,300

163,600

168,100

Broadband connections (2)

12,800

13,700

14,600

15,400

15,900

managedIP connections (3)

61,400

53,700

44,900

38,000

33,200

CLEC Commercial Connections

219,300

218,500

216,800

217,000

217,200

Total ILEC and CLEC customer connections

987,500

987,700

992,600

1,002,500

1,008,300

(1)

Individual circuits connecting customers to TDS Telecom's central office facilities.

(2)

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

(3)

The number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.

TDS Telecom

Capital Expenditures (000s)

Quarter Ended

6/30/2012

3/31/2012

12/31/2011

9/30/2011

6/30/2011

ILEC

$

32,500

$

27,500

$

50,300

$

36,500

$

34,500

CLEC

4,900

5,100

7,200

4,700

6,200

HMS

5,500

3,100

5,900

15,000

4,600

$

42,900

$

35,700

$

63,400

$

56,200

$

45,300

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Three Months Ended June 30,

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

Increase/ (Decrease)

2012

2011

Amount

Percent

Operating revenues

U.S. Cellular

$

1,104,400

$

1,076,182

$

28,218

3%

TDS Telecom

208,519

198,896

9,623

5%

All Other (1)

10,250

4,562

5,688

>100%

1,323,169

1,279,640

43,529

3%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

869,980

822,587

47,393

6%

Depreciation, amortization and accretion

147,555

146,577

978

1%

Loss on asset disposals and exchanges, net

2,702

2,922

(220)

(8%)

1,020,237

972,086

48,151

5%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

148,983

128,846

20,137

16%

Depreciation, amortization and accretion

47,945

43,843

4,102

9%

Loss on asset disposals, net

306

317

(11)

(3%)

197,234

173,006

24,228

14%

All Other (1)

Expenses excluding depreciation and amortization

11,111

4,569

6,542

>100%

Depreciation and amortization

3,009

2,625

384

15%

Loss on impairment of intangible assets

515

515

N/M

(Gain) on asset disposals, net

(13)

(1)

(12)

>100%

14,622

7,193

7,429

>100%

Total operating expenses

1,232,093

1,152,285

79,808

7%

Operating income (loss)

U.S. Cellular

84,163

104,096

(19,933)

(19%)

TDS Telecom

11,285

25,890

(14,605)

(56%)

All Other (1)

(4,372)

(2,631)

(1,741)

(66%)

91,076

127,355

(36,279)

(28%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

25,392

22,590

2,802

12%

Interest and dividend income

2,352

2,093

259

12%

Gain (loss) on investment

(3,728)

13,373

(17,101)

>(100%)

Interest expense

(23,139)

(45,417)

22,278

49%

Other, net

(249)

1,306

(1,555)

>(100%)

Total investment and other income (expense)

628

(6,055)

6,683

>100%

Income before income taxes

91,704

121,300

(29,596)

(24%)

Income tax expense

35,765

11,560

24,205

>100%

Net income

55,939

109,740

(53,801)

(49%)

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

(13,602)

(17,786)

4,184

24%

Net income attributable to TDS shareholders

42,337

91,954

(49,617)

(54%)

Preferred dividend requirement

(12)

(12)

Net income available to common shareholders

$

42,325

$

91,942

$

(49,617)

(54%)

Basic weighted average shares outstanding (2)

108,732

108,423

309

Basic earnings per share attributable to TDS shareholders (2)

$

0.39

$

0.85

$

(0.46)

(54%)

Diluted weighted average shares outstanding (2)

109,022

109,133

(111)

Diluted earnings per share attributable to TDS shareholders (2)

$

0.39

$

0.84

$

(0.45)

(54%)

(1)

Consists of Suttle Straus printing and distribution operations, Airadigm, corporate operations and intercompany eliminations.

(2)

On January13, 2012, TDS shareholders approved a Share Consolidation Amendment to the Restated Certificate of Incorporation of TDS. Average basic and diluted shares outstanding used to calculate earnings per share for the comparative period presented have been retroactively restated to reflect the impact of the increased shares outstanding as a result of the Share Consolidation Amendment.

N/M Percentage change not meaningful

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Six Months Ended June 30,

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

Increase/ (Decrease)

2012

2011

Amount

Percent

Operating revenues

U.S. Cellular

$

2,196,521

$

2,133,274

$

63,247

3%

TDS Telecom

412,594

397,812

14,782

4%

All Other (1)

19,845

7,235

12,610

>100%

2,628,960

2,538,321

90,639

4%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

1,732,424

1,676,554

55,870

3%

Depreciation, amortization and accretion

294,240

289,917

4,323

1%

Loss on asset disposals and exchanges, net

492

3,959

(3,467)

(88%)

2,027,156

1,970,430

56,726

3%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

292,403

250,615

41,788

17%

Depreciation, amortization and accretion

95,388

88,680

6,708

8%

Loss on asset disposals, net

426

421

5

1%

388,217

339,716

48,501

14%

All Other (1)

Expenses excluding depreciation and amortization

22,057

6,685

15,372

>100%

Depreciation and amortization

6,315

5,261

1,054

20%

Loss on impairment of intangible assets

515

515

N/M

(Gain) loss on asset disposals, net

(18)

1

(19)

>(100%)

28,869

11,947

16,922

>100%

Total operating expenses

2,444,242

2,322,093

122,149

5%

Operating income (loss)

U.S. Cellular

169,365

162,844

6,521

4%

TDS Telecom

24,377

58,096

(33,719)

(58%)

All Other (1)

(9,024)

(4,712)

(4,312)

(92%)

184,718

216,228

(31,510)

(15%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

48,781

41,978

6,803

16%

Interest and dividend income

4,535

4,717

(182)

(4%)

Gain (loss) on investment

(3,728)

13,373

(17,101)

>(100%)

Interest expense

(47,603)

(71,926)

24,323

34%

Other, net

(21)

1,386

(1,407)

>(100%)

Total investment and other income (expense)

1,964

(10,472)

12,436

>100%

Income before income taxes

186,682

205,756

(19,074)

(9%)

Income tax expense

63,177

41,719

21,458

51%

Net income

123,505

164,037

(40,532)

(25%)

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

(28,914)

(28,579)

(335)

(1%)

Net income attributable to TDS shareholders

94,591

135,458

(40,867)

(30%)

Preferred dividend requirement

(25)

(25)

Net income available to common shareholders

$

94,566

$

135,433

$

(40,867)

(30%)

Basic weighted average shares outstanding (2)

108,693

108,678

15

Basic earnings per share attributable to TDS shareholders (2)

$

0.87

$

1.25

$

(0.38)

(30%)

Diluted weighted average shares outstanding (2)

108,964

109,385

(421)

Diluted earnings per share attributable to TDS shareholders (2)

$

0.86

$

1.23

$

(0.37)

(30%)

(1)

Consists of Suttle Straus printing and distribution operations, Airadigm, corporate operations and intercompany eliminations.

(2)

On January13, 2012, TDS shareholders approved a Share Consolidation Amendment to the Restated Certificate of Incorporation of TDS. Average basic and diluted shares outstanding used to calculate earnings per share for the comparative period presented have been retroactively restated to reflect the impact of the increased shares outstanding as a result of the Share Consolidation Amendment.

N/M Percentage change not meaningful

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

June 30,

December 31,

2012

2011

Current assets

Cash and cash equivalents

$

613,764

$

563,275

Short-term investments

150,921

246,273

Accounts receivable from customers and others

542,156

542,577

Inventory

189,242

130,044

Net deferred income tax asset

44,598

40,898

Prepaid expenses

86,794

80,628

Income taxes receivable

9,376

85,636

Other current assets

19,224

16,349

1,656,075

1,705,680

Assets held for sale

49,647

Investments

Licenses

1,507,447

1,494,014

Goodwill

816,668

797,077

Other intangible assets, net

65,285

50,734

Investments in unconsolidated entities

213,049

173,710

Long-term investments

55,468

45,138

Other investments

1,017

3,072

2,658,934

2,563,745

Property, plant and equipment, net

U.S. Cellular

2,883,118

2,790,302

TDS Telecom

928,686

936,757

Other

41,483

57,476

3,853,287

3,784,535

Other assets and deferred charges

115,435

97,398

Total assets

$

8,283,731

$

8,201,005

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

June 30,

December 31,

2012

2011

Current liabilities

Current portion of long-term debt

$

1,283

$

1,509

Accounts payable

310,610

364,746

Customer deposits and deferred revenues

231,743

207,633

Accrued interest

5,522

7,456

Accrued taxes

53,698

41,069

Accrued compensation

83,080

107,719

Other current liabilities

105,640

144,001

791,576

874,133

Liabilities held for sale

1,051

Deferred liabilities and credits

Net deferred income tax liability

847,725

808,713

Other deferred liabilities and credits

391,898

383,567

Long-term debt

1,529,836

1,529,857

Noncontrolling interests with redemption features

1,050

1,005

Equity

TDS shareholders' equity

Series A Common and Common Shares, par value $.01 per share (1)

1,326

1,326

Capital in excess of par value (1)

2,280,802

2,268,711

Treasury shares at cost (1)

(742,906)

(750,921)

Accumulated other comprehensive loss

(8,494)

(8,854)

Retained earnings (1)

2,514,327

2,451,899

Total TDS shareholders' equity

4,045,055

3,962,161

Preferred shares

830

830

Noncontrolling interests

675,761

639,688

Total equity

4,721,646

4,602,679

Total liabilities and equity

$

8,283,731

$

8,201,005

(1)

The December 31, 2011 amounts reflect the impact of the Share Consolidation Amendment to the Restated Certificate of Incorporation of TDS, as approved by the TDS shareholders on January 13, 2012.

Balance Sheet Highlights

June 30, 2012

(Unaudited, dollars in thousands)

U.S.

TDS

TDS Corporate

Intercompany

TDS

Cellular

Telecom

& Other

Eliminations

Consolidated

Cash and cash equivalents

$

437,624

$

71,861

$

104,279

$

$

613,764

Affiliated cash investments

396,855

(396,855)

Short-term investments

100,738

50,183

150,921

$

538,362

$

468,716

$

154,462

$

(396,855)

$

764,685

Licenses, goodwill and other intangible assets

$

1,979,109

$

589,225

$

(178,934)

$

$

2,389,400

Investment in unconsolidated entities

175,663

3,805

39,906

(6,325)

213,049

Long-term and other investments

55,550

933

2

56,485

$

2,210,322

$

593,963

$

(139,026)

$

(6,325)

$

2,658,934

Property, plant and equipment, net

$

2,883,118

$

928,686

$

41,483

$

$

3,853,287

Long-term debt:

Current portion

$

127

$

190

$

966

$

$

1,283

Non-current portion

880,623

1,685

647,528

1,529,836

Total

$

880,750

$

1,875

$

648,494

$

$

1,531,119

Preferred shares

$

$

$

830

$

$

830

Telephone and Data Systems, Inc.

Schedule of Cash and Cash Equivalents and Investments

(Unaudited, dollars in thousands)

The following table presents TDS' cash and cash equivalents and investments at June 30, 2012 and December 31, 2011.

June 30,

December 31,

2012

2011

Cash and cash equivalents

$

613,764

$

563,275

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

Government-backed securities (3)

150,921

218,829

Certificates of deposit

27,444

$

150,921

$

246,273

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

Government-backed securities (3)

$

55,468

$

45,138

(1)

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

(2)

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

(3)

Includes U.S. treasuries and corporate notes guaranteed under the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program.

(4)

At June 30, 2012, maturities range between 12 and 21 months.

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

Six Months Ended June 30,

(Unaudited, dollars in thousands)

2012

2011

Cash flows from operating activities

Net income

$

123,505

$

164,037

Add (deduct) adjustments to reconcile net income to net

cash flows from operating activities

Depreciation, amortization and accretion

395,943

383,858

Bad debts expense

33,626

29,906

Stock-based compensation expense

20,955

18,913

Deferred income taxes, net

29,929

79,637

Equity in earnings of unconsolidated entities

(48,781)

(41,978)

Distributions from unconsolidated entities

6,973

47,375

Loss on impairment of intangible assets

515

Loss on asset disposals, net

900

4,381

(Gain) loss on investment

3,728

(13,373)

Noncash interest expense

1,728

17,147

Other operating activities

1,010

1,070

Changes in assets and liabilities from operations

Accounts receivable

(10,197)

(37,819)

Inventory

(58,467)

(48,826)

Accounts payable

(23,336)

24,678

Customer deposits and deferred revenues

22,786

22,600

Accrued taxes

89,433

(459)

Accrued interest

(1,823)

1,355

Other assets and liabilities

(81,517)

(90,291)

506,910

562,211

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(501,211)

(350,856)

Cash paid for acquisitions and licenses

(52,213)

(22,167)

Cash received from divestitures

50,036

Cash paid for investments

(45,000)

(71,000)

Cash received for investments

128,444

213,030

Other investing activities

(8,916)

(816)

(428,860)

(231,809)

Cash flows from financing activities

Repayment of long-term debt

(952)

(613,387)

Issuance of long-term debt

358

643,700

TDS Common Shares and Special Common Shares

reissued for benefit plans, net of tax payments

(39)

1,055

U.S. Cellular Common Shares reissued for benefit

plans, net of tax payments

(2,465)

1,264

Repurchase of TDS Common and Special Common Shares

(21,500)

Repurchase of U.S. Cellular Common Shares

(62,308)

Dividends paid

(26,610)

(24,343)

Payment of debt issuance costs

(21,191)

Distributions to noncontrolling interests

(643)

(1,377)

Other financing activities

2,790

2,077

(27,561)

(96,010)

Cash classified as held for sale

(5,687)

Net increase in cash and cash equivalents

50,489

228,705

Cash and cash equivalents

Beginning of period

563,275

341,683

End of period

$

613,764

$

570,388

TDS Telecom Highlights

Three Months Ended June 30,

(Unaudited, dollars in thousands)

Increase (Decrease)

2012

2011

Amount

Percent

Local Telephone Operations

Operating revenues

Residential

$

70,082

$

69,951

$

131

Commercial

24,201

24,856

(655)

(3%)

Wholesale

49,769

54,574

(4,805)

(9%)

144,052

149,381

(5,329)

(4%)

Operating expenses

Cost of services and products

47,180

47,646

(466)

(1%)

Selling, general and administrative expenses

43,216

40,076

3,140

8%

Depreciation, amortization and accretion

37,834

36,116

1,718

5%

Loss on asset disposals, net

136

245

(109)

(44%)

128,366

124,083

4,283

3%

Operating income

$

15,686

$

25,298

$

(9,612)

(38%)

Competitive Local Exchange Carrier Operations

Operating revenues

Residential

$

4,338

$

5,330

$

(992)

(19%)

Commercial

34,905

35,023

(118)

Wholesale

4,957

5,243

(286)

(5%)

44,200

45,596

(1,396)

(3%)

Operating expenses

Cost of services and products

22,702

23,029

(327)

(1%)

Selling, general and administrative expenses

16,769

16,087

682

4%

Depreciation, amortization and accretion

5,466

5,439

27

Loss on asset disposals, net

72

47

25

53%

45,009

44,602

407

1%

Operating income (loss)

$

(809)

$

994

$

(1,803)

>(100)%

Hosted and Managed Services Operations

Revenues

$

22,876

$

6,625

$

16,251

>100%

Operating expenses

Cost of services and products

15,090

2,193

12,897

>100%

Selling, general and administrative expenses

6,635

2,521

4,114

>100%

Depreciation, amortization and accretion

4,645

2,288

2,357

>100%

Loss on asset disposals, net

98

25

73

>100%

26,468

7,027

19,441

>100%

Operating loss

$

(3,592)

$

(402)

$

(3,190)

>(100)%

Intercompany revenues

$

(2,609)

$

(2,706)

$

97

4%

Intercompany expenses

(2,609)

(2,706)

97

4%

Total TDS Telecom operating income

$

11,285

$

25,890

$

(14,605)

(56%)

TDS Telecom Highlights

Six Months Ended June 30,

(Unaudited, dollars in thousands)

Increase (Decrease)

2012

2011

Amount

Percent

Local Telephone Operations

Operating revenues

Residential

$

139,481

$

139,664

$

(183)

Commercial

48,331

50,227

(1,896)

(4%)

Wholesale

101,305

109,064

(7,759)

(7%)

289,117

298,955

(9,838)

(3%)

Operating expenses

Cost of services and products

96,348

93,048

3,300

4%

Selling, general and administrative expenses

84,730

75,558

9,172

12%

Depreciation, amortization and accretion

75,612

73,316

2,296

3%

Loss on asset disposals, net

202

286

(84)

(29%)

256,892

242,208

14,684

6%

Operating income

$

32,225

$

56,747

$

(24,522)

(43%)

Competitive Local Exchange Carrier Operations

Operating revenues

Residential

$

9,126

$

11,827

$

(2,701)

(23%)

Commercial

69,246

69,040

206

Wholesale

9,872

10,057

(185)

(2%)

88,244

90,924

(2,680)

(3%)

Operating expenses

Cost of services and products

45,266

45,501

(235)

(1%)

Selling, general and administrative expenses

33,029

31,735

1,294

4%

Depreciation, amortization and accretion

10,955

10,929

26

Loss on asset disposals, net

125

78

47

60%

89,375

88,243

1,132

1%

Operating income (loss)

$

(1,131)

$

2,681

$

(3,812)

>(100)%

Hosted and Managed Services Operations

Revenues

$

40,434

$

12,867

$

27,567

>100%

Operating expenses

Cost of services and products

24,864

4,475

20,389

>100%

Selling, general and administrative expenses

13,367

5,232

8,135

>100%

Depreciation, amortization and accretion

8,821

4,435

4,386

99%

Loss on asset disposals, net

99

57

42

74%

47,151

14,199

32,952

>100%

Operating loss

$

(6,717)

$

(1,332)

$

(5,385)

>(100)%

Intercompany revenues

$

(5,201)

$

(4,934)

$

(267)

(5%)

Intercompany expenses

(5,201)

(4,934)

(267)

(5%)

Total TDS Telecom operating income

$

24,377

$

58,096

$

(33,719)

(58%)

Telephone and Data Systems, Inc.

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)

Consolidated

Total

Three Months Ended June 30, 2012

U.S. Cellular

TDS Telecom (1)

All Other (2)

Operating revenues

$

1,104,400

$

208,519

$

10,250

$

1,323,169

Deduct:

U.S. Cellular equipment sales revenue

74,658

Service revenues

1,029,742

Operating income (loss)

84,163

11,285

(4,372)

91,076

Add (Deduct):

Depreciation, amortization and accretion

147,555

47,945

3,009

198,509

Loss on impairment of intangible assets

515

515

(Gain) loss on asset disposals and exchanges

2,702

306

(13)

2,995

Adjusted OIBDA (3)

$

234,420

$

59,536

$

(861)

$

293,095

Adjusted OIBDA margin (4)

22.8%

28.6%

Consolidated

Total

Three Months Ended June 30, 2011

U.S. Cellular

TDS Telecom (1)

All Other (2)

Operating revenues

$

1,076,182

$

198,896

$

4,562

$

1,279,640

Deduct:

U.S. Cellular equipment sales revenue

74,152

Service revenues

1,002,030

Operating income (loss)

104,096

25,890

(2,631)

127,355

Add (Deduct):

Depreciation, amortization and accretion

146,577

43,843

2,625

193,045

Loss on impairment of intangible assets

(Gain) loss on asset disposals and exchanges

2,922

317

(1)

3,238

Adjusted OIBDA (3)

$

253,595

$

70,050

$

(7)

$

323,638

Adjusted OIBDA margin (4)

25.3%

35.2%

TDS Consolidated

Three Months Ended June 30,

2012

2011

Cash flows from operating activities

$

224,665

$

229,169

Deduct:

Cash used for additions to property, plant,

and equipment

258,600

192,959

Free cash flow (5)

$

(33,935)

$

36,210

Telephone and Data Systems, Inc.

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)

Consolidated

Total

Six Months Ended June 30, 2012

U.S. Cellular

TDS Telecom (1)

All Other (2)

Operating revenues

$

2,196,521

$

412,594

$

19,845

$

2,628,960

Deduct:

U.S. Cellular equipment sales revenue

142,959

Service revenues

2,053,562

Operating income (loss)

169,365

24,377

(9,024)

184,718

Add (Deduct):

Depreciation, amortization and accretion

294,240

95,388

6,315

395,943

Loss on impairment of intangible assets

515

515

(Gain) loss on asset disposals and exchanges

492

426

(18)

900

Adjusted OIBDA (3)

$

464,097

$

120,191

$

(2,212)

$

582,076

Adjusted OIBDA margin (4)

22.6%

29.1%

Consolidated

Total

Six Months Ended June 30, 2011

U.S. Cellular

TDS Telecom (1)

All Other (2)

Operating revenues

$

2,133,274

$

397,812

$

7,235

$

2,538,321

Deduct:

U.S. Cellular equipment sales revenue

146,131

Service revenues

1,987,143

Operating income (loss)

162,844

58,096

(4,712)

216,228

Add (Deduct):

Depreciation, amortization and accretion

289,917

88,680

5,261

383,858

Loss on impairment of intangible assets

Loss on asset disposals and exchanges

3,959

421

1

4,381

Adjusted OIBDA (3)

$

456,720

$

147,197

$

550

$

604,467

Adjusted OIBDA margin (4)

23.0%

37.0%

TDS Consolidated

Six Months Ended June 30,

2012

2011

Cash flows from operating activities

$

506,910

$

562,211

Deduct:

Cash used for additions to property, plant

and equipment

501,211

350,856

Free cash flow (5)

$

5,699

$

211,355

(1)

Includes ILEC, CLEC and HMS intercompany eliminations.

(2)

Consists of Suttle-Straus and Airadigm (as of September 23, 2011), which represents TDS' Non-Reportable Segment, corporate operations and intercompany eliminations between U.S. Cellular, TDS Telecom and corporate operations. 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. 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.

(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 net equipment subsidy is effectively a cost for purposes of assessing business results and is already reflected in adjusted OIBDA.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 less Cash used for additions to property, plant and equipment. 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.

SOURCE Telephone and Data Systems, Inc.