TDS Reports First Quarter 2012 Results

Reaffirms 2012 guidance

May 04, 2012, 08:01 ET from Telephone and Data Systems, Inc.

CHICAGO, May 4, 2012 /PRNewswire/ --

Note: Comparisons are year over year unless otherwise noted.

1Q 2012 Highlights

TDS Consolidated

  • Operating revenues increased 4 percent to $1,305.8 million.
  • Operating income increased 5 percent to $93.6 million.

U.S. Cellular

  • Smartphones as a percent of total devices sold increased to 54.1 percent from 42.5 percent; smartphone customers increased to 34.4 percent of postpaid customers from 20.3 percent.
  • Postpaid ARPU (average revenue per customer) increased 5 percent to $54.00 from $51.21.
  • Service revenues increased 4 percent to $1,023.8 million.
  • Operating income increased 45 percent to $85.2 million.
  • Retail gross additions increased 7 percent to 273,000 from 256,000.
  • Postpaid churn increased to 1.6 percent from 1.4 percent.
  • Net loss of 34,000 retail customers, reflecting loss of 38,000 postpaid customers and gain of 4,000 prepaid customers; postpaid customers comprised 94 percent of retail customers.
  • Cell sites in service increased 3 percent to 7,875.

TDS Telecom

  • Operating revenues increased 3 percent to $204.1 million.
  • ILEC triple play penetration increased to 30 percent from 26 percent.
  • managedIP connections (ILEC and CLEC) grew 88 percent to 64,500 from 34,400.

As previously announced, TDS will hold a teleconference May 4, 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 $1,305.8 million for the first quarter of 2012, an increase of 4 percent from $1,258.7 million in the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $52.3 million and $0.48, respectively, for the first quarter of 2012, compared to $43.5 million and $0.39, respectively, in the comparable period one year ago.

"Improved profitability at U.S. Cellular helped TDS' performance in the quarter," said LeRoy T. Carlson, Jr., TDS president and CEO. "U.S. Cellular increased retail gross customer additions and revenues, while effectively managing costs. TDS Telecom continued to increase residential broadband speeds and grow the customer base for its managedIP commercial services."

"U.S. Cellular continues to increase average revenue per customer through growth in smartphone penetration and data use, as well as inbound roaming revenues. To effectively manage equipment and network costs, the company has maintained a balanced mix of devices, and recently introduced a set of tiered data plans. U.S. Cellular plans to reach 50 percent of customers with 4G LTE access by year end.

"TDS Telecom is focused on attracting and retaining customers by offering competitive broadband speeds and complementary services. The company launched TDS TV, its proprietary IPTV service, in one more market in the quarter. TDS Telecom also increased the number of managedIP connections by 88 percent, as more business customers understood the productivity benefits of IP-based communication. To help the hosted and managed services business grow strategically over the next several years, the company is investing to build its management team and develop its portfolio of products and services.  Operating income at TDS Telecom decreased due primarily to $5.2 million of discrete gains in the first quarter of 2011, as well as a decline in high margin wholesale revenues."

Guidance for year ending Dec. 31, 2012

Guidance for the year ending Dec. 31, 2012, as of May 4, 2012, is unchanged from the previous guidance provided on Feb. 24, 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)

U.S. Cellular

Service revenues

$4,050-$4,150 million

Operating income

$200-$300 million

Depreciation, amortization and accretion expenses, 

  and net gain or loss on asset disposals and exchanges

  and loss on impairment of assets (2)

Approx. $600 million

Adjusted OIBDA (2) (4)

$800-$900 million

Capital expenditures

Approx. $850 million

2012 Estimated Results (3)

TDS Telecom Operations

Operating revenues

$810-$840 million

Operating income

$55-$85 million

Depreciation, amortization and accretion expenses,

  and net gain or loss on asset disposals and exchanges

  and loss on impairment of assets (2)

Approx. $190 million

Adjusted OIBDA (4)

$245-$275 million

Capital expenditures

$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 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).

(3)

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) could affect TDS Telecom's plans and, therefore, its 2012 estimated results.

(4)

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.

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 May 4, 2012 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 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 March 31, 2012.

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 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; 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 customer, 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.com U.S. Cellular: www.uscellular.com TDS Telecom: www.tdstelecom.com

 

 United States Cellular Corporation

 Summary Operating Data (Unaudited)

 Quarter Ended

3/31/2012

12/31/2011

9/30/2011

6/30/2011

3/31/2011

 Total population

Consolidated markets (1)

92,684,000

91,965,000

91,965,000

91,204,000

91,090,000

Consolidated operating markets (1)

46,966,000

46,888,000

46,888,000

46,888,000

46,774,000

 Market penetration at end of period

Consolidated markets (2)

6.3%

6.4%

6.5%

6.5%

6.6%

Consolidated operating markets (2)

12.4%

12.6%

12.7%

12.7%

12.9%

 All customers

Total at end of period

5,837,000

5,891,000

5,932,000

5,968,000

6,033,000

Gross additions

285,000

306,000

299,000

257,000

293,000

Net additions (losses)

(49,000)

(41,000)

(36,000)

(70,000)

(39,000)

Smartphones sold as a percent of

      total devices sold (3)

54.1%

52.5%

39.9%

39.6%

42.5%

 Retail customers

Total at end of period

5,570,000

5,608,000

5,621,000

5,644,000

5,698,000

Smartphone penetration (3) (4)

34.4%

30.5%

26.2%

23.1%

20.3%

Gross additions

273,000

298,000

284,000

226,000

256,000

Net retail additions (losses) (5)

(34,000)

(13,000)

(23,000)

(58,000)

(31,000)

      Net postpaid additions (losses)

(38,000)

(20,000)

(34,000)

(41,000)

(22,000)

      Net prepaid additions (losses)

4,000

7,000

11,000

(17,000)

(9,000)

 Service revenue components (000s)

Retail service

$

888,527

$

882,091

$

871,199

$

868,630

$

864,602

Inbound roaming

80,132

93,353

107,810

82,760

64,386

Other

55,161

54,601

57,600

50,640

56,125

 Total service revenues (000s)

$

1,023,820

$

1,030,045

$

1,036,609

$

1,002,030

$

985,113

 Total ARPU (6)

58.21

$

58.13

$

58.09

$

55.69

$

54.29

 Billed ARPU (7)

50.52

$

49.78

$

48.82

$

48.27

$

47.65

 Postpaid ARPU (8)

$

54.00

$

53.35

$

52.41

$

51.84

$

51.21

 Postpaid churn rate (9)

1.6%

1.6%

1.5%

1.4%

1.4%

 Capital expenditures (000s)

$

201,300

$

276,400

$

248,000

$

162,100

$

95,900

 Cell sites in service

7,875

7,882

7,828

7,770

7,663

(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 customer includes retail service, inbound roaming and other service revenues and is calculated by dividing total service revenues by the number of months in the period and by the average total customers during the period.

(7)

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

(8)

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

(9)

Represents the percentage of the 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

3/31/2012

12/31/2011

9/30/2011

6/30/2011

3/31/2011

TDS Telecom

ILEC:

Residential Connections

Physical access lines (1)

363,500

367,600

373,700

378,500

382,400

Broadband connections (2)

219,500

219,600

220,500

217,600

214,100

IPTV customers

4,900

4,600

4,500

4,300

4,000

   ILEC Residential Connections

587,900

591,800

598,700

600,400

600,500

Commercial Connections

Physical access lines (1)

112,600

114,400

116,500

117,800

118,800

Broadband connections (2)

18,200

18,200

17,900

17,600

17,300

managedIP connections (3)

10,800

8,600

6,800

5,800

4,700

   ILEC Commercial Connections

141,600

141,200

141,200

141,200

140,800

CLEC:

Residential Connections

Physical access lines (1)

29,600

31,800

33,900

36,700

39,300

Broadband connections (2)

10,100

11,000

11,700

12,800

13,700

   CLEC Residential Connections

39,700

42,800

45,600

49,500

53,000

Commercial Connections

Physical access lines (1)

151,100

157,300

163,600

168,100

171,000

Broadband connections (2)

13,700

14,600

15,400

15,900

16,200

managedIP connections (3)

53,700

44,900

38,000

33,200

29,700

   CLEC Commercial Connections

218,500

216,800

217,000

217,200

216,900

Total ILEC and CLEC customer connections

987,700

992,600

1,002,500

1,008,300

1,011,200

(1)

Individual circuits connecting customers to a telephone company'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

3/31/2012

12/31/2011

9/30/2011

6/30/2011

3/31/2011

ILEC

$

27,500

$

50,300

$

36,500

$

34,500

$

20,500

CLEC

5,100

7,200

4,700

6,200

4,200

HMS

3,100

5,900

15,000

4,600

1,600

$

35,700

$

63,400

$

56,200

$

45,300

$

26,300

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Three Months Ended March 31,

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

 Increase/ (Decrease)

2012

2011

Amount

Percent

Operating revenues

U.S. Cellular

$

1,092,121

$

1,057,092

$

35,029

3%

TDS Telecom

204,075

198,916

5,159

3%

All Other (1)

9,595

2,673

6,922

>100%

1,305,791

1,258,681

47,110

4%

Operating expenses

U.S. Cellular

Expenses excluding depreciation,

amortization and accretion

862,444

853,967

8,477

1%

Depreciation, amortization and accretion

146,685

143,340

3,345

2%

(Gain) loss on asset disposals and exchanges, net

(2,210)

1,037

(3,247)

>(100%)

1,006,919

998,344

8,575

1%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

143,420

121,769

21,651

18%

Depreciation, amortization and accretion

47,443

44,837

2,606

6%

(Gain) loss on asset disposals, net

120

104

16

15%

190,983

166,710

24,273

15%

All Other (1)

Expenses excluding depreciation and amortization

10,946

2,116

8,830

>100%

Depreciation and amortization

3,306

2,636

670

25%

(Gain) loss on asset disposals, net

(5)

2

(7)

>(100%)

14,247

4,754

9,493

>100%

Total operating expenses

1,212,149

1,169,808

42,341

4%

Operating income (loss)

U.S. Cellular

85,202

58,748

26,454

45%

TDS Telecom

13,092

32,206

(19,114)

(59%)

All Other  (1)

(4,652)

(2,081)

(2,571)

>(100%)

93,642

88,873

4,769

5%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

23,389

19,388

4,001

21%

Interest and dividend income

2,183

2,624

(441)

(17%)

Interest expense

(24,464)

(26,509)

2,045

8%

Other, net

228

80

148

>100%

Total investment and other income (expense)

1,336

(4,417)

5,753

>100%

Income before income taxes

94,978

84,456

10,522

12%

Income tax expense

27,412

30,159

(2,747)

(9%)

Net income

67,566

54,297

13,269

24%

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

(15,312)

(10,793)

(4,519)

(42%)

Net income attributable to TDS shareholders

52,254

43,504

8,750

20%

Preferred dividend requirement

(12)

(12)

-

-

Net income available to common shareholders

$

52,242

$

43,492

$

8,750

20%

Basic weighted average shares outstanding (2)

108,653

108,936

(283)

-

Basic earnings per share attributable to TDS shareholders (2)

$

0.48

$

0.40

$

0.08

20%

Diluted weighted average shares outstanding (2)

109,098

109,715

(617)

(1%)

Diluted earnings per share attributable to TDS shareholders (2)

$

0.48

$

0.39

$

0.09

23%

(1)

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

(2)

On January 13, 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

March 31,

December 31,

2012

2011

Current assets

Cash and cash equivalents

$

639,130

$

563,275

Short-term investments

229,975

246,273

Accounts receivable from customers and others

495,409

542,577

Inventory

134,929

130,044

Net deferred income tax asset

40,898

40,898

Prepaid expenses

84,201

80,628

Income taxes receivable

9,314

85,636

Other current assets

18,117

16,349

1,651,973

1,705,680

Assets held for sale

-

49,647

Investments

Licenses

1,505,110

1,494,014

Goodwill

796,819

797,077

Other intangible assets, net

47,851

50,734

Investments in unconsolidated entities

191,644

173,710

Long-term investments

50,333

45,138

Other investments

1,096

3,072

2,592,853

2,563,745

Property, plant and equipment, net

U.S. Cellular

2,847,426

2,790,302

TDS Telecom

930,085

936,757

Other

46,222

57,476

3,823,733

3,784,535

Other assets and deferred charges

104,109

97,398

Total assets

$

8,172,668

$

8,201,005

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

March 31,

December 31,

2012

2011

Current liabilities

Current portion of long-term debt

$

1,420

$

1,509

Accounts payable

327,376

364,746

Customer deposits and deferred revenues

218,316

207,633

Accrued interest

16,518

7,456

Accrued taxes

46,671

41,069

Accrued compensation

54,990

107,719

Other current liabilities

94,536

144,001

759,827

874,133

Liabilities held for sale

-

1,051

Deferred liabilities and credits

Net deferred income tax liability

821,115

808,713

Other deferred liabilities and credits

391,397

383,567

Long-term debt

1,529,988

1,529,857

Noncontrolling interests with redemption features

1,064

1,005

Equity

TDS shareholders' equity

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

1,326

1,326

Capital in excess of par value (1)

2,278,384

2,268,711

Treasury shares at cost (1)

(746,988)

(750,921)

Accumulated other comprehensive loss

(8,695)

(8,854)

Retained earnings (1)

2,487,936

2,451,899

Total TDS shareholders' equity

4,011,963

3,962,161

Preferred shares

830

830

Noncontrolling interests

656,484

639,688

Total equity

4,669,277

4,602,679

Total liabilities and equity

$

8,172,668

$

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

March 31, 2012

(Unaudited, dollars in thousands)

U.S.

TDS

TDS Corporate

Intercompany

TDS

Cellular

Telecom

& Other

Eliminations

Consolidated

Cash and cash equivalents

$

511,078

$

66,080

$

61,972

$

-

$

639,130

Affiliated cash investments

-

345,458

-

(345,458)

-

Short-term investments

116,368

27,195

86,412

-

229,975

$

627,446

$

438,733

$

148,384

$

(345,458)

$

869,105

Licenses, goodwill and other intangible assets

$

1,976,825

$

550,970

$

(178,015)

$

-

$

2,349,780

Investment in unconsolidated entities

154,431

3,813

39,049

(5,649)

191,644

Long-term and other investments

40,357

1,014

10,058

-

51,429

$

2,171,613

$

555,797

$

(128,908)

$

(5,649)

$

2,592,853

Property, plant and equipment, net

$

2,847,426

$

930,085

$

46,222

$

-

$

3,823,733

Long-term debt:

Current portion

$

127

$

190

$

1,103

$

-

$

1,420

Non-current portion

880,486

1,733

647,769

-

1,529,988

Total

$

880,613

$

1,923

$

648,872

$

-

$

1,531,408

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 March 31, 2012 and December 31, 2011.

March 31,

December 31,

2012

2011

Cash and cash equivalents

$

639,130

$

563,275

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

Government-backed securities (3)

202,780

218,829

Certificates of deposit

27,195

27,444

$

229,975

$

246,273

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

Government-backed securities (3)

$

50,333

$

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 March 31, 2012, maturities range between 14 and 24 months.

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

Three Months Ended March 31,

(Unaudited, dollars in thousands)

2012

2011

Cash flows from operating activities

Net income

$

67,566

$

54,297

Add (deduct) adjustments to reconcile net income to net

cash flows from operating activities

Depreciation, amortization and accretion

197,434

190,813

Bad debts expense

15,105

14,285

Stock-based compensation expense

10,330

9,459

Deferred income taxes, net

6,187

47,841

Equity in earnings of unconsolidated entities

(23,389)

(19,388)

Distributions from unconsolidated entities

2,938

8,439

(Gain) loss on asset disposals, net

(2,095)

1,143

Noncash interest expense

862

875

Other operating activities

852

1,159

Changes in assets and liabilities from operations

Accounts receivable

38,941

8,438

Inventory

(4,842)

2,978

Accounts payable

(25,372)

56,189

Customer deposits and deferred revenues

10,745

10,342

Accrued taxes

82,014

18,832

Accrued interest

9,117

15,072

Other assets and liabilities

(104,148)

(87,732)

282,245

333,042

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(242,611)

(157,897)

Cash paid for acquisitions and licenses

(11,096)

-

Cash received from divestitures

50,036

-

Cash paid for investments

(10,000)

-

Cash received for investments

20,249

122,785

Transfer of cash to Restricted cash

-

(282,500)

Other investing activities

(436)

(1,503)

(193,858)

(319,115)

Cash flows from financing activities

Repayment of long-term debt

(493)

(402)

Issuance of long-term debt

358

300,000

TDS Common Shares and Special Common Shares

reissued for benefit plans, net of tax payments

(33)

587

U.S. Cellular Common Shares reissued for benefit

plans, net of tax payments

357

1,305

Repurchase of TDS Common and Special Common Shares

-

(11,603)

Repurchase of U.S. Cellular Common Shares

-