UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-14157
TELEPHONE AND DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Delaware (State or other jurisdiction of incorporation or organization) |
36-2669023 (I.R.S. Employer Identification No.) |
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30 North LaSalle Street, Chicago, Illinois 60602 (Address of principal executive offices) (Zip Code) | |
Registrant’s telephone number, including area code: (312) 630-1900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.
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Large accelerated filer x |
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Accelerated filer ¨ |
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Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
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Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class |
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Outstanding at September 30, 2010 |
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Common Shares, $.01 par value |
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49,872,640 Shares |
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Special Common Shares, $.01 par value |
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48,029,633 Shares |
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Series A Common Shares, $.01 par value |
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6,507,984 Shares |
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Telephone and Data Systems, Inc. | ||||
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Quarterly Report on Form 10-Q | ||||
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For the Quarterly Period Ended September 30, 2010 | ||||
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Index | ||||
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Page No. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Three Months Ended September 30, 2010 and 2009 |
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Part I. Financial Information Item 1. Financial Statements | ||||||||||||||||||
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Telephone and Data Systems, Inc. | ||||||||||||||||||
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Consolidated Statement of Operations (Unaudited) | ||||||||||||||||||
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Three Months Ended September 30, |
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Nine Months Ended September 30, | |||||||||||||||
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(Dollars and shares in thousands, except per share amounts) |
2010 |
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2009 |
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2010 |
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2009 | |||||||||||
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Operating revenues |
$ |
1,266,416 |
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$ |
1,257,737 |
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$ |
3,721,070 |
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$ |
3,758,033 |
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Operating expenses |
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Cost of services and products (excluding Depreciation, amortization and accretion expense reported below) |
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487,311 |
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477,269 |
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1,384,880 |
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1,375,683 |
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Selling, general and administrative |
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502,594 |
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506,965 |
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1,485,010 |
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1,441,904 |
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Depreciation, amortization and accretion |
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190,972 |
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190,713 |
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570,619 |
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557,218 |
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Loss on asset disposals, net |
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2,378 |
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3,271 |
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9,023 |
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10,462 |
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Total operating expenses |
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1,183,255 |
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1,178,218 |
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3,449,532 |
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3,385,267 |
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Operating income |
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83,161 |
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79,519 |
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271,538 |
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372,766 |
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Investment and other income (expense) |
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Equity in earnings of unconsolidated entities |
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24,147 |
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23,334 |
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75,047 |
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67,034 |
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Interest and dividend income |
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2,785 |
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3,461 |
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7,900 |
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8,435 |
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Interest expense |
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(28,297 |
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(30,854 |
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(86,520 |
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(93,898 |
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Other, net |
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(438 |
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1,030 |
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(2,557 |
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1,504 |
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Total investment and other income (expense) |
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(1,803 |
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(3,029 |
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(6,130 |
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(16,925 |
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Income before income taxes |
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81,358 |
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76,490 |
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265,408 |
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355,841 |
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Income tax expense |
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28,775 |
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28,331 |
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98,167 |
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125,412 |
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Net income |
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52,583 |
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48,159 |
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167,241 |
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230,429 |
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Less: Net income attributable to noncontrolling interests, net of tax |
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(11,958 |
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(11,384 |
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(37,915 |
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(53,193 |
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Net income attributable to TDS shareholders |
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40,625 |
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36,775 |
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129,326 |
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177,236 |
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Preferred dividend requirement |
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(12 |
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(13 |
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(37 |
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(38 |
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Net income available to common shareholders |
$ |
40,613 |
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$ |
36,762 |
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$ |
129,289 |
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$ |
177,198 |
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Basic weighted average shares outstanding |
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104,881 |
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108,289 |
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105,443 |
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110,408 |
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Basic earnings per share attributable to TDS shareholders |
$ |
0.39 |
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$ |
0.34 |
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$ |
1.23 |
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$ |
1.60 |
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Diluted weighted average shares outstanding |
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105,298 |
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108,565 |
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105,800 |
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110,633 |
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Diluted earnings per share attributable to TDS shareholders |
$ |
0.38 |
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$ |
0.34 |
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$ |
1.22 |
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$ |
1.60 |
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Dividends per share |
$ |
0.1125 |
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$ |
0.1075 |
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$ |
0.3375 |
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$ |
0.3225 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
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Telephone and Data Systems, Inc. | ||||||||||
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Consolidated Statement of Cash Flows (Unaudited) | ||||||||||
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Nine Months Ended September 30, | |||||||||
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(Dollars in thousands) |
2010 |
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2009 | |||||||
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Cash flows from operating activities |
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Net income |
$ |
167,241 |
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$ |
230,429 |
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Add (deduct) adjustments to reconcile net income to net cash flows from operating activities |
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Depreciation, amortization and accretion |
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570,619 |
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557,218 |
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Bad debts expense |
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61,087 |
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78,941 |
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Stock-based compensation expense |
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26,055 |
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24,523 |
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Deferred income taxes, net |
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55,102 |
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29,157 |
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Equity in earnings of unconsolidated entities |
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(75,047 |
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(67,034 |
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Distributions from unconsolidated entities |
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59,519 |
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51,668 |
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Loss on asset disposals, net |
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9,023 |
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10,462 |
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Other operating activities |
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4,645 |
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2,114 |
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Changes in assets and liabilities from operations |
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Accounts receivable |
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(48,891 |
) |
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(107,254 |
) |
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Inventory |
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32,571 |
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(3,595 |
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Accounts payable |
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(49,034 |
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(29,401 |
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Customer deposits and deferred revenues |
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2,363 |
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(4,936 |
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Accrued taxes |
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(42,843 |
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88,098 |
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Accrued interest |
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9,343 |
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9,893 |
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Other assets and liabilities |
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(16,973 |
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(70,332 |
) |
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764,780 |
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799,951 |
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Cash flows from investing activities |
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Additions to property, plant and equipment |
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(486,138 |
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(450,594 |
) | ||
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Cash paid for acquisitions and licenses |
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(28,264 |
) |
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(15,242 |
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Cash paid for investments |
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(433,750 |
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(109,055 |
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Cash received for investments |
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40,765 |
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— |
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Other investing activities |
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1,681 |
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3,335 |
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(905,706 |
) |
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(571,556 |
) |
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Cash flows from financing activities |
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Repayment of long-term debt |
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(2,182 |
) |
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(2,507 |
) | ||
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TDS Common Shares and Special Common Shares reissued for benefit plans, net of tax payments |
|
1,183 |
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1,296 |
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U.S. Cellular Common Shares reissued for benefit plans, net of tax payments |
|
738 |
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(119 |
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Repurchase of TDS Common and Special Common Shares |
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(50,543 |
) |
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(152,918 |
) | ||
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Repurchase of U.S. Cellular Common Shares |
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(40,520 |
) |
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(24,283 |
) | ||
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Dividends paid |
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(35,502 |
) |
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(35,389 |
) | ||
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Payment of debt issuance costs |
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— |
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(10,074 |
) | ||
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Distributions to noncontrolling interests |
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(5,828 |
) |
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(4,962 |
) | ||
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Other financing activities |
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(7,404 |
) |
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1,411 |
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(140,058 |
) |
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(227,545 |
) |
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Net increase (decrease) in cash and cash equivalents |
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(280,984 |
) |
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|
850 |
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Cash and cash equivalents |
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Beginning of period |
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670,992 |
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|
777,309 |
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End of period |
$ |
390,008 |
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$ |
778,159 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
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Telephone and Data Systems, Inc. | ||||||||
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Consolidated Balance Sheet — Assets (Unaudited) | ||||||||
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(Dollars in thousands) |
September 30, 2010 |
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December 31, 2009 | |||||
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Current assets |
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Cash and cash equivalents |
$ |
390,008 |
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$ |
670,992 | ||
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Short-term investments |
|
389,052 |
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|
113,275 | ||
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Accounts receivable |
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Due from customers and agents, less allowances of $28,462 and $30,422, respectively |
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360,286 |
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384,470 | |
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Other, less allowances of $7,148 and $7,201, respectively |
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144,155 |
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|
130,973 | |
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Inventory |
|
124,417 |
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|
156,987 | ||
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Net deferred income tax asset |
|
29,948 |
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|
29,874 | ||
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Prepaid expenses |
|
93,406 |
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|
94,336 | ||
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Prepaid income taxes |
|
50,865 |
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|
3,718 | ||
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Other current assets |
|
60,802 |
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|
63,046 | ||
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1,642,939 |
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|
1,647,671 |
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Investments |
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Licenses |
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1,453,526 |
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|
1,443,025 | ||
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Goodwill |
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718,635 |
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|
707,840 | ||
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Other intangible assets, net of accumulated amortization of $117,510 and $108,944, respectively |
|
25,924 |
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|
26,589 | ||
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Investments in unconsolidated entities |
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214,114 |
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|
203,799 | ||
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Long-term investments |
|
121,441 |
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— | ||
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Other investments |
|
9,123 |
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|
9,785 | ||
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|
2,542,763 |
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|
2,391,038 |
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Property, plant and equipment |
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| |||
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In service and under construction |
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9,144,869 |
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|
8,760,327 | ||
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Less: Accumulated depreciation |
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5,699,710 |
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5,252,482 | ||
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|
3,445,159 |
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3,507,845 |
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Other assets and deferred charges |
|
62,970 |
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|
65,759 | |||
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Total assets |
$ |
7,693,831 |
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$ |
7,612,313 | |||
The accompanying notes are an integral part of these consolidated financial statements.
5
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Telephone and Data Systems, Inc. | |||||||||||
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Consolidated Balance Sheet — Liabilities and Equity (Unaudited) | |||||||||||
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(Dollars and shares in thousands) |
September 30, 2010 |
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December 31, 2009 | ||||||||
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| |||||||||||
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Current liabilities |
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| ||||
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Current portion of long-term debt |
$ |
1,804 |
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$ |
2,509 |
| |||
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Accounts payable |
|
299,039 |
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|
347,348 |
| |||
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Customer deposits and deferred revenues |
|
167,659 |
|
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|
164,451 |
| |||
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Accrued interest |
|
21,387 |
|
|
|
12,227 |
| |||
|
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Accrued taxes |
|
81,563 |
|
|
|
62,568 |
| |||
|
|
Accrued compensation |
|
87,932 |
|
|
|
93,524 |
| |||
|
|
Other current liabilities |
|
98,554 |
|
|
|
117,081 |
| |||
|
|
|
|
|
|
|
757,938 |
|
|
|
799,708 |
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|
|
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 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests with redemption features |
|
791 |
|
|
|
727 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
| ||||
|
|
TDS shareholders’ equity |
|
|
|
|
|
|
| |||
|
|
|
Series A Common, Special Common and Common Shares |
|
|
|
|
|
|
| ||
|
|
|
|
Authorized 290,000 shares (25,000 Series A Common, 165,000 Special Common and 100,000 Common Shares) |
|
|
|
|
|
|
| |
|
|
|
|
Issued 127,038 shares (6,508 Series A Common, 63,442 Special Common and 57,088 Common Shares) and 127,016 shares (6,492 Series A Common, 63,442 Special Common and 57,082 Common Shares), respectively |
|
|
|
|
|
|
| |
|
|
|
|
Outstanding 104,410 shares (6,508 Series A Common, 48,029 Special Common and 49,873 Common Shares) and 106,022 shares (6,492 Series A Common, 49,725 Special Common and 49,805 Common Shares), respectively |
|
|
|
|
|
|
| |
|
|
|
|
Par Value ($.01 per share) ($65 Series A Common, $634 Special Common and $571 Common Shares) |
|
1,270 |
|
|
|
1,270 |
| |
|
|
|
Capital in excess of par value |
|
2,101,882 |
|
|
|
2,088,807 |
| ||
|
|
|
Special Common and Common Treasury shares at cost: |
|
|
|
|
|
|
| ||
|
|
|
|
Treasury shares 22,628 (15,413 Special Common and 7,215 Common Shares) and 20,994 (13,717 Special Common and 7,277 Common Shares), respectively |
|
(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 |
| ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
|
Telephone and Data Systems, Inc. | |||||||||||||||||||||||||||||||||
| TDS Shareholders | |||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Series A Common, Special Common and Common Shares | Capital in Excess of Par Value | Special Common and Common Treasury Shares | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total TDS Shareholders' Equity | Preferred Shares | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
| December 31, 2009 | $ | 1,270 | $ | 2,088,807 | $ | (681,649 | ) | $ | (2,710 | ) | $ | 2,358,580 | $ | 3,764,298 | $ | 832 | $ | 662,216 | $ | 4,427,346 | |||||||||||||
|
Add (Deduct) |
|
|
|||||||||||||||||||||||||||||||
|
Net income attributable to TDS shareholders |
— |
— |
— |
— |
129,326 | 129,326 |
— |
37,886 | 129,326 | ||||||||||||||||||||||||
|
Net income attributable to noncontrolling interests classified as equity |
— |
— |
— |
— |
— |
— |
— |
— |
37,886 | ||||||||||||||||||||||||
|
Net unrealized gain (loss) on equity investments |
— |
— |
— |
84 |
— |
84 |
— |
— |
84 | ||||||||||||||||||||||||
|
Changes related to retirement plan |
— |
— |
— |
(769 | ) |
— |
(769 | ) |
— |
— |
(769 | ) | |||||||||||||||||||||
|
Common, Special Common and Series A Common Shares dividends |
— |
— |
— |
— |
(35,465 | ) | (35,465 | ) |
— |
— |
(35,465 | ) | |||||||||||||||||||||
|
Preferred dividend requirement |
— |
— |
— |
— |
(37 | ) | (37 | ) |
— |
— |
(37 | ) | |||||||||||||||||||||
|
Repurchase of shares |
— |
— |
(50,543 | ) |
— |
(1 | ) | (50,544 | ) | (2 | ) |
— |
(50,546 | ) | |||||||||||||||||||
|
Dividend reinvestment plan |
— |
— |
4,454 |
— |
(1,323 | ) | 3,131 |
— |
— |
3,131 | |||||||||||||||||||||||
|
Incentive and compensation plans |
— |
433 | 3,205 |
— |
(2,020 | ) | 1,618 |
— |
— |
1,618 | |||||||||||||||||||||||
|
Adjust investment in subsidiaries for repurchases, issuances, other compensation plans and noncontrolling interest purchases |
— |
98 |
— |
— |
— |
98 |
— |
(33,517 | ) | (33,419 | ) | ||||||||||||||||||||||
|
Stock-based compensation awards (1) |
— |
12,516 |
— |
— |
— |
12,516 |
— |
— |
12,516 | ||||||||||||||||||||||||
|
Tax windfall (shortfall) from stock awards (2) |
— |
28 |
— |
— |
— |
28 |
— |
— |
28 | ||||||||||||||||||||||||
|
Distributions to noncontrolling interests |
— |
— |
— |
— |
— |
— |
— |
(5,828 | ) | (5,828 | ) | ||||||||||||||||||||||
|
September 30, 2010 |
$ | 1,270 | $ | 2,101,882 | $ | (724,533 | ) | $ | (3,395 | ) | $ | 2,449,060 | $ | 3,824,284 | $ | 830 | $ | 660,757 | $ | 4,485,871 | |||||||||||||
7
|
Telephone and Data Systems, Inc. | |||||||||||||||||||||||||||||||||
| TDS Shareholders | |||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Series A Common, Special Common and Common Shares | Capital in Excess of Par Value | Special Common and Common Treasury Shares | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total TDS Shareholders' Equity | Preferred Shares | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
| December 31, 2008 | $ | 1,270 | $ | 2,066,597 | $ | (513,108 | ) | $ | (13,391 | ) | $ | 2,221,469 | $ | 3,762,837 | $ | 852 | $ | 647,915 | $ | 4,411,604 | |||||||||||||
|
Add (Deduct) |
|
|
|||||||||||||||||||||||||||||||
|
Net income attributable to TDS shareholders |
— |
— |
— |
— |
177,236 | 177,236 |
— |
— |
177,236 | ||||||||||||||||||||||||
|
Net income attributable to noncontrolling interests classified as equity |
— |
— |
— |
— |
— |
— |
— |
53,073 |
53,073 | ||||||||||||||||||||||||
|
Net unrealized gain (loss) on equity investments |
— |
— |
— |
(302 | ) |
— |
(302 | ) |
— |
— |
(302 | ) | |||||||||||||||||||||
|
Changes related to retirement plan |
— |
— |
— |
742 |
— |
742 |
— |
— |
742 | ||||||||||||||||||||||||
|
Common, Special Common and Series A Common Shares dividends |
— |
— |
— |
— |
(35,351 | ) | (35,351 | ) |
— |
— |
(35,351 | ) | |||||||||||||||||||||
|
Preferred dividend requirement |
— |
— |
— |
— |
(38 | ) | (38 | ) |
— |
— |
(38 | ) | |||||||||||||||||||||
|
Repurchase of shares |
— |
— |
(159,993 | ) |
— |
— |
(159,993 | ) | (7 | ) |
— |
(160,000 | ) | ||||||||||||||||||||
|
Dividend reinvestment plan |
— |
(13 |
) | 731 |
— |
444 | 1,162 |
— |
— |
1,162 | |||||||||||||||||||||||
|
Incentive and compensation plans |
— |
(45 | ) | 3,338 |
— |
(1,383 | ) | 1,910 |
— |
— |
1,910 | ||||||||||||||||||||||
|
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans |
— |
6,564 |
— |
— |
— |
6,564 |
— |
(18,422 | ) | (11,858 | ) | ||||||||||||||||||||||
|
Stock-based compensation awards (1) |
— |
11,523 |
— |
— |
— |
11,523 |
— |
— |
11,523 | ||||||||||||||||||||||||
|
Tax windfall (shortfall) from stock awards (2) |
— |
(145 | ) |
— |
— |
— |
(145 | ) |
— |
— |
(145 | ) | |||||||||||||||||||||
|
Distributions to noncontrolling interests |
— |
— |
— |
— |
— |
— |
— |
(4,962 | ) | (4,962 | ) | ||||||||||||||||||||||
|
September 30, 2009 |
$ | 1,270 | $ | 2,084,481 | $ | (669,032 | ) | $ | (12,951 | ) | $ | 2,362,377 | $ | 3,766,145 | $ | 845 | $ | 677,604 | $ | 4,444,594 | |||||||||||||
(1) Reflects TDS Corporate and TDS Telecom's current year stock-based compensation awards impact on Capital in excess of par value. U.S. Cellular’s amounts are included in Adjust investment in subsidiaries for repurchases, issuances and other compensation plans.
(2) Reflects tax windfalls/(shortfalls) associated with the exercise of options and the vesting of restricted stock awards of TDS Common Shares and TDS Special Common Shares. U.S. Cellular’s tax windfalls/(shortfalls) associated with the exercise of options and vesting of restricted stock awards of U.S. Cellular are included in Adjust investment in subsidiaries for repurchases, issuances, and other compensation plans.
The accompanying notes are an integral part of these consolidated financial statements.
8
|
Telephone and Data Systems, Inc. | |||||||||||||||
|
| |||||||||||||||
|
Consolidated Statement of Comprehensive Income (Unaudited) | |||||||||||||||
|
| |||||||||||||||
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, | ||||||||||||
|
(Dollars in thousands) |
2010 |
|
2009 |
|
2010 |
|
2009 | ||||||||
|
| |||||||||||||||
|
Net income |
$ |
52,583 |
|
|
$ |
48,159 |
|
|
$ |
167,241 |
|
|
$ |
230,429 |
|
|
Net change in accumulated other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on equity investments |
|
— |
|
|
|
199 |
|
|
|
84 |
|
|
|
(302 |
) |
|
Changes related to retirement plan |
|
(256 |
) |
|
|
159 |
|
|
|
(769 |
) |
|
|
742 |
|
|
Comprehensive income |
|
52,327 |
|
|
|
48,517 |
|
|
|
166,556 |
|
|
|
230,869 |
|
|
Less: Comprehensive income attributable to noncontrolling interests |
|
(11,958 |
) |
|
|
(11,384 |
) |
|
|
(37,915 |
) |
|
|
(53,193 |
) |
|
Comprehensive income attributable to TDS shareholders |
$ |
40,369 |
|
|
$ |
37,133 |
|
|
$ |
128,641 |
|
|
$ |
177,676 |
|
The accompanying notes are an integral part of these consolidated financial statements.
9
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accounting policies of Telephone and Data Systems, Inc. (“TDS”) conform to accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The consolidated financial statements include the accounts of TDS and its majority-owned subsidiaries, including TDS’ 83%-owned wireless telephone subsidiary, United States Cellular Corporation (“U.S. Cellular”), TDS’ 100%-owned wireline telephone subsidiary, TDS Telecommunications Corporation (“TDS Telecom”) and TDS’ majority-owned printing and distribution company, Suttle-Straus, Inc. In addition, the consolidated financial statements include certain entities in which TDS has a variable interest that require consolidation under GAAP. All material intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the 2010 presentation.
The consolidated financial statements included herein have been prepared by TDS, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, TDS believes that the disclosures included herein are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in TDS’ Current Report on Form 8-K (Items 8.01 and 9.01) filed with the SEC on August 5, 2010, which should be read in conjunction with TDS’ Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2009.
The accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring items and adjustments to prior periods as described in Note 2 — Revision of Prior Period Amounts) necessary to present fairly the financial position as of September 30, 2010, December 31, 2009, and September 30, 2009 (as included in Note 2), the results of operations and comprehensive income for the three and nine months ended September 30, 2010 and 2009, and cash flows and changes in equity for the nine months ended September 30, 2010 and 2009. The results of operations and comprehensive income for the three and nine months ended, and cash flows and changes in equity for the nine months ended September 30, 2010 are not necessarily indicative of the results expected for the full year.
2. 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 - Due from customers |
$ |
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) |
As previously
reported (1) |
|
Adjustment |
|
Revised | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
1,258,742 |
|
|
$ |
(1,005 |
) |
|
$ |
1,257,737 |
|
|
|
|
Cost of services and products (Excluding Depreciation, amortization and accretion) |
|
477,116 |
|
|
|
153 |
|
|
|
477,269 |
|
|
|
|
Selling, general and administrative expenses |
|
507,159 |
|
|
|
(194 |
) |
|
|
506,965 |
|
|
|
|
Depreciation, amortization and accretion |
|
192,247 |
|
|
|
(1,534 |
) |
|
|
190,713 |
|
|
|
|
Loss on asset disposals, net |
|
4,557 |
|
|
|
(1,286 |
) |
|
|
3,271 |
|
|
|
|
Total operating expenses |
|
1,181,079 |
|
|
|
(2,861 |
) |
|
|
1,178,218 |
|
|
|
|
Operating income |
|
77,663 |
|
|
|
1,856 |
|
|
|
79,519 |
|
|
|
|
Interest expense |
|
(30,430 |
) |
|
|
(424 |
) |
|
|
(30,854 |
) |
|
|
|
Total investment and other income (expense) |
|
(2,605 |
) |
|
|
(424 |
) |
|
|
(3,029 |
) |
|
|
|
Income before income taxes |
|
75,058 |
|
|
|
1,432 |
|
|
|
76,490 |
|
|
|
|
Income tax expense |
|
27,793 |
|
|
|
538 |
|
|
|
28,331 |
|
|
|
|
Net income |
|
47,265 |
|
|
|
894 |
|
|
|
48,159 |
|
|
|
|
Net income attributable to noncontrolling interests, net of tax |
|
(11,620 |
) |
|
|
236 |
|
|
|
(11,384 |
) |
|
|
|
Net income attributable to TDS shareholders |
|
35,645 |
|
|
|
1,130 |
|
|
|
36,775 |
|
|
|
|
Net income available to common shareholders |
|
35,632 |
|
|
|
1,130 |
|
|
|
36,762 |
|
|
|
|
Basic earnings per share attributable to TDS shareholders |
|
0.33 |
|
|
|
0.01 |
|
|
|
0.34 |
|
|
|
|
Diluted earnings per share attributable to TDS shareholders |
|
0.33 |
|
|
|
0.01 |
|
|
|
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Consolidated Statement of Operations — Nine Months Ended September 30, 2009 |
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(Dollars in thousands) |
As previously
reported (1) |
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Adjustment |
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Revised | |||||||
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Operating revenues |
$ |
3,757,865 |
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|
$ |
168 |
|
|
$ |
3,758,033 |
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|
|
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Cost of services and products (Excluding Depreciation, amortization and accretion) |
|
1,375,642 |
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|
|
41 |
|
|
|
1,375,683 |
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|
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|
Selling, general and administrative expenses |
|
1,445,920 |
|
|
|
(4,016 |
) |
|
|
1,441,904 |
|
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Depreciation, amortization and accretion |
|
558,362 |
|
|
|
(1,144 |
) |
|
|
557,218 |
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Loss on asset disposals, net |
|
9,469 |
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|
|
993 |
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|
|
10,462 |
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Total operating expenses |
|
3,389,393 |
|
|
|
(4,126 |
) |
|
|
3,385,267 |
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Operating income |
|
368,472 |
|
|
|
4,294 |
|
|
|
372,766 |
|
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Interest expense |
|
(92,780 |
) |
|
|
(1,118 |
) |
|
|
(93,898 |
) |
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Total investment and other income (expense) |
|
(15,807 |
) |
|
|
(1,118 |
) |
|
|
(16,925 |
) |
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Income before income taxes |
|
352,665 |
|
|
|
3,176 |
|
|
|
355,841 |
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|
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Income tax expense |
|
121,467 |
|
|
|
3,945 |
|
|
|
125,412 |
|
|
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Net income |
|
231,198 |
|
|
|
(769 |
) |
|
|
230,429 |
|
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Net income attributable to noncontrolling interests, net of tax |
|
(53,814 |
) |
|
|
621 |
|
|
|
(53,193 |
) |
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Net income attributable to TDS shareholders |
|
177,384 |
|
|
|
(148 |
) |
|
|
177,236 |
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|
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Net income available to common shareholders |
|
177,346 |
|
|
|
(148 |
) |
|
|
177,198 |
|
|
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Basic earnings per share attributable to TDS shareholders |
|
1.61 |
|
|
|
(0.01 |
) |
|
|
1.60 |
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|
Diluted earnings per share attributable to TDS shareholders |
|
1.60 |
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|
— |
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|
1.60 |
|