TDS Reports Third Quarter 2012 Results

November 7, 2012
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U.S. Cellular Announces Transaction to Exit Certain Midwest Markets

CHICAGO, Nov. 7, 2012 /PRNewswire/ --

Note: Comparisons are year over year unless otherwise noted.

3Q 2012 Highlights

TDS Consolidated

Operating revenues increased 3 percent to $1,370.1 million.

U.S. Cellular

Retail gross additions increased 23 percent resulting in a net gain of 19,000 retail customers, compared to a net loss of 23,000 retail customers.

Postpaid gross additions increased 7 percent and postpaid churn increased to 1.7 percent, resulting in a net loss of 38,000 postpaid customers in the quarter. Postpaid customers comprised 93 percent of retail customers.

Prepaid gross additions increased 71 percent, driven by the introduction of U Prepaid in select Walmart stores, and prepaid churn decreased to 5.9 percent, resulting in a net increase of 57,000 prepaid customers in the quarter.

Total revenues increased 3 percent; service revenues remained steady at $1,036.4 million.

Postpaid ARPU (average revenue per user) increased 4 percent to $54.34 from $52.41; total ARPU increased 3 percent to $59.57 from $58.09.

Postpaid smartphone customers increased to 38.6 percent of customers from 26.2 percent. Smartphones as a percent of total devices sold increased to 53.0 percent from 39.9 percent; 50 percent of smartphones sold were 4G.

Cell sites in service increased 2 percent to 7,984, of which 4,545 are owned towers.

4G LTE network now covers 30 percent of customers; expect to reach 58 percent of customers by year end.

TDS Telecom

Operating revenues increased 5 percent to $220.4 million.

ILEC triple play (voice, data and video) penetration increased to 31 percent from 28 percent.

managedIP connections (ILEC and CLEC) grew 89 percent to 84,500 from 44,800.

As previously announced, TDS will hold a teleconference Nov. 7, 2012 at 7:30 a.m. CST. 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 $1,370.1 million for the third quarter of 2012, an increase of 3 percent from $1,325.4 million in the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $29.1 million and $0.27, respectively, for the third quarter of 2012, compared to $71.3 million and $0.65, respectively, in the comparable period one year ago. In the third quarter of 2011, TDS recorded a $12.7 million gain on investment, as a result of an acquisition.

"U.S. Cellular and TDS Telecom achieved modest revenue growth, while profitability declined due to increasing smartphone subsidies, declining regulatory support and investment spending," said LeRoy T. Carlson, Jr., TDS president and CEO.

"U.S. Cellular continued to achieve strong growth in net prepaid customers, driven by the U Prepaid product sold through Walmart. We had solid growth in gross postpaid customers, but churn remained elevated. U.S. Cellular recently began offering a postpaid product through Walmart as well, and continues to explore new distribution options. We are working aggressively to build consideration and loyalty with competitive devices like the 4G LTE Samsung Galaxy S® III, which helped to increase smartphone penetration in the quarter, and the recently introduced 4G LTE Samsung Galaxy Note® II.

"TDS Telecom added residential TDS TV® and triple play bundle customers. Higher revenue from acquisitions in the hosted and managed services business helped to offset decreases in ILEC and CLEC revenue. Profitability was impacted by reductions in wholesale and regulatory revenues, as expected, though to a lesser degree than in the first half of the year."

U.S. Cellular Strategic Actions

In a separate release, U.S. Cellular also announced today two strategic actions designed to increase focus on markets where it has strong positions and streamline operations to increase overall efficiency and effectiveness. The company has entered into a definitive agreement with Sprint, who will purchase its customers and PCS spectrum in certain Midwest markets. U.S. Cellular will also transition the operations of its Bolingbrook, Ill., customer care center to an existing vendor partner. Further information can be found on the U.S. Cellular Investor Relations website.

Guidance for year ending Dec. 31, 2012

Guidance for the year ending Dec. 31, 2012, as of Nov. 7, 2012, is provided below, compared to the previous guidance provided on Aug. 3, 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 - Before Effects of Sprint Transaction - see Note (1)

    
 

Service revenues

$4,075-$4,125 million

  

$4,050-$4,150 million
 

Operating income (3)

$200-$250 million

  

$200-$300 million
 

Depreciation, amortization and accretion expenses,

      
 

and impairment of assets and net gain

      
 

or loss on asset disposals and exchanges (3)

Approx. $600 million

  

Unchanged
 

Adjusted OIBDA (3) (5)

$800-$850 million

  

$800-$900 million
 

Capital expenditures

Approx. $850 million

  

Unchanged
         
   

2012 Estimated Results (4)

  

Previous Estimates (2)

TDS Telecom

      
 

Operating revenues

$850-$860 million

  

$850-$880 million
 

Operating income

$40-$50 million

  

$50-$70 million
 

Depreciation, amortization and accretion expenses,

      
 

and impairment of assets and net gain

      
 

or loss on asset disposals and exchanges (3)

Approx. $195 million

  

Unchanged
 

Adjusted OIBDA (5)

$235-$245 million

  

$245-$265 million
 

Capital expenditures

$175-$190 million

  

$170-$190 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. These estimates are before the effects of the definitive agreement signed with Sprint, who will purchase U.S. Cellular customers and PCS Spectrum in certain Midwest markets. The Company expects to incur incremental operating expenses in the fourth quarter of 2012 in the range of $30 to $60 million for severance, incremental accelerated depreciation, asset write-downs and other costs related to this transaction, which will decrease Operating income, increase Depreciation, amortization and accretion expenses, and impairment of assets and net gain or loss on asset disposals and exchanges, and decrease OIBDA.

(2)

The 2012 Estimated Results as disclosed in TDS' Quarterly Report on Form 10-Q for the period ended June 30, 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 loss on impairment of assets (if any); and the net gain or loss on asset disposals and exchanges (if any). Adjusted OIBDA excludes the loss on impairment of assets (if any) and net gain or loss on asset disposals and exchanges (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; such gains or losses may occur in the future.
 

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. This amount may also be commonly referred to by management as operating cash flow. 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. This amount should not be confused with Cash flows from operating activities, which is a component of the Consolidated Statement of Cash Flows.
           

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.

Conference call information

TDS will hold a conference call on Nov. 7, 2012 at 7:30 a.m. CST.

Access the live call on the Investor Relations page of www.teldta.com or at http://www.videonewswire.com/event.asp?id=90531.

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 http://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 Sept. 30, 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: impacts of the Sprint Transaction including, but not limited to, the ability to obtain regulatory approval, successfully complete the transaction and the financial impacts of such transaction; 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; and 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: http://www.teldta.com/
U.S. Cellular: http://www.uscellular.com/
TDS Telecom: http://www.tdstelecom.com/

 

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