2011 Annual Report
www.teldta.com
Officers
bOard Of directOrs
LeRoy T. Carlson, Jr.
President and
Chief Executive Officer
Kenneth R. Meyers
Executive Vice President and
Chief Financial Officer
Joseph R. Hanley
Senior Vice President -
Technology, Services and
Strategy
Peter L. Sereda
Senior Vice President - Finance
and Treasurer
Douglas D. Shuma
Senior Vice President and
Controller
Kurt B. Thaus
Senior Vice President and
Chief Information Officer
Scott H. Williamson
Senior Vice President -
Acquisitions and Corporate
Development
LeRoy T. Carlson
Chairman Emeritus
Douglas W. Chambers
Assistant Controller
Kevin C. Gallagher
Vice President and
Corporate Secretary
David D. Gillman
Assistant Controller - Tax
C. Theodore Herbert
Vice President -
Human Resources
Frieda E. Ireland
Vice President -
Internal Audit
Kenneth M. Kotylo
Vice President -
Acquisitions and Corporate
Development
Jane W. McCahon
Vice President -
Corporate Relations
Laurie A. Ruchti
Vice President -
IT Strategy, Architecture
and Quality
John M. Toomey
Assistant Treasurer
Byron A. Wertz
Vice President -
Corporate Development
Theodore E. Wiessing
Vice President and
Chief Information Security
Officer
Walter C.D. Carlson
Chairman of the Board
(non-executive), TDS
Partner, Sidley Austin LLP
Chairman, Corporate
Governance and Nominating
Committee
LeRoy T. Carlson, Jr.
President and
Chief Executive Officer, TDS
Member, Corporate Governance
and Nominating Committee
Kenneth R. Meyers
Executive Vice President and
Chief Financial Officer, TDS
Letitia G. Carlson, MD
Physician and Associate
Clinical Professor,
George Washington University
Medical Center
Prudence E. Carlson
Private Investor
Clarence A. Davis
Consultant
Member, Audit Committee
Donald C. Nebergall
Consultant
Member, Audit Committee
George W. Off
Private Investor
Chairman, Audit Committee
Member, Compensation
Committee
Christopher D. O´Leary
Executive Vice President and
Chief Operating Officer -
International, General Mills, Inc.
Member, Compensation
Committee
Mitchell H. Saranow
Chairman, The Saranow
Group, LLC
Member, Audit Committee
Member, Corporate
Governance and Nominating
Committee
Gary L. Sugarman
Executive Chairman,
FXecosystem, Inc., and
Managing Member,
Richfield Capital Partners
Herbert S. Wander
Partner, Katten Muchin
Rosenman LLP
Chairman, Compensation
Committee
Member, Audit Committee
6222_TDS_Cover.indd 1-2
3/28/12 1:36 AM
U.S. CellUlar Providing the best customer experience in wireless• Rewards Program to get new phones faster, plus free accessories, ringtones and more • Plans to fit every lifestyle—from single lines, to family plans, to prepaid plans. Our plans are the best value in wireless. • The highest call quality and network satisfaction of any national carrier • The latest Android®-, Windows Mobile®- and BlackBerry®- based devices, from smartphones and tablets to messaging phones and feature phones • Top-notch customer service—customers can just call, click or come into one of our storesWe provide outstanding communications services to our customers and meet the needs of our shareholders, our people and our communities.• Fortune 500® company • Focus on long-term value creation • Annual dividend increases for 38 consecutive years • Strong balance sheet and ample liquidity • Investment-grade debt ratingsTelephone and Data Systems headquarters, Chicago, IL U.S. Cellular operations TDS Telecom operationsHosted and managed services facilities TDS TeleCom Trusted provider of voice, video and broadband services to residential and commercial customers• Superior service and high-quality, reliable network • Innovative voice, video and high-speed broadband services • Value-oriented service bundles for residential customers • Comprehensive managedIP voice and data communication solutions and full suite of hosted and managed services for businesses2011 PerformanCe HigHligHTSIn its Annual Report on Form 10-K for the year ended Dec. 31, 2011, TDS revised cash flows from operating activities for the years ended Dec. 31, 2010 and Dec. 31, 2009. This chart includes only the periods that have been revised to reflect the proper amounts.$6.0$5.0$4.0$3.0 $2.0$1.00 07 08 09 10 11 U.S. Cellular TDS Telecom Other $4.8 $5.1 $5.0 $5.0 $5.2 oPeraTing revenUeS by bUSineSS UniT (in billions)$1,000 $800$600$400$2000 $700 $735 $671 $755 07 08 09 10 11 U.S. Cellular TDS Telecom OtherCaPiTal exPenDiTUreS by bUSineSS UniT (in millions) $987 $1,200$1,000$800$600$400 $2000 $1,097 $1,076 $1,256 09 10 11CaSH flowS from oPeraTing aCTiviTieS (in millions)60%40%20%0 41.7% 43.5% 39.7% 39.3% 38.6% 07 08 09 10 11DebT-To-eqUiTy raTio 6222_TDS_Cover.indd 3-43/29/12 7:10 PM tO Our SharehOlderS
The TDS mission is to provide outstanding communications services to
our customers, and to meet the needs of our shareholders, our people and
our communities. In pursuing this mission, we seek to continuously grow
our businesses, create opportunities for our associates and employees,
and steadily build value over the long term for our shareholders.
cOnSOlidated Operating reSultS
tds increased revenues and improved profi tability in 2011, as our primary business units—U.s. Cellular
and tds telecom—made solid progress on their strategies, enhancing customer experiences and improving
operational effi ciency.
• U.s. Cellular achieved growth in average revenue per customer by increasing smartphone penetration,
data use, and adoption of higher-revenue data plans, and through growth in inbound roaming revenues.
U.s. Cellular also effectively managed device subsidies, even as the number of smartphones sold
increased signifi cantly.
• U.s. Cellular improved profi tability through revenue growth and effective cost management, though costs
remained stable due in part to fewer customer additions.
• tds telecom increased data revenues and penetration of broadband services among its residential
customers.
• tds telecom grew its managedIp customer base and expanded its hosted and managed services
portfolio through acquisitions and organic growth.
• tds simplifi ed its capital structure and improved its fi nancial fl exibility through a share Consolidation.
• tds increased its dividend for the 37th consecutive year, and recently announced its 38th increase.
Building value FOr SharehOlderS
tds is committed to growing shareholder value over the long term, and to maintaining an open dialogue
with its investors.
In 2011, to simplify our capital structure and reduce the trading discount on the tds special Common
shares, relative to the tds Common shares, tds proposed a share Consolidation amendment to its
Restated Certifi cate of Incorporation to reclassify each special Common share as a Common share on
a one-for-one basis. the amendment also proposed to reclassify each Common share as 1.087 Common
shares, and each series a Common share as 1.087 series a Common shares. additionally, the proposal
included a Vote amendment to fi x the percentage voting power in certain matters, and amendments to
eliminate obsolete and inoperative provisions of the Restated Certifi cate of Incorporation.
shareholders approved the amendments on January 13, 2012, and the share Consolidation became
effective on January 24, 2012. on behalf of tds and the board of directors, we thank our investors for their
support. We continue to look for and evaluate operational and strategic opportunities to strengthen and
build the company and create shareholder value, and we welcome suggestions from our investors.
telephone and data systems 1
In the first quarter of 2011, tds repurchased
407,000 special Common shares for $11.6 million,
and U.s. Cellular repurchased 357,000 Common
shares for approximately $17.4 million. due to the
share Consolidation, tds and U.s. Cellular ceased
repurchasing shares for the remainder of 2011.
increased efficiency by identifying opportunities to
share services and resources across the enterprise.
We believe that U.s. Cellular and tds telecom have
effective strategies that will enable them to build
toward their respective return on capital targets over
the long term.
Strengthening Our Financial FOundatiOn
advOcating FOr Our BuSineSSeS
tds continued to strengthen its balance sheet and
increase its financial flexibility in 2011. to further
reduce future interest expense and extend maturity
dates, tds issued $300 million of 7 percent senior
notes and used the proceeds to redeem $282.5
million of 7.6 percent series a notes. U.s. Cellular
issued $342 million of 6.95 percent senior notes
and used the proceeds to redeem $330 million of
7.5 percent senior notes. tds will consider issuing
additional debt if favorable interest rates continue in
the long-term bond market, and there is a compelling
business use for such funds.
We ended 2011 with a strong balance sheet and
ample liquidity, giving us the flexibility to support
our businesses by investing in infrastructure
improvement and growth opportunities. tds also
For wireless and wireline carriers, 2011 was very
active on the regulatory front, as the Federal
Communications Commission (FCC) revised the
rules for universal service funding and intercarrier
compensation and proposed further rules to
advance reform. the new rules issued by the FCC in
november offer both benefits and challenges for our
companies, and many areas are still under review
and discussion, such as the availability of support for
the new mobility Fund, and issues related to rate-of-
return wireline companies, such as tds telecom.
We continue to advocate on the issues that impact
our ability to compete and to serve our customers
effectively, including spectrum availability, special
access costs, device exclusivity and interoperability,
and data roaming.
liquidity
(in millions)
quarterly dividendS per Share
$699.6
Available credit facilities
$218.8
Short-term government-backed securities
$563.3
Cash and cash equivalents
$45.1
Long-term government-backed securities
$27.4
Certificates of deposit
$.50
$.45
$.40
$.35
$.30
$.25
$.27
$.20
$.15
$.10
$.05
0
$.47
$.45
$.43
$.41
$.39
$.37
$.35
$.33
$.31
$.29
01
02
03
04
05
06
07
08
09
10
11
2 telephone and data systems
In 2011, U.s. Cellular improved its fi nancial
performance, increasing revenues and improving
profi tability, despite intense competition.
J.d. power customer
Service champion,
2011 and 2012
diFFerentiating thrOugh the cuStOMer
eXperience
U.s. Cellular consistently raises the standards for
outstanding customer experiences, and the company
was named a J.d. power Customer service Champion
in 2011 and 2012.
U.s. Cellular continues to differentiate itself from
other wireless carriers through the Belief project™,
which rewards customers for their loyalty with
relevant and meaningful benefi ts, such as early
phone upgrades and free accessories.
at the end of 2011, 3.1 million new and existing
customers—55 percent of retail customers—had
selected Belief plans, including higher-revenue data
plans, which helped to increase average revenue
per customer.
to drive subscriber growth, U.s. Cellular is also
improving the effectiveness of its advertising,
marketing and promotions. In 2011, U.s. Cellular
launched innovative social business programs that
leverage the “word-of-mouth” power of its most loyal
customers to increase awareness and drive potential
customers to the company’s retail stores and website.
increaSing SMartphOne SaleS and data uSe
as customer demand for smartphones and data
services continues to rise, U.s. Cellular is increasing
smartphone penetration by offering a competitive
range of android®-, Windows mobile®- and
BlackBerry®-based devices, including smartphones,
tablets and modems, at a variety of price points.
at the end of 2011, smartphone customers were
30 percent of U.s. Cellular’s postpaid base, compared
to 17 percent at the end of 2010. and smartphones
were 52 percent of total devices sold in the fourth
quarter of 2011, and 44 percent of devices sold
in the year. this drove corresponding growth in
data use—and in adoption of higher-revenue data
plans—which, along with an increase in data
roaming revenues, led to higher average revenue
per customer.
as the industry moved toward tiered data pricing,
U.s. Cellular prepared to introduce its own tiered
plans in 2012, including entry-level plans to
encourage customers to upgrade to their fi rst
smartphones.
average MOnthly revenue
per pOStpaid cuStOMer
SMartphOne cuStOMerS
aS a percentage OF pOStpaid
cuStOMerS
$50.99
$51.21
$51.84
$52.41
$53.35
$60
$50
$40
$30
$20
$10
0
30%
26%
23%
20%
30%
25%
20%
15%
17%
10%
5%
0
12/10
3/11
6/11
9/11
12/11
12/10
3/11
6/11
9/11
12/11
telephone and data systems 3
iMprOving agility and eFFiciency
as part of its commitment to investing for the future,
U.s. Cellular continued to improve its operational
systems in 2011 through major enablement initiatives
designed to help the company develop, market, sell
and deliver services faster and more effectively.
U.s. Cellular enhanced the online customer
experience with web-only promotions, instant
online sales support, a data estimator tool, and
ask & answer self-help capability. By early 2012,
U.s. Cellular customers could purchase devices
and accessories, change plans and redeem
rewards online. the company implemented more
customer targeting features of the enterprise data
Warehouse/Customer Relationship management
system, including adding data related to customer
transactions, prepaid customers, and marketing and
demographics.
U.s. Cellular also made strong progress on its new
billing and operational support system, which will
include a new point-of-sale system and consolidate
billing on one platform. the system is expected to be
fully operational in 2013.
“highest network quality performance
among Wireless cell phone users in
north central region”
– J.d. power and associates
enSuring OutStanding cOMMunicatiOnS
eXperienceS
even though growth in data use has signifi cantly
increased traffi c across U.s. Cellular’s network, the
company kept pace with that growth and received
its twelfth consecutive award for wireless call quality
from J.d. power and associates in 2011, and
received its thirteenth award in early 2012.
In conjunction with its partner, King street Wireless,
U.s. Cellular prepared its 4G lte network and
devices to support demand for data services and
provide faster and more satisfying data experiences,
while signifi cantly reducing the cost to carry
data traffi c.
the company also added capacity to its 3G network
and strengthened overall network capacity and
coverage by adding 237 new cell sites.
tdS telecOM
tds telecom performed well in 2011, increasing revenues through growth in data services, and reducing
operational costs and increasing effi ciency. the company kept physical access line losses moderate.
driving BrOadBand grOWth
tds telecom increased its IleC data revenues
34 percent in 2011 through hosted and managed
services acquisitions and strong broadband
penetration, driven by increases in the broadband
speeds available to customers. at the end of 2011,
more than 57 percent of the company’s IleC
residential customers had 5 mb or higher speeds,
compared to 38 percent in 2010, and 17 percent
had at least 10 mb service. more than 60 percent of
primary IleC residential lines had dsl service at the
end of 2011.
to increase broadband access in unserved rural
communities, tds telecom prepared to make
substantial progress on its 44 broadband stimulus
projects in 2012.
ilec reSidential cuStOMerS
By BrOadBand Speed
5 Mb
10 Mb
57%
38%
13%
17%
8%
7%
09
10
11
60%
50%
40%
30%
20%
10%
0
4 telephone and data systems
increaSing reSidential cuStOMer lOyalty
Broadband service is key to tds telecom’s
residential bundling strategy. the company’s most
loyal customers are those who buy a combination
of services. nearly 67 percent of tds telecom’s
residential IleC customers had double- or triple-play
bundles at the end of 2011, compared to 62 percent
in 2010.
the monthly churn rate is roughly half of a percent for
customers who purchase triple-play bundles of voice,
broadband and video from tds telecom—which is
less than one-third of the churn rate for customers
with only voice service.
tds telecom also prepared its network to launch
a proprietary IptV service, tds tV®, in 2012. this
video service, along with the dIsh network™ offering,
will be a strong component of the company’s bundling
strategy going forward, helping to increase both
revenues and customer retention.
Building a StrOng cOMMercial BaSe
meeting the data services needs of commercial
customers is a signifi cant growth focus for tds
telecom. In 2011, the company expanded both
the feature set and availability of its fl agship
commercial voice and data communications solution,
managedIp—now in 15 states—and achieved a
57 percent increase in the number of managedIp
customer stations. In the current economic
environment, business customers appreciate that
managedIp can help them improve productivity
without requiring a large capital investment.
to capitalize on the growing demand for hosted and
managed services, tds in 2011 acquired oneneck
It services, an It outsourcing and managed services
provider with a global client list. oneneck joins
VIsI, Inc. and team technologies, data center and
managed services providers acquired in 2010, which
are operated by tds telecom. Both team and VIsI
expanded their data center capacity in 2011 to meet
customer needs.
We are actively seeking additional opportunities to
build the hosted and managed services business
and expand our portfolio of solutions and services,
as we believe there is tremendous growth potential
in these areas, and it is a natural fi t with our core
competencies.
ilec reSidential Bundle penetratiOn
Triple Play
Double Play
managedip StatiOnS
(in thousands)
58% 59% 61%
62% 64% 65% 66% 67%
80%
70%
60%
50%
40%
30%
20%
10%
0
50
45
40
35
30
25
20
15
10
5
0
43.1
27.4
13.9
2.7
3/10
6/10
9/10
12/10
3/11
6/11
9/11
12/11
08
09
10
11
Suttle-StrauS
airadigM cOMMunicatiOnS
suttle-straus, tds’ majority-owned marketing and
graphic communications solutions provider, improved
its performance in 2011 by adding signifi cant new
commercial clients, and by emphasizing its bundled
packages of marketing services, from creative
development through print and distribution.
suttle-straus continues to increase effi ciency and
maintain a lean cost structure through continuous
improvement initiatives.
In the third quarter of 2011, tds acquired
63 percent of airadigm Communications, Inc., which
provides mobile services to subscribers in Wisconsin
through its airFire mobile brand, as well as machine-
to-machine and roaming services. airadigm operates
independently of U.s. Cellular, and tds does not
currently plan to combine the operations of these
companies.
telephone and data systems 5
lOOKing FOrWard
profi table growth for U.s. Cellular and tds telecom depends on attracting new customers and building
customer loyalty. our companies are united in their goal to improve performance by enhancing the quality
of the customer experience. We are also committed to improving our operational systems and processes,
and reallocating resources, to boost effi ciency and reduce our cost structures. and, we continue to
evaluate new revenue opportunities that would leverage our core competencies.
u.S. cellular
tdS telecOM
U.s. Cellular’s highest priorities in 2012 are to
increase customer additions, revenues and profi tability.
U.s. Cellular is competing to win with innovative
customer experiences that attract new customers,
build loyalty and help to increase revenue per
customer. In 2012, the company plans to:
• Grow net postpaid customer additions by providing
outstanding customer experiences, along with
competitive devices, attractive price plans, and
effective advertising and marketing programs.
• Increase the focus on the small-and-medium
business customer segment.
• drive smartphone penetration and use of data
®
®
services with a competitive portfolio of devices and
plans, including at least 13 new android -, Windows
®
mobile -, and BlackBerry -based smartphones, and
tiered data plans to meet a wide range of customer
needs. U.s. Cellular will introduce at least 20 total
devices in 2012, and continue to balance higher-end
smartphones with lower-cost devices to manage
costs.
• strengthen existing distribution and explore new
points of distribution.
• Bring 4G lte access to at least 50 percent of
customers and introduce at least six new lte-enabled
devices, while maintaining its award-winning network
quality.
• through strategic enablement initiatives, continue
to enhance the online customer experience and
develop deeper customer understanding, and
make substantial progress on the new billing and
operational support system.
6 telephone and data systems
tds telecom plans to increase its residential and
commercial market share through competitive new
services and products, enhanced network reliability, and
outstanding customer service. the company’s goals in
2012 are to:
• Build residential market share by increasing data
speeds, offering attractive service bundles, and building
loyalty through superior customer service.
• launch tds tV® in 19 markets to increase residential
bundle penetration and reduce churn.
• aggressively grow the tds managedIp commercial
customer base by introducing new features and
services and expanding availability.
• Build the scale and scope of the hosted and managed
services offerings through organic growth and carefully
targeted acquisitions.
• make signifi cant progress toward completing 44
broadband stimulus projects to increase broadband
access in rural communities.
the tds companies have many opportunities ahead.
While we operate in an environment of economic
and competitive challenges, we are well-prepared to
compete effectively and improve profi tability over the
long term. We will continue to enhance our customers’
experiences, offer innovative services and products, and
improve operational systems and processes across the
enterprise. We will also continue to participate actively
in the regulatory environment on issues that could
impact our companies.
We want to take this opportunity to thank each of the
12,300 associates and employees of the tds companies
for your many accomplishments in 2011, and for the work
you are now doing to move U.s. Cellular, tds telecom,
suttle-straus and airadigm forward. We also express our
deep appreciation to our shareholders and debt holders
for your continuing support.
Cordially yours,
leRoy t. Carlson, Jr.
President and Chief
Executive Offi cer
Walter C.d. Carlson
Chairman of the Board
TELEPHONE AND DATA SYSTEMS, INC.
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2011
Pursuant to SEC Rule 14a-3
The following audited financial statements and certain other financial information for the year ended
December 31, 2011, represent Telephone and Data Systems’ annual report to shareholders as required
by the rules and regulations of the Securities and Exchange Commission (‘‘SEC’’).
The following information was filed with the SEC on February 27, 2012 as Exhibit 13 to Telephone
and Data Systems’ Annual Report on Form 10-K for the year ended December 31, 2011. Such
information has not been updated or revised since the date it was originally filed with the SEC.
Accordingly, you are encouraged to review such information together with any subsequent information
that we have filed with the SEC and other publicly available information.
Telephone and Data Systems, Inc. and Subsidiaries
Exhibit 13
Financial Reports Contents
Management’s Discussion and Analysis of Results of Operations and Financial Condition . . . . . . .
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Results of Operations—Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Results of Operations—U.S. Cellular
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Results of Operations—TDS Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recent Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Application of Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement . . . . . . . . . . .
Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheet—Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheet—Liabilities and Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reports of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Quarterly Information (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Telephone and Data Systems, Inc. (‘‘TDS’’) is a diversified telecommunications company providing
high-quality telecommunications services to approximately 5.9 million wireless customers and 1.1 million
wireline equivalent access lines at December 31, 2011. TDS conducts substantially all of its wireless
operations through its 84%-owned subsidiary, United States Cellular Corporation (‘‘U.S. Cellular’’), and
provides wireline services through its incumbent local exchange carrier (‘‘ILEC’’) and competitive local
exchange carrier (‘‘CLEC’’) operations under its wholly owned subsidiary, TDS Telecommunications
Corporation (‘‘TDS Telecom’’). TDS conducts printing and distribution services through its majority-owned
subsidiary, Suttle-Straus, Inc. (‘‘Suttle-Straus’’) which represents a small portion of TDS’ operations. On
September 23, 2011, TDS acquired 63% of Airadigm Communications, Inc. (‘‘Airadigm’’). Airadigm is a
Wisconsin-based wireless service provider. Airadigm operates independently from U.S. Cellular and at
this time there are no plans to combine the operations of these subsidiaries. Airadigm’s financial results
were not significant to TDS’ operations for the year ended December 31, 2011.
The following discussion and analysis should be read in conjunction with TDS’ audited consolidated
financial statements and the description of TDS’ business included in Item 1 of the TDS Annual Report
on Form 10-K (‘‘Form 10-K’’) for the year ended December 31, 2011.
OVERVIEW
The following is a summary of certain selected information contained in the comprehensive
Management’s Discussion and Analysis of Financial Condition and Results of Operations that follows.
The overview does not contain all of the information that may be important. You should carefully read the
entire Management’s Discussion and Analysis of Financial Condition and Results of Operations and not
rely solely on the overview.
U.S. Cellular
U.S. Cellular provides wireless telecommunications services to approximately 5.9 million customers in five
geographic market areas in 26 states. As of December 31, 2011, U.S. Cellular’s average penetration rate
in its consolidated operating markets was 12.6%. U.S. Cellular operates on a customer satisfaction
strategy, striving to meet or exceed customer needs by providing a comprehensive range of wireless
products and services, excellent customer support, and a high-quality network. U.S. Cellular’s business
development strategy is to obtain interests in and access to wireless licenses in areas adjacent to or in
proximity to its other wireless licenses, thereby building contiguous operating market areas. U.S. Cellular
anticipates that grouping its operations into market areas will continue to provide it with certain
economies in its capital and operating costs.
Financial and operating highlights in 2011 included the following:
(cid:129) Total customers were 5,891,000 at December 31, 2011, including 5,608,000 retail customers (95% of
total).
(cid:129) On October 1, 2010, U.S. Cellular launched The Belief Project which introduced several innovative
service offerings including no contract after the first contract; simplified national rate plans; a loyalty
rewards program; overage protection, caps and forgiveness; a phone replacement program; and
discounts for paperless billing and automatic payment. As of December 31, 2011, 3.1 million new and
existing customers had subscribed to Belief Plans.
(cid:129) Retail customer net losses were 125,000 in 2011 compared to net losses of 15,000 in 2010. In the
postpaid category, there was a net loss of 117,000 in 2011, compared to net losses of 66,000 in 2010.
Prepaid net losses were 8,000 in 2011 compared to net additions of 51,000 in 2010.
(cid:129) Postpaid customers comprised approximately 95% of U.S. Cellular’s retail customers as of
December 31, 2011. The postpaid churn rate was 1.5% in 2011 and 2010.
1
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
(cid:129) Postpaid customers on smartphone service plans increased to 30% as of December 31, 2011
compared to 17% as of December 31, 2010. In addition, smartphones represented 44% of all devices
sold in 2011 compared to 25% in 2010.
(cid:129) Service revenues of $4,053.8 million increased $140.8 million year-over-year, primarily due to a 38%
increase in inbound roaming revenues of $95.0 million. Retail service revenues increased $27 million,
or 1%, due to an increase in average monthly service revenue per customer, partially offset by a
decrease in the average number of customers of 146,000.
(cid:129) Additions to Property, plant and equipment totaled $782.5 million, including expenditures to construct
cell sites, increase capacity in existing cell sites and switches, deploy fourth generation Long-term
Evolution (‘‘4G LTE’’) equipment, outfit new and remodel existing retail stores, develop new billing and
other customer management related systems and platforms, and enhance existing office systems. Total
cell sites in service increased by 237, or 3%, year-over-year to 7,882.
(cid:129) U.S. Cellular continued its efforts on a number of multi-year initiatives including the development of a
Billing and Operational Support System (‘‘B/OSS’’) with a new point-of-sale system to consolidate
billing on one platform; an Electronic Data Warehouse/Customer Relationship Management System to
collect and analyze information more efficiently and thereby build and improve customer relationships;
and a new Internet/Web platform to enable customers to complete a wide range of transactions and to
manage their accounts online.
U.S. Cellular anticipates that future results will be affected by the following factors:
– The Belief Project, which is intended to accelerate growth and have a positive impact on long-term
profitability by increasing postpaid gross additions over the next several years and by contributing to
incremental growth in average revenue per customer and improvement of U.S. Cellular’s already low
postpaid churn rate;
– Continued uncertainty related to current economic conditions and their impact on customer
purchasing and payment behaviors;
– Relative ability to attract and retain customers, including the ability to reverse recent customer net
losses, in a competitive marketplace in a cost effective manner;
– Increased competition in the wireless industry, including potential reductions in pricing for products
and services overall and impacts associated with the expanding presence of carriers offering
low-priced, unlimited prepaid service;
– Potential increases in prepaid customers, who generally generate lower ARPU, as a percentage of
U.S. Cellular’s customer base in response to changes in customer preferences and industry
dynamics;
– Increasing penetration in the wireless industry, requiring U.S. Cellular to grow revenues primarily
from selling additional products and services to its existing customers, increasing the number of
multi-device users among its existing customers, increasing data products and services and
attracting wireless customers switching from other wireless carriers rather than by adding customers
that are new to wireless service;
– Continued growth in revenues from data products and services and lower growth or declines in
revenues from voice services;
– Rapid growth in the demand for new data devices and services which may result in increased cost
of equipment sold and other operating expenses and the need for additional investment in network
capacity;
– Effects of industry consolidation on roaming revenues, service pricing and equipment pricing;
2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
– Costs of developing and enhancing office and customer support systems, including costs and risks
associated with the completion and potential benefits of the multi-year initiatives described above;
– Continued enhancements to U.S. Cellular’s wireless networks;
– Uncertainty related to various rulemaking proceedings underway at the Federal Communications
Commission (‘‘FCC’’), including uncertainty relating to the impacts on universal service funding,
intercarrier compensation and other matters of the Connect America Fund & Intercarrier
Compensation Reform Order and Further Notice of Proposed Rulemaking issued by the FCC on
October 27, 2011;
– The FCC’s adoption of mandatory roaming rules which will be of assistance in the negotiation of
data roaming agreements with other wireless operators in the future; and
– Exclusive arrangements between manufacturers of wireless devices and other carriers, or other
economic or competitive factors, that restrict U.S. Cellular’s access to devices desired by customers.
See ‘‘Results of Operations—U.S. Cellular.’’
2012 U.S. Cellular Estimates
U.S. Cellular’s estimates of full-year 2012 results are shown below. Such estimates represent U.S.
Cellular’s views as of the date of filing of TDS’ Form 10-K for the year ended December 31, 2011. Such
forward-looking statements should not be assumed to be current as of any future date. U.S. Cellular
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 such estimated
results.
Service revenues . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and accretion
expenses, and net gain or loss on asset
disposals and exchanges and impairment of
assets(2) . . . . . . . . . . . . . . . . . . . . . . . . . . Approx.
Adjusted OIBDA(3) . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . Approx.
2012
Estimated Results(1)
$ 4,050 - $4,150 million
200 - $300 million
$
$
$
$
600 million
800 - $900 million
850 million
2011
Actual Results
4,053.8 million
280.8 million
571.7 million
852.5 million
783.0 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) 2011 Actual Results include gains on asset disposals and exchanges, net of $1.9 million. The 2012
Estimated Results include only Depreciation, amortization and accretion expenses; such estimated
results do not include net gains or losses related to disposals and exchanges of assets or losses on
impairments of assets (since such transactions and their effects cannot be predicted).
(3) 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
3
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
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.
U.S. Cellular management currently believes that the foregoing estimates represent a reasonable view of
what is achievable considering actions that U.S. Cellular has taken and will be taking. However, the
current general economic and competitive conditions in the markets served by U.S. Cellular have created
a challenging environment that could continue to significantly impact actual results. U.S. Cellular expects
to continue its focus on customer satisfaction by delivering a high quality network, attractively priced
service plans, a broad line of wireless devices and other products, and outstanding customer service in
its company-owned and agent retail stores and customer care centers. U.S. Cellular believes that future
growth in its revenues will result primarily from selling additional products and services, including data
products and services, to its existing customers, increasing the number of multi-device users among its
existing customers, and attracting wireless users switching from other wireless carriers, rather than by
adding users that are new to wireless service. U.S. Cellular is focusing on opportunities to increase
revenues, pursuing cost reduction initiatives in various areas and implementing a number of initiatives to
enable future growth. The initiatives are intended, among other things, to allow U.S. Cellular to accelerate
its introduction of new products and services, better segment its customers for new services and
retention, sell additional services such as data, expand its Internet sales and customer service
capabilities, improve its prepaid products and services and reduce operational expenses over the long
term.
TDS Telecom
TDS Telecom seeks to be the preferred telecommunications solutions provider in its chosen markets for
both residential and commercial customers by developing and delivering high-quality products that meet
or exceed our customers’ needs and to outperform the competition by maintaining superior customer
service. TDS Telecom provides voice, high-speed data, and video services to residential customer
through value-added bundling of products. The commercial focus is to provide advanced IP-based voice
and data services, as well as information technology solutions. In addition, TDS Telecom seeks to grow
through strategic acquisitions, as demonstrated by the three Hosted and Managed Services companies
that TDS Telecom purchased in 2011 and 2010 which provide colocation, dedicated hosting, hosted
application management and cloud computing services. TDS Telecom’s strategy encompasses many
components, including:
(cid:129) Delivering superior customer service;
(cid:129) Developing a product portfolio targeted to our chosen customers;
(cid:129) Investing in networks and deploying advanced technologies;
(cid:129) Assessing the competitive environment and responding as appropriate;
(cid:129) Advocating with respect to state and federal regulations for positions that support its ability to provide
advanced telecommunications services to its customers; and
(cid:129) Exploring transactions to acquire or divest properties that would result in strengthening its operations.
Both TDS Telecom’s ILEC and CLEC operations are faced with significant challenges, including
competition from cable television, wireless and other wireline providers, decreases in intercarrier
compensation for the use of owned networks, increases in the cost for use of other providers’ networks,
and technologies such as Voice over Internet Protocol (‘‘VoIP’’). These challenges could have a material
adverse effect on the financial condition, results of operations and cash flows of TDS Telecom in the
future.
4
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Financial and operating highlights for 2011 include the following:
(cid:129) Overall equivalent access lines served by TDS Telecom decreased to 1,071,900 from 1,102,600 at
December 31, 2010.
(cid:129) Operating revenues increased $19.5 million or 2% to $815.4 million in 2011. The increase was primarily
due to Hosted and Managed Services acquisitions and an increase in ILEC data customers partially
offset by a decrease in revenues due to the decline in ILEC and CLEC physical access lines.
(cid:129) Operating expenses increased $20.7 million or 3% to $716.7 million in 2011 primarily due to operating
costs associated with recent acquisitions partially offset by discrete items including an asset loss in
2010 for which insurance proceeds were received in 2011, and the refund of certain prior year
regulatory contributions.
(cid:129) Additions to Property, plant and equipment totaled $191.2 million including strategic investment in
increased network capabilities for broadband services, Hosted and Managed Services expansion, IPTV
expansion, and software tools that improve management of the network and support sales and
customer service processes.
(cid:129) TDS acquired one Hosted and Managed Services company in 2011 whose services include hosted
application management, cloud services, managed hosting and infrastructure services. In 2010 TDS
acquired two companies which provided collocation services in addition to hosted and managed
services.
TDS anticipates that TDS Telecom’s future results will be affected by the following factors:
– Continued uncertainty related to current economic conditions and the challenging business
environment;
– Continued increases in competition from wireless and other wireline providers, cable providers, and
technologies such as VoIP and third-generation (‘‘3G’’) and fourth-generation (‘‘4G’’) mobile
technology;
– Continued increases in high-speed data services;
– Continued declines in physical access lines;
– Continued focus on customer retention programs, including discounting for ‘‘triple-play’’ bundles that
provide voice, DSL and TV;
– The effects of expansion of IPTV into additional markets in 2012;
– Continued growth in hosted and managed services;
– Continued focus on cost-reduction initiatives through product cost improvement and process
efficiencies;
– The effects on competition of recent industry consolidation and possible further industry consolidation;
– The Federal government’s disbursement of Broadband Stimulus Funds to bring broadband to rural
customers;
– Uncertainty related to the National Broadband Plan and other rulemaking by the FCC, including
uncertainty relating to future funding from the USF, intercarrier compensation and changes in access
reform; and
– Potential acquisitions by TDS Telecom, including additional potential acquisitions of hosted and
managed services businesses.
See ‘‘Results of Operations—TDS Telecom.’’
5
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
2012 TDS Telecom Estimates
TDS Telecom’s estimates of full-year 2012 results are shown below. Such estimates represent TDS
Telecom’s view as of the filing date of TDS’ Form 10-K for the year ended December 31, 2011. Such
forward-looking statements should not be assumed to be current as of any future date. 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 such estimated results.
2012
Estimated Results(1)
2011
Actual Results
ILEC and CLEC operations:
Operating revenues . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and accretion
expenses, and net gain or loss on asset
disposals and exchanges and loss on
impairment of assets(2) . . . . . . . . . . . . . . . . . Approx.
Adjusted OIBDA(3) . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
810 - $840 million
55 - $85 million
$ 815.4 million
98.7 million
$
190 million
245 - $275 million
150 - $180 million
$ 181.8 million
$ 280.9 million
$ 191.2 million
(1) These estimates are based on TDS Telecom’s current plans. Various other factors, including possible
acquisitions, dispositions or exchanges, could affect TDS Telecom’s estimated guidance in 2012.
(2) 2011 Actual Results include losses on asset disposals of $1.2 million. The 2012 Estimated Results
include only the estimate for Depreciation, amortization and accretion expenses; such estimated
results do not include net gains or losses related to asset disposals and exchanges or losses on
impairments of assets (since such transactions and their effects cannot be predicted).
(3) 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.
The foregoing estimates reflect the expectations of TDS Telecom’s management considering its strategic
plans and the current general economic and competitive conditions. In this challenging environment,
TDS Telecom will continue to focus on revenue growth through new service offerings as well as expense
reduction through product cost improvement and process efficiencies. In order to achieve these
objectives the Company has allocated capital expenditures for:
(cid:129) Process and productivity initiatives,
(cid:129) Increased network and product capabilities for broadband services,
(cid:129) The expansion of terrestrial TV to additional markets,
(cid:129) Success-based spending to sustain managedIP and IPTV growth, and
6
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
(cid:129) TDS Telecom will fund its share for projects approved under the Recovery Act to increase broadband
access in unserved areas. Under the Recovery Act, TDS Telecom will receive $105.1 million in federal
grants and will provide $30.9 million (a portion of which is included in 2012 estimated capital
expenditures) of its own funds to complete 44 projects. Under the terms of the grants, the projects
must be completed by June of 2015.
Cash Flows and Investments
TDS and its subsidiaries had cash and cash equivalents totaling $563.3 million; short-term investments in
the form of U.S. treasury securities, certificates of deposit and corporate notes aggregating
$246.3 million; long-term investments in the form of U.S. treasury securities and corporate notes of
$45.1 million; and borrowing capacity under their revolving credit facilities of $699.6 million as of
December 31, 2011. Also, during 2011, TDS and its subsidiaries generated $1,255.7 million of cash flows
from operating activities. Management believes that cash on hand, expected future cash flows from
operating activities and sources of external financing provide substantial liquidity and financial flexibility
and are sufficient to permit TDS and its subsidiaries to finance their contractual obligations and
anticipated capital and operating expenditures for the foreseeable future.
In May 2011, U.S. Cellular issued $342 million of 6.95% Senior Notes due 2060. In June 2011, the net
proceeds of such offering were used to redeem $330 million of U.S. Cellular’s 7.5% Senior Notes due
2034, which represents the entire outstanding amount of such notes. The redemption price of the 7.5%
Senior Notes was equal to 100% of the outstanding aggregate principal amount, plus accrued and
unpaid interest thereon until the redemption date.
In March 2011, TDS issued $300 million of 7% Senior Notes due 2060. In May 2011, the net proceeds of
such offering were used to redeem $282.5 million of TDS’ 7.6% Series A Notes due 2041, which
represents the entire outstanding amount of such notes. The redemption price of the 7.6% Series A
Notes was equal to 100% of the outstanding aggregate principal amount, plus accrued and unpaid
interest thereon until the redemption date.
See ‘‘Financial Resources’’ and ‘‘Liquidity and Capital Resources’’ below for additional information
related to cash flows, investments and revolving credit agreements.
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
RESULTS OF OPERATIONS—CONSOLIDATED
December 31,
2011
Change
Percentage
Change
2010
Change
Percentage
Change
2009
(Dollars in thousands, except per share amounts)
Operating revenues
U.S. Cellular . . . . . . . . . . . . . . $4,343,346 $ 165,665
19,546
TDS Telecom . . . . . . . . . . . . . .
8,431
All other(1) . . . . . . . . . . . . . . .
815,388
21,737
Total operating revenues . . . . .
5,180,471
193,642
4%
2%
63%
4%
$4,177,681 $ (36,199)
5,990
(2,905)
795,842
13,306
(1)% $4,213,880
789,852
1%
16,211
(18)%
4,986,829
(33,114)
(1)%
5,019,943
Operating expenses
U.S. Cellular . . . . . . . . . . . . . .
TDS Telecom . . . . . . . . . . . . . .
All other(1) . . . . . . . . . . . . . . .
4,062,566
716,737
38,666
86,358
20,729
20,144
2%
3%
>100%
3,976,208
696,008
18,522
Total operating expenses . . . . .
4,817,969
127,231
3%
4,690,738
87,853
(359)
(8,855)
78,639
2%
—
(32)%
3,888,355
696,367
27,377
2%
4,612,099
Operating income (loss)
U.S. Cellular . . . . . . . . . . . . . .
TDS Telecom . . . . . . . . . . . . . .
All other(1) . . . . . . . . . . . . . . .
280,780
98,651
(16,929)
79,307
(1,183)
(11,713)
39%
(1)%
>100%
201,473
99,834
(5,216)
(124,052)
6,349
5,950
Total operating income . . . . . .
362,502
66,411
22%
296,091
(111,753)
(38)%
7%
53%
(27)%
325,525
93,485
(11,166)
407,844
Other income and (expenses)
Equity in earnings of
unconsolidated entities . . . . . .
Interest and dividend income . . .
Interest expense . . . . . . . . . . . .
Gain on investment . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . .
82,538
9,145
(118,201)
24,103
3,658
Total other income (expenses)
.
1,243
Income before income taxes . . . . . . .
Income tax expense . . . . . . . . .
363,745
113,503
Net income . . . . . . . . . . . . . . . . . . .
250,242
(15,536)
(1,363)
(1,391)
24,103
5,747
11,560
77,971
18,315
59,656
(16)%
(13)%
(1)%
N/M
>100%
>100%
27%
19%
31%
98,074
10,508
(116,810)
—
(2,089)
7,342
(613)
9,399
—
(4,089)
(10,317)
12,039
285,774
95,188
(99,714)
(40,351)
190,586
(59,363)
8%
(6)%
7%
N/M
>100%
54%
(26)%
(30)%
(24)%
90,732
11,121
(126,209)
—
2,000
(22,356)
385,488
135,539
249,949
Less: Net income attributable to
noncontrolling interests, net of
tax . . . . . . . . . . . . . . . . . . .
Net income attributable to TDS
(49,676)
(3,939)
(9)%
(45,737)
12,865
22%
(58,602)
shareholders . . . . . . . . . . . . . . . .
. .
Preferred dividend requirement
200,566
(50)
55,717
—
38%
—
144,849
(50)
(46,498)
1
(24)%
2%
191,347
(51)
Net income available to common
shareholders . . . . . . . . . . . . . . . . $ 200,516 $ 55,717
38%
$ 144,799 $ (46,497)
(24)% $ 191,296
Basic earnings per share attributable
to TDS shareholders(2) . . . . . . . . . $
1.85 $
0.53
Diluted earnings per share attributable
to TDS shareholders(2) . . . . . . . . . $
1.83 $
0.52
40%
40%
$
$
1.32 $
(0.35)
(21)% $
1.31 $
(0.36)
(22)% $
1.67
1.67
(1) Consists of other corporate operations, intercompany eliminations between U.S. Cellular, TDS Telecom and corporate
investments.
(2) On January 13, 2012, TDS shareholders approved a Share Consolidation Amendment to the Restated Certificate of
Incorporation of TDS. Basic and diluted earnings per share attributable to TDS shareholders have been retroactively restated
to reflect the impact of the increased shares outstanding as a result of the Share Consolidation Amendment as of the
beginning of all periods presented. See Note 21—Subsequent Events in the Notes to the Consolidated Financial Statements
for additional information.
N/M—Percentage change not meaningful
8
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Operating Revenues and Expenses
See ‘‘Results of Operations—U.S. Cellular’’ and ‘‘Results of Operations—TDS Telecom’’ below for factors
that affected Operating revenues and expenses.
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents TDS’ share of net income from entities
accounted for by the equity method. TDS generally follows the equity method of accounting for
unconsolidated entities in which its ownership interest is less than or equal to 50% but equals or
exceeds 20% for corporations and 3% for partnerships and limited liability companies.
TDS’ investment in the Los Angeles SMSA Limited Partnership (‘‘LA Partnership’’) contributed
$55.3 million, $64.8 million and $64.7 million to Equity in earnings of unconsolidated entities in 2011,
2010 and 2009, respectively. TDS received cash distributions from the LA Partnership of $66.0 million in
each of 2011, 2010 and 2009.
Interest expense
The 2011 increase in interest expense was primarily the result of recognizing in the Consolidated
Statement of Operations $15.4 million of previously capitalized debt issuance costs related to senior
notes redeemed in May and June 2011, as described more fully in Note 13—Debt. This increase was
partially offset by increases in capitalized interest on projects related to network and system
enhancements and lower interest rates on outstanding debt.
The decrease in interest expense in 2010 compared to 2009 was primarily attributable to the redemption
of U.S. Cellular’s 8.75% Senior Notes in December, 2009.
Gain on investment
Included in Gain on investment of $24.1 million is a gain from TDS’ acquisition of 63% of Airadigm in
September 2011 and the adjustment of a pre-existing noncontrolling interest for which U.S. Cellular
purchased the remaining interest in May 2011, as more fully described in Note 8—Acquisitions,
Divestitures and Exchanges in the Notes to Consolidated Financial Statements.
Income tax expense
The effective tax rates on Income before income taxes and extraordinary item (‘‘pre-tax income’’) for
2011, 2010 and 2009 were 31.2%, 33.3% and 35.2%, respectively. The following significant discrete and
other items impacted income tax expense for these years:
2011—Includes a tax benefit of $26.9 million resulting from state tax law changes, a tax benefit of
$9.0 million resulting from statute of limitation expirations and tax expense of $6.0 million resulting from
correction of partnership tax basis relating to a prior period.
2010—Includes a tax benefit of $6.5 million resulting from favorable settlement of state income tax audits.
2009—Includes a tax benefit of $8.4 million resulting from a state tax law change.
See Note 5—Income Taxes in the Notes to Consolidated Financial Statements for further information on
the effective tax rate.
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Net income attributable to noncontrolling interests, net of tax
Net income attributable to noncontrolling interests, net of tax includes the noncontrolling public
shareholders’ share of U.S. Cellular’s net income, the noncontrolling shareholders’ or partners’ share of
certain U.S. Cellular subsidiaries’ net income or loss and other TDS noncontrolling interests.
Year Ended December 31,
2011
2010
2009
(Dollars in thousands)
Net income attributable to noncontrolling interest, net of tax U.S. Cellular
Noncontrolling public shareholders’ . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling shareholders’ or partners’ . . . . . . . . . . . . . . . . . . . . .
$28,934
20,742
$24,323
21,414
$38,929
19,673
$49,676
$45,737
$58,602
RESULTS OF OPERATIONS—U.S. CELLULAR
TDS provides wireless telephone service through U.S. Cellular, an 84%-owned subsidiary. U.S. Cellular
owns, manages and invests in wireless markets throughout the United States.
Following is a table of summarized operating data for U.S. Cellular’s consolidated operations.
As of December 31,(1)
2011
2010
2009
Customers
Customers on postpaid service plans in which the end user is a
customer of U.S. Cellular (‘‘postpaid customers’’) . . . . . . . . . .
5,302,000
5,416,000
5,482,000
Customers on prepaid service plans in which the end user is a
customer of U.S. Cellular (‘‘prepaid customers’’) . . . . . . . . . . .
306,000
313,000
262,000
Total retail customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End user customers acquired through U.S. Cellular’s
5,608,000
5,729,000
5,744,000
agreements with third parties (‘‘reseller customers’’) . . . . . . . .
283,000
343,000
397,000
Total customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,891,000
6,072,000
6,141,000
Total market population of consolidated operating markets(2) . . .
Market penetration in consolidated operating markets(2) . . . . .
46,888,000
46,546,000
46,306,000
12.6%
13.0%
13.3%
Total market population of consolidated operating and
non-operating markets(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,965,000
90,468,000
89,712,000
Market penetration in consolidated operating and non-operating
markets(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.4%
6.7%
6.8%
Employees
Full-time employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part-time employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cell sites in service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Smartphone penetration(3)(4) . . . . . . . . . . . . . . . . . . . . . . . . . .
7,711
1,032
8,743
7,882
8,200
1,049
9,249
7,645
8,070
1,170
9,240
7,279
30.5%
16.7%
7.0%
10
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
For the Year Ended December 31,(5)
2011
2010
2009
Net retail customer additions (losses)(6) . . . . . . . . . . . . . . . . .
Net customer losses(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(125,000)
(186,000)
(15,000)
(69,000)
37,000
(55,000)
Average monthly service revenue per customer(7)
Service revenues per Consolidated Statement of Operations
(000s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Divided by total average customers during period (000s) . . . . . .
Divided by number of months in each period . . . . . . . . . . . . . .
Average monthly service revenue per customer . . . . . . . . . .
$4,053,797
5,975
12
56.54
$
$3,913,001
6,121
12
53.27
$
$3,927,128
6,176
12
52.99
$
Postpaid churn rate(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Smartphones sold as a percent of total devices sold(3) . . . . . . .
1.5%
44.0%
1.5%
24.6%
1.6%
10.2%
(1) Amounts include results for U.S. Cellular’s consolidated operating markets as of December 31.
(2) Calculated using 2010, 2009 and 2008 Claritas population estimates for 2011, 2010 and 2009,
respectively. ‘‘Total market population of consolidated operating markets’’ is used only for the
purposes of calculating market penetration of consolidated operating markets, which is calculated by
dividing customers by the total market population (without duplication of population in overlapping
markets).
The total market population and penetration measures for consolidated operating markets apply to
markets in which U.S. Cellular provides wireless service to customers.
(3) Smartphones represent wireless devices which run on an AndroidTM, BlackBerry(cid:2) or Windows
Mobile(cid:2), operating systems, excluding tablets.
(4) Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid
customers.
(5) Amounts include results for U.S. Cellular’s consolidated operating markets for the period January 1
through December 31; operating markets acquired during a particular period are included as of the
acquisition date.
(6)
‘‘Net retail customer additions (losses)’’ represents the number of net customers added or lost to
U.S. Cellular’s retail customer base through its marketing distribution channels; this measure
excludes activity related to reseller customers and customers transferred through acquisitions,
divestitures or exchanges. ‘‘Net customer additions (losses)’’ represents the number of net
customers added to (deducted from) U.S. Cellular’s overall customer base through its marketing
distribution channels; this measure includes activity related to reseller customers but excludes
activity related to customers transferred through acquisitions, divestitures or exchanges.
(7) Management uses these measurements to assess the amount of revenue that U.S. Cellular
generates each month on a per customer basis. Average monthly revenue per customer is
calculated as shown in the table above. ‘‘Average customers during the period’’ is calculated by
adding the number of total customers at the beginning of the first month of the period and at the
end of each month in the period and dividing by the number of months in the period plus one.
Acquired and divested customers are included in the calculation on a prorated basis for the amount
of time U.S. Cellular included such customers during each period.
(8) Postpaid churn rate represents the percentage of the postpaid customer base that disconnects
service each month. This amount represents the average postpaid churn rate for the twelve months
of the respective year.
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Components of Operating Income
Year Ended December 31,
2011
(Dollars in thousands)
Retail service . . . . . . . . . . . . . . $3,486,522
348,309
Inbound roaming . . . . . . . . . . .
218,966
Other . . . . . . . . . . . . . . . . . . .
Service revenues . . . . . . . . . . 4,053,797
289,549
Equipment sales . . . . . . . . . . .
Total operating revenues . . . . 4,343,346
$ 26,976
95,019
18,801
140,796
24,869
165,665
System operations (excluding
Depreciation, amortization and
accretion reported below)
. . . .
Cost of equipment sold . . . . . . .
Selling, general and administrative
Depreciation, amortization and
929,379
782,300
1,779,203
74,448
39,319
(17,421)
accretion . . . . . . . . . . . . . . .
573,557
2,602
Loss on impairment of intangible
assets . . . . . . . . . . . . . . . . .
(Gain) loss on asset disposals and
exchanges, net . . . . . . . . . . .
—
—
(1,873)
(12,590)
>100%
Total operating expenses . . . 4,062,566
86,358
Operating income . . . . . . . . . . . $ 280,780
$ 79,307
2%
39%
Operating Revenues
Service revenues
Increase/
(Decrease)
Percentage
Change
2010
Increase/
(Decrease)
Percentage
Change
2009
1%
38%
9%
4%
9%
4%
9%
5%
(1)%
—
N/M
$3,459,546
253,290
200,165
3,913,001
264,680
4,177,681
$ (18,662)
515
4,020
(14,127)
(22,072)
(36,199)
854,931
742,981
1,796,624
52,077
(12)
49,220
570,955
6,020
(1)%
—
2%
—
(8)%
(1)%
6%
—
3%
1%
—
(14,000)
N/M
10,717
3,976,208
(5,452)
87,853
(34)%
2%
$3,478,208
252,775
196,145
3,927,128
286,752
4,213,880
802,854
742,993
1,747,404
564,935
14,000
16,169
3,888,355
$ 201,473
$(124,052)
(38)%
$ 325,525
Service revenues consist primarily of: (i) charges for access, airtime, roaming, recovery of regulatory
costs and value-added services, including data products and services, provided to U.S. Cellular’s retail
customers and to end users through third-party resellers (‘‘retail service’’); (ii) charges to other wireless
carriers whose customers use U.S. Cellular’s wireless systems when roaming, including long-distance
roaming (‘‘inbound roaming’’); and (iii) amounts received from the Federal USF.
Retail service revenues
The increase in Retail service revenues in 2011 was primarily due to an increase in the average monthly
retail service revenue per customer partially offset by a decrease in U.S. Cellular’s average customer
base. The decrease in 2010 was primarily due to a decrease in average customer base partially offset by
an increase in average monthly retail service revenue per customer.
The average number of customers decreased to 5,975,000 in 2011 from 6,121,000 in 2010, driven by
reductions in postpaid, reseller and prepaid customers. The average number of customers in 2010
decreased from 6,176,000 in 2009 driven by reductions in postpaid and reseller customers.
Average monthly retail service revenue per customer increased to $48.63 in 2011 from $47.10 in 2010,
and in 2010 increased slightly from $46.93 in 2009. The average monthly retail service revenue increase
in 2011 from 2010 reflect the impact of a larger portion of the customer base subscribing to rate plans
that include data access and higher ARPU Belief Plans, and consequently, higher monthly service plan
rates. The average monthly retail service revenue increase in both years also includes the impact of a
reduction in the number of reseller customers, who typically generate lower average monthly revenues.
U.S. Cellular expects continued pressure on revenues in the foreseeable future due to industry
competition for customers and related effects on pricing of service plan offerings offset to some degree
by continued adoption of smartphones and data usage.
As discussed in the Overview section above, on October 1, 2010, U.S. Cellular introduced The Belief
Project, which allows customers selecting Belief Plans to earn loyalty reward points. U.S. Cellular
accounts for loyalty reward points under the deferred revenue method. Under this method, U.S. Cellular
12
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
allocates a portion of the revenue billed to customers under the Belief Plans to the loyalty reward points.
The revenue allocated to these points is initially deferred in the Consolidated Balance Sheet and is
recognized in future periods when the loyalty reward points are redeemed or used. Application of the
deferred revenue method of accounting related to loyalty reward points resulted in deferring net revenues
of $31.8 million in 2011 and $7.1 million in 2010. These amounts are included in the Customer deposits
and deferred revenues in the Consolidated Balance Sheet at December 31, 2011 and December 31,
2010.
Inbound roaming revenues
Inbound roaming revenues increased $95.0 million, or 38% in 2011 compared to 2010 as an increase in
revenues from data roaming was partially offset by a decline in voice roaming revenues. In 2010,
inbound roaming revenues were relatively flat compared to 2009 as an increase in data roaming
revenues was mostly offset by a decrease in voice roaming revenues. Inbound roaming revenues
declined significantly in 2009 as a result of Verizon’s acquisition of Alltel in early 2009 and the
combination of these entities’ network footprints. The increase in Inbound roaming revenues in 2011
represents the positive impact of increasing data usage by the customers of U.S. Cellular’s roaming
partners. U.S. Cellular expects continued growth in Inbound roaming revenue but expects that the rate of
growth in future years will be less than the rate experienced in 2011.
Other revenues
Other revenues increased by $18.8 million, or 9%, in 2011 compared to 2010. This increase was driven
primarily by increased ETC revenues due to expanded eligibility in certain states and adjustments by the
Universal Service Administrative Company (‘‘USAC’’) that reduced amounts received in prior years. In
2010, Other revenues increased by $4.0 million, or 2%, primarily due to increases in other revenues from
tower and spectrum leases offset by a decrease in ETC revenues. The decrease in ETC revenues in
2010 was primarily the result of a retroactive adjustment made by USAC resulting in a reduction of
revenues of $3.6 million. U.S. Cellular was eligible to receive ETC funds in sixteen states in 2011, 2010
and 2009. ETC revenues recorded in 2011, 2010 and 2009 were $160.5 million, $143.9 million and
$150.7 million, respectively.
On November 18, 2011 the FCC released a Report and Order and Further Notice of Proposed
Rulemaking (‘‘Reform Order’’) adopting reforms of its universal service and intercarrier compensation
mechanisms, and proposing further rules to advance reform. The Reform Order substantially revises the
current USF high cost program and intercarrier compensation regime. The current USF program, which
supports voice services, is to be phased out over time and replaced with the Connect America Fund
(‘‘CAF’’), a new Mobility Fund, and a Remote Area Fund, which will collectively support broadband-
capable networks. Mobile wireless carriers such as U.S. Cellular are eligible to receive funds in both the
CAF and the Mobility Fund, although some areas that U.S. Cellular currently serves may be declared
ineligible for support if they are already served, or are subject to certain rights of first refusal by
incumbent carriers.
U.S. Cellular is contemplating participating in the Mobility Fund proceedings, and the CAF, but it is
uncertain whether U.S. Cellular will obtain support through any of these mechanisms. If U.S. Cellular is
successful in obtaining support, it will be required to meet certain regulatory conditions to obtain and
retain the right to receive support including, for example, allowing other carriers to collocate on U.S.
Cellular’s towers, allowing voice and data roaming on U.S. Cellular’s network, and submitting various
reports and certifications to retain eligibility each year. It is possible that additional regulatory
requirements will be imposed pursuant to the Commission’s Further Notice of Proposed Rulemaking.
U.S. Cellular’s current ETC support is scheduled to be phased down. Support for 2011 (excluding certain
adjustments) will be frozen on January 1, 2012 and reduced by 20% starting in July, 2012. Support will
be reduced by 20% in July of each subsequent year; however, if the Phase II Mobility Fund is not
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
operational by July 2014, the phase down will halt at that time with a 40% reduction in support, until
such time as the Phase II Mobility Fund is operational.
At this time, U.S. Cellular cannot predict the net effect of the FCC’s changes to the USF high cost
support program in the Reform Order or whether reductions in support will be offset with additional
support from the CAF or the Mobility Fund. Accordingly, U.S. Cellular cannot predict whether such
changes will have a material adverse effect on U.S. Cellular’s business, financial condition or results of
operations.
Equipment sales revenues
Equipment sales revenues include revenues from sales of wireless devices (handsets, modems and
tablets) and related accessories to both new and existing customers, as well as revenues from sales of
wireless devices and accessories to agents. All equipment sales revenues are recorded net of rebates.
U.S. Cellular offers a competitive line of quality wireless devices to both new and existing customers.
U.S. Cellular’s customer acquisition and retention efforts include offering new wireless devices to
customers at discounted prices; in addition, customers on the new Belief Plans receive loyalty reward
points that may be used to purchase a new wireless device or accelerate the timing of a customer’s
eligibility for a wireless device upgrade at promotional pricing. U.S. Cellular also continues to sell
wireless devices to agents; this practice enables U.S. Cellular to provide better control over the quality of
wireless devices sold to its customers, establish roaming preferences and earn quantity discounts from
wireless device manufacturers which are passed along to agents. U.S. Cellular anticipates that it will
continue to sell wireless devices to agents in the future.
The increase in 2011 equipment sales revenues was driven by a 15% increase in average revenue per
wireless device sold offset by a 4% decrease in total wireless devices sold. Average revenue per wireless
device sold increased due to a shift in customer preference to higher priced smartphones. The decrease
in 2010 equipment sales revenues was driven by declines of 5% in total wireless devices sold and 5% in
average revenue per wireless device sold. Average revenue per wireless device sold declined due to
aggressive promotional pricing across all categories of wireless devices.
Operating Expenses
System operations expenses (excluding Depreciation, amortization and accretion)
System operations expenses (excluding Depreciation, amortization and accretion) include charges from
telecommunications service providers for U.S. Cellular’s customers’ use of their facilities, costs related to
local interconnection to the wireline network, charges for cell site rent and maintenance of U.S. Cellular’s
network, long-distance charges, outbound roaming expenses and payments to third-party data product
and platform developers.
Key components of the overall increases in System operations expenses were as follows:
(cid:129) Expenses incurred when U.S. Cellular’s customers used other carriers’ networks while roaming
increased $45.4 million, or 22%, in 2011 and $2.6 million, or 1%, in 2010. The increases were primarily
due to increases from data roaming offset by a decline in voice roaming expenses.
(cid:129) Maintenance, utility and cell site expenses increased $26.4 million, or 7%, in 2011 and $25.2 million, or
8%, in 2010, driven primarily by increases in the number of cell sites within U.S. Cellular’s network.
The number of cell sites totaled 7,882, 7,645 and 7,279 in 2011, 2010 and 2009, respectively, as
U.S. Cellular continued to expand and enhance coverage in its existing markets. The increases in
expenses were also due to an increase in software maintenance costs to support rapidly growing data
needs.
(cid:129) Customer usage expenses increased by $2.7 million, or 1%, in 2011, and $24.2 million, or 9%, in 2010,
primarily due to an increase in data usage in both years.
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
U.S. Cellular expects total system operations expenses to increase on a year-over-year basis in the
foreseeable future to support the continued growth in cell sites and other network facilities as it
continues to add capacity, enhance quality and deploy new technologies as well as to support increases
in total customer usage, particularly data usage.
Cost of equipment sold
Cost of equipment sold increased by 5% in 2011 compared to 2010 and remained relatively flat in 2010
compared to 2009. In both years, a decline in total wireless devices sold was offset by an increase in the
average cost per wireless device sold due to a shift in the mix of sales to wireless devices with expanded
capabilities, such as smartphones.
U.S. Cellular’s loss on equipment, defined as equipment sales revenues less cost of equipment sold,
was $492.8 million, $478.3 million and $456.2 million for 2011, 2010 and 2009, respectively. U.S. Cellular
expects loss on equipment to continue to be a significant cost in the foreseeable future as wireless
carriers continue to use device availability and pricing as a means of competitive differentiation. In
addition, U.S. Cellular expects increasing sales of data centric wireless devices such as smartphones
and tablets to result in higher equipment subsidies over time; these devices generally have higher
purchase costs which cannot be recovered through proportionately higher selling prices to customers.
Smartphones sold as a percentage of total devices sold was 44%, 25% and 10% in 2011, 2010 and
2009, respectively.
Selling, general and administrative expenses
Selling, general and administrative expenses include salaries, commissions and expenses of field sales
and retail personnel and facilities; telesales department salaries and expenses; agent commissions and
related expenses; corporate marketing and merchandise management; and advertising expenses.
Selling, general and administrative expenses also include bad debts expense, costs of operating
customer care centers and corporate expenses.
Key components of the net changes in Selling, general and administrative expenses were as follows:
2011—
(cid:129) Selling and marketing expenses decreased by $13.7 million, or 2%, primarily due to lower advertising
costs as a result of shifting advertising efforts to more cost effective methods as well as lower
commissions expense reflecting fewer eligible transactions.
(cid:129) General and administrative expenses decreased by $3.7 million, reflecting a discrete adjustment to
property tax expense and continued cost containment efforts. See footnotes to Consolidated Quarterly
Information for additional information.
2010—
(cid:129) Selling and marketing expenses increased by $9.3 million, or 1%, primarily due to higher sales related
expenses and higher advertising expenses due to an increase in media purchases, partially offset by
lower commissions expense reflecting fewer eligible customer additions. In 2010, media purchases
included advertising expenses related to the launch of The Belief Project.
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
(cid:129) General and administrative expenses increased $39 million, or 4%, due to higher costs related to
investments in multi-year initiatives for business support systems as described in the Overview section;
and higher USF contributions (most of the USF contribution expense is offset by revenues for amounts
passed through to customers). These increases were partially offset by a reduction in bad debts
expense.
U.S. Cellular expects Selling, general and administrative expenses to increase on a year-over-year basis
driven primarily by increases in expenses associated with acquiring, serving and retaining customers, as
well as costs related to its multi-year initiatives.
Depreciation, amortization and accretion
Depreciation, amortization and accretion expense was relatively flat in 2011 and 2010 compared to the
prior year.
See ‘‘Financial Resources’’ and ‘‘Liquidity and Capital Resources’’ for a discussion of U.S. Cellular’s
capital expenditures.
Loss on impairment of intangible assets
There was no Loss on impairment of intangible assets in 2011 or 2010.
U.S. Cellular recognized impairment losses on licenses of $14.0 million in 2009. The impairment losses in
2009 were recognized as a result of the annual impairment assessment of licenses and goodwill
performed during the fourth quarter of 2009. The assessment indicated that the fair value of certain
U.S. Cellular operating licenses had declined compared to the fair values of those licenses as of
December 31, 2008.
RESULTS OF OPERATIONS—TDS TELECOM
TDS conducts its wireline operations through TDS Telecom, a wholly owned subsidiary. The following
table summarizes operating data for TDS Telecom’s ILEC and CLEC operations:
As of December 31,
ILEC
2011
2010
2009
Equivalent access lines(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Physical access lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High-speed data customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
managedIP stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-distance customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
754,400
482,000
238,400
6,900
371,500
767,200
507,700
227,700
3,600
370,100
775,900
536,300
208,300
1,900
362,800
CLEC
Equivalent access lines(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High-speed data customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
managedIP stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
317,500
28,900
36,200
335,400
33,100
23,800
355,900
36,900
12,000
TDS Telecom Employees
Full-time employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part-time employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,817
31
2,848
2,495
38
2,533
2,529
36
2,565
(1)
‘‘Equivalent access lines’’ are the sum of physical access lines and high-capacity data lines adjusted
to estimate the equivalent number of physical access lines in terms of capacity, plus the number of
managed Internet Protocol telephony (‘‘managedIP’’) stations. A physical access line is the individual
circuit connecting a customer to a telephone company’s central office facilities.
16
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
(2) The decline in equivalent access lines is primarily the result of a shift in marketing focus from
residential and commercial customers to exclusively commercial customers.
TDS Telecom Total (ILEC and CLEC Operations)
Components of Operating Income
Year Ended December 31,
(Dollars in thousands)
Operating revenues
2011
Change
Percentage
Change
2010
Change
Percentage
Change
2009
ILEC revenues . . . . . . . . . . . . . . . . . . . . . $644,991 $27,597
(7,652)
CLEC revenues . . . . . . . . . . . . . . . . . . . .
(399)
Intra-company elimination . . . . . . . . . . . . . .
180,332
(9,935)
4% $617,394 $ 17,867
(11,391)
(4)% 187,984
(486)
(9,536)
(4)%
3% $599,527
(6)% 199,375
(9,050)
(5)%
TDS Telecom operating revenues . . . . . . .
815,388
19,546
2%
795,842
5,990
1%
789,852
Operating expenses
ILEC expenses . . . . . . . . . . . . . . . . . . . . .
CLEC expenses . . . . . . . . . . . . . . . . . . . .
Intra-company elimination . . . . . . . . . . . . . .
548,754
177,918
(9,935)
29,292
(8,164)
(399)
519,462
6%
(4)% 186,082
(9,536)
(4)%
10,065
(9,938)
(486)
2%
509,397
(5)% 196,020
(9,050)
(5)%
TDS Telecom operating expenses . . . . . . .
716,737
20,729
3%
696,008
(359)
—
696,367
TDS Telecom operating income . . . . . . . . . . . $ 98,651 $ (1,183)
(1)% $ 99,834 $ 6,349
7% $ 93,485
ILEC Operations
Components of Operating Income
Year Ended December 31,
2011
Change
Percentage
Change
2010
Change
Percentage
Change
2009
(Dollars in thousands)
Operating revenues
Voice revenues . . . . . . . . . . . . . . . . . . . . . . . $170,238 $ (9,301)
43,421
Data revenues . . . . . . . . . . . . . . . . . . . . . . .
(6,191)
Network access revenues . . . . . . . . . . . . . . . .
(332)
Miscellaneous revenues . . . . . . . . . . . . . . . . .
169,450
265,773
39,530
(5)% $179,539 $ (7,684)
22,347
34%
126,029
688
(2)% 271,964
2,516
39,862
(1)%
(4)% $187,223
22% 103,682
271,276
—
37,346
7%
Total operating revenues . . . . . . . . . . . . . . . .
Operating expenses
Cost of services and products (excluding
depreciation, amortization and accretion
reported below) . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . .
Depreciation, amortization and accretion . . . . . .
Loss on asset disposals, net . . . . . . . . . . . . . .
644,991
27,597
4%
617,394
17,867
3% 599,527
215,093
173,949
158,554
1,158
18,795
929
9,179
389
10%
1%
6%
51%
196,298
173,020
149,375
769
2,268
2,515
6,462
(1,180)
1% 194,030
1% 170,505
5% 142,913
1,949
(61)%
Total operating expenses . . . . . . . . . . . . . . .
548,754
29,292
6%
519,462
10,065
2% 509,397
Total operating income . . . . . . . . . . . . . . . . . . $ 96,237 $ (1,695)
(2)% $ 97,932 $ 7,802
9% $ 90,130
17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Operating Revenues
Voice revenues
Voice revenues consist of charges for the provision of local telephone exchange service and reselling
long-distance service. The decreases in Voice revenues in 2011 and 2010 were primarily driven by
declines in the average physical access lines of 5% and 6% respectively, which negatively impacted local
service revenues by $7.5 million and $8.3 million. Additionally, local service and long-distance revenues
decreased $1.6 million and $2.9 million in 2011 and 2010, respectively, due to discounts attributed to
bundled offerings, which encourage customers to subscribe to multiple services at lower monthly service
plan rates.
Acquisitions added $1.3 million to Voice revenues in 2010 compared to 2009.
Data revenues
Data revenues consist of charges for providing Internet and other data related services. Acquisitions of
the Hosted and Managed Services companies increased Data revenues $34.7 million and $11.3 million in
2011 and 2010, respectively. Revenues from Hosted and Managed Services companies comprised 28%
and 8% of Data revenues in 2011 and 2010, respectively.
Additionally, the growth in Data revenues in 2011 and in 2010 was due to growth in average High-speed
data customers of 6% and 12% in 2011 and 2010, respectively. These additional customers resulted in
increased Data revenues of $6.4 million in 2011 and $11.3 million in 2010. Increase in usage of other
data products also increased Data revenues by $1.9 million in 2011 and $2.0 million in 2010. These
increases were partially offset by decreases in Dial-up Internet customers which decreased Data
revenues $1.4 million and $2.9 million in 2011 and 2010, respectively.
Network access revenues
Network access revenues represent compensation from other telecommunication carriers for carrying
long-distance traffic on TDS Telecom’s local telephone network and for local interconnection. Network
access revenues decreased $4.2 million in 2011 due to a 9% decline in intra-state minutes of use and
$2.4 million due to declines in revenues received through inter-state regulatory recovery mechanisms.
Partially offsetting these decreases was an increase of $1.2 million in Network access revenues received
from state Universal Service Funding programs. TDS Telecom expects Network access revenues to
continue to decline in 2012.
Network access revenues increased by $2.0 million in 2010 primarily due to an increase in expenses
recoverable through inter-state regulatory recovery mechanisms. Acquisitions also added $2.6 million to
Network access revenues in 2010. Partially offsetting these increases was a $3.0 million decrease due to
a decline in intra-state minutes of use of 5%. Network access revenues also decreased comparatively in
2010 due to the settlement of the National Exchange Carrier Association’s interstate revenue pools for
the years 2003 through 2006 which contributed $1.7 million to revenues in 2009.
On November 18, 2011, the FCC issued a Report and Order and Further Notice of Proposed Rulemaking
(‘‘Reform Order’’) to establish a new, broadband-focused support mechanism, called the Connect
America Fund, and to reform the rules governing intercarrier compensation. Under the existing
intercarrier compensation system carriers recover their costs, in part, from one another. The existing
system generally ensures that TDS Telecom is able to recover its costs. The Reform Order established
certain rules for transitioning, over time, from the existing system to one where carriers will recover their
costs directly from their end user subscribers. The Reform Order also was accompanied by a Further
Notice of Proposed Rulemaking seeking comment on a range of follow up proposals. The future
proposed rulemaking is especially important to TDS Telecom, as numerous issues relevant to rate of
return carriers, such as TDS Telecom, will be addressed in it. The Reform Order is also the subject of
18
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
numerous Petitions for Reconsideration, which asks the FCC to reconsider portions of its decision, and it
is also the subject of numerous judicial appeals. TDS Telecom cannot predict the outcome of future
rulemaking, reconsideration and legal challenges and as a consequence, the impacts these may have on
TDS Telecom’s Network access revenues.
Miscellaneous revenues
Miscellaneous revenues, which include charges for selling direct broadcast satellite service and leasing,
selling, installing and maintaining customer premise equipment as well as other miscellaneous services,
increased $3.2 million and $3.6 million in 2011 and 2010, respectively, due to an increase in satellite TV
and terrestrial video subscribers and changes in promotions. Decreased business systems sales resulted
in a reduction of Miscellaneous revenues by $3.2 million in 2011 and $1.8 million in 2010.
Operating Expenses
Cost of services and products (excluding Depreciation, amortization and accretion)
Acquisitions increased Cost of services and products $19.1 million in 2011. Partially offsetting this
increase was $2.7 million of reduced network costs primarily resulting from improved circuit infrastructure
and traffic routing.
The increase in Cost of services and products expense in 2010 was primarily the result of $6.2 million of
expense from acquisitions. Additionally, labor related expense including employee and contractor
charges decreased $6.5 million due to workforce reduction initiatives.
Selling, general and administrative expenses
Acquisitions increased Selling, general and administrative expenses $9.9 million in 2011. Discrete items,
including; receipt of insurance proceeds in 2011 related to an asset loss recorded in 2010, the refund of
certain prior year regulatory contributions and the settlement of a legal dispute reduced Selling, general
and administrative expenses by $9.4 million in 2011.
The increase in Selling, general and administrative expenses in 2010 was primarily the result of
$5.6 million of expense from acquisitions. Other Selling, general and administrative expenses increased
$1.9 million due to higher Universal Service Fund contribution rates, and $1.2 million in legal and
consulting costs incurred to complete the acquisitions. A discrete expense of $1.6 million was also
recorded in 2010 for an asset loss for which an insurance claim was filed. Offsetting these increases was
the impact of workforce reductions made in 2009 including employee benefit modifications, which
decreased employee costs by $6.8 million in 2010.
Depreciation, amortization and accretion expense
Acquisitions increased depreciation, amortization and accretion expense $9.1 million and $4.7 million in
2011 and 2010, respectively.
19
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
CLEC Operations
Components of Operating Income
Year Ended December 31,
2011
Change
Percentage
Change
2010
Change
Percentage
Change
2009
(Dollars in thousands)
Retail revenues . . . . . . . . . . . . . . . . . . . $161,873 $(6,474)
(1,178)
Wholesale revenues . . . . . . . . . . . . . . . .
18,459
(4)% $168,347 $(10,264)
(1,127)
(6)%
19,637
(6)% $178,611
20,764
(5)%
Total operating revenues . . . . . . . . . . . .
Cost of services and products (excluding
depreciation, amortization and accretion
reported below) . . . . . . . . . . . . . . . . .
Selling, general and administrative
180,332
(7,652)
(4)% 187,984
(11,391)
(6)% 199,375
91,348
(5,586)
(6)%
96,934
(7,123)
(7)% 104,057
expenses . . . . . . . . . . . . . . . . . . . . .
Depreciation, amortization and accretion . .
Loss on asset disposals, net . . . . . . . . . .
64,509
21,976
85
402
(2,703)
(277)
1%
(11)%
(77)%
64,107
24,679
362
(3,001)
276
(90)
(4)%
1%
(20)%
67,108
24,403
452
Total operating expenses . . . . . . . . . . . .
177,918
(8,164)
(4)% 186,082
(9,938)
(5)% 196,020
Total operating income . . . . . . . . . . . . . . $ 2,414 $
512
27% $ 1,902 $ (1,453)
(43)% $ 3,355
Operating Revenues
Retail revenues
Retail revenues consist of charges to CLEC customers for the provision of direct telecommunication
services. Average CLEC equivalent access lines in service decreased 5% in 2011 and 8% in 2010, which
resulted in decreases in Retail revenues of $7.6 million and $12.8 million, respectively. Average
residential equivalent access lines decreased 24% in both 2011 and 2010 as the CLEC operations
continue to implement a strategic shift towards serving primarily a commercial subscriber base. The
average equivalent access lines related to commercial customers declined 1% and 3% for the same
periods. Average revenue per subscriber increased in both 2011 and 2010 resulting in higher revenues
of $1.1 million and $2.5 million, respectively.
Wholesale revenues
Wholesale revenues represent charges to other carriers for utilizing TDS Telecom’s network infrastructure.
The decrease in Wholesale revenues in 2011 was primarily driven by an 11% reduction in minutes of
use. Similarly, an 18% reduction in minutes of use resulted in a $2.5 million decrease to Wholesale
revenues in 2010 which was partially offset by a $1.1 million increase in special access revenues.
Operating Expenses
Cost of services and products (excluding Depreciation, amortization and accretion)
Cost of services decreased in 2011 and 2010, primarily due to reductions in purchased network services
of $5.5 million and $6.5 million, respectively, which have been driven by the decline in the residential
customer base.
Selling, general and administrative expenses
Selling, general and administrative expenses were relatively unchanged in 2011 as increases in payroll
related expense of $1.5 million were mostly offset by decreases in USF charges and bad debt expense.
Selling, general and administrative expenses decreased in 2010 primarily due to a $1.0 million reduction
in employee related expenses and a $0.8 million reduction in sales and marketing promotions.
20
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense decreased in 2011 primarily due to accelerated
depreciation recorded in 2010 on certain equipment due to technological obsolescence as well as
certain assets becoming fully depreciated in 2011. Depreciation, amortization and accretion expense was
relatively unchanged in 2010.
INFLATION
Management believes that inflation affects TDS’ business to no greater or lesser extent than the general
economy.
RECENT ACCOUNTING PRONOUNCEMENTS
In general, recent accounting pronouncements did not have and are not expected to have a significant
effect on TDS’ financial condition and results of operations.
See Note 1—Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the
Notes to Consolidated Financial Statements for information on recent accounting pronouncements.
FINANCIAL RESOURCES
TDS operates a capital- and marketing-intensive business. TDS utilizes cash from its operating activities,
cash proceeds from divestitures and disposition of investments, short-term credit facilities, long-term debt
financing and cash on hand to fund its acquisitions (including licenses), construction costs, operating
expenses and share repurchases. Cash flows may fluctuate from quarter to quarter and year to year due
to seasonality, the timing of acquisitions, capital expenditures and other factors. The table below and the
following discussion in this Financial Resources section summarize TDS’ cash flow activities in 2011,
2010 and 2009.
2011
2010
2009
(Dollars in thousands)
Cash flows from (used in)
Operating activities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,255,711
(866,089)
(168,030)
$ 1,076,207
(1,208,038)
(200,955)
$1,097,354
(768,098)
(427,465)
Net increase (decrease) in cash and cash equivalents . . . . . . . .
$ 221,592
$ (332,786) $ (98,209)
(1)
In preparing its Consolidated Statement of Cash Flows for the year ended December 31, 2011, TDS
discovered certain errors related to the classification of outstanding checks with the right of offset
and related to the classification of Accounts payable for Additions to property, plant and equipment
as non-cash investing activities for purposes of preparing the Consolidated Statement of Cash
Flows. These errors resulted in the misstatement of Cash flows from operating activities and Cash
flows used in investing activities for the years ended December 31, 2010 and 2009. The amounts
herein have been revised to reflect the proper amounts. See Note 2—Revision of Prior Period
Amounts in the Notes to Consolidated Financial Statements for additional information.
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Cash Flows from Operating Activities
The following table presents Adjusted OIBDA and is included for purposes of analyzing changes in
operating activities. 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.
(Dollars in thousands)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash items
2011
2010
2009
$ 362,502
$ 296,091
$ 407,844
Depreciation, amortization and accretion . . . . . . . . . . . . . . . .
Loss on impairment of intangible assets . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
(Gain) loss on asset disposals, net
765,776
—
(810)
755,649
—
11,763
744,247
14,000
18,758
Adjusted OIBDA(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,127,468
$1,063,503
$1,184,849
(1) 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 may commonly be 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. See Note 18—Business Segment
Information in the Notes to Consolidated Financial Statements. 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.
Cash flows from operating activities in 2011 were $1,255.7 million, an increase of $179.5 million from
2010. Significant changes included the following:
(cid:129) Adjusted OIBDA, as shown in the table above, increased by $64.0 million primarily due to an increase
in operating income. See discussion in the ‘‘Results of Operations—U.S. Cellular’’ for factors that
affected U.S. Cellular operating income.
(cid:129) Income tax refunds, net of $67.0 million were recorded in 2011 compared to income tax payments, net
of $87.1 million in 2010 resulting in a $154.1 million year-over-year increase in cash flows. Tax refunds
of $43.0 million and $30.4 million were received in March and September 2011, respectively, related to
the 2010 tax year. TDS incurred a federal net operating loss in 2011 attributed to 100% bonus
depreciation applicable to qualified capital expenditures. TDS’ future federal income tax liabilities
associated with the current benefits being realized from bonus depreciation are accrued as a
component of Net deferred income tax liability (noncurrent) in the Consolidated Balance Sheet. TDS
expects federal income tax payments to substantially increase and remain at a higher level for several
years as the amount of TDS’ federal tax depreciation deduction substantially decreases as a result of
having accelerated depreciation into prior years. This expectation assumes that federal bonus
depreciation provisions are not enacted in future periods. To the extent further federal bonus
depreciation provisions are enacted, this expectation will change.
(cid:129) TDS recognized a $24.1 million Gain on investment, primarily resulting from two business acquisitions
in 2011. See Note 8—Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial
Statements for additional information related to these acquisitions.
22
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
(cid:129) Changes in Inventory required $13.4 million in 2011 and provided $40.7 million in 2010, resulting in a
$54.0 million year-over-year decrease in cash flows. This change was primarily due to higher inventory
levels and a change in inventory mix, resulting in a higher cost per unit.
(cid:129) Changes in Accounts payable provided $29.3 million in 2011 and required $47.8 million in 2010
causing a year-over-year decrease in cash flows of $77.1 million. Changes in Accounts payable were
driven primarily by payment timing differences related to network equipment and device purchases.
(cid:129) Changes in Customer deposits and deferred revenues provided $35.5 million in 2011 and $6.5 million
in 2010, resulting in a year-over-year increase in cash flows of $29.0 million. This change was primarily
driven by deferred revenues related to the loyalty reward program at U.S. Cellular.
(cid:129) Changes in Other assets and liabilities required $4.4 million in 2011 and provided $93.5 million in
2010, causing a year-over-year net decrease in cash flows of $97.9 million. In 2009, a $38.0 million
deposit was paid to the Internal Revenue Service (‘‘IRS’’) to eliminate any potential interest due to the
IRS subsequent to the date of the deposit. In 2010, after closure of the IRS audit for the tax years 2002
through 2005, the IRS returned TDS’ $38.0 million deposit. This $38.0 million was included in Change
in other assets and liabilities in 2010 as a cash inflow. Changes in amounts due to agents and accrued
rebates were the primary cause of the remaining $59.9 million year-over-year change in Other assets
and liabilities.
Cash flows from operating activities in 2010 were $1,076.2 million, an increase of $21.1 million from
2009. Significant changes included the following:
(cid:129) Adjusted OIBDA, as shown in the table above, decreased by $121.3 million primarily due to a
decrease in operating income. See discussion in the ‘‘Results of Operations’’ for factors that affected
operating income.
(cid:129) Changes in Inventory provided $40.7 million in 2010 and required $34.6 million in 2009, resulting in a
$75.2 million year-over-year increase in cash flows. Inventory units on hand were lower in 2010 than
2009 reflecting differences in purchases and actual versus expected sales in the respective periods.
(cid:129) Changes in Accounts payable required $47.8 million in 2010 and provided $23.1 million in 2009
causing a year-over-year decrease in cash flows of $70.9 million. Changes in Accounts payable were
driven primarily by payment timing differences.
(cid:129) A $34.1 million increase in income tax payments. Income tax payments, net of refunds, were
$87.1 million and $53.0 million in 2010 and 2009, respectively.
(cid:129) The change in Accrued taxes during 2010 includes an outflow of approximately $25 million related to
sales tax payments made during 2010 related to prior years. TDS had accrued these sales taxes at
December 31, 2009. The 2009 period does not include a similar outflow related to the retroactive
payment of sales taxes.
(cid:129) Changes in Other assets and liabilities provided $93.5 million in 2010 and required $43.6 million in
2009, resulting in a $137.1 million year-over-year increase in cash flows. As described above, in 2009,
a $38.0 million deposit was paid to the IRS. In 2010, the IRS returned TDS’ $38.0 million deposit. This
$38.0 million was included in Change in other assets and liabilities in 2010, as a cash inflow, and in
2009, as a cash outflow. This activity resulted in a year-over-year increase in cash flows of $76.0 million
from 2009 to 2010. Changes in Prepaid expenses, Other current liabilities and amounts due to agents
were the primary cause of the remaining $64.4 million year-over-year change in Other assets and
liabilities.
(cid:129) Other significant increases in cash flows include Distribution from unconsolidated entities (increased
cash inflow year-over-year by $9.3 million) and Changes in customer deposits and deferred revenues
(increased cash inflow year-over-year $15.2 million, which includes $7.1 million of deferred revenues
related to loyalty reward points).
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Cash Flows from Investing Activities
TDS makes substantial investments to acquire wireless licenses and properties and to construct, operate
and upgrade modern high-quality communications networks and facilities as a basis for creating
long-term value for shareholders. In recent years, rapid changes in technology and new opportunities
have required substantial investments in potentially revenue-enhancing and cost-reducing upgrades to
TDS’ networks. Cash flows used for investing activities also represent cash required for the acquisition of
properties or licenses.
Capital expenditures (i.e. additions to property, plant and equipment and system development
expenditures) totaled $987.2 million in 2011, $755.0 million in 2010 and $671.2 million in 2009. Cash
used for additions to property, plant and equipment totaled $971.8 million, $739.2 million and
$657.8 million in 2011, 2010 and 2009, respectively. These expenditures were made to provide for
customer and usage growth, to upgrade service and to take advantage of service-enhancing and
cost-reducing technological developments in order to maintain competitive services.
(cid:129) U.S. Cellular’s capital expenditures totaled $782.5 million in 2011, $583.1 million in 2010 and
$546.8 million in 2009 representing expenditures to construct cell sites, increase capacity in existing
cell sites and switches, deploy 4G LTE technology, develop new and enhance existing office systems,
and construct new and remodel existing retail stores.
(cid:129) TDS Telecom’s capital expenditures for its ILEC operations totaled $168.8 million in 2011,
$137.0 million in 2010 and $98.3 million in 2009 representing expenditures to upgrade plant and
equipment to provide enhanced services. TDS Telecom’s capital expenditures for its CLEC operations
totaled $22.4 million in 2011, $20.3 million in 2010 and $22.2 million in 2009 for switching and other
network facilities.
(cid:129) Corporate and other capital expenditures totaled $13.5 million in 2011, $14.6 million in 2010 and
$3.9 million in 2009.
Cash payments for acquisitions in 2011, 2010 and 2009 were as follows:
Cash Payment for Acquisitions(1)
(Dollars in millions)
U.S. Cellular licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional interests in U.S. Cellular businesses . . . . . . . . . . . . . . . . . . . . . . . .
TDS Telecom business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Reportable Segment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
$ 4.4
19.4
95.9
(14.2)
$17.1
—
64.6
—
$15.8
0.3
13.2
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$105.5
$81.7
$29.3
(1) Cash amounts paid for the acquisitions may differ from the purchase price due to cash acquired in
the transactions and cash payments remitted in periods subsequent to the respective transactions.
(2) Cash held by Airadigm at acquisition. TDS acquired 63% of Airadigm on September 23, 2011.
TDS invested $180.9 million and $493.8 million in U.S. treasuries and corporate notes with maturities
greater than three months from the acquisition date in 2011 and 2010, respectively. TDS invested
$109.2 million in certificates of deposit (‘‘CDs’’) in 2009. TDS realized cash proceeds of $393.2 million,
$106.3 million and $23.7 million related to the maturities of its investments in U.S. treasuries, corporate
notes and certificates of deposit in 2011, 2010 and 2009, respectively.
Cash Flows from Financing Activities
Cash flows from financing activities primarily reflect issuances and repayments on revolving credit
facilities, proceeds from issuance of long-term debt, cash used for repayments of long-term debt,
24
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
distributions to noncontrolling interests, repurchases of TDS and U.S. Cellular shares, and cash proceeds
from reissuance of common shares pursuant to stock-based compensation plans. TDS has used
short-term debt to finance acquisitions, to repurchase shares and for other general corporate purposes.
Cash flows from operating activities and, from time to time, the sale of non-strategic wireless and other
investments have been used to reduce debt.
In September 2011, Airadigm paid $32.7 million to the FCC in satisfaction of amounts due pursuant to
Airadigm’s plan of reorganization. See Note 8—Acquisitions, Divestitures and Exchanges in the Notes to
Consolidated Financial Statements for additional information related to this acquisition. There were no
short-term borrowings or repayments during 2010 or 2009.
In May 2011, U.S. Cellular issued $342.0 million of 6.95% Senior Notes due 2060, and paid related debt
issuance costs of $11.0 million. The net proceeds from the 6.95% Senior Notes were used primarily to
redeem $330.0 million of U.S. Cellular’s 7.5% Senior Notes in June 2011. The redemption price of the
7.5% Senior Notes was equal to 100% of the principal amount plus accrued and unpaid interest thereon
to the redemption date.
In March 2011, TDS issued $300.0 million of 7% Senior Notes due 2060, and paid related debt issuance
costs of $9.7 million. The net proceeds from the 7% Senior Notes were primarily used to redeem
$282.5 million of TDS’ 7.6% Series A Notes in May 2011. The redemption price of the 7.6% Series A
Notes was equal to 100% of the outstanding aggregate principal amount, plus accrued and unpaid
interest thereon to the redemption date.
In November 2010, TDS issued $225.0 million aggregate principal amount of 6.875% Senior Notes due in
2059. In December 2010, TDS redeemed $217.5 million aggregate principal amount of the outstanding
$500 million aggregate principal amount of its 7.6% Series A Senior Notes due 2041. The redemption
price of $222 million was 100% of the outstanding aggregate principal amount, plus accrued and unpaid
interest thereon until the redemption date. The redemption was financed with the net proceeds from the
issuance of $225 million in aggregate principal amount of TDS’ 6.875% Senior Notes.
In 2009, U.S. Cellular redeemed its outstanding 8.75% Senior Notes for their principal amount of
$130.0 million and retired its 9% installment notes payable in the amount of $10.0 million.
TDS repurchased Special Common Shares and Common Shares for $21.5 million, $68.1 million and
$176.6 million in 2011, 2010 and 2009, respectively. U.S. Cellular repurchased Common Shares for
$62.3 million, $52.8 million and $33.6 million in 2011, 2010 and 2009, respectively. See Note 16—
Common Stockholders’ Equity in the Notes to Consolidated Financial Statements for additional
information related to these transactions.
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Free Cash Flow
The following table presents Free cash flow. TDS believes that Free cash flow as reported by TDS may
be useful to investors and other users of its financial information in evaluating the amount of cash
generated by business operations, after capital expenditures.
(Dollars in thousands)
Cash flows from operating activities . . . . . . . . . . . . . . . . . . . . .
. . . . .
Cash used for additions to property, plant and equipment
$1,255,711
(971,759)
$1,076,207
(739,222)
$1,097,354
(657,817)
Free cash flow(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 283,952
$ 336,985
$ 439,537
2011
2010
2009
(1) 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.
See Cash flows from Operating Activities and Cash flows from Investing Activities for details on the
changes to the components of Free cash flow.
LIQUIDITY AND CAPITAL RESOURCES
TDS believes that existing cash and investments balances, expected cash flows from operating activities
and funds available under its revolving credit facilities provide substantial liquidity and financial flexibility
for TDS to meet its normal financing needs (including working capital, construction and development
expenditures and share repurchases under approved programs) for the foreseeable future. In addition,
TDS and its subsidiaries may have access to public and private capital markets to help meet their
financing needs.
Consumer spending significantly impacts TDS’ operations and performance. Factors that influence levels
of consumer spending include: unemployment rates, increases in fuel and other energy costs, conditions
in residential real estate and mortgage markets, labor and health care costs, access to credit, consumer
confidence and other macroeconomic factors. Changes in these and other economic factors could have
a material adverse effect on demand for TDS’ products and services and on TDS’ financial condition and
results of operations.
TDS cannot provide assurances that circumstances that could have a material adverse effect on its
liquidity or capital resources will not occur. Economic conditions, changes in financial markets or other
factors could restrict TDS’ liquidity and availability of financing on terms and prices acceptable to TDS,
which could require TDS to reduce its construction, development, acquisition or share repurchase
programs. Such reductions could have a material adverse effect on TDS’ business, financial condition or
results of operations.
Cash and Cash Equivalents
At December 31, 2011, TDS had $563.3 million in Cash and cash equivalents. Of this amount,
$424.2 million consisted of Cash and cash equivalents held by U.S. Cellular. Cash and cash equivalents
include cash and short-term, highly liquid investments with original maturities of three months or less.
The primary objective of TDS’ Cash and cash equivalents investment activities is to preserve principal. At
December 31, 2011, the majority of TDS’ Cash and cash equivalents was held in money market funds
that invest exclusively in U.S. Treasury securities or in repurchase agreements fully collateralized by such
obligations. TDS monitors the financial viability of the money market funds and direct investments in
which it invests and believes that the credit risk associated with these investments is low.
26
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Short-term and Long-term Investments
At December 31, 2011, TDS had $246.3 million in Short-term investments and $45.1 million in Long-term
investments. Of this amount, $127.0 million and $30.1 million consisted of Short-term investments and
Long-term investments, respectively, held by U.S. Cellular. Short-term and Long-term investments consist
of certificates of deposit (short-term only), U.S. treasuries and corporate notes, all of which are
designated as held-to-maturity investments, and are recorded at amortized cost in the Consolidated
Balance Sheet. The corporate notes are guaranteed by the Federal Deposit Insurance Corporation. For
these investments, TDS’ objective is to earn a higher rate of return on funds that are not anticipated to
be required to meet liquidity needs in the near term, while maintaining a low level of investment risk. See
Note 4—Fair Value Measurements in the Notes to Consolidated Financial Statements for additional
details on Short-term and Long-term investments.
Revolving Credit Facilities
TDS and U.S. Cellular have revolving credit facilities available for general corporate purposes.
In connection with U.S. Cellular’s revolving credit facility, TDS and U.S. Cellular entered into a
subordination agreement dated December 17, 2010 together with the administrative agent for the lenders
under U.S. Cellular’s revolving credit facility. At December 31, 2011, no U.S. Cellular debt was
subordinated pursuant to this subordination agreement.
TDS’ and U.S. Cellular’s interest cost on their revolving credit facilities is subject to increase if their
current credit ratings from nationally recognized credit rating agencies are lowered, and is subject to
decrease if the ratings are raised. The credit facilities would not cease to be available nor would the
maturity date accelerate solely as a result of a downgrade in TDS’ or U.S. Cellular’s credit rating.
However, a downgrade in TDS’ or U.S. Cellular’s credit rating could adversely affect their ability to renew
the credit facilities or obtain access to other credit facilities in the future.
As of December 31, 2011, TDS’ and U.S. Cellular’s credit ratings from the nationally recognized credit
rating agencies remained at investment grade.
The following table summarizes the terms of such revolving credit facilities as of December 31, 2011:
TDS
U.S. Cellular
(Dollars in millions)
300.0
Maximum borrowing capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
Letter of credit outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Amount borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
299.8
Amount available for use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agreement date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2010 December 2010
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2015 December 2015
$
400.0
0.2
$
— $
$
$
$
$
$
399.8
The continued availability of the revolving credit facilities requires TDS and U.S. Cellular to comply with
certain negative and affirmative covenants, maintain certain financial ratios and make representations
regarding certain matters at the time of each borrowing. TDS and U.S. Cellular believe they were in
compliance as of December 31, 2011 with all of the covenants and requirements set forth in their
revolving credit facilities.
27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Long-Term Financing
TDS and its subsidiaries had the following public debt outstanding as of December 31, 2011:
Issuance date
Maturity date
Call date(1)
Aggregate
Principal Amount
(Dollars in thousands)
TDS—
Unsecured Senior Notes
6.625% . . . . . . . . . . . . March 2005
6.875% . . . . . . . . . . . . November 2010
7.0% . . . . . . . . . . . . . . March 2011
U.S. Cellular—
Unsecured Senior Notes
March 2045
November 2059 November 2015
March 2060
March 2016
March 2010
$116,250
225,000
300,000
6.7% . . . . . . . . . . . . . . December 2003 and December 2033 December 2003
$544,000
June 2004
6.95% . . . . . . . . . . . . . May 2011
May 2060
May 2016
342,000
(1) TDS may redeem callable notes, in whole or in part at any time after the respective call date, at a
redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest.
U.S. Cellular may redeem the 6.7% Senior Notes, in whole or in part, at any time prior to maturity at
a redemption price equal to the greater of (a) 100% of the principal amount of such notes, plus
accrued and unpaid interest, or (b) the sum of the present values of the remaining scheduled
payments of principal and interest thereon discounted to the redemption date on a semi-annual
basis at the Treasury Rate plus 30 basis points. U.S. Cellular may redeem the 6.95% Senior Notes,
in whole or in part at any time after the call date, at a redemption price equal to 100% of the
principal amount redeemed plus accrued and unpaid interest.
TDS and its subsidiaries’ long-term debt and indentures do not contain any provisions resulting in
acceleration of the maturities of outstanding debt in the event of a change in TDS’ credit rating. However,
a downgrade in TDS’ credit rating could adversely affect its ability to obtain long-term debt financing in
the future. TDS believes it and its subsidiaries were in compliance as of December 31, 2011 with all
covenants and other requirements set forth in long-term debt indentures. TDS and U.S. Cellular have not
failed to make nor do they expect to fail to make any scheduled payment of principal or interest under
such indentures.
The long-term debt principal payments due for the next five years represent less than 1% of the total
long-term debt obligation at December 31, 2011. Refer to Market Risk—Long-Term Debt for additional
information regarding required principal payments and the weighted average interest rates related to
TDS’ long-term debt.
TDS, at its discretion, may from time to time seek to retire or purchase its outstanding debt through cash
purchases and/or exchanges for other securities, in open market purchases, privately negotiated
transactions, tender offers, exchange offers or otherwise. Such repurchases or exchanges, if any, will
depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.
The amounts involved may be material.
TDS and U.S. Cellular each have effective shelf registration statements on Form S-3 that they can use to
issue senior debt securities that can be used for general corporate purposes, including to finance the
redemption of any of the above existing debt. The TDS shelf registration statement is an automatic shelf
registration that permits TDS to issue at any time and from time to time, senior debt securities in one or
more offerings in an indeterminate amount. The U.S. Cellular shelf registration statement permits U.S.
Cellular to issue at any time and from time to time, senior debt securities in one or more offerings up to
an aggregate principal amount of $500 million. The ability of TDS or U.S. Cellular to complete an offering
28
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
pursuant to such shelf registration statements is subject to market conditions and other factors at the
time.
Capital Expenditures
U.S. Cellular’s capital expenditures for 2012 are expected to be approximately $850 million. These
expenditures are expected to be for the following general purposes:
(cid:129) Expand and enhance U.S. Cellular’s network coverage in its service areas, including providing
additional capacity to accommodate increased network usage, primarily data usage, by current
customers;
(cid:129) Deploy 4G LTE technology in certain markets;
(cid:129) Enhance U.S. Cellular’s retail store network;
(cid:129) Develop and enhance office systems; and
(cid:129) Develop new billing and other customer management related systems and platforms.
TDS Telecom’s anticipated capital expenditures for 2012 are expected to be $150-$180 million. These
expenditures are expected to be for the following general purposes:
(cid:129) Process and productivity initiatives;
(cid:129) Increased network and product capabilities for broadband services;
(cid:129) Expansion of terrestrial TV to additional markets;
(cid:129) Success-based spending to sustain managedIP and IPTV growth; and
(cid:129) Fund its share for projects approved under the American Recovery and Reinvestment Act of 2009.
TDS plans to finance its capital expenditure programs for 2012 using cash flows from operating activities,
existing cash balances, short-term investments and, if necessary, debt.
Acquisitions, Divestitures and Exchanges
TDS assesses its existing wireless and wireline interests on an ongoing basis with a goal of improving
the competitiveness of its operations and maximizing its long-term return on investment. As part of this
strategy, TDS reviews attractive opportunities to acquire additional wireless operating markets,
telecommunications companies, wireless spectrum and related service businesses, such as hosted and
managed services businesses. In addition, TDS may seek to divest outright or include in exchanges for
other wireless interests those wireless interests that are not strategic to its long-term success. TDS also
may be engaged from time to time in negotiations relating to the acquisition, divestiture or exchange of
companies, strategic properties or wireless spectrum. In general, TDS may not disclose such
transactions until there is a definitive agreement. See Note 8—Acquisitions, Divestitures and Exchanges
in the Notes to Consolidated Financial Statements for details on significant transactions in 2011 and
2010.
Variable Interest Entities
TDS consolidates certain entities because they are ‘‘variable interest entities’’ under accounting principles
generally accepted in the United States of America (‘‘GAAP’’). See Note 6—Variable Interest Entities in
the Notes to Consolidated Financial Statements for the details of these variable interest entities. TDS may
elect to make additional capital contributions and/or advances to these variable interest entities in future
periods in order to fund their operations.
29
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Share Repurchase Programs
TDS and U.S. Cellular have repurchased their Special Common Shares (TDS only) and Common Shares,
subject to repurchase programs. TDS and U.S. Cellular expect to continue to repurchase their Common
Shares, subject to repurchase programs. For additional information related to the current TDS and U.S.
Cellular repurchase authorizations and repurchases made during 2011, 2010 and 2009, see Note 16—
Common Stockholders’ Equity in the Notes to Consolidated Financial Statements. On January 13, 2012,
TDS shareholders approved a Share Consolidation Amendment to the Restated Certificate of
Incorporation of TDS. See Note 21—Subsequent Events in the Notes to Consolidated Financial
Statements for additional information.
Contractual and Other Obligations
At December 31, 2011, the resources required for contractual obligations were as follows:
(Dollars in millions)
Long-term debt obligations(1)
. . . . . . . . . . . . .
Interest payments on long-term debt obligations
Operating leases(2) . . . . . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations(3)(4) . . . . . . . . . . . . . . . .
Payments Due by Period
Total
$1,536.8
4,011.2
1,377.6
8.3
796.9
Less Than
1 Year
$
1.3
104.7
164.9
0.7
461.4
2 - 3 Years
4 - 5 Years
$
2.4
209.3
260.9
1.1
223.6
$
4.8
209.2
167.8
1.2
65.9
More Than
5 Years
$1,528.3
3,488.0
784.0
5.3
46.0
$7,730.8
$733.0
$697.3
$448.9
$5,851.6
(1)
Includes current and long-term portions of debt obligations. The total long-term debt obligation
differs from Long-term debt in the Consolidated Balance Sheet due to the $9.9 million unamortized
discount related to U.S. Cellular’s 6.7% Senior Notes and capital leases. See Note 13—Debt in the
Notes to Consolidated Financial Statements for additional information.
(2) Represents the amounts due under non-cancellable long-term operating leases for the periods
specified. See Note 15—Commitments and Contingencies in the Notes to Consolidated Financial
Statements for additional information.
(3)
Includes obligations payable under non-cancellable contracts, commitments for network facilities and
services, agreements for software licensing and long-term marketing programs.
(4) Does not include amounts TDS Telecom will provide to complete projects under the American
Recovery and Reinvestment Act of 2009. TDS Telecom will receive $105.1 million in federal grants
and will provide $30.9 million of its own funds to complete 44 projects. Under the terms of the
grants, the projects must be completed by June of 2015.
The table above excludes liabilities related to ‘‘unrecognized tax benefits’’ as defined by GAAP because
TDS is unable to predict the period of settlement of such liabilities. Such unrecognized tax benefits were
$28.8 million at December 31, 2011. See Note 5—Income Taxes in the Notes to Consolidated Financial
Statements for additional information on unrecognized tax benefits.
Off-Balance Sheet Arrangements
TDS has no transactions, agreements or other contractual arrangements with unconsolidated entities
involving ‘‘off-balance sheet arrangements,’’ as defined by Securities and Exchange Commission rules,
that had or are reasonably likely to have a material current or future effect on its financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources.
30
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Dividends
TDS paid quarterly dividends per outstanding share of $0.1175 in 2011, $0.1125 in 2010 and $0.1075 in
2009. These dividends per share amounts have not been retroactively adjusted to reflect the impact of
the Share Consolidation Amendment. See Note 21—Subsequent Events in the Notes to Consolidated
Financial Statements for additional information. TDS has no current plans to change its policy of paying
dividends.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
TDS prepares its consolidated financial statements in accordance with GAAP. TDS’ significant accounting
policies are discussed in detail in Note 1—Summary of Significant Accounting Policies and Recent
Accounting Pronouncements in the Notes to Consolidated Financial Statements.
Management believes the application of the following critical accounting policies and the estimates
required by such application reflect its most significant judgments and estimates used in the preparation
of TDS’ consolidated financial statements. Management has discussed the development and selection of
each of the following accounting policies and related estimates and disclosures with the Audit Committee
of TDS’ Board of Directors.
Goodwill and Licenses
See the Goodwill and Licenses Impairment Assessment section of Note 1—Summary of Significant
Accounting Policies and Recent Accounting Pronouncements in the Notes to Consolidated Financial
Statements for information on goodwill and licenses impairment testing policies and methods.
See Note 9—Licenses and Goodwill in the Notes to Consolidated Financial Statements for additional
information related to goodwill and licenses activity in 2011 and 2010.
Goodwill
U.S. Cellular
U.S. Cellular tests goodwill for impairment at the level of reporting referred to as a ‘‘reporting unit.’’ For
purposes of impairment testing of goodwill in 2011, U.S. Cellular identified five reporting units based on
geographic service areas (all of which are included in TDS’ wireless reportable operating segment).
There were no changes to U.S. Cellular’s reporting units, the allocation of goodwill to those reporting
units, or to U.S. Cellular’s overall goodwill impairment testing methodology between November 1, 2011
and 2010.
A discounted cash flow approach was used to value each reporting unit, using value drivers and risks
specific to the current industry and economic markets. The cash flow estimates incorporated
assumptions that market participants would use in their estimates of fair value and may not be indicative
of U.S. Cellular specific assumptions. The most significant assumptions made in this process were the
revenue growth rate, discount rate, and projected capital expenditures. These assumptions were as
follows for November 1, 2011 and 2010:
Key assumptions
November 1,
2011
November 1,
2010
Weighted-average expected revenue growth rate (next four years)
. . . . . . . . .
Weighted-average long-term and terminal revenue growth rate (after year four)
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average annual capital expenditures (millions) . . . . . . . . . . . . . . . . . . . . . . . .
3.58%
2.00%
10.5%
$ 609
2.18%
2.00%
10.5%
$ 540
The increase in the Weighted-average expected revenue growth rate (next four years) between
November 1, 2011 and 2010 was due to improved forecasts for market participants.
31
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
The carrying value of each U.S. Cellular reporting unit at TDS as of November 1, 2011 was as follows:
Reporting unit
Carrying value
at TDS(1)
(Dollars in millions)
Central Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mid-Atlantic Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New England Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northwest Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 541
806
260
341
157
$2,105
(1) Prior to January 1, 2009, TDS had recorded goodwill as a result of accounting for U.S. Cellular’s
purchases of U.S. Cellular Common Shares as step acquisitions using purchase accounting. As a
result, the carrying values of the reporting units differ between U.S. Cellular and TDS. The carrying
value of the reporting units at U.S. Cellular was $2.2 billion at November 1, 2011.
As of November 1, 2011, the fair values of the reporting units exceeded their respective carrying values
by amounts ranging from 29% to 182% of the respective carrying values. Therefore, no impairment of
goodwill existed. Given that the fair values of the respective reporting units exceed their respective
carrying values, provided all other assumptions remained the same, the discount rate would have to
increase to a range of 13.0% to 15.0% to yield estimated fair values of reporting units that equal their
respective carrying values at November 1, 2011. Further, assuming all other assumptions remained the
same, the terminal growth rate assumptions would need to decrease to negative amounts, ranging from
negative 17.4% to negative 5.1%, to yield estimates of fair value equal to the carrying values of the
respective reporting units at November 1, 2011.
TDS Telecom
TDS Telecom has four reporting units: two reporting units within its ILEC reportable operating segment
and two reporting units within its CLEC reportable operating segment. TDS Telecom has recorded
goodwill primarily as a result of the acquisition of operating telephone companies and Hosted and
Managed Services companies. The CLEC reporting units do not have any goodwill. There were no
changes to TDS Telecom’s overall goodwill impairment testing methodology during 2011 or 2010.
The publicly-traded guideline company and the recent transaction methods were utilized to value each
reporting unit tested. The publicly-traded guideline company method develops an indication of fair value
by calculating average market pricing multiples for selected publicly-traded companies using multiples
of: Revenue, Earnings Before Interest, Taxes, Depreciation and Amortization, and Earnings Before Interest
and Taxes. The recent transaction method calculates market pricing multiples based upon recent
acquisitions of similar businesses. In both methods, the developed multiples were applied to each
reporting units’ applicable financial measures to determine fair value. Given the nature of this
methodology, no specific consideration of the economic environment was considered since those factors
would be inherent in the multiples used. As of November 1, 2011, the fair value of TDS Telecom’s
reporting units exceeded their carrying value by amounts ranging from 29% to 60%. As a result of its
testing, TDS Telecom did not record an impairment to goodwill.
Other Reporting Units
TDS has recorded goodwill as a result of TDS’ acquisition of Airadigm and the acquisition of a printing
company by Suttle-Straus, both included in TDS’ Non-reportable operating segment. To test the goodwill
balance of TDS’ Non-reportable operating segment, an income approach, which measures the current
value of a business based on the present value of its future cash flows, was used. As of November 1,
32
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
2011, the fair value of TDS’ Non-reportable operating segment exceeded its carrying value by 7%. As a
result of its testing, TDS did not record an impairment to goodwill in its Non-reportable operating
segment during 2011.
Licenses
U.S. Cellular tests licenses for impairment at the level of reporting referred to as a ‘‘unit of accounting.’’
For purposes of its impairment testing of licenses as of November 1, 2011, U.S. Cellular separated its
FCC licenses into twelve units of accounting based on geographic service areas. Seven of these twelve
units of accounting represented geographic groupings of licenses which, because they were not being
utilized and, therefore, were not expected to generate cash flows from operating activities in the
foreseeable future, were considered separate units of accounting for purposes of impairment testing. As
of November 1, 2010, U.S. Cellular separated its FCC licenses into eighteen units of accounting based
on geographic service areas. Thirteen of these eighteen units of accounting represented geographic
groupings of licenses which, because they were not being utilized and, therefore, were not expected to
generate cash flows from operating activities in the foreseeable future, were considered separate units of
accounting for purposes of impairment testing. The change in units of accounting between November 1,
2011 and November 1, 2010 reflects additional network build-out.
Developed operating market licenses (‘‘built licenses’’)
U.S. Cellular applies the build-out method to estimate the fair values of built licenses. The most
significant assumptions applied for purposes of the November 1, 2011 and 2010 licenses impairment
assessments were as follows:
Key assumptions
Build-out period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term EBITDA margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term capital expenditure requirement (as a % of service revenue) . . . . . .
Long-term service revenue growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer penetration rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 1,
2011
November 1,
2010
7 years
7 years
9.0%
32.2%
13.0%
2.0%
11-16%
9.0%
32.1%
12.0%
2.0%
12-17%
The discount rate used in the valuation of licenses is less than the discount rate used in the valuation of
reporting units for purposes of goodwill impairment testing. That is because the discount rate used for
licenses does not include a company-specific risk premium as a wireless license would not be subject to
such risk.
The discount rate is the most significant assumption used in the build-out method. The discount rate is
estimated based on the overall risk-free interest rate adjusted for industry participant information, such as
a typical capital structure (i.e., debt-equity ratio), the after-tax cost of debt and the cost of equity. The
cost of equity takes into consideration the average risk specific to individual market participants.
The results of the licenses impairment test at November 1, 2011 did not result in the recognition of a loss
on impairment. Given that the fair values of the licenses exceed their respective carrying values, the
discount rate would have to increase to a range of 9.1% to 9.8% to yield estimated fair values of licenses
in the respective units of accounting that equal their respective carrying values at November 1, 2011.
Non-operating market licenses (‘‘unbuilt licenses’’)
For purposes of performing impairment testing of unbuilt licenses, U.S. Cellular prepares estimates of fair
value by reference to prices paid in recent auctions and market transactions where available. If such
information is not available, the fair value of the unbuilt licenses is assumed to have changed by the
same percentage, and in the same direction, that the fair value of built licenses measured using the
build-out method changed during the period. There was no impairment loss recognized related to unbuilt
licenses as a result of the November 1, 2011 licenses impairment test.
33
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Carrying Value of Licenses
The carrying value of licenses at November 1, 2011 was as follows:
Unit of accounting(1)
Carrying value
(Dollars in millions)
U.S. Cellular—Developed Operating markets (5 units of accounting)
Central Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mid-Atlantic Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New England Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northwest Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Cellular—Non-operating markets (7 units of accounting)
North Northwest (2 states) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Northwest (2 states)
North Central (5 states) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Central (5 states) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
East Central (5 states) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mid-Atlantic (8 states) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mississippi Valley (13 states) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 875
224
105
67
1
3
2
49
15
44
47
43
Total(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,475
TDS Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Airadigm(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
15
Total(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,493
(1) U.S. Cellular participated in spectrum auctions indirectly through its interests in Aquinas Wireless L.P.
(‘‘Aquinas Wireless’’), King Street Wireless L.P. (‘‘King Street Wireless’’), Barat Wireless L.P. (‘‘Barat
Wireless’’) and Carroll Wireless L.P. (‘‘Carroll Wireless’’), collectively, the ‘‘limited partnerships.’’ Each
limited partnership participated in and was awarded spectrum licenses in one of four separate
spectrum auctions (FCC Auctions 78, 73, 66 and 58). All of the units of accounting above, except
the New York Region, include licenses awarded to the limited partnerships.
(2) Prior to January 1, 2009, TDS had recorded licenses as a result of accounting for U.S. Cellular’s
purchases of U.S. Cellular Common Shares as step acquisitions using purchase accounting. As a
result, the carrying values of the units of accounting for the developed operating markets differ
between U.S. Cellular and TDS. The total carrying value of all units of accounting at U.S. Cellular
was $1.5 billion at November 1, 2011.
(3) TDS acquired 63% of Airadigm on September 23, 2011. See Note 8—Acquisitions, Divestitures and
Exchanges in the Notes to Consolidated Financial Statements for additional information on Airadigm.
(4) Between November 1, 2011 and December 31, 2011, TDS capitalized interest on certain licenses
pursuant to current network build-out in the amount of $1.0 million.
Airadigm licenses are recorded at fair value. In addition, licenses with an aggregate carrying value of
$84.7 million were in units of accounting where the fair value exceeded the carrying value by amounts
less than 10% of the carrying value. Any further declines in the fair value of such licenses in future
periods could result in the recognition of impairment losses on such licenses and any such impairment
losses would have a negative impact on future results of operations. The impairment losses on licenses
are not expected to have a future impact on liquidity. TDS is unable to predict the amount, if any, of
34
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
future impairment losses attributable to licenses. Further, historical operating results, particularly amounts
related to impairment losses, are not indicative of future operating results.
Property, Plant and Equipment—Depreciation
U.S. Cellular and TDS Telecom each provide for depreciation using the straight-line method over the
estimated useful lives of the assets. TDS depreciates its leasehold improvement assets associated with
leased properties over periods ranging from one to thirty years, which approximates the shorter of the
assets’ economic lives or the specific lease terms.
Annually, U.S. Cellular and TDS Telecom review their property, plant and equipment lives to ensure that
the estimated useful lives are appropriate. The estimated useful lives of property, plant and equipment
are critical accounting estimates because changing the lives of assets can result in larger or smaller
charges for depreciation expense. Factors used in determining useful lives include technology changes,
regulatory requirements, obsolescence and types of use. U.S. Cellular and TDS Telecom did not
materially change the useful lives of their property, plant and equipment in 2011, 2010 or 2009.
Income Taxes
The amounts of income tax assets and liabilities, the related income tax provision and the amount of
unrecognized tax benefits are critical accounting estimates because such amounts are significant to TDS’
financial condition and results of operations.
The preparation of the consolidated financial statements requires TDS to calculate a provision for income
taxes. This process involves estimating the actual current income tax liability together with assessing
temporary differences resulting from the different treatment of items for tax purposes. These temporary
differences result in deferred income tax assets and liabilities, which are included in TDS’ Consolidated
Balance Sheet. TDS must then assess the likelihood that deferred income tax assets will be realized
based on future taxable income and, to the extent management believes that realization is not likely,
establish a valuation allowance. Management’s judgment is required in determining the provision for
income taxes, deferred income tax assets and liabilities and any valuation allowance that is established
for deferred income tax assets.
TDS recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a position are measured
based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
resolution.
See Note 5—Income Taxes in the Notes to Consolidated Financial Statements for details regarding TDS’
income tax provision, deferred income taxes and liabilities, valuation allowances and unrecognized tax
benefits, including information regarding estimates that impact income taxes.
Allowance for Doubtful Accounts
U.S. Cellular’s accounts receivable primarily consist of amounts owed by customers pursuant to service
contracts and for equipment sales, by agents for sales of equipment to them and by other wireless
carriers whose customers have used U.S. Cellular’s wireless systems.
TDS Telecom’s accounts receivable primarily consist of amounts owed by customers for services
provided, by connecting carriers for carrying interstate and intrastate long-distance traffic on its network
and by interstate and intrastate revenue pools that distribute access charges.
The allowance for doubtful accounts is the best estimate of the amount of probable credit losses related
to existing accounts receivable. The allowance is estimated based on historical experience and other
factors that could affect collectability. Accounts receivable balances are reviewed on either an aggregate
35
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
or individual basis for collectability depending on the type of receivable. When it is probable that an
account balance will not be collected, the account balance is charged against the allowance for doubtful
accounts. TDS does not have any off-balance sheet credit exposure related to its customers. TDS will
continue to monitor its accounts receivable balances and related allowance for doubtful accounts on an
ongoing basis to assess whether it has adequately provided for potentially uncollectible amounts.
See Note 1—Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the
Notes to Consolidated Financial Statements for additional information regarding TDS’ allowance for
doubtful accounts.
Loyalty Reward Program
See the Revenue Recognition—U.S. Cellular section of Note 1—Summary of Significant Accounting
Policies and Recent Accounting Pronouncements in the Notes to Consolidated Financial Statements for a
description of this program and the related accounting.
U.S. Cellular follows the deferred revenue method of accounting for its loyalty reward program. Under
this method, revenue allocated to loyalty reward points is fully deferred as U.S. Cellular does not have
sufficient historical data in which to estimate any portion of loyalty reward points that will not be
redeemed. Revenue is recognized at the time of customer redemption or when such points have been
depleted via a maintenance charge. U.S. Cellular periodically reviews and will revise the redemption and
depletion rates as appropriate based on history and related future expectations.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following persons are partners of Sidley Austin LLP, the principal law firm of TDS and its subsidiaries:
Walter C.D. Carlson, a trustee and beneficiary of a voting trust that controls TDS, the non-executive
Chairman of the Board and member of the Board of Directors of TDS and a director of U.S. Cellular, a
subsidiary of TDS; William S. DeCarlo, the General Counsel of TDS and an Assistant Secretary of TDS
and certain subsidiaries of TDS; and Stephen P. Fitzell, the General Counsel of U.S. Cellular and TDS
Telecommunications Corporation and an Assistant Secretary of certain subsidiaries of TDS. Walter C.D.
Carlson does not provide legal services to TDS or its subsidiaries. TDS, U.S. Cellular and their
subsidiaries incurred legal costs from Sidley Austin LLP of $13.7 million in 2011, $14.0 million in 2010
and $13.8 million in 2009.
On September 29, 2010, TDS repurchased 272,323 Special Common Shares at the then current market
price on the NYSE for a total price of 7.7 million, or an average of $28.24 per Special Common Share
including broker fees, from an affiliate of Southeastern Asset Management, Inc. (‘‘SEAM’’).
On May 29, 2009, TDS repurchased 1,730,200 Special Common Shares at the then current market price
on the New York Stock Exchange (‘‘NYSE’’) for a total price of $48.2 million, or an average of $27.89 per
Special Common Share including broker fees, from an affiliate of SEAM. In addition, on July 20, 2009,
TDS repurchased 405,000 Special Common Shares from SEAM at a price below the then current market
price on the NYSE for a total price of $10.5 million, or an average of $25.87 per Special Common Share
including broker fees.
At the time of each 2009 TDS repurchase, SEAM was a shareholder of more than 5% of TDS Special
Common Shares and Common Shares. At the time of the 2010 TDS repurchase, SEAM was a
shareholder of more than 5% of TDS Special Common Shares.
These transactions were not solicited by TDS and TDS did not enter into any agreements with SEAM.
The September 29, 2010 and May 29, 2009 transactions were effected by TDS’ broker pursuant to TDS’
existing institutional brokerage account agreement on the NYSE pursuant to Rule 10b-18 under the
Securities Exchange Act of 1934, as amended (‘‘Exchange Act’’). The July 20, 2009 transaction was
made by TDS’ broker pursuant to an agreement entered into pursuant to Rule 10b5-1 under the
36
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
Exchange Act and was effected on the NYSE in compliance with Rule 10b-18. The repurchases were
made under TDS’ share repurchase authorizations that were in effect at the time of such repurchases.
See ‘‘Security Ownership by Certain Beneficial Owners’’ in TDS’ Notice of Annual Meeting and Proxy
Statement dated April 14, 2011 for further information about SEAM and its interest in TDS.
The Audit Committee of the Board of Directors is responsible for the review and evaluation of all related-
party transactions; as such term is defined by the rules of the New York Stock Exchange.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other
sections of this Annual Report contain statements that are not based on historical facts, including the
words ‘‘believes,’’ ‘‘anticipates,’’ ‘‘intends,’’ ‘‘expects’’ and similar words. These statements constitute
‘‘forward-looking statements’’ within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, events or developments to be significantly different from any future results,
events or developments expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, the following risks:
(cid:129) Intense competition in the markets in which TDS operates could adversely affect TDS’ revenues or
increase its costs to compete.
(cid:129) A failure by TDS to successfully execute its business strategy or allocate resources or capital could
have an adverse effect on TDS’ business, financial condition or results of operations.
(cid:129) A failure by TDS’ service offerings to meet customer expectations could limit TDS’ ability to attract and
retain customers and could have an adverse effect on TDS’ operations.
(cid:129) TDS’ system infrastructure may not be capable of supporting changes in technologies and services
expected by customers, which could result in lost customers and revenues.
(cid:129) An inability to obtain or maintain roaming arrangements with other carriers on terms that are acceptable
to TDS could have an adverse effect on TDS’ business, financial condition or results of operations.
(cid:129) TDS currently receives a significant amount of roaming revenues from its wireless business. Further
consolidation within the wireless industry and/or continued network build-outs by other wireless carriers
could cause roaming revenues to decline from current levels, which would have an adverse effect on
TDS’ business, financial condition and results of operations.
(cid:129) A failure by TDS to obtain access to adequate radio spectrum to meet current or anticipated future
needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on
TDS’ business and operations.
(cid:129) To the extent conducted by the Federal Communications Commission (‘‘FCC’’), TDS is likely to
participate in FCC auctions of additional spectrum in the future as an applicant or as a noncontrolling
partner in another auction applicant and, during certain periods, will be subject to the FCC’s
anti-collusion rules, which could have an adverse effect on TDS.
(cid:129) Changes in the regulatory environment or a failure by TDS to timely or fully comply with any applicable
regulatory requirements could adversely affect TDS’ financial condition, results of operations or ability to
do business.
(cid:129) Changes in Universal Service Fund (‘‘USF’’) funding and/or intercarrier compensation could have an
adverse impact on TDS’ financial condition or results of operations.
(cid:129) An inability to attract and/or retain highly competent management, technical, sales and other personnel
could have an adverse effect on TDS’ business, financial condition or results of operations.
37
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
(cid:129) TDS’ assets are concentrated in the U.S. telecommunications industry. As a result, its results of
operations may fluctuate based on factors related entirely to conditions in this industry.
(cid:129) The completion of acquisitions by other companies has led to increased consolidation in the wireless
telecommunications industry. TDS’ lower scale relative to larger wireless carriers has in the past and
could in the future prevent or delay its access to new products including wireless devices, new
technology and/or new content and applications which could adversely affect TDS’ ability to attract and
retain customers and, as a result, could adversely affect its business, financial condition or results of
operations.
(cid:129) TDS’ inability to manage its supply chain or inventory successfully could have an adverse effect on its
business, financial condition or results of operations.
(cid:129) Changes in general economic and business conditions, both nationally and in the markets in which
TDS operates, could have an adverse effect on TDS’ business, financial condition or results of
operations.
(cid:129) Changes in various business factors could have an adverse effect on TDS’ business, financial condition
or results of operations.
(cid:129) Advances or changes in telecommunications technology, such as Voice over Internet Protocol (‘‘VoIP’’),
High-Speed Packet Access (‘‘HSPA’’), WiMAX or Long-Term Evolution (‘‘LTE’’), could render certain
technologies used by TDS obsolete, could put TDS at a competitive disadvantage, could reduce TDS’
revenues or could increase its costs of doing business.
(cid:129) Complexities associated with deploying new technologies, such as TDS’ ongoing upgrade to 4G LTE
technology, present substantial risk.
(cid:129) TDS is subject to numerous surcharges and fees from federal, state and local governments, and the
applicability and the amount of these fees are subject to great uncertainty.
(cid:129) Changes in TDS’ enterprise value, changes in the market supply or demand for wireless licenses or
wireline markets, adverse developments in the business or the industry in which TDS is involved and/or
other factors could require TDS to recognize impairments in the carrying value of its license costs,
goodwill and/or physical assets.
(cid:129) Costs, integration problems or other factors associated with developing and enhancing business
support systems, acquisitions/divestitures of properties or licenses and/or expansion of TDS’ business
could have an adverse effect on TDS’ business, financial condition or results of operations.
(cid:129) A significant portion of TDS’ wireless revenues is derived from customers who buy services through
independent agents who market TDS’ services on a commission basis. If TDS’ relationships with these
agents are seriously harmed, its business, financial condition or results of operations could be
adversely affected.
(cid:129) TDS’ investments in technologies which are unproven may not produce the benefits that TDS expects.
(cid:129) A failure by TDS to complete significant network construction and systems implementation activities as
part of its plans to improve the quality, coverage, capabilities and capacity of its network and support
systems could have an adverse effect on its operations.
(cid:129) Financial difficulties (including bankruptcy proceedings) or other operational difficulties of TDS’ key
suppliers or vendors, termination or impairment of TDS’ relationships with such suppliers or vendors, or
a failure by TDS to manage its supply chain effectively could result in delays or termination of TDS’
receipt of required equipment or services, or could result in excess quantities of required equipment or
services, any of which could adversely affect TDS’ business, financial condition or results of operations.
(cid:129) TDS has significant investments in entities that it does not control. Losses in the value of such
investments could have an adverse effect on TDS’ financial condition or results of operations.
38
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
(cid:129) A failure by TDS to maintain flexible and capable telecommunication networks or information
technology, or a material disruption thereof, including breaches of network or information technology
security, could have an adverse effect on TDS’ business, financial condition or results of operations.
(cid:129) Wars, conflicts, hostilities and/or terrorist attacks or equipment failures, power outages, natural disasters
or other events could have an adverse effect on TDS’ business, financial condition or results of
operations.
(cid:129) The market prices of TDS’ Common Shares are subject to fluctuations due to a variety of factors.
(cid:129) Identification of errors in financial information or disclosures could require amendments to or
restatements of financial information or disclosures included in this or prior filings with the Securities
and Exchange Commission (‘‘SEC’’). Such amendments or restatements and related matters, including
resulting delays in filing periodic reports with the SEC, could have an adverse effect on TDS’ business,
financial condition or results of operations.
(cid:129) The existence of material weaknesses in the effectiveness of internal control over financial reporting
could result in inaccurate financial statements or other disclosures or failure to prevent fraud, which
could have an adverse effect on TDS’ business, financial condition or results of operations.
(cid:129) Changes in facts or circumstances, including new or additional information that affects the calculation
of potential liabilities for contingent obligations under guarantees, indemnities, claims, litigation or
otherwise, could require TDS to record charges in excess of amounts accrued in the financial
statements, if any, which could have an adverse effect on TDS’ financial condition or results of
operations.
(cid:129) Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or
other events could, among other things, impede TDS’ access to or increase the cost of financing its
operating and investment activities and/or result in reduced revenues and lower operating income and
cash flows, which would have an adverse effect on TDS’ financial condition or results of operations.
(cid:129) Uncertainty of access to capital for telecommunications companies, deterioration in the capital markets,
other changes in market conditions, changes in TDS’ credit ratings or other factors could limit or restrict
the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce
its construction, development or acquisition programs.
(cid:129) Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs
resulting from pending and future litigation could have an adverse effect on TDS’ financial condition,
results of operations or ability to do business.
(cid:129) The possible development of adverse precedent in litigation or conclusions in professional studies to
the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health
consequences, including cancer or tumors, or may interfere with various electronic medical devices
such as pacemakers, could have an adverse effect on TDS’ wireless business, financial condition or
results of operations.
(cid:129) Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent
infringement claims, could prevent TDS from using necessary technology to provide services or subject
TDS to expensive intellectual property litigation or monetary penalties, which could have an adverse
effect on TDS’ business, financial condition or results of operations.
(cid:129) Certain matters, such as control by the TDS Voting Trust and provisions in the TDS Restated Certificate
of Incorporation, may serve to discourage or make more difficult a change in control of TDS.
(cid:129) Any of the foregoing events or other events could cause customer net additions, revenues, operating
income, capital expenditures and/or any other financial or statistical information to vary from TDS’
forward-looking estimates by a material amount.
39
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Telephone and Data Systems, Inc.
You are referred to a further discussion of these risks as set forth under ‘‘Risk Factors’’ in TDS’ Annual
Report on Form 10-K for the year ended December 31, 2011. TDS undertakes no obligation to update
publicly any forward-looking statements whether as a result of new information, future events or
otherwise. Readers should evaluate any statements in light of these important factors.
MARKET RISK
Long-Term Debt
As of December 31, 2011, the majority of TDS’ long-term debt was in the form of fixed-rate notes with
original maturities ranging up to 49 years. Fluctuations in market interest rates can lead to significant
fluctuations in the fair value of these fixed-rate notes.
The following table presents the scheduled principal payments on long-term debt and capital lease
obligations, and the related weighted average interest rates by maturity dates at December 31, 2011:
Principal Payments Due by Period
Long-Term
Debt Obligations(1)
Weighted-Avg.
Interest Rates
on Long-Term
Debt Obligations(2)
(Dollars in millions)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.5
1.2
1.5
2.2
3.1
1,531.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,541.2
4.4%
4.8%
5.1%
1.8%
5.0%
6.8%
6.8%
(1) The total long-term debt obligation differs from Long-term debt in the Consolidated Balance Sheet
due to the $9.9 million unamortized discount related to U.S. Cellular’s 6.7% Senior Notes. See
Note 13—Debt in the Notes to Consolidated Financial Statements for additional information.
(2) Represents the weighted average interest rates at December 31, 2011, for debt maturing in the
respective periods.
Fair Value of Long-Term Debt
At December 31, 2011 and 2010, the estimated fair value of long-term debt obligations, excluding capital
lease obligations and the current portion of such long-term debt, was $1,586.9 million and
$1,482.2 million, respectively. The fair value of long-term debt, excluding capital lease obligations and the
current portion of such long-term debt, was estimated using market prices for TDS’ 7.0% Senior Notes,
6.875% Senior Notes, and 6.625% Senior Notes, and U.S. Cellular’s 6.95% Senior Notes at
December 31, 2011 and TDS’ 7.6% Series A Notes, 6.875% Senior Notes, and 6.625% Senior Notes, and
U.S. Cellular’s 7.5% Senior Notes at December 31, 2010 and discounted cash flow analysis for the
remaining debt at December 31, 2011 and 2010.
Other Market Risk Sensitive Instruments
The substantial majority of TDS’ other market risk sensitive instruments (as defined in item 305 of SEC
Regulation S-K) are short-term, including Cash and cash equivalents and Short-term investments. The
fair value of such instruments is less sensitive to market fluctuations than longer term instruments.
Accordingly, TDS believes that a significant change in interest rates would not have a material effect on
such other market risk sensitive instruments.
40
Telephone and Data Systems, Inc.
Consolidated Statement of Operations
Year Ended December 31,
2011
2010
2009
(Dollars and shares in thousands,
except per share amounts)
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,180,471
$4,986,829
$5,019,943
Operating expenses
Cost of services and products (excluding Depreciation,
amortization and accretion expense reported below) . . . . . .
Selling, general and administrative expense . . . . . . . . . . . . . .
Depreciation, amortization and accretion expense . . . . . . . . . .
Loss on impairment of intangible assets . . . . . . . . . . . . . . . . .
(Gain) loss on asset disposals and exchanges, net . . . . . . . . .
2,041,142
2,011,861
765,776
—
(810)
1,911,554
2,011,772
755,649
—
11,763
1,870,663
1,964,431
744,247
14,000
18,758
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
4,817,969
4,690,738
4,612,099
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
362,502
296,091
407,844
Investment and other income (expense)
Equity in earnings of unconsolidated entities . . . . . . . . . . . . .
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . .
Gain on investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
82,538
9,145
24,103
(118,201)
3,658
98,074
10,508
—
(116,810)
(2,089)
90,732
11,121
—
(126,209)
2,000
Total investment and other income (expense) . . . . . . . . . . .
1,243
(10,317)
(22,356)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interests, net
363,745
113,503
250,242
285,774
95,188
190,586
385,488
135,539
249,949
of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(49,676)
(45,737)
(58,602)
Net income attributable to TDS shareholders . . . . . . . . . . . . .
Preferred dividend requirement . . . . . . . . . . . . . . . . . . . . . . .
200,566
(50)
144,849
(50)
191,347
(51)
Net income available to common . . . . . . . . . . . . . . . . . . . . . .
$ 200,516
$ 144,799
$ 191,296
Basic weighted average shares outstanding(1)
. . . . . . . . . . .
Basic earnings per share attributable to TDS shareholders(1)
Diluted weighted average shares outstanding(1) . . . . . . . . . .
Diluted earnings per share attributable to TDS
shareholders(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per share(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,562
1.85
109,100
1.83
0.47
$
$
$
110,016
1.32
110,489
1.31
0.45
$
$
$
114,354
1.67
114,572
1.67
0.43
$
$
$
(1) On January 13, 2012, TDS shareholders approved a Share Consolidation Amendment to the
Restated Certificate of Incorporation of TDS. Shares outstanding at December 31, 2011, as well as
average basic and diluted shares outstanding used to calculate earnings per share as of the
beginning of all periods presented, have been retroactively restated to reflect the impact of the
increased shares outstanding as a result of the Share Consolidation Amendment. See Note 21—
Subsequent Events for additional information.
(2) Dividends per share reflects the amount paid per share outstanding at the date the dividend was
declared and has not been retroactively adjusted to reflect the impact of the Share Consolidation
Amendment.
The accompanying notes are an integral part of these consolidated financial statements.
41
Telephone and Data Systems, Inc.
Consolidated Statement of Comprehensive Income
Year Ended December 31,
2011
2010
2009
(Dollars in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in accumulated other comprehensive income
$250,242
$190,586
$249,949
Net unrealized gain (loss) on equity investments . . . . . . . . . . . . . .
Net change related to retirement plan . . . . . . . . . . . . . . . . . . . . . .
138
(5,784)
84
(582)
(302)
10,983
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Comprehensive income attributable to noncontrolling
244,596
190,088
260,630
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(49,676)
(45,737)
(58,602)
Comprehensive income attributable to TDS shareholders . . . . . . .
$194,920
$144,351
$202,028
The accompanying notes are an integral part of these consolidated financial statements.
42
Telephone and Data Systems, Inc.
Consolidated Statement of Cash Flows
Year Ended December 31,
(Dollars in thousands)
Cash flows from operating activities
2011
2010
2009
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add (deduct) adjustments to reconcile net income to net cash flows from
$ 250,242
$
190,586
$ 249,949
operating activities
Depreciation, amortization and accretion . . . . . . . . . . . . . . . . . . . . . . .
Bad debts expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of unconsolidated entities . . . . . . . . . . . . . . . . . . . .
Distributions from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . .
Loss on impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on asset disposals and exchanges, net . . . . . . . . . . . . . . . .
Gain on investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities from operations
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits and deferred revenues . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
765,776
68,611
36,837
202,547
(82,538)
92,231
—
(810)
(24,103)
18,849
1,067
(95,426)
(13,382)
29,291
35,457
(27,871)
3,351
(4,418)
755,649
83,098
35,128
76,391
(98,074)
100,845
—
11,763
—
9,733
383
(79,182)
40,657
(47,759)
6,478
(95,284)
(7,680)
93,475
744,247
115,989
32,486
36,014
(90,732)
91,587
14,000
18,758
—
4,412
(71)
(115,087)
(34,566)
23,098
(8,763)
61,630
(2,009)
(43,588)
1,255,711
1,076,207
1,097,354
Cash flows from investing activities
Cash used for additions to property, plant and equipment
. . . . . . . . . . . . . .
Cash paid for acquisitions and licenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received for investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(971,759)
(105,508)
(180,920)
393,246
(1,148)
(739,222)
(81,691)
(493,750)
106,255
370
(657,817)
(29,276)
(109,230)
23,660
4,565
Cash flows from financing activities
Repayment of short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Common Shares and Special Common Shares reissued for benefit plans,
net of tax payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Cellular Common Shares reissued for benefit plans, net of tax payments .
Repurchase of TDS Common and Special Common Shares . . . . . . . . . . . . .
Repurchase of U.S. Cellular Common Shares . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to acquire additional interest in subsidiaries . . . . . . . . . . . . . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents
(866,089)
(1,208,038)
(768,098)
(32,671)
(614,639)
643,700
—
(220,249)
225,648
32
1,935
(21,500)
(62,294)
(48,670)
(21,657)
(16,236)
—
3,970
309
509
(68,053)
(52,827)
(47,202)
(12,533)
(19,630)
(9,248)
2,321
—
(143,078)
—
819
(82)
(178,536)
(33,585)
(46,798)
(10,079)
(17,533)
(285)
1,692
(168,030)
(200,955)
(427,465)
221,592
(332,786)
(98,209)
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
341,683
674,469
772,678
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 563,275
$
341,683
$ 674,469
The accompanying notes are an integral part of these consolidated financial statements.
43
Telephone and Data Systems, Inc.
Consolidated Balance Sheet—Assets
December 31,
(Dollars in thousands)
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable
Due from customers, less allowances of $25,738 and $28,859,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, less allowances of $5,333 and $6,148, respectively . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$
563,275
246,273
$ 341,683
402,882
393,978
148,599
130,044
40,898
80,628
85,636
16,349
378,976
133,970
116,330
37,079
76,935
64,985
17,384
1,705,680
1,570,224
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,647
—
Investments
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net of accumulated amortization of $131,101 and
$119,555, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,494,014
797,077
1,460,126
728,455
50,734
173,710
45,138
3,072
30,810
197,922
102,185
8,988
2,563,745
2,528,486
Property, plant and equipment
In service and under construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,197,596
6,413,061
Other assets and deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,784,535
97,398
9,351,341
5,833,557
3,517,784
79,623
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,201,005
$7,696,117
The accompanying notes are an integral part of these consolidated financial statements.
44
Telephone and Data Systems, Inc.
Consolidated Balance Sheet—Liabilities and Equity
December 31,
(Dollars and shares in thousands)
Current liabilities
Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits and deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$
1,509
364,746
207,633
7,456
41,069
107,719
144,001
874,133
$
1,711
317,904
171,781
4,308
46,110
99,020
144,938
785,772
Liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,051
—
Deferred liabilities and credits
Net deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred liabilities and credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
808,713
383,567
589,092
354,798
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,529,857
1,499,862
Commitments and contingencies
Noncontrolling interests with redemption features . . . . . . . . . . . . . . . . . . . . . .
1,005
855
Equity
TDS shareholders’ equity
Series A Common, Special Common and Common Shares(1)
Authorized 290,000 shares (25,000 Series A Common and 265,000 Common
Shares) and 290,000 shares (25,000 Series A Common, 165,000 Special
Common and 100,000 Common Shares), respectively(1) . . . . . . . . . . . . .
Issued 132,621 shares (7,119 Series A Common and 125,502 Common
Shares) and 127,045 shares (6,510 Series A Common, 63,442 Special
Common and 57,093 Common Shares), respectively(1) . . . . . . . . . . . . . .
Outstanding 108,456 shares (7,119 Series A Common and 101,337 Common
Shares) and 103,936 shares (6,510 Series A Common, 47,531 Special
Common and 49,895 Common Shares), respectively(1) . . . . . . . . . . . . . .
Par Value ($.01 per share) of $1,326 ($71 Series A Common and $1,255
Common Shares) and of $1,270 ($65 Series A Common, $634 Special
Common and $571 Common Shares), respectively(1) . . . . . . . . . . . . . . .
Capital in excess of par value(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Common and Common Treasury shares at cost:
Treasury shares 24,165 Common Shares and 23,109 (15,911 Special
1,326
2,268,711
1,270
2,107,929
Common and 7,198 Common Shares), respectively(1) . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings(1)
(750,921)
(8,854)
2,451,899
(738,695)
(3,208)
2,450,599
Total TDS shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,962,161
3,817,895
Preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
830
639,688
830
647,013
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,602,679
4,465,738
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,201,005
$7,696,117
(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.
See Note 21—Subsequent Events for additional information.
The accompanying notes are an integral part of these consolidated financial statements.
45
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T
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS
Nature of Operations
Telephone and Data Systems, Inc. (‘‘TDS’’) is a diversified telecommunications company providing
high-quality telecommunications services to approximately 5.9 million wireless customers and 1.1 million
wireline equivalent access lines at December 31, 2011. TDS conducts substantially all of its wireless
operations through its 84%-owned subsidiary, United States Cellular Corporation (‘‘U.S. Cellular’’) and its
majority-owned subsidiary, Airadigm Communications, Inc. (‘‘Airadigm’’), and provides wireline services
through its incumbent local exchange carrier (‘‘ILEC’’) and competitive local exchange carrier (‘‘CLEC’’)
operations under its wholly-owned subsidiary, TDS Telecommunications Corporation (‘‘TDS Telecom’’).
TDS conducts printing and distribution services through its majority-owned subsidiary, Suttle-Straus, Inc.
(‘‘Suttle-Straus’’), which represents a small portion of TDS’ operations.
TDS has three reportable segments: (i) U.S. Cellular’s wireless operations; (ii) TDS Telecom’s ILEC
wireline operations and (iii) TDS Telecom’s CLEC wireline operations. TDS does not have any foreign
operations. See Note 18—Business Segment Information, for summary financial information on each
business segment.
Principles of Consolidation
The accounting policies of 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’’). Unless otherwise specified, references to accounting provisions and
GAAP in these notes refer to the requirements of the FASB ASC. The consolidated financial statements
include the accounts of TDS, its majority-owned subsidiaries, general partnerships in which it has a
majority partnership interest and variable interest entities (‘‘VIEs’’) in which TDS is the primary
beneficiary. Both VIE and primary beneficiary represent terms defined by GAAP. Prior to January 1, 2010,
the primary beneficiary of a VIE was the entity that recognized a majority of a VIE’s expected gains or
losses, as determined based on a quantitative model. Effective January 1, 2010, new provisions under
GAAP related to accounting for VIEs provide for a more qualitative assessment in determining the
primary beneficiary of a VIE. The revised consolidation guidance related to VIEs effective January 1, 2010
did not change TDS’ consolidated reporting entities.
All material intercompany accounts and transactions have been eliminated.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2011 financial statement
presentation. These reclassifications did not affect consolidated net income attributable to TDS
shareholders, cash flows, assets, liabilities or equity for the years presented.
Business Combinations
TDS accounts for business combinations at fair value in accordance with the acquisition method. This
method requires that the acquirer recognize 100% of the acquiree’s assets and liabilities at their fair
values on the acquisition date for all acquisitions, whether full or partial. In addition, transaction costs
related to acquisitions are expensed.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect (a) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and (b) the reported
49
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
amounts of revenues and expenses during the reported period. Actual results could differ from those
estimates. Significant estimates are involved in accounting for Goodwill and indefinite-lived intangible
assets, Depreciation, amortization and accretion, allowance for doubtful accounts, loyalty reward points,
and income taxes.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term, highly liquid investments with original maturities
of three months or less.
Short-Term and Long-Term Investments
At December 31, 2011 and 2010, TDS had $246.3 million and $402.9 million in Short-term investments
and $45.1 million and $102.2 million in Long-term investments, respectively. Short-term and Long-term
investments consist of certificates of deposit (short-term only), U.S. treasuries and corporate notes, all of
which are designated as held-to-maturity investments, and are recorded at amortized cost in the
Consolidated Balance Sheet. The corporate notes are guaranteed by the Federal Deposit Insurance
Corporation. For these investments, TDS’ objective is to earn a higher rate of return on funds that are not
anticipated to be required to meet liquidity needs in the near term, while maintaining a low level of
investment risk. See Note 4—Fair Value Measurements for additional details on Short-term and
Long-term investments.
Accounts Receivable and Allowance for Doubtful Accounts
U.S. Cellular’s accounts receivable primarily consist of amounts owed by customers pursuant to service
contracts and for equipment sales, by agents for sales of equipment to them and by other wireless
carriers whose customers have used U.S. Cellular’s wireless systems.
TDS Telecom’s accounts receivable primarily consist of amounts owed by customers for services
provided, by connecting companies for interstate and intrastate long-distance traffic on its network, and
by interstate and intrastate revenue pools that distribute access charges.
The allowance for doubtful accounts is the best estimate of the amount of probable credit losses related
to existing accounts receivable. The allowance is estimated based on historical experience and other
factors that could affect collectability. Accounts receivable balances are reviewed on either an aggregate
or individual basis for collectability depending on the type of receivable. When it is probable that an
account balance will not be collected, the account balance is charged against the allowance for doubtful
accounts. TDS does not have any off-balance sheet credit exposure related to its customers.
The changes in the allowance for doubtful accounts during the years ended December 31, 2011, 2010
and 2009 were as follows:
Year Ended December 31,
2011
2010
2009
(Dollars in thousands)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . .
Additions, net of recoveries . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,007
68,611
(72,545)
$ 31,073
$ 37,623
83,098
(85,714)
$ 35,007
$ 19,202
115,989
(97,568)
$ 37,623
50
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
Inventory
Inventory primarily consists of wireless devices stated at the lower of cost or market, with cost
determined using the first-in, first-out method and market determined by replacement costs or estimated
net realizable value. TDS Telecom’s materials and supplies are stated at average cost.
Fair Value Measurements
Under the provisions of GAAP, fair value is a market-based measurement and not an entity-specific
measurement, based on an exchange transaction in which the entity sells an asset or transfers a liability
(exit price). The provisions also establish a fair value hierarchy that contains three levels for inputs used
in fair value measurements. Level 1 inputs include quoted market prices for identical assets or liabilities
in active markets. Level 2 inputs include quoted market prices for similar assets and liabilities in active
markets or quoted market prices for identical assets and liabilities in inactive markets. Level 3 inputs are
unobservable.
Licenses
Licenses consist of costs incurred in acquiring Federal Communications Commission (‘‘FCC’’) licenses to
provide wireless service. These costs include amounts paid to license applicants and owners of interests
in entities awarded licenses and all direct and incremental costs related to acquiring the licenses.
TDS has determined that wireless licenses are indefinite-lived intangible assets and, therefore, not
subject to amortization based on the following factors:
(cid:129) Radio spectrum is not a depleting asset.
(cid:129) The ability to use radio spectrum is not limited to any one technology.
(cid:129) TDS and its subsidiaries are licensed to use radio spectrum through the FCC licensing process, which
enables licensees to utilize specified portions of the spectrum for the provision of wireless service.
(cid:129) TDS and its subsidiaries are required to renew their FCC licenses every ten years or, in some cases,
every fifteen years. To date, all of TDS’ license renewal applications have been granted by the FCC.
Generally, license renewal applications filed by licensees otherwise in compliance with FCC regulations
are routinely granted. If, however, a license renewal application is challenged either by a competing
applicant for the license or by a petition to deny the renewal application, the license will be renewed if
the licensee can demonstrate its entitlement to a ‘‘renewal expectancy.’’ Licensees are entitled to such
an expectancy if they can demonstrate to the FCC that they have provided ‘‘substantial service’’ during
their license term and have ‘‘substantially complied’’ with FCC rules and policies. TDS believes that it
is probable that future license renewal applications will be granted.
Goodwill
TDS has goodwill as a result of its acquisitions of wireless businesses, the acquisition of operating
telephone companies, Hosted and Managed Services companies and, prior to 2009, step acquisitions
related to U.S. Cellular’s repurchase of its common shares. Such goodwill represents the excess of the
total purchase price over the fair value of net assets acquired in these transactions.
51
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
Goodwill and Licenses Impairment Assessment
Goodwill and licenses must be assessed for impairment annually or more frequently if events or changes
in circumstances indicate that such assets might be impaired. TDS performs its annual impairment
assessment of goodwill and licenses as of November 1 of each year.
The impairment test for goodwill is a two-step process. The first step compares the fair value of the
reporting unit to its carrying value. If the carrying amount exceeds the fair value, the second step of the
test is performed to measure the amount of impairment loss, if any. The second step compares the
implied fair value of reporting unit goodwill with the carrying amount of that goodwill. To calculate the
implied fair value of goodwill in this second step, an enterprise allocates the fair value of the reporting
unit to all of the assets and liabilities of that reporting unit (including any unrecognized intangible assets)
as if the reporting unit had been acquired in a business combination and the fair value was the price
paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amount
assigned to the assets and liabilities of the reporting unit is the implied fair value of goodwill. If the
carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized
for that difference.
The impairment test for an indefinite-lived intangible asset other than goodwill consists of comparing the
fair value of the intangible asset to its carrying amount. If the carrying amount exceeds the fair value, an
impairment loss is recognized for the difference.
Quoted market prices in active markets are the best evidence of fair value of an intangible asset or
reporting unit and are used when available. If quoted market prices are not available, the estimate of fair
value is based on the best information available, including prices for similar assets and the use of other
valuation techniques. Other valuation techniques include present value analysis, multiples of earnings or
revenues, or similar performance measures. The use of these techniques involve assumptions by
management about factors that are uncertain including future cash flows, the appropriate discount rate,
and other inputs. Different assumptions for these inputs could create materially different results.
U.S. Cellular tests goodwill for impairment at the level of reporting referred to as a reporting unit. For
purposes of its impairment testing of goodwill in 2011 and 2010, U.S. Cellular identified five reporting
units. The five reporting units represent five geographic groupings of FCC licenses, representing five
geographic service areas.
A discounted cash flow approach was used to value each reporting unit for purposes of the goodwill
impairment review by using value drivers and risks specific to the current industry and economic
markets. The cash flow estimates incorporated assumptions that market participants would use in their
estimates of fair value. Key assumptions made in this process were the discount rate, estimated
expected revenue growth rate, projected capital expenditures and the terminal growth rate.
U.S. Cellular tests licenses for impairment at the level of reporting referred to as a unit of accounting. For
purposes of its 2011 impairment testing of licenses, U.S. Cellular separated its FCC licenses into twelve
units of accounting based on geographic service areas. Seven of these twelve units of accounting
represented geographic groupings of licenses which, because they were not being utilized and,
therefore, were not expected to generate cash flows from operating activities in the foreseeable future,
were considered separate units of accounting for purposes of impairment testing. For purposes of its
2010 impairment testing of licenses, U.S. Cellular separated its FCC licenses into eighteen units of
accounting based on geographic service areas. Thirteen of these eighteen units of accounting
represented geographic groupings of licenses which, because they were not being utilized and,
therefore, were not expected to generate cash flows from operating activities in the foreseeable future,
52
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
were considered separate units of accounting for purposes of impairment testing. The change in units of
accounting between 2011 and 2010 reflects additional network build-out.
U.S. Cellular estimates the fair value of built licenses for purposes of impairment testing using the
build-out method. The build-out method estimates the fair value of licenses by calculating future cash
flows from a hypothetical start-up wireless company and assuming that the only assets available upon
formation are the underlying licenses. To apply this method, a hypothetical build-out of the company’s
wireless network, infrastructure, and related costs are projected based on market participant information.
Calculated cash flows, along with a terminal value, are discounted to the present and summed to
determine the estimated fair value.
For units of accounting which consist of unbuilt licenses, U.S. Cellular prepares estimates of fair value by
reference to prices paid in recent auctions and market transactions where available. If such information is
not available, the fair value of the unbuilt licenses is assumed to change by the same percentage, and in
the same direction, that the fair value of built licenses measured using the build-out method changed
during the period.
TDS Telecom has recorded goodwill as a result of the acquisition of operating telephone companies and
other service businesses and has assigned this goodwill to its ILEC reporting unit. For the purposes of
impairment testing, the publicly-traded guideline company method and the recent transaction method
were utilized. The publicly-traded guideline company method develops an indication of value by
calculating market pricing multiples for selected publicly-traded companies. The recent transaction
method calculates market pricing multiples based upon recent actual acquisitions of similar businesses.
In both methods, the developed multiples are applied to the appropriate financial measure of TDS
Telecom’s ILEC reporting unit to determine the reporting unit’s fair value.
Investments in Unconsolidated Entities
Investments in unconsolidated entities consist of amounts invested in wireless and wireline entities in
which TDS holds a noncontrolling interest. TDS follows the equity method of accounting for such
investments in which its ownership interest equals or exceeds 20% for corporations and equals or
exceeds 3% for partnerships and limited liability companies. The cost method of accounting is followed
for such investments in which TDS’ ownership interest is less than 20% for corporations and is less than
3% for partnerships and limited liability companies, and for investments for which TDS does not have the
ability to exercise significant influence.
For its equity method investments for which financial information is readily available, TDS records its
equity in the earnings of the entity in the current period. For its equity method investments for which
financial information is not readily available, TDS records its equity in the earnings of the entity on a one
quarter lag basis.
Property, Plant and Equipment
Property, plant and equipment is stated at the original cost of construction or purchase including
capitalized costs of certain taxes, payroll-related expenses, interest and estimated costs to remove the
assets.
Expenditures that enhance the productive capacity of assets in service or extend their useful lives are
capitalized and depreciated. Expenditures for maintenance and repairs of assets in service are charged
to Cost of services and products or Selling, general and administrative expense, as applicable.
Retirements and disposals of assets are recorded by removing the original cost of the asset (along with
53
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
the related accumulated depreciation) from plant in service and charging it, together with removal cost
less any salvage realized, to (Gain) loss on asset disposals and exchanges, net.
Costs of developing new information systems are capitalized and amortized over their expected
economic useful lives.
Depreciation
Depreciation is provided using the straight-line method over the estimated useful life of the assets. TDS
depreciates leasehold improvement assets associated with leased properties over periods ranging from
one to thirty years; such periods approximate the shorter of the assets’ economic lives or the specific
lease terms.
Useful lives of specific assets are reviewed throughout the year to determine if changes in technology or
other business changes would warrant accelerating the depreciation of those specific assets. U.S.
Cellular and TDS Telecom did not materially change the useful lives of their property, plant and
equipment in 2011, 2010 or 2009.
Impairment of Long-lived Assets
TDS reviews long-lived assets for impairment whenever events or changes in circumstances indicate that
the assets might be impaired. The impairment test for tangible long-lived assets is a two-step process.
The first step compares the carrying value of the asset (or asset group) with the estimated undiscounted
cash flows over the remaining asset (or asset group) life. If the carrying value of the asset (or asset
group) is greater than the undiscounted cash flows, the second step of the test is performed to measure
the amount of impairment loss. The second step compares the carrying value of the asset to its
estimated fair value. If the carrying value exceeds the estimated fair value (less cost to sell), an
impairment loss is recognized for the difference.
Quoted market prices in active markets are the best evidence of fair value of a tangible long-lived asset
and are used when available. If quoted market prices are not available, the estimate of fair value is
based on the best information available, including prices for similar assets and the use of other valuation
techniques. A present value analysis of cash flow scenarios is often the best available valuation
technique. The use of this technique involves assumptions by management about factors that are
uncertain including future cash flows, the appropriate discount rate, and other inputs. Different
assumptions for these inputs could create materially different results.
Agent Liabilities
U.S. Cellular has relationships with agents, which are independent businesses that obtain customers for
U.S. Cellular. At December 31, 2011 and 2010, U.S. Cellular had accrued $75.3 million and $71.3 million,
respectively, for amounts due to agents. This amount is included in Other current liabilities in the
Consolidated Balance Sheet.
Other Assets and Deferred Charges
Other assets and deferred charges include legal and other charges related to various borrowing
instruments, and are amortized over the respective term of each instrument. The amounts for deferred
charges included in the Consolidated Balance Sheet at December 31, 2011 and 2010 are shown net of
accumulated amortization of $25.2 million and $26.0 million, respectively.
54
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
Asset Retirement Obligations
U.S. Cellular operates cell sites, retail stores and office spaces in its operating markets. A majority of
these sites, stores and office spaces are leased. Most of these leases contain terms which require or
may require U.S. Cellular to return the leased property to its original condition at the lease expiration
date.
TDS Telecom owns poles, wires, and cables and certain buildings and leases data center and office
space and property used for housing central office switching equipment and fiber cable. These assets
and leases often have removal or remediation requirements associated with them. For example, TDS
Telecom’s poles, wires, and cables are often located on property that is not owned by TDS Telecom and
are often subject to the provisions of easements, permits, or leasing arrangements. Pursuant to the terms
of the permits, easements, or leasing arrangements, TDS Telecom is often required to remove these
assets and return the property to its original condition at some defined date in the future.
TDS accounts for asset retirement obligations related to the provisions of the arrangements described
above by recording the fair value of a liability for legal obligations associated with an asset retirement in
the period in which the obligations are incurred. At the time the liability is incurred, TDS records a liability
equal to the net present value of the estimated cost of the asset retirement obligation and increases the
carrying amount of the related long-lived asset by an equal amount. The liability is accreted to its present
value over a period ending with the estimated settlement date of the respective asset retirement
obligation. The carrying amount of the long-lived asset is depreciated over the useful life of the asset.
Upon settlement of the obligation, any difference between the cost to retire the asset and the recorded
liability (including accretion of discount) is recognized in the Consolidated Statement of Operations.
Treasury Shares
Common Shares and Special Common Shares repurchased by TDS are recorded at cost as treasury
shares and result in a reduction of equity. Treasury shares are reissued as part of TDS’ stock-based
compensation programs. When treasury shares are reissued, TDS determines the cost using the first-in,
first-out cost method. The difference between the cost of the treasury shares and reissuance price is
included in Capital in excess of par value or Retained earnings. On January 13, 2012, TDS shareholders
approved a Share Consolidation Amendment to the Restated Certificate of Incorporate of TDS whereby
each Special Common Share was reclassified as one Common Share on a one-for-one basis and each
Common Share was reclassified as 1.087 Common Shares. See Note 21—Subsequent Events for
additional information.
Revenue Recognition
U.S. Cellular
Revenues from wireless operations consist primarily of:
(cid:129) Charges for access, airtime, roaming, long distance, data and other value added services provided to
U.S. Cellular’s retail customers and to end users through third-party resellers;
(cid:129) Charges to carriers whose customers use U.S. Cellular’s systems when roaming;
(cid:129) Sales of equipment and accessories;
(cid:129) Amounts received from the Universal Service Fund (‘‘USF’’) in states where U.S. Cellular has been
designated an Eligible Telecommunications Carrier (‘‘ETC’’); and
55
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
(cid:129) Redemptions of loyalty reward points for products or services.
Revenues related to wireless services and other value added services are recognized as services are
rendered. Revenues billed in advance or in arrears of the services being provided are estimated and
deferred or accrued, as appropriate.
Revenues from sales of equipment and accessories are recognized when title and risk of loss passes to
the agent or end-user customer.
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple Deliverable
Revenue Arrangements—a consensus of FASB Emerging Issues Task Force (‘‘ASU 2009-13’’).
ASU 2009-13 provides for less restrictive separation criteria that must be met for a deliverable to be
considered a separate unit of accounting. Additionally, under this Standard, there is a hierarchy for
determining the selling price of a unit of accounting and consideration must be allocated using a relative-
selling price method. U.S. Cellular was required to adopt the provisions of ASU 2009-13 on January 1,
2011, however elected to adopt the provisions as of October 1, 2010 on a retroactive basis to January 1,
2010. The adoption of ASU 2009-13 on October 1, 2010 had no impact on any previously reported
financial statement amounts for 2010 interim periods.
U.S. Cellular allocates revenue to each element of these service offerings accounted for under
ASU 2009-13 using the relative selling price method. Under this method, arrangement consideration,
which consists of the amounts billed to the customer net of any cash-based discounts, are allocated to
each element on the basis of their relative selling price, on a stand-alone basis. Such stand-alone selling
price is determined in accordance with the following hierarchy:
(cid:129) U.S. Cellular-specific objective evidence of stand-alone selling price, if available; otherwise
(cid:129) Third-party evidence of selling price, if it is determinable; otherwise
(cid:129) A best estimate of stand-alone selling price.
U.S. Cellular estimates stand-alone selling prices of the elements of its service offerings as follows:
(cid:129) Wireless services—Based on the actual selling price U.S. Cellular offers when such plan is sold on a
stand-alone basis, or if the plan is not sold on a stand-alone basis, U.S. Cellular’s estimate of the price
of such plan based on similar plans that are sold on a stand-alone basis.
(cid:129) Wireless devices—Based on the selling price of the respective wireless device when it is sold on a
stand-alone basis.
(cid:129) Phone Replacement—Based on U.S. Cellular’s estimate of the price of this service if it were sold on a
stand-alone basis, which was calculated by estimating the cost of this program plus a reasonable
margin.
(cid:129) Loyalty reward points—By estimating the retail price of the products and services for which points may
be redeemed and dividing such amount by the number of loyalty points required to receive such
products and services. This is calculated on a weighted average basis and requires U.S. Cellular to
estimate the percentage of loyalty points that will be redeemed for each product or service.
U.S. Cellular follows the deferred revenue method of accounting for its loyalty reward program. Under
this method, revenue allocated to loyalty reward points is fully deferred as U.S. Cellular does not have
sufficient historical data in which to estimate any portion of loyalty reward points that will not be
redeemed. Revenue is recognized at the time of customer redemption or when such points have been
depleted via a maintenance charge. U.S. Cellular periodically reviews and will revise the redemption and
depletion rates as appropriate based on history and related future expectations.
56
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
The adoption of ASU 2009-13 required U.S. Cellular to defer the recognition of revenue related to
amounts billed to customers that are attributed to loyalty reward points, and therefore impacted the
timing of revenue recognition related to such service offerings. As of December 31, 2011 and 2010,
$38.9 million and $7.1 million of revenue are deferred, respectively, related to loyalty reward points
outstanding as of these dates. These amounts are recorded in Customer deposits and deferred revenues
(a current liability account) in the Consolidated Balance Sheet, as customers may redeem their reward
points within the current period.
Cash-based discounts and incentives, including discounts to customers who pay their bills through the
use of on-line bill payment methods, are recognized as a reduction of Operating revenues concurrently
with the associated revenue, and are allocated to the various products and services in the bundled
offering based on their respective relative selling price.
In order to provide better control over wireless device quality, U.S. Cellular sells wireless devices to
agents. U.S. Cellular pays rebates to agents at the time an agent activates a new customer or retains an
existing customer in a transaction involving a wireless device. U.S. Cellular accounts for these rebates by
reducing revenues at the time of the wireless device sale to the agent rather than at the time the agent
activates a new customer or retains a current customer. Similarly, U.S. Cellular offers certain wireless
device sales rebates and incentives to its retail customers and records the revenue net of the
corresponding rebate or incentive. The total potential rebates and incentives are reduced by
U.S. Cellular’s estimate of rebates that will not be redeemed by customers based on historical
experience of such redemptions.
Activation fees charged with the sale of service only, where U.S. Cellular does not also sell a wireless
device to the customer, are deferred and recognized over the average customer life. U.S. Cellular defers
recognition of a portion of commission expenses related to these activations in the amount of deferred
activation fee revenues. This method of accounting provides for matching of revenues and direct
incremental costs associated with such activations within each reporting period. GAAP requires that
activation fees charged with the sale of equipment and service to be allocated to the equipment and
service based upon the relative selling prices of each item. This generally results in the recognition of the
activation fee as additional wireless device revenue at the time of sale.
ETC revenues recognized in the reporting period represent the amounts which U.S. Cellular is entitled to
receive for such period, as determined and approved in connection with U.S. Cellular’s designation as an
ETC in various states.
TDS Telecom
Revenue from wireline operations consist primarily of charges for:
(cid:129) The provision of local telephone exchange service;
(cid:129) Compensation for carrying interstate and intrastate long-distance voice and data traffic on TDS
Telecom’s local telephone networks, including compensation from Universal Service Funds;
(cid:129) Leasing, selling, installing and maintaining customer premise equipment;
(cid:129) Providing broadband services;
(cid:129) Providing hosted voice over internet protocol (‘‘VoIP’’) solutions and other hosted services to business;
(cid:129) Reselling long-distance services;
(cid:129) Providing Hosted and Managed Services; and
57
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
(cid:129) Selling digital broadcast satellite and terrestrial video service.
Revenues are recognized as services are rendered. Activation fees charged are deferred and recognized
over the average customer’s service period.
TDS Telecom offers some products and services that are provided by third-party vendors, primarily
satellite television service. TDS records satellite television service revenue on a net basis.
TDS Telecom offers discounts and incentives to customers who receive certain groupings of products
and services (bundled arrangements). These discounts are recognized concurrently with the associated
revenue and are allocated to the various products and services in the bundled offering based on their
relative selling prices.
Discounts and cash incentives offered by TDS Telecom that are given directly to customers are recorded
in the financial statements as a reduction of Operating revenues.
TDS Telecom’s ILECs participate in revenue pools with other telephone companies for interstate revenue
and for certain intrastate revenue. Such pools are funded by long distance revenue and/or access
charges within state jurisdictions and by access charges in the interstate market. Revenues earned
through the various pooling processes are recorded based on estimates following the National Exchange
Carrier Association’s rules as approved by the FCC.
Amounts Collected from Customers and Remitted to Governmental Authorities
TDS records amounts collected from customers and remitted to governmental authorities net within a tax
liability account if the tax is assessed upon the customer and TDS merely acts as an agent in collecting
the tax on behalf of the imposing governmental authority. If the tax is assessed upon TDS, then amounts
collected from customers as recovery of the tax are recorded in Operating revenues and amounts
remitted to governmental authorities are recorded in Selling, general and administrative expenses in the
Consolidated Statement of Operations. The amounts recorded gross in revenues that are billed to
customers and remitted to governmental authorities totaled $141.3 million, $154.0 million and
$124.3 million for 2011, 2010 and 2009, respectively.
Advertising Costs
TDS expenses advertising costs as incurred. Advertising costs totaled $267.7 million, $273.0 million and
$265.2 million in 2011, 2010 and 2009, respectively.
Income Taxes
TDS files a consolidated federal income tax return. Deferred taxes are computed using the liability
method, whereby deferred tax assets are recognized for future deductible temporary differences and
operating loss carryforwards, and deferred tax liabilities are recognized for future taxable temporary
differences. Both deferred tax assets and liabilities are measured using the tax rates anticipated to be in
effect when the temporary differences reverse. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of enactment. Deferred tax assets
are reduced by a valuation allowance when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. TDS evaluates income tax uncertainties, assesses the probability
of the ultimate settlement with the applicable taxing authority and records an amount based on that
assessment.
58
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
Stock-Based Compensation
TDS has established long-term incentive plans, dividend reinvestment plans, a Non-Employee Director
compensation plan, and previously had an employee stock purchase plan before this was terminated in
the fourth quarter of 2011. See Note 17—Stock-based Compensation for additional information. These
plans are considered compensatory plans; therefore, recognition of compensation costs for grants made
under these plans is required. The dividend reinvestment plan of TDS is not considered a compensatory
plan and, therefore, recognition of compensation costs for grants made under this plan is not required.
TDS values its share-based payment transactions using a Black-Scholes valuation model. Stock-based
compensation cost recognized during the period is based on the portion of the share-based payment
awards that are ultimately expected to vest. Accordingly, stock-based compensation cost recognized has
been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates. Pre-vesting forfeitures
and expected life are estimated based on historical experience related to similar awards, giving
consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of
future employee behavior. TDS believes that its historical experience provides the best estimates of future
pre-vesting forfeitures and future expected life. The expected volatility assumption is based on the
historical volatility of TDS’ common stock over a period commensurate with the expected life. The
dividend yield assumption is equal to the dividends declared in the most recent year as a percentage of
the share price on the date of grant. The risk-free interest rate assumption is determined using the
implied yield for zero-coupon U.S. government issues with a remaining term that approximates the
expected life of the stock options.
Compensation cost for stock option awards is recognized over the respective requisite service period of
the awards, which is generally the vesting period, on a straight-line basis for each separate vesting
portion of the awards as if the awards were, in-substance, multiple awards (graded vesting attribution
method).
Operating Leases
TDS is a party to various lease agreements for office space, retail sites, cell sites and equipment that are
accounted for as operating leases. Certain leases have renewal options and/or fixed rental increases.
Renewal options that are reasonably assured of exercise are included in determining the lease term. TDS
accounts for certain operating leases that contain rent abatements, lease incentives and/or fixed rental
increases by recognizing lease revenue and expense on a straight-line basis over the lease term.
Recent Accounting Pronouncements
On May 12, 2011, the FASB issued Accounting Standards Update (‘‘ASU’’) 2011-04, Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure.
Although TDS does not currently have any financial assets or liabilities that are required to be recorded
at fair value in its Consolidated Balance Sheet in accordance with GAAP, certain assets and liabilities are
disclosed at fair value (see Note 4—Fair Value Measurements). Under ASU 2011-04, for these
instruments, TDS will be required to disclose, in a tabular format, the level within the fair value hierarchy
that each of these assets and liabilities are measured. TDS is required to adopt the provisions of ASU
2011-04 effective January 1, 2012. Early adoption is prohibited. The adoption of ASU 2011-04 is not
expected to have a significant impact on TDS’ financial position or results of operations.
On June 16, 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. ASU 2011-05 amends how Other Comprehensive Income (‘‘OCI’’) is presented
59
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
in the financial statements. Under this standard, the Statement of Operations and OCI can be presented
either continuously in a Statement of Comprehensive Income or in two separate but consecutive
statements. ASU 2011-05 also required entities to present reclassification adjustments by component in
both the statement where net income is presented and the statement where OCI is presented. On
December 23, 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the
Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers the effective
date pertaining to reclassification adjustments out of accumulated other comprehensive income in
ASU 2011-05. TDS is required to adopt the revised provisions of ASU 2011-05 effective January 1, 2012.
TDS currently provides this information in two separate statements. The adoption of ASU 2011-05 is not
expected to have an impact on TDS’ financial position or results of operations.
On September 15, 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350):
Testing Goodwill for Impairment. ASU 2011-08 is intended to reduce the cost and complexity of the
annual goodwill impairment test by providing entities an option to perform a ‘‘qualitative’’ assessment to
determine whether further impairment testing is necessary. TDS is required to adopt the provisions of
ASU 2011-08 effective January 1, 2012. Early adoption is permitted. The adoption of ASU 2011-08 is not
expected to have a significant impact on TDS’ financial position or results of operations.
NOTE 2 REVISION OF PRIOR PERIOD AMOUNTS
In preparing its Consolidated Statement of Cash Flows for the year ended December 31, 2011, TDS
discovered certain errors related to the classification of outstanding checks with the right of offset, and
related to the classification of Accounts payable for Additions to property, plant and equipment as
non-cash investing activities for purposes of preparing the Consolidated Statement of Cash Flows. These
errors resulted in the misstatement of Cash and cash equivalents and Accounts payable as of
December 31, 2010 and each quarterly period in 2011, and the misstatement of Cash flows from
operating activities and Cash flows from investing activities for the years ended December 31, 2010 and
2009 and each of the quarterly periods in 2011 and 2010. 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, in order to provide consistency in the Consolidated Statement of
Cash Flows and as permitted by SAB 108, revisions for these immaterial amounts to previously reported
annual amounts are reflected in the financial information herein and will be reflected in future filings
containing such financial information as permitted by SAB 108.
60
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 2 REVISION OF PRIOR PERIOD AMOUNTS (Continued)
In accordance with SAB 108, the Consolidated Balance Sheet and the Consolidated Statement of Cash
Flows have been revised as follows:
Consolidated Balance Sheet—December 31, 2010
(Dollars in thousands)
Cash and cash equivalents . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . .
Total liabilities and equity . . . . . . . . . . . . . . . . .
As previously
reported(1)
$ 368,134
1,596,675
7,722,568
344,355
812,223
7,722,568
Adjustment
Revised
$(26,451) $ 341,683
1,570,224
7,696,117
317,904
785,772
7,696,117
(26,451)
(26,451)
(26,451)
(26,451)
(26,451)
Consolidated Statement of Cash Flows—Year Ended December 31, 2010
(Dollars in thousands)
Change in Accounts payable . . . . . . . . . . . . .
Change in Other assets and liabilities . . . . . . .
Cash flows from operating activities . . . . . . . .
Cash used for additions to property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities . . . . . . . . .
Net increase (decrease) in cash and cash
As previously
reported(1)
Adjustment
Revised
$
(4,016) $(43,743) $
95,470
1,121,945
(1,995)
(45,738)
(47,759)
93,475
1,076,207
(755,032)
(1,223,848)
15,810
15,810
(739,222)
(1,208,038)
equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
(302,858)
(29,928)
(332,786)
Consolidated Statement of Cash Flows—Year Ended December 31, 2009
(Dollars in thousands)
Change in Accounts payable . . . . . . . . . . . . . .
Change in Other assets and liabilities . . . . . . . .
Cash flows from operating activities . . . . . . . . .
Cash used for additions to property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities . . . . . . . . . .
Net increase (decrease) in cash and cash
As previously
reported(1)
Adjustment
Revised
$
29,646
(44,896)
1,102,594
$ (6,548)
1,308
(5,240)
$
23,098
(43,588)
1,097,354
(671,165)
(781,446)
13,348
13,348
(657,817)
(768,098)
equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
(106,317)
8,108
(98,209)
(1)
In Current Report on Form 8-K filed on November 16, 2011.
61
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 3 NONCONTROLLING INTERESTS
Impact of Changes in TDS Ownership
The following schedule discloses the effects of net income attributable to TDS shareholders and changes
in TDS’ ownership interest in U.S. Cellular on TDS’ equity for 2011, 2010 and 2009:
Year Ended December 31,
2011
2010
2009
(Dollars in thousands)
Net income attributable to TDS shareholders . . . . . .
$200,566
$144,849
$191,347
Transfer (to) from the noncontrolling interests
Change in TDS’ Capital in excess of par value
from U.S. Cellular’s issuance of U.S. Cellular
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in TDS’ Capital in excess of par value
from U.S. Cellular’s repurchase of U.S. Cellular
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of ownership in subsidiary from
(8,555)
(7,180)
(4,709)
(7,723)
(2,964)
182
noncontrolling interest . . . . . . . . . . . . . . . . . . .
—
(3,510)
(105)
Net transfers (to) from noncontrolling interests . . .
(16,278)
(13,654)
(4,632)
Change from net income attributable to TDS
shareholders and transfers (to) from
noncontrolling interests . . . . . . . . . . . . . . . . . .
$184,288
$131,195
$186,715
Mandatorily Redeemable Noncontrolling Interests in Finite-Lived Subsidiaries
TDS’ consolidated financial statements include certain noncontrolling interests that meet the GAAP
definition of mandatorily redeemable financial instruments. These mandatorily redeemable noncontrolling
interests represent interests held by third parties in consolidated partnerships and limited liability
companies (‘‘LLCs’’), where the terms of the underlying partnership or LLC agreement provide for a
defined termination date at which time the assets of the subsidiary are to be sold, the liabilities are to be
extinguished and the remaining net proceeds are to be distributed to the noncontrolling interest holders
and TDS in accordance with the respective partnership and LLC agreements. The termination dates of
these mandatorily redeemable noncontrolling interests range from 2085 to 2107.
The settlement value or estimate of cash that would be due and payable to settle these noncontrolling
interests, assuming an orderly liquidation of the finite-lived consolidated partnerships and LLCs on
December 31, 2011, net of estimated liquidation costs, is $165.7 million. This amount excludes
redemption amounts recorded in Noncontrolling interests with redemption features in the Consolidated
Balance Sheet. The estimate of settlement value was based on certain factors and assumptions which
are subjective in nature. Changes in those factors and assumptions could result in a materially larger or
smaller settlement amount. TDS currently has no plans or intentions relating to the liquidation of any of
the related partnerships or LLCs prior to their scheduled termination dates. The corresponding carrying
value of the mandatorily redeemable noncontrolling interests in finite-lived consolidated partnerships
and LLCs at December 31, 2011 was $61.7 million, and is included in Noncontrolling interests in the
Consolidated Balance Sheet. The excess of the aggregate settlement value over the aggregate carrying
value of these mandatorily redeemable noncontrolling interests is primarily due to the unrecognized
appreciation of the noncontrolling interest holders’ share of the underlying net assets in the consolidated
partnerships and LLCs. Neither the noncontrolling interest holders’ share, nor TDS’ share, of the
appreciation of the underlying net assets of these subsidiaries is reflected in the consolidated financial
statements.
62
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 4 FAIR VALUE MEASUREMENTS
As of December 31, 2011 and 2010, TDS did not have any financial assets or liabilities that were
required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.
However, TDS has applied the provisions of fair value accounting for purposes of computing the fair
value of financial instruments for disclosure purposes as displayed below.
(Dollars in thousands)
Cash and cash equivalents(1) . . . . . . . . . . . . . . . .
Short-term investments(2)(3)
December 31, 2011
December 31, 2010
Book Value
Fair Value
Book Value
Fair Value
$ 563,275
$ 563,275
$ 368,134
$ 368,134
Certificates of deposit . . . . . . . . . . . . . . . . . . . .
Government-backed securities(4) . . . . . . . . . . . .
27,444
218,829
27,444
218,829
97,270
305,612
97,270
305,612
Long-term investments(2)(5)
Government-backed securities(4) . . . . . . . . . . . .
Long-term debt(6) . . . . . . . . . . . . . . . . . . . . . . .
45,138
1,525,648
45,310
1,586,858
102,185
1,495,461
102,325
1,482,181
(1)
In preparing its Consolidated Statement of Cash Flows for the year ended December 31, 2011, TDS
discovered certain errors related to the classification of outstanding checks with the right of offset.
This error resulted in the misstatement of Cash for the year ended December 31, 2010. The amounts
herein have been revised to reflect the proper amounts. See Note 2—Revision of Prior Period
Amounts for additional information.
(2) Designated as held-to-maturity investments and are recorded at amortized cost in the Consolidated
Balance Sheet.
(3) Maturities are less than twelve months from the respective balance sheet dates.
(4)
Includes U.S. treasuries and corporate notes guaranteed under the Federal Deposit Insurance
Corporation’s Temporary Liquidity Guarantee Program.
(5) Maturities range between 15 and 21 months from the balance sheet date.
(6) Excludes capital lease obligations and current portion of Long-term debt.
The fair values of Cash and cash equivalents and Short-term investments approximate their book values
due to the short-term nature of these financial instruments. The fair values of Long-term investments were
estimated using quoted market prices for the individual issuances. The fair value of long-term debt,
excluding capital lease obligations and the current portion of such long-term debt, was estimated using
market prices for TDS’ 7.0% Senior Notes, 6.875% Senior Notes and 6.625% Senior Notes, and U.S.
Cellular’s 6.95% Senior Notes at December 31, 2011, and TDS’ 7.6% Series A Notes, 6.875% Senior
Notes, and 6.625% Senior Notes, and U.S. Cellular’s 7.5% Senior Notes at December 31, 2010, and
discounted cash flow analysis for remaining debt at December 31, 2011 and 2010.
NOTE 5 INCOME TAXES
TDS’ Income taxes receivable at December 31, 2011 and 2010 were as follows:
December 31,
(Dollars in thousands)
2011
2010
Federal income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . .
$77,238
8,398
$56,109
8,876
$85,636
$64,985
63
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 5 INCOME TAXES (Continued)
Income tax expense is summarized as follows:
Year Ended December 31,
(Dollars in thousands)
Current
2011
2010
2009
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (94,627) $24,329
(5,532)
5,583
$ 92,303
7,222
Deferred
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
214,722
(12,175)
67,466
8,925
28,451
7,563
$113,503
$95,188
$135,539
A reconciliation of TDS’ income tax expense computed at the statutory rate to the reported income tax
expense, and the statutory federal income tax expense rate to TDS’ effective income tax expense rate is
as follows:
Year Ended December 31,
2011
2010
2009
Amount
Rate
Amount
Rate
Amount
Rate
(Dollars in millions)
Statutory federal income tax expense and rate . . . . . . . .
State income taxes, net of federal benefit(1) . . . . . . . . . .
Effect of noncontrolling interests . . . . . . . . . . . . . . . . . .
Correction of deferred taxes(2) . . . . . . . . . . . . . . . . . . .
Other differences, net . . . . . . . . . . . . . . . . . . . . . . . . . .
$127.3
(20.3)
(3.0)
5.4
4.1
35.0% $100.0
2.7
(5.6)
(4.0)
(0.8)
—
1.5
(3.5)
1.1
35.0% $134.9
5.8
(4.0)
—
(1.2)
1.0
(1.4)
—
(1.3)
35.0%
1.5
(1.0)
—
(0.3)
Total income tax expense and rate . . . . . . . . . . . . . . . .
$113.5
31.2% $ 95.2
33.3% $135.5
35.2%
(1) Net state income tax benefit is a result of changes in the valuation allowance. These changes
primarily relate to the ability to utilize net operating losses as a result of state income tax law
changes.
(2) TDS recorded an immaterial adjustment to correct deferred tax balances related to a difference in
the tax basis in certain partnership investments for errors occurring prior to 2009.
TDS’ current Net deferred income tax asset totaled $40.9 million and $37.1 million at December 31, 2011
and 2010, respectively, and primarily represents the deferred tax effects of accrued liabilities and the
allowance for doubtful accounts on customer receivables.
64
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 5 INCOME TAXES (Continued)
TDS’ noncurrent deferred income tax assets and liabilities at December 31, 2011 and 2010 and the
temporary differences that gave rise to them were as follows:
December 31,
(Dollars in thousands)
Noncurrent deferred tax assets
2011
2010
Net operating loss (‘‘NOL’’) carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$103,709
46,410
51,457
$ 80,109
40,777
63,016
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
201,576
(48,714)
183,902
(69,579)
Total noncurrent deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
152,862
114,323
Noncurrent deferred tax liabilities
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licenses/intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnership investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
608,669
224,817
123,898
4,191
426,305
194,943
74,634
7,533
Total noncurrent deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
961,575
703,415
Net noncurrent deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$808,713
$589,092
At December 31, 2011, TDS and certain subsidiaries had $1,664.6 million of state NOL carryforwards
(generating an $89.0 million deferred tax asset) available to offset future taxable income primarily of the
individual subsidiaries that generated the losses. The state NOL carryforwards expire between 2012 and
2031. Certain subsidiaries had federal NOL carryforwards (generating a $14.7 million deferred tax asset)
available to offset future taxable income. The federal NOL carryforwards expire between 2012 and 2031.
A valuation allowance was established for certain state NOL carryforwards and federal NOL carryforwards
since it is more likely than not that a portion of such carryforwards will expire before they can be utilized.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(Dollars in thousands)
Unrecognized tax benefits balance at January 1,
. . . . .
Additions for tax positions of current year . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . .
Reductions for settlements of tax positions . . . . . . . .
Reductions for lapses in statutes of limitations . . . . .
2011
2010
2009
$34,002
4,369
171
(1,973)
(976)
(6,752)
$ 45,034
5,271
179
(3,517)
(12,549)
(416)
$39,234
5,349
4,362
(3,855)
—
(56)
Unrecognized tax benefits balance at December 31, . . .
$28,841
$ 34,002
$45,034
Unrecognized tax benefits are included in Accrued taxes and Other deferred liabilities and credits in the
Consolidated Balance Sheet. If these benefits were recognized, they would have reduced income tax
expense in 2011, 2010 and 2009 by $18.2 million, $22.2 million and $27.7 million, respectively, net of the
federal benefit from state income taxes.
As of December 31, 2011, TDS believes it is reasonably possible that unrecognized tax benefits could
decrease by approximately $9.1 million in the next twelve months. The nature of the uncertainty primarily
relates to state income tax positions and their resolution or the expiration of statutes of limitation.
65
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 5 INCOME TAXES (Continued)
TDS recognizes accrued interest and penalties related to unrecognized tax benefits in Income tax
expense. The amounts charged to Income tax expense related to interest and penalties resulted in a
benefit in 2011 of $2.5 million, and expense in 2010 and 2009 of $1.8 million and $2.9 million,
respectively. Net accrued interest and penalties were $15.0 million and $18.2 million at December 31,
2011 and 2010, respectively.
A summary of TDS’ deferred tax asset valuation allowance is as follows:
(Dollars in thousands)
Balance at January 1, . . . . . . . . . . . . . . . . . . . . . . . .
Charged to costs and expenses . . . . . . . . . . . . . . .
Charged to other accounts . . . . . . . . . . . . . . . . . . .
$ 71,014
(28,511)
7,183
$63,870
(293)
7,437
$ 78,760
(13,762)
(1,128)
Balance at December 31,
. . . . . . . . . . . . . . . . . . . . .
$ 49,686
$71,014
$ 63,870
2011(1)
2010
2009
(1) As of December 31, 2011, the valuation allowance reduced current deferred tax assets by
$1.0 million and noncurrent deferred tax assets by $48.7 million.
TDS and its subsidiaries file federal and state income tax returns. TDS remains subject to federal income
tax audits for the tax years after 2007. With only a few exceptions, TDS is no longer subject to state
income tax audits for years prior to 2007.
NOTE 6 VARIABLE INTEREST ENTITIES (VIEs)
Consolidated VIEs
TDS holds a variable interest in the entities listed below. TDS’ capital contributions and advances made
to these VIEs totaled $35.5 million and $1.2 million in the years ended December 31, 2011 and 2010,
respectively.
As of December 31, 2011, TDS consolidates the following VIEs under GAAP:
(cid:129) Aquinas Wireless L.P. (‘‘Aquinas Wireless’’);
(cid:129) King Street Wireless L.P. (‘‘King Street Wireless’’) and King Street Wireless, Inc., the general partner of
King Street Wireless;
(cid:129) Barat Wireless L.P. (‘‘Barat Wireless’’) and Barat Wireless, Inc., the general partner of Barat Wireless;
(cid:129) Carroll Wireless L.P. (‘‘Carroll Wireless’’) and Carroll PCS, Inc., the general partner of Carroll Wireless;
and
(cid:129) Airadigm Communications, Inc.
From time to time, the FCC conducts auctions through which additional spectrum is made available for
the provision of wireless services. U.S. Cellular, TDS’ subsidiary, participated in spectrum auctions
indirectly through its interests in Aquinas Wireless, King Street Wireless, Barat Wireless and Carroll
Wireless, collectively, the ‘‘limited partnerships.’’ Each limited partnership participated in and was
awarded spectrum licenses in one of four separate spectrum auctions (FCC Auctions 78, 73, 66 and 58).
Each limited partnership qualified as a ‘‘designated entity’’ and thereby was eligible for bidding credits
with respect to licenses purchased in accordance with the rules defined by the FCC for each auction. In
most cases, the bidding credits resulted in a 25% discount from the gross winning bid.
66
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 6 VARIABLE INTEREST ENTITIES (VIEs) (Continued)
The power to direct the activities of Aquinas Wireless, King Street Wireless, Barat Wireless and Carroll
Wireless that most significantly impact their economic performance is shared. Specifically, the general
partner of each of these VIEs has the exclusive right to manage, operate and control the limited
partnerships and make all decisions to carry on the business of the partnerships; however, the general
partner of each partnership needs consent of the limited partner, a TDS subsidiary, to sell or lease
certain licenses, to make certain large expenditures, admit other partners or liquidate the limited
partnerships. Although the power to direct the activities of the VIEs is shared, TDS has a disproportionate
level of exposure to the variability associated with the economic performance of the VIEs, indicating that
TDS is the primary beneficiary of the VIEs in accordance with GAAP. Accordingly, these VIEs are
consolidated.
TDS has a variable interest in Airadigm as a result of a secured loan to Airadigm and the equity interest
it holds in Airadigm. TDS has the power to direct the activities that most significantly impact Airadigm’s
economic performance and the obligation to absorb losses or the right to receive benefits that could
potentially be significant to Airadigm, indicating that TDS is the primary beneficiary of Airadigm in
accordance with GAAP. In addition, TDS has a majority voting interest in Airadigm. Accordingly, Airadigm
is consolidated. See Note 8—Acquisitions, Divestitures and Exchanges for additional information about
Airadigm.
The following table presents the classification of the consolidated VIEs’ assets and liabilities in TDS’
Consolidated Balance Sheet.
December 31,
(Dollars in thousands)
Assets
2011
2010
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . . .
Other assets and deferred charges . . . . . . . . . . . . . . . . . . . .
$ 13,299
3,719
501,829
27,642
3,612
$ 1,673
323
487,962
1,548
—
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$550,101
$491,506
Liabilities
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred liabilities and credits . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,944
5,481
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,425
$
$
95
—
95
Other Related Matters
TDS may agree to make additional capital contributions and/or advances to the VIEs discussed above
and/or to their general partners to provide additional funding for the development of licenses granted in
the various auctions. TDS may finance such amounts with a combination of cash on hand, borrowings
under its revolving credit agreement and/or long-term debt. There is no assurance that TDS will be able
to obtain additional financing on commercially reasonable terms or at all to provide such financial
support.
67
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 6 VARIABLE INTEREST ENTITIES (VIEs) (Continued)
The limited partnership agreements also provide the general partner with a put option whereby the
general partner may require the limited partner, a subsidiary of U.S. Cellular, to purchase its interest in
the limited partnership. The general partner’s put options related to its interests in Carroll Wireless, Barat
Wireless, King Street Wireless and Aquinas Wireless will become exercisable in 2013, 2017, 2019 and
2020, respectively. The put option price is determined pursuant to a formula that takes into consideration
fixed interest rates and the market value of U.S. Cellular’s Common Shares. Upon exercise of the put
option, the general partner is required to repay borrowings due to U.S. Cellular. If the general partner
does not elect to exercise its put option, the general partner may trigger an appraisal process in which
the limited partner (a subsidiary of U.S. Cellular) may have the right, but not the obligation, to purchase
the general partner’s interest in the limited partnership at a price and on other terms and conditions
specified in the limited partnership agreement. In accordance with requirements under GAAP, TDS is
required to calculate a theoretical redemption value for all of the put options assuming they are
exercisable at the end of each reporting period, even though such exercise is not contractually
permitted. Pursuant to GAAP, this theoretical redemption value, net of amounts payable to U.S. Cellular
for loans (and accrued interest thereon) made by U.S. Cellular to the general partners, was $1.0 million
and $0.9 million at December 31, 2011 and 2010, respectively, and is recorded as Noncontrolling
interests with redemption features in TDS’ Consolidated Balance Sheet. Also in accordance with GAAP,
changes in the redemption value of the put options, net of interest accrued on the loans, are recorded
as a component of Net income attributable to noncontrolling interests, net of tax, in TDS’ Consolidated
Statements of Operations.
Aquinas Wireless, King Street Wireless, Barat Wireless and Carroll Wireless are in the process of
developing long-term business plans. These entities were formed to participate in FCC auctions of
wireless spectrum and to fund, establish, and provide wireless service with respect to any FCC licenses
won in the auctions. As such, these entities have risks similar to those described in the ‘‘Risk Factors’’ in
TDS’ Annual Report on Form 10-K.
NOTE 7 EARNINGS PER SHARE
Basic earnings per share attributable to TDS shareholders is computed by dividing Net income available
to common shareholders of TDS by the weighted average number of common shares outstanding during
the period. Diluted earnings per share attributable to TDS shareholders is computed by dividing Net
income available to common shareholders of TDS by the weighted average number of common shares,
both adjusted to include the effects of potentially dilutive securities. Potentially dilutive securities primarily
include incremental shares issuable upon exercise of outstanding stock options and the vesting of
restricted stock units.
On January 13, 2012, TDS shareholders approved a Share Consolidation Amendment to the Restated
Certificate of Incorporation of TDS whereby (a) each Special Common Share was reclassified as a
Common Share on a one-for-one basis, (b) each Common Share was reclassified as 1.087 Common
Shares, and (c) each Series A Common Share was reclassified as 1.087 Series A Common Shares.
Shares outstanding at December 31, 2011, as well as the weighted average number of shares used in
basic and diluted earnings per share as of the beginning of all periods presented, have been
retroactively restated to reflect the impact of the increased shares outstanding as a result of the Share
Consolidation. See Note 21—Subsequent Events for additional information.
68
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 7 EARNINGS PER SHARE (Continued)
The amounts used in computing earnings per share and the effects of potentially dilutive securities on
income and the weighted average number of Common and Series A Common Shares are as follows:
Year Ended December 31,
2011
2010
2009
(Dollars and shares in thousands, except earnings per share)
Basic earnings per share attributable to TDS shareholders Net income available
to common shareholders of TDS used in basic earnings per share . . . . . . . . .
$200,516
$144,799
$191,296
Adjustments to compute diluted earnings
Noncontrolling interest adjustment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred dividend adjustment (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(795)
49
(512)
49
(442)
49
Net income available to common shareholders of TDS used in diluted earnings
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$199,770
$144,336
$190,903
Weighted average number of shares used in basic earnings per share
Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101,471
7,091
102,947
7,069
107,318
7,036
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,562
110,016
114,354
Effects of dilutive securities:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
265
213
60
230
195
48
39
135
44
Weighted average number of shares used in diluted earnings per share . . . . . . .
109,100
110,489
114,572
Basic earnings per share attributable to TDS shareholders . . . . . . . . . . . . . . . .
Diluted earnings per share attributable to TDS shareholders . . . . . . . . . . . . . . .
$
$
1.85
1.83
$
$
1.32
1.31
$
$
1.67
1.67
(1) The noncontrolling interest adjustment reflects the additional noncontrolling share of U.S. Cellular’s income
computed as if all of U.S. Cellular’s issuable securities were outstanding.
(2) The preferred dividend adjustment reflects the dividend reduction related to preferred securities that were
dilutive, and therefore treated as if converted for shares.
Certain Common Shares issuable upon the exercise of stock options, vesting of restricted stock units or
conversion of convertible preferred shares were not included in average diluted shares outstanding for
the calculation of Diluted earnings per share because their effects were antidilutive. The number of such
Common Shares excluded is shown in the table below.
(Shares in thousands)
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
3,779
149
—
4,076
88
—
4,876
105
—
NOTE 8 ACQUISITIONS, DIVESTITURES AND EXCHANGES
TDS assesses its existing wireless and wireline interests on an ongoing basis with a goal of improving
the competitiveness of its operations and maximizing its long-term return on capital. As part of this
strategy, TDS reviews attractive opportunities to acquire additional wireless operating markets and
wireless spectrum; and telecommunications companies and related service businesses. In addition, TDS
69
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 8 ACQUISITIONS, DIVESTITURES AND EXCHANGES (Continued)
may seek to divest outright or include in exchanges for other interests those interests that are not
strategic to its long-term success.
On May 9, 2011, U.S. Cellular paid $24.6 million in cash to purchase the remaining ownership interest in
a wireless business in which it previously held a 49% noncontrolling interest, pursuant to certain required
terms of the partnership agreement. Prior to this acquisition, the partnership had been accounted for
under the equity method of accounting. In connection with the acquisition, a $13.4 million gain was
recorded to adjust the carrying value of this 49% investment to its fair value of $25.7 million based on an
income approach valuation method. The gain was recorded in Gain on investment in the Consolidated
Statement of Operations. On November 11, 2011, U.S. Cellular entered into an agreement to sell
substantially all of the assets of this wireless business for $50.0 million in cash net of working capital
adjustments. The closing of this agreement is pending FCC approval which is expected to occur in the
first half of 2012. As a result, $49.6 million of assets and $1.1 million of liabilities have been classified in
the Consolidated Balance Sheet as ‘‘held for sale’’. Included in Assets held for sale are $4.2 million of
Current assets, $36.5 million of Investments (primarily licenses) and $8.9 million of Property, plant and
equipment. Liabilities held for sale primarily includes Current liabilities. For the period since acquisition,
this business generated revenues of $20.7 million and operating income of $14.8 million.
On July 1, 2011, TDS paid $95.0 million in cash, plus a subsequent working capital adjustment of
$0.9 million, to purchase 100% of the outstanding shares of OneNeck IT Services Corporation
(‘‘OneNeck’’). OneNeck is a provider of hosted application management and managed IT hosting
services to middle market businesses. The acquisition of OneNeck is expected to complement TDS’
existing hosted and managed services and is included in the TDS Telecom ILEC segment for reporting
purposes.
On September 23, 2011, pursuant to a plan of reorganization in the United States Bankruptcy Court for
the Western District of Wisconsin, TDS acquired 63% of Airadigm and a note for $15.5 million in
satisfaction of loans made by TDS to Airadigm and interests in Airadigm acquired by TDS from third-
parties. Airadigm is a Wisconsin-based wireless service provider. The noncontrolling interest was valued
at $0.4 million based on an income approach valuation method. TDS recognized a gain of $12.7 million
as a result of the transaction which was recorded in Gain on investment in the Consolidated Statement
of Operations for year ended December 31, 2011. Pursuant to the plan of reorganization, at the
acquisition date Airadigm owed $32.7 million to the FCC. This obligation was paid in September 2011.
Airadigm operates independently from U.S. Cellular and at this time there are no plans to combine the
operations of these subsidiaries. Airadigm’s financial results are included in ‘‘Non-Reportable segment’’
for reporting purposes.
On September 30, 2011, U.S. Cellular completed an exchange whereby U.S. Cellular received eighteen
700 MHz spectrum licenses covering portions of Idaho, Illinois, Indiana, Kansas, Nebraska, Oregon and
Washington in exchange for two PCS spectrum licenses covering portions of Illinois and Indiana. The
exchange of licenses will provide U.S. Cellular with additional spectrum to meet anticipated future
capacity and coverage requirements in several of its markets. No cash, customers, network assets, other
assets or liabilities were included in the exchange. As a result of this transaction, TDS recognized a gain
of $11.8 million, representing the difference between the fair value of the licenses received, calculated
using a market approach valuation method, and the carrying value of the licenses surrendered. This gain
was recorded in (Gain) loss on asset disposals and exchanges, net in the Consolidated Statement of
Operations for the year ended December 31, 2011. The Indiana PCS spectrum included in the exchange
was originally awarded to Carroll Wireless in FCC Auction 58 and was purchased by U.S. Cellular prior
to the exchange. Carroll Wireless is a variable interest entity which TDS consolidates; see Note 6—
Variable Interest Entities for additional information.
70
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 8 ACQUISITIONS, DIVESTITURES AND EXCHANGES (Continued)
Acquisitions and exchanges did not have a material impact on TDS’ consolidated financial statements for
the periods presented, and pro forma results, assuming acquisitions and exchanges had occurred at the
beginning of each period presented, would not be materially different from the results reported.
TDS’ acquisitions in 2011 and 2010 and the allocation of the purchase price for these acquisitions were
as follows:
Purchase
price(1)
Goodwill(2)
Licenses
Intangible assets
subject to
amortization(3)
Net tangible
assets (liabilities)
Allocation of Purchase Price
(Dollars in thousands)
2011
U.S. Cellular licenses . . . . . . . . . .
U.S. Cellular business(4)(5) . . . . .
TDS Telecom ILEC business . . . .
Non-Reportable segment
$ 4,406
24,572
95,865
$
— $ 4,406
15,592
—
—
68,107
$
—
2,252
28,300
business . . . . . . . . . . . . . . . . .
983
515
15,220
3,194
Total . . . . . . . . . . . . . . . . . . . .
$125,826
$68,622
$35,218
$33,746
2010
U.S. Cellular licenses . . . . . . . . . .
TDS Telecom ILEC businesses . . .
$ 17,101
65,709
$
— $17,101
—
15,156
Total . . . . . . . . . . . . . . . . . . . .
$ 82,810
$15,156
$17,101
$
—
14,832
$14,832
$
—
6,728
(542)
(17,946)
$(11,760)
$
—
35,721
$ 35,721
(1) Cash amounts paid for acquisitions may differ from the purchase price due to cash acquired in the
transactions and the timing and amounts of cash payments related to the respective transactions.
(2) $0.7 million and $9.8 million of the goodwill was amortizable for income tax purposes in 2011 and
2010, respectively.
(3) The weighted average amortization period for Intangible assets subject to amortization acquired in
2011 was 8 years.
(4)
Includes only the acquired interest and does not include amounts attributable to U.S. Cellular’s
pre-existing noncontrolling interest described above in this Note 8.
(5) Licenses, Intangible assets subject to amortization and a portion of Net tangible assets (liabilities)
are included in amounts reported as Assets held for sale in the Consolidated Balance Sheet.
71
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 9 LICENSES AND GOODWILL
Changes in TDS’ licenses and goodwill are presented below. See Note 8—Acquisitions, Divestitures and
Exchanges for information regarding transactions which affected licenses and goodwill during the
periods.
Licenses
U.S.
Cellular(1)
TDS
Telecom
Non-Reportable
segment(2)
Total
(Dollars in thousands)
Balance December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,457,326
4,406
11,842
2,420
$2,800
—
—
—
Balance December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . .
$1,475,994
$2,800
Balance December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,440,225
17,101
$2,800
—
Balance December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . .
$1,457,326
$2,800
$
—
15,220
—
—
$15,220
$
$
—
—
—
$1,460,126
19,626
11,842
2,420
$1,494,014
$1,443,025
17,101
$1,460,126
Goodwill
U.S.
Cellular(1)
TDS
Telecom(4)
Non-Reportable
segment(2)
Total
(Dollars in thousands)
Assigned value at time of acquisition . . . . . . . . . . . . . . . .
Accumulated impairment losses in prior periods . . . . . . .
$ 622,681
(333,900)
$465,312
(29,440)
Balance December 31, 2010 . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
288,781
—
435,872
68,107
Balance December 31, 2011 . . . . . . . . . . . . . . . . . . . . . .
$ 288,781
$503,979
Assigned value at time of acquisition . . . . . . . . . . . . . . . .
Accumulated impairment losses in prior periods . . . . . . .
$ 617,222
(333,900)
$450,156
(29,440)
Balance December 31, 2009 . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
283,322
—
5,459
420,716
15,156
—
$3,802
—
3,802
515
$4,317
$3,802
—
3,802
—
—
$1,091,795
(363,340)
728,455
68,622
$ 797,077
$1,071,180
(363,340)
707,840
15,156
5,459
Balance December 31, 2010 . . . . . . . . . . . . . . . . . . . . . .
$ 288,781
$435,872
$3,802
$ 728,455
(1) Prior to January 1, 2009, TDS accounted for U.S. Cellular’s share repurchases as step acquisitions, allocating a
portion of the share repurchase value to TDS licenses and goodwill, as required by GAAP in effect at that time.
Consequently, U.S. Cellular’s licenses, goodwill and accumulated impairment losses reported on a stand-alone
basis do not match the TDS consolidated licenses, goodwill and accumulated impairment losses related to U.S.
Cellular.
(2)
‘‘Non-Reportable segment’’ consists of amounts related to Suttle-Straus and Airadigm. See Note 8—
Acquisitions, Divestitures and Exchanges for additional information related to Airadigm.
(3) Does not include amounts reported as Assets held for sale in the Consolidated Balance Sheet.
(4) Remaining goodwill at TDS Telecom is attributed to the ILEC business segment.
(5) Amount reclassified from Investments in unconsolidated entities to Goodwill in 2010.
See Note 1—Summary of Significant Accounting Policies and Recent Accounting Pronouncements for a
description of accounting policies related to licenses and goodwill.
Impairment Assessments
TDS performs its annual impairment assessment of its licenses and goodwill in the fourth quarter of each
year. No impairment of goodwill or licenses resulted from the assessments performed in 2011 or 2010. In
2009, the assessment resulted in no impairment of goodwill and an impairment loss of $14.0 million on
licenses. The entire impairment loss related to licenses in developed operating markets (built licenses).
72
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 10 INVESTMENTS IN UNCONSOLIDATED ENTITIES
Investments in unconsolidated entities consist of amounts invested in wireless and wireline entities which
are accounted for using either the equity or cost method as shown in the following table:
December 31,
(Dollars in thousands)
Equity method investments:
2011
2010
Capital contributions, loans and advances . . . . . . . . . . . . . .
Cumulative share of income . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative share of distributions . . . . . . . . . . . . . . . . . . . .
$ 25,067
958,635
(825,261)
$ 34,171
889,039
(740,557)
Cost method investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
158,441
15,269
182,653
15,269
Total investments in unconsolidated entities . . . . . . . . . . . . . .
$ 173,710
$ 197,922
Equity in earnings of unconsolidated entities totaled $82.5 million, $98.1 million and $90.7 million in
2011, 2010 and 2009, respectively; of those amounts, TDS’ investment in the Los Angeles SMSA Limited
Partnership (‘‘LA Partnership’’) contributed $55.3 million, $64.8 million and $64.7 million in 2011, 2010
and 2009, respectively. TDS held a 5.5% ownership interest in the LA Partnership throughout and at the
end of each of these years.
The following tables, which are based on information provided in part by third parties, summarize the
combined assets, liabilities and equity, and the combined results of operations of TDS’ equity method
investments:
December 31,
(Dollars in thousands)
Assets
2011
2010
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 435,732
199,167
1,988,331
$ 424,965
396,201
2,015,959
Liabilities and Equity
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term capital lease obligations . . . . . . . . . . . . . . . . .
Partners’ capital and stockholders’ equity . . . . . . . . . . . . .
$2,623,230
$2,837,125
$ 304,742
82,371
36,056
234
2,199,827
$ 278,837
73,496
38,225
43,657
2,402,910
$2,623,230
$2,837,125
Year Ended December 31,
(Dollars in thousands)
Results of Operations
2011
2010
2009
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . .
$5,540,220
4,301,758
$4,971,525
3,567,131
$4,815,258
3,437,201
Operating income . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . .
1,238,462
960
1,404,394
36,168
1,378,057
41,802
Net income . . . . . . . . . . . . . . . . . . . . . . . .
$1,239,422
$1,440,562
$1,419,859
73
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 11 PROPERTY, PLANT AND EQUIPMENT
U.S. Cellular’s Property, plant and equipment in service and under construction, and related accumulated
depreciation and amortization, as of December 31, 2011 and 2010 were as follows:
December 31,
Useful Lives (Years)
2011
2010
(Dollars in thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . .
Leasehold and land improvements . . . .
Cell site equipment . . . . . . . . . . . . . . .
Switching equipment . . . . . . . . . . . . . .
Office furniture and equipment . . . . . . .
Other operating assets and equipment .
System development . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . .
Accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . .
N/A
20
1-30
6-25
1-8
3-5
5-25
3-7
N/A
$
30,807
330,925
1,129,818
2,874,397
1,113,780
570,776
127,253
545,193
285,500
$
26,791
317,474
1,048,278
2,676,878
991,934
520,756
120,586
471,334
166,506
7,008,449
6,340,537
(4,218,147)
(3,766,015)
$ 2,790,302
$ 2,574,522
U.S. Cellular’s depreciation and amortization expense related to Property, plant and equipment totaled
$565.1 million, $559.0 million and $551.7 million in 2011, 2010 and 2009, respectively.
TDS Telecom’s Property, plant and equipment in service and under construction, and related
accumulated depreciation, as of December 31, 2011 and 2010 were as follows:
December 31,
Useful Lives (Years)
2011
2010
(Dollars in thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . .
Cable and wire . . . . . . . . . . . . . . . . . .
. . . . . . .
Network electronic equipment
Office furniture and equipment . . . . . . .
Other equipment . . . . . . . . . . . . . . . . .
System development . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . .
Accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . .
N/A
30
15-20
5-12
5-10
10-15
3-7
N/A
$
9,004
135,883
1,410,706
1,065,504
74,547
114,788
165,812
88,924
$
9,603
98,664
1,375,204
1,041,891
71,748
94,859
157,824
64,834
3,065,168
2,914,627
(2,128,411)
(2,004,676)
$
936,757
$
909,951
The provision for TDS Telecom’s ILEC companies’ depreciation as a percentage of depreciable property
was 5.7% in 2011, 5.8% in 2010 and 5.8% in 2009. TDS Telecom’s depreciation and amortization
expense related to Property, plant and equipment totaled $168.2 million, $165.9 million and
$161.4 million in 2011, 2010 and 2009, respectively.
74
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 11 PROPERTY, PLANT AND EQUIPMENT (Continued)
Corporate and other Property, plant and equipment in service and under construction, and related
accumulated depreciation, as of December 31, 2011 and 2010 were as follows:
December 31,
2011
2010
(Dollars in thousands)
Property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . .
$123,979
(66,503)
$ 96,177
(62,866)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 57,476
$ 33,311
Corporate and other fixed assets consist of assets at the TDS corporate offices, Suttle-Straus and
Airadigm. Corporate and other depreciation and amortization expense related to Property, plant and
equipment totaled $8.3 million, $7.3 million and $7.8 million in 2011, 2010 and 2009, respectively.
In 2011, 2010 and 2009, (Gain) loss on asset disposals and exchanges, net included charges of
$11.0 million, $11.8 million and $18.8 million, respectively, related to disposals of assets, trade-ins of
older assets for replacement assets and other retirements of assets from service.
NOTE 12 ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations are included in Other deferred liabilities and credits in the Consolidated
Balance Sheet.
In 2011 and 2010, U.S. Cellular and TDS Telecom performed a review of the assumptions and estimated
costs related to asset retirement obligations. The results of the reviews (identified as ‘‘Revisions in
estimated cash outflows’’) and other changes in asset retirement obligations during 2011 and 2010 are
shown in the table below.
U.S.
Cellular
TDS
Telecom
Non-Reportable
Segment
TDS
Consolidated
(Dollars in thousands)
2011
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . .
Additional liabilities accrued . . . . . . . . . . . . . . . . .
Revisions in estimated cash outflows . . . . . . . . . . .
Acquisitions of assets . . . . . . . . . . . . . . . . . . . . . .
Disposition of assets . . . . . . . . . . . . . . . . . . . . . .
Accretion expense . . . . . . . . . . . . . . . . . . . . . . . .
$128,709
2,105
5,888
—
(1,323)
8,023
$61,036
559
—
140
(929)
4,403
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . .
$143,402
$65,209
2010
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . .
Additional liabilities accrued . . . . . . . . . . . . . . . . .
Revisions in estimated cash outflows . . . . . . . . . . .
Acquisitions of assets . . . . . . . . . . . . . . . . . . . . . .
Disposition of assets . . . . . . . . . . . . . . . . . . . . . .
Accretion expense . . . . . . . . . . . . . . . . . . . . . . . .
$118,742
4,757
(1,382)
—
(2,086)
8,678
$55,343
1,931
—
63
(324)
4,023
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . .
$128,709
$61,036
$ —
—
—
3,751
—
55
$3,806
$ —
—
—
—
—
—
$ —
$189,745
2,664
5,888
3,891
(2,252)
12,481
$212,417
$174,085
6,688
(1,382)
63
(2,410)
12,701
$189,745
75
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 13 DEBT
Revolving Credit Facilities
At December 31, 2011, TDS and U.S. Cellular had revolving credit facilities available for general
corporate purposes. Amounts under the revolving credit facilities may be borrowed, repaid and
reborrowed from time to time from and after December 17, 2010 until maturity in December 2015.
Neither TDS nor U.S. Cellular borrowed under their current or previous revolving credit facilities in 2011,
2010 or 2009 except for letters of credit.
TDS’ and U.S. Cellular’s interest cost on their revolving credit facilities is subject to increase if their
current credit ratings from Standard & Poor’s Rating Services, Moody’s Investors Service or Fitch Ratings
are lowered, and is subject to decrease if the ratings are raised. The credit facilities would not cease to
be available nor would the maturity date accelerate solely as a result of a downgrade in TDS’ or U.S.
Cellular’s credit rating. However, a downgrade in TDS’ or U.S. Cellular’s credit rating could adversely
affect their ability to renew the credit facilities or obtain access to other credit facilities in the future.
The maturity date of any borrowings under the TDS and U.S. Cellular revolving credit facilities would
accelerate in the event of a change in control.
The following table summarizes the terms of such revolving credit facilities as of December 31, 2011:
$
$
$
$
(Dollars in millions)
Maximum borrowing capacity . . . . . . . . . . . . . . . .
Letters of credit outstanding . . . . . . . . . . . . . . . . .
Amount borrowed . . . . . . . . . . . . . . . . . . . . . . . .
Amount available for use . . . . . . . . . . . . . . . . . . .
Fees on borrowing capacity, rate . . . . . . . . . . . . .
Borrowing rate: One-month London Interbank
Offered Rate (‘‘LIBOR’’) plus contractual
spread(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual spread . . . . . . . . . . . . . . . . . . . . . .
Range of commitment fees(2)
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees recognized
TDS
U.S. Cellular
$
400.0
0.2
$
— $
$
399.8
0.38%
0.50%
0.30%
0.20%
0.20%
0.45%
300.0
0.2
—
299.8
0.41%
0.50%
0.30%
0.20%
0.20%
0.45%
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.2
3.8
5.9
Agreement date . . . . . . . . . . . . . . . . . . . . . . . . . December 2010 December 2010
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2015 December 2015
1.5
4.8
7.0
$
$
$
$
$
$
(1) Borrowings under the revolving credit facilities bear interest at LIBOR plus a contractual
spread based on TDS’ credit rating or, at TDS’ or U.S. Cellular’s option, respectively, an
alternate ‘‘Base Rate’’ as defined in the revolving credit agreement. TDS may select a
borrowing period of either one, two, three or six months (or other period of twelve months
or less if requested by TDS and approved by the lenders). If TDS or U.S. Cellular provides
notice of intent to borrow less than three business days in advance of a borrowing, interest
on borrowing is at the Base Rate plus the contractual spread.
(2) The revolving credit facilities have commitment fees based on the senior unsecured debt
ratings assigned to TDS and U.S. Cellular by certain ratings agencies.
The continued availability of the revolving credit facilities requires TDS and U.S. Cellular to comply with
certain negative and affirmative covenants, maintain certain financial ratios and make representations
regarding certain matters at the time of each borrowing. TDS and U.S. Cellular believe they were in
compliance as of December 31, 2011 with all covenants and other requirements set forth in the revolving
credit facilities.
76
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 13 DEBT (Continued)
In connection with U.S. Cellular’s revolving credit facility, TDS and U.S. Cellular entered into a
subordination agreement dated December 17, 2010 together with the administrative agent for the lenders
under U.S. Cellular’s revolving credit agreement. Pursuant to this subordination agreement, (a) any
consolidated funded indebtedness from U.S. Cellular to TDS will be unsecured and (b) any
(i) consolidated funded indebtedness from U.S. Cellular to TDS (other than ‘‘refinancing indebtedness’’
as defined in the subordination agreement) in excess of $105,000,000, and (ii) refinancing indebtedness
in excess of $250,000,000, will be subordinated and made junior in right of payment to the prior payment
in full of obligations to the lenders under U.S. Cellular’s revolving credit agreement. As of December 31,
2011, U.S. Cellular had no outstanding consolidated funded indebtedness or refinancing indebtedness
that was subordinated to the revolving credit agreement pursuant to the subordination agreement.
At December 31, 2011, TDS has recorded $8.6 million of issuance costs related to the revolving credit
facilities which is included in Other assets and deferred charges in the Consolidated Balance Sheet.
Long-Term Debt
Long-term debt at December 31, 2011 and 2010 was as follows:
December 31,
(Dollars in thousands)
TDS:
Unsecured Senior Notes(2)(3)
Issuance date
Maturity date
Call date(1)
2011
2010
6.625% . . . . . . . . . . . . . . . . . . March 2005
6.875% . . . . . . . . . . . . . . . . . .
7.0% . . . . . . . . . . . . . . . . . . . March 2011
November 2010
March 2045
November 2059
March 2060
March 2010
November 2015
March 2016
$ 116,250
225,000
300,000
$ 116,250
225,000
—
Series A Notes
7.6%(4)(5) . . . . . . . . . . . . . . . .
Purchase contracts averaging 6.0% .
December 2001
December 2041
Through 2021
December 2006
—
1,097
642,347
282,500
1,097
624,847
Total Parent . . . . . . . . . . . . .
Subsidiaries:
U.S. Cellular—
Unsecured Senior Notes(2)(3)
6.7% . . . . . . . . . . . . . . . . . . .
Less: 6.7% Unamortized discount .
December 2003 and
June 2004
December 2033
December 2003
544,000
544,000
6.95% . . . . . . . . . . . . . . . . . . May 2011
June 2004
7.5%(6)
. . . . . . . . . . . . . . . . .
Obligation on capital leases . . . . . .
May 2060
June 2034
May 2016
June 2009
TDS Telecom—
Rural Utilities Service (‘‘RUS’’) and
other notes . . . . . . . . . . . . . . .
Non-Reportable Segment—
Long-term notes, 4.4% to 6.9% . . . .
Obligation on capital leases . . . . . .
Total Subsidiaries . . . . . . . . .
Total long-term debt . . . . . . . . . . . . .
Less: Current portion of long-term debt
Total long-term debt, excluding current
portion . . . . . . . . . . . . . . . . . . . .
Through 2016
(9,889)
(10,343)
534,111
342,000
—
4,336
533,657
—
330,000
4,385
1,976
2,283
6,478
118
6,008
393
889,019
876,726
1,531,366
1,509
1,501,573
1,711
$1,529,857
$1,499,862
(1)
TDS may redeem callable notes, in whole or in part at any time after the respective call date, at a redemption price equal to
100% of the principal amount redeemed plus accrued and unpaid interest. U.S. Cellular may redeem the 6.95% Senior Notes,
in whole or in part at any time after the call date, at a redemption price equal to 100% of the principal amount redeemed plus
accrued and unpaid interest. U.S. Cellular may redeem the 6.7% Senior Notes, in whole or in part, at any time prior to
maturity at a redemption price equal to the greater of (a) 100% of the principal amount of such notes, plus accrued and
unpaid interest, or (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon
discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 30 basis points.
77
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 13 DEBT (Continued)
(2)
Interest on the notes is payable quarterly on Senior Notes outstanding at December 31, 2011, with the exception of
U.S. Cellular’s 6.7% note where interest is payable semi-annually.
(3) Capitalized debt issuance costs totaled $7.6 million, $9.7 million, and $11.0 million for the TDS 6.875% and 7.0% Senior
Notes and the U.S. Cellular 6.95% Senior Notes, respectively. These amounts will be amortized over the life of the respective
notes. Such issuance costs are included in Other assets and deferred charges.
(4) On December 27, 2010, TDS used the net proceeds from the issuance of the 6.875% Senior Notes to redeem $217.5 million
of its unsecured 7.6% Series A Notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid
interest to the redemption date. As a result, $282.5 million of such unsecured 7.6% Series A Notes remained outstanding on
December 31, 2010. This redemption required TDS to write-off to interest expense $5.6 million of previously capitalized debt
issuance costs related to the 7.6% Series A Notes in 2010. Remaining issuance costs were included in Other assets and
deferred charges at December 31, 2010.
(5) On May 2, 2011, TDS used substantially all of the net proceeds from the issuance of the 7.0% Senior Notes to redeem
$282.5 million of its unsecured 7.6% Series A Notes at a redemption price equal to 100% of the principal amount plus
accrued and unpaid interest to the redemption date. This represented the entire outstanding amount of the 7.6% Series A
Notes. This redemption required TDS to write-off to interest expense $7.2 million of previously capitalized debt issuance costs
related to the 7.6% Series A Notes in 2011.
(6) On June 20, 2011, U.S. Cellular used substantially all of the net proceeds from the issuance of the 6.95% Senior Notes to
redeem $330 million (the entire outstanding amount) of its unsecured 7.5% Senior Notes at a redemption price equal to 100%
of the principal amount plus accrued and unpaid interest to the redemption date. This redemption required U.S. Cellular to
write-off to interest expense $8.2 million of previously capitalized debt issuance costs related to the 7.5% Senior Notes in
2011.
The annual requirements for principal payments on long-term debt are approximately $1.5 million,
$1.2 million, $1.5 million, $2.2 million and $3.1 million for the years 2012 through 2016, respectively.
The covenants associated with TDS and its subsidiaries’ long-term debt obligations, among other things,
restrict TDS’ ability, subject to certain exclusions, to incur additional liens, enter into sale and leaseback
transactions, and sell, consolidate or merge assets.
TDS’ long-term debt indentures do not contain any provisions resulting in acceleration of the maturities
of outstanding debt in the event of a change in TDS’ credit rating. However, a downgrade in TDS’ credit
rating could adversely affect its ability to obtain long-term debt financing in the future.
78
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 14 EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
TDS sponsors a qualified noncontributory defined contribution pension plan. The plan provides benefits
for the employees of TDS Corporate, TDS Telecom and U.S. Cellular. Under this plan, pension costs are
calculated separately for each participant and are funded annually. Total pension costs were
$17.5 million, $17.5 million and $18.8 million in 2011, 2010 and 2009, respectively. In addition, TDS
sponsors a defined contribution retirement savings plan (‘‘401(k)’’) plan. Total costs incurred from TDS’
contributions to the 401(k) plan were $22.1 million, $21.6 million and $20.9 million in 2011, 2010 and
2009, respectively.
TDS also sponsors an unfunded nonqualified deferred supplemental executive retirement plan for certain
employees to offset the reduction of benefits caused by the limitation on annual employee compensation
under the tax laws.
Other Post-Retirement Benefits
TDS sponsors a defined benefit post-retirement plan that provides medical benefits and that covers most
of the employees of TDS Corporate, TDS Telecom and the subsidiaries of TDS Telecom. The plan is
contributory, with retiree contributions adjusted annually. The plan anticipates future cost sharing
changes that reflect TDS’ intent to increase retiree contributions as a portion of total cost.
The following amounts are included in Accumulated other comprehensive loss, in the Consolidated
Balance Sheet before affecting such amounts for income taxes:
December 31,
(Dollars in thousands)
Net prior service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$ 26,173
(39,117)
$ 29,988
(31,426)
$(12,944) $ (1,438)
The estimated net actuarial loss and prior service cost gain for the postretirement benefit plans that will
be amortized from Accumulated other comprehensive loss into net periodic benefit cost during 2012 are
$2.5 million and $(3.7) million, respectively.
The following amounts are included in Comprehensive income in the Consolidated Statement of
Comprehensive Income:
Year Ended December 31, 2011
(Dollars in thousands)
Net actuarial gains (losses) . . . . . . . . . . . . . . . .
Amortization of prior service costs . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . .
Before-Tax
$ (9,625)
(3,815)
1,934
Total gains (losses) recognized in
Deferred Income
Tax Benefit
(Expense)
$4,787
1,897
(962)
Net-of-Tax
$(4,838)
(1,918)
972
Comprehensive income . . . . . . . . . . . . . . . . .
$(11,506)
$5,722
$(5,784)
79
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 14 EMPLOYEE BENEFIT PLANS (Continued)
Year Ended December 31, 2010
(Dollars in thousands)
Net actuarial gains (losses) . . . . . . . . . . . . . . . .
Amortization of prior service costs . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . .
Before-Tax
$ 1,180
(3,815)
2,158
Total gains (losses) recognized in
Deferred Income
Tax Benefit
(Expense)
$ 260
(840)
475
Net-of-Tax
$ 1,440
(4,655)
2,633
Comprehensive income . . . . . . . . . . . . . . . . .
$ (477)
$(105)
$ (582)
The following table reconciles the beginning and ending balances of the benefit obligation and the fair
value of plan assets for the other post-retirement benefit plans.
December 31,
(Dollars in thousands)
Change in benefit obligation
2011
2010
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prescription drug subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$44,270
1,116
2,368
5,158
263
(3,062)
$42,698
1,175
2,325
748
238
(2,914)
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . .
50,113
44,270
Change in plan assets
Fair value of plan assets at beginning of year . . . . . . . . . . . . . .
Actual return (loss) on plan assets . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,023
(971)
277
(3,062)
42,407
5,323
207
(2,914)
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . .
41,267
45,023
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (8,846) $
753
The funded status identified above is recorded as a component of Other deferred liabilities and credits in
TDS’ Consolidated Balance Sheet.
The following table sets forth by level within the fair value hierarchy the plans’ assets at fair value, as of
December 31, 2011 and 2010. See Note 1—Summary of Significant Accounting Policies and Recent
Accounting Pronouncements for definitions of the levels in the fair value hierarchy.
December 31, 2011
(Dollars in thousands)
Mutual funds
Level 1
Level 2
Level 3
Total
Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equity . . . . . . . . . . . . . . . . . . .
Money market
. . . . . . . . . . . . . . . . . . . . . .
US large cap . . . . . . . . . . . . . . . . . . . . . . .
US small cap . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$10,098
7,304
2,031
18,100
3,723
—
$ — $ — $10,098
7,304
—
—
2,031
— 18,100
3,723
—
11
11
—
—
—
—
—
Total plan assets at fair value . . . . . . . . . . . .
$41,256
$ — $
11
$41,267
80
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 14 EMPLOYEE BENEFIT PLANS (Continued)
December 31, 2010
(Dollars in thousands)
Mutual funds
Level 1
Level 2
Level 3
Total
Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equity . . . . . . . . . . . . . . . . . . .
Money market
. . . . . . . . . . . . . . . . . . . . . .
US large cap . . . . . . . . . . . . . . . . . . . . . . .
US small cap . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$11,552
8,701
2,090
18,619
4,030
—
$ — $ — $11,552
8,701
—
—
2,090
— 18,619
4,030
—
31
31
—
—
—
—
—
Total plan assets at fair value . . . . . . . . . . . .
$44,992
$ — $
31
$45,023
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. A financial instrument’s level within the fair value hierarchy is
not representative of its expected performance or its overall risk profile, and therefore Level 3 assets are
not necessarily higher risk than Level 2 assets or Level 1 assets.
Mutual funds are valued based on the closing price reported on the active market on which the
individual securities are traded. The investment strategy for each type of mutual fund is identified below:
Bond—The funds seek to achieve a maximum total return, consistent with preservation of capital
and prudent investment management by investing in a wide spectrum of fixed income instruments
including bonds, debt securities and other similar instruments issued by government and private-
sector entities.
International equity—The funds seek to provide long-term capital appreciation by investing in the
stocks of companies located outside the United States that are considered to have the potential for
above-average capital appreciation.
Money market—The fund seeks as high a level of current income as is consistent with the
preservation of capital and the maintenance of liquidity by investing in a diversified portfolio of
high-quality, dollar-denominated short-term debt securities.
US large cap—The funds seek to track the performance of several benchmark indices that measure
the investment return of large-capitalization stocks. The funds attempt to replicate the indices by
investing substantially all of their assets in the stocks that make up the various indices in
approximately the same proportion as the weighting in the indices.
US small cap—The fund seeks to track the performance of a benchmark index that measures the
investment return of small-capitalization stocks. The fund attempts to replicate the index by investing
substantially all of its assets in the stocks that make up the index in approximately the same
proportion as the weighting in the index.
The following table summarizes how plan assets are invested.
Investment Category
Target Asset
Allocation
U.S. equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50%
20%
30%
Allocation of
Plan Assets At
December 31,
2011
2010
52.9%
17.7%
29.4%
50.3%
19.4%
30.3%
The post-retirement benefit fund engages multiple asset managers to ensure proper diversification of the
investment portfolio within each asset category. The investment objective is to meet or exceed the rate of
81
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 14 EMPLOYEE BENEFIT PLANS (Continued)
return of a performance index comprised of 50% Dow Jones U.S. Total Stock Market Index, 20% FTSE
All World (excluding U.S.) Stock Index, and 30% Barclays Capital Aggregate Bond Index. The three-year
and five-year average rates of return for TDS’ post-retirement benefit fund are 12.45% and 2.12%,
respectively.
The post-retirement benefit fund does not hold any debt or equity securities issued by TDS, U.S. Cellular
or any related parties.
TDS is not required to set aside current funds for its future retiree health and life insurance benefits. The
decision to contribute to the plan assets is based upon several factors, including the funded status of the
plan, market conditions, alternative investment opportunities, tax benefits and other circumstances. In
accordance with applicable income tax regulations, total accumulated contributions to fund the costs of
future retiree medical benefits are restricted to an amount not to exceed 25% of the total accumulated
contributions to the trust. An additional contribution equal to a reasonable amortization of the past
service cost may be made without regard to the 25% limitation. TDS has not determined whether it will
make a contribution to the plan in 2012.
Net periodic benefit cost recorded in the Consolidated Statement of Operations includes the following
components:
Year Ended December 31,
2011
2010
2009
(Dollars in thousands)
Service cost
Interest cost on accumulated post-retirement benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Amortization of prior service costs(1)
. . . . . . . . . . . . . . . . .
Amortization of actuarial losses(2)
$ 1,116
$ 1,175
$ 2,140
2,368
(3,496)
(3,815)
1,934
2,325
(3,395)
(3,815)
2,158
3,616
(2,800)
(801)
1,806
Net post-retirement cost . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,893) $(1,552) $ 3,961
(1) Based on straight-line amortization over the average time remaining before active
employees become fully eligible for plan benefits.
(2) Based on straight-line amortization over the average time remaining before active
employees retire.
The following assumptions were used to determine benefit obligations and net periodic benefit cost:
December 31,
2011
2010
Benefit obligations
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.70% 5.50%
Net periodic benefit cost
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.50% 5.60%
8.00% 8.25%
The discount rate for 2011 was determined using a hypothetical Aa spot yield curve represented by a
series of annualized individual spot discount rates from six months to 99 years. The spot rate curve was
derived from a direct calculation of the implied forward rate curve based on the included bond cash
flows. The discount rate for 2010 was determined using a hypothetical Aa spot yield curve represented
by a series of annualized individual discount rates from six months to thirty years. Each discount rate in
the curve was derived by using a hypothetical zero coupon bond from an equal weighting of the bonds
82
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 14 EMPLOYEE BENEFIT PLANS (Continued)
in distinct maturity groups. Only those bonds with yields to maturity in the top half of each maturity
group were used to construct the yield curve. This yield curve, when populated with projected cash flows
that represent the expected timing and amount of TDS plan benefit payments, produces a single
effective interest discount rate that is used to measure the plan’s liabilities.
The measurement date for actuarial determination was December 31, 2011. For measurement purposes,
the annual rate of increase in the per capita cost of covered health care benefits was assumed for 2011
to be 7.9% for plan participants aged 65 and above, and 8.0% for participants under age 65. For all
participants the 2011 annual rate of increase is expected to decrease to 5.0% by 2020. The 2010
expected rate of increase was 8.0% for plan participants aged 65 and above, and 7.5% for participants
under age 65, decreasing to 5.0% for all participants by 2020.
A 1% increase or decrease in assumed health care cost trend rates would have the following effects:
(Dollars in thousands)
Effect on total service and interest cost components . . . . . . . . . . .
Effect on post-retirement benefit obligation . . . . . . . . . . . . . . . . . .
One Percent
Increase
Decrease
$ 25
$488
$ (24)
$(466)
The following estimated future benefit payments, which reflect expected future service, are expected to
be paid:
Year
Estimated Future
Post-Retirement
Benefit Payments
(Dollars in thousands)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017-2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,455
2,445
2,441
2,374
2,398
16,096
NOTE 15 COMMITMENTS AND CONTINGENCIES
Lease Commitments
TDS and its subsidiaries have leases for certain plant facilities, office space, retail store sites, cell sites
and data-processing equipment which are accounted for as operating leases. Certain leases have
renewal options and/or fixed rental increases. Renewal options that are reasonably assured of exercise
are included in determining the lease term. Any rent abatements or lease incentives, in addition to fixed
rental increases, are included in the calculation of rent expense and calculated on a straight-line basis
over the defined lease term.
TDS accounts for certain lease agreements as capital leases. The short- and long-term portions of capital
lease obligations totaled $0.2 million and $4.2 million, respectively, as of December 31, 2011 and
$0.4 million and $4.4 million, respectively, as of December 31, 2010. The short- and long-term portions of
capital lease obligations are included in Current portion of long-term debt and Long-term debt in the
Consolidated Balance Sheet.
83
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 15 COMMITMENTS AND CONTINGENCIES (Continued)
As of December 31, 2011, future minimum rental payments required under operating and capital leases
and rental receipts expected under operating leases that have noncancellable lease terms in excess of
one year were as follows:
Operating Leases Operating Leases
Future Minimum
Future Minimum
Rental Receipts
Rental Payments
Capital Leases
Future
Minimum
Rental
Payments
(Dollars in thousands)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 164,882
143,959
116,968
93,553
74,264
784,023
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,377,649
$ 37,278
30,797
25,078
16,456
6,839
5,894
$122,342
Less: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Current portion of obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . .
$
666
564
573
582
594
5,305
8,284
(3,830)
4,454
(245)
Long-term portion of obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,209
For 2011, 2010 and 2009, rent expense for noncancellable long-term leases was $187.4 million,
$178.1 million and $169.0 million, respectively; and rent expense under cancellable short-term leases
was $9.0 million, $10.9 million and $11.5 million, respectively.
Rent revenue totaled $39.2 million, $35.4 million and $31.8 million in 2011, 2010 and 2009, respectively.
Indemnifications
TDS enters into agreements in the normal course of business that provide for indemnification of
counterparties. These agreements include certain asset sales and financings with other parties. The
terms of the indemnification vary by agreement. The events or circumstances that would require TDS to
perform under these indemnities are transaction specific; however, these agreements may require TDS to
indemnify the counterparty for costs and losses incurred from litigation or claims arising from the
underlying transaction. TDS is unable to estimate the maximum potential liability for these types of
indemnifications as the amounts are dependent on the outcome of future events, the nature and
likelihood of which cannot be determined at this time. Historically, TDS has not made any significant
indemnification payments under such agreements.
Legal Proceedings
TDS is involved or may be involved from time to time in legal proceedings before the FCC, other
regulatory authorities, and/or various state and federal courts. If TDS believes that a loss arising from
such legal proceedings is probable and can be reasonably estimated, an amount is accrued in the
financial statements for the estimated loss. If only a range of loss can be determined, the best estimate
within that range is accrued; if none of the estimates within that range is better than another, the low end
of the range is accrued. The assessment of the expected outcomes of legal proceedings is a highly
subjective process that requires judgments about future events. The legal proceedings are reviewed at
least quarterly to determine the adequacy of accruals and related financial statement disclosures.
84
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 15 COMMITMENTS AND CONTINGENCIES (Continued)
Although TDS does not believe that the amount of any contingent loss in excess of the amounts accrued
would be material, the ultimate outcomes of legal proceedings could differ materially from amounts
accrued in the financial statements.
TDS has accrued $1.9 million and $7.8 million with respect to legal proceedings and unasserted claims
as of December 31, 2011 and 2010, respectively. TDS has not accrued any amount for legal proceedings
if it cannot estimate the amount of the possible loss or range of loss.
NOTE 16 COMMON STOCKHOLDERS’ EQUITY
Tax-Deferred Savings Plan
TDS has reserved 45,000 Common Shares and 45,000 Special Common Shares at December 31, 2011,
for issuance under the TDS Tax-Deferred Savings Plan, a qualified profit-sharing plan pursuant to
Sections 401(a) and 401(k) of the Internal Revenue Code. Participating employees have the option of
investing their contributions and TDS’ contributions in a TDS Common Share fund, a TDS Special
Common Share fund, a U.S. Cellular Common Share fund or certain unaffiliated funds. Following the
Share Consolidation Amendment, which became effective on January 24, 2012, TDS has reserved 90,000
Common Shares for issuance under the Tax-Deferred Savings Plan. See Note 21—Subsequent Events for
additional information.
Common Stock
As of December 31, 2011, the holders of Common Shares and Special Common Shares were entitled to
one vote per share. The holders of Common Shares had full voting rights; the holders of Special
Common Shares had limited voting rights. Other than the election of directors, the Special Common
Shares had no votes except as otherwise required by law. The holders of Series A Common Shares were
entitled to ten votes per share. TDS shareholders approved a Share Consolidation Amendment and a
Vote Amendment to the Restated Certificate of Incorporation of TDS effective January 24, 2012. Pursuant
to the Share Consolidation Amendment, among other things, each Special Common Share was
reclassified into one Common Share and there are no longer any Special Common Shares authorized,
issued or outstanding. Pursuant to the Vote Amendment, the voting power of the Series A Common
Shares and the Common Shares, are fixed at 56.7% and 43.3%, respectively, of the total voting power in
matters other than the election of directors subject to adjustment due to changes in the number of
outstanding Series A Common Shares. The Series A Common Shares continue to have ten votes per
share in such matters and the vote per share of the Common Shares floats and is determined each time
there is a vote on matters other than the election of directors. See Note 21—Subsequent Events for
additional information.
As of December 31, 2011, Series A Common Shares were convertible, on a share for share basis, into
Common Shares or Special Common Shares. TDS had reserved 6,549,000 Common Shares and
6,730,000 Special Common Shares at December 31, 2011, for possible issuance upon such conversion.
Following the Share Consolidation Amendment, which became effective on January 24, 2012, Series A
Common Shares are convertible on a share for share basis into Common Shares only and 7,119,000
Common Shares were reserved for possible issuance upon conversion of Series A Common Shares. See
Note 21—Subsequent Events for additional information.
85
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 16 COMMON STOCKHOLDERS’ EQUITY (Continued)
The following table summarizes the number of Common, Special Common and Series A Common
Shares issued and repurchased.
(Shares in thousands)
Balance December 31, 2008 . . . . . . . . . . . . . . . . . . .
Repurchase of shares . . . . . . . . . . . . . . . . . . . . . .
Dividend reinvestment, incentive and compensation
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance December 31, 2009 . . . . . . . . . . . . . . . . . . .
Repurchase of shares . . . . . . . . . . . . . . . . . . . . . .
Conversion of Series A Common Shares . . . . . . . .
Dividend reinvestment, incentive and compensation
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance December 31, 2010 . . . . . . . . . . . . . . . . . . .
Repurchase of shares . . . . . . . . . . . . . . . . . . . . . .
Dividend reinvestment, incentive and compensation
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification as a result of Share Consolidation
Common
Shares
Special
Common
Shares
Common
Treasury
Shares
Special
Common
Treasury
Shares
Series A
Common
Shares
57,082
—
63,442
—
5,435
1,854
9,352
4,520
6,461
—
—
—
(12)
(155)
31
57,082
—
11
63,442
—
—
7,277
—
—
13,717
2,394
—
6,492
—
(11)
—
—
(79)
(200)
29
57,093
—
63,442
—
7,198
—
15,911
748
6,510
—
—
—
(86)
(226)
39
Amendment (1) . . . . . . . . . . . . . . . . . . . . . . . . .
68,409
(63,442)
17,053
(16,433)
570
Balance December 31, 2011 . . . . . . . . . . . . . . . . . . .
125,502
— 24,165
— 7,119
(1) Reflects 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. See Note 21—
Subsequent Events for additional information.
Share Repurchase Programs
On November 19, 2009, the Board of Directors of TDS authorized a $250 million stock repurchase
program for both TDS Common and Special Common Shares from time to time pursuant to open market
purchases, block transactions, private purchases or otherwise, depending on market conditions. This
authorization will expire on November 19, 2012.
As a result of the Share Consolidation Amendment that became effective on January 24, 2012, Special
Common Shares ceased to be authorized, issued or outstanding. Accordingly, the foregoing share
repurchase authorization no longer applies to Special Common Shares, but continues to apply to
Common Shares until its expiration date.
On November 17, 2009, the Board of Directors of U.S. Cellular authorized the repurchase of up to
1,300,000 Common Shares on an annual basis beginning in 2009 and continuing each year thereafter,
on a cumulative basis. These purchases will be made pursuant to open market purchases, block
purchases, private purchases, or otherwise, depending on market prices and other conditions. This
authorization does not have an expiration date.
86
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 16 COMMON STOCKHOLDERS’ EQUITY (Continued)
Share repurchases made under these authorizations and prior authorizations, were as follows:
Year Ended December 31,
(Dollars amounts and shares in thousands)
2011
Number of
Shares
Average Cost
Per Share
Amount(1)
U.S. Cellular Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Special Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
U.S. Cellular Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Special Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
U.S. Cellular Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Special Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . .
1,276
—
748
1,235
—
2,394
887
1,854
4,520
$48.82
—
28.73
$42.76
—
28.42
$37.86
29.71
26.88
$ 62,294
—
21,500
$ 52,827
—
68,053
$ 33,585
55,103
121,497
(1) Amounts reported in the Consolidated Statement of Cash Flows may differ from these amounts due
to repurchases and subsequent cash settlements occurring in different years.
87
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 16 COMMON STOCKHOLDERS’ EQUITY (Continued)
Accumulated Other Comprehensive Loss
The changes in the cumulative balance of Accumulated other comprehensive loss were as follows:
(Dollars in thousands)
Equity method investments
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add (deduct):
Net unrealized gain (loss) on equity investments . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Retirement plan
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add (deduct):
Net actuarial gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2011
2010
$
390
$
306
138
528
84
$
390
$ (3,598) $(3,016)
(9,625)
(3,815)
1,934
(11,506)
5,722
1,180
(3,815)
2,158
(477)
(105)
(582)
Net change in retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,784)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (9,382) $(3,598)
Accumulated other comprehensive income (loss)
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add (deduct):
$ (3,208) $(2,710)
Net unrealized gain (loss) on equity investments . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in retirement plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
138
(5,784)
84
(582)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (8,854) $(3,208)
NOTE 17 STOCK-BASED COMPENSATION
TDS Consolidated
The following table summarizes stock-based compensation expense recognized during 2011, 2010 and
2009:
Year Ended December 31,
2011
2010
2009
(Dollars in thousands)
Stock option awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock unit awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation matching stock unit awards . . . . . . . . . . . . . . .
Employee stock purchase plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Awards under Non-employee Director compensation plan . . . . . . . . . .
$ 20,443
14,905
124
485
880
$ 18,623
14,781
269
566
889
$ 17,075
13,823
281
471
836
Total stock-based compensation, before income taxes . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,837
(13,862)
35,128
(13,288)
32,486
(12,228)
Total stock-based compensation expense, net of income taxes . . . . . . .
$ 22,975
$ 21,840
$ 20,258
88
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
At December 31, 2011, unrecognized compensation cost for all stock-based compensation awards was
$37.8 million and is expected to be recognized over a weighted average period of 1.8 years.
The following table provides a summary of the stock-based compensation expense included in the
Consolidated Statement of Operations for the years ended:
December 31,
2011
2010
2009
(Dollars in thousands)
Selling, general and administrative expense . . . . . . . . .
Cost of services and products . . . . . . . . . . . . . . . . . . .
$33,949
2,888
$32,838
2,290
$30,036
2,450
Total stock-based compensation . . . . . . . . . . . . . . . . . .
$36,837
$35,128
$32,486
TDS’ tax benefits realized from the exercise of stock options and other awards totaled $6.5 million in
2011.
TDS (excluding U.S. Cellular)
The information in this section relates to stock-based compensation plans using the equity instruments of
TDS. Participants in these plans are employees of TDS Corporate and TDS Telecom and Non-employee
Directors of TDS, although U.S. Cellular employees were eligible to participate in the TDS Employee
Stock Purchase Plan before it was terminated in 2011. Information related to plans using the equity
instruments of U.S. Cellular are shown in the U.S. Cellular section following the TDS section.
Under the TDS 2004 Long-Term Incentive Plan, TDS granted fixed and performance based incentive and
non-qualified stock options, restricted stock, restricted stock units, and deferred compensation stock unit
awards to key employees. On January 13, 2012, TDS shareholders approved Amendments to the
Restated Certificate of Incorporation of TDS which included both; a Share Consolidation Amendment,
and adoption of the TDS 2011 Long-Term Incentive Plan, which replaced the TDS 2004 Long-Term
Incentive Plan for grants going forward. Under the TDS 2011 Long-Term Incentive Plan, TDS may grant
fixed and performance based incentive and non-qualified stock options, restricted stock, restricted stock
units, and deferred compensation stock unit awards to key employees. See Note 21—Subsequent
Events for additional information.
As a result of the effectiveness of the Share Consolidation Amendment on January 24, 2012, there are
no longer any Special Common Shares authorized or outstanding. As a result, outstanding awards under
the TDS 2004 Long-Term Incentive Plan were adjusted to reflect the reclassification, and such awards will
be settled only in Common Shares. Such adjustment was made consistent with the share consolidation.
TDS had reserved 1,955,000 Common Shares and 8,999,000 Special Common Shares at December 31,
2011 for equity awards granted and to be granted under the TDS 2004 Long-Term Incentive Plan. At
December 31, 2011 the only types of awards outstanding are fixed non-qualified stock option awards,
restricted stock unit awards, and deferred compensation stock unit awards. As of December 31, 2011,
there were no shares reserved under any employee stock purchase plan, since this plan was terminated
in the fourth quarter of 2011. The maximum number of TDS Common Shares and TDS Special Common
Shares that could have been issued to employees under all stock-based compensation plans in effect at
December 31, 2011 was 1,955,000 and 8,999,000 shares, respectively. Following the Share Consolidation
Amendment and the adoption of the TDS 2011 Long-Term Incentive Plan, TDS had reserved 6,000,000
Common Shares under the TDS 2011 Long-Term Incentive Plan and 8,055,000 under the TDS 2004
Long-Term Incentive Plan. Although 8,055,000 are reserved under the TDS 2004 Long-Term Incentive
Plan, only up to 7,895,000 Common Shares are expected to be issued under the TDS 2004 Long-Term
Incentive Plan. Any shares reserved for the TDS 2004 Long-Term Incentive Plan that are not required to
89
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
satisfy outstanding rewards under the 2004 Long-Term Incentive Plan are not available for further
issuance, except for 100,000 Common Shares reserved for issuance for annual bonus deferrals and
related employer match awards for calendar years commencing prior to January 1, 2013.
TDS has also created a Non-Employee Directors’ compensation plan under which it has reserved 55,000
TDS Special Common Shares as of December 31, 2011 for issuance as compensation to members of
the Board of Directors who are not employees of TDS. Following the Share Consolidation Amendment
TDS has reserved 55,000 Common Shares for issuance under this plan.
TDS uses treasury stock to satisfy requirements for shares issued pursuant to its various stock-based
compensation plans.
Long-Term Incentive Plan—Stock Options—Stock options granted to key employees are exercisable over
a specified period not in excess of ten years. Stock options generally vest over periods up to three years
from the date of grant. Stock options outstanding at December 31, 2011 expire between 2012 and 2021.
However, vested stock options typically expire 30 days after the effective date of an employee’s
termination of employment for reasons other than retirement. Employees who leave at the age of
retirement have 90 days (or one year if they satisfy certain requirements) within which to exercise their
vested stock options. The exercise price of options equals the market value of TDS common stock on
the date of grant.
TDS estimated the fair value of stock options granted in 2011, 2010 and 2009 using the Black-Scholes
valuation model and the assumptions shown in the table below:
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected annual volatility rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated annual forfeiture rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
5.5 Years
5.3 Years
5.1 Years
37.6%
1.6%
2.1%
3.0%
37.8%
1.7%
2.1%
3.0%
43.0%
1.6%
2.5%
1.9%
The fair value of options is recognized as compensation cost using an accelerated attribution method
over the requisite service periods of the awards, which is generally the vesting period.
Until the time of the effectiveness of the Share Consolidation Amendment on January 24, 2012, any
employee with stock options granted prior to the date of the TDS Special Common Share dividend on
May 13, 2005, received one Common Share and one Special Common Share per tandem option
exercised. Each tandem option was exercisable at its original exercise price. As a result of the Share
Consolidation Amendment each Special Common Share was reclassified as a Common Share on a
one-for-one basis and each Common Share was reclassified as 1.087 Common Shares. Consequently,
each tandem option was adjusted to reflect the reclassification into 2.087 Common Shares upon exercise
and the exercise price of the award was also adjusted to 1⁄2.087 of the original exercise price of the
award.
Any employee with TDS stock options granted after May 13, 2005 was entitled to receive one Special
Common Share per option exercised. As a result of the Share Consolidation Amendment each Special
Common option was reclassified into one Common Share option. The reclassification did not change the
exercise price of these awards.
A summary of TDS stock options (total and portion exercisable) and changes during the three years
ended December 31, 2011, is presented in the tables and narrative below. The December 31, 2011
90
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
amounts in the tables below reflect the impact of the Share Consolidation Amendment to the Restated
Certificate of Incorporation of TDS:
Tandem Options
Outstanding at December 31, 2008 . . . . . . . . .
(987,000 exercisable) . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2009 . . . . . . . . .
(901,000 exercisable) . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2010 . . . . . . . . .
(651,000 exercisable) . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of Share Consolidation . . . . . . . . . . . . .
Number of
Tandem
Options
987,000
(6,000)
—
(80,000)
901,000
(2,000)
—
(248,000)
651,000
(2,000)
—
(78,000)
(571,000)
Outstanding at December 31, 2011 . . . . . . . . .
—
Weighted Weighted
Average
Average
Grant Date
Exercise
Fair Value
Price
Aggregate
Intrinsic
Value
Weighted
Average
Remaining
Contractual
Life
(in years)
$ 81.03
81.03
49.84
—
75.44
$ 81.73
81.73
45.53
—
113.56
$ 69.60
69.60
53.77
—
99.23
65.64
$ 50,000
$ 46,000
$ 30,000
$158,000
2.1
91
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
Special Common Share Options
Outstanding at December 31, 2008 . . . . . . . .
(1,428,000 exercisable) . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2009 . . . . . . . .
(1,732,000 exercisable) . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2010 . . . . . . . .
(2,506,000 exercisable) . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of Share Consolidation . . . . . . . . . .
Number of
Options
2,614,000
1,399,000
—
(68,000)
(85,000)
3,860,000
1,387,000
(5,000)
(105,000)
(29,000)
5,108,000
1,034,000
(5,000)
(34,000)
(79,000)
(6,024,000)
Outstanding at December 31, 2011 . . . . . . . .
—
Weighted Weighted
Average
Average
Grant Date
Exercise
Fair Value
Prices
Aggregate
Intrinsic
Value
Weighted
Average
Remaining
Contractual
Life
(in years)
$44.77
52.59
26.95
—
31.19
48.81
$38.46
48.91
26.66
26.95
29.64
45.16
$35.41
43.14
29.94
26.95
28.12
35.00
$34.38
$9.60
$
—
$8.37
$17,000
$9.59
$19,000
$
—
7.3
Common Share Options
Number of
Options
Weighted Weighted
Average
Average
Grant Date
Exercise
Fair Value
Prices
Aggregate
Intrinsic
Value
Weighted
Average
Remaining
Contractual
Life
(in years)
Outstanding at December 31, 2010 . . . . . . . .
Impact of Share Consolidation
Reclassification of Tandem Options . . . . . .
Reclassification of Special Common
— $ —
1,192,000
31.45
Options . . . . . . . . . . . . . . . . . . . . . . . . .
6,024,000
34.38
Outstanding at December 31, 2011 . . . . . . . .
(4,865,000 exercisable) . . . . . . . . . . . . . . . . .
7,216,000
$33.89
$36.67
$373,000
$373,000
6.5
5.4
The aggregate intrinsic value in the tables above represents the total pre-tax intrinsic value (the
difference between TDS’ closing stock prices and the exercise price, multiplied by the number of
in-the-money options) that was received by the option holders upon exercise or that would have been
received by option holders had all options been exercised on December 31, 2011.
Long-Term Incentive Plan—Restricted Stock Units—TDS also grants restricted stock unit awards to key
employees. As of December 31, 2011, each restricted stock unit outstanding was convertible into one
Special Common Share upon the vesting of such restricted stock units. As a result of the Share
Consolidation Amendment each outstanding restricted stock unit was reclassified and became
92
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
convertible into one Common Share Award. The restricted stock unit awards currently outstanding were
granted in 2010 and 2011 and will vest in December 2012 and 2013, respectively.
TDS estimates the fair value of restricted stock units by reducing the grant-date price of the Company’s
shares by the present value of the dividends expected to be paid on the underlying shares during the
requisite service period, discounted at the appropriate risk-free interest rate, since employees are not
entitled to dividends declared on the underlying shares while the restricted stock or RSU is unvested.
The fair value is then recognized as compensation cost on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period.
A summary of TDS nonvested restricted stock units and changes during the year ended December 31,
2011 is presented in the table below. The December 31, 2011 amounts in the tables below reflect the
impact of the Share Consolidation Amendment to the Restated Certificate of Incorporation of TDS.
Special Common Restricted Stock Units
Nonvested at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of Share Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Grant Date
Fair Value
$26.28
28.73
26.95
26.92
27.45
Number
334,000
236,000
(179,000)
(2,000)
(389,000)
Nonvested at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $ —
Common Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
Number
Nonvested at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of Share Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $ —
27.45
389,000
Nonvested at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
389,000
$27.45
The total fair values as of the respective vesting dates of restricted stock units vested during 2011, 2010
and 2009 were $4.1 million, $4.2 million and $2.6 million, respectively. The weighted average grant date
fair value of restricted stock units granted in 2011, 2010 and 2009 was $28.73, $25.53 and $26.95,
respectively.
Long-Term Incentive Plan—Deferred Compensation Stock Units—Certain TDS employees may elect to
defer receipt of all or a portion of their annual bonuses and to receive a company matching contribution
on the amount deferred. All bonus compensation that is deferred by employees electing to participate is
immediately vested and is deemed to be invested in TDS Common Share units or TDS Special Common
Share units. The amount of TDS’ matching contribution depends on the portion of the annual bonus that
is deferred. Participants receive a 25% stock unit match for amounts deferred up to 50% of their total
annual bonus and a 33% match for amounts that exceed 50% of their total annual bonus; such matching
contributions also are deemed to be invested in TDS Common Share units or TDS Special Common
Share units.
The total fair values of deferred compensation stock units that vested during 2011, 2010 and 2009 were
$0.1 million, $0.1 million and $0.1 million, respectively. The weighted average grant date fair value of
deferred compensation stock units granted in 2011, 2010 and 2009 was $28.15, $28.72 and $23.35,
93
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
respectively. As of December 31, 2011, there were 186,000 vested but unissued deferred compensation
stock units valued at $4.8 million.
Employee Stock Purchase Plan—The TDS 2009 Employee Stock Purchase Plan became effective
January 1, 2009. All remaining shares reserved under this plan were issued and the plan was terminated
in the fourth quarter of 2011, in advance of its original termination date of December 31, 2013. Under this
plan, eligible employees of TDS and its subsidiaries could purchase a limited number of TDS Special
Common Shares on a quarterly basis.
Under these plans, the per share cost to each participant was 85% of the market value of the Special
Common Shares as of the issuance date. The employee stock purchase plans were considered
compensatory plans; therefore recognition of compensation costs for stock issued under these plans
was required. Compensation cost was measured as the difference between the cost of the shares to the
plan participants and the fair market value of the shares on the date of issuance.
Compensation of Non-Employee Directors—TDS issued 19,000, 19,000 and 15,000 Special Common
Shares under its Non-Employee Director plan in 2011, 2010 and 2009, respectively.
Dividend Reinvestment Plans (‘‘DRIP’’)—TDS had reserved 282,000 Common Shares and 242,000
Special Common Shares at December 31, 2011, for issuance under Automatic Dividend Reinvestment
and Stock Purchase Plans and 70,000 Series A Common Shares for issuance under the Series A
Common Share Automatic Dividend Reinvestment Plan. These plans enabled holders of TDS’ Common
Shares, Special Common Shares and Preferred Shares to reinvest cash dividends in Common Shares
and Special Common Shares and holders of Series A Common Shares to reinvest cash dividends in
Series A Common Shares. The purchase price of the shares is 95% of the market value, based on the
average of the daily high and low sales prices for TDS’ Common Shares and Special Common Shares
on the New York Stock Exchange for the ten trading days preceding the date on which the purchase is
made. These plans are considered non-compensatory plans, therefore no compensation expense is
recognized for stock issued under these plans.
As a result of the Share Consolidation Amendment, the Special Common Share DRIP was terminated
since there are no longer any Special Common Shares authorized or outstanding. Participants in the
DRIP automatically had all shares appropriately adjusted to reflect the reclassification.
U.S. Cellular
The information in this section relates to stock-based compensation plans using the equity instruments of
U.S. Cellular. Participants in these plans are employees of U.S. Cellular and Non-employee Directors of
U.S. Cellular. Information related to plans using the equity instruments of TDS are shown in the previous
section.
U.S. Cellular has established the following stock-based compensation plans: a long-term incentive plan
and a Non-Employee Director compensation plan, and had an employee stock purchase plan that was
terminated in the fourth quarter of 2011. Also, U.S. Cellular employees were eligible to participate in the
TDS employee stock purchase plan before it was terminated in the fourth quarter of 2011.
Under the U.S. Cellular 2005 Long-Term Incentive Plan, U.S. Cellular may grant fixed and performance
based incentive and non-qualified stock options, restricted stock, restricted stock units, and deferred
compensation stock unit awards to key employees. At December 31, 2011, the only types of awards
outstanding are fixed non-qualified stock option awards, restricted stock unit awards, and deferred
compensation stock unit awards.
94
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
At December 31, 2011, U.S. Cellular had reserved 5,836,000 Common Shares for equity awards granted
and to be granted under the 2005 Long-Term Incentive Plan. No Common Shares were reserved for
issuance to employees under any employee stock purchase plan since this plan was terminated in the
fourth quarter of 2011. The maximum number of U.S. Cellular Common Shares that may be issued to
employees under all stock-based compensation plans in effect at December 31, 2011, was 5,836,000.
U.S. Cellular also has established a Non-Employee Director compensation plan under which it has
reserved 32,000 Common Shares for issuance as compensation to members of the Board of Directors
who are not employees of U.S. Cellular or TDS.
U.S. Cellular uses treasury stock to satisfy requirements for Common Shares issued pursuant to its
various stock-based compensation plans.
Long-Term Incentive Plan—Stock Options—Stock options granted to key employees are exercisable over
a specified period not in excess of ten years. Stock options generally vest over a period of three years
from the date of grant. Stock options outstanding at December 31, 2011 expire between 2012 and 2021.
However, vested stock options typically expire 30 days after the effective date of an employee’s
termination of employment for reasons other than retirement. Employees who leave at the age of
retirement have 90 days (or one year if they satisfy certain requirements) within which to exercise their
vested stock options. The exercise price of options equals the market value of U.S. Cellular Common
Shares on the date of grant.
U.S. Cellular estimated the fair value of stock options granted during 2011, 2010, and 2009 using the
Black-Scholes valuation model and the assumptions shown in the table below.
2011
2010
2009
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated annual forfeiture rate . . . . . . . . . . . . . . . . . . .
4.3 years
43.4%-44.8%
0%
0.7%-2.0%
0.0%-7.8%
0.9-8.0 years
3.9 years
26.9%-43.9% 40.3%-44.2%
0%
1.2%-2.2%
6.9%
0%
0.4%-3.1%
0.0%-8.4%
The fair value of options is recognized as compensation cost using an accelerated attribution method
over the requisite service periods of the awards, which is generally the vesting period.
95
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
A summary of U.S. Cellular stock options outstanding (total and portion exercisable) and changes during
the three years ended December 31, 2011, is presented in the table below:
Outstanding at December 31, 2008 . . . . . . .
(624,000 exercisable) . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2009 . . . . . . .
(1,046,000 exercisable) . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2010 . . . . . . .
(1,151,000 exercisable) . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2011 . . . . . . .
(1,321,000 exercisable) . . . . . . . . . . . . . . . .
Number of
Options
1,626,000
748,000
(181,000)
(130,000)
(34,000)
2,029,000
831,000
(317,000)
(88,000)
(193,000)
2,262,000
595,000
(173,000)
(72,000)
(175,000)
2,437,000
Weighted Weighted
Average
Average
Grant Date
Exercise
Fair Value
Price
Aggregate
Intrinsic
Value
Weighted
Average
Remaining
Contractual
Life
(in years)
$57.15
51.56
34.21
34.01
47.98
56.84
$51.37
54.40
41.98
38.60
44.28
61.50
$49.12
$54.64
51.70
37.50
45.97
57.05
$50.10
$53.68
$11.75
$ 821,000
$13.75
$1,555,000
$19.42
$2,099,000
$4,423,000
$2,361,000
6.9
5.5
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference
between U.S. Cellular’s closing stock price and the exercise price multiplied by the number of
in-the-money options) that was received by the option holders upon exercise or that would have been
received by option holders had all options been exercised on December 31, 2011.
Long-Term Incentive Plan—Restricted Stock Units—U.S. Cellular grants restricted stock unit awards,
which generally vest after three years, to key employees.
U.S. Cellular estimates the fair value of restricted stock units based on the closing market price of U.S.
Cellular shares on the date of grant. The fair value is then recognized as compensation cost on a
straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
96
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 17 STOCK-BASED COMPENSATION (Continued)
A summary of U.S. Cellular nonvested restricted stock units at December 31, 2011 and changes during
the year then ended is presented in the table below:
Nonvested at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
752,000
346,000
(189,000)
(64,000)
Nonvested at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
845,000
Weighted Average
Grant Date Fair
Value
$42.69
49.35
55.93
42.48
$42.48
The total fair value of restricted stock units that vested during 2011, 2010 and 2009 was $9.5 million,
$4.7 million and $4.2 million, respectively, as of the respective vesting dates. The weighted average grant
date fair value of restricted stock units granted in 2011, 2010 and 2009 was $49.35, $42.21 and $33.00,
respectively.
Long-Term Incentive Plan—Deferred Compensation Stock Units—Certain U.S. Cellular employees may
elect to defer receipt of all or a portion of their annual bonuses and to receive a company matching
contribution on the amount deferred. All bonus compensation that is deferred by employees electing to
participate is immediately vested and is deemed to be invested in U.S. Cellular Common Share stock
units. The amount of U.S. Cellular’s matching contribution depends on the portion of the annual bonus
that is deferred. Participants receive a 25% match for amounts deferred up to 50% of their total annual
bonus and a 33% match for amounts that exceed 50% of their total annual bonus; such matching
contributions also are deemed to be invested in U.S. Cellular Common Share stock units.
The total fair value of deferred compensation stock units that vested during 2011 was less than
$0.1 million. The fair value of units vested during 2010 and 2009 was $0.4 million and $0.1 million,
respectively. The weighted average grant date fair value of deferred compensation stock units granted in
2011, 2010 and 2009 was $48.72, $40.76 and $33.58, respectively. As of December 31, 2011, there were
3,000 vested but unissued deferred compensation stock units valued at $0.1 million.
Employee Stock Purchase Plan—The U.S. Cellular 2009 Employee Stock Purchase Plan became effective
January 1, 2009. All remaining shares reserved under this plan were issued and the plan was terminated
in the fourth quarter of 2011, in advance of its original termination date of December 31, 2013. Under this
plan, eligible employees of U.S. Cellular and its subsidiaries could purchase a limited number of U.S.
Cellular Common Shares on a quarterly basis. U.S. Cellular employees were also eligible to participate in
the TDS Employee Stock Purchase Plan before this was terminated in the fourth quarter of 2011.
Under these plans, the per share cost to participants was 85% of the market value of the U.S. Cellular
Common Shares or TDS Special Common Shares as of the issuance date. The employee stock
purchase plans were considered compensatory plans; therefore, recognition of compensation cost for
stock issued under these plans was required. Compensation cost was measured as the difference
between the cost of the shares to plan participants and the market value of the shares on the date of
issuance.
Compensation of Non-Employee Directors—U.S. Cellular issued 6,600, 9,000, and 5,200 Common Shares
in 2011, 2010 and 2009, respectively, under its Non-Employee Director compensation plan.
97
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 18 BUSINESS SEGMENT INFORMATION
U.S. Cellular and TDS Telecom are billed for all services they receive from TDS, consisting primarily of
information processing and general management services. Such billings are based on expenses
specifically identified to U.S. Cellular and TDS Telecom and on allocations of common expenses.
Management believes the method used to allocate common expenses is reasonable and that all
expenses and costs applicable to U.S. Cellular and TDS Telecom are reflected in the accompanying
business segment information on a basis that is representative of what they would have been if U.S.
Cellular and TDS Telecom operated on a stand-alone basis.
Financial data for TDS’ business segments for 2011, 2010 and 2009 is as follows.
Year Ended or at December 31, 2011
U.S.
Cellular
ILEC
CLEC
ILEC/CLEC
Eliminations
TDS Telecom
Total
TDS Telecom
Non-
Reportable
Segment(1)
Other
Reconciling
Items(2)
Total
$4,343,346
$ 644,991
$180,332
$(9,935)
$ 815,388
$45,133
$ (23,396)
$5,180,471
1,711,679
215,093
91,348
(8,238)
298,203
32,952
(1,692)
2,041,142
(Dollars in thousands)
Operating revenues . . . .
Cost of services and
products (excluding
Depreciation,
amortization and
accretion reported
below) . . . . . . . . . . .
Selling, general and
administrative expense .
1,779,203
852,464
173,949
255,949
64,509
24,475
Adjusted OIBDA(3) . . . . .
Depreciation, amortization
and accretion expense .
Loss on impairment of
intangible assets . . . . .
(Gain) loss on asset
disposals and
exchanges, net . . . . . .
Operating income (loss)
Significant non-operating
.
items:
Equity in earnings of
unconsolidated entities .
. . . .
Gain on investment
Investments in
unconsolidated entities .
Total assets . . . . . . . . .
Capital expenditures . . . .
573,557
158,554
21,976
—
—
(1,873)
280,780
1,158
96,237
—
85
2,414
83,566
11,373
8
—
—
—
(1,697)
—
—
—
—
—
—
—
236,761
280,424
180,530
—
1,243
98,651
8,609
3,572
3,021
—
(197)
748
(12,712)
2,011,861
(8,992)
1,127,468
8,668
765,776
—
17
—
(810)
(17,677)
362,502
8
—
—
—
(1,036)
12,730
82,538
24,103
138,096
6,327,976
$ 782,526
3,808
1,585,240
$ 168,801
—
118,231
$ 22,361
—
—
$ —
3,808
1,703,471
$ 191,162
—
68,870
$ 3,206
31,806
100,688
$ 10,324
173,710
8,201,005
$ 987,218
98
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 18 BUSINESS SEGMENT INFORMATION (Continued)
Year Ended or at December 31, 2010
U.S.
Cellular
ILEC
CLEC
ILEC/CLEC
Eliminations
TDS Telecom
Total
TDS Telecom
Non-
Reportable
Segment(1)
Other
Reconciling
Items(2)
Total
$4,177,681
$ 617,394
$187,984
$(9,536)
$ 795,842
$40,167
$ (26,861)
$4,986,829
1,597,912
196,298
96,934
(8,848)
284,384
31,019
(1,761)
1,911,554
(Dollars in thousands)
Operating revenues . . . .
Cost of services and
products (excluding
Depreciation,
amortization and
accretion reported
below) . . . . . . . . . . .
Selling, general and
administrative expense .
1,796,624
783,145
173,020
248,076
64,107
26,943
Adjusted OIBDA(3) . . . . .
Depreciation, amortization
and accretion expense .
Loss on impairment of
intangible assets . . . . .
(Gain) loss on asset
disposals and
exchanges, net . . . . . .
Operating income (loss)
Significant non-operating
.
items:
Equity in earnings of
570,955
149,375
24,679
—
—
—
10,717
201,473
769
97,932
362
1,902
(688)
—
—
—
—
—
—
236,439
275,019
174,054
—
1,131
99,834
6,307
2,841
1,888
—
(76)
1,029
(27,598)
2,011,772
2,498
1,063,503
8,752
755,649
—
(9)
(6,245)
—
11,763
296,091
13
—
743
98,074
unconsolidated entities .
97,318
13
—
Investments in
unconsolidated entities .
Total assets(4)
. . . . . . .
Capital expenditures . . . .
160,847
5,875,549
$ 583,134
3,806
1,478,085
$ 137,002
—
123,762
$ 20,303
—
—
$ —
3,806
1,601,847
$ 157,305
—
22,709
$ 1,029
33,269
196,012
$ 13,564
197,922
7,696,117
$ 755,032
99
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 18 BUSINESS SEGMENT INFORMATION (Continued)
Year Ended or at December 31, 2009
U.S.
Cellular
ILEC
CLEC
ILEC/CLEC
Eliminations
TDS Telecom
Total
TDS Telecom
Non-
Reportable
Segment(1)
Other
Reconciling
Items(2)
Total
$4,213,880
$ 599,527
$199,375
$(9,050)
$ 789,852
$46,714
$ (30,503)
$5,019,943
1,545,847
194,030
104,057
(7,979)
290,108
36,573
(1,865)
1,870,663
(Dollars in thousands)
Operating revenues . . . .
Cost of services and
products (excluding
Depreciation,
amortization and
accretion reported
below) . . . . . . . . . . .
Selling, general and
administrative expense .
1,747,404
920,629
170,505
234,992
67,108
28,210
Adjusted OIBDA(3) . . . . .
Depreciation, amortization
and accretion expense .
Loss on impairment of
intangible assets . . . . .
(Gain) loss on asset
disposals and
exchanges, net . . . . . .
Operating income (loss)
Significant non-operating
.
items:
Equity in earnings of
564,935
142,913
24,403
14,000
—
—
16,169
325,525
1,949
90,130
452
3,355
unconsolidated entities .
96,800
17
—
Investments in
unconsolidated entities .
Total assets(4)
. . . . . . .
Capital expenditures . . . .
161,481
5,716,848
$ 546,758
3,660
1,463,275
98,297
$
—
125,508
$ 22,240
(1,071)
—
—
—
—
—
—
—
—
—
236,542
263,202
167,316
—
2,401
93,485
7,126
3,015
2,542
—
100
373
(26,641)
1,964,431
(1,997)
1,184,849
9,454
744,247
—
88
(11,539)
14,000
18,758
407,844
17
—
(6,085)
90,732
3,660
1,588,783
120,537
—
24,372
346
$
38,658
245,309
$ 3,524
203,799
7,575,312
$ 671,165
(1)
(2)
(3)
Represents Suttle-Straus and, as of September 23, 2011, Airadigm. See Note 8—Acquisitions, Divestitures and Exchanges for
additional information related to Airadigm.
Consists of corporate operations and inter-segment eliminations.
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). 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. This
amount 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 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. Accordingly you should be aware that TDS may incur such
amounts in the future.
(4)
In preparing its Consolidated Statement of Cash Flows for the year ended December 31, 2011, TDS discovered certain errors related
to the classification of outstanding checks with the right of offset. This error resulted in the misstatement of Cash and Total assets for
the years ended December 31, 2010 and 2009. The amounts herein have been revised to reflect the proper amounts. See Note 2—
Revision of Prior Period Amounts for additional information.
100
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 19 SUPPLEMENTAL CASH FLOW DISCLOSURES
Following are supplemental cash flow disclosures regarding interest paid and income taxes paid.
Year Ended December 31,
2011
2010
2009
(Dollars in thousands)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid (refunded) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 96,203
(66,994)
$114,996
87,139
$123,805
53,009
Following are supplemental cash flow disclosures regarding transactions related to stock-based
compensation awards:
TDS:
Year Ended December 31,
(Dollars in thousands)
Special Common Shares withheld(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate value of Special Common Shares withheld . . . . . . . . . . . . . . . .
Cash receipts upon exercise of stock options . . . . . . . . . . . . . . . . . . . . . .
Cash disbursements for payment of taxes(2) . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
2009
65,638
$ 1,537
1,463
(1,431)
43,580
$ 1,348
1,657
(1,348)
26,999
$ 811
1,630
(811)
Net cash receipts from exercise of stock options and vesting of other stock
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
32
$
309
$ 819
U.S. Cellular:
Year Ended December 31,
2011
2010
2009
(Dollars in thousands)
Common Shares withheld(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate value of Common Shares withheld . . . . . . . . . . . . . . . . . . . . .
Cash receipts upon exercise of stock options . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Cash disbursements for payment of taxes(2)
120,250
$ 5,952
5,447
(3,512)
310,388
$13,527
3,574
(3,065)
200,025
$ 7,622
1,572
(1,654)
Net cash receipts (disbursements) from exercise of stock options and
vesting of other stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,935
$
509
$
(82)
(1) Such shares were withheld to cover the exercise price of stock options, if applicable, and required
tax withholdings.
(2)
In certain situations, TDS and U.S. Cellular withhold shares that are issuable upon the exercise of
stock options or the vesting of restricted shares to cover, and with a value equivalent to, the exercise
price and/or the amount of taxes required to be withheld from the stock award holder at the time of
the exercise or vesting. TDS and U.S. Cellular then pay the amount of the required tax withholdings
to the taxing authorities in cash.
On September 23, 2011, pursuant to a plan of reorganization, TDS acquired 63% of Airadigm. See
Note 8—Acquisitions, Divestitures and Exchanges for additional information. At the acquisition date
Airadigm owed $32.7 million to the FCC. This obligation was paid in September 2011.
NOTE 20 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following persons are partners of Sidley Austin LLP, the principal law firm of TDS and its subsidiaries:
Walter C.D. Carlson, a trustee and beneficiary of a voting trust that controls TDS, the non-executive
101
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 20 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
Chairman of the Board and member of the Board of Directors of TDS and a director of U.S. Cellular, a
subsidiary of TDS; William S. DeCarlo, the General Counsel of TDS and an Assistant Secretary of TDS
and certain subsidiaries of TDS; and Stephen P. Fitzell, the General Counsel of U.S. Cellular and TDS
Telecommunications Corporation and an Assistant Secretary of certain subsidiaries of TDS. Walter C.D.
Carlson does not provide legal services to TDS or its subsidiaries. TDS, U.S. Cellular and their
subsidiaries incurred legal costs from Sidley Austin LLP of $13.7 million in 2011, $14.0 million in 2010
and $13.8 million in 2009.
On September 29, 2010, TDS repurchased 272,323 Special Common Shares at the then current market
price on the NYSE for a total price of $7.7 million, or an average of $28.24 per Special Common Share
including broker fees, from an affiliate of Southeastern Asset Management, Inc. (‘‘SEAM’’).
On May 29, 2009, TDS repurchased 1,730,200 Special Common Shares at the then current market price
on the New York Stock Exchange (‘‘NYSE’’) for a total price of $48.2 million, or an average of $27.89 per
Special Common Share including broker fees, from an affiliate of SEAM. In addition, on July 20, 2009,
TDS repurchased 405,000 Special Common Shares from SEAM at a price below the then current market
price on the NYSE for a total price of $10.5 million, or an average of $25.87 per Special Common Share
including broker fees.
At the time of each 2009 TDS repurchase, SEAM was a shareholder of more than 5% of TDS Special
Common Shares and Common Shares. At the time of the 2010 TDS repurchase, SEAM was a
shareholder of more than 5% of TDS Special Common Shares.
These transactions were not solicited by TDS and TDS did not enter into any agreements with SEAM.
The September 29, 2010 and May 29, 2009 transactions were effected by TDS’ broker pursuant to TDS’
existing institutional brokerage account agreement on the NYSE pursuant to Rule 10b-18 under the
Securities Exchange Act of 1934, as amended (‘‘Exchange Act’’). The July 20, 2009 transaction was
made by TDS’ broker pursuant to an agreement entered into pursuant to Rule 10b5-1 under the
Exchange Act and was effected on the NYSE in compliance with Rule 10b-18. The repurchases were
made under TDS’ share repurchase authorizations that were in effect at the time of such repurchases.
See ‘‘Security Ownership by Certain Beneficial Owners’’ in TDS’ Notice of Annual Meeting and Proxy
Statement dated April 14, 2011 for further information about SEAM and its interest in TDS.
The Audit Committee of the Board of Directors is responsible for the review and evaluation of all related-
party transactions; as such term is defined by the rules of the New York Stock Exchange.
NOTE 21 SUBSEQUENT EVENTS
On January 13, 2012, TDS shareholders approved certain amendments to the Restated Certificate of
Incorporation of TDS (‘‘Charter Amendments’’).
These approved Charter Amendments include (a) a Share Consolidation Amendment to reclassify
(i) each Special Common Share as one Common Share, (ii) each Common Share as 1.087 Common
Shares, and (iii) each Series A Common Share as 1.087 Series A Common Shares, (b) a Vote
Amendment to fix the percentage voting power in certain matters and (c) amendments to eliminate
obsolete and inoperative provisions as more fully described in TDS’ Current Report on Form 8-K dated
January 24, 2012.
These approved Charter Amendments were effected on January 24, 2012 at which time each
outstanding Special Common Share was reclassified as one Common Share and the Special Common
Shares ceased to be outstanding and consequently ceased trading on the New York Stock Exchange
under the symbol ‘‘TDS.S.’’
102
Telephone and Data Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 21 SUBSEQUENT EVENTS (Continued)
As of January 24, 2012, immediately prior to the reclassification, there were outstanding 6,549,000
Series A Common Shares, 49,980,000 Common Shares, 47,012,000 Special Common Shares and 8,300
Preferred Shares. As of January 24, 2012 immediately following the reclassification, there were
outstanding 7,119,000 Series A Common Shares, 101,340,000 Common Shares and 8,300 Preferred
Shares.
As a result of the share reclassification, shares outstanding at December 31, 2011, as well as average
basic and diluted shares outstanding used to calculate earnings per share, as of the beginning of all
periods presented in this Form 10-K have been retroactively restated to reflect the impact of the
increased shares outstanding.
TDS Consolidated Balance Sheet as of December 31, 2011 has also been retroactively adjusted to reflect
the incremental shares issued to Common and Series A shareholders based on the closing price of TDS
Common Shares as of December 31, 2011. As a result of the reclassification, an increase in Common
Shares, Series A Common Shares and Capital in Excess of Par was offset by a corresponding decrease
in Retained Earnings with no change to the overall amount of shareholders’ equity.
103
Telephone and Data Systems, Inc.
REPORTS OF MANAGEMENT
Management’s Responsibility for Financial Statements
Management of Telephone and Data Systems, Inc. has the responsibility for preparing the accompanying
consolidated financial statements and for their integrity and objectivity. The statements were prepared in
accordance with accounting principles generally accepted in the United States of America and, in
management’s opinion, were fairly presented. The financial statements included amounts that were
based on management’s best estimates and judgments. Management also prepared the other
information in the annual report and is responsible for its accuracy and consistency with the financial
statements.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited these
consolidated financial statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and has expressed herein its unqualified opinion on these financial
statements.
/s/ LeRoy T. Carlson, Jr.
/s/ Kenneth R. Meyers
/s/ Douglas D. Shuma
LeRoy T. Carlson, Jr.
President and
Chief Executive Officer
(principal executive officer)
Kenneth R. Meyers
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Douglas D. Shuma
Senior Vice President and
Controller
(principal accounting officer)
104
Management’s Report on Internal Control Over Financial Reporting
Telephone and Data Systems, Inc.
Management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. TDS’ internal
control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America (‘‘GAAP’’).
TDS’ internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the issuer; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the issuer are being made only in accordance with authorizations of management
and, where required, the Board of Directors of the issuer; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the issuer’s
assets that could have a material effect on the interim or annual consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of TDS’ management, including its Chief Executive
Officer and Chief Financial Officer, TDS conducted an evaluation of the effectiveness of its internal control
over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Management has concluded that TDS maintained effective internal control over
financial reporting as of December 31, 2011 based on criteria established in Internal Control—Integrated
Framework issued by the COSO.
The effectiveness of TDS’ internal control over financial reporting as of December 31, 2011 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in
the firm’s report included herein.
/s/ LeRoy T. Carlson, Jr.
/s/ Kenneth R. Meyers
/s/ Douglas D. Shuma
LeRoy T. Carlson, Jr.
President and
Chief Executive Officer
(principal executive officer)
Kenneth R. Meyers
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Douglas D. Shuma
Senior Vice President and
Controller
(principal accounting officer)
105
Telephone and Data Systems, Inc. and Subsidiaries
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Telephone and Data Systems, Inc.:
In our opinion, based on our audits and the report of other auditors, the accompanying consolidated
balance sheets and the related consolidated statements of operations, comprehensive income, changes in
equity, and cash flows present fairly, in all material respects, the financial position of Telephone and Data
Systems, Inc. and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2011 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, based on
our audit, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s
internal control over financial reporting based on our integrated audits. We did not audit the financial
statements of Los Angeles SMSA Limited Partnership; a 5.5% owned entity accounted for by the equity
method of accounting. The consolidated financial statements of Telephone and Data Systems, Inc. reflect
an investment in the partnership of $104,100,000 and $114,800,000 as of December 31, 2011 and 2010,
respectively, and equity earnings of $55,300,000, $64,800,000 and $64,700,000, respectively for each of the
three years in the period ended December 31, 2011. The financial statements of Los Angeles SMSA
Limited Partnership were audited by other auditors whose report thereon has been furnished to us, and our
opinion on the financial statements expressed herein, insofar as it relates to the amounts included for
Los Angeles SMSA Limited Partnership, is based solely on the report of the other auditors. We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits and the
report of other auditors provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in
which it accounts for revenue in 2010.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 24, 2012
106
Telephone and Data Systems, Inc. and Subsidiaries
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
Year Ended or at December 31,
2011
2010
2009
2008
2007
(Dollars and shares in thousands, except per share amounts)
Statement of Operations data
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on investment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before extraordinary item . . . . . . . . . . . . . . . . . . .
Extraordinary item, net of tax . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests, net of tax . .
Net income attributable to TDS shareholders . . . . . . . . . . . .
Net income available to common . . . . . . . . . . . . . . . . . . .
Basic weighted average shares outstanding(b) . . . . . . . . . . .
Basic earnings per share attributable to TDS shareholders
from:(b)
Net income before extraordinary item attributable to TDS
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common . . . . . . . . . . . . . . . .
Diluted weighted average shares outstanding(b) . . . . . . . . . .
Diluted earnings per share attributable to TDS shareholders
from:(b)
Net income before extraordinary item attributable to TDS
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common . . . . . . . . . . . . . . . .
Dividends per Common, Special Common and Series A
Common Share(c)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheet data
. . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents(d)
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net
. . . . . . . . . . . . . . . . . .
Total assets(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, excluding current portion . . . . . . . . . . . . . .
Total TDS shareholders’ equity . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating data
U.S. Cellular
Total customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average monthly service revenue per customer(e) . . . . . . .
Postpaid churn rate(f) . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Telecom
$5,180,471
362,502
24,103
250,242
—
250,242
49,676
200,566
$ 200,516
108,562
$4,986,829
296,091
—
190,586
—
190,586
45,737
144,849
$ 144,799
110,016
$5,019,943
407,844
—
249,949
—
249,949
58,602
191,347
$ 191,296
114,354
$5,091,388
132,919
31,595
120,483
—
120,483
29,817
90,666
90,614
120,992
$
$4,822,471
511,072
81,423
413,533
42,827
456,360
71,964
384,396
$ 384,344
122,754
$
$
$
$
$
1.85
—
1.85
109,100
1.83
—
1.83
0.47
$
$
$
$
$
1.32
—
1.32
110,489
1.31
—
1.31
0.45
$
$
$
$
$
1.67
—
1.67
114,572
1.67
—
1.67
0.43
$
$
$
$
$
0.75
—
0.75
121,348
0.75
—
0.75
0.41
$
$
$
$
$
2.78
0.35
3.13
124,142
2.74
0.34
3.08
0.39
$ 563,275
—
3,784,535
8,201,005
1,529,857
3,962,161
$ 987,218
$ 341,683
—
3,517,784
7,696,117
1,499,862
3,817,895
$ 755,032
$ 674,469
—
3,467,367
7,575,312
1,492,908
3,767,278
$ 671,165
$ 772,678
$1,178,887
— 1,917,893
3,484,210
9,866,434
1,632,226
3,925,007
$ 699,566
3,535,653
7,628,100
1,621,422
3,763,435
$ 734,923
5,891,000
56.54
$
6,072,000
53.27
$
6,141,000
52.99
$
6,196,000
53.22
$
6,102,000
51.08
$
1.5%
1.5%
1.6%
1.5%
1.4%
Equivalent access lines served(g) . . . . . . . . . . . . . . . . . .
High-speed data customers . . . . . . . . . . . . . . . . . . . . .
1,071,900
267,300
1,102,600
260,800
1,131,800
245,200
1,169,700
219,100
1,197,700
187,700
(a)
Includes Loss on impairment of intangible assets of $14.0 million in 2009, $414.4 million in 2008 and $24.9 million in 2007.
(b) On January 13, 2012, TDS shareholders approved a Share Consolidation Amendment to the Restated Certificate of
Incorporation of TDS. Shares outstanding at December 31, 2011, as well as average basic and diluted shares outstanding
used to calculate earnings per share as of the beginning of all periods presented, have been retroactively restated to reflect
the impact of the increased shares outstanding as a result of the Share Consolidation Amendment. See Note 21—Subsequent
Events for additional information.
(c) Dividends per share reflects the amount paid per share outstanding at the date the dividend was declared and has not been
retroactively adjusted to reflect the impact of the Share Consolidation Amendment approved by TDS shareholders on
January 13, 2012.
(d)
In preparing its Consolidated Statement of Cash Flows for the year ended December 31, 2011, TDS discovered certain errors
related to the reclassification of outstanding checks with the right of offset. This error resulted in the misstatement of Cash
and Total assets for the years ended December 31, 2007 through 2010. The amounts herein have been revised to reflect the
proper amounts. See Note 2—Revision of Prior Period Amounts for additional information.
(e) Calculated by dividing Service Revenues by average customers and number of months in the year.
(f)
Represents the percentage of the postpaid customer base that disconnects service each month.
(g) Equivalent access lines are the sum of physical access lines and high-capacity data lines adjusted to estimate the equivalent
number of physical access lines in terms of capacity. A physical access line is the individual circuit connecting a customer to
a telephone company’s central office facilities.
107
Telephone and Data Systems, Inc. and Subsidiaries
CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
(Amounts in thousands, except per share amounts)
2011
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income(1)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to TDS shareholders . . . . . . . . . . . .
Basic weighted average shares outstanding(2) . . . . . . . . . . . . . . .
Basic earnings per share attributable to TDS shareholders(2) . . . . . .
. . . . . . . . . . . . . .
Diluted weighted average shares outstanding(2)
Diluted earnings per share attributable to TDS shareholders(2) . . . . .
Stock price
TDS Common Shares(3)
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Special Common Shares(3)
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid(4)
(Amounts in thousands, except per share amounts)
2010
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income(1)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to TDS shareholders . . . . . . . . . . . . . . . .
Basic weighted average shares outstanding(2) . . . . . . . . . . . . . . .
Basic earnings per share attributable to TDS shareholders(2) . . . . . .
. . . . . . . . . . . . . .
Diluted weighted average shares outstanding(2)
Diluted earnings per share attributable to TDS shareholders(2) . . . . .
Stock price
TDS Common Shares(3)
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TDS Special Common Shares(3)
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid(4)
March 31
June 30
September 30
December 31
Quarter Ended
$1,258,681
88,873
—
54,297
43,504
108,936
$
$1,279,640
127,355
13,373
109,740
91,954
108,423
$
$
$
$
$
0.40
109,651
0.39
37.42
31.05
33.70
32.10
26.61
29.52
0.1175
$
$
$
$
0.85
109,133
0.84
35.84
29.79
31.08
30.63
25.70
26.93
0.1175
$1,325,423
126,924
12,730
88,218
71,294
108,404
$
$
$
$
$
0.66
108,729
0.65
32.00
20.30
21.25
27.61
19.72
19.77
0.1175
$1,316,727
19,350
(2,000)
(2,013)
(6,186)
108,492
$
$
$
$
$
(0.06)
108,492
(0.06)
27.33
19.33
25.89
27.38
18.24
23.81
0.1175
March 31
June 30
September 30
December 31
Quarter Ended
$1,222,435
103,520
63,213
49,206
110,840
$
$1,232,219
87,905
53,335
41,080
110,424
$
$1,266,416
84,687
53,530
41,419
109,788
$
$
$
$
$
0.44
111,203
0.44
35.00
29.54
33.85
30.98
26.56
29.84
0.1125
$
$
$
$
0.37
110,878
0.37
35.74
30.00
30.39
31.12
26.11
26.54
0.1125
$
$
$
$
0.38
110,300
0.37
34.96
28.84
32.80
30.49
25.17
28.35
0.1125
$1,265,759
19,979
20,508
13,144
108,979
$
$
$
$
$
0.12
109,790
0.12
37.91
32.60
36.55
32.27
27.89
31.52
0.1125
(1) During the quarter ended September 30, 2011, TDS recorded adjustments for asset retirement obligations and asset
retirement costs. These adjustments related to periods from 2006 through the second quarter of 2011. These adjustments
corrected an overstatement of Total operating expenses, Property, plant and equipment, net and Other deferred liabilities and
credits in first and second quarter 2011 and all 2010 interim financial statements.
(2) On January 13, 2012, TDS shareholders approved a Share Consolidation Amendment to the Restated Certificate of
Incorporation of TDS. Shares outstanding at December 31, 2011, as well as average basic and diluted shares outstanding
used to calculate earnings per share as of the beginning of all periods presented, have been retroactively restated to reflect
the impact of the increased shares outstanding as a result of the Share Consolidation Amendment. See Note 21—Subsequent
Events for additional information.
(3)
The high, low and closing sales prices as reported by the New York Stock Exchange (‘‘NYSE’’).
(4) Dividends paid reflects the amount paid per share outstanding at the date the dividend was declared and has not been
retroactively adjusted to reflect the impact of the Share Consolidation Amendment approved by TDS shareholders on
January 13, 2012.
108
Telephone and Data Systems, Inc. and Subsidiaries
CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
(5) During the quarter ended December 31, 2010, TDS recorded adjustments to reduce its liability for transactional taxes in the
amount of $5.8 million. Of this amount, $2.7 million and $3.1 million reduced Selling, general and administrative expenses
and Interest expense, respectively, in the quarter ended December 31, 2010. These transactional taxes related to periods from
2002 through the first quarter of 2010. This adjustment reflects a change in TDS’ estimate of its liability for transactional taxes
and interest and the actual amounts due and settled with the taxing authorities of taxes and interest.
(6) During the quarter ended December 31, 2011, TDS recorded an immaterial adjustment to correct its liabilities and prepaid
expense related to property taxes for errors occurring primarily prior to 2009. This adjustment reduced Selling, general and
administrative expenses by $5.4 million in the quarter. TDS also recorded an immaterial adjustment to correct its deferred tax
balances related to a difference in the tax basis in certain partnerships for errors occurring prior to 2009. This adjustment
increased Income tax expense by $6.0 million in the quarter. TDS also recorded other immaterial adjustments to correct errors
in prior periods which, together with the foregoing adjustments, reduced Net income (loss) attributable to TDS shareholders
by a net of $5.4 million. The correction of such errors in the fourth quarter of 2011 did not have a material effect on any prior
periods, the full year ended December 31, 2011, or the trend in earnings.
109
Telephone and Data Systems, Inc. and Subsidiaries
SHAREHOLDER INFORMATION
Stock and dividend information
TDS’ Common Shares are listed on the New York Stock Exchange (‘‘NYSE’’) under the symbol ‘‘TDS.’’
TDS’ Special Common Shares are listed on the NYSE under the symbol ‘‘TDS.S’’ through January 24,
2012. Effective January 25, 2012, the Special Common Shares began trading as Common Shares, as
further discussed in Note 21—Subsequent Events in the Notes to the Consolidated Financial Statements.
As of January 31, 2012, the last trading day of the month, TDS Common Shares were held by 1,687
record owners, and the Series A Common Shares were held by 76 record owners.
TDS has paid cash dividends on its common stock since 1974, and paid dividends of $0.47 per
Common, Special Common and Series A Common Share during 2011. During 2010, TDS paid dividends
of $0.45 per Common, Special Common and Series A Common Share. These dividends per share
amounts have not been retroactively adjusted to reflect the impact of the Share Consolidation
Amendment. See Note 21—Subsequent Events in the Notes to Consolidated Financial Statements for
additional information.
The Common Shares of United States Cellular Corporation, an 84%-owned subsidiary of TDS, are listed
on the NYSE under the symbol ‘‘USM.’’
See ‘‘Consolidated Quarterly Information (Unaudited)’’ for information on the high and low trading prices
of the TDS Common Shares and TDS Special Common Shares for 2011 and 2010.
Stock performance graph
The following chart provides a comparison of TDS’ cumulative total return to shareholders (stock price
appreciation plus dividends) during the previous five years to the returns of the Standard & Poor’s 500
Composite Stock Price Index and the Dow Jones U.S. Telecommunications Index. As of December 31,
2011, the Dow Jones U.S. Telecommunications Index was composed of the following companies:
AboveNet Inc., AT&T Inc., CenturyLink Inc., Cincinnati Bell Inc., Crown Castle International Corp., Frontier
Communications Corp., Leap Wireless International Inc., Leucadia National Corp., Level 3
Communications Inc., MetroPCS Communications Inc., NII Holdings Inc., SBA Communications Corp.,
Sprint Nextel Corp., Telephone and Data Systems, Inc. (TDS and TDS.S), TW Telecom, Inc., United
States Cellular Corporation, Verizon Communications Inc., Virgin Media Inc. and Windstream Corp.
$200
$150
$100
$50
$0
2006
2007
2008
2009
2010
2011
TDS Common Shares
TDS Special Common Shares
S&P 500 Index
Dow Jones U.S. Telecommunications Index
18FEB201212401285
*
Cumulative total return assumes reinvestment of dividends.
110
Telephone and Data Systems, Inc. and Subsidiaries
SHAREHOLDER INFORMATION
2006
2007
2008
2009
2010
2011
Telephone and Data Systems Common Shares
(NYSE: TDS) . . . . . . . . . . . . . . . . . . . . . . . . . .
$100
$115.94
$59.46
$64.44
$70.38
$50.73
Telephone and Data Systems Special Common
Shares (NYSE: TDS.S) . . . . . . . . . . . . . . . . . . .
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . .
Dow Jones U.S. Telecommunications Index . . . . .
100
100
100
116.90
105.49
110.04
57.68
66.46
73.80
62.99
84.05
81.07
66.77
96.71
95.45
51.42
98.76
99.24
Assumes $100.00 invested at the close of trading on the last trading day preceding the first day of 2006,
in TDS Common Shares, TDS Special Common Shares, S&P 500 Index and the Dow Jones U.S.
Telecommunications Index.
Dividend reinvestment plan
TDS’ dividend reinvestment plans provide its common and preferred shareholders with a convenient and
economical way to participate in the future growth of TDS. Common and Preferred shareholders of
record owning ten (10) or more shares may purchase Common Shares with their reinvested dividends at
a five percent discount from market price. Shares may also be purchased, at market price, on a monthly
basis through optional cash payments. The initial ten (10) shares cannot be purchased directly from
TDS. An authorization card and prospectus will be mailed automatically by the transfer agent to all
registered record holders with ten (10) or more shares. Once enrolled in the plan, there are no
brokerage commissions or service charges for purchases made under the plan.
111
Telephone and Data Systems, Inc. and Subsidiaries
SHAREHOLDER INFORMATION
Investor relations
TDS’ annual report, SEC filings and news releases are available to investors, securities analysts and
other members of the investment community. These reports are provided, without charge, upon request
to our Corporate Office. Investors may also access these and other reports through the Investor
Relations portion of the TDS website (www.teldta.com).
Questions regarding lost, stolen or destroyed certificates, consolidation of accounts, transferring of
shares and name or address changes should be directed to:
Julie Mathews, Manager—Investor Relations
Telephone and Data Systems, Inc.
30 North LaSalle Street, Suite 4000
Chicago, IL 60602
312.592.5341
312.630.9299 (fax)
julie.mathews@teldta.com
General inquiries by investors, securities analysts and other members of the investment community
should be directed to:
Jane W. McCahon, Vice President—Corporate Relations
Telephone and Data Systems, Inc.
30 North LaSalle Street, Suite 4000
Chicago, IL 60602
312.592.5379
312.630.9299 (fax)
jane.mccahon@teldta.com
Directors and executive officers
See ‘‘Election of Directors’’ and ‘‘Executive Officers’’ sections of the Proxy Statement issued in 2012 for
the 2012 Annual Meeting.
Principal counsel
Sidley Austin LLP, Chicago, Illinois
Transfer agent
ComputerShare Trust Company, N.A.
250 Royall St.
Canton, MA 02021
877.337.1575
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Visit TDS’ web site at www.teldta.com
112
2011 PerformanCe HigHligHTS
oPeraTing revenUeS
by bUSineSS UniT
(in billions)
$6.0
$5.0
$4.8
$5.1
$5.0
$5.0
$5.2
$4.0
$3.0
$2.0
$1.0
0
CaPiTal exPenDiTUreS
by bUSineSS UniT
(in millions)
$987
$700
$735
$671
$755
$1,000
$800
$600
$400
$200
0
07
08
09
10
11
07
08
09
10
11
U.S. Cellular
TDS Telecom
Other
U.S. Cellular
TDS Telecom
Other
CaSH flowS from
oPeraTing aCTiviTieS
(in millions)
DebT-To-eqUiTy raTio
$1,200
$1,255
60%
$1,000
$1,097
$1,076
$800
$600
$400
$200
0
40%
41.7%
43.5%
39.7%
39.3%
38.6%
20%
0
09
10
11
07
08
09
10
11
In its Annual Report on Form 10-K for the year
ended Dec. 31, 2011, TDS revised cash flows from
operating activities for the years ended Dec. 31,
2010 and Dec. 31, 2009. This chart includes only
the periods that have been revised to reflect the
proper amounts.
We provide outstanding communications services
to our customers and meet the needs of our
shareholders, our people and our communities.
• Fortune 500® company
• Focus on long-term value creation
• Annual dividend increases for 38 consecutive years
• Strong balance sheet and ample liquidity
• Investment-grade debt ratings
Telephone and Data Systems headquarters, Chicago, IL
U.S. Cellular operations
TDS Telecom operations
Hosted and managed services facilities
U.S. CellUlar
TDS TeleCom
Providing the best customer experience in wireless
• Rewards Program to get new phones faster, plus free
accessories, ringtones and more
• Plans to fit every lifestyle—from single lines, to family plans,
to prepaid plans. Our plans are the best value in wireless.
• The highest call quality and network satisfaction of any
national carrier
• The latest Android®-, Windows Mobile®- and BlackBerry®-
based devices, from smartphones and tablets to messaging
phones and feature phones
• Top-notch customer service—customers can just call,
click or come into one of our stores
Trusted provider of voice, video and broadband
services to residential and commercial customers
• Superior service and high-quality, reliable network
• Innovative voice, video and high-speed broadband
services
• Value-oriented service bundles for residential customers
• Comprehensive managedIP voice and data
communication solutions and full suite of hosted and
managed services for businesses
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2011 Annual Report
www.teldta.com
Officers
bOard Of directOrs
LeRoy T. Carlson, Jr.
President and
Chief Executive Officer
Kenneth R. Meyers
Executive Vice President and
Chief Financial Officer
Joseph R. Hanley
Senior Vice President -
Technology, Services and
Strategy
Peter L. Sereda
Senior Vice President - Finance
and Treasurer
Douglas D. Shuma
Senior Vice President and
Controller
Kurt B. Thaus
Senior Vice President and
Chief Information Officer
Scott H. Williamson
Senior Vice President -
Acquisitions and Corporate
Development
LeRoy T. Carlson
Chairman Emeritus
Douglas W. Chambers
Assistant Controller
Kevin C. Gallagher
Vice President and
Corporate Secretary
David D. Gillman
Assistant Controller - Tax
C. Theodore Herbert
Vice President -
Human Resources
Frieda E. Ireland
Vice President -
Internal Audit
Kenneth M. Kotylo
Vice President -
Acquisitions and Corporate
Development
Jane W. McCahon
Vice President -
Corporate Relations
Laurie A. Ruchti
Vice President -
IT Strategy, Architecture
and Quality
John M. Toomey
Assistant Treasurer
Byron A. Wertz
Vice President -
Corporate Development
Theodore E. Wiessing
Vice President and
Chief Information Security
Officer
Walter C.D. Carlson
Chairman of the Board
(non-executive), TDS
Partner, Sidley Austin LLP
Chairman, Corporate
Governance and Nominating
Committee
LeRoy T. Carlson, Jr.
President and
Chief Executive Officer, TDS
Member, Corporate Governance
and Nominating Committee
Kenneth R. Meyers
Executive Vice President and
Chief Financial Officer, TDS
Letitia G. Carlson, MD
Physician and Associate
Clinical Professor,
George Washington University
Medical Center
Prudence E. Carlson
Private Investor
Clarence A. Davis
Consultant
Member, Audit Committee
Donald C. Nebergall
Consultant
Member, Audit Committee
George W. Off
Private Investor
Chairman, Audit Committee
Member, Compensation
Committee
Christopher D. O´Leary
Executive Vice President and
Chief Operating Officer -
International, General Mills, Inc.
Member, Compensation
Committee
Mitchell H. Saranow
Chairman, The Saranow
Group, LLC
Member, Audit Committee
Member, Corporate
Governance and Nominating
Committee
Gary L. Sugarman
Executive Chairman,
FXecosystem, Inc., and
Managing Member,
Richfield Capital Partners
Herbert S. Wander
Partner, Katten Muchin
Rosenman LLP
Chairman, Compensation
Committee
Member, Audit Committee
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