TDS Reports Second-Quarter 2007 Operating Results; Strong Wireless Results
CHICAGO, Aug. 7 /PRNewswire-FirstCall/ — Telephone and Data Systems, Inc. reported operating revenues of $1,192.8 million for the second quarter of 2007, up 12 percent from $1,068.7 million for the comparable period one year ago. The company recorded operating income of $154 million, up 43.5 percent compared to $107.3 million for the second quarter of 2006. Net loss available to common and diluted loss per share were $8.6 million and $.08, respectively, compared to net income and diluted earnings per share of $166.7 million and $1.43, respectively, for the comparable period one year ago.
Second Quarter Highlights — The total number of U.S. Cellular customers increased 5.4 percent year over year to 6,010,000. The number of retail customers increased 6.8 percent to 5,448,000. — U.S. Cellular average monthly revenue per unit (ARPU) increased 8.3 percent to $50.42. — U.S. Cellular total revenues grew 14.8 percent to $971.6 million. — U.S. Cellular data revenues grew 77.2 percent to $85.4 million, 9.4 percent of service revenues. — TDS Telecom equivalent access lines (ILEC and CLEC) increased 1% percent to 1,209,600. — TDS Telecom digital subscriber line customers (ILEC and CLEC) increased 38.2 percent to 171,200. ILEC DSL customers increased 51.7 percent. — Fair value adjustment of derivative instruments was a loss of $358.1 million. — TDS repurchased 217,280 special common shares for $12.6 million or $57.80 per share. The Board of Directors has authorized repurchases up to $250 million of TDS special common shares.
“U.S. Cellular had an exceptional quarter,” said LeRoy T. Carlson, Jr., TDS president and chief executive officer. “Total revenues grew 15 percent and margins expanded significantly. ARPU increased quarter to quarter for a sixth consecutive time.
“Focusing on its strategy of delivering high levels of customer satisfaction consistently, resulted in U.S. Cellular recording 1.4 percent retail postpay customer churn in the quarter, amongst the lowest in the industry.
“TDS Telecom continued to grow its digital subscriber lines with lines up 52 percent at its ILEC. Growing digital subscriber lines supports TDS Telecom’s objective of positioning itself as the preferred broadband provider in its markets. TDS Telecom has been aggressively bundling DSL with other popular service offerings such as satellite television and long distance services, as bundling has proven to be an effective means to attract and retain customers.”
Forward Contracts
The TDS VeriSign common shares and U.S. Cellular Vodafone ADR forward contracts matured in May 2007. TDS and U.S. Cellular delivered the common shares and ADR’s in settlement of the forward contracts and sold the remaining shares and ADR’s. TDS recorded a pre-tax gain of $137.9 million on settlement of the forward contracts and disposition of the remaining shares.
Guidance
Guidance for the year ending Dec. 31, 2007 is as follows. There can be no assurance that final results will not differ materially from this guidance.
U.S. Cellular 2007 guidance as of Aug. 7, 2007 is as follows: Net Retail Customer Additions 375,000 – 425,000 Service Revenues Approx. $3.6 billion Operating Income $395 – $445 million Depreciation, Amortization & Accretion Approx. $615 million Capital Expenditures $600 – $615 million TDS Telecom (ILEC and CLEC) 2007 guidance as of Aug. 7, 2007 is as follows: Operating Revenues $850 – $880 million Operating Income $130 – $150 million Depreciation and Amortization $155 million Capital Expenditures $120 – $140 million
As previously announced, TDS will hold a teleconference Aug. 7, 2007, at 10:00 a.m. Chicago time. Interested parties may listen to the call live over the Internet by accessing http://www.videonewswire.com/event.asp?id=41601 or the conference call page of the Investor Relations section of http://www.teldta.com/. You can also connect to the teleconference by telephone (US/Canada) at (800)706 -9695 with a conference ID # 11759028. The conference call will be archived on the conference call section of the TDS web site at http://www.teldta.com/.
Prior to the start of the call, certain financial and statistical information discussed during the conference call comments will be posted to the web site, together with reconciliations to generally accepted accounting principles (GAAP) of any non-GAAP information to be disclosed. Investors may access this additional information on the conference call page of the Investor Relations section of the TDS web site.
About TDS
TDS is a diversified telecommunications corporation founded in 1969. Through its business units, U.S. Cellular and TDS Telecom, TDS operates primarily by providing wireless, local telephone and broadband services. As of June 30, 2007, the company employed 11,600 people and served 7.2 million customers/units in 36 states.
About U.S. Cellular
As of June 30, 2007, U.S. Cellular Corporation, the nation’s sixth-largest network wireless service carrier, employed 8,100 associates and provided wireless service to 6 million customers in 26 states. The Chicago-based company operates on a customer satisfaction strategy, meeting customer needs by providing a comprehensive range of wireless products and services, superior customer support, and a high-quality network.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company’s plans, beliefs, estimates and expectations. These statements are based on current estimates, projections and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: The ability of U.S. Cellular to successfully manage and grow the operations of newly launched markets; changes in the overall economy; changes in competition in the markets in which U.S. Cellular and TDS Telecom operate; changes due to industry consolidation; advances in telecommunications technology, including Voice over Internet Protocol; changes to access and pricing of unbundled network elements; changes in the state and federal telecommunications regulatory environment; changes in the value of assets; changes in the value of investments, including variable prepaid forward contracts; an adverse change in the ratings afforded TDS and U.S. Cellular debt securities by accredited ratings organizations; uncertainty of access to the capital markets; risks and uncertainties relating to restatements and possible future restatements; ability to remediate material weaknesses; pending and future litigation; acquisitions/ divestitures of properties and/or licenses; and changes in customer growth rates, average monthly revenue per unit, churn rates, roaming terms and the mix of products and services offered in U.S. Cellular and TDS Telecom markets. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K used by TDS to furnish this press release to the SEC, which are incorporated by reference herein.
For more information about TDS and its subsidiaries, visit the web sites at:
TDS: http://www.teldta.com/ TDS Telecom: http://www.tdstelecom.com/ USM: http://www.uscellular.com/
As previously announced, TDS will hold a teleconference Aug. 7, 2007, at 10:00 a.m. Chicago time. Interested parties may listen to the call live over the Internet by accessing the conference call page of the Investor Relations section of http://www.teldta.com/.
TELEPHONE AND DATA SYSTEMS, INC. SUMMARY OPERATING DATA Quarter Ended 6/30/2007 3/31/2007 12/31/2006 9/30/2006 6/30/2006 Consolidated Markets: Total population (000s) (1) 81,581 56,048 55,543 55,543 55,543 All customers – Customer units 6,010,000 5,973,000 5,815,000 5,729,000 5,704,000 Gross customer unit activations 418,000 459,000 389,000 365,000 347,000 Net customer unit activations 37,000 152,000 86,000 25,000 48,000 Market penetration(1) 7.4% 10.7% 10.5% 10.3% 10.3% Retail customers – Customer units 5,448,000 5,377,000 5,225,000 5,127,000 5,099,000 Gross customer unit activations 347,000 397,000 375,000 353,000 331,000 Net customer unit activations 71,000 146,000 98,000 28,000 49,000 Cell sites in service 6,140 6,004 5,925 5,726 5,583 Average monthly revenue per unit (2) $50.42 $48.69 $48.15 $47.93 $46.54 Retail service revenue per unit (2) $43.87 $42.69 $42.21 $41.75 $40.92 Inbound roaming revenue per unit (2) $2.68 $2.33 $2.34 $2.55 $2.28 Long-distance/other revenue per unit (2) $3.87 $3.67 $3.60 $3.63 $3.34 Minutes of use (MOU) (3) 858 783 749 725 719 Retail postpay churn rate per month (4) 1.4% 1.3% 1.5% 1.7% 1.6% Capital Expenditures (000s) $137,100 $109,700 $158,400 $152,800 $151,400 (1) Market penetration is calculated using 2006 Claritas population estimates for all periods of 2007 and 2005 Claritas estimates for all periods of 2006. “Total population” represents the total population of each of U.S. Cellular’s consolidated markets, regardless of whether the market has begun marketing operations (without duplication of population in overlapping markets). The population of markets in which U.S. Cellular has deferred the transfer of licenses from AT&T Wireless Services, Inc. is not included in the total population counts for any period. In the quarter ended 6/30/07, the FCC granted Barat Wireless’ applications with respect to the 17 licenses for which it was the winning bidder in Auction 66. (2) Per unit revenue measurements are derived from Service Revenues as reported in Financial Highlights for each respective quarter as follows: Service Revenues per Financial Highlights $906,218 $860,583 $831,663 $821,820 $791,705 Components: Retail service revenue during quarter $788,535 $754,515 $729,072 $715,896 $696,079 Inbound roaming revenue during quarter $48,084 $41,268 $40,354 $43,806 $38,745 Long-distance/other revenue during quarter $69,599 $64,800 $62,237 $62,118 $56,881 Divided by average customers during quarter (000s) 5,991 5,892 5,757 5,716 5,670 Divided by three months in each quarter 3 3 3 3 3 Average monthly revenue per unit $50.42 $48.69 $48.15 $47.93 $46.54 Retail service revenue per unit $43.87 $42.69 $42.21 $41.75 $40.92 Inbound roaming revenue per unit $2.68 $2.33 $2.34 $2.55 $2.28 Long-distance/other revenue per unit $3.87 $3.67 $3.60 $3.63 $3.34 (3) Average monthly local minutes of use per customer (without roaming). (4) Retail postpay churn rate per month is calculated by dividing the average monthly customer disconnects during the quarter by the average customer base for the quarter. TELEPHONE AND DATA SYSTEMS, INC. SUMMARY OPERATING DATA Quarter Ended 6/30/ 3/31/ 12/31/ 9/30/ 6/30/ 2007 2007 2006 2006 2006 TDS Telecom ILEC: Access line equivalents (1) 761,200 763,400 757,300 752,100 747,500 Access lines 601,600 610,300 616,500 622,700 628,600 Dial-up Internet service accounts 65,800 71,100 77,100 82,200 86,800 Digital Subscriber Lines (DSL) customers 127,400 118,000 105,100 94,100 84,000 Long Distance customers 346,500 343,800 340,000 335,100 331,300 Capital Expenditures (000s) $30,900 $16,100 $39,400 $27,000 $29,700 CLEC: Access line equivalents (1) 448,400 456,200 456,200 452,900 450,900 Dial-up Internet service accounts 8,800 10,200 10,200 11,000 11,800 Percent of access lines on- switch 93.7% 93.3% 93.0% 92.6% 92.2% Digital Subscriber Lines (DSL) customers 43,800 42,600 42,100 41,000 39,900 Capital Expenditures (000s) $4,800 $2,500 $5,700 $4,500 $4,400 (1) Access line equivalents are derived by converting high capacity data lines to the estimated capacity of one switched access line. TELEPHONE AND DATA SYSTEMS, INC. FINANCIAL HIGHLIGHTS Three Months Ended June 30, (Unaudited, dollars in thousands, except per share amounts) Increase (Decrease) 2007 2006 Amount Percent Operating Revenues U.S. Cellular $971,646 $846,137 $125,509 14.8% TDS Telecom 216,301 218,284 (1,983) (0.9%) All Other (1) 4,887 4,266 621 14.6% 1,192,834 1,068,687 124,147 11.6% Operating Expenses U.S. Cellular Expenses excluding depreciation, amortization and accretion 699,318 626,740 72,578 11.6% Depreciation, amortization and accretion 148,856 140,486 8,370 6.0% 848,174 767,226 80,948 10.6% TDS Telecom Expenses excluding depreciation and amortization 144,805 148,386 (3,581) (2.4%) Depreciation, amortization and accretion 38,444 39,257 (813) (2.1%) 183,249 187,643 (4,394) (2.3%) All Other (1) Expenses excluding depreciation and amortization 4,228 5,799 (1,571) (27.1%) Depreciation and amortization 3,228 710 2,518 N/M 7,456 6,509 947 14.5% Total Operating Expenses 1,038,879 961,378 77,501 8.1% Operating Income (Loss) U.S. Cellular 123,472 78,911 44,561 56.5% TDS Telecom 33,052 30,641 2,411 7.9% All Other (1) (2,569) (2,243) (326) 14.5% 153,955 107,309 46,646 43.5% Investment and Other Income (Expense) Equity in earnings of unconsolidated entities 23,875 22,491 1,384 6.2% Interest and dividend income 147,768 146,545 1,223 0.8% Fair value adjustment of derivative instruments (358,119) (11,768) (346,351) N/M Gain on investments 137,920 91,418 46,502 50.9% Interest expense (55,245) (59,288) 4,043 6.8% Other income (expense) (1,868) (941) (927) 98.5% (105,669) 188,457 (294,126) N/M Income Before Income Taxes and Minority Interest 48,286 295,766 (247,480) (83.7%) Income tax expense 26,700 117,186 (90,486) (77.2%) Income Before Minority Interest 21,586 178,580 (156,994) (87.9%) Minority share of income (30,213) (11,821) (18,392) N/M Net Income (8,627) 166,759 (175,386) N/M Preferred dividend requirement (13) (50) 37 N/M Net Income Available to Common $(8,640) $166,709 $(175,349) N/M Basic Weighted Average Common Shares Outstanding (000s) 117,031 115,768 1,263 1.1% Basic Earnings Per Share ($0.07) $1.44 $(1.51) N/M Diluted Weighted Average Common Shares Outstanding (000s) 117,031 116,640 391 0.3% Diluted Earnings Per Share ($0.08) $1.43 $(1.51) N/M (1) Consists of Suttle Straus printing and distribution operations and intercompany eliminations. N/M – Percentage change not meaningful TELEPHONE AND DATA SYSTEMS, INC. FINANCIAL HIGHLIGHTS Six Months Ended June 30, (Unaudited, dollars in thousands, except per share amounts) Increase (Decrease) 2007 2006 Amount Percent Operating Revenues U.S. Cellular $1,906,320 $1,682,513 $223,807 13.3% TDS Telecom 433,923 437,293 (3,370) (0.8%) All Other (1) 9,148 7,958 1,190 15.0% 2,349,391 2,127,764 221,627 10.4% Operating Expenses U.S. Cellular Expenses excluding depreciation, amortization and accretion 1,376,212 1,251,078 125,134 10.0% Depreciation, amortization and accretion 298,113 282,511 15,602 5.5% 1,674,325 1,533,589 140,736 9.2% TDS Telecom Expenses excluding depreciation and amortization 285,001 288,790 (3,789) (1.3%) Depreciation, amortization and accretion 78,349 79,487 (1,138) (1.4%) 363,350 368,277 (4,927) (1.3%) All Other (1) Expenses excluding depreciation and amortization 9,588 9,984 (396) (4.0%) Depreciation and amortization 5,376 1,421 3,955 N/M 14,964 11,405 3,559 31.2% Total Operating Expenses 2,052,639 1,913,271 139,368 7.3% Operating Income (Loss) U.S. Cellular 231,995 148,924 83,071 55.8% TDS Telecom 70,573 69,016 1,557 2.3% All Other (1) (5,816) (3,447) (2,369) 68.7% 296,752 214,493 82,259 38.4% Investment and Other Income (Expense) Equity in earnings of unconsolidated entities 47,571 42,296 5,275 12.5% Interest and dividend income 163,964 158,028 5,936 3.8% Fair value adjustment of derivative instruments (102,249) (11,738) (90,511) N/M Gain on investments 137,920 91,418 46,502 50.9% Interest expense (113,046) (117,820) 4,774 4.1% Other income (expense) (4,092) (1,868) (2,224) N/M 130,068 160,316 (30,248) (18.9%) Income Before Income Taxes and Minority Interest 426,820 374,809 52,011 13.9% Income tax expense 167,938 149,528 18,410 12.3% Income Before Minority Interest 258,882 225,281 33,601 14.9% Minority share of income (48,184) (22,525) (25,659) N/M Net Income 210,698 202,756 7,942 3.9% Preferred dividend requirement (26) (101) 75 N/M Net Income Available to Common $210,672 $202,655 $8,017 4.0% Basic Weighted Average Common Shares Outstanding (000s) 116,935 115,754 1,181 1.0% Basic Earnings (Loss) Per Share $1.80 $1.75 $0.05 2.9% Diluted Weighted Average Common Shares Outstanding (000s) 118,432 116,576 1,856 1.6% Diluted Earnings (Loss) Per Share $1.76 $1.73 $0.03 1.7% (1) Consists of Suttle Straus printing and distribution operations and intercompany eliminations. N/M – Percentage change not meaningful TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED BALANCE SHEET HIGHLIGHTS (Unaudited, dollars in thousands) ASSETS June 30, December 31, 2007 2006 Current Assets Cash and cash equivalents $1,303,231 $1,013,325 Marketable equity securities 2,175,667 1,205,344 Accounts receivable from customers and other 533,167 520,167 Materials and supplies, at average cost 130,973 128,981 Other current assets 77,060 105,267 4,220,098 2,973,084 Investments Licenses 1,530,635 1,520,407 Goodwill 667,822 647,853 Customer lists 29,759 26,196 Marketable equity securities 363,426 1,585,286 Investments in unconsolidated entities 204,180 197,636 Other investments 11,077 11,073 2,806,899 3,988,451 Property, Plant and Equipment, net U.S. Cellular 2,598,004 2,628,848 TDS Telecom 897,351 920,350 Other 32,999 32,188 3,528,354 3,581,386 Other Assets and Deferred Charges 53,348 56,593 Total Assets $10,608,699 $10,599,514 LIABILITIES AND STOCKHOLDERS’ EQUITY June 30, December 31, 2007 2006 Current Liabilities Current portion of long-term debt $1,345,774 $741,325 Derivative Liability 653,334 359,970 Notes payable — 35,000 Accounts payable 294,709 294,932 Customer deposits and deferred revenues 160,935 141,164 Accrued taxes 102,472 38,324 Accrued compensation 58,922 72,804 Deferred taxes 439,070 236,397 Other current liabilities 147,742 164,815 3,202,958 2,084,731 Deferred Liabilities and Credits Net deferred income tax liability 640,789 950,348 Derivative Liability 78,707 393,776 Other deferred liabilities and credits 382,295 369,045 1,101,791 1,713,169 Long-term Debt 1,846,340 2,620,609 Minority Interest in Subsidiaries 640,542 609,722 Preferred Shares 860 863 Common Stockholders’ Equity Common Shares, $.01 par value 566 566 Special Common Shares, $.01 par value 629 629 Series A Common Shares, $.01 par value 64 64 Capital in excess of par value 2,018,601 1,992,597 Treasury Shares, at cost Common Shares (149,463) (187,103) Special Common Shares (135,778) (187,016) Accumulated other comprehensive income 508,668 522,113 Retained earnings 1,572,921 1,428,570 3,816,208 3,570,420 Total Liabilities and Stockholders’ Equity $10,608,699 $10,599,514 BALANCE SHEET HIGHLIGHTS JUNE 30, 2007 (Unaudited, dollars in thousands) TDS U.S. TDS Corporate Intercompany TDS Cellular Telecom & Other Eliminations Consolidated Cash and cash equivalents $146,082 $425,655 $731,494 $— $1,303,231 Affiliated cash investments — 620,419 — (620,419) — Marketable equity securities — 79,467 2,096,200 — 2,175,667 Notes receivable — affiliates — — 289,582 (289,582) — $146,082 $1,125,541 $3,117,276 $(910,001) $3,478,898 Licenses, goodwill and customer lists $2,012,789 $401,711 $(186,284) $— $2,228,216 Marketable equity securities 16,248 15,278 331,900 — 363,426 Investment in unconsolidated entities 155,514 3,671 50,737 (5,742) 204,180 Other investments 4,482 2,780 3,815 — 11,077 $2,189,033 $423,440 $200,168 $(5,742) $2,806,899 Property, Plant and Equipment, net $2,598,004 $897,351 $32,999 $— $3,528,354 Notes payable: external $— $— $— $— $— cash management — — 620,419 (620,419) — intercompany — 289,582 — (289,582) — $— $289,582 $620,419 $(910,001) $— Forward contracts: Current portion $— $41,182 $1,301,625 $— $1,342,807 Non-current portion — — 211,575 — 211,575 Total $— $41,182 $1,513,200 $— $1,554,382 Long-term Debt: Current portion $— $474 $2,493 $— $2,967 Non-current portion 1,002,066 3,456 629,243 — 1,634,765 Total $1,002,066 $3,930 $631,736 $— $1,637,732 Preferred Shares $— $— $860 $— $860 Construction expenditures: Quarter ended 6/30/07 $137,061 $35,620 $1,782 $174,463 Six months ended 6/30/07 $246,790 $54,258 $4,381 $305,429 TDS Telecom Highlights Three Months Ended June 30, (Unaudited, dollars in thousands) Increase (Decrease) 2007 2006 Amount Percent Local Telephone Operations Operating Revenues Local service $48,741 $50,179 $(1,438) (2.9%) Network access and long- distance 85,500 88,721 (3,221) (3.6%) Miscellaneous 24,862 23,060 1,802 7.8% 159,103 161,960 (2,857) (1.8%) Operating Expenses Cost of services and products 50,717 47,479 3,238 6.8% Selling, general and administrative expenses 44,060 47,138 (3,078) (6.5%) Depreciation, amortization and accretion 32,224 33,252 (1,028) (3.1%) 127,001 127,869 (868) (0.7%) Operating Income $32,102 $34,091 $(1,989) (5.8%) Competitive Local Exchange Carrier Operations Revenues $58,767 $57,734 $1,033 1.8% Expenses excluding depreciation and amortization 51,597 55,179 (3,582) (6.5%) Depreciation, amortization and accretion 6,220 6,005 215 3.6% 57,817 61,184 (3,367) (5.5%) Operating Income (Loss) $950 $(3,450) $4,400 N/M Intercompany revenues $(1,569) $(1,410) $(159) N/M Intercompany expenses (1,569) (1,410) (159) N/M — — — Total TDS Telecom Operating Income $33,052 $30,641 $2,411 7.9% N/M – Percentage change not meaningful. TDS Telecom Highlights Six Months Ended June 30, (Unaudited, dollars in thousands) Increase (Decrease) 2007 2006 Amount Percent Local Telephone Operations Operating Revenues Local service $98,383 $100,731 $(2,348) (2.3%) Network access and long- distance 170,758 177,978 (7,220) (4.1%) Miscellaneous 47,554 44,277 3,277 7.4% 316,695 322,986 (6,291) (1.9%) Operating Expenses Cost of services and products 99,814 93,558 6,256 6.7% Selling, general and administrative expenses 85,919 91,185 (5,266) (5.8%) Depreciation, amortization and accretion 66,270 66,828 (558) (0.8%) 252,003 251,571 432 0.2% Operating Income $64,692 $71,415 $(6,723) (9.4%) Competitive Local Exchange Carrier Operations Revenues $120,117 $117,229 $2,888 2.5% Expenses excluding depreciation and amortization 102,157 106,969 (4,812) (4.5%) Depreciation, amortization and accretion 12,079 12,659 (580) (4.6%) 114,236 119,628 (5,392) (4.5%) Operating Income (Loss) $5,881 $(2,399) $8,280 N/M Intercompany revenues $(2,889) $(2,922) $33 N/M Intercompany expenses (2,889) (2,922) 33 N/M — — — Total TDS Telecom Operating Income $70,573 $69,016 $1,557 2.3% N/M – Percentage change not meaningful.
Telephone and Data Systems, Inc.
CONTACT: Mark A. Steinkrauss, Vice President, Corporate Relations,+1-312-592-5384, mark.steinkrauss@teldta.com, or Julie D. Mathews, Manager,Investor Relations, +1-312-592-5341, julie.mathews@teldta.com, both ofTelephone and Data Systems, Inc.
Web site: http://www.teldta.com/