Edgar Filing: TELEPHONE & DATA SYSTEMS INC /DE/

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-14157

TELEPHONE AND DATA SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

36-2669023

(I.R.S. Employer Identification No.)

30 North LaSalle Street, Chicago, Illinois 60602

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (312) 630-1900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

(Do not check if a smaller reporting company)

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Class		Outstanding at June 30, 2011
	Common Shares, $.01 par value		49,937,250 Shares
	Special Common Shares, $.01 par value		46,859,323 Shares
	Series A Common Shares, $.01 par value		6,526,443 Shares

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Telephone and Data Systems, Inc.

Quarterly Report on Form 10-Q For the Quarterly Period Ended June 30, 2011


Index

				Page No.
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)

		Consolidated Statement of Operations
			Three and Six Months Ended June 30, 2011 and 2010	3

		Consolidated Statement of Cash Flows
			Six Months Ended June 30, 2011 and 2010	4

		Consolidated Balance Sheet
			June 30, 2011 and December 31, 2010	5

		Consolidated Statement of Changes in Equity
			Six Months Ended June 30, 2011 and 2010	7

		Consolidated Statement of Comprehensive Income
			Three and Six Months Ended June 30, 2011 and 2010	9

		Notes to Consolidated Financial Statements		10

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

		Overview		24
		Six Months Ended June 30, 2011 and 2010		30
			Results of Operations — Consolidated	30
			Results of Operations — Wireless	32
			Results of Operations — Wireline	37
		Three Months Ended June 30, 2011 and 2010		41
			Results of Operations — Consolidated	41
			Results of Operations — Wireless	42
			Results of Operations — Wireline	44
		Recent Accounting Pronouncements		46
		Financial Resources		47
		Liquidity and Capital Resources		49
		Application of Critical Accounting Policies and Estimates		53
		Safe Harbor Cautionary Statement		54

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		57

	Item 4.	Controls and Procedures		58

Part II.	Other Information

	Item 1.	Legal Proceedings		59

	Item 1A.	Risk Factors		59

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		60

	Item 5.	Other Information		61

	Item 6.	Exhibits		61

Signatures

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Part I. Financial Information Item 1. Financial Statements


Telephone and Data Systems, Inc.

Consolidated Statement of Operations Unaudited

			Three Months Ended June 30,						Six Months Ended June 30,
			Three Months Ended June 30,						Six Months Ended June 30,
(Dollars and shares in thousands, except per share amounts)			2011			2010			2011			2010


Operating revenues			$	1,279,640		$	1,232,219		$	2,538,321		$	2,454,654

Operating expenses
	Cost of services and products (excluding Depreciation, amortization and accretion expense reported below)			473,899			453,037			960,645			897,569
	Selling, general and administrative			482,103			501,329			973,209			982,416
	Depreciation, amortization and accretion			194,751			190,258			387,269			379,647
	Loss on asset disposals, net			3,238			1,214			4,381			6,645
		Total operating expenses		1,153,991			1,145,838			2,325,504			2,266,277

Operating income				125,649			86,381			212,817			188,377

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			22,590			25,997			41,978			50,900
	Interest and dividend income			2,093			2,674			4,717			5,115
	Gain on investment			13,373			—			13,373			—
	Interest expense			(45,417	)		(29,265	)		(73,516	)		(58,223	)
	Other, net			1,306			(1,929	)		1,386			(2,119	)
		Total investment and other income (expense)		(6,055	)		(2,523	)		(12,062	)		(4,327	)

Income before income taxes				119,594			83,858			200,755			184,050
	Income tax expense			10,916			31,469			39,833			69,392
Net income				108,678			52,389			160,922			114,658
Less: Net income attributable to noncontrolling interests, net of tax				(17,615	)		(12,102	)		(28,237	)		(25,957	)
Net income attributable to TDS shareholders				91,063			40,287			132,685			88,701
Preferred dividend requirement				(12	)		(12	)		(25	)		(25	)
Net income available to common shareholders			$	91,051		$	40,275		$	132,660		$	88,676

Basic weighted average shares outstanding				103,509			105,520			103,765			105,728
Basic earnings per share attributable to TDS shareholders			$	0.88		$	0.38		$	1.28		$	0.84

Diluted weighted average shares outstanding				104,062			105,907			104,301			106,071
Diluted earnings per share attributable to TDS shareholders			$	0.87		$	0.38		$	1.27		$	0.83

Dividends per share			$	0.1175		$	0.1125		$	0.2350		$	0.2250

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows (Unaudited)

				Six Months Ended June 30,
				Six Months Ended June 30,
(Dollars in thousands)				2011			2010


Cash flows from operating activities
	Net income			$	160,922		$	114,658
	Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
			Depreciation, amortization and accretion		387,269			379,647
			Bad debts expense		29,906			39,633
			Stock-based compensation expense		18,913			16,743
			Deferred income taxes, net		79,637			(28,881	)
			Equity in earnings of unconsolidated entities		(41,978	)		(50,900	)
			Distributions from unconsolidated entities		47,375			48,740
			Loss on asset disposals, net		4,381			6,645
			Gain on investment		(13,373	)		—
			Noncash interest expense		17,147			2,715
			Other operating activities		1,070			666
		Changes in assets and liabilities from operations
			Accounts receivable		(37,819	)		(20,985	)
			Inventory		(48,826	)		32,177
			Accounts payable		(448	)		(35,572	)
			Customer deposits and deferred revenues		22,600			4,217
			Accrued taxes		(2,345	)		24,209
			Accrued interest		2,945			102
			Other assets and liabilities		(89,713	)		(31,468	)
					537,663			502,346

Cash flows from investing activities
	Additions to property, plant and equipment				(338,711	)		(317,950	)
	Cash paid for acquisitions and licenses				(22,167	)		(28,264	)
	Cash paid for investments				(71,000	)		(385,000	)
	Cash received for investments				213,030			15,661
	Other investing activities				(816	)		1,479
					(219,664	)		(714,074	)

Cash flows from financing activities
	Repayment of long-term debt				(613,387	)		(1,280	)
	Issuance of long-term debt				643,700			—
	TDS Common Shares and Special Common Shares reissued for benefit plans, net of tax payments				1,055			845
	U.S. Cellular Common Shares reissued for benefit plans, net of tax payments				1,264			144
	Repurchase of TDS Common and Special Common Shares				(21,500	)		(31,092	)
	Repurchase of U.S. Cellular Common Shares				(62,308	)		(21,423	)
	Dividends paid				(24,343	)		(23,732	)
	Payment of debt issuance costs				(21,191	)		—
	Distributions to noncontrolling interests				(1,377	)		(4,314	)
	Other financing activities				2,077			65
					(96,010	)		(80,787	)

Cash classified as held for sale					(5,687	)		—

Net increase (decrease) in cash and cash equivalents					216,302			(292,515	)

Cash and cash equivalents
	Beginning of period				368,134			670,992
	End of period			$	584,436		$	378,477

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Assets (Unaudited)

(Dollars in thousands)			June 30, 2011		December 31, 2010
(Dollars in thousands)			June 30, 2011		December 31, 2010


Current assets
	Cash and cash equivalents		$	584,436	$	368,134
	Short-term investments			270,896		402,882
	Accounts receivable
		Due from customers and agents, less allowances of $24,465 and $28,859, respectively		365,676		378,976
		Other, less allowances of $5,543 and $6,148, respectively		153,426		133,970
	Inventory			165,156		116,330
	Net deferred income tax asset			47,970		37,079
	Prepaid expenses			89,997		76,935
	Income taxes receivable			63,978		64,386
	Other current assets			17,390		17,384
				1,758,925		1,596,076

Assets held for sale				53,910		—

Investments
	Licenses			1,462,926		1,460,126
	Goodwill			728,455		728,455
	Other intangible assets, net of accumulated amortization of $124,025 and $119,555, respectively			26,316		30,810
	Investments in unconsolidated entities			177,963		197,922
	Long-term investments			90,900		102,185
	Other investments			8,701		8,988
				2,495,261		2,528,486
Property, plant and equipment
	In service and under construction			9,675,106		9,393,385
	Less: Accumulated depreciation			6,157,168		5,835,051
				3,517,938		3,558,334

Other assets and deferred charges				94,874		79,623

Total assets			$	7,920,908	$	7,762,519

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Liabilities and Equity (Unaudited)

(Dollars and shares in thousands)				June 30, 2011			December 31, 2010
(Dollars and shares in thousands)				June 30, 2011			December 31, 2010


Current liabilities
	Current portion of long-term debt			$	1,919		$	1,711
	Accounts payable				344,026			344,355
	Customer deposits and deferred revenues				194,381			171,781
	Accrued interest				5,546			2,718
	Accrued taxes				44,830			46,110
	Accrued compensation				75,912			99,020
	Other current liabilities				97,122			144,938
					763,736			810,633

Liabilities held for sale					871			—

Deferred liabilities and credits
	Net deferred income tax liability				688,311			585,468
	Other deferred liabilities and credits				402,143			404,892

Long-term debt					1,530,369			1,499,862

Commitments and contingencies

Noncontrolling interests with redemption features					863			855

Equity
	TDS shareholders’ equity
		Series A Common, Special Common and Common Shares
			Authorized 290,000 shares (25,000 Series A Common, 165,000 Special Common and 100,000 Common Shares)
			Issued 127,061 shares (6,526 Series A Common, 63,442 Special Common and 57,093 Common Shares) and 127,045 shares (6,510 Series A Common, 63,442 Special Common and 57,093 Common Shares), respectively
			Outstanding 103,323 shares (6,526 Series A Common, 46,859 Special Common and 49,938 Common Shares) and 103,936 shares (6,510 Series A Common, 47,531 Special Common and 49,895 Common Shares), respectively
			Par Value ($.01 per share) ($65 Series A Common, $634 Special Common and $571 Common Shares)		1,270			1,270
		Capital in excess of par value			2,108,280			2,107,929
		Special Common and Common Treasury shares at cost:
			Treasury shares 23,738 (16,583 Special Common and 7,155 Common Shares) and 23,109 (15,911 Special Common and 7,198 Common Shares), respectively		(756,284	)		(738,695	)
		Accumulated other comprehensive loss			(2,972	)		(3,208	)
		Retained earnings			2,553,863			2,446,626
			Total TDS shareholders’ equity		3,904,157			3,813,922

	Preferred shares				830			830
	Noncontrolling interests				629,628			646,057

		Total equity			4,534,615			4,460,809

Total liabilities and equity				$	7,920,908		$	7,762,519

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc. Consolidated Statement of Changes in Equity (Unaudited)



	TDS Shareholders
(Dollars in thousands)	Series A Common, Special Common and Common Shares		Capital in Excess of Par Value			Special Common and Common Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total TDS Shareholders’ Equity			Preferred Shares		Noncontrolling Interests			Total Equity
December 31, 2010	$	1,270	$	2,107,929		$	(738,695	)	$	(3,208	)	$	2,446,626		$	3,813,922		$	830	$	646,057		$	4,460,809
Add (Deduct)
Net income attributable to TDS shareholders		—		—			—			—			132,685			132,685			—		—			132,685
Net income attributable to noncontrolling interests classified as equity		—		—			—			—			—			—			—		28,229			28,229
Net unrealized gain (loss) on equity investments		—		—			—			138			—			138			—		—			138
Changes related to retirement plan		—		—			—			98			—			98			—		—			98
Common, Special Common and Series A Common Shares dividends		—		—			—			—			(24,318	)		(24,318	)		—		—			(24,318	)
Preferred dividend requirement		—		—			—			—			(25	)		(25	)		—		—			(25	)
Repurchase of shares		—		—			(21,500	)		—			—			(21,500	)		—		—			(21,500	)
Dividend reinvestment plan		—		66			2,534			—			(649	)		1,951			—		—			1,951
Incentive and compensation plans		—		577			1,377			—			(456	)		1,498			—		—			1,498
Adjust investment in subsidiaries for repurchases, issuances, and other compensation plans		—		(8,133	)		—			—			—			(8,133	)		—		(43,281	)		(51,414	)
Stock-based compensation awards (a)		—		8,115			—			—			—			8,115			—		—			8,115
Tax windfall (shortfall) from stock awards (b)		—		(274	)		—			—			—			(274	)		—		—			(274	)
Distributions to noncontrolling interests		—		—			—			—			—			—			—		(1,377	)		(1,377	)
June 30, 2011	$	1,270	$	2,108,280		$	(756,284	)	$	(2,972	)	$	2,553,863		$	3,904,157		$	830	$	629,628		$	4,534,615

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Telephone and Data Systems, Inc. Consolidated Statement of Changes in Equity (Unaudited)

	TDS Shareholders
(Dollars in thousands)	Series A Common, Special Common and Common Shares		Capital in Excess of Par Value		Special Common and Common Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total TDS Shareholders’ Equity			Preferred Shares			Non controlling Interests			Total Equity
December 31, 2009	$	1,270	$	2,088,807	$	(681,649	)	$	(2,710	)	$	2,358,580		$	3,764,298		$	832		$	662,216		$	4,427,346
Add (Deduct)
Net income attributable to TDS shareholders		—		—		—			—			88,701			88,701			—			—			88,701
Net income attributable to noncontrolling interests classified as equity		—		—		—			—			—			—			—			25,938			25,938
Net unrealized gain (loss) on equity investments		—		—		—			84			—			84			—			—			84
Changes related to retirement plan		—		—		—			(513	)		—			(513	)		—			—			(513	)
Common, Special Common and Series A Common Shares dividends		—		—		—			—			(23,707	)		(23,707	)		—			—			(23,707	)
Preferred dividend requirement		—		—		—			—			(25	)		(25	)		—			—			(25	)
Repurchase of shares		—		—		(31,092	)		—			—			(31,092	)		(1	)		—			(31,093	)
Dividend reinvestment plan		—		—		3,192			—			(971	)		2,221			—			—			2,221
Incentive and compensation plans		—		433		2,562			—			(1,716	)		1,279			—			—			1,279
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans		—		1,364		—			—			—			1,364			—			(14,838	)		(13,474	)
Stock-based compensation awards (a)		—		7,731		—			—			—			7,731			—			—			7,731
Tax windfall (shortfall) from from stock awards (b)		—		45		—			—			—			45			—			—			45
Distributions to noncontrolling interests		—		—		—			—			—			—			—			(4,314	)		(4,314	)
June 30, 2010	$	1,270	$	2,098,380	$	(706,987	)	$	(3,139	)	$	2,420,862		$	3,810,386		$	831		$	669,002		$	4,480,219

(a) Reflects TDS Corporate and TDS Telecom’s current year stock-based compensation awards impact on Capital in excess of par value. U.S. Cellular’s amounts are included in Adjust investment in subsidiaries for repurchases, issuances and other compensation plans.

(b) Reflects tax windfalls/(shortfalls) associated with the exercise of options and the vesting of restricted stock awards of TDS Common Shares and TDS Special Common Shares. U.S. Cellular’s tax windfalls/(shortfalls) associated with the exercise of options and vesting of restricted stock awards of U.S. Cellular are included in Adjust investment in subsidiaries for repurchases, issuances, and other compensation plans.

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Consolidated Statement of Comprehensive Income (Unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)		2011			2010			2011			2010

Net income		$	108,678		$	52,389		$	160,922		$	114,658
Net change in accumulated other comprehensive income
	Net unrealized gain (loss) on equity investments		138			84			138			84
	Changes related to retirement plan		49			(257	)		98			(513	)
Comprehensive income			108,865			52,216			161,158			114,229
Less: Comprehensive income attributable to noncontrolling interests			(17,615	)		(12,102	)		(28,237	)		(25,957	)
Comprehensive income attributable to TDS shareholders		$	91,250		$	40,114		$	132,921		$	88,272

The accompanying notes are an integral part of these consolidated financial statements.

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Telephone and Data Systems, Inc.

Notes to Consolidated Financial Statements

1. Basis of Presentation

The accounting policies of Telephone and Data Systems, Inc. (“TDS”) conform to accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The consolidated financial statements include the accounts of TDS and its majority-owned subsidiaries, including TDS’ 84%-owned wireless telephone subsidiary, United States Cellular Corporation (“U.S. Cellular”), TDS’ 100%-owned wireline telephone subsidiary, TDS Telecommunications Corporation (“TDS Telecom”) and TDS’ majority-owned printing and distribution company, Suttle-Straus, Inc. In addition, the consolidated financial statements include certain entities in which TDS has a variable interest that require consolidation under GAAP. All material intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the 2011 presentation.

The consolidated financial statements included herein have been prepared by TDS, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, TDS believes that the disclosures included herein are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in TDS’ Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2010.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring items, unless otherwise disclosed) necessary to present fairly the financial position as of June 30, 2011 and December 31, 2010, the results of operations and changes in comprehensive income for the three and six months ended June 30, 2011 and 2010 and cash flows and changes in equity for the six months ended June 30, 2011 and 2010. The results of operations and comprehensive income for the three and six months ended, and cash flows and changes in equity for the six months ended June 30, 2011 are not necessarily indicative of the results expected for the full year.

Recent Accounting Pronouncements

On May 12, 2011 FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure. TDS is required to adopt the provisions of ASU 2011-04 on January 1, 2012. Early adoption is prohibited. Although TDS does not value any financial assets or liabilities at fair value, certain assets and liabilities are disclosed at fair value (see Note 2 — 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. 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 FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 amends how other comprehensive income (“OCI”) is presented 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. TDS is required to adopt the provisions of ASU 2011-05 on January 1, 2012. TDS currently provides this information in two separate statements. The adoption of ASU 2011-05 is not expected to have a significant impact on TDS’ financial position or results of operations.

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2. Fair Value Measurements

As of June 30, 2011 and December 31, 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.

		June 30, 2011				December 31, 2010
		June 30, 2011				December 31, 2010
		Book Value		Fair Value		Book Value		Fair Value
(Dollars in thousands)
Cash and cash equivalents		$	584,436	$	584,436	$	368,134	$	368,134
Short-term investments (1)(2)
	Certificates of deposit		74,240		74,240		97,270		97,270
	Government-backed securities (3)		196,656		196,656		305,612		305,612
Long-term investments (1)(4)
	Government-backed securities (3)		90,900		91,240		102,185		102,325
Long-term debt (5)			1,525,951		1,536,378		1,495,461		1,482,181

(1) Designated as held-to-maturity investments and recorded at amortized cost in the Consolidated Balance Sheet.

(2) Maturities are less than twelve months from the respective balance sheet dates.

(3) Includes U.S. treasuries and corporate notes guaranteed under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program.

(4) At June 30, 2011, maturities range between 12 and 24 months.

(5) 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’ 7.6% Series A notes, 7.0% senior notes, 6.875% senior notes and 6.625% senior notes, and U.S. Cellular’s 7.5% and 6.95% senior notes, and discounted cash flow analysis for remaining debt.

As of June 30, 2011 and December 31, 2010, TDS did not have nonfinancial assets or liabilities that required the application of fair value accounting for purposes of reporting such amounts in its Consolidated Balance Sheet.

3. Income Taxes

TDS’ overall effective tax rate on Income before income taxes for the three and six months ended June 30, 2011 was 9.1% and 19.8%, respectively, and for the three and six months ended June 30, 2010 was 37.5% and 37.7%, respectively. The effective tax rate for the three and six months ended June 30, 2011 was lower than the rate for the three and six months ended June 30, 2010 primarily as a result of tax benefits from state tax law changes and the expiration of statutes of limitations for certain tax years. The benefits from these changes, along with other discrete items, decreased income tax expense for the three and six months ended June 30, 2011 by $29.1 million and $30.8 million, respectively; absent these benefits, the effective tax rate for such periods would have been higher by 28.6 and 17.9 percentage points, respectively.

TDS expects to incur a federal net operating loss in 2011 for federal income tax purposes as a result of 100% bonus depreciation that applies to qualified capital expenditures. TDS plans to carryback this federal net operating loss to prior tax years, and has recorded $45.1 million in Income taxes receivable at June 30, 2011 primarily related to the benefit associated with this estimated federal net operating loss carryback. A portion of the loss will also be carried forward generating a current deferred tax asset of $10.9 million. TDS’ future federal income tax liabilities associated with the benefits being realized from bonus depreciation are accrued as a component of Net deferred income tax liability (noncurrent) in the Consolidated Balance Sheet.

4. 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.

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The amounts used in computing earnings per share and the effects of potentially dilutive securities on income and the weighted average number of Common, Special Common and Series A Common Shares are as follows:

			Three Months Ended June 30,						Six Months Ended June 30,
			Three Months Ended June 30,						Six Months Ended June 30,
			2011			2010			2011			2010
(Dollars and shares in thousands, except per share amounts)
Basic earnings per share attributable to TDS shareholders:
	Net income available to common shareholders of TDS used in basic earnings per share		$	91,051		$	40,275		$	132,660		$	88,676

Adjustments to compute diluted earnings:
	Noncontrolling interest (1)			(342	)		(138	)		(570	)		(314	)
	Preferred dividend (2)			12			12			25			25
	Net income attributable to common shareholders of TDS used in diluted earnings per share		$	90,721		$	40,149		$	132,115		$	88,387

Weighted average number of shares used in basic earnings per share:
		Common Shares		49,964			49,872			49,955			49,862
		Special Common Shares		47,027			49,150