Edgar Filing: TELEPHONE & DATA SYSTEMS INC /DE/

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015



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

36-2669023

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602

(Address of principal executive offices) (Zip code)

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

Indicate by check mark

Yes

• 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.



• 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).



• 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

Accelerated filer



Non-accelerated filer



Smaller reporting company



• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



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 March 31, 2015

Common Shares, $0.01 par value

100,853,104 Shares

Series A Common Shares, $0.01 par value

7,188,071 Shares

Telephone and Data Systems, Inc.

Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2015

Index
				Page No.
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)			1

		Consolidated Statement of Operations			1
			Three Months Ended March 31, 2015 and 2014

		Consolidated Statement of Comprehensive Income			2
			Three Months Ended March 31, 2015 and 2014

		Consolidated Statement of Cash Flows			3
			Three Months Ended March 31, 2015 and 2014

		Consolidated Balance Sheet			4
			March 31, 2015 and December 31, 2014

		Consolidated Statement of Changes in Equity			6
			Three Months Ended March 31, 2015 and 2014

		Notes to Consolidated Financial Statements			8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			19

		Overview			19

		Regulatory Matters			22

		Three Months Ended March 31, 2015 and 2014
			Results of Operations — Consolidated		24
			Results of Operations — U.S. Cellular		26
			Results of Operations — TDS Telecom		30

		Recent Accounting Pronouncements			34

		Liquidity and Capital Resources			34

		Application of Critical Accounting Policies and Estimates			38

		Safe Harbor Cautionary Statement			39

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk			42

	Item 4.	Controls and Procedures			43

Part II.	Other Information

	Item 1.	Legal Proceedings			44

	Item1A.	Risk Factors			44

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			44

	Item 5.	Other Information			45

	Item 6.	Exhibits			46

Signatures

Table of Contents

Part I. Financial Information
Item 1. Financial Statements

Telephone and Data Systems, Inc. Consolidated Statement of Operations (Unaudited)

			Three Months Ended
			March 31,
(Dollars and shares in thousands, except per share amounts)			2015		2014
Operating revenues
	Service		$	1,073,091	$	1,080,242
	Equipment and product sales			178,502		115,720
		Total operating revenues		1,251,593		1,195,962

Operating expenses
	Cost of services (excluding Depreciation, amortization and accretion reported below)			293,647		275,958
	Cost of equipment and products			271,981		306,647
	Selling, general and administrative			438,040		463,669
	Depreciation, amortization and accretion			206,575		224,919
	(Gain) loss on asset disposals, net			5,377		2,430
	(Gain) loss on sale of business and other exit costs, net			(123,783)		(6,900)
	(Gain) loss on license sales and exchanges, net			(122,873)		(91,446)
		Total operating expenses		968,964		1,175,277

Operating income				282,629		20,685

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			34,641		37,327
	Interest and dividend income			8,385		2,486
	Interest expense			(33,830)		(28,707)
	Other, net			(4)		160
		Total investment and other income (expense)		9,192		11,266

Income before income taxes				291,821		31,951
	Income tax expense			116,020		11,657
Net income				175,801		20,294
Less: Net income attributable to noncontrolling interests, net of tax				30,061		2,040
Net income attributable to TDS shareholders				145,740		18,254
TDS Preferred dividend requirement				(12)		(12)
Net income available to common shareholders			$	145,728	$	18,242

Basic weighted average shares outstanding				108,169		108,988
Basic earnings per share attributable to TDS shareholders			$	1.35	$	0.17

Diluted weighted average shares outstanding				108,946		109,672
Diluted earnings per share attributable to TDS shareholders			$	1.33	$	0.16

Dividends per share to TDS shareholders			$	0.141	$	0.134

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
				March 31,
(Dollars in thousands)				2015		2014
Net income				$	175,801	$	20,294
Net change in accumulated other comprehensive income
	Change in foreign currency translation adjustment				36		(4)
	Change related to retirement plan
		Amounts included in net periodic benefit cost for the period
			Amortization of prior service cost		(852)		(911)
			Amortization of unrecognized net loss		64		322
					(788)		(589)
			Change in deferred income taxes		312		224
		Change related to retirement plan, net of tax			(476)		(365)
	Net change in accumulated other comprehensive income				(440)		(369)
Comprehensive income					175,361		19,925
	Less: Comprehensive income attributable to noncontrolling interest				30,061		2,040
Comprehensive income attributable to TDS shareholders				$	145,300	$	17,885

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)
			Three Months Ended
			March 31,
(Dollars in thousands)			2015		2014
Cash flows from operating activities
	Net income		$	175,801	$	20,294
	Add (deduct) adjustments to reconcile net income to cash flows from operating activities
		Depreciation, amortization and accretion		206,575		224,919
		Bad debts expense		29,849		21,559
		Stock-based compensation expense		8,096		6,759
		Deferred income taxes, net		(47,466)		(14,510)
		Equity in earnings of unconsolidated entities		(34,641)		(37,327)
		Distributions from unconsolidated entities		12,988		12,820
		(Gain) loss on asset disposals, net		5,377		2,430
		(Gain) loss on sale of business and other exit costs, net		(123,783)		(6,900)
		(Gain) loss on license sales and exchanges, net		(122,873)		(91,446)
		Noncash interest expense		670		506
		Other operating activities		-		47
	Changes in assets and liabilities from operations
		Accounts receivable		21,240		90,555
		Equipment installment plans receivable		(36,498)		2,394
		Inventory		95,395		19,656
		Accounts payable		(13,592)		(53,403)
		Customer deposits and deferred revenues		13,319		(1,447)
		Accrued taxes		251,510		(1,634)
		Accrued interest		9,460		9,136
		Other assets and liabilities		(96,121)		(99,471)
				355,306		104,937

Cash flows from investing activities
	Cash used for additions to property, plant and equipment			(166,461)		(150,890)
	Cash paid for acquisitions and licenses			(280,710)		(8,254)
	Cash received from divestitures and exchanges			274,131		103,042
	Cash received for investments			-		10,000
	Other investing activities			2,765		1,623
				(170,275)		(44,479)

Cash flows from financing activities
	Repayment of long-term debt			(247)		(392)
	TDS Common Shares reissued for benefit plans, net of tax payments			213		(50)
	U.S. Cellular Common Shares reissued for benefit plans, net of tax payments			487		316
	Repurchase of TDS Common Shares			-		(3,342)
	Repurchase of U.S. Cellular Common Shares			(2,302)		(2,000)
	Dividends paid to TDS shareholders			(15,232)		(14,582)
	Payment of debt issuance costs			(3,018)		-
	Distributions to noncontrolling interests			(225)		(346)
	Other financing activities			(1,488)		2,834
				(21,812)		(17,562)

Net increase in cash and cash equivalents				163,219		42,896

Cash and cash equivalents
	Beginning of period			471,901		830,014
	End of period		$	635,120	$	872,910

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)			March 31, 2015		December 31, 2014
Current assets
	Cash and cash equivalents		$	635,120	$	471,901
	Accounts receivable
		Due from customers and agents, less allowances of $42,737 and $41,431, respectively		549,146		548,537
		Other, less allowances of $1,124 and $1,141, respectively		109,742		135,144
	Inventory, net			178,313		273,707
	Net deferred income tax asset			92,791		107,686
	Prepaid expenses			97,707		86,506
	Income taxes receivable			853		113,708
	Other current assets			29,132		29,766
				1,692,804		1,766,955

Assets held for sale				29,771		103,343

Investments
	Licenses			1,837,238		1,453,574
	Goodwill			771,674		771,352
	Franchise rights			244,300		244,300
	Other intangible assets, net of accumulated amortization of $138,614 and $133,823, respectively			59,708		64,499
	Investments in unconsolidated entities			343,382		321,729
	Other investments			485		508
				3,256,787		2,855,962
Property, plant and equipment
	In service and under construction			11,189,882		11,194,044
	Less: Accumulated depreciation			7,443,048		7,347,919
				3,746,834		3,846,125

Other assets and deferred charges				270,042		334,554

Total assets			$	8,996,238	$	8,906,939

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)				March 31, 2015		December 31, 2014
Current liabilities
	Current portion of long-term debt			$	805	$	808
	Accounts payable				312,091		387,125
	Customer deposits and deferred revenues				338,076		324,318
	Accrued interest				17,376		7,919
	Accrued taxes				174,043		46,734
	Accrued compensation				68,838		114,549
	Other current liabilities				145,871		181,803
					1,057,100		1,063,256

Liabilities held for sale					406		21,643

Deferred liabilities and credits
	Net deferred income tax liability				878,809		941,519
	Other deferred liabilities and credits				441,745		430,774

Long-term debt					1,993,457		1,993,586

Commitments and contingencies					-		-

Noncontrolling interests with redemption features					6,619		1,150

Equity
	TDS shareholders’ equity
		Series A Common and Common Shares
			Authorized 290,000 shares (25,000 Series A Common and 265,000 Common Shares)
			Issued 132,758 shares (7,188 Series A Common and 125,570 Common Shares) and 132,749 shares (7,179 Series A Common and 125,570 Common Shares), respectively
			Outstanding 108,041 shares (7,188 Series A Common and 100,853 Common Shares) and 107,899 shares (7,179 Series A Common and 100,720 Common Shares), respectively
			Par Value ($.01 per share) $1,327 ($72 Series A Common and $1,255 Common Shares)		1,327		1,327
		Capital in excess of par value			2,344,274		2,336,511
		Treasury shares at cost:
			24,717 and 24,850 Common Shares, respectively		(745,590)		(748,199)
		Accumulated other comprehensive income			6,012		6,452
		Retained earnings			2,460,323		2,330,187
			Total TDS shareholders' equity		4,066,346		3,926,278

	Preferred shares				824		824
	Noncontrolling interests				550,932		527,909

		Total equity			4,618,102		4,455,011

Total liabilities and equity				$	8,996,238	$	8,906,939

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 and Common Shares		Capital in Excess of Par Value		Treasury Common Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total TDS Shareholders' Equity		Preferred Shares		Noncontrolling Interests		Total Equity
December 31, 2014	$	1,327	$	2,336,511	$	(748,199)	$	6,452	$	2,330,187	$	3,926,278	$	824	$	527,909	$	4,455,011
Add (Deduct)
Net income attributable to TDS shareholders		-		-		-		-		145,740		145,740		-		-		145,740
Net income attributable to noncontrolling interests classified as equity		-		-		-		-		-		-		-		24,444		24,444
Change in foreign currency translation adjustment		-		-		-		36		-		36		-		-		36
Change related to retirement plan		-		-		-		(476)		-		(476)		-		-		(476)
TDS Common and Series A Common Share dividends		-		-		-		-		(15,220)		(15,220)		-		-		(15,220)
TDS Preferred dividend requirement		-		-		-		-		(12)		(12)		-		-		(12)
Dividend reinvestment plan		-		642		1,757		-		-		2,399		-		-		2,399
Incentive and compensation plans		-		(79)		852		-		(372)		401		-		-		401
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans		-		4,734		-		-		-		4,734		-		(1,344)		3,390
Stock-based compensation awards		-		2,468		-		-		-		2,468		-		-		2,468
Tax windfall (shortfall) from stock awards		-		(2)		-		-		-		(2)		-		-		(2)
Distributions to noncontrolling interests		-		-		-		-		-		-		-		(77)		(77)
March 31, 2015	$	1,327	$	2,344,274	$	(745,590)	$	6,012	$	2,460,323	$	4,066,346	$	824	$	550,932	$	4,618,102

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 and Common Shares		Capital in Excess of Par Value		Treasury Common Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total TDS Shareholders' Equity		Preferred Shares		Noncontrolling Interests		Total Equity
December 31, 2013	$	1,327	$	2,308,807	$	(721,354)	$	(569)	$	2,529,626	$	4,117,837	$	824	$	551,436	$	4,670,097
Add (Deduct)
Net income attributable to TDS shareholders		-		-		-		-		18,254		18,254		-		-		18,254
Net income attributable to noncontrolling interests classified as equity		-		-		-		-		-		-		-		2,011		2,011
Change in foreign currency translation adjustment		-		-		-		(4)		-		(4)		-		-		(4)
Change related to retirement plan		-		-		-		(365)		-		(365)		-		-		(365)
TDS Common and Series A Common Share dividends		-		-		-		-		(14,570)		(14,570)		-		-		(14,570)
TDS Preferred dividend requirement		-		-		-		-		(12)		(12)		-		-		(12)
Repurchase of Common Shares		-		-		(3,843)		-		-		(3,843)				-		(3,843)
Dividend reinvestment plan		-		800		1,874		-		-		2,674		-		-		2,674
Incentive and compensation plans		-		(284)		665		-		-		381		-		-		381
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans		-		2,780		-		-		-		2,780		-		(262)		2,518
Stock-based compensation awards		-		2,011		-		-		-		2,011		-		-		2,011
Tax windfall (shortfall) from stock awards		-		(432)		-		-		-		(432)		-		-		(432)
Distributions to noncontrolling interests		-		-		-		-		-		-		-		(325)		(325)
March 31, 2014	$	1,327	$	2,313,682	$	(722,658)	$	(938)	$	2,533,298	$	4,124,711	$	824	$	552,860	$	4,678,395

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 subsidiaries in which it has a controlling financial interest, including TDS’ 84%-owned wireless telephone subsidiary, United States Cellular Corporation (“U.S. Cellular”) and TDS’ wholly-owned subsidiary, TDS Telecommunications Corporation (“TDS Telecom”). 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.

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, 2014.

TDS’ business segments reflected in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 are U.S. Cellular, TDS Telecom’s Wireline, Cable, and Hosted and Managed Services (“HMS”) operations. TDS’ non-reportable other business activities are presented as “Corporate, Eliminations and Other”, which includes the operations of TDS’ wholly-owned subsidiaries Suttle-Straus, Inc. (“Suttle-Straus”) and Airadigm Communications, Inc. (“Airadigm”). Suttle-Straus and Airadigm’s financial results were not significant to TDS’ operations. All of TDS’ segments operate only in the United States, except for HMS, which includes an insignificant foreign operation. See Note 12 — Business Segment Information for summary financial information on each business segment.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring items, unless otherwise disclosed) necessary for a fair statement of the financial position as of March 31, 2015 and December 31, 2014, and the results of operations, cash flows, changes in comprehensive income and changes in equity for the three months ended March 31, 2015 and 2014. These results are not necessarily indicative of the results to be expected for the full year.

Recently Issued Accounting Pronouncements

On May 28, 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. This update has an effective date of January 1, 2017. However, on April 1, 2015, the FASB voted to propose a one-year deferral of the effective date of ASU 2014-09. If the proposal is adopted, TDS could elect to adopt the provisions of ASU 2014-09 effective January 1, 2018. Under this proposal, early adoption as of January 1, 2017 also would be permissible. TDS is evaluating the effects that adoption of ASU 2014-09 will have on its financial position, results of operations, and disclosures.

On August 27, 2014, the FASB issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires TDS to assess its ability to continue as a going concern each interim and annual reporting period and provide certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern, including management’s plan to alleviate the substantial doubt. TDS is required to adopt the provisions of ASU 2014-15 effective January 1, 2016, but early adoption is permitted. The adoption of ASU 2014-15 is not expected to impact TDS’ financial position or results of operations.

On February 18, 2015, the FASB issued Accounting Standards Update 2015-02, Consolidation: Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 simplifies consolidation accounting by reducing the number of consolidation models. Additionally, ASU 2015-02 changes certain criteria for identifying variable interest entities. TDS is required to adopt the provisions of ASU 2015-02 effective January 1, 2016. Early adoption is permitted. TDS is evaluating the effects that adoption of ASU 2015-02 will have on its financial position, results of operations, and disclosures.

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On April 7, 2015, the FASB issued Accounting Standard Update 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as an offset to the related debt obligation. TDS is required to apply the standards of this update effective January 1, 2016 on a retrospective basis. Early adoption is permitted. As of March 31, 2015, TDS had $60.0 million in debt issuance costs classified as Other assets and deferred charges that, upon adoption of the new standard, would be reclassified as an offset to Long-term debt.

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 Service 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 $26.1 million and $31.0 million for the three months ended March 31, 2015 and 2014, respectively.

2. Fair Value Measurements

As of March 31, 2015 and December 31, 2014, TDS did not have any financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.

The provisions of GAAP 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. 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.

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.

		Level within the Fair Value Hierarchy	March 31, 2015				December 31, 2014
		Level within the Fair Value Hierarchy	Book Value		Fair Value		Book Value		Fair Value
(Dollars in thousands)
Cash and cash equivalents		1	$	635,120	$	635,120	$	471,901	$	471,901
Long-term debt
	Retail	2		1,453,250		1,468,689		1,453,250		1,414,105
	Institutional and other	2		537,362		530,975		537,471		518,322

The fair value of Cash and cash equivalents approximates the book value due to the short-term nature of these financial instruments. Long-term debt excludes capital lease obligations and the current portion of Long-term debt. The fair value of “Retail” Long-term debt was estimated using market prices for TDS’ 7.0% Senior Notes, 6.875% Senior Notes, 6.625% Senior Notes and 5.875% Senior Notes, and U.S. Cellular’s 6.95% Senior Notes and 7.25% Senior Notes. TDS’ “Institutional” debt consists of U.S. Cellular’s 6.7% Senior Notes which are traded over the counter. TDS estimated the fair value of its Institutional and other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 0.00% to 7.02% and 0.00% to 7.25% at March 31, 2015 and December 31, 2014, respectively.

3. Equipment Installment Plans

TDS offers customers the option to purchase certain devices under an equipment installment contract over a period of up to 24 months. For certain equipment installment plans, after a specified period of time, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract. TDS values this trade-in right as a guarantee liability. The guarantee liability is initially measured at fair value and is determined based on assumptions including the probability and timing of the customer upgrading to a new device and the fair value of the device being traded-in at the time of trade-in. As of March 31, 2015 and December 31, 2014, the guarantee liability related to these plans was $67.8 million and $57.5 million respectively, and is reflected in Customer deposits and deferred revenues in the Consolidated Balance Sheet.

Table of Contents

TDS equipment installment plans do not provide for explicit interest charges. For equipment installment plans with a duration of greater than twelve months, TDS imputes interest.

	The following table summarizes unbilled equipment installment plan receivables as of March 31, 2015 and December 31, 2014. Such amounts are presented on the Consolidated Balance Sheet as Accounts receivable – customers and agents and Other assets and deferred charges, as applicable.

(Dollars in thousands)		March 31, 2015		December 31, 2014
Short-term portion of unbilled equipment installment plan receivables, gross		$	166,551	$	127,400
Short-term portion of unbilled deferred interest			(17,739)		(16,365)
Short-term portion of unbilled allowance for credit losses			(5,631)		(3,686)
Short-term portion of unbilled equipment installment plan receivables, net		$	143,181	$	107,349

Long-term portion of unbilled equipment installment plan receivables, gross		$	83,215	$	89,435
Long-term portion of unbilled deferred interest			(1,585)		(2,791)
Long-term portion of unbilled allowance for credit losses			(5,805)		(6,065)
Long-term portion of unbilled equipment installment plan receivables, net		$	75,825	$	80,579

TDS assesses the collectability of the equipment installment plan receivables based on historical payment experience, account aging and other qualitative factors. The credit profiles of TDS customers on equipment installment plans are similar to those of TDS customers with traditional subsidized plans. Customers with a higher risk credit profile are required to make a deposit for equipment purchased through an installment contract.

4. Income Taxes

TDS’ overall effective tax rate on Income before income taxes for the three months ended March 31, 2015 and 2014 was 39.8% and 36.5%, respectively.

TDS incurred a federal net operating loss in 2014 largely attributable to 50% bonus depreciation applicable to qualified 2014 capital expenditures. TDS carried back this federal net operating loss to prior tax years. As a result of the carryback, together with recovery of federal estimated taxes paid in 2014, TDS received a $99.7 million federal income tax refund in the three months ended March 31, 2015.

5. 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 outstanding during the period 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.

The amounts used in computing earnings per common share and the effects of potentially dilutive securities on the weighted average number of common shares were as follows:

					Three Months Ended