United States Cellular Corporation (

USM

)

Q4 2011 Earnings Call

February 24, 2012 10:30 pm ET

Executives

Jane McCahon - VP, Corporate Relations

Kenneth Meyers - EVP & CFO - TDS

Steve Campbell - EVP, Finance, CFO & Treasurer - USM

Mary Dillon - President & CEO - USM

Vicki Villacrez - VP, Finance & CFO - TDS Telecom

Dave Wittwer - President & CEO - TDS Telecom

Alan Ferber - EVP, Chief Strategy and Brand Officer

Analysts

Ric Prentiss - Raymond James Financial

Phil Cusick - JPMorgan

Simon Flannery - Morgan Stanley

James Moorman - S&P Capital IQ

Sergey Dluzhevskiy - Gabelli

Presentation

Operator

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Greetings and welcome to the TDS and U.S. Cellular fourth quarter conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mrs. Jane McCahon, Vice President of Corporate Relations for TDS. Thank you, Mrs. McCahon, you may begin.

Jane McCahon

Thank you, Louis. Good morning, everyone. Thank you for joining us. I want to make sure you all aware of the quarterly conference call presentation we have prepared to accompany our comments this morning which you can find on the Investor Relation pages of the TDS and U.S. Cellular website.

With me today and offering prepared comments from TDS, Kenneth Meyers, Executive Vice President and CFO. From U.S. Cellular, Mary Dillon, President and Chief Executive Officer and Steve Campbell, Executive Vice President and CFO, and from TDS Telecom, Dave Wittwer President and CEO, and Vicki Villacrez, Vice President of Finance and CFO.

This call is being simultaneously webcast on the Investor Relation sections of both the TDS and U.S. Cellular websites. Please see those websites for slides referred to on this call including non-GAAP reconciliations.

The information set forth in the presentations and discussed during this call contains statements about expected future events and financial results that are forward looking and subject to risks and uncertainties.

Please review the Safe Harbor paragraph in our releases and the more extended versions that will be included in our SEC filings.

Shortly after we released our earnings results this morning and before this call, TDS and U.S. Cellular filed SEC Form 8-K current reports, including the press releases we issued this morning. Both companies plan to file their SEC Form 10-K later this afternoon.

In the next couple of weeks we will be attending two conferences Morgan Stanley on February 28th in San Francisco and Raymond James, March 7th in Orlando and we will also be hosting analyst visits during CTIA in New Orleans on May 9.

If you’d like to meet us in any of these events, let me know and we’ll try to accommodate you if at possible and keep in mind that we have an open-door policy. So if you are ever in the Chicago area and would like to meet with members of management from TDS Corporate, U.S. Cellular or TDS Telecom, the Investor Relations team will try to accommodate you calendars permitting.

And with that, I’ll turn the call over to Ken Meyers.

Ken

neth

Meyers

Thank you, Jane, good morning. TDS ended 2011 in a strong position with revenues up 4%, operating income up 22% and net income available for common up 38%.

We ended the year with a strong balance sheet, ample credit lines and for the most part, no unfunded pension liabilities. As you know, we termed out most of our debt during the year, pushing it out to 49 years. All of this gives us a significant financial flexibility as we continue to position our companies for future growth.

In 2011, TDS incurred a federal net operating tax loss, attributable to the 100% bonus depreciation rules that were in effect. That resulted in current savings of cash taxes. The related future federal tax liabilities are accrued as a component of net deferred income tax liabilities on the balance sheet.

TDS expects federal income tax payments to substantially increase to remain at higher levels for several years as the amount of the TDS federal tax depreciation deduction substantially decreases as a result of us having taken the accelerated depreciation in the previous years. This expectation assumes that federal bonus depreciation provisions are not enacted in future periods.

Also in the fourth quarter, there were some unusual expenses and tax items, but I will comment on related to the share consolidation project, we had a $7.2 million in expense that was not tax deductible for tax purposes and there was $6 million adjustment to correct deferred tax balances related to tax spaces in some of the U.S. Cellular partnerships.

We completed the share consolidation in January. As part of the consolidation, we issued approximately $4.9 million additional shares to our shareholders. Even though completed in January, the accounting rules require us to retroactively adjust shares outstanding, therefore EPS as of December 31st for the incremental 4.9 million shares issued in the reclassification. Similarly we have had to adjust capital in excess of power as well as retained earnings.

On behalf of management and the board we thank you for your support on this initiatives and we look forward to capitalizing on additional opportunities, both operationally and strategically to strengthen the company and create shareholder value in the process. We are evaluating what those options may be and are listening to our shareholders on various ideas they may have much as we did with the share consolidation project. Some of the ideas we have heard so far are involved changes toward dividend and share buyback policies as well as more radical changes to our M&A activity as well as structure. Of course the devil is in the detail as we evaluate each scenario along with the legal complexities and long-term impact on the company and all of its constituencies.

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