UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 11-K

 

 

(Mark one)

 

                           ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

                                For the fiscal year ended December 31, 2012

 

OR

 

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

 

 

                                For the transition period from ________________ to _______________

 

 

 

Commission File Number:                                                1-14157 (Telephone and Data Systems, Inc.)

                                                                                                1-9712 (United States Cellular Corporation)

 

 

A.   Full title of the plan and the address of the plan, if different from that of the issuer named below:

 

Telephone and Data Systems, Inc.
Tax-Deferred Savings Plan
30 North LaSalle Street
40th Floor
Chicago, IL  60602

 

B.   Name of issuers of the securities held pursuant to the plan and the addresses of the principal executive office

 

Telephone and Data Systems, Inc.
30 North LaSalle Street
40th Floor
Chicago, IL  60602

 

United States Cellular Corporation
8410 West Bryn Mawr Ave.
Chicago, IL  60631

 

 


 

 

Telephone and Data Systems, Inc.

Tax–Deferred Savings Plan

 

 

Financial Report

December 31, 2012

 

Telephone and Data Systems, Inc.

 

 

 

Tax-Deferred Savings Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

1

 

 

 

 

 

 

 

 

 

 

Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statements of Net Assets Available for Benefits

 

 

2

 

Statement of Changes in Net Assets Available for Benefits

 

 

3

 

Notes to Financial Statements

 

 

4

 

 

 

 

 

 

 

 

 

 

Supplemental Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule of Assets (Held at End of Year)

 

 

12

 

 

 

 

 

 

 

 

 

 

Exhibits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No.

 

Description

 

23.1

 

Consent of Independent Registered Public Accounting Firm

 

 

 

 

 

 

 

 

 

 

 

 


 

 

McGladrey LLP

 

 

Report of Independent Registered Public Accounting Firm

 

To the Investment Management Committee

Telephone and Data Systems, Inc. Tax-Deferred Savings Plan

Chicago, Illinois

 

We have audited the accompanying statements of net assets available for benefits of Telephone and Data Systems, Inc. Tax-Deferred Savings Plan (the “Plan”) as of December 31, 2012 and 2011, and the related statement of changes in net assets available for benefits for the year ended December 31, 2012.  These financial statements are the responsibility of the Plan’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

 

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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2012 and 2011, and the changes in net assets available for benefits for the year ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in Note 9 of the financial statements, the plan sponsor approved the merger of the OneNeck 401(k) Plan into the Telephone and Data Systems, Inc. Tax-Deferred Savings Plan effective August 31, 2012.  All plan assets were transferred to the Telephone and Data Systems, Inc. Tax- Deferred Savings Plan on September 10, 2012.

 

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of Schedule H, Line 4i – Schedule of Assets (Held at End of Year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

 

 

By:          /s/ McGladrey LLP                                                                             

                McGladrey LLP

 

 

Peoria, Illinois

June 11, 2013

 

Member of RSM International network of independent accounting, tax and consulting firms.


1

 


 

 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

Statements of Net Assets Available for Benefits

December 31, 2012 and 2011

 

 

 

 

 

2012

 

2011

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments, at fair value

$

594,895,169

 

 

 $  

504,575,334

 

 

 

 

 

 

 

 

 

 

 

 

Receivables:

 

 

 

 

 

 

 

 

Accrued income

 

287,113

 

 

 

363,829

 

 

Contributions in transit and other

 

250,179

 

 

 

268,425

 

 

Notes receivable from participants

 

12,704,556

 

 

 

11,663,038

 

 

 

Total receivables

 

13,241,848

 

 

 

12,295,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

608,137,017

 

 

 

516,870,626

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to broker for securities purchased

 

357,621

 

 

 

 — 

 

 

Distributions in transit and other

 

115,273

 

 

 

46,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

472,894

 

 

 

46,605

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets Available for Benefits at Fair Value

 

607,664,123

 

 

 

516,824,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment from Fair Value to Contract Value for Fully Benefit-Responsive Investment Contracts

 

(4,612,346

)

 

 

(4,001,833

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets Available for Benefits

$

603,051,777

 

 

 $  

512,822,188

 

 

See Notes to Financial Statements.


2  

 


 

 

 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

Statement of Changes in Net Assets Available for Benefits

Year Ended December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

Additions to Plan Assets Attributed to

 

 

 

Investment income:

 

 

 

 

Interest and dividends

$

 12,910,932  

 

 

Net appreciation in fair value of investments

 

 39,246,354  

 

 

 

 

 

 

 

 

Interest income on notes receivable from participants

 

 506,511  

 

 

 

 

 

 

 

 

Contributions:

 

 

 

 

Participants'

 

 47,455,511  

 

 

Employers'

 

 23,883,717  

 

 

Participant rollover

 

 3,122,782  

 

 

 

Total additions

 

 127,125,807  

 

 

 

 

 

 

 

 

Deductions From Plan Assets Attributed to

 

 

 

 

Benefits paid to participants

 

 46,373,310  

 

 

Redemption Fee

 

 485  

 

 

 

Total deductions

 

 46,373,795  

 

 

 

 

 

 

 

 

 

 

Net increase

 

 80,752,012  

 

 

 

 

 

 

 

 

 

Transfer from merged plan

 

 9,477,577  

 

 

 

 

 

 

 

 

Net assets available for benefits:

 

 

 

 

 

Beginning of year

 

 512,822,188  

 

 

 

 

 

 

 

 

 

 

End of year

$

 603,051,777  

 

 

See Notes to Financial Statements.


3  

 


 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

December 31, 2012 and 2011

Notes to Financial Statements

Note 1.   Description of the Plan

The following description of the Telephone and Data Systems, Inc. Tax Deferred Savings Plan (the "Plan") provides only general information. Participants should refer to the Telephone and Data Systems, Inc. Tax Deferred Savings Plan summary plan description for a more complete description of the Plan's provisions.

 

General: The Plan is a contributory tax exempt profit sharing plan established by Telephone and Data Systems, Inc. (“TDS” or the "Company") and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Company is the administrator and sponsor of the Plan and has appointed The Bank of New York Mellon as directed trustee of the Plan. The Bank of New York Mellon is also the asset custodian of the Plan, and they provide record keeping and reporting services to the Plan in conjunction with Aon Hewitt, the Plan's third party administrator. The Plan qualifies under Section 401(a) of the Internal Revenue Code. All employees of TDS and its subsidiaries which have adopted the Plan (the Company and such subsidiaries being referred to as “employers”) whom are age twenty-one or older are eligible to participate. The Plan allows participants to enter the Plan upon the latter of 30 days of continuous service with the Company or their twenty-first birthday.  Participation in the Plan is voluntary, however, any eligible employee who does not enroll on their own, or elect to opt out of automatic enrollment, will be automatically enrolled in the Plan starting on their eligibility date.

 

The Plan's assets are overseen by an Investment Management Committee appointed by TDS. The Investment Management Committee is authorized to select investment options and to invest Plan assets as directed by the participants.

 

Contributions: Participants may contribute to the Plan on a pre-tax basis (before-tax contributions) or on a designated Roth basis (after-tax contributions). The combined pre-tax and designated Roth contributions may not exceed 60% of the Participant’s compensation, as defined in the Plan and in accordance with Internal Revenue Service limits.  Participants may also contribute amounts representing eligible distributions from other qualified plans (rollover contributions).

 

Any eligible employee with 30 days continuous service is automatically enrolled in the Plan on a pre-tax basis at a 3% deferral rate with the rate increasing by 1% annually until it reaches 10%, unless the employee elects otherwise.  The Vanguard Target Date Retirement Funds are used as the Qualified Default Investment Alternative (QDIA) for automatic enrollment. 

 

The employer matching contribution is 100% on the first 3% of a participant’s before-tax and designated Roth contributions and 40% on the next 2% of before-tax and designated Roth contributions.

 

Contributions are allocated to an employee’s account based on the employee’s investment elections.

 

Participants' Accounts and Investment Options: Each participant's account is credited with the participant's before-tax and designated Roth contributions, rollover contributions, employer's matching contributions and investment income or loss. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.

 

Participants may invest their before-tax and designated Roth contributions, any rollover account balances, and employer matching contributions into a variety of investment options as more fully described in the Plan's literature. Participants may change their investment options via telephone or internet.

 

Vesting: Participants are always 100% vested in their before-tax, designated Roth and rollover contributions plus actual earnings thereon.  Vesting in employer matching contributions plus actual earnings thereon is based on years of vesting service.  Accounts vest 34% after the participant completes one year of vesting service; and 100% after the participant completes two years of vesting service.

 

A participant also becomes 100% vested in employer matching contributions plus actual earnings thereon upon termination of employment after attaining age 65 or due to death or disability.

 

Forfeited Accounts: For the years ended December 31, 2012 and 2011, forfeited non-vested accounts were used to reduce employer contributions by $388,605 and $387,010, respectively. All such forfeitures were used at December 31, 2012 and 2011, respectively.

 

Payment of Benefits: Vested benefits may be paid to the participant upon termination of employment in the form of a lump sum payment or installments.  Participants experiencing a qualified financial hardship, on a qualified military leave or who have attained the age 59½ may withdraw a portion of their account balance as defined in the Plan while employed by the Company.


4  

 


 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

December 31, 2012 and 2011

Notes to Financial Statements

 

Notes Receivable from Participants: Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their account balance (excluding employer matching contributions).  These loans are secured by the remaining balance in the participant's account.  The notes bear interest at the prime rate plus 1% as published in the Wall Street Journal on the fifteenth day of the month prior to the quarter in which the note is processed.  Principal and interest is paid ratably through after-tax payroll deductions.  The repayment period on the note can range from one to five years.  Notes are considered in default if no note payment is received during two consecutive pay periods.

 

Termination of Plan: Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan at any time subject to the provisions of ERISA.  In the event of Plan termination, participants become 100% vested in their accounts.

 

Plan Expenses: With the exception of loan origination fees, all administrative, recordkeeping and auditing fees are borne by TDS.  Investment expenses and loan origination fees are paid by Plan participants.

 

Note 2.   Summary of Significant Accounting Policies

Basis of Accounting and Use of Estimates: The accompanying financial statements have been prepared on the accrual basis of accounting.  The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the Plan's management to use estimates and assumptions that affect the accompanying financial statements and disclosures.  Actual results could differ from these estimates.

 

Fully Benefit-Responsive Investment Contracts: In accordance with GAAP, fully benefit-responsive investment contracts held by a defined-contribution plan are required to be reported at fair value.  However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan.  The Plan invests in investment contracts through the Vanguard Retirement Savings Trust II, a collective trust.  At December 31, 2012 and 2011, all of the Vanguard Retirement Savings Trust II’s investments were in the Vanguard Retirement Savings Master Trust (“the Vanguard Trust”).  The Statement of Net Assets Available for Benefits presents the fair value of the investment in the collective trust as well as the adjustment of the investment in the collective trust from fair value to contract value relating to the investment contracts.  The Statement of Changes in Net Assets Available for Benefits is prepared using the contract value basis for fully benefit-responsive investment contracts.

 

The Vanguard Trust provides for the collective investment of assets of tax-exempt pension and profit-sharing plans, primarily in a pool of investment contracts that are issued by insurance companies and commercial banks and in contracts that are backed by bond trusts that are selected by the Trustee, Vanguard Fiduciary Trust Company. The issuers’ ability to meet these obligations may be affected by economic developments in their respective companies and industries. At December 31, 2012, 96.0% of the Vanguard Trust’s holdings were comprised of “traditional investment contracts” and “alternative investment contracts” as described below.  The remainder of the Vanguard Trust’s investments consisted of Money Market funds.

 

Traditional investment contracts issued by insurance companies and banks are nontransferable, but provide for benefit-responsive withdrawals by plan participants at contract value. For traditional investment contracts, fair value comprises the expected future cash flows for each contract discounted to present value. Contract value represents contributions made plus interest accrued at the contract rate, less withdrawals. The crediting rate on traditional contracts is typically fixed for the life of the investment.

 

Alternative investment contracts consist of investments together with contracts under which a bank or other institution provides for benefit-responsive withdrawals by plan participants at contract value.  For alternative investment contracts, the fair value comprises the aggregate market values of the underlying investments in bond trusts, and the value of the wrap contracts, if any. The difference between valuation at contract value and fair value is reflected over time through the crediting rate formula provided for in the Vanguard Trust’s synthetic contracts. The crediting rate of the contract resets every quarter (but will not fall below zero) based on the performance of the underlying investment portfolio. To the extent that the Vanguard Trust has unrealized gains and losses (that are accounted for, under contract value accounting, through the value of the synthetic contract), the interest crediting rate may differ from then-current market rates. An investor currently redeeming Vanguard Trust units may forgo a benefit, or avoid a loss, related to a future crediting rate different from then-current market rates. Future average interest crediting rates on alternative investment contracts could be influenced by changes in market interest rates.  These contracts can be terminated by the trust or the issuer after providing 60 days’ notice.


5  

 


 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

December 31, 2012 and 2011

Notes to Financial Statements

 

The average yield earned by the Vanguard Trust was 2.22% and 3.09% for the years ended December 31, 2012 and 2011, respectively. This average yield is calculated by dividing the annualized earnings of all investments in the Vanguard Trust (irrespective of the interest rate credited to participants in the Vanguard Trust) by the fair value of all investments in the Vanguard Trust on the last day of the fiscal year.

 

The average yield earned by the Vanguard Trust with an adjustment to reflect the actual interest rate credited to participants in the Vanguard Trust was 1.82% and 2.68% for the years ended December 31, 2012 and 2011, respectively. This average yield is calculated by dividing the annualized earnings credited to participants (irrespective of the actual earnings of the investments in the Vanguard Trust) by the fair value of all investments in the Vanguard Trust on the last day of the fiscal year.

 

The existence of certain conditions can limit the Vanguard Trust’s ability to transact at contract value with issuers of its investment contracts. Specifically, any event outside the normal operation of the Vanguard Trust that causes a withdrawal from an investment contract may result in a negative market value adjustment with respect to the withdrawal. Examples of such events include, but are not limited to, partial or complete legal termination of the Vanguard Trust or the Plan, tax disqualification of the Vanguard Trust or the Plan, and certain Vanguard Trust amendments if issuers’ consent is not obtained. As of December 31, 2012, the occurrence of an event outside the normal operation of the Vanguard Trust that would cause a withdrawal from an investment contract with a negative market value adjustment is not considered to be probable.

 

The tables below summarize the Plan’s investment measured at fair value based on the net asset value (NAV per share) in the Vanguard Trust:

 

December 31, 2012

 

 

 

 

 

 

Participant

Redemption

 

 

 

 

 

Unfunded

Redemption

Notice

 

 

Fair Value

 

 

Commitments

Frequency

Period (1)

Vanguard Retirement Savings Trust II

$

 91,619,394  

 

 $  

 -  

 Daily  

 Twelve months

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

Participant

Redemption

 

 

 

 

 

Unfunded

Redemption

Notice

 

 

Fair Value

 

 

Commitments

Frequency

Period (1)

Vanguard Retirement Savings Trust II

$

 86,420,771  

 

 $  

 -  

 Daily  

 Twelve months

 

 

 

 

 

 

 

 

(1) This notice period provides for Plan redemptions at contract value, subject to other provisions of the Declaration of Trust.


6  

 


 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

December 31, 2012 and 2011

Notes to Financial Statements

 

Investment Valuation and Income Recognition: Investments are reported at fair value.  See Note 3 – Fair Value Measurements for further information on the fair value of the Plan’s assets. The Plan’s Investment Management Committee determines the Plan’s valuation policies utilizing information provided by the investment custodians.

 

Net appreciation/depreciation in fair value of investments included in the accompanying statement of changes in net assets available for benefits includes realized gains or losses from the sale of investments and unrealized appreciation or depreciation in fair value of investments.  The net realized gains or losses on the sale of investments represent the difference between the sale proceeds and the fair value of the investment as of the beginning of the period or the cost of the investment if purchased during the year.  Net unrealized appreciation or depreciation in the fair value of investments represents the net change in the fair value of the investments held during the period.

 

Purchases and sales of securities are recorded on a trade date basis. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date.

 

Notes Receivable from Participants: Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant notes are reclassified as distributions based upon the terms of the Plan document.

 

Payment of Benefits: Benefits are recorded when paid.

 

New Accounting Pronouncement:   In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, Technical Corrections and Improvements . The amendments in this Update cover a wide range of Topics in the Accounting Standards Codification, including plan accounting. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will generally be effective for fiscal periods beginning after December 15, 2012, except for amendments in this update where there was no transition guidance which were immediately effective upon issuance. The adoption of immediately effective amendments was not significant to these financials.

 

Note 3.   Fair Value Measurements

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) in an orderly transaction between market participants. GAAP establishes a fair value hierarchy that contains three levels for inputs used in fair value measurements.  The three levels of the fair value hierarchy are described below:

 

Level 1                   Quoted market prices for identical assets or liabilities in active markets;

Level 2                   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                   Prices or valuations that require inputs that are both significant to the fair value measurement and 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.  The following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy. 

 

The Plan values shares of TDS Common stock and Common stock of U.S. Cellular, TDS’ subsidiary, and valued shares of TDS Special Common stock, based on the closing price reported on the active market in which the individual securities are traded.  These securities are classified as Common Stock of Plan Sponsor and Subsidiary.  The Plan also values Mutual Funds based on the closing price reported on the active market in which the individual securities are traded. Common Stock of Plan Sponsor and Subsidiary and Mutual Funds are classified within Level 1 of the valuation hierarchy.

 


7  

 


 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

December 31, 2012 and 2011

Notes to Financial Statements

The Investment Contracts are bank common trusts that invest in synthetic investment contracts which are backed by investments issued by insurance companies and banks. The fair value is determined based on the underlying investments of the common trust as traded in active markets or valued using significant observable inputs. The underlying investment is classified as Level 2 in the audited financial statements of the bank common trust. The Net Asset Value (NAV) for the Investment Contracts is $1 per share. The Investment Contracts are valued based on the value provided by the administrator of the fund.

 

The following tables show investment assets at fair value within the fair value hierarchy, as of December 31, 2012 and 2011, respectively.

 

December 31, 2012

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Mutual Funds

 

 

 

 

 

 

 

 

 

 

 

 

 

Bond

$

 65,655,524  

 

 $  

 -  

 

 $  

 -  

 

 $  

 65,655,524  

 

 

International equity

 

 53,845,987  

 

 

 -  

 

 

 -  

 

 

 53,845,987  

 

 

Money market

 

 534,203  

 

 

 -  

 

 

 -  

 

 

 534,203  

 

 

Retirement income

 

 5,328,336  

 

 

 -  

 

 

 -  

 

 

 5,328,336  

 

 

Target date

 

 112,982,618  

 

 

 -  

 

 

 -  

 

 

 112,982,618  

 

 

U.S. large cap

 

 164,109,882  

 

 

 -  

 

 

 -  

 

 

 164,109,882  

 

 

U.S. small cap

 

 63,957,070  

 

 

 -  

 

 

 -  

 

 

 63,957,070  

 

Common Stock of Plan Sponsor

   and Subsidiary

 

 36,862,155  

 

 

 -  

 

 

 -  

 

 

 36,862,155  

 

Investment Contracts

 

 -  

 

 

 91,619,394  

 

 

 -  

 

 

 91,619,394  

 

Total investments at fair value

$

 503,275,775  

 

 $  

 91,619,394  

 

 $  

 -  

 

 $  

 594,895,169  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 Level 1

 

 

 Level 2

 

 

 Level 3

 

 

 Total  

 

Mutual Funds

 

 

 

 

 

 

 

 

 

 

 

 

 

Bond

$

 61,948,897  

 

 $  

 -  

 

 $  

 -  

 

 $  

 61,948,897  

 

 

International equity

 

 45,227,159  

 

 

 -  

 

 

 -  

 

 

 45,227,159  

 

 

Money market

 

 1,232,369  

 

 

 -  

 

 

 -  

 

 

 1,232,369  

 

 

Retirement income

 

 2,910,276  

 

 

 -  

 

 

 -  

 

 

 2,910,276  

 

 

Target date

 

 75,043,087  

 

 

 -  

 

 

 -  

 

 

 75,043,087  

 

 

U.S. large cap

 

 137,858,273  

 

 

 -  

 

 

 -  

 

 

 137,858,273  

 

 

U.S. small cap

 

 52,645,750  

 

 

 -  

 

 

 -  

 

 

 52,645,750  

 

Common Stock of Plan Sponsor

   and Subsidiary

 

 41,288,752  

 

 

 -  

 

 

 -  

 

 

 41,288,752  

 

Investment Contracts

 

 -  

 

 

 86,420,771  

 

 

 

 

 

 86,420,771  

 

Total investments at fair value

$

 418,154,563  

 

 $  

 86,420,771  

 

 $  

 -  

 

 $  

 504,575,334  

 


8  

 


 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

December 31, 2012 and 2011

Notes to Financial Statements

 

Note 4.   Investments

On January 13, 2012, TDS shareholders approved 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, and (b) other changes as more fully described in TDS’ Current Report on Form 8-K dated January 24, 2012.

 

These approved Charter Amendments were effective 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.”

 

The following presents investments as of December 31, 2012 and 2011:

 

 

 

  

 

2012

 

 

2011

 

 

Bank Common Trust

  

 

 

 

 

 

 

 

 

 

Vanguard Retirement Savings Trust II (1)

 

$

 87,007,048  

 *  

 

 $  

 82,418,938  

 *  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock of Plan Sponsor and Subsidiary

 

 

 

 

 

 

 

 

 

 

Telephone and Data Systems, Inc.

 

 

 17,983,946  

 

 

 

 13,539,823  

 

 

 

Telephone and Data Systems, Inc. Special

 

 

 -    

 

 

 

 5,144,008  

 

 

 

United States Cellular Corporation

 

 

 18,878,209  

 

 

 

 22,604,921  

 *  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual Funds

 

 

 

 

 

 

 

 

 

 

Mutual Funds Available for Participant Contributions:

 

 

 

 

 

 

 

 

 

 

 

Vanguard Institutional Index Fund

 

 

 63,250,674  

 *  

 

 

 53,597,147  

 *  

 

 

 

Vanguard Small Cap Value Index Fund

 

 

 26,644,682  

 

 

 

 21,455,786  

 

 

 

 

Vanguard Value Index Fund

 

 

 35,105,397  

 *  

 

 

 29,447,069  

 *  

 

 

 

Vanguard Small Cap Growth Index Fund

 

 

 37,312,388  

 *  

 

 

 31,189,964  

 *  

 

 

 

Vanguard Total Bond Market Index Fund

 

 

 65,655,524  

 *  

 

 

 61,948,897  

 *  

 

 

 

Vanguard Growth Index Fund

 

 

 65,753,811  

 *  

 

 

 54,814,057  

 *  

 

 

 

Vanguard Total International Stock Index Fund

 

 

 53,845,987  

 *  

 

 

 45,227,159  

 *  

 

 

 

Vanguard Target Retirement Income Fund

 

 

 5,328,336  

 

 

 

 2,910,276  

 

 

 

 

Vanguard Target 2005 Retirement Fund

 

 

 -    

 

 

 

 861,531  

 

 

 

 

Vanguard Target 2010 Retirement Fund

 

 

 1,705,235  

 

 

 

 1,222,342  

 

 

 

 

Vanguard Target 2015 Retirement Fund

 

 

 7,091,552  

 

 

 

 5,526,110  

 

 

 

 

Vanguard Target 2020 Retirement Fund

 

 

 10,853,623  

 

 

 

 6,460,417  

 

 

 

 

Vanguard Target 2025 Retirement Fund

 

 

 13,339,202  

 

 

 

 8,305,960  

 

 

 

 

Vanguard Target 2030 Retirement Fund

 

 

 13,179,333  

 

 

 

 8,517,427  

 

 

 

 

Vanguard Target 2035 Retirement Fund

 

 

 15,920,874  

 

 

 

 10,141,801  

 

 

 

 

Vanguard Target 2040 Retirement Fund

 

 

 15,604,264  

 

 

 

 10,007,669  

 

 

 

 

Vanguard Target 2045 Retirement Fund

 

 

 16,174,533  

 

 

 

 11,210,058  

 

 

 

 

Vanguard Target 2050 Retirement Fund

 

 

 18,463,078  

 

 

 

 12,789,772  

 

 

 

 

Vanguard Target 2055 Retirement Fund

 

 

 650,924  

 

 

 

 -    

 

 

 

Mutual Funds Used by the Plan to Invest Cash Pending Settlement:

 

 

 

 

 

 

 

 

 

 

 

Dreyfus Treasury & Agency Cash

 

 

 534,203  

 

 

 

 1,232,369  

 

 

 

 

 

Total Investments

 

$

 590,282,823  

 

 

 $  

 500,573,501  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Investment represents 5% or more of the Plan’s net assets.

 

 

 

 

 

 

 

(1) The amount reported is contract value; the fair value of the related assets was $91,619,394 and $86,420,771 at December 31, 2012 and 2011, respectively.


9  

 


 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

December 31, 2012 and 2011

Notes to Financial Statements

 

During the year ended December 31, 2012, the Plan’s investments (including gains and losses on investments bought, sold, and held during the year) earned income as follows:

 

Net appreciation (depreciation) in fair value:

 

 

 

 

Common Stock of Plan Sponsor and Subsidiary

$

(5,705,683

)

 

Mutual Funds

 

44,952,037

 

 

 

 

39,246,354

 

Interest and dividends

 

12,910,932

 

 

Net investment gain of funds

$

52,157,286

 

 

Investments, in general, are subject to various risks, including credit, interest, and overall market volatility risks.  Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in values of investment securities will occur in the near term, and such changes could materially affect the amounts reported in the Statements of Net Assets Available for Benefits.

 

Note 5.   Parties In Interest

The Bank of New York Mellon sponsors plan investments in Dreyfus Treasury & Agency Cash. The Bank of New York Mellon is the directed trustee of the Plan and, therefore, these transactions qualify as party-in-interest transactions.

 

Notes receivable from participants also qualify as party-in-interest transactions.

 

United States Cellular Corporation is a subsidiary of Telephone and Data Systems, Inc. The Plan invests in common stock of United States Cellular Corporation and Telephone and Data Systems, Inc. Transactions in shares of United States Cellular Corporation and Telephone and Data Systems, Inc. common stock qualify as party-in-interest transactions under the provisions of ERISA. During the year ended December 31, 2012, the Plan made purchases of $12,921,661 and sales of $11,602,767 of Company and subsidiary common stock.

 

Note 6.   Tax Status

The Plan obtained its latest determination letter on September 25, 2009 in which the Internal Revenue Service stated that the Plan, as designed, was in compliance with the applicable requirements of the Internal Revenue Code (IRC). The Plan has been amended since the receipt of the determination letter. The Plan administrator believes that the Plan is designed and being operated in compliance with the applicable requirements of the IRC. Therefore, the Plan administrator believes that the Plan was qualified and the related trust was tax exempt at December 31, 2012.

 

Management evaluated the Plan’s tax positions and concluded that the Plan had maintained its tax exempt status and had taken no uncertain tax positions that require adjustment to the financial statements.  Therefore, no provision or liability for income taxes has been included in the financial statements as of December 31, 2012 or 2011.  With few exceptions, the Plan is no longer subject to income tax examinations by the U.S. federal, state, or local tax authorities for years before 2008.

 

Note 7.   Reconciliation of Financial Statements to Form 5500

A reconciliation between the financial statements and Form 5500 as of December 31, 2012 and 2011, and for the year ended December 31, 2012 is as follows:

 

 

 

 

 

2012

 

 

2011

 

Total net assets per Form 5500, Schedule H

$

607,660,602

 

 

 $  

516,803,777

 

Adjustment from fair value to contract value for fully benefit-responsive

   investment contracts

 

(4,612,346

)

 

 

(4,001,833

)

Investments

 

(12,704,556

)

 

 

(11,663,038

)

Notes receivable from participants

 

12,704,556

 

 

 

11,663,038

 

Deemed distributions of notes receivable from participants

 

3,521

 

 

 

20,244

 

 

 

Net Assets Available for Benefits Per Financial Statements

$

603,051,777

 

 

$

512,822,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net assets per Form 5500, Schedule H

$

90,856,825

 

 

 

 

 

Change in fair value to contract value for fully benefit-responsive

   investment contracts

 

(610,513

)

 

 

 

 

Change in investments

 

(1,041,518

)

 

 

 

 

Change in notes receivable from participants

 

1,041,518

 

 

 

 

 

Change in deemed distributions of notes receivable from participants

 

(16,723

)

 

 

 

 

 

 

Change in Net Assets Available for Benefits Per Financial Statements

$

90,229,589

 

 

 

 

 


10  

 


 

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

December 31, 2012 and 2011

Notes to Financial Statements

 

Note 8.   Subsequent Events

The Plan’s management evaluated subsequent events from December 31, 2012 through June 11, 2013, the date these financial statements were issued.  During this period, there have been no significant subsequent events that require adjustment to or disclosure in the financial statements as of December 31, 2012 and for the year then ended.

 

 

Note 9.   Plan Merger

Effective August 31, 2012, the plan sponsor approved the merger of the OneNeck 401(k) Plan into the Plan. All plan assets were transferred to the Telephone and Data Systems, Inc. Tax- Deferred Savings Plan on September 10, 2012.  Participants are 100% vested in balances and earnings on the amounts transferred into the Plan from the OneNeck 401(k) Plan. Balances transferred in are eligible for withdrawal as described above under “Payment of Benefits.”  In addition, balances from the OneNeck 401(k) Plan attributable to rolled over funds are eligible for withdrawal at any time.


11  

 


 

    

Telephone and Data Systems, Inc.

Tax-Deferred Savings Plan

 

Schedule H, line 4i - Schedule of Assets (Held at End of Year)

Plan 003 EIN 36-2669023

December 31, 2012

 

 

 

 

 

 

(c)

 

 

 

 

 

 

 

 

Description of Investment

 

 

 

 

 

 

 

(b)

Including Maturity Date,

 

 

(e)

 

 

 

 

Identity of Issue, Borrower, Lessor,

Rate of Interest, Collateral,

(d)

 

Current

(a)

 

 

 

or Similar Party

Par or Maturity Value

Cost

 

Value

 

Bank Common Trust

 

 

 

 

 

 

Vanguard Retirement Savings Trust II

 87,007,048  

 Shares  

**

$

 91,619,394  

 

 

 

 

 

 

 

 

 

 

 

Common Stock of Plan Sponsor and Subsidiary

 

 

 

 

 

*

Telephone and Data Systems, Inc.

 812,283  

 Shares  

**

 

 17,983,946  

*

United States Cellular Corporation

 535,704  

 Shares  

**

 

 18,878,209  

 

 

 

 

 

 

 

 

 

 

 

Mutual Funds

 

 

 

 

 

 

Mutual Funds Available for Participant Contributions:

 

 

 

 

 

 

 

 

 

Vanguard Institutional Index Fund

 484,605  

 Shares  

**

 

 63,250,674  

 

 

 

 

Vanguard Small Cap Value Index Fund

 1,528,668  

 Shares  

**

 

 26,644,682  

 

 

 

 

Vanguard Value Index Fund

 1,530,981  

 Shares  

**

 

 35,105,397  

 

 

 

 

Vanguard Small Cap Growth Index Fund

 1,488,328  

 Shares  

**

 

 37,312,388  

 

 

 

 

Vanguard Total Bond Market Index Fund

 5,920,246  

 Shares  

**

 

 65,655,524  

 

 

 

 

Vanguard Growth Index Fund

 1,794,591  

 Shares  

**

 

 65,753,811  

 

 

 

 

Vanguard Total International Stock Index Fund

 537,439  

 Shares  

**

 

 53,845,987  

 

 

 

 

Vanguard Target Retirement Income Fund

 437,107  

 Shares  

**

 

 5,328,336  

 

 

 

 

Vanguard Target 2010 Retirement Fund

 70,669  

 Shares  

**

 

 1,705,235  

 

 

 

 

Vanguard Target 2015 Retirement Fund

 530,011  

 Shares  

**

 

 7,091,552  

 

 

 

 

Vanguard Target 2020 Retirement Fund

 455,460  

 Shares  

**

 

 10,853,623  

 

 

 

 

Vanguard Target 2025 Retirement Fund

 981,545  

 Shares  

**

 

 13,339,202  

 

 

 

 

Vanguard Target 2030 Retirement Fund

 563,701  

 Shares  

**

 

 13,179,333  

 

 

 

 

Vanguard Target 2035 Retirement Fund

 1,129,941  

 Shares  

**

 

 15,920,874  

 

 

 

 

Vanguard Target 2040 Retirement Fund

 673,178  

 Shares  

**

 

 15,604,264  

 

 

 

 

Vanguard Target 2045 Retirement Fund

 1,111,652  

 Shares  

**

 

 16,174,533  

 

 

 

 

Vanguard Target 2050 Retirement Fund

 799,614  

 Shares  

**

 

 18,463,078  

 

 

 

 

Vanguard Target 2055 Retirement Fund

 26,247  

 Shares  

**

 

 650,924  

 

Mutual Funds Used by the Plan to Invest

 

 

 

 

 

 

 

 

Cash Pending Settlement:

 

 

 

 

 

*

 

 

 

Dreyfus Treasury & Agency Cash

 534,203  

 Shares  

**

 

 534,203  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

Participants

 Participant loans (interest rates range from 4.25% to 8.25%, maturing January 2013 to December 2017)

 

 12,704,556  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 $  

 607,599,725  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*     Represents a party in interest

 

 

 

 

 

**   Cost omitted for participant directed investments

 

 

 

 

 


12  

 


 

    

Signatures

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, Telephone and Data Systems, Inc., the Plan Administrator, has duly caused this Annual Report on Form 11-K to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

TELEPHONE AND DATA SYSTEMS, INC.

 

 

 

 

TAX-DEFERRED SAVINGS PLAN

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ C. Theodore Herbert

 

 

 

 

 

 

C. Theodore Herbert, Vice President-Human Resources

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Douglas D. Shuma

 

 

 

 

 

 

Douglas D. Shuma, Senior Vice President and Controller

 

 

 

 

 

 

 

 

 

Dated:

June 11, 2013

 

 

 

 

 

 

 

 

 

 


 
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