TDS reports third quarter 2016 results

2016 Estimated Results

U.S. Cellular

TDS Telecom

TDS(2)

Current

Previous

Current

Previous

Current

Previous

(Dollars in millions)

Total operating revenues

$3,900-$4,100

Unchanged

$1,130-$1,180

Unchanged

$5,040-$5,290

Unchanged

Operating cash flow (1)

$525-$650

Unchanged

$270-$310

Unchanged

$800-$965

Unchanged

Adjusted EBITDA (1)

$725-$850

Unchanged

$270-$310

Unchanged

$1,000-$1,165

Unchanged

Capital expenditures (Approximately)

$

500

Unchanged

$

180

Unchanged

$

695

Unchanged

2016 Estimated Results

U.S. Cellular

TDS Telecom

TDS(2)

(Dollars in millions)

Net income (loss) (GAAP)

N/A

N/A

N/A

Add back:

Income tax expense (benefit)

N/A

N/A

N/A

Income (loss) before income taxes

(GAAP)

$

(5)-120

$

40-80

$

(25)-140

Add back:

Interest expense

110

–

165

Depreciation, amortization and accretion expense

615

230

855

EBITDA (Non-GAAP)

$

720-845

$

270-310

$

995-1,160

Add back:

(Gain) loss on sale of business and other exit costs, net

–

–

–

(Gain) loss on license sales and exchanges, net

(15)

–

(15)

(Gain) loss on asset disposals, net

20

–

20

Adjusted EBITDA (Non-GAAP) (1)

$

725-850

$

270-310

$

1,000-1,165

Deduct:

Equity in earnings of unconsolidated entities

140

–

140

Interest and dividend income

60

–

60

Operating cash flow (Non-GAAP) (1)

$

525-650

$

270-310

$

800-965

Actual Results

Nine Months Ended September 30, 2016

Year ended December 31, 2015

U.S.Cellular

TDSTelecom

TDS (2)

U.S.Cellular*

TDSTelecom

TDS (2)*

(Dollars in millions)

Net income (GAAP)

$

54

$

32

$

58

$

247

$

46

$

263

Add back:

Income tax expense

39

20

45

156

35

172

Income before income taxes

(GAAP)

$

93

$

53

$

103

$

404

$

81

$

435

Add back:

Interest expense

84

2

127

86

1

142

Depreciation, amortization and

accretion expense

462

168

636

606

228

844

EBITDA (Non-GAAP)

$

639

$

223

$

866

$

1,096

$

310

$

1,421

Add back:

(Gain) loss on sale of business and

other exit costs, net

–

–

(1)

(114)

(10)

(136)

(Gain) loss on license sales and

exchanges, net

(16)

–

(16)

(147)

–

(147)

(Gain) loss on asset disposals, net

16

4

20

16

6

22

Adjusted EBITDA (Non-GAAP) (1)

$

639

$

226

$

869

$

852

$

306

$

1,160

Deduct:

Equity in earnings of unconsolidated

entities

110

–

109

140

–

140

Interest and dividend income

41

2

44

37

2

39

Other, net

–

–

1

–

–

–

Operating cash flow (Non-GAAP) (1)(3)

$

488

$

225

$

715

$

675

$

304

$

981

* Includes $58 million of revenue related to termination of the rewards points program.

Note: Totals may not foot due to rounding differences.

(1)

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) is defined as net income adjusted for the items set forth in the reconciliation above.  Operating cash flow is defined as net income adjusted for the items set forth in the reconciliation above.  Adjusted EBITDA and Operating cash flow are not measures of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measure of liquidity.  TDS does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future.  Management uses Adjusted EBITDA and Operating cash flow as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed appropriate.  Management believes Adjusted EBITDA and Operating cash flow are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance.  Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Operating cash flow reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities.  The table above reconciles Adjusted EBITDA and Operating cash flow to the corresponding GAAP measure, Net income or Income (loss) before income taxes.

(2)

The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments, all of which are not presented above.

(3)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for September 30, 2016 actual results can be found on the company's website at investors.tdsinc.com.

Repurchase Period

# Shares

Cost (in millions)

2016 (year-to-date through September 30, 2016)

111,700

$

3

2015 (full year)

–

$

–

Total

111,700

$

3

TDS Telecom

Summary Operating Data (Unaudited)

Quarter Ended

9/30/2016

6/30/2016

3/31/2016

12/31/2015

9/30/2015

TDS Telecom

Wireline

Residential connections

Voice (1)

314,600

316,800

318,400

319,800

325,900

Broadband (2)

232,800

232,200

229,100

228,500

231,600

IPTV (3)

43,600

41,200

38,300

34,400

30,300

   Wireline residential connections

590,900

590,200

585,800

582,700

587,800

Total residential revenue per connection (4)

$

44.25

$

43.67

$

43.28

$

41.24

$

42.83

Commercial connections

Voice (1)

160,900

164,000

167,400

171,500

176,700

Broadband (2)

21,700

21,900

22,000

22,400

23,000

managedIP (5)

151,500

149,000

148,500

147,100

145,900

   Wireline commercial connections

334,000

334,900

337,900

341,000

345,600

Total Wireline connections

924,900

925,100

923,700

923,700

933,400

Cable

Cable Connections

Video (6)

101,100

102,900

104,600

106,800

108,300

Broadband (7)

130,200

125,700

121,700

117,100

114,600

Voice (8)

59,800

58,900

58,100

56,400

54,000

   Cable connections

291,000

287,600

284,400

280,300

276,900

Numbers may not foot due to rounding.

(1)

The individual circuits connecting a customer to Wireline's central office facilities.

(2)

The number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies.

(3)

The number of Wireline customers provided video services using IP networking technology.

(4)

Total residential revenue per connection is calculated by dividing total Wireline residential revenue by the average number of total Wireline residential connections and by the number of months in the period.

(5)

The number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.

(6)

Generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or hotel, connections are counted based on the number of units/rooms within the building receiving service.

(7)

Billable number of lines into a building for high-speed data services.

(8)

Billable number of lines into a building for voice services.

TDS Telecom

Capital Expenditures (millions)

Quarter Ended

9/30/2016

6/30/2016

3/31/2016

12/31/2015

9/30/2015

Wireline

$

27

$

27

$

27

$

50

$

38

Cable

11

17

13

15

13

HMS

2

2

2

8

5

$

40

$

46

$

42

$

73

$

56

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended September 30,

2016

2015

2016 vs. 2015

Increase (Decrease)

(Dollars and shares in millions, except per share amounts)

Operating revenues

U.S. Cellular

$

1,010

$

1,069

$

(59)

(6)%

TDS Telecom

287

299

(12)

(4)%

All Other (1)

4

6

(2)

(37)%

1,301

1,374

(73)

(5)%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and

accretion

846

861

(15)

(2)%

Depreciation, amortization and accretion

155

152

3

2%

(Gain) loss on asset disposals, net

7

3

4

>100%

(Gain) loss on sale of business and other exit costs, net

–

(1)

1

N/M

(Gain) loss on license sales and exchanges, net

(7)

(24)

17

70%

1,001

991

10

1%

TDS Telecom

Expenses excluding depreciation, amortization and

accretion

217

224

(6)

(3)%

Depreciation, amortization and accretion

57

57

–

-

(Gain) loss on asset disposals, net

2

2

(1)

(30)%

(Gain) loss on sale of business and other exit costs, net

–

–

–

N/M

276

282

(7)

(2)%

All Other (1)

Expenses excluding depreciation and amortization

4

6

(2)

(41)%

Depreciation and amortization

2

2

–

(6)%

(Gain) loss on asset disposals, net

(1)

–

(1)

>100%

(Gain) loss on sale of business and other exit costs, net (2)

–

–

–

>(100)%

5

8

(3)

(38)%

Total operating expenses

1,281

1,281

–

-

Operating income (loss)

U.S. Cellular

9

78

(69)

(88)%

TDS Telecom

12

17

(5)

(32)%

All Other (1)

(1)

(2)

1

41%

20

93

(73)

(79)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

38

40

(2)

(5)%

Interest and dividend income

15

10

5

56%

Interest expense

(42)

(35)

(7)

(20)%

Other, net

(1)

–

(1)

>100%

Total investment and other income

10

15

(5)

(25)%

Income before income taxes

30

108

(78)

(72)%

Income tax expense

14

46

(32)

(69)%

Net income

16

62

(46)

(74)%

Less: Net income attributable to noncontrolling

interests, net of tax

3

11

(8)

(70)%

Net income attributable to TDS shareholders

13

51

(38)

(75)%

TDS Preferred dividend requirement

–

–

–

-

Net income available to common shareholders

$

13

$

51

$

(38)

(75)%

Basic weighted average shares outstanding

110

109

1

1%

Basic earnings per share attributable to TDS shareholders

$

0.12

$

0.47

$

(0.35)

(75)%

Diluted weighted average shares outstanding

111

110

1

1%

Diluted earnings per share attributable to TDS shareholders

$

0.11

$

0.46

$

(0.35)

(75)%

(1)

Consists of TDS corporate, intercompany eliminations and all other business operations not included in the U.S. Cellular and TDS Telecom segments.

N/M – Percentage change not meaningful

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Nine Months Ended September 30,

2016

2015

2016 vs. 2015

Increase (Decrease)

(Dollars and shares in millions, except per share amounts)

Operating revenues

U.S. Cellular

$

2,948

$

3,010

$

(62)

(2)%

TDS Telecom

868

874

(6)

(1)%

All Other (1)

10

18

(8)

(43)%

3,826

3,902

(76)

(2)%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and

accretion

2,460

2,472

(12)

-

Depreciation, amortization and accretion

462

450

12

3%

(Gain) loss on asset disposals, net

16

12

4

33%

(Gain) loss on sale of business and other exit costs, net

–

(114)

114

100%

(Gain) loss on license sales and exchanges, net

(16)

(147)

131

89%

2,922

2,673

249

9%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

644

640

3

1%

Depreciation, amortization and accretion

168

170

(2)

(1)%

(Gain) loss on asset disposals, net

4

3

1

28%

(Gain) loss on sale of business and other exit costs, net

–

(3)

3

>100%

816

810

5

1%

All Other (1)

Expenses excluding depreciation and amortization

8

16

(8)

(50)%

Depreciation and amortization

6

8

(2)

(32)%

(Gain) loss on sale of business and other exit costs, net (2)

(1)

(13)

12

96%

13

11

2

25%

Total operating expenses

3,750

3,494

256

7%

Operating income (loss)

U.S. Cellular (3)

26

337

(311)

(92)%

TDS Telecom

53

64

(11)

(17)%

All Other (1)

(3)

7

(10)

>(100)%

76

408

(332)

(81)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

109

110

(1)

(1)%

Interest and dividend income

44

28

16

57%

Interest expense

(127)

(103)

(24)

(23)%

Other, net

1

–

1

>(100)%

Total investment and other income

27

35

(8)

(24)%

Income before income taxes

103

443

(340)

(77)%

Income tax expense

45

178

(133)

(75)%

Net income

58

265

(207)

(78)%

Less: Net income attributable to noncontrolling interests, net of tax

9

45

(36)

(79)%

Net income attributable to TDS shareholders

49

220

(171)

(78)%

TDS Preferred dividend requirement

–

–

–

-

Net income available to common shareholders

$

49

$

220

$

(171)

(78)%

Basic weighted average shares outstanding

110

109

1

N/M

Basic earnings per share attributable to TDS shareholders

$

0.44

$

2.03

$

(1.58)

(78)%

Diluted weighted average shares outstanding

111

110

1

N/M

Diluted earnings per share attributable to TDS shareholders

$

0.44

$

1.99

$

(1.55)

(78)%

(1)

Consists of TDS corporate, intercompany eliminations and all other business operations not included in the U.S. Cellular and TDS Telecom segments.

(2)

Compared to U.S. Cellular, TDS recognized an incremental gain of $12 million on the tower sale as a result of a lower basis in the assets disposed in 2015.

(3)

Year-over-year comparisons are affected by gains of $252 million from sales and exchanges of businesses and licenses in 2015.

N/M – Percentage change not meaningful

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Nine Months Ended September 30,

2016

2015

(Dollars in millions)

Cash flows from operating activities

Net income

$

58

$

265

Add (deduct) adjustments to reconcile net income to net cash flows from operating activities

Depreciation, amortization and accretion

636

628

Bad debts expense

72

83

Stock-based compensation expense

29

29

Deferred income taxes, net

11

(40)

Equity in earnings of unconsolidated entities

(109)

(110)

Distributions from unconsolidated entities

55

45

(Gain) loss on asset disposals, net

20

15

(Gain) loss on sale of business and other exit costs, net

(1)

(130)

(Gain) loss on license sales and exchanges, net

(16)

(147)

Noncash interest expense

2

2

Other operating activities

(3)

(1)

Changes in assets and liabilities from operations

Accounts receivable

(9)

(94)

Equipment installment plans receivable

(160)

(96)

Inventory

3

90

Accounts payable

47

125

Customer deposits and deferred revenues

(41)

(50)

Accrued taxes

77

212

Accrued interest

7

11

Other assets and liabilities

(40)

(110)

Net cash provided by operating activities

638

727

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(426)

(558)

Cash paid for acquisitions and licenses

(46)

(287)

Cash received from divestitures and exchanges

20

325

Federal Communications Commission deposit

(143)

–

Other investing activities

1

6

Net cash used in investing activities

(594)

(514)

Cash flows from financing activities

Issuance of long-term debt

2

225

Repayment of long-term debt

(9)

(1)

TDS Common Shares reissued for benefit plans, net of tax payments

7

11

U.S. Cellular Common Shares reissued for benefit plans, net of tax payments

4

(1)

Repurchase of TDS Common Shares

(3)

–

Repurchase of U.S. Cellular Common Shares

(2)

(4)

Dividends paid to TDS shareholders

(49)

(46)

Payment of debt issuance costs

(4)

(3)

Distributions to noncontrolling interests

(1)

(6)

Other financing activities

11

5

Net cash provided by (used in) financing activities

(44)

180

Net increase (decrease) in cash and cash equivalents

–

393

Cash and cash equivalents

Beginning of period

985

472

End of period

$

985

$

865

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

September 30,

December 31,

2016

2015

(Dollars in millions)

Current assets

Cash and cash equivalents

$

985

$

985

Accounts receivable from customers and others, net

824

803

Inventory, net

148

158

Prepaid expenses

113

112

Income taxes receivable

6

70

Other current assets

34