TDS reports third quarter 2017 results

2017 Estimated Results

U.S. Cellular

TDS Telecom

TDS(3)

Current

Previous

Current

Previous

Current

Previous

(Dollars in millions)

Total operating revenues (1)

$3,850-$3,950

$3,800-$4,000

$1,125-$1,150

$1,200-$1,250

$4,990-$5,115

$5,015-$5,265

Adjusted OIBDA (1)(2)(4)

$600-$700

$550-$650

$310-$330

$300-$340

$910-$1,030

$855-$955

Adjusted EBITDA (2)

$740-$840

$700-$800

$310-$330

$300-$340

$1,050-$1,170

$1,005-$1,145

Capital expenditures (Approximately)

$500

Unchanged

$225

Unchanged

$735

Unchanged

2017 Estimated Results

U.S. Cellular

TDS Telecom

TDS(3)

(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)

$

(350)-(250)

$

50-70

$

(220)-(100)

Add back:

Interest expense

110

5

170

Depreciation, amortization and accretion expense

610

220

835

EBITDA (Non-GAAP)

$

370-470

$

275-295

$

785-905

Add back:

Loss on impairment of goodwill

370

35

265

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

–

–

–

(Gain) loss on license sales and exchanges, net

(20)

–

(20)

(Gain) loss on asset disposals, net

20

–

20

Adjusted EBITDA (Non-GAAP) (2)

$

740-840

$

310-330

$

1,050-1,170

Deduct:

Equity in earnings of unconsolidated entities

130

–

130

Interest and dividend income(1)

10

–

10

Adjusted OIBDA (Non-GAAP)(1)(2)(4)

$

600-700

$

310-330

$

910-1,030

Actual Results

Nine Months Ended September 30, 2017

Year ended December 31, 2016

U.S. Cellular

TDS

Telecom

TDS (3)

U.S. Cellular

TDS

Telecom

TDS (3)

(Dollars in millions)

Net income (loss) (GAAP)

$

(259)

$

18

$

(176)

$

49

$

42

$

52

Add back:

Income tax expense (benefit)

(19)

24

39

33

25

40

Income (loss) before income taxes (GAAP)

$

(278)

$

42

$

(137)

$

82

$

67

$

92

Add back:

Interest expense

85

3

128

113

3

170

Depreciation, amortization and accretion expense

460

166

632

618

224

850

EBITDA (Non-GAAP)

$

267

$

211

$

623

$

813

$

294

$

1,112

Add back:

Loss on impairment of goodwill

370

35

262

–

–

–

(Gain) loss on sale of business and

other exit costs, net

(1)

–

(1)

–

–

(1)

(Gain) loss on license sales and exchanges, net

(19)

–

(19)

(19)

(1)

(20)

(Gain) loss on asset disposals, net

14

2

16

22

4

27

Adjusted EBITDA (Non-GAAP) (2)

$

631

$

248

$

881

$

816

$

298

$

1,118

Deduct:

Equity in earnings of unconsolidated entities

101

–

101

140

–

140

Interest and dividend income(1)

6

4

12

6

3

11

Other, net

1

–

–

1

–

–

Adjusted OIBDA (Non-GAAP) (1)(2)(4)

$

523

$

244

$

768

$

669

$

295

$

967

Note: Totals may not foot due to rounding differences.

(1)

Equipment installment plan interest income is reflected as a component of Service revenues consistent with an accounting policy change effective January 1, 2017.  All prior period numbers have been recast to conform to this accounting change. 

(2)

Adjusted EBITDA is defined as net income adjusted for the items set forth in the reconciliation above.  Adjusted OIBDA is defined as net income adjusted for the items set forth in the reconciliation above.  Adjusted EBITDA and Adjusted OIBDA 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 measures 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 Adjusted OIBDA as measurements of profitability, and therefore reconciliations to Net income are deemed appropriate.  Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as presented above 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 Adjusted OIBDA 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 Adjusted OIBDA flow to the corresponding GAAP measure, Net income or Income before income taxes.

(3)

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.

(4)

A reconciliation of Adjusted OIBDA (Non-GAAP) to Operating income (GAAP) for September 30, 2017 actual results can be found on TDS' website at investors.tdsinc.com.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

9/30/2017

6/30/2017

3/31/2017

12/31/2016

9/30/2016

Retail Connections

Postpaid

Total at end of period

4,513,000

4,478,000

4,455,000

4,482,000

4,484,000

Gross additions

191,000

174,000

146,000

187,000

174,000

Feature phones

7,000

7,000

7,000

7,000

10,000

Smartphones

132,000

116,000

88,000

109,000

105,000

Connected devices

52,000

51,000

51,000

71,000

59,000

Net additions (losses)

35,000

23,000

(27,000)

(2,000)

(6,000)

Feature phones

(15,000)

(15,000)

(19,000)

(21,000)

(20,000)

Smartphones

44,000

34,000

(9,000)

(4,000)

(7,000)

Connected devices

6,000

4,000

1,000

23,000

21,000

ARPU (1)

$

43.41

$

44.60

$

45.42

$

45.19

$

47.08

ABPU (Non-GAAP)(2)

$

54.71

$

55.19

$

55.82

$

55.43

$

56.79

ARPA (3)

$

116.36

$

119.73

$

121.88

$

120.67

$

125.31

ABPA (Non-GAAP)(4)

$

146.65

$

148.15

$

149.78

$

148.02

$

151.16

Churn rate (5)

1.16%

1.13%

1.29%

1.41%

1.34%

Handsets

0.96%

0.91%

1.08%

1.23%

1.22%

Connected devices

2.33%

2.35%

2.55%

2.49%

2.04%

Prepaid

Total at end of period

515,000

484,000

480,000

484,000

480,000

Gross additions

102,000

73,000

78,000

83,000

132,000

Net additions (losses)

31,000

3,000

(4,000)

4,000

67,000

ARPU (1)

$

33.12

$

33.52

$

33.66

$

33.25

$

34.39

Churn rate (5)

4.75%

4.93%

5.69%

5.44%

4.84%

Total connections at end of period (6)

5,089,000

5,023,000

4,996,000

5,031,000

5,030,000

Market penetration at end of period

Consolidated operating population

31,834,000

32,089,000

32,089,000

31,994,000

31,994,000

Consolidated operating penetration (7)

16%

16%

16%

16%

16%

Capital expenditures (millions)

$

112

$

84

$

61

$

171

$

103

Total cell sites in service

6,436

6,421

6,417

6,415

6,374

Owned towers

4,051

4,044

4,041

4,040

4,015

(1)

Average Revenue Per User (ARPU) - metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period.  These revenue bases and connection populations are shown below:

▪

Postpaid ARPU consists of total postpaid service revenues and postpaid connections.

▪

Prepaid ARPU consists of total prepaid service revenues and prepaid connections.

(2)

Average Billings Per User (ABPU) - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period.  Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(3)

Average Revenue Per Account (ARPA) - metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.

(4)

Average Billings Per Account (ABPA) - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period.  Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.

(5)

Churn rate represents the percentage of the connections that disconnect service each month.  These rates represent the average monthly churn rate for each respective period.

(6)

Includes reseller and other connections.

(7)

Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.

TDS Telecom

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

9/30/2017

6/30/2017

3/31/2017

12/31/2016

9/30/2016

TDS Telecom

Wireline

Residential connections

Voice (1)

298,200

304,600

308,200

310,600

314,600

Broadband (2)

229,900

230,200

228,500

229,500

232,800

IPTV (3)

47,200

46,200

45,200

45,300

43,600

   Wireline residential connections

575,300

581,000

581,900

585,400

590,900

Total residential revenue per connection (4)

$

46.07

$

46.39

$

45.17

$

44.27

$

44.25

Commercial connections

Voice (1)

146,900

150,500

154,000

157,400

160,900

Broadband (2)

20,900

21,000

21,200

21,400

21,700

managedIP (5)

147,600

149,700

150,300

150,900

151,500

   Wireline commercial connections

315,300

321,200

325,500

329,700

334,000

Total Wireline connections

890,700

902,200

907,400

915,200

924,900

Cable

Cable Connections

Broadband (6)

143,800

140,300

137,800

133,700

130,200

Video (7)

97,900

97,900

97,600

99,000

101,100

Voice (8)

58,900

58,700

59,000

59,600

59,800

   Cable connections

300,600

297,000

294,300

292,400

291,000

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 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)

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

(7)

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.

(8)

Billable number of lines into a building for voice services.

TDS Telecom

Capital Expenditures (Unaudited)

Quarter Ended

9/30/2017

6/30/2017

3/31/2017

12/31/2016

9/30/2016

(Dollars in millions)

Wireline

$

41

$

33

$

17

$

26

$

27

Cable

14

12

9

13

11

HMS

2

4

6

5

2

$

58

$

49

$

33

$

45

$

40

Numbers may not foot due to rounding.

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended September 30,

2017

2016

2017 vs. 2016

Increase (Decrease)

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

Operating revenues

U.S. Cellular (1)

$

963

$

1,023

$

(60)

(6)%

TDS Telecom

285

287

(3)

(1)%

All Other (2)

3

4

(1)

-

1,251

1,314

(63)

(5)%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

796

846

(50)

(6)%

Depreciation, amortization and accretion

153

155

(2)

(2)%

Loss on impairment of goodwill

370

–

370

N/M

(Gain) loss on asset disposals, net

5

7

(2)

(26)%

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

(1)

–

(1)

N/M

(Gain) loss on license sales and exchanges, net

–

(7)

7

100%

1,323

1,001

322

32%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

206

217

(11)

(5)%

Depreciation, amortization and accretion

56

57

(1)

(2)%

Loss on impairment of goodwill

35

–

35

N/M

(Gain) loss on asset disposals, net

1

2

(1)

(51)%

297

276

21

8%

All Other (2)

Expenses excluding depreciation and amortization

5

4

1

64%

Depreciation and amortization

–

2

(2)

(9)%

Loss on impairment of goodwill(3)

(143)

–

(143)

N/M

(Gain) loss on asset disposals, net

–

(1)

1

(100)%

(137)

5

(143)

(100)%

        Total operating expenses

1,483

1,281

202

16%

Operating income (loss)

U.S. Cellular (1)

(360)

22

(382)

>(100)%

TDS Telecom

(13)

12

(24)

>(100)%

All Other (2)

141

(1)

142

>100%

(232)

33

(265)

>(100)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

35

38

(3)

(6)%

Interest and dividend income (1)

4

2

2

>100%

Interest expense

(43)

(42)

(1)

(2)%

Other, net

–

(1)

1

>100%

Total investment and other income (expense)(1)

(4)

(3)

(1)

(38)%

Income (loss) before income taxes

(236)

30

(266)

>(100)%

Income tax expense (benefit)

(5)

14

(19)

>(100)%

Net income (loss)

(231)

16

(247)

>(100)%

Less: Net income (loss) attributable to noncontrolling

interests, net of tax

(50)

3

(53)

>(100)%

Net income (loss) attributable to TDS shareholders

(181)

13

(194)

>(100)%

TDS Preferred dividend requirement

–

–

–

-

Net income (loss) available to TDS common shareholders

$

(181)

$

13

$

(194)

>(100)%

Basic weighted average shares outstanding

111

110

1

1%

Basic earnings (loss) per share available to TDS common shareholders

$

(1.64)

$

0.12

$

(1.76)

N/M

Diluted weighted average shares outstanding

111

111

–

(1)%

Diluted earnings (loss) per share available to TDS common shareholders

$

(1.64)

$

0.11

$

(1.75)

>(100)%

N/M - Percentage change not meaningful

Numbers may not foot due to rounding.

End Notes (1) (2) (3)  ̶  Explained on page 11 of the release

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Nine Months Ended September 30,

2017

2016

2017 vs. 2016

Increase (Decrease)

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

Operating revenues

U.S. Cellular(1)

$

2,862

$

2,985

$

(123)

(4)%

TDS Telecom

865

868

(4)

-

All Other(2)

9

10

(1)

(2)%

3,736

3,863

(127)

(3)%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

2,339

2,460

(121)

(5)%

Depreciation, amortization and accretion

460

462

(2)

-

Loss on impairment of goodwill

370

–

370

N/M

(Gain) loss on asset disposals, net

14

16

(2)

(17)%

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

(1)

–

(1)

>(100)%

(Gain) loss on license sales and exchanges, net

(19)

(16)

(3)

(16)%

3,163

2,922

241

8%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

621

644

(23)

(4)%

Depreciation, amortization and accretion

166

168

(2)

(1)%

Loss on impairment of goodwill

35

–

35

N/M

(Gain) loss on asset disposals, net

2

4

(1)

(38)%

824

816

9

1%

All Other(2)

Expenses excluding depreciation and amortization

8

8

–

25%

Depreciation and amortization

6

6

–

(10)%

Loss on impairment of goodwill(3)

(143)

–

(143)

N/M

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

–

(1)

1

N/M

(129)

13

(142)

>(100)%

Total operating expenses

3,858

3,750

108

3%

Operating income (loss)

U.S. Cellular(1)

(301)

63

(364)

>(100)%

TDS Telecom

41

53

(12)

(23)%

All Other(2)

138

(3)

141

>100%

(122)

113

(235)

>(100)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

101

109

(8)

(8)%

Interest and dividend income(1)

12

7

5

53%

Interest expense

(128)

(127)

(1)

(1)%

Other, net

–

1

(1)

>100%

Total investment and other income (expense)(1)

(15)

(10)

(5)

(50)%

Income (loss) before income taxes

(137)

103

(240)

>(100)%

Income tax expense

39

45

(6)

(12)%

Net income (loss)

(176)

58

(234)

>(100)%

Less: Net income (loss) attributable to noncontrolling

interests, net of tax

(42)

9

(51)

>(100)%

Net income (loss) attributable to TDS shareholders

(134)

49

(183)

>(100)%

TDS Preferred dividend requirement

–

–

–

(67)%

Net income (loss) available to TDS common shareholders

$

(134)

$

49

$

(183)

>(100)%

Basic weighted average shares outstanding

111

110

1

1%

Basic earnings (loss) per share available to TDS common shareholders

$

(1.21)

$

0.44

$

(1.65)

>(100)%

Diluted weighted average shares outstanding

111

111

–

1%

Diluted earnings (loss) per share available to TDS common shareholders

$

(1.21)

$

0.44

$

(1.65)

>(100)%

N/M - Percentage change not meaningful

Numbers may not foot due to rounding.

End Notes (1) (2) (3)  ̶̶  Explained on page 11 of the release

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Nine Months Ended

September 30,

2017

2016

(Dollars in millions)

Cash flows from operating activities

Net income (loss)

$

(176)

$

58

Add (deduct) adjustments to reconcile net income (loss) to net cash flows

  from operating activities

Depreciation, amortization and accretion

632

636

Bad debts expense

68

72

Stock-based compensation expense

34

29

Deferred income taxes, net

(23)

11

Equity in earnings of unconsolidated entities

(101)

(109)

Distributions from unconsolidated entities

85

55

Loss on impairment of goodwill

262

–

(Gain) loss on asset disposals, net

16

20

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

(1)

(1)

(Gain) loss on license sales and exchanges, net

(19)

(16)

Noncash interest

2

2

Other operating activities

–

(3)

Changes in assets and liabilities from operations

Accounts receivable

(6)

(9)

Equipment installment plans receivable

(164)

(160)

Inventory

44

3

Accounts payable

(59)

47

Customer deposits and deferred revenues

(16)

(41)

Accrued taxes

41

77

Accrued interest

11

7

Other assets and liabilities

(9)

(40)

Net cash provided by operating activities

621

638

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(398)

(426)

Cash paid for acquisitions and licenses

(200)

(46)

Cash paid for investments

(100)

–

Cash received from divestitures and exchanges

19

20

Federal Communications Commission deposit

–

(143)

Other investing activities

1

1

Net cash used in investing activities

(678)

(594)

Cash flows from financing activities

Repayment of long-term debt

(9)

(9)

Issuance of long-term debt

–

2

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

(1)

7

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

–

4

Repurchase of TDS Common Shares

–

(3)

Repurchase of U.S. Cellular Common Shares

–

(2)

Repurchase of TDS Preferred Shares

(1)

–

Dividends paid to TDS shareholders

(51)

(49)

Payment of debt issuance costs

–

(4)

Distributions to noncontrolling interests

(2)

(1)

Other financing activities

5

11

Net cash used in financing activities

(59)

(44)

Net increase (decrease) in cash and cash equivalents

(116)

–

Cash and cash equivalents

Beginning of period

900

985

End of period

$

784

$

985

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

September 30,

December 31,

2017

2016

(Dollars in millions)

Current assets

Cash and cash equivalents

$

784

$

900

Short-term investments

100

–

Accounts receivable from customers and others, net

871

851

Inventory, net

107

151

Prepaid expenses

109

115

Income taxes receivable

2

10

Other current assets

31

32

Total current assets

2,004

2,059

Assets held for sale

5

8

Licenses

2,234

1,895

Goodwill