UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 5, 2016

TELEPHONE AND DATA SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware

001-14157

36-2669023

(State or other jurisdiction of

(Commission

(I.R.S. Employer Identification No.)

incorporation or organization)

File Number)

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

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

□

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

□

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

□

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

□

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Item 2.02.  Results of Operations and Financial Condition

On August 5, 2016, Telephone and Data Systems, Inc. (“TDS”) issued a news release announcing its results of operations for the period ended June 30, 2016.  A copy of the news release is attached hereto as Exhibit 99.1 and incorporated by reference herein. 

The information in this Item 2.02 of Form 8-K is being “furnished” and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor will any such information or exhibits be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as expressly set forth by specific reference in such filing.

Item 9.01.  Financial Statements and Exhibits

(d)   Exhibits: 

In accordance with the provisions of Item 601 of Regulation S-K, any Exhibits filed or furnished herewith are set forth on the Exhibit Index attached hereto.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
		TELEPHONE AND DATA SYSTEMS, INC.
		(Registrant)
Date:	August 5, 2016
		By:	/s/ Douglas D. Shuma
			Douglas D. Shuma
			Senior Vice President - Finance and Chief Accounting Officer
			(principal financial officer and principal accounting officer)

 

 

EXHIBIT INDEX
The following exhibits are filed or furnished herewith as noted below.
Exhibit
No.		Description
99.1		Earnings Press Release dated August 5, 2016
99.2		Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement

 

 

Exhibit 99.1   NEWS RELEASE                                                                                    

As previously announced, TDS will hold a teleconference Aug. 5, 2016, at 9:30 a.m. CDT. Interested parties may listen to the call live via the Events & Presentations page of investors.tdsinc.com.   

 FOR IMMEDIATE RELEASE

 TDS reports second quarter 2016 results

2016 guidance reaffirmed

 

CHICAGO, (Aug. 5, 2016) — Telephone and Data Systems, Inc. (NYSE: TDS) reported total operating revenues of $1,283 million for the second quarter of 2016, versus $1,276 million for the comparable period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $28 million and $0.25, respectively, for the second quarter of 2016, compared to $23 million and $0.21, respectively, in the comparable period one year ago.

 

“TDS businesses showed continued progress through the quarter,” said LeRoy T. Carlson, Jr., TDS president and CEO. “U.S. Cellular grew its customers while TDS Telecom achieved growth in IPTV and broadband connections and increased service revenues at OneNeck.  

“U.S. Cellular maintained momentum in the quarter by increasing connections and driving exceptionally low churn, reflecting our commitment to providing a top quality network and outstanding customer service at every point of customer engagement. U.S. Cellular focused on stronger adoption of equipment installment plans (EIP), which generated strong equipment revenue growth.

“TDS Telecom achieved success in the recent quarter by growing total wireline residential connections, adding IPTV connections and increasing residential revenue per connection. TDS Telecom’s cable segment added residential broadband and voice connections and increased operating revenues. TDS Telecom’s IT service business, OneNeck, generated higher revenues from maintenance and professional services and increased its equipment sales of hardware solutions.”

 

2016 Estimated Results

Current estimates of full-year 2016 results for U.S. Cellular, TDS Telecom, and TDS, which are unchanged from the previous estimates, are shown below.  Such estimates represent management’s view as of August 5, 2016.  Such forward-looking statements should not be assumed to be current as of any future date.  TDS undertakes no duty to update such information, whether as a result of new information, future events, or otherwise.  There can be no assurance that final results will not differ materially from such estimated 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

 

The following tables provide a reconciliation to Operating Cash Flow and Adjusted EBITDA for 2016 estimated results, and actual results for the six months ended June 30, 2016 and year ended December 31, 2015. In providing 2016 estimated results, TDS has not completed the below reconciliation to net income because it does not provide guidance for income taxes.  Although potentially significant, TDS believes that the impact of income taxes cannot be reasonably predicted; therefore, TDS is unable to provide such guidance.

 

					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			610			230			850
EBITDA (Non-GAAP)				$	715-840		$	270-310		$	990-1,155
Add back:
	(Gain) loss on sale of business and
		other exit costs, net			–			–			–
	(Gain) loss on license sales and
		exchanges, net			(10)			–			(10)
		(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
				Six Months Ended June 30, 2016									Year ended December 31, 2015
				U.S. Cellular			TDS Telecom			TDS (2)			U.S. Cellular*			TDS Telecom			TDS (2)*
(Dollars in millions)
Net income (GAAP)				$	37		$	25		$	42		$	247		$	46		$	263
Add back:
	Income tax expense				23			16			31			156			35			172
Income before income taxes
	(GAAP)			$	60		$	41		$	73		$	404		$	81		$	435
Add back:
	Interest expense				56			1			85			86			1			142
	Depreciation, amortization and
		accretion expense			307			112			422			606			228			844
EBITDA (Non-GAAP)				$	423		$	154		$	580		$	1,096		$	310		$	1,421
Add back:
	(Gain) loss on sale of business and
		other exit costs, net			–			–			–			(114)			(10)			(136)
	(Gain) loss on license sales and
		exchanges, net			(9)			–			(9)			(147)			–			(147)
	(Gain) loss on asset disposals, net				10			2			12			16			6			22
Adjusted EBITDA (Non-GAAP) (1)				$	424		$	156		$	583		$	852		$	306		$	1,160
Deduct:
	Equity in earnings of unconsolidated
		entities			72			–			72			140			–			140
	Interest and dividend income				27			2			29			37			2			39
Operating cash flow (Non-GAAP) (1)(3)				$	325		$	155		$	482		$	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 incomes, 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 most 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, 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 incomes 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 June 30, 2016 actual results can be found on the company's website at investors.tdsinc.com.

 

Stock Repurchase Summary

TDS began repurchasing stock under its $250 million repurchase authorization on Aug. 5, 2013.   The following represents repurchases of TDS Common Shares.  

Repurchase Period		# Shares		Cost (in millions)
2016 (year-to-date through June 30, 2016)		111,700		$	3
2015 (full year)		–		$	–
Total		111,700		$	3

 

Conference Call Information

TDS will hold a conference call on August 5, 2016 at 9:30 a.m. Central Time.

• Access the live call on the Events & Presentations page of investors.tdsinc.com or at https://www.webcaster4.com/Webcast/Page/1145/16520.
• Access the call by phone at 877/407-8029 (US/Canada), no pass code required. 

Before the call, certain financial and statistical information to be discussed during the call will be posted to investors.tdsinc.com. The call will be archived on the Events & Presentations page of investors.tdsinc.com. 

About TDS

Telephone and Data Systems, Inc. (TDS), a Fortune 500® company, provides wireless; cable and wireline broadband, TV and voice; and hosted and managed services to approximately 6 million customers nationwide through its businesses, U.S. Cellular, TDS Telecom, OneNeck IT Solutions, and BendBroadband. Founded in 1969 and headquartered in Chicago, TDS employed 10,400 people as of June 30, 2016.

Visit www.tdsinc.com  for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.

Contacts     

Jane McCahon, Senior Vice President, Corporate Relations and Corporate Secretary

312-592-5379

[email protected]

 

Julie Mathews, IRC, Investor Relations Director

312-592-5341

[email protected] 

 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company’s plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: intense competition; the ability to execute TDS’ business strategy; uncertainties in TDS’ future cash flows and liquidity and access to the capital markets; the ability to make payments on TDS and U.S. Cellular indebtedness or comply with the terms of debt covenants; impacts of any pending acquisitions/divestures/exchanges of properties and/or licenses,  including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and grow its markets; the overall economy; the access to and pricing of unbundled network elements; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded TDS and U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; pending and future litigation; changes in income tax rates, laws, regulations or rulings; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of wireless devices, or the mix of products and services offered by U.S. Cellular and TDS Telecom. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K Current Report used by TDS to furnish this press release to the Securities and Exchange Commission, which are incorporated by reference herein.    

 

For more information about TDS and its subsidiaries, visit:

TDS: www.tdsinc.com 

U.S. Cellular: www.uscellular.com 

TDS Telecom: www.tdstelecom.com 

OneNeck IT Solutions: www.oneneck.com

United States Cellular Corporation
Summary Operating Data (Unaudited)
As of or for the Quarter Ended						6/30/2016			3/31/2016			12/31/2015				9/30/2015			6/30/2015
Retail Connections
	Postpaid
		Total at end of period					4,490,000			4,454,000			4,409,000			4,341,000			4,324,000
		Gross additions					197,000			215,000			240,000			200,000			191,000
			Feature phones				8,000			9,000			10,000			14,000			15,000
			Smartphones				107,000			124,000			132,000			119,000			115,000
			Connected devices				82,000			82,000			98,000			67,000			61,000
		Net additions (losses)					36,000			45,000			68,000			17,000			17,000
			Feature phones				(21,000)			(25,000)			(25,000)			(28,000)			(26,000)
			Smartphones				8,000			20,000			23,000			6,000			7,000
			Connected devices				49,000			50,000			70,000			39,000			36,000
		ARPU (1)(8)				$	47.37		$	48.13		$	51.46		$	58.12		$	53.62
		ABPU (Non-GAAP)*(2)(8)				$	56.09		$	56.06		$	58.57		$	63.88		$	58.06
		ARPA (3)(8)				$	124.91		$	125.36		$	131.96		$	147.00		$	133.85
		ABPA (Non-GAAP)*(4)(8)				$	147.90		$	145.99		$	150.19		$	161.57		$	144.94
		Churn rate (5)					1.20%			1.28%			1.31%			1.41%			1.34%
			Handsets				1.10%			1.18%			1.23%			1.33%			1.26%
			Connected devices				1.84%			2.01%			1.95%			2.20%			2.13%
		Smartphone penetration (6)					77%			75%			74%			72%			69%
	Prepaid
		Total at end of period					413,000			399,000			387,000			380,000			368,000
		Gross additions					73,000			75,000			69,000			71,000			65,000
		Net additions (losses)					14,000			12,000			7,000			12,000			8,000
		ARPU (1)				$	34.58		$	35.51		$	35.54		$	35.64		$	35.98
		Churn rate (5)					4.86%			5.37%			5.40%			5.24%			5.22%
Total connections at end of period (9)							4,973,000			4,926,000			4,876,000			4,807,000			4,779,000
Smartphones sold as a percent of total
	handsets sold						91%			92%			91%			87%			87%
Market penetration at end of period
	Consolidated operating population						31,994,000			31,994,000			31,967,000			31,814,000			31,814,000
	Consolidated operating penetration (7)						16%			15%			15%			15%			15%
Capital expenditures (millions)						$	93		$	79		$	198		$	135		$	134
Total cell sites in service							6,324			6,306			6,297			6,246			6,223
Owned towers							3,988			3,989			3,978			3,957			3,940
*		See Non-GAAP reconciliation at end.
(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.
(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.
(5)		Churn metrics represents the percentage of the connections that disconnect service each month.  These rates represent the average monthly churn rate for each respective period.
(6)		Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding connected devices. Smartphone penetration is calculated by dividing postpaid smartphone connections by postpaid handset 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.
(8)		The quarter ended September 30, 2015 results include the recognition of $58 million in revenue due to the termination of the rewards program.
(9)		Includes reseller and other connections.

TDS Telecom
Summary Operating Data (Unaudited)
Quarter Ended			6/30/2016			3/31/2016			12/31/2015			9/30/2015			6/30/2015
TDS Telecom
Wireline
	Residential connections
		Voice (1)		316,800			318,400			319,800			325,900			329,000
		Broadband (2)		232,200			229,100			228,500			231,600			231,200
		IPTV (3)		41,200			38,300			34,400			30,300			27,900
		Wireline residential connections		590,200			585,800			582,700			587,800			588,100
	Total residential revenue per connection (4)		$	43.67		$	43.28		$	41.24		$	42.83		$	42.10
	Commercial connections
		Voice (1)		164,000			167,400			171,500			176,700			181,800
		Broadband (2)		21,900			22,000			22,400			23,000			23,700
		managedIP (5)		149,000			148,500			147,100			145,900			145,100
		Wireline commercial connections		334,900			337,900			341,000			345,600			350,600
	Total Wireline connections			925,100			923,700			923,700			933,400			938,700
Cable
	Cable Connections
		Video (6)		102,900			104,600			106,800			108,300			109,100
		Broadband (7)		125,700			121,700			117,100			114,600			112,300
		Voice (8)		58,900			58,100			56,400			54,000			51,500
		Cable connections		287,600			284,400			280,300			276,900			272,900
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	6/30/2016			3/31/2016			12/31/2015			9/30/2015			6/30/2015
Wireline	$	27		$	27		$	50		$	38		$	32
Cable		17			13			15			13			12
HMS		2			2			8			5			9
	$	46		$	42		$	73		$	56		$	53