TDS reports first quarter 2018 results

2018 Estimated Results

U.S. Cellular

TDS Telecom ⁽¹⁾

TDS ⁽¹⁾⁽²⁾

Current ⁽³⁾

Previous

Current ⁽³⁾

Previous

Current ⁽³⁾

Previous

(Dollars in millions)

Total operating revenues

$3,850-$4,050

Unchanged

$900-$950

Unchanged

$5,015-$5,265

Unchanged

Adjusted OIBDA ⁽⁴⁾⁽⁵⁾

$625-$775

Unchanged

$290-$320

Unchanged

$925-$1,105

Unchanged

Adjusted EBITDA ⁽⁴⁾

$765-$915

Unchanged

$300-$330

Unchanged

$1,075-$1,255

Unchanged

Capital expenditures

$500-$550

Unchanged

$270

Unchanged

$795-$845

Unchanged

2018 Estimated Results

U.S. Cellular ⁽³⁾

TDS Telecom ⁽¹⁾⁽³⁾

TDS ^(1)(2)(3)

(Dollars in millions)

Net income (GAAP)

N/A

N/A

N/A

Add back:

Income tax expense (benefit)

N/A

N/A

N/A

Income before income taxes (GAAP)

$

10-160

$

80-110

$

5-185

Add back:

Interest expense

110

–

170

Depreciation, amortization and accretion expense

635

220

890

EBITDA (Non-GAAP) ⁽⁴⁾

$

755-905

$

300-330

$

1,065-1,245

Add back or deduct:

(Gain) loss on asset disposals, net

20

–

20

(Gain) loss on license sales and exchanges, net

(10)

–

(10)

Adjusted EBITDA (Non-GAAP) ⁽⁴⁾

$

765-915

$

300-330

$

1,075-1,255

Deduct:

Equity in earnings of unconsolidated entities

130

–

130

Interest and dividend income

10

5

15

Other, net ⁽⁶⁾

–

5

5

Adjusted OIBDA (Non-GAAP) ⁽⁴⁾⁽⁵⁾

$

625-775

$

290-320

$

925-1,105

Actual Results

Three Months Ended March 31, 2018 ⁽³⁾

Year ended December 31, 2017

U.S.
Cellular

TDS
Telecom ⁽¹⁾

TDS ⁽¹⁾⁽²⁾

U.S.
Cellular

TDS ⁽¹⁾⁽²⁾

(Dollars in millions)

Net income (GAAP)

$

55

$

21

$

57

$

15

$

138

$

157

Add back or deduct:

Income tax expense (benefit)

22

6

24

(287)

(13)

(279)

Income (loss) before income taxes

(GAAP)

$

77

$

27

$

81

$

(272)

$

125

$

(122)

Add back:

Interest expense

29

–

43

113

–

170

Depreciation, amortization and accretion expense

159

54

221

615

195

844

EBITDA (Non-GAAP) ⁽⁴⁾

$

265

$

81

$

345

$

456

$

319

$

892

Add back or deduct:

Loss on impairment of goodwill

–

–

–

370

–

262

(Gain) loss on asset disposals, net

1

–

2

17

3

21

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

–

–

–

(1)

–

(1)

(Gain) loss on license sales and exchanges, net

(7)

–

(7)

(22)

–

(22)

Adjusted EBITDA (Non-GAAP) ⁽⁴⁾

$

259

$

81

$

340

$

820

$

323

$

1,152

Deduct:

Equity in earnings of unconsolidated entities

38

–

38

137

–

137

Interest and dividend income

4

1

5

8

5

15

Other, net ⁽⁶⁾

(1)

1

1

–

3

4

Adjusted OIBDA (Non-GAAP) ⁽⁴⁾⁽⁵⁾

$

218

$

80

$

296

$

675

$

314

$

996

(1)

TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments.  Effective January 1, 2018, HMS is no longer reported under TDS Telecom.  Prior periods have been recast to conform to the revised presentation.

(2)

The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments (including HMS as indicated in Note (1) above), all of which are not presented above.

(3)

As of January 1, 2018, TDS adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented.  As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported, except as specifically stated.

(4)

EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation above.  EBITDA, 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 EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income or Income (loss) before income taxes.

(5)

A reconciliation of Adjusted OIBDA (Non-GAAP) to Operating income (GAAP) for March 31, 2018 actual results can be found on TDS' website at investors.tdsinc.com.

(6)

ASU 2017-07, regarding net periodic pension cost and net periodic postretirement benefit cost was adopted as of January 1, 2018, and applied retrospectively.  All prior period numbers have been recast to conform to this standard.

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

3/31/2018 (1)

12/31/2017

9/30/2017

6/30/2017

3/31/2017

Retail Connections

Postpaid

Total at end of period

4,481,000

4,518,000

4,513,000

4,478,000

4,455,000

Gross additions

129,000

177,000

191,000

174,000

146,000

Feature phones

5,000

5,000

7,000

7,000

7,000

Smartphones

91,000

128,000

132,000

116,000

88,000

Connected devices

33,000

44,000

52,000

51,000

51,000

Net additions (losses)

(37,000)

5,000

35,000

23,000

(27,000)

Feature phones

(15,000)

(15,000)

(15,000)

(15,000)

(19,000)

Smartphones

(1,000)

33,000

44,000

34,000

(9,000)

Connected devices

(21,000)

(13,000)

6,000

4,000

1,000

ARPU ⁽²⁾

$

44.34

$

44.12

$

43.41

$

44.60

$

45.42

ABPU (Non-GAAP)⁽³⁾

$

57.10

$

56.69

$

54.71

$

55.19

$

55.82

ARPA ⁽⁴⁾

$

118.22

$

118.05

$

116.36

$

119.73

$

121.88

ABPA (Non-GAAP)⁽⁵⁾

$

152.26

$

151.68

$

146.65

$

148.15

$

149.78

Churn rate ⁽⁶⁾

1.23%

1.27%

1.16%

1.13%

1.29%

Handsets

0.97%

1.00%

0.96%

0.91%

1.08%

Connected devices

2.79%

2.84%

2.33%

2.35%

2.55%

Prepaid

Total at end of period

525,000

519,000

515,000

484,000

480,000

Gross additions

88,000

83,000

102,000

73,000

78,000

Net additions (losses)

6,000

4,000

31,000

3,000

(4,000)

ARPU ⁽²⁾

$

31.78

$

32.42

$

33.12

$

33.52

$

33.66

Churn rate ⁽⁶⁾

5.27%

5.09%

4.75%

4.93%

5.69%

Total connections at end of period ⁽⁷⁾

5,063,000

5,096,000

5,089,000

5,023,000

4,996,000

Market penetration at end of period

Consolidated operating population

31,469,000

31,834,000

31,834,000

32,089,000

32,089,000

Consolidated operating penetration ⁽⁸⁾

16%

16%

16%

16%

16%

Capital expenditures (millions)

$

70

$

213

$

112

$

84

$

61

Total cell sites in service

6,473

6,460

6,436

6,421

6,417

Owned towers

4,099

4,080

4,051

4,044

4,041

(1)

As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented.  As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.

(2)

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.

(3)

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.

(4)

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.

(5)

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.

(6)

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.

(7)

Includes reseller and other connections.

(8)

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

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

TDS Telecom

Wireline

Residential connections

Voice ⁽¹⁾

286,000

290,600

298,200

304,600

308,200

Broadband ⁽²⁾

230,500

228,600

229,900

230,200

228,500

Video ⁽³⁾

50,300

48,600

47,200

46,200

45,200

   Wireline residential connections

566,900

567,700

575,300

581,000

581,900

Total residential revenue per connection ⁽⁴⁾

$

47.04

$

46.21

$

46.07

$

46.39

$

45.17

Commercial connections

Voice ⁽¹⁾

140,100

143,000

146,900

150,500

154,000

Broadband ⁽²⁾

20,600

20,600

20,900

21,000

21,200

managedIP ⁽⁵⁾

143,000

146,500

147,600

149,700

150,300

Video ⁽³⁾

400

–

–

–

–

   Wireline commercial connections

304,000

310,100

315,300

321,200

325,500

Total Wireline connections

870,900

877,800

890,700

902,200

907,400

Cable

Cable Connections

Broadband ⁽⁶⁾

156,800

153,300

143,800

140,300

137,800

Video ⁽⁷⁾

100,700

101,800

97,900

97,900

97,600

Voice ⁽⁸⁾

61,200

60,100

58,900

58,700

59,000

managedIP ⁽⁵⁾

600

400

400

300

200

   Cable connections

319,300

315,600

301,000

297,200

294,500

Note:  Totals may not foot due to rounding differences.

(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.

(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

3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

(Dollars in millions)

Wireline

$

29

$

55

$

41

$

33

$

17

Cable

11

20

14

12

9

Total TDS Telecom ⁽¹⁾

$

40

$

74

$

56

$

45

$

27

Note:  Totals may not foot due to rounding differences.

(1)

TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments.  Effective January 1, 2018, HMS is no longer reported under TDS Telecom.  Prior periods have been recast to conform to the revised presentation.

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

2018 vs. 2017

Increase

Three Months Ended March 31,

2018 ⁽¹⁾

2017

(Decrease)

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

Operating revenues

U.S. Cellular

$

942

$

936

1%

TDS Telecom ⁽²⁾

231

228

1%

All Other ⁽²⁾⁽³⁾

52

74

(28)%

1,225

1,238

(1)%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

724

742

(3)%

Depreciation, amortization and accretion

159

153

3%

(Gain) loss on asset disposals, net

1

4

(62)%

(Gain) loss on license sales and exchanges, net

(7)

(17)

61%

877

882

(1)%

TDS Telecom ⁽²⁾

Expenses excluding depreciation, amortization and accretion ⁽⁴⁾

151

148

2%

Depreciation, amortization and accretion

54

49

10%

(Gain) loss on asset disposals, net

–

1

(51)%

205

198

4%

All Other ⁽²⁾⁽³⁾

Expenses excluding depreciation and amortization ⁽⁴⁾

55

68

(18)%

Depreciation and amortization

8

9

(4)%

(Gain) loss on asset disposals, net

1

(1)

(53)%

63

77

(17)%

Total operating expenses

1,145

1,157

(1)%

Operating income (loss)

U.S. Cellular

65

54

21%

TDS Telecom ⁽²⁾⁽⁴⁾

25

30

(17)%

All Other ^(2)(3)(4)

(10)

(3)

>(100)%

80

81

(2)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

38

32

17%

Interest and dividend income

5

4

32%

Interest expense

(43)

(42)

(2)%

Other, net ⁽⁴⁾

1

2

(44)%

Total investment and other income (expense) ⁽⁴⁾

1

(4)

>100%

Income before income taxes

81

77

5%

Income tax expense

24

34

(29)%

Net income

57

43

33%

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

18

6

>100%

Net income available to TDS common shareholders

$

39

$

37

4%

Basic weighted average shares outstanding

111

110

1%

Basic earnings per share available to TDS common shareholders

$

0.35

$

0.34

3%

Diluted weighted average shares outstanding

113

112

1%

Diluted earnings per share available to TDS common shareholders

$

0.34

$

0.33

3%

Note:  Totals may not foot due to rounding differences.

(1)

As of January 1, 2018, TDS adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported, except as specifically stated.

(2)

TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments.  Effective January 1, 2018, HMS is no longer reported under TDS Telecom.  Prior periods have been recast to conform to the revised presentation.

(3)

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

(4)

ASU 2017-07, regarding net periodic pension cost and net periodic postretirement benefit cost was adopted January 1, 2018, and applied retrospectively.  All prior period numbers have been recast to conform to this standard.

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Three Months Ended

March 31,

2018 ⁽¹⁾

2017

(Dollars in millions)

Cash flows from operating activities

Net income

$

57

$

43

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

Depreciation, amortization and accretion

221

211

Bad debts expense

20

24

Stock-based compensation expense

10

11

Deferred income taxes, net

26

(1)

Equity in earnings of unconsolidated entities

(38)

(32)

Distributions from unconsolidated entities

17

11

(Gain) loss on asset disposals, net

2

4

(Gain) loss on license sales and exchanges, net

(7)

(17)

Noncash interest

1

1

Changes in assets and liabilities from operations

Accounts receivable

77

28

Equipment installment plans receivable

(17)

(44)

Inventory

(8)

–

Accounts payable

(32)

(75)

Customer deposits and deferred revenues

(28)

(12)

Accrued taxes

(24)

33

Accrued interest

11

9

Other assets and liabilities

(74)

(57)

Net cash provided by operating activities

214

137

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(131)

(127)

Cash paid for acquisitions and licenses

(9)

(14)

Cash received for investments

100

–

Cash received from divestitures and exchanges

4

16

Net cash used in investing activities

(36)

(125)

Cash flows from financing activities

Repayment of long-term debt

(5)

(3)

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

9

1

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

2

3

Dividends paid to TDS shareholders

(18)

(17)

Other financing activities

(5)

–

Net cash used in financing activities

(17)

(16)

Net increase (decrease) in cash, cash equivalents and restricted cash

161

(4)

Cash, cash equivalents and restricted cash

Beginning of period

622

904

End of period

$

783

$

900

(1)

As of January 1, 2018, TDS adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

March 31,

December 31,

2018 ⁽¹⁾

2017

(Dollars in millions)

Current assets

Cash and cash equivalents

$

779

$

619

Short-term investments

–

100

Accounts receivable

955

961

Inventory, net

153

145

Prepaid expenses

104

112

Income taxes receivable

10

2

Other current assets

42

27

Total current assets

2,043

1,966

Assets held for sale

6

10

Licenses

2,240

2,232

Goodwill

509

509

Other intangible assets, net

273

279

Investments in unconsolidated entities

488

453

Property, plant and equipment, net

3,335

3,424

Other assets and deferred charges

587

422

Total assets

$

9,481

$

9,295

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

March 31,

December 31,

2018 ⁽¹⁾

2017

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

Current liabilities

Current portion of long-term debt

$

20

$

20

Accounts payable

322

368

Customer deposits and deferred revenues

169

223

Accrued interest

22

11

Accrued taxes

45

64

Accrued compensation

77

126

Other current liabilities

95

106

Total current liabilities

750

918

Deferred liabilities and credits

Deferred income tax liability, net

634

552

Other deferred liabilities and credits

516

495

Long-term debt, net

2,431

2,437

Noncontrolling interests with redemption features