TDS reports fourth quarter and full year 2017 results

2018 Estimated Results and Actual Results for the Year Ended December 31, 2017

U.S. Cellular

Wireline and Cable ⁽¹⁾

TDS ⁽¹⁾⁽²⁾

Estimate

Actual

Estimate

Actual

Estimate

Actual

(Dollars in millions)

Total operating revenues

$3,850-$4,050

$

3,890

$900-$950

$

919

$5,015-$5,265

$

5,044

Adjusted OIBDA ⁽³⁾⁽⁴⁾

$625-$775

$

675

$290-$320

$

317

$925-$1,105

$

999

Adjusted EBITDA ⁽³⁾

$765-$915

$

820

$300-$330

$

323

$1,075-$1,255

$

1,152

Capital expenditures

$500-$550

$

469

$270

$

201

$795-$845

$

694

U.S. Cellular

Wireline and Cable ⁽¹⁾

TDS ⁽¹⁾⁽²⁾

Estimate

Actual

Estimate

Actual

Estimate

Actual

(Dollars in millions)

Net income (GAAP)

N/A

15

N/A

N/A

N/A

157

Add back:

Income tax benefit

N/A

(287)

N/A

N/A

N/A

(279)

Income (loss) before income

taxes (GAAP)

$

10-160

$

(272)

$

80-110

$

125

$

5-185

$

(122)

Add back:

Interest expense

110

113

–

–

170

170

Depreciation, amortization and

accretion expense

625

615

220

195

880

844

EBITDA (Non-GAAP) ⁽³⁾

$

745-895

$

456

$

300-330

$

319

$

$

892

Add back:

Loss on impairment of goodwill

–

370

–

–

–

262

(Gain) loss on sale of business

and other exit costs, net

–

(1)

–

–

–

(1)

(Gain) loss on license sales and

exchanges, net

–

(22)

–

–

–

(22)

(Gain) loss on asset

disposals, net

20

17

–

3

20

21

Adjusted EBITDA (Non-GAAP)⁽³⁾

$

765-915

$

820

$

300-330

$

323

$

1,075-1,255

$

1,152

Deduct:

Equity in earnings of

unconsolidated entities

130

137

–

–

130

137

Interest and dividend income

10

8

5

5

15

15

Other, net

–

–

5

–

5

1

Adjusted OIBDA (Non-GAAP)⁽³⁾⁽⁴⁾

$

625-775

$

675

$

290-320

$

317

$

925-1,105

$

999

Note: Totals may not foot due to rounding differences.

⁽¹⁾

Effective January 1, 2018, HMS will be considered a non-reportable segment and will no longer be reported under TDS Telecom.  To be comparable with the 2018 estimated results, HMS actual results for the year ended 2017 have been included as part of TDS.  A reconciliation of Cable and Wireline actual results to TDS Telecom as reported for full year 2017 can be found on TDS' website at investors.tdsinc.com.

⁽²⁾

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

⁽³⁾

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 flow to the corresponding GAAP measure, Net income or Income (loss) before income taxes.

⁽⁴⁾

A reconciliation of Adjusted OIBDA (Non-GAAP) to Operating income (GAAP) for full year 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

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

Retail Connections

Postpaid

Total at end of period

4,518,000

4,513,000

4,478,000

4,455,000

4,482,000

Gross additions

177,000

191,000

174,000

146,000

187,000

Feature phones

5,000

7,000

7,000

7,000

7,000

Smartphones

128,000

132,000

116,000

88,000

109,000

Connected devices

44,000

52,000

51,000

51,000

71,000

Net additions (losses)

5,000

35,000

23,000

(27,000)

(2,000)

Feature phones

(15,000)

(15,000)

(15,000)

(19,000)

(21,000)

Smartphones

33,000

44,000

34,000

(9,000)

(4,000)

Connected devices

(13,000)

6,000

4,000

1,000

23,000

ARPU ⁽¹⁾

$

44.12

$

43.41

$

44.60

$

45.42

$

45.19

ABPU (Non-GAAP)⁽²⁾

$

56.69

$

54.71

$

55.19

$

55.82

$

55.43

ARPA ⁽³⁾

$

118.05

$

116.36

$

119.73

$

121.88

$

120.67

ABPA (Non-GAAP)⁽⁴⁾

$

151.68

$

146.65

$

148.15

$

149.78

$

148.02

Churn rate ⁽⁵⁾

1.27%

1.16%

1.13%

1.29%

1.41%

Handsets

1.00%

0.96%

0.91%

1.08%

1.23%

Connected devices

2.84%

2.33%

2.35%

2.55%

2.49%

Prepaid

Total at end of period

519,000

515,000

484,000

480,000

484,000

Gross additions

83,000

102,000

73,000

78,000

83,000

Net additions (losses)

4,000

31,000

3,000

(4,000)

4,000

ARPU ⁽¹⁾

$

32.42

$

33.12

$

33.52

$

33.66

$

33.25

Churn rate ⁽⁵⁾

5.09%

4.75%

4.93%

5.69%

5.44%

Total connections at end of

period ⁽⁶⁾

5,096,000

5,089,000

5,023,000

4,996,000

5,031,000

Market penetration at end of period

Consolidated operating
population

31,834,000

31,834,000

32,089,000

32,089,000

31,994,000

Consolidated operating penetration ⁽⁷⁾

16%

16%

16%

16%

16%

Capital expenditures (millions)

$

213

$

112

$

84

$

61

$

171

Total cell sites in service

6,460

6,436

6,421

6,417

6,415

Owned towers

4,080

4,051

4,044

4,041

4,040

⁽¹⁾

Average Revenue Per User (ARPU) - metric which 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 which 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 which 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 which 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

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

TDS Telecom

Wireline

Residential connections

Voice ⁽¹⁾

290,600

298,200

304,600

308,200

310,600

Broadband ⁽²⁾

228,600

229,900

230,200

228,500

229,500

IPTV ⁽³⁾

48,600

47,200

46,200

45,200

45,300

   Wireline residential connections

567,700

575,300

581,000

581,900

585,400

Total residential revenue per connection ⁽⁴⁾

$

46.21

$

46.07

$

46.39

$

45.17

$

44.27

Commercial connections

Voice ⁽¹⁾

143,000

146,900

150,500

154,000

157,400

Broadband ⁽²⁾

20,600

20,900

21,000

21,200

21,400

managedIP ⁽⁵⁾

146,500

147,600

149,700

150,300

150,900

   Wireline commercial connections

310,100

315,300

321,200

325,500

329,700

Total Wireline connections

877,800

890,700

902,200

907,400

915,200

Cable

Cable Connections

Broadband ⁽⁶⁾

153,300

143,800

140,300

137,800

133,700

Video ⁽⁷⁾

101,800

97,900

97,900

97,600

99,000

Voice ⁽⁸⁾

60,100

58,900

58,700

59,000

59,600

   Cable connections

315,100

300,600

297,000

294,300

292,400

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

12/31/2017

9/30/2017

6/30/2017

3/31/2017

12/31/2016

(Dollars in millions)

Wireline

$

55

$

41

$

33

$

17

$

26

Cable

20

14

12

9

13

HMS

2

2

4

6

5

$

76

$

58

$

49

$

33

$

45

Numbers may not foot due to rounding.

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

2017 vs. 2016

Increase

Three Months Ended December 31,

2017

2016

(Decrease)

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

Operating revenues

U.S. Cellular ⁽¹⁾

$

1,029

$

1,006

2%

TDS Telecom

275

283

(3)%

All Other ⁽²⁾

4

4

12%

1,308

1,293

1%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

877

861

2%

Depreciation, amortization and accretion

155

156

(1)%

(Gain) loss on asset disposals, net

4

6

(34)%

(Gain) loss on license sales and exchanges, net

(3)

(3)

(24)%

1,033

1,020

1%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

196

212

(8)%

Depreciation, amortization and accretion

56

56

-

(Gain) loss on asset disposals, net

1

1

51%

(Gain) loss on license sales and exchanges, net

–

(1)

N/M

253

269

(6)%

All Other ⁽²⁾

Expenses excluding depreciation and amortization

4

4

4%

Depreciation and amortization

2

2

(7)%

5

5

(2)%

Total operating expenses

1,291

1,294

-

Operating income (loss)

U.S. Cellular ⁽¹⁾

(4)

(14)

75%

TDS Telecom

22

14

52%

All Other ⁽²⁾

(1)

(1)

29%

17

(1)

>100%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

36

30

18%

Interest and dividend income ⁽¹⁾

4

3

15%

Interest expense

(42)

(43)

3%

Other, net

–

–

(23)%

Total investment and other income (expense) ⁽¹⁾

(2)

(10)

75%

Income (loss) before income taxes

15

(11)

>100%

Income tax benefit

(319)

(6)

>(100)%

Net income (loss)

334

(5)

>100%

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

47

–

>100%

Net income (loss) available to TDS common shareholders

$

287

$

(5)

>100%

Basic weighted average shares outstanding

111

110

1%

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

$

2.59

$

(0.05)

>100%

Diluted weighted average shares outstanding

112

110

2%

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

$

2.54

$

(0.05)

>100%

N/M - Percentage change not meaningful

Numbers may not foot due to rounding.

(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)

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

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

2017 vs. 2016

Increase

Year Ended December 31,

2017

2016

(Decrease)

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

Operating revenues

U.S. Cellular

$

3,890

$

3,990

(3)%

TDS Telecom

1,140

1,151

(1)%

All Other ⁽¹⁾

14

14

1%

5,044

5,155

(2)%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

3,215

3,321

(3)%

Depreciation, amortization and accretion

615

618

-

Loss on impairment of goodwill

370

–

N/M

(Gain) loss on asset disposals, net

17

22

(22)%

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

(1)

–

>(100)%

(Gain) loss on license sales and exchanges, net

(22)

(19)

(17)%

4,194

3,942

6%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

817

856

(5)%

Depreciation, amortization and accretion

222

224

(1)%

Loss on impairment of goodwill

35

–

N/M

(Gain) loss on asset disposals, net

4

4

(21)%

(Gain) loss on license sales and exchanges, net

–

(1)

N/M

1,077

1,084

(1)%

All Other⁽¹⁾

Expenses excluding depreciation and amortization

13

11

18%

Depreciation and amortization

7

8

(9)%

Loss on impairment of goodwill ⁽²⁾

(143)

–

N/M

(Gain) loss on asset disposals, net

–

1

>(100)%

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

–

(1)

N/M

(122)

18

>(100)%

Total operating expenses

5,149

5,044

2%

Operating income (loss)

U.S. Cellular

(304)

48

>(100)%

TDS Telecom

63

67

(7)%

All Other ⁽¹⁾

136

(4)

>100%

(105)

111

>(100)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

137

140

(2)%

Interest and dividend income

15

11

42%

Interest expense

(170)

(170)

-

Other, net

1

–

>100%

Total investment and other income (expense)

(17)

(19)

12%

Income (loss) before income taxes

(122)

92

>(100)%

Income tax expense (benefit)

(279)

40

>(100)%

Net income

157

52

>100%

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

4

9

(55)%

Net income available to TDS common shareholders

$

153

$

43

>100%

Basic weighted average shares outstanding

111

110

1%

Basic earnings per share available to TDS common shareholders

$

1.39

$

0.39

>100%

Diluted weighted average shares outstanding

112

111

1%

Diluted earnings per share available to TDS common shareholders

$

1.37

$

0.39

>100%

N/M - Percentage change not meaningful

Numbers may not foot due to rounding.

(1)

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

(2)

During the third quarter of 2017, U.S. Cellular recorded a goodwill impairment of $370 million while TDS recorded a goodwill impairment of the U.S. Cellular reporting unit of $227 million.  Prior to 2009, TDS accounted for U.S. Cellular's share repurchases as step acquisitions, allocating a portion of the share repurchase value to TDS' Goodwill.  Further, goodwill was impaired at the TDS level in 2003 but not at the U.S. Cellular level, effectively resulting in a lower basis of goodwill attributable to the U.S. Cellular reporting unit rather than at U.S. Cellular itself.  Consequently, U.S. Cellular's Goodwill on a stand-alone basis and any resulting impairment of Goodwill does not equal the TDS consolidated Goodwill related to U.S. Cellular.

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Year Ended December 31,

2017

2016

(Dollars in millions)

Cash flows from operating activities

Net income

$

157

$

52

Add (deduct) adjustments to reconcile net income to net

   cash flows from operating activities

Depreciation, amortization and accretion

844

850

Bad debts expense

95

102

Stock-based compensation expense

46

42

Deferred income taxes, net

(369)

22

Equity in earnings of unconsolidated entities

(137)

(140)

Distributions from unconsolidated entities

136

93

Loss on impairment of goodwill

262

–

(Gain) loss on asset disposals, net

21

27

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

(1)

(1)

(Gain) loss on license sales and exchanges, net

(22)