TDS reports fourth quarter and full year 2016 results

2017 Estimated Results and Actual Results for the Year Ended December 31, 2016

U.S. Cellular

TDS Telecom

TDS⁽³⁾

Estimate

Actual

Estimate

Actual

Estimate

Actual

(Dollars in millions)

Total operating revenues ⁽¹⁾

$3,800-$4,000

$

3,939

$1,200-$1,250

$

1,151

$5,015-$5,265

$

5,104

Operating cash flow ⁽²⁾

$500-$650

$

618

$300-$340

$

295

$805-$995

$

916

Adjusted EBITDA ⁽²⁾

$650-$800

$

816

$300-$340

$

298

$955-$1,145

$

1,118

Capital expenditures

Approx. $

500

$

446

Approx. $

225

$

173

Approx. $

735

$

630

U.S. Cellular

TDS Telecom

TDS ⁽³⁾

Estimate

Actual

Estimate

Actual

Estimate

Actual

(Dollars in millions)

Net income (loss) (GAAP)

N/A

49

N/A

42

N/A

52

Add back:

Income tax expense (benefit)

N/A

33

N/A

25

N/A

40

Income (loss) before income taxes

(GAAP)

$

(110)-40

$

82

$

75-115

$

67

$

(95)-95

$

92

Add back:

Interest expense

110

113

–

3

170

170

Depreciation, amortization and

accretion expense

630

618

225

224

860

850

EBITDA (Non-GAAP)

$

630-780

$

813

$

300-340

$

294

$

935-1,125

$

1,112

Add back:

(Gain) loss on sale of business and

other exit costs, net

–

–

–

–

–

(1)

(Gain) loss on license sales and

exchanges, net

–

(19)

–

(1)

–

(20)

(Gain) loss on asset disposals, net

20

22

–

4

20

27

Adjusted EBITDA (Non-GAAP)⁽²⁾

$

650-800

$

816

$

300-340

$

298

$

955-1,145

$

1,118

Deduct:

Equity in earnings of

unconsolidated entities

140

140

–

–

140

140

Interest and dividend income;

other income⁽¹⁾

10

57

–

3

10

62

Other, net

–

1

–

–

–

–

Operating cash flow (Non-GAAP)⁽²⁾⁽⁴⁾

$

500-650

$

618

$

300-340

$

295

$

805-995

$

916

Note: Totals may not foot due to rounding differences.

(1)

In 2016, Imputed interest related to equipment installment plans was recorded in Interest and dividend income.  Beginning in 2017, imputed interest will be recorded in service revenues.  The company recorded $51 million in imputed interest in 2016.

(2)

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 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 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 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 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.

(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 Operating cash flow (Non-GAAP) to operating income (GAAP) for full year 2016, 2015 and 2014 actual results can be found on the Guidance and Reconciliation page of the company's website at investors.tdsinc.com.

Repurchase Period

# Shares

Cost (in millions)

2016 (full year)

111,700

$

3

2015 (full year)

–

$

–

Total

111,700

$

3

United States Cellular Corporation

Summary Operating Data (Unaudited)

Quarter Ended

12/31/2016

9/30/2016

6/30/2016

3/31/2016

12/31/2015

Retail Connections

Postpaid

Total at end of period

4,482,000

4,484,000

4,490,000

4,454,000

4,409,000

Gross additions

187,000

174,000

197,000

215,000

240,000

Feature phones

7,000

10,000

8,000

9,000

10,000

Smartphones

109,000

105,000

107,000

124,000

132,000

Connected devices

71,000

59,000

82,000

82,000

98,000

Net additions (losses)

(2,000)

(6,000)

36,000

45,000

68,000

Feature phones

(21,000)

(20,000)

(21,000)

(25,000)

(25,000)

Smartphones

(4,000)

(7,000)

8,000

20,000

23,000

Connected devices

23,000

21,000

49,000

50,000

70,000

ARPU ⁽¹⁾

$

45.19

$

47.08

$

47.37

$

48.13

$

51.46

ABPU (Non-GAAP)⁽²⁾

$

55.43

$

56.79

$

56.09

$

56.06

$

58.57

ARPA ⁽³⁾

$

120.67

$

125.31

$

124.91

$

125.36

$

131.96

ABPA (Non-GAAP)⁽⁴⁾

$

148.02

$

151.16

$

147.90

$

145.99

$

150.19

Churn rate ⁽⁵⁾

1.41%

1.34%

1.20%

1.28%

1.31%

Handsets

1.23%

1.22%

1.10%

1.18%

1.23%

Connected devices

2.49%

2.04%

1.84%

2.01%

1.95%

Smartphone penetration ⁽⁶⁾

79%

78%

77%

75%

74%

Prepaid

Total at end of period

484,000

480,000

413,000

399,000

387,000

Gross additions

83,000

132,000

73,000

75,000

69,000

Net additions

4,000

67,000

14,000

12,000

7,000

ARPU ⁽¹⁾

$

33.25

$

34.39

$

34.58

$

35.51

$

35.54

Churn rate ⁽⁵⁾

5.44%

4.84%

4.86%

5.37%

5.40%

Total connections at end of period ⁽⁷⁾

5,031,000

5,030,000

4,973,000

4,926,000

4,876,000

Smartphones sold as a percent of total

handsets sold

93%

92%

91%

92%

91%

Market penetration at end of period

Consolidated operating population

31,994,000

31,994,000

31,994,000

31,994,000

31,967,000

Consolidated operating penetration ⁽⁸⁾

16%

16%

16%

15%

15%

Capital expenditures (millions)

$

171

$

103

$

93

$

79

$

198

Total cell sites in service

6,415

6,374

6,324

6,306

6,297

Owned towers

4,040

4,015

3,988

3,989

3,978

⁽¹⁾

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

Smartphone penetration is calculated by dividing postpaid smartphone connections by postpaid handset connections.

⁽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)

Quarter Ended

12/31/2016

9/30/2016

6/30/2016

3/31/2016

12/31/2015

TDS Telecom

Wireline

Residential connections

Voice ⁽¹⁾

310,600

314,600

316,800

318,400

319,800

Broadband ⁽²⁾

229,500

232,800

232,200

229,100

228,500

IPTV ⁽³⁾

45,300

43,600

41,200

38,300

34,400

   Wireline residential connections

585,400

590,900

590,200

585,800

582,700

Total residential revenue per connection ⁽⁴⁾

$

44.27

$

44.25

$

43.67

$

43.28

$

41.24

Commercial connections

Voice ⁽¹⁾

157,400

160,900

164,000

167,400

171,500

Broadband ⁽²⁾

21,400

21,700

21,900

22,000

22,400

managedIP ⁽⁵⁾

150,900

151,500

149,000

148,500

147,100

   Wireline commercial connections

329,700

334,000

334,900

337,900

341,000

Total Wireline connections

915,200

924,900

925,100

923,700

923,700

Cable

Cable Connections

Broadband ⁽²⁾

133,700

130,200

125,700

121,700

117,100

Video ⁽⁶⁾

99,000

101,100

102,900

104,600

106,800

Voice ⁽¹⁾

59,600

59,800

58,900

58,100

56,400

   Cable connections

292,400

291,000

287,600

284,400

280,300

Numbers may not foot due to rounding.

⁽¹⁾

Refers to the individual circuits connecting a customer to Wireline's central office facilities or the Cable billable number of lines into a building for voice services.

⁽²⁾

Refers to the number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies or the Cable billable number of lines into a building for high-speed data services.

⁽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.

TDS Telecom

Capital Expenditures (millions)

Quarter Ended

12/31/2016

9/30/2016

6/30/2016

3/31/2016

12/31/2015

Wireline

$

26

$

27

$

27

$

27

$

50

Cable

13

11

17

13

15

HMS

5

2

2

2

8

$

45

$

40

$

46

$

42

$

73

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended December 31,

2016

2015

2016 vs. 2015

Increase (Decrease)

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

Operating revenues

U.S. Cellular

$

991

$

987

$

4

-

TDS Telecom

283

284

(1)

-

All Other ⁽¹⁾

4

3

1

>100%

1,278

1,274

4

-

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and

accretion

861

851

10

1%

Depreciation, amortization and accretion

156

156

–

-

(Gain) loss on asset disposals, net

6

4

2

43%

(Gain) loss on license sales and exchanges, net

(3)

–

(3)

N/M

1,020

1,011

9

1%

TDS Telecom

Expenses excluding depreciation, amortization and

accretion

212

214

(1)

(1)%

Depreciation, amortization and accretion

56

58

(2)

(3)%

(Gain) loss on asset disposals, net

1

3

(2)

(71)%

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

–

(6)

6

N/M

(Gain) loss on license sales and exchanges, net

(1)

–

(1)

N/M

269

268

–

-

All Other ⁽¹⁾

Expenses excluding depreciation and amortization

2

4

(2)

17%

Depreciation and amortization

2

2

–

(4)%

5

6

(1)

25%

Total operating expenses

1,294

1,285

9

1%

Operating income (loss)

U.S. Cellular

(29)

(24)

(5)

(21)%

TDS Telecom

14

16

(1)

(7)%

All Other ⁽¹⁾

(1)

(3)

2

36%

(16)

(11)

(5)

(44)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

30

30

–

-

Interest and dividend income

18

11

7

68%

Interest expense

(43)

(39)

(4)

(12)%

Total investment and other income

5

2

3

>100%

Loss before income taxes

(11)

(9)

(2)

(25)%

Income tax expense (benefit)

(6)

(7)

1

24%

Net loss

(5)

(2)

(3)

>(100)%

Less:  Net income attributable to noncontrolling

interests, net of tax

–

(1)

1

(65)%

Net loss attributable to TDS shareholders

(5)

(1)

(4)

>(100)%

TDS Preferred dividend requirement

–

–

–

-

Net loss available to TDS common shareholders

$

(5)

$

(1)

$

(4)

>(100)%

Basic weighted average shares outstanding

110

109

1

1%

Basic loss per share available to TDS common

 shareholders

$

(0.05)

$

(0.01)

$

(0.04)

>(100)%

Diluted weighted average shares outstanding

110

109

1

1%

Diluted loss per share available to TDS common

 shareholders

$

(0.05)

$

(0.01)

$

(0.04)

>(100)%

⁽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

Numbers may not foot due to rounding.

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Year Ended December 31,

2016 vs. 2015

2016

2015

Increase (Decrease)

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

Operating revenues

U.S. Cellular

$

3,939

$

3,997

$

(58)

(1)%

TDS Telecom

1,151

1,158

(7)

(1)%

All Other ⁽¹⁾

14

21

(7)

(35)%

5,104

5,176

(72)

(1)%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and

accretion

3,321

3,322

(1)

-

Depreciation, amortization and accretion

618

607

11

2%

(Gain) loss on asset disposals, net

22

16

6

36%

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

–

(114)

114

100%

(Gain) loss on license sales and exchanges, net

(19)

(147)

128

87%

3,942

3,684

258

7%

TDS Telecom

Expenses excluding depreciation, amortization and

accretion

856

854

2

-

Depreciation, amortization and accretion

224

228

(4)

(2)%

(Gain) loss on asset disposals, net

4

6

(2)

(24)%

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

–

(10)

10

>100%

(Gain) loss on license sales and exchanges, net

(1)

–

(1)

N/M

1,084

1,079

6

1%

All Other ⁽¹⁾

Expenses excluding depreciation and amortization

10

19

(9)

(42)%

Depreciation and amortization

8

9

(1)

(27)%

(Gain) loss on asset disposals, net

1

–

1

>100%

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

(1)

(12)

11

96%

18

16

2

9%

Total operating expenses

5,044

4,779

265

6%

Operating income (loss)

U.S. Cellular

(3)

313

(316)

>(100)%

TDS Telecom

67

79

(12)

(15)%

All Other ⁽¹⁾

(4)

5

(9)

>(100)%

60

397

(337)

(85)%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

140

140

–

-

Interest and dividend income

62

39

23

60%

Interest expense

(170)

(142)

(28)

(20)%

Other, net

–

1

(1)

(98)%

Total investment and other income

32

38

(6)

(16)%

Income before income taxes

92

435

(343)

(79)%

Income tax expense

40

172

(132)

(77)%

Net income

52

263

(211)

(80)%

Less:  Net income attributable to noncontrolling

interest, net of tax

9

44

(35)

79%

Net income attributable to TDS shareholders

43

219

(176)

(80)%

TDS Preferred dividend requirement

–

–

–

-

Net income available to TDS common shareholders

$

43

$

219

$

(176)

(80)%