TDS reports third quarter 2015 results

2015 Estimated Results

U.S. Cellular

TDS Telecom

TDS(2)

Current

Previous

Current

Previous

Current

Previous

(Dollars in millions)

Total operating revenues

Approx. $

4,000

$4,000-$4,100

$1,130-$1,180

Unchanged

$5,145-$5,195

$5,145-$5,295

Operating cash flow (1)

$540-$620

$440-$540

$280-$310

Unchanged

$825-$935

$725-$855

Adjusted EBITDA (1)

$710-$790

$600-$700

$280-$310

Unchanged

$1,000-$1,110

$890-$1,020

Capital expenditures

Approx. $

600

Unchanged

Approx. $

220

Unchanged

Approx. $

825

$   830

2015 Estimated Results (3)

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)

$

275-355

$

45-75

$

275-385

Add back:

Interest expense

80

–

140

Depreciation, amortization and

   accretion expense

600

235

845

EBITDA

$

955-1,035

$

280-310

$

1,260-1,370

Add back:

(Gain) loss on sale of business and

   other exit costs, net

(115)

(5)

(135)

(Gain) loss on license sales and

   exchanges, net

(145)

–

(145)

(Gain) loss on asset disposals, net

15

5

20

Adjusted EBITDA

$

710-790

$

280-310

$

1,000-1,110

Deduct:

Equity in earnings of unconsolidated

   entities

(135)

–

(135)

Interest and dividend income

(35)

–

(40)

Operating cash flow (4)

$

540-620

$

280-310

$

825-935

Actual Results

Nine Months Ended September 30, 2015

Year ended December 31, 2014

U.S. Cellular

TDS

Telecom

TDS (2)

U.S. Cellular

TDS

Telecom

TDS (2)

(Dollars in millions)

Net income (loss) (GAAP)

$

250

$

38

$

265

$

(47)

$

(24)

$

(147)

Add back:

Income tax expense (benefit)

161

27

179

(12)

18

(5)

Income (loss) before income taxes

(GAAP)

$

411

$

65

$

444

$

(59)

$

(7)

$

(153)

Add back:

Interest expense

61

–

103

57

(1)

111

Depreciation, amortization and accretion expense

450

170

628

606

220

837

EBITDA

$

922

$

236

$

1,175

$

605

$

212

$

796

Add back:

Loss on impairment of assets

–

–

–

–

84

88

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

(114)

(3)

(130)

(33)

(2)

(16)

(Gain) loss on license sales and exchanges, net

(147)

–

(147)

(113)

–

(113)

(Gain) loss on asset disposals, net

12

3

15

21

5

27

Adjusted EBITDA

$

674

$

236

$

913

$

480

$

298

$

781

Deduct:

Equity in earnings of unconsolidated

entities

(110)

–

(110)

(130)

–

(132)

Interest and dividend income

(26)

(2)

(28)

(12)

(2)

(17)

Operating cash flow (4)

$

538

$

234

$

775

$

338

$

296

$

632

Note: Totals may not foot due to rounding differences.

(1)

Operating cash flow is defined as net income, adjusted for the items set forth in the reconciliation below.  Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation below.  Operating cash flow and Adjusted EBITDA exclude these items in order to show operating results on a more comparable basis from period to period. From time to time, TDS may exclude other items from Operating cash flow and/or Adjusted EBITDA if such items help reflect operating results on a more comparable basis. TDS does not intend to imply that any such items that are excluded are non-recurring, infrequent or unusual; such items may occur in the future.  Operating cash flow and Adjusted EBITDA 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 as indicators of the company's operating performance or as alternatives to cash flows from operating activities, determined in accordance with GAAP, as indicators of cash flows or as measures of liquidity. TDS believes Operating cash flow and Adjusted EBITDA are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as indicated above.

(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)

In providing 2015 Estimated Results, TDS has not completed the above reconciliation to net income because it does not provide guidance for income taxes. TDS believes that the impact of income taxes cannot be reasonably predicted; therefore, the company is unable to provide such guidance.

(4)

A reconciliation of Operating cash flow (Non-GAAP) to operating income (GAAP) for September 30, 2015 actual results can be found on the company's website at investors.tdsinc.com.

Repurchase Period

# Shares

Cost (in millions)

2015 (year to date)

–

$

–

2014 (full year)

1,541,850

$

39.1

Total

1,541,850

$

39.1

United States Cellular Corporation

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

9/30/2015

6/30/2015

3/31/2015

12/31/2014

9/30/2014

Retail Customers

Postpaid

Total at end of period

4,341,000

4,324,000

4,307,000

4,298,000

4,200,000

Gross additions

200,000

191,000

200,000

302,000

251,000

Net additions (losses)

17,000

17,000

9,000

98,000

52,000

ARPU (1)

$

58.12

$

53.62

$

54.87

$

56.51

$

56.37

ARPA (2)

$

147.00

$

133.85

$

134.94

$

136.13

$

132.99

Churn rate (3)

1.4%

1.3%

1.5%

1.6%

1.6%

Smartphone penetration (4)

72%

69%

67%

65%

62%

Prepaid

Total at end of period

380,000

368,000

360,000

348,000

350,000

Gross additions

71,000

65,000

73,000

60,000

64,000

Net additions (losses)

12,000

8,000

12,000

(2,000)

(2,000)

ARPU (1)

$

35.64

$

35.98

$

35.72

$

35.33

$

34.40

Churn rate (3)

5.2%

5.2%

5.8%

5.9%

6.3%

Total customers at end of period

4,807,000

4,779,000

4,775,000

4,760,000

4,674,000

Billed ARPU (1)

$

55.42

$

51.29

$

52.29

$

53.63

$

53.24

Service revenue ARPU (1)

$

62.31

$

57.55

$

58.01

$

60.10

$

60.92

Smartphones sold as a percent of total

  handsets sold

87%

87%

86%

87%

81%

Total population

Consolidated markets (5) (8)

50,313,000

52,809,000

52,822,000

58,840,000

60,136,000

Consolidated operating markets (5)

31,814,000

31,814,000

31,814,000

31,729,000

31,729,000

Market penetration at end of period

Consolidated markets (6)

10%

9%

9%

8%

8%

Consolidated operating markets (6)

15%

15%

15%

15%

15%

Capital expenditures (000s)

$

134,816

$

133,666

$

66,460

$

181,655

$

142,452

Total cell sites in service

6,246

6,223

6,219

6,220

6,209

Owned towers (7)

3,957

3,940

3,936

4,280

4,487

(1)

Average Revenue Per User ("ARPU") metrics are calculated by dividing a revenue base by an average number of customers by the number of months in the period.  These revenue bases and customer populations are shown below:

a.

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

b.

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

c.

Billed ARPU consists of total postpaid, prepaid and reseller service revenues and postpaid, prepaid and reseller customers.

d.

Service revenue ARPU consists of total postpaid, prepaid and reseller service revenues, inbound roaming and other service revenues and postpaid, prepaid and reseller customers.

(2)

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

(3)

Churn metrics represent the percentage of the postpaid or prepaid customers that disconnect service each month. These metrics represent the average monthly postpaid or prepaid churn rate for each respective period.

(4)

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 customers by total postpaid handset customers.

(5)

During the third quarter of 2015 U.S. Cellular reassessed population statistics with respect to markets which U.S. Cellular consolidates and revised its calculations to more accurately accumulate such population statistics.  As a result, prior period population data and corresponding market penetration ratios were revised for markets that U.S. Cellular currently consolidates, or previously consolidated in the periods presented.  The decrease in the population of Consolidated markets is due primarily to the license exchange transactions of certain non-operating licenses in North Carolina in December 2014 and Illinois and Indiana in March 2015. Total Population is used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively.  See footnote (6) below.

(6)

Market penetration is calculated by dividing the number of wireless customers at the end of the period by the total population of consolidated markets and consolidated operating markets, respectively, as estimated by Claritas.

(7)

During the quarters ended March 31, 2015 and December 31, 2014, U.S. Cellular sold 359 and 236 towers, respectively, in divested markets.

(8)

As licenses awarded in Auction 97 have not yet been granted, population statistics related to such licenses have not been included in population data.

TDS Telecom

Summary Operating Data (Unaudited)

Quarter Ended

9/30/2015

6/30/2015

3/31/2015

12/31/2014

9/30/2014

TDS Telecom

Wireline

Residential connections

Voice (1)

325,900

329,000

333,400

335,900

340,300

Broadband (2)

231,600

231,200

229,400

229,200

231,600

IPTV (3)

30,300

27,900

25,600

23,400

20,700

   Wireline residential connections

587,800

588,100

588,400

588,500

592,600

Total residential revenue per connection (4)

$

42.83

$

42.10

$

42.32

$

41.56

$

41.47

Commercial connections

Voice (1)

176,700

181,800

187,500

193,200

199,300

Broadband (2)

23,000

23,700

24,300

24,700

25,300

managedIP (5)

145,900

145,100

143,200

140,200

137,700

   Wireline commercial connections

345,600

350,600

355,000

358,100

362,300

Total Wireline connections

933,400

938,700

943,400

946,600

954,900

Cable

Cable Connections

Video (6)

108,300

109,100

109,700

110,400

109,100

Broadband (7)

114,600

112,300

112,200

110,900

106,400

Voice (7)

54,000

51,500

49,100

46,000

41,800

   Cable connections

276,900

272,900

271,000

267,300

257,300

(1)

The individual circuit connecting customers to TDS Telecom's central office facilities.

(2)

The number of customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies.

(3)

The number of customers provided video services using IP networking technology.

(4)

Total residential revenue per connection is calculated by dividing the average residential revenue for the period by the average number of residential connections for 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)

Broadband and voice connections reflect billable number of lines into a building for high speed data and voice services, respectively.

TDS Telecom

Capital Expenditures (000s)

Quarter Ended

9/30/2015

6/30/2015

3/31/2015

12/31/2014

9/30/2014

Wireline

$

38,400

$

31,700

$

20,400

$

51,400

$

34,200

Cable

13,000

11,900

11,600

14,600

7,600

HMS

5,100

9,400

4,900

13,400

9,800

$

56,500

$

53,000

$

36,900

$

79,400

$

51,600

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Three Months Ended September 30,

(Unaudited, dollars and shares in thousands, except per share amounts)

Change

2015

2014

Amount

Percent

Operating revenues

U.S. Cellular

$

1,068,906

$

1,000,419

$

68,487

7%

TDS Telecom

299,374

273,157

26,217

10%

All Other (1)

5,518

6,447

(929)

(14)%

1,373,798

1,280,023

93,775

7%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

860,823

905,157

(44,334)

(5)%

Depreciation, amortization and accretion

152,369

148,952

3,417

2%

(Gain) loss on asset disposals, net

2,618

7,947

(5,329)

(67)%

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

(643)

(10,283)

9,640

94%

(Gain) loss on license sales and exchanges, net

(23,986)

–

(23,986)

N/M

991,181

1,051,773

(60,592)

(6)%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

223,695

199,132

24,563

12%

Depreciation, amortization and accretion

56,548

54,255

2,293

4%

Loss on impairment of assets

–

84,000

(84,000)

N/M

(Gain) loss on asset disposals, net

2,292

1,367

925

68%

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

(105)

(2,201)

2,096

95%

282,430

336,553

(54,123)

(16)%

All Other (1)

Expenses excluding depreciation and amortization

4,708

7,117

(2,409)

(34)%

Depreciation and amortization

1,847

2,322

(475)

(20)%

(Gain) loss on asset disposals, net

9

(21)

30

>100%

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

189

7,694

(7,505)

(98)%

6,753

17,112

(10,359)

(61)%

Total operating expenses

1,280,364

1,405,438

(125,074)

(9)%

Operating income (loss)

U.S. Cellular

77,725

(51,354)

129,079

>100%

TDS Telecom

16,944

(63,396)

80,340

>100%

All Other (1)

(1,235)

(10,665)

9,430

88%

93,434

(125,415)

218,849

>100%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

39,770

36,081

3,689

10%

Interest and dividend income

9,617

4,526

5,091

>100%

Interest expense

(35,043)

(27,170)

(7,873)

(29)%

Other, net

(56)

69

(125)

>(100)%

Total investment and other income

14,288

13,506

782

6%

Income (loss) before income taxes

107,722

(111,909)

219,631

>100%

Income tax expense (benefit)

45,327

9,290

36,037

>100%

Net income (loss)

62,395

(121,199)

183,594

>100%

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

11,312

(5,169)

16,481

>100%

Net income (loss) attributable to TDS shareholders

51,083

(116,030)

167,113

>100%

TDS Preferred dividend requirement

(12)

(12)

–

-

Net income (loss) available to common shareholders

$

51,071

$

(116,042)

$

167,113

>100%

Basic weighted average shares outstanding

108,848

108,252

596

1%

Basic earnings (loss) per share attributable to TDS shareholders

$

0.47

$

(1.07)

$

1.54

>100%

Diluted weighted average shares outstanding

110,214

108,252

1,962

2%

Diluted earnings (loss) per share attributable to TDS shareholders

$

0.46

$

(1.07)

$

1.53

>100%

(1)

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

(2)

Due to Airadigm Transaction, TDS recognized expenses of $7.7 million related to exit and disposal activities in 2014.

N/M – Percentage change not meaningful

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Nine Months Ended September 30,

(Unaudited, dollars and shares in thousands, except per share amounts)

Change

2015

2014

Amount

Percent

Operating revenues

U.S. Cellular

$

3,009,818

$

2,884,003

$

125,815

4%

TDS Telecom

874,172

806,423

67,749

8%

All Other (1)

17,796

21,951

(4,155)

(19)%

3,901,786

3,712,377

189,409

5%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

2,471,687

2,615,163

(143,476)

(5)%

Depreciation, amortization and accretion

450,035

465,042

(15,007)

(3)%

(Gain) loss on asset disposals, net

12,268

16,774

(4,506)

(27)%

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

(113,825)

(27,694)

(86,131)

>(100)%

(Gain) loss on license sales and exchanges, net

(146,884)

(91,446)

(55,438)

(61)%

2,673,281

2,977,839

(304,558)

(10)%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

640,315

586,862

53,453

9%

Depreciation, amortization and accretion

170,347

161,205

9,142

6%

Loss on impairment of assets

–

84,000

(84,000)

N/M

(Gain) loss on asset disposals, net

2,791

2,694

97

4%

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

(3,159)

(2,201)

(958)

810,294

832,560

(22,266)

(3)%

All Other (1)

Expenses excluding depreciation and amortization

14,924

26,056

(11,132)

(43)%

Depreciation and amortization

8,061

8,768

(707)

(8)%

(Gain) loss on asset disposals, net

(11)

158

(169)

>(100)%

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

(12,947)

20,816

(33,763)

>(100)%

10,027

55,798

(45,771)

(82)%

Total operating expenses

3,493,602

3,866,197

(372,595)

(10)%

Operating income (loss)

U.S. Cellular