TDS reports third quarter 2017 results
CHICAGO, Nov. 8, 2017 /PRNewswire/ --
As previously announced, TDS will hold a teleconference November 8, 2017, at 9:30 a.m. CST. Listen to the call live via the Events & Presentations page of investors.tdsinc.com.
Telephone and Data Systems, Inc. (NYSE:TDS) reported total operating revenues of $1,251 million for the third quarter of 2017, versus $1,314 million for the same period one year ago. Net loss available to TDS common shareholders and related diluted loss per share were $181 million and $1.64, respectively, as a result of a $262 million ($190 million, net of tax and noncontrolling interests impacts) non-cash charge related to goodwill impairment recorded during the three months ended September 30, 2017. This compares to Net income available to TDS common shareholders and related diluted earnings per share of $13 million and $0.11, respectively, in the same period one year ago. Excluding this goodwill impairment charge and other non-controlling interest impacts associated with this charge, Net income available to TDS common shareholders and related diluted earnings per share were $9 million and $0.08, respectively, for the three months ended September 30, 2017.
"TDS' businesses continue on a solid path of achieving their priorities for 2017," said LeRoy T. Carlson Jr., TDS president and CEO. "U.S. Cellular grew its customer base while successfully reducing expenses. TDS Telecom expanded its wireline and cable segments while implementing its long-term broadband strategy of providing the best broadband connection in each market.
"U.S. Cellular added postpaid handset customers and continued to drive an exceptionally low level of postpaid handset churn. This shows that effective promotions and pricing through Total Plan packages, which include unlimited data offerings, are well received by both new and current customers. U.S. Cellular effectively managed cost reductions including lowering expenses in system operations, despite increased data traffic. Reflecting these positive results, U.S. Cellular raised its guidance on profitability.
"Wireline revenues and profitability increased at TDS Telecom, through higher revenues from fiber investments and through support from the Alternative Connect America Cost Model (A-CAM). TDS Telecom's Cable segment continued to see a rise in broadband connections and together with an increase in demand for higher data speeds, generated higher revenues and margin expansion. TDS Telecom recently completed its purchase agreements for Crestview Communications in Central Oregon, and K2 Communications in Mead, Colorado. These acquisitions provide excellent clustering opportunities as we continue to build broadband penetration in these target markets. OneNeck IT Solutions reported lower revenues due to less equipment sales to existing customers. Growing sales continues to be their top priority."
2017 Estimated Results
Current estimates of full-year 2017 results for U.S. Cellular, TDS Telecom, and TDS are shown below. Such estimates represent management's view as of November 8, 2017. 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.
2017 Estimated Results U.S. Cellular TDS Telecom TDS(3) Current Previous Current Previous Current Previous (Dollars in millions) Total operating revenues (1) $3,850-$3,950 $3,800-$4,000 $1,125-$1,150 $1,200-$1,250 $4,990-$5,115 $5,015-$5,265 Adjusted OIBDA (1)(2)(4) $600-$700 $550-$650 $310-$330 $300-$340 $910-$1,030 $855-$955 Adjusted EBITDA (2) $740-$840 $700-$800 $310-$330 $300-$340 $1,050-$1,170 $1,005-$1,145 Capital expenditures (Approximately) $500 Unchanged $225 Unchanged $735 Unchanged
The following tables provide reconciliations of Net income (loss) to Adjusted OIBDA and Adjusted EBITDA for 2017 estimated results, actual results for the nine months ended September 30, 2017, and actual results for the year ended December 31, 2016. In providing 2017 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.
2017 Estimated Results U.S. Cellular TDS Telecom TDS(3) (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) $ (350)-(250) $ 50-70 $ (220)-(100) Add back: Interest expense 110 5 170 Depreciation, amortization and accretion expense 610 220 835 EBITDA (Non-GAAP) $ 370-470 $ 275-295 $ 785-905 Add back: Loss on impairment of goodwill 370 35 265 (Gain) loss on sale of business and other exit costs, net - - - (Gain) loss on license sales and exchanges, net (20) - (20) (Gain) loss on asset disposals, net 20 - 20 Adjusted EBITDA (Non-GAAP) (2) $ 740-840 $ 310-330 $ 1,050-1,170 Deduct: Equity in earnings of unconsolidated entities 130 - 130 Interest and dividend income(1) 10 - 10 Adjusted OIBDA (Non-GAAP)(1)(2)(4) $ 600-700 $ 310-330 $ 910-1,030 === ======= === ======= === =========
Actual Results Nine Months Ended September 30, 2017 Year ended December 31, 2016 U.S. TDS TDS (3) U.S. TDS TDS (3) Cellular Cellular Telecom Telecom (Dollars in millions) Net income (loss) (GAAP) $(259) $18 $(176) $49 $42 $52 Add back: Income tax expense (benefit) (19) 24 39 33 25 40 Income (loss) before income taxes (GAAP) $(278) $42 $(137) $82 $67 $92 Add back: Interest expense 85 3 128 113 3 170 Depreciation, amortization and accretion expense 460 166 632 618 224 850 EBITDA (Non-GAAP) $267 $211 $623 $813 $294 $1,112 ---- ---- ---- ---- ---- ------ Add back: Loss on impairment of goodwill 370 35 262 - - - (Gain) loss on sale of business and (1) - (1) - - (1) other exit costs, net (Gain) loss on license sales and exchanges, net (19) - (19) (19) (1) (20) (Gain) loss on asset disposals, net 14 2 16 22 4 27 Adjusted EBITDA (Non-GAAP) (2) $631 $248 $881 $816 $298 $1,118 ==== ==== ==== ==== ==== ====== Deduct: Equity in earnings of unconsolidated entities 101 - 101 140 - 140 Interest and dividend income(1) 6 4 12 6 3 11 Other, net 1 - - 1 - - Adjusted OIBDA (Non-GAAP) (1)(2)(4) $523 $244 $768 $669 $295 $967 ==== ==== ==== ==== ==== ====
Note: Totals may not foot due to rounding differences. (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) Adjusted EBITDA is defined as net income adjusted for the items set forth in the reconciliation above. Adjusted OIBDA is defined as net income adjusted for the items set forth in the reconciliation above. 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 Adjusted EBITDA and Adjusted OIBDA flow to the corresponding GAAP measure, Net income or Income 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 Adjusted OIBDA (Non-GAAP) to Operating income (GAAP) for September 30, 2017 actual results can be found on TDS' website at investors.tdsinc.com.
Conference Call Information
TDS will hold a conference call on November 8, 2017 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/1145/23219. -- 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 1000(®) company, provides wireless; cable and wireline broadband, TV and voice; and hosted and managed services to approximately 6 million connections nationwide through its businesses, U.S. Cellular, TDS Telecom, OneNeck IT Solutions, and BendBroadband. Founded in 1969 and headquartered in Chicago, TDS employed 9,900 people as of September 30, 2017.
Visit www.tdsinc.com for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.
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/divestitures/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 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 of 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 services and products 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 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016 Retail Connections Postpaid Total at end of period 4,513,000 4,478,000 4,455,000 4,482,000 4,484,000 Gross additions 191,000 174,000 146,000 187,000 174,000 Feature phones 7,000 7,000 7,000 7,000 10,000 Smartphones 132,000 116,000 88,000 109,000 105,000 Connected devices 52,000 51,000 51,000 71,000 59,000 Net additions (losses) 35,000 23,000 (27,000) (2,000) (6,000) Feature phones (15,000) (15,000) (19,000) (21,000) (20,000) Smartphones 44,000 34,000 (9,000) (4,000) (7,000) Connected devices 6,000 4,000 1,000 23,000 21,000 ARPU (1) $43.41 $44.60 $45.42 $45.19 $47.08 ABPU (Non-GAAP)(2) $54.71 $55.19 $55.82 $55.43 $56.79 ARPA (3) $116.36 $119.73 $121.88 $120.67 $125.31 ABPA (Non-GAAP)(4) $146.65 $148.15 $149.78 $148.02 $151.16 Churn rate (5) 1.16% 1.13% 1.29% 1.41% 1.34% Handsets 0.96% 0.91% 1.08% 1.23% 1.22% Connected devices 2.33% 2.35% 2.55% 2.49% 2.04% Prepaid Total at end of period 515,000 484,000 480,000 484,000 480,000 Gross additions 102,000 73,000 78,000 83,000 132,000 Net additions (losses) 31,000 3,000 (4,000) 4,000 67,000 ARPU (1) $33.12 $33.52 $33.66 $33.25 $34.39 Churn rate (5) 4.75% 4.93% 5.69% 5.44% 4.84% Total connections at end of period (6) 5,089,000 5,023,000 4,996,000 5,031,000 5,030,000 Market penetration at end of period Consolidated operating population 31,834,000 32,089,000 32,089,000 31,994,000 31,994,000 Consolidated operating penetration (7) 16% 16% 16% 16% 16% Capital expenditures (millions) $112 $84 $61 $171 $103 Total cell sites in service 6,436 6,421 6,417 6,415 6,374 Owned towers 4,051 4,044 4,041 4,040 4,015
(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. 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 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. 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 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016 TDS Telecom Wireline -------- Residential connections Voice (1) 298,200 304,600 308,200 310,600 314,600 Broadband (2) 229,900 230,200 228,500 229,500 232,800 IPTV (3) 47,200 46,200 45,200 45,300 43,600 Wireline residential connections 575,300 581,000 581,900 585,400 590,900 ------- ------- ------- ------- ------- Total residential revenue per connection (4) $46.07 $46.39 $45.17 $44.27 $44.25 Commercial connections Voice (1) 146,900 150,500 154,000 157,400 160,900 Broadband (2) 20,900 21,000 21,200 21,400 21,700 managedIP (5) 147,600 149,700 150,300 150,900 151,500 Wireline commercial connections 315,300 321,200 325,500 329,700 334,000 ------- ------- ------- ------- ------- Total Wireline connections 890,700 902,200 907,400 915,200 924,900 Cable ----- Cable Connections Broadband (6) 143,800 140,300 137,800 133,700 130,200 Video (7) 97,900 97,900 97,600 99,000 101,100 Voice (8) 58,900 58,700 59,000 59,600 59,800 Cable connections 300,600 297,000 294,300 292,400 291,000 ======= ======= ======= ======= =======
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 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016 (Dollars in millions) Wireline $41 $33 $17 $26 $27 Cable 14 12 9 13 11 HMS 2 4 6 5 2 $58 $49 $33 $45 $40 === === === === ===
Numbers may not foot due to rounding.
Telephone and Data Systems, Inc. Consolidated Statement of Operations Highlights (Unaudited) Three Months Ended September 30, 2017 2016 2017 vs. 2016 Increase (Decrease) (Dollars and shares in millions, except per share amounts) Operating revenues U.S. Cellular (1) $963 $1,023 $(60) (6)% TDS Telecom 285 287 (3) (1)% All Other (2) 3 4 (1) - 1,251 1,314 (63) (5)% ----- ----- --- Operating expenses U.S. Cellular Expenses excluding depreciation, amortization and accretion 796 846 (50) (6)% Depreciation, amortization and accretion 153 155 (2) (2)% Loss on impairment of goodwill 370 - 370 N/M (Gain) loss on asset disposals, net 5 7 (2) (26)% (Gain) loss on sale of business and other exit costs, net (1) - (1) N/M (Gain) loss on license sales and exchanges, net - (7) 7 100% 1,323 1,001 322 32% ----- ----- --- TDS Telecom Expenses excluding depreciation, amortization and accretion 206 217 (11) (5)% Depreciation, amortization and accretion 56 57 (1) (2)% Loss on impairment of goodwill 35 - 35 N/M (Gain) loss on asset disposals, net 1 2 (1) (51)% 297 276 21 8% --- --- --- All Other (2) Expenses excluding depreciation and amortization 5 4 1 64% Depreciation and amortization - 2 (2) (9)% Loss on impairment of goodwill(3) (143) - (143) N/M (Gain) loss on asset disposals, net - (1) 1 (100)% (137) 5 (143) (100)% ---- --- ---- Total operating expenses 1,483 1,281 202 16% ----- ----- --- Operating income (loss) U.S. Cellular (1) (360) 22 (382) >(100)% TDS Telecom (13) 12 (24) >(100)% All Other (2) 141 (1) 142 >100% (232) 33 (265) >(100)% ---- --- ---- Investment and other income (expense) Equity in earnings of unconsolidated entities 35 38 (3) (6)% Interest and dividend income (1) 4 2 2 >100% Interest expense (43) (42) (1) (2)% Other, net - (1) 1 >100% Total investment and other income (expense)(1) (4) (3) (1) (38)% --- --- --- Income (loss) before income taxes (236) 30 (266) >(100)% Income tax expense (benefit) (5) 14 (19) >(100)% Net income (loss) (231) 16 (247) >(100)% Less: Net income (loss) attributable to noncontrolling interests, net of tax (50) 3 (53) >(100)% --- --- --- Net income (loss) attributable to TDS shareholders (181) 13 (194) >(100)% TDS Preferred dividend requirement - - - - Net income (loss) available to TDS common shareholders $(181) $13 $(194) >(100)% ===== === ===== Basic weighted average shares outstanding 111 110 1 1% Basic earnings (loss) per share available to TDS common shareholders $(1.64) $0.12 $(1.76) N/M ====== ===== ====== Diluted weighted average shares outstanding 111 111 - (1)% Diluted earnings (loss) per share available to TDS common shareholders $(1.64) $0.11 $(1.75) >(100)% ====== ===== ======
N/M - Percentage change not meaningful Numbers may not foot due to rounding. End Notes (1) (2) (3) ? Explained on page 11 of the release
Telephone and Data Systems, Inc. Consolidated Statement of Operations Highlights (Unaudited) Nine Months Ended September 30, 2017 2016 2017 vs. 2016 Increase (Decrease) (Dollars and shares in millions, except per share amounts) Operating revenues U.S. Cellular(1) $2,862 $2,985 $(123) (4)% TDS Telecom 865 868 (4) - All Other(2) 9 10 (1) (2)% 3,736 3,863 (127) (3)% ----- ----- ---- Operating expenses U.S. Cellular Expenses excluding depreciation, amortization and accretion 2,339 2,460 (121) (5)% Depreciation, amortization and accretion 460 462 (2) - Loss on impairment of goodwill 370 - 370 N/M (Gain) loss on asset disposals, net 14 16 (2) (17)% (Gain) loss on sale of business and other exit costs, net (1) - (1) >(100)% (Gain) loss on license sales and exchanges, net (19) (16) (3) (16)% 3,163 2,922 241 8% ----- ----- --- TDS Telecom Expenses excluding depreciation, amortization and accretion 621 644 (23) (4)% Depreciation, amortization and accretion 166 168 (2) (1)% Loss on impairment of goodwill 35 - 35 N/M (Gain) loss on asset disposals, net 2 4 (1) (38)% 824 816 9 1% --- --- --- All Other(2) Expenses excluding depreciation and amortization 8 8 - 25% Depreciation and amortization 6 6 - (10)% Loss on impairment of goodwill(3) (143) - (143) N/M (Gain) loss on sale of business and other exit costs, net - (1) 1 N/M (129) 13 (142) >(100)% ---- --- ---- Total operating expenses 3,858 3,750 108 3% ----- ----- --- Operating income (loss) U.S. Cellular(1) (301) 63 (364) >(100)% TDS Telecom 41 53 (12) (23)% All Other(2) 138 (3) 141 >100% (122) 113 (235) >(100)% ---- --- ---- Investment and other income (expense) Equity in earnings of unconsolidated entities 101 109 (8) (8)% Interest and dividend income(1) 12 7 5 53% Interest expense (128) (127) (1) (1)% Other, net - 1 (1) >100% Total investment and other income (expense)(1) (15) (10) (5) (50)% --- --- --- Income (loss) before income taxes (137) 103 (240) >(100)% Income tax expense 39 45 (6) (12)% Net income (loss) (176) 58 (234) >(100)% Less: Net income (loss) attributable to noncontrolling interests, net of tax (42) 9 (51) >(100)% --- --- --- Net income (loss) attributable to TDS shareholders (134) 49 (183) >(100)% TDS Preferred dividend requirement - - - (67)% Net income (loss) available to TDS common shareholders $(134) $49 $(183) >(100)% ===== === ===== Basic weighted average shares outstanding 111 110 1 1% Basic earnings (loss) per share available to TDS common shareholders $(1.21) $0.44 $(1.65) >(100)% ====== ===== ====== Diluted weighted average shares outstanding 111 111 - 1% Diluted earnings (loss) per share available to TDS common shareholders $(1.21) $0.44 $(1.65) >(100)% ====== ===== ======
N/M - Percentage change not meaningful Numbers may not foot due to rounding. End Notes (1) (2) (3) ?? Explained on page 11 of the release
Telephone and Data Systems, Inc. Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended September 30, 2017 2016 (Dollars in millions) Cash flows from operating activities Net income (loss) $(176) $58 Add (deduct) adjustments to reconcile net income (loss) to net cash flows from operating activities Depreciation, amortization and accretion 632 636 Bad debts expense 68 72 Stock-based compensation expense 34 29 Deferred income taxes, net (23) 11 Equity in earnings of unconsolidated entities (101) (109) Distributions from unconsolidated entities 85 55 Loss on impairment of goodwill 262 - (Gain) loss on asset disposals, net 16 20 (Gain) loss on sale of business and other exit costs, net (1) (1) (Gain) loss on license sales and exchanges, net (19) (16) Noncash interest 2 2 Other operating activities - (3) Changes in assets and liabilities from operations Accounts receivable (6) (9) Equipment installment plans receivable (164) (160) Inventory 44 3 Accounts payable (59) 47 Customer deposits and deferred revenues (16) (41) Accrued taxes 41 77 Accrued interest 11 7 Other assets and liabilities (9) (40) Net cash provided by operating activities 621 638 --- --- Cash flows from investing activities Cash paid for additions to property, plant and equipment (398) (426) Cash paid for acquisitions and licenses (200) (46) Cash paid for investments (100) - Cash received from divestitures and exchanges 19 20 Federal Communications Commission deposit - (143) Other investing activities 1 1 Net cash used in investing activities (678) (594) ---- ---- Cash flows from financing activities Repayment of long- term debt (9) (9) Issuance of long-term debt - 2 TDS Common Shares reissued for benefit plans, net of tax payments (1) 7 U.S. Cellular Common Shares reissued for benefit plans, net of tax payments - 4 Repurchase of TDS Common Shares - (3) Repurchase of U.S. Cellular Common Shares - (2) Repurchase of TDS Preferred Shares (1) - Dividends paid to TDS shareholders (51) (49) Payment of debt issuance costs - (4) Distributions to noncontrolling interests (2) (1) Other financing activities 5 11 Net cash used in financing activities (59) (44) --- --- Net increase (decrease) in cash and cash equivalents (116) - Cash and cash equivalents Beginning of period 900 985 End of period $784 $985
Telephone and Data Systems, Inc. Consolidated Balance Sheet Highlights (Unaudited) ASSETS September December 30, 31, 2017 2016 (Dollars in millions) Current assets Cash and cash equivalents $784 $900 Short-term investments 100 - Accounts receivable from customers and others, net 871 851 Inventory, net 107 151 Prepaid expenses 109 115 Income taxes receivable 2 10 Other current assets 31 32 Total current assets 2,004 2,059 Assets held for sale 5 8 Licenses 2,234 1,895 Goodwill 508 766 Franchise rights 244 244 Other intangible assets, net 26 33 Investments in unconsolidated entities 467 451 Other investments - 1 Property, plant and equipment, net 3,337 3,555 Other assets and deferred charges 385 434 Total assets $9,210 $9,446 ====== ======
Telephone and Data Systems, Inc. Consolidated Balance Sheet Highlights (Unaudited) LIABILITIES AND EQUITY September 30, December 31, 2017 2016 (Dollars and shares in millions, except per share amounts) Current liabilities Current portion of long-term debt $20 $12 Accounts payable 308 365 Customer deposits and deferred revenues 211 229 Accrued interest 22 11 Accrued taxes 72 44 Accrued compensation 112 127 Other current liabilities 84 99 Total current liabilities 829 887 Deferred liabilities and credits Deferred income tax liability, net 898 922 Other deferred liabilities and credits 480 453 Long-term debt, net 2,443 2,433 Noncontrolling interests with redemption features 1 1 Equity TDS shareholders' equity Series A Common and Common Shares, par value $.01 1 1 Capital in excess of par value 2,404 2,386 Treasury shares, at cost (679) (698) Accumulated other comprehensive income - 1 Retained earnings 2,257 2,454 Total TDS shareholders' equity 3,983 4,144 Preferred shares - 1 Noncontrolling interests 576 605 Total equity 4,559 4,750 Total liabilities and equity $9,210 $9,446 ====== ======
(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. (3) During the three months ended September 30, 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 impairments of Goodwill does not equal the TDS consolidated Goodwill related to U.S. Cellular.
Balance Sheet Highlights (Unaudited) September 30, 2017 U.S. TDS TDS Corporate Intercompany TDS Cellular Telecom & Other Eliminations Consolidated (Dollars in millions) Cash and cash equivalents $498 $22 $264 $ - $784 Affiliated cash investments - 533 - (533) - $498 $555 $264 $(533) $784 ==== ==== ==== ===== ==== Short-term investments $50 $ - $50 $ - $100 === === === === === === ==== Licenses, goodwill and other intangible assets $2,225 $783 $4 $ - $3,012 Investment in unconsolidated entities 429 4 41 (7) 467 $2,654 $787 $45 $(7) $3,479 ====== ==== === === ====== Property, plant and equipment, net $2,263 $1,052 $22 $ - $3,337 ====== ====== === === === ====== Long-term debt, net: Current portion $18 $1 $1 $ - $20 Non-current portion 1,626 4 813 - 2,443 $1,644 $5 $814 $ - $2,463 ====== === ==== === === ======
TDS Telecom Highlights (Unaudited) Three Months Ended September 30, 2017 vs. 2016 2017 2016 Increase (Decrease) (Dollars in millions) Wireline Operating revenues Residential $80 $78 $1 2% Commercial 50 53 (3) (6)% Wholesale 49 43 6 13% Total service revenues 178 174 4 2% Equipment and product sales - - - (28)% 179 175 4 2% --- --- --- Operating expenses Cost of services 66 67 (1) (1)% Cost of equipment and products - 1 - (37)% Selling, general and administrative expenses 49 50 (2) (3)% Expenses excluding depreciation, amortization and accretion 115 117 (3) (2)% Depreciation, amortization and accretion 38 41 (3) (8)% (Gain) loss on asset disposals, net - 1 - (76)% 152 159 (6) (4)% --- --- --- Operating income $26 $16 $10 63% ---------- Cable Operating revenues Residential $43 $37 $6 16% Commercial 9 9 - (2)% 52 46 6 12% --- --- --- Operating expenses Cost of services 25 23 2 8% Selling, general and administrative expenses 13 13 - 2% Expenses excluding depreciation, amortization and accretion 38 36 2 6% Depreciation, amortization and accretion 11 9 2 24% (Gain) loss on asset disposals, net 1 1 - (33)% 50 46 4 8% --- --- --- Operating income $2 $ - $2 >100% ---------- --- HMS Operating revenues Service revenues $28 $29 $(1) (2)% Equipment and product sales 27 39 (11) (30)% 56 68 (12) (18)% --- --- --- Operating expenses Cost of services 21 21 - - Cost of equipment and products 22 33 (10) (31)% Selling, general and administrative expenses 11 12 - (3)% Expenses excluding depreciation, amortization and accretion 54 65 (11) (16)% Depreciation, amortization and accretion 7 7 - (3)% Loss on impairment of goodwill 35 - 35 N/M 96 72 24 33% --- --- --- Operating loss $(41) $(5) $(36) >(100)% ------------ Intercompany revenues $(1) $(1) $ - (10)% Intercompany expenses (1) (1) - (10)% --- --- --- Total TDS Telecom operating income (loss) $(13) $12 $(24) >(100)% ==== === ====
N/M - Percentage change not meaningful Numbers may not foot due to rounding.
TDS Telecom Highlights (Unaudited) Nine Months Ended September 30, 2017 vs. 2016 2017 2016 Increase (Decrease) (Dollars in millions) Wireline Operating revenues Residential $240 $232 $8 3% Commercial 151 160 (9) (6)% Wholesale 147 130 17 13% Total service revenues 537 522 16 3% Equipment and product sales 1 1 - (34)% 538 523 15 3% --- --- --- Operating expenses Cost of services 194 192 2 1% Cost of equipment and products 2 2 - (7)% Selling, general and administrative expenses 145 148 (3) (2)% Expenses excluding depreciation, amortization and accretion 340 342 (1) - Depreciation, amortization and accretion 114 119 (5) (5)% (Gain) loss on asset disposals, net 1 2 (1) (54)% 455 462 (8) (2)% --- --- --- Operating income $84 $61 $23 37% ---------- Cable Operating revenues Residential $125 $108 $16 15% Commercial 27 28 (1) (3)% 152 137 15 11% --- --- --- Operating expenses Cost of services 73 69 4 5% Selling, general and administrative expenses 39 37 1 3% Expenses excluding depreciation, amortization and accretion 112 107 5 5% Depreciation, amortization and accretion 32 27 5 17% (Gain) loss on asset disposals, net 1 2 - (24)% 145 136 9 7% --- --- --- Operating income $7 $1 $6 >100% ---------- HMS Operating revenues Service revenues $84 $91 $(6) (7)% Equipment and product sales 93 121 (28) (23)% 178 212 (34) (16)% --- --- --- Operating expenses Cost of services 63 61 1 2% Cost of equipment and products 77 101 (24) (24)% Selling, general and administrative expenses 32 37 (4) (12)% Expenses excluding depreciation, amortization and accretion 172 199 (27) (13)% Depreciation, amortization and accretion 21 22 (1) (6)% Loss on impairment of goodwill 35 - 35 N/M 227 221 7 3% --- --- --- Operating loss $(50) $(9) $(41) >(100)% ------------ Intercompany revenues $(3) $(3) $ - - Intercompany expenses (3) (3) - - --- --- --- Total TDS Telecom operating income $41 $53 $(12) (23)% === === ====
N/M - Percentage change not meaningful Numbers may not foot due to rounding.
Telephone and Data Systems, Inc. Financial Measures and Reconciliations Free Cash Flow Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 (Dollars in millions) Cash flows from operating activities (GAAP) $263 $238 $621 $638 Less: Cash paid for additions to property, plant and equipment 156 145 398 426 --- --- --- --- Free cash flow (Non- GAAP)(1) 107 93 223 212 === === === ===
(1) Management uses Free cash flow as a liquidity measure and it is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. Free cash flow is a non-GAAP financial measure which TDS believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment.
Net income excluding Goodwill impairment charge
The following non-GAAP financial measures present certain information in the table below excluding the effect of the goodwill impairment charge, related tax effects and noncontrolling interests impacts. The goodwill impairment charge, which occurred in the third quarter of 2017, is being excluded in this presentation, as it is not related to the current operations of TDS. TDS believes these measures may be useful to investors and other users of its financial information when comparing the current period financial results with periods that were not impacted by such a charge.
Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 (Dollars in millions, except per share amounts) Net income (loss) available to TDS common $(181) $13 $(134) $49 shareholders (GAAP) Adjustments: Loss on impairment of goodwill 262 - 262 - Tax benefit on impairment of goodwill(1) (20) - (20) - Net income (loss) attributable to noncontrolling interests, net of tax (52) - (52) - Total adjustments (Non-GAAP) 190 - 190 - Net income available to TDS common shareholders excluding goodwill impairment charge (Non- GAAP) $9 $13 $56 $49 === === === === Diluted earnings (loss) per share available to $(1.64) $0.11 $(1.21) $0.44 TDS common shareholders (GAAP) Adjustments: Adjustment to weighted average diluted 0.02 - 0.01 - shares(2) Loss on impairment of goodwill 2.34 - 2.34 - Tax benefit on impairment of goodwill(1) (0.18) - (0.18) - Net income (loss) attributable to noncontrolling interests, net of tax (0.46) - (0.46) - Diluted earnings per share available to TDS $0.08 $0.11 $0.50 $0.44 common shareholders excluding goodwill impairment charge (Non-GAAP) Diluted weighted average shares outstanding 111 111 111 111 (GAAP) Adjustment to weighted average diluted 1 - 1 - shares(2) Adjusted diluted weighted average shares 112 111 112 111 (Non-GAAP)
(1) Tax benefit represents the amount associated with the tax-deductible portion of the loss on goodwill impairment. (2) Adjustment to reflect the incremental shares deemed anti-dilutive for GAAP diluted earnings per share.
Postpaid ABPU and Postpaid ABPA
U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect the revenue shift from Service revenues to Equipment and product sales resulting from the increased adoption of equipment installment plans. Postpaid ABPU and Postpaid ABPA, as previously defined, are non-GAAP financial measures which U.S. Cellular believes are useful to investors and other users of its financial information in showing trends in both service and equipment and product sales revenues received from customers.
For the Quarter Ended 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016 (Dollars and connection counts in millions) Calculation of Postpaid ARPU ---------------------------- Postpaid service revenues $586 $597 $608 $607 $635 Average number of postpaid connections 4.50 4.47 4.46 4.48 4.49 Number of months in period 3 3 3 3 3 Postpaid ARPU (GAAP metric) $43.41 $44.60 $45.42 $45.19 $47.08 ========= Calculation of Postpaid ABPU ---------------------------- Postpaid service revenues $586 $597 $608 $607 $635 Equipment installment plan billings 152 142 139 138 131 --- --- --- --- --- Total billings to postpaid connections $738 $739 $747 $745 $766 Average number of postpaid connections 4.50 4.47 4.46 4.48 4.49 Number of months in period 3 3 3 3 3 Postpaid ABPU (Non-GAAP metric) $54.71 $55.19 $55.82 $55.43 $56.79 ========= Calculation of Postpaid ARPA ---------------------------- Postpaid service revenues $586 $597 $608 $607 $635 Average number of postpaid accounts 1.68 1.66 1.66 1.68 1.69 Number of months in period 3 3 3 3 3 Postpaid ARPA (GAAP metric) $116.36 $119.73 $121.88 $120.67 $125.31 ========= Calculation of Postpaid ABPA ---------------------------- Postpaid service revenues $586 $597 $608 $607 $635 Equipment installment plan billings 152 142 139 138 131 --- --- --- --- --- Total billings to postpaid accounts $738 $739 $747 $745 $766 Average number of postpaid accounts 1.68 1.66 1.66 1.68 1.69 Number of months in period 3 3 3 3 3 Postpaid ABPA (Non-GAAP metric) $146.65 $148.15 $149.78 $148.02 $151.16 =========
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SOURCE Telephone and Data Systems, Inc.