TDS reports second quarter 2014 results

2014 Estimated Results

U.S. Cellular

TDS Telecom (1)

TDS (1)(3)

Current

Previous

Current

Previous

Current

Previous

(Dollars in millions)

Total operating revenues

$3,900-$4,000

N/A

$1,050-$1,100

Unchanged

$4,970-$5,120

N/A

Adjusted income before income taxes (2)

$350-$450

N/A

$260-$290

$250-$280

$605-$735

N/A

Capital expenditures

$640

Unchanged

$200

Unchanged

$850

N/A

(1)

These estimates do not reflect the effects of the acquisition of BendBroadband.

(2)

Adjusted income before income taxes is defined as income before income taxes, adjusted for the items set forth in the reconciliation below. Adjusted income before income taxes excludes 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 adjusted income before income taxes 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.  Adjusted income before income taxes is not a measure of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as an alternative to income before income taxes as an indicator of the company's operating performance or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows or as a measure of liquidity. TDS believes adjusted income before income taxes is a useful measure of TDS' operating results before significant recurring non-cash charges, discrete gains and losses, and financing charges (interest expense). The following tables provide a reconciliation of income before income taxes to adjusted income before income taxes for 2014 estimated results, six months ended June 30, 2014 actual results, and year ended December 31, 2013 actual results:

2014 Estimated Results

U.S. Cellular

TDS Telecom (1)

TDS (1)(3)

(Dollars in millions)

Income (loss) before income taxes

($189)-($89)

$35-$65

($249)-($119)

Depreciation, amortization and accretion

$630

$225

$865

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

($50)

 ―   

($25)

(Gain) loss on license sales and exchanges

($91)

 ―   

($91)

Interest expense

$50

 ―   

$105

Adjusted income before income taxes

$350-$450

$260-$290

$605-$735

Actual Results

Six months ended June 30, 2014

Year ended December 31, 2013

U.S. Cellular

TDS

Telecom

TDS (3)

U.S. Cellular

TDS

Telecom

TDS (3)

(Dollars in millions)

Income (loss) before income taxes

$1

$39

($7)

$258

$49

$293

Depreciation, amortization and

accretion expense

$316

$107

$429

$804

$203

$1,018

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

($17)

—

($4)

($247)

—

($301)

(Gain) loss on license sales and exchanges

($91)

—

($91)

($255)

—

($255)

(Gain) loss on investments

—

—

—

($19)

($1)

($15)

Interest expense

$29

($1)

$56

$44

($2)

$99

Adjusted income before income taxes

$238

$145

$383

$585

$249

$839

(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.

Repurchase Period

# Shares

Cost (in millions)

2014 (second quarter)

650,628

$

17.3

2014 (first quarter)

157,891

$

3.8

2013 (full year)

338,851

9.7

Total

1,147,370

$

30.8

United States Cellular Corporation

Total Markets* Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2014

3/31/2014

12/31/2013

9/30/2013

6/30/2013

Retail Customers

Postpaid

Total at end of period

4,148,000

4,174,000

4,267,000

4,343,000

4,412,000

Gross additions

190,000

197,000

176,000

165,000

165,000

Net additions (losses)

(26,000)

(93,000)

(71,000)

(60,000)

(120,000)

ARPU (1)

$

56.82

$

57.59

$

53.53

$

54.64

$

54.18

Churn rate (2)

1.7%

2.3%

1.9%

1.7%

2.0%

Smartphone penetration (3)

55.3%

53.1%

50.8%

47.1%

45.5%

Prepaid

Total at end of period

352,000

356,000

343,000

370,000

381,000

Gross additions

65,000

85,000

63,000

65,000

77,000

Net additions (losses)

(4,000)

13,000

(26,000)

(11,000)

(7,000)

ARPU (1)

$

34.02

$

32.22

$

31.66

$

28.72

$

31.69

Churn rate (2)

6.5%

6.9%

8.3%

6.8%

6.8%

Total customers at end of period

4,653,000

4,684,000

4,774,000

4,875,000

4,968,000

Billed ARPU (1)

$

53.36

$

53.93

$

50.25

$

50.92

$

50.60

Service revenue ARPU (1)

$

60.32

$

60.19

$

57.05

$

58.36

$

57.45

Smartphones sold as a percent of total

  devices sold

72.6%

73.0%

79.6%

65.2%

66.0%

Total population

Consolidated markets (4)

54,817,000

54,817,000

58,013,000

84,025,000

84,025,000

Consolidated operating markets (4)

31,729,000

31,729,000

31,759,000

31,822,000

31,822,000

Market penetration at end of period

Consolidated markets (5)

8.5%

8.5%

8.2%

5.8%

5.9%

Consolidated operating markets (5)

14.7%

14.8%

15.0%

15.3%

15.6%

Capital expenditures (000s)

$

143,927

$

89,581

$

208,135

$

242,459

$

168,497

Total cell sites in service

6,183

6,165

6,975

7,687

7,748

Owned towers

4,457

4,448

4,448

4,422

4,411

*

Represents U.S. Cellular's consolidated markets. These results include markets which U. S. Cellular currently consolidates, or previously consolidated in the periods presented, and are not adjusted in prior periods for subsequent divestitures or deconsolidations.

Refer to U.S. Cellular's Form 8-K filed on August 2, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and six months ended June 30, 2013, as if the transactions had occurred at the beginning of the period.

United States Cellular Corporation

Core* Markets Summary Operating Data (Unaudited)

As of or for the Quarter Ended

6/30/2014

3/31/2014

12/31/2013

9/30/2013

6/30/2013

Retail Customers

Postpaid

Total at end of period

4,148,000

4,174,000

4,267,000

4,343,000

4,412,000

Gross additions

190,000

197,000

176,000

165,000

165,000

Net additions (losses)

(26,000)

(93,000)

(71,000)

(60,000)

(53,000)

ARPU (1)

$

56.82

$

57.59

$

53.53

$

54.64

$

54.44

Churn rate (2)

1.7%

2.3%

1.9%

1.7%

1.6%

Smartphone penetration (3)

55.3%

53.1%

50.8%

47.1%

45.5%

Prepaid

Total at end of period

352,000

356,000

343,000

370,000

381,000

Gross additions

65,000

85,000

63,000

65,000

76,000

Net additions (losses)

(4,000)

13,000

(26,000)

(11,000)

8,000

ARPU (1)

$

34.02

$

32.22

$

31.66

$

28.72

$

31.65

Churn rate (2)

6.5%

6.9%

8.3%

6.8%

6.0%

Total customers at end of period

4,653,000

4,684,000

4,774,000

4,875,000

4,968,000

Billed ARPU (1)

$

53.36

$

53.93

$

50.25

$

50.92

$

50.98

Service revenue ARPU (1)

$

60.32

$

60.19

$

57.05

$

58.36

$

57.88

Smartphones sold as a percent of total

  devices sold

72.6%

73.0%

79.6%

65.2%

66.1%

Total population

Consolidated markets (4)

54,817,000

54,817,000

58,013,000

84,025,000

84,025,000

Consolidated operating markets (4)

31,729,000

31,729,000

31,759,000

31,822,000

31,822,000

Market penetration at end of period

Consolidated markets (5)

8.5%

8.5%

8.2%

5.8%

5.9%

Consolidated operating markets (5)

14.7%

14.8%

15.0%

15.3%

15.6%

Capital expenditures (000s)

$

143,927

$

89,581

$

211,247

$

239,332

$

171,166

Total cell sites in service

6,183

6,165

6,161

6,127

6,113

Owned towers

3,892

3,883

3,883

3,857

3,846

*

U.S. Cellular's Core Markets excludes the results of the Divestiture Markets and NY1 and NY2 Partnerships for the periods presented.

Refer to U.S. Cellular's Form 8-K filed on August 2, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and six months ended June 30, 2013, as if the transactions had occurred at the beginning of the period.

(1)

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 retail service or "billed" revenues (total postpaid, prepaid and reseller service revenues) and postpaid, prepaid and reseller customers.

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

(2)

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.

(3)

Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding tablets. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid customers.

(4)

The decrease in the population of Consolidated markets is due primarily to the divestiture of the Mississippi Valley non-operating license in October 2013 and the majority of the St. Louis area non-operating market license in March 2014. Total Population is used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (5) below.

(5)

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.  The increase in penetration is due primarily to a lower denominator as a result of the license divestitures described in footnote (4) above.

TDS Telecom

Summary Operating Data (Unaudited)

Quarter Ended

6/30/2014

3/31/2014

12/31/2013

9/30/2013

6/30/2013

TDS Telecom

Wireline

Residential connections

Voice (1)

346,100

348,700

352,100

358,100

364,100

Broadband (2)

232,700

229,000

227,000

229,500

231,700

IPTV (3)

18,200

15,900

13,800

12,200

10,500

   Wireline residential connections

597,000

593,600

592,900

599,800

606,300

Total residential revenue per connection (4)

$

41.05

$

40.79

$

40.93

$

41.12

$

40.10

Commercial connections

Voice (1)

206,200

212,200

218,400

223,800

229,100

Broadband (2)

26,000

26,600

27,100

27,600

28,200

managedIP (5)

133,300

131,000

127,600

121,000

112,000

   Wireline commercial connections

365,500

369,800

373,100

372,400

369,300

Total Wireline connections

962,500

963,400

966,000

972,200

975,600

Cable

Cable Connections

Video (6)

69,700

68,700

69,100

70,300

Broadband (7)

63,200

63,000

61,000

59,800

Voice (7)

17,800

17,700

17,200

16,800

   Cable connections

150,700

149,400

147,300

146,900

Total residential revenue per connection (4)

$

56.80

$

57.37

$

55.27

$

55.67

(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 divided by the average number of total residential connections.

(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

6/30/2014

3/31/2014

12/31/2013

9/30/2013

6/30/2013

Wireline

$

27,400

$

22,900

$

46,000

$

32,800

$

33,300

Cable

7,200

6,200

7,000

1,400

—

HMS

10,600

2,800

9,200

2,400

2,300

$

45,200

$

31,900

$

62,200

$

36,600

$

35,600

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Three Months Ended June 30,

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

Change

2014

2013

Amount

Percent

Operating revenues

U.S. Cellular

$

957,773

$

995,130

$

(37,357)

(4%)

TDS Telecom

270,850

223,460

47,390

21%

All Other (1)

7,769

9,576

(1,807)

(19%)

1,236,392

1,228,166

8,226

1%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

863,361

813,464

49,897

6%

Depreciation, amortization and accretion

148,337

202,580

(54,243)

(27%)

(Gain) loss on asset disposals, net

6,893

9,018

(2,125)

(24%)

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

(10,511)

(249,024)

238,513

96%

1,008,080

776,038

232,042

30%

TDS Telecom

Expenses excluding depreciation, amortization and accretion

197,427

162,954

34,473

21%

Depreciation, amortization and accretion

53,175

48,756

4,419

9%

(Gain) loss on asset disposals, net

983

(682)

1,665

>(100%)

251,585

211,028

40,557

19%

All Other (1)(2)

Expenses excluding depreciation and amortization

9,613

10,033

(420)

(4%)

Depreciation and amortization

3,055

2,867

188

7%

(Gain) loss on asset disposals, net

27

(17)

44

>(100%)

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

13,122

(54,010)

67,132

>(100%)

25,817

(41,127)

66,944

>(100%)

Total operating expenses

1,285,482

945,939

339,543

36%

Operating income (loss)

U.S. Cellular

(50,307)

219,092

(269,399)

>(100%)

TDS Telecom

19,265

12,432

6,833

55%

All Other  (1)(2)

(18,048)

50,703

(68,751)

>(100%)

(49,090)

282,227

(331,317)

>(100%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

34,790

35,605

(815)

(2%)

Interest and dividend income

2,751

2,600

151

6%

Gain (loss) on investments

—

14,518

(14,518)

N/M

Interest expense

(27,898)

(23,749)

(4,149)

(17%)

Other, net

50

(197)

247

>(100%)

Total investment and other income

9,693

28,777

(19,084)

(66%)

Income (loss) before income taxes

(39,397)

311,004

(350,401)

>(100%)

Income tax expense (benefit)

(13,671)

132,607

(146,278)

>(100%)

Net income (loss)

(25,726)

178,397

(204,123)

>(100%)

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

(3,688)

22,320

(26,008)

>(100%)

Net income (loss) attributable to TDS shareholders

(22,038)

156,077

(178,115)

>(100%)

TDS Preferred dividend requirement

(12)

(12)

—

—

Net income (loss) available to common shareholders

$

(22,050)

$

156,065

$

(178,115)

>(100%)

Basic weighted average shares outstanding

108,719

108,385

334

—

Basic earnings (loss) per share attributable to TDS shareholders

$

(0.20)

$

1.44

$

(1.64)

>(100%)

Diluted weighted average shares outstanding

108,719

108,913

(194)

—

Diluted earnings (loss) per share attributable to TDS shareholders

$

(0.20)

$

1.42

$

(1.62)

>(100%)

(1)

Consists of Non-Reportable Segment, corporate operations and intercompany eliminations between U.S. Cellular, TDS Telecom, the Non-Reportable Segment and corporate operations.

(2)

Due to the Airadigm Transaction, TDS recognized expenses of $13.1 million related to exit and disposal activities in 2014.  In 2013, TDS recognized an incremental gain of $53.5 million compared to U.S. Cellular upon closing of the Divestiture Transaction as a result of lower asset basis in the assets disposed.

N/M – Percentage change not meaningful

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

Six Months Ended June 30,

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

Change

2014

2013

Amount

Percent

Operating revenues

U.S. Cellular

$

1,883,584

$

2,076,876

$

(193,292)

(9%)

TDS Telecom

533,266