2018 Estimated Results

U.S. Cellular

TDS Telecom ⁽¹⁾

TDS ⁽¹⁾⁽²⁾

Current ⁽³⁾

Previous

Current ⁽³⁾

Previous

Current ⁽³⁾

Previous

(Dollars in millions)

Total operating revenues

$3,950-$4,000

$3,925-$4,025

$900-$950

Unchanged

$5,080-$5,180

$5,055-$5,205

Adjusted OIBDA ⁽⁴⁾⁽⁵⁾

$760-$810

$700-$800

$290-$320

Unchanged

$1,045-$1,125

$985-$1,115

Adjusted EBITDA ⁽⁴⁾

$925-$1,000

$850-$950

$300-$330

Unchanged

$1,220-$1,325

$1,145-$1,275

Capital expenditures

$500

$500-$550

$250

$270

$770

$790-$840

2018 Estimated Results

U.S. Cellular ⁽³⁾

TDS Telecom ⁽¹⁾⁽³⁾

TDS ^(1)(2)(3)

(Dollars in millions)

Net income (GAAP)

N/A

N/A

N/A

Add back:

Income tax expense (benefit)

N/A

N/A

N/A

Income before income taxes (GAAP)

$175-$250

$80-$110

$155-$260

Add back:

Interest expense

115

—

175

Depreciation, amortization and accretion expense

645

220

900

EBITDA (Non-GAAP) ⁽⁴⁾

$935-$1,010

$300-$330

$1,230-$1,335

Add back or deduct:

(Gain) loss on asset disposals, net

10

—

10

(Gain) loss on license sales and exchanges, net

(20)

—

(20)

Adjusted EBITDA (Non-GAAP) ⁽⁴⁾

$925-$1,000

$300-$330

$1,220-$1,325

Deduct:

Equity in earnings of unconsolidated entities

150-175

—

150-175

Interest and dividend income

15

5

20

Other, net ⁽⁶⁾

—

5

5

Adjusted OIBDA (Non-GAAP) ⁽⁴⁾⁽⁵⁾

$760-$810

$290-$320

$1,045-$1,125

Actual Results

Nine Months Ended
September 30, 2018 ⁽³⁾

Year Ended
December 31, 2017

U.S.

Cellular

TDS

Telecom ⁽¹⁾

TDS ⁽¹⁾⁽²⁾

U.S.

Cellular

TDS

Telecom ⁽¹⁾

TDS ⁽¹⁾⁽²⁾

(Dollars in millions)

Net income (GAAP)

$

143

$

73

$

155

$

15

$

138

$

157

Add back or deduct:

Income tax expense (benefit)

55

7

48

(287)

(13)

(279)

Income (loss) before income taxes (GAAP)

$

198

$

80

$

203

$

(272)

$

125

$

(122)

Add back:

Interest expense

87

(1)

129

113

—

170

Depreciation, amortization and accretion expense

478

160

662

615

195

844

EBITDA (Non-GAAP) ⁽⁴⁾

$

763

$

238

$

994

$

456

$

319

$

892

Add back or deduct:

Loss on impairment of goodwill

—

—

—

370

—

262

(Gain) loss on asset disposals, net

5

(2)

3

17

3

21

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

—

—

—

(1)

—

(1)

(Gain) loss on license sales and exchanges, net

(18)

—

(18)

(22)

—

(22)

Adjusted EBITDA (Non-GAAP) ⁽⁴⁾

$

750

$

236

$

979

$

820

$

323

$

1,152

Deduct:

Equity in earnings of unconsolidated entities

120

—

121

137

—

137

Interest and dividend income

10

5

18

8

5

15

Other, net ⁽⁶⁾

—

2

1

—

3

4

Adjusted OIBDA (Non-GAAP) ⁽⁴⁾⁽⁵⁾

$

620

$

229

$

839

$

675

$

314

$

996

Note: Totals may not foot due to rounding differences.

(1)

TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments.  Effective January 1, 2018, HMS is no longer reported under TDS Telecom.  Prior periods have been recast to conform to the revised presentation.

(2)

The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments (including HMS as indicated in Note (1) above).

(3)

As of January 1, 2018, TDS adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented.  As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported, except as specifically stated.

(4)

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

(5)

Additional information and reconciliations related to Non-GAAP financial measures for September 30, 2018, can be found on TDS' website at investors.tdsinc.com.

(6)

ASU 2017-07, regarding net periodic pension cost and net periodic postretirement benefit cost was adopted as of January 1, 2018, and applied retrospectively.  All prior period numbers have been recast to conform to this standard.

United States Cellular Corporation

Summary Operating Data (Unaudited)

9/30/2018 ⁽¹⁾

6/30/2018 ⁽¹⁾

3/31/2018 ⁽¹⁾

12/31/2017

9/30/2017

Retail Connections

Postpaid

Total at end of period

4,466,000

4,468,000

4,481,000

4,518,000

4,513,000

Gross additions

172,000

146,000

129,000

177,000

191,000

Feature phones

3,000

5,000

5,000

5,000

7,000

Smartphones

130,000

106,000

91,000

128,000

132,000

Connected devices

39,000

35,000

33,000

44,000

52,000

Net additions (losses)

(1,000)

(13,000)

(37,000)

5,000

35,000

Feature phones

(14,000)

(12,000)

(15,000)

(15,000)

(15,000)

Smartphones

29,000

17,000

(1,000)

33,000

44,000

Connected devices

(16,000)

(18,000)

(21,000)

(13,000)

6,000

ARPU ⁽²⁾

$

45.31

$

44.74

$

44.34

$

44.12

$

43.41

ABPU (Non-GAAP) ⁽³⁾

$

59.41

$

57.75

$

57.10

$

56.69

$

54.71

ARPA ⁽⁴⁾

$

119.42

$

118.57

$

118.22

$

118.05

$

116.36

ABPA (Non-GAAP) ⁽⁵⁾

$

156.57

$

153.03

$

152.26

$

151.68

$

146.65

Churn rate ⁽⁶⁾

1.29

%

1.19

%

1.23

%

1.27

%

1.16

%

Handsets

1.02

%

0.92

%

0.97

%

1.00

%

0.96

%

Connected devices

3.04

%

2.85

%

2.79

%

2.84

%

2.33

%

Prepaid

Total at end of period

528,000

527,000

525,000

519,000

515,000

Gross additions

80,000

78,000

88,000

83,000

102,000

Net additions

1,000

2,000

6,000

4,000

31,000

ARPU ⁽²⁾

$

32.09

$

32.32

$

31.78

$

32.42

$

33.12

Churn rate ⁽⁶⁾

4.98

%

4.83

%

5.27

%

5.09

%

4.75

%

Total connections at end of period ⁽⁷⁾

5,050,000

5,051,000

5,063,000

5,096,000

5,089,000

Market penetration at end of period

Consolidated operating population

31,469,000

31,469,000

31,469,000

31,834,000

31,834,000

Consolidated operating penetration ⁽⁸⁾

16

%

16

%

16

%

16

%

16

%

Capital expenditures (millions)

$

118

$

86

$

70

$

213

$

112

Total cell sites in service

6,506

6,478

6,473

6,460

6,436

Owned towers

4,119

4,105

4,099

4,080

4,051

(1)

As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach.  Under this method, the new accounting standard is applied only to the most recent period presented.  As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported.

(2)

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.

(3)

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.

(4)

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.

(5)

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.

(6)

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.

(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.

Summary Operating Data (Unaudited)

As of or for the Quarter Ended

9/30/2018

6/30/2018

3/31/2018

12/31/2017

9/30/2017

TDS Telecom

Wireline

Residential connections

Voice ⁽¹⁾

278,400

282,200

286,000

290,600

298,200

Broadband ⁽²⁾

237,100

234,300

230,500

228,600

229,900

Video ⁽³⁾

53,100

51,500

50,300

48,600

47,200

Wireline residential connections

568,600

568,000

566,900

567,700

575,300

Total residential revenue per connection ⁽⁴⁾

$

47.30

$

47.22

$

47.04

$

46.21

$

46.07

Commercial connections

Voice ⁽¹⁾

134,000

137,300

140,100

143,000

146,900

Broadband ⁽²⁾

20,700

20,600

20,600

20,600

20,900

managedIP ⁽⁵⁾

138,000

141,400

143,000

146,500

147,600

Video ⁽³⁾

400

400

400

—

—

Wireline commercial connections

293,100

299,600

304,000

310,100

315,300

Total Wireline connections

861,700

867,700

870,900

877,800

890,700

Cable

Cable Connections

Broadband ⁽⁶⁾

163,600

159,400

156,800

153,300

143,800

Video ⁽⁷⁾

102,100

101,600

100,700

101,800

97,900

Voice ⁽⁸⁾

63,600

62,000

60,600

59,700

58,500

managedIP ⁽⁵⁾

700

700

600

400

400

Cable connections

330,100

323,700

318,700

315,100

300,600

Note: Totals may not foot due to rounding differences.

(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.

(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

9/30/2018

6/30/2018

3/31/2018

12/31/2017

9/30/2017

(Dollars in millions)

Wireline

$

41

$

33

$

29

$

55

$

41

Cable

13

13

11

20

14

Total TDS Telecom ⁽¹⁾

$

54

$

46

$

40

$

74

$

56

Note: Totals may not foot due to rounding differences.

(1)

TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments.  Effective January 1, 2018, HMS is no longer reported under TDS Telecom.  Prior periods have been recast to conform to the revised presentation.

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)

Three Months Ended
September 30

Nine Months Ended
September 30,

2018 ⁽¹⁾

2017

2018

vs. 2017

2018 ⁽¹⁾

2017

2018
vs. 2017

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

Operating revenues

U.S. Cellular

$

1,001

$

963

4

%

$

2,916

$

2,862

2

%

TDS Telecom ⁽²⁾

234

230

2

%

695

690

1

%

All Other ⁽²⁾⁽³⁾

62

58

6

%

166

184

(10)

%

1,297

1,251

4

%

3,777

3,736

1

%

Operating expenses

U.S. Cellular

Expenses excluding depreciation, amortization and accretion

804

796

1

%

2,296

2,339

(2)

%

Depreciation, amortization and accretion

160

153

4

%

478

460

4

%

Loss on impairment of goodwill ⁽⁴⁾

—

370

N/M

—

370

N/M

(Gain) loss on asset disposals, net

3

5

(36)

%

5

14

(61)

%

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

—

(1)

N/M

—

(1)

N/M

(Gain) loss on license sales and exchanges, net

—

—

N/M

(18)

(19)

6

%

967

1,323

(27)

%

2,761

3,163

(13)

%

TDS Telecom ⁽²⁾

Expenses excluding depreciation, amortization and accretion ⁽⁵⁾

157

154

2

%

466

453

3

%

Depreciation, amortization and accretion

53

49

8

%

160

146

10

%

(Gain) loss on asset disposals, net

(3)

1

N/M

(2)

2

N/M

206

203

2

%

624

601

4

%

All Other ⁽²⁾⁽³⁾

Expenses excluding depreciation and amortization ⁽⁵⁾

65

58

10

%

176

179

(2)

%

Depreciation and amortization

7

7

(6)

%

24

26

(5)

%

Loss on impairment of goodwill ⁽⁴⁾

—

(108)

N/M

—

(108)

N/M

73

(42)

N/M

200

97

N/M

Total operating expenses

1,246

1,484

(16)

%

3,585

3,861

(7)

%

Operating income (loss)

U.S. Cellular

34

(360)

N/M

155

(301)

N/M

TDS Telecom ⁽²⁾⁽⁵⁾

28

27

1

%

71

88

(20)

%

All Other ^(2)(3)(5)

(11)

100

N/M

(34)

88

N/M

51

(233)

N/M

192

(125)

N/M

Investment and other income (expense)

Equity in earnings of unconsolidated entities

42

35

19

%

121

101

20

%

Interest and dividend income

6

4

56

%

18

12

51

%

Interest expense

(43)

(43)

–

(129)

(128)

(1)

%

Other, net ⁽⁵⁾

2

1

N/M

1

3

(32)

%

Total investment and other income (expense) ⁽⁵⁾

7

(3)

N/M

11

(12)

N/M

Income (loss) before income taxes

58

(236)

N/M

203

(137)

N/M

Income tax expense (benefit)

5

(5)

N/M

48

39

24

%

Net income (loss)

53

(231)

N/M

155

(176)

N/M

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

7

(50)

N/M

36

(42)

N/M

Net income (loss) available to TDS common shareholders

$

46

$

(181)

N/M

$

119

$

(134)

N/M

Basic weighted average shares outstanding

112

111

2

%

112

111

1

%

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

$

0.41

$

(1.64)

N/M

$

1.06

$

(1.21)

N/M

Diluted weighted average shares outstanding

114

111

3

%

113

111

2

%

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

$

0.41

$

(1.64)

N/M

$

1.04

$

(1.21)

N/M

N/M - Percentage change not meaningful.

Note: Totals may not foot due to rounding differences.

End Notes (1) (2) (3) (4) (5) — Explained on page 11 of the release.

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

Nine Months Ended
September 30,

2018 ⁽¹⁾

2017

(Dollars in millions)

Cash flows from operating activities

Net income (loss)

$

155

$

(176)

Add (deduct) adjustments to reconcile net income (loss) to net cash flows from operating activities

Depreciation, amortization and accretion

662

632

Bad debts expense

71

68

Stock-based compensation expense

37

34

Deferred income taxes, net

31

(23)

Equity in earnings of unconsolidated entities

(121)

(101)

Distributions from unconsolidated entities

91

85

Loss on impairment of goodwill

—

262

(Gain) loss on asset disposals, net

3

16

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

—

(1)

(Gain) loss on license sales and exchanges, net

(18)

(19)

Noncash interest

3

2

Changes in assets and liabilities from operations

Accounts receivable

(5)

(6)

Equipment installment plans receivable

(88)

(164)

Inventory

13

44

Accounts payable

13

(59)

Customer deposits and deferred revenues

(7)

(16)

Accrued taxes

(3)

41

Accrued interest

11

11

Other assets and liabilities

(36)

(9)

Net cash provided by operating activities

812

621

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(447)

(398)

Cash paid for acquisitions and licenses

(10)

(200)

Cash received for investments

100

—

Cash paid for investments

—

(100)

Cash received from divestitures and exchanges

28

19

Other investing activities

4

1

Net cash used in investing activities

(325)

(678)

Cash flows from financing activities

Repayment of long-term debt

(15)

(9)

TDS Common Shares reissued for benefit plans, net of tax payments

27

(1)

U.S. Cellular Common Shares reissued for benefit plans, net of tax payments

7

—

Repurchase of TDS Preferred Shares

—

(1)

Dividends paid to TDS shareholders

(54)

(51)

Payment of debt issuance costs

(2)

—

Distributions to noncontrolling interests

(5)

(2)

Other financing activities

—

5

Net cash used in financing activities

(42)

(59)

Net increase (decrease) in cash, cash equivalents and restricted cash

445

(116)

Cash, cash equivalents and restricted cash

Beginning of period

622

904

End of period

$

1,067

$

788

End Note (1) — Explained on page 11 of the release.

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

September 30,
2018 ⁽¹⁾

December 31,
2017

(Dollars in millions)

Current assets

Cash and cash equivalents

$

1,062

$

619

Short-term investments

—

100

Accounts receivable

1,058

961

Inventory, net

132

145

Prepaid expenses

102

112

Income taxes receivable

3

2

Other current assets

30

27

Total current assets

2,387

1,966

Assets held for sale

42

10

Licenses

2,198

2,232

Goodwill

509

509

Other intangible assets, net

260

279

Investments in unconsolidated entities

500

453

Property, plant and equipment, net

3,229

3,424

Other assets and deferred charges

594

422

Total assets

$

9,719

$

9,295

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

September 30,
2018 ⁽¹⁾

December 31,
2017

(Dollars in millions, except per share amounts)

Current liabilities

Current portion of long-term debt

$

20

$

20

Accounts payable

365