Attached files

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EX-32.2 - EX-32.2 - TELEPHONE & DATA SYSTEMS INC /DE/exhibit32_2.htm
EX-32.1 - EX-32.1 - TELEPHONE & DATA SYSTEMS INC /DE/exhibit32_1.htm
EX-31.2 - EX-31.2 - TELEPHONE & DATA SYSTEMS INC /DE/exhibit31_2.htm
EX-31.1 - EX-31.1 - TELEPHONE & DATA SYSTEMS INC /DE/exhibit31_1.htm
EX-18 - EX-18 - TELEPHONE & DATA SYSTEMS INC /DE/exhibit18.htm
EX-12 - EX-12 - TELEPHONE & DATA SYSTEMS INC /DE/exhibit12.htm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[x]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

 

 

 

 

 

 

 

 

OR

 

 

 

 

 

 

 

 

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                    to                                   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commission file number 001-14157

 

 

TELEPHONE AND DATA SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

Delaware

 

 

36-2669023

(State or other jurisdiction of incorporation or organization)

 

 

(IRS Employer Identification No.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602

(Address of principal executive offices) (Zip code)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Registrant’s telephone number, including area code: (312) 630-1900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes

No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[x]

[ ]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[x]

[ ]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

[x]

 

 

 

 

 

 

 

Accelerated filer

[ ]

Non-accelerated filer

[ ]

(Do not check if a smaller reporting company)

 

Smaller reporting company

[ ]

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

[ ]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ]

[x]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class

 

 

Outstanding at March 31, 2017

Common Shares, $0.01 par value

 

 

103,076,101 Shares

Series A Common Shares, $0.01 par value

 

 

7,236,725 Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Telephone and Data Systems, Inc.

 

Quarterly Report on Form 10-Q

For the Period Ended March 31, 2017

 

 

Index

Page No.

 

 

Management Discussion and Analysis of Financial Condition and Results of Operations

1

Executive Overview

1

Terms used by TDS

3

Results of Operations – TDS Consolidated

4

U.S. Cellular Operations

7

TDS Telecom Operations

13

Wireline Operations

15

Cable Operations

18

HMS Operations

20

Liquidity and Capital Resources

22

Consolidated Cash Flow Analysis

26

Consolidated Balance Sheet Analysis

26

Supplemental Information Relating to Non-GAAP Financial Measures

27

Application of Critical Accounting Policies and Estimates

32

Recent Accounting Pronouncements

32

Regulatory Matters

32

Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement

33

 

 

Risk Factors

36

 

 

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

Financial Statements (Unaudited)

37

Consolidated Statement of Operations

37

Consolidated Statement of Comprehensive Income

38

Consolidated Statement of Cash Flows

39

Consolidated Balance Sheet

40

Consolidated Statement of Changes in Equity

42

Notes to Consolidated Financial Statements

44

 

 

Controls and Procedures

54

 

 

Legal Proceedings

54

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

Other Information

55

 

 

Exhibits

56

 

 

Form 10-Q Cross Reference Index

57

 

 

Signatures

58


Telephone and Data Systems, Inc.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

 

Executive Overview

The following discussion and analysis compares Telephone and Data Systems, Inc.’s (“TDS”) financial results for the three months ended March 31, 2017 to the three months ended March 31, 2016.  It should be read in conjunction with TDS’ interim consolidated financial statements and notes included herein, and with the description of TDS’ business, its audited consolidated financial statements and Management's Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations included in TDS’ Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2016.  Calculated amounts and percentages are based on the underlying actual numbers rather than the numbers rounded to millions as presented.

This report contains statements that are not based on historical facts, including the words “believes,” “anticipates,” “estimates,” “expects, “plans,” “intends,” “projects” and similar expressions.  These statements constitute and represent “forward looking statements” as this term is defined in the Private Securities Litigation Reform Act of 1995.  Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward looking statements. See Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement for additional information.

TDS uses certain “non-GAAP financial measures” and each such measure is identified in the MD&A.  A discussion of the reason TDS determines these metrics to be useful and a reconciliation of these measures to their most directly comparable measures determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”) are included in the Supplemental Information Relating to Non-GAAP Financial Measures section within the MD&A of this Form 10-Q Report.

General

TDS is a diversified telecommunications company that provides high-quality communications services to approximately 6 million customers nationwide.  TDS provides wireless services through its 83%-owned subsidiary, United States Cellular Corporation (“U.S. Cellular”).  TDS also provides wireline services, cable services and hosted and managed services (“HMS”), through its wholly-owned subsidiary, TDS Telecommunications Corporation (“TDS Telecom”).  TDS’ segments operate almost entirely in the United States.  See Note 10Business Segment Information in the Notes to Consolidated Financial Statements for summary financial information on each business segment.

 

 


TDS Mission and Strategy

TDS’ mission is to provide outstanding communications services to its customers and meet the needs of its shareholders, its people, and its communities.  In pursuing this mission, TDS seeks to profitably grow its businesses, create opportunities for its associates and employees, and build value over the long-term for its shareholders.  Across all of its businesses, TDS is focused on providing exceptional customer experiences through best-in-class services and products and superior customer service.

TDS’ long-term strategy calls for the majority of its capital to be reinvested in its operating businesses to strengthen their competitive positions and financial performance, while also returning value to TDS shareholders through the payment of a regular quarterly cash dividend and share repurchases. 

In 2017, TDS is working to build shareholder value by continuing to execute on its strategies to build strong, competitive businesses providing high-quality, data-focused services and products.  Strategic efforts include:


Terms Used by TDS

All defined terms in this MD&A are used as defined in the Notes to Consolidated Financial Statements, and additional terms are defined below:

  • 4G LTE – fourth generation Long-Term Evolution which is a wireless broadband technology.
  • Account – represents an individual or business financially responsible for one or multiple associated connections. An account may include a variety of types of connections such as handsets and connected devices.
  • Alternative Connect America Cost Model (“A-CAM”) a USF support mechanism for rate-of-return carriers, which provides revenue support annually for ten years beginning in 2017.  This support comes with an obligation to build defined broadband speeds to a certain number of locations.
  • Auctions 1000, 1001, and 1002 –  Auction 1000 is an FCC auction of 600 MHz spectrum licenses that started in 2016 and continued into 2017 involving: (1) a “reverse auction” in which broadcast television licensees submit bids to voluntarily relinquish spectrum usage rights in exchange for payments (referred to as Auction 1001); (2) a “repacking” of the broadcast television bands in order to free up certain broadcast spectrum for other uses; and (3) a “forward auction” of licenses for spectrum cleared through this process to be used for wireless communications (referred to as Auction 1002).
  • Broadband Connections – refers to the number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies or the Cable billable number of lines into a building for high-speed data services.
  • 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.
  • DOCSIS – Data Over Cable Service Interface Specification is an international telecommunications standard that permits the addition of high-bandwidth data transfer to an existing cable TV system. DOCSIS 3.1 is a system specification that increases data transmission rates.
  • Eligible Telecommunications Carrier (“ETC”) – designation by states for providing specified services in “high cost” areas which enables participation in universal service support mechanisms.
  • FCC – Federal Communications Commission.
  • Gross Additions – represents the total number of new connections added during the period, without regard to connections that were terminated during that period.
  • IPTV Connections – represents the number of Wireline customers provided video services using IP networking technology.
  • Machine-to-Machine or M2M – technology that involves the transmission of data between networked devices, as well as the performance of actions by devices without human intervention.  U.S. Cellular sells and supports M2M solutions to customers, provides connectivity for M2M solutions via the U.S. Cellular network, and has agreements with device manufacturers and software developers which offer M2M solutions.
  • ManagedIP Connections – refers to the number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.
  • Net Additions – represents the total number of new connections added during the period, net of connections that were terminated during that period.
  • Postpaid Average Billings per Account (“Postpaid 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.
  • Postpaid Average Billings per User (“Postpaid 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.
  • Postpaid Average Revenue per Account (“Postpaid 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.
  • Postpaid Average Revenue per User (“Postpaid ARPU”) – metric is calculated by dividing total postpaid service revenues by the average number of postpaid connections and by the number of months in the period.
  • Retail Connections – the sum of U.S. Cellular postpaid connections and U.S. Cellular prepaid connections.
  • Universal Service Fund (“USF”) – a system of telecommunications collected fees and support payments managed by the FCC intended to promote universal access to telecommunications services in the United States.
  • U.S. Cellular Connections - individual lines of service associated with each device activated by a customer.  This includes smartphones, feature phones, tablets, modems, and machine-to-machine devices.
  • Video Connections – 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 a hotel, connections are counted based on the number of units/rooms within the building receiving service.
  • Voice Connections – refers to the individual circuits connecting a customer to Wireline’s central office facilities or the Cable billable number of lines into a building for voice services.
  • VoLTE – Voice over Long-Term Evolution is a technology specification that defines the standards and procedures for delivering voice communications and related services over 4G LTE networks.
  • Wireline 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.

Results of Operations TDS Consolidated

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

 

2017

 

2016

 

2017 vs. 2016

(Dollars in millions)

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

U.S. Cellular1

 

$

936 

 

$

969 

 

(3)%

 

TDS Telecom

 

 

299 

 

 

281 

 

6%

 

All other2

 

 

3 

 

 

4 

 

(8)%

 

 

Total operating revenues1

 

 

1,238 

 

 

1,254 

 

(1)%

Operating expenses

 

 

 

 

 

 

 

 

 

U.S. Cellular

 

 

882 

 

 

959 

 

(8)%

 

TDS Telecom

 

 

270 

 

 

264 

 

2%

 

All other2

 

 

4 

 

 

5 

 

(27)%

 

 

Total operating expenses

 

 

1,156 

 

 

1,228 

 

(6)%

Operating income

 

 

 

 

 

 

 

 

 

U.S. Cellular1

 

 

54 

 

 

10 

 

>100%

 

TDS Telecom

 

 

29 

 

 

17 

 

70%

 

All other2

 

 

(1)

 

 

(1)

 

97%

 

 

Total operating income1

 

 

82 

 

 

26 

 

>100%

Investment and other income (expense)

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

 

32 

 

 

35 

 

(8)%

 

Interest and dividend income1

 

 

4 

 

 

3 

 

63%

 

Interest expense

 

 

(42)

 

 

(41)

 

(1)%

 

Other, net

 

 

1 

 

 

 

 

>100%

 

 

Total investment and other income1

 

 

(5)

 

 

(3)

 

(33)%

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

77 

 

 

23 

 

>100%

 

Income tax expense

 

 

34 

 

 

13 

 

>100%

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

43 

 

 

10 

 

>100%

 

Less: Net income attributable to

  noncontrolling interests, net of tax

 

 

6 

 

 

2 

 

>100%

Net income attributable to TDS shareholders

 

$

37 

 

$

8 

 

>100%

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

96 

 

$

125 

 

(23)%

 

 

 

 

 

 

 

 

 

 

 

 

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.  See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details.

 

 

 

 

 

 

 

 

 

 

 

 

2

Consists of corporate and other operations and intercompany eliminations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDS’ 1% decrease in operating revenues was due primarily to a decrease in retail service revenues at U.S. Cellular.  Retail service revenues continue to be impacted by industry-wide price competition. 

TDS’ 6% decrease in operating expenses was due primarily to a decrease in Cost of equipment sold, lower advertising and commission expenses, and a gain recognized as a result of a license exchange transaction.

 

Refer to individual segment discussions in this MD&A for additional details on operating revenues and expenses at the segment level.

Equity in earnings of unconsolidated entities

Equity in earnings of unconsolidated entities represents TDS’ share of net income from entities in which it has a noncontrolling interest and that are accounted for by the equity method.  TDS’ investment in the Los Angeles SMSA Limited Partnership (“LA Partnership”) contributed $16 million and $19 million to Equity in earnings of unconsolidated entities in 2017 and 2016, respectively.  See Note 7 Investments in Unconsolidated Entities in the Notes to Consolidated Financial Statements for additional information.

Income tax expense

The effective tax rate on Income before income taxes in 2017 and 2016 was 44.3% and 55.7%, respectively.  The higher rate in 2016 is due primarily to discrete tax adjustments that had a disproportionate impact on the tax rate because of the relatively low pretax income in that quarter. 


Net income attributable to noncontrolling interests, net of tax

 

Three Months Ended

 

March 31,

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

U.S. Cellular noncontrolling public shareholders’

$

4 

 

$

1 

Noncontrolling shareholders’ or partners’

 

2 

 

 

1 

Net income attributable to noncontrolling interests, net of tax

$

6 

 

$

2 

 

Net income attributable to noncontrolling interests, net of tax includes the noncontrolling public shareholders’ share of U.S. Cellular’s net income and the noncontrolling shareholders’ or partners’ share of certain U.S. Cellular subsidiaries’ net income (loss). 

 

Three Months Ended

 

Net income and Adjusted EBITDA increased due primarily to improved Operating income levels within each business segment. 

*Represents a non-GAAP financial measure.  Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.


 

U.S. CELLULAR OPERATIONS

 

Business Overview

U.S. Cellular owns, operates, and invests in wireless markets throughout the United States.  U.S. Cellular is an 83%-owned subsidiary of TDS.  U.S. Cellular’s strategy is to attract and retain wireless customers through a value proposition comprised of a high-quality network, outstanding customer service, and competitive devices, plans, and pricing, all provided with a local focus. 

 

OPERATIONS

 

  • Serves customers with approximately 5.0 million connections including 4.5 million postpaid, 0.5 million prepaid and 0.1 million reseller and other connections
  • Operates in 23 states
  • Employs approximately 6,200 employees
  • Headquartered in Chicago, Illinois
  • 6,417 cell sites including 4,041 owned towers in service

 

 


Operational Overview

 

 

 

YTD 2017

YTD 2016

 

 

Postpaid Connections

 

 

 

 

 

Gross Additions

146,000

215,000

 

 

 

Net Additions (Losses)

(27,000)

45,000

 

 

 

Churn:

1.29%

1.28%

 

 

 

Handsets

1.08%

1.18%

 

 

 

Connected Devices

2.55%

2.01%

 

 

  

Connections –

end of period

4,455,000

4,454,000

 

 

Prepaid Connections –

end of period

480,000

399,000

 

 

Retail Connections –

end of period

4,935,000

4,853,000

 

 

U.S. Cellular believes the decrease in postpaid net additions is a result of lower gross additions, which were impacted by competitive pressures.  Total postpaid churn remained relatively flat in the first quarter of 2017 when compared to the same period last year.

 

 

Postpaid Revenue

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

2016

Average Revenue Per User (ARPU)

$

45.42 

 

$

48.13 

Average Billings Per User (ABPU)1

$

55.82 

 

$

56.06 

 

 

 

 

 

 

Average Revenue Per Account (ARPA)

$

121.88 

 

$

125.36 

Average Billings Per Account (ABPA)1

$

149.78 

 

$

145.99 

 

 

 

 

 

 

 

1

Postpaid ABPU and Postpaid ABPA are non-GAAP financial measures.  Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of these measures.

 

Postpaid ARPU and Postpaid ARPA decreased in 2017 due primarily to industry-wide price competition and discounts on shared data plans provided to customers on equipment installment plans and those providing their own device at the time of activation or renewal.  These factors were partially offset by the impacts of continued adoption of smartphones and the related increase in service revenues from data usage.

Equipment installment plans increase equipment sales revenue as customers pay for their wireless devices in installments at a total device price that is generally higher than the device price offered to customers in conjunction with alternative plans that are subject to a service contract.  Equipment installment plans also have the impact of reducing service revenues as many equipment installment plans provide for reduced monthly access charges.  In order to show the trends in total service and equipment revenues received, U.S. Cellular has presented Postpaid ABPU and Postpaid ABPA, which are calculated as Postpaid ARPU and Postpaid ARPA plus average monthly equipment installment plan billings per connection and account, respectively.

Equipment installment plan billings increased in 2017 due to increased adoption of equipment installment plans by postpaid customers.  Postpaid ABPU decreased in 2017 as the increase in equipment installment plan billings was more than offset by the decline in Postpaid ARPU discussed above.  Postpaid ABPA, however, increased in 2017 as the increase in equipment installment plan billings more than offset the decline in Postpaid ARPA discussed above.  U.S. Cellular expects the adoption and penetration of equipment installment plans to continue to increase given a recent change in its equipment offerings.  Effective in September 2016, all equipment sales to retail customers are made under installment plans.


Financial Overview — U.S. Cellular

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

 

 

2017 vs.

 

 

 

 

 

2017

 

2016

 

2016

(Dollars in millions)

 

  

  

  

  

  

  

  

Retail service

 

$

657 

 

$

682 

 

(4)%

Inbound roaming

 

 

27 

 

 

36 

 

(26)%

Other1

 

 

62 

 

 

53 

 

17%

  

Service revenues1

 

 

746 

 

 

771 

 

(3)%

Equipment sales

 

 

190 

 

 

198 

 

(4)%

  

Total operating revenues1

 

 

936 

 

 

969 

 

(3)%

  

  

 

 

 

 

 

 

 

 

 

 

System operations (excluding Depreciation, amortization and accretion reported below)

 

  

175 

  

  

184 

  

(4)%

Cost of equipment sold

 

 

228 

 

 

256 

 

(11)%

Selling, general and administrative

 

 

339 

 

 

361 

 

(6)%

 

 

 

 

 

 

742 

 

 

801 

 

(7)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flow1,2

 

 

194 

 

 

168 

 

15%

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

153 

 

 

153 

 

1%

(Gain) loss on asset disposals, net

 

 

4 

 

 

5 

 

(28)%

(Gain) loss on license sales and exchanges, net

 

 

(17)

 

 

 

 

N/M

  

Total operating expenses

 

 

882 

 

 

959 

 

(8)%

Operating income¹

 

$

54 

 

$

10 

 

>100%

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

28 

 

$

9 

 

>100%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA2

 

$

229 

 

$

206 

 

11%

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

61 

 

$

79 

 

(23)%

  

  

  

  

 

  

  

  

  

  

  

  

N/M - Percentage change not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

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.  See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details.

 

 

 

 

 

 

 

 

 

 

 

 

2

Represents a non-GAAP financial measure.  Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

 

 

 

Service revenues consist of:

  • Retail Service - Charges for access, airtime, roaming, recovery of regulatory costs and value added services, including data services and products
  • Inbound Roaming - Charges to other wireless carriers whose customers use U.S. Cellular’s wireless systems when roaming
  • Other Service – Primarily amounts received from the Federal USF, imputed interest recognized on equipment installment plan contracts and tower rental revenues

 

Equipment revenues consist of:

  • Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors

 

 

 

Key components of changes in the statement of operations line items were as follows:

Total operating revenues

On January 1, 2017, U.S. Cellular elected to change the classification of interest income on equipment installment plan contracts from Interest and dividend income to Service revenues in the Consolidated Statement of Operations.  All prior period numbers have been recast to conform to this accounting change.  See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details. 

Service revenues decreased as a result of (i) a decrease in retail service revenues primarily driven by industry-wide price competition and discounts on shared data plans provided to customers on equipment installment plans and those providing their own device at the time of activation or renewal; and (ii) a decrease in inbound roaming revenues driven by lower roaming rates.  Such reductions were partially offset by an increase in the average connections base, continued adoption of smartphones, and an increase in imputed interest income on equipment installment plans.

 

Federal USF revenue remained flat year over year at $23 millionPursuant to the FCC's Reform Order (“Reform Order”), U.S. Cellular’s current Federal USF support was to be phased down at the rate of 20% per year beginning July 1, 2012.  The Phase II Mobility Fund (“MF2”) was not operational as of July 2014 and, therefore, as provided by the Reform Order, the phase down was suspended at 60% of the baseline amount until such time as the FCC had taken steps to establish the MF2.  In February 2017, the FCC adopted an Order concerning MF2 and the resumption of the phase down. See the Regulatory Matters section in this MD&A for a description of the Reform Order and its expected impacts. 

Equipment sales revenues decreased due to an overall reduction in the number of devices sold, along with the related impact on accessories revenues, as well as reductions in device activation fees and post-sale installment revenues reflecting changes in plan offerings.  These impacts were partially offset by an increase in the proportion of new device sales made under equipment installment plans versus subsidy plans and, to a lesser extent, a mix shift from connected devices to smartphones.

 

System operations expenses

System operations expenses decreased in 2017 when compared to 2016 as a result of the following drivers:

Expenses incurred when U.S. Cellular’s customers used other carriers’ networks while roaming decreased $3 million or 8% largely due to lower rates for both data and voice traffic, partially offset by increased data roaming usage.

Customer usage expenses decreased $3 million or 7% driven primarily by decreased circuit costs.

Maintenance, utility and cell site expenses decreased $2 million or 2% mainly driven by decreased tower maintenance and repair costs, partially offset by increased cell site rent and higher support costs for the 4G LTE network.

Cost of equipment sold

The decrease in Cost of equipment sold is mainly due to an overall reduction in devices sold, partially offset by a shift in sales from connected devices to higher cost smartphones.  Cost of equipment sold in 2017 included $168 million related to equipment installment plan sales compared to $160 million in 2016.  Loss on equipment, defined as Equipment sales revenues less Cost of equipment sold, was $38 million and $58 million in 2017 and 2016, respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased due primarily to lower advertising expenses as well as lower agent and retail commission expenses driven by fewer activations and renewals.

(Gain) loss on license sales and exchanges, net

A gain of $17 million was recognized in 2017 as a result of a license exchange transaction with a third party.  See Note 5 — Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial Statements for additional information.  


TDS TELECOM OPERATIONS

 

Business Overview

TDS Telecom operates in three reportable segments: Wireline, Cable and HMS. The overall strategy for the Wireline and Cable businesses is to provide the best broadband connection in the market in order to capitalize on data growth and customers’ need for higher speeds and leverage that growth by bundling services with video and voice.  In addition, through its HMS business, TDS Telecom provides a wide range of Information Technology (“IT”) services including colocation, cloud and hosting solutions, managed services, applications management, and sales of IT hardware and related maintenance and professional services.

 

OPERATIONS

  • TDS Telecom operates in 34 states, and through its Wireline and Cable operations provides broadband, video and voice services to approximately 1.2 million connections.
  • Employs approximately 3,300 employees.
  • Wireline operates incumbent local exchange carriers (“ILEC”) and competitive local exchange carriers (“CLEC”) in 27 states.
  • Cable operates primarily in Oregon, Utah, Colorado, New Mexico and Texas.
  • HMS operates a total of eight data centers.  It owns two data centers in Iowa, one each in Minnesota, Wisconsin, Colorado and Oregon and it leases two data centers in Arizona.

 

Financial Overview — TDS Telecom

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

 

 

 

 

2017 vs.

 

 

2017

 

2016

 

2016

(Dollars in millions)

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

Wireline

 

$

179 

 

$

173 

 

3%

 

Cable

 

 

49 

 

 

45 

 

10%

 

HMS

 

 

71 

 

 

64 

 

11%

 

Intra-company elimination

 

 

(1)

 

 

(1)

 

(2)%

 

 

TDS Telecom operating revenues

 

 

299 

 

 

281 

 

6%

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Wireline

 

 

150 

 

 

153 

 

(2)%

 

Cable

 

 

47 

 

 

44 

 

6%

 

HMS

 

 

74 

 

 

68 

 

8%

 

Intra-company elimination

 

 

(1)

 

 

(1)

 

(2)%

 

 

TDS Telecom operating expenses

 

 

270 

 

 

264 

 

2%

 

 

 

 

 

 

 

 

 

 

 

 

TDS Telecom operating income

 

$

29 

 

$

17 

 

70%

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18 

 

$

10 

 

70%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA1

 

$

86 

 

$

76 

 

13%

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

33 

 

$

42 

 

(22)%

 

 

 

 

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

1

Represents a non-GAAP financial measure.  Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

 

 

Three Months Ended

Operating revenues grew 6% in 2017 due to increased support revenue provided through the A-CAM program, IPTV and Cable broadband connection growth, price increases for video and broadband services and increases in HMS equipment revenues. 

 

Total operating expenses

Operating expenses increased in 2017 due primarily to increased HMS equipment cost of goods sold and higher video programming costs.


WIRELINE OPERATIONS

 

Business Overview

TDS Telecom’s Wireline business provides broadband, video and voice services.  These services are provided to residential, commercial, and wholesale customers in a mix of rural, small town and suburban markets, with the largest concentration of its customers in the Upper Midwest and the Southeast.  TDS Telecom’s strategy is to offer its residential customers broadband, video, and voice services through value-added bundling.  In its commercial business, TDS Telecom’s focus is on small- to medium-sized businesses and its sales efforts emphasize advanced IP-based voice and data services.

Operational Overview

Residential broadband customers are increasingly choosing higher speeds in ILEC markets with 54% choosing speeds of 10 Mbps or greater and 20% choosing speeds of 50 Mbps or greater. 

Increases in broadband speeds, IPTV connection growth, and price increases drove a 4% increase in average revenue per connection.

 

 

Total residential connections were relatively flat as growth in IPTV connections was offset by declines in voice and broadband connections.

 

Total commercial connections decreased by 4% as declines in voice and broadband connections outpaced the growth in managedIP connections.

 

Financial Overview Wireline

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

March 31,

 

 

2017

 

2016

 

2017 vs. 2016

(Dollars in millions)

 

 

 

 

 

 

 

 

Residential

 

$

79 

 

$

76 

 

4%

Commercial

 

 

51 

 

 

54 

 

(6)%

Wholesale

 

 

49 

 

 

43 

 

15%

 

Service revenues

 

 

179 

 

 

173 

 

4%

Equipment and product sales

 

 

 

 

 

 

 

(37)%

 

Total operating revenues

 

 

179 

 

 

173 

 

3%

 

 

 

 

 

 

 

 

 

Cost of services (excluding Depreciation, amortization and accretion reported below)

 

 

63 

 

 

62 

 

2%

Cost of equipment and products

 

 

1 

 

 

1 

 

6%

Selling, general and administrative

 

 

48 

 

 

48 

 

(2)%

 

 

 

 

 

 

 

111 

 

 

111 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flow1

 

 

68 

 

 

62 

 

9%

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

39 

 

 

42 

 

(6)%

 

Total operating expenses

 

 

150 

 

 

153 

 

(2)%

Operating income

 

$

29 

 

$

20 

 

41%

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

30 

 

$

22 

 

41%

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA1

 

$

69 

 

$

63 

 

10%

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

17 

 

$

27 

 

(37)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Represents a non-GAAP financial measure.  Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

 


 

Residential revenues consist of:

 

  • Broadband services, including fiber-based and other digital, premium and enhanced data services
  • IPTV and satellite video
  • Voice services

Commercial revenues consist of:

 

  • TDS managedIP voice and data services
  • High-speed and dedicated business internet services
  • Voice services

Wholesale revenues consist of:

 

  • Network access services to interexchange carriers for the origination and termination of interstate and intrastate long distance phone calls on TDS Telecom’s network and special access services to carriers and others
  • State and Federal USF support

 

Key components of changes in the statement of operations items were as follows:

 

Total operating revenues

Residential revenues increased in 2017 as growth in broadband speeds and IPTV connections and price increases for broadband and video services more than offset the decline in legacy voice services. IPTV average connections grew 20%, offset by a 3% decline in average voice connections.

Commercial revenues decreased in 2017 due to declining legacy voice and data connections.

Wholesale revenues increased in 2017 due primarily to increased support received from the A-CAM program.

Cost of services

Cost of services increased in 2017 due to increased charges related to growth in IPTV, offset by reduced costs of provisioning circuits, purchasing unbundled network elements and providing long-distance services.

Selling, general and administrative expenses

Selling, general and administrative expenses were relatively flat in 2017 compared to 2016.

Depreciation, amortization and accretion

Depreciation, amortization and accretion decreased in 2017 as certain assets became fully depreciated.


CABLE OPERATIONS

 

Business Overview

TDS Telecom’s cable strategy is to expand its broadband services and leverage that growth by bundling with video and voice services.  TDS Telecom seeks to be the leading provider of broadband services in its targeted markets by leveraging its core competencies in network management and customer focus.

Operational Overview

Cable connections grew 4% over 2016 with increases in broadband and voice exceeding declines in video.

 

Financial Overview Cable

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

March 31,

 

 

2017

 

2016

 

2017 vs. 2016

(Dollars in millions)

 

 

 

 

 

 

 

 

Residential

 

$

41 

 

$

35 

 

15%

Commercial

 

 

9 

 

 

10 

 

(8)%

 

Total operating revenues

 

 

49 

 

 

45 

 

10%

 

 

 

 

 

 

 

 

 

Cost of services (excluding Depreciation, amortization and accretion reported below)

 

 

24 

 

 

22 

 

8%

Selling, general and administrative

 

 

13 

 

 

12 

 

3%

 

 

 

 

 

 

 

36 

 

 

34 

 

6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flow1

 

 

13 

 

 

11 

 

23%

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

10 

 

 

9 

 

10%

(Gain) loss on asset disposals, net

 

 

 

 

 

1 

 

(23)%

 

Total operating expenses

 

 

47 

 

 

44 

 

6%

Operating income

 

$

2 

 

$

1 

 

>100%

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

2 

 

$

 

 

>100%

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA1

 

$

13 

 

$

10 

 

23%

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

9 

 

$

13 

 

(30)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Represents a non-GAAP financial measure.  Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

 

 

Residential and Commercial revenues consist of:

 

  • Broadband services, including high-speed internet, security and support services
  • Video services, including premium programming in HD, multi-room, and TV Everywhere offerings
  • Voice services

 

 

Key components of changes in the statement of operations items were as follows:

Commentary

Residential revenues increased in 2017 due primarily to growth in broadband connections and price increases.  A change in classification of certain bulk broadband and video connections increased residential revenues and reduced commercial revenues by $2 million in 2017.  Cost of services increased in 2017 due primarily to increases in programming fees, employee and maintenance costs.  Selling, general and administrative expenses increased in 2017 due to increased IT-related expense offset by lower property taxes.


HMS OPERATIONS

Business Overview

Under TDS Telecom’s OneNeck IT Solutions brand, TDS Telecom offers a full suite of IT solutions ranging from equipment resale to full management and hosting of a customer’s IT infrastructure and applications.  The goal of HMS operations is to create, deliver, and support a platform of IT products and services tailored for mid-market business customers.

Financial Overview HMS

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

March 31,

 

 

2017

 

2016

 

2017 vs. 2016

(Dollars in millions)

 

 

 

 

 

 

 

 

Service revenues

 

$

29 

 

$

29 

 

(1)%

Equipment and product sales

 

 

43 

 

 

35 

 

21%

 

Total operating revenues

 

 

71 

 

 

64 

 

11%

 

 

 

 

 

 

 

 

 

Cost of services (excluding Depreciation, amortization and accretion reported below)

 

 

20 

 

 

21 

 

(3)%

Cost of equipment and products

 

 

36 

 

 

29 

 

21%

Selling, general and administrative

 

 

11 

 

 

11 

 

1%

 

 

 

 

 

 

 

67 

 

 

61 

 

9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flow1

 

 

4 

 

 

3 

 

42%

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

7 

 

 

7 

 

(6)%

 

Total operating expenses

 

 

74 

 

 

68 

 

8%

Operating loss

 

$

(2)

 

$

(4)

 

43%

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

$

(3)

 

$

(5)

 

37%

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA1

 

$

5 

 

$

3 

 

41%

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

6 

 

$

2 

 

>100%

 

 

 

 

 

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Represents a non-GAAP financial measure.  Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.

 

 

Service revenues consist of:

 

  • Cloud and hosting solutions
  • Managed services
  • Enterprise Resource Planning (“ERP”) application management
  • Professional services
  • Colocation services
  • IT hardware maintenance services

Equipment revenues consist of:

  • IT hardware sales

 

 

Key components of changes in the statement of operations items were as follows:

Commentary

Service revenues were unchanged in 2017 due to the increase in professional service and installation revenues offset by a 3% decline in recurring hosting revenues.  Equipment and product sales revenues from sales of IT infrastructure hardware solutions increased in 2017. There was a corresponding increase in Cost of equipment and products.  Cost of services decreased in 2017 due to reduced employee expenses and maintenance and support costs.  Selling, general and administrative expenses were relatively flat in 2017 compared to 2016.


Liquidity and Capital Resources

Sources of Liquidity

TDS and its subsidiaries operate capital-intensive businesses.  Historically, TDS has used internally-generated funds and also has obtained substantial funds from external sources for general corporate purposes.  In the past, TDS’ existing cash and investment balances, funds available under its revolving credit facilities, funds from other financing sources, including a term loan and other long-term debt, and cash flows from operating, investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions.  There is no assurance that this will be the case in the future.  See Market Risk for additional information regarding maturities of long-term debt.

Although TDS currently has a significant cash balance, in certain recent periods, TDS has incurred negative free cash flow (defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment) and this will continue in the future if operating results do not improve or capital expenditures are not reduced.  TDS currently expects to have negative free cash flow in 2017.  However, TDS believes that existing cash and investment balances, funds available under its revolving credit facilities, and expected cash flows from operating and investing activities provide liquidity for TDS to meet its normal day-to-day operating needs and debt service requirements for the coming year. 

TDS may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of cable, wireless or wireline telecommunications services, IT services or other businesses, spectrum license or system acquisitions, system development and network capacity expansion, debt service requirements, the repurchase of shares, the payment of dividends, or making additional investments.  It may be necessary from time to time to increase the size of the existing revolving credit facilities, to put in place new credit facilities, to explore additional sources of liquidity through the securitization of equipment installment plan receivables, or to obtain other forms of financing in order to fund potential expenditures.  TDS’ liquidity would be adversely affected if, among other things, TDS is unable to obtain short or long-term financing on acceptable terms, TDS makes significant spectrum license purchases, TDS makes significant business acquisitions, the LA Partnership discontinues or reduces distributions compared to historical levels, or Federal USF and/or other regulatory support payments decline.  In addition, although sales of assets or businesses by TDS have been an important source of liquidity in prior periods, TDS does not expect a similar level of such sales in the future, which will reduce a source of liquidity.    

TDS’ credit rating has been sub-investment grade since 2014.  There can be no assurance that sufficient funds will continue to be available to TDS or its subsidiaries on terms or at prices acceptable to TDS.  Insufficient cash flows from operating activities, changes in its credit ratings, defaults of the terms of debt or credit agreements, uncertainty of access to capital, deterioration in the capital markets, reduced regulatory capital at banks which in turn limits their ability to borrow and lend, other changes in the performance of TDS or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its acquisition, capital expenditure and business development programs, reduce the acquisition of spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends.  TDS cannot provide assurance that circumstances that could have a material adverse effect on its liquidity or capital resources will not occur.  Any of the foregoing would have an adverse impact on TDS’ businesses, financial condition or results of operations.

Cash and Cash Equivalents

Cash and cash equivalents include cash and money market investments.  The primary objective of TDS’ Cash and cash equivalents investment activities is to preserve principal.  Cash held by U.S. Cellular is for its operational needs and acquisition, capital expenditure and business development programs.  TDS does not have direct access to U.S. Cellular cash unless U.S. Cellular pays a dividend on its common stock.  U.S. Cellular has no current intention to pay a dividend to its shareholders.

At March 31, 2017, TDS’ consolidated cash and cash equivalents totaled $896 million compared to $900 million at December 31, 2016.  The majority of TDS’ Cash and cash equivalents was held in bank deposit accounts and in money market funds that invest exclusively in U.S. Treasury Notes or in repurchase agreements fully collateralized by such obligations.  TDS monitors the financial viability of the money market funds and direct investments in which it invests and believes that the credit risk associated with these investments is low.

 

 

Financing

TDS and U.S. Cellular have revolving credit facilities available for general corporate purposes, including spectrum purchases and capital expenditures.  These credit facilities mature in June 2021. 

TDS and U.S. Cellular’s unused capacity under their revolving credit facilities was $399 million and $298 million, respectively, as of March 31, 2017.  TDS and U.S. Cellular believe they were in compliance with all of the financial covenants and requirements set forth in their revolving credit facilities as of that date.

TDS and U.S. Cellular have in place effective shelf registration statements on Form S-3 to issue senior or subordinated debt securities.

Long-term debt payments due for the remainder of 2017 and the next four years represent less than 3% of TDS’ total long-term debt obligation as of March 31, 2017.

Capital Expenditures

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures), which include the effects of accruals and capitalized interest, in 2017 and 2016 were as follows:

U.S. Cellular’s capital expenditures for 2017 are expected to be approximately $500 million.  These expenditures are expected to be for the following general purposes:

  • Expand and enhance network coverage, including providing additional capacity to accommodate increased network usage, principally data usage, by current customers;
  • Deployment of VoLTE technology in certain markets;
  • Expand and enhance the retail store network; and
  • Develop and enhance office systems.

TDS Telecom’s capital expenditures for 2017 are expected to be approximately $225 million.  These expenditures are expected to be for the following general purposes:

  • Maintain and enhance existing infrastructure at Wireline, Cable and HMS;
  • Upgrade broadband capacity and speeds; and
  • Support success-based spending to sustain IPTV, Cable and HMS growth.

 

TDS plans to finance its capital expenditures program for 2017 using primarily Cash flows from operating activities, existing cash balances, borrowings under its revolving credit agreements and/or other long-term debt.

Acquisitions, Divestitures and Exchanges

TDS may be engaged from time to time in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties, wireless spectrum and other possible businesses.  In general, TDS may not disclose such transactions until there is a definitive agreement.  TDS assesses its business interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital.  As part of this strategy, TDS reviews attractive opportunities to acquire additional wireless operating markets and wireless spectrum; and telecommunications, cable, HMS or other possible businesses.  TDS also may seek to divest outright or include in exchanges for other interests those interests that are not strategic to its long-term success. 

In July 2016, the FCC announced U.S. Cellular as a qualified bidder in the FCC’s forward auction of 600 MHz spectrum licenses, referred to as Auction 1002.  In April 2017, the FCC announced by way of public notice that U.S. Cellular was the winning bidder for 188 licenses for an aggregate purchase price of $329 million.   Prior to commencement of the forward auction, U.S. Cellular made an upfront payment to the FCC of $143 million in June 2016 and is now required to pay $186 million, the remaining amount due for the purchase of the licenses, to the FCC in May 2017.  U.S. Cellular expects to make such payment using cash on hand and expects to receive the licenses at the conclusion of the FCC’s standard post-auction licensing process.

In February 2016, U.S. Cellular entered into an agreement with a third party to exchange certain 700 MHz licenses for certain AWS and PCS licenses and $28 million of cash.  This license exchange was accomplished in two closings.  The first closing occurred in the second quarter of 2016, at which time U.S. Cellular received $13 million of cash and recorded a gain of $9 million.  The second closing occurred in the first quarter of 2017, at which time U.S. Cellular received $15 million of cash and recorded a gain of $17 million.


Variable Interest Entities

TDS consolidates certain entities because they are “variable interest entities” under GAAP.  See Note 8Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities.  TDS may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.

In the first quarter of 2017, U.S. Cellular formed USCC EIP LLC, a special purpose entity (“SPE”), to facilitate the potential financing of its equipment installment plan receivable balances in the future.  During 2017, net equipment installment plan receivables totaling $679 million were transferred to the newly formed servicing SPE from affiliated entities.  On a consolidated basis, the transfer of receivables into this SPE did not have a material impact to the consolidated financial statements of TDS. 

Common Share Repurchase Programs

TDS and U.S. Cellular have repurchased and expect to continue to repurchase their Common Shares, in each case subject to any available repurchase program.  Share repurchases made under these programs in 2017 and 2016 were as follows:

 

Number of

 

Average Cost

 

Dollar Amount

Three Months Ended March 31,

Shares

 

Per Share

 

(in millions)

2017

 

 

 

 

 

 

 

 

TDS Common Shares

 

 

$

 

 

$

 

 

U.S. Cellular Common Shares

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

TDS Common Shares

111,700 

 

$

22.56 

 

$

3 

 

U.S. Cellular Common Shares

46,861 

 

$

34.77 

 

$

2 

 

For additional information related to the current TDS repurchase authorization, see Unregistered Sales of Equity Securities and Use of Proceeds.

In 2009, the Board of Directors of U.S. Cellular authorized the repurchase of up to 1,300,000 Common Shares on an annual basis beginning in 2009 and continuing each year thereafter, on a cumulative basis.  In December 2016, the U.S. Cellular Board amended this authorization to provide that the number of shares authorized for repurchase with respect to a particular year will be any amount from zero to 1,300,000 beginning on January 1, 2017, as determined by the U.S. Cellular Pricing Committee, and that if the Pricing Committee did not specify an amount for any year, such amount would be zero for such year.  The Pricing Committee did not specify any amount as of January 1, 2017.  The Pricing Committee also was authorized to decrease the cumulative amount of the authorization at any time, but has not taken any action to do so at this time.  As a result, there was no change to the cumulative amount of the share repurchase authorization as of January 1, 2017.  As of March 31, 2017, the total cumulative amount of Common Shares authorized to be purchased is 5,900,849.

All outstanding TDS Preferred Shares were redeemed in April 2017 for $1 million.

Contractual and Other Obligations

There were no material changes outside the ordinary course of business between December 31, 2016 and March 31, 2017 to the Contractual and Other Obligations disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in TDS’ Form 10-K for the year ended December 31, 2016.

Off-Balance Sheet Arrangements

TDS had no transactions, agreements or other contractual arrangements with unconsolidated entities involving “off-balance sheet arrangements,” as defined by SEC rules, that had or are reasonably likely to have a material current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources.


Consolidated Cash Flow Analysis

TDS operates a capital- and marketing-intensive business.  TDS makes substantial investments to acquire wireless licenses and properties and to construct and upgrade communications networks and facilities as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenueenhancing and cost-reducing upgrades to TDS’ networks.  TDS utilizes cash on hand, cash from operating activities, cash proceeds from divestitures and dispositions of investments, short-term credit facilities and long-term debt financing to fund its acquisitions (including spectrum licenses), construction costs, operating expenses and share repurchases.  Cash flows may fluctuate from quarter to quarter and year to year due to seasonality, the timing of acquisitions and divestitures, capital expenditures and other factors.  The following discussion summarizes TDS' cash flow activities for the three months ended March 31, 2017 and 2016.

2017 Commentary

TDS’ cash and cash equivalents remained flat since December 31, 2016.  Net cash provided by operating activities was $137 million in 2017, due primarily to net income of $43 million plus non-cash items of $201 million and distributions received from unconsolidated entities of $11 million.  This was partially offset by changes in working capital items which decreased cash by $118 million.  The decrease in working capital items was due in part to a $44 million increase in equipment installment plan receivables, which are expected to continue to increase and further require the use of working capital in the near term.  The decrease was also a result of a $75 million decrease in accounts payable.

The net cash provided by operating activities was offset by cash flows used for investing activities of $125 million.  Cash paid for additions to property, plant and equipment in the first quarter of 2017 totaled $127 million.  Cash paid for acquisitions and licenses was $14 million which was offset by Cash received from divestitures and exchanges of $16 million.  See Note 5 Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial Statements for additional information related to these transactions.

Cash flows used for financing activities were $16 million for the three months ended March 31, 2017, reflecting ordinary activity such as the payment of dividends and the scheduled repayments of debt.

2016 Commentary

TDS’ Cash and cash equivalents increased $69 million in 2016.  Net cash provided by operating activities was $246 million in 2016 due to net income of $10 million plus non-cash items of $217 million and distributions received from unconsolidated entities of $14 million.  Changes in working capital items provided net cash of $5 million.  TDS received a federal tax refund of $63 million related to an overpayment of the 2015 expected tax liability.  This was partially offset by a use of cash of $41 million due to an increase in equipment installment plan receivables. The net cash provided by operating activities was partially offset by Cash flows used for investing activities of $157 million.  Cash paid in 2016 for additions to property, plant and equipment totaled $159 million and is reported in the Consolidated Statement of Cash Flows.

Consolidated Balance Sheet Analysis

The following discussion addresses certain captions in the consolidated balance sheet and changes therein.  This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes.  Changes in financial condition during 2017 are as follows:

Accounts Payable

Accounts payable decreased $105 million due primarily to reduction of expenses in the first quarter of 2017 as well as payment timing differences.

Accrued Compensation

Accrued compensation decreased $50 million due primarily to employee bonus payments in March 2017.


Supplemental Information Relating to Non-GAAP Financial Measures

TDS sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with U.S. GAAP to evaluate the performance of its business.  Certain of these measures are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission Rules.  Specifically, TDS has referred to the following measures in this Form 10-Q Report:

  • EBITDA
  • Adjusted EBITDA
  • Operating cash flow
  • Free cash flow
  • Postpaid ABPU
  • Postpaid ABPA

Following are explanations of each of these measures.

Adjusted EBITDA and Operating Cash Flow

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) is defined as net income adjusted for the items set forth in the reconciliation below.  Operating cash flow is defined as net income adjusted for the items set forth in the reconciliation below.  Adjusted EBITDA and Operating cash flow are not measures of financial performance under 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 below are non-recurring, infrequent or unusual; such items may occur in the future.

Adjusted EBITDA is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance.  See Note 10Business Segment Information in the Notes to Consolidated Financial Statements for additional information.

Management uses Adjusted EBITDA and Operating cash flow as measurements of profitability and, therefore, reconciliations to applicable GAAP income measures are deemed appropriate.  Management believes Adjusted EBITDA and Operating cash flow are useful measures of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS’ financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.  Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Operating cash flow reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities.  The following table reconciles Adjusted EBITDA and Operating cash flow to the corresponding GAAP measure, Net income or Income (loss) before income taxes.  Income tax expense is not provided at the individual segment level for Wireline, Cable and HMS.  TDS calculates income tax expense for TDS Telecom in total.

 


 

 

 

Three Months Ended

 

 

 

March 31,

TDS  ̶  CONSOLIDATED

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Net income (GAAP)

$

43 

 

$

10 

Add back:

 

 

 

 

 

 

Income tax expense

 

34 

 

 

13 

 

Interest expense

 

42 

 

 

41 

 

Depreciation, amortization and accretion

 

211 

 

 

212 

EBITDA (Non-GAAP)

 

330 

 

 

276 

Add back or deduct:

 

 

 

 

 

 

(Gain) loss on license sales and exchanges, net

 

(17)

 

 

 

 

(Gain) loss on asset disposals, net

 

4 

 

 

6 

Adjusted EBITDA (Non-GAAP)

 

317 

 

 

282 

Deduct:

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

32 

 

 

35 

 

Interest and dividend income1

 

4 

 

 

3 

 

Other, net

 

1 

 

 

 

Operating cash flow (Non-GAAP)1

 

280 

 

 

244 

Deduct:

 

 

 

 

 

 

Depreciation, amortization and accretion

 

211 

 

 

212 

 

(Gain) loss on license sales and exchanges, net

 

(17)

 

 

 

 

(Gain) loss on asset disposals, net

 

4 

 

 

6 

Operating income (GAAP)¹

$

82 

 

$

26 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

U.S. CELLULAR

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Net income (GAAP)

$

28 

 

$

9 

Add back:

 

 

 

 

 

 

Income tax expense

 

33 

 

 

11 

 

Interest expense

 

28 

 

 

28 

 

Depreciation, amortization and accretion

 

153 

 

 

153 

EBITDA (Non-GAAP)

 

242 

 

 

201 

Add back or deduct:

 

 

 

 

 

 

(Gain) loss on license sales and exchanges, net

 

(17)

 

 

 

 

(Gain) loss on asset disposals, net

 

4 

 

 

5 

Adjusted EBITDA (Non-GAAP)

 

229 

 

 

206 

Deduct:

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

33 

 

 

35 

 

Interest and dividend income1

 

3 

 

 

2 

 

Other, net

 

(1)

 

 

1 

Operating cash flow (Non-GAAP)1

 

194 

 

 

168 

Deduct:

 

 

 

 

 

 

Depreciation, amortization and accretion

 

153 

 

 

153 

 

(Gain) loss on license sales and exchanges, net

 

(17)

 

 

 

 

(Gain) loss on asset disposals, net

 

4 

 

 

5 

Operating income (GAAP)¹

$

54 

 

$

10 

 

 

 

 

Three Months Ended

 

 

 

March 31,

TDS TELECOM

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Net income (GAAP)

$

18 

 

$

10 

Add back:

 

 

 

 

 

 

Income tax expense

 

11 

 

 

7 

 

Interest expense

 

1 

 

 

 

 

Depreciation, amortization and accretion

 

56 

 

 

58 

EBITDA (Non-GAAP)

 

86 

 

 

75 

Add back or deduct:

 

 

 

 

 

 

(Gain) loss on asset disposals, net

 

1 

 

 

1 

Adjusted EBITDA (Non-GAAP)

 

86 

 

 

76 

Deduct:

 

 

 

 

 

 

Interest and dividend income

 

1 

 

 

1 

 

Other, net

 

 

 

 

(1)

Operating cash flow (Non-GAAP)

 

85 

 

 

76 

Deduct:

 

 

 

 

 

 

Depreciation, amortization and accretion

 

56 

 

 

58 

 

(Gain) loss on asset disposals, net

 

1 

 

 

1 

Operating income (GAAP)

$

29 

 

$

17 

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

WIRELINE

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Income before income taxes (GAAP)

$

30 

 

$

22 

Add back:

 

 

 

 

 

 

Interest expense

 

 

 

 

(1)

 

Depreciation, amortization and accretion

 

39 

 

 

42 

EBITDA (Non-GAAP)

 

69 

 

 

63 

Add back or deduct:

 

 

 

 

 

 

(Gain) loss on asset disposals, net

 

 

 

 

 

Adjusted EBITDA (Non-GAAP)

 

69 

 

 

63 

Deduct:

 

 

 

 

 

 

Interest and dividend income

 

1 

 

 

1 

 

Other, net

 

 

 

 

 

Operating cash flow (Non-GAAP)

 

68 

 

 

62 

Deduct:

 

 

 

 

 

 

Depreciation, amortization and accretion

 

39 

 

 

42 

 

(Gain) loss on asset disposals, net

 

 

 

 

 

Operating income (GAAP)

$

29 

 

$

20 

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

CABLE

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Income before income taxes (GAAP)

$

2 

 

$

 

Add back:

 

 

 

 

 

 

Depreciation, amortization and accretion

 

10 

 

 

9 

EBITDA (Non-GAAP)

 

12 

 

 

9 

Add back or deduct:

 

 

 

 

 

 

(Gain) loss on asset disposals, net

 

 

 

 

1 

Adjusted EBITDA (Non-GAAP)

 

13 

 

 

10 

Deduct:

 

 

 

 

 

 

Other, net

 

 

 

 

(1)

Operating cash flow (Non-GAAP)

 

13 

 

 

11 

Deduct:

 

 

 

 

 

 

Depreciation, amortization and accretion

 

10 

 

 

9 

 

(Gain) loss on asset disposals, net

 

 

 

 

1 

Operating income (GAAP)

$

2 

 

$

1 

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

HMS

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Loss before income taxes (GAAP)

$

(3)

 

$

(5)

Add back:

 

 

 

 

 

 

Interest expense

 

1 

 

 

1 

 

Depreciation, amortization and accretion

 

7 

 

 

7 

EBITDA (Non-GAAP)

 

5 

 

 

3 

Add back or deduct:

 

 

 

 

 

 

(Gain) loss on asset disposals, net

 

 

 

 

 

Adjusted EBITDA (Non-GAAP)

 

5 

 

 

3 

Deduct:

 

 

 

 

 

 

Other, net

 

 

 

 

 

Operating cash flow (Non-GAAP)

 

4 

 

 

3 

Deduct:

 

 

 

 

 

 

Depreciation, amortization and accretion

 

7 

 

 

7 

 

(Gain) loss on asset disposals, net

 

 

 

 

 

Operating loss (GAAP)

$

(2)

 

$

(4)

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

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.  See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional details.

 

 

Free Cash Flow

The following table presents Free cash flow.  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 cash generated by business operations, after Cash paid for additions to property, plant and equipment.

 

 

 

Three Months Ended March 31,

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Cash flows from operating activities (GAAP)

$

137 

 

$

246 

Less: Cash paid for additions to property, plant and equipment

 

127 

 

 

159 

 

Free cash flow (Non-GAAP)

$

10 

 

$

87 

 

 

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. 

 

 

 

Three Months Ended March 31,

 

2017

 

2016

(Dollars and connection counts in millions)

 

 

 

 

 

Calculation of Postpaid ARPU

 

 

 

 

 

Postpaid service revenues

$

608 

 

$

639 

Average number of postpaid connections

 

4.46 

 

 

4.43 

Number of months in period

 

3 

 

 

3 

 

Postpaid ARPU (GAAP metric)

$

45.42 

 

$

48.13 

 

 

 

 

 

 

 

 

Calculation of Postpaid ABPU

 

 

 

 

 

Postpaid service revenues

$

608 

 

$

639 

Equipment installment plan billings

 

139 

 

 

105 

 

Total billings to postpaid connections

$

747 

 

$

744 

Average number of postpaid connections

 

4.46 

 

 

4.43 

Number of months in period

 

3 

 

 

3 

 

Postpaid ABPU (Non-GAAP metric)

$

55.82 

 

$

56.06 

 

 

 

 

 

 

 

 

Calculation of Postpaid ARPA

 

 

 

 

 

Postpaid service revenues

$

608 

 

$

639 

Average number of postpaid accounts

 

1.66 

 

 

1.70 

Number of months in period

 

3 

 

 

3 

 

Postpaid ARPA (GAAP metric)

$

121.88 

 

$

125.36 

 

 

 

 

 

 

 

 

Calculation of Postpaid ABPA

 

 

 

 

 

Postpaid service revenues

$

608 

 

$

639 

Equipment installment plan billings

 

139 

 

 

105 

 

Total billings to postpaid accounts

$

747 

 

$

744 

Average number of postpaid accounts

 

1.66 

 

 

1.70 

Number of months in period

 

3 

 

 

3 

 

Postpaid ABPA (Non-GAAP metric)

$

149.78 

 

$

145.99 

 


Application of Critical Accounting Policies and Estimates

TDS prepares its consolidated financial statements in accordance with GAAP.  TDS’ significant accounting policies are discussed in detail in Note 1 — Summary of Significant Accounting Policies and Recent Accounting Pronouncements in the Notes to Consolidated Financial Statements and TDS’ Application of Critical Accounting Policies and Estimates is discussed in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in TDS’ Form 10-K for the year ended December 31, 2016

Effective January 1, 2017, TDS elected to change the classification of interest income on equipment installment plan contracts from Interest and dividend income to Service revenues in the Consolidated Statement of Operations.  All prior period numbers have been recast to conform to the current year presentation.  See Note 1 Basis of Presentation in the Notes to Consolidated Financial Statements for additional information regarding this accounting change.  There were no other material changes to TDS’ application of critical accounting policies and estimates during the three months ended March 31, 2017.

Recent Accounting Pronouncements

See Note 1Basis of Presentation in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.

Regulatory Matters

FCC Auction 1002

In July 2016, the FCC announced U.S. Cellular as a qualified bidder in the FCC’s forward auction of 600 MHz spectrum licenses, referred to as Auction 1002.  In April 2017, the FCC announced by way of public notice that U.S. Cellular was the winning bidder for 188 licenses for an aggregate purchase price of $329 million.   Prior to commencement of the forward auction, U.S. Cellular made an upfront payment to the FCC of $143 million in June 2016 and is now required to pay $186 million, the remaining amount due for the purchase of the licenses, to the FCC in May 2017.  U.S. Cellular expects to make such payment using cash on hand and expects to receive the licenses at the conclusion of the FCC’s standard post-auction licensing process.

FCC Reform Order

Pursuant to the Reform Order, U.S. Cellular’s current Federal USF support was to be phased down at the rate of 20% per year beginning July 1, 2012.  The MF2 was not operational as of July 2014 and, therefore, as provided by the Reform Order, the phase down was suspended at 60% of the baseline amount until such time as the FCC had taken steps to establish the MF2.  In February 2017, the FCC adopted an Order concerning MF2 and the resumption of the phase down. The Order establishes a MF2 support fund of $453 million annually for ten years to be distributed through a market-based, multi-round reverse auction.  The Order further states that the phase down of legacy support for areas that do not receive support under MF2 will commence on the first day of the month following the completion of the auction and will conclude two years later. U.S. Cellular cannot predict at this time when the MF2 auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the MF2 auction will provide opportunities to the company to offset any loss in existing support.  However, U.S. Cellular currently expects that its legacy support will continue at the current level for 2017. 

Other Regulatory Considerations

Since the filing of TDS’ Annual Report on Form 10-K on February 24, 2017, there have been certain developments relating to changes to existing policies with respect to Federal regulations that have been under review.

In March 2017, both the U.S. Senate and U.S. House of Representatives approved a joint resolution under the Congressional Review Act to repeal regulations approved by the FCC in October 2016 governing consumer privacy by broadband Internet service providers.  The President approved the resolution in April 2017.  The repeal removed the pending FCC rules, which would have gone into effect later in 2017.  The rules would have prohibited broadband internet service providers from sharing certain sensitive customer information unless customers opted in and expressly agreed to share such information.  TDS will continue to protect customer information in accordance with Section 222 of the Telecommunications Act and its publicly available Privacy Statement until such time as regulators adopt other privacy requirements.

FCC Notice of Proposed Rulemaking

In April 2017, the FCC released the text of a proposal to reconsider decisions made in the FCC’s 2015 Open Internet and Title II Order.  A Notice of Proposed Rulemaking (“NPRM”) has been tentatively scheduled for the May 18, 2017, Open Meeting.  If adopted as proposed, the item would reverse the FCC’s decision to reclassify Broadband Internet Access Services as telecommunications services subject to regulation under Title II of the Telecommunications Act.  The NPRM would also seek comment on blocking, throttling, paid prioritization, and transparency rules adopted as part of the FCC’s previous rulemaking.

If it is adopted, the NPRM will be subject to public comment and further action by the FCC, and any final rules adopted may differ from those proposed in the NPRM.  Also, there may be legal proceedings challenging any rule changes that are ultimately adopted.  TDS cannot predict the outcome of these proceedings or the impact on its business.


Private Securities Litigation Reform Act of 1995

Safe Harbor Cautionary Statement

 

This Form 10-Q, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, that address activities, events or developments that TDS intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements.  The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements.  Such risks, uncertainties and other factors include those set forth below, as more fully described under “Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2016Each of the following risks could have a material adverse effect on TDS’ business, financial condition or results of operations.  However, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document.  Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements.  TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.  You should carefully consider the Risk Factors in TDS’ Form 10-K for the year ended December 31, 2016, the following factors and other information contained in, or incorporated by reference into, this Form 10-Q to understand the material risks relating to TDS’ business, financial condition or results of operations.

  • Intense competition in the markets in which TDS operates could adversely affect TDS’ revenues or increase its costs to compete.
  • A failure by TDS to successfully execute its business strategy (including planned acquisitions, spectrum acquisitions, divestitures and exchanges) or allocate resources or capital could have an adverse effect on TDS’ business, financial condition or results of operations.
  • Uncertainty in TDS’ future cash flow and liquidity or in the ability to access capital, deterioration in the capital markets, other changes in TDS’ performance or market conditions, changes in TDS’ credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development or acquisition programs, reduce the acquisition of spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends.
  • TDS has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.
  • Changes in roaming practices or other factors could cause TDS’ roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact TDS’ ability to service its customers in geographic areas where TDS does not have its own network, which could have an adverse effect on TDS’ business, financial condition or results of operations.
  • A failure by TDS to obtain access to adequate radio spectrum to meet current or anticipated future needs and/or to accurately predict future needs for radio spectrum could have an adverse effect on TDS’ business, financial condition or results of operations.
  • To the extent conducted by the FCC, TDS may participate in FCC auctions of additional spectrum in the future directly or indirectly and, during certain periods, will be subject to the FCC’s anti-collusion rules, which could have an adverse effect on TDS.
  • Failure by TDS to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect TDS’ business, financial condition or results of operations.
  • An inability to attract people of outstanding potential, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on TDS' business, financial condition or results of operations.
  • TDS’ assets are concentrated primarily in the U.S. telecommunications industry.  Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.
  • TDS’ smaller scale relative to larger competitors that may have greater financial and other resources than TDS could cause TDS to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.
  • Changes in various business factors, including changes in demand, customer preferences and perceptions, price competition, churn from customer switching activity and other factors, could have an adverse effect on TDS’ business, financial condition or results of operations.
  • Advances or changes in technology could render certain technologies used by TDS obsolete, could put TDS at a competitive disadvantage, could reduce TDS’ revenues or could increase its costs of doing business.
  • Complexities associated with deploying new technologies present substantial risk and TDS’ investments in unproven technologies may not produce the benefits that TDS expects.
  • TDS receives regulatory support and is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of the support and fees are subject to great uncertainty, which could have an adverse effect on TDS’ business, financial condition or results of operations.
  • Performance under device purchase agreements could have a material adverse impact on TDS' business, financial condition or results of operations.
  • Changes in TDS’ enterprise value, changes in the market supply or demand for wireless licenses, wireline or cable markets or IT service providers, adverse developments in the businesses or the industries in which TDS is involved and/or other factors could require TDS to recognize impairments in the carrying value of its licenses, goodwill, franchise rights and/or physical assets.
  • Costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or licenses and/or expansion of TDS’ businesses could have an adverse effect on TDS’ business, financial condition or results of operations.
  • TDS offers customers the option to purchase certain devices under installment contracts which, compared to fixed-term service contracts, includes risks that TDS may possibly incur greater churn, lower cash flows, increased costs and/or increased bad debts expense due to differences in contract terms, which could have an adverse impact on TDS' financial condition or results of operations.
  • A failure by TDS to complete significant network construction and systems implementation activities as part of its plans to improve the quality, coverage, capabilities and capacity of its network, support and other systems and infrastructure could have an adverse effect on its operations.
  • Difficulties involving third parties with which TDS does business, including changes in TDS’ relationships with or financial or operational difficulties of key suppliers or independent agents and third party national retailers who market TDS’ services, could adversely affect TDS’ business, financial condition or results of operations.
  • TDS has significant investments in entities that it does not control.  Losses in the value of such investments could have an adverse effect on TDS’ financial condition or results of operations.
  • A failure by TDS to maintain flexible and capable telecommunication networks or information technology, or a material disruption thereof, could have an adverse effect on TDS’ business, financial condition or results of operations.
  • TDS has experienced and, in the future, expects to experience cyber-attacks or other breaches of network or information technology security of varying degrees on a regular basis, which could have an adverse effect on TDS' business, financial condition or results of operations.
  • The market price of TDS’ Common Shares is subject to fluctuations due to a variety of factors.
  • Changes in facts or circumstances, including new or additional information, could require TDS to record charges in excess of amounts accrued in the financial statements, which could have an adverse effect on TDS’ business, financial condition or results of operations.
  • Disruption in credit or other financial markets, a deterioration of U.S. or global economic conditions or other events could, among other things, impede TDS’ access to or increase the cost of financing its operating and investment activities and/or result in reduced revenues and lower operating income and cash flows, which would have an adverse effect on TDS’ business, financial condition or results of operations.
  • Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on TDS’ business, financial condition or results of operations.
  • The possible development of adverse precedent in litigation or conclusions in professional studies to the effect that radio frequency emissions from wireless devices and/or cell sites cause harmful health consequences, including cancer or tumors, or may interfere with various electronic medical devices such as pacemakers, could have an adverse effect on TDS’ wireless business, financial condition or results of operations.
  • Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent TDS from using necessary technology to provide products or services or subject TDS to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on TDS’ business, financial condition or results of operations.
  • Certain matters, such as control by the TDS Voting Trust and provisions in the TDS Restated Certificate of Incorporation, may serve to discourage or make more difficult a change in control of TDS.
  • Any of the foregoing events or other events could cause revenues, earnings, capital expenditures and/or any other financial or statistical information to vary from TDS’ forward-looking estimates by a material amount.


Risk Factors

In addition to the information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in TDS’ Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect TDS’ business, financial condition or future results. The risks described in this Form 10-Q and the Form 10-K for the year ended December 31, 2016, may not be the only risks that could affect TDS.  Additional unidentified or unrecognized risks and uncertainties could materially adversely affect TDS’ business, financial condition and/or operating results.  Subject to the foregoing, TDS has not identified for disclosure any material changes to the risk factors as previously disclosed in TDS’ Annual Report on Form 10-K for the year ended December 31, 2016.

Quantitative and Qualitative Disclosures about Market Risk

MARKET RISK

Refer to the disclosure under Market Risk in TDS’ Form 10-K for the year ended December 31, 2016, for additional information, including information regarding required principal payments and the weighted average interest rates related to TDS’ Long-term debt. There have been no material changes to such information since December 31, 2016

See Note 2Fair Value Measurements in the Notes to Consolidated Financial Statements for additional information related to the fair value of TDS’ Long-term debt as of March 31, 2017.


Financial Statements

Telephone and Data Systems, Inc.

Consolidated Statement of Operations

(Unaudited)

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

2017

 

2016

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

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

Service

$

997 

 

$

1,011 

 

Equipment and product sales

 

241 

 

 

243 

 

 

Total operating revenues

 

1,238 

 

 

1,254 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Cost of services (excluding Depreciation,

  amortization and accretion reported below)

 

282 

 

 

288 

 

Cost of equipment and products

 

270 

 

 

291 

 

Selling, general and administrative

 

406 

 

 

431 

 

Depreciation, amortization and accretion

 

211 

 

 

212 

 

(Gain) loss on asset disposals, net

 

4 

 

 

6 

 

(Gain) loss on license sales and exchanges, net

 

(17)

 

 

 

 

 

Total operating expenses

 

1,156 

 

 

1,228 

 

 

 

 

 

 

 

 

 

Operating income

 

82 

 

 

26 

 

 

 

 

 

 

 

 

 

Investment and other income (expense)

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

32 

 

 

35 

 

Interest and dividend income

 

4 

 

 

3 

 

Interest expense

 

(42)

 

 

(41)

 

Other, net

 

1 

 

 

 

 

 

Total investment and other income (expense)

 

(5)

 

 

(3)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

77 

 

 

23 

 

Income tax expense

 

34 

 

 

13 

Net income

 

43 

 

 

10 

Less: Net income attributable to noncontrolling

 

 

 

 

 

  interests, net of tax

 

6 

 

 

2 

Net income attributable to TDS shareholders

 

37 

 

 

8 

TDS Preferred dividend requirement

 

 

 

 

 

Net income available to TDS common shareholders

$

37 

 

$

8 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

110 

 

 

109 

Basic earnings per share available to TDS common

  shareholders

$

0.34 

 

$

0.07 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

112 

 

 

110 

Diluted earnings per share available to TDS common

  shareholders

$

0.33 

 

$

0.07 

 

 

 

 

 

 

 

 

 

Dividends per share to TDS shareholders

$

0.155 

 

$

0.148 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


Telephone and Data Systems, Inc.

Consolidated Statement of Comprehensive Income

(Unaudited)

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Net income

$

43 

 

$

10 

 

Net change in accumulated other comprehensive income

 

 

 

 

 

 

 

Change related to retirement plan

 

 

 

 

 

 

 

 

Amounts included in net periodic benefit cost

 

 

 

 

 

 

 

 

 

for the period

 

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

(1)

 

 

 

Comprehensive income

 

42 

 

 

10 

 

Less: Net income attributable to noncontrolling

 

 

 

 

 

 

 

interests, net of tax

 

6 

 

 

2 

Comprehensive income attributable to TDS shareholders

$

36 

 

$

8 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

$

43 

 

$

10 

 

Add (deduct) adjustments to reconcile net income to net cash flows

 

 

 

 

 

 

  from operating activities

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

211 

 

 

212 

 

 

 

Bad debts expense

 

24 

 

 

19 

 

 

 

Stock-based compensation expense

 

11 

 

 

9 

 

 

 

Deferred income taxes, net

 

(1)

 

 

5 

 

 

 

Equity in earnings of unconsolidated entities

 

(32)

 

 

(35)

 

 

 

Distributions from unconsolidated entities

 

11 

 

 

14 

 

 

 

(Gain) loss on asset disposals, net

 

4 

 

 

6 

 

 

 

(Gain) loss on license sales and exchanges, net

 

(17)

 

 

 

 

 

 

Noncash interest expense

 

1 

 

 

1 

 

Changes in assets and liabilities from operations

 

 

 

 

 

 

 

 

Accounts receivable

 

28 

 

 

20 

 

 

 

Equipment installment plans receivable

 

(44)

 

 

(41)

 

 

 

Inventory

 

 

 

 

(1)

 

 

 

Accounts payable

 

(75)

 

 

39 

 

 

 

Customer deposits and deferred revenues

 

(12)

 

 

(6)

 

 

 

Accrued taxes

 

33 

 

 

63 

 

 

 

Accrued interest

 

9 

 

 

9 

 

 

 

Other assets and liabilities

 

(57)

 

 

(78)

 

 

 

 

Net cash provided by operating activities

 

137 

 

 

246 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Cash paid for additions to property, plant and equipment

 

(127)

 

 

(159)

 

Cash paid for acquisitions and licenses

 

(14)

 

 

 

 

Cash received from divestitures and exchanges

 

16 

 

 

2 

 

 

 

 

Net cash used in investing activities

 

(125)

 

 

(157)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Repayment of long-term debt

 

(3)

 

 

(3)

 

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

 

1 

 

 

 

 

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

 

3 

 

 

1 

 

Repurchase of TDS Common Shares

 

 

 

 

(3)

 

Repurchase of U.S. Cellular Common Shares

 

 

 

 

(2)

 

Dividends paid to TDS shareholders

 

(17)

 

 

(16)

 

Other financing activities

 

 

 

 

3 

 

 

 

 

Net cash used in financing activities

 

(16)

 

 

(20)

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(4)

 

 

69 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

Beginning of period

 

900 

 

 

985 

 

End of period

$

896 

 

$

1,054 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


 

Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Assets

 (Unaudited)

  

 

 

March 31,

 

December 31,

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

$

896 

 

$

900 

 

Accounts receivable

 

 

 

 

 

 

 

Due from customers and agents, less allowances of $57 and $55, respectively

 

739 

 

 

753 

 

 

Other, less allowances of $1 and $2, respectively

 

90 

 

 

98 

 

Inventory, net

 

151 

 

 

151 

 

Prepaid expenses

 

116 

 

 

115 

 

Income taxes receivable

 

3 

 

 

10 

 

Other current assets

 

30 

 

 

32 

 

 

 

Total current assets

 

2,025 

 

 

2,059 

 

 

 

 

 

 

 

 

 

Assets held for sale

 

5 

 

 

8 

 

 

 

 

 

 

 

 

 

Licenses

 

1,904 

 

 

1,895 

Goodwill

 

770 

 

 

766 

Franchise rights

 

244 

 

 

244 

Other intangible assets, net of accumulated amortization of $156 and $153, respectively

 

31 

 

 

33 

Investments in unconsolidated entities

 

472 

 

 

451 

Other investments

 

 

 

 

1 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

In service and under construction

 

11,729 

 

 

11,679 

 

Less: Accumulated depreciation and amortization

 

8,280 

 

 

8,124 

 

 

 

Property, plant and equipment, net

 

3,449 

 

 

3,555 

 

 

 

 

 

 

 

 

 

Other assets and deferred charges

 

449 

 

 

434 

 

 

 

 

 

 

 

 

 

Total assets1

$

9,349 

 

$

9,446 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


 

Telephone and Data Systems, Inc.

Consolidated Balance Sheet — Liabilities and Equity

 (Unaudited)

  

 

March 31,

 

December 31,

 

2017

 

2016

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

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Current portion of long-term debt

$

12 

 

$

12 

 

Accounts payable

 

260 

 

 

365 

 

Customer deposits and deferred revenues

 

217 

 

 

229 

 

Accrued interest

 

20 

 

 

11 

 

Accrued taxes

 

67 

 

 

44 

 

Accrued compensation

 

77 

 

 

127 

 

Other current liabilities

 

85 

 

 

99 

 

 

 

Total current liabilities

 

738 

 

 

887 

 

 

 

 

 

 

 

 

 

Deferred liabilities and credits

 

 

 

 

 

 

Deferred income tax liability, net

 

921 

 

 

922 

 

Other deferred liabilities and credits

 

467 

 

 

453 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

2,431 

 

 

2,433 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests with redemption features

 

1 

 

 

1 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

TDS shareholders’ equity

 

 

 

 

 

 

 

Series A Common and Common Shares

 

 

 

 

 

 

 

 

Authorized 290 shares (25 Series A Common and 265 Common Shares)

 

 

 

 

 

 

 

 

Issued 133 shares (7 Series A Common and 126 Common Shares)

 

 

 

 

 

 

 

 

Outstanding 110 shares (7 Series A Common and 103 Common Shares)

 

 

 

 

 

 

 

 

Par Value ($.01 per share)

 

1 

 

 

1 

 

 

Capital in excess of par value

 

2,394 

 

 

2,386 

 

 

Treasury shares, at cost, 23 Common Shares

 

(693)

 

 

(698)

 

 

Accumulated other comprehensive income

 

 

 

 

1 

 

 

Retained earnings

 

2,473 

 

 

2,454 

 

 

 

Total TDS shareholders' equity

 

4,175 

 

 

4,144 

 

 

 

 

 

 

 

 

 

 

Preferred shares

 

1 

 

 

1 

 

Noncontrolling interests

 

615 

 

 

605 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

4,791 

 

 

4,750 

 

 

 

 

 

 

 

 

 

Total liabilities and equity1

$

9,349 

 

$

9,446 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

The consolidated total assets as of March 31, 2017 and December 31, 2016 include assets held by consolidated VIEs of $763 million and $804 million, respectively, which are not available to be used to settle the obligations of TDS.  The consolidated total liabilities as of March 31, 2017 and December 31, 2016 include certain liabilities of consolidated VIEs of $15 million and $17 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of TDS.  See Note 8 — Variable Interest Entities for additional information.

 

 

 

 

 

 


Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)

 

 

 

 

TDS Shareholders

 

 

 

 

 

 

 

 

 

 

Series A

Common and

Common

shares

 

Capital in

excess of

par value

 

Treasury

shares

 

Accumulated

other

comprehensive

income (loss)

 

Retained

earnings

 

Total TDS

shareholders'

equity

 

Preferred

shares

 

Noncontrolling

interests

 

Total equity

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

$

1 

 

$

2,386 

 

$

(698)

 

$

1 

 

$

2,454 

 

$

4,144 

 

$

1 

 

$

605 

 

$

4,750 

Net income attributable to

  TDS shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

37 

 

 

37 

 

 

 

 

 

 

 

 

37 

Net income attributable  

  to noncontrolling interests

  classified as equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 

 

 

6 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

(1)

TDS Common and Series A  

  Common share dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

(17)

 

 

(17)

 

 

 

 

 

 

 

 

(17)

Dividend reinvestment plan

 

 

 

 

 

 

 

3 

 

 

 

 

 

 

 

 

3 

 

 

 

 

 

 

 

 

3 

Incentive and compensation

  plans

 

 

 

 

 

 

 

2 

 

 

 

 

 

(1)

 

 

1 

 

 

 

 

 

 

 

 

1 

Adjust investment in

  subsidiaries for repurchases,

  issuances and other

  compensation plans

 

 

 

 

4 

 

 

 

 

 

 

 

 

 

 

 

4 

 

 

 

 

 

4 

 

 

8 

Stock-based compensation

  awards

 

 

 

 

4 

 

 

 

 

 

 

 

 

 

 

 

4 

 

 

 

 

 

 

 

 

4 

March 31, 2017

$

1 

 

$

2,394 

 

$

(693)

 

$

 

 

$

2,473 

 

$

4,175 

 

$

1 

 

$

615 

 

$

4,791 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 


 

Telephone and Data Systems, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)

 

 

 

TDS Shareholders

 

 

 

 

 

 

 

 

 

 

Series A

Common and

Common

shares

 

Capital in

excess of

par value

 

Treasury

shares

 

Accumulated

other

comprehensive

income (loss)

 

Retained

earnings

 

Total TDS

shareholders'

equity

 

Preferred

shares

 

Noncontrolling

interests

 

Total equity

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

$

1 

 

$

2,365 

 

$

(727)

 

$

 

 

$

2,487 

 

$

4,126 

 

$

1 

 

$

577 

 

$

4,704 

Net income attributable to

  TDS shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

8 

 

 

8 

 

 

 

 

 

 

 

 

8 

Net income attributable  

  to noncontrolling interests

  classified as equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 

 

 

1 

TDS Common and Series A  

  Common share dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

(16)

 

 

(16)

 

 

 

 

 

 

 

 

(16)

Repurchase of Common

  shares

 

 

 

 

 

 

 

(3)

 

 

 

 

 

 

 

 

(3)

 

 

 

 

 

 

 

 

(3)

Dividend reinvestment plan

 

 

 

 

1 

 

 

2 

 

 

 

 

 

 

 

 

3 

 

 

 

 

 

 

 

 

3 

Incentive and compensation

  plans

 

 

 

 

(1)

 

 

2 

 

 

 

 

 

 

 

 

1 

 

 

 

 

 

 

 

 

1 

Adjust investment in

  subsidiaries for repurchases,

  issuances and other

  compensation plans

 

 

 

 

2 

 

 

 

 

 

 

 

 

 

 

 

2 

 

 

 

 

 

3 

 

 

5 

Stock-based compensation

  awards

 

 

 

 

4 

 

 

 

 

 

 

 

 

 

 

 

4 

 

 

 

 

 

 

 

 

4 

Tax windfall (shortfall) from

  stock awards

 

 

 

 

1 

 

 

 

 

 

 

 

 

 

 

 

1 

 

 

 

 

 

 

 

 

1 

March 31, 2016

$

1 

 

$

2,372 

 

$

(726)

 

$

 

 

$

2,479 

 

$

4,126 

 

$

1 

 

$

581 

 

$

4,708 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


Telephone and Data Systems, Inc.

Notes to Consolidated Financial Statements

 

Note 1 Basis of Presentation

The accounting policies of Telephone and Data Systems, Inc. (“TDS”) conform to accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).  The consolidated financial statements include the accounts of TDS and subsidiaries in which it has a controlling financial interest, including TDS’ 83%-owned wireless telephone subsidiary, United States Cellular Corporation (“U.S. Cellular”) and TDS’ wholly-owned subsidiary, TDS Telecommunications Corporation (“TDS Telecom”).  In addition, the consolidated financial statements include certain entities in which TDS has a variable interest that require consolidation under GAAP.  All material intercompany accounts and transactions have been eliminated. 

The unaudited consolidated financial statements included herein have been prepared by TDS pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  However, TDS believes that the disclosures included herein are adequate to make the information presented not misleading.  Calculated amounts and percentages are based on the underlying actual numbers rather than the numbers rounded to millions as presented.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in TDS’ Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2016.

TDS’ business segments reflected in this Quarterly Report on Form 10-Q for the period ended March 31, 2017, are U.S. Cellular, Wireline, Cable, and Hosted and Managed Services (“HMS”) operations.  TDS’ non-reportable other business activities are presented as “Corporate, Eliminations and Other”, which includes the operations of TDS’ wholly-owned subsidiary Suttle-Straus, Inc. (“Suttle-Straus”).  Suttle-Straus’ financial results were not significant to TDS’ operations.  All of TDS’ segments operate only in the United States, except for HMS, which includes an insignificant foreign operation.  See Note 10Business Segment Information for summary financial information on each business segment.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring items, unless otherwise disclosed) necessary for the fair statement of TDS’ financial position as of March 31, 2017 and December 31, 2016, its results of operations, comprehensive income, cash flows and changes in equity for the three months ended March 31, 2017 and 2016.  These results are not necessarily indicative of the results to be expected for the full year.  TDS has not changed its significant accounting and reporting policies from those disclosed in its Form 10-K for the year ended December 31, 2016, except as described below.

Equipment Installment Plans

TDS equipment revenue under equipment installment plan contracts is recognized at the time the device is delivered to the end-user customer for the selling price of the device, net of any deferred imputed interest or trade-in right, if applicable.  Imputed interest is reflected as a reduction to the receivable balance and recognized over the duration of the plan as Service revenues.  See Note 3Equipment Installment Plans.  Effective January 1, 2017, TDS elected to change the classification of interest income on equipment installment plan contracts from Interest and dividend income to Service revenues in the Consolidated Statement of Operations.  TDS believes this classification is preferable because financing of devices as part of enrolling customers for service is an activity that is central to TDS’ operations, and it is consistent with the presentation by others in the industry.  Comparative financial statements of prior years have been adjusted to apply the new classification retrospectively.  As a result of this change in classification, Service revenues for the three months ended March 31, 2016, increased by $11 million from previously reported amounts, with a corresponding decrease in Interest and dividend income.  In comparison, Service revenues for the three months ended March 31, 2017, include $16 million of equipment installment plan interest income, which would have been reported within Interest and dividend income had the change not been implemented.  This change did not have an impact on Income before income taxes, Net income, or Earnings per share for the three months ended March 31, 2016, nor did it have a cumulative impact to Retained earnings as of any date presented.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) and has since amended the standard with Accounting Standards Update 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, Accounting Standards Update 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), Accounting Standards Update 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, Accounting Standards Update 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, and Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.  These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers.  TDS is required to adopt ASU 2014-09, as amended, on January 1, 2018.  Early adoption as of January 1, 2017, is permitted; however, TDS did not adopt early.  ASU 2014-09, as amended, impacts TDS’ revenue recognition related to the allocation of contract revenues between various services and equipment, and the timing of when those revenues are recognized.  In addition, ASU 2014-09 requires deferral of incremental contract acquisition and fulfillment costs and subsequent expense recognition over the contract period or expected customer life.  TDS has identified that new systems, processes and controls are required to adopt ASU 2014-09, as amended.  TDS has substantially completed the design and development of new systems to perform revenue recognition accounting under the provisions of ASU 2014-09, as amended, and is currently engaged in the process of testing these new systems.  TDS expects to transition to the new standard under the modified retrospective transition method whereby a cumulative effect adjustment to retained earnings is recognized upon adoption and the guidance is applied prospectively.  Upon adoption, the cumulative effect adjustment is expected to include the establishment of contract asset and contract liability accounts with a corresponding adjustment to retained earnings to reflect the reallocation of revenues between service and equipment performance obligations for which control is transferred to customers in different periods.  Reallocation impacts generally arise when bundle discounts are provided in a contract arrangement that includes equipment and service performance obligations.  In these cases, the revenue will be reallocated according to the relative stand-alone selling prices of the performance obligations included in the bundle and this may be different than how the revenue is billed to the customer and recognized under current guidance.  In addition, contract cost assets will be established to reflect costs that will be deferred as incremental contract acquisition and fulfillment costs.  Incremental contract acquisition costs generally relate to commissions paid to sales associates while fulfillment costs are generally related to service installation costs on the wireline and cable businesses.  TDS is evaluating the effects that adoption of ASU 2014-09, as amended, will have on its financial position and results of operations.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“ASU 2016-02”).  ASU 2016-02 requires lessees to record a right-of-use asset and lease liability for almost all leases.  This ASU does not substantially impact lessor accounting.  TDS is required to adopt ASU 2016-02 on January 1, 2019.  Early adoption is permitted.  Upon adoption of ASU 2016-02, TDS expects a substantial increase to assets and liabilities on its balance sheet.  TDS is evaluating the effects that adoption of ASU 2016-02 will have on its financial position and results of operations.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).  ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses.  It also requires additional disclosure relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances.  TDS is required to adopt ASU 2016-13 on January 1, 2020.  Early adoption as of January 1, 2019 is permitted.  TDS is evaluating the effects that adoption of ASU 2016-13 will have on its financial position, results of operations and disclosures.

In December 2016, the FASB issued Accounting Standards Update 2016-19 Technical Corrections and Improvements (“ASU 2016-19”).  ASU 2016-19 includes an amendment to Accounting Standards Codification Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software, which clarifies a software license within the scope of the Subtopic will be accounted for as the acquisition of an intangible asset and the incurrence of a liability to the extent that the license fees are not fully paid at acquisition.  TDS adopted this standard prospectively for all arrangements entered into or materially modified after January 1, 2017.

In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).  ASU 2017-04 eliminates Step 2 of the current goodwill impairment test.  Goodwill impairment loss will be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value.  TDS is required to adopt ASU 2017-04 on January 1, 2020.  Early adoption is permitted.  TDS is assessing whether it will early adopt ASU 2017-04. 

In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”).  ASU 2017-05 clarifies how entities account for the derecognition of a nonfinancial asset and adds guidance for partial sales of nonfinancial assets.  TDS is required to adopt ASU 2017-05 on January 1, 2018.  Early adoption is permitted.  TDS is evaluating the effects that adoption of ASU 2017-05 will have on its financial position and results of operations.

In March 2017, the FASB issued Accounting Standards Update 2017-07, Compensation – Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”).  ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net periodic benefit cost must be presented separately from the service cost component and outside of Operating income in the Consolidated Statement of Operations.  The guidance also specifies that only the service cost component of net benefit cost is eligible for capitalization.  TDS is required to adopt ASU 2017-07 on January 1, 2018.  Early adoption is permitted.  The adoption of ASU 2017-07 is not expected to have a significant impact on TDS’ results of operations.

Amounts Collected from Customers and Remitted to Governmental Authorities

TDS records amounts collected from customers and remitted to governmental authorities on a net basis within a tax liability account if the tax is assessed upon the customer and TDS merely acts as an agent in collecting the tax on behalf of the imposing governmental authority.  If the tax is assessed upon TDS, then amounts collected from customers as recovery of the tax are recorded in Service revenues and amounts remitted to governmental authorities are recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations.  The amounts recorded gross in revenues that are billed to customers and remitted to governmental authorities totaled $19 million and $23 million for the three months ended March 31, 2017 and 2016, respectively.

Note 2 Fair Value Measurements

As of March 31, 2017 and December 31, 2016, TDS did not have any material financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP.

The provisions of GAAP establish a fair value hierarchy that contains three levels for inputs used in fair value measurements.  Level 1 inputs include quoted market prices for identical assets or liabilities in active markets.  Level 2 inputs include quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets and liabilities in inactive markets.  Level 3 inputs are unobservable.  A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  A financial instrument’s level within the fair value hierarchy is not representative of its expected performance or its overall risk profile and, therefore, Level 3 assets are not necessarily higher risk than Level 2 assets or Level 1 assets.

TDS has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.

 

 

 

Level within the Fair Value Hierarchy

 

 

 

March 31, 2017

 

December 31, 2016

 

 

 

 

 

 

Book Value

 

Fair Value

 

Book Value

 

Fair Value

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

1

 

 

 

$

896 

 

$

896 

 

$

900 

 

$

900 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

2

 

 

 

 

1,753 

 

 

1,805 

 

 

1,753 

 

 

1,741 

 

Institutional

 

 

2

 

 

 

 

533 

 

 

564 

 

 

533 

 

 

532 

 

Other

 

 

2

 

 

 

 

205 

 

 

204 

 

 

208 

 

 

207 

 

The fair value of Cash and cash equivalents approximates the book value due to the short-term nature of these financial instruments.  Long-term debt excludes capital lease obligations and the current portion of Long-term debt.  The fair value of “Retail” Long-term debt was estimated using market prices for TDS’ 7.0% Senior Notes, 6.875% Senior Notes, 6.625% Senior Notes and 5.875% Senior Notes, and U.S. Cellular’s 6.95% Senior Notes, 7.25% 2063 Senior Notes and 7.25% 2064 Senior Notes.  TDS’ “Institutional” debt consists of U.S. Cellular’s 6.7% Senior Notes which are traded over the counter.  TDS’ “Other” debt consists of a senior term loan credit facility and other borrowings with financial institutions.  TDS estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using the interest rates or estimated yield to maturity for each borrowing, which ranged from 0.00% to 6.50% and 0.00% to 6.93% at March 31, 2017 and December 31, 2016, respectively.


Note 3 Equipment Installment Plans

TDS sells devices to customers under equipment installment contracts over a specified time period.  For certain equipment installment plans, after a specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in the original device in good working condition and signing a new equipment installment contract.  TDS values this trade-in right as a guarantee liability.  The guarantee liability is initially measured at fair value and is determined based on assumptions including the probability and timing of the customer upgrading to a new device and the fair value of the device being traded-in at the time of trade-in.  As of March 31, 2017 and December 31, 2016, the guarantee liability related to these plans was $27 million and $33 million, respectively, and is reflected in Customer deposits and deferred revenues in the Consolidated Balance Sheet.

TDS equipment installment plans do not provide for explicit interest charges.  Because equipment installment plans have a duration of greater than twelve months, TDS imputes interest.  TDS records imputed interest as a reduction to the related accounts receivable and recognizes it over the term of the installment agreement.  Equipment installment plan receivables had a weighted average effective imputed interest rate of 11.6% and 11.2% as of March 31, 2017 and December 31, 2016, respectively.

The following table summarizes equipment installment plan receivables as of March 31, 2017 and December 31, 2016.

 

 

March 31, 2017

 

December 31, 2016

(Dollars in millions)

 

 

 

 

 

 

Equipment installment plan receivables, gross

 

$

661 

 

$

628 

Deferred interest

 

 

(57)

 

 

(53)

Equipment installment plan receivables, net of deferred interest

 

 

604 

 

 

575 

Allowance for credit losses

 

 

(53)

 

 

(50)

Equipment installment plan receivables, net

 

$

551 

 

$

525 

 

 

 

 

 

 

 

Net balance presented in the Consolidated Balance Sheet as:

 

 

 

 

 

 

Accounts receivable — Due from customers and agents (Current portion)

 

$

356 

 

$

345 

Other assets and deferred charges (Non-current portion)

 

 

195 

 

 

180 

Equipment installment plan receivables, net

 

$

551 

 

$

525 

 

 

TDS uses various inputs, including internal data, information from the credit bureaus and other sources, to evaluate the credit profiles of its customers.  From this evaluation, a credit class is assigned to the customer that determines the number of eligible lines, the amount of credit available, and the down payment requirement, if any.  Customers assigned to credit classes requiring no down payment represent a lower risk category, whereas those assigned to credit classes requiring a down payment represent a higher risk category.  The balance and aging of the equipment installment plan receivables on a gross basis by credit category were as follows:

 

 

March 31, 2017

 

December 31, 2016

 

 

Lower Risk

 

Higher Risk

 

Total

 

Lower Risk

 

Higher Risk

 

Total

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unbilled

 

$

582 

 

$

44 

 

$

626 

 

$

553 

 

$

38 

 

$

591 

Billed — current

 

 

20 

 

 

2 

 

 

22 

 

 

23 

 

 

2 

 

 

25 

Billed — past due

 

 

10 

 

 

3 

 

 

13 

 

 

10 

 

 

2 

 

 

12 

Equipment installment plan receivables, gross

 

$

612 

 

$

49 

 

$

661 

 

$

586 

 

$

42 

 

$

628 

 

 

The activity in the allowance for credit losses balance for the equipment installment plan receivables was as follows:

 

 

March 31, 2017

 

March 31, 2016

(Dollars in millions)

 

 

 

 

 

 

Allowance for credit losses, beginning of period

 

$

50 

 

$

26 

Bad debts expense

 

 

15 

 

 

11 

Write-offs, net of recoveries

 

 

(12)

 

 

(9)

Allowance for credit losses, end of period

 

$

53 

 

$

28 

 

Note 4 Earnings Per Share

Basic earnings per share available to TDS common shareholders is computed by dividing Net income available to TDS common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share available to TDS common shareholders is computed by dividing Net income available to TDS common shareholders by the weighted average number of common shares outstanding during the period adjusted to include the effects of potentially dilutive securities.  Potentially dilutive securities primarily include incremental shares issuable upon the exercise of outstanding stock options and the vesting of performance and restricted stock units.

The amounts used in computing earnings per common share and the effects of potentially dilutive securities on the weighted average number of common shares were as follows:

 

Three Months Ended

 

March 31,

 

2017

 

2016

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

 

 

 

 

 

Basic earnings per share available to TDS common

 

 

 

 

 

 

 

shareholders:

 

 

 

 

 

 

Net income available to TDS common shareholders

    used in basic earnings per share

$

37 

 

$

8 

Adjustments to compute diluted earnings:

 

 

 

 

 

 

Noncontrolling interest adjustment

 

 

 

 

 

 

Net income available to TDS common shareholders

 

 

 

 

 

 

 

used in diluted earnings per share

$

37 

 

$

8 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares used in basic

 

 

 

 

 

 

earnings per share:

 

 

 

 

 

 

 

Common Shares

 

103 

 

 

102 

 

 

Series A Common Shares

 

7 

 

 

7 

 

 

 

Total

 

110 

 

 

109 

 

 

 

 

 

 

 

 

 

 

Effects of dilutive securities

 

2 

 

 

1 

Weighted average number of shares used in diluted

 

 

 

 

 

 

earnings per share

 

112 

 

 

110 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share available to TDS common

 

 

 

 

 

 

shareholders

$

0.34 

 

$

0.07 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share available to TDS common

 

 

 

 

 

 

shareholders

$

0.33 

 

$

0.07 

 

Certain Common Shares issuable upon the exercise of stock options, vesting of performance and restricted stock units or conversion of preferred shares were not included in average diluted shares outstanding for the calculation of Diluted earnings per share available to TDS common shareholders because their effects were antidilutive.  The number of such Common Shares excluded was 4 million shares and 7 million shares for the three months ended March 31, 2017 and 2016, respectively.

Note 5 Acquisitions, Divestitures and Exchanges

In February 2016, U.S. Cellular entered into an agreement with a third party to exchange certain 700 MHz licenses for certain AWS and PCS licenses and $28 million of cash.  This license exchange was accomplished in two closings.  The first closing occurred in the second quarter of 2016, at which time U.S. Cellular received $13 million of cash and recorded a gain of $9 million.  The second closing occurred in the first quarter of 2017, at which time U.S. Cellular received $15 million of cash and recorded a gain of $17 million.

In July 2016, the FCC announced U.S. Cellular as a qualified bidder in the FCC’s forward auction of 600 MHz spectrum licenses, referred to as Auction 1002.  Prior to commencement of the forward auction, U.S. Cellular made an upfront payment to the FCC of $143 million in June 2016 to establish its initial bidding eligibility.  The auction deposit is recorded as a component of Other assets and deferred charges as of March 31, 2017 and December 31, 2016.  In April 2017, the FCC announced by way of public notice that U.S. Cellular was the winning bidder for 188 licenses for an aggregate purchase price of $329 million.  U.S. Cellular is required to pay $186 million, the remaining amount due for the purchase of the licenses, to the FCC in May 2017. U.S. Cellular expects to receive the licenses at the conclusion of the FCC’s standard post-auction licensing process.

Note 6 Intangible Assets

Activity related to TDS’ Licenses for the three months ended March 31, 2017, is presented below.  Goodwill increased by $4 million and Other intangible assets increased by $1 million in the Cable segment in the first quarter of 2017 due to a small acquisition of a fiber telecommunications company.  There were no changes to Franchise rights during the three months ended March 31, 2017.

Licenses

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

 

 

Balance December 31, 2016

$

1,895 

 

Acquisitions

 

3 

 

Transferred to Assets held for sale

 

(5)

 

Exchanges - Licenses received

 

11 

Balance March 31, 2017

$

1,904 

 

Note 7 Investments in Unconsolidated Entities

Investments in unconsolidated entities consist of amounts invested in wireless and wireline entities in which TDS holds a noncontrolling interest.  These investments are accounted for using either the equity or cost method.

The following table, which is based in part on information provided by third parties, summarizes the combined results of operations of TDS’ equity method investments.

 

Three Months Ended March 31,

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Revenues

$ 

1,615 

 

$ 

1,688 

Operating expenses

 

1,217 

 

 

1,236 

Operating income

 

398 

 

 

452 

Other expense, net

 

 

 

 

(4)

Net income

$

398 

 

$

448 

 

Note 8 Variable Interest Entities

Consolidated VIEs

TDS consolidates variable interest entities (“VIEs”) in which it has a controlling financial interest as defined by GAAP and is therefore deemed the primary beneficiary.  A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE.  TDS reviews these criteria initially at the time it enters into agreements and subsequently when events warranting reconsideration occur.  These VIEs have risks similar to those described in the “Risk Factors” in TDS’ Form 10-K for the year ended December 31, 2016.

In the three months ended March 31, 2017, U.S. Cellular formed USCC EIP LLC, a special purpose entity (“SPE”), to facilitate the potential financing of its equipment installment plan receivable balances in the future.  Under a Receivables Sale Agreement, U.S. Cellular wholly owned, majority owned and unconsolidated entities, collectively referred to as “affiliated entities”, transfer device equipment installment contracts to USCC EIP LLC.  This SPE will aggregate device equipment installment plan contracts for further transfer into a separate bankruptcy remote securitization trust structure, perform servicing, collection and all other administrative activities related to accounting for equipment installment plan contracts. 

USCC EIP LLC’s sole business consists of the acquisition of the receivables from U.S. Cellular affiliated entities for the future transfer of receivables into a trust.  Given that this SPE lacks sufficient equity to finance its activities and U.S. Cellular has the power to direct the activities of this SPE, U.S. Cellular is deemed the primary beneficiary of this variable interest entity, and will consolidate the assets and liabilities of USCC EIP LLC into the consolidated financial statements.

In the three months ended March 31, 2017, net equipment installment plan receivables totaling $679 million were transferred to the newly formed SPE from these affiliated entities.  Because TDS fully consolidates USCC EIP LLC, the transfer of receivables into this SPE did not have a material impact to the consolidated financial statements of TDS.  As of March 31, 2017, TDS had not executed a securitized borrowing from a third party. 

The following VIEs were formed to participate in FCC auctions of wireless spectrum and to fund, establish, and provide wireless service with respect to any FCC licenses won in the auctions:

  • Advantage Spectrum, L.P. (“Advantage Spectrum”) and Sunshine Spectrum, Inc. (“Sunshine Spectrum”), the general partner of Advantage Spectrum (former general partner was Frequency Advantage, L.P. (“Frequency Advantage”));
  • Aquinas Wireless, L.P. (“Aquinas Wireless”); and
  • King Street Wireless, L.P. (“King Street Wireless”) and King Street Wireless, Inc., the general partner of King Street Wireless.

 

These particular VIEs are collectively referred to as designated entities.  The power to direct the activities that most significantly impact the economic performance of these VIEs is shared.  Specifically, the general partner of these VIEs has the exclusive right to manage, operate and control the limited partnerships and make all decisions to carry on the business of the partnerships.  The general partner of each partnership needs the consent of the limited partner, an indirect TDS subsidiary, to sell or lease certain licenses, to make certain large expenditures, admit other partners or liquidate the limited partnerships.  Although the power to direct the activities of these VIEs is shared, TDS has the most significant level of exposure to the variability associated with the economic performance of the VIEs, indicating that TDS is the primary beneficiary of the VIEs.  Therefore, in accordance with GAAP, these VIEs are consolidated.

In January 2017, Sunshine Spectrum and the other owner of Frequency Advantage (the previous general partner of Advantage Spectrum) completed a series of transactions whereby Frequency Advantage was dissolved and Sunshine Spectrum became the new general partner of Advantage Spectrum.  Consistent with its previous treatment of Frequency Advantage and in accordance with GAAP, TDS consolidates Sunshine Spectrum in its financial statements.

TDS also consolidates other VIEs that are limited partnerships that provide wireless service.  A limited partnership is a variable interest entity unless the limited partners hold substantive participating rights or kick-out rights over the general partners.  For certain limited partnerships, U.S. Cellular is the general partner and manages the operations.  In these partnerships, the limited partners do not have substantive kick-out or participating rights and, further, such limited partners do not have the authority to remove the general partner.  Therefore, these limited partnerships are also recognized as VIEs and are consolidated under the variable interest model.

The following table presents the classification and balances of the consolidated VIEs’ assets and liabilities in TDS’ Consolidated Balance Sheet.

 

 

 

March 31,

 

December 31,

 

 

 

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

$

2 

 

$

2 

 

Accounts receivable

 

395 

 

 

39 

 

Other current assets

 

6 

 

 

6 

 

Licenses

 

649 

 

 

649 

 

Property, plant and equipment, net

 

91 

 

 

93 

 

Other assets and deferred charges

 

197 

 

 

15 

 

 

Total assets

$

1,340 

 

$

804 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current liabilities

$

41 

 

$

18 

 

Deferred liabilities and credits

 

12 

 

 

12 

 

 

Total liabilities

$

53 

 

$

30 

 

 

Unconsolidated VIEs

TDS manages the operations of and holds a variable interest in certain other limited partnerships, but is not the primary beneficiary of these entities and, therefore, does not consolidate them under the variable interest model.

TDS’ total investment in these unconsolidated entities was $6 million at March 31, 2017 and December 31, 2016, and is included in Investments in unconsolidated entities in TDS’ Consolidated Balance Sheet.  The maximum exposure from unconsolidated VIEs is limited to the investment held by TDS in those entities. 

Other Related Matters

TDS made contributions, loans and/or advances to its VIEs totaling $654 million, of which $650 million is related to USCC EIP LLC as discussed above, and $13 million during the three months ended March 31, 2017 and March 31, 2016, respectively.  TDS may agree to make additional capital contributions and/or advances to these or other VIEs and/or to their general partners to provide additional funding for operations or the development of licenses granted in various auctions.  TDS may finance such amounts with a combination of cash on hand, borrowings under its revolving credit agreement and/or other long-term debt.  There is no assurance that TDS will be able to obtain additional financing on commercially reasonable terms or at all to provide such financial support.

Note 9 Noncontrolling Interests

The following schedule discloses the effects of Net income attributable to TDS shareholders and changes in TDS’ ownership interest in U.S. Cellular on TDS’ equity:

Three Months Ended March 31,

2017

 

2016

(Dollars in millions)

 

 

 

 

 

Net income attributable to TDS shareholders

$

37 

 

$

8 

Transfer (to) from the noncontrolling interests

 

 

 

 

 

Change in TDS' Capital in excess of par value from U.S. Cellular's issuance of

   U.S. Cellular shares

 

(1)

 

 

(2)

Change in TDS' Capital in excess of par value from U.S. Cellular's repurchases of

   U.S. Cellular shares

 

 

 

 

 

Purchase of ownership in subsidiaries from noncontrolling interests

 

 

 

 

 

Net transfers (to) from noncontrolling interests

 

(1)

 

 

(2)

Change from net income attributable to TDS and transfers (to) from

   noncontrolling interests

$

36 

 

$

6 

Note 10 Business Segment Information

U.S. Cellular and TDS Telecom are billed for all services they receive from TDS, consisting primarily of information processing, accounting and finance, and general management services.  Such billings are based on expenses specifically identified to U.S. Cellular and TDS Telecom and on allocations of common expenses.  Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to U.S. Cellular and TDS Telecom are reflected in the accompanying business segment information on a basis that is representative of what they would have been if U.S. Cellular and TDS Telecom operated on a stand-alone basis.

Financial data for TDS’ reportable segments for the three month periods ended, or as of March 31, 2017 and 2016, is as follows.  See Note 1Basis of Presentation for additional information.

 

 

 

 

 

 

 

 

TDS Telecom

 

 

 

 

 

 

Three Months Ended or as of March 31, 2017

 

U.S. Cellular

 

Wireline

 

Cable

 

HMS

 

TDS Telecom Eliminations

 

TDS Telecom Total

 

Corporate, Eliminations and Other

 

Total

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service1

 

$

746 

 

$

179 

 

$

49 

 

$

29 

 

$

(1)

 

$

256 

 

$

(5)

 

$

997 

 

Equipment and product sales

 

 

190 

 

 

 

 

 

 

 

 

43 

 

 

 

 

 

43 

 

 

8 

 

 

241 

 

 

Total operating revenues1

 

 

936 

 

 

179 

 

 

49 

 

 

71 

 

 

(1)

 

 

299 

 

 

3 

 

 

1,238 

Cost of services (excluding Depreciation, amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and accretion reported below)

 

 

175 

 

 

63 

 

 

24 

 

 

20 

 

 

(1)

 

 

107 

 

 

 

 

 

282 

Cost of equipment and products

 

 

228 

 

 

1 

 

 

 

 

 

36 

 

 

 

 

 

36 

 

 

6 

 

 

270 

Selling, general and administrative

 

 

339 

 

 

48 

 

 

13 

 

 

11 

 

 

 

 

 

71 

 

 

(4)

 

 

406 

Depreciation, amortization and accretion

 

 

153 

 

 

39 

 

 

10 

 

 

7 

 

 

 

 

 

56 

 

 

2 

 

 

211 

(Gain) loss on asset disposals, net

 

 

4 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 

 

 

(1)

 

 

4 

(Gain) loss on license sales and exchanges, net

 

 

(17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17)

Operating income (loss)1

 

 

54 

 

 

29 

 

 

2 

 

 

(2)

 

 

 

 

 

29 

 

 

(1)

 

 

82 

Equity in earnings of unconsolidated entities

 

 

33 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

 

32 

Interest and dividend income1

 

 

3 

 

 

1 

 

 

 

 

 

 

 

 

 

 

 

1 

 

 

 

 

 

4 

Interest expense

 

 

(28)

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

(1)

 

 

(13)

 

 

(42)

Other, net

 

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 

 

 

1 

Income (loss) before income taxes

 

 

61 

 

 

30 

 

 

2 

 

 

(3)

 

 

 

 

 

29 

 

 

(13)

 

 

77 

Income tax expense (benefit)2

 

 

33 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11 

 

 

(10)

 

 

34 

Net income (loss)

 

 

28 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18 

 

 

(3)

 

 

43 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

153 

 

 

39 

 

 

10 

 

 

7 

 

 

 

 

 

56 

 

 

2 

 

 

211 

(Gain) loss on asset disposals, net

 

 

4 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 

 

 

(1)

 

 

4 

(Gain) loss on license sales and exchanges, net

 

 

(17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17)

Interest expense

 

 

28 

 

 

 

 

 

 

 

 

1 

 

 

 

 

 

1 

 

 

13 

 

 

42 

Income tax expense (benefit)2

 

 

33 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11 

 

 

(10)

 

 

34 

Adjusted EBITDA3

 

$

229 

 

$

69 

 

$

13 

 

$

5 

 

$

 

 

$

86 

 

$

2 

 

$

317 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in unconsolidated entities

 

$

434 

 

$

4 

 

$

 

 

$

 

 

$

 

 

$

4 

 

$

34 

 

$

472 

Total assets

 

$

7,024 

 

$

1,204 

 

$

609 

 

$

264 

 

$

 

 

$

2,077 

 

$

248 

 

$

9,349 

Capital expenditures

 

$

61 

 

$

17 

 

$

9 

 

$

6 

 

$

 

 

$

33 

 

$

2 

 

$

96 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numbers may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDS Telecom

 

 

 

 

 

 

Three Months Ended or as of March 31, 2016

 

U.S. Cellular

 

Wireline

 

Cable

 

HMS

 

TDS Telecom Eliminations

 

TDS Telecom Total

 

Corporate, Eliminations and Other

 

Total

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service1

 

$

771 

 

$

173 

 

$

45 

 

$

29 

 

$

(1)

 

$

246 

 

$

(6)

 

$

1,011 

 

Equipment and product sales

 

 

198 

 

 

 

 

 

 

 

 

35 

 

 

 

 

 

35 

 

 

10 

 

 

243 

 

 

Total operating revenues1

 

 

969 

 

 

173 

 

 

45 

 

 

64 

 

 

(1)

 

 

281 

 

 

4 

 

 

1,254 

Cost of services (excluding Depreciation, amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and accretion reported below)

 

 

184 

 

 

62 

 

 

22 

 

 

21 

 

 

(1)

 

 

104 

 

 

 

 

 

288 

Cost of equipment and products

 

 

256 

 

 

1 

 

 

 

 

 

29 

 

 

 

 

 

30 

 

 

5 

 

 

291 

Selling, general and administrative

 

 

361 

 

 

48 

 

 

12 

 

 

11 

 

 

 

 

 

71 

 

 

(1)

 

 

431 

Depreciation, amortization and accretion

 

 

153 

 

 

42 

 

 

9 

 

 

7 

 

 

 

 

 

58 

 

 

1 

 

 

212 

(Gain) loss on asset disposals, net

 

 

5 

 

 

 

 

 

1 

 

 

 

 

 

 

 

 

1 

 

 

 

 

 

6 

Operating income (loss)1

 

 

10 

 

 

20 

 

 

1 

 

 

(4)

 

 

 

 

 

17 

 

 

(1)

 

 

26 

Equity in earnings of unconsolidated entities

 

 

35 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35 

Interest and dividend income1

 

 

2 

 

 

1 

 

 

 

 

 

 

 

 

 

 

 

1 

 

 

 

 

 

3 

Interest expense

 

 

(28)

 

 

1 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

(13)

 

 

(41)

Other, net

 

 

1 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

 

Income (loss) before income taxes

 

 

20 

 

 

22 

 

 

 

 

 

(5)

 

 

 

 

 

17 

 

 

(14)

 

 

23 

Income tax expense (benefit)2

 

 

11 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7 

 

 

(5)

 

 

13 

Net income (loss)

 

 

9 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 

 

 

(9)

 

 

10 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

153 

 

 

42 

 

 

9 

 

 

7 

 

 

 

 

 

58 

 

 

1 

 

 

212 

(Gain) loss on asset disposals, net

 

 

5 

 

 

 

 

 

1 

 

 

 

 

 

 

 

 

1 

 

 

 

 

 

6 

Interest expense

 

 

28 

 

 

(1)

 

 

 

 

 

1 

 

 

 

 

 

 

 

 

13 

 

 

41 

Income tax expense (benefit)2

 

 

11 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7 

 

 

(5)

 

 

13 

Adjusted EBITDA3

 

$

206 

 

$

63 

 

$

10 

 

$

3 

 

$

 

 

$

76 

 

$

 

 

$

282 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in unconsolidated entities

 

$

384 

 

$

4 

 

$

 

 

$

 

 

$

 

 

$

4 

 

$

35 

 

$

423 

Total assets

 

$

7,057 

 

$

1,291 

 

$

581 

 

$

270 

 

$

 

 

$

2,142 

 

$

184 

 

$

9,383 

Capital expenditures

 

$

79 

 

$

27 

 

$

13 

 

$

2 

 

$

 

 

$

42 

 

$

4 

 

$

125 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.  See Note 1 — Basis of Presentation for additional details.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

Income tax expense (benefit) is not provided at the individual segment level for Wireline, Cable and HMS.  TDS calculates income tax expense for “TDS Telecom Total”.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

Adjusted earnings before interest, taxes, depreciation, amortization and accretion (“Adjusted EBITDA”) is a segment measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance.  Adjusted EBITDA is defined as net income, adjusted for the items set forth in the reconciliation above.  TDS believes Adjusted EBITDA is a useful measure 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Telephone and Data Systems, Inc.

Additional Required Information

 

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

TDS maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to TDS’ management, including its principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As required by SEC Rule 13a-15(b), TDS carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of TDS’ disclosure controls and procedures as of the end of the period covered by this Quarterly Report.  Based on this evaluation, TDS’ principal executive officer and principal financial officer concluded that TDS' disclosure controls and procedures were effective as of March 31, 2017, at the reasonable assurance level. 

Changes in Internal Control Over Financial Reporting

There have been no changes in internal controls over financial reporting that have occurred during the quarter ended March 31, 2017, that have materially affected, or are reasonably likely to materially affect, TDS’ internal control over financial reporting.

Legal Proceedings

Refer to the disclosure under Legal Proceedings in TDS’ Form 10-K for the year ended December 31, 2016.  There have been no material changes to such information since December 31, 2016.

Unregistered Sales of Equity Securities and Use of Proceeds

On August 2, 2013, the Board of Directors of TDS authorized, and TDS announced by Form 8-K, a $250 million stock repurchase program for TDS Common Shares.  Depending on market conditions, such shares may be repurchased in compliance with Rule 10b-18 of the Exchange Act, pursuant to Rule 10b5-1 under the Exchange Act, or pursuant to accelerated share repurchase arrangements, prepaid share repurchases, private transactions or as otherwise authorized.  This authorization does not have an expiration date.  TDS did not determine to terminate the foregoing Common Share repurchase program, or cease making further purchases thereunder, during the first quarter of 2017.

The following table provides certain information with respect to all purchases made by or on behalf of TDS, and any open market purchases made by any “affiliated purchaser” (as defined by the SEC) of TDS, of TDS Common Shares during the quarter covered by this Form 10-Q.

 

 

 

 

 

 

 

 

Total Number of

 

Maximum Dollar

 

 

 

 

 

Average

 

Shares Purchased

 

Value of Shares that

 

 

 

Total Number

 

Price

 

as Part of Publicity

 

May Yet Be

 

 

 

of Shares

 

Paid per

 

Announced Plans or

 

Purchased Under the

Period

 

Purchased

 

Share

 

Programs

 

Plans or Programs

January 1 – 31, 2017

 

 

 

$

 

 

 

 

$

198,691,355 

February 1 – 28, 2017

 

 

 

 

 

 

 

 

 

198,691,355 

March 1 – 31, 2017

 

 

 

 

 

 

 

 

 

198,691,355 

 

Total for or as of the end of the

 

 

 

 

 

 

 

 

 

 

 

quarter ended March 31, 2017

 

 

 

$

 

 

 

 

$

198,691,355 

 


Other Information

The following information is being provided to update prior disclosures made pursuant to the requirements of Form 8-K, Item 2.03 — Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.

Neither TDS nor U.S. Cellular borrowed or repaid any cash amounts under their revolving credit facilities in the first quarter of 2017 or through the filing date of this Form 10-Q, and had no cash borrowings outstanding under their revolving credit facilities as of March 31, 2017, or as of the filing date of this Form 10-Q. 


Exhibits

Exhibit 10.1

 

Form of U.S. Cellular 2013 Long-Term Incentive Plan 2017 Performance Award Agreement for the President and CEO of U.S. Cellular, is hereby incorporated by reference to Exhibit 10.1 to U.S. Cellular’s Current Report on Form 8-K dated April 3, 2017.

 

 

 

Exhibit 10.2

 

Form of U.S. Cellular 2013 Long-Term Incentive Plan 2017 Restricted Stock Unit Award Agreement for the   President and CEO of U.S. Cellular, is hereby incorporated by reference to Exhibit 10.2 to U.S. Cellular’s Current Report on Form 8-K dated April 3, 2017.

 

 

 

Exhibit 11

 

Statement regarding computation of per share earnings is included herein as Note 4 — Earnings Per Share in the Notes to Consolidated Financial Statements.

 

 

 

Exhibit 12

 

Statement regarding computation of ratio of earnings to fixed charges.

 

 

 

Exhibit 18

 

Preferability letter from Independent Registered Public Accounting Firm.

 

 

 

Exhibit 31.1

 

Principal executive officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

 

 

 

Exhibit 31.2

 

Principal financial officer certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

 

 

 

Exhibit 32.1

 

Principal executive officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

 

 

Exhibit 32.2

 

Principal financial officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

 

 

Exhibit 101.INS

 

XBRL Instance Document

 

 

 

Exhibit 101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

Exhibit 101.PRE

 

XBRL Taxonomy Presentation Linkbase Document

 

 

 

Exhibit 101.CAL

 

XBRL Taxonomy Calculation Linkbase Document

 

 

 

Exhibit 101.LAB

 

XBRL Taxonomy Label Linkbase Document

 

 

 

Exhibit 101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

The foregoing exhibits include only the exhibits that relate specifically to this Form 10-Q or that supplement the exhibits identified in TDS’ Form 10-K for the year ended December 31, 2016.  Reference is made to TDS’ Form 10-K for the year ended December 31, 2016, for a complete list of exhibits, which are incorporated herein except to the extent supplemented or superseded above.


 

Form 10-Q Cross Reference Index

 

 

 

Item Number

Page No.

Part I.

Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

37 - 43

 

 

Notes to Consolidated Financial Statements

44 - 53

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

1 - 35

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

 

 

 

Item 4.

Controls and Procedures

54

 

 

 

 

Part II. 

Other Information

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

54

 

 

 

 

 

 

Item1A.

Risk Factors

36

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

 

 

 

 

Item 5.

Other Information

55

 

 

 

 

 

 

Item 6.

Exhibits

56

 

 

 

 

Signatures

 

58


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

TELEPHONE AND DATA SYSTEMS, INC.

 

 

 

(Registrant)

 

 

 

 

 

 

Date:

May 5, 2017

 

/s/ LeRoy T. Carlson, Jr.

 

 

 

LeRoy T. Carlson, Jr.,

President and Chief Executive Officer

(principal executive officer)

 

 

 

 

 

 

Date:

May 5, 2017

 

/s/ Douglas D. Shuma

 

 

 

Douglas D. Shuma,

Senior Vice President - Finance and Chief Accounting Officer

(principal financial officer and principal accounting officer)

 

 

 

 

 

Date:

May 5, 2017

 

/s/ Douglas W. Chambers

 

 

 

Douglas W. Chambers,

Vice President and Controller