Exhibit

EX-99.1 2 tdsq420188-kex991.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1 NEWS RELEASE

As previously announced, TDS will hold a teleconference on February 22, 2019 at 9:30 a.m. CST. Listen to the call live via the Events & Presentations page of investors.tdsinc.com.

FOR IMMEDIATE RELEASE

TDS reports fourth quarter and full year 2018 results

Provides 2019 guidance

CHICAGO (February 22, 2019) — Telephone and Data Systems, Inc. (NYSE:TDS) reported total operating revenues of $1,332 million for the fourth quarter of 2018, versus $1,308 million for the same period one year ago. Net income available to TDS common shareholders and related diluted earnings per share were $16 million and $0.14, respectively, for the fourth quarter of 2018. For the quarter ended December 31, 2017, excluding a benefit of $327 million ($282 million, non-GAAP, net of noncontrolling interests impacts) related to the enactment of new tax legislation in the fourth quarter of 2017, Net income available to TDS common shareholders and related diluted earnings per share (non-GAAP) were $6 million and $0.05, respectively. Including the tax benefit recorded during the quarter ended December 31, 2017, Net income available to TDS common shareholders and related diluted earnings per share were $287 million and $2.54, respectively.

TDS reported total operating revenues of $5,109 million and $5,044 million for the years ended 2018 and 2017, respectively. Net income available to TDS common shareholders and related diluted earnings per share were $135 million and $1.17, respectively, for the year ended 2018. For the year ended December 31, 2017, excluding the benefit of $327 million ($282 million, non-GAAP, net of noncontrolling interests impacts) related to the enactment of new tax legislation and a loss on goodwill impairment of $262 million ($188 million, non-GAAP, net of tax and noncontrolling interest impacts) in the third quarter of 2017, Net income available to TDS common shareholders and related diluted earnings per share (non-GAAP) were $59 million and $0.53, respectively. Including the tax benefit and the goodwill impairment charge, Net income available to TDS common shareholders and related diluted earnings per share were $153 million and $1.37, respectively.

“As we celebrate 50 successful years in business, I am pleased with the progress the TDS Family of Companies made in 2018 toward our long-term strategic goals," said LeRoy T. Carlson, Jr., TDS President and CEO. "U.S. Cellular executed their customer-centric strategy which led to expansion of their handset customer base, and increased revenues and profitability. TDS Telecom continued to focus on fiber expansion and broadband penetration, resulting in increased broadband connections and revenues.

"U.S. Cellular strengthened and grew their customer base with increased postpaid handset connections and excellent levels of customer loyalty. U.S. Cellular also generated additional revenues through increased inbound roaming. For the second year in a row, U.S. Cellular tightly managed spending initiatives costs throughout the business, which generated $200 million in savings over the two years. All in, these initiatives lead to significant increases in profitability. These positive results put U.S. Cellular in a strong position to support the level of investment needed to execute network enhancements and ready our network for deployment of 5G.

"TDS Telecom continued to execute on their strategy to provide high-quality broadband, video and voice services. The Wireline segment obtained growth in revenues from fiber investments and through Federal A-CAM support. Cable operations produced outstanding results with strong broadband growth during the year, resulting in a revenue increase of 12 percent. TDS Telecom plans more fiber expansion in 2019, and to launch new customer focused offerings like TDS TV+, its next generation video platform.”

2019 Estimated Results

TDS’ current estimates of full-year 2019 results for U.S. Cellular, TDS Telecom, and TDS are shown below. Such estimates represent management’s view as of February 22, 2019. Such forward-looking statements should not be assumed to be current as of any future date. TDS undertakes no duty to update such information, whether as a result of new information, future events, or otherwise. There can be no assurance that final results will not differ materially from such estimated results.



	2019 Estimated Results and Actual Results for the Year Ended December 31, 2018
	U.S. Cellular			TDS Telecom			TDS ⁽¹⁾
	Estimate	Actual		Estimate	Actual		Estimate	Actual
(Dollars in millions)
Total operating revenues	$4,100-$4,300	$	3,967	$900-$950	$	927	$5,225-$5,475	$	5,109
Adjusted OIBDA⁽²⁾	$725-$875	$	790	$280-$310	$	303	$1,000-$1,180	$	1,079
Adjusted EBITDA⁽²⁾	$900-$1,050	$	963	$290-$320	$	313	$1,185-$1,365	$	1,267
Capital expenditures	$625-$725	$	515	$300-$350	$	232	$940-$1,090	$	767

The following tables provide reconciliations of Net income to Adjusted OIBDA and Adjusted EBITDA for 2019 estimated results and actual results for the year ended December 31, 2018. In providing 2019 estimated results, TDS has not completed the below reconciliation to Net income because it does not provide guidance for income taxes. Although potentially significant, TDS believes that the impact of income taxes cannot be reasonably predicted; therefore, TDS is unable to provide such guidance.



	U.S. Cellular					TDS Telecom				TDS ⁽¹⁾
	Estimate		Actual			Estimate	Actual			Estimate		Actual
(Dollars in millions)
Net income (GAAP)	N/A		$	164		N/A	$	89		N/A		$	175
Add back:
Income tax expense	N/A		51			N/A	16			N/A		46
Income before income taxes (GAAP)	$60-$210		$	215		$85-$115	$	105		$50-$230		$	221
Add back:
Interest expense	115		116			—	(2		)	175		172
Depreciation, amortization and accretion expense	710		640			205	212			945		883
EBITDA (Non-GAAP) ⁽²⁾	$885-$1,035		$	971		$290-$320	$	315		$1,170-$1,350		$	1,276
Add back or deduct:
(Gain) loss on asset disposals, net	20		10			—	(2		)	20		9
(Gain) loss on license sales and exchanges, net	(5	)	(18		)	—	—			(5	)	(18		)
Adjusted EBITDA (Non-GAAP) ⁽²⁾	$900-$1,050		$	963		$290-$320	$	313		$1,185-$1,365		$	1,267
Deduct:
Equity in earnings of unconsolidated entities	155		159			—	—			155		160
Interest and dividend income	20		15			10	8			30		26
Other, net	—		(1		)	—	2			—		2
Adjusted OIBDA (Non-GAAP) ⁽²⁾	$725-$875		$	790		$280-$310	$	303		$1,000-$1,180		$	1,079

Numbers may not foot due to rounding.


⁽¹⁾	The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and non-reportable segments.

⁽²⁾

EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation above. EBITDA, Adjusted EBITDA and Adjusted OIBDA are not measures of financial performance under Generally Accepted Accounting Principles in the United States (GAAP) and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. TDS does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future. Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to Net income are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS’ operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS’ financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The table above reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income or Income (loss) before income taxes. Additional information and reconciliations related to Non-GAAP financial measures for December 31, 2018, can be found on TDS' website at investors.tdsinc.com.

Conference Call Information

TDS will hold a conference call on February 22, 2019 at 9:30 a.m. Central Time.


▪	Access the live call on the Events & Presentations page of investors.tdsinc.com or at

https://www.webcaster4.com/Webcast/Page/1145/29446


▪	Access the call by phone at 877-273-7192 (US/Canada), conference ID: 1858446.

Before the call, certain financial and statistical information to be discussed during the call will be posted to investors.tdsinc.com. The call will be archived on the Events & Presentations page of investors.tdsinc.com.

About TDS

Telephone and Data Systems, Inc. (TDS), a Fortune 1000^® company, provides wireless; cable and wireline broadband, TV and voice; and hosted and managed services to approximately 6 million connections nationwide through its businesses, U.S. Cellular, TDS Telecom, BendBroadband and OneNeck IT Solutions. Founded in 1969 and headquartered in Chicago, TDS employed 9,400 people as of December 31, 2018.

Visit investors.tdsinc.com for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more.

Contacts

Jane W. McCahon, Senior Vice President - Corporate Relations and Corporate Secretary

312-592-5379

jane.mccahon@tdsinc.com

Julie D. Mathews, IRC, Director - Investor Relations

312-592-5341

julie.mathews@tdsinc.com

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company’s plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: intense competition; the ability to execute TDS’ business strategy; uncertainties in TDS’ future cash flows and liquidity and access to the capital markets; the ability to make payments on TDS and U.S. Cellular indebtedness or comply with the terms of debt covenants; impacts of any pending acquisitions/divestitures/exchanges of properties and/or licenses, including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and grow its markets; the access to and pricing of unbundled network elements; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings of TDS and U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; pending and future litigation; changes in income tax rates, laws, regulations or rulings; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of wireless devices, or the mix of services and products offered by U.S. Cellular and TDS Telecom. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K Current Report used by TDS to furnish this press release to the Securities and Exchange Commission, which are incorporated by reference herein.

For more information about TDS and its subsidiaries, visit:

TDS: www.tdsinc.com

U.S. Cellular: www.uscellular.com

TDS Telecom: www.tdstelecom.com

OneNeck IT Solutions: www.oneneck.com

United States Cellular Corporation

Summary Operating Data (Unaudited)



As of or for the Quarter Ended	12/31/2018 ⁽¹⁾			9/30/2018 ⁽¹⁾			6/30/2018 ⁽¹⁾			3/31/2018 ⁽¹⁾			12/31/2017
Retail Connections
Postpaid
Total at end of period	4,472,000			4,466,000			4,468,000			4,481,000			4,518,000
Gross additions	179,000			172,000			146,000			129,000			177,000
Feature phones	4,000			3,000			5,000			5,000			5,000
Smartphones	132,000			130,000			106,000			91,000			128,000
Connected devices	43,000			39,000			35,000			33,000			44,000
Net additions (losses)	6,000			(1,000		)	(13,000		)	(37,000		)	5,000
Feature phones	(11,000		)	(14,000		)	(12,000		)	(15,000		)	(15,000		)
Smartphones	31,000			29,000			17,000			(1,000		)	33,000
Connected devices	(14,000		)	(16,000		)	(18,000		)	(21,000		)	(13,000		)
ARPU ⁽²⁾	$	45.58		$	45.31		$	44.74		$	44.34		$	44.12
ABPU (Non-GAAP) ⁽³⁾	$	60.46		$	59.41		$	57.75		$	57.10		$	56.69
ARPA ⁽⁴⁾	$	119.60		$	119.42		$	118.57		$	118.22		$	118.05
ABPA (Non-GAAP) ⁽⁵⁾	$	158.66		$	156.57		$	153.03		$	152.26		$	151.68
Churn rate ⁽⁶⁾	1.29		%	1.29		%	1.19		%	1.23		%	1.27		%
Handsets	1.00		%	1.02		%	0.92		%	0.97		%	1.00		%
Connected devices	3.20		%	3.04		%	2.85		%	2.79		%	2.84		%
Prepaid
Total at end of period	516,000			528,000			527,000			525,000			519,000
Gross additions	66,000			80,000			78,000			88,000			83,000
Net additions (losses)	(12,000		)	1,000			2,000			6,000			4,000
ARPU ⁽²⁾	$	32.80		$	32.09		$	32.32		$	31.78		$	32.42
Churn rate ⁽⁶⁾	4.98		%	4.98		%	4.83		%	5.27		%	5.09		%
Total connections at end of period ⁽⁷⁾	5,041,000			5,050,000			5,051,000			5,063,000			5,096,000
Market penetration at end of period
Consolidated operating population	31,469,000			31,469,000			31,469,000			31,469,000			31,834,000
Consolidated operating penetration ⁽⁸⁾	16		%	16		%	16		%	16		%	16		%
Capital expenditures (millions)	$	242		$	118		$	86		$	70		$	213
Total cell sites in service	6,531			6,506			6,478			6,473			6,460
Owned towers	4,129			4,119			4,105			4,099			4,080

Due to rounding, the sum of quarterly results may not equal the total for the year.


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


⁽²⁾	Average Revenue Per User (ARPU) - metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period. These revenue bases and connection populations are shown below:


•	Postpaid ARPU consists of total postpaid service revenues and postpaid connections.


•	Prepaid ARPU consists of total prepaid service revenues and prepaid connections.


⁽³⁾	Average Billings Per User (ABPU) - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period. Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.


⁽⁴⁾	Average Revenue Per Account (ARPA) - metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.


⁽⁵⁾	Average Billings Per Account (ABPA) - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period. Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric.


⁽⁶⁾	Churn rate represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.


⁽⁷⁾	Includes reseller and other connections.


⁽⁸⁾	Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.

TDS Telecom

Summary Operating Data (Unaudited)



As of or for the Quarter Ended	12/31/2018		9/30/2018		6/30/2018		3/31/2018		12/31/2017
TDS Telecom
Wireline
Residential connections
Voice ⁽¹⁾	274,100		278,400		282,200		286,000		290,600
Broadband ⁽²⁾	235,400		237,100		234,300		230,500		228,600
Video ⁽³⁾	54,000		53,100		51,500		50,300		48,600
Wireline residential connections	563,500		568,600		568,000		566,900		567,700

Total residential revenue per connection ⁽⁴⁾	$	47.39	$	47.30	$	47.22	$	47.04	$	46.21

Commercial connections
Voice ⁽¹⁾	130,500		134,000		137,300		140,100		143,000
Broadband ⁽²⁾	20,600		20,700		20,600		20,600		20,600
managedIP ⁽⁵⁾	134,000		138,000		141,400		143,000		146,500
Video ⁽³⁾	400		400		400		400		—
Wireline commercial connections	285,400		293,100		299,600		304,000		310,100

Total Wireline connections	848,900		861,700		867,700		870,900		877,800

Cable
Cable Connections
Broadband ⁽⁶⁾	167,400		163,600		159,400		156,800		153,300
Video ⁽⁷⁾	102,900		102,100		101,600		100,700		101,800
Voice ⁽⁸⁾	65,200		63,600		62,000		60,600		59,700
managedIP ⁽⁵⁾	1,000		700		700		600		400
Cable connections	336,500		330,100		323,700		318,700		315,100

Numbers may not foot due to rounding.


⁽¹⁾	The individual circuits connecting a customer to Wireline’s central office facilities.


⁽²⁾	The number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies.


⁽³⁾	The number of Wireline customers provided video services.


⁽⁴⁾	Total residential revenue per connection is calculated by dividing total Wireline residential revenue by the average number of Wireline residential connections and by the number of months in the period.


⁽⁵⁾	The number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.


⁽⁶⁾	Billable number of lines into a building for high-speed data services.


⁽⁷⁾	Generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or hotel, connections are counted based on the number of units/rooms within the building receiving service.


⁽⁸⁾	Billable number of lines into a building for voice services.

TDS Telecom

Capital Expenditures (Unaudited)



Quarter Ended	12/31/2018		9/30/2018		6/30/2018		3/31/2018		12/31/2017
(Dollars in millions)
Wireline	$	73	$	41	$	33	$	29	$	55
Cable	19		13		13		11		20
Total TDS Telecom ⁽¹⁾	$	91	$	54	$	46	$	40	$	74

Numbers may not foot due to rounding.


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

Telephone and Data Systems, Inc.

Consolidated Statement of Operations Highlights

(Unaudited)



	Three Months Ended December 31,								Year Ended December 31,
	2018 ⁽¹⁾			2017			2018 vs. 2017		2018 ⁽¹⁾			2017			2018 vs. 2017
(Dollars and shares in millions, except per share amounts)
Operating revenues
U.S. Cellular	$	1,051		$	1,029		2	%	$	3,967		$	3,890		2	%
TDS Telecom ⁽²⁾	232			229			1	%	927			919			1	%
All Other ⁽²⁾⁽³⁾	49			50			(3	)%	215			235			(9	)%
	1,332			1,308			2	%	5,109			5,044			1	%
Operating expenses
U.S. Cellular
Expenses excluding depreciation, amortization and accretion	881			877			–		3,177			3,215			(1	)%
Depreciation, amortization and accretion	162			155			5	%	640			615			4	%
Loss on impairment of goodwill ⁽⁴⁾	—			—			N/M		—			370			N/M
(Gain) loss on asset disposals, net	5			4			33	%	10			17			(40	)%
(Gain) loss on sale of business and other exit costs, net	—			—			N/M		—			(1		)	N/M
(Gain) loss on license sales and exchanges, net	—			(3		)	N/M		(18		)	(22		)	20	%
	1,048			1,033			2	%	3,809			4,194			(9	)%
TDS Telecom ⁽²⁾
Expenses excluding depreciation, amortization and accretion ⁽⁵⁾	159			151			5	%	624			604			3	%
Depreciation, amortization and accretion	52			49			6	%	212			195			9	%
(Gain) loss on asset disposals, net	—			1			(87	)%	(2		)	3			N/M
	211			201			5	%	834			803			4	%
All Other ⁽²⁾⁽³⁾
Expenses excluding depreciation and amortization ⁽⁵⁾	53			50			6	%	229			229			–
Depreciation and amortization	8			9			(8	)%	31			34			(6	)%
Loss on impairment of goodwill ⁽⁴⁾	—			—			N/M		—			(108		)	N/M
(Gain) loss on asset disposals, net	—			—			N/M		1			1			N/M
	60			58			4	%	261			155			68	%
Total operating expenses	1,319			1,292			2	%	4,904			5,152			(5	)%
Operating income (loss)
U.S. Cellular	3			(4		)	N/M		158			(304		)	N/M
TDS Telecom ⁽²⁾⁽⁵⁾	22			28			(22	)%	93			116			(20	)%
All Other ^(2)(3)(5)	(12		)	(8		)	(45	)%	(46		)	80			N/M
	13			16			(21	)%	205			(108		)	N/M
Investment and other income (expense)
Equity in earnings of unconsolidated entities	39			36			9	%	160			137			17	%
Interest and dividend income	8			4			N/M		26			15			67	%
Interest expense	(43		)	(42		)	(3	)%	(172		)	(170		)	(1	)%
Other, net ⁽⁵⁾	1			1			17	%	2			4			(22	)%
Total investment and other income (expense) ⁽⁵⁾	5			(1		)	N/M		16			(14		)	N/M
Income (loss) before income taxes	18			15			22	%	221			(122		)	N/M
Income tax expense (benefit)	(2		)	(319		)	99	%	46			(279		)	N/M
Net income	20			334			(94	)%	175			157			11	%
Less: Net income attributable to noncontrolling interests, net of tax	4			47			(91	)%	40			4			N/M
Net income available to TDS common shareholders	$	16		$	287		(94	)%	$	135		$	153		(12	)%

Basic weighted average shares outstanding	113			111			2	%	112			111			1	%
Basic earnings per share available to TDS common shareholders	$	0.14		$	2.59		(95	)%	$	1.20		$	1.39		(14	)%

Diluted weighted average shares outstanding	115			112			3	%	114			112			2	%
Diluted earnings per share available to TDS common shareholders	$	0.14		$	2.54		(94	)%	$	1.17		$	1.37		(15	)%

N/M - Percentage change not meaningful.

Numbers may not foot due to rounding.

End Notes (1) (2) (3) (4) (5) — Explained on page 10 of the release.

Telephone and Data Systems, Inc.

Consolidated Statement of Cash Flows

(Unaudited)



Year Ended December 31,	2018 ⁽¹⁾			2017
(Dollars in millions)
Cash flows from operating activities
Net income	$	175		$	157
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
Depreciation, amortization and accretion	883			844
Bad debts expense	101			95
Stock-based compensation expense	54			46
Deferred income taxes, net	33			(369		)
Equity in earnings of unconsolidated entities	(160		)	(137		)
Distributions from unconsolidated entities	153			136
Loss on impairment of goodwill	—			262
(Gain) loss on asset disposals, net	9			21
(Gain) loss on license sales and exchanges, net	(18		)	(22		)
Other operating activities	4			2
Changes in assets and liabilities from operations
Accounts receivable	(39		)	(61		)
Equipment installment plans receivable	(149		)	(261		)
Inventory	(5		)	6
Accounts payable	2			(7		)
Customer deposits and deferred revenues	8			(4		)
Accrued taxes	(29		)	37
Other assets and liabilities	(5		)	31
Net cash provided by operating activities	1,017			776

Cash flows from investing activities
Cash paid for additions to property, plant and equipment	(776		)	(685		)
Cash paid for acquisitions and licenses	(16		)	(218		)
Cash received for investments	100			—
Cash paid for investments	(17		)	(100		)
Cash received from divestitures and exchanges	29			21
Other investing activities	—			1
Net cash used in investing activities	(680		)	(981		)

Cash flows from financing activities
Repayment of long-term debt	(20		)	(17		)
TDS Common Shares reissued for benefit plans, net of tax payments	42			4
U.S. Cellular Common Shares reissued for benefit plans, net of tax payments	18			1
Dividends paid to TDS shareholders	(72		)	(69		)
Distributions to noncontrolling interests	(6		)	(4		)
Other financing activities	6			8
Net cash used in financing activities	(32		)	(77		)

Net increase (decrease) in cash, cash equivalents and restricted cash	305			(282		)

Cash, cash equivalents and restricted cash
Beginning of period	622			904
End of period	$	927		$	622

End Note (1) — Explained on page 10 of the release.

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS



December 31,	2018		2017
(Dollars in millions)
Current assets
Cash and cash equivalents	$	921	$	619
Short-term investments	17		100
Accounts receivable	1,099		961
Inventory, net	150		145
Prepaid expenses	103		112
Income taxes receivable	12		2
Other current assets	28		27
Total current assets	2,330		1,966

Assets held for sale	54		10

Licenses	2,195		2,232

Goodwill	509		509

Other intangible assets, net	253		279

Investments in unconsolidated entities	480		453

Property, plant and equipment, net	3,346		3,424

Other assets and deferred charges	616		422

Total assets	$	9,783	$	9,295

Telephone and Data Systems, Inc.

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY



December 31,	2018			2017
(Dollars in millions, except per share amounts)
Current liabilities
Current portion of long-term debt	$	21		$	20
Accounts payable	365			368
Customer deposits and deferred revenues	197			223
Accrued interest	11			11
Accrued taxes	44			64
Accrued compensation	127			126
Other current liabilities	114			106
Total current liabilities	879			918

Liabilities held for sale	1			—

Deferred liabilities and credits
Deferred income tax liability, net	640			552
Other deferred liabilities and credits	541			495

Long-term debt, net	2,418			2,437

Noncontrolling interests with redemption features	11			1

Equity
TDS shareholders' equity
Series A Common and Common Shares, par value $.01	1			1
Capital in excess of par value	2,432			2,413
Treasury shares, at cost	(519		)	(669		)
Accumulated other comprehensive loss	(10		)	(1		)
Retained earnings	2,656			2,525
Total TDS shareholders' equity	4,560			4,269

Noncontrolling interests	733			623

Total equity	5,293			4,892

Total liabilities and equity	$	9,783		$	9,295


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


⁽²⁾	TDS re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, changed its reportable segments. Effective January 1, 2018, HMS is no longer reported under TDS Telecom. Prior periods have been recast to conform to the revised presentation.


⁽³⁾	Consists of TDS corporate, intercompany eliminations and all other business operations not included in the U.S. Cellular and TDS Telecom segments.

⁽⁴⁾

During the third quarter of 2017, U.S. Cellular recorded a goodwill impairment of $370 million while TDS recorded a goodwill impairment of the U.S. Cellular reporting unit of $227 million. Prior to 2009, TDS accounted for U.S. Cellular's share repurchases as step acquisitions, allocating a portion of the share repurchase value to TDS' Goodwill. Further, goodwill of the U.S. Cellular reporting unit was impaired at the TDS level in 2003 but not at U.S. Cellular. Consequently, U.S. Cellular's goodwill on a stand-alone basis and any resulting impairments of goodwill does not equal the TDS consolidated goodwill related to U.S. Cellular. The TDS adjustment of $143 million is included in "All other". During the third quarter of 2017, TDS also recorded a goodwill impairment of $35 million related to its HMS operations included in "All other".


⁽⁵⁾	ASU 2017-07, regarding net periodic pension cost and net periodic postretirement benefit cost was adopted January 1, 2018, and applied retrospectively. All prior period numbers have been recast to conform to this standard.

Balance Sheet Highlights

(Unaudited)



	December 31, 2018
	U.S. Cellular		TDS Telecom		TDS Corporate & Other		Intercompany Eliminations			TDS Consolidated
(Dollars in millions)
Cash and cash equivalents	$	580	$	23	$	318	$	—		$	921
Affiliated cash investments	—		460		—		(460		)	—
	$	580	$	483	$	318	$	(460	)	$	921

Licenses, goodwill and other intangible assets	$	2,186	$	754	$	17	$	—		$	2,957
Investment in unconsolidated entities	441		4		42		(7		)	480
	$	2,627	$	758	$	59	$	(7	)	$	3,437

Property, plant and equipment, net	$	2,202	$	1,017	$	127	$	—		$	3,346

Long-term debt, net:
Current portion	$	19	$	1	$	1	$	—		$	21
Non-current portion	1,605		2		811		—			2,418
	$	1,624	$	3	$	812	$	—		$	2,439

TDS Telecom Highlights

(Unaudited)



	Three Months Ended December 31,						Year Ended December 31,
	2018 ⁽¹⁾		2017		2018 vs. 2017		2018 ⁽¹⁾			2017		2018 vs. 2017
(Dollars in millions)
Wireline
Operating revenues
Residential	$	80	$	79	2	%	$	321		$	319	1	%
Commercial	45		48		(8	)%	184			199		(7	)%
Wholesale	48		48		(1	)%	191			195		(2	)%
Total service revenues	173		175		(2	)%	697			713		(2	)%
Equipment and product sales	—		—		53	%	2			1		35	%
	173		176		(2	)%	699			714		(2	)%
Operating expenses
Cost of services	67		64		5	%	266			258		3	%
Cost of equipment and products	—		—		(20	)%	1			2		(31	)%
Selling, general and administrative expenses ⁽²⁾	51		47		9	%	197			194		1	%
Expenses excluding depreciation, amortization and accretion	118		111		6	%	465			454		2	%
Depreciation, amortization and accretion	35		37		(6	)%	142			151		(5	)%
(Gain) loss on asset disposals, net	—		—		N/M		(3		)	1		N/M
	153		149		3	%	604			606		–
Operating income ⁽²⁾	$	20	$	27	(27	)%	$	95		$	108	(13	)%

Cable
Operating revenues
Residential	$	48	$	44	10	%	$	188		$	169	11	%
Commercial	12		10		19	%	42			37		13	%
	60		54		11	%	230			206		12	%
Operating expenses
Cost of services	26		25		3	%	104			98		6	%
Selling, general and administrative expenses	15		15		(1	)%	57			54		6	%
Expenses excluding depreciation, amortization and accretion	41		40		1	%	161			151		6	%
Depreciation, amortization and accretion	17		12		42	%	69			44		57	%
(Gain) loss on asset disposals, net	—		1		(72	)%	1			2		(33	)%
	58		53		9	%	231			198		17	%
Operating income (loss)	$	2	$	1	N/M		$	(2	)	$	8	N/M

Total TDS Telecom operating income ⁽²⁾⁽³⁾	$	22	$	28	(22	)%	$	93		$	116	(20	)%

N/M - Percentage change not meaningful.

Numbers may not foot due to rounding.


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


⁽²⁾	ASU 2017-07, regarding net periodic pension cost and net periodic postretirement benefit cost was adopted as of January 1, 2018, and applied retrospectively. All prior period numbers have been recast to conform to this standard.


⁽³⁾	TDS re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, changed its reportable segments. Effective January 1, 2018, HMS is no longer reported under TDS Telecom. Prior periods have been recast to conform to the revised presentation.

Telephone and Data Systems, Inc.

Financial Measures and Reconciliations

Free Cash Flow



	Three Months Ended December 31,						Year Ended December 31,
	2018			2017			2018		2017
(Dollars in millions)
Cash flows from operating activities (GAAP)	$	205		$	155		$	1,017	$	776
Less: Cash paid for additions to property, plant and equipment	330			287			776		685
Free cash flow (Non-GAAP) ⁽¹⁾	$	(125	)	$	(132	)	$	241	$	91


⁽¹⁾	Free cash flow is a non-GAAP financial measure which TDS believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment.

Non-GAAP Adjustments

The following non-GAAP financial measures present certain information in the table below excluding the effect of the goodwill impairment charge, enactment of H.R.1, originally referred to as the Tax Cuts and Jobs Act (the Tax Act), and other related tax effects and noncontrolling interests impacts. The goodwill impairment charge, which occurred in the third quarter of 2017, and the deferred tax benefit are being excluded in this presentation, as they cause current operations of TDS not to be comparable with prior periods. TDS believes these measures may be useful to investors and other users of its financial information when comparing the current period financial results with periods that were impacted by such items.



	Three Months Ended December 31,					Year Ended December 31,
	2018		2017			2018		2017
(Dollars in millions, except per share amounts)
Net income available to TDS common shareholders (GAAP)	$	16	$	287		$	135	$	153
Adjustments:
Loss on impairment of goodwill	—		—			—		262
Tax benefit on impairment of goodwill ⁽¹⁾	—		—			—		(22		)
Noncontrolling interests impact ⁽²⁾	—		—			—		(52		)
Subtotal of Non-GAAP goodwill adjustments	—		—			—		188

Effect of the Tax Act	—		(327		)	—		(327		)
Noncontrolling interests impact ⁽²⁾	—		45			—		45
Subtotal of Non-GAAP tax reform adjustments	—		(282		)	—		(282		)

Subtotal of Non-GAAP adjustments	—		(282		)	—		(94		)
Net income available to TDS common shareholders excluding adjustments (Non-GAAP)	$	16	$	6		$	135	$	59

Diluted earnings per share available to TDS common shareholders (GAAP)	$	0.14	$	2.54		$	1.17	$	1.37
Adjustments:
Loss in impairment of goodwill	—		—			—		2.34
Tax benefit on impairment of goodwill ⁽¹⁾	—		—			—		(0.20		)
Noncontrolling interests impact on goodwill impairment⁽²⁾	—		—			—		(0.46		)
Effect of the Tax Act	—		(2.91		)	—		(2.92		)
Noncontrolling interests impact of the Tax Act⁽²⁾	—		0.42			—		0.40
Diluted earnings per share available to TDS common shareholders excluding adjustments (Non-GAAP)	$	0.14	$	0.05		$	1.17	$	0.53

Numbers may not foot due to rounding.


⁽¹⁾	Tax benefit represents the amount associated with the tax-amortizable portion of the loss on goodwill impairment.


⁽²⁾	Noncontrolling interests, net of tax, includes noncontrolling public shareholders' share in U.S. Cellular for similar adjustments recorded on U.S. Cellular's consolidated financial statements.

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 herein, are non-GAAP financial measures which U.S. Cellular believes are useful to investors and other users of its financial information in showing trends in both service and equipment and product sales revenues received from customers.



For the Quarter Ended	12/31/2018⁽¹⁾		9/30/2018⁽¹⁾		6/30/2018⁽¹⁾		3/31/2018⁽¹⁾		12/31/2017
(Dollars and connection counts in millions)
Calculation of Postpaid ARPU
Postpaid service revenues	$	611	$	607	$	600	$	598	$	598
Average number of postpaid connections	4.47		4.47		4.47		4.50		4.52
Number of months in period	3		3		3		3		3
Postpaid ARPU (GAAP metric)	$	45.58	$	45.31	$	44.74	$	44.34	$	44.12

Calculation of Postpaid ABPU
Postpaid service revenues	$	611	$	607	$	600	$	598	$	598
Equipment installment plan billings	199		189		174		172		170
Total billings to postpaid connections	$	810	$	796	$	774	$	770	$	768
Average number of postpaid connections	4.47		4.47		4.47		4.50		4.52
Number of months in period	3		3		3		3		3
Postpaid ABPU (Non-GAAP metric)	$	60.46	$	59.41	$	57.75	$	57.10	$	56.69

Calculation of Postpaid ARPA
Postpaid service revenues	$	611	$	607	$	600	$	598	$	598
Average number of postpaid accounts	1.70		1.70		1.69		1.69		1.69
Number of months in period	3		3		3		3		3
Postpaid ARPA (GAAP metric)	$	119.60	$	119.42	$	118.57	$	118.22	$	118.05

Calculation of Postpaid ABPA
Postpaid service revenues	$	611	$	607	$	600	$	598	$	598
Equipment installment plan billings	199		189		174		172		170
Total billings to postpaid accounts	$	810	$	796	$	774	$	770	$	768
Average number of postpaid accounts	1.70		1.70		1.69		1.69		1.69
Number of months in period	3		3		3		3		3
Postpaid ABPA (Non-GAAP metric)	$	158.66	$	156.57	$	153.03	$	152.26	$	151.68

Numbers may not foot due to rounding.


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