8-K
TELEPHONE & DATA SYSTEMS INC /DE/ (TDS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 5, 2020
TELEPHONE AND DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-14157 | 36-2669023 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (312) 630-1900
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||
|---|---|---|---|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | Securities registered pursuant to Section 12(b) of the Act: | |||
| --- | --- | --- | |||
| Title of each class | Trading Symbol | Name of each exchange on which registered | |||
| Common Shares, $.01 par value | TDS | New York Stock Exchange | |||
| 6.625% Senior Notes due 2045 | TDI | New York Stock Exchange | |||
| 6.875% Senior Notes due 2059 | TDE | New York Stock Exchange | |||
| 7.000% Senior Notes due 2060 | TDJ | New York Stock Exchange | |||
| 5.875% Senior Notes due 2061 | TDA | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| ☐ | 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. | | --- | --- |
Item 2.02. Results of Operations and Financial Condition
On November 5, 2020, Telephone and Data Systems, Inc. (TDS) issued a news release announcing its results of operations for the period ended September 30, 2020. A copy of the news release is attached hereto as Exhibit 99.1 and incorporated by reference herein.
The information in this Item 2.02 of Form 8-K is being “furnished” and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor will any such information or exhibits be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits
(d) The following exhibits are being filed herewith:
| Exhibit Number | Description of Exhibits |
|---|---|
| 99.1 | Earnings Press Release dated November 5, 2020 |
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. |
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 hereunto duly authorized.
| TELEPHONE AND DATA SYSTEMS, INC. | |||
|---|---|---|---|
| (Registrant) | |||
| Date: | November 5, 2020 | By: | /s/ Peter L. Sereda |
| Peter L. Sereda | |||
| Executive Vice President and Chief Financial Officer | |||
| (principal financial officer) |
Document
Exhibit 99.1 NEWS RELEASE
As previously announced, TDS will hold a teleconference November 6, 2020, at 9:00 a.m. CST. Listen to the call live via the Events & Presentations page of investors.tdsinc.com.
FOR IMMEDIATE RELEASE
TDS reports third quarter 2020 results
UScellular and TDS Telecom report strong subscriber and financial results driving increases to 2020 guidance
CHICAGO (November 5, 2020) — Telephone and Data Systems, Inc. (NYSE:TDS) reported total operating revenues of $1,324 million for the third quarter of 2020, versus $1,321 million for the same period one year ago. Net income attributable to TDS shareholders and related diluted earnings per share were $78 million and $0.66, respectively, for the third quarter of 2020 compared to $18 million and $0.15, respectively, in the same period one year ago.
"The TDS Enterprise had a strong quarter," said LeRoy T. Carlson, Jr., TDS President and CEO. "Impressive financial results produced by UScellular and TDS Telecom demonstrate how much our customers value our essential communications and high-quality data services. Both businesses have lifted their expectations for 2020 financial performance. Our associates continue to show exceptional dedication and resilience in keeping our operations and networks performing at top levels for our customers.
"At UScellular, churn remained very low and retail net additions grew through an increase in connected devices. The positive impact of higher ARPU, combined with operational and cost discipline throughout the quarter, helped drive a strong increase in profitability, compared to the same period a year ago. LT Therivel has successfully transitioned into his new role as CEO. During the quarter UScellular successfully completed a 5G millimeter wave test data session showing significant expansion of signal reach and speed. This is important in enabling UScellular to move faster and more cost-efficiently in its 5G evolution and it will also leverage this technology to better serve its customers and help close the digital divide. UScellular has launched a new logo and brand identity with a modern look – a visual signal of how they are working to expand their brand appeal.
"At TDS Telecom, our fiber investments are delivering results. TDS Telecom grew its Wireline video and broadband connections, and combined with demand for higher broadband speeds, drove increases in average residential revenue per connection and total residential revenue. TDS Telecom continues its fiber strategy and has now deployed fiber to 280,000 or 34% of its wireline service addresses. Bolstered by the Continuum acquisition, cable operations produced an exceptional quarter with increased broadband connections generating a 19% growth in revenues and a strong increase in profitability."
2020 Estimated Results
TDS’ current estimates of full-year 2020 results for UScellular and TDS Telecom are shown below. Such estimates represent management’s view as of November 5, 2020 and should not be assumed to be current as of any future date. TDS undertakes no duty to update such estimates, whether as a result of new information, future events, or otherwise. There can be no assurance that final results will not differ materially from estimated results.
| 2020 Estimated Results | ||||||
|---|---|---|---|---|---|---|
| UScellular | Previous | Current | ||||
| (Dollars in millions) | ||||||
| Service revenues | $3,000-$3,100 | $3,025-$3,075 | ||||
| Adjusted OIBDA1 | $725-$850 | $800-$875 | ||||
| Adjusted EBITDA1 | $900-$1,025 | $975-$1,050 | ||||
| Capital expenditures | $850-$950 | Unchanged | TDS Telecom | Previous | Current | |
| --- | --- | --- | ||||
| (Dollars in millions) | ||||||
| Total operating revenues | $950-$1,000 | Unchanged | ||||
| Adjusted OIBDA1 | $280-$310 | $300-$320 | ||||
| Adjusted EBITDA1 | $290-$320 | $305-$325 | ||||
| Capital expenditures | $300-$350 | Unchanged |
The following tables provide reconciliations of Net income to Adjusted OIBDA and Adjusted EBITDA for 2020 estimated results, actual results for the nine months ended September 30, 2020, and actual results for the year ended December 31, 2019. In providing 2020 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.
| 2020 Estimated Results | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| UScellular | TDS Telecom | ||||||||
| (Dollars in millions) | |||||||||
| Net income (GAAP) | N/A | N/A | |||||||
| Add back: | |||||||||
| Income tax expense | N/A | N/A | |||||||
| Income before income taxes (GAAP) | $165-$240 | $95-$115 | |||||||
| Add back: | |||||||||
| Interest expense | 110 | — | |||||||
| Depreciation, amortization and accretion expense | 680 | 210 | |||||||
| EBITDA (Non-GAAP)1 | $955-$1,030 | $305-$325 | |||||||
| Add back or deduct: | |||||||||
| (Gain) loss on asset disposals, net | 20 | — | |||||||
| Adjusted EBITDA (Non-GAAP)1 | $975-$1,050 | $305-$325 | |||||||
| Deduct: | |||||||||
| Equity in earnings of unconsolidated entities | 170 | — | |||||||
| Interest and dividend income | 5 | 5 | |||||||
| Adjusted OIBDA (Non-GAAP)1 | $800-$875 | $300-$320 | |||||||
| Actual Results | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | ||
| Nine Months Ended<br>September 30, 2020 | Year Ended<br>December 31, 2019 | ||||||||
| UScellular | TDS <br>Telecom | UScellular | TDS<br><br>Telecom | ||||||
| (Dollars in millions) | |||||||||
| Net income (GAAP) | $ | 227 | $ | 81 | $ | 133 | $ | 92 | |
| Add back: | |||||||||
| Income tax expense | 11 | 13 | 52 | 30 | |||||
| Income before income taxes (GAAP) | $ | 238 | $ | 94 | $ | 185 | $ | 122 | |
| Add back: | |||||||||
| Interest expense | 76 | (3) | 110 | (3) | |||||
| Depreciation, amortization and accretion expense | 516 | 152 | 702 | 200 | |||||
| EBITDA (Non-GAAP)1 | $ | 830 | $ | 243 | $ | 997 | $ | 320 | |
| Add back or deduct: | |||||||||
| (Gain) loss on asset disposals, net | 14 | 1 | 19 | (7) | |||||
| (Gain) loss on sale of business and other exit costs, net | — | — | (1) | — | |||||
| (Gain) loss on investments | (3) | — | — | — | |||||
| Adjusted EBITDA (Non-GAAP)1 | $ | 841 | $ | 243 | $ | 1,015 | $ | 313 | |
| Deduct: | |||||||||
| Equity in earnings of unconsolidated entities | 137 | — | 166 | — | |||||
| Interest and dividend income | 6 | 4 | 17 | 12 | |||||
| Other, net | — | (1) | — | — | |||||
| Adjusted OIBDA (Non-GAAP)1 | $ | 698 | $ | 240 | $ | 832 | $ | 300 |
Numbers may not foot due to rounding.
1EBITDA, 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 before income taxes. Additional information and reconciliations related to Non-GAAP financial measures for September 30, 2020, can be found on TDS' website at investors.tdsinc.com.
Conference Call Information
TDS will hold a conference call on November 6, 2020 at 9:00 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/1145/38510.
▪Access the call by phone at (833) 968-2187, conference ID: 7289911.
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, video and voice; and hosted and managed services to approximately 6 million connections nationwide through its businesses, UScellular, TDS Telecom, BendBroadband and OneNeck IT Solutions. Founded in 1969 and headquartered in Chicago, TDS employed 9,300 people as of September 30, 2020.
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
jane.mccahon@tdsinc.com
Julie D. Mathews, IRC, Director - Investor Relations
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: the impact, duration and severity of the COVID-19 pandemic; 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 UScellular indebtedness or comply with the terms of debt covenants; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the ability to obtain access to adequate radio spectrum to meet current or anticipated future needs, including participation in FCC auctions; the state and federal regulatory environment; the ability to attract people of outstanding talent throughout all levels of the organization; conditions in the U.S. telecommunications industry; TDS’ smaller scale relative to larger competitors; changes in demand, consumer preferences, price competition, or churn rates; advances in technology; the value of assets and investments; impacts of costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties or licenses and/or expansion of TDS’ businesses; the ability of the company to successfully construct and manage its networks; difficulties involving third parties; cyber-attacks or other breaches of network or information technology security; changes in facts and circumstances that could require TDS to record adjustments to amounts reflected in the financial statements; disruption in credit or other financial markets; deterioration of U.S. or global economic conditions; pending and future litigation. Investors are encouraged to consider these and other risks and uncertainties that are more fully described under “Risk Factors” in the most recent filing of TDS’ Form 10-K, as updated by any TDS Form 10-Q filed subsequent to such Form 10-K.
The impact of the COVID-19 pandemic on TDS' business is uncertain, but depending on its duration and severity it could have a material adverse effect on TDS' business, financial condition or results of operations.
The impact of the global spread of COVID-19 on TDS' future operations is uncertain. Public health emergencies, such as COVID-19, pose the risk that TDS or its associates, agents, partners and suppliers may be unable to conduct business activities for an extended period of time and/or provide the level of service expected. TDS' ability to attract customers, maintain an adequate supply chain and execute on its business strategies and initiatives could be negatively impacted by this outbreak. Additionally, COVID-19 has caused and could continue to cause increased unemployment, economic downturn and credit market deterioration, all of which could negatively impact TDS. The extent of the impact of COVID-19 on TDS' business, financial condition and results of operations will depend on future circumstances, including the severity of the disease, the duration of the outbreak, actions taken by governmental authorities and other possible direct and indirect consequences, all of which are uncertain and cannot be predicted.
For more information about TDS and its subsidiaries, visit:
TDS: www.tdsinc.com
UScellular: www.uscellular.com
TDS Telecom: www.tdstelecom.com
OneNeck IT Solutions: www.oneneck.com
| United States Cellular Corporation | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Summary Operating Data (Unaudited) | |||||||||||||||
| As of or for the Quarter Ended | 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | ||||||||||
| Retail Connections | |||||||||||||||
| Postpaid | |||||||||||||||
| Total at end of period | 4,401,000 | 4,372,000 | 4,359,000 | 4,383,000 | 4,395,000 | ||||||||||
| Gross additions | 168,000 | 129,000 | 132,000 | 170,000 | 163,000 | ||||||||||
| Feature phones | 4,000 | 3,000 | 2,000 | 2,000 | 3,000 | ||||||||||
| Smartphones | 98,000 | 82,000 | 88,000 | 128,000 | 121,000 | ||||||||||
| Connected devices | 66,000 | 44,000 | 42,000 | 40,000 | 39,000 | ||||||||||
| Net additions (losses) | 28,000 | 12,000 | (26,000) | (12,000) | (19,000) | ||||||||||
| Feature phones | (8,000) | (8,000) | (10,000) | (11,000) | (11,000) | ||||||||||
| Smartphones | 8,000 | 11,000 | (10,000) | 13,000 | 9,000 | ||||||||||
| Connected devices | 28,000 | 9,000 | (6,000) | (14,000) | (17,000) | ||||||||||
| ARPU1 | $ | 47.10 | $ | 46.24 | $ | 47.23 | $ | 46.57 | $ | 46.16 | |||||
| ARPA2 | $ | 123.27 | $ | 120.70 | $ | 122.92 | $ | 120.99 | $ | 119.87 | |||||
| Churn rate3 | 1.06 | % | 0.89 | % | 1.21 | % | 1.38 | % | 1.38 | % | |||||
| Handsets | 0.88 | % | 0.71 | % | 0.95 | % | 1.11 | % | 1.09 | % | |||||
| Connected devices | 2.35 | % | 2.24 | % | 3.11 | % | 3.44 | % | 3.44 | % | |||||
| Prepaid | |||||||||||||||
| Total at end of period | 506,000 | 496,000 | 494,000 | 506,000 | 510,000 | ||||||||||
| Gross additions | 65,000 | 62,000 | 57,000 | 63,000 | 70,000 | ||||||||||
| Net additions (losses) | 11,000 | 2,000 | (12,000) | (3,000) | 9,000 | ||||||||||
| ARPU1 | $ | 35.45 | $ | 34.89 | $ | 34.07 | $ | 34.11 | $ | 34.35 | |||||
| Churn rate3 | 3.59 | % | 4.05 | % | 4.67 | % | 4.40 | % | 4.03 | % | |||||
| Total connections at end of period4 | 4,962,000 | 4,919,000 | 4,903,000 | 4,941,000 | 4,957,000 | ||||||||||
| Market penetration at end of period | |||||||||||||||
| Consolidated operating population | 31,314,000 | 31,292,000 | 31,292,000 | 30,740,000 | 31,310,000 | ||||||||||
| Consolidated operating penetration5 | 16 | % | 16 | % | 16 | % | 16 | % | 16 | % | |||||
| Capital expenditures (millions) | $ | 216 | $ | 168 | $ | 236 | $ | 243 | $ | 170 | |||||
| Total cell sites in service | 6,758 | 6,673 | 6,629 | 6,578 | 6,554 | ||||||||||
| Owned towers | 4,246 | 4,208 | 4,184 | 4,166 | 4,123 |
1Average 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.
2Average 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.
3Churn rate represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.
4Includes reseller and other connections.
5Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen.
| TDS Telecom | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Summary Operating Data (Unaudited) | ||||||||||
| As of or for the Quarter Ended | 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | |||||
| TDS Telecom | ||||||||||
| Wireline | ||||||||||
| Residential connections | ||||||||||
| Voice1 | 260,000 | 261,800 | 259,100 | 262,100 | 266,100 | |||||
| Broadband2 | 260,700 | 255,100 | 242,700 | 241,300 | 242,200 | |||||
| Video3 | 62,300 | 61,400 | 59,000 | 58,500 | 57,300 | |||||
| Wireline residential connections | 583,000 | 578,300 | 560,700 | 561,900 | 565,600 | |||||
| Total residential revenue per connection4 | $ | 51.45 | $ | 49.73 | $ | 50.12 | $ | 49.11 | $ | 49.02 |
| Commercial connections | ||||||||||
| Voice1 | 109,400 | 112,400 | 114,400 | 117,800 | 121,200 | |||||
| Broadband2 | 20,800 | 20,700 | 20,500 | 20,400 | 20,600 | |||||
| managedIP5 | 114,900 | 115,500 | 118,300 | 121,200 | 124,500 | |||||
| Video3 | 200 | 200 | 100 | 100 | 400 | |||||
| Wireline commercial connections | 245,400 | 248,700 | 253,400 | 259,600 | 266,600 | |||||
| Total Wireline connections | 828,400 | 827,000 | 814,200 | 821,500 | 832,300 | |||||
| Cable | ||||||||||
| Cable residential and commercial connections | ||||||||||
| Broadband6 | 206,200 | 203,700 | 196,800 | 193,500 | 174,900 | |||||
| Video7 | 101,800 | 103,400 | 105,100 | 106,600 | 98,000 | |||||
| Voice8 | 67,700 | 69,000 | 68,900 | 69,500 | 63,900 | |||||
| managedIP5 | 1,800 | 1,800 | 1,400 | 1,300 | 1,200 | |||||
| Total Cable connections | 377,400 | 378,000 | 372,300 | 370,900 | 338,000 |
Numbers may not foot due to rounding.
1The individual circuits connecting a customer to Wireline’s central office facilities that provide voice services.
2The number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies.
3The number of Wireline customers provided video services.
4Total 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.
5The number of telephone handsets, data lines and IP trunks providing communications using IP networking technology.
6Billable number of lines into a building for high-speed data services.
7Generally, 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.
8Billable number of lines into a building for voice services.
| TDS Telecom | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Capital Expenditures (Unaudited) | ||||||||||||
| Quarter Ended | 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | |||||||
| (Dollars in millions) | ||||||||||||
| Wireline | $ | 74 | $ | 58 | $ | 39 | $ | 98 | $ | 61 | ||
| Cable | 18 | 17 | 15 | 26 | 20 | |||||||
| Total TDS Telecom | $ | 92 | $ | 75 | $ | 54 | $ | 124 | $ | 81 | ||
| Telephone and Data Systems, Inc. | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Consolidated Statement of Operations Highlights | ||||||||||||
| (Unaudited) | ||||||||||||
| Three Months Ended<br>September 30, | Nine Months Ended<br>September 30, | |||||||||||
| 2020 | 2019 | 2020<br>vs. 2019 | 2020 | 2019 | 2020<br>vs. 2019 | |||||||
| (Dollars and shares in millions, except per share amounts) | ||||||||||||
| Operating revenues | ||||||||||||
| UScellular | $ | 1,027 | $ | 1,031 | – | $ | 2,964 | $ | 2,970 | – | ||
| TDS Telecom | 247 | 231 | 7 | % | 728 | 695 | 5 | % | ||||
| All Other1 | 50 | 59 | (16) | % | 157 | 175 | (10) | % | ||||
| 1,324 | 1,321 | – | 3,849 | 3,840 | – | |||||||
| Operating expenses | ||||||||||||
| UScellular | ||||||||||||
| Expenses excluding depreciation, amortization and accretion | 795 | 823 | (3) | % | 2,266 | 2,319 | (2) | % | ||||
| Depreciation, amortization and accretion | 161 | 181 | (11) | % | 516 | 524 | (2) | % | ||||
| (Gain) loss on asset disposals, net | 6 | 5 | 15 | % | 14 | 13 | 10 | % | ||||
| (Gain) loss on sale of business and other exit costs, net | — | — | N/M | — | (1) | N/M | ||||||
| (Gain) loss on license sales and exchanges, net | — | 2 | N/M | — | — | N/M | ||||||
| 962 | 1,011 | (5) | % | 2,796 | 2,855 | (2) | % | |||||
| TDS Telecom | ||||||||||||
| Expenses excluding depreciation, amortization and accretion | 169 | 162 | 4 | % | 488 | 467 | 4 | % | ||||
| Depreciation, amortization and accretion | 49 | 50 | – | 152 | 150 | 2 | % | |||||
| (Gain) loss on asset disposals, net | — | — | 65 | % | 1 | (7) | N/M | |||||
| 219 | 212 | 3 | % | 641 | 609 | 5 | % | |||||
| All Other1 | ||||||||||||
| Expenses excluding depreciation and amortization | 50 | 62 | (19) | % | 157 | 182 | (13) | % | ||||
| Depreciation and amortization | 7 | 6 | (26) | % | 17 | 23 | (24) | % | ||||
| (Gain) loss on asset disposals, net | — | 1 | (96) | % | — | (1) | 71 | % | ||||
| 56 | 69 | (20) | % | 174 | 205 | (14) | % | |||||
| Total operating expenses | 1,237 | 1,292 | (4) | % | 3,611 | 3,669 | (2) | % | ||||
| Operating income (loss) | ||||||||||||
| UScellular | 65 | 20 | N/M | 168 | 115 | 46 | % | |||||
| TDS Telecom | 28 | 20 | 44 | % | 87 | 86 | 2 | % | ||||
| All Other1 | (6) | (11) | 45 | % | (17) | (30) | 39 | % | ||||
| 87 | 29 | N/M | 238 | 171 | 39 | % | ||||||
| Investment and other income (expense) | ||||||||||||
| Equity in earnings of unconsolidated entities | 48 | 44 | 10 | % | 138 | 129 | 7 | % | ||||
| Interest and dividend income | 4 | 7 | (49) | % | 12 | 24 | (52) | % | ||||
| Gain (loss) on investments | 3 | — | N/M | 3 | — | N/M | ||||||
| Interest expense | (43) | (42) | (1) | % | (119) | (128) | 8 | % | ||||
| Other, net | — | — | (60) | % | (1) | — | (58) | % | ||||
| Total investment and other income | 12 | 9 | 38 | % | 33 | 25 | 35 | % | ||||
| Income before income taxes | 99 | 38 | N/M | 271 | 196 | 38 | % | |||||
| Income tax expense | 6 | 15 | (61) | % | 17 | 64 | (73) | % | ||||
| Net income | 93 | 23 | N/M | 254 | 132 | 92 | % | |||||
| Less: Net income attributable to noncontrolling interests, net of tax | 15 | 5 | N/M | 42 | 22 | 87 | % | |||||
| Net income attributable to TDS shareholders | $ | 78 | $ | 18 | N/M | $ | 212 | $ | 110 | 93 | % | |
| Basic weighted average shares outstanding | 114 | 115 | – | 114 | 114 | – | ||||||
| Basic earnings per share attributable to TDS shareholders | $ | 0.68 | $ | 0.15 | N/M | $ | 1.85 | $ | 0.96 | 93 | % | |
| Diluted weighted average shares outstanding | 115 | 116 | – | 115 | 116 | – | ||||||
| Diluted earnings per share attributable to TDS shareholders | $ | 0.66 | $ | 0.15 | N/M | $ | 1.81 | $ | 0.93 | 94 | % |
N/M - Percentage change not meaningful.
Numbers may not foot due to rounding.
1Consists of TDS corporate, intercompany eliminations and all other business operations not included in the UScellular and TDS Telecom segments.
| Telephone and Data Systems, Inc. | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated Statement of Cash Flows | ||||||||||||
| (Unaudited) | ||||||||||||
| Nine Months Ended<br>September 30, | ||||||||||||
| 2020 | 2019 | |||||||||||
| (Dollars in millions) | ||||||||||||
| Cash flows from operating activities | ||||||||||||
| Net income | $ | 254 | $ | 132 | ||||||||
| Add (deduct) adjustments to reconcile net income to net cash flows from operating activities | ||||||||||||
| Depreciation, amortization and accretion | 685 | 697 | ||||||||||
| Bad debts expense | 55 | 80 | ||||||||||
| Stock-based compensation expense | 39 | 47 | ||||||||||
| Deferred income taxes, net | 217 | 23 | ||||||||||
| Equity in earnings of unconsolidated entities | (138) | (129) | ||||||||||
| Distributions from unconsolidated entities | 118 | 100 | ||||||||||
| (Gain) loss on asset disposals, net | 15 | 5 | ||||||||||
| (Gain) loss on sale of business and other exit costs, net | — | (1) | ||||||||||
| (Gain) loss on investments | (3) | — | ||||||||||
| Other operating activities | 1 | 4 | ||||||||||
| Changes in assets and liabilities from operations | ||||||||||||
| Accounts receivable | 26 | (42) | ||||||||||
| Equipment installment plans receivable | 13 | (42) | ||||||||||
| Inventory | 2 | 3 | ||||||||||
| Accounts payable | 95 | (4) | ||||||||||
| Customer deposits and deferred revenues | (21) | (2) | ||||||||||
| Accrued taxes | (156) | 37 | ||||||||||
| Accrued interest | 14 | 9 | ||||||||||
| Other assets and liabilities | (50) | (43) | ||||||||||
| Net cash provided by operating activities | 1,166 | 874 | ||||||||||
| Cash flows from investing activities | ||||||||||||
| Cash paid for additions to property, plant and equipment | (914) | (631) | ||||||||||
| Cash paid for licenses | (169) | (257) | ||||||||||
| Cash received from investments | 1 | 29 | ||||||||||
| Cash paid for investments | (1) | (11) | ||||||||||
| Cash received from divestitures and exchanges | 1 | 32 | ||||||||||
| Other investing activities | 4 | 1 | ||||||||||
| Net cash used in investing activities | (1,078) | (837) | ||||||||||
| Cash flows from financing activities | ||||||||||||
| Issuance of long-term debt | 675 | — | ||||||||||
| Repayment of long-term debt | (8) | (16) | ||||||||||
| TDS Common Shares reissued for benefit plans, net of tax payments | (3) | (6) | ||||||||||
| UScellular Common Shares reissued for benefit plans, net of tax payments | (11) | (8) | ||||||||||
| Repurchase of TDS Common Shares | (14) | — | ||||||||||
| Repurchase of UScellular Common Shares | (23) | (21) | ||||||||||
| Dividends paid to TDS shareholders | (58) | (57) | ||||||||||
| Payment of debt issuance costs | (23) | (1) | ||||||||||
| Distributions to noncontrolling interests | (2) | (3) | ||||||||||
| Other financing activities | 1 | 9 | ||||||||||
| Net cash provided by (used in) financing activities | 534 | (103) | ||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 622 | (66) | ||||||||||
| Cash, cash equivalents and restricted cash | ||||||||||||
| Beginning of period | 474 | 927 | ||||||||||
| End of period | $ | 1,096 | $ | 861 | ||||||||
| Telephone and Data Systems, Inc. | ||||||||||||
| --- | --- | --- | --- | --- | ||||||||
| Consolidated Balance Sheet Highlights | ||||||||||||
| (Unaudited) | ||||||||||||
| ASSETS | ||||||||||||
| September 30, 2020 | December 31, 2019 | |||||||||||
| (Dollars in millions) | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | $ | 1,076 | $ | 465 | ||||||||
| Accounts receivable, net | 1,056 | 1,124 | ||||||||||
| Inventory, net | 164 | 169 | ||||||||||
| Prepaid expenses | 109 | 98 | ||||||||||
| Income taxes receivable | 226 | 36 | ||||||||||
| Other current assets | 39 | 29 | ||||||||||
| Total current assets | 2,670 | 1,921 | ||||||||||
| Assets held for sale | 19 | — | ||||||||||
| Licenses | 2,637 | 2,480 | ||||||||||
| Goodwill | 547 | 547 | ||||||||||
| Other intangible assets, net | 219 | 239 | ||||||||||
| Investments in unconsolidated entities | 508 | 488 | ||||||||||
| Property, plant and equipment, net | 3,727 | 3,527 | ||||||||||
| Operating lease right-of-use assets | 988 | 972 | ||||||||||
| Other assets and deferred charges | 580 | 607 | ||||||||||
| Total assets | $ | 11,895 | $ | 10,781 | ||||||||
| Telephone and Data Systems, Inc. | ||||||||||||
| --- | --- | --- | --- | --- | ||||||||
| Consolidated Balance Sheet Highlights | ||||||||||||
| (Unaudited) | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| September 30, 2020 | December 31, 2019 | |||||||||||
| (Dollars in millions, except per share amounts) | ||||||||||||
| Current liabilities | ||||||||||||
| Current portion of long-term debt | $ | 3 | $ | 10 | ||||||||
| Accounts payable | 399 | 374 | ||||||||||
| Customer deposits and deferred revenues | 168 | 189 | ||||||||||
| Accrued interest | 24 | 11 | ||||||||||
| Accrued taxes | 63 | 41 | ||||||||||
| Accrued compensation | 107 | 121 | ||||||||||
| Short-term operating lease liabilities | 125 | 116 | ||||||||||
| Other current liabilities | 76 | 100 | ||||||||||
| Total current liabilities | 965 | 962 | ||||||||||
| Deferred liabilities and credits | ||||||||||||
| Deferred income tax liability, net | 893 | 676 | ||||||||||
| Long-term operating lease liabilities | 938 | 931 | ||||||||||
| Other deferred liabilities and credits | 530 | 481 | ||||||||||
| Long-term debt, net | 2,970 | 2,316 | ||||||||||
| Noncontrolling interests with redemption features | 10 | 11 | ||||||||||
| Equity | ||||||||||||
| TDS shareholders' equity | ||||||||||||
| Series A Common and Common Shares, par value $0.01 per share | 1 | 1 | ||||||||||
| Capital in excess of par value | 2,479 | 2,468 | ||||||||||
| Treasury shares, at cost | (478) | (479) | ||||||||||
| Accumulated other comprehensive loss | (7) | (9) | ||||||||||
| Retained earnings | 2,809 | 2,672 | ||||||||||
| Total TDS shareholders' equity | 4,804 | 4,653 | ||||||||||
| Noncontrolling interests | 785 | 751 | ||||||||||
| Total equity | 5,589 | 5,404 | ||||||||||
| Total liabilities and equity | $ | 11,895 | $ | 10,781 | ||||||||
| Balance Sheet Highlights | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||
| (Unaudited) | ||||||||||||
| September 30, 2020 | ||||||||||||
| TDS | TDS Corporate | Intercompany | TDS | |||||||||
| UScellular | Telecom | & Other | Eliminations | Consolidated | ||||||||
| (Dollars in millions) | ||||||||||||
| Cash and cash equivalents | $ | 931 | $ | 573 | $ | 147 | $ | (575) | $ | 1,076 | ||
| Licenses, goodwill and other intangible assets | $ | 2,628 | $ | 766 | $ | 9 | $ | — | $ | 3,403 | ||
| Investment in unconsolidated entities | 467 | 4 | 48 | (11) | 508 | |||||||
| $ | 3,095 | $ | 770 | $ | 57 | $ | (11) | $ | 3,911 | |||
| Property, plant and equipment, net | $ | 2,322 | $ | 1,303 | $ | 102 | $ | — | $ | 3,727 | ||
| Long-term debt, net: | ||||||||||||
| Current portion | $ | 2 | $ | — | $ | 1 | $ | — | $ | 3 | ||
| Non-current portion | 2,108 | 4 | 858 | — | 2,970 | |||||||
| $ | 2,110 | $ | 4 | $ | 859 | $ | — | $ | 2,973 | |||
| TDS Telecom Highlights | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Unaudited) | ||||||||||||
| Three Months Ended<br>September 30, | Nine Months Ended<br>September 30, | |||||||||||
| 2020 | 2019 | 2020<br>vs. 2019 | 2020 | 2019 | 2020<br>vs. 2019 | |||||||
| (Dollars in millions) | ||||||||||||
| Wireline | ||||||||||||
| Operating revenues | ||||||||||||
| Residential | $ | 90 | $ | 83 | 8 | % | $ | 260 | $ | 245 | 6 | % |
| Commercial | 38 | 41 | (8) | % | 115 | 127 | (9) | % | ||||
| Wholesale | 45 | 45 | 1 | % | 136 | 139 | (2) | % | ||||
| Total service revenues | 173 | 169 | 2 | % | 511 | 512 | – | |||||
| Equipment and product sales | — | — | 4 | % | 1 | 1 | (30) | % | ||||
| 173 | 169 | 2 | % | 512 | 512 | – | ||||||
| Operating expenses | ||||||||||||
| Cost of services | 69 | 68 | 2 | % | 197 | 195 | 1 | % | ||||
| Cost of equipment and products | — | — | (25) | % | 1 | 1 | (30) | % | ||||
| Selling, general and administrative expenses | 51 | 52 | (3) | % | 148 | 148 | (1) | % | ||||
| Expenses excluding depreciation, amortization and accretion | 120 | 120 | – | 345 | 344 | – | ||||||
| Depreciation, amortization and accretion | 30 | 33 | (8) | % | 94 | 99 | (5) | % | ||||
| (Gain) loss on asset disposals, net | — | — | (70) | % | — | (8) | N/M | |||||
| 150 | 153 | (2) | % | 439 | 435 | 1 | % | |||||
| Operating income | $ | 23 | $ | 16 | 42 | % | $ | 73 | $ | 78 | (6) | % |
| Cable | ||||||||||||
| Operating revenues | ||||||||||||
| Residential | $ | 62 | $ | 52 | 21 | % | $ | 182 | $ | 152 | 20 | % |
| Commercial | 12 | 10 | 13 | % | 34 | 32 | 9 | % | ||||
| 74 | 62 | 19 | % | 216 | 184 | 18 | % | |||||
| Operating expenses | ||||||||||||
| Cost of services | 31 | 27 | 15 | % | 91 | 79 | 15 | % | ||||
| Selling, general and administrative expenses | 18 | 15 | 23 | % | 52 | 44 | 18 | % | ||||
| Expenses excluding depreciation, amortization and accretion | 49 | 42 | 18 | % | 143 | 124 | 16 | % | ||||
| Depreciation, amortization and accretion | 20 | 17 | 15 | % | 59 | 51 | 15 | % | ||||
| (Gain) loss on asset disposals, net | — | — | N/M | 1 | 1 | (14) | % | |||||
| 69 | 59 | 17 | % | 202 | 175 | 15 | % | |||||
| Operating income (loss) | $ | 5 | $ | 3 | 55 | % | $ | 14 | $ | 8 | 76 | % |
| Total TDS Telecom operating income | $ | 28 | $ | 20 | 44 | % | $ | 87 | $ | 86 | 2 | % |
N/M - Percentage change not meaningful.
Numbers may not foot due to rounding.
Telephone and Data Systems, Inc.
Financial Measures and Reconciliations
(Unaudited)
Free Cash Flow
| Three Months Ended<br>September 30, | Nine Months Ended<br>September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| (Dollars in millions) | ||||||||
| Cash flows from operating activities (GAAP) | $ | 359 | $ | 282 | $ | 1,166 | $ | 874 |
| Less: Cash paid for additions to property, plant and equipment | 304 | 238 | 914 | 631 | ||||
| Free cash flow (Non-GAAP)1 | $ | 55 | $ | 44 | $ | 252 | $ | 243 |
1Free 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.
13