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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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☐ |
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||||||||
For the transition period from to |
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(Exact name of Registrant as specified in its charter) | |||||||||||||||||
Delaware | 36-2669023 | ||||||||||||||||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
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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. |
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| No | ☐ | ||||||||||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. | ||||||||||||||||||||
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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. |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
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Title of each class | Trading Symbol | Name of | |||||||||||||||||
Common Shares, $.01 par value | TDS | New York Stock Exchange | |||||||||||||||||
| TDI |
| New York Stock Exchange | ||||||||||||||||
| TDE |
| New York Stock Exchange | ||||||||||||||||
| TDJ |
| New York Stock Exchange | ||||||||||||||||
5.875% Senior Notes due 2061 | TDA | New York Stock Exchange |
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| Page No. |
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Telephone and Data Systems, Inc. Management’s Discussion and Analysis of Financial Conditionand Results of Operations |
General TDS is a diversified telecommunications company that provides high-quality communications services to approximately 6 million connections nationwide. TDS provides wireless services through its 82%-owned subsidiary, United States Cellular Corporation (U.S. Cellular). TDS also provides wireline and cable services through its wholly-owned subsidiary, TDS Telecommunications LLC (TDS Telecom). TDS' segments operate entirely in the United States. See Note 11 — Business Segment Information in the Notes to Consolidated Financial Statements for additional information about TDS' segments. |
dividend.
▪ | U.S. Cellular continues to offer economical and competitively priced service plans and devices to its customers, and is focused on increasing revenues from sales of related products such as accessories and device protection plans and from new services such as fixed wireless broadband. In addition, U.S. Cellular is focused on expanding its solutions available to business and government customers, including a growing suite of connected machine-to-machine solutions and software applications across various categories. |
▪ | U.S. Cellular continues to devote efforts to enhance its network capabilities. VoLTE technology has been launched successfully in California, Iowa, Oregon, Washington and Wisconsin, and deployments in additional operating markets are expected later in 2019. VoLTE technology allows customers to utilize a 4G LTE network for both voice and data services, and offers enhanced services such as high definition voice and simultaneous voice and data sessions. In addition, the deployment of VoLTE technology expands U.S. Cellular’s ability to offer roaming services to other wireless carriers. |
▪ | U.S. Cellular also is committed to continuous technology innovation and has begun to deploy 5G technology, which is expected to help address customers’ growing demand for data services as well as create opportunities for new services requiring high speed, reliability and low latency. U.S. Cellular is working with leading companies in the wireless infrastructure and handset ecosystem to provide rich 5G experiences for customers, initially focused on mobility services and using its low band spectrum. At the same time, as discussed below, U.S. Cellular has been seeking to acquire wireless spectrum licenses in the 28 GHz and 24 GHz bands to enable the delivery of additional 5G services in the future. In the markets where U.S. Cellular commercially deploys 5G technology, customers using U.S. Cellular’s 4G LTE network will experience increased network speed due to U.S. Cellular's network modernization efforts. |
▪ | U.S. Cellular assesses its existing wireless 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, and to be able to expand its 5G service offerings, U.S. Cellular actively seeks attractive opportunities to acquire wireless spectrum licenses, including pursuant to FCC auctions. On June 3, 2019, the FCC announced by way of public notice that U.S. Cellular was the provisional winning bidder for 408 wireless spectrum licenses in its 28 GHz auction (Auction 101) and 282 wireless spectrum licenses in its 24 GHz auction (Auction 102) for an aggregate purchase price of $256 million. |
▪ | TDS Telecom’s Wireline business continues to focus on driving growth in its broadband and video services by investing in fiber deployment in new out-of-territory markets and inside existing markets. Construction has begun in two new out-of-territory clusters, mid-central Wisconsin and Idaho. With support from the FCC’s A-CAM program and state broadband grants, Wireline is also deploying higher speed broadband to more service addresses in rural areas. |
▪ | TDS Telecom’s Cable business continues to increase its broadband penetration by making network capacity investments and by offering more advanced services in its markets. |
▪ | TDS Telecom's Wireline and Cable businesses are investing in a next generation cloud-based video platform called TDS TV+ to enhance video services. |
2
▪ | 4G LTE – fourth generation Long-Term Evolution, which is a wireless technology that enables more network capacity for more data per user as well as faster access to data compared to third generation (3G) technology. |
▪ | 5G – fifth generation wireless technology that is expected to help address customers’ growing demand for data services as well as create opportunities for new services requiring high speed and reliability as well as low latency. |
▪ | 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 through 2028. This support comes with an obligation to build defined broadband speeds to a certain number of locations. |
▪ | 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. |
▪ | Connected Devices – non-handset devices that connect directly to the U.S. Cellular network. Connected devices include products such as tablets, wearables, modems, and hotspots. |
▪ | 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 (CATV) system. DOCSIS 3.1 is a system specification that increases data transmission rates. |
▪ | EBITDA – refers to earnings before interest, taxes, depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted EBITDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information. |
▪ | Free Cash Flow – non-GAAP metric defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information. |
▪ | 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 (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 (Losses) – represents the total number of new connections added during the period, net of connections that were terminated during that period. |
▪ | OIBDA – refers to operating income before depreciation, amortization and accretion and is used in the non-GAAP metric Adjusted OIBDA throughout this document. See Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for additional information. |
▪ | Partial Economic Areas – service areas of certain FCC licenses based on geography. |
▪ | Postpaid Average Revenue per Account (Postpaid ARPA) – metric which 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 which 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. Connections include all types of devices that connect directly to the U.S. Cellular network. |
▪ | 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. |
3
Results of Operations — TDS Consolidated
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| Three Months Ended |
| Six Months Ended | |||||||||||||
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| June 30, |
| June 30, | ||||||||||||
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| 2018¹ |
| 2017 |
| 2018 vs. 2017 |
| 2018¹ |
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(Dollars in millions) |
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Operating revenues |
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| U.S. Cellular |
| $ |
| $ |
| 1% |
| $ |
| $ |
| 1% | ||||||
| TDS Telecom |
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| – |
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| – | ||||||
| All other2 |
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| (4)% |
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| (18)% | ||||||
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| Total operating revenues |
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| 1% |
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Operating expenses |
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| U.S. Cellular |
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| (4)% |
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| (2)% | ||||||
| TDS Telecom |
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| 6% |
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| 5% | ||||||
| All other2 |
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| 4% |
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| (8)% | ||||||
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| Total operating expenses |
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| (2)% |
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Operating income (loss) |
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| U.S. Cellular |
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| >100% |
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| >100% | ||||||
| TDS Telecom |
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| (41)% |
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| (29)% | ||||||
| All other2 |
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| (53)% |
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| >(100)% | ||||||
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| Total operating income |
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| >100% |
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| 29% | |||||
Investment and other income (expense) |
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| Equity in earnings of unconsolidated entities |
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| 23% |
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| 20% | ||||||
| Interest and dividend income |
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| 65% |
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| 48% | ||||||
| Interest expense |
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| (1)% |
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| (1)% | ||||||
| Other, net |
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| (33)% |
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| (39)% | ||||||
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| Total investment and other income (expense) |
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| >100% |
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| >100% | |||||
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Income before income taxes |
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| >100% |
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| 47% | |||||||
| Income tax expense |
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| >100% |
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| 1% | ||||||
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Net income |
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| >100% |
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| 84% | |||||||
| Less: Net income attributable to noncontrolling interests, net of tax |
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| >100% |
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| >100% | ||||||
Net income attributable to TDS shareholders |
| $ |
| $ |
| >100% |
| $ |
| $ |
| 52% | |||||||
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Adjusted OIBDA (Non-GAAP)3 |
| $ |
| $ |
| 12% |
| $ |
| $ |
| 9% | |||||||
Adjusted EBITDA (Non-GAAP)3 |
| $ |
| $ |
| 14% |
| $ |
| $ |
| 10% | |||||||
Capital expenditures |
| $ |
| $ |
| 3% |
| $ |
| $ |
| 10% | |||||||
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1 | As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. | ||||||||||||||||||
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2 | Consists of corporate and other operations and intercompany eliminations. | ||||||||||||||||||
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3 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | 2019 | 2018 | 2019 vs. 2018 | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Operating revenues | |||||||||||||||||||||
U.S. Cellular | $ | 973 | $ | 974 | – | $ | 1,939 | $ | 1,915 | 1 | % | ||||||||||
TDS Telecom | 233 | 230 | 1 | % | 464 | 461 | 1 | % | |||||||||||||
All other1 | 55 | 51 | 6 | % | 115 | 104 | 11 | % | |||||||||||||
Total operating revenues | 1,261 | 1,255 | – | 2,518 | 2,480 | 2 | % | ||||||||||||||
Operating expenses | |||||||||||||||||||||
U.S. Cellular | 943 | 918 | 3 | % | 1,844 | 1,794 | 3 | % | |||||||||||||
TDS Telecom | 204 | 212 | (4 | )% | 398 | 417 | (5 | )% | |||||||||||||
All other1 | 66 | 64 | 2 | % | 134 | 128 | 5 | % | |||||||||||||
Total operating expenses | 1,213 | 1,194 | 2 | % | 2,376 | 2,339 | 2 | % | |||||||||||||
Operating income (loss) | |||||||||||||||||||||
U.S. Cellular | 30 | 56 | (45 | )% | 95 | 121 | (21 | )% | |||||||||||||
TDS Telecom | 29 | 18 | 60 | % | 66 | 43 | 52 | % | |||||||||||||
All other1 | (11 | ) | (13 | ) | 14 | % | (19 | ) | (23 | ) | 20 | % | |||||||||
Total operating income | 48 | 61 | (21 | )% | 142 | 141 | 1 | % | |||||||||||||
Investment and other income (expense) | |||||||||||||||||||||
Equity in earnings of unconsolidated entities | 41 | 40 | 2 | % | 85 | 78 | 9 | % | |||||||||||||
Interest and dividend income | 9 | 6 | 43 | % | 17 | 11 | 51 | % | |||||||||||||
Interest expense | (43 | ) | (43 | ) | 1 | % | (86 | ) | (86 | ) | 1 | % | |||||||||
Other, net | — | 1 | N/M | 1 | 2 | N/M | |||||||||||||||
Total investment and other income | 7 | 4 | 54 | % | 17 | 5 | N/M | ||||||||||||||
Income before income taxes | 55 | 65 | (16 | )% | 159 | 146 | 9 | % | |||||||||||||
Income tax expense | 16 | 21 | (23 | )% | 50 | 45 | 12 | % | |||||||||||||
Net income | 39 | 44 | (12 | )% | 109 | 101 | 8 | % | |||||||||||||
Less: Net income attributable to noncontrolling interests, net of tax | 6 | 11 | (44 | )% | 17 | 29 | (41 | )% | |||||||||||||
Net income attributable to TDS shareholders | $ | 33 | $ | 33 | (2 | )% | $ | 92 | $ | 72 | 28 | % | |||||||||
Adjusted OIBDA (Non-GAAP)2 | $ | 287 | $ | 272 | 5 | % | $ | 598 | $ | 568 | 5 | % | |||||||||
Adjusted EBITDA (Non-GAAP)2 | $ | 337 | $ | 319 | 5 | % | $ | 701 | $ | 659 | 6 | % | |||||||||
Capital expenditures | $ | 264 | $ | 138 | 91 | % | $ | 411 | $ | 253 | 62 | % |
1 | Consists of corporate and other operations and intercompany eliminations. |
2 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. |
The bonus depreciation provisionrates for the three and six month periods primarily reflect a normalized combined rate of the Tax Act is expected to substantially reduce TDS’ current federal income tax liability in 2018. See Note 5 — Income Taxes in the Notes to Consolidated Financial Statementsand state taxes, adjusted for additional information related to income taxes.
impacts of nondeductible expenses.
Three Months Ended |
| Six Months Ended | |||||||||
| June 30, |
| June 30, | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
(Dollars in millions) |
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U.S. Cellular noncontrolling public shareholders’ | $ |
| $ |
| $ |
| $ | ||||
Noncontrolling shareholders’ or partners’ |
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Net income attributable to noncontrolling interests, net of tax | $ |
| $ |
| $ |
| $ |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(Dollars in millions) | |||||||||||||||
U.S. Cellular noncontrolling public shareholders’ | $ | 6 | $ | 8 | $ | 16 | $ | 16 | |||||||
Noncontrolling shareholders’ or partners’ | — | 3 | 1 | 13 | |||||||||||
Net income attributable to noncontrolling interests, net of tax | $ | 6 | $ | 11 | $ | 17 | $ | 29 |
| |
| |
▪ | Serves customers with |
▪ | Operates in |
▪ | Employs approximately |
▪ | 6,535 cell sites including |
| As of June 30, |
|
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| 2018 |
| 2017 | ||||
| Retail Connections – End of Period |
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| Postpaid |
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| 4,468,000 |
| 4,478,000 | ||||
|
| Prepaid |
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|
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| 527,000 |
| 484,000 | ||||
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| Total |
|
|
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| 4,995,000 |
| 4,962,000 | ||||
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| Q2 2018 |
| Q2 2017 |
| YTD 2018 |
| YTD 2017 | |||||
| Postpaid Activity: |
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|
|
|
|
|
| |||||
|
| Gross Additions | 146,000 |
| 174,000 |
| 275,000 |
| 320,000 | ||||
|
| Net Additions (Losses) | (13,000) |
| 23,000 |
| (50,000) |
| (4,000) | ||||
|
| Churn | 1.19% |
| 1.13% |
| 1.21% |
| 1.21% | ||||
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| ||||
Three Months Ended Six Months Ended June 30, June 30, 2018 2017 2018 2017 Average Revenue Per User (ARPU) $ $ $ $ Average Billings Per User (ABPU)1 $ $ $ $ Average Revenue Per Account (ARPA) $ $ $ $ Average Billings Per Account (ABPA)1 $ $ $ $ 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. Three Months Ended Six Months Ended June 30, June 30, 2018 vs. 2018 vs. 2018¹ 2017 2017 2018¹ 2017 2017 (Dollars in millions) Retail service $ $ 1% $ $ – Inbound roaming 26% 15% Other (20)% (22)% Service revenues – (1)% Equipment sales 5% 9% Total operating revenues 1% 1% System operations (excluding Depreciation, amortization and accretion reported below) (1)% – Cost of equipment sold (8)% (6)% Selling, general and administrative (2)% (3)% Depreciation, amortization and accretion 3% 3% (Gain) loss on asset disposals, net (84)% (75)% (Gain) loss on license sales and exchanges, net >(100)% 8% Total operating expenses (4)% (2)% Operating income $ $ >100% $ $ >100% Net income $ $ >100% $ $ >100% Adjusted OIBDA (Non-GAAP)2 $ $ 26% $ $ 19% Adjusted EBITDA (Non-GAAP)2 $ $ 25% $ $ 19% Capital expenditures $ $ 2% $ $ 7% 1 As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. 2 Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.The decrease in As of June 30, 2019 2018 Retail Connections – End of Period Postpaid 4,414,000 4,468,000 Prepaid 500,000 527,000 Total 4,914,000 4,995,000 Q2 2019 Q2 2018 YTD 2019 YTD 2018 YTD 2019 vs.
YTD 2018Postpaid Activity and Churn Gross Additions Handsets 102,000 111,000 (8 )% 203,000 207,000 (2 )% Connected Devices 35,000 35,000 – 70,000 68,000 3 % Total Gross Additions 137,000 146,000 (6 )% 273,000 275,000 (1 )% Net Additions (Losses) Handsets (11,000 ) 5,000 N/M (25,000 ) (11,000 ) N/M Connected Devices (15,000 ) (18,000 ) 17 % (33,000 ) (39,000 ) 15 % Total Net (Losses) (26,000 ) (13,000 ) (100 )% (58,000 ) (50,000 ) (16 )% Churn Handsets 0.97 % 0.92 % 0.98 % 0.94 % Connected Devices 3.01 % 2.85 % 3.05 % 2.82 % Total Churn 1.23 % 1.19 % 1.24 % 1.21 % netgross additions decreased for the three months ended June 30, 2018, when compared to the same period last year, was driven mainly by both lower handset and tablet gross additions as well as an increase in tablet churn. The decline in tablet gross additions reflects U.S. Cellular‘s decision to curtail promotions of heavily discounted tablets.The increase in postpaid net losses for the six months ended June 30, 2018, when compared to the same period last year, was driven mainly by lower tablet gross additions and higher tablet churn. On January 1, 2018, U.S. Cellular adopted the provisions of ASU 2014-09, using a modified retrospective method. Under this method, the new accounting standard is applied only to the most recent period presented, recognizing the cumulative effect of the accounting change as an adjustment to retained earnings at January 1, 2018. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional details. Postpaid ARPU increased for the three months ended June 30, 2018, when compared to the same period last year, driven by increases in device protection plan and regulatory recovery revenues. Such factors were partially offset by the impact of adopting the provisions of ASU 2014-09. Postpaid ARPA decreased for the three months ended June 30, 2018,2019, when compared to the same period last year, due primarily to a decrease inaggressive industry-wide promotional activity on handsets.connections per account driven by higher tablet churn. Application of the new accounting standard had the impact of reducing ARPU and ARPA for the three months ended June 30, 2018, by $0.41 and $1.07, respectively.Postpaid ARPU and Postpaid ARPA decreased for the six months ended June 30, 2018, when compared to the same periods last year, due primarily to the impact of adopting the provisions of ASU 2014-09, as well as the impact of overall price reductions on plan offerings. Such factors were partially offset by the increases in device protection plan and regulatory recovery revenues. Application of the new accounting standard had the impact of reducing ARPU and ARPA for the six months ended June 30, 2018, by $0.47 and $1.24, respectively.Under equipment installment plans, customers pay for their wireless devices in installments over a period of time. In order to show the trend in estimated cash collections from postpaid customer billings for both service and equipment, 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.Postpaid ABPU and ABPAchurn increased for the three and six months ended June 30, 2018,2019, due primarily to aggressive industry-wide handset promotional activity and an increase in equipment installmentdefections of connected wearables, which were launched late in the second quarter of 2018. Three Months Ended
June 30, Six Months Ended
June 30, 2019 2018 2019 2018 Average Revenue Per User (ARPU) $ 45.90 $ 44.74 $ 45.66 $ 44.54 Average Revenue Per Account (ARPA) $ 119.46 $ 118.57 $ 119.15 $ 118.38 billings driven primarily by increased penetration of equipment installment plans. revenues.—- U.S. Cellular Three Months Ended
June 30, Six Months Ended
June 30, 2019 2018 2019 vs. 2018 2019 2018 2019 vs. 2018 (Dollars in millions) Retail service $ 662 $ 652 2 % $ 1,322 $ 1,301 2 % Inbound roaming 44 39 13 % 78 66 17 % Other 51 50 2 % 98 98 2 % Service revenues 757 741 2 % 1,498 1,465 2 % Equipment sales 216 233 (7 )% 441 450 (2 )% Total operating revenues 973 974 – 1,939 1,915 1 % System operations (excluding Depreciation, amortization and accretion reported below) 193 187 3 % 369 365 1 % Cost of equipment sold 224 240 (6 )% 458 459 – Selling, general and administrative 344 342 1 % 669 668 – Depreciation, amortization and accretion 177 159 11 % 345 317 8 % (Gain) loss on asset disposals, net 5 1 N/M 7 2 N/M (Gain) loss on sale of business and other exit costs, net — — N/M (2 ) — N/M (Gain) loss on license sales and exchanges, net — (11 ) N/M (2 ) (17 ) 88 % Total operating expenses 943 918 3 % 1,844 1,794 3 % Operating income $ 30 $ 56 (45 )% $ 95 $ 121 (21 )% Net income $ 32 $ 52 (38 )% $ 90 $ 107 (15 )% $ 212 $ 205 4 % $ 443 $ 423 5 % $ 257 $ 248 3 % $ 537 $ 507 6 % Capital expenditures $ 195 $ 86 N/M $ 297 $ 155 91 % Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure.
8
| Retail Service |
▪ | Inbound Roaming |
▪ | Other Service
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▪ | Sales of wireless devices and related accessories to new and existing customers, agents, and third-party distributors |
Other serviceusage, partially offset by lower rates.
Equipment sales revenuesaverage revenue per device sold.
See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional details on the financial statement impacthigher data roaming usage, partially offset by lower rates. Such factors were offset by lower customer usage expenses driven primarily by decreased circuit costs.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by $9 million and $23 million for the three and six months ended June 30, 2018, respectively, due to lower commissions, advertising and bad debts expenses.
Depreciation, amortization and accretion
(Gain) loss on asset disposals, net
Loss on asset disposals, net decreased primarily as a result of fewer disposals(i) additional network assets being placed into service and (ii) accelerated depreciation of certain network assets.
(Gain) loss on license sales and exchanges, net
Net gains in 2018 and 2017 wereassets due to gains recognized on license salechanges in network technology, which will continue throughout the remainder of 2019 and exchange transactions with various third parties.
beyond.
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▪ | Provides broadband, video and voice services to |
▪ | Employs approximately 2,800 employees. |
▪ | Wireline operates incumbent local exchange carriers (ILEC) and competitive local exchange carriers (CLEC) in 27 states. |
▪ | Cable operates primarily in Colorado, New Mexico, Texas, Utah, and Oregon. |
11
Components of Operating Income
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Operating revenues |
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| Wireline |
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| Cable |
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| 12% |
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| 12% | ||||||
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| TDS Telecom operating revenues |
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Operating expenses |
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| Cable |
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| 24% |
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| 22% | ||||||
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| TDS Telecom operating expenses |
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| 6% |
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| 5% | |||||
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TDS Telecom operating income |
| $ |
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| (41)% |
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| (29)% | |||||||
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Net income |
| $ |
| $ |
| (22)% |
| $ |
| $ |
| (7)% | |||||||
Adjusted OIBDA (Non-GAAP)2 |
| $ |
| $ |
| (9)% |
| $ |
| $ |
| (5)% | |||||||
Adjusted EBITDA (Non-GAAP)2 |
| $ |
| $ |
| (8)% |
| $ |
| $ |
| (4)% | |||||||
Capital expenditures |
| $ |
| $ |
| 4% |
| $ |
| $ |
| 22% | |||||||
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Numbers may not foot due to rounding. |
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1 | As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. | ||||||||||||||||||
2 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | 2019 | 2018 | 2019 vs. 2018 | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Operating revenues | |||||||||||||||||||||
Wireline | $ | 172 | $ | 174 | (1 | )% | $ | 343 | $ | 349 | (2 | )% | |||||||||
Cable | 62 | 57 | 9 | % | 121 | 112 | 8 | % | |||||||||||||
TDS Telecom operating revenues1 | 233 | 230 | 1 | % | 464 | 461 | 1 | % | |||||||||||||
Operating expenses | |||||||||||||||||||||
Wireline | 145 | 153 | (5 | )% | 282 | 302 | (7 | )% | |||||||||||||
Cable | 59 | 59 | – | 117 | 116 | 1 | % | ||||||||||||||
TDS Telecom operating expenses1 | 204 | 212 | (4 | )% | 398 | 417 | (5 | )% | |||||||||||||
TDS Telecom operating income | $ | 29 | $ | 18 | 60 | % | $ | 66 | $ | 43 | 52 | % | |||||||||
Net income | $ | 25 | $ | 16 | 60 | % | $ | 56 | $ | 37 | 52 | % | |||||||||
Adjusted OIBDA (Non-GAAP)2 | $ | 78 | $ | 73 | 8 | % | $ | 159 | $ | 152 | 4 | % | |||||||||
Adjusted EBITDA (Non-GAAP)2 | $ | 82 | $ | 75 | 9 | % | $ | 165 | $ | 156 | 6 | % | |||||||||
Capital expenditures | $ | 70 | $ | 46 | 51 | % | $ | 112 | $ | 87 | 30 | % |
| |
1 | Includes eliminations between the |
2 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. |
revenues
Capital expenditures
Capital spending increased
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Components
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | 2019 | 2018 | 2019 vs. 2018 | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Residential | $ | 81 | $ | 80 | 1 | % | $ | 162 | $ | 160 | 1 | % | |||||||||
Commercial | 42 | 46 | (8 | )% | 86 | 94 | (9 | )% | |||||||||||||
Wholesale | 49 | 46 | 5 | % | 94 | 94 | 1 | % | |||||||||||||
Service revenues | 172 | 173 | (1 | )% | 342 | 348 | (2 | )% | |||||||||||||
Equipment and product sales | — | — | (36 | )% | 1 | 1 | (28 | )% | |||||||||||||
Total operating revenues | 172 | 174 | (1 | )% | 343 | 349 | (2 | )% | |||||||||||||
Cost of services (excluding Depreciation, amortization and accretion reported below) | 64 | 67 | (3 | )% | 127 | 131 | (3 | )% | |||||||||||||
Cost of equipment and products | — | — | (44 | )% | 1 | 1 | (33 | )% | |||||||||||||
Selling, general and administrative | 49 | 50 | (1 | )% | 96 | 97 | (1 | )% | |||||||||||||
Depreciation, amortization and accretion | 33 | 36 | (8 | )% | 66 | 72 | (9 | )% | |||||||||||||
(Gain) loss on asset disposals, net | (1 | ) | 1 | N/M | (8 | ) | 1 | N/M | |||||||||||||
Total operating expenses | 145 | 153 | (5 | )% | 282 | 302 | (7 | )% | |||||||||||||
Operating income | $ | 27 | $ | 21 | 29 | % | $ | 61 | $ | 47 | 30 | % | |||||||||
Income before income taxes | $ | 30 | $ | 24 | 29 | % | $ | 68 | $ | 52 | 31 | % | |||||||||
Adjusted OIBDA (Non-GAAP)1 | $ | 59 | $ | 57 | 3 | % | $ | 119 | $ | 120 | (1 | )% | |||||||||
Adjusted EBITDA (Non-GAAP)1 | $ | 62 | $ | 59 | 4 | % | $ | 125 | $ | 124 | – | ||||||||||
Capital expenditures | $ | 55 | $ | 33 | 64 | % | $ | 84 | $ | 62 | 35 | % |
1 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. |
| |
▪ | Broadband services, including fiber-based and other digital, premium and enhanced data services |
▪ | Video services,
|
▪ | Voice services
|
▪ | High-speed and dedicated business internet services |
▪ | Voice services
|
▪ | Network access services primarily to interexchange and wireless carriers for carrying data and voice traffic on TDS Telecom’s network |
▪ | Federal and |
Cost of services
Cost of services increased for the three and six months ended June 30, 2018,2019, due to higher programming charges related to growth in video, partially offset by a decreaselower employee expenses and decreases in the costs of purchasing unbundled network elements and provisioning circuits, and providing long-distance services.
partially offset by increases in programming charges.
|
Components
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | 2019 | 2018 | 2019 vs. 2018 | ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Residential | $ | 51 | $ | 47 | 8 | % | $ | 100 | $ | 92 | 8 | % | |||||||||
Commercial | 11 | 10 | 9 | % | 21 | 20 | 8 | % | |||||||||||||
Total operating revenues | 62 | 57 | 9 | % | 121 | 112 | 8 | % | |||||||||||||
Cost of services (excluding Depreciation, amortization and accretion reported below) | 27 | 27 | – | 52 | 52 | – | |||||||||||||||
Selling, general and administrative | 15 | 15 | 5 | % | 30 | 28 | 6 | % | |||||||||||||
Depreciation, amortization and accretion | 17 | 18 | (4 | )% | 34 | 35 | (3 | )% | |||||||||||||
(Gain) loss on asset disposals, net | — | — | (54 | )% | 1 | 1 | (4 | )% | |||||||||||||
Total operating expenses | 59 | 59 | – | 117 | 116 | 1 | % | ||||||||||||||
Operating income (loss) | $ | 2 | $ | (3 | ) | N/M | $ | 5 | $ | (4 | ) | N/M | |||||||||
Income (loss) before income taxes | $ | 3 | $ | (2 | ) | N/M | $ | 6 | $ | (4 | ) | N/M | |||||||||
Adjusted OIBDA (Non-GAAP)1 | $ | 20 | $ | 16 | 27 | % | $ | 39 | $ | 32 | 24 | % | |||||||||
Adjusted EBITDA (Non-GAAP)1 | $ | 20 | $ | 16 | 29 | % | $ | 40 | $ | 32 | 26 | % | |||||||||
Capital expenditures | $ | 15 | $ | 13 | 17 | % | $ | 28 | $ | 24 | 16 | % |
1 | Refer to Supplemental Information Relating to Non-GAAP Financial Measures within this MD&A for a reconciliation of this measure. |
Commentary
Commercial revenues increased for the three and six months ended June 30, 2018, due primarily to video price increases and increased ad sales.
Cost of services
Cost of services increased for the three and six months ended June 30, 2018, due primarily to increases in video programming fees and circuits expense.
Depreciation, amortization and accretion
Depreciation, amortization and accretion increased in 2018 due to the amortization of franchise rights and a reduction in depreciable lives of customer premise equipment. Cable changed its estimated useful life for video franchise rights from indefinite-lived to 15 years2019, due primarily to the effects of increasing competition and advancements in technology for delivering and consuming video programming. See Note 1 — Basis of Presentation in the Notes to Consolidated Financial Statements for additional information on franchise rights.increased employee-related expenses.
| ||||
In May 2018,
2019.
21
▪ | Enhance and maintain U.S.
|
▪ | Begin deploying 5G technology; and |
▪ | Invest in information technology to support existing and |
▪ | Expand fiber deployment inside and outside of
|
▪ | Maintain and enhance existing infrastructure including build-out requirements to meet state broadband and |
▪ | Upgrade broadband capacity and speeds; |
▪ | Support success-based spending to sustain IPTV, broadband, and Cable growth; |
▪ | Build TDS TV+, a cloud-based video platform |
2018.
U.S. Cellular also has a share repurchase authorization. As of June 30, 2018,2019, the total cumulative amount of U.S. Cellular Common Shares authorized to be purchased is 5,900,849.
5,901,000.
2018.
23
2018.
2017 Commentary
TDS’ Cash, cash equivalents and restricted cash decreased $109 million in 2017. Net cash provided by operating activities was $358 million in 2017, due to net income of $55 million plus non-cash items of $398 million and distributions received from unconsolidated entities of $65 million, including $30 million in distributions from the LA Partnership. This was partially offset by changes in working capital items which decreased cash by $160 million. The working capital changes were due to a $107 million increase in equipment installment plan receivables and a $59 million decrease in accounts payable.
The net cash provided by operating activities was offset by Cash flows used for investing activities of $424 million. Cash paid for additions to property, plant and equipment in 2017 totaled $242 million. Cash paid for acquisitions and licenses was $200 million which included the remaining $186 million due to the FCC for licenses U.S. Cellular won in Auction 1002. This was partially offset by Cash received from divestitures and exchanges of $17 million.
Cash flows used for financing activities were $43 million in 2017, reflecting ordinary activity such as the payment of dividends and the scheduled repayments of debt.
24
Cash
Seeexchange agreements that U.S. Cellular entered into in 2018 closed in the Consolidated Cash Flow Analysis above for a discussionfirst quarter of cash and cash equivalents.
Short-term investments
Short-term investments decreased $100 million due to the maturity of U.S. Treasury Bills with original maturities of six months.
Other assets and deferred charges
Other assets and deferred charges2019.
Accounts payable
Accounts payable decreased $72
Customer deposits and deferred revenues
Customer deposits and deferred revenues decreased $58 million due primarily to the reclassificationadoption of certain deferred revenues to Other current assets to reflect the net contract position for each customer contract on the Consolidated Balance Sheet as required by ASU 2014-09, which was adopted on January 1, 2018.Accounting Standards Codification (ASC) 842. See Note 28 — Revenue RecognitionLeases in the Notes to Consolidated Financial Statements for additional information.
Deferred income tax liability, net
Deferred income tax liability, net,2019.
▪ | EBITDA |
▪ | Adjusted EBITDA |
▪ | Adjusted OIBDA |
▪ | Free cash flow |
Following are explanations of each of these measures.
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
TDS - CONSOLIDATED | 2019 | 2018 | 2019 | 2018 | |||||||||||
(Dollars in millions) | |||||||||||||||
Net income (GAAP) | $ | 39 | $ | 44 | $ | 109 | $ | 101 | |||||||
Add back: | |||||||||||||||
Income tax expense | 16 | 21 | 50 | 45 | |||||||||||
Interest expense | 43 | 43 | 86 | 86 | |||||||||||
Depreciation, amortization and accretion | 234 | 220 | 460 | 441 | |||||||||||
EBITDA (Non-GAAP) | 332 | 328 | 705 | 673 | |||||||||||
Add back or deduct: | |||||||||||||||
(Gain) loss on asset disposals, net | 5 | 2 | — | 3 | |||||||||||
(Gain) loss on sale of business and other exit costs, net | — | — | (2 | ) | — | ||||||||||
(Gain) loss on license sales and exchanges, net | — | (11 | ) | (2 | ) | (17 | ) | ||||||||
Adjusted EBITDA (Non-GAAP) | 337 | 319 | 701 | 659 | |||||||||||
Deduct: | |||||||||||||||
Equity in earnings of unconsolidated entities | 41 | 40 | 85 | 78 | |||||||||||
Interest and dividend income | 9 | 6 | 17 | 11 | |||||||||||
Other, net | — | 1 | 1 | 2 | |||||||||||
Adjusted OIBDA (Non-GAAP) | 287 | 272 | 598 | 568 | |||||||||||
Deduct: | |||||||||||||||
Depreciation, amortization and accretion | 234 | 220 | 460 | 441 | |||||||||||
(Gain) loss on asset disposals, net | 5 | 2 | — | 3 | |||||||||||
(Gain) loss on sale of business and other exit costs, net | — | — | (2 | ) | — | ||||||||||
(Gain) loss on license sales and exchanges, net | — | (11 | ) | (2 | ) | (17 | ) | ||||||||
Operating income (GAAP) | $ | 48 | $ | 61 | $ | 142 | $ | 141 |
|
| Three Months Ended |
| Six Months Ended | |||||||||
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| June 30, | ||||||||
TDS ̶ CONSOLIDATED | 2018¹ |
| 2017 |
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| 2017 | ||||||
(Dollars in millions) |
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Net income (GAAP) | $ |
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Adjusted OIBDA (Non-GAAP) |
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Deduct: |
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| (Gain) loss on license sales and exchanges, net |
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Operating income (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
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| Three Months Ended |
| Six Months Ended | |||||||||
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| June 30, |
| June 30, | ||||||||
U.S. CELLULAR | 2018¹ |
| 2017 |
| 2018¹ |
| 2017 | ||||||
(Dollars in millions) |
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Net income (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
Add back: |
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| Income tax expense |
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|
| |||||
| Interest expense |
|
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|
|
|
|
| |||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| |||||
EBITDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Add back or deduct: |
|
|
|
|
|
|
| ||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| |||||
| (Gain) loss on license sales and exchanges, net |
|
|
|
|
|
|
| |||||
Adjusted EBITDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Deduct: |
|
|
|
|
|
|
| ||||||
| Equity in earnings of unconsolidated entities |
|
|
|
|
|
|
| |||||
| Interest and dividend income |
|
|
|
|
|
|
| |||||
| Other, net |
|
|
|
|
|
|
| |||||
Adjusted OIBDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Deduct: |
|
|
|
|
|
|
| ||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| |||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| |||||
| (Gain) loss on license sales and exchanges, net |
|
|
|
|
|
|
| |||||
Operating income (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
U.S. CELLULAR | 2019 | 2018 | 2019 | 2018 | |||||||||||
(Dollars in millions) | |||||||||||||||
Net income (GAAP) | $ | 32 | $ | 52 | $ | 90 | $ | 107 | |||||||
Add back: | |||||||||||||||
Income tax expense | 14 | 18 | 41 | 40 | |||||||||||
Interest expense | 29 | 29 | 58 | 58 | |||||||||||
Depreciation, amortization and accretion | 177 | 159 | 345 | 317 | |||||||||||
EBITDA (Non-GAAP) | 252 | 258 | 534 | 522 | |||||||||||
Add back or deduct: | |||||||||||||||
(Gain) loss on asset disposals, net | 5 | 1 | 7 | 2 | |||||||||||
(Gain) loss on sale of business and other exit costs, net | — | — | (2 | ) | — | ||||||||||
(Gain) loss on license sales and exchanges, net | — | (11 | ) | (2 | ) | (17 | ) | ||||||||
Adjusted EBITDA (Non-GAAP) | 257 | 248 | 537 | 507 | |||||||||||
Deduct: | |||||||||||||||
Equity in earnings of unconsolidated entities | 40 | 40 | 84 | 78 | |||||||||||
Interest and dividend income | 5 | 3 | 11 | 7 | |||||||||||
Other, net | — | — | (1 | ) | (1 | ) | |||||||||
Adjusted OIBDA (Non-GAAP) | 212 | 205 | 443 | 423 | |||||||||||
Deduct: | |||||||||||||||
Depreciation, amortization and accretion | 177 | 159 | 345 | 317 | |||||||||||
(Gain) loss on asset disposals, net | 5 | 1 | 7 | 2 | |||||||||||
(Gain) loss on sale of business and other exit costs, net | — | — | (2 | ) | — | ||||||||||
(Gain) loss on license sales and exchanges, net | — | (11 | ) | (2 | ) | (17 | ) | ||||||||
Operating income (GAAP) | $ | 30 | $ | 56 | $ | 95 | $ | 121 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
TDS TELECOM | 2019 | 2018 | 2019 | 2018 | |||||||||||
(Dollars in millions) | |||||||||||||||
Net income (GAAP) | $ | 25 | $ | 16 | $ | 56 | $ | 37 | |||||||
Add back: | |||||||||||||||
Income tax expense | 8 | 5 | 18 | 12 | |||||||||||
Interest expense | (1 | ) | — | (1 | ) | (1 | ) | ||||||||
Depreciation, amortization and accretion | 50 | 53 | 100 | 107 | |||||||||||
EBITDA (Non-GAAP) | 82 | 74 | 173 | 155 | |||||||||||
Add back or deduct: | |||||||||||||||
(Gain) loss on asset disposals, net | (1 | ) | 1 | (8 | ) | 1 | |||||||||
Adjusted EBITDA (Non-GAAP) | 82 | 75 | 165 | 156 | |||||||||||
Deduct: | |||||||||||||||
Interest and dividend income | 3 | 2 | 6 | 3 | |||||||||||
Other, net | — | 1 | — | 1 | |||||||||||
Adjusted OIBDA (Non-GAAP) | 78 | 73 | 159 | 152 | |||||||||||
Deduct: | |||||||||||||||
Depreciation, amortization and accretion | 50 | 53 | 100 | 107 | |||||||||||
(Gain) loss on asset disposals, net | (1 | ) | 1 | (8 | ) | 1 | |||||||||
Operating income (GAAP) | $ | 29 | $ | 18 | $ | 66 | $ | 43 |
|
| Three Months Ended |
| Six Months Ended | |||||||||
|
|
| June 30, |
| June 30, | ||||||||
TDS TELECOM | 2018¹ |
| 2017 |
| 2018¹ |
| 2017 | ||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| ||
Net income (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
Add back or deduct: |
|
|
|
|
|
|
| ||||||
| Income tax expense |
|
|
|
|
|
|
| |||||
| Interest expense |
|
|
|
|
|
|
| |||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| |||||
EBITDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Add back or deduct: |
|
|
|
|
|
|
| ||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| |||||
Adjusted EBITDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Deduct: |
|
|
|
|
|
|
| ||||||
| Interest and dividend income |
|
|
|
|
|
|
| |||||
| Other, net |
|
|
|
|
|
|
| |||||
Adjusted OIBDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Deduct: |
|
|
|
|
|
|
| ||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| |||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| |||||
Operating income (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
|
| Three Months Ended |
| Six Months Ended | |||||||||
|
|
| June 30, |
| June 30, | ||||||||
WIRELINE | 2018¹ |
| 2017 |
| 2018¹ |
| 2017 | ||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| ||
Income before income taxes (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
Add back or deduct: |
|
|
|
|
|
|
| ||||||
| Interest expense |
|
|
|
|
|
|
| |||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| |||||
EBITDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Add back or deduct: |
|
|
|
|
|
|
| ||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| |||||
Adjusted EBITDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Deduct: |
|
|
|
|
|
|
| ||||||
| Interest and dividend income |
|
|
|
|
|
|
| |||||
| Other, net |
|
|
|
|
|
|
| |||||
Adjusted OIBDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Deduct: |
|
|
|
|
|
|
| ||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| |||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| |||||
Operating income (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
WIRELINE | 2019 | 2018 | 2019 | 2018 | |||||||||||
(Dollars in millions) | |||||||||||||||
Income before income taxes (GAAP) | $ | 30 | $ | 24 | $ | 68 | $ | 52 | |||||||
Add back: | |||||||||||||||
Interest expense | (1 | ) | — | (1 | ) | (1 | ) | ||||||||
Depreciation, amortization and accretion | 33 | 36 | 66 | 72 | |||||||||||
EBITDA (Non-GAAP) | 62 | 59 | 133 | 124 | |||||||||||
Add back or deduct: | |||||||||||||||
(Gain) loss on asset disposals, net | (1 | ) | 1 | (8 | ) | 1 | |||||||||
Adjusted EBITDA (Non-GAAP) | 62 | 59 | 125 | 124 | |||||||||||
Deduct: | |||||||||||||||
Interest and dividend income | 3 | 2 | 5 | 3 | |||||||||||
Other, net | — | 1 | — | 1 | |||||||||||
Adjusted OIBDA (Non-GAAP) | 59 | 57 | 119 | 120 | |||||||||||
Deduct: | |||||||||||||||
Depreciation, amortization and accretion | 33 | 36 | 66 | 72 | |||||||||||
(Gain) loss on asset disposals, net | (1 | ) | 1 | (8 | ) | 1 | |||||||||
Operating income (GAAP) | $ | 27 | $ | 21 | $ | 61 | $ | 47 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
CABLE | 2019 | 2018 | 2019 | 2018 | |||||||||||
(Dollars in millions) | |||||||||||||||
Income (loss) before income taxes (GAAP) | $ | 3 | $ | (2 | ) | $ | 6 | $ | (4 | ) | |||||
Add back: | |||||||||||||||
Depreciation, amortization and accretion | 17 | 18 | 34 | 35 | |||||||||||
EBITDA (Non-GAAP) | 20 | 15 | 40 | 32 | |||||||||||
Add back or deduct: | |||||||||||||||
(Gain) loss on asset disposals, net | — | — | 1 | 1 | |||||||||||
Adjusted EBITDA (Non-GAAP) | 20 | 16 | 40 | 32 | |||||||||||
Deduct: | |||||||||||||||
Interest and dividend income | — | — | 1 | — | |||||||||||
Adjusted OIBDA (Non-GAAP) | 20 | 16 | 39 | 32 | |||||||||||
Deduct: | |||||||||||||||
Depreciation, amortization and accretion | 17 | 18 | 34 | 35 | |||||||||||
(Gain) loss on asset disposals, net | — | — | 1 | 1 | |||||||||||
Operating income (loss) (GAAP) | $ | 2 | $ | (3 | ) | $ | 5 | $ | (4 | ) |
|
| Three Months Ended |
| Six Months Ended | |||||||||
|
|
| June 30, |
| June 30, | ||||||||
CABLE | 2018¹ |
| 2017 |
| 2018¹ |
| 2017 | ||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| ||
Income (loss) before income taxes (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
Add back: |
|
|
|
|
|
|
| ||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| |||||
EBITDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Add back or deduct: |
|
|
|
|
|
|
| ||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| |||||
Adjusted EBITDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Deduct: |
|
|
|
|
|
|
| ||||||
| Interest and dividend income |
|
|
|
|
|
|
| |||||
Adjusted OIBDA (Non-GAAP) |
|
|
|
|
|
|
| ||||||
Deduct: |
|
|
|
|
|
|
| ||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
|
| |||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
|
| |||||
Operating income (loss) (GAAP) | $ |
| $ |
| $ |
| $ | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numbers may not foot due to rounding. |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | As of January 1, 2018, TDS adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. |
|
| Six Months Ended June 30, | |||||
| 2018 |
| 2017 | ||||
(Dollars in millions) |
|
|
|
|
| ||
Cash flows from operating activities (GAAP) | $ |
| $ | ||||
Less: Cash paid for additions to property, plant and equipment |
|
|
| ||||
| Free cash flow (Non-GAAP) | $ |
| $ | |||
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
(Dollars in millions) | |||||||
Cash flows from operating activities (GAAP) | $ | 592 | $ | 463 | |||
Less: Cash paid for additions to property, plant and equipment | 393 | 275 | |||||
Free cash flow (Non-GAAP) | $ | 199 | $ | 188 |
Postpaid ABPU and Postpaid ABPA
U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect estimated cash collections from postpaid customer billings for both service and equipment 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 June 30, |
| Six Months Ended June 30, | |||||||||
| 2018¹ |
| 2017 |
| 2018¹ |
| 2017 | ||||||
(Dollars and connection counts in millions) |
|
|
|
|
|
|
|
|
|
|
| ||
Calculation of Postpaid ARPU |
|
|
|
|
|
|
| ||||||
Postpaid service revenues | $ |
| $ |
| $ |
| $ | ||||||
Average number of postpaid connections |
|
|
|
|
|
|
| ||||||
Number of months in period |
|
|
|
|
|
|
| ||||||
| Postpaid ARPU (GAAP metric) | $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Postpaid ABPU |
|
|
|
|
|
|
| ||||||
Postpaid service revenues | $ |
| $ |
| $ |
| $ | ||||||
Equipment installment plan billings |
|
|
|
|
|
|
| ||||||
| Total billings to postpaid connections | $ |
| $ |
| $ |
| $ | |||||
Average number of postpaid connections |
|
|
|
|
|
|
| ||||||
Number of months in period |
|
|
|
|
|
|
| ||||||
| Postpaid ABPU (Non-GAAP metric) | $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Postpaid ARPA |
|
|
|
|
|
|
| ||||||
Postpaid service revenues | $ |
| $ |
| $ |
| $ | ||||||
Average number of postpaid accounts |
|
|
|
|
|
|
| ||||||
Number of months in period |
|
|
|
|
|
|
| ||||||
| Postpaid ARPA (GAAP metric) | $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Postpaid ABPA |
|
|
|
|
|
|
| ||||||
Postpaid service revenues | $ |
| $ |
| $ |
| $ | ||||||
Equipment installment plan billings |
|
|
|
|
|
|
| ||||||
| Total billings to postpaid accounts | $ |
| $ |
| $ |
| $ | |||||
Average number of postpaid accounts |
|
|
|
|
|
|
| ||||||
Number of months in period |
|
|
|
|
|
|
| ||||||
| Postpaid ABPA (Non-GAAP metric) | $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | As of January 1, 2018, U.S. Cellular adopted ASU 2014-09 using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. See Note 2 — Revenue Recognition in the Notes to Consolidated Financial Statements for additional information. |
Application of Critical Accounting Policies and Estimates
Franchise Rights
Effective January 1, 2018, TDS prospectively changed its estimated useful life for cable video franchise rights from indefinite-lived to 15 years due primarily to the effects of increasing competition and advancements in technology for delivering and consuming video programming. Commensurate with this change, TDS reviewed its cable video franchise rights for impairment, and noted that no impairment existed as of January 1, 2018.
Recent Accounting Pronouncements
Seeand Note 18 — Basis of PresentationLeases in the Notes to Consolidated Financial Statements for information on recent accounting pronouncements.
In August 2017, the FCC adopted the MF2 Challenge Process Order, which laid out procedures for establishing areas that would be eligible for support under the MF2 program. This will include a collection process to be followed by a challenge window, a challenge response window, and finally adjudication of any coverage disputes. In September 2017,USTelecom Forbearance Petition, the FCC issued an Order granting partial forbearance relief from rules adopted pursuant to the Telecommunications Act of 1996. These rules require ILECs to provide dedicated transport facilities between wire centers to their competitors on an unbundled basis at regulated rates. It is expected that the FCC will address the remainder of the Forbearance Petition seeking the unbundling of local loops by August 2, 2019. As a public notice initiatingresult of these petitions, CLECs could potentially see increased prices for the collectionuse of 4G LTE coverage data. Responses submittingfacilities currently purchased from other ILECs. TDS Telecom is exploring the collected data were due on January 4, 2018.
On February 27,options available to it should the petition be granted.
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 U.S. Cellular to offset any loss in existing support. U.S. Cellular currently expects that its legacy support will continue at the 2017 level through 2018.
FCC Connect America Fund
In March 2018, the FCC approved an order authorizingauthorized additional funding for companies that elected Alternative Connect America Model (A-CAM)(A–CAM) support. On May 7, 2018,February 25, 2019, as directed within the order, the Wireline Competition Bureau (the Bureau) released a public notice offering TDS Telecom an additional $3$198 million per year for 10 years in support amountsfunding along with correspondingadditional buildout obligations and extended the term of the revised offer by two years until December 31, 2028, which TDS Telecom accepted. On July 20, 2018April 29, 2019, the Bureau authorized and directed the Universal Service Administrative Company (USAC) to obligate and disburse thethis revised support to those carriers that accept this revised offer. The offer provides A-CAM support up to $200 per location which increases annual support amounts over a 10-year term for each carrier that acceptedunder the revised offer of A-CAM support. The additional funding isprogram to $82 million excluding transitional amounts, retroactive to January 1, 2017, the original effective date of the program.
2019, and extending through 2028.
FCC during 2019.
The Connect America Fund Phase II Auction
bands (Auction 103). On July 24, 2018, bidding began in11, 2019, the FCC released a Public Notice establishing procedures for Auction 903, a reverse auction to award universal service support under the Connect America Fund Phase II program. This auction will award support in markets where support was previously declined by the price-cap incumbent local exchange carriers. On March 30, 2018, U.S. Cellular filed an application103. Applications to participate in Auction 903,103 are due on September 9, 2019, upfront payments are due on October 22, 2019, and bidding will commence on June 25, 2018, the FCC announced U.S. Cellular is a qualified bidder.December 10, 2019.
▪ | 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, fiber builds, divestitures and exchanges) or allocate resources or capital effectively could have an adverse effect on TDS’ business, financial condition or results of operations. |
▪ | Uncertainty in TDS’ future cash flow and liquidity or the inability 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 amount of spectrum licenses acquired, 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 for additional spectrum or for funding in certain Universal Service programs 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 talent throughout all levels of the organization, 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 and revenue 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. |
31
▪ | 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 or require re-evaluation of the indefinite-lived nature of such 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. |
▪ | 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. |
▪ | Changes in facts or circumstances, including new or additional information, could require TDS to record adjustments to amounts reflected 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 or have other consequences. |
▪ | The market price of TDS’ Common Shares is subject to fluctuations due to a variety of factors. |
▪ | 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. |
32
2018.
2018.
2019.
|
|
| Three Months Ended |
| Six Months Ended | |||||||||
|
|
|
| June 30, |
| June 30, | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | |||||||
(Dollars and shares in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
| |||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
| |||
| Service | $ |
| $ |
| $ |
| $ | ||||||
| Equipment and product sales |
|
|
|
|
|
|
| ||||||
|
| Total operating revenues |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
| |||||
Operating expenses |
|
|
|
|
|
| ||||||||
| Cost of services (excluding Depreciation, amortization and accretion reported below) |
|
|
|
|
|
| |||||||
| Cost of equipment and products |
|
|
|
|
|
| |||||||
| Selling, general and administrative |
|
|
|
|
|
| |||||||
| Depreciation, amortization and accretion |
|
|
|
|
|
| |||||||
| (Gain) loss on asset disposals, net |
|
|
|
|
|
| |||||||
| (Gain) loss on license sales and exchanges, net |
|
|
|
|
|
| |||||||
|
| Total operating expenses |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| |||||
Investment and other income (expense) |
|
|
|
|
|
| ||||||||
| Equity in earnings of unconsolidated entities |
|
|
|
|
|
| |||||||
| Interest and dividend income |
|
|
|
|
|
| |||||||
| Interest expense |
|
|
|
|
|
| |||||||
| Other, net |
|
|
|
|
|
| |||||||
|
| Total investment and other income (expense) |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
| |||||
Income before income taxes |
|
|
|
|
|
| ||||||||
| Income tax expense |
|
|
|
|
|
| |||||||
Net income |
|
|
|
|
|
| ||||||||
Less: Net income attributable to noncontrolling |
|
|
|
|
|
| ||||||||
interests, net of tax |
|
|
|
|
|
| ||||||||
Net income attributable to TDS shareholders |
|
|
|
|
|
| ||||||||
TDS Preferred dividend requirement |
|
|
|
|
|
| ||||||||
Net income available to TDS common shareholders | $ |
| $ | $ |
| $ | ||||||||
|
|
|
|
|
|
|
|
|
| |||||
Basic weighted average shares outstanding |
|
|
|
| ||||||||||
Basic earnings per share available to TDS common shareholders | $ |
| $ |
| $ |
| $ | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted weighted average shares outstanding |
|
|
|
| ||||||||||
Diluted earnings per share available to TDS common shareholders | $ |
| $ |
| $ |
| $ | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Dividends per share to TDS shareholders | $ |
| $ |
| $ |
| $ | |||||||
|
|
|
|
|
|
|
|
|
|
| ||||
The accompanying notes are an integral part of these consolidated financial statements. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(Dollars and shares in millions, except per share amounts) | |||||||||||||||
Operating revenues | |||||||||||||||
Service | $ | 1,013 | $ | 993 | $ | 2,008 | $ | 1,970 | |||||||
Equipment and product sales | 248 | 262 | 510 | 510 | |||||||||||
Total operating revenues | 1,261 | 1,255 | 2,518 | 2,480 | |||||||||||
Operating expenses | |||||||||||||||
Cost of services (excluding Depreciation, amortization and accretion reported below) | 304 | 300 | 588 | 587 | |||||||||||
Cost of equipment and products | 249 | 266 | 513 | 512 | |||||||||||
Selling, general and administrative | 421 | 417 | 819 | 813 | |||||||||||
Depreciation, amortization and accretion | 234 | 220 | 460 | 441 | |||||||||||
(Gain) loss on asset disposals, net | 5 | 2 | — | 3 | |||||||||||
(Gain) loss on sale of business and other exit costs, net | — | — | (2 | ) | — | ||||||||||
(Gain) loss on license sales and exchanges, net | — | (11 | ) | (2 | ) | (17 | ) | ||||||||
Total operating expenses | 1,213 | 1,194 | 2,376 | 2,339 | |||||||||||
Operating income | 48 | 61 | 142 | 141 | |||||||||||
Investment and other income (expense) | |||||||||||||||
Equity in earnings of unconsolidated entities | 41 | 40 | 85 | 78 | |||||||||||
Interest and dividend income | 9 | 6 | 17 | 11 | |||||||||||
Interest expense | (43 | ) | (43 | ) | (86 | ) | (86 | ) | |||||||
Other, net | — | 1 | 1 | 2 | |||||||||||
Total investment and other income | 7 | 4 | 17 | 5 | |||||||||||
Income before income taxes | 55 | 65 | 159 | 146 | |||||||||||
Income tax expense | 16 | 21 | 50 | 45 | |||||||||||
Net income | 39 | 44 | 109 | 101 | |||||||||||
Less: Net income attributable to noncontrolling interests, net of tax | 6 | 11 | 17 | 29 | |||||||||||
Net income attributable to TDS shareholders | $ | 33 | $ | 33 | $ | 92 | $ | 72 | |||||||
Basic weighted average shares outstanding | 114 | 112 | 114 | 112 | |||||||||||
Basic earnings per share attributable to TDS shareholders | $ | 0.29 | $ | 0.30 | $ | 0.81 | $ | 0.65 | |||||||
Diluted weighted average shares outstanding | 116 | 113 | 116 | 113 | |||||||||||
Diluted earnings per share attributable to TDS shareholders | $ | 0.28 | $ | 0.29 | $ | 0.78 | $ | 0.63 |
|
|
|
| Three Months Ended |
| Six Months Ended | |||||||||
|
|
|
|
| June 30, |
| June 30, | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income | $ |
| $ |
| $ |
| $ | ||||||||
| 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 |
|
|
|
|
|
|
| ||||
Comprehensive income |
|
|
|
|
|
|
| ||||||||
| Less: Net income attributable to noncontrolling interests, net of tax |
|
|
|
|
|
|
| |||||||
Comprehensive income attributable to TDS shareholders | $ |
| $ |
| $ |
| $ | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(Dollars in millions) | |||||||||||||||
Net income | $ | 39 | $ | 44 | $ | 109 | $ | 101 | |||||||
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 | 39 | 44 | 109 | 100 | |||||||||||
Less: Net income attributable to noncontrolling interests, net of tax | 6 | 11 | 17 | 29 | |||||||||||
Comprehensive income attributable to TDS shareholders | $ | 33 | $ | 33 | $ | 92 | $ | 71 |
|
|
|
| Six Months Ended | |||||
|
|
|
|
| June 30, | ||||
| 2018 |
| 2017 | ||||||
(Dollars in millions) |
|
|
|
|
| ||||
Cash flows from operating activities |
|
|
|
|
| ||||
| Net income | $ |
| $ | |||||
| Add (deduct) adjustments to reconcile net income to net cash flows |
|
|
| |||||
| from operating activities |
|
|
| |||||
|
|
| Depreciation, amortization and accretion |
|
|
| |||
|
|
| Bad debts expense |
|
|
| |||
|
|
| Stock-based compensation expense |
|
|
| |||
|
|
| Deferred income taxes, net |
|
|
| |||
|
|
| Equity in earnings of unconsolidated entities |
|
|
| |||
|
|
| Distributions from unconsolidated entities |
|
|
| |||
|
|
| (Gain) loss on asset disposals, net |
|
|
| |||
|
|
| (Gain) loss on license sales and exchanges, net |
|
|
| |||
|
|
| Noncash interest |
|
|
| |||
| Changes in assets and liabilities from operations |
|
|
| |||||
|
|
| Accounts receivable |
|
|
| |||
|
|
| Equipment installment plans receivable |
|
|
| |||
|
|
| Inventory |
|
|
| |||
|
|
| Accounts payable |
|
|
| |||
|
|
| Customer deposits and deferred revenues |
|
|
| |||
|
|
| Accrued taxes |
|
|
| |||
|
|
| Other assets and liabilities |
|
|
| |||
|
|
|
| Net cash provided by operating activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Cash flows from investing activities |
|
|
| ||||||
| Cash paid for additions to property, plant and equipment |
|
|
| |||||
| Cash paid for acquisitions and licenses |
|
|
| |||||
| Cash received for investments |
|
|
| |||||
| Cash received from divestitures and exchanges |
|
|
| |||||
| Other investing activities |
|
|
| |||||
|
|
|
| Net cash used in investing activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
| ||||||
| Repayment of long-term debt |
|
|
| |||||
| TDS Common Shares reissued for benefit plans, net of tax payments |
|
|
| |||||
| Repurchase of TDS Preferred Shares |
|
|
| |||||
| Dividends paid to TDS shareholders |
|
|
| |||||
| Payment of debt issuance costs |
|
|
| |||||
| Distributions to noncontrolling interests |
|
|
| |||||
| Other financing activities |
|
|
| |||||
|
|
|
| Net cash used in financing activities |
|
|
| ||
|
|
|
|
|
|
|
| ||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
| ||||||
|
|
|
|
|
|
|
| ||
Cash, cash equivalents and restricted cash |
|
|
| ||||||
| Beginning of period |
|
|
| |||||
| End of period | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
(Dollars in millions) | |||||||
Cash flows from operating activities | |||||||
Net income | $ | 109 | $ | 101 | |||
Add (deduct) adjustments to reconcile net income to net cash flows from operating activities | |||||||
Depreciation, amortization and accretion | 460 | 441 | |||||
Bad debts expense | 50 | 43 | |||||
Stock-based compensation expense | 33 | 23 | |||||
Deferred income taxes, net | 40 | 25 | |||||
Equity in earnings of unconsolidated entities | (85 | ) | (78 | ) | |||
Distributions from unconsolidated entities | 76 | 70 | |||||
(Gain) loss on asset disposals, net | — | 3 | |||||
(Gain) loss on sale of business and other exit costs, net | (2 | ) | — | ||||
(Gain) loss on license sales and exchanges, net | (2 | ) | (17 | ) | |||
Other operating activities | 3 | 2 | |||||
Changes in assets and liabilities from operations | |||||||
Accounts receivable | (2 | ) | 51 | ||||
Equipment installment plans receivable | (11 | ) | (47 | ) | |||
Inventory | (4 | ) | (8 | ) | |||
Accounts payable | (9 | ) | (50 | ) | |||
Customer deposits and deferred revenues | 8 | (25 | ) | ||||
Accrued taxes | 2 | (5 | ) | ||||
Other assets and liabilities | (74 | ) | (66 | ) | |||
Net cash provided by operating activities | 592 | 463 | |||||
Cash flows from investing activities | |||||||
Cash paid for additions to property, plant and equipment | (393 | ) | (275 | ) | |||
Cash paid for acquisitions and licenses | (255 | ) | (10 | ) | |||
Cash received from investments | 11 | 100 | |||||
Cash paid for investments | (11 | ) | — | ||||
Cash received from divestitures and exchanges | 32 | 21 | |||||
Other investing activities | — | 3 | |||||
Net cash used in investing activities | (616 | ) | (161 | ) | |||
Cash flows from financing activities | |||||||
Repayment of long-term debt | (11 | ) | (10 | ) | |||
TDS Common Shares reissued for benefit plans, net of tax payments | (6 | ) | 7 | ||||
U.S. Cellular Common Shares reissued for benefit plans, net of tax payments | (8 | ) | — | ||||
Dividends paid to TDS shareholders | (38 | ) | (36 | ) | |||
Distributions to noncontrolling interests | (2 | ) | (4 | ) | |||
Other financing activities | 3 | (4 | ) | ||||
Net cash used in financing activities | (62 | ) | (47 | ) | |||
Net increase (decrease) in cash, cash equivalents and restricted cash | (86 | ) | 255 | ||||
Cash, cash equivalents and restricted cash | |||||||
Beginning of period | 927 | 622 | |||||
End of period | $ | 841 | $ | 877 |
June 30, |
| December 31, | ||||||
| 2018 |
| 2017 | |||||
(Dollars in millions) |
|
|
|
|
| |||
Current assets |
|
|
|
|
| |||
| Cash and cash equivalents | $ |
| $ | ||||
| Short-term investments |
|
|
| ||||
| Accounts receivable |
|
|
| ||||
|
| Customers and agents, less allowances of $65 and $61, respectively |
|
|
| |||
|
| Other, less allowances of $2 and $2, respectively |
|
|
| |||
| Inventory, net |
|
|
| ||||
| Prepaid expenses |
|
|
| ||||
| Income taxes receivable |
|
|
| ||||
| Other current assets |
|
|
| ||||
|
|
| Total current assets |
|
|
| ||
|
|
|
|
|
|
| ||
Assets held for sale |
|
|
| |||||
|
|
|
|
|
|
| ||
Licenses |
|
|
| |||||
Goodwill |
|
|
| |||||
Other intangible assets, net of accumulated amortization of $155 and $142, respectively |
|
|
| |||||
Investments in unconsolidated entities |
|
|
| |||||
|
|
|
|
|
|
| ||
Property, plant and equipment |
|
|
| |||||
| In service and under construction |
|
|
| ||||
| Less: Accumulated depreciation and amortization |
|
|
| ||||
|
|
| Property, plant and equipment, net |
|
|
| ||
|
|
|
|
|
|
| ||
Other assets and deferred charges |
|
|
| |||||
|
|
|
|
|
|
| ||
Total assets1 | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. |
June 30, 2019 | December 31, 2018 | ||||||
(Dollars in millions) | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 834 | $ | 921 | |||
Short-term investments | 18 | 17 | |||||
Accounts receivable | |||||||
Customers and agents, less allowances of $70 and $71, respectively | 969 | 992 | |||||
Other, less allowances of $2 and $2, respectively | 113 | 107 | |||||
Inventory, net | 154 | 150 | |||||
Prepaid expenses | 95 | 103 | |||||
Income taxes receivable | 17 | 12 | |||||
Other current assets | 28 | 28 | |||||
Total current assets | 2,228 | 2,330 | |||||
Assets held for sale | — | 54 | |||||
Licenses | 2,478 | 2,195 | |||||
Goodwill | 509 | 509 | |||||
Other intangible assets, net of accumulated amortization of $180 and $168, respectively | 241 | 253 | |||||
Investments in unconsolidated entities | 490 | 480 | |||||
Property, plant and equipment | |||||||
In service and under construction | 12,348 | 12,074 | |||||
Less: Accumulated depreciation and amortization | 9,030 | 8,728 | |||||
Property, plant and equipment, net | 3,318 | 3,346 | |||||
Operating lease right-of-use assets | 963 | — | |||||
Other assets and deferred charges | 568 | 616 | |||||
Total assets1 | $ | 10,795 | $ | 9,783 |
The accompanying notes are an integral part of these consolidated financial statements.
June 30, |
| December 31, | ||||||
| 2018 |
| 2017 | |||||
(Dollars and shares in millions, except per share amounts) |
|
|
|
|
| |||
Current liabilities |
|
|
|
|
| |||
| Current portion of long-term debt | $ |
| $ | ||||
| Accounts payable |
|
|
| ||||
| Customer deposits and deferred revenues |
|
|
| ||||
| Accrued interest |
|
|
| ||||
| Accrued taxes |
|
|
| ||||
| Accrued compensation |
|
|
| ||||
| Other current liabilities |
|
|
| ||||
|
|
| Total current liabilities |
|
|
| ||
|
|
|
|
|
|
| ||
Deferred liabilities and credits |
|
|
| |||||
| Deferred income tax liability, net |
|
|
| ||||
| Other deferred liabilities and credits |
|
|
| ||||
|
|
|
|
|
|
| ||
Long-term debt, net |
|
|
| |||||
|
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
| |||||
|
|
|
|
|
|
| ||
Noncontrolling interests with redemption features |
|
|
| |||||
|
|
|
|
|
|
| ||
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 112 shares (7 Series A Common and 105 Common Shares) and 111 shares (7 Series A Common and 104 Common Shares), respectively |
|
|
| ||
|
|
| Par Value ($.01 per share) |
|
|
| ||
|
| Capital in excess of par value |
|
|
| |||
|
| Treasury shares, at cost, 21 and 22 Common Shares, respectively |
|
|
| |||
|
| Accumulated other comprehensive loss |
|
|
| |||
|
| Retained earnings |
|
|
| |||
|
|
| Total TDS shareholders' equity |
|
|
| ||
|
|
|
|
|
|
| ||
| Noncontrolling interests |
|
|
| ||||
|
|
|
|
|
|
| ||
|
| Total equity |
|
|
| |||
|
|
|
|
|
|
| ||
Total liabilities and equity1 | $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | The consolidated total assets as of June 30, 2018 and December 31, 2017, include assets held by consolidated variable interest entities (VIEs) of $793 million and $765 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of June 30, 2018 and December 31, 2017, include certain liabilities of consolidated VIEs of $17 million and $21 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 10 — Variable Interest Entities for additional information. | |||||||
|
| |||||||
|
| |||||||
|
|
June 30, 2019 | December 31, 2018 | ||||||
(Dollars and shares in millions, except per share amounts) | |||||||
Current liabilities | |||||||
Current portion of long-term debt | $ | 21 | $ | 21 | |||
Accounts payable | 367 | 365 | |||||
Customer deposits and deferred revenues | 205 | 197 | |||||
Accrued interest | 13 | 11 | |||||
Accrued taxes | 45 | 44 | |||||
Accrued compensation | 77 | 127 | |||||
Short-term operating lease liabilities | 112 | — | |||||
Other current liabilities | 85 | 114 | |||||
Total current liabilities | 925 | 879 | |||||
Liabilities held for sale | — | 1 | |||||
Deferred liabilities and credits | |||||||
Deferred income tax liability, net | 681 | 640 | |||||
Long-term operating lease liabilities | 927 | — | |||||
Other deferred liabilities and credits | 450 | 541 | |||||
Long-term debt, net | 2,409 | 2,418 | |||||
Commitments and contingencies | |||||||
Noncontrolling interests with redemption features | 10 | 11 | |||||
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 114 shares (7 Series A Common and 107 Common Shares) | |||||||
Par Value ($.01 per share) | 1 | 1 | |||||
Capital in excess of par value | 2,438 | 2,432 | |||||
Treasury shares, at cost, 18 and 19 Common Shares, respectively | (488 | ) | (519 | ) | |||
Accumulated other comprehensive loss | (10 | ) | (10 | ) | |||
Retained earnings | 2,684 | 2,656 | |||||
Total TDS shareholders' equity | 4,625 | 4,560 | |||||
Noncontrolling interests | 768 | 733 | |||||
Total equity | 5,393 | 5,293 | |||||
Total liabilities and equity1 | $ | 10,795 | $ | 9,783 |
1 | The consolidated total assets as of June 30, 2019 and December 31, 2018, include assets held by consolidated variable interest entities (VIEs) of $903 million and $848 million, respectively, which are not available to be used to settle the obligations of TDS. The consolidated total liabilities as of June 30, 2019 and December 31, 2018, include certain liabilities of consolidated VIEs of $17 million and $21 million, respectively, for which the creditors of the VIEs have no recourse to the general credit of TDS. See Note 9 — Variable Interest Entities for additional information. |
| TDS Shareholders |
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| Series A Common and Common shares |
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| Accumulated other comprehensive income (loss) |
| Retained earnings |
| Total TDS shareholders' equity |
| Noncontrolling interests |
| Total equity | |||||||||
(Dollars in millions) |
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December 31, 2017 | $ |
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Cumulative effect of accounting changes |
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Net income attributable to TDS shareholders |
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Net income attributable to noncontrolling interests classified as equity |
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Other comprehensive loss |
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TDS Common and Series A Common share dividends |
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Dividend reinvestment plan |
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Incentive and compensation plans |
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Adjust investment in subsidiaries for repurchases, issuances and other compensation plans |
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Stock-based compensation awards |
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Distributions to noncontrolling interests |
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June 30, 2018 | $ |
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The accompanying notes are an integral part of these consolidated financial statements. |
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 | Noncontrolling interests | Total equity | ||||||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||||||||
March 31, 2019 | $ | 1 | $ | 2,442 | $ | (505 | ) | $ | (10 | ) | $ | 2,683 | $ | 4,611 | $ | 746 | $ | 5,357 | |||||||||||||
Cumulative effect of accounting change | — | — | — | — | 2 | 2 | — | 2 | |||||||||||||||||||||||
Net income attributable to TDS shareholders | — | — | — | — | 33 | 33 | — | 33 | |||||||||||||||||||||||
Net income attributable to noncontrolling interests classified as equity | — | — | — | — | — | — | 6 | 6 | |||||||||||||||||||||||
TDS Common and Series A Common share dividends ($0.165 per share) | — | — | — | — | (19 | ) | (19 | ) | — | (19 | ) | ||||||||||||||||||||
Dividend reinvestment plan | — | 6 | — | (1 | ) | 5 | — | 5 | |||||||||||||||||||||||
Incentive and compensation plans | — | — | 11 | — | (14 | ) | (3 | ) | — | (3 | ) | ||||||||||||||||||||
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | (8 | ) | — | — | — | (8 | ) | 17 | 9 | |||||||||||||||||||||
Stock-based compensation awards | — | 4 | — | — | — | 4 | — | 4 | |||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||||
June 30, 2019 | $ | 1 | $ | 2,438 | $ | (488 | ) | $ | (10 | ) | $ | 2,684 | $ | 4,625 | $ | 768 | $ | 5,393 |
| TDS Shareholders |
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| 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) |
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December 31, 2016 | $ |
| $ |
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| $ |
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| $ |
| $ |
| $ |
| $ | ||||||||||
Net income attributable to TDS shareholders |
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Net income attributable to noncontrolling interests classified as equity |
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Other comprehensive loss |
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TDS Common and Series A Common share dividends |
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Redemption of Preferred shares |
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Dividend reinvestment plan |
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Incentive and compensation plans |
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Adjust investment in subsidiaries for repurchases, issuances and other compensation plans |
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Stock-based compensation awards |
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Distributions to noncontrolling interests |
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June 30, 2017 | $ |
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The accompanying notes are an integral part of these consolidated financial statements. |
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 | Noncontrolling interests | Total equity | ||||||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||||||||
March 31, 2018 | $ | 1 | $ | 2,421 | $ | (643 | ) | $ | (3 | ) | $ | 2,696 | $ | 4,472 | $ | 667 | $ | 5,139 | |||||||||||||
Cumulative effect of accounting changes | — | — | — | — | (1 | ) | (1 | ) | — | (1 | ) | ||||||||||||||||||||
Net income attributable to TDS shareholders | — | — | — | — | 33 | 33 | — | 33 | |||||||||||||||||||||||
Net income attributable to noncontrolling interests classified as equity | — | — | — | — | — | — | 10 | 10 | |||||||||||||||||||||||
TDS Common and Series A Common share dividends ($0.160 per share) | — | — | — | — | (18 | ) | (18 | ) | — | (18 | ) | ||||||||||||||||||||
Dividend reinvestment plan | — | — | 6 | — | (4 | ) | 2 | — | 2 | ||||||||||||||||||||||
Incentive and compensation plans | — | — | 13 | — | (14 | ) | (1 | ) | — | (1 | ) | ||||||||||||||||||||
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | (6 | ) | — | — | — | (6 | ) | 12 | 6 | |||||||||||||||||||||
Stock-based compensation awards | — | 3 | — | — | — | 3 | — | 3 | |||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||||
June 30, 2018 | $ | 1 | $ | 2,418 | $ | (624 | ) | $ | (3 | ) | $ | 2,692 | $ | 4,484 | $ | 688 | $ | 5,172 |
40
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 | Noncontrolling interests | Total equity | ||||||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||||||||
December 31, 2018 | $ | 1 | $ | 2,432 | $ | (519 | ) | $ | (10 | ) | $ | 2,656 | $ | 4,560 | $ | 733 | $ | 5,293 | |||||||||||||
Cumulative effect of accounting changes | — | — | — | — | 2 | 2 | — | 2 | |||||||||||||||||||||||
Net income attributable to TDS shareholders | — | — | — | — | 92 | 92 | — | 92 | |||||||||||||||||||||||
Net income attributable to noncontrolling interests classified as equity | — | — | — | — | — | — | 17 | 17 | |||||||||||||||||||||||
TDS Common and Series A Common share dividends ($0.330 per share) | — | — | — | — | (38 | ) | (38 | ) | — | (38 | ) | ||||||||||||||||||||
Dividend reinvestment plan | — | — | 11 | — | (2 | ) | 9 | — | 9 | ||||||||||||||||||||||
Incentive and compensation plans | — | — | 20 | — | (26 | ) | (6 | ) | — | (6 | ) | ||||||||||||||||||||
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | (2 | ) | — | — | — | (2 | ) | 20 | 18 | |||||||||||||||||||||
Stock-based compensation awards | — | 8 | — | — | — | 8 | — | 8 | |||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (2 | ) | (2 | ) | |||||||||||||||||||||
June 30, 2019 | $ | 1 | $ | 2,438 | $ | (488 | ) | $ | (10 | ) | $ | 2,684 | $ | 4,625 | $ | 768 | $ | 5,393 |
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 | Noncontrolling interests | Total equity | ||||||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||||||||
December 31, 2017 | $ | 1 | $ | 2,413 | $ | (669 | ) | $ | (1 | ) | $ | 2,525 | $ | 4,269 | $ | 623 | $ | 4,892 | |||||||||||||
Cumulative effect of accounting changes | — | — | — | (1 | ) | 163 | 162 | 31 | 193 | ||||||||||||||||||||||
Net income attributable to TDS shareholders | — | — | — | — | 72 | 72 | — | 72 | |||||||||||||||||||||||
Net income attributable to noncontrolling interests classified as equity | — | — | — | — | — | — | 16 | 16 | |||||||||||||||||||||||
Other comprehensive loss | — | — | — | (1 | ) | — | (1 | ) | — | (1 | ) | ||||||||||||||||||||
TDS Common and Series A Common share dividends ($0.320 per share) | — | — | — | — | (36 | ) | (36 | ) | — | (36 | ) | ||||||||||||||||||||
Dividend reinvestment plan | — | — | 13 | — | (7 | ) | 6 | — | 6 | ||||||||||||||||||||||
Incentive and compensation plans | — | — | 32 | — | (25 | ) | 7 | — | 7 | ||||||||||||||||||||||
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans | — | (1 | ) | — | — | — | (1 | ) | 19 | 18 | |||||||||||||||||||||
Stock-based compensation awards | — | 6 | — | — | — | 6 | — | 6 | |||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||||
June 30, 2018 | $ | 1 | $ | 2,418 | $ | (624 | ) | $ | (3 | ) | $ | 2,692 | $ | 4,484 | $ | 688 | $ | 5,172 |
2018.
Change in Reportable Segments
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| 2017 | |
(Dollars in millions) |
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Cash and cash equivalents |
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Restricted cash included in Other current assets |
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Cash, cash equivalents and restricted cash in the statement of cash flows |
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Franchise Rights
Effective January 1, 2018, TDS prospectively changed its estimated useful life for cable video franchise rights from indefinite-lived to 15 years due primarily to the effects of increasing competition and advancements in technology for delivering and consuming video programming. Commensurate with this change, TDS reviewed its cable video franchise rights for impairment, and noted that no impairment existed as of January 1, 2018. As a result, Depreciation, amortization and accretion increased $4 million, calculated on a straight-line basis, and Net income decreased $3 million or $0.03 per share (Basic and Diluted) for the three months ended June 30, 2018. For the six months ended June 30, 2018, Depreciation, amortization and accretion increased $9 million, calculated on a straight-line basis, and Net income decreased $7 million or $0.06 per share (Basic and Diluted).
June 30, 2019 | December 31, 2018 | ||||||
(Dollars in millions) | |||||||
Cash and cash equivalents | $ | 834 | $ | 921 | |||
Restricted cash included in Other current assets | 7 | 6 | |||||
Cash, cash equivalents and restricted cash in the statement of cash flows | $ | 841 | $ | 927 |
Recently Adopted Accounting Pronouncements
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 TDS to 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 new accounting standard also specifies that only the service cost component of net benefit cost is eligible for capitalization. TDS adopted ASU 2017-07 retrospectively on January 1, 2018, and prior periods have been recast to reflect ASU 2017-07. As a result of the adoption of ASU 2017-07, Selling, general and administrative expenses for the three and six months ended June 30, 2017, increased by $1 million from previously reported amounts, with a corresponding increase in Other, net income. This change did not have an impact on Income before income taxes, Net income, or Earnings per share for the three and six months ended June 30, 2017, nor did it have a cumulative impact to Retained earnings as of the date presented.
In June 2018, the FASB issued Accounting Standards Update 2018-07, Compensation—Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07). ASU 2018-07 expands the scope of Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to nonemployees for goods and services. TDS is required to adopt ASU 2018-07 on January 1, 2019, using the modified retrospective approach. Early adoption is permitted. The adoption of ASU 2018-07 is not expected to have a significant impact on TDS’ financial position or 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 $22 million and $45 million for the three and six months ended June 30, 2018, respectively, and $20 million and $38 million for the three and six months ended June 30, 2017, respectively.
Change in Accounting Policy
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers 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, collectively referred to hereinafter as ASU 2014-09. These standards replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers. 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 adopted the provisions of ASU 2014-09 and ASU 2017-05 and applied them to all contracts as of January 1, 2018, using a modified retrospective method. Under this method, the new accounting standard is applied only to the most recent period presented, recognizing the cumulative effect of the accounting change as an adjustment to the beginning balance of retained earnings. Accordingly, prior periods have not been recast to reflect the new accounting standard. The cumulative effect of applying the provisions of ASU 2014-09 resulted in an increase of $163 million in retained earnings as of January 1, 2018. ASU 2017-05 had no impact to retained earnings as of January 1, 2018.
As a practical expedient, TDS groups similar contracts or similar performance obligations together into portfolios of contracts or performance obligations if doing so does not result in a significant difference from applying the new accounting standard to the individual contracts. TDS applies this grouping method for the following types of transactions: device activation fees, contract acquisition costs, contract fulfillment costs, and certain customer promotions. Contract portfolios will be recognized over the respective expected customer lives or terms of the contracts.
The line items impacted by the adoption of ASU 2014-09 and ASU 2017-05 in the Consolidated Statement of Operations and the Consolidated Balance Sheet are presented below.
Consolidated Statement of Operations
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| Results under prior accounting standards |
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Three Months Ended June 30, 2018 |
| Adjustment |
| As reported | |||||||
(Dollars and shares in millions, except per share amounts) |
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Operating revenues |
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Service | $ |
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Equipment and product sales |
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Total operating revenues |
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Cost of equipment and products |
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Selling, general and administrative |
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(Gain) loss on license sales and exchanges, net |
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Total operating expenses |
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Operating income (loss) |
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Income (loss) before income taxes |
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Income tax expense (benefit) |
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Net income (loss) |
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Less: Net income attributable to noncontrolling interests, net of tax |
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Net income (loss) attributable to TDS shareholders |
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Net income (loss) available to TDS common shareholders |
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Basic earnings (loss) per share available to TDS common shareholders |
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Diluted earnings (loss) per share available to TDS common shareholders |
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Numbers may not foot due to rounding. |
Results under prior accounting standards |
| Adjustment |
| As reported | |||||||
Six Months Ended June 30, 2018 |
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(Dollars and shares in millions, except per share amounts) |
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Operating revenues |
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Service | $ |
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Equipment and product sales |
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Total operating revenues |
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Cost of equipment and products |
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Selling, general and administrative |
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(Gain) loss on license sales and exchanges, net |
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Total operating expenses |
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Operating income (loss) |
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Income (loss) before income taxes |
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Income tax expense (benefit) |
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Net income (loss) |
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Less: Net income attributable to noncontrolling interests, net of tax |
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Net income (loss) attributable to TDS shareholders |
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Net income (loss) available to TDS common shareholders |
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Basic earnings (loss) per share available to TDS common shareholders |
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Diluted earnings (loss) per share available to TDS common shareholders | $ |
| $ |
| $ | ||||||
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Numbers may not foot due to rounding. |
The decrease in Service revenues and the increase in Equipment and product sales revenues are driven primarily by differences in the timing and classification of revenue recognized for certain arrangements with multiple performance obligations and ceasing to record deferred imputed interest and the resulting interest income on equipment installment contracts. Under prior accounting standards, revenues were allocated to deliverables using the relative selling price method, where consideration was allocated to each element on the basis of its relative selling price. Revenue recognized for the delivered items was limited to the amount due from the customer that was not contingent upon the delivery of additional products or services. Under ASU 2014-09, the revenue allocation of the transaction price is based on the relative standalone selling prices of the individual performance obligations in the customer’s contract, and the resulting revenue attributable to each is recognized as control over the performance obligation is transferred to the customer. This has resulted in increased Equipment and product sales revenues as more revenue is allocated to discounted equipment than under prior accounting standards. Under prior accounting standards, TDS deferred imputed interest related to equipment installment plan receivable contracts that exceeded twelve months, and recognized the corresponding interest income over the contract period in Service revenues. Under the provisions of ASU 2014-09, TDS has determined that equipment installment plan contracts do not contain a significant financing component, and accordingly, TDS ceased recording deferred imputed interest and the resulting interest income on equipment installment contracts upon the adoption of ASU 2014-09.
Cost of equipment and products decreased due to a change in timing of recognition of cost of goods sold in the agent channel. Under prior accounting standards, Equipment and product sales to agents and the related Cost of equipment and products was recognized when equipment was sold through from the agent to end user customers. In accordance with the provisions of ASU 2014-09, such amounts are recognized when TDS delivers the equipment to the agent. Selling, general and administrative expenses include the amortization of contract acquisition and contract fulfillment costs that are capitalized under ASU 2014-09.
Under ASU 2017-05, (Gain) loss on license sales and exchanges, net is calculated by subtracting the carrying amount of the distinct asset being disposed from the consideration measured and allocated to that distinct asset. The consideration, or transaction price, is the fair value of the licenses received. Under prior accounting standards, the transaction price was typically the fair value of the licenses surrendered.
Results under prior accounting standards |
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| Adjustment |
| As reported | ||||
As of June 30, 2018 |
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(Dollars in millions) |
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Accounts receivable |
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Customers and agents, less allowances | $ |
| $ |
| $ | |||
Other, less allowances |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Licenses |
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Investments in unconsolidated entities |
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Other assets and deferred charges |
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Total assets |
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Customer deposits and deferred revenues |
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Accrued taxes |
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Other current liabilities |
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Total current liabilities |
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Deferred income tax liability, net |
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Other deferred liabilities and credits |
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Retained earnings |
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Total TDS shareholders' equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
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Numbers may not foot due to rounding. |
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As a result of adoption of ASU 2014-09, TDS recorded short-term and long-term contract assets and contract liabilities in its Consolidated Balance Sheet as of June 30, 2018. Under ASU 2014-09, the timing of recognition of revenue for each performance obligation may differ from the timing of the customer billing, creating a contract asset or contract liability. See Contract Balances below for additional information. Contract assets are included in Other current assets if short-term in nature or Other assets and deferred charges if long-term in nature. Short-term contract liabilities are classified as Customer deposits and deferred revenues and long-term contract liabilities are included in Other deferred liabilities and credits. Accounts receivable increased as a result of TDS ceasing to record deferred imputed interest. Certain prepaid expenses have been reclassified as contract cost assets, which are a component of Other assets and deferred charges. Investments in unconsolidated entities increased due to the cumulative effect of applying the provisions of ASU 2014-09 to certain of TDS’ equity method investments as of January 1, 2018. Deferred income tax liabilities, net, increased due to the provisions of ASU 2014-09 increasing the net basis of assets on a U.S. GAAP basis, without a corresponding increase in tax basis. Contract cost assets have also been created as a result of ASU 2014-09 due to capitalization of fulfillment costs and costs to obtain a new contract. See Contract Cost Assets below for additional information.
The following is a description of principal activities from which TDS generates its revenues.
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Significant Judgments
U.S. Cellular and TDS Telecom sell bundled service and equipment offerings. In these instances, TDS recognizes its revenue based on the relative standalone selling prices for each distinct service or equipment performance obligation, or bundles thereof. TDS estimates the standalone selling price of the device or accessory to be its retail price excluding discounts. TDS estimates the standalone selling price of wireless service to be the price offered to customers on month-to-month contracts.
Revenues from sales of equipment and products are recognized when control has transferred to the customer. Service revenues are recognized as the related service is provided. Services are deemed to be highly interrelated when the method and timing of transfer and performance risk are the same. Highly interrelated services that are determined to not be distinct have been grouped into a single performance obligation. Each month of services promised is a performance obligation. The series of monthly service performance obligations promised over the course of the contract are combined into a single performance obligation for purposes of the allocation.
TDS has made judgments regarding transaction price, including but not limited to issues relating to variable consideration, time value of money and returns. When determined to be significant in the context of the contract, these items are considered in the valuation of transaction price at contract inception or modification, as appropriate.
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| TDS Telecom |
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Three Months Ended June 30, 2018 |
| U.S. Cellular |
| Wireline |
| Cable |
| TDS Telecom Total |
| Corporate, Eliminations and Other |
| Total | |||||||
(Dollars in millions) |
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Revenues from contracts with customers: |
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| Type of service: |
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| Retail service |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||
| Inbound roaming |
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| Residential |
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| Commercial |
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| Wholesale |
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| Other service |
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| Service revenues from contracts with customers |
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| Equipment and product sales |
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| Total revenues from contracts with customers 1 |
| $ |
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| $ | ||||||
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Numbers may not foot due to rounding. | |||||||||||||||||||
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1 | These amounts do not include revenues outside the scope of ASU 2014-09; therefore, revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations. |
TDS Telecom | |||||||||||||||||||||||
Three Months Ended June 30, 2019 | U.S. Cellular | Wireline | Cable | TDS Telecom Total1 | Corporate, Eliminations and Other | Total | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Revenues from contracts with customers: | |||||||||||||||||||||||
Type of service: | |||||||||||||||||||||||
Retail service | $ | 662 | $ | — | $ | — | $ | — | $ | — | $ | 662 | |||||||||||
Inbound roaming | 44 | — | — | — | — | 44 | |||||||||||||||||
Residential | — | 81 | 51 | 131 | — | 131 | |||||||||||||||||
Commercial | — | 42 | 11 | 54 | — | 54 | |||||||||||||||||
Wholesale | — | 48 | — | 48 | — | 48 | |||||||||||||||||
Other service | 35 | — | — | — | 16 | 51 | |||||||||||||||||
Service revenues from contracts with customers | 741 | 172 | 62 | 233 | 16 | 990 | |||||||||||||||||
Equipment and product sales | 216 | — | — | — | 32 | 248 | |||||||||||||||||
Total revenues from contracts with customers2 | $ | 957 | $ | 172 | $ | 62 | $ | 233 | $ | 48 | $ | 1,238 |
TDS Telecom | |||||||||||||||||||||||
Three Months Ended June 30, 2018 | U.S. Cellular | Wireline | Cable | TDS Telecom Total1 | Corporate, Eliminations and Other | Total | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Revenues from contracts with customers: | |||||||||||||||||||||||
Type of service: | |||||||||||||||||||||||
Retail service | $ | 652 | $ | — | $ | — | $ | — | $ | — | $ | 652 | |||||||||||
Inbound roaming | 39 | — | — | — | — | 39 | |||||||||||||||||
Residential | — | 80 | 47 | 127 | — | 127 | |||||||||||||||||
Commercial | — | 46 | 10 | 57 | — | 57 | |||||||||||||||||
Wholesale | — | 46 | — | 46 | — | 46 | |||||||||||||||||
Other service | 33 | — | — | — | 18 | 51 | |||||||||||||||||
Service revenues from contracts with customers | 724 | 173 | 57 | 229 | 18 | 971 | |||||||||||||||||
Equipment and product sales | 233 | — | — | 1 | 28 | 262 | |||||||||||||||||
Total revenues from contracts with customers2 | $ | 957 | $ | 173 | $ | 57 | $ | 230 | $ | 46 | $ | 1,233 |
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| TDS Telecom |
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Six Months Ended June 30, 2018 |
| U.S. Cellular |
| Wireline |
| Cable |
| TDS Telecom Total |
| Corporate, Eliminations and Other |
| Total | |||||||
(Dollars in millions) |
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Revenue from contracts with customers: |
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| Type of service: |
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| Retail service |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||
| Inbound roaming |
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| Residential |
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| Commercial |
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| Wholesale |
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| Other service |
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| Service revenues from contracts with customers |
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| Equipment and product sales |
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| Total revenues from contracts with customers 1 |
| $ |
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| $ | ||||||
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Numbers may not foot due to rounding. | |||||||||||||||||||
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1 | These amounts do not include revenues outside the scope of ASU 2014-09; therefore, revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations. |
TDS Telecom | |||||||||||||||||||||||
Six Months Ended June 30, 2019 | U.S. Cellular | Wireline | Cable | TDS Telecom Total1 | Corporate, Eliminations and Other | Total | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Revenues from contracts with customers: | |||||||||||||||||||||||
Type of service: | |||||||||||||||||||||||
Retail service | $ | 1,322 | $ | — | $ | — | $ | — | $ | — | $ | 1,322 | |||||||||||
Inbound roaming | 78 | — | — | — | — | 78 | |||||||||||||||||
Residential | — | 162 | 100 | 262 | — | 262 | |||||||||||||||||
Commercial | — | 86 | 21 | 107 | — | 107 | |||||||||||||||||
Wholesale | — | 94 | — | 94 | — | 94 | |||||||||||||||||
Other service | 66 | — | — | (1 | ) | 35 | 100 | ||||||||||||||||
Service revenues from contracts with customers | 1,466 | 342 | 121 | 462 | 35 | 1,963 | |||||||||||||||||
Equipment and product sales | 441 | 1 | — | 1 | 68 | 510 | |||||||||||||||||
Total revenues from contracts with customers2 | $ | 1,907 | $ | 342 | $ | 121 | $ | 463 | $ | 103 | $ | 2,473 |
TDS Telecom | |||||||||||||||||||||||
Six Months Ended June 30, 2018 | U.S. Cellular | Wireline | Cable | TDS Telecom Total1 | Corporate, Eliminations and Other | Total | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Revenues from contracts with customers: | |||||||||||||||||||||||
Type of service: | |||||||||||||||||||||||
Retail service | $ | 1,301 | $ | — | $ | — | $ | — | $ | — | $ | 1,301 | |||||||||||
Inbound roaming | 66 | — | — | — | — | 66 | |||||||||||||||||
Residential | — | 160 | 92 | 253 | — | 253 | |||||||||||||||||
Commercial | — | 94 | 20 | 114 | — | 114 | |||||||||||||||||
Wholesale | — | 93 | — | 93 | — | 93 | |||||||||||||||||
Other service | 65 | — | — | (1 | ) | 34 | 98 | ||||||||||||||||
Service revenues from contracts with customers | 1,432 | 348 | 112 | 459 | 34 | 1,925 | |||||||||||||||||
Equipment and product sales | 450 | 1 | — | 1 | 59 | 510 | |||||||||||||||||
Total revenues from contracts with customers2 | $ | 1,882 | $ | 349 | $ | 112 | $ | 460 | $ | 93 | $ | 2,435 |
1 | TDS Telecom Total includes eliminations between the Wireline and Cable segments. |
2 | Revenue line items in this table will not agree to amounts presented in the Consolidated Statement of Operations as the amounts in this table only include revenue resulting from contracts with customers. |
For contracts that involve multiple element service and equipment offerings, the transaction price is allocated to each performance obligation based on its relative standalone selling price. When payment is collected in advance of delivery of goods or services, a contract liability is recorded. A contract asset is recorded when revenue is recognized in advance of TDS’ right to receive consideration. Once there is an unconditional right to receive the consideration, TDS bills the customer under the terms of the respective contract and the amounts are recorded as receivables.
TDS recognizes Equipment and product sales revenue when the equipment is delivered to the customer and a corresponding contract asset or liability is recorded for the difference between the amount of revenue recognized and the amount billed to the customer in cases where discounts are offered. The contract asset or liability is reduced over the contract term as service is provided and billed to the customer.
June 30, 2019 | December 31, 2018 | ||||||
(Dollars in millions) | |||||||
Accounts receivable | |||||||
Customer and agents | $ | 965 | $ | 987 | |||
Other | 91 | 73 | |||||
Total1 | $ | 1,056 | $ | 1,060 |
1 |
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Accounts | ||||||
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Contract Assets | |||
(Dollars in millions) | |||
Balance at December 31, 2018 | $ | 11 | |
Contract additions | 7 | ||
Reclassified to receivables | (9 | ) | |
Balance at June 30, 2019 | $ | 9 |
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Contract Liabilities | |||
(Dollars in millions) | |||
Balance at December 31, 2018 | $ | 203 | |
Contract additions | 118 | ||
Terminated contracts | (3 | ) | |
Revenue recognized | (108 | ) | |
Balance at June 30, 2019 | $ | 210 |
|
| Service Revenue | ||
(Dollars in millions) |
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Remainder of 2018 | $ | |||
2019 |
| |||
Thereafter |
| |||
| Total | $ | ||
Service Revenue | |||
(Dollars in millions) | |||
Remainder of 2019 | $ | 277 | |
2020 | 207 | ||
Thereafter | 306 | ||
Total | $ | 790 |
June 30, 2019 | December 31, 2018 | ||||||
(Dollars in millions) | |||||||
Costs to obtain contracts | |||||||
Sales commissions | $ | 145 | $ | 154 | |||
Fulfillment costs | |||||||
Installation costs | 11 | 10 | |||||
Total contract cost assets | $ | 156 | $ | 164 |
June 30, 2018 | ||
(Dollars in millions) |
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Costs to obtain contracts |
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Sales commissions | $ | 149 |
Fulfillment costs |
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Installation costs |
| 10 |
Total contract cost assets | $ | 159 |
Level within the Fair Value Hierarchy |
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| June 30, 2018 |
| December 31, 2017 | |||||||||||
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| Book Value |
| Fair Value |
| Book Value |
| Fair Value | |||||||
(Dollars in millions) |
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Cash and cash equivalents | 1 |
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| $ |
| $ |
| $ |
| $ | ||||||
Short-term investments | 1 |
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Long-term debt |
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| Retail | 2 |
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| Institutional | 2 |
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| Other | 2 |
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Level within the Fair Value Hierarchy | June 30, 2019 | December 31, 2018 | |||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | ||||||||||||||
(Dollars in millions) | |||||||||||||||||
Cash and cash equivalents | 1 | $ | 834 | $ | 834 | $ | 921 | $ | 921 | ||||||||
Short-term investments | 1 | 18 | 18 | 17 | 17 | ||||||||||||
Long-term debt | |||||||||||||||||
Retail | 2 | 1,753 | 1,781 | 1,753 | 1,596 | ||||||||||||
Institutional | 2 | 534 | 578 | 534 | 531 | ||||||||||||
Other | 2 | 176 | 176 | 182 | 182 |
47
| June 30, 2018 |
| December 31, 2017 | |||
(Dollars in millions) |
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Equipment installment plan receivables, gross |
| $ |
| $ | ||
Deferred interest |
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Equipment installment plan receivables, net of deferred interest |
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Allowance for credit losses |
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Equipment installment plan receivables, net |
| $ |
| $ | ||
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Net balance presented in the Consolidated Balance Sheet as: |
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Accounts receivable — Customers and agents (Current portion) |
| $ |
| $ | ||
Other assets and deferred charges (Non-current portion) |
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Equipment installment plan receivables, net |
| $ |
| $ |
2018.
June 30, 2019 | December 31, 2018 | ||||||
(Dollars in millions) | |||||||
Equipment installment plan receivables, gross | $ | 961 | $ | 974 | |||
Allowance for credit losses | (80 | ) | (77 | ) | |||
Equipment installment plan receivables, net | $ | 881 | $ | 897 | |||
Net balance presented in the Consolidated Balance Sheet as: | |||||||
Accounts receivable — Customers and agents (Current portion) | $ | 568 | $ | 560 | |||
Other assets and deferred charges (Non-current portion) | 313 | 337 | |||||
Equipment installment plan receivables, net | $ | 881 | $ | 897 |
| June 30, 2018 |
| December 31, 2017 | |||||||||||||||
|
| Lower Risk |
| Higher Risk |
| Total |
| Lower Risk |
| Higher Risk |
| Total | ||||||
(Dollars in millions) |
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Unbilled |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||
Billed — current |
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Billed — past due |
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Equipment installment plan receivables, gross |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
June 30, 2019 | December 31, 2018 | ||||||||||||||||||||||
Lower Risk | Higher Risk | Total | Lower Risk | Higher Risk | Total | ||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Unbilled | $ | 888 | $ | 9 | $ | 897 | $ | 904 | $ | 17 | $ | 921 | |||||||||||
Billed — current | 43 | 1 | 44 | 35 | 1 | 36 | |||||||||||||||||
Billed — past due | 18 | 2 | 20 | 15 | 2 | 17 | |||||||||||||||||
Equipment installment plan receivables, gross | $ | 949 | $ | 12 | $ | 961 | $ | 954 | $ | 20 | $ | 974 |
| June 30, 2018 |
| June 30, 2017 | |||
(Dollars in millions) |
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Allowance for credit losses, beginning of period |
| $ |
| $ | ||
Bad debts expense |
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Write-offs, net of recoveries |
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Allowance for credit losses, end of period |
| $ |
| $ |
June 30, 2019 June 30, 2018 (Dollars in millions) Allowance for credit losses, beginning of period $ 77 $ 65 Bad debts expense 38 30 Write-offs, net of recoveries (35 ) (26 ) Allowance for credit losses, end of period $ 80 $ 69
In December 2017, the Tax Act was signed into law. Following the guidance of the FASB’s Accounting Standards Update 2018-05, Income Taxes: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, tax expense for the year ended December 31, 2017, included a provisional estimate for the impact of the Tax Act on TDS’ 2017 depreciation deduction. Tax expense for the six months ended June 30, 2018, includes an income tax benefit of $3 million related to adjusting this provisional estimate. TDS has not completed a full analysis of contracts and agreements related to fixed assets placed in service during 2017. TDS expects any final adjustments to the provisional amounts to be recorded by the third quarter of 2018, which could be material to TDS’ financial statements.
Note 6 Earnings Per Share
Three Months Ended |
| Six Months Ended | |||||||||||||
| June 30, |
| June 30, | ||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||||
(Dollars and shares in millions, except per share amounts) |
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Basic earnings per share available to TDS common |
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| shareholders: |
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| Net income available to TDS common shareholders used in basic earnings per share | $ |
| $ |
| $ |
| $ | |||||||
Adjustments to compute diluted earnings: |
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| Noncontrolling interest adjustment |
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| Net income available to TDS common shareholders |
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| used in diluted earnings per share | $ |
| $ |
| $ |
| $ | ||||||
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Weighted average number of shares used in basic |
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| earnings per share: |
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| Common Shares |
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| Series A Common Shares |
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| Total |
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Effects of dilutive securities |
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Weighted average number of shares used in diluted |
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| earnings per share |
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Basic earnings per share available to TDS common |
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| shareholders | $ |
| $ |
| $ |
| $ | |||||||
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Diluted earnings per share available to TDS common |
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| ||||||||
| shareholders | $ |
| $ |
| $ |
| $ |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(Dollars and shares in millions, except per share amounts) | |||||||||||||||
Basic earnings per share attributable to TDS shareholders: | |||||||||||||||
Net income attributable to TDS shareholders used in basic earnings per share | $ | 33 | $ | 33 | $ | 92 | $ | 72 | |||||||
Adjustments to compute diluted earnings: | |||||||||||||||
Noncontrolling interest adjustment | (1 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||
Net income attributable to TDS shareholders used in diluted earnings per share | $ | 32 | $ | 32 | $ | 91 | $ | 71 | |||||||
Weighted average number of shares used in basic earnings per share: | |||||||||||||||
Common Shares | 107 | 105 | 107 | 105 | |||||||||||
Series A Common Shares | 7 | 7 | 7 | 7 | |||||||||||
Total | 114 | 112 | 114 | 112 | |||||||||||
Effects of dilutive securities | 2 | 1 | 2 | 1 | |||||||||||
Weighted average number of shares used in diluted earnings per share | 116 | 113 | 116 | 113 | |||||||||||
Basic earnings per share attributable to TDS shareholders | $ | 0.29 | $ | 0.30 | $ | 0.81 | $ | 0.65 | |||||||
Diluted earnings per share attributable to TDS shareholders | $ | 0.28 | $ | 0.29 | $ | 0.78 | $ | 0.63 |
49
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| ||||
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| ||||
| ||||
| ||||
| ||||
| ||||
|
|
below:
Licenses | |||
(Dollars in millions) | |||
Balance at December 31, 2018 | $ | 2,195 | |
Acquisitions | 257 | ||
Exchanges - Licenses received | 26 | ||
Balance at June 30, 2019 | $ | 2,478 |
June 30, |
| December 31, | |||
| 2018 |
| 2017 | ||
(Dollars in millions) |
|
|
|
|
|
Equity method investments |
|
|
| ||
Measurement alternative method investments |
|
|
| ||
Total investments in unconsolidated entities | $ |
| $ |
June 30, 2019 | December 31, 2018 | ||||||
(Dollars in millions) | |||||||
Equity method investments | $ | 469 | $ | 459 | |||
Measurement alternative method investments | 21 | 21 | |||||
Total investments in unconsolidated entities | $ | 490 | $ | 480 |
Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
Revenues | $ |
| $ |
| $ |
| $ | ||||
Operating expenses |
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| ||||
Operating income |
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| ||||
Other income (expense), net |
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| ||||
Net income | $ |
| $ |
| $ |
| $ |
Three Months Ended
June 30, Six Months Ended
June 30, 2019 2018 2019 2018 (Dollars in millions) Revenues $ 1,660 $ 1,661 $ 3,356 $ 3,324 Operating expenses 1,192 1,204 2,413 2,417 Operating income 468 457 943 907 Other income (expense), net 3 1 (3 ) (1 ) Net income $ 471 $ 458 $ 940 $ 906
Revolving Credit Agreements
8 Leases
December 31, 2018 | ASC 842 Adjustment | January 1, 2019 | |||||||
(Dollars in millions) | |||||||||
Prepaid expenses | $ | 103 | $ | (13 | ) | $ | 90 | ||
Operating lease right-of-use assets | — | 975 | 975 | ||||||
Other assets and deferred charges | 616 | (12 | ) | 604 | |||||
Short-term operating lease liabilities | — | 112 | 112 | ||||||
Other current liabilities | 114 | (8 | ) | 106 | |||||
Long-term operating lease liabilities | — | 949 | 949 | ||||||
Other deferred liabilities and credits | 541 | (103 | ) | 438 |
the ROU assets or lease liabilities.
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
(Dollars in millions) | |||||||
Operating lease cost | $ | 44 | $ | 87 | |||
Financing lease cost: | |||||||
Amortization of ROU assets | 1 | 1 | |||||
Variable lease cost | 2 | 4 | |||||
Total lease cost | $ | 47 | $ | 92 |
Six Months Ended June 30, 2019 | |||
(Dollars in millions) | |||
Cash paid for amounts included in the measurement of lease liabilities: | |||
Operating cash flows from operating leases | $ | 84 | |
ROU assets obtained in exchange for lease obligations: | |||
Operating leases | $ | 57 | |
Finance leases | 7 |
June 30, 2019 | |||
(Dollars in millions) | |||
Operating Leases | |||
Operating lease right-of-use assets | $ | 963 | |
Short-term operating lease liabilities | $ | 112 | |
Long-term operating lease liabilities | 927 | ||
Total operating lease liabilities | $ | 1,039 | |
Finance Leases | |||
Property, plant and equipment | $ | 17 | |
Less: Accumulated depreciation and amortization | 4 | ||
Property, plant and equipment, net | $ | 13 | |
Current portion of long-term debt | $ | 1 | |
Long-term debt, net | 5 | ||
Total finance lease liabilities | $ | 6 |
June 30, 2019 | ||
Weighted Average Remaining Lease Term | ||
Operating leases | 12 years | |
Finance leases | 23 years | |
Weighted Average Discount Rate | ||
Operating leases | 4.5 | % |
Finance leases | 6.9 | % |
Operating Leases | Finance Leases | ||||||
(Dollars in millions) | |||||||
Remainder of 2019 | $ | 73 | $ | 1 | |||
2020 | 162 | 1 | |||||
2021 | 147 | — | |||||
2022 | 131 | 1 | |||||
2023 | 116 | — | |||||
Thereafter | 791 | 13 | |||||
Total lease payments1 | $ | 1,420 | $ | 16 | |||
Less: Imputed interest | 381 | 10 | |||||
Present value of lease liabilities | $ | 1,039 | $ | 6 |
1 | Lease payments exclude $8 million of legally binding lease payments for leases signed but not yet commenced. |
TDS |
| U.S. Cellular |
| |||
(Dollars in millions) |
|
|
|
|
|
|
Maximum borrowing capacity | $ |
| $ |
| ||
Letters of credit outstanding | $ |
| $ |
| ||
Amount borrowed | $ |
| $ |
| ||
Amount available for use | $ |
| $ |
|
Except forTDS’ leases include renewal and early termination options. At lease commencement, lease terms include options to extend the changelease when TDS is reasonably certain that lessees will exercise the options. Lease terms would not include periods after the date of a termination option that lessees are reasonably certain to exercise.
Term Loan
In May 2018, U.S. Cellular also amended its senior term loan credit agreement in ordertied to align with the new revolving credit agreement. There were no significant changesan index. The incremental increases due to the maturity date or other keyindex changes are recorded as variable lease income.
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
(Dollars in millions) | |||||||
Operating lease income | $ | 23 | $ | 45 |
Operating Leases | |||
(Dollars in millions) | |||
Remainder of 2019 | $ | 39 | |
2020 | 80 | ||
2021 | 45 | ||
2022 | 31 | ||
2023 | 19 | ||
Thereafter | 14 | ||
Total future lease maturities | $ | 228 |
one year were as follows:
Operating Leases Future Minimum Rental Payments | Operating Leases Future Minimum Rental Receipts | ||||||
(Dollars in millions) | |||||||
2019 | $ | 170 | $ | 59 | |||
2020 | 158 | 48 | |||||
2021 | 142 | 35 | |||||
2022 | 126 | 23 | |||||
2023 | 110 | 10 | |||||
Thereafter | 784 | 7 | |||||
Total | $ | 1,490 | $ | 182 |
2018.
▪ | Advantage Spectrum, L.P. (Advantage Spectrum) and Sunshine Spectrum, Inc., the general partner of Advantage Spectrum; 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 wireless spectrum 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 the six months ended June 30, 2018, U.S. Cellular received liquidating distributions from Aquinas Wireless, L.P. (Aquinas Wireless). Subsequent to the final distribution date, Aquinas Wireless had no remaining assets and was dissolved.
|
| June 30, |
| December 31, | |||
|
|
| 2018 |
| 2017 | ||
(Dollars in millions) |
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|
| ||
Assets |
|
|
|
|
| ||
| Cash and cash equivalents | $ |
| $ | |||
| Accounts receivable |
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| |||
| Other current assets |
|
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| |||
| Assets held for sale |
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| |||
| Licenses |
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| |||
| Property, plant and equipment, net |
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|
| |||
| Other assets and deferred charges |
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|
| |||
|
| Total assets | $ |
| $ | ||
|
|
|
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|
| ||
Liabilities |
|
|
| ||||
| Current liabilities | $ |
| $ | |||
| Deferred liabilities and credits |
|
|
| |||
|
| Total liabilities | $ |
| $ |
June 30, 2019 | December 31, 2018 | ||||||
(Dollars in millions) | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 8 | $ | 9 | |||
Short-term investments | 18 | 17 | |||||
Accounts receivable | 616 | 609 | |||||
Inventory, net | 4 | 5 | |||||
Other current assets | 5 | 5 | |||||
Licenses | 647 | 647 | |||||
Property, plant and equipment, net | 84 | 88 | |||||
Operating lease right-of-use assets | 40 | — | |||||
Other assets and deferred charges | 322 | 347 | |||||
Total assets | $ | 1,744 | $ | 1,727 | |||
Liabilities | |||||||
Current liabilities | $ | 32 | $ | 31 | |||
Long-term operating lease liabilities | 37 | — | |||||
Other deferred liabilities and credits | 11 | 15 | |||||
Total liabilities | $ | 80 | $ | 46 |
During the six months ended June 30, 2018 and 2017,
55
2018 |
| 2017 | |||
(Dollars in millions) |
|
|
|
|
|
Net income attributable to TDS shareholders | $ |
| $ | ||
Transfers to noncontrolling interests |
|
|
| ||
Change in TDS' Capital in excess of par value from U.S. Cellular's issuance of U.S. Cellular shares |
|
|
| ||
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 noncontrolling interests |
|
|
| ||
Change from net income attributable to TDS and transfers to noncontrolling interests | $ |
| $ |
Six Months Ended June 30, 2019 2018 (Dollars in millions) Net income attributable to TDS shareholders $ 92 $ 72 Transfers to noncontrolling interests Change in TDS' Capital in excess of par value from U.S. Cellular's issuance of U.S. Cellular shares (23 ) (17 ) 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 noncontrolling interests (23 ) (17 ) Change from net income attributable to TDS and transfers to noncontrolling interests $ 69 $ 55
|
|
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|
|
| TDS Telecom |
|
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|
| ||||||||
Three Months Ended or as of June 30, 2018¹ |
| U.S. Cellular |
| Wireline |
| Cable |
| TDS Telecom Total2 |
| Corporate, Eliminations and Other |
| Total | ||||||||
(Dollars in millions) |
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Operating revenues |
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| ||
| Service |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||
| Equipment and product sales |
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| |||||||
|
| Total operating revenues |
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| ||||||
Cost of services (excluding Depreciation, amortization |
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| ||||||||
| and accretion reported below) |
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| |||||||
Cost of equipment and products |
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| ||||||||
Selling, general and administrative |
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| ||||||||
Depreciation, amortization and accretion |
|
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| ||||||||
(Gain) loss on asset disposals, net |
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| ||||||||
(Gain) loss on license sales and exchanges, net |
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| ||||||||
Operating income (loss) |
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| ||||||||
Equity in earnings of unconsolidated entities |
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| ||||||||
Interest and dividend income |
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| ||||||||
Interest expense |
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| ||||||||
Other, net |
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| ||||||||
Income (loss) before income taxes |
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| ||||||||
Income tax expense (benefit)3 |
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| ||||||||
Net income (loss) |
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Add back: |
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| ||||||||
Depreciation, amortization and accretion |
|
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| ||||||||
(Gain) loss on asset disposals, net |
|
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| ||||||||
(Gain) loss on license sales and exchanges, net |
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| ||||||||
Interest expense |
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| ||||||||
Income tax expense (benefit)3 |
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| ||||||||
Adjusted EBITDA4 |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
|
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| ||||||
Investments in unconsolidated entities |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
Total assets |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
Capital expenditures |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
TDS Telecom | |||||||||||||||||||||||
Three Months Ended or as of June 30, 2019 | U.S. Cellular | Wireline | Cable | TDS Telecom Total1 | Corporate, Eliminations and Other | Total | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||
Service | $ | 757 | $ | 172 | $ | 62 | $ | 233 | $ | 23 | $ | 1,013 | |||||||||||
Equipment and product sales | 216 | — | — | — | 32 | 248 | |||||||||||||||||
Total operating revenues | 973 | 172 | 62 | 233 | 55 | 1,261 | |||||||||||||||||
Cost of services (excluding Depreciation, amortization and accretion reported below) | 193 | 64 | 27 | 91 | 20 | 304 | |||||||||||||||||
Cost of equipment and products | 224 | — | — | — | 25 | 249 | |||||||||||||||||
Selling, general and administrative | 344 | 49 | 15 | 64 | 13 | 421 | |||||||||||||||||
Depreciation, amortization and accretion | 177 | 33 | 17 | 50 | 7 | 234 | |||||||||||||||||
(Gain) loss on asset disposals, net | 5 | (1 | ) | — | (1 | ) | 1 | 5 | |||||||||||||||
Operating income (loss) | 30 | 27 | 2 | 29 | (11 | ) | 48 | ||||||||||||||||
Equity in earnings of unconsolidated entities | 40 | — | — | — | 1 | 41 | |||||||||||||||||
Interest and dividend income | 5 | 3 | — | 3 | 1 | 9 | |||||||||||||||||
Interest expense | (29 | ) | 1 | — | 1 | (15 | ) | (43 | ) | ||||||||||||||
Income (loss) before income taxes | 46 | 30 | 3 | 33 | (24 | ) | 55 | ||||||||||||||||
Income tax expense (benefit)2 | 14 | 8 | (6 | ) | 16 | ||||||||||||||||||
Net income (loss) | 32 | 25 | (18 | ) | 39 | ||||||||||||||||||
Add back: | |||||||||||||||||||||||
Depreciation, amortization and accretion | 177 | 33 | 17 | 50 | 7 | 234 | |||||||||||||||||
(Gain) loss on asset disposals, net | 5 | (1 | ) | — | (1 | ) | 1 | 5 | |||||||||||||||
Interest expense | 29 | (1 | ) | — | (1 | ) | 15 | 43 | |||||||||||||||
Income tax expense (benefit)2 | 14 | 8 | (6 | ) | 16 | ||||||||||||||||||
Adjusted EBITDA3 | $ | 257 | $ | 62 | $ | 20 | $ | 82 | $ | (2 | ) | $ | 337 | ||||||||||
Investments in unconsolidated entities | $ | 450 | $ | 4 | $ | — | $ | 4 | $ | 36 | $ | 490 | |||||||||||
Total assets | $ | 8,223 | $ | 1,377 | $ | 641 | $ | 2,009 | $ | 563 | $ | 10,795 | |||||||||||
Capital expenditures | $ | 195 | $ | 55 | $ | 15 | $ | 70 | $ | (1 | ) | $ | 264 |
|
|
|
| TDS Telecom |
|
|
|
|
|
| ||||||||||
Three Months Ended or as of June 30, 2017 |
| U.S. Cellular |
| Wireline |
| Cable |
| TDS Telecom Total2 |
| Corporate, Eliminations and Other |
| Total | ||||||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Service |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||
| Equipment and product sales |
|
|
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| |||||||
|
| Total operating revenues |
|
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|
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|
|
| ||||||
Cost of services (excluding Depreciation, amortization |
|
|
|
|
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|
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|
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|
|
| ||||||||
| and accretion reported below) |
|
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|
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| |||||||
Cost of equipment and products |
|
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|
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| ||||||||
Selling, general and administrative5 |
|
|
|
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|
|
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|
|
|
| ||||||||
Depreciation, amortization and accretion |
|
|
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|
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|
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| ||||||||
(Gain) loss on asset disposals, net |
|
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|
| ||||||||
(Gain) loss on license sales and exchanges, net |
|
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|
| ||||||||
Operating income (loss)5 |
|
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| ||||||||
Equity in earnings of unconsolidated entities |
|
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| ||||||||
Interest and dividend income |
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| ||||||||
Interest expense |
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| ||||||||
Other, net5 |
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| ||||||||
Income (loss) before income taxes |
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| ||||||||
Income tax expense (benefit)3 |
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Net income (loss) |
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Add back: |
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Depreciation, amortization and accretion |
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(Gain) loss on asset disposals, net |
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(Gain) loss on license sales and exchanges, net |
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Interest expense |
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Income tax expense (benefit)3 |
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Adjusted EBITDA4 |
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Investments in unconsolidated entities |
| $ |
| $ |
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| $ |
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Total assets |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
Capital expenditures |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
TDS Telecom | |||||||||||||||||||||||
Three Months Ended or as of June 30, 2018 | U.S. Cellular | Wireline | Cable | TDS Telecom Total1 | Corporate, Eliminations and Other | Total | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||
Service | $ | 741 | $ | 173 | $ | 57 | $ | 230 | $ | 22 | $ | 993 | |||||||||||
Equipment and product sales | 233 | — | — | 1 | 28 | 262 | |||||||||||||||||
Total operating revenues | 974 | 174 | 57 | 230 | 51 | 1,255 | |||||||||||||||||
Cost of services (excluding Depreciation, amortization and accretion reported below) | 187 | 67 | 27 | 93 | 20 | 300 | |||||||||||||||||
Cost of equipment and products | 240 | — | — | — | 26 | 266 | |||||||||||||||||
Selling, general and administrative | 342 | 50 | 15 | 64 | 11 | 417 | |||||||||||||||||
Depreciation, amortization and accretion | 159 | 36 | 18 | 53 | 8 | 220 | |||||||||||||||||
(Gain) loss on asset disposals, net | 1 | 1 | — | 1 | — | 2 | |||||||||||||||||
(Gain) loss on license sales and exchanges, net | (11 | ) | — | — | — | — | (11 | ) | |||||||||||||||
Operating income (loss) | 56 | 21 | (3 | ) | 18 | (13 | ) | 61 | |||||||||||||||
Equity in earnings of unconsolidated entities | 40 | — | — | — | — | 40 | |||||||||||||||||
Interest and dividend income | 3 | 2 | — | 2 | 1 | 6 | |||||||||||||||||
Interest expense | (29 | ) | — | — | — | (14 | ) | (43 | ) | ||||||||||||||
Other, net | — | 1 | — | 1 | — | 1 | |||||||||||||||||
Income (loss) before income taxes | 70 | 24 | (2 | ) | 21 | (26 | ) | 65 | |||||||||||||||
Income tax expense (benefit)2 | 18 | 5 | (2 | ) | 21 | ||||||||||||||||||
Net income (loss) | 52 | 16 | (24 | ) | 44 | ||||||||||||||||||
Add back: | |||||||||||||||||||||||
Depreciation, amortization and accretion | 159 | 36 | 18 | 53 | 8 | 220 | |||||||||||||||||
(Gain) loss on asset disposals, net | 1 | 1 | — | 1 | — | 2 | |||||||||||||||||
(Gain) loss on license sales and exchanges, net | (11 | ) | — | — | — | — | (11 | ) | |||||||||||||||
Interest expense | 29 | — | — | — | 14 | 43 | |||||||||||||||||
Income tax expense (benefit)2 | 18 | 5 | (2 | ) | 21 | ||||||||||||||||||
Adjusted EBITDA3 | $ | 248 | $ | 59 | $ | 16 | $ | 75 | $ | (4 | ) | $ | 319 | ||||||||||
Investments in unconsolidated entities | $ | 439 | $ | 4 | $ | — | $ | 4 | $ | 34 | $ | 477 | |||||||||||
Total assets | $ | 7,075 | $ | 1,260 | $ | 643 | $ | 1,893 | $ | 530 | $ | 9,498 | |||||||||||
Capital expenditures | $ | 86 | $ | 33 | $ | 13 | $ | 46 | $ | 6 | $ | 138 |
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| TDS Telecom |
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Six Months Ended or as of June 30, 2018¹ |
| U.S. Cellular |
| Wireline |
| Cable |
| TDS Telecom Total2 |
| Corporate, Eliminations and Other |
| Total | ||||||||
(Dollars in millions) |
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Operating revenues |
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| Service |
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| Equipment and product sales |
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Cost of services (excluding Depreciation, amortization |
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| and accretion reported below) |
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Cost of equipment and products |
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Selling, general and administrative |
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Depreciation, amortization and accretion |
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(Gain) loss on asset disposals, net |
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(Gain) loss on license sales and exchanges, net |
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Operating income (loss) |
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Equity in earnings of unconsolidated entities |
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Interest and dividend income |
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Interest expense |
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Other, net |
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Income (loss) before income taxes |
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Income tax expense (benefit)3 |
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Net income (loss) |
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Add back: |
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Depreciation, amortization and accretion |
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(Gain) loss on asset disposals, net |
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(Gain) loss on license sales and exchanges, net |
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Interest expense |
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Income tax expense (benefit)3 |
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Adjusted EBITDA4 |
| $ |
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Investments in unconsolidated entities |
| $ |
| $ |
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| $ |
| $ |
| $ | ||||||||
Total assets |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||||
Capital expenditures |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
TDS Telecom | |||||||||||||||||||||||
Six Months Ended or as of June 30, 2019 | U.S. Cellular | Wireline | Cable | TDS Telecom Total1 | Corporate, Eliminations and Other | Total | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||
Service | $ | 1,498 | $ | 342 | $ | 121 | $ | 463 | $ | 47 | $ | 2,008 | |||||||||||
Equipment and product sales | 441 | 1 | — | 1 | 68 | 510 | |||||||||||||||||
Total operating revenues | 1,939 | 343 | 121 | 464 | 115 | 2,518 | |||||||||||||||||
Cost of services (excluding Depreciation, amortization and accretion reported below) | 369 | 127 | 52 | 179 | 40 | 588 | |||||||||||||||||
Cost of equipment and products | 458 | 1 | — | 1 | 54 | 513 | |||||||||||||||||
Selling, general and administrative | 669 | 96 | 30 | 125 | 25 | 819 | |||||||||||||||||
Depreciation, amortization and accretion | 345 | 66 | 34 | 100 | 15 | 460 | |||||||||||||||||
(Gain) loss on asset disposals, net | 7 | (8 | ) | 1 | (8 | ) | 1 | — | |||||||||||||||
(Gain) loss on sale of business and other exit costs, net | (2 | ) | — | — | — | — | (2 | ) | |||||||||||||||
(Gain) loss on license sales and exchanges, net | (2 | ) | — | — | — | — | (2 | ) | |||||||||||||||
Operating income (loss) | 95 | 61 | 5 | 66 | (19 | ) | 142 | ||||||||||||||||
Equity in earnings of unconsolidated entities | 84 | — | — | — | 1 | 85 | |||||||||||||||||
Interest and dividend income | 11 | 5 | 1 | 6 | — | 17 | |||||||||||||||||
Interest expense | (58 | ) | 1 | — | 1 | (29 | ) | (86 | ) | ||||||||||||||
Other, net | (1 | ) | — | — | — | 2 | 1 | ||||||||||||||||
Income (loss) before income taxes | 131 | 68 | 6 | 74 | (46 | ) | 159 | ||||||||||||||||
Income tax expense (benefit)2 | 41 | 18 | (9 | ) | 50 | ||||||||||||||||||
Net income (loss) | 90 | 56 | (37 | ) | 109 | ||||||||||||||||||
Add back: | |||||||||||||||||||||||
Depreciation, amortization and accretion | 345 | 66 | 34 | 100 | 15 | 460 | |||||||||||||||||
(Gain) loss on asset disposals, net | 7 | (8 | ) | 1 | (8 | ) | 1 | — | |||||||||||||||
(Gain) loss on sale of business and other exit costs, net | (2 | ) | — | — | — | — | (2 | ) | |||||||||||||||
(Gain) loss on license sales and exchanges, net | (2 | ) | — | — | — | — | (2 | ) | |||||||||||||||
Interest expense | 58 | (1 | ) | — | (1 | ) | 29 | 86 | |||||||||||||||
Income tax expense (benefit)2 | 41 | 18 | (9 | ) | 50 | ||||||||||||||||||
Adjusted EBITDA3 | $ | 537 | $ | 125 | $ | 40 | $ | 165 | $ | (1 | ) | $ | 701 | ||||||||||
Capital expenditures | $ | 297 | $ | 84 | $ | 28 | $ | 112 | $ | 2 | $ | 411 |
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| TDS Telecom |
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Six Months Ended or as of June 30, 2017 |
| U.S. Cellular |
| Wireline |
| Cable |
| TDS Telecom Total2 |
| Corporate, Eliminations and Other |
| Total | ||||||||
(Dollars in millions) |
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Operating revenues |
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| Service |
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| Equipment and product sales |
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Cost of services (excluding Depreciation, amortization |
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| and accretion reported below) |
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Cost of equipment and products |
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Selling, general and administrative5 |
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Depreciation, amortization and accretion |
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(Gain) loss on asset disposals, net |
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(Gain) loss on license sales and exchanges, net |
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Operating income (loss)5 |
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Equity in earnings of unconsolidated entities |
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Interest and dividend income |
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Interest expense |
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Other, net5 |
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Income (loss) before income taxes |
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Income tax expense (benefit)3 |
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Net income (loss) |
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Add back: |
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Depreciation, amortization and accretion |
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(Gain) loss on asset disposals, net |
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(Gain) loss on license sales and exchanges, net |
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Interest expense |
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Income tax expense (benefit)3 |
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Adjusted EBITDA4 |
| $ |
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Investments in unconsolidated entities |
| $ |
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| $ |
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Total assets |
| $ |
| $ |
| $ |
| $ |
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| $ | ||||||||
Capital expenditures |
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Numbers may not foot due to rounding. |
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1 | As of January 1, 2018, TDS adopted ASU 2014-09 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 ASU 2014-09, but 2017 amounts remain as previously reported, except as specifically stated. See Note 2 — Revenue Recognition for additional information. | |||||||||||||||||||
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2 | TDS Telecom Total includes eliminations between the Wireline and Cable segments. | |||||||||||||||||||
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3 | Income tax expense (benefit) is not provided at the individual segment level for Wireline and Cable. TDS calculates income tax expense for “TDS Telecom Total”. | |||||||||||||||||||
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4 | 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. | |||||||||||||||||||
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5 | 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 year numbers have been recast to conform to this standard. | |||||||||||||||||||
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TDS Telecom | |||||||||||||||||||||||
Six Months Ended or as of June 30, 2018 | U.S. Cellular | Wireline | Cable | TDS Telecom Total1 | Corporate, Eliminations and Other | Total | |||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||
Service | $ | 1,465 | $ | 348 | $ | 112 | $ | 460 | $ | 45 | $ | 1,970 | |||||||||||
Equipment and product sales | 450 | 1 | — | 1 | 59 | 510 | |||||||||||||||||
Total operating revenues | 1,915 | 349 | 112 | 461 | 104 | 2,480 | |||||||||||||||||
Cost of services (excluding Depreciation, amortization and accretion reported below) | 365 | 131 | 52 | 183 | 39 | 587 | |||||||||||||||||
Cost of equipment and products | 459 | 1 | — | 1 | 52 | 512 | |||||||||||||||||
Selling, general and administrative | 668 | 97 | 28 | 124 | 21 | 813 | |||||||||||||||||
Depreciation, amortization and accretion | 317 | 72 | 35 | 107 | 17 | 441 | |||||||||||||||||
(Gain) loss on asset disposals, net | 2 | 1 | 1 | 1 | — | 3 | |||||||||||||||||
(Gain) loss on license sales and exchanges, net | (17 | ) | — | — | — | — | (17 | ) | |||||||||||||||
Operating income (loss) | 121 | 47 | (4 | ) | 43 | (23 | ) | 141 | |||||||||||||||
Equity in earnings of unconsolidated entities | 78 | — | — | — | — | 78 | |||||||||||||||||
Interest and dividend income | 7 | 3 | — | 3 | 1 | 11 | |||||||||||||||||
Interest expense | (58 | ) | 1 | — | 1 | (29 | ) | (86 | ) | ||||||||||||||
Other, net | (1 | ) | 1 | — | 1 | 2 | 2 | ||||||||||||||||
Income (loss) before income taxes | 147 | 52 | (4 | ) | 48 | (49 | ) | 146 | |||||||||||||||
Income tax expense (benefit)2 | 40 | 12 | (7 | ) | 45 | ||||||||||||||||||
Net income (loss) | 107 | 37 | (43 | ) | 101 | ||||||||||||||||||
Add back: | |||||||||||||||||||||||
Depreciation, amortization and accretion | 317 | 72 | 35 | 107 | 17 | 441 | |||||||||||||||||
(Gain) loss on asset disposals, net | 2 | 1 | 1 | 1 | — | 3 | |||||||||||||||||
(Gain) loss on license sales and exchanges, net | (17 | ) | — | — | — | — | (17 | ) | |||||||||||||||
Interest expense | 58 | (1 | ) | — | (1 | ) | 29 | 86 | |||||||||||||||
Income tax expense (benefit)2 | 40 | 12 | (7 | ) | 45 | ||||||||||||||||||
Adjusted EBITDA3 | $ | 507 | $ | 124 | $ | 32 | $ | 156 | $ | (4 | ) | $ | 659 | ||||||||||
Capital expenditures | $ | 155 | $ | 62 | $ | 24 | $ | 87 | $ | 11 | $ | 253 |
1 | TDS Telecom Total includes eliminations between the Wireline and Cable segments. |
2 | Income tax expense (benefit) is not provided at the individual segment level for Wireline and Cable. 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. |
2018.
2019.
TDS entered into a revolving credit agreement on May 10, 2018. A description of TDS’ revolving credit agreement is included in TDS’ Current Report on Form 8-K dated May 10, 2018, and is incorporated by reference herein.
U.S. Cellular entered into a revolving credit agreement on May 10, 2018. A description of U.S. Cellular’s revolving credit agreement is included in U.S. Cellular’s Current Report on Form 8-K dated May 10, 2018, and is incorporated by reference herein.
Exhibit Number | Description of Documents |
Exhibit | |
| |
Exhibit | |
Exhibit 4.2 | |
Exhibit 10.1 | |
Exhibit | |
Exhibit 10.3 | |
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Exhibit 31.1 | |
Exhibit 31.2 | |
Exhibit 32.1 | |
Exhibit 32.2 | |
Exhibit 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
Exhibit 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
Exhibit 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document |
Exhibit 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document |
Exhibit 101.LAB | Inline XBRL Taxonomy Label Linkbase Document |
Exhibit 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
Item Number | Page No. | ||||
Part I. | Financial Information | ||||
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Part II. | Other Information | ||||
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TELEPHONE AND DATA SYSTEMS, INC. | ||||||
(Registrant) | ||||||
Date: | August | /s/ LeRoy T. Carlson, Jr. | ||||
LeRoy T. Carlson, Jr. President and Chief Executive Officer (principal executive officer) | ||||||
Date: | August | /s/ | ||||
Peter L. Sereda Executive Vice President and Chief Financial Officer (principal financial officer) | ||||||
Date: | August 1, 2019 | /s/ Anita J. Kroll | ||||
Anita J. Kroll Vice President - ( | ||||||
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