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2015 Annual Report
uscellular.com

Table of contents

  • Page 1
    2015 Annual Report uscellular.com

  • Page 2
    ... by people who live in urban areas." - LeRoy Carlson, 1979, TDS Annual Report " The key to harnessing the business power and potential of communications technology is to respect and understand the people who use, develop and support it." - LeRoy Carlson, 2002 KPMG Illinois High Tech Awards ceremony

  • Page 3
    ... giants by providing the best services and products together with exceptional customer service. We focus our efforts on America's suburban and rural markets, including some of the most remote areas of the country. We have strengthened and expanded our high-quality networks and improved our data and...

  • Page 4
    ... data buckets resulting in revenue growth. Operating on a network quality foundation In 2015, we continued our investment in our network to provide more capacity to meet growing demands for data services and to provide better in-home coverage. With฀4G฀LTE,฀we฀can฀provide฀our฀customers...

  • Page 5
    ... line of services and products, we are poised for more growth. While we saw higher equipment sales in 2015, there's still progress to be made in increasing recurring sales revenues.฀We฀believe฀the฀HMS฀industry฀has฀attractive฀ long-term growth potential as mid-market companies...

  • Page 6
    ... strengthen our competitive position and improve operating performance.฀Looking฀forward,฀we฀will฀continue฀to฀ execute on our strategies to build strong, competitive businesses providing high-quality, data-focused products and services. Since฀August฀of฀2013,฀TDS฀has฀invested...

  • Page 7
    ... and Exchange Commission (''SEC''). The following information was filed with the SEC on February 24, 2016 as Exhibit 13 to Telephone and Data Systems' Annual Report on Form 10-K for the year ended December 31, 2015. Such information has not been updated or revised since the date it was originally...

  • Page 8
    Telephone and Data Systems, Inc. Financial Reports Contents Exhibit 13 Page No. Management's Discussion and Analysis of Financial Condition and Results of Operations Executive Overview Terms used by TDS Results of Operations - TDS Consolidated U.S. Cellular Operations TDS Telecom Operations ...

  • Page 9
    ... General Telephone and Data Systems, Inc. (''TDS'') is a diversified telecommunications company that provides high-quality telecommunications services to approximately 6 million customers nationwide. TDS provides wireless services through its 84%-owned subsidiary, United States Cellular Corporation...

  • Page 10
    ... position and improve operating performance. Looking ahead to 2016, TDS will look to build shareholder value by continuing to execute on its strategies to build strong, competitive businesses providing high-quality, data-focused products and services. Invest in the business to improve returns...

  • Page 11
    ..., increase capacity in existing cell sites and switches, outfit new and remodel existing retail stores, enhance billing and other customer management related systems and platforms, perform network upgrades and fiber expansion, and expand HMS data center facilities. á"¢ á"¢ á"¢ Terms Used by TDS...

  • Page 12
    ... of customers provided video services using IP networking technology. 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 customers added...

  • Page 13
    ... OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - TDS CONSOLIDATED Year Ended December 31, (Dollars in thousands) 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 Operating revenues U.S. Cellular ...TDS Telecom ...All other1 ...Total operating revenues Operating expenses...

  • Page 14
    ... 8% from 2014. Expenses associated with ongoing operations of TDS, specifically Cost of equipment and products, decreased due primarily to an overall lower average price per unit on a fewer number of devices sold in the wireless operations. Additionally, effective cost management of Selling, general...

  • Page 15
    ...Cellular's issuance of $275 million of 7.25% Senior Notes in December 2014 and the $225 million Term Loan in July 2015. Interest expense increased from 2013 to 2014 due primarily to a decrease in capitalized interest related to network and systems projects. Income tax expense The effective tax rates...

  • Page 16
    ... adoption of equipment installment plans, less devices sold, and a lower average cost per device sold. Net income (loss) increased from 2014 to 2015 due to the same reasons as Adjusted EBITDA, and also due to an increase in Gain on sale of business and other exit costs in U.S. Cellular, and a Loss...

  • Page 17
    ... million prepaid customers. Operates in 23 states. Employs approximately 6,400 employees. Headquartered in Chicago, Illinois. 6,297 cell sites including 3,978 owned towers in service. SIGNIFICANT TRENDS AND DEVELOPMENTS Technology and Support Systems: á"¢ U.S. Cellular continued to deploy 4G LTE...

  • Page 18
    ... an increase in equipment sales revenues. However, certain of the equipment installment plans provide the customer with a reduction in the monthly access charge for the device; thus, to the extent that existing customers adopt such plans, U.S. Cellular expects a reduction in retail service revenues...

  • Page 19
    ...of U.S. Cellular's retail customers at December 31, 2015. U.S. Cellular believes the increase in net additions in 2015 is a result of competitive products and services priced to offer the best value to customers, improved speed to market for product offerings, and expanded equipment installment plan...

  • Page 20
    ... of 2015, smartphones represented 91% of total handset sales. Continued growth in revenues and costs related to data products and services may result in increased operating expenses and the need for additional investment in spectrum, network capacity and network enhancements. 2014-2013 Commentary...

  • Page 21
    ...adoption of shared data plans, and the special issuance of loyalty rewards points which negatively impacted these metrics in 2013, partially offset by discounts on shared data plans provided to customers on equipment installment plans and those providing their own device at the time of activation or...

  • Page 22
    ...,089) (5)% (15)% (3)% (5)% 53% (1)% Retail service ...Inbound roaming ...Other ...Service revenues ...Equipment sales ...Total operating revenues ...System operations (excluding Depreciation, amortization and accretion reported below) ...Cost of equipment sold ...Selling, general and administrative...

  • Page 23
    ... costs and value added services, including data products and services (''retail service'') $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2013 2014 2015 Equipment Other Service Inbound Roaming Retail Service á"¢ Charges to other wireless carriers whose customers use U.S. Cellular...

  • Page 24
    ...NY2 Deconsolidation. Equipment installment plan sales contributed $190.4 million and $0.8 million in 2014 and 2013, respectively. System operations expenses Maintenance, utility and cell site expenses increased $26.6 million, or 8%, reflecting higher support costs for the expanded 4G LTE network and...

  • Page 25
    ... than offset the impact of selling fewer devices. Average cost per device sold increased due to general customer preference for higher priced 4G LTE smartphones and tablets. Cost of equipment sold in 2014 includes $280.3 million related to equipment installment plan sales compared to $0.8 million in...

  • Page 26
    ..., through its HMS business, TDS Telecom provides a wide range of Information Technology (''IT'') services including colocation, dedicated hosting, hosted application management, cloud computing services and planning, engineering, procurement, installation, sales and management of IT infrastructure...

  • Page 27
    ..., and development opportunities in 2016 and beyond. á"¢ á"¢ á"¢ Products and Services: á"¢ In 2015, TDS Telecom continued rolling out IPTV, branded as TDS TV, to new markets in order to leverage its high-speed network. TDS TV provides customers with connected-home DVRs, video-on-demand...

  • Page 28
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL OVERVIEW Components of Operating Income (Loss) Year Ended December 31, (Dollars in thousands) 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 Operating revenues Wireline ...Cable ...HMS ...Intra-company...

  • Page 29
    ... in 2015 due to the impact of an $84.0 million non-cash goodwill impairment loss in 2014 offset by a $43.8 million increase from Cable acquisitions. HMS equipment cost of goods sold increased $16.6 million. 2014-2013 Commentary Total operating revenues Operating revenues increased in 2014 due...

  • Page 30
    ... services through value-added bundling. In its commercial business TDS Telecom's focus is on small- to medium-sized businesses and its sales efforts emphasize advanced IP-based voice and data services. OPERATIONAL OVERVIEW ILEC Residential Customers by Broadband Speeds Wireline Residential Revenue...

  • Page 31
    ...,000 50,000 0 2013 2014 2015 12MAR201601532646 Voice Broadband IPTV Commercial Connections 250,000 200,000 150,000 100,000 50,000 0 2013 2014 Voice Broadband managedIP 2015 12MAR201601532238 TDS Telecom added 11,000 IPTV connections in 2015 with expansion into nine new markets. Voice connections...

  • Page 32
    ...(Dollars in thousands) 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 Service revenues Residential ...Commercial ...Wholesale ...Total service revenues ...Equipment and product sales ...Total operating revenues . . Cost of services (excluding depreciation, amortization and accretion reported below...

  • Page 33
    ... $0 2013 2014 2015 Commercial Residential á"¢ IPTV and satellite video á"¢ Voice services Commercial revenues consist of: á"¢ TDS managedIP voice and data services á"¢ High-speed and dedicated business internet services á"¢ Voice services Wholesale revenues consist of: á"¢ Network access services...

  • Page 34
    ... driven by price increases on legacy voice and data services and managedIP customers moving to higher speed data services increased commercial revenues $2.8 million. Wholesale revenues decreased 4% in 2014. Revenues received through inter-state and intra-state regulatory support mechanisms decreased...

  • Page 35
    ...focus. TDS Telecom seeks to be the leading provider of broadband and video services in its targeted markets. OPERATIONAL OVERVIEW Market Penetration Broadband 36% Cable Connections 140,000 120,000 100,000 Video 33% 80,000 60,000 Broadband Video Voice Voice 17% 40,000 20,000 0 2013 2014 2015...

  • Page 36
    ... FINANCIAL OVERVIEW - CABLE Components of Operating Income (Loss) Year Ended December 31, (Dollars in thousands) 2015 20142 20131 2015 vs. 2014 2014 vs. 2013 Service revenues Residential ...Commercial ...Total service revenues ...Equipment and product sales ...Total operating revenues ...Cost...

  • Page 37
    ... in broadband and voice connections. Acquisitions contributed $43.8 million to operating expenses. The remaining increase is due to higher advertising, plant maintenance and programming content costs. 2014-2013 Commentary Changes in operating revenues and operating expenses in 2014 are due primarily...

  • Page 38
    ...616 $ 2015 vs. 2014 7,044 21,019 28,063 6% 14% 11% 2014 vs. 2013 $ 14,891 58,225 73,116 16% 64% 39% Service revenues ...Equipment and product sales ...Total operating revenues ...Cost of services (excluding depreciation, amortization and accretion reported below) ...Cost of equipment and products...

  • Page 39
    ... 2015. Equipment and product sales revenues from sales of IT infrastructure hardware solutions increased in 2015 due primarily to higher spending by existing customers. There was a corresponding increase in Cost of equipment and products and Cost of services needed to support revenue growth. Selling...

  • Page 40
    ... held by U.S. Cellular is for its operational needs and acquisition, capital expenditure and business development programs. TDS does not have direct access to U.S. Cellular cash unless U.S. Cellular pays a dividend on its common stock. U.S. Cellular has no current intention to pay a dividend to its...

  • Page 41
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TDS Cash and Cash Equivalents (Dollars in millions) $1,200 $1,000 $800 $600 $400 $200 $0 2013 2014 2015 U.S. Cellular TDS Telecom , TDS Corporate & Other At December 31, 2015, TDS' consolidated cash and cash ...

  • Page 42
    ... 31, 2015. Refer to Market Risk - Long-Term Debt for additional information regarding required principal payments and the weighted average interest rates related to TDS' Long-term debt. TDS and U.S. Cellular, at their discretion, may from time to time seek to retire or purchase their outstanding...

  • Page 43
    ... and to construct and upgrade telecommunications networks and facilities to remain competitive and as a basis for creating long-term value for shareholders. In recent years, rapid changes in technology and new opportunities (such as 4G LTE technology in the Wireless business and fiber in the...

  • Page 44
    ... providing additional capacity to accommodate increased network usage, principally data usage, by current customers; Deploy VoLTE technology in certain markets; Expand and enhance the retail store network; and Develop and enhance office systems. á"¢ á"¢ $500 $400 $300 $200 $100 $0 2013 2014 2015...

  • Page 45
    ... to Consolidated Financial Statements for additional information related to significant transactions. Cash Payments for Acquisitions (Dollars in millions) $350 $300 $250 $200 $150 $100 $50 $0 2013 2014 2015 HMS Businesses Cable Businesses U.S. Cellular Licenses TDS assesses its business interests...

  • Page 46
    ... in 2014 and $0.1275 in 2013. TDS increased the dividend per share to $0.1480 in the first quarter of 2016. See Note 16 - Common Shareholders' Equity in the Notes to Consolidated Financial Statements for additional information. TDS has no current plans to change its policy of paying dividends. 38

  • Page 47
    ... discount related to U.S. Cellular's 6.7% Senior Notes. See Note 11 - Debt in the Notes to Consolidated Financial Statements for additional information. Includes future lease costs related to telecommunications plant facilities, office space, retail sites, cell sites, data centers and equipment...

  • Page 48
    ...-term value for shareholders. In recent years, rapid changes in technology and new opportunities have required substantial investments in potentially revenue-enhancing and cost-reducing upgrades to TDS' networks. Cash used for additions to property, plant and equipment totaled $800.6 million in 2015...

  • Page 49
    ...million increase attributable to equipment installment plans. U.S. Cellular implemented equipment installment plans on a broad basis in 2014. Inventory, net Inventory, net decreased $115.5 million due primarily to selling inventory on hand at December 31, 2014 and better management of purchasing and...

  • Page 50
    ... Cellular's $300 million 7.25% Senior Notes issued in November 2015 and $225 million Term Loan draw in July 2015. See Note 11 - Debt for additional information. APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES TDS prepares its consolidated financial statements in accordance with GAAP . TDS...

  • Page 51
    ... impact the projected revenue growth rates, including, but not limited to: the success of new and existing products/ services, competition, operational difficulties and customer churn. The discount rate of each reporting unit was computed by calculating the weighted average cost of capital of...

  • Page 52
    ... impact the projected revenue growth rates, including, but not limited to: the success of new and existing products/ services, competition, and operational difficulties. TDS Telecom's reporting units use internally generated forecasts to develop such rates. These internally generated forecasts...

  • Page 53
    ...risks that could negatively impact the projected revenue growth rates, including, but not limited to: the success of new and existing products/ services, competition, network buildout costs and operational difficulties. TDS Telecom's reporting units use internally generated forecasts to develop such...

  • Page 54
    ... balance of the installment contract, provided the customer trades-in an eligible used device in good working condition and purchases a new device from TDS. Equipment revenue under these contracts is recognized at the time the device is delivered to the end-user customer for the selling price...

  • Page 55
    ...Notes to Consolidated Financial Statements. REGULATORY MATTERS FCC Net Neutrality Order In February 2015, the FCC adopted an Open Internet Order relating to new net neutrality rules. The rules became effective in June 2015. The order reclassified high-speed, or broadband, internet access service as...

  • Page 56
    ... end of the forward auction. These anti-collusion rules, which could last six months or more from February 10, 2016, may restrict the conduct of certain U.S. Cellular activities with other applicants in Auction 1000 as well as with nationwide providers of wireless services which are not applicants...

  • Page 57
    ...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...

  • Page 58
    ...activities as part of its plans to improve the quality, coverage, capabilities and capacity of its networks and support systems 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...

  • Page 59
    ... 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...

  • Page 60
    ... discount related to U.S. Cellular's 6.7% Senior Notes. See Note 11 - Debt in the Notes to Consolidated Financial Statements for additional information. Represents the weighted average interest rates at December 31, 2015 for debt maturing in the respective periods. 2 Fair Value of Long-Term...

  • Page 61
    ... CONDITION AND RESULTS OF OPERATIONS SUPPLEMENTAL INFORMATION TDS sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with U.S. GAAP to evaluate the performance of its business. Certain of these measures...

  • Page 62
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as indicated below. TDS - CONSOLIDATED (Dollars in thousands) 2015 ...accretion ...$ 262,610 171...

  • Page 63
    ...Gain) loss on sale of business and other exit costs, net (Gain) loss on license sales and exchanges ...(Gain) loss on asset disposals, net ... Operating income (loss) (GAAP) ...TDS TELECOM (Dollars in thousands) Net income (loss) (GAAP) ...Add back: Income tax expense (benefit) . Interest expense...

  • Page 64
    ... entities Interest and dividend income ...Other, net ...Operating cash flow ...Deduct: Depreciation, amortization and accretion . (Gain) loss on sale of business and other (Gain) loss on asset disposals, net ... ...exit costs, net ... Operating income (loss) (GAAP) ...CABLE (Dollars in thousands...

  • Page 65
    ... may be useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations (including cash proceeds from the Sprint Cost Reimbursement), after Cash used for additions to property, plant and equipment. 2015 (Dollars in thousands) 2014...

  • Page 66
    TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, (Dollars and shares in thousands, except per share amounts) 2015 2014 2013 Operating revenues Service ...Equipment and product sales ...Total operating revenues ...Operating expenses Cost of services (...

  • Page 67
    TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, (Dollars in thousands) 2015 ...$ 262,610 (399) 37 $ 2014 (147,292) 341 48 $ 2013 166,821 51 (34) Net income (loss) ...Net change in accumulated other comprehensive income (loss) Change...

  • Page 68
    ... benefit plans, net of tax payments ...U.S. Cellular Common Shares reissued for benefit plans, net of tax payments Repurchase of TDS Common Shares ...Repurchase of U.S. Cellular Common Shares ...Dividends paid to TDS shareholders ...U.S. Cellular dividends paid to noncontrolling public shareholders...

  • Page 69
    TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED BALANCE SHEET - ASSETS December 31, (Dollars in thousands) 2015 2014 Current assets Cash and cash equivalents ...Accounts receivable Due from customers and agents, less allowances of $49,223 and $41,431, respectively . Other, less allowances of $1,...

  • Page 70
    TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED BALANCE SHEET - LIABILITIES AND EQUITY December 31, (Dollars and shares in thousands) 2015 2014 Current liabilities Current portion of long-term debt ...Accounts payable ...Customer deposits and deferred revenues Accrued interest ...Accrued taxes ......

  • Page 71
    TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY TDS Shareholders Series A Common and Common shares Capital in excess of par value Treasury shares (748,199 8,607 12,410 - - - - (727,182 355 $ - (6,097) - 219,037 - - (61,170) (49) - (514) - - - - 2,487,491 $ 6,452 $ 2,...

  • Page 72
    TELEPHONE AND DATA SYSTEMS, INC. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY TDS Shareholders Series A Common and Common shares Capital in excess of par value Treasury shares (721,354 39,096) 7,093 5,158 - - - - (748,199 6,452 $ - 7,021 - (136,355) - - (57,991) (49) - - (5,044) - - - - 2,330,187 ...

  • Page 73
    ... and Series A Common Share dividends ...TDS Preferred dividend requirement ...U.S. Cellular dividends paid to noncontrolling public shareholders ...Repurchase of Preferred Shares ...Repurchase of Common Shares ...Dividend reinvestment plan ...Incentive and compensation plans ...Adjust investment in...

  • Page 74
    ... FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS Nature of Operations Telephone and Data Systems, Inc. (''TDS'') is a diversified telecommunications company providing high-quality services to approximately 4.9 million wireless customers...

  • Page 75
    ...with cost determined using the first-in, first-out method and market determined by replacement cost or estimated net realizable value. Licenses Licenses consist of direct and incremental costs incurred in acquiring Federal Communications Commission (''FCC'') licenses to provide wireless service. TDS...

  • Page 76
    ... which U.S. Cellular has similar customers, products and services, and operations across all geographic regions, and also operates one interdependent network, U.S. Cellular determined it had one reporting unit as of November 1, 2015. The change in reporting units required U.S. Cellular to perform an...

  • Page 77
    ... property, plant and equipment for impairment based on the fact that the individual operating markets are reliant on centrally operated data centers, mobile telephone switching offices and a network operations center. U.S. Cellular operates a single integrated national wireless network, and the...

  • Page 78
    ...reward program effective September 1, 2015. All unredeemed reward points expired at that time and the deferred revenue balance of $58.2 million related to such expired points was recognized as service revenues. At December 31, 2014, U.S. Cellular had deferred revenue related to loyalty reward points...

  • Page 79
    ... loyalty bonus reduced Service revenues in the Consolidated Statement of Operations in 2013. Equipment Installment Plans U.S. Cellular equipment revenue under equipment installment plan contracts is recognized at the time the device is delivered to the end-user customer for the selling price of the...

  • Page 80
    ... the dividends declared in the most recent year as a percentage of the share price on the date of grant. The risk-free interest rate assumption is determined using the U.S. Treasury Yield Curve Rate with a term length that approximates the expected life of the stock options. TDS stock option awards...

  • Page 81
    ... as a going concern, including management's plan to alleviate the substantial doubt. TDS is required to adopt the provisions of ASU 2014-15 for the annual period ending December 31, 2016, but early adoption is permitted. The adoption of ASU 2014-15 will not impact TDS' financial position or results...

  • Page 82
    ...to the short-term nature of these financial instruments. Long-term debt excludes capital lease obligations and the current portion of Long-term debt. The fair value of ''Retail'' Long-term debt was estimated using market prices for TDS' 7.0% Senior Notes, 6.875% Senior Notes, 6.625% Senior Notes and...

  • Page 83
    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TDS assesses the collectability of the equipment installment plan receivables based on historical payment experience, account aging and other qualitative factors and provides an allowance for estimated losses. The credit ...

  • Page 84
    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant components of TDS' deferred income tax assets and liabilities at December 31, 2015 and 2014 were as follows: December 31, (Dollars in thousands) 2015 2014 Deferred tax assets Current deferred tax assets ......

  • Page 85
    ... tax benefits is as follows: 2015 (Dollars in thousands) 2014 $ 30,390 7,610 883 (399) (312) (356) 37,816 $ 2013 28,420 6,388 1,858 (467) (1,337) (4,472) 30,390 Unrecognized tax benefits balance at beginning of year Additions for tax positions of current year ...Additions for tax positions of...

  • Page 86
    ... stock units ...Preferred shares ... NOTE 6 ACQUISITIONS, DIVESTITURES AND EXCHANGES Divestiture Transaction On May 16, 2013, pursuant to a Purchase and Sale Agreement, U.S. Cellular sold customers and certain PCS spectrum licenses to subsidiaries of Sprint Corp. fka Sprint Nextel Corporation...

  • Page 87
    ... $302.0 million in (Gain) loss on sale of business and other exit costs, net, in 2015, 2014 and 2013, respectively. Other Acquisitions, Divestitures and Exchanges á"¢ In 2015, TDS sold certain Wireline markets for $25.6 million, including working capital adjustments, and recognized aggregated gains...

  • Page 88
    ...outstanding shares of MSN Communications, Inc. (''MSN'') for $43.6 million in cash. MSN is an information technology solutions provider whose service offerings complement the HMS portfolio of products. MSN is included in the HMS segment for reporting purposes. In October 2013, U.S. Cellular sold the...

  • Page 89
    ... for sale'' and ''Liabilities held for sale'': Other Assets and Deferred Charges Property, Plant and Equipment Total Assets Held for Sale Current Assets (Dollars in thousands) Licenses Goodwill 2014 Divestiture of Spectrum Licenses . Sale of Business - Towers ...Divestiture of Wireline markets...

  • Page 90
    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill U.S. Cellular (Dollars in thousands) Wireline $ 420,458 - - (2,564) (4,100) 413,794 (5,005) - $ 408,789 $ $ Cable 61,712 33,610 - - - 95,322 - - 95,322 $ $ HMS 118,830 - (84,...

  • Page 91
    ... DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 INVESTMENTS IN UNCONSOLIDATED ENTITIES Investments in unconsolidated entities consist of amounts invested in wireless and wireline entities in which TDS holds a noncontrolling interest. These investments are accounted for using...

  • Page 92
    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On April 3, 2013, U.S. Cellular entered into an agreement with Verizon Wireless relating to the Partnerships. The agreement amends the Partnership Agreements in several ways which provide Verizon Wireless with substantive ...

  • Page 93
    ... some defined date in the future. Asset retirement obligations are included in Other deferred liabilities and credits and Other current liabilities in the Consolidated Balance Sheet. In 2015 and 2014, U.S. Cellular and TDS Telecom performed a review of the assumptions and estimated costs related to...

  • Page 94
    ... from time to time. At December 31, 2015, TDS had recorded $3.6 million of issuance costs related to the revolving credit facilities which is included in Other assets and deferred charges in the Consolidated Balance Sheet. Term Loan In January 2015, U.S. Cellular entered into a senior term loan...

  • Page 95
    ...-Term Debt In November 2015, U.S. Cellular issued $300 million of 7.25% Senior Notes due 2064, and received cash proceeds of $289.7 million after payment of debt issuance costs of $10.3 million. These funds will be used for general corporate purposes, including working capital, spectrum purchases...

  • Page 96
    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Long-term debt as of December 31, 2015 and 2014 was as follows: December 31, 2015 Less Unamortized discount and debt issuance costs 2014 Less Unamortized discount and debt issuance costs Issuance Maturity Call date date ...

  • Page 97
    ... employees of TDS Corporate and TDS Telecom. The plan is contributory, with retiree contributions adjusted annually. In August 2015, TDS approved an amendment to its defined benefit post-retirement plan. Under this plan, TDS provides a subsidy to retirees to pay for various medical plan options...

  • Page 98
    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table reconciles the beginning and ending balances of the benefit obligation and the fair value of plan assets for the other post-retirement benefit plan. December 31, (Dollars in thousands) 2015 2014 ...

  • Page 99
    ...% Barclays Capital Aggregate Bond Index. The three-year and five-year average rates of return for TDS' postretirement benefit fund are 8.02% and 7.40%, respectively. The post-retirement benefit fund does not hold any debt or equity securities issued by TDS, U.S. Cellular or any related parties. 91

  • Page 100
    ... the average time remaining before active employees retire. The following assumptions were used to determine benefit obligations and net periodic benefit cost: December 31, Benefit obligations Discount rate ...Net periodic benefit cost Discount rate ...Expected return on plan assets ...2015 4.40...

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    ...: Estimated Future Post-Retirement Benefit Payments ...$ 1,823 1,969 2,061 2,163 2,257 12,229 Year (Dollars in thousands) 2016 ...2017 ...2018 ...2019 ...2020 ...2021-2025 . NOTE 13 COMMITMENTS AND CONTINGENCIES Agreements In November 2014, U.S. Cellular executed a Master Statement of Work and...

  • Page 102
    ... to direct the activities that most significantly impact the economic performance of Advantage Spectrum, Aquinas Wireless and King Street Wireless (collectively, the ''limited partnerships'') is shared. Specifically, the general partner of these VIEs has the exclusive right to manage, operate and...

  • Page 103
    .... Other Related Matters In March 2015, King Street Wireless made a $60.0 million distribution to its investors. Of this distribution, $6.0 million was provided to King Street Wireless, Inc. and $54.0 million was provided to U.S. Cellular. FCC Auction 97 ended in January 2015. TDS participated in...

  • Page 104
    ... of Operations. During 2015, TDS recorded out-of-period adjustments attributable to 2013 and 2014, related to an agreement with King Street Wireless. TDS has determined that these adjustments were not material to the prior quarterly or annual periods, and also were not material to the full year 2015...

  • Page 105
    .... Common Share Repurchases TDS and U.S. Cellular Share Repurchases On August 2, 2013, the Board of Directors of TDS authorized a $250 million stock repurchase program for the purchase of TDS Common Shares from time to time pursuant to open market purchases, block transactions, private purchases or...

  • Page 106
    ... ...Cost of services and products ...Total stock-based compensation ... TDS' tax benefits realized from the exercise of stock options and other awards totaled $7.7 million in 2015. TDS (Excluding U.S. Cellular) The information in this section relates to stock-based compensation plans using the...

  • Page 107
    ... equals the market value of TDS common stock on the date of grant. TDS estimated the fair value of stock options granted in 2015, 2014 and 2013 using the Black Scholes valuation model and the assumptions shown in the table below: 2015 Expected life ...Expected annual volatility rate . Dividend yield...

  • Page 108
    ... reinvest cash dividends in Series A Common Shares. The purchase price of the shares is 95% of the market value, based on the average of the daily high and low sales prices for TDS' Common Shares on the New York Stock Exchange for the ten trading days preceding the date on which the purchase is made...

  • Page 109
    ...value of U.S. Cellular Common Shares on the date of grant. U.S. Cellular estimated the fair value of stock options granted during 2015, 2014 and 2013 using the Black-Scholes valuation model and the assumptions shown in the table below. 2015 Expected life ...Expected annual volatility rate . Dividend...

  • Page 110
    ... generally vest after three years, to key employees. U.S. Cellular estimates the fair value of restricted stock units based on the closing market price of U.S. Cellular shares on the date of grant. The fair value is then recognized as compensation cost on a straight-line basis over the requisite...

  • Page 111
    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 BUSINESS SEGMENT INFORMATION U.S. Cellular and TDS Telecom are billed for all services they receive from TDS, consisting primarily of information processing, accounting and finance, and general management services. ...

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    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TDS Telecom U.S. Cellular TDS Telecom Eliminations TDS Telecom Total Corporate, Eliminations and Other Year Ended or as of December 31, 2014 (Dollars in thousands) Wireline Cable HMS Total Operating revenues Service ...

  • Page 113
    TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TDS Telecom U.S. Cellular TDS Telecom Eliminations TDS Telecom Total Corporate, Eliminations and Other Year Ended or as of December 31, 2013 (Dollars in thousands) Wireline Cable HMS Total Operating revenues Service ...

  • Page 114
    ... of stock options and vesting of other stock awards ... $ U.S. Cellular: Year Ended December 31, (Dollars in thousands) 2015 228,011 $ 8,448 6,881 (4,714) $ 2,167 $ 2014 163,355 $ 6,868 5,166 (4,336) 830 2013 606,582 $25,179 10,468 (4,684) $ 5,784 Common Shares withheld ...Aggregate value of...

  • Page 115
    ... 2015, $15.4 million in 2014 and $17.6 million in 2013. The Audit Committee of the Board of Directors of TDS is responsible for the review and evaluation of all related-party transactions as such term is defined by the rules of the New York Stock Exchange. NOTE 21 SUBSEQUENT EVENTS In January 2016...

  • Page 116
    ... Company Accounting Oversight Board (United States) and has expressed herein its unqualified opinion on these financial statements. /s/ LeRoy T. Carlson, Jr. LeRoy T. Carlson, Jr. President and Chief Executive Officer (principal executive officer) /s/ Douglas D. Shuma Douglas D. Shuma Senior Vice...

  • Page 117
    ... Commission (COSO). Management has concluded that TDS maintained effective internal control over financial reporting as of December 31, 2015 based on criteria established in the 2013 version of Internal Control - Integrated Framework issued by the COSO. The effectiveness of TDS' internal control...

  • Page 118
    ... respects, the financial position of Telephone and Data Systems, Inc. and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally...

  • Page 119
    ...SELECTED CONSOLIDATED FINANCIAL DATA Year Ended or at December 31, (Dollars and shares in thousands, except per share amounts) 2015 2014 2013 2012 2011 Statement of Operations data Operating revenues ...Loss on impairment of assets1 ...(Gain) loss on sale of business and other exit costs, net...

  • Page 120
    ... (loss) per share attributable shareholders ...Stock price ...TDS Common Shares3 High ...Low ...Close ...Dividends paid ...to TDS ... $ $ $ $ $ $ 26.64 23.00 24.90 0.141 $ $ 30.76 24.84 29.40 0.141 $ $ 30.64 24.51 24.96 0.141 $ $ 30.59 24.83 25.89 0.141 Quarter Ended 2014 (Amounts in...

  • Page 121
    ... for information on the high and low trading prices of the TDS Common Shares for 2015 and 2014. Stock Performance Graph The following chart provides a comparison of TDS' cumulative total return to shareholders (stock price appreciation plus dividends) during the previous five years to the returns of...

  • Page 122
    ... or service charges for purchases made under the plan. Investor relations TDS' annual report, SEC filings and news releases are available to investors, securities analysts and other members of the investment community. These reports are provided, without charge, upon request to our Corporate Office...

  • Page 123
    ...U.S. Cellular President and Chief Executive Officer - Telephone and Data Systems Chairman - Technology Advisory Group James Barr III Retired President and Chief Executive Officer - TDS Telecom Member - Audit Committee Steven T. Campbell Executive Vice President - Finance, Chief Financial Officer and...

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    United States Cellular Corporation 8410 West Bryn Mawr Avenue Chicago, IL 60631 Phone: 773-399-8900 uscellular.com