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Press Release Details

U.S. Cellular reports third quarter 2014 results

10-31-2014

Reports positive net additions
As previously announced, U.S. Cellular will hold a teleconference Oct. 31, 2014 at 9:30 a.m. CDT. Listen to the live call via the Events & Presentations page of investors.uscellular.com.

CHICAGO, Oct. 31, 2014 /PRNewswire/ -- United States Cellular Corporation (NYSE: USM) reported total operating revenues of $1,000.4 million for the third quarter of 2014, versus $939.2 million for the same period one year ago. Net loss attributable to U.S. Cellular shareholders and related diluted loss per share were $22.2 million and $0.26 respectively, for the third quarter of 2014, compared to $9.9 million and $0.12, respectively, in the comparable period one year ago. 

"Our top strategic priority this year is to grow our customer base," said Kenneth R. Meyers , U.S. Cellular president and CEO. "We have made significant progress toward that objective with net postpaid customer additions of 52,000 in the quarter.

"Our device and data pricing and promotions are resonating with new and existing customers. Growth in both data use and the adoption of Equipment Installment Plans drove a seven percent increase in total revenues, though margins remain under pressure from higher smartphone subsidies.

"As we move into the holiday sales season, I'm confident that we will continue to attract wireless consumers with our strong value proposition that offers a high-quality network experience, competitive devices, plans, and pricing, and excellent customer service with a local focus."

2014 Estimated Results
U.S. Cellular's estimates of full-year 2014 results are shown below.  Such estimates represent U.S. Cellular's view as of October 31, 2014.  Such forward-looking statements should not be assumed to be current as of any future date.  U.S. Cellular undertakes no duty to update such information, whether as a result of new information, future events or otherwise.  There can be no assurance that final results will not differ materially from such estimated results.

 



2014 Estimated Results



Current


Previous

(Dollars in millions)




Total operating revenues

$3,900-$4,000


Unchanged

Adjusted income before income taxes (1)

$375-$450


$350-$450

Capital expenditures

$600


$640

 

(1)

Adjusted income before income taxes is defined as income before income taxes, adjusted for the items set forth in the reconciliation below. Adjusted income before income taxes excludes these items in order to show operating results on a more comparable basis from period to period. From time to time, U.S. Cellular may exclude other items from adjusted income before income taxes if such items help reflect operating results on a more comparable basis. U.S. Cellular does not intend to imply that any such items that are excluded are non-recurring, infrequent or unusual; such items may occur in the future.  Adjusted income before income taxes is not a measure of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as an alternative to income before income taxes as an indicator of the company's operating performance or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows or as a measure of liquidity. U.S. Cellular believes adjusted income before income taxes is a useful measure of U.S. Cellular's operating results before significant recurring non-cash charges, discrete gains and losses, and financing charges (interest expense). The following table provides a reconciliation of income before income taxes to adjusted income before income taxes for 2014 estimated results, nine months ended September 30, 2014 actual results, and year ended December 31, 2013 actual results:

 





Actual Results



2014 Estimated Results


Nine Months Ended

September 30, 2014


Year Ended

December 31, 2013

(Dollars in millions)






Income (loss) before income taxes

($164)-($89)


($24)


$258

Depreciation, amortization and accretion expense

$620


$465


$804

(Gain) loss on sale of business and other exit costs, net

($50)


($28)


($247)

(Gain) loss on license sales and exchanges

($91)


($91)


($255)

(Gain) loss on investments

 - 


 - 


($19)

Interest expense

$60


$43


$44

Adjusted income before income taxes

$375-$450


$365


$585

 

Conference Call Information
U.S. Cellular will hold a conference call on Oct. 31, 2014 at 9:30 a.m. CDT.

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

About U.S. Cellular
United States Cellular Corporation provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to 4.7 million customers in 23 states. The Chicago-based company had 6,500 full- and part-time associates as of Sept. 30, 2014. At the end of the third quarter of 2014, Telephone and Data Systems, Inc. owned 84 percent of U.S. Cellular. For more information about U.S. Cellular, visit uscellular.com.

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

 

United States Cellular Corporation

Total Markets* Summary Operating Data (Unaudited)


















As of or for the Quarter Ended

9/30/2014


6/30/2014


3/31/2014


12/31/2013


9/30/2013

Retail Customers
















Postpaid

















Total at end of period


4,200,000



4,148,000



4,174,000



4,267,000



4,343,000



Gross additions


251,000



190,000



197,000



176,000



165,000



Net additions (losses)


52,000



(26,000)



(93,000)



(71,000)



(60,000)



ARPU (1)

$

56.37


$

56.82


$

57.59


$

53.53


$

54.64



Churn rate (2)


1.6%



1.7%



2.3%



1.9%



1.7%



Smartphone penetration (3)


57.9%



55.3%



53.1%



50.8%



47.1%


Prepaid

















Total at end of period


350,000



352,000



356,000



343,000



370,000



Gross additions


64,000



65,000



85,000



63,000



65,000



Net additions (losses)


(2,000)



(4,000)



13,000



(26,000)



(11,000)



ARPU (1)

$

34.40


$

34.02


$

32.22


$

31.66


$

28.72



Churn rate (2)


6.3%



6.5%



6.9%



8.3%



6.8%

Total customers at end of period


4,674,000



4,653,000



4,684,000



4,774,000



4,875,000

Billed ARPU (1)

$

53.24


$

53.36


$

53.93


$

50.25


$

50.92

Service revenue ARPU (1)

$

60.92


$

60.32


$

60.19


$

57.05


$

58.36

Smartphones sold as a percent of total

  devices sold


73.3%



72.6%



73.0%



79.6%



65.2%

Total population

















Consolidated markets (4)


54,817,000



54,817,000



54,817,000



58,013,000



84,025,000



Consolidated operating markets (4)


31,729,000



31,729,000



31,729,000



31,759,000



31,822,000

Market penetration at end of period

















Consolidated markets (5)


8.5%



8.5%



8.5%



8.2%



5.8%



Consolidated operating markets (5)


14.7%



14.7%



14.8%



15.0%



15.3%

Capital expenditures (000s)

$

142,452


$

143,927


$

89,581


$

208,135


$

242,459

Total cell sites in service


6,209



6,183



6,165



6,975



7,687

Owned towers


4,487



4,457



4,448



4,448



4,422

 

 

*

Represents U.S. Cellular's consolidated markets. These results include markets which U. S. Cellular currently consolidates, or previously consolidated in the periods presented, and are not adjusted in prior periods for subsequent divestitures or deconsolidations.




Refer to U.S. Cellular's Form 8-K filed on November 1, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and nine months ended September 30, 2013, as if the transactions had occurred at the beginning of the period.

 

United States Cellular Corporation

Core* Markets Summary Operating Data (Unaudited)


















As of or for the Quarter Ended

9/30/2014


6/30/2014


3/31/2014


12/31/2013


9/30/2013

Retail Customers
















Postpaid

















Total at end of period


4,200,000



4,148,000



4,174,000



4,267,000



4,343,000



Gross additions


251,000



190,000



197,000



176,000



165,000



Net additions (losses)


52,000



(26,000)



(93,000)



(71,000)



(60,000)



ARPU (1)

$

56.37


$

56.82


$

57.59


$

53.53


$

54.64



Churn rate (2)


1.6%



1.7%



2.3%



1.9%



1.7%



Smartphone penetration (3)


57.9%



55.3%



53.1%



50.8%



47.1%


Prepaid

















Total at end of period


350,000



352,000



356,000



343,000



370,000



Gross additions


64,000



65,000



85,000



63,000



65,000



Net additions (losses)


(2,000)



(4,000)



13,000



(26,000)



(11,000)



ARPU (1)

$

34.40


$

34.02


$

32.22


$

31.66


$

28.72



Churn rate (2)


6.3%



6.5%



6.9%



8.3%



6.8%

Total customers at end of period


4,674,000



4,653,000



4,684,000



4,774,000



4,875,000

Billed ARPU (1)

$

53.24


$

53.36


$

53.93


$

50.25


$

50.92

Service revenue ARPU (1)

$

60.92


$

60.32


$

60.19


$

57.05


$

58.36

Smartphones sold as a percent of total

devices sold


73.3%



72.6%



73.0%



79.6%



65.2%

Total population

















Consolidated markets (4)


54,817,000



54,817,000



54,817,000



58,013,000



84,025,000



Consolidated operating markets (4)


31,729,000



31,729,000



31,729,000



31,759,000



31,822,000

Market penetration at end of period

















Consolidated markets (5)


8.5%



8.5%



8.5%



8.2%



5.8%



Consolidated operating markets (5)


14.7%



14.7%



14.8%



15.0%



15.3%

Capital expenditures (000s)

$

142,452


$

143,927


$

89,581


$

211,247


$

239,332

Total cell sites in service


6,209



6,183



6,165



6,161



6,127

Owned towers


3,922



3,892



3,883



3,883



3,857

 

 

*

U.S. Cellular's Core Markets excludes the results of the Divestiture Markets and NY1 and NY2 Partnerships for the periods presented.




Refer to U.S. Cellular's Form 8-K filed on November 1, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 and NY2 Deconsolidation for the three and nine months ended September 30, 2013, as if the transactions had occurred at the beginning of the period.



(1)

ARPU metrics are calculated by dividing a revenue base by an average number of customers by the number of months in the period.  These revenue bases and customer populations are shown below:



a.

Postpaid ARPU consists of total postpaid service revenues and postpaid customers.



b.

Prepaid ARPU consists of total prepaid service revenues and prepaid customers.



c.

Billed ARPU consists of total retail service or "billed" revenues (total postpaid, prepaid and reseller service revenues) and postpaid, prepaid and reseller customers.



d.

Service revenue ARPU consists of total retail service revenues, inbound roaming and other service revenues and postpaid, prepaid and reseller customers.

(2)

Churn metrics represent the percentage of the postpaid or prepaid customers that disconnect service each month. These metrics represent the average monthly postpaid or prepaid churn rate for each respective period.

(3)

Smartphones represent wireless devices which run on an Android, Apple, BlackBerry or Windows Mobile operating system, excluding tablets. Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid customers.

(4)

The decrease in the population of Consolidated markets is due primarily to the divestiture of the Mississippi Valley non-operating license in October 2013 and the majority of the St. Louis area non-operating market license in March 2014. Total Population is used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (5) below.

(5)

Market penetration is calculated by dividing the number of wireless customers at the end of the period by the total population of consolidated markets and consolidated operating markets, respectively, as estimated by Claritas.  The increase in penetration is due primarily to a lower denominator as a result of the license divestitures described in footnote (4) above.

 

 

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Three Months Ended September 30,

(Unaudited, dollars and shares in thousands, except per share amounts)










      Change




2014


2013


Amount


Percent

Operating revenues












Service

$

851,063


$

862,330


$

(11,267)


(1%)


Equipment sales


149,356



76,906



72,450


94%



Total operating revenues


1,000,419



939,236



61,183


7%














Operating expenses












System operations (excluding Depreciation, amortization and accretion

  reported below)


199,750



177,431



22,319


13%


Cost of equipment sold


307,862



193,392



114,470


59%


Selling, general and administrative


397,545



410,468



(12,923)


(3%)


Depreciation, amortization and accretion


148,952



200,985



(52,033)


(26%)


(Gain) loss on asset disposals, net


7,947



1,701



6,246


>100%


(Gain) loss on sale of business and other exit costs, net


(10,283)



(1,534)



(8,749)


>100%



Total operating expenses


1,051,773



982,443



69,330


7%














Operating income (loss)


(51,354)



(43,207)



(8,147)


(19%)














Investment and other income (expense)












Equity in earnings of unconsolidated entities


35,971



37,360



(1,389)


(4%)


Interest and dividend income


3,572



1,095



2,477


>100%


Interest expense


(13,514)



(11,329)



(2,185)


(19%)


Other, net


95



47



48


>100%



Total investment and other income


26,124



27,173



(1,049)


(4%)














Income (loss) before income taxes


(25,230)



(16,034)



(9,196)


(57%)


Income tax expense (benefit)


(1,459)



(6,433)



4,974


77%

Net income (loss)


(23,771)



(9,601)



(14,170)


>100%


Less: Net income (loss) attributable to noncontrolling interests, net of tax


(1,606)



258



(1,864)


>(100%)

Net income (loss) attributable to U.S. Cellular shareholders

$

(22,165)


$

(9,859)


$

(12,306)


>100%













Basic weighted average shares outstanding


84,233



84,005



228


Basic earnings (loss) per share attributable to U.S. Cellular shareholders

$

(0.26)


$

(0.12)


$

(0.14)


>100%














Diluted weighted average shares outstanding


84,233



84,005



228


Diluted earnings (loss) per share attributable to U.S. Cellular shareholders

$

(0.26)


$

(0.12)


$

(0.14)


>100%

 

 

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Nine Months Ended September 30,

(Unaudited, dollars and shares in thousands, except per share amounts)










      Change




2014


2013


Amount


Percent

Operating revenues












Service

$

2,548,149


$

2,769,645


$

(221,496)


(8%)


Equipment sales


335,854



246,467



89,387


36%



Total operating revenues


2,884,003



3,016,112



(132,109)


(4%)














Operating expenses












System operations (excluding Depreciation, amortization and accretion

  reported below)


567,488



585,997



(18,509)


(3%)


Cost of equipment sold


850,314



652,153



198,161


30%


Selling, general and administrative


1,197,361



1,234,675



(37,314)


(3%)


Depreciation, amortization and accretion


465,042



593,410



(128,368)


(22%)


(Gain) loss on asset disposals, net


16,774



16,153



621


4%


(Gain) loss on sale of business and other exit costs, net


(27,694)



(243,627)



215,933


89%


(Gain) loss on license sales and exchanges


(91,446)





(91,446)


N/M



Total operating expenses


2,977,839



2,838,761



139,078


5%














Operating income (loss)


(93,836)



177,351



(271,187)


>(100%)














Investment and other income (expense)












Equity in earnings of unconsolidated entities


106,166



99,797



6,369


6%


Interest and dividend income


6,029



2,967



3,062


>100%


Gain (loss) on investments




18,527



(18,527)


N/M


Interest expense


(42,712)



(32,393)



(10,319)


(32%)


Other, net


281



153



128


84%



Total investment and other income


69,764



89,051



(19,287)


(22%)














Income (loss) before income taxes


(24,072)



266,402



(290,474)


>(100%)


Income tax expense


746



121,618



(120,872)


(99%)

Net income (loss)


(24,818)



144,784



(169,602)


>(100%)


Less: Net income (loss) attributable to noncontrolling interests, net of tax


(3,346)



6,338



(9,684)


>(100%)

Net income (loss) attributable to U.S. Cellular shareholders

$

(21,472)


$

138,446


$

(159,918)


>(100%)













Basic weighted average shares outstanding


84,262



83,897



365


Basic earnings (loss) per share attributable to U.S. Cellular shareholders

$

(0.25)


$

1.65


$

(1.90)


>(100%)














Diluted weighted average shares outstanding


84,262



84,676



(414)


Diluted earnings (loss) per share attributable to U.S. Cellular shareholders

$

(0.25)


$

1.64


$

(1.89)


>(100%)














Special dividend per share to U.S. Cellular shareholders

$


$

5.75


$

(5.75)


N/M

 

 

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)








ASSETS

















September 30,


December 31,



2014


2013

Current assets







Cash and cash equivalents

$

273,798


$

342,065


Short-term investments


40,014



50,104


Accounts receivable from customers and others


516,373



586,595


Inventory, net


184,822



238,188


Prepaid expenses


62,158



65,596


Net deferred income tax asset


97,856



99,105


Other current assets


23,237



19,538




1,198,258



1,401,191








Assets held for sale


68,288



16,027








Investments







Licenses


1,390,672



1,401,126


Goodwill


387,524



387,524


Investments in unconsolidated entities


296,900



265,585




2,075,096



2,054,235








Property, plant and equipment







In service and under construction


7,647,406



7,717,512


Less: Accumulated depreciation


4,900,957



4,860,992




2,746,449



2,856,520








Other assets and deferred charges


168,984



117,735








Total assets

$

6,257,075


$

6,445,708

 

 

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)









LIABILITIES AND EQUITY




















September 30,


December 31,




2014


2013

Current liabilities







Current portion of long-term debt

$

46


$

166


Accounts payable








Affiliated


10,367



11,243



Trade


395,484



405,583


Customer deposits and deferred revenues


294,377



256,740


Accrued taxes


55,091



73,820


Accrued compensation


57,573



66,566


Other current liabilities


132,294



192,055





945,232



1,006,173









Deferred liabilities and credits







Net deferred income tax liability


790,618



836,297


Other deferred liabilities and credits


305,891



315,073









Long-term debt


876,756



878,032









Noncontrolling interests with redemption features


1,007



536









Equity






U.S. Cellular shareholders' equity







Series A Common and Common Shares, par value $1 per share


88,074



88,074


Additional paid-in capital


1,468,781



1,424,729


Treasury shares


(167,061)



(164,692)


Retained earnings


1,933,641



2,043,095



Total U.S. Cellular shareholders' equity


3,323,435



3,391,206









Noncontrolling interests


14,136



18,391










Total equity


3,337,571



3,409,597









Total liabilities and equity

$

6,257,075


$

6,445,708

 

United States Cellular Corporation

Schedule of Cash and Cash Equivalents and Investments

(Unaudited, dollars in thousands)






The following table presents U.S. Cellular's cash and cash equivalents and investments at September 30, 2014 and December 31, 2013.








September 30,


December 31,


2014


2013








Cash and cash equivalents

$

273,798


$

342,065








Amounts included in short-term investments (1)(2)







U.S. Treasury Notes


40,014



50,104








Total cash and cash equivalents and investments

$

313,812


$

392,169

 

 

(1)

Designated as held-to-maturity investments and are recorded at amortized cost in the Consolidated Balance Sheet.

(2)

Maturities are less than twelve months from the respective balance sheet dates.

 

 

United States Cellular Corporation

Consolidated Statement of Cash Flows

Nine Months Ended September 30,

(Unaudited, dollars in thousands)







2014


2013

Cash flows from operating activities







Net income (loss)

$

(24,818)


$

144,784


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

  operating activities









Depreciation, amortization and accretion


465,042



593,410




Bad debts expense


74,357



52,184




Stock-based compensation expense


16,502



11,143




Deferred income taxes, net


(14,124)



(38,515)




Equity in earnings of unconsolidated entities


(106,166)



(99,797)




Distributions from unconsolidated entities


74,853



49,612




(Gain) loss on asset disposals, net


16,774



16,153




(Gain) loss on sale of business and other exit costs, net


(27,694)



(243,627)




(Gain) loss on investments




(18,527)




(Gain) loss on license sales and exchanges


(91,446)






Noncash interest expense


845



792




Other operating activities


66



590


Changes in assets and liabilities from operations









Accounts receivable


(4,790)



(214,114)




Inventory


53,367



13,236




Accounts payable - trade


23,436



32,202




Accounts payable - affiliate


(1,759)



345




Customer deposits and deferred revenues


37,636



22,538




Accrued taxes


(18,453)



45,780




Accrued interest


9,140



9,385




Other assets and liabilities


(152,137)



(81,341)






330,631



296,233










Cash flows from investing activities







Cash used for additions to property, plant and equipment


(424,774)



(522,180)


Cash paid for acquisitions and licenses


(37,978)



(16,540)


Cash received from divestitures


143,801



484,300


Cash received for investments


10,000



65,000


Other investing activities


804



583






(308,147)



11,163










Cash flows from financing activities







Repayment of long-term debt


(38)



(393)


Common shares reissued for benefit plans, net of tax payments


1,150



2,840


Common shares repurchased


(14,698)



(18,544)


Acquisition of licenses in common control transaction


(76,298)




Dividends paid




(482,270)


Distributions to noncontrolling interests


(439)



(3,447)


Other financing activities


(428)



(839)






(90,751)



(502,653)










Net decrease in cash and cash equivalents


(68,267)



(195,257)










Cash and cash equivalents







Beginning of period


342,065



378,358


End of period

$

273,798


$

183,101

 

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)




















Three Months Ended


Nine Months Ended





September 30,


September 30,




2014



2013



2014



2013

















Cash flows from operating activities


$

117,771


$

(152,352)


$

330,631


$

296,233


Add: Sprint Cost Reimbursement



17,896



1,131



52,012



1,131


Less: Cash used for additions to property,

   plant and equipment



162,377



199,023



424,774



522,180



Adjusted free cash flow (1)


$

(26,710)


$

(350,244)


$

(42,131)


$

(224,816)

 

(1)

Adjusted free cash flow is defined as Cash flows from operating activities (which includes cash outflows related to the Sprint decommissioning), as adjusted for cash proceeds from the Sprint Cost Reimbursement (which are included in Cash flows from investing activities in the Consolidated Statement of Cash Flows), less Cash used for additions to property, plant and equipment. Adjusted free cash flow is a non-GAAP financial measure which U.S. Cellular believes 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.

 

SOURCE United States Cellular Corporation

Jane McCahon, Vice President, Corporate Relations and Corporate Secretary, 312-592-5379, jane.mccahon@tdsinc.com, Julie Mathews, Investor Relations Manager, 312-592-5341, julie.mathews@tdsinc.com