U.S. Cellular Reports First Quarter 2011 Results

U.S. Cellular accelerates 4G/LTE deployment and increases capacity for data usage

May 06, 2011, 08:01 ET from United States Cellular Corporation

CHICAGO, May 6, 2011 /PRNewswire/ --

Note: Comparisons are year over year unless otherwise noted.

1Q 2011 Highlights

  • A net loss of 31,000 retail customers, reflecting a loss of 22,000 postpaid customers and 9,000 prepaid customers; postpaid customers comprised 95 percent of retail customers.
  • Service revenues were $985.1 million, up 2.1 percent.
  • Postpaid ARPU (average revenue per unit) increased to $51.21 from $50.70.
  • Postpaid churn improved to 1.37 percent from 1.41 percent.
  • 5 percent increase in cell sites in service to 7,663.
  • Repurchased 357,021 common shares for $17.4 million.

As previously announced, U.S. Cellular will hold a teleconference May 6, 2011 at 9:30 a.m. CDT. Interested parties may listen to the call live by accessing the Investor Relations page of uscellular.com or www.teldta.com.

United States Cellular Corporation (NYSE: USM) reported service revenues of $985.1 million for the first quarter of 2011 versus $965.0 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $34.1 million and $0.40, respectively, for the first quarter of 2011 compared to $47.4 million and $0.54, respectively, in the comparable period one year ago.  

"We were pleased to see improvements in postpaid ARPU and churn in the quarter," said president and CEO Mary N. Dillon, "though it's clear from our subscriber results that we need to increase awareness of the unique value and benefits we offer to potential customers. We recently launched new advertising to better communicate our great network and phones and the unique benefits of the Belief Plans.  In addition, the recent changes we've made to our senior management team will allow us to leverage the vast strengths and talents of our existing team and bring on additional perspectives as we continue to innovate and delight our customers.

"Smartphone sales were very strong in the quarter, representing 42 percent of all the devices we sold, and data use continued to grow dramatically. Accordingly, we've decided to increase overall data capacity and accelerate our 4G/LTE rollout, to ensure outstanding data experiences for our customers and better manage the related costs. We're also introducing a minimum of 13 new smartphones in 2011 to address the growing demand.  Our device lineup will include some lower-priced smartphones with lower associated subsidies.

"We had migrations and additions totaling 1.8 million new and existing customers on our Belief Plans at the end of the quarter, and we're focused very intently on evolving our marketing messaging and sales strategies to put U.S. Cellular at the top of the list for consideration by potential switchers. We have the highest call quality and network satisfaction of any national carrier, and this quarter's very low postpaid churn rate demonstrates how happy our existing customers are with the value and outstanding service they get from U.S. Cellular.

"We continue to move forward with our enablement initiatives to improve efficiencies and cost structure.  This spending, along with more smartphone subsidies, is pressuring margins now, but both are expected to have a positive, long-term effect on profitability."

Guidance for year ending Dec. 31, 2011

Guidance for the year ending Dec. 31, 2011 as of May 6, 2011 is provided below, compared to the previous guidance provided on Feb. 24, 2011. 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 this guidance.  

Current Estimates

Previous Estimates (1)

Service revenues

$4,000-$4,100 million

Unchanged

Adjusted OIBDA (2) (4)

$775-$875 million

Unchanged

Operating income (3) (4)

$185-$285 million

Unchanged

Depreciation, amortization and accretion expenses, and

  losses on asset disposals and impairment of assets (3)

Approx. $590 million

Unchanged

Capital expenditures (4)

$750-$800 million

Approx. $650 million

(1)

The 2011 Estimated Results as disclosed in U.S. Cellular's Annual Report on Form 10-K for the year ended December 31, 2010.

(2)

Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals (if any); and the loss on impairment of assets (if any). This measure also may be commonly referred to by management as operating cash flow. This measure should not be confused with cash flows from operating activities, which is a component of the consolidated statement of cash flows.

(3)

The 2011 Estimated Results do not include any estimate for losses on impairment of assets since these cannot be predicted.

(4)

This guidance is based on U.S. Cellular's current plans, which include a multi-year deployment of Long-term Evolution ("LTE") technology commencing in 2011.  As customer demand for data services increases, and competitive conditions in the wireless industry evolve, such as the rate of deployment of LTE technology by other carriers, the timing of U.S. Cellular's deployment of LTE and the timing of other capital expenditures could change.  These factors could affect U.S. Cellular's estimated capital expenditures and operating expenses in 2011.

Conference call information

U.S. Cellular will hold a conference call on May 6, 2011 at 9:30 a.m. CDT.

Before the call, certain financial and statistical information to be discussed during the call will be posted to the Investor Relations page of uscellular.com. The call will be archived on the Conference Calls page of uscellular.com.

About U.S. Cellular

United States Cellular Corporation, the nation's sixth-largest wireless carrier, provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to approximately six million customers in 26 states. The Chicago-based company employed approximately 9,000 full-time equivalent associates as of March 31, 2011. At the end of the first quarter, Telephone and Data Systems, Inc. owned 83 percent of U.S. Cellular.

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

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: the ability of the company to successfully manage and grow its markets; the economy; competition; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded our 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 unit, churn rates, roaming revenue and terms, the availability of handset devices, or the mix of products and services offered by the company; and the ability to obtain or maintain roaming arrangements with other carriers. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K used by U.S. Cellular to furnish this press release to the SEC, which are incorporated by reference herein.

United States Cellular Corporation

Summary Operating Data (Unaudited)

Quarter Ended

3/31/2011

12/31/2010

9/30/2010

6/30/2010

3/31/2010

Total population

Consolidated markets(1)

91,090,000

90,468,000

90,468,000

90,468,000

90,468,000

Consolidated operating markets(1)

46,774,000

46,546,000

46,546,000

46,546,000

46,546,000

Market penetration at end of period

Consolidated markets(2)

6.6%

6.7%

6.7%

6.8%

6.8%

Consolidated operating markets(2)

12.9%

13.0%

13.1%

13.2%

13.2%

All customers

Total at end of period

6,033,000

6,072,000

6,103,000

6,144,000

6,147,000

Gross additions

293,000

327,000

338,000

349,000

358,000

Net additions (losses)

(39,000)

(31,000)

(41,000)

(3,000)

6,000

Smartphones sold as a percent of

     total devices sold(3)

42.5%

39.6%

23.6%

15.8%

16.6%

Retail customers

Total at end of period

5,698,000

5,729,000

5,750,000

5,775,000

5,768,000

Smartphone penetration (3) (4)

20.2%

16.6%

12.0%

10.1%

8.9%

Gross additions

256,000

292,000

301,000

307,000

305,000

Net retail additions (losses)(5)

(31,000)

(21,000)

(25,000)

7,000

24,000

     Net postpaid additions (losses)

(22,000)

(10,000)

(25,000)

(22,000)

(9,000)

     Net prepaid additions (losses)

(9,000)

(11,000)

---

29,000

33,000

Service revenue components (000s)

Retail service

$

864,602

$

864,905

$

865,766

$

863,836

$

865,039

Inbound roaming

64,386

67,545

72,901

60,902

51,942

Other

56,125

59,464

44,836

47,838

48,027

Total service revenues (000s)

$

985,113

$

991,914

$

983,503

$

972,576

$

965,008

Total ARPU(6)

$

54.29

$

54.37

$

53.53

$

52.71

$

52.41

Billed ARPU(7)

$

47.65

$

47.41

$

47.12

$

46.81

$

46.98

Postpaid ARPU(8)

$

51.21

$

50.99

$

50.82

$

50.55

$

50.70

Postpaid churn rate(9)

1.4%

1.5%

1.6%

1.4%

1.4%

Capital expenditures (000s)

$

95,900

$

203,400

$

124,700

$

133,500

$

121,500

Cell sites in service

7,663

7,645

7,524

7,416

7,310

(1)

Used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (2) below.

(2)

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.

(3)

Smartphones represent wireless devices which run on a Blackberry®, Windows Mobile, or Android operating system.

(4)

Smartphone penetration is calculated by dividing postpaid customers on smartphone service plans by total postpaid customers.

(5)

Includes net postpaid additions (losses) and net prepaid additions (losses).

(6)

Total ARPU - Average monthly service revenue per customer includes retail service, inbound roaming and other service revenues and is calculated by dividing total service revenues by the number of months in the period and by the average total customers during the period.

(7)

Billed ARPU - Average monthly billed revenue per customer is calculated by dividing total retail service revenues by the number of months in the period and by the average total customers during the period. Retail service revenues include revenues attributable to postpaid, prepaid and reseller customers.

(8)

Postpaid ARPU - Average monthly revenue per postpaid customer is calculated by dividing total retail service revenues from postpaid customers by the number of months in the period and by the average postpaid customers during the period.

(9)

Represents the percentage of the retail postpaid customer base that disconnects service each month. This amount represents the average postpaid churn rate for each respective quarterly period.

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Three Months Ended March 31,

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

Increase (Decrease)

2011

2010

Amount

Percent

Operating revenues

Service

$

985,113

$

965,008

$

20,105

2%

Equipment sales

71,979

58,849

13,130

22%

Total operating revenues

1,057,092

1,023,857

33,235

3%

Operating expenses

System operations (excluding Depreciation,

amortization and accretion reported below)

217,603

207,114

10,489

5%

Cost of equipment sold

194,360

161,105

33,255

21%

Selling, general and administrative

442,004

429,605

12,399

3%

Depreciation, amortization and accretion

145,045

143,233

1,812

1%

Loss on asset disposals, net

1,037

5,176

(4,139)

(80%)

Total operating expenses

1,000,049

946,233

53,816

6%

Operating income

57,043

77,624

(20,581)

(27%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

20,891

24,694

(3,803)

(15%)

Interest and dividend income

849

1,021

(172)

(17%)

Interest expense

(15,186)

(16,524)

1,338

8%

Other, net

(125)

(65)

(60)

(92%)

Total investment and other income (expense)

6,429

9,126

(2,697)

(30%)

Income before income taxes

63,472

86,750

(23,278)

(27%)

Income tax expense

24,092

33,662

(9,570)

(28%)

Net income

39,380

53,088

(13,708)

(26%)

Less: Net income attributable to noncontrolling

interests, net of tax

(5,269)

(5,719)

450

8%

Net income attributable to U.S. Cellular shareholders

$

34,111

$

47,369

$

(13,258)

(28%)

Basic weighted average shares outstanding

85,484

86,576

(1,092)

(1%)

Basic earnings per share attributable to

U.S. Cellular shareholders

$

0.40

$

0.55

$

(0.15)

(27%)

Diluted weighted average shares outstanding

86,101

86,978

(877)

(1%)

Diluted earnings per share attributable to

U.S. Cellular shareholders

$

0.40

$

0.54

$

(0.14)

(26%)

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

March 31,

December 31,

2011 

2010 

Current assets

Cash and cash equivalents

$

421,294

$

294,426

Short-term investments

121,252

146,586

Accounts receivable from customers and others

405,563

424,019

Inventory

108,818

112,279

Prepaid income taxes

4,910

41,397

Prepaid expenses

62,709

53,356

Net deferred income tax asset

26,757

26,757

Other current assets

10,282

10,804

1,161,585

1,109,624

Investments

Licenses

1,452,401

1,452,101

Goodwill

494,737

494,737

Customer lists

648

759

Investments in unconsolidated entities

171,485

160,847

Notes and interest receivable - long-term

4,033

4,070

Long-term investments

35,737

46,033

2,159,041

2,158,547

Property, plant and equipment

In service and under construction

6,465,667

6,382,581

Less: accumulated depreciation

3,898,393

3,767,509

2,567,274

2,615,072

Other assets and deferred charges

74,028

50,367

Total assets

$

5,961,928

$

5,933,610

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND SHAREHOLDERS' EQUITY

March 31,

December 31,

2011 

2010 

Current liabilities

Current portion of long-term debt

$

101

$

101

Accounts payable

Affiliated

8,750

10,791

Trade

279,657

281,601

Customer deposits and deferred revenues

156,673

146,428

Accrued taxes

36,263

39,299

Accrued compensation

41,651

65,952

Other current liabilities

94,696

121,823

617,791

665,995

Deferred liabilities and credits

Net deferred income tax liability

624,884

579,769

Other deferred liabilities and credits

287,217

284,949

Long-term debt

868,102

867,941

Commitments and contingencies

Noncontrolling interests with mandatory redemption features

894

855

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

1,374,323

1,368,487

Treasury shares

(120,475)

(105,616)

Retained earnings

2,162,556

2,129,638

Total U.S. Cellular shareholders' equity

3,504,478

3,480,583

Noncontrolling interests

58,562

53,518

Total equity

3,563,040

3,534,101

Total liabilities and equity

$

5,961,928

$

5,933,610

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 March 31, 2011 and December 31, 2010.

March 31,

December 31,

2011 

2010 

Cash and cash equivalents

$

421,294

$

294,426

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

Government-backed securities (3)

121,002

146,336

Certificates of deposit

250

250

$

121,252

$

146,586

Amounts included in long-term investments (1)(4)

Government-backed securities (3)

$

35,737

$

46,033

(1)

Designated as held-to-maturity investments and recorded at amortized cost on the consolidated balance sheet.

(2)

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

(3)

Includes U.S. treasuries and corporate notes guaranteed under the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program.

(4)

At March 31, 2011, maturities range between 14 and 21 months from the balance sheet date.

United States Cellular Corporation

Consolidated Statement of Cash Flows

Three Months Ended March 31,

(Unaudited, dollars in thousands)

2011 

2010 

Cash flows from operating activities

Net income

$

39,380

$

53,088

Add (deduct) adjustments to reconcile net income to net

cash flows from operating activities

Depreciation, amortization and accretion

145,045

143,233

Bad debts expense

13,507

19,193

Stock-based compensation expense

5,792

3,830

Deferred income taxes, net

44,413

(2,419)

Equity in earnings of unconsolidated entities

(20,891)

(24,694)

Distributions from unconsolidated entities

8,323

7,238

Loss on asset disposals, net

1,037

5,176

Other operating activities

1,064

274

Changes in assets and liabilities from operations

Accounts receivable

4,950

1,313

Inventory

3,461

(722)

Accounts payable - trade

(2,244)

(39,375)

Accounts payable - affiliate

(2,041)

(5,843)

Customer deposits and deferred revenues

10,245

403

Accrued taxes

11,174

30,723

Accrued interest

9,205

9,221

Other assets and liabilities

(70,598)

(48,387)

201,822

152,252

Cash flows from investing activities

Additions to property, plant and equipment

(95,933)

(121,514)

Cash paid for acquisitions and licenses

-

(3,800)

Cash paid for investments

-

(25,000)

Cash received for investments

35,000

126

Other investing activities

2,200

230

(58,733)

(149,958)

Cash flows from financing activities

Common shares reissued for benefit plans, net of tax payments

1,305

486

Common shares repurchased

(17,357)

(5,186)

Distributions to noncontrolling interests

(186)

(2,284)

Other financing activities

17

(63)

(16,221)

(7,047)

Net increase (decrease) in cash and cash equivalents

126,868

(4,753)

Cash and cash equivalents

Beginning of period

294,426

294,411

End of period

$

421,294

$

289,658

United States Cellular Corporation

Financial Measures and Reconciliations

Three Months Ended March 31,

(Unaudited, dollars in thousands)

2011

2010

Service revenues

$

985,113

$

965,008

Operating income

57,043

77,624

Add:

Depreciation, amortization and accretion

145,045

143,233

Loss on impairment of intangible assets

-

-

Loss on asset disposals

1,037

5,176

Adjusted OIBDA (1)

$

203,125

$

226,033

Adjusted OIBDA margin (2)

20.6%

23.4%

2011

2010

Cash flows from operating activities

$

201,822

$

152,252

Deduct:

Capital expenditures

95,933

121,514

Free cash flow (3)

$

105,889

$

30,738

(1)

Adjusted OIBDA is defined as operating income excluding the effects of: depreciation, amortization, and accretion (OIBDA); the net gain or loss on asset disposals (if any); and the loss on impairment of assets (if any).  This measure also may be commonly referred to by management as operating cash flow.  This measure should not be confused with cash flows from operating activities, which is a component of the consolidated statement of cash flows. Adjusted OIBDA excludes the net gain or loss on asset disposals and loss on impairment of assets, if any, in order to show operating results on a more comparable basis from period to period.  U.S. Cellular does not intend to imply that any of such amounts that are excluded are non-recurring, infrequent or unusual, and accordingly, they may be incurred in the future.

(2)

Adjusted OIBDA margin is defined as adjusted OIBDA divided by service revenues. Equipment revenues are excluded from the denominator of the calculation since equipment is generally sold at a net loss, and such net loss is included in adjusted OIBDA as a cost of earning service revenues for purposes of assessing business results.  U.S. Cellular believes that this calculation method is consistent with the method used by certain investors to assess U.S. Cellular's business results.  Adjusted OIBDA margin may also be commonly referred to by management as operating cash flow margin.

(3)

Free cash flow is defined as cash flows from operating activities minus capital expenditures. Free cash flow is a non-GAAP financial measure.  U.S. Cellular believes that free cash flow as reported by U.S. Cellular is useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations, after consideration of capital expenditures.

SOURCE United States Cellular Corporation



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