U.S. Cellular Reports First Quarter 2012 Results

Smartphone penetration accelerates; strong growth in ARPU and profitability

May 04, 2012, 08:03 ET from United States Cellular Corporation

CHICAGO, May 4, 2012 /PRNewswire/ -- 

Note: Comparisons are year over year unless otherwise noted.

1Q 2012 Highlights

  • Smartphones as a percent of total devices sold increased to 54.1 percent from 42.5 percent; smartphone customers increased to 34.4 percent of postpaid customers from 20.3 percent.
  • Postpaid ARPU (average revenue per customer) increased 5 percent to $54.00 from $51.21.
  • Service revenues increased 4 percent to $1,023.8 million.
  • Operating income increased 45 percent to $85.2 million.
  • Retail gross additions increased 7 percent to 273,000 from 256,000.
  • Postpaid churn increased to 1.6 percent from 1.4 percent.
  • Net loss of 34,000 retail customers, reflecting loss of 38,000 postpaid customers and gain of 4,000 prepaid customers; postpaid customers comprised 94 percent of retail customers.
  • Cell sites in service increased 3 percent to 7,875.

As previously announced, U.S. Cellular will hold a teleconference May 4, 2012 at 9:30 a.m. CDT. Interested parties may listen to the call live by accessing the Investor Relations page of www.uscellular.com or www.teldta.com.

United States Cellular Corporation (NYSE: USM) reported service revenues of $1,023.8 million for the first quarter of 2012, up 4 percent versus $985.1 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $62.5 million and $0.73, respectively, for the first quarter of 2012, compared to $35.2 million and $0.41, respectively, in the comparable period one year ago.

"We generated increased revenues and improved profitability in the quarter," said Mary N. Dillon, U.S. Cellular president and CEO. "Our top priority remains to improve our net customer additions.  We're encouraged by the increase in retail gross additions, which we attribute to improved marketing awareness, strong in-store execution and the launch of 4G LTE service in several of our markets.  However, we experienced higher postpaid churn and therefore had a net loss of postpaid customers.

"On April 30, we announced that U.S. Cellular prepaid service and devices will soon be available through 415 Wal-Mart stores under the U Prepaid brand.  Gaining distribution in Wal-Mart gives us another significant opportunity to be where our customers want to shop, and we're evaluating additional ways to expand and enhance our distribution.

"Smartphone sales continue to drive higher data usage and average revenue per customer. At the end of the quarter, 34 percent of our postpaid customers had smartphones, and smartphones were 54 percent of our total devices sold. Despite the increase in smartphones sold, we were able to keep loss on equipment essentially stable. Those efforts, along with good expense control, contributed to a strong increase in operating income. To further support customer demand for data services, as well as to make smartphones accessible to a broader array of customers and budgets, we introduced a set of tiered data plans on May 1, and we're on track with our 4G LTE network rollout. Sales of both 4G devices introduced to date have been strong, and we plan to build on our offerings throughout the year, as we bring 4G speeds to at least 50 percent of our customers."

Guidance for year ending Dec. 31, 2012                             

Guidance for the year ending Dec. 31, 2012, as of May 4, 2012, is unchanged from the previous guidance provided on Feb. 24, 2012. 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. 

2012 Estimated

Results (1)

Service revenues

$4,050-$4,150 million

Operating income

$200-$300 million

Depreciation, amortization and accretion expenses,

   and losses on asset disposals and exchanges 

   and impairment of assets (2)

Approx. $600 million

Adjusted OIBDA (2) (3)

$800-$900 million

Capital expenditures

Approx. $850 million

(1)

These estimates are based on U.S. Cellular's current plans, which include a multi-year deployment of 4G LTE technology which commenced in 2011.  New developments or changing conditions (such as customer net growth, customer demand for data services or possible acquisitions, dispositions or exchanges) could affect U.S. Cellular's plans and, therefore, its 2012 estimated results.   

(2)

The 2012 Estimated Results do not include any estimate for unrecognized net gains or losses related to disposals and exchanges of assets or losses on impairment of assets (since such transactions and their effects are uncertain).

(3)

Adjusted OIBDA is defined as operating income excluding the effects of depreciation, amortization and accretion (OIBDA); the net gain or loss on asset disposals and exchanges (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 exchanges (if any) 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.  U.S. Cellular believes this measure provides useful information to investors regarding U.S. Cellular's financial condition and results or operations because it highlights certain key cash and non-cash items and their impacts on cash flows from operating activities.

Conference call information

U.S. Cellular will hold a conference call on May 4, 2012 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 www.uscellular.com. The call will be archived on the Conference Calls page of www.uscellular.com.

About U.S. Cellular

United States Cellular Corporation, the nation's seventh-largest wireless carrier, provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to approximately 5.8 million customers in 26 states. The Chicago-based company employed approximately 8,700 people as of March 31, 2012. At the end of the first quarter of 2012, Telephone and Data Systems, Inc. owned 84 percent of U.S. Cellular.

Visit www.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 overall economy; competition; the ability to obtain or maintain roaming arrangements with other carriers; 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 customer, churn rates, roaming revenue and terms, the availability of handset devices, or the mix of products and services offered by the company. 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

 Summary Operating Data (Unaudited)

 Quarter Ended

3/31/2012

12/31/2011

9/30/2011

6/30/2011

3/31/2011

 Total population

Consolidated markets (1)

92,684,000

91,965,000

91,965,000

91,204,000

91,090,000

Consolidated operating markets (1)

46,966,000

46,888,000

46,888,000

46,888,000

46,774,000

 Market penetration at end of period

Consolidated markets (2)

6.3%

6.4%

6.5%

6.5%

6.6%

Consolidated operating markets (2)

12.4%

12.6%

12.7%

12.7%

12.9%

 All customers

Total at end of period

5,837,000

5,891,000

5,932,000

5,968,000

6,033,000

Gross additions

285,000

306,000

299,000

257,000

293,000

Net additions (losses)

(49,000)

(41,000)

(36,000)

(70,000)

(39,000)

Smartphones sold as a percent of

      total devices sold (3)

54.1%

52.5%

39.9%

39.6%

42.5%

 Retail customers

Total at end of period

5,570,000

5,608,000

5,621,000

5,644,000

5,698,000

Smartphone penetration (3) (4)

34.4%

30.5%

26.2%

23.1%

20.3%

Gross additions

273,000

298,000

284,000

226,000

256,000

Net retail additions (losses) (5)

(34,000)

(13,000)

(23,000)

(58,000)

(31,000)

      Net postpaid additions (losses)

(38,000)

(20,000)

(34,000)

(41,000)

(22,000)

      Net prepaid additions (losses)

4,000

7,000

11,000

(17,000)

(9,000)

 Service revenue components (000s)

Retail service

$

888,527

$

882,091

$

871,199

$

868,630

$

864,602

Inbound roaming

80,132

93,353

107,810

82,760

64,386

Other

55,161

54,601

57,600

50,640

56,125

 Total service revenues (000s)

$

1,023,820

$

1,030,045

$

1,036,609

$

1,002,030

$

985,113

 Total ARPU (6)

58.21

$

58.13

$

58.09

$

55.69

$

54.29

 Billed ARPU (7)

50.52

$

49.78

$

48.82

$

48.27

$

47.65

 Postpaid ARPU (8)

$

54.00

$

53.35

$

52.41

$

51.84

$

51.21

 Postpaid churn rate (9)

1.6%

1.6%

1.5%

1.4%

1.4%

 Capital expenditures (000s)

$

201,300

$

276,400

$

248,000

$

162,100

$

95,900

 Cell sites in service

7,875

7,882

7,828

7,770

7,663

(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 an Android™, BlackBerry®, or Windows Mobile® operating system, excluding tablets.

(4)

Smartphone penetration is calculated by dividing postpaid smartphone customers 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 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)

2012

2011

Amount

Percent

Operating revenues

Service

$

1,023,820

$

985,113

$

38,707

4%

Equipment sales

68,301

71,979

(3,678)

(5%)

Total operating revenues

1,092,121

1,057,092

35,029

3%

Operating expenses

System operations (excluding Depreciation,

amortization and accretion reported below)

233,164

217,603

15,561

7%

Cost of equipment sold

187,036

194,360

(7,324)

(4%)

Selling, general and administrative

442,244

442,004

240

-

Depreciation, amortization and accretion

146,685

143,340

3,345

2%

(Gain) loss on asset disposals

(2,210)

1,037

(3,247)

>(100)%

Total operating expenses

1,006,919

998,344

8,575

1%

Operating income

85,202

58,748

26,454

45%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

21,614

20,891

723

3%

Interest and dividend income

1,043

849

194

23%

Interest expense

(13,411)

(15,186)

1,775

12%

Other, net

202

(125)

327

>100%

Total investment and other income (expense)

9,448

6,429

3,019

47%

Income before income taxes

94,650

65,177

29,473

45%

Income tax expense

25,638

24,747

891

4%

Net income

69,012

40,430

28,582

71%

Less: Net income attributable to noncontrolling

interests, net of tax

(6,520)

(5,269)

(1,251)

(24%)

Net income attributable to U.S. Cellular shareholders

$

62,492

$

35,161

$

27,331

78%

Basic weighted average shares outstanding

84,570

85,484

(914)

(1%)

Basic earnings per share attributable to

U.S. Cellular shareholders

$

0.74

$

0.41

$

0.33

80%

Diluted weighted average shares outstanding

85,133

86,101

(968)

(1%)

Diluted earnings per share attributable to

U.S. Cellular shareholders

$

0.73

$

0.41

$

0.32

78%

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

March 31,

December 31,

2012

2011

Current assets

Cash and cash equivalents

$

511,078

$

424,155

Short-term investments

116,368

127,039

Accounts receivable from customers and other

397,567

441,821

Inventory

131,510

127,056

Income taxes receivable

70

74,791

Prepaid expenses

57,655

55,980

Net deferred income tax asset

31,905

31,905

Other current assets

11,149

10,096

1,257,302

1,292,843

Assets held for sale

49,647

Investments

Licenses

1,481,865

1,470,769

Goodwill

494,737

494,737

Customer lists, net

223

314

Investments in unconsolidated entities

154,431

138,096

Notes and interest receivable – long-term

81

1,921

Long-term investments

40,276

30,057

2,171,613

2,135,894

Property, plant and equipment, net

In service and under construction

7,126,220

7,008,449

Less: accumulated depreciation

4,278,794

4,218,147

2,847,426

2,790,302

Other assets and deferred charges

65,094

59,290

Total assets

$

6,341,435

$

6,327,976

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

March 31,

December 31,

2012

2011

Current liabilities

Current portion of long-term debt

$

127

$

127

Accounts payable

Affiliated

15,172

12,183

Trade

280,433

303,779

Customer deposits and deferred revenues

190,866

181,355

Accrued taxes

38,999

34,095

Accrued compensation

33,374

69,551

Other current liabilities

87,322

121,190

646,293

722,280

Liabilities held for sale

-

1,051

Deferred liabilities and credits

Net deferred income tax liability

812,929

799,190

Other deferred liabilities and credits

250,177

248,213

Long-term debt

880,486

880,320

Noncontrolling interests with mandatory redemption features

1,064

1,005

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

1,392,845

1,387,341

Treasury shares

(152,220)

(152,817)

Retained earnings

2,359,589

2,297,363

Total U.S. Cellular shareholders' equity

3,688,288

3,619,961

Noncontrolling interests

62,198

55,956

Total equity

3,750,486

3,675,917

Total liabilities and equity

$

6,341,435

$

6,327,976

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, 2012 and December 31, 2011.

March 31,

December 31,

2012

2011

Cash and cash equivalents

$

511,078

$

424,155

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

Government-backed securities (3)

$

116,368

$

127,039

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

Government-backed securities (3)

$

40,276

$

30,057

(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, 2012, maturities range between 15 and 24 months from the balance sheet date.

United States Cellular Corporation

Consolidated Statement of Cash Flows

Three Months Ended March 31,

(Unaudited, dollars in thousands)

2012

2011

Cash flows from operating activities

Net income

$

69,012

$

40,430

Add (deduct) adjustments to reconcile net income to net

cash flows from operating activities

Depreciation, amortization and accretion

146,685

143,340

Bad debts expense

13,850

13,507

Stock-based compensation expense

5,391

5,792

Deferred income taxes, net

6,283

44,413

Equity in earnings of unconsolidated entities

(21,614)

(20,891)

Distributions from unconsolidated entities

2,822

8,323

(Gain) loss on asset disposals, net

(2,210)

1,037

Noncash interest expense

451

463

Other operating activities

449

601

Changes in assets and liabilities from operations

Accounts receivable

36,621

4,950

Inventory

(4,410)

3,461

Accounts payable - trade

(17,689)

53,713

Accounts payable - affiliate

2,989

(2,041)

Customer deposits and deferred revenues

9,512

10,245

Accrued taxes

79,765

11,829

Accrued interest

9,167

9,205

Other assets and liabilities

(80,107)

(70,669)

256,967

257,708

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(209,160)

(121,041)

Cash paid for acquisitions and licenses

(11,096)

-

Cash received for divestitures

49,786

-

Cash paid for investments

(10,000)

-

Cash received for investments

10,000

35,000

Other investing activities

296

2,200

(170,174)

(83,841)

Cash flows from financing activities

Common shares reissued for benefit plans, net of tax payments

357

1,305

Common shares repurchased

-

(17,357)

Distributions to noncontrolling interests

(218)

(186)

Other financing activities

(9)

17

130

(16,221)

Net increase in cash and cash equivalents

86,923

157,646

Cash and cash equivalents

Beginning of period

424,155

276,915

End of period

$

511,078

$

434,561

United States Cellular Corporation

Financial Measures and Reconciliations

Three Months Ended March 31,

(Unaudited, dollars in thousands)

Three Months Ended March 31,

2012

2011

Service revenues

$

1,023,820

$

985,113

Operating income

85,202

58,748

Add:

Depreciation, amortization and accretion

146,685

143,340

Loss on impairment of intangible assets

-

-

(Gain) loss on asset disposals

(2,210)

1,037

Adjusted OIBDA (1)

$

229,677

$

203,125

Adjusted OIBDA margin (2)

22.4

%

20.6

%

2012

2011

Cash flows from operating activities

$

256,967

$

257,708

Deduct:

Cash used for additions to property, plant and equipment

209,160

121,041

Free cash flow (3)

$

47,807

$

136,667

(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 and exchanges (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 exchanges 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. U.S. Cellular believes this measure provides useful information to investors regarding U.S. Cellular's financial condition and results of operations because it highlights certain key cash and non-cash items and their impacts on cash flows from operating activities.

(3)

Free cash flow is defined as cash flows from operating activities less Cash used for additions to property, plant and equipment. Free cash flow is a non-GAAP financial measure. U.S. Cellular believes that free cash flow as reported by U.S. Cellular may be 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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