U.S. Cellular Reports First Quarter 2013 Results U.S. Cellular to offer Apple products later this year; updates 2013 guidance

CHICAGO, May 3, 2013 /PRNewswire/ -- As previously announced, U.S. Cellular will hold a teleconference May 3, 2013 at 9:30 a.m. CDT. Listen to the live call via the Conference Calls page of teldta.com or uscellular.com.

United States Cellular Corporation (NYSE: USM) reported service revenues of $996.3 million for the first quarter of 2013, versus $1,023.8 million for the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $4.9 million and $0.06 respectively, for the first quarter of 2013, compared to $62.5 million and $0.73, respectively, in the comparable period one year ago.

As previously announced on Nov. 7, 2012, U.S. Cellular reached a definitive agreement to sell its Chicago, St. Louis, central Illinois and three other markets (the "Divestiture Markets") to subsidiaries of Sprint Nextel Corporation [NYSE: S] for $480 million (the "Divestiture Transaction").  The transaction has been approved by the FCC and the closing is expected to occur in the second quarter of 2013. 

"We continued to expand our 4G LTE network and encourage customers to migrate, which has helped us further increase smartphone penetration and shift more customers to 4G LTE," said Mary N. Dillon, U.S. Cellular president and CEO. "We added new prepaid customers through our Walmart distribution.  In our core markets, postpaid gross additions were relatively flat and elevated churn resulted in a net customer loss.

"We have a number of strategies in progress to increase loyalty and attract more customers, including our announcement today that we will begin offering Apple products later this year. By further strengthening our device portfolio, we'll give consumers another great reason to switch to U.S. Cellular, and enable our existing customers to choose from an even wider variety of iconic smartphones, and enjoy the outstanding U.S. Cellular customer experiences they deserve. Our smartphone penetration is currently 43 percent of core market customers and growing quickly. We believe there will be strong, ongoing demand for smartphones and data products and services from our customers, and we have significant room for growth in this area.

"We're supporting this growth by bringing 4G LTE to 87 percent of our customers in 2013, and increasing our network capacity. In our core markets, 4G LTE smartphones were 76 percent of smartphones sold in the quarter, while smartphones overall were 62 percent of devices sold. We recently launched the 4G LTE Samsung Galaxy S® 4, and we have more devices to come throughout the year. While profitability continues to be impacted by the higher subsidies for 4G LTE smartphones, our long-term strategy is to balance those costs with growth in ARPU and reduced capital expenditures for our legacy networks.

"We're continuing to enhance and differentiate the U.S. Cellular customer experience and expand our distribution. We began offering U.S. Cellular service through select Sam's Club locations in 14 states in April, to increase availability in new channels. To attract more small and medium business customers, we're launching a marketing campaign this month that addresses their unique needs. We're also focused across U.S. Cellular on simplifying our operations and processes to increase efficiency and reduce complexity and cost."

2013 ESTIMATES

U.S. Cellular's estimates of full-year 2013 results are shown below.  Such estimates represent U.S. Cellular's views as of the date of filing of U.S. Cellular's Form 10-Q for the quarter ended March 31, 2013.  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.




2013 Estimated Results (1)




Core Markets (2)


Divestiture Markets
(2)(3)


U.S. Cellular Consolidated
(2)(3)




Previous

Current


Previous

Current


Previous

Current

(Dollars in millions)










Service revenues


$3,600 - $3,700

$3,475 - $3,575


$165 - $185

$145 - $165


$3,765 - $3,885

$3,620 - $3,740

Adjusted income before income taxes (4) (5)


$765 - $865

$560 - $660


$15 - $35

$35 - $55


$780 - $900

$595 - $715

Capital expenditures


Approx. $600

Approx. $730


$5


Approx. $600

Approx. $735



(1)

These estimates are based on U.S. Cellular's current plans, which include an expansion of the multi-year deployment of 4G LTE technology which commenced in 2011; such expansion includes deployment in additional markets as well as deployment on the 850 MHz band to provide additional capacity for future growth in data usage, enable potential future 4G LTE roaming, and support the sale of Apple products.  These estimates also reflect the estimated impacts of selling Apple products and the deconsolidation of certain partnerships that will be accounted for as equity method investments effective April 3, 2013.  New developments or changing conditions (such as, but not limited to, regulatory developments, customer net growth, customer demand for data services or possible acquisitions, dispositions or exchanges) could affect U.S. Cellular's plans and, therefore, its 2013 estimated results.



(2)

The U.S. Cellular Consolidated amounts represent GAAP financial measures and include the results of both the Core Markets and the Divestiture Markets.  The amounts for the Core Markets and Divestiture Markets represent non-GAAP financial measures.  U.S. Cellular believes that the amounts for the Core Markets and Divestiture Markets may be useful to investors and other users of its financial information in evaluating the separate results for the Core Markets.  Divestiture Markets are comprised of U.S. Cellular's Chicago, central Illinois, St. Louis and certain Indiana/Michigan/Ohio markets.  Core Markets are comprised of all other markets in which U.S. Cellular conducts business including Peoria, Rockford and certain other areas in Illinois, and in Columbia, Joplin, Jefferson City and certain other areas in Missouri.  Core Markets as defined also includes any other income or expenses due to U.S. Cellular's direct or indirect ownership interests in other spectrum in the Divestiture Markets which was not included in the sale and other retained assets from the Divestiture Markets.



(3)

These estimates assume the Divestiture Transaction closes in the second quarter of 2013.  Actual effects could vary significantly from these estimates as a result of a change in the expected timing of the Divestiture Transaction or changes in other terms and conditions of the sale.



(4)

Adjusted income before income taxes is a non-GAAP financial measure defined as Income before income taxes, adjusted for:  Depreciation, amortization and accretion, net Gain or loss on sale of business and other exit costs (if any), and Interest expense. Adjusted income before income taxes is not a measure of financial performance under 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 meaningful measure of U.S. Cellular's operating results before significant recurring non-cash charges, gains and losses and financing charges (Interest expense) 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; such amounts may occur in the future. The following tables provide a reconciliation of Income before income taxes to Adjusted income before income taxes for 2013 Estimated Results and 2012 actual results:




2013 Estimated Results




Core Markets (2)

Divestiture Markets (2)(3)

U.S. Cellular Consolidated (2)(3)


(Dollars in millions)





Income (loss) before income taxes (5)

($30)-$70

($215)-($195)

($245)-($125)


Depreciation, amortization and accretion expense (6)

Approx. $540

Approx. $250

Approx. $790


Interest expense

Approx. $50

Approx. $50


Adjusted income before income taxes

$560-$660

$35-$55

$595-$715






















U.S. Cellular Consolidated Actual Results






Three Months Ended

March 31, 2013

Year Ended

December 31, 2012
















Income before income taxes

$

18

$

205


Depreciation, amortization and accretion expense (6)


190


609


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


7


21


Interest expense


11


42


Adjusted income before income taxes

$

226

$

877




(5)

This amount does not include any estimate for (Gain) loss on sale of business and other exit costs, net, as the timing of such amount is not readily estimable.



(6)

The 2013 estimated amounts for depreciation, amortization and accretion expense in the Divestiture Markets include approximately $185 million of incremental accelerated depreciation, amortization and accretion resulting from the Divestiture Transaction.  Actual results for the three months ended March 31, 2013 and the year ended December 31, 2012 include $38 million and $20 million, respectively, of incremental accelerated depreciation, amortization and accretion resulting from the Divestiture Transaction.

Conference Call Information

U.S. Cellular will hold a conference call on May 3, 2013 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 Conference Calls 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 provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to 5.7 million customers in 26 states. The Chicago-based company had 8,000 full- and part-time associates as of March 31, 2013. At the end of the year, Telephone and Data Systems, Inc. owned 85 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 the Divestiture Transaction including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transaction and the financial impacts of such transaction; 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 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; and changes in customer growth rates, average monthly revenue per user, 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.   

For more information about U.S. Cellular, visit uscellular.com.

United States Cellular Corporation

Total Markets Summary Operating Data (Unaudited)


















Quarter Ended

3/31/2013


12/31/2012


9/30/2012


6/30/2012


3/31/2012

Retail Customers
















Postpaid
















 Total at end of period (1)


5,060,000



5,134,000



5,175,000



5,213,000



5,261,000


 Gross additions


191,000



241,000



230,000



199,000



210,000


 Net additions (losses)


(74,000)



(41,000)



(38,000)



(48,000)



(38,000)


 ARPU (2)

$

54.85


$

54.56


$

54.34


$

54.42


$

54.00


 Churn rate (3)


1.7%



1.8%



1.7%



1.6%



1.6%


 Smartphone penetration 
(4) (5)


43.5%



41.8%



38.6%



36.8%



34.4%


Prepaid
















 Total at end of period


446,000



423,000



386,000



329,000



309,000


 Gross additions


104,000



107,000



120,000



78,000



63,000


 Net additions (losses)


23,000



37,000



57,000



20,000



4,000


 ARPU (2)

$

33.31


$

33.56


$

32.97


$

33.59


$

33.17


 Churn rate (3)


6.2%



5.8%



5.9%



6.2%



6.4%

Total customers at end of period (1)


5,736,000



5,798,000



5,808,000



5,799,000



5,837,000

Billed ARPU (2)

$

51.13


$

50.94


$

50.83


$

50.99


$

50.52

Service revenue ARPU (2)

$

57.63


$

58.00


$

59.57


$

59.05


$

58.21

Smartphones sold as a percent of total

  devices sold


61.7%



62.9%



53.0%



51.9%



54.1%

Total population
















 Consolidated markets (6)


93,943,000



93,244,000



92,996,000



92,684,000



92,684,000


 Consolidated operating markets (6)


47,440,000



46,966,000



46,966,000



46,966,000



46,966,000

Market penetration at end of period
















 Consolidated markets (7)


6.1%



6.2%



6.2%



6.3%



6.3%


 Consolidated operating markets (7)


12.1%



12.3%



12.4%



12.3%



12.4%

Capital expenditures (000s)

$

118,400


$

253,100


$

199,100


$

183,200


$

201,300

Total cell sites in service


8,027



8,028



7,984



7,932



7,875

Owned towers in service


4,411



4,408



4,377



4,346



4,318

















United States Cellular Corporation

Core Markets Summary Operating Data (Unaudited)


















Quarter Ended

3/31/2013


12/31/2012


9/30/2012


6/30/2012


3/31/2012

Retail Customers
















Postpaid
















 Total at end of period (1)


4,639,000



4,672,000



4,688,000



4,708,000



4,736,000


 Gross additions


184,000



218,000



204,000



176,000



182,000


 Net additions (losses)


(32,000)



(16,000)



(20,000)



(28,000)



(21,000)


 ARPU (2)

$

54.23


$

53.92


$

53.68


$

53.70


$

53.25


 Churn rate (3)


1.5%



1.7%



1.6%



1.4%



1.4%


 Smartphone penetration
(4) (5)


43.0%



41.1%



37.8%



36.0%



34.3%


Prepaid
















 Total at end of period


373,000



342,000



305,000



246,000



223,000


 Gross additions


92,000



86,000



100,000



59,000



42,000


 Net additions (losses)


31,000



38,000



59,000



23,000



5,000


 ARPU (2)

$

32.92


$

33.21


$

33.09


$

33.37


$

32.69


 Churn rate (3)


5.7%



5.0%



5.0%



5.2%



5.6%

Total customers at end of period (1)


5,225,000



5,238,000



5,223,000



5,196,000



5,210,000

Billed ARPU (2)

$

50.65


$

50.43


$

50.34


$

50.43


$

49.91

Service revenue ARPU (2)

$

57.37


$

57.90


$

59.66


$

59.03


$

58.20

Smartphones sold as a percent of total

  devices sold


62.1%



62.9%



53.0%



52.0%



54.1%

Total population
















 Consolidated markets (6)


84,625,000



83,864,000



83,075,000



82,763,000



82,763,000


 Consolidated operating markets (6)


32,422,000



31,925,000



31,590,000



31,590,000



31,590,000

Market penetration at end of period
















 Consolidated markets (7)


6.2%



6.2%



6.3%



6.3%



6.3%


 Consolidated operating markets (7)


16.1%



16.4%



16.5%



16.4%



16.5%

Capital expenditures (000s)

$

113,300


$

241,400


$

184,100


$

163,600


$

179,700

Total cell sites in service


6,277



6,292



6,251



6,199



6,146

Owned towers in service


3,846



3,847



3,818



3,787



3,761



(1)

Includes 176,000 and 168,000 postpaid customers at March 31, 2013 and 2012, respectively, related to the St. Lawrence Seaway RSA Cellular Partnership ("NY1") and New York RSA 2 Cellular Partnership ("NY2" and, together with NY1, the "Partnerships").

(2)

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 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.


(3)

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.

(4)

Smartphones represent wireless devices which run on an AndroidTM, BlackBerry® or Windows Mobile® operating system, excluding tablets.

(5)

Smartphone penetration is calculated by dividing postpaid smartphone customers by total postpaid customers.

(6)

Used only to calculate market penetration of consolidated markets and consolidated operating markets, respectively. See footnote (7) below.

(7)

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®.



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)





2013


2012


Amount


Percent


Operating revenues













Service

$

996,349


$

1,023,820


$

(27,471)


(3%)



Equipment sales


85,397



68,301



17,096


25%



 Total operating revenues


1,081,746



1,092,121



(10,375)


(1%)
















Operating expenses













System operations (excluding Depreciation, amortization and accretion

  reported below)


216,299



233,164



(16,865)


(7%)



Cost of equipment sold


241,691



187,036



54,655


29%



Selling, general and administrative


420,080



442,244



(22,164)


(5%)



Depreciation, amortization and accretion


189,845



146,685



43,160


29%



Loss on asset disposals, net


5,434



2,003



3,431


>100%



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


6,931



(4,213)



11,144


>(100%)



 Total operating expenses


1,080,280



1,006,919



73,361


7%
















Operating income


1,466



85,202



(83,736)


(98%)
















Investment and other income (expense)













Equity in earnings of unconsolidated entities


26,835



21,614



5,221


24%



Interest and dividend income


903



1,043



(140)


(13%)



Interest expense


(10,910)



(13,411)



2,501


19%



Other, net


(215)



202



(417)


>(100%)



 Total investment and other income


16,613



9,448



7,165


76%
















Income before income taxes


18,079



94,650



(76,571)


(81%)



Income tax expense


7,369



25,638



(18,269)


(71%)
















Net income


10,710



69,012



(58,302)


(84%)



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


(5,796)



(6,520)



724


11%


Net income attributable to U.S. Cellular shareholders

$

4,914


$

62,492


$

(57,578)


(92%)















Basic weighted average shares outstanding


83,838



84,570



(732)


(1%)


Basic earnings per share attributable to U.S. Cellular shareholders

$

0.06


$

0.74


$

(0.68)


(92%)
















Diluted weighted average shares outstanding


84,403



85,133



(730)


(1%)


Diluted earnings per share attributable to U.S. Cellular shareholders

$

0.06


$

0.73


$

(0.67)


(92%)






United States Cellular Corporation


Consolidated Balance Sheet Highlights


(Unaudited, dollars in thousands)










ASSETS




















 March 31,


 December 31,




2013


2012


Current assets








Cash and cash equivalents

$

419,696


$

378,358



Short-term investments


110,585



100,676



Accounts receivable from customers and others


394,701



445,220



Inventory


139,136



155,886



Income taxes receivable


2,776



1,612



Prepaid expenses


64,365



62,560



Net deferred income tax asset


36,302



35,419



Other current assets


17,111



16,745





1,184,672



1,196,476










Assets held for sale


213,593



216,763










Investments








Licenses


1,470,944



1,456,794



Goodwill


421,743



421,743



Customer lists, net


68



102



Investments in unconsolidated entities


165,529



144,531



Long-term investments


40,142



50,305





2,098,426



2,073,475










Property, plant and equipment








In service and under construction


7,562,931



7,478,428



Less: Accumulated depreciation


4,614,423



4,455,840





2,948,508



3,022,588










Other assets and deferred charges


78,436



78,148










Total assets

$

6,523,635


$

6,587,450






United States Cellular Corporation


Consolidated Balance Sheet Highlights


(Unaudited, dollars in thousands)











LIABILITIES AND EQUITY























 March 31,


 December 31,





2013


2012


Current liabilities








Current portion of long-term debt

$

93


$

92



Accounts payable









Affiliated


8,792



10,725




Trade


281,762



310,936



Customer deposits and deferred revenues


202,209



192,113



Accrued taxes


43,357



35,834



Accrued compensation


50,698



90,418



Other current liabilities


98,657



114,881






685,568



754,999











Liabilities held for sale


18,360



19,594











Deferred liabilities and credits








Net deferred income tax liability


857,439



849,818



Other deferred liabilities and credits


292,687



288,441











Long-term debt


878,975



878,858











Noncontrolling interests with redemption features


466



493











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


1,417,308



1,412,453



Treasury shares


(183,385)



(165,724)



Retained earnings


2,403,325



2,399,052




Total U.S. Cellular shareholders' equity


3,725,322



3,733,855











Noncontrolling interests


64,818



61,392












Total equity


3,790,140



3,795,247











Total liabilities and equity

$

6,523,635


$

6,587,450


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, 2013 and December 31, 2012.








March 31,


December 31,


2013


2012








Cash and cash equivalents

$

419,696


$

378,358








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







Government-backed securities (3)


110,585



100,676








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







Government-backed securities (3)


40,142



50,305








Total cash and cash equivalents and investments

$

570,423


$

529,339



(1)

Designated as held-to-maturity investments and are 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. treasury securities and corporate notes guaranteed under the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program.

(4)

Maturities are 20 months from the balance sheet date.



United States Cellular Corporation


Consolidated Statement of Cash Flows


Three Months Ended March 31,


(Unaudited, dollars in thousands)









2013


2012


Cash flows from operating activities








Net income

$

10,710


$

69,012



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

  operating activities










Depreciation, amortization and accretion


189,845



146,685





Bad debts expense


16,910



13,850





Stock-based compensation expense


5,036



5,391





Deferred income taxes, net


7,048



6,283





Equity in earnings of unconsolidated entities


(26,835)



(21,614)





Distributions from unconsolidated entities


5,836



2,822





Loss on asset disposals, net


5,434



2,003





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


6,931



(4,213)





Noncash interest expense


262



451





Other operating activities


250



449



Changes in assets and liabilities from operations










Accounts receivable


33,611



36,621





Inventory


16,750



(4,410)





Accounts payable - trade


4,644



(17,689)





Accounts payable - affiliate


(1,933)



2,989





Customer deposits and deferred revenues


8,862



9,512





Accrued taxes


6,175



79,765





Accrued interest


9,201



9,167





Other assets and liabilities


(75,122)



(80,107)







223,615



256,967












Cash flows from investing activities








Cash used for additions to property, plant and equipment


(151,024)



(209,160)



Cash paid for acquisitions and licenses


(14,150)



(11,096)



Cash received from divestitures




49,786



Cash paid for investments




(10,000)



Cash received for investments




10,000



Other investing activities


3,654



296







(161,520)



(170,174)












Cash flows from financing activities








Repayment of long-term debt


(61)



(12)



Common shares reissued for benefit plans, net of tax payments


123



357



Common shares repurchased


(18,425)





Distributions to noncontrolling interests


(2,396)



(218)



Other financing activities


2



3







(20,757)



130












Net increase in cash and cash equivalents


41,338



86,923












Cash and cash equivalents








Beginning of period


378,358



424,155



End of period

$

419,696


$

511,078




United States Cellular Corporation


Financial Measures and Reconciliations


(Unaudited, dollars in thousands)












Three months ended March 31,



2013



2012













Cash flows from operating activities


$

223,615


$

256,967



Deduct:









Cash used for additions to property, plant and equipment



151,024



209,160




Free cash flow (1)


$

72,591


$

47,807




(1)

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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http://www.uscellular.com

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