U.S. Cellular reports fourth quarter 2013 results

Feb 26, 2014, 07:57 ET from United States Cellular Corporation

CHICAGO, Feb. 26, 2014 /PRNewswire/ -- As previously announced, U.S. Cellular will hold a teleconference Feb. 26, 2014 at 9:30 a.m. CST. Listen to the live call via the Events & Presentations pages of investors.teldta.com or investors.uscellular.com.

United States Cellular Corporation (NYSE: USM) reported service revenues of $825.1 million for the fourth quarter of 2013, versus $1,008.9 million for the comparable period one year ago. Net income (loss) attributable to U.S. Cellular shareholders and related diluted earnings (loss) per share were $1.6 million and $0.02 respectively, for the fourth quarter of 2013, compared to $(39.6) million and $(0.47), respectively, in the comparable period one year ago.

Year-over-year comparisons are affected by the Divestiture Transaction and the deconsolidation of certain partnerships, in 2013.

"Billing system issues affected churn and overall financial performance for the fourth quarter.  However, we took important strategic actions in 2013 that position U.S. Cellular to compete more effectively," said Kenneth R. Meyers, U.S. Cellular president and CEO. "We divested underperforming markets to focus on markets where we're stronger, we converted to a new billing and operational support system to enable more effective service and product delivery, and we introduced Apple products and shared data plans to monetize the continued growth in data usage on the 4G LTE network. We ended the year with a strong balance sheet, after returning approximately $482 million to U.S. Cellular shareholders through a special dividend and we have agreements to sell non-strategic spectrum for over $400 million.

"We also expanded the 4G LTE network to nearly 90 percent of customers, giving us very competitive coverage in our markets to support our data growth strategies. We'll continue to invest in our future by further expanding and enhancing our network. Network quality is the foundation of our strategy to increase customer additions and build loyalty, together with competitive devices, plans and pricing, outstanding customer service, and a Rewards Program that makes customers feel like members. We're also committed to seeking opportunities to increase operational efficiency."

2014 Estimated Results Capital expenditures for 2014 are expected to be approximately $640 million, down from $738 million in 2013.  U.S. Cellular is not providing guidance for 2014 revenues and profitability at this time due to a number of factors, which involve significant uncertainty and affect the company's ability to estimate future results with reasonable confidence.  Such factors include (i) the unprecedented number of actions related to pricing of service plans and devices, including device financing, announced by competitors in recent weeks, for which the company is evaluating and determining its response; and (ii) continuing elevated churn due, at least in part, to issues arising from the company's billing system implementation in the second half of 2013.  Although the company expects churn to improve over the next several months, the extent and timing of the improvement is uncertain.

2013 Estimated and Actual Results

2013 Estimated and Actual Results for the Year Ended December 31, 2013 (1)

Estimate

Actual

(Dollars in millions)

Service revenues

$3,590-$3,640

$3,595

Adjusted income before income taxes (2)

$600-$700

$585

Capital expenditures

$735

$738

(1)

These estimated results were announced by U.S. Cellular on Nov. 1, 2013.  Both estimated and actual results reflect U.S. Cellular's consolidated results for 2013. 

(2)

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. In addition, 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 amounts that are excluded are non-recurring, infrequent or unusual; such amounts 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 (loss) before income taxes to adjusted income before income taxes for 2013 estimated and actual results:

 

2013 Estimated and Actual Results for the Year Ended December 31, 2013 (1)

Estimate

Actual

(Dollars in millions)

Income (loss) before income taxes

$350-$450

$258

Depreciation, amortization and accretion expense

$790

$804

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

($245)

($247)

(Gain) loss on license sales and exchanges

($325)

($255)

(Gain) loss on investments

($20)

($19)

Interest expense

$50

$44

Adjusted income before income taxes

$600-$700

$585

 

Conference Call Information U.S. Cellular will hold a conference call on Feb. 26, 2014 at 9:30 a.m. CST.

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 4.8 million customers in 23 states. The Chicago-based company had 6,700 full- and part-time associates as of Dec. 31, 2013. At the end of the fourth quarter of 2013, 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 handset 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.   

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

 

United States Cellular Corporation

Total Markets* Summary Operating Data (Unaudited)

As of or for the Quarter Ended

12/31/2013

9/30/2013

6/30/2013

3/31/2013

12/31/2012

Retail Customers

Postpaid

Total at end of period

4,267,000

4,343,000

4,412,000

5,060,000

5,134,000

Gross additions

176,000

165,000

165,000

191,000

241,000

Net additions (losses)

(71,000)

(60,000)

(120,000)

(74,000)

(41,000)

ARPU (1)

$

53.53

$

54.64

$

54.18

$

54.85

$

54.56

Churn rate (2)

1.9%

1.7%

2.0%

1.7%

1.8%

Smartphone penetration (3) (4)

50.8%

47.1%

45.5%

43.5%

41.8%

Prepaid

Total at end of period

343,000

370,000

381,000

446,000

423,000

Gross additions

63,000

65,000

77,000

104,000

107,000

Net additions (losses)

(26,000)

(11,000)

(7,000)

23,000

37,000

ARPU (1)

$

31.66

$

28.72

$

31.69

$

33.31

$

33.56

Churn rate (2)

8.3%

6.8%

6.8%

6.2%

5.8%

Total customers at end of period

4,774,000

4,875,000

4,968,000

5,736,000

5,798,000

Billed ARPU (1)

$

50.25

$

50.92

$

50.60

$

51.13

$

50.94

Service revenue ARPU (1)

$

57.05

$

58.36

$

57.45

$

57.63

$

58.00

Smartphones sold as a percent of total

  devices sold

79.6%

65.2%

66.0%

61.7%

62.9%

Total population

Consolidated markets (5)

58,013,000

84,025,000

84,025,000

93,943,000

93,244,000

Consolidated operating markets (5)

31,759,000

31,822,000

31,822,000

47,440,000

46,966,000

Market penetration at end of period

Consolidated markets (6)

8.2%

5.8%

5.9%

6.1%

6.2%

Consolidated operating markets (6)

15.0%

15.3%

15.6%

12.1%

12.3%

Capital expenditures (000s)

$

208,100

$

242,500

$

168,500

$

118,400

$

253,100

Total cell sites in service

6,975

7,687

7,748

8,027

8,028

Owned towers in service

4,448

4,422

4,411

4,411

4,408

*    

Represents U.S. Cellular's consolidated markets. These are markets which U. S. Cellular currently consolidates, or previously consolidated in the periods presented, and is not adjusted in prior periods for subsequent divestitures or deconsolidations. Refer to U.S. Cellular's Form 8-K filed on February 26, 2014 for pro forma financial information related to the Divestiture Transaction and the NY1 & NY2 Deconsolidation for the three and twelve months ended December 31, 2013, as if the transactions had occurred at the beginning of the respective periods. Also refer to U.S. Cellular's Form 8-K filed on May 3, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 & NY2 Deconsolidation for the twelve months ended December 31, 2012.

 

United States Cellular Corporation

Core Markets* Summary Operating Data (Unaudited)

As of or for the Quarter Ended

12/31/2013

9/30/2013

6/30/2013

3/31/2013

12/31/2012

Retail Customers

Postpaid

Total at end of period

4,267,000

4,343,000

4,412,000

4,463,000

4,496,000

Gross additions

176,000

165,000

165,000

176,000

208,000

Net additions (losses)

(71,000)

(60,000)

(53,000)

(33,000)

(19,000)

ARPU (1)

$

53.53

$

54.64

$

54.44

$

54.21

$

53.91

Churn rate (2)

1.9%

1.7%

1.6%

1.6%

1.7%

Smartphone penetration (3) (4)

50.8%

47.1%

45.5%

43.0%

41.1%

Prepaid

Total at end of period

343,000

370,000

381,000

373,000

342,000

Gross additions

63,000

65,000

76,000

91,000

87,000

Net additions (losses)

(26,000)

(11,000)

8,000

31,000

37,000

ARPU (1)

$

31.66

$

28.72

$

31.65

$

32.92

$

33.21

Churn rate (2)

8.3%

6.8%

6.0%

5.6%

5.1%

Total customers at end of period

4,774,000

4,875,000

4,968,000

5,005,000

5,022,000

Billed ARPU (1)

$

50.25

$

50.92

$

50.98

$

50.93

$

50.71

Service revenue ARPU (1)

$

57.05

$

58.36

$

57.88

$

57.14

$

57.67

Smartphones sold as a percent of total

  devices sold

79.6%

65.2%

66.1%

62.1%

62.9%

Total population

Consolidated markets (5)

58,013,000

84,025,000

84,025,000

84,025,000

83,384,000

Consolidated operating markets (5)

31,759,000

31,822,000

31,822,000

31,822,000

31,445,000

Market penetration at end of period

Consolidated markets (6)

8.2%

5.8%

5.9%

6.0%

6.0%

Consolidated operating markets (6)

15.0%

15.3%

15.6%

15.7%

16.0%

Capital expenditures (000s)

$

211,200

$

239,300

$

171,200

$

113,300

$

241,400

Total cell sites in service

6,161

6,127

6,113

6,113

6,130

Owned towers in service

3,913

3,859

3,844

3,846

3,847

*

U.S. Cellular's Core Markets excludes the Divestiture Markets and NY1 & NY2 markets for the periods presented.

Refer to U.S. Cellular's Form 8-K filed on February 26, 2014 for pro forma financial information related to the Divestiture Transaction and the NY1 & NY2 Deconsolidation for the three and twelve months ended December 31, 2013, as if the transactions had occurred at the beginning of the respective periods. Also refer to U.S. Cellular's Form 8-K filed on May 3, 2013 for pro forma financial information related to the Divestiture Transaction and the NY1 & NY2 Deconsolidation for the twelve months ended December 31, 2012.

(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 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 disconnects 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.

(4)

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

(5)

Used only to calculate market penetration of consolidated and core markets and consolidated and core operating markets, respectively. See footnote (6) below.

(6)

Market penetration is calculated by dividing the number of wireless customers at the end of the period by the total population of consolidated and core markets and consolidated and core operating markets, respectively, estimated by Claritas. 

 

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Three Months Ended December 31,

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

      Increase (Decrease)

2013

2012

Amount

Percent

Operating revenues

Service

$

825,128

$

1,008,924

$

(183,796)

(18%)

Equipment sales

77,596

106,282

(28,686)

(27%)

Total operating revenues

902,724

1,115,206

(212,482)

(19%)

Operating expenses

System operations (excluding Depreciation, amortization and accretion

  reported below)

177,438

221,169

(43,731)

(20%)

Cost of equipment sold

346,847

309,182

37,665

12%

Selling, general and administrative

442,720

449,110

(6,390)

(1%)

Depreciation, amortization and accretion

210,371

169,242

41,129

24%

(Gain) loss on asset disposals, net

14,453

2,121

12,332

>100%

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

(3,140)

25,170

(28,310)

>(100%)

(Gain) loss on license sales and exchanges

(255,479)

(255,479)

N/M

Total operating expenses

933,210

1,175,994

(242,784)

(21%)

Operating loss

(30,486)

(60,788)

30,302

50%

Investment and other income (expense)

Equity in earnings of unconsolidated entities

32,152

18,780

13,372

71%

Interest and dividend income

994

821

173

21%

Gain on investment

29

10

19

>100%

Interest expense

(11,570)

(7,121)

(4,449)

(62%)

Other, net

135

327

(192)

(59%)

Total investment and other income

21,740

12,817

8,923

70%

Loss before income taxes

(8,746)

(47,971)

39,225

82%

Income tax benefit

(8,484)

(18,647)

10,163

55%

Net loss

(262)

(29,324)

29,062

99%

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

(1,854)

10,298

(12,152)

>(100%)

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

$

1,592

$

(39,622)

$

41,214

>(100%)

Basic weighted average shares outstanding

84,181

84,568

(387)

(1%)

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

$

0.02

$

(0.47)

$

0.49

>(100%)

Diluted weighted average shares outstanding

85,033

84,568

465

1%

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

$

0.02

$

(0.47)

$

0.49

>(100%)

 

United States Cellular Corporation

Consolidated Statement of Operations Highlights

Twelve Months Ended December 31,

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

      Increase (Decrease)

2013

2012

Amount

Percent

Operating revenues

Service

$

3,594,773

$

4,098,856

$

(504,083)

(12%)

Equipment sales

324,063

353,228

(29,165)

(8%)

Total operating revenues

3,918,836

4,452,084

(533,248)

(12%)

Operating expenses

System operations (excluding Depreciation, amortization and accretion

  reported below)

763,435

946,805

(183,370)

(19%)

Cost of equipment sold

999,000

935,947

63,053

7%

Selling, general and administrative

1,677,395

1,764,933

(87,538)

(5%)

Depreciation, amortization and accretion

803,781

608,633

195,148

32%

(Gain) loss on asset disposals, net

30,606

18,088

12,518

69%

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

(246,767)

21,022

(267,789)

>(100%)

(Gain) loss on license sales and exchanges

(255,479)

(255,479)

N/M

Total operating expenses

3,771,971

4,295,428

(523,457)

(12%)

Operating income

146,865

156,656

(9,791)

(6%)

Investment and other income (expense)

Equity in earnings of unconsolidated entities

131,949

90,364

41,585

46%

Interest and dividend income

3,961

3,644

317

9%

Gain (loss) on investment

18,556

(3,718)

22,274

>(100%)

Interest expense

(43,963)

(42,393)

(1,570)

(4%)

Other, net

288

500

(212)

(42%)

Total investment and other income

110,791

48,397

62,394

>100%

Income before income taxes

257,656

205,053

52,603

26%

Income tax expense

113,134

63,977

49,157

77%

Net income

144,522

141,076

3,446

2%

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

4,484

30,070

(25,586)

(85%)

Net income attributable to U.S. Cellular shareholders

$

140,038

$

111,006

$

29,032

26%

Basic weighted average shares outstanding

83,968

84,645

(677)

(1%)

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

$

1.67

$

1.31

$

0.36

27%

Diluted weighted average shares outstanding

84,730

85,230

(500)

(1%)

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

$

1.65

$

1.30

$

0.35

27%

 

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

ASSETS

December 31,

December 31,

2013

2012

Current assets

Cash and cash equivalents

$

342,065

$

378,358

Short-term investments

50,104

100,676

Accounts receivable from customers and others

586,595

445,220

Inventory

238,188

155,886

Income taxes receivable

1,612

Prepaid expenses

65,596

62,560

Net deferred income tax asset

99,105

35,419

Other current assets

19,538

16,745

1,401,191

1,196,476

Assets held for sale

16,027

216,763

Investments

Licenses

1,401,126

1,456,794

Goodwill

387,524

421,743

Investments in unconsolidated entities

265,585

144,531

Long-term investments

50,305

2,054,235

2,073,373

Property, plant and equipment

In service and under construction

7,717,512

7,478,428

Less: Accumulated depreciation

4,860,992

4,455,840

2,856,520

3,022,588

Other assets and deferred charges

117,735

78,250

Total assets

$

6,445,708

$

6,587,450

 

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited, dollars in thousands)

LIABILITIES AND EQUITY

December 31,

December 31,

2013

2012

Current liabilities

Current portion of long-term debt

$

166

$

92

Accounts payable

Affiliated

11,243

10,725

Trade

405,583

310,936

Customer deposits and deferred revenues

256,740

192,113

Accrued taxes

73,820

35,834

Accrued compensation

66,566

90,418

Other current liabilities

192,055

114,881

1,006,173

754,999

Liabilities held for sale

19,594

Deferred liabilities and credits

Net deferred income tax liability

836,297

849,818

Other deferred liabilities and credits

315,073

288,441

Long-term debt

878,032

878,858

Noncontrolling interests with redemption features

536

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

1,424,729

1,412,453

Treasury shares

(164,692)

(165,724)

Retained earnings

2,043,095

2,399,052

Total U.S. Cellular shareholders' equity

3,391,206

3,733,855

Noncontrolling interests

18,391

61,392

Total equity

3,409,597

3,795,247

Total liabilities and equity

$

6,445,708

$

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 December 31, 2013 and December 31, 2012.

December 31,

December 31,

2013

2012

Cash and cash equivalents

$

342,065

$

378,358

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

U.S. Treasury Notes

50,104

100,676

Amounts included in long-term investments (1)

U.S. Treasury Notes

50,305

Total cash and cash equivalents and investments

$

392,169

$

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.

 

United States Cellular Corporation

Consolidated Statement of Cash Flows

Twelve Months Ended December 31,

(Unaudited, dollars in thousands)

2013

2012

Cash flows from operating activities

Net income

$

144,522

$

141,076

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

Depreciation, amortization and accretion

803,781

608,633

Bad debts expense

98,864

67,372

Stock-based compensation expense

15,844

21,466

Deferred income taxes, net

(75,348)

49,244

Equity in earnings of unconsolidated entities

(131,949)

(90,364)

Distributions from unconsolidated entities

125,660

84,417

(Gain) loss on asset disposals, net

30,606

18,088

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

(246,767)

21,022

(Gain) loss on license sales and exchanges

(255,479)

(Gain) loss on investments

(18,556)

3,718

Noncash interest expense

1,059

(1,822)

Other operating activities

646

546

Changes in assets and liabilities from operations

Accounts receivable

(291,759)

(64,816)

Inventory

(82,422)

(28,786)

Accounts payable - trade

85,199

(4,977)

Accounts payable - affiliate

147

(1,458)

Customer deposits and deferred revenues

66,344

30,353

Accrued taxes

30,037

73,064

Accrued interest

273

167

Other assets and liabilities

(9,805)

(27,652)

290,897

899,291

Cash flows from investing activities

Cash used for additions to property, plant and equipment

(717,862)

(826,400)

Cash paid for acquisitions and licenses

(16,540)

(122,690)

Cash received from divestitures

811,120

49,932

Cash paid for investments

(120,000)

Cash received for investments

100,000

125,000

Other investing activities

(3,969)

(2,453)

172,749

(896,611)

Cash flows from financing activities

Repayment of long-term debt

(414)

(145)

Common shares reissued for benefit plans, net of tax payments

5,784

(2,205)

Common shares repurchased

(18,544)

(20,045)

Payment of debt issuance costs

(23)

(514)

Dividends paid

(482,270)

Distributions to noncontrolling interests

(3,766)

(22,970)

Payments to acquire additional interest in subsidiaries

(1,005)

(3,167)

Other financing activities

299

569

(499,939)

(48,477)

Net decrease in cash and cash equivalents

(36,293)

(45,797)

Cash and cash equivalents

Beginning of period

378,358

424,155

End of period

$

342,065

$

378,358

 

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2013

2012

2013

2012

Cash flows from operating activities

$

(5,336)

$

290,532

$

290,897

$

899,291

Deduct:

Cash used for additions to property, plant

  and equipment

195,682

214,969

717,862

826,400

Free cash flow (1)

$

(201,018)

$

75,563

$

(426,965)

$

72,891

(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 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, after Cash used for additions to property, plant and equipment.

 

SOURCE United States Cellular Corporation



RELATED LINKS

http://www.uscellular.com