U.S. Cellular Reports Second Quarter 2012 Results

CHICAGO, Aug. 3, 2012 /PRNewswire/ --

Note: Comparisons are year over year unless otherwise noted.

2Q 2012 Highlights

  • Smartphones as a percent of total devices sold increased to 51.9 percent from 39.6 percent; smartphone customers increased to 36.8 percent of postpaid customers from 23.1 percent.
  • Postpaid ARPU (average revenue per user) increased 5 percent to $54.42 from $51.84; total ARPU increased 6 percent to $59.05 from $55.69.
  • Service revenues increased 3 percent to $1,029.7 million.
  • Postpaid gross additions increased 9 percent and postpaid churn increased to 1.57 percent, resulting in a net loss of 48,000 postpaid customers.  Postpaid customers comprised 94 percent of retail customers.
  • Prepaid gross additions increased 77 percent, driven by the introduction in select Walmart stores of U Prepaid, a new no contract wireless service, and prepaid churn decreased to 6.2 percent, resulting in a net increase of 20,000 prepaid customers.
  • Retail gross additions increased 23 percent; net loss of 28,000 retail customers, compared to a net loss of 58,000 retail customers.
  • Cell sites in service increased 2 percent to 7,932, of which 4,512 are owned towers.
  • 4G LTE network covers 30 percent of customers; expect to reach 58 percent of customers by year end.
  • Investment in the Los Angeles Partnership contributed $19 million to equity in earnings of unconsolidated entities, up from $14 million.

As previously announced, U.S. Cellular will hold a teleconference Aug. 3, 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 $1,029.7 million for the second quarter of 2012, up 3 percent versus $1,002.0 million in the comparable period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $52.7 million and $0.62, respectively, for the second quarter of 2012, compared to $74.9 million and $0.88, respectively, in the comparable period one year ago.

"Our second quarter results were mixed," said Mary N. Dillon, U.S. Cellular president and CEO. "We achieved a strong increase in postpaid gross customer additions, evidence that we are increasing awareness and convincing wireless consumers to switch to U.S. Cellular. Postpaid churn, however, remained elevated, resulting in a net loss of postpaid subscribers. We're focused on improving our subscriber results by implementing aggressive strategies to offer high-demand devices, expand our distribution options, and further differentiate U.S. Cellular's superior customer service and benefits.  Profitability in the quarter declined, however, due to higher device subsidies on 4G LTE handsets and expenses related to data growth, expansion of the 4G LTE network and spending for our multi-year initiatives. 

"Our positive prepaid customer results reflect the success we've had selling our U Prepaid service through Walmart since mid-May. We will continue to find new ways to optimize our distribution and be where our customers want to shop.

"Revenues grew in the quarter as smartphone penetration continued to increase, contributing to strong data use and increased average revenue per user. 4G LTE devices made up 17 percent of smartphones sold, and we expect to continue to migrate customers to our expanding 4G LTE network by offering devices like the highly acclaimed Samsung Galaxy S® III.

"To continue our positive momentum related to gross additions, our newly launched marketing campaign, Hello Better, takes an aggressive approach to encouraging our competitors' customers to break free from unrewarding provider relationships. We'll be utilizing a full range of traditional, social, retail and grassroots tools to reach out to customers who are unhappy with their current providers, and show them there's a better option with U.S. Cellular."

Interest expense

The $12.8 million decrease in interest expense was due primarily to the write-off of $8.2 million in unamortized debt issuance costs in 2011 and lower interest rates on outstanding debt.

Guidance for year ending Dec. 31, 2012                             

Guidance for the year ending Dec. 31, 2012, as of Aug. 3, 2012, is unchanged from the previous guidance provided on May 4, 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 (2)

$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 of 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 Aug. 3, 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 8,600 people as of June 30, 2012. At the end of the second 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 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; 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.

 United States Cellular Corporation

 Summary Operating Data (Unaudited)

















 Quarter Ended


6/30/2012



3/31/2012



12/31/2011



9/30/2011



6/30/2011

 Total population
















Consolidated markets (1)


92,684,000



92,684,000



91,965,000



91,965,000



91,204,000


Consolidated operating markets (1)


46,966,000



46,966,000



46,888,000



46,888,000



46,888,000

 Market penetration at end of period
















Consolidated markets (2)


6.3%



6.3%



6.4%



6.5%



6.5%


Consolidated operating markets (2)


12.3%



12.4%



12.6%



12.7%



12.7%

 All customers
















Total at end of period


5,799,000



5,837,000



5,891,000



5,932,000



5,968,000


Gross additions


290,000



285,000



306,000



299,000



257,000


Net additions (losses)


(38,000)



(49,000)



(41,000)



(36,000)



(70,000)


Smartphones sold as a percent of
















      total devices sold (3)


51.9%



54.1%



52.5%



39.9%



39.6%

 Retail customers
















Total at end of period


5,542,000



5,570,000



5,608,000



5,621,000



5,644,000


Smartphone penetration (3) (4)


36.8%



34.4%



30.5%



26.2%



23.1%


Gross additions


277,000



273,000



298,000



284,000



226,000


Net retail additions (losses) (5)


(28,000)



(34,000)



(13,000)



(23,000)



(58,000)


      Net postpaid additions (losses)


(48,000)



(38,000)



(20,000)



(34,000)



(41,000)


      Net prepaid additions (losses)


20,000



4,000



7,000



11,000



(17,000)

 Service revenue components (000s)
















Retail service

$

889,219


$

888,527


$

882,091


$

871,199


$

868,630


Inbound roaming


86,363



80,132



93,353



107,810



82,760


Other


54,160



55,161



54,601



57,600



50,640

 Total service revenues (000s)

$

1,029,742


$

1,023,820


$

1,030,045


$

1,036,609


$

1,002,030

 Total ARPU (6)

$

59.05


$

58.21


$

58.13


$

58.09


$

55.69

 Billed ARPU (7)

$

50.99


$

50.52


$

49.78


$

48.82


$

48.28

 Postpaid ARPU (8)

$

54.42


$

54.00


$

53.35


$

52.41


$

51.84

 Postpaid churn rate (9)


1.6%



1.6%



1.6%



1.5%



1.4%

 Capital expenditures (000s)

$

183,200


$

201,300


$

276,400


$

248,000


$

162,100

 Cell sites in service


7,932



7,875



7,882



7,828



7,770



(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 user 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 user 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 user 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 June 30,

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
































      Increase (Decrease)






2012


2011


Amount


Percent


Operating revenues

















Service

$

1,029,742



$

1,002,030



$

27,712




3%



Equipment sales


74,658




74,152




506




1%




Total operating revenues


1,104,400




1,076,182




28,218




3%





















Operating expenses

















System operations (excluding Depreciation,


















amortization and accretion reported below)


243,227




227,801




15,426




7%



Cost of equipment sold


191,700




170,833




20,867




12%



Selling, general and administrative


435,053




423,953




11,100




3%



Depreciation, amortization and accretion


147,555




146,577




978




1%



Loss on asset disposals and exchanges, net


2,702




2,922




(220)




(8%)




Total operating expenses


1,020,237




972,086




48,151




5%





















Operating income


84,163




104,096




(19,933)




(19%)





















Investment and other income (expense)

















Equity in earnings of unconsolidated entities


25,154




22,469




2,685




12%



Interest and dividend income


845




748




97




13%



Gain (loss) on investment


(3,728)




13,373




(17,101)




>(100)%



Interest expense


(12,360)




(25,197)




12,837




51%



Other, net


(229)




175




(404)




>(100)%





Total investment and other income (expense)


9,682




11,568




(1,886)




(16%)





















Income before income taxes


93,845




115,664




(21,819)




(19%)



Income tax expense


34,597




34,732




(135)
























Net income


59,248




80,932




(21,684)




(27%)



Less: Net income attributable to noncontrolling


















interests, net of tax


(6,563)




(5,993)




(570)




(10%)


Net income attributable to U.S. Cellular shareholders

$

52,685



$

74,939



$

(22,254)




(30%)



















Basic weighted average shares outstanding


84,707




84,930




(223)





Basic earnings per share attributable to

















U.S. Cellular shareholders

$

0.62



$

0.88



$

(0.26)




(30%)





















Diluted weighted average shares outstanding


85,061




85,397




(336)





Diluted earnings per share attributable to

















U.S. Cellular shareholders

$

0.62



$

0.88



$

(0.26)




(30%)




United States Cellular Corporation

Consolidated Statement of Operations Highlights

Six Months Ended June 30,

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
































      Increase (Decrease)


2012


2011


Amount


Percent

Operating revenues

















Service

$

2,053,562



$

1,987,143



$

66,419




3%



Equipment sales


142,959




146,131




(3,172)




(2%)




Total operating revenues


2,196,521




2,133,274




63,247




3%





















Operating expenses

















System operations (excluding Depreciation,


















amortization and accretion reported below)


476,391




445,404




30,987




7%



Cost of equipment sold


378,736




367,488




11,248




3%



Selling, general and administrative


877,297




863,662




13,635




2%



Depreciation, amortization and accretion


294,240




289,917




4,323




1%



Loss on asset disposals


492




3,959




(3,467)




(88%)




Total operating expenses


2,027,156




1,970,430




56,726




3%





















Operating income


169,365




162,844




6,521




4%





















Investment and other income (expense)

















Equity in earnings of unconsolidated entities


46,768




43,360




3,408




8%



Interest and dividend income


1,888




1,597




291




18%



Gain (loss) on investment


(3,728)




13,373




(17,101)




>(100)%



Interest expense


(25,771)




(40,383)




14,612




36%



Other, net


(27)




50




(77)




>(100)%





Total investment and other income (expense)


19,130




17,997




1,133




6%





















Income before income taxes


188,495




180,841




7,654




4%



Income tax expense


60,235




59,479




756




1%





















Net income


128,260




121,362




6,898




6%



Less: Net income attributable to noncontrolling


















interests, net of tax


(13,083)




(11,262)




(1,821)




(16%)


Net income attributable to U.S. Cellular shareholders

$

115,177



$

110,100



$

5,077




5%





















Basic weighted average shares outstanding


84,638




85,206




(568)




(1%)


Basic earnings per share attributable to

















U.S. Cellular shareholders

$

1.36



$

1.29



$

0.07




5%





















Diluted weighted average shares outstanding


85,076




85,739




(663)




(1%)


Diluted earnings per share attributable to

















U.S. Cellular shareholders

$

1.35



$

1.28



$

0.07




5%



























































United States Cellular Corporation

Consolidated Balance Sheet Highlights


(Unaudited, dollars in thousands)











ASSETS














June 30,


December 31,





2012


2011


Current assets








Cash and cash equivalents

$

437,624


$

424,155



Short-term investments


100,738



127,039



Accounts receivable from customers and other


430,761



441,821



Inventory


183,139



127,056



Income taxes receivable


324



74,791



Prepaid expenses


61,194



55,980



Net deferred income tax asset


35,641



31,905



Other current assets


11,197



10,096




1,260,618



1,292,843









Assets held for sale




49,647









Investments








Licenses


1,484,202



1,470,769



Goodwill


494,737



494,737



Customer lists, net


170



314



Investments in unconsolidated entities


175,663



138,096



Notes and interest receivable – long-term


82



1,921



Long-term investments


55,468



30,057




2,210,322



2,135,894









Property, plant and equipment, net








In service and under construction


7,232,771



7,008,449



Less: accumulated depreciation


4,349,653



4,218,147




2,883,118



2,790,302









Other assets and deferred charges


71,194



59,290









Total assets

$

6,425,252


$

6,327,976






































United States Cellular Corporation

Consolidated Balance Sheet Highlights


(Unaudited, dollars in thousands)















LIABILITIES AND EQUITY





















June 30,


December 31,







2012


2011

Current liabilities









Current portion of long-term debt

$

127



$

127



Accounts payable










Affiliated


15,312




12,183




Trade


239,950




303,779



Customer deposits and deferred revenues


202,485




181,355



Accrued taxes


44,250




34,095



Accrued compensation


51,305




69,551



Other current liabilities


89,284




121,190




642,713




722,280










Liabilities held for sale





1,051










Deferred liabilities and credits









Net deferred income tax liability


840,484




799,190



Other deferred liabilities and credits


247,692




248,213










Long-term debt


880,623




880,320


















Noncontrolling interests with mandatory redemption features


1,050




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


1,399,010




1,387,341



Treasury shares


(146,057)




(152,817)



Retained earnings


2,403,312




2,297,363




Total U.S. Cellular shareholders' equity


3,744,339




3,619,961










Noncontrolling interests


68,351




55,956











Total equity


3,812,690




3,675,917










Total liabilities and equity

$

6,425,252



$

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 June 30, 2012 and December 31, 2011.














June 30,


December 31,




2012


2011











Cash and cash equivalents

$

437,624


$

424,155








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







Government-backed securities (3)

$

100,738


$

127,039








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







Government-backed securities (3)

$

55,468


$

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 June 30, 2012, maturities range between  12 and 21 months from the balance sheet date.





United States Cellular Corporation

Consolidated Statement of Cash Flows

Six Months Ended June 30,

(Unaudited, dollars in thousands)

























2012



2011

Cash flows from operating activities








Net income

$

128,260



$

121,362


Add (deduct) adjustments to reconcile net income to net









cash flows from operating activities










Depreciation, amortization and accretion


294,240




289,917




Bad debts expense


30,659




27,677




Stock-based compensation expense


11,057




10,798




Deferred income taxes, net


30,479




80,371




Equity in earnings of unconsolidated entities


(46,768)




(43,360)




Distributions from unconsolidated entities


6,743




47,143




Loss on asset disposals, net


492




3,959




(Gain) loss on investment


3,728




(13,373)




Noncash interest expense


902




9,152




Other operating activities


321




1,044


Changes in assets and liabilities from operations










Accounts receivable


(13,383)




(35,907)




Inventory


(56,039)




(48,504)




Accounts payable - trade


(20,987)




23,835




Accounts payable - affiliate


3,129




5,102




Customer deposits and deferred revenues


21,131




22,376




Accrued taxes


85,327




11,525




Accrued interest


149




111




Other assets and liabilities


(67,203)




(75,128)



412,237




438,100








Cash flows from investing activities








Cash used for additions to property, plant and equipment


(430,225)




(265,394)


Cash paid for acquisitions and licenses


(12,647)




(22,167)


Cash received for divestitures


49,786





Cash paid for investments


(45,000)




(20,000)


Cash received for investments


45,000




75,000


Other investing activities


(3,097)




2,691



(396,183)




(229,870)








Cash flows from financing activities








Repayment of long-term debt


(45)




(330,043)


Issuance of long-term debt





342,000


Common shares reissued for benefit plans, net of tax payments


(2,465)




1,264


Common shares repurchased





(62,308)


Payment of debt issuance costs





(11,229)


Distributions to noncontrolling interests


(643)




(877)


Other financing activities


568




163



(2,585)




(61,030)








Cash classified as held for sale





(5,687)








Net increase in cash and cash equivalents


13,469




141,513








Cash and cash equivalents








Beginning of period


424,155




276,915


End of period

$

437,624



$

418,428

 

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited, dollars in thousands)

















Three Months Ended June 30,


Six Months Ended June 30,





2012


2011


2012


2011
















Service revenues


$

1,029,742


$

1,002,030


$

2,053,562


$

1,987,143
















Operating income



84,163



104,096



169,365



162,844

Add:














Depreciation, amortization and accretion



147,555



146,577



294,240



289,917


Loss on impairment of intangible assets










Loss on asset disposals and exchanges



2,702



2,922



492



3,959



Adjusted OIBDA (1)


$

234,420


$

253,595


$

464,097


$

456,720


















Adjusted OIBDA margin (2)



22.8%



25.3%



22.6%



23.0%
































2012


 

 

2011


2012


2011
















Cash flows from operating activities


$

155,270


$

180,392


$

412,237


$

438,100

Deduct:














Cash used for additions to property, plant and equipment



(221,065)



(144,353)



(430,225)



(265,394)



Free cash flow (3)


$

(65,795)


$

36,039


$

(17,988)


$

172,706



(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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